How builders are adopting out-of-the-box strategies to bring projects back to life
In Noida, builder Amrapali is tying up with third-party contractors to complete part-built towers in many of its projects where work had been stalled due to a cash crunch and litigation.
In this deal, a contractor would take up 4-5 towers in a group and put upfront money of his own to revive the work and take it to a stage where construction-linked customer payments can be sought.
“We have signed up 10 contractors for finishing around 50 towers in Noida and these contractors have already increased labour strength on sites to around 5,000,” says Shiv Priya, executive director at Amrapali.
“Once the project ends, they will get a share of our profits apart from their regular fees,” he says. What this would do is improve liquidity by restarting the cycle of payments from home buyers.
According to data from property research firm Liases Foras, a third of more than 25 lakh apartments launched between 2008 and 2014 were delayed by at least a year. While some builders want to find in-house solutions, others have decided to get out of the project altogether.
In Bengaluru, for instance, Essar Group’s real estate arm Equinox recently sold an 8-acre under-construction project in Hebbal called Water’s Edge to local developer SNN Builders for Rs 490 crore. This also included all customer liabilities.
SNN has now taken over the responsibility of finishing and delivering the project with a revised timeline. Nitin Agarwal, director at SNN, says the company will now focus on making sure that customers who had bought apartments in the project get their homes within a reasonable time. “We will also relaunch the project at an attractive price to sell to newer buyers,” he says.
Anuj Puri, country head at property consultancy JLL India, says builders are hiving off projects that they are unable to complete. “The real estate market is in a constant state of flux, and a project that appeared feasible earlier may no longer have the same business logic at a later point.
The reasons can range from financial capability to revised business strategy, but there are usually other players who can make a go of it,” he explains. Last week, Mumbai-based Kanakia Group acquired a 2.5-acre land parcel in the Kanjurmarg suburb of Mumbai from Windsor Realty as the latter was unable to take construction forward. “It’s a good opportunity for us to take the project ahead from here.
Permissions take time and in this case we have the advantage of time in our favour with minimised approval risks,” says Rasesh Kanakia, chairman, Kanakia Group. Another model being used by builders is to bring in a joint venture partner in their brownfield project.
A Mumbai-based mid-sized builder is currently in talks with a larger, more established brand to come in as a JV partner in its under-construction project in the suburbs. While JVs in real estate are usually inked for greenfield projects, here the builder has already constructed 15 storeys but was faced with a sales challenge.
“He realised the challenge he is facing and is pre-empting a struggle that he is likely to face later. He wants to solve the problem before getting into trouble as sales are not stacking up,” says a person involved in the transaction. He did not want to be named.