Amused by a news article today morning, that talks about a Bandra Kurla plot seeing just one bidder. Sounds unbelievable, it is true! A bandra Kurla plot was sold for Rs Rs 1.55 lakh per square metre, ie, Rs. 92 lakh to Talim Research Foundation - less than half the price from the previous auction in March. The news showcases how the real estate players are crunched for cash and they are not ready to pay astronomical rates for land now.
Just five months ago, Jet Airways (India) Ltd picked up a plot in the same area at Rs3.52 lakh per sq. metre. Moreover, in the beginning of 2007, Wadhwa Group had bought a commercial plot in the complex at a staggering Rs5.04 lakh per sq. m. Compare that to Rs. 1.55 lakh today! Land sales have shrunk in a tight realty market and developers have stayed away from land purchase.
The Mumbai Metropolitan Region Development Authority, or MMRDA, had no choice but to award the 5,900 sq. m to the lone bidder in Talim. The plot would be used for an educational facility by the nine-year old foundation which does social science research with a focus on health, communication, micro-economics, social audit and poll studies. In March, only three out of five plots were sold in a land auction by MMRDA when Jet Airways picked up a plot and Starlite Systems Pvt. Ltd bought two residential plots at the same price. (Read more)
In another interesting development, Phoenix Mills gets Rs Rs1300 million funding in 21 SPV level projects by German real estate funds MPC Synergy. (Read more) This is the second largest FDI investment in real estate in India. Largest was by Deutsche Bank for a 25% stake in a SPV owned by Lodha Group for $425 million.
Deals in the realty space are now being structured as debt instruments rather than pure equity transactions. PE funds are seeking higher returns (Over 25 - 30% IRR) besides securing their investments. Cash crunched developers have no option but to accept the stringent terms of PE funding. Debt like covenants are structured with the PEs continue to share in the equity upside. Unlike past, plain vanilla PE deals are now rare in realty. Under the preferred mode, if the project generates a lower than expected return, then the PE firm first gets its share (equivalent to the agreed IRR) from the overall profit and the balance accrues to the developer.
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