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Business News/ Companies / Builders join hands to mitigate project risks

Builders join hands to mitigate project risks

Large realty firms are scouting for partnerships to fast-track development and for quick monetization of land parcels

Builders are forming partnerships to raise money, share risk and develop projects faster. Photo: Priyanka Parashar/MintPremium
Builders are forming partnerships to raise money, share risk and develop projects faster. Photo: Priyanka Parashar/Mint

Mumbai: Large builders are forming partnerships to raise money, share risk and develop projects faster, before real estate regulations that will compel them to deliver homes on time take effect.

Mumbai-based Wadhwa Group is looking for partnerships with one or more developers to build some portions of its 450-acre township in Panvel, on the outskirts of Mumbai, and may dilute some ownership of the land and the project. However, the company said the strategy is to stay as a “master developer" without losing control of the land or the project. The first phase of the project is expected to launch in November. It would comprise of around 3,000 houses and is expected to be completed in the next three years.

“We are toying with the idea of tying up with other developers or form joint ventures with them to develop the project. The roles of the partners will be defined. For instance, somebody who can build social infrastructure within the township, be it schools, malls, hospitals or healthcare centres. We will own the entire development module in terms of its design, master planning and the look and feel of the development, but we want somebody who can come in, construct and also sell the project," said Vijay Wadhwa, chairman, Wadhwa Group.

Similarly, Hiranandani Communities, a real estate venture of Niranjan Hiranandani, is planning to partner those who can construct malls, hospitals and schools within its mixed use developments, according to a company official who spoke on condition of anonymity.

At present, Hiranandani is developing townships in Panvel and Chennai, apart from a 550-acre resort in Khandala and Alibaug. Given the need to speed up development, Hiranandani is open to partnering others who can help in building especially the social infrastructure, the official said. It is not clear whether the company would sell some land or tie up purely for construction and funding.

According to property consultants and analysts, developers who own large land parcels are opting for partnerships or joint ventures with other developers in a bid to liquidate some of the land, fast-track development and diversify the risk.

“Co-development or forming joint ventures works when you have large parcels and look for faster development instead of doing it yourself. Through this model, land develops faster, you get some liquidity to fund the project and the risk of development of the entire land goes down," said Neeraj Bansal, head (real estate and construction), KPMG India, a consulting firm.

Bansal said builders could earlier afford to develop at their own pace as land prices were rising and “holding gain was good enough to offset any kind of (increase in) construction cost." He said as construction activity becomes more cumbersome and tedious in terms of regulation and with margins falling for most developers, partnering with another developer makes sense if one has large land parcels.

Pankaj Kapoor, managing director, Liases Foras, a property advisory firm, agreed that selling portions of mixed use developments and letting them develop some of the non-core assets would improve efficiency of the overall project.

“Different asset classes like retail require different kinds of expertise, risk and different skill sets to deliver that. All these townships, they need it and they are very costly. Developer cannot fund it and doing it themselves is not economically viable also. One doesn’t have the capability. Your equity gets reduced, but you dilute the risk," Kapoor said.

He said depending on the requirement of funds, such partnerships could involve sale of some land, joint ventures or signing development agreements.

Shapoorji Pallonji Real Estate, which owns large tracts of land in the Mumbai-Pune region, will also look at co-developments while holding majority stake in the project, a company executive said.

“We do have some long-term plans to monetise some of our land banks. We do not want to entirely sell away, but (are) open to play the master developer role. We would still control the master development as far as possible. I will probably give the non-core portion out to another developer," Venkatesh Gopalkrishnan, president (business development) chief investment officer, Shapoorji Pallonji and Co. Pvt. Ltd, said.

Several developers have taken the same route in the recent past. Earlier this year developer IREO Management Pvt. Ltd signed a joint development agreement with US-based Hines for a 10-acre parcel within IREO City in Gurgaon’s Golf Course Extension Road.

Last year, builders Ekta World and Oxford Ltd, which jointly own around 90 acres in Pune, signed a joint development agreement with Godrej Properties and Puravankara. Godrej and Puravankara are currently developing 43-acre and 35-acre townships respectively on this land.

“We wanted to strengthen our focus in Mumbai region rather than in Pune. We wanted to develop a township in Pune and we wanted to partner with some other developer who has the expertise in developing township in other cities like Godrej which has a pan-India presence," said Vivek Mohanani, joint managing director, Ekta World Pvt. Ltd.

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Published: 21 Sep 2016, 12:06 AM IST
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