Chennai, Bangalore robust markets; Hyderabad yet to catch up: T Srinagesh

Interview with CEO, Pragnya Advisors Private Limited

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Real estate-focused Pragnya Advisors Private Limited, which had committed $60 million in equity to nine predominantly residential projects since 2009-10, is yet to find a momentum in the commercial space across south India. PAL's CEO T Srinagesh manages a $50-million fund, apart from advising global private equity players on investing in real estate. He tells B Dasarath Reddy the company needs to raise fresh funds to keep investing. Edited excerpts:

What makes a real estate fund tick even in times of economic slowdown?
Housing is a basic necessity for any individual. Therefore, the demand for residential projects always exists. All that you need is the right project at the right location. That is what we are doing.

How has Pragnya aligned its investment strategy to capture this demand?

Our investment strategy has three basic components. We encourage small and medium developers unlike big players such as L&T, and are also open to funding good housing projects even in Tier-II cities. Take, for example, our projects in Asansol (West Bengal) and Rajahmundry (Andhra Pradesh). We also invest in all categories of projects - from single bedroom units to premium segments.

Our success also lies in choosing the right project at the right place. For instance, we had invested in a 'villament' project (a combination of villa and apartment) at a location where most other developers had constructed only villa projects. Besides investing $5-$8 million in a project, we also provide a lot of value addition to the developers in terms of systems development, branding and marketing, among others.

What are the new projects that you are working on?
We recently invested about $5 million in our second joint venture project with Bangalore-headquartered Habitat Ventures. This is coming up in southeast part of the city at Bannerghatta in the vicinity of IIM-Bangalore. It is similar to the Villament project underway in the Whitefield area, and both cater to the high-end segment. PAL holds a majority stake in both. In Chennai, we are working on our second residential project with L&T on a much larger scale on 70 acres. Phase-I of the project, of 656 apartments on Old Mahabalipuram Road, has been sold out. In Kochi, we have started work on a second project. The first is an IT SEZ with a 400,000 sq ft of built-up space.

Is the market environment getting better?
In south India, Chennai and Bangalore continue to be robust markets. We see good employment generation across manufacturing and services sectors there. This has to translate into fresh demand for residential units.

The Hyderabad market has shown some uptrend, but is still a long way to go. It all depends on employment growth, especially in the service industry here.

We are looking at investing in Hyderabad as well. However, we are encountering a great mismatch between high land costs and lower real estate prices in this city.

How about projects catering to the mass market and commercial space?

Our two Kolkata ventures are a typical low-cost housing projects with unit price ranging from Rs 25 to 30 lakh. The new project in Chennai would also target the middle income group with a price tag of Rs 35-40 lakh. There is not much movement in commercial projects. Therefore, we are not focusing on commercial ventures. Margins largely depend on the location of the project irrespective of whether it is residential or commercial.

When will investors see the exit opportunity? Do they reinvest in the fund?
Six of our ongoing projects are expected to be completed in 2013-14. That would be the time for taking the returns. Investors of the fund are all from outside India. Whether they would like to reinvest in the fund would largely depend on the market sentiment prevailing at that point. Anyway, we need to raise fresh funds to keep investing.