Chapter No.

1 Introduction to Real Estate Business

Real Estate
The most basic definition real estate is "an interest in land". Broadening that definition somewhat, the word "interest" can mean either an ownership interest (also known as a fee-simple interest) or a leasehold interest. In an ownership interest, the investor is entitled to the full rights of ownership of the land (for example, to legally use and transfer the title of the land/property), and must also assume the risks and responsibilities of a landowner (for example, any losses as a result of natural disasters and the obligation to pay property taxes). On the other side of the relationship, a leasehold interest only exists when a landowner agrees to pass some of his rights on to a tenant in exchange for a payment of rent. If you rent an apartment, you have a leasehold interest in real estate. If you own a home, you have an ownership interest in that home. Some jurisdictions recognize other interests beyond these two, such as a life estate, but those interests are less common in the investment arena. 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. Directorate of Estates is an attached office of the Ministry of Urban Development, Government of India. It is responsible for the administration and management of the office buildings for the various organizations of the Government of India as well as residential accommodation for the Government employees in the metropolitan cities of Delhi, Mumbai, Kolkata, Chennai and five other cities namely Shimla, Chandigarh, Ghaziabad, Faridabad and Nagpur. The Central Government Estates in the remaining cities and towns are managed by the Central Public Works Department (CPWD).

CREDAI (Confederation of Real Estate Developer's Associations of India) is the apex body of the organized real estate developers/builders across India. 20 State/city level associations, namely, Andhra Pradesh, Chhattisgarh, Delhi-NCR, Goa, Gujarat, Jharkhand, Himachal Pradesh, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Odessa, Punjab, Rajasthan, Tamilnadu, Uttar Pradesh and West Bengal spread over across 18 States of India are members of CREDAI with over 3,500 individual members developers encompassing over 60% of the organized private state/cities in the country.

Real Estate Laws in India

Investing in real estate in India require compliance with various laws which run into dozens, some of them more than 100 years old and some very new. In addition to federal laws of India, there are many state laws governing real estate transactions and investment. The federal laws governing real estate include:

Indian Contract Act, 1872 Transfer of Property Act, 1882 Registration Act, 1908 Special Relief Act, 1963 Urban Land (Ceiling And Regulation) Act (ULCRA), 1976 Land Acquisition Act, 1894 The Indian Evidence Act, 1872

While each State has its own set of laws, which govern planned development, the two laws that exist in every State are the stamp duty and rent laws. The sector has assumed growing importance with liberalisation of the Indian economy. Developments in the sector are being influenced by the developments in the retail, hospitality, entertainment industries, economic services and information technology (IT)-enabled services, etc. and vice versa. Foreign Direct Investment (FDI) in real estate is being permitted since January 2002. Previously, only NRIs and PIOs were allowed to invest in the housing and the real estate sectors. Foreign investors other than NRIs were allowed to invest only in development of integrated townships and settlements either through a wholly-owned subsidiary or through a joint venture company along with a local partner. India fully opened up the sector to FDI in 2005. However, norms issued later made a minimum capitalization of $10 million for wholly-owned subsidiaries and $5 million for joint ventures mandatory. Besides, minimum area requirement were also imposed by the Government. At present, foreign institutional investment (FII) is not permitted in the real estate sector. India's real estate sector is witnessing an unprecented high. Enabling regulatory changes, high industrial growth, easier financing options and steady growth in equity markets have resulted in an upturn in the real estate investment activity. This, coupled with the Government's relaxation of FDI policies have made the real estate an attractive investment option.

With the development of private property ownership, real estate has become a major area of business, commonly referred to as commercial real estate. Purchasing real estate requires a significant investment, and each parcel of land has unique characteristics, so the real estate industry has evolved into several distinct fields. Specialists are often called on to valuate real estate and facilitate transactions. Some kinds of real estate businesses include: 4

Appraisal: Professional valuation services

Brokerages: A mediator who charges a fee to facilitate a real estate transaction between the two parties.

Development : Improving land for use by adding or replacing buildings

Net leasing

Property management : Managing a property for its owner(s)

Real estate marketing: Managing the sales side of the property business

Real estate investing: Managing the investment of real estate

Relocation services: Relocating people or business to a different country

Corporate Real Estate: Managing the real estate held by a corporation to support its core businessunlike managing the real estate held by an investor to generate income

Within each field, a business may specialize in a particular type of real estate, such as residential, commercial, or industrial property. In addition, almost all construction business effectively has a connection to real estate. Professional university-level education in real estate is primarily focused at the graduate level. Focus in towards the commercial real estate sector, primarily real estate development or investment rather than residential real estate sales conducted by a REALTOR.

Real Estate Financing

There are different ways of real estate financing: governmental and commercial sources and institutions. A home buyer or builder can obtain financial aid from savings and loan associations, commercial banks, savings banks, mortgage bankers and brokers, life insurance companies, credit unions, federal agencies, individual investors, and builders.

Savings and loan associations The most important purpose of these institutions is to make mortgage loans on residential property. These organizations, which also are known as savings associations, building and loan associations, cooperative banks (in New England), and homestead associations (in Louisiana), are the primary source of financial assistance to a large segment of American homeowners. As home-financing institutions, they give primary attention to single-family residences and are equipped to make loans in this area.

Commercial banks 6

Due to changes in banking laws and policies, commercial banks are increasingly active in home financing. In acquiring mortgages on real estate, these institutions follow two main practices: First, some of the banks maintain active and well-organized departments whose primary function is to compete actively for real estate loans. In areas lacking specialized real estate financial institutions, these banks become the source for residential and farm mortgage loans. Second, the banks acquire mortgages by simply purchasing them from mortgage bankers or dealers. In addition, dealer service companies, which were originally used to obtain car loans for permanent lenders such as commercial banks, wanted to broaden their activity beyond their local area. In recent years, however, such companies have concentrated on acquiring mobile home loans in volume for both commercial banks and savings and loan associations. Service companies obtain these loans from retail dealers, usually on a nonrecourse basis. Almost all bank/service company agreements contain a credit insurance policy that protects the lender if the consumer defaults.

Savings banks These depository financial institutions are federally chartered, primarily accept consumer deposits, and make home mortgage loans.

Mortgage bankers and brokers Mortgage bankers are companies or individuals, who originate mortgage loans, sell them to other investors, service the monthly payments, and may act as agents to dispense funds for taxes and insurance.

Mortgage brokers present the consumer home buyer with the best loan from a variety of loan sources. Their income comes from the lender making the loan, just like with any other bank. Because they can tap a variety of lenders, they can shop on behalf of the borrower and achieve the best available terms. Despite legislation enacted that could favor the major banks, mortgage bankers and brokers keep the market competitive so the largest lenders must continue to compete on price and service. According to Don Burnette of Bright green Home loans in Port Orange, Florida, "The mortgage banker and broker conduit is vital to maintain competitive balance in the mortgage industry. Without it, the largest lenders would be able to unduly influence rates and pricing, potentially hurting the consumer. Competition drives every organization in this industry to constantly improve on their performance, and the consumer is the winner in this scenario."

Life insurance companies Life insurance companies are another source of financial assistance. These companies lend on real estate as one form of investment and adjust their portfolios from time to time to reflect changing economic conditions. Individuals seeking a loan from an insurance company can deal directly with a local branch office or with a local real estate broker who acts as loan correspondent for one or more insurance companies.

Credit unions These cooperative financial institutions are organized by people who share a common bond for example, employees of a company, a labor union, or 8

a religious group. Some credit unions offer home loans in addition to other financial services.

Federally supported agencies Under certain conditions and fund limitations the Veterans Administration makes direct loans to creditworthy veterans in housing credit shortage areas designated by the VA's administrator. Such areas are generally rural areas and small cities and towns not near the metropolitan or commuting areas of large cities areas where GI loans from private institutions are not available. The federally supported agencies referred to here do not include the socalled second-layer lenders who enter the scene after the mortgage is arranged between the lending institution and the individual home buyer.

Real Estate Investment Trust Real Estate Investment Trusts (REITs), which began when the Real Estate Investment Trust Act became effective January 1, 1961, are available. REITs, like savings and loan associations, are committed to real estate lending and can and do serve the national real estate market, although some specialization has occurred in their activities. In the U.S., REITs generally pay little or no federal income tax, but are subject to a number of special requirements set forth in the Internal Revenue Code, one of which is the requirement to annually distribute at least 90% of their taxable income in the form of dividends to shareholders.

Chapter No. 2 Major players in the Real Estate sector & their performance

Organized Real Estate Industry in India is only a couple of decades old .Real Estate Industry in India took off with the global boom in the Realty Sector which percolated down to India as well. Lack of clear land titles and litigation has made this industry one of the most opaque and corrupt ones. Due to the massive price appreciation and huge valuations, Land 10

Scams have become quite common with Chief Ministers, Generals, Top Bureaucrats all involved in the murky environment of Real Estate in India. The most recent scam related to bribing of top public banks officials in the LIC Housing Finance Scandal has again put question mark on the fundamentals of the industry. Valuing the industry and making a real estate investment remains one of the most difficult investing tasks in the Indian Stock Market. Even Fund Managers are staying away from the Sector due to lack of trust in the Financial Statement given by the industry. That said modern India presents a booming picture of tall buildings and huge office areas & shopping malls. A list of the chief players in Indian market is given below : Sobha Developers Ltd DLF Ltd Unitech Ltd Emaar MGF Shapoorji Pallonji & Co India Bulls Real Estate HDIL

Sobha Developers Ltd

Headed by: PNC Menon, Chairman 11

About: The Company was founded in 1995 by PNC Menon after he returned home from the Middle East where he was acclaimed for quality interiors and construction since 1977. Today, this Rs10 billion plus company is one of the largest and only backward integrated company in the construction arena. Its IPO in 2006 was oversubscribed by 126 times that created history, being the first event of its kind in Indian capital markets. Till date, Sobha has completed 47 residential projects, 13 commercial projects and 166 contractual projects covering about 36 million sq ft area in 18 cities across India (as of 31 March 2010). The company currently has 21 ongoing residential projects aggregating to 8.5 million sq ft, while 4.24 million sq ft of contractual projects are under various stages of construction.

Vision - Transform the way people perceive 'Quality' Mission - No Short Cuts to Quality Philosophy - Passion at Work

Sobha Developers Ltd: With an annual turnover of Rs 1,189 crore, Sobha Developers Ltd was initiated by the now chairman PNC Menon in the year 1995. On June 30, 2007, the company has 3,706 skilled professionals working for it. At present it owns Rs 3,500-acre land in eight Indian cities namely Coimbatore, Bangalore, Mysore, Chennai, Thrissur, Kochi, Pune and Hosur. The companys clientele include some of the top players in IT, hotel and construction sector such as Hewlett Packard, Mico, Infosys, Ramaraju Developers, Dell, Timken, etc.

Capital Structure - Sobha Developers Ltd. Period From To Instrument Authorized Issued -PAIDUPCapital Capital (Rs. cr) (Rs. cr) Shares Face 12

Capital

(nos) 2010 2011 Equity Share150.0 2009 2010 Equity Share150.0 2008 2009 Equity Share150.0 2007 2008 Equity Share80.0 2006 2007 Equity Share80.0 2005 2006 Equity Share30.0 2004 2005 Equity Share22.0 2003 2004 Equity Share22.0 98.1 98.1 72.9 72.9 72.9 21.1 21.1 21.1

Value (Rs. Cr) 98.1 98.1 72.9 72.9 72.9 21.1 21.1 21.1

98063868 10.0 98063868 10.0 72901733 10.0 72901733 10.0 72901733 10.0 21104080 10.0 21140480 10.0 21140480 10.0

Shareholding pattern - Sobha Developers Ltd. Holder's Name Promoters Foreign Promoter Foreign Institutions General Public Other Companies N Banks Mutual Funds Others Financial Institutions Foreign NRI Directors Foreign Others Foreign Ocb No of Shares 45000 59331350 31599481 2605008 1339875 1261576 1069170 589948 199214 21235 2000 11 % Share Holding 0.05% 60.50% 32.22% 2.66% 1.37% 1.29% 1.09% 0.60% 0.20% 0.02% 0.00% 0.00%

Profit & Loss - Sobha Developers Ltd. 13

Mar'11 12 Months INCOME: Sales Turnover Excise Duty NET SALES Other Income TOTAL INCOME EXPENDITURE: Manufacturing Expenses Material Consumed Personal Expenses Selling Expenses Administrative Expenses Expenses Capitalised Provisions Made TOTAL EXPENDITURE Operating Profit EBITDA Depreciation Other Write-offs EBIT Interest EBT 1,451.65 3.24 1,448.41 0.00 1,463.96

Mar'10 12 Months

Mar'09 12 Months

Mar'08 12 Months 1,436.34 13.84 1,422.51 0.00 1,434.22

Mar'07 12 Months 1,194.75 8.28 1,186.46 0.00 1,189.18

1,110.61 983.87 3.39 0.00 9.13 0.00 1,107.22 974.74 1,118.89 982.17

729.98 116.69 124.24 88.36 90.74 0.00 0.00 1,150.01 298.40 313.94 27.77 0.00 286.17 42.93 243.24

517.60 97.20 96.28 65.73 82.86 0.00 0.00 859.68 247.54 259.21 32.31 0.00 226.90 67.14 159.76 14

599.92 -173.89 126.09 61.16 91.60 0.00 0.00 704.89 269.85 277.28 36.03 0.00 241.25 105.21 136.04

1,032.80 -283.34 126.20 94.22 98.98 0.00 0.00 1,068.87 353.64 365.36 35.04 0.00 330.32 59.69 270.63

694.85 3.41 81.40 77.49 73.14 0.00 0.00 930.30 256.16 258.87 24.39 0.00 234.49 48.07 186.41

Taxes Profit and Loss for the Year Non Recurring Items Other Non Cash Adjustments Other Adjustments REPORTED PAT

61.14 182.10 0.36 0.00 0.00 182.46

23.61 136.15 0.39 0.12 0.00 136.66

35.84 100.19 9.49 0.00 0.00 109.68

42.58 228.05 0.25 0.00 0.00 228.30

25.06 161.35 0.17 -0.0 0.00 161.52

KEY ITEMS Preference Dividend 0.00 Equity Dividend Equity Dividend (%) Shares in Issue (Lakhs) EPS - Annualised (Rs) 29.42 29.99 980.64 18.61

0.00 24.52 25.00 980.64 13.94

0.00 7.29 9.99 729.02 15.04

0.00 47.40 65.01 729.02 31.32

0.46 40.10 54.99 729.02 22.16

Balancesheet - Sobha Developers Ltd. Particulars Mar'11 Mar'10 Mar'09 Mar'08 Mar'07 12 Liabilities 12 Months12 Months12 Months12 Months Months Share Capital 98.06 98.06 72.90 72.90 72.90 Reserves & Surplus 1,758.56 1,610.40 1,016.59 915.44 742.64 Net Worth 1,856.62 1,708.47 1,089.49 988.34 815.54 Secured Loans 1,202.62 1,446.58 1,878.34 1,438.09 545.23 Unsecured Loans 8.35 7.45 33.84 324.96 38.45 TOTAL 3,067.59 3,162.50 3,001.67 2,751.39 1,399.22 LIABILITIES 15

Assets Gross Block (-) Acc. Depreciation Net Block Capital Work in Progress. Investments. Inventories Sundry Debtors Cash And Bank Loans And Advances Total Current Assets Current Liabilities Provisions Total Current Liabilities NET CURRENT ASSETS Misc. Expenses TOTAL ASSETS (A+B+C+D+E)

314.77 177.49 137.28 66.80 51.61 972.64 391.39 27.54

294.21 151.30 142.91 63.20 42.94 1,017.39 416.58 80.04

293.02 119.80 173.22 51.56 36.16 1,049.19 355.32 21.05

271.13 84.18 186.95 29.40 787.86 545.16 12.59

233.37 49.48 183.89 52.77 377.80 157.74 68.36 289.88

1,652.05 902.83

2,159.04 2,014.48 1,898.70 104.43

3,550.60 3,528.48 3,324.27 1,450.04 893.77 645.53 93.17 738.70 561.32 53.71 615.03 555.56 27.98 583.54 477.12 89.91 567.04 531.00 103.04 634.04 259.74 0.00

2,811.90 2,913.46 2,740.72 883.00 0.00 0.00 0.00 0.00

3,067.59 3,162.50 3,001.67 2,751.39 1,399.22

DLF
DLF Headed by: Dr Kushal Pal Singh, Chairman About: With a track record of 64 years, DLF is Indias largest real estate company in terms of revenues, earnings, market capitalization and developable area. It currently has pan India presence across 30 cities with approximately 238 million sq ft of completed development and 413 million sq ft of planned projects, of which 56 million sq ft of projects are under construction during FY10.

16

Project Spectrum : Residential, townships, commercial complexes, IT Parks, hotels, multiplexes, etc. Quick fact : Only listed real estate Company included in the BSE Sensex, NSE Nifty, MSCI India Index and MSCI Emerging Markets Asia Index. Latest : Will take its luxury mall DLF Emporio (already operational in New Delhi) to other big cities such as Hyderabad and Chennai.

DLFs chief business is to develop housing, marketable and retail properties. Currently it has undertaken the development of 70 million sq ft of housing projects which it intends to finish in the next three years. DLF has joined hands with Delhi Development Authority to develop townships in Amritsar, Pune, Gurgaon, Mumbai, Chennai and Goa. DLF has been the construction company behind different malls in the major cities in India. The company is also developing 50-75 hotels along with Hilton Hotels and infrastructure and SEZ in India in collaboration with Laing ORourke (UK).The current market cap is around Rs.51,832.22 crore.

Capital Structure - DLF Ltd. Period From To Instrument Authorized Capital (Rs. cr) Issued Capital (Rs. cr) 341.0 341.0 341.0 341.0 305.9 17 -PAIDUPShares Face Capital (nos) Value (Rs. Cr) 1697571794 2.0 339.5 1697390890 2.0 1704832680 2.0 1704832680 2.0 1529421080 2.0 339.5 341.0 341.0 305.9

2010 2011 Equity Share499.5 2009 2010 Equity Share499.5 2008 2009 Equity Share499.5 2007 2008 Equity Share499.5 2006 2007 Equity Share499.5

2005 2006 Equity Share39.5 2004 2005 Equity Share4.5 2003 2004 Equity Share4.5 2002 2003 Equity Share4.5 2001 2002 Equity Share4.5 1999 2001 Equity Share4.5 1997 1999 Equity Share4.5

37.9 3.6 3.6 3.6 3.6 3.6 3.6

37767997 3508007 3508007 3508007 3508007 3508007 3508007

10.0 10.0 10.0 10.0 10.0 10.0 10.0

37.8 3.5 3.5 3.5 3.5 3.5 3.5

Shareholding pattern - DLF Ltd. Holder's Name Promoters Foreign Institutions General Public Other Companies Others Financial Institutions Foreign NRI NBanks Mutual Funds Foreign Industries Foreign Ocb No of Shares% Share Holding 1334803120 78.60% 270569137 63121125 17192737 5566356 3768716 2168272 947004 126600 11 15.93% 3.72% 1.01% 0.33% 0.22% 0.13% 0.06% 0.01% 0.00%

18

Profit & Loss - DLF Ltd.

19

Mar'11 12 Months INCOME: Sales Turnover Excise Duty NET SALES Other Income TOTAL INCOME EXPENDITURE: Manufacturing Expenses Material Consumed Personal Expenses Selling Expenses Administrative Expenses Expenses Capitalised Provisions Made TOTAL EXPENDITURE Operating Profit EBITDA Depreciation Other Write-offs EBIT Interest EBT Taxes Profit and Loss for the Year Non Recurring Items 848.68 0.00 89.90 53.71 143.99 0.00 0.00 1,136.27 1,779.81 2,909.87 129.77 50.40 2,729.70 1,286.70 1,443.00 309.05 1,133.95 105.45 2,916.08 0.00 2,916.08 0.00 4,046.14

Mar'10

Mar'09

Mar'08 12 Months

Mar'07 12 Months

12 Months 12 Months

2,307.08 0.00 2,307.08 0.00 3,203.84

2,827.90 0.00 2,827.90 0.00 3,834.62

5,496.96 0.00 5,496.96 0.00 6,057.70

1,101.66 0.00 1,101.66 0.00 1,429.32

889.25 0.00 90.50 56.92 225.45 0.00 0.00 1,262.13 1,044.95 1,941.72 126.05 41.47 1,774.19 847.24 926.96 175.71 751.24 11.80

778.34 0.00 71.12 59.28 156.39 0.00 0.00 1,065.14 1,762.76 2,769.48 114.08 37.86 2,617.54 809.86 1,807.69 261.00 1,546.68 -2.15

2,141.29 6.06 103.78 45.70 128.16 0.00 0.00 2,424.98 3,071.98 3,632.72 25.68 41.79 3,565.24 447.65 3,117.59 543.52 2,574.07 0.16

237.75 8.72 44.82 63.42 88.51 0.00 0.00 443.22 658.44 986.11 9.44 0.00 976.67 356.25 620.42 214.56 405.86 -0.1

20

Other Non Cash Adjustments Other Adjustments REPORTED PAT KEY ITEMS Preference Dividend Equity Dividend Equity Dividend (%) Shares in Issue (Lakhs) EPS - Annualised (Rs)

30.16 0.02 1,269.58

2.01 -0.0 765.06

33.05 -29.81 1,547.77

0.36 -0.1 2,574.40

1.24 -1.14 405.77

0.00 339.51 100.00 16,975.72 7.48

0.00 339.48 100.00 16,973.91 4.51

0.00 339.44 100.00 16,972.09 9.12

0.00 681.93 200.00 17,048.33 15.10

0.00 340.97 111.46 15,294.21 2.65

Balancesheet - DLF Ltd. Particulars Liabilities Share Capital Reserves & Surplus Net Worth Secured Loans Unsecured Loans TOTAL LIABILITIES Assets Gross Block (-) Acc. Depreciation Net Block Capital Work in Progress. Investments. Inventories Sundry Debtors 2,143.37 400.27 1,743.10 2,199.25 7,037.24 8,389.41 270.21 2,002.85 273.84 1,729.02 1,718.51 6,558.88 6,533.69 607.96 1,968.40 152.87 1,815.52 1,657.73 2,956.32 6,627.43 212.89 1,533.72 59.34 1,474.37 1,781.79 1,839.83 5,928.13 930.18 365.58 37.01 328.57 665.03 769.17 4,281.07 173.79 Mar'11 12 Months 339.51 13,470.98 13,810.49 14,700.70 358.85 28,870.03 Mar'10 12 Months 339.48 12,490.53 12,830.01 11,590.19 1,047.67 25,467.86 Mar'09 12 Months 339.44 12,035.39 12,374.82 7,979.97 1,635.00 21,989.79 Mar'08 12 Months 340.96 10,928.19 11,269.15 4,945.91 3,440.49 19,655.55 Mar'07 12 Months 305.88 346.92 652.80 6,242.81 526.48 7,422.10

21

Cash And Bank Loans And Advances Total Current Assets Current Liabilities Provisions Total Current Liabilities NET CURRENT ASSETS Misc. Expenses TOTAL ASSETS (A+B+C+D+E)

176.27 15,415.91 24,251.81 5,394.09 967.27 6,361.36 17,890.45 0.00 28,870.03

171.43 11,631.40 18,944.48 2,047.37 1,435.66 3,483.03 15,461.45 0.00 25,467.86

761.20 11,117.09 18,718.62 1,699.75 1,458.64 3,158.40 15,560.22 0.00 21,989.79

994.82 10,492.80 18,345.94 2,531.21 1,255.16 3,786.38 14,559.56 0.00 19,655.55

179.49 4,807.90 9,442.25 3,059.67 723.25 3,782.93 5,659.32 0.00 7,422.10

Unitech
Unitech: Recently Ramesh Chandra, Unitechs Chairman has declared the investment of $ 720 million by his company in the coming four years to develop 28 hotels along with Marriott International. The market capitalisation of the company is Rs.16,867.40 crore.Its chief activities include construction, expansion of real-estate, consultancy in associated sectors, hotels, electrical broadcast and information technology.

Headed by: Ramesh Chandra, Executive Chairman

About: Established in 1972, Unitech is today Indias leading real estate developer in India. It is the first developer to have been certified ISO 9001:2000 in North India.

Project Spectrum: Unitech offers diversified projects across residential, commercial/IT parks, retail, hotels, amusement parks and SEZs segments. Unitech was the first real estate company to be part of the National Stock Exchanges NIFTY 50 Index. The company has over 600,000 shareholders. Unitech and Norway based Telenor Group came together to build Uninor - a telecommunication services company providing GSM services across India. 22

Latest: Has ventured into the infrastructure business by launching Unitech Infra.

Capital Structure - Unitech Ltd. Period From To 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1997 1996 1995 1994 1993 Instrument Authorized Capital (Rs. cr) Issued Capital - P A I D U P (Rs. cr) 523.3 487.8 324.7 324.7 162.3 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 10.9 Shares (nos) Face Value Capital (Rs. Cr) 523.3 487.8 324.7 324.7 162.3 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 10.9

2011 Equity Share 800.0 2010 Equity Share 800.0 2009 Equity Share 800.0 2008 Equity Share 500.0 2007 Equity Share 200.0 2006 Equity Share 25.0 2005 Equity Share 25.0 2004 Equity Share 25.0 2003 Equity Share 25.0 2002 Equity Share 25.0 2001 Equity Share 25.0 1999 Equity Share 25.0 1997 Equity Share 25.0 1996 Equity Share 25.0 1995 Equity Share 25.0 1994 Equity Share 15.0

2616301047 2.0 2438801047 2.0 1623375000 2.0 1623375000 2.0 811687500 12487500 12487500 12487500 12487500 12487500 12487500 12487500 12487500 12487500 12487500 10887500 2.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0 10.0

23

1992 1991 1990 1989 1988

1993 Equity Share 15.0 1992 Equity Share 15.0 1991 Equity Share 10.0 1990 Equity Share 10.0 1989 Equity Share 10.0

10.8 7.2 7.2 7.2 6.0

10804676 7208600 7208600 7208600 5992500

10.0 10.0 10.0 10.0 10.0

10.8 7.2 7.2 7.2 6.0

Holder's Name Promoters Foreign Institutions General Public Other Companies Financial Institutions Foreign NRI Foreign Promoter Others NBanks Mutual Funds Foreign Ocb Profit & Loss - Unitech Ltd.

No of Shares 1267023868 824924490 343082921 103423632 58845042 11357497 3822000 2275357 1546229 11

% Share Holding 48.43% 31.53% 13.11% 3.95% 2.25% 0.43% 0.15% 0.09% 0.06% 0.00%

Mar'11 12 Months INCOME: Sales Turnover Excise Duty 1,340.41 0.00

Mar'10 12 Months

Mar'09

Mar'08

Mar'07 12 Months

12 Months 12 Months

1,849.49 0.00

1,767.27 0.00

2,486.79 0.00

2,441.74 0.00

24

NET SALES Other Income TOTAL INCOME EXPENDITURE: Manufacturing Expenses Material Consumed Personal Expenses Selling Expenses Administrative Expenses Expenses Capitalised Provisions Made TOTAL EXPENDITURE Operating Profit EBITDA Depreciation Other Write-offs EBIT Interest EBT Taxes Profit and Loss for the Year Non Recurring Items Other Non Cash Adjustments Other Adjustments

1,340.41 0.00 1,715.91

1,849.49 0.00 2,196.57

1,767.27 0.00 2,421.80

2,486.79 0.00 2,615.18

2,441.74 0.00 2,507.40

884.14 3.92 115.41 5.70 94.14 0.00 0.00 1,103.31 237.10 612.60 6.68 0.00 605.92 329.21 276.71 218.09 58.62 451.46 -1.84 1.84

920.51 58.45 93.18 14.37 64.70 0.00 0.00 1,151.22 698.28 1,045.36 5.95 0.00 1,039.41 346.70 692.71 171.13 521.58 22.72 -18.83 18.83

568.06 23.87 106.44 16.41 49.83 0.00 0.00 764.62 1,002.64 1,657.17 10.04 0.00 1,647.14 722.12 925.01 216.98 708.03 31.63 0.00 0.00

981.25 45.57 98.43 11.90 64.51 0.00 0.00 1,201.68 1,285.11 1,413.51 8.58 0.00 1,404.93 393.38 1,011.55 334.83 676.72 353.96 -0.3 0.38

853.98 78.97 65.62 13.13 42.35 0.00 0.00 1,054.04 1,387.69 1,453.35 4.54 0.00 1,448.82 193.71 1,255.11 361.27 893.84 89.72 0.44 -0.4

25

REPORTED PAT KEY ITEMS Preference Dividend Equity Dividend Equity Dividend (%) Shares in Issue (Lakhs) EPS - Annualised (Rs)
Balance sheet - Unitech Ltd.Print Particulars Share Capital Reserves & Surplus Net Worth Secured Loans Unsecured Loans TOTAL LIABILITIES Assets Gross Block (-) Acc. Depreciation Net Block Capital Work in Progress. Investments. Inventories Sundry Debtors

510.08

544.30

739.66

1,030.68

983.56

0.00 26.16 5.00

0.00 48.78 10.00

0.00 20.44 6.29

0.00 40.58 12.50

0.00 40.58 25.00 8,116.88 12.12

26,163.01 24,388.01 16,233.75 16,233.75 1.95 2.23 4.56 6.35

Mar'11 523.26 8,758.61 9,281.87 3,566.83 2,002.24 14,850.93

Mar'10 712.96 7,415.47 8,128.43 3,907.54 1,016.02 13,051.99

Mar'09 324.68 2,534.89 2,859.56 5,931.02 1,747.98 10,538.56

Mar'08 324.68 1,819.14 2,143.82 5,506.45 2,611.08 10,261.35

Mar'07 162.34 998.66 1,161.00 2,839.67 765.39 4,766.06

154.27 49.78 104.49 10,870.28 2,054.02 9.79 1,679.67

151.09 44.03 107.07 9,666.03 1,654.15 5.74 1,007.74

148.63 40.79 107.84 8,688.46 1,954.94 10.48 793.00

132.05 35.96 96.08 7,083.41 1,397.99 13.66 739.74

99.87 30.24 69.63 4,408.59 518.93 32.77 97.55

26

Cash And Bank Loans And Advances Total Current Assets Current Liabilities Provisions Total Current Liabilities NET CURRENT ASSETS Misc. Expenses TOTAL ASSETS (A+B+C+D+E)

265.26 7,872.87 9,827.59 7,859.01 146.44 8,005.45 1,822.14 0.00 14,850.93

209.43 7,427.77 8,650.68 6,895.87 130.07 7,025.94 1,624.75 0.00 13,051.99

103.15 5,489.72 6,396.36 6,580.13 28.91 6,609.04 -212.67 0.00 10,538.56

371.18 7,624.58 8,749.17 6,316.27 749.03 7,065.30 1,683.87 0.00 10,261.35

795.82 3,090.88 4,017.01 3,798.30 449.80 4,248.10 -231.08 0.00 4,766.06

Chapter No. 3 Trends in Real Estate business

27

Indian Real-estate industry has become one of the biggest investment sectors over the past few years. Currently, it plays a major role in shaping the countrys economy. This sector is witnessing a marked boon owing to changing trends and developments. Some of the major factors responsible for the current upward movement of the Indian real estate graph are as follows: Steady expansion and development in the IT sector of India: In India there has been a constant expansion in the IT sector. Various MNCs and corporate houses have come up that have given way to the growth in the real-estate sector especially in the commercial property sector. This has also provided better employment opportunities to the people of India and thus helping in the overall growth of the Indian economy and subsequently in the growth of the real estate.

Adoption of Foreign Direct Investment (FDI) policy: The growth in the real estate sector of India largely depends on its government policies. Currently, the government of India has adopted Foreign Direct Investment (FDI) policy, which has allowed the coming in of the foreign investors in the Indian real estate market. Some of the worlds famous builders are taking keen interest in investing in the Indian real-estate market. Coming in of foreign builders promises better prospects in the Indian real estate industry in terms of regulatory policy, efficient management, and the use

28

of more advanced technology. This ensures that the Indian real estate has a brighter future. Easy access to bank loans: Today, various national and multinational banks are present in India that has made the home/property loans easily accessible. So, buying a property is not difficult even for those belonging to middle-class. Thus, it has enabled the overall growth of the Indian real estate.

Growth in Indian economy: Indian economy is one of the fastest growing economies of the world. It has a direct influence on the realestate sector of India. Some of the major areas which have been greatly affected by the growth in Indian economy are Delhi NCR, Mumbai, Hyderabad, Chennai, Bangalore, Pune and Kolkata. This growth is observed in all forms of property such as commercial, residential and industrial.

Today, the investors from all the major sectors are getting attracted towards the Indian the real-estate sector. This sector has become a centre of attention amongst all the corporate sectors of India. Owing to all the recent developments in the Indian real estate sector, it has moved five places upwards in world rankings.

The Indian economy has witnessed robust growth in the last few years and is expected to be one of the fastest growing economies in the coming 29

years. Demand for commercial property is being driven by India's economic growth. Real estate in India contributes about 5 per cent to India's gross domestic product (GDP). The total revenue generated in 2010-11 stood at US$ 66.8 billion. Demand is expected to grow at a compound annual growth rate (CAGR) of 19 per cent between 2010 and 2014Tier 1 metropolitan cities are projected to account for about 40 per cent of this. Growing requirements of space from sectors such as education, healthcare and tourism provide opportunities in the real estate sector. FDI of more than US$ 9 billion was infused in real estate in the last decade. In 2010, over 11 per cent of total FDI in India was in the real estate sector. There have been 110 deals in this sector during the period 2001 to the first half of 2011. Urban population has been increasing and is expected to cross 590 million by 2030. Urbanization and growing household income are some of the major factors that influence demand for residential real estate and growth in the retail sector. Investments Real estate emerged as the popular sector for private equity funds who invested US$1,700 million in this sector during 2011. Private equity in real estate projects will fetch considerable returns by next year-end or early 2013. Some of the recent investments in this sector are mentioned below: Sahara India has joined hands with the US-based Turner Construction Company. The JV, Sahara Turner Construction, will build integrated townships called Sahara City Homes and other Sahara India projects in India worth US$ 25 billion over the next 20 years DLF acquired the additional 26 per cent stake in its joint venture company DLF Hotels & Hospitality Ltd (DHHL)from Aro Participation Ltd and Splendid Property Company Ltd, affiliates of Hilton International. At 30

present, the company holds 74 per cent equity in DHHL Pride Group of Hotels, which owns a chain of upscale mid-market and business hotels is planning to set up a series of new properties and this will involve an investment of Rs 1,000 crore (US$ 203.18 million) over the next few years. The company plans to have a mix of owned and managed properties having 3,500 rooms by 2015-16 Government Initiatives The foreign direct investment (FDI) up to 100 per cent is allowed with Government's permission for developing townships and settlements New home loan borrowers of up to Rs 1.5 million (US$ 30,477) will get Rs 14,865 (US$ 302) as interest subsidy from the Government, on the condition that the cost of the house should not exceed Rs 2.5 million (US$ 50,798) Allowing 100 per cent FDI under the automatic route in development of Special Economic Zones (SEZ), subject to the provisions of Special Economic Zones Act 2005 and the SEZ Policy of the Department of Commerce In the Union Budget 2011-12, Mr Pranab Mukherjee, Union Finance Minister presented various initiatives for the real estate sector, especially focusing on affordable housing. Some of these initiatives are listed below: Increasing the limit on housing loans eligible for a 1 per cent subsidy in interest rates. Widening the scope for housing under "priority-sector lending" for banks, making interest rates cheaper on them Allocating substantial amount to the Urban Development Ministry for spending on extension of Metro networks in Delhi, Bangalore and Chennai Earmarking US$ 20.03 million for the urban infrastructure development project. The Urban Development Ministry received US$ 1.5 billion, an increase of US$ 68.53 million from the last fiscal 2010-11 31

Road Ahead Real estate plays an important role in the Indian economy. This 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. The size of the Indian real estate market is expected to touch US$ 180 billion by 2020. The housing sector alone contributes to 5-6 per cent of the India's GDP. Retail, hospitality and commercial real estate are also growing considerably, providing the much-awaited infrastructure towards India's growing needs. According to a study by ICRA, the construction industry in India ranks 3rd among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy. A unit rise in construction spending generates five times the income, having a multiplier effect across the board. With backward and forward linkages to over 250 ancillary industries, the positive effects of real estate growth spread far and wide. Therefore, real estate acts as a catalyst for adding momentum to growth of the Indian.

New Delhi: The current global scenario might be one of gloom, with markets in the US and in Europe on the brink of a double dip recession, but interest in Indian real estate is still high among global investors, said Carlo Barel di Sant' Albano, chairman of the board of global property advisory firm Cushman & Wakefield. "If a private equity player with a good track record comes up with a project in India, he will still find capital," he says. Of course, the time taken to raise money has increased, as many international investors are averse to investing at the moment. "But it is clear from all the investors we speak to that they are trying to figure out how to put money in this part of the world, even today," Today Asia is a very critical part of any corporate or investors' strategic plan. For Albano, India is at the centre of that strategy, alongside China 32

because of its size and growth prospects. "If you look at the growth prospects in other parts of the globe, given what is happening in the US and in Europe, Asia is clearly an important driver for growth in the future," says Albano. Over the next few years, investor confidence in India is expected to improve, as transparency and regulation improve. "This will push more capital into real estate," he says. In India, foreign direct investment in real estate already ranks fourth among other sectors, which is a fairly high position considering the regulations that exist for FDI in real estate. When one talks about investments, a comparison between India and China is inevitable. Albano points out that China is ahead in terms of investment in infrastructure and India has some catching up to do in terms of infrastructure. "This scale in different cities in China provides extra flexibility and a bigger canvas for investors." India, on the other hand, is ahead in terms of availability of human capital.

Gross Domestic Product : Housing, Real Estate Services and Construction (at 1993-94 prices) (Figures In Rs Crore)
Year Housing 199394 43,507 199495 44,706 333 42,830 199596 45,958 351 45,496 199697 47,252 370 46,452 1997-98 48,585 390 51,195 1998-99 49,968 413 54,342 1999-00 51,391 437 58,728

Real Estate 317 Services Construction 40,593

33

Total

84,417

87,869

91,805

94,074

1,00,170

1,04,723

1,10,556

Gross Domestic Product : Housing, Real Estate Services and Construction (at 1993-94 prices) (Share in Per Cent)

Year Housing

199394 5.6

199495 5.3 0.04 5.1 10.5

199596 5.1 0.04 5.1 10.2

199697 4.9 0.04 4.8 9.7

199798 4.8 0.04 5.0 9.9

199899 4.6 0.04 5.0 9.7

199900 4.5 0.04 5.1 9.6

Real Estate 0.04 Services Construction Total 5.2 10.8

Source : National Accounts Statistics 2001

Price Variations in Different cities

Price variations in Mumbai
MUMBAI Cuffe Parade Malabar Hill MAR-04 MAR-05 18000 MAR-06 25000 MAR-07 35000 MAR-08 42000

11500

15000

22000

28000

38000

46000

34

Worli Bandra (west) Navi Mumbai

8500 8500 1 800

12000 10000 2300

18000 13500 2800

26000 21500 3500

32500 26500 5500

Price variations in Delhi/NCR

Delhi/NCR Shanti Niketan Vasant Vihar Friends Colony Gurgaon Nodia

MAR-04

MAR-05 15000 14500 8000

MAR-06 18000 17000 10000

MAR-07 22500 21000 13500

MAR-08 27000 26500 18000

11500 11000 6000

2 000 2 000

2500 2800

3700 3700

4850 4900

6100 6850

Impact of Union Budget 2012 On The Mumbai Real Estate Market

The Positives o By allowing external commercial borrowings (ECBs) in the low-cost housing segment, the supply of affordable housing projects will increase in the outskirts of Mumbai in areas such as Karjat, Boisar, Nalasopara, Virar, Dombivali etc. on the heels of increased liquidity for budget home projects.
o

The extension of 1% interest subvention scheme on housing loans up to Rs 15 lakh wherein the cost of the house does not exceed Rs 25 35

lakh, for another year will also help sustain demand for affordable housing in Mumbai.
o

The increased allocation for highways and other infrastructure projects will help boost development of Mumbais outskirts and increase the supply of housing units there. This will result in price stability and affordability over the long term. The investment-linked deduction of capital expenditure in affordable housing, proposed to be raised to 150% from 100%, will also encourage more supply of low-cost housing in the city. The reduction of the withholding tax on ECB interest from 20% to 5% will help Mumbais affordable housing segment by creating muchneeded liquidity for budget home developers. End users will have more money available for home loans with the setting up of a credit guarantee trust fund to ensure better flow of institutional credit for housing loans. The announcement of central assistance and Japanese participation in the Delhi-Mumbai Industrial Corridor project is a big plus. Areas on Mumbais outskirts that lie along the corridor will see increased land values. By reinforcing the tax pass-through status for all types of Venture Capital Fund (VCFs), there will be renewed confidence levels of real estate private equity investors to invest in cities such as Mumbai (which has seen most of the PE investments post the Global Financial crisis.)

The Negatives
o

The overall cost of apartments in Mumbai is likely to go up because of the hike in service tax from 10% to 12%. This will render real estate in the city even less affordable bad news for those who were waiting until the budget before buying homes.

36

The requirement of deduction of tax at source at the rate of 1% on payment of consideration for purchase of an immovable property will impact the cash flows of real estate developers. The lack of a decision on FDI in multi-brand retail will further discourage developers from constructing malls in the city. This will lead to increased rentals in existing malls which are performing well. It will also delay re-tenanting and re-positioning of existing failed malls.

The budget made no mention of re-introducing the 80 IB (10) tax benefit scheme for smaller-sized units. This would have helped developers reconfigure and offer smaller units, which is the need of the hour in Mumbai. Nor were any new tax exemption schemes for IT/ITES companies mentioned. Such exemptions would have increased demand for the vacant IT parks all over Mumbai.

The finance ministry ignored the urgent need for an increase in the limit on tax deduction available on home loans interest from present Rs 1.5 lakhs. There was also no indication of the real estate sector being granted industry status, which would have brought down the borrowing cost for developers thereby reducing home prices in Indias most expensive city.

37

Chapter No. 4 Impact of Dubai crisis on Real Estate business

38

Following the passage of the long-awaited foreign property ownership law in March 2006, a deluge of foreign money boosted Dubais ambitions. Europeans, including Russians, accounted for 20% of the buyers of all property categories. GCC, Arab nationals and UAE nationals make up 28%, Asians 40%, and Iranians 12%, according to figures from Global Realty Partners . The overall foreign ownership index of property kept by Colliers International soared 116% from Q1 2007 to Q3 2008. From 2002 to 2008, Dubais property prices almost quadrupled, and largescale developments turned Dubai into one of the fastest growing cities in the world. Some of the biggest projects include Jumeirah Garden City (estimated cost: US$95 billion), Dubailand (US$64 billion), The Lagoons (US$25 billion), Palm Jumeirah (US$14 billion), and The World (US$14 billion). Then the global credit crunch hit. Amlak and Tamweel, the UAEs two largest home finance companies, stopped offering new loans. The two mortgage lenders accounted for more than 50% of all mortgages in the country.Foreign investors suddenly disappeared at the end of 2008, as the global financial crisis hit the emirates. This caused transaction volumes to plummet. The overall foreign ownership index was 50% down by Q4 2010, from its peak in Q3 2008. Almost half of all the construction projects in the UAE, worth around AED1.1 trillion (US$582 billion), have been either put on hold or cancelled, in response to falling demand and deteriorating market conditions. The table lists some of the megaprojects being delayed or cancelled: 39

PROJECT Jumeirah Gardens City

LOCATION

DEVELOPER Meraas Development

VALUE (US$)

STATUS

Satwa district, Dubai

95 billion On hold

Between Al Khail Mohamed Bin Road Dubai Rashed and Emirates Road,Properties Gardens Dubai Between Phase 2 of Ibn Battuta shopping & Nakheel mall and the 75-km Arabian Canal, Dubai Dubailand Dubai Properties

55 billion On hold

Nakheel Harbour Tower

38 billion On hold

Mudon Development

21 billion On hold

Along Dubai Creek, Dubai Culture Village next to Garhoud Properties Bridge Palm Deira Deirah coastal area, Nakheel Dubai City of Quwain Umm Al

13.6 billion 12.5 billion

On hold

On hold

Al Salam City

Tameer Holding 8.3 billion On hold

Near Jumeirah Al Burj Tower Lake (The Tall Nakheel Towers and Dubai Tower) Marina 40

8.2 billion On hold

Universal City Dubailand

Dubailand

2.2 billion On hold

Emerald Gateway

Along Coast Road, between Abu Dhabi Abu Dhabi downtown and Abu 1.9 billion On hold Municipality Dhabi International Airport Dubailand Island Dhabi near Dubailand 1.8 billion On hold

Aqua Dunya Dolphin City

AbuEmirates 1.7 billion On hold German Group 1.3 billion Cancelled 0.72 billion 0.68 billion 0.45 billion

Nad El Sheba 5-km southeast of Meydan LLC Race course Dubai Al Falah Outskirts Dhabi of Abu Aldar Properties

On hold

Falcon City Dubailand of Wonders

ETA Star

Cancelled

Dubai Within the Jebel Ali n/a Exhibition City Airport City

Cancelled

However, with the economy already returning to growth, construction on some halted projects is expected to resume by end-2011. In an effort to help the market, the government has announced over AED165.25 billion (US$45 billion) worth of future projects, which includes investment in transport infrastructure. This is expected to create more jobs and increase demand for real properties. New benchmark rate introduced Mortgage interest rates in Dubai have, in the past, followed key US Fed rates, because of the peg to the US dollar. The dirham (AED) is pegged to 41

the US dollar at AED3.67 = US$1. In 2008, when the Fed successively cut key rates, the UAEs central bank was forced to track US monetary policy, causing inflation to hit a record high of 12.9%.

The Central Bank of the UAE set its first benchmark interest rate (overnight repurchase rate) at 4.75% in September 2007. The new repo rate gives the country slightly more flexibility in responding to changes in the US Fed funds rate. In January 2009, UAEs benchmark rate was reduced to 1%, from 1.5% in December 2008, to mitigate the impact of the global meltdown. Mortgage lending stops

42

The UAEs mortgage market has expanded rapidly in recent years. Total real estate mortgage loans grew from 4.1% of GDP in 2001, to 15.2% of GDP in 2008. In September 2008, total outstanding mortgage loans rose by a spectacular 97% to AED115.7 (US$31.5) billion from December 2007. Then the global credit crunch hit. Banks and other mortgage lenders imposed tighter lending criteria; they increased interest rates, and reduced LTV ratios. Amlak and Tamweel, the UAEs two largest home finance companies, have stopped offering new loans. The two mortgage lenders accounted for more than 50% of all mortgages in the country. Government to the rescue!

In September 2008, the UAE government made AED120 (US$32.7) billion available to shore up bank liquidity. In February 2009, Abu Dhabi announced an additional AED16 (US$4.36) billion cash injection into the emirates five banks. 43

"The first and most important agenda priority for the UAE is to fix the liquidity problem so that the banks can start lending again," notes a Standard Chartered Bank report. Government measures were insufficient, it added, saying at least AED100 (US$27) billion more is needed to kickstart lending. The government is also widely expected to help the real estate market. Now theres a role for the government to stimulate the (real estate) sector as it did with the banking sector. It must stimulate the construction economy, said Fatima Obaid Al-Jaber, CEO of Al Jaber Group.

Rent caps and the new rental index In 2006, the peak of the property boom, the government introduced a rent cap of 15%, to control rent increases. Then in 2007, the rent cap was tighted to 7%. In 2008, the rent cap was again reduced to 5% in an effort to curb inflationary pressures. In January 2009, Dubais Real Estate Regulating Agency (RERA) unveiled a new rental index to replace rent caps. Following this a new rental law was released, establishing the rental index as a benchmark for rent increases. In the Greens, the rental index places the annual rent of 2BR apartments 44

between AED168,000 (US$45,777) and AED180,000 (US$49,046), and 3BR apartments at a range of AED200,000 (US$54,496) to AED260,000 (US$70,845). In the Arabian Ranches, rents for 4-BR villas vary between AED320,000 (US$87,193) and AED350,000 (US$95,368). In Jumeira Lake Towers, 3-BR apartments cost between AED240,000 (US$65,395) to AED350,000 (US$95,368). In Marina, 3-BR apartments vary from AED220,000 (US$59,946) to AED300,000 (US$81,744). In Mankool, 3-BR flats rent for AED150,000 (US$40,872) to AED200,000 (US$54,496) annually.

Rents and yields falling Even the rental market is cooling. Homeowners unable to sell properties are renting units out, causing the supply of rental houses to rise sharply. Rents for residential properties dropped 25% in 2008 from the previous year, according to some estimates. Dubais most prestigious locations, like Downtown Burj Dubai and Palm Jumeirah, were the worst hit, with rents plunging as much as 33%. Prices and rents in Dubai have both declined very significantly since our last survey in September 2009 and even then, they had fallen significantly from 2008, according to research conducted by the Global Property Guide. Prices for apartments typically range from around US$3,700 to US$4,200, except on the very largest apartments, which are 45

somewhat less highly priced. This compares with a range of US$6,650 to US$7,300 at the peak of the boom. Overall, gross rental yields in Dubai are moderate at around 5.6% to 6.5%. Yields for smaller-sized apartments have moved up, but not those for larger-sized apartments

New index shows Abu Dhabi price falls According to a new property index launched recently by the real estate agents Cluttons, prices in Abu Dhabi were down by around 12% in the last quarter of 2010 from the previous quarter. The new index shows comprehensive price data for both villas and apartment sales over the past year. The index is based on prices and transactions in ten leading residential areas in Abu Dhabi. Properties included were categorized into high-end (e.g. Raha Beach), medium (e.g. Al Reef), and low end (e.g. Mohammed Bin Zayed City) according to specification. An important feature of the Index is that it only considers valuations and sales achieved, and excludes new launches, that are typically priced higher. This helps it reflect the real story and act as a true barometer of the state of the market, said Harry Goodson Wickes of Cluttons.

46

Key rate unchanged

Mortgage interest rates in Dubai have, in the past, followed key US Fed rates, because of the peg to the US dollar. The dirham (AED) is pegged to the US dollar at AED3.67 = US$1. In 2008, when the Fed successively cut key rates, the UAEs central bank was forced to track US monetary policy, causing inflation to hit a record high of 12.9%. The Central Bank of the UAE set its first benchmark interest rate (overnight repurchase rate) at 4.75% in September 2007. The new repo rate gives the country slightly more flexibility in responding to changes in the US Fed funds rate. After the Fed slashed its key rate to just 0.13% in December 2008, UAEs benchmark rate was also reduced to a record low of 1% in January 2009. The key rate has been unchanged since then.

47

UAEs mortgage market springs back to life!

Perhaps surprisingly, banks and other mortgage lenders in the UAE are returning to the market and offering new mortgage products.Tamweel , one of the largest Islamic mortgage lenders, is back in the market, having stopped trading its mortgage shares in November 2008 due to the global credit crunch. More fixed-rate mortgage products have been introduced. In addition, fee free products, which allow borrowers to switch to a new lender at a lower cost, have been offered starting during the last quarter of 2010. The UAEs mortgage market has expanded rapidly in recent years. Mortgage loans grew from 4.1% of GDP in 2001, to 14.7% of GDP in 2010. In December 2010, total outstanding mortgage loans rose by 15.2% to AED163.2 billion (US$44.44 billion) from December 2009. Loan-to-value (LTV) ratios are also increasing again, with some lenders offering as much as 80% LTVs on some projects. In the first quarter of 2011, mortgage loans were offered with interest rates ranging from 5.8% to 6%.

48

Rent control survives, alas

In 2006, the peak of the property boom, the government introduced a rent cap of 15%, to control rent increases. Then in 2007, the rent cap was tightened to 7%. In 2008, the rent cap was again reduced to 5% in an effort to curb inflationary pressures. In January 2009, Dubais Real Estate Regulating Agency (RERA) unveiled a new rental index to replace rent caps. Following this a new rental law was released, establishing the rental index as a benchmark for rent increases. Then in January 2011, RERA issued Decree No. 2, allowing adjustment of the rental index tables every four months to keep the rental values upto-date which will also help in capping the rental rates. Landlords and real estate leasing companies are required by RERA to register rental contracts on the newly-established e-registration portal system, the Ejari System , or face penalties for non-compliance. This will enable the authorities to track the movements of rental values in Dubai and to construct a full and accurate picture of the market. In addition, RERA introduced a rental increase calculator to assist tenants and landlords compute their rent cap figures.

49

On the other hand, in Abu Dhabi, the 5% rent cap was kept unchanged in 2011 from last year, according to the Abu Dhabi Executive Council . In addition, some amendments were issued to laws concerning the tenantlandlord relationship. These include: A lease will now be automatically renewed at the end of the contract period unless either party requests it terminated before then.

The notice period to vacate a property is two months before the end of the contract term for residential properties.

Rents still falling Residential rental rates are still falling. Homeowners unable to sell properties are renting units out, causing the supply of rental houses to rise sharply. Based on the latest report released by Asteco , a property management company: In Dubai, apartment rents dropped by about 3% in Q4 2010 from the previous quarter, and 17% from the same period last year

In Abu Dhabi, apartment rents fell by 7% q-o-q in Q4 2010, and 16% to 30% from a year earlier

Annual rents in Q4 in Dubai ranged from AED23,000 (US$6,263) to AED120,000 (US$32,679) for one-bedroom apartments, to from AED70,000 (US$19,063) to AED190,000 (US$51,742) for large threebedroom apartments, according to Asteco. On the other hand, annual rents in Abu Dhabi in Q4 ranged from AED35,000 (US$9,531) to AED130,000 (US$35,402) for one-bedroom apartments, to from AED70,000 (US$19,063) to AED260,000 (US$70,804) for three-bedroom apartments.

Rents in specific developments:

50

At the Discovery Gardens, annual rents for one-bedroom apartments range from AED40,000 (US$10,893) to AED50,000 (US$13,616); and two-bedroom apartments from AED55,000 (US$14,978) to AED75,000 (US$20,424)

In International City, annual rents for a studio apartments range from AED15,000 (US$4,085) to AED20,000 (US$5,446) while one-bedroom apartments rent for AED22,000 (US$5,991) to AED25,000 (US$6,808)

Annual rents at the Golf Gardens, located next to the Abu Dhabi Golf Club, were at AED250,000 (US$68,081) and up for a three-bedroom villa in Q1 2011

In MBZ City, annual rents for villas closest to the Mazyad Mall start at AED140,000 (US$38,125)

Gross rental yields in Dubai are moderate at around 5.6% to 6.5%, according to a research conducted by the Global Property Guide in September 2010. Yields for smaller-sized apartments have moved up, but not those for larger-sized apartments. Positive economic growth

51

GDP growth for UAE was 3.2% in 2010, after a 3.15% contraction in 2009. Economic recovery is expected to continue in 2011 with GDP growth of 3.3%, which is of course far below the 9.3% average annual GDP growth prevailing from 2003 to 2008. Higher oil production and prices are expected to boost the economy in 2011. Abu Dhabis economy is expected to grow by 3.8% in 2011, according to the Abu Dhabi Chamber of Commerce and Industry . Dubais economy is expected to expand by up to 5% in 2011, according to the Dubai Chamber of Commerce and Industry .

Inflation is expected to rise to 4.5% in 2011, due to higher commodity prices. Although higher than the level in 2009 and 2010 (at 0.9% and 1.6%, respectively), this inflation rate is benign compared to the average inflation rate of 9.7% from 2005 to 2008. The UAEs property market, which suffered one of the biggest crashes during the global crisis, is gaining momentum. House prices have fallen by around 60% from their Q4 2008 peak, according to Jones Lang LaSalle, but positive economic growth, strong government support, and mortgage lenders returning to the market are helping property prices stabilize, though local analysts are generally pessimistic about future price prospects. The residential property price index rose slightly by 0.8% in Q4 2010 from the previous quarter, down 6% on a year earlier, according to Colliers International Middle East . During Q4 2010: House prices rose by 0.9% during the quarter to AED10,344 (USD2,817) per sq. m. (6% down on the year).

Apartment prices were unchanged during the quarter at AED11,344 (USD3,089) per sq. m. (5% down on the year).

Villa prices rose 3.3% during the quarter to AED 9,666 (USD2,632) per sq. m. (2% down on the year).

Townhouses fell 3.3% during the quarter to AED 7,546 (USD2,055) per sq. m. (21% down on the year).

52

The total number of property transactions increased by 5% in Q4 2010 from the previous quarter, according to Colliers. Of the total Q4 transactions, villas constituted about 45%, followed by apartments (37%) and townhouses (18%). During 2010 real estate transaction values in Dubai plunged 65%, according to Jones Lang La Salle . And while demand fell, oversupply kept on rising. In Q3 2010, less than 600 transactions were completed, significantly down from 1,200 during the same period in 2009. The completion of 36,000 housing units in Dubai in 2010 has squeezed prices down.

The anticipated completion of 25,500 units in 2011 is expected worsen the glut of residential properties.

Chapter No. 5 Conclusion

53

The Real Estate explosion in the Indian real estate is in large part due to the by the burgeoning outsourcing and IT and BPO industries, which are bringing large amounts of cash. The underlying reason for all these moves is that the Indian real estate is tremendously attractive, because of basic demographics and a supply shortage. Truly Indian real estate is having a dream run for last five years. Though there is a sort of saturation in the Tier 1 cities but the good news for Indian real estate is that Tier II cities started growing with the IT Sector and the industrial sector investing in such places. Thus Indian real estate is poised for a boom, taking the rest of the economy with it. The main problems of Dubai real estate werent really about the credit crunch or lack of availability of funds. The main reason why the things turned out that way in Dubai were lack of proper laws and regulations to control the different market forces. Capitalism even under its freest form is regulated and checked by laws in every country to ensure everyones rights have been guarded. 54

The notion that Indian real estate is expensive is based more on the cost of undeveloped land, which is becoming a scarce commodity, than finished residential or office space, which is still available at reasonable prices in most places, except maybe places like Marine Drive in Mumbai or Connaught Place in Delhi. Indian Real Estate will remain bullish for the foreseeable future.

ANNEXURE

55

56

57

BIBLIOGRAPHY

http://www.google.com http://www.wikipedia.com http://www.managementparadise.com http://www.investopedia.com/. http://www.moneycontrol.com/

58