Large developers and business groups are finding the continuing stress in the realty market an opportune time to buy up land banks for future expansion, with several prime land parcels up for sale at discounted rates and attractive terms.
As several distressed land owners and real estate firms try to get rid of large land parcels in prime areas to generate cash, a few well-funded builders have been able to crack land deals at attractive prices in the past few months. Many others are scouting for such similar distressed sales.
According to real estate consultants and developers, land prices have fallen in the last two years by up to 50% in certain key real estate markets, particularly in the Delhi-National Capital Region (NCR). In cities such as Mumbai and Pune, the decline has been 10-15%, they said.
“This is a great time for quality players to expand. Land prices have softened and high quality land parcels are available at very good prices. At the same time, we are getting land parcels which are at great locations at attractive terms," said Mohit Malhotra, managing director and chief executive officer (CEO), Godrej Properties Ltd. Last year, Godrej Properties took over six land parcels spanning across 300 acres of land in Pune from stressed local builder Solitaire Group, acquiring 50% stake in a special purpose vehicle which holds the land. Malhotra said the company has been able to sign the land deal at a discount of around 30%.
Last year, the Godrej group firm signed a record 12 land deals through a combination of outright purchases and partnerships with land owners. One of its biggest deals last year was buying the marquee R.K. Studio at Mumbai’s Chembur area. “We have taken prime properties in Bandra. We acquired RK studio. All of them are high-quality land at city-centric locations. We have signed them at attractive terms," Malhotra said, adding land prices in Mumbai have softened by 10-15% while in Gurugram, it has fallen by 40-50%.
This month, retail firm D-Mart founder Radhakishan Damani bought an 8.8-acre parcel at Mumbai’s Borivali suburb from debt-laden CCI Projects for over ₹500 crore. According to land brokers who did not want to be identified, the deal was signed at a 10-15% discount.
Godrej’s Malhotra said the company is also actively monitoring stressed assets that are under National Company Law Tribunal (NCLT) proceedings.
“The liquidity crunch in the market, and stringent Rera (Real Estate (Regulation and Development) Act) and IBC (Insolvency and Bankruptcy Code) norms have led to a softening of land prices for partially launched projects. This is a huge opportunity to ramp up development pipelines across the country," said Vrushank Mehta, chief investment officer, R Retail Venture, a joint venture (JV) between real estate firm Runwal Group and global private equity firm Warburg Pincus. The JV is one of the investment firms and developers which are bidding for V Hotel Ltd which is currently under insolvency. The biggest draw for V Hotel is the prime property and land parcel that it owns in Mumbai’s Juhu neighbourhood, Mehta added.
Last year, Bengaluru-based Prestige Group emerged as the top contender to acquire around 30 acres worth over ₹1,000 crore at Mumbai’s Mulund area from debt ridden Ariisto Developers through a bidding process under bankruptcy proceedings. Prestige offered Ariisto’s lenders an upfront payment of around ₹300 crore and area sharing of the project that will come up at the plot. Around seven prominent Mumbai-based developers including L&T Realty, Rustomjee Group, Wadhwa Group and Oberoi Realty had submitted bids for the land. Prestige Group CEO Venkat K. Narayana declined to comment on the Ariisto deal. The Mulund land transaction offers a great opportunity to enter the micro-market, he said.
Boman Irani, chairman of Rustomjee Group, which was also vying for the Ariisto land, said that the NCLT route provides a much transparent way to acquire land unlike in the past. “At least, the liabilities are known rather than unknown. Earlier, only steel, chemical and auto industries had such option. Now, real estate firms too. The NCLT route is much more definitive. The liabilities are clearly defined," he said.