CHAPTER 1: INTRODUCTION

The term real estate is defined as land, including the air above it and the ground below it,
and any buildings or structures on it. It is also referred to as realty. It covers residential
housing, commercial offices, trading spaces such as theatres, hotels and restaurants, retail
outlets, industrial buildings such as factories and government buildings. Real estate involves
the purchase, sale, and development of land, residential and non-residential buildings.

The main players in the real estate market are the landlords, developers, builders, real estate
agents, tenants, buyers etc. The activities of the real estate sector encompass the housing and
construction sectors also. The real estate sector in India has assumed growing importance
with the liberalization of the economy. The consequent increase in business opportunities and
migration of the labour force has, in turn, increased the demand for commercial and housing
space, especially rental housing. Developments in the real estate sector are being influenced
by the developments in the retail, hospitality and entertainment (e.g., hotels, resorts, cinema
theatres) industries, economic services (e.g., hospitals, schools) and information technology
(IT)-enabled services (like call centres) etc. and vice versa. The real estate sector is a major
employment driver, being the second largest employer next only to agriculture. This is
because of the chain of backward and forward linkages that the sector has with the other
sectors of the economy, especially with the housing and construction sector. About 250
ancillary industries such as cement, steel, brick, timber, building materials etc. are dependent
on the real estate industry.

It is difficult to estimate the exact contribution of the real estate sector to gross domestic
product (GDP) as it appears in a disaggregated and dispersed form in the National Accounts
Statistics. Residential housing and real estate services (activities of all types of dealers such
as operators, developers and agents connected with real estate) is covered under the category
real estate, ownership of dwellings, business and legal services. The gross value added in
the ownership of dwellings is equivalent to gross rental of the residential dwellings less cost
of repairs and maintenance. Gross rental is estimated as a product of average gross rental per
dwelling and the number of census dwellings and includes imputed rent of owner-occupied
houses.

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The rentals of the industrial/trading establishments are deductible expenses from the profits
of these establishments but appear as profits of the business or company renting out the
premises. Similarly, implicit rents on self-owned real estate is accrued as profits from
business and is difficult to separate from non-real estate profits. The addition to the stock of
real assets with these businesses appears in the business accounts as capital addition. In the
national accounts it would appear under the head gross fixed capital formation
construction. Value of construction output is the additions made to the stock of real estate
assets in the public, private and household sectors. The contribution of construction to GDP
is the estimate of value added derived from the corresponding estimates of this value of
construction output. Further, current data on the sectors such as ownership of dwellings, real
estate services, construction are mostly not available and estimates for the benchmark year is
prepared on the basis of base year data and projected for other years with the help of relevant
indicators.

To get an idea of the contribution of the real estate sector to GDP, an attempt is made to
factor in the value added to ownership of dwellings, which constitute housing, real estate
services and construction.
For the period January-September 2016, total private equity (PE) investments in the real
estate sector were recorded at US$ 4.24 billion, showing a 22 per cent increase compared to
the same period last year. During the third quarter of 2016, cumulative investment in
residential assets increased at 9 per cent on a quarter-on-quarter basis.
The Government of India has been supportive to the real estate sector. In August 2015, the
Union Cabinet approved 100 Smart City Projects in India. The Government has also raised
FDI limits for townships and settlements development projects to 100 per cent. Real estate
projects within the Special Economic Zone (SEZ) are also permitted 100 per cent FDI. In
Union Budget 2015-16, the government allocated US$ 3.72 billion for housing and urban
development. The government has also released draft guidelines for investments by Real
Estate Investment Trusts (REITs) in non-residential segment.

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REFORM ISSUES

The Indian real estate market is still in its infancy, largely unorganized and dominated by a
large number of small players, with very few corporates or large players having national
presence. The Indian real estate market, as compared to the other more developed Asian and
Western markets is characterized by smaller size, lower availability of good quality space and
higher prices. Supply of urban land is largely controlled by state-owned development bodies
like the Delhi Development Authority (DDA) and Housing Boards leaving very limited
developed space free, which is controlled by a few major players in each city.

Restrictive legislations and lack of transparency in transactions are other main impediments
to the growth of this sector. Limited investment from organized sector has also hindered the
growth of this sector. There is a thriving parallel economy in real estate, involving large
amounts of undeclared transactions, mainly due to high stamp duty rates.

Legislative issues
Much of the over 100 laws governing various aspects of real estate dates back to the 19 th
century. Despite the plethora of laws, the situation appears to be far from satisfactory and
major amendments to existing laws are required to make them relevant to modern day
requirements. The Central laws governing real estate include:

Indian Contract Act, 1872

This legislation specifies when a party can be said to have the capacity to contract. A contract
pertaining to realty can be entered into, among others, by an individual (who is not a minor or
of unsound mind), partners of a firm, a corporate body, a trust, a sole corporation, the
manager of an undivided family, and a foreigner. All the requirements of a valid contract, i.e.
consideration, intention to contract and validity under the law of the land must be satisfied.

Transfer of Property Act, 1882

This lays down the general principles of realty, like part-performance and has provisions for
dealing with property through sale, exchange, mortgage, lease, lien and gift. A person

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acquiring immovable property or any share/interest in it is presumed to have notice of the
title of any other person who was in actual possession of such property.

Registration Act, 1908

The purpose of this Act is the conservation of evidence, assurances, title, publication of
documents and prevention of fraud. It details the formalities for registering an instrument.
Instruments which it is mandatory to register include:
1. Instruments of gift of immovable property
2. Other non-testamentary instruments which purport or operate to create, declare, assign,
limit or extinguish, whether in present or in future, any right, title or interest, whether
vested or contingent, to or in immovable property.
3. Non-testamentary instruments which acknowledge the receipt or payment of any
consideration on account of instruments.
4. Leases of immovable property from year to year, or for any term exceeding one year, or
reserving a yearly rent

Sales, mortgages (other than by way of deposit of title deeds) and exchanges of immovable
property are required to be registered by virtue of the Transfer of Property Act. Evidently,
therefore, all the above documents have to be in writing. Section 17 of the Act provides for
optional registration. An unregistered document will not affect the property comprised in it,
nor be received as evidence of any transaction affecting such property (except as evidence of
a contract in a suit for specific performance or as evidence of part-performance under the
Transfer of Property Act or as collateral), unless it has been registered. Thus the doctrine of
part performance dealt with under Section 53 of the Transfer of Property Act and the
provision of Section 49 of the Registration Act (which provide that an unregistered document
cannot be admissible as evidence in a court of law except as secondary evidence under the
Indian Evidence Act) together protect the buyer in possession of an unregistered sale deed
and cannot be dispossessed.
The net effect has been that a large number of property transactions have been accomplished
without proper registration. Further other instruments such as Agreement to Sell, General
Power of Attorney and Will have been indiscriminately used to effect change of ownership.

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Special Relief Act, 1963
This Act is only to enforce individual civil rights. A person dispossessed of immovable
property without his consent (other than in due course of law) can recover possession by a
suit filed within six months from the date of dispossession. Unless the contrary is proved, in a
suit for specific performance of a contract, the Court shall presume that a contract to transfer
immovable property is one in which monetary compensation for its non-performance would
not afford adequate relief. The Court could also grant a permanent/ mandatory injunction
preventing the breach of such contract and award damages.

Urban Land (Ceiling And Regulation) Act (ULCRA), 1976

This legislation fixed a ceiling on the vacant urban land that a person in urban
agglomerations can acquire and hold. A person is defined to include an individual, a family, a
firm, a company, or an association or body of individuals, whether incorporated or not. This
ceiling limit ranges from 500-2,000 square meters (sq. m). Excess vacant land is either to be
surrendered to the Competent Authority appointed under the Act for a small compensation, or
to be developed by its holder only for specified purposes. The Act provides for appropriate
documents to show that the provisions of this Act are not attracted or should be produced to
the Registering officer before registering instruments compulsorily remittable under the
Registration Act.

The objective of acquiring the excess vacant land could not be achieved because of intrinsic
deficiencies in the legislation itself. The provisions under Sections 19, 20 and 21 of the Act
have together proved counter-productive to the objectives of the legislation. So far, only
19,020 hectares could be taken possession of by State Governments and Union Territories
and the remaining land was locked up in various litigations. This has only helped push up
land prices to unconscionable levels and practically brought the housing industry to a stop.

This legislation was repealed by the Centre in 1999. The Repeal Act, however, shall not
affect the vesting of the vacant land, which has already been taken possession by the State
Government or any person duly authorized by the State Government in this regard under the
provisions of ULCRA. The repeal of the Act, it is believed, has eliminated the large amount
of litigation and released huge chunks of land into the market. However the repeal of the Act
has not been carried out in all states. Initially the repeal Act was applicable in Haryana,
Punjab and all the Union Territories. Subsequently, it has been adopted by the State
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Governments of Uttar Pradesh, Gujarat, Karnataka, Madhya Pradesh and Rajasthan. Andhra
Pradesh, Assam, Bihar, Maharashtra, Orissa and West Bengal have not adopted the Repeal
Act so far.

Land Acquisition Act, 1894

This Act authorizes governments to acquire land for public purposes such as planned
development, provisions for town or rural planning, provision for residential purpose to the
poor or landless and for carrying out any education, housing or health scheme of the
Government. In its present form, the Act hinders speedy acquisition of land at reasonable
prices, resulting in cost overruns.

The Indian Evidence Act, 1872

Under the Act, whenever the status of any person as the owner of a piece of immovable
property of which he is shown to be in possession is questioned, the burden of proving that he
is not the owner lies on the person who asserts that he is not the owner.

State laws governing real estate

While each state has its own set of laws, which govern planned development, rules for
construction and floor-area-ratio (FAR) or floor space- index (FSI) and formation of societies
and condominiums, two laws that exist in every state, are the stamp duty and rent laws.
Stamp Duty is being covered in a later section.

Rent Control Act

Rent legislation in India has been in existence for a very long time. Rent control by the
government initially came as a temporary measure to protect the exploitation of tenants by
landlords after the Second World War. However these rent control acts became almost a
permanent feature. Rent legislation provides payment of fair rent to landlords and protection
of tenants against eviction. Besides, it effectively allows the tenant to alienate rented
property. Tenants occupying properties since 1947 continue to pay rents fixed then,
regardless of inflation and the realty boom. Some of the adverse impacts of the Rent Control
Act are:

1. Negative effect on investment in housing for rental purposes.

2. Withdrawal of existing housing stock from the rental market.
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3. Accelerated deterioration of the physical condition of the housing stock.
4. Stagnation of municipal property tax revenue, as it is based on the rent.
5. Resultant deterioration in the provision of civic services.
6. Increase in litigation between landlords and tenants.

The Rent Control Act, in fact, is the single most important reason for the proliferation of
slums in India by creating a serious shortage of affordable housing for the low income
families. Low and middle-income families typically live in rented accommodation all over
the world and the need for such accommodation in our cities will only increase as the
economy modernizes, labour mobility increases and urbanization takes place. It is, therefore,
necessary to increase the stock of rental housing. Promotion of rental housing can have a
significant impact on the economy in many ways:

1. It reduces shortage of housing for a large section of the population who cannot afford
2. ownership.
3. Housing construction being a labour intensive activity, investment in housing generates
employment for both skilled and unskilled labour.
4. Housing has backward and forward linkages with many other industries.
5. Rental housing helps in stabilizing real estate prices and checking speculation and, thus,
makes housing affordable for the weaker sections.
6. It helps check proliferation of slums.

In the absence of rent control, dilapidated urban housing would be periodically pulled down
and replaced by modern apartment buildings and other complexes leading to more rational
use of prime locations and also creating a continuous process of urban renewal. This has not
happened in India because rent control combined with security of tenure provides no
incentive for house owners to undertake renovation work. This explains the run down
appearance of many of our buildings in prime locations, which gives Indian cities a much
more shabby appearance than their counterparts in other developing countries. Repeal of the
Rent Control Act could unleash a construction boom as has happened in many major cities all
over the world. This is not only necessary to meet the growing unmet demand for housing but
it would also have a highly favourable effect on employment generation.

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In 1992, the Central Government proposed a model rent control legislation, which was
circulated to all states. The model Act proposed modification of some of the existing
provisions regarding inheritance of tenancy and also defined a rent level beyond which rent
control could not apply. A new Delhi Rent Control Act based on this model law was passed
in 1997 but it has not been notified to date because of resistance from traders who are sitting
tenants. Only a few states have introduced the model Act.

The New Land Acquisition, Rehabilitation and Resettlement Act

There have been innumerable cases of land owners being either exploited or dispossessed by
force through diligently crafted contracts by corporate entities. The Land Acquisition,
Rehabilitation and Resettlement Act tried to ensure maximum protection for land owners,
who are often individuals and at times not fully aware of the future consequences of
disowning their land. This Act has the potential to unlock all the land which has been locked
for several years due to lack of ways and means that ensure fair compensation.

While the Act had the objective of balancing the interests of land owners and land acquirers,
the final draft of the policy did not really deliver on this front. The clauses that appear in the
Act not only ensure that land costs go up for the acquirer, but it also renders the acquisition
process more complex and time-consuming. This is evident in the clauses pertaining to
obtaining mandatory consent of 80% of the owners, future incremental gains from land
transactions to be shared by the land owners, and different resettlement procedures for
different sections of the population (such as scheduled castes/tribes).

Service Tax Abatement On Construction Activity

In June 2012, the Ministry of Finance provided an exemption from service tax on
construction activities related to single residential units or low-cost housing (carpet area of 60
sq. meters or less). The policy of levying service tax on construction services of under-
construction apartments (which do not have completion certificates) added to escalation in
cost to buyers. Due to non-availability of large capital sums and easy accessibility of EMI
finance, the urban populace invests in real estate by taking loans. This includes the inbuilt
costs of overdraft, which is further compounded by the imposition of service tax.

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Exemption from service tax is provided for construction of residential complexes which are a
part of the JNNURM and Rajiv Awas Yojana (RAY). JNNURM and RAY are flagship
schemes of the government of India to provide shelter for the poor and the disadvantaged.

Consolidated FDI Policy

The Indian real estate industry has been on a roller-coaster ride since 2005. Consequent to the
governments policy to allow Foreign Direct Investment (FDI) in this sector via Press Note 2,
the sector has witnessed a boom in investment and developmental activities. The FDI channel
was opened up under the automatic route in townships, housing, built-up infrastructure and
construction development projects.

The main intention behind opening up the real estate sector to 100% FDI was to bridge the
huge shortage of housing in the country, and to attract new technologies into the housing
sector. The sector not only witnessed entry of many new domestic realty players but also the
arrival of many foreign real estate investment companies - including private equity funds,
pension funds and development companies - all lured by the high returns on investments.

However, lack of consistency in rules relating to the development of SEZs, increased

monitoring of the sector by regulatory agencies, tightening of rules for lending to the real
estate sector and increase of key rates by the RBI several times during the last one year have
arrested the growth of the real estate sector. There is a very clearly defined need to streamline
government policies and introduce reforms. The key challenges that the Indian real estate
industry is facing today are lack of clear land titles, absence of title insurance, absence of
industry status, lack of adequate sources of finance, shortage of labor, rising manpower and
material costs and a snail-like project approval process, among others.

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RERA ACT

To address the various structured issue in the real estate sector, the Central Government
enacted The Real Estate (Regulation and Development) Act, 2016 which received the
Presidents assent on 25th March 2016.The Act has been partly notified w.e.f. 1st May 2016,
as far it concerns to the establishment of Regulatory Authority, Central Advisory Council and
Appellate Tribunal and administration. However, the operative part of the Act is yet to be
notified. In all probabilities this will come effective only after the States have put the
administrative mechanism in place. Preamble: Highlighting the core of enacting this Act, the
Preamble of the Act states; An Act to establish the Real Estate Regulatory Authority for
regulation and promotion of the real estate sector and to ensure sale of plot, apartment or
building, as the case may be, or sale of real estate project, in an efficient and transparent
manner and to protect the interest of consumers in the real estate sector and to establish an
adjudicating mechanism for speedy dispute redressal and also to establish the Appellate
Tribunal to hear appeals from the decisions, directions or orders of the Real Estate
Regulatory Authority and the adjudicating officer and for matters connected there with or
incidental there to.

Amendment to the Benami Transactions Act: The Benami Transactions (Prohibition)

Amendment Act, 2016 lays down stringent rules and penalties associated with dealings
related to benami transactions. It establishes a regulatory mechanism to deal with disputes
arising from such transactions and levying penalties to increase the institution-investor
participation and regulating the sector to make India an attractive investment destination.

Goods and Services tax

Being pegged as a revolutionary tax reform since Independence, the Goods and Services Tax
(GST) is likely to eliminate the complex and ambiguous tax structure plaguing the country
currently. To bridge the gap between the government, developers and consumers,
Magicbricks organised an event 'Real Estate - The RERA and GST Era' in New Delhi
recently. A single indirect tax-structure regime, the move is expected to make tax collection
seamless across India. With the Union government fixing 18% GST rate for

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underconstruction properties with full Input Tax Credits (ITC) for the real estate sector but
excluding the cost of land, here is a list of key takeaways from the new law:

Real estate will be taxed at 18%: Under revised order from the government, under-
construction properties will be taxed at 18% which includes 9% SGST plus 9% CGST. The
government has also allowed deduction of land value equivalent to one-third of the total
amount charged by a developer, thus, making the effective tax rate as 12%. "However, in the
new regime the quantum of ITC will be higher though overflow of credit is restricted. The
price of a property is an outcome of demand and supply dynamics, not taxes alone," says S
Satish, executive director, RSM Astute Consulting Group. "Imposing GST on land would
have just resulted in land costs rising further at a time when the government is pushing its
agenda of affordable housing nationally," adds Ramesh Nair, CEO & Country Head, JLL
India.

Stamp duty and property tax to eventually be subsumed: Stamp duty and registration
charges are outside the ambit of GST now because these are state levies while property tax is
a municipal levy. "In many countries where GST has been implemented, it includes
immovable properties as well," says Satish. Although the government says that it has plans to
eventually subsume these levies into GST, when and how it will be done is yet to be seen

Detailed returns need not be filed this year: KPMG Partner (Indirect Tax) Priyajit Ghosh
says that the new law was a challenge on the compliance front and the government has agreed
to take a lenient view for the first couple of months. "The government has said that a detailed
return need not be filed by traders/businessmen only a summary return would suffice," said
Ghosh. Satish adds that returns can be filed in summary but individual transactions have to be
uploaded in the system
.
Teething issues inevitable: Deepak Kapoor of Gulshan Homez said multiplicity of rates in
the previous regime had created a lot of confusion. "Teething issues, inflationary pressures
and certain short-term adverse impact will make compliance difficult in the first 12-15
months. But global precedence says that GST has been beneficial," adds Tina Rakyan,
director (Finance), Hines India
.
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Easier redressal of taxation issues: Post-GST, some tax issues will become easier to handle
as there would be no overlapping jurisdiction between the Centre and states with regards to
levies on services and goods. Seeking redressal of a taxation issue would be far easier
because in the new regime the same rule would apply to everyone. However, that new issues
related to classification, composite and mixed supplies, ITC etc can crop up.

Transition period a pain for developers, consumers: Making real estate transactions in the
transition period will lead to ambiguity on how will ITC be calculated when the new law
kicks in. Post July 1, 2017, if an invoice for a unit has to be made, how will calculations be
arrived at? If a customer wants to buy a real estate product on July 1, what should I tell him?
Should I tell him that I am selling you my real estate but the actual price will be revealed
after 3 to 6 months, when I get my ITC details.

Unregistered vendors will be a headache: Unlike in the past, the liability to pay taxes has
been shifted from the provider of goods and services to the receiver, if he happens to be a
registered person. Any purchase from an unregistered dealer will attract a reverse charge on
the recipient which adds to the compliance cost of the purchaser. Post-GST rollout, many
corporates may not prefer purchases from unregistered dealers.
Source july 8 2017 economic times

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 LAND MARKET ISSUES

It is estimated that removing land market barriers can contribute an additional 1 per cent to
Indias GDP growth rate.

Titles and Records

Another important issue in real estate development is that of title to property. In India, the
State does not certify a title to housing or land property. The revenue records are not
documents of title, and ownership is established only by the sequence of earlier transfers.
Thus, the fundamental question of title has often led to enormous litigation. At present there
are three legislations the practice of avoiding registration of deeds by transferring property
through power of attorney and agreements of sale. Though this Act has received
the assent of the President and has been notified in the official gazette, it will come into force
only from a date to be notified by the Government.

Urban Land Monopoly

Many cities have created development agencies (like the DDA in Delhi) and handed over
control of all urban land within the municipal jurisdiction to them in the belief that they
would act in the interests of the public. However, such agencies tend to behave like the
monopolies that they are. It is in the interests of the monopolist to restrict the development
and sale of new land and keep prices high, so as to maximize its own returns. Introduction of
a competitive construction boom requires abolishing the monopoly of such agencies over
urban land by completely separating control of land from its development.

There is a huge opportunity for leveraging the large portfolios of unutilized and underutilized
real estate assets of various government agencies. A conscious effort on the part of these
agencies, coupled with policy initiatives, can unlock the value of these non-performing
assets. Revenues generated from such initiatives can be utilized for the development of
infrastructure.

Government staff housing: During British rule, official bungalows were built in exclusive
civil lines for government officials. This practice was perpetuated after Independence and a
large volume of government housing for functionaries ranging from ministers and legislators
to Class III and Class IV employees, involving huge public expenditure was developed

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during the past 50 years. In other democracies such as the United States and United
Kingdom, there is usually an official residence for the elected chief executive and all other
officials live in owned or rented houses. Many economists have proposed that all government
housing including those in the Lutyens bungalows zone in Delhi should be handed over to the
private sector and the resources generated be invested for productive purposes.

Public-Private Partnerships : Private participation in housing is giving way to the new mantra
of public-private partnerships. Under this, the government acquires the land which is then
developed for residential/commercial use by the private developer. One example is the
Bengal Ambuja project in Kolkata, which is a joint venture between the West Bengal
Housing Board and the Gujarat Ambuja Cement Group. The housing project caters to the
housing needs of various income groups by building low density high rise buildings.

Another example worth emulating is the HUDA model of the Haryana Urban Development
Authority (HUDA) under which a number of integrated cities have been developed through
public-private partnership. Gurgaon has emerged as the most successful of these, with the
countrys largest private sector integrated township DLF City being established there.
Development of integrated townships would mean development of residential, commercial,
corporate and institutional complexes, besides provision of roads, power, water supply, waste
management, storm water drainage as also social infrastructure medical, community and
education facilities. A certain percentage of houses around 10 per cent in these
townships can be reserved for the economically weaker sections (EWS) and low-income
groups (LIG) at affordable rates.

Land Reforms
The present ceiling of 15 - 25 acres per person on agricultural holdings comes in the way
of large-scale real estate development, especially with the recent foreign direct investment
(FDI) norms making it mandatory for having at least 100 acres of land for investment in
integrated townships. Therefore one has to under the existing law find methods of
circumventing this by first converting agricultural land within the limit into urban land and
then again purchasing more land in order to meet the 100-acre limit for FDI. This would only
lead to delays in projects. With the urban land ceiling removed in most parts of the country,

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the agricultural land holding ceiling with respect to land in the periphery of towns needs to be
looked into.

Conversion of Rural Land to Urban Use

Conversion of rural land at market prices should be completely de-controlled and left to the
market. At present, in Delhi, historical village land situated within the city limits cannot be
converted to develop urban colonies. The presence of urbanized villages in the middle of
the capital city is an anachronism and a testament to bad policy. The curbs on the expansion
of urban limits into surrounding village areas should be removed.

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 FINANCIAL ISSUES

Credit Restrictions
Financing options are presently skewed in favour of personal loans vis--vis developer
financing. Most housing finance companies cater mainly to individuals in the higher income
group, who have a reasonably assured credit worthiness. Only 5-7 per cent of the loans
disbursed by these housing finance companies go to builders and institutional developers.

The high default rates among the developers is one of the factors dissuading housing finance
companies from investing in this sector. The legal recovery mechanism is time consuming.
Lack of a code of conduct for the industry is the other factor that keeps investors away. Even
now, developers need to become corporatised to avail funding from financial institutions. All
this leads to builders and developers approaching private sources of finance at high interest
rates, which ultimately leads to higher real estate prices.

To attract investment into this sector, it is imperative that the government increases the
comfort level of the existing fund providers through appropriate legal measures and
corporatisation of real estate, besides maintaining industry discipline. Developing a grading
system among the developers will make investors aware of the risks associated with the
projects of each developer. Grading would facilitate the overall growth of the real estate
sector by providing the developers with incentives to conform to fair trade practices and legal
requirements. A scientifically graded project would lend itself to a more accurate and reliable
estimation of the risks associated with the real estate project/ project promoter. This is
expected to enhance the confidence of the end users and augment the interest of the lenders in
these projects, thereby facilitating the flow of institutional funds to the project/project owner.
With the construction sector receiving industry status, it is expected that developers and
companies will be able to borrow from financial institutions on priority basis.

Sources of Funds
Real estate mutual funds, pension funds and insurance companies are the major investors in
the housing sector in developed countries. In the United States, pension funds invest 5 per
cent of their reserves in real estate equity and mortgages, whereas in India developers ability
to get financial help from these sources is limited. Housing finance companies in India also
need to be given access to pension, provident and insurance funds. As the gestation period of

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real estate projects is more than five years, on an average, it is necessary that developers have
access to such long term funding sources.

Real estate investment trusts

In India real estate assets are kept outside the financial market and not leveraged for
investment purposes. India must try to make real estate a full-fledged investment option. Real
estate as an asset class is vastly different from capital market assets. It is a natural hedge
against inflation, experiences low volatility and hence generates positive long-term returns.
To begin, with an exclusive stock exchange could be set up under Securities and Exchange
Board of India (SEBI) guidelines for trading real estate stocks.

The Government should permit the setting up of a Real Estate Investment Trust (REIT)
which should be regulated by SEBI in order to open the investment floodgate for the real
estate sector. The REIT would operate like a mutual fund, where investments of individual
investors are consolidated to invest in real estate, rather than stocks of companies. It would
provide a higher level of liquidity as well as professional advice for price discovery, as the
investor would be investing through an asset management company. It also provides assured
returns in the form of dividends to its investors from rental income earned on real estate
assets. The essential difference between a REIT and a mutual fund is that investments made
in REIT are traded in real estate stocks and not invested in stock of companies. Further the
swings in this market are in the range of 5-10 per cent, which an average investor is in a
better position to absorb than the 60- 90 per cent swings on the stock market.

Mortgage market and securitization

Another source of finance for housing companies is development of the secondary mortgage
market which involves conversion of mortgages into tradable financial or debt instruments.
Securitization is a process popular among housing finance companies in the West by which
the home loan assets are bundled into securities and sold to the investors. Such securities are
called mortgage-backed securities and they help the finance companies convert their loan
assets into cash for further loan disbursals, thus maintaining a flow of funds from the lenders.
It also helps finance companies reduce their investment risk; the risk of earning a lower rate
of return on cash flows for prepayments of home loans.

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There are two pre-requisites for secondary mortgage market:
(i) Mortgage loan insurance: The risk of default under mortgage loan is covered under an
insurance policy for a nominal premium., which protects the risk of non-payment to the
lender. As a result, the mortgage loans are risk-free and it is this reason that only 50 per cent
risk weight is assigned to housing loans under capital adequacy norms. In India, however,
such risk weight is 100 per cent given the absence of such insurance cover which increases
the risk of non-payment/failure. The Reserve Bank of India (RBI) has recently reduced the
risk weight for housing loans to 75 per cent, taking into account the good recovery in this
sector.

(ii) Foreclosure: Housing loans are long-term loans, repayable over a period of 15 to 20
years. Any default will be restricted to the period of actual default. Under prudential norms,
the account will become a non-performing asset after default of six monthly installments.
Foreclosure laws will enable the lender to call back the entire dues when default of six
monthly installments takes place, irrespective of the fact that the full amount is not due. The
various agreements obtained by the lender will have such clauses to recall the entire balance
due in case of default.

At present, banks and housing finance companies find it difficult to sell their housing loan
portfolio to institutions if it does not have the remedy of foreclosing an account. The normal
procedure for recovery of bad debts under the civil code takes more than 10 years. Parliament
passed the National Housing Bank (Amendment) Act 2000 adding a new chapter, V-A, to the
National Housing Bank Act, 1987. This simplifies the foreclosure norms for housing loans
and permits summary proceedings for dues by appointing a Recovery Officer and setting up
Appellate Tribunals on the lines of the Debt Recovery Tribunals in the case of banks. Further,
the Government has also included scheduled banks in the definition of approved institutions,
besides housing finance companies.
Under these provisions, officers of approved institutions with a legal background shall be
appointed as recovery officers of the Tribunal. If a borrower defaults in repayment, the
lending institution may resort to foreclosure of the account and apply to the recovery officers
for sale of the property pledged, mortgaged or assigned to it as security. The foreclosure law
can speed up the recovery process considerably. However, the government has to notify the
rules and appoint recovery officers before the foreclosure norms can take effect.

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Road networks
According to a study conducted by the real estate management company, C.B. Richard Ellis,
the returns on commercial property in India are among the highest in the world. Mumbai
prime property fetches returns of 13 per cent, New Delhi 12 per cent and Bangalore 11 per
cent. In contrast, returns in London are 5.3 percent and in Singapore 4.8 per cent. Lack of
space is not the reason for these high returns because India is a huge country while Singapore
is just a tiny city. Various reasons have been put forward to explain the curious phenomenon
of astronomical real estate values in a poor country. The real reason, however, is the distorted
market for real estate combined with the under-supply of roads. Absurd land ceiling and
rental laws combined with high stamp duties have skewed the real estate market towards a
situation of perennial shortage. Roads add to the supply of land by connecting villages to
towns and this makes land available to the urban economy. This keeps land prices down. It
also reduces the rural-urban migration, easing the pressure on cities.

Unfortunately, roads have long been neglected by our policy makers. Roads are a public
good and, therefore, an area where State investment is required. However, the planned
economy has failed to invest sufficiently in roads even as it has been investing in cars and
running hotels. This has put pressure on land in cities, causing urban land prices to soar.

It is now time to usher in a free market in real estate development. With roads, tramways and
rail connections to the surrounding areas, a lot of rural land will be developed. All these
parcels of land will add to the total supply of real estate and this will work to keep prices
down.

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 MUNICIPAL LAWS, RULES & PROCEDURES
MUNICIPAL LAWS

Most urban and municipal laws and regulations in India date back to half a century if not
more. There is a need to thoroughly review and modernize them in the light of the latest
developments in urban infrastructure, transport, pollution control etc. A committee of
eminent persons from the concerned fields should be set up to draw up a model municipal
law. Such a law must make provision for private investment in and supply of all public
utilities and services. It must ensure that the municipal authority focuses its attention on data
gathering, analysis, planning, organization and monitoring. In other words, the government
should play the role of the facilitator more than that of the provider.

Zoning Rules
In an ever-changing urban scene, the zoning regulations are in a constant state of flux with no
systemic reviews or updation taking place. There is need to establish a regulatory commission
to continuously review the zone shifts and activity shifts as demographic patterns change in
urban areas.

The failure of the Master Plan for Delhi is a case in point. The most important cause of this is
the poor and inadequate implementation of the Plan during the first 20 years of its existence
from 1961 to 1981. Most of the provisions made for various facilities in the Plan were not
realized on the ground. Space made available for housing, retail, commercial offices, service
industry, small-scale industry, as well as for educational, social and cultural institutions was
far below the provisions made in the Master Plan. The implementating agency, the DDA,
notified and acquired all the land required for the future growth of the city, but failed to
develop it on a scale and at a speed sufficient to meet actual need. In such circumstances,
restrictions on change of use of land and premium charged by authorities like
DDA/Directorate of Industries are matters to be investigated.

Approval Procedures
Another serious malaise affecting investment in the real estate sector and housing
development is the tardy process of planning approvals. A system of deemed approvals for all
planning permissions by registered architects operating on the basis of self-regulation much
like chartered accountants do, would enormously speed up the entire plan approval process.
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This will ensure that far larger quantum of housing stock is supplied every year, at more
reasonable prices than is the case presently.

Consumer protection
Real estate came under the purview of the Consumer Protection Act (1986) in 1993 after an
amendment to the definition of service in Section 2(1) 0 of the Act to include the term
housing construction. However, there are still several lacunae relating to consumer
protection.

Under the provisions of this Act, housing is considered a service not goods. If housing is
treated as goods then replacement or liquidated damages can be claimed if it is defective,
unlike in the case of breach of service provision, which requires only payment of a penalty.
Further, pricing is covered under the Act under the unfair trade practice as applicable to
goods. By defining housing as a `service, unfair practices related to pricing of housing are
not covered. However, merely defining housing as goods will not solve all problems. The
responsibility of making the right choice under the Act rests with the consumer and the seller
is protected from giving a warranty of the goods. Thus, even if housing were to be included
as a good, the very definition of good adopted in the Act may need to be reviewed to give
adequate protection to a purchaser of housing.

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 INVESTMENT IN REAL ESTATE SECTOR
Liberalization of the real estate sector coupled with the higher yields the sector was offering
were the main reasons for the rise of the sector. The yields were higher than any other place
in the world. Initially the risk in India was higher than some of the developed markets, so
institutional investors were looking at an arbitrage opportunity. The sector would grow only
if the perception of risk came down or the yields went up capital flows happen. The
IT/ITES sectors helped reduce the risk premium. Over the years, Real estate has become
mainstream, leading to huge run up on property prices. Several billion dollars have been
raised from the primary public markets and this should continue at a moderate pace over
time.

Real estate sector is a large, huge diversified sector, one with many verticals such as land,
design/construction, development, investment, lending etc. As India is experiencing the
growth curve, moving forward many companies will be spawned in each of these verticals
and offer great career opportunities. The sector is very important for the government as it is a
big generator of tax revenue. Urban planning is very critical to any growing city and provides
huge opportunities and liabilities. People tend to discuss, urbanization of India, if good
planning and development doesnt take place in our cities, we are heading for ruralization of
Indian urban centers.

Real Estate development is taking place in Residential, Retail, Office, Hotels, Warehousing
and Industrial sectors. The key drivers of each of these property types are basic fundamentals.
The IT/BPO sector is expected to generate 100Mn sft of demand for office space over the
next five years. The rising middle class and its consumer demand is driving the retail boom
around 100 malls are under development. The large shortage in the housing sector will
continue to fuel the growth in the residential market. The real demand is not in the high end
residential market but in the affordable housing segment and this will be the driver for the
residential market.

Moving forward Real Estate finance will also see growth in all areas of Public and Private:
Debt and Equity. In the private equity space the market is currently governed by the high
networth individuals, PE funds and closed ended funds, mutual funds (slowly coming in).
Banks and NBFCs are the only players operating in the debt market. Quasi-public agencies
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and mezzanine funds will be the next movers into this sector. As the market grows, the
private debt operators will move towards public equity. We have already started witnessing
this in the form of IPOs by developers. REITs and mutual funds will make it easier for
individual investors to invest in RE and further make the risk more diversifiable for the
market as a whole. There is no public debt market in India. Players in this sector include life
insurance companies and fixed income funds who expect a more fixed income and come into
a market when it reaches a developed stage and offer their clients a fixed income.

Overall, with further growth in the sector, career opportunities are only getting better. There
are many ways to participate in this growth - public equity, private equity, debt development,
investment, sales, research, leasing, property services, entrepreneurial ventures, public policy,
govt. agencies, planning, architecture/engineering, investment banking etc.

The main challenges in the future also offer opportunities as they require solutions in various
forms. Urban planning is the single biggest challenge for our cities. It is imperative that our
urban infrastructure keeps pace with our economic growth. Better roads will help bring down
the supply demand gap of land in future. Good roads will help increase supply of land and
bring down property prices. Land acquisition reforms also offer many challenges.
Astronomical government stamp duty rates increase property transfer costs and high costs
come in the way of securitized debt market and efficient mortgage markets.

With property boom spreading in all directions, real estate in India is touching new heights.
However, the growth also depends on the policies adopted by the government to facilitate
investments mainly in the economic and industrial sector.
The positive outlook of Indian government is the key factor behind the sudden rise of the
Indian Real Estate sector - the second largest employer after agriculture in India. This
budding sector is today witnessing development in all area such as - residential, retail and
commercial in metros of India such as Mumbai, Delhi & NCR, Kolkata and Chennai. Easier
access to bank loans and higher earnings are some of the pivotal reasons behind the sudden
jump in Indian real estate.

The Indian real estate sector has witnessed high growth in recent times with the rise in
demand for office as well as residential spaces. The real estate sector in India is expected to
attract investments worth US$ 7 billion in 2017, which will rise further to US$ 10 billion by
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 2020. India has been ranked fourth in developing Asia for FDI inflows as per the World
Investment Report 2016 by the United Nations Conference for Trade and Development.
According to data released by Department of Industrial Policy and Promotion (DIPP), the
construction development sector in India has received Foreign Direct Investment (FDI)
equity inflows to the tune of US$ 24.29 billion in the period April 2000-March 2017.

Foreign direct investment

Real Estate Sector in India has been going through a rough weather for the last few years due
to lack of funds and sluggish demand.
Real Estate Business is one of the nine activities where Foreign Direct Investment (FDI) is
prohibited. However, considering that Housing for all is one of the key objectives of the
Government, an exception has been carved out permitting FDI in Construction-Development
projects.
Until October 2015, 100% FDI was permitted in Construction-Development projects with
following conditions:-
1. Minimum floor area to be developed of 20,000 sq. metres.
2. Mandatory infusion of FDI of minimum USD 5 million within 6 months of the
commencement of the project.
3. The investor was permitted to exit on completion of the project or after development of trunk
infrastructure i.e. roads, water supply, street lighting, drainage and sewerage.
4. Transfer of investment from the foreign investor to another non-resident investor required
government approval.
However, despite the fact that 100% FDI was permitted under automatic route, this sector
was not showing any sign of recovery as the minimum thresholds were suggesting that the
FDI was permitted only in new projects and not permitted in the existing projects which were
pending because of availability of funds.
However, the Government in November, 2015 has re-looked at the policy and relaxed it. The
amended policy broadly provides as follows:-
1. Minimum thresholds related to the area to be developed and the amount to be infused was
removed.
2. The foreign investor has been given liberty to exit the project even before its completion or
development of basic infrastructure subject to lock-in period of 3 years.
3. No prior approval is required for the sale of investment by the foreign investor to another
non-resident wherein no repatriation of investment is involved.
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4. Each phase of the project would be considered as a separate project for the purpose of
investment.
Therefore it would imply that any project regardless of size which is under construction can
have access to any amount of FDI. Apart from the above, it has also been clarified that 100%
FDI under automatic route is permitted in completed project for operation and management
activities etc. It has been further clarified that earning of rent / income on lease of the
property will not be regarded as Real Estate Business. Accordingly, FDI would also be
permitted in completed projects where intention is to earn rental income.
The Government had also introduced the concept of Real Estate Investment Trust (REITs)
in 2014 for attracting retail funding in real estate sector. REITs were given a pass through
status for the purpose of taxation under the Indian Taxation Laws. However, it is important to
note that REITs are subjected to some minimum thresholds like the value of asset owned by
such entities should not be less than INR 500 crore and the initial offer size of unit is required
to be atleast 250 crore. Since 2016, REITs have been allowed to invest up to 20% of its
investments in under-construction projects, up from a maximum of 10% allowed earlier.
However, despite various steps taken by the Government, the sector has not witnessed revival
so far owing to other macro-economic factors.

Page 25 of 48
Real estate investment trust

What is a REIT?
A Real Estate Investment Trust (REIT) is a real estate company that offers common shares to
the public. In this way, a REIT stock is similar to any other stock that represents ownership in
an operating business. A REIT has two unique features its primary function is managing
income-producing properties and it must distribute most of the profits as dividends

REIT India

The real estate sector in India has been lucrative for savvy investors over the last decade, but
it has not been without accompanying uncertainties. The introduction of REITs (Real
Estate Investment Trusts) will open up a platform that will allow all kinds of investors even
those with smaller budgets - to make safe and rewarding investments into the Indian real
estate market. The best thing about REIT is that investors can start with as small a sum as Rs.
2 lakh to secure units in exchange.

The REIT platform has already been approved by the Securities and Exchange Board of India
(SEBI) and like mutual funds, it will pool the money from all investors across the country.
The money collected from the REIT funds will subsequently be invested in commercial
properties to generate income.

A REIT will need to be registered via an IPO or initial public offering. REIT units, as such,
will have to get listed with exchanges and consequently traded as securities. The SEBI board
has kept the minimum asset sizes to be invested in at Rs 500 crore. However, the minimum
issue size would have to be less than Rs 250 crore. As with stocks, the investors here would
be able to buy the units from either primary and/or the secondary markets.

How does a REIT work?

REIT is a process to generate funds from a lot of investors to directly invest in profitable real
estate properties like offices, residential units, hotels, shopping centers, warehouses and
more. All trusts with REIT will be listed with stock exchanges as they would be structured
like trusts. Consequently, REIT assets will be held with independent trustees for unit holders /
investors.

Role of the trustees

Trustees with REIT have defined duties which typically involve ensuring compliance and
adherence to all applicable laws that protect the rights of the investors.

The objective of REITs

A REITs objective is to provide the investors with dividends that are generated from the
capital gains accruing from the sale of the commercial assets. The trust distributes 90% of the
income among its investors via dividends. Apart from minimum entry level, a REIT is
supposed to provide diversified and safe investment opportunities with reduced risks, and
under a professional management to ensure the maximum return on investments.

The advantages with REITs include:

Income dividends: 90% of distributable cash at least twice in a year

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 Transparency: REIT will showcase the full valuation on a yearly basis and will also
update it on a half-yearly basis
Diversification: According to the guidelines, REITs will have to invest in a minimum
of two projects with 60% asset value in a single project
Lower risk: At least 80% of the assets will have to be invested into revenue-
generating and completed projects. The remaining 20% of the properties that include
properties like under construction projects, equity shares of the listed properties,
mortgage- based securities, equity shares that derive a minimum of 75% of income
from Government securities or G-secs, money market instruments, cash equivalents
and real estate activities.

The REIT concept has been in the news for some time now. However, the real estate
regulations rolled out so far have not quite helped bring them to Ground Zero in India as yet.
REITs exemption from tax on the distribution of dividends would make it much more
attractive for investors. According to a recent report by Cushman & Wakefield, commercial
properties in India that are REITable investment opportunities are between $43 billion and
$54 billion across the top cities.

Are REITs more attractive than actual property purchase?

Investing in REIT can be compared to investing in Gold Bonds. Indians are partial to buying
physical gold rather than in Gold Bonds, implying that having ones own investment in
property will always provide Indians greater satisfaction than mere paper investments. The
Indian property market is now almost stabilized and it is the right time to buy self-owned
homes. While it is human tendency to wait and watch, the bottom of the market cannot be
fathomed accurately at the best of times.

At the end of the day, REITs are investment instruments and not a means to acquire actual
property which is always high on every Indians wish-list. A budget that clearly favours
purchase decisions for first- time home buyers and is a step closer to the Prime Ministers
mission to provide Housing for all by 2022 is in place. 2017 is certainly the year to make
home ownership a reality.

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 CHAPTER 2

This section critically examines three real estate markets in India. Those 3 markets are
Mumbai, Pune & Nashik. All those mentioned towns belongs to different categories Viz; Tier
I, Tier II & Tier III. This was selected because in order to understand different real estate
scenario.

The information has been collected by following ways:

1. Personal visit to all these places.
2. With the help of local brokers
3. Through various reports published by knight frank, CBRE & JLLM.

The categorization of cities are as follows:

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 CITY NASHIK TIER II
NASHIK

Overview
Nashik is popularly know as the Wine capital of India. It is the third most industrialised
district and is a major centre for auto, engineering and electric industries of Maharashtra.
Manufacturing industries and agriculture have traditionally supported the economy of
Nashik. There are 5 major Maharashtra Industrial Development Corporations (MIDC) that
are located in and around Nashik and houses some of the renowned manufacturing units.
Though agriculture and other industries have a strong base in the city, it is the service sector
that is poised for growth. Of late several IT/ITES companies are setting up base in the city
and various SEZs are being developed as well.

Geographical proximity to Mumbai (185 kms) and Pune (220 kms) has accelerated the real
estate growth in Nashik. Adequate infrastructures in terms of good roads, ample water supply
and excellent educational facilities have played a major role in boosting the growth of this
city. The infrastructure and industrial developments of the past two decades have transformed
this traditional pilgrimage centre into a vibrant modern city.

The Godavari River has given the growth direction to Nashik and the influence can still be
seen in urban Nashik. The erstwhile old city comprising of locations around the banks of
Godavari River like Raviwar Peth and Panchwati have given way to new centres of growth
like Mahatma Nagar, Gangapur Road and College Road in the suburbs. In more recent times,
Mumbai-Agra National Highway (NH-3) and Nashik-Pune National Highway (NH-50) has
influenced growth in locations like Pathardi, Adgaon, Nasik Road and Deolali Camp.

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Outskirts of Nashik are undergoing brisk real estate
development. Currently, the city may not be in a position
to compete with the real estate growth and investments as
compared to those in established destinations like
Mumbai and Pune, but given the escalating land prices in
the above locations, investors and developers alike are
looking at Nashik because of its affordable price range.

With the changing real estate scenario of Nashik, the

developers are gearing up to meet the new buyer
requirements of bigger homes with better amenities and
plenty of greenery. Nashik is going to witness residential
supply of about 2.1 mn.sq.ft. by 2017.

Upmarket addresses in the city include locations like

Central Bus Stand, Mahatma Nagar, Gangapur Road and
College Road. Locations like Sharanpur Road, Trimbak Road, Nashik Road, Jail Road and
Deolali are the other popular residential destinations in
Nashik.

The demand for open plots and bungalow schemes is

rising in areas like Adgaon Road and Pathardi, located
close to the Mumbai-Agra highway.

Majority of the upcoming office projects are developed as

mixed use developments with ground floor dedicated to
retail and the upper floors used as office spaces. The total
upcoming office space supply in Nashik till 2016 is
around 1.9 mn.sq.ft. Currently, 5% of the total office
space is being used by the BPO sector companies like
WNS and Tricom.

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However, the scenario is fast changing as major IT/ITES
companies are considering Nashik as the destination for
future expansion. The first IT Park of Nashik, V Tech Park
(750,000 sq.ft.), a joint venture between Pune based Vascon
group and Nashik based Sanklecha Group is coming up in
Indira Nagar, near Mumbai Nakaand is in operation .

Nashik attracts a number of tourists due to its old city charm and cultural heritage. The high
streets and traditional bazaars thus have a ready market among the visiting population.
Nevertheless, the upcoming mall projects are a reflection of the changing aspirations of the
local population and the changing retail scenario.

Organised retailing has picked up in Nashik over the past 2 to 3 years and major retail brands
like Big Bazaar, Caf Coffee Day, Mc Donald's, @Home, etc. have their presence in Nashik.
Nashik will witness an infusion of close to 4.1 mn.sq.ft. of quality retail space by 2017.
Majority of the retail projects are coming along College Road, Gangapur Road, Untwadi and
Old Agra Road, as these established retail destinations also have a presence of high end
residential catchments. Untwadi also boasts of Banyan Square (750,000 sq.ft.) by Sarda
Group, which is projected to be the second largest mall in Maharashtra.

Rental and Capital Values The Changing scenario

Till 2016, residential market in Nashik witnessed a slow
growth with an annual appreciation in the range of 5-15%.
However, the advent of IT/ITES companies into Nashik has
led to speculative price rise in the residential sector. Since
then, the residential sector has witnessed appreciation in the
range of 30-70% in the past one year.

Current residential values in the prime locations of the city, like College Road and Gangapur
road are in the range of Rs.2,500-3,000/sq.ft. As compared to the residential market, the
office market has seen lower appreciation in the range of 20- 30% in the past one year. The
rental values and capital values for Canara Corner, Gangapur road, College

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road and Sharanpur road range from Rs.25-40/sq.ft. per month and Rs.2,500-4,000/sq.ft.
respectively.

Currently sale is preferred over leasing for office spaces in Nashik. The capital and rental
values for retail market have also seen a healthy appreciation of about 40-45% over the past
one year. College road, Gangapur road and Sharanpur road, the most preferred retail location,
command a rental in the range of Rs.30-80/sq.ft. per month.

With nearly 2,000 students passing out of Nashik's engineering and management institutes
every year, the government is looking at using this enormous resource to attract the IT
industry to the city. Nashik with its good human resource pool and low real estate cost is
picturing in the radar of IT/ITES companies looking at diversifying in smaller towns and
cities. The demand for entertainment avenues like multiplexes, branded apparel shops, food
and beverages is also slated to increase with the onset of IT/ITES companies into Nashik.

Nashik is in the process of urban makeover which includes a complete overhaul of its
existing infrastructure facilities in addition to the ongoing four-laning of the Mumbai-Nashik
highway and a proposed airport. The city has already generated a fair amount of excitement
among reputed developers from Mumbai, Pune and other Indian cities. Given its comfortable
real estate situation and affordable property prices, Nashik holds substantial potential in the
near future. In addition, the near saturation of the surrounding established markets of Mumbai
and Pune is bringing Nashik into eliciting interest of the investors.

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 City-Mumbai-Tier 3
CITY MUMBAI - METRO
MUMBAI
RESIDENTIAL MARKET
MMR RESIDENTIAL MARKET LAUNCHES, SALES AND PRICE TRENDS

Early last year in H1 2016, the Mumbai Metropolitan Region (MMR) residential market
witnessed its best growth momentum after the 2008 global financial crisis. Residential
launches and sales grew by 29% and 23%, respectively, over the same period last year. The
signals were optimistic even for the remaining part of the year thereby raising hopes that the
MMR residential market that has been on a downward spiral since
2010 would see a growth in sales in 2016.

However, in H2 2016, market suffered a big blow with both launches and sales plummeting
by 53% and 26% respectively. Housing sales of 25,403 units and launches of 9,740 units
were recorded in H2 2016 lowest in the post GFC period.

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 The announcement of demonetisation of high value currency notes on 8 November 2016
disrupted market sentiment and accordingly a major dent on the residential market came in
Q4 2016, which saw sales plunge by
50% to 8,617 units. The magnitude of decline in launches was larger at 77% to 2,617 units.

The segments of the economy that thrived on illicit money have come under tremendous
pressure. The investment premise of high returns from residential property, which had
already weakened with stagnating property price over the last two years, is under stress with
the changing market landscape. The new landscape
of transparency, efficiency and governance brought collectively by the demonetisation
scheme, benami property law and the real estate regulation will challenge the status quo of
real estate investment and transactions.

On the other hand, from the perspective of end users, the cause of affordability is not served
enough either by the decline in home loan rates brought by policy rate cut of 175 basis point
in this interest rate cycle or the tax
incentives for housing offered in the 2016 budget.
All these factors translated in aweakest half yearly and annual performance of the MMR
residential market in at least seven years.

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The new landscape of transparency, efficiency and governance brought collectively by the
demonetisation scheme, benami property law and the real estate regulation will challenge the
status quo of real estate investment and transactions

With the backdrop of an uncomfortable unsold inventory level coupled with investor
apartments that are also coming to the market, the drop in launches was more severe
compared to the drop in sales during H2 2016.

Amongst all the micro-markets,the premium markets of South Mumbai and Central
Mumbai took the biggest hit whereas Thane and Peripheral Central Suburbs were relatively
better off.

While the incidences of cash transactions vary across micromarkets, demonetisation took a
toll on sales in all the micro-markets.
The premium markets of South Mumbai and Central Mumbai were the worst hit with sales
recorded lower by 54% and 41% respectively in H2 2016 compared to H2 2015.
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 PREMIUM RESIDENTIAL MARKET LAUNCHES, SALES AND PRICE TRENDS

With an average house price of `50 mn and above, the premium markets are select localities
spread across the micro-markets of South Mumbai, Central Mumbai and the Western
Suburbs.
New launches in this segment saw a 69% decline even as sales were
slow by 16% in H2 2016 compared to H2 2015. The unsold inventory level has come down
steadily
from a peak of 213,742 units in H1 2014 to 154,699 units in H2 2016

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 CITY PUNE TIER I

PUNE
Pune is one of the most preferred IT destinations among the Tier II cities. Over the last few
years, the city has witnessed high uptake of ready space as well as of built-to-suit premises by
IT/ITES space occupiers. Pune has traditionally been associated with automobile
manufacturing and engineering sector and recently majors like Volkswagen and Mercedes-
Daimler Chrysler have firmed up plans of setting up plants in Chakan. Tata in joint venture
with Fiat of Italy are setting up plant in Ranjangaon. General Motors is also setting their
manufacturing plant at Talegaon, near Pune.

Pune is also one of the leading software exporters in India, ranking second in growth and
among the top five in terms of revenue. According to the Software Technology Park of India
(STPI) software exports from Pune in year 2013 increased and crossed the Rs. 29,589.25
cr mark. Proximity of Pune to Mumbai, the financial capital of India, has also had a major
share in the real development of the city.

All these factors have fueled the development of Grade-A office spaces along with need of
supporting residential and retail development. To meet the growing real estate demand,
developers have undertaken considerable construction activity across various micro-markets
in the city.

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Office Price and Rentals changing scenario
The eastern and western zone in Pune has seen the maximum real estate development over
the past one year. Together with this, these regions witnessed strong leasing activity, thereby
leading to reasonable appreciation in rental values for office space. Eastern zone office
rentals which have increased by 25-30% over the last one year are currently at since the
values in 2017 and current values in this zone are in the range of Rs.35-45/sq.ft. per month.
In the western zone, the rentals underwent an appreciation of 10-15%
and are presently Rs.50-60/sq.ft. Office space rental values in the central zone range between
Rs.60-70/sq.ft. per month, reflecting an
increase of around 20% over last year's values. In upcoming eastern and northern locations
like Manjiri, Shevalwadi and Phursungi average rental values range between Rs.30-35
/sq.ft.per month

Demand changing scenario

Pune has been a favoured destination for IT/ITES companies for last few years and this is
clearly reflected from the steady demand emanating from this sector. Approximately 2.6
mn.sq.ft. of office space (excluding Hinjewadi) was absorbed in Pune in 2015, out of this
nearly 80% was taken up by the IT/ITES sector. Also, as witnessed last year, there has been
an increasing trend of corporates opting for built-to-suit facilities in Hinjewadi, Bavdhan, etc.

Micro-markets in eastern zone like Kharadi, Nagar Road, Vimannagar, Kalyaninagar,

Hadapsar, etc. captured the maximum office market absorption recording a figure of 40%,
while the western zone locations like Aundh, Baner, Bavdhan, etc., followed a close second
at 30%. Northern zone comprising Pimpri, Chinchwad absorbed 5% while central zone with
locations like Senapati Bapat Road and Shivajinagar absorbed 25% of the total demand.

Supply and development changing scenario

An estimated supply of 21.13 mn.sq.ft. of new office space is expected to enter the Pune real
estate market
by 2017-18. Due to limited supply of land for development in central zones, new office space
will continue to be developed on peripheral locations of the city.
Central locations like Shivajinagar, Senapati Bapat Road, etc. have fragmented development
catering to small corporate office needs with few major premises of Grade-A spaces. New

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office developments are coming up in peripheral/suburban locations providing quality built-
up space, which includes column less spaces, large floor plates, ample parking area, etc.

Rental changing scenario

Eastern and western zone in Pune has seen maximum influx of real estate development in the
past one year.Eastern zone rentals have increased by 28-30% in 2016. Current values are in
the range of Rs.50-60/sq.ft. per month as compared to values ranging between Rs.40-45/sq.ft.
per month in 2016. In Western zone rentals range between Rs.50-75/sq.ft. per month while
average rentals in Aundh have increased from Rs.55/sq.ft. to Rs.65/sq.ft. per month. Rental
values in central zone exist at around Rs.70-100/sq.ft. per month.

In upcoming locations like Manjiri, Shevalwadi and Phursungi in eastern Pune rental values
are about Rs.60/sq.ft.per month, while in the northern zone the average rental value is about
Rs.65/sq.ft. per month. Vacancy levels for office spaces across Pune have registered a
considerable fall over the last year. However, owing to heightened office space development
in the peripheral locations and the dearth of space in central locations, Grade-A developments
in central Pune have comparatively lower vacancy rates raging between 2-5%. Vacancy rates
recorded in peripheral locations are around 10-15%. Developer's preference for leasing office
space to a single client has also added to the higher vacancy levels being witnessed in
peripheral Pune.

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Pune scores over many other office destinations in India on grounds of better physical and
social infrastructure, availability of skilled manpower and good connectivity with major cities
of the country. With the current pace of development, Pune is expected to attract some
amount of office space market share of Mumbai as the rentals and cost of living is
substantially lower here.

Rental values across the office locations are likely to stabilise in the medium term on account
of large-scale supply lined up for the next 2-3 years. Majority of projects are being build
under IT Park scheme which gives them double FSI for development. After Hinjewadi,
Kharadi and Hadapsar are envisaged to be the major IT office space destinations in the
coming years.

Pune has the potential to become one of the biggest investment destinations of India. The
proposed development of an international airport at Chakan, the recent approval of six SEZs
in Pune district along with a spate of infrastructure initiatives underway in the city will add to
the buoyancy in the real estate market of the city.

Pune, with a population of around 3.115 million, is the second largest city in Maharashtra.
The city is reputed for its educational institutions and is the eighth largest urban
agglomeration in India. Pune today is home to many IT/ITES companies and also has a
strong presence of the automobile sector. Its proximity to India's financial capital Mumbai
has accelerated real estate activity in the region. The Mumbai-Pune expressway, which
connects both the destinations, has made Pune a much sought after destination for out of town
investors.

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Residential development in the city has geared up to keep pace with the rise in demand in the
sector. The residential market has evolved through diverse consumer profiles and preferences
leading to a significant change in project profiles, housing patterns and facilities offered.
Traditionally, residential developments were
concentrated around the city core in locations like
Model Colony, Koregaon Park and Senapati Bapat
Road. Presently, residential expansion has extended
to upcoming locations near educational institutes and
IT Parks, like Rahatni, Pimple Saudagar, etc.
Noticeable development is also seen in the eastern
part of the city in regions like Hadapsar, Kharadi,
etc. which are emerging as key suburban business
destinations.

Residential real estate sector in Pune has witnessed a

significant growth and approximately 70.83 mn.sq.ft.
of residential supply is expected to enter the market
by end of 2018-19. Development of Knowledge
corridor along the Mumbai-Bangalore highway and
the upcoming Phase III of the Rajiv Gandhi Infotech
City at Hinjewadi have provided impetus to
residential development in western Pune that includes
places like Baner, Wakad etc.

With increased investments in all the sectors in Pune, a number of high-end premium
apartments can be seen in various pockets where rates are directly proportional to amenities
provided promising a stable
market for realistic rates.

The central zone of the city comprises locations like Boat Club Road, Dhole Patil Road,
Senapati Bapat Road, Bund Garden Road, MG Road, Deccan, FC Road and JM Road which
form the prime and traditional residential locations of Pune. Being the commercial hub of the
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region with the retail high streets along Deccan and MG Road, coupled with easy
accessibility to many educational institutes, this zone is a favoured destination for upper
middle class.

The Pune residential market has been on a continuous downslide over the last five years after
peaking in 2012. While the city observed more than 55,000 units in new launches and 48,000
units in sales during 2012, these numbers have fallen by 64% and 32% respectively since
then.
Steady sales volume from 20102012 led to aggressive new launches by developers during
this period. However, with rising unaffordability and worsening of sentiment among
homebuyers, sales volume started to decline post 2013. This caused a piling up of unsold
inventory in the city, which peaked at 68,840 units in 2013.

Taking cues from the market in terms of falling sales volume, developers truncated their new
launches with each passing year and this helped in rebalancing the market to a great extent.
While the unsold inventory level standing at 49,700 units in H2 2016 is at the lowest in
comparison to the last six years.

In 2015 the city witnessed a marginal recovery in sales volume at 4% and this trend
continued in the first half of 2016 as well with a 1% YoY growth. Although these numbers
were not very encouraging when compared to the peak of 2012, the falling trend had been
captured to a certain extent.

Subsequently, the Indian Governments demonetization move on 8 November brought the

market to a complete standstill. Against this backdrop, developers refrained from announcing
any new launches and buyers turned extremely cautious before committing on purchases.

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The fourth quarter numbers are a testament to the effect that the demonetization move has
had on the real estate market of the city that was barely recovering from its earlier sloth. Sales
volume dropped by 35% YoY in Q4 2016 and new launches fell by a massive 64% YoY
during the same period.

At 6,300 units, the Q4 2016 sales volume are at their lowest quarterly level since 2010 and
down by more than 54% since the quarterly peak of 13,660 units in Q3 2012. The
new launches number is much worse at just 3,400 units in Q4 2016, which is not even one-
fourth of its peak level of 16,000 units witnessed in Q4 2010.

The only solace in the Q4 2016 number was from the month of October, which was just
before the demonetization move, when the sales volume showed some positive traction due to
the start of the festive season.

We believe that 2016 would have been marginally better than 2015 had it not been for the
demonetization move, as the sales number for the first nine months exhibited a positive trend.

New residential developments in Boat Club Road include several projects by Marvel Builders
while Koregaon Park has projects like Blossom Boulevard by Darode-Jog Properties and
Rohan Aashman by Rohan Builders. International Convention Centre at Senapati Bapat Road
has triggered off commercial developments in the vicinity. This has escalated demand for
residential projects mainly from higher middle class population. The price range for
residential properties in this micro-market is between Rs.4,600-5,200/sq.ft.

The northern zone of Pune consists of Pimpri Chinchwad Municipal Corporation (PCMC)
extending up to the north-western part of Pune till Hinjewadi. Residential activity in this
micro-market is on a rise due to its proximity to MIDC at Bhusari.

The region has a number of premium residential developments, including the Sukhwani
Campus in Pimpri and the Kohinoor Vayona on old Mumbai-Pune highway that offer high-
end amenities. Phase II of the township project Empire Estate by Sukhwani and Agarwal
Group, located on Mumbai-Pune highway, would be launched soon. PCMC, which is the

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industrial twin of Pune, has majority of middle class population where the price range for
residential properties is between Rs.2,400-3,200/sq.ft.

North western part of the city comprises locations like Wakad, Pimple Saudagar, Pimple
Nilakh, Rahatni, etc. It is predominantly inhabited by the IT professionals and floating
student population. Not surprisingly, the key demand drivers for the residential development
in this micro-market are the young IT professionals working at the Rajiv Gandhi InfoTech
Park, Hinjewadi, and various other IT/ITES companies. An increase in
income levels has fueled up the demand for high-end luxury housing. Also, the Knowledge
Corridor has led to an influx of students from all over India, thereby increasing demand for
rental properties.

The current price range in this micro-market is between Rs.2,700-3,200/sq.ft. which varies
depending on the location and amenities provided. The total new residential supply coming
up in this region is approximately 12.81 mn.sq.ft. Park Wayz by Mittal Brothers and
Akashganga by Goel Ganga Group are few of the upcoming residential developments. Clean
environment, cosmopolitan crowd and proximity to work place have made this micro-market
a preferred destination for the upper middle class.

The western zone includes locations like Aundh, Pashan, Sus Road, Baner, Balewadi and
Bavdhan. In recent times, Baner Pashan Link Road has emerged as a favoured location in
Western Pune for residential projects. Aundh is one of the popular residential destinations in
the micro-market, particularly among IT professionals from Hinjewadi, majority of which are
from the middle and upper middle class segment. However, due to non-availability of land in
Aundh, the residential market in the neighbouring location of Baner is gaining momentum.

Strategic location of Bavdhan has led to gradual residential growth of the location and made
it attractive for developers and buyers. Bavdhan has a variety of bungalow plots and
bungalows schemes. Developers from Pune like Shri Bal Developers, Vascon, Omega
Promoters Pvt. Ltd., Runwal Housing, Gera Developers, Shroff Constructions, Kumar
Properties and Lunawat Landmarks have launched their projects in this zone with
capital values ranging between Rs.3,500-4,200/sq.ft.

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The north eastern zone consists of locations like Kalyani Nagar, Viman Nagar, Shashtrinagar,
Vishrantwadi, Yerwada, Airport Road and Lohegaon. Due to its proximity to the airport,
majority of the projects in this micro-market are low rise and bungalow schemes. Owing to
the low land prices in Lohegaon, compared to other parts of the region, demand for
bungalows has gone up with plot rates ranging from Rs.600-900/sq.ft.
Vishrantwadi, described as a down market location a few years ago, is witnessing a surge of
new residential development. This could be attributed to the Sangamwadi Bridge, on Mulla-
Mutha River that connects this location to the other parts of the city and emergence of Nagar
Road as an upcoming business corridor. Kalyani Nagar is dotted with high-end residential
and commercial complexes housing state-of-the-art facilities. This zone which has capital
values ranging between Rs.3,500-6,000/sq.ft.

The eastern and south eastern parts of the city comprise locations like NIBM Road, Salunkhe
Vihar, Fatima Nagar, Hadapsar, Wanowrie, Sholapur Road and Manjri. Agricultural activity
is still dominant in many parts of this zone. Developers have acquired few large land parcels
admeasuring 100 acres or more for township development.

Two major residential townships that have come up in this region are the 400 acre
'Magarpatta City' by Magarpatta Township Development and Construction Company Limited
and the 600 acre 'Amonora' by City Development Corporation. . Currently, the price range for
residential properties is
between Rs.2,700-6,000/sq.ft.

Southern zone consists of locations like Salisbury Park, Bibwewadi, Sahakar Nagar, Mukund
Nagar and Warje extending to the western part till Paud Road, Kothrud, Karve Nagar,
Ganesh Nagar and Bhusari Colony. Warje, located on the south western part of the city,
which typically had a population of lower income group, has presently emerged as a
preferred MIG destination with introduction of projects like Aditya Garden City by Aditya
Developers offering various amenities. A number of projects in Kothrud by developers like
Amrut Runwal, Kumar Builders and Paranjpe Group are coming up in the micro-market. The
capital values of the residential properties range between Rs.2,500-3,500/sq.ft.

The residential landscape of the city is witnessing a number of changes with buyers being
offered various configurations for housing schemes like villas, duplexes, penthouse, etc.
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Facilities and amenities provided in the upcoming projects largely depend on the taste and
preferences of their targeted customer. In the past five years, estimated growth in the
population has been approximately 24%. Similarly, the migrating population has doubled
over the past five years, which assures steady demand for housing units. Thus, the housing
sector in Pune is end-user driven and not investor driven.

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 CONCLUSION

As the Indian real estate sector moves higher on the growth curve, a number of state capitals
and cities which have relatively better infrastructure and are able to support higher economic
growth have come into limelight. These emerging growth centres are characterised by low
real estate costs, availability of land for development, untapped manpower pool and rising
quality of life. Anticipating the latent demand in these markets, a number of real estate
developers and retailers have chalked out expansive plans to harness the opportunity.

The real estate sector can be a leading sector in generating economic growth and
employment. The housing and construction industry employs 30 million people and as many
as 250 industries are directly or indirectly dependent on this sector.

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 BIBLIOGRAPHY

Reports
1. Knight frank 2016 quaterly reports
2. Knight frank 2017 quaterly reports
3. Knight frank 2008 Q1 report
4. Indian realty sectorial overview JLLM published report
5. Cushman & Wakefield 2017 quaterly review report.

Personal information
1. Mr. Virang Gandhi JLLM, pune on prices of commercial & residential in pune
2. Mr, Sudhakar rane JLLM, Nashik on prices of commercial & residential in Nashik
3. Mr. Ashfaq JLLM, Mumba on prices of commercial & residential in Mumbai

Websites
1. www.indianground.com/real_estate_india.aspx
2. www.expressindia.com/latest-news/Real-estate-market-in-Mumbai-hit-by-a-
slowdown/317545/ - 52k
3. www.thehindubusinessline.com/ 2016/07/26/stories/2006072600761100.htm - 31k
4. www.financialexpress.com/news/Sahara-enters-South-India-real-estate-market/292093/
- 53k
5. www.ficci.com/media-room/ speeches-presentations/2005/oct/Manoj.ppt
6. www.businessworld.in/content/view/954/1009/ - 57

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