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Builders join hands to fight real estate slowdown

mumbai Updated: Sep 27, 2016 23:54 IST
Naresh Kamath
Naresh Kamath
Hindustan Times

Development Management Agreements allow big builders to join hands with other developers with land parcels to raise funds, construct towers and sell apartments.(HT File Photo)

At a time when the realty market is grappling with a slowdown and an ever-increasing inventory of flats, builders have decided to team up to execute projects. Under a joint venture arrangement, called development management agreements (DMAs), big builders team up with smaller ones who have land parcels to raise funds, construct towers and sell apartments.

The DMA will allow builders to get 10-15% of share in revenues.

Exorbitant land prices have also led to the tie-up strategy, as buying land does not ensure viability of projects, experts said.

Many of the big companies such as Godrej Properties, Tata Housing Development Company, Ekta World, Radius Developers and Neptune Group have all joined the bandwagon with remarkable success in their ventures. Radius Developers is one of the leaders who have inked seven DMAs for projects at Hughes Road, Andheri, Goregaon, Santacruz and Chembur.

Sanjay Chhabria, managing director, Radius Developers, said it makes no sense to invest heavily in land. “Here our liability is less and we concentrate mainly in the execution of the project and sales,” said Chhabria.

Ekta World has inked a deal with Pashmina Developers for a luxury project at Powai. There, while Pashmina holds the land parcel, Ekta World will raise funds, execute the project and sell the houses. According to Ashok Mohnani, chairman and managing director, Ekta World, it is a win-win proposition for both the parties. “We use our goodwill to raise funds for landowners and help in approvals, construction and sales. Both make money in the bargain by this synergy,” said Mohnani.

Another major advantage of this DMA scheme is that it also helps many builders construct their social infrastructure such as schools, hospitals and malls speedily with the help of their partners. Many builders who own large tracts of land are also in the process of allowing other builders to take up the construction of these facilities.

Liases Foras, a research firm, said it was time for more such tie-ups.

“Innovation is the only key to tide over the current slowdown which is the worst. Builders are stressed because of the slump. The DMA is an innovative concept and we will see more of these in the coming days.,” said Pankaj Kapoor, CEO, Liases Foras.