Why Bombay Dyeing's Rs 5,200 Crore Worli Land Sale Isn't Expensive

Bombay Dyeing and Manufacturing Co.'s decision to sell 22 acres in Worli in central Mumbai for Rs 5,200 crore is one of India's largest land deals. Yet, according to real estate experts, the transaction isn't expensive.

The Wadia Group-owned company will sell the parcel to a subsidiary of Japan-based developer Sumitomo Realty and Development Co. According to Gulam Zia, executive director at Knight Frank India, a land deal of this magnitude would be one of the largest not just in Mumbai, but across India.

In the nation's financial capital, where land is scarce, the sale is valued at Rs 236 crore per acre. That's within the range of Rs 200–250 crore per acre in the city, according to Piyush Gupta, managing director of capital markets and investment services at Colliers India, even though the aggregate number probably makes it the largest deal in India because of the size of the parcel.

Luxury housing demand and prices are scaling new highs, according Zia. "This appears to be just right, ticking all the check boxes for a record-breaking land transaction."

Mumbai's housing demand has spiked post the pandemic, driven by luxury apartments. That has prompted developers to launch new premium projects. According to Anarock Property Consultants, homes priced above Rs 2.5 crore accounted for 21% of the new launches in April-June this year.

The traded value of Bombay Dyeing land is a reflection of the demand and return on investment in such a prime location, Gupta told BQ Prime. "If the current demand and supply hold, the pricing of the deal is fairly valued."

According to Gupta, four to five acres of vacant land parcel is hard to get in the premium market areas of the city such as Bandra Kurla Complex and Worli, Piyush Gupta. So getting access to such a large vacate land parcel, which is a corporate-owned freehold, is an opportunity that not many get in Mumbai - a city that struggles with the issue of scarcity of land.

Gupta said investors like Sumitomo have deep pockets to provide that kind of capital upfront, he said. "Most of the Indian developers for this size ... would want to do some kind of a structure transaction like a joint venture or joint development, which reduces their initial outgo."

Property consultants say some large deals happened 10–12 years back when values were lower but prices have appreciated significantly since then.

In 2016, Brookfield Asset Management had acquired Hiranandani Group's offices space in Powai for Rs 6,700 crore in one of the largest deals in the commercial space. What's different is the Brookfield deal was for complete buildings, while the Bombay Dyeing deal is for the vacant land.

Investors in search of land look at a horizon of five to seven years, according to Gupta. Demand has increased for parcels with development potential of anywhere between 3.5 million square feet and 4.5 million sq ft or even higher. It can be put to mixed use with premium offices or luxury residences, said Zia of Knight Frank.

This is not the first entry in Mumbai for Sumitomo. Last year, they bought lease lands from the Mumbai Metropolitan Region Development Authority in Mumbai's BKC. Not just that, in 2019 they bought three-acre land parcels in the city for over Rs 2,100 crore.

In 2018, Sumitomo Realty formed a joint venture with Indian auto components major Krishna Group in Gurgaon, Haryana. The JV, known as Krisumi Corporation, planned to construct approximately 5,000 housing units, commercial facilities and office buildings over a total of eight phases on a site of about 26 hectares in the Gurgaon Project.

Japan's Sumitomo Realty & Development plans to invest 500 billion yen ($3.58 billion) in office building projects in India, as per a report by Nikkei Asia in November 2022.

“This marks the third significant investment by the investor within Mumbai city, underscoring the growing investor confidence," said Shishir Baijal, chairman and managing director, Knight Frank India. "The strategic location of this land parcel in the heart of the city presents immense development prospects and has the potential to redefine the real estate landscape of the area.”