Realtors shift to smaller projects for faster execution, exits | The Financial Express

Realtors shift to smaller projects for faster execution, exits

Bengaluru based Brigade Enterprises recently launched a couple of projects which are in the range of 0.5 million sq ft in South Bangalore not 1-2 million sq ft as stated.

Realtors shift to smaller projects for faster execution, exits
Some of the private equity investors are preferring smaller-sized projects. (IE)

Property developers are taking up residential projects of 1-2 million square feet due to the economics associated with them against large projects of 6-7 million sq ft earlier, according to consultants, developers and fund managers.

Many listed developers, including Shriram Properties, Brigade Enterprises and others, are doing smaller projects which help in faster cash flow generation for the developers, they said.

“Developers now prefer projects of 1 million sq ft or so as they are easier to enter, execute and exit,” said Mayank Saksena, managing director, land services, at Anarock Property Consultants.

He said among the new launches in the market, about 70% are in that bracket in NCR, Mumbai, Pune and Bengaluru. “From a buyer’s perspective, it makes sense as they get faster delivery,” he said.

Bengaluru based Brigade Enterprises recently launched a couple of projects which are in the range of 0.5 million sq ft in South Bangalore not 1-2 million sq ft as stated. In the next couple of months, it would be launching more such projects in phases, said Viswa Prathap Desu, chief sales officer, Brigade Enterprises.

“Smaller projects are usually within city limits while the larger projects would be on the outskirts and in the suburbs. Smaller projects are faster to complete and sell, but that would be subject to availability of suitable land parcels. We usually take up such locations and develop projects of this size based solely on the quality and location of the land parcel,” Desu said.

Also read: Delayed payment complaints by micro, small enterprises drop in 2022 from previous year: Govt data

He said customers prefer larger homes with three-bedrooms over two-bedroom ones with demand for more amenities, recreation spaces and so on. “We have taken this into consideration when designing newer developments,” he added.

Another Bengaluru-based developer, Shriram Properties, launched four projects which are between 1 million sq ft and 2.3 million sq ft in Chennai, Kolkata and Bengaluru in the last four to five years.

In the last one year, it launched Shriram WYTfield, which is a little over 1 million sq ft.

“This instability in the current market scenario and frequent changes in customers’ mindset has prompted developers to go in for smaller-sized projects that can be completed within three years. They prefer smaller projects based on the location and saleability of the project with the main objective being absorption within three years versus larger projects which could take a long period of time for completion,” said Murali M, chairman and MD of the company.

Some of the private equity investors are also preferring smaller-sized projects. For instance, ASK Property Fund prefers to invest in mid-size projects not exceeding 1-1.5 million sq ft with a completion tenure of 3-5 years which are self-liquidating, said Amit Bhagat, managing director and CEO at ASK Property Fund.

Also read: MSME, infra account for 86% of industry credit in April-Nov FY22: SBI’s Soumya Kanti Ghosh

“Because of the scarcity of large land parcels in major cities, it is common to see developments of a moderate scale (lesser than 1 million square feet). It has a lower risk profile and a faster time to completion, profitability, revenue recognition etc, making it an attractive investment prospect for builders. The emphasis shifted from large to smaller projects also as a result of Rera in the last five years,” Bhagat said.

However, he said listed and select large developers with aspirations of listing also keep exploring/launching large projects with development potential of roughly 2-4 million sq ft since they need to provide growth path and guidance for short and medium term.

Vipul Roongta, managing director and CEO of HDFC Capital Advisors, said the recent recovery in the luxury residential market has resulted in developers launching more city-centric projects with higher unit prices.

“Given the limited availability of city-centric land and higher cost, these projects are typically smaller developments of 0.5-1.5 million square feet. However, we continue to see significant interest among top developers for large residential developments, including residential townships in the peripheral areas of large cities, catering to the affordable and mid-income segments,” he said.

Roongta believes that reputed developers will continue to add larger projects to their portfolios as they seek to scale up on their presence in the mass mid- and affordable housing segments. “We will also see smaller-sized projects in city centre locations continuing as redevelopment of older buildings within cities picks up pace. However, we do not believe this will result in developers prioritising smaller residential projects over larger developments,” he added.

Gulam Zia, senior executive director at Knight Frank, said: “…many smaller and mid-sized developers prefer to announce more manageable sized developments within the range of 1 million sq ft. However, larger developers with financial stability, better access to capital and investments, continue to launch larger-sized development.”

Zia believes that despite the rise in repo rates and subsequently in home loan rates, Knight Frank expects demand to remain stable to rising.

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

First published on: 02-01-2023 at 06:00 IST