With the distress in the real estate sector showing few signs of easing and more cash being burnt by the day, developers are teaming up to try and get projects off the ground. Some do not have the financial resources, others haven’t managed to get clearances while the third lot is not sure its brands are saleable any more. A Godrej Properties spokesperson confirmed the firm had been approached by builders in trouble. “We have been approached by developers who are not able to sell their units and are looking to develop property jointly,” he said. However, the number of projects Godrej would take on to construct and sell was not immediately clear.
Amit Bhagat, CEO and MD, ASK Property Investment Advisors, confirms there are builders who are not confident their brands will be accepted. Indeed, Sanjay Dutt, CEO at Cushman & Wakefield, South-East Asia, believes it is altogether a buyer’s market and that too one in which buyers are being very selective. “Developers who don’t have a favourable track record or have taken a reputation hit are bringing in partners to market projects,” Dutt pointed out.
DB Realty, whose promoters were embroiled in an alleged scam over the allocation of 2G spectrum to telecom firms, recently signed two JDAs (joint development agreements); the first for its MIG (middle-income group) project in Mumbai’s Bandra area and the second, a tripartite agreement for a plot in Andheri. Sources said, Mumbai-based company, Rohan Lifespaces, is scouting for partners for its south Mumbai properties. Another Pune-based company, Now Realty, joined hands with Kolte Patil for a similar joint venture.
While a partnership may not immediately resolve all problems, it can rescue builders even if it means they need to share the revenues. This is critical at a time when banks are wary of lending to companies, and private equity (PE) players are becoming choosy. Indeed, until recently, a builder typically teamed up with landlords who owned parcels of land, never with another builder. But all that is changing as the pressure builds up and developers are reaching out to each other.
Despite a number of JDAs having been forged, projects languish for want of clearances. Mumbai-based company, Hubtown, bought its marquee Hindoostan Mills project, located in Prabhadevi, back in 2007, but the project could not take off for eight years. First, DLF — the project partner — exited and then it became entangled in local CRZ (coastal regulation zone) norms and ultimately, the project turned into a residential property from a hotel earlier.
Late last year, Hubtown announced it had roped in Wadhwa Developers as its new partner. The project, reportedly, has finally received the required permissions a couple of weeks back and construction can now begin. Similarly, DB Realty’s MIG project, in the works for almost five years, announced that it can now go ahead with the construction of the project in July, shortly after it inked a deal with Radius Developers.
Developers who own land are selling anywhere between 25-40% to be able to fund construction. Mudassir Zaidi, national director (residential), Knight Frank India, explained that in a city like Mumbai, land accounts for 70% of the project cost. “Those with land are selling a part of it to raise money for construction,” Zaidi said. Firms like Radius and Wadhwa that bought into centrally-located projects have found an opportunity to build in the most expensive residential locations, without having to incur major land cost, Zaidi added.
Still, as Bhagat reiterates, going by the increasing number of JDAs, even those builders that have prime land parcels are not confident of selling. In July, property research and analytics firm Propequity pegged unsold inventory in the MMR region at 2.05 lakh units and estimated this inventory will take 3 years to be sold. So far, the traction in JDAs has only been seen in Mumbai and Pune. Analysts said that it is likely to be restricted to this micro-market as there is still cloud over government policies, specifically, restrictions relating to FSI or floor space index, which determines the saleability of a project.