Urban Land Prices Soar as Developers Embrace Joint Development Deals

BENGALURU, February 6, 2024 – With urban land prices on the ascent, real estate developers in Bengaluru are increasingly turning to Joint Development Agreements (JDAs) with landowners, marking a strategic shift that benefits both parties amidst soaring land costs.

JDAs offer developers access to prime locations without hefty upfront expenditures, while landowners can monetize their property without relinquishing ownership rights, as outlined in a report by Bengaluru-based real estate research firm Meraqi.

The report, titled ‘Our Landowner’s Guide’, reveals that approximately 70% of real estate assets in Bengaluru’s residential and commercial sectors have been developed through JDAs, underscoring the prevalence and significance of this approach.

Land prices in Bengaluru, along with other top real estate markets such as Mumbai, the National Capital Region (NCR), Pune, Chennai, Ahmedabad, Kolkata, and Hyderabad, have surged significantly over the past three years. Bengaluru, for instance, has witnessed a 40-60% increase in land prices during this period, according to the report.

Gorakh Jhunjhunwala, Managing Director of Meraqi, emphasized the pivotal role of JDAs in India’s real estate sector, particularly in Bengaluru, which remains a hub for real estate developments.

The trend is largely fueled by the presence of IT companies, startups, and rapid infrastructure development, creating robust growth prospects for real estate firms.

Dhara Shah, Head of Land Services & Research at Meraqi, highlighted the shift from outright sale transactions to JDAs for land monetization, with JDA transactions potentially yielding higher returns, estimated at two to 2.5 times compared to outright transactions.

Sunil Pareek, Executive Director of Assetz Group, noted the mutual benefits of JDAs, where landowners can capitalize on enhanced returns tied to sales price growth, while developers can optimize capital costs by sharing upsides with landowners.

While the real estate sector underwent significant policy changes between 2015 and 2020, including the establishment of the Real Estate Regulatory Authority and the introduction of the goods and services tax regime, some landowners faced challenges in JDA partnerships due to regulatory uncertainties and limited understanding of tax and legal aspects.

Pavitra Shankar, MD of Brigade Group, attributed the surge in land prices to stable interest rates and infrastructure improvements such as metro connectivity, new highways, and roads.

Residential real estate has experienced substantial growth in the past two years, with builders expanding their portfolios amid a rapid reduction in inventory overhang. Bengaluru, for instance, witnessed a decline in the overhang period to nine months in 2023, compared to 20-25 months in 2015-2020.

In conclusion, the report highlights a nearly 30% increase in residential real estate prices in Bengaluru since the end of 2020, resulting in an average annual appreciation of 10%.

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