The Delhi Development Authority has announced a Rs 700 crore (Rs 7 billion) bailout package for cash-drained Emaar MGF, which is developing the Commonwealth Games Village project.
The package envisages purchase of 333 flats in the CGV project instead of a loan. The price at which the flats will be bought is 13 per cent higher than what was recommended by an expert committee constituted by the government to decide the modalities of bailing out the Indian unit of Dubai-based Emaar. However, it is well below what Emaar was asking.
Emaar had sought a Rs 1,000 crore (Rs 10 billion) bailout. The request was made after the global meltdown led to a near-collapse of the Indian property market.
Emaar had planned to raise money from pre-sale of flats. But the crash in the property market threw its calculations haywire, forcing the developer to plead for a bailout.
The DDA had decided to pay Rs 11,000 per sq ft for the apartments, against the expert committee's suggestion for Rs 9,382-9,720 per sq ft, it said in an e-mail.
"Since the purchase of flats is the only viable option, it has been decided to purchase 333 flats for approximately Rs 700 crore at a price of Rs 11,000 per square feet, which is much below the rate being charged by Emaar MGF from the buyers in the open market."
Emaar MGF, under a private-public partnership with the DDA, had won the contract to develop 1,168 flats. The company had hoped to sell 70 per cent (778) of these and to use the cash from the sale to finance the construction. The CGV is being built to house the 8,500-odd athletes and those who accompany them.
Emaar had earlier planned to sell the apartments for Rs 12,750 a sq ft in the open market. The flats have a price tag of between Rs 1.8 crore (Rs 18 million) and Rs 4.8 crore (Rs 48 million).
The new price at which the DDA plans to buy the flats, though higher than recommended by the panel, will set a lower price for the future flats to be sold at the Village. This is also likely to force earlier investors to ask for discounts on the flats already sold by the developer.
"The reduction in prices of the apartments by the DDA is recognition of the fact that the property rates have moved southward. Developers across the country have reduced prices of their flats to sell their projects", said Pranay Vakil, chairman, Knight Frank India Pvt Ltd.
Recently, DLF, the largest developer of the country, launched (and sold) a housing project, Capital Greens, in West Delhi at Rs 4,075 a sq ft. "I am not sure if the DDA could have priced the project at a rate similar to that of DLF Capital Greens, as different companies have a different price strategy," Vakil added.
The DDA had set up a price fixation committee in March this year to analyse the current market price of the apartments being developed in the project.
"The DDA may finalise/negotiate the final price keeping in view its understanding or experience in the sector," its report concluded.
The project is scheduled to be completed by April 2010, a few months before the Games. Till date, it is 43 per cent complete, as against the target of 45 per cent. The government has been under pressure to come out with a bailout package to keep the construction on schedule.
The price fixation committee report said Emaar had spent nearly Rs 788 crore (Rs 7.88 billion) till date.
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