Even after the Union Government’s announcement that development of infrastructure will be a top priority for the government in the next fiscal, uncertainties continue to haunt investment in the sector. Now with construction major DLF’s announcement that it is unlikely to continue with the sponsorship of DLF IPL owing to the slump in real estate market, the situation appears to be critical.
DLF’s situation is not quite different from other realty companies across the country. The company is now looking to sell various assets that include Mumbai mill land and Aman Hotels. This is expected to fetch DLF an excess of Rs 7500 crore by March 2013 and will hugely help in reducing the escalating debt which currently stands at an alarming Rs 22,750 crore.
The company witnessed a 45% drop in its net profit owing to the rising interest rates, the ever rising commodity prices and slower home sales. The projections for the coming year are also gloomy.
In a statement released after the Q3 results, DLF said that the macro environment continue to remain feverish due to issues like high interest rates, commodity and labour cost inflation. It may require a few more quarters to recover fully.
Given the current situation therefore, continuing with the sponsorship of such an expensive cricketing extravaganza has become difficult for DLF.
On a positive note, the overall situation is showing signs of improvement. Cities like Mumbai are emerging as potential real estate investment hubs as the focus shifts. Ramesh Nair, managing director (West) at Jones Lang LaSalle India says, “In a scenario wherein institutional investors are showing reduced preference for commercial real estate in their portfolios, Mumbai continues to present HNI and corporate investors with myriad growth opportunities in office properties.”
The situation therefore now stands in a state of confusion rather than clarity. However, the scenario is expected to improve as announcements of the Union Budget 2012-13 start to show results.