Our focus is going to be on the premium residential segment and our source of differentiation is going to be design and hospitality-led consumer experience, says Rishi Raj, COO, Max Estates Ltd, the real estate development arm of the Max Group.

In an exclusive interview with Sanjeev Sinha, Mr Raj explains why Max Estates is currently on a land-buying spree and why they are venturing into the residential segment in a big way. Excerpts:

From Noida to Gurugram, Max Estates seems to be on a land-buying spree. What are your expansion plans?

The purpose of Max Estates is to ‘enhance quality of life through spaces we create’. Our stated strategy is ‘One region and Multiple asset class’ and we have been focusing on premium commercial and residential spaces in Delhi-NCR.

With acquisitions this year (completed and in pipeline), we will be ending FY23 with a real estate portfolio of 8 mn sq. ft., well diversified across Delhi NCR, asset classes and risk spectrum. Of the 8 mn sq. ft., 4.5 mn sq. ft. is commercial and the remaining is residential. Of the 4.5 mn sq. ft in commercial, 1.7 mn sq. ft has already been delivered across our assets in Delhi and Noida and the remaining 2.8 mn sq. ft is under design and construction in Noida and in Gurugram.

We have entered the premium residential segment, thereby adding a new asset both in Noida and Gurugram with development potential of ~1.1 and 2.4 mn sq. ft., respectively. In terms of our aspiration, we will add at least 1 mn sq. ft. each for commercial and residential every year. Max Estates aspires to be a leading real estate brand in the NCR region.

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Till now, Max Estates was largely into commercial spaces, but now you are venturing into the residential segment in a big way. Why is this sudden shift in strategy?

As stated above, our strategy is ‘One region and Multiple asset class’ and our aspiration is to add at least 1 mn sq. ft each in residential and commercial spaces. In line with this strategy, entry into residential was not a matter of ‘if’ but ‘when’.

Having demonstrated our track record in commercial developments across Delhi and Noida, and factoring in the market dynamics post Covid, where the resurgence in the residential segment was the swiftest and the most substantial, we decided to venture into the premium residential segment.

Additionally, we believe there is a tremendous market opportunity. From more than 100 known developers in early 2010-11, today we only have a few credible developers to serve a population of ~25 million.

Consumers have become more discerning focussing on quality product and experience as key drivers in addition to the location. And, the sector is fast undergoing the phase of corporatization at the back of regulatory reforms. As a result, the market share of 11 listed players in India’s six cities has risen to 20-22% currently from 14-16% before the pandemic struck.

Considering our strategy and market opportunity, we believe the timing is right for us to bring our wellness-oriented development and operating philosophy to residential space in Delhi NCR.

In the residential segment, what would be your focus area – affordable, mid-segment or luxury housing — and why?

Our focus is going to be on the premium residential segment and our source of differentiation is going to be design and hospitality-led consumer experience. The well-being of all our stakeholders is at the core of our operating philosophy.

Across all our commercial developments we have focused on “WorkWell” which stands for a lifestyle where all the physical amenities of a modern workspace come together with human-centric design. And thus, all our commercial developments have an environment built around enhancing and enriching your work and your life, ensuring holistic wellbeing, and allowing you to truly “WorkWell”.

Following the successful implementation of the “WorkWell” philosophy in our commercial assets, Max Estates will now look to implement its LiveWell philosophy, which focusses on the holistic well-being of its residents across all age groups by focusing on 9 key elements, including safety, sustainability, environmental harmony, inclusive design, among others. Key is to rigorously factor this right from design to execution and operations in detail ensuring consumers can truly LiveWell in communities that we design, develop and operate.

Our flagship residential development in Delhi NCR is coming up in Sector 128, Noida. It is spread across 10 acres with 7 acres of naturally landscaped gardens and lawns. It is a boutique development promising an elevated quality of life through pioneering design, wellness and sustainability. With just 200-250 units across 10 acres, it is one of Delhi NCR’s lowest density developments. In the design of the units, a special emphasis has been laid on generating an experience of luxury and quality through delivering an understated elegance and the highest quality benchmarks that Max Estates is known for. The project is in approval stage and the expected launch is in H1 CY23. The project has development potential of 1 mn sq. ft. with expected gross development value of Rs 13,000+ mn.

For our upcoming residential development in Sector 36A Gurugram, Max Estates will be developing the region’s first inter-generational community and partnering with our senior care sister company ‘Antara Senior Care’. The project will be developed on a 12-acre land parcel sstrategically located at the confluence of the Dwarka expressway, Central Peripheral Road (CPR) and a planned Metro Corridor offering excellent connectivity to central and secondary business districts of Gurugram such as Cyber City, Golf Course Road, and Southern Peripheral Road (SPR). The project has been acquired through the joint development route, and has a total development potential of ~2.4 mn sq. ft. with expected gross development value of Rs 32,000 Mn+.

Can you also update us on your upcoming commercial offerings?

As stated above, we will be ending FY23 with a real estate portfolio of 8 mn sq. ft., well diversified across Delhi NCR, asset classes and risk spectrum. Of this, 0.7 mn sq. ft is our already delivered commercial developments – Max Towers in Noida and Max House in Okhla Delhi. Both the assets are 100% leased to marquee tenants at 25-30% premium to the micro market. The total topline from these 2 assets is Rs 500 mn per annum. Our third commercial development is Max Square in Sector 129 on Noida Expressway with a total leasable area of ~0.7 mn sq. ft. The development has received Occupation Certificate (OC) in February 2023. It is witnessing a strong leasing traction and has revenue potential of Rs 600-700 mn per annum.

Our upcoming assets include:

Max House Phase Two in Okhla, Delhi with development potential of 0.15 mn sq. ft. and is expected to be delivered by Q2 FY24. This will make our Okhla development an unparallel office campus in South Delhi – epitomizing the theme of ‘modernity blends with tradition’. This will have a revenue potential of Rs 250 mn per annum.

Max Square Two is in Sector 129, Noida – an extension of Max Square with a development potential ~1 mn sq ft . Combined Max Square and Max Square Two with the theme of ‘where nature meets work’ will be a unique 7-acre mixed use campus seamlessly blending the office space with retail and F&B . This will have a revenue potential of Rs 1,100 mn per annum.

We entered the Gurugram commercial real estate (CRE) market with the acquisition of a ~7.15-acre land parcel right on Golf Course Extension Road (GCER) which has a development potential of ~1.6 mn sq. ft. It is one of the very few commercial land parcels available on GCER with three side access. Gensler, a leading global design and architect firm, is designing the office ecosystem, which will bring Max Estates WorkWell promise to Gurugram. It will have a revenue potential of Rs 1,700+ mn per annum.

In summary, we have built a commercial real estate portfolio of ~ 4.5 mn sq. ft. with combined top line of Rs 4,500 + per annum once all assets are stabilized. We aim to continue to grow this portfolio in Delhi NCR by adding at least 1 mn sq. ft. per annum.

New York Life, a financial services company and the largest mutual life insurer in the USA, has been our strategic partner in the real estate business since 2017. They hold 23% in the Holding Company i.e., Max Ventures and Industries Limited, and have also co-invested in Max Square Phase 1 & Phase 2 for 49% stake and committed Rs 2,900 million for 49% equity in Max Estates’ first commercial office development project in Gurugram, taking their cumulative commitment to INR 8,000 Mn. They will continue to evaluate co-investment, as a strategic investor, in our CRE business.

Overall, what is the demand in both commercial & residential segments?

Residential:

All real estate asset classes have been on the recovery path over the past few quarters; however, the resurgence in the residential segment was the swiftest and the most substantial. 2022 witnessed a decadal high in-home sale both Pan India (~313,000 units) and in Delhi – NCR (~58,000 units).

The key drivers for this robust resurgence in demand have been:

* Firstly, the need to own home (vs rent) that was acutely felt during the pandemic COVID.

* Secondly, extremely low interest rates prior to subsequent hikes and comparatively low property prices made the case for homebuying even stronger.

Of late despite the Reserve Bank of India raising policy rates by a cumulative 225 bps and increasing mortgage rates during the year, the residential demand has remained resilient.

* Firstly, the interest rates continue to be lower than the previous cycle,

* Comparatively strong economic growth outlook,

* Relatively little income disruption in the mid and high-income categories and increase in homebuyer salaries is preserving affordability quotient.

* Changing consumer preference post COVID with preference towards larger homes with open spaces like decks/balconies are willing to spend on that extra space for accommodating work-from-home realities and ensuring a much-needed breathable space for everyone.

With these residential tailwind, backed by end user demand and shifting preferences, we expect this growth momentum to continue in 2023 and is significantly favourable to corporate developers focussing on quality product and end user experience.

Commercial:

India continues to remain an actively growing office market with positive job creation and its established and further-growing credentials as a tech and innovation hub is supporting more R&D work coming into the country. Most companies’ expansion plans remain intact albeit with an anticipated delay given the global headwinds but, more firms continue to look at India from a talent and business perspective, all of which account for the strong 2022 performance and augurs well for the future. Pan India net absorption for CY 2022 ~38.3 mn sq. ft. (has surpassed the three-year pre-pandemic average (2016-2018) by ~16% as well and is second only to the 2019 net absorption numbers (~47.9 mn sq. ft.) for the last 10 years, showcasing the strong resilience of the Indian office markets.

Delhi-NCR has consistently maintained its position in the top pack in terms of leasing activity. Delhi NCR office market made a strong recovery in 2022 as net absorption (6.16 mn sq ft) reached at par with the five-year pre-pandemic average (2015-2019) of 6.4 mn sq ft.

The pandemic has resulted in an increased emphasis on EHS (environment, health & safety) parameters by occupiers, which augurs well for quality developments. Flight to quality assets is underway which means that occupiers/ companies are seeking the highest quality and most sustainable buildings with modern amenities in prime locations and are willing to pay premium for it.

Due to global headwinds, some delayed decision-making is expected by corporates. However, India’s dominance as the ‘global outsourcing/ offshoring hub’ will continue to create new office demand supported by growth in manufacturing, healthcare, financial services, and life sciences.

Do you have any other plans to expand beyond Delhi-NCR?

Our strategy is ‘One region and Multiple asset class’. So, at present our focus is on Delhi-NCR and 2 assets classes. Rationale for focusing on NCR is:

a. We believe that NCR offers a big opportunity in terms of the market size – NCR has been consistently amongst the top 2-3 in commercial and residential real estate markets in India and offers us to play in 3 states (Delhi, U.P. and Haryana).

b. For a region with 25-30 population, there is vacuum in the NCR real estate space as there are very few Grade A+ corporate developers with strong balance sheet.

c. RE is a micro play business that cannot be replicated across cities easily due to significant variations in regulations, practices, and customer preferences.

d. Synergistic benefits of NCR as the home turf for Max Group. So, for now, we will continue focusing on Delhi – NCR.