Real Estate Industry in India

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

Real estate involves the purchase, sale, and development of land, residential and non-residential buildings.

Overview
India is the second most populous country after China and it is expected to overtake it by 2030.

Its economic transformation over the past decade has pushed up real GDP growth to an average of 6 per cent per annum since 1992.
India is emerging as an important business location, particularly in the services sector. Historically, the real estate sector in India was unorganised and characterized by various factors that impeded organised dealing, such as the absence of a centralized title registry providing title guarantee, lack of uniformity in local laws and their application, non-availability of bank financing, high interest rates and transfer taxes, and the lack of transparency in transaction values.

Overview
Real estate industry is currently estimated to be US$ 48 billion, with a CAGR of 30 per cent

Total economic value estimated to be US$ 40-45 billion accounting for four to five per cent of the GDP
Growth driven primarily by IT/ITeS, growing presence of foreign businesses in India, the globalization of Indian corporates and, the rapidly increasing consumer class providing a huge market potential

Indian economy: Overview

Accelerated yet stable reforms process
Broad consensus on importance of reforms Reforms momentum continued despite changing leadership especially in areas of FDI & infrastructure

Robust economic fundamentals Fourth largest economy in the world in terms of PPP GDP growth rate of 9.4 per cent Forex reserves at US$ 204 billion Services sector accounts for more than 50 per cent of GDP, while manufacturing sector average growth is at six per cent, Fast improving socio-economic profile
Per capita GDP has increased by 66 per cent in the past five years Favorable demographics with more than 60 per cent of population estimated to be in the working age (15-60 years) till 2050 Growing lifestyle spending with increased expenditure on consumer durables, eating out and communications.

Indian economy: Overview

Increased foreign investment Indias policy on foreign investment has been gradually relaxed with sectors such as construction, telecom and banking allowed. Another route of foreign participation is portfolio investments. FDI inflows estimated to be US$ 19.5 billion in FY 2007 and US$ 7.5 billion in the first five months of FY 2008

Focus on infrastructure development India has a well developed road and rail network. Large investments are underway in areas of: - Highway development - Air-connectivity (Domestic & International) - Upgradation of ports with their privatisation - Power sector

Types of Real Estate

Residential Real Estate Development
Commercial Real Estate Development

Real Estate

Retail Real Estate Development Hospitality Industry Special Economic Zones (SEZ)
Infrastructure Development Projects

Types of Real Estate

Residential space The growth in the residential real estate market in India has been largely driven by rising disposable incomes, a rapidly growing middle class, low interest rates, fiscal incentives on both interest and principal payments for housing loans, heightened customer expectations, as well as increased urbanisation and growing number of nuclear families. These higher income households are expected to be the target customers for the luxury and super luxury residential developments.

Types of Real Estate

Growth Drivers Rapid urbanisation: Urban population expected to touch 590 million by 2030. Decreasing household size: Average increase in number of nuclear families estimated to be over 300 million (middle class population). Number of rich household growing at CAGR of 21 per cent. Increasing working age population (almost 64 per cent in 16-64 age group). Increasing income levels: per capita GDP increased by 66 per cent in last five years. Market Structure Highly fragmented and unorganized Regional players are expanding to achieve aPan-India presence Segmentation Broad categories include Low cost/Mid market/ Premium housing Luxury segment growing annually at 25-30 per cent Outlook Current shortage close to 25 million units, predominantly in middle and low income group Expected to grow at CARG of 18 per cent to 19 per cent upto by 2010 Mortage finance will be increasing penetration into the urban housing finance sector

Types of Real Estate

Commercial office space
The recent growth of the commercial real estate sector in India has been fuelled by increased revenues of companies in the services business, particularly in the IT and ITES sectors. Industry sources expect the IT and ITES sectors to continue to grow and generate additional employment, which they expect will result in increased demand for commercial space. Within the IT and ITES sectors, the Indian off shoring operations of multinational companies are expected to increase demand for commercial space. The trend for these companies has been to set up world class business centres to house their growing work force.

Types of Real Estate

Growth Drivers Growth in IT/ITES sector at 30 per cent annually (source: NASSCOM) Significant growth in FDI Market Structure Dominated by a few large national developers with pan-India presence Regional players are expanding to achieve a Pan-India presence Shift in the type of operations from Sale Model to lease & maintain model Segmentation Commercial Space can be classified broadly into Grade A and B Business activity shifting from CBD to SBD and from Tier I to Tier II & III Outlook Commercial market expected to grow at CAGR of 20 per cent to 22 per cent over the next five years IT/ITeS sector expected to require in excess of 250 million sq. ft of commercial office space by 2012-13

Types of Real Estate

Retail space

The organised retail segment in India is expected to grow at a rate of 25 per cent to 30 per cent over the next five fiscal years. The growth of organised retail is expected to be driven by demographic factors, increasing disposable incomes, changes in shopping habits, the entry of international retailers into the market and the growing number of retail malls. The major organised retailers in India currently include Lifestyle, Pantaloon, Shoppers Stop and D Mart.

Types of Real Estate

Growth Drivers Rising consumerism with doubling of disposable income Growth in Organized Retailing Entry of international retailers Market Structure Dominated by unorganised retail Large corporate houses entering the organized retail sector International retail brands are tying up with Indian partners Segmentation Organized retail contribution to the retail industry grew from 2 per cent in 2003 to four to five per cent in 2007 International retailers are present through franchisee route Outlook FDI norms are likely to be relaxed in next two to three years Oranised retail expected to grow at around 30 per cent Share of organised retail, by sales expected to reach 10 per cent by 2010 By 2012, 323 million Sq.ft. of new retail space will be required.

Types of Real Estate

Hospitality space The hotel industry in India has grown as a result of a growing economy, increased business travel and tourism. With increased demand and limited availability of quality accommodation, the average room rates in metropolitan markets have grown by approximately 50 per cent over the last two years, the exceptions being Bangalore, where the rates have more than doubled, and Kolkata, where they have risen only marginally notwithstanding strong growth in occupancy rates. The general increase in room rates and occupancy rates is expected to contribute significantly to the demand for new hotel developments.

Types of Real Estate

Growth Drivers More than 4.4 million international visitors and 430 million domestic tourist visits in 2006 Low cost airlines India recquiring recognition as a medical tourism destination International events such as Commonwealth Games Imergence of India as a MICE destination Market Structure Entry of several corporate houses such as Reliance Existing hotel operators are scaling up their opetations Developers are tying up with major international chains Developers have set up RE funds to finance their Ventures Segmentation Classification on the basis of Star Rating of 1 star to 5 star deluxe Number of approved hotel rooms: 1,10,000 (including approved projects), 30 per cent of this is in the five star segment Outlook Indian tourism industry to grow by eight per cent per annum over the next 10 years. Tremendous potential for budget hotels Service apartments, hospitals, wellness spas gaining popularity. International hotel chains have big expansion plans for India

Types of Real Estate

Special Economic Zones (SEZ)

SEZs are specifically delineated duty free enclaves deemed to be foreign territories for purposes of Indian custom controls, duties and tariffs. There are three main types of SEZs: Integrated SEZs, which may consist of a number of industries; Services SEZs, which may operate across a range of defined services; and Sector specific SEZs, which focus on one particular industry line.

Types of Real Estate

Infrastructure Development Projects Central and state governments in India are increasingly focused on infrastructure development. A significant portion of infrastructure development is expected to be undertaken through public-private partnerships, thereby increasing the flow of private capital into infrastructure projects. Key areas of infrastructure development include transport, power, telecommunications, ports, pipelines, sanitation, water supply and irrigation.

Demand Drivers
These trends have benefited from the substantial recent growth in the Indian economy, which has stimulated demand for land and developed real estate across the real estate industry. Demand for residential, commercial and retail real estate is rising throughout India, accompanied by increased demand for hotel accommodation and improved infrastructure. Additionally, the tax and other benefits applicable to Seas are expected to result in a new source of real estate demand.

The impact of macroeconomic factors on demand & supply of real estate

Economic Growth -Broad based GDP growth rate of 8-9 % per annum forecast - Demand driven by the growth in services sector - Growth expected to fuel demand across all the asset classes -Has significant role in supply-demand of real estate - Continues to remain a major concern - Inflation is at its lowest since last year -Growth is higher than RBI estimates - Liquidity is key to inflation and over-heating - Restricted availability to reduce options for builders/developers -Higher rates lead to higher cost of borrowing - Developers seeking other options, consumers are re-evaluating options - Investors are revaluing returns from the sector -Easy availability of capital has led to growth in valuations - Concern over exposure of Banks towards the sector - Restrictions have increased the cost leading to alternate sources like PE/VC -Liberalization of FDI has led to an interest from new players - Valuation standards and greater transparency - Service tax on commercial rental to affect retail space

Inflation

Money Supply

Interest Rates

Credit Take-off

Government Policies

Major Companies

India
North
- DLF Ltd
- Omaxe Ltd - Unitech - Ansal API - Parsvnath Developrs Ltd

West
- Godrej Properties Ltd
- K Raheja CORP - Oberoi Realty Ltd - Kalpataru Group - DB Realty

East
- Ambuja Realty
- Mbuja Realty - Merlin Group -PS Group -Hiland Group - Belani Group

South
- Sobha Developers Ltd - Brigade Group - Puravankara Group -Nitesh Estates - Prestige Estates Projects Ltd

Major Companies
North Region DLF Ltd Headed by: Dr Kushal Pal Singh, Chairman About: With a track record of 64 years, DLF is Indias largest real estate company in terms of revenues, earnings, market capitalization and developable area. It currently has pan India presence across 30 cities with approximately 238 million sq ft of completed development and 413 million sq ft of planned projects, of which 56 million sq ft of projects are under construction during FY10. Project Spectrum: Residential, townships, commercial complexes, IT Parks, hotels, multiplexes, etc.

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

Major Companies
North Region UNITECH Headed by: Ramesh Chandra, Executive Chairman

About: Established in 1972, Unitech is today Indias leading real estate developer in India. It is the first developer to have been certified ISO 9001:2000 in North India.
Project Spectrum: Unitech offers diversified projects across residential, commercial/IT parks, retail, hotels, amusement parks and SEZs segments. Unitech was the first real estate company to be part of the National Stock Exchanges NIFTY 50 Index. The company has over 600,000 shareholders. Unitech and Norway based Telenor Group came together to build Uninor - a telecommunication services company providing GSM services across India. Latest: Has ventured into the infrastructure business by launching Unitech Infra.

Major Companies
West Region K RAHEJA CORP Headed by: Chandru L Raheja, Chairman About: Incorporated in 1956, this Mumbai based real estate giant has been engaged in real estate development for more than four decades. K Raheja Corp has built residences, commercial buildings and hotels throughout India. The Group also diversified in the hospitality sector in 1981and in the retail sector in 1991. The company has several landmark projects to its credits across cities. Quick fact: K Raheja Corp has given a firm commitment to have all of its future projects undertaken anywhere in India to be Leed Certified Green Building Projects.

Major Companies
West Region OBEROI REALTY LTD Headed by: Vikas Oberoi, CMD About: Founded in 1998, the company was recently in limelight for its IPO. The Companys consolidated total income and consolidated net profit after tax and prior period items as restated were Rs8,054.95 million and Rs4,576.20 million for the year ended March 31, 2010 and Rs 1658.27 million and Rs797.96 million for the three months ended June 30, 2010. The company has presence in Mumbai and Pune. Project Spectrum: Oberoi Realty focuses on premium, single space and mixed used development across residential, office space, retail, hospitality and social infrastructure segments.

Major Companies
East Region AMBUJA REALTY Headed by: Harshavardhan Neotia, CMD About: Ambuja Realty has been providing housing in West Bengal, in a pioneering joint venture with West Bengal Housing Board for the past 15 years under the name Bengal Ambuja. The first real estate company in Eastern India to get ISO: 9002 Certification, in 1999, Bengal Ambuja has also earned them the highest developer rating in India - DRI from ICRA, in 2003. Project Spectrum: The Group has a diversified presence across segments like residential, retail, commercial and hospitality. The company is also planning an aggressive pan-India growth strategy to deliver an unprecedented number of high-quality projects. Currently, it is building more malls, hospitals, IT Parks, luxury resorts, business hotels and are even aspiring to build a University.

Latest: To invest around Rs500 crore in developing three shopping malls under the City Centre brand in Raipur, Haldia and Patna.

Major Companies
East Region HILAND GROUP Headed by: Nayan Basu, CEO

Credited with more than 50 multi-storeyed landmark developments adorning the skyline of Kolkata, the Hiland Group has today emerged as one of the most prominent developers in Kolkata.
Latest: The Group has also entered into a 50:50 joint venture with West Bengal Housing Board to form Bengal United Credit Belani Housing Ltd. Hiland Woods is the key project of this joint venture. It is a residential development catering to a mix of demographic profiles across LIG, MIG and HIG.

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

Major Companies
South Region NITESH ESTATES Headed by: Nitesh Shetty, MD About: Founded in 2004, Nitesh Estates is an integrated property development company headquartered in Bangalore. Project Spectrum: In just six years, the Company has brought more than nine million sq ft of space under development across housing, hotels, office buildings and shopping malls. The company is growing even faster with plans to expand its operations in other cities like Goa, Chennai, Hyderabad and Kochi. Nitesh Estates has to its credit a series of firsts: the first to win Indias largest corporate housing project (ITC Limited), one among the first few to attract FDI in real estate (Och Ziff and Citigroup) and has the distinction of bringing to India its very first Ritz Carlton. It has 27 ongoing and forthcoming projects in and around Bangalore and Goa. It has land bank of 19 million sq ft, which will be developed in the next 4-5 years.

Causes of Recession on Real Estate

Retail and IT sector had created a very fast pace of demand in Indian real estate sector which have gain a very high impact image of investing in India. Till October 2008 the real estate sector was a very booming sector in India. The impact of recession in US economy has badly hit Indian real estate market along with sectors like retail, steel, cement, hospitality and logistics

Causes of Recession on Real Estate

Because of lack of uniformity of land laws, slowdown and approval delays, the developers missed to complete their projects within the boom period. The banking sector had not reduced interest rates sufficiently. Banks rates were 10% to 12%. Increase in the price of cement, steel, sand, labor has effected the real estate sector .

Causes of Recession on Real Estate

Many companies has given pink slips to their employees. This has forced the employees to cancel their bookings and forego whatever deposit made by them to the builders. Banks and foreign investor had starts withdrawing their money from the market. Investment in real estate sector became stagnant.

Effect of Recession on Real Estate

The market rates in India were dropped by 10 to 30% in most of prominent as well as upcoming cities. Real estate slowdown affect revenue generation in country. Progress of ongoing project was very slow and the future project has been postpone. Owner want to sell their properties in any cost as a result bargaining power of costumers increased.

Recent Update on Industry

Industry Overview The real estate sector in India is on a growth path. The development in the real estate market encompasses growth in both commercial and residential spheres.

It has been estimated that there would be shortage of 26.53 million houses during the Eleventh Five Year Plan (2007-12), which provides a big investment opportunity, according to a report by the Technical Group on Estimation of Housing Shortage.
Emerging trends in Real Estate include Jodhpur, Agra, Punjab, Uttar Pradesh, Haryana, Madhya Pradesh, and Rajasthan among others. Industry Investment During 2010-11, the Indian real estate and housing sectors received US$ 1.12 billion in foreign direct investment (FDI), according to the Department of Industrial Policy and Promotion India (DIPP).

Further, the industry also witnessed growth in private equity (PE) investments as well. Around 20 deals worth US$ 1.32 billion took place during January-May 2011, as compared to 22 deals worth US$ 483 million during the same period last year, according to Venture Intelligence, a research service focused on PE and mergers and acquisitions (M&A).

Recent Update on Industry

Some of the major deals that were undertaken during the first five month of the current calendar year include investment of US$ 320 million by Jeff Morgan Capital in Compact Disc Indias film city project, investment of US$ 318 million by Warburg Pincus in Oceanus Real Estate and Ascendas Indias investment of US$ 190 million in Phoenix Infocity. Further, US$ 86 million was invested by Tata Realty in Peepul Tree Properties. Major Developments Phoenix Group, an infrastructure company, plans to invest around US$ 44.68 million in six real estate ventures in Hyderabad. Mumbai-based infrastructure and real estate company Atlanta is looking for a partner to buy 26 per cent stake in a US$ 2.12 billion entertainment township project it is developing at Suvali near Surat in Gujarat. Patel Realty India Ltd, a wholly-owned subsidiary of Mumbai-based publicly-held Patel Engineering Group, plans to launch 3-3.5 million sq ft of projects valued around US$ 66.48 million during 2010-11 across the country.

Recent Update on Industry

Phadnis Group plans to invest US$ 176.68 million in sectors such as real estate, hospitality and infrastructure in the next three years. India Property Fund, managed by NRI investor Purnendu Chatterjee's TCG Real Estate and US-based Vornado Realty Trust, will be investing US$ 60.32 million in two residential developments in national capital region (NCR) and Mumbai. Government Initiatives The Government has undertaken various initiatives to help the sector grow in the recent past. Some of the major government initiatives include: Allowing 100 per cent FDI in townships, housing, built-up infrastructure and construction development projects through the automatic route, subject to guidelines as prescribed by DIPP

Recent Update on Industry

In the Union Budget 2011-12, Mr Pranab Mukherjee, Union Finance Minister presented various initiatives for the real estate sector, especially focusing on affordable housing. Some of these initiatives include:

Raising the limit on housing loans eligible for a 1 per cent subsidy in interest rates
Widening the scope for housing under "priority-sector lending" for banks, making interest rates cheaper on them Earmarking substantial amount to the Urban Development Ministry for spending on extension of Metro networks in Delhi, Bangalore and Chennai Allocating US$ 20.03 million for the urban infrastructure development project. The Urban Development Ministry received US$ 1.5 billion, an increase of US$ 68.53 million from the last fiscal 2010-11. Increasing allocation for Bharat Nirman to US$ 12.89 billion. Bharat Nirman consists of 6 flagship programs, the Pradhan Mantri Gram Sadak Yojana (PMGSY), Accelerated Irrigation Benefit Program, Rajiv Gandhi Grameen Vidyutikaran Yojana, Indira Awas Yojana, National Rural Drinking Water Program and Rural telephony.

SWOT Analysis
Strengths
Attracting High FDI Inflow High Demand due to Urbanization Rising Middle Class Numbers

Weaknesses
High Government Regulation High taxes on Raw Material Availability of Finance

SWOT
Opportunities
Affordable Homes segment Rural India Housing

Threats
Competition Economic Inflation political instability

Key Opportunities
Missing asset classes and formats Logistics & Warehousing Booming trade, both International and Domestic Number of MNCs establishing Indian operations Agricultural logistics requiring creation of cold chain infrastructure Logistics required for large infrastructure and engineering projects Consolidation of warehousing if uniform tax regime is applied Healthcare Infrastructure Healthcare industry expected to grow at a CAGR of 11.6 per cent over the next five years Healthcare BPO is growing at steady pace Medical infrastructure expanding with one million beds to be added by 2012 Medical tourism growth driven by low cost and high quality services

Key Opportunities
Education Infrastructure Huge market with untapped potential and low competition Lack of enough world class educational institutions Driven by Knowledge based industries, large demand for qualified Engineers Research Laboratories adding value to Global outsourcing trend Growing interest of leading global educational institutions in setting up institutions in India

Low Cost Housing

72 per cent of the total population is still rural areas Current housing shortage of 22 million units at an estimated cost of US$ 88 billion Increasing shift from rented to owned house Easy access to financing Nuclear families increasing the demand for housing

Indian Real Estate: Road Ahead

The affordable housing segment is expected to play an important role in the growth of the real estate sector in India in 2011, on the back of increasing demand for such housing, according to the Confederation of Real Estate Developers' Associations of India (CREDAI). "Affordable housing will be a key factor in driving the sector and we have already started working on progressive solutions in this area for effective and customised implementation of such projects," CREDAI Chairman Kumar Gera said. Further, growth in the infrastructure sector is also expected to accelerate real estate activities, in commercial as well as residential segments, during this year.