Land banks of many leading realty players have shrunk by as much as 50 per cent in the past three to four years, as they try to cut their mounting debts.
Real estate developers went on a land accumulation spree before 2007, as the property market was attractive. But the subsequent economic crisis weighed on their balance sheets and cash flows.
Analysts say this is not a major reason to worry about since the inventory turnover ratio is intact, as the pace of launches has come down along with diminishing land reserves.
DLF, India’s largest real estate company, had 349 million sq ft of land at the end of December 2011, compared to 751 million sq ft in March 2008. It has a net debt of Rs 22,758 crore, which it plans to reduce by Rs 5,000-6,000 crore by March 2013, through the sale of non-core assets like Aman Hotel, NTC land in Mumbai and wind business.
In an analyst call in February, the company said its land bank was shrinking due to its strategy of plotted development, which required more land compared to group housing projects. DLF launched 7.25 million sq ft till the third quarter in plotted development, against 1.22 million sq ft in group housing.
“With plotted development, land banks fall. In a group housing, you sell two-three times more on the sale land due to greater floor space index,” said Anubhav Gupta, analyst at Kim Eng Securities. DLF had started focussing on plotted development to deal with inflation, as it is less construction-intensive. Recently, it sought to limit strategic land purchases in areas such as New Gurgaon and New Chandigarh. This was in contrast to the pre-slowdown days when most developers used to divert customer advances from project sales to buy land, said an analyst.
Unitech, for instance, had a land bank of 605.4 million sq ft in March 2008. But by December 2011, its land bank was estimated to have declined to about 304 million sq ft.
Analysts say holding inventory comes at a cost, as one has to service debt continuously. Moreover, it results in delay in project delivery, as builders don’t have cash flows to complete projects.
Unitech is in the process of selling land parcels to pare its debt, which stood at Rs 5,190 crore as of December 2011. It had targeted to reduce its debt by Rs 500 crore by the end of 2011-12, but did not disclose the debt figure in its recently announced fourth-quarter result, which saw its net profit fall to Rs 2.26 crore.
Gupta said the inventory turnover ratio, or sales over inventory (land banks), stood at seven-eight. This means developers have land to develop over the next seven-eight years, given that the same pace of construction is high and not required. However, the ratio has not come down significantly, as the pace of new launches has come down significantly along with shrinking land banks.
HDIL, which had a debt of Rs 4,100 crore as on December 31, 2011, is also looking to sell land parcels. It had a land bank of 217 million sq ft as of September 2011, compared to 220 million sq ft as of July 2010. Most of its lands are in Mumbai. HDIL recently sold a two-acre plot in Andheri, Mumbai, to the real estate arm of Adani Enterprises for Rs 900 crore.
Parsvnath had a land bank of 209 million sq ft in April 2008, which declined to 199 million sq ft by December 2011. However, according to a presentation to its investors in February 2012, the company has paid Rs 3,650 crore and is yet to pay Rs 2,614 crore of the total land cost.
Sanjay Sharma, managing director of Qubrex, said land banks shown by developers were not generally the fully paid-up ones.