Magarpatta City: India's most important real estate project that you probably have not heard of

Over 120 farmers contributed 430 acres of land to Magarpatta Township Development and Construction Company.

There is a company in the city of Pune that is arguably the most important real estate developer of India. 

It’s important not because it has giant sales or profits. On the contrary – on any financial metric it will rank as a mid-level developer. It builds townships spanning hundreds of acres. But then that is also hardly uncommon. DLF does it in thousands of acres. Hiranandani Developers does it in hundreds. Others do it as well. 

Why is it important then? 

Its importance lies in the way it develops a township. It doesn’t buy land from farmers for building a township. Instead, it makes the farmers shareholders. Farmers give their land not for money but for equity shares in the company. The company grows, the farmer grows with it. The company I am talking about is the Magarpatta Township Development and Construction Company. The township it has built: Magarpatta City, Pune.

Theoretically this should be the most desirable formula for township development. It ensures that large amounts of capital are not needed to acquire the land. Farmers become shareholders and gain handsomely when the land is developed--instead of a one time compensation for land. Project viability improves as the cost-structure is lean with lesser debt.  

Practically, Magarpatta City is the only meaningful example in India that has been successful in pulling it off. Over 120 farmers contributed 430 acres of land to a company. The greater the volume of land contributed to the company, higher the shareholding in the company.

So how do the farmers who give their land to the company then make money? Answer: 30% of the amount paid by home buyers are distributed to farmers according to their respective shareholding level. Similarly, lease rentals from the commercial assets are distributed to the farmers. The big bonanza, however, isn’t that. That comes from another source. After a phase of training, farmers become entrepreneurs who would then become vendors / contractors to the Magarpatta City township. The smallest farmer, who contributed a meager 1/8th of an acre to the company, installed all the doors in the township and owns seven apartments in Magarpatta today.

Last month I had the opportunity to visit the township. It is a cluster of residential developments, a thriving commercial complex, vibrant retail, schools, hospitals and a non-existent nightlife establishment. 

To understand the township – one needs to understand its largest land owner and Managing Director, Satish Magar. Every part of this mini-city has the personality imprint of Magar. He is an extraordinarily unusual person to have succeeded as a builder in Maharashtra. Born into an influential political family, he is an unassuming man with an urge to create a society of high principles, loyalty and nationalism.

Man behind the township

Participants who have dealt with him state that Magar is a man not prone to compromise. In the world of extensive stakeholder management where compromise is almost a necessity, that personality trait of his alone should have made him fail multiple times over. That he hasn’t failed is because the man’s moral authority overpowers his weaknesses. Aggrieved parties often believe an unfavourable verdict has been done in the spirit of fairness and larger interest.   

Magar studied agriculture and took the bold step to build a township without any meaningful construction experience. Farmers joined him with their land and sustained with him despite the period of 1994-99 when the idea existed but development didn’t begin for want of government approvals.      

Like the man himself, the township is simple, efficient and rigorously middle-class in its orientation. It doesn’t have the beauty of Hiranandani Gardens in Mumbai. Neither is it as intimidating in scale as DLF in Gurgaon. None of the buildings at Magarpatta are meant to dazzle. If one placed any of its 273 buildings on a busy street – it would certainly be missed. But as the buildings are planned and placed with intimate care within the township, it flows seamlessly.

Capital is easy today for the township. But it wasn’t so in the beginning. Lenders ignored the company–for justifiable reasons. Involving a group of farmers and led by a man without significant experience is a risky bet. Eventually one lender agreed–HDFC. 

Magar asked for an ambitious Rs 100 crore from Deepak Parekh. Parekh found Magar to be genuine, hard-working and an able organizer. He heard out the Rs 100 crore demand but then countered with his offer: Rs 2 crore. But also, the infrastructure support of HDFC to sell the Magarpatta real estate story to home buyers. Humbled, but not humiliated by the paltry Rs 2 crore from Parekh (whom Magar reveres) it forced the township to do hard selling and even harder cost-efficiencies. That habit continues even today. 

Clean and efficient

Cost efficiency is best demonstrated by the focus on renewable sources of energy. I am yet to see a single large project anywhere in India with the pervasive presence of solar energy of the kind that is visible at Magarpatta. These measures play a contributing factor in homeowners not having to pay any recurring monthly bills for maintenance.

I met Magar and asked him the obvious question: Why have other builders not succeeded in getting varied farmers together and do land pooling? Two factors are important according to him–1) One needs to be a farmer himself as they are the ones who understand the mindset and psyche of other farmers; and 2) One needs to be absolutely transparent.

Personally, I hope his assessment comes untrue as it’s very unlikely to meet those two conditions. For Magar however it is a sweet ride after cultivating a healthy brand equity. He is undertaking two other large townships after farmers approached him to replicate the Magarpatta model.

He may succeed. But the transformation of rural India will need many more of him.