In an chat with Moneycontrol's Kingshuk Mukherjee Tata Housing's MD & CEO, Brotin Banerjee, highlights the company's exponential growth and how they have emerged as the lalrgest player in the affordable housing market in India as well as its ambitions to become a biilion dollar company by 2016
Below is the verbatim transcript of the interview.
Q:What role does “Risk” entail across the enterprise especially when you are dealing with crucial decisions?
A: According to statistics doled out by the Deepak Parekh committee earlier (a couple of years ago) about 6% of the Indian GDP comes from real estate and construction of real estate assets — ie $36 billion. Out of this, nearly 70% to 75% is contributed by residential and the balance is shared between retail, commercial offices, SEZs, hotels etc. Even in our business model, 75%-85% of our focus is on the residential development and the balance is shared between retain and commercial developments, most of which form a part of our integrated townships.
Tata Housing is uniquely placed because we are present in multiple cities, which is a major de-risking factor. We also straddle across all consumer segment from value housing to ultra-premium luxury housing, so in case one segment suffers due any economic factors, other balance the growth. We did a large number of projects on a joint development agreement (JDA) and joint venture (JV) basis which helped us in a big way during the recession.
We also rely on long term contracts, both civil contracting as well as on tying up with high value purchases for a long term. So to some extend we are protected from the inflationary pressure of commodity prices.
Secondly, for land, we do two-three things. We don’t necessarily every time buy land. We also acquire projects where we partner with the land owners. Many land owners, given the Tata brand name, are more willing or amenable to partner with us because of the reputation that we enjoy of being fair and transparent to all our stake holders. To that extent, our ability to source land is may be a shade better than many other players. In fact, out of every ten projects we are doing, six projects are with partners. So we are not blocking up my capital there as we don’t pay upfront for the land. We pay up a token advance to show our interest and lock in our interest in the project. Since we don’t pay huge money upfront, we can do such multiple projects and given the Tata brand name which is popular across the country, we can go to the smallest of towns or go to the biggest metros. The goodwill of the brand is pan India. So we don’t have a problem in selling it.
Also, we find it easier to source the funds because we have such a strong backing of my parent company. So we don’t have a problem of liquidity.
Q: How do you maintain growth targets without compromising your long term targets?
A: Three factors. It is aesthetically and efficiently built products; much better than most efficient competitors. Second, we ensure that the customer is not short-changed. Third, most projects have some innovative tilt. Whether it is the tallest tower, or whether it is a theme or art and culture or whether it is sheer affordability. We have some strong value proposition for each of our product to differentiate it from competition. It has really helped in selling out faster and meeting our growth targets.
Q: What would you describe as the key change or catalyst that has transformed the Realty business in India today?
A: From a sector steeped in murky deals to the one led by corporate entities, the Indian realty industry has undergone a tremendous change in the past few years. The transformation started since 2005, when government allowed FDI in real estate, which saw lot of interests from corporate and MNCs in the realty space. The next wave of transformation started with the entry of more and more corporate into the business giving the sector a kind of image makeover. Led by corporates with strong business foundation, the sector started adopting corporate governance practices, corporate social responsibilities were given prominence and transparency has started to be the norm in the industry
Indian real estate has huge potential demand in almost every segment especially commercial, residential, retail, industrial and hospitality, etc. Commercial office space requirement is led by the burgeoning outsourcing and Information Technology Industry. The pan India demand for office space is estimated to be 196 million sq. ft. by 2013. The pan India residential demand is estimated to be over 7.5 million units by 2013 across all categories including Economically Weaker Sections (EWS), affordable, mid and luxury segments.
Q: How big is the market for “Affordable Housing” in Mumbai?
A: There is a very big opportunity in the affordable housing segment which we’d feared earlier that we will not be able to tap it. In 2008 when we started, there were a few things that we wanted — i.e. commodity prices have to be lower; the government will have to come out with a housing policy.
However, the last few years have clearly shown us that either of the things is happening. Land and commodity prices have gone up. There is no government incentive for people to get into affordable housing, thereby putting an end to the fashion of affordable housing which was being talked about by every other player.
So, only serious players are left in the market now and there aren’t too many of them either. Among the handful, I am certain we are the biggest in this space so far. There are a lot of challenges in affordable housing and if it’s not addressed by the stake holders the government’s dream of giving housing for all will always remain a dream.
In Mumbai over 50% of population presently lives in informal settlements, with little or no access to basic amenities such as water, electricity and sanitation (Register General and Census Commissioner, 2001 Census of India) We see huge potential and we think we know the formula to monetise it. But to implement it, I will have to do many more things than what we are doing today. We will probably have to change the paradigm at the earliest possible, move away from labour-intensive processes by bringing in technology. We have already tried tying up long-term supply contracts for steel, cement, tiles and other materials used in the business, which itself is a difficult task. But We think it’s the use of new construction technology that will be a complete game changer in this low-cost affordable housing business.
Typically in the last few years, the cost of construction has gone up by 20-25% in the top metro cities across India. At best, every company would have taken an escalation factor of 5% to 7% and no one projected the costs to increase so significantly. This is largely driven by labour shortage, construction material (sand) shortage, delay in getting project approvals and so on. All of this has had a detrimental impact on the Indian real estate sector.
Q: What are your expansion plans across tier I and II cities in India?
A: Tata Housing is currently present in all major metros and mini metros and being a Pan-India player we are looking at expansion in tier II cities across India such as Bhubaneswar, Ahmedabad, and in the central India
Q: What is your plan to develop Tata group land holdings in Mumbai and other cities?
A: We have got no land parcels from the parent company’s land bank. One of the very good things about the Tata’s is that unlike many other firms (both professionally and family-run entities) in India, the Tata’s doesn’t force you to buy products from the parent company. We are free to buy from anyone and similarly they are free to buy residential apartments from any other developer. That’s the kind of freedom every operating unit enjoys and each one of them is at a hand’s distance away. That’s a very big strength wherein no attempt is made to hide the inefficiencies by cross-buying and cross-selling.
Q: What is your competitive edge as compared to the others in the industry?
A: The key competency of Tata Housing today is that we are serving all segments of Real Estate, with a range of projects in affordable, mid ranged, luxury, super luxury and second homes segments and the ticket size starts at a modest Rs.7 lakh Rs.14 crore.
We lay a great emphasis on the type of projects we develop. Primarily, on three important factors. First - Aesthetically and efficiently built products, much better than most efficient competitors. Second, we ensure that the customer is not short-changed. Third, most projects have some innovative tilt. Whether it is the tallest tower, or whether it is a theme or art and culture or whether it is sheer affordability. We have some strong value proposition for each of our product to differentiate it from competition. It has really helped in selling out faster and steer away from the adverse impact of slowdown.
Q: How attractive are the realty markets in countries like Maldives & Sri Lanka?
A: Tata Housing ventured into the overseas market with a project in Maldives, where we plan to develop about 1 million sq ft, at a cost of Rs8.5-9 billion, in a PPP model involving the Maldives government. While 80 per cent of the apartments will be handed over to the government, the balance will be sold in the open market by Apex Realty, a special purpose vehicle created for this foray. Additionally, the government will provide about 150,000 sq ft of commercial space and an exclusive island (Lhossalafushi) on Faadipolhu Atoll to develop premium luxury villas measuring 20,000 sq ft each. Maldives and especially Male, faces acute housing shortage with a long waiting period, high population density and inadequate infrastructure facilities.
The market for real estate assets in Sri Lanka has shown a significant growth phenomenon since 2009 with a marked increase in price levels of real estate assets including bare lands, residential housing, commercial premises and condominium style apartments. The changing landscape of Sri Lanka’s real estate market is likely to be further elaborated by shifting lifestyles of real estate buyers including broader acceptance for apartment style living, further cities becoming accessible and equipped with necessary infrastructure and a growing leisure sector across a number of districts in Sri Lanka. Further transformation is also likely to take place in the city of Colombo which moves to becoming a picturesque and yet commercial city which could emerge as a trade hub for South Asia.
Going overseas in real estate is not very conventional, but Tata Housing saw it as a "good opportunity". We are doing PPP projects along with the governments of Maldives and Sri Lanka, we thought it was a good opportunities to move beyond our boundaries and execute projects in foreign land. Since PPP projects are supported by respective government of the country, it becomes far easier to execute as approval and the regulatory hindrances are cleared faster. The key is to globalise profitably without compromising on values or the nation’s interest.
Q: Going forward, where do you see Tata Housing in the Indian landscape?
A: We hope to be among the top three real estate companies in India. In terms of size, we are targeting at least $1 billion in revenues by 2016. Our vision for Tata Housing is to be the most preferred brand in the premium housing segment, while for Smart Value Homes the vision is to be India’s largest home provider
Q: How has been your experience in managing growth especially during slowdowns, any particular lessons that you have learnt?
A: The company has been growing at nearly 100 per cent annually since 2007 and we hope to achieve the same kind of growth this year too. We have a number of strategies in place. We have tried to balance our growth aspirations with a prudent approach towards buying land, by trying out different financial arrangements with landowners. Partnering with landowners for joint developments has helped reduce upfront investments in land.
Tata Housing's strategy is to straddle consumer segments and key geographies, so if one slows down the other will de-risk us. The slowdown in Indian economy has not adversely impacted Tata Housing. In 2009-10 we have witnessed a healthy growth of 60% - 70% and in 2010 11 we have seen a growth of about 35% - 40%.
At Tata Housing we keep in mind our key tenets, while operating under the 'Tata' banner and focus our efforts to our ends consumers. Keeping our finger on the pulse, helps us strategize in a manner we continually supply in areas of demand.
Source: www.moneycontrol.com
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