STRAIGHT TALK – Pradeep Jain, Chairman, Parsvnath Developers

Government is willing to give new licences and release new spectrum, phone penetration level is still low, and rural market remains largely untapped

With projects in 48 cities, Parsvnath Developers Ltd (PDL) is on its way to becoming a pan-Indian real estate developer. In recent weeks, the company has been in the news regularly, first because of a somewhat unexpected decision to enter telecom, and then because of the launch of its 124-acre high-end township in Chandigarh. PDL chairman Pradeep Jain spoke to Sanjay Kr Singh on where real estate prices are headed, the reasons for his company’s telecom foray, and the SEZ policy.

How are residential prices expected to move over the next couple of years?

In the last three-four years, prices were rising by 40-50 per cent annually. But now the market has softened. One can expect a 10-15 per cent increase in prices annually.

How have high home loan rates affected the residential market?

They have definitely burnt a deeper hole in the end-user’s pocket. But end-users have no option but to purchase the property. If they wait for interest rates to come down, their interest cost might fall but property prices might rise. Investors, however, are keeping away from the market.

You recently announced your foray into telecom. Why an unrelated diversification?

Like real estate, telecom is a sunrise industry. At this point of time, there is an opportunity to enter it. One, the Government is willing to give new licences. Two, it will release a lot of new spectrum. Three, though the subscriber base is increasing rapidly, the penetration level is still low. The rural market remains largely untapped.

But isn’t it a highly technical field?

We plan to tie up with a leading wireless operator.

Is funding becoming difficult for investors because of RBI regulations?

For small developers, yes, because bankers and financial institutions have turned fussy about lending to them. But for grade A developers, funding is readily available.

Do you see private equity (PE) as a good source of funding?

PE money is good for smaller developers. PE investors expect an internal rate of return of 20 per cent plus, whereas debt is available for 12-13 per cent. So for big developers, debt is a cheaper source.

But a joint venture with a foreign partner could have benefits, especially if the foreign partner can make some value-addition to the project, in addition to contributing funds. Even Parsvnath would be open to such tie-ups. The value-addition could be in the form of technology. But one also has to keep in mind that in India construction is largely manpower driven. Also, in India construction costs are much lower whereas foreign players are accustomed to developing costlier projects. So one has to see how much of a fit there is.

Has the SEZ policy framework stabilised?

The policy on land acquisition keeps changing. And given the political controversies, one can expect more changes. For instance, earlier it was decided that the proportion of land that the government would acquire on behalf of the developer would be 10 per cent. Now it has gone up to 30 per cent.

Multi-product SEZs, like the one you are developing in Chennai, are seen as high-risk projects. What steps have you taken to reduce business risk?

If the SEZ is of 10,000 acres or more, then the risk becomes high. The investments are very high, and managing the timeline of the project becomes difficult. But if the SEZ is of 2,500 acres, as ours is, the location is right, and you have identified the target industries properly (who you expect to take up space within your SEZ), the risk is not very high. Our multi-product SEZ will be completed in 5-7 years.

Why have you chosen Chennai?

Chennai is now the most important automobile hub after Pune. IT-ITeS and many large manufacturing industries, including MNCs, have shown interest in taking up space in our SEZ due to the availability of a port nearby. Also, in Chennai land is easily available to developers.