While S Raheja Realty’s primary focus continues to be luxury residential and commercial development in Mumbai, the real estate major has in recent years ventured into affordable housing in mini metros and tier II cities. Ram Raheja provides Prashant C. Trikannad with a broad view of the Indian real estate sector with emphasis on investments during the 12th Five-Year Plan.
What is your outlook for the construction and real estate sector in India during the ongoing 12th Five-Year Plan? What is the current scenario in the real estate segment, especially in light of the falling rupee?
The real estate industry comprising construction and development of properties has grown considerably over the past few years. Brands with a single city focus have moved into multi-city projects. The financing schemes in the industry have also turned more corporate with private equity and public offerings. However, FY12 has been a challenging year for the sector with plummeting sales and reduced investments.
As far as S Raheja is concerned, the rupee depreciation has not caused too much of a turmoil. We believe in extensive planning before taking up any projects and ensure our inventory is well balanced. However, I cannot disagree on the fact that the falling rupee has had a negative impact on the segment. Sales have got affected and buyers are cautious while making larger investments and purchases. But I believe this is a passing phase and we are looking at better opportunities in the growing months.
How do you think the government’s proposed $1-trillion investment in the 12th Plan will benefit the real estate sector?
The market is betting on real estate sector as the Planning Commission has proposed an investment of $1 trillion in infrastructure in the 12th Five-Year Plan period (2012-2017). It is seen that high interest rates and fewer government orders were behind the slowdown in the sector in the last two years. As a result, the Bombay Stock Exchange Capital Goods index fell 15 per cent in the year to February 2012. The capital goods index is not a precise barometer for engineering and construction stocks but gives an idea about the performance.
I believe that the expectations of a fall in interest rates and recovery of industrial and capital expenditure cycles have renewed the market’s interest in these stocks. Engineering and construction companies could see 18-20 per cent earnings growth. Redevelopment will be a big growth area that is expected to be reconstructed in the next few years. I think that easing of interest rates and government’s seriousness about awarding projects may lead to a pick-up in the investment cycle.
What are the implications of RBI’s ban on transferring money overseas for real estate purchases and on the 80:20 scheme?
Government’s recent ban of Indian residents transferring overseas is good news for Indian real estate as these investors are now restricted to consider property options only in India. There has been substantial growth in buying properties in countries such as Dubai, Singapore, Malaysia and suburbs of London. However, due to the government’s decision, the capital which otherwise would have been diverted abroad will now stay in the country. This is likely to give some boost to the real estate demand in the country, especially in the premium and luxury segment as these investors are majorly high net worth individuals (HNIs).
80:20 scheme: To begin with, let me start with sharing what the 80:20 scheme is. As per the 80:20 scheme, the buyer pays 20 per cent of the purchase price upfront initially and the balance on possession irrespective of when that happens. These schemes are normally offered in the pre-launch stage of projects. The reason why builders are resorting to such schemes and offers is the disparity between demand and supply in the sales. Prices of real estate in India are growing at a phenomenal pace and due to this sky-high property prices, genuine buyers are forced to stay away from the transactions leading to decrease in 50 per cent sales. This step by government is like a breath of fresh air in the midst of a slowdown in the market. However, the government’s decision of banning the scheme is bound to affect builders who have adopted this scheme.
Do you think the appointment of Raghuram Rajan as the new RBI Governor will have a positive impact on the real estate sector?
Reserve Bank of India Governor Raghuram Rajan’s reverse sentiment on policymaking and introducing several measures will surely impact the sector. Liberal fundraising rules for banks and exchange risk cover for NRI deposits and the play out on the Indian rupee in the forex market will positively impact the sector. And the more good news is that Rajan’s doubling the borrowing limits for banks and the easier norms to tap non-residents providing a much-needed breather to fix the currency.
Affordable housing is at the core of the government’s ‘Housing for All’ scheme. How realistic is this scheme when property ownership is still a dream for a majority of the people?
India also recognises that modernising its infrastructure should be a top priority. The country is striving to keep up with aspirations to become a global market heavyweight. Even without widespread corruption, a swelling population and severe income inequality would make this job even harder so in that sense, this scheme will be helpful.
The Maharashtra government’s apex housing body, Maharashtra Housing & Area Development Authority (MHADA), anticipates its new lottery scheme to sell 1,259 houses. Of these, 664 will be reserved for various categories, leaving only around 615, or nearly 49 per cent, open to the general public to try their luck which is fair to be able to reduce people who are below the poverty line. For the first time, a majority of the flats will be sold at rates in excess of Rs.40 lakh in the high and middle income group categories which will strengthen the economically weaker section. This will stipulate that the eligible applicants under the EWS must have a maximum monthly income of up to Rs.8,000 which is good.
Could you discuss the growth potential and opportunities for realty firms in Tier II & III cities?
S Raheja Realty sees great potential in the real estate markets in Tier I & II cities. These cities have seen immense growth in both industrial and service sectors. Thus, the purchasing power of the people has been on the rise. Also, people living in Tier I cities want to invest in such cities for their second homes. Therefore, there is great potential in these markets.
In keeping with this vision, the company has launched SDS Raheja Residency, Varanasi’s first luxury living apartments with terrace gardens, indoor sports and much more. S Raheja also has projects in Pune, the latest being ‘Sonnet Pune’.
Can you outline some of the key projects S Raheja Realty is undertaking currently?
S Raheja’s current projects are:
Raheja Cascades, Lonavala: This is an architecturally unique luxury homes project comprising 15 luxury villas. Each villa has the luxury of a 30-ft waterfall along its facade cascading into a private swimming pool. The complex also houses a clubhouse and landscape gardens (designed by an international landscape designer), cricket pitch etc.
Raheja Vision, Palghar (W): S Raheja forayed into mid-cap housing last year and launched Raheja Prime in Palghar (W) and this year it will be launching Raheja Vision, Palghar (W), which is phase-II of the project. This affordable housing project is spread across approximately seven acres.
Corporate development: The S2, Mahim, is a 22-floor structure that is a part of the brand’s corporate development vertical. Under this vertical a dedicated team consisting of architects, designers and other professionals work closely with clients to customize the project as per their specifications. A recent example of this is their recently complete project Hinduja Healthcare, Khar.
Tier II cities: S Raheja Realty launched Kashi’s first affordable luxury project, SDS Raheja Residency. The housing complex with 140 apartments will offer terrace gardens, indoor sports, a children’s play area, jogging track and much more one-of-its kind facilities.
* Gurukripa, Kalina, Mumbai
* Natraj, Madhu Park, Khar (W), Mumbai
* Hari Bhuvan, Khar