by datta Nighut 
1. Introduction
Analysis of the Biggest Property Deal in Mumbai The recent acquisition of the Kohinoor Mill in Mumbai by the Lodha Group is striking for several reasons. The tax obligations of around Rs 300 crore (escalating to as much as five times this amount) and the acquisition price of around Rs 4,051 crore make this the largest property event in Mumbai’s history, and the third largest in the country.
Tax obligations were dodged by resorting to special policies of the Maharashtra and Central governments, specially formulated to enhance market liquidity. At the same time, the size of the acquisition was made possible by these policies, which have made land across the city more readily available for finance surpluses from across the country and the world. It is to this combination of government policies and macroeconomic conditions that I turn my focus here.
The recent Kohinoor deal, especially its mechanisms of tax evasion, is a crucial event in Mumbai’s story, reflecting a constellation of local real estate market hyperbole and global economic conditions pushing India into a “rising” world, and importantly, liberalizing state-driven measures that together are piloting Mumbai’s contemporary urban development.
There have been relatively complex readings of the Kohinoor event, which have revealed details and motivations of the two companies involved in the deal, and have been foretelling of their likely futures, but there has been less appreciation of the larger policy framework of which the Kohinoor deal is a part, as well as the economic changes with which it is linked, and most importantly, the combined implications of these for both companies and the city itself. It is precisely this perspective that I aim to introduce here.
The aim is to provide a new approach, a revisioning of Mumbai’s historical direction through the analysis of the Kohinoor deal, mapping the event’s relationship with both national and global policy- and economy-driven trends through protracted research and analysis.
1.1. Background of the Mumbai Real Estate Market
Mumbai, in the mid-seventies, was part of Greater Bombay. In the succeeding four and a half decades, Mumbai has transformed itself into the commercial nerve of the Indian economy and the headquarters for many Indian corporations.
This has created an unprecedented demand for both office and residential spaces. These trends evidence the ever-expanding demand for properties and changing locations at which the demand materializes. The expectations and choices of people wanting to buy an office or a home are perpetually shaped by trends that, in turn, are molded by several other factors.
Construction activity during any real estate cycle is determined by these trends. Unfortunately, with price correction of properties being non-existent, developers have thus far been constructing office spaces even if they remain empty, irrespective of the steady increase in inventory. It is ironic that despite high vacancy levels, the price of properties continues to grow unimpeded.
Real estate prices are impacted by all kinds of changes, geophysical and environmental being among them. Political or administrative changes, in the form of increase or decrease in FSI, ongoing policy changes associated with property purchase primarily aimed at checking the recycling of black money, and of course, altering intent of various governments change the value of properties.
Mumbai is naturally a premier destination for commercial as well as residential development in India. Quarter to quarter comparison, with only a few exceptions, can only highlight the strength of Mumbai vis-à-vis some of the other cities in terms of real estate demand. What is evident from the above comparison is that investments in general and real estate in particular are cyclical, regardless of the demand landscape. The speeds at which we crawl up and hurtle down depend on what builds up or crashes the demand for real estate.
Mumbai has become an area to reckon with owing to its strategic location and the presence of a strong financial market that has helped it remain buoyant despite the economic depression.
The city, by far, hosts most of the Fortune 500 companies and is home to the ambitious Indian corporate sector, rightly christened as the commercial capital of India. Economic indicators, therefore, conclusively point us in the direction of the real estate surge in Mumbai. Starting on the above note, we would like to discuss the most recent phenomenon, which is perhaps the biggest deal in the Indian real estate market. This deal, even by the stringent test of the first quarter of 2021-22, which is the worst possible quarter given the lockdown scenario in Mumbai, is a demonstration of the huge interest in real estate in Mumbai.
The office purchased is located in the prime district of Mumbai, and it is an as yet unconsummated deal. The developers have actually received a major chunk of the payment for the above office.
This deal reveals both the faith in the India story and the potential of real estate for a foreign company that is paying a huge premium by investing in an office in Mumbai even when the rental rates and valuations are down.
This deal is a further demonstration of the fact that while properties may remain empty, their price does not drop except as a phenomenon when there is a recession, which is when the consequences of the same commence in the rental value going down. This is welcome news for real estate given the newness and foreign-nativism that surrounds all discussions on real estate in India and more so, in Mumbai.
2. Overview of the Biggest Property Deal
One of the largest property transactions in Mumbai real estate has been concluded, under which the Akshaya Patra Foundation has sold two of its properties admeasuring 0.20 million sq ft to Godrej Properties for Rs 2.3 million.
The properties are located at Andheri Kurla Road with 5-6 lakh sq ft built-up area. Phase I of the project is expected to have an area of 2 lakh sq ft that will be developed as a token building, while Phase II will have an area of 4 lakh sq ft admeasuring an approximate utilization area. The above transaction is part of the broader agreement with Godrej Properties for the monetization of its land assets spread across the whole of Mumbai.
The majority of the land under monetization/development is located on the eastern section of Andheri Kurla Road, so approximately 8-9 lakh sq ft each will be developed in Kohinoor Mills I and IV in the long term.
The aforesaid agreement is in line with the vision of the trusts to monetize the land holdings in the minimum quantum required and strike while the iron is hot. Faced with financial compulsions due to the global recession that impacted the income of the foundation, the Akshaya Patra Trust decided to induct a joint developer for the above land parcel that admeasures 500,000 sq ft. The annual cost of maintaining these properties would be around Rs 4.5 crore.
The deal was justified with the anticipation of escalating real estate costs. The agreement is expected to be one of the largest of its kind once it is concluded. It is, however, subject to the approval of the Ministry of Human Resource Development.
2.1. Details of the Deal
An exclusive story has disclosed the terms and conditions of the land deal being struck at Mumbai’s Bandra Kurla Complex. This is being ranked as the biggest land transaction ever seen in the city. A company has stepped ahead to secure this 7.54-lakh-square-feet land parcel, and it has quoted about Rs 43,000 per square foot, along with additional development rights.
The real estate company is now involved in negotiations regarding the quantum of capital or a loan acquired, the set of Development Potential Rights available with the land, payment terms, mode of sale, and finally the final agreement.
The proposed sale was expected to finalize early this year. Available market sources say the transaction seems to have been held up by the Bandra Kurla Complex planning committee, as well as the governing committee, which have requested some time to consider the deal and the bidder. Our sources point out that the consortium, besides others, doesn’t have the financial backing to complete a transaction immediately.
It will depend heavily on external bank funding, which will take more time to arrange. Any sort of large transaction will need the involvement of a consortium. Things in the Bandra Kurla Complex administration buildings normally move slowly, so it will be some time before we get a clear picture of the deal.
Our sources emphasize that such huge land transactions, especially in the case of the Bandra Kurla Complex, will always involve banks and solicitors either as investors or advisors or for the regulation process to avoid future disputes. On the contrary, legal advisors are advising the government on the transaction and legal documents. Financial advisors to the government are involved.
It is difficult to evaluate any land parcel. It depends on what value it is capable of commanding and what the market is capable of picking it up. There are different opinions on ways to value properties. Some work on a residual land value method. In this method, construction costs, marketing costs, overheads, and the finance cost involved in any project are calculated. After taking this into account, a certain percentage is added as a profit margin. This number is then divided by the saleable area to find out the rate per square foot.
3. Impact of the Deal on the Real Estate Market
A deal of this magnitude is bound to have spinoff effects on Mumbai’s real estate market. It will instill confidence and attract further investments. We believe that all cash crops, including offices, residences, and luxury hotels, will get a great fillip.
The perception of South Mumbai as the most happening place will complement this trend. While the luxury residential sector is looking up, it has always been known for its historic mansions, which belonged to prominent figures, their present home, and other fabulous residences.
This real estate deal will reaffirm the faith of high net worth individuals and attract young buyers from the corporate sector to shift to a Colaba address. The recent changing of hands of a property in Breach Candy and the acquisition of an old cottage in Bandra by a Mumbai developer is just the beginning, believe real estate watchers.
It is also well known that a long gestation redevelopment plan will have to be worked out since there are existing tenants and leases running on the property. It will be freehold by the court, which will have a large part of its area utilized for public parking, shops, and cafes to retain the heritage artifacts, the oversized dome, and some fifteen floors of development.
The land and a prestoried tower will make a heap of money for the buyer, but the wait will indeed be huge. The location of the towering property will have a cascading effect on the land and property prices of the neighboring areas of Colaba, Cuffe Parade, Marine Drive, Nariman Point, and Fort, any of which have either the mill land or other redevelopment propositions in the offing.
Such large redevelopment proposals could yet claw back the lost sheen of South Mumbai. It has also been seen that when an iconic property is sold, it starts an avalanche of sales of other high-value properties across the city and the region. So it could happen in Mumbai.
3.1. Price Trends in the Area
While India was abuzz with real estate news about Mumbai’s largest property deal, one factor that glided past all of us is the deal’s impact on the real estate market in this area. There are three similar-sized malls nearby this one that were bought for Rs. 8,000 per square foot, and the tallest commercial building was bought for Rs. 16,000.
The entire Indiabulls Sky project should be an interesting case when it comes to supply because the prices of real estate around it will more or less be benchmarked to their asking rates. Even the property around BSE is valued based on the rates charged for their property, and so will be the case here. Hence, if done properly, it should give you a reasonable estimate of what properties in Lower Parel would fetch.
Also, since the deal has happened already, one doesn’t have to base one’s judgment on what may happen in the future based on developers’ plans; one can base it on the deal that has already happened. As one of the local estate agents from town says, “Most developers I know plan the final minimum rates at about 10-12 percent higher than the last recorded deal in that area for a property of that size.
So, with a 10-12% appreciation in a property selling for Rs. 8,000, it is reasonable to expect at least some people to buy property in this area at those values. A further testimony to the pricing parameters is the data about rental yields in this project, which almost confirms the absolute rate set by the deal. Even at these high prices, investors are undeterred, and many prefer even to take a little rental yield cut.
4. Key Players Involved
Invocation Homes and Blackstone identified and purchased a prime property in house property ensemble advanced in Powai for feasible Rs 300 crore less than a valuation. Although, the land worth of the generally deal could not be ascertained.
The property is presented by Hiranandani neighborhood and TH Real Estate. The latter elucidated to arrive parting from the investment of residential property in India and have been vying to leave the scheme as long-dated owners. The annual rent earnings from the newly brought home was over Rs 50 crore. The financial services large Petal Properties deals with the OHT with THEIR Private fund the Oblin.
The Indian unit of American Single family rental home REIT has bagged few of the excellent estate portfolio Companies from the parent company to its subsidiary Petal properties. The recent transaction report is the biggest portfolio of realty buyers.
The co-founders in this venture comprises V. Subramanian and Sachin Das are previously together in employer Urban Infra development namely a transit concentrated fund administrator on the basis of Airport transit oriented development.
In the year 2018, solicited to commentary for the story. Separately, he maintained that the Blackstone has been long-dated Installers in the asia pacific indian realty persons. Several of the Blackstone and introduction homes receiver very good on its investments in the South Indian builder, Ozone. In the year, 2017, chamber where they get invested more than Rs 200 crore in the funds that implements residential assets and conduct a portfolio of its benefits majority not knowingly in the year of 2018 saw full exodus of this inventory as they be transformed independent investment.
4.1. Buyer and Seller Profiles
The Indian real estate sector has faced multiple headwinds in the past decade due to policy reforms, liquidity challenges, and now the COVID-19 pandemic. This paper offers an in-depth analysis of the largest property deal in Mumbai. To characterize this transaction, an analysis of the buyer and the seller, the details of the land parcel, and the financials have been evaluated.
In real estate transactions, it is important to understand the buyer and the seller of the property. These two players are generally affected by the business environment and market sentiments, as well as various microeconomic considerations ranging from previous interactions to strategic objectives.
The buyer owns a range of properties under different legal entity structures to acquire a diversified portfolio. Interestingly, this business group has avoided deals in metro cities or their peripheral areas.
The deal is a part of an acquisition in keeping with long-term business objectives. As for the seller, it had previously sold all of its land holdings in the city. It has re-entered the market primarily for solo deals, likely to improve its position in the city from a ranking of 12 in 2019.
This reflects on the seller’s business strata, as the seller has a poor rental yield; the highest range of rental yield for commercial as well as residential properties is under 4%. Moreover, the properties are unsold and available for resale.
5. Conclusion and Future Implications
The initiated interest of global PE firms in Indian realty continues to grow with more funds making offerings targeted towards direct real estate investment. Platform deals, which provide private equity funds with construction services, account for a major share of PE investment in Indian real estate. Platform deals carry lesser risks, yet offer assured returns.
The entering transactions and growing demand for real estate units as well as rising property prices force PE investment funds to locate more alternate means to circumvent exposure and yet earn returns. With atypical investing, funds can carry alternative legal and fiscal structures that are compliant with regulations. Alongside, atypical investment funds should remain fully aware of the investor sthana or the sponsor sthana, the applicability of MAT, push-down accounting to investment companies, transfer viands, and control norms.
To boost revenues and keep finances and fiscal indicators financially balanced, the Government can prompt private equity investing by paying heed to the amendments that have been put through the Report of Task Force that have been pending announcement.
Implications: When planning real or physical capital investments, or investments in physical capital that add to the original capital combine another investor’s efforts for typical investing; the fund shall be differentiating the type of structure. Asset sweat stakes should be avoided and funds should stay away from high-committing transactions.
The valuers should remain fair in device pooling board structures, considering the valuer would be determining the fund’s participation according to the investor, means of investment, associate scheme among differentiating and different structures and laws impacting control, or immediately should the valuation report previously make individual operation schemes in unit spending.
The originating or enlarging sthana should be identified and dealt with patiently. Overtures who offer schemes that fulfill the crystal edition.
