Stagnant property prices fail to take sheen off Mumbai land deals

Sales have declined 2% in the fourth quarter of the financial year 2018-19

Even as residential property prices and home sales are stagnant in Mumbai, land deals are happening 

at staggering prices. 

Sales have declined 2 per cent in the fourth quarter of the financial year 2018-19 and prices have reduced by around same rate, according to Liases Foras, a real estate research firm.

On the contrary, land deals in the city have clocked big numbers. Recently, Japanese conglomerate Sumitomo Group had bid Rs 2,238 crore for a 3-acre plot in Bandra Kurla Complex (BKC) area of Mumbai. At Rs 745 crore per acre, this was the largest land deal in the country.

Sumitomo’s land purchase works out to over Rs 22,000/per square feet on saleable area basis and excludes stamp duty charges and other floor space index (FSI) costs.

BKC did not see any major land deal since 2008. In 2016, its nodal agency, Mumbai Metropolitan Regional Development Authority (MMRDA), withdrew the bid to auction a three acre plot. MMRDA had set a reserve price of Rs 1,500 crore for the plot or Rs 500 crore per acre.

Runwal Group has entered into an agreement with Cable Corporation of India (CCI) to acquire an eight acre land parcel for Rs 530 crore (Rs 66.3 crore per acre) in Borivali in the western suburbs of Mumbai.

According to a report released by ICICI Securities on Thursday, Runwal’s deal with CCI is more expensive than Oberoi Realty’s purchase of 25 acres for Rs 1,200 crore (Rs 48 crore per acre) in the same area in 2015. Among the other expensive deals, it also mentioned Godrej Properties’ recent purchase of RK Studios’ two acre land in Chembur in Central Mumbai for Rs 185 crore, along with Runwal Group’s expected completion of the remaining 13 acres, located adjacent to its Runwal Bliss project in Kanjur Marg (Eastern suburbs) for Rs 500 crore.

“While headline numbers for the recent land deals point to land prices sustaining, there is still limited clarity on the funding structures for these deals. Many deals may involve staggered payment for the land subject to certain land conversion/project approvals being received,” said Adhidev Chattopadhyay, analyst at ICICI Securities. In many cases, the buyer might assume the existing debt of the seller in that project and adjust it against the cost of purchase or the buyer may have signed an agreement wherein the consummation of the deal is subject to the buyer being able to arrange for funding in the next 6-12 months, Chattopadhyay said.

Property developers, however, said land deals are happening at “realistic” valuations. “Today, land owners are willing to do deals at lower prices. There are a lot of stressed opportunities at land stage of development. We are pursuing many such deals and believe more such opportunities will come,” said Kamal Khetan, chairman and managing director at Sunteck Realty, a Mumbai based developer.