NATIONAL INSTITUTE OF DESIGN INDIAN INSTITUTE OF MANAGEMENT AHMEDABAD

360 Pano
A report submitted to Instructor Prof. Rakesh Basant

Prof. Jignesh Khakhar Prof. Bhavin Kothari Prof. Deval

Academic Associate

Vijaya Rajeshwari
In partial fulfillment of the requirements of the course

NTADBM
On 15th August, 2012 By Akhil B Kushal A Sanjeev V Saurabh B

Contents Indian Real Estate Industry Rental Industry Recent trends in lease rentals What is 360 Pano? Why 360 Pano? Technical specifications of the product Revenue Model Exhibits References

Indian Real Estate Industry

Ever since the liberalization the Indian Real Estate industry has played a very important role in the Indian economy. The real estate industry has acted as a signal of the growth and prosperity of several regions within the Indian Territory. Currently, the real estate and the construction industry are playing a very crucial role in driving the Indian infrastructure sector forward. The Indian real estate industry has traditionally being dominated by smaller and unorganized players without access to institution capital. With the growth in the industry this scenario changed and currently it reflects the consumers expectations of high quality. It is only recently that this sector began to organize with the advent of larger players like DLF, Phoenix, etc. Through the years, Real estate industry has shown a phenomenal growth in several regions in India. There have been several factors responsible for the stupendous growth of the Indian Real Estate Industry. These are: Continuous growth of population: India has the second highest population in the world and a robust population growth rate on a large base. India is also a younger demography with an average in the mid 20s. This continuous growth in population ensures that demand for real estate always outscores the supply and keeps the industry lucrative. 2. Migration to Urban areas: Owing to the large rural and urban divide in India, more and more Indians are migrating to the urban areas causing the demand to increase exponentially in the urban areas. 3. Ample job opportunities in the service sectors: With the rise in the services sector, several employment opportunities were created leading to a rise in demand for real estate 4. Growing income levels: With the growth in the Indian economy, the purchasing power of Indians is a lot more than what it was before. With the increase in purchasing power, more and more Indians are investing in Real estate sector leading to the increase in demand in this sector. 5. Rise in Nuclear Families: With increasing migration towards the urban areas in search of better opportunities, more and more Indians are moving away from the joint family culture and embracing the nuclear family culture. With the rise in nuclear families, the demand for real estate is also increasing 6. Availability of finance: As the banking sector evolved in India, it also helped the increase of demand of the real estate industry because of easier availability of finance for the common people Due to the above factors the demand for new houses and real estate has generally increased faster than the supply leading to a continuous increase in the prices of houses.
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Exhibit 1 shows the trajectory of the housing growth in India.

Due to the gap in supply and demand there is a significant housing shortage created in the market. Another major reason for the gap in housing is the unorganized nature of the industry. It is because of this that we also see sharp crests and troughs in the prices of real estate Exhibit 2 the past and estimated gap in housing the years to come.

Rental Industry
The booming of the real estate industry has created several smaller ecosystems operating within the real estate industry. House rental industry one is such industry. The rental industry can be split into two parts namely, Commercial Rental 2. Residential Rental Due to Indias economic progress and changes in the business environment, commercial rental industry has boomed significantly in the past few years. In the past 10 years, several new hubs for IT, ITes industry have developed across the country such as, Bangalore, Pune, and Hyderabad.
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Residential Rental industry derives its demand from the population growth, population influx and supply of housing properties. This industry had witnessed a slowdown in the last couple of years due to global crisis but has not started picking pace again. The residential rental industry which grew at 28% CAGR from 2005-08 slowed down to a growth of about 14% during the economic crisis. The following chart shows the approximate market size of the rental retail market. Exhibit 3 shows the estimated market size of the retail rental industry. The estimates that the total retail rental industry would be approximately Rs 27.6 Trillion in size with organized retail accounting for approximately 7.3% i.e. Rs 2 trillion. We can also note that the industry is more towards being more organized in the years to come. The percentage contribution of the organized retail rose through the years from 5.5 percent in 2007-08 to 5.6% in 2009-10 to estimated 7.3% in 2012-13.

Recent trends in lease rentals

Owing to the increasing demand and curtailed supply, the lease rentals had consistently gone up before 2008. From 2005 2008, the lease rentals shot up by 95%. But after that, due to the economic downturn, the lease rentals saw a sharp downfall of around 45%. It is expected that the lease rentals would correct and begin to grow at a similar pace again. Exhibit 4 shows the above mentioned trends in lease rentals. Comparing the lease rentals of top 10 cities during the 2009 2010 economic downturn through exhibit 5 we can estimate the maximum fall the lease rentals can take when times go really bad. Hence, the western region with the exception of Pune and southern region should see stable growth in the coming years without any chances of a steep decline. Northern region with the exception of Chandigarh should also see stable growth. The rental real estate industry has a great potential of growing with the growth in Indian economy if the industry becomes more organized and transparent. In order for the industry to get more organized the need of the hours is to disseminate information from where it rests right now i.e. brokers to the other major stakeholders i.e. tenants and lenders.

What is 360 Pano?

360 Pano is a mobile application which would help users create walkthroughs of their house. They would be able to download the application for free and by clicking pictures of their house using our application create a 360 degree panorama of their houses. These walkthroughs can then be uploaded on the internet for other users to browse and access. This software would help users walk through the entire house from the convenience of their homes without having to physically go anywhere

Why 360 Pano?

The rental real estate sector is currently extremely unorganized wherein a lot of power rests with the middle men (brokers). Both landlords and renters have to rely heavily on brokers for lending and renting houses and are made to pay heavy brokerage fees for the same. Listing sites such as 99acres.com and makaan.com, which had made an attempt towards organizing this market and disseminating information, have not been very effective due to several reasons. The listings on these sites are at several times outdated and sometimes dont even exist. These sites also list only the address of the property and no information about the actual house, how the rooms are, how they look from inside, etc. is not provided. These sites are also cluttered with several advertisements and make browsing on them difficult. It is because of these reasons that the despite the presence of technology in the real estate space, people still heavily rely on brokers. Exhibit 6 & 7 show the cluttered nature of listings and the excessive advertisements of the listing website making browsing difficult and an unpleasant experience. Another major problem faced by tenants is that of high lead time and the physical search time. Through our interviews with several tenants we estimated that the average lead time to find a house for a tenant is approximately 10 days. Also, in the current setting if a person wants to rent a house in a different city than the one he is currently present in, he has to be physically present in that city. The tenant is also not sure whether he is getting the best price and the best house in that area because he has to heavily depend on the information given to him by the broker. There are also heavy chances of tenants being taken for a ride by brokers because of insufficient information. The current system of leasing also has several problems for a landlord. A landlord currently has to show his house to several tenants physically causing a great deal of discomfort and inconvenience. He also has to pay the broker a high brokerage fee which is recurring in nature. He also depends heavily on the skills of the broker. So if the broker is good only then can he expect to get a good deal for his house. 360 Pano would also change the routine in which houses are rented in the current system. The following diagram shows the way in which houses are rented in the current system.

With 360 Pano we are planning on changing the cycle of renting a house to something simpler and more convenient

As can be seen from 360 Pano, a prospective tenant would be able to view and shortlist flats online. He can take a virtual tour of the entire flat while sitting at home and shortlist them. Through our own site rentus.in we would provide the facility of booking the flat online. For a landlord this would be a great tool to sell his house faster on the net with the inconvenience of physically showing the house each time. We estimate that this tool would help reduce the lead time by approximately 5 days.

Technical specifications of the product

The main product that will be distributed to users(renters) would be an app that allows the user to use their phone camera to create a 360 degree panorama. This will be done by turning on the camera feed, capturing images, doing a pattern map at the edges, and stitching the images whenever there is a match. The app would be available for all popular platforms such as iOS, Android, Windows Phone, Blackberry.

Revenue Model
We would be charging a fee based revenue from the users depending on the number of walkthroughs. Discounts would also be provided for more number of usages. We have divided the users into 2 categories Individual house owners and brokers. Brokers would be given a significant per usage discount compared to individual house owners. We propose the following fee structure for the next 5 years.
In Thousands 2013 2013 2014 2015 2016 2017

Fee from Individual Flat 100 Owners per Flat Fee from Brokers per Flat 50

200 100

250 200

400 500

500 500

700 500

Based on these numbers we estimate the following returns In Thousands 2013 2014 2015 2016 2017 2018 INR INR INR INR INR INR Revenue from flat 1,200 4,080 8,670 23,582 50,113 119,268 owners INR INR INR INR INR INR Revenue from Brokers
3,750

Operational Costs Marketing Costs PBT PAT

9,000 INR 3,465 9,156 INR INR 1,300 2,000 INR INR 185 1,924 INR INR 120 1,251 INR

21,600 INR 21,189 INR 4,000 INR 5,081 INR 3,303

64,800 INR 61,868 INR 5,000 INR 21,515 INR 13,985

77,760 INR 89,511 INR 6,000 INR 32,362 INR 21,035

93,312

INR 148,806 INR 6,000 INR 57,774 INR 37,553

Exhibits
Exhibit 1 Source: Crisil Research

Exhibit 2

Exhibit 3

Exhibit 4

Exhibit 5

Exhibit 6 Cluttered nature of the listings on 99acres.com

Exhibit 7 Excessive Advertisements on listing sites

References
Indicators of real estate cycle: Implications for India http://www.isb.edu/ICREI/File/RealestateresearchpaperChina.pdf 2. Indias Real estate sector http://www.cci.in/pdf/surveys_reports/real-estate-sector-india.pdf
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India Real Estate Overview Crisil Research