Wednesday, June 08, 2011

Distress Sale? Large Real Estate Developers facing cash crunch ready to sell at 15 to 20% discount.

              Distress sales seem to be emerging out of the woodworks in a tight monetary regime, with large real estate developers looking to sell projects and land parcels at 15 to 20% discount to market prices. They have their eyes on credible corporate buyers. "It is not called distress sale, but several developers facing a cash crunch are willing to negotiate prices and reduce it anywhere between 15 to 20% once they come to the negotiating table," said the executive of a large corporate with a real estate arm, who has received several such offers.
              Realtors facing a cash crunch are learnt to have approached cash-rich groups.
              "We have received proposals of this nature at different locations and are planning to go ahead with a few to take advantage of them," said Brotin Banerjee, CEO, Tata Housing.
              Costlier money is driving the change.
              "Even private lenders who earlier funded money to them at a high interest of 20-25% are now asking for a slice in equity," said an industry consultant.
              Troubled developers are said to prefer partners to tough lenders or equity investors.
              "We have, in the last couple of months, been approached by some of the property consultants on land parcels or FSI (floor space index) owned by some developers. These have been across markets like NCR, Mumbai and Pune. (But) nothing conclusive on any of these at the moment," said Anita Arjundas, Managing Director, Mahindra Lifespaces, which is not looking for joint deals.
              Developers are betting on larger corporates getting a premium for the goodwill they enjoy. The would-be sellers may include large pure-play realtors.
              According to a person close to the development, HDIL, a Mumbai based developer, is looking for buyers for its land and projects around Mumbai and has approached consultants. The company declined comment despite several efforts.
              Delhi-based Unitech is also learnt to be looking to sell developed properties in the NCR. Unitech did not respond.
              "If they reduce the price the buyers who have bought at higher prices would demand discounts or cancel ongoing deals. So developers are stuck in catch 22 situation and are forced to artificially keep the prices high despite few sales," said a Mumbai-based real estate developer.