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Interaction | February 2014

We need single window clearance for real estate projects

ASK Group had to take at least 40 approvals from the government authorities for its residential projects. As a result, what earlier used to take 6-9 months, today requires more than 12-18 months, says Sunil Rohokale, Managing Director and Chief Executive Officer, ASK Group, in an interaction with KARTHIK MUTHUVEERAN, while speaking about how delayed approvals hamper projects.  

ASK Group has been in the news recently for raising $50 million through an offshore real estate fund. Could you tell us more?
 ASK Group in on the road to raise its first tranche ($50 million) of $200 million from an offshore real estate fund. The offshore fund, which has a target corpus of $200 million, is advised by ASK Property Investment Advisors (ASK PIA), a Singapore-based company, and the real estate private equity firm of our Mumbai-based financial services group. ASK PIA is the investment manager for this fund. The subsequent amount [$150 million] could happen in the next 9-12 months. We expect the goal of $200 million to be achieved by March. In the future as well, we will keep raising money. The company will open its offer for subscriptions from Q1CY14.


Where would you like to invest this particular fund?
 The fund is focused only on residential projects. These segments are in five cities: Mumbai, Pune, Chennai, Bangalore and Delhi. Our projects are focused only on mid-segment residential groups. The funds that we have raised will cater to only Rs 4,000-4,500 per sq ft apartments and about Rs 8,000-8,500 per sq ft in Mumbai area.


Are you targeting metro cities only? Are there any plans of funding in Tier-II cities as well?
 Yes, as of now, we are targeting metro cities only. We feel that this sector is more stable and it has been generating continuous demand. This sector is growing at a fair pace as most of the buyers in this segment are first timers. Another reason why we target metro areas is that infrastructure is better in these cities. However, in other cities like Nashik, Bhopal, etc., this is not the case. We find it difficult to manage such large funds in those areas.


We raised the first fund in 2008 and then the second lot of Rs 350 crore was funded in 2009. These fundings were focused on the same strategy -รป five cities, residential projects and mid-income groups. We have so far invested more than Rs 1,000 crore in equities. However, the strategy has remained the same for the last five years.


In today's scenario, investing in real estate doesn't look like a very good idea. In this tough scenario, what was the rationale behind coming out with real estate specific fund raising plans?
 I agree that the real estate scenario in India looks very bleak. In the current situation, affordability of homes is very tough. That is where the size and the price of the apartments matter the most. If you build a luxury house of around Rs 20-50 crore, then I agree with your statement. But if you build 700-750 sq ft apartments of about Rs 25-30 lakh, then the problem doesn't arise.


The problem mostly arises in luxury projects, retail malls, office spaces, etc., where there is huge investment involved. According to some statistics, sale of apartments in Mumbai has seen a huge growth as compared to the previous year's figures. Even banks are growing at about 17-18 per cent in mortgage loans.


Private equity does not take a view of 1-2 years, it takes a period of 5-6 years. It is predicted that in another year and half the prices are going to remain the same or even come down by 10 per cent. So, when an investor buys an apartment, we have already booked a profit of around 25-30 per cent. When the price increases, we get more returns, and when the price doesn't go up, it doesn't matter to us. We get a fixed amount of returns on most of the projects. In fact, private equity is invested only when the risk perception is high.


Some of your competitors are coming out with city-centric funds wherein they are funding redevelopment and slum rehabilitation projects. Are you planning to raise funds in that segment as well?
 We have a redevelopment project with Godrej Properties at Chembur, a Mumbai suburb. The project with Godrej is for the redevelopment of Sahakar Nagar, which is a MHADA building. The project, spread over approximately 14,600 sq m, will offer approximately 600,000 sq. ft of saleable area and is proposed to be developed as a modern group housing residential development comprising 2, 2.5, and 3 BHK apartments.


We think that the Chembur area is growing at a very fast pace. Our opportunities are very clear. If our opportunities fit into the segment, which I mentioned earlier, we will definitely invest in it. It doesn't matter whether it is a slum redevelopment project, it should be a residential project which caters to middle-income groups.


At the same time, we don't go for homes, which are below the range of Rs 4,500-5,000. The margins for these homes are very less. If the interest rates goes up, cost of the construction goes up or even if the project gets delayed by a few months, the margins evaporate. Hence we are not looking at that segment, which is currently the need of our country.


What are the major challenges that the industry faces?
 There are two major challenges that the industry faces. One is the from the end of the developer, wherein in residential projects right from the stage of acquiring of land till the stage the apartment is sold out it used to take 6-9 months before, but today is takes more than 12-18 months. The clearances required from different authorities take a lot of time. Delayed approval is the major challenge that the entire industry faces. We need to take at least 40 approvals for any residential project. The real estate industry doesn't have a single window clearance, and we need one to expedite these projects. There have been discussions on this issue, but nothing has materialised yet.


The second challenge is: when we invest in any project, we push money in the form of dollars and that gets converted into rupees. After the sale of the apartment, the rupee received is once again converted into dollar. The dollar converted four years back for about Rs 45. But due to the weakening currency, the margins get reduced, because the dollar rate today is about Rs 62.


What are the projects that you are currently working on?
 We are working on several projects. Last year, we had invested about Rs 50 crore in a project in Gurgaon. We have also invested Rs 110 crore in Mantri Developers in Bangalore, and about Rs 100 crore odd in Shriram Properties.


The last year was bad for the entire real estate industry. How was the year 2013 for your company? What are your expectations from 2014?
 As far as 2013 is concerned, it was a very good year irrespective of the global meltdown, and irrespective of the risk involved and weakening currency. When there is no money in the market, your chances of getting good percentage is very high. We were able to get much better investment opportunities in 2013. As a company, we also got a chance to flow our offshore fund.


2014 will provide lot of opportunities for investments. It can be a partial year for the entire economy, but for private equity, 2014 will bring in enough opportunities.


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