Bangalore: In a tight credit market where real estate developers are scurrying for funds to launch their projects on time, Reliance Infrastructure Ltd plans to raise funds in multiple rounds for its 100-storeyed trade tower and business district project on the outskirts of Hyderabad.
A new player in real estate, Reliance Infrastructure, part of the Reliance-Anil Dhirubhai Ambani Group, needs about Rs4,000 crore in the first phase to pull off a large part of the project, which will be executed at a cumulative cost of Rs8,000 crore in the next three-five years. “We will have to raise the money in two-three phases from banks, though we intend to develop the project in one go,” said a senior official of Reliance Infrastructure in charge of the Hyderabad project, who is not authorized to speak to the press.
Last November, Reliance Infra, which is a two-thirds partner in the project that is to be implemented through a special purpose vehicle (SPV), won the bid. The other stakeholders in the venture are Bangalore-based Sobha Developers Ltd (technical partners) and Andhra Pradesh Industrial Development Corp. with 23% and 11% stake, respectively.
The project is the business group’s first venture into real estate, with the second being a mixed-use project planned on about 220 acres, which it got by winning the contract to build a metro rail line between the New Delhi railway station and the international airport.
Considering the current market downturn, the SPV has decided to lease, rather than sell, the tower, which will be the central attraction in the 77-acre project.
“Leasing out space is much more flexible when property prices are on a downward slope and you don’t relinquish ownership rights. However, we will lease out the space in phases in the next few years,” said the same official.
With capital values per square foot touching Rs6,000, building residences in the tower has been ruled out. Hospitality and commercial office space will be built instead. Construction costs will also double from the 60th floor upwards. These will be resistant to high wind velocity. Superior quality of steel is required to construct such buildings.
However, 10 months after winning the bid, construction is yet to start and the project is still at the planning stage—finalizing the design and appointing project consultants. There is no hint at when construction will take off.
An August office space report by Cushman and Wakefield Inc., a property advisory firm, said Hyderabad witnessed fresh office space supply of 755,000 sq. ft in the second quarter, about 12.5% of the expected 6 million sq. ft supply this year.
Deferred pre-commitments, primarily attributed to supply overleaping absorption during the quarter, indicated a situation of oversupply. Though vacancy rates in the city have been low, there are areas with large unleased concentration of grade B stock of office space, the report said.
Pawan Swamy, managing director (markets) of Jones Lang LaSalle Meghraj, a property consultancy firm, said, “Hyderabad will be over-built in the next six-eight months with a lot of fresh supply coming in. Though leasing offers better returns, selling is easier in the current market. Only developers who can hold on to their properties can afford to lease out space, but the good part is that the value of a property is higher after you lease it.”
“It is a challenge to put up 4 million sq. ft of space for lease in the current market situation because of a demand-supply disbalance. Hyderabad is also going to face a problem of over-supply soon, with a lot of development happening,” said Santosh Martin, chief executive officer of Bangalore-based Divyasree Developers Pvt. Ltd, which is primarily into office space and has a hospitality venture coming up in Hyderabad.