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How Tata Housing Reinvented Itself

Real estate slowdown? Brotin Banerjee hasn’t heard about it, having grown Tata Housing 100 percent every year since 2006. He has transformed a defunct company into a serious player

After studying law I vectored towards journalism by accident and it's the only job I've done since. It's a job that has taken me on a private jet to Jaisalmer - where I wrote India's first feature on fractional ownership of business jets - to the badlands of west UP where India's sugar economy is inextricably now tied to politics. I'm a big fan of new business models and crafty entrepreneurs. Fortunately for me, there are plenty of those in Asia at the moment.

When the real estate market cracked in 2008, Tata Housing
chief Brotin Banerjee’s bet on affordable housing proved to be an inspired one
Image: Prasad Gori for Forbes India
When the real estate market cracked in 2008, Tata Housing chief Brotin Banerjee’s bet on affordable housing proved to be an inspired one

He was considered a rising star in the Tata firmament. Eight years into the elite Tata Administrative Service (TAS) and he had notched up several credits that proved he had what it takes to go the distance.

Brotin Banerjee had a stint with Tata Chemicals. He launched a lower cost variant of Tata Salt and also a new distribution model. Success noted. Next, he got a big up with a promotion to chief operating officer of Barista—at the ripe young age of 29. Banerjee fixed a sagging bottom line at the coffee chain. He’d seen the vibrancy of a young brand and led a passionate team.

It was then that he—and the system—got a shock. In 2006, when everybody would have expected a plum assignment in a major Tata company, he got a dud—an almost defunct company. Among the close to 100 businesses that existed under the pater familias Tata Sons, there was a housing company that few knew much about—or cared about. In fact, things were so bad that Tata Housing Development Company was then known more by its acronym THDC since it could not afford to pay the royalty to carry the Tata name.

THDC was an oddball player in 2006 because the rest of the industry was booming. Developers were fiercely bidding up land prices to build large land banks. DLF, the country’s largest real estate company, got a dream valuation of Rs 20,000 crore when it launched its initial public offering (IPO). The Tatas were then just waking up to the realisation that they were missing something here.

And so Banerjee found himself in a small flat in Emerald Court in Mahim, Mumbai (THDC’s office) as deputy CEO of a company that had a negative net worth of Rs 10 crore, which means its liabilities exceeded its assets by Rs 10 crore.

Cut to the present, and Tata Housing has seen nothing but a dizzying climb. Over the last half decade, it has grown at a compounded annual growth rate (CAGR) of 100 percent and clocked revenues of Rs 1,097 crore in the year ended March 2013. Simply put, the business has doubled every year and the company is currently constructing 70 million square feet of saleable properties across the country. “They’ve managed to get here due to their focus. Unlike other developers they never sacrificed long-term stability for short-term gain,” says Shobhit Aggarwal, managing director, capital markets, at Jones Lang LaSalle, a real estate services firm.

The Initial Days
How did Banerjee do it? Without a land bank, and without any borrowing capacity worth speaking about? People in the industry grudgingly admit today that not many of them had given Tata Housing much of a chance.

Banerjee was also hamstrung by the fact that no one wanted to join the company. “I would have people come in through the door and their first question was—why can’t you use the Tata name?” he says. He knew he needed to do things differently. So he hired people from different sectors (not real estate) who came with new business ideas and attitudes.

The next crucial phase was to get business flowing. Here too it was Banerjee’s contrarian approach that worked. Tata Sons pitched in with Rs 100 crore of equity. But in the go-go years before 2008, that was hardly enough to purchase land. And the company didn’t have a balance sheet to support large borrowings from banks.

That was when Banerjee realised that, to get started, he needed to look outside the traditional housing business model. He and his management team noticed that while there was a bubble building up in the premium and luxury housing categories, the affordable and low-cost housing space was experiencing a huge shortage. The company estimated a shortage of 24.7 million units with most of the shortage falling in the affordable housing space.

Among the first projects the company launched was a low-cost housing development in Boisar, an exurb (commuter town) of Mumbai. Here they constructed over 2,000 units at costs ranging from Rs 5 lakh to Rs 15 lakh. Now, affordable housing is not something developers were looking at in 2007. But when the real estate market cracked in 2008, it proved to be a wise bet.

While working on the project, Banerjee realised that he needed to re-engineer the entire process of how real estate development was thought of. Traditional developers usually sell their inventory in tranches. As real estate prices keep rising, it helps them realise gains. Moreover, developers, and at times buyers, are not too perturbed about project delays as the value of the property keeps rising.

But with low-cost housing, the dynamics completely change. Low-income buyers with stretched budgets need deliveries quickly. Selling inventory in lots doesn’t make sense as demand is usually more than supply, and the cash realised from sales helps in getting working capital. “We monetise how a manufacturing company would,” says Govinder Singh, CFO at Tata Housing.

Unlike the skills needed in the real estate industry, here manufacturing-like skills were needed.

And it was here that Banerjee decided to adopt an approach that is different from the usual cookie-cutter one. It paid off richly. His mantra: Construct quickly, hand over apartments and move on to the next project. It’s hardly a surprise that five years on, low-cost and affordable housing makes up almost Rs 500 crore of Tata Housing’s top line. The company has spun it into a new business unit called Smart Value Homes and it aims to become a leading player in the space.

The Land Issue
With low-cost housing the company got an important entry point into the business. But Banerjee saw that unless Tata Housing was able to get into other, more lucrative parts of the trade, it would never be seen as a serious player. Here financing of land was a critical issue as these projects cannot be located outside cities.

mg_71169_tata_housing_280x210.jpg
What Tata Housing needed was a capital-light model that allowed it to develop projects on prime land but without outright purchase. Aiding it was a 2008 Reserve Bank of India directive that forbade banks from lending for land purchases. That was when Banerjee decided to get into joint development agreements (JDAs) with landowners. It is a model that has found favour in the real estate industry since, but most companies, if they have the capital, still favour purchases over JDAs as they believe the upside is greater.

But the downside is also greater, when there is a slowdown. This saddles land buyers with too much debt. This story has played out at DLF, the country’s largest real estate company by revenues, which has been struggling to sell assets to reduce debt.

Tata Housing has two types of JDAs. One is where the company has a floor and a cap model. In this, the company pays the landowner a fixed cost for the land. The upside is capped at a reasonable level, say 20 percent. The advantage for the developer is that it is able to benefit if prices gallop. Several large landowners across the country now prefer going for deals like this as they still maintain some ownership of the land and get a minimum rate of return.  

Another popular approach that Tata Housing takes is to use land parcels by signing a joint venture agreement and becoming a majority partner. From then on it takes care of everything—from conceptualising the project, to design, marketing, construction and delivery. The landowner gets a fixed percentage of the topline.

Branching Out
Over the last three years, Banerjee has moved quickly to de-risk parts of the business. One way of doing this has been to get into different types of housing projects. So, apart from low-cost and affordable housing, the company is also in premium and luxury housing. It recently launched a second homes project in Kasauli, Himachal Pradesh, which has been doing well. And most recently, it ventured into old-age homes in Bangalore.

“What this does is ensure that the company does not suffer too much if a certain segment is impacted by a slowdown,” said an analyst at a foreign brokerage, who declined to be named.

Along the way, the company has had some particularly successful launches. In April, in the Delhi suburb of Gurgaon, it decided to launch a block of flats in Sector 112 at Rs 2,000 more (than the prevailing price) per square feet. While they knew they’d got the location and pricing right, the response surprised even them. On the first day, the number of buyers was 11 times that of the flats available, as people flocked to the Tata brand and the assurance it brought. The company had to hold a lottery to determine whom to assign the flats to. However, it has not had this success with all its projects. There are some projects, like the La Montana project in Pune, which are struggling.

But having tasted success, Tata Housing is not looking back. At a time when there are signs of an extended real estate slowdown, the company plans to step on the gas. Last December, Tata Sons infused Rs 500 crore into Tata Housing. It’s a sign of the faith the management has in the business.

Banerjee admits that from here on it will be difficult for the company to double revenues every year but he aims to take the business to Rs 5,000 crore in the next three to four. Recently, in a first for a real estate company, Tata Housing got a construction loan at base rate. It has also been able to raise short-term commercial paper at 9 percent which is significantly cheaper than what other companies manage to get.

Banerjee clearly has put his stamp on the company. The 39-year-old TAS official is coy when asked whether he is done with Tata Housing, but is obviously up for the challenge if it comes his way.

(This story appears in the 09 August, 2013 issue of Forbes India. You can buy our tablet version from Magzter.com. To visit our Archives, click here.)

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  • Similar Problems With Their Project In Pune - Inora Park

    Similar problems with their project in Pune Inora Park. I bought a flat just because of TATA brand name, bought it in May 2010, haven\'t got the possession yet. Had a look at some of the ready flats, the accessories in the bath like basins, taps etc are of poor quality, some local brand that I have never heard of, even the local builders in Pune now provide Jaguar taps etc. Very very disappointed, with this decision, tried to approach to inform Mr.Ratan Tata to his twitter but that also was smartly forwarded to housing team by the person who must be handling Mr.Tatas twitter handle. For any query, I have to send atleast 2-3 reminders, the staff at Pune office are no better, even after reminders they give unsatisfactory response. Have written to Mr.Brotin, but he see assumes he is too senior to be replying to clients, so no reply from him either. They don\'t talk about penalty for their delays. Khuzem

    on Nov 1, 2014
  • Kk Gupta

    I am also an owner of a flat in Tata Raisina. In addition to issues like approach road, construction delays etc. THDC response mechanism is very poor. Raisina website construction update are not updated regularly.

    on Oct 30, 2013
  • Pankaj

    Dear Samar, I am utterly disappointed by fact that you write for Forbes without adequate research. You have quoted Boisar project. The Boisar project is delayed by 3 years, still possessions have not been provided. Some who have received the possessions are complaining of poor works man ship. Please look at tatahousing linked in forum and forum is contemplating legal action. Your opinion of Tata Housing master stroke seems nothing short of missing facts. They have charged for car parking , which is in contravention to Supreme Court directives. Only TA-TA can get way with such events. For Boisar project they claim to have laid water pipe for 18 kms. This only reflects total failure of basic planning for which Mr Broitin and bigwigs should do the explaining. Another Tata project in Vasind stands cancelled for better reasons known to company. Tata Raisina details can be read in the posts above.I can go on and on . Is your article a goodwill to tatahousing or probably another paid article? Please don't try to fool people. Tatas are no better or any worse than any other sadak chap developer. The need of hour is to have good regulator who puts entire industry in perspective. It's pity that we are nearing 70 years of independence but common man still continues to be fooled.

    on Sep 21, 2013
  • Moksh Tiwari

    I an a Tata flat owner and I\'ve had a great experience with the brand. Totally satisfied with the service.

    on Aug 21, 2013
  • Ashok Gupta

    We are one of the unfortunate owners of a flat in Tata Raisina Residency. We bought it because it was being launched by Tata. We have never been more disappointed in Tata name. They have threatened owners with penalties to take possession without completing the complex. However, they are not ready to pay penalty for late delivery of apartments. They even have audacity to ask for maintenance fee even when the complex is not ready. They have not kept their promises. There is little customer service. Responses to our queries are \"we will get back to you in 2-3 days.\" 2-3 days become 2-3 months and still no response. How can one build a complex that supposedly offer \"king-size life style\" to owners that does not have access road! Please think twice before investing in Tata name. Just say Ta Ta to Tata.

    on Aug 13, 2013
  • Javed Ali

    As an owner of an apartment in Tata Raisina Residency Gurgaon, I am mega disappointed with THDC, both in terms of project delay, as well as wide gaps between promise and delivery and the glaring absence of an approach road to the project. He seems to have been let down by some members in his team, BIG TIME. However, I appreciate Brotin bravely facing a meeting hall full of irate customers personally and promising to make amends. That\'s quite something for an MD of a company, let alone one from the largely unscrupulous real estate business. Perhaps this was a faint glimmer of the steel that Tata is made of, even though the sheen has faded quite a bit at Raisina Residency. We all sincerely hope that he can use his authority to make good and restore the Tata reputation, which is facing a HUGE crisis of credibility in this project. My advice to prospective buyers in Tata Housing? Watch how the company resolves the massive issues at Raisina Residency and take a call only afterwards. There is a very active forum of highly disgruntled Tata Raisina Residency owners on the Internet. Best of luck Mr Banerjee - hundreds of your customers are pinning ALL their hopes on you - please don\'t let us down!

    on Aug 13, 2013
    • Sandy Berger

      Dear Javed, Please share the forum details - so that those owners of Tata Raisina Residency like me who have not joined - may do so.

      on Oct 22, 2013
  • Kartik

    That is very very unlike Tata. I know many people who are happy and satisfied with their projects - including myself.

    on Aug 13, 2013
  • Gaurav Ghosh

    Interesting News

    on Aug 13, 2013
  • S S Bali

    I must congratulate India forbes magazine for such a wonderful article. It proves that someone can manage to project a hill out of a mole by simply using his pen. Tata Raisina project is one of the worst managed, projects of the India. Big name- sham presentations. I understood from this company-For some swimming pool means a bucket sized bathtub, though round in shape. Road to the house -not required sir. claims of Art means a few caricatures. The ads for Tata raisina while selling the houses shown in newspapers showed the swimming pool which can put even a sea to shame. But making a bucket size pool a joke has been served to the residents. I think the writer shall be taken around the Tata Raisina project to write another article of similar style.

    on Aug 13, 2013
  • R K Caprihan

    I bought a big (3950 sq feet ) premium apartment in Tata Raisina just because it had the TATA name. There is no approach road (entry road) and we have a kucha road where they pay rent to DLF to let us pass thru !! They have a Jacuzzi in the master Bathroom but the brilliant engineers in Tata Housing put marble all over not leaving a slot for mantainance and or repairs of the Jacuzzi Motor. The promised Outdoor pool is a joke and the Indoor pool like a kids pool Raisina is the biggest black spot on the Tata name and with excellent PR won the NDTV award for the best complex

    on Aug 13, 2013
  • Brig Ps Puri,retd.

    Bought the TATA Raisina Residency property because of the Tata name. Deeply dissapointed! Delayed delivery - no delayed charges paid. No approach road. Short cut in many facilities promised eg swimming pool, security set up etc. Not expected of the tata brand. Trust the situation will be rectified earliest.

    on Aug 13, 2013
  • Sukesh Bhowal

    One key fact that comes out of my interactions with Tata Housing as a buyer in the Raisina Residency project at Gurgaon, is that Brotin Banerjee never responds to any mails, thereby leaving the ground free for the other officials to blow the trust of the Tata brand name to smithereens. As a person who is very familiar with the real estate industry due to my work profile, Tata Housing has set several pioneering benchmarks. It changed the layout for the apartment significantly without ever informing the buyers, I found out about it only once I visited the apartment. Such behaviour is not expected even from the most unprofessional developers. Several amenities promised by the developer have not been provided for. The access road is a basic necessity that needs to be ensured so that buyers can live in the apartment or rent it out. The same is still not organised even after more than 5 years since the booking amounts were paid for the project. This is causing severe financial hardship to several buyers. The only reason I booked an under-construction project was the confidence that the Tata brand inspired wrt timeliness and accuracy of delivery, the management team at THDC has miserably failed on both accounts. Mr Banerjee should sincerely introspect on whether he deserves such accolades for failing so hard in taking care of the Tata brand and his customers.

    on Aug 13, 2013
  • Atul Madan

    Please check the status of Tata Housing Project RAISINA RESIDENCY in Gurgaon. 1. The Project is delayed by more than a Year. We are yet to get the possession. 2. While some Towers have been completed and possession given to some residents 2. It does not have a approach road, one needs to trespass and reach the housing society. 3. The matter has been escalated and known to TATA GROUP. 4. Well Using the name of TATA GROUP any body can make money but then ask the people who have purchased these houses. 5. Brotin Banerjee in fact is eroding the name of TATA\'s so it will be prudent to check the status before reporting.

    on Aug 13, 2013
  • Shekhar Agrawal

    Very unlike of Tata CEO who focuses on building his own brand rather than building Tata brand through customer value. Raisina Residency is a fitting example; Tata Housing demonstrated worst than industry practice approach in terms of delivering to their commitment. As a result there are 10 families suffering in the jungle of Sector 59, highly unsafe, unhygienic; poor infrastructure, with no solution to road. Complex is in a flux since more residents don\'t want to move and there is total stalemate. I hope Tata Top management comes to the rescue of buyers of Raisina Residency!

    on Aug 13, 2013
  • Amit Kalra

    Congratulations Mr. Brotin Banarjee for your unique style of working. The Smart Value Homes by Tata is no doubt a bankable venture that has helped a lot of middle and upper middle class people.

    on Aug 12, 2013
  • Sanjeev Khanna

    Mr Brotin Banerjee is currently looking for visibility as perhaps angling for another \"visible\' job in Tata Group or wanting to change a job.He has been singularly responsible for running the \"Raisina Residency\" Project in Gurgaon to a point of \"Beyond Salvage\".The Complex till date has \"No Access Road\" ,residents are up in arms and here is a MD busy hiring PR Agencies to plant news items in media for \"Self Glorification\". And for some mysterious reason,higher ups in Tata Sons is tolerating the EROSION of Tata Equity through this company of theirs.

    on Aug 12, 2013
    • Samar Srivastava

      Mr. Khanna, did Tata Housing commit to building an access road? Else, as far as I understand developers are not responsible for constructing access roads.

      on Aug 12, 2013
      • Amod Gupta

        Mr Srivastava, Isn\'t it the builders responsibility to have an entry and exit to the building complex. I have never seen or heard of any builder leaving the complex without proper entry and exit from the main road. Raisina Residency, the \'showpiece\' of Tatas in North India is one such example where the builder has left without an approach road. Moreover, it\'s insistence for owners to take possession of apartments and levying \'maintenance charges\' is appalling indeed!! Tatas should rake cognizance of such disgruntled owners and take remedial actions urgently.

        on Aug 13, 2013
      • Ripudaman Lamba

        Mr. Samar, we the buyers strongly recommend You to visit the property and do the check yourself. Your article is factually incorrect and misleading! As is evident from the strong reaction it is getting from the buyers. You are defending the undefendable with your Comments.it is like somebody build a movie hall and forgot to build the access to it and now has sold the tickets and expects you To take a ladder to watch the movie. Think about it ! Br Ripudaman

        on Aug 13, 2013
      • Amit Dey

        Mr Samar: You are writing an article on such a renowned magazine like Forbes on real estate, and how could you ask such naive question? Govt cannot give license without access road. And if the access road is not there, the license is not valid. So Tata has sold us a flat without technically valid license. They need to make good the losses. If you want to show any honesty and credentials of a brave heart journalist, go back to Mr Bratin and get his response as well do a site visit. We the investors in Raisina will be happy to host you and take you around. Only one comment I will make in addition to all the comments made regarding Raisina by my fellow investors : Mr Bratin says he hired people from outside industries. And that\'s exactly happens if you hire all such square pegs and try to fit them in round holes - you deliver crappy projects ! And last point to the venerable Tata brand owners: wake up and look into what is happening in Raisina. You are being bracketed with all the ills that one sees in the real estate industry.

        on Aug 14, 2013
  • Pankaj Jain

    Brotin Banerjee may have proved his worth for Tata brass. But for 250 flat owners of Tata Housing -Raisina Project Gurgaon, he is has earned an even more coveted position - tha of a cheat and scoundrel. The hard earned money of flat owners, running into nearly 500 crores , is down the drain. God will certainly punish Tatas and Brotin in particula.

    on Aug 11, 2013
  • Jacob

    How could this article not mention Lodha Group?

    on Aug 10, 2013
  • Rahul K

    It is worst managed companies in Tata Group , People at Boisar where Tata Housing has NANO Housing Projects are still struggling to get an house .

    on Aug 9, 2013
  • Raj Sharma

    Liked this post

    on Aug 8, 2013
    • Jaideep Verma

      I have invested in The New Haven project in Boisar, Maharashtra only because of the TATA name. The flats are delayed for more than 3 years and the staff handling the customers at the Mumbai office are the most unresponsive and useless staff that I have come across. They have no sense of committment and never have any answer. They hide behind the brand name and harass the customers. I am really shocked that the Tata name is associated with this. They have no place / forum where you can make people answerable and hence are getting away with their bad behaviour. Does anyone have any clue as to how to talk directly with any responsibel officer in Tata Housing ? Can you please forward the cell no / email address ? Thanx,

      on May 29, 2014
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