The Indian real estate sector is currently passing through a
critical phase and the government has finally realized the fact that there is a
need to create positive environment in order to attract investments and
kick-start the sector, if we are to achieve housing-for-all by 2022, writes Manju
Yagnik, Vice- Chairperson, Nahar Group.
Real Estate sector is the second largest contributor
to the economy after agriculture. The growth of this sector is therefore
essential for the economic growth of the country.
The main challenges faced by developers during 2015 were
uncertainties in government policy which directly affected the confidence level
of the buyers and the developers alike, issues related to the easy access to
funds and liquidity crunch faced by most developers during the year as banks
and financial institutions were hesitant to lend to the sector and ease of
doing business. Both these factors delayed new project launches and slowed down
completion of ongoing projects.
In such a scenario
where there is a dearth of capital or limited avenues to raise funds for
development of projects, there is a growing trend being witnessed that of developers
who are now looking at joint partnerships to develop projects. Here, there are two
types of joint venture (JV) partnerships namely - one with the land owner and
developer and the other where like-minded developers come together to develop
projects. This kind of association takes care of capital requirements, reduces
the risk involved and helps in faster development of larger residential
projects.
The joint venture
where landowner jointly develops the property with developer has been quite
successful and currently a few leading developers are developing projects based
on this type of a model. Here, developers partner with the land owners in
jointly developing the property. This type of development is mutually
beneficial to both the parties as the developer does not have to invest large
capital to buy the land (which constitutes nearly 50% of total project cost)
and the land owner will not have to arrange funds for the construction nor will
he have to scout for developers to construct and market the project. The Joint
Venture partnership also facilitates developers with local expertise in a new
city where a developer wants to start a project. This way a developer can look
at starting projects in multiple cities with local partners.
Nahar Group too has few of such projects which are on-going
and upcoming.
This is currently trending in the real estate sector due to
various reasons, one of them being market slowdown and dip in sales, which in
turn has created liquidity crunch and limited access to funds by developers. In
fact, with the passing of the Real Estate Regulatory Bill we may see more of
such alliances as submission of 70% of project revenue into escrow accounts,
being made mandatory, would ultimately limit the liquidity of the developers.
But on the flip side, the State Regulator bill could lead
towards finally getting industry status for the sector. The HRA will help in
weeding out fly-by-night operators who malign the industry and bring more
transparency. Also, this will result in well established players getting a
wider platform to operate, with more clarity and possibly single window
permission being made available as the regulator would require the completion
of the project in given stipulated time frame. Banks and financial institutions
will also not hesitate in advancing loans once industry status is achieved.
The other recent trend that is gaining traction among
leading developers across the country is that of a few developers forming an
alliance to undertake residential projects jointly. Here the concept is based
on individual developers bring to table their respective expertise in
developing the project. For instance one developer will bring in the capital,
another helps in getting necessary approvals from local authorities and third constructs
the project while the fourth does the marketing of the project.
In this way each developer, based on the expertise, takes
care of one department in the entire gambit of project development which
ensures economy of scale, reducing risk and completion of project within the
given time frame. Of course this is done with a lot of pre-arranged agreements
acceptable by all partners.
These joint ventures seem to be the result of developers
trying to beat the downturn and sustain themselves in a rather competitive and
challenging environment. As the saying goes "Tough times call for Tough
measures" can be apt to describe these innovative plans of developers in
the given situation and time to come.
Therefore to conclude, joint venture is the new paradigm
shift in real estate development and we can look at more of such associations
among various stakeholders within the real estate industry partnering together
in the hope of getting better valuation and self-sustenance in the long term.
About the author:
Ms. Yagnik has been associated with Nahar Group for over two decades. After completing her graduation from Kurukshetra University, she decided to use her skills in a profession that was challenging but yet matched her passion. She entered the real estate industry by joining the Nahar Group. Creating unique land spaces, coming up with unique initiatives for consumers, understanding consumer behaviour, being a decision maker, managing people, she has been a part of every activity in this group since then
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