Landmark Holdings, part of the Dalmia Group and an investor in Indian real estate projects is currently busy with over 10 projects having a liquidation value of about $1.5 billion.
Chairman at Landmark Holdings, Gaurav Dalmia says that right now they have projects with Ansal Properties & Infrastructure and Parsvnath Developers among others. He adds that there is bad news on the supply side, which will lead to pricing pressure.
Excerpts from CNBC-TV18's exclusive interview with Gaurav Dalmia:
What is the size of your investment in the Indian real estate?
We have been investing typically in projects, co-investing with developers, our total investing value would be in the range of about Rs 1,000 crore (Rs 10 billion). We typically invest in housing projects and we do them in phased manner and the liquidation value of these projects would be in the range of Rs 7,000 crore (Rs 70 billion).
There are fears that we are in the midst of a bubble and that land prices could come off, what is the view you are getting from the ground, have valuations come off in the last couple of months and how are valuations here?
I think there is a lot of adrenalin in the business; there is lot of over excitement. I believe there is lot of good news, demand is good etc but the bad news is on the supply side; there is lot of inventory build up, lot of supply coming up which will lead to pricing pressure.
For example, if we take the IT sector and talk to the boys in Pune, they will make you believe that all of the IT sector is relocating in Pune and Bangalore is going to have a hard time but which is not going to be the case obviously.
Similarly if one looks at housing, the inventory build up that you see in Northern Indian cities is amazing, which I think will put pricing pressure. So this is self-inflicted in many ways.
Also if one looks at it from an implementation risk point of view, the number of projects that people are doing is mind-boggling, they are overstretched beyond belief and I also see a lot of implementation risk at the project level, the number of projects that are running late is not funny.
In the last three years it did not matter because inflation pardoned a lot of your mistakes, but in the next 3-years I don't think those mistakes will be forgiven as easily. Which is why I am not as bullish on real estate as the normal market belief.
Could you walk us through the dynamics of how you work? Are you essentially a private equity investor and what sort of companies are you tied up with at this point in all these development projects/SEZs?
We tend to work in various formats. Sometimes a proposal comes to us and we find a relevant developer and we try and create a consortium with other investors or developers. For instance we were hit by a project quite by chance in Mohali, a suburb of Chandigarh and we invested in it and there was no developer on it on day one.
After we acquired a bulk of the land we went to Vipul, which is a large developer in North India with great franchise in the IT space and persuaded them to co-invest with us and lead the development, which they did.
Sometimes developers bring projects to us and they have a business plan saying lets go and acquire land in A, B, C and so much land is available in such and such price and this is the business plan and we come in at pretty much ground floor level.
Right now we have a project with Ansal's, Parsvnath, in Eastern India we have projects with the Saraf Group, we have projects with Vipul and we tend to do multiple projects with developers we identify with because we have meeting of the minds etc. So that has been our business model so far.
What might be a fair return to expect from a strategy such as this going ahead with market rates perhaps flattening out if not dropping?
There are different data points one can look at. If one looks at the ten-year returns for instance, they have been in the 45 per cent annualised rate of return range. If one looks at our last three-years return, it has been mind-blowing, it has been 80 per cent and that is because asset prices have just gone through the roof and I don't think that story is going to repeat itself.
I think in any decade, one should look at a 40 per cent plus IRR and that is what we work at. Anything below that we kind of reject because there are too many opportunities out there and we like to conserve cash for those kind of opportunities
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