SOBHA Aims To Drive The Turnaround Of Residential Market In 2018
As of 31 March, 2017, SOBHA had completed and handed over 118 real estate projects with a total developed area of 42.44 million sq. ft. and super built-up area of 32.88 million sq. ft. in seven cities in FY17.January 12, 2018
By the time you read this we will be several days into 2018. For the residential market, the year gone wasn’t particularly spectacular business wise. The year 2017 began under the impact of demonetisation announced in November 2016. According to Gaurav Karnik of EY India, who heads its real estate practice, demonetisation impacted the overall real estate market not only on the demand side but also the supply, forcing end-users to adopt a wait-and-watch stance for the initial six months of 2017. Various studies show that new project launches dropped by over 40 per cent and the sales volume declined in high double-digits. Estimates suggest that the unsold residential units across the top eight cities is still in the vicinity of over 5 lakh units. That said, the year was not all bad for the business. Describing the short-term pain for the sector, J. C. Sharma, vice-chairman and managing director of real estate company SOBHA, says, “When we fall sick, the body has a way of course correction. The short-term pain has to be borne in order to recover and become healthier again. Of course, everyone in the business got affected. But things will turn for the better very soon. In fact, things are becoming better as we speak.” We met Sharma at his sixth-floor corner office at the headquarters of SOBHA in Bengaluru, while he himself was recovering from a bout of viral fever.
“There were some positives too that have sown the seeds for a transparent and accountable business practice in the realty sector going forward. Take, for example, the rollout of the Real Estate (Regulation and Development) Act, 2016 or RERA, effective from 1 May 2017,” Sharma points out. Among other things, RERA sets the disclosure norms between builders and buyers to safeguard the latter’s interests. Also, it calls for speedier resolution of property disputes, a separate account for timely completion of construction, etc. “In 2018 more demand is expected for the 2BHK (bedroom, hall and kitchen) and 3BHK segment, largely from end-users. There is a definite increase in site visits across Delhi NCR, Mumbai Metropolitan Region, Bengaluru, Hyderabad, Kolkata and several tier-2 and tier-3 cities,” says a senior executive in CREDAI, the apex body of real estate developers. Concurring with the prediction, Anshuman Magazine, chairman of the world’s leading property consultants CBRE, India & South East Asia, says, “Today, consumers prefer to buy a ready-to-move-in property that is devoid of any compliance hassles. We ourselves are witnessing a spur in demand in 2 and 3BHK houses going into 2018.”
In order to get a better sense of the demand, there is none better than SOBHA that stands out on several counts compared to its peers. The most important thing that sets SOBHA apart from its rivals is the company’s financial stability and continuous profitability in its 22-year old India operations. Besides being profitable, the company has generated nearly Rs 10,000 crore in combined annual revenue for the past five years. The same cannot be said about a number of its peers, particularly those based in North India. So far, it has completed over 406 projects and developed over 87 million sq. ft. of area and counting. In India, SOBHA is perhaps the only realty developer to have a unique backward-integrated model that ensures that the company has control over not just the supply but the quality of products it uses in its construction activities.
As of 31 March, 2017, SOBHA had completed and handed over 118 real estate projects with a total developed area of 42.44 million sq. ft. and super built-up area of 32.88 million sq. ft. in seven cities in FY17. The balance were projects that were either jointly developed with other builders or contractual projects. “At present, we are working on 39 real estate projects and 30 contractual projects in nine different cities — measuring about 51 million square feet of developable area,” says chairman Ravi Menon. The company recently announced Rs 3,000 crore of investments in construction cost to build 7-10 million square feet in the next four to six quarters across seven cities including Gurugram, Bengaluru, Pune and Chennai among others.
What’s So Special?
SOBHA is confident of launching at least two to four new projects every quarter in 2018. Not many have shown the same confidence. SOBHA is also actively considering moving into new cities including Mumbai, Ahmedabad, Hyderabad and Chandigarh among others, at a time when several of its rivals are still grappling with their existing projects. “Compared to selling 3-4 million sq. ft. a year, which we are doing now, our idea is to scale it up to 10 million sq. ft. in the next five to 10 years,” says a confident Sharma. But he does not stop here. SOBHA is also eyeing newer realty hotspots. “Hyderabad and Mumbai interest us as we are not present there at all. Ahmedabad is another highly progressive city where we should do business sometime in the near future. In Punjab, we are looking at Chandigarh. When we decide to enter a new city, we enter it with an open mind. In Gurugram, we are looking at expanding across two or three more locations in the next few quarters. There are also a couple of opportunities in Delhi that interest us,” says Sharma. This confidence stems from the company’s unique model of backward integration. This makes SOBHA the only real estate player in India to have all the competencies and resources in-house to deliver a project from conceptualisation to completion.
What is the backward integration model? Under this model, the company has three divisions — glazing and metal works, interiors and concrete products. Each division uses state-of-the-art equipment that has been especially imported from different parts of the world. Besides this, SOBHA ensures that the workforce employed in all these divisions are highly skilled, and therefore, imparts in-house training and certification in technical aspects at SOBHA Academy. This helps them enhance their skill set further. “Backward integration model is our key differentiator in the market,” says Sharma. SOBHA’s Concrete Products Division, located at Jigani Industrial Area in Bengaluru, manufactures concrete blocks, pavers, kerbs, water drainage channels, paving slabs and glass fiber reinforced concrete (GFRC), a type of fiber-reinforced concrete product for not only its internal projects but for other leading developers. “Our wide product ranges are extremely durable and can last a lifetime,” says D. Amarnath, assistant general manager of operations for the division. The company’s interior division undertakes customised joinery work and interior fit-out works for corporates, hotels, door systems for large projects and various home furniture products. This division, like others, caters to both internal and third-party work contributing over Rs 150-160 crore in annual revenue.
Then the company has a state-of-the-art precast technology with machinery imported from Germany and Italy to develop compact luxury homes for the SOBHA Dream Acres project, the first-of-its kind at Balagere, Bengaluru. The SOBHA precast plant is installed at the project site and is probably one of the largest and most modern set up, catering to large-scale construction with unmatched quality and speed. “Use of precast technology enables us to have better control on quality and construction cost, bringing down cost by 10-15 per cent. More importantly, it minimises rework and plastering, reduces dependence on workforce, and ensures quicker construction time,” says Menon. To get a better understanding of how the precast technology is practically helping the company, BW Businessworld visited the plant located within the premises of its Dream Acres Project at Balagere. Using the technology, the company is able to complete one full floor of construction within a week. At the site, one of the senior engineers said: “At any given point of time, we are working on five towers simultaneously, therefore in one week, we manage to complete five floors thanks to the onsite precast factory.” At this rate, the company can complete one entire residential tower in less than 10-months. SOBHA is now going to further expand and implement this technology across other projects in 2018.
How Did It Start?
SOBHA was founded in 1995 by P.N.C Menon, a Keralite who was in the construction business in West Asian countries for over two decades. “Oman Topaz was the first project on outer ring road. It was a milestone project on several counts. When he (Menon) showcased the project to N. R. Narayana Murthy of Infosys, it led to SOBHA bagging the contract for developing Infosys’ corporate headquarters in Bengaluru. And that is how SOBHA started,” says Sharma recalling the early days of the company. “We have built more than 40-42 million sq. ft. of Infosys campuses around the country. We have been associated with Infosys in some way or the other. Till 2006, we were a Bengaluru-centric and Infosys-centric company, you can say,” he adds.
But that is not the case today. SOBHA is operating across 23 states and planning to enter another half-dozen new cities in the coming months and years. “The success of SOBHA also lies in it joining hands with other developers in order to deliver world-class projects. Take for example, the recently announced super-luxury waterfront residential project called Marina One. It is in co-ownership with rival Puravankara, another major realty player from Bengaluru,” says a real estate analyst. Marina One is planned across an area of 16.7 acres at the Marine Drive, Kochi. It will comprise a total of 1,141 luxury waterfront apartments across 12 towers along with a 5 acre urban park. The first phase of the project is expected to be completed by 2021. Sharma says the company currently has projects in Thrissur and Kozhikode in Kerala, and that it will soon launch another project in Kochi.
The confidence of SOBHA also stems from its strong financial performance. During the second quarter ended 30 September, 2017, the company revenues stood at Rs 658 crore, a 19 per cent year-on-year growth. “Of this, real estate contributed Rs 493 crore, which is about 75 per cent of the top line, and the contracts and the manufacturing business contributed Rs 153 crore,” says Sharma firmly establishing the sound financials of the company. “Brand SOBHA’s resilience is evident in these numbers at a time when the sector awaits for the demand to pick up. We are hopeful about carrying forward this steady growth in the coming quarters as well,” says Sharma. He knows that the Bengaluru housing market will continue to grow, driven by a strong end-user demand and the proposed infrastructure improvements including the expansion of Metro lines, and elevated corridors that will further fuel demand for quality housing in the city and adjoining areas.
Our Motto: Attention To Minutest Detail
What sets SOBHA apart from any other large developers?
SOBHA’s strength lies in our relentless efforts to better processes, knowledge and competencies. In this endeavour, SOBHA has set up a unique model of backward integration, making us the only real estate player in India to have all the competencies and resources in-house to deliver a project from conceptualisation to completion.
How does the model help?
The model helps us to have total control on resource management and quality control, which are integral to the construction process under a single ownership. All our factories are well-equipped to cater to the internal requirements of SOBHA projects as well as other players in the construction industry. Today, each factory has grown to become a self-sustaining, revenue-generating unit for the company. In addition to this, the company also has an in-house talent pool of over 150 architects, top-notch mechanical engineers, and plumbing and project planning teams to execute some of the remarkable residential and commercial structures efficiently. This enables us to ensure quality of our projects and timely delivery.
What are the key driving principles of SOBHA?
Our brand philosophy revolves around ‘passion at work’, signifying our attention to minutest details carried out passionately. We are guided by five core values — international quality, passion, reliability, transparency and integrity. These values have not only helped us withstand adversity but also strengthened our processes further. More importantly, the principles have transformed us into one of the most trusted and admired real estate developers in the country. We believe and focus on quality and timely delivery of projects. These are of prime significance in the real estate business. Over the last 22 years, SOBHA has consistently followed these two crucial aspects to establish itself as a market leader and a pioneer. As a result, today, we are able to win not only new customers but also a large number of buyers who are repeat customers.
What role will technology play in construction and delivery of projects in future?
Evolving customer requirements, increasing construction costs and competition make it imperative for developers to embrace latest technology. Using the world-class precast technology on site enables us to have better control on quality and construction cost. It has helped us in bringing down cost by 10-15 per cent. Going forward, this will be the future of construction. Smart home automation is another important technology that is fast emerging in the Indian luxury housing space. Over and above the initial security features, the concept of smart home automation is now incorporating other features such as gas leakage detectors, fire detection systems, entertainment systems, energy efficiency systems and lighting systems among others. At SOBHA, we developed our first smart homes in 2012 with SOBHA Habitech in Bangalore. These homes are safer, more energy efficient and have a more convenient environment to live in.
Source: This article was originally published in the Business World January 6th, 2018 issue.