Why Shriram Properties will continue to maintain no inventory
Murali Malayappan, CMD, Shriram Properties, says understanding the science of real estate development will only foster growth and acceptability
In the first 10 minutes of the interview, Murali M, CMD, Shriram Properties, has twice debunked the notion that the real estate market is in a slump. His peers, when they read this, would possibly raise their brows. At a time when most developers are reeling under growing inventory, Murali has been selling apartments at a faster pace than he builds them. Not only that, he has been announcing new projects across cities where he has a presence.
Ask him about it and he says candidly, “For long, there’s a pithy maxim in our business. Give the customers what they want. Going against market demand and trends is not in anyone’s interest.”
Consider this: About 85% of real estate in the country is sold in the 10 large cities such as Bangalore, Chennai, Mumbai, Hyderabad, Pune, Mumbai, Delhi, Noida, Gurgaon and Kolkata. “One has to identify and discern the different segments of commercial, hospitality, residential and know what will work. A residential building will sell quickly if one does the math to figure out how much commercial real estate was sold. That tells you with more offices in the area, there will be demand for housing,” he adds.
Today, the developer has a total 54.87 million sq-ft either under construction or in the pipeline, across 31 projects.
Build, build, build
There is a pyramid to building housing, which is common knowledge. But Murali takes it a step further. “The EWS has huge demand, but poor supply. Demand for affordable housing is again high, but few cater to this segment. If you dissect the portfolio of large developers catering to the mid-market segment (and also affordable), they have practically zero inventory. In fact, the inventory that everyone talks about is in the luxury segment. And the reasons are obvious. The real estate business is not cyclic. It is the luxury housing segment that is cyclic,” he says firmly.
The soft-spoken Murali says assuredly that demand for mid-market and affordable housing will never diminish. He has done the math. “Today, I say that the next 20 years will see steady or rising demand for mid-market and affordable homes. If you were to ask me 20 years hence, I would again speak for the next 20 years. That’s how this equation work. If a developer has earned a reputation for good construction, people will continue to buy from them,” he adds.
Since setting up operations in 2000 in Bengaluru, Shriram Properties has constructed more than 128.6 lakh sq-ft and has 220.5 lakh sq-ft under construction. It has expanded its presence to other cities in South India such as Chennai, Coimbatore and Visakhapatnam. Recently, it even went East to Kolkata where the developer has an ongoing mixed-use development. With more than 25 projects standing, Shriram Properties has earned a reputation of not only completing projects before time, but also adhering to quality.
The astute businessman is constantly on the lookout for land. The scarcity of land for development is a constant scramble for developers in metro and Tier-I cities in India. Murali is no exception. In 2018, Shriram Properties signed pacts with numerous stakeholders to acquire 10 stressed assets of developers in Chennai, Bengaluru and Kolkata. The idea is to earn revenue through developing and managing the stressed assets for a fee.
The developer is also in the news since it announced floating an IPO. The Rs 750 crore it hopes to raise through this will be mainly used to pare debt and the rest will find its way into projects. Murali says, “We expect to see a large-scale revival in terms of buying sentiments. There is a sense of anticipation from the Union Budget that it will tilt towards buyer-friendly policies. We are waiting for the Budget before floating the IPO.”
Tearing up the rule book
Real estate development as a venture is smooth if the developer has funds to complete a project and buyers buy. Just like his peers, Murali is constantly seeking out investors, particularly large ones. “There is plenty of capital availability in the market. There are investors who are sitting on billions only for real estate investment. They spread their risks across developers. Today, the RERA effect has created a consolidation and they now bet only on a few reliable developers. Most of them seek out developers who have adopted good governance in their business,” he says with a smile.
Private equity firms such as TPG Capital, Starwood Capital, Tata Capital and Walton Street Capital who hold a combined nearly 58.34% stake in Shriram Properties are also known to back the developer through ventures.
He agrees that the market has huge potential. “If you consider the Housing for All, there are still millions of houses that are waiting to be built. Developers should consider the demand and launch projects accordingly,” he adds.
Shriram Properties is perhaps one of the few developers with a reputation to complete projects ahead of time. A strong back-end mechanism that allots resources to the project till its completion, assured finances at every stage, professional management and an executive committee monitoring progress at every stage ensures completion and hand over. Yes, he admits that there have been delays at times, but it’s mainly outside factors and policies that hinder progress. “There is so much unprofessionalism in real estate. People who own land or aggregators have turned developers. So is the case with contractors and agents. The science of real estate development is lost,” he says with a shrug.
As a professional entrepreneur, Murali is careful to ensure that the business does not see cost overruns, one of the root causes for delayed projects. A solidly built team of product planning and value engineering ascertain smooth functioning. In the last one year, the company has tied up with Mitsubishi Corp and LIC Housing Finance to build a portfolio of projects in the South.
The development management model, a concept unique to Shriram Properties, functions like a well-oiled machinery, and one pioneered by them. Says Murali, “The development management model is what gave us an additional source of revenue. Under this model, which we adopted a little more than two years ago, we approach smaller developers who may not have the wherewithal to manage a project successfully without going overboard on costs and other things. This way we stay asset light and also offers us a deeper experience. Today, 27% of our revenue is accrued from the DM model. We have several such ongoing projects where we have adopted the DM route.”
He is also keen that the government not only look at streamlining the sector and offer sops, but also change the history of the game. “Most projects take years to see the light of day because half the battle is in clearing land titles. We clearly need reforms for land and labour as real estate offers a sizeable chunk of revenue to the government. It’s to help the smaller developers we took on the DM model,” he says.
Creating a future
Among other things, Murali is also a hunter for new technology. However, he laments that anything novel introduced takes 10-15 years to find ready acceptance. “India has not easily or quickly adopted technology in construction methodology. Whether it’s a culture among us, or we are just averse to experimenting with something new, I am unsure. At Shriram Properties, in spite of constructing mid-range developments, we have scaled to adopting refreshing ways of construction that has reduced the construction timeline by 33-40%. Even within that we have adopted automation wherever possible,” says Murali. For instance, Phase I of residential project Shriram Park 63 in Chennai will be delivered six months ahead of the planned schedule. The Phase 1 will see the building with 883 units and 10 towers of 14 storeys each.
As a rule, Shriram Properties has sought out professional help for its installations and painting. It has aided in reducing labour involvement at site to 10-12% from 40% earlier, while completing projects faster. The trained manpower are required to come in at a relevant stage of a project and do their fittings. Not for him creating joblessness in the country. “The labourers who worked at site are now gainfully employed in factories churning out components for construction. They have moved up by gaining an additional skill,” he says with some satisfaction.