Bangalore/New Delhi: After struggling for months to sell large parts of its land bank to repay part of its debt, Bangalore-based Sobha Developers Ltd has changed tack. The realty firm is now scouting for joint developments and looking to sell smaller plots to keep the cash flowing.
Several realty and infrastructure projects have been deferred or scrapped since late last year after funds became scarce. Consequently, most developers have stayed away from buying land or are negotiating hard for steeper discounts despite an up to 30% fall in property prices.
Over the past six months, Sobha Developers has managed to sell only small land parcels, said chief financial officer S. Baaskaran. In March, the firm, already stuck with an inventory of unsold high-end apartments, made its first attempt at selling residential plots for quick cash flow.
Cash crunch: A file photo of a plot of land marked for sale by Sobha Developers Ltd in a prime Bangalore locality. Hemant Mishra / Mint
Saddled with a debt of Rs1,850 crore, the firm has outlined plans to raise Rs200 crore through land sales and some Rs1,000 crore from qualified institutional placements, or QIPs, in which promoters of listed entities sell shares to institutional buyers such as banks without involving retail investors.
Sobha Developers has sold 64 of 94 plots in its Bangalore and Coimbatore projects, earlier meant for large projects. “There has been some movement in the land market but we still have a lot of land to be sold (including in prime areas such as a 1.5 acre property near MG Road in Bangalore),” said Baaskaran. “We have also dropped out of ongoing negotiations for new land buys.”
In a 19 January story, Mint had quoted analysts as saying that Sobha Developers had been trying to sell the plot, where it had planned a shopping mall and a hotel, for four months. But the high asking price of Rs120 crore had kept away buyers.
Unitech Ltd, the country’s second largest listed developer, too has started advertising plots on land earlier meant for projects such as schools and hospitals. In two months, it has sold four plots of up to 5 acres each in and around Delhi; it aims to sell another 17-18 plots. “We have seen good response for these plots,” a Unitech spokesman said.
Unitech, with a debt of Rs7,800 crore, has been trying to raise funds by selling some of its 500 million sq. ft (11,478 acres) of land, and is in advanced talks to sell land meant for schools in Gurgaon, the firm disclosed in a recent presentation to analysts.
Over the past three months, Unitech has sold its Marriott Courtyard hotel in Gurgaon for about Rs231 crore and an office property in Saket, Delhi, for Rs500 crore. In April, it raised $325 million (Rs1,536 crore) through a QIP to partly repay debt and fund some projects.
Land sales have just about begun, with some real estate funds and corporate houses emerging as buyers, said Ashutosh Limaye, associate director (strategic consulting), Jones Lang La Salle Meghraj, a property advisory firm.
“Negotiations have been going on but few have concluded. Many more developers have been putting up land for sale as their holding capacity is getting over,” said Limaye. “In the last 1-1.5 months, land transactions have started to happen...these are mostly very product-specific transactions.”
DLF Ltd, India’s largest listed developer, too, plans to raise around Rs5,500 crore over the next two-three years by disposing of some non-core businesses and land. The company plans to sell hotel land, it said in its latest presentation to analysts.
A DLF spokesman said the firm has not sold any land in the past month or so that it has been looking for buyers.
In a recent deal, Mumbai-based Indiabulls Real Estate Ltd sold 2-3% of its 150-acre land parcel in Sonepat, Haryana, to a group housing society. It wants to sell small plots for which it does not have any immediate use.
“If I get a good cap rate, why not sell these plots unless it has already been identified for a specific purpose?” said Gagan Banga, chief executive officer, Indiabulls Financial Services Ltd. “We have not sold anything significant apart from the Sonepat land.”
Manish Aggarwal, executive director, investment services, Cushman and Wakefield Ltd, a real estate consultancy, has another version of the story. He says developers are not selling large land parcels of, say, 100 acres and are only looking to offload plots where projects have not taken off. “These would be 3-5 acres of land earmarked for hotels, office, school or hospital projects,” he said. “Land which have approvals for specific projects command a better price or rather a lower discounting.”
Big, unlisted developers weighed down by debt are struggling to sell land too. Mumbai-based K Raheja Universal Pvt. Ltd has been able to sell only one of a number of plots it put up for sale, a senior executive said on condition of anonymity. The 1-acre plot in Santacruz, a Mumbai suburb, was sold for less than Rs60 crore last month. Meanwhile, many developers have resorted to mortgaging land and fully- or semi-constructed properties to private lenders for short-term loans at annual interest rates as steep as 30%.
Bangalore-based jewellery firm Rajesh Exports Ltd is in the process of committing nearly Rs1,000 crore in loan against land and properties pledged by builders, said chairman and managing director Rajesh Mehta. He declined to name the developers.