Track2Realty Exclusive:

In the realty sector where a majority of operations are based on exchange transactions – adoption of transparency standards in interaction with investors and stakeholders alike, are major advantages that will help avoid a system break down.

With some regulatory changes having taken place in the sector over the last decade, there is increased investment in the sector, along with heightened competition and increased number of consumers that need to be catered too. Given the attractiveness of the sector to investors and businesses alike, over the last few years we have witnessed some large existing business houses and corporations foray into the sector and diversify their business lines.

Sachin Sandhir, Managing Director, South Asia of RICS is of the opinion that these, corporations are steeped in sound corporate-governance practices, which are implemented and advocated to boost investor confidence and enhance the credibility of the organisation, leading to lower capital costs and increased foreign direct investment.

“In fact, there are several organisations within the realty space that have made great progress in providing their institutional investors with the level of information and disclosure that is a prerequisite for an open dialogue and long-term relationship. Therefore, these new corporatized real estate businesses instantly draw on the strength of their brand positioning and attract their existing customers, on the premise that ‘quality’ is never a compromise and have definitely changed the outlook of the realty sector in the country,” says Sandhir.

Critics, however, assert for Tatas, Mahindras, Godrej, real estate had never been the real forte. Is it just greener pastured driving them? Experts believe there are various regulatory stipulations and hurdles that continue to exist in the sector; whereby company promoters, stakeholders, and business leaders continue to have to make complex decisions that direct the destiny of their overall business operations.

In doing so, they may have to discharge some essential, interrelated tasks which are the foundation for building trust in corporate governance and addressing questions of corporate accountability.

…..to be continued

Track2Realty Exclusive:

The award winner in any given area has to have a crowd pleasing (read customer satisfaction) choice and not the whims and fancy of the organisers. Has any of the award jury in real estate ever gone to cross check the customers’ experience of these realtors? Most of the award winning realtors have piles of cases pending, ranging from law enforcement agencies to consumer courts.

Since many of the developers have not been able to meet up with the growing demand of the discerning home buyers, they seem to have taken a trophy route to glory which, at times, comes handy to impress the end-users and the investors in the market.

Most of these awards have absolutely no evaluation procedure to comply with the users’ experience. As a result, despite of bagful of trophies in the kitty, realtors are often short of consumer confidence.

If CIA could rig a Nobel Prize in 1958, Indian realtors’ sense of sponsored glory is not going to hurt the global economy or polity, at least. It may hurt the greedy investors have already burnt their fingers in the Indian realty market, but where such awards are going to hurt the most is the gullible home buyers who often take the credibility of the developers on sheer face value that has stamp of award writ large.

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The OFS, to take place on May 21, 2013, will see promoter companies Constellation Capital Ltd and S.A. Finvest Ltd; offload 25 lakh equity shares each of Rs 10 each, aggregating to 50,00,000 equity shares (representing around 2.88 per cent of the paid-up equity of Omaxe Ltd). It will take place at the separate window of the BSE and shall commence at 9.15 am and shall close the same day at 3.30 pm.

The OFS is being launched to meet market regulator SEBI’s norm on minimum 25 per cent public shareholding by June 30for private sector listed companies

As on March 31, promoters had 89.14 per cent stake in the company. Thus promoter companies will sell a total of 50 lakh shares, worth Rs 74 crore, on May 21, through the offer for sale route (OFS). After the sale of 50 lakh shares, promoters’ stake would come down by about three per cent to about 86 percent.

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The issue is when the award is being thrust upon by the industry stakeholders and the developers ever ready with a “beg, borrow or steal” spirit, the question of ethics and objectivity more often than not takes a back seat.

Sachin Sandhir, Managing Director-South Asia of RICS agrees that there definitely is an element of subjectivity and a fine line, when industry stakeholders organise awards – as it can lead to a conflict of interest.

“There are some bad examples that exist, however in the long run such awards cannot remain sustainable and will find few takers. Only those awards that provide an equal opportunity to all competitors and contemporaries, which are based on stringent evaluation criteria and a transparent process and backed by a reputed and respected jury panel, will be able to make a long standing mark on the industry. Only such awards will instil trust, draw the respect of stakeholders and be valued by the industry and consumer alike,” says Sandhir.

Ashwani Prakash, Executive Director of paramount Group believes the sector is going through revolutionary changes and it will be more creditable if independent awards are also instituted rather than just industry stake holders organising it. He, however, defends such awards saying while confirming an award to a project the USP and qualities of the projects are also revealed by the awarding organization. Buyers being a well-informed group nowadays, after going through such information evaluate the project and naturally derive confidence which ultimately affect the buying psyche of a buyer.

“An award to any real-estate project is conferred after it is evaluated on different yardsticks by the awarding panel. Any award conferred on the project definitely adds value to the project and at the same time explains the USP along with the other specialties of the project which had made the project an award winner. An award to a project at the first instance is a brand driver, once the brand is established and the philosophy of the promoter-developer and the quality of his product is known to the market it also becomes a sales driver,” says Prakash.

However, any neutral observer who has not been exposed to the murky world of real estate can make out that the awards, if not completely rigged, has got categories just so narrow that pretty much everyone comes out with an award.

How else could one justify a small developer with a standalone mall in Ranchi of the size of a local shopping centre coming out with a trophy that suggests he has innovation as his claim to fame in realty business?

…..to be continued

Track2Realty Exclusive:

Vipul Bansal, the Joint Managing Director of Mumbai-based Indiabulls Real Estate, who spent seven years with Indiabulls group, joined another developer DB Realty in Mumbai as its Chief Executive.  Rajesh Jaggi, Managing Director of Ashok Piramal Group Company Peninsula Land who was with the group for 14 years, moved to Everstone Capital, a fund management company promoted by Sameer Sain, as Managing Partner of the real estate business.

Among the real estate funds, Ramesh Jogani, Managing Director and Chief Executive of Ajay Piramal Group’s Indiareit, quit the firm to set up a venture. Jogani was a property developer before joining the fund manager.

Shishir Baijal, Partner, Everstone Capital, joined Indian arm of global real estate consultant Knight Frank as Country Head and Managing Director after its Chairman Pranay Vakil retired and its Vice Chairman Pranab Dutta was made the Chairman.

Even consultants have seen top level changes. In May, Sanjay Dutt, the Chief Executive at Jones Lang LaSalle (JLL) quit to join another consultancy Cushman & Wakefield as Executive Managing Director. In June, JLLI announced it had hired Cushman’s Anurag Mathur as its new CEO, Project and Development Services and Head, Emerging Businesses.

The question is why so much churn in a sector that craved for professionals to bring on board in its quest to emerge professionally driven only recently? E Balaji, Chief Executive and Managing Director at human resources company Randstad India, links the churn with the slowdown in the sector.

“One broad inference is that when a sector is going through difficult times, when sales are down and profitability is under pressure, companies make managements accountable for that. They expect quick turnaround and such churn could be a result of that,” Balaji adds.

Some others say the growth and maturity in the sector is responsible for the churn. At least half-a-dozen big realty companies, namely DLF, Oberoi Realty, HDIL, Godrej Properties among others have tapped capital markets in the last six years and listed on the stock exchanges.

“The industry is getting deeper and wider. It has really developed over the last seven years. Earlier talent used to come from outside. Now it has grown large enough that talent within is moving around,” says Dhanpal Jhaveri, Partner and Chief Executive at Everstone Capital.

According to Pranay Vakil, former Chairman of Knight Frank India, “Though I do not have an answer for the sudden churn in the sector, I believe the sector has matured now and enough talent with adequate experience is available now.”

V Hari Krishna, Director, Kotak Realty Fund, refers to the churn in the property funds as a “seven year itch”. “Since lives of most funds are coming to an end after their 7 to 8 year fund life and most of the guys had been there for that long, churning is bound to happen,” Krishna adds.

Why then are top executives hopping from realty companies to private equity and from PEs to consultancies?

Says Vakil, “Developers, funds and consultants are very well related and it depends on what side of the table you sit. If you sit on one side of the table, you can understand how the other party reacts.”

Having a professional team adds to the overall reputation of the company, even in the eyes of private equity funds and other investors. But with private equity funds deserting and investors preferring to be directly dealing with the promoters of real estate companies, the dynamics of a professional management at the helm of affairs is also changing.

The debate whether promoter-driven or professional-driven is a never ending one in the Indian real estate since promoters are mostly first generation entrepreneurs and have tested the professional management only in the last few years. Some of them still have a positive outlook, while many others seem to have burnt their fingers as well during the downturn.

Many of these developers are hence making strategic shift in their management policy with decisions yet again being vested with the promoters and pink slips to those who proved to be of mere ornamental value to the company.

]]> http://www.track2realty.com/promoter-or-professional-driven-iii/feed/ 0 http://www.track2realty.com/most-awarded-yet-least-reliable-realty-awards-misleading-i/ http://www.track2realty.com/most-awarded-yet-least-reliable-realty-awards-misleading-i/#comments Tue, 14 May 2013 15:01:09 +0000 Track2Realty http://www.track2realty.com/?p=8576 Track2Realty Exclusive: Awards have often been the source of sulking within the business community. However, when it comes to real estate, one has got absolutely no reasons to sulk as awards are not just rigged but customised for the companies at a cost. Track2Realty finds while some buy it for recognition, brand promotion or just notional value; others dismiss the offer being aware that m0re than they needing the award, such trophies need their brand value for establishing credibility.

No wonder, while these award shops nowadays even travel tier-II & III cities for greener pastures, they compete among themselves to emerge as the numero uno of the award market.

Ritika Dhawan went on a house hunting spree in one of the most upcoming locations of Gurgaon, only to find that the location was manipulated by the property sharks who are misleading the gullible buyers and promoting a handful of developers’ projects who were offering good commission to these brokers.

With no trust on the brokers and herself having no background whatsoever of property market, she decided to do her own research & Google search about the credibility of the developer before putting her hard earned money.

Her search ended with the developer who could boast off as the “Most Award Winning Real estate Company”. However, it turned out to be one of the most repentful decision of her life and the trust that she could inspire with the award winning realtor was soon exposed to be a case of trophy in the greedy hands.

Industry insiders admit this is one of the well-known secrets of the sector which in the world of real estate is something that everybody knows but nobody admits.

Many of the award winning realtors don’t have even one flagship project to showcase but the overt branding packaged with a trophy lures the end-users and the investors alike. The moot point is whether an award, a trophy or a citation is a sales driven exercise or a brand driven exposure?

Some of the leading developers privately admit they stay away from the awards in the wake of realty awards getting bad press for rigging more often than not.

Requesting anonymity a Mumbai-based leading developer rather questioned why should realtors be greedy for awards anymore. With so many awards happening, it is the organisers who now need developers to buy the trophy and they are ever ready to customise even the category of the award to suit the business interest of the developer.

“More than we needing awards, nowadays awards need us,” is what this developer candidly said. Market leader DLF also dismissed the idea of getting any facelift with the award.  “For DLF, the satisfaction of all our stakeholders including customers is more important than any award. It gives us immense satisfaction when the value of our property appreciates,” says Sanjey Roy, DLF spokesperson.

…..to be continued

Track2Realty Exclusive:

“Most of the families now have second generation coming into the business and they are themselves well educated and qualified professionals. It is better to invest in them and groom them, since they are not coming on board as a stop gap career choice of a lucrative sector. Of course, this second generation qualified promoter also prefers to have professionals around him, but then the management control must be vested with the promoter only,” says a Noida-based developer requesting anonymity.

Another Mumbai-based developer agrees with this line of thought. According to him, when the market sentiments were bullish and foreign investors testing the Indian realty market, many of the relatively not-so-polished developers started hiring these white collared professionals to negotiate with their global counterparts in a language that they understood. Problem started when this skilled workforce started colouring the vision of the promoter and hence driving the management decisions.

The downturn, however, exposed many of them since they were enjoying the benefits of being in the right place at the right time. With sales nose diving, many of these strategists and marketing experts had no answer to offer.

“Look at the branding aspect of the business. For a promoter it is a mix of short-term goal of selling the project as well as the long term goal of creating top-of-the-mind-recall value. Whereas for a marketer, it is short selling the project which is the benchmark since he may not be looking forward to a long term career in the same company,” says the developer.

A Vice President with a leading MNC agrees to this premise saying unlike other sectors like FMCG, where a continuous brand campaign is directly proportional to the sales graph, in real estate dynamics of selling either through brokers, under writers or just plain marketing gimmick, is different.

Most of the professionals who joined real estate from other organised and professionally managed industries never felt at home. And hence their vision was to sell the project, and not create iconic brand, and then move away.

Some sector analysts believe it only makes sense for promoter-driven real estate companies to search for professional CEOs if companies have grown organically and have built a platform. Then only they would like to grow and probably list on the bourses. However, a survey of senior executives by Track2Realty at some leading and emerging real estate companies across the country shows that most believe the industry as a whole is ill-prepared for the management succession process, which could jeopardize a smooth transition of company leadership.

Ninety two per cent of the survey respondents said that real estate firms do not have adequate management succession plans, and nearly two-third do not feel confident that their firm could immediately select a new CEO if the promoter is forced to be out of operation. This suggests a disturbing lack of preparedness for management succession. Companies who claim to have succession plans in place are the ones where the children of promoters are having their studies abroad or trained on job.

“I see this as a huge challenge for the real estate industry. Not only does effective management succession planning reassure investors and employees of the firm’s ongoing and uninterrupted success, it drives the engagement, development and retention of top talent and strengthens the overall leadership bench of the firm,” says a consultant hired by some of the leading realty companies for HR services.

The nature of realty business demands one to get the hands dirty into every aspect, right from land purchase to material procurement and project execution. Many believe this is something that only a promoter can do. This is a fact which has been realised by even some of the fund managers and hence their foray into the business as a developer. However, the role of a professional in the realty companies has mostly been confined to their individual department alone.

…..to be continued

Track2Realty Exclusive:

Traditionally a family business, the manifold growth of real estate in the last decade and the emerging realities forced many companies to change their outlook. With realtors increasing their scale of operations from doing just one or two projects to multiple projects in many cities, and looking for foreign investment, most of the real estate companies went on a hiring spree of professionals.

The downturn, however, made them question the role of many of these strategists on board who made the best of it when the market sentiments were bullish. The bearish market brought to the fore yet again the debate whether real estate is better run by promoters or professionals.

Sachin Sandhir, South Asia Managing Director of RICS says historically real estate business in the country has been promoter led and has served the sector in good stead until this point. However, the real estate industry is in a constant state of evolution and subject to ‘change’ with the advent of new technology, regulatory reforms, and economic challenges. Some of these aspects have seldom been experienced by practitioners and entrepreneurs during their tenures, resulting in some resistance to adopting these new facets of real estate business.

“Therefore, there is a pressing need to adapt and learn new ways to do business and move towards greater transparency in the sector. Thus, the starting point for an image ‘make over’ lies in the ability of raising the bar of ‘professionalism’ and moving to a more corporatized and organised structure of conducting real estate business. Realty businesses are now increasingly turning towards professionals across functions such as valuations, quantity surveying, project management, facilities management, cost management etc., who are capable of staying abreast of the knowledge curve and strengthening their ability to survive the paradigm shifts taking place in global realty markets in order to win the confidence of consumers, regulators and investors alike,” says Sandhir.

By and large the professionals are taken on board for the sector to compete in an increasingly global marketplace. It is believed that real estate markets are to a large extent intrinsically linked and interrelated, and hence there is little choice but to embrace such changes.

This is all the more relevant for India, where even today the realty sector continues to be characterised by lack of regulation, transparency and a high degree of fragmentation.

Experts believe the lax in specialised education, has contributed significantly to the near absence of professionalism leading to a high degree of consumer dissatisfaction and a lacklustre image for the sector at large. These factors also affect the ability of the industry to perform in the future, in comparison to its peers.

…..to be continued

Track2Realty Exclusive:

Some lawyers believe that the CCI judgement could be used as a precedent even in the consumer courts where there is not a dominance and the litigant has been trying to prove that the agreement is one sided. They maintain if DLF is guilty then there is also violation of the provisions of various statutes that the government institutions are actually supposed to administer.

Going by the CCI’s definition of abuse of dominance, HUDA and DTCP, by virtue of being public bodies, had also facilitated this abuse of dominance by providing DLF with the necessary ammunition to act in an illegal, unfair and irrational manner by allotting land and giving licenses, permissions and clearances to the company despite the evidence that the company was taking buyers for a ride.

Since its inception in 2003, the Competition Commission of India has been in the news, and for all the wrong reasons. Members of the judiciary challenged those provisions of the Act that they perceived to be an encroachment into their jurisdiction.

In particular, they questioned the legality of the clauses under which the government could exclude members of the judiciary while considering candidates for heading the CCI. The legal tangle was so complicated that Deepak Chatterjee, who was the Commerce Secretary at the time and was to head the CCI, could not take charge of his new responsibility.

In 2013 the big question in front of realty sector remains unanswered and developers will keep their fingers crossed till the time a final verdict on CCI penalty over DLF and Cement manufacturers comes out in the open. All the stake holders are curious whether the CCI will now regulate the real estate across the board, or the jurisdiction of the CCI only kicks in selective manner.

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They have launched a scheme which promise huge benefits to the home buyers. As per the ‘25:75 House of Happiness’ scheme, buyers need to pay just 25% of the total cost on booking and rest on offer of possession.

This scheme claims to be different from other subvention plans which are available in the market, the scheme announced will not attract any EMIs as there is no bank loan involved.

The scheme will be applicable on 20 projects of Parsvnath Group which include four commercial and sixteen residential projects across India including cities like New Delhi, Greater Noida, Ghaziabad, Sonepat, Dharuhera, Moradabad, Ujjain, Saharanpur, Bhiwadi, Panchkula and Rajpura.

Parsvnath Group has also unveiled a new visual expression to symbolize the modernity, continuity, adaptability and above all commitment of the company’s businesses as well as the simplicity of its integrated approach.

The logic behind the new brand is also encapsulated in the phrase ‘committed to build a better world’, not intended to be an advertising strap-line, the phrase is simply meant to explain the spirit in which Parsvnath works.

‘Building a better world’ captures both the scale of the company’s activities and the commitment to provide solutions for all. It also defines both the company’s history of delivering on its promises but also hints at a wider social benefit.

Commenting on this Pradeep Jain, Chairman, Parsvnath Group, said, “After studying the buying trends and profile of the customers, we were thinking of bringing a solution that not only suits the end user but also help investors. The scheme is targeted to help the first time buyers to think of having a house of their own.  ’25:75 House of Happiness’ scheme is certainly going to transform the way houses were sold. This is a result of our new approach where we emphasized on problems faced by the buyers at large and thus, designed this scheme. This is purely a ‘risk-free’ way of buying a house as it does not involve any bank loan and EMIs. I am sure in the current market situation; buyers will feel a great relief though this scheme.”

Speaking about the confidence of the PE investors and financial institutions in company’s business model, Jain further said, “At present, we have three PE fund investments of Rs 1015.5 Cr in different projects. While SUN Apollo had invested Rs 90 Cr and Rs 50 Cr in Exotica Ghaziabad and Gurgaon respectively, we have already paid back Rs 34.5 Cr against their investment in Gurgaon. Similarly, JP Morgan had invested Rs 255 Cr in La Tropicana in Delhi out of which we have paid back Rs 58 Cr. Our third partner is Red Fort who has invested Rs 558 Cr and Rs 155 Cr in our two projects i.e. RLDA Sarai Rohila and Parsvnath Red Fort Tower at Bhai Veer Singh Marg respectively.”

The company is in final stages of handing over 0.22 mn sq ft of space to its customers at Bhai Veer Singh Marg project, a high-end ultra-modern commercial complex in the heart of the national capital. The company has given the mandate of construction to L&T which is developing this next generation world class structure. The project is due for the completion certificate.

Giving importance to accelerated construction and faster deliveries, company has been giving third party contracts to construction companies like L&T, IL&FS Engineering & Construction Co. Ltd., Jaycon Infrastructure, Chawla Techno, SYConE EPMC and Ascent Constructions.

Parsvnath is currently developing 76.3 Mn sq ft of area in 27 cities across India out of which it has already sold 36.3 Mn sq ft of space. With the new scheme in place, Parsvnath expects to double its sales in current quarter.