A brief report on Real Estate Sector in India

1. INDIAS REAL ESTATE SECTOR

1.1 Overview While India continues to be one of the fastest growing economies, this pace of growth is unlikely to sustain unless it is supported by an equally robust development of its infrastructure. Key requirements in order to achieve a GDP growth rate exceeding 8-9% include roads, power, ports as well as urban infrastructure. The last couple of budgets have taken steps in the right direction for growth of the sector. An allocation of Rs. 200 billion towards infrastructure A projects under the 2011 budget is an attempt to achieve the Governments target for growth of India will have around 27 to 30 million shortage of housing units by 2013 and for this; Infrastructure under the Eleventh Plan. REPORT BRIEF huge

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amount is required to carry on the development. Slowdown in the global economy along with ON consistent increase in policy rates by the Reserve Bank of India (RBI) finally seems to be impacting the domestic economy with the GDP growth cooling down since past few quarters. The GDP growth recorded during first quarter of financial year 2012 has slowed down to REAL ESTATE SECTOR IN INDIA 7.7 per cent as against 9.3 per cent during first quarter of financial year 2011.Even the projected August 2012 as an infrastructure service that is The estate in India is being GDP real growth for sector financial year 2012 hasrecognized been revised downward to 7.9 per cent from 8.2 driving the per economic growth cent by the RBI. engine of the country. In fact, Foreign Direct Investment (FDI) in the sector is expected to increase to US$ 25 billion in the next 10 years, from present US$ 4 billion. The country's urban population will soar to 590 million by 2030, from 340 million in 2008. India's cities could generate 70 percent of the net new jobs created by 2030, produce more than 70 percent of the country's Gross Domestic Product (GDP), and stimulate a near four-fold increase in per capita income. It also says that India needs to invest US$ 1.2 trillion over next 20 years to modernize urban infrastructure and keep pace with the growing urbanization. Non-resident Indians and foreign citizens who are Persons of Indian Origin (PIO) are allowed to purchase immoveable property in India. Residential property prices have stabilized now and are deemed attractive for the NRI home buyer. Industry experts feel that with attractive pricing and innovation in construction technology and variety of designs, NRIs are taking a fresh Introduction look at India as a unique market in which they can invest.

Real Estate business was one of the key drivers of growth before we witnessed the present economic slowdown. Now, with companies trying to consolidate their positions and finding effective means of sustaining growth, the management of real estate has emerged as one of the key challenges for the corporate sector. The largest occupier of office space in the country has been the Information Technology/ Information Technology enabled Services (IT/ ITeS)
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A brief report on Real Estate Sector in India

segment, which primarily serves the US and European markets. The economic slowdown in these markets have resulted in increasing pressures on the margins of companies operating out of India, which in turn has led to the companies looking to cut costs through reducing expenditure on the real estate segment. The real estate sector in India assumed greater prominence with the liberalization of the economy, as the consequent increase in business opportunities and labour migration led to rising demand for commercial and housing space. At present, the real estate and construction sectors are playing a crucial role in the overall development of Indias core infrastructure. The real estate industrys growth is linked to developments in the retail, hospitality and entertainment (hotels, resorts, cinema theatres) industries, economic services (hospitals, schools) and information technology (IT)-enabled services (like call centres) etc and vice versa. The Indian real estate sector has traditionally been dominated by a number of small regional players with relatively low levels of expertise and/or financial resources. Historically, the sector has not benefited from institutional capital; instead, it has traditionally tapped high net-worth individuals and other informal sources of financing, which has led to low levels of transparency. This scenario underwent a change with in line with the sectors growth, and as of today, the real estate industrys dynamics reflect consumers expectations of higher quality with Indias increasing integration with the global economy.
1.3 Present Scenario of Real Estate Currently, about 5 per cent of Indias GDP is contributed by the housing sector. The GDP share of the real estate sector (including ownership of dwellings) along with business services was 10.6 per cent in 2010-11. After growing at 10.4 per cent in 2008-09, the rate of growth of this sector has decelerated to 7.8 per cent in 2009-10 and further to 6.9 per cent in 2010-11. Estimates show that for every rupee that is invested in housing and construction, 0.78 paisa gets added to GDP. Demand for real estate expected grow at a compound growth rate (CAGR) of Housing ranks fourth in is terms of theto multiplier effect on theannual economy and third amongst 19 14 per cent between 2010 and 2014 linkage Tier 1 metropolitan cities are projected to account for major industries in terms of total effect according to Economic Survey 2011-12. about 40 per cent of this. Growing requirements of space from sectors such as education, healthcare and tourism provide opportunities in the real estate sector. With institutional credit for housing investment growing at a CAGR of about 18 to 20 per cent per annum in the next threefive years, the housing sectors contribution to GDP is likely to increase to 6 per cent. While India is among the top countries in terms of housing and work space needs, it ranks 181st in construction permission processes according to the World Banks Doing Business 2012 report.
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A brief report on Real Estate Sector in India

2. REAL ESTATE MARKET

2.1 Real Estate Market Size Activities in the real estate sector may broadly be classied into residential, commercial and the retail segment and hotels. The size in terms of total economic value of real estate development activity of the Indian real estate market is currently US$40-45bn (5-6% of GDP) of which residential forms the major chunk with 90-95% of the market, commercial segment is distant second with 4-5% of the market and organized retail with 1% of the market. Over next 5 years, Indian real estate market is expected to grow at a CAGR of 20%, driven by 18-19% growth in residential real estate, 55-60% in retail real estate, and 20-22% in commercial real estate.

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Market Segment In recent years, the Industry has evolved from a highly fragmented and unorganized Market into a Semi-organized Market. Real Sector Estate

Commercial Sector
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Residential Space

Retail Space

Hospitality Space

Special Economic
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A brief report on Real Estate Sector in India

The sector can be divided into residential, commercial, retail and hospitality asset classes. 2.1.1 Commercial Sector The commercial office space in India has evolved significantly in the past 10 years due to change in business environment. The growth of commercial real estate has been driven largely by service sectors, especially IT-ITeS. However, with the emergence of IT-ITeS, which had huge office space requirement, commercial development started moving towards city suburbs. It resulted in multifold development of city outskirts and suburbs like Gurgaon near New Delhi, Bandra and Malad in Mumbai, and the Electronic city in Bangaluru. In addition, over the last 10 years, locations such as Bengaluru, Gurgaon, Hyderabad, Chennai, Kolkata and Pune have However, the demand for office space is directly linked to addition in number of established themselves as emerging destinations for commercial development, which employees, are in turn is dependent on economic growth. When economy slows down, companies which competing with traditional business destinations such as Mumbai and Delhi. Tax sops on hold the expansion plans leading to lower demand for office space. Downturn in the their profits of IT-ITeS companies also led to stupendous development of IT Parks and SEZs. commercial real estate market in India, which had commenced during the second half of 2008, continued during the second half of 2009. The sustained decline was largely the result of postponement of expansion plans by corporate, which adversely impacted demand for office space. 2.1.2 Residential Sector in Real IT/ITeS, Estate which had been a major demand driver for the sector in the last 2 years, increased Residential utilization demand is the mainstay of the Indian real estate sector. The major demand drivers rates of existing commercial space by increasing the number of shifts. for the residential market include increasing disposable income levels, increase in the number of nuclear families / households, tax savings on home mortgage products as well as real estate Demand for houses increased considerably whilst supply of houses could not keep pace being considered a necessary investment. with demand thereby leading to a steep rise in residential capital values especially in urban areas. Broadly, residential real estate industry can be divided into four growth phases Phase I (2001-2005) was an initial growth phase with stabilizing residential real estate prices following the global recovery post the dot com bust and 9/11 terrorist attacks in New York. At the same time, there was steady growth in Indian economic activity, noteworthy recovery in Phase (2006-2008) was urbanization a high growth phase where high demand for residential IT/ITESIIindustry, growing and a rising trend towards nuclear families. real estate led to doubling of housing prices. Demand rapidly increased due to Indias growing population,
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A brief report on Real Estate Sector in India

accentuated urbanization, rising disposable incomes, rapidly growing middle class and youth population, low interest rates, fiscal incentives on interest and principal payments for housing loans and heightened customer expectations. Phase III (2009-2010) witnessed substantial slowdown and part recovery in demand because of the global economic downturn, which led to a decline in affordability and tight liquidity. The retreat of various real estate investors, accompanied by slowdown in the capital markets, has Phase IV in (2011-2014) expected to remain a consolidation phase after slowdown. resulted oversupplyis and falling prices. Demand is expected to remain strong with capital values witnessing modest rise. This period is expected to witness substantial supply of housing especially in urban areas. In spite of the stupendous growth witnessed in the past 10 years, substantial housing shortage is still prevalent in India. The housing shortage in India is estimated at 78.7 million units at the end of Phase II. The overall housing shortage in India is likely to decline to 75.5 million units by the end of Phase IV.

However, housing shortage in urban areas will continue to rise owing to migration towards urban areas and increasing trend of nuclear families. Housing shortage in urban areas is estimated at 19.3 million units at the end of 2008, up from 15.1 million units at the start of 2005. Housing shortage in urban areas is likely to touch a walloping 21.7 million units by the end of 2014. Rural areas, on the other hand, will witness a reduction in housing shortage due to migration and conversion of kutcha houses into pucca houses. The governments continuous focus on improving the housing situation, especially for population below poverty line, under schemes like Indira Awaas Yojna, Rajeev Gandhi Aawaas Yojna, Two Million Housing Programme, is expected to reduce housing shortage in rural areas. Rural housing shortage is expected to decline to 53.8 million units by 2013-14 from 59.4 million units at the end of 2008. 2.1.3 Retail Real Estate In 2010, India witnessed the addition of more than 5 million sq ft of organized retail mall space across various primary and secondary locations. This was concentrated largely in NCR, Mumbai, Bangalore and Chennai and was a consequence of the positive sentiments amongst retailers on spatial expansion and enhancing their footprints across the country. The growth of malls in India has increased to about 59 which comprises of the retail stock. The retail stock Private & Confidential Page 6 of 11 share will increase to 36 per cent in the coming years. Results found out through a survey state

A brief report on Real Estate Sector in India

that the retail market is expected to grow in the coming years. There is an increased development of retail malls which are primarily dominated by the local developers. All the 59 malls in the southern & Northern states are either in the stages of construction or are already established. Few of the active project developers in the Southern & Northern region are the Indian are seeking to implement their expansion plans in the prime cities as Mantri retailers Developers, The Prestige Group, DLF, RMZ Corp and so on. well as select Tier II and Tier III cities. FDI in multi brand real estate, when finally permitted, is expected to catalyze a lot of demand from international retailers. That said, international luxury brands will restrict their growth plans to Mumbai, Delhi and Bangalore. 2.1.4 Hospitality Real Estate Indias hospitality industry has enjoyed robust growth over the past few years buoyed by a benign economic and political environment. Increase in domestic, business and leisure travel has benefited hotels in India. Rising incomes, higher weekend trips and increased access to travel-related information over the Internet have propelled growth in hospitality. Premium segment hotels are more prominent in major business destinations in India and are dominant in amount grew to $299 million and during the first five months of 2012, By 2011, the popular tourist destinations like Goa, which attracts a lot of foreign clientele. In 2010, hospitality the industry has raised $121 million from private equity. A few years back the industry was industry only five private equity deals with a cumulative value ofdomestic $ 1 56 million. polarizedsaw between large five star hotels and small lodges. Now, both hotel

chains and international brands are queuing up with several categories of hotels to cater to different travelers in the value chain and that is why the demand for real estate properties in India are increasing. Private equity players are also keen on budget, mid-sized hotels that work on an asset light model than the asset heavy models that take longer time to become 2.1.5 Special Economic profitable. The Zone (SEZ) entry of several global brands to fill the demand-supply gap has triggered private equity The Government of India introduced the SEZ interest Act, 2005, to generate additional economic in the industry. activity,promoteexportsandcreate employment opportunities in the country. Developing an SEZ is approximately 15 to 20 percent cheaper than developing non-SEZ commercial space; given the various fiscal benefits available to SEZ developers several real estate developers have been attracted to these projects.

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A brief report on Real Estate Sector in India

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Under the new SEZ Policy, formal approvals have been granted to 574 SEZ proposals as of March, 2010.As of March 2010, there were 350 notified SEZs and 146 have received inprinciple approval. The SEZ Policy allows usage of as high as 50 percent of the SEZ area as non-processing zone, offering significant potential for residential and support Growth Drivers in Real Estate infrastructure. Demand Pull Factor Supply Pull Factor Robust and sustained macro-economic Policy and regulatory reforms (100 per growth. cent FDI relaxation). Upsurge in industrial and business Positive outlook of global investors. activities, especially new economy sectors. Fiscal incentives to developers. Favorable demographic parameters. Simplification of urban development Significant rise in consumerism. guidelines. Rapid urbanization. Infrastructuresupportand developmentinitiativesbythe Availability of a range of financing government. options at affordable interest rates.

Impacts Impacts Increasing occupier base. Entry of a number of domestic and foreign players; increasing competitionfor Significantriseindemand and consumer affordability. office/industrial space. for Easy access to project financing Demand for newer avenues options. entertainment, leisure and shopping. Creation of demand for new housing Increases developers risk appetite and allows large scale development. Improved quality of real estate assets. Development of new urban areas and effective utilization of prime land parcels in large cities

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A brief report on Real Estate Sector in India

3. MARKET PLAYERS
Indias real estate market is on a high growth curve. The industry is projected to grow to US$50 billion by the end of 2010 at an average rate of 20%. Looking at the bigger picture, the recession seems like a hiccup. Despite talks of price correction, the worse is definitely behind us. In this features, there are list of market leaders. Many are national players but some are purely regional players and hence it would be unfair to compare them. The idea was to identify national as well as local leaders. Of course, all such lists are subject to market dynamics. DLF Ltd 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 Project Spectrum: Residential, townships, complexes, Parks, hotels, of planned projects, of which 56 million sqcommercial ft of projects are under IT construction during multiplexes, FY10. 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: It will take its luxury mall DLF Emporio (already operational in New Delhi) to other big cities such as Hyderabad and Chennai. UNITECH Established in 1972, Unitech is 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. Ansal API Established in 1967 as a family business, Ansal API today is clearly amongst the real estate leaders of India. Having established itself very strongly in the NCR region, Ansal API is now focusing on ventures in cities like Bhatinda, Mohali, Amritsar, Ludhiana, Jalandhar, Jaipur, Jodhpur, Ajmer, Sonepat, Panipat, Karnal, Kurukshetra, Faridabad, Gurgaon, Greater Private Noida, & Confidential Page 9 of 11

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A brief report on Real Estate Sector in India

and Ghaziabad, Meerut, Agra, Lucknow, to name a few. Ansal API has till date, developed and delivered more than 190 million sq ft. The company currently has a land reserve of about 9,335 acres. Project Spectrum: Integrated Townships, Condominiums, Group Housing, Malls, Shopping Complex, Hotels, SEZs, IT Parks and Infrastructure and Utility Services Latest: Raised Rs231.4 crore through private placement of shares with institutional investors for reducing its debt and execute ongoing projects. Sobha Developers Ltd 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 Till Sobha has 47 capital residential projects, 13 commercial projects and 166 the date, first event of its completed kind in Indian markets. 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 Parsvnath Developers Ltd construction. Incorporated in July 1990 by Mr Jain in New Delhi, Parsvnath today has a substantial pan India presence in over 45 cities across 16 states. The company has emerged as one of the most progressive and multi-faceted real estate and construction entities in India. Project spectrum: Housing (premium, mid-market as well as affordable), office complexes, shopping malls & hypermarkets, hotels, multiplexes, IT Parks and SEZs. Quick fact: First real estate Company to have integrated with ISO 9001, 14001 and OHSAS 18001. Latest update: Has partnered with Red Fort Capital to execute a Concession Agreement with DMRC for development of a prime Grade A office project in New Delhis Connaught Place.

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A brief report on Real Estate Sector in India

4. POLICY INITIATIVES

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Investment Policy The Government has proposed one per cent TDS (tax deduction at source) on transfer of immovable property if the sale value exceeds Rs 50 lakh in urban centres and Rs 20 lakh in other areas in the Union Budget 2012-13. The Reserve Bank of India (RBI) has granted permission to foreign citizens of Indian origin to purchase property in India for residential or commercial purposes. The purchase consideration should be met either out of inward remittances in foreign exchange through normal banking channels funds from NRE/FCNR maintained with a bank inroute India. Accordingor toout theof latest reforms, FDI up toaccounts 100 per cent under the automatic in townships, housing, built-up infrastructure and construction-development projects (which would include, but not be restricted to, housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure) is allowed subject to the following guidelines (alsoand for investment by NRIs) land use requirements The project shall conform to the norms standards, including and provision of community amenities and common facilities, as laid down in the applicable building control regulations, bye-laws, rules, and other regulations of the State Government/ Municipal/ Local Body concerned. The investor/ investee company shall be responsible for obtaining all necessary approvals, including those of the building/layout plans, developing internal and peripheral areas and other infrastructure facilities, payment of development, external development and other charges and complying with all other requirements as prescribed under applicable rules/ bye-laws/ regulations of the State Municipal/ Government/ Municipal/ Local Body concerned. The State Government/ Local Body concerned, which approves the building/ development plans, would monitor compliance of the above conditions by the developer.

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Investment Opportunities Real estate emerged as the popular sector for private equity (PE) funds, which witnessed investments worth US$ 1,700 million in the sector during 2011. PE in real estate projects will fetch considerable returns by next year-end or early 2013. Limited partners (who write cheque for funds) expect 15-25% returns from real estate deals. Foreign investors are optimistic about India. All they want is prompt action and friendly policies. Private & Confidential Page 11 of 11