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Investment Avenue: Real estate.

Executive Summary

This project aims to:


Provide layman explanations of Real Estate, types of investments and their
characteristics
Provide an in-depth independent and unbiased overview of the real estate scenario
based on inputs from Primary sources like developers, banks and financial institutions,
brokers and secondary sources like information and research available on the internet.
Provide vital information as to whether this boom in the real estate market is sustainable
or is it a bubble waiting to burst.
Provide validated consistent information across parameters that influence real estate
activity like Infrastructure developments in the city Residential area. Demand, supply.
Commercial Supply, prices, drivers and key characteristics Retail supply (malls)
proposed
A schematic locational dispersion on the map The research encompasses extensive
(personal & phone) interviews of Local developers Real estate agents Emails were sent
and phone calls were made to prominent Real Estate agents in Chennai, Kolkata,
Mumbai and New Delhi.
Case Study to understand real estate market better.

K.C COLLEGE

Investment Avenue: Real estate.

Introduction
INDIAS REAL ESTATE SECTOR

The real estate sector in India has come a long way by becoming one of the fastest
growing markets in the world. It is not only successfully attracting domestic real estate
developers, but foreign investors as well. The growth of the industry is attributed mainly to
a large population base, rising income level, and rapid urbanisation. The sector comprises
of four sub-sectors- housing, retail, hospitality, and commercial. While housing contributes
to five-six percent of the countrys gross domestic product (GDP), the remaining three subsectors are also growing at a rapid pace, meeting the increasing infrastructural needs. The
real estate sector has transformed from being unorganised to a dynamic and organised
sector over the past decade. Government policies have been instrumental in providing
support after recognising the need for infrastructure development in order to ensure better
standard of living for its citizens. In addition to this, adequate infrastructure forms a
prerequisite for sustaining the long-term growth momentum of the economy.
The Indian real estate sector is one of the most globally recognised sectors. In the country,
it is the second largest employer after agriculture and is slated to grow at 30 per cent over
the next decade. It comprises four sub sectors - housing, retail, hospitality, and
commercial. The growth of this sector is well complemented by the growth of the corporate
environment and the demand for office space as well as urban and semi-urban
accommodations. The construction industry ranks third among the 14 major sectors in
terms of direct, indirect and induced effects in all sectors of the economy. It is also
expected that this sector will incur more non-resident Indian investments in the near future,
as a survey by an industry body has revealed a 35 per cent surge in the number of
enquiries with property dealers. Bengaluru is expected to be the most favoured property
investment destination for NRIs, followed by Ahmedabad, Pune, Chennai, Goa, Delhi and
Dehradun. Private equity (PE) funding has picked up in the last one year due to attractive
valuations. Furthermore, with the Government of India introducing newer policies helpful to
real estate, this sector has garnered sufficient growth in recent times.

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Investment Avenue: Real estate.

Types of Real Estate Investments


Income-Producing and Non-Income-Producing Investments
There are four broad types of income-producing real estate: offices, retail, industrial and
leased residential. There are many other less common types as well, such as hotels, ministorage, parking lots and seniors care housing.The key criteria in these investments that
we are focusing on is that they are income producing. Non-income-producing investments,
such as houses, vacation properties or vacant commercial buildings, are as sound as
income-producing investments. Just keep in mind that if you invest equity in a non-income
producing property you will not receive any rent, so all of your return must
be through capital appreciation If you invest in debt secured by non-income- producing
real estate, remember that the borrower's personal income must be sufficient to cover the
mortgage payments, because there is no tenant income to secure the payments.
Office Property
Offices are the "flagship" investment for many real estate owners. They tend to be, on
average, the largest and highest profile property type because of their typical location in
downtown cores and sprawling suburban office parks. At its most fundamental level, the
demand for office space is tied to companies' requirement for office workers, and the
average space per office worker. The typical office worker is involved in things like finance,
accounting, insurance, real estate, services, management and administration. As these
"white-collar" jobs grow, there is greater demand for office spaces. Returns from office
properties can be highly variable because the market tends to be sensitive to economic
performance. One downside is that office
buildings have high operating costs, so if you lose a tenant it can have a
substantial impact on the returns for the property. However, in times of
prosperity, offices tend to perform extremely well, because demand for
space causes rental rates to increase and an extended time period is
required to build an office tower to relieve the pressure on the market and rents.
Retail Property
There is a wide variety of Retail properties, ranging from large enclosed
shopping malls to single tenant buildings in pedestrian zones. At the present time, the
Power Centre format is in favour, with retailers occupying larger premises than in the
enclosed mall format, and having greater visibility and access from adjacent roadways.
Many retail properties have an anchor which is a large, well-known retailer that acts as a
draw to the centre. An example of a well-known anchor is Wal-Mart. If a retail property has
a food store as an anchor, it is said to be
food-anchored or grocery-anchored ; such anchors would typically enhance the
fundamentals of a property and make it more desirable for investment. Often, a retail
centre has one or more ancillary multi-bay buildings containing smaller tenants. One of
these small units is termed a commercial retail unit (CRU) The demand for retail space has
many drivers. Among them are: location, visibility, population density, population growth
and relative income levels.From an economic perspective, retails tend to perform best in
growing economies and when retail sales growth is high. Returns from Retails tend to be
more stable than Offices, in part because retail leases are generally longer and retailers
are less inclined to relocate as compared to office tenants.
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Investment Avenue: Real estate.

Industrial Property
Industrials are often considered the "staple" of the average real estate
investor. Generally, they require smaller average investments, are less
management intensive and have lower operating costs than their office and retail
counterparts. There are varying types of industrials depending on the use of the building.
For example, buildings could be used for warehousing, manufacturing, research and
development, or distribution. Some industrials can even have partial or full office buildouts. Some important factors to consider in an industrial property would be
functionality (for example, ceiling height), location relative to major transport routes
(including rail or sea), building configuration, loading and the degree of specialization in
the space (such as whether it has cranes or freezers). For some uses, the presence of
outdoor or covered yard space is important.
Multi-family Residential Property
Multi-family residential property generally delivers the most stable returns, because no
matter what the economic cycle, people always need a place to live. The result is that in
normal markets, residential occupancy tends to stay reasonably high. Another factor
contributing to the stability of residential property is that the loss of a single tenant has a
minimal impact on the
bottom line whereas if you lose a tenant in any other type of property the negative effects
can be much more significant. For most commercial property types, tenant leases are
either net or partially net, meaning that most operating expenses can be passed along to
tenants.
However, residential properties typically do not have this attribute, meaning that the risk of
increases in building operating costs is borne by the property owner for the duration of the
lease. A positive aspect of residential properties is that in some countries,
government-insured financing is available. At the expense of a small
premium, insured financing lowers the interest rate on mortgages, thereby enhancing
potential returns from the investment.

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Investment Avenue: Real estate.

Characteristics of real estate assets


No fixed maturity
Unlike a bond which has a fixed maturity date, an equity real estate
investment does not normally mature. In Europe, it is not uncommon
for investors to hold property for over 100 years. This attribute of real
estate allows an owner to buy a property, execute a business plan,
then dispose of the property whenever appropriate. An exception to
this characteristic is an investment in fixed-term debt; by definition a
mortgage would have a fixed maturity.
Tangible
Real estate is, well, real! You can visit your investment, speak with
your tenants, and show it off to your family and friends. You can see it
and touch it. A result of this attribute is that you have a certain degree
of physical control over the investment - if something is wrong with it,
you can try fixing it. You can't do that with a stock or bond.
Requires Management
Because real estate is tangible, it needs to be managed in a hands-on
manner. Tenant complaints must be addressed. Landscaping must be
handled. And, when the building starts to age, it needs to be
renovated.
Inefficient Markets
An inefficient market is not necessarily a bad thing. It just means that
information asymmetry exists among participants in the market,
allowing greater profits to be made by those with special information,
expertise or resources. In contrast, public stock markets are much
more efficient - information is efficiently disseminated among market
participants, and those with material non-public information are not
permitted to trade upon the information. In the real estate markets,
information is king, and can allow an investor to see profit
opportunities that might otherwise not have presented themselves.
High Transaction Costs
Private market real estate has high purchase costs and sale costs. On
purchases, there are real-estate-agent-related commissions, lawyers'
fees, engineers' fees and many other costs that can raise the effective
purchase price well beyond the price the seller will actually receive. On
sales, a substantial brokerage fee is usually required for the property
to be properly exposed to the market.

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Investment Avenue: Real estate.

Lower Liquidity
With the exception of real estate securities, no public exchange exists
for the trading of real estate. This makes real estate more difficult to
sell because deals must be privately brokered. There can be a
substantial lag between the time you decide to sell a property and
when it actually is sold - usually a couple months at least.
Underlying Tenant Quality
When assessing an income-producing property, an important
consideration is the quality of the underlying tenancy. This is important
because when you purchase the property, you're buying two things:
the physical real estate, and the income stream from the tenants. If
the tenants are likely to default on their monthly obligation, the risk of the investment is
greater.
Variability among Regions
While it sounds clich, location is one of the important aspects of real
estate investments; a piece of real estate can perform very differently
among countries, regions, cities and even within the same city. These
regional differences need to be considered when making an
investment, because your selection of which market to invest in has as
large an impact on your eventual returns as your choice of property
within the market.

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Investment Avenue: Real estate.

Advantages & Disadvantages of Real Estate


Benefits
Some of the benefits of having real estate in your portfolio are as follows
Cash flow
Cash flow is the difference between your income and your
expenses on a piece of property. You can have a positive or
negative cash flow. Obviously, you'll feel a lot better if the
cash flow is positive. My advice on cash flow is this: Never use
all of your positive cash flow for rapid debt reduction.You will be walking a thin line. By
keeping a strong positive cash flow,
you will have more options and space to manoeuvre.
Appreciation
Appreciation is the increase in value of a property. There are
two kinds of appreciation. The first is from economic
conditions beyond your control, such as inflation. But you
won't gain much from this type of appreciation since the gain
is offset by the higher cost of living.
The second kind is market appreciation, which you can control.
When you improve a property (through renovations); you force
its value higher. You can purchase a piece of property in need
of repairs and bring it back up to neighbourhood standards or
slightly higher; this will give you a property that is much
higher in value.
Leverage
Leverage is the ability to borrow a percentage of the value of a
piece of property. Real estate, in comparison to other
investments, offers a very high degree of leverage. In some
cases, a couple buying a single-family home can obtain 95%
financing. This allows individuals to purchase real estate with
little, if any, of their own money. What other investments offer
such a high degree of leverage?
Yield Enhancement
As part of a portfolio, real estate allows you to achieve higher returns
for a given level of portfolio risk. Similarly, by adding real estate to a
portfolio you could maintain your portfolio returns while decreasing
risk.

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Investment Avenue: Real estate.

Amortization
With leverage, or the use of other people's money, comes a
repayment schedule. Your outstanding balance is reduced with
every payment you make. Part of each payment goes to
interest (applied first) and the rest goes to pay off the
principal. The principal reduction is called amortization -reducing debt. Hence, amortization can make you wealthy,
slowly and steadily.
Tax advantages
Owning real estate with the goal of making a profit allows you
to deduct interest payments and other expenses come tax
time. But don't be fooled into buying real estate for the tax
advantages; rather, purchase it because it makes economic
sense to do so.
Diversification
Value the positive aspects of diversifying your portfolio in terms of asset allocation are well
documented. Real estate returns have relatively low
correlations with other asset classes (traditional investment vehicles
such as stocks and bonds), which adds to the diversification of your
portfolio.)
Inflation Hedge
Real estate returns are directly linked to the rents that are received
from tenants. Some leases contain provisions for rent increases to be
indexed to inflation. In other cases, rental rates are increased
whenever a lease term expires and the tenant is renewed. Either way,
real estate income tends to increase faster in inflationary
environments, allowing an investor to maintain its real returns.

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Investment Avenue: Real estate.

Shortcomings
Real estate also has some characteristics that require special consideration when making
an investment decision:
Costly to Buy, Sell and Operate
For transactions in the private real estate market, transaction costs
are significant when compared to other investment classes. It is
usually more efficient to purchase larger real estate assets because
you can spread the transaction costs over a larger asset base. Real
estate is also costly to operate because it is tangible and requires
ongoing maintenance.
Requires Management
With some exceptions, real estate requires ongoing management at
two levels. First, you require property management to deal with the
day-to-day operation of the property. Second, you need strategic
management of the property to consider the longer term market
position of the investment. Sometimes the management functions
are combined and handled by one group. Management comes at a
cost; even if it is handled by the owner, it will require time and
resources.
Difficult to Acquire
It can be a challenge to build a meaningful, diversified real estate
portfolio. Purchases need to be made in a variety of geographical
locations and across asset classes, which can be out of reach for
many investors. You can, however, purchase units in a private pool or a public security,
and these units are typically backed by a
diverse portfolio.
Cyclical (Leasing Market)
Not unlike other asset classes, real estate is cyclical. Real estate
has two cycles: the leasing market cycle and the investment market
cycle. The leasing market consists of the market for space in real
estate properties. As with most markets, conditions of the leasing
market are dictated by the supply side, which is the amount of
space available (or, vacancies), and the demand side, which is the
amount of space required by tenants. If demand for space
increases, then vacancies will decrease, and the resulting scarcity
of space will cause an increase in market rents. Once rents reach
economic levels, it becomes profitable for developers to construct
additional space so that supply can meet demand.

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Investment Avenue: Real estate.

Cyclical (Investment Market)


The real estate investment market moves in a different cycle than
the leasing market. On the demand side of the investment market
are investors who have capital to invest in real estate. The supply
side consists of properties that are brought to market by their
owners. If the supply of capital seeking real estate investments is
plentiful, then property prices increase. As prices increase,
additional properties are brought to market to meet demand.
Although the leasing and investment market have independent
cycles, one does tend to influence the other. For instance, if the
leasing market is in decline, then growth in rents should decrease.
Faced with decreasing rental growth, real estate investors might
view real estate prices as being too high and might therefore stop
making additional purchases. If capital seeking real estate
decreases, then prices decrease to force equilibrium.
Performance Measurement
In the private market there is no high quality benchmark to which
you can compare your portfolio results. Similarly, it is difficult to
measure risk relative to the market. Risk and return are easy to
determine in the stock market but measuring real estate
performance is much more challenging

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Investment Avenue: Real estate.

Introduction on real estate sector in India and unprecedented expansion


With property boom spreading in all directions, real estate in India is
touching new heights. Growing at a scorching 30 per cent, it has emerged as one of the
most appealing investment areas for domestic as well as foreign investors. However, the
growth also depends on the policies adopted by the government to facilitate investments
mainly in the economic and industrial sector. The new stand adopted by Indian
government regarding foreign direct investment (FDI) policies has encouraged an
increasing number of countries to invest in Indian Properties. India has displaced US as
the second-most favoured destination for FDI in the world. As the investment scenario in
India changes, India which has attracted more than three times foreign investment at US$
7.96 billion during the first half of 2005-06 fiscal, as against US$ 2.38 billion during the
corresponding period of 2004-05, making India amongst the "dominant host countries" for
FDI in Asia and the Pacific.The positive outlook of Indian government is the key factor
behind the sudden rise of the Indian Real Estate sector. The second largest employing
sector in India (including construction and facilities management), real estate is linked to
about 250 ancillary industries like cement, brick and steel through backward and forward
linkages. Consequently, a unit increase in expenditure in this sector has a multiplier effect
and the capacity to generate income as high as five times. This budding sector is today
witnessing development in all area such as residential, retail and commercial in metros of
India such as Mumbai, Delhi & NCR, Kolkata and Chennai.

Unprecedented Expansion
Rising income levels of a growing middle class along with increase in nuclear families, low
interest rates, modern attitudes to home ownership (the average age of a new homeowner
in 2006 was 32 years compared with 45 years a decade ago) and a change of attitude
amongst the young working population from that of 'save and buy' to 'buy and repay' have
all combined to boost housing demand. According to 'Housing Skyline of India 2007-08', a
study by research firm, Indicus Analytics, there will be demand for over 24.3 million new
dwellings for self-living in urban India alone by 2015. Consequently, this segment is likely
to throw huge investment opportunities. In fact, an estimated US$ billion investment will
be required over the next five years in urban housing, says a report by Merrill Lynch.
Simultaneously, the rapid growth of the Indian economy has had a cascading effect on
demand for commercial property to help meet the needs of business, such as modern
offices, warehouses, hotels and retail shopping centres. Growth in commercial office space
requirement is led by the burgeoning outsourcing and information technology (IT) industry
and organized retail. For example, IT and ITES alone are estimated to require 150 million
Sq.ft. across urban India by 2010. Similarly, the organized retail industry is likely to require
an additional 220 million Sq.ft by 2010. With the economy surging ahead, the demand for
all segments of the real estate sector is likely to continue to grow. The Indian real estate
industry is likely to grow from US$ 12 billion in 2005 to US$ 90 billion in by 2015. Given the
boom in residential housing, IT, ITeS, organized retail and hospitality industries, this
industry is likely to see increased investment activity.

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Investment Avenue: Real estate.

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Key trends in indian real estate sector


With growing economy and changing buyer expectations, real estate developers are
constantly being innovative with their business plans. Buyers in different cities have
reacted to the changes differently and the developers have had to adapt accordingly.
Pricing trends
According to the National Housing Bank (NHB), in the quarter ending June 2014, property
prices of residential units in Pune and Coimbatore registered growth of 3.9% and 3.5%,
respectively, over the previous quarter, representing the highest increase among all the 26
cities covered under the NHB Residex. At 0.5%, Bhubaneshwar registered the lowest
growth in property prices.
A comparative of the three main markets is as under:
% change - Major metropolitan cities

MUMBAI

BENGLURU

1.7%

DELHI

0.9%

-3.0%

Major increase in these 8 cities show positive growth quarter on quarter are as follows:
% INCREASE.
4
3
2
1
0

pune

mumbai ahemdabad patna

chennai

kochi

jaipur

bengluru

Major real estate destinations of the country and some other emerging towns can be
classified into three broad categories depending upon the stage of real estate
development that each one of them is undergoing.

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Investment Avenue: Real estate.

Tier I Cities : Bangalore, Mumbai and NCR Characteristics: Fairly well


established real estate market. Demand drivers quite pronounced.
Tier II Cities : Hyderabad, Chennai, Pune and Kolkata Characteristics:
Growing real estate markets. Experiencing heightened demand and
investments.
Tier III Cities : Chandigarh, Ludhiana, Lucknow, Guwahati, Bhubaneswar,
Jaipur, Ahmedabad, Surat, Nagpur, Indore, Goa, Visakapatinam, Mysore,
Coimbatore, Kochi, Vijayawada, Mangalore, Trivandrum and Baroda
Characteristics: Real estate markets yet to establish. Perceived to have
substantial potential demand.
As the Indian real estate sector moves higher on the growth curve, a number of state
capitals and smaller cities which have relatively better infrastructure and are able to
support higher economic growth have come into limelight. These emerging growth centers
are characterized by low real estate costs, availability of land for development, untapped
manpower pool and rising quality of life. Many of these towns have industrial and tourism
driven economic base that can be leveraged for growth. Anticipating the latent demand in
these markets, a number of real estate developers and retailers have chalked out
expansive plans to harness the opportunity.City-wise housing price index major
metropolitan regions

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Investment Avenue: Real estate.

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City-wise housing price index Tier I cities

!
City-wise housing price index Tier II cities

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Investment Avenue: Real estate.

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City-wise housing price index Tier III cities


!

Investors expect to see significant uptick in real estate demand towards January to March
quarter of 2017, as a result of significant steps taken by the government towards
employment generation. NCR currently presents best investment opportunities, with most
of the currently available projects closer to the replacement cost, something which we
haven't seen over last two decades. Bangalore, Chennai and Pune continue to be top end
user driven markets propelled by significant job creation and infrastructure development.
Hyderabad is a market to watch out for over the next three years with possibility of annual
returns of over 30% to 40% across all locations.

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Investment Avenue: Real estate.

Foreign Players
With the significant investment opportunities emerging in this industry, a
large number of international real estate players have entered the country. Currently,
foreign direct investment (FDI) inflows into the sector are estimated to be between US$ 5
billion and US$ 5.50 billion.
Jones Lang LaSalle (JLL), the world's leading integrated global real
estate services and money management firm, plans to invest around
US$ 1 billion in the country's burgeoning property market.
Dubai-based DAMAC Properties would invest up to US$ 4.5 billion to
develop properties in India.
Merrill Lynch & Co bought 49 per cent equity in seven mid-income
housing projects of India's largest real estate developer DLF in
Chennai, Bangalore, Kochi and Indore for US$ 375.98 million.
UAE-based real estate company Rakeen and Chennai-based mineral
firm Trimex Group have formed joint venture company - Rakindo
Developers - which would invest over US$ 5 billion over the next five
years.
Dubai-based Nakheel and Hines of the US have tied up with DLF to
develop properties in India. DLF has also formed a joint venture with
Limitless Holding, a part of Dubai World, to develop a US$ 15.23 billion
township project in Karnataka.
Gulf Finance House (GFH) has decided to invest over US$ 2 billion in a
Greenfield site close to Navi Mumbai. Global real estate majors such as Dubai World,
Trump Organization of US, Smart City of Dubai, Kishimoto Gordon Dalaya, Khuyool
Investments, Bonyan Holding, Plus Properties, ABG Group and Al Fara's Properties
among others have all firmed up their plans for the Indian real estate market with an
investment of around US$ 20-25 billion in the next 12-18 months.

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Investment Avenue: Real estate.

Entry of Realty Funds


The boom in the real estate industry has attracted a large number of realty funds to tap
into this market. According to Cushman & Wakefield, foreign investors have raised nearly
US$ 30 billion since March 2005 for investing in Indian real estate.
Prominent global players like Carlyle, Blackstone, Morgan Stanley, Trikona, Warbus
Pincus, HSBC Financial Services, Americorp Ventures, Barclays and Citigroup among
others have all already checked into the Indian realty market.
In fact, real estate has been instrumental in India emerging as the top destination in Asia
(excluding Japan) in attracting private equity investments during the first ten months of this
year. Real estate accounted for 26 per cent of total value of private equity investments,
with 32 deals valued at US$ 2.6 billion. And according to industry estimates, another US$
10-20 billion would pour into the sector in the next three years.

Private equity in Indian real estate


There have been 150 overseas private equity funds who have lined up their chests to
invest in Indian real estate sector, report agency sources.
According to independent estimates, a total of USD 10 billion has already been raised
through this route and is expected to be invested in the next two years. On an average,
each of these funds has a minimum corpus of at least USD 150 million running up to a
billion Dollars, said property consultants.
Indian and multinational institutions such as J P Morgan, Falcon, 3i,
Blackstone, Carlyle, Kotak Real Estate, IL&FS, ICICI, and HDFC besides a host of others
are storming into this sector.
Private investors are starting to play an important role in the Indian real
estate investment market. At the end of 2005, the total Indian private equity volume was
roughly USD 1.6 billion, accounting for 40 per cent of the Indian real estate capital market.
This market is rapidly growing. In 2005, private property companies and individuals
holdings of real estate grew by 40 per cent year-on-year and are growing at double-digit
rates.
During the April-June 2006 quarter the PE firms launched funds targeting
over USD 8.7 billion for investing in India. A majority, over USD 5 billion, of the new fund
raising activity was aimed at real estate investments, said official of Venture Intelligence.
The funds are talking about their plans but real estate companies such as Mantri
Developers, GCorp, IDEB, and Sobha Developers who have received funds are upbeat on
these investments. Detailing a few recent investments and funds, an
industry analyst highlighted that Morgan Stanley invested Rs 3 billion in Mantri Developers
in Bangalore, Merrill Lynch invested around Rs 2.5 billion in Panchsheel Developers while
Siachen Capital, a New-York based fund reportedly invested close to Rs 5 billion in Nitesh
Estates. Tishman Speyer Properties has formed a joint venture with ICICI Ventures and
plans to invest about USD 1 billion in India within the next five years, the analyst
highlighted.
In 2005 nearly USD 850 million additional capital was invested into Indian real estate
sector. Strong growth in private equity was driven by unlisted property funds and
companies, which added around USD 82 million to the market, as well as by private
individuals. However, even more significant growth came from private debt (i.e. bank

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Investment Avenue: Real estate.

Going Local
Indian real estate market permeates to smaller towns and cities. According to leading
global property consultancy firm Knight Frank, the real estate action is no longer limited to
the large metropolises of India but has now permeated to the burgeoning smaller towns
and cities. According to Knight Frank Research, the upswing of the Indian real estate
sector has been an outcome of a number of positive micro and macro factors. Consistent
and sustaining GDP growth, expanding service sector,rising purchasing power and
affluence, proactive and changing government policies have all lent momentum to this
rapidly growing sector. Accounting for almost 80% of the total office space absorption, the
Indian IT/ITES sector has been the primary demand driver. India's low cost-high
quality and productivity model has given it a leadership position in the
outsourcing arena. In a bid to scale up their operations and to remain
globally competitive, the Indian IT/ITES companies are exploring the smaller
towns and cities. Rising manpower and real estate costs, plaguing attrition
levels and very often risk mitigation have been the key reasons for this
movement.
Positive economic growth has also translated in rising disposable incomes
and growing aspiration levels across India. Rising consumerism has created a
demand for new retailing and entertainment avenues. Realizing that
consumers across cities have similar needs, albeit the scale may vary, new
age retailers are vying to cash in on the first mover advantage and are
expanding into hitherto unexplored smaller cities. Advent of organized
retailing has also translated into real estate growth in these emerging
locations.
Growth of the Indian 'Rich' (annual income>USD 4,700) and 'Consuming'
(annual income USD 1,000-4,700) class coupled with falling interest rates
and other fiscal incentives on home loans has increased the affordability and
the risk appetite of the average Indian consumer thereby leading to a
substantial rise in demand for housing. This has been further fueled by the
increase in the size of 25-55 age group of earning population and the
emergence of double income, nuclear families. Over the last decade the
average age of Indian home loan borrower has reduced by 10 years.
Another variable facilitating real estate growth in India is the growing
urbanization. According to United Nations Population Division, the urban
population in India will continue to grow at a rate of 2.5% per annum for the
next two and a half decade. As per the Census of India 2001, 41% of the
total population of India will be living in urban areas by 2011. The number of
cities with a population of one million or more is also is expected to double
from 35 recorded in 2001 to 70 by 2005. This increase in population will
generate incremental demand for housing and other real estate components.
All these factors together with increased liquidity in the real estate sector
through the international real estate funds and private equity funds will

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Investment Avenue: Real estate.

result in radically transforming the real estate landscape over the next 3-5
years.
However, to support this growth and to make it more expansive, a lot needs
to be done. Foremost is the thrust on infrastructure. According to a World
Bank estimate, India needs to invest an additional 3-4% of its GDP on
infrastructure to sustain its current levels of growth and to spread the
benefits of growth more widely. Some positive steps have already been
taken in this direction. Huge investments in infrastructure to the tune of
$350 billion have been envisaged over the next five years. Connectivity may
get a boost with the completion of ~13,000 kms of roads under the Golden
Quadrilateral, North-South-East-West (NSEW) corridor and with 4-laning of all
the major national highways. This will further facilitate the economic
development of smaller towns and cities in the country.
Characteristics: Real estate markets yet to establish. Perceived to have
substantial potential demand. As the Indian real estate sector moves higher on the growth
curve, a number of state capitals and smaller cities which have relatively better
infrastructure and are able to support higher economic growth have come into limelight.
These emerging growth centers are characterized by low real estate costs,
availability of land for development, untapped manpower pool and rising
quality of life. Many of these towns have industrial and tourism driven
economic base that can be leveraged for growth. Anticipating the latent
demand in these markets, a number of real estate developers and retailers
have chalked out expansive plans to harness the opportunity.

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Investment Avenue: Real estate.

Going Global
Simultaneously, many Indian realtors are making a name for themselves in
the international market through significant investments in foreign markets.
Prudential Real Estate Investors has acquired Round Hill Capital
Partners Kabushiki Kaisha, a Japanese asset management firm.
Embassy Group has inked a deal with the Serbian government to
construct a US$ 600 million IT park in Serbia.
Parsvnath Developers has tied up with the Al-Hasan Group in Oman.
Puravankara Group is doing a project in Sri Lanka - a high-end
residential complex, comprising 100 villas.
The Hiranandanis are constructing 5000 5-star hotel rooms, which will
come up between Abu Dhabi and Dubai.
Ansals API tied up with Malaysia's UEM Group to form a joint venture
company, Ansal API-UEM Contracts Pvt Ltd, which plans to bid for
government projects in Malaysia.
Kolkata's South City Projects is working on two projects in Dubai

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Investment Avenue: Real estate.

Government Initiatives
POLICY INITIATIVES
Under the Sardar Patel Urban Housing Mission, 30 million houses will be built by 2022,
mostly for the economically weaker sections and low-income groups, through publicprivate- partnership, interest subsidy and increased flow of resources to housing sector.
The Government of India along with the governments of the respective states have taken
several initiatives to encourage the development in the sector. Some of them are as
follows:
The Securities and Exchange Board of India (SEBI) has notified final regulations that will
govern real estate investment trusts (REITs) and infrastructure investment trusts (InvITs).
This move will enable easier access to funds for cash-strapped developers and create a
new investment avenue for institutions and high net worth individuals, and eventually
ordinary investors.
The State Government of Kerala has decided to make the process of securing permits
from local bodies for construction of houses smoother, as it plans to make the process
online with the launch of a software called 'Sanketham'. This will ensure a more
standardised procedure, more transparency, and less corruption and bribery. The
Government of India has proposed to release the Real Estate (Development and
Regulation) Bill which aims to protect consumer interest and introduce standardisation in
business practices and transactions in the sector. The bill will also enable domestic and
foreign investment flow into the sector.
As the Indian economy grows, the real estate sector keeps benefiting. With the increase in
foreign tourist arrivals (FTA) every year, there is demand for real estate in the tourism and
hospitality sector. Also, with the entry of major private players in the education sector, the
major cities, that is Hyderabad, Bengaluru, Mumbai, Delhi, Pune, Chennai and Kolkata are
likely to account for 70 per cent of total demand for real estate in the education sector.
Demand for improved healthcare facilities is also expected to provide a boost to the
construction sector in the country.

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Investment Avenue: Real estate.

Investments
The Indian real estate sector has witnessed high growth in recent times with the rise in
demand for office as well as residential spaces. Some of the major investments in this
sector are as follows:
Assotech Realty has tied up with Lemon Tree Hotels to manage and operate its serviced
residences. The first project, 210 apartments under the branding of Sandal Suites, will be
launched in Noida in 2015. The companies will launch 8-10 similar projects in a phased
manner over the next seven years with an investment of Rs 8000-9000 million (US$ 129145 million) approximately.
Blackstone Group LP is all set to become the largest owner of commercial office real
estate in India after a three-year acquisition drive in which it spent US$ 900 million to buy
prime assets. Blackstone has acquired 29 million sq ft of office space in cities such as
Bengaluru, Pune, Mumbai, and Noida on the outskirts of New Delhi.
L&T Infra Finance Private Equity (PE) plans to raise Rs 37,500 million (US$ 607 million) in
an overseas and a domestic fund, and launch a real estate fund.
IDFC Alternatives Ltd has sold two of its real estate investments to PE firm Blackstone
Group LP. The assets - a special economic zone (SEZ) in Pune and an information
technology (IT) park in Noida - were sold for a combined enterprise value of Rs 11,000
million (US$ 178 million).
Goldman Sachs plans to invest Rs 12,000 million (US$ 194 million) to build a new campus
in Bengaluru that can accommodate 9,000 people. The new campus is being developed in
collaboration with Kalyani Developers on the Sarjapur Outer Ring Road, Bengaluru.
Snapdeal has entered into a strategic partnership with Tata Value Homes to sell the latter's
apartments on its e-commerce platform, which marks the first time that an e- commerce
company has tied up with a real estate venture.

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Investment Avenue: Real estate.

Factors driving the growth in the Real Estate Sector


One has to understand why the Indian real estate sector has presented itself as an asset
class for international and institutional investors. All the factors driving growth and
investment in this sector are driven by three key fundamentals.
Strong Economic Growth:
The worlds fourth largest economy,
growing at over 8% the last two years and forecast to grow at over 7%
over the next five; Growth measures supported across the political
spectrum; a boom in the services sector with a strong revival of
industry; powerful internal consumption and demand.
The Rise of the Middle-Class:
300 million and growing with
higher disposable incomes and even higher aspirations; educated,
professional workforce driving urbanization beyond the traditional
metro cities.
Enviable Demographics:
The worlds second most populous nation of 1.09 billion with 75% below the age of 50!
These fundamentals in turn have created a huge demand supply gap in all sectors of the
real estate market - commercial, residential, retail, healthcare, hospitality to name a few.

Drivers of profitability
Knowledge of the business
Though the principles of doing business are simple, over the many
years of unregulated development, dealing in real estate in India has
its own peculiarities, often at a local level and particularly in the area
of transparency and legal documentation, and a thorough knowledge
of these remains vital.
A wide network
There are developers and there are developers, and in a boom market
everybody has got into the act. It is important to quickly sift the wheat
from the chaff when forming JVs and SPVs for specific projects.
The longer-term approach
Real value to investors will accrue only on the sale of the end product
in terms of its multiplier effect. Also longer-term investments are more
likely to weather the hiccups of short term breaking news. Regulatory
efforts to keep out hedge funds and such short term profiteers will go
a long way in ensuring that this practice is sustained.
Focus on quality
This, more than anything, will derive the best value for investors, not
just in monetary terms but also lasting goodwill. This entails not just
the final product but also the totality of the environment where the
development is located. Governments efforts to ensure that
resettlement and social development of the displaced form part and
parcel of all large projects is the most encouraging news of all.
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Investment Avenue: Real estate.

Why Invest In Indian Real Estate?


Flying high on the wings of booming real estate, property in India has
become a dream for every potential investor looking forward to dig profits.
All are eyeing Indian property market for a wide variety of reasons:
Its ever growing economy which is on a continuous rise with 8.1
percent increase witnessed in the last financial year. The boom in
economy increases purchasing power of its people and creates
demand for real estate sector.
India is going to produce an estimated 2 million new graduates from
various Indian universities during this year, creating demand for 100
million square feet of office and industrial space.
Presence of a large number of Fortune 500 and other reputed
companies will attract more companies to initiate their operational
bases in India thus creating more demand for corporate space.
Real estate investments in India
yield huge dividends. 70 percent of
foreign investors in India are making profits and another 12 percent
are breaking even.
Apart from IT, ITES and Business Process Outsourcing (BPO) India has
shown its expertise in sectors like auto-components, chemicals,
apparels, pharmaceuticals and jewellery where it can match the best in
the world. These positive attributes of India is definitely going to
attract more foreign investors in the near future. The relaxed FDI rules implemented by
India last year has invited more foreign investors and real estate in India is seemingly the
most lucrative ground at present. The revised investor friendly policies allowed foreigners
to own property, and dropped the minimum size for housing estates built with foreign
capital to 25 acres (10 hectares) from 100 acres (40 hectares). With
this sudden change in investment policies, the overseas firms can now put up commercial
buildings as long as the projects surpass 50,000 square meters (538,200 square feet) of
floor space.
Indian real estate sector is on boom and this is the right time to invest in
property in India to reap the highest rewards

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Investment Avenue: Real estate.

Investment Opportunities
The real estate industry in India is yet in a promising stage. The sector happens to
be the second largest employer after agriculture and is expected to grow at the rate
of 30 per cent over the next decade. A growing migrant population due to
increasing job opportunities, together with healthy infrastructure development, is
underpinning demand in the regions residential real estate market.
It is believed that the Finance Ministry's motivation through softening of interest
rates and lending more to the real estate sector will have a positive impact on both
developers and consumers. The real estate market could start to perform better as
the easing of FDI norms will begin to show results during the second half of the
year. The economy will also recover in 2013 which in turn will perk up the real
estate sector in India. With the government trying to introduce developer and buyer
friendly policies, the outlook for real estate in 2013 does look promising.
Real estate contributed about 6.3 per cent to India's gross domestic product (GDP)
in 2013. The market size of the sector is expected to increase at a compound
annual growth rate (CAGR) of 11.2 per cent during FY 2008-2020 to touch US$ 180
billion by 2020.
The Government of India has allocated US$ 1.3B for Rural Housing Fund in the
Union Budget 2014-15. It also allocated US$ 0.7 billion for National Housing Bank
to increase the flow of cheaper credit for affordable housing for urban poor. The
government has allowed FDI of up to 100 per cent in development projects.

The entry of major private players in the education sector has created vast
opportunities for the real estate sector. Emergence of nuclear families and growing
urbanisation has given rise to several townships that are developed to take care of
the elderly. A number of senior citizen housing projects have been planned, and the
segment is expected to grow significantly in future. Growth in the number of tourists
has resulted in demand for service apartments. This demand is likely to be on the
uptrend and presents opportunities for the unorganised sector.

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Niche sectors expected to provide growth opportunities:


Healthcare:
The healthcare sector is estimated to grow at the rate of 15 per cent per annum from
2011-16
India is expected to need additional 920,000 beds, entailing an investment between
USD32 billion and USD50 billion over the period 2010-20
Senior citizen housing:
Emergence of nuclear families and growing urbanisation has given rise to several
townships that are developed to take care of the elderly
A number of senior citizen housing projects have been planned; the segment is expected
to grow significantly in future.

Service apartments:
Growth in the number of tourists has resulted in demand for service apartments
This demand is likely to be on uptrend and presents opportunities for the unorganised
sector

Tourism market set for a surge; hotels to increase capacity

Foreign tourist arrivals in India are expected to rise at a CAGR of 10.5 per cent
during 2012-15

The number of foreign tourists arriving in the country is expected to be over 8.9
million by 2015

The number of hotel rooms in India as of 2011 stood at 121,000

The number of hotel beds in the country is expected to increase to 443,000 by 2015
from the current capacity of 262,000.

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Number of Foreign tourist arriving in India

9
6.75
4.5
2.25
0

2012

2013

2014

2015

Capacity of the hotels in India


500
375
250
125
0

2009

2010

2011

2012

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2014

2015

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Investment Avenue: Real estate.

The Other Side of the Coin


The Indian real estate market is still in its infancy, largely unorganized and dominated by
large number of small players, with very few corporate or large players having national
presence. The Indian real estate market, as compared to the other more developed Asian
and Western markets is characterized by smaller size, lower availability of good quality
space and higher prices. Supply of urban land is largely controlled by state-owned
development bodies like the Delhi Development Authority (DDA) and Housing Boards
leaving very limited developed space free, which is controlled by a few major players in
each city. Restrictive legislations and lack of transparency in transactions are other main
impediments to the growth of this sector. Limited investment from organized sector has
also hindered the growth of this sector. There is a thriving parallel economy in real estate,
involving large amounts of undeclared transactions, mainly due to high stamp duty rates.
The current legislative framework also leads to substantial losses to the Government.

Issues plaguing the real estate sector


Legislative Issues
Much of the over 100 laws governing various aspects of real estate date
back to the 19th century. Despite the plethora of laws, the situation appears to be far from
satisfactory and major amendments to existing laws are required to make them relevant to
modern day requirements. The Central laws governing real estate include:
Urban Land (Ceiling and Regulation) Act (ULCRA), 1976
This legislation fixed a ceiling on the vacant urban land that a person in
urban agglomerations can acquire and hold. A person is defined to include an individual, a
family, a firm, a company, or an association or body of individuals, whether incorporated or
not. This ceiling limit ranges from 500-2,000 square meters (sq. m). Excess vacant land is
either to be surrendered to the Competent Authority appointed under the Act for a small
compensation, or to be developed by its holder only for specified purposes. The Act
provides for appropriate documents to show that the provisions of this Act are not attracted
or should be produced to the Registering officer before registering instruments
compulsorily registrable under the Registration Act. The objective of acquiring the excess
vacant land could not be achieved because of intrinsic deficiencies in the legislation itself.
The provisions under Sections 19, 20 and 21 of the Act have together proved counterproductive to the objectives of the legislation. So far, only 19,020 hectares could be taken
possession of by State Governments and Union Territories and the remaining land was
locked up in various litigations.
Land Acquisition Act, 1894
This Act authorizes governments to acquire land for public purposes such as planned
development, provisions for town or rural planning, provision for residential purpose to the
poor or landless and for carrying out any education, housing or health scheme of the
Government.
In its present form, the Act hinders speedy acquisition of land at reasonable prices,
resulting in cost overruns.

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Investment Avenue: Real estate.

Rent Control Act


Rent legislation in India has been in existence for a very long time. Rent
control by the government initially came as a temporary measure to protect the exploitation
of tenants by landlords after the Second World War. However these rent control acts
became almost a permanent feature. Rent legislation provides payment of fair rent to
landlords and protection of tenants against eviction. Besides, it effectively allows the
tenant to alienate rented property. Tenants occupying properties since 1947 continue to
pay rents fixed then, regardless of inflation and the realty boom.
Some of the adverse impacts of the Rent Control Act are:
Negative effect on investment in housing for rental purposes.
Withdrawal of existing housing stock from the rental market.
Accelerated deterioration of the physical condition of the
housing stock.
Stagnation of municipal property tax revenue, as it is based on
the rent.
Resultant deterioration in the provision of civic services.
Increase in litigation between landlords and tenants.
The Rent Control Act, in fact, is the single most important reason for the
proliferation of slums in India by creating a serious shortage of affordable housing for the
low income families. Low and middle-income families typically live in rented
accommodation all over the world and the need for such accommodation in our cities will
only increase as the economy modernizes, labour mobility increases and urbanization
takes place. It is, therefore, necessary to increase the stock of rental housing. Promotion
of rental housing can have a significant impact on the economy in many ways:
It reduces shortage of housing for a large section of the population who
cannot afford ownership.
Housing construction being a labour-intensive activity, investment in
housing generates employment for both skilled and unskilled labour.
Housing has backward and forward linkages with many other industries.
Other risk associated:
Liquidity risk:
The investment market is still in its infant stage. Investors face serious
challenges in finding appropriate investment product.
Regulatory risks:
In terms of property ownership, permission from the Reserve Bank of
India is required for foreign investors. For capital repatriation, investors
need to apply for approval from the RBI, and foreign direct investment
is limited to a limited set of opportunities (e.g. townships).

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Investment Avenue: Real estate.

Property market transparency risk:


Jones Lang LaSalle rates the Indian property market transparency as
low in its international transparency survey from 2004. Although
market transparency has obviously improved, it is still hard to get
reliable and consistent information on the Indian property market.
There are also more professional due diligence and valuation
institutions needed. This holds even for the Tier I cities.
Overall market transparency risk:
Transparency International ranks India 88 out of 150 countries with
regard to the perceived corruption level.
Macroeconomic risks:
Interest rates, inflation and exchange rate risks remain important,
although volatility in these indicators has decreased significantly in
recent years. The provision of public goods is in many regions still
inadequate (education, transport infrastructure).

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Investment Avenue: Real estate.

The Big Question.


Is the Real Estate Market a bubble waiting to burst???
Investing in real estate in India is becoming more expensive with each
passing day. A study conducted by Donald Trump Jr. shows that the Indian real estate
market is worth US $12 billion, with an average annual growth rate of 30%. Property prices
have appreciated by over 50% in cities like Bangalore, Pune, and Mumbai.
Why has real property become out of reach in India?
The Indian economy, especially the information technology and BPO
sectors, has been on a fast growth track. These industries offer high
paying jobs. Also, people are more aware of the luxurious lifestyle of
the West. With money in their hands, IT and call centre employees
can afford to buy these luxuries in India. All put together, this has
led to rise in property prices!
Real returns in real estate caught the NRIs attention! The inflow of
NRI funds in Indias real estate has also contributed to the price
hype. There is also a rise in the trend of NRIs returning to India for
good. This has put pressure on Indias real estate.
Indias commercial and retail real estate has also been on a rise.
There has been a mushrooming of shopping malls and
entertainment centres throughout the country. Multi-national
companies are also entering the Indian market regularly. Naturally,
there is an increase in demand for office space.
As the real estate investments gave high returns to investors,
foreign investors have also started taking interest in Indias real
estate. For example, Morgan Stanley invested US$ 68 million in
Mantri developers and Merrill Lynch has invested US$ 50 million in
Panchsheel Developers. Foreign companies like GE Commercial
Finance Real Estate has invested US$ 63 million in IT parks in India.
According to the Merrill Lynch forecast, the real estate business in
India will grow to $US 90 billion by 2015.
In a highly opinionated society where everybody has an opinion on
everything, it is generally the growth story that is targeted. No wonder, in the Indian context
today, the largest economic activity post agriculture, Real Estate seems to be under the
scanner of every prophet of doomsday. It is made to believe that a bubble is waiting to be
burst. In the absence of any sound logic, the critics have now got the Fitch Ratings'
outlook for the Indian real estate which suggests a price correction this year. The report
suggests property prices are likely to undergo a correction in 2008; partly as home buyers,
deterred by increasing property prices and high interest rates over
the last three years, may wait for the prices to moderate.
Therefore, debate rages today about whether or not a housing bubble exists in the country
in general and the NCR in particular.
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Investment Avenue: Real estate.

The fact that there is even any controversy about the bubble's existence testifies to the
power of the forces of misinformation. This also proves that the long habit of wishful
thinking among the millions of victims of the so-called New Economy has yet to start to
dissipate. What the critics fail to see here is that even Fitch notes that price corrections
may not follow a uniform pattern geographically. I would like to add here that with the kind
of retail growth that is forecasted, it won't affect the commercial real estate, too.
There may be a price correction in the residential real estate, but it won't be a bubble burst
by any stretch of imagination. Growth in the country over the last three years has been
supported by sound economic fundamentals, with increased demand on the one hand and
increasing supply supported by equity raising on the other. Real estate
Companies here have produced strong topline growth in 2007, and even Fitch expects
revenue growth to continue in 2008, as Companies would continue to launch several new
projects. Moreover, real estate Companies have expanded to cities in a big way
outside their principal area of operation, and we all expect this geographical diversification
to continue through 2008. We live in a consumption Economy that is financed by debt,
which in turn largely rests upon our home foundations. Thus if there was a real shift
downward in housing demand, it would have a dramatic impact across the entire
Economy. This goes true for any Economy, and India is no exception.

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33

Regulatory Developments
The year 2014 witnessed a change of guard at the Centre, which not only propelled the
positive sentiments of the market but also, as widely expected, led to the introduction of
several reforms. These, including the announcement of REITs, relaxation in the FDI norms
and affordable housing getting higher priority under the Land Acquisition Act, 2015 are
expected to give an impetus to the sector and offer players an opportunity to rewrite the
growth story.
The REIT Regime in India
On 26 September 2014, the SEBI notified the REITs regulations, thereby paving the way
for introduction of an internationally acclaimed investment structure in India. The Finance
Minister has also made necessary amendments to the Indian taxation regime to provide
the tax pass through status, which is one of the key requirements for feasibility of REITs.
The India REIT regime is aimed at providing:
an organised market for retail investors to invest and be part of the
growth story

Indian real estate

a professionally managed ecosystem that is risk averse and is aimed at protecting the
interest of public
an exit platform for the real estate sector to ease out liquidity burden REITs provide tax
transparency. This means that the REIT does not pay any corporate tax in exchange for
paying out strong, consistent dividends. Rather, taxes are paid by the individual
shareholder only.
Further, considering that the listed REITs will be registered and regulated by the SEBI and
adhere to the highest standards of corporate governance, financial reporting and
information disclosure, the REITs will provide operational transparency.

REITs assets/ investments:


All assets to be situated in India
REIT assets to include:
- land and any permanently attached improvements to it (whether leasehold or
freehold) including buildings, sheds, garages, fences, fittings, fixtures, warehouses,
car parks, etc.
- Transferable Development Rights (TDRs
Assets not forming part of REITs
- hospitals ,hotels, with project cost of more than Rs 200 crore each in any place in
India and of any star rating. 3-star or higher category classified hotels located
outside cities with population of more than 1 million
-common infrastructure for industrial parks, Special Economic Zones (SEZs),
tourism facilities and agriculture markets
- convention centres, with project cost of more than Rs 300 crore
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34

- agricultural land or vacant land


- units of another REIT
mortgages not eligible to be REIT assets
at least 80% of value of the REIT assets to be invested incompleted and rent generating
properties. Specific conditions prescribed for investing the balance funds in other assets
REIT shall invest in at least two projects, and investment in one project should not
exceed 60% of the value of assets owned by REIT
REIT assets could be held directly by the REIT or via Special Purpose Vehicles (SPVs)
REIT to hold not less than 50% equity and controlling interest in SPVs
SPV to hold 80% equity in REIT assets
Tax regime:
Specific taxation regime has been in- troduced to deal with income earned via REITs. This
is summarised as follows:
Interest from the SPV will be exempt in the hand of the REIT but will be taxable as
income of the unit holders/ sponsor
Dividend will be exempt income for everyone
Capital gains earned by REITs on sale of share of SPV will be taxable
in the hands of the REIT at applicable rates but will be exempt in the hands of the unit
holders/ sponsor
Long-term capital gains earned by unit holders on sale of REIT units will be exempt
whereas short-term capital gains will be taxable @ 15%
Long-term capital gains earned by sponsor on sale of REIT units will be taxable @ 20%
whereas short- term capital gains will be taxable @ 30%
The REIT will be taxed for other income at the maximum marginal rate whereas the same
will be exempt for the unit holders/ sponsor
For the sponsor, transfer of shares of SPV to a REIT in exchange of units is not
considered a transfer. The tax payable is deferred to the date when the sponsor sells the
units of REIT

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Investment Avenue: Real estate.

The Right to Fair Compensation and Transparency in Land Acquisition,


Rehabilitation and Resettlement Act, 2013
This legislation was introduced by the erstwhile UPA-II government and came into effect
from 1 January 2014, replacing the archaic Land Acquisition Act, 1894. This Act combines
both land acquisition, and rehabilitation and resettlement for the loss of land and
livelihoods of those even marginally affected by land acquisition. It focuses on increasing
transparency and involves prior consultation with local landowners and the local
Panchayati Raj institutions.
However, the current government brought in an ordinance to bring about significant
changes in the Act such as removing consent clause to acquire land for five different types
of projects - industrial corridors, PPP projects, rural infrastructure, affordable housing and
defence.

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Investment Avenue: Real estate.

Case Study
This case study is about India's largest real estate company DLF Limited's (DLF) struggle
in the stressed market conditions due to the global financial crises which started in the
year 2007. The company which created India's biggest IPO in history, raising more than
US$ 2 billion, was counting on the continued growth of realty sector in the country.
However, the depressed economic situation coupled with credit crunch led to a significant
decline in the demand and property prices. While the company had ambitions plans to
launch several properties ranging from Special Economic Zones (SEZs), large townships,
hotels, and convocation centers, the market conditions took its toll on the business. These
factors disturbed the cash flow cycle of DLF, making it difficult for it to repay its debt on
time. The debt to equity ratio of the company increased to all time of high of 0.7 in June,
2010, with inadequate debt paying capacity.
In light of these factors, DLF had to exit from many of its projects either before, or even in
middle of starting the operations. The company devised several strategies overcome the
prevailing situation. By the mid-2010, DLF had a much leaner business structure, but it still
facing various challenges in bringing its business back into shape.
Issues:
Understand the real estate sector in India and issues and challenges faced by the
market leader in this sector. Which gives a clear view on investment in this sector as well.
Understand the impact of global financial crises on business dynamics.
To analyze how macro and micro economic factors influences the success of an
organization.
Determine the internal competencies of business though SWOT analysis.
Examine the role of external factors influencing business thorough PESTEL analysis.
Appreciate the importance of healthy cash flow cycle for a business.
Determine the best product mix, thorough analysis of demand, revenue streams, and
profitability from different verticals of business.
Understand the criticality of decision making process in business, especially during
stressed market conditions.
Scrutinize the impact of increasing debts on planning, execution, and evaluation of
business strategy.
Understand the importance of tailoring business tactics and strategy to fit specific
industry and company situations.

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Investment Avenue: Real estate.

In Real Trouble?
As on June 12, 2010, DLF Limited (DLF), India's largest real estate company, had
accumulated an outstanding debt of more than US$3100million, marginally below the
record high of US$3635 million in the month of March 2009. The net profit of the company
also plunged by more than 60%, falling from US$993.25 million in financial year
2008-2009 to US$384.44 million in financial year 2009-2010. In addition to decreasing
profits, DLF was struggling with an enormous outstanding debt and a high debt to equity
ratio which stood at around 0.70 in the month of June 2010. To reduce its debt burden,
DLF was considering selling 97% of its stake in Aman Resorts, a hotel chain it had
acquired in November 2007 for about US$400 million, to Khazanah. If completed, this deal
was expected to release between US$300 million and US$350, helping DLF cut its heavy
debt pile. The company was also implementing many other strategies with an eye on
reducing its debt burden and managing its cash flow efficiently.
According to analysts, DLF had been doing well since liberalization and had witnessed
strong growth as a private company in the growing Indian economy. It went public in July
2007 with one of the biggest IPOs (Initial Public Offering) in India. DLF raised capital of
more than US$2 billion to further strengthen its growth. This made it the eighth most
valuable company in India and its promoters, KP Singh and his family, the fourth richest
Indians, just behind the two Ambani brothers and Lakshmi Mittal
It was expected that after this IPO, DLF would be able to grow much faster and change
growing Indian real estate sector, which was growing rapidly along with the Indian
economy. The funds raised from the IPO enabled DLF to reduce its prevailing debt and
acquire additional land to develop properties in the years to come. However, the global
financial crisis in 2008 created a grim situation, and hampered the anticipated growth of
DLF...
Problems Faced by DLF
Though DLF was able to book significant sales in the months before November 2009, the
sales started falling across segments from November 2009. In the housing segment, DLF
had launched some projects in the middle of the year in Kochi, Bangalore, and Gurgaon
which were witnessing marginal sales...
Credit Crunch & Increasing Debts
Analysts felt that under the duress of the prevailing market conditions, DLF was unable to
secure the required loans for implementing many of its projects. The overseas credit
markets had been shut since January 2008 giving DLF no access to FIIs...
The Struggle Continues
By the beginning of 2010, there was a slow revival in demand for both housing and
commercial properties within the country. This enabled DLF to increase the prices of some
of its residential properties by around 15%, which helped it to realize higher margins

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Emerging trends
Smart cities
The challenges and opportunities that come with rising urbanisation across the world have
given birth to the concept of smart cities. Globally, urbanisation is on the rise and India is
not far behind. Growth in urban population is creating excessive pressure on demands for
water, transportation, waste management and power. For a city to cope with these
challenges and deliver a high-quality of urban living, it has to be energy-efficient and have
an efficient and sustainable transport infrastructure. Such cities are known
as smart cities, and are managed and monitored by cutting-edge information and
communications technology.

What is special about a smart city?


A smart city functions with increased efficiency. Be it in terms of deploying high-quality
street lights, smart grids, energy-efficient buildings, a smart traffic management system, or
an efficient water management system.
It solves issues of traffic jams, wasted energy, dark corners or crimes, and has a quick
emergency response system in place.

Smart cities in India


In India, although the smart city concept is still new, there have been initiatives by the
government and private developers to build smart cities. The government plans to develop
100 smart cities over the next 20 years for which an initial allocation of Rs 7,060 crore was
provided for in the 2014-15 Union Budget. These cities will include the construction of
satellite towns near existing mega cities, upgrading existing mid-sized cities and
construction of settlements along industrial corridors in addition to the construction of a few
new cities altogether.
Though the idea of a smart city seems appealing, it is full of challenges considering the
issues faced by our cities due to rapid urbanisation. Key challenges that the concept of
smart cities in India face are:

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Poor governance structure


Smart projects invite huge investments, which cannot be driven by a single entity, and
therefore, there has to be an integrated model for funding when local and central
governments, banks and financial institutions as well as private investors along with
entities/ institutes with technical knowhow join hands. Given the current structure of Indian
urban local governments wherein they lack financial autonomy and ability to raise
resources, the reliance on fiscal transfers and dependence on the central government is
high. Research show that overlapping judicial set ups and fragmented institutional
responsibilities are major hindrances in smooth delivery of projects. Along with giving the
local bodies more autonomy and making them self-reliant, there is a strong need to ensure
that those in government are trained to deliver real-time responses to issues and
constantly evolve to meet the demands of the citizens.

Social structure
Urban India is a complex maze of population groups classified on the basis of religion,
caste, community, social status, occupations, origins, beliefs, etc. Each group has its own
way of living and beliefs, which at best, should not be attempted to be altered with. If that
was not all, most large cities have half or more of their population dwelling in slums. Smart
cities need to be able to cater to these diverse client groups whilst ensuring that their
privacy, security and lifestyle are not compromised. Further,all services and infrastructure
have to be affordable for all sections of the society. An all-inclusive growth is most desired
but is also the most challenging part of smart cities.
International and corporate interest
Several countries and corporates around the world have shown keen interest in helping
India achieve her smart cities dream. To name a few: Singapore has signed a
Memorandum of Understanding (MoU) with the state of Andhra Pradesh to provide
knowledge on smart city management. International Enterprise Singapore and the
Infrastructure Corporation of Andhra Pradesh signed a deal to train Andhra Pradesh
officials in urban planning and governance, supported by the Centre for Livable Cities and
the Singapore Cooperation Enterprise.
Spain has come forward to assist in developing New Delhi into a smart city. The MoU is
expected tobe signed shortly between the two countries.
Global networking giant, Cisco, will assist in developing Visakhapatnam as a smart city.
Cisco would focus on setting up a skill development centre and provide training through
Global Talent Tracker. The company is also keen on working with Andhra Pradesh in
digitising education and healthcare.
Germany has agreed to partner with India in developing three smart cities and a sixmember joint committee has been set up in this regard to evolve the way forward including
identification of those cities in three months.

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Japan intends to assist and develop Varanasi into a smart city by using the experience
of Kyoto, the smart city of Japan. A partner city MoU was signed between the two
countries in August last year.
France is keen on developing Smart Cities in Himachal Pradesh having adequate
infrastructure and facilities like proper water treatment, waste management, urban
transport and street lighting in the state.

Initiatives by the government


The Urban Development Ministry is in the process of rolling out a City Challenge in which
urban centers hoping to be selected for smart city projects will be evaluated on a range of
parameters including urban reforms, revenue collection, sanitation levels, capacity of
urban local bodies, and creditworthiness. Cities and towns will have to meet qualifying
norms on urban reforms and quality of governance before they are identified for the smart
cities projects.
Apart from the allocation of Rs 7,060 crore in the Union Budget of 2014-15 towards
development of 100 smart cities, the requirement of the built-up area and capital
conditions for FDI has being reduced from 50,000 square
metres to 20,000 square metres and from US$ 10 million to US$ 5 million, respectively,
with a three year post completion lock-in period. This will have dual advantage. This will
not only help small developers with good track record to access foreign funds but also
enable equity funds to look at a large range of developers to collaborate with.
Reality check
For this project to be successful, the government needs to ensure that the urban policies
are wide-ranging, inclusive, innovative and sustainable. With most of our existing cities
unplanned, unlike in western countries, a detailed study should be undertaken of the
existing cities to check the feasibility of converting them into smart cities. While it remains
to be seen how far India can go towards creating world-class smart cities, a start has been
made at Detroj
(a 1,200- hectare area near Ahmedabad) and Dholera (a region that is twice the size of
Mumbai). With inclusive policies, growth centric approach and a determined
administration, this grandiosely ambitious project is surely within our reach.

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Emerging trends
E-commerce and real estate
The e-commerce frenzy that has been taking India by storm over the last two years was at
its peak during 2014 and is expected to grow unabated.
The developers and various players in the market are exploring
unchartered avenues to reach out to potential customers. Taking
advantage of the Google Online Shopping Festival (GOSF), Tata Housing has launched
two projects, one each in Bengaluru and Mumbai. Through the online medium, Tata
Housing has sold over 700 units amounting to about Rs 400 crore, an average of one
house every two days. It has also entered into an exclusive arrangement for selling homes
on Snapdeal.com. The developers participating in the GOSF include Unitech, Raheja,
Puravankara, Mahindra Lifespaces, Godrej Properties and Brigade among others. Even
housing loan providers such as HDFC Home Loans, Tata Capital and others had various
offers going on during the GOSF. We also saw some e-commerce companies dealing in
real estate such as housing.com, commonfloor.com and indiahomes.com getting
significant funding to create infrastructure to support the sale/ renting of real estate units.
Currently, in India, the e-commerce business is not regulated and this poses a serious
threat to physical retailers and mall developers. However, with changing times, some of
the developers have changed their style of business to enable them to
sail through these difficult times. A revamped tenant mix, adoption of
the mixed-use format and delivering theme-based shopping experiences are some of the
methods adopted by the proactive developers. These practices are now common in
overseas markets, and Indian retail malls will be seen adapting to them more rapidly in
2015.

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News round-up: Key highlights for 2014


Economy
Though we are yet to see the turnaround in the economy, the new government brought
with itself a lot of belief and intent to reboot the economy and put it on a path of fast track
growth. Sentiments are positive and the year has ended on a much better note as
compared to how it had started.
Policies
1. Residential real estate
The slump continues, however, developers have become wiser and have embraced
change to meet the needs of consumers and the economy. High-end luxurious projects are
on the back burner and affordable projects are given the priority. Customer acceptance
and ability to invest/ purchase affordable projects are high, given the current state of the
economy.

2.Commercial real estate


The Union Budget 2014, to start with and the subsequent policy reforms introduced by the
government have brought in positivity in the real estate sector. REITs, FDI and RER are
some of the policies introduced, which can go a long way in giving the desired impetus to
the sector Realising that the increase in demand from commercial buyers was unlikely and
toning down their level of optimism, the developers reduced the supply of commercial
spaces. This helped bridge the gap in the demand and supply to some extent.
E-commerce
Not one to be left behind in the e-commerce race, the sector embraced the flavour of the
season. Buyers were seen to be more comfortable booking flats/ units online and several
online portals were up to the challenge to cash in. Developers across India have
acknowledged the potential of
e-commerce and have seen manifold increase in bookings through this medium.

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Budget 2015
On 28 February 2015, the Finance Minister presented the first full year budget of the
current government. The budget was forward looking and pragmatic with a vision that goes
beyond just this fiscal. The policy initiatives and tax proposals mirrored the intention of the
government to set the economy in the growth trajectory. The budget had its share of
goodies for the real estate and infrastructure sector. Some of the key announcements
were:
Policy initiatives
A mission to provide a roof for each family under the housing for all scheme by 2022
has been announced. It is targeted to complete 2 crore houses in urban areas and 4 crore
houses in rural areas
The budget proposals have brought much needed relief to the infrastructure sector, by
substantially increasing the budget allocations
As per the budget proposals, the investment in the infrastructure sector will increase by
Rs 70,000 crore
National Investment and infrastructure Fund (NIIF) to be established with an annual flow
of Rs 20,000 crore
Self-Employment and Talent Utilisation (SETU) to be established as technofinancial,
incubation and facilitation programme to support all aspects of start-up business. Rs 1,000
crore to be set aside as an initial amount
An expert committee to examine possibility and prepare a draft legislation where multiple
prior permissions can be replaced by a pre-existing regulatory mechanism to help India
become a favoured investment destination
Tax-free bonds to be issued to raise funds for rail, road and irrigation sectors
The PPP model for infrastructure development will be revitalised and the government
would bear the major risks therein
Further, there are proposals to allocate Rs 150 crore towards infrastructure research &
development, with a view to encourage the involvement of academicians, entrepreneurs
and researchers to draw national and international experience to foster scientific
innovations, and undertake research and development in the infrastructure sector
The government also proposes to set up five ultra-mega power projects in the country.
Further, the government also plans electrification of the remaining 20,000 villages by 2020
There will be a specific focus on ports in public sector to attract investments and to
promote self-employment and talent utilisation

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Proposals on Real Estate Investment Trusts (REITs) and Infrastructure Investment


Trust (InvITs)
Rental income earned by REITs shall have a pass-through status, being taxable in the
hands of the unit holders
No withholding tax on rental income earned by REITs from directly owned real estate
assets (w.e.f. 1 June 2015)
Withholding tax on distribution of rental income (w.e.f. 1 June 2015)
Where unit holder is a resident,
REIT to withhold tax @ 10%
Where unit holder is a non-resident,
REIT to withhold tax as per rates in force
Units received by Sponsors of REITs and InvITs on swap of shares in SPV shall be entitled
to beneficial tax treatment whereby sale or transfer of such units shall be exempted from
tax for long-term capital assets and taxed at 15% for short-term capital assets. This
treatment will be available, provided the sale of such units has been subjected to
Securities Transaction Tax (STT).

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City Wise Breakdown of


Indias Real Estate Scenario
Cities Covered:
Chennai
Delhi
Mumbai
Areas Explored (for each city):
Urban Agglomeration
Residential real estate scenario
Commercial/office space scenario
Retail real estate (malls) scenario

Chennai
Chennai Urban Agglomeration Real Estate
Perspective
Chennai Urban Agglomeration (CUA):
Overview
CUA comprises of:
Area under Chennai Municipal Corporation
Part of Thiruvallur district (Ambattur, Thiruvallur, Ponneri and
Poonamallee )
Part of Kancheepuram district (Tambaram, Sriperumbudur and
Chengalpattu
Infrastructure initiatives
Roads
-TN Govt has started a decongestion drive
-Chennai Metro Rail Project
-10 mini flyovers within the city
-In 1999-2000 it proposed the construction of 10 mini flyovers by
Chennai Corporation.
-The project cost is estimated at Rs 3.7 billion.
Outer Ring Road
-Chennai Metropolitan Development Authority is planning the
development of Outer Ring
-Road (ORR) along the periphery of Chennai Metropolitan Area CMA
to decongest the city.
-ORR connects NH45 at Vandalur, NH4 at Nazarathpet, NH 205 at
Nemilichery. NH5 at Nallur and TPP road at Minjur and is of length
62.3 km.

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Railways
-Chennai Metro Rail Project
-The Tamil Nadu Government has implemented the metro rail
project to ease traffic congestion and improve the public transport
system.
-The project consists of 3 corridors, 2 of which will be completed in
the first phase at an estimated cost of Rs 58 billion.
-The first phase will carry 10.5 lakh passengers a day.
Residential apartments: Key characteristics
-Houses with lawns converted to buildings in late 90s.
-G+4 floors storey structures ordinary buildings - prevalent
-Demand slowly shifting outside around the city outskirts. Local
players losing hold as new non local developers cashing in on
opportunities.
Strengths as a Commercial Destination
-Major IT players like Infosys, Tata Consultancy, Wipro, Ascendas, and
Polaris etc have settled base in Chennai.
-With Ford, Hyundai, Hindustan Motors, TVS, Ashok Leyland, MRF, etc.,
-Chennai city is known as Detroit of India
-Has the 5th largest resource pool of graduating students ensuring a
steady supply of qualified personnel for IT/ITES
-Has the highest upcoming supply of relatively cheap real estate (as
compared to Mumbai and Bangalore) in the country mainly along the
borders of Chennai city, i.e., Kancheepuram and Thiruvallur
-Old Mahabalipuram road has been successfully established as an IT
Corridor.
-The government is now promoting the area between Tidel Park and
Kelambakkam as a software corridor.
Commercial Market Features
-IT/ITES Demand
-At present IT/ITES drives around 65-75% of the total office demand.
-Total commercial space supply of around 7 msf is expected in 200709
-In the past, lack of quality commercial space - in terms of structure and
outlay was the major hindrance to commercial development in Chennai
-commercial construction was not of much interest to local players.
-Change in scenario - entry of national builders and increased corporate
interest due to IT boom major commercial construction along the
south west of Chennai.
Office Space: Price Trend
Malls and Multiplexes: Supply Addition
Foreground:
-The concept of organized retailing had its origin in Chennai with the
establishment of Spencer Plaza
-The Mall, which started with a super built up area of 300,000 sq. ft.,
has now become the Mega Mall of city with a total of 1.05 million
sq. ft.
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-In high street retailing, Chennai has major retail chains like
Shopper's Stop, Lifestyles, West side, Pantaloons, Landmark, and
Globus etc.
Mall Space : Major Projects under development
ProjectsDeveloperLocation
-Ansal Plaza
-AnsalMohali
-DLF IT Park
-DLFManimajra
-Mall Matrix
-ParsavnathMohali
-Metropolis Mall
-Polo GroupPanchkula
Delhi
NCR comprises
National Capital Territory of Delhi
8 districts, Haryana
5 districts, Uttar Pradesh
Alwar district, Rajasthan
NCR: Total population: 12,877, 470
Due to the faster growth of Delhi, the National Capital Region Plan
2001 was formulated and it aimed at increasing the growth potential of
the region thereby redirecting the migrants from the metropolis
Infrastructure problems and initiatives
Flyovers
-Two new flyovers opened on Delhi - Gurgaon section of NH-8
-Opening of these two flyovers has eased traffic congestion
between Km 15 to Km 28 of NH-8, in Gurgaon.
-Length of Mahipalpur (Delhi)-1800 m and Udyog Vihar (Gurgaon)length 1500m
-The entire project, from Rao Tula Ram Marg Junction till Km 42 in
Haryana, is likely to be completed by September 2007.
Railways
-Noida-Delhi metro from New Ashok Nagar to Noida City Centre (7.1
km)
-Total project cost Rs 7.36 billion
-The metro is expected to begin operations in 2009.

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Major infrastructure developments


Roads
-Implementation of Peripheral Expressways comprising Eastern and
Western Peripheral Expressway.
-The length comprising both Peripheral Expressways (Eastern and
Western) is about 269 km
-The cost of the project including cost of land acquisition is
estimated at Rs 41.20 billion
-The project is likely to be completed by 2010
Railways
-Delhi Metro Rail project
-Phase-I is completed. The overall progress of Phase-II Project is 8.96%.
-The estimated project cost Rs 1,057 billion
Residential Apartments: Key Trends
The NCRPB has been drafting the Regional Master Plan 2021 for the
last few years. The Delhi Development Authority Master Plan 2021 has
also been coordinated with the Regional Master Plan. But both are
awaiting clearances and notification. Currently, the laws of individual
states are applicable to the towns and cities in the region.
Delhi is dominated by the business community, bureaucrats and
politicians with huge disposable incomes.
The large multi-storey societies in east Delhi (Mayur Vihar, Patparganj
etc) have found preference with the service class, the blue-collar
segment. The business and trader class still largely dominate old
residential areas in west and northwest Delhi and the newly developed
suburb called Rohini.
Gurgaon has been the forerunner in the development, attracting a
number of multinational companies in the service sector followed by
Noida, Ghaziabad and Faridabad.
Gurgaon: Driven by IT/ITeS companies and Corporate offices of many
companies
Noida: Driven by IT/ITeS and presence of many SSI units
Ghaziabad: One of the major industrial zones of North India railway
coaches, steel industries, pharmaceutical units etc. Some of the
important industrial units present in Ghaziabad include Bhushan Steel,
Dabur India, Ghaziabad Ispat Ltd, Rathi Ispat etc
Faridabad: Eicher, Escorts, Lakhani and Thompson Press

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Demand pattern for residential units

Delhi: Demand for houses is more or less saturated - It is mainly


consumption driven
Gurgaon: According to industry sources, around 5 years ago, demand
was substantially investor driven. Currently, its in favour of
consumption demand
Noida and Ghaziabad: Consumption demand (70-80%): Investor (2030%)
Faridabad: Consumption demand (60-70%): Investor (30-40%
Demand mix: Framework
Residential: Supply
Around 20 million sq. ft. of residential construction expected during
2007-2008
Supply coming up in
Delhi: High end residential projects, particularly bungalows, are still
in great demand in central and south Delhi.
Ghaziabad: Driven by improved connectivity-Delhi Metro Railway
System is being extended to Ghaziabad in the second phase
Noida: The prime residential areas in Noida are located in Sector 14,
15, 27, 28, 29, 37 and 44.

Demand Mix Framework:

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Residential: Key Conclusions


Huge demand for houses in the middle income group (annual income
range Rs 2-5 lakh per annum)
Around 20 million sq. ft. of residential construction is expected for
2007-2008
Growth driven by IT/ITeS in Gurgaon and Noida
Residential: Major Projects under development
ProjectsDeveloperArea (mn. Sq.ft.)
Location
Ansals
Ansals0.6Ghaziabad
DLF Park Place
DLF0.5DLF City
Habitat
Unitech3.0Gurgaont
DLF0.2DLF City and many more.
Office Space: Market Features
NCR, next to Bangalore as the IT hub of the country
NCR has a significant share of FDI inflows
Hub to several large companies (such as GE, Daksh), besides home to
several IT/ITeS companies
Supply: The commercial districts of the city can be classified into two
categories:
The historical commercial districts being that of the walled city of
Shahjehanabad
The modern ones: Connaught Place (Central Business District), the
District Centres (planned by the Delhi Development Authority DDA) and the government districts of Central Government Office
(CGO) complex, R.K. Puram and around the Rashtrapati Bhavan
zone (Presidential House Zone)
Around 15 million sq. ft of office space in the coming 2 years.
Supply mainly in Gurgaon, Noida.
Majority of the demand for commercial space is coming from IT/ITES.

Commercial Property Prices


Malls and Multiplexes: Existing Malls
Traditional markets include old markets of Delhi, like
-Chandini Chowk,
-Sadar Bazaar
-Daryaganj
-Contemporary markets are
-Connaught Place, South Extension I & II, Defence Colony, Greater
Kailash I & II,
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-Basant Lok, Noida (Sector 18),


-Khan Market, Saket, Karol Bagh, etc.
The past couple of years have seen a surge in the number of retail
malls in the suburban location of Gurgaon (Mall Road), closely followed
by Noida
Existing mall space in NCR ~ 19.25 msf
Some of the malls include,
-DLF City Centre Mall
-Gold Souk Mall
-MGF Mega City Mall
-MGF Metropolitan Mall
-The Wedding Mall Gurgaon
-Ansal Plaza, Delhi
-Centre Stage Mall, Noida
-Lifestyle, Rajauri Garden
-North Square Mall, Pitampura
-The Great India Place, Noida
Gurgaon Mall road has witnessed oversupply. Few malls are reported
to be financially stressed.
Substantial Supply still expected in NCR region. Industry sources
indicate around 60 new malls to be constructed in the next 2-3 years.

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Mumbai
UA comprises the area of Mumbai Municipal Corporation,
Thane, Kalyan, Dombivili, Navi Mumbai, and the outskirts
Total area: 1,334.5 square kilometers (km)
Total population in 2001: 16.77 million
Key industries affecting real estate:
Financial services
IT/ITES
Entertainment industry capital
Financial capital of India
Infrastructure initiatives
Mumbai is one of the five cities included in the centre sponsored Mega
City Scheme launched by the Government of India in the Eighth Five
Year Plan. The scheme for Mumbai is being implemented by the BMC,
BEST, CIDCO, TMC, KMC and NMMC.
North-South arterial corridors are being developed through building
flyovers, road widening etc.
Current projects are concentrated more around arterial roads:
Flyover on Western express highway (airport)
Bandra-Worli sea link
New Link road
Mumbai Urban Transport Project (MUTP) and Mumbai Urban
Infrastructure Project ( MUIP) envisages investment in suburban
railway projects, local bus transport, new roads, bridges, pedestrian
subways, and traffic management activities.
Development of East-West corridors (road and rail) to ease traffic flow
between eastern, central, and western suburbs
JogeshwariVikhroli link road
SantacruzChembur link road
GoregaonMulund link road
Mumbai Metro Rail Project also envisages East-West corridor
connectivity
VersovaAndheriGhatkopar link (WestEast)
BandraKurlaMankhurd (WestEast)
ColabaBandraCharkop (SouthNorth)
Development of Mumbai Metropolitan Region (as shown alongside) as
part of long-term development initiatives
Development of international airport and railway terminus near
Panvel
Development of SewriNhava Sheva sea link

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Residential apartments: Key characteristics


Land availability is limited; hence,high-rise buildings form up to 80 per cent of the supply
Limited township concepts developed in centrally located areas aggressive development
in accessible proximity to Bandra-Kurla Complex, CBD and premium areas
Average area of apartment is smaller than that in other cities.
Typically, 1BHK measures around 600 sq feet; 2BHK, around 800 sq
feet
Better amenities and quality of construction are demanded as price
points are rising
Accessibility through road/rail of paramount importance
Residential apartments: New growth areas
Higher growth in suburbs
-Western suburbs such as Andheri, Kandivali, Borivali, Malad along
the Western Express highway
-Central suburbs such as Thane, Ghatkopar, Mulund closer to Eastern
Express highway
-Mill land to drive development in Parel, Mahalakshmi, Wadala and
areas along the Tulsi-Pipe Road
-IT/ITES to drive development in Navi Mumbai
-Navi Mumbai development also to be dependent on SEZ and transport
connectivity with island.
Buyers: A mix of local demand and investment demand
Consumption demand
Salaried: 9095 per cent
Nearly 40 per cent of
demand is investment demand

Residential: Key conclusions


Demand driven by
-IT/ITES
-Financial services
-Entertainment industry
Supply
-Substantial supply in high-income group with typical price points
upwards of Rs 4 million in western, central, and southern parts of
the city
-Huge demand-supply in LIG/MIG segments gap this gap needs to
be addressed through rental housing or lower cost suburban
development
-SRA is key for LIG supply excessive land prices have made
housing unaffordable for lower income groups

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Key characteristics
-Supply across the city in small projects
-Supply mainly in the form of high rises.
Office space: Key growth drivers

Strong growth driving demand in IT / ITES


-IT/ITES was the initial demand driver for Mumbai office space.
However, higher cost of commercial real estate has pushed IT / ITES
companies towards distant suburbs.
-However, Mumbai STPI continues to clock export growth.
-Development of Navi Mumbai technology parks is central to IT/ITES
demand.
Financial services gaining prominence
-Financial services outsourcing is gaining prominence due to
availability of trained professionals.
-Typically, financial services are able to afford higher commercial
rentals than IT / ITES companies.
Malls and multiplexes: Key drivers
Mumbai has substantial purchasing power; yet higher land costs raise
rents for tenants.
Malls and multiplexes are in a mature phase, in response to the growth
in premium residential areas in the city.
Growth led by IT/ITES and financial services has resulted in demand for
retail growth

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CONCLUSION
With the series of announcements and the change of guard at the helm, the sector has
seen some positivity in the last 8-10 months. The Indian real estate sector seems poised
for growth. Rapid urbanisation, fast-growing middle class, economic growth and lowering
of interest rates is sure to boost demand in 2015-16. The announcement on REITs and
revision of rules for attracting FDI in construction development sector were positive moves
and has pushed the investor community to take a serious look at the sector. This should
support in providing access to capital for the cash-strapped developers. Having said that,
realty on the ground is not moving with the same pace as the talks.. The sector has been
demanding a single window clearance to improve ease of doing business, which is still a
long way ahead. The Union Budget 2015 was also seen as a dampener by many. It was a
wonderful opportunity for the government to provide more clarity on smart cities, announce
tax holidays for affordable housing and increase the limit on interest deduction on housing
loans. However, the governments housing-for-all policy, which aims to provide 6 crore
housing units (2 crore in rural and 4 crore in urban areas) by 2020 was among the bright
spots in Budget 2015-16.
Land acquisition is still a contentious issue with both the government and the opposition
battling it out inside and outside Parliament. The sooner this gets resolved the better, as
the ambiguity is only hurting investor sentiment. The sector has been demanding industry
status to bring in more transparency and make it easier for players to raise funds.
The Governments pro-reform measures in the last few months have bolstered economic
sentiment. Projections for Indias GDP for the current fiscal have improved dramatically.
Rating agency Fitch has forecasted Indias GDP to grow at 8% in 2015-16 and 8.3% the
next year. The time is ripe for the Government, dynamic Indian businesses and the
investor community to collaborate to identify and remove bottlenecks in the real estate
sector and exploit its full potential.
With the right information of the cities, the coming up projects and its pros and cons a goo
investment can be made in this sector. Real estate sector has tremendous growth and a
good return. The information and data provided in this particular book is enough to decide
where, how to invest in real estate. Also, with more and more upcoming new trends its
very important to always be in touch with the markets.

K.C COLLEGE

Investment Avenue: Real estate.

56

Bibliography
Books:
1.India real estate sector handbook 2015 by Grant Thornton
2.Real estate finance in India by Prashant Das
Internet Websites:
1. www.nrirealtynews.com
2. www.realestateindiaconsultant.com
3. www.indiaproperties.com
4. www.kothi.com
5. www.indiahousing.com
6. www.thehindubusinessline.com
7. www.therealtor.co.in/
8. www.indianrealtynews.com
9. www.wikipideia.com
10. www.indianground.com/indian-real-estate-watch-aspx

K.C COLLEGE