Expensive land buys put developers in a bind | india | Hindustan Times
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Expensive land buys put developers in a bind

india Updated: Nov 04, 2008 22:47 IST
Madhurima Nandy

In November last year, Vijay Associates (Wadhwa) Developers acquired a plot of land in Mumbai’s Bandra Kurla Complex for Rs 821 crore, at about Rs 5,04,000 per square metre. It was at the time touted as the most expensive land deal in Mumbai. The company is yet to start developing this land.

A slowing economy, tight credit and lower demand for houses and offices has made things difficult for real estate developers. Many bought land at high prices and are finding it difficult to develop or sell it. The problem is nation-wide, but it is most significant in Mumbai.

In 2005, Kohinoor Consolidated Transport Network Ltd bought the defunct Kohinoor Mill located on a 4.8-acre plot for Rs 421 crore. Work on the project is stuck, and the company has been unable to sell the property. The same year, India’s largest developer by market value, DLF Ltd, bought the 17.5-acre Mumbai Textile Mill for Rs 702 crore. The company has only recently finalised plans for the land.

A company official in Delhi, speaking on condition of anonymity, said DLF had decided to go in for a mixed-development project with both retail and office space on the it. The project will take two years to be completed, the official said.

Rajan Shirodkar, managing director of Matoshree Realtors, part of the joint venture that bought the Kohinoor Mill property, said when a plot of land was acquired at high price, it is difficult to get desired lease rentals or find buyers. “We will either develop and sell it outright or sell it off in its present condition. We have been speaking to various buyers.”

In some cases, builders are wrestling with formats, deciding which one will be more profitable.

In others, they are looking to sell of all or part of the land acquired to raise money because they have been hit hard by the ongoing credit crisis.

And still others, those that can afford it, are waiting and watching. “We are at the planning and designing stage of the project and we will launch when we are ready,” said Vijay Wadhwa, the man behind Vijay Associates (Wadhwa) Developers.

A real estate consultant familiar with the development said the project would be launched after a year. “Vijay (Wadhwa) can wait till he gets his desired margin,” added this person who did not want to be named.

Profitability is the first thing that is threatened at such times, said an expert.

“The sale price of the finished product is the first challenge because one needs to keep (in mind) the profit margin. When you buy land at a very high cost, then sometimes you are forced to negotiate on margins,” said Ashutosh Limaye, associate director, strategic consulting, Jones Lang LaSalle Meghraj, a property advisory.