Land deals are down to a trickle with just a handful of transactions having been concluded in the past couple of years, industry experts pointed out.
Land deals are down to a trickle with just a handful of transactions having been concluded in the past couple of years, industry experts pointed out. “Funding for land acquisitions have dried up,” said Ashish Shah, chief operating officer at Mumbai-based real estate company Radius Developers. Ritesh Vohra, partner at IDFC Alternatives, said the excessive dependence on debt and absolute lack of equity capital available in the housing sector is one of the main reasons for the number of land deals falling dramatically. With data hard to come by, it is difficult to quantify the fall but property consultants are benchmarking the transactions to those that took place during the 2009-10 period when the industry was coping with the global financial crisis.
Despite weak on-ground sales at the time, companies such as Lodha Developers, Indiabulls, Wadhwa Group, Kalpataru Real Estate and Oberoi Realty negotiated and clinched multi-crore land deals in prime locations. For instance, Lodha bought DLF’s Mumbai plot for approximately R2,700 crore. Corporates such as Bayer, Borosil, Reliance Industries and Mafatlal Industries sold their non-core land parcels to developers in deal sizes ranging from R800 crore to R1,300. Indiabulls outbid its competitors and spent more than R2,000 crore in land purchases.
In comparison, the past couple of years have been quiet. Some of the deals this year include Parsvnath’s sale to Supertech for R1,200 crore, Ramprastha Group’s sale to the Vatika Group for R300 crore, M3M India’s sale of land in the national capital region (NCR) to Tata Realty for R500 crore and the Sahara Group’s R665-crore sale to M3M India. The total value of these transactions is equivalent to one DLF-Lodha deal sealed six years ago.
As Vohra pointed out, private equity funds have invested only in income-generating assets in the past two years and the housing segment has been starved of equity. In contrast, 2010 saw several qualified institutional placements and initial public offerings.
Today only debt can be raised and that cannot be used to finance land deals.
Also, land prices have not fallen meaningfully. “We have seen almost two years of stagnant prices across markets but the only market that seems to have witnessed any meaningful correction is the NCR,” said Vohra. Moreover, builders are awaiting regulatory changes, Real Estate (Regulation and Development) Act compliance and a new development plan in the making. “If pre-sales are not allowed, it means, at least a one-year holding period before one can monetise the land,” Shah explained.
Consequently, joint development agreements (JDA) and development management contracts are in vogue, simply because it allows one party the option to monetise land and the other the access to location, sales and profits. In the past year, companies like Godrej Properties, Radius Developers and Mahindra Lifespaces that started out with a JDA model have found others joining them. These include names like Lotus, Rohan Lifespaces, Prestige Estates, Bharti Realty, Omkar, ATS Builders, Tata Housing and Shahpoorji Pallonji. According to Shah, it is possible this model has replaced some of the demand for land purchases. Also, this model suits companies and the business environment better as even if there is capital available, the capability to service debt is limited as they are not able to generate cash flows, Ashwinder Raj Singh, CEO (residential services) JLL, India said