The Financial Express - July, 2005

Land unlocked, planning awaited

Can the mill lands chart a new course in city development?
E Jayashree Kurup in Delhi

The Supreme Court ruling clearing the way for redevelopment of select NTC mill lands is expected to free close to 600 acres in Mumbai alone, where land is at a premium. Little wonder then that when the Mumbai Textile Mills of the National Textile Corporation was sold to the Jwala group - a joint venture between the Delhi-based DLF group and the Mumbai-based Akruti Nirman group - for Rs 702 crore, the market reactions were mixed. While seasoned market players like Niranjan Hiranandani of Hiranandani Constructions felt the whopping price paid would push up real estate values in the city, others feel the fact that the sale took place is positive as it frees locked land for redevelopment.

Whether the price of Rs 702 crore, which translates into an FSI price of Rs 7000/sq ft cost was overpriced, remains to be seen. Says Kumar Gera, past Chairman of Credai, “There are many ways of discounting that value and the actual price may well be about Rs 4000/sq ft after development but that remains to be seen. Property values in Mumbai have already risen over 100% in the last one year. A large part of this is attributed to the huge pent-up demand and scarce supply of land in the city.”

However, the Parel property of NTC saw at least two groups from Delhi - DLF and Parsvanath - bidding for the land, indicating the level of national interest. The NTC mills lands’ sale will free close to 2,709.95 acres for redevelopment across the country at a market value of about Rs 3,437.90 crore. However, the euphoria generated in Mumbai has clearly not been replicated in all other cities.

The four mills in Mumbai fetched NTC Rs 1,160 crore. The Delhi land is believed to be sold to the M2K group at Rs 68 crore. However, when the Coimbatore lands came up for sale, of the three bids accepted one was below the reserve price. This fetched about Rs 1.70 crore for the NTC Tamil Nadu. The Balarama Varma Textile Mills did not find any takers for the land and buildings and will be tendered again.

Says Arun V Goel, CEO DHFL Venture Capital India Pvt Ltd, “Land as raw material is being released into the market for redevelopment. The first lot of sales will trigger speculation and land is picked up at high rates. However, as the land starts getting developed and real estate supply enters the market, if the quantum of supply is big, there can be an oversupply which will result in a drop in values.”

Anshuman Magazine of CB Richard Ellis agrees. “Unlocking land is the only way that the supply of real estate can increase and values remain stable.” However, Magazine maintains that the unlocking of mill lands for development will not have any short-term impact on the city’s values. The process of development process to achieve financial closure, clear the land and then clean and develop the property takes time. Therefore the impact can only be in the medium to long term,’’ says Magazine.

Explains architect Sudhir Vohra who is involved in redrafting Delhi’s building byelaws, ‘’When this land which was industrial till recently, comes into the market, it is developed according to modern needs of the city. This new development of retail, office or residential property, impacts the profile of the area.’’

A parallel can be drawn with the Canary Wharf or the Old Tower House of London which were in the heart of the modern city and which, after repositioning, added value to the profile of the areas. But, says Vohra “It is very important that along with the defreezing of land for development, the city authorities should also be using scientific planning methods to see that the area can benefit from the changing profile. Real estate values are only a monitor to assess the success of this composite planning.”

As large groups move in to corner the land that is being unlocked by sale of mill lands across the country, an even more important issue that has recently cropped up. The Reserve Bank of India has taken cognizance of the fact that large tracts of land are entering the market and may lead to speculation. An advisory issued by way of an internal circular also cautions the banks to be careful while funding real estate. This, Goel of DHFL feels, may lead to banks financing projects where the quantum of risk is lower rather than land purchase.

The NTC mill lands are just the beginning of a process of freeing land for development. Whether this will snowball into a planned process of city management remains to be seen. However, the scale of interest in the sale indicates that the industry is not complaining.