Ansal Properties & Infrastructure Ltd (APIL) is setting aside about Rs200 crore to buy small development companies that have run into financial trouble. The company said it has been approached by several such sellers, an indication that some pockets of India’s overheated real-estate market have started to cool.
India’s fourth-largest listed real-estate developer said it hasn’t sealed any deals yet. “The market is slowing down and funds from banks are not easily available,” said Anil Kumar, chief executive officer, APIL. “Some of them would like to exit.”
The acquisitions are likely to be in the same places where the company operates: Rajasthan, Punjab, Uttar Pradesh and National Capital Region. Kumar said the company might also consider other financial arrangements with distressed companies. Ansals, for example, could build a project on a company’s land, and then return a portion of it to the company, he said.
Real-estate prices in most cities have increased by 30% in the past year, fuelled by a booming economy, easier availability of home loans and a rush to buy property in anticipation of high returns. But analysts say the market, in some pockets, has begun to show signs of a slowdown as interest rates rise and higher prices of lands slow buying. The concern over sky-high land deals has prompted the country’s central bank to warn banks against excessive lending to the real-estate sector.
Kumar said small companies have more difficulties riding out problems such as delays in approvals which add to their cost of developing a property. Ansals could get a discount of up to 25% on market value for the properties it buys, depending on site approvals, the status of the project and location of the land. But the larger advantage is that Ansals would be able to buy assembled land rather than having to endure price increases as it pieces together the site.
Typically, developers who want to acquire large tracts of land have to often buy it bit- by-bit because of fragmented holdings. While they may get the first few parcels at relatively affordable prices, land-owners, who hold out for long, charge several times more, taking advantage of splintered ownership which makes it mandatory for developers to negotiate with each owner to ensure continuity of the land parcel.
Sujit Jain, a real estate analyst at PINC Research in Mumbai, said many smaller companies paid high prices in land auctions and were unable to make projects viable. Now it makes sense for large developers to sweep in and acquire the distressed companies’ land banks, he said.
“Instead of going out and buying plots at high prices, why not go and buy companies who have already built up land banks,” Jain asked. “These people (promoters of smaller firms) will look to liquidate and take out as much money as possible.”