Are The Builders Selling Their Land Bank/Land Reserves To Complete Current Projects
NEW DELHI: Liquidity concerns are now tightening screws on real estate developers. With private equity [COLOR=blue! important]deals drying up and their stocks hitting 52-week lows on Street, real estate developers are in a moment of fear, uncertainty.[/COLOR]
Economic Times of India has learnt that all major realty companies picked up cash from private financiers at a whopping interest rate of 36-48 per cent per annum to save the blushes. According to industry sources, the developers acquired at least Rs 250 crore to Rs 1,000 crore from financiers in lieu of their existing projects in the last one month, since the US [COLOR=blue! important]financial system crisis became acute. Though none of the developers were willing to go on record, many developers admitted in private that they had meetings with private financiers during the last couple of months.[/COLOR]
With tie-ups already happening at a project level, experts also don’t rule out mergers & acquisitions in the sector, if the situation doesn’t brighten soon. Says Arvind Mahajan, executive director of KPMG India: “A lot of projects announced may not happen. With significant pressure on companies, they are likely to go for restructuring and focus on selective projects in the short to medium term. There will be more tie-ups at the project level. For realty players, these will be testing times that will check whether they are strong enough to weather the downturn.”
Stock prices of major realty players, including DLF, Unitech, Housing Development & Infrastructure Ltd (HDIL), Indiabulls Real Estate, Puravankara Projects, Parsvnath Developers, Sobha Developers, Omaxe, Mahindra Lifespace Developers and Ansal Properties & Infrastructure have all tumbled more than 60 per cent in the last one year on Street.
Badri Narayanan, partner, Ernst & Young India, agrees with the notion of private equity players that long-term opportunities exist in India but needs cautious valuation. “They are waiting to discover new value paradigms before they make any fresh investments in the realty space. Developers, on the other hand, are likely to have a re-look at their business models and re-asses consumption patterns to bring it in line with the current market expectations,” he said.
Industry sources, in fact, said that across all metros and tier II cities like Mohali, Jaipur, Lucknow, Indore, Surat and Cochin, there has been a 90 per cent drop in the number of deals.
Thats very interesting because this means that the RE companies realise that the game's up for them. Remember, the claim to future riches (especially DLF) was the belief that their Land Bank bought at lower prices would make super profits for them in future. In other words they are cutting up the Goose that lays the Golden Egg!!!
Interestingly the same thing happened in US in 2007. After calculating all the costs along with declining prices it was discovered that the RE companies swallowed their own story about land banks. In reality their land banks had a precise value of ZERO! That was when reality hit.
We are seeing this now in India. We are following the US with a lag of 1 - 2 years. Don't think we will do as badly as them, but you never know.
Most interesting would be to find out WHO IS BUYING? and AT WHAT PRICE?