Land Banks lose ground

Developers will increasingly move away from land banking to avoid being tied down to an illiquid asset in an evolving market.

The last two years of slowdown saw companies with much-needed liquidity getting locked up in land even as they came under pressure as demand for built-up space dropped and prices corrected across all major cities.

Developers say they will be looking more at shorter time lines for development and delivery of projects and not invest in land for the long term. Unless a company has particularly deep pockets and is willing the take the risk, real-estate companies will shy away from acquiring land to build up stock. A spin-off from this could be a sobering effect on land prices, feel developers.

This point was emphasised at a recent meeting organised by the National Association of Realtors, where it was emphasised that joint ventures with land owners was a pragmatic approach to outright purchase. An added benefit is that the price discovery was more transparent as land owners get a clear idea of market price of the final product.

Shorter timelines

According to Mr Nakshatra Roy, Director, Corporate Operations, True Value homes India Pvt Ltd, companies have realised the need to be more agile and responsive to market trends.

A few years ago, supported by a buoyant market that seemed to be on a prolonged upswing, developers were interested in building up land stocks. Land was relatively low priced, and funds were available for acquiring land.

But the recent turbulence in the market and price correction has had a sobering impact. Also, with land prices getting overly heated, private equity players and other financiers were more cautious. They prefer to invest in projects rather than in land now, he says.

Mr Roy pointed out that a company with a few hundred acres of land faces a development time of over 8-10 years to fully exploit the land parcel and get the products to the market.

This made it vulnerable to changing economic and market trends. Developers have realised the need to look at the short term, ideally they prefer to buy smaller parcels of land that can be developed over three-four years and plan on having a pipeline of projects.

Take, for instance, Chennai, he says. In the last few years, four-five growth areas have emerged, including Old Mahabalipuram Road, GST Road to the south, Poonamallee High Road, up to Sriperumbudur, and Ambattur to the west of Chennai. Why would companies be locked up in any one location, he asks.

Mr R. Kumar, Managing Director, Navin Housing & Properties Pvt Ltd, said that the market trends that had allowed developers to invest in land over the long term no longer exist.

Previously, relatively lower land prices, a booming market for built-up space, availability of funds for land acquisition had all contributed to developers building up land banks. But now the focus is on liquidity and reacting faster to market trends. Developers now need to exploit land holdings and concentrate on completing projects.

Soaring land prices, even as prices of built-up space corrected, have also made land banks unviable.

Over the last couple of years, developers have cut back on prices in line with market trends but land prices have remained steady.

A leading developer pointed out that in all the major developing corridors on the outskirts of Chennai, land prices have soared 6-10 times in the last five years. In areas where land had been available for Rs 25-30 lakh an acre five years ago, the land owners are now demanding a few crore rupees.

The developer said that on the outskirts of Chennai — 25-30 km to the south or west — there is stiff resistance to prices of residential property. Most activity was in the price range of Rs 30 lakh an apartment but builders would not even recover the construction costs if they were to launch a new project on land purchased at current levels.

Joint ventures

Mr Chitty Babu of Akshaya Pvt Ltd, who has in the last five years tied up over 15 joint ventures on Old Mahabalipuram Road, popularly known as the IT corridor, said joint ventures are the way forward.

Akshaya had been among the earliest to launch residential and commercial projects on the OMR and had procured land through joint ventures to avoid locking up investments. Joint venture is an ideal option to meet expectations of developers, land owners and customers, he said.

While it may be tough to arrive at a mutually satisfactory price for land, prices of built-up space are relatively more transparent. The partners in a project can work backwards to arrive at a viable valuation for land pegged on the product price to be able to fairly share profits, Mr Babu said.

Business Line, 25, July 2010

BSCPL Infrastructure setting up integrated township

The Hyderabad-based BSCPL Infrastructure Ltd (formerly B. Seenaiah & Co Projects Ltd.), has tied-up with Bala Vidya Mandir School to set up a school with CBSE (Central Board of Secondary Education) syllabus at its upcoming residential township on the Old Mahabalipuram Road in Chennai.

The integrated residential township, Bollineni Hillside, will be spread across 92 acres with more than 50 per cent open space, surrounded by lush green hill and serene lake Arasankalani. Addressing a press conference here on Tuesday, B. Krishnaiah, Chairman of BSCPL, said that the company had signed a lease agreement with Bala Vidya Mandir to lease out two acres and construct about 70,000 sq. ft. building to accommodate a full-fledged CBSE school up to 12th Standard. Manmohan Varma, Chief Executive Officer, said the residential project had been planned in two phases.

The first phase would come on 50 acres. The total constructed area would be seven million sq. ft.

The company planned to construct over 1,300 apartments in the first phase.

Mr. Varma said most of the apartments in the first phase had been completed and were ready for handover by July this year.

With the two phases on completion there would be 4,500 units located on six million sq ft. It proposed to have 64 blocks on the entire 92 acres. Ramana Prasad, Managing Trustee, Bala Vidya Mandir and BVM Global Trust, said admission process would commence from January 20.

The Hindu 20, January, 2010

OMR flats to be incorporated into Chennai Corporation Limits

 

CHENNAI: After months of suspense, the Tamil Nadu Government has finally decided to expand the Chennai Corporation limit from its present 174 sqkm size to a whopping 426 sqkm by accommodating adjoining local bodies including eight municipalities and eight town panchayats. With this Government Order (GO), the size of the oldest civic body in the country has been increased two-fold.

While a village panchayat namely Idayanchavadi in Minjur limit would be the city corporation’s entry point from the northern side, Uthandi village panchayat on East Coast Road would be its boundary on the southern side.

Municipalities like Kathivakkam, Thiruvottiyur and Manali (in north) Madhavaram, Ambattur, Maduravoyal and Valsaravakkam (in the west), and Alandur and Ullagaram-Puzhuthivakkam in the south have been included in the city limits.

Town panchayats like Chinna Sekkadu, Puzhal, Porur, Nandambakkam, Meenambakkam, Perungudi, Pallikaranai and Chozhinganallur, and 25 village panchayats, Idayanchavadi, Sadayankuppam, Kadapakkam, Theeyambakkam, Mathur, Vadaperumbakkam, Surapet, Kadirvedu, Puthagaram, Nolambur, Kaarambakkam, Nerkundram, Ramapuram, Mugalivakkam, Manapakkam, Kottivakkam, Palavakkam, Neelankarai, Injambakkam, Karapakkam, Okkiyam Thoraipakkam, Madipakkam, Jalladampettai, Semmenchery and Uthandi have also been included in the Corporation.

Since the immediate merger requires the dissolution of these local bodies, it has been planned to form the new and greater corporation after the tenure of elected representatives of these local bodies expires in 2011.

According to the GO, the Commissioner of the Chennai Corporation has been entrusted to finalise boundaries of each Corporation ward, formation of new zones and the permission to appoint a special officer to carry out the work if the need arose. This expansion of the city limit is to arrive at comprehensive planning for the development of infrastructure and to optimize all resources, including financial, which differs in each local body.

Express News Service, 30th December 2009

68% of residential housing supply in OMR

 

The South Chennai zone represents locations which are viewed amongst the prime upcoming residential destinations in the city. The development of the IT corridor along Rajiv Gandhi Salai and concessions given by the government in promoting this industry have indirectly led to the growth of residential markets in locations around this micromarket. The availability of land and development of both social and physical infrastructure like the four lane expressway, MRTS system, hotels like Asiana and Fortune, educational institutes like Sathyabama College, hospitals like Lifeline over the past couple of years have accelerated the growth of residential space in this zone. With 68% share of the total residential unit supply, this micro-market accounts for the largest contribution to housing supply in the city.

About 22,000 residential units translating to approximately 30 mn.sq.ft. of housing space is expected to come up in this zone by 2011. A majority of this supply will hit the market in 2011. Prominent projects in the zone include Estancia by Arun Excello, Mantri Synergy by Mantri Developers, Upscale by Hiranandani, Swanlake by Puruvankara, Pushpadhruma by Marg Developers and the upcoming residential project by L&T. Most of these projects have been under development over the past one year and the delay in their execution is reflective of the low market sentiment.

Knight Frank Research Q3 2009