After struggling for months to sell large parts of its land bank to repay part of its debt, Bangalore-based Sobha Developers Ltd has changed tack. The realty firm is now scouting for joint developments and looking to sell smaller plots to keep the cash flowing. Several realty and infrastructure projects have been deferred or scrapped since late last year after funds became scarce. Consequently, most developers have stayed away from buying land or are negotiating hard for steeper discounts despite an up to 30% fall in property prices. Over the past six months, Sobha Developers has managed to sell only small land parcels, said chief financial officer S. Baaskaran. In March, the firm, already stuck with an inventory of unsold high-end apartments, made its first attempt at selling residential plots for quick cash flow.

Saddled with a debt of Rs1,850 crore, the firm has outlined plans to raise Rs200 crore through land sales and some Rs1,000 crore from qualified institutional placements, or QIPs, in which promoters of listed entities sell shares to institutional buyers such as banks without involving retail investors. Sobha Developers has sold 64 of 94 plots in its Bangalore and Coimbatore projects, earlier meant for large projects. “There has been some movement in the land market but we still have a lot of land to be sold (including in prime areas such as a 1.5 acre property near MG Road in Bangalore),” said Baaskaran. “We have also dropped out of ongoing negotiations for new land buys.” Sobha Developers had been trying to sell the plot, where it had planned a shopping mall and a hotel, for four months. But the high asking price of Rs120 crore had kept away buyers.

Unitech Ltd, the country’s second largest listed developer, too has started advertising plots on land earlier meant for projects such as schools and hospitals. In two months, it has sold four plots of up to 5 acres each in and around Delhi; it aims to sell another 17-18 plots. “We have seen good response for these plots,” a Unitech spokesman said. Unitech, with a debt of Rs7,800 crore, has been trying to raise funds by selling some of its 500 million sq. ft (11,478 acres) of land, and is in advanced talks to sell land meant for schools in Gurgaon, the firm disclosed in a recent presentation to analysts. Over the past three months, Unitech has sold its Marriott Courtyard hotel in Gurgaon for about Rs231 crore and an office property in Saket, Delhi, for Rs500 crore. In April, it raised $325 million (Rs1,536 crore) through a QIP to partly repay debt and fund some projects. Land sales have just about begun, with some real estate funds and corporate houses emerging as buyers, said Ashutosh Limaye, associate director (strategic consulting), Jones Lang La Salle Meghraj, a property advisory firm.

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Sobha Builders

Even as the demand slump is forcing leading property developers across the country to prefer affordable housing in place of high value apartments, Bangalore-based Sobha Developers is firming up plans to launch a high-end apartment project in the city. The project, which would carry a price tag of about Rs 6,000 per sq ft, will be the first luxury apartment project from Sobha after crisis hit the Indian real estate sector.

Sobha’s Bangalore Projects

According to sources, the J P Nagar project, to come up on 36 acres of land in J P Nagar in the south of the city, will be announced during the present year.

The company also plans to enter the affordable housing segment by announcing apartments in the Rs 25 lakh to Rs 30 lakh range in Coimbatore, Tamil Nadu.

Sobha’s move is in line with the industry trend to announce new launches in select areas and chosen price bands in the residential real estate segment. Availability of bank loans makes residential projects a safe bet for cash-strapped real estate developers.

Unlike other players who have lined up dozens of such project launches during the year, Sobha has decided to test the waters with just two launches in 2009-10.

Sobha’s Dept Repayment Plan

Sobha’s plans for new investments come amidst its struggle to manage its Rs 2,000 crore debts. Company officials said the debt repayment plans are going ahead and the company will have no problems in funding the new projects.

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