Not banking only on brand value, says L&T Realty CEO Shrikant Joshi

Firm is 'very cautious' on partnering stressed realty players as there is very high risk

L&T Realty, the real estate arm of L&T, is banking on factors other than brand value to sell units at its residential projects, said Shrikant Joshi, chief executive officer (CEO) and managing director (MD) of the company. Joshi said earlier the company used to bank on the brand to bring in customers. 

However, now it also has to ensure that pricing, location and design are right for those who plan to buy apartments. “We have to be cautious,” he said.

Residential real estate is passing through a major consolidation after note ban, the Real Estate Regulation and Development Act 2016, and the goods and services tax (GST), consultants said. Half the real estate developers operating in 2011-12 across the top nine cities have exited their business or tied up with big builders. This is because of a multi-year demand slowdown and regulatory compliance, data analytics firm PropEquity said recently.

Joshi said the firm is “very cautious” about partnering financially-stressed real estate developers as there is very high partner risk. Last month, property consultant JLL said $66 billion worth of stalled projects are there in the country. “We may be evaluating 10-15 such projects now but the conversion ratio would be 1:25,” he said.

L&T Realty signed a joint venture with Mumbai-based property developer Nirmal to develop a plot in Mulund in 2017. Though the firm is open to joint ventures, it would not do development management contracts due to the risks in the model, he said.

He said the company is growing its business cautiously despite a couple of good residential launches. It recently sold 490 apartments out of 510 it launched in the Seawoods area of Navi Mumbai two months ago. 

The company is seeing good customer interest in the yet-to-be-launched project at Mulund in Mumbai, said Joshi. He added that the sizes of apartments are also becoming smaller and prices becoming appropriate. “Earlier a two bedroom apartment used to cost Rs 2.25 crore. Today, we are launching it at Rs 1.5 crore (in Mulund),” he said. He added, “Today, we ensure a clubhouse is ready with the first customer handover.”

Highlighting that margins have come down sharply, he said they are in high single digits. “If we get 12-13 per cent, it is a big margin,” he said. 

During the real estate boom, developers used to make 40-60 per cent margins in premium housing projects. The firm is also building office projects in Hyderbad and Bengaluru. It is looking for ways to monetise them. It sold a mall in the Seawoods area of Navi Mumbai to Blackstone and is looking to sell four malls in Hyderabad, he said.