New home launches in NCR decline 39% in January-March

The property market of the National Capital Region (NCR) saw a 39 per cent fall in the new launches of apartments to about 7,600 units during January-March period compared with the previous quarter, global realty consultant Cushman & Wakefield said today.

In the top eight cities of the country, Cushman & Wakefield (C&W) said that an estimated 38,000 residential units were launched in the first quarter of 2013, registering a marginal fall of about 2 per cent over the previous quarter.

These major eight cities are -- NCR, Chennai, Kolkata, Bengaluru, Mumbai, Hyderabad, Pune and Ahmedabad.

"National Capital Region (NCR) witnessed the launch of approximately 7,600 units, a decline of 39 per cent compared to the previous quarter," C&W said in a statement.

The new launches were concentrated in the suburban locations of Gurgaon (66 per cent) and Noida (34 per cent) with over 80 per cent of units catering to the mid-range segment.

"Due to the subdued demand, Noida witnessed a steep decline in new launches at close to 70 per cent and ended up being the primary contributor for the overall decline in number of launches in the NCR," the consultant said.

Chennai, Mumbai, Hyderabad and Ahmedabad also witnessed decline in new launches of residential units by 39 per cent, 3 per cent, 89 per cent and 62 per cent, respectively.

"New residential units launched more than doubled in Bengaluru and Pune in the last quarter, increasing by 144 per cent and 109 per cent, respectively," C&W said. Kolkata saw a modest increase of three per cent.

On prices, the report said that most locations in Delhi witnessed stable capital values in both mid and high-end segments.

However, capital values in high-end segment in South Central Delhi witnessed 15 per cent appreciation over last year due to limited supply and high demand.

Among the suburban locations, Gurgaon saw higher appreciation due to the high demand from both end-users, the workforce working in the various companies located here and investors, coupled with the limited project completions.

Gurgaon saw a change in the capital values in the luxury/high-end and mid-end residential segment at 29 per cent and 18 per cent respectively over last year, C&W said.

"The country's residential market witnessed some vibrant launch activity during the quarter despite the sluggish economic environment. Funding will remain a major challenge for developers while executing these projects," C&W executive managing director (South Asia) Shveta Jain said.

"Capital values have largely remained stable across most micro markets except for some key locations in NCR, Chennai and Bengaluru. Prices are expected to remain largely stable in the coming months as developers will be looking mainly to boost sale and increase cash flows in projects being currently executed," Ms. Jain added.

source:- http://profit.ndtv.com/news/industries/article-new-home-launches-in-ncr-decline-39-in-january-march-322962

Eastern Freeway: Latest game-changer for Mumbai real estate

Ramesh Nair of Jones Lang LaSalle (JLL) India explains about positive impact of the Eastern Freeway. He elaborates on how property prices have seen a spike in areas which are in close proximity of the route.

Ramesh Nair
JLL India

With the development potential of Mumbai's Western Suburbs almost fully exploited, we are witnessing increased momentum in new developments in the Eastern Suburbs where land parcels are still available and prices more affordable.

As a result, the 16.8 kilometre-long Eastern Freeway that connects P. D'Mello Road in South Mumbai to the Eastern Express Highway at Ghatkopar has now sprung into sharp focus with developers.

Also read: Land Acquisition Bill: Here's how it will impact valuations

The implications in terms of demand, supply and price are considerable. We have seen a steady increase in inquiries for residential and commercial spaces close to the Eastern Freeway's entrance and exit ramps, and developers have begun marketing their projects with an emphasis on their proximity to this key arterial route.

In Chembur, property prices have risen by as much as 25 percent over the past two years primarily because of this area's advantageous juxtaposition to the Eastern Freeway. Also, markets such as Kanjurmarg, Kurla, Powai and Ghatkopar saw residential property prices rise by 32 percent, 29 percent, 27 percent and 23 percent respectively in 2012.

This year-on-year increase in prices is also attributable to reasons such as the increase in superior quality projects with innovative concepts in these areas. LBS Marg has seen the arrival of luxury hotels such as Radisson Blue by Rajesh Builders and Novotel by Nirmal Group.

In fact, the property market in the CBD - currently on a decline - will also get a fillip because of the drastically reduced inward-bound commuting time. Improved road connectivity between Thane-Navi Mumbai with the CBD will result in an increase of residential project launches for the same reason.

The completion of the Santacruz-Chembur Link Road will cause more traffic coming in from the North side of the secondary business district of Bandra Kurla Complex. This will trigger a fresh spate of developments in the catchment areas surrounding the alternate route to the Central Business District.

With the improved connectivity of the Eastern suburbs, we will see these areas gradually attracting the commercial space requirements previously aimed at other micro-markets as long as the rates remain favourable. Such a relocation trend has already been witnessed in SBD North from other markets. This trend will become even more visible once the current lease periods expire.

There will also be further eastward movement of real estate development into locations like Sewree. However, it is the areas closest to the Eastern Freeway's entry and exit ramps specifically, Orange Gate, Anik Junction, Chembur-Mankhurd Link Road and Panjarpol Link Road which will emerge as the stronger locations.

Thanks for the new impetus, the real estate markets in these areas, which see high residential property absorption, will also see greater demand and consequently upward pricing momentum.

Going forward, the prices in the Eastern Suburbs are expected to rise at the rate of10-12 percent year-on-year over the next two years. A number of developers launching new projects are using the development of the Eastern Freeway as a marketing tool by highlighting the reduced commuting time to South Mumbai from peripheral locations.

Over the mid-term, properties in Wadala will also see a marked increase in value due to the combined influence of the Eastern Freeway and the fact that the MMRDA is fast-tracking this area's development as a Business District.

In the long term, certain land parcels currently held by the Mumbai Port Trust could eventually be released for development. If and when this happens, the presence of the Eastern Freeway will ensure that these land parcels will attract considerable premiums.

There is also a possibility of many industrial units present in the catchment areas of the Eastern Freeway moving out, further augmenting the supply of prime property for commercial and residential development along the Eastern Freeway.

Micro-Market Impact:

• South Mumbai may witness a small jump in absorption, considering the improved accessibility. Close to 35,000 vehicles travel on the Eastern Freeway each day.

• Central Mumbai will witness some acceleration in supply and absorption, and a moderate jump in rental/capital values.

• BKC will see moderate impact, which could improve once the Santacruz-Chembur Link Road (SCLR) comes up.

• Andheri will show, if at all, a mild negative impact because the Eastern Suburbs would now compete with it as an option for real estate.

• The Western Suburbs will largely remain unaffected by the Eastern Freeway, but the contrast between Eastern Suburbs - where a number of infrastructure projects are being undertaken - and the crowded Western Suburbs might become more pronounced, resulting in price pressure in the Western Suburbs.

• The Eastern Suburbs will see the maximum impact, with a sizeable increase in supply, absorption and rental/capital values across all segments.

• The Thane-Navi Mumbai market will experience positive movements, primarily in the residential market, with a lag effect on the commercial market.


The author is the COO- operations at Jones Lang LaSalle India.

source:- http://www.moneycontrol.com/news/real-estate/eastern-freeway-latest-game-changer-for-mumbai-real-estate_943960.html

Unitech group company UCP plans to sell IT SEZ for about Rs 2,800 cr

NEW DELHI: Unitech Corporate Parks, a Unitech group firm listed in London, is planning to sell its IT Special economic Zone (SEZ) in Gurgaon comprising about 3.5 million sq ft of office space for about Rs 2,800 crore.

Unitech Corporate Parks (UCP) — listed on the London’s Alternative Investment Market (AIM) and formed to invest in commercial real estate of India — has 60 per cent stake in the Gurgaon SEZ. Unitech has remaining stake in the SEZ.

According to sources, UCP is looking to sell the Gurgaon SEZ and has given the mandate to property consultant Jones Lang LaSalle India to find out potential buyers.

JLL India has started the process to sell this asset by initiating informal discussions with the probable buyers, sources said, adding that formal bids could be called by the end of this month.

The valuation of the deal is expected to be around Rs 2,800 crore, sources said.

An Unitech spokesperson declined to comment. Unitech is expected to garner Rs 1,100-1,200 crore from this deal and the amount will be used to retire debt and fund construction of projects, sources said.

According to sources, the SEZ is expected to be completed by the year-end and 75 per cent of the area has already been leased.

UCP raised about £360 million by issuing and placing its Ordinary Shares on the AIM of the London Stock Exchange in December, 2006.

It had invested in six commercial projects in India in partnership with Unitech, of which five are in the national capital region and one in Kolkata. UCP has 60 per cent stake in these properties while Unitech has 40 per cent.

That apart, Unitech holds 12-13 per cent stake in UCP. “The Board is working actively on all future options for the Company and ways to monetise the assets as they progress,” UCP had said in its half yearly report in December, 2012.

“We continue to believe that the maximum value for shareholders will be achieved by creating investments which are substantially physically complete and well let, and so our strategy continues to be to progress the projects as quickly as tenant demand permits,” it had said.

http://economictimes.indiatimes.com/markets/real-estate/news/unitech-group-company-ucp-plans-to-sell-it-sez-for-about-rs-2800-cr/articleshow/21067073.cms

Residential Projects in Gurgaon

Twin cities to be made into brands to attract investors

NOIDA: The Uttar Pradesh government is getting ready to organize promotional activities in various states to promote its iconic cities, Noida and Greater Noida, among investors. This was announced by the Uttar Pradesh infrastructure & industrial development commissioner (IIDC), Alok Ranjan, on a visit to Noida. The IIDC was in the city on Wednesday to review the development works in the twin cities. Apart from reviewing the progress of the projects launched by chief minister Akhilesh Yadav in April, Ranjan also said that the cities will be branded and promoted by the state government as favourable industrial destinations. The IIDC also held a meeting with the Gautam Budh Nagar SSP, Preetinder Singh, to beef up security in the region.

“Noida and Greater Noida have all the elements to compete with an international city. This ranges from roads, transport and world-class infrastructure, which are usually demanded by entrepreneurs for setting up commercial units. However, what is lacking is proper branding and officials have been directed to develop a blueprint for the purpose. Officials will hold conferences and other activities in association with different business and industrial organizations in various states to invite entrepreneurs to set shop here,” Ranjan told TOI.

“There is need to develop a sense of satisfaction and security among investors. Next month, there is an event scheduled with the National Association of Software and Services Companies (NASSCOM) to invite entrepreneurs to set up units in the twin cities,” the IIDC added.

Noida and Greater Noida CCEO Rama Raman said that to improve connectivity in the NCR, the UP government is stressing on completion of the FNG project.

source:- http://timesofindia.indiatimes.com/city/noida/Twin-cities-to-be-made-into-brands-to-attract-investors/articleshow/21130731.cms

Reliance Industries Ltd to go slow on 720,000-sq-ft Alaknanda mall following strong protests

NEW DELHI: Reliance Industries Ltd (RIL), the country’s largest privately owned company, has decided to go slow on its plans of constructing a gigantic 720,000 sq ft mall in a residential colony in south Delhi, following protests from an assorted group of upper middle class professionals who live there.

An RIL group company in 2007 had purchased a 4-acre plot in south Delhi’s Alaknanda through an auction from the Delhi Development Authority (DDA) for about Rs 304 crore. Over the years, the company has obtained reams of licences from the authorities to build a six-storey mall with three-floor basement. The mall is slated to be opened in 2014.

But Reliance had not accounted for the determined opposition from a group of local residents that calls itself the Citizens Allianceand includes economists, doctors, architects, lawyers and teachers.

This group, which held a 1,000 people-plus rally last month to protest the construction of the mall, says visitors to the proposed mall will choke traffic in the small bylanes of the locality and create pandemonium for its residents.

It claims that the residents were expecting the plot to be used for common facilities such as tennis courts, playgrounds and swimming pools, and that they were shocked to discover a mall being planned at the site. A DDA spokesperson, however, disputes this claim and says this plot was always reserved for commercial purpose in Delhi’s master plan.

A DDA spokesperson, however, disputes this claim and says this plot was always reserved for commercial purpose in Delhi’s master plan.

Citizens Alliance has in the past few months petitioned Delhi Chief Minister Shiela Dixit, BJP leader VK Malhotra as well as the Lt Governor of the city. While there has been speculation that Arvind Kejriwal was backing the protest, Ravi Kaimal, a prominent member of the Citizens Alliance, said this was not the case and the activist-turned-politician was not connected with their cause.

A person with direct knowledge of RIL’s retail plans said the company had decided to follow a ‘wait and watch’ attitude, after the protests gathered momentum. “The company is the process of executing several projects. It has plenty on its plate. It is in no hurry to complete the Alaknanda mall. All its documents for the plot are in order,” he said.

A Reliance official said the company was evaluating market conditions. “We can’t say anything as we are not sure on the return (on investment). The proposed mall is being discussed and if it is not suitable, we will postpone it,” he said.

An email sent to the Reliance spokesman on Monday did not elicit a response.

The construction of big supermarkets or malls in city centres is a controversial issue worldwide and has often led to face-offs between big retailers and local communities. Some big cities in the US such as New York and Washington DC have restricted the entry of Walmart, the world’s largest retail company. But the opposition being faced by Reliance is possibly the first anti-’big retail’ protest by local residents of a metro in India.

“In principal, if any project affects the communities, the communities should have the right to represent themselves and similarly the developer should also have right of its views. They should call an official negotiator and only then a conflict can be resolved,” said KT Ravindran, urban designer and former head of Delhi Urban Arts Commission.

Source http://economictimes.indiatimes.com/markets/real-estate/news/reliance-industries-ltd-to-go-slow-on-720000-sq-ft-alaknanda-mall-following-strong-protests/articleshow/21692003.cms

Tatas to execute Rs. 70,000 crore infrastructure projects in 5 years

New Delhi: To expand its presence in the infrastructure sector, salt-to-software conglomerate Tata Group is looking to execute projects worth Rs. 70,000 crore by 2017 through three of its unlisted firms.

Tata Projects, Tata Housing Development Company (THDC) and Tata Realty and Infrastructure (TRIL) would execute projects of about Rs. 70,000 crore, a Tata group official said.

The official added that Tata Group is aiming at encashing opportunities in various segments of infrastructure space like roads and highways, EPC, real estate and railways as half of 12th Five-Year Plan's envisaged $1 trillion investment is expected to come from private sector.

As per the plan, Tata Projects and THDC are looking to execute orders over Rs. 48,000 crore, while TRIL is looking at investing Rs. 22,700 crore in five years for developing projects in various segments of infrastructure.

This is the first time that $100 billion Tata Group has unveiled its future growth agenda after Cyrus Mistry took the baton from legendary Ratan Tata.

"Investment into infrastructure will create commensurate opportunity for players in construction sector. For example, the construction opportunity in power and roads & bridges sectors could be close to Rs. 5 lakh crore and Rs. 3 lakh crore respectively during 12th Five Year Plan at 2006-07 prices," said Siddhartha Roy, economic advisor of the Tata group in a presentation.

Citing the example of the roads and highways sector, he said that there is "large opportunity for Tata Group companies to participate in this sector in which investments are expected to grow at 16 per cent per annum".

According to a presentation made by Sanjay Ubale, managing director and CEO of TRIL, his firm is looking to execute projects worth Rs. 22,700 crore by 2017.

This includes new roads and highways projects worth Rs. 7,500 crore and expanding company's presence in various other sectors including airports, urban transportation, special economic zones (SEZs) and real estate.

The company this year constructed 110 km long Pune-Solapur four lane national highway project and also acquired three road projects from IVRCL this year. It also has plans to bid for Navi Mumbai and Jamshedpur airport projects.

Similarly, Tata Projects, which is present in engineering, procurement and construction (EPC) space and executes large and complex industrial infrastructure projects, is looking to execute projects worth Rs. 25,000 crore by 2017.

The company, which has an order book of over Rs. 15,000 crore, is already executing some large projects like 4506 cubic metre blast furnace at NMDC's upcoming 3 million tonnes (MT) steel plant in Chhattisgarh's Nagarnar and a blast furnace for SAIL's Rourkela steel plant.

In January, the company had won Rs. 3,300 crore project for construction and laying of 343-lm long double track rail tracks for a part of Eastern dedicated freight corridor (EDFC) between Khurja and Kanpur in a consortium with Spain's Aldesa Group.

The company is also bidding for city metro projects, power plants and transmission lines.

Tata Housing, the third firm of the Tata Group eyeing its pie in the infrastructure space, has 26 residential projects in 11 cities, including 8 major locations. The company is present in all segments of housing from affordable housing to luxury segments where units are priced at Rs. 3 crore and above.

It is currently developing a total of 55 million square feet of space, while 19 million sq ft are in pipeline, said Brotin Banerjee, managing director and CEO of the company in a presentation.

The company has also ventured into foreign markets such as Maldives and Sri Lanka and is exploring avenues in other South Asian countries.

source:- http://profit.ndtv.com/news/corporates/article-tatas-to-execute-rs-70-000-crore-infrastructure-projects-in-5-years-323882

Mumbai housing prices soar by 66 per cent in 4 years

New Delhi: Housing prices have increased by an average 66 per cent in Mumbai over the last four years on account of steady demand and rising input cost, according to property consultant Jones Lang LaSalle (JLL).

The increase has been even higher at 70 per cent in Thane and 74 per cent in Navi Mumbai.

"The cumulative price escalation figures for Mumbai, Thane and Navi Mumbai represent the highest among all cities in India," JLL India Managing Director (West) Ramesh Nair said in a statement.

Gurgaon and Bangalore saw price appreciation of 52 per cent and 46 per cent, respectively, during this period.

"Residential property prices in Mumbai have increased steadily after the correction seen post the Lehman debacle. In the period from the second quarter of 2009 to the same quarter in 2013, residential real estate prices in Mumbai have increased by 66 per cent," Nair said.

On reasons for price rise, Nair noted that the demand for investment residential properties and end-user homes in the country's financial capital has remained stable.

That apart, the consultant attributed the prices movement to limited supply of clear land, reduction in new launches between 2011 and 2012 middle and high interest rate scenario.

"In the Indian city which has for years carried the unwholesome reputation of being the most over-priced in terms of residential real estate valuations, there is no relief in sight for aspiring home buyers.

"Over the last four years, property valuations in the financial capital have increased by an average of 66 per cent. All 'expert' predictions over the last 3 years, of an imminent correction have proved to be wrong," Nair observed.

source:- http://profit.ndtv.com/news/industries/article-mumbai-housing-prices-soar-by-66-per-cent-in-4-years-322161

New home launches in NCR decline 39% in January-March

New Delhi: The property market of the National Capital Region (NCR) saw a 39 per cent fall in the new launches of apartments to about 7,600 units during January-March period compared with the previous quarter, global realty consultant Cushman & Wakefield said today.

In the top eight cities of the country, Cushman & Wakefield (C&W) said that an estimated 38,000 residential units were launched in the first quarter of 2013, registering a marginal fall of about 2 per cent over the previous quarter.

These major eight cities are -- NCR, Chennai, Kolkata, Bengaluru, Mumbai, Hyderabad, Pune and Ahmedabad.

"National Capital Region (NCR) witnessed the launch of approximately 7,600 units, a decline of 39 per cent compared to the previous quarter," C&W said in a statement.

The new launches were concentrated in the suburban locations of Gurgaon (66 per cent) and Noida (34 per cent) with over 80 per cent of units catering to the mid-range segment.

"Due to the subdued demand, Noida witnessed a steep decline in new launches at close to 70 per cent and ended up being the primary contributor for the overall decline in number of launches in the NCR," the consultant said.

Chennai, Mumbai, Hyderabad and Ahmedabad also witnessed decline in new launches of residential units by 39 per cent, 3 per cent, 89 per cent and 62 per cent, respectively.

"New residential units launched more than doubled in Bengaluru and Pune in the last quarter, increasing by 144 per cent and 109 per cent, respectively," C&W said. Kolkata saw a modest increase of three per cent.

On prices, the report said that most locations in Delhi witnessed stable capital values in both mid and high-end segments.

However, capital values in high-end segment in South Central Delhi witnessed 15 per cent appreciation over last year due to limited supply and high demand.

Among the suburban locations, Gurgaon saw higher appreciation due to the high demand from both end-users, the workforce working in the various companies located here and investors, coupled with the limited project completions.

Gurgaon saw a change in the capital values in the luxury/high-end and mid-end residential segment at 29 per cent and 18 per cent respectively over last year, C&W said.

"The country's residential market witnessed some vibrant launch activity during the quarter despite the sluggish economic environment. Funding will remain a major challenge for developers while executing these projects," C&W executive managing director (South Asia) Shveta Jain said.

"Capital values have largely remained stable across most micro markets except for some key locations in NCR, Chennai and Bengaluru. Prices are expected to remain largely stable in the coming months as developers will be looking mainly to boost sale and increase cash flows in projects being currently executed," Ms. Jain added.

source:- http://profit.ndtv.com/news/industries/article-new-home-launches-in-ncr-decline-39-in-january-march-322962

How Tata Housing Reinvented Itself

Real estate slowdown? Brotin Banerjee hasn’t heard about it, having grown Tata Housing 100 percent every year since 2006. He has transformed a defunct company into a serious player
H

e was considered a rising star in the Tata firmament. Eight years into the elite Tata Administrative Service (TAS) and he had notched up several credits that proved he had what it takes to go the distance.

Brotin Banerjee had a stint with Tata Chemicals. He launched a lower cost variant of Tata Salt and also a new distribution model. Success noted. Next, he got a big up with a promotion to chief operating officer of Barista—at the ripe young age of 29. Banerjee fixed a sagging bottom line at the coffee chain. He’d seen the vibrancy of a young brand and led a passionate team.

It was then that he—and the system—got a shock. In 2006, when everybody would have expected a plum assignment in a major Tata company, he got a dud—an almost defunct company. Among the close to 100 businesses that existed under the pater familias Tata Sons, there was a housing company that few knew much about—or cared about. In fact, things were so bad that Tata Housing Development Company was then known more by its acronym THDC since it could not afford to pay the royalty to carry the Tata name.

THDC was an oddball player in 2006 because the rest of the industry was booming. Developers were fiercely bidding up land prices to build large land banks. DLF, the country’s largest real estate company, got a dream valuation of Rs 20,000 crore when it launched its initial public offering (IPO). The Tatas were then just waking up to the realisation that they were missing something here.

And so Banerjee found himself in a small flat in Emerald Court in Mahim, Mumbai (THDC’s office) as deputy CEO of a company that had a negative net worth of Rs 10 crore, which means its liabilities exceeded its assets by Rs 10 crore.

Cut to the present, and Tata Housing has seen nothing but a dizzying climb. Over the last half decade, it has grown at a compounded annual growth rate (CAGR) of 100 percent and clocked revenues of Rs 1,097 crore in the year ended March 2013. Simply put, the business has doubled every year and the company is currently constructing 70 million square feet of saleable properties across the country. “They’ve managed to get here due to their focus. Unlike other developers they never sacrificed long-term stability for short-term gain,” says Shobhit Aggarwal, managing director, capital markets, at Jones Lang LaSalle, a real estate services firm.

The Initial Days
How did Banerjee do it? Without a land bank, and without any borrowing capacity worth speaking about? People in the industry grudgingly admit today that not many of them had given Tata Housing much of a chance.

Banerjee was also hamstrung by the fact that no one wanted to join the company. “I would have people come in through the door and their first question was—why can’t you use the Tata name?” he says. He knew he needed to do things differently. So he hired people from different sectors (not real estate) who came with new business ideas and attitudes.

The next crucial phase was to get business flowing. Here too it was Banerjee’s contrarian approach that worked. Tata Sons pitched in with Rs 100 crore of equity. But in the go-go years before 2008, that was hardly enough to purchase land. And the company didn’t have a balance sheet to support large borrowings from banks.

That was when Banerjee realised that, to get started, he needed to look outside the traditional housing business model. He and his management team noticed that while there was a bubble building up in the premium and luxury housing categories, the affordable and low-cost housing space was experiencing a huge shortage. The company estimated a shortage of 24.7 million units with most of the shortage falling in the affordable housing space.

Among the first projects the company launched was a low-cost housing development in Boisar, an exurb (commuter town) of Mumbai. Here they constructed over 2,000 units at costs ranging from Rs 5 lakh to Rs 15 lakh. Now, affordable housing is not something developers were looking at in 2007. But when the real estate market cracked in 2008, it proved to be a wise bet.

While working on the project, Banerjee realised that he needed to re-engineer the entire process of how real estate development was thought of. Traditional developers usually sell their inventory in tranches. As real estate prices keep rising, it helps them realise gains. Moreover, developers, and at times buyers, are not too perturbed about project delays as the value of the property keeps rising.

But with low-cost housing, the dynamics completely change. Low-income buyers with stretched budgets need deliveries quickly. Selling inventory in lots doesn’t make sense as demand is usually more than supply, and the cash realised from sales helps in getting working capital. “We monetise how a manufacturing company would,” says Govinder Singh, CFO at Tata Housing.

Unlike the skills needed in the real estate industry, here manufacturing-like skills were needed.

And it was here that Banerjee decided to adopt an approach that is different from the usual cookie-cutter one. It paid off richly. His mantra: Construct quickly, hand over apartments and move on to the next project. It’s hardly a surprise that five years on, low-cost and affordable housing makes up almost Rs 500 crore of Tata Housing’s top line. The company has spun it into a new business unit called Smart Value Homes and it aims to become a leading player in the space. 

The Land Issue
With low-cost housing the company got an important entry point into the business. But Banerjee saw that unless Tata Housing was able to get into other, more lucrative parts of the trade, it would never be seen as a serious player. Here financing of land was a critical issue as these projects cannot be located outside cities. 

What Tata Housing needed was a capital-light model that allowed it to develop projects on prime land but without outright purchase. Aiding it was a 2008 Reserve Bank of India directive that forbade banks from lending for land purchases. That was when Banerjee decided to get into joint development agreements (JDAs) with landowners. It is a model that has found favour in the real estate industry since, but most companies, if they have the capital, still favour purchases over JDAs as they believe the upside is greater.

But the downside is also greater, when there is a slowdown. This saddles land buyers with too much debt. This story has played out at DLF, the country’s largest real estate company by revenues, which has been struggling to sell assets to reduce debt.

Tata Housing has two types of JDAs. One is where the company has a floor and a cap model. In this, the company pays the landowner a fixed cost for the land. The upside is capped at a reasonable level, say 20 percent. The advantage for the developer is that it is able to benefit if prices gallop. Several large landowners across the country now prefer going for deals like this as they still maintain some ownership of the land and get a minimum rate of return.

Another popular approach that Tata Housing takes is to use land parcels by signing a joint venture agreement and becoming a majority partner. From then on it takes care of everything—from conceptualising the project, to design, marketing, construction and delivery. The landowner gets a fixed percentage of the topline.

Branching Out
Over the last three years, Banerjee has moved quickly to de-risk parts of the business. One way of doing this has been to get into different types of housing projects. So, apart from low-cost and affordable housing, the company is also in premium and luxury housing. It recently launched a second homes project in Kasauli, Himachal Pradesh, which has been doing well. And most recently, it ventured into old-age homes in Bangalore.

“What this does is ensure that the company does not suffer too much if a certain segment is impacted by a slowdown,” said an analyst at a foreign brokerage, who declined to be named.

Along the way, the company has had some particularly successful launches. In April, in the Delhi suburb of Gurgaon, it decided to launch a block of flats in Sector 112 at Rs 2,000 more (than the prevailing price) per square feet. While they knew they’d got the location and pricing right, the response surprised even them. On the first day, the number of buyers was 11 times that of the flats available, as people flocked to the Tata brand and the assurance it brought. The company had to hold a lottery to determine whom to assign the flats to. However, it has not had this success with all its projects. There are some projects, like the La Montana project in Pune, which are struggling.

But having tasted success, Tata Housing is not looking back. At a time when there are signs of an extended real estate slowdown, the company plans to step on the gas. Last December, Tata Sons infused Rs 500 crore into Tata Housing. It’s a sign of the faith the management has in the business.

Banerjee admits that from here on it will be difficult for the company to double revenues every year but he aims to take the business to Rs 5,000 crore in the next three to four. Recently, in a first for a real estate company, Tata Housing got a construction loan at base rate. It has also been able to raise short-term commercial paper at 9 percent which is significantly cheaper than what other companies manage to get.

Banerjee clearly has put his stamp on the company. The 39-year-old TAS official is coy when asked whether he is done with Tata Housing, but is obviously up for the challenge if it comes his way.

Read more: http://forbesindia.com/article/big-bet/how-tata-housing-reinvented-itself/35785/2#ixzz2bMJuUP6B