While this might hit consumers, it would have a positive impact on real estate companies with large land banks. Between 2005 and 2007, several real estate companies built large land banks and recorded attractive valuations for these during share sales. Morgan Stanley believes the impact of the Bill is likely to be felt over the medium to long term; companies with large and diversified land banks (Sobha, DLF, Indiabulls Real Estate, Prestige and Jaypee Infratech) are likely to benefit. If these companies are able to pass on the increase in property prices to consumers, their profitability would improve significantly. J C Sharma, vice-chairman and managing director of Sobha Developers, says, "Following the land acquisition Act, land availability would fall and it would cost more. As we move forward, companies that own land would have an edge over the others. But for that, the economy has to return to shape.
We have shown land parcels at historic costs. We will tell about the nature of development and valuations closer to the launch of the projects." Clearly, such developers would see inventory gains on low historical costs of land. Karvy Stock Broking says, "Based on competitive mapping, DLF stands out in the northern market, HDIL in western India and Sobha in southern India. Oberoi, Prestige, Kolte Patil & Puravankara are mid-quartile in their respective macro-markets.
The Land Acquisition and Rehabilitation and Resettlement Bill will impact these developers positively, as property price increase would augur well for profitability in case they are able to pass on costs."
DLF, which is struggling with huge debt, has 320 million sq ft of land that can be developed - 265 million sq ft in the residential segment and 55 million sq ft in commercial (lease) business. About half of its land bank (150 million sq ft) is in Gurgaon; the rest is spread across Bangalore, Chennai, Chandigarh Tricity, Hyderabad, etc. The company believes in case land supply is curtailed, valuations of land banks would rise. However, if a lot of land comes into the market, prices might fall. Unitech has a bank of 5,500 acres; land that can be developed is 300 million sq ft. The company's land parcels are located in the Delhi National Capital Region, Chennai, Mohali, Kochi, Kolkata, Hyderabad, Bangalore and Dehradun.