Shriram Properties Ltd., the real estate arm of the Shriram Group, is planning to tap the capital market to raise resources as well as to provide exit to private equity investors who have invested in the company. In an interview, M. Murali, CMD, Shriram Properties, elaborates on the company’s plans and on the real estate sector. Excerpts:
How is Shriram Properties different from other players?
What I follow is the direction and vision of our founder Mr. Thyagarajan. He always says that passion should be on while your emotions should be off in business. So, we keep away emotion and continue to hold on to our passion towards growing the business.
If there is a defective product you can rectify it, but if there is a defective title you cannot rectify it. Therefore, right from day one we were very clear that we will not give any defective title to our clients. We have been following this practice from the very beginning and maintain transparent and stringent compliance.
Cash flows from all the projects are closely monitored and we have never deviated from that. Fortunately for us, some of our partners who came in also supported us in the same. In the other areas also we have maintained our stance very clearly; for instance, we will focus on middle-level and affordable housing segment and we will not deviate from that.
The entire organisation is built with this philosophy, be it the cost structure or the people structure. So everything is based on this and helps us to stay firm.
What is the total debt?
Gross borrowings, as on March 31, 2019, were ₹8,380.89 million
What are your future plans?
We have completed 25 projects as on November 30, 2018. We have 31 projects in our pipeline with a saleable area of 54.87 million square feet (msf) as of DRHP (draft red herring prospectus) date. We have completed one commercial project (2.03 msf), have nil ongoing commercial projects, and have three upcoming commercial developments (4.35 msf).
What is the outlook for the industry?
Overall, the industry is going through a phase of consolidation. What happened to NBFCs in early 2000 is exactly what is happening in the real estate sector now.
In the last two years, we have seen price erosion, a lot of people have moved out of the business, which is forcing the industry into a big consolidation today. It is a big consolidation story now and in my opinion, there will be no more than 100 players left in the industry.
My famous quotation which I have been saying for the last four to five years is that the real estate industry will move from “boardroom to ballroom.” Again, I want to clear one thought, which is the Indian real estate industry is not difficult to map Indian real estate industry. There are only nine cities which cater to the Indian real estate industry. They are Delhi, Noida, Gurgaon, these three cities cater to more than 40% demand and supply of the market. In the west, it is Mumbai and Pune. In the east, it is Kolkata. In south, the three cities are Bengaluru, Chennai and Hyderabad. In total these 9 cities caters to about 80% of demand and supply today. Remaining 20% goes to Coimbatore, Vizag, Nagpur, Chandigarh, etc.
In the next 10 years, mid and affordable housing will play a major role not only for the real estate sector but also for the economy. Also, the “Housing for All” programme by the government if implemented well will drive the economy by 3% to 4%t of GDP. That is the potential of this programme for the economy. So for the next 5 to 7 years, the top 20 players will cater to 80% to 85% of the demand.
So, what is negative for us? In the last three years, our growth has been around 30% CAGR, next three years the growth will be over 30% CAGR with projects we have.
You have been growing at 30%; what is the average industry growth?
The industry had grown at around 8-10%. Not only that, all the big players who are stabilised today have the potential to grow at 30% CAGR.
How much exposure do you have to the commercial space?
We have a small bit of commercial [space]. We have delivered 2.5 msf of office space. At present 2 msf is the commercial real estate is under construction.
For growing at 30%, one needs a lot of capital…
Capital is not a cause for concern today. People are sitting with tonnes of money for India and Indian real estate. This is because global investors think of India as a destination where they can park their funds. Capital availability is plenty, but this money can be taken over by only 20 players.
With the Budget coming up, what is your recommendation to the government?
‘Housing for all’ is a great mission and it needs to be done. There are statistics that say housing started in the 1970’s in a big way. A little later, public housing started. However, compared with the growth achieved by public housing, we have not done 10% of that so far.
But the money spent as a nation is 10-20 times in the last 40-45 years. But, the efficiency was missing. Various States have started setting up housing boards in the early 70’s. This was done to provide housing for the employees of various state departments. The housing created by private developers in the last 20 years as compared to the boards in the last 40 years, the quality is phenomenally high. The efficiency brought in by the private developers is something remarkable. However, if we think that ‘Housing for all’ can be delivered only by government departments we are making a mistake. To achieve that goal, the government might have to set up a different Ministry altogether like the Singapore model. But, we also need to understand that the scenario is completely different here where the laws are different and the span of the country is huge.
This is an the over-regulated industry. The sector is over regulated. In a note which I gave to the PMO on Housing for All, I mentioned that in India people do not build buildings for short term. They build buildings for 30 to 40 years and some do it for 50 years, nobody builds for 3 years or 10 years. Now, this product can be checked for after 10 or 15 years also, so, why this regulation today. With the technological advancement all can be mapped with the click of a button.
Where are real estate prices headed?
We think in the next three to four years, land prices will not go up, which also happens to be one of the missions of our Prime Minister. RERA and GST created a huge impact on our sector. I expect land prices to remain stable. On the finished products, the prices will go up, because the demand-supply gap is widening.Also, the cost of doing business has also gone up. Cost of approvals and delay in approvals are also adding to the cost escalation which will be passed on to the consumers. So, on the finished products, the prices will go up by at least 10 to 15% in the next two to three years’ time.