Most of the previous decade and well into the current one, redevelopment projects in Mumbai city and suburbs were eagerly chased by real estate developers. With change in rules around redevelopment and arrival of RERA, developers witnessed a new scale in compliance requirements that they were not accustomed to. While some developers were hit with this happening, there were others like Sugee Developers, that endured. Pankaj Joshi writes...
Some understanding of sector developments
Developers all over the country unanimously agree that the sector has been hit by three tsunami forces—the demonetisation (move of November 2016), RERA (being enforced in early 2017) and then the Goods and Services Tax (GST) (coming into force from July 2017). And Sugee Developers’ groupexecutive chairman, Hrishikesh Parandekar is no exception in sharing this view.
His experience is bit beyond the obvious. In case of demonetisation he explains, hit transactions related to land much more than transactions related to developed properties.
In a city like Mumbai, where land transactions are minimal and most property purchase value is reflected in the agreements, the impact was not substantial.
Next force was RERA, where again Parandekar asserts it is overall positive for the sector. Redevelopment, he explains, is complex in terms of execution, because one starts with existing tenants who are primary stakeholders. Then come the other aspects—capital outlay, permissions, the actual construction time and effort, getting buyers for the developed properties.
Also, more often than not, the project sizes, in terms of monetisable properties, are modest. This space has generally been eschewed by large players, who want to focus on projects of a minimum economic value.
Most players traditionally in the redevelopment space were small and local builders, and one of the side-effects of this was irregular standards in delivery time and quality, which in effect cast a grey shadow over the sector as a whole.
Against this background, the implementation of RERA and consequent rise in compliance needs, meant worries for most players in the redevelopment space.
Many have therefore exited the space and this, Parandekar feels, resulted in a growth of opportunity for those players who remained. Today the company fancies itself as a large player in the redevelopment space, with a body of work.
According to Parandekar, RERA is a mindset issue and
actually will fulfil a long-term gap in the industry functioning. Greater regulations breed more confidence among both buyers and funders, and also help attract talented manpower to an industry which is starved in that respect. Overall, the time was ripe for change and RERA was a good catalyst.
There were some fallouts in case of GST, admitted Parandekar. The main issue with GST is the teething problems, where levy rates for industries would move back and forth.
Within the period July-December 2017 itself, rates were modified time and again in drastic fashion. This, Parandekar explains, impacted project economics for the builder and also made the buyers wary.
The result was that in a challenging environment, the decision making cycle got further lengthened. Calls for further rationalisation is very strong from the industry, though here he also points out the impact on his activity segment is minimal.
It is the affordable housing segment which is the most price sensitive, and will benefit the most by rationalisation and is politically the most prominent.
Sugee projects have a different target market. Indeed the historical unit sales average goes around Rs 2.25 crore and the FY 2022 projections talk of much higher values, close to double the average.
The size of the average property unit is also being enhanced—for FY 2015 it was around 1,000 sq feet and for the FY 2022 targets it is close to 1,500 sq feet.
The company as it stands
The organisation was founded in 1986 by Subhash Deshmukh, and was then called Shraddha Builders. Those days, the company methodology was to take up a project and dedicatedly work on it for its cycle of say two years, monetise it and then take up another project. In terms of achieving growth, this was a slow method, but it had the advantage of imbibing a work culture of thoroughness in operations.
The advent of the next generation in 2009, Nishant Deshmukh, saw a modification in many areas. The company was renamed by him as Sugee Developers (after his parents Subhash and Geeta Deshmukh), and the concept of multiple projects at a time started to take hold.
After some ventures in the suburbs, the past few years have seen the company concentrate more on mid-town Mumbai. A majority of redevelopment projects in the Shivaji Park area of Dadar, Parandekar states, has been done by them.
This body of work has had its own momentum—today there are some projects where the tenants had come over to Sugee on their own. An IIM pass-out is clear about the company's basis operation—delivery on time unfailingly, and quality of work totally in sync with what has been committed beforehand.
As of now, they have delivered around 6 lakh square feet and work is underway on another 34 lakh square feet area, as can be seen in the data.
Many of the company's redevelopment projects are without silos, which means that the tenant residences have access to the same facilities as those of the new buyers.
This trait in particular has gone a long way in fostering a sense of community. This in turn has generated a positive word of mouth image, which again has induced some tenant groups to proactively talk to the company for redevelopment of their sites.
The focus area
Redevelopment remains the core focus of the company which is not hard to understand. Redevelopment activity falls into three broad categories—slums redevelopment come under Section 33(10) of the Development Control Rules; work related to MHADA buildings and clusters falls under Section 33(5); and cessed buildings come under the purview of Section 33(7).
It is the last one which Sugee aims to focus on. The island city of Mumbai, Parandekar reiterates, has 20,000 cessed buildings. Of these, only 3,000 have been redeveloped.
Therefore, the scope can be imagined and combined with the fact that competition in redevelopment has thinned out, this represents great growth potential.
Therefore, Parandekar explains, though the company has done work in the suburbs, it is the island city where they are today more occupied. The company's track record indicates that it understands the space, the diverse needs and drivers, and can deliver on it.
Despite the present challenges, Parandekar is confident that the company will not have a problem in marketing its projects and this confidence shows in the targets the company has set for itself over the next few years.
The group is targeting a revenue of Rs 898 crore for FY 2021-22, which is a huge step up from the FY 2018-19 figure of Rs 105 crore. The growth estimates clearly indicate that the company has plans to monetise both its qualities and its body of work.
Process followed by the developer
An idea of development
4 months: Meeting with Members
2 months: Consent from members
5 months: Approval from government organisations and commencement of the construction work
1 month: RERA approval
30 months: Project construction & completion