#NDTVProfitAtWEF | Strong leadership has put #India in the spotlight at #Davos2024, says RMZ Corp's Manoj Menda.
Watch him in conversation with Niraj Shah. #WEF
Watch him in conversation with Niraj Shah. #WEF
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TVTranscript
00:00 It's not often that you find a large real estate entity out of India at the cold shores
00:18 of Davos. Okay, maybe not shores, but the cold hills of Davos. And that's what we have
00:23 today. I'll be speaking to Mr. Manoj Benda of RMZ Corporation on their view of what they
00:28 are gauging the interest in India right here at the WEF and how is it that they envisage
00:34 the movement of the sector in India over the course of the remainder of this decade. Mr.
00:39 Benda, great having you. Thanks for taking the time out. Thank you, Righuraj. In some
00:42 sense, it would be a happy cooperation because everybody, everybody unanimously believes
00:49 that we're in the midst or at the beginning of a longer term real estate cycle, which
00:56 has come after a really long time. Is that your belief as well? Absolutely. I think the
01:01 first belief is India, right? I think we're, you know, we're all benefiting from the leadership
01:08 in India today, right? I mean, it's, it's thanks to the leadership that's put India
01:13 out in the map. And I think it's now our fiduciary responsibility to grow that belief that we
01:21 have in India. We speak about rebuilding trust, right? The government has done that for us.
01:27 And now as an industry, we have to step up to it. So if I look ahead from 2024 and beyond,
01:35 India is going to be probably the most promising real estate market globally. Right? If you
01:40 look at 2023, two markets outperformed itself, the Middle East, parts of the Middle East,
01:46 more in terms of residential and India, India as a whole, across all the asset classes in
01:51 real estate, India outperformed. So we've had these two markets that have been outliers
01:56 in terms of performance. Vis-a-vis the West that's been crying out loud about a possible
02:02 distress in the commercial real estate markets. So I think if we look at 2024 and beyond,
02:10 it's India's story. You gauge some of that out here because I did, but I'm just trying
02:15 to understand what you thought of the few conversations that you would have had at the
02:19 WEF this time around. I think we have had many conversations, right? And again, if you
02:27 look at the dry powder that's there today in real estate around the world, there's $400
02:32 billion of dry powder waiting to be invested. Right now, how much has India absorbed last
02:38 year? We absorbed about $5.5 billion. So it's only a small sliver of the available dry powder
02:45 that can potentially come into India. And what's worked in our favor is also the domestic
02:51 capital markets, right? They've outperformed themselves. And I think there's a lot of liquidity
02:56 available onshore, apart from the dry powder that you see coming in. So that's one area
03:02 of interest that a lot of international investors have, is they want to try and find avenues
03:08 to bring in their dry powder into India. And what we're seeing now is how do we build resilience?
03:15 Right? In our buildings. So if you look at today, if you went out in Europe today, there's
03:21 a lot of legislation to say that buildings that have a vintage of 20 years plus are going
03:27 to be possibly redundant. One third of Manhattan is possibly going to get redundant because
03:33 they're not compliant. But to our good fortune, the industry in India has responded very well.
03:40 So compliance to building green buildings has been on the mindshare of every person
03:47 in the built environment. Right? And I think it's the role now of the Indian real estate
03:54 developer to transform the built environment in India. We have a great opportunity for
03:59 transformation. Interesting. Well, you have to admit that buildings in India and a lot
04:07 of metros at least have come of age. I mean, they're comparable to almost any or better
04:11 than most global buildings that we'll see as well. I would love to understand how do
04:15 you see the remainder of this cycle, be it five years, be it seven years, or be it hopefully
04:21 even longer. Would it be dominated by a mix of both residential and commercial? Because
04:28 2023 certainly saw, even Q4, we got this Collier's note which spoke about how global capability
04:33 centers have really expanded their presence into India and mobbed up commercial properties
04:41 as well. So how do you see this mix going ahead? Neeraj, if you look at today, India
04:47 versus what you looked at India maybe 20 years ago, if you invested in, you were a financial
04:52 investor that came into India, you had a choice of investing in residential or residential.
04:58 There were no other options available. Right? At that point in time, the doors were shut.
05:02 We didn't have foreign direct investment in India. But over the last 20 years, the two
05:06 asset classes that have benefit have been in commercial real estate, which is office
05:11 and residential in India. Office today is about a 350 million square feet market for
05:18 grade A. What is 350 million? It's very small. Right? If you look at Manhattan alone, it's
05:26 over 500 million square feet, just one borough of New York versus India, grade A stock is
05:33 350. And that's growing by about 50 million square feet every year. Right? You spoke about
05:40 the global capability centers. We have about 1600 of them operating today in India. And
05:46 that's growing. That's the highest absorption comes from them. So what used to be in a back
05:54 office processing, as we would call it, BPO in those is today knowledge centers. Right?
06:01 India is actually going to be leading. It has been and will continue to lead in the
06:06 services economy. Now, this would naturally have a positive impact on commercial real
06:11 estate. Move ahead to residential. India does about half a million units a year compared
06:20 to China, which does maybe 30 times more. Right? India's contribution to GDP is 7% in
06:30 real estate versus 30% in China. So if you look at just these two parameters, contribution
06:36 to GDP in India versus in China, contribution to GDP is 30%. Absorption is half a million
06:42 units in India, whereas there is about 15 million units a year. So that's the huge upside
06:48 that you're going to see in residential. And there's a short supply of residential in India.
06:52 And then we have a great population growth that needs housing. Everybody wants housing
06:57 in India. You look at some of the other asset classes that have dominated and will continue
07:03 to dominate industrial logistics. We saw the e-commerce boom. We see supply chain opportunities
07:12 growing. So industrial logistics is going with manufacturing also now. India benefiting
07:17 from manufacturing. We're going to see a lot of growth in industrial logistics. It's a
07:20 very, very small segment today. And then there are other thematic investments and thematic
07:26 asset classes, which are beginning to come in, like life sciences. We haven't got something
07:32 called multifamily as yet. Multifamily is today the biggest asset class in the West.
07:37 We don't have that in India. So I think that's another asset class that's possibly going
07:41 to get started in India. We're all going to benefit. All we have is single family condominiums
07:46 that we sell, but we don't have multifamily residential for letting out in India, which
07:51 is a huge opportunity. Apart from that, there are other opportunities to do retail. There
07:57 are other opportunities to do health care, hospitality. I mean, look at hospitality in
08:03 India. It's a hundred to one hundred and fifty dollar ARR. Compared to anywhere else in the
08:08 world for that quality of service and product, you'd probably be paying five hundred to seven
08:12 hundred. So that's, again, a huge opportunity for us to cash in on in India.
08:17 But surely we're not talking about going down the China route when it comes to the property
08:20 market, right? Because we know what happens as a result of the excess development that's
08:24 happened there. But what you're trying to say is that the headroom for growth, even
08:28 if you don't know the whole hog, is still very high relative to where we are right now.
08:31 You know, I think here is what let's understand what went wrong in China and what hasn't gone
08:35 wrong in India is the financial system. Right. The discipline and the financial governance
08:41 that we have in in India, which is imposed by the Ministry of Finance, is amazing. Right.
08:48 It doesn't let us, you know, out leverage the asset. I think what's possibly gone wrong
08:53 in China and in many other parts of the world is excessive leverage. Right. So in India,
08:58 we don't have that issue. Is there's a there's a fair amount of discipline amongst every
09:03 single developer in the built environment to say we need to make sure that our leverages
09:08 are under checks. So I think leverage has played a key role in possibly damaging the
09:16 Chinese real estate industry and now is impacting the Western world as well. The CMBS markets
09:22 that we see that are coming up for renewables, a couple of trillion dollars. We don't see
09:26 that in India. Right. So I think from a leverage perspective, we stand to gain in India.
09:32 My final point, and that is dwelling on a number that you mentioned about the dry powder
09:37 waiting versus what's coming. Now, I would love to understand, because you told me before
09:42 this interaction about how you think about your own assets, not just the next three or
09:46 four years, but longer term. Do you. And we've seen that in capital markets that the FII
09:53 flows have been very strong, never mind what happens in one year. And now the flows are
09:57 also strong. But in real estate, do you anticipate global financial institutions to make an even
10:04 larger investment into physical real estate, be it commercial or residential as the case
10:09 may be, or projects as the case may be really picking up 2024 and beyond?
10:15 Absolutely, Neeraj. I mean, if you today look at India's REIT market, right, the India REIT
10:21 market is 0.2 percent of India's GDP. Right. If you look at it in Australia and in Singapore,
10:29 they're anywhere between 13 to 30 percent. Right. So the REIT market has not grown as
10:35 yet in India. So that's a huge opportunity for FIIs to come in and invest in if they
10:40 want to. They want liquidity in their investments. The REIT market's the best platform for them
10:45 to invest in. So I think if you just take every asset class that's available in India,
10:50 right, you can the risks are different. Right. You do not want to take too much risk. You
10:55 want liquidity, then invest into the public markets. You want to take development risk
11:00 and enjoy the upside of development because the development yields in India are still
11:05 the richest in the world. If you went in and invested a dollar of capital in today, London,
11:10 your development yields are maybe five to six percent. You invest that same dollar in
11:14 India, your development yields are between 10 to 12 percent. Right. Today, the opportunities
11:19 for development, whether you decide to make an investment in office, in residential, again,
11:25 residential has a three to five year horizon. Office may have a seven to 10 year horizon.
11:30 Industrial may have a shorter horizon. So I think there are a lot of opportunities today
11:34 for FIIs to come and invest a part of that 400 billion dollars, which is is waiting on
11:39 the sidelines based on their risk appetite, based on the events of liquidity. And I think
11:45 if you look at and I come back to the theme at Davos, which is about rebuilding trust,
11:52 that's something that we all need to do. Right. We have a judiciary responsibility. We're
11:57 custodians of capital, whether it's for the retail investor or for the financial investor.
12:02 And I think as long as as as an as an industry, we we we actually act upon that. Right. And
12:08 our voice needs to be heard, because at the end of the day, we are contributors to the
12:13 GDP. Right. We real estate in many which ways does solve a lot of problems. Right. It doesn't
12:20 create problems, but it does solve a lot of problems. But in order to do that, we have
12:24 to be good custodians of the capital. And as long as we can do that, show show financial
12:29 governance, I think these the capital that's available out there from the current five
12:34 point five billion could easily double and beyond. So I think it's very positive to invest
12:40 in India. India as an economy is doing very well. The leadership is is fantastic. The
12:46 industry is growing. And I think we as an industry need to elevate our voice and we
12:51 need to be greater custodians of capital. Lovely talking to you, Mr. Mahinda. It's the
12:55 first time that we have you on NADV Profit, but certainly hoping it's not the last. Thanks
13:00 for being with us today. Thank you, Neeraj. It's it's always a pleasure to have a conversation
13:04 with you. And we look forward to engaging in Davos or on the shores of India. Yep, most
13:09 certainly. Thank you. Thanks for tuning in. Thank you.
13:11 Thank you.
13:12 Thank you.
13:12 Thank you. Thank you.
13:13 Thank you.
13:14 Thank you.
13:15 Thank you.
13:16 Thank you.
13:17 Thank you.
13:18 Thank you.
13:19 Thank you.
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