NCR builders ‘selective' about large land buys

The last four months have seen two big-ticket land deals in the Delhi NCR market. But with liquidity still a big worry, and debt repayment schedules and execution of delayed projects demanding urgent attention, developers continue to tread with caution on land buys.

While smaller tracts of land change hands from time to time in the NCR, builders seem to be going after mega land deals only where they have complete financial backing, comfort of a PE partner, or a compelling business proposition for the land.

Business Line spoke to some players and analysts to find out the approach of the builders when it comes to land purchases in the NCR.

Clear difference

“There is a clear difference in approach, pre-slowdown and post-slowdown. Players would earlier indulge in ‘land banking'. Builders would acquire land and hold it for a few years and then sell or develop it. Now, deals happen only if the price quoted justifies the project viability,” says Mr Manish Aggarwal, Executive Director - Investment Services, Cushman & Wakefield India.

And then there are other comfort factors that influence decisions. In November last year, Parsvnath Developers clinched a 38-acre prime plot at Sarai Rohilla, in an auction by Rail Land Development Authority (RLDA) for Rs 1,651.5 crore. As per the payment terms, it has already paid two per cent and has to shell out another 18 per cent to RLDA by March 31 (it claims to be on track with the payment schedule). Once the initial payment obligation is fulfilled, Parsvnath will have an 18-month moratorium; the balance amount has to be paid after mid-2012 over a four-year period.

Notably, the same plot had been put on the block by RLDA in 2008, but the successful bidder, ABW Infrastructure, defaulted in making timely payments. The reason: ABW was required to cough up 50 per cent or Rs 513 crore within the first month, and the remaining amount within two years.

This time around, the revised payment conditions in the tender are easier on the developer. Also, the Sarai Rohilla property is in the heart of the city — an opportunity that the Parsvnath Chairman, Mr Pradeep Jain, claims was “difficult to let go”.

“As a general strategy, we are not going after new land. Land acquisitions, if any, will be very selective. The decisions will depend on the kind of location, product mix, partner and the ability to achieve financial closure. It is a challenge to bid aggressively today and then go out in the market to raise funds,” says Mr Jain.

Parsvnath had a net debt of Rs 1,141 crore as on December 2010; for the RLDA project it has roped in Red Fort Capital.

Noida land auction

Earlier this month, Noida Authority made headlines when it invited bids for commercial hub (Sector 25 A and Sector 32). Though the official announcement is yet to be made on the winning bid, Wave Inc has reportedly emerged as frontrunner offering to pay Rs 6,500 crore for the City Centre project.

Despite several attempts, Noida Authority officials could not be reached for comments, while a senior official from Wave declined to comment on the issue saying the company is waiting for a formal communication from Noida Authority.

Mr Anil Kumar Sharma, Chairman of Amrapali Group, incidentally was one of the bidders in the recent Noida land auction, concedes that although the general consensus is to stay away from aggressive bidding, buying land at a favourable location is often a one time window of opportunity.

“There are times when you cannot stay away from large land auctions because the same parcel may not be available tomorrow…Yet, as a general rule, we are cautious while bidding and lay strong emphasis on demand forecast and due diligence,” he says.

Residential thrust

There are also those players in the NCR market who see an opportunity in adversity. Anant Raj Industries which had earlier been focusing on commercial development and leasing is now keen on a residential thrust. The company has been acquiring land aggressively in and around Delhi NCR over the last year and half. Chances of clinching a good bargain, has never been better, it claims.

“Sure liquidity is tight, but if you have access to funds it is a great time to buy land. There are land owners who are desperate to sell due to huge debts on their balancesheet,” the CEO and Director of the company, Mr Amit Sarin says.

The company has shelled out Rs 700 crore on land purchases, mostly residential. “We have acquired 250 acres of land, to make a comeback into the residential segment…We cannot control the selling price of finished products, but by buying land now, our downside is safeguarded,” says Mr Sarin.

However, he is quick to add a word of caution: “In 2007-08 the race to acquire land had backfired on the industry, as it took the focus away from execution of existing projects. The question is, if residential prices correct tomorrow, are you safe?”

Also deals should not be so large that execution takes ages, and dries up finances.

Parsvnath's Mr Jain, who recently took over as Chairman of Confederation of Real Estate Developers' Association of India (Credai) echoes similar concerns.

“This is not the time to be aggressive. The focus needs to be on lowering debt and fulfilling past obligations. Builders need to deal with the existing land bank. But in case someone has a great relationship with PE investor, one can seek out specific opportunities” — this is his advice to fellow Credai members.

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