REAL ESTATE IN A BALANCING ACT

BY Realty+

In an exclusive conversation at the 14th Realty+ Conclave & Excellence Awards – West 2022 Dr. Niranjan Hiranandani, Founder & MD, Hiranandani Group, Khushru Jijina, Piramal Group and Neeraj Bansal, Co- Head & COO - India Global, KPMG in India emphasized on the market research, product positioning and developing sustainable projects for the future.

Given that the Real estate industry has gone through such a lot in the last few years, there has been a steep learning curve for the industry. As per Khushru Jijina the regulations introduced in the past years helped the sector become professional and transparent. “Earlier, customers were happy just getting the four walls, today they want lifestyle amenities and health and hygiene facilities in the premises. And this change is going to stay and grow further. Earlier residential and commercial were the predominant asset classes, how many new asset classes have come within the ambit of real estate such as warehousing and logistics, co-living and co-working, data centers, student housing and senior living etc.

Real estate is looking more like an FMCG to me where land owner is the supplier of raw material (land) with financier providing finance (funding) and producer (developers) are either national players, regional players or are working within a niche like redevelopment, SRA, luxury, second homes etc, and providing goods (projects). It is a complete supply chain.”

Dr Niranjan Hiranandani added, “RERA has indeed brought transparency and trust in the segment and has also raised the financial aspect of developments. Also, given that 70% of the money has to be escrowed for that particular project and cannot be cross used for another project, the financial requirement of any project has gone up many times because the sales may or may not happen as fast as required. Requirements of funds post-RERA for the projects are 3 - 4 times of the equity and debt needed earlier to get the project completed. This has expedited the consolidation process and not necessarily the bigger developers taking over smaller builders.

In fact, there are many small companies doing one project at a time and are imminently successful and then there are companies that have gone into difficulties in spite of the fact they were large. It’s the financial discipline and understanding of the market that makes a company successful.”

Neeraj Bansal pointed out the issue of NPAs in the real estate and expressed that such a situation is avoidable, if the developers can avail finance and complete the project. “Once you get the project complete, irrespective of the method of financing, whether from the buyer's instalments, own equity or the debt from the financier, it becomes a performing asset.” Dr Niranjan 

Hiranandani agreed that if financially viable stalled projects can be afforded funds, there would not be any NPAs in the real estate.

THE CHANGING PARADIGM

Real estate’s way of operation and governance is changing and financing is getting front-loaded versus what used to be earlier, from an equity perspective.

Khushru Jijina added that lenders too have seen a lot of challenges. “Though basic but very important is not to have an asset-liability mismatch. It is equally important to concentrate on the liability side as much as on the asset side. Secondly, developers approach NBFCs for land funding through a fund structure. However, it takes time for clearances and approvals for development to begin, but the loan repayment cycle has already started. Today, lenders prefer to concentrate on the person who is taking the money rather than the project itself. One of the important things we did in the last few years was to sit with every developer and work out tailor-made solutions. I would still put that extra five rupees to complete to recover Rs 90 invested in the project, otherwise the entire Rs 100 is going to go for a loss. This is exactly what we followed and we could come out much better in difficult years.”

Dr Niranjan Hiranandani stated that in terms of product, the customer is spoilt for choice. “Developers have shown them a beautiful life and now they want it all. They want smart homes, e-commerce on doorstep and schools, recreation, shopping, and hospitals within walking distance. Moreover, banks and financial institutions are willing to give home loans at very competitive rates. In fact, a corporate gets a loan at 10-12% interest rate while a peon will get home loans at 7%, because the home loan segment has the lowest NPA in the entire world. So money is available for those who want to upgrade their homes or buy affordable homes through government housing schemes. With schemes like PMAY and land availability, the growth of real estate in the next few year will be at least 15- 25% in terms of numbers and in terms of prices 5- 10%.”

Neeraj Bansal sharing the optimism said, “Some years back a death knell was sounded for commercial real estate but now we are seeing rebound of demand for Grade A commercial buildings. Warehousing is growing very fast; data centres are growing 1000% every year. So there is an opportunity across real estate for buyers as well as investors.”

A WORD OF ADVICE

Khushru Jijina- Don’t try to follow what others are doing. Do your own market research. Understand that technology is not just used for selling but also to bring down and raise profit margins. Most importantly, focus on the liability side more than the asset. Get your balance sheet in order and have financial closures before you actually plan to grow. Take up projects which you can get out in 3-5 years. 100 acre township is not everybody’s game where scale is the enemy of profit.

Neeraj Bansal- Focus on core competencies and strengthen them more. Real estate can find parallels in FMCG, hospitality and auto industries for mistakes and learnings. Accept the change and in sync adopt new ways of doing business.

Dr. Niranjan Hiranandani- Study the market to decide your product design and price points. If these two aspects are studied carefully, the market is unlimited. Understand your requirements for finance and position your product correctly. Even the Taj doesn’t have an ego to say everywhere I will build Taj Palace hotels only. For the mid-segment, it has Vivanta and Ginger hotels for budget travellers. 

Tags : real estate conclave awards Dr. Niranjan Hiranandani Founder & MD Hiranandani Group Khushru Jijina Piramal Group Neeraj Bansal Co- Head & COO - India Global KPMG India market research sustainable projects future lifestyle amenities raw material