The big land rush is back in India

There are many takeaways from this. Noida had been the epicentre of a years-long realty crisis—a ghost town swarming with incomplete projects of Supertech Ltd, Jaypee Infratech Ltd, Amrapali Group, Unitech Ltd, and others. But a rebound in housing, coupled with improved infrastructure and the upcoming Noida International Airport at Jewar, is bringing homebuyers back. Sales have been good, prices are inching up and developers upbeat about future demand are actively buying land again. The acquisition by GPL and other allottees is proof that the wind is blowing favourably again. And the trend is not confined to Noida alone.

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Between January and November this year, the top eight cities witnessed 78 land deals, encompassing 1,858 acres, according to Anarock Property Consultants. This is up from 30 transactions for 1,163 acres in the same period last year.

Moreover, as the Noida allotment shows, sellers prefer pedigreed, well-funded developers over small, local players as deal closure and project viability are assured. The big players are also bolder, opting for outright land deals over joint ownership.

Take GPL, the realty arm of Mumbai-based Godrej Group. Having raised ₹3,750 crore in 2021, it has been on a buying spree. In December, it acquired an 18-acre parcel in suburban Mumbai’s Kandivali for ₹750 crore—its eighth this financial year, after significant purchases in Pune, Mumbai’s upmarket Carmichael Road and Bengaluru. Outside metros, GPL picked up land in Nagpur and Sonipat for plotted development, and one in Manor-Palghar, Maharashtra.

In 2021-22, GPL added six projects to its portfolio, three of which were 100% owned. In the current year, almost all new acquisitions are direct and fully owned. The new projects have taken the cumulative expected booking value in 2022-23 to around ₹16,500 crore, surpassing the full-year guidance of ₹15,000 crore.

“Land acquisition has picked up over the last few months and with increased liquidity, it’s no longer just a buyer’s market. The current real-estate cycle has been consumer-driven and there are ample opportunities from group housing, government auctions, greenfield and brownfield land parcels across geographies," says Gaurav Pandey, the company’s managing director and CEO designate.

More risk, quick monetization

Current acquisitions are different from the boom years, when developers held on to their land parcels. This long-term land banking, nurtured by investor demand, meant there was no rush to launch projects. Today, top developers are more bullish, confident and not risk-averse. They want land which can be launched and monetized soon.

Of the 78 big land deals listed by Anarock, most were for residential development. The rest were sliced for logistics and warehousing, data centres, retail, commercial, BPO and other development. Hyderabad topped in terms of land area transacted, followed by the National Capital Region (NCR) and Bengaluru. Anarock vice-chairman Santhosh Kumar says land prices in NCR have risen by 20-30% this year. Mumbai, Chennai and Bengaluru are also seeing transactions at marginally higher or at market rates.

During the pre-covid slowdown years, developers were keen to partner with land owners via joint development agreements (JDAs), a less capital intensive route but with thinner margins. But the revival in home sales has brought outright land deals back in favour.

Increased home sales have also reduced inventory overhang and generated more cash flows, says Nishant Kabra, senior director, India Capital Markets at JLL, a property advisory. With ready inventory getting sold, developers need to replenish by buying land and launching fresh stock. “We expect acquisition activity to continue strongly for the next few quarters," he says.

Price rise

Land prices have significantly gone up across markets, especially for clean land titles at premium locations offering good connectivity and infrastructure, says GPL’s Pandey.

In early 2022, Gurugram-based Elan Group bought a 40-acre land parcel in Sector 106, Dwarka Expressway, from Indiabulls Real Estate Ltd for ₹580 crore. It is now in talks to buy a 20-acre site for ₹540 crore.

“Land prices have increased a lot in the last 12 months. Demand is high in Gurugram and land availability is limited. So pricing is at a premium," says Ravish Kapoor, MD, Elan Group, which develops housing and retail projects.

Kumar of Anarock says land appreciation has also been good in some tier II markets, due to high demand for plotted development. “There is good price traction in Sonipat, Panipat, Gorakhpur, Indore, Nagpur, etc. An upcoming location like Jewar is seeing demand for industrial and warehousing land, but residential, too, will pick up close to the airport opening. For now, small plots are being auctioned for end-users," he adds.

Pedigree counts

On the back of demand, landowners are inclined towards reputed, deep-pocketed developers, where financial closure of the transactions is certain.

In earlier auctions by the Noida authority, only 10% was to be paid at allotment, and the rest over a few years. But now successful bidders have to pay the plot cost within 90 days of allotment, making the process out of bounds for small or mid-sized developers who can’t raise that kind of capital. As a result, the big, branded and structured Grade A developers have cornered a larger share of the residential sales pie.

Arvind SmartSpaces Ltd, the realty arm of Lalbhai Group, has formed a ₹900-crore residential platform with HDFC Capital Advisors, for acquisition of new projects in Ahmedabad, Bengaluru, Pune and Mumbai Metropolitan Region (MMR). Elan has similarly raised $110 million from investment firm PAG to fund expansion.

TVS Emerald Haven Realty Ltd, part of TVS Motor, launched its first project in Bengaluru this year after being operational in Chennai for close to a decade. It sold 80% of the inventory in two months. Now, it has bought prime land on Bengaluru’s Mission Road to build high-end residences. “We are in advanced stages for two more land acquisitions in Bengaluru," says president and CEO Sriram Iyer.

In Navi Mumbai, one of the 28 plots auctioned by City and Industrial Development Corporation in November, fetched a record bid of ₹5.54 lakh per sq metre, nearly five times the reserve base price.

Opportunity in distress

Developers have also been adept at turning stressed assets into opportunities. This month, Shriram Properties Ltd acquired a 48-acre, ₹125 crore plotted development project, in north Bengaluru from Golden Gate Properties Ltd. It is a classic case of land being sold off to recover the lender’s dues, because the developer was in distress and couldn’t launch the project.

Murali M, chairman and MD of Shriram Properties, says the deal was done at a “good price".

“There are quite a few stressed opportunities like these in the Bengaluru market," he says.

The real-estate arm of Shriram Group has signed two more stressed assets, where the lending entities want to exit to recover their dues. Realty firm County Group recently bought 28 acres in Noida for about ₹450 crore, for a luxury housing project, from Ambience Group. Indiabulls Housing Finance sold the land to recover its loan from Ambience—Indiabulls has been selling Ambience’s properties to recover dues of over ₹2,000 crore.

“Banks and lenders, who have been sitting on land and NPAs (non-performing assets) for a long time, have accepted the problem and are looking to divest them. So there is a lot of land consolidation happening, where developers who have become irrelevant or fringe players wanting to get out are either selling to better developers or doing joint development agreements," says Ashish Khandelia, founder of real estate investment and advisory firm Certus Capital.

Not an easy find

For developers like Mumbai-based Lodha Group, residential business has for long been the mainstay. But it is actively scouting for industrial real estate for an asset-light model. Lodha Group recently acquired an eight-acre parcel in suburban Mumbai’s Kurla for a fulfilment centre. It is looking to buy more land in Pune, Bengaluru and NCR for warehousing and industrial parks.

However, finding large aggregated land parcels with clean titles isn’t always easy, making deal closures for industrial developers few and far between in 2022.

Sandeep Chanda will tell you where the problem lies. As MD of US-based industrial and logistics developer Pannatoni, he has been scouting for land ever since the company announced its India entry earlier this year, outlining a $200 million investment.

“Finding large tracts of land is difficult, and involves regulatory issues. Secondly, due to high demand, there are multiple takers for a land parcel, which then becomes a pricing game," says Chanda.

Chandranath De, senior director and head (industrial operations), JLL India, will agree. De says manufacturing companies have been active land buyers this year. Chakan (Pune), Jaipur-Udaipur, Hosur, Revadi (NCR) and the Greater Noida industrial belt have witnessed several land transactions.“Typically, land worth ₹1.5 crore- ₹1.75 crore per acre fetches decent returns, but in some locations prices have risen up to ₹3 crore an acre. Noida and Greater Noida, for instance, are expensive," he says.

Regulatory issues often come in the way of land buys in Karnataka, West Bengal and Maharashtra, unlike the Ahmedabad-Dholera corridor, a new hotbed of land deals, aided amply by the new Gujarat industrial policy and a slew of incentives. In Karnataka and Maharashtra, land acquisition and change in usage of land—from agricultural to industrial/commercial—have been a challenge.

Different strategies

The upturn in demand has made developers more confident. With access to capital easy for good companies, they are also exploring new paths.

Gurugram-based M3M India has acquired a 350-acre land parcel in Panipat, Haryana, from Ambience Group and its lender, Indiabulls Housing Finance, for ₹1,500 crore—the largest land transaction in recent times. M3M will develop a mixed-use township on the land.

M3M has been aggressively buying land for residential and retail projects not just in its home market, but also Noida. It acquired 13 acres to mark its entry into Noida for ₹827 crore and a 1.3-acre plot in Gurugram for ₹200 crore, both via auction.

“We have been developing in Gurugram for the last decade. We did sales worth ₹1,500 crore in November, the highest for us. We have the cash flows and it’s time to enter new micro markets," says director Pankaj Bansal.

Mahindra Lifespace Developers Ltd is treading new territory too. It is in discussions for society redevelopment opportunities in Mumbai. “We believe a lot of land supply in Mumbai will come in through redevelopment. We closed a land deal in Pune earlier, and will do one-two more deals by March 2023," says MD and CEO Arvind Subramanian.

Bengaluru’s Puravankara Ltd has a mixed strategy of outright and JDA land deals, while also eyeing stressed opportunities. “We are evaluating outright deals in Pune, and there is a robust pipeline in the south. With more launches, developers need to replenish land and build. For us, the main concern is the speed with which we can launch the project and profitability," says CEO Abhishek Kapoor.

So will the land-buying momentum pick up or peter out? The acquisition frenzy is almost entirely built on the belief that housing demand and home sales will continue. But there’s a catch. If interest rates continue to rise, it may dent both residential sales and the land-buying spree.

Right now, sentiment is high. There is big demand for 25-75-acre parcels in a market like Greater Noida, says Gaurav Kumar, MD, capital markets and residential business, CBRE India, a real-estate consultancy. While supply was never an issue, there weren’t many buyers earlier, says Kumar, adding, “Deal making is expected to pick up further in the next four-five months."

Hopefully, he will have the last word.

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