May consider launching REIT in 6-12 months, data centre business growing very fast: Niranjan Hiranandani

During the interaction, Hiranandani said that affordable and mid-ticket home sales were primarily affected by high interest rates and the lack of PMAY interest subvention for a year

Niranjan Hiranandani, co-founder and managing director (MD) of the eponymous Hiranandani Group, is considering the launch of an office real estate investment trust (REIT).
The proposed REIT, which can be described as a company that own or finance income-producing real estate across a range of property sectors, is estimated to have a  portfolio of around 7 million square feet (sq ft ) of commercial realty at the group's integrated developments in Powai and Thane in the sprawling Mumbai Metropolitan Region (MMR), Hiranandani said during an interaction with Moneycontrol.
He said investors have shown keen interest in Yotta, the group's pure-play data centre arm. The revenue generated from Yotta is expected  to equal or exceed that of the group's residential property business in the next few years, he added.

Though Hiranandani Group aims to run the company as a family-owned business, it has shown interest in infusion of external capital in recent times. The firm has partnered with private equity major Blackstone to set up Greenbase Industrial and Logistics Parks, which is operational across four major markets in the country.

Earlier, the company sold part of its office portfolio in Powai to asset management firm Brookfield.

Hiranandani said the firm is bullish about growth in its core residential business in Mumbai's peripheral regions, particularly in areas adjacent to the upcoming Navi Mumbai International Airport, which is scheduled to begin operations in March, 2025.

The realty firm is developing the 550 acre-Hiranandani Fortune City, which is located around 20 kilometres (km) away from the under-construction airport. A part of the Fortune City, including residential areas and a data centre, is already operational.

During the interaction, Hiranandani spoke of the Reserve Bank of India's (RBI) repo rate stance, recent weakness in affordable and mid-ticket housing sales, and a plan to step back from day-to-day operations and slip into a "mentorship" role amid a bid to turn the family-run business into a more "professionally managed" corporate entity.

Edited excerpts from the interview:

The RBI changed its stance, but not the interest rates. How do you view the development and going ahead do you expect to see some easing in the supply of credit?

Interest rates have components like inflation, which has been brought under control, and that is a very positive sign. Foreign exchange reserves are also strong at more than $600 billion. All in all, this is an opportune time to reduce interest rates and my belief is that the rates should or could have been reduced, and if it was reduced by at least 25 basis points (bps), it would have sent the right signals to the market. The US Federal Reserve already reduced rates by 50 bps in September and have signalled further cuts going ahead. The only headwind, I perceive, is the escalating geopolitical tensions in the Middle East. There is a question of crude oil prices going up, which, in turn, impacting our exports and imports. But as soon as the US reduces interest rates further, I think the RBI will be convinced that they should be able to follow suit.

There are indications of stress in the lower end of the housing market, especially in the under-Rs-1-crore category, and some investors have turned bearish in the real estate sector. Is that an indication of the sector potentially entering a downturn, or the growth cycle is flattening? And how much is that a concern for major players in the industry?

Of course, it’s not a point of any concern. Affordable housing was a segment that people found it difficult to aspire for the most, and there is a struggle. The first thing that hit this segment was the interest rates, which have risen from 6.5 per cent to up to 8.6 per cent over the past two years. There was also an interest subvention scheme of 1.5 per cent through the Pradhan Mantri Awas Yojana (PMAY). In the past year alone, no subsidy is available as far as PMAY is concerned. The second round of the scheme has been announced, whose rules came into effect a few days ago.

Houses under the PMAY will be available at lower rates. Besides, homebuyers were expecting the income tax deduction to increase from the existing Rs 2 lakh. Unfortunately, that did not happen. But you are correct. This is the first time that affordable housing has been hit by slower growth, as compared to mid-and-other housing segments.

Is supply also an issue in the affordable housing segment?

Supply is not available in Mumbai. But there is no such acute crunch in the city’s peripheries.

The Hiranandani Group has also been big on alternative assets, such as industrial and logistics parks and data centres. How much of the group revenue is expected to come from such asset classes?

At present, data centres account for around 10 per cent as far as revenue is concerned. Data centre will equate or even exceed residential real estate over the next few years. Growth in data centres is definitely much faster than residential real estate. We don't know what extent data centres will reach, but as of now, the speed is exponential, maybe up to 20x. Greenbase is also growing. We expect a year-on-year growth of up to 20 per cent. Chennai, Talegaon and Hinjawadi near Pune, and Nashik are the new vectors of growth. Work will resume in Bhiwandi soon. We are also looking at Bengaluru as a growing market.

Is there any interest in overseas investors, from PEs (private equities) or others, in Yotta?

There is a massive level of investors’ interest. Darshan (Niranjan Hiranandani's Dubai-based son, who looks after Yotta and other group ventures) is in talks with investors. We will be in a position to share more information about this in another six months or so.

Generally, the group has stayed away from going public all these years. But with these new business arms, will you look at a REIT or an InvIT (Infrastructure Invest Trust)?

We have around 4 million sq ft of office space in Powai and Thane, and we could look at a REIT. We are not planning a REIT immediately, but maybe in six to 12 months. We will add another 2.5 million sq ft of office space by the end of the year. We are seeing interest from all kinds of prospective end-users, including banks, financial services, information technology (IT) companies and others.

Could you shed some light about the group’s succession plans?

I’m increasingly getting into a ‘mentorship’ role. Gradually, we will pivot towards a professionally-managed company. For the first time, we have an interim Chief Executive Officer (CEO) for our real estate business. All the businesses have dedicated teams, and real estate will probably be the last in that regard. In six months' time, the real estate business will probably have a full-time CEO. I’m enjoying the role of a mentor much more than my operational function as the MD. Besides, I run colleges, hospitals, HSNC University, and other functions, which keep me busy.