1.

Introduction and Background of the Problem

1.1. Introduction
Riding piggyback on a booming economy and healthy GDP growth, Indian real
estate industry has been expanding at an exponential rate. Favorable
demographics, rising purchasing power, availability of cheap finance,
professionalism in real estate and reforms initiated by the government are some
of the major drivers of this spectacular growth.
In the mid-nineties, the Indian real estate was booming. Projects were being
launched (and sold) across all cities and price points. It turned out that most of
the frenzied buying was being done by investors – both local and overseas.
Towards the end of 1996–97, the party wound up. A bloodbath followed,
investors pulled out and projects were left incomplete. Property prices halved
and in some cases even reached one-third levels vis-à-vis their peaks.
From then on it was a very slow and painful recovery, leaving only the
best men standing, a `going back to the roots’ scenario. A turnaround was
witnessed in 2000 when markets started strengthening; the middle class
consumption (driven by low rates of interest) increased dramatically. Also the
off take by the IT sector has been huge, prices have moved upwards, in some
cases it is too sharply for comfort. There are opportunities available today for
investment across all types of real estate and across all budgets.
Indian real estate market is roaring thanks to the rapidly growing
economy, soaring stock market, influx of foreign investment and the growing
middle class. Property prices have gone up at least 20 – 25% over the past nine
to twelve months across all segments. While Information Technology (IT) and
Business Process Outsourcing (BPO) companies continue to drive current real
estate growth; the resurgence of manufacturing, organized retail and
distribution warehousing will be the additional drivers in coming years.
According to the Nasscom-McKinsey Report 2006 “The IT industry will
grow at a Compounded Annual Growth Rate (CAGR) of 28% to reach $60
billion in export revenues by 2010 while the offshore IT solutions business will

1
grow at 25% to touch $35 billion in export revenues, the BPO business will
witness a CAGR of 37% to account for $25 billion of the projected $60
billion”. This will have a strong influence on the buoyant real estate industry.
Much of the current growth in the real estate sector across India is due to the
boom in IT and IT-enabled services, which needs fully-developed properties.
This sector is also projected to demand around 80 million SF of space over the
next five years.
Indian property developers are moving to smaller towns and cities due
to faster pace of growth and increase in demand for quality development. Cities
like Ahmedabad, Cochin, Chandigarh, Indore, Jaipur, Mysore and Nagpur are
gaining popularity over the metro cities due to increasing labour, real estate
costs and attrition rates. Many multinationals have unveiled plans for the small
cities to take advantage of the availability of large land parcels at affordable
rates, improving telecom and infrastructure. Software Technology Parks of
India (STPI) will open 12 new software parks across the country targeting
primarily tier- II and III cities. STPI hopes that the proposed parks will
generate employment for around two lakhs people over a couple of years and
will have significant impact on real estate development. Tier- III cities
currently provide cost advantages of 15 to 30% over tier I and II cities and will
have the effect of prolonging India's position of global leadership in the off-
shoring of IT activities for the next few years.
The Indian retail sector is set to expand two-fold in the next three years,
with food and apparel segments expected to drive the growth. The UPA- Left
alliance has approved 51% foreign direct investment (FDI) in single brand
retailing however, all FDI proposals will have to be approved by the Foreign
Investment Promotion Board (FIPB). The share of organized retail has gone
from INR 50 billion in 1992 to INR 350 billion in 2005. Around 400 malls,
shopping centers and multiplexes admeasuring to 50 million SF of quality
space are under construction in tier- I and II cities across India.
The overall industries-having a direct bearing on infrastructure and
accounting for 27 per cent weight in the Index of Industrial Production (IIP)-

2
registered a growth of 8.3 per cent during April-December 2006, which was
higher than the 5.5 per cent registered during the same period in the previous
year. In the first nine months of 2006-07, crude petroleum, refinery products
and electricity generation registered accelerated growth rates.
While its global counterpart may grow a measly 5 per cent, India's
construction equipment sector is growing at a scorching pace of over 30 per
cent annually-driven by huge investments by both the Government and the
private sector in infrastructure development.
With sustained growth in infrastructure, the order book position of the
10 large construction companies in India has gone up by over 50 per cent year-
on-year for the quarter ending June '06. With such bullish prospects in
infrastructure, affiliated industries such as cement are on a high. Cement
consumption, for the first time, is set to exceed the 150-million tonne mark.
Reflecting the demand for the commodity, capacity utilisation rose to over 100
per cent-to touch 102 per cent in January 2007-with dispatches touching 14.10
million tonnes as against the production of 14 million tonnes.
As opportunities in the sector continue to come to the fore, foreign
direct investment has been moving northwards. The real estate and construction
sectors received FDI of US$ 289.1 million in the first half of the current fiscal,
with most inflows coming through the popular Mauritius route.
According to industry estimates, the real estate industry in India has been
growing at 33 per cent CAGR (compound annual growth rate) and could be a
$50 billion industry in the next four years. The upturn straddles all the major
sectors of the industry such as commercial, residential, retail, industrial,
hospitality and healthcare.

The burgeoning outsourcing and IT/ITES industry have contributed to the

demand for quality office space. With most of the blue-chip MNC’s setting
shop in the country, the estimated demand from IT/ITES sector alone is
expected to be 150 million sq ft of space across the major cities by 2010. In the
residential segment, availability of easy home finance and rising purchasing

3
power has driven the growth. Builders are launching high-end, lifestyle
residential products to cater to the growing bunch of high net worth
individuals. In residential sector there is housing shortage of 19.4 million units
out of which 6.7 million are in urban India.

In the retail segment, the country has experienced mushrooming of retail

projects across the cities. Specialized malls have become the order of the day.
Gurgaon, on the suburbs of New Delhi will soon have an auto mall, while
Bangalore is about to get an exclusive furniture mall. The sprawling
skyscrapers, marvelously designed residence, awe-inspiring malls and
promising infrastructure, along with exemplary acumen to designing and
scheming have made India's real estate sector, one amongst the bustling and
growing fields. With India being the most alluring destination for foreign
investors, there is a huge market waiting to be splurged upon.

1.2. Industry Profile

1.2.1. Real Estate
The real estate story in India is growing bigger by the day as it
continues to receive an ever-increasing influx of funds. While more than 35
big-ticket foreign funds have already checked in, the first half of 2007 will see
at least 20 more funds making an India entry. Meaning, US$ 10 billion of
foreign direct investment (FDI) will be injected into the real estate sector.
Merrill Lynch forecasts that the Indian realty sector will grow from US$
12 billion in 2005 to US$ 90 billion by 2015. Prominent global funds including
Carlyle, Blackstone, Morgan Stanley, Trikona and Warbus Pincus are sitting on
a total corpus of US$ 12-15 billion, say experts.
Retailers in India--the most aggressive in Asia when it comes to
expanding their businesses--are creating a huge demand for real estate. The
Jones Lang LaSalle third annual Retailer Sentiment Survey-Asia revealed that
India topped the chart with 45 per cent expanding rapidly followed by Greater
China at 27 per cent and other South East Asian capitals at 6 per cent.

4
 After IT, it was Real Estate in the pipeline, two years back real estate
showed a beginning of growth, boom and huge profits. This trend followed for
quite long but then came the time for this rosy picture to fade and correction
came into the scene. With the beginning of this correction phase, real estate
turned to be not so attractive, not so profitable and a difficulty for a common
man who desired to own home or one who found himself stuck in the home
loan trap.
But one thing that draws incessant attention is the faces free from
tension wrinkles of realty developers. With these ripples being created in the
industry how come realty developers have nothing that can shake them?? Well
the answer is simple-NRIs or more specifically ARIA (A Resident Indian
Again).
High profile NRIs are now choosing to come back home, to their own
land. Almost all the major cities, both metros and tier II cities fall on the radar
of NRIs who plan to come back and settle here in India, Bangalore alone has
witnessed a come back of 35000 NRIs. India being an economy that’s
growing at a high pace and seeing innumerable changes in almost every aspect
portraits herself to be a challenge. Thus attracting all those who love to
challenge the challenges and crave to prove themselves all over again by
working in a startup. Also, these high profile NRIs have a lot added to their
CVs by their working experience outside India. Now with India expanding its
horizons and with the upcoming of new and specialized sectors like retail, real
estate, financial services, R&D etc it is the right time for them to gain new
experiences and add another feather to their careers.
With this diaspora real estate is undoubtedly to grow despite of the
severe dip in the domestic demand. NRIs now constitute 20-25% of the total
real estate market and this migration is expected to grow the industry @ 20%
annually. These days all the major upcoming townships, housing complexes etc
are being developed specifically to meet the demands of NRIs. With lavishly
done condominiums, thoughtfully laid out three/four bedroom apartments and

5
beautifully landscaped villas are few efforts done by realty developers to bag
an amount of 1.5cr to 12cr in a convenient way.
This “Reverse Brain Drain” to what extent will help other sectors and
Indian economy to grow as a whole is still a question, but for sure NRIs
coming back has turned to be a boon for Indian Real Estate Industry.
1.2.1.2. Indian Real Estate
In India Real estate is not as organized as in US. In the current scenario
Real estate In India is booming. This is due to the increase in the demand for
the various segments of properties. Due to the foreign direct investment in IT
and ITES real estate market in some of states has developed:
 Chennai
 Bangalore
 Hyderabad
 Mumbai
 Kolkata

Growth Opportunity
India’s strong economic performance, pro-reform government policies
and increasing consumerism has translated into macro opportunities for the real
estate industry.
• Growth of Information Technology (“IT”), Information Technology
Enabled Services (“ITES”) and Banking Services has increased business
opportunities with a consequent impact on the real estate sector.
• Indian Government policies to relax existing Foreign Direct Investment
(“FDI”) norms for the real estate sector by allowing up to 100% FDI and
setting up of real estate mutual funds will act as key catalysts in fuelling
growth in this sector.
• India, with a population of more than 1 billion has a 25% strong middle
class segment. Also, 54% of its population is below 25 years of age and
is characterized by rising income levels and greater exposure to media
and international trends.

6
 • India has 28 cities with an excess of one million population, however
most of the investment in real estate is concentrated in even major
developing IT and business destinations, namely Bangalore, Delhi,
Mumbai, Chennai, Hyderabad, Pune and Kolkata.

Challenges
Challenges in the Indian real estate market are in its infancy and is
poised for rapid growth and expansion. Similar to all developing markets there
are several challenging characteristics.
• The Indian real estate market is largely unorganized, fairly fragmented
and dominated by a large number of local small players with limited
professional real estate expertise.
• Lack of transparency and a well defined regulatory frame work, along
with complicated tax regime and title ownership structures are major
factors limiting real estate development.
• Indian real estate is a state subject with transaction costs, real estate
norms, regulatory governance and corruption varying widely across
states.

Fig. 1.1 Emerging Cities in India

7
India Snapshots:

MACRO ECONOMIC INDICATORS

Population 1.21 billion

Gross Domestic Product (GDP) during 2010-11 US$ 1,597.5 billion

Gross National Income (GNI) during 2010-11 US$ 1,584.2 billion

Per Capita Income in 2010-11 US$ 1,020.3

Overall Industrial growth (January 2011) 3.7 %

Forex Reserves (April 2011) US$ 303.5 billion

Amount of FDI inflows during 2010-11 (April US$ 17.0 billion

2010-January 2011)

Cumulative amount of FDI inflows (August 1991 US$ 143.9 billion

to January 2011)

Exchange rate INR/1 USD (as on April 08, 2011) 44.22

Exports

February 2011 US$ 23.6 billion

Cumulative Exports

April-February 2010-11 US$ 208.2 billion

Imports

February 2011 US$ 31.7 billion

Cumulative Imports

April-February 2010-11 US$ 305.3 billion

Average literacy rate (census 2001) 64.8%

Life expectancy for males 63.9 years

Life expectancy for women 66.9 years

Table: 1.1
Language of commerce: English
Government: Democracy (world’s largest)
Legal system and accounting standards: Similar to US and Europe.
Corporate governance: Moving towards international best practices.
Key real estate drivers: IT/ITES, Banking and Insurance services.
Key real estate trends: Suburban sprawl, growing middleclass and increasingly
assertive consumers, growth of specialized malls, offers of built-to suit

8
facilities, regulatory reforms, proposed real estate management (regulation and
control) legislation.
A buoyant economy, market liberalization and a growing middle-class
are transforming real estate in India. In February 2005, India liberalized rules
for FDI in the real estate sector by allowing 100% foreign investments in
construction and development projects. This along with favorable economic
variables has made India an attractive investment destination.

India’s Economy in an Up-swing

• Indian economy on growth trajectory: India is the world’s second
fastest growing economy, with a projected GDP growth rate of 9.2% in
2006-2007. After the recession India in 2008 the GDP growth faced
slightly downward trend 2008 – 9.00%, 2009 - 7.40%, 2010 – 7.40%.
Again it started booming with the current GDP of 8.30%. Given the
current trends, India will be the world’s fourth largest economy within
25 years, ranking only behind those of U.S, China and Japan.
• Economic drivers: IT, ITES and banking services are the fastest
growing industries, with IT and ITES growing at more than 30% per
year.
• FII infusion: Foreign Institutional Investors (“FII”) are investing into
the Indian stock market at a record pace. The net purchase by foreign
funds was approximately $7 billion in 2005, the largest inflow in a
single year since Indian markets opened to foreign funds a decade ago.
• Creation of a highly-educated, low-cost workforce: Indian government-
sponsored initiatives have fostered the development of a massive higher
education system which produces 3 million graduates each year. Market
rates for skilled labor in India are 10% - 30% of comparable rates in the
developed world.
• Favorable long-term demographic trend: With 54% of the population
(600 million), below the age of 25, and 25% of the population (300

9
 million) as middle class consumers, India presents a positive
demographic outlook.

Opportunities
The IT & ITES sector would alone require 150 million sq ft of office space in
urban Indian real estate market by 2010. There is a requirement for more
commercial office space due to organized retail. The Indian organized retail
industry in all probability would require an additional 220 million sq ft by
2010. And to specify, the growth in the Indian real estate market is not only
restricted to a few towns and cities but spans across India - more coverage in
the tier-I and tier-II cities. Almost 80% of real estate market in India occupies
the residential space, the remaining 20% comprises of offices, shopping malls,
hotels and hospitals. Another research report reveals that more than 100 malls
with over 30 million sq feet of new shopping space are estimated to open in
India by end-2010. The average profit from construction in India is 18% -
nearly double the profitability figure as in US. There is a surge in the foreign
institutional investors in the Indian construction sector and that is why
investment is surging-up.

The Indian real estate sector is supposed to get a boost from the Real Estate
Mutual Funds (REMFs) and Real Estate Investment Trusts (REITs).
Specifically, the REITs have the capability to capture at least 5% share of the
total global real estate market by the end of 2010. The size of the global real
estate market is slated to touch US$ 1,400 billion in the coming 3 years. The
figure in the report stated that by 2010, REITs by themselves would hold a
market size of US$ 70 billion of the total Global real estate market.

Foreign direct investment (FDI) in the real estate sector in India for 2008-09
stood at US$ 12.62 billion approximately - this is as per the figure from the
Department of Policy and Promotion (DIPP)

10
Key Demand Drivers and Characteristics
 Residential
• Increase in urbanization & working population.
• High disposable incomes & aspiration levels.
• Easier access and fiscal incentives on housing
loans.
• Current gap of 30 million units between demand
and supply.
• Approximately 90 million houses to be built over
10-15 years with an investment of $666-$888 billion.
• Expected yearly capital infusion of $30 billion.

 Office
• India has emerged as a leading destination for IT &
ITES, with ITES sector currently contributing 80% of the total
office space demand.
• IT & ITES revenues at $22 billion in 2006 are
projected at $77 billion by 2008 by Mckinsey.
• Projected office space demand of 66 million SF
over the next five years and 300 million SF over the next 10 years.

 Retail
• Influx of global brands in clothing & lifestyle stores
along with spurt in restaurants and entertainment & leisure
complexes.
• India ranked as second most attractive retail
destination by AT Kearney.

11
 • Indian retail market size of $200 billion with
organized retailing only 3% of total retail industry, growing at 35%
yearly.
• Approximately 30 million square feet of retail
space to be built up by 2006.

 Hotel
• Increased business travel – both domestic & foreign
resultant of buoyant economic growth & growing FDI.
• Year 2010 saw record tourist arrivals of 5.58
million.
• By 2020, India is expected to be a leading tourist
destination in South-Asia with more than 8 million tourist arrivals.

Global majors in India's real estate

Eminent global real estate business houses like the Philippines-based
Ayala, and Signature group, Och-Ziff Capital, EurIndia and Old Lane from
Dubai are keen on sizeable investments into India. And, while FDI from the
UK is also likely to pick up in the next few months, investors in the US, Israel,
Malaysia and Singapore want to be a part of the India story.
 Australian real estate consultancy major LJ Hooker, with 700 odd
franchisees in South East Asia, has opened its India account with a
franchisee in Bangalore.
 US-based global investment bank Goldman Sachs and Unitech, the
largest listed real estate company in India, will set up a special purpose
vehicle (SPV) with a corpus of US$ 208.7 million for investments in the
real estate sector.
 DLF Ltd is forging a (50:50) joint venture with Nakheel, a large
property developer of the UAE, for two integrated townships in India at
a whopping investment of US$ 10 billion.

12
  Zurich-headquartered Credit Suisse, the world's leading financial house,
is finalising on a US$ 1 billion fund to invest in India's real estate sector.
 Hilton Hotels Corporation (HHC) announced a joint venture company
with DLF Ltd to develop and own 75 hotels and serviced apartments
over 7 years.
 Dawnay Day International, the US$ 10 billion UK-based investment
company, plans to invest US$ 1.5 billion in Indian real estate in the next
two years.

Challenges in Indian Market

Indian real estate market, though positioned as an exclusive investment
opportunity faces several unique challenges and risks. Success will depend
largely on investors conducting significant due diligence and building
relationships with experienced local partners.
 Complex Relationships
Multiple agencies, complex legislation and rampant corruption in the
system have necessitated a nexus between real estate developers, contractors,
politicians and law making agencies. Execution of real estate projects through
foreign direct investment requires approval from several agencies and is largely
influenced by personal relationships of individuals.
 Different Real Estate Practices and Cultural Variances
The Indian real estate market is different from other developed markets.
Industry norms and structure are not uniform and varies across states. Currently
there are seven major real estate development corridors with different real
estate norms and unique demand & supply characteristics.
 Transparency
Limited institutionalization and a nascent state regulatory and legal
environment in the Indian real estate market has resulted in limited
transparency in real estate transactions. Information flow in the market is
unorganized and disconnected. Industry information is typically gathered using

13
unconventional techniques and relationships with local market players as
recorded information is generally incomplete and incorrect.
 Unorganized Secondary Market
Characteristic of a market in its infancy, the real estate market in India
does not have major domestic institutional investors apart from the Housing
Development Finance Corporation Limited (HDFC) and a few small non-
institutional private investors. The Secondary market is largely unorganized
and unregulated.

 Lack of Uniformity in Regulations

Real estate in India is a state subject and the legislative regulations are
diverse and have their own local qualities depending on the state in which the
real estate is located. Quality of governance and implementation of regulations
vary between states, based on the corruption quotient of the local government.
 High Transaction Costs
Transaction Costs (Stamp duty, brokerage fees and tax) in India have
been historically high. Stamp duties and other transaction costs are different in
all states with stamp duty being as high as 15% in some cases, limiting real
estate transactions and inventory liquidity. In order to avoid payment of stamp
duty, it is common practice to register the value of a property much lower than
the actual transaction value thereby distorting state recorded transaction
information.
 Limited Corporate Presence
India’s real estate is widely fragmented and is dominated by 3,000 odd
developers, primarily comprising of family owned businesses and individuals,
resulting in limited professional real estate expertise and below average
delivery standards. The recent past has seen the unorganized proliferation of
small real estate players leading to several unaccounted transactions and wide
variations in delivery capabilities.
 Title Complications

14
Land in India is largely held by individuals/families and do not have clear
ownership titles. Legacy ownership is unclear and fragmented and therefore the
land is off market, making transactions complicated and difficult to execute.
 Regulatory Barriers
Complicated legislation such as the Urban Land Ceiling Regulation Act
(ULCRA), Rent Control Act, Land Acquisition Act and Pro tenancy laws limit
real estate development and distort markets leading to exceptionally high
property prices.

 Infrastructure
Infrastructure in India is fast improving, however given the fast pace of
urban migration, the in-place infrastructure in growing metropolis is limited
with regard to roadway systems, power, sanitation systems etc.

1.2.2. Financial BPO/KPO Industry

Business Process Outsourcing (BPO) is the delegation of one or more
IT- intensive business processes to an external provider that, in turn, owns,
administrates and manages the selected processes, bases upon defined and
measurable performance metrics.
The BPO Service matrix
Horizontal Services

Human Resources Finance & Accounting

• Payroll Outsourcing • Financial Reporting
• Recruitment/ Staffing • Financial Management
• Retrial Benefits & Trust • Shareholder Services\
Administration Healthcare
Financial Services • Accounts
Airlines Back Receivable/ Payable/
Insurance
• Hiring/ Training Office
General Accounting
Tax Processing Medical Billing Airlines Data Application
• Reimbursements
Asset Management &
Claims Adjudication Services processing
Credit Card/Incentives
Cheque management
Member Revenue Underwriting
Processing Management Accounting Claims Adjudication
Loan Processing Services Frequent Flier Member
Mortgage Cashless Program Management
Processing Vertical-Focused
Hospitalization Services
Management Services
Services Cargo Support
Services

15
  Horizontal Services
Areas like HR outsourcing and F &A outsourcing cut across any
specific industry and hence can be typically categorized as “horizontal”
services. Typically, the global customer base has been more comfortable
outsourcing “horizontal” processes to third party vendors as these processes do
not provide any competitive edge to the outsourcer.

 Vertical-focused Services
Most of the fast emerging BPO opportunities are in the areas which
focus on specific domains (and even more importantly, on specific processes
within the domain). Industries which outsource such services include
Healthcare, Banking, / Financial Services, Insurance and Securities.

1.2.2.1. The Indian ITES-BPO Scenario

The Indian ITES-BPO segment continues to chart strong year-on-year
growth, estimated at 37 per cent for FY 2005-06. Growth is being driven by a
steady increase in scale and depth of existing service lines, and by the addition
of newer vertical specific and emerging, niche business services.
To better reflect how the industry and customer markets view the
portfolio of services sourced from India, NASSCOM has re-classified the
manner in which it reports the various segments included within IT-ITES. For

16
instance, this year onwards, engineering and R&D services are being identified
as an independent service line and will be reported separately. Further,
NASSCOM has increased its overall estimate of industry exports for the
previous year (FY 2004-05), based on the details reported to NASSCOM and
STPI by individual companies.
As a result of the reclassification and the revision of estimates, the
historical values for a few segments have changed. In addition to the
projections for FY 2005-06, to help ease comparisons we have restated the
details for the preceding years FY 2003-04 and FY 2004-05 as per the new
classification.

Market size of Indian Vendors (In US $ Billion)

9
8
7
6
5
4
3
2
1
s
er

0
s

n
e

th

ti o

ce
ic
M

O
R

rv
R

an
H

&
e

tr
C

is

in
t.

in

F
nt

vp

m
e

e
m

d
D

A
ay

t
n
P

te
on
C

Service Line

Fig. 1.3 India’s Share in the Global BPO Market

1.2.2.2. Key Highlights of Indian ITES-BPO sector performance

 Indian ITES-BPO exports are estimated to have grown from USD 3.1
billion in FY 2003-04 to USD 4.6 billion in FY 2004-05, recording a
growth of nearly 48 per cent, and are estimated to reach USD 6.3 billion
by the end of the current fiscal year (FY 2005-06).

17
  Net employment in the ITES-BPO segment is estimated to have grown
by approximately 100,000 in FY 2004-05, taking the total direct
employment to 316,000.
 Based on hiring trends observed over the year, this segment is likely to
end the current financial year (FY 2005-06) with total employment
projected to reach 409,000.
 Employee turnover/ attrition levels appear to be stabilizing with the
talent acquisition, development and retention initiatives being
undertaken by the players, beginning to deliver results.
Fig 1.4 Revenues and Number Employed In ITES/BPO

Revenues (USD Billion) 409

Employees ('000)
6.3
316

4.6
216

3.1

FY 2004 FY 2005 FY 2006

1.2.2.3. Growth in Key ITES-BPO Service Lines

FY 2004-05 witnessed steady growth across the key service categories
of finance and accounting, customer interaction and human resource
administration. These three segments accounted for an estimated 89 per cent of
the industry revenues in FY 2004-05.
With steady demand observed across these key segments, it is estimated
that the segment composition will not change significantly in the current fiscal
(FY 2005-06)

1.2.2.4. Indian BPO Segments

18
 Business Process Outsourcing in India is organized in many segments.
Back-office processing and customer interaction services are among the fastest
and largest growing segments that contribute significantly to the Indian BPO
market. Other notable segments are revenue accounting, content development,
animation, engineering and design, GIS and medical transcription.

 Back-Office Operations / Revenue Accounting / Data Entry and

Conversion / HR Services
This segment is by far the largest, accounting for 42% pf the market
share. Industries such as banks and aviation require large-scale data processing
and data based decision-making capabilities. Indian companies provide data
entry (paper to digital) and rule-set processing (applying present rules and
criteria for processing) and are fast graduating to problem solving and decision-
making.
 Content Development / Animation / Engineering and Design / GIS
The content development segment ranks second occupying 26% of the
pie. The Roncarelli Report on computer animation estimates that labor costs in
India for computer animators is roughly one-tenth that in the US. While a
computer animator in India earns about US$7,000 - 9,000 per year, an
equivalent animator in the US earns US$45,000 - 90,000.
 Customer Interaction Services
The customer care segment ranks third occupying 28% of the pie. A
customer care center is a service center with adequate telecom facilities, trained
consultants, access to requisite databases, Internet and other online information
support infrastructure to provide information and support to customers. Such
centers are used for a number of customer-related functions like marketing,
selling, information dispensing, advice, technical support etc.
 Medical Transcription Services
Medical transcription accounts for 2% of the total Indian outsourcing
services. Medical transcription was one of the first offshore BPO services to be

19
launched from India. This service involves the transcribing of medical records
from audio format or dictated by doctors or other healthcare into either a hard
copy or electronic format.
 Other Services
The other services include online education or web based training,
market research analysis using statistical packages, remote network
maintenance and monitoring. Our BFSI practice contributes about 48% of
revenues at a group level and we have provided services to several Fortune 500
clients including some of the world’s largest multinational banks. We assume
end-to-end responsibility of all your finance and accounting needs and integrate
leading edge technologies with processing capabilities to improve service and
create business value.
Our finance BPO offerings include:
• Payment Processing
• Loans and Mortgages
• Cheque Processing
• Accounting: Accounts Receivable, Accounts Payable,
Reconciliation
• Contract Management
• Financial and SOX Reporting
• Tax Management
• Valuation of a Property in US Real Estate
Key Benefits of our Finance Offerings include:
• Streamlined Financial Operations
• Access to strong Finance domain expertise especially in
Investment and Retail Banking
• Leverage technology strengths in the finance domain
• Improved Service Levels and Turnaround time
• Cost Savings of 40%+
• Strong Conceptual Know-how

20
1.3. Company Profile
Established in mid 2000, Zenta’s unique onshore/ offshore outsourcing
model focuses solely on providing services to the real estate and financial
services industries.
ZENTA in the BPO Industry

ZENTA is one of the leading providers of business process outsourcing

solutions to the real estate and financial services industries. Their services
enable clients to focus on their core business while outsourcing complex
analytics, accounting, and support services to a highly skilled and cost effective
partner. With experienced leaders and 450 global professionals, their business
model delivers unprecedented speed, scale and savings to their clients.
ZENTA pioneered the concept of developing and delivering higher level
offshore solutions for the real estate and financial services industry. Their
unique onshore/offshore approach combines U.S. domain expertise, a proven

21
process migration methodology, and a large team of highly trained offshore
finance professionals. ZENTA allows their clients (generally financial
institutions and real estate investment firms), to focus on their core business by
utilizing its cost effective resources and scaleable platform to execute non-core
activities.
In order to add sustained long term value, ZENTA believes that
outsourcing firms must have as much industry and process knowledge as their
clients, particularly with the more sophisticated outsourcing solutions ZENTA
provides. Its 40-person team of U.S. professionals averages over 14 years of
experience working for financial services firms within the specific areas they
operate. This experience enables us to understand client concerns, mitigate
potential risks and consistently deliver the rewards of offshore outsourcing.
Zenta’s global operations are supported by a highly capitalized and
sophisticated investor base, which includes some of the largest international
financial institutions (Citigroup, Wachovia) and significant providers of
investment capital (Capital Trust, Actis).
With the business process outsourcing industry still in its infancy,
ZENTA is one of the few companies with a long track record of delivering
successful results. To date, they have executed several thousand commercial
real estate transactions involving over 20,000 properties totaling $175 billion of
asset value. For the residential real estate industry, they provide primary and
master servicing functions on several hundred thousand mortgages each month,
and manage a $25 billion portfolio of mortgages. As with any business,
experience counts. They believe that Zenta’s real estate and financial services
industry focus, proven track record and satisfied client base distinguishes us
among the universe of outsourcing firms that will emerge as U.S. corporations
continue to seek the benefits of offshore resources.

1.3.1. Corporate Philosophy

22
Client Focused: We're passionate about our clients and are easy to do business
with. We sell our clients what they want to buy, how they want to buy it. We
are flexible and responsive, tailoring our solutions to our clients' unique needs.
And we honor our commitments.

Employee Centric: We provide our employees with rewarding and satisfying

career opportunities based on their personal performance and contribution.
Cultural Compatibility: Our clients are primarily in North America and Europe.
Our operations are primarily in India. We must be adept at managing and
leading in multiple cultures. We have assembled a diverse management team
that understands the Western business environment and the needs, aspirations
and motivations of our global work force.
Ethics: The line between right and wrong is not gray or blurred. It is a bright
line and we will not cross it, nor will we tolerate anyone who does.
Operational Excellence: We are committed to operational excellence. We
employ a global work force. We capture work anywhere in the world, move it
to wherever in the world we can find the right blend of cost and quality to work
and deliver it back to our clients, wherever in the world they may be.
Accountability: We hold ourselves accountable for results. We push decision-
making to the lowest possible level. When approvals are required, they are
given as rapidly as possible.
1.3.2. Product Profile
By combining Zenta’s industry expertise, proven offshore process
methodology, and a highly trained team of professionals, they are able to
consistently deliver efficiency gains, quality improvements and cost savings to
their clients.
 Capital Markets Services
 Transaction Services
 Residential Services
 Information Services

23
 • Capital Markets Services
Zenta’s Capital Markets Group conducts a wide range of analysis and
due diligence on loan portfolios and real estate assets. The clients for these
services are investors, lenders and transaction intermediaries, all of whom
conduct vast amounts of analysis using limited in-house resources or expensive
third party providers. The three primary service areas in the Capital Markets
Group are Due Diligence and Underwriting, Valuation, and Asset
Management.
Due Diligence – ZENTA provides comprehensive loan and property due
diligence/underwriting services, including financial, accounting, property,
market and third party due diligence. By dedicating large project teams (100
professionals or more), ZENTA delivers quality due diligence assignments in a
fraction of the time typically required.
Contract Underwriting – ZENTA provides support for outsourced origination
underwriting for commercial real estate loan programs, including CMBS, DUS,
balance sheet lenders, mezzanine lenders, and other subordinate securities
investors.
Valuation Support – ZENTA conducts tenant-by-tenant discounted cash flow
and valuation analysis using Argus, Dyna-lease, Project and internal models.
ZENTA analyzes all major property types and is capable of creating valuations
on 100+ properties in less than two weeks.
Asset Management – ZENTA assists clients in managing large portfolios of
mortgages or properties, including real-time updated valuation models,
property accounting, and risk exposure analysis and market information.

• Transaction Services
Zenta’s Transaction Services Group provides high-volume accounting
and portfolio risk management services to institutional real estate lenders and
investors. The Transaction Services Group has created an efficient process that
enables clients to outsource selected administrative functions. Zenta’s
capabilities include:

24
 Financial Statement Analysis – ZENTA accounting services include high
volume analysis and classification of borrower and corporate financial
statements for securitized and balance sheet loans.
Lease Abstracting – ZENTA deploys large teams of highly trained analysts to
review and abstract key provisions in lease and mortgage documentation.
Zenta’s analysis provides a complete description of critical legal and financial
information to support institutional asset management and acquisition
professionals.
Insurance Abstracts and Review – Using proprietary technology and a large
team of insurance analysts, ZENTA abstracts client insurance requirements
from mortgage documents and provides ongoing surveillance to ensure
compliance with loan terms.
Capital Reserve Administration – ZENTA provides detailed analysis of
borrower documentation and reserve requests for compliance with loan
documents and reserve agreements.
Special Servicing Analysis – ZENTA analyzes comprehensive market
research, and conducts borrower and property level financial and accounting
analysis on distressed assets.

• Residential Services
Zenta’s Residential Services group provides processing, servicing and
operational support for a variety of residential real estate services. Zenta’s team
of residential mortgage professionals has the operational experience to
implement a program specific to your needs and processes. Examples of
Zenta’s residential real estate capabilities include:
Residential Servicing – ZENTA allows mortgage services to achieve
substantial efficiency gains and servicing cost reductions by providing the
following operational support: investor reporting, new loan setup, outbound

25
customer service call center support, early stage collection campaigns, data
integrity audits, research, special loan adjustments and lien release processing.
Title Support – ZENTA has a large pool of trained support personnel to
enhance the clerical and administrative elements of the title insurance and
closing processes.
Mortgage Processing – ZENTA supports the processing of new loan
originations through the use of its imaging and database capabilities, enabling
clients to achieve the benefits of scale regardless of the size of their mortgage
loan processing operation.
Underwriting – ZENTA is capable of deploying large teams of trained
underwriting professionals to complete the credit analysis of the loan
application in accordance with investor guidelines.
Special Servicing – Zenta’s analyst team supports the due diligence, data
validation, portfolio analysis, and payment collection effort for distressed or
non-performing portfolios.
Master Servicing – Through its Universal Master Servicing joint venture,
ZENTA provides primary and master servicing functions on several thousand
mortgages each month, and manages a $25 billion portfolio of mortgages.
UMS utilizes a unique work process to provide auditing, cash management,
and oversight and compliance services.

• Information Services
Zenta’s Information Services Group develops research and technology
solutions to assist in executing client assignments, as well as independent
database applications that capture due diligence information for client and third
party use. Zenta’s Information Services Group distinguishes itself by its ability
to execute large and complex assignments in a compressed timeframe.
Research – ZENTA efficiently sources relevant research and data for analysis
and evaluation of lending, investment and general market opportunities.

26
Customized research solutions and reports are designed to meet clients'
portfolio analysis requirements.
Database Applications – ZENTA develops software and database
applications that assist its clients in underwriting and managing assets, as well
as to create workflow solutions and aggregate deal-related due diligence
content.
Database Support Services – ZENTA provides cost-effective resources to
assist clients in populating existing or newly created databases, and generally
achieves a significantly higher level of quality and efficiency than otherwise
available.

1.4. Real Estate Investment Opportunities in India

In the mid-nineties, the Indian real estate was booming. Projects were
being launched (and sold) across all cities and price points. It turned out that
most of the frenzied buying was being done by investors – both local and
overseas. Towards the end of 1996–97, the party wound up. A bloodbath
followed, investors pulled out and projects were left incomplete. Property
prices halved and in some cases even reached one-third levels vis-à-vis their
peaks.
From then on it was a very slow and painful recovery, leaving only the
best men standing, a `going back to the roots’ scenario. A turnaround was
witnessed in 2000 when markets started strengthening; the middle class
consumption (driven by low rates of interest) increased dramatically. Also the
off take by the IT sector has been huge, prices have moved upwards, in some
cases too sharply for comfort. There are opportunities available today for
investment across all types of real estate and across all budgets. Let us begin by
discussing the opportunities arising in the commercial office space sector.
Nowadays, office spaces are mostly taken on a ‘leave and license’ basis
and not purchased outright by the user/occupant. The licensee enters into long-
term contracts for periods ranging from five to ten years. Typically, the yields
are between 10%-11% pa along with built-in escalations of approximately 5%

27
pa. Assuming such a property is purchased by an investor, the same investor
can then borrow against the property (and against future rentals) amounts upto
50% of the property price albeit it can stretch upto 70%-80% of the property
price in some cases. And the cost of borrowing locally is with in the 8%-8.5%
pa range; if borrowed internationally, the cost of borrowing is much lower.
This financial engineering/arbitrage results in an additional yield of
about 3% to the investor. Assuming a modest annual appreciation of 3%-5%,
the total returns work out to a handsome 17%-18% pa. And all this with
relatively less risk since the property is still in ownership of the investor, the
client is a well reputed corporate, the laws provide for speedy recovery of the
premises among others. Sounds good, doesn’t it, but remember that there is
nothing like a free lunch. With every opportunity, there are risks. Risks of the
occupant leaving and the premises remaining vacant, risk of the market falling,
risk of the building not being maintained well enough thereby reducing the
property values, risk of a higher running or maintenance costs than anticipated.
In spite of the risks, this is an opportunity worth considering.
The next category could be a property suited mainly for the IT sector.
Here the property sizes are usually much larger with a minimum floor size
being upwards of 30,000 sq ft. These properties are usually located at city
suburbs and rented out by IT companies, the ITES sector and BPO companies.
These properties tend to be very price sensitive and hence a windfall rise in
prices is not usually expected. Reason being that the IT companies needs space
within a very tight price band, if the properties cost a lot more, they simply
move to a lower cost destination. The infrastructure and planning is specifically
designed for the IT/ITES sector, and is such that can hardly be used by a non
IT company. But, the positive is that once an IT company uses a space, it
usually does not leave it for a very long time, and that too only if it really has
to. So, predictability of rental flows is high. Secondly, the growth in IT is so
huge that there is today a larger demand than supply for such properties. It is
estimated that over the next five years, the IT sector will require 75 million sq
ft of space. Some of the regions where such opportunities can be found are

28
Gurgaon, Chandigarh, Pune, Kolkata, Chennai and Hyderabad. The yields are
more or less the same as in the case of commercial properties discussed above.
Another opportunity could be in the retail segment. Retail, so far has
largely been unorganized. Recently, mall developments have taken place across
the country. Presently, only 3% of all retail is in the organized sector, so really
there is a long way to go. Here, an investor could buy space in a mall and rent it
out to a multinational like McDonalds, KFC, Nike or a local company like
Barista, Provogue. An investor can opt for a pure rental model or a revenue
sharing model where his/her rentals are linked to the sales or revenues of the
store by a pre-fixed formula. This way, he/she gets to ride the retail story and
participate in the upside / growth of the retail business. Lot of investors is in
this sector already, but the scope is huge, so there is still enough space for new
entrants. The thing to worry about here is the oversupply of malls in certain
pockets as well as the dynamic nature of the business. A mall planned for today
can become obsolete very soon, as new formats evolve with lightning speed.
A fourth category of investments could be housing. With an estimated
shortfall of 22 million housing units, the potential is huge. With reduced
interest rates and tax benefits given to borrowers (the effective rate of interest
is 5.5% pa) and with simultaneous increase in salary levels, the average
affordability has gone down from a high of 15 years in 1995 to 4.5 years today.
This basically means that an employed youth can buy a house with 4.5 years
income. Thus, the demand for housing is huge. An investor can come into a
project at the construction stage, buy a block of apartments from the developer
and then sell them to the actual user upon the building being ready for
possession. By riding the construction period, he basically finances the
developer to some extent and exits when the user is ready to move in the
apartment.
Investment holding period could range from 1-3 years depending on the
project size. Returns can be good, in the 15%-18% pa range. However, there
are risks. Risk of the market holding out, risk of the project getting completed
in time, and up to expected specifications, risk of finding a buyer at the

29
expected price. Such opportunities should be explored only in situations where
one is comfortable with the builder and is confident of the market in that
location. Otherwise there can be huge disappointment.
Another way to participate in the housing growth story is by investing in
apartments for their rentals and capital appreciation. In this model, rentals can
give a yield of about 6% pa and one can expect some capital appreciation over
the medium to long term, if the property is well located, in a region where the
demand is good. However in most cases the rental contracts are not very long-
term in nature, so borrowing against such properties can be quite tricky.
The opportunities are immense; the themes are plenty and varied. It
really depends on the investor as to how he/she wants to play the game. By
knowing your bite size, risk appetite, staying power, comfort levels, you can
select which is the optimal way for you to participate in the great Indian real
estate story. Hopefully, this time round, everyone will do better than the past, if
he/she chooses right investment in the right property in the right location in the
right city or markets. This research will help investor to choose the investment
opportunities in both India and US.

30