Demonetization Move - The 3 models of Consolidation of the Indian Realty Industry: The Road Ahead..! - MYREALITY.In, Real Estate, Share Market, Mutual Fund, Insurance
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Tuesday, January 24, 2017

Demonetization Move - The 3 models of Consolidation of the Indian Realty Industry: The Road Ahead..!

Demonetization Move : Consolidation of the Indian Realty Industry: The Road Ahead..!
  by Mr. Shobhit Agarwal, JLL India

The government’s demonetization move is bound to lead to further consolidation in the overcrowded Indian real estate industry. This move has already started affecting demand for developers who preferred unaccounted money, adding to their liquidity woes.

Debt-laden real estate developers, who have been gearing up for bigger cash crunch with the implementation of Real Estate (Regulation & Development) Bill or RERA, now have demonetization to add to their woes.

The move has already started affecting demand for unscrupulous developers. In the longer term, these two steps taken by the government will indeed transform the overall image of the Indian real estate sector. In the interim, however, the overcrowded Indian real estate industry is set to see consolidation activity pick up pace. 

The three ways through which consolidation will be seen are:

1.   Developers / landowners finding development/marketing partners in large, reputable developers though the Joint Development (JD), / Joint Venture (JV) / Development Management model

2.   Smaller developers being absorbed by larger developers

3.   Cash-starved developers monetising their land bank by selling it to cash-rich / opportunistic developers

The first option is largely dependent on developer reputation and marketability. We have seen various such partnerships being created over the past few quarters. Some examples are:


JD/JV/DM
Landowner
Development Partner
Area (acres)
City
Ace Developers
Godrej Properties
100
NCR
Vihang Group
Godrej Properties
15
Mumbai
Lotus Green
Godrej Properties
36
NCR
Neptune Group
Tata Realty
10
Mumbai
Omkar Realtors
Shapoorji Pallonji Real Estate
16
Mumbai
IREO
Hines
10
NCR
Eros Group
Bharti Realty
40
NCR
Logix Group
ATS Builders
35
NCR
Lotus Green
Tata Housing
37
NCR
BU Bhandari Builders
Prestige Group
800,000 sq ft
Pune
Rohan Lifescapes
Radius Developers
150,000 sq ft
Mumbai



















Source: JLL Capital Markets Research



The latter two, on the other hand, would showcase the power of capital. The purchasing power of every Indian rupee or US dollar will increase and money will move in the direction of good quality land banks – Grade-A locations, followed by Grade-B locations. We have already witnessed a few instances of developers’ monetising their land parcels by selling them to their competitors.


Outright Sale
Seller
Buyer
Area (acres)
City
Amount (INR crore)
Sahara Group
M3M India
185
NCR
665
Parsvnath Developers
Supertech Limited
140
NCR
1,211
Ramprastha Group
Vatika Group
75
NCR
300
Windsor Realty
Kanakia Spaces
2.5
Mumbai
125
M3M India
Tata Realty – Standard Chartered JV
25
NCR
500
Windsor Realty
Wadhwa Group
6.5
Mumbai
208
Skyline Group
Kanakia Spaces
500,000 sq ft TDR
Mumbai
400

Source: JLL Capital Markets Research

While the consolidation is undeniable, the pace of it will depend on the quantum of equity infusion by the larger PE investors and the strategy adopted by foreign developers who may enter. A few have already entered India and are in the process of setting up their base with a long-term view.

Fosun International, a Chinese conglomerate, has revealed its plans to invest up to USD 1 billion in India, whereas developers such as the Dalian Wanda Group (looking to invest USD 10 billion) and China Fortune Land Development Company (signed a Memorandum Of Understanding (MOU) with the Haryana Government to develop large-format industrial parks) are tying up with state governments to set a base for large-scale development.

A few investors/developers may opt to take the plunge in this market straight away (like Macquarie and Fosun) and a few might prefer the wait-&-watch approach, but we believe the industry is set to consolidate in the next five years. By 2021, we will see larger players consolidating their positions even further while the number of smaller players will reduce considerably. In both cases, equity investment or the lack of it will play a deciding role.
 
About the author..!

Mr. Shobhit Agarwal, Managing Director - Capital Markets, JLL India


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Demonetization Move - The 3 models of Consolidation of the Indian Realty Industry: The Road Ahead..! Reviewed by S. Chitra on January 24, 2017 Rating: 5 Demonetization Move : Consolidation of the Indian Realty Industry: The Road Ahead ..!   by Mr. Shobhit Agarwal, JLL India The governm...

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