Bengaluru: Difficult times call for desperate measures and the real estate sector is no exception. 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 arrangement between landowners 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.
There are many variants: Master development, joint development agreements (JDA), development management (DM) and revenue-sharing models, among others.
As many firms are incapable of developing projects on their own, 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 such opportunities in the market. Managing director and CEO Mohit Malhotra says the company’s first preference is to do a JDA based on profit-sharing with the landowner or developer. It also selectively does DMs, where the land holder is well-capitalised and wants an established developer to construct, sell and lend it brand equity.
“We consider the requirement 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 we have to be careful.”
Collaboration among developers is the only way to survive in the current scenario, as the sector inches towards consolidation, pushing realty firms in distress to sell land or projects they can’t develop to others.
Srinivasan Gopalan, CEO, Bengaluru-based Ozone Group, says these models have stemmed from a classification between developers who can sell and raise money, and those who own land, but can’t sell under their brand.
Ozone has signed multiple DM deals with developers to develop the land under its own brand. “I am open to both JDAs and DMs and any route which isn’t capital intensive. Ozone’s strength is in construction and sales, and we earn a fee even if there is no major upside. We are not buying land for projects right now.”
Ram Yadav, CEO, Edelweiss Real Estate Advisory Practice, says the sector has moved from a land banking model to a ‘cash and carry’ model. Till 2008, every developer was buying land to create a bank and a potential development pipeline. Mumbai-based Lodha Group was perhaps an exception because even when it bought land at a premium, it would launch it immediately, he said. “The development business is changing rapidly and developers want to dilute the equity locked in land.”
In the last few years, land acquisition has slowed following low residential demand and high leverage among developers. As a result, several realty firms have signed JDAs to monetize 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 which are looking to enter the market through partnerships. M3M India Pvt. Ltd and Lotus Greens Developers Pvt. Ltd have adopted the master developer approach for specific land parcels in the region.
M3M plans to partner multiple 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 a 3-5 year process and it is clear that some developers can do it and many can’t,” said Harish Sharma, CEO, Centrum Real Estate Management and Advisory.