India’s biggest property developer DLF, burdened by debt and sluggish demand, is reining in its once-aggressive pan-India plans to focus on the familiar territory of its home market in northern India.
The KP-Singh led firm will concentrate on building high-margin luxury homes in north India while new projects in other parts of the country take a back seat.
“For new launches the larger focus is on north India whereas the overall focus in the south is to complete the large projects we have already initiated,” said Mohit Gujral, vice chairman and managing director, DLF India.
The real estate major plans to break ground on about 10-12 million square feet this year, compared with 12 million square feet in the last fiscal year and half the 24 million square feet it launched in the year ended March 2008, according to brokerage Ambit Capital.
Most of its new projects will be in north India, which makes up 70% of its business.
With loans of about Rs. 21,800 crore to service at an average cost of 12.8%, DLF is left with little free cash so it is prioritising projects that will maximise profits.
That means a focus on lucrative luxury homes and away from affordable and mid-range housing that is more sensitive to rising prices of steel, cement and labour, said Gujral. “In the north we have high value projects that have a better contribution to the bottom line.”
“Unless we replenish our land banks in the south with higher yielding projects, even though we may have large volumes there, it will have a skewed contribution to the bottom line,” he added.
The company will follow through on some of its lower-end projects outside north India, such as Maiden Heights in Bangalore, where homes cost $45 a square foot. By comparison, apartments in DLF’s Magnolias project in Gurgaon cost more than $360 per square foot.
From a peak in early 2008, DLF shares are down 82%. It has projects in 28 cities.