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Developers entering a lot of land deals

No Comments Sub Category:Realty News Posted On: May 07, 2014

In the past few weeks a slew of land deals for property firms in the city have brought in a mixed bag of results. Even as the bigger, cash-rich firms are raking in the moolah, quite a few others in the face of an economic downturn are still struggling with slow sales and delayed projects.

As companies unlock their real estate assets a new trend has shown developers acquiring land by paying huge premiums, thereby, shaking sluggishness in the property market.

Lodha Developers reached an agreement, about 10 days ago, with leading Swiss firm, Clariant Chemicals, for purchase of 88 acres on Kolshet road at Thane for Rs 1,154 crore. As per the deal, the developer can go for a construction of nearly 8 million sq ft on the land.

A few weeks ago, to acquire seven acres owned by KEC International Ltd, an RPG group company, on Pokhran road, Tata Housing Development Company Ltd is learnt to have almost clinched a deal for over Rs 200 crore.

The company has already shifted its Thane factory to Vadodara. Very recently, Oberoi Realty Ltd bought from Tata Steel Ltd 25 acres in Borivali for Rs 1,155 crore.

According to Property consultants, large and small corporate companies to improve their financial condition with debt burdens have been selling assets in the recent past.

In the past two years sales of such assets is pegged at about Rs 55,000 crore, as per the report by Standard Chartered Equity Research. A case in point is Gammon India, which is looking to sell the 140-plus acres it purchased from leading car maker Pal Peugot at Dombivli.

For trimming debt selling assets is a short-term solution, said the CMD of a global property consultancy group. In the long run while capital expenditure was essential to improve corporate credit health, it is steady, robust economic growth as well as land clearance policies that would pave the way for new projects.

“For debt-burdened companies asset sales are essentially the last resort. However, developers will pursue these deals on the strength of their own cash reserves or with ample private equity (PE) to have the momentum in land transactions,” the CMD added.

On the futuristic value of the deals a property analyst sought to emphasize. “Several land parcels are industrial in nature, which are easily transformed to residential or office space,” he added.

On account of persistently weak sales liquidity is drying up, with little sign of recovery. In October-December residential property sales declined by 30% and 13% in major property markets, such as Mumbai and the National Capital Region respectively over a year, said property consultancy firm Knight Frank.

Property brokers said several builders have realised increasing sales is not as easy as it is for the cash-rich builders.

For better sales and return on interest by a minimum of 20%, they said it was, therefore, natural for them to tie up with bigger brands.

Source: Times of India

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