Infrastructure companies -- public and private -- are diversifying into the real estate sector after realising the potential of the sector and to offset the cost of ongoing projects.
Sanjay Verma, joint managing director, Cushman & Wakefield, said that this side activity was a stream for generating cash flows.
With hundreds, if not thousands of crores riding on one infrastructure project, real estate development enables companies to sustain their funding and profitability.
For instance, seven per cent of the Delhi Metro Rail Corporation's Rs 10,000 crore (Rs 100 billion) phase one project was funded by property development. It had initially targeted 3 per cent from real estate development, but was able to garner much more.
Its four real estate ventures include an IT park in Shastri Park, residential development at Khyber Pass depot and commercial projects at Khayala and Bhai Vir Singh Bagh.
For its phase two, requiring Rs 8,118 crore (Rs 81.18 billion), DMRC plans to raise 5 per cent from property development.
It is still in the process of identifying these projects. With the introduction of new technology and processes in construction, especially in the office space, real estate developers are collaborating with infrastructure companies for engineering, design and construction purposes.
DLF's 50:50 joint venture with Laing O'Rourke, an infrastructure-cum-construction company from the United Kingdom, allows the Delhi-based real estate developers to borrow new technology and thereby improve its delivery.
Amitabh Mundhra, director, Simplex Infrastructure Ltd, said that while infrastructure companies have the technical expertise, real estate developers are the experts in procurement of the land and also in marketing the projects.
Simplex is currently involved with the engineering, design and/or actual construction of 150 million sq ft of real estate space.
"Barring the land price, the cost component of large format projects can be broken down to 80 per cent for construction, 12 to 15 per cent for design and engineering and the balance for marketing," said Mundhra.
Hyderabad-based infrastructure company Lanco forayed into real estate development with an investment of Rs 3,500 crore (Rs 35 billion) for an integrated township spread over 100 acre.
This project is currently under development in Hyderabad. "Real estate has good prospects and we can get high returns," said B Manohar, director-property development, Lanco.
Lanco plans to develop at least four more townships with two each in Chennai and Bangalore.
Do you want to discuss stock tips? Do you know a hot one? Join the Stock Market Investments Discussion Group
