Our philosophy is to stay within the spirit of the law

Pirojsha Godrej, Managing Director and CEO, Godrej PropertiesHe’s young, disarmingly unassuming, yet exudes an air of quiet confidence. Pirojsha Godrej, scion of the Godrej Group, who took over as Managing Director and CEO of Godrej Properties Ltd (GPL) in April this year, is geared to take on the task. A Wharton Business School graduate with a Masters in Business Administration from Columbia Business School, he began his journey at Godrej Properties in 2004; he was made Executive Director in 2008. Seated in his corner office at Godrej Bhavan, he talks with Group Managing Editor, Falguni Padode, about the recently floated fund and the company’s plans…You recently created a Rs 770-crore residential development platform with international investors, led by Dutch firm APG Sparinvest Property Investors, looking at investing into mid-sized investments across three cities. Have your plans firmed up?Yes, I think the strategy of the platform has been finalised, and the partnership is in place. The key goal of this will be to go out and invest in land parcels either through buying land or JVs where there is a large upfront capital requirement. The focus is specifically on mid- to premium-residential projects in Mumbai, NCR and Bengaluru, primarily. We may also look for investments in Chennai and Pune. From our perspective, it allows us to access a new set of opportunities; our model so far has been to follow a capital-efficient JV model, and we are currently working on the development management fee model. Now, this allows us to remain within a capital-efficient strategy and at the same time, capture a new set of opportunities where capital is required, particularly in current market conditions. This is an exciting opportunity for us.So you will be foraying into a new model...From our perspective, the model is similar to what we have been doing. Essentially, we are replacing landowners with our financial partners. So, from our perspective, the strategy in cash flows is quite similar to a JV, which is why we like it. But, you’re right, it is a new model.In the JV model, for every new project, you deal with a different set of people. How challenging has it been as a model, compared to developers who own the land?Frankly, the advantages far surpass the challenges. What it allows you to do is use a very limited amount of capital to do many more projects than you could have done if you were buying the land. It is a much more capital-efficient strategy, and it has allowed us to move quickly; moreover, it mitigates risks by spreading investments across a larger number of projects. From a management perspective, you have to make sure that your partners are taken along. But, the negotiation happens in the beginning before you even get involved in the project. All the terms are finalised at that stage, which is similar to when you buy land. Once it is complete, we take over all the operational aspects of the project. We do keep the landowners informed; in case there are major concerns, we conduct discussions with them. There is a certain amount of complexity in management and in dealing with multiple partners. But, those issues are relatively simple compared to the great benefits the model provides. The number of deals we can undertake are much more in this model than in buying land and locking capital.For both parties…Yes. The partner stays involved, property prices go up and they can make more money than by selling the land upfront, which is a big advantage from the land-owner’s perspective.GPL has projects in 12 cities, and local expertise and understanding how the local development authorities work are the key to successful delivery. What has your experience in different geographies been, especially in Gujarat?Broadly, we have been successful in all the cities we have entered. One of the biggest advantages we have as compared to many other developers is that ours is a national brand. So, both potential JV partners and customers do know us as a group, and that gives us a big advantage over many developers in terms of ability to enter a new market successfully. Mumbai and Pune are like our home markets.In Bengaluru, we have su­ccess­fully sold 2 million sq ft in residential projects; in Kolkata, we have sold more than 2 million sq ft; in Ahmedabad, we have sold 4 million sq ft in the last couple of years. We have been successful even in markets like NCR, which is very competitive with many established players. We entered the market there in 2010, and our first project sold out in a few months. Soon, we hope to launch our second project there, and the interest in it is huge.Our ability to understand what the customers want and effectively market residential projects is demonstrated by our strong track record in various parts of the country. We need to understand each market as well as the best local players do, and our ambition and goal in each of these critical markets is to become one of the leading developers. We spend a lot of time understanding the markets and launch projects after extensive research. As far as the authorities are concerned, it depends on what you are trying to get approved. There is a certain set of developers that try to get approvals that are beyond the spirit of the law. Our philosophy is to stay very much within that. We have been witness to the way approvals in Mumbai are being reversed and the problems developers are facing.What was your experience in Ahmedabad – the Garden city project?We have sold 4 million sq ft in Ahmedabad and will launch a fifth phase in three to four months. The experience there has been good, and the project has been doing well; we are focussing on creating infrastructure around and within the project. In fact, we expect to deliver our first apartments to our customers by September 2013, maybe even before the schedule we’ve committed to them.With the slowdown India is facing and uncertainties about markets in the short term, how does GPL look at Tier-2 and -3 cities, given that they require less capital and are therefore a lesser risk?In most cities, it is very hard to predict what’s going to happen in the short term. We are much more confident in predicting the medium-term outlook for the sector. Clearly, we are going through a period of weakness, both as an economy and as a sector, but the overall trend will be hugely positive. Look at the kind of economic growth that is expected in India in the next 20 years, the kind of demographics we have today and the kind of urbanisation that will take place. Broadly speaking, all urban areas will do well. Clearly, the kind of urbanisation expected cannot happen in just two to three cities; Tier-2 and -3 cities, where we are already present, will grow as well. But, for the next two to three years, we would like to focus primarily on building our presence in cities in which we are already established, specifically in some of the larger cities, and try to establish a leadership position.You are doing a project with Jet Airways in Bandra-Kurla Complex, Mumbai. Where does it stand?It is at a fairly advanced stage in terms of design. Excavation has already happened; when we came into the deal, it had already taken place. We hope to engage in construction at full speed after the monsoons.What has GPL’s experience been in contracting and dealing with contractors? You are working with L&T in many projects. So, was there any prior learning?Yes, initially we started doing a lot of work in-house. Then, we felt that considering that we wanted to grow rapidly and in multiple markets, trying to integrate backwards would be difficult to accomplish with the kind of quality we would like. We wanted to work with best-in-class contractors. Hence, we are largely working with L&T for most of our projects, but we engage other contractors as well.What’s been your experience with international architects, and what’s the rationale for involving them in your projects?I think it is experience in many cases. The kind of projects that are being planned in India today is very different from those that have historically been delivered. Having architects who have delivered such projects and have that expertise can be helpful. The Indian architecture industry is also progressing rapidly and gaining capabilities rapidly; they are doing some fine work. So, I think the line between international and Indian architects is blurring rapidly.You recently invited international architect Tadao Ando to India. Any plans to work with him?We would love to. We think he is one of the most exciting architects in the world in terms of the body of work he has done and the kind of expertise and differentiation he brings. We have not identified anything specific at this point, and we did not invite him for anything specific. In the long term, our project at Vikhroli is what we are most excited about, and someone of his stature could add a lot of value to that kind of project.Any plans to get into affordable housing?The problem is that there is no clear definition of what that means. Everybody has a different view. Truly, it should be priced under Rs 15 lakh a unit, and although we are interested, I don’t think the current environment is very supportive.What you need for a successful business in that space is great volumes. Clearly, the per unit profit and margin is not going to be great. To be able to create volumes, you need to be able to churn land quickly, and our biggest concern is that it is not easy to do so in India today. With the kind of title issues and approvals required, it is a time-consuming process. Five years from now, I expect to have some portion of our business in the space. But, the government needs to step in with better incentives or improve the ability of developers to get approvals for this to take off in a meaningful way.You have NRI investors investing in your residential properties across cities. So, do you see any shift with the rupee weakening against the dollar?A little bit of added interest, which helps, but nothing big. I do not expect international demand to be able to be of a similar size – nor should it be. Ultimately, we want people who are going to be living in these properties as their first home.Any plans to build outside India?No. Enough opportunity and complexity here!