Selling non-performing assets to improve cash flows

As real estate scenario in many Indian cities continue to be grim, cash strapped developers have to fight hard to get adequate liquidity to launch new projects or complete the on-gong projects in time. 

Several developers with huge land holdings are unable to launch new projects with their own limited capital, and hence look for partnership with better-funded real estate developers or those eyeing for development opportunities in an asset-light project by offering them development rights.

In such a situation, incoming developer can build a smaller project while the main developer liquidity by allowing multiple partners in their large land parcel. This improves cash position by bringing them money as part of joint venture developments, or if the incoming partners buy smaller pieces of the big land parcel.

Also, developers are generally interested to sell off land parcels which they do not want to develop in the near future due to financial constraints, says, Kishor Pate, CMD - Amit Enterprises Housing Ltd..

Developers opt for partnership in the following ways:

1.     Through joint venture development: – The incoming partner develops and sells the project, while the main developer gives away development rights but retains the ownership of land.

2.     Selling partial land holdings for township developments:  Developers sell smaller pieces of land from the main land to many small developers to execute smaller projects to create a township project.

3.     Outright sale of land: - Developers sell lands which he is not intend to develop in the immediate future to big developers to get rid of his non-performing assets and solve their liquidity crisis.

Effect on Home Buyers

On the face of it, jointly developed project may not have any impact on buyers on monitory point of view. However, However, of the original developer of the township project gives developing rights to multiple developers, then, buyers should be more vigilant for quality variations. On the positive side for buyers, the main developer may offer discounts in buildings falling in his own share if his cash constrains were the reason for the partnership.