GLOBAL SCHOOL OF MANAGEMENT SCIENCE

FINANCE PROJECT ON
“INDIAN REAL ESTATE
INDUSTRY”

SUBMITTED BY

SAM SUJEET

MBA (PGPM)

INTRODUCTION

1
GLOBAL SCHOOL OF MANAGEMENT SCIENCE

The last five years in Indian real estate constituted a one-off boom
period triggered by the emergence of India as a global investment
destination. This is a general phenomenon that every sector goes
through before maturity - we can compare it to the boom of 2000-2001
or the stock market boom of 2007-2008. The end always comes as a
surprise, and can never be accurately predicted.

This is not to say that the good times have come to an end - the real
estate industry is one of the basic industries of any economy and will
always be an important component. In times ahead, we will see the
industry revive and accelerate, though through smaller and shorter
cycles. We already know that every industry has a life cycle of
explosive growth, stabilization and maturity, followed by moderate
growth. Real estate used to be a niche industry in terms of stock
market exposure and private equity funding a now, it will emerge a
larger, more-organized industry with realistic growth in line with the
GDP, and it will represent a better and more sustainable value
proposition.

Over the past six months, the real estate industry in India underwent
and continues to undergo various changes. Now that the popular myth
of India being a decoupled economy is finally broken, we are faced
with new challenges that will see the progression of the industry into
the next phase of a general industry cycle.

It is historically established that as an industry matures, it gives way to

fewer and stronger players who help to bring some sense in the
industry. The coming months will see consolidation in an industry that
is on a journey towards equilibrium price discovery, resulting in a win-
win for both the developer and the end-user. Developers may not get
the high margins which they were used to, but they can still make
money through higher volumes and a faster cash cycle.

Consolidation will happen at different levels. Primarily, however, we

will witness it at the national as well as regional levels - there will be
niche-specialized players who are experts in local municipal approval
processes, as well as national players who operate with a much larger
focus. This consolidation will mark the extinction of the fly-by-the-night
operators who had entered the industry and had made it deviate from
its fundamentals.

The projection of India needing approximately 22 million units still

holds true. Therefore, demand still exists, and increasing affordability

2
GLOBAL SCHOOL OF MANAGEMENT SCIENCE

in housing will help tap this demand. Also, affordability has to

transcend the current far-flung locations and kick in at the suburban
levels, closer to CBD areas.

Currently, developers must not only complete projects under execution

but also re-strategize to sell them quickly. Once they get out of the
existing inventory and execution pipeline, they can look at new land
parcels and new business ideas such as affordable housing and
innovate. While there is certainly demand, it is essential for this
strategizing to take place, so that affordable housing schemes become
a win-win for both developers and end-users.

SOME OF THE HALL MARKS FOR FUTURE

1.The advent of affordable housing
2.Increased consolidation, corrected valuations and a focus on delivery
to exist
3.Decreased leverage
4.Decreased land banking
5.Increased focus on execution and timely delivery to gain end-user
confidence
6.Emphasis on and more focused expansion in Tier-I and Tier-II cities,
where demand is already proven
7.Decrease in speculative supply in commercial real estate
8.A better comprehension of the fact that buyers and sellers interests
need to match for the market to exist
9.Players re-examining their valuations to make sound acquisition
decisions
10.The return of the fundamental market focus An industry survives
because of the users, and not vice-versa. 2009, especially the second
half, will bring excellent bargains for investors, as well as to those who
have a medium-to-long term view on the industry and the necessary
risk appetite. Much will depend on being bang on target in terms of
location, product and entry valuation.

3
GLOBAL SCHOOL OF MANAGEMENT SCIENCE

PRESENT SCENARIO OF THE INDIAN REAL ESTATE

INDUSTRY

The Indian real estate sector plays a significant role in the country's
economy. The real estate sector is second only to agriculture in terms
of employment generation and contributes heavily towards the gross
domestic product (GDP). Almost five per cent of the country's GDP is
contributed to by the housing sector. In the next five years, this
contribution to the GDP is expected to rise to 6 per cent. Faster
economic growth in Brazil, Russia, India and China could result in the
property markets of those nations recovering at a faster rate than the
UK and US real estate markets. It has also been suggested that India's
property sector could begin to improve from late 2009 and may attract
up to US$ 12.11 billion in real estate investment over a five-year
period.

The IT and ITES sector alone is estimated to require 150 million sq ft of

office space across urban India by 2010. Almost 80 per cent of real
estate developed in India is residential space, the rest comprising of
offices, shopping malls, hotels and hospitals. According to the Tenth
Five-Year-Plan, there is a shortage of 22.4 million dwelling units. Thus,
over the next 10 to 15 years, 80 to 90 million housing dwelling units
will have to be constructed with a majority of them catering to middle-
and lower-income groups.

Foreign direct investment (FDI) into India in the real estate sector for
the fiscal year 2008-09 has been US$ 12.62 billion approximately,
according to the latest data given by the Department of Policy and
Promotion (DIPP).

New Projects

4
GLOBAL SCHOOL OF MANAGEMENT SCIENCE

• Tata Housing Development Company will build 1300 low-cost

homes at Boisar, 100km from Mumbai. The houses will be priced
between US$ 8,258 and US$ 14,187.
• Atlas Group, which has carved out a niche of itself in the jewellery
and healthcare industries across Gulf countries, is diversifying
into real estate sector and plans to invest US$ 201.51 in Kerala in
the next two to three years.
• Mexican global multiplex operator Cinepolis plans to invest US$
357.7 million in India for its film exhibition business over the next
seven years. It will open 500 movie screens.
• The Avinash Bhosale Group (ABIL) is planning to invest US$
126.25 million for setting up three five-star hotels in Pune,
Nagpur and Mumbai over the next three years.
• Luxury hotel chain Marriott International will open 24 new
properties in India over the next three years.
• Buoyed by encouraging response from home-buyers for their
marked-down properties, companies such as DLF, Unitech, HDIL
and others have lined up housing projects of over 60 million
square feet—in the current financial year.
• Tata Realty and Infrastructure (TRIL), plans to invest US$ 4.2
billion to build special economic zones, roads, ports and other
core sector projects in the next three years.
• Housing Development & Infrastructure Ltd (HDIL) and the
Mumbai Metropolitan Development Authority (MMRDA) have
joined hands to develop a residential-cum-commercial complex in
Virar, a suburb of Mumbai at a cost of US$ 1.49 billion to provide
low-cost rental housing.

STEPS TAKEN BY GOVERNMENT

The government has introduced many progressive reform measures to
unlock the potential of the sector and also meet increasing demand
levels. The stimulus package announced by the government, coupled
with the Reserve Bank of India's (RBI) move allowing banks to provide
special treatment to the real estate sector, is likely to impact the
Indian real estate sector in a positive way. RBI has decided to extend
exceptional concessional treatment to the commercial real estate
exposure and restructured it to June 30, 2009.

5
GLOBAL SCHOOL OF MANAGEMENT SCIENCE

• 100 per cent FDI allowed in realty projects through the automatic
route.
• In case of integrated townships, the minimum area to be
developed has been brought down to 25 acres from 100 acres.
• Urban Land (Ceiling and Regulation) Act, 1976 (ULCRA) repealed
by increasingly larger number of states.
• Minimum capital investment for wholly-owned subsidiaries and
joint ventures stands at US$ 10 million and US$ 5 million,
respectively.
• Full repatriation of original investment after three years.
• 51 per cent FDI allowed in single-brand retail outlets and 100 per
cent in cash-and-carry through the automatic route.

The Union Ministry of Commerce & Industry has initiated steps to

reduce the time taken to develop special economic zones (SEZs) by
simplifying procedures to get the tax-free industrial enclaves notified.

IMPORTANCE OF THE STUDY

This project shows the importance of Indian Real Estate Industry
which plays an important role in the GDP (GROSS DOMESTIC
PRODUCT) that is almost 5 percent. Due to the development of this
industry at a higher rate government is also providing some assistance
to continue its growth in a steady manner. Some of the upcoming
projects which will help INDIAN REAL ESTATE INDUSTRY to increase
there contribution towards the GDP and which will help in the growth of
the infrastructure.

AIMS AND OBJECTIVE OF THE STUDY

• The main aim is to know about the detailed study on the INDIAN
REAL ESTATE INDUSTRY and its role in the growth and
development of the country.

• To study about the role played by the Indian government.

• To know the about the future projects and its importance.

6
GLOBAL SCHOOL OF MANAGEMENT SCIENCE

• To know about some of the hallmarks for future.

SCOPE
• It provides various information about the INDIAN REAL
ESTATES INDUSTRY, and its contribution and future
hallmarks which will play a huge role in the development of
the country.

• It also gives information about the role played by

government in the growth of INDIAN REAL ESTATE
INDUSTRY.

7
GLOBAL SCHOOL OF MANAGEMENT SCIENCE

CHAPTER-1
REAL ESTATE OVERVIEW

8
GLOBAL SCHOOL OF MANAGEMENT SCIENCE

REGIONAL OVERVIEW

The global economy moved deeper into recession in the first quarter of
2009 as trade contracted, industrial production declined and
unemployment rose in markets around the world. The primary concern
in Asia during the first three months of 2009 continued to be the drop
in exports, which is the most severe the region has endured since the
Second World War. It will be difficult for Asia to escape from its
vulnerability to exports and this major component of the regional
economy is unlikely to be supplanted by rising domestic consumption
over the short term. Nevertheless, a number of economic indicators
released towards the end of the first quarter suggested that Asian
economies are stabilizing. The declines in exports, industrial output
and the purchasing managers’ indices all eased during this period.
While remaining skeptical about the overall market outlook,
economists are increasingly taking the view that the global economy
will contract for most of the remainder of this year before staging a
slow recovery in 2010.
India the region’s fastest growing economies during the first quarter of
the year, and are expected to play a critical role in ensuring global
economic growth in the coming years.

REAL ESTATE OVERVIEW

Following a sharp contraction of global economic activity, the real

estate market witnessed significant performance pressures over the
last few quarters leading into. Conditions in the Indian Real Estate
market deteriorated over the first quarter of the year as various stake-
holders including corporate, retailers, home-buyers, etc. remained
cautious about their real estate commitments in the course of poor
economic climate and uncertain business outlook. It were marked by
an evident downturn in the industry in the form of delayed timelines of
projects owing to liquidity crunch faced by majority of the developers,
decreasing buyer confidence across residential segment, delayed
expansion plans of corporate & retailers (owing to difficult trading

9
GLOBAL SCHOOL OF MANAGEMENT SCIENCE

situations) and most importantly the correction in prices witnessed

across real estate segments.
However, the second quarter of 2009 witnessed some improvement in
market activity.
There were more enquiries for office and retail space in the market and
the volume of
Transactions went up marginally. Additionally, with the introduction of
Affordable housing and softening of interest rates, potential home
owners have started
Evincing interest in the residential sector again. These changes can be
primarily attributed to improved market sentiments, brought on by the
stable elections, marginally improving economic conditions within the
country and improving stock market conditions.

RESIDENTIAL

In the midst of the economic uncertainty, job losses, remuneration

reductions, etc.
home buyers have exhibited circumspection while dealing in
residential property, by either deferring their acquisition plans in case
of end-users (in hope of prices bottoming out) or evaluating alternate
sources of investments in the case of speculative investors (in the form
of stock markets, precious metals - specifically gold, etc).This had led
to a negative sentiment across a segment which had exhibited strong
fundamentals over the last few years. With the basic precept of urban
land always being in short supply, given the rate of increase in urban
population, residential property has had the capability of resisting a
sharp collapse which might be brought on by adverse economic
conditions. Accordingly, while corrections have happened, either driven
by excess supply or a recessionary force, the long-term potential
remains positive. One of the primary changes witnessed in the
residential segment as a result of the turbulent economic conditions, is
the increase in preference for affordable housing as end-users look at
means of reducing their investment outlays. As a result, there has
been a paradigm shift in this segment with developers moving away
from luxury and high-end residential projects, the mainstay of the
residential sector over the past few years, towards focusing on
affordable housing.

10
GLOBAL SCHOOL OF MANAGEMENT SCIENCE

OFFICE

Over the last decade, the office sector (primarily the Information
Technology and
the Information Technology enabled Services segment - IT/ITES) has
been the driving force for real estate growth within the country.
Activities within the retail and residential segments to a large extent
have been driven by India’s successful
establishment as a software and outsourcing hub. With the downturn in
the global
economy, most corporate have preferred to adopt a wait and watch
policy before going ahead with their investment/ expansion decisions
with a number of companies even downsizing in order to reduce costs.
Consequently, demand for office space in major cities across India
remained weak over three quarters. An additional factor compounding
the problems faced by the office segment has been the significant
quantum of supply which has been introduced over the last few
quarters
coupled with the quantum of supply which is expected to get
completed over the next couple of years.
As a result of the reducing demand in consonance with the significant
supply under
various stages of completion, there has been significant pressure on
rentals with all
markets exhibiting a downward trend over the last 3-4 quarters.
However, with the
increase in enquiry levels in the current quarter, the pace of decline in
rentals has
significantly reduced, and rentals are expected to stabilize over the
next couple of quarters. Owing to the change in the outlook of
corporate who have been assessing the
possibilities of reducing occupancy costs, developers too have been
evaluating the
possibility of introducing more cost effective options for office space,
through measures
such as increased efficiencies, configurations requiring reduced
maintenance expenses, etc.

11
GLOBAL SCHOOL OF MANAGEMENT SCIENCE

RETAIL

The burgeoning middle class and the increasing economic growth over
the last few years have led to an increase in the purchasing power of
the populace living within urban catchments. As a result, enormous
opportunities have been created within this segment for booth retailers
and developers over the last few years. The change in policy where
FDDI (Foreign Direct Investment) of up to 51% has been permitted for
single product retailing, has also led to an increase in retail activity
within the country. Based on this increased activity, retail
developments had witnessed sharp growth in the rental levels with
rentals in many areas rivaling those witnessed in some of the more
expensive cities across the world.

As with the other segments of real estate, thee retail sector too has
been significantly impacted by the economic slowdown, with a sharp
decline in transaction activity and rentals being witnessed over the last
few quarters.

However, there have been some positive signs for this segment as the
pace of decline in Retail rentals has been reducing and accordingly is
expected to bottom out over the coming quarter.

MARKET DRIVERS

Ever since the impact of the global slowdown has been felt on the
Indian economy, there has been a general sense of caution and
abstinence across the various stakeholders of the Indian real estate
industry, including developers, investors and end users. Now, with the
formation of a stable Government at the centre, and a general
improvement in the sentiment towards the economy, the various
segments are expected to witness a gradual improvement/
stabilization over the next few quarters.
The key demand driver for commercial activity has been the consistent
growth of the IT/

12
GLOBAL SCHOOL OF MANAGEMENT SCIENCE

ITeS (including Business Process Outsourcing) sector owing to India’s

reputation of being
one of the most favorable offshore destinations and a software
development hub. Large talent pool with well educated and English
speaking workforce along with lower operating cost provides further
impetus for the growth of this sector. In addition, based on thrust being
provided by the government and the private sector, additional
emerging sectors such Bio-technology, Alternate Energy, R&D, etc are
also expected to play a key role in generating demand for office space
in the future.
Within the residential segment, the 11th Five year plan estimates the
total housing
Requirement (including the carried over shortage) for the period 2007-
12. Dwelling units, with majority of the requirement in the LIG (Low
Income Group) and EWS (Economically Weaker Section) segments.
This coupled with the changing
Dynamics in the residential segment (i.e. becoming more end-user
driven) has contributed significantly in transforming the portfolio of
residential products being developed across the country.
Consequently, the affordable housing segment is expected to witness
robust demand over the short to medium term. Further, the
government has undertaken several key macro level initiatives in order
to restore the consumer confidence in the market and provide an
environment for growth. In addition, the government has also been
committed to reducing the cost of Borrowing by reducing interest rates
through reduction in key rates such as bank rates. This is expected to
provide further relief to corporate, developers and home buyers in the
near future.

13
GLOBAL SCHOOL OF MANAGEMENT SCIENCE

CHAPTER-II
POLICIES IN INDIAN REAL ESTATE
INDUSTRY

INTRODUCTION

The importance of the Real Estate Sector in FDI inflows into India is
well established. According to the report by the India Brand Equity
Foundation, the total size of the Real Estate Sector Market was around

14
GLOBAL SCHOOL OF MANAGEMENT SCIENCE

12 Billion US Dollars and it was estimated to grow at a ‘Steady Clip’ of

over 30 percent per annum. The Report, mentioned above, also
pointed out in relation to the Construction Housing Sector in India. The
McKinsey Report pointed out that the Construction Housing Sector in
Developed Countries constitutes around 3 to 5 percent of its Gross
Domestic Product [GDP]. However in India, the Housing Construction
Sector constituted only around 1 percent of the GDP. Per capita which
is extremely low compared to other Develop or Developing Countries.
Having underlined the need and prospect for growth in the Housing
and Real Estate Sector in India, it will be relevant to point out the
contribution of Real Estate in FDI inflows to India. According to a
Survey conducted by the Federation of Indian Chambers of Commerce
and Industry [FICCI], the share of Real Estate in the Total Foreign
Direct Investment into India has increased from 4.5 percent to 10.6
percent. It was estimated that the component of Real Estate in the
total FDI would be between 10 to 20 percent. This exponential growth
of the component of Real Estate in the total FDI inflows has been due
to the trigger provided by the liberalized FDI Policy. According to FICCI,
this decision of the Government of Indian to liberalize the FDI
announced in the construction sector is perhaps the most significant
economic policy decision taken by the Union Government.

Key regulations for FDI in real estate in India

Guidelines for FDI in Real Estate in India

• Minimum 10 hectares to be developed for serviced Housing

plots
• For construction-development projects, minimum Built-up area
of 50,000 square meters prescribed
• In case of a combination project, any one of the above two
conditions should suffice
• At least 50 per cent of project to be developed within 5 years
from date of statutory clearances.
• Minimum capitalization of US$ 10 million for wholly owned
subsidiaries & US$ five million for joint ventures with Indian
partners

15
GLOBAL SCHOOL OF MANAGEMENT SCIENCE

• Infusion of funds within six months of commencement of

business
• Original investment cannot be repatriated before a period of
three years from completion of minimum capitalization.
• Investor may be permitted to exit earlier with prior Government
approval.
• Investor not permitted to sell undeveloped plots.
• Project to conform to norms and standards lay down by
respective State authorities.
• Investor responsible for obtaining all necessary approvals as
prescribed under applicable rules/by- Laws/regulations of the
State
• Concerned Authority to monitor compliance of above conditions
by developer

FDI Experience in Indian Real Estate

Key Highlights
The India growth story has become an established theme that has
captured the imagination of the world. India is on every international
investor’s wish-list and among the sectors that have the potential to
become drivers of the new Indian economy in a global scenario, real
estate ranks amongst the top. The Government’s increased focus on
attracting investments and changing market fundamentals indicating
good long-term growth prospects has put the Indian real estate sector
on the radar of many cross-border real estate investors/developers. A
number of global investors/developers are now keen on real estate
investment opportunities in India. Consequently, the share of real
estate in FDI has been rising. It has already risen from a low 4.5 per
cent to
25 per cent and an estimated 26 per cent. With higher growth in FDI
and even further increase in real estate’s share of FDI it is expected
that the sector would
Witness inflows to the tune of US$ 8-10 billion. By the standards of
most major economies, is growing rapidly and many industry observers
have further identified
the hospitality sector as an area set for future expansion.

16
GLOBAL SCHOOL OF MANAGEMENT SCIENCE

Emerging Business Models

Real estate itself is a regulated activity and is subject to a number of

FDI restrictions. These restrictions essentially result in a market where
foreign investors with no Indian joint venture partner must invest a
significant amount and undertake substantial development schemes
with a limited ability to repatriate the funds in the short term. There is
therefore a limited ability for a foreign company to make a tentative
entry into the market as a sole investor. This position has resulted in a
number of business models being used to facilitate investment.
Four main market entry strategies have been adopted by foreign real
estate players in India:
• Large scale direct entry: With an independent approach for
undertaking property development schemes.
• Establishment of an umbrella property development joint
venture with a local player in order to carry out numerous future
projects.
• Multiple joint venture approach where a number of ventures are
entered into with local partners each negotiated on a scheme by
scheme basis and often with the local player placing land into the
venture as equity.
• Investment into the Indian property market through the
creation of a capital fund which in turn facilitates local developers
Irrespective of the method of entering the market there are a large
number of potential market opportunities. Large
and well publicized property development activity has taken place in
the principal areas of Delhi, Mumbai, Chennai and Bangalore. In terms
of specific sectors of investment,
housing remains the single largest new construction activity whilst
commercial office schemes, particularly for the IT sector have
generated significant opportunities.

Government and Policy Initiatives

17
GLOBAL SCHOOL OF MANAGEMENT SCIENCE

As within other sectors in the Indian economy, one of the key drivers
has been the changes in policy of the Indian Government to a more
liberal model. There has been a drastic curtailment in restrictive
policies such as the Urban Land Ceiling and Regulation Act,
accompanied by major reforms in the Integrated Township Policy.
These changes
have allowed the real estate development industry to take a significant
step forward, whilst international investors have brought both capital
and expertise. With the liberalization of FDI rules and the emergence of
real estate funds, the options available to both domestic and
international investors will continue to grow. Continuing the reforms
agenda for the sector, the Securities and Exchange Board of India
(SEBI), has approved the guidelines for Real Estate Mutual Funds
(REMFs) wanting to set up shop in India and may possibly introduce
Real Estate Investment Trusts (REIT) thereby continuing to widen the
source of capital for the sector. The sector has further benefited by a
range of Government incentives including residential tax breaks and
the Special Economic Zones. Government now allows 100 per cent FDI
for townships, housing, built-up infrastructure and construction
development projects (including commercial premises, hotels, resorts,
hospitals, educational institutions, and recreational facilities), subject
to certain guidelines.

Rationalization of processes
The Government has moved towards modernizing and rationalizing
other areas of regulation impacting real estate, which are perceived to
being barriers to further investment and growth. To date this has
included simplification of urban development design guidelines and a
trend towards reducing and rationalizing stamp duties across the
states. Steps are being taken to address the record keeping of land
ownership and transaction records, thus improving transparency and
possibly reducing transaction costs.

Regulatory and Policy Intervention

Real Estate Regulator

The preparation of the draft ‘Real Estate Management (Regulation and
Control) Bill’ is likely to fructify into a definitive industry regulator and
will solve the long pending demand of bringing the real estate sector,
property dealers and developers under the scanner of a real estate

18
GLOBAL SCHOOL OF MANAGEMENT SCIENCE

Regulator. The Draft of the bill is expected to be put up for approval in

the Parliament, in the coming winter session.

National Housing and Urban Habitat Policy

National Housing and Urban Habitat Policy expected to be introduced,

will address the
issue of affordable housing for all sections of the society. Currently, the
draft policy lays emphasis on social harmony and on increasing
institutional finance for housing for the
poor and its accessibility at affordable rates. Some salient features of
the policy include:
A new centrally sponsored scheme to provide an interest subsidy of 5
per cent per annum for a period of five years to commercial lenders for
lending to economically
Weaker Section and Low Income Group segment of the urban areas.
The National Housing Board (NHB) and Housing & Urban development
Corporation Ltd. (HUDCO) would be nodal agencies for disbursement of
subsidies.

Increase d Government Focus on Urban

Infrastructure Development
The increasing thrust of the Indian Government on urban infrastructure
development has led to emergence of newer locations and has
significantly induced the real estate
Development activity. Government initiatives such as Mega Cities Fund
and the City Challenge Fund of the Government of India intend to
undertake Implementation of the urban reforms agenda and improve
infrastructure provision in select urban centre’s. With better urban
infrastructure, extending the urban sprawl, supported by connectivity
through ring road, metros/ mass transport systems people are now
more open towards shifting to new suburban areas. Further, increasing
corporatization of public authorities such as housing boards, etc. poses
strong competition to the private developers and provides a wide
range of options to the urban consumers. This improved urban
governance has enhanced the fiscal performance of the ULBs and
consequently their credit ratings. This has enabled the ULBs to access
the capital market for undertaking new development programmers and
expansion of services. The ULBs have become proactive in provisioning

19
GLOBAL SCHOOL OF MANAGEMENT SCIENCE

of services, providing an enabling environment for different models of

implementation such as Public Private Partnerships etc.

Urban Land (Ceiling and Regulation) Act 1976/Rent Control Act

ULCA was enacted primarily with the objective of preventing land

hoarding by developers and to increase supply. The Act imposes a
ceiling on ownership and hoarding of land in cities and towns.

Rent Control Act

Various states and Union Territories have formulated their own rent
control legislation with respect to regulating chargeable rents,
recovery and possession of property, and tenancy rights. These laws
act as disincentives towards investment in housing for rental purposes.

20
GLOBAL SCHOOL OF MANAGEMENT SCIENCE

CHAPTER-III
FUTURE SCENARIO OF INDIAN REAL
ESTATE INDUSTRY
INTRODUCTION

The recent economic slowdown has highlighted India’s strong ties with
the global economy, with the real estate sector coming under
significant pressure over the last few
Quarters. In the midst of the global crisis, the Indian real estate
industry has cooled down following several years of rapidly rising
rentals and aggressive development activity. However, owing to strong
fundaments that have been driving the industry over the last few
years, it is expected to revive in the medium to long term on a
platform supported by key Government initiatives along with infusion
of adequate private sector investment. Additionally, one of the key
fallout of the recessionary impact on the real estate industry has been
a significant liquidity crunch faced by the developers, as both debt and
equity are hard to come by (with banks increasing risk weightage for
the sector and private equity players being extremely reluctant to
invest in a falling market).
Over the last few months, however, there have been positive signs for
the industry in terms of financing as most of the developers are eyeing
the ‘Qualified Institutional Placement’ (QIP) route to raise capital.
Developers such as Unitech, Parsvnath, Sobha Developers, HDIL, Orbit
Corp, etc. have either raised funds through QIP or are in the process of
raising the much needed funds to complete their stalled ventures
across the country and to rectify balance sheet positions by paying off
a portion of the significant debt which has accumulated over the last
few years.

21
GLOBAL SCHOOL OF MANAGEMENT SCIENCE

RESIDENTIAL SEGMENT

Based on the experience gathered during this slowdown in the

industry, developers have become cautious of their future plans and
are diligently looking to capture the actual demand in the market. The
once investor-driven market has become an end-user market with
majority of the products being targeted towards the mid-end segment.
For example, affordable housing segment has picked up pace and is
expected to meet the demand requirements of the end-users in the
various cities. The residential sector is expected to witness a recovery
over the next few months, with the focus being on affordable housing
in the short term to meet the prevailing demand supply mismatch.
Additionally, the medium to long term is expected to witness the
reintroduction of high income and luxury housing projects.

A key challenge for this segment would be the timely delivery of new
housing projects
which have recently been launched or will be launched in the near
future as the focus of
most developers have been to address the debt repayment problems
that are being
currently faced. Consequently, this may be the right time to introduce
concepts such as escrow accounts, which will ensure that moneys that
have been raised/ collected for a
specific project is utilized in the development of the said project.

The Indian real estate sector promises to be a lucrative destination for

foreign investors into the country. The continued growth of the Indian
outsourcing industry provides excellent opportunities for real estate
investors. The booming middle class will continue to drive the demand
for housing and retail space. The Indian realty sector, if channelized
properly, could catapult the growth of several other sectors in India
through its backward and forward linkages. However, there are
potential constraints for domestic as well as foreign investments in
India. Absence of a single regulator to monitor business practices
prevailing in Indian real estate market is perceived to be a risk factor
by investors. Also, there remain numerous ambiguities in guidelines
relating to the real estate sector. The SEZ guidelines which are issued
by the Commerce Ministry are

22
GLOBAL SCHOOL OF MANAGEMENT SCIENCE

constantly modified, again creating uncertainty. The primary constraint

for foreign investments in India is the availability of exit options. Since
the liberalization of FDI norms significant foreign investments have
flown into real estate; but availability
of suitable exit options for such investments is still constrained. It is
expected that the need for exit options will prompt foreign investors
and other real estate players to devise financial instruments to enable
them to divest their investments. Creation of these financial products
and instruments will go a long way in adding depth and maturity to the
real estate market. With the Indian securities market
regulator SEBI allowing real estate mutual funds (REMFs) in India,
foreign equity investors will have another exit option available to them.
Also, retail investors will be able to invest in real estate with smaller
investment through these REMFs. The introduction of suitable financial
instruments and REMFs will make real estate similar to any other asset
class and will enable investors to diversify their investment portfolio by
investing in real estate through such options. Infusion of foreign
investment will also lead to adoption of international best practices by
real estate players. Developers will get more organized, corporatize
themselves and become more transparent to avail of these funds. All
these factors will contribute in making the Indian real estate market
more organized and structured.

OFFICE SEGMENT

The office segment in India has witnessed exponential growth across

the past decade,
driven by enhanced industrialization levels leading to greater activity
in the corporate
office segment, strengthening money market conditions giving a fillip
to the BFSI (Banking Financial Services and Insurance) segments,
growth in the IT/ITeS industry, etc.
During economically turbulent times, when companies globally try to
reduce their
operational costs, India becomes an attractive low cost destination,
thereby continuing to attract demand from global companies. In view
of this, post the period of stabilization which is expected to take place
over the next few quarters, the office segment is expected to continue
witnessing demand with the caveat that the growth in rentals is going
to slow down from the previously recorded levels of 15-25% per annum
to inflation led 4-5% per annum.

23
GLOBAL SCHOOL OF MANAGEMENT SCIENCE

Additionally, it is important to note that most cities have been

witnessing a significant
quantum of supply which are either in various stages of construction or
are in the
planning stage. As a result of the oversupply which is expected, the
level of success for
developments being introduced in the near future would depend on a
number of factors
such as location of the site, the level of infrastructure present, the
quality of access, the
image perception issues which a region might have, etc.

RETAIL SEGMENT
Favorable demographics (approximately 60% of the Indian population
is under 30 years of age), increasing disposable income and easier
availability of credit (in the form of credit cards) has led to a marked
increase in retail spending over the years. In line with the overall
dynamics, the retail sector in India has also witnessed a transition over
the last 5 years with traditional (unorganized high-street) markets
making way for new formats such as department stores,
hypermarkets, supermarkets and specialty stores. Accordingly, change
in consumer lifestyles & preferences and improving technologies has
led to increasing demand for quality retail space from retailers.
Consequently, despite the lull currently being witnessed by the retail
industry due to the
ongoing economic slowdown, the industry is expected to witness
resurgence over the next few quarters.

24
GLOBAL SCHOOL OF MANAGEMENT SCIENCE

CHAPTER-IV
KEY PLAYERS IN INDIAN REAL
ESTATE INDUSTRY

KEY PLAYERS IN INDIAN REAL ESTATE INDUSTRY

Some of the foreign investors in Indian Real Estate

Industry who will make a huge difference in coming years
with the future projects in Indian market.

ASCENDAS, Singapore
• Present in India since 1997

25
GLOBAL SCHOOL OF MANAGEMENT SCIENCE

• Established a wholly owned subsidiary, Ascendas India Private

Limited
• Operating 5 IT Parks across Banglore, Hydrabad and Chennai
having BUA of 4.4 million
• Plan to develop two new IT Parks in Pune and Nagpur at a cost
of US$ 375 million
• Ascendas Advantage India Development Fund for US$ 325
million launched in 2007
• Ascendas India IT Fund for US$ 520 million launched in 2005

EMAAR, Dubai
• Present in India since 2005
• Developing integrated township at Mohali over 3000 acres
• Plans to develop integrated townships, commercial offices, IT
Parks, SEZs and Hotels
• Planning to venture into healthcare and education sector
• Joint Venture with MGF Development Limited, India
• Emaar MGF has JV with Accor Hotels (France) & Premier Travel
Inn (UK)
• Capital outlay of US$ 4 Billion for group projects in real estate in
India

Salim Group, Indonesia

• Present in India since 2004
• Developing township at Howrah over 450 acres
• Plans to construct expressways and bridges, a multi-product
SEZ in Haldia and a Chemicals SEZ in East Midnapore and Health
and Knowledge “cities”
• Joint venture with Unitech and Universal Success
• Plans to invest US$ 4.2 billion for projects.

Some of the Indian Real Estate Industry Companies. who

will make a huge progression in the coming years with
there future projects.

Unitech
• Operating various asset classes in residential, commercial and
retail segment
26
GLOBAL SCHOOL OF MANAGEMENT SCIENCE

• Developed more than seven million sq.ft of built up area (BUA)

• Specialises in planning residential, commercial, SEZ
development, retail and hospitality, integrated townships
• 430 million sq.ft of BUA under planned projects
• Major presence in National Capital Region and other areas such
as Kolkata, Chennai and Hyderabad

DLF
• Largest real estate developer in India
• Developed Asia’s largest private township DLF City at Gurgaon,
Haryana spread over 3000 acres
• Present across all the asset classes: Residential, Commercial
and Retail.
• Developed more than 220 million sq.ft of BUA
• Specializes in planning Hotels, Infrastructure and SEZs 574
million sq. ft. of BUA under planned Projects
• Pan-India footprint, major presence in Gurgaon
& Kolkata.

Ansal Properties
• Operates primarily in Residential & Commercial asset classes
• Developed over 2850 acres in Gurgaon and Delhi
• Developing integrated townships, malls, hotels IT parks and
SEZs
• Plan to construct 157.6 million sq.ft of BUA
• Pan-India footprint with major presence in 16 North-Indian cities
acress four states

K Raheja Corp
• Present in Commercial, Retail & Residential asset classes
• Developed over five million sq. ft. of BUA
• Developing 15 self-contained townships and 10 hotels
• Planning to construct 13.2 million sq. ft. of BUA

27
GLOBAL SCHOOL OF MANAGEMENT SCIENCE

• Major presence in Mumbai with operations in Bangalore,

Ahmadabad, Goa, Pune and Hyderabad.

Sobha Developers
• Asset classes include Residential, Commercial, Development of
plots and Contractual projects
• Developed over 4.5 million sq. ft. of BUA
• Planning residential and retail projects
• 101 million sq. ft. of BUA is planned under various projects
• Major concentration in Bangalore with presence in other areas
such as Cochin, Chennai and Pune.

Parsvnath Developers
• Presence in Residential, Retail Commercial asset classes
• Developed over 3.8 million sq. ft. of BUA
• Plans to develop IT Parks and 12 SEZs across the country
• Planning to construct around 46.5 million sq. ft. of BUA
• Major Presence in National Capital Region
• Increasing Pan-India Footprint, active in over 46 cities across 17
states.

CONCLUSION

28
GLOBAL SCHOOL OF MANAGEMENT SCIENCE

From this Indian Real Estate Industry study I conclude that the present
scenario and future scenario can bring up INDIAN REAL ESTATE
INDUSTRY at a higher place in world.
And this will also help in adding a big percentage of profit to the GDP of
India.
I have also learnt about the present policies of government for INDIAN
REAL ESTATE INDUSTRY IN INIDA and the role of FDI in this industry.
At last the new investors and there future project which will make a big
difference in this country in the sense of infrastructure.

29