Big builders flock to plotted projects amid weak sales

BENGALURU: Organized builders are beginning to do more plotted developments, as the number of unorganized players in the segment drop following stricter regulations. The segment is also one where sales are currently happening faster, ensuring a steady cash flow. This is becoming useful now when residential sales are tepid due to weak consumer sentiment.Builders such as Shriram Properties, Reliable Developers, Citrus Ventures, Godrej and House of Hiranandani have recently entered the space.
Industry experts say the Real Estate Regulation Act (RERA) and GST have separated the men from the boys. Shantanu Mazumder, senior director at independent property consultancy Knight Frank, said that unorganized builders who were into plotted development had seen their sales wither away. The bigger organized ones are filling the vacuum. It’s a segment where cashheavy transactions used to be the unwritten rule.
“It is a big opportunity for us, given that supply has come down. It also brings a steady cash flow,” said M Murali, MD of Shriram Properties, which is set to launch two plotted development projects on Mysore Road and in Whitefield this quarter where a plot would cost between Rs 25 lakh and Rs 30 lakh.
A change in regulation by the Bangalore Development Authority (BDA) has also helped the bigger players. Earlier, when a plotted development was approved, about 40% of the total units were allowed to be sold on day one by the developer. Another 30% could be sold after the roads and drains were completed, and the remaining when the full work was completed.
Since last year, the BDA has stopped such staggered sales and decided that the builder would be allowed to do sale deeds only if the entire physical infrastructure was completed. “Now only large developers with capital and access to finance can do such developments as it requires spending money upfront,” Vinod Menon, CEO of Citrus Ventures, said. Citrus is set to launch two plotted developments in north Bengaluru this quarter.
The advantages are also manifold for the builders – quick monetization of land, faster sales, regular cash flow, and quicker exits from a project. “In the outskirts of the city, high-rise developments take 5 to 7 years to mature as a destination and for the project to break even. With high interest costs, it is unviable to sustain such investments. This is leading to a rise in plotted developments,” Surendra Hiranandani, chairman & MD, House of Hiranandani, said.
House of Hiranandani, based in Mumbai, recently launched residential plots in Thaiyur, on the Old Mahabalipuram Road (OMR) in Chennai under its Loftline brand. This comes close on the heels of a similar launch in Shankarpally, Hyderabad. It expects about 20% of its revenues to come in from Loftline..
For consumers, plots give the freedom to build the house in accordance with their financial comfort. Plots are also more affordable than fully built properties. But for those looking for a place to quickly stay in, plots are of little comfort because they then need to look for a builder and even supervise the construction. For this reason, plotted developments are always a small part of a builder’s portfolio.
Godrej Properties entered into a joint venture with Sai Srushti Group to develop a 100-acre land parcel near Devanahalli in north Bengaluru earlier this year, its first plotted development project. It has plans to develop about 2.1 million sqft in the project. The builder said last year it was looking to build plotted development into a separate asset class.