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Realty firms in diversification drive to tap underserved sectors

Realty firms in diversification drive to tap underserved sectors
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First Published: Thu, Oct 18 2007. 11 01 PM IST

Updated: Thu, Oct 18 2007. 11 01 PM IST
MumbaiIndian real estate developers are increasingly diversifying into new businesses such as hospitals, logistics and warehouses, mass housing, and slum rehabilitation.
New Delhi-based DLF Ltd, which is the country’s largest listed realty firm, is building a chain of hospitals in 31 cities by 2012 in collaboration with Fortis Healthcare Ltd.
Kalpataru Power Transmission Ltd, a power transmission firm floated by Mumbai-based realtor Kalpataru Properties Ltd, bought a 65% stake in Rajasthan-based Shree Shubham Logistics Ltd in July.
“As a fund, we look for diverse investments. These are opportunities that offer comparable returns on a long-term basis,” says Mahesh Gandhi, president of Trikona Capital, a New York-based real estate fund. Trikona, which has a stake in Fortis Healthcare, has floated a joint venture (JV) with the Adani Group for a township project at the Mundra special economic zone.
The fund also has JVs with developers such as Dynamix Balwas Ltd and Lokhandwala Developers Ltd to redevelop slums in the mill area around Worli and the Bandra-Kurla Complex in Mumbai.
What’s driving all this activity is large unfulfilled demand. According to industry estimates, the size of the logistics business in the country is around Rs4 trillion, but the total warehousing capacity—the value of the goods that can be stored in warehouses—is less than one-tenth of that (global averages are in the 70-80% region). Of this figure, too, 90% is in the unorganized sector. The biggest players in the business have been the state-level warehousing corporations and the Central Warehousing Corporation, which together account for 80% of the existing warehousing capacity in the country, much of it devoted to foodgrain storage.
“We plan to address the need for modern warehouses in the agriculture markets of India given the boom in the commodity sector,” says Mufotraj Munot, chairman of Kalpataru Properties.
Another factor that could drive the logisitics business is the growth of organized and formal retail.
“Local developers tying up with FMCG (fast-moving consumer goods) and retail firms to develop logistic and warehousing facilities will be another trend to look out for in the coming years,” says Ganesh Raj, partner and head of realty business at Ernst & Young (E&Y) India, an audit and consulting firm.
Around 40 million sq. ft of warehousing space is available in the country today, and demand is expected to grow at around 5 million sq. ft per year riding on the back of organized retail, says an E&Y study.
It isn’t just real estate firms that are trying to tap this opportunity.
“It is this opportunity that is attracting the big players—Reliance Industries Ltd, Kishore Biyani’s Future Group and the Adanis,” says Ambar Maheshwari, director (investment) at DTZ, a real estate consulting firm. All three have announced plans of setting up logistics and warehousing operations. Future Group plans to raise a $500 million (Rs1,975 crore) logistics fund to invest in large warehouses pan-India; the expected investments for the others are not known.
In health care, too, it is a story of large unmet demand. The past year has seen the entry of real estate developers not as contractors who built the hospitals and go their way, but as participants in the sector.
“Traditionally, the own-and-operate model worked, as most hospitals had less than 100 beds. But as hospitals grow bigger and reach sizes of over 500 beds, the management of the real estate component has become increasingly important and developers have come in to manage the large formats involved. Many leading developers themselves are getting into developing health care-focused real estate,” says E&Y India’s Raj.
Apart from DLF, Ambuja Realty Development Ltd, too, has interests in health care. The company plans to develop a chain of hospitals that will feed into its health care JV with the Elbit group of Israel, according to the E&Y study.
Much like in the case of logistics, the business has attracted other large corporate groups.
The Hinduja Group plans to invest close to Rs4,500 crore through its JV with Limitless Llc., the real estate arm of Dubai World, to build ‘medicare’ cities. Anil Ambani’s Reliance-Anil Dhirubhai Ambani Group plans a 60 acre health city in Kolkata. The Aditya Birla Group, too, has talked about setting up a chain of Aditya Birla Memorial Hospitals.
Real estate companies are also eyeing the expansion plans of existing health-care providers.
Wockhardt plans to set up hospitals in Bhavnagar in Gujarat, Nashik in Maharashtra, Ludhiana in Punjab and Jabalpur in Madhya Pradesh; Fortis has plans for Bhatinda in Punjab, Saharanpur in Uttar Pradesh, Dehradun in Uttarakhand and Pathankot in Himachal Pradesh; while Apollo is expanding to Bhubanes-war in Orissa, Ahmedabad in Gujarat and Visakhapatnam in Andhra Pradesh.
Most of the hospital chains are being talked about as a part of mega townships. “An integrated township has everything—schools, colleges and hospitals. That is the reason most developers are tying up with hospital chains and vice versa. It will also attract other patients from the surrounding areas given the kind of shortage in health care in our country,” says Trikona’s Gandhi.
In mass housing and slum rehabilitation too, demand far exceeds supply.
With a current housing shortage of 24.7 million units, which is estimated to go up to 26.5 million by 2012, mass housing for the middle-income and lower-income categories, and rehabilitation of slums in large cities such as Mumbai, Kolkata and New Delhi is another area that is expected to emerge as a big opportunity for real estate firms in the coming years.
One of the first to enter this business is Mumbai-based real estate development and construction firm Shapoorji Pallonji & Co. Ltd. It is investing Rs1,500 crore in developing a mass housing project in New Town, in the Kolkata suburb of Rajarhat. The 150 acre project will house 20,000 families and provide pay-per-use facilities such as swimming pools, a mini hospital and a sport complex, apart from primary schools and shopping centres. The project will be managed by Shapoorji Pallonji for the first 10 years.
Much of the slum rehabilitation initiatives have been in Mumbai, where two large swathes—the 535 acre Dharavi, Asia’s largest slum, and the 600 acres of mill lands—are being redeveloped by public-private partnerships.
The Dharavi initiative, says architect Mukesh Mehta who drew up the redevelopment plan, has attracted most of the big names in the Indian real estate business because of the sheer scale of redevelopment.
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First Published: Thu, Oct 18 2007. 11 01 PM IST