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Big land deals in Mumbai trigger price rise again

Published & Updated as on - 2010-02-17


Developers and analysts are divided over whether these deals are symptoms of a renewed bubble that would push up real estate prices too high, too fast.

Land prices are on the rise again, at least in Mumbai. After a lull of some two years, India’s financial capital has seen at least half a dozen big land deals, some ongoing, in the past two months.

Developers and analysts are divided over whether these deals are symptoms of a renewed bubble that would push up real estate prices too high, too fast.

Mumbai Metropolitan Region Development Authority (MMRDA) has put up a 3,163 sq. m plot at the Bandra Kurla Complex (BKC), a business hub in Mumbai, for sale at a reserve price of Rs3 lakh per sq. m, higher than its 2008 reserve price of Rs1.02 lakh per sq. m when it sold three of five plots.

“The price is very high, especially if I compare it to my project in BKC where I am selling ready commercial property at Rs2.5 lakh per sq. m,” said Vijay Wadhwa, promoter of realty firm Wadhwa Group.

Wadhwa himself paid Rs571 crore in January for an 18-acre (72,843 sq. m) plot, at Rs78,387 per sq. m, in Ghatkopar, a Mumbai suburb where land prices are about 15% cheaper. The seller was Hindustan Composites Ltd.

MMRDA is confident the BKC plot will receive a good response. “There is a lot of pent-up demand in the market and particularly in BKC. We decided on the price only after doing a market survey,” said Dilip Kawathkar, spokesman for MMRDA.

“These deals are not sporadic and will continue as developers are keen to buy land now,” said Asutosh Limaye, associate director at Jones Lang LaSalle Meghraj, a property advisory. But he did point out that the deals in Mumbai were for large land parcels with clear titles that “will sell at a premium”.

Developers, stronger from improved third-quarter sales and having waited for the downturn to end, are scouting for land to build either new projects or a landbank. Potential sellers, encouraged by the recent deals, are now expecting higher prices for their land.

“This speculation over prices leaves a negative impact on genuine buyers, who want to buy but are put off because they feel the marker is over-heated,” said S.G. Maheshwari, a Mumbai-based property consultant.

Maheshwari said even small land deals in South Mumbai, the city’s most expensive address, fetch Rs4.5-6 lakh a sq. m, especially in posh areas such as Warden Road.

The debate among analysts and developers is whether such pricey deals are viable and can be monetized, especially because confidence is yet to return to the commercial and retail realty segments after the downturn.

India’s largest developer, DLF Ltd, for instance, wants to buy land but says it will be choosy. “Land prices are expensive and we will buy only if we see good sales potential after three years,” said Rajeev Talwar, group executive director at DLF. “We will not waste money in buying land if we don’t see development potential.”

DLF has had trouble with pricey land deals before. In 2005, it bought Mumbai Textile Mill for Rs702 crore but could begin construction at the site only some months ago because of the slowdown that followed and a delay in deciding on the format of the project.

Land prices usually take longer to decline than prices of apartments, offices or malls. Property prices across cities dropped 20-30% in 2008 and early 2009 before climbing in the September quarter.

The price increases now are seen mostly in Mumbai, a mature land market where the rates will rise faster, said Limaye of Jones Lang. Secondary markets such as Bangalore and Pune would need 6-8 months more for revival, he added.

After scouting for land in Mumbai, developer Ackruti City Ltd finally bought a small parcel in Bangalore in an auction held by Railway Land Development Authority (RLDA).

“We’ve been looking for land but I haven’t been able to find anything at reasonable prices in Mumbai,” said Ackruti’s managing director Vimal Shah.

Source: www.livemint.com

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