Land monetisation picks up post RERA

Mumbai: Developers and land owners are rushing to monetise land parcels either through outright sale or by partnering with a larger builder to jointly develop them due to the changing regulatory environment, piling debts and prolonged slowdown in the property market.

As per data compiled by property consultant firm Cushman & Wakefield, 21 land deals have been closed till the end of September 2017 across eight cities, including Mumbai, New Delhi-National Capital Region (NCR), Bengaluru, Hyderabad and Pune. The number of land transactions signed in whole of last year in these cities was 23.

Similarly, joint development agreement deals have picked up as compared to last year. For instance, in the three key real estate markets—Hyderabad, Mumbai and Pune—five such partnerships have been signed till September-end as compared to just one last year.

“Land transactions have been triggered mainly by RERA (Real Estate (Regulation and Development) Act). Most builders have realised that holding on to large land parcels that they bought in the past do not make any financial sense anymore as land prices have remained unchanged for the past three years,” said Siddhart Goel, senior director (research services) India, Cushman & Wakefield.

The last few months have seen some big land acquisitions. Real estate firm BPTP Ltd has sold two land parcels of around 15 acres each in Dwarka Expressway to Mumbai-based Godrej Properties Ltd and Shapoorji Pallonji Group for a total of Rs500 crore. Earlier this year, a joint venture of Tata Realty and Infrastructure Ltd (TRIL) and Standard Chartered Private Equity acquired a 47.5-acre plot at the Thane-Belapur industrial area, near Mumbai, for Rs325 crore.

In September, GlaxoSmithKline Pharmaceuticals sold 60 acres of land at Thane in Mumbai suburb to Oberoi Realty for Rs555 crore, three years after the land was put on the block.

Developers and landowners are also forging alliances to jointly develop large land parcels or projects in a bid to generate faster cash flow, mitigate the risks and quicker monetisation of land parcels.

“Land prices have slightly softened post demonetisation, RERA and to a certain extent GST (goods and services tax). While we have not seen a sudden spurt, more builders are expected to come forward to monetise land and stay away from development given the changing regulatory environment. So I would expect that the number of land parcels coming into the market would increase in the coming months,” said Venkatesh GopalKrishnan, chief executive officer, Shapoorji Pallonji Real Estate.

As per BSE filings, Godrej Properties has signed three joint development agreements with local builders in Mumbai, Bengaluru and Pune in the last one month. Between April and July, Godrej Properties also signed up for land parcels—three in the National Capital Region (NCR) and one in Bengaluru. These were a mix of outright buys and joint development deals. Mumbai-based Nirmal has also announced three land deals—two separate joint development deals with L&T Realty and Godrej Properties and one outright sale to Piramal Realty.

According to Nishant Kabra, local director and head of land services (West India), JLL India, a property advisory firm, developers and landowners are now aligned with market reality and taking practical calls. “We feel the deal activity would increase further as more and more owners realise that unutilized urban lands would not see any appreciation in value in short to mid term,” he said.

Similarly, Wadhwa Group has entered into three such partnerships with other smaller developers in the last six months as compared to just one in the entire 2016, said Vrushank Mehta, head corporate strategy and land acquisition, Wadhwa Group. Stringent cash flow norms under RERA and slow sales in the past three years have forced most builders to partner with stronger developers, he said.

Anshuman Magazine, chairman, India and Southeast Asia, CBRE, another real estate advisory firm, agreed that land prices have seen a marginal dip this year. “With more transparency coming into the real estate market, going forward, we can expect the activity to pick up, especially for established developers. With the government providing sops for joint development agreements, we expect more supply of land to enter the market,” he said.