Big-ticket land deals drying up in Mumbai; realtors worry about lack of sales

The pace of big-ticket land deals in Mumbai, the third-costliest residential market in the world, is slowing down; it’s mostly joint developments or joint ventures that are coming to the table, according to real estate experts.

The 108-acre Bayer Crop Science land at Thane was up for grabs and at least five local developers, including Oberoi Realty, Lodha Group, Kalpataru, DB Realty, were in the race, but two sources directly involved in the transaction said the sale has now been called off.

“They had come close to finalising a deal, but a few weeks back, the bidder-developers wanted to lower their quotes because of the prevailing market conditions. Also, there is a new municipal commissioner in Thane, so the files have not been moving. Bayer is not selling the land anymore; they have taken it off the block,” a source said.

The trend till a few months ago was developers buying land wherever they could grab some. In September, Kalpataru bought four acres for Rs80 crore from Western Rolling Mills on LBS Marg, Bhandup, next to Asian Paints. The Lodha group bought four acres at Goregaon next to the Hub Mall on the Western Express Highway for Rs221 crore. Knight Frank India was the advisor for the deal.

In December, Gammon India, through its subsidiary Metropolitan InfraHousing Pvt Ltd, emerged the highest bidder for 135 acres belonging to PAL-Peugeot, the erstwhile carmaker, in Dombivli, by bidding Rs601 crore.  

The current selling rate in the area is around Rs2,500-3,200 per square feet, and Gammon has bought the parcel at close to Rs1,022 per square feet.

Pinkesh Teckwani, assistant vice-president and head (west India) for land and industrial services, Jones Lang La Salle India, the property consultant, agreed transactions aren’t happening as they were three-four months ago. The expectations of land owners are very high and developers are turning cautious.”

To de-risk themselves, developers are opting for joint ventures or asking land owners to also come on board to jointly develop and share revenues instead of deals where payment for land is made upfront.For example, Rohan Lifescapes formed a joint development deal with Oriental Container for a two-acre land parcel near Worli Naka.

Another realtor, Godrej Properties, has always followed the joint development model. It entered into an agreement with Bombay Footwear to develop a one-and-a-half acre plot in Chembur. Sources said Tata Housing is also looking at joint developments.
HDIL is said to have sold its Sidhartha Nagar, Santa Cruz MHADA property to a consortium led by Kalpataru and the Ekta Group, but the company denied any transaction. A senior land transaction official from an internal property consultancy firm said joint developments or joint ventures will be the popular model going forward.

“As finance becomes a major concern in the next 5-7 months, we will see transactions in the suburbs beyond Thane, in areas such as Karjat. Also, it can be seen in the sick industrial units in Goregaon, which are now shifting to places like Vasai Road. These units have land in the range of 2-10 acres,” the official, who did not wish to be named, said.

Pujit Aggarwal, managing director, Orbit Corporation, admits there is a slowdown in the Mumbai market. “Apart from few land transactions, even sales and permissions are also not happening at all. Things are moving very slowly,” Aggarwal said.

Vikas Oberoi, managing director, Oberoi Realty, concurs: “Nothing is happening in the market; the land-deal market has slowed to a near-halt, and developers who have cash are sitting on it so that they can buy land later when prices come down to reasonable levels.”

With buyers shying away from residential purchases - as seen from the continuously declining home sales data, developers worry they will be able to pass off the cost of land deals.
Ambar Maheshwari, head of real estate advisory services in Mumbai for DTZ, international property consultant, says, pricing is not a function of supply but of demand, there is a lot of demand, but not at the prices which are being quoted. “The margins will have to be taken care of by the developers whose days of high margins are going to be tight in coming times,” Maheshwari said.