Why are Land Deals Slowing down in Ahmedabad?

A recent Article Published in local newspaper media quoted a market study from a wellknown IPC of India, stating that there has only been 1 landmark land deal for the second quarter of 2024 as compared to 22 deals recorded in second quarter of 2023. There several theories floating in the market on a possible slowdown in real estate supply due to this. Let us try to discuss the potential reasons for such a slowdown.

There can be number of factors responsible for the pause in the land market. Some of them include;

1. Economic Uncertainty:
   Economic instability, including concerns about inflation, interest rates, and potential recessions, can make investors and buyers cautious about committing to large purchases like land. This is specifically true as the market sentiments post- Central Elections have had a mixed response on the Stock market as well as other major markets
2. Speculated increase in Jantri (Ready Recknor rates):
   It has been speculated among the real estate circles that the Jantri is again being revised, and it is expected to be revised as high as 80% to 90% of the. par market value for each land parcel in every part of the State. This can in-turn lead to a huge land acquisition costs as well as higher development costs for the constructed properties. Such a move will send the market into a heavy capital gains frenzy, higher stamp duties and higher payment FSI worries.
3. High Land Prices:
   In some areas, land prices have risen to the point where they are no longer sustainable for project viability. This has also led to a slowdown in land transactions as developers do not see a viable profit margins on development as Joint Development agreements are also not feasible. In the trading circles where land is traded simply to hold and make profit, investors do not see any potential further gains in a short term and are waiting for the market to cool off before parking their capital.
4. Market Saturation:
   In some markets, there may simply be too much land available at high prices for real estate development which had led to a slowdown in deals as supply exceeds demand. For example, areas of Shela in western Ahmedabad have witnessed a phenomenal Affordable housing supply, thus spiked land prices and also infusing huge amount of housing supply inventory resulting in slow sales.
5. Pandemic Aftereffects:
   The COVID-19 pandemic has had long-term impacts on many sectors, including real estate. Market prices of properties have doubled in 3 years while land prices have tripled since 2021. Such a price pump is now affecting the affordability for buyers and viability for the developers, affecting the slowdown in the land deal. While Stock market is also witnessing a bull run which may be slowing down, lucrative land deals may have to wait in this cooling period.
6. GIFT-City Cash Crunch:
   Ever since GIFT-City UDA Master plan got derailed and all extended land within the UDA was reinstated withing GUDA, Land deals which were recorded as high as 25 Crores per Vigha have come down to as low as 10 Crores per Vigha, thus blocking huge amount of Cash within the transactional system. GIFT City has been a very lucrative playground for land trades since last three years where deals very prominent – blocking a lot of rotating capital.
7. Agricultural-Co-operative Society (Kheti Mandli):
   Due to agricultural land ceiling in Gujarat, a lot of land traders had to diversify their holding in land by formation of agricultural co-operative society. These entities were setup with large chunk of lands pooled together for future development use. However, these lands are currently being not granted any NA (non-agricultural) land use thus choking up the land supply. Many of these Kheti-Mandlis are now part of Urban fringe and peri-urban areas which do not see the light of development due to regulatory blockage.
8. Restrictive R3 zoning:
   The current restrictive R3 Zoning with max FSI of 0.3 has rendered some of the most lucrative land zones in western Ahmedabad defunct of any sustainable housing or commercial developments. Available Market TDR is also not allowed in this restrictive zone and majority of land holdings are in form of entertainment zones and Café’s which are currently shut down due to the FIRE NOC stint in wake of sensitive fire episode in Rajkot. A lot of working capital and operational income is shut out in these establishments as majority of land traders and land investors are perceived to be in majority in these restrictive zonal uses.
9. Upcoming Development Plan & Zoning:
   The New Development Plan (Zoning) for Ahmedabad and Gandhinagar is expected to be out by end of this year. This has left a lot of uncertainty on the zoning of land and their future prices. There are speculations on some areas being benefitted and other area being restricted on developments. There are also speculations on FSI being diluted and increased price in payment FSI due to revised jantri- likely to plummet land prices.
10. AMC & AUDA Land Auctions:
    More than 10 lucrative land parcels were recently auctioned by AMC and AUDA including the prized Lullu Mall land in Chandkheda. These auctions resulted in disposing some of the prime lands in city of Ahmedabad in last second quarter of 2024. The fact that there were lot of takers for these plots of land suggests that there is a high amount of bullish real estate development in the city. These auctions also rebuild the faith in the market as these plots are likely to get smooth development permissions and unblocked clearances to enable real estate supply.

Each of these factors can play a role in the overall slowdown of land deals. However, this is a short pause. The land markets are likely to pick up once by the year end as new Jantri rates, Revised Development plan and News of Olympics will set the market soaring again for an unprecedented bull economy of Ahmedabad.

Author: Dr. Jigar Pandya, Head Academics, SIRE