Low demand for land leading to deals at discounted rates
DECLINE Barring a few prime locations in Mumbai and Delhi, land transactions have slowed in the last few years
MUMBAI: Land deals are being struck at rates lower than or the same as five years ago, brokers, builders and real estate consultants said, as lower residential demand from end consumers and high leverage among developers ease pressure on land.
There are few takers for large plots and developers are mostly opting for joint developments with land owners.
Barring a few prime locations in Mumbai and Delhi, land transactions have slowed in the last few years and prices have stagnated or fallen country wide.
“When we are buying land, we are constantly negotiating downward. With slow pick-up in residential demand in the last three years, landowners who want to sell land are smart enough to drop (prices) by 5-10% particularly in the suburbs of Mumbai,” said Venkatesh Gopalkrishnan, chief executive officer (CEO), Shapoorji Pallonji Real Estate.
The Mumbai-based firm has been scouting for land in Mumbai, Pune and Bengaluru for affordable housing projects.
In Gurugram, where home sales have significantly dropped, land prices, too, have dropped in the range of 25-50%, he said.
The past year has seen some deals at attractive valuations.
For instance, after two failed attempts, Glaxosmithkline Pharmaceuticals Ltd sold 60 acres at Thane to Oberoi Realty Ltd for ₹ 555 crore.
Analysts believe the developer struck a plum deal with a 30-40% discount though it will have to pay various government charges for conversion of industrial land into residential.
Recent land deals in the Mumbai Metropolitan Region (MMR) include Lodha Group buying a five-acre plot for ₹ 375 crore at Jogeshwari and Kanakia’s purchase of a seven-acre land at Vikhroli for ₹ 360 crore.
Runwal group is close to buying 2.7 acres from Rashtriya Metal Industries for ₹ 180 crore.
Land brokers say all these deals are being closed at around 20% lower than the asking price or at the same rate 4-5 years ago.
“Apart from a few well-developed plots, prices have clearly not moved up across the country. Even (prices in) some of Delhi’s prime residential colonies are down by 40%,” said Rajeev Talwar, CEO, DLF Ltd.
DLF recently won a prime 12-acre land through an auction for ₹ 1,496 crore.
According to property advisers, DLF paid a premium of 30-40% than the surrounding area. Talwar says the deal is not reflective of the market and it was “opportunity-based given the scarcity of good land parcels around the area”.
“Landowners have become more realistic now and have accepted that land as an asset will not appreciate much in urban areas in the next threefour years as well,” said Nishant Kabra, local director and head of land services (West India) at JLL India.
According to Ashish Singh, managing director (real estate investments), Standard Chartered Private Equity Advisory (India) Ltd, while land prices haven’t dropped in absolute value, in an inflation-adjusted terms, prices may have fallen by as much as 50% in the last 6-7 years.
He said the involvement of PE investors at the land-buying stage unlike before have restricted developers from indulging in speculative buying of large land banks.
“This also puts a downward pressure on land prices. There is a demand side push, too, to bring prices at a rational level,” Singh added.
High government charges and premium have made it tough for developers to buy new land parcels and execute projects in cities like Mumbai.
“The increase in development potential of certain areas should effectively lead to appreciation on the land price, but on a per square ft basis, land prices have not moved up and land deals are happening at a discounted rate,” said Vrushank Mehta, head-corporate strategy and land acquisition, Wadhwa Group. NEWDELHI: DLF Ltd. will start the renovation of DLF Place, its mall in south Delhi, before the start of the festive season this year to make the shopping complex more holistic and relevant to today’s consumers, said Pushpa Bector, executive vice president and head of DLF Shopping malls.
The 10-year-old DLF Place currently houses about 120 stores.
However, after the makeover by April next year, the mall is expected to accommodate as many as 160 brands and at least 70% of the current brands will be replaced by new labels to give the complex a new look and vibe. Bector said the complex will host several food and beverage brands along with a few popular international apparel brands making their way into the Indian market.
“There will be new brands coming in, which will be much sharper with smaller store sizes. That way there will be a wider range,” she said.
L C Waikiki, a Turkish multicultural apparel and accessories brand, and Under Armour Inc., an American sportswear brand are among the many brands the mall will host after the revamp.
The retail mall space in the country is already experiencing shrinkage in supply. According to a report by real estate consultancy firm JLL India, 2017 witnessed the withdrawal of nearly five million square feet of retail space with the closing down of 28 malls in the Delhi-ncr and Mumbai regions.
The report said that further rationalisation of existing mall spaces can be expected which will help the market avoid an oversupply situation, creating the necessary balance to maintain the rental values.
Shubhranshu Pani, managing director retail services at JLL India said the DLF revamp will allow the mall to charge higher rentals. “Shopping complexes that are 9-10 years old cannot command the rents at the cur- rent market price because the look and feel is not the same as the new malls,” said Pani. “This is a good opportunity for DLF to redesign the internal space,” he added.
Ankur Bisen , senior vice president at retail consultancy Technopak India, said DLF Place came into existence when the concept of malls was just starting to pick pace in the country so the number of outlets and planning of the space is very different from what the tenants and store owners expect now.
“A lot of retail narrative has changed with technology coming in. Store sizes have gone through changes across the various categories. Also, multi- brand outlets are now moving to residential localities instead of destination malls like DLF,” said Bisen.
Bector said the cinemas in the mall will witness a transformation as well. She said Cinépolis, a Mexican chain of movie theatres, will replace the current DT cinemas which is DLF’S home brand of movie theatres. “I view it as a partnership where DLF is getting an expert on board. DLF has its own cinemas but maybe it has realised that there are bigger players that have now emerged so this partnership (with Cinépolis) is a good opportunity,” said Bisen.
According to JLL , the brick and mortar form of retail as a sector is pegged to grow to ₹1 trillion by 2020, at a CAGR of about 15%. “Despite the onslaught of new retail formats like e-commerce, tele-marketing and others, we will continue to see a steady growth in brick and mortar,” said Ramesh Nair, chief executive officer, JLL India.
AS PER A REPORT, 2017 WITNESSED THE CLOSING DOWN OF 28 MALLS IN DELHINCR AND MUMBAI REGIONS