Towers under construction are silhouetted at sunset in the Lower Parel area of Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

This Developer Has Found A Way To Grow In The Struggling Property Market

Redevelopment and profit-sharing with landowners could help real estate developers as the industry is yet to fully recover from the disruptions of the cash purge and a new housing law.

Kolte Patil Developers, builder of residential and commercial complexes in Pune, Mumbai and Bengaluru, said the model is working well for it. The company has around 12-14 projects in the pipeline to pull down old structures and build afresh in Mumbai, India’s second-largest real estate market.

The developer is also not looking at buying land for new apartment blocks. Instead, it’s tying up with those who own the land as the Real Estate Regulation Act has made it difficult for small builders to find capital.

“Under RERA, small-time developers and landowners accepted that the only way to monetise land would be to work out a profit-sharing model with a relatively large developer,” said Gopal Sarda, Group chief executive officer of Kolte Patil Developers. The company is now promoting itself as a pioneer in sales, land processing and construction, instead of investing heavily in land acquisition, he added.

Prime Minister Narendra Modi’s move to outlaw old Rs 500 and Rs 1,000 notes in November 2016 hurt the cash-driven real estate market. RERA further hurt developers as it bars them from transferring funds from one project to other and stipulates penalties for delays. Sales and new launches declined with only low-cost housing seeing traction due to subsidy on interest rates.

The redevelopment and profit-sharing model has worked in the developers’ favour as it is asset-light and helps in improving margins, return-on-capital and return-on-equity, said Sarda. “Since we do not have to invest heavily towards land cost, we can use cash flows towards redeveloping projects.”

Kolte Patil expects a near 30-percent jump in its revenue and profit this financial year. It expects the return on capital employed to expand to 18-20 percent by March 2020.

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