23 balram garg - indian real estate sector

8/6/2019 23 Balram Garg - Indian Real Estate Sector

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CONTEMPORARY ISSUE ON SEMINARA STUDY ON

INDIAN REAL ESTATE SECTOR

Reaching the Customer in an Untraditional WaySession: 200911

Presented at

Submitted By: - Submitted To:-Balram Garg Mr. Rajat MendirattaMBA II Sem. LecturerA.I.M.S. A.I.M.S.

Acknowledgement

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The beatitude, bliss and euphoria that accompany successful completion of any task

would not be complete without the expression of appreciation of simple virtues to thepeople who made it possible. So, with reverence, veneration honor I acknowledge all

those whose guidance and encouragement has made successful in winding up this.

I take this opportunity to thank Rajat Sir for his support and encouragement which

helped me in the completion of this report.

I extend my gratitude and thankfulness to other Faculty of Apex Institute of Management

& Science. Last but not the least Im also grateful to my parents for providing me the

continuous support to motivate me to successfully complete my report.

Date: Submitted By:Place: Jaipur Balram Garg

Preface

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The underlying aim of the seminar on contemporary issue as an integral part of M.B.A

programme is to give presentation by the students on the issue. The topic of my seminar

is INDIAN REAL ESTATE SECTOR andcontains introduction of REAL ESTATE

SECTOR, growth and history of real estate sector.

My report has also contains the phenomena of Indian real sector, & its future prospective.

Balram Garg

Executive Summary 48

My topic contains the various issues in real estate sector related to various key

players of real estate. It includes the introduction of real estate sector.48

The key growth sectors have been office driven by need for IT space,residential space driven by increased ownership and retail malls driven by increasingspending power.

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There are no monopolistic positions in real estate, as there are more players today inthe development game.

The Indian real estate market, estimated ay around $15 billion, is expected tocontinue growing at 30% annually to reach $45-50 billion in 2010 and $90 billion in

2015.

Table of Contents

S.No. Particulars PageNo.1 Introduction 1

2 Growth in Indian Real Estate Sector 2

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3 Why Invest in Indian Real Estate Sector 6

4 Opportunity in Indian Real Estate Sector 7

5 Integrated Townships 9

6 Retail and Real Estate Sector 13

7 Real Estate Mutual Funds 15

8 An real estate sector research and analysis 16

9 Major players 21

10 Key trends of Real Estate Sector 25

11 Impact of Budget 2010 on Real Estate Sector in Indianews

28

12 Conclusion 30

13 Bibliography 31

Introduction

With property boom spreading in all directions, real estate in India is touching newheights. However, the growth also depends on the policies adopted by the government tofacilitate investments mainly in the economic and industrial sector. The new standadopted by India government regarding foreign direct investment (FDI) policies hasencouraged an increasing number of countries to invest in Indian Properties. India of

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today can be acknowledged as the one of the fastest growing economy in the world and inthis current economic status, real estate has emerged as one of the most appealinginvestment areas for domestic as well as foreign investors. And this high growth curve inthe real estate sector owes some credit to a booming economy and liberalized ForeignDirect Investments (FDI) regime in the real estate sector.

Real estate studies in India, in most cases are restricted to being a branch offinancial studies. Finance majors usually have a choice to specialize in real estate. But theIndian Institute of Real Estate gives you the opportunity to earn a coveted degree in realestate. IIRE conducts contact and correspondence courses in the Principles and Practicesof Real Estate. It offers real estate education through its accredited training centresacross India. It is accredited with Institute of Real Estate Management (IREM) andCertified Commercial Investment Manager (CCIM). It also has ties with the NationalAssociation of Realtors, U.S.A, which enables its members to use the internationallyacclaimed and respected REALTOR brand. Courses are conducted in MumbaiBangalore and Delhi.

India becomes the favorite investors hub for the IT, ITES and the BPO sector. Asa result of this, the real estate market in top Indian these cities is witnessing a boom.Apart from the IT/BPO sector, the ancillary industries (banking, insurance, hotelstransport, catering) which are growing as a result of the IT/BPO boom are going toaccount for a large share of the real estate boom.

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GROWTH IN INDIAN REAL ESTATE SECTOR:

INDIAN ECONOMY GROWTH

The housing and real estate boom in India is being driven by NRI inflows into India. In2005, the inflow was 90,000 crores ($21 billion). For China, which was the second

biggest recipient, the number was $5 billion.

The reason for heavy NRI investment into real estate is that they would like to have along-term view into India, given the upcoming demographic dividend, and the overallgrowth prospects. So they are buying and selling, creating the market. Additionally, it isthe simplest (and safest) way to get a foot in the door right now.

It also needs to bear remembering that land prices in India can only appreciate over thelong run ( high density, massive demand, growth concentrated in a few regions). Plus,

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zoning between commercial and residential areas in most high growth regions continuesto be quite weak, and that also pushes up demand significantly.

Future growth is going to be in India and China. China received lot of foreign funds, butIndia received less. All the development is taking place in India is from domestic

Investment and little bit Foreign Investment. There is lot of Black Money and NRI fundsare flowing in Real Estate business. Going forward MNCs and Foreign money is going tocome to India. India is growing at the rate of 8% PA, it would continue for at least next10 years.In next 25 years China will have highest GDP,followed by USA and India. Soclearly Real Estate will benefit. In future, dont get surprised if you see skyscrapers allover major cities in India. My suggestion to All NRIs is dont just buy Land/Flats/House

by Ads, do proper research, take help from local people. Indian Registration system isvery inefficient, corrupt. If you want to buy Tajmahal, they are people who can sell it youand register in your Name. And also many Land mafias, encroachments. Despite of allthese, you can expect RealEstate a best Investment option.

First, the returns. As mentioned in the article, the returns doesnt justify such a riskyinvestment. The rule of the thumb in US is, the house price must be 11-12 times theannual rent (PE of approximately 12). If it is more than that the interest rate would killthe returns. So, for the 7K rent, the reasonable price would be around 10 lakhs.

Second, affordability. In US, anything above 3-4 times the annual salary of the intendedtarget buyers is considered expensive. Thus, if you are buying an average middle classhouse, paying anything above 10 lakhs (assuming that middle class average salary isaround Rs.20K/month) is a risky venture for resale. And if you are buying a house for50lakhs make sure there are enough guys who earn a salary of Rs 1 lakh per month who

would love your house and its location.Third, high variation. In Chennai, for example, a lot of properties are still available forRs. 500/sq ft (around 30 km from City), while property prices in some parts of the cityare above Rs.10000/sq ft. This is due to lack of infrastructure development. In five yearsdown the line, if the infrastructure improves and transportation gets better, people payingthe 10K/sq ft would move out of the city, and those high priced properties would deflate.

Fourth, risk component. While other forms of investments have very little loancomponent, house investments are almost financed by 80%+ loans and thus presents ahuge risk, if the property tanks by even 10%. If the banks raise their rates OR propertymarket cools OR if salaries get flatter, a lot of bankruptcies could happen for those who

bought on rosy expectations.

Let us make some assumptions about growth. Real GDP is growing at 8% and inflation iscurrently at 7-8%. let us assume that 6% real growth is sustainable for the foreseeablefuture (conservative assumption) and let us say that 4% inflation is sustainable (againconservative). So, g=10%. Interest costs are 8% and let us say that we have further 5%maintenance and upkeep costs (to offset depreciation) and taxes (to put that in

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perspective, we are talking about something like Rs. 135,000 per year, no mean sumThat puts k (cost of capital) at 13%. Plug in the numbers and you get a PE of 33. MultiplyRs. 84000 (annual rent) by 33 and you get Rs. 27,72000! Of course, I played with thenumbers a little. But they are all within the bounds of plausibility.

The biggest problem in Indian market is a huge variation in city and suburban marketsand this is set to even out in the future. For eg, recently a lot of hotels companies havestarted to move to Noida when it offered land at less than 1/40 than DDA offerings. Asinfrastructure develops the prime city properties are going to cool down (like what wehad in LA, SD and Florida realty markets that are collapsing from over-heating) andthese virgin lands might hotten up.

And another factor is the over zealous IT guys. India has been growing at 7% for the last10 years, but only in the last 2 years Im seeing the huge property growth, while in the

period from 1994-2004 the property prices were growing with inflation. So, this time it ismore of hype than a reflection of the GDP growth. There is a lot of hot money and too

young people, who dont know what to do with. And NRIs with fat pockets are joiningthe game.

In the foreseeable future, commercial property - hotels, retail and office segments willgrow at the rate of Indian growth, while residential properties might be lucky if it avoidswhat US had been undergoing now.

Union Minister of Commerce and Industry, Mr. Kamal Nath said that rapidly increasing

real estate sector signifies the varying face of India, while addressing NATCON

(National Convention) 2008. He said that in recent years service sector has directed

Indian economy. Considering the recent economy growth, Mr. Kamal spoke on therequirement of creating international standard infrastructure and housing facility to carry

on the growth rate projected in the 11th Five Year Plan. The Real Estate Development

sector has the capacity to pay for itself without straining the limited resources of the State

Government, Shri Kamal Nath stated.

Mr. Kamal Nath further said that we have already opened construction developmentsector for FDI and the policy permits wholly owned subsidiary in this sector in India by aforeign company. Of course, there are conditions regarding minimum area fordevelopment and minimum capitalization to be brought in by the foreign investor. A

number of global players have entered the Indian market. Growth and investment havealso created opportunities for investment in real estate sector, he said. Further heincluded that the Govt. is playing its part as the launch pad to the development processand the private sector participation is required to bring technical and managerial expertisein delivering good quality mass housing projects.

The fact that many State governments are joining hands with privateentrepreneurs in resolving the acute housing problem in urban areas is a good step in this

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regard. The private sector and Government has to work in tandem towards a commongoal. It is equally important to address the institutional and regulatory aspects as well asstrengthen and expand the capacity of financing institutions for further growth of thesector. Over the past decade, India has emerged as a leader in the global economy. It is amagnet for foreign direct investment (FDI), and has displaced Mexico as the third most

preferred country for foreign investment. FDI in India is expected to increase to US$15billion this year, triple the 2004 figure. Many foreign companies are starting or expandingoperations in India. One-fifth of all Fortune 500 companies including Eli Lilly, GeneralElectric, and Hewlett Packard have set up research and development facilities in India.The surge in foreign investment, more joint ventures between Indian and foreigncompanies, and the growth of Indias domestic industries have created more employmentopportunities for Indias young, highly educated, professional workforce and fueled thegrowth of the countrys middle class.

Advantage India: Real estate is one of the fastest growing sectors in India. Marketanalysis pegs returns from realty in India at an average of 14% annually with atremendous upsurge in commercial real estate on account of the Indian BPO boom. Leaserentals have been picking up steadily and there is a gaping demand for qualityinfrastructure. A significant demand is also likely to be generated as the outsourcing

boom moves into the manufacturing sector. Further, the housing sector has been growingat an average of 34% annually, while the hospitality industry witnessed a growth of 10-15% last year.

Apart from the huge demand, India also scores on the construction front. A Mckinsey

report reveals that the average profit from construction in India is 18%, which is doublethe profitability for a construction project undertaken in the US. The importance of theReal Estate sector, as an engine of the nations growth, can be gauged from the fact that itis the second largest employer next only to agriculture and its size is close to US $ 12

billion and grows at about 30% per annum. Five per cent of the countrys GDP iscontributed by the housing sector. In the next three or four or five years this contributionto the GDP is expected to rise to 6%.

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Why Investment In Real Estate Sector:

1. Flying high on the wings of booming real estate, property in India has become adream for every potential investor looking forward to dig profits. All are eyeing Indian

property market for a wide variety of reasons:

2. Its ever growing economy which is on a continuous rise with 8.1 percent increasewitnessed in the last financial year. The boom in economy increases purchasing power of

its people and creates demand for real estate sector.

3. India is going to produce an estimated 2 million new graduates from various Indianuniversities during this year, creating demand for 100 million square feet of office andindustrial space.

4. Presence of a large number of Fortune 500 and other reputed companies will attractmore companies to initiate their operational bases in India thus creating more demand forcorporate space.

5. Real estate investments in India yield huge dividends. 70 percent of foreigninvestors in India are making profits and another 12 percent are breaking even.

6. Apart from IT, ITES and Business Process Outsourcing (BPO) India has shown itsexpertise in sectors like auto-components, chemicals, apparels, pharmaceuticals and

jewellery where it can match the best in the world. These positive attributes of India isdefinitely going to attract more foreign investors in the near future.

The Indian economy and the real estate sector in particular are high onits ride to prosperity. As Indias economic growth curve rises, real estate India hasemerged as one of the most appealing investment areas for domestic as well as foreigninvestors. Indian real estate has huge potential demand in almost every sector, but

especially commercial, residential, retail, industrial, hospitality, healthcare etc. Bumaximum growth is attributed to its growth from the booming IT sector, since anestimated 70 per cent of the new construction is for the IT sector.

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Opportunities for Investors in Indian Real Estate :

India in the recent times has been the potential goldmine for investors all over the world.

With a booming economy and liberalized government policies, investors from all overthe globe are choosing India as their business destination.

As Indian real estate rules the economic vibes of the country, the most importanbeneficiary of the recent boom in this sector is the investors. Driven by positive growth inthe real estate scenario and the Government of Indias decision to allow100% foreigndirect investment (FDI) under the 'automatic route' in the construction and developmentthere has been a significant rise in the number of Indian as well as foreign investors in therealty sector.

While top developers in India like the DLF, Ansal, Omaxe, Sobha Developers, Bengal

Ambuja, Unitech, Vatika and Sahara Infrastructure among a few have initiated large scalereal estate developments in the residential sector catering to all segments of the society.With more corporate houses entering real estate, a corporatisation of real estate can bewitnessed.

Real estate is much more professionally managed with a number of big players(developers as well as corporates) entering the business. There are no monopolistic

positions in real estate, as there are more players today in the development game. Thegreater the number of players, the healthier the competition and the beneficiary of all thiswould at last be the end-user.

In the residential segment, with the increase of disposable incomes and easy availabilityofhome loans, most builders are trying to woo investors with lucrative features and thelatest inclusions are premium luxury apartments and condominiums fitted with the mostmodern accessories in home luxury.

The commercial ventures include state-of-the-art office spaces, sprawling mallsmultiplexes and retail outlets. Reports indicate that around 200 new malls with acombined retail space of Rs.2.5 crore/sq.ft and investment of Rs.12.500 crore areexpected to come up in this year.

The boom and the relaxation in FDI are also attracting interest from foreign investors toinvest in India and many are seen tying up with the local developers in expanding their

business. As the competition in the market is intense, builders are going out of their wayto be different and provide quality services.

Major real estate investors in the foray Emmar Properties, of Dubai one of the largestlisted real estate developerin the world has tied up with the Delhi-based MGFDevelopments to announce India's largest FDI in the realty sector for mall and otherfacilities in Gurgaon. On the other hand, in a recent development DLF and UK-based

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construction major, Laing O'Rourke (LOR), has joined hands for participation in airportmodernization and infrastructure projects.

Again, Morgan-Stanley Real Estate has announced that its investment of around US$ 68million in Mantri Developers Private Ltd, a private Bangalore-based real estatedeveloper. DB Real Estate, a unit of Deutsche Bank AG, has set up plans to start a globalfund that will invest as much as US$ 300 million in India to tap an expected surge indemand for property.

Vancouver-based Royal Indian Raj International Corporation (RIRIC) will invest awhopping US$ 2.9 billion in a single real-estate project named Royal Garden City inBangalore. Estimated to be of retail value Rs 41,000 crores, this project is to becompleted in period of 10 years. Indonesia-based Siputra Selim group is slated to invest$200 million into the housing sector in Kolkata.

Indiabulls Real Estate (IREL) is proposing to enter into arrangements with Dev PropertyDevelopment, a company incorporated in the Isle of Man, whereby Dev shall subscribe tonew shares and also acquire a minority shareholding from the company, in IndiabullsProperty (IPPL), Indiabulls Real Estate (IRECPL) and Indiabulls InfrastructureDevelopment (IIDL). Dev has completed an initial public offering of its ordinary sharesfor a total amount of Rs 12 billion or GBP 138 million and shall be listed on thealternative investment market of the London Stock Exchange.

As the real estate investments open up opportunities for the associated fields like HomeLoans and Home Insurance, a number of global insurance companies have shown

interest in the sector. This include companies like Cesma International from Singapore,American International Group Inc (AIG), High Point Rendel of the UK, Colony Capitaland Brack Capital of the US, and Lee Kim Tah Holdings to name a few.

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Integrated Township:

Growing fashion of integrated townships:

The concept of integrated township have established its presence in the trend for staying.With growing demand for apartments in integrated townships, Veena Ramkrishnanexplain in detail about the concept.

The changing priorities and lifestyles of Indias new breed of young property buyers whohave much more than just a simple home on their minds when they decide to take the

plunge and buy that dream house. A trend that has played a pivotal role in opening the

floodgates for the development of integrated townships across the country that offer theirresidents the promise of a quality lifestyle tailored to suit every budget.

This concept has emerged into a growing trend in people aspiring for more homes intownships especially among the metro cities. This has bought in the FDI s also into therace with more and more foreign industries investing in such projects.

Integrated townships

Integrated townships have become the most sought after now a days even though theycost much higher than individual buildings.

Complexes built in large area of lands with all facilities including schools, hospitals,shopping malls, gymnasium, health spa provide the living experience that people demandnow a days.

Integrated Township in Jaipur:

Omaxe City in Jaipur Ajmer Expressway

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Omaxe city at Jaipur is an integrated township with international standards. It offersevery thing from residential plots, expandable villas hospital, commercial complexes &schools. So if you want to invest in property/plots/villas in Jaipur which is one step aheadwith fine fusion of world class infrastructure & rich taste, nothing else would be adequatethen Omaxe City Jaipur. Diamond Estates is involved in wide spectra of services in realestate and property dealing related services in Omaxe City Jaipur and assure you to

provide the best of all at competitive prices.

Omaxe City Ajmer Road - Jaipur;

Omaxe city at Jaipur is an integrated township with international standards. It offersevery thing from residential plots, expandable villas hospital, commercial complexes &schools. So if you want to invest in property/plots/villas in Jaipur which is one step aheadwith fine fusion of world class infrastructure & rich taste, nothing else would be adequatethen Omaxe City Jaipur.

Jaipur set to become Wi-Fi compliant:

Jaipur would soon be made a Wi-Fi city. Rajasthan's chief minister Vasundhara Rajewhile announcing this in her budget speech said, "We would make Jaipur a wi-fi city in

phases". After the completion of this project one could access wireless internet in anypart of the city "We plan to set up a biotech information centre in Jaipur. It would be setup in association with private sector", Raje said. State government would give a financialassistance of Rs one crore.

Wipro Lands In The Pink City:

Wipro has signed an MoU for 100 acres of land to set up its campus in Mahindra World

City, Jaipur. This facility will come up in two phases: Phase one will occupy 25 acres ofland, which will have over one lakh sq ft built-up area and capacity to seat over 1000employees. According to Arun Nanda, executive director and president, infrastructuredevelopment sector, Mahindra & Mahindra, With proven capabilities of offering world-class, state-of-the-art facilities for business retail, leisure, hospitality and residentialhousing, Mahindra World City, Jaipur will prove to be the ideal venue for Wiprosregional aspirations.

Mahindras set to start work on World City

The Mahindra group is set to begin work on an ambitious World City here, in step withits promise of providing cutting-edge business facilities in the state. Called the MahindraWorld City, a joint venture between Mahindra Gesco Developers Ltd and the RajasthanState Industrial Development and Investment Corporation Ltd (RIICO), is beingdeveloped as a multi-product special economic zone. Phase-1 of the project will involveconstruction of an IT and ITES SEZ spread over 188 acres.

Integrated township in Mohali:

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Ansal Properties & Infrastructure Ltd (API) is developing Golf Links, an estimated Rs2,000-crore integrated township in Mohali, which is being designed by Woodhead, the

premier architect firm of Australia. The 600-acre project will have luxurious villas

condominiums and penthouses, malls, food courts and four-screen multiplex.The empowered committee of the Government of Punjab has cleared the project inprinciple under its mega project approval policy and the township is scheduled to becompleted in three to four years. The township is coming up in a strategic location,flanked by the city's arterial roads in the main commercial zone of Mohali City Plan.

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Integrated Township in HYDEABAD

In Andhra Pradesh, nothing comes close to the 400-acre Tellapur Township byHUDA/TISHMAN SPEYER:

With the expected changes the new international airport and the outer ring road will bringin, several mega projects in the Public Private Mode are being taken up by governmentagencies such as APIIC, APHB, HUDA. The projects include the IInd Hitech City, theFinancial District and Hardware Park, the Fab city, the Singapore Township and severalsatellite townships, industry SEZs ....the list goes on and on. Since the city is on a growth

path, the investment, employment and growth opportunities are likely to boom.

To avoid sporadic and haphazard growth, well-controlled, planned and regulated

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framework of development initiatives are what will now make up the blue-print of thefuture city. The reality today is that with the sudden boom, roads and all essential cityamenities are choked rendering it difficult for the civic authorities. Hence initiatives likethe Greater Hyderabad plan, the one kilometre growth corridor on either side of the ORR,the Hyderabad Airport Development Authority master plan are steps in the direction of acarefully planned expansion of the city

The objective of theIntegrated Townships slated to be built in the city is to ease trafficcongestion in the twin cities and to meet the growing need for residential, commercialand office spaces.

"When we started doing the ring road, we realized that once this road is operational,distance will be measured in time, not kilometers. So though the city will spread out, thetravel time will be extremely manageable. Taking advantage of the ORR, we will plansatellite townships around it," avers Jayesh Ranjan, VC, HUDA.

The stellar Tellapur Township being developed by HUDA, for example, is three milesfrom Hyderabad's CBD and will include a total of 20 million sq ft of residential andoffice components and associated retail, civic and cultural amenities. Upon completion, itis expected to be the country's largest integrated townshipand the first of its kind under a

public-private partnership.

Retail & Real Estate Sector in India:

Retail and real estate are the two booming sectors of India in the present times. And ifindustry experts are to be believed, the prospects of both the sectors are mutuallydependent on each other.

Retail, one of Indias largest industries, has presently emerged as one of the mostdynamic and fast paced industries of our times with several players entering the market.Accounting for over 10 per cent of the countrys GDP and around eight per cent of theemployment retailing in India is gradually inching its way toward becoming the next

boom industry.

As the contemporary retail sector in India is reflected in sprawling shoppingcenters, multiplex- malls and huge complexes offer shopping, entertainment and food allunder one roof, the concept of shopping has altered in terms of format and consumer

buying behavior, ushering in a revolution in shopping in India.

This has also contributed to large scale investments in the real estate sectorwithmajor national and global players investing in developing the infrastructure andconstruction of the retailing business. The trends that are driving the growth of the retail

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sector in India areLow share of organized retailingFalling real estate pricesIncrease indisposable income and customer aspiration.

Increase inexpenditure for

luxury items

Another credible factor in the prospects of the retail sector in India is the increase in theyoung working population. In India, hefty pay-packets, nuclear families in urban areas

along with increasing working-women population and emerging opportunities in theservices sector. These key factors have been the growth drivers of the organized retailsector in India which now boast of retailing almost all the preferences of life - Apparel &Accessories, Appliances, Electronics, Cosmetics and Toiletries, Home & Office ProductsTravel and Leisure and many more. With this the retail sector in India is witnessing arejuvenation as traditional markets make way for new formats such as departmentalstores, hypermarkets, supermarkets and specialty stores.

The retailing configuration in India is fast developing as shopping malls are increasinglybecoming familiar in large cities. When it comes to development of retail space specially

the malls, the Tier II cities are no longer behind in the race. If development plans till2007 is studied it shows the projection of 220 shopping malls, with 139 malls in metrosand the remaining 81 in the Tier II cities. The government of states like Delhi and

National Capital Region (NCR) are very upbeat about permitting the use of land forcommercial development thus increasing the availability of land for retail space; thusmaking NCR renderto 50% of the malls inIndia.

India is being seen as a potential goldmine for retail investors from over the worldand latest research has rated India as the top destination for retailers for an attractive

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emerging retail market. Indias vast middle class and its almost untapped retail industryare key attractions for global retail giants wanting to enter newer markets. Even thoughIndia has well over 5 million retail outlets, the country sorely lacks anything that canresemble a retailing industry in the modern sense of the term.

Another cap to the retailing industry in India is allowing 51% FDI in single brand outlet.The government is now set to initiate a second wave of reforms in the segment byliberalizing investment norms further. Retail industry in India is at the crossroads but thefuture of the consumer markets is promising as the market is growing, government

policies are becoming more favorable and emerging technologies are facilitatinoperations in India.

Real estate mutual funds:The Indian Mutual Fund industry is in a robust growth path. Over the last 4 four years ithas been growing at a compounded annual growth rate of more than 50 percent perannum. Yet, it is estimated that only about 7 percent of the households invest in MutualFunds, as against more than 50 percent in developed markets like U.S.A. The standardsand practices followed by the industry are world class. With 32 Asset ManagementCompanies managing more than 800 schemes, the industry offers suitable investmentvehicles to all types of investors to suit their requirements and risk-return profiles.

The Indian real estate sector has witnessed a revolution. Growing at 30 percent Indianreal estate market is of the order of USD 14 billion, and is expected to touch USD 90

billion by 2015. Investing in real estate mutual funds has become a common concept inthe US and Europe. There are more than 300 funds functioning in these countries.REITs/REMFs offer an innovative option for investors to buy and trade shares in the realestate sector and collect dividends from capital appreciation and rental incomes. WithSEBI clearing draft guidelines on such investments, some of the biggest names in Indian

business have either already launched such funds or have rolled out ambitious plans to doso.

With the objective of spreading better understanding of the Real Estate Mutual FundIndustry and to position mutual fund as an appropriate investment avenue for wealthcreation and to discuss investor protection.

REMFs have been under consideration by SEBI for almost two years now, thedelay being on account of the market regulator and the institute of Charted Accounts ofIndia (ICAI) debating the accounting standards for determining the net asset value ofREMFs.

SEBIs new regulations say REMF schemes shall be close ended.

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The real estate assets held shall be valued at cost price on the date of actuation and at fairprice every 90 days from the day of purchase by two values accredited by a credit ratingagency.

An real estate sector research and analysis. October

2009.

We attended the recently held Property Exhibition 2009 organised by theMaharashtra Chamber of Housing Industry (MCHI) in Mumbai. Many housing

finance companies (HFCs) also participated in the exhibition, which showcasedmore than 100 projects across Mumbai city. The exhibition saw significantturnout of prospective buyers indicating revival of interest in the propertymarkets. Notably, during the downturn, Mumbai was the least affected marketand currently is at the forefront of the recovery especially in the Residentia

Segment. Conditions havebeen easing for thedevelopers with the reaestate prices, especially inMumbai, having increased

sharply in the last six monthsfrom their nadir. For instancethe Central suburbs, whichhad witnessed a sharpcorrection during the slumpin recent months hasrecorded 5-30% increase inprices across projects. Onthe other hand, the Westernsuburbs have been

witnessing maximum numbeof new launches in the current festive season. Also, compared to our last visit,there have been delays in fit-outs for certain projects. Besides, Home loan rateshave also declined by 100-200bp and most banks and HFCs are offering fixedrate loans for the initial years. Our interaction with industry participants indicatethat the real estate transactions have picked up sharply though we believe that

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sustainable recovery in prices will hinge on growth in disposable income andbenign Interest rates.

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New launches skewed towards Western suburbs

The exhibition had lesser number of ready-to-move in properties compared to ourlast visit, which held th

potential for more launches. In the past, developers had pulled back theirlaunches to holthepricesepecially in the Western suburbs

Benign Home loan rates

The exhibition also saw a number of HFCs participating compared to our last visit(when Home loan rates had become dearer by 100-200bp since April 2009). Thisindicates that affordability has been improving. Further, banks like Union Bank,SBI and HFC, GIC are offering fixed rate loans for the initial years, thereby

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making conditions more conducive for prospective home buyers. MoreoverBanks are also offering 80-85% of the property value in line with our last visit.

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Real estate sector with Special Economic zones:

The real estate industry on Monday sought introduction of special residential zones (on

the lines of Special Economic Zones), to ensure affordable housing in the country.We need SRZs across India with these zones patterned on the lines of SEZ Act entailingsimilar approvals, the board structure, and monitoring and execution, and also similarconcessions in terms of direct, indirect taxes and octroi, amongst others, Mr KumarGera, Chairman of Confederation of Real Estate Developers Association of India(CREDAI), said at a conference here.

Mr Gera said that the experience gained from the SEZ Act could be translated to createSRZs, and pointed out that SRZs could ensure affordable housing in India. To ensurethat these SRZs do not become new slums, they need to be supported by proper

infrastructure, sustainable development, and a realistic floor space index (FSI), Mr Geraadded.

Goa SEZ issue

Meanwhile, reiterating his earlier stance that SEZ policy could not be thrust or forcedthe Union Minister of Commerce and Industry, Mr Kamal Nath, on Monday said he isawaiting a written representation from Goa Government, on the SEZ issue.

We are waiting to hear from them, and once we get letter from the State, we willrespond to it. But just now there is no letter, Mr Nath said on the sidelines of a realestate conference organised by CREDAI here.

Mr Nath had, last week, asked the Goa Chief Minister, Mr Digambar Kamat, to give inwriting the reasons for scrapping SEZs in the state.

The Commerce Minister today said that while SEZ policy was not to be thrust or forcedon anyone, it was for a State to formulate its own policies.

Some States want more, some less, some want things differently but the growth processof the State has to be determined by the State itself, he said.

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Major Players:

DLF And its New Projects:

The DLF group is a leading real estate developer in India. The group has over 224million sq. ft. of existing development and 748 million sq. ft. of planned projects. DLF iscommitted to quality, trust and customer sensitivity, and deliver on promises with agilityfinancial prudence and in tune with the highest global standards. The company has alsoentered into several strategic alliances with global industry leaders.

The core business traditionally has been into three prime divisions: Homes, Offices andShopping Malls. To these DLF has added three more divisions: Hotels, Infrastructure andSEZs.

New Town Heights

DLF now brings quality living and contemporary lifestyle at NEW TOWN HEIGHTS, aresidential project in Sector-90 Gudgeon. A truly integrated township in new Gudgeonthat is well-connected from NH-8 and Manesar.

Gardencity In INDORE By DLF:

As one of the fastest growing cities in India, dotted with lush green surroundings, brimming with new job opportunities and diverse talent pool, Indore is ideal focomfortable living and working. And DLF is here to complement the ever growinglifestyle of Indore with world-class homes.

DLF Riverside Kochi:

This premium condominium is situated close to Kochis most prestigious schools andsuper specialty hospitals. Easily accessible from the National Highway, and the mainarteries of the city, DLF Riverside is also in the vicinity of The Info Park, Kinfra Park,Cochin Export Zone and the fast developing Smart city at Kakkanad.

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ANSAL BUILDWELL Ltd And its New Projects:

Ansal Buildwell Ltd, India's largest developer and builder brings to you "Ansal City"after the successful completion of "Ansals Riverdale" at Kochi. "Ansals Riverdale", is anelite residential project with independent luxury villas and town houses. The 10 acre

township has large open space accommodating children's park and beautifully laid lawnsall along the river frontage of around 500 meters and is presently the best residentiaaddress in town.

"Ansal City", our second project in Cochin - an elite residential township with fullyserviced independent plots of various sizes comes to you with fully developed facilitieslike 12mt wide tree lined avenues, jogging tracks, round the clock security & 24 hrswater supply. The township has large green open spaces accommodating children's parkand beautifully laid lawns all along the river frontage and convenience for boating.

Nudging the calm serene backwaters, this exquisite property features a recreation centrewith swimming pool, health club, card room and many more.

Riverdale is an elite residential project with independent luxury villas, 10 mtr.Wide tree-lined avenues, jogging track, water supply and sewerage disposal system,water and sewage treatment plants. The 10 Acre Township has large open spaceaccommodating children's park and beautifully laid lawns all along the river frontage ofaround 500 metres and convenience for boating. This luxury villa project has anoutstanding family club facing the Kaniampuzha river.

Ansal Group is all set to launch a Special Purpose Vehicle (SPV) as a subsidiary of thegroup looking after the hotel and service apartment operations. Taking charge of the yetto be named SPV will be Vipin Luthra, managing director of Ansal Colonizers &

Developers.

ANSALs SHUSHANT CITY In Jaipur:

ANSAL has developed beautiful landscaped township spread over200 acres on Kalwarroad, which is just 4 kms away from JDAs Govindpura Kardhani Scheme, adjacentto Hathod Kardhani Scheme.

Splendid location, pollution free, planned township with state of the art infrastructurefacility 20 minutes from MI road.

OMAXE Ltd. And Its New Projects:

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Omaxe has received a number of awards from the industry, recognition of its continuedefforts towards achieving excellence and quality. The company became the firstConstruction Company of northern India to receive an ISO 9001:2000 Certification. Thecompany which was founded as a civil construction and contracting organization in1989and subsequently diversified its business to focus on Real Estate Development from theyear 2001, to capture the opportunity offered by the growing Real Estate markets in India, is today among the large Real Estate Development companies in India.

The company in a short span of 5 years has completed and delivered 10 projectsconsisting of 8 residential and 2 commercial covering approx 5.13 million sq. ft of area,with all on time deliveries. The company currently has 46 projects under developmentThese include 19 group housing projects,13 integrated townships,13 shopping malls andcommercial complexes and 1 hotel. The company is at present developing over 140million sq ft of saleable area across 30 towns in 9 states in Northern and Central India.

Real estate developer Omaxe Ltd is entering into the power transmission and airport

infrastructure business in an effort to tap emerging opportunities in these sectors in one ofAsias fastest growing economies.

The company has earmarked an initial investment of around Rs lOO-200 crore for itsinfrastructure business. Omaxe plans to set up power transmission lines in states such asUttarakhand and Punjab. This will be done either in partnership with the state or Uniongovernment or other private agencies.

Omaxe Ltd, the real estate company headquartered in New Delhi, has won the bid for theconstruction of a theme township in Naya Raipur, the capital city of Chhattisgarh. The

project is estimated to cost Rs 1,200 crore. Naya Raipur Development Authority, the

project promoter, is developing the township that will have an 18-hole golf course over400 acres, golf villas, residential and commercial buildings, and a hotel.

Other Players:

ETA Star to Innest 1500cr. In Real Estate.

Chennai-based real estate developer ETA Star Property Developers, a partof $4 billion ETA Ascon group based in the UAE, will build a Rs 1,500 crore mall in

Mumbai's Juhu area. The construction work will begin in January 2008. ETA has formeda 50:50 joint venture with Supra Estates, to develop the 10 acre plot (450,000 sq ft) into ashopping mall and service apartments. The companies have paid Rs 800-900 crore for thesaid plot of land. The mall will be given on a seven-year lease upon completion of the

project in 2010. ETA has brought Rs 200-250 crore as equity contribution for the projectin terms of foreign direct investment (FDI) and will raise the balance through banks andother financial institution. ETA has also forged a joint venture with Wavy Construction

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for a project based in the hill station of Khandala, Maharashtra. The project involvesbuilding luxury villas, health spas, hotels and furnished apartments. Even as the structureof the joint venture is yet to be finalised, both companies will inject Rs 400 crore for the

project spread across 28 acres. A US consultancy firm, Tony Asahi, has been appointedto provide a detailed study of the area, which would help draft the final outlook of the

project. The company is involved in real estate ventures mainly in the southern region ofthe country with projects spread across Chennai, Bangalore and Hyderabad. Thecompany is executing a residential project in Chennai, where it is developing apartmentsunder the name of Jasmine Court. The project follows two other projects 'Binny Crescentand 'The Gardens', both residential projects in Bangalore.

ICICI Launches Real Estate Security Fund

ICICI Prudential Mutual Fund recently launched its real estate securities fund, which isthe first real estate mutual fund in India. The new fund offer is open for subscription from

November 15 to December 14, 2007. The fund will invest 51 per cent of its portfolio in

high-yielding debt securities issued by real estate companies. The scheme will notdirectly own or hold real estate. It will invest up to 49 per cent in the shares of companiesthat will benefit from the real estate sector or have substantial investments in propertyDebt securities issued by real estate companies have relatively low liquidity. Hence, inorder to manage the liquidity risk, the fund has been designed as a 3-year close-endedfund. It will invest in real estate and related sectors such as cement, construction, metals,hotels, retail, banks and finance companies. According to National Housing Bank, Indiawill have a shortage of over 20 million housing units and an incremental demand of 8-10million each year.

Key Trends facing Real Estate sector :1. Legislation

ULCRA yet to be repealed in key states of Maharashtra and Karnataka The Urban Land(Ceiling & Regulation) Act has failed to achieve its objectives due to its poor

performance. Physical possession was acquired only of 19,020 ha. of vacant land by theState Governments. There has been a demand to repeal this Act so that the stock of urbanland increases and development of urban land for various sectors, namely, housingtransport, industry, etc. may be available The figures given in the above statement showthat though 23 years elapsed since the ULCRA came in force in 64 towns; no effective

results could be achieved. Its dismal Performance was attributable to a plurality ofreasons. Amongst them, one of the mainreasons was the illusory amount of compensation(Re 1 to Rs 10 per sq. mt.), evidencing its confiscatory nature i.e. it was almostamounting to a fine people paid for owning excess land instead of proper reimbursementand therefore, no feeling of coercion.

The Act was penalizing people for holding excessive lands. This is a problematicidea because land- holding is a perfectly legal right and if your title if good then no one

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can question the amount being held by you. But here the state was questioning it in thebasis of public Interest and taking it away for so small a compensation that it was forcingpeople to not Agree to their land holdings.

Also the ULCRA institutionalized corruption. Sec. 20/ 21 were subjective innature and allowed for exemptions under the Act and this was being utilized by all

bureaucrats to earn favors and majority of land was exempted under one pretext oranother.

2. Transaction Costs

Stamp duty is as high as 14-15% in some states the Stamp Duty is as high as 14- 15 % ofthe value of the transaction.

Astonishingly in the Indian context, not only are the rates high, but also the levy ofStamp Duty is applicable in every subsequent transaction, be it the initial transfer /

purchase of land or on further sale of the same land after development or any othersucceeding transaction. Opportunely some states have brought the Stamp Duty down to

between 6-8 %, this should ideally be further brought down to 2-3 % and made uniformly

applicable across all states.However, if the above suggestion is not acceptable then if stamp duty has already

been paid on one transaction, there should be a mechanism in the law, whereby there is aprovision for concession or a system of credit for any subsequent transactions. Thiswould avoid the resultant cascading effect of Stamp Duty, thereby reducing the cost of a

property.

3.Absence of REITs and REMFs

The Government should consider setting up of Real Estate MutuaFunds/Investment Trusts to provide the much needed support to the cash starved housingsector, similar to the structures adopted for Estate Mutual Funds/ investment Trusts indeveloped real estate markets such as, USA, Singapore, Hong Kong etc. Real EstateMutual Funds/Investment Trusts would be an efficient mode for providing equityfinancing as against debt, which is currently the norm for financing real estatedevelopments in India.

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Real Estate Investment Trusts, or REITs, have established themselves as the"Brand Name" investment vehicle of choice for institutional and retail investors lookingto participate in real estate ownership, management and development. And while REITsare already common players in developed markets, they are now also making their

presence felt in emerging markets.

The attractions of REITs for investors are clear: they provide a similarstructure for investors buying into real estate as mutual funds provide for investment instocks.

Another key design feature is the elimination or reduction of the taxationdifferential between directly-owned property and property owned through a corporation though whether this will be the case for Indian REITs remains to be seen. Neverthelessas India's real estate market grows and opens up, REITs could play a major part in itsdevelopment.

Although there are no REITs in India now some India-referencing REITsare reportedly considering listing offshore in established REIT jurisdictions theSecurities Exchange Board of India (SEBI) is currently finalizing Guidelines for theintroduction of Real Estate Mutual Funds (REMFs), and it will consider framingguidelines for REITs going forward. SEBI's guidelines should also make it easier toinvest in the sector through listed real estate operating companies (REOCs) andincreasingly through foreign direct investment (FDI).

More broadly, the introduction of REITs could also provide many benefits toIndia's economic development, just as they have to other countries such as AustraliaSingapore, Japan, the UK and France. For instance, REITs can boost capital access and

reduce capital costs for property owners, managers and developers.

.4. Land Acquisition

The Land Acquisition Act of 1894, still, to a large extent, governs the procurement ofraw land. With the changing investment scenario it has become necessary to review theexisting law, in order to ensure that private developers and colonizers procure the landdirectly from farmers and land owners without putting undue financial burden on State/

Central Government on land acquisition for public purposes. Today, a builder is governedby Agriculture Land Ceiling Act even after the lands have been urbanized in the zonalplans / master plans. This makes builders to create several companies in order tocircumvent the archaic laws. It is submitted that once the land has been urbanized andincorporated in the master plan, then Agriculture Land Ceiling Act should not apply and

builders should be permitted to acquire lands as per their requirements, for thedevelopment of townships.

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Impact of Budget 2010 on Real Estate Sector in India news

05 March 2010

This is further to our recent hotline India Budget Insights (2010 11) analyzing theimplications of the Budget 2010. This Hotline seeks to bring to the fore the provisions ofBudget 2010 and attendant implications concerning the Indian Real Estate Sector.

The Positive

The pending housing projects have been granted a one year extension for

completion, from the existing four years to five years, for claiming a 100%

deduction on their profits under section 80-IB of the Income Tax Act, 1961(''Act''). This extension is available for housing projects approved by a loca

authority on or after April 1, 2005.

In addition, under section 80-IB of the Act the built-up area of shops and other

commercial establishments in housing projects has been relaxed to 3% of theaggregate built-up area of the housing project or 5000 square feet, whichever is

less, from the existing 5% of the aggregate built-up area or 2000 square feet,

whichever was less.

A 4 month extension has been provided for setting up and commencing operations

of hotels and convention centers in National Capital Territory of Delhi andspecified surrounding regions. Such hotels and convention centers would now be

eligible to claim specified deductions, where such facilities are set up andcommence business by July 31, 2010.

Investment linked incentives have been proposed for the business of building andoperating new hotels of two-star or above category, anywhere in India, which start

functioning after April 1, 2010. The incentives are in the nature of 100% deduction

with respect to capital expenditure, incurred wholly and exclusively, for the purposes of such business, provided such expenditure is incurred prior to

commencement of operations and the amount is capitalized in the books of suchundertaking.

One per cent interest subvention on housing loans up to Rs.10 lakh (where the costof the house does not exceed Rs.20 lakh) has been extended till March 31, 2011.

There has been higher allocation under Indira Awas Yojana and other ruradevelopment/infrastructure schemes.

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The Negative

Service tax on commercial rentals: The High Court of Delhi in the case of HomeRetail Solution and Ors. v. Union of India had clarified that renting of commercialproperty would not be subject to the levy of service tax. The Budget has amended

the scope of 'Renting of Immovable Property Service' to directly overrule the High

Court judgment and to explicitly cover the activity of mere renting as well and thishas been done with retrospective effect from 1st June 2007. Moreover, renting of

vacant land where the agreement of contract between lessor and lessee providedfor undertaking construction of building/structure on such land for furtherance of

business or commerce during the lease period will also be subjected to service tax.

Construction of real estate complexes will now attract service tax, unless the entireconsideration for the property is paid after the completion of construction, that is

on obtaining the occupation certificate from the concerned authorities.

Service tax will now also be levied on additional services provided by a builder to

buyers for extra charge like preferential location, internal and externadevelopment of complexes.

Increase in the standard rate of excise duties to 10% and also on cement, which isa major input for real estate construction.

What it means: Service tax on the activity of construction would primarily mean, buyerspaying higher price for property which is under construction.

The expansion of scope of 'Renting of Immovable Property Service' is likely to be one ofthe most controversial proposals. Pursuant to the Delhi High Court judgment, most

industry players refrained from paying service tax pursuant to such transactions. This

amendment would have a significant impact on both the real estate sector as also sectorswhich rely on lease of immovable property for running their business. Further

retrospective nature of the amendment will now result in an adverse impact on the sectorand may lead rise to a large amount of litigation.

CONCLUSION

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The Real estate sector in India has undergone such a dramatic change and rapid change insuch a short span of time. The key growth sectors have been office driven by need for ITspace, residential space driven by increased ownership and retail malls driven by

increasing spending power.In Feb.2005 The union Govt. permitted 100% FDI in real estate development

projects with a minimum size of 50,000 square meters. The Indian real estate marketestimated ay around $15 billion, is expected to continue growing at 30% annually toreach $45-50 billion in 2010 and $90 billion in 2015.

The investments of investors are divided five broad segments of the industry:

1. Residential

2. Retail,

3. Commercial,4. Hospitality and

5. Industrial.

Real estate is much more professionally managed with a number of bigplayers (developers as well as corporate entering the business. There are no monopolisticpositions in real estate, as there are more players today in the development game. Thegreater the number of players, the healthier the competition and the beneficiary of all thiswould at last be the end-user.

Bibliography

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Websites :

1. www.indianground.com

2. www.indianrealestateforum.com

3.www.assocham.org

4.www.sezindia.nic.in

Newspaper:5.Economics times

6.times of india

Books:

7.buss
http://www.indianground.com/http://www.indianrealestateforum.com/http://www.assocham.org/http://www.indianground.com/http://www.indianrealestateforum.com/http://www.assocham.org/

23 balram garg - indian real estate sector

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