New Delhi: India’s biggest land deal, a Rs4,000 crore for a parcel of land in Mumbai last week, is not going to be the trendsetter for the realty industry still groggy after the 2009 slump, builders and analysts say.
“The deal is fairly valued and we have sufficient cashflows to make initial payments,” said managing director Abhisheck Lodha of the Mumbai-based Lodha Group, which has five years to settle the payment and has plans for an IPO.
But in a country where developers are still reeling under the excesses of property boom of 2004-07, there is no hurry to emulate Lodha as demand for residential properties shrinks in Mumbai after prices touched an all-time high.
“It’s madness again,” said Pranay Vakil, chairman of India unit of international property consultancy, Knight Frank, referring to Lodha’s record purchase.
“This definitely means property firms are turning optimistic, as similar land auctions last year fetched no bidder.”
Vakil said aggressive bids are not good for companies as high prices have hit sales volumes in land-scarce Mumbai.
Volumes have dropped by about ten percent since November but this may not impact prices, Abhisheck Lodha said.
Home prices have reached a new peak in most of Mumbai’s suburbs, while they are close to their previous peaks in the plush south Mumbai localities, Kunal Lakhan, an analyst with Mumbai brokerage K R Choksey, said.
The record deal is not triggering a rash of land buying by developers like in 2007.
India’s top-listed developer DLF said it wasn’t looking at buying land, unless there was some ‘boutique’ property.
“We are not buying land, but focusing just on execution (of existing projects),” group executive director Rajeev Talwar said.
“People have learnt their lessons. They can’t get irrational now,” said R Nagaraju, vice-president, corporate planning, of Unitech, India’s second-largest listed developer.
In the realty boom that accompanied India’s massive economic growth between 2004 and 2007, property firms aggressively competed with each other to amass land.
“Developers took a very optimistic view and even borrowed money to buy land that couldn’t be used for years. This ultimately put them in a difficult situation,” said Lakhan.
Before the Mumbai deal, in March 2008, just before the property slump, New Delhi-based BPTP won the bid for a 95-acre plot for Rs5,000 crore in the capital’s suburb, Noida. It fell through as buyer couldn’t raise funds after global crisis dried up liquidity and demand for homes in India.
Property firms are still saddled with huge debt and raising funds through private equity or IPO is not easy.
“It would be very challenging for real estate firms to raise funds through an IPO in current environment,” said Ambar Maheshwari, head of investment advisory at property consultancy DTZ India. Lodha’s own IPO plans are on hold till the market stabilises.