Rera impact: Stressed realtors seek buyouts or JVs with big players

With the Real Estate (Regulation and Development) Act, or Rera, in place in many states, leading developers or those promoted by corporates are seeing a surge in requests for buyouts and joint ventures from smaller and stressed companies.

Big players say there has been a jump of 25-200% in the number of such proposals in recent months.

L&T Realty, part of construction giant L&T, has seen a three-time jump in the proposals for joint ventures or buyouts, said its chief executive officer, Shrikant Joshi.

“With Rera, it has become a serious issue to deliver any project. The law is very strict. Even if 15 people have bought into your project, you have to complete it. For that you have to have financial resources, execution skills and so on. Not many people have that,” Joshi said.

L&T Realty would carefully tread in selecting proposals and developing new projects, he said, adding that now developers who were seeking joint ventures were more accommodative.

Godrej Properties has seen a 25-30% increase in proposals in the past three months.

“After Rera, people have realised that property development is not everybody’s game. Many land owners who got into property development business want to go back and leave the development business to serious property developers,” said Mohit Malhotra, managing director at Godrej Properties.

Mumbai-based Hiranandani group, led by Niranjan Hiranandani, says that in the past six weeks, they had got five to six proposals for buyouts.

Like L&T, Hiranandani is also cautious. “We want to do one or two good opportunities. We are not in a hurry,” said Hiranandani.

Hiranandani said consolidation in real estate was going to happen because of the new law. “If a company is stressed today, after RERA, it will continue to be stressed. In fact, stress will go up. It is equally due to liquidation (bankruptcy) law as it is due to Rera,” he said.

He said that until now, the leveraged companies need not worry and could wait it out. “But with the Bankruptcy law, the foreclosure is immediate.”

Rera makes it mandatory for developers to keep 70% from a project sales in an escrow account, which is expected to curb their habit of diverting funds from a project to other. The Act also says developers have to get all approvals before launching a project, thereby prohibiting all prelaunches.

Sunteck Realty, backed by Ajay Piramal, has also seen over 50% jump in the joint venture or buyout requests in recent weeks, said its chairman and managing director, Kamal Khetan.

Khetan said they had got five to 10 such requests from a couple of developers. “In the current market conditions, they think they won’t be able to complete the projects,” Khetan said, adding that Rera is one of the key reasons for that.

However, he said the company would be choosy and take up only two or three proposals. “We will take up only those which match our DNA and brand values,” he said.

Sharad Mittal, director at Motillal Oswal Real Estate Investment Advisors, said, “The number of developers in business needs to come down significantly.”

He said Rera would lead to fewer new launches till the industry settled down over the next 12-18 months. “There is no reason for prices to go down due to Rera and consolidation, if not for case for prices to firm up due to increased regulations,” he said.