Corporates are selling property to real-estate developers

Three quick, mega land deals in Mumbai show that India Inc is making the most of the insatiable demand for land. Experts believe that corporate land sales are likely to pick-up in other cities as well.

The recent flurry of land sales in Mumbai began in March with Oberoi Realty buying Tata Steel’s Borivali land for ₹1,155 crore. Then, in early April, KEC International offloaded a land parcel in Thane to Tata Housing for ₹214 crore. Later that month, Clariant Chemicals sold its land in Thane to Lodha Developers for around ₹1,154 crore.

Companies are making “handsome profits if not windfall gains” by selling their land holdings to cash in on the insatiable need of land developers, says Rohit Poddar, Managing Director of Mumbai-based Poddar Developers.

For instance, Reliance Industries sold 2.5 acres at the Bandra-Kurla Complex in 2010 to Wadhwa Group for nearly ₹1,000 crore. This piece of land was acquired in 2006 for ₹60 crore. The demand for land is growing in other cities too, say experts. Ambattur and Guindy in Chennai, which are industrial areas, are likely to see such sales, says Shrinivas Rao, CEO for Asia-Pacific, Vestian, a real estate advisory.

In Bangalore, the Malleswaram-Rajaji Nagar belt, Yeshwantpur and Bellary Road may see some activity. In Mumbai, Lower Parel, Mahalakshmi, Wadala and Vikhroli are areas “where we can expect deals to happen,” adds Rao.

In the last one-two years, there have been many land deals on the outskirts of metros and tier-2 cities, says Kalapana Murthy, Associate Director, Residential Services, Cushman & Wakefield, a real estate advisory.

In Bangalore, for instance, HUL sold its land parcel in Whitefield, an industrial area, to property developer Brigade.

Unlocking value

How do these deals help companies? Sale of land helps companies ‘unlock value’.

The land is shown at the purchase price in the balance sheet and a sale fetches profits for shareholders; the company can, of course, use the cash in its operations. DLF used the ₹2,700 crore it got in 2013 selling land to Lodha Group to pare debt. The land was bought for ₹702 crore from NTC Corp in 2005.

Corporates prefer outright sale, for cash, rather than entering into joint development with builders. Such a sale avoids the need to evaluate and take a call on the expertise of the partner, says Venkatesh Gopalkrishnan, Executive Vice-President, Shapoorji Pallonji.

Hassle-free land

Builders prefer corporate land and are willing to pay a premium because these parcels usually do not have ownership issues. Delay in closing the sale is also minimal.

For instance, about 35 per cent of Mumbai land is locked in slums. Redevelopment is a long-drawn process, says Berinder Sahni, Director, Unicus Advisors, a Mumbai-based real-estate advisory. In other cities also developers prefer to buy from companies for the same reason.

The new Land Acquisition Act will increase the price of land and also the cost of aggregation, notes Shreekant P Shastry, Vice-President, Business, Ozonegroup, a Bangalore-based township developer. This may further increase the attraction of corporate land parcels and companies may get high prices to exit land investments.

(This article was published on April 27, 2014)
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