05 February 2009
Small Realty Companies To Rework Their Pact With Landowners
With land prices going down, many medium-sized developers are trying to renegotiate the joint development agreements (JDAs), they had signed with landowners earlier. When the real estate market was at its peak, several medium-sized developers found it too expensive to acquire land at inflated rates in cities such as Gurgaon, Pune, Bangalore and Hyderabad. Then, JDAs emerged as the best option. The scenario of the market today is such that developers are being forced to offer lower cost housing, which will be impossible if they do not negotiate. To offer a lower cost product to customers, they will need to get land at a much lower cost. On the other hand, there are some developers who are under pressure from their private equity partners who want better IRR (internal rate of return), as they perceive the market at higher risk today. Private equity players have, in some cases, increased their IRR expectation by about 10%. There are some property developers who are wiling to get out of deals completely. Developers and landowners are reworking both on time as well as percentages. According to a source, in a renegotiation happening between a developer and landowner in Pune, the land valuation has been pegged 10-15% lower, and the developer is asking for at least another six months before he starts construction.
9 Jan 2008 Google News