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Developers look at JV route to tap stressed projects

Developers say opportunities for stressed assets went up 50-60 per cent this year

Raghavendra Kamath  |  Mumbai 

Developers tap stressed projects of realty estate cos

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. Chhabria, earlier the managing director of Wadhwa Group and now having set up his own firm after the separation in the family. He has signed joint ventures with four developers in the recent past.

One of them is an upscale project with a stressed developer, Hubtown, in the Hughes Road area here. Hubtown, last week, said it delayed the redemption date for the principal payment of non-convertible debentures worth Rs 100 crore, owing to a liquidity crunch. Chhabria 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 the Bandra area. The project had been languishing for years.

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

Enquiries from stressed developers had 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,” said Chhabria, managing director at Radius Developers. He said in case of JVs, construction, marketing, selling would be taken care of by his company.

Ceear Realty, set up by Cherag Ramakrishnan, 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 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 bought into projects in Mumbai and 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 the Santacruz and Mazgaon areas of Mumbai.

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

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

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

“When projects get inordinately delayed, developers run out of cash. 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 past year.

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

The slowdown has been particularly hard for developers because demand has dried not only from buyers but also from investors.

Investors, who typically account for half of the market, have started cashing out as they see no benefit in staying invested in a market where prices are stagnant, said D S 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 two years. “There is a 20 per cent correction in prices in Mumbai,” said Tripathi.



OPPORTUNITIES FOR NEWCOMERS
  • Developers say opportunities for stressed assets went up 50-60 per cent this year
  • Radius has done four such joint ventures, in talks with 8-10 developers
  • Ceear Realty has done one such deal in Mumbai, in talks with three-four developers
  • ABIL Group has done three such deals in Mumbai
  • Most are banking on internal accruals and debt to fund the joint ventures

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First Published: Thu, December 24 2015. 00:20 IST
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