Recovery will reflect in real estate

 

David Hunter, a non executive director of Yatra Capital, the only Euronext, Amsterdam-listed Indian real estate specific investment company, was in Mumbai recently.

Yatra has committed 175.89 million euros in 16 projects and is planning to invest another $100 million through its new equity fund, Saffron India Real Estate Fund (SIREF).

Hunter spoke to DNA Money's Pooja Sarkar about the company's plans. Excerpts:

What is your outlook for the real estate sector in India?
I come from the UK where the market has dropped 40% in value and I arrived here feeling pessimistic about the Indian market. But, the situation here is not as bad as in the UK or the US. In the medium term, there should be plentiful of debt for real estate projects. Your job markets are nervous; people who are buying houses are concerned, but in the medium term, people will need housing, so the situation will recover.

With 'medium term', how many years do you predict?
The recovery will show its first sign in 2009 and that will immediately reflect into real estate market. I am optimistic about our development projects which will come up by 2010-2011.

You have invested 81% of your corpus. What happens to the rest?
We never invest completely; a company must be mindful of cash flow. We will carefully invest some of it in new projects and some of it might be needed for existing ones. We will keep a chunk of it as working capital. We also have SIREF and we are looking at potential investments and we hope to do it shortly. Yatra and SIREF are in an interesting position.

You have been speaking to developers. What concerns them most?
The biggest concern has been the occupiers – office and retail occupiers. That's where we have said, "don't worry let's just pause". We think markets will improve. So let's not push it and lease every shopping mall where there is no demand. Let's wait for six or nine months. And that's the biggest concern I am hearing from them. At the start, we want to pre-lease 50% but we don't want to do that for any price. Everybody is getting the message and we are giving clear guidelines on what is acceptable and what we can accept. We are working together.

You have invested in Parsvnath's Bandra-Kurla Complex project, what is happening on that end?
We had a discussion about the BKC project… we are reviewing the project so that we can look at the correct timing of participation. A minimal amount has gone for the project. Because markets have changed, I can't tell you when the execution (of the project) can start. I am hearing about changes in the market and we obviously have to be very careful about getting the timing right. So, we will be talking to our partners what the best route forward is.

Yatra had invested in three projects in Kolkata, what is happening on that end?
Taj hotel project is proceeding well in Kolkata. The other two (IT SEZs in Bantala and Batanagar) we are looking at best options for them. We met both the developers and had a long conversation. They are different products and in different parts of the market. And we need to look where the demand is in each case. So, we are working on phasing, putting up one building and then see how the market is again they are under review in terms of timing of developments

How much return do you expect from your investments?
Yatra quoted 25% when it raised money from its investors. My deal is that over the medium term, in next five to seven years, we will deliver 25%. I am not at all concerned about the markets, and in the long term, the projects and the market are good. SIREF, I expect, will deliver higher than that and we are entering potentially at the bottom of the market.

Net asset values (NAVs) have come down, do you see any recovery?
My view is that the NAVs are behind the market. The real market is falling and the NAV is falling slower. The next phase of NAVs would be realistic and there will be a platform to go forward from. I don't think it's going to go down forever. The question is to get to a point where people will think, okay, it's not going to fall from here and we can move forward. We aren't there but we are getting there.

Retail is one of your main domains and in the present scenario people are running away from it, how are you coping with the situation?
One of the issues with malls in India is there aren't enough entrants in the retail market. I think we are going to see a strengthening of the occupier market. We have to respond to the needs of the occupiers' demand within reason. So, if they want slightly lower rent we can look at that, but what we have to maintain is the long-term value of our asset. Today, the scene is very difficult for retail, so let's wait for six months. The deal that we have done with retailers is on affordable level. In the Indian retail market, very greedy deals have been done by developers, which are unsustainable. We don't want retailers to lose money. Malls are intended to be profitable for retailers.

Are you planning to introduce any new pricing model from the international market in India?
We have to make sure that the end investment is internationally acceptable as an investment product. My own view would be that pure revenue-sharing model is less valuable in the international market. The model which has some strong core rents and perhaps a revenue sharing element, would work. From my experience elsewhere, some revenue sharing is a good thing. It's an alignment between the retailer and the investor. But as the owner of the shopping mall, we have a bank debt to pay, we need to know some security of the income or we won't be able to raise the capital and build and run these shopping malls and retailers need to understand that.

You are trying to raise some money in about 12 months. Where will the money come from?
The West, basically Europe, the US and the UK. Our existing investor base has the potential to give us more capital. They are big institutions; if they like what we are doing with their money, it's a drop in the ocean for them to double their investments. We are in a position to be seen as a successful investor in a year's time as we are starting to complete products as people like to see tangible products.

What's next on your radar?
Affordable residential housing, logistics, infrastructure, get the money placed, work through our existing business plan and then probably, in 12 months time, raise more capital.