Fireside Chat: Two Sides of Real Estate Development in India

How did the Real Estate asset class diversification happen over the years for Hiranandani Group?

• Understanding the needs and requirements of residential the group ventured into Townships
• Needs increased to multiple asset classes like school, supermarket, hospital, etc. The real estate industry saw an evolution with IT and commercial
• As a consequence of action, asset classes helped to grow differently
• Group has now ventured into Industrial Warehousing and Logistics, Energy and Data Centres

How has been the Evolvement of Investor’s mindset over the years?

• The evolving of mindset started in 2006 with FDI, Equity and Institutional Finance coming into picture
• ???????NBFCs came up with structured Finance in 2011, and people started moving back to Indian Local institutions for Finance
• However, with arrival of GST people paused and started analysing the realistic value
• Investors and developers have now started coming together and writing a common underwriting
• RERA increased the scale of operations and developers shifted towards institutionalizing projects

What is the Evolution of Development Partners and Promoters?

• Selecting a partner is a combination of various factors including size, inventory, past record, land bank, capital, etc.
• ???????Over the last decade, institutionalisation of business can be seen
• It is important to understand partners’ growth plans and resources, their talent pool and operating models
• Developers have to delegate ongoing projects to their teams

What are the structures for acquiring Capital over the years?

• Growth has been large since 2006 and was completely based on opportunity valuation
• ???????Structured Equity and Debts evolved funding for the industry and showed positive results for all
• Understanding the holistic view of projects is very important to select the method of financing
• Structured debts showed negative impacts when the market were falling
• With the evolution process of the market, a win-win situation can be achieved for all the stakeholders
• RERA brought in transparency in the industry.
• Both sides, investors and developers, have learnt and are now moving towards equity debts, and thinking in long term
• More investors are going to come into the industry

What are the key ingredients for platform level deals?

• A long-term partnership, and understanding of promoters and their organization set up, people, acquisition process, past work and resources.
• ???????Commercial terms are now structured for both parties, which are fair to both
• The projects can be restricted to a decided size, keeping in mind the reality of market and fund life
• There must be a peaceful exit, for business growth opportunities in future
• There is a huge potential, good partners looking for growth capital

What are the involvement expected from a Financial Partner?

• In partnership equity, both parties are in the same waters
• ???????Markets are bound to change, and the changes must be accommodated
• Reality must be faced and keep doors open for future events
• The market seems to be positive for structures post vaccination period
• The risk profile in September 2020 and March 2021 is observed to be very aggressive
• Residential real Estate will pickup as the more investments are pooling towards home upgrades

What about the Commercial Development?

• It looks highly bullish as the space requirement matrix will shoot up
• ???????Although Work from Home is here to stay for some time, there are businesses which move aggressively.
• With no new development and new vacancies of demands, a huge imbalance in the demand and supply of commercial spaces can be predicted in near future

What do developers think for strata selling?

• Strata sale differs for all properties
• ???????Grade of the project, location, size, institutional buyers are all considered for Strata sale
• There is a good investment opportunity as the strata sale opportunity broadens the risk.
• REITs is working well for Grade A properties
• The Indian institutional owners have not given any rent rebates

Any status update with respect to implementation of Supreme Court guideline for refund of interest on interest collected during moratorium period?

• For short time, there will be no difference
• ???????The supreme court judgement for one time is correct and fruitful to the industry. However, if it becomes a precedent practice, then it will hamper the market
• A challenge is also seen from the Bankers side to implement the judgement

What is the view on Office lease of 90 mn sq ft up for renewal in top six cities in 2021?

• There will be no problems in the renewals
• ???????Consolidations hold 5-7% of the market
• For instance, the Banks are acquiring less space due to automation, IT and AI. But if the GDP grows, the requirements of commercial spaces will grow.

Why pure Equity are very scare and no successful are seen?

• Residential was a fragmented space with a multiple issues including customer dissatisfaction, title, etc.
• ???????GST and RERA have made the transactions better and cleaner
• More money has now poured into residential
• The unknown risks that exist in this space, made investors move towards commercial, which is much easier

The Fireside Chat was moderated by Sudhanshu Kejriwal, EverVantage Consulting LLP and the Guest were Dr. Niranjan Hiranandani, Hiranandani Group and Pravin Ajmera, SSG Capital Advisors

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