The Merlin Group is a name to reckon with in the real estate sector. BE’s Saptarshi Deb spoke to Saket Mohta, the young and dynamic Managing Director of the Merlin Group on his success story.
Q) The Covid-19 pandemic has been tough for the real estate sector in India. How have you responded to the challenges you faced?
A) The real estate sector hit the rock bottom in 2020 with the onset of the pandemic. The sector had been going through one of its worst phases for the last few years. However, the pandemic has brought in a paradigm change. It put the nail in the coffin from March to July, 2020. Construction work came to a halt from March 2020 in Kolkata and elsewhere. As the fatal disease peaked, migrant labourers also rushed to go back to their villages - resulting in complete shutdown of construction activities. The government tried to infuse some liquidity into the system but as sales stopped, the cash flow was almost zero and real estate developers were left with unsold inventories. Buyers were also in their worst states with the fear of retrenchment and salary cut across all sectors. As per a report, project launches were down by 79% across India’s top eight cities in the April to June period of 2020 and inventory accumulated to over 738,335 units nationally.
However, we at Merlin tried our best to turn the situation around. As the ‘unlock phase III’ started, we hired vehicles and brought back migrant labours as they were also starving. We put social distancing norms in place and under close supervision and by adhering to the Covid-19 protocol, work resumed again in August. We resorted to a digitised mode of marketing and sales. People who suffered during cyclone Amphan and the lockdown in Kolkata showed keenness in shifting to gated communities. They wanted larger spaces in gated communities and they came back to the trusted brands like Merlin to book their dream homes. We turned around from September 2020 as buyers started coming and in 2021, we have already reached the sales figure of the pre-Covid level. We have launched quite a few projects in 2021 like Merlin X and The Fourth. Both are in premium segments.
As far as commercial real estate is concerned, malls were the worst hit among the real estate sector. In fact, the malls were the last to open in the unlock phase. Multiplexes opened up even later. Multiplex is one of the greatest footfall drivers to a mall.
Besides the grocery items, people did not start their discretionary expenditure in malls during the initial phases of the unlock period. People did not come in large numbers, so footfall dropped to a zero from July to September. With the festive season, footfall started increasing but even now, it has not still reached the pre-Covid level. The footfall in Acropolis mall has reached 60 to 70% of the pre Covid levels. We had to do a lot of marketing events and promotions to bring back the crowd and push up the sales.
We suffered to the tune of `50 crore last year as we supported the retailers and had to waive off the rental as they were not getting any sales. Even now, we have not recovered our full rental and are getting only a fraction. We also are promoting the brands through social media to revive their sales. Hopefully, we shall be able to redeem the rental to the pre-Covid level if the Covid situation completely dies down by June.
Q) How would you evaluate the Budget 2021? How would it impact the real estate sector?
The 2021-22 Union Budget has been a sensible budget. It puts money into healthcare, sanitation, infrastructure and agriculture. Monetisation of surplus land and huge investments on metro, airport and highways are good initiatives.
By and large, this is a good budget - focusing on long term growth. We welcome the big picture of boosting the FDI, Ease of Doing Business indexes, and focus on the tax administration and compliance. There is no TDS coupled with applicability of the lower tax in case of tax treaty with countries. This will attract FDI - particularly in commercial real estate and REIT. The emphasis on healthcare, huge investment in infrastructure, manufacturing and agriculture is definitely a way forward for India to become a $5 trillion economy. In the context of West Bengal, the government has committed upgradation of 675 km of national highways including upgradation of existing roads connecting Kolkata to Siliguri with investment of `25000 crore and that is a welcome move. Another welcome move is the `20000 crore allocation for capitalization of the banks by creating an assets reconstruction company. This may ultimately bring much larger funds with 20000 crore as base capital. The government will also unlock surplus land which may be available for real estate projects in urban areas. The allocation of `35000 crore for Covid vaccination is a welcome move and will be useful in enhancing the confidence of the market. Additionally, the government is planning to monetise old assets and create new infrastructure and attract FDI in insurance. These are all welcome initiatives.
But we expected some focused measures for the real estate sector like reduction of GST on under construction projects and bringing back input tax credit. We expected more liquidity to buyers to boost the consumption by raising the ceiling of rebate on the home loan interest. This could have proved to be a helpful measure to attract more customers to invest in properties. Real estate is the second-highest generator of employment and contributes more than 8% to the economy. Both developers and buyers hoped that the Budget 2021 would introduce reforms like tax sops and correction in prices which could further benefit and stabilize the industry. The Budget has also extended deduction of `1.5 lakh for loans taken till March 31, 2022. This means, the deduction benefit of `1.5 lakhs under Section 80EEA will now be available for buyers who invest in affordable housing projects before March 2022. This provides relief for buyers who are seeking investment opportunities in a market where new launches have fallen and developers are focussing on clearing their existing stock. The government’s push towards Housing for All under the Pradhan Mantri Awas Yojana (PMAY) will only revive the real estate sector, which has witnessed a slowdown due to large-scale policy changes such as demonetisation, GST and the RERA.
The extension of tax holiday on affordable housing will promote the launch of more affordable housing projects. The FM has also allowed tax exemption for notified affordable rental housing projects - which could further boost the prospects of this sector. This is a welcome decision. Kolkata is a city where 60% of projects are in the affordable segment. I feel we would witness more launches of such projects in India.
Q) The Merlin Group has evolved into a household name in the real estate sector. What is your vision for taking it forward?
A) For 35 years, we have been in this business of development. I am a fourth-generation developer and going forward, I would like to take this legacy ahead by creating more landmarks in the city - be it residential projects, premium housing, affordable housing or luxury offerings. Moreover, we have already developed 25 lakh square feet office spaces in Kolkata and going forward, we are targeting 25 lakh square feet of space in the next five years in the commercial segment. We are also looking forward to bolster our retail portfolio. Presently, we handle the South City and the Acropolis malls and we are planning to build more malls and community spaces.
We are diversifying into different cities such as Bhubaneswar, Pune, Ahmedabad, and Chennai. We have developed 20 projects in Ahmedabad and four projects in Chennai and we are starting three projects in Pune. Our vision is to become a pan India developer in the next ten years and to be recognized as a trusted name in our sector.
Q) You are already present in the residential and commercial segments in real estate. Are you planning to diversify in near future?
A) We are into retail, residential, commercial office spaces, resorts as well as second home development. We are proud of being recognised as real estate players and we plan to stay in this sector. We will build more IT portfolios in Pune. We want to focus on developing IT parks. We are also developing a 35-acre industrial park in the Pakuria area in Kolkata. We are developing some plots and logistic places in the industrial park where big industry players and e-commerce companies will set up their units.
Q) Please take us through your upcoming projects.
A) Geographical diversification is already on the cards. We have three projects in Pune - two upcoming commercial projects and one residential project. We also have one project coming up in Bhubaneswar which measures around 10 lakh square feet.
We have upcoming projects all over Kolkata – in Dumdum, Belgachia and Gopalpur areas. We are planning big with our sports city in Bishnupur in Rajarhat. In South Kolkata, we are also having projects in the extended southern E M Bypass. We have a couple of residential towers coming up in the Park Street area. We are also coming up with projects in Sector V in Salt Lake. Geographically, we have projects coming up all across the city of Kolkata measuring more than one crore square feet this year.
Q) How are you looking to place your company nationally and internationally?
A) Internationally, we are developing a project called Altair in Colombo in Sri Lanka. It is an iconic 70 storied tower. Renowned architect Moshe Safdie has designed the tower. It is a luxury project. The tower is already completed. The last leg of work is getting done and the project should be ready by the middle of this year.
Q) The consumer sentiment is rapidly changing when it comes to real estate offerings. As a prominent developer, can you point out some important emerging consumer trends that developers need to look out for in the next decade?
A) Historically speaking, consumers were less exposed to technology and the role of technology has rapidly evolved to impact our sector as well. The role of home automation has become really very important. People value this concept. It empowers them with security as well convenience features. A consumer can control their lighting and air conditioning by pressing a button on their home automation features fitted to their smartphones. They can also monitor their children playing in the common area of the building through CCTV features inbuilt in their phones while they are away. These features have now become an integral part of the decision-making process of a large chunk of consumers. These facilities and amenities have become very crucial for consumers who prefer to stay in gated communities. Secondly, people have started valuing the quality of products the developers use in building their projects. Thirdly, the timely delivery of the projects is of paramount importance for the present consumers. Earlier, the consumers were forced to compromise with delays in completion of the projects. Now with the advent of RERA and HIRA, developers have to adhere to the guideline in timely completion of projects. Now it is the question of the survival of the fittest. Customers have really evolved in terms of awareness and knowledge of the rules and regulations. A lot of consumer activism has increased. These changes in consumer preferences are probably the reasons behind our turnaround story. Even during the pandemic, we never compromised with the timeline and always delivered on time. For us in Merlin, quality, technology and timeline adherence always rule the roost.