Informist, Wednesday, Aug 4, 2021
By Janaki Krishnan
MUMBAI – Top real estate developers, lured by the prospects of assured cash flows and sales visibility that can boost both their toplines and profits, are aggressively pursuing joint ventures with developers whose projects have become stuck due to the lack of liquidity, labour and timely approvals.
Called the asset-light model, joint development projects have become all the rage this season. This can mean taking over under-construction projects, stepping in to redevelop housing societies, as well as carrying out developments on land where construction is yet to begin. Bulk of real estate players are struggling with liquidity problems that started with demonetisation in 2016, then the housing finance crisis in 2018, and finally the COVID-19 pandemic which robbed them of time and a workforce.
A report by a property consultant has estimated that over 600,000 under-construction units valued at about 5 trln rupees are stuck at various stages of development all across the country. While many developers' own cash flows have dried up, they are also not able to get funding assistance from risk-averse banks and financial institutions.
Macrotech Developers Ltd, which sells under the 'Lodha' brand name, is relying on such projects to shore up its revenues as well keep its residential sales ticking. "A large number of Tier 2 developers have found it difficult to complete their projects," said Managing Director and Chief Executive Officer Abhishek Lodha recently. "A large number of builders and developers are approaching us to get their projects completed. We are seeing a strong pipeline of joint development projects coming to us."
In the last three-to-four months the company has tied up four such projects and intends to carry out 8-10 transactions yearly that would add around 8-10 bln rupees to its annual revenues.
Oberoi Realty has formed a separate team to deal with such projects, and is also looking at those that will yield cash flows of over 5-7 bln rupees. In May, the company stepped in to redevelop the Shivshahi Cooperative Housing Society in Worli after the existing developer was unable to complete the project. This project is worth about 30 bln rupees.
Oberoi Realty head Vikas Oberoi said that there were several such redevelopment projects in the offing which it could take up profitably. While such projects could take time to complete, they will eventually add to the company's income statement.
There are several advantages of the asset light and capital light model. One, many of these projects are under construction and developers would have already booked sales and collected advances from prospective buyers. This means ready-made cash flows for new entrants to the projects. Two, there is no capital expense on land to be incurred. Three, preliminary approvals for the projects would already have been obtained.
City-based developer Godrej Properties, the largest realtor by sales area, is also looking to snap up land from developers who are yet to start construction. Executive Chairman Pirojsha Godrej hesitated to call them "distressed" asset purchases, but said that land was now available at attractive valuations and it was a good time to start investing capital. The company has headroom to invest about US$1 bln and wants to deploy it in profitable investments. Godrej expects land prices to firm up in a couple of years from now.
Sunteck Realty’s Kamal Khetan, a staunch advocate of the asset-light formula of development, said he wants inventory to "fly". While he is focused on reducing his ready inventory worth 17 bln rupees, he is also aggressively forging joint ventures with other developers.
Bengaluru-based Prestige Estates had also indicated in June that the company was not averse to ‘consolidation’ overtures from weaker players who needed help to complete their projects. "Those who are weaker are trying to find people with whom they can collaborate and work." End
US$1 = 74.18 rupees
Edited by Snigdha Kuttikat
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