Realtors, land owners pin hope on joint development

At a time when both investors and banks are wary of pumping money into real estate, developers are reaching out to each other to form joint ventures and partnerships, to sell upcoming projects.

Real estate developers are opting for joint ventures with land owners to ease the financial burden, and also to mitigate risks of unsold inventory.

Interestingly, even investment bankers are giving a green signal to such projects. Most companies that undertake such joint ventures with land owners usually undertake marketing and sales activities as well, besides funding, to execute the project.

I-Banker Ashika Capital advised the joint venture between Rajasthan-based Unique Builders and Keemaya Build to raise about $8 million through non-convertible debentures. The funds were raised to facilitate an SRA project at Kandivali (East), in Mumbai.

Vaibhav Jain, President of Ashika Capital, said, “The real estate market is cyclical in nature. For revival of the sector, established players will look at alternate funding options through PE and NCDs. Looking at the current levels, our aim is to provide strategic solutions to our clients; more such deals are in the offing.”

Others like Pune-based Kolte-Patil Developers recently entered into a ₹120-crore co-development agreement with Metropolitan Lifespace Real Estate Developers, for its redevelopment project in Mumbai.

Metropolitan Lifespace is promoted by IPFII Singapore 5, an offshore entity managed and advised by J P Morgan’s Asset Management – Global Real Assets. Players like Ahuja Constructions, a real estate firm, with presence in Mumbai and Navi Mumbai, too collaborated with JP Infra, to launch luxurious residential tower, Altus.

Gautam Ahuja, MD of Ahuja Constructions, said, “It is an attractive investment opportunity, with an investment potential of 24 per cent growth annually for next three years, as per prevailing market conditions.”

Others like Radius Developers too, are keeping a close watch on opportunities for joint development. “We constantly scout opportunities for joint development. It is the need of the hour as land parcels are shrinking and funding costs are high,” said Ashish Shah, CEO of Radius Developers.

Radius had inked an agreement with DB Realty for its Bandra (Mumbai) project. Shah said the company is in talks with several stressed real estate developers, and may announce more such deals in the near term.

Industry watchers, however, note that while partnerships and JVs may take away some financial burden off realtors, not all JVs work as expected. Mumbai-based Hubtown had previously partnered DLF, which later exited. Last year, it partnered Wadhwa Developers to complete the project.

Vinay Betala, Associate Director, India Ratings & Research, said the recent real estate (Regulation and Development) Bill that has been cleared by the Cabinet, and if enacted, could result in higher reliance by real estate developers on joint venture projects with land owners, due to lower availability of surplus cash to buy land.

Ind-Ra believes that the provision, which prohibits pre-sales until the land is in possession and all approvals in place, along with the clause to escrow a portion of sales proceeds, will all lead to higher reliance on joint venture projects and consequently the much-needed elasticity in real estate prices.

“Consolidation may be on the horizon as smaller players lose ground to a few top developers, with good track record of delivery and compliance,” Betala points.