Wednesday, November 22, 2017

Interview - Rubi Arya (Milestone Capital Advisors)

From a long term perspective there will be money available for Smart Cities

 

 

 

Formed in 2007, the Mumbai-based Milestone Capital Advisors is a privately held alternative investment advisory firm. Milestone's investors comprise institutions, family offices, government organisations and high net-worth individuals in India and overseas. One of the biggest home-grown private equity funds in the country having an AUM of approximately Rs. 3000 crore, Milestone advises 8 schemes across real estate and bullion products. RUBI ARYA, DIRECTOR AND VICE CHAIRPERSON, MILESTONE CAPITAL ADVISORS spoke to SHRIKANT RAO on the prospects of Smart City financing on the sidelines of a real estate summit in Mumbai

 

 

 

A key challenge for Smart Cities that are being planned by the Indian government would be funding. Is there finance available for the construction of smart cities?

 

Real estate is never going to lose favour with investors. There may be a short term blip that we are seeing right now but the long term story is still intact. I mean the latent demand is still there. People may be in a cautious wait and watch approach and they are not actually going ahead and consummating the deals but the latent demand is still there and there will be financing available. I think what is not right at the moment is the sentiment. If the sentiment improves, the economic situation also improves. If the macroeconomic factors improve it will have an impact on real estate. From a long term growth point of view there will be money available for these smart cities.

 

 

 

What is a world wide experience in terms of funding of smart cities? Do they provide enough return on investment?

 

If you just look at the Gujarat Corridor which is taking place it is a great example of a smart city and well planned. When we talk about smart cities we have to talk of infrastructure. Infrastructure and real estate go hand in hand. One feeds on the other. If you are able to tie in and stitch everything together and give shape to the city I think it is a very good proposition because I think with growing urbanisation people are becoming more aware, families have turned nuclear and people need more housing. When they need housing they also need infrastructure – they want their houses to be close to the place where they work, they also want connectivity, roads, parks, amusement, entertainment and all of that if you can build which is basically the concept of smart city. Once you have those great corridors in place you will automatically have a lot of real estate coming in around them. If you get the plan right and execute it well, I think finances will come.

 

 

 

Is there a concept one could describe as smart financing? Can that evolve here in India?

 

Why not? I mean I think you have to be creative. In any financing the more creative and innovative you are, the smarter you can be. At the end of the day I think whatever the financing it has to make overall sense to the investor and every stake holder has to gain from it. And there is a lot of patient capital which is waiting.

 

 

 

Are you saying that there already is a thought process that has been activated in terms of financing such cities? Is that happening?

 

I am sure that there are people waiting at the fence, watching developments very closely. That is happening. I mean if we look at infrastructure there are people who have already put in a lot of money. It is a different thing though that the returns from infrastructure have not been so great because in some cases land acquisition has not happened, or the approvals have not come, or the construction has not happened. So there has been a bottle neck more from a regulatory and approvals point of view.  Infrastructure is just one portion of it, but real estate is the only place where you can actually get a double digit return. Which other asset classes perform? Equity has not performed. It is now only that the equity markets have sort of picked up but real estate equity has not performed. Real estate in that way has delivered as far as the current situation is concerned.

 

 

 

What are the things required for smart finance to evolve? What are the ‘must do’ steps for the government?

 

Number one requirement for the developers, or whoever will be the partners in the smart city projects that the government wants to take up – it could be in the Public Private Partnership mode – would be corporate governance and transparency. No offshore investor will take kindly to lapses. If they feel that their money is not safe you may not be able to deliver superlative returns. A great deal of governmental help is required in terms of regulatory mechanisms. A lot of these projects get stuck because the developer doesn’t want to make it. The funding is available, the developer also wants the project to take place but somewhere the regulatory process is stuck. So I think if regulatory approvals, corporate governance and transparency are in place then financing of such projects should not be a problem.

 

 

 

You are saying that there are a lot of patient funds waiting in the wings. Do you see an urgency on the part of the government to get things right

 

Is there currently an urgency to set things right? Perhaps not – the focus currently is on the elections. There is a lot of policy inertia because of the political uncertainty. So there is no urgency to fix anything right now.

Once the new government comes in – and we are hoping that it will be a stable government –  they will sort of see what is in the pipeline and what needs to be done. We are talking of reforms in the real estate sector like the regulation bill, REITS, draft guidelines for FDI into real estate…all these proposals are sitting with the government.

 

 

 

Would firms like yours be interested in putting money in areas like smart cities?

 

Milestone is not into infrastructure – we don’t have a mandate there. We are very much real estate focused so would like to deal with the real estate portion of the developments. We will definitely look at commercial.

 

 

 

Do you see a lot of real estate funds looking at smart cities as time goes on?

 

Yes very much so. Everyone wants to grow their pie. I would want to lend to a developer whose would be looking at an opportunity of building intelligently. Smart, green, energy efficient – all of those things will definitely catch on.  I see construction funding from banks also improving and banking norms and interest rates coming down. Overall there will be an impetus.  It is a patient wait and watch right now. Once there will be returns there will be refinancing options available. There is a latent demand but also a demand supply mismatch. We need to provide homes to millions of Indians. So there is a lot of scope for affordable housing. If the norms can be relaxed and made more people and project friendly then I am sure that lot of investment will chase us.

 

 

 

Do you discern some momentum on the Smart Cities front since they were announced last year? 

 

Yes, I think the announcement is the first step. What happened 30 years ago in the West, should definitely happen here too. We have already started seeing it. Look at how many flyovers we had 10 years back and how many we have now. We may keep blaming every government that comes in because we expect more and more. I personally think things are moving. Can they move faster? Definitely they can but the pace right now is slow.

 

 

 

Do you see oversees funding into these Smart City projects?

 

Domestic funding will not be sufficient for Smart Cities so they will need overseas money. It is the overseas firms that can write billion dollar cheques which Indian companies can’t. 




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