Arvind Khanna, chief operating officer of Beekman Helix India, says his company is fielding more and more calls from small developers looking for funds to finish real-estate projects or to finance land acquisitions.
“We’re seeing a lot of developers, especially smaller ones, coming to us for funding,” said Khanna. “A lot of times, we’re not in the position to fund them because they’re not creditworthy enough.” Beekman Helix India is a merchant bank specializing in the real-estate sector.
But Khanna’s caution smells like an opportunity for big builders, who are planning to cash in on what appears to be early signs of fire-sales at small builders hit by rising interest rates and an increasingly difficult loan environment after India’s central bank—trying to keep escalating property prices in check—warned against excessive lending to the real-estate sector.
In some pockets of the country, land prices—which grew by about 30% during the past year in major cities across India—have started to stabilize. Newspaper pages, while still full of ads of new real-estate developments, are also feeling the pinch as advertisers start to pull back, an early sign of a market that is losing some of its recent froth.
“We would be looking at opportunities that come our way in the next six to 12 months,” said Arvind Parakh, CEO of Omaxe Ltd, a big private builder in Delhi. “Going forward, it will be more difficult and challenging for smaller developers to raise money,” he added.
Delhi-based Ansal Properties & Infrastructure Ltd—one of the largest listed developers—said it has set aside about Rs200 crore to buy distressed developers. Ansal officials say they’ve already been approached with proposals from several small builders.
Parsvnath Developers Ltd chairman Pradeep Jain said that while he hasn’t been approached by any distressed developers yet, he is open to good offers.
“We’re not hungry to take the project on whatever terms—we’re hungry to take the project if the project is available on good terms,” he said. “What happened in the last two years, every corner paan-wallah or shopkeeper wanted to become a developer... They didn’t have any experience in real estate. They just understood that the real-estate market is hot. They entered into an agreement they were not able to execute, not able to market, and showcase the project properly. That’s why they’re in trouble,” Jain explained.
Khanna said the real-estate sector could benefit from some consolidation. “In a way it’s good for the market because it clears out fly-by-night operators,” he said. “You have more credible and bigger developers in a position to develop and deliver product in the game.”
Not everyone sees small developers running out of money. Jacob Mathew, managing director of Mape Advisory Group, a boutique investment banking firm in Bangalore, said there’s plenty of room for developers of all sizes in the market, with good projects able to find private-equity funding. If anything, “smaller developers have better land acquisition skills because they’re closer to the ground,” he added.
Ramanj Srinivas, chief executive officer of Renaissance Holdings Pvt Ltd, a small-to-medium-size developer in Bangalore, said money is available from banks and venture capital firms for good projects and small developers with credibility.
Renaissance, which has been in the business for 12 years, recently tied with Bangalore-based Sobha Developers Pvt Ltd, one of the country’s largest developers to build the Sobha Lifestyle project. Renaissance provided the 60 acres of land and Sobha is building the project.
“If you’re buying land to put up a project, there is finance available for people with a good track record,” Srinivas said. “If you’re a beginner, you might find it difficult.”
Summy Wadhawan, managing director of Housing Development & Infrastructure Ltd, said his company is into slum development and redevelopment projects and wouldn’t likely be looking to acquire land through such acquisitions.