In a bid to perk up interest in a plot that it proposes to auction, the land development arm of the railways has cut the reserve price for a 45,371 square metre plot at Bandra, a Mumbai suburb, by nearly 14.5 per cent, to Rs 3,960 crore (Rs 39.60 billion).
The Rail Land Development Authority has reduced the minimum networth requirement for bidders by a similar margin. It has also reduced the bid security amount by 20 per cent.
This apart, the authority has more than doubled the payment period to five years.
The hope is that these sweeteners will convince bidders to invest. The project involves the construction of an office complex. The plot is near the Bandra Kurla Complex, an area that has seen a spate of building activity in the recent past. Given the ongoing slowdown, experts see an oversupply, poorer offtake and lower rentals from prospective clients like the financial services companies.
"At a recent pre-bid meeting, several developers said the reserve price was very high. They cited constraints like the ongoing liquidity crunch and depressed stock market conditions and sought that the price be lowered," Ashok Gupta, member, RLDA, said over phone from New Delhi.
Companies like DLF Ltd, Unitech Ltd, Indiabulls and Reliance ADAG have evinced interest in the project, but given the depressed conditions in the real estate market -- especially the commercial segment -- have baulked at forking out the money demanded earlier. Due to liquidity crunch, commercial real estate transactions in Mumbai have been down over 30 per cent in the last three months, while rentals have corrected 15-20 per cent.
The sweeteners come after the authority had, earlier this year, more than trebled the reserve price of the plot to Rs 4,628 crore (Rs 46.28 million), on the grounds that extra development could be done on the land due to relaxed norms. The state government has increased the floor space index to four and a developer will be able to build up to 1,50,000 sq metres, or 1.6 million sq ft, of space.
However, the move to increase the reserve price backfired and developers recently told the authority to recognise the changed market conditions.
Aware of the need to make the auction succeed, the authority has also decided to lease out the land for 80 years.