Developers tap stressed projects of realty estate firms

Don't want to miss the best from Business Standard?

Sensing stressed opportunities in the slow property market, a new set of developers are looking at doing joint ventures (JVs) or taking over the projects of developers who are starved for cash.

While established ones such as Godrej Properties and Tata Housing have been doing such JVs, it is the turn of the newcomers now.

Take Sanjay Chhabria-led Radius Developers. Chhabira, who was earlier the managing director of Wadhwa Group and now set up his own firm after the separation in the family, has signed joint ventures with four developers in the recent past.

One of them is an upscale project with a stressed developer Hubtown in Hughes Road area of Mumbai. Hubtown, last week, said it delayed the redemption date for the principal payment of NCDs worth Rs 100 crore, owing to liquidity crunch.

He also inked a tripartite joint venture deal with DB Realty, whose promoters were earlier embroiled in the 2G scam, in the latter's MIG colony project in Bandra area of Mumbai. The project had been languishing for years.

Chhabria also said he was in talks with eight to 10 developers for either joint venture or taking over them.

Enquiries from stressed developers have increased 50 to 60 per cent this year compared to two-three years ago, he said. "We can buy only in adverse times. In times of boom, we cannot buy. If properties sell well, who will sell their projects," said Sanjay Chhabira, managing director at Radius Developers. He said in case of joint ventures, construction, marketing, selling would be taken care of by his company.

Ceear Realty, set up by Cherag Ramakrishnan, the former chief executive of Essar Group's realty arm Equinox Realty, has taken over one such project in the Bhandup area of Mumbai, which has a saleable area of 100,000 sq ft.

Ramakrishnan said his company was currently negotiating three to four such deals in Bengaluru and Mumbai. "Such opportunities have definitely increased in the second half of this year. The stress of last two years is showing now and developers want to get lighter," Ramakrishnan said. "Earlier they were thinking, but there was mismatch in valuations. Now the bridge is happening," he added.

Pune-based ABIL Group, though not exactly a new developer but bought into projects in Mumbai, has also done three joint ventures in the recent past. Apart from the JV with DB Realty and Radius for Bandra Project, it has done JVs with Sumer Group in Santacruz and Mazgaon area of Mumbai.

"In the last two years, we have come across many such opportunities, where developers were not able to raise finance or do JV with other developers. If the market does not improve, I think such opportunities will increase," said Amit Bhosale, managing director of ABIL Group.

Both Radius and ABIL are banking on internal accruals and debt to pump in equity in the stressed assets while Ceear Realty is looking at private equity and other sources to fund the projects.

Real estate experts feel slowdown has opened new avenues for these developers.

"When projects get inordinately delayed, developers run out of cash. Then they are left with no option, but to dilute equity in projects," said Balaji Raghavan, head (real estate practice), IIFL in a recent interview with this paper. Raghavan said IIFL had facilitated four to five such transactions over the last one year.

While the property market in Mumbai has been marred by affordability issues, in Delhi, the supply far outstrips the demand, said Sunil Rohokale, managing director, ASK Group.

The slowdown has been particularly hard for developers because demand has dried up not just from buyers, but also from investors. Investors, who typically account for 50 per cent of the market, have started cashing out as they see no benefit in staying invested in a market where prices are stagnant, said DS Tripathi, chief executive officer, Aadhar Housing Finance. Actual users are waiting for prices to come down, he added.

Home prices, which doubled between 2009 and 2012, have remained stagnant over the past two years. "There is a 20 per cent correction in prices in Mumbai," said Tripathi.