Land deals picking up; real-estate rally likely: Citi

A Citi report says land transactions are picking up in pace and price across the country. A rally in real estate stocks may be round the corner

Real-estate stocks have been some of the worst performers of this year and most of them have lagged behind badly in this rally from 17,000 to 20,000 as well. Is it possible that real-estate companies could get a shot in the arm now that stock markets have done so well? A Citi report says that land transactions are picking up in pace and price across the country and "This highlights the buoyancy in the ground markets, where the developers are going back to buying land in order to create potential pipelines for future development, as they foresee strong sustained demand. Could this be a precursor to a rally in real-estate stocks?

The brokerage firm says that Rs76 billion worth of land transactions involving more than 570 acres have gone through year to date. In the Mumbai Metropolitan Region alone, transactions worth Rs62 billion for almost 370 acres have taken place and it is expected that around 130 acres are still on the block which could fetch Rs72 billion.

It lists a few record Mumbai land deals:

•  60-yr-old south Mumbai bungalow sold for Rs3 billion
•  Kalpataru to buy Clariant land in Thane - Rs80 million/acre
•  Borosil sells 18 acres for Rs8.3 billion - Rs461 million/acre
•  Borivili: Rs0.15 million/sq ft for commercial purposes
•  Bharat Mill fetches record Rs15.05 billion - Rs1,800 million/acre
• Marol industrial plot sold for Rs8.75 billion
• Poddar Mill land sold for Rs4.74 billion, Central Mumbai - Rs1980 million/acre
•  Sunteck Realty buys land in Mumbai suburb Goregaon for Rs1.5 billion -Rs250 million/acre

The report points out that development rights also seems to be back in flavour in Mumbai with deals such as DB Realty bagging the right to redevelop a large chunk of the 100-acre government colony in Bandra (East) along the Western Express highway. Several deals are in the pipeline - Mafatlal Industries' Rs10 billion (expected) deal by selling a seven-acre plot on the edge of the Byculla zoo and the 105-acre land plot owned by Bayer CropScience on the block in Thane.

The report says that transactions are picking up in Delhi and Bengaluru as well - Supertech recently launched a 100-acre project called UpCountry along the expressway with independent plots priced at around Rs12,000/sq mt; Yamuna Expressway Industrial Development Authority is selling land parcels to real-estate developers at nearly 14 times the acquisition cost; New York-based firm Brahma has struck a Rs6 billion-Rs6.5 billion deal for aggregating a 152-acre land parcel in Gurgaon; 1-acre plot on MG Road in central Bengaluru was sold to an undisclosed buyer for close to Rs1 billion.

The stocks, meanwhile, have hardly moved compared with other sectors. DLF has risen from a low of Rs300 at the beginning of September to ~Rs370 now. Unitech has risen from Rs75 to Rs85+, HDIL from Rs250 to Rs270 levels, and Indiabulls has gone up from Rs165 to around Rs177.

A rise in the stock market generally tends to coincide with a rise in property buying across the country and investors put in some of the gains from the market into property. In a recent television interview, Anuj Puri, chairman and country head at Jones Lang Lasalle India, said that the greed for real estate had returned in Indian metros.

Real-estate companies do seem to be in a buoyant mood. Indiabulls, among other big real-estate companies, is coming out regularly with full page advertorials in newspapers touting its past and future projects - this trend was missing for quite a few months now. Godrej Properties' chairman Adi Godrej recently told the media that he expects revenue to jump more than 50% per cent in FY11 as rising incomes will boost demand for housing. He said he will announce about five new projects this year in addition to five that have already been announced.

Domestic funds are believed to have put in around $864 million in 22 realty deals since January this year while foreign funds have invested only $126 million in three deals - mostly because the Indian property market does not appear to be in the value zone for foreign funds which have better opportunities in South-east Asia.

(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security. Some of the opinions expressed in this article are the author's own and may not necessarily represent those of Moneylife).