Real Estate Development

Real estate development

especially in Industrial sector
Need forstudy
• Understanding the subject of real estate provides key insight into demand characteristics of land for
different land use & its impact on economy. Livability & attractiveness of an urban area is often
closely interlinked with “real estate industry” & land prices.
Aim
• The aim of the presentation is to understand the real estate development in public & private sectors
(especially industrial sector)
Objective
• To understand real estate as a facilitator of development;
• Factors driving real estatesector;
• Real estate as a tool for controlling land values;
• Transaction & renting of real estate;
Scope
• The scope of the presentation will be limited to the published data available from different websites
on real estate & the study will be carried out based on the secondary data obtained with a limited
primary survey.
 Introduction

Basic Definitions
Real estate
• It is a ‘Property’, which refers to anything that can be owned or possessed. It can be a ‘tangible
asset’ (physical things suchas land, buildings etc.) or ‘intangible asset’ (nonphysical suchas contractual rights, financial claims etc.)

• In other words…. Real estate can be defined as the land & its permanent improvements.
• Improvements on the land include any fixed structures suchas buildings & they are often referred to as
infrastructure facilities development.

Land
• Property or real estate, not including buildings or equipment, that does not occur naturally.
Depending on the title, land ownership may also give the holder the rights to all natural resources on
the land.
 Real estate – An industry in transition

• The Indian real estate industry, valued at about

US$ 12 billion, ranks second in the world, after the Real estate contributes 5% to India’s GDP
United States, in terms of contributing to Gross
Domestic Product (GDP) and generating
employment.

• Presently, real estate accounts for about five per

cent of India’s GDP; in the next five years its share
is expected to rise to six per cent. It is alsothe

second largest employer in India after agriculture.

 Factors driving the Indian Realestate

Social Economic Judicial Technological

Real estate thrives on
growth of national
infrastructure and is
fuelled by the Government
of India’s thrust on
infrastructure development.
It’s success in different
sectors has given a boost
for the demand in land &
other properties for
establishment of different
firms.
The policies simplified the
investment process by
reducing the need for
permissions and licenses for
construction projects resulting
in real estate development
Organized retail in India
with local & multinational
retail players making their
foray into retailing and thus
stepping up the demand for
real estate
INDUSTRIAL REALESTATE
 Industrial Real estate
• According to economic science, ‘land’ is termed as one among the factors of production & it is an
important component for any industrial setup.
• Increase in population, demand of different products for their survival induced high growth rate in
services as well as manufacturing sector has resulted in high demand industrial Real Estate.

Markets for Real estate development

Real estate development

Residential Commercial Industrial Offices & others

80% 10% 5% 5%
Source: Real estate sector overviewby
M. Chandra Sekhar Reddy, ExecutiveAssistant, CREDAI AP
Dated: 8/7/2013
 Introduction to sitearea
History
• The history of an industrial estate is closely linked with the current environmental condition of the
land and the health of its affected community. And this is no different for the industrial estates in
Medak district of Andhra Pradesh.

• It was after the formation of the Andhra Pradesh Industrial Infrastructure Corporation (APIIC) in
1973 that Patancheru grew into a mega industrial estate.
• In 2010 there were 326 industries in Patancheru, 51 industries have also come up outside the APIIC
designated area. In a 2 decade period (1975-1995) APIIC created 6 industrial estates in
‘backward regions’ around a thirty-mile radius of Hyderabad.

• The largest was the 440-hectare estate in Patancheru. Some of the states biggest bulk drug and
pharmaceutical industries are located in these industrial estates.
Nearest Town: Patancheru
Distance: 10.8 Km
 Project profile
Development
process
• Location
• Availability of raw materials
• Infrastructure
• Land
• Feasibility study
• Nature of the product & its application
• Market potential
• Installed capacity
• Technology/ manufacturing process
• Plant & Machinery
• Cost of the project & means of finance
• Annual operating expenses
 Land allotment
TheAPIIC (Andhra PradeshIndustrial Infrastructure Corporation) allots plots & sheds inIndustrial
Development Area’s established in different regions of the state on application process to different
firms which are authentic & eligible for the allotment of plots. The firms which have to be set up in

Industrial Development Area has to submit the application included with the following details…

• Location where the land has to be allotted

• Personal details

• Project details

• Financing & Investment details

• Proposed employment

• Machinery equipped

• Land requirements

• Infrastructural details etc.


Feasibility study outline
• As the name implies, a feasibility study is
an analysis of the viability of an idea.
• The feasibility study focuses onhelping
answer the essential question of “should we
proceed with the proposed project idea?”
All activities of the study are directed
toward helping answer this question.
• It includes
 Evaluating alternatives
 Pre – feasibility study
 Market assessment
 Results & conclusions
Feasibility study
Description of Project (Identification of business
scenarios, its alternatives & relationship with surroundings)
Market feasibility (Industry competitiveness, Market
potentials, market outlets, sales projections)
Technical feasibility (facility needs, suitableproduction
technology, suitability of land, location & raw materials)
Financial/ economic feasibility (estimation of capital
requirements, budget expected costs & returns)
Issuesin development (may be technical, infrastructural,
or an issuesrelated to the site)
Plans, proposals, layouts, site plans & their
approvals
Results & conclusions
 Cost benefit analysis
When making a decision, especially for the development of
the industry, it is imperative to understand the costs and
benefits of the project, to know the viability & feasibility of
the project.
The mainpurposeof the CBAis to assessthe case for
intervention and guide that intervention. We have to know
that CBAis importantly distinct from financial analysis.
Financial analysis is a business tool that focuses on financial
outlays and receipts associated with an investment. CBAis
concerned with social costs and social benefits; these can often
differ widely from simple financial outlays and receipts.

“By conducting Cost Benefit Analysis the entrepreneur

determine whether or not to proceed with the project
according to the current plan”
 Cost Benefit Model
An Overview of Cost Benefit Model of anindustry
Costs Amount (PV) Benefits Amount
Surveying & planning 5,65,000
Increase in Project area land value 10,45,000
Project Execution Productivity Lostwork
Increase in Neighborhootidmperoperty Values 15,10,000
Cost of Administration 8,70,000 Losses
Equipment Legal services 5,50,000 Value of public improvements 26,60,000
Interventions Avoided
Acquisation expences 17,25,0M0e0dicalcare Reductions in service costs Net – Cost of
Economic Disability
Cost of Labor Site clearance 2,15,00f0orworkers Interventions
Security11,90,000
Costs
A Disposal, LeaseC& REenethnatniocnemcoesnsttin 1,30,000
Fire proAte+ctB
i o+n2C6+,6D1,000
j cptro
Proe i ndspuecctitvo
i itny 86,000 Lossesdueto
Replacement Miscelinious 15,85,000
Construction & Machinary 1,00,00,000 No Market
Displacement of Total Benefits 1,06,51,000
Site improvements 25,45,000
D workers: B
Miscelenious Remaining costs 4,75,000
Total costs 1,71,61,000 Some Benefits are not quantitative but Qualitative

Cost’s & Benefit’s of land for anindustry

Ref: Cost Benefit analysis report of Marksman textile industry.

 Benefit – Costratio
• The first step will be to review the projected operational and maintenance costs for the life of the system.
• The second step will be to examine the projected benefits for the life of the system.
• The costs and benefits will then be compared to determine if the tangible benefits justify the costs for
operation and maintenance of the system.

Description/ FY 2009 2010 2011 2012 2013 2014 2015 Total

Annual costs 3100000 3245000 3480000 3675000 3775550 3900000 4125000 25300550
Annual Benefits 3285000 3375000 3690000 3815200 3982000 4057500 4370000 26574700
Discount Factor 0.9825 0.9483 0.9154 0.8836 0.8529 0.8232 0.7946
Discounted Costs (DC) 3045750 3077234 3185592 3247230 3220167 3210480 3277725 22264177
Discounted Benefits (DB) 3227513 3200513 3377826 3371111 3396248 3340134 3472402 23385746
Discounted Net (DB - DC) 181762.5 123279 192234 123880.7 176081.2 129654 194677 1121568
Benefit/ Cost Ratio 1.059677 1.040062 1.060345 1.03815 1.054681 1.040385 1.059394
Average B/C ratio 1.050385
As the Benefit/ Cost ratio (1.050385) is >= 1, the project is feasible. Hence, the entrepreneur can continue with current actionplan

Discount rate/ factor: This is effectively a desired return, or the return that an investor would expect to receive on some other typical proposal of equal risk. This
means converting future costs and benefits into present value. This is also known as the social discount rate, or the rate at which society makes tradeoffs over time.

Ref: Cost Benefit analysis report of Marksman textile industry.

 Approvals & clearance required
• An entrepreneur has to obtain various approvals/ clearances in order to set up an industry in
Andhra Pradesh. Suchapprovals/ clearance are mentioned below for the knowledge of investor:
Approvals/Clearances Required Department /Authority responsible for Approvals/ Clearances

Incorporation of Company Registrar of Companies

Registration/Industrial license/ Industrial Entrepreneur District Industries Centers for SSI / Secretariat for Industrial
Memorandum (IEM) Assistance (government of India) for large and medium industries

Allotment of land APIIC

Permission for land use APIIC

(in case industry is located outside an industrial area) Department of Town and Country
Planning

Local authority /District Collector

NOC and consent under Water and Air Pollution Control Andhra Pradesh State Pollution Control Board
Acts

Forest & Environment Clearance Ministry of Forest & Environment, Government of India
Approval of construction activity and building plan Developmental Authority
Permanent Account Number (PAN) Income Tax commissioner

ISI Certificate Regional Office of the Bureau of Indian Standards (BIS)

 Real estate portfolio wheel

• Buy • Sell

Industry Land

Warehouse Sheds

• Rent • Lease
 Issues &Opportunities
Issues
• There has been no proper waste disposal facilities built in these areas, combined with this is the fact
that industries have been wantonly disposing off their waste in nearby land or into water bodies.
• The combined industrial estates in Bollaram and Patancheru generate a cumulative 8 X 106 1/day of
effluents which are directly discharged into surrounding land, irrigation fields and surface water
bodies.
• The Nakkavagu stream that flows through the industrial estate in Patancheru bears the brunt of
waste disposal of over 100 industries.
• Effect of pollutants on the agricultural lands and water bodies extends 0.25 to 0.5 km to either side
of the Nakkavagu river over a length of 25 km.
Opportunities
• APIIC Mega Infrastructure Park is currently in progress. Phase 1 & 2 are already occupied.
• Textile park, 2008, 11.02 crores expenditure industrial park Pashamylaram Patancheru is located in
Patancheru sub-locality, Hyderabad locality, Medak District, Andhra Pradesh State of India Country.
• March 29: Mr. N. Kiran Kumar Reddy laid the foundation stone for Friendly Industrial Park for ladies
in Nandigama Village of Patancheru. The area allotted for this park in 100 acres.
• He assured that Rs.200 crore would be spent for this park.
 Government orders

• GO.Rt.663.2005
Setting up of Integrated Textile Parks in Andhra Pradesh - Preparation of Project feasibility reports
by Infrastructure Leasing and Financial Services Ltd., (IL&FS) - Creation of separate revolving fund -
Orders - Issued. ...
• GO.Ms.336.2002
TheAndhra Pradesh Industrial Single Window Clearance Rules, 2002 – Providing for speedy
processing of applications for issue of various clearances required for setting up of industries...
• GO 178
• Industries & Commerce Department – Incentives for setting up of New Industries in Andhra Pradesh-
Industrial Investment Promotion Policy for 2005-2010- Orders- Issued. (100% reimbursement of Stamp duty
and transfer duty paid by the industry on purchase of land meant for industrial use, 100% reimbursement of Stamp duty for
Lease of Land/Shed/Buildings, 100% reimbursement of Stamp duty and Transfer duty paid by the industry on financial deeds
and mortgages etc.)
 Real estate transaction

• Land can only be transferred from one individual to another in the legally prescribed manner.
Historically speaking, a written deed is the instrument used to convey ownership of real property.
• A verbal grant was sufficient to complete the transaction, provided that it was accompanied by a
transfer of possession.

“Deed A written instrument, which has been signed and delivered, by which one individual, the grantor, conveys title to
real property to another individual, the grantee; a conveyance of land, tenements, or hereditaments, from one
individual to another.”
• Sale deed: sale deed is a deed which recites a consideration and shows all of the interest of the grantor in the
property to the grantee. It is a deed that does not carry any warranties against liens; hence, it implies that the
grantor is allowed to convey a title.
• Rental deed: A rental agreement includes any written or oral agreement that provides for the use of tangible
property and is treated as a lease for federal income taxpurposes."
• Lease deed: A leasehold deed of trust is a long-term lease that is acquired by a leaseholder. It combines
leasehold, which is a rental contractual agreement for an extended period of time and a deed of trust, which is a
deed that pledges one's property as collateral when applying for a loan.
 Deed drafting

• Title
• Date of execution
• Place of execution
• Description of parties
• Recitals - Contain the Background / factual details of the transaction between parties
• Testatum Witnessing Clause – After Recitals & Before the Terms & Covenants
• Terms & conditions
• Attestation Signature
• Annexure’ & schedules used to describe the property
• Endorsements means “write on back” Used only on Negotiable Instruments Eg. Bills of Exchange, Cheques, etc.
 Conclusion

• This study has found the sensitivity of various parameters of real estate development, its impact on
industrial markets & location of industries, type and ownership preferences of the industries demand
in Patancheru area since they act as growth poles.

• Some of the groups of the real estate market are very sensitive to geographical parameters
whereas others are more responsive to economic and social parameters.

• Changing the geographic, social and economic parameter values through various policies, actions
and strategies can alter the attractive potential of these zones.

• These findings can have immense bearing on policy and regulatory frameworks for future industrial
development anticipated in the Master Plan of the city& economical development of the country
since real estate is a globalscenario.