Thailand’s Leading Developer Pruksa Plans to invest $300mn in Indian Real Estate

The Indian arm of Bangkok-based Pruksa Real Estate, Pruksa India Housing, based in Bangalore, has ambitious goals for India. It is looking to invest $300 million in the country over the next five years. Pruksa Real Estate is a leading property developer in Thailand and is also among the top 10 players in Asia, reports Financial Chronicle.

Pruksa’s chief executive officer Thongma Vijitpongpun said the real estate company has a land bank of 26 acres in Bangalore and 25 acres in Mumbai. “We are also studying Delhi as a prospective market,” he said. “We have already invested $10 million for our first project,” he added. “Demand for housing in India is strong and we think it’s a good investment for us.” S Mohan, assistant vice-president, India business, said, “We want to bring in luxury living at affordable prices in India.”

Pruksa has Asia’s biggest precast factory in Bangkok that can construct 260 houses in a month. “We hope to bring precast technology to India,” Mohan said. Pruksa India Housing’s first project in Bangalore, Pruksa Silvana, offers row houses and villas. It comprises 438 units, including 321 villas. The unit cost of a row house in Pruksa Silvana is Rs 39 lakh, while the villas cost Rs 58 lakh for a 1,632 sq ft home. The project is located in Budigere, just off the upcoming six-lane Old Madras Road Highway.

Puriwaj Puricharoenborrirak, vice-president, India business, said Pruksa India Housing chose Bangalore because it is the most talked about city in India. “Bangalore has a forward-looking attitude, a population of various demographics and, most importantly, more than half the world trusts Bangalore for its software and the presence of some widely travelled people who will recognise quality when they see one. The encouragement and enthusiasm we witnessed here has given us the confidence to plan a couple of more projects not only here, but also in other locations in India,” he said.

The real estate company has a 50:50 joint venture in Mumbai and Chennai with Soham Developers and Mohan Mutha Infrastructures, respectively. Pruksa’s investment in Mumbai and Chennai will involve a total of $20 million and each project will have 500 residential units. Vijitpongpun said, “Pruksa’s entry into India is a major milestone for us, as it has always been our dream to be a part of this beautiful country.”

Puricharoenborrirak said India is a huge market for residential projects. “The growing economy and size of the population stimulates an exclusive need for quality homes at affordable prices. This is what brings Pruksa to India. Having completed more than 80,000 homes and 200 projects in Thailand, destination India is the right move. We are the first real estate developer in India with 100 per cent FDI. In addition, we have already earmarked the next project in Bangalore east. We are also looking at sizeable developments in the southeast and north sectors of Bangalore,” he said. Puricharoenborrirak said the company is looking to have a pan-India presence. “Chennai, Mumbai and Hyderabad are in the prime radar and looking ahead, even Delhi, Nagpur and Haryana, which we feel have a huge potential,’ he said.

Vijitpongpun said, “Our mission is to be the leading property developer in Asia and across the globe and at the same time, deliver superbly designed and perfectly executed living spaces at amazingly affordable prices. We intend to be intensely aware of the pulse of our customers and exceed their expectations every time. We understand, innovate and build relationships with our clients that last for a lifetime.” The Thai real estate developer focuses on developing townhouses, single-detached houses and condominiums, and is listed on the Thailand stock exchange since 2005. Besides India, Pruksa now has a presence in the Maldives and many Saarc countries. The real estate company will also explore China in the near future.

Alternate development models & asset classes in real estate

The last few quarters have been quite difficult for the real estate sector. 

Developers and investors alike have been plagued with several issues such as a lack of confidence on the entire sector following the various scams, drying-up of liquidity from banks and institutions, stricter vigilance from various government authorities as well as continued softness in certain asset classes such as commercial, retail and now to a certain extent residential as measured by absorption levels over the last few months. 

As a case in point, scripts of leading real estate development companies such as DLF, Unitech and Indiabulls are down 18%, 45% and 21% respectively since March ending 2010.  So what can real estate developers and investors do in order to get themselves out of this hole? 

Well amongst the several initiatives that industry participants can take, it is important for them to explore alternate and creative development models that cater to the needs of all segments of society.

We notice that developers tend to get caught up in the herd mentality and instead of implementing projects that cater to the needs of the market based on demand and supply, they often find themselves chasing the flavor of the month.  Thus when the IT boom was taking shape in 2006-07’ all developers were busy announcing IT parks and when premium residential projects met with some success in 2007-08’, all developers rushed towards the premium end of the segment only to find themselves retracting to the affordable housing bandwagon when the music stopped in 2009. 

There is a lot more to real estate than just high-end residential apartment buildings, commercial office spaces, IT parks and retail malls.  It is important for developers as well as investors to now broaden their horizons and think out of the box.  Before implementing a new project, developers need to accurately access the needs of the market and explore alternate asset classes which if implemented correctly, can yield to far greater success.

In this article, we explore some such alternate asset classes that one might explore after a carful understanding for the location of the land and other development parameters.  Most of these models have been implemented successfully in more mature markets such as the US and Europe as they successfully address the needs of a particular segment of society. 

As India continues to evolve rapidly, developers need to take some initiative and along with other industry participants, they need to come up with creative solutions to see how these or other similar development models can be successfully implemented in the Indian context so that the needs of all segments of our society are adequately met.

Low income housing: Clearly in a country like India, where as much as 80% of urban India’s population is unable to afford the homes that are currently being built, the segment of low income housing cannot be avoided for too long. 

In recent times this segment has become a political hot potato and several industry participants such as local government bodies, government housing development authorities, home financing institutions as well as a few developers are all trying to figure out a sustainable housing solution to the vast majority of urban India that currently reside in shanties, slums and other forms of unregulated rental housing.

Already, a handful of low income housing projects such as Swarajaya by Neptune Builders at Ambivali (outskirts of Mumbai), Shubh Griha by Tata in Boisar and projects by Mr. Jerry Rao (ex-Citibank honcho) in Chennai and by Bakeri Builders in Ahmedabad have been successfully implemented across various parts of India. 

No doubt several issues such as availability of inexpensive land, infrastructure, government approvals for such housing projects, availability of housing finance for the LIG segment etc. all need to be adequately addressed before low income housing can become a sustainable business model in India however private developers who until now have been catering to only 20% of India’s urban population need to pay more attention to this bottom of the pyramid opportunity. 

Private developers have thus far largely been under the notion that this segment cannot be exploited for economic gains and have thus proclaimed that low income housing should fall strictly under the domain of the public sector.

A closer look at the economics might suggest otherwise especially given the huge demand potential across all Indian cities.  In order to cater to urban India’s vast lower income segment, one would need to sell an individual apartment unit for Rs. 4 – 5 lacs a unit or approx Rs. 1,800 per sq. ft. depending upon the location of the land and the size of the apartment.  With land & approvals cost of approx Rs. 250 per sq. ft. and construction cost of approx Rs. 1,200 per sq. ft. a low income housing project would yield post-tax margins of approx Rs. 250 per sq. ft. or ~ 20% margins on cost. 

Even though such margins are considered decent in most industries, real estate developers who are used to earning anywhere between 40% – 60% margins (at times even more!) feel that low income housing is not profitable enough given all the work involved.  However, when looking at this model from the perspective of ROEs and IRRs, (versus margins) things can look quite attractive. 

Developer’s investment in a low income housing project is typically only required during the land acquisition phase as such projects usually experience heavy pre-sales which would fund all construction costs.  Thus upon an investment of approx Rs. 250 per sq. ft. the low income housing model will yield to the developer a post-tax net profit of Rs. 250 sq. ft.

Additionally, with the help of quicker construction techniques that are now available such as myerwin shuttering, pre-fabrication etc. these projects can typically be executed over a 2 year time period. 

Of course a lot of intricacies as mentioned above need to fall into place for this model to work however if implemented successfully, developers of low income housing projects can double their money in 2 years time thereby generating an impressive 50% IRR!  Given the unmet demand, the long term business opportunity in this segment as well as the social good, developers would serve themselves well to pay more attention to this segment and work with other stakeholders involved in an effort towards creating solutions to low income housing in India.

Serviced vacation homes: Vacation homes or 2nd homes as they are popularly known have been around for years.  These are typically located in hill stations or beach resorts located close to major cities and are used by the resident as a get away destination during weekends and holidays. 

Even though several developers have been executing vacation home projects over the years, there has been a drastic shift in the type and format of vacation homes that is currently in demand by the large middle-age working population.  Gone are the days when working professionals and businessmen can put in the time and effort required to maintain a second home in a nearby city or town. 

Maintenance of a second home requires tremendous amount of attention with respect to upkeep, security, etc.Thus the need of the hour is for fully serviced vacation homes wherein all issues pertaining to maintenance, security, paying of bills and taxes is taken care of for the residents.

Also conveniences such as food options as well as entertainment facilities should be provided within the development itself such that residents of such projects simply need to show up at their vacation home and enjoy the facilities in a congenial environment with like-minded people. 

The other aspect that developers need to keep in mind is that buyers of vacation homes typically also seek to gain some long term capital appreciation through their investment in the property.  However, given all the costs involved in maintaining a typical vacation home, these often turn out to become a big drain on the expenses.

Eventually, the typical resident ends up ignoring the upkeep of the property thereby making the vacation home not only inhabitable but also detrimental to his investment in the long-run.  A creative solution to these issues is made available through the condo hotel model that is successfully implemented by several well known hotel operating companies such as Four Seasons, Hyatt, Westin etc. in the developed markets of US, South-east Asia and Europe.  Through this model, residents of such vacation homes may choose to rent back their units to the developer who in turn has a tie-up with a hotel management company. 

 The hotel management company not only maintains the units on behalf of the resident but also rents the same out to guests when the residents are not using their units during weekdays, thereby running the complex as a hotel.  Profits generated through the operations of the hotel during weekdays are distributed between the residents such that not only are they able to meet the running expenses of maintaining the property but they also they earn a yearly income from their investment in the unit.

Assisted senior living housing: Assisted senior living housing or retirement villages have been successfully implemented in mature markets such as the US & Europe that have a large ageing population.  Such developments are typically located on the outskirts of major cities and provide a comfortable environment for the elderly to enjoy a peaceful retired life along with provisions for all medical care and attention. 

As families in India continue to nuclearize, such retirement villages may unfortunately become the need of the hour in spite of the possible social stigma against them.  Already, a handful of such projects such as Ponni Delta Retirement Community in Trichy, Athashri by Paranjape Schemes as well as another senior living housing project by Apple Hospitality Services in Pune and other such projects in parts of Cochin and Amritsar have been implemented. 

Such assisted senior living housing projects may be implemented under various business models, but typically the developer collects an upfront deposit from the elderly resident who is allotted a unit in the complex.  The residents live in the allotted unit for as long as they desire and also make use of all the facilities such as nurse service, 24 hour medical attention, housekeeping, catering, social events etc. The residents typically also incur a fixed annual fee in lieu of these services.

As westernization continues to sweep across India, such retirement villages may be required in order to provide a comfortable and dignified retirement to our senior citizens.  Additionally, from the point of view of the developer, this model can be attractive as typically his investment into the project is returned through the initial deposits paid by the residents and he also continue to earn a yearly yield through the fees collected.

Source: VCCircle

Vaibhav Jatia is the Managing Director of Rhythm Realty, a real estate development company engaged in residential and hospitality related developments in and around Mumbai. He was previously working in the real estate private equity industry in India as an investment professional with Lehman Brothers (LBREP) and Westbrook Partners. Vaibhav graduated from the Wharton School of Business at the University of Pennsylvania.

Moneylaundering watchdog to track all realty deals

NEW DELHI: All real estate transactions will have to be reported to the country's anti- moneylaundering agency once the government amends a key law that seeks to curb black-money transactions. The government plans to amend the Prevention of Money Laundering Act , which will require property registrars to file data of transactions recorded by them with the Financial Intelligence Unit, or FIU, a finance ministry official said. "The scope of the (Prevention of Money Laundering) Act is being widened," the official said.

FIU is the national agency responsible for processing and disseminating information on suspect financial transactions to enforcement agencies across the world. The government may also bring several other transactions under the anti-moneylaundering act, according to the official. These may include futures and options trade in commodities. Real estate transactions in excess of 30 lakh are already reported to the Income-Tax Department, but the government wants to tighten scrutiny of the sector, often accused of rampant use of black money and moneylaundering.

Although there is no authentic data available, the cash component in property transactions is widely believed to be as high as 50%. This helps tax evaders park untaxed money easily in property deals. "The realty sector is known to be vulnerable to laundering, so this is a move in the right direction," said anti-moneylaundering expert Navita Srikant. "But suspicious transactions require real-time monitoring and coordination between supervising authorities.

Automation of transactions , training of officers and knowledge of red flags to raise suspicious transaction is the key." Bringing real estate transactions under the anti-moneylaundering law will ensure harsher punishment for tax evaders.

Law to Help Track Tax Havens

At present, many states rely on circle rates to check the use of black money in land deals. A circle rate is the minimum rate fixed by the government for valuation of a property. But it is not considered foolproof as the rate leaves scope for intra-region variations . The amended law will also help track transactions involving funds from tax havens or territories named as "risky" by the financial action task force, or FATF.

Real estate: Respect the buyer

Harmit Chawla

Posted: Saturday, Mar 26, 2011 at 0000 hrs IST, Express Estates

The days when real estate developers used to sell each and everything are gone. Now, to earn respect and a name in the market, buyers need to be shown and given respect. Buyers are no longer ill-informed and instead do their homework before visiting project sites. They read all about the project and gather information from all sources before deciding to go for a particular purchase. In such a scenario, it becomes imperative that developers should bring in transparency in real estate operations and dealings.

It is has long been debated in case studies in MBA institutes that HLL grew in the 80’s and 90’s as a result of quality product offering, caring for customer’s needs and ably supported by a very strong retailer chain (or distribution network). In the Indian context in real estate, there are two absolutes in the success of any company: one is the client who buys the product and the other is your channel which propels your sales and has a direct bearing on the company’s brand and visibility.

Real estate in India lacks transparency on the product and it’s offering and respect for the channel. There are many ways of attaining the required transparency. First, try to do things that keep in mind the needs of the end user. Achieve this by making the entry of an end user to a project open and transparent. The entry point to any project for an end user is the broker. Flocks of brokers can be seen sitting outside a project and in fact many developers sell projects through brokers only. In many cases these brokers make improbable promises. It has been found that some brokers promise huge discounts to the buyer and get the initial amount from them. But when the developer checks the file, the discount offered by the broker looks implausible and the developer rejects it. In such cases, the money gets stuck and the developer unknowingly earns a bad name for not living up to the promises, which in reality he never made.

Hence, the solution is in carefully choosing the right channel train. Then it is also necessary to guide them with regard to the vision of the company and the brand equity. This way brokers will not function as mere brokers but as extended arms of the company. So, the need is to make brokers feel part of the project and they will make the buyer comfortable.

Transparency and respect for the customers as a thought process needs to start in the boardroom and trickle down the system not by internal memos but by the actions of seniors. The company needs to have a strong sense of commitment to the value chain and any deviations to that should be in the zero-tolerance zones. there are bound to be mistakes, but transparency about the rectification of mistakes in the quickest possible time.

In real estate people advertise one price and when the buyer comes to buy gets to know about additional charges. The buyer is attracted by lucrative prices being advertised and depending on that makes the decision whether a project is according to his/her pocket or not. However, when at the project office and the buyer is told about additional charges the dream gets shattered. No frills rate is the policy that the developer should increasingly adopt.

Another important aspect in today’s environment is that the customer should be shown the show apartment, which acts as a window through which the buyer takes a more informed view on his purchase. Transparency is about making the buying process easy and simplified for the customers in a market with projects galore. It pays to make the customer relaxed and aid him in his buying decision by providing a healthy office environment for him to interact. To bring in transparency developers have to start with the buyer because the buyer is the fulcrum. So take care of this fulcrum and the most important balance in real estate can be achieved.

The author is VP (sales and marketing) at Paras Buildtech India