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Business News/ Companies / News/  Builders scale down, exit projects amid cash crunch
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Builders scale down, exit projects amid cash crunch

Some developers have avoided new launches, focusing instead on finishing projects

Slow sales, heavy debt and tough real estate regulations are forcing builders to re-evaluate their business strategy. Photo: MintPremium
Slow sales, heavy debt and tough real estate regulations are forcing builders to re-evaluate their business strategy. Photo: Mint

Squeezed by impatient lenders on one side and angry customers on the other, many property developers are shrinking their businesses or planning to exit altogether. Some of them have avoided new launches for years, focusing instead on completing ongoing projects, selling land and finding partners for development.

The reasons: a crippling cash crunch and heavy debt in a market that has flatlined in the past four-to-five years, besides a tough real estate law.

Kumar Urban Development Ltd (KUL), one of the biggest land owners in Pune, has not launched a project in three years, a person in the know said, asking not to be identified. According to two others, it recently sold 300 acres at Hinjewadi and Manjari Khurd to VTP Group—another local builder—and institutional investors. The land sale is part of KUL’s strategy to repay debt.

Lalit Jain, chairman and managing director, KUL, declined to comment on the land sale, but said, “We have been trying to sell a few of our assets. We are debt-free now. We will come up with our next growth plan," Jain said, without elaborating. A VTP spokesperson declined to comment.

The fate of some of India’s largest developers such as Unitech Ltd, Amrapali Group and Jaypee Infratech remain uncertain owing to insolvency proceedings, with many promoters in police or judicial custody and stalled projects.

Many land aggregators who had turned builders when the going was good are giving up development to reduce risks. One of them is Mumbai-based Rohan Lifescapes.

“We used to develop on our own. We are now focused more on land aggregation. We will pursue a development model with other builders. We are in conversation with a number of real estate firms for partnership," chairman and managing director Haresh Mehta said. He said 80-90% developers will finally exit, given the market slowdown and because of the new real estate law.

Rohan Lifescapes has not launched any project in two years and is chalking out a new growth plan. It will no longer develop projects but stay as land aggregators, partnering other builders to develop plots.

“The frequent changes in policy and regulations is affecting everyone. Cash flow is an issue for most now. Earlier, projects used to get sold once launched. Now, until the project is 60-70% ready, no sales are happening," Mehta said.

Strategic and serious builders are here to stay, said property analysts, adding with the real estate market evolving, there would be clear demarcation between developers and landlords.

“No one wants to build land banks anymore. Traditional developers are segregating their portfolios for self-development and strategic partnerships," said Nishant Kabra, director and head—land and development services (West India), JLL India. Bengaluru-based Unishire Group, which hasn’t launched anything in three years, plans to finish projects in hand in the next 15 months and then evaluate future plans. “Right now, we want to monetise our land either by selling or through joint developments, so we can fund our ongoing projects and reduce debt," said managing director Pratik Mehta.

Developers like Nirmal Ltd and Peninsula Land Ltd are focusing on developing some land parcels on their own while partnering with other developers for larger plots.

Nirmal has created a separate unit called Nirmal Ventures to partner with bigger builders like Godrej Properties Ltd, Shapoorji Pallonji Real Estate and L&T Realty to develop their land parcels in Mumbai. Peninsula Land has sold most of its non-core assets. It has sold land in Pune and is wanting to exit investments in Hyderabad and Nagpur, a consultant said on condition of anonymity.

Peninsula land declined to comment on the matter.

“Builders are now focused on their strength. There are developers who are good in execution or construction and those, whose strength is aggregating land," said Ram Yadav, CEO, Edelweiss Real Estate Advisory Practice.

However, the problem with some land aggregators is that they have acquired land beyond their capacity to develop them and are stuck with it, he said.

Madhurima Nandy in Bengaluru contributed to this story.

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Published: 17 Oct 2018, 12:42 AM IST
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