Since the beginning of 2014, property deals worth Rs 3,000 crore have taken place. The latest one being Lodha buying 87 acres in Thane for Rs 1,154 crore on Tuesday.
Ashutosh Limaye, Head - Research & Real Estate Intelligence Service (REIS), Jones Lang LaSalle India, says though the residential market sales are dropping due to high prices, but demand for land is high as it is the "most basic ingredient of development for any real estate company… and is in severe short supply".
He thinks Lodha's Thane deal is a win-win situation for both parties (Lodha bought the land from Clariant Chemicals ).
Limaye says the transacted amount is a fair representation of Thane's real estate dynamics, which has a prevailing rate of Rs 8,500-9,000/sq ft. He expects Lodha to make 25 percent profit margin on the deal.
Jones Lang LaSalle sees more activity in Thane and Navi Mumbai and feels the eastern suburbs between Vikhroli and Mulund will witness better growth potential in the future.
Moreover, Limaye sees some isolated property deals in the western suburbs like Borivali, an erstwhile industrial area, as well. "We should expect more land parcels to come into the market in the Thane-Belapur belt," he added.
Below is the interview of Ashutosh Limaye of Jones Lang LaSalle India with Reema Tendulkar and Ekta Batra on CNBC-TV18.
Reema: Is the Mumbai market sluggish? We keep hearing headlines and reports about how Mumbai market is sluggish but this was the Lodha buy, just earlier you had Oberoi which bought property in Borivali from Tata Steel, what is the outlook for the Mumbai real estate sector?
A: These are two different things, one is about the residential market as properties or built up space and yes, that market is not moving very fast, the sales are dropping. That is correct because the prices are already very high. But land is something which is a completely different ball game. Land is the most basic ingredient for any real estate development and that is in severe short supply where else in Mumbai you will find clean land parcels, which are development ready. Otherwise, it is only redevelopment. So as far as land markets are concerned, the traction is always there when some good land parcels come into the market.
Ekta: What do you think about the Lodha deal that happened yesterday and I was reading reports that before when the deal was about to happen and the bidding was taking place, the deal was possibly worth Rs 1,500 crore but the deal got done at Rs 1,100 crore. So was there a sort of discount that took place in the entire deal eventually? What are your thoughts in general about whether it was a premium?
A: If we focus on the actual transacted amount which is Rs 1,100 crore for 87 acres of land, I think it is a win-win deal from both buyer as well as seller's perspective. That accounts to be about Rs 3,000 a square foot as the raw land price. So if you add all sorts of other costs to it and given that that area currently sells at about Rs 8,000 a square foot, it makes acceptable profits for the developer. So eventually the deal amount, the transacted amount takes a fair market representation of Thane's real estate dynamics.
Reema: You also said that land is always hot property and it should see interest but residential per se has seen a bit of a slowdown, does a change in government change the way real estate market will move?
A: I think it is more about sentiments rather than actual change in physical market. Sentiments because government decides on policies and we want policies that are consistent and which are in line with development agenda and we also want certainty of policies in the sense that they will not be retrospectively implemented or the policies that are there will continue for a certain time. Business needs that clarity. So from that perspective, yes, there is importance of which government comes in picture.
Reema: The reason I ask is -- hypothetically everyone is saying that there is a high likelihood of National Democratic Alliance (NDA) coming to power, so let us assume in that case because it has the highest probability. In the previous election when NDA had come to power, at that time real estate prices had fallen, so in this case can we expect if NDA does come to power, is there a possibility real estate prices could fall because they have fallen in the previous time?
A: It is not about only which coalition comes to power because in the previous occasion -- you are referring to the 1996-1998 period when India did come to power. That was the time when there was a global economic situation which was not favourable. We had the Southeast Asian economics crisis and we had the Indian property cycle going through a low period that time. So I don't think it is a function of only which part your coalition is in power, it is a more complex thing than that and given that the economics are not favouring today, more probe business policies is something that India wants. Whatever party or coalition gives that, I think that will be the beginning of the new positive cycle for real estate.
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