With the Real Estate Regulatory Act kicking in soon, developers are under pressure to complete projects on time or pay a penalty to buyers. Many of them in the NCR market are entering into development management agreements (DMA) with either national realty brands such as Godrej or Tatas or with local developers who have a track record of well executed and on-time delivery.
Not only are realty players from the west (such as Tata Housing and Godrej Properies Ltd) and south India (Sobha Developers) keen on gaining a foothold through such agreements in the north Indian markets, international construction firms have also evinced interest in managing the entire development process which includes conceptualising, designing and marketing projects in north India,
Going forward, the market is likely to see such development agreements being signed between brands/local players and land owners. Roles will be clearer. Those with core competency of aggregating land parcels and getting clearances will concentrate only on acquiring land. Others doing construction work are likely to focus on only project execution contracts. Those benefiting the most from such trends are going to be buyers as construction work will be speeded up, making possession delays a thing of the past.
While most branded developers who are exploring or have entered the NCR market are only open to handling greenfield (newly launched) projects, others are “cautious” but open to the risk of associating themselves with builders with late delivery records. Many would want to assess the problems faced by the NCR developers before the tie-up lest their brand name gets negatively impacted
The NCR developers are also going in for last-mile funding from private equity firms to complete their existing projects. Last week, the Logix Group received last mile funding worth `400 crore from New York-headquartered alternative asset manager Apollo Global Management, Llc to be used specifically to complete its existing projects in sectors 137, 143 and 150. “The money has been put into a holding company of Logix and will be used for last-mile funding to complete the construction of ongoing four projects where we intend delivering close to 8,500 apartments in one-and-a-half years,” says Shaktinath, CMD, Logix Group.
Outsider realty companies are going in for development management agreements (DMA) to partner with the local landowner to conceptualise, design, construct and market the project in return for a development management fees that ranges from 12% to 15%. They are also signing joint development agreements (JDA) with the local land partner on a revenue sharing basis. Both sides benefit as the NCR developers get to complete their projects on time through DMA and landowners monetise land parcels that they would not have developed for the next few years. It also helps the parties share risks in a slow moving market.
Real estate experts say that the trend is positive for the market as only serious players will now think of venturing into residential real estate. “As of now, real estate was a free for all, anybody with a land bank could become a developer. As the market matures and states get ready to adopt RERA guidelines, only the fittest builders who have executed and delivered projects on time in the past will survive,” says Anckur Srivasttava of GenReal Advisers. Those whose core competency is restricted to acquiring land and getting approvals will concentrate on that line of the business (restrict themselves to B2B rather than B2C) while others will only handle ‘contractual’ assignments.
Delineation in the market is apparent and is the after-effect of the RERA. It is also an indication that the Indian realty market is finally maturing. “We are helping large established landowners find development partners for their land parcels and that includes leading developers from both south India and west India and even international developers wanting to enter the north India market. There is interest from their end to co-develop projects to manage the entire development process that includes conceptualising, designing, marketing, construction and handover,” Srivasttava adds.