Real estate players chart out country-wide strategies as demand for homes pick up strongly
With a multitude of buyers warbling ‘Home sweet home’, and wanting to buy their first apartment, realtors are scrambling to build more housing, leading to a surge in real estate demand and also emboldening a few of the big builders to aspire for a pan-India presence.
From Godrej to Sobha and Prestige to Lodha, real estate developers are venturing out far from their home turf and entering cities where they had little to no presence earlier and establishing themselves as players to reckon with.
Here’s a look at their forays.
Godrej Properties is increasing its existing presence in other cities, buying up land in Bengaluru, Chennai, the National Capital Region, Gujarat and other places with a view to expanding its national footprint. It now operates in ten cities across the country. This month it bought a 60-acre land parcel in Chennai while last month it got over 23 acres in Haryana; in November it bagged 12.4 acres of land parcels in Noida in a bid. It also acquired a 12-acre land parcel in Pune, and in September it bought a 7-acre property in Bengaluru. Of the 9.1 million square feet of new launches scheduled for this year, 6.5 million square feet were in southern India and in NCR.
In Ahmedabad, in a project launched in October, it has already sold 870 homes with bookings worth ₹435 crore. Godrej Splendour in Bengaluru, launched in August last year, sold houses worth about ₹400 crore by September-end.
The commentaries from the company were clear – it planned to build premium residential projects in all these cities where it was aiming to increase its market share significantly.
Brokerage Jefferies, which has a ‘buy’ rating on the stock, is optimistic about the company’s prospects over the long term. In a recent note, it pointed out that the company’s shift in strategy from 2021 from partnerships to outright buy-outs of land would benefit it eventually with competition for land down.
With the additions and launches the company expects to end the current fiscal with bookings exceeding Rs 10,000 crore, a rise of over 27 per cent from a year ago.
A matter of Prestige
Prestige Estates Projects, a Bengaluru-based developer, is moving west and north. It made its entry into Mumbai in 2021 and the company’s project in the suburb of Mulund saw the highest sales in 2022 in the Mumbai Metropolitan Region. Its first offering in the city, Prestige Bellanza, in the suburb of Mulund, saw bookings worth ₹884 crore.
While making the entry into Mumbai, Prestige Estates Chairman and Managing Director Irfan Razack had said that Mumbai was one of the biggest real estate markets in the country that could not be ignored. So far, its success in the city seems to have borne out his optimism.
The company has 17.7 million square feet of projects in the pipeline in Mumbai of which over two million are ongoing. Overall, it has residential projects of over 10 million square feet coming up in Mumbai, Bengaluru, Hyderabad, Chennai and the National Capital Region. Helped by its Mumbai launch, the company is set to exceed its sales target of ₹12,000 crore in the current fiscal year.
Prestige Estates also has a significant commercial portfolio. Though a recent entrant into Mumbai, the company expects about half of its overall rentals to come from the Mumbai office market by 2025-26. It has three office towers, spread over 10 million square feet coming up in the business district of Bandra Kurla Complex. It has upcoming office towers in Pune, Hyderabad, and Kochi too.
Sobha Ltd, another Bengaluru-based realtor, is also diversifying though it is sticking to areas where it already has a presence. But it is significant that the latest figures show that about 40 per cent of its sales are from projects outside Bengaluru, compared to earlier years, when its contribution from its home city was higher. It has a presence in 11 cities across the country. While Bengaluru remains its core area where it is still expanding in micro-markets, it also has launches coming up in the NCR, Pune and Hyderabad. Last year the company management said that it was evaluating opportunities in Mumbai.
Unlisted Hiranandani Group has recently started expanding outside its core Mumbai market to other cities, such as Noida, Ahmedabad, Pune, Nashik and Chennai. The group had originally started a project in Chennai in 2005 but that was stalled as it ran into litigation problems. The project was restarted in 2016. It is expanding not only with homes but is actively scouting for land parcels for the development of its industrial and logistics parks business along with its data centre division. It is setting up data centres all across the country and has earmarked an investment of ₹30,000 crore for it.
Macrotech Developers, which sells under the Lodha brand, had so far stuck close to its home base of Mumbai, but has just made its entry into Bengaluru through a joint development project, with an estimated saleable area of 1.3 million square feet. The launch is scheduled for next financial year.
No pan-India player
“If you look at organised real estate in India, there is no pan-India player,” says Dhiraj Relli, MD and CEO, HDFC Securities. Some years back there was DLF Ltd, which made efforts at being a national player. A company, with its roots in Delhi, it expanded and forayed into cities such as Mumbai, Chennai, Kolkata, Kochi, Indore and so on.
But the company soon ran into debt and had to scale back and exit many of its projects across the country. The most prominent was its ₹2,700-crore worth land sale in Mumbai to the Lodha group. Since then it has restricted its activities to the NCR, though recently it has begun expanding again.
Real estate is a business that requires developers to have good contacts with the local regulatory ecosystem and authorities, and a strong knowledge of city-specific land laws.
HDFC’s Relli says that the reason why India has only regional players and not a national player is because of the necessary ‘equations’ that developers need to build in their area of operations. They have to know and understand the regional eco-system – the commercials, the unions, support from locals, how to navigate local ‘resistance’ using the workforce optimally, bringing in people from outside the State and getting required permissions.
“The compliance of State-pertaining rules and regulation, local government bodies and nodal agencies makes it challenging for the outside developers to perform with speed and efficiency. Hence, developers limited themselves to their native locations for the ease of development,” says Niranjan Hiranandani, founder of the Hiranandani Group.
Real estate players have always had expansionist aspirations, according to Mudassir Zaidi, Executive Director, North, with property consultant Knight Frank. “They do not want to remain just within the same city or locations, they always wanted to expand.”
In the years 2012 to 2014 developers also looked overseas such as London, New York and Dubai. Lodha, for instance, spent about ₹4,000 crore for its overseas foray and holds luxury properties in prime areas of London.
Successive shocks such as demonetisation, the housing finance crisis and the enactment of the Real Estate (Regulation and Development) Act in 2016, sent the real estate market into a downward spiral as funding dried up. Developers defaulted and delays in deliveries – that were usually a few months late – extended to years and customers could not be sure that they would even get the houses for which they had made down payments and taken loans.
Zaidi explains that it was the residential developers in the north who were mostly affected. “That has created an opportunity for players in the west and south,” said Zaidi. Developers in the south especially have large commercial portfolios generating good cash flows, which they could use for moving into the NCR. “NCR developers were asset rich, but cash flow poor,” adds Zaidi.
So joint developments, joint ventures and other models to do business became widely prevalent. Defaulting developers owning land are selling them to realtors from the south and west who have the necessary deep pockets to acquire them. The trust deficit that had developed due to the defaults and delays helped the new entrants to establish themselves.
Prestige Estates, for instance, has formed a joint venture with Mumbai-based DB Realty and has planned several projects with it in Mumbai, for its office projects in BKC, and residential projects in other places. The two companies also have a tie-up for a convention centre and hotel in New Delhi near the airport, for which DB Realty got the development rights in 2009.
From 2020 onwards plot developments have made a comeback and with it outright land acquisitions. In the NCR there is hardly any free land available and most of the transactions are re-sales from existing developers.
Zaidi says that the real estate sector is expecting the current momentum in the residential segment to sustain, and they are building up a land bank for future supply. “Instead of JVs and JDs, most of them are realising it is better to block the land now, rather than wait it out.” Predictably land prices are trending northwards over the last 18 months. “There is a lot of competition for land,” adds Zaidi. Developers expect the good times to last for the next 4-5 years and buyers will continue to buy homes.