'We're keen to invest in townships with good lifestyle'
— Kishore Gotety, Country Head, RREEF India Advisors
Rreef is on the threshold of transforming the real estate
and infrastructure scene in India in coming years. Kishore Gotety tells
Dilip S. Phansalkar how the projects will contribute to India's economy
and social change.
Rising building material prices are adding to construction
costs. What impact will it have on Rreef's affordable housing schemes for
middle-class in India?
The rising costs impact affordability and have an adverse impact on developers'
margins to the extent they are unable to pass on such cost increases to the
consumer. More importantly, inflation affects sentiment and in the short run, deters potential buyers from closing transactions. Consequently, buyers start
looking at value more closely and turn more towards an 'affordable' product and
away from the 'luxurious.'
Our partner in affordable housing development, Golden Gate, has significant
advantages in this segment. It has a value-for-money product that's very well
designed and comes with all modern amenities. Further, the company has a highly
experienced in-house construction team that helps keep construction costs under
control. Secondly, it has consistently demonstrated success and ability in
identifying and acquiring low cost land, thereby maintaining their edge in the
affordable housing sector.
If the trend continues what options are developers and consumers left with?
How will they cope with it?
The rising costs will be split between the developer and the consumer. The
proportion of the split will depend on the product type, the price range and the
demand supply economics. In an inflationary environment, developers will have to
run a tight ship in order to keep costs and timelines under control. When prices
rise, revenues or sales also have a tendency to slow down. Maintaining smooth
sales curve will thus be critical, too.
Customers will get selective and more than ever before will critically evaluate
the value proposition of every competing product before buying.
What avenues are open for an investment firm to raise funds for its real
Private equity flows continue to remain strong in the country. Long term players
such as Rreef continue to look for projects and thus viable development
opportunities will always find its investors. REITs and REMFs will be another
source in the medium term.
Encroachment by slum dwellers (who enjoy protection of local corporators, slum
lords and politicians) around housing projects is common in India. What steps
are being taken to prevent it from happening to Rreef projects?
Encroachment is an issue on unguarded, unfenced and disputed lands. This is
usually not a threat for land owners enjoying complete ownership and possession
How critical is the location and infrastructure for the success of a
residential or commercial project?
Extremely critical. Easy road accessibility, adequate power and water supply,
availability of public transportation and so on are important considerations
that both, residential and commercial users look out for. In addition,
residential customers want to see the presence of an established social
infrastructure such as schools, hospitals, convenience shopping and
entertainment in the vicinity before they commit to a property.
The inflation rate is climbing and has reached an all-time high in the past
two-and-a-half years. How are you going to handle it when it comes to setting up
real estate projects?
Inflation has an impact on project costs and also on affordability for the
end-user. The focus will thus be on value offerings. Our ability to offer
moderately priced homes and commercial spaces will be critical in going forward
and we will continue to partner with strong local developers towards this
It is often said that in India files move at a slow pace and corruption is
common. How do you maneuver or overcome such problems?
This is a sweeping statement. The Government has actively encouraged foreign
investment in all sectors and ensured speedier approval processes, wherever
What is the step-by-step procedure for foreign firms who wish to set up projects
in India? (E.g. dealing with local government and civic agencies, getting
clearances, approvals etc.)
The guidelines for foreign investment depend on the sector, type of investment,
etc. There are clear policies laid out in this regard and it is best to consult
a local lawyer for a step-by-step explanation.
What improvements would you like to see in India's rural and urban
Better connectivity through improvements in transportation infrastructure
(primarily road and air) is critical. There is also a need to ensure higher
power generation and water supply across the country. This will prove critical
as cities expand and new 'cities-within- cities' develop.
What site tests do you carry out to evaluate its suitability for putting up a
We conduct a thorough site analysis and environmental due diligence on the land
to check for any contamination on the site. This is especially important when
the land had been put to an alternate use in the past.
How would Rreef projects contribute to India's economic boom, industrial
progress and social change?
We are expecting to invest about $1 billion over the next three years in Indian
real estate and infrastructure. We believe these projects will actively generate
ample direct and indirect employment opportunities.
We are hoping that through our projects, we provide homes to aspiring families
and efficient and high quality work places for professionals. We are keenly
looking at investing in integrated township projects that aim to provide a good
lifestyle to their residents through improved social infrastructure, amenities
for education and healthcare, walk-to-work offices and so on.
We are also active investors in greenfield infrastructure projects and are
evaluating investments in roads, power, ports, etc. Through development of these
projects, we are hoping to contribute towards the improvement of infrastructure
in the country.
[May 19-25, 2008]