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Cash crunch forces realty firms to shelve diversification plans

Cash crunch forces realty firms to shelve diversification plans
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First Published: Mon, Mar 16 2009. 09 24 PM IST

 Deferred plans: Many developers, who wanted to build shopping malls, now find their projects unviable. Harikrishna Katragadda / Mint
Deferred plans: Many developers, who wanted to build shopping malls, now find their projects unviable. Harikrishna Katragadda / Mint
Mumbai: On the back of international partners pulling back and local developers facing a cash crunch, realty companies are rolling back ventures into new business segments.
When Denver, US-based warehousing firm ProLogis partnered K Raheja Corp. in a 50:50 joint venture early last year, it marked the entry of the Indian firm into logistics infrastructure development and ProLogis’ maiden venture in India that planned to invest Rs2,300 crore in the first three years.
Deferred plans: Many developers, who wanted to build shopping malls, now find their projects unviable. Harikrishna Katragadda / Mint
But by November, ProLogis shares had fallen by 90% and it halted expansion in newer markets, including India. K Raheja Corp. also decided to indefinitely postpone its warehousing plans.
“Though the joint venture with ProLogis is still not terminated, we have stalled our warehousing business plan. Not only India, ProLogis has also withdrawn from China and Japan, and is going very slow in Asia,” said an official of K Raheja Corp., in charge of the warehousing business. “After a few months, our JV (joint venture) and its future potential will be reviewed and a final decision will be taken.” The official did not want to be named as he is not authorized to speak to the media.
As developers have been switching project formats to suit changed market conditions, many have shelved new businesses, such as warehousing, education and even retail, in the past few months.
“In the last couple of years, many developers diversified into unknown territories, entering businesses that they didn’t know much about. Situations like these (the economic slowdown and liquidity crunch) have forced them to focus back on their core businesses and strengths,” said Vinod Rohira, director, K Raheja Corp.
The unprecedented rise of organized retail in India also propelled demand for warehousing in the country and many developers saw an opportunity in this.
Bangalore-based Nitesh Estates had announced last year a Rs2,000 crore plan to enter the warehousing and logistics business, also aiming to tie up with an unidentified international player. The company is reconsidering its plan now.
“We are not doing anything on the warehousing front right now,” said R.S. Mani, chief executive officer of Nitesh Estates. “We want to concentrate on our ongoing projects and want to execute them as our priority.” Nitesh Estates is developing the Ritz Carlton hotel in Bangalore.
Another developer, Akruti City Ltd, a Mumbai-based real estate firm, said it is not going ahead with its warehousing plans any more.
Akruti City chairman Hemant Shah said all such plans have been put on hold. It had earlier planned an initial investment of Rs250 crore and was looking at Rajasthan, Gujarat and Madhya Pradesh to build big wholesale markets. Akruti had planned to enter the education segment as well, which is now on hold.
Riding high on the retail boom, many developers also wanted to build malls, but are now halting such projects. For instance, Mumbai-based Dynamix Balwas Group has shelved all its retail plans, including a shopping mall project, because it thinks it’s not viable any more.
“A lot of developers during the boom years acquired large tracts of land across the country to do new projects,” said Ramesh Nair, managing director, Chennai and Hyderabad, warehousing and logistics practice, at property advisory Jones Lang LaSalle Meghraj. “Like warehousing, some wanted to do huge townships but these plans have slowed down in a downturn situation.”
Nair said that though there is substantial demand for warehousing in India, amounting to 22-25 million sq. ft, developers are staying away from it for now because of changed market conditions.
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First Published: Mon, Mar 16 2009. 09 24 PM IST