Even as the sluggish demand and high cost of borrowing have dealt a severe blow to the realty sector sentiments, correcting commercial rentals and residential prices over the last few months, the land prices in most of the locations in three cities — Delhi NCR, Mumbai and Bangalore — appear to be firm, for now.

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While most developers expect land prices to remain stable, experts warn that the current ‘resilience’ may be short-lived and that the land prices could tank by 25 per cent over the next one year.

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“Land is the last element in the entire property chain to get affected. Farmers are in no hurry to sell land as they do not have obligations of repayment of debt or interest on that land. In event of a downturn in the market, these land owners prefer to carry on with cultivation for another season and wait for a turnaround,” the Omaxe CMD, Rohtas Goel, said.

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Uppal Group, Director (Finance), Ajay Mangal, points out that rural land owners are yet to come to terms with the downturn in the property market and the global financial meltdown. These land owners continue to benchmark their price against the sale price of a neighbouring plot.

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“However, some of the smaller developers who had acquired substantial land banks at high costs are now facing liquidity squeeze, and are approaching larger developers for an outright sale. In these specific cases the land valuations have seen a downward pressure,” Mangal said.

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Mismatch in expectation

DTZ International Property Advisors, which recently wrapped-up a report on land transactions in these cities, says there is a “clear mismatch between expectation of land buyer and the land aggregator/seller”.

“The land owners are benchmarking the selling price against the previous transactions that were concluded at higher rates in then-buoyant market. Hence the land prices have not moved in sync with the correction in property prices, and the overall transactions have been a fraction of last years’ level,” says the company’s, CEO , Anshul Jain.

According to DTZ, in Mumbai, with exception of Bandra Kurla Complex (BKC), the rest of the micro markets including Mulund, Navi Mumbai, Thane and Andheri have shown a marginal rise in land prices this year. In the wake of the recent slowdown in the real-estate and given the relative lower returns than previous years, developers and investors are less willing to pay inflated prices in BKC.

In all the other locations, no major transaction has been reported and the asking value or the price being quoted by the owners is still pegged at last year’s levels. The limited supply of land in these areas is also propping up prices.

In Bangalore, with exception to Whitefield, the land prices in other major locations have either remained unchanged (Hebbal and Mysore Road) or gone up (Sarjapur ORR, Devanhalli, Hosur Road). With the new international airport at Devanhalli, the location has seen a slew of development activities.

Delhi National Capital Region (NCR) has thrown up a mixed bag. While the cost of land per acre has surged almost 6.3 in Ghaziabad and 44 per cent in New Delhi during 2008, the prices in Greater Noida, Gurgaon and Noida have come down, anywhere from 8-22 per cent depending on the location.

Price outlook

The industry is divided over the outlook on land prices in the coming months. While a section of the industry expects prices to crash going forward (DTZ anticipates 15-25 per cent decline in the next 12 months) as land aggregators run-out of patience and rush to the negotiation table, there are developers such as Parsvnath and Omaxe who maintain that the land prices would remain firm.

“Over the next three months or so, we expect up to 10 per cent drop in the land prices, although post March the land prices will begin to pick up, as India’s fundamentals remain strong,” the JMD Group Managing Director, Sunil Bedi, said.

Mangal (Uppal) too expects the land prices to soften from December onwards. “With the bank payment schedules coming up in December, there will be a huge pressure on smaller developers to bail out. I see the land prices in NCR dropping 10-20 per cent in 6-8 months,” Mangal added.

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However, Pradeep Jain, Chairman of Parsvnath Developers, says that the land prices are unlikely to come down as “land is in limited supply.”

“In fact, with the RBI taking proactive measures to infuse liquidity, we expect things to settle down in the next one-two months. Correction, if at all, will happen only in those specific cases where the land is some distance away from the main city hub or at a completely undeveloped location, or where the land owner and realtor decide to enter into negotiations directly, pushing out the intermediary and his margins,” he added.

SV Development