Sep 1 2014 | Q&A

Sobha Ltd

"India has huge potential to attract large foreign investments into real estate and there are enough opportunities to be tapped. But this sector is still in the stage of developing. Approvals and procedural difficulties, rising manpower & material costs are some of the major challenges we face. Then there are liquidity risks, since Investment market in India is at an infant stage. The time required for liquidity of the real estate property depends entirely on the location and quality of the property. There are macroeconomic risks like inflation, exchange rate risks, interest rates and the provision of facilities like transport facilities are inadequate in many regions. There is also a lack of information and low transparency in the real estate sector which is a very big challenge for us."

Surajit Chanda, Regional Director, Sobha Ltd shares his views with Sandeep Sharma about his company, project portfolio, core competencies, realty scenario, Backward Integration Model (BIM), challenges faced in implementing projects, Smart City, future plans and projects, housing deficit etc. Edited Excerpts...

Could you tell us about your company, project portfolio and core competencies?
The year 2014 marks the completion of 20 years of Mr. Menon’s steadfast commitment to excellence. What began as a small enterprise in Bangalore two decades ago, is now a builder extraordinaire – a force to reckon with.

• 2006 was the decade when we went public through our initial public offering, an event that created history when the issue got oversubscribed by a record 126 times!
• We are today grown to a 23 billion Company and one of the largest and the only backward integrated real estate player in the country. Backward integration model at Sobha includes an interiors division with one of India’s largest woodworking factories, a metal works and glazing factory, and a concrete products factory.
• Benchmark quality, customer centric approach, robust engineering, in-house research, uncompromising business ethics, timeless values and transparency in all spheres of business conduct, makes Sobha a preferred real estate brand in India.
• Headquartered in Bangalore and we are primarily focused on residential and contractual projects. Our residential projects include presidential apartments, villas, row houses, luxury and super luxury apartments, and plotted development complete with foremost amenities. We strongly emphasise on environmental management, water harvesting and high safety standards in all our residential projects.
• The wide variety of structures for the corporate world including corporate offices, convention centres, software development blocks, multiplex theatres, hostel facilities, guest houses, food courts, restaurants, research centres and club houses. Some of our prestigious corporate clients include Infosys, Taj Group, Dell, HP, Timken, Biocon, Institute of Public Enterprises (IPE), Bosch, Hotel Leela Ventures and others.
• The fundamental strength lies in our superior execution capability of the projects. Till-date Sobha has completed 94 real estate projects and 251 contractual projects covering about 6.06 million square metre (65.18 million square feet) of area. The Company currently has 47 ongoing residential projects aggregating to 2.73 million square metre (29.41 million square feet) of developable area and 29 ongoing contractual projects aggregating to 0.81 million square metre (8.76 million square feet) of area. Sobha has made a footprint in 24 cities and 13 states across India.

How is the realty scenario shaping up in your stronghold? Which segment is doing well in Pune/Bengaluru out of affordable / luxury and Why?
Bangalore : As we all know, Bangalore is the third-largest hub for High Net worth Individuals (HNIs). It is estimated to be home to over 10,000 individual dollar millionaires. Bangalore has a large base of expatriates who live and work in the city. The residents are well traveled, cultured and have sophisticated tastes. There has been increased demand for high-end residential apartments in the city, particularly in the Central Business District (CBD), Secondary Business District (SBD), Whitefield, North Bangalore and Outer Ring Road submarkets. We expect consumer demand for high-end residential projects in these sub-markets to be steady over the short term.

Bangalore is one of the most promising markets for villa projects in India. Villa and row house developments are most active in the North Bangalore, ORR, Sarjapur Road and Whitefield micro-markets. High-end residential property buyers in Bangalore are very sensitive in terms of amenities, product quality and unit sizes.

At the same time the affordable housing concept has gained ground in Bangalore City. The demand from this segment comes from extremely price sensitive buyers – therefore, affordable residential projects are developed in the suburbs as these areas offer large land parcels at lower acquisition costs. Also, the planned Metro Rail and Peripheral Ring Road have increased the demand on the outskirts of Bangalore. Areas such as Mysore Road, Hosur Road, Kanakapura Road etc. have witnessed high demand for this segment.

Pune: Pune has recorded a certain amount of growth in the affordable housing segment. As Pune has many major manufacturing industries situated on the outskirts of the city, the demand for the affordable residential housing is scaling up among blue collar buyers.

The prices of the land on the outskirts are still low. This gives developers a chance to offer affordable 1 and 2 BHK units price-tagged between Rs. 10–22 lakh. Affordable housing projects offer small flats and provide basic, no-frills amenities.

Now-a-days we witness some major affordable housing development spread across diverse sectors of Pune. Locations like Sanaswadi, Lonikhand, TalegaonDhamdhere, Shikrapur on Nagar Road and Shirwal towards Satara are also booming industrial hubs. Other locations such as Moshi in Pimpri- Chinchwad, Pirangut on the Lavasa Road and Kirkitwadi ahead of the Sinhagad road are seeing more and more development activity.

Interestingly, there has been compelling growth in the high-end segment as well with luxurious 3-4 BHK homes. The luxury homes segment has been burgeoning on the Pune’s real estate market, to capitalise with many large players entering with projects.

Movement of large IT and software companies to Pune and increasing salaries have led to a surge in demand for luxury housing in the city. the purchasing power of the mid – class home buyer has gone up, enabling them to opt for a good lifestyle. The consumers are now global citizens and want to have the same finesse in their homes that they have experienced abroad. They are constantly looking at upgrading their lifestyle. They need a home that showcases their growth and inspires them. Thus, demand for luxury homes is high. NRIs are also contributing to the growing demand for luxury properties in the city.

Could you provide us an insight about your Backward Integration Model (BIM)?
Sobha has built-up in-house proficiencies to meet all crucial aspects of construction. With in-house Design Studios and a trained and skilled work force the company has the finest talent and technology. Sobha Ltd is perhaps the only construction company in India and the world that has all its activities fully backward integrated.

Augmented with architectural, mechanical and electrical expertise for design and execution, its other manufacturing facilities produce interior, metal and glazing and concrete products. The factories are state-of-the-art and have a built up area of over 600,000 sft, comparable to the best the world over. With such superior infrastructure in place, quality of the end product and its timely delivery is achieved. We at Sobha believe Backward Integration is the way forward. Backward integration is what drives the organization’s turnkey projects. In a turnkey scenario, we bring the expertise of all our divisions to focus on every single aspect of a project. In other words, everything from precision engineering to aesthetic design, from quality metal glazing to high-class interiors is done in-house. This allows for stringent control on quality, which in turn gives our customers a fine combination of precision and aesthetics. The Infosys centers in Bangalore, Mysore and several other cities are fine examples of our expertise in turnkey construction.

How far your BIM concept has helped in reducing construction cost?
Though the BIM model does not impact direct cost of construction. It reduces indirect costs over the long run as repair/maintenance/rework costs are extremely low due to the excellent quality. It also reduces indirect costs as timely completion of projects is possible due to the BIM.

What kind of challenges do you face in implementing your real estate projects?
India has huge potential to attract large foreign investments into real estate and there are enough opportunities to be tapped. But this sector is still in the stage of developing. Approvals and procedural difficulties, rising manpower & material costs are some of the major challenges we face. Then there are liquidity risks, since Investment market in India is at an infant stage. The time required for liquidity of the real estate property depends entirely on the location and quality of the property. There are macroeconomic risks like inflation, exchange rate risks, interest rates and the provision of facilities like transport facilities are inadequate in many regions. There is also a lack of information and low transparency in the real estate sector which is a very big challenge for us.

As the country prepares to develop 100 Smart Cities. Could you tell us the most significant aspect of building a ‘Smart City’?
A smart city is one that is connected, has high living standards and uses technology as its backbone. Smart cities are connected with the Internet to enable more productivity, features and efficiency in the daily lives of the inhabitants. Transportation, energy utilities, buildings, and security are some of the aspects that need to be smarter and driven by technology and automated processes.

Typically a Smart City would mean use of Internet of Things (IoT) technologies, use of various IT systems to make things much smarter. Getting that last mile connectivity and getting things fully automated is going to be the most important aspect of labelling a city smart.

An ideal way would be to create a model ‘Smart City’ that can be replicated across the country.

What kind of approach do you recommend for the Government to successfully implement ‘100 Smart Cities’ project in India?
Modi government’s announcement for building ‘Smart Cities’ is definitely a good idea. It is a way to deal with the country’s rapidly urbanizing population. However, how will it be done, what will be the specific vision, what needs to be done, what kind of projects need to implemented, what kind of partnerships will it entail, what services will it bring…these details need to be worked out by the government.

Could you share with us your future plans and projects?
After establishing ourselves in the Pune market with four successful luxury projects in Kondhwa, we are on a highly aggressive growth path. We plan to launch a high-end luxury project in this year, that will be launched in the coming months. This project located strategically at Kothrud will bring lifestyle living to Kothrud in the true sense. Apart from the hallmark Sobha quality and internationally styled towers, it will have a world class lifestyle club to which the residents will be given a lifetime membership.

What’s your take on reducing the housing deficit in India?
80% of housing deficit in India is concentrated in the economically weaker section (EWS) of the Indian population. Apart from the income of the EWS that seems to be a deterrent, Land prices, financial and regulatory concerns and other factors also play a big role in the problem. Another problem is the lack of infrastructure. Developers are bringing out projects in semi-urban locations to keep the housing cost down, but these locations are generally unattractive based on lack of public transportation and increasing pollution in these areas.

Now-a-days land acquisition is one of the most tedious task. In most cases, acquisition of a plot for housing development is a cumbersome, time-consuming and highly expensive process. With increasing population and rising urban density, the demand for land has also seen an exponential rise. The shortage has also been contributed to by poor municipal, state and central regulations. In order to reduce this gap in the demand and supply of houses, the Center, states and real estate sector need to work in tandem to build low cost housing.

What your view about RBI’s recent move in maintaining the status quo with regard to the anticipated interest rate cut?
The move by the RBI to maintain the status quo with regard to the anticipated interest rate cut is absolutely logical. In view of the need to curb inflation, which has remained tenaciously high, there could not have been a possibility of a cut in the interest rates.

The deficiency in monsoon this year leads to a surge in food inflation and affect growth adversely. The RBI is clearly not willing to take any chances with food inflation. We support this move by the government and Steps taken by the government to manage food inflation should be followed up with close coordination with the states to ensure that the impact of the same is seen as soon as possible. The interest rates can be reduced once inflation is under control.

What needs to be done by the Government of India to boost overall economic growth?
The 10 points agenda provided by the new government is inspiring and would go a long way to foster strong, stable and inclusive India. Reforms in infrastructure and investments would make India an attractive destination and improve its international competitiveness whereas focus on education, health, water, energy and roads will improve the quality of life and standards of living and improvement in overall human development of the country. Currently many projects which have been cleared by Cabinet Committee on Investments (CCI) but have not been rolled out due to lack coordination between central and state governments while giving clearances and implementing projects. Hence, time bound single window system of clearances at centre and state level should be undertaken on top priority. The government’s agenda to control inflation, poverty elimination, state specific development, development of agricultural infrastructure and agricultural technology, predictable, transparent and fair policy environment and effective governance would foster abundant economic growth that is desired.

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