Land Sales Spike In Mumbai On One Mega Commercial Deal

Buyers favoured commercial and mixed-use projects over residential, according to data shared by real estate services firm Cushman & Wakefield.

While the number of big-ticket deals in the Mumbai Metropolitan Region in 2019 fell over the previous year, the value rose 56.4 percent to Rs 3,838 crore this year. That, however, came on the back of a single Rs 2,238-crore transaction in Bandra-Kurla Complex—the first private land deal in the business district through tendering since 2008 with Japan’s Sumitomo Corporation taking a three-acre plot on lease from the Mumbai Metropolitan Region Development Authority.

With the residential market that dominated land transactions slowing down, large land deals in the Mumbai Metropolitan Region have been slower in recent times, said Rohan Sharma, head of Research at Cushman & Wakefield. “Most deals are occurring in the suburbs and only prominent players with a healthy financial status are entering into land deals in the residential segment.”

Real estate players who can afford to buy land are focusing more on commercial land deals as the market continues to grow well and has the backing of several institutional funds, Sharma said. Prices for residential plots have largely remained range-bound for the past two years while commercial land prices rose 15-20 percent.

The jump in commercial real estate transaction , according to Amit Goenka, chief executive officer and managing director at Nisus Finance, is due to robust demand, interest of global investors and greater returns in the sector. “The commercial demand will continue to grow and is not showing signs of slowdown and this has been a global phenomenon,” he said, adding that this is evident through the successful listing of the Embassy Office Parks real estate investment trust.

Earlier this month, Maharashtra’s town planning and development agency auctioned plots in Navi Mumbai at the highest rates even as the nation’s real estate market is grappling with a liquidity crunch.

Consolidation

India’s real estate developers are struggling to raise capital after funding from non-bank lenders dried up following the surprise defaults of the AAA-rated IL&FS group a year ago. That has triggered consolidation in the sector. But bigger realty firms that focus on commercial real estate and affordable housing have gained.

“In India, there are hardly 20 Grade-A developers who do commercial real estate against more than 12,000 residential real estate developers,” Goenka said. The number of residential developers will shrink whereas Grade-A developers will expand their portfolio, he said.

In Mumbai, like most other key markets of the country, commercial land deals will continue to remain stronger than residential, Goenka said, adding that there is a lot of demand for residential land in the far-off suburbs. “But we are likely to see more of monetisation of land through JVs than outright purchase of land.”

Agreed Nayan Shah, president of industry body CREDAI-MCHI and chief executive officer of Mayfair Housing. “The classical methodology of buying and selling land is changing,” he said. “Instead of outright purchase, the developer gets into a joint venture and joint development agreement model of revenue sharing.”

Shah, however, cautioned that deal activity may slow down for both categories. The outlook for deal activity in both commercial and residential segments is weak for 2020, he said, adding that the entire real estate industry is on a wait-and-watch mode in the current economic slowdown. “Developers are focusing on completion of ongoing projects. People don’t have spare funds to buy any new land. Even in commercial real estate, I don’t think you will see much traction.”

Meanwhile, MMRDA has invited bids for two 1.5-acre plots in BKC with a permissible built up area of 30,000 square metres. The tender is open for bidding and the agency extended the final date of bidding from Dec. 16 to Jan. 6, 2020.

(Corrects the earlier version that misstated the area of plot for which bids are invited.)