Unitech Shifts Focus on Mumbai

Unitech Ltd, the second-largest real estate developer in the country, along with its joint venture partners in Mumbai, is looking to develop 4-5 million square feet (msf) of properties in the city from the next fiscal, according to a source familiar with the development. The developer, once heavily relying on luxury projects in the National Capital Region, has shifted focus on developing Mumbai’s slum rehabilitation projects to push up its operating margins.

The company is expecting about 20-25% of its total sales to come from Mumbai by the fiscal 2012. Unitech spokesperson declined to comment on the developments. The New Delhi-based developer has already invested Rs 850 crore in two joint ventures, Shivalik Ventures and Unitech-Omkar, and would further invest Rs 150-200 crore as the development progresses. Going forward, the JVs are expected to be self funded.

Unitech has obtained Letters of Intent (LoI) for 8 msf in Mumbai, up from the last year’s 5 msf. Its slum rehabilitation project in the city covers more than 60,000 families. Construction is currently on for nine projects and Unitech is looking to sell at least 6 msf next fiscal. It would pump in Rs 1,000 crore towards construction costs during the period. In a bid to get a large quantum of cash upfront for construction activities, the developer is looking to pre-launch project at hefty discounts to attract demand and save up on higher borrowing costs.

Recently, Unitech pre-launched and sold around 2 million sq ft from one of its projects in Worli at a massive 36% discount on the prevailing market rates. Unitech’s local partners in Mumbai will help it in acquiring, clearing and rehabilitating slums, while Unitech will aid the financing, project management and marketing part of the business. Unitech’s current land bank in Mumbai is over 320 acres with overall development potential of 35-40 msf. It is expecting to maintain margins in the housing segment at a healthy range of 40-45%. The company is expecting gross margins of 67% from the Worli project compared with 51% and 57% from Noida and Gurgaon, respectively.