The Hindu Business Line : Demand secure for realty with right pricing

Debt is available for developers who have projects that are based on viable financial models and assure investors a good return on investment. - MR AJOY VEER KAPOOR, FOUNDER & MD, SAFFRON ASSET ADVISORS.

Mr Ajoy Veer Kapoor, Founder & MD., Saffron Asset Advisors

Vidya Bala

“The quality of supply and the pricing mechanism would be key determinants for the Indian real-estate market” opines Mr Ajoy Veer Kapoor, Founder & Managing Director, Saffron Asset Advisors. Mr Ajoy has actively managed and developed several million sq.ft of real-estate during his stints with HSBC UK and Standard Chartered Bank in India. Saffron Asset Advisors currently manages over $425 million and specialises in real-estate investments. In an interview with Business Line Mr Kapoor outlines the investment objective and plans for Saffron India Real Estate Fund I and discusses the current real-estate scenario in the country.

Excerpts from the interview:

How does the Saffron India Real Estate Fund I differentiate itself from other realty funds?

We take a long term view of the market and as such our investors are all long-term institutional investors. We see the current slowdown in the market as a part of its maturing process and see opportunities for investors with a long-term perspective. Among Saffron’s key other differentiators are the depth of its management team and its track record. Saffron has successfully executed 16 deals in a span of a year and eight months with a portfolio spread over seven sectors and nine cities.

These investments have recently been valued at $434.5 million by independent valuers CB Richard Ellis and Knight Frank, against an acquisition cost of $233.2 million.

Has the fund been tying up with realty developers and funding specific projects?

We look at the merits of the project before investing. The projects must meet our stringent investment criteria and of course, must be FDI compliant as we are an offshore fund.

At the same time, our greater endeavour is to build strong and lasting relationships in the market. We understand that the Indian market, unlike other markets, operates more on relationships.

Phoenix Mills Ltd is one such relationship: we have invested in three different projects with them. We have several similar relationships with developers — Pune-based Kolte Patil Developers with whom we are doing a series of residential developments and Indore’s Manish Kalani Group with whom we have two projects in Indore.

SIREF I has, so far, invested $26.5 million to develop a commercial property near the Bandra Kurla Complex in Mumbai with Parsvnath Developers. The fund has a 15 per cent stake in the project.

What are the segments the fund plans to focus on? Would you prefer Tier I cities at this point in time?

It is an opportunity fund and will invest across all sectors of real-estate: Residential, Commercial, Retail, Hospitality, Healthcare and logistics.

In the current situation, where prices have been correcting by 15-30 per cent, we believe that Tier I cities will offer attractive investment opportunities. At the same time, we are continuously looking at opportunities in the Tier II and III cities.

Is Indian realty currently expensive and not backed by fundamentals?

The fundamentals that drove Indian real-estate in the last few years have not changed: rising incomes and a big demand-supply gap. Good corporate salaries have ensured a higher level of affordability than at any other time and with the government allowing FDI in March 2005, capital is now available to bridge the historical demand-supply gap that we have seen in the Indian market.

Despite rising inflation and interest rates in the short term, these fundamentals of the Indian market remain unchanged.

We are in a phase where we will see price corrections for the next few quarters as inflation and interest rates rise and off-take slows as affordability comes down in the short term.

Could the current scenario of rising interest rates and property price correction in pockets prove to be double whammy for developers?

It is true that some developers may face difficult times as liquidity is drying up in the market and the retail buyer has backed off as interest rates and inflation have risen. Having said that, I would add that debt is available for developers who have projects that are based on viable financial models and assure investors a good return on investment.

As a developer if you have bought your land at a reasonable price and your product is correctly priced, then there would be buyers for your products and the liquidity crunch should not have a significant effect on you.

Have you been seeing a slowdown in the off-take in the residential segment? In recent months we have seen a lowering of housing off-take . This is visible especially in pockets where prices had moved up rather sharply in the past few quarters.

In addition to the higher interest rates, buyers have also been hit by rising inflation which has curbed buying activities further, both in middle income and premium housing.

To offset this, some developers have been offering incentives to buyers but I don’t envisage an uplift in demand till such time as there is equilibrium and stability in the economy.

Is there a surplus scenario in the commercial and retail real-estate market? There is no pan-India answer to this question. In recent years, the Indian market has become more micro-market oriented and what may apply to one market is not necessarily true of another.

Several markets that have a good pipeline of supply may see a drying up of demand until this supply is absorbed, whilst several others where supply is not so robust may see current price being sustained.

This is true of both office commercial and retail properties. Sustained demand from the IT sector, despite the US economy slowing down, is also expected to shore up demand for office properties.

That said, there is no doubt that some markets, such as Noida, will have to deal with oversupply across all segments of real-estate.

And these markets will witness adjustments and corrections. The key point once again is the quality of supply and what the pricing mechanism is.

More Stories on : Interview | Mutual Funds | Real Estate & Construction

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page