Estate India

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September 20th 2010

Submitted

Submitted5

thSemester BBA

Principles of Investment Management


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Real EstateReal estate is a legal term that encompasses land along with improvements to the

land, such as buildings, fences, wells and other site improvements that are fixed inlocationimmovable. Real estate law is the body of regulations and legal codes

which pertain to such matters under a particular jurisdiction and include things

such as commercial and residential real property transactions.

However, in some situations the term "real estate" refers to the land and fixtures

together, as distinguished from "real property", referring to ownership of land

and appurtenances, including anything of a permanent nature such as structures,

trees, minerals, and the interest, benefits, and inherent rights thereof. Real

property is typically considered to be Immovable property. The terms real estate

and real property are used primarily in common law, while civil law jurisdictions

refer instead to immovable property.

Real Estate IndustryReal estate is land, all of the natural parts of land such as trees and water, and all

permanently attached improvements such as fences and buildings. People use

real estate for a wide variety of purposes, including retailing, offices,

manufacturing, housing, ranching, farming, recreation, worship, and

entertainment. The success or failure of these uses is dependent on many

interrelated factors: economic conditions, demographics, transportation,

management expertise, government regulations and tax policy, climate, and

topography. The objective of those engaged in the real estate industry is to create

value by developing land or land with attached structures to sell or to lease or by

marketing real estate parcels and interests. The real estate industry employs

developers, architects, designers, landscapers, engineers, surveyors, abstractors,

attorneys, appraisers, market researchers, financial analysts, construction

workers, sale and leasing personnel, managers, office support workers, and

building and grounds maintenance workers.


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Real estate development is sensitive to fluctuations in the economy and in turn

contributes to those cycles. The combination of a capitalist economy and a

growing population makes the expansion of land uses inevitable, but developers

can misjudge the market and produce too many office buildings, hotels,

apartment buildings, or houses in any particular area. As a result rents and sale

prices fall.

Real Estate in IndiaWith property boom spreading in all directions, real estate in India is touching

new heights. However, the growth also depends on the policies adopted by the

government to facilitate investments mainly in the economic and industrial

sector. The new stand adopted by Indian government regarding foreign direct

investment (FDI) policies has encouraged an increasing number of countries to

invest in Indian Properties.

The positive outlook of Indian government is the key factor behind the sudden

rise of the Indian Real Estate sector - the second largest employer after

agriculture in India. This budding sector is today witnessing development in all

area such as - residential, retail and commercial in metros of India such asMumbai, Delhi & NCR, Kolkata and Chennai. Easier access to bank loans and

higher earnings are some of the pivotal reasons behind the sudden jump in Indian

real estate.

Parties InvolvedAssessor:

A public official, who establishes the value of a property for taxation purposes.

Real estate agent:

A person licensed to negotiate and transact the sale of real estate.


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Broker:

Broker has several meanings in different situations. Most Realtors are "agents"

who work under a "broker." Some agents are brokers as well, either working form

themselves or under another broker.


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Indian Rates

City Rates 2004 2005Per sq. ft.

Rates 2008 2009Per sq. ft.

Delhi Rs. 15,000 Rs. 26,000

Mumbai Rs. 12,000 Rs. 25,000

Pune Rs. 7,500

Bangalore Rs. 10,500

Chennai Rs. 9,600

Kolkata Rs. 7,000

In Delhi, house prices increased by 4.8% during the second half of 2008. Inreal terms, house prices declined by 1.6%.

Mumbais house prices rose 4.5% during the second half of 2008. In realterms, they fell by 2%. During the previous half year (H1 2008), prices had

increased by 12% (6.7% in real terms).


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NAV of investment in 2004-05 (real estate India)

Total Amount Taken = Rs. 10,00,000

Land Prices

2004 - 05

Land Acquired Land Prices

2008 - 09

Land Acquired

Delhi Rs. 15,000 66.67 sq. ft. Delhi - Rs. 26,000 38.46 sq. ft.

Mumbai- Rs. 12,000 83.33 sq. ft. Mumbai Rs. 25,000 40 sq. ft.

If we were to invest Rs. 10,00,000 in real estate of Delhi in 2004-05 We would acquire 66.67 sq. ft. land Which if we were to hold and sell after 5 years Average Delhi land rate Rs. 26,000 per sq. ft. Amount Received = Rs. 17,33,420 only Similarly it is for the rest of India


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International Rates

ChinaLike in the case of the Indian Real Estate market, China, also a developing country,

has similar trend in this market.

As can be seen from Chart 1, taking 2004-05 as the base year the price index of

the Chinese real estate market is showing a rise. This indicates that developing

economies are a good and safe bet for real estate investors.

Of course stringent inter country investment laws are to be taken into

consideration. China has over the years become open to foreign investments in

almost all of its sectors. As can be seen from chart 2 the FDI in real estate has

increased considerably by approximately 4,000 million US dollars.


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Below are the rates of some highly developed real estate markets. As can be seen

the land prices of these areas fell down after the economic crises of 2007-08.

Therefore it can be noted that, an investment in these cities can bringmomentous returns five years down the line.

UAEDubai Market Rates per sq. ft.

Apartments AED 650 >>> Rs. 8114.10

Commercial AED 674 >>> Rs. 8413.19

Land AED 400 >>> Rs. 4993.2923

PhilippinesDifferent Markets Rates per sq. ft.

Apartments PHP 1852.7839 >>> Rs. 1937.97

Land PHP 427.35 >>> Rs. 446.999


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Risk in Real EstateHousing bubble troubleIndian house prices rose rapidly from 2002 to 2007. Strong economic growth andurbanization supported house prices, while in city centers a housing bubble was

encouraged by inadequate infrastructure, lack of planning and antiquated land

use laws.

Delhis residential property prices rose by 26.5% on average (21.2% in realterms) from 2003 to 2006. Price rises slowed in 2007, to 10.8% (4.2% in

real terms).

Bangalores residential property prices rose by 28.8% on average (23.9% inreal terms) from 2002 to 2005. Price rises continued strong in 2007 at15.1% (8.2% in real terms). Surprisingly, prices fell by 1.1% in 2006 (-6.5% in

real terms).

The liberalization of major sectors of the Indian economy during the early 1990s

brought a rapid influx of foreign direct investment (FDI). A boom in the BPO

industry generated rapid employment growth, increasing demand for housing,

and caused a ripple effect in the construction and telecommunications sectors.

Yet although house price increases were supported by these strong fundamentals,speculation also played a role. From 2000 to 2006, residential property became

significantly less affordable. By 2002, a residential property in Mumbai cost

around 85 times the average annual average income. By 2006, residential

properties in Mumbai cost 100 times the average annual income.

RESIDENTIAL PROPERTY AFFORDABILITY

City 2000 2006 Percent Change

Delhi 45.15 72.09 59.67

Mumbai 84.14 100.02 18.87

Bangalore 27.42 43.17 57.44

Sources: IMF, HDFC


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The capital of developers rapidly grew as their stock prices increased. Developers

used the capital to bid high prices for huge plots of land, making it relatively easy

to sell properties at very high prices.

Why Invest In Indian Real Estate?Flying high on the wings of booming real estate, property in India has become a

dream for every potential investor looking forward to dig profits. All are eyeing

Indian property market for a wide variety of reasons:

Its ever growing economy which is on a continuous rise with 8.1 percent

increase witnessed in the last financial year. The boom in economy increases

purchasing power of its people and creates demand for real estate sector.

India is going to produce an estimated 2 million new graduates from various

Indian universities during this year, creating demand for 100 million square feet of

office and industrial space.

Presence of a large number of Fortune 500 and other reputed companies will

attract more companies to initiate their operational bases in India thus creating

more demand for corporate space.

Real estate investments in India yield huge dividends. 70 percent of foreigninvestors in India are making profits and another 12 percent are breaking even.

Apart from IT, ITES and Business Process Outsourcing (BPO) India has shown its

expertise in sectors like auto-components, chemicals, apparels, pharmaceuticals

and jewels where it can match the best in the world. These positive attributes of

India is definitely going to attract more foreign investors in the near future.

The relaxed FDI rules implemented by India last year has invited more foreign

investors and real estate in India is seemingly the most lucrative ground at

present. The revised investor friendly policies allowed foreigners to own property,

and dropped the minimum size for housing estates built with foreign capital to 25

acres (10 hectares) from 100 acres (40 hectares). With this sudden change in

investment policies, the overseas firms can now put up commercial buildings as


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long as the projects surpass 50,000 square meters (538,200 square feet) of floor

space.

Indian real estate sector is on boom and this is the right time to invest in property

in India to reap the highest rewards.


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BIBLIOGRAPHY

Dubaipropertysearch.net

Dubizzle.com

Manila.locanto.ph

Globalpropertyguide.com

Indianrealtynews.com

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