EQM: During the last 10 years what have been the significant changes in the real estate development business?
In the real estate business, the procedure for giving permission is quite outdated. There are political and bureaucratic interventions also. This has created a scarcity of land available for development. This has resulted in a perpetual gap between demand and supply, which, over the years, has resulted in increasing land prices. In 1991, with the liberalisation, many NRIs and investors felt that this presented an investment opportunity. The real estate markets thus became artificial with most participants not being the end users. People continued to invest in property with a view of exiting at higher levels. However, when the properties came into the market, there were no takers. This was because the prices were so astronomically high, that the end users were in no position to afford them. So what happened in 1995 - 96 was that property prices crashed.
Now the market is looking different, being controlled by the end user. There are practically no investors in the real estate market as price appreciation in this sector is lower than the prevailing interest rate. Then what has happened is that in the last 2-3 years property prices have come down, incomes have gone up and housing finance has become both cheap and more easily available. This has helped change the market to a totally end user oriented one.
EQM: In which cities do you see the demand for housing coming from? In which segment is the maximum demand?
Metropolitan cities like Delhi, Bangalore, Mumbai and Chennai. This is because these are the cities that are providing jobs and attracting people from other places. Infact these cities are growing at rates that are higher than the national average.
Growth in the upper segment is likely to be minimal. In my view, the growth is likely to come in the middle segment mainly due to the lower interest rates and higher income levels.
EQM: How has Unitech fared in the environment of falling prices? Margins have come under pressure. How has the company coped with the scenario?
After the crash in the real estate prices, we have changed our design and specification for a number of projects in order to make them a value for money proposition. These projects now cater to the middle segment. Interestingly, because of these measures, sales for this year (FY00) are much higher than that of the previous year. The margins are again not high. So we have controlled our costs and to an extent we have been successful.
EQM: How do you think real estate prices will move in the coming months?
They have bottomed out. But I do not think they will increase in the same manner as witnessed earlier.
EQM: Unitech has a number of subsidiaries and affiliates. Has that led to a dilution of management focus? What are the businesses the company is focusing on?
Our annual report does reflect on the large number of subsidiaries that we have. A majority of the subsidiaries are holding companies for land holdings because of the agricultural land ceiling in Haryana. Till the land has been converted I cannot hold more than 20 acres in any single entity.
Other than the land holding subsidiaries, we are in the hospitality, ready mix concrete and transmission businesses.
EQM: Your hotel business is said to be doing well. Does the company plan on increasing its presence in the sector?
Yes. Our first venture was Radisson Hotels, in which we own a 55% stake. The venture earned a net profit of approximately Rs 90 m in FY99. This year we anticipate a profit of Rs 135 m.
We have also set up a hotel management company with Radisson International, in which Unitech will hold a 74% stake. We are providing hotel management services under this venture. Infact, we have signed up for five more properties where the services will be provided by us. We have also set up a hotel management institute that will be awarding the degree of a British University.
Apart from this, Unitech is investing (equity) in three more hotel properties.
EQM: The company has been consistently paying dividends over the years. However its share price performance has lagged the Sensex. To what do you attribute this?
I think it is the perception the shareholder holds of the real estate and construction industry. And as we know, from 1996 onwards, real estate prices have gone down.
Our aim has been to generate value for the shareholders. We have appointed Ernst & Young to advise us on a future business strategy for the group. The report is to be submitted within four months and will cover areas of business and financial restructuring.
EQM: Your view on the interest rate structure (in relation to housing finance).
The Reserve Bank's measure to reduce interest rates has been well received. Lower interest rates have enabled us to post higher sales despite the fact that the markets are yet to pick up.
EQM: Does the company tie up with a housing finance company for providing financing facilities to its customers? If yes, do you prefer an exclusive deal or have multiple partners?
We do not go in for exclusive arrangements, as different people prefer different companies. Some prefer HDFC, others Citibank because of their quick service while some others prefer HUDCO and ICICI mainly due to the lower rates offered by them. New companies are coming up every day. Moreover interest rates also vary. Currently, HUDCO and ICICI offer the best interest rates on housing loans.
EQM: Who are the 3 people that you admire the most?
N R Narayanamurthy, Ratan Tata and Atal Bihari Vajpayee.