Indian Real Estate Outlook and Regulatory Policies

Indian Real Estate:
An Outlook on
Industry Trends and
Regulatory Policies
2 On Point Indian Real Estate: An Outlook on Industry Trends and Regularity Policies On Point Indian Real Estate: An Outlook on Industry Trends and Regularity Policies 3
Foreword
Global meltdown, which led to changes in global economies, has paved its way.
While global economies are yet to fnd their way to stability, the Indian economy
has started its journey for growth. This growth is primarily attributable to proactive
steps taken by the Government.
As India gears itself to the growth path, the importance of real estate sector
becomes an area of utmost importance. Rapid urbanization and growing business
demands are some of the important factors, which are expected to drive real
estate demand in the nation.
Confederation of Real Estate Developers Association of India (CREDAI) is a
premier real estate organisation of more than 6000 organised private sector
developers and works closely with several
Central and State Government bodies. CREDAI also supports the Government in
its policies and programs.
Through this whitepaper, we have brought to the fore prevailing real estate
scenario with an outlook on 2011. We have also brought to the light various tax
and regulatory aspects under the changing tax regime.
We at CREDAI acknowledge the contribution of Jones Lang LaSalle (JLL) for
the chapters on Indian real estate sector scenario and the future outlook. We
acknowledge also the contribution of KPMG for the chapters on tax and regulatory
aspects relevant for the sector.
Sincerely,
Kumar Gera Santosh Rungta
Chairman, CREDAI President, CREDAI President, CREDAI
Indian Real Estate -
On a Comfortable Ground
It is a comfortable feeling to know that you stand on your own
ground. Land is about the only thing that cant fy away.
ANTHONY TROLLOPE, The Last Chronicle of Barset
After one and a half years of gradual consolidation, real estate
in India has fathomed its own comfortable ground, and is poised
at the right threshold to take a giant leap in years to come. While
a differential pace of strengthening is evident across sectors,
geographies and segments, several property market indicators point
to the fact that the industry has indeed bottomed out in the current
cycle. The fears of a possible double dip recovery have given way
to beliefs in the sustained healthy levels, if not a rapid growth. The
experience thus gained in this slowdown is invaluable and will serve
real estate strategists for years to come. The various stakeholders
in the entire supply chain the material manufacturers, developers,
property consultants, occupiers, investors and policy makers, have
all emerged stronger and primed than yesteryears.
And, if we have taken our lessons right, caution and diligence
would be the keywords for the industry in the medium term. On one
hand, the stakeholders cant afford to sway on the riding waves of
healthy demand, and lose the ground advantage that they have
so painfully regained by adapting to the rapidly changing business
environment. And on the other, the emerging opportunities should
be targeted with an unmatched fervor of potential and pragmatism.
The year 2011 would usher a new decade of opportunities for
Indian real estate, which will be a test of sorts for its stakeholders
between these two fringes of the fulcrum. And the winners would
be the ones who balance caution with diligence evaluating all the
potential opportunities with pragmatism.
It is a good thing to learn caution from the misfortune of others.
PUBILIUS SYRUS
Outlook: Offce Real Estate
The commercial offce sector entered into a phase of gradual
recovery in 2010, when frms began charting their expansion
plans, strategically assessing the abundant real estate options
in the market. The rate of decline of property rates slowed down
considerably and was recorded to be stable across most of the
micro-markets by end of the year. Despite a rise in absorption
levels and stabilization of rents, construction delays have resulted
in the deferment of supply of offce projects across Indian cities.
However, upbeat over the tremendous response in the residential
sector, developers are increasingly focusing their energies on
execution and delivery of offce space, rather than launching new
ones. Outright purchases increased during the year, mostly by
offce occupiers who re-explored their exposure to real assets for
Source: Real Estate Intelligence Service (JLL), 2Q10
VALUE
DECLINING
VALUE
RISING
GROWTH
SLOWING
DECLINE
SLOWING
Bangalore
Pune & Chennai
Hyderabad
Kolkata
Hyderabad
Chennai
Bangalore
Kolkata
Mumbai
NCR Delhi
NCR Delhi
Mumbai
& NCR Delhi
2Q08
2Q10
2Q09
Mumbai
Bangalore
Pune
Chennai
Hyderabad
& Kolkata
3Q11F
STRATEGIC WINDOW OF
OPPORTUNITY
Offce rents to start appreciating after
mid-2011
The effect of strengthening absorption of offce space
in the past 3-4 quarters has already resulted in a
stabilisation of rental and capital values in most of the
markets. The period from 2Q10 to 3Q11 provides a
strategic window of opportunity for both buying and
leasing offce space, when both rental and capital
values are at their cyclical lows (Figure 1). Capital
values typically are a leading indicator and signs of
strengthening of capital values in selected micro-
markets have already been witnessed.
Several markets which were dormant during 2010
with respect to property rates will register an
appreciation in valuations. The prime markets of
Mumbai, Delhi and Bangalore are ahead in the
property cycle in terms of transactional volumes and
should be the frst to register rental growth in 2011.
However, the oversupplied suburban markets might
still feel the pressure of inadequate demand levels
and will be late to recover. Adequate volumes of offce
supply will keep hitting the markets every quarter,
keeping the segment interesting for occupiers as well
as investors.
Figure 1: Offce Property Clock and the Strategic Window of Opportunity
the accompanying benefts.
Overall, we believe that the year 2011 will be a strategic window
of opportunity for occupiers and investors, when rents and
capital values in most of the micro-markets would be at their
cyclical bottom and remain undervalued. Several markets have
already shown signs of steady revival in terms of strengthening of
demand for offce space as well as an increase in capital market
transactions.
The year 2011 should see more wealth being created across
industries in India, which will trickle down as demand for real
estate. We forecast the absorption of offce space across the top
seven cities of India to grow nearly 1.8 times from 19.6 million sq ft
recorded in 2009 to 35.7 million sq ft in 2011.
1
1
Unless mentioned, real estate fgures in the report are representative of the top seven cities (by population) of India Mumbai, NCR, Bangalore, Chennai, Kolkata, Pune
and Hyderabad.
Note: 1. IT projects include STPI registered units as well as other offce projects specially constructed
for IT/ITES occupiers.
2. IT SEZ projects include projects notifed under SEZ Act, 2005.
3. Size of bubble represents the total IT supply expected in various cities during 2010-2012.
Sustained traction for IT SEZ spaces
The announced sunset over the STPI regulations
on IT space has infuenced the demand scenario
for IT projects across cities. Healthy demand for IT
SEZ space was already visible in the second half of
2010, post the clarifcation in the Union Budget. The
revised Direct Tax Code, which also puts a deadline
to notifcation to SEZs in India, will have a signifcant
infuence on offce real estate in the coming years.
However, the traction for IT SEZ spaces is likely to
remain during 2011, as the deadline for notifying a
SEZ is March 2012 and operating out of the premises
is March 2014. Developers, who are planning to build
SEZs or have got approval for the same, should begin
the construction during to satisfy the March 2014
deadline for units to occupy spaces.
Among the Indian cities, Pune, Hyderabad, Chennai
and Kolkata have a balanced supply of IT and IT SEZ
projects. Mumbai, Bangalore and NCR-Delhi have
a larger supply of IT projects and relatively fewer IT
SEZ projects in pipeline (Figure 2).
Figure 2: IT and IT SEZ Projects Under Construction (As of 3Q10)
Proposed projects to begin construction
As of October 2010, a total of 88.2 million sq ft of
offce space is proposed in the top seven Indian
cities, supplemented by 161.1 million sq ft of offce
space that is under construction, implying that
they have broken ground but are yet to become
operational (Figure 3). In 2009 and 2010, developers
focused their attention and efforts in the execution
and delivery of projects that were under construction.
Increased confdence in the sector will ensure that
some of the proposed projects, which are lying
inactive, start witnessing construction activity and get
launched in the market during 2011.
Despite this, the focus would remain on execution and
delivery of ongoing projects.
Figure 3: Stages of Construction of Future Offce Supply (As of 3Q10)
Bangalore
Chennai
Hyderabad
Kolkata
Mumbai
NCR-Delhi
Pune
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
0.0 5.0 10.0 15.0 20.0 25.0
IT Supply Under Construction (million sq ft)
IT
S
E
Z
S
u
p
p
ly
U
n
d
e
r
C
o
n
s
tr
u
c
tio
n
(
m
illio
n
s
q
ft)
Ready for Fit-Outs
5%
Less than 50%
Structure Ready
17%
Proposed
35%
Excavation / Upto
Plinth
20%
50-100% Structure
Ready
23%
More outright purchases by occupiers as
well as private equity players
As of 3Q10, a majority of the commercial markets in
India are undervalued relative to rental decline implied
by a greater decline in capital values than rental
values during 2Q08-2Q10. With this fundamental
attribute favouring purchase of offce properties, a rise
in the share of outright purchases has been witnessed
in the Indian market.
The share of outright purchases in total transactions
has increased from being 4-5% in 1H08 to 13-15%
in 2010 (Figure 4). This trend is likely to continue in
2011 as well, as several private equity funds as well
as occupiers evaluate the buy versus lease options
and look ahead towards acquisition of offce space at
reasonable capital values.
Figure 4: Share of Sale Transactions in Total Recorded Transactions (1H08-1H10)
Retroftting of prime locations
With several prime central locations of the cities
reeling under inadequate urban planning and
outmoded architectural standards, refurbishment of
offce projects is expected in Indian cities. We have
already witnessed instances of retroft during the
past 2-3 years and this is likely to continue as owners
and occupiers see value in up-gradation of their real
estate holdings into the investment grade category
(Figure 5). This will also imply an increased attention
towards sustainability, as the retroftting process
would upgrade the existing high energy consuming
facilities with better effcient projects.
Figure 5: Completed and Ongoing Instances of Refurbishment of Offce Space at
Prime Locations
Property Location
Expected
Completion
HT House - Press Building KG Marg, Delhi 2009
Prestige Delta Richmond Road, Bangalore 2010
Ashoka Raghupati Chambers Begumpet, Hyderabad 2010
Meenakshi Technopark Kondapur, Hyderabad 2010
KMDA Property Sealdah, Kolkata 2010
Hindustan Uniliver Fort, Mumbai 2011
Coke Factory Shankar Market, CP, Delhi 2011
Avani Heights Chowringhee, Kolkata 2011
Occupier focus shifting from consolidation to expansion strategies
The year 2009 and 2010 witnessed several instances of consolidation
2
and functional decentralisation
3
of offce spaces, as several
corporations restructured their real estate portfolios (Figure 6). However, by end of the year several expansion plans are being put into
place, particularly led by the IT/ITES and BFSI sectors. During the slowdown, when these two sectors were either stable or downsizing, the
sunshine sectors telecom, pharmaceuticals, semiconductors, healthcare and education were expanding.
The year 2011 should witness a greater number of expansion plans getting executed by corporations riding on good business sentiments.
2
Consolidated centralisation is the process of consolidating multiple offces to a single location. It is motivated by the synergy of economies of scale achieved by operating out of
a single offce. It helps in reducing real estate costs by merging functions and reducing shadow capacities lying idle at multiple existing locations.
3
Functional decentralisation is the process consolidating multiple offces or splitting a single offce to multiple locations. It helps in reducing real estate costs by distributing the
non-essential functions of a business to less expensive real estate locations while retaining or moving essential functions to a prime location
Lease Transactions Sale Transactions
% Sale Transactions in Total Transactions
4.2%
9.0%
11.4%
13.0%
14.9%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1H08 2H08 1H09 2H09 1H10
S
a
le
/ L
e
a
s
e
T
r
a
n
s
a
c
tio
n
s
0%
2%
4%
6%
8%
10%
12%
14%
16%
%
S
a
le
T
r
a
n
s
a
c
tio
n
s
in
T
o
ta
l
Figure 6: Instances of Portfolio Restructuring Strategies During the Slowdown (2H08-1H10)
City Buyer / Lessee Year
Leasable /
Saleable Area
(sq ft)
Lease / Buy Strategy
Hyderabad Tata Consultancy Services 2010 180,322 Lease Expansion
Chennai Cybernet Slash Support 2010 128,000 Lease Consolidated Centralisation
Chennai Marg Constructions 2010 116,800 Lease Consolidated Centralisation
Bangalore Citrix 2010 127,000 Lease Expansion
Bangalore Sony 2010 130,000 Lease Consolidated Centralisation
Hyderabad Accenture 2010 103,000 Lease Expansion
Noida ACS 2010 102,000 Lease Relocation
Hyderabad Synopsis 2010 61,990 Lease Consolidated Centralisation
Hyderabad DST 2010 55,000 Lease Consolidated Centralisation
Chennai Tata Teleservices 2010 75,000 Buy Relocation
Mumbai Ernst & Young 2009 160,000 Lease Functional Decentralisation
Kolkata McNally Bharat 2009 123,000 Lease Consolidated Centralisation
Hyderabad Colruyt 2009 100,000 Buy Consolidated Centralisation
Noida Samsung 2009 66,000 Lease Functional Decentralisation
Kolkata M Junction 2009 62,000 Buy Consolidated Centralisation
Mumbai Deutsche Bank 2009 187,000 Lease Consolidated Centralisation
Gurgaon Capital IQ 2009 50,000 Lease Relocation
Mumbai ICICI Prudential 2009 41,000 Lease Functional Decentralisation
Mumbai Standard Chartered Bank 2008 220,000 Buy Consolidated Centralisation
Bangalore Delphi 2008 90,000 Lease Consolidated Centralisation
Bangalore LSI Logic 2008 277,000 Lease Consolidated Centralisation
Hyderabad Brigade 2008 60,000 Buy Consolidated Centralisation
IT/ITES and BFSI would continue to
account for 60-70% of offce demand
Nearly 60-70% of the demand for offce space during
the past years has been contributed by the IT/ITES
and BFSI sectors (Figure 7).
IT and IT-enabled services (ITES) have been the
key drivers of the demand for offce space in India
during the last decade. Primary reasons for Indias
leadership in this sector has been the presence of
a huge English speaking population, a large part of
which is well educated & qualifed to handle technical
and professional jobs as well. Indias IT-ITES
export recorded 8.2% growth during FY 20092010.
According to the Department of Information
Technology, the IT-ITES export revenue is expected
to reach USD 60 billion and USD 72 billion by the end
of FY 20102011 and FY 20112012, respectively.
The Banking, Financial Services and Insurance
(BFSI) sector has also been a key contributor to
the demand for offce space in India. At the end of
FY 2000-2001, total number of offces of scheduled
commercial banks in India was 65,919, which had
increased to 80,547 by the end of FY 2009-2010.
Meanwhile, the per capita credit of the scheduled
commercial banks has increased from INR 5,221 in
2001 to INR 24,230 in 2009 (Figure 9).
Several foreign banks (both commercial and retail)
have set up shops in India over the last decade. Other
fnancial institutions such as insurance companies
and securities frms have also forayed into the Indian
market and have registered rapid expansion ever
since. In 2009 and 2010 so far, 16-22% demand for
offce space came from the BFSI sector (Figure 7).
More inter-city competition to build up among the IT/ITES destinations
At the peak during mid-2008, only 38% of the operational offce stock was available for leasing at less than USD 1 per sq ft per month. Post
the market crash, nearly 62% of the operational offce stock in India is available for leasing at less than USD 1 per sq ft per month. While the
slowdown has ensured a greater affordability of offce space to the occupier, it has grouped several cities into a narrow band of rents.
Since most of these markets are the IT destinations of Bangalore, Chennai, Pune, Hyderabad and Kolkata, the inter-city competition to
garner demand from the sector would be paramount in coming years. The key to success would be diversifying the occupier base into other
sectors such as BFSI, manufacturing, logistics, consulting services among others.
Activity Radar for 2011
Mumbai would leave Bangalore behind as the city with the highest offce stock by end of 2011.
Gurgaon is projected to be leader in terms of demand for offce space with 4 million sq ft of net absorption projected in 2011. Of this, NH-8
alone would contribute 60% of the demand.
Hyderabad and Pune are the only cities with a good mix of IT and IT SEZ projects in supply.
Around 10 million sq ft of offce space will become operational in Gurgaon and Mumbai suburbs each during 2011, the highest among all
the micro-markets.
Outlook: Residential Real

Estate
The residential sector continued its strong growth trajectory in
2010, which it has been treading from the second half of 2009.
Residential property rates have attained the previous peaks of 2008
across several markets. The year also saw an increased number of
launches in the premium segment, mostly in the Mumbai market.
However, sale velocities of houses have dropped by end of the
year and further hardening of interest rates along with high
infationary pressure can be a dampener for residential sales in
the coming quarters.
Figure 7: Major Sectors Contributing to Offce Demand
5
3
%
5
0
%
3
9
%4
8
%
1
6
%
1
9
%
1
6
%
2
2
%
5
%1
1
%
8
%
8
%
7
%
1
7
%
1
0
%
1
8
%1
3
%
2
0
%
1
7
%
3
%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2009 1Q10 2Q10 3Q10
S
h
a
r
e
o
f D
e
m
a
n
d
fo
r
O
ffic
e
S
p
a
c
e

fr
o
m
V
a
r
io
u
s
In
d
u
s
tr
ie
s
Others
Manufacturing/
Industries
Telecom
BFSI
IT / ITES
Figure 8: IT/ITES Export Revenue and Employment
Source: Department of Information Technnology
0
15
30
45
60
75
2001-02 02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10
IT
-
IT
e
S
E
x
p
o
r
t R
e
v
e
n
u
e
(
U
S
D
B
illio
n
)
0.0
0.5
1.0
1.5
2.0
2.5
IT
-
IT
e
S
E
m
p
lo
y
m
e
n
t
(
N
u
m
b
e
r
o
f P
e
o
p
le
in
M
illio
n
)
IT-ITeS Employment IT-ITeS Export Revenue
Figure 9: Growth of Commercial Banking in India
Source: Reserve Bank of India
0
15
30
45
60
75
90
2001 2002 2003 2004 2005 2006 2007 2008 2009
N
u
m
b
e
r
o
f O
ffic
e
s
o
f S
c
h
e
d
u
le
d
C
o
m
m
e
r
c
ia
l
B
a
n
k
s
(
'0
0
0
)
0
5
10
15
20
25
30
P
e
r
C
a
p
ita
C
r
e
d
it o
f S
c
h
e
d
u
le
d
C
o
m
m
e
r
c
ia
l
B
a
n
k
s
(
IN
R
in
'0
0
0
)
Number of Offices of Scheduled Commercial Banks
Per Capita Credit of Scheduled Commercial Banks (INR)
Residential property rates are likely to continue their upward
trajectory, albeit at a slower pace than 2010. We believe that certain
locations that have witnessed rapid increments in price, will not
only witness resistance to any further price rise, but also some
downward pressure. We will continue to see rapid sale velocities
in the affordable segment for projects which are priced at or below
market averages. Likely hardening of interest rates, coupled with
high infationary pressures and rising property rates, will impact the
purchasing power of home buyers in 2011, which will infuence the
absorption dynamics of the residential sector.
Launch of premium products to continue,
albeit at a slower pace
The activity in the high-end residential segment
dropped sharply during the slowdown and had
hit bottom by beginning of 2009, when very few
premium projects were being launched. Banking on
the tremendous response over residential sales in
the lower capital value segment, several developers
began launching premium residential projects by end
of 2010 (Figure 10). This was accompanied by a rise
in property rates across cities. Due to the impact of
rising prices, absorption rates have eventually wilted
and the effect is also being refected on the number of
units being launched in the premium segment, which
dropped for the frst time since 4Q09.
In 2011, although select developers would still launch
premium projects, the rate of new supply in the
segment is expected to remain range-bound in the
near term. However, the premium projects are slated
Figure 10: Launch of Premium Residential Units in India (Priced at more than
INR 7,500 per sq ft)
Note: Premium projects include all residential projects priced at more than INR 7,500 per sq ft at the
time of launch. The analysis doesnt consider the amenities offered as criteria to distinguish between
a premium and mid-segment project.
Large number of launches would
continue to be in the range of INR
2,000-3,000 per sq ft at the leapfrogged
suburban locations
Since 1Q09, more than 50% of the units that were
launched every quarter have been priced less than
INR 3,000 per sq ft at the time of launch (Figure 11).
Apart from Mumbai and NCR-Delhi, a majority of
upcoming nodes of residential growth in other cities
are priced within this range. The current scenario has
opened up new locations for residential development,
which were otherwise unattractive to the Indian home
buyer. The far fung suburban locations, where land is
relatively inexpensive, have witnessed the launch of
these aggressively priced projects.
This phenomenon known as leapfrogging is
not new to real estate but can have far reaching
implications. Initial nodes created by leapfrogging
lack in terms of social infrastructure, public services
and entertainment options due to the absence of
a threshold population to support these amenities.
However, planned growth of infrastructure can provide
tremendous impetus to residential and commercial
Figure 11: Share of Units Launched in Particular Ranges of Capital Value
(INR per sq ft)
to outperform each other with displays of irrational exuberance in terms of world
class architecture and unmatched amenities.
growth in these tertiary nuclei. If these projects are implemented with design
capacities for a long term vision, these far fung areas could serve as alternate
nodes to the city and help in decongesting the urban sprawls.
Several infrastructure initiatives are underway to connect these leapfrogged
locations with city centres and already developed offce locations. In 2011,
residential projects priced in the range of INR 2,000 3,000 per sq ft would
continue to get launched at these locations and should see increasing
acceptance from the price sensitive home buyers.
Launch of Ultra Low Cost (ULC) Housing
by private developers Housing for all
The ultra low cost housing (having a ticket size of
less than INR 10 Lakhs), so far, has not been fully
embraced at a large scale by the private real estate
development players in India. However, due to the
large shortfall of housing units in this particular
segment, the demand for housing units by the
economically weaker sections remains high and the
segment is critical for increasing homeownership
in India. With the Government trying to gather
momentum for the category further with the theme
Housing for all, the real estate industry is expected
to soon harness the massive opportunities of scale
and scope at the base of the pyramid.
Several developers have already launched and built
projects successfully in the segment, which should be
the one to watch for during 2011 (Figure 12).
Figure 12: Ultra Low Cost Housing by Private Developers
Developer Developments
Tata Housing
Shubh Griha, Boisar, Mumbai
Shubh Griha, Vasind, Mumbai
Matheran Realty Tanaji Malusare City, Karjat, Mumbai
Value and Budget Housing
Corporation
VBHC Vaibhava, Bangalore
Marg Constructions Maha Utsav, Seeknankuppam, Chennai
Vijay Shanti Builders Lotus Pond, Kelambakkam, Chennai
Shapoorji Pallonji SP Sukhobrishti, Rajarhat, Kolkata
HDIL Paradise City, Palghar, Mumbai
Impact on affordability will infuence the
price and absorption dynamics
Rapidly rising real estate rates is a cause of concern
for the money market regulators in India, who have
increased the Cash Reserve Ratio (CRR) and repo
rates in tranches during 2010 to tame liquidity and
infation. As a result, major banks increased the
offered housing interest rates recently. The hardening
of interest rates coupled with rise in residential rates
would impact the decision of the home buyer, who is
now dependent on rise of income levels to offset the
diminished affordability.
If residential rates increase by 10% during 4Q10-
1Q11 and interest rates rise by 100 bps, the
affordability will reduce from 15% to 2% of the
peak levels in 3Q08 (Figure 13). Eg. Residential
markets were 32% more affordable in 2Q09 when
compared to the peak in 3Q08. In 3Q10, due to the
rise in residential rates, they are now only 15% more
affordable when compared to the peak rates of 3Q08.
Figure 13: The Path of Residential Affordability
Note: Numbers denote change in affordability with respect to 12% mortgage rate and 0% price
correction from peak (Conditions in 3Q08)
Eg. Residential markets were 32% more affordable in 2Q09 when compared to the peak in 3Q08
Mortgage rates are average home loan rates prevalent during the period.
Change in income levels during the relevant time period has not been considered while studying
affordability.
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10
N
u
m
b
e
r
o
f R
e
s
id
e
n
tia
l U
n
its
L
a
u
n
c
h
e
d
7,500 - 10,000 10,000 - 15,000
More than 15,000 Total Premium Launches
4
1
%
3
9
%
5
2
%
4
3
%
5
3
%6
5
%
5
7
%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10
%
N
u
m
b
e
r
o
f U
n
its
in
T
o
ta
l U
n
its
L
a
u
n
c
h
e
d
More than 15,000
10,000 - 15,000
7,500 - 10,000
5,000 - 7,500
4,000 - 5,000
3,000 - 4,000
2,000 - 3,000
Less than 2,000
7 11 15 20 24 28 32
3Q10 2Q10 1Q10 4Q09 2Q09
2 6 24
1Q11F 4Q10F 1Q09
(4) 10
4Q08
(10) (5) 0
3Q08
10% +5% 0% -5% -10% -15% -20% -25% -30% -35%
8%
9%
10%
11%
12%
13% (16) (11) (5) (0)
12 16 20 24 28 32 36 40 44 48
37 41 45
10 15 19 28 33 37 42
1 5 15 20 24 29 34 38
5 10 15 20 25 30 35
5 10 16 21 26 31
Price Correction from Peak (3Q08)
M
o
r
tg
a
g
e
R
a
te
s
The two-direction theory of price
movement
Average residential capital values have increased
between 20-35% across a majority of Indian cities
since hitting trough during mid-2009 (Figure 14). This
rapid reversion to peak levels has been driven by
a healthy absorption rate across cities during 2H09
and 2010. However, developers should be cautious
against further aggressive increments in residential
rates which would push the sector to become
overvalued. Stabilisation and wilting of absorption
rates have already been witnessed in certain markets.
Also, signifcant absorption volumes in the initial wave
during 2009 were taken up by investors, who would
be hawking an exit during 2011, which will further
increase the available stock in the secondary market.
The two-direction theory of price movement is likely
to be seen in the sector during 2011, wherein select
geographies would witness a rapid increase in
Figure 14: Quarterly Movement of Residential Capital Values
Note: The quarterly movement is the percentage change in average residential property rates, which
does not denote the movement of prices in respective markets.
Sustainability to gain focus as the
industry looks forward towards IGBC
Green Homes standards
Sustainability, which is already prominent in the
commercial sector, will gain focus in the residential
space as well in the coming years. Indian Green
Building Council (IGBC) recently rolled out Green
Homes, which is its frst rating programme,
exclusively for the residential sector (Figure 15).
Also, the IGBC Green Townships Rating System, a
pilot version of which has been launched, should be
benefcial at a larger scale of certifying residential
townships.
Interestingly, the sector has witnessed sustainable
construction across segments, be it value housing or
premium residential towers. We expect the trend to
continue in future, as buyers become aware of the
benefts of green buildings and in turn developers
look forward to market their products with a green
certifcation.
Project Name Developer Location Built-up Area (sq ft) (sq ft) Rating Achieved
Camelot Tata Housing Kansal-Mohali 4,229,000 Pre - Certifed, Gold
Palais Royale Shri Ram Infrastructure Mumbai 2,500,000 Pre - Certifed, Platinum
Aqua Lily Mahindra Lifespaces Chengulpet 1,300,000 Pre - Certifed, Platinum
Aliens Space Station I Aliens Group Hyderabad 853,776 Pre - Certifed, Platinum
Aquila Heigths Tata Housing Development Bangalore 650,950 Pre - Certifed, Gold
Nitesh Columbus Nitesh Estates Bangalore 567,365 Pre - Certifed, Gold
August Park Mr.Biju P.John Bangalore 408,379 Pre - Certifed, Gold
NOEL Greenature NOEL Villas & Apartments Kochi 245,745 Pre - Certifed, Gold
Springs Appaswamy Real Estate Limited Chennai 195,028 Pre - Certifed, Gold
BCIL T ZED Homes BCIL Bangalore 175,350 Platinum
Megapolis Pegasus Properties Pune 139,364 Pre - Certifed, Platinum
Raisina Residency Tata Housing Gurgaon 120,774 Pre - Certifed, Gold
Green Grace S&S Construction Limited Hyderabad 92,903 Pre - Certifed, Platinum
Shem Park Yuga Homes Chennai 90,610 Gold
Mahindra Splendour Mahindra Lifespaces Mumbai 80,000 Pre - Certifed, Platinum
Kalpataru Riverside Kalpataru Developers Mumbai 68,596 Pre - Certifed, Platinum
Srishti Kalpataru Developers Mumbai 68,596 Pre - Certifed, Platinum
Mahindra Chloris Mahindra Lifespaces Faridabad 42,735 Pre - Certifed, Platinum
Kalpataru Hills Kalpataru Developers Thane 37,966 Pre - Certifed, Platinum
Mahindra Royale Mahindra Lifespaces Pune 35,990 Pre - Certifed, Platinum
Kalpataru Pinnacle Kalpataru Ltd Mumbai 13,471 Pre - Certifed, Platinum
La Residency ACC Limited Mumbai 12,000 Pre - Certifed, Gold
Park Infnia Kumar Properties Pune 3,642 Pre - Certifed, Platinum
Source: Indian Green Building Council (IGBC) Website, December 2010
Activity Radar for 2011
In Navi Mumbai, the approval of the new airport has brought forth
a marked reaction on the residential space front, with several
existing residential projects in Panvel witnessing appreciation in
less than a week after the announcement. Several land deals
are on the anvil for development of hospitality, as the sector will
gather a lot of activity when the airport becomes operational. The
much awaited euphoria is expected to continue as the area has
tremendous potential for real estate growth.
Lower Parel has become the centre for luxury residential projects
in Mumbai with over USD 10 billion (INR 45,000 Crore) worth of
residential projects under construction. With the location providing
further opportunities for growth due to available land parcels from
auctioning of sick mills, the location should be the one to watch for
during 2011.
Noida (including Noida city, Noida-Greater Noida Expressway,
Noida Extension and Greater Noida) has been the dominant
leader in terms of residential launches during 2010 and is
expected to be the leader in 2011 as well. Apart from the large
scale availability of land due to opening of new sectors, the metro
rail connectivity to Noida has increased the size of its residential
market multifolds. However, investors should be wary of the
oversupply conditions being built up in Noida due to a massive
infux of residential supply.

Although the prime areas of Gurgaon are saturated in terms of
residential developments, the future growth corridors are the Golf
Course Extension Road and Dwarka Gurgaon Expressway.
The National Highway-8 and Sohna Road are also witnessing
considerable residential activity.
In Bangalore, Hosur Road and Bellary Road have witnessed high
residential activity during the past two years and are expected to
remain active in the coming years. While Hosur Road connects
the city to Electronic City, the Bellary Road connects to the new
international airport.
The southern suburbs of Chennai, including development along
the Old Mahabalipuram Road and Great Southern Trunk Road
should witness considerable residential activity.
The north-west (Wakad, Pimple, Aundh Annexe) and south-east
(NIBM Road, Hadapsar, Kondhwa) zones of Pune have seen
considerable activity during the last 2 years and should remain
active in the next year as well.
Hitec City and Gachibowli in Hyderabad have yet to register any
signifcant growth of activity and prices since 2008 due to the geo-
political instability in the region. However, taking cues from other
markets of India, if stability exists in other spheres, the locations
should record growth in 2011.
-4% -2% 0% 2% 4% 6% 8% 10%

NCR-Delhi
Hyderabad
Kolkata
Bangalore
Chennai
Pune
Mumbai
Simple Average of % Q-o-Q Change in Capital Values of Constituent Micro-markets
residential rates due to improving infrastructure, while others would languish due
to an already overvalued market.
Figure 15: Existing and Upcoming Residential Projects with IGBC Green Homes Rating in India
Outlook: Retail Real Estate
Despite being the worst hit during the recent slowdown, the retail
property market has resurged with a marked increase in retail
sentiments. In 2010, retailers, both domestic and foreign, re-drafted
their plans for expansion into various Indian cities. The immediate
effect was felt by the increase in high street transactions as suitable
space was not available in prime shopping centres. Also, this led to
several shopping centre developers focusing on execution of their
ongoing projects. Rents have found support at the current levels
and there is low expected risk of further downslide. Hence, the
corrected rents provide a suitable opportunity for retailers to execute
their expansion plans. Revenue sharing models have gained more
traction with developers ensuring a better mall management. The
polarization of demand for certain locations was evident with select
shopping centres getting operational at high occupancies while
others languish.
The year 2011 will witness the completion of shopping centres
across tiers of geography and segments including value, lifestyle,
speciality and luxury. However, the focal point will still be value and
necessity retailing in the Tier III locations which limits the expansion
of lifestyle and luxury retail to Tier I and Tier II cities. While select
developers would demand a higher rent for their upcoming projects,
average valuations will not appreciate in a hurry. The possibilities of
100% FDI being permitted for multi-brand retailing are immense for
retail real estate in India. However, due to the associated beliefs of
negative effects to unorganized retail, the proposition will be tough to
get accepted unanimously.
More collaborative models such as revenue sharing
to emerge in the sector
In a rigorous business environment today, collaborative competition
or collabetition is the way forward for the stakeholders in the retail
industry - retailers, developers, consumers and the authorities.
Some of the trends that have already emerged such as revenue
sharing models are a form of collabetition between the retailers and
developers, where they are sharing the successes together, while
minimizing the downside risk.
In the slowdown, the retailers, concerned with the real estate
costs, increased their demand for renegotiating rents. Developers
were initially reluctant, which led many retailers to downsize their
portfolios across shopping centres in India. However, markets turned
rapidly to favour tenants, and retailers renegotiated on the rents
as well as demanded revenue sharing models (Figure 16). Such
fexible revenue models are highly acceptable to the retailers as the
risk is shared between the real estate owner and the retailer. Also,
it makes the developer more accountable for generating footfalls
and conversion rates in the shopping centre. For the developer,
it reduces the risk of high vacancy in the shopping centre while
counting on the probability of better revenues in future.
With their shopping centres under advanced stages of construction,
developers eventually saw value in the proposition, and provided
Source: Industry Sources
options for sharing revenue with retailers. Several malls that
became operational during the slowdown opted for a combination
of minimum guarantee and revenue sharing, which ensured foor
earnings for the developer. The transparency in revenue recognition
is expected to enhance with better mall management practices
employed in the industry. This will ensure greater confdence among
developers towards innovative rental sharing arrangements with the
retailers.
Figure 16: Prevalent Revenue Share Percentages across Major
Retail Categories in India
Category
Revenue share as rent (in (in
percentage)
Anchor Stores
Hyper Market 3-4
Departmental Stores 7-8
Vanilla Stores
Apparel 12-18
Footwear 15-18
Jewellery 2-2.5
Health and Beauty Products 10-12
Food 15-20
Entertainment 8-10
Rents to remain stable except select
prime locations
Rental values expanded rapidly during 2004-2Q07,
followed by a year of gradual growth. However,
the effect of the global slowdown had an impact on
retail sentiments in the region, which led to a rental
correction of 33.5% since the peak recorded in
3Q08 (Figure 17). Through 2009, several retailers
demanded renegotiation on rentals and preferred
revenue sharing models. While the terms of revenue
sharing have made the landlord accountable for
generating footfalls in the mall, it rewards them by
reducing the risk of near term vacancy and retaining
probabilities of better revenues in the future.
Rents have found support at the current levels and
there is low expected risk of further downslide. Hence,
the corrected rents provide a suitable opportunity
for retailers to execute their expansion plans in the
region. However, rents are not expected to appreciate
in a hurry, except in select prime locations, where
vacancy is low and the demand for retail space
is high.
Figure 17: Movement of Indian Retail Markets on the Property Clock
RENTS
DECLINING
RENTS
RISING
GROWTH
SLOWING
DECLINE
SLOWING
2Q07
4Q07
4Q08
2Q08
2Q09
4Q09
3Q10

1
5

M
O
N
T
H
S

9
M
O
N
T
H
S

2
4
M
O
N
T
H
S

Large number of malls slated to become
operational
At end-3Q10, NCR-Delhi and Mumbai together
constitute 70% of the total retail space (contributed
by shopping centres) in India, housing 127 of the 192
shopping centres currently operational in the country.
Bangalore and Kolkata have a retail stock of 3.8-3.9
million sq ft each, followed by Hyderabad, Pune and
Chennai. Apart from shopping centres, high streets
with standalone outlets of established brands are
prevalent in all these cities.
Sixty-fve shopping centres encompassing a total
retail space of 24 million sq ft are expected to become
operational during the next fve quarters between
4Q10-2011 across the top seven metropolitan cities
of India (Figure 18). The matured retail markets of
Mumbai and NCR-Delhi, which constitute 70% of the
operational stock of retail space, account for only 51%
Figure 18: Supply and Demand of Retail Space
of this new supply. This is due to increased construction activity in the Tier II
markets which are relatively underserved, despite having a large potential.
New Completions Net Absorption Vacancy
3
.8
4
.1
9
.4
8
.5
6
.3
9
.4
2
0
.1
1
3
.1
2
.83
.7
9
.6
6
.6
4
. 04
.9
1
1
.5
1
1
.3
0
4
8
12
16
20
24
2005 2006 2007 2008 2009 2010F 2011F 2012F
C
o
m
p
le
tio
n
s
/ A
b
s
o
r
p
tio
n
(
m
illio
n
s
q
ft
)
0%
6%
12%
18%
24%
30%
36%
V
a
c
a
n
c
y
(
%
)
A signifcant portion of the medium term supply is
under advanced stages of construction, and has not
become operational due to controlled demand from
retailers. However, as demand for quality space
strengthens, this supply is expected to become
operational in medium term. Over 60% of the supply
expected to become operational during 4Q10-4Q12
has more than half of its structure ready, which
minimizes the construction risk for retailers planning
to begin operations in near term (Figure 19). Those
shopping centres which are being developed along
with already functioning townships are expected to
become operational frst they have a ready residential
catchment to tap into.
Figure 19: Status of Construction of Future Supply (4Q10-4Q12)
More international retailers to venture into India
In 2006, Government of India allowed upto 51% Foreign Direct
Investment (FDI) into single brand retailing, as a measure to
liberalise the retail sector. The conditions included that the products
sold should only be of a single brand, which is sold under the same
brand internationally, and single brand product-retailing would cover
only products which are branded during manufacturing. In 2008,
the sector was further liberalized when the government permitted
100% FDI under the automatic route for wholesale or cash-and-carry
trading.
Indian economy faces serious supply-side constraints, particularly
in the food-related retail chains. The argument against opening
of the retail sector has been that once foreign retailers open up
their stores in India, it would amount to unfair competition to small
domestic players. This would in turn lead to large scale exit of
domestic retailers causing displacement of people employed in the
retail sector. Another argument is that given the nascent stage of the
Indian organized retail, the sector should be allowed to grow and
consolidate before opening it to foreign investors.
However, in July 2010, the Department of Industrial Policy and
Promotion (DIPP) released a discussion paper on FDI in multi-
brand retailing in India. Indian government is likely to allow FDI in
multi-brand retailing in the near term, albeit in a phased manner to
safeguard the interests of local kirana stores and ensuring a positive
impact on employment generation. The initiative for discussion by
the government is a positive step towards bringing the much needed
capital to the industry. Retail space in India can see signifcant
growth of demand in the future, if the policies are indeed relaxed.
Even in the current setup, several international retailers have already
ventured into partnerships with domestic retailers in the B2B cash-
and-carry format or as strategic license and franchise agreements.
Retailers would continue to expand beyond Tier I
into Tier II and III cities
The retailing landscape varies signifcantly across Indian markets,
as cities differ greatly in size, maturity and purchasing power. Retail
real estate in the Tier III cities is currently dominated by traditional
high streets and is located at central business precincts, transport
nodes and along the major transport corridors. The retail stores are
generally located on the ground and frst foors of prime properties
along major roads and high streets. This type of retail space does
not have standardised facilities such as parking or central air
conditioning.
However consumer preferences are changing the retail real
estate landscape of the non-metro cities which are witnessing
the development of malls and modern shopping centres. Lack of
entertainment options and inconvenient retail environments in these
cities have assisted the success of the frst malls and shopping
centres. Cities like Ahmedabad, Jaipur, Nagpur, Ludhiana, Surat,
Vadodara, Aurangabad and Kochi have witnessed growth in mall
development in recent years. Although large sized malls like
Treasure Island (700,000 sq ft) in Indore have been successful,
smaller sized malls ranging between 200,000 sq ft and 400,000 sq
ft and strategically distributed across the city are more suitable for
these cities.
Store sizes vary across retail categories and Tier III markets.
While revenue share models are preferred by retailers, they are
less prominent in non-metro cities as these markets are relatively
immature and developers/property owners do not yet have
substantial understanding of these models.
The Tier III cities in India are the next destinations for retailers after
the Tier I and Tier II cities due to increased consumer spending and
changing consumer preferences in these cities. Many retailers are
exploring this opportunity and they are cautiously expanding into
the non-metro cities. Retailers are remodeling their strategies to suit
the non-metro cities. As real estate markets in the small cities are
still largely unorganised and immature, getting suitable properties
is a challenge for retailers. The properties mostly lack in quality,
aesthetics and parking facilities. In such a scenario developers and
operators of smaller Indian markets need to be more cognisant
of the viability of their retail projects while planning, building and
operating their properties to tap this demand. With the retail
industry poised to grow at the rate of 9% y-o-y, the retail sector in
India is again geared towards growth. However, this time the retail
landscape in India is growing beyond the metro cities.
Opportunities in retail real estate
Several urban agglomerations are being planned and developed
across the Indian landscape to cater to the rapidly urbanizing
population. With the growth of offce and residential space in
these areas, the opportunities to develop retail along with these
developments are immense.
Integrated Townships
Integrated townships, with an appropriate mix of offce, retail and
residential components, are being constructed and planned across
the country. These townships are either being developed at the
suburban locations of existing cities or second home destinations at
far-fung locations such as hill stations.
Special Investment Regions
The state of Gujarat recently enacted the Special Investment Region
(SIR) Act in 2009, under which large manufacturing and trading hubs
(more than 100 square km) are being planned in the state. Complete
with residential townships and industrial parks, these regions provide
immense potential for retail development.
Campus Towns
Several large educational campuses are being built which will bring
together a mass of people including students, educators and support
staffs.
Brownfeld Redevelopment in Prime City
With continual expansion of city limits over the years, the erstwhile
mills and industrial units which were located outside the city have
been engulfed in offce and residential developments. As land is
scarce in the city, these sick mills have become prime targets for real
estate development in several urban locations of India. Brownfeld
redevelopment at these locations provides an opportunity for
development of prime or luxury retail.
Excavation / Upto Plinth
(10%)
Less than 50%
Structure Ready
(27%)
50-100% Structure Ready
(42%)
Ready for Fit-Outs
(21%)
Opportunities in Retail Segments
Destination Retailing
Destination retailing in India is in its nascent stage of development,
primarily due to unavailability of physical infrastructure to support
it. As transport infrastructure improves at urban locations, there are
tremendous opportunities for destination retailing in the suburban
and exurban locations. Clubbed with appropriate entertainment
options such as multiplex, restaurants, gaming and even theme
parks, these destinations across the globe have struck success as a
tourist hotspot. Indian shopping centres are already experimenting
with the concepts of experiential retailing (or experience retailing),
where they want to provide lifestyle shopping experiences to the
consumers.
Collabetition takes a leap of faith and enters a new paradigm with
destination retailing, where retailers and even developers come
together to partner in creating recreational shopping precincts.
Luxury Retailing
Luxury retailing in India is limited to few luxury shopping centres,
select high street locations and fve star hotels. Considering the
consumer class of the country, the penetration is evidently shallow.
According to the 2010 World Wealth Report by Capgemini, the
HNWIs population in India was over 126,700 in 2009, recording a
50.9% annual growth during the year. Several wealthy consumers
travel abroad for their luxury purchases, which exposes the lack
of suitable luxury destinations in the country. As of 2010, there are
only three shopping centres, which can be termed as luxury DLF
Emporio in Delhi, UB City in Bangalore and Palladium (High Street
Phoenix) in Mumbai.
An Outlook on Real Estate
Regulatory Policies in India
Foreign Direct Investment and Other Regulatory
Policies
1. Foreign Direct Investment
Historically, Foreign Direct Investments and Foreign Exchange fows
have been regulated by Governments world over to achieve their
objectives and priorities, India being no different in this regard. The
Foreign Direct Investment (FDI) in Real Estate Development being a
sensitive sector was restricted until 2005.
As part of the liberalization process which began in 1991 to improve
the growth and foreign exchange reserves position, the Government
opened up the sector to FDI in March 2005 by issuing the frst Press
Note 2 of 2005.
There are four different routes for foreign investors for making
investment in the Real Estate Sector.
Investment by all category of investors under FDI Route;
Investment by Foreign Institutional Investors (FIIs);
Investment by Non-Resident Indians (NRIs); and
Investment by Foreign Venture Capital Company/Fund
Presently, FDI upto 100% for the frst category is permitted under
the automatic route in townships, housing, built-up infrastructure
and construction development projects (which would include, but not
restricted to housing, commercial premises, hotel, resorts, hospitals,
educational institutions, recreational facilities, city and regional
level infrastructure). No prior approval is required for FDI subject to
fulfllment of the following conditions:
Nature of Project Minimum Development Area

Serviced housing plots 10 hectares (25 acres)
Construction development projects Built up area of 50,000 sq. mts.
Combination of the above two Any one of the above two conditions
Condition Requirements
Minimum capital infusion
Wholly Owned Subsidiary -USD 10 mn / Joint Venture
- USD 5 mn
Minimum Initial Investment Brought in within 6 months of commencement of business
Repatriation of Investments
After 3 years of complete capitalization (clarifcation to
Press Note 2 / 2005)
Early remittance permitted with FIPB approval
Minimum Area
Development Norms
Minimum
Capitalization Norms
Other Conditions
Development project to conform with local development rules and
regulations
Minimum 50% of project must be developed within 5 years
Sale of undeveloped plots would not be permitted
In case where the investment does not meet the aforesaid criteria,
then the investor can approach the Government for their specifc
proposal.
The intent of the Government is loud and clear that investment
for trading in Real Estate is strictly prohibited and only investment
for development purposes is permitted. Further, the investment is
permitted only in Green feld projects (i.e. new projects) and not in
Brown feld projects (i.e. existing projects).
As the investment started fowing in the country and innovative
investment structures emerged, various interpretation and practical
issues arose which created controversies and unintended results.
In order to clarify some of the interpretation issues, the Government
issued the following clarifcations vide Press Release dated 30
September 2010:
Share premium should be included while calculating Minimum
Capitalization.
The entire amount brought in as FDI is regarded as original
investment. The lock-in period of three years will be applied from
the date of receipt of each installment / trenche of FDI or from the
date of completion of minimum capitalization, whichever is later.
However, the ambiguity with respect to, inter-alia, the following
aspects still exists:
Whether investment is permissible in existing company proposing
to engage in Real Estate development?
What is meant by commencement of business?
Whether built-up area includes parking space / other amenities for
computing minimum threshold?
Whether FII investment is permissible in the Real Estate Sector
without compliance with the FDI policy?
Since the opening up of window for investment, the sector has
attracted total investment of USD
4
8.90 billion and it is expected
to reach a size of USD
5
180 billion by 2020, now the Real Estate
Sector is witnessing a next round of BUZZ and the Government
should proactively clarify most of the issues and develop an investor
friendly environment to attract signifcant investments and to avoid
controversy / aggressive interpretations.
Investment under this route is permitted via equity shares,

preference shares and fully and compulsorily convertible preference
shares/debentures. Investment through any other instruments, say
bonds, debentures, etc is regulated by the External Commercial
Borrowings Policy of the RBI.
Apart from the FDI route discussed above, NRI route for making
investment in challenging projects has been explored in the past.
Similarly, Foreign Venture Capital Investors route is also in vogue
with respect to planned investments by overseas Realty Funds and
Pension Funds into the Indian opportunities.
In order to provide more liquidity to the sector and also permit
retail investors to reap the benefts of Real Estate boom, the
Government released drafts of Real Estate Mutual Fund (REMF)
Regulations and Real Estate Investment Trust (REIT) Regulations.
REIT is a collective alternate investment scheme introduced by the
Government and is similar to mutual funds. REIT is a trust created
by the trustee company and managed by the Asset Management
Company (REIMC). REIT and REIMC are required to be registered
with SEBI. Detailed regulations have been prescribed by the SEBI
for the registration of REIT and REIMC, functioning of these entities,
scheme criteria, listing of scheme, valuation criteria, investment
and dividend policy, etc. The present FDI policy does not enable
foreign investments into REIT and the Government is evaluating
allowing of investments into REIT. Further, there is no clarity on
tax implications of REIT as well as the investors which is one of the
major bottlenecks which Government needs to work around. SEBI
introduced REMF regime in mid 2008 by amending the existing
Mutual Fund Regulations. REMF is effectively a Real Estate
dedicated close ended mutual fund. The draft REMF regulation
issued by SEBI prescribes various aspects such as eligibility,
registration, investment and dividend policy, valuation guidelines,
etc. The present FDI guidelines could permit foreign investments
and the tax regime for the mutual fund could equally apply to REMF.
These could provide REMF an edge over REIT. Due to certain
practical diffculties, these regulations are under consideration of the
Government for further refnement.
Construction of Special Economic Zone (SEZ)
The Government has also allowed 100% FDI under automatic route
in development of SEZ, without applicability of Press Note 2 of 2005
conditions. However, this relaxation is subject to the provisions of
SEZ Act 2005 and the SEZ Policy of the Department of Commerce.
4
Source: Fact sheet on Foreign Direct Investment fromAugust 1991 to September 2010, Department of Industrial Policy and Promotion
5
Source: www.ibef.org
External Commercial Borrowings (ECB) Policy
The ECB is restricted for the Real Estate Sector. However, ECB
under the approval route is permissible to SEZ Developers for
providing the specifed infrastructure facilities. Similar relaxations
upto 31 December 2010 have been provided for integrated township
projects, as defned and subject to fulfllment of specifed conditions.
2. Other Exchange Control Regulations
In order to promote free fow of foreign exchange and trade, the
Reserve Bank of India (RBI) issues and monitors exchange control
regulations. Some of the following positive steps taken by the RBI
have benefted Real Estate Sector as well.
Royalty and technical collaboration fees could be remitted without
any restrictions.
Dividend and interest income is freely repatriable under the
Current Account transaction regulations.
3. Model Real Estate (Regulation of Development) Act
The necessity for a regulatory body to regulate the Real Estate
Sector, being dominated by unorganized and non-corporate players
has been echoed for the long time. Accordingly, in order to bring
the transparency and promote planned and healthy Real Estate
development of colonies and apartments, the Ministry of Housing
& Urban Poverty Alleviation has released a draft Model Real Estate
(Regulation of Development) Act. The respective State Governments
are expected to enact local laws on the same lines, to regulate the
sector.
The salient features of the Model Act (which is yet to be enacted) are
as follows:
Establishment of a Real Estate Regulatory Authority (RERA) and
Real Estate Appellate Tribunal (REAT);
Compulsory registration of specifed Real Estate projects;
Build to Sell Build to Lease

The income would be regarded as Income from Business
Income would be taxed on a net income basis at 30 per
cent (excluding surcharge and cess).
All business expenses generally allowable as a tax
deduction if.
- incurred after set up of business;
- revenue in nature;
- incurred wholly and exclusively for business purposes;
- after withholding appropriate tax (if any) and paid to the
exchequer;
- reasonable and at an arms length price if payable to
related party
Income from leasing of properties could be taxed as a Business Income

or Income from House Property.
Generally, lease rentals earned from exploitation of commercially complex
property is taxed as income from business. Whereas, pure lease rentals
earned could be taxed as income from house property.
Income earned from provision of services undertaken in a systematic and
regular basis should ideally be taxed as income from business.
The tax treatment of income from business is already discussed. The tax
treatment of income from house property would be subject to following
deductions:
- Municipal / local taxes and cess levied on property;
- 30 per cent of lease rentals (net of municipal taxes); and
- Interest on funds borrowed.
Furnishing of bank guarantee (5% of the estimated costs of

development works) to the local authority;
Make available all information and documents relating to the
property;
Upload on the website all project details and the names of
property dealers or brokers dealing in the project;
Enter into a registered agreement for sale with the allottee before
accepting any deposit or advance.
Income-tax Provisions and the Impact of Direct Tax
Code
1. Income-tax Provisions
Multiple Taxation Levy
Real Estate Sector is subject to multiple taxes such as corporate
tax (under the Income-tax Act, 1961 (the Act)), service tax, VAT,
stamp duty, etc. Corporate tax for an Indian company is 30% (plus
applicable surcharge and cess); whereas the rate for the foreign
company is 40% (plus applicable surcharge and cess). In certain
situations Minimum Alternate Tax (MAT) of 18% (plus applicable
surcharge and cess) is leviable where corporate tax liability is lower
than the MAT liability. Dividend Distribution Tax (DDT) of 16.995% is
payable on payment of dividend. The reintroduction of wealth tax on
some of the assets also increases tax cost though marginally.
Characterization of Income
Broadly, income of the Real Estate Sector can be broken into two
baskets depending upon the business model i.e. Build to Sell or
Build to Lease. The most important tax aspect which needs to be
considered is the characterization of income, which would depend
upon the precise business model followed and facts of each case.
Given below is the general tax treatment:
Another important aspect for Build to Sell model (mainly followed for
residential and commercial projects) is the accrual and taxability of
income as the project progresses. A question often arises whether the
income should be accounted and offered to tax on completion of the
project or it should be done as the project progresses on percentage
completion method. The recent accounting guidance notes issued
by the Institute of Chartered Accountants of India and the judicial
precedents of various Indian Courts, indicates that, by far, income
from such projects should ideally be accounted and offered to tax
following percentage of completion method.
Income-tax Incentives for the Developers
Indian Government has provided various Income-tax incentives to the
Developers depending upon the nature of project developed by the
Developer. The various Income-tax incentives are as under:
1) Development of Affordable Housing Project (including Slum
Redevelopment and Rehabilitation Projects) approved before 31
March 2008:
Proft linked incentive is available to the Developer of a qualifying
housing project under section 80-IB(10) of the Act. The incentive
is 100% tax deduction of the proft earned from the business of
developing and building a housing project subject to satisfaction of
following conditions:
Project should be approved by a local authority and the same
should be completed within the prescribed time period from the
date of such approval (fve years where the Project is approved
between 1 April 2005 to 31 March 2008) (relaxation from this
condition to Slum Redevelopment or Rehabilitation Projects is
provided).
Size of the project plot minimum area of one acre (relaxation
from this condition to Slum Redevelopment or Rehabilitation
Projects is provided)
Maximum built-up area of constructed residential unit - 1000 sq ft if
situated in or within 25 kms of Mumbai/Delhi, otherwise 1500 sq ft.
Built-up area of the shop or commercial establishments should not
exceed 5,000 sq. ft. or 3% of the aggregate built-up area of the
housing project.
Maximum one residential unit in the housing project can be allotted
to a person other than individual.
Not more than one residential unit should be allotted to an
individual or to his spouse or minor children or the HUF in which
the individual is a Karta or any other person representing such
individual, his spouse or the HUF.
While, the incentive is available, a Developer is confronted with
various issues. Some of the frequently faced tax issues are:

Eligibility to deduction, in case the construction gets delayed for
reasons beyond control of Developer?
Adjustment for actual losses in the year of completion of project
where percentage of completion method is applied by the Tax
Authorities?
Eligibility to deduction in case where project is executed on
adjacent pieces of land below 1 acre?
Whether ownership of land on which the housing project is a pre-
requisite for claiming deduction?
Whether income from sale of FSI from the eligible housing project
is eligible for claiming deduction?
Meaning of Built-up Area - whether area of common amenities,
stair cases, lobby, parking space/garages (not being shops or
commercial establishments) to be included?
2) Slum Redevelopment or Rehabilitation projects notifed by
the Central Board of Direct Taxes
In order to promote Slum Redevelopment or Rehabilitation Scheme
in India, the Finance Act, 2010 amended defnition of specifed
business for the purpose of section 35AD to include the developing
and building a housing project commenced on or after 1 April 2010
for Slum Redevelopment / Rehabilitation. Under the amended
provisions, Developers are eligible for claiming deduction of 100%
of the capital expenditure in the previous year in which the same
is incurred. Further, expenses incurred before commencement of
operations are allowable as a deduction in the frst year of operation.
It is pertinent to note that no deduction is allowable towards
expenses incurred for acquisition of land or goodwill or fnancial
instruments.
The section, in effect provides accelerated depreciation. Therefore,
a question arises as to whether the section really provides an
incentive. Further, the question becomes larger when it surmises
that a Developer paying taxes under the provision of the MAT, may
have to pay taxes on book proft calculated after claiming normal
book depreciation though accelerated depreciation is allowed under
section 35AD.
3) Development of Special Economic Zones (SEZs)
An SEZ Developer (including a Co-developer) is also eligible to
proft linked incentives under the provisions of the Act. Tax incentive
in the form of 100% deduction of the profts for the period of ten
consecutive assessment years out of ffteen years is available to a
Developer of SEZ. The deduction is available from the assessment
year in which the SEZ is notifed by the Central Government.
Further, the SEZ Developer also enjoys following exemption:
i. Exemption from the levy of MAT; and
ii. Exemption from levy of DDT.
However, one is confronted with, inter-alia, the following issues
which are worth considering:
The nature of income which is regarded as derived from and
hence eligible for the tax deduction?
Whether the income arising from operating and maintaining is
eligible for claiming tax deduction?
Whether the tax deduction period commences from the date
of SEZ notifcation even for a Co-developer which has been
approved after the date of SEZ notifcation?
The quantum of DDT exemption when the SEZ Developer is
engaged in multiple business activities?
Tax issues faced by the sector
The face of Real Estate Sector has been changing as the sector is
getting more organised and corporatized. With these changes, the
tax challenges will also undergo change. Some of the tax issues
that still haunt the sector are highlighted below, which needs to be
addressed to maximise the tax savings and minimise litigations.
Point of taxation and the method of calculation of taxable
consideration arising on transfer of Development Rights?
Whether consideration on transfer of Development Rights in land
is to be considered as per stamp valuation authorities or actual
consideration?
Whether payment of protection money is allowable as business
expenditure?
Whether payment made to existing tenant or occupier of land to
induce him to vacate and hand over vacant possession is capital
expenditure or revenue expenditure?
Whether interest and expenses incurred on issue of fully / partly
convertible debentures are capital in nature or revenue in nature?
2. Direct Taxes Code Bill, 2010
Direct Taxes Code Bill, 2010 (DTC) has attracted / continues to
attract the attention of the Government and various industries
considering its superseding effect over the 50 year old Income-tax
law in India. It is primarily released with the objective of consolidating
and interpreting all the provisions of Income-tax law in the more
simplifed manner and overcoming the litigation on various issues
which has signifcantly delayed the legislative implementation in the
country.
While the introduction of General Anti Avoidance Rules (GAAR),
Controlled Foreign Company (CFC), new Residency Test, etc. has

general impact on all sectors of the economy, the key provisions
which would directly impact the Real Estate Sector are as under:
Lease Rental Income would be taxed as Income from House
Property other than lease rentals earned by SEZ Developers
(which would be taxed as Business Income);
SEZ Developers would be eligible for claiming the tax incentives
as under:
For SEZ notifed on or before 31st March 2012
Proft based deduction available under section 80-IAB of the Act
would be grandfathered for the balance unexpired period out of
the prescribed 10 years.
The methodology prescribed under Schedule 12 of the DTC
should be applied while computing profts eligible for deduction.
However, the capital expenditure as well as expenditure
incurred prior to commencement of business shall not be
allowed
For the SEZ notifed on or after 1 April 2012
Paradigm shift from proft based deduction to investment based
deduction
Capital expenditure and expenditure incurred prior to
commencement of business would be allowed as a business
expenditure, except expenditure incurred on acquisition of any
land including long term lease, goodwill or fnancial instrument
In effect an accelerated depreciation prescribed as against a
proft based incentive and hence a question arises, is it really an
incentive.
Minimum Alternate Tax and Dividend Distribution Tax exemptions
shall not be available
Current incentives available for an approved housing project
under a scheme for slum re-development or rehabilitation under
section 35AD continued in the same form in the DTC
Proft based deduction available under section 80-IB(10) of the Act
grandfathered.
Indirect Tax Provisions and Impact of GST

1. Plethora of Indirect-taxes
India has a combination of a federal as well as a decentralized
system of levying indirect taxes. The Central Government of India,
the Governments of each individual State and the local authorities
are empowered to impose various indirect taxes. The key indirect
taxes include:
A. The Central taxes, which are levied by the Central
Government, such as:
Customs Duty
CENVAT (or excise duty)
Service Tax
Central Sales Tax
Research and Development Cess.
B. The State taxes, which are levied by the respective State
Governments, such as:
Value Added Tax (VAT)
Entry Tax
Octroi (levied and collected by Municipal Authorities - presently
imposed only in Maharashtra)
Stamp Duty
Other Local Taxes
C. The Government of India is planning to introduce a single
uniform Goods and Services Tax (GST) in the fnancial year
2011-12 which would subsume many of the above taxes.
A typical Real Estate development involves three key elements
land, material and labour. The indirect taxes authorities in India
have sought to levy indirect taxes on each such element, resulting
in not only multiplicity of taxes, but also in double taxation. The key
indirect taxes relevant therefore are:
Stamp Duty Stamp duty is payable on instruments such as
an affdavit, an agreement, an indemnity bond, etc., and not on
transactions. The stamp duty rate varies from State to State and
is paid on the basis of value of property at the time of execution of
the underlying instrument.
VAT this is a form of transaction tax applicable on sale
transaction of goods within the same State. The rate of VAT is
generally 4% or 12.5%, depending upon the nature of goods. It is
to be noted that VAT is applicable on moveable property, and not
on immovable property. It is also to be noted that the State VAT
legislations also empowers the State Government to levy VAT on
the goods/ materials, property in which is transferred during the
course of execution of a works contract, even though the activity
of such works contract may result into an immoveable property.

A question therefore arises is whether a Developer who sells a
fat to a potential customer is engaged in the transaction of a sale
of an immovable property or in a transaction involving works
contract.

This issue has been a subject matter of intense litigation in the
past. A landmark judgment was delivered by the Supreme Court
in the case of K Raheja Constructions, in which the Apex Court
held that if the agreement is entered into after the unit is already
constructed, then there would be no works contract, however, if
agreement is entered into before construction is complete, then it
would be works contract.

The key principle that seems to emerge out of the said decision
(based on the fact pattern involved in the Raheja judgment) is
that in a model where there are two different agreements between
the Real Estate Developer and the customer (one for sale of
undivided interest in land and the other for undertaking in future,
the construction of the structure on such parcel of land), the
second agreement can be regarded as a works contract, and VAT
would be payable on the materials sold by the Developer during
the execution of such works contract.

However, while the Raheja judgment was delivered in the context
of the contracting parties entering into two different agreements,
the State Governments are currently pursuing the levy of VAT
even in cases where there is only one agreement for sale of fat.

It may be noted that this decision has subsequently been referred
to the larger bench of the Supreme Court and therefore, the issue
of applicability of VAT on such transaction does not seem to have
settled.
Service tax this is a form of transaction tax that is applicable
@ 10.3% on a service transaction. While the State Government
levies VAT on the material element involved in the Real Estate
transaction, the Central Government levies service tax on the
labour element involved.

In the past, there has been much of a debate on whether Builders
and Developers are liable to service tax. While various circulars
and clarifcations were issued by the service tax department, in a
circular dated 29 January 2009, held that the construction service
provided by the Builder till the execution of the sale deed is in the
nature of self-service and would not attract service tax.
However, in the Union Budget 2010 certain amendment in the
taxable service categories of Construction of Complex Services
and Commercial or Industrial Construction Service was
made. The effect of such amendment is that unless the entire
consideration for the property is paid after the completion of
construction, the activity of construction would be deemed to be a
taxable service, and hence, liable to service tax (subject to some
abatement).

Real Estate associations have vehemently opposed the service
tax imposition on Real Estate and writs have also been fled in
various high courts against the levy. In fact, apart from the levy
of service tax on Real Estate transactions, the service tax law
also prescribes for levy of service tax on rentals arising out of
commercial leasing of immovable property, which again is a
subject matter of intense litigation.
It is therefore apparent that the taxability of Real Estate transactions
has been a subject matter of intense dispute and litigation. To add to
the confusion, the regulations governing Real Estate developments
differs from State to State (e.g. provision of completion certifcates
does not exist in many places, which leads to the question as to how
would the linking of service tax with completion certifcates happen
in such places). Given the fact that these transaction taxes add to
the overall cost of a Real Estate property in the hands of potential
buyers, the industry would be waiting with a bated breath for these
controversies to be resolved.
Irrespective of the aforesaid legal controversies, given the current
tax regime, a Real Estate Developer needs to evaluate various
factors to minimize the indirect tax outfow.
2. Introduction of GST Regime and its Impact on the
Real Estate Sector
The implementation of GST is expected to have a signifcant impact
on most industry verticals, and Real Estate is no exception.
The frst discussion paper on GST released by the Empowered
Committee was silent on the aspect of applicability or otherwise of
GST on Real Estate transactions. However, in the thirteenth fnance
commissions report, it was suggested that Real Estate Sector
should be integrated into the GST framework by subsuming the
stamp duty to facilitate input credit and eliminate cascading effect. It
was therefore suggested in the report that
GST should apply for all newly constructed property (both
residential and commercial) and credit should be allowed in
respect of input tax paid on raw materials used in construction.
All secondary market transactions in immovable properties
(whether constructed before or after the introduction of GST)
should be liable to GST. If the property is constructed after the
introduction of GST, the GST should be levied on the resale
value and input tax credit should be allowed in respect of the
GST paid upon purchase of the property after making adjustment
for infation. If the property has been acquired by the seller
before the introduction of GST, the GST should be levied on the
difference between the sale price and the cost of acquisition and
improvements thereto and no input tax credit should be allowed.
Rental charges received (excluding imputed rental values) in
respect of leasing of immovable property should be charged
to GST. No input tax credit should be allowed in respect of tax
paid on construction or acquisition of the property or tax paid
on improvements thereto. However, input tax credit should be
allowed in respect of input tax paid on goods and services used
for maintenance.
The fnal decision with respect to this sector is yet to be taken. While
one school of thought is that the Real Estate transactions involving
sale / transfer of Real Estate should be kept outside the GST ambit
(in which case, such transactions may continue to attract Stamp
Duty), the other school of thought is that Real Estate transactions
should be brought within the purview of GST, to ensure that the GST
chain is not broken, and the Developers / Builders get a set-off /
credit of taxes paid on construction material and services.
Internationally, in many countries, Real Estate transactions have
been given a preferential treatment under the GST / VAT regimes.
For instance, in Australia, supply of Real Estate property is subject
to going concern (which is equivalent to zero rating) concession,
on fulfllment of prescribed conditions. In United Kingdom supplies
of private residences are zero rated. In France, supply of immovable
property is generally exempt from VAT.
Therefore, given the peculiar transaction dynamics in the Real
Estate Sector, one would believe that this sector should merit a
special treatment under the GST regime.
Transition from Indian GAAP to IFRS

1. Background and Objective
Indian Inc. has been on an expansion mode with Indian companies
wanting to increase their global footprint and looking to tap the
overseas market for raising funds / listings overseas. This has lead
to increased challenges for complying with the regulatory framework
of overseas countries and overseas stock exchanges and hence the
need for a solo set of fnancial information reporting standards.
Globally, the International Financial Reporting Standards (IFRS)
[developed by the International Accounting Standard Board (IASB)]
are recognized / in the process of being recognized by most of the
countries / stock exchanges. Adoption of IFRS would reduce the
hassles of Indian entities arising from the necessity of preparing
fnancial statements / reports under multiple reporting standards or
making adjustments, etc. Further, it would also enable the Indian
entities and intellects to compare Indian fnancial statements with the
overseas companies and move ahead.
Accordingly, the Indian Government has proposed to comply with
the IFRS provisions by 2011. Further, the Institute of Chartered
Accountants of India (ICAI) has announced convergence by issuing
IFRS equivalent Indian Accounting Standards with only limited
changes as per the following implementation schedule:
Timeline for achieveing convergence
Phase I: Transition date 1 April, 2011
NIFTY 50
SENSEX 30
Companies whose shares or other secutities listed on stock
exchanges outside India
Companies (listed or unlisted) with net worth in excess of
INR 1,000 crores
Phase II: Transition date 1 April, 2013

Companies (listed or unlisted) with net worth in excess of INR
500 crores but less than INR 1,000 crores
Phase III: Transition date 1 April, 2014

Listed companies with net worth less than INR 500 crores
2. Impact on Taxability of Real Estate Sector
The convergence with IFRS would have far-reaching implications for
Real Estate, construction and infrastructure companies. It will impact
the basis for recognizing revenues, valuation and accounting for
assets, classifcation between equity and liability, etc.
Although it is a settled principle of tax law that accounting treatment
is not determinative of taxable income as per the Act, it is still
desirable that the differences between book profts and tax profts
are minimized to ensure harmony and reduce tax litigation. The
objective is to highlight certain key challenges to the Real Estate
Sector that are likely to emerge from Indian tax perspective as a
result of the transition to IFRS, owing to broad areas of differences
between Indian Generally Accepted Accounting Principles (GAAP)
and IFRS:
1. At the time of transition from Indian GAAP to IFRS, there would be
a need to recast the balance sheet which is likely to result in a gain/
loss as on the transition date. As per IFRS, such gain/ loss should
be adjusted through retained earnings or to a more appropriate
component of equity. Certain tax issues that may arise include:
a) Any increase in book value of a fxed asset would lead to higher
book depreciation resulting in reduced MAT liability and vice versa.
b) Impact on determination of net worth for the purpose of
computing capital gains arising on slump sale of such business in
future.
c) Any adjustment to the retained earnings would impact deemed
dividend applicability.
Amit Mookim, Director, Strategic and Commercial Intelligence (SCI)
Amookim@kpmg.com
+91 22 30902141
Amit has more than 10 years of management consulting experience across diverse industry and
consulting disciplines in India and the USA. Based out of Mumbai, his focus industries include real
estate, hospitality, etc. He has been instrumental helping set up the Commercial Due Diligence and
Market Entry practice at KPMG India. Amit has advised several Indian and multinational clients and
Private Equity funds in their strategy towards setting up new businesses such as hospitality assets,
resorts, special economic zones, retail, townships and IT parks. Amit holds a Masters in Business
Administration (MBA) from Faculty of Management Studies (FMS) and Bachelors in Economics from
University of Kolkata.
Authors
Abhishek Kiran Gupta, Head of Research & REIS
abhishekkiran.gupta@ap.jll.com
+91 22 6141 6500

Abhishek Kiran Gupta leads the Jones Lang LaSalle India Research team and is based in Mumbai. He
manages research operations on a Pan-India level and is responsible for the teams outputs, including
research reports such as topical white papers, property market digests and bespoke research projects
based on specifc client requirements. Prior to joining Jones Lang LaSalle, he had seven years of
experience in market research, business analysis and market strategy consulting, servicing diversifed
industries including pharmaceutical, software publishing and insurance.
Himadri Mayank, Manager, Research & REIS
himadri.mayank@ap.jll.com
+91 22 6141 6500
Himadri Mayank joined Jones Lang LaSalle India in July 2008 and is responsible for managing the
quarterly research offering Real Estate Intelligence Service (REIS), which tracks, analyses and
forecasts trends in offce, retail and residential property sectors for Indian cities. Based out of Mumbai,
he also contributes towards regional and local research publications covering economy, sector analyses,
market forecasts and investment strategies.
He holds a bachelors degree in Architecture from Indian Institute of Technology Kharagpur and has
three years of experience in the feld of real estate. He is pursuing the Chartered Financial Analyst (CFA)
program offered by CFA Institute, Charlottesville and is a 2011 Level III CFA candidate.
Amit Mookim, Director, Strategic and Commercial Intelligence (SCI)
amookim@kpmg.com
+91 22 30902141
Amit has more than 10 years of management consulting experience across diverse industry and
consulting disciplines in India and the USA. Based out of Mumbai, his focus industries include real
estate, hospitality, etc. He has been instrumental helping set up the Commercial Due Diligence and
Market Entry practice at KPMG India. Amit has advised several Indian and multinational clients and
Private Equity funds in their strategy towards setting up new businesses such as hospitality assets,
resorts, special economic zones, retail, townships and IT parks. Amit holds a Masters in Business
Administration (MBA) from Faculty of Management Studies (FMS) and Bachelors in Economics from
University of Kolkata.
Rajiv Parekh, Assistant Manager, Research, Analytics & Knowledge (RAK)
rajivparekh@kpmg.com
+91 22 30902277
Rajiv Parekh joined KPMG India in April 2007 and is responsible for developing real estate related
thought leaderships. Based out of Mumbai, he also contributes towards regional and local research
publications covering economy and sector analyses. He is a qualifed Chartered Financial Analyst
(CFA) and holds bachelors degree in management studies from University of Mumbai.
2. Further, there would be numerous instances where under the
IFRS, entry need to be routed through the proft and loss account as
compared to the Indian GAAP. Thus, there is a need for clarifcation
whether such debit / credit entry to the proft and loss account would
be taxable or allowable as revenue income / expenditure or the
same needs to be capitalized for claiming depreciation thereon.
Similarly, the treatment required to be given in case of notional
losses (arising from the suggested accounting treatment under the
IFRS) also needs to be clarifed. Further, the impact of such credit
/ debit entries in the proft and loss account on the MAT liability
also needs to be clarifed. Few such instances are mentioned
hereinunder:
Under IFRS, investment properties (land or building, or both)
have to be valued at fair value (as against recorded at cost under
the Indian GAAP) and resultant gain / loss needs to be routed
through the proft and loss account. Further, no depreciation could
be claimed under IFRS on such fair valued amount.
IFRS mandates component accounting (as against capitalizing
assets based on the broad category under the Indian GAAP)
which may require signifcant technical assessment and from a
fnancial reporting standpoint, each component is required to be
depreciated separately based on its useful life.
Under IFRS, payment on account of business combinations
and acquisitions are not capitalized (as required under the Indian
GAAP) but recorded through the proft and loss account.
Under IFRS, premium on redemption of fnancial instruments
(say preference shares and debentures) and all associated costs
are required to be recorded through the proft and loss account
over the tenure of the instrument as against adjustment through
the share premium account allowed under the Indian GAAP.
Under IFRS, recording of fnancial instruments is based on

their substance instead of form (as against recording based on
form under the Indian GAAP). Therefore, mandatory redeemable
preference shares on which fxed dividend is payable can be
treated as liability and accordingly dividend would be recorded as
an interest charge to the proft and loss account.
Under IFRS, an entity is required to classify a non-current asset
(or disposal group) as held for sale if its carrying amount will
be recovered principally through a sale transaction rather than
through continuing use. Once this is done, the asset is (a) not
depreciated; and (b) is measured at the lower of its carrying
amount and its fair value less cost to sell with any loss being
recognized in the proft and loss account.
Summing up
The Governments vision of providing housing to all is a noble
one as it would help overall economic development of the country.
This vision could be achieved provided the Government provides
the business friendly regulatory framework and also provides
desired fscal as well as tax incentives to various stakeholders who
contribute signifcantly in the development of the sector. Presently,
the sector is subject to multiple levies of taxation and the overall
tax cost for the Developer ranges between 27% to 30%. The
Government should consider simplifying the tax laws and minimizing
the overall tax cost for the sector so that housing can become
affordable for the common man leaving decent take home for the
Developers.
About Jones Lang LaSalle

Jones Lang LaSalle (NYSE:JLL) is a fnancial and professional services frm specializing in real estate. The frm offers integrated services delivered by expert
teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2009 global revenue of USD 2.5 billion, Jones Lang
LaSalle serves clients in 60 countries from 750 locations worldwide, including 180 corporate offces. The frm is an industry leader in property and corporate facility
management services, with a portfolio of approximately 1.6 billion square feet worldwide. LaSalle Investment Management, the companys investment management
business, is one of the worlds largest and most diverse in real estate with approximately USD 40 billion of assets under management. For further information,
please visit our website, www.joneslanglasalle.com.
Jones Lang LaSalle has over 50 years of experience in Asia Pacifc, with over 17,800 employees operating in 76 offces in 13 countries across the region.
About Jones Lang LaSalle India
Jones Lang LaSalle is Indias premiere and largest professional services frm specializing in real estate. With an extensive geographic footprint across ten
cities (Delhi, Mumbai, Bangalore, Pune, Chennai, Hyderabad, Kolkata, Kochi, Chandigarh and Coimbatore) and a staff strength of over 3500, the frm provides
investors, developers, local corporates and multinational companies with a comprehensive range of services including research, consultancy, transactions, project
and development services, integrated facility management, property and asset management, capital markets, residential, hotels and retail advisory. For further
information, please visit www.joneslanglasalle.co.in
About CREDAI
The Confederation of Real Estate Developers Associations of India (CREDAI), an apex Real Estate Developers body, has congregated over 6,000 Developers all
across India under a single umbrella and has linked them with government and customers through relentless initiatives and activities.
The major objectives of CREDAI are as enlisted below -
To perpetuate an ethical code of conduct, which is self imposed & mandatory for all the member developers / builders of CREDAI to maintain integrity &
transparency in the profession of Real Estate Development.
To represent the developers/builders across India by communicating & representing with the government authorities for the formulation of proactive policies for this
profession.
To encourage & support the developments/builders to increase their effciency in the development /construction activities by introducing the latest technologies.
To disseminate the data, statistics & other related information in this profession of real estate development.
To promote the interest of construction workers & to educate them on the best practices.
To encourage research in the profession of construction & real estate development
To facilitate easy housing fnance availability to the property purchases by working in close coordination with the leading house fnance institutions & banks.
CREDAI helps the Developer community to Facilitate, Promote, Build, Serve and Prosper.
About KPMG in India
KPMG is a global network of professional frms providing Audit, Tax and Advisory services. We operate in 146 countries and have 140,000 people working in member
frms around the world. The independent member frms of the KPMG network are affliated with KPMG International, a Swiss cooperative.
KPMG International provides no client services. Each KPMG frm is a legally distinct and separate entity and describes itself as such. Each KPMG frm is a legally distinct and separate entity and describes itself as such.
KPMG in India, the audit, tax and advisory frm, is the Indian member frm of KPMG International Cooperative (KPMG International) was established in September
1993. The frms in India have access to more than 3500 Indian and expatriate professionals, many of whom are internationally trained. As members of a cohesive
business unit they respond to a client service environment by leveraging the resources of a global network of frms, providing detailed knowledge of local laws,
regulations, markets and competition. KPMG has offces in India in Mumbai, Delhi, Bangalore, Chennai, Chandigarh, Hyderabad, Kolkata, Pune and Kochi. We strive
to provide rapid, performance-based, industry-focused and technology-enabled services, which refect a shared knowledge of global and local industries and our
experience of the Indian business environment.
Real Estate Intelligence Service (REIS) India is a subscription based research service designed to provide you with cutting
edge insights into Indias diverse and challenging real estate markets through collation, analysis and forecasts of property market
indicators and trends across all major Indian markets across various real estate asset classes - offce, retail, residential.

REIS empowers you with consistent and complete market data and analyses for all real estate indicators by specifc micro markets.
It is supplemented by value added services including client briefngs, presentations and rapid market updates.

For more details, contact, Abhishek Kiran Gupta - abhishekkiran.gupta@ap.jll.com
or Avinash Mirchandani - avinash.mirchandani@ap.jll.com
KPMG disclaimer: The information contained herein Indian Real Estate: An Outlook on Industry Trends and Regulatory Policies is of a general nature and is not intended to address
the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of
the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the
particular situation.
COPYRIGHT JONES LANG LASALLE All rights reserved. No part of this publication may be published without prior written permission from Jones Lang LaSalle. The information in this
publication should be regarded solely as a general guide. Whilst care has been taken in its preparation no representation is made or responsibility accepted for the accuracy of the whole or
any part. We stress that forecasting is a problematical exercise which at best should be regarded as an indicative assessment of possibilities rather than absolute certainties. The process
of making forward projections involves assumptions regarding numerous variables which are acutely sensitive to changing conditions, variations in any one of which may signifcantly affect
the outcome, and we draw your attention to this factor.

Indian Real Estate Outlook and Regulatory Policies

Transféré par

Informations du document

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Indian Real Estate Outlook and Regulatory Policies

Transféré par

Droits d'auteur :

Formats disponibles

Indian Real Estate:

Outlook: Residential Real

infux of residential supply.

-4% -2% 0% 2% 4% 6% 8% 10%

Nature of Project Minimum Development Area

Investment under this route is permitted via equity shares,

Build to Sell Build to Lease

Income from leasing of properties could be taxed as a Business Income

Furnishing of bank guarantee (5% of the estimated costs of

various issues. Some of the frequently faced tax issues are:

Controlled Foreign Company (CFC), new Residency Test, etc. has

Indirect Tax Provisions and Impact of GST

of such works contract may result into an immoveable property.

Transition from Indian GAAP to IFRS

Phase II: Transition date 1 April, 2013

Phase III: Transition date 1 April, 2014

Under IFRS, recording of fnancial instruments is based on

About Jones Lang LaSalle

Vous aimerez peut-être aussi