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Mahindra Lifespace to create land bank on hopes of demand revival

LiveMint logoLiveMint 28-05-2014 Zahra Khan

Mumbai: Anticipating a revival in demand for real estate, Mahindra Lifespace Developers Ltd is looking to replenish its land bank as a precursor to launching new projects.

The firm is actively looking to pick up land parcels in Mumbai, Bangalore and Pune, a top company executive said, adding that the company would like to maintain land inventory equivalent to three years of targeted sales.

Until recently, the company did not maintain a large land bank because of the uncertainty in demand for residential real estate over the past few years.

“We would like to work with inventory equivalent to three years of targeted sales potential, at any point of time. We stayed out of the market for a few years, but we have started acquiring parcels in the last two years and will keep adding to that pipeline” said Anita Arjundas, managing director and chief executive officer, Mahindra Lifespace.

Arjundas did not disclose the amount earmarked for buying land, but said that funds raised under a joint venture (JV) with Standard Chartered Plc, could be partly used for this purpose.

In July, Mahindra Lifespace had entered into a JV agreement with SCM Real Estate (Singapore) Pvt. Ltd for developing residential projects in India with a combined investment commitment of over `1,000 crore. Only 60% of this fund has been deployed. SCM is the investment arm of Standard Chartered Bank.

“Some of the new requirements would get funded through this relationship while others through our own cash reserves or joint development relationships” said Arjundas.

The Mahindra Group is not alone. Land acquisitions by real estate developers has picked up in recent months. Oberoi Realty Ltd, for instance, emerged as the highest bidder for Tata Steel Ltd’s 25-acre land parcel in Mumbai’s Borivali suburb, by offering `1,155 crore in an electronic auction conducted in March. The transaction is yet to be concluded.

In April, Lodha Developers also acquired Clariant Chemicals’ 87-acre plot of land in Thane, Mumbai, for `1,154 crore.

“An improvement can definitely be expected in the near-term investment sentiment. Our day-to-day interactions with various investors clearly suggest that domestic money is in the search for good investment options; investors are eager to strike a deal at attractive valuations. However, foreign money has been waiting in the wings and awaiting political stability before entering India,” said Anuj Puri, chairman and country head of Jones Lang LaSalle India.

While a broad-based pick-up in real estate demand is being anticipated, Mahindra Lifespace will pick up land based on their existing inventory levels and targeted sales in different cities. Mumbai, Bangalore and Pune are high on the company’s priority list.

“In Mumbai, we are open to land parcels in the suburbs and not necessarily in South Mumbai. We picked up a land parcel in Andheri last year and have been looking at parcels in the western and central suburbs,” said Arjundas.

The company, which saw its profitability nearly half to `30.3 crore for the quarter ended 31 March 2014 due to weak demand, is expecting a turnaround in the current fiscal. Part of this expected turnaround is linked to the six new launches that the company is planning this year.

“Going forward, we will see a significant increase in average realization per square feet based on product and city mix and that will also contribute to enhanced revenues from the residential business. Based on approvals, one should see more launches and therefore a greater number of projects being marketed with more volumes and better pricing due to product and market mix,” said Arjundas.

Despite Mahindra Lifespace’s disappointing earnings, analysts at Edelweiss Securities, in an 22 April report, wrote that it is “enthused by the strong project pipeline of 6.6 million sq. ft. with key projects across Mumbai, NCR and Bangalore.”

The analysts had also noted that one of the key risks for the company is that it does not maintain a large land bank for its developmental needs. Instead, it acquires land and develops it within a relatively short duration of time. “Inability to sustainably replenish land bank can negatively impact its standalone real estate business,” said Aasheish Agarwal, an analyst at Edelweiss Securities.

In FY13, Mahindra Lifespace had signed memorandums of understanding for eight land parcels, of which four were completed, two were dropped due to title-related matters and two are yet to be completed. “Two of the four completed ones are part of the Standard Chartered JV. We will look at closing the balance two and signing new ones in target markets this year” said Arjundas.

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