Personality branding of real estate projects in India – do returns outweighs the risks?

Personality endorsed realty projects do bring initial investors at higher premiums to the market, however the sales velocity doesn’t match up with the overall market norms.

In the last 5-7 years, many new age builders in Indian realty market announced projects with personality endorsements.  Global personalities include Maria Sharapova (Homestead Gurgaon) ,  Aishwarya Rai Bachchan ( Lodha The Park) , Michael Schumacher ( Homestead Gurgaon) , Donald Trump (Pune- Panchsheel Group and Trump Tower Mumbai – Lodha Group). The Trump Tower transaction, technically and legally is a licencing deal with the Trump Organisation but for all practical purposes it is a personality endorsement as  Donald Trump is one of the biggest personalities in the global real estate industry. There is no doubt that if he is able to become the President of America, the projects in India will become even more popular as the TRUMP brand will scale new heights. On the flip side, the vice versa will also hold true and thats where we need to understand the business equation of risks versus return.

As per the research,  personality endorsed realty projects do bring initial investors at higher premiums to the market ( about as high as 50% premium at times) , however the sales velocity doesn’t match up with the overall market norms. This means that the sales volume reduces significantly in personality endorsed projects thereby increasing the working capital requirements of the developer. In such projects, most of the investors play a wait and watch game and wait until the project gets closer to delivery. By doing that, the investors or the actual end users de-risk themselves by getting a look and feel of the finishes and specifications promised.

trump tower Mumbai

It is also interesting to see that none of the prominent real estate developers like DLF, K. Raheja Corp, Prestige, Hiranandani Group have partnered with any such personalities at project level. Most of these real estate developers have more than 40 years of experience in developing real estate in India and have seen several real estate cycles. They feel that the risks associated of tying up with a personality outweigh the return. In an age where the reputation of a personality stands exposed due to explicit social marketing, the conservatives of real estate development industry feel that if the popularity of these personalities goes down, the project prices will also fall. It may also happen in exceptional circumstances that the projects stop to sell completely, if the reputation of the personality takes an ugly turn and starts to be perceived as infamous and notorious.

The new age developers of course have a different point of view. They feel that global personalities bring a new level of energy to a project both in terms of design and lifestyle. The new consumer is now more discerning and perceives a real estate project as a service and not just a mere product. They like to associate themselves with these personalities and are ardent fans of these personalities. Even in the worst circumstances, they won’t leave their role models and would like to stick to them.

There are still other set of developers who have a balanced view. They feel that tying up with premium Hotel Company to do serviced residences is a more balanced way to generate higher internal rate of return or their projects. IREO for example have tied up with Hyatt Corporation to bring Grand Hyatt residencies project in the city of Gurgaon. It will be first of its kind branded serviced residential project branded by global hospitality major. The company has also tied up with Singapore based premium serviced apartments group Ascott to build yet another project in Gurgaon.

So, in the upmarket residential space, we can classify 3 set of developers, i.e the conservationists, the mavericks and the balanced. In the next couple of  years, we will witness as to which approach actually brings the better returns to the capital employed. Will it be the conservationists like the DLF, Hiranandani, Rajehas or the mavericks like Lodha, Panchsheel or will it be the well balanced Hospitality branded projects such as the Grand Hyatt Residencies and the Ascott Gurgaon?

Only time will tell, but one thing is sure, with the Trump name trending across the globe for all the histrionics and theatrical expression of American elections, the Trump Tower projects in both Mumbai and Pune are already trending a lot more in the digital space, especially from Indian Americans settled in the USA. It has never happened before that the American elections will be so keenly watched by at least two realty companies in India.  Indeed, the discerning investors in such projects are eagerly awaiting the white glove services.

 

 

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