Published & Updated as on - 2010-03-18
Hyderabad
based PBEL Property Development (India) Ltd has a new strategy to break into
unfamiliar markets: partner with local developers to complete projects quickly.
The realty firm wants to divide its 42 acres on Old Mahabalipuram Road off Chennai
into four or five portions, each of which will be handed over to local
developers for building residential apartments. “We don’t know much about the Chennai
market and think it’s a good idea to bring in people who have the knowledge,”
said Anand Reddy, director of PBEL Property, which has a project pipeline
mostly in southern India. “Of course, we will keep a portion of the land which
we’ll develop ourselves.”
A number of large developers are
similarly forming joint ventures (JVs) or special purpose vehicles with
smaller, local developers for specific projects on a revenue-sharing model. “We
will see more developers getting into such JVs depending on what the local
partner brings to the table,” said a senior research analyst at First Global
Securities Ltd, who didn’t want to be named. “It could be land, local domain
knowledge or even good building capacity.” Mumbai-based developer Sunil Mantri
Realty Ltd, for instance, prefers local partners with the potential to speed up
projects by procuring building approvals and helping in the conversion of land
status quickly—often, the most time-consuming aspects of development.
“A
good local partner also helps in getting the product mix or even the pricing
right,” said promoter Sunil Mantri.”Having multiple partners across cities also
helps us to scale up faster, which may not have been possible on our own.” Such
partners gave Mantri the confidence to enter unfamiliar markets such as Gwalior
and Bangalore. The firm is planning two projects in Gwalior and Bangalore, at a
combined Rs700 crore, with local partners. Some months ago, the strategy for
large developers such as Orbit Corp. Ltd and Ackruti City Ltd was quite
different; they bought distressed properties from small builders who had the
land, but not the money to execute the projects. Both firms are now looking at
JVs with smaller builders.
“This is a reverse trend because
big realty firms realize that some help is needed to pull off their expansion
plans at the execution level,” said P. Kumar, chief executive, Three Quarter
Earth, a Bangalore-based property advisory. “Real estate is a local game, which
is why few have succeeded in becoming truly national.” DLF Ltd, India’s largest
developer by market value, had a taste of local realities in 2009 when the
local civic authority said its maiden residential project in south Bangalore
hadn’t got a mandatory approval. Rajeev Talwar, group executive director of the
Gurgaon-based DLF, said the firm is not actively looking at local partnerships
but isn’t averse to such tie-ups.
“All the biggies,
post-downturn, are looking at such joint ventures,” he said. PBEL, too, had
evidence of difficulties posed by new markets before it got into Chennai. Reddy
said the company decided to enter into partnerships with local developers after
a market survey showed that realty companies from outside the region had
performed dismally in Chennai.
Companies that have turned to
real estate in recent years are also keen on striking such partnerships. Essar
Realty, an Essar Group company set up in 2007, is in advanced talks with Bangalore-based
AM Builders and Developers, for a JV to develop a 16-acre township in
Electronic City. K.S.M. Shabbir, promoter of AM Builders, said the
revenue-sharing model hasn’t been worked out yet with Essar Realty but the
talks are in the final stage. Essar Realty didn’t respond to an email and phone
queries.
A property analyst, who also didn’t want to be
identified, estimated the project cost at Rs600-700 crore, depending on its
profile and format. For a local partner, the advantages are many. Samira
Habitats, a developer in Alibag, a small coastal town near Mumbai, is in talks
with developers from the financial capital for projects. Mihir Nerurkar,
director, Samira Habitats, said Mumbai developers had burnt their fingers in
Alibag and now wants to make a cautious entry. “Larger partners with deeper
pockets help us. These are private equity deals where either the developer
comes in with capital or it’s a 50:50 joint venture, where they pay me half the
value,” said Nerurkar.
Source: http://www.indianrealtynews.com |