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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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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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The Phenomenon of Eco Hospitality

September 14, 2018

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This year’s Sustainable Travel Report has reinforced the continuing momentum of Eco Hospitality in India: 84% of business and recreational travellers now confirm a preference for sustainable destinations, and as the saying goes, “sustainability starts where you stay”. Two thirds of travellers are willing to spend 5% more on accommodation if it meets sustainable criteria, meaning everything from water and energy consumption through to macro environmental management systems. But to get a real feel for the importance of those findings, you have to place them side by side with tourist and business statistics on the subcontinent and, in particular, for the first half of this year. It helps explain why India is currently experiencing an Eco Phenomenon.

The subcontinent will be the fourth biggest tourist economy in the world within the next four years, bigger than Italy, the United Kingdom and Australia put together and a major factor in this explosive growth is internal demand. In May alone airlines in India reported a 16.6% growth in passenger numbers, carrying 11.9 million customers with 80% occupancy (Spicejet reported an astonishing 94.8% occupancy rate). And with tourist numbers on the subcontinent riding at such an all time high with 84% of tourists preferring sustainable destinations (they have to stay somewhere when they arrive), even the most rudimentary of economists could spot an emerging trend.

Certainly Lemon Tree Hotels and Eco Hotels haven’t been slow to pick it up: both companies are currently spearheading key innovations in India’s hugely significant mid market hotel segment, with eco hospitality at the heart of each of their business models.

No surprise then that JP Morgan reported Lemon Tree in June to be delivering better than average cost control and execution ratings as well as higher return rates on room occupancy. Better Eco credentials aren’t just a honey pot for prospective travellers, they make sound business sense too with reduced commodity use (and costs) delivering straight to the bottom line. JP Morgan have also pinpointed enhanced operating leverage as a driver for future growth for at least the next three years, which is likely to deliver improved capacity for better pricing and capacity structures.

Lemon Tree and Eco Hotels continue to roll out new hotel units across the subcontinent, with the former last month investing another Rs 850 Crore into its aggressive expansion programme. Interestingly enough, Lemon Tree’s President Vikramlit Singh has also again highlighted a continuing mismatch between demand for hotel rooms and availability as a likely source of future profitability, so there’s no sign of those capital programmes losing their momentum anytime soon.

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, designed to take full advantage of market opportunities available on the subcontinent at the moment. The brand offers sustainable living without compromising on quality and will cater for commercial and recreational travellers alike.

Red Ribbon CEO, Suchit Punnose said:

Market changes rarely come about in isolation, with one revolutionary event: the iPhone would have been an expensive mirror without something to plug it into. And the same goes for economic trends generally where we should look for the confluence of a number of key factors before drawing any conclusions. That certainly applies to the Indian Eco Hospitality sector where a huge uptick in business and recreational travel on the subcontinent has coincided with a surge in demand for sustainable destinations. With mid market hotels already roaring ahead, added eco credentials are giving the platform a turbo charger.

And I would add a third factor too. As may not be generally known the whole, vast expanse of the subcontinent currently has less hotel rooms that the island of Manhattan alone. So the point mentioned at the end of the article also has considerable importance to my mind: demand for hotel rooms is in any event seriously outstripping supply and that is bound to make for a more profitable outlook. A turbo charge for the turbo charger perhaps?

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India’s urban challenge and Modular Construction

August 16, 2018

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We must run as fast as we can just to stay in one place… and if you want to go anywhere we must run twice as fast as that.” (Alice in Wonderland).

As well as having an engaging smile, indeed sometimes only an engaging smile, the Cheshire Cat’s advice to Alice demonstrated wisdom beyond his nine lives. We would be well advised to remember it when considering the real estate challenge facing India’s economy as it comes to terms not only with the fastest growing population on the planet but also a radically increased urban population. Mumbai and the New Delhi Conurbation are already creaking at the seams, so staying in one place is no longer an option: now we need to run twice as fast to get anywhere.

And as we have commented previously on this site, when it comes to sheer speed of delivery Modular Construction will always have the upper hand over traditional construction techniques, making it singularly well suited to meeting the demands of India’s rapidly expanding population. Modular units are pre-built offsite in a controlled environment where the weather matters less and logistical barriers barely matter at all: think about building anything from scratch on site in Downtown Mumbai in the middle of summer and you’ll get some idea of the problem. Just in time supply chain efficiencies, including progressive stacking of modules on site, also then ensure maximum speed of final delivery without any of the “dead time” delays frequently associated with traditional construction methods.

But how does that all work out on complex construction projects? Using Modular Construction to create a small block of flats is one thing, but what about a 100-room Hotel?

Well, as it happens, that’s not a problem either.

The Marriott Hotel Group decided last year to adopt modular construction technology on some of their newest hotels and other major and mid sector hotel chains have been following suit with projects ranging from four star hotels through to boutique eco hotels. Marriott kicked off its initiative with a commitment to build 50 hotels using prefabricated guestrooms and bathrooms as well as a 97 room signature hotel entirely constructed with modular technology (and, take note, completed two months ahead of schedule). As their International Chief Development Officer, Eric Jacobs put it: “Construction is the next frontier for innovation and modular technology is leading the wayBy working with our modular partners we can open hotels faster, put associates to work earlier and generate revenues sooner”.

Quite so…

And its not just hotels either: modular construction is currently being used across the subcontinent to deliver student housing, hospitals and public buildings of all shapes and sizes. Getting just where India needs to be… by running twice as fast.

Red Ribbon played a key role in setting up Modulex Modular Buildings, recognising the company’s outstanding potential to deliver above market rate returns for investors through its ability to tap into high demand levels in Indian real estate markets. The company provides an exciting opportunity for investors to take advantage of this key trend in the fastest growing large economy on the planet.

 

Red Ribbon CEO, Suchit Punnose said:

I was interested to read about the Marriott Hotel initiative because it deals with a misapprehension that I sometimes come across, that modular construction is appropriate only for smaller scale projects. In fact nothing could be further from the truth. From my own work on behalf of Modulex on the subcontinent, I know that this fascinating and innovative technology is equally at home on major construction projects as well including, as the Article says, Hospitals and Schools. I’m convinced the technology has a major part of play in meeting the huge challenges currently facing India’s real estate markets.

And as a matter of interest, Marriott certainly wasn’t the first company to enter the market with a modular construction hotel: Red Ribbon’s own Eco Hotels have been doing that since the company’s inception and I’m very proud of the part we’ve played in its growth: because at Red Ribbon we don’t just believe in the theoretical value of modular technology, we’ve been using it for years.

 

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Sustainable Tourism: Balancing the needs of the fastest growing hospitality market in the world

August 16, 2018

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The World Travel and Tourism Council predicted this month that within the next decade India will be the fourth largest tourism economy worldwide, snapping at the heels of China, the United States and Germany. The Report makes a particularly interesting finding that this trend is not just driven by increasing numbers of international business and tourist travelers: significant growth is being driven from within the subcontinent itself, fueled by India’s rapidly expanding middle class and an increasingly technology literate young population who are quicker than ever to reach for their smartphones to book a holiday. Domestic travel is now the real catalyst for change in a burgeoning hospitality sector with a striking 90% of travelers being Indian Nationals.

No surprise then that In May of this year domestic airlines on the subcontinent reported a 16.53% growth in passenger numbers compared to the same month in 2017, with the Directorate General of Civil Aviation confirming that Indian carriers had transited no less than 11.9 million passengers during that single month. Across the board scheduled carriers flew to an impressive 80% occupancy with Spicejet leading the way at a 94.8% load factor.

These are hugely significant trends for the future of India’s economy, with the hospitality sector having already accounted for more than $230 Billion of the subcontinent’s GDP in 2017 (up from $209 Billion the previous year) and no suggestion that current unprecedented rates of growth in the sector are likely to slow anytime soon.

This pattern of exponential growth shouldn’t come as a surprise to anyone: India has 36 world heritage sites, 103 National Parks (with the Taj Mahal thrown in for good measure) as well as Goa’s beaches, the foothills of the Himalayas and an astonishing breadth of wildlife from tigers and elephants to snow leopards. All of that is bound to attract tourists in large numbers, but such rapid tourist growth can of course bring its own problems, as anyone struggling through St Mark’s Square in mid August can testify. Growth of the wrong kind can threaten the fragile ecostructure of the very locations proving to be so popular with tourists, to such an extent that some of India’s tiger reserves no longer have any tigers to see.

More than 30,000 plastic bottles are left behind each summer by tourists in the high altitude Himalayan Ladakh desert of Jammu and Kashmir and on Mount Everest itself eight to ten tons of waste are left behind on the mountain every year: everything from empty oxygen bottles to rucksacks, tents and discarded climbing equipment.

So there is a balance to be struck: recognising the importance the hospitality sector now has for the subcontinent’s economy, but at the same time striving to support unprecedented growth within the sector in a manner that is sensitive to the needs of India’s precious ecosystem. This is the principal reason for the success of Eco Hospitality as a key driver of India’s mid market hospitality sector: not just because it is the only model striving to get this critical balance right, but because the majority of those travelling on the subcontinent now recognise the risks greater tourist numbers are posing to the natural habitat and are actively seeking out accommodation that supports its preservation.

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 is 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 travelers alike.

 

Red Ribbon CEO, Suchit Punnose said:

No surprise indeed that tourists are flocking in unprecedented numbers to the natural beauties and historic splendorous of the subcontinent, but it is still striking to learn just how significant a part internal tourism is playing in buoying up India’s resurgent hotel and hospitality sector. It’s certainly an area which can’t be overlooked in seeking out the best investment opportunities over the coming years and that’s why I’m proud Red Ribbon has played such a significant role in the creation and deployment of the Eco Hotels Project across the subcontinent.

As the article points out, tourists and business travelers alike are looking increasingly for hotel accommodation that is compliant with requirements of eco sustainability, and as the world’s first carbon neutral hotel brand, Eco Hotels are spearheading the need to meet that demand. It not only makes good sense for the environment, it makes good business sense too.

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Taking It In Stages: Modular Construction and India’s Urban Challenge

August 16, 2018

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India’s already congested conurbations will have to find homes for 900 Million more people by 2050, and assuming a modest four person occupancy rate that means 856 new homes will have to be built every hour, every day for the next thirty years (fourteen a minute in case you’re wondering), with the subcontinent’s builders working an implausible twenty four hours a day with no time off. The sheer scale of the challenge is unprecedented, and given the pressures it will place on India’s already overstretched urban infrastructure, it will call for a solution of equally unprecedented ingenuity. But more of that in a moment… first let’s look at those trends in a little more detail.

The latest industry source to address the issue is KPMG in its NAREDCO Study, “Bridging the Urban Housing Shortage in India” (the clue’s in the title obviously) and the Report draws an arch reference to commentators having first predicted a critical shortage of urban housing as long ago as 2012, with a then projected deficit of 18 Million units. But things have got worse since then and KPMG now say there are some 1 Million urban households currently living in “non serviceable accommodation” and over half a million without any homes at all. So what’s to be done?

Well, the first point to make is that it would be unduly Eeyorish (with apologies to Philip Hammond) for us to ignore the work Prime Minister Modi’s Government has already done to re-vitalise the subcontinent’s Affordable Housing Programme: introducing a raft of new tax incentives over the course of the last two Union Budgets with more streamlined Planning Procedures thrown in for good measure and a general cutting of Red Tape across the board. Which is, of course, all well and good but cutting Red Tape and going Fiscal Max won’t get any homes built by themselves. Something more is obviously required.

KPMG’s Director of Real Estate on the Subcontinent, Neeraj Bansal, more or less put his finger on the solution when he highlighted that the single most important policy initiative which has so far gone largely unexplored is the use of innovative and low cost technologies which can speed up the construction process: and that means Modular Construction.

Prefabricated units are, indeed, likely to be key to delivering affordable housing on the required scale and within cost structures optimum to the framework of incentives put in place by Prime Minister Modi’s Government. Modular Construction has a real potential to overcome all of the structural barriers to volume delivery at pace which are inherent in India’s traditional building technologies: including a lack of skilled construction workers (or at least skilled in sufficient numbers in the urban areas where they are required); a pressing shortage of non land resources, from precious water supplies to fabrication materials and, most crucially of all, the severe time delays which come hand in hand with conventional construction methods.

Modular Construction ticks all of those boxes.

First of all, it has clear advantages on speed: manufacturing and site work can be carried out simultaneously, reducing overall completion times by as much as 50%. Think about that: for every two hundred traditional units completed, modular construction can build three hundred. And that means reduced labour costs too, with nearly all of the design and engineering overheads being rolled into the bottom line manufacturing process. Roofs, walls and floors can all be constructed as part of the same process when, in stark contrast, ceilings can’t be put in place on a conventional project until the walls are completed, and walls can’t be completed until the floors are laid down: resulting in a lot of workers standing idly by as each small delay in the process dominos into a bigger one. That isn’t the case with modular construction where these same workers can work together at the same time; and they can also be recruited centrally so that local skills shortages (of the kind that have blighted the Mumbai construction sector) also become a lot less significant.

Modulex Modular Buildings 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 through the platform of the Red Ribbon Real Estate Fund: because, when it comes to investing on the subcontinent, nobody knows its markets better than Red Ribbon.

Red Ribbon played a key role in setting up Modulex Modular Buildings, recognising the company’s outstanding potential to deliver above market rate returns for investors through its ability to tap into unusually high demand levels in Indian real estate markets. The company provides an exciting opportunity for investors to take advantage of this key trend in the fastest growing large economy on the planet.

 

Red Ribbon CEO, Suchit Punnose said:

When you come to look at the nuts and bolts of what it will take to deliver on India’s housing targets for its burgeoning urban population, the figures are truly eye watering. Building fourteen new homes every minute for the next thirty years would strain the limits of any conventional construction methods: not to mention the resolve of workers required to put in a twenty four hour a day shift, seven days a week.

But for me the answer is always been obvious and, as the article says, challenges on this scale require groundbreaking and innovative solutions. That solution, I am convinced, is Modular Construction.

No conventional industry methods can beat Modular Construction for its sheer pace of delivery and, of course, the key challenge faced in India and elsewhere is delivery timing: and its low overheads combined with unique operational efficiencies mean it will beat conventional construction methods hands down on overall profitability too.

That in a nutshell is why we have been committed to Modulex Modular Buildings (as a founding partner) since the project’s foundation several years ago. We remain convinced that it will play a vital part in meeting the challenges of India’s housing sector over the years ahead.

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Going Green: India’s hotel sector is changing its complexion

August 16, 2018

Asset Growth(41), Eco Hotels(23), Ecological(14), Economic(31), Economy(48), Emerging(42), Environment(23), Fast Economic Growth(46), Foreign Direct Investment(34), Growth Market(44), Growth Markets(55), Hospitality(15), Hotels(12), Impact Investment(35), India(67), Indian Economy(45), Indian Hospitality Sector(18), Invest In india(50), Investment(46), Real Estate(20), Red Ribbon Asset Management(50), Red Ribbon Fund Management(46),

On average the phrase “Eco Hotel” is searched at least 4,500 times a day on Google, targeting businesses operating on the subcontinent: stark evidence (if evidence be needed) that travellers of every complexion are increasingly aware of the importance of environmental compliance in their choice of hotel accommodation. But the recent surge in demand for Eco Accommodation is still not wholly matched by supply in India (the subcontinent’s vast expanse currently has less hotel units than the State of New York alone). And it’s not just about the environment either, because Eco Hotels in India are more and more reaping the economic benefits of environmentally friendly operations through reduced room costs and higher occupancy rates.

With unprecedented numbers of tourists and business travellers, the Indian hotel mid market is naturally focusing on the need to meet this key demand matrix: making better use of energy, water and building materials whilst at the same time maintaining the highest standards of service and accommodation quality. This is the successful formula that lies behind the recent growth of India’s Lemon Tree Hotels Group (with a very recent and oversubscribed IPO now under its belt) as well as Eco Hotels, the World’s first carbon neutral hotel brand; both of which are now picking up business at the expense of more traditional, chain operations.

From the point of view of the hotel operator, eco compliance also reduces costs and potential longer-term liabilities, generating a higher return and lower cost investment platform, so it is safe to say that the current trends towards “greener” delivery are likely to continue into the foreseeable future: if only because they make solid business sense too. It helps, of course, that the eco model is also attracting sustained levels of high demand in a largely unsaturated sub continental market.

And the core concept of a truly “green hotel” starts (literally) from the ground up, as part of the original construction process: using renewable building materials and incorporating design features which will eventually make reduced energy and resource allocation part of the building’s DNA, an intrinsic component of its operating structure. Once completed, it comes down to recording current and chronological usage statistics, acting on them and establishing key baselines and targets for future consumption (70% of non compliance variables in the segment involve excess guest consumption, so accurate record keeping is crucial). Inevitably, therefore, most of the day-to-day procedures for “going green” take place behind the scenes of any hotel’s operations.

All of this is also helped (crucially) by a range of key policies and initiatives instituted by the Indian Government over recent years, favouring eco hotel and mid market operation: all of them designed to deliver eco hotels as sustainable business ventures with clear short term deliverables for the environment (and, not unimportantly, profitability too).

Red Ribbon Asset Management is the founder of Ecolodge, a key brand within the Eco Hotels Group, which has an ambitious programme of developing a £1 Billion premium value hotel network, supporting sustainable living without compromising on standards of service delivery. And given the Eco Hotels brand is also modelled to operate from a low cost and high profit platform, it also delivers above market rate returns for investors. What more could you ask for?

 

Red Ribbon CEO, Suchit Punnose said:

I am constantly struck by the fact that the Island of Manhattan alone has more hotel accommodation than the entire, seemingly endless expanse of India’s hinterland: but when you bear in mind that there is also now an unprecedented surge in tourist and business travelers on the subcontinent, most of them looking for eco friendly accommodation, it starts to look like a phenomenon with only one outcome…a resurgent Indian mid market for Hotels and Eco Hotels in particular. Not that we didn’t see it coming.  For several years now Red Ribbon has been the driving force behind the Eco Hotels project on the subcontinent, successfully meeting the unique challenges that this congruence of market economics and public demand has generated. But we aren’t just proud of our participation in Eco Hotels; we think it makes great business sense too.

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Exits and Entrances: A good year for Indian Private Equity

May 02, 2018

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According to this month’s influential Bain Report, Private Equity Exits grew on the subcontinent by more than 60% in 2017 (India Private Equity Report 2018): an unprecedented $15.7 Billion, up from $9.6 Billion in 2016 and making last year the best ever year for PE exits in India. The number of exits also rose in absolute terms: 211 in all, which marks 7% growth year on year. More importantly perhaps, given this is now the third successive year of growth in exit volumes and value (stretching back to 2015), those familiar with India’s Private Equity Segment will be relieved to move on to brighter uplands, in a sector which has historically been bedevilled by low exit rates.

So what is fuelling the trend?

Well, a lot of it is undoubtedly down to the increasing resilience of India’s Capital Markets and its improved regulatory structures, mostly introduced by Prime Minister Modi’s Government since 2015. Those are both critically important because private equity investment means taking a long term stake in a business and often working with existing management on re-gearing programmes leading to realising asset value. And in India that has often meant investing in small to medium sized family run companies, mostly conservative by instinct and almost all averse to disposing of the business. So without a disposal, just how are you supposed to get your money out? That dilemma lay behind the old (and happily now outdated) adage that in India it was “easy to invest but hard to exit”.

Not anymore though…

In excess of 50% of the subcontinent’s exits in 2017 were structured through Public Markets, including Initial Public Offerings (IPOs) where much improved Market systems and Regulatory frameworks have made it much easier to exit a PE venture by selling all or part of the stake without having to sell the business (even the most conservative family business will be happy with the outcome).

And it’s not hard to find practical examples of how this is all working out on the ground: take for example Tiger Global’s secondary share sale of Flipkart for $800 million last year (making use of the new market regulations) and Apax Partners’ partial exiting of IT giant, GlobalLogic for $780 million: where for the past three years Apax were returning in excess of 20% compound annual growth on its 96% holding in the company, and the 50% stake which was disposed of reportedly sold for 300% of the original investment.

A further factor pointing to the resilience and likely long term growth in exit values is the some $9 Billion of dry powder currently held by PE Funds investing in the Indian sector (according to the same Bain Report), signalling a broad parity with equivalent dry powder levels in 2016 and strongly suggesting that the overall potential and attraction of investments on the subcontinent is likely to remain unabated for the foreseeable future.

Red Ribbon’s Private Equity Fund offers a significant opportunity to participate in India’s resurgent markets, combined with the ability to realise the initial investment after the initial lock in period but well before the ten-year period conventionally imposed by other private equity funds. The Red Ribbon Fund also benefits from the company’s unique and long standing specialist knowledge of India’s markets, with more than 100 advisers and consultants working daily on the ground in the subcontinent’s hotspots helping to identify the best available investment opportunities.

 

Red Ribbon CEO, Suchit Punnose said:

Private Equity Investment is virtually unique in the long-term vision that it requires for the business platform. Not only a full understanding of the nuts and bolts of the business, but also a viable plan for optimising asset value and a clear, if still long term exit strategy.

As the article notes, I am sure the radically improved market and regulatory conditions brought in over the last three years by Prime Minister Modi’s Government lie behind the resurgence in exit volumes and values on the Indian Market and I am confident too that with three years consistent growth on this key variable, the subcontinent is set to offer unprecedented opportunities for PE Investment.

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Meeting Need with Speed: Modular Construction as a key innovator

May 02, 2018

Asset Growth(41), Economic(31), Economy(48), Emerging(42), Fast Economic Growth(46), Fund Management in Gibraltar(27), Growth Market(44), Growth Markets(55), Hospitality(15), Hotels(12), India(67), Indian Economy(45), Infrastructure(20), Invest In india(50), Investment(46), Property(7), Real Estate(20), Red Ribbon(42), Red Ribbon Asset Management(50), Red Ribbon Fund Management(46),

27,348 people live on every square kilometre of land in the Mumbai Conurbation, and this figure is expected to grow to 101,066 by 2020 making it the most densely populated area on the planet. This striking statistic is characteristic of the burgeoning and rapidly urbanised population trends which are currently driving the subcontinent’s economic miracle, but those same trends are bringing their own problems as well: a need to create ever greater numbers of residential and commercial units, quicker than ever before and within the severe constraints imposed by already over populated areas such as Mumbai.

But India is rising admirably to the challenge and Modular Construction is a vital ingredient in its urban planning strategies: prefabricating key components offsite and assembling units within the final urban matrix. The process offers significant advantages over conventional building techniques, with clear advantages both in terms of efficiency and final project costing. Rehabilitation models (re-acquiring units after use) are also faster and more efficient with Modular Construction and it has a much-reduced environmental impact too.

Modular Construction is far from being a recent innovation on the subcontinent: the first prefabricated units were erected in India as long ago as 1905 (with a futuristic turn of phrase they were called “ultra-light constructions”) and in those early years stone and logs were the preferred materials, unlike today’s lightweight steel components. Prefabrication techniques took off later with the foundation of the Hindustan Housing Factory in 1953, designed to meet severe housing shortages arising from the influx of refugees from West Pakistan (now Bangladesh). The Indian Government ran the company then (and still does, as Hindustan Prefab Ltd) manufacturing precast concrete components for later assembly on site in a variety of commercial and residential projects. Tata Steel is also heavily involved in the segment at the moment with its “nest system” of prefabrication, as is Modulex Modular Buildings, which operates the World’s largest (and India’s first) steel modular building facility.

The main advantage of modular construction is of course its speed of delivery, with a unique capacity to meet the tightest deadlines imposed by current trends in Indian real estate markets, whilst at the same time adapting to the subcontinent’s relative shortages in on site skilled labour and other key resources such as water. But its other great advantage over traditional construction methods is durability, adopting strict checking mechanisms at the fabrication stage, which enable units to be customised more effectively to the most demanding specifications. The whole process also requires less labour, so it’s cheaper too.

BIM (Building Information Modelling) is now being used in India to pre-plan and visualise the entire process from drawing board to final assembly, making modular construction a much leaner and more efficient process through maximising pre-loaded work off site; and that’s important on the subcontinent in particular where key resources are increasingly scarce.

Yet another reason why Modular Construction is at the forefront of the clutch of key initiatives currently addressing India’s unprecedented surge in demand for residential and commercial real estate.

Red Ribbon played a key role in setting up Modulex Modular Buildings, recognising the company’s outstanding potential to deliver above market rate returns for investors through its ability to tap into unusually high demand levels in Indian real estate markets. The company provides an exciting opportunity for investors to take advantage of this key trend in the fastest growing large economy on the planet.

 

Red Ribbon CEO, Suchit Punnose said:

We are proud of Red Ribbon most ambitious project and India’s first Steel Modular Building Factory, Modulex Modular Buildings Plc: working from a model which enables prefabrication of high quality units to the most stringent specifications and subject to the rigorous demands of western regulation, it offers significant advantages compared to conventional buildings such as cost effectiveness, flexibility and shorter time production. Modular construction can deliver innovative designs while providing a key solution for the sector.

We believe the company is now exceptionally well placed to rise to the challenges being created through the unprecedented demand within India’s real estate sector, both domestic and commercial. And we are confident too that we will be able to deliver above market rate returns for our investors in doing so, through making the most of the opportunities that these challenges will inevitably create.

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