The Rs 4,050-crore plot deal in Mumbai could signal a renewed interest in big-ticket property deals

The real estate tiger is on the prowl again. And, it’s hunting for big-ticket details. Last week it found its prey – the Rs 4,050-crore deal for a 25,000 square metre plot of land in Wadala, Mumbai. This could indicate that the buyers’ appetite for land transactions has increased in the real estate market after a lull of over 18 months. Renewed sales, improved liquidity and accessibility to capital has led some developers to look at building fresh land banks.
How do big-ticket deals influence prices of property in the neighborhood? These set a benchmark for property prices and most have the ability to excite buyers interest and create artificial price situations. The values of upcoming projects in the area also shoot up following such deals. Realty experts contend that the trend will continue more such transactions taking place this year.
Setting a benchmark
The questions that such deals raise are: In case of a land auction, would the deal affect prices of projects in the vicinity and in case of a secondary sale? Also, would the price set a benchmark for properties in the area or would it remain a one-off transaction? Real estate experts believe the residential real estate market is a highly ‘neighbourhood-driven business’ and prices in the vicinity are immediately impacted by such deal, the Wadala deal being a case in point. A day after the deal, the asking price for upcoming properties in the area almost doubled from Rs 8,500 per sq ft to anything between Rs 10,000 to Rs 12,000 per sq ft.
Closer home, when DLF bagged the 350.7 acres in Gurgaon for Rs 1,750 crore in 2009 and paid Rs 1,675 crore for 38 acres of land in west Delhi in 2007, it established a benchmark for land transactions in those areas.
“Residential real estate is highly neighbourhood-driven business and high-value deals have the ability to excite buyer interest. The news of such a deal has the ability to excite buyer interest, simultaneously creating an artificial price situation. Upcoming projects may also get valued at a higher price following the deal,” says Aniruddh Wahal, director, DTZ International Property Advisors.
But, are these prices sustainable? Not in the long run, say experts. “Such deals have a tendency to cause market distortions. My worry is that these prices are not sustainable in the long run. There may be a possibility of a correction if there is no real demand,” says Samantak Das, national head, research, Knight Frank India.
As far as secondary sales are concerned, (such as the at the Samudra Mahal – a duplex apartment in a Worli building that fetched a price building that fetched a price in excess of Rs 36 crore at an auction a few months ago) real estate experts are of the view that such transaction are not representative of the residential market but can safely be considered one-off sales.
“Though it’s true that highend apartments will continue to fetch high values, a small-sized apartment in the same area (where a big-ticket deal has taken place) may not fetch the same price as pedigree buildings are very few and not all apartments are of the same size.”
The size is what will matter if one were to draw comparisons,“ says Pawan Samy, MD, West India, Jones Lang LaSalle Meghraj(JLLM).
Jai Mavani of KPMG con- curs, “Secondary market deals are best considered as one-off deals. One has to see these announcements of trophy deals carefully. Some command a premium due to the snob value attached, emotive reasons such as a prior history and in some cases the convenience factor. An isolated deal is not indicative of a pricing trend.”
As far as the land auctions are concerned, what is important is the per square feet of FSI for which an amount has been paid and not the absolute quantum paid. Assess the nature of what you can construct on the plot and the terms of payment, and then make a comparison. A four-acre plot with FSI of 20 will go for a certain amount and another with less FSI for a different price. If one were to consider this aspect, one will realise that what is effectively being paid is materially not vastly different from the going rate in that area. That's perhaps the reason why Pankaj Kapoor, founder of Liases Foras, contends that the “Wadala deal is not an expensive deal“.
Often, some developers consciously dole out high amounts for land deals.
“This may be in anticipation of a change in FSI regulations in a particular area or in anticipation of them (developers) being able to avail of certain schemes pursuant of which they are entitled to incremental FSI,“ points out Mavani.
One must also remember that the developer can only launch a specific type of project on such big-ticket land parcels and these are usually high-end apartments or for that matter premium commercial projects in order to leverage the high cost of land. The builder wants to make the most of his investment.
BPTP bagged a 94 acre plot in Noida in 2008, for which it worked out Rs 5006 crore.
Following the slowdown, it gave back 72.83 acres to the authority and kept 21.17 acres, launching an integrated commercial project on the same plot in April this year called Capital City.
This will have a 5-star hotel, retail and entertainment zone, corporate suites and even service apartments.
Future deals As for the future, one can expect more such deals this year. Government-owned entities such as the National Textile Corporation (NTC), Mumbai Metropolitan Region Development Authority (MMRDA) and Railway Land Development Authority (RLDA) have either initiated or hastened the process to sell land to cash in on the revival of interest in big-ticket deals.
Big-ticket commercial and deals are possible in Delhi- NCR area soon after the Commonwealth Games in October-November this year, points out Ramesh Menon of Certes realty.
“Some industries in the Shivaji Marg area in west Delhi are waiting for conversion approvals and have applied for land use concessions. Once that happens, there may be some big-tick- et deals happening in that part of town too,” says Santosh Kumar, CEO, operations, JLLM.
Last but not least, big- ticket realty deals point to the urgency of having a real estate regulator in place.
“It is absolutely imperative to implement policy-level reforms which advocate establishment of a regulatory body to curb unnecessary profiteering and establish standardised guidelines. Unless there is a strong code of practice standards and ethics adhered to by practicing professionals, the sector will remain vulnerable to market shocks and failures and will lack public trust and confidence,” adds Sachin Sandhir, MD, Country Head, RICS (The Royal Institution of Chartered Surveyors) India.
Courtesy: ht estates dtd: June 05, 2010
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