DB in Talks With Oberoi Realty to Sell 30k sq mtr of TDRs

DB Realty, which has been in the news for its promoter Shahid Balwa, is in advanced negotiations with Oberoi Realty to sell nearly 30,000 sq metre of transferable development rights (TDR) for around 2,300 per sq ft, 20% lower than the current market price, sources close to the development told ET.
The discount being offered is attributed to DB's efforts to mop up liquidity through sale of TDRs and the other realtors' rush to sell available TDRs before the implementation of the amendment in the Maharashtra Regional and Town Planning Act that will allow allotment of 33% floor space index (FSI) in the city's suburbs against a premium.
TDRs are tradeable certificates awarded by the state government to a developer to undertake slum rehabilitation projects. The FSI shows the proportion of permissible development on any plot. DB Realty denied the story saying the company has not sold any TDR to Oberoi Realty in the last 40 days. "We are not selling any TDRs below 2,800 per sq ft. Smaller deals of around 500,000 sq ft are still done at 3,000 a sq ft, while large ones are being done at a slightly discounted price," said N Sridhar, group director, DB Realty.
Oberoi Realty officials declined to comment. DB Realty is expected to pay 802 crore to the Maharashtra government for a 57-acre part of government colony redevelopment project off the Western Express highway at Bandra in Mumbai. Recently, the company also walked out of a possible deal to buy a 108-acre owned by Bayer Crop Science in Thane, citing landtitle issue. The deal was believed to be valued at around 1,500 crore.
"As a developer, one would prefer to sell available TDRs to improve cash flow than offloading inventory at lower prices. It's just a matter of time before the government implements the additional 0.33 FSI against premium and TDR price will have to correct," said an industry official.
In a recent statement, DB Realty maintained its stance that the company is well capitalised and has sufficient resources to continue with all its projects under construction. "The consolidated debt of 387.7 crore in the balance sheet represents a negligible debt-equity ratio of 0.12 as of December 31, 2010," the company said in a release.
In early January and for most part of the October-December quarter, TDR prices were hovering around 3,000 per sq ft. DB Realty and Housing Development and Infrastructure are major players in the TDR market and according to industry officials, the two account for over 80% of this market.According to industry sources, Oberoi Realty has also recently bought 400,000 sq ft of TDRs from Housing Development and Infrastructure. In its recent letter to chief minister Prithviraj Chavan, Maharashtra Chamber of Housing Industry urged operationalising the MRTP Act amendment that was passed in December to offer an additional 0.33 FSI on premium to developers.
The FSI allotment against premium will result in more housing supply and lower developers' dependency on TDRs, thereby easing prices of TDR itself. Currently, realty developers in suburbs get an FSI of 1 with the cap of 2 for total development. The balance of allowed FSI and total development cap is then procured through purchase of TDRs. However, with additional FSI allotment for premium, developers' requirement for TDR will ease in the same proportion and, therefore, its prices will fall.