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The Eco Hotel Phenomenon and Donald Trump’s observations

December 10, 2018

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What turns a run of the mill, resource hungry hotel into an Eco Hotel and why does it matter? Well, the clue lies partly in the question: an Eco Hotel isn’t resource hungry at all. Instead of gobbling away at all before it, an Eco Hotel sips and nibbles at its key resources: energy, water and raw materials. Eco Hotels are hard wired to save water and minimise on energy and waste material usage. But what about the second part of the question: why does any of this matter? Look no further than last week’s US National Climate Change Assessment, the work of 300 scientists and 13 Federal Agencies which concluded that “ Earth’s climate is now changing faster than at any point in the history of modern civilisation, primarily as a result of human activities…” Donald Trump may have dismissed the three-inch thick report out of hand as “largely based on the most extreme scenario”, but virtually nobody else is.

And for a President so intent on wrapping himself in a mantle of economic competence (and hotel owner to boot), the supreme irony is that key policies at the heart of a concerted response to adverse climate change are now proving to be drivers of commercial growth too. Eco Hotels are a case in point.

By definition, a non resource hungry hotel will also have reduced operating costs: it’s also likely to have reduced liabilities, will generally produce a higher return on relatively low risk investments and also deliver greater profitability across the board than its more resource hungry counterparts. Those are the hard conclusions arrived at in the seminal sector report for the subcontinent “Green Hotels and Sustainable Hotel Operations in India” and, perhaps inevitably, the markets haven’t been slow to see their potential either. Green hotels are more popular than ever on the subcontinent and if you need solid evidence of that, look no further than the explosive growth of Lemon Tree Hotels after the company’s successful IPO earlier this year.

Donald Trump could usefully brush up on his bedtime reading before leaving the West Wing to resume control of his own hotel chain …

The travelling public (business and leisure) is now increasingly aware of the importance of environmental compliance when it comes to choosing a hotel room, and the current surge in demand on the subcontinent is running well ahead of supply: not least because India’s tourist numbers have reached unprecedented levels in absolute terms as well.

But when it comes to meeting this burgeoning demand in practice, something much more is required than simply re-branding an existing hotel with “green credentials”. Key consumption variables have to be built in from the very beginning of the construction phase: making water saving devices and waste reduction part of the DNA of the hotel from the outset of the project. That’s why Eco Hotels are being built with solar tubing that reflects light across the hotel day and night, resulting in electricity bills that are roughly half those of a conventional hotel and its properties also has a single kitchen which dramatically reduces the carbon footprint. All those savings go straight to the bottom line.

Red Ribbon is the founder of Eco Hotels, the world’s first carbon neutral hotel brand which offers “green hospitality” as part of a progressive roll out across India designed to take advantage of current market opportunities on the subcontinent. The brand meets all key sustainability criteria without compromising on either quality or standards of hospitality and is designed to cater for commercial and recreational travellers alike.

Red Ribbon CEO, Suchit Punnose said:

The boom in Indian tourism (both domestically and internationally) is currently playing a huge part in driving forward the subcontinent’s resurgent hotel and hospitality sector, and as the article says eco credentials are playing a bigger part than ever in determining where this burgeoning tide of travellers are deciding to stay. Recent surveys confirm so called “green credentials” are high up on the scale of priorities when they come to make their choice.

And as the article also says, meeting that demand is certainly not just a matter of a last minute rebranding. To deliver properly on green credentials, the hotel has to be built with eco compliance as part of its structure (from the ground up). Only by doing this will cost savings and sustainability criteria properly come together in the future operation of the hotel, delivering the range of benefits described in the article.

I’m proud that Eco Hotels have done just that from the very beginning of the project, and proud too of the part Red Ribbon has played in developing the brand and its ambitions in the succeeding years, spearheading an environmentally friendly response to India’ resurgent tourism demands.

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Time matters with India’s Real Estate revitalisation

December 10, 2018

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KPMG reported last month that Indian Real Estate Sector has now entered a “revitalisation mode”, with aggregate growth projected to reach $ 650 Billion by 2025 and topping $850 Billion by 2028: the average yearly contribution of real estate to the Indian economy will more than double from its current 7% by 2025. And CBRE India are equally optimistic: in their own quarterly report, snappily titled “India Real Estate: Variance in Construction Costs”, they forecast 17 Million new jobs will be added to the sector and an additional 8.2 Billion square feet of space released by 2025.  It all resonates well with the ambitions objectives of Prime Minister Modi’s Affordable Housing Programme, with Real Estate now set firmly in growth mode, and growing stronger every year. But there’s a dark shadow in the garden…

Each of these influential reports has highlighted a potential issue relating to construction costs on the subcontinent, capable of acting as a brake on growth and with no less than six major conurbations (Chennai, Pune, Hyderabad, Mumbai and Delhi) causing particular concern. Perhaps predictably, Mumbai tops the list of areas where unit construction costs have spiralled over recent years and show little sign of slowing down despite the broadly stabilizing effect of GST legislation introduced by the Modi Administration which helped smooth out some of the worst supply and pricing differentials across the country.

The average cost of construction for a residential apartment in Mumbai is now Rs 3,125 per square foot, compared to the Rs 2,375 per square foot the same apartment will cost in Hyderabad. At one (macro) level the reason for all this is obvious: an increasingly urbanised population pushing up demand for units in the largest conurbations as part of a gradual drift away from the land, but the disparity in relative costs between conurbations is still striking. Inter market differentials of this kind are likely to be caused primarily to an uneven distribution of construction skills, with highly skilled workers drawn to areas of greater demand so increasing the unit cost of labour in specific areas of the subcontinent. Certainly we might expect other variables such as recent sharp rises in the wholesale price of steel to be more uniformly spread across the country.

In short, construction is becoming progressively more expensive in the very areas where more housing and commercial units are likely to be needed most…and that’s a real dilemma.

One answer is to make greater use of just in time delivery systems which are capable of dramatically reducing overall construction schedules: simple maths tells us that if an expensive worker is on site for a quarter of the normal building phase, costs will come down no matter how prohibitive the daily rate. And of course we have now grown used to the significance of just in time methodologies because of the prominence the issue has assumed as part of the current Brexit debate. Just as any significant inhibition on frictionless trade has potential to throw the UK economy into chaos after Brexit, so too the same frictionless technologies can help address systemic cost differentials across the Indian construction sector as well.

Modular Construction prefabricates all of the essential components of the building off site, everything from exterior walls, ventilation systems and internal wiring networks with the parts then arriving on location only when they’re needed: meaning field workers aren’t left waiting around (expensively) for the next phase of the project to get underway. Research has shown that through a combination of just in time delivery techniques and modular technology, otherwise complex units such as student accommodation blocks or hospitals can be erected on site in days rather than the months and sometimes years of conventional technologies. And an added advantage is that Modular Technology also reduces the potential for human error and snagging in the final building which can also be a major but hidden expense on any project.

Modulex Construction is the World’s largest and India’s first Steel Modular Building Company, setting out to meet the challenges posed by India’s urban housing shortages in a practical and dynamic manner. The company is at the heart of a project established by Red Ribbon to harness the potential of India’s markets and delivering opportunities for investors. Because, when it comes to investing on the subcontinent, nobody knows India and its markets better than Red Ribbon.

Red Ribbon CEO, Suchit Punnose said:

Prime Minister Modi has successfully appealed to the youthful and increasingly urbanised population that is currently driving India’s economic growth, not least through his Government’s re-energised Affordable Housing Programme the scale and scope of which has at times been breathtaking. So it should come as no surprise to learn that such an increasingly mobile population is also creating real estate hot spots (and cost differentials) through being attracted to a number of specific locations: by definition, a mobile population is difficult to keep still.

So as it seems to me the resulting cost differentials in construction across the subcontinent are likely to be a fact of life for some years to come yet. But that’s certainly not to diminish the problem, and cost disparities are a problem in India’s most expensive real estate markets, Mumbai in particular. They have real potential to distort the market.

In delivering a workable solution to that challenge most expert commentators now agree that Modular Construction is simply inescapable. No other technology offers the pace and scale of delivery needed to meet India’s housing needs and, as the article points out, it is the perfect corollary for just in time delivery systems. That’s why Red Ribbon was committed to Modulex Construction from the very beginning of the project and we remain committed to it today. I’m convinced it is not only a vital element in meeting market challenges but will also deliver on the unprecedented opportunities currently presented by the subcontinent’s burgeoning economy.

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How and why mid-market hotels are taking over India’s branded sector

December 10, 2018

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In the late 1980’s Esso commissioned a survey of its UK customers and found less than 7% travelled onto Mainland Europe with their cars. Why this reticence on the part of families clearly capable of making their way from Poole to Provence in an overcrowded Metro? And no, it’s not what you think: back in those days we hadn’t even thought of Brexit. As Esso found out, there was a more homely explanation: the Continent simply had far fewer automated pumps on its forecourts, so drivers were in danger of having to talk with an attendant and you know how the English are with languages. Better leave the car behind than risk the unseemly spectacle of sign language on the forecourt with a Frenchman.

And when you think about it, that’s all quite interesting. It’s the reason petrol stations have gradually come to look exactly the same all over the world: with the pumps all roughly in the same place, all self service and roughly the same kind of shop to pay in. It’s why you can now buy a burger (from a screen) in identical McDonalds outlets from Vienna to Vladivostok without once having to speak a word of German or Russian, and it’s why Esso long made sure you can buy your petrol the same way. There’s simply no need to leave the car at home anymore…so we don’t. We buy more petrol instead and everyone’s happy.

Economists call this phenomenon Brand Synergy and until recently India’s mid-market Hotel Sector was widely perceived to be more or less dead to its charms. A senior analyst on the subcontinent memorably (and anonymously) put it as follows: “…it was like an airline that uses a Boeing 747 for travel between Delhi and Mumbai, a Dakota for Kolkata-Delhi, and a Dornier for Bengaluru-Pune”. The poor old travellers never knew what to expect when they got there. Just like trying to buy petrol by word of mouth.

But not anymore…

The subcontinent’s mid-market Hotels including Ibis Styles, Lemon Tree Hotels and Eco Hotels have all made progress over the last decade in adopting a much more uniform approach to product profiling, achieving a consistency in specification that has now seen the mid-market secure nearly half the branded hotel sector: spurred on, no doubt, by an increasing number of private equity investors, none of whom are noted for being slow in recognising brand synergies when they see them.

All of which has made the mid-market uniquely well placed to take advantage of the surge in India’s middle class and increasingly urbanised travellers that has doubled airline occupancy rates over the last seven years.  And with the average cost of building a mid-market room coming in at between Rs 3 Million and Rs 7 Million, breaking even within six years, it all makes bottom line economic sense too. Compare that with the larger branded chains where average construction cost for each room is Rs 15 Million and break even takes 15 years: more than twice as long.  In the past 10 years alone the mid-market has expanded at more than 15% annually (according to Howarth HTL) and now accounts for 43% of total branded stock.

Having got away its successful IPO earlier this year (raising Rs 311 Crore from key investors), Lemon Tree Hotels last week took the trend a stage further by launching its brand overseas: signing a deal for the first of its hotels to open in Dubai next year. It will be the first mid-market hotel on the luxury studded Al Wasi Road, sitting literally in the shadow of the Burj Al Arab and Al Waleed Real Estate’s CEO didn’t miss the significance:  “There was a need for a mid-market hotel of this calibre in this location and India has been the largest source of tourists into Dubai, as well as the UAE as a whole, for over three years now.” To save you Googling it up, the exact figure is 13%: India now accounts for a whopping 13% of total tourist numbers into the Emirates, which shouldn’t come as a surprise to anybody given the subcontinent’s wealth and proximity as well as the population’s found mobility.

And now they’ll recognise at least one familiar, distinctively Indian hotel brand when they get there…Plus ca change.

Red Ribbon Asset Management is the founder of Eco Hotels, the world’s first carbon neutral mid-market hotel brand, offering “green hospitality” as part of a progressive roll out across India which intended to take full advantage of current market opportunities on the subcontinent. The brand offers sustainable living without compromising on standards of hospitality and is designed to cater to commercial and recreational travellers alike.

Red Ribbon CEO, Suchit Punnose said:

Working as part of the Eco Hotels Project has certainly taught me the importance of branding and product profiling in the hospitality sector, so I was pleased to read about the renewed emphasis on branding generally and unsurprised to see that it has now increased the mid-market share to just shy of 50%. Monolithic 2000 room hotel chains are no longer the first choice for travellers, especially given all the evidence suggests they are increasingly looking for accommodation that also complements their preference for sustainability.

And that’s important because the boom in Indian tourism (domestically and internationally) is playing a significant part in driving forward the subcontinent’s resurgent hotel and hospitality sector. It’s certainly an area that cannot be overlooked when seeking out the best investment opportunities over the coming years.

That’s why I’m very proud that Red Ribbon has played such a significant role in the creation and development of the Eco Hotels Project, spearheading the response to that demand in an environmentally friendly manner.

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Modular Construction: the answer to the shortage of skills in India

December 10, 2018

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Most Indians work in agriculture but next comes construction, and according to the latest Economic Survey the subcontinent’s real estate and construction sector is likely to create more than 15 Million jobs over the next five years, that’s three million every year. To put that in perspective less than 3 Million people are currently employed in the entire UK construction industry. And of the 52 Million building workers employed by Indian companies, 90% are involved in on-site construction with the other 10% busily painting, plumbing and wiring the finished product. It’s fair to say all these painters, plumbers and electricians are skilled workers…but not so the other 90%.

Because the vast majority of India’s construction workers are either minimally skilled or have no skills at all: an astonishing 97% of them aged between 15 and 65 will receive no formal training of any kind before starting work on site and, plumbers and painters aside, most of the skilled workers won’t be getting any cement dust on their boots because they’re probably office based clerks, technicians and engineers. And that’s a real problem…

It’s a problem, because coming the other way down India’s infrastructure and logistics superhighway is an unprecedented surge in demand for urban housing, fuelled by an increasingly urbanised population projected to become the biggest on the planet by 2022. India’s National Skill Development Council predicts that by then the real estate and construction sector will require a workforce of more than 66 Million, so without any obvious core of skilled workers currently able to sustain anything like growth it’s no wonder the sector is starting to show signs of stress.

Of course all this was supposed to be addressed by 2016’s Real Estate (Regulation and Development) Act which was intended to act as a platform for local, State driven planning capable of creating an appropriate environment for improved training and regulatory structures, but so far six States out of 29 have failed to produce any plans at all under the legislation which means finding workers with the right skills in the right place will continue to be a source of real concern.

Billionaire developer Niranjan Hiranandani, head of Hiranandani Construction, has a simple enough solution: just pay unskilled workers less and reap the savings while you can. But that’s not a particularly attractive solution for anyone buying one of his apartments 76 floors up in the Mumbai skyline where quality assurance is far from being a dispensable extra. The behemoth that is Hindustan Construction Company perhaps takes a slightly more realistic approach, going on record last week to say that skills shortages have become a huge problem for the sector: 50% of its workforce needs advanced training just to use the complex machinery now prevalent on most modern building sites. With a heavy tone of understatement a spokesman for the company announced grandly that given these skilled workers are not available, “the only option is to train them”.

Well, it’s not quite the only option…

With no actual shortage of workers seeking employment in India’s urban conurbations, particularly in the light of a seemingly inexorable drift of former agricultural workers from country to town, what if the physical construction process itself could be de-skilled? Why not make a virtue of necessity and draw on this pool of former agricultural labourers to release the margins of between 20% to 70% that Deloitte India predict would follow from a wholesale deskilling initiative? These savings would go straight to the bottom line without endangering the quality and safety of the finished building. Skilled construction workers earn Rs 1,000 a day as opposed to their unskilled counterparts who earn an average of Rs 200.

And there is just such a business model on the market right now, a model with the potential to uncouple construction projects from a seemingly insoluble skills conundrum: it’s called Modular Construction.

Modern Modular technologies allow all of the building’s key components to be put together off site by specialist workers and then assembled locally at the same time as the site works are completed, not only reducing overall completion schedules by as much as 50% but also significantly reducing the need for skilled workers in the construction phase. All of the design and engineering disciplines are instead concentrated at the offsite manufacturing facility leading to labour, financing and supervision costs. Which will all be music to Mr Hiranandani’s ears…

Modulex Construction is the World’s largest and India’s first Steel Modular Construction Company, meeting the challenges of the subcontinent’s current urban housing shortages in a practical and focused manner. The company was founded by Red Ribbon as part of an innovative project to harness the potential of India’s dynamic and evolving real estate markets whilst at the same time delivering opportunities for investors through Red Ribbon platform. Because, when it comes to investing on the subcontinent, nobody knows India’s markets better than Red Ribbon.

Red Ribbon CEO, Suchit Punnose said:

Delivering on India’s stringent housing targets over the next five years presents an enormous challenge for the subcontinent, and that challenge is likely to get more testing still given the underlying demographics of a rapidly increasing and ever more urbanised population. Existing skills shortages within the construction sector have the potential to be a crucial block to meeting these targets, especially given the scale and scope of the training programmes necessary to release a further 3 Million workers into the sector every year for the next five years: never mind the attendant costs which are likely to be eye watering on any basis.

That’s why to my mind the answer has to be Modular Construction. No conventional technologies can beat it for sheer pace of delivery and, with a centralising of skilled labour in the offsite manufacturing facility, it will beat conventional construction methods hands down on overall profitability too.

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An Ambition for Growth: The Roots of India’s Economic Miracle

December 10, 2018

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Currently locked in a peculiar species of death roll with her backbenchers, Theresa May still (to her credit) seems intent on securing an orderly exit from the EU by 2020, but most economic commentators are forecasting a long term decline in UK GDP however “soft” the exit terms might be. Price Waterhouse for one are predicting that within a decade of exit, by 2030 the United Kingdom will have fallen to tenth place in Global GDP, behind Mexico and Indonesia and a whisker ahead of Turkey and France (which has a certain irony in the circumstances). And the same survey predicts that by 2030 India will have risen to third place in the global league, treading hard on the heels of China and the United States in first and second place respectively. But unlike the former mother country there is no suggestion that the subcontinent’s remorseless ambition for growth will lose any of its momentum over the course of the next half century.

China had better watch out…

The subcontinent’s economic ambition has been powered by a combination of progressive (some might say revolutionary) economic policies on the part of Prime Minister Modi’s Government (think demonetisation), coupled with a burgeoning and increasingly middle class population fuelling an unprecedented surge in consumer demand. But in a subtle and complex take on that dynamic, McKinsey this month published a fascinating report concluding that India’s explosive growth has just as much to do with interlocking trends in agriculture, urbanisation and mobility.

Take the first element in that triumvirate: agriculture. For decades now (at least the last thirty years), India has pursued an aggressive policy of agricultural self-sufficiency which has not only made the farming lobby one of the most powerful political forces in the country but has also delivered growth rates in the sector that are the envy of most of its near neighbours (indeed, the envy of most farmers anywhere in the world). But despite this, as McKinsey also point out, Indian agriculture still faces a spectrum of uniquely local challenges: severe water shortages alternating with devastating monsoons, combined with often antiquated supply structures and what McKinsey quaintly call a “limited exposure to high productivity practices”: in other words, a lack of investment in the latest farming technology.

That’s where the subtlety comes in…The Indian Government has re-calibrated its agricultural policy to shift the emphasis away from output targets, replacing them with a system of local subsidies designed to buttress farmers’ income (a policy that roused the never less than exuberant President Trump to bring proceedings against India again before the WTO). It was a smart shift in direction too because the new policy will almost certainly double agricultural wage rates by 2022 and, in a characteristically Keynesian frame of mind, the Modi Government are betting that with more money in their pockets India’s farmers will now start investing more in new technology. It can’t do much to stop monsoons but it can, as McKinsey would no doubt put it, “increase exposure to high productivity practices”.

That same factor feeds into the second limb of McKinsey’s triumvirate: urbanisation. More than 200 Million of India’s rural population are expected to move into its urban conurbations over the next 15 years and for those with the instinct to move rather than invest locally, improved agricultural subsidies are giving them a store of money to do it with. And, the Modi Administration is playing to its strengths on this too with a new Smart Cities Mission designed to meet the additional, affordable housing required to cope with resulting surges in demand, reducing urban pollution levels and increasing resource productivity and economic development through enhanced infrastructure programmes. You don’t need to look any further to find the real roots of India’s economic miracle.

And what about mobility: the third element of the McKinsey triumvirate? Well, that’s coming along nicely too with India now expected to become the world’s third largest passenger vehicle market by 2021. It’s not just that the subcontinent offers the same, parallel opportunities and challenges as other western and developing markets, it is offering them with a turbo charger attached. Many of those 200 Million people who are moving from village to town over the next 15 years will want (and get) a car, paying for it with the increased wages earned from working on all those new infrastructure projects; and their family and friends who stayed in the country and invested in new agricultural technology will probably want (and get) a new car too. You need to keep up with your cousins in town!

That, in essence, is what we mean by an interlocking economic structure, and it’s here that we can find the real roots of India’s explosive growth. Just wait to see what happens next…

Nobody understands that potential for growth better than Red Ribbon Asset Management, which has placed India at the very heart of its investment strategies since the company was founded more than a decade ago. With an unrivalled knowledge of market conditions on the subcontinent, Red Ribbon offers a unique opportunity to share in that vast potential.

Red Ribbon CEO, Suchit Punnose said:

At Red Ribbon we are very proud to have been playing our own part in India’s economic resurgence over the last decade, investing in just the kind of projects that are at the heart of the interlocking triangle of growth mentioned in the article: everything from the modular construction technologies now being developed by Modulex so as to deliver affordable housing at the pace demanded by the subcontinent’s urban expansion, through to innovative sustainable energy infrastructure investment. And to see India now firmly established at its place on the economic top table, uniquely well placed to move further forward still is, of course, a particular source of pride for us.

We look forward to continuing to play our part in India’s future, participating to the utmost in the opportunities the subcontinent’s explosive growth has to offer and at the same time providing above market rate returns from our investors in what I am convinced will continue to be one of the world’s most exciting markets for many years to come.

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Affordable Housing for India: A Perfect Storm of Opportunity

December 03, 2018

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Affordable Housing for India: A Perfect Storm of Opportunity

Mumbai’s skyline has, of course, been transformed beyond recognition over recent years, but its glass pinnacles are well beyond the reach of all but its wealthiest residents. So you need to look closer to the earth to find the true driver behind the subcontinent’s resurgent real estate sector.

India’s increasingly youthful population is moving out of the countryside at an increasing rate in search of better work, pay and living conditions and this is precisely the demographic the Affordable Housing Policy is designed to appeal to, because the dream of having a home (or a flat) of one’s own resonates like nothing else with this new wave of discriminating voters on the subcontinent…and nobody knows that better than Narendra Modi. His Government has aggressively pursued legacy policies on housing with the introduction of a raft of new tax incentives over the course of the last two Union Budgets, including giving infrastructure status to qualifying affordable housing, offering developers increased tax concessions and providing buyers with a range of fiscal incentives including subsidised interest payments.

And it’s not just voters who are being energised: investors are responding positively too in increasingly ingenious ways. For example, because banks in India aren’t allowed to finance land acquisitions the Private Equity Fund KKR has moved into the sector to offer development funding directly to contractors, taking an equity stake in the completed project. In what might be taken by some as a statement of the obvious, Sanjay Nayar of KKR India pointed out that “with the right project and partners, there’s good money to be made”.

There is indeed Mr Nayar.

Chris Wood of Citic Securities perhaps put it a little more eloquently: “Affordable housing in India remains one of the most straightforward bull stories in Asian equities. There will be an acceleration in economic activity in India in the coming 18 months driven by housing.”

But there is, of course, at least one (more or less hidden) difficulty with all of that. Given such a voracious and burgeoning consumer appetite coupled with capital market ambition and expansionist government policies, where are all these new homes going to come from? As we have noted previously on this site, stoking up such high levels of demand means India is now committed to building 856 new homes every hour between until 2050. Traditional construction technologies simply aren’t up to that kind of challenge, which is why commentators (including KPMG India’s Director of Real Estate Neeraj Bansal) have pinpointed Modular Construction as the single most important innovator in the sector.

By prefabricating units at scale and off site, Modular Construction is capable of delivering affordable housing on the required scale and at a reasonable cost: three times quicker and half as expensive as traditional construction methods. It is perfectly positioned to meet the demands and opportunities being created by this perfect storm in India’s real estate markets.

As Mr Nayer would probably say over at KKR: “there’s good money to be made”.

Modulex Construction is the World’s largest and India’s first Steel Modular Building Company, working to meet the Challenge of India’s urban housing shortages in a practical and focused manner. It was established by Red Ribbon to harness the potential of India’s dynamic and fast evolving markets, delivering exciting opportunities for investors. Because, when it comes to investing on the subcontinent, nobody knows India and its markets better than Red Ribbon.

Modulex Modular Buildings Plc is the World’s largest and India’s first Steel Modular Building Company, working to meet the Challenge of India’s urban housing shortages in a practical and focussed manner. It was established by Red Ribbon to harness the full potential of India’s dynamic and fast evolving markets, delivering exciting opportunities for investors because, when it comes to investing on the subcontinent, nobody knows its markets better than Red Ribbon.

Red Ribbon CEO, Suchit Punnose said:

For me, the key determinant of exponential growth in India’s real estate sector over recent years is the combination of an unprecedented growth in the subcontinent’s population and a rapid trend for its urbanisation: largely, as the article rightly points out, a product of this rapidly expanding population becoming progressively more youthful and more affluent. In time honoured fashion, India’s younger demographic is streaming from village to city with money in its pocket (in the hope of making more).

This is the demographic that Prime Minister Modi has so successfully appealed to through his Government’s re-energised Affordable Housing Programme: the other key factor driving growth in the sector. As with some of his other radical initiatives, the scale and scope of the programme has at times been breathtaking, but in truth it has to be to meet the sheer scale of the challenge.

And when it comes to delivering a workable solution to that challenge it seems to me, as most expert commentators now recognise, that the attraction of Modular Construction is simply inescapable. No other technology offers the pace and scale of delivery needed to meet India’s housing needs. That’s why Red Ribbon was committed to Modulex Construction from the very beginning of the project and we remain committed to it today. I’m convinced it is a vital element in meeting the challenges as well as making the most of the opportunities currently being presented by the subcontinent’s markets.

But none of that should beguile us from forgetting the sheer scale of the housing challenge India currently faces, in common with other leading global economies. Traditional construction technology simply can’t deliver to the scale and pace required by projected demand on existing governmental programmes. No wonder then than Modular Construction is a policy priority for Prime Minister Modi’s Government. It’s only a question of time before others follow suit…

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Hospitality with Responsibility: The Explosive Growth of India’s Mid Market

October 08, 2018

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Jawaharlal Nehru famously championed “hospitality with responsibility” and riding high as it is on the crest of an unprecedented surge in tourism, India is holding hard to the father of the nation’s message. Not least because public awareness of environmental imperatives has never been higher on the subcontinent, leading Prime Minister Modi’s Government to respond (characteristically) with a programme of market driven “green hospitality” initiatives that embrace everything from streamlined Visa procedures through to water sustainability programmes and everything in between. The result is a striking pattern of explosive growth in India’s important mid market sector where the bulk of those initiatives are currently taking root.

And it’s not all about the environment either, with most analysts also pointing to the importance green hospitality is having on financial performance as well, and not just on the bottom line either where reduced energy costs and leaner waste targets have an obvious potential to cut operating costs. Environmentally friendly policies also have an almost unique potential to attract the new generation of business and social travellers who are placing sustainability at the top of their checklists, with even the hardest nosed business travellers supporting the trend: Deloitte’s, scion of the pinstriped traveller, has published polling results taken from 1,000 businessmen and women, no less than 95% of whom wanted more green initiatives with 38% admitting to checking whether their chosen hotel was sufficiently green before deciding to book.

Put it another way, in less desiccated language not favoured by Deloitte, Eco Hospitality has now become an essential part of Mid Market’s success story on the subcontinent… and there’s no sign of it losing any of that importance any time soon.

Just look at Lemon Tree Hotels and Eco Hotels both of which are blazing a trail in making the most of the opportunities India’s mid market hospitality sector has to offer, each of them pursuing ambitious expansion programmes and delivering above market rate returns for investors.

Red Ribbon Asset Management is the founder of Eco Hotels, the world’s first carbon neutral mid market hotel brand, which has “green hospitality” built into its genetic structure. The company has embarked on an ambitious programme to roll out a chain of new facilities across the subcontinent, designed to take full advantage of market opportunities currently available in India’s mid market segment. The brand offers sustainable living without compromising on quality and will cater for commercial and recreational travellers alike.

Red Ribbon CEO, Suchit Punnose said:

India has become something of a crucible to test out trends in the hospitality sector. As most of us will have observed over recent years “green tourism” and “green hospitality” have become increasingly dominant in determining the choice of hotel for business and recreational travellers alike: part of a global environmental trend that seems, ironically, to have picked up pace even more following Donald Trump’s withdrawal of the United States from the Paris Climate accords.

But what makes India different from other bellwether economies worldwide is the sheer pace of the change that is currently taking place on the subcontinent. Number of travellers choosing to travel to and across India has reached an all time high, carriers are reporting exceptional volumes and occupancy rates and the mid sector is picking up a larger percentage of these travellers than ever before. I’m sure that will all in lead to an acceleration of the rate at which the trend for “green tourism” evolves in India as opposed to other markets across the world, meaning we can expect to see green tourism’s importance on the subcontinent before anywhere else.

As the article also points out, Eco Hospitality is an essential part of this trend so I’m very much looking forward to seeing how things develop, especially with Red Ribbon’s Eco Hotel project playing such an important part in the market.

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A Sense of Understatement: Modular Construction and Indian Real Estate

October 08, 2018

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Mitsubishi Corporation announced this month its first ever investment in Indian Housing: it will invest $25 Million in Chennai through its subsidiary DRI India and plans to build 1,450 new homes on a 186,000 square meter site. And as if you needed any reminding of the buoyancy of Indian real estate, three quarters of those units have already been sold. Mitsubishi expects to earn more than 10 Billion rupees on the project within four years so it was probably with a sense of understatement that a Mitsubishi spokesman told the press last week that: “…middle-income earners (in India) are expected to expand, boosting housing demand.”

No prizes for original thinking there.

The United Nations has repeatedly forecast that the subcontinent’s current population of 1.3 Billion will overtake China by 2022, making it the most populous in the world so yes, middle-income earners on the subcontinent are indeed “expected to expand”…and how. Added to which India is already the fastest growing large economy on the planet, with an increasingly urbanised population so the demand for new homes will indeed be “boosted”. Look no further than the burgeoning conurbations of Mumbai and Bangalore. Mitsubishi might not be winning any prizes for economic analysis anytime soon but its decision to invest in the subcontinent’s real estate sector makes perfect business sense.

Of course, in the overall context of the economic phenomenon that is India, 1,450 homes is a drop in the Ocean. Just to keep pace with current housing demands, the subcontinent needs to build 856 new homes every hour (using up Mitsubishi’s contribution in less than two hours).

And that provides a graphic illustration of why Modular Construction is now at the top of the subcontinent’s political agenda.

Modular Construction is literally changing the shape of the world we live in: not just for homes but hospitals, bus stations and offices too…if it can be built at all, it can be built quicker and more efficiently in a modular format. So if, like India, you need to build nearly 900 new homes an hour, it should be obvious where to look for the solution. Indeed, having announced this week that the United Kingdom Government will commit an additional £2 Billion to affordable housing projects, Theresa May could usefully take a leaf out of Prime Minister Modi’s playbook.

And that’s not the half of it…with recent concerns over air quality in India’s conurbations also making the news recently, modular construction technologies also provide a ready answer to environmental concerns. Its technology eliminates high moisture levels occurring in traditional building materials, with units being constructed off site and indoors well away from adverse weather conditions. That not only protects the integrity of the structure but prevents excess moisture building up in the wooden framing too.

Modulex Modular Buildings Plc is the World’s largest and India’s first Steel Modular Building Company, working to meet the Challenge of India’s urban housing shortages in a practical and focussed manner. It was established by Red Ribbon to harness the full potential of India’s dynamic and fast evolving markets, delivering exciting opportunities for investors because, when it comes to investing on the subcontinent, nobody knows its markets better than Red Ribbon.

Red Ribbon CEO, Suchit Punnose said:

Mitsubishi’s entry into the Indian Real Estate sector should come as no surprise to anyone: major Japanese consortia have been leading the wave of inward investment into the subcontinent in the wake of key initiatives such as Delhi’s high speed rail system. But the article is right to characterise Mitsubishi’s commentary on the strength of the sector as a wild understatement. India is currently the fastest growing large economy in the World, with a burgeoning and increasingly urbanised population that is projected to be the largest on the planet by 2022. That will inevitably make the subcontinent’s real estate market an attractive proposition for any investor.

But none of that should beguile us from forgetting the sheer scale of the housing challenge India currently faces, in common with other leading global economies. Traditional construction technology simply can’t deliver to the scale and pace required by projected demand on existing governmental programmes. No wonder then than Modular Construction is a policy priority for Prime Minister Modi’s Government. It’s only a question of time before others follow suit…

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Modular Construction: A Global Construction Solution

September 14, 2018

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Lets get straight to the point: the UK construction industry has a problem, three problems to be precise. First, an aging demographic (mostly with their own homes) combined with a impoverished younger population (mostly without); secondly, a lack of new companies entering the sector (think Carillion) and, third, a marked decline in skilled labour that isn’t likely to improve anytime soon with Brexit on the horizon. All of which makes the UK Government’s target of building 300,000 new homes every year until 2020 look distinctly shaky if only because, according to Arcadis Target, this would require 400,000 new skilled workers to be added every year from 2017(one every 77 seconds). Not particularly likely given lack of skilled workers is a core component of the problem.

But the proof of the pudding is in the eating. In 2017 the Government fell 80,000 short of its target (nearly 30% short), which is why Modular Construction has now leapt up the list of UK Policy priorities: if you can’t change the system, change the method and no existing building technology is better equipped to deliver quality housing at pace than Modular Construction. In fact, off site prefabrication delivers units at three times the rate of conventional technologies so its just what the Government needs to meet its target…

Except no matter how hard Government seems to try, modular construction in the United Kingdom is still at cottage industry levels, largely because of the first of those three factors we just mentioned: an aging demographic and an impoverished younger population acting together effectively to staunch demand for innovation.

How different then things are on the subcontinent.

Rather than an aging demographic, India has an increasingly youthful population, increasingly urbanised and increasingly wealthy as well as being drawn inexorably to live and work in the subcontinent’s major conurbations (Mumbai and Bangaluru in particular). And it is this demographic trend that is creating a surge in demand for affordable urban housing added to which, unlike the UK, India has no shortage of new construction entrants or skilled labour.

Again, the proof of the pudding is in the eating… Knight Frank’s latest India Real Estate Report found a surge in the number of new project launches for the first half of this year, up by 46% and with a marked increase in affordable housing starts too (making up 51% of supply). Most Indian Cities are also showing exceptionally strong rental growth, with Bengaluru in the lead at 17% year on year. All in all it’s a very different picture from the UK but what the two countries do have in common is housing targets: specifically those established in India by the Affordable Housing Programme which are if anything tougher than those confronting the UK Government.

That’s where Modular Construction comes in, because in contrast to the position in the former mother country, off site prefabrication on the subcontinent is very far from being a cottage industry. Favourable economic conditions and underlying demographic trends have instead made it an essential component of India’s drive to meet its public housing targets by 2022. The sheer pace and quality of delivery offered by modular technologies (not only for homes but hospitals, schools and office buildings too) simply can’t be matched by conventional building techniques: something the UK Government seems to be waking up to, if perhaps a little too late.

Red Ribbon set up Modulex Modular Buildings with the intention of building on these demographic and economic trends, recognising the outstanding capacity of Modulex to deliver above market rate returns for investors by tapping into high demand levels in India’s real estate markets. Modulex provides an exciting opportunity for investors to participate in this key sector of the fastest growing large economy in the world.

Red Ribbon CEO, Suchit Punnose said:

I found it interesting to compare the current strengths and weaknesses of the Indian and UK construction sectors where the same three factors for change seem to be working in wholly opposite directions (to India’s advantage). But more than that, I was also struck that both sectors have now come to the conclusion that view modular construction has to be a key component in delivering the significant number of new units required in each country. I know, for example, that the House of Lords Technology Committee has recently started an investigation into the advantages off site prefabrication offer in helping meet policy targets which seem at the moment to be running away from the Government. Perhaps though, as the article points out, that may all be too little too late.

For our part, and with Red Ribbon’s roots set deep in the Indian markets for over a decade now, it is a trend we have obviously been following with great interest for some years. That’s why we decided to take a pivotal role in establishing Modulex Modular Construction on the subcontinent and its why we remain excited at its prospects of delivering above market rates for our investors in such a resurgent real estate market. We firmly believe Modular Construction will play an essential part in India’s future.

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The Economic Legacy of Atal Vajpayee: A Solid Foundation for Growth

September 14, 2018

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The boy from rural Gwalior had given up studying Law during the turmoil of the Partition Riots, but Law’s loss proved to be India’s’ gain because Jawaharlal Nehru quickly spotted something special after listening to his maiden speech in Parliament House a dozen or so years later: “This young man will be our Prime Minister one day”. And of course Nehru was right, because that boy from Gwalior was Atal Bihari Vajpayee, who died last week at the grand old age of 94. History has rarely given one man an opportunity to shape the economic future of a nation, but the modern Indian economy was to take root under Vajpayee’s three periods in office. The fact that India is now an economic super power owes a great deal to his foresight.

Vajpayee became Prime Minister in 1998, immediately after the seminal administration of Narasimha Rao, which had taken the first faltering steps towards opening India up to the new global economy. After decades of Central Government stasis and only six years of economic reform, small wonder that most of the subcontinent’s business community were initially sceptical about Vajpayee’s ability or appetite to continue to roll out the Rao inspired anti-protectionist and anti centralisation initiatives. Not least because the Mandarins running the BJP’s parent body, his own party were pretty much protectionist and statist to a man (and they were all men).

But Vajpayee had never been a subscriber to Protectionist Politics, and he defied all expectations by not only continuing with the Rao agenda but expanding it with all the enthusiasm of…well, with all the enthusiasm of a politician used to getting his own way despite established party orthodoxy. Think Margaret Thatcher in a dhoti.

Vajpayee laid radical foundations for modern and deregulated Insurance and Banking sectors in India and for increased foreign investment in India’s real estate markets. He had also removed all quantitative restrictions on imports by 2002, replacing them with a framework of domestic tariffs referable in particular to the all important agricultural sector (Brexit minded politicians in the United Kingdom care to might take note). In a few short years his Administration had also radically extended capital markets and significantly reduced the State’s involvement in public sector banks. But most of all, perhaps more than any of his other contributions to India’s economic resurgence Vajpayee totally revolutionised the subcontinent’s Telecoms Sector in ways that we are still coming to terms with today.

In short…no Vajpayee, no Flipkart.

Vajpayee set up a National Task Force on Information Technology and had the foresight to bring onto it pioneering entrepreneurs including N.R. Narayan Murthy (now of Infosys) and Azim Premij (now Wipro): people, in short, who actually knew what they were doing. How’s that for revolutionary? And the result was the New Telecom Policy of 1999, which introduced new licensing protocols making it easier and more attractive for private interest groups to enter the market, at the same time deliberately backing the State away from crucial decisionmaking. Can you imagine that ever happening on the subcontinent before 1991?

And from the perspective of 2018 we can now see the true scale of these changes. In 1991 only a little over 2% of India’s population had access to telecoms technology, that figure is now over 90%. The fastest growing large economy on the planet also has one of the most fluid and innovative technology markets anywhere in the world, driven by an increasingly urbanised and youthful population that views the mobile phone and the tablet as their shopping instruments of choice. They have Bill Vajpayee to thank for that.

One way or another, it was certainly all a very long journey from Gwalior.

Nobody understands India’s potential for growth better than Red Ribbon Asset Management, which has placed the subcontinent at the heart of its investment strategies since the company was founded more than a decade ago. With an unrivalled knowledge of local market conditions, the Red Ribbon Indian Equities Fund offers a unique opportunity to share in that potential.

 

Red Ribbon CEO, Suchit Punnose said:

I have often thought that an economy opens out fully over a thirty year cycle, beginning with the removal of barriers to trade and expansion of domestic markets from central government control; moving into a second ten year period of market adjustment and recalibration as those changes take root, and then into a third decade of explosive growth. We saw that happen in Russia and in China and now we are seeing it happen in India: we are now living through this third decade of explosive growth on the subcontinent which has seen it become the fastest growing large economy on the planet.

But we should never forget the importance of those first two decades, laying a solid foundation for what comes after is a key part of the process, and neither should we forget that in India’s case the guiding hand for most of this period was the hand of AB Vajpayee. We have a lot to be grateful to him for.

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