Sanity, sensex, and real-estate

IN CONVERSATION

There would be few who have not heard of Emaar - the Dubai-based company which is constructing the tallest skyscraper in the world - the "Burj Dubai Tower". Counted among the world's largest real estate companies, Emaar entered India through Hyderabad when it set up the landmark International Convention Centre there. In a 50:50 partnership with India's MGF, it is now working on residential and commercial properties across the country, including the famed Armani boutique hotels, to give the Indian consumer "a never-before experience". In separate interviews with Business Standard, Emaar-MGF's managing director SHRAVAN GUPTA talks about why the joint venture company started with Punjab while Emaar's executive director for international operations Dr NADER MOHAMED highlights the similarities between Dubai and Hyderabad, and the India opportunity for the company.

SHRAVAN GUPTA
Emaar-MGF

Sanity is not ruling the real-estate business today. This aggression is not good for businesses

What is the focus area in India "" residential or commercial?

We see a huge opportunity in residential. We are starting with a 3,000 acre township at Mohali (Punjab) which will have residential, retail and office space too. The first batch of homes will be ready in the next 18 months, and will be priced between Rs 50 lakh-2 crore. We will be investing $1.5-2 billion in Punjab over 5-7 years.

Why did you chose to start with Punjab?

We did a survey which pointed us to Punjab for our entry strategy. Punjabis are more extrovert. They believe in living well and spending well. They have the ability and aspiration to spend compared to the south, where they tend to be a little more conservative. There is also the huge non-resident market available there.

The stock markets were feeding the real estate market too. With sentiment seriously down in stocks, do you expect a shadow on the booming real estate sector?

Some companies want to take advantage of the euphoria in real estate. They are trying to come out with issues taking advantage of the market buoyancy though the numbers don't justify the valuation demanded.

We are here for long term. There is no reason to worry for us. Even 9,500 (on the sensex) is a decent level. However, we feel that the volatility and uncertainity in the stock market will add to real estate investment. The horses and donkeys in the race will be clearly identified.

So there are a lot of non-serious players out there?

Of course. There are those who are expecting real estate prices to appreciate 25 per cent next year, simply because they appreciated by 25 per cent last year. This aggression is not good for businesses. Today, sanity is not ruling this business. And the customer has been short-changed by most developers. We want to bring respectability to this trade.

What would you say is the percentage of insanity in the market?

All I can say is that the market is going up too fast.

The project will be financed by equity and debt. Is mobilising debt becoming more difficult given the monetary tightening that's taking place?

Ability to raise debt for well-capitalised companies is not an issue, even if banks limit exposure to this sector.

Who are your competitors?

At the national level, it would be DLF and perhaps Unitech. No one else has the scale. However, when we go for land auctions, and see steel barons and software giants bidding, we feel that we don't know who our competitor is.

Do you have a land-bank target? That is a moving number. We are already ahead of some of the larger players in this game. We want to redefine scale in this business. What has taken companies 50 years to achieve, we want to do it in five years.

And which are your priority states for this land-bank? The whole of India is our priority. We are acquiring land in many states across the country...wherever we can. Of course, the national capital region (NCR) is the best market in the country.

Not Mumbai? Margins are there in Mumbai but volume is lacking.

NADER MOHAMED
Emaar

A sustained two-digit average rate of return on capital indicates India's "build" momentum

Why did Emaar's first build in the country happen in Hyderabad and not in any other city?

Hyderabad enjoys tremendous visibility in the international community "" not only as an IT hub but also as an emerging financial services destination. This image of Hyderabad mirrors that of Dubai, Emaar's home. From the perspective of developing a convention centre, the choice of Hyderabad was only logical. Though Bangalore leads the domestic hospitality market with an average room-rate of Rs12,020 (in the three quarters to December 2005), studies indicate that Hyderabad is the market of the future. A CRISIL study revealed that five-star hotels in Hyderabad logged the country's highest occupancy rates at 84 per cent for nine months up to December 2005. The figure was 76.5 for Bangalore, 76.3 for Mumbai and 75.8 for Delhi.

What was the overall project cost of the international convention centre?

The Hyderabad International Convention Centre is India's largest and most tech-savvy convention facility and is built by Cyberabad Convention Centre Private Limited (CCCPL), a joint venture between Emaar Properties and the Andhra Pradesh Industrial Infrastructure Corporation Limited. The overall project cost was Rs174 crore, 50 per cent of which has been raised through equity.

What is the break even time envisaged for the Hyderabad project?

The Hyderabad project of Emaar, in its totality as outlined now, is not limited to the convention centre and adjoining Accor hotel. We have embarked on an integrated development programme, which includes Boulder Hills, a world-class leisure and residential community spread over 520 acres. Its key components comprise a world-class master-planned residential community developed on about 285 acres, a championship level 18-hole golf course set in 235 acres and a boutique Novotel Hyderabad business hotel. As per the projections of HVS/IDFC, CCCPL will achieve break even point on the convention centre according to industry norms. Where does India stand with regard to "build" opportunities around the globe and in Asia?

India has a buoyant property market "" notwithstanding the seasonal and inevitable see-saws in the demand-supply price equation regionally or across the board. With its 1 billion plus population and a fast-growing economy, it is indisputable that commercial, residential and retail markets in India are poised for impressive growth. A sustained two-digit average rate of return on capital accrued by developers is indicative of India's "build" momentum, which is, as of now, on par with that of the real estate boom witnessed by the Gulf region. In line with the projected real estate growth of India from $14 billion to $102 billion in the next 10 years, the Indian market has gained serious attention from international investors.

Are there any specific laws that you feel are impeding the growth of the real estate market in the country and need change?

Currently, foreign investors tend to prefer the bigger cities because of higher and quicker returns but it is difficult to find larger plots near the metros. Revisiting the minimum lock-in period of three years for repatriation of the original capital (unless an early exit is cleared by the FIPB) would add to investor flexibility.