Builders go for outright land buys amid better residential demand

Of 68 land deals closed in nine months of 2022, nearly 40 deals comprising over 590 acres are proposed for residential development

Property developers are favouring outright purchase of land parcels for residential developments, according to real estate consultants and developers.

While before the pandemic developers mostly preferred joint ventures (JVs) to de-risk and conserve cash, now they opted to buy land as residential sales improved and consolidation had gained ground in real estate, experts said.

According to Mayank Saksena, chief executive, land services, at Anarock Property Consultants, the ratio of outright purchases of land to JVs had changed to 50:50 from 80:20 before the pandemic. Prior to Covid-19, 80 per cent of land bought was through JVs.

“Today, good developers don’t want interference from landowners. They are confident that their product is good and they can sell the project well,” Saksena said.

He added that the residential market was faring better than the commercial market, which was a driving factor for the outright purchasing of land.

“All that the top developers want is land parcels, which are free from litigation, and good landowners,” he said.

According to Anarock, the top eight cities saw at least 68 separate land deals accounting for 1,656 acres in the first nine months of 2022. In the corresponding period in 2021, only 20 land deals for 925 acres were closed across these cities.

Of the 68 land deals in the nine months of 2022, nearly 40 comprising over 590 acres were proposed for residential development. About 26 deals were meant for commercial development.

Godrej Properties has already changed its strategy from an asset-light model to outright purchase in the last couple of years.

The company recently bought land parcels in Mumbai, Pune, National Capital Region (NCR) and other cities.

“Our land acquisition strategy is based on high-impact deals, and with plenty of opportunities across key markets we are open to all models of purchase based on the merit of the available land parcels. Our focus remains on group housing in key micro markets within Mumbai, NCR, Bengaluru and Pune as we see a lot of growth potential in these markets,” said Gaurav Pandey, MD and CEO designate, Godrej Properties.

Godrej is selectively looking at tier-II markets for plotted development. It recently entered Nagpur and Sonipat and also acquired a land parcel for a residential project in Manor-Palghar, Maharashtra, for plotted development. In FY23, it has so far added eight projects that take the cumulative expected booking value from them to approximately Rs 16,500 crore as against the full-year guidance of adding projects with a booking value potential of Rs 15,000 crore, Pandey said.

Nishant Kabra, senior director, India capital markets, JLL, attributed the trend to three reasons.

First, the post-Covid market has seen institutionalised developers corner a larger share of the residential sales pie across all major cities. Second, increased residential sales have brought down inventory overhangs in most pockets. And third, after a decade or so there is almost a 20 to 25 per cent pricing difference between ready and under-construction inventory. Again, as far as under-construction sales go, consumers tend to reward organised developers with a proven track record of delivery, Kabra said.

“Given these trends, I expect acquisition activity to continue strongly and developers would continue to allocate capital for the acquisition of land,” he said.

Changing plot

·         Ratio of outright purchase to JVs at 50:50, from 80:20 earlier

·         68 land deals accounting for 1,656 acres in first 9 months of 2022

·         Of these, nearly 40 deals comprising over 590 acres were for residential development

·         About 26 deals were for commercial development

Source: Anarock