Realty rise: India, Inc. rushes to cash in

MUMBAI: As high demand and a limited supply increase the returns from Indian realty, corporates are rushing to cash in on what many view as a major asset class for tomorrow. Many large and mid-sized Indian companies are considering making real estate a part of their core activity to realise returns of 30-35% that the market has generated in recent times.

The various means that companies have resorted to for their realty plans include amending the memorandum of association — a company’s constitution that states its objective — to include real estate as a principal activity. Acquisition of large stakes in unlisted small companies with interests in real estate is another method, sources say.

Companies that recently indicated their intentions in realty development include BK Birla group’s Century Textiles, Vardhman Industries, Gulf Oil, BF Utilities, Hyderabad Industries and Shree Pre-Coated Steel. Century Textiles has gradually shifted textile operations from its Worli unit to Gujarat. It intends to develop the sprawling 30-acre Worli land for retail activities. Group patriarch BK Birla had earlier said: “We may sell the land and buildings or build our own buildings.” Interestingly, his grandson and Aditya Vikram Birla group chairman Kumar Mangalam Birla has announced his intention to enter the retail sector and could benefit from a large captive land in India’s financial capital.

The growth options in real estate have led Vardhman Industries to amend its memorandum of association by including a clause to “decide in future to diversify into real estate business.” The company board approved the amendment on December 27 and has put up the proposal for shareholders’ clearance through a special resolution through postal ballot.

“What all this means essentially is that companies are trying to realise the true potential of their land holdings, especially in cases where the value of their business is much less than their real estate assets,” says Ritesh Vora, director investments at Saffron Asset Advisors, which has invested about $27 million in Indian realty projects from the $230 million it raised through two India-dedicated realty funds. Mumbai-based brokerage SSKI Securities expects a total demand of 160.5 million square feet for commercial real estate by 2010 from the IT and ITES sector alone.

Gulf Oil, part of the Hinduja group, has publicly announced its intention to enter real estate. MD Subhas Pramanik has said that Gulf Oil is set to diversify into realty to unlock the potential of realty assets.


The company also proposes to develop knowledge parks and special purpose vehicles for infrastructure development. Then there is Shree Pre-Coated Steel, a special steelmaker, that is currently focused on developing growth from real estate. It recently decided to acquire 85% of Jolly Brothers, a company with leasehold right for 66 acres in Kanjurmarg in central Mumbai.

Wind energy company BF Utilities, a Bharat Forge unit, has gained from the recent realty rise. So has ceramic tile maker Anant Raj Industries. Its director Amit Sarin has gone on record to say that real estate has contributed 85% of the company’s revenue in the second quarter and that the company currently has about 800 acres of land.

Industry sources say there are instances of funds buying out sick and ailing companies that have large land holdings. Defunct textile companies in Mumbai are an example. After being cleared by the government and the courts, such companies have developed their real estate into large retail outlets.

Termed as another major driver of Indian real estate, the organised retail market is expected to increase to $35 billion by 2010 from the current $7 billion. This would boost the demand for real estate in Tier I and II cities, which in turn would put a pressure on land.