Developing nationally
Sunday, August 28th, 2005Legal land tracts, client pressures, funding prospects and high yields have pushed Indian realtors to…
But all that is set to change. Fear of international competition is forcing some of India’s leading developers to shed their regional image and go national. In the process they are changing the way India saw real estate developers. No longer do you see DLF developments in Gurgaon alone or Rahejas in just Mumbai. Today, watch out for a Unitech and DLF in Kolkata, Chandigarh and the Rahejas in Hyderabad. So what takes these organisations, past their tried and tested markets?
The most obvious reasons are availability of land, growth in demand and clearly identifiable sources of funding. City authorities have started either consolidating land and auctioning or tendering it to private developers or allowing developers to consolidate land and grants change of land use for residential or commercial development. As the pie grows bigger, retail and IT Park developments push demand for quality residential products too. As a result, the markets are in the growth phase. Banks now lend to real estate developers, thus there is no dearth of money in the market. Private investors too are attracted by the high and sustained growth in real estate investment yields.
There are a few major triggers for national movement of developers. This includes transit corridors which have huge potential for development. Ageing cities that have not kept pace with changing demand also acts as triggers. As Rohtas Goel of the Omaxe group says “I dream of a 100-acre township on the outskirts of every Indian city.” Highway development has been the trigger for a boom in property values along the Ajmer highway in Jaipur Development Authoritys jurisdiction, Kondli near Sonepat in Haryana and in Punjab. Tier II developers such as Omaxe, Parasnath, Vatika, Vipul Infrastructure and Ansals (consolidating after the group’s split) have started purchasing along these corridors. This caters mainly to the local populace and rides the peaking demand in retail and residential development. Will a multi-city presence also give better access to funds? Says Vijay Vancheshwar of the DLF group, Currently, we are consolidating our national footprint. But as and when the need arises, we will definitely be open to global expertise and funds. The fund managers also look for multi-city exposure, good business ethics and sound knowledge of markets.
Today cities are competing with each other for investments. As land parcels are consolidated and sold, it gives more players access to legal land with clear titles, a process that has traditionally not been possible. This has thrown open new growth areas in real estate development such as Kolkata and Hyderabad. Even established cities such as Delhi have been selling land actively. Explains a source at the Delhi Development Authority, “We are regularly releasing land at auctions and through tendering so that there is regular supply in the market. The authority prices land at 10% below market values which is determined by the previous sale value. This allows us to use the reserve price to rationalise the land value. However, in recent times with more players fighting for land at auctions, land has tended to auction way above reserve prices.” In many instances, explains AV Goel, CEO of DHFL Venture Funds CEO, the move was determined by client requests. Since large developers are exposed to large client-occupiers, establishing base in other centres was a matter of convenience. Also, with legally titled land parcels, sold either by development authorities or sanctioned by the city plans, as in the case of the mill lands in Mumbai, it is possible for developers to venture beyond their regional strongholds.
Take the Delhi-based DLF group which developed the over 20 million sq ft DLF City in Gurgaon. Today with land holdings in 11 cities including Mumbai, Bangalore, Chennai, Chandigarh and Kolkata, it is the first developer group to go truly national on such a large scale. The Gurgaon-based Unitech Ltd was another group that has ventured into newer markets. Having tied up for amusement parks in both Noida and Rohini in Delhi, the group is also looking at developments in Kolkata and Bangalore as well.
Similarly, the Raheja group has ventured out of the traditional stronghold of Mumbai’s Malad district where its Mindspace IT Park caught the market’s fancy, to create a similar facility in Hyderabad. Col Pickles Sodhi of Alpha G Corp explains the advantages of an alliance between three real estate entities - G-Corp Ltd (Gesco Corporation of Bangalore), Lanco Gesco of Chennai and Alpha Buildtech of Delhi. “Clients today are comfortable with developers with clean balance sheets and ethical business practices. When they expand to other cities, it gives them a level of comfort that a known group is servicing their business needs.” A case in point is the DLF which is servicing IBM (a Gurgaon client) in Kolkata and Chandigarh too.
The Rahejas have chosen to take a high-quality brand - Mindspace IT park created in Mumbai, to other cities such as Hyderabad to give the client a level of comfort in terms of quality benchmarks. Similarly, the Aerens Gold Souk International created a branded mall Gold Souk which was first tested in its home turf- Gurgaon. Having achieved over 40% occupancy and regular sales of over Rs 10 lakh per day, it has now launched the brand in Ludhiana, Kochi, Kolkata and Jaipur. The first brand has helped push occupancy in succeeding cities, explains Amit Gupta, President, AGSI. These brands revolve around the quality image. The DLF group has made a map for its national footprint development. Explains a spokesperson, “In regions where we are not strong, we have strategic partners who help in creating that regional quality benchmark.” The group is looking at geographical spread and access to all markets.
Having emerged as the market leader in the Gurgaon market, the DLF group has been systematically acquiring land for developing retail shopping malls that would service good catchment areas. In Delhi, this ranges from prime South Delhi markets such as Saket and Vasant Kunj to cash-rich neglected markets such as Mayur Vihar and Shalimar Bagh. Emerging IT markets like Kolkata, Chennai, Pune, Hyderabad and Bangalore are also DLF’s targets.
Retail being a very visible and glitzy face of a city, most groups have pegged their expansion plans to retail mall development. This includes big players such as DLF, Unitech and the Rahejas (promoters of the Shopper’s Stop brand) and smaller regional players such as Omaxe, Parsvanath and Ansals. The Ansals, in fact, are using the brand value of Ansal’s Plaza, the first organised retail development in North India, with a range of malls across metros and Tier II cities like Saharanpur and Moradabad.
When it comes to office or residential development, however, many groups have decided not to go for Tier II cities. IT Park investments too will mature only after the BPO segments capitalise on lower land values. Quality is one benchmark that can be followed.
Quality benchmark is what Ascendas of Singapore assures a user. Flush with funds, especially after a Rs 800 crore investment by GE in the investment company, Ascendas specialises in purchasing value-for-money property or those giving regular yields and turning them around. Explains SC Jaisimha of Cresa Partners, Ascendas actually add value both to the property it is positioning as well as the area as a whole.
A practice that is very important in the Indian context. According to PR Mehta, former President of the Council of Architecture, Indian real estate does not need FDI as the banks today are flush with funds and also lending to projects. There is enough liquidity in local markets for access to funds. However, the market has not learnt to strategise and manage like players in other mature markets. Take a Malaysian developer who regularly sources land and develops real estate. Strategy is to be able to determine land value when the developer is ready to sell, says Mehta. His Malaysian colleague sells land on city fringes during boom time and reserves premium land in core areas to market in a depression, ensuring regular sales even during depressions.
Premium lands fetch very good prices in the current boom. In the NTC mill land in Mumbai and in the retail mall space sold by the DDA in places like Saket and Vasant Kunj, auction values are way above the reserve price. Explains urban planner Sudhir Vohra, “The shortage of land and the spiralling prices can only be brought down when there is a surplus situation. This is possible only when authorities regularly master plan the areas in the short and long term and release land for future development. This alone will lower the value of land. Rakesh Mehta, Municipal Commissioner of Delhi who has been instrumental in pushing through Building Byelaws reforms in the city, agrees. The requirements of the city changes every 20 years in the long term and five years in the short term.
It is healthy to keep planning local areas so that it is constantly being redeveloped. He feels inclusion of the private sector is the best way to do so. Free access to loans and funds, frequent sale of land for development or allowing for development on the fringes of cities through change of land use from agricultural to residential or commercial, all help in pushing up the scale of development across the country. Riding that wave is a host of developers, big and small. Will FDI follow?
More: financialexpress.com