Tuesday, September 15, 2009
Private Equity Funds Sell Homes Cheap To Gain Market Foothold
Private Equity Funds Sell Homes Cheap To Gain Market Foothold
Shabana Hussain, New Delhi
Mint
Private equity funds are aggressively chasing the nascent revival in Indian home purchases by undercutting the more established realty companies such as DLF Ltd and Unitech Ltd, sometimes by as much as half the going rate.
The funds, which have tied up directly with landowners, are willing to sacrifice margins to push sales and make up for being unknown to prospective homebuyers.
South Asian Real Estate Group (Sare), First Indian Real Estate Capital Fund Pvt. Ltd, or FIRE Capital, and Red Fort Capital have launched projects in locations such as Gurgaon, Noida, Ghaziabad, Indore and Bangalore.
Crescent Parc, a company promoted by Sare, launched Royal Greens two weeks ago in Sector 92 in Gurgaon at Rs1,397 per sq. ft. Royal Greens will have low-rise apartments of ground plus four floors with amenities such as a gym, a swimming pool, a school and a hospital.
In comparison, DLF’s New Town Heights, the company’s affordable housing project in the adjacent sectors of 90, 91 and 86, is priced at Rs2,150-2,250 per sq. ft, and Raheja Developers Ltd’s Navodaya in Sectors 92 and 95 is priced at Rs2,475 per sq. ft.
The funds say they want to establish a brand name for themselves and attract buyers in a market where demand has just started to pick up.
FIRE Capital, a $250 million (around Rs1,220 crore) real estate focused fund, has launched integrated township projects in Indore, Nagpur, Bangalore and now plans to launch in Chennai.
In Bangalore, for instance, FIRE Capital has gone in for a soft launch of villas at its project, The Empyrean, on the outskirts of the city near Whitefield at Rs2,000-2,500 per sq. ft whereas the market rate in that location for a similar project is Rs4,000-5,000 persq. ft, said Om Chaudhry, founder and chief executive of FIRE Capital. “Initially, we had to do penetrative pricing because the market didn’t know us.”
Margins in such projects are either low or negligible. “But even if I don’t make too much profit, I need to establish a name,” said Chaudhry.
Once a brand name is established with little or no margin, prices can be increased gradually, he added. “That strategy is working for us. We now have an established brand name in Indore.”
In the case of Sare, a $400 million fund, the company said it consciously chose a lower price because that is the rate at which the market would have accepted a new developer. Sare claims to have sold 180 of the 360 apartments in Royal Greens at Gurgaon.
Sanjay Sharma, founder of Gurgaonscoop, a real estate portal, said this is the first time he has seen a developer offer such low prices relative to the market. “The location where Royal Greens is coming up can easily command a price of Rs1,800 per sq. ft,” he said. “It is a knock off of at least 20 percent of the actual price.”
The big-name developers have launched affordable housing projects by reducing the size of apartments, with the price per sq. ft still on the higher side. For instance, Unitech’s affordable housing project, Unihomes in Sector 117 of Noida, costs around Rs2,960 per sq. ft, but the overall cost of the apartments range from Rs17-30 lakh as they are sized between 580 and 990 sq. ft.
If prices are too low, developers may slack off on some projects, said Sharma.
“When the margins are so low, eventually it might make sense for a developer not to complete a project and execute another one that gives profits,” he added.
Red Fort Capital recently picked up a 50 percent stake in Lotus Boulevard, an integrated township project in Sector 100 in Noida being developed by 3C Company, a New Delhi-based developer. The project will have 3,000 residential units and according to Red Fort, around 1,500 apartments have already been sold.
The apartments of between 987 and 1,850 sq. ft are priced at Rs2,825 per sq. ft. “Apartments cost less because of a combination of smaller size and reduced price per sq. ft,” said Subhash Bedi, managing director of Red Fort.
Shabana Hussain, New Delhi
Mint
Private equity funds are aggressively chasing the nascent revival in Indian home purchases by undercutting the more established realty companies such as DLF Ltd and Unitech Ltd, sometimes by as much as half the going rate.
The funds, which have tied up directly with landowners, are willing to sacrifice margins to push sales and make up for being unknown to prospective homebuyers.
South Asian Real Estate Group (Sare), First Indian Real Estate Capital Fund Pvt. Ltd, or FIRE Capital, and Red Fort Capital have launched projects in locations such as Gurgaon, Noida, Ghaziabad, Indore and Bangalore.
Crescent Parc, a company promoted by Sare, launched Royal Greens two weeks ago in Sector 92 in Gurgaon at Rs1,397 per sq. ft. Royal Greens will have low-rise apartments of ground plus four floors with amenities such as a gym, a swimming pool, a school and a hospital.
In comparison, DLF’s New Town Heights, the company’s affordable housing project in the adjacent sectors of 90, 91 and 86, is priced at Rs2,150-2,250 per sq. ft, and Raheja Developers Ltd’s Navodaya in Sectors 92 and 95 is priced at Rs2,475 per sq. ft.
The funds say they want to establish a brand name for themselves and attract buyers in a market where demand has just started to pick up.
FIRE Capital, a $250 million (around Rs1,220 crore) real estate focused fund, has launched integrated township projects in Indore, Nagpur, Bangalore and now plans to launch in Chennai.
In Bangalore, for instance, FIRE Capital has gone in for a soft launch of villas at its project, The Empyrean, on the outskirts of the city near Whitefield at Rs2,000-2,500 per sq. ft whereas the market rate in that location for a similar project is Rs4,000-5,000 persq. ft, said Om Chaudhry, founder and chief executive of FIRE Capital. “Initially, we had to do penetrative pricing because the market didn’t know us.”
Margins in such projects are either low or negligible. “But even if I don’t make too much profit, I need to establish a name,” said Chaudhry.
Once a brand name is established with little or no margin, prices can be increased gradually, he added. “That strategy is working for us. We now have an established brand name in Indore.”
In the case of Sare, a $400 million fund, the company said it consciously chose a lower price because that is the rate at which the market would have accepted a new developer. Sare claims to have sold 180 of the 360 apartments in Royal Greens at Gurgaon.
Sanjay Sharma, founder of Gurgaonscoop, a real estate portal, said this is the first time he has seen a developer offer such low prices relative to the market. “The location where Royal Greens is coming up can easily command a price of Rs1,800 per sq. ft,” he said. “It is a knock off of at least 20 percent of the actual price.”
The big-name developers have launched affordable housing projects by reducing the size of apartments, with the price per sq. ft still on the higher side. For instance, Unitech’s affordable housing project, Unihomes in Sector 117 of Noida, costs around Rs2,960 per sq. ft, but the overall cost of the apartments range from Rs17-30 lakh as they are sized between 580 and 990 sq. ft.
If prices are too low, developers may slack off on some projects, said Sharma.
“When the margins are so low, eventually it might make sense for a developer not to complete a project and execute another one that gives profits,” he added.
Red Fort Capital recently picked up a 50 percent stake in Lotus Boulevard, an integrated township project in Sector 100 in Noida being developed by 3C Company, a New Delhi-based developer. The project will have 3,000 residential units and according to Red Fort, around 1,500 apartments have already been sold.
The apartments of between 987 and 1,850 sq. ft are priced at Rs2,825 per sq. ft. “Apartments cost less because of a combination of smaller size and reduced price per sq. ft,” said Subhash Bedi, managing director of Red Fort.
Investment In Real Estate Sector Is A Long-Term Play
Investment In Real Estate Sector Is A Long-Term Play
Shrija Agrawal
Mint
Ireo Management Pvt. Ltd, a real estate focused fund, is not just a private equity (PE) player. It is also a co-developer with about 80 percent of its portfolio consisting of its own projects. The fund has $500 million (Rs2,435 crore) to invest across segments in realty such as education, hospitality and retail, apart from port infrastructure. However, it has preferred to take a cautious approach.
In an interview with VCCircle, Lalit Goyal, vice-chairman and managing director, Ireo Management, talks about demand pick-up and investor appetite in the real estate sector.
Edited excerpts:
What is your assessment of the investment opportunities in real estate?
There are lots of opportunities, but pricing (from an investor’s point of view) is still on the higher side. That is why, a lot of deals are not getting closed. We think there is more correction (yet) to happen before funds start putting in their money. For example, we are sitting on a capital of $500 million to allocate. And we have not invested in the last nine months.
Aren’t real estate developers looking towards PE players for a bailout in a distressed environment, with funds indulging in price shopping?
Our strategy is to either own 50 percent of the project or 100 percent of the equity. So when you talk about 100 percent, the deals are few. Everyone is doing price shopping, but real estate depends a lot on location, and the location that we want is still not investment-friendly.
What were you thinking when the realty market went down?
Naturally, our investors started feeling jittery on whether to invest in this market. There were no real answers. The whole board was on hold for six-seven months. Everyone was looking for a direction where the markets will go.
Do you see demand picking up now
Demand is definitely picking up in the residential sector and it will be better if the interest rates are lowered. Ideally, Indian mortgage interest should be a maximum of 7-8 percent.
What is your outlook for the future?
Basically, prices went up very sharply and fell down very sharply. I expect it to settle down somewhere in (the) middle. I don’t think the realty market will go down any further. The prices will move up, though not steeply.
The market will stabilize after going up by another 15-20 percent. It’s a good time to buy from an end-user’s perspective. The commercial markets will take time to stabilize as it will depend on the global markets.
What will be your investment strategy for the next two quarters?
We will adopt a cautious approach. We will not go for auctions or high-cost teams.
Have you exited any of your investments?
We have been investing in India for the last five years and have still not taken a single dollar out. It will take three-four years more before we monetize. At eight years, it is indeed a long-term investment.
The markets have to correct and we still have a lot of time with us. So we are not looking at a quick exit. We believe real estate is a long-term play.
What is your key differentiator?
We have the DNA of both a fund and a developer. That makes us different from a normal private equity fund. We are very cautious on pricing, location and our partners. Pedigree is what we look at before investing in a company.
How are your realty projects coming along?
We will be launching 100 million sq. ft this year. We have already constructed around 4-5 million sq. ft in our Pune project, which has already been launched. Our residential project is around 80 percent sold and the SEZ (special economic zone) in Pune is nearly complete and leased out.
The deal pipeline looks healthy. We invest at the SPV (special purpose vehicle) level and there are a few projects which are willing to dilute over 50 percent. Our investment mix is 75 percent in residential and the remaining in SEZs and commercial parks. We feel (that) residential projects tend to be less risky.
Which other sectors in realty are you bullish about?
We are looking at the hospitality sector and waiting for the education sector to open up. Education is a big market and is still underfed. We have been studying this space for two years. Education fits (in) well with our portfolio of integrated development.
In hospitality, our focus will be on mid-market and budget (hotels), but we can also look at selective luxury hotels. We already have two properties in our portfolio. And once the government allows multi-brand retailing, we will look at the retail space. We are open to the port sector from a long-term investment perspective.
Shrija Agrawal
Mint
Ireo Management Pvt. Ltd, a real estate focused fund, is not just a private equity (PE) player. It is also a co-developer with about 80 percent of its portfolio consisting of its own projects. The fund has $500 million (Rs2,435 crore) to invest across segments in realty such as education, hospitality and retail, apart from port infrastructure. However, it has preferred to take a cautious approach.
In an interview with VCCircle, Lalit Goyal, vice-chairman and managing director, Ireo Management, talks about demand pick-up and investor appetite in the real estate sector.
Edited excerpts:
What is your assessment of the investment opportunities in real estate?
There are lots of opportunities, but pricing (from an investor’s point of view) is still on the higher side. That is why, a lot of deals are not getting closed. We think there is more correction (yet) to happen before funds start putting in their money. For example, we are sitting on a capital of $500 million to allocate. And we have not invested in the last nine months.
Aren’t real estate developers looking towards PE players for a bailout in a distressed environment, with funds indulging in price shopping?
Our strategy is to either own 50 percent of the project or 100 percent of the equity. So when you talk about 100 percent, the deals are few. Everyone is doing price shopping, but real estate depends a lot on location, and the location that we want is still not investment-friendly.
What were you thinking when the realty market went down?
Naturally, our investors started feeling jittery on whether to invest in this market. There were no real answers. The whole board was on hold for six-seven months. Everyone was looking for a direction where the markets will go.
Do you see demand picking up now
Demand is definitely picking up in the residential sector and it will be better if the interest rates are lowered. Ideally, Indian mortgage interest should be a maximum of 7-8 percent.
What is your outlook for the future?
Basically, prices went up very sharply and fell down very sharply. I expect it to settle down somewhere in (the) middle. I don’t think the realty market will go down any further. The prices will move up, though not steeply.
The market will stabilize after going up by another 15-20 percent. It’s a good time to buy from an end-user’s perspective. The commercial markets will take time to stabilize as it will depend on the global markets.
What will be your investment strategy for the next two quarters?
We will adopt a cautious approach. We will not go for auctions or high-cost teams.
Have you exited any of your investments?
We have been investing in India for the last five years and have still not taken a single dollar out. It will take three-four years more before we monetize. At eight years, it is indeed a long-term investment.
The markets have to correct and we still have a lot of time with us. So we are not looking at a quick exit. We believe real estate is a long-term play.
What is your key differentiator?
We have the DNA of both a fund and a developer. That makes us different from a normal private equity fund. We are very cautious on pricing, location and our partners. Pedigree is what we look at before investing in a company.
How are your realty projects coming along?
We will be launching 100 million sq. ft this year. We have already constructed around 4-5 million sq. ft in our Pune project, which has already been launched. Our residential project is around 80 percent sold and the SEZ (special economic zone) in Pune is nearly complete and leased out.
The deal pipeline looks healthy. We invest at the SPV (special purpose vehicle) level and there are a few projects which are willing to dilute over 50 percent. Our investment mix is 75 percent in residential and the remaining in SEZs and commercial parks. We feel (that) residential projects tend to be less risky.
Which other sectors in realty are you bullish about?
We are looking at the hospitality sector and waiting for the education sector to open up. Education is a big market and is still underfed. We have been studying this space for two years. Education fits (in) well with our portfolio of integrated development.
In hospitality, our focus will be on mid-market and budget (hotels), but we can also look at selective luxury hotels. We already have two properties in our portfolio. And once the government allows multi-brand retailing, we will look at the retail space. We are open to the port sector from a long-term investment perspective.
Property Titling Law To Protect Owners
Property Titling Law To Protect Owners
New Delhi
The Times of India
Just registering your property and ensuring that your ownership rights make it to the records of the land-owning agencies like MCD and DDA is not enough to safeguard your right as an owner. To protect your right to the title and to check the growing cases of properties in the capital being targeted for takeovers, an expert team has come up with the first draft of a property titling law.
The plan is to set up a central titling authority. It will maintain complete records of all properties and scrutinise the details provided to identify and decide on the real owner. Each property will be issued a unique identification number. A tribunal will be set up for resolving all disputes relating to immovable property in Delhi.
This is expected to prevent fraudulent ownership claims as the records will be available to prove ownership in court. Under the existing system, property ownership details are not available with the authorities concerned.
However, real estate observers and sources in the government say getting all records together at one place will be tough and may take many years as there are multiple land-owning agencies in Delhi DDA, MCD, NDMC and gram sabhas. Moreover, the properties in unauthorised colonies are not yet registered.
A presentation was made before the Delhi cabinet, led by chief minister Sheila Dikshit, on Monday. After the meeting, the CM spoke on the need for a titling law but stressed that the process should be simple.
UT widens housing society doors
UT widens housing society doors
Chandigarh
The Times of India
After a lot of brainstorming, UT administration on Monday proposed changes in rules governing transfer of housing society memberships or their share in the name of people who buy property there after the cooperative’s creation or gain possession through general power of attorney (GPA).
Home secretary Ram Niwas said people will be allowed to transfer their membership or share in housing cooperatives to subsequent owners or GPA holders of their properties without needing to clear dues pending with the societies.
This is being done to fulfil an old demand of GPA holders, he said.
Till now, those seeking to transfer their membership or its share had to apply for no-dues certificates from societies, who in turn had to procure the document from Chandigarh Housing Board (CHB).
With the new rule, the transfer will be allowed if the new owner or GPA holder submits an affidavit that he or she will clear the dues that the previous holder of the membership had not dealt with. This will also apply in case of dues that might emerge from subsequent audits, Niwas said.
In case of registered wills, transfer of property’s ownership will be allowed after an advertisement seeking objections against it is published in a leading newspaper. Objectors will be asked to put forward their reasons for opposition to the transfer within a month.
For unregistered wills, the recipient will need certification from a competent court of law so that no dispute arises after the membership or its share is transferred.
The names of all those, who are jointly given GPA, special power of attorney (SPA) or ownership of property in wills will need to be mentioned in the membership certificate. However, only that person, whose name appears first on the certificate, will be allowed to vote in matters regarding society’s functioning.
In cases where one person holds the GPA and another has the SPA of a property, the society will need an undertaking in shape of affidavits from the said individuals in which they specify who can get the membership.
Chandigarh
The Times of India
After a lot of brainstorming, UT administration on Monday proposed changes in rules governing transfer of housing society memberships or their share in the name of people who buy property there after the cooperative’s creation or gain possession through general power of attorney (GPA).
Home secretary Ram Niwas said people will be allowed to transfer their membership or share in housing cooperatives to subsequent owners or GPA holders of their properties without needing to clear dues pending with the societies.
This is being done to fulfil an old demand of GPA holders, he said.
Till now, those seeking to transfer their membership or its share had to apply for no-dues certificates from societies, who in turn had to procure the document from Chandigarh Housing Board (CHB).
With the new rule, the transfer will be allowed if the new owner or GPA holder submits an affidavit that he or she will clear the dues that the previous holder of the membership had not dealt with. This will also apply in case of dues that might emerge from subsequent audits, Niwas said.
In case of registered wills, transfer of property’s ownership will be allowed after an advertisement seeking objections against it is published in a leading newspaper. Objectors will be asked to put forward their reasons for opposition to the transfer within a month.
For unregistered wills, the recipient will need certification from a competent court of law so that no dispute arises after the membership or its share is transferred.
The names of all those, who are jointly given GPA, special power of attorney (SPA) or ownership of property in wills will need to be mentioned in the membership certificate. However, only that person, whose name appears first on the certificate, will be allowed to vote in matters regarding society’s functioning.
In cases where one person holds the GPA and another has the SPA of a property, the society will need an undertaking in shape of affidavits from the said individuals in which they specify who can get the membership.
OMAXE to launch three township projects by December
OMAXE to launch three township projects by December
Kolkata
DNA Business Standard The Hindu
Omaxe Ltd plans to launch three more hi-tech township projects by December this year, said Sunil Malhotra, vice-president finance. A major project among these is the launch of multiple phases of the company's Allahabad township, he said.
Omaxe is looking at equity infusion and joint ventures with landowners for these projects. Malhotra said the company plans to raise funds through a qualified institutional placement (QIP) in the next one or two quarters, but declined to confirm the amount to be raised.
Omaxe has a total debt of Rs 300 crore, but Malhotra said the company's debt liability for the current fiscal was manageable as it had rescheduled or restructured most of the amount.
The Delhi-based developer's subsidiary Garv Buildtech Private Ltd has also signed a memorandum of understanding with the Lucknow Development Authority to develop a hi-tech township. The company is investing Rs 2,300 crore on this project and expects to generate revenues of around Rs 2,800 crore.
The project will start generating cash revenue in the current fiscal as work on the first phase would be partially completed. The project will include commercial office space, IT development and a large area for industrial development, Malhotra said.
The MoU has been signed and Omaxe has started acquiring land. About 500 acres will be acquired in the first phase, of which 75 percent will be acquired by the developer and the remaining 25 percent will be provided by the state government, Malhotra said.
DLF does the unusual: asks buyers to price homes
DLF does the unusual: asks buyers to price homes
New Delhi
DNA Hindustan Times
DLF Ltd is doing something not yet seen in the realty space: it plans to derive prices of its new residential projects by asking customers how much they are ready to pay. The developer, through designated brokers, has sent thousands of SMSes to potential customers for its Capital Greens project Phase II in New Delhi, seeking feedback on price.
"We started doing this in August. The idea is to have a scientific method of arriving at the price rather than deciding it on our own. This is the first time we are doing such a study, and we will continue this practice for other new projects," DLF's group executive director Rajeev Talwar said.
The survey looks at variables such as household income, floor preference, current residential location, offer price and facilities such as gym etc to arrive at what's called an "amicable" pricing.
Talwar said the worst is over so the flats will be sold at a premium compared with Phase I. DLF is looking to offer 1,900 apartments in its new project after Dusshera or September-end, which would be priced at least 15 percent higher from the Phase I price of Rs 5,500 per square feet.
When the developer launched Phase I in April, it sold flats at half the price of similar projects in the vicinity. That helped the company sell the whole phase in a day.
In Phase II, DLF would offer flats of 1,200-2,600 square feet sizes. It expects to finalise the pricing in a week.
DLF had bought the parcel of land from DCM Shriram in 2007 through a Rs 1,675 crore deal. An analyst with a foreign brokerage, who covers the company, found this a "fair way" to price.
"If DLF continues this model for all its projects, it would see good demand; this is a free-market mechanism. But the downside is that margins may take a hit as pricing could always be on the aggressive side," the analyst said, on the condition of anonymity. Ambar Maheshwari, director investment advisory at DTZ, the realty consultant, said home prices seem to have bottomed out.
"The rate of slowdown in the real estate sector has definitely subsided. But it is difficult to forecast as when we can expect the levels of 2007 and early 2008 volumes," Maheshwari said.
City Corp Launches Second-Hand Flats Biz In Pune
City Corp Launches Second-Hand Flats Biz In Pune
Pune
Business Standard
Real estate developer City Corporation has entered second-hand apartments business through an apartment exchange scheme meant for its future customers who would exchange their present house with an apartment in the firm's Amanora Park Town project in Pune. City Corporation would buy old apartments from customers, renovate them and sell-off through an established network of real estate agents.
Interestingly, the firm does not say, the move comes out of the urgency of selling the apartments in a slumped real estate regime. "We are looking at this exchange offer as a business opportunity along with a value-added service for our probable customers," said City Corporation managing director Aniruddha Deshpande.
City Corporation is developing a 400-acre township named Amanora Park Town in Pune, which would have 12,000 apartments in different categories. As per this scheme, a flat owner, who wishes to buy an apartment at Amanora Park Town, would hand-over power of attorney to City Corporation at a mutually agreed price. This amount would then be considered as down payment for the new apartment booked in Amanora Park Town and the flat owner would continue to stay in the old flat till the new flat gets ready.
The scheme has been made available for residential flats located within Pune city that are not more than 20 years old. "At a given time, we have planned for a capacity of buying up to 250 old flats. For this, we have made a provision of approximately Rs 75 crore. The process would work like an inventory where we will buy old flats and sell them off on a regular basis. And through these deals, we expect to generate revenue worth Rs 170 crore from Amanora Park Town," Deshpande added.
Interest Subvention May Give Impetus To Affordable Housing
Interest Subvention May Give Impetus To Affordable Housing
Chennai
The Hindu
The one percent interest subvention approved recently by the Union Cabinet is expected to provide an impetus to the affordable housing segment in the suburbs.
Banks and housing finance companies are gearing up to capitalise on this scheme and increase the disbursement of home loans.
“As a major portion of the demand is from the affordable segment below Rs.20 lakh, the initiative will be of help to a large number of buyers,” said R.R. Nair, director and chief executive of LIC Housing Finance Ltd.
However, he was sceptical of the efficiency of the scheme to cater for the affordable segment with provision of the one percent subsidy for just 12 months. “We have had discussions on the scheme and will be happy to participate in it,” he said.
An official of State Bank of India said the scheme was expected to have an impact on housing units only in the suburbs of Chennai.
Around 5,000 units with price less than Rs.20 lakh are coming up on the outskirts of the city, said Prakash Challa, president, Confederation of Real Estate Developers’ Association of India-Tamil Nadu.
Mall Developers, Retailers Warming Up To Revenue-Sharing Model
Mall Developers, Retailers Warming Up To Revenue-Sharing Model
Ashish K Tiwari, Mumbai
DNA
Mall developers and retailers in the country appear to be slowly warming up to the revenue-sharing model. Mumbai-based Entertainment World Developers Pvt Ltd (EWDPL) has just launched a mall-in-mall concept called Treasure Showcase, which allows non-mall brands to sell their merchandise without having to pay rent or common area maintenance charges. The company will, however, take a percentage of the retailer's turnover as its share, EWDPL chairman and MD Manish Kalani said.
Hitherto, despite being touted as the best possible arrangement between a mall developer and a retailer, the adoption of the revenue-sharing model has been less than encouraging. The handful of success stories include Inorbit Mall in Mumbai, Select Citywalk in south Delhi and the soon-to-be-launched Palladium mall at High Street Phoenix, Mumbai.
The parties cite incorrect retailing format, opacity in recording sale transactions, hesitation in sharing books of accounts and lack of successful track record etc among the reasons for a slow adoption.
"A lot of retailers have problems with sharing sales/revenue numbers. It's a real task for the mall developer because retailers are hesitant in doing so," Dharmesh Jain, chairman and managing director of Nirmal Group of Companies, said at the recently concluded CII Real Estate Conference.
Revenue sharing generally involves the developer charging the retailer on the basis of a minimum guarantee or percentage of turnover, whichever is higher, or a combination of the two. The minimum guarantee figure is arrived at by taking into account the ongoing market lease rate that can be commanded for the space being occupied by the retailer. As for the percentage of sales, it ranges between 3% and 25% depending on the nature of business being conducted by the retailer.
Pranay Sinha, managing director of Star Centres, feels the key lies in being able to choose tenants who can generate enough business to cover the cost of housing their stores in the mall. "It's a science," he says. "Besides, once the retailer is assured that the mall developer/ management will channelise all their efforts in doing things that will eventually improve the retailers' business, they have no issues sharing an X% of their revenues with the developer."
The demand-supply imbalance in the retail real estate space has changed in favour of retailers in recent months. Over a year ago, they were chasing mall developers for space at unreasonable rates. However, today, with new properties coming up and retailers playing safe on expansion plans, lease rentals have taken a knock of 30-35% across the country.
However, few retailers favour revenue sharing over lease rentals. Many see it as a mere marketing ploy to lure retailers in. "It always is accompanied by a host of add-ons that eventually work to the disadvantage of the retailers. There is no clarity on what exactly is my per square foot cost," says Jay Gupta, customer care associate and managing director of The Loot India Ltd.
On their part, developers feel most retailers are yet to establish themselves as professional outfits. Vishesh Rawat, senior manager -- retail, Ansal Plaza, says, "Maintaining transparency in sales and accounting processes are crucial for building faith in the mall owners. Besides, most of them are new and don't have long and successful track records of retailing profitably in Indian markets. Retailers make profits or losses primarily due to their business format and operations. Why should we have a stake in their profits or losses?" he asks.
B S Nagesh, vice-chairman, Shoppers Stop Ltd, sums up the situation. "People are still experimenting and sanity can be achieved only once both the businesses reach a certain level of maturity. Till then it will continue to be a highly debatable issue of choosing between fixed rentals and revenue sharing as a business model."
Going by industry reports, barely 25 of the 250 odd malls in the country are malls in the real sense, though around 50-75 are slowly reaching that level.
Chinese Co Mulls Investment In Rs 700-Crore Mall Project
Chinese Co Mulls Investment In Rs 700-Crore Mall Project
Ahmedabad
The Times of India
City's unique upcoming Rs 700-crore venture has caught the eye of a Chinese company. Foshan Meihua Furniture Co Ltd evinced interest for investment into the first-of-its-kind 'Material Mall' being developed in 1 lakh sq yd area in Vastral along the Sardar Patel Ring Road.
"It's not a routine mall. Apart from shops and offices, a large convention centre, an exhibition and display hall for product launches, a luxury hotel and theatre has been planned for this mega venture. Apart from Chinese company, a firm based in France has also shown interest in the project," said Uday Bhatt, chairman of city-based Galaxy Group.
Managing partner of the US $30 million Chinese company Francis Lee said he has been studying the Indian market and is in talks with Galaxy Group for a strategic tie-up. His company provides designer furniture solutions to five-star and above luxury hotels across the globe. Terming the property show an organized effort, Lee said, "It could have been better and bigger aimed at a larger audience if it had been promoted nationally, involving more players."
Lee, a Singapore national, said that the concept of availability of building material, furniture, interior and exterior, electric items among others is appealing, specially on the fast growing Gandhinagar-Ahmedabad-Vadodara (GAV) corridor.
Ahmedabad
The Times of India
City's unique upcoming Rs 700-crore venture has caught the eye of a Chinese company. Foshan Meihua Furniture Co Ltd evinced interest for investment into the first-of-its-kind 'Material Mall' being developed in 1 lakh sq yd area in Vastral along the Sardar Patel Ring Road.
"It's not a routine mall. Apart from shops and offices, a large convention centre, an exhibition and display hall for product launches, a luxury hotel and theatre has been planned for this mega venture. Apart from Chinese company, a firm based in France has also shown interest in the project," said Uday Bhatt, chairman of city-based Galaxy Group.
Managing partner of the US $30 million Chinese company Francis Lee said he has been studying the Indian market and is in talks with Galaxy Group for a strategic tie-up. His company provides designer furniture solutions to five-star and above luxury hotels across the globe. Terming the property show an organized effort, Lee said, "It could have been better and bigger aimed at a larger audience if it had been promoted nationally, involving more players."
Lee, a Singapore national, said that the concept of availability of building material, furniture, interior and exterior, electric items among others is appealing, specially on the fast growing Gandhinagar-Ahmedabad-Vadodara (GAV) corridor.
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