Rs4,000 crore land for Rs400 crore

The upcoming New Cuffe Parade project of Lodha Group at Wadala is not only setting new benchmarks in construction technology, but also twisting government rules to favour a private developer.

The Mumbai Metropolitan and Region Development Authority (MMRDA), which holds huge land bank along the Eastern Freeway, has parted with 23 acre of prime real estate at Wadala for a fraction of its price.

Terming it as a ‘deferred payment plan’, MMRDA has given the land worth Rs4,000 crore for only Rs400 crore, allowing the developer to pay the balance amount over the next five years.

“While the builder insists on 100% payment in advance much before giving the possession to the home buyer, it is strange that he should be allowed to use public land for private gains,” said the head of a leading MNC consultancy, hinting that the arrangement may have been made to eke out a better rate for the land, but it could eventually end up in a big mess if the developer over leverages the situation.

Given the tight market conditions and the liquidity crunch in the realty sector, it already seems that Lodha Group may have bitten off more than it can chew. Even when Lodha bagged the Rs4,053-crore project by bidding at a whopping Rs81,818 per square metre in May 2010, it was widely perceived in realty circles that the developer may have gone overboard.

The next highest bids were from Sunteck Realty and Indiabulls for Rs3,500 crore and Rs3,350 crore respectively.

Ever since, the market conditions have been getting increasingly worse and it took Lodha Group a good nine months before it paid the first installment of Rs400 crore in February.

“As per the agreement, the next installment of Rs600 crore, plus interest payments, is due in three months — in February 2012 - and if the builder does not pay the amount on time, we have the option of cancelling the agreement and forfeiting the payment,” said a senior MMRDA official, adding that the deferred payment plan has past precedents, but of much lesser scale.

Justifying the arrangement, the MMRDA official said that in any case if they would have got the entire amount upfront, they would have parked the funds in a bank deposit that would earn them only 10% interest. “Here we are getting a higher rate of interest from the builder, who in turn would have had to pay much higher interest to make the payment upfront. This is a win-win arrangement, and we always have the option of taking the land back if the builder defaults,” the official said. 

On the ground level, the Lodha Group is doing its best to generate curiosity and advances through bookings. While a major portion of the land is still occupied by the contractors of MMRDA’s metro and monorail project for casting the girders, Lodha has erected a swank site office to give presentations on the ‘castles in the sky’ to potential buyers. “It may well be a pie in the sky,” said an industry observer, adding that the current market conditions are so bad that Lodhas will struggle to even honour their commitments to MMRDA, leave alone raising the buildings on time. Incidentally, some of the key projects by the same developer in different parts of the city are lagging behind schedule.

The developer plans to build two 60-plus storey towers in the first phase of development, while 15 acres of land will be reserved for open landscapes. The Lodha officials maintained that the payment schedule is on course as per the agreed terms. “The next installment is a mere Rs200 crore. As a company, we have more than sufficient funds to make this payment and continue to acquire additional land for expansion,” a Lodha spokesperson said.