Strategy adopted by Godrej, Unitech and other builders to beat the slowdown in realty

In a bid to cope with stress in residential real estate, Unitech is understood to have teamed up with Godrej Properties, which would help it complete a project in the national capital region. In another alliance, Pune-based developer, Lotus Group has inked two deals with Godrej Properties and Tata Housing. Rohan Lifespaces, meanwhile, has joined hands with Mumbai-based Radius Developers for a project on Hughes Road, Mumbai.

While partnerships between developers were being forged even a year back the increasing cash burn is changing the nature of the alliances. Earlier, joint development agreements (JDA) were typically signed between builders and land-owners — essentially those players that had bought prime plots but hadn’t monetised them yet.

Now, the deals are being struck between builders themselves. While one lot has been stuck with land bought peak prices, another bunch has been unable to access construction finance. A few have been unable to pull in buyers owing to a poor reputation.

Typically, JDA contracts were profit sharing arrangements with the land owners giving up a 30%-40% share on average. In comparison, development management contracts offer a fraction of these returns. Ashish Shah, COO at Radius Developers confirmed the new breed of JDAs have a revenue sharing pact with the builder who is completing the project making anywhere between 15% and 17% of revenues. If this seems low, it’s because the partner responsible for completing construction and sales is investing barely 2%-3% of the marketing costs.

But it’s nevertheless a win-win because builders are able to construct in plush localities without having to pay unaffordable land costs.

According to Amit Bhagat, CEO and managing director at ASK Property Investment Advisors, even builders with prime plots of land are roping in partners since they are unsure they can sell the luxury apartments on their own.

Ashwinder Raj Singh, CEO (Residential Services) JLL, points out that companies are not able to generate cash flows. “NBFCs and PE players may be big lenders but few have the capacity to service high cost debt,” Singh said.

Which is why financially troubled builders are are approaching better brands. Some firms are coughing up an upfront adjustable deposit to get projects going, Shah added. Reputed players such as Godrej, Mahindra and Tata are emerging as the main beneficiaries of the JDA model given their credibility with financiers. Last year, DB Realty signed two JDAs. Pune-based company, Now Realty also joined hands with Kolte Patil for a similar joint venture.

Hubtown roped in Wadhwa Developers as its partner for its Hindoostan Mills project.

Credits Financial Express

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