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February 26th, 2010 admin No comments

Concession Hot

Railroads may offer concessions, reduced rates for Bandra plot

Even as the Real estate industry continues on its downward spiral, the In dian Railways is considering offering concessions to attract bidders for an 11-acre plot of prime land in Bandra in Mumbai’s western suburbs.

The agency in charge of such land sales had earlier dropped the reserve price for the plot from Rs4,628 crore to Rs3,960 crore, but analysts said the price on the property could fall an additional 15-20% below the new reserve price.

The Rail Land Development Authority—an agency set up by the railways to monetize a portion of the 43,000 acres of surplus land it holds across the country—is considering offering relaxed payment norms, including a three-year moratorium on payments, for the plot of land located on the Western Expressway.

The rethink comes after the authority’s efforts to bid out the land attracted only one bidder.

The authority has since called for fresh bids, even as it retains the sole bidder DLF Ltd’s bid.

“We can’t give relaxations to one bidder after opening their bid. So we have decided to go for rebidding. We can continue to hold that (DLF’s bid) in suspended animation and go to market with modified terms and conditions,” said a railway officer who did not want to be identified.

The 11-acre plot is considered especially valuable be cause the railway authority had managed to get the Mumbai municipal body to allow a floor area ratio of four, nearly double the usual ratio. Floor area ratio refers to the ratio of permissible development on a piece of land to the size of the land.

The authority has already been facing trouble in selling other plots around the country. Mint had reported on 8 April that the winning bidders for plots in New Delhi and Gwalior were asking for more time to pay, while one bidder in Visakhapatnam forfeited the money he paid as bid security to the railways.

The Indian Railways is also considering doing away with a published reserve price when it reissues the bid documents for the Bandra plot.

Under the proposed plan, developers will have to pay between 12% and 15% of the cost of the project upfront, following which there would be a three-year moratorium on payments and interest during the construction period.

The developer could then resume payments after the three-year period when, presumably, revenues from the project kick in.

“If the railways are pushing ahead with the project, I don’t see why they cannot wait until the market improves. I don’t agree with the purported rationale of deferred payments by the private developer. If the financiers don’t find these guys (developers) creditworthy, why should the railways, who have less information than the banks?” said Partha Mukhopadhyay, an infrastructure expert and senior research fellow with the Center for Policy Research, a policy think tank.

The agency plans to reissue the so-called request-for-proposal documents by mid-April, unless it is unable to drum up any interest in the project that it initially valued at a base price of Rs4,600 crore. Since then, it reduced reserve price on the bids to Rs3,960 crore following suggestions from bidders.

The realty sector has been hard hit by the credit crunch, with sales in the residential market dropping by as much as 80% in hot property markets such as Gurgaon and Noida.

Banks have virtually stopped lending to the real estate sector and even private equity investors are shying away from investing in real estate projects. Several real estate projects across the country are facing execution delays because of this credit crunch.

According to Arvind Nandan, director of occupier services for real estate consultant Cushman and Wakefield, the value of the Bandra plot could fall by a further 15-20% over the last reserve price of Rs3,960 crore, especially because Mumbai was poised to add several thousand metres of commercial real estate over the next five-eight years, through previously planned developments such as the redevelopment of the Dharavi slum, among others.

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