Bangalore: Near the foothills of the scenic Nandi Hills, a popular weekend getaway around 40km from central Bangalore, is India’s first venture capital-funded real estate firm’s maiden project—a gated cluster of 100 villas announced more than a year ago.
Right now, there’s no visible hint yet of a full-scale construction.
Bangalore-based QVC Realty Co. was formed in early 2007, at the peak of the realty boom in India. It announced its project, QVC Hills, in November 2008 after it got a funding of about $100 million (Rs455 crore today) from IL&FS Investment Managers Ltd. It had priced its villas at Rs1.5-3.4 crore then.
Prakash Gurbaxani, founder and chief executive of QVC Realty, said the firm needs to raise more funds for its maiden project, delayed by a year, and others in the pipeline.
“On hindsight, we shouldn’t have committed in such huge projects—which typically have long gestation periods—at the beginning,” said Gurbaxani, who spent nearly 15 years in the US construction sector and was previously CEO of TSI Ventures (India) Pvt. Ltd—a joint venture (JV) between New York-based Tishman Speyer Properties and private equity (PE) firm ICICI Venture, a subsidiary of ICICI Bank Ltd.
Even after the developer scaled down a part of its signature project in 2009 to make it more price-friendly at Rs72-94 lakh a villa, it only got a lukewarm response from investors, say property consultants close to the project.
No show: The firm says it needs more funds to complete its QVC Hills project at Nandi Hills near Bangalore. Hemant Mishra/Mint
Project delays have become a consistent feature in the property sector in the past year as it faced the brunt of the economic slowdown. But developers who have borrowed from PE funds face the bigger challenge of meeting the expected return on investment.
“Developers in India, even after having the land, sometimes take years to take a call on what they want to do with it. But if they have an investment from a PE player, who wants fixed returns, then there is a problem,” said Bhaskar Chakraborty, real estate analyst with IIFL Capital Ltd.
Unlike several other realty firms, QVC, which had set out to develop primarily luxury properties, has not diluted its brand value to build affordable homes or sell plots.
In 2009, during the slowdown, Indian realty firms were repairing balance sheets, streamlining projects to cut costs and focusing on projects that would sell in a slow market. This year, as the sector looks up, property consultants say project execution and delivery to buyers would be the main concerns for realty firms.
For QVC, 2010 is a challenging year because it hopes to launch its first project, the 26-acre QVC Hills, and begin construction of its mega 106-acre township called Gurgaon99, or G99, in a JV with Uppal Group. The two projects would generate about Rs2,000 crore of revenue, said Gurbaxani. G99 was to be launched in 2009.
“We want to raise about $100 million this year and we would need about Rs150 crore for construction alone (of QVC Hills),” he said. The firm is looking to tap IL&FS again to raise money.
“QVC has big projects, which take more time. But they should be launching their projects soon,” said Shahzaad Dalal, vice-chairman and managing director of IL&FS Investment Managers, which had funded the start-up real estate initiative for the first time with QVC.
Real estate funds continue to form an important part of financing in the sector. In the first 11 months of 2009, real estate funds invested $867 million in 20 transactions, according to Venture Intelligence, a research-focused service dealing with PE transactions.
V. Hari Krishna, chief investment officer at Kotak Realty Fund, which has funded Lalith Gangadhar Constructions Pvt. Ltd (LGCL), said a new real estate firm with no brand recall would typically face fundamental challenges in procuring finance, closing deals with landowners and closing pre-sale deals.
Krishna added that LGCL, however, wouldn’t face the same hurdles as QVC as it was set up by Girish Puravankara, who was earlier with his family business, Puravankara Projects Ltd, a well-known realty firm.
QVC now says it will primarily focus on the residential sector though its initial plan had included retail, commercial and special economic zones in 12 cities.
Gurbaxani said he now prefers smaller projects with a faster turnaround and easier execution. “Although we didn’t focus on apartments in the current projects, we will do that for the new projects,” he said.