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STRICTLY FOR PRIVATE CIRCULATION REAL ESTATE INDUSTRY

STRICTLY FOR PRIVATE CIRCULATION

STRICTLY FOR PRIVATE CIRCULATION REAL ESTATE INDUSTRY

REAL ESTATE INDUSTRY

STRICTLY FOR PRIVATE CIRCULATION REAL ESTATE INDUSTRY
STRICTLY FOR PRIVATE CIRCULATION REAL ESTATE INDUSTRY
STRICTLY FOR PRIVATE CIRCULATION REAL ESTATE INDUSTRY
STRICTLY FOR PRIVATE CIRCULATION REAL ESTATE INDUSTRY
STRICTLY FOR PRIVATE CIRCULATION REAL ESTATE INDUSTRY
STRICTLY FOR PRIVATE CIRCULATION REAL ESTATE INDUSTRY
STRICTLY FOR PRIVATE CIRCULATION REAL ESTATE INDUSTRY
STRICTLY FOR PRIVATE CIRCULATION REAL ESTATE INDUSTRY
STRICTLY FOR PRIVATE CIRCULATION REAL ESTATE INDUSTRY
STRICTLY FOR PRIVATE CIRCULATION REAL ESTATE INDUSTRY
STRICTLY FOR PRIVATE CIRCULATION REAL ESTATE INDUSTRY
STRICTLY FOR PRIVATE CIRCULATION REAL ESTATE INDUSTRY
STRICTLY FOR PRIVATE CIRCULATION REAL ESTATE INDUSTRY
STRICTLY FOR PRIVATE CIRCULATION REAL ESTATE INDUSTRY
STRICTLY FOR PRIVATE CIRCULATION REAL ESTATE INDUSTRY
STRICTLY FOR PRIVATE CIRCULATION REAL ESTATE INDUSTRY
STRICTLY FOR PRIVATE CIRCULATION REAL ESTATE INDUSTRY
STRICTLY FOR PRIVATE CIRCULATION REAL ESTATE INDUSTRY
STRICTLY FOR PRIVATE CIRCULATION REAL ESTATE INDUSTRY
Creating value, partners in growth is innovative financial solutions to corporate India for over a
Creating value, partners in growth is innovative financial solutions to corporate India for over a

Creating value, partners in growth

is

innovative financial solutions to corporate India for over a decade.

LSI

Financial

Services

a

leading

provider

of

It has successfully raised funds for companies though structured financial products, spanning various sectors. With in depth domain knowledge. LSI strives to add value to the client's financial supply chain ensuring an effective and efficient capital structure.

Our services include:

Debt Syndication Private Equity Advisory Issue Management Mergers and Acquisitions Financial Restructuring Project Advisory Services

Private Equity Advisory Issue Management Mergers and Acquisitions Financial Restructuring Project Advisory Services
Private Equity Advisory Issue Management Mergers and Acquisitions Financial Restructuring Project Advisory Services
Private Equity Advisory Issue Management Mergers and Acquisitions Financial Restructuring Project Advisory Services
Private Equity Advisory Issue Management Mergers and Acquisitions Financial Restructuring Project Advisory Services
Private Equity Advisory Issue Management Mergers and Acquisitions Financial Restructuring Project Advisory Services
Management Mergers and Acquisitions Financial Restructuring Project Advisory Services LSI Financial Services Pvt. Ltd.

LSI Financial Services Pvt. Ltd.

FROM FROM THE THE MANAGING MANAGING DIRECTOR’S DIRECTOR’S DESK DESK Dear Readers, This is an

FROM FROM THE THE MANAGING MANAGING

DIRECTOR’S DIRECTOR’S DESK DESK

Dear Readers,

This is an initiative from the LSI team to enrich our valued readers with information on the Real Estate industry as this report attempts to provide an overview of the industry, its concerns and the probable road ahead.

The Real Estate sector plays a critical role in the development of the Indian economy and has emerged as one of the most significant employer in the country providing succour to the ever-increasing population of India. I am sure, you are aware of the challenging scenario confronted by the Real Estate industry arising from spiraling interest cost, bulging cost of construction and the regulatory inaction by way of delayed amendments to the Land Ceiling Act. However, the silver lining exists in the form of increased demand from tier II/III cities. Moreover, the recent change in the FDI norms, allowing 100% overseas investment in single-brand and 51% in multi-brand in the retail space, are likely to be the future game changer for the industry as a whole.

I sincerely believe that you will find the contents useful and as usual, look forward to your valued feedback.

Raj Kajaria
Raj Kajaria
CONTENTSCONTENTS 1. Executive Summary 4 2. Introduction 5 2.1 Growth Drivers 6 2.2 Key

CONTENTSCONTENTS

1.

Executive Summary

4

2.

Introduction

5

2.1

Growth Drivers

6

2.2

Key Challenges

6

2.3

Government Initiatives

6

2.4

Cost Breakdown

7

2.5

Major Deals in the Real Estate Sector

7

3.

Residential Real Estate

9

3.1

Chennai

10

3.2

Mumbai

13

3.3

Pune

15

3.4

Bengaluru

18

3.5

National Capital Region (NCR)

20

3.6

Kolkata

22

4.

Official Real Estate

24

4.1

Chennai

24

4.2

Mumbai

25

4.3

Pune

26

4.4

Bengaluru

27

4.5

National Capital Region (NCR)

27

4.6

Kolkata

28

5.

Summary

30

6.

Retail Real Estate

31

6.1

Government Initiatives

33

6.2

Foreign Direct Investment (FDI)

34

6.3

SWOT Analysis

34

6.4

Outlook

34

7.

Hospitality Real Estate

36

7.1

Outlook

40

8.

Peer Analysis

43

9.

The Way Forward

44

1.1. EXECUTIVEEXECUTIVE SUMMARYSUMMARY Real estate has been amongst the fastest growing sectors in India in

1.1. EXECUTIVEEXECUTIVE SUMMARYSUMMARY

Real estate has been amongst the fastest growing sectors in India in the few years before recession and now with the positive signs of recovery in the coming years, it is the opportune time to address issues that will help boost growth in the long term. The path from crisis to recovery is opening up. While the mature markets are struggling to make their presence on this path, the emerging economies such as India are well placed.

Although, the influx of global money has been the crowning event in the real estate markets, almost simultaneously there has been a huge upsurge of domestic institutional and classic private equity investment activity in the country. The real estate sector in India presents an attractive investment proposition. Increased disposable incomes and easy availability of housing loans coupled with encouragement to genuine home buyers by the Central Government in the form of income tax benefits are some of the factors that have fuelled

tax benefits are some of the factors that have fuelled LSI Financial Services Pvt. Ltd. demand

LSI Financial Services Pvt. Ltd.

demand for quality real estate developments. The liberalization of the regulatory regime by permitting FDI in the real estate sector in India offers foreign investors an opportunity to exploit the potential of this sector.

Several global and local factors have converged over the last two years to culminate the unprecedented interest in Indian real estate by global and domestic investment funds. While India has been the global flavour of investment for some time now, it has taken almost ten years for Indian property to evolve after a full cycle and consolidate before it has come squarely under the international spotlight.

This report discusses an array of such significant matters and considers the customer's point-of-view along with the industry. It touches upon the critical aspect of the sector and Governance with an impact of new bills.

2. 2. INTRODUCTION INTRODUCTION The real estate sector in India has come a long way

2.2. INTRODUCTIONINTRODUCTION

The real estate sector in India has come a long way from being dominated by a handful of players in the 90s to an expanding base of developers, investors and global stakeholders influenced by the growing construction industry in the country.

The sector has been undergoing corporatization and professionalization and recognized as a key sector contributing to the economic development of the country. Currently, it contributes 6.5% of the total GDP.

Structure of the Real Estate Sector

Real Estate

Sector

GDP. Structure of the Real Estate Sector Real Estate Sector Residential Commercial Retail Hospitality Space
GDP. Structure of the Real Estate Sector Real Estate Sector Residential Commercial Retail Hospitality Space
GDP. Structure of the Real Estate Sector Real Estate Sector Residential Commercial Retail Hospitality Space
GDP. Structure of the Real Estate Sector Real Estate Sector Residential Commercial Retail Hospitality Space
GDP. Structure of the Real Estate Sector Real Estate Sector Residential Commercial Retail Hospitality Space

Residential

Commercial

Retail

Hospitality

Space

Space

Space

Space

The sector is divided into 4 sub-segments as above where the residential sector alone contributes to 5-6% of the country's GDP. Meanwhile, Retail, Hospitality and Commercial sectors are also growing significantly, which cater to India's growing need for infrastructure.

After witnessing strong growth in FY2010-11 when the sector contributed 10.6% of the total GDP, a slight correction was witnessed in the year FY2011-12. The downside in the sector was primarily due to weakening in demand based on global economic turmoil, a slowdown in the domestic economic conditions, escalation in input costs including interest costs and controversies over land acquisition

Market size of Indian real estate (in billion)

80

70 66.8 64.5 60 55.6 53.3 50.1 50 40 30 20 10 0 FY2007-08 FY2008-09
70
66.8
64.5
60
55.6
53.3
50.1
50
40
30
20
10
0
FY2007-08
FY2008-09
FY2009-10
FY2010-11
FY2011-12
Source: IBEF, CMIE

The total revenue generated from the real estate sector in FY2011-12 stood at $64.5 billion and as per the study by India Brand Equity Foundation (IBEF), the market size is expected to reach $180 billion by

CY2020.

Real estate trends in India have been changing for a while now as tier II/III cities are getting more attention than tier I cities from builders as well as from buyers. With the current stagnant state of residential real estate in tier I cities such as Mumbai and the National Capital Region (NCR), more and more investors are looking towards tier II/III cities to invest due to benefits like well-planned development, room for growth & change, relatively less congestion and pollution, better hygiene and sanitation etc.

Moreover, Mumbai has sky high property prices along with unplanned urban growth spurt and poor infrastructure. In contrast, tier II/III cities such as Naya Raipur, Ahmedabad, Nagpur, etc. have carefully planned urban development and so far managed to avoid severe congestion and pollution problems and thereby leaving enough room for further transportation and infrastructure building within the city. The saturation level that Mumbai seems to have reached when it comes to real estate development is dragging the market down but tier II/III cities are just

coming into the game and their freshness is attracting

income

lead

to

creation

of

demand

for

new

buyers from across the country.

housing.

Commercial properties are also selling fast as BPOs and other companies look towards these smaller cities when it comes to setting up their offices. Salary and transport costs in smaller cities are reduced by as much as 30% when compared to Mumbai. Real estate costs in these cities are almost two-fifths of those in the tier I cities. Businesses are taking advantage of the affordability of skilled and unskilled work force as well as office space and choosing tier II/III cities over metros and tier I cities.

2.1. Growth Drivers

Upsurge in industrial and business activities like the growth in IT/ITES sector at 30% annually.

Favourable demographic parameters as more than 50% of the population in India age between 15-55 years.

Significant rise in consumerism lead to demand for

and

newer

avenues

for

entertainment,

leisure

shopping.

Rapid urbanization and increase in disposable

Government policy like relaxation of FDI policies enhances the entry in the number of domestic and foreign players.

Simplification of urban development guidelines increases developer's risk appetite and allows large scale development.

Infrastructure

support

and

development

initiatives by the Government.

2.2. Key Challenges

Lack of clear land titles.

Absence of proper insurance.

Lack of adequate sources of finance.

Shortage of labours.

Rising manpower and material costs.

Approvals and procedural difficulties.

The lack of availability of serviced urban land and continued procedural delays in approvals are the major drawbacks of the industry.

Multitude of statutory approvals adds 2-2.5 years to the pre-construction process

Conversion of land use

8-12 months

Project letter of intent and license/intimation of disapproval (IOD)

4-6 months

Pre-construction approvals from State level bodies

6-8 months

Pre-construction approvals from Central bodies

5-7 months

Approvals for construction plan

5-7 months

Approvals for commencement of construction

2-3 months

Construction period

24-30 months

Inspection and approval procedure for building completion

2-3 months

Occupancy certificate receipt from date of completion of above

2-3 months

Source: CREDAI-Jones Lang LaSalle Real Estate Transparency Survey 2011

2.3. Government Initiatives

FDI in real estate business is prohibited in India. However, for the construction development, FDI of 100% is permitted under automatic route without any approval. Construction development include township, housing, built up infrastructure and other construction development projects (which would include, but not be restricted to, housing commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level Infrastructures). Construction development sector has attracted a cumulative FDI worth $21.1 billion from April 2000 to June 2012.

Government of India has allowed FDI in multi-

to June 2012. Government of India has allowed FDI in multi- LSI Financial Services Pvt. Ltd.

LSI Financial Services Pvt. Ltd.

brand retail up to 51% and in single-brand retail up to 100%.

The Land Acquisition Bill has recently got passed by the Union Cabinet and is awaiting parliament's affirmation. Major clause of the bill focuses on the mandatory consent of 80% of land owners for private projects and 70% in public private partnership projects. Also with the consent, the bill proposes higher compensation and rehabilitation package to land owners.

The lately passed Real Estate (Regulation & Development) Bill by the Union Cabinet would ask the builder to register all the projects with the prescribed authority. If not, then it is going to attract penalty and imprisonment up to three

years. Another provision that makes things harder for the real estate sector is that they have to commit time frame for the completion of the project. Further, they have to deposit 70% of the money taken from the buyer in a separate account and it has to be used only for that purpose. Additionally, sellers cannot advertise or start booking flats without registering with the nodal agency and the developer will have to share all the details like land status, approval and contract structure before the nodal agency.

The Government has planned to invest a total of $1 trillion in the next five years.

The Union Budget 2012-13 gives major thrust on accelerating the pace of investment in infrastructure as this is critical for sustaining and accelerating an overall growth. Efforts to attract private investment into infrastructure through the Public-Private Partnership (PPP) route have met with considerable success at both Central and State Government levels.

2.4. Cost Breakdown

The cost of a building is determined by numerous factors such as size, specification, number of storey, level of involvement in the project etc.

However, it is prudent to first estimate the total cost and then add further 20% to the figure for unforeseen costs. Every house is unique. But there are a number of different matrices available to estimate the overall costs. Although, every project is different in the type of construction, route of construction, the material used, the quality required and the place it is located, the following is only a guide to help work out an approximate cost of a project.

approximate

percentage of the total cost of a new home through each stage of the build. This is based on an average detached home of two floors.

The

chart

below

shows

the

 

Particulars

Percentage

Site clearance

 

3%

Also in the budget 2013-14, the Finance Minister, in view of shortage of housing for low income groups in major cities and towns, has proposed to allow ECB (External Commercial Borrowing) for low cost affordable housing projects (a project in which at least 60% of the permissible floor space index would be for units having maximum carpet area of up to 60 sq. meters). The interest to be paid on the ECB loan availed from the period July 2012 to June 2015 by the real estate developer is proposed to be subjected to a lower rate of tax at source (TDS) of 5% from the existing rate of 20%. Further, investment linked deduction available for low cost affordable housing projects increased from 100% to 150%. The lower TDS on ECB intererst and increase in investment linked deduction may reduce the cost of the developer and hence, he can pass that benefit to the final consumer by reducing the price, which in turn will help the industry as a whole to grow.

Foundation

 

9%

External walls

 

16%

Roof

 

9%

Windows and external doors

 

7%

Upper floor

 

2%

Stairs

 

1%

Internal walls

 

3%

Internal doors

 

3%

Floor finishes

 

4%

Wall finishes

 

5%

Ceiling finishes

 

2%

Heating

 

6%

Electrical installation

 

4%

Water installation

 

2%

Waste & sanitary

 

7%

Kitchen

 

5%

Built in cupboards

 

1%

Professional fees

 

11%

2.5 Major deals in the real estate sector

PE deals

Source: Myhome.ie

Investee

Investor

Deal size

($ million)

Omkar Realtors & Developers Pvt Ltd

Indiareit Fund Advisors Pvt Ltd

 

18.00

Panchshil Realty Pvt Ltd - Eon Free Zone

Blackstone

81.82

Smart Value Homes Ltd

IFC

50.00

Embassy Property Developments Pvt Ltd - portfolio of three business parks

Blackstone

200.00

PE deals (Contd.)

Investee

Investor

Deal size

($ million)

Xrbia Developers Ltd

Brick Eagle Capital

40.00

Prestige Estates Projects Ltd

Red Fort Capital Advisors Pvt Ltd

36.36

Sheth Developers Pvt Ltd, Mumbai Project

Morgan Stanley PE

90.00

Appaswamy Real Estates Ltd, Chennai Project

Xander Group

40.00

GMR Airports Holding Ltd

Macquarie SBI Infrastructure Fund

200.00

GMR Airports Holding Ltd

Standard Chartered PE, JM Financial Ltd, Old Lane India Corporate and NYLIM Jacob Ballas

200.00

DLF Ackruti Info Parks (Pune) Ltd

Blackstone

176.10

Source: Grant Thornton

M&A deals

Target company

Acquirer company

Deal size

Stake (%)

($ million)

DLF Ltd's wind turbine business in Gujarat

Bharat Light & Power Pvt Ltd

51.00

100%

DLF Ltd's subsidiary Jwala Real Estate

Lodha Developers Ltd

490.91

100%

Caraf Builders & Construction Pvt Ltd

DLF Assets Ltd

696.50

NA

Cowtown Land Development Pvt Ltd

Lodha Group

513.60

NA

Compact Disc India Ltd, film city

Jeff Morgan Capital Ltd

320.00

NA

Oceanus Real Estate Pvt Ltd

Warburg Pincus LLC

318.00

NA

Indiabulls Properties Pvt Ltd

Indiabulls Property Invest Trust

223.10

NA

Source: Aranca Research; Grant Thornton

Indiabulls Property Invest Trust 223.10 NA Source: Aranca Research; Grant Thornton LSI Financial Services Pvt. Ltd.

LSI Financial Services Pvt. Ltd.

3.3. RESIDENTIALRESIDENTIAL REALREAL ESTESTAATETE Residential demand is the mainstay of the Indian real estate sector

3.3. RESIDENTIALRESIDENTIAL REALREAL ESTESTAATETE

Residential demand is the mainstay of the Indian real estate sector as it contributes approximately 5-6% of the total GDP. Residential real estate industry has witnessed stupendous growth in the past few years owing to the following reasons:

Increase in disposable income levels, Continuous growth in population,

Increase in disposable income levels, Continuous growth in population,

Migration towards urban areas, Ample job opportunities in service sectors, Rise in nuclear families, Easy availability of finance.

towards urban areas, Ample job opportunities in service sectors, Rise in nuclear families, Easy availability of
towards urban areas, Ample job opportunities in service sectors, Rise in nuclear families, Easy availability of
towards urban areas, Ample job opportunities in service sectors, Rise in nuclear families, Easy availability of

Broadly, residential real estate industry can be divided into five growth phases as can be seen in the chart below:

Phase 1

(before 2001)

as can be seen in the chart below: Phase 1 (before 2001) Phase 2 (2001-2005) Phase

Phase 2

(2001-2005)

the chart below: Phase 1 (before 2001) Phase 2 (2001-2005) Phase 3 (2006-2008) Phase 4 (2009-2010)

Phase 3

(2006-2008)

1 (before 2001) Phase 2 (2001-2005) Phase 3 (2006-2008) Phase 4 (2009-2010) Phase 5 (2011-2014) Phase

Phase 4

(2009-2010)

Phase 2 (2001-2005) Phase 3 (2006-2008) Phase 4 (2009-2010) Phase 5 (2011-2014) Phase 1 : Stable

Phase 5

(2011-2014)

Phase 1 : Stable growth.

Phase 2 : Initial growth phase with off take and prices picking up.

Phase 3 : High growth phase with high demand and prices almost grew by more than double.

Phase 4 : Substantial slowdown in demand due to dented affordability and economic environment.

Phase 5 : Consolidation phase, with demand, supply and prices gradually moving up in line with improvement in the economic environment

The supply of residential properties priced below

`3,000/sq.ft. is reducing based on the fact that from 43% in March 2009, supply in this segment is expected to come down to 8% by CY2013. Meanwhile, supply in the price range of `5,000-10,000/sq.ft. is expanding. On the surface, aspirational and affordability levels are driving such trends. However, smart residential property investment will mean identifying the right products priced below `4,000/sq.ft. in key growth cities as these are the best options. In cities like Bengaluru, Hyderabad, Chennai, Pune and Gurgaon, one can still find good residential projects in this price segment for long-term investments and appreciation.

Supply of residential units based on rate per sq. ft.

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 3QCY’09 4QCY’09 1QCY’10 2QCY’10
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
3QCY’09
4QCY’09
1QCY’10
2QCY’10
3QCY’10
4QCY’10
1QCY’11
2QCY’11
3QCY’11
4QCY’11
1QCY’12
2QCY’12
Less than `2000
`2000-3000
`3000-4000
`4000-5000
`5000-7500
`7500-10000
`10000-15000
3QCY’12 4QCY’13*
More than `15000
Source: Jones Lang Lasalle
* Expected

The residential sector in India accounts for 75-80% of the turnover of the entire real estate sector. According to the ministry of housing and urban poverty alleviation, there was a shortage of 18.78 million houses in the urban India as on March 31, 2012.

Break-up of housing shortages in urban India is as follows:

Category

Shortage

(million)

Families living in non-serviceable katcha housing

0.99

Families in obsolescent houses

2.27

Families living in congested houses

14.99

Homeless families

0.53

Total

18.78

Source: Ministry of Housing and Urban Poverty Alleviation

There was a 16% drop in the residential market across major cities of India in CY2012. State-wise data shows that Uttar Pradesh has a maximum number of housing shortages with over 3 million homes followed by Maharashtra (1.97 million), West Bengal (1.33 million), Andhra Pradesh (1.27 million) and Rajasthan (1.15 million). North-Eastern States are doing quite well mostly due to the fact that these States have lower population. 10 States contribute to three-fourths of the urban housing shortage.

3.5

Top ten States with urban housing shortage (in million)

3.07 3.0 2.5 1.94 2.0 1.5 1.33 1.27 1.25 1.19 1.15 1.10 1.02 0.99 1.0
3.07
3.0
2.5
1.94
2.0
1.5
1.33
1.27
1.25
1.19
1.15
1.10
1.02
0.99
1.0
0.5
0.0
Uttar Pradesh
Maharashtra
West
Bengal
Andhra
Pradesh
Tamil Nadu Bihar
Rajasthan
Madhya
Pradesh
Karnataka
Gujarat

Source: Ministry of Housing and Urban Poverty Alleviation

The Lower Income Group (LIG) and Economically Weaker Section (EWS) segments account for a majority of this shortage. However, at present the private developers are focusing largely on the middle and upper segments of the market.

The Working Group on Rural Housing for the Eleventh Five Year Plan (2007-12) has estimated the total housing shortage in rural areas at 43.7 million units at the end of March 2012.

rural areas at 43.7 million units at the end of March 2012. LSI Financial Services Pvt.

LSI Financial Services Pvt. Ltd.

Break-up of urban housing shortage EWS MIG & above 39.44% 56.18% LIG
Break-up of urban housing shortage
EWS
MIG & above
39.44%
56.18%
LIG

4.38%

Source: Ministry of Housing and Urban Poverty Alleviation MIG: Middle Income Group

Rural housing shortage in India*

50

43.7 45 40 35 30 25 20 14.1 14.3 15 10 5 0 FY2001-02 FY2006-07
43.7
45
40
35
30
25
20
14.1
14.3
15
10
5
0
FY2001-02
FY2006-07
FY2011-12
Source: Working Group of Rural Housing, RBI, National Housing Bank
* According to 2011 Census Report

Let's look at the snapshot of the six major cities of India.

3.1. Chennai

Chennai's residential property market has witnessed

a steady growth in terms of pricing, demand and

supply in the past two years post the economic recession. The city has typically been a base for the automobile/auto ancillary industry and is one of the

premier port cities in the country. In addition to these industries, the city's realty market has been driven by

a host of other sectors, primarily led by the IT/ITeS sector that has brought considerable changes in the city's landscape.

With the advent of the IT sector, Chennai's residential real estate market has become increasingly dependent on its growth and expansion for continued residential demand. The current scenario of job stability in this sector is at a much better position than it was during 2008-2010. Thus, the demand for homes has reached a comfortable and stable growth trajectory and hence, leading foreign developers are initiating their residential projects in the area.

As of December 2012, nearly 77,500 residential units were under various stages of construction in the Chennai market where Southern region alone accounted for a share of around 60%, whereas West Chennai contributed 32%, followed by the Northern region with 7% and Central Chennai with 1% share respectively.

An important trend witnessed is the change in the preference for unit size. The preferred size for 3BHK flats has increased from 1250 sq ft to 1450 sq ft while for 2BHKs from 900 sq ft to 1150 sq ft.

Chennai's residential market has been quite resilient to the looming threat of global economic turmoil but the market witnessed a dip in sales velocity in CY2012. It has been envisaged that the corridor between Sholinganallur and Tiruporur in the Southern belt and Sriperumbudur-Oragadam belt towards the West will be the next investment destination for residential property in the city as these are the best options with large manufacturing companies and MNCs expanding their footprints.

The

currently

witnessing an upsurge with a forecast of a continuous

real

estate

market

in

Chennai

is

growth in the forthcoming years. Several factors have been attributed to the growth of the real estate market in Chennai and can be classified into segments listed

below:-

The land extent of the city's surrounding area.

The city is easily accessible through an extensive network of transportation facilities including air travel, close proximity to the sea and a highly diversified railways network.

However, during CY2012, rental values for premium residential properties in high-end & mid segment markets did not appreciate much. Nevertheless, regions like Boat Club and Nungambakkam showed modest growth in the high-end segment while Adyar posted an extra ordinary growth of 39% y-o-y in the mid segment.

Rental values as of December 2012

Location

Achievable avg

Avg unit size (sq ft)

Avg rate/sq ft (`)

rate (`)

High-End Segment

 

Boat Club

2,20,000

2,325

94.62

R.

A. Puram

1,25,000

2,325

53.76

Besant Nagar

1,25,000

2,325

53.76

Adyar

1,15,000

2,325

49.46

Poes Garden

1,87,500

2,325

80.64

Nungambakkam

1,60,000

2,325

68.80

Anna Nagar

87,500

2,325

37.63

Kilpauk

90,000

2,325

38.70

Mid Segment

     

R.

A. Puram

62,500

1,300

48.07

Adyar

62,500

1,300

48.07

Rajiv Gandhi Salai (Perungudi)

25,000

1,300

19.23

Velachery

37,500

1,300

28.80

T.

Nagar

35,000

1,300

26.92

Mylapore

35,000

1,300

26.92

Nungambakkam

62,500

1,300

48.07

Anna Nagar

42,500

1,300

32.69

Kilpauk

40,000

1,300

30.76

Source: Cushman & Wakefield

Y-o-Y change in price in the high-end segment 20% 19% 18% 16% 14% 12% 10%
Y-o-Y change in price in the high-end segment
20%
19%
18%
16%
14%
12%
10%
10%
8%
6%
4%
2%
0%
0%
0%
0%
0%
0%
0%
Boat R.A.
Club Besant Puram Nagar Poes
Adyar
Garden
Nungambakkm
Anna Nagar
Kilpauk

Source: Cushman & Wakefield

Y-o-Y change in price in the mid segment

45%

40% 39% 35% 30% 25% 20% 15% 9% 7% 10% 8% 5% 0% 0% 4%
40%
39%
35%
30%
25%
20%
15%
9%
7%
10%
8%
5%
0%
0%
4%
0%
0%
0%
Source: Cushman & Wakefield
R.A. Puram
Adyar Salai
Rajiv Gandhi
Velachery
T. Nagar
Mylapore
Nungambakkm
Anna Nagar
Kilpauk

Chennai's residential market continued to witness moderate demand in ownership housing and hence, the capital values appreciated in both established as well as emerging markets of the city.

During CY2012, capital values for premium residential properties in high-end & mid segment markets appreciated in the range of 4-33%. Regions like Anna Nagar, Nungambakkam, Velachery, Kilpauk and Mylapore witnessed an exceptional growth in high-end & mid segment due to new projects that were launched at a higher price than the prevailing market rate.

Capital values as of December 2012:

Location

Avg achievable rate ( `/sq.ft.)

High-End Segment

Boat Club

25,000

R.A Puram

17,000

Besant Nagar

13,750

Kotturpuram

15,000

Adyar

13,750

Poes Garden

21,750

Nungambakkam

18,500

Anna Nagar

13,000

Kilpauk

13,500

Mid Segment

Adyar

11,000

Rajiv Gandhi Salai (Perungudi)

5,650

GST (Poteri)

3,850

Velachery

5,500

T. Nagar

11,250

Mylapore

12,500

Mogappair

5,750

Kilpauk

10,500

Source: Cushman & Wakefield

Y-o-Y change in price in the high-end segment 35% 33% 30% 25% 23% 20% 15%
Y-o-Y change in price in the high-end segment
35%
33%
30%
25%
23%
20%
15%
15%
16%
11%
9%
10%
10%
7%
5%
4%
0%
Boat R.A. Club
Puram Kottupuram Nagar
Besant
Adyar
Poes
Garden
Nungambakkm
Anna Nagar
Kilpauk

Source: Cushman & Wakefield

Anna Nagar Kilpauk Source: Cushman & Wakefield LSI Financial Services Pvt. Ltd. Y-o-Y change in price

LSI Financial Services Pvt. Ltd.

Y-o-Y change in price in the mid segment 25% 23% 22% 22% 20% 19% 15%
Y-o-Y change in price in the mid segment
25%
23%
22%
22%
20%
19%
15%
15%
12%
10%
9%
5%
0%
0%
Source: Cushman & Wakefield
Adyar GST
Rajiv Gandhi
salai
(Poteri)
Velachery
T. Nagar
Mylapore
Mogappair
Kilpauk

In Chennai, it was observed that majority of the residential units launched during CY2012 were concentrated towards the Southern part of the city. Developers such as Unitech, Marg Properties, Cee Dee Yes Infrastructure etc have initiated their projects in Southern Chennai. Western Chennai witnessed the second highest of units launched during the year with projects by developers such as Hiranandani, ETA Star and Dugar Housing. Northern Chennai though accounted for 7% of the total number of new residential units launched, it has a number of prominent projects. The Central part of the city did not see much residential activity and accounted merely for 1%.

Region-wise split of units launched in CY2012 7% 32% 60% 1% North South Central West
Region-wise split of units launched in CY2012
7%
32%
60%
1%
North
South
Central
West

Source: Knight & Frank

During FY2011-12, it has been observed that nearly 56% of the units launched have been in the ticket size of `25-50 lakh, while its absorption stood at 42%. Meanwhile, 18% of the launch was in the ticket size less than `25 lakh, while its absorption stood at 20%. The ticket size between `50–75 lakh saw an exceptional absorption of around 23%, while units launched was around 14%. The premium segment i.e. above `75 lakh also witnessed a moderate growth.

Ticket size of units launched & absorbed in FY2011-12

60% 56% 50% 42% 40% 30% 23% 18% 20% 20% 14% 9% 8% 10% 3%
60%
56%
50%
42%
40%
30%
23%
18% 20%
20%
14%
9% 8%
10%
3% 7%
0%
< `25 lakh
`20-50 lakh
`50-75 lakh
`75-100 lakh
`100 lakh
& above
Units Launched
Units Absorbed
Source: Knight & Frank

Together in CY2010 and CY2011, approximately 49,955 units were launched in Chennai, while only in CY2012 the city witnessed a launch of 26,000 units. As on December 2012, an estimated number of nearly 77,500 units were under construction in the city.

Launch & unsold units of residential projects 30000 25000 20000 15000 10000 5000 0 CY2007
Launch & unsold units of residential projects
30000
25000
20000
15000
10000
5000
0
CY2007
CY2008
CY2009
CY2010
CY2011
CY2012
Residential Project Launched
% Unsold Units
14441
15505
12702
23803
26152
26000

Source: Knight & Frank

Statutory costs

45%

40%

35%

30%

25%

20%

15%

10%

5%

0%

Cost

Details

Stamp duty

8% on undivided share of land based on guidance value. The effective rate of stamp duty is 1-12% of the property value.

Registration

1%, but upto a maximum of `30,000.

Value added tax

NIL.

Service tax

3% of agreement value levied on under construction properties.

 

Market norms

Norm

Details

Time line for property registration

Any time until possession.

Re-sale before possession

Allowed subject to the payment of transfer charges to the developer in the range of `100- 200 per sq. ft.

Loading

30% of carpet area.

Brokerage

1- 2% of property value.

Source: Knight & Frank

3.2. Mumbai

Mumbai is the financial powerhouse that fuels the I n d i a n e c o n o m i c g row t h e n g i n e a n d i s understandably the most active residential market in the country in terms of transaction density. The global economic crisis of 2008 affected the market adversely

as prices dipped in some micro-markets at the premium end but rebounded to 2007 highs in the subsequent two years. These unaffordable prices have consequently caused absorption numbers to fall consistently over the past few quarters. Increasing interest rates, liquidity pressures and regulatory bottlenecks have also hurt market sentiments.

Rental values as of December 2012

Location

Achievable avg

Avg unit size (sq ft)

Avg rate/sq ft (`)

rate (`)

High-End Segment

South

5,20,000

2,325

223.65

South-Central

6,00,000

2,325

258.06

Central

4,35,000

2,325

187.09

North

6,15,000

2,325

264.52

Far North

70,000

2,325

30.10

North East

2,70,000

2,325

116.12

Mid Segment

   

South

2,12,500

1,300

163.46

South-Central

2,75,000

1,300

211.53

Central

2,00,000

1,300

153.84

North

1,87,500

1,300

144.23

Far North

35,000

1,300

26.92

North East

75,000

1,300

57.69

Source: Cushman & Wakefield

Barring a 7% y-o-y increase in rental in the North in the high-end segment, the rental values in Mumbai in the high-end and mid segment remained stable in CY2012 as transaction activity remained at par. However, the high-end and mid segment capital values in Mumbai witnessed a notable price appreciation in CY2012 from the previous year.

Capital values as of December 2012

Location

Avg achievable rate (`/sq.ft.)

High-End Segment

South

59,000

South-Central

62,000

Central

46,000

North

34,000

Far North

15,250

North East

18,000

Mid Segment

South

40,000

South-Central

47,500

Central

29,500

North

22,500

Far North

12,000

North East

10,500

Source: Cushman & Wakefield

During CY2012, capital values for residential properties in the high-end and mid segment markets have appreciated in the range of 3-29% y-o-y where North East region witnessed the highest growth.

From the beginning of CY2012, construction activity remained slow and no new residential projects/phases of projects were completed in Mumbai.

The State Government of Maharashtra passed the Maharashtra Housing Regulation and Development Bill 2012, with an aim to bring transparency to the realty sector and empower end-users by protecting their interests from the objectionable practices of builders.

Y-o-Y change in price in the high-end segment

35%

29% 30% 25% 21% 20% 15% 11% 10% 7% 7% 3% 5% 0% Source: Cushman
29%
30%
25%
21%
20%
15%
11%
10%
7%
7%
3%
5%
0%
Source: Cushman & Wakefield
South
South-Central Central
North
Far North
North-East
South South-Central Central North Far North North-East LSI Financial Services Pvt. Ltd. Y-o-Y change in price

LSI Financial Services Pvt. Ltd.

Y-o-Y change in price in the mid segment

30% 27% 25% 20% 14% 15% 13% 10% 10% 9% 10% 5% 0% Source: Cushman
30%
27%
25%
20%
14%
15%
13%
10%
10%
9%
10%
5%
0%
Source: Cushman & Wakefield
South
South-Central Central
North
Far North
North-East

The residential market has been steadily shifting Northward of the Mumbai Metropolitan Region over the past few years as people are prepared to move further away from the Central area to find an apartment that fits their budget. This has prompted a flurry of construction activity in the peripheral suburbs to accommodate this demographic shift.

In Mumbai, it was observed that majority of the residential units were launched in Western suburbs and Navi Mumbai, which have accounted for 26% and 20% respectively.

Region-wise split of units launched as on March 2012

1% 4% 9% 12% 13% 15% 26% 20% South Mumbai Central Mumbai Central Suburbs Western
1%
4%
9%
12%
13%
15%
26%
20%
South Mumbai
Central Mumbai
Central Suburbs
Western Suburbs
Navi Mumbai
Thane
Peripheral Western Suburbs
Peripheral Central Suburbs

Source: Knight & Frank

Since CY2007, the residential segment witnessed a launch of more than 3.77 lakh units. The percentage of unsold units during the first nine months of CY2012 was 24%, a significant increase from the last year due to the supply overhang of the previous years.

Although, the steep drop in absorption levels should have resulted in a similar correction in prices, supply crunch through delay in approvals ensured that the market equilibrium was maintained. Supply has also been constrained as developers have been actively delaying project launches and looking to liquidate current inventory before launching any fresh project in order to ease pressure on prices in the coming year.

Further, rising interest and other input costs such as land and labour in addition to the ever increasing raw

material costs like cement and steel have constrained developers from cutting prices. Launch & unsold
material costs like cement and steel have constrained
developers from cutting prices.
Launch & unsold units of residential projects
120000
30%
100000
25%
80000
20%
60000
15%
40000
10%
20000
5%
0
0%
CY2007
CY2008
CY2009
CY2010
CY2011
CY2012*
Residential Project Launched
% Unsold Units
44483
37127
72129
112543
69150
41950

Source: Knight & Frank * till September 2012

In March 2012, it was observed that nearly 55% of the units launched were in the ticket size of upto `75 lakh

as the developers were able to attract larger chunk of buyers within this ticket size.

Ticket size of units launched as on March 2012

2% 2% 2%1% 6% 12% 6% 5% 28% 11% 11% 15% `<0.25 crore `0.25-0.5 crore
2% 2% 2%1%
6%
12%
6%
5%
28%
11%
11%
15%
`<0.25 crore
`0.25-0.5 crore
`0.5-0.75 crore
`0.75-1.0 crore
`1.0-1.25 crore
`1.25-1.5 crore
`1.5-2 crore
`2-4 crore
`4-8 crore
`8-15 crore
`15-40 crore
`40-100 crore

Source: Knight & Frank

Statutory costs

Cost

Details

Stamp duty

5% levied on higher of the two: - agreement value / ready reckoner rate.

Registration

1%, but up to a maximum of `30,000.

Value added tax

1% of agreement value.

Service tax

3% of agreement value.

Market norms

Norm

Details

Time line for property registration

Any time until possession.

Re-sale before possession

Allowed.

Transfer charges payable to the builder

0.5% of base selling rate.

Loading (as a % of carpet area)

55-80%

Source: Knight & Frank

3.3. Pune

Pune has witnessed an enormous change over the last decade. Approximately 150 km. east of Mumbai, it is the second largest city in the State of Maharashtra and the eighth largest urban agglomerations in India. Pune boasts of a strong presence in the engineering and automobile sectors. Economic activity in the city was triggered by the presence of corporate giants like Bajaj, Telco, Fiat, General Motors and Bharat Forge.

Over the past few years, Pune has also emerged as a major IT destination. Infosys, Wipro, TCS and Syntel have their base in the city and have been expanding their operation at a brisk pace. In recent years, real estate development across the city has geared up to keep pace with the changes in the demand. The past few years have witnessed an increase in the residential demand, which spread across all income categories.

However, rental continued to remain stable across most micro markets of the city due to adverse market conditions.

Rental values as of December 2012

Location

Achievable avg

Avg unit size (sq ft)

Avg rate/sq ft (`)

rate (`)

High-End Segment

Koregaon Park including Boat Club

1,60,000

2,325

68.81

Aundh

1,17,500

2,325

50.53

Baner

97,500

2,325

41.93

Kalyani Nagar

1,20,000

2,325

51.61

Wanowrie

25,500

2,325

10.96

Kharadi including Hadapsar

35,000

2,325

15.05

Mid Segment

   

Koregaon Park including Boat Club

37,500

1,300

28.84

Aundh

25,000

1,300

19.23

Baner

23,000

1,300

17.69

Wakad

15,000

1,300

11.53

Kalyani Nagar

27,500

1,300

21.15

Wanowrie

20,000

1,300

15.38

Kharadi including Hadapsar

18,500

1,300

14.23

Source: Cushman & Wakefield

During CY2012, rental values for residential properties in the high-end segment appreciated in the range of 3-9% y-o-y where regions like Aundh and Kalyani Nagar saw a 9% increase in rental values as compared to the previous year. Rental values for residential properties in the mid segment appreciated in the range of 4-12% y-o-y where Koregaon saw the highest increase.

Y-o-Y change in price in the high-end segment

10% 9% 9% 9% 8% 7% 6% 5% 4% 3% 3% 2% 1% 0% 0%
10%
9%
9%
9%
8%
7%
6%
5%
4%
3%
3%
2%
1%
0%
0%
0%
0%
Koregaon
Aundh
Baner
Kalyani
Wanowrie
Kharadi
Park
Nagar
Source: Cushman & Wakefield

Y-o-Y change in price in the mid segment

14%

12% 12% 10% 9% 8% 6% 4% 4% 2% 0% 0% 0% 0% 0% Koregaon
12%
12%
10%
9%
8%
6%
4%
4%
2%
0%
0%
0%
0%
0%
Koregaon
Aundh
Baner
Wakad
Kalyani
Wanowrie Kharadi
Park
Nagar
Source: Cushman & Wakefield
Kharadi Park Nagar Source: Cushman & Wakefield LSI Financial Services Pvt. Ltd. Capital values as of

LSI Financial Services Pvt. Ltd.

Capital values as of December 2012:

Location

Avg achievable rate ( `/sq.ft.)

High-End Segment

Koregaon Park including Boat Club

15,500

Aundh

9,000

Baner

9,000

Kalyani Nagar

13,000

Wanowrie

5,600

Kharadi including Hadapsar

7,500

Mid Segment

Koregaon Park including Boat Club

9,000

Aundh

6,500

Baner

5,500

Wakad

4,350

Kalyani Nagar

7,500

Wanowrie

5,400

Kharadi including Hadapsar

4,600

Source: Cushman & Wakefield

During CY2012, capital values for residential properties in the high-end segment appreciated in the range of 6-28% y-o-y, while that of mid segment increased in the range of 6-30% y-o-y. Baner in the high-end segment and Aundh in the mid segment saw an exceptional increase in capital values amounting to 28% and 30% y-o-y respectively.

In December 2012, construction activities picked up from previous months and few buildings were ready within the residential projects and townships located in Wakad, Aundh and Baner in the price range of `4,000 – 7,000 per sq. ft.

30%

25%

20%

15%

10%

5%

0%

Y-o-Y change in price in the high-end segment 28% 18% 15% 13% 9% 6% Koregaon
Y-o-Y change in price in the high-end segment
28%
18%
15%
13%
9%
6%
Koregaon
Aundh
Baner
Kalyani
Wanowrie
Kharadi
Park
Nagar

Source: Cushman & Wakefield

Y-o-Y change in price in the mid segment

35%

30% 30% 25% 20% 16% 14% 15% 10% 7% 6% 5% 6% 2% 0% Koregaon
30%
30%
25%
20%
16%
14%
15%
10%
7%
6%
5%
6%
2%
0%
Koregaon
Aundh
Baner
Wakad
Kalyani
Wanowrie Kharadi
Park
Nagar
Source: Cushman & Wakefield

The past few years have witnessed an increase in launch of residential units in Pune where in March 2012, East and West Pune accounted for 34% and 27% respectively. North Pune, which has evolved as an industrial area with various auto & auto ancillary and engineering industries, accounted for 17%, while South Pune has developed as a cheaper alternate residential zone with 20% share. Central Pune, which has evolved as the commercial heart of the city with many corporate offices, accounted for only 2%.

Region-wise split of units launched as on March 2012

2% 27% 34% 20% 17% Central East North South West
2%
27%
34%
20%
17%
Central
East
North
South
West

Source: Knight & Frank

Since CY2007, Pune has witnessed a launch of more than 2 lakh units, of which 1,54,874 units have been absorbed in the nine months ended September 2012, resulting in 23% remaining unsold. The percentage of unsold units has increased in the last few years from 9% in 2009 to 23% in September 2012 as the absorption rate has not been able to match with the pace of new launches. Thus, many developers have been actively delaying project launches in CY2012 and looking to liquidate current inventory before launching any fresh project.

Launch & unsold units of residential projects 45000 40000 35000 30000 25000 20000 15000 10000
Launch & unsold units of residential projects
45000
40000
35000
30000
25000
20000
15000
10000
5000
0
CY2007
CY2008
CY2009
CY2010
CY2011
CY2012*
Residential Project Launched
% Unsold Units
42637
33104
20433
38809
40452
24866

Source: Knight & Frank * till September 2012

25%

20%

15%

10%

5%

0%

Statutory costs

Cost

Details

Stamp duty

5% levied on higher of the two: - agreement value / ready reckoner rate.

Registration

1%, but up to a maximum of `30,000.

Value added tax

1% of agreement value.

Service tax

3% of agreement value.

Market norms

Norm

Details

Time line for property registration

Within 15 days of booking.

Re-sale before possession

Allowed, subject to the payment of some transfer charges.

Loading

30% of carpet area.

Brokerage

1-2% of property value.

Source: Knight & Frank

3.4. Bengaluru

Bengaluru, known for its IT/ITeS sector, has evolved into a matured residential market with low volatility. Bengaluru residential market continued to remain upbeat despite the slowdown witnessed in other cities. Strong end-user driven demand and realistic pricing have aided the city in sailing through unfavorable economic conditions.

During CY2012, rental values for residential

properties witnessed robust growth in the high-end segment, which saw an appreciation in the range of 10-57% y-o-y. Central region in the high-end segment posted an exceptional increase in rental values amounting to 57% as compared to the previous year.

Rental values for residential properties in the mid segment appreciated in the range of 2-43%. Eastern and Southern regions posted a 43% and 27% yearly increase in rental values respectively.

Rental values as of June 2012

Location

Achievable avg

Avg unit size (sq ft)

Avg rate/sq ft `)

rate (`)

High-End Segment

Central

2,35,000

4,000

58.75

South

90,000

4,000

22.50

Off-Central

1,25,000

4,000

31.25

East

2,65,000

4,000

66.25

North

1,10,000

4,000

27.50

Mid Segment

Central

97,500

2,100

46.42

East

30,000

2,100

14.28

South-East

30,000

2,100

14.28

South

40,000

2,100

19.04

North

28,500

2,100

13.57

South-West

32,500

2,100

15.47

North-West

30,000

2,100

14.28

Source: Cushman & Wakefield

Y-o-Y change in price in the high-end segment

60% 57% 47% 50% 40% 30% 20% 20% 10% 13% 10% 0% Central South Off-Central
60%
57%
47%
50%
40%
30%
20%
20%
10%
13%
10%
0%
Central
South
Off-Central
East
North
Source: Cushman & Wakefield

Y-o-Y change in price in the mid segment

50%

43% 45% 40% 35% 30% 27% 24% 25% 26% 18% 20% 20% 20% 15% 10%
43%
45%
40%
35%
30%
27%
24%
25%
26%
18%
20%
20%
20%
15%
10%
5%
0%
Central
East
South-East
South
North
South-West
North-West
Source: Cushman & Wakefield
South-West North-West Source: Cushman & Wakefield LSI Financial Services Pvt. Ltd. Capital values as of June

LSI Financial Services Pvt. Ltd.

Capital values as of June 2012

Location

Avg achievable rate ( `/sq.ft.)

High-End Segment

Central

20,500

South

8,250

Off-Central

7,250

East

7,750

North

7,250

Mid Segment

Central

7,000

East

4,300

South-East

4,750

South

6,000

North

4,500

South-West

4,750

North-West

5,250

Source: Cushman & Wakefield

During CY2012, capital values for residential properties posted a growth in the range of 5-28% y-o- y in the high-end segment where Central region witnessed the highest growth.

On the other hand, capital values for residential

properties in the mid segment appreciated in the range of 3-32% y-o-y. Eastern and South-Eastern regions saw a highest increase in capital values amounting to 32% and 27% y-o-y respectively.

Y-o-Y change in price in the high-end segment

30% 28% 25% 20% 15% 12% 8% 10% 5% 5% 0% 0% Central South Off-Central
30%
28%
25%
20%
15%
12%
8%
10%
5%
5%
0%
0%
Central
South
Off-Central
East
North
Source: Cushman & Wakefield

Y-o-Y change in price in the mid segment

35% 32% 30% 27% 25% 20% 15% 15% 10% 10% 5% 6% 0% 4% 0%
35%
32%
30%
27%
25%
20%
15%
15%
10%
10%
5%
6%
0%
4%
0%
Central
East
South-East
South
North
South-West
North-West
Source: Cushman & Wakefield

South Bengaluru saw the highest number of new launches in FY2012-13 till mid-November 2012 accounting for 48%. Developers such as Nitesh Estates, Godrej Developers and Shriram Properties have initiated their projects in the Southern area. North Bengaluru accounted for 31% of the total units launched where developers such as Kolte Patil Developers, Bhartiya Group and Fortuna Group have entered the market. West Bengaluru, which accounted for 13% of the total units launched, witnessed a launch of some high-end residential projects by developers such as

Sovereign Developers and Godrej Group. Finally, the Eastern part of the city accounted for only 8% of the total units launched as projects were not as large scale as in other parts of the city.

In June 2012, the National Highways Authority of India and the State Public Works Department initiated the Satellite Town Ring Road project to connect Bengaluru's satellite towns such as Ramanagar, Dobbespet, Devanahalli, Hoskote, Attibele and Magadi. With an improvement in connectivity, the project is further expected to boost the real estate activities in these locations in the near future.

Region-wise split of units launched as on November 2012 13% 8% 31% 48% East North
Region-wise split of units launched
as on November 2012
13%
8%
31%
48%
East
North
South
West

Source: Knight & Frank

Since CY2007, Bengaluru has witnessed the launch of over 1.76 lakh units, of which 32% remained unsold in September 2012. Thus, many developers have been actively delaying project launches in CY2012 and looking to liquidate current inventory before launching any fresh project.

Launch & unsold units of residential projects 60000 35% 30% 50000 25% 40000 20% 30000
Launch & unsold units of residential projects
60000
35%
30%
50000
25%
40000
20%
30000
15%
20000
10%
10000
5%
0
0%
CY2007
CY2008
CY2009
CY2010
CY2011
CY2012*
Residential Project Launched
% Unsold Units
Source: Knight & Frank
* till September 2012
31236
20608
14439
31733
54075
24741

Statutory costs

Cost

Details

Stamp duty

5% of ready reckoner rate.

Registration

1%, but up to a maximum of `30,000.

Value added tax

7% of agreement value.

Service tax

3% of agreement value.

Market norms

Norm

Details

Time line for property registration

Anytime until possession.

Re-sale before possession

Allowed.

Transfer charges payable to the builder

`200-300 per sq ft.

Loading (as % of carpet area)

33%.

Source: Knight & Frank

3.5. National Capital Region (NCR)

The National Capital Region (NCR), which is spread over 33,578 sq. km. is one of the largest urban agglomerations in the world. The NCR encompasses of the entire National Capital Territory of Delhi as well as selected urban areas from its neighboring States of Haryana, Rajasthan and Uttar Pradesh. The NCR is divided into six broad zones namely Delhi, Gurgaon, Noida, Greater Noida, Faridabad, Ghaziabad and Alwar. Industries like IT/ITeS, automobile and pharmaceutical contribute most towards the

economy of the region. Due to proximity to the national capital and enhanced connectivity courtesy metro line across the region, NCR has positioned itself as one of the most preferred destination.

During CY2012, rental values for residential properties in the high-end segment witnessed an appreciation in the range of 4-17% y-o-y where Central NCR saw an increase of 17%. Rental values for residential properties in the mid segment appreciated in the range of 4-11% y-o-y where Noida posted the highest growth.

Rental values as of December 2012

Location

Achievable avg

Avg unit size (sq ft)

Avg rate/sq ft (`)

rate (`)

High-End Segment

South West

4,00,000

2,325

172.04

South-East

2,25,000

2,325

96.77

South-Central

2,62,500

2,325

112.90

Central

4,25,000

2,325

182.80

Gurgaon-Luxury

3,25,000

2,325

139.78

Gurgaon

1,27,500

2,325

54.84

Noida

72,500

2,325

31.18

Mid Segment

South-East

1,37,500

1,300

105.77

South-Central

1,37,500

1,300

105.77

Gurgaon

62,500

1,300

48.08

Noida

35,000

1,300

26.92

Source: Cushman & Wakefield

Y-o-Y change in price in the high-end segment 18% 17% 16% 14% 12% 10% 7%
Y-o-Y change in price in the high-end segment
18%
17%
16%
14%
12%
10%
7%
8%
6%
6%
5%
4%
4%
2%
0%
0%
0%
South West
South-East
South-Central Gurgaon-Luxury
Central
Gurgaon
Noida
Source: Cushman & Wakefield Y-o-Y change in price in the mid segment 12% 11% 10%
Source: Cushman & Wakefield
Y-o-Y change in price in the mid segment
12%
11%
10%
8%
8%
6%
4%
4%
2%
0%
0%
South-East
South-Central
Gurgaon
Noida

Source: Cushman & Wakefield

Gurgaon Noida Source: Cushman & Wakefield LSI Financial Services Pvt. Ltd. During CY2012, capital

LSI Financial Services Pvt. Ltd.

During CY2012, capital values for residential properties witnessed a growth in the range of 10-22% y-o-y in the high-end segment where South-Western and Central regions appreciated most by 20% and 22% respectively. Capital values in the mid segment increased in the range of 5-28% y-o-y where South- Eastern and Gurgaon posted a growth of 28% and 24% y-o-y respectively.

Capital values as of December 2012

Location

Avg achievable rate ( `/sq.ft.)

High-End Segment

South West

 

55,000

South-East

 

35,000

South-Central

 

38,500

Central

 

70,000

Gurgaon-Luxury

 

25,500

Gurgaon

 

13,000

Noida

 

7,150

Mid Segment

South-East

 

27,500

South-central

 

27,500

Gurgaon

 

8,650

Noida

 

5,250

Source: Cushman & Wakefield

Y-o-Y change in price in the high-end segment

25% 22% 20% 20% 17% 15% 15% 10% 10% 5% 0% 0% 0% South West
25%
22%
20%
20%
17%
15%
15%
10%
10%
5%
0%
0%
0%
South West
South-East
South-Central Gurgaon-Luxury
Central
Gurgaon
Noida

Source: Cushman & Wakefield

Y-o-Y change in price in the mid segment

30% 28% 24% 25% 20% 15% 10% 5% 5% 0% 0% South-East South-Central Gurgaon Noida
30%
28%
24%
25%
20%
15%
10%
5%
5%
0%
0%
South-East
South-Central
Gurgaon
Noida
Source: Cushman & Wakefield

Nearly 33,500 residential units were launched in H2 (second half) FY2012-13, showing a dip of almost 31% compared to H2 FY2011-12. However, there was a 6% increase in project launches compared to H1 (first half) FY2012-13. Greater Noida witnessed the highest number of new launches in the H2 2012-13 accounting for 50% followed by Gurgaon and Ghaziabad.

Region-wise split of units launched

60%

50% 50% 40% 33% 29% 30% 21% 21% 18% 20% 14% 8% 10% 3% 3%
50%
50%
40%
33%
29%
30%
21%
21% 18%
20%
14%
8%
10%
3%
3%
0%
Faridabad
Ghaziabad
Greater Noida
Gurgaon
Noida
H2 FY 2011-12
H2 FY 2012-13
Source: Knight & Frank

In March 2013, nearly 5,20,000 residential units were under various stages of construction in the NCR market. Quite a number of projects that were launched in 2010 have seen execution delays and pushing the completion dates to CY2014 and early

CY2015.

In CY2012, NCR witnessed a launch of 64,500 residential units and 1,40,000 units of unsold
In
CY2012,
NCR
witnessed
a
launch
of
64,500
residential
units
and
1,40,000
units
of
unsold
inventory.
Launch & unsold units of residential projects
180000
30%
160000
25%
140000
120000
20%
100000
15%
80000
60000
10%
40000
5%
20000
0
0%
CY2007
CY2008
CY2009
CY2010
CY2011
CY2012
Residential Project Launched
% Unsold Units
59176
46605
78222
171261
111649
64500

Source: Knight & Frank

Residential Project Launched % Unsold Units 59176 46605 78222 171261 111649 64500 Source: Knight & Frank

3.6. Kolkata

The residential real estate market of Kolkata has seen a significant change in its skyline over the past five years. The old colonial style bungalows and mansions have made way for high rise, showing the influence of modernization and changing lifestyle. Nuclear families with requirements for modern apartment lifestyles have become the order of the day. The Kolkata residential market has traditionally been an end user market with a very small proportion of investors. The growth of IT/ITeS sector and increasing floating population are the major factors

that have led to an increase in demand for the residential units in the city. The Government has also been offering land at subsidized rates to developers to start group housing projects in the PPP model, which has boosted supply and hence, a number of national players like DLF, Godrej and Unitech have set up their operations in the city.

Rental values declined in the high-end segment where South-Central region posted the highest decrease of 9% y-o-y during CY2012. However, in the mid segment, rental values remained stable.

Rental values as of December 2012

Location

Achievable avg

Avg unit size (sq ft)

Avg rate/sq ft (`)

rate (`)

High-End Segment

South

71,000

2,325

30.53

South-Central

1,25,000

2,325

53.76

South-East

76,500

2,325

32.90

South-West

1,37,500

2,325

59.13

Central

1,15,000

2,325

49.46

East

51,500

2,325

22.15

North-East

55,000

2,325

23.65

Mid Segment

South

27,500

1,300

21.15

South-Central

32,000

1,300

24.61

South-East

37,500

1,300

28.84

North-East

30,000

1,300

23.07

North

23,500

1,300

18.07

Source: Cushman & Wakefield

Y-o-Y change in price in the high-end segment

4%

2% 2% 0% 0% 0% 0% 0% 0% -2% -4% -6% -8% -9% -10% Source:
2%
2%
0%
0%
0%
0%
0%
0%
-2%
-4%
-6%
-8%
-9%
-10%
Source: Cushman & Wakefield
South
South-Central
South-East
South-West Central
East
North-East

Capital values only changed in the high-end segment where Southern region witnessed a growth of 22% y-o-y.

where Southern region witnessed a growth of 22% y-o-y. LSI Financial Services Pvt. Ltd. Capital values

LSI Financial Services Pvt. Ltd.

Capital values as of December 2012

Location

Avg achievable rate ( `/sq.ft.)

High-End Segment

South

 

9,750

South-Central

 

14,000

South-East

 

7,650

South-West

 

12,500

Central

 

9,250

East

 

5,000

North-East

 

3,650

Mid Segment

South

 

4,650

South-Central

 

7,000

South-East

 

3,650

North-East

 

2,700

North

 

4,000

Source: Cushman & Wakefield

Y-o-Y change in price in the high-end segment

25% 22% 20% 15% 10% 5% 2% 0% 0% 0% 0% 0% 0% Source: Cushman
25%
22%
20%
15%
10%
5%
2%
0%
0%
0%
0%
0%
0%
Source: Cushman & Wakefield
South
South-Central
South-East
South-West Central
East
North-East

A total of 8,900 units were launched in Kolkata in CY2012, of which nearly 62% units were in the mid- end segment (5,535 units) and priced between `36-60 lakh, while the balance were in the high-end segment, which is priced above `60 lakh. The maximum absorption was also in the mid segment.

Ticket size absorption in Kolkata 11% 17% 14% 14% 44% `<0.25 crore `0.25-0.5 crore `0.5-0.75
Ticket size absorption in Kolkata
11%
17%
14%
14%
44%
`<0.25 crore
`0.25-0.5 crore
`0.5-0.75 crore
`0.75-1 crore
`1 crore & above

Source: Knight & Frank

On a year-over-year basis, supply of mid-level homes increased by 26% to 5,535 units in CY2012 from 4,372 in CY2011. Similarly, the launch of high-end homes increased to 3,360 units, representing an increase of 17% from 2,863 units in CY2011. However, the supply of luxury homes dipped drastically in CY2012 to just 23 units from 280 units in

CY2011, representing a fall of 92% due to adverse market conditions.

In June 2012, approximately 42,000 residential units were under construction in the Kolkata market, of which nearly 69% were in South Kolkata and Rajarhat.

Region-wise split of units under construction as on June 2012 3% 4% 5% 19% 37%
Region-wise split of units under construction
as on June 2012
3%
4%
5%
19%
37%
32%
Central Kolkata
East Kolkata
North Kolkata
Rajarhat
South Kolkata
West Kolkata

Source: Knight & Frank

In June 2012, the residential market in Kolkata had around 1,43,000 unsold units, of which
In June 2012, the residential market in Kolkata had
around 1,43,000 unsold units, of which nearly 47%
was contributed by Western region followed by North
Kolkata, Rajarhat and South Kolkata.
Unsold units as % of total units
under construction as on June 2012
50%
45%
47%
39%
37%
40%
35%
34%
30%
25%
20%
15%
15%
10%
8%
5%
0%
Central
East
North
Rajarhat
South
West

Source: Knight & Frank

34% 30% 25% 20% 15% 15% 10% 8% 5% 0% Central East North Rajarhat South West
4.4. OfficialOfficial RealReal EstateEstate The commercial office space in India has evolved significantly in the

4.4. OfficialOfficial RealReal EstateEstate

The commercial office space in India has evolved significantly in the past 10 years due to the changes in the business environment. The growth of commercial real estate has been driven largely by service sectors, especially IT-ITeS. Previously, commercial properties were concentrated towards CBD (Central Business District) areas. However, with the emergence of IT- ITeS, which have huge office space requirement, commercial development started moving towards city suburbs. This has resulted in the multifold development of the city's outskirts and suburbs like Gurgaon near New Delhi, Bandra & Malad in Mumbai and the Electronic city in Bengaluru. In addition, over the last 10 years, locations such as Bengaluru, Gurgaon, Hyderabad, Chennai, Kolkata and Pune have established themselves as emerging destinations for commercial development, which are competing with traditional business destinations such as Mumbai and Delhi. Tax advantage on the profits of IT-ITeS companies has also led to stupendous development of IT Parks and Special Economic Zones (SEZs).

Of the three primary real estate sectors, commercial property is most closely linked with global economic dynamics. We are already seeing the impact of these dynamics in the reduced absorption of commercial spaces in India to 15% currently. Multinational companies are increasingly cautious about committing because their home countries are not doing well and even domestic companies are in wait- and-watch mode. The continuous volatility in the global and Indian financial markets coupled with rising inflation and interest rates have led corporates and developers to be cautious with their expansion plans.

CY2012 was defined by a notable decline of 26% in absorption of office space across most of cities in India from the CY2011 levels. The larger cities like Mumbai, NCR, Bengaluru and Chennai contributed to a healthy 72.5% of the country's net absorption of commercial real estate. The total absorption of prime office space for CY2012 was about 26 million sq ft in seven major cities of the country as against 35 million

in seven major cities of the country as against 35 million LSI Financial Services Pvt. Ltd.

LSI Financial Services Pvt. Ltd.

sq ft in CY2011. The last quarter of CY2012 witnessed an absorption of about 7 million sq ft of office space compared to about 6 million sq ft in the previous quarter. About 70% of the transaction activity was dominated by the NCR, Mumbai and Bengaluru.

The total office space supply in CY2012 remained almost stable at 31 million sq ft as large chunk of the office pipeline lined up for CY2012 was delayed into CY2013. Further, the investment side of the market also witnessed subdued activity as demand from investors fell and capital value expectations sunk to the lowest reading for over the past two years.

Rents were stable in suburban office markets such as Gurgaon, Noida, Outer Ring Road, Whitefield, Hitec City and Gachibowli. Most micro markets in Mumbai such as Nariman Point, Bandra Kurla Complex and peripheral markets have entered the downward cycle and suffered from sluggish demand with increasing vacancy levels.

In the coming years, demand will derive from consolidation in and relocation to SEZs by large IT occupiers, who will seek to reduce costs by availing related tax incentives. Commercial office space rents and capital values are expected to increase across all cities, albeit marginally.

With business sentiments getting improved, the downward trend is likely to change in FY2013-14 and each quarter should see a 9-10 million of absorption with overall absorption likely to surpass 40 million by

FY2013-14.

In the South, Hyderabad and Bengaluru should see the IT industry to dominate the office space. Office rents are expected to increase from the H2 CY2013 based on the supply crunch as very few new projects are expected to be launched in the near future.

4.1. Chennai

In the Chennai office market during FY2012-13, cautiousness was adopted by potential occupiers as well as the existing ones on account of the ongoing economic crisis in the global markets. The prevailing

uncertainty has led a number of IT/ITeS firms, the prime demand driver for office space in the city, to postpone their expansion plans and modify their revenue and employment projections for the year.

Rental and capital values as on March 2013

Area

Rents (average `/sq ft per month)

Capital value (average `/sq ft)

Mount Road

75.0

12,000

RK Salai

85.0

12,500

Pre-toll OMR

48.5

5,750

Post-toll OMR

30.0

4,250

Guindy

47.5

7,500

Ambattur

30.0

3,875

Source: Jones Lang Lasalle

The IT/ITeS sector continues to be the prime demand driver of office space in Chennai. Some of the key IT/ITeS companies that took up space in the city in the H2 CY2012 include TCS eServe, CSS Corp, Aricent and Capgemini. Although, the H2 CY2011 saw 11% of the total office space being occupied by the Consulting sector, the figure reduced drastically to 3% during the same period of CY2012. Decline was also witnessed in s e c t o r s s u c h a s m a n u f a c t u r i n g a n d healthcare/pharmaceutical in the H2 CY2012. However, the BFSI sector saw an increase in its footprints in the H2 CY2012 to 15% as compared to 11% in the H2 CY2011. Prominent BFSI firms like Kotak, Barclays, World Bank and Mizuho were responsible for contributing towards the increase in office space absorption. Other sectors like media, telecom, aviation, automobile and internet retailing firms together contributed about 20% in the H2 CY2012, a significant increase over the previous year.

Distribution of office space across sectors

70% 60% 61% 55% 50% 40% 30% 20% 20% 15% 11% 11% 10% 7% 5%
70%
60%
61% 55%
50%
40%
30%
20%
20%
15%
11%
11%
10%
7%
5%
3%
3%
4%
5%
0%
Jul-Dec 2011
Jul-Dec 2012
IT/Tes
BFSI
Consulting
Healthcare/Pharma
Manufacturing
Other Service Sectors

Source: Knight & Frank

In September 2012, Chennai had a total overall office inventory of 68.8 million units with Suburban- Perungudi-Taramani having the largest inventory of 15.5 million units.

Inventory as on September 2012 (million units)

18

15.5 16 13.6 14 12.6 12 10.7 10 8.8 8 6 5.3 4 2.3 2
15.5
16
13.6
14
12.6
12
10.7
10
8.8
8
6
5.3
4
2.3
2
0
CBD - Anna
RK Salai,
T. Nagar, - Guindy
Salai - Alwarpet Suburban
Off-CBD
- Ambattur
Suburban
- Perugudi-
Suburban
Taramani
Peipheral
Rajiv
Gandhi - Peipheral
Salai
- GST

Source: Cushman and Wakefield

4.2 Mumbai

Mumbai's commercial office space market consolidated in CY2012 and showed signs of bottoming out. However, corporate activity, which

was fairly stable after 2008 recession, weakened due

to sluggish global and local environment, resulting in

a significant fall in office space taken-up during

FY2012-13. Moreover, rents and vacancy levels, which were observed to be firming up, again

experienced a downward pressure as the demand- supply gap further widened.

Rental and capital values as on March 2013

Area

Rents (average `/sq ft per month)

Capital value (average `/sq ft)

Lower Parel

170.0

21,000

BKC

305.0

30,000

Andheri

125.0

12,000

Goregaon-Malad

90.0

9,000

Wagle Estate

57.5

5,500

Thane Belapur

52.5

5,550

Road

Source: Jones Lang Lasalle

The BFSI sector has been the primary driver of the office space market in Mumbai. Banks and non banking financial companies such as SBI Mutual Fund, Development Credit Bank and HDFC Bank are among the active companies. The market share of the other service sector companies like media, telecom, consulting and logistics on occasion have eclipsed that of the BFSI and IT/ ITeS sectors but during Q2 FY2012-13, it fell to almost half of BFSI. The IT/ ITeS sector has maintained a steady market share over the consecutive three quarters of FY2012-13. The manufacturing sector has gained significant growning from 14% in Q2 FY2011-12 to 26% in Q2

FY2012-13.

Distribution of office space across sectors

40% 37% 36% 35% 33% 30% 26% 25% 20% 18% 18% 18% 14% 15% 10%
40%
37%
36%
35%
33%
30%
26%
25%
20%
18% 18%
18%
14%
15%
10%
5%
0%
BFSI
IT/ITeS
Manufacturing
Other Service
Sectors
Q2 FY2012-13
Q2 FY2011-12
Source: Knight & Frank

In September 2012, Mumbai had a total overall inventory of 106.99 million units with Andheri-Kurla having the largest inventory of 22.9 million units.

Inventory as on September 2012 (million units)

25.0

22.9

20.0 15.0 13.0 11.7 10.9 10.8 10.0 7.6 6.1 5.3 4.3 5.0 3.2 0.0 Source:
20.0
15.0
13.0
11.7
10.9
10.8
10.0
7.6
6.1
5.3
4.3
5.0
3.2
0.0
Source: Cushman and Wakefield
CBD SBD
Worli
Lower
Parel
Andheri-Kurla
Powai
Malad/Goregaon
Vashi Road Thane
Thane-Belapur

4.3. Pune

Pune is among the top ten largest metropolitan economies in terms of Nominal GDP and per capita income in the country. It has evolved as a destination for automobile and pharmaceutical industries, which have set up their shops in a big way. However, the IT/ITeS sector has in recent times dominated its economy and Pune is today among the leading software exporters of India. The pace at which the IT/ITeS industry has grown coupled with the growth in the manufacturing sector, it has sparked off a flurry of construction activity in the grade A office space market over the past decade.

The Eastern and North-Western locations of Pune accounted for 37% and 23% of total office space respectively, where the IT/ITeS sector has the largest chunk. Central region accounted for 12% of the total office space in Pune whereas Northern and North- Eastern regions accounted for 10%. This was followed by Southern and Western regions.

for 10%. This was followed by Southern and Western regions. LSI Financial Services Pvt. Ltd. Rental

LSI Financial Services Pvt. Ltd.

Rental and capital values as on March 2013

Area

Rents (average `/sq ft per month)

Capital value (average `/sq ft)

Hinjewadi

36.0

4,500

Hadapsar

45.0

5,500

Bund Garden Road

65.0

7,000

Viman Nagar

55.0

6,500

S.B.Road

65.0

7,000

Koregaon Park