Cash rich realtors like RMZ, Shriram Properties & others exit partly completed projects at big discounts
Apr 18, 2014
Source : The Economic Times


BANGALORE | MUMBAI: An extremely slow real estate market across segments is pushing debt-ridden, cash-strapped developers to exit partly completed projects and undeveloped land at massive discounts of as much as 40%.

Cashing in on the opportunity are other cash-rich developers such as Kanakia Group, RMZ, Shriram Properties and the Salarpuria Sattva Group, which are actively negotiating for projects that are stuck for want of funding.

"Builders having huge debt and unable to generate cash flow are ready to offer discounts to exit projects," said M Murali, managing director of Shriram Properties. The company is negotiating for 150 acres of land across Bangalore, Hyderabad and Chennai from multiple builders.

"We hope to acquire most of the land over the next two quarters." Recently, Mumbai-based Kanakia Group entered into an agreement to infuse more than 200 crore in a 700,000 sq ft project in the Bandra suburb of Mumbai. The amount will be used to repay debt raised for the project. Kanakia will replace the majority stake owner and lead the consortium with other three partners that remain invested in the project. "There are several such offers available now and it's a win-win situation for both the parties. We get access to a project with good revenue potential and it helps the partner to push the project further," said Rasesh Kanakia, chairman, Kanakia Group.

Kanakia is negotiating for majority stakes in two more projects in the Mumbai suburbs and expects these deals to be concluded soon.

Home sales have dropped in the past 11 months due to the high cost of funds and approval delays.

"Lower sales volume has dried up liquidity for the cash-starved real estate companies which have slowed construction activity across India. Tying up with big brands helps to sell the project faster," said Prashanth Sambargi, partner at Mars Realty, a real estate brokerage company in Bangalore.

Liquidity is drying up on account of persistently weak sales, with little sign of recovery. In major property markets such as Mumbai and the National Capital Region, residential property sales in October-December declined 30% and 13%, respectively from a year ago, said property consultancy firm Knight Frank.

"A lot of builders have realised that they are not able to attract retail sales and the premium, which big builders get. A tie up with a better brand increases the return on interest by a minimum of 20% and increases sales velocity too," said Sanjay Dutt, executive managing director, South Asia, at Cushman & Wakefield.

Bijay Agarwal, managing director, Sattva Group, is negotiating for an eight-acre, high-end residential property in north Bangalore. The company is also in talks to buy properties in Chennai and Bangalore from existing owners as it looks to ramp up its portfolio by buying distressed assets.

"The number of proposals has gone up by over 30% this year as there is huge bank commitment and many builders are under pressure now. We are looking at projects that are 30-40% complete and can generate quick cash flow," said Agarwal.

Many high-value projects are stuck with builders seeking exits even at discounts of 30-40%. Additionally, lower gestation period and quicker cash flow is making such assets attractive to the large builders in the market.




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