As COVID-19 pandemic continues to play havoc across humanity as well as economy, the real estate sector is witnessing some survival tactics in action. There has been a spike in mergers and consolidations as smaller, weaker players are turning to bigger players to help them complete the stuck projects.
The Indian real estate sector has been consolidating for the past few years. With the onset of RERA, financially weak players found it difficult to adhere to compliance norms and were either going out of business or re-configuring their business model. The liquidity crisis further worsened the situation and a new wave of consolidation was kicked off. And now with coronavirus pandemic breaking the back of the sector, a spree of consolidation has begun again.
Under the consolidation seen in real estate, cash-starved developers are turning to financially-sound builders to take over stuck projects. Stressed developers are also increasingly forming joint ventures, monetising land and extending development management contracts across major cities.
One of the recent such consolidation was seen when Shriram Properties entered into a development management agreement with SLV Infra for a plotted development project in Bengaluru. The developer has adopted a development management (DM) model as a growth strategy.
“Through this collaboration with SLV, the company plans to launch 4-5 plotted land development projects in the next few months,” ET Realty quoted Murali Malayappan, chairman and managing director of Shriram Properties, sa saying
Similarly, Godrej Properties has acquired land from BPTP to Faridabad real estate with a residential plotted development. The land parcel is spread across 43.61 acres.
In Delhi-NCR, M3M India is reportedly planning to partner with multiple developers to develop a 185-acre land parcel on the Dwarka Expressway through multiple joint development agreements.
In the real estate sector, a joint venture or development management agreement usually puts the large developer in the driver’s seat as the control will be passed on to the new entity with the new entrant holding majority stake.
Consolidation in the developer space is expected to accelerate and benefit the larger and better-capitalised ones. The sector is expected to undergo through more consolidations that will make bigger players even stronger and might end up wiping out the smaller weaker developers.