TiE-ISB Connect 2006 - Real Estate and Infrastructure Track Summary

The RE and Infrastructure Track was held on September 21, 2006 from 3pm to 530pm.. The track comprised some prominent industry professionals and was introduced by A.J. Jaganathan, Director with Indu Projects. Jaganathan discussed that in most countries infrastructure precedes real estate development rather than following it. Since in India the opposite is happening, it poses challenges in terms of provision of organized and quality developments.

Speakers for the track:

·         Manisha Grover, national Directo, Head Strategic Consulting & Research Jones Lang LaSalle India

·         Prakash Gurbaxani, CEO TSI Ventures

·         Ashish Chandak, Lead Specialist Business Development (Industrial and Commercial Infrastructure) IDFC

·         Kiran Kumar Gandhi,  Managing Director GMR Hyderabad International Airport Ltd – Keynote Speaker for the track

Panelists

·         I. Shyam Prasad Reddy MD & CEO Indu Projects Limited

·         AJ Jagnathan, Director Indu Projects Limited

·         Ram Pujari, Director and Group CFO Indu Projects Limited

·         Mr Hariharan, Ex-Chairman Andhra Pradesh Infrastructure Authority

The first speaker of the track was Manisha Grover. She provided an analysis of the Indian real estate scenario and the key drivers that are going to determine its long-term growth. She also provided a sectoral overview of the followed by investment trends. The presentation pointed out that there is currently a substantial mismatch between the micro level markets and availability of infrastructure. Manisha Grover pointed out that rental yields in major cities in India were showing downward trend, which was likely to continue with increased standardization of products and supply moving from tier 1 to other tier cities.

The other key trend of the real estate sector in India is transformation of development companies. There was “paradigm shift” with companies increasingly asserting a national presence as opposed to localized / regional influence. This was likely to further the standardization of products across different sectors.

Prakash Gurbaxani followed with his presentation. The presentation focused on the changing scenario of the real estate sector in India and the challenges and opportunity this provided. Some of the key challenges for the sector were identified as:

·         Fragmented and largely unorganized industry

·         No National Players yet

·         Industry not known for focus on Quality and Customer Experience

·         No organized investment structures (REITs etc.)

·         Land laws archaic

With respect to the opportunities, Prakash Gurbaxani pointed to with a total market size of Rs 600 billion with an annual growth of 30%, all sectors were open to opportunities but the industry will need to fine tune both the financial and regulatory aspects of development. While the financial mechanisms were increasingly being put in place with new investment avenues such as REIT, REMF, and adoption of world-class processes; the regulatory processes such as archaic laws, high stamp duties, lack of defined exit routes, low supply of government land and restrictive FDI regulations still acted as an impediment for the industry.

Ashish Chandak provided a comprehensive overview of Indian infrastructure scenario. He corroborated A.J. Jaganathan’s comment about the need for infrastructure to precede real estate in India. However, he went on to add that “India had arrived” and had made quantum leaps with respect to its assessment of its infrastructure and recognizing the critical role infrastructure is likely to play in the overall development of the country.

Some of the key risks likely to hamper growth of the country were identified as:

·         Oil prices

·         Interest rates

·         Infrastructure shortfall

·         Fiscal slippages

·         Reform slowdown

Ashish Chandak pointed out that infrastructure is the “backbone” of the country’s development and needs to be priority. He also mentioned that for this happen, financing of infrastructure needs to move from government centered projects to more public-private partnerships. While this had started to happen in some sectors, the need and pace of the financing activities and PPP model of development needs to keep pace with demand.

Mr Chandak discussed the progress made in each sector of infrastructure and pointed out the need for liberalizing the real estate sector as well as the need for stronger capital markets in order for the sector to really take off.

Mr Kiran Gandhi, the keynote speaker for the session, shared his experiences of Delhi and Hyderabad and some of the key challenges he has faced and the opportunities he saw in the near future. 

Some of the key messages from his discussion include:

·         Sustained investment in infrastructure and real estate can alone hold India’s GDP growth at 8%

·         Indian infrastructure and realty sector today, is in the threshold of liberalization

o        There is an immense opportunity for the professional talent, which is an outcome of increase in emergence of these projects. One of the key challenges going forward would be talent development and management

·         Opportunities are immense, yet infrastructure & real-estate is an unexplored entrepreneurial domain

·         New cities need to be developed around the major metropolises in order to sustain the high growth projections and the subsequent demand it is likely to pose

Kiran Gandhi spoke about how Hyderabad was on the forefront of the development process engulfing India and could provide the right benchmarks for the country.

After the keynote speaker, the panel convened to discuss the presentations from the speakers. Mr Hariharan, based on his experience as the Chairman of APIDA, spoke the need to garner political influence in order to move things forward. He also mentioned that any future model for development will need to be growth oriented and co-opt the public sector.

Mr Pujari, speaking from his experience as the ex-SBI officer with more than 24years of experience with international banking, risk management, and asset liability management provided a more financial point of view to the proceedings of the panel. He started the discussion by pointing out that risk should be viewed as a possibility / opportunity. However, he also discussed that asymmetry of information in this market was likely to cause imbalance in development and there was a critical need to build better databases for the industry, which will serve the industry going forward. Some of the key points of discussion were:

·         Quality of information will be one of the biggest challenges facing the industry

·         There was need to build talent in the sector and increase the human resource capabilities

·         Regulatory risk posed one of the biggest risk in the development of the industry

·         Financial risk comprised largely of poor availability adequate debt in the organized market for the sector

The panel concluded with answering audience questions. Mr. S.P. Reddy Indu Projects thanked the participants for sharing their insights with the track.