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

For media contact

Arun Chitnis
Head - Corporate Communications & Media Relations
JLL India
Level 6, Amar Avinash Corporate Plaza
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Pune 411001.
Tel: (020) 40196100 Fax: (020) 40196101
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Website: www.joneslanglasalle.co.in
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