REAL ESTATE - India Knowledge Centre

REAL ESTATENovember 2010

2

Contents

Advantage India

Market overview

Industry infrastructure

Investments

Policy and regulatory framework

Opportunities

Industry associations

REAL ESTATE November 2010

3

Advantage India

Advantage

India

High growth

projections

The Indian real estate industry is expected to be valued at US$ 180 billion (INR 8,640 billion) by 2020.

Rapid evolution

of the sector

The real estate sector in India is on a

rapid growth trajectory. In a short span

of time, the industry has evolved from

a highly fragmented and unorganised

market into a semi-organised market,

with a large number of listed

companies.

Demand for

affordable

housing

There is a significant shortage of low-

cost and affordable housing in the

country. The Government of India

(GoI) has announced low interest rates

for home loans up to INR 2 million.

Meanwhile, several developers,

attracted by the opportunity in this

segment, have launched affordable

housing projects.

Well-defined

regulatory

framework

The GoI has well-drafted national- and state-level regulations for the Indian real estate sector.

Some old laws are either being amended or repealed to introduce reforms to the industry.

Increased

foreign

investments

FDI of up to 100 per cent is

allowed under the automatic

route in most asset classes.

Multiple growth

drivers

• India has a young population.

• Urbanisation is increasing

steadily.

• Growth in the services

sector — telecom, financial

services and IT & ITeS — has

been significant.

• Household income is rising.

Sources: Confederation of Real Estate Developers’ Association of India (CREDAI) website, accessed 12 March 2010; Ernst & Young-FICCI Real

Estate Report 2009; Eleventh Five-Year Plan (2007–2012).

Real Estate November 2010

ADVANTAGE INDIA

4

Contents

Advantage India

Market overview


Investments


Opportunities



5

• The real estate sector is a key growth driver of the country’s economy. The contribution of the residential segment alone to India’s GDP is around 5 to 6 per cent.

• The real estate sector is one of the highest FDI-attracting sectors in India, with recorded FDI inflow of more than US$ 8.9 billion (INR 403 billion) between April 2000 and September 2010.

• Favourable demographics (a young population and increasing urbanisation) and growth in the services sector, especially the IT & ITeS sector, have primarily driven growth in the real estate industry.

• DLF, Unitech, Ansal Properties, K. Raheja Corporation and Parsvnath Developers are among the major Indian players in the sector.

• In the last decade, FDI in real estate has increased due to the growing interest of foreign players in the Indian market. Over the last decade, many international players, including developers such as Emaar, Ascendas, Keppel Land, Tishman Speyer and Nakheel Group, and investors such as Morgan Stanley, Och-Ziff Capital, Citigroup, Goldman Sachs, JP Morgan, Warburg Pincus and Deutsche Bank, have entered the Indian real estate market.

Market overview

Sources: Confederation of Real Estate Developers’ Association of India (CREDAI) website, accessed 23 March 2010; Ernst & Young-FICCI Real

Estate Report 2009; Eleventh Five-Year Plan (2007–2012).

MARKET OVERVIEW


6

Market segments

Real estate

sector

Retail space

• In recent years, the industry has evolved from a highly fragmented and unorganised market into a semi-organised market.

• The sector can be divided into residential, commercial, retail and hospitality asset classes.

Hospitality spaceSpecial economic

zones (SEZs)

Commercial

(office) space Residential space

MARKET OVERVIEW


7

Residential space … (1/2)

Growth drivers

• Rapid urbanisation — the urban population is estimated to reach 590 million by 2030.

• Decreasing household size — growth in the number of nuclear families is leading to an increase in the number of households, especially middle-class households. India is expected to be home to 91 million middle-class households by 2030.

• The growing working age population in the 15–60 age group is expected to reach 918 million, or 64 per cent, of the population by 2025.

• The demand for affordable housing is growing, which is a priority segment for both the government and developers.

Market structure• The market is highly fragmented and unorganised.

• Regional players are expanding to achieve a pan-India presence.

Segmentation • Broad categories include low-cost housing, mid-market housing and premium housing.

Outlook

• The country’s housing shortage in 2007 totalled 24 million units, and this is expected to increase to more than 26 million units by 2012.

• While the GoI has announced reduced interest rates for home loans up to US$ 41,667 (INR 2 million), developers have announced the launch of affordable housing projects, which are expected to mostly be developed in the suburbs of large cities and tier-I and tier-II cities.

Sources: Ernst & Young-FICCI Real Estate Report – 2009; ―World Urbanisation Prospects: The 2009 Revision Population Database,‖ United

Nations Department of Economic and Social Affairs Population Division website, http://esa.un.org/wup2009/unup/p2k0data.asp, accessed 6

December 2010; ―India’s Urban Future,‖ Resource Investor website, www.resourceinvestor.com/News/2010/5/Pages/Indias-Urban-

Future.aspx, accessed 6 December 2010; ―World Urbanisation Prospects: The 2008 Revision Population Database,‖ United Nations

Department of Economic and Social Affairs Population Division website, http://esa.un.org/unpp/p2k0data.asp, accessed 6 December 2010.

.

MARKET OVERVIEW

The residential segment constitutes the bulk of the real estate market.


http://esa.un.org/wup2009/unup/p2k0data.asp

http://www.resourceinvestor.com/News/2010/5/Pages/Indias-Urban-Future.aspx





http://esa.un.org/unpp/p2k0data.asp

8

Residential space … (2/2)

Growing urbanisation in India

Source: ―World Urbanisation Prospects: The 2009 Revision Population Database,‖ United Nations

Department of Economic and Social Affairs Population Division website, http://esa.un.org/unpp/p2k0data.asp,

accessed 6 December 2010.

MARKET OVERVIEW

0

10

20

30

40

50

60

1970 1980 1990 2000 2010E 2015E

Urban population (in per cent) Cities with population more than 1 million (no of cities)


http://esa.un.org/unpp/p2k0data.asp

9

Commercial office space

Growth drivers

• The commercial real estate (CRE) segment (primarily office space) has expanded on the back of growth in the Indian economy.

• The influx of multinational companies (MNCs) and the growth of the services sector have driven the demand for office space.

• Progressive liberalisation and the relaxation of FDI norms in various sectors have paved the way for growth in FDI in the real estate sector. This, in turn, has led to a burgeoning demand for office space from MNCs and other foreign investors.

Market structure

• A few large national developers with a pan-India presence dominate the market.

• Regional players are expanding aggressively to achieve a pan-India presence.

• The operational model has witnessed a shift, from a sale model to a lease-and-maintenance model.

Segmentation• Business activity is shifting from central business district (CBD) to the special business district

(SBD) and from tier-I cities to tier-II cities.

Outlook• The demand for office space is expected to increase driven by the growth in the services

industry, which includes telecom, financial services and IT & ITeS, which accounts for the maximum demand of commercial office space in the country.

MARKET OVERVIEW


10

Retail space

Growth drivers

• Consumerism is increasing on the back of rising disposable income.

• Organised retailing has grown.

• The entry of international retailers has boosted industry growth.

• Expansion by domestic retailers has also given impetus to the industry.

Market structure

• The retail segment constitutes a small proportion of the total real estate industry in India.

• Unorganised retail space providers dominate the segment.

• In the organised retailing segment, the demand for quality mall space has increased with the entry of international retailers in India.

• International retail brands are collaborating with Indian partners.

Segmentation

• Contribution of organised retail to the retail industry increased from 2 per cent in 2003 to 4–5 per cent in 2009.

• International retailers are present through the franchisee route.

Outlook

• The Ministry of Commerce and Industry has proposed 100 per cent FDI for multi–brand retail outlets, the approval for which is awaited.

• The share of organised retail in the total Indian retail trade pie is projected to grow at 40 per cent per annum.

MARKET OVERVIEW


11

Hospitality space

Growth drivers

• The hospitality segment has witnessed robust demand growth, primarily due to strong growth in tourism, including both business and leisure travel.

• India is becoming increasingly popular as a medical tourism destination.

• International sporting events such as the Cricket World Cup and Formula 1 in 2011 are expected to drive growth.

• According to a research by the World Travel & Tourism Council, travel and tourism demand in India is expected to grow at 11.8 per cent between 2005 and 2010.

Market structure

• Existing hotel operators are scaling up their operations.

• International hotel chains are entering India.

• Developers are tying up with major domestic and international chains.

• Hospitality players are diversifying into budget hotels and service apartments.

Segments• The industry is classified on the basis of star ratings — one-star to five-star deluxe.

• Number of approved hotel rooms has been estimated at 100,000.

Outlook

• A significant demand-supply gap characterises the segment. The demand for hotel rooms is around 240,000 rooms, while the current supply of hotel rooms caters to approximately100,000.

• This gap is expected to reduce in future, as several hotel projects are in the pipeline. More than 15,600 rooms are expected to be added in 2010.

• The potential for budget hotels, service apartments, spas and other niche products is significant.

Sources, ―Statistics,‖ Ministry of Tourism (Government of India) website, http://tourism.gov.in, accessed 21 September 2010; ―Hotel industry in

India to see addition of 15,600 rooms in 2010,‖ HospitalitybizIndia.com website,

http://www.hospitalitybizindia.com/detailNews.aspx?aid=7110&sid=1, accessed 29 January 2010.; ―Travel and tourism economic impact: India,

2010,‖ World Travel and Tourism Council website, www.wttc.org, accessed 2 December 2010.

MARKET OVERVIEW


http://www.hospitalitybizindia.com/detailNews.aspx?aid=7110&sid=1

http://www.wttc.org/

12

Robust and sustained macroeconomic

growth.

Upsurge in industrial and business

activity, especially in new economy

sectors.

Favourable demographic parameters.

Significant rise in consumerism.

Rapid urbanisation.

Availability of a range of financing

options at affordable interest rates.

Increasing occupier base.

Significant rise in demand for

office/industrial space.

Demand for new avenues for

entertainment, leisure and shopping.

Creation of demand for new housing.

Impact

Demand pull factors

Policy and regulatory reforms (100 per cent

FDI relaxation).

Positive outlook of global investors.

Fiscal incentives to developers.

Simplification of urban development guidelines.

Infrastructure support and development

initiatives from the GoI.

Entry of several domestic and foreign players;

increasing competition and consumer

affordability.

Easy access to project-financing options.

Increased developers’ risk appetite and large-

scale development.

Improved quality of real estate assets.

Development of new urban areas and effective

utilisation of prime land parcels in large cities.

Impact

Supply push factors

Growing Indian real

estate

Growth drivers

MARKET OVERVIEW


13

Key trends … (1/2)

MARKET OVERVIEW

Geographic de-

concentration of

real estate activity

from large metros

Green buildings are

gaining popularity


• Real estate activity is becoming geographically de-concentrated from large metros — Bengaluru,

Chennai, Mumbai and NCR — to tier-II and tier-III cities (cities such as Chandigarh, Chennai, Jaipur,

Pune, Hyderabad, Kochi and Visakhapatnam).

• The shift of IT-BPO companies toward tier-II and tier-III cities, which has increased the demand for

commercial and hospitality real estate, has primarily driven this transition.

• The concept of green buildings has gained popularity over the past five years.

• The number of registered green buildings in the country has increased from 1 in 2000 to 80 in 2009.

• Many real estate projects in India have acquired Leadership in Energy and Environmental Design

(LEEDS) certification, which certifies that a building has been designed and developed using strategies

that ensure the conservation of material and the optimum use of resources.

• Further, several real estate developers are using this concept as an opportunity to differentiate

themselves in the competitive real estate market.

14

Key trends … (2/2)

MARKET OVERVIEW

Recovery in demand

for luxury projects

Affordable housing is

still the buzzword


• Realizing the acute shortage of affordable housing, this segment became a priority for both the GoI

and developers.

• While the GoI announced low interest rate for home loans up to INR2 million, developers announced

the launch of affordable housing projects, most of which are expected to be developed in the suburbs

of large cities and tier-I and tier-II cities.

• Integrated townships also gained popularity, as they are attractive for both buyers and developers.

These projects offer value for money and better lifestyle to consumers and enable the ―walk-to-

work‖ environment by providing residential areas and other facilities close to workplaces. These

projects allow developers to diversify their risks and achieve high margins.

• With the recovery in the economy, demand for luxury residential segment has also picked up.

• Demand in this segment is driven by HNIs and NRIs.

• In the past few months, developers have launched luxury projects especially in metros.

• For instance, Emaar MGF launched a luxury residential project, Marbella, in Gurgaon in December

2010.

15

Unitech DLF Ansal Properties

• Unitech operates in various asset

classes in the residential, commercial

and retail segments.

• Unitech has developed more than 24

million sq ft of property, with six

townships.

• Eleven hospitality projects are under

development across India.

• Unitech is currently developing five IT

& ITeS SEZs and one IT Park spread

across Gurgaon, Noida, Greater

Noida and Kolkata, with potential

leasable area of 21.4 million sq ft

• The company has strong presence in

the National Capital Region (NCR)

and other cities such as Kolkata,

Chennai and Hyderabad.

• DLF is the largest real estate developer

in India.

• DLF developed Asia's largest private

township, DLF City in Gurgaon,

Haryana, spread across 3,000 acres.

• The company is present across all asset

classes — residential, commercial and

retail.

• The group has developed more than

220 million sq ft of built-up area (BUA).

• DLF specialises in planning hotels,

infrastructure and SEZs.

• DLF has enhanced its focus on

affordable housing.

• DLF has a pan-India footprint, with a

major presence in Gurgaon and

Kolkata.

• Ansal Properties operates primarily in

residential and commercial asset

classes.

• The company has developed on more

than 2,850 acres in Gurgaon and

Delhi.

• Ansal Properties is currently

developing integrated townships, malls,

hotels IT parks and SEZs.

• The company plans to construct 157.6

million sq ft of BUA.

• Ansal Properties has a pan-India

footprint, with a major presence in 16

North Indian cities across 4 states.

Key players — Indian … (1/2)

MARKET OVERVIEW


16

K. Raheja Corporation Sobha Developers Parsvnath Developers

• The company is present in

commercial, retail and residential

asset classes.

• The company has developed more

than 5 million sq ft of BUA to date.

• K. Raheja Corporation is currently

developing 15 self-contained

townships and 10 hotels.

• The company has a strong presence

in Mumbai, with operations in

Bengaluru, Ahmedabad, Goa, Pune

and Hyderabad.

• Sobha Developers operates in residential and

commercial asset classes. It also develops plots

and contractual projects.

• The company completed 60 residential projects

and 166 contractual projects covering around

36.34 million sq ft of area as of March 31, 2010 in

18 cities across India.

• The company currently has 27 residential projects,

aggregating 9.08 million sq ft, at the development

stage and 4.24 million sq ft in ongoing contractual

projects.

• Sobha Developers is primarily concentrated in

Bengaluru, but it also has a presence in other cities

such as Cochin, Chennai and Pune.

• The company has a presence

in residential, retail,

commercial and SEZ asset

classes.

• Parsvnath has around193

million sq ft under

development.

• The company has 98 ongoing

projects.

• It has a strong presence in the

NCR.

• The company, active in more

than 45 cities across 16 states,

is strengthening its pan-India

footprint.

Key players — Indian … (2/2)

MARKET OVERVIEW


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Contents

Advantage India

Market overview


Investments


Opportunities



18

Industry infrastructure — SEZs

• The GoI introduced the SEZ Act, 2005, to generate additional economic activity, promote exports and create employment opportunities in the country.

• Developing an SEZ is approximately 15 to 20 per cent less expensive than developing non-SEZ commercial space, given the various fiscal benefits available to SEZ developers. Several real estate developers have been attracted to these projects.

• Under the new SEZ Policy, formal approvals have been granted to 579 SEZ proposals as of November 2010.

• As of November 2010, there were 367 notified SEZs, and 155 have received in-principle approval.

• The SEZ Policy allows the use of as much as 50 per cent of the SEZ area as a non-processing zone, offering significant potential for residential and support infrastructure.

Industry-wise classification of formally approved SEZs

Source: SEZ India website, www.sezindia.nic.in, accessed

6 December 2010.

Source: SEZ India website, www.sezindia.nic.in, accessed 6 December 2010.

INDUSTRY INFRASTRUCTURE

62 per cent22 per cent

4 per cent3 per cent

4 per cent

6 per cent IT/ITES

Others

Multi-product

Textile

Pharma

Biotech


http://www.sezindia.nic.in/

http://www.sezindia.nic.in/

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Contents

Advantage India

Market overview


Investments


Opportunities



20

FDI in Indian real estate

• Over the years, FDI in real estate has increased due to growing interest among foreign players in the Indian market.

• FDI inflow to the sector from April 2000 to September 2010 was US$ 8.9 billion, of which US$ 2.8 billion was invested in 2009–2010 alone.

• The majority of FDI is from West Asia and investors from the US and Europe, who have shown keen interest in the launch of several real estate funds.

Investments

Source: ―FDI statistics,‖ Department of Industrial Policy and Promotion website, www.dipp.nic.in/fdi_statistics/indian_FDI_September2010.pdf,

accessed 6 December 2010.

INESTMENTS


http://www.dipp.nic.in/fdi_statistics/indian_FDI_September2010.pdf

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Contents

Advantage India

Market overview


Investments


Opportunities



22

Guidelines for FDI in real estate in India

Conditions for development Conditions for investment Other conditions

• A minimum of 10 hectares must be

developed for serviced housing plots.

• For construction-development

projects, a minimum BUA of 50,000 sq

m has been prescribed.

• In case of a combination project, any

one of the two conditions mentioned

above should be met.

• At least 50 per cent of the project

must be developed within five years

from the date of statutory clearances.

• Minimum capitalisation of US$ 10

million for wholly owned subsidiaries

and US$ 5 million for JVs with Indian

partners.

• Funds must be infused within six

months of business commencing.

• Original investment cannot be

repatriated before a period of three

years from the completion of minimum

capitalisation.

• The investor may be permitted to exit

earlier with prior government

approval.

• The investor is not permitted to sell

undeveloped plots.

• The project must conform to norms

and standards laid down by respective

state authorities.

• The investor is responsible for

obtaining all necessary approvals as

prescribed under applicable state

rules/bye-Iaws/regulations.

• A designated authority must monitor

developer’s compliance of the

conditions mentioned above.

Policy and regulatory framework … (1/2)

Source: India Foreign Direct Investment Policy

POLICY AND REGULATORY FRAMEWORK


23

Budget analysis

Union Budget 2010 — impact on real estate

Policy impact Direct tax impact Indirect tax impact

• The Finance Minister announced a

scheme of interest subvention on

housing loans in the Union Budget

2009–2010. The scheme allows

interest subvention of 1 per cent

on housing loans of up to US$

20,833 (INR 1 million), provided

the cost of a house does not

exceed US$ 41,666 (INR 2

million). This scheme has now

been extended up to March 31,

2011.

• Allocation for housing and urban

poverty alleviation has been raised

from US$ 177 million (INR 8.5

billion) to US$ 208 million (INR

10 billion) for 2010–11.

• Threshold slabs for individual taxation

have broadened, which is expected to

result in more disposable income for

consumers.

• Corporate tax rates remain

unchanged. However, the surcharge in

the case of a domestic company with

income of more than INR 10 million

has been reduced from 10 per cent to

7.5 per cent.

• Minimum alternate tax (MAT) has

been increased from 15 per cent to 18

per cent.

• The turnover threshold limit for

auditing accounts (under Section

44AB) has been relaxed to US$ 12,500

(INR 6 million) from the existing limit

of US$ 83,333 (INR 4 million).

• Service tax rate has been maintained at 10.3

per cent.

• The relevant definition of taxable service,

provided in relation to renting immovable

property, has been amended with

retrospective effect from June 2007 to

clarify that renting immovable property will

constitute a taxable service.

• Service tax will be levied on the lease of

vacant land if the lessor undertakes

construction on such land to further their

business or commerce during the tenure of

lease.

• Peak excise duty rate has been increased

from 8 per cent to 10 per cent.

Accordingly, peak effective customs duty

has been increased from 24.42 per cent to

26.85 per cent.

Source: Ernst & Young India Budget 2010

Policy and regulatory framework … (2/2)

POLICY AND REGULATORY FRAMEWORK


24

Contents

Advantage India

Market overview


Investments


Opportunities



25

The long-term view on the Indian real estate industry is positive, as fundamental demand drivers such as increasing urbanisation, favourable demographics, growth of the services sector and rising incomes are still intact.

Opportunities

OPPORTUNITIES

Major housing

shortage

Retail space

expected to increase

in rural markets


• According to the Eleventh Five Year Plan (2007–2012), the housing shortage in urban areas was

estimated at 24.7 million units in 2007, of which more than 88 per cent was in the economically

weaker section (EWS). Meanwhile, the housing shortage in rural areas was estimated at 47.4 million

units in 2007. For the Plan period, the total housing requirement (including backlog) is estimated at

26.5 million units.

• This provides real estate developers with ample growth opportunities, as unmet demand remains

significant.

• Growth of the services sector and organised retail, increasing urbanisation, rising income levels,

contracting household sizes and the easy availability of home loans are key growth drivers of the

industry.

• India has one of the largest number of retail outlets in the world. In the past few years, retail

development has been taking place not only in major cities and metros, but also in tier-II and tier-III

cities.

• Going forward, companies are expected to tap rural markets as their key growth drivers. This is

expected to increase the demand for retail outlets in rural areas.

26

Opportunities — emerging asset classes and formats

Logistics and warehousing Healthcare infrastructure Education infrastructure

• Trade, both international and

domestic, is booming.

• MNCs are increasingly establishing

Indian operations.

• Agricultural logistics require the

creation of cold-chain

infrastructure.

• Logistics are required for large

infrastructure and engineering

projects.

• Consolidation of warehousing, if

uniform tax regime is applied.

• The healthcare industry is expected

to grow at 23 per cent per annum to

become a US$ 77-billion industry by

2012.

• Healthcare BPO is another growing

segment.

• With India emerging as a preferred

destination for medical treatment,

medical tourism in the country is

expected to grow at 29 per cent to

reach US$ 2.4 billion by 2012.

• The market is large, with significant

untapped potential and low competition.

• Developing more world-class educational

institutions is the need of the hour.

• Driven by knowledge-based industries, the

demand for qualified engineers is significant.

• Research laboratories are adding value to

global outsourcing.

• Interest among global educational

institutions to set up institutions in India is

growing.

Sources: ―India’s Healthcare Sector To Touch $77 Billion By 2012, Says Report,‖ Indiaserver.com website, www.india-server.com/news/indias-

healthcare-sector-to-touch-77-16742.html, accessed 6 December 2010; India real estate - shifting gears, Ernst & Young, 2008.

OPPORTUNITIES


http://www.india-server.com/news/indias-healthcare-sector-to-touch-77-16742.html















27

Contents

Advantage India

Market overview


Investments


Opportunities



28

The Confederation of Real Estate Developers’ Associations of India (CREDAI)

National Secretariat, 703, Ansal Bhawan,

16, Kasturba Gandhi Marg, New Delhi – 110 001

Tel: (011) 43126262/43126200

Fax: 91 11 43126211

E-mail: [email protected]

Website: www.credai.org

Builders' Association of India (BAI) G-1/G-20, Commerce Centre, J. Dadajee Road,

Tardeo, Mumbai – 400034

Tel: 91 22 23514134, 23514802, 23520507

Fax : 91 22 23521328

E-mail: [email protected], [email protected]

Website: www.baionline.in


INDUSTRY ASSOCIATIONS


mailto:[email protected]



http://www.baionline.in/

29

Note

Wherever applicable, numbers in the report have been rounded off to the nearest whole number.

Conversion rate used: US$ 1= INR 48

NOTE


30

India Brand Equity Foundation (IBEF) engaged Ernst &

Young Pvt Ltd to prepare this presentation and the same

has been prepared by Ernst & Young in consultation with

IBEF.

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transiently or incidentally to some other use of this

presentation), modified or in any manner communicated

to any third party except with the written approval of

IBEF.

This presentation is for information purposes only. While

due care has been taken during the compilation of this

presentation to ensure that the information is accurate to

the best of Ernst & Young and IBEF’s knowledge and belief,

the content is not to be construed in any manner

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Ernst & Young and IBEF neither recommend nor endorse

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Neither Ernst & Young nor IBEF shall be liable for any

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