At the CIDCO land auctions in Navi Mumbai last week, bids varied between Rs 65,250 and Rs 96,000 per sq m in comparison to Rs 1.15 lakh – Rs 1.25 lakh in November.
With the Real Estate (Regulation and Development) Act making it mandatory for developers to purchase land from their own funds and not through advance payments collected from customers, most land deals across the country are likely to close at least 20 percent to 25 percent less than pre-demonetisation and pre-RERA prices, say real estate experts.
The City and Industrial Development Corporation (CIDCO) land auctions in Navi Mumbai last week saw 40 percent lower bids than in November, a possible impact of RERA and the demonetisation drive launched on November 8 last year to curb black money. The CIDCO bids varied between Rs 65,250 and Rs 96,000 per sq m in comparison to Rs 1.15 lakh to Rs 1.25 lakh in November.
“This deal will definitely set a benchmark for all land deals that are closed in the next few months. This is because RERA has limited developers’ ability to buy land with advance payments from customers. They also have to now pay the full amount in cheque and get their building plans cleared before launching a project,” Manohar Shroff, vice-president, MCHI, Navi Mumbai, told Moneycontrol.
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Land valuations reflect market conditions
Since November last year, there have been fewer land transactions across the country. “They have come to a grinding halt as this was one segment where the cash component deployed was the maximum. Also, since sale volumes and sale velocity have both been slow, they have impacted land valuations. RERA has also put a spanner in developers’ expansion plans as they are adjusting themselves to new compliances and are refraining from buying fresh land parcels. Land transactions will continue to be under cloud at least for the next one-and-a-half years,” says Gulam Zia, ED, Knight Frank (India).
“Developers while bidding for properties today are deep diving into the dynamics of the micro market/location and taking informed decisions, keeping current and future market conditions in mind. The price at which they bid today reflects this reality. In the past, they were ready to take a calculated risks based on past appreciation levels. However, in the current scenario, prevalent market conditions are governing their investment decisions,” says Ram Chandnani, Managing Director – Advisory & Transaction Services, India, CBRE South Asia Pvt Ltd.
Land valuations to depend on demand and supply
Other experts feel that the current market conditions will have varying impact in different micro markets. All markets will not react in a similar manner. Prices at which land deals are closed will depend largely on the demand and supply dynamics.
“The Mumbai deal that closed last week is a very bold auction undertaken by the authority. One must note that this is a satellite/suburban location and not a central business location. We anticipate land rates to fall going forward but that will differ from location to location,” says Ashutosh Limaye, National Director – Research, JLL India.
Here are a few examples. As per reports, an auction of two land blocks of 2.84 acres and 2.38 acres in Raidurg, an IT hub of Hyderabad helped TS Industrial Infrastructure Corporation raise Rs 185 crore last week. As against the base price of Rs 60,500 per sq yard, in the first block of 2.38 acres, the highest bid was that of Gowra Real Estate working out to Rs 88,000 per sq yard. In the second block as against the base price of Rs 60,500, MSN Life offered Rs 60,600 per sq yard.
The state-run National Building Construction Corp (NBCC) also hopes to raise Rs 12,000 crore through e-auction of 11 commercial towers in South Delhi, each part of redevelopment projects in place of low-rise government housing. HDFC, SIDBI, Hindustan Petroleum (HPCL) and Power Finance Corp (PFC) have already booked an upcoming 10-floor commercial tower at Nauraji Nagar for Rs 1,100 crore. Each has bought the property at about Rs 38,000 per sq ft, much higher than prices prevailing in Connaught Place. This is because the commercial towers are coming up close to Bhikaji Cama Place, another business district in the Capital.
Amit Mohit Prasad, CEO, Noida Authority, says that the authority at its board meeting held recently has decided against increasing the reserve price (land allotment rates) for land for the financial year 2017-2018 due to the slowdown in the realty sector and fall in property sales.
In Haryana, Haryana Urban Development Authority (HUDA) sold a 7,820.80 sq m plot to Hyundai in November 2016 after demonetisation for Rs 205.88 crore, to build its new office. It plans to auction over 50 commercial sites this month to raise around Rs 150 crore.
“End-user demand usually doesn’t get impacted by external factors such as demonetisation. In fact current reduced prices provide an opportune time for end-users to explore purchase options,” says Vivek Dahiya, Founder and CEO, GenReal.
Over the past 36 months, keeping in mind the market conditions, HUDA has been regularly revising the circle rates. Its impact will also be on reserve prices which would be lower and hence more in tune with market conditions, he adds.