Y N Rammurthy, executive director, engineering, LIC outlines some of LIC's property development plans to Venkatachari Jagannathan.
Chennai: Laying down the foundations of the Life Insurance Corporation's (LIC) entry in to real estate comes naturally to Y N Rammurthy, executive director (engineering); he holds a master's degree in civil engineering from IIT Delhi, and specialised in foundation engineering after completing his civil engineering degree from IIT Madras.
"I have had a mixed career. Soon after my post graduation I joined the Fertiliser Corporation of India. From there I moved to Military Engineering Services (MES). LIC is my third employer." He joined LIC as deputy chief engineer in 1993.
His current responsibility involves spearheading the public sector insurance behemoth's real estate ventures - housing, commercial and consultancy assignments. LIC is building a 16 apartment block for Indian Overseas Bank (IOB) staff in Chennai. The corporation has also lined up around Rs200 crore worth of housing and commercial projects in the south zone. As a matter of fact, next to the Indian Railways, LIC is the largest landlord in the country. Rammurthy talks Excerpts
What made LIC get into real estate in a large way?
Construction of housing and commercial buildings is not new to LIC. Since the '70s the Corporation has been building housing complexes - not only for its staff but also for its policyholders. Further the branch / divisional / zonal offices have also been built by the corporation.
With the interest rates falling and competition in the core business increasing we decided to look at real estate development to augment our revenues. We also wanted to cash in on the experience gained over the years in building residential complexes and commercial buildings.
A year ago the real estate business was made a strategic business unit (SBU). The strategy is to increase the rental revenue by modernising the existing buildings and also develop the undeveloped / partially developed plots. This apart, we also offer real estate consultancy services to other public sector financial institutions, as their requirements are similar to ours.
What is the size of LIC's engineering division?
In terms of manpower, the division has 470 people comprising of civil / electrical engineers, architects and administrative staff. The division's annual budget is around Rs200 crore. We execute nearly Rs60 crore worth of projects every year. The consultancy services generate around Rs50-lakh revenue.
How many branches function in LIC's own buildings?
Out of 2,048 branch buildings, nearly 800 are owned by LIC. By the end of this month nearly 95 of our divisional offices will function in our own premises. So far, 23 out 25 staff training centres function from our own buildings. We have built our Management Development Centres with attached hostel facilities.
How many properties does LIC own and what kind of revenues does it earn from them?
The Corporation has two kinds of properties - those inherited at the time of nationalisation from insurers who were banded under the umbrella of the LIC and those acquired since. LIC owns around 1,575 properties.
Out of this 370 are rented out or buildings are an investment or what LIC calls "investment buildings". Their market value is around Rs3,000 crore. We haven't valued the remaining buildings many of which are self-occupied. LIC's rental revenue is around Rs150 crore. We want to increase this by 8 per cent every year.
Many of the properties in Maharashtra do not yield a sufficient income to meet their maintenance expenditure. Fortunately, our buildings are strong and none of them have collapsed. LIC also owns around 140 plots that are either vacant or partially developed, which we are in the process of developing.
Do you have any time frame to develop those plots?
We will initially develop 70 properties out of the 140 plots. Out of these 70, we do not foresee any problem in developing 53 properties and 32 projects are already on the drawing board. In four years we will complete around 25 projects. Eight have received municipal approvals. With the remaining properties there are some problems like litigation, tenancy and other issues. It will take time to sort them out.
Where are your properties located?
The bulk of our properties are located in East, West, South and South-central regions. The properties located here offer us the maximum revenue potential. Properties located in North, North-central and Central regions have limited potential for commercial exploitation.
Does LIC has any plans to appoint consultancy firms to expand the real estate business?
We have decided to appoint consultancy firms to help us negotiate with existing tenants. We are moving very carefully in choosing the consultants, as we don't want to sully our image.
Is it a policy decision to go alone in developing your properties or is LIC agreeable to rope in partners?
also see : Property development
We are open to joint ventures or accept the build-operate-transfer (BOT) or build-operate-lease-transfer (BOLT) models or even outright sale of our land.