Builders cementing deals to execute stuck projects
The scare over non-paying assets has caused banks to freeze fund disbursal to real estate projects, leaving home buyers in the lurch. The new trend of small builders selling out to big ones, may benefit the common manbusiness Updated: Apr 10, 2016 08:35 IST
In a trend that could spell relief for home-buyers stonewalled by projects stuck for want of funds, small developers are appealing to industry biggies to take over their projects.
The situation typically comes up with builders who execute small projects one at a time. In the boom period, many of them got ambitious, made big investments in land and started high-yield luxury projects. With the subsequent slowdown and scrutiny on bank lending, unable to raise sufficient funds to execute these projects, several builders have been left high and dry.
Now, however, things are moving -- though on a tangent. The owners of such projects, which have all clearances in place, have started to
Recent examples of such tie-ups include the embattled Unitech approaching Godrej properties to offload a project in Gurgaon. Similarly, Godrej Properties has signed an agreement with NCR-based builder Lotus Greens to build a housing project in Noida. In Gurgaon, builder Ramprastha too has signed a joint development agreement with Godrej Properties.
The trend is not limited to Delhi-NCR. Even cities such as Mumbai, Bengaluru and Pune are seeing such tie-ups. Pune-based ABIL Group, along with service and solutions provider group Radius, are aligning all projects of DB Realty. L and T has taken over a project of Omkar realtors in Mumbai. Essar developers’ project “Equinox” is being now handled by SNN Raj Serenity group in Bangalore.
Other big banner builders such as DLF, Tata Housing, IREO and Mahindras are contemplating similar deals, industry sources say.
Analysts say the sluggish market has led to such opportunities for larger developers, who are bailing out developers stuck with projects.
Stuck projects and delayed possessions have been giving a tough time both to developers and the end consumer. Since the real estate sector has hitherto not been under regulatory purview, there are no statistics on projects that have not been delivered to the end-buyer. Industry analysts and experts only track whether projects have found buyers, not about completion of construction.
The recently-passed Real Estate (Regulation and Development) Bill, 2015 is expected to address this loophole, which would bring relief for property buyers.
“There are way too many developers in the country, and that will change now,” said CBRE South Asia chairman Anshuman Magazine. “This is a clear sign of consolidation in the sector, where weaker developers, who can’t sell their own projects any more or don’t have the financial strength, are selling off projects or tying up with better, larger developers. Such a trend is popular abroad, but is now picking up pace in India (only now) -- which is a big positive for home buyers struggling to get early possession.”
Developers feel this opens a host of untapped opportunities. Brotin Banerjee, managing director and CEO, Tata Housing Development Company, says: “This is an apt solution for some mid- and large-sized players with over stretched balance sheets. We believe it is a win-win proposition for both the developer and the consumers. With an arrangement like this, players who already have land parcels and project approvals will gain from the execution bandwidth and brand credibility to sell in a weak market by associating with the larger and well-established developers.”
“The upside for consumers will be greater brand value for the property, guaranteed construction quality, greater transparency and higher standards of property maintenance. We are already speaking to multiple developers in Noida for a partnership and are evaluating deals in other parts of the NCR and in Bengaluru as well,” Banerjee said.
Realty giant DLF’s CEO Rajeev Talwar said: “The emergence of this trend means that projects will be fast-tracked, the uncertainty hanging over incomplete projects will go away and with a reputed developer coming on board, these projects will get additional credibility. The land owner gets funds to complete existing projects. This will also augment the availability of quality projects in the market.”
Whether this trend will help bring down property prices will depend on how many such projects are outsourced to reputed developers.
“If several such projects are fast-tracked, the supply of quality housing and assured delivery will go up and help bring down prices, benefiting the end-consumer,” said Ashutosh Limaye, head of research at property research and service company JLL India.
According to industry estimates quoted by the government, 10 lakh consumers buy houses every year with an investment of about 3.50 lakh crores in residential segment. About 3,200 to 4,000 new projects are launched every year. At present about 17,000 real estate projects are in progress in 26 major urban agglomerations in the country.