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Mumbai Land Prices Set to Extend 15% Decline, Oberoi Realty Says

Mumbai Land Prices Set to Extend 15% Decline, Oberoi Realty Says
A woman faces residential buildings across the water from Girgaon Chowpatty beach in Mumbai, India. Photographer: Dhiraj Singh/Bloomberg

Mumbai land prices, India’s most expensive, may extend their 15 percent decline this year as high borrowing costs force indebted developers to sell real estate, Oberoi Realty Ltd. Chairman Vikas Oberoi said.

Land transactions have dried up as buyers aren’t willing to pay higher prices or “ferociously” compete to purchase land, while sellers have been holding out, he said.

“We are waiting for the right opportunity to buy,” Oberoi, who runs India’s second-largest developer by market value, said in an interview in Mumbai. “I don’t want to waste my bullets. These are high-cost acquisitions and they can make or break a company.”

India’s biggest developers are failing to rein in record debt as they grapple with high borrowing costs, dwindling sales, and banks reluctant to lend to developers. Oberoi, with no debt and about 13 billion rupees ($244 million) in cash, will take advantage of falling prices to buy land, he said.

Oberoi Realty reported a 5 percent increase in earnings to 1.43 billion rupees in the three months ended March 31 as the company increased home prices, beating analyst estimates. The developer, backed by Morgan Stanley, raised 10.3 billion rupees after selling shares at 260 rupees each in an initial public offering in October 2010.

Oberoi is one of only two listed real estate developers in India with a net operating cash surplus after taking into account debt servicing, Rakshit Ranjan, a Mumbai-based analyst at Ambit Capital Pvt., said in a note dated April 26, after the developer reported earnings.

‘Missing Clarity’

Still, analysts have expressed concern that Oberoi isn’t deploying cash to buy land and putting the money to better use.

The “missing clarity” on new land acquisitions may be a drag on valuations with “idle cash” offering lower returns, Mumbai-based analyst Tejas Sheth at Emkay Global Financial Services Ltd. said in a note to clients on April 26. He retained his “accumulate” rating on the stock and raised the target price by 17 percent to 315 rupees a share, citing strong sales in the fourth quarter.

Oberoi said he is in the market to buy land.

“I am not watching the audience, I am watching my game, not playing for the gallery.” Oberoi said. “I am very interested and very aggressive to acquire land, but aggression can’t be jumping off the cliff, it has to be backed with caution and preparation. After I jump I want to land on my feet not on my head.”

New Rules

Mumbai’s amended building rules for home construction will spur new projects and increase supply in India’s most expensive property market, where permissions to build had come to a virtual halt, Oberoi said.

New rules by the state government will allow buyers to expand the size of their apartments by enclosing spaces such as balconies, flowerbeds and terraces.

“The rules have crystallized what one can get, the basic land potential is clear,” Oberoi said. “Discrimination between two developers has now gone as everyone gets the same area. It’s leveled the playing field in a big way, which is fantastic.”

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