Certification

This is to certify that Aditya Bedi ,M.B.A. Class of 2009 has worked satisfactorily under my supervision and that the dissertation embodies his own work. In habits and character , he is fit and proper person. I wish him success in life. Noida 1st May,2009
( Vivek Raghuvanshi ) Assistant Professor Amity Institute of Competitive Intelligence Amity University , Noida , Uttar Pradesh

Preface
Recent Growth Trends in Indian Economy
Indias Economy has grown by more than 9% for three years running, and has seen a decade of 7%+ growth. This has reduced poverty by 10%, but with 60% of Indias 1.1 billion population living off agriculture and with droughts and floods increasing, poverty alleviation is still a major challenge. The structural transformation that has been adopted by the national government in recent times has reduced growth constraints and contributed greatly to the overall growth and prosperity of the country. However there are still major issues around federal vs state bureaucracy, corruption and tariffs that require addressing. Indias public debt is 58% of GDP according to the CIA World Fact book, and this represents another challenge.

During this period of stable growth, the performance of the Indian service sector has been particularly significant. The growth rate of the service sector was 11.18% in 2007 and now contributes 53% of GDP. The industrial sector grew 10.63% in the same period and is now 29% of GDP. Agriculture is 17% of the Indian economy. Growth in the manufacturing sector has also complemented the countrys excellent growth momentum. The growth rate of the manufacturing sector rose steadily from 8.98% in 2005, to 12% in 2006. The storage and communication sector also registered a significant growth rate of 16.64% in the same year. Additional factors that have contributed to this robust environment are sustained in investment and high savings rates. As far as the percentage of gross capital formation in GDP is concerned, there has been a significant rise from 22.8% in the fiscal year 2001, to 35.9% in the fiscal year 2006. Further, the gross rate of savings as a proportion to GDP registered solid growth from 23.5% to 34.8% for the same period. The recent times have also witnessed an evolution of the sector - towards greater institutionalization and corporatization. With the entry of more players, inflow of inter state capital, evolution of capital markets, geographical diversification and introduction of reforms, the sector has undergone some significant structural changes. The trend is expected to continue in the coming years. So an In-depth analysis of the mining industry is accorded in creating the environment of identifying opportunities on a long term basis ,helping all the participant in creating a mutually beneficial understanding and achieving a consorted growth . India is the second most populous nation in the world, with around 1.12 bn people. Further, according to the United Nations Department for Economic and Social Affairs, Indias population is estimated to grow at a CAGR of 1.6% to 1.38 bn by 2020, adding ~20 million annually. UN estimates India to become the most populous nation in the world by 2025.This indicates a INDIA which Is Riding a Growth wave sooner or later.

Acknowledgements
Life is synonymous with the word challenge. Every step towards ones goal finds different kind of challenges, which are ultimately referred as stepping stones towards success. One can go on to win a challenge, but achieving goals involves effort of whole rather an individual. I profusely thank Major General Ashok Krishna and Mr. Vivek Raghuvanshi for their guidance and enriching my thoughts in this topic from different perspectives. I owe my deep sense of gratitude to Vivek Raghuvanshi, Assistant professor , Amity Institute of Competitive Intelligence , Amity University , Noida, Uttar Pradesh under whose supervision the present dissertation work has been carried out . Working towards this project and making it what it is today involves effort of many people and things that made it reach the closest to its objectives. I owe enormous intellectual debt towards my guide Mr. Vivek Raghuvanshi and my colleagues , who have augmented my knowledge in the field of Mining Industry . They have helped me to learn about the process and giving me valuable insight into the mechanism of Mining as well as other related sectors. Last but not the least, I feel indebted to all those persons who have provided help directly or indirectly in successful completion of this study. Aditya Bedi

Content
Table of Content
Cover Page Certification 1

Page No.

Preface

2 3 6 8

Acknowledgement Introduction

INDIAN MINING INDUSTRY Riding the Growth Wave Key Highlights of Indian Economy Key Highlights of MINING Industry MINING INDUSTRY A Keen Learning 9 11 13

Fundamental factors determining the importance of MINING 16 INDUSTRY Cause For MINING AS WELL AS CONSTRUCTION Boom(WITH RELATION TO RECESSION AND GOVERNMENT SECTORS) 19 MARKET OF SUCH INDUSTRIES Global Majors In India Real Estate 32 33 34

Financial Institutions that cater to the need of investors Retailers And Malls 35

Macroeconomic Factors Affecting the Demand and Supply of Real Estate Industry 37 Commercial Real Estate In India 41 47

Funding Real Estate development in India Real Estate Investment in India 51

Legal And Regulatory Aspects of Real Estate Development in India 54 Logistic Industry Real Estate New Power House Emerging Trends in Logistic Industry 61 66 56

Real Estate Spiral Affect In Financial Crisis

Analysis

75 87 96

Recommendation Bibliography

Introduction
The importance of the Mining and Construction sector, as an engine of the nations growth, can be gauged from the fact that it is 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 is contributed by the housing sector. In the next three or four or five years this contribution to the GDP is expected to rise to 6%. The Mining and Construction Industry has significant linkages with several other sectors of the economy and over 250 associated industries. One Rupee invested in this sector results in 78 paise being added to the GDP of the State. A unit increase in expenditure in this sector has a multiplier effect and the capacity to generate income as high as five times. If the economy grows at the rate of 10% the housing sector has the capacity to grow at 14% and generate 3.2 million new jobs over a decade. The Tenth Five-Year Plan estimated a shortage of 22.4 million dwelling units. Thus, over the next 10 to 15 years, 80 to 90 million housing dwelling units will have to be constructed with a majority of them catering to middle and lower income groups. The investment required for constructing the houses and related infrastructure in this period would, thus, be to the order of US $ 666 billion at roughly US $ 33 billion to US $ 44 billion per year. Furthermore, this sector has witnessed a spurt in demand not just in PRIVATE sector but also in Public sector. Estimates worked out show that 42 million sq. ft. of space will be required every year till 2008, only in I.T. and I.T.-enabled services especially in the cities like Bangalore, Chennai, Hyderabad and Pune, which is also now gradually shifting to North India. Amidst a volatile external environment, fundamentals of the domestic real estate industry have sharply deteriorated with rapid hikes in interest rates, rising construction costs, and plummeting business volumes on the back of poor affordability and unwillingness of developers to cut prices. Accentuating the worsened demand scenario is the current negative economic environment and risk to jobs growth. In better times, not so long ago, developers had entered into large commitments. However, the current significant reduction in business volumes have severely strained their cash flows. Hopes had been pinned on strong demand in the festive season, which did not materialise. Consequently, developers are leveraged in a tough operating and funding environment.

Current environment, marked by low volumes and high leverage, not withstanding, the domestic real estate sector presents enormous opportunitiesthe residential segment is driven by rising population, urbanisation, nuclearisation, and low penetration of housing finance; the retail sector is slated to expand rapidly, driven by rising penetration of organised retail; the office segment still lacks sufficient stock of quality office space. The developers who will be able to withstand the current environment will be in a strong position to capitalize on the strong growth opportunity in the domestic real estate sector. Investors should look to enter the sector when there is clear evidence of recovery in volumes, which, in our opinion, is likely after 24-36 months. Domestic real estate developers do not have adequate history of stock prices or financials. Hence, one need examine international real estate developers valuation history to understand how they have been trading over an extended period of time. Based on historical analysis and our valuation model, we believe, the P/BV valuation approach is more appropriate for real estate developers. A multi-location strategy and diverse product portfolio provide sustainable growth, as they help developers expand volumes and revenues without depending on a single market. The developers with a multi-location and multi-product strategy will be better positioned for growth post the recovery. In the near term, the domestic real estate sector is likely to be characterised by price declines and possibly negative news flow of capitulation of property speculators and of over-leveraged developers. Volumes are also likely to remain sluggish and resumption in demand will be the key trigger for stock performance. However, we are bullish on the sector from the long term perspective, and believe the current down cycle is unlikely to stretch beyond 24-36 months. One favour developers of considerable size, with attractive land parcels and strong balance sheets. Other positive attributes are good recall and credibility with customers and flexibility to offer diverse products at different price point. The future of the real estate sector in India is going to be guided by two important factors, namely suitable amendments in the Foreign Direct Investment (FDI) guidelines in townships, housing, built-up infrastructure and construction development projects as well as abolition of Service Tax on the construction industry especially the housing sector. Conversely, if the abolition per se is not possible then drastic modifications in the existing Service Tax norms is the need of the hour. This Sector is already overburdened with taxes; any further imposition of taxes in any form would adversely affect the growth of this sector of the economy. INDIAN MINING AND CONSTRUCTION INDUSTRY ENHANCING THE GROWTH WAVE The Indian economy has transformed substantively over the last two decades, growing consistently at an average of 8 per cent and is poised to take its place among the leading economies in the years to come. Strong performance of the economy can be particularly attributed to healthy growth in mining and construction sectors.

The economic performance of India has provided strong impetus to both the sectors , which have been witnessing heightened activity in the recent years the dampening affect of recession on Indian economy. Substantial end- user and investor interest, large scale investment in infrastructure and rapid urban sector saturation have contributed to the growth trajectory of mining and construction industry. The construction story is clearly visible in urban centres such as Delhi, Mumbai and Bengaluru which have acquired global character and recognition. The strong fundamentals of the Indian economy are having a favourable impact on all asset classes of such industries viz. housing, commercial In recent years, the growth has spread out to tier-II and III cities as well. High growth in services as well as manufacturing sector has resulted in high demand for commercial and industrial real estate.(which again are affected by mining as well as construction sector) Further the economic growth has trickled down to the large Indian middle class increasing affordability and affluence. Improving living standards are driving the demand for better quality housing and urban infrastructure. In fact, housing in India is today moving from being viewed as a purely basic need to an aspirational purchase. The growth of the sector has been complemented by favourable policy changes like relaxation in policies of Inter State investment, relaxation in norms in setting up a stone quarry, financial from the government in terms of loans,availability of raw material(large boulders),and other such incentives. The recent times have also witnessed an evolution of the sector - towards greater institutionalization and corporatization. With the entry of more players, inflow of inter state capital,, geographical diversification and introduction of reforms, the sector has undergone some significant structural changes. Even critical concern areas like transparency in the sector is also improving significantly. The trend is expected to continue in the coming years.

Key Highlights of Indian Economy

Factors Driving Growth in Indian Economy
y Favourable demographics expected to benefit India till 2045 y High growth with demographic dividend will increase savings, improving

investment
y Mature and progressive domestic market y Growth in services such as IT/ITes, tourism and hospitality etc.

Growing Tourism
y India is expected to see an influx of 10 Million international tourists by 2010, up

from just 5 Million in 2007.

y Andhra Pradesh, Uttar Pradesh, Tamil Nadu, Karnataka and Rajasthan are the

leading tourism destinations in India in terms of total tourist arrivals.

y India has been promoting its healthcare tourism by providing the visitors with

y y y y

private healthcare facilities. It is expected that the total market for medical tourism will reach US$ 2 Billion by 2012, representing a CAGR of 60.69%. Personal disposable income during 2002-2007 grew at a CAGR of 14.16%, thereby driving domestic as well as outbound tourism. Indian outbound tourist flow is expected to increase at a CAGR of 13.30% over the five-year period spanning from 2008 to 2012. Indias share in the global tourism is expected to reach 1.5% by 2010. The growth in Indias tourism market is expected to serve as a boon, driving the growth of several associated industries, including hotel industry, medical tourism industry and aviation industry.

Credit to Real Estate

y RBI raised risk weight on exposures to CRE from 125 per cent to 150 per cent y Credit to housing loans expanded by US$ 12.4 billion (38.0 per cent) y Loans to other real estate increased to US$ 3.12 billion at a growth rate 94.7 per

cent
y Share of real estate in financial institutions lending to sensitive sectors increased

from 88.9 per cent to 90.8 per cent Real Estate Housing Index
y National Housing Board (NHB) set up a Technical Advisory Group (TAG) to

evaluate the feasibility of a real estate price index.

y Work on property price indices in 5 cities and methodology to be adopted for

compilation and regular dissemination of the index is underway.

Key Highlights of Real Estate Industry

Demand Pull Factors
y y y y

Robust and sustained macro economic growth Upsurge in Industrial & business activities, esp. new economic sectors Favourable demographic parameters Significant rise in consumerism

y Rapid opportunities in rural sector y Gamut of financing options at affordable interest rates(including incentives

provided by the respective state governments)

Resultant Impact
o o o o o o

Increasing occupier base Significant rise in demand for office/industrial space Demand for newer avenues for entertainment, leisure and Shopping Creation of demand for new housing Increase in houses for the poorer sections of the society Employment to people despite the current affects of recession.

Supply Push Factors

y y y y y

Policy and Regulatory reforms Positive outlook of national investors Fiscal incentives to developers Simplification of urban development guidelines Infrastructure support and development by government

Resultant Factors
y Entry of number of domestic and foreign players increasing competition and

consumer affordability
y Easy access to mean of project financing y Increases developers risk appetite & allows large scale

development(establishment of national highway,dams,roads connecting villages,) y Development of new urban areas & effective utilisation of prime land in large cities The landscape of the Indian Mining and Construction market is changing fast, as it is poised to emerge as one of the most preferred investment destinations for global realty and investment firms .The contours are expected to change in the next 3-5 years:
y Developers till now concentrated on metros moving toward smaller cities

y y y y y y y

Shift from the dominance of regional players to national players Large Indian groups consolidating their business to emerge as market leaders Project size enlargement with a focus on product differentiation & quality Shift from land transaction to development transaction Change from leasing and rent to ownership of mines, machinery and land. Correction in supply format from investor to consumer driven Big construction companies moving up in the value chain

For every Indian rupee invested in the construction of houses in India, INR 0.78 is added to the gross domestic product. The real estate sector is also subservient to the development of over 250 other ancillary industries. A study by a rating agency ICRA shows that the construction industry ranks 3rd among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy. After agriculture, the real estate sector is the second largest employment generator in India The predominant trend has been to set up world-class business centres, often campusstyle establishments, bearing a distinctive corporate stamp. So distinct are some of these locations that they are being termed as the "temples of modern India" by the local press. This is just an indication of the extent of real estate development taking place. Indian and international real estate majors also envisage a major boom in the hotel project developments over the next five years. During the last five years, major chains such as the Orchid, Marriott, Holiday Inn etc have either tied up with local developers of property or they have started planning for their own real estate. Though the Mining and Construction sector in India is proclaimed to be one of the most promising sector today, it is still hugely plagued by market uncertainties and inhibitions. The uncertainties are of different naturesuch as the changinging laws regarding setting up of these mines,the changing rates of land and construction material etc. This sector market in India predominantly continues to remain unorganized, fairly fragmented, mostly characterized by small players with a local presence.

Mining and Construction Sector

Some of the important legal aspects of a Mining in:

LEGAL POINTS

Short title, extent and commencement - (1) This Act may be called the Mines and Minerals (Regulation and Development) Act, 1957. (2) It extends to the whole of India.

(3) It shall come into force on such date2 as the Central Government may by notification in the Official Gazette appoint.

2. Declaration as to expediency of Union control - It is hereby declared that it is expedient in the public interest that the Union should take under its control the regulation of mines and development of minerals to the extent hereinafter provided. 3. (a) (b) Definitions - In this Act unless the context otherwise requires,minerals includes all minerals except mineral oils ; mineral oils includes natural gas and petroleum ;

(c) mining lease means a lease granted for the purpose of undertaking mining operation and includes a sub-lease granted for such purpose ; (d) mining operations means any operations undertaken for the purpose of winning any mineral; The Act has been extended to Goa, Daman and Diu by Regulation 12 of 1962 section3 and schedule to Dadra and Nagar Haveli by Regulation 6 of 1963, section 2 and Schedule I and to Pondichery by Regulation 7 of section 3 and Schedule I. 1 June 1958 vide Notification No. G. S. R. 432 dated the 29th May 1958, see Gazette of India 1953 Extraordinary, Part II, section 3(I), page 225. (e) minor minerals means building stones gravel ordinary clay ordinary sand other than sand used for prescribed purposes and any other mineral which the Central Government may by notification in the Official Gazette declare to be a minor mineral; (f) prescribed means prescribed by rules made under this Act;
2 st 1

(g) prospecting licence means a licence granted for the purpose of undertaking prospecting operations; (h) prospecting operations means any operations undertaken for the purpose of exploring locating or proving mineral deposits ;and (i) the expressions mine and owner, have the meanings asigned to them in the Mines Act, 1952. GENERAL RESTRICTIONS ON UNDERTAKING PROSPECTING AND MINING OPERATIONS 4. Prospecting or mining operations to be under licence or lease (1) No person shall undertake any prospecting or mining operations in any area except under and in

accordance with the terms and conditions of a prospecting licence or as the case may be a mining lease granted under this Act and the rules made thereunder : Provided that nothing in this Sub-section shall affect any prospecting or mining operations undertaken in any area in accordance with the terms and conditions of a prospecting license or mining lease granted before the commencement of this Act which is in force at such commencement. (2) No prospecting license or mining lease or mining lease shall be granted otherwise than in accordance with the provisions of this Act and the rules made thereunder. [4A. Termination of mining leases (1) Where the Central Government after consultation with the State Government is of opinion that it is expedient in the interest of regulation of mines and mineral development so to do it may request the State Government to make a premature termination of a mining lease in respect of any mineral lease in respect of any mineral other than a minor mineral and on receipt of such request the State Government shall make an order making a premature termination of such and granting a fresh mining lease in favour of such Government company or corporation owned or controlled by Government as it may think fit. (2) Where the State Government after consultation with the Central Government is of opinion that it is expedient in the interest of regulation of mines and mineral development so to do it may by an order make premature termination of a mining lease in respect of any minor mineral and grant a fresh lease in respect of such mineral in favour of such Government company or corporation owned or controlled by Government as it may think fit.] 5. Restrictions on the grant of prospecting or licences or mining leases (1) No prospecting licence or mining lease shall be granted by a State Government to any person unless he(a) holds a certificate of approval in the prescribed form from the State Government; (b) produces from the Income-tax Officer concerned an income-tax clearance certificate in the prescribed form; (c) satisfies such other conditions as may be prescribed.
1

Explanation.- For the purposes of this sub-section, a person shall be deemed to hold a certificate of approval notwithstanding that at the time his certificate of approval has expired if an application for its renewal is pending at that time.

Although there are a lot more important legal aspects of a mining industry, the above are of greater importance and hence stated above. Types of Ownership Interests: Real property (immovable property) can refer to the real estate itself or to various types of ownership interests in real estate, including:
y Freehold: Provides the owner the right to use the real estate for any lawful

purpose and sell when and to whom the owner wishes.

y Life estate: An interest in real estate which is granted to a life tenant until that

person dies. The interest terminates upon the death of the life tenant.
y Estate for years: Similar to life estate but term are a specified number of years. y Leasehold: The right to posses and use real estate pursuant to the terms of a

use. y Reversion: The right to posses the free interest in real estate after the expiration of a life estate, estate for years or leasehold. y Concurrent or co-tenancy: The ownership of an interest in real property by more than one party. Rights of any single party may be limited in various ways depending on the jurisdiction and type of concurrency.

Participants of Real Estate Market: The main participants in the real estate markets areOwner/User: These people are both owners and tenants. They purchase houses or commercial property as an investment and also to live in or utilize as a business. Owner: These people are pure investors. They do not consume but rent out or lease the property to someone else. Renter: These people are pure consumers. Developers: These people prepare raw land for building which results in new product or the market. Renovators: These people supply refurbished buildings to the market. Facilitators: This includes banks, real estate grocers, lawyers and others that facilitate the purchase and sale of real estate. The owner/user, owner and renter comprise the demand side of the market, while the developers and renovators constitute the supply side. In order to apply the simple

demand and supply analysis to real estate markets a number of modifications need to be made to standard microeconomic assumptions and procedures. Real estate can divided into three categories: These are
y Commercial y Residential y Agricultural

We can invest into all the given areas and can make return by capital appreciation, rental income, agricultural produce, lease and commercial use. The following factors influence the price and cost of the real estate: 1. The physical characteristics of the property 2. The property rights 3. The time horizon of holding the property 4. Geographical area 5. The development rate

Features of Real Estate Markets: In particular, the unique features of the real estate market must be accommodated. These include:
y y y y y y

Durability Heterogeneous High transaction costs Long time delays Both an investment good and consumption good Immobility

Fundamental factors determining the Mining and Construction sectorDemand Demand refers to peoples willingness and ability to buy the crushed material or a completed building such as a house,office,etc. In part demand stems from a market areas base. In most of these markets, the source of buying power comes from jobs. Purchasing power follows an upward path when employment is increasing. This market

in India has seen remarkable changes in the past few years. The rapid expansions of technology, (especially in machinery) , spurt in the middle class income and 8% growth in GDP are the potential key factors for the growth. India is the 4th largest economy in the world, and has the 2nd highest GDP among the developing countries based on purchasing power parity. IT and IT enable services sector in India is still in its growing stage due to increasing demand for business processing units in India and is estimated to grow by 107% to $583 million in revenue. This could lead to a space requirement of 20-25 million sq. ft. per annum, according to a Merrill Lynch report. Taking this factor into consideration, the Total value of real estate created by the IT and ITES sector in the next three years will be Rs. 132000. Supply Analysis Supply analysis means sizing up the competition. Nobody wants to pay more for a raw material(in such cases huge boulders exceeding the size of 60 millimeters) than their competitors. An integral part of value analysis requires identifying sources of potential competition and then inventorying them by price and features. An analysis of supply should not limit potential competitors to geographically and physically similar properties. In some markets, for example, low priced single family ownership of mines can tend to pose high competition for even the large players. The LAND In Mining and construction business land is one of the most important factors in defining the stratetegies and the scope of business.. The price that such can be asked from the purchasers depends upon the proximity of the mine to the river bedthe closer the river bed is to the site, the lesser is the transportation cost and hence a larger margin of profit for the investors. To try to develop a propertys competitive edge, an investor should consider five things: 1. Restrictions on use(Government regulations such as opening and closing of river bed,royalty to be paid, change of government from time to time) 2. Location 3. Site characteristics 4. Improvements 5. Property and Machinery management 6. Proximity to market 7. Scope of new entrants in that area in case the of small scale mining business catering to a specific area.

DETERMINATION OF PRICE:- In efficient markets, information flows so quickly among buyers and sellers that it is virtually impossible for an entreprenuer to outperform the average systematically. As soon as something good or bad occurs, the prices of the affected stock adjust to reflect its current potential for earnings or losses. Some of the factors that can affect prices of such crushed material are: 1. Closure of river gates- during the monsoons, the rivers beds are closed on direct orders from the central government on fears of floods. Once the gates are closed, mining is no more permitted to anyone. Hence due to lack of supply of raw material the prices of such crushed material(stock) tends to rise. 2. Shifting of stocked material- Once the gates are closed, another factor which affects the prices drastically(although for a short period of time) is due to the shifting of the already stocked material. We must understand that due to shortage of time when the carriers are bringing in raw material it is brought about in a hurried and organized manner, with certain quantity going directly into the the crusher itself while a large amount being stocked up in a hap hazard manner. Hence during the monsoons such material is reorganized thust tilting the prices of towards a higher side. However as stated earlier this phenomenon lasts only for a short period.

3.Threat from new enrants: Another factor which affects not only this business but other businesses is the threat from new entrants. For this let us consider a small example-let us suppose that A is a small firm with limited capital and it has set up a mining industry in a small area. Let us suppose they are purchasing the raw material from the government at Rs. 100000 per quintal and paying the transportation charges of Rs.50000 to small transporters . However it must be taken into consideration the following amounts as stated above play a very important role in setting up business strategies of the firm. Now let us suppose that the firm because of its monopolistic nature(since it is catering to a smaller area and there has been no rival) does well not only because of the monololistic nature but because the material is of higher quality. Now new entrants , after seeing how well the firm is doing will want to enter such market and set such a mine there. However this new firm has huge capital . now this new firm because of the huge capital it possesses will be able to buy raw material at a higher price and hence most of the transporters will be inclined to work for the new firm driving the earlier set-up firm out of business. Hence by stating the above example we see how a new entrant can pose a threat to the business thus also affecting the price of the stocks. 4. NATURE OF THE MARKET THE FIRM IS CATERING TO- Another aspect which greatly affects the price the firm sets for its finished product is the market

that the firm is catering to. If a firm catrs to a market where there are no firms present, then it has a sort of a monopolistic advantage over the other firms. Let us take another example to justify the above stated point- the mining firm that I was working in was the only firm that was present within the next 30 kilometeres. As stated earlier this sector, in the rural sector, is mainly unorganized. Hence the rates in the same town can differ, unlike rates of real estate. This firm had a competitive advantage over t the firms in terms of the price it can demand. However the owners of such firm must be absolutely careful not to ask for exuberant prices from their buyers because sooner or later the buyers will shift to other sellers, no matter how good their product really is.

MINING AND CONSTRUCTION-FIGHTING THE RECESSION EFFECT

The effect of recession took the whole country into its grasp. In the urban areas various sectors were affected .Everyones talking of the slowing down of the Indian economy. For india the so used robust growth of around 8-9 percent, anything less is hurting. So how badly has the global financial meltdown really hit the various sectors? Here is an overview/summary:
y The sectors least affected (directly) by the slowdown are Pharmaceuticals, Oil &

Gas, FMCG, Media & Entertainment

y Those which will feel a moderate impact of the global crises are Power,

Automobiles, Retail, Hospitality and Tourism

y The sectors most severely affected are Banks, Financial Services, , and

Information Technology As stated above, we have observed there are various sectors that were affected by recession. However one sector which was least affected by recession was the mining sector. The reason why recesson does not affect mining industry has a significant reasonalthough construction in the private sector is severely hit , it is the public sector which comes to the rescue of this sector. When a country is affected by recession there is utmost pressure on the respective governments on how to handle such a situation.various policies are formulated to fight recession as well as to keep the people employed. The reason for this is very simple to

understanmd- they need to do this so that their government is not toppled. With these policies the mining as well as construction sectors are rescued. The governments , during the recession period, tend to pass various construction tenders- road construction, dams, railway tenders, etc. their main motive here is to provide employmentin other words,to absorb the unemployed into this sector. Once the tenders are quickly passed, the demand for construction material increases. And thereby, at a point when most of the sectors in india are severely being affected by recession, the mining and construction sctors are the ones that are having the best results in terms of sales.

The decision to liberalize the FDI norms in the construction sector is perhaps the most significant economic policy decision taken by the Union Government. Until now, only Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs) were permitted to invest in the housing and the real estate sectors. Foreign investors other than NRIs were allowed to invest only in development of integrated townships and settlements either through a wholly owned subsidiary or through a joint venture company in India along with a local partner. The greatest benefit of FDI in the real estate sector would be towards making the sector more organized. The second most important contribution will be increased professionalism followed by creation of healthy and competitive market environment for both domestic and foreign players and bringing in superior technology. Cumbersome and time consuming sanctioning process has been inhibiting developers to come to this country. It is high time that the government took measures to ensure that the sanctioning process and other formalities are simplified. Foreign investors would invest in the country only when they are assured that they will maximize profits and minimize costs within a short period of time. When they face undue delays in obtaining several clearances from multiple windows, their opportunity cost rises manifold, straightaway discouraging investment. It was suggested that to encourage FDI, all required clearances should be received within 60 days. There has been a demand from the foreign investors for access to a consolidated document that clearly specifies all the clearances required with details on all the concerned agencies and the procedures, so that they are clear on the legal requisites before they make a commitment on the funds. The Government has allowed FDI in the real estate sector with certain caveats. Recently the Cabinet Committee on Economic affairs has decided to permit 100% FDI in forms of housing, hotels, resorts, commercial premises, educational institutions, recreational facilities, hospitals and city and regional level infrastructure in order to attract higher investments. Earlier, restrictive norms were imposed on foreign investments with their presence permitted only in the integrated townships. They invest

in urban infrastructure like hotels, shopping malls, large scale residential complexes in new townships, InfoTech parks and special economic zones. Over a half a dozen domestic realty funds have been setup so far with a corpus of over Rs. 3,500

Real Estate Exposure of Banks Commercial banks exposure to the real estate sector almost doubled in the first 10 months of 2005-06 over the March 31, 2005 level. In real estate, banks advances for 2005 were Rs. 26,600 crore against Rs. 17,355 crore the year before. The total outstanding loans to real estate rose by 84.4% as on January 20, 2006, according to RBIs report on macroeconomic and economic developments in 2006-07 released. In the meantime, the housing finance industry started to expand rapidly, making home loans easily available to everyone. The supply increased enormously and the demand remained steady, as prices had gone beyond the realistic levels. In the great rush to developing special economic zones a schism have emerged between the companies that posses land for the projects and those that dont. As many as 125 projects for over 2,13,023 acres (86,208 hectares, which is more than half the area of the national capital) were considered at a meeting to a massive 1,48,290 acres or 70% of the projected land size these SEZs. For instance Mahindra Realty does not have the 2,500 acres land for it s proposed SEZ as yet. Out of the 23 multi product SEZ projects for which the data is available, only three were in possession of a total of 30,250 acres of land a month ago. Of this, Reliance Industries accounted for 25,000 acres. Another seven projects had managed to get a portion of the 27,510 acres of the total land they sought. The remaining thirteen projects did not have land totaling 1,35,000 acres available. Of this Adani Exports Limited did not have the 75,000 acres if land available at that stage. The companies are not having the required land for their projects making the prices of land very high. Investment by IDFC

The Infrastructure Development Finance Company (IDFC) plans to invest Rs.1,000 crore every over five years on township projects, InfoTech parks, hotels, retail and transport sectors. Commercial Boom According to an expert to a real estate consultancy, there are currently 18 malls in New Delhi, Gurgaon, Nodia and Faridabad, with approximately built up space of 3 million sq. ft. While 66 new mall projects have been announced, the crush in the meantime is on the existing space. Abhijit Das, head, Ansalplaza Mall Management Company, confirms the rental increase. Shops on the first and second floors of the mall, he says which were being leased at rates between Rs. 175 and Rs. 225 per sq. ft. two months ago are now being out at a minimum of Rs. 250 per sq. ft. 10-Year Tax Holiday The finance Ministry has announced a 10-year tax holiday for developers of Industrial parks set up from April 1, 2006 to March 31, 2009. According to the Industrial Park Scheme 2008 notified by the Central Board of Direct Taxed (CBDT), the industrial park developers will be eligible for 100% tax deduction which is to be provided for 10 consecutive assessment years out of 15 years after the commencement of operations of such units. The developers will be free to choose the 10 consecutive years for the purpose of availing themselves of the tax holiday. Price Variations in India There are unbelievable variations in the prices of real estate sector in the past. Mainly there are two causes for the same: Per Capita Income Per capita income is increasing in India, which has increased the purchasing power of the people. Due to this over the last year (2006-07) houses prices have raised by 1090% and commercial property prices by 10-30% in different area of India. Correlation .996 is found between PCI and real estate prices. Thus there is a positive correlation between per capita income and real estate prices. GDP at Market Price GDP, the indicator of the national growth, from the past 2-3 years is increasing by 6.5% to7.5%. Every rupee spend on the construction add to nearly 60% of GDP. As shown by the fig. 3 the GDP has increased from the 2463324 crore to 3529240 crore from 200203 to 2005-06, so it indicates that how the spending on the construction sector helps the real estate prices to increase.

Price Variations in Different Industries Figure 5a:PRICE VARIATION OF MAHALAXMI STONE INDUSTRIES (in Rs. Per QUINTAL.) MARCH 2009APRIL 2009MAY 2009JUNE 2009JULY 2009 6 M.M Rs.30 10 M.MRs.33 20 M.MRs.30 40 M.MRs.28 DUST 26

Figure 5b: Price variations in (in Rs. Per QUINTAL.) MARCH 2009APRIL 2009MAY 2009JUNE 2009JULY 2009 6 M.M 10 M.M 20 M.M 40 M.M DUST

Figure 5c: Price variations in (in Rs. Per QUINTAL.) MARCH 2009APRIL 2009MAY 2009JUNE 2009JULY 2009 6 M.M 10 M.M 20 M.M 40 M.M DUST

Figure 5d: Price variations in (in Rs. Per QUINTAL.) MARCH 2009APRIL 2009MAY 2009JUNE 2009JULY 2009

6 M.M 10 M.M 20 M.M 40 M.M DUST

Figure 5e: Price variations (in Rs. Per QUINTAL.) MARCH 2009APRIL 2009MAY 2009JUNE 2009JULY 2009 6 M.M 10 M.M 20 M.M 40 M.M DUST

Figure 5f: Price variations (in Rs. Per QUINTAL.) MARCH 2009APRIL 2009MAY 2009JUNE 2009JULY 2009 6 M.M 10 M.M 20 M.M 40 M.M DUST

MALAXMI STONE INDUSTRIES(COMPETITIVE EDGE OVER OTHES)

PAL STONE INDUSTRIES Mumbai has seen some of the highest selling prices in the residential market till the beginning of this year but clearly they were not sustainable since the number of buyers of super-luxury homes is shrinking fast. One of the focal areas was central Mumbai (specifically Lower Parel and Worli) where the highest price escalations has occurred.

These localities are now facing challenges of the slowdown which has curtailed the investor segment in the residential market but the interest from real end-users is still alive. In Mumbai, there is no dearth of those desperate to find homes within an affordable range. Affordable housing is therefore now the silver lining on the dark cloud of todays slowdown. Mumbai has three different directions in which growth can still be observed. Appreciation is not a factor currently, but these are the areas that will sustain their prices while other areas will correct. The extended western suburbs in the Vasai-Virar sub-region is known for budget housing. The drivers are the MP SEZ by DHL, BIO tech SEZ by Mahindra and IT SEZ. Connectivity is going to increase by the introduction of additional suburban trains from this year. The prices are in the range of Rs. 2500-Rs. 3500 psf. The area adjoining Panvel is benefiting significantly from trunk infrastructure enhancements such as the upcoming new airport, the Trans-Harbor Link, a railway terminus, monorail etc. Positive impact will be provided by the upcoming mega SEZs by Reliance and other companies as also the expansion of Jawaharlal Nehru Port Trust (JNPT). Many developers have already initiated large township projects in this region. The price range is Rs. 3000-Rs.3800 psf. Finally, the Bandra-Khar area continues to draw the attention of prime property hunters. Significantly, it will witness increased connectivity owing to the Bandra-Worli sea-link, the proposed Metro Line 2 and the upcoming Santacruz-Chembur Link Road, all leading to a boost in demand. In fact, the region is always a preferred destination because of its elite profile and the availability of shopping, healthcare, education and recreation facilities. Developers there are offering products in redevelopment schemes. The prices range from Rs. 18000Rs. 25000 psf. LALKUA STONE INDUSTRIES Chennais residential real estate scenario is considerably depressed. The realtors who have projects along the once booming IT corridor are all set to reduce their rates by as much as 20%. However, the Mogappair-Porur composite region continues to hold midto-long term investment potential. This overall location is very close to the prime residential catchment of Anand Nagar and also to Chennai railway station and the bus terminus. The fact that it is near to the IT corridor also increases its potential. The rates are competitive at Rs. 2800- Rs.3000 psf. The expected appreciation for residential properties here is between 20%- 30% in the long term. HALDWANI STONE INDUSTRIES Bangalore is feeling the brunt of the IT slowdown. However, established suburban areas like Koramangala, Outer Ring Road and Bellari Road continue to be good investment

destinations. As in the case of Mumbai, appreciation is not a focal point in the current scenario. These are the areas that will sustain their prices, while other will correct. Apart from these, Mysore Road, which encompasses the upcoming NICE corridor, has lots of promise, thanks to good connectivity to Mysore and many commercial developments being planned there. As far as Koramangala is concerned, the augmenting elements are that it is close to the Electronics City, has no scope for fresh developments and retains high residential demand. The rates are between Rs. 7000- Rs. 8000 psf. For Outer Ring Road and Bellari Road, the reference points are that it is near the IT hub. Outer Ring Road is close to Whitefield and is a commercial area, and new developments are coming up on Bellari Road, which is also close to the Devenhalli airport. The rates are Rs. 3500 R.s 5500 psf while the appreciation potential varies between 5%-8% (short term) and 10%-1 5% (long term). BALAJI STONE INDUSTRIES With Talegaon not picking up in the anticipated manner, Punes new growth corridor now encompasses Kharadi and Nagar Road. This can be safely considered as the most lucrative real estate investment zone for 2009-2010. What are the encouraging factors? These are (a) Eon IT Park, a 4-million-square feet of prime IT space in the last stages of completion; (b) other IT SEZs as well as commercial ventures are also on the anvil; (c) proximity to revamped airport; (d) improved connectivity, largely via the opening of the VIP Road connecting Viman Nagar to the airport; (e) imminent arrival of 5-star hotels such as JW Marriott, Grand Hyatt and Leela and (f) reasonably low entry costs . The property rates are Rs. 2700-Rs.3500 psf. MOHALI Residential rates in Chandigarh have gone through the roof, and there is little scope for appreciation now. Moreover, Chandigarh is a planned city conceived on certain density specifications which puts limitations on development. It is therefore not dynamic in real estate terms, which means it will not change much with time. Chandigarh could not partake of the IT boom for these reasons. However, adjoining Mohali presents a completely different picture. The area called Greater Mohali, which encompasses the fast-developing Landra-Mohali Road area, is a very promising residential nexus. Pan-India developers such as Unitech, Emaar-MGF, Ansals and DLF have snapped up land there for development of mega, multi- sector residential hubs. These will be highly organized cluster projects and all the right drivers are in place.

The demand push will emanate from four components of development that are coming up. These include an international airport, an Indian Business School, 20-acre township with IT SEZ and a multi-terminal bus stand. The investment opportunity here lies in land, which currently sells between Rs. 12000Rs. 14000 per square yard. After 3-4 years, the land rates will surpass those in central Mohali, which currently stand at Rs. 30000-Rs. 35000 per square yard. HYDERABAD Hyderabad continues to hold its own in the current slowdown scenario though significant growth has now been restricted to certain specific areas.The residential real estate investment growth potential will center primarily around Gachibowli and Tellapur. The qualifications include proximity to the financial district, which is where the highest growth of IT and other commercial projects is happening. There is a possibility of this city becoming another CBD in 10 years. The development of Outer Ring Road (phase 1 is in advanced stage and phase 2 is scheduled after six months) will reduce the commuting time of the residents to key workplace locations. The rates are Rs. 3000-Rs. 3500 psf. Appreciation in these areas will be about 5% in 2009 and may increase in the coming years.

AHMEDABAD Ahmedabad, which has recently started leveraging its real estate potential, has some real residential hotspots coming up. For instance, there will be considerable economic activity with the arrival of the Tatas Nano project, which will definitely boost the value of real estate in and around the corridor of Sanand. The citys advantages are that it is located in an industrial region rich with SEZs, Nano plant is coming up, infrastructure upgradation is in process, connectivity due to S G Highway and SP Ring Road is good, land availability is ample, there is DMIC investment in the region and land prices are low (Rs. 650 psf). Some of the reputed developers active in this region include Pacifica Sahara, Savvy and Safal. Residential units are primarily villas, selling at rates between Rs. 2600-Rs.3000 psf. Prahlad Nagar is another good area to consider. It is surrounded by premium areas, has a high income population and the prices are still relatively low. It is also close to the new business district on SG Highway and has good connectivity to the core city. Rates range between Rs. 2300-Rs.3000 psf. One should also mention the SabarmatiGandhinagar highway, which is near the airport and Gandhinagar as well as the upcoming GIFT city and Ecopolis, has good connectivity and infrastructure. It will soon see many institute campuses like NID, IIT and DAIICT coming up.

KOCHI Kochi represents Keralas fast-growing residential market where NRI investments has caused sudden spurt in residential demand. Apartment units have the highest demand owing to affordable prices and availability. In addition, high ranking of Kochi as IT/ITeS destinations has led to infrastructure initiatives like the Smart City Project, Cyber City project, Infopark, International Transshipment Container Terminal Project, etc. Waterfronts are the most sought after residential real estate destinations and usually gets a premium. The prime residential areas adjacent to M.G. Road and Marine Drive still command a premium with landmark projects asking for Rs. 7500 psf. Kochi has attractive waterfronts and enjoys huge demand for waterfront apartments. However, peripheral areas of the city such as Kakkanad, Edapally and Kalamassery currently face a shortterm oversupply of mid-range flats that are selling in the Rs. 2,500-Rs. 3,000 psf range. The important point is that it is close to the existing InfoPark; secondly, positive impact is expected from the proposed Smart city and Cyber city in Kakkand; thirdly, solid infrastructure has led to a robust economy and job creation while commercial trade, a traditional sector of the economy, is being complemented by growing sectors such as IT/ITeS, BFSI activity and tourism; fourthly, excellent connectivity is resulting from a combination of airport, sea port, road and rail, which has positioned the city for long term growth and competitive advantage and finally, a disproportionately large number of NRIs are investing from abroad and have increased demand for residential space. Appreciation in the peripheral areas of the city will be about 5% in 2009. A 5%-10% increase over the long term is expected. The rates vary from Rs. 2,500- Rs.3 500 psf. JAIPUR Jaipur has witnessed some of the best-planned and balanced real estate developments in commercial, retail and residential space. While affected by the current slowdown, it still manages to sail through on account of its growing population and sound purchasing power. After all, residential real estate in Jaipur is primarily driven by the demand from its existing population, which is now expanding the city beyond its present limits. While housing projects within central locations have witnessed high absorption, the city seems to be expanding towards two new prime destinations for residential development. Two key destinations with the highest investment potential in residential real estate include Ajmer Road and Jagatpura (both suburban locations). In Ajmer Road (NH-8), land parcels are available to support large expansive townships as against low land availability within city limits and land prices are low. It is close to Mahindra World City; Mahindras SEZ being developed close to Ajmer Road having campus developments by Wipro, Infosys and Deutsche Bank, among others. This

makes the region a potential business hub of the future. The place is well connected with neighbouring towns of Rajasthan as well as the prime city of Jaipur. Numerous townships are being developed by leading developers like Vatika, Omaxe and Ansal that provide multiple options for sound investment. The rates are Rs 2500- Rs. 3000 psf. Jagatpuras credentials are the following: proximity to South Jaipur, the hub of upcoming institutional, commercial and retail de velopments. The location is also close to the new airport coming up, which provides good connectivity; availability of land parcels to support large expansive townships as against low land availability within city limits; low land price points and entry costs attracting good investor interest; rapid residential development accruing to large number of townships and group housing projects and townships in and around the area; and an upcoming destination as a residential hub, with a large concentration of government housing projects as well; a new expansion zone for the city population. The rates are Rs. 2000-Rs.2500 psf.

Retail Real Estate Market

Mall and Shopping Centre development is a direct function of the health of the countrys Organised Retail industry and the Real Estate sector in general. Organised retailing, as we know, has taken-off to a flying start and is projected to grow at the rate of 37 percent in 2007 and 42 percent in 2008. Fortunately enough, the Real Estate story is equally encouraging, especially after the relaxation in FDI norms in 2006 and the enthusiasm of Indian corporate houses in mega Special Economic Zone (SEZ) projects. The real estate story in India is now growing bigger by the day. Industry experts are optimistic that there exists huge demand potential in Indian real estate in almost every sector commercial, residential and retail. In the last couple of years the growth in commercial office space has been fuelled by the burgeoning demand for space in the outsourcing and information technology (IT) industry. By 2010, the IT sector alone is expected to require 1,500 lakh sq.ft of space across major cities. Growth in the services sector, accompanied by impressive growth in the overall gross domestic product is sure to generate commensurate growth in demand for residential space as well. It is estimated that in the residential sector there is a shortage of 194 lakh units out of which 67 lakh are in urban India. The increase in purchasing power and exposure to organised retail formats has redefined the consumption pattern. As a result, retail projects have been mushrooming across even teir-II and tier-III cities. The retail market is expected to grow at around 35 percent. Industry observers feel that this growth is facilitated by favourable demographics, increasing purchasing power, existence of customer-friendly banks and housing finance companies, professionalism in real estate and reforms initiated by the Government to attract global investors. GLOBAL MAJORS IN INDIAN REAL ESTATE Policy changes introduced by the Government in February 2005 allowed 100 per cent foreign investments in construction projects with fast-track approvals. But the real

attraction for foreign investors is potential investment returns of 25 percent and more in Indian projects that might be hard to come by in the US and in Western Europe today. A report by property consultants Jones Lang LaSalle Meghraj estimates that US$10 billion foreign investment will be injected into the Indian real estate sector in the next 12-18 months. International companies like Ayala of the Philippines, Signature from Dubai, Och-Ziff Capital, EurIndia and Old Lane have indicated their interest in entering the Indian real estate market soon. On the cards is sizeable FDI inflow from Malaysia, followed by the UK, US, Israel and Singapore. Industry sources say over 90 foreign investors are already in the country tapping investment avenues. Nearly two dozen US funds are raising US$3.5 billion for investments in Indian realty. Those raising the funds include Wall Street powerhouses such as the Blackstone Group (US$1 billion) Goldman Sachs (US$1 billion), Citigroup Property Investors (US$125 million), Morgan Stanley (US$70 million) and GE Commercial Finance Real Estate (US$63 million). Others raising funds are JP Morgan, Warburg Pincus, Merrill Lynch, Lehman Brothers, Warren Buffetts Berkshire Hathaway, Colony Capital and Starwood Capital. In mid-2007, Morgan Stanley closed a deal worth about US$150 million with Oberoi Constructions in Mumbai. The Nakheel Group in Dubai entered into a US$10 billion deal with DLF for residential projects in tier-I and tier-II cities. This was followed by three financial institutions Khaleej Finance and Investment (KFI) from Bahrain, Kuwait Investment Company (KIC) and Kuwait Finance House (KFH) from the Middle East promoting a US$200 million fund for investing in India. Called the 'Indian Private Equity Fund', it targets activities with controlled risks in growing sectors like real estate. Close on its heels, California Public Employees Retirement System entered India, investing US$100 million in a US$400-million real estate fund promoted by IL&FS. Ascendas, Asias leading business space provider is launching the first property trust of Indian assets worth US$500 million in Singapore in July 2007 with the renowned real estate developer Embassy Group. FINANCIAL INSTITUTIONS IN REAL ESTATE Indian financial institutions are competing with each other to invest in this higher return segment. Some of the prominent companies promoting real estate funds in India are HDFC Property Fund, DHFL Venture Capital Fund, Kotak Mahindra Realty Fund, Kshitij Venture Capital Fund (a group venture of Pantaloon Retail India Ltd) and ICICIs real estate fund, India Advantage Fund. Regulated under SEBIs (Securities and Exchange Board of India) Venture Capital Funds, these are closed-ended schemes with an initial public offer (IPO) contributing to a discount on NAVs (Net Asset Value). The Tata Group has joined hands with private equity firm, Xander, through its group company Trent, in April 2007, to raise US$1 billion for an institutional retail real estate fund. India's top real-estate firm, DLF, has raised US$2.24 billion in the country's largest initial public offering in June 2007. It has also entered into a joint venture agreement with Indian pharmaceutical major Ranbaxy Group company Fortis Healthcare to set up hospitals across the country with investments of about US$1.5 billion. Meanwhile, an HDFCsponsored real estate fund has been permitted to bring up to US$ 790 million of

FDI into the country, while Indiabulls Real Estate (IREL) is looking to raise up to US$1.2 billion. RETAILERS AND MALLS India has emerged as the most attractive destination for retailers in 2007. According to the latest AT Kearney study, for the third year in a row, India leads the annual list of most attractive emerging markets for retail investment followed by Russia and China. Organised retail, which currently accounts for only 4.6 percent of the Rs.1,200,000 crore (US$270 billion) Indian retail sector, is expected to grow at 37 percent in 2007 and 42 percent in 2008, according to IMAGES India Retail Report 2007. The report adds that organised retail in India has the potential to add over Rs.1,00,000 crore (US$45 billion) business by the year 2010. This is expected to create a demand for around 2,200 lakh sq.ft of retail space by 2010. According to industry estimates, 270 lakh sq.ft of organised retail space is currently available. Another 900 lakh sq.ft is expected to be added by 2008 from 263 mall projects. Of these, 180 lakh sq.ft is slated to come up in Delhi as well as in Mumbai, 95 lakh sq.ft in Ludhiana, six lakh sq.ft in Chandigarh and 36 lakh sq.ft in Ahmedabad. With the retail sector experiencing a boom, the country is witnessing a spurt in extremely large retail spaces. Shopping malls with over 10 lakh sq.ft of space have become the order of the day. About 20 of these are now at various stages of construction across the country. In the National Capital Region (NCR), Unitech's Great India Place has a million sq.ft of retail space. In Mumbai, at least eight malls covering over 10 lakh sq.ft each, including R-Mall at Ghatkopar, and two malls of over 10 lakh sq.ft, proposed for Thane. In Bangalore, at least three malls with similar dimensions are under development. Ludhiana will soon have a 16 lakh sq.ft mall by Today Homes. As the competition in the market intensifies, mall developers are trying out all possible ways to be different. Specialised malls, designer brands and multi- movie options are marking the shopper's day out. Gurgaon, on the suburbs of New Delhi, has a jewellery mall and will soon have an auto mall. Bangalore will get an exclusive furniture mall. Two malls, first of their kind, targeting foreign tourists, will come up at tourist hotspots Goa and Udaipur with a projected cost of around Rs.90 crore (US$22 million) each. A furnishings mall is coming up on Elgin Road in Kolkata. And India's largest theme amusement park, Noida Entertainment City (E-City), will stand upon 65,34,000 sq.ft (150 acres) approximately. Discount malls are also on the rise. Top realtors and local retail chains are developing malls in regional boroughs, specifically to sell premium branded goods at prices 30-40 percent cheaper than the maximum retail price. At least 50 discount malls are expected to come up in the next two years across the country, positioned in the middle-to-thepremium end of the market. In what could perhaps become a trend in the booming retail business, Reliance Retail, Future Group and Bharti-Wal-Mart are among leading retail

companies that are acquiring housing societies and colonies in Ahmedabad to knock down and build mega-retail stores. BIG DEALS IN REALTY The biggest mall of the world Mall of India planned by DLF Universal along NH-8 will have 32 acres (13,93,920 sq.ft) spanning a huge entertainment area and large city town squares offering a total retail experience. Chennai, on the radar of foreign real estate funds, recently witnessed two big-ticket property deals. AIG Real Estate Fund and RMZ Corporation purchased an 11-acre (4,79,160 sq.ft) plot at Guindy for Rs.2,816 crore (US$686.9 milion) and Shyam Kothari, in another deal, bought IDBI's 2.5 acres Boat Club property in Chennai for Rs.165 crore (US$40.3 million). A large number of retailers, which also includes traditional retailers, are now planning to expand within the current city, and a good percentage of them are also willing to open new stores in other cities within India. The most confident among them are home and interior retailers and sports apparel/equipment retailers, followed by department stores and jewellery and food retails. Space within upcoming malls will obviously be the first choice. The last decade saw the transition of sleepy towns like Gurgaon, Noida and Faridabad into enviable retail addresses, and today these are classified as tier-I cities along with the core, NCR in this case. These cities are now almost saturated. Naturally, the opportunity in the tier-IA, tier-II and tier-III cities like Hyderabad, Cochin, Chennai, Coimbatore and Pune is equally enormous. For instance, Pune, the engineering and automobile hub of western India about 160-km south-east of Mumbai is emerging as a major IT centre. With sprawling software parks coming up all over the city and its suburbs, the demand for high-value apartments is growing and so is the potential for shopping centres. Beyond professionals and people looking to relocate from Mumbai or even overseas, are the older people who have sold a bungalow and want to live in spacious, but easyto-manage surroundings. Developers maintain that the bar for the super-premium luxury housing has risen from Rs.9,511,938 (US$231,964) to over Rs.19,023,918 (US$463,929) per unit. If the year 2006 was marked by some of the country's biggest land deals, the future of India is set to usher in the gold rush of realty.

MACROECONOMIC FACTORS AFFECTING DEMAND AND SUPPLY OF REAL ESTATE

Economic Growth Sustained growth has made India the worlds fourth largest economy in terms of purchasing power parity. Forex Reserves of US$175 billion (Dec 06) (source: Reserve Bank of India), current GDP growth rate of 9.2 percent, positive market sentiment and

business optimism are expected to make Indias GDP the third highest in the world by 2020 (source: KPMG). Economic growth over the past three years has been consistent with an average annual growth rate of eight percent Figure 4) and, as this growth is led by investments in the economy, it is likely to be more sustainable than earlier spurts in GDP growth. The agriculture sector has minimal effect on retail real estate in India; hence a slowdown in agriculture doesnt affect the sector in a major way. The manufacturing sector, which is growing at 11 percent (source:Economic Survey of India 2006-07), has a positive impact on industrial real estate but its effect on commercial real estate is marginal. It is primarily the services sector that accounts not only for the majority of office space absorption in India, but also fuels the growth in the residential and retail sector. With GDP growth expected to continue at a level above nine percent per annum (as per latest government estimates), the impact on retail real estate in India is expected to remain positive. Inflation Inflation, which was 6.39 percent in the week ended March 24, 2007, and posed a major concern to all the good work, now thankfully appears to be getting under control as a result of stringent policy initiatives by the Reserve Bank of India. One of the factors which has lead to high inflation (apart from rising oil prices) is the supply constraints of food grains and other essential commodities which are an important component in the basket of goods on which inflation is calculated. Though long-term structural changes are required in the economy to tackle such demand supply mismatches, in the short term measures such as regulating the money supply and interest rates are being taken to control inflation. An area of concern here is that continued high inflation can significantly impede real estate growth as the government tries to rein in liquidity and increase interest rates. High inflation is directly linked to the governments performance in public opinion and the government will not hesitate to cut down on growth in its bid to cut inflation. Money Supply As against the RBIs target of 15 percent for annualgrowth of money supply for 2006-07, money supply actually grew at 21.1 percent during this period mainly because of growth in bank credit. RBIs steps to reduce credit availability include increasing the refinancing rate, the Cash Reserve Ratio (CRR) and bank lending rates. All these steps have resulted in funds flow to developers as well as borrowers being constricted and a consequent increase in borrowing costs. Interest rates The change in liquidity and inflation environment has resulted in a continuous hardening of interest rates from 2005-06. Home loan rates, too, have been on an upward climb,

and are expected to continue rising over the next 12 months. This is expected to impact residential demand as borrowers face higher repayment instalments. Developers will face higher cost of funds and would have to look for alternate sources such as private equity/venture capital (PE/VC) while investors revise their expected returns from the real estate sector. Credit Off-Take In the last three years, real estate has been one of the prime sectors driving the credit growth with lending to the sector rising by more than 500 percent (source: RBI). Viewing this with concern, RBI has taken steps to reduce the flow of bank credit to the sector as well as making it more expensive for banks to lend to. This tightening of bank lending to real estate has led to a steady increase in interest rates on loans available to the real estate sector. Regulatory Like any other sector, government policies and regulations have a critical impact on the functioning, growth and maturity of the real estate market. The government and RBI have increasingly been wary of the rising prices in the real estate sector in the recent years and have taken various steps to control the money flowing into the sector. RBI increased the provisioning requirement for banks from the earlier 0.4 percent to one percent for all residential housing loans beyond Rs.20 lakh and to two percent on all commercial real estate loans (including SEZs). Banks were restrained from granting fresh loans in excess of Rs.20 lakh against NRE (Non-resident external accounts) and FCNR (B) (Foreign Currency Non Resident) deposits. RBI has also urged all commercial banks to put in place an improved system/procedure for realistic valuation of properties and appoint independent valuers for the purpose. The need for an agency to set up valuation standards to be imparted through impartial, professional, accredited valuers is also being felt. In the 2007 union budget, the government announced various policies which had a somewhat dampening effect on the real estate sector. Tightened regulations governing developments of Special Economic Zones (SEZs) by disallowing tax concessions to contractors involved in the construction work, income tax on venture capital income interest and capital gains (interest and capital gains from their investments in real estate) were some of the measures taken. Service tax was extended to renting of property for commercial use that could have a major impact on the retail segment as real estate costs are as high as 30 percent of total project costs in some cases. The Securities and Exchange Board of India (Sebi) has tightened the disclosure and valuation norms for real estate companies planning to launch initial public offerings (IPOs) to impart a true picture of their property values. Such companies have to mandatorily disclose their land bank details along with ownership status. India needs to

urgently adopt international valuation norms to ensure greater transparency and confidence in the sector. Finally In Retail Real Estate Market ,Wal-Mart has made an India entry through a JV with the Bharti Group. Earlier the US retail giant was willing to gain access through FDI but the government's regulatory framework didn't allow it to do so. After Mukesh Ambani's Reliance Industries foray into retail, the AV Birla Group also launched its retail plan. At the same time, Tata, Raheja's, Future Group, Godrej, etc., are all working on business plans to amplify their retail activities across the country. Reliance has planned its retail outlets in all the major cities and is acquiring land at record prices With MCD's sealing drive in Delhi, supply crunch for retail spaces was witnessed, which led to an increase in retail estate prices across the NCR. India has huge potential for retail expansion, with rapid growth underpinned by favourable demographics, increasing urbanisation, rising disposable incomes, low interest rates, brand competition and youth culture. The sector is also undergoing structural change, with leading domestic retailers going through rapid growth, format migration and consolidation. The pace of change is likely to accelerate as foreign investment in retailing is liberalised the government has taken the first steps in 2006 by allowing 51 percent FDI in 'single brands' retail outlets. Increasingly, organised retailing will focus on tier-II and III cities, which are still largely unexploited.

Commercial Real Estate In India

The first few years of the 21st century have seen the world enraptured by the India story. Favourable comparisons with the worlds fastest growing economies, abundant talent pools, need for infrastructural investments and a large market have attracted investors across all industry segments. Retail, hospitality, healthcare, infrastructure etc. are bringing in international players keen to tap the latent demand in these sectors while the competitiveness in Information Technology and IT Enables Services (IT/ITES) has made India the back office of the world. All these factors have resulted in a continued healthy demand for real estate that, coupled with easy availability of capital, has seen a boom in the real estate (RE) sector in the last few years. With all indicators pointing to continued robustness in economic growth, one could expect the RE sector also to continue its path upward. However, a study carried out by DTZ reveals that the current boom may be cresting and this may be a time to exercise prudence. Commercial real estate (which includes office space, SEZs and IT/Business Parks) can be considered the benchmark for the rest of the real estate market in the country as it is tracked professionally, is less opaque and more reliable information on it is available as compared to other sectors. Additionally, the commercial sector is the growth driver for other RE segments as the business prospects and employment generated in turn drive the demand for residential, hospitality and retail sectors. To be considered as a Grade-A office space, a building needs to have certain minimum requirements such as central air conditioning, professional building maintenance, good

faade, 100 percent power backup, preferably single ownership and good tenant profile. Our study revealed that the A-Grade leasehold office space sector across our niverse of cities (the top seven Indian cities of Bangalore, Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai and Pune) is seeing the beginning of an oversupply situation that will continue in the short to medium term. The Indian A Grade leasehold office space markets are currently at an all time high; both in terms of the quantum of space leased per annum and the prevailing rental values. Our city-level demand supply analysis clearly indicates that office space rentals are likely to hit a plateau in the next six to twelve months. Barring a few exceptions (primarily the CBDs), the oversupply situation will lead to a correction in office rental values. Or very simply, this correction in A-Grade office space rental values will not be driven by a lack of demand but due to the oversupply build-up. However, rather than casting a pall of gloom, this may be an opportunity for all stakeholders to re-examine and reformat their strategy for the RE sector. With demand for good quality RE expected to remain healthy in the longer term, stakeholders, e., investors, tenants, buyers, developers and even regulatory authorities should understand the implications of this forecasted correction and plan their real estate investment/ development/end-user strategies accordingly. There are various factors that will define the degree and timing of this rental value correction; for example, the threshold for this correction has been brought closer by the two recent interest rate hikes. That notwithstanding, we firmly believe that the Indian real estate markets are entering their next phase/wave of evolution. The Indian real estate cycle saw its last crest in 1995-96 and the following years saw real estate values come down across the country. This correction also marked the first wave of evolution of the Indian real estate markets. The prime drivers of this change were the large foreign occupiers/corporates and IT firms that were establishing their presence in India and the most pronounced impact of this wave was a complete redefinition of what constituted A-Grade office space (in India). We are of the opinion that on an overall basis, the Indian office space markets are now close to the second crest of the real estate cycle (after 1995-96). And the change driver for this evolutionary phase of Indian real estate would be the sophisticated foreign capital that is finding its way into Indian real estate. This phase will again bring about significant changes in the Indian real estate sector and we believe that industry participants will go through a fast and somewhat painful structural changes. The Indian Real Estate market is estimated at US$12 billion (source: FICCI) with a current growth rate of around 30 percent per annum. Although the initial real estate growth was concentrated in the major metros due to the growth of IT/ITES in India, there has been a shift in the real estate market beyond metros to tier-II cities. With India

showing broad based economic growth, RE too has shown growth across all segments commercial, retail, residential, industrial and hospitality. Office Space Segment The prime component of RE demand in India, Grade-A office space saw a demand of around 47 million sq.ft in 2006 and this is expected to grow to 56 million sq.ft in 2007. The Indian economy, led by the IT/ITES industry, has shown strong growth in the last three years that has resulted in increased absorption across most Indian metros and tier-II cities. For example, Chennai had a Grade-A office space absorption of 3.7 million sq.ft in 2005 which increased to 5.3 million sq.ft in 2006. At 9.3 million sq.ft in 2005, Bangalore was the third ranked city globally in terms of office space absorption (after Tokyo and London) and grew to12 million sq.ft in 2006. Delhi NCR has emerged as an IT/ITES favourite with absorption of 2.4 million sq.ft in 2005 that grew to 10.6 million sq.ft in 2006. Other Indian cities too have witnessed similar growth in office space absorption. As per current estimates, we expect the demand for Grade-A office space to stay on course in the immediate future. However, given the number of large projects announced recently and under construction, we could witness supply exceeding demand across cities. Rationalisation of rentals, quality of the end product and professional service delivery/marketing to support corporate clients would be critical in increasing the occupancy levels in this scenario of oversupply. Residential Segment The residential property market constitutes almost 75 percent of the Indian RE market in terms of value. Low per capita housing stock, rising disposable income coupled with easy availability of finance from housing finance companies and banks have been driving demand in this sector in recent years. The potential for housing is still large as even today, there is a shortage of 31 million housing units (source: NHB) and ASSOCHAM predicts this demand to grow to 80 million by the next decade. Retail Segment The retail industry in India is dominated by individual small format stores with floor space of less than 500 sq.ft. The organised retail sector, which was a mere three percent of the total retail market in 2004, has attracted a lot of players and has grown to 4.7 percent of the total retail market of US$ 230 billion (source: IMAGES Retail Report 2007). However this share is still low as compared to other countries and represents enormous growth potential. Indias fast growing economy, increasing disposable incomes and consumption levels have made it one of the largest consumer markets in Asia. Organised retail is thus expected to grow but would rely on appropriately priced real estate to reach out to its customer segment effectively. RE costs can impact the

profitability of an entire retail venture and with high occupier interest, new supply coming up and old retail formats under threat, the sector will see some interesting times. Retail real estate construction and more importantly, mall management practices leave a lot to be desired and we are certain that the Indian retail real estate sector still has to undergo a significant learning cycle. This evolution will be clearly linked with the increasing corporatisation of the retail sector and will be further catalysed by the entry of foreign retailers in India (as and when allowed). Hospitality Segment The number of foreign visitors (a major driver of hospitality industry) in the country in 2005 was around 4 million resulting in international tourism receipts of US$ 5.7 billion. With continued business and tourism interest, the hospitality industry is expected to show growth rates in excess of eight percent per annum. This rapid growth in visitors has already impacted the industry with most cities facing a severe shortage of rooms and hotels. It is believed, however, that the supply of hotel rooms is expected to increase steeply between now and 2010. Looking Ahead Though most parameters point to demand remaining strong, a slowdown in economic growth in India could affect the demand drivers and consequently growth in the real estate sector. Commercial real estate is largely dependent on demand from the IT/ITES sector, which accounts for nearly 70 percent of the total office absorption. With rising real estate and salary costs, Indias cost competitiveness in this sector could be challenged and any slowdown in this sector can adversely affect the commercial space absorption in various cities across India. While the bull run in property prices has attracted the attention of regulatory bodies and led to restrictions in availability of capital, the attractiveness of the sector and steadily increasing demand have seen a number of players, both new and old, embark upon fresh constructions on a grand scale. Thus, though demand is expected to remain strong, the restrictions in capital availability will impact projects in the longer term. The projects already announced will see sufficient supply emerging across most cities and result in over supply in the short to medium term.

Growth Drivers
Commercial real estate is an important component of the real estate sector as it has a positive effect on the demand for residential and retail as well. At current growth rates, the sector is expected to employ an additional 2.4 million people by 2012. At a prudent Employee Health and Safety (EHS) norm of 100 sq.ft per employee, this translates into an additional commercial space requirement of 240 million sq.ft. The increase in incomes due to these employees joining the workforce is expected to generate an additional demand for 12 billion sq.ft of residential space by 2012 (assuming 100 sq.ft commercial space requirement, 400 sq.ft of residential space requirement per employee). There are various factors driving the growth of commercial real estate in India:

y Demographic Factors

Indian demographics are poised to provide a broad based and sustainable economic growth. India has a very young population profile (Figure 3) with half of its people under the age of 25 years. This young and increasingly urbanised population drives significant demand for products and services, and has created massive opportunities from human resources perspective. The IT/ITES industry is critically impacted by availability of adequate human resources and this demographic profile has made India a very attractive destination for these companies. Along with continued strong economic growth, real annual personal disposable incomes are also set to increase by eight to 10 percent annually over 2006-10. It shows that the percentage of households in India, that earn more than US$ 5,000 per annum currently, is lower than that of China. However, this is expected to grow over the next four years to match China by 2010. As India emerges out of the shadows of its socialistic past and integrates increasingly with the regional and global economy, it is spawning a new rich class the number of billionaires in India is already the highest in Asia, ahead of even Japan. This socio-economic transformation is making India an increasingly lucrative market for a wide variety of products and services. These include biochemical, leisure and financial services that are expected to be the next big drivers for office space.
y Infrastructural

The Central and State governments have realised the importance of improving urban infrastructure to truly realise the potential of India. Initiatives such as the Jawaharlal Nehru Urban Renewal Mission (2005) aim to put selected cities on the fast track of growth by encouraging infrastructure growth and thereby catalysing flow of investments into the urban infrastructure sector. Another infrastructure initiative, the National Highways Development Programme (NHDP), is also making impressive progress. The National Highway Authority of India (NHAI) is being restructured for more effectiveness and to be able to handle a large number of Private Public Partnership (PPP) projects. Work pace has improved on the Golden Quadrilateral (GQ) and the North-South, East-West Corridor projects as against 1.86 km/day completed prior to May 2004, the schemes are now progressing at the rate of 4.48 km/day. All these initiatives should see sustainability of the demand for commercial RE in India.

Outlook for Office Space The DTZ study conducted across the top seven cities (including their micro-markets) finds that the continuing healthy demand, attractiveness due to rising capital and rental values and easy availability of capital resulted in a large number of projects being started at major locations. While demand continues to be strong, the supply of quality commercial real estate is likely to outstrip the demand in the short to medium term. It summarises the likely demand supply scenario in 2007 across key cities in India. The authorities have sought to stem speculative interest in the sector and also to reduce inflationary pressures in the economy by curtailing availability of capital and increasing the interest rates. These measures will certainly impact new projects as developer/builders seek new sources of capital and PE/VC funds evaluate their strategies. As demand continues at current pace and fresh supply tapers off, it is expected that the oversupply position will reduce over the longer term. In the short to medium term, however, as an oversupply position emerges across most cities, stakeholders viz. occupiers, investors, developers and intermediaries need to understand the implications and formulate their strategies accordingly.

FUNDING REAL ESTATE DEVELOPMENT IN INDIA

India's commercial real estate stock is estimated to be the fourth largest in Asia, following Japan, China and South Korea. However, this still represents a small fraction of the global commercial real estate stock, which totals roughly US$19 trillion (INR 781,000 billion/arawb). Getting accurate and reliable data on overall real estate investments, especially in the emerging markets like India, is quite a difficult task and most studies are based on broad estimations of the total size and investment potential. In India, even the institutional real estate market is just started showing up. The investible stock in India amounts to only about 27 percent of the total stock that can be classified as investment grade. In contrast, China's investible stock is 35 percent of its total investment grade stock and that of Japan's is 65 percent. With the Indian economy growing strongly, the demand for office, retail and logistics space is simultaneously set to expand significantly in the next few years. It is estimated that this growing demand would effect an increase in India's investible real estate stock by US$18 billion (INR 64,056 crore) by year 2010. Even this is still a conservative estimate as it can be expected that with the maturing real estate market, even greater institutional investment activities will result. The following are the most important sources of financing the real estate market in India:
y Private Debt y Private Equity y Public Debt

y Public Equity

PRIVATE DEBT Private debt is the most important source of financing real estate in India. It accounts for nearly 60 percent of all institutional real estate investments. Strong demand for commercial real estate lending in the last three years was boosted by steeply falling interest rates, vibrant real estate investment market and a rise in corporate outsourcing activity. Statistics available for the past five years indicate that bank loans for commercial real estate increased by more than 500 percent during 2001 to 2006. This number is poised to grow further in the next few years, despite the RBI's attempts at decelerating credit growth with a view to curbing inflation.

PRIVATE EQUITY Private investors also play an important role in the Indian real estate investment market. At the end of 2005 private equity accounted for about 40 percent of the country's real estate capital market. This market segment is rapidly growing as is evident from the fact that in 2005 private property companies and individuals' holdings of real estate grew by 40 percent over the previous year. The Indian pension fund system is still poorly developed, and as such its exposure to real estate is still limited. Regulation mandates that at least 60 percent of asset allocation is in government securities or other approved securities. In the private equity category, pension fund counts as the second largest investor, but its exposure to the real estate sector is still very limited. Changes in the pension funds' asset allocation strategy will largely be driven by changes in regulation, but till such time, pension funds will continue to keep their large positions in government bonds and other approved (and more 'secure') instruments. This holds good for insurance companies as well, as they still regard real estate investment as risky. Regulation for insurance companies' investment strategies also remains restrictive, explaining their small exposure to real estate. No major change in this can be expected in the near future unless the regulatory bodies decide to ease the policy prescriptions. The Security Exchange Board of India (SEBI) approved the formation Real Estate Funds (REF) in 2005. This has facilitated the formation of real estate mutual funds, which are expected to get operational in 2007. This will herald a new era of real estate investments for the common retail investors. At present, REFs are only open to high net-worth individuals (HNIs), institutional investors and global investors. PUBLIC DEBT The public debt market, which here only comprises outstanding corporate bonds and Commercial Mortgage-Backed Securities (CMBS), is in the very early stages of its development in India. In the last few years there have been no CMBS issuances in the

Indian market, implying that this market is dominated by Residential Mortgage Backed Securities (RMBS). These have indeed played an important role in Indian securitisation in the past six years, particularly because of the fast growing residential sector and low cost of financing. PUBLIC EQUITY Neither Real Estate Investment Trusts (REITs) nor Real Estate Mutual Funds (REMFs) exist in India, implying that the real estate public markets are still limited. The only way to invest in real estate in the public market is through listed property companies, but there are only a handful of these currently. Need For Real Estate Investment Mutual Funds It is expected that REITs will be introduced in India this year. The demand for REF is strong, as numerous private investors have already burned their fingers by putting their money in the wrong properties. It is not possible for individual investors to verify all technical aspects of property and at times they also have to take recourse to bank loans to meet the complete cost of a unit. The sudden upswing in bank interest rates in 2007 has compelled many such investors to sell off their holding at a loss. With the coming of real estate mutual funds these private investors will get a safe avenue for investing their surplus savings. This could well be the catalyst for the future development of Real Estate Investment Mutual Funds, much on the lines of what we see in the United States of America, where REITs (Real Estate Investment Trusts) own most properties in the retail, commercial and residential domains. The creation of REITs will undoubtedly improve transparency and liquidity on the real estate capital market. In India, the introduction of Indian REITs and/or REMF in 2007 might provide investors with a comfort zone to reduce the transparency and liquidity risks. This will also provide a wider range of choices for investors to engage in real estate investment considering the current limitation of the public property sectors.

CAPITAL FLOWS AND FUTURE PROSPECTS Although the Indian real estate capital market is still small, its growth momentum so far is remarkable, especially in the private equity and debt markets. Owing to a lack of alternatives, commercial bank lending seems to be the most efficient way of raising capital in India. But both the private equity and private debt markets are also set to grow significantly over the coming years, profiting from further project developments and more foreign direct investment. In contrast, the public markets are set to remain relatively small over the next years, until the private markets increase in scale and the broader capital markets undergo significant development.

REAL ESTATE INVESTMENTS IN INDIA

An active domestic commercial real estate investment market has gradually emerged since the turn of this century, in response to growing demand for modern commercial space. The investment market has grown rapidly, especially since 2005, due to perceptions of strong market fundamentals with good long- term growth prospects, the emergence of specialist real estate vehicles and the participation of foreign investors. India now faces the prospect of cross-border real estate investors, with both domestic and global capital seeking real estate investment opportunities here. As discussed, the current investment market includes active participation from domestic real estate funds, institutions, high net-worth individuals (HNIs) and local developers. Domestic debt remains a strong financing option, primarily in the form of construction finance as well as lease rental discounting. Crossborder investment activity is currently dominated by players Singapore and other Asian countries, and also by the US opportunity funds. A good number of European layers are also now looking at options to enter the Indian real estate market.

Domestic Participants The domestic equity route comprises four main groups -- dedicated real estate funds, institutional funds, high net worth individuals and developers: Dedicated Real Estate Funds: The last two years have seen the mobilisation of investible funds by several dedicated real estate funds, such as Anand Rathi Real Estate Opportunities Fund, Dewan Housing Realty Fund, Kshitij Fund, TCGRE, Reliance Private Equity, etc. Historically, their focus has been on India's tier-I cities (Delhi, Mumbai, Bangalore, Chennai and Kolkata), but such funds are now increasingly seeking out opportunities in tier- II cities, such as Hyderabad, Pune, Jaipur, Ahmedabad and the like. Institutional Funds: Major financial institutions such as ICICI, HDFC, IL&FS and Kotak Mahindra have all launched real estate funds, either as joint ventures or sole investors. Most institutional funds operate on a pan-Indian basis, and are increasingly looking at opportunities in tier-III cities, in order to gain the 'first mover advantage'. High Net-Worth Individuals: India has a large community of high net-worth individuals (HNIs) and family-run businesses, which have substantial funds to invest in real estate. Significant investment interest has also been witnessed from the cash surplus nonresident Indians (NRIs), primarily from the USA. HNIs are increasing their presence in residential, commercial and retail space. In most cases they invest directly into real estate assets. Domestic Developers: Domestic real estate development companies have increasingly participated in land auctions and have invested in buying land for development purposes. Most of these companies participate with an equity partner/institutional fund

when bidding for land parcels. Some development companies are now looking at a listing in the stock exchange as a means of securing additional equity capital to fund their ambitious growth plans. Global Participants There are a number of cross-border investors active in the market. Their entry has largely been through the development route or venture capital funds, and their focus so far has been on IT parks and residential townships. Foreign Developers: Developers from Singapore, such as Ascendas, GIC, Keppel Land, Capita Land and Lee Kim Tah Holdings are the most active group. Ascendas, one of Asia's leading business space providers has been active in India since 1999, and owns IT parks in Bangalore and Hyderabad, and is building IT parks in both Chennai and Kolkata. Ascendas launched a US $350 million INR 1,440 crore) India IT Parks Fund in 2005, with GE Capital subscribing US $63 million (INR 260 crore). Most Asian development companies have focused on tier-I cities, primarily in residential and commercial assets. Other Asian developers include Emaar (based in Dubai), which is developing integrated townships in India's tier-I and II cities. In January 2006, it announced a US $4 billion (INR 16,450 crore) joint venture with MGF Land (Emaar MGF), representing India's largest real estate FDI. Real Estate Funds: Real estate funds, including private equity funds as well as dedicated real estate funds, are increasingly becoming the preferred entry route for cross-border investors, particularly amongst US investors. Tishman Speyer, Vornado Realty, GE Capital, Warburg Pincus, Citibank, Apollo Real Estate and Morgan Stanley are all active, mostly through JV real estate funds. Tishman Speyer, for example, formed a joint venture in April 2005 with ICICI Ventures, the private equity arm of ICICI bank. TSI Venture Funds plans to invest close to US$1 billion (INR 4,112 crore) over the next five years. Several global and local factors have converged since 2005 to culminate in the unprecedented interest in Indian real estate by global and domestic investment funds. But it has taken almost ten years for the Indian real estate market to evolve to its present stage, after having completed a full cycle. Ever since the correction of the late 1990s, the real estate market has emerged from its phase of consolidation; and since the early 2000s it has been on a growth and expansion phase. In the years of resurgence, the transformation of the Indian real estate sector has been driven by consistent growth of the economy and business, growing incomes and aspirations as well as enthusiastic supply response. The scale of transformation achieved till now has not been insignificant considering that a few years back the sector was insulated from foreign investment.

LEGAL AND REGULATORY ASPECTS OF REAL ESTATE DEVELOPMENT IN INDIA

As almost every form of modern business activity is guided by legal processes to ensure the smooth conduct of operations, the business of retail real estate development too is guided by such laws and regulations. Here we discuss some of the most prominent acts and regulations relating to the commercial real state market in India. The real estate market in India is still at an infancy level, characterised by a large number of small players. The last few years saw the emergence of big players and the entry of corporate houses in the real estate domain. In most of the states of India, development authorities control supply of urban land. This sector is still in the grip of certain restrictive legislations thus limiting investment and proper organization of the sector. The laws governing real estate in India are over a century old. Though quite a few of these regulations form the basis of laws and necessary amendments are happening in the space, still the current legislative framework is in need of a major overhaul to make the laws and regulations more relevant to present day requirements. A number of Central and State laws govern the real estate sector in India. The more prominent of these are listed below: Central Laws Governing Real Estate The Central Acts and laws that form the basis of future laws and provides the foundation are as follows:
y y y y y y y y y y

The Indian Contract Act, 1872 The Transfer of Property Act,1882 The Registration Act,1908 The Specific Relief Act, 1963 The Land Acquisition Act,1894 The Indian Evidence Act,1872 The Land Reforms Act,1964 The Stamp Act,1956 The Urban Land (Ceiling & Regulation) Act, 1976 The Urban Land (Ceiling and Regulation) Repeal Act,1999

Besides, the above-mentioned legislations, a number of other related laws also regulate the real estate market India. There are also certain enactments that may in one way or another affect real estate transactions. As such, the real estate sector in the country comes within the purview of various related Acts and Regulations.

Recently, a number of Acts have been enacted with certain provisions or definitions bringing real estate within its purview such The Consumer Protection Act, 1986, and The Environment Protection Act, 1986. Again, certain amendments in existing laws or repeal of Acts have also brought about certain relaxations and boosted the growth of the sector. An example that can be cited in this case is that of The Urban Land (Ceiling and Regulation) Repeal Act, 1999. But quite a few state governments are yet to adopted the The Urban Land Repeal Act, such as Andhra Pradesh in South India. The real estate sector is also faced with other issues such as taxes, monopoly of urban land, titles and records of evidence, land reforms, municipal laws and zoning laws that impediment growth. Lengthy compliance procedures and non-transparent transactions too have hindered prospects. The sector is in currently in need of redressal of issues relating to various aspects be it legislative or policy reforms. LOGISTICS INDUSTRY - REAL ESTATE'S NEW POWER HOUSE Over the next five years, approximately 110 logistics parks and 45 million square feet of warehousing space is expected to be developed across the country by various logistics companies. This upsurge in the logistics and warehousing industry will in turn boost real estate activities in key locations across the country. While the India logistics sector holds tremendous potential, it forms a very small portion of the total global market for logistics at approximately 2 per cent of the estimated US$ 5,000 billion global logistics industry. Despite the impressive growth rates, the logistics sector in India is fraught with many inefficiencies. Logistics cost in India is fairly high at around 13 per cent of GDP, which is much higher than that in USA (9%), Europe (10 %) and Japan (1 1 %). According to a recent report by FICCI-Ernst & Young (E&Y), the average time taken to clear import and export cargo at ports is about 19 days in India, against three to four days in Singapore. As compared to the European countries, rail transportation in India is almost 3.5 times more expensive and the average transit time by road is three times higher. These inefficiencies of the Indian logistics industry can be attributed to factors such as a complicated tax regime, fragmented market structure and inadequate infrastructure. While there are several factors that go against India's logistics industry, however there are many growth drivers that suggest its rapid transformation. While India lags behind major global logistics hubs like Singapore, Germany and Japan, factors like the changing tax regime, increasing trade and the emergence of organised retail will lead to accelerated growth in the sector over the next five to seven years. Infrastructure developments like the railway- dedicated freight corridors, road development projects and modernisation of over 37 operational airports will increase India's handling capacities, thereby enhancing logistical performances.

The key growth drivers for India's logistics sector such as increase in foreign trade, outsourcing of manufacturing activities and the emergence of organised retail that are necessitating the growth of warehousing, supply chain management, cold-storage and transportation. This study has also undertaken a SWOT analysis of various modes of freight transportation viz. roadways, railways, ports, waterways and airways. The logistics and warehousing activities are heavily concentrated in western India. However, the report also highlights the fact that logistics activities are fast spreading to other parts of the country, and more importantly to tier-2 and tier-3 cities. The report's location attractiveness analysis is aimed at identifying established as well as upcoming centres for this sector. These centres have a direct bearing on the concomitant real estate developments in and around such locations.

Logistics on a high growth trajectory The Indian logistics sector grew by 8 to 10 per cent annually between 2002 and 2007. Several factors have favourably impacted the growth of the logistics industry, like the country's changing tax regime, growth across major industry segments such as automobile, pharmaceutical, fast moving consumer goods (FMCG) and the emergence of organised retail. With escalating competition and cost pressures, companies are increasingly focusing on their core competencies by outsourcing their logistics requirements to third party logistics (3PL) players. The future of the Indian logistics and warehousing industry is currently governed by three key factors: a) Burgeoning domestic demand Emergence of organised retail: Globally, retail has been a key growth driver for the logistics industry and India is no exception to this phenomenon. Organised retail in India has been growing at over 30 per cent year-on-year. The total retail industry in India is expected to 1 grow from US$ 320 billion in 2006 to US$ 421 billion by 2010. The growth of organised retail has created demand for specialised logistics services, wherein every retailer relies on strong logistics and warehousing infrastructure for the success of its business. This changing business environment should give further impetus to the logistics sector by generating increased demand for high-quality and efficient logistics and warehousing services. Increase in foreign trade: In 2007, the Indian economy witnessed a growth of 13 per cent in exports and 17 per cent in imports. India's current share in global trade is around 0.8 per cent and is expected to increase to 1.6 per cent by 2012. Robust growth in foreign trade will increase the demand for good quality and timely logistics and warehouse services.

India becoming a manufacturing hub: The world over, India is being recognised as a destination for outsourcing of custom-based, high-technology manufacturing activities. According to Confederation of Indian Industries(CII), India will emerge as one of the global 'manufactured product' outsourcing hubs and reach revenues of approximately US$ 50 billion by 2015. In order to remain cost-competitive, contract manufacturers will be required to provide integrated logistics solutions that will bolster the cost savings potential of the outsourcing initiative. The increasing trend of outsourcing will, in turn, drive strong demand for logistics solutions in the country. b) Reducing logistics costs The logistics cost in India which includes inventory holding, transportation, warehousing, packaging, losses and related administration costs is estimated at approximately 13 per cent of GDP and is high when compared to the corresponding figures for major economies. India's multi-layered tax regime, infrastructure bottlenecks and other inefficiencies have been the primary reasons in keeping logistics costs high in India. Under the existing tax structure, 2 per cent Central Sales Tax (CST) is levied on inter-state sales. As a result, companies have had to maintain small warehouses and depots in every state in order to avoid paying CST on inter-state sales. These multiple warehouses have resulted in high inventory costs, increased working capital and other overheads. A simplified tax regime will help logistics players service multiple markets and offer end-to-end solutions far more efficiently and at much lower costs. As per the World Bank's report on the Logistics Performance Index, a 0.5 per cent decrease in logistics cost leads to 2 per cent growth in trade and a 40 per cent increase in the range of products that get exported out of the country. From multiple taxes to a simplified tax regime: Union Budget 2008-09 has proposed the phasing out of Central Sales Tax (CST ) by 2010-11. Once implemented, this measure will promote outsourcing of logistics operations and encourage the creation of large warehouses at key strategic locations that could operate on the 'hub-and-spoke' model. The implementation of Value Added Tax (VAT) in 2006 has played a role in reducing logistics costs. The proposed implementation of Goods and Service Tax (GST) could lower logistics costs further. According to the Confederation of Indian Industry (CII), improvement of logistics and warehousing industry can make Indian industries more cost-competitive, thereby enabling a GDP growth of 11 to 12 per cent, from the existing 7 to 8 per cent. c) Improvement in infrastructure Transportation in India accounts for nearly 40 per cent of the total cost of production. One of the major barriers faced by the Indian logistics industry has been the lack of quality physical infrastructure. However, India's core sectors are witnessing a significant change. The country is expected to increase its infrastructure development spend from 4.7 per cent of GDP in 2007 to 8 per cent of GDP by 2012 . This increased spend will

help boost the logistics industry. However, delays in critical projects may lead to a failure of this measure to provide the much needed impetus to the growth of this sector. Better connectivity to small towns and cities is another area planners need to work upon. Road transportation is currently the most dominant form of transportation with more than half of the goods in the country being moved by road. Almost every mode of transportation in India is fraught with inefficiencies. For instance, ports that are vital for foreign tradehave very high turnaround times when compared with statistics for other countries. Similarly, the railways, which were a popular mode for freight transportation especially (the movement of bulk goods), have lost ground to road transportation due to limited access to smaller towns. Air, on the other hand, is a costly mode and its use is restricted to courier shipments. It is rarely used for bulk transportation.

EMERGING TRENDS IN LOGISTICS INDUSTRY

Growth within the organised sector The logistics and warehousing sector in India, till now, has been highly fragmented and characterised by the presence of numerous unorganised players. A large number of players have been providing services in individual segments like transportation, warehousing, packaging etc. In 2007, organised players accounted for only 6 per cent of the total US$ 100 billion Indian logistics industry. However, changing business dynamics and the entry of global third party logistics players (3PL) has led to the remodelling of the logistics services in India. From a mere combination of transportation and storage services, logistics is fast emerging as a strategic function that involves end-to-end solutions that improve efficiencies. Logistics players that provided limited logistics services, are also planning to broaden their areas of operation. Besides expansion of distribution network by both national and regional players, the sector is also witnessing considerable M&A (merger & acquisition) activity. For instance, DHL acquired Blue Dart, TNT acquired Speedage Express Cargo Service and Fedex bought over Pafex. Consolidation within the industry will lead to economies of scale for the existing organised players, thereby lowering costs and improving efficiencies. Global logistics companies like Gazeley Broekmen (Wal-Mart's logistics partner), CH Robinson and Kerry logistics have also forayed into the Indian market in order to capitalise on the vast emerging opportunities within this industry. Many of them are planning to develop their own logistics parks across the country. Another trend witnessed over the last few years has been the entry of several large Indian corporate houses such as the Bharti group, Tatas and Reliance Industries Limited into the logistics sector. The Indian conglomerates foresee huge potential for specialised logistics and warehousing facilities, particularly in industries like retail.

Companies like Bharti, Tata Realty & Infrastructure, GE Equipment Services and Reliance Logistics cater to the logistics needs of their own group companies as well as provide services to the other companies. The growth of the organised sector would enable the industry to provide cost-effective and integrated logistics solutions in order to meet the ever-increasing demand. As per estimates, the market share of organised logistics players is expected to double from 6 per cent in 2007 to approximately 12 per cent by 2015. Emerging concept of third party logistics Third party logistics or 3PL is a concept where a single logistics service provider manages the entire logistics function for a company. Although still at a nascent stage, the Indian 3PL industry is growing at a rapid pace. Global sourcing activity and fierce competition amongst manufacturers to cut costs have made movement of materials rather complex, giving rise to the emergence of several third party logistics players. Fuelled by the increasing trend of outsourcing, coupled with the rapid growth in the Indian manufacturing sector, 3PL is estimated to grow at about 30 per cent annually and become a US$ 30 billion industry by 2010. The entry of large third party logistics (3PL) carriers like Federal Express (FedEx)and DHL and network expansion by the existing domestic players (such as Gati and Shreyas Shipping) have also contributed to the transformation of services and the business practices across this sector. Value added services like inventory management, warehousing, packaging, labelling, tracking of shipments etc have witnessed huge demand from the corporate sector. The end-users of 3PL services include major players from the retail, auto components and the electronics industry. The organised 3PL market in India can be categorised into three major segments public sector, private sector and foreign entrants. Rapid growth of the warehousing sector The role of a warehouse has also transformed from a conventional storehouse to an inventory management set-up with a greater emphasis on value added services. Warehouses now provide additional services like consolidation and breaking up of cargo, packaging, labelling, bar coding, reverse logistics etc. It has emerged as a critical growth driver, leading to large investments by logistics companies for the development of warehouses and logistics parks. Warehousing and related activities currently account for about 20 per cent of the total logistics industry. However, it is estimated that by 2010, this proportion would increase to approximately 35 per cent. The traditional concept of establishing warehouses in the proximity of manufacturing facilities and raw material sourcing centres is also undergoing a transformation. Today, there is an increased trend of relocating warehouses near consumer markets. Currently, the organised warehousing industry in India has a capacity of approximately 80 million metric tonnes (MT) and is growing at 35 to 40 per cent per annum. An investment of

approximately US$ 500 million is being planned by various logistics companies for the development of about 45 million square feet of warehouse space by 2012. Logistics parks One-stop shop for logistics needs The concept of a consolidated logistics centre can be traced back to the Foreign Trade Policy of 2004, which led to the development of Free Trade Warehouse Zones (FTWZ). While FTWZ were aimed at facilitating import and export of goods, the need for a onestop shop that could additionally cater to the domestic market led to the development of logistics parks as a part of the infrastructure industry in 2005-6. A logistics park is a notified area that facilitates domestic and foreign trade by providing services like warehousing, cold storage, multimodal transport facility, container freight stations etc. This area also acts as a place where a company can unload cargo for distribution, redistribution, packaging and repackaging. Majority of these logistics parks will be developed in the proximity of established and emerging industrial hubs in the country in order to tap their logistics needs. By 2012, around 110 logistics parks, spread over approximately 3,500 acres, are expected to come up across India at an estimated cost of US$ 1 billion. Majority of the upcoming logistics parks are being planned in close proximity to state capitals. However, availability of large land parcels at relatively low cost, connectivity to multiple markets across states and proximity to industrial clusters has led to the emergence of some tier-2 and tier-3 cities as favoured destinations for the development of logistics parks and warehouses.

STEPS TO STREAMLINE THE LOGISTICS INDUSTRY

Setting up logistics parks in SEZs can improve India's competitiveness: Around 70 to 80 non-IT/ITeS SEZs have been notified in the country in order to cater to various sectors. These notified SEZs along with emerging economic corridors and industrial parks require efficient transportation and supply chain support, connectivity with various markets and other value-added services. Therefore, in order to ensure that SEZs operate successfully and improve India's competitiveness, logistics parks catering to an entire range of logistics infrastructure should be developed in emerging economic corridors and industrial parks. A national logistics strategy can improve efficiency and lower costs: In order to achieve high customer service at low cost, India needs to formulate a national logistics strategy that encourages competition and facilitates participation by the private players. Such a strategy should aim at aligning diverse state and central government policies, set targets for the growth of this sector, chalk out roles for the public and the private sector, focus on infrastructure development and facilitate the entry of new players in the logistics industry. Regulating the sector to bring about uniform service standards: Today, a wide gap exists in the services being offered and the pricing of various industry players. A regulatory authority that specifies minimum service standards and benchmarks pricing

can be instrumental in establishing a uniform service standard in India's logistics and warehousing industry. Granting industry status to logistics can address inefficiencies: Several inherent inefficiencies can be addressed by granting an industry status to the logistics and warehousing sector. This may also encourage public-private partnership and increase the government's focus on this sector. Such a step will also help in the consolidation of this industry and provide it better access to finance. Amid a booming economy and a surge in demand for logistics and warehousing activities, many logistics companies are reinventing themselves and targeting at larger roles. With bottom-lines strengthening, the sector is attracting both public as well as private equity. This should help enhance the service offerings of the sector as well as help existing players diversify into new business areas. Traditional Indian logistics players are now organising themselves in order to become more scalable both nationally and internationally. Analyst attribute this change to the ongoing retail boom in the country that is creating huge business opportunities, with the added advantage of being exposed to the latest technology in the field of logistics. The entry of global firms such as UPS, TNT, NV and DHL International GmbH has made domestic players more competitive and quality-conscious. Over the next five year, 3,500 acres of land is scheduled to be developed as logistics parks and warehouses. Therefore, real estate decisions will play a crucial role in developing the competitive strength and enhancing the effectiveness of logistics players. Historically, warehouses have been located in close proximity to primary markets. However, the abolishment of CST and an improvement in infrastructure would enable companies to realign their supply chain and move closer to consumer markets. This changing business dynamics and evolving regulatory framework has given rise to new emerging locations. As a result, demand for real estate will no longer be restricted to only the existing primary logistics hubs in the country. Since almost one-third of the total realty development in the sector is expected to take place in emerging locations, many tier-2 and tier-3 cities that offer good connectivity to multiple markets will witness increased activity from logistics players, providing a thrust to the real estate market. While we are witnessing rapid growth of the logistics and warehousing industry, a number of bottlenecks continue to restrain the development of this sector. India's transport network growth, for instance, is still not been able to keep pace with the country's booming economy. While several initiatives like rationalisation of taxes and investment in infrastructure have been undertaken, a lot remains to be done as far as organising and modernising this sector is concerned. Granting an industry status to logistics and warehousing sector, efficient implementation of infrastructure projects, simplification of the regulatory structure and availability of skilled manpower are critical to the growth of the Indian logistics industry.

Modern retail stores, supermarkets and hypermarkets can only be successful if they are backed by a robust logistics infrastructure. Similarly, India's dream of becoming a manufacturing hub to the world may well remain a dream if the logistics infrastructure does not keep pace with the growth in other sectors in order to enhance the country's existing cost arbitrage. In short, the growth of several industries and their costcompetitiveness vests squarely on the growth and development of the logistics and warehousing industry. An increased focus on this sector by both the government and the private players will go a long way in strengthening the 'India advantage' and helping the country achieve its foretold position of a super power.

Real Estate Spiral Affect In Financial Crisis Global Turmoil Adding to Woes of Domestic Real Estate Sector
Currently, markets are characterised by a flight to safety, credit crunch, and fears of the crisis spilling over to the real economy. This turbulence was preceded by rapid hikes in interest rates to contain inflation, higher construction costs, and plummeting business volumes on the back of poor affordability and unwillingness of developers to cut prices. Further, due to the negative economic environment, fear of job uncertainity or pay cuts may prevent prospective buyers from undertaking new liabilities, which could reduce the pace of new property transactions. Domestic eal estate developers had entered into large commitments when volumes were buoyant, on the back of easy availability of finance and active involvement of speculators in property markets. However, the recent months have seen a significant reduction in business volumes, severely straining cash flows of developers. Significant hopes had been pinned on strong demand in the festive season, which did not materialise. Consequently, developers are leveraged in a tough operating and funding environment. In September 2008, we had conducted a nationwide property brokers poll, wherein 90% of respondents confirmed a decline in transactions, whereas 80% had indicated a decline in inquiries. Interest rates have increased; home loan disbursements have slowed down Interest rates have increased sharply by 260bps between 2004 and 2008. On a 15-year loan of INR 1 mn, the impact on monthly mortgage payments has increased 15.8%, from INR 10,084 per month to INR 11,682 per month. Additionally, there is a marked slowdown in home loan disbursements. Prices have been sticky on the downside; volumes have collapsed In spite of a dip in business volumes, developers are not willing to cut prices. Poor affordability: A concern

A key concern on the Street is that property prices are too high and unaffordable. Further, prices are expected to correct by 15-25% over the next few months. A school of thought also believes that such a correction will scare away buyers, driving prices still lower, pushing the property market into a multi-year cyclical downturn, like the one between 1996 and 2003. While the property outlook in the near term is uncertain and pessimistic, we step back and examine relative affordability. Affordability needs to improve At current levels, we believe, properties are overpriced by about "p20%, as has been ascertained using house price-to-disposable income and EMI-disposable income ratios as a measure of affordability. The house price-to-income ratio currently stands at 5x, against a low of 4.3x in 2004. The EMIincome ratio currently stands at 54% vis--vis 39% in 2004. We believe, an EMI-income ratio of 40% is fair and sustainable. Taking into account an anticipated decline in interest rates and zero income growth in 2009, we estimate an over pricing of "p20%.

Key driver of demand sentimentjob generationat risk With a tight liquidity situation and an uncertain economic environment, expansion plans of companies have been put on hold and fresh recruitments have slowed down considerably. We believe, this will impact buyer sentiment in the near term and demand is likely to be deferred, impacting volumes in the near term. For instance, the IT sector is expected to make net addition of only 160,000 in FY09E compared to 300,000 in FY08. Pay hikes have also been muted at 5-8% compared to 15% plus earlier. Further, the aviation sector is also experiencing consolidation; this phenomenon is likely in multiple sectors, dampening end-user demand. Developers had earlier ramped up operations Real estate developers had been ramping up operations with increase in area under execution and greater deliveries than before, reflecting esrtwhile strong demand in the sector, as well as the ability of developers to deliver projects. We believe, developers who will be able to weather the current turbulent environment will be in a strong position to capitalise on the strong growth opportunity presented by the Indian real estate sector. Revenues expected to slow down Revenues of real estate companies have grown robustly over the past three-four years. Players like DLF, Orbit, Anant Raj, and HDIL have been growing by more than 100% every year. We, however, expect revenues to be hit in the future. High leverage a cause for concern

During the boom, developers had rapidly increased their scale of operations through debt, deferred land payments, and customer advances. However, as the tide turned, banks tightened lending to the real estate sector, property investors withdrew, shutting the tap on customer advances. Consequently, developers are saddled with a high leverage, which is a cause of significant concern. Valuations Have Collapsed The real estate sector was one of the best performing domestic sectors in CY07, led by an expanding economy, jobs growth, and a strong consumer sentiment. The BSE Realty Index (launched in July 2007) had delivered "p88% return in six months. The emerging liquidity crisis, rising inflation, adverse affordability, drop in business volumes, and funding concerns led to a steep correction of "p83% in the Realty Index in subsequent months. Valuations at lower end of trading range After the steep 89% correction (from Jan 14, 2008 to date) in the realty index, select real estate companies are trading at attractive valuations. Many of them are trading at less than 0.5x FY08 book value, which is at the lower end of the 0.3-2.0x book value range that international real estate companies have historically traded between. However, the sector is likely to be charaterised by price declines (~30% over next 24 36 months) and possibly negative news flow of capitulation of property speculators and of over leveraged developers. Volumes are likely to remain sluggish in the near future and resumption in demand will be a key trigger for stock performance. Domestic Real Estate Sector: Attractive in the Long Term Current environment notwithstanding, the domestic real estate sector still presents enormous opportunities. The residential segment is driven by rising population, urbanisation, nuclearisation, and low penetration of housing finance. Further, according to the Eleventh Five Year Plan (2007-11), total housing shortage in the country is around 24.71 mn. The retail sector is slated to take a quantum leap on the back of rising penetration of organised retail. The office segment still lacks sufficient stock of quality office space in India and the rentto-sales ratio of the Indian corporate sector is very low compared to other countries like the US, UK, Germany, and China. Rising population and growing urbanisation to boost demand India is the second most populous nation in the world, with around 1.12 bn people. Further, according to the United Nations Department for Economic and Social Affairs, Indias population is estimated to grow at a CAGR of 1.6% to 1.38 bn by 2020, adding ~20 mn annually. UN estimates India to become the most populous nation in the world by 2025. Currently, only 29.5% of the Indian population is urban and enjoys 67.5% of

Indias surplus income. UN estimates Indian urbanisation to reach 34.3% by 2020, growing at a CAGR of 2.8% to 472.6 mn. This will result in an addition of 142 mn people to the urban population by 2020. Further, by 2050 the urban population is estimated to constitute 55% the total population. This urban population is likely to drive demand for residential housing. Nuclearisation to keep demand buoyant Rapid urbanisation of families has been accompanied by a reduction in the household size. The household size in 2005-06 was estimated at 4.8 according to a National Family Health Survey (NFHS) against 5.3 in the 2001 census. Household formation at a rate faster than rise in population is likely to keep demand for houses robust. Deferment of new launches to reduce expected supply Due to an uncertain business environment and lack of funding options, developers have started deferring launches of their planned projects. This is likely to reduce expected supply in the near term. For instance, DLF, Unitech, and Puravankara have stated that their focus will be on executing ongoing projects. Likewise, there was a press report (November 4, Mumbai Mirror) recently which highlighted that fresh proposals with the buildings department have declined from a weekly average of 150 to just 15 in the past four months. Mr. Kumar Gera, President CREDAI, has also been quoted as saying that supply has been reducing 30% on a month-on-month basis. Down cycle unlikely to stretch beyond 24-36 months There is a concern that the Indian property market will witness a multi-year low. On the back of the previous down-cycle experience, which lasted from 1995 to 2004, the conclusion being drawn is that the current down cycle will last for eight-nine years. We, however, disagree with this assessment and believe that it is not likely to stretch beyond 24-36 months.
o Excesses built in previous up cycle were significantly higher

The 1995-2004 down cycle followed a period where the affordability ratio (house priceto-annual disposable income) was very high at 22.0x. The ratio corrected through the down cycle from its peak of 22.0x in 1995 to 4.3x in 2004. Currently, it stands at 5.0x, implying limited downside. If we adjust the affordability ratio for the impact of interest rates, we note that EMI/monthly income disposable ratio stands at 54% against a peak of 316% estimated in 1995 and a bottom of 39% in 2004, indicating that excesses (in price terms) built in this cycle are relatively smaller. Retail segment: Incremental demand likely to be at ~120-140 mn sq ft

The emergence of large format retail stores has added a new dimension to retailing in India. Compared to the earlier format of kirana stores (mom-and-pop grocery stores), the new format allows a greater flexibility to customers in terms of examining products at ease, single-point-billing-on-exit, and a climate-controlled environment. Given the clear benefits afforded by the format, the sector grew rapidly in its first few years of launch. However, the organised retail sector is still in infancy, with a penetration of ~5%. We believe, rising penetration of organised retail will lead to large demand for retail space. We expect the share of organised retail space to total retail space to increase to 10% by 2012E from ~5% in 2007. Thus, with an increase in total space required and expected increase in percentage of organised retail to total retail space, incremental demand for retailspace is expected to be significant at approximately 120-140 mn sq ft. Retail rentals expected to fall Retail rents have increased sharply in most catchments, impacting the profitability of retailers as rents are a key cost component. We believe, rents that were being demanded were quite high and a correction of ~35% is due. Office space: Pain in IT/ITES sector In the past three years, office rents have increased significantly, by an average of 8090%, raising concerns that businesses will not be able to sustain on such high rents. While this is true for IT/ITES companies, we do not believe this to be true in case of most other companies. We have analysed the trends in rent-to-sales ratio for BSE 200 (ex IT/ITES) and for BSE IT/ITES (ex Infosys, TCS, Satyam, and Wipro) companies to understand the impact of increase in rents in the past few years. We conclude that for most businesses, rental expense is not very material in relation to the revenue (non IT/ITES companies have seen a decline in the ratio). However, the rent-to-sales ratio has increased significantly in case of IT/ITES companies. Impact of increase in rentals on non IT/ITES companies Rent as a percentage of sales of BSE 200 companies is currently at 0.80% against 0.93% in 2004. Moreover, this ratio is much lower than that for global companies, which ranges between 1.00% and 1.50%.

Historical Trends Indicate P/BV Valuation is More Apt The international real estate developers valuation history to understand how they have been trading over an extended period of time. One observe that they have historically traded between 0.5x and 2.0x forward book value. NAV approach, analysts arrive at their NAV estimates, making comparisons difficult with reported financials. In case of PER approach, earnings are lumpy and different

companies following different accounting norms make comparisons and valuation on PER basis less reliable. However, in case of the P/BV approach, the multiple is applied on the book value of the company, which is more stable than the companys earnings, and since the comparison of a target price is with respect to reported numbers, valuations and estimates are more comparable. A possible concern with this approach is a case where a company has a historical low cost land bank. Our valuation model addresses this approach adequately as the benefit of historical low cost of land is reflected in higher return on earnings (ROE), implying higher multiple and, therefore, higher valuation. Likewise, a developer with a high cost land bank will have a lower ROE; hence, a lower multiple and lower valuation. We believe, domestic developers should trade at higher multiples than international developers, given the stronger growth prospects in India and the lower leverage of the Indian consumer. Multi-Location Strategy Key to Sustainable Growth A multi-location strategy and diverse product portfolio provide sustainable growth, as they help developers increase volumes and revenues without depending on a single market. We believe that developers that have a multi-location and multi-product strategy will be better positioned for growth post the recovery. We examined a sample of top 15 real estate developers (ranked by turnover) across the world and studied whether they follow a multi-location or single location strategy. We found that all the top 15 developers have multi-city presence across the country of domicile and/or across countries, which leads us to conclude that a multi-location strategy provides a greater impetus to growth. It helps increase volumes and revenues without depending on a single market. DLF, Unitech, Parsvnath Developers, Sobha Developers, and Indiabulls Real Estate are the listed Indian real estated developers with a presence across multiple geographies. Developers that will successfully withstand the tough environment, will be posied for growth with several growth engines in place. We Prefer Large Players with Strong Balance Sheets We are bullish on the Indian real estate sector from a long-term view. However, in the near term, volumes have collpased in a deteriorating environment, leaving developers leveraged. In the near term, we expect prices to correct (~20% for residential sector; ~35% for IT and retail). We also expect developers to deleverage their balance sheets. The impending consolidation in the sector is likely to impact valuations in the near term. Given the tough environment, we favor developers who are better positioned to ride the down cycle. Key attributes that we favour are large size, players with good recall and credibility with customers, players with attractive land parcels, flexibility to offer diverse products at different price points, and strong balance sheets.

Analysis
y Size o Real Estate and Construction is a $12 billion (by revenue) industry in

India. o The industry has seen a rapid growth in the past few years.

y Structure o In India, Real Estate sector is fragmented market o Most real estate developers have only a local or regional presence - There

is participation of large corporations in these sector

o India has higher margins (20%) as compared to the developed markets (5-

6%)
o Institutional finance in Real estate is just beginning. o Various foreign Real Estate and Finance companies like GE Commercial

Finance, Tishman Speyer, Ascendas and Farallon Capital have entered the Indian market.

y Growth Rates o Real Estate sector is growing at an Compounded annual growth rate of

30% o Returns in India range between 12-15% compared to 3-4% in the advanced countries.

y Driving Forces Of Indian Economy o An economy with GDP to 6% p.a. in a worst case scenario talks about the

potential the Indian Market has to rebound to An Accelerated Developed Economy

o Indias emergence as an attractive off shoring destination and availability

of pool of highly skilled technicians and engineers

o Development of large captive units of major players include GE,

Prudential, HSBC, Bank of America, Standard Chartered and American Express

o Rise in disposable income and growing middle class, increasing the

demand for quality residential real estate and real estate as an investment option. o Relaxation of legal rulings and processes by the governing bodies encouraging investments in real estate o Improvement in infrastructure facilities o High growth with demographic dividend will increase savings, improving investment

y Tier I cities, Mumbai (Commercial hub), Delhi (Political hub) and Bangalore y y y y y

(Technological hub): Preferred option for many new market entrants Command the highest international profiles and significant proportion of FDI Offer qualified labor pool and the best infrastructure facilities Exhibit development of sub-urban commercial real estate Yield of 9.5 10%

y Tier II cities, notably Hyderabad, Chennai, Chandigarh, Kochi, Mangalore,

Mysore, Thiruvananthapuram, Goa, Bhubaneswar, Ahmedabad and Pune o Yield of 10.5-11.5% o Offer competitive business environments, human resources availability, telecommunications connectivity, quality of urban infrastructure, o Attract high value IT, ITES and biotech corporate houses

y Tier III cities, like Cuttack and Jaipur y Low liquidity and still highly unorganized.

y Special Economic Zones y 28 operational SEZs in the country, including those converted from Export

Processing Zones (EPZ) to SEZ

y As the GDP increases the real estate prices also increases because there is a

high degree of positive correlation between the real estate prices and GDP.

y Real estate prices also increases with increase in the per capita income as there

is high degree of positive correlation between these two also.

y The infrastructure of India is also growing day by day so it adds to the better

facility to different sectors which affect the real estate prices.

y The FDI into the country affects the real estate FDI and real estate having a

positive correlation leads to the boom in this sector. Increase in FDI from 2006 to march 2007 is 10%. Earlier it was 16% and now in 2008 it is 25%.

y The interest rate also affects the real estate prices because it affects the lending

and borrowing by the investors.

y The growth in the real estate sector is between 25-30% in a residential sector,

10-15% in commercial sector and agriculture sector.

y Housing sector constitute 80% of real estate in terms of value and 20% by

commercial sector.

y In residential segment, availability of easy home finance and rising purchasing

power has driven the growth. Builders are launching high-end, life style residential products to cater to the growing bunch of high net worth individuals.

y In 2008 the growth of real estate sector is going down due to high inflation and

hike in home loan rates by the banks following the increase in bank rate and SLR by the RBI.

y The outsourcing and IT/ITES industry have contributed to the demand for quality

office-space. The estimated demand from IT/ITES sector alone is expected to be 150mm sq. ft. of space across the major cities by 2010.

y Urban Land Ceiling Regulation Act should be uniformly discontinued from all

central and state government for helping in provisioning of land resources for real estate developments

y Poor record keeping and outdated complaint processes is prevalent in 90% of

the lands in India which do not have clear title. Thereby ownership is unclear, thus creating a scarcity of land .

y A High Stamp Duty And Registration has encouraged sellers to pay stamp

duties, instead of trying to cheat the government, thus increasing the revenue for the country. The high duties have also encouraged unaccounted money being used in most real estate transactions in India resulting in increased corruption .

y Obsolete tenancy and rental control laws keep a large part of the urban

properties off the market . The rental laws must be revised to protect the owner and his/her property from the tenant. The tax laws must be revised to make renting of properties a financially viable option.

y The level of foreclosure for the housing finance companies are relatively low at

around 1.5 to 2%, these must be revised and made up-to-date to suit the current context.

y There are several building guidelines and standards in various cities and states,

however they are neither followed by the developers nor implemented by the authorities.

y In India development and planning concerned with real estate sector is not up to

the mark. The city or state authorities must use professionals to plan and execute all development plans for cities and towns, with future development in mind. This must be done without political compulsions.

y The Indian property market has low transparency when compared to the more

mature and developed real estate markets. Although market transparency has improved, reliable and consistent information on the Indian property market is still not easily available.

y Realty sector is growing at the rate of 30% per annum to reach $45-50 billion by

2010.

y IT sector alone is expected to require 150 million sq ft of space across major

citites by 2010.

y Organized retail has the potential to add over US$ 45 billion business by the year

2010.

y This will create a demand of 220 million square feet of retail space by 2010.

y India will have 2.9 million hotel rooms by 2010 as compared to todays 1.2

million. The demand for hotels rooms will grow at a compounded annual growth rate of 10% over the next five years.

y It is projected that the market size will be $90 billion by 2015.

y IT and ITES sector are expected to continue to grow at 30%. It is estimated that

additional 367 million square feet of office space will be required by 2012-2013.

y A revenue of $333 million was generated from 1,80,000 medical tourists in 2004

and it is expected to rise to $ 2 billion by 2012.

y Construction industry is currently worth $70 billion and would rise to $120 billion

by 2010.

y Interest rates, inflation and exchange rate risks are amongst the important

macroeconomic indicators and have shown varied volatility. These risk factors are not likely to disappear in the near future, impeding the development of the real estate sector.

y The time required for liquidity of real estate property can vary depending on the

quality and location of the property.

y The real estate sectors profit margins, credit metrics and cash flow will continue

to come under pressure as the housing environment remains tough in the short term. Profit margins in the real estate industry may be affected by lower selling prices and the overall change in developers business strategy, with an increasing focus on lower-margin mid-to affordable housing

y Overall debt level of real estate companies to increase in 2009, as developers

largely depend on debt to fund their expansion because internal cash flow sources and customer advances have almost dried up; this could result in increased financial leverage (debt/EBIDTA).

y There is a clear shift of focus from the higher-margin luxury segment to the

lower-margin but high-volume mid-to affordable housing segments. Developers are banking on strong demand for mid-segment and affordable housing, with almost all developers countrywide announcing significant plans in these segments during the last six months.

y The companies in the real estate sector have leveraged substantially over the

last two to three years, to augment their land banks and increase the areas under construction based on overly optimistic demand projections. The expansion plans were largely funded by short-term to medium-term debt. As a result, developers face substantial debt redemptions in the short term.

y The fiscal and monetary measures are unlikely to be of much help unless banks

boost lending and real estate companies reduce prices, improving demand in the embattled sector.

y Rising interest rates mean higher cost of capital and reduced project net present

value assessments. This phenomenon is already visible and leads to lower project and land valuations. Project breakeven periods are also likely to get extended.

y An oversupply situation would translate into longer absorption timeframes

resulting in longer project gestation periods.

y All developers operate with the strategy of construct, lease and sell so the

industry average holding period for A-Grade office space assets is less than three years and there is little focus towards creating assets with longevity.

y A volatile external environment, fundamentals of the domestic real estate

industry have sharply deteriorated with rapid hikes in interest rates, rising construction costs, and plummeting business volumes on the back of poor affordability and unwillingness of developers to cut prices

y Accentuating the worsened demand scenario is the current negative economic

environment and risk to jobs growth. Consequently, developers are leveraged in a tough operating and funding environment.

y The Growth of Indian Manufacturing Sector through the developments of SEZs ,

industrial Corridors And Township is expected to create a significant impact on real estate market .

y Global players like private equity funds and JVs between Hilton-DLF, Emaar-

MGF-Accor and Nirmal Lifestyle-Accor will mature with 175 plus hotels being constructed within next five years.

y RBI raised risk weight on exposures to CRE from 125 per cent to 150 per cent

y Credit to housing loans expanded by US$ 12.4 billion (38.0 per cent)

y Loans to other real estate increased to US$ 3.12 billion at a growth rate 94.7 per

cent

y Share of real estate in financial institutions lending to sensitive sectors increased

from 88.9 per cent to 90.8 per cent

y National Housing Board (NHB) set up a Technical Advisory Group (TAG) to

evaluate the feasibility of a real estate price index.

y With a rapid influx of migrants in these cities there is a corresponding increase in

the demand for space. Rapid urbanisation is ffostering real estate growth in India.

y First-time home buyer numbers have multiplied over the years and the median

age of home buyers has reduced from 38 years in the early 1990s to about 28 years today.

y Government of India habitat policy will translate into large scale development in

this segment. to offer housing to burgeoning population and demand for affordable housing.

Tax Environment For Developers Industrial Parks

o 10 year tax holiday (in a block of 15 years) on profits derived from

developing, developing & operating, maintaining & operating industrial parks in India, developed before March 31, 2010 o Tax holiday available subject to obtaining Government approval under Industrial Park Scheme, 2002 & subsequent notification by Central Board of Direct Taxes

Special Economic Zones

o 10 year tax holiday (in a block of 15 years) on profits derived from

developing SEZs in India, notified on or after April 1, 2005 (as per SEZ Bill 2005) o Tax holiday available subject to obtaining Letter of Permission from Board of Approvals in the Ministry of Commerce and notification by Central Government.

Housing Projects
o Income tax holiday available to housing projects approved by local

authority before March 31, 2009

o Construction of project to be completed within 4 years from end of

financial year in which approval is obtained.

o Residential unit should have maximum built up area of 1,000/ 1,500 sq ft

(based on city of location)

o Project should be on a plot of land which has minimum area of 1 acre o Built up area of shops & other commercial establishments included in

housing project not to exceed 5% of aggregate built up area of housing project or 2,000 sq ft.

Tax Environment For Investors

Sec 10 (23G)
o Income from dividends, interest and long term capital gains by companies/

trusts from investments in shares/ long term finance (more than 5 years), of specified infrastructure development companies (e.g. engaged in industrial parks, hotels, housing projects, etc) is tax exempt o However, MAT may apply on such income of investors computed @ 8.42% of book profits o In order to claim above exemption, the project company should be notified by CBDT Sec 115O
o Domestic companies declaring dividend liable to pay dividend distribution

tax (DDT) @ 14.025%

o DDT is in addition to regular corporate tax payable by companies @

33.66%

y Service tax in relation to construction of residential complexes having more than

12 houses has been imposed.

y The Government signing up of more Free Trade Agreements ( FTAs) with other

countries in the interest of the Real Estate Segment should consider the Domestic Players .

y A need of The State Governments should abide by the Central laws regarding

the issuance of Form-C.

y Real Estate Investment Trusts (REITs) invest in real estate much in the same way as

mutual funds invest in securities. To date, foreign REITs are not allowed to operate in India.

y No extension of tax holiday for small sized housing units

y Increase in tax deduction from 20 to 40 per cent for Public company finance for

construction/purchase of houses

y No pass through status for venture capital investments

y 100 per cent tax holiday for 5 years for hotels & convention centres in NCR if

they start functioning before March 31,2010

y Corporate tax increases from 33.66 per cent to 33.99 per cent due to Secondary

& Higher Education Cess

y Fringe Benefit Tax (FBT) imposed on ESOPs

y Tax holiday conditions made stringent to prevent existing business to migrate to

SEZ

y NHB to introduce reverse mortgage

y Senior citizens to receive monthly income against their property

y Regulations for mortgage guarantee companies

y Guaranteeing mortgages on the behalf of the banks and finance companies

y Excise duty decrease on cement costing less than US$ 4.6 and increased duty

for cement costing more than US$ 4.6 per bag

y Service tax proposed to be levied on services relating to renting of immovable

property

y Service tax is proposed to be levied on services relating to execution of a works

contract as an additional service category

y Levy of Secondary and Higher Education Cess at the rate of 1 per cent on

customs, excise and service tax

y Probability of large organized developers reducing prices is low except

freebies, flexible funding options to boost demand

y Solid private equity interest for Indian property, but moderating flows will increase

pressure on stocks

y Potential increase in interest rates to counter inflation, market slowdown in the

IT/ITES sector and political changes resulting in regulatory risks and execution delays

Recommendation
y A need to completely overhaul the union and state legal system governing

various aspects of real estate

y Reduction and rationalization of stamp duties will ensure greater compliance and

enhance revenues for the government. Stamp duty is extremely high and must be rationalized and brought down to 2 to 3 % as per global practice.

y Sustained initiatives by the Central and State Government towards

legal/regulatory reforms have been taken with a view to create an enabling environment. Initiatives like Repeal of Urban Land Ceiling & Regulation Act, 1976, formulating Model Rent Control Legislation, Model Apartment Ownership Legislation and the Model Property Regulation Bill for States to adopt subject to local variations

y A need to open up more avenues to facilitate long-term finance for the housing

sector

y Computerizing land records and circulation of and access to this database, would

be one of the most useful features of reform in this country

y Foreign design and consultancy companies should be encouraged to set up

offices in the country to introduce world class designs and technology.

y Public-Private partnership (PPP) in housing & infrastructure development is

imperative for rapid growth and must be encouraged and facilitated. FDI in PPP and Group Housing Schemes should be encouraged to give a fillip to the concept of housing for the Economically Weaker Section.

y Government should increase land supply, through faster release of government

land and through improving the turnaround time required for land clearances.

y Due to high prices the lower income group is not able to purchase the land, so

govt. should take measures to protect the lower income group.

y The agriculture land covered into the commercial and residential purpose. But

the population is also increasing day by day. So govt. should steps for the same.

y The investors should analyze the type of land in which they are going to invest

and the potential returns from it.

y Privatization of Airports and ports needs to be speed up for reaping the benifits of

Real estate services. y There is a lack of proper data and management of the real estate sector so government should take the corrective steps in this regard so that the proper estimation and management of the real estate can be made possible.

y Commonwealth is scheduled for 2010. Hotels, sport stadiums and other

infrastructure to have successful games need to be expedited. This is another

great opportunity for foreign developers and investors to step in India. Thus more and more encouragement should be given to foreign investors.

y Due to lot of investment avenues in real estate in India, fraud cases are also

increasing day by day like in Delhi deconstruction of buildings. Thus careful measures and laws should be enacted to deal with these types of situations.

y Residential Complexes

o There is significant demand in residential segment o The residential market is growing because of rapid increase in salary of

young professionals.
o Easy access and availability of finance has further fuelled the market. o A shortfall in urban areas of over 19.8 million housing units. o By 2030, India will need 10 million new housing units per year. The

government is targeting 700,000 units to be built in urban areas each year o One expect residential prices to be appreciate by 25% in class II cities and 30%- 35% in class III cities over the next 2 years y Office And Industrial Estate o There is continuous growth in the demand of commercial space due to rapid expansion of IT / ITES sector which is growing at more than 30% a year. o IT/ITES sector accounts for 75-80% of total office space demand in India. o The capital values of commercial office will appreciate by 30-40%. o IT and ITES industry has currently employed 1.3 million and it is expanding by over 2,00,000 jobs per year ( which means additional office space requirement of more than 20 million sq ft per year.)

o However, development focus is expected to shift to suburban areas, Tier II

andTier III cities, as Tier I cities has become more expensive due to lack of space. o Also, the BPO industry is growing at a very fast pace. It is expected to touch $17 billion by the end of 2008 and the office space requirement will be 367 million sq ft by 2010 y Retail o The Indian retail market is USD 240 billion and is growing at 6-7% annually. It is expected to reach USD 306 billion by 2010. o The size of organized retail market is USD 10.5 billion or 4.4% of total retail market. o New domestic & international entrants will drive the growth in the market.
o

o India has huge potential for retail expansion due to favorable

o o

o o

demographics, increasing urbanization, rising disposable incomes, low interest rates, brand competition and youth culture. And this can be seen by players entering in this segment which includes Reliance, Bharti, Birla, etc. 65 million square feet of space will be required for retail expansion. Reliance has plans to open 1000 hypermarkets and 1500 super markets in phased manner Joint venture of Bharti and Wal-Mart is also expected to boost the realty market. Organized retailing will focus on smaller cities (of over 1 million population), which are still largely unexploited. 700 new malls are coming all over India out of which 40% is concentrated in smaller cities. Relaxation of FDI ceiling rate has made international real estate developers come to India

y SEZ o SEZ is the new destination for real estate investors. Currently 150 SEZs

are approved out of which 85 SEZs are in the IT/ITES area and 10-15 SEZs in the electronics area. o 130 SEZs are developed by real estate developers which constitute of about 50% of the total SEZ area.

o However, the manufacturing and engineering sector has mere 17 SEZs in

the approved category based in Haryana, Karnataka, Punjab, Maharashtra, Andhra and Gujarat. o IT SEZ should be developed and made operational within the period of six months from the date of notification. Thus, 130 approved SEZs would result in investment of US$10 bn to US$ 12 bn immediately.

y Hotels & Hospitality o There was 4.5 million foreign visitor arrivals this year. o Foreign tourist arrivals has grown by 10-15% in the last one year. Tier II

cities like Jaipur, Gurgaon, Hyderabad, Pune, Bangalore are seeing growth both in occupancy & room rates. Occupancy is around 75-80% , room rates are up by 15-20% in these markets. y Cause Effect scenario of growing market demand and greater availability of information would help in achieving the organised real estate market in India o Realization of large commercial projects o IPOs by developers o Gradual organization of the markets in the Tier I cities y Emergence of transparency and liquidity y Entry of international real estate consultancies o Governing legal framework relaxed o Competitive pricing

y Real estate decisions will play a crucial role in developing the competitive

strength and enhancing the effectiveness of logistics players because 3,500 acres of land is scheduled to be developed as logistics parks and warehouses over the next five years .

y The residential segment is driven by rising population, urbanisation,

nuclearisation, and low penetration of housing finance; the retail sector is slated to expand rapidly, driven by rising penetration of organised retail; the office segment still lacks sufficient stock of quality office space, so any developers who will be able to withstand the current environment will be in a strong position to capitalise on the strong growth opportunity in the domestic real estate sector.

y A multi-location strategy and diverse product portfolio provide sustainable

growth, as they help developers expand volumes and revenues without depending on a single market. So developers with a multi-location and multiproduct strategy will be better positioned for growth post the recovery

y Developers of considerable size, with attractive land parcels and strong balance

sheets. Other positive attributes are good recall and credibility with customers and flexibility to offer diverse products at different price points

y The Real Estate is a very wide concept and it is highly affected by the macro-

economic factors like GDP, FDI, per capital income, Interest rates and employment in the nation. Location is pivotal in real estate which affects the value and returns from the Real Estate. So India needs a stronger capital market base for property financing.

y The investment in Real Estate in India is a very good investment opportunity. But

one should be very careful while taking decision in this direction due to volatile inflation and interest rates. Legal issues should also be kept in mind while choosing a property.

y Progressive liberalization and easing of FDI norms in various sectors have paved

the way for growth in FDI. This has further led to burgeoning demand for office space from multinational companies and other foreign investors.

y Several other sectors such as financial services, biotechnology, telecom,

pharma, insurance, and consulting businesses are witnessing strong growth and have added to the rising demand. y Government promoting low-cost housing, developers may also start investing in the budget sub-segment. Overall as housing supply catches up with demand in the next few years the residential prices are expected to stabilise.

y Indian residential segment a considerable push, with the Indian SEZ Act allowing

for 65 per cent non-processing development that includes housing and other support infrastructure.

y The combination of rapidly rising household incomes and a growing middle-

income population has led to a striking increase in overall consumer spending which in turn has been driving the exponential growth of the Indian retail industry resulting in rising consumerism .

y Service Apartments is gaining ground in India driven by an increasing inflow of

expatriates and travelers staying for longer durations. Service apartments which are expected to become an integral part of the hospitality industry provide all the

luxuries and comforts of a hotel at cheaper rates and are becoming the preferred choice for those looking for a home away from home.

y Inland Container Depots/ Container Freight Stations offer services for handling

and temporary storage/warehousing of import/export laden and empty containers, carried under customs control y Customs Bonded Warehouses facilitate deferment of customs duties for imported goods till such time they are cleared into the domestic area or are exported

y Private/common warehousing facilities of 3PL and 4PL companies

y Specialised warehouses and cold storages and Free trade and warehousing

zones/logistics park

y The healthcare infrastructure market in the country is expected to grow at 14.5

per cent over the next few years.

o Health Cities: Large scale integrated development o Hospotels: combining the services of a hospital and a hotel

y A need for preparation of the draft Real Estate Management (Regulation and

Control) Bill will fructify into a definitive industry regulator and will solve the

long pending demand of bringing the real estate sector, property dealers and developers under the scanner of a real estate Regulator.

y Relatively limited social infrastructure currently in place is a significant barrier for

further economic development. Recently, however, it is an issue that has received more attention from the Government and the business community. This is an area that offers significant potential for private investors both domestic and international depending upon the revenue model adopted.

Bibliography
1. Seiler, J. Michael (1999), Diversification Issues in Real Estate Investment, Journal of Real Estate Literature, Vol. No. 07, Page 163 to 179. 2. Jackson, O. Thomas (2001), The Effects of Environmental Contamination on Real Estate, Journal of Real Estate Literature, Vol. No. 09, Page 91 to 116. 3. Benjamin, D. John (2003), The Environment and Performance of Real Estate, Journal of Real Estate Literature, Vol. No. 11, Page 279 to 324. 4. Malpezzi, Stephen, ````The role of Speculation in Real Estate Cycles, Journal of Real Estate Literature, Vol. No. 13, Page 141 to 164. 5. Focke, Christian, The Development of German Open-Ended Estate Funds, Journal of Real Estate Literature, Vol. No. 14, Page 39 to 56. 6. www.ibef.org 7. Federation of Indian Chambers of Commerce & Industry 8. www.deloitte.com/us. 9. Majmudar & Co., International Lawyers, India 10. www.site.securities.com 11. JLLN Indian Industrial Real Estate Landscape

12. Live mint and various other Journals