Corporate land deals a bright spot in sluggish realty market4 min read . Updated: 06 Oct 2015, 10:13 AM IST
Firms are looking to sell land parcels to keep the balance sheets clean, adopt an asset-light model and reduce debt
Bengaluru: Even in a slow realty market, corporate land deals are picking up pace with a dozen such deals in cities, such as Mumbai, Pune, Chennai, Hyderabad and Ahmedabad, expected to close this year.
Apart from companies in the non-real-estate space, a number of real estate developers are also looking to monetize land parcels in markets, such as the National Capital Region (NCR), creating multiple opportunities for developers with resources to buy land at reasonable valuation.
Bayer Bioscience Pvt. Ltd, a part of the Bayer Group, sold a 20-acre property in Hyderabad’s Tolichowki area to Bengaluru-based developer Salarpuria Sattva Group in early September, said two people familiar with the process. Land prices in that area are around ₹ 5-7 crore an acre.
“Hyderabad hasn’t seen many land deals in recent times; so, the deal is significant for the city. This particular land is in a pretty densely populated area of Tolichowki, and will be ideal for mid-segment housing," said one of the persons quoted above, requesting anonymity.
Bayer and Salarpuria declined comment.
In another deal that is in the works, Cabot India Ltd has put up for sale a 30-acre land parcel along Thane-Belapur Road near Mumbai, said a person familiar with the matter who didn’t want to be named. The industrial land is suitable for an information technology (IT) park. Real estate consultancy Cushman & Wakefield is the advisor.
“There are both national and foreign developers who are in the process of being shortlisted for the transaction. Land price in the area is about ₹ 8-9 crore an acre," he said.
The companies are looking to sell land parcels to keep their balance sheets clean, adopt an asset-light model, reduce debt and use land assets in a more effective way.
“Corporate land deals often take a little time because companies take longer to arrive at a decision. Valuations are reasonable now and depend on the kind of usage and the FSI (floor space index) that a land parcel permits, and the kind of institutional or private equity funding that backs such deals," said Anshuman Magazine, chairman and managing director at property consultancy CBRE South Asia Pvt. Ltd.
Slowdown in the real estate sector is forcing many developers to sell land as well. “There are several corporate land parcels in Mumbai and Pune, while in the NCR, there are developers looking to sell land at discounted rates. Land prices have not come down but have remained static in most markets except NCR," said Anita Arjundas, managing director of Mahindra Lifespace Developers Ltd.
The attractive valuations have got many developers excited.
The Mumbai-based Mahindra Lifespace is looking at land deals in Mumbai, Pune, Bengaluru and Hyderabad to build residential projects.
Other property firms scouting for land parcels include Brigade Enterprises Ltd and the Ozone Group for residential projects, and Assetz Property Group and Embassy Property Developments Pvt. Ltd for their new warehousing business.
Among the key property markets, Mumbai and Chennai have the maximum number of corporate land parcels that are up for grabs, said Anuj Puri, chairman and country head at JLL India, a property consultancy.
Earlier this year, Mumbai-based realty firm K. Raheja Corp. bought a 1.4-acre plot in the city’s upmarket Worli area from Hong Kong and Shanghai Banking Corp. Ltd (HSBC) for about ₹ 230 crore.
“Mumbai is currently seeing a slightly slower pace of land deals because of the lack of clarity on FSI norms in the city with the pending draft development plans," said Puri.
In June, Chennai witnessed one of the largest land transactions in the city this year. Brigade Properties Pvt. Ltd, a joint venture between Brigade Enterprises Ltd and GIC Pte Ltd, a sovereign wealth fund of the government of Singapore, agreed to buy a 15.8-acre plot in the Perungudi area for ₹ 550 crore from Kansai Nerolac Paints Ltd.
Property advisors Knight Frank India has quite a few mandates to sell land parcels, including a 20-acre tract in Ahmedabad owned by Inductotherm India Pvt Ltd, and others in Pune, Mumbai and Bengaluru.
“Developers who have the money today are buying land, and location and a good price play a key role in deals. Clean parcels of land are still in short supply, and there is still good demand for them," said Rajeev Bairathi, executive director (capital transactions group), Knight Frank India. He also looks after the north India market.
One of the key reasons for the spurt in land deals is the steady demand for commercial office, with firms taking up new and additional offices.
A boom in the e-commerce sector has led to a spurt in office -space leasing, as online retail firms such as Amazon.com Inc., Flipkart Ltd and Snapdeal.com have committed to large spaces, particularly in the NCR and Bengaluru, said property consultants.
In April-June quarter, e-commerce emerged as the second largest occupier of office space with a share of about 17%, followed by banking and financial services at 16%, said a July report by CBRE India.
With a share of about 36%, the information technology (IT) and IT-enabled services (ITES) sectors remained the largest occupier of office space across the seven leading cities of the country. Overall leasing rebounded in the June quarter with more than 8 million sq.ft. of office space absorbed across seven leading cities, of which close to 35% was absorbed in Bengaluru alone.