A raft of reforms and legislations in the real estate sector is driving consolidation with several smaller realty developers either monetizing their land parcels on outright basis or entering into joint development or development management agreements. 

Last November's surprise demonetisation of high-value notes has induced an unforeseen liquidity crunch worsened by banks that have been reluctance lenders following a crackdown on NPAs by the Reserve Bank of India. This affected quick transformation in sector known to benefit from unaccounted cash transactions. 

"Small and mid-sized developers are finding it tough now because of strict RERA guidelines and their lack of strong credibility to generate sales given the homebuyers' current preference for solid execution track record. Apart from this, absence of financial strength is also pushing them towards forming alliances with big developers," said Ankur Srivastava, chairman, GenReal Property Advisors. 

Builders have realized that the its not same environment in which they operated for years and now homebuyers, lenders and other stakeholders have gained strength to take on them. 

"Business is changing and these are big changes. One will have to adapt to the new realities to move further. We have been making structural adjustments to align with the changed environment," said Dharmesh Jain, CMD, Nirmal, which has been forming alliances to monetise its land parcels to ease debt burden. 

Nirmal recently entered a partnership with Godrej Properties to build a residential project on a 14-acre land parcel in Thane. This pact was facilitated through Nirmal's strategic arm Nirmal Ventures. The newly launched vertical of debt-stressed Nirmal is looking garner more such partnerships. 

Earlier this month, another Mumbai-based developer entered into a pact to buy Nirmal's 3.2-acre land parcel in Mulund suburb of Mumbai for Rs 153 crores. 

Homebuyers are of view that the changing environment is good for them as only credible developers would remain in the business. 

"With recent regulatory changes, it's clear that not-so-serious operators will not be able to sustain for long. This would leave very limited scope for homebuyers getting cheated or misled," said Tarun Shah, a homebuyer of residential project Tanvi Eminence in Mira Road near Mumbai.

Shah is part of homebuyers group that filed an FIR against the promoters of the company executing the project that has been delayed for over three years. 

Before the reforms and legislative tightening, realtors expanded geographic reach by picking up land parcels before completing existing projects. However, this is changing now. 

A Ghaziabad-based realty developer, who had acquired a 20-acre land parcel in Badlapur near Mumbai in 2010, sold it outright to a local developer. The builder had bought the plot with an objective of geographic diversification. In the current scenario it decided to monetize the land to support completion of its Ghaziabad projects. 

The newly implemented RERA requires builders to maintain 70% of funds collected from buyers in a separate bank account in case of new projects to avoid fund diversion. Besides, no new project can be launched before securing approvals increasing the builders' liquidity burden. 

Monetization through a joint venture or development management agreement would put the large developer in driver's seat as the control will also be passed on to the new entity with new entrant holding majority stake.