Medium-sized property developers are selling out to more credit-worthy developers in the face of stiff regulatory norms.
“Introduction of RERA has consolidated the real estate industry. We are seeing it at play and in the last four-five quarters, out of 10 deals, seven are with mid-sized developers,” said KB Anand Narayanan, Chief Operating Officer, Puravankara Ltd.
“Consolidation has been an ongoing phenomenon since DeMo, after which fly-by-night developers exited the market completely. Recent mergers, acquisitions and joint developments have placed the spotlight back on this trend,” said Anuj Puri, Chairman, Anarock Property Consultants.
“However, most of these mergers and consolidation are seen at the project level and not at the developer level. Around 90 per cent of all mergers are happening at the project level,” he added.
Most of those projects are stalled by dearth of funds and lack of management capabilities which can be revived if developers join forces and leverage mutual strengths. An insurmountable challenge for small developers can turn into an opportunity for organised players.
Fall in demand
Bijay Agarwal – Managing Director – Salarpuria Sattva Group said, “Indian real-estate businesses expanded as long as firms were able to draw new buyers for planned projects. But as the economy slowed and demand softened, many firms were left short of cash and struggled to manage their debts.”
“Small developers in particular are facing greater pressure to improve cash flow, thereby forcing them to sell their business to established players,” he added.
The drying up of funds in the real estate industry shows no sign of letting up. In the last five years, NBFCs have replaced banks as the primary source of funding for realty transactions and they (NBFCs) were disbursing almost 65 per cent of credit to the real estate industry.
“Since NBFCs were not subject to RBI guidelines on lending, they were happy to lend for land acquisition and to give top-ups for general corporate purposes, which banks could not do. The situation changed dramatically post the IL&FS crisis and the asset-liability mismatch resulted in almost 90 per cent of NBFCs going slow,” said Gagan Randev, National Director, Capital Markets & Investment Services at Colliers International India.
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