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Alternative Investment

Residential realty growth to continue

Residential real estate, which has been a clear beneficiary of the post-pandemic recovery, is expected to see similar growth momentum in sales in 2023, which will keep land deals going.

Between January and November 2022, the top eight cities of India witnessed 78 land deals resulting in over 1,858 acres of land getting transacted. This is a near 2.5x increase in the number of land deals and a sharp 53% rise in the actual land take-up versus the whole of 2021, according to data sourced from Anarock Research. In 2021, there were 33 land deals for 1,211 plus acres of land.

Land prices are holding firm. However, there is a mix of assets available in the market, with stressed assets also aiding land transactions. In a separate finding, real estate consultant CBRE had recently said that India recorded about 700 acres of land acquisitions for over $1.1 billion during January-June across eight cities to develop housing, office, retail, logistics and data centre projects. In the corresponding period in 2021, 600 acres were acquired for a value of about $0.9 billion.

Real estate developers are back to buying land parcels as inventory overhang eases and developers build project pipelines to ease demand-supply mismatch in the top cities of India. As developers clocked good sales during the pandemic years, and with the momentum continuing, they are also flushed with cash to now take up new land parcels and replenish inventory.

For instance, the real estate arm of Godrej Group, Godrej Properties (GPL), is actively buying land parcels over the last six months, a practice it had largely refrained from in favour of asset-light development models so far. Godrej Properties chairman Pirojsha Godrej told FE that Indian real estate is in early stages of a multi-year recovery cycle and the company is looking to cash in on it to enhance margins and improve risk reward returns.

According to Godrej, while the land prices have firmed up over the last two years, the valuation is still attractive. “Particularly given where in the development cycle we are in, our expectation is that the sector will continue to strengthen in the next two to three years, which means an improvement in volumes, in real estate prices, so we feel these are attractive times to be investing on the land side,” he said.

Bengaluru-based Prestige Group also finds land buying an attractive opportunity right now, and with the number of assets available through institutional channels like banks, the National Company Law Tribunal (NCLT) and asset reconstruction companies (ARCs) increasing, it is making land buying and expansions for real estate companies easier.

Venkat K Narayana, chief executive officer, Prestige Group, said that the company has acquired at least four land parcels in the recent past through these institutional channels in the Mumbai Metropolitan Region (MMR) and Delhi-NCR, and more are in the pipeline in Gurgaon and Pune.

Prestige is looking to end the financial year 2022-2023 with over `12,000 crore of pre-sales. The company clocked around `10,000 crore of pre-sales in FY22. The company has plans to launch 15-20 million square feet of residential projects over the next six months in the mid-income and premium category with two, three and four-BHK configurations, Narayana said.

Another Bengaluru-based developer Puravankara launched a `750-crore alternative investment fund for funding land purchases earlier this year. Abhishek Kapoor, CEO, Puravankara, said that the first deployment from the fund has already happened, while the second and third tranches will get deployed in the next two quarters. Additionally, one of its existing investment partners — International Finance Corporation (IFC) — is looking at evaluating more opportunities in the land acquisition space.

“We are looking at different pools of capital, and we are in the process of raising another platform which should get closed out in the next one quarter and then the deployment should happen over the next two quarters,” Kapoor said.

In the current financial year, the company has acquired 51 acres of land, and is in the process of acquiring more. “We are looking at an investment in excess of Rs1,000 crore over the next two-three quarters in acquisition of land through outright purchases and JDA model,” he said. 

The company is looking for acquisitions for all three brands — Puravankara, Provident and the the plotted development business Purva Land. It is also evaluating parcels for commercial projects.

However, Anarock Group chairman Anuj Puri said that while the demand for residential real estate remains strong, there could be some moderation in the number of land deals in the first half 

of 2023.

“Developers in the first half of 2023 would like to remain cautious owing to the general talk that there could be a recession in the US markets early next year. Hence, developers would rather hold on and maintain a strong cash liquidity rather than spend it in buying land. But if things go fine, then in the second half of 2023, we may see big transactions,” he said.

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