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Modular Construction: The Answer to Housing Needs

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Modular construction is the answer to housing needs

Modular construction is an option for building homes that’s been available for over a century. Its popularity has ebbed and flowed with various significant events and global developments. However, one thing that remains clear about the system of preparing a property in a factory and then constructing that same building on site, in a matter of a few days or even just hours, is that it’s one that builders and policy makers return to whenever a new crisis or real need for homes arises.

Modular homes quickly gained in popularity in the US when they were developed and then sold by Sears at the end of the 19th century. That was fuelled by increasing wealth and an abundance of land to live and build on. The Great depression which began in 1929 soon put paid to the growth of buy and build your own home. And by 1932, Sears’ modular construction home sales were down by 40%. That was enough for them to put an end to that particular part of the business.

World War II ends

However, it wasn’t so very long from then, until the end of World War II in 1945 when soldiers and Governments could fully take in the sheer size of decimation across the UK and Europe, following years of fighting, destruction and bombing.
Add to that the returning soldiers needing homes to live in with their families and it was clear new homes needed to be built. Quickly. Pre-fabrication proved popular once again, with several areas in the UK benefitting from this fast and economical construction method.
However, once things began to settle, the workforce was back in balance and skilled builders were willing and able to work and modular construction, fell out of favour once more.

Confluence of developments

Fast forward to 2019 and there are a broad array of developments that have combined to once again push modular construction to the forefront of residential home building, but this time on a global scale:

  • The UK’s housing crisis where a lack of building during the credit crisis means there aren’t enough homes for the still growing population – the Government is supporting modular construction options to quickly build suitable housing for Britons across the country.
  • Geo-political unrest and refugees moving from place-to-place with nowhere to live – the RICS recently awarded a young home designer its top prize for his low-cost bamboo home that takes just 4 hours to build, to help with the slum crisis in the Philippines.
  • Economic prosperity and demand for homes and commercial properties in rural and city regions – India’s economy is among the fastest growing in the world and the changing needs of the country for less rural workers, to more city-based jobs, means more urban homes are required, quickly.
  • More and more people have developed an eco-conscience, either through their own nature or the growing number of ecological changes and concerns the global population is faced with – home-buyers and developers around the word are actively seeking green homes that are built with sustainable materials and are also powered that way, too.

Together, these separate crises and changes have led to greater demand for modular homes from a wide variety of consumers and policy makers. Meanwhile, that demand combined with a larger business desire to consider sustainability and green options, has encouraged further investment in the sector, too.

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:

When we think about how modular construction has time and time again proved the right answer to a crisis, problem or change, it becomes a much simpler decision as to whether or not it’s the right investment choice. Add to that the fast-growing knowledge about the importance of eco options and sustainability and modular construction becomes an even more compelling proposition.

Modular construction is already part of India – and the world’s – property development needs. And that’s something that is only going to increase as it becomes a major element of the construction landscape. Not only due to its speed of delivering the finished, habitable product, but also its cost-effectiveness, green credentials and sustainable factors it brings.  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.

Modulex is the answer to many of India’s immediate needs and beyond. By creating sustainable, cost-effective homes and buildings across the country, Modulex is part of a growing industry that will remain relevant and profitable for many, years to come.

Key Benefits Modular Construction - Red Ribbon Asset Management Plc

Key Benefits of Modular Construction

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Right now, the demand and requirement for residential and commercial property across India remains elevated. And, true to form, the relevant industries are supporting that need in the best way they can – constructing buildings. However, having relied upon mainly traditional methods for so long, that’s the go to option in many cases.

Enter modern, modular construction.

Modular construction techniques have come a long way since the first attempts in the 1800s. Indeed, they’ve even evolved and improved vastly in the past 10 years. That’s part of what makes it a big part of the answer to India’s requirement for homes and business premises. Add to that the easier property construction regulation under forward thinking Prime Minister Modi’s RERA act and modular construction is most definitely an option drawing increased interest. Not only across India, but globally, too.

There are many reasons why that should be the case and is now becoming so.

Why modular construction is an essential part of the solution to India’s housing needs

Because modular construction is an excellent way to create housing and commercial properties of all shapes and sizes, quickly and relatively affordably. This has helped encourage thought and investment into the industry, with extremely positive results.

That’s not to say it should completely take over traditional property construction methods. There’s absolutely room for all kinds of skills and ways of building. However, modular construction is no longer a final thought or last option. It’s right up front with all the other property construction methods, which is exactly where it should be.

Its cost-effective

When it comes to building property, its not something that could ever realistically be described as ‘cheap’. One thing that makes modular construction a more cost-effective building option is the use of set, factory-based methods.

This is particularly relevant for apartment blocks, or developments where properties will feature the same internal layout. Having a set pattern for the off-site, factory construction, means fewer plans, designs and templates are required. This also helps support a more efficient work-rate. In addition, among the various ‘major costs’ of on-site construction, is the wages of builders, supervisors and other professionals, who need to be there. With modular construction, many of the builders only need to be on the actual building site for between a quarter and half of the time they would on traditional build.

Eco-credentials

Building property will always have pros and cons. Among the cons is the amount of waste and also the often-difficult task of ensuring all required energy efficiencies are made-to-measure and in place from the beginning. Utilising a purpose-built modular factory dramatically improves waste control. That’s borne of working to specific measurements in an environment that makes it easy to order only exactly what you need.

That’s not to say that traditional building methods aren’t precise and materials ordered accordingly. But, without such controlled conditions, over-ordering and materials waste is notably higher. But that’s not the only green credential modular construction techniques lay claim to.

By constructing all the internal wall panels and other elements of a modular building in a factory, it’s much simpler to ensure all the required energy efficiencies are fully installed, at source in the right way. This makes any eco-friendly options easier to safely install in the factory. Solar panels, water saving features and suitable heat conservation, or air circulation requirements can be handled in a controlled, measurable way, using the right materials and methods.

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:

India’s housing needs are no secret. But nor are the advances in techniques to help support faster and more cost-effective construction options. Add to that a supportive Government regulatory environment it begins to make sense that all types of reliable and suitable methods are put to good use. We, along with an increasing number of professionals, investors and industry specialists, know that modular construction is a major part of the answer to India’s housing needs.

Modular construction is already part of India – and the world’s – property development needs. And that’s something that is only going to increase as it becomes a major element of the construction landscape. Not only due to its speed of delivering the finished, habitable product, but also its cost-effectiveness, green credentials and sustainable factors it brings.  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.

India Real Estate - Red Ribbon Asset Management Plc

Time matters with India’s Real Estate revitalisation

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

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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

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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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Modular Construction: A Global Construction Solution

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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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India’s Infrastructure Partnership: “A Huge Footprint all over Society”

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Roger Bootle brilliantly described him (or her) as homo economicus: “a bloodless utility maximising machine, trying to increase pleasure and reduce pain in its own selfish interest…a being that has never set foot on the earth but has left a huge footprint all over society.” But in truth, market economics are not as atomistic as this in practice: major public infrastructure projects, in particular, would never be started let alone completed if commissioning decisions were left solely to the iron instincts of our heavy footed homo economicus. And that’s why a group of economists and market leaders gathered in Mumbai last week to discuss the practicalities of infrastructure planning in India.

Infrastructure is now the engine room of India’s burgeoning economy: enormous projects taking place across the length and breadth of the country that are creating unprecedented levels of wealth and employment whilst at the same time delivering key facilities to facilitate further growth in the future. The Indian Government is now a world leader in both seeing and exploiting this vast potential. Over the last five years it has embarked on a public infrastructure programme on a breathtaking scale: including the biggest highway project in the subcontinent’s history with 83,677 kilometers of new road slated to be built over the next five years (compare that with the United Kingdom’s total motorway network of a little over 3,000 kilometers) added to which there are new port facilities, new airports, new aeroplanes for a newly nationalized airline and even futuristic high speed monorail networks in Delhi and Mumbai.

Our eminent gathering in Mumbai wasn’t slow to see all that potential. They rightly concluded that proper evaluation of the monetary value of public projects of this kind is not simply a matter of short or even medium term cash flow. The projects have an inherent potential to create substantial value through increased connectivity between financiers, communities and the various stakeholders involved in the enterprise and designing systems that are capable of optimising this upside connectivity is of critical importance to effective financing of infrastructure assets.

Governmental agencies, for example, have to work closely in conjunction with Export Credit Agencies, which play such a significant role in easing capital provision by lowering the cost of long-dated debt and responding to funding deficits. Neither party can do both on their own. It is a true partnership of interests and India is providing perfect examples of just how well the process can work in practice.

Take the National Highways Authority and its Toll-Operated Transfer Model, which was run in conjunction with private sector interests and significantly increased the ability to fund new Highway Projects.  Given it has always proved tough to attract long-dated capital such as pension funds and insurance companies, direct government participation in the construction phase has become increasingly important: acting as a honey pot for capital pooling and monetisation and this in turn providing the government with flexible funding sources for new infrastructure investment. Covered Bonds are an important part of that process, just as they have been in Western European and North American economies for the last fifty years and the pooled character of the bonds again provides a perfect example of just how effective collaborative funding can be in the infrastructure sector.

The striking success of this symbiotic and essentially Government driven process is attracting foreign investment as well. ABB India announced this month that it is increasing its railway infrastructure programme as well as stepping up participation in renewable energy. The company already spends up to $100 Million annually on the subcontinent. ABB’s Sanjeev Sharma was in no doubt about the significance of infrastructure projects to future growth: “India has become a global feeder factory.”

India is leaving a Huge Footprint on the Global Economic stage.

Red Ribbon Asset Management has been specialising in India’s Markets since the company was founded more than a decade ago, bringing an unparalleled expertise to its investment policies on the subcontinent with specialist sectoral advisers working from it’s Head Office in London in conjunction with more than a hundred local experts on the ground in the subcontinent itself. And by drawing on that body of expertise Red Ribbon’s Private Equity Fund now offers an opportunity to secure above market rate returns in this, the fastest growing large economy in the World.

Red Ribbon CEO, Suchit Punnose said:

Infrastructure matters greatly to any modern economy and, as the article points out, the huge sums currently being invested into projects on the subcontinent are now playing in key role in the explosive growth of India’s economy. But it is fair to ask how a billion dollar project can sensibly be funded if returns in the short term are necessarily limited: investing in a rail network might after all leave capital costs to be recovered over a decade or more.

The answer lies in a new form of partnership between government agencies and the private sector, a subtle model for long and short term pooled resourcing that India is indeed proving to be a world leader in deploying. That can only be good for the long-term health of the economy.

It is, indeed, a huge footprint on the global economic stage and one that we would do well to pay attention to.

Modular Construction India - Red Ribbon Asset Management

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

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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.

Hospitality in India - Eco Hotels - Red Ribbon Asset Management

Mid Market’s Moment: Trends in India’s Hospitality Sector

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India seems to do everything on a bigger scale these days: the fastest growing large economy on the planet and the highest rate of GDP growth anywhere in the world (currently a shade over 8%). So why settle for just one reason when you can have five? Why settle for one reason to explain the explosive growth in India’s hospitality sector over the past decade, something to tell us whether current growth rates in the sector are sustainable? And in case you’re wondering, the answer to the second part of that question is “yes”, but we’ll come back to that in a moment.

First though the reasons for the sector’s extraordinary growth, and as promised there are five of them: a surge in middle class numbers as India’s population becomes steadily larger and more affluent (in other words, much more consumer led demand); an overall increase in absolute business and leisure travel numbers; rapid urbanisation of the population (meaning that you need more and bigger hotels in densely populated areas); progressive economic growth (the subcontinent’s rising population has more money to spend) and lastly (fifthly, as I’m sure you’re still counting), a doubling in domestic air travel numbers over the last seven years. All these factors have now come together in a perfect storm to booster mid-market hotel brands in India, and that means in particular mid-size business hotels and eco friendly hotels.

In 2002 less than 25% of India’s hotel stock was mid-market in that sense, but this year the equivalent figure was 43% (according to the global advisory firm Horwath HTL). Between 2002 and March 2017 the supply of chain affiliated hotel rooms grew at 11% annually, but this too was outstripped by the mid-market segment, which grew over the same period at an impressive 15%. On any basis that is a striking shift in the market demographic over such a relatively short period, and if it tells us only one thing it is that now is perfect the time for investing in mid market hotel developments on the subcontinent.

And not just because statistics favour the segment so strongly, because development makes more financial sense in absolute terms too.

The average cost of building a mid market hotel room in India is between Rs 3 Million and Rs 7 Million, compared with a major chain development where the equivalent figure is Rs 15 Million which means that a mid market unit will break even faster: within six years rather than twelve for a chain development. The variables are in favour of the mid market too, because these break even projections are based on historic demand and, as we have seen, there has been a recent surge across the sector with current occupancy rates running at higher than 65%. The average room rates have also grown by more than 8% in the last decade, so we can realistically expect break even times to start coming down.

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 its current roll out programme which is structured 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.

And the timing couldn’t be better with everything pointing to a mid market surge.

Red Ribbon CEO, Suchit Punnose said:

Red Ribbon is the founding force behind Eco Hotels, and continues to support the project’s current roll out across the subcontinent where we are very confident that it will play a key part in the all important mid market sector. Not least because we know that a combination of demographic factors (driven primarily by India’s burgeoning and increasingly urbanised population) as well as the current acute shortage of hotel stock, combine to make the subcontinent’s hotel sector such an extremely attractive sector for investment.

To illustrate that point graphically, it is worth remembering that there are currently more hotel units on the island of Manhattan alone than there are in the entire expanse of the subcontinent. And that supply deficit is bound to create fertile ground for new investment, not least because of the five factors highlighted in the article.

At Red Ribbon we pride ourselves on our in depth knowledge of Indian markets, and the hotel and hospitality sector in particular. With more than a hundred advisers working daily on the ground in the market’s hot spots, we are confident that we can identify the best investment opportunities as they arise, taking full advantage of the trends for growth in this, the most exciting growth market on the world.

India Market Report - March 18 - Red Ribbon Asset management

India Market Report – March 2018

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In a move designed to further boost overseas investment, India’s domestic exchanges took a significant step last month in deciding to cut off data feeds to overseas bourses, and to the Singapore and Dubai Exchanges in particular. The Finance Ministry in New Delhi quickly made clear that it supported the move, especially given significant negative impacts of trading in Indian derivatives over the last year which have been widely perceived as destabilizing domestic financial markets: particularly as this trading takes place outside the reach of India’s regulators. In that context, last month’s decision can properly be seen as the latest in a series of regulatory and supervisory initiatives taken on the subcontinent over recent years, each one designed to tighten up still further historic asymmetries in its markets. Far from being unduly protectionist, as some commentators have suggested, it can only be good news for overseas and domestic investors who wish to participate in the success of India’s burgeoning economy.

And there will also be a brand new home for India’s foreign investors: the new International Financial Centre in Gujarat (Prime Minister Modi’s home state), which offers execution with no taxes on either capital gains or transactions and no stamp duty either; it also offers dollar contracts which will effectively remove currency risk on derivatives trading (given transactions in that segment are regularly denominated in dollars); not to mention new, state of the art trading infrastructure as well. So far the new exchange has been surprisingly slow to gain traction (as most new exchange sare) but last month’s announcement should give it much needed shot in the arm.

And the Indian Government is unquestionably right to target overseas investment at the moment.

Take the news this month that US behemoths Blackrock, Oaktree Capital and Elliott Management have all three moved to increase their investment in the subcontinent’s ICT sector, each explicitly recognising the potential for further growth through India’s ongoing digital transformation. The concerted move reflects increased domestic spending on IT technologies so, perhaps inevitably, the sector is also attracting greater interest from overseas private equity funds as well, as indeed are other key areas in the economy at the moment, notably real estate.

On a macro scale, the Reserve Bank announced this month that India’s exports grew by 4.5% in February to USD 25.8 Billion, narrowing its trade deficit to USD 12 Billion, which may also go to explain the increase in returns on Indian Government Bonds reflecting increased demand from corporates and banks to fuel investment opportunities. The 10-year benchmark rate on Government Bonds rose from Rs 96.42 to Rs 96.83 while shorter Bonds (maturing in 2021) were trading at Rs 101.75 (up from Rs 97.81). Call rates on the Indian overnight money market were also up, reflecting a core strengthening in the value of the Rupee.

That combination of market resilience and progressively more robust regulation and compliance models makes it difficult to ignore the investment opportunities that India currently has to offer.

Red Ribbon Asset Management has placed Indian markets at the heart of its investment strategies since the company was founded more than a decade ago: priding itself on understanding more about India than virtually any other asset manager, with a team of more than a hundred expert analysts and advisers living and working on the ground in India’s key areas of economic expansion, seeking out the best and most profitable projects in the daily workings of its local markets. The Red Ribbon Private Equity Fund was launched last year to take full advantage of the resurgence in India’s Financial Markets.

 

 

Red Ribbon CEO, Suchit Punnose said:

Prime Minister Modi’s Government has introduced a series of initiatives that are likely to have a far-reaching impact on the economy. Everyone is familiar with Demonetisation, a bold and for the most part highly successful Programme to rid the subcontinent of its historic associations with unregulated and often illegal market activities. The new GST fiscal regime is equally well known: working progressively to unify markets across India’s vast territories, whilst at the same time reducing overall tax burdens and smoothing the previously over complicated process of Inter State trade.

Less well known perhaps are the equally important initiatives introduced to tighten up India’s regulatory and compliance structure. RERA was an important first stepping-stone in the process: clearing up beaureaucratic inefficiencies and often abusive hurdles to trade. And the Supreme Court has taken up the baton too, with its recently streamlined approach to dispute resolution, giving companies the certainty and assurance they need for effective decision making and removing at a stroke the sometimes sadly deserved reputation which the subcontinent had gained for judicial delay.

So all in all, India is a very different country today than it was even as recently as ten years’ ago. Investors are now much more likely to find Compliance, Legal and Regulatory structures which match Western models with which they are perhaps more familiar.

Last month’s decision by India’s Exchanges to dissuade offshore trading in Indian derivatives (a broadly unregulated activity) principally in the Dubai and Singapore markets, should properly be welcomed as part of this same process of Regulatory tightening. The markets can only be stronger for it and I am pleased that it signals in the strongest way that India’s markets, newly regulated and thriving, are very much open to business for foreign investors.

 

Red Ribbon

At Red Ribbon we understand that the transition towards a resilient global economy will be led by well-governed businesses in mainstream markets, striving to reduce the environmental impact of their production processes on society at large and on the environment as well.

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