Land deal by Lodha group is ridiculous, says Parekh

The Rs4,053-crore deal struck by the Lodha group to develop the 25,000 sq m plot in Wadala has sent shockwaves in the city’s realty market.

There seems to be one bull against several bears in the market, as far as this project is concerned. And you have guessed it right — the bull is Abhishek Lodha, managing director of Lodha Developers.

HDFC chairman Deepak Parekh termed the price “ridiculous”, as real estate experts were bearish considering the oversupply with many large developments underway in the neighbourhood of the MMRDA plot auctioned on Tuesday.

“More importantly, it remains to be seen whether the MMRDA/civic authority would allow such a high loading of 75 lakh sq ft to be utilised on a very small plot area of 25,000 sq m. Being a leasehold land and that the Maharashtra Ownership of Flats Act stipulates selling on carpet area, one wonders whether the government has control on how much area can be consumed on a plot,’’ said the head of the land department of a global real estate firm.

Expressing concern, Gulam Zia, national director with Knight Frank, the global real estate consultants, said the figures do not justify the project. “Even if we assume the developable space of 54 lakh sq ft, we are talking of 2,000-2,500 apartments of a similar size. To recover his costs, he will have to sell 500 apartments a year or about 2 apartments a day over the next five years. With each flat costing around Rs5 crore at Rs14,000 a sq ft, a question comes in mind as to who has that kind of money,’’ asked Zia.

``Alternatively, even if we assume the flat size is roughly 1,000 sq ft, we are talking of 54 lakh flats costing roughly Rs2 crore each. Where would one find 54 lakh people having a salary of Rs40-50 lakh,’’ Zia added.

Zia said that there are many large developments already coming up in the neighbourhood with no demand. RM Bhattad group is constructing 1,500 apartments, Dosti Flamingoes by Dosti Developers and Ashok Gardens by Peninsula Group are expected to add roughly another 3,000 apartments.

Balaji Rao, managing director of Starwood Capital Advisors, said deferred payment option is always attractive to a developer. ``The reason being for a small value, a developer is able to leverage that land parcel in the capital market or through pre-sales.

Considering the prices the developers (Lodha and Suntech, another aggressive bidder) had quoted, they are gearing to keep property prices high or they believe the prices will remain high,’’ said Rao. Incidentally, the market is abuzz over the last few months with talks of the Lodha group going for an IPO.

Voicing his concern, Sunil Mantri, managing director of Sunil Mantri realty said he is always concerned when such prices are paid in such auctions. ``Our market is not like the Bombay Stock Exchange wherein one can establish a benchmark rate.

But, developers set a benchmark rate for their product after one developer does it. Buyers are reluctant to pay such high prices. It is not good for the property market as volumes will definitely be affected,’’ said Mantri.

A senior official with IndiaReit Property fund expected the market to fall by 20% due to oversupply. ``The demand is not in sync with the supply coming in the market,’’ the official said.