Realty boom scripts more success stories

NagpurThe business of Nagpur at the moment is real estate. “The proposed SEZ might bring lakhs of jobs in the future but real estate has already provided employment to at least 1,00,000 during the last two years,� says Vishwas Chakhnalwar, owner, Venkataramana Properties. Ever since the SEZ roadshow happened two years ago, land prices have headed north in the city and show no signs of fatigue.

Nagpur has traditionally been a trading town and the money made by traders in the old city has usually been invested in stocks or in properties in Indore or Raipur. No longer. On Sundays, one can see traders heading out on NH 7 that runs parallel to the logistics hub site to negotiate land deals.

Land prices have shot up phenomenally. “For every Rs 100 crore that is coming to logistics park, Rs 500 crore is being invested on the other side of the road,� says Mr Chakhnalwar. While MADC is selling land for Rs 80 lakh an acre, today it is impossible to get land at even Rs 2 crore per acre on the other side of the road.

Promise of such fortune can make for unlikely partners. Gaurav Jain used to work for McKinsey. He now works for himself and is busy with his real estate development firm in Nagpur. And now Mr Chakhnalwar and Mr Jain work together on projects. Mr Jain says foreign investors are willing to put in money even in small projects.

According to their research, there are almost 100 sponge iron units around Nagpur, all of them rolling in cash. And many of these units are investing surpluses in land. “Then there are traders of coal, limestone, gypsum who have benefited from high commodity prices and are investing in land,� says Prashant Wasade who works along with Mr Jain.

But Nagpur is also witnessing heavy asset price inflation because of “transaction flipping� or Sauda palti, which is making many rich. The way it works is this: The agent goes to a farmer whose land is valued at say Rs 3 lakh/acre. He offers to buy at Rs 15 lakh/acre, pays 20% as advance, draws an agreement for sale that says the transaction will be completed in 3 months. He then goes out and finds buyer No 2 and ‘flips’ for the same land who is willing to pay Rs 30 lakh/acre. Buyer No 2 pays 20% and promises to complete the transaction in three months and now goes out to find the next guy in the chain.

The land remains in the name of the farmer but all the people in between make three to four times the capital they invest. Calculations show that in a four-member chain, the returns can be anywhere between 15-32 times the total invested amount depending on the margin being put up. No wonder then that most people in Nagpur look very happy.

But this is not the first time that someone has kissed the frog of asset-price inflation thinking it to be the prince of economic growth. Nagpurians should be careful, very careful. Flipping works because right now prices are high, if they correct, many could get hurt.

Source: The Economic Times

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1 Response to “Realty boom scripts more success stories ”

  1. 1 Sachin Palewar Aug 13th, 2007 at 1:16 am

    Its true that Nagpur has traditionally been a trading town but I feel its soon becoming an IT as well and this in turn enables young people to have deep pockets and young go-getters really drive the malls and brands into the city. They spend money on branded cloths, like to see movies in multiplexes, go to pub and so on. So all this in-turn also plays a part in realty boom.

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