To tide over churn, realty firms eye partnership deals
BENGALURU: Difficult times call for desperate measures and the real estate sector is noexception. The ongoing crisis, coupled with stringent measures in the new regulatory regime, have made property development challenging.
But in the middle of difficulty lies an opportunity.
The emergence of various business models have created opportunities for developers doing well, and solutions for those in distress.
Moving on from the standard land-buying-for-project-development route, or area-sharing arrangementbetweenlandowners and developers, realty firms are taking strategic calls on how to monetize land assets, in the least capital intensive way.
Given the liquidity crunch, at the core of these new development models, is an asset-light strategy.
Therearemanyvariants: Master development, joint developmentagreements(JDA), developmentmanagement(DM) andrevenue-sharing models, among others.
Asmanyfirmsareincapableof developingprojects ontheirown, they are pursuing more established developers with decent cashflows, and collaborating with them on a specific model to monetise a land parcel.
Godrej Properties Ltd, which has a large project portfolio, has adopted a flexible strategy to respond to suchopportunities in the market.
Managing director and CEO Mohit Malhotra says the company’s first preference is to do a JDAbasedonprofit-sharingwith the landowner or developer. It also selectively does DMs, where thelandholderiswell-capitalised and wants an established developer to construct, sell and lend it brand equity.
“Weconsidertherequirement of the land owner and the land, and then configure the development model as per the need. RERA has been a trigger and there are more developers today who approach us for partnerships, but wehavetobecareful.”
Collaboration amongdevelopers is the only way to survive in the current scenario, as the sector inchestowardsconsolidation, pushingrealtyfirmsindistressto sell land or projects they can’t develop to others.
Srinivasan Gopalan, CEO, Bengaluru-based Ozone Group, says these modelshavestemmed from a classification between developerswhocansellandraise money, andthosewhoownland, but can’t sell under their brand.
OzonehassignedmultipleDM deals with developers to develop the land under its own brand. “I am open to both JDAs and DMs andanyroutewhichisn’t capital intensive. Ozone’s strength is in construction and sales, and we earnafeeevenifthereisnomajor upside. We are not buying land for projects right now.”
Ram Yadav, CEO, Edelweiss Real Estate Advisory Practice, says the sector hasmovedfroma landbankingmodeltoa‘cashand carry’ model.
Till 2008, every developer was buying land to create a bank and apotential developmentpipeline. Mumbai-basedLodhaGroupwas perhaps an exception because evenwhenitboughtlandatapremium, it wouldlaunchitimmediately, hesaid. “Thedevelopment business is changingrapidly and developers want to dilute the equity locked in land.”
In the last few years, land acquisition hasslowedfollowing lowresidential demandandhigh leverage among developers.
As a result, several realty firms havesignedJDAstomonetize their land, or to take over the development rights themselves.
The National Capital Region (NCR), where developers own large land parcels, is opening up to realty firms whicharelooking to enter the marketthroughpartnerships. M3MIndiaPvt. Ltdand LotusGreensDevelopersPvt. Ltd have adopted the master developer approach for specific land parcels in the region.
M3Mplanstopartnermultiple developers to separately develop a 185-acre premium land asset it had acquired for ₹1,211 crore from the Sahara Group three years ago.
As a master developer, it will sign JDAs and earn revenue in the process.
“Not just construction and financing, dealing with customers today is key to push sales. Project development is a3-5 year process and it is clear that some developers can do it and many can’t,” saidHarishSharma, CEO, Centrum Real Estate Management and Advisory.
COLLABORATION AMONG DEVELOPERS IS THE ONLY WAY TO SURVIVE AS OF NOW AS THE SECTOR MOVES TOWARDS CONSOLIDATION
The NCR is opening up to realty firms which are looking to enter the market through partnershipsMINT/