Omkar Realtors has worked out a business model around usually shunned slum redevelopment projects one based on trust
All she wanted was a different set of tiles to be used in her new house,” remembers Babulal Varma, managing director at Omkar Realtors. “It was as simple as that.”
It was 2003 and Varma had learned his first lesson in Mumbai’s redevelopment business. Now, a decade later, he is the undisputed king of Mumbai’s redevelopment industry, ahead of rivals HDIL and Ackruti.
He has already developed 2.5 million square feet in Mumbai and is on track to construct another 20 million by 2016.
He has got to where he has because he listens to the slum dwellers. In 2003, Varma had bought rights to redevelop a chawl (a lower middle class housing set-up with shared verandas and bathrooms).
This was in up-and-coming Parel—an area in central Mumbai. However, soon, he was close to abandoning it. An old lady had refused to vacate.
At a loss for what to do, Varma did what any young entrepreneur would do—act straight from the gut.
He rode up to the chawl in his Hyundai Santro and spent an evening at the lady’s house. They had dinner. He reasoned with her, cajoled her, tried to make her see his point of view.
In the end, it emerged that all she wanted was a different set of tiles to be used in her new house. Varma promised her the tiles and she moved out the next day.
On paper, slum clearance is a great business. Get 70 percent of the residents to agree and a builder gets the rights to build free housing for the group.
In exchange, he receives rights to sell an equivalent amount of residential or commercial space at market rates. With margins upwards of 20 percent, in perennially land-starved Mumbai, this is an opportunity that many should be clamouring for.
Except that no one is. None of the major developers are losing sleep over not being in this business. HDIL and Ackruti, two well-known Mumbai real estate names, had plans to make slum redevelopment a big part of their portfolio.
However, over the years, they’ve realised that this is more trouble than it is worth because of the politics and the red tape.
It’s not that Varma was not aware of the risk. Instead, unlike other developers in this business who often rely on threats and intimidation to deal with resistant residents, his sole aim was to resolve the issue and move on. It is an approach that has made him the king of slum redevelopment in the country’s commercial capital. “Omkar’s slum clearance model is unique in this industry,” says Ramesh Jogani, managing director of IndiaREIT.
He adds that it is the only company that does it so systematically.
What’s surprising is the speed with which the enterprise has grown. Last financial year it clocked in Rs 270 crore in sales.
At present, the company is redeveloping 10 million square feet of real estate in Mumbai. Given the city’s turbo-charged property prices it is a portfolio worth anywhere between Rs 15,000-20,000 crore.
The Initial Journey
Until 2003, Varma was into the contracting business. Originally from Rajasthan, his family had been in the construction business for the last three generations. With a glint in his eye, he’ll tell you how a majority of the havelis across Rajasthan were made by his family.
Varma admits he wasn’t a good student. As a result, he was married off immediately after he graduated and put to work in the family business. By now, the family had moved to Gujarat and made frequent trips to Maharashtra to work in the industrial areas north of Mumbai.
But the scale of their operations frustrated the ambitious Varma. From where he was, he couldn’t see himself becoming a contractor for big, turnkey projects. That was where scale lay.
Fortunately, his frequent visits to Mumbai had given him ample time to understand its real estate market. And he saw an opportunity in the redevelopment business. At that time, Varma was working as a contractor for a steel mill at Wada, north of Mumbai. Its owner Kamal Kishore Gupta had cash to spare. “I was wary of investing it in the steel business where small mills were being edged out by their larger rivals,” Gupta says. The two decided to partner on a Rs 5 crore loan that Gupta made and Omkar was formed. (The two families each have a 50 percent stake in the company.)
When he bought rights to redevelop the chawl in Parel, he worked unlike any other developer. “I have visited each house a dozen times and eaten with all the residents at least once,” he says. If there was a problem I’d make sure it was solved as soon as possible. My number one aim was to complete the project on time.
Government processes were another key area where he realised that developers need to spend a disproportionate amount of time. So, after spending time at the chawl, he made sure he visited Mantralaya, the state government headquarters, everyday. “I would accost people to show me their plans to understand how they got certain permissions,” he says. He would then try and get the same for his projects. In the evenings, he would sit with his architects and work on ways to see how his drawings could be modified to get more space for the apartments he was constructing. On weekends, he would study court judgements and look for legal remedies to his problems.
The Method to the Madness
(This story appears in the 27 April, 2012 issue of Forbes India. To visit our Archives, click here.)