Sterling Backs Out of Kalina Deal

The Rs 46,500 rate (almost 10 times the residential rate for the area) that Sterling Biotech was reported to have been paying for a seedy building in Kalina, a flood-prone area of Mumbai suburbs, seems to have fallen through, if the Mumbai Mirror is to be believed. (read Sterling's Realty Excess)

This development follows the 30% drop in Bandra-Kurla Complex area. Obviously, Sterling could have realized that it was paying a ridiculous sum for land, simply because it was adjoining BKC. However, sources indicate that this may also be a ruse by the members of Vivek Apartments, the building in question, to deflect attention from the deal.

According to the Mumbai Mirror, Sterling has written to the society citing due diligence and advice of the legal team, as reason to call off the deal. It has asked a return of Rs 25 lakh earnest money, paid when this Rs 403 crore was agreed to. However, sources say that earnest monies are like call options and are not expected to be returned in the event of a deal falling through due to the buyer.

The cancellation of the deal may have stunned residents - some of whom have been quoted as saying, "If its too good to be true, it is." Many had paid Rs 8000 a sq ft to book new apartments in a new construction nearby, paying almost twice the prevailing rate. Now they may have to do a distress sale.

None of this appears to be putting sense in to residents who are in a state of shock. Many have said that other builders were willing to negotiate - however, this may be more wishful thinking than reality.

In a scenario, where stock markets have burned down 50-70% of investors money, it is highly unlikely that excess profits would flow in to the real estate market. Bangalore has already exhibited at 40% decline, and is slowly turning in to a buyer's market. Mumbai could be next.