Mumbai: Corporate real estate developers, some of them new entrants, are chalking out expansion plans to take advantage of a changing regulatory environment amid rising distressed assets in the realty market.
Stringent rules under the new Real Estate (Regulation & Development) Act, or RERA, are forcing unbranded and debt-ridden realtors to forge alliances with large, deep-pocketed corporate developers.
This has opened up a potentially lucrative business opportunity for corporate entities as well as new and emerging companies for growth and expansion, real estate consultants say.
RERA bans diversion of money from one project to another and doesn’t allow presales, which have been a source of funds to pay for the cost of land and part of the construction. These two provisions, plus an increasing compliance burden, have made it tough for many local developers and landowners to stay in business. Cash-rich corporate developers that already operate in other heavily-regulated sectors are already familiar with such rules, allowing them to take advantage of the situation.
Large corporate entities like Max India Pvt. Ltd and Aditya Birla Group firm Birla Estates are making plans to expand their real estate portfolios, leveraging the popularity of their brands. Partnership deals and joint development proposals are pouring in for developers like L&T Realty Ltd, Godrej Properties Ltd and Tata Housing Development Company Ltd.
“Large corporate houses clearly see an opportunity in the stressed realty market. They are out to acquire land and explore development opportunities,” said Gautam Saraf, managing director (Mumbai), Cushman & Wakefield, a property consultant.
He said the current flavour of the market are joint ventures, joint developments and development contracts that realtors with credible track records and a strong brand name can leverage.
A year after its entry into the real estate market, Analjit Singh’s Max Venture and Industries Ltd’s new property development arm Max Estates is scouting for opportunities, both in the residential and commercial space.
While it is currently building around 1.35 million sq. ft of commercial office space in the National Capital Region (NCR) centred on Delhi and small boutique residences in Dehradun, it is planning to enter “regular residential development”, said Sahil Vachani, managing director of Max Venture.
The company is in discussion with several landowners and developers to enter the residential market in NCR. He refused to provide details, but said the company’s aspiration is to become a “preferred real estate developer in the region”.
“We are definitely looking at growth opportunity. Given that the working capital structure and nature of doing business is changing post-RERA, we would like to focus on joint development agreement rather than buying land,” he said. The company has been developing both under-construction projects over land owned by it.
Similarly, the Aditya Birla Group, which entered commercial real estate development two years ago by forming Birla Estates, is looking for partnership opportunities in residential development both in Mumbai and outside, according to three people aware of the development.
It is close to signing a development management deal with a local developer in Gurugram, said one of the three people, who is involved in the development.
Birla Estates hadn’t responded to email queries seeking confirmation of the development as of press time.
Larsen & Toubro Ltd’s real estate unit L&T Realty has reached a few joint development deals in the recent past. Shrikant Joshi, chief executive officer and managing director of L&T Realty, said the deal pipeline has increased 4-5 times in the last six months. The company is also looking to enter the redevelopment space for the first time, he said.
“… With RERA coming in, land owners and developers are rethinking their real estate strategies. So, people who have land parcels are looking for a credible partner on the other side,” he said.
With an increase in non-performing assets (NPAs), banks are scouting for “governance-oriented companies” to monetize those assets, opening up opportunities for corporate developers to expand their real estate business, Joshi said.
Hero Group’s Hero Realty Ltd plans to enter the NCR market this year after launching residential projects in Punjab and Uttarakhand in the last few years. While it has so far built its own projects, the company is exploring opportunities for joint developments and partnerships, given the rising number of proposals from local developers and land owners, said Routhu Nagaraju, chief executive officer of Hero Realty Ltd.
Tata Housing’s new project launches may increase to seven or eight this year, compared to just three last year. The company is also shifting its strategy to sign more joint ventures and joint development deals—a move away from its earlier strategy of lending its brand to a project without putting in any equity.
“More proposals are coming in for partnerships, and secondly, valuations are becoming more reasonable. Earlier, we used to hunt to get a good land parcel… today we have at least five-six proposals every month,” said Rajeeb Dash, head (marketing), Tata Housing.livemint