Mumbai/New Delhi: The recession is beginning to cut players in the real estate industry both ways. On a day when Business Park Town Planners Ltd (BPTP) confirmed that it was indeed surrendering a 95-acre plot it had acquired from the New Okhla Industrial Development Authority or Noida, the state-run National Textile Corp. Ltd (NTC) revealed that it is finding it difficult to sell 10.8 acres of prime real estate in strapped-for-land Mumbai.
Both events mirror happenings in the real estate market where prices and demand have both fallen, and developers are labouring under the burden of debt taken on during the industry’s boom years between 2004 and 2007 to buy land. The Bombay Stock Exchange’s Realty index has fallen 86% since February 2008.
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NTC sold 48 acres across five mills three years ago to raise Rs2,022 crore, almost three times its initial estimate. In November 2008, however, when it called for bids for land that is part of the Finlay Mill, the highest bid it received was Rs405 crore, against an expected price of Rs1,066 crore.
NTC has now set out to find a buyer for this land at a reserve price that is around 30% lower.
“This time around, we have taken into account the fall in prices of real estate and adjusted our expectations accordingly,” said K. Ramachandran Pillai, chairman and managing director, NTC.
That may still not be enough because few developers have money in a market where access to credit has become increasingly difficult.
BPTP, which is facing a liquidity crunch, has told the development agency that it wants to surrender the land and take land elsewhere against the payment already made by it, after paying a penalty of 10% (of the amount paid thus far). “Following the Uttar Pradesh government’s policy announcement, BPTP has made an application to the Noida Authority for surrendering the plot and we are awaiting its decision,” Sudhanshu Tripathi, director, BPTP, said in an emailed statement.
“We will put the proposal before the board in our upcoming meeting and a decision will be taken as per the policy,” said Lalit Srivastava, chairman, Noida.
BPTP’s Noida deal is believed by analysts to be India’s biggest and most expensive land transaction. In March last year, the company won a hard-fought battle against bigger rivals such as Omaxe Ltd and DLF Ltd for the 95-acre piece of land by agreeing to pay around Rs5,000 crore. BPTP has thus far paid around Rs1,300 crore. It had agreed to pay the balance over eight years in six-monthly instalments. BPTP planned to build five office towers and a luxury hotel in the first phase of its efforts to develop the land.
The company’s decision to surrender the land was made possible by a recent decision by the Uttar Pradesh government to allow such reverse transactions. The government also decided to reschedule payments from developers for land already acquired from it.
Developers such as Unitech Ltd and Puravankara Ltd have also gone in for similar schemes in Orissa and Hyderabad, respectively. Both firms have asked for land proportionate with the payments they have already made to the respective governments because they cannot pay the entire amount originally committed.
NTC has said it would use the money from land sales to help turn its operations around. In 2007-08, it made operating losses of Rs100 crore. With most firms that had bought land from it in 2005, such as DLF, giving its November tender a miss, the company has hired real estate advisory Jones Lang LaSalle Meghraj (JLLM) to hardsell the land.
“We will make sure the visibility of the tender is high and expand the net by including hoteliers, end users, private equity funds and corporates, besides real estate players,” said Anuj Puri, chairman and country head, JLLM.
Pillai said his company has around 73 acres more of land it hopes to put on the market after obtaining requisite approvals.
Ruchi Hajela and Kapil Datta contributed to this story.
Shabana Hussain is with Mint.
Graphics by Ahmed Raza Khan / Mint