Tata, Godrej eye local realtors for NCR link

NEW DELHI: Real estate majors like Godrej Properties and Tata Housing are entering into “joint developments“ (JDs) with local partners in order to attract customers even as most local developers labour under a cloud of mistrust owing to delays in offering possession.
Though the demonetisation drive has aggravated the problem of developers, projects with corporate branding still find favour with buyers.

In a JD model, the corporates earn a clean profit of 1215% of the sales proceeds -without investing any capital -but they take on the responsibility of timely delivery of the promised product. They also charge around Rs 500 per sq ft as project development fee.

After Godrej Properties entered Greater Noida, Tata Housing, too, is launching a JD project with Lotus Group in Noida. While Godrej launched the project on over 100 acres with Ace Group, Tata Housing has signed a deal to develop a project on 25 acres in Sector 150, Noida.

“We sold over 100 villas -around 6 lakh sq ft of built-up area -with a cumulative booking value of over Rs 300 crore on the first day of the launch of our project, Godrej Golf Links, in Greater Noida,'' said Pirojsha Godrej, MD and CEO of Godrej Properties.

This was before the demonetisation drive kicked in. Since then, too, the group managed to sell a substantial portion of the project. This shows that there is good demand for houses, provided buyers are assured of quality and timely delivery , Godrej said. He added that his firm was aggressively looking for partners holding large parcels of land in prime locations in cities across the country .

While Godrej refused to name his partners, reports suggest that the group is negotiating with Unitech, Lotus and Logix Group for joint developments in Gurgaon, Noida and Greater Noida. Godrej said his group was working to launch many projects, preferably through JDs, in NCR, Mumbai, Pune and Bengaluru.

Sources in Tata Group, which is yet to officially launch its Noida project, said the company had received encouraging response from buyers during the pre-market survey . A senior official at Tata Housing said the firm was interested only in JDs and that it was exploring opportunities in other markets too.

“When we involve ourselves in a project, we ensure high quality and timely comp letion. We push over 70% of the buyers' money into an escrow account to ensure that the money is used for the construction of the project alone,“ the official added. Achal Raina, CEO of Lotus Group, however, refused to comment on any ongoing talk with Tata Housing or Godrej Properties.

Local developer ATS, which has performed relatively better in NCR than its peers on the count of timely completion of projects and quality , is also in talks with firms like Jaypee and Logix, which are saddled with large land banks, to launch JDs or JVs.

In a JD, a corporate house lends its brand name and management skill to complete the project. When brands like Tata and Godrej are involved, even banks and NBFCs lend mo ney to projects against land, which is not the case even for many big-ticket developers.

In many cases, the booking amounts received from buyers are sufficient to start construction at the time of the launch of the projects. Once a project is begun, it is completed on buyers' instalments.

Most of the family-owned real estate companies are under huge debt, which was taken to create land banks at a time when the market was booming. However, in the past six years, there has been a crisis of credibility as most of them could not complete their projects. Besides, they are finding it difficult to launch new projects as there are few takers.This has seriously affected their cash flow.

Though JVs or JDs do not provide immediate relief to the cash-starved developers, who need funds to complete the stalled projects, this model helps them in reducing debt taken to buy land or dues towards authorities against the land cost. The liability to pay the dues to authorities against the land is transferred to an SPV (special purpose vehicle), created to construct the project. However, monetising the total value of land will take a couple of years, the time taken to realise all sales proceeds.

In fact, corporate houses are looking at the current crisis in the sector as an opportunity . Recently , a number of large corporates, with interests in other sectors, have entered the real estate business. A group company of telecom major Airtel is planning to launch a residential project in Faridabad, in a joint venture with Eros Group.