Auto Cos Star in Realty Show

Ris­ing rentals in big cities pinch cos’ fi­nan­cials; auto mak­ers now pre­fer to ac­quire land, build­ing and office spa­ces in strate­gic lo­ca­tions across the coun­try to de-risk oper­at­ing costs Blue Chips Stock Up Com­me­cial Prop­er­ties

The Economic Times - - Brands & Companies -

Mum­bai: Ris­ing rentals in most In­dian cities are mak­ing big auto com­pa­nies tweak their real es­tate strat­egy and start in­vest­ing in own prop­er­ties — be it for the com­pany head­quar­ters, sales of­fices, or even deal­er­ships.

The coun­try’s largest car­maker Maruti Suzuki has al­ready set up a real es­tate sub­sidiary that is look­ing to ac­quire land at key strate­gic lo­ca­tions across the coun­try for deal­er­ship ex­pan­sion. It has iden­ti­fied 200300 strate­gic lo­ca­tions where the com­pany plans to ac­quire land and lease it out to its deal­ers at a rea­son­able prices.

“Ris­ing rental has been one of the big­gest op­er­a­tional risk for our deal­ers. If we lose a dealer in an im­por­tant lo­ca­tion to a fash­ion house or other in­dus­try, it is a big loss to us,” said RC Bhar­gava, chair­man of Maruti Suzuki. Hence the de­ci­sion to in­vest in own prop­erty. “Un­der the new struc­ture, we de­risk our­selves and our dealer too," he said.

Maruti Suzuki plans to in­vest over ₹ 14,000 in ac­quir­ing land across pre­mium lo­ca­tion in ma­jor cities and tier-I and tier II over the next 4-5 years, with plans of dou­bling the net­work foot­print to 5,000 out­lets. Ac­cord­ing to Bhar­gava, with lit­tle to dif­fer­en­ti­ate on tech­nol­ogy in au­to­mo­bile, the real strength of a com­pany in a vast coun­try like In­dia will be in its dis­tri­bu­tion net­work.

While its rivals have not yet come up with such grand plans, in­creas­ing rentals in met­ros as well as tier I and tier II cities are forc­ing them to in­vest in own prop­er­ties or move to more af­ford­able lo­ca­tions.

Maruti’s clos­est ri­val Hyundai late last year ac­quired 1.99 acres for ₹ 205 crore in Gur­gaon af­ter hav­ing spent al­most two decades in the coun­try with­out a cor­po­rate HQ of its own. The com­pany plans to con­sol­i­date its var­i­ous of­fices and func­tional arms un­der one roof when the build­ing comes up in 2019, im­prov­ing ef­fi­cien­cies and do­ing away with ex­or­bi­tant rentals, said Rakesh Sri­vas­tava, se­nior VP, sales and mar­ket­ing, at Hyundai Mo­tor In­dia. “Com­pa­nies with strong cash flows are cre­at­ing their own as­set base,” he said.

THE RENTAL BUR­DEN

Tata Mo­tors would soon be mov­ing its Mum­bai sales office from Lower Parel's In­di­a­b­ulls Cen­tre to com­pany-owned Ahura Cen­tre in And­heri East. The move is part of “a com­pany-wide drive to­wards cost op­ti­mi­sa­tion and bet­ter util­i­sa­tion of our as­sets”, a Tata Mo­tors spokesper­son said.

In the past, ve­hi­cle ma­jors like Volk­swa­gen have shifted its office in Mum­bai from the ex­pen­sive Ban­dra Kurla Com­plex to And­heri's Sil­ver Utopia to re­duce the im­pact of ris­ing rentals.

Lease rentals have wit­nessed cu­mu­la­tive growth of up to 15% in sev­eral mi­cro mar­kets of Mum­bai, Na­tional Cap­i­tal Re­gion, Pune and Ben­galuru over the last three years, said Raja Seethara­man, direc­tor at Prop­stack, a firm spe­cial­is­ing in com­mer­cial realty data in­for­ma­tion and an­a­lyt­ics. Rents across all ma­jor com­mer­cial hubs in Tier I and Tier II cities have ei­ther been steady or in­creased dur­ing this pe­riod, he said.

“This in­fla­tion­ary trend in rentals es­sen­tially negates the point whereby cor­po­rates are able to take ad­van­tage of scal­ing down op­er­a­tions or rene­go­ti­at­ing rentals in case of rent­ing office premises. In fact it just strength­ens the ar­gu­ment to buy office premises to take ad­van­tage of tax con­ces­sions, for pro­vid­ing op­er­a­tional flex­i­bil­ity and po­ten­tial cap­i­tal ap­pre­ci­a­tion,” said Seethara­man.

Ac­cord­ing to real es­tate ex­perts, buy­ing prop­er­ties par­tic­u­larly works for cor­po­rates that have cash re­serves or es­tab­lished sources of fi­nanc­ing.

Buy­ing pro­vides bet­ter con­trol on the prop­erty in­clud­ing re­mod­elling of office spa­ces and us­age of com­mon ar­eas. Also, own­ing prop­er­ties pro­vides po­ten­tial cap­i­tal ap­pre­ci­a­tion to the buyer, they said. Also, while only oc­cu­pancy costs are fully tax de­ductible for rent­ing of­fices, in the case of out­right own­er­ship, oper­at­ing ex­pen­di­tures, de­pre­ci­a­tion and in­ter­est are tax de­ductible.

Ke­tan Thakkar & Kailash Babar Has iden­ti­fied 200-300 strate­gic lo­ca­tions Looks to ex­pand deal­er­ship in coun­try Of­fices of Hyundai Group to move here when build­ing com­pleted in 2019 Will ac­quire land and lease it out to deal­ers Lo­cated near Am­bi­ence Mall and Ho­tel Crowne Plaza in Gur­gaon Maruti look­ing to de-risk its vast dis­tri­bu­tion net­work

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