Real estate investors prefer buying plots to apartments2 min read . Updated: 18 Dec 2018, 11:13 AM IST
Plotted business is more profitable if real estate developers focus on volumes as the margins are lower compared with residentialproject
Mumbai: Ultra-rich individual investors maybe staying away from purchasing apartments, but they are buying small plots of land as a risk-free investment and the possibility of decent appreciation. In the last few months, plotted development projects costing ₹ 25-80 lakh per plot have seen robust demand even as apartments struggled to find takers.
Investors are buying plots from established developers who have recently entered this segment, prompted by the swift sales and easy exit from a sales point of view.
Godrej Properties Ltd recently launched its first plotted development project, in north Bengaluru’s Devanahalli, and sold close to 600 out of 950 plots across 100 acres of land. The unit sizes range from 1,200 sq. ft to 3,200 sq. ft, at a starting price of ₹ 43 lakh.
Close to the Bengaluru airport, Devenahalli may still be a futuristic address and most buyers were investors, with some eventually building their own homes after a few years.
“We are overwhelmed by the sales, selling close to a million sq. ft is phenomenal in this market. The clean title of the land, the location and the Godrej brand played a key role. We are looking at more plotted projects in other cities and this will be a strategic business opportunity for us," said managing director and chief executive officer (CEO) Mohit Malhotra.
Plotted developments can be completed in a year or so and lend themselves for quicker monetization of land, faster sales pace, better cash flow generation, and quicker exits from investments compared to longer periods of constructing housing projects.
Vinod Menon, CEO of Citrus Ventures Pvt. Ltd, a Bengaluru-based developer, said it’s no surprise that investors like plotted projects given most residential projects are delayed.
“The risks are less here. It’s an uncomplicated product and the upside is protected because land prices have not declined unlike residential prices. On an annualized basis, plots make around 15-20% IRR (internal rate of return). Not all plots are cheap, but still there are takers. We launched a project with 120 plots, at around ₹ 75 lakh a plot and sales were good," Menon said. Citrus Ventures is now launching a project in north Bengaluru with plots at ₹ 18-20 lakh. Malhotra said many developers have land, but not everyone is able to sell plots in the current market conditions where buyers and investors rely more on so-called branded developers. Godrej has been approached by many developers and land owners to take over land or plotted developments for quick monetization.
Unlike the National Capital Region, where investors would buy apartments in bulk, not many individual investors are doing the same for plots. Also, the plotted business is more profitable if developers enter the volume game with large land parcels as the margins are lower compared to residential projects.
Bengaluru’s Embassy Group launched its first plotted project earlier this year, as part of its upcoming township, and sold 70% of 900 plots. Reeza Sebastian, senior vice-president, residential business, said the target audience was primarily investors, with a 5-10 year investment horizon, who may eventually live there or simply enjoy the capital appreciation.
“The decision making is much faster when it comes to buying plots. There are no hidden costs and, largely, no maintenance needed. Individuals buy sometimes as pure investment, or as a gift to children in the future and plots are selling across price points," said Ravindra Pai, MD, Century Real Estate Holdings Pvt. Ltd. Century has sold plots starting at ₹ 27 lakh up to ₹ 80 lakh.