Bharti Realty plans to focus on asset-light model for growth

MUMBAI: Bharti Realty, the real estate development arm of telecom to retail major Bharti Enterprises, is planning to focus on asset-light model of Real Estate Asset Management (REAM) for its future growth instead of buying land parcels on outright basis, said a top company official.
The company’s fully-owned subsidiary Bharti Land will be executing these projects under the Real Estate Asset Management (REAM) model. Under this model, the company will be lending its brand equity and pay for the development management of the project. The landlord will be responsible for land, approvals, cost of construction, marketing and brokerage.

“After a long period, realty sector is coming back to realistic levels and for the prices to come to realistic level, land plays a crucial role. For the past few years, land prices have shot up significantly pushing realty prices beyond the reach of homebuyers. An asset-light model will allow us to focus on controlling the final product price thereby attracting and converting more demand,” SK Sayal, MD & CEO, Bharti Realty, told ET.

The Sunil Mittal-backed company will charge around 10-12% of revenue as its fees for projects executed under the REAM model and sold on outright basis. For any project, to be leased, after being developed under this model, the company will receive minimum fees worth one year lease rentals to be earned from that project.

Bharti Realty recently emerged as the highest bidder to develop an area of nearly 2.5 million sq ft of retail space near the Delhi International Airport. This project is also expected to be executed by the company through the REAM model.

Apart from this, the Bharti Enterprises arm will execute projects under joint development agreements and will focus on government or public-private partnerships projects.

“Cash is required in land transactions. To mitigate that (risk), we as Bharti will only look at government auctions. In residential segment, we will not get into greenfield projects. We will instead jointly collaborate with land owners,” Sayal explained.

For projects to be executed under joint development agreements, Bharti will take care of execution, marketing and sales efforts, while the land owner will be responsible for land, approvals and construction costs. Revenue under joint development pacts will be shared in an agreed portion on project-to-project basis.

The company will be focusing on the Delhi-National Capital Region, Punjab, and Haryana property markets for both REAM and joint development projects.

Under the REAM model, the company is already executing two commercial projects of 1 million sq ft each in Sector 65 of Gurgaon and Central Delhi. Bharti is developing total 5 million sq ft of residential space in Surajkund locality of the NCR through the joint development agreement.

The company is in talks with few land owners and even developers to enter into an agreement to execute projects either through REAM or joint development agreements.

Several real estate developers are shifting their focus to an asset-light business model through joint ventures and joint development agreements as land prices continue to remain expensive hitting business plans.

The Union Budget 2017-18 has proposed that tax liability in case of joint development pacts will be kicking in only on project completion. With land cost making up 30-50% of the total expenditure for any realty project, this will help in prompting land owners and developers inking more such pacts.