Godrej Properties turns to 'outright land buys' as prices decline

Godrej Properties, well known for joint property development with landowners, is buying more plots on “outright basis” as land prices correct in top cities of the country.

Joint development was preferred by the company as it was less capital intensive and mitigated risk.

The cash-rich developer has bought three land parcels in quick succession in recent months when most developers have been sitting tight or doing everything possible to sell their inventory to generate cash.

Godrej Properties has bought land parcels in Mumbai, Bengaluru, and Faridabad. Another group firm Godrej Fund Management has also bought a couple of land parcels in recent months. Recently, it bought a 15-acre parcel in Sarjapur area of Bengaluru. Last month, the firm bought a 20-acre parcel in Kalyan near Mumbai.

In March this year, it forayed into the Faridabad market by purchasing 43.61 acre from BPTP. These outright acquisitions have added 4.1 million sq. ft to its development portfolio. The company’s Chairman Pirojsha Godrej and Managing Director Mohit Malhotra said land prices have become realistic. “More people are sitting at the table now and prices have become more realistic,” Malhotra said, though he did not specify how much land prices have corrected.

According to experts, land prices in most cities have fallen between 20 per cent and 25 per cent. However, the company is not in a hurry to shift to the “outright buying” model from its joint development-focused business model, wherein Godrej takes care of development, sales, and marketing, while the landowner takes care of approvals, and so on, Malhotra said in an interview with Business Standard. He said the company is looking at all kinds of models for business development. He said Mumbai, NCR, Bengaluru, and Pune are the key markets for the firm and it is evaluating many deals in these markets.

“Many developers were facing challenging situations even before the Covid-19 pandemic. The current situation is increasing opportunities and we are well placed to use them,” Pirojsha Godrej, chairman of Godrej Properties, had said in August.

Godrej added the company would look at both organic and inorganic opportunities for growth.

Apart from these direct acquisitions, the company had added two new projects at Five Gardens in Matunga and Worli localities of Mumbai in April. Both are joint development projects.

However, Godrej is not alone in buying land parcels. Mumbai based Sunteck Realty has also bought a couple of land parcels on the outskirts of Mumbai.

Nitin Gupta, managing director at Macquarie Capital, said the company has been building “ready-to-launch” land bank for leading development companies with healthy balance sheets and capacity to invest is a good strategy in at a time when many landowners are looking at liquidity options and are willing to transact at attractive prices.

Somy Thomas, managing director at Cushman &Wakefield, agrees with Gupta. “It is the best time to buy land as there are limited buyers and you are getting better price points. Residential sales have picked up for all organised and branded developers like Godrej, and we are seeing a recovery in residential sales, driven by low interest rates and reasonable price points,” he said. Residential prices have not increased for the last five-seven years in most markets and then there is a major price correction and it has increased the purchasing power of buyers, Thomas said.

War-chest

Sensing the distress opportunities, Godrej Properties has been creating a war-chest to acquire land parcels.

In July, it raised Rs 1,000 crore through non-convertible debentures on a private placement basis for a term of three years at 7.5 per cent. It had also raised Rs 2,100 crore last year through a qualified institutional placement (QIP). Gupta of Macquarie said conserving cash vs investment for growth is a function of the outlook on business. “As long as one is not overstretching its balance sheet and the outlook is expected to improve, new acquisitions should be value accretive. Holding excessive cash when prospects of business recovery are bright is not a good sign of confidence of management in the outlook.” Besides cash, the good amount of sales in previous quarters has been prompting the company to go for new projects, Malhotra said.

“We have been seeing good sales. In Q1, we delivered Rs 1,500 crore of sales and in Q2, we have seen positive sales numbers,” said Malhotra.