Delhi-NCR realtors enter into joint ventures to tide over cash crunch

Delhi-NCR realtors enter into joint ventures to tide over cash crunch

November 7, 2019 in Real Estate News

A JV or development management agreement puts a large developer in the driver’s seat as the new entrant gains control of the new entity. Additionally, the established developer’s track record and ability to maintain cash flows help bolster project…
New Delhi: Property developers in the Delhi-NCR region are partnering large builders from the country’s South and West to restart projects, in the backdrop of a severe cash crunch, the stringent Real Estate Regulatory Act and the threat of being taken to the National Company Law Tribunal.
Financially strong firms like Prestige Group, Godrej Properties and Kalpataru Group have entered into joint ventures, joint development and development management agreements in the country’s largest property market by volume.

A joint venture or development management agreement puts a large developer in the driver’s seat as the new entrant gains control of the new entity. Additionally, the established developer’s track record and ability to maintain cash flows help bolster project execution and marketing.
“Local developers are unable to develop on their own and are under threat of being taken to the NCLT as buyers prefer corporate developers with better track record. Southern developers who have better finances, are able to get good projects with lower risks as the local partner takes care of the permissions,” said Mudassir Zaidi, executive director (North) of real estate consultant Knight Frank India.

The Internal Rate of Return for projects has also halved to almost 18% over the last decade, he added.

In recent agreements, Prestige has taken over 50% stake from DB Realty in a mixed-use hospitality project in Aerocity, while Godrej Properties has entered into an agreement with Lotus Group to build a township project in Sector 150 of Noida.

“This strategic collaborative model will help us make an impactful entry into the NCR region. We will continue to invest and leverage our expertise to build a wide range of real estate developments across key locations in India. This transaction is in line with our strategy of steady, focused acquisition, and capitalizes on consolidation opportunities,” said Irfan Razack, Chairman and Managing Director, Prestige Group.

The real estate sector in India is facing a severe liquidity crunch due to the downturn in the residential property segment, with many builders struggling to repay loans to shadow lenders. The property market was largely impacted due to demonetisation in 2016, followed by policy reforms such as the enactment of RERA.

“We are looking to acquire projects under development management agreements and the joint venture model in the Mumbai Metropolitan Region and the National Capital Region as there are many such opportunities,” said Tribeca founder Kalpesh Mehta.

Tribeca, the builders of Trump Towers in India, acquired two mixed-use projects from the Logix Group in Noida under a joint venture and development management agreement.

According to real estate tracker JLL, Delhi-NCR contributes 62% of the 454,000 units that have been delayed across the country and is one of the top non-performing markets in terms of apartment sales.

“The city has also seen new launches drop by 14% in the first half of 2019, compared to the same period, seeing a downward trend since 2015,” Knight Frank India said.

Fitch Ratings said in a recent report that about $10 billion of development loans were coming up for repayment in the first half of 2020, and this may impact mainstream banks that disbursed money to shadow lenders or invested in their bonds.

Separately, in the past few months, the number of developers going bankrupt has doubled, piling pressure on non-banking finance companies (NBFCs), commonly known as shadow lenders.

Defaults by two housing finance companies, Dewan Housing Finance Corp and Altico Capital, have only aggravated the financial stress in the real estate sector.

sources: realty.economictimes.indiatimes.com 

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