Shriram Properties, one of the largest developers of IT space and residential projects, is looking at diversifying into the commercial and hospitality space. The company has developed over 5.2 million sq.ft of built-up space and has 73 million sq.ft under implementation, putting it among the market leaders in real-estate development. Over 75 per cent of this area is in residential projects and rest in IT space. The company hopes to raise Rs 650 crore to fund some of its projects in the pipeline.

It has also announced plans to diversify into retail and hospitality space development, which will give it a pan-India presence. Shriram Properties’ Managing Director, Mr M. Murali, shares some of his plans with Business Line. The prevailing financial crisis in the international markets, which has tightened up money flow, is no constraint for an established player with a reputation for delivering quality products, he says.

Excerpts from the interview:

Given the market conditions, would you say raising money for the new projects would be tough for developers?

No, not tough. Given our track record we should be able to manage it fine. But the time taken to raise the funds will be a little stretched because of the tightening in the money market. But that is not the only way to look at it — the situation in the US throws up opportunities. Companies that have been hit there are looking at transferring jobs to India and that is good for us here.

Private equity funds have tapped just a fraction of the potential here; they have brought in about Rs 10,400 crore against the estimated potential at ten times that value. Raising funds will not be a problem for someone with a good track record. Developers need to get their act together. If the projects are good, the systems clean, then money will chase the projects.

What is the impact on the demand from the IT segment. Are lease rents at viable levels?

At the Shriram Gateway IT SEZ, in Chennai, we are planning to start the third phase in January 2009. Of the total of about 6 million sq.ft planned, over 1.8 million sq.ft is nearing completion and has been leased out or committed with lease rates in the Rs 45-48 a sq.ft a month range. This includes 8,00,000 sq.ft completed in the first phase and fully operational and another million sq.ft to be ready by March 2009. This space has also been fully leased out. At realistic pricing levels and in the SEZs, the demand continues to be good. The demand for IT space in SEZs is still on and vacancy is less than 10 per cent across the country and demand continues to exceed supply. But in non-SEZ space the vacancy level is around 40 per cent. There are a number of destinations in Chennai that are good for IT and we are looking at land in these locations. Developers need to be ahead of the market.

What would you forecast on the lease rates and what impact will it have on returns?

They are likely to settle around Rs 40. At these levels developers can manage if the property was acquired at realistic price levels. On the OMR, up to Rs 40 a sq.ft is still good. Just five years ago, land was available at Rs 1 crore an acre and taking into account the built-up area allowed, even at Rs 25 a sq.ft there was a decent margin for the developer. But the problem is that people have entered when land cost hit Rs 15-20 crore an acre in the last two years.

You have announced major expansion in residential space, is the slowdown a concern?

It is about pricing and land costs. Even in the residential segment, on the Old Mahabalipuram Road, we have launched a residential project that is doing well. Last month we did a soft launch of our 500-apartment project and 293 apartments were booked on the day the project was announced. We started at Rs 2,500 a sq.ft and over the next fortnight increased the prices because of demand to Rs 2,750 and then Rs 3,150, the demand continues unabated. This is at Siruseri (about 25 km from Chennai) where everyone is talking about prices crashing. Other developers are now asking us to take over some of their projects.

On your diversification plans…

We are looking at retail and hospitality segments, particularly budget hotels. The company is in discussions with a global player in mall development for developing retail space in Chennai, Bangalore, Visakhapatnam and Kolkata where a total of about 30 lakh sq.ft of space is planned at a cost of Rs 750 crore.

Once the tie-up is finalised, the projects can be launched immediately, we have the land for these projects in these cities. In the hotels segment, we have tied up with a strategic partner who has committed over $100 million and we will have a pan-India presence with hotels in Maharashtra, Rajasthan, Uttaranchal, and Gujarat.

Feedback to blproperty@thehindu.co.in

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