Realty companies sharpen Indiabulls to sell 50% stake in Mumbai office focus on timely delivery assets to Blackstone
KEEPING TIME Delivering homes on time is no longer a matter of choice for developers amid rising awareness among homebuyers and stringent regulatory norms post RERA
BENGALURU: Rising awarenesslevels amonghomebuyers, stringent regulatory norms and a pro-customer judiciary have compelled real estate firms to focus on timely delivery of projects and being accountable to promises made. At a time when many developers are fighting disgruntled customers in courts of law, delivering homes on time is no longer a matter of choice. To deliver whatonehaspromisedis theessenceofthenewRealEstate RegulationandDevelopmentAct (RERA). What this is likely to do is, put the customer at the centre of the business and improve accountability, and also change thewaythesectoroperates—typically, home sales have always been more important than staying true to what’s promised. The capacityandintenttobehonestto buyers are the qualities that will set good developers apart from the rest of the pack, say developers and analysts. “Meeting project delivery targets is a matter of survival for developers today. There are penalties today and the regulator has the power to take over the project,” said Anuj Puri, chairman, Anarock Property Consultants. Over the past year or so, many large real estate developers in India’s largest propertymarket, theNational Capital Region (NCR) centred around Delhi, are embroiled in insolvency proceedings initiated against them following a fouryear slowdowninthesector, and court cases initiated by buyers over non-delivery of homes. Jaiprakash Associates Ltd’s (JAL) Wish Town township project in Noida, which was launched in 2007, has 24,000 homes yet to be delivered to its buyers out of a total of 32,000 units. Thecompany is currently facing insolvency proceedings and a resolution process is on. Noida- based Amrapali Group in February sought the SupremeCourt’spermissiontobringinco-developers to help build and deliver around 41,000 flats to buyers. “In the boomyears, developerspromised they could deliver a project in three years, apromisewhichcan never be met because it takes 5-6 years. Courts have stepped in, launching projects has become increasingly difficult with the RERA regime pushing firms to focus on building and selling homes to existing customers,” said Rajeev Talwar, chief executive of real estate firm DLF Ltd. Therealestatesectorwitnesseda boom during 2005-08. The global economic slowdown did put the brakesonthesector, butbusiness was back to normal by 2009, and until 2012, it witnessed robust expansion. In all of this, the key stakeholder in the business—the homebuyer— was never accordedprideofplace, leadingto a fundamental loss of faith in developers. “Thereis alot of negativesentimentamonghomebuyers todayovernotgettingpossession of homes on time. The real estate market is down with no priceappreciationandslowsales. We have had delays in our projects which is why we decided let’s complete and deliver projects that werelaunched4-5years back,” said R.K. Arora, chairman, SupertechLtd. “Delivery is also important because the final payment of the buyer comes on possession of homes and generates liquidity and we expect to generate Rs1,000 crore through it,” Arora said. In the new RERA regime, delivery is ameasurable target with no ambiguity and therefore non-compliance leads to clear-cut penalties where the developer is liable to multiple consequences, said RamWalase, managing director and CEO, VBHC Value Homes Pvt. Ltd. “Wehavebeenfocusingonaccelerating ourproject delivery. One needs to keep up the execution pace on the ground, have the financial back-up to complete projects without relying on customer payments and have all approvals in place,” Walasesaid. Delivery issues have ailed the sector duetowhichhomebuyers have nowmovedtowards readyto-buyhomes(ratherthanunderconstruction ones). While sales have been tepid, the return of buyers’ confidence is critical, say developers. “...In the last three years, we have put in even more resourcestowardsexecutionand delivery. Our delivery record establishes the credibility we have as a developer. We understand that once consumers get a homeoroffice delivered fromus, they will buy more,” Abhishek Lodha, managing director of LodhaGroupsaid. Executingand delivering projects on time is expensive. Lodha Group, for instance, hasspentRs4,200 crore onconstruction payoutsalonein 2017-18. BENGALURU: Global private equity firmBlackstoneGroupLpissetto buya50% stakeinIndiabullsReal Estate Ltd’s primeoffice assets in centralMumbaiforanenterprise valuation of around $1.3 billion, said twopeople directly awareof the transaction.
The assets include Indiabulls Finance Centre and One Indiabulls Centre. OnWednesday, Indiabulls Real Estate informed the BSEthatnegotiationsanddiscussions with the third party investor/s for finalization of transaction are on and a meeting of the shareholderswillbeconvenedon 23 Marchregardingtheproposed divestment.
Indiabulls is also in discussionstomonetiseorselloffitsresidential andcommercialprojects in Chennai. The two Mumbai assets havearound3.3millionsq. ft of leasable area. Along with One Indiabulls Park in Chennai, these three completed assets are expectedtogenerateannuityrevenueof Rs813 crore by2020-21, as per the company’s December quarter investor presentation.
If the Blackstone-Indiabulls deal goes through, it will be the first big real estate transaction of 2018. ABlackstonespokesperson declined to comment. Indiabulls didn’t respondtoanemailquery. The Mumbai-based developer has one residential township project—Indiabulls Greens—in Chennai.
Theproject is being developed in three phases, of whichthefirst phase has been delivered. “Indiabulls is lookingto sell off its residential project in Chennai for around Rs250-300 crore. Some buyers and investors have expressed interest. Chennai is a non-core property market and hence Indiabulls plans to exit,” said one of the two people mentioned above, asking not to be named. In another transaction, Indiabulls is also planning to monetisetheOneIndiabullsPark project in Chennai’s Ambattur area, which has 2 million sq. ft of leasable area.
“It is yet to bedecidedwhether it will be completely sold or will only be a stake sale,” said a second person, who spoke on condition of anonymity. Unliketheresidential sector that haswitnessed a prolonged slowdown, the commercial real estate segment has attracted the interest of investors across the globe.
Blackstone’s real estate arm has committed around $4.1 billion across 27 investments in India, makingitpossiblythelargest owner of commercial office assets in the country.
While office has been Blackstone’s corefocusareahere, it has also been steadily investing in shopping malls as well as hospitality projects. Earlier this week, Mintreported that Blackstone is set to buy an 80% stake in Nitesh Hub, a shopping mall in Pune’s Koregaon Park from real estate firm Nitesh Estates Ltd for around Rs310 crore.
Blackstone and Singapore’s sovereign wealth fund GIC Pte Ltd have been aggressively investing in commercial real estate. In 2017, in one of the largest real estate deals in the country, GIC bought a stake in DLF Ltd’s rental armforRs8,900crore
Lodha Group, for instance, has spent Rs4,200 crore on construction payouts alone in 201718
Chennai is a noncore property market