Real Estate Will Always Remain an Attractive Asset Class

East India’s realty major, Merlin Group has about four decades of legacy of developing housing , shopping malls IT Parks, and commercial projects. It has developed over 20 million sq ft of projects in Kolkata, Chennai, Ahmedabad, Raipur , Bhubaneswar and Colombo. The group has delivered 100 projects and has 20 ongoing projects in Kolkata, with many more in the pipeline.Last year it forayed into Pune market with the launch of a mega commercial project with plans to construct projects over 30 lakh sq ft at an estimated investment of Rs 2000 crore. The group is in possession of 500 acres of land parcels to build 40 lakh sq ft of inventory over the next few years.

In this exclusive interview with Torbit Realty, Sushil Mohta, Chairman, Merlin Group & President – Credai West Bengal talks about the group’s performance in 2022 and future plans, growth prospects of Tier 2-3 cities, and prospects of real estate in Kolkata and India as a whole in 2023. Excerpts.

Vinod Behl

How was Merlin  Group’s journey in 2022 ?   

In 2022, we have had a  record growth since the inception of our Company . We sold over 1200 units with almost a million sft space. Our total turnover will cross Rs. 1000 crore. We also have a number of projects on the drawing board and hope we will continue the growth with this pace.

We launched a remarkable project “Sports Republic – Merlin Rise”, a huge township in the periphery of Rajarhat , New Town, Kolkata. It will have   sports academics like Cricket Academy by Yuvraj Singh, Football Academy by Ronaldinho, Swimming academy by Michael Phelps, Boxing & Gym Academy by Tiger Shroff. Additionally, we will have a Badminton Academy, a family club and about 7000 apartments, retail space  and a school.

In addition, we  launched a few luxury and mid segment housing projects. There are  a total 14 ongoing  projects . We also launched an IT Park spread over  about 4 lakhs sq.ft in Sector- V, with a focus on MSME/ Start up sectors .  In addition, there will be retail and F&B in this building. We have got  very good response and have already got a booking for 40% of the inventory at the foundation stage  itself.

We  also picked up a brown field  shopping mall of about 350000 sq.ft. on Diamond Harbour Road. We have named it  ‘Acropolis – South’. In nutshell 2022 was a  remarkable year for our  growth.

Going forward., what are your business/expansion plans in 2023 ?

We have identical plans for 2023 . We intend to have the same pace of sale, achieving almost one  million sq.ft of sales, topping  Rs. 1000 crores and we are actively looking for some commercial and warehousing projects. We have a land bank for warehousing and logistic park  in Howrah. Site preparation is going on and we intend to start this project this year. We also have some premium and high medium income group residential developments under sanctioning process and intend to launch them in 2023 .

We are parallely looking at strengthening our management bandwidth, not just to achieve growth numbers  but also to ensure

quality, delivery, customer satisfaction and  profitability of the company.  our sales have gone up by  almost by 100% from last year  and this pace will continue. For the  next 3 years, we have projects duly lined up for launches and  we will continue to sell atleast a million sq.ft yearly,  if not more .

How are you positioned in Kolkata and what are your precise plans this market ? 

We are amongst the top 2-3 developers  in West Bengal to achieve this size of business in the region. Further, with increased volumes of sales, we are also maitining good  profit margins. We are also  able to deliver quality product, having a good brand re-call and are  well placed  to get new projects regularly.

In fact Kolkata and sorrounding areas  are a different kind of market compared to the rest of the country. There is hardly any competition because of very few established  developers and restricted supply. One can count on the fingertips the number of good developers. With compelete transparency due to RERA, now only established players like us can survive. Although  in Kolkata the industry size is not as big as Mumbai, NCR or Bangalore, but for us it is advantageous because of entry barriers and less competition with hardly any new developers coming from outside Kolkata.

We are catering to  the higher middle class, middle class and lower middle class  segment with huge demand for  ticket size  between Rs. 50 Lakhs to Rs. 1.5 crore. The salaried class getting  80 to 85% home loan are our  buyers. Because of the easy availability of home loans to our customer segment, we get timely payment. This type of housing is like a ‘staple’ where  the demand will be there atleast for the  next 10 year, if not more.

We are taking new projects, in areas with good demand, due to metro and other transport connectivity and good social infrastructure.For example , we have a number of projects in Rajarhat, New Town and Behala- Tollygunge. Both areas are well connected with metro,  wide roads and  bus routes and have very robust social infrastructure which makes them a preferred choice for housing. This is a reason why we have not picked up projects in areas with sluggish demand and lesser traction, like Batanagar, Dasnagar, Konnagar etc.

 You have forayed into  Pune market , with plans to invest Rs 2000 crore over the next 5 years. What are your precise plans for this and other markets in  2023 ?  

Presently our growth plan will restrict to Pune, Bubaneswar and Chennai, other than Kolkata where we are present. these cities only. We have greater  focus on Pune and can also take up some projects in Bhubaneswar. In Pune, we have already started a  commercial  project with a mix of  offices and retail. We intend to start residential projects sometime next year and also there is another big retail project, IT Park, residential and mixed-use development which is under planning.  Here, We  have 3 projects in pipeline, of about 3 million sft, with one commercial  project of 180,000 sft already launched and construction and sales  have already commenced.

In Bhubhneshwar, we have a million sq.ft  residential project in partnership with Sureka Group of Kolkata.  Here the Ph – I was sold at a decent price  with a good margin. It will be completed by the  end of this year and we are  now in the process to start sales and construction of Ph – II.

We intend to take up more projects in Pune and  Bhubhneshwar for the  reason  that these are very similar markets to Kolkata .   Moreover, they have  almost the same kind of investment, cost, supply, sales etc and here our brand is also well  known. With a competent team in place, it is easier for us to handle business here

In Chennai we have  a PPP project with Airport Authority of India, in partnership with Olympia group. This one  million sft Parking and Retail facility is already  complete. Parking operations have already started and initial revenue trends look very promising.  In a couple of months the retail, F&B, cinema will also  start and we will achieve the targeted revenue, if not more.

 Your group has been into Tier 2-3 cities.  How do you look at the growth prospects of these cities?

The Tier 2 – 3  cities are all poised for growth. As urbanisation in India is still at 30% compared to the global average of 50%, there is enough opportunity in India including in Tier2-3 cities  for township development, residential and commercial buildings.

But, Tier 2 -3 cities  also have their own challenges. There are infrastructural challenges in terms of water supply and drainage systems.The Tier 1 developers, compared to the local developers , have much better  brand equity, marketing skills,  quality and  financial  muscle. The risk taking appetite of  large Tier 1 developers  is also much higher but at the same time the Tier 2 – 3  market has got limitations. Sometimes in many of these cities, the market doesn’t have depth and has an  oversupply situation.

In Tier 2 – 3   cities, the overhead cost of outside developer  will always be high compared to the local developers. The cost of construction for an outside developer will  also be always high because of following certain structural and quality standards whereas the local developers  have lot of ways and means to cut the cost, Another challenge for an outside developer is in terms of creating brand awareness. In a nutshell,  there are both advantages and disadvantages in Tier2-3 cities . But overall  I can say that there are enough opportunities in Tier 2 – 3  cities and if one can pick up the right project,  these  cities hold big potential.

Q5  With rising interest rates and increasing prices affecting the sentiment of buyers and investors, how do you see the attractiveness of real estate as an asset class vis a vis other asset classes ?

Real Estate will always remain an attractive asset class. The home loan  interest rate has increased but one has to see in the horizon of 4 years.   Presently it is almost, the same as it was  2 – 2½ years back. So, overall there will be a short term effect because of the price increase and interest cost hike . But in the longer term, the real estate will always remain in demand.

 How did real estate perform in 2022 on pan-India level in general and Kolkata in particular ? 

The year 2022 was good on a pan-India basis and also for the  Kolkata  real estate. The first two quarters were fantastic for sale as well as new launches. The sales were a bit sluggish in the 3rd & 4th quarter because of increase in interest rate, but overall the scenario was  good. Many new projects were launched, with  good absorption of all classes of real estate i.e. residential, commercial , retail. I think this year also new projects will come and the pace of sales should continue to be high .

 What is your outlook for 2023, both for Indian real estate and Kolkata market? 

There will be some challenges in 2023 because of the rising interest rate and also increasing cost of construction due to  inflation and global recession etc. But I think Indian economy is resilient enough.  There will not be much impact of global recession in India. The demand and growth will continue  with some small periodic turbulence but in the long term and overall I don’t see much issues and the developers who are committed to timely  delivery and good quality , will continue to grow.

With rapid urbanisation, there will always be demand for housing and other real estate classes .  Atleast for the next 10 years , real estate sector will continue to have opportunities.   If a developer picks the right kind of project, design it right, price it right and ensures timely delivery with promised quality, then he can grow without any challenges.