Revenue sharing partnership between landowners and builders on the rise

12 Jul 2012, ET Bureau.

NEW DELHI: Businessman Vijay Gupta has accumulated so much land in Gurgaon over the years that he is left with 1,500 acre even after selling huge tracts to builders as the Delhi’s suburb has grown into a global business hub. Finding it difficult to sell off the land, Gupta has joined hands with builders and given them the rights to build the property on his land on a revenue share basis.

Gupta is just one among several land aggregators who have turned developers.

“Land owners see an upside in holding on to their land and doing such joint developments rather than selling. Returns are better this way,” says Anckur Srivasttava, chairman of GenReal Property Advisers.

Gupta, chairman of Orris Infrastructure, recently tied up with the Noida-based The 3C Company for a 48-acre parcel of land in Gurgaon. Since Gupta had already taken approvals and permissions to build a group housing project on the land, his partner is in a position to launch the project in just four-five months. If 3C had bought land on its own, it would have taken at least a year or more to kick-start the project.

Gurgaon-based Sidharth Chauhan of Sidhartha Developers, Sharab Reddy of the Triangle Group in Bangalore and Prashant Solomon of Chintels in Gurgaon are tying up such agreements with developers to maximise their returns.

“Land prices have shot through the roof, so developers don’t see value in buying land outright,” says Sidharth Chauhan, who has been consolidating land for over a decade and is now developing properties on his own as well. In the past, he has also aggregated land for Adani’s SEZ in Gurgaon.

“Most developers today are already leveraged to the hilt and can’t invest to buy land today. Joint development agreements (JDA) are the only way out for them,” says Amit Bhagat, CEO of ASK Property Investment Advisors.

Home sales have dropped by more than 50 per cent over the past year and a half and banks have turned cautious while lending to the sector. This has pushed developers into a liquidity crunch, making it difficult for them to buy land, even as they need to launch newer projects in order to sustain their cash flows. Several developers have also taken huge amount of debt for construction and other activities.

“The cost of doing projects has gone up with higher construction cost and approvals taking time. In a JDA, the developer is rid of all these issues and since there is no interest burden the overall margins are better as well,” says Sharab Reddy, managing director of the Triangle Group, which holds over 500 acre that it started collecting in the mid-1980s. “The risk, too, is shared between the two partners.”

Reddy, who turned a developer in recent years, is building close to one million sq ft of space in Bangalore. Just last week, he signed a JDA with a large developer in Bangalore for a 100-acre township.

In a typical agreement, the landowner and the developer sign an agreement to share revenues in 40:60 ratio. Where the price of land is very high, in city centre locations, for instance, the ratio can reverse as well.

“There is very little a developer has to put in upfront in a JDA,” says Solomon, who holds over 500 acre in and around Gurgaon. His company identified and bought land in an untapped area of Gurgaon in the 1980s. With the Dwarka-Manesar expressway being built here, land values have soared. Chintels has tied up with Sobha Developers and ATS Group for two JDAs, which will also include the Chintels brand name in the projects.

Bangalore-based builder Puravankara Projects has adopted a similar strategy for its affordable housing brand, Provident. “Land is expensive and there is no point investing such large sums upfront, especially for affordable housing projects,” says chief operating officer Jack Bastian Nazareth.

Leave a Reply

Your email address will not be published. Required fields are marked *

Recent Posts

Recent Comments




GiottoPress by Enrique Chavez