If it’s not surprising enough that Jaithirth Rao, popularly known as Jerry Rao, switched from banker to real estate developer at 56, he adds that one of the reasons he did this is because he didn’t want to travel overseas.
Rao, 60, is the founder of Value & Budget Housing Corp. Pvt. Ltd (VBHC)—a real estate firm that primarily builds homes which cost less than Rs.20 lakh—that he set up with P.S. Jayakumar, his colleague at Citibank for many years.
Rao spent over two decades in Citigroup Inc.—with a two-year sabbatical in 1980-81 for further studies—and his job as a banker took him across the globe. He went to Beirut, Lebanon, for six months’ training after he joined Citibank in 1973, spent a couple of years in Saudi Arabia and then was in the US for a number of years, before returning to Mumbai.
“I don’t like travelling overseas. Jet lag, food, all these things bother me. I like going to Goa, Calcutta, Madras or anywhere within the country,” he says. His youngest son, Raghav, who studies in the US, loves wildlife, and the two take off to the forests. “So he and I go to Kaziranga, Mudumalai…,” Rao says. Rao has three children—Vijay, the eldest, lives in Gurgaon; his daughter, who is media shy and doesn’t like to be named, works with an NGO in Bangalore.
In 2008, Rao approached Jayakumar for his new housing venture, after selling a majority stake in IT services firm MphasiS Corp. “I asked him, are you interested? It was as simple as that,” says Rao. “He took his time, about two-three months, did his own R&D and came on board.” Jayakumar left Citibank in 2009, which is when they launched VBHC.
I meet Rao on a busy weekday afternoon at a Café Coffee Day, where he orders a cappuccino and I opt for Darjeeling tea.
He is dressed in semi-formals, and a cigar peeps out of the pocket of his brown jacket. He loves cigars. “Dominicans mostly, Cubans are expensive. Maybe, once in a while”.
For someone who worked in Citibank till 1998, started MphasiS and then sold a controlling stake in the company to EDS Technologies Pvt. Ltd for $380 million (around Rs.2,050 crore now) in 2008, getting into real estate—largely a family-led business tradition in India—was an unusual and brave choice.
“I didn’t want to go back to IT as I had done my bit. I didn’t want to go into anything that involved exports because of travel. I was sick and tired of travelling. I wanted to do something domestic, something that was scalable, big, and preferably at the base of the pyramid. I looked at healthcare and education but real estate seemed to be an area without too many national players,” says Rao.
The timing seemed perfect too. The economic slowdown of 2008 had toned down the exuberance of the preceding years when prices hit the roof and the middle-class homebuyer suddenly had nothing to buy. Big developers saw sales screeching to a halt, and capital drying up. In 2009, when Rao set up VBHC, everyone was talking about low-cost or so-called affordable housing.
During 2009-10, Tata Housing Development Co. Ltd, a group company of Tata Sons, announced 1,500 homes under its low-cost Shubh Griha brand in Boisar, near Mumbai, and buyers lapped them up in weeks. Ramesh Ramanathan’s Janaadhar (India) Pvt. Ltd in Bangalore—a firm dedicated to building budget homes—launched its first project in 2010 near Attibele, an industrial town near Electronics City, headquarters of companies such as Infosys Ltd.
In 2010, Rao launched Vaibhava, VBHC’s first project near Attibele, which would build 1,900 homes priced at up to Rs.10 lakh each. This January, VBHC launched a new project in Bhiwadi, Rajasthan. It already has projects in Bangalore and Chennai, and on the outskirts of Mumbai. It plans to launch another one near Mumbai, and one more in Rajasthan.
Though in the same league, VBHC experimented and employed a range of different building technologies. It shipped lightweight aluminium beams from Kansas City, US, and used them instead of concrete, employing a cast-on-site technique that gave flats a durable structure. This would also reduce the per sq. ft cost of homes by Rs.35-40 and construction time by more than one-fourth, giving real estate the economies of scale and the pace of a manufacturing business.
In the three years since the launch of the first VBHC project, has Rao been able to stick to his philosophy? “We haven’t scaled up as much as we would like to. We would have liked to have 15-20 projects by now and be between Rs.5-15 lakh for the flats. Where we are right now, is between Rs.8-20 lakh,” says Rao, attributing the price rise to compounded inflation, material costs, delays and land costs, among other reasons.
He says he knew real estate development would be difficult, but didn’t expect the regulatory environment to be so tough. “The good news is we have been able to create a business model that works, gives a decent product to the customer and reasonable returns for us. The bad news is it should be working faster,” says Rao.
"IN PARENTHESIS: These days, 80% of Rao’s time is spent on VBHC, and 10% on Home First Finance. The remaining time, he says, is for a bunch of miscellaneous activities. He teaches a course in international business at the Indian Institute of Management, Ahmedabad, and Indian Institute of Technology, Bombay. He is also chairman of the Nasscom Foundation, the social development arm of IT-BPO trade body Nasscom, and writes a number of columns for various publications. An avid reader of historical fiction, Rao is currently engaged in doing a bit of research on some of Mahatma Gandhi’s writing, particularly in the area of trusteeship and governance.“History continues to be of great interest to me,” he says. "
“It’s almost as if the government has decided that they don’t want affordable housing. Because it’s easy to get approvals for a Rs.5 crore villa in the country.”
Born in Bangalore, Rao never really lived in the city, moving with his father wherever his government job took him. He went to Loyola College in Chennai, graduated from the Indian Institute of Management, Ahmedabad, and through placements, got a job in Citibank in 1973. Probably some of his banking knowledge came in handy in 2010 when Rao and Jayakumar set up Home First Finance Co. India Pvt. Ltd, a housing finance start-up that offers small loans to low-income borrowers for homes priced at Rs.5-15 lakh. Bessemer Venture Partners (BVP), a century-old venture capital fund, bought a stake in it for an undisclosed sum in early 2011.
For VBHC, the focus will be on building two-bedroom apartments because they sell well, and one-bedrooms that sell reasonably well. Smaller studio apartments are not a great success, adds Rao. “The Indian consumer doesn’t like their kitchen looking into their living space, no matter how cleverly you design,” he says.
Over the next three-five years, VBHC will focus on Bangalore, Mumbai and the National Capital Region (NCR), while doing the odd project in Vadodara, Ludhiana or Chennai. Experiments with technology will continue, and the company may look at a new German prefabricated technology too. “We are looking at completely pre-done toilets assembled in factories here. Tiling of toilets sometimes causes the biggest time delays,” says Rao.
Ask him to recount the hits and misses, and you realize that he has, on most occasions, got it right. Except perhaps, the one time when he went to The University of Chicago to do a PhD, which he didn’t complete. “I was bored, ran out of money as a student,” he says. “Finally, I took a master’s (degree) and left, rejoining Citibank in New York,” says Rao.
The last few years have not been an easy ride, but Rao says he has no regrets. “I’d like more people to come into real estate, because then the whole space will get great legitimacy, more transparency. With more professional and well-run companies, the kind of anti-developer attitude may start disappearing and there may be more pro-industry positioning,” he says.
So where does he go from here?
“I am 60, I am not going to do anything more. This is it. At 65-70, one should call it a day, although these days, people keep working,” he says