Valley Homes (P) Ltd.
Housing Customized
With the mushrooming growth of housing companies and colonies over the last some years, the recent trend among the developers is to go for higher end of the market. Valley Homes (P) Ltd. is one such company. But the promoters say, right now they are more in developing the company and its brand than in making immediate financial gain. The strategy adopted is to let the customers choose the interior of the house so that the houses are customized to the needs of the individual buyer that is unlike in case of other colonies where the buyer has to buy what the builder has developed.
Spread over 76 ropanis of land located at Sunakothi village, about three kilometers drive from Satdobato of Lalitpur, the new colony developed by Valley Homes is of international standard targeted to the high income families, says Suraj Narayan Joshi, Chief Executive Officer of the company.
The first phase of the project is now complete and all 28 homes built in this phase using up some 25 ropanis of land are already sold, he says and informs that all the new owners will move in over the next couple of months.
According to Joshi, upon completion, the project will have about 80 or 90 homes with the entire necessary infrastructure, which, according to the plan, include a club house, grocery store and a recreation centre in addition to the drainage, water supply system, power supply system and the like.
Being targeted to high end buyers, the Valley Home houses are priced high. “But that is commensurate with the quality,” says Joshi. By quality he means not only the construction standard and material used, but also the environment. “It is the whole package that we are selling. The customer buys not only the dwelling unit, but the entire atmosphere. For which he is always ready to pays the extra.”
Having already sold 28 units, the business idea of the company has proved itself. As Joshi admits, the idea was initially like a hypothesis, not based on any research on the target customer base of the company. “It was based on the observation of similar high-end housing colonies at Gurgaon and NOIDA near New Delhi of India. We had concluded that if something sells in India, it will sell also in Nepal. And that gamble has paid off,” he adds.
The strategy adopted by the company is to build the skeleton of the colony according to the company’s design but let the buyers of the house select the lay out for the interior. “One customer may need a Puja Kotha whereas the other one may need bigger room for the children. We build their houses accordingly,” says Joshi.
In the course of the development, Joshi has made a number of interesting findings related to housing business in Nepal. The most important finding, according to him, is the fact that the Nepali buyers of houses in colonies are not ready to make the buying decision until some infrastructure is ready or the construction of the house is completed to a certain level. “I think it is the reflection of their mistrust on the developers,” he says. That was precisely the reason why the Valley Homes are being developed in phases. Now that the first phase is developed and 28 houses are already sold, the interested buyers of the homes in the next phase have something they can see and evaluate the developer.
In the second phase, Valley Homes is developing a grocery shop and children’s park as well in addition to planned batch of 30 additional houses. The work is already in advanced stage of development and bookings are to start soon. And Joshi says, also the work on the third phase is to start soon.
The second finding of the company is that since a lot of women are now in high income earning jobs, they are ready to pay something extra for their new house if the environment is good. Similarly, the company has also concluded that the Nepali people too don’t mind commuting 15-30 minutes to work as long as they are sure that the homes are in good environment. Both of these findings are very much similar to the experience in Delhi’s satellite towns Gurgaon and NOIDA.
And Joshi is happy that the location of present colony has given his company the opportunity to create such environment. The location is pristine village away from the busy city centre. While the residential colonies developed in the past in the city centres are now gradually turning into commercial centres, this is not likely to the case in Valley Homes’ colony. The expansive area owned by the company gives it enough space to separate the dwelling units from the disturbances that may be there when the locality outside the colony develops into a commercial area.
Though Joshi complains that his company had to make a very high investment to develop the water supply system, he is happy that the water that is now available in his colony is of very high standard. For that purpose, the company has to deep bore and install its own filtration system. But as the surrounding area is free from any industrial activities and urban waste, the underground water is free of any contamination. “The water that comes on the house taps is totally safe for drinking,” he claims.
After the Valley Homes, the company is considering to go for developing some entertainment facility. For this purpose, some land is already acquired in Godavari area, informs Joshi. Then on the cards is a commercial complex nearer to the city.
"Regulations are restricting innovation in banking"
Siddhant Pandey, CEO, Ace Development Bank, spells down the strategies of his company after it recently upgraded officially to a development bank from a finance company.
What are your plans for now after being a development bank?
The limited area of operation as a finance company was very restricting not only in terms of capital but also in terms of products and services. The upgrade has changed all this drastically. Now we can provide various services including multi currency transactions, traveler’s checks, debit and credit cards, ATMs, over draft facilities, current account, personal loans, locker facilities, e-banking, etc. With the capital increment our single borrower limit has increased three folds, which is going to enable us to have larger exposure in various projects. We are also planning to get very involved in micro-financing. In a nutshell our risk capacity has increased. The most significant risks to continuing growth currently relate to political and macro events which are outside our control. Recognizing that the effect of such risks materializing could be immediate and potentially severe, we remain strongly capitalized and liquid.
How are you going to use the massive increment of Rs. 230 million in the paid up capital?
The actual increment in term of cash was Rs. 196 million through our Rights issue. The Rs. 34 million addition to the paid up capital was through a bonus share dividend of 40 per cent that we declared in FY 2005-2006 before the Rights were issued. We are already making use of our funds, which can be seen through our high Credit to Deposit ratio. Our policy is to grow gradually with risk mitigation being the foremost factor.
What changes have you made in the organizational structure, human resource and market access to achieve the objective of profitably utilizing the additional capital?
The changes in the organization structure and recruitment of staffs to facilitate the growth have been taking place for the past year. We built our own building to meet the requirements of a development bank. The various new market areas we are penetrating has been facilitated by various departments which have been formed to meet those targets and expectations. Policy manuals and guidelines govern each and every department and the staff follow them in concert. Team work is expected from the staff members. For instance, for the past six months we have concentrated on the Merchant Banking activities, for which new staff were recruited to lead that department. Our treasury department works very closely with the Merchant banking department as does the credit and business development departments. There is a inter linkage between the various departments to lead the company to success. The newly formed compliance department ensures that good governance is consistently in practice.
What are going to be the major competitive strategies of Ace Development Bank? Rates, technology, branch network, range of services or something else?
In a highly competitive market we have to continue to evolve. However, the problems that belie that are a) small market and b) restrictive regulatory constraints on innovative financial products. In terms of reinventing the wheel, we will be providing all the facilities that the other development banks are providing as I mentioned earlier. In terms of being innovative, we have applied to the regulators for permission for a few products that will be different and we are awaiting their permission. These products will be concerned with infrastructure development and micro financing. Micro finance is an area I would like to get Ace Development Bank heavily involved in.
Our first branch will be in operation by mid-September in Birgunj and after that there will be another venue that we will open up, which awaits permission from NRB. The plan is to set up, at least, two branches in the first and second years and three thereafter.
If the regulatory bodies do not evolve then the question of development in the financial sector will be shunted and all we will see is growth and no development. What then will be our next trick in the banking industry? To invent fire?
Will you continue with the merchant banking services even after becoming a development bank?
We are now the only development bank with the license to undertake merchant banking activities. As I mentioned earlier we will continue to be aggressive in this area.
What explains the nearly 11 percent decline in the net profit of the company in the fiscal year 2006-07 compared to the previous year? The financial summary for 06-07 also shows a massive decline in the other operating income as well as in other operating expenses. How is it so?
The operating profit before provision increased by 14% in FY 2006-07 as compared to corresponding year. However, the net income decreased by 10.6 percent due to the heavy depreciation on the new building and equipment. There has been across the board increase in deposits, lending, fee income etc. The other factor that we could not capitalize in as in the previous year was the profit from sale of shares (44 million) and provisioning write back (38 million). In 2006-07 we had a total NPA of 1.15% as opposed to 1.51 the previous year.
Financials of ACE Devt. Bank |
| Particular |
16 July 2007 |
16 July 2006 |
| Paid up Capital |
320,000 |
90,000 |
| Borrowings |
130,000 |
28,000 |
| Deposits |
988,129 |
857,678 |
| Cash & Bank Balance |
148,020 |
83,454 |
| Investments |
416,803 |
154,931 |
| Loans & Advances |
918,731 |
780,260 |
| Fixed Assets (Net) |
66,138 |
41,620 |
| Non Banking Assets |
644 |
544 |
| Net Interest Income |
54,988 |
37,928 |
| Total Operating Income |
64,432 |
73,333 |
| Operating Profit before Provision |
33,261 |
29,137 |
| Operating Profit |
32,672 |
28,865 |
| Profit from Regular Activities |
35,698 |
39,366 |
| Profit before Bonus and Taxes |
34,829 |
39,366 |
| Net Profit/Loss |
22,322 |
24,977 |
|
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The development banks and finance companies seem to be virtual commercial banks as they all are allowed to operate checking accounts. In this context, how logical do you think the current system of dividing them into categories?
There is a vast difference in the product range between a finance company and a development bank, but between a development bank and a commercial bank the only two activities that we cannot undertake are opening letters of credit and loan hypothecation. Finance Companies cannot give overdraft facility or give personal loans. Also the multi-currency transaction, demand drafts and the like are also not permitted. The division by category is only based on the capital structure and therefore seems to be the only parameter to weigh risk. Due to the lack of a credit rating agency, this seems the only method however illogical it may seem. Some “C” class institutions are performing better than some “A” class commercial banks. It is imperative that an independent credit agency be set up so that the public will be able to assess the risk methodologically.
How do you feel about the complaints from various quarters of the society including the NRB and the Finance Ministry that the banks and financial institutions are not going to the rural areas and not helping the SMEs? How well-founded is this complaint? What are more practical approaches to provide financial services to the rural areas and the SMEs?
There has to be a different directive governing loans and advances to the rural sector. The present rules dictate that collateral is a prerequisite. If the project is good and you base the loan on the future cash flow then the regulator will make you provide heavy provisioning. In order for the private sector banks to enter such a market there needs to be some malleability to the present directives. The new monetary policy has mentioned some improvements; but we have yet to see the new directives.
Looking at the future, hopefully peace will prevail and due to the competition it will be imperative for the banking sector to start penetrating the rural sector. Ace Development Bank has a strategy to commence operations in the rural sector. For which we plan to partner with rural communities.
