Real Estate Industry in India Vijay - Copy

7/31/2019 Real Estate Industry in India Vijay - Copy

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Real Estate Industry in India


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Introduction

The term real estate is defined as

land, including the air above it and theground below it, and any buildings orstructures on it. It is also referredto as realty.

It covers residential housing,commercial offices, trading spaces

such as theatres, hotels andrestaurants, retail outlets, industrialbuildings such as factories andgovernment buildings.

Real estate involves the purchase,sale, and development of land,residential and non-residentialbuildings.


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Overview

India is the second most populous country after China and it is expected to

overtake it by 2030.

Its economic transformation over the past decade has pushed up real GDPgrowth to an average of 6 per cent per annum since 1992.

India is emerging as an important business location, particularly in theservices sector.

Historically, the real estate sector in India was unorganised andcharacterized by various factors that impeded organised dealing, such as the

absence of a centralized title registry providing title guarantee, lack ofuniformity in local laws and their application, non-availability of bankfinancing, high interest rates and transfer taxes, and the lack oftransparency in transaction values.


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Overview

Real estate industry is currently estimated to be US$ 48 billion, with a

CAGR of 30 per cent

Total economic value estimated to be US$ 40-45 billion accounting for fourto five per cent of the GDP

Growth driven primarily by IT/ITeS, growing presence of foreignbusinesses in India, the globalization of Indian corporates and, the rapidlyincreasing consumer class providing a huge market potential


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Indian economy: Overview

Accelerated yet stable reforms process

Broad consensus on importance of reforms Reforms momentum continued despite changing leadership especially in areasof FDI & infrastructure

Robust economic fundamentals Fourth largest economy in the world in terms of PPP

GDP growth rate of 9.4 per cent Forex reserves at US$ 204 billion Services sector accounts for more than 50 per cent of GDP, whilemanufacturing sector average growth is at six per cent,

Fast improving socio-economic profile

Per capita GDP has increased by 66 per cent in the past five years Favorable demographics with more than 60 per cent of population estimated tobe in the working age (15-60 years) till 2050 Growing lifestyle spending with increased expenditure on consumer durables,eating out and communications.


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Increased foreign investment

Indias policy on foreign investment has been gradually relaxed withsectors such as construction, telecom and banking allowed. Another routeof foreign participation is portfolio investments.

FDI inflows estimated to be US$ 19.5 billion in FY 2007 and US$ 7.5

billion in the first five months of FY 2008

Focus on infrastructure development India has a well developed road and rail network. Large investments areunderway in areas of:

- Highway development- Air-connectivity (Domestic & International)- Upgradation of ports with their privatisation- Power sector

Indian economy: Overview


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Types of Real Estate

RealEstate

Residential

Real EstateDevelopment

CommercialReal Estate

Development

Retail RealEstate

Development

HospitalityIndustry

SpecialEconomicZones (SEZ)

InfrastructureDevelopment

Projects


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Residential space The growth in the residential real

estate market in India has been largelydriven by rising disposable incomes, arapidly growing middle class, lowinterest rates, fiscal incentives on bothinterest and principal payments forhousing loans, heightened customer

expectations, as well as increasedurbanisation and growing number ofnuclear families.

These higher income households areexpected to be the target customers for

the luxury and super luxury residentialdevelopments.


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Growth Drivers

Rapid urbanisation: Urban population expected to touch 590 million by 2030. Decreasing household size: Average increase in number of nuclear familiesestimated to be over 300 million (middle class population). Number of rich household growing at CAGR of 21 per cent. Increasing working age population (almost 64 per cent in 16-64 age group). Increasing income levels: per capita GDP increased by 66 per cent in last five years.

Market Structure Highly fragmented and unorganized Regional players are expanding to achieve aPan-India presenceSegmentation

Broad categories include Low cost/Mid market/ Premium housing Luxury segment growing annually at 25-30 per cent

Outlook Current shortage close to 25 million units, predominantly in middle and lowincome group Expected to grow at CARG of 18 per cent to 19 per centupto by 2010 Mortage finance will be increasing penetration into the urban housing financesector


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The recent growth of the commercial real

estate sector in India has been fuelled byincreased revenues of companies in theservices business, particularly in the IT andITES sectors. Industry sources expect the ITand ITES sectors to continue to grow andgenerate additional employment, which they

expect will result in increased demand forcommercial space.

Within the IT and ITES sectors, the Indianoff shoring operations of multinationalcompanies are expected to increase demandfor commercial space. The trend for thesecompanies has been to set up world classbusiness centres to house their growingwork force.


Commercial office space


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Growth Drivers

Growth in IT/ITES sector at 30 per cent annually (source: NASSCOM) Significant growth in FDIMarket Structure

Dominated by a few large national developers with pan-India presence Regional players are expanding to achieve a Pan-India presence Shift in the type of operations from Sale Model to lease & maintain model

Segmentation Commercial Space can be classified broadly into Grade A and B Business activity shifting from CBD to SBD and from Tier I to Tier II & IIIOutlook

Commercial market expected to grow at CAGR of 20 per cent to 22 per cent overthe next five years

IT/ITeS sector expected to require in excess of 250 million sq. ft of commercialoffice space by 2012-13


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Retail space The organised retail segment in India

is expected to grow at a rate of 25 percent to 30 per cent over the next fivefiscal years. The growth of organisedretail is expected to be driven bydemographic factors, increasing

disposable incomes, changes inshopping habits, the entry ofinternational retailers into the marketand the growing number of retail malls.

The major organised retailers in Indiacurrently include Lifestyle, Pantaloon,Shoppers Stop and D Mart.


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Growth Drivers

Rising consumerism with doubling of disposable income Growth in Organized Retailing Entry of international retailersMarket Structure

Dominated by unorganised retail Large corporate houses entering the organized retail sector

International retail brands are tying up with Indian partnersSegmentation

Organized retail contribution to the retail industry grew from 2 per cent in 2003 tofour to five per cent in 2007 International retailers are present through franchisee routeOutlook

FDI norms are likely to be relaxed in next two to three years Oranised retail expected to grow at around 30 per cent Share of organised retail, by sales expected to reach 10 per cent by 2010 By 2012, 323 million Sq.ft. of new retail space will be required.


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Hospitality space The hotel industry in India has grown as a

result of a growing economy, increasedbusiness travel and tourism.

With increased demand and limitedavailability of quality accommodation, theaverage room rates in metropolitan

markets have grown by approximately 50per cent over the last two years, theexceptions being Bangalore, where therates have more than doubled, and Kolkata,where they have risen only marginallynotwithstanding strong growth in

occupancy rates. The general increase inroom rates and occupancy rates is expectedto contribute significantly to the demandfor new hotel developments.


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Growth Drivers

More than 4.4 million international visitors and 430 million domestic tourist visits in 2006 Low cost airlines India recquiring recognition as a medical tourism destination International events such as Commonwealth Games Imergence of India as a MICE destinationMarket Structure

Entry of several corporate houses such as Reliance Existing hotel operators are scaling up their opetationsDevelopers are tying up with major international chains Developers have set up RE funds to finance their VenturesSegmentation

Classification on the basis of Star Rating of 1 star to 5 star deluxe Number of approved hotel rooms: 1,10,000 (including approved projects), 30 per cent of

this is in the five star segmentOutlook

Indian tourism industry to grow by eight per cent per annum over the next 10 years. Tremendous potential for budget hotels Service apartments, hospitals, wellness spas gaining popularity. International hotel chains have big expansion plans for India


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Special Economic Zones (SEZ) SEZs are specifically delineated

duty free enclaves deemed to beforeign territories for purposes ofIndian custom controls, duties andtariffs.

There are three main types ofSEZs: Integrated SEZs, which mayconsist of a number of industries;

Services SEZs, which may operate

across a range of defined services;and

Sector specific SEZs, which focuson one particular industry line.


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Infrastructure Development Projects

Central and state governments in Indiaare increasingly focused oninfrastructure development. A significantportion of infrastructure development isexpected to be undertaken through

public-private partnerships, therebyincreasing the flow of private capital intoinfrastructure projects. Key areas ofinfrastructure development includetransport, power, telecommunications,ports, pipelines, sanitation, water supply

and irrigation.


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Demand Drivers

These trends have benefited from the substantial recent growth in the Indian

economy, which has stimulated demand for land and developed real estateacross the real estate industry. Demand for residential, commercial and retail

real estate is rising throughout India, accompanied by increased demand for

hotel accommodation and improved infrastructure.

Additionally, the tax and other benefits applicable to Seas are expected to

result in a

new source of real estate demand.


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The impact of macroeconomic factors

on demand & supply of real estate

Economic

Growth

-Broad based GDP growth rate of 8-9 % per annum forecast

- Demand driven by the growth in services sector- Growth expected to fuel demand across all the asset classes

Inflation

-Has significant role in supply-demand of real estate

- Continues to remain a major concern

- Inflation is at its lowest since last year

Money Supply

-Growth is higher than RBI estimates

- Liquidity is key to inflation and over-heating

- Restricted availability to reduce options for builders/developers

Interest Rates

-Higher rates lead to higher cost of borrowing

- Developers seeking other options, consumers are re-evaluating options

- Investors are revaluing returns from the sector

Credit Take-off-Easy availability of capital has led to growth in valuations- Concern over exposure of Banks towards the sector

- Restrictions have increased the cost leading to alternate sources like PE/VC

Government

Policies

-Liberalization of FDI has led to an interest from new players

- Valuation standards and greater transparency

- Service tax on commercial rental to affect retail space


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India

North

- DLF Ltd

- Omaxe Ltd

- Unitech

- Ansal API- Parsvnath Developrs Ltd

West

- Godrej Properties Ltd

- K Raheja CORP

- Oberoi Realty Ltd

- Kalpataru Group- DB Realty

East

-Ambuja Realty

- Mbuja Realty

- Merlin Group

-PS Group

-Hiland Group

- Belani Group

South

- Sobha Developers Ltd

- Brigade Group

- Puravankara Group

-Nitesh Estates

- Prestige Estates ProjectsLtd

Major Companies


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Major Companies

North Region

DLF Ltd

Headed by: Dr Kushal Pal Singh, Chairman

About:With a track record of 64 years, DLF is Indias largest real estatecompany in terms of revenues, earnings, market capitalization and developablearea. It currently has pan India presence across 30 cities with approximately

238 million sq ft of completed development and 413 million sq ft of plannedprojects, of which 56 million sq ft of projects are under construction duringFY10.

Project Spectrum: Residential, townships, commercial complexes, IT Parks,hotels, multiplexes, etc.

Quick fact: Only listed real estate Company included in the BSE Sensex, NSENifty, MSCI India Index and MSCI Emerging Markets Asia Index.

Latest: Will take its luxury mall DLF Emporio (already operational in NewDelhi) to other big cities such as Hyderabad and Chennai.


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Major Companies

North Region

UNITECH

Headed by: Ramesh Chandra, Executive Chairman

About: Established in 1972, Unitech is today Indias leading real estatedeveloper in India. It is the first developer to have been certified ISO 9001:2000in North India.

Project Spectrum: Unitech offers diversified projects across residential,commercial/IT parks, retail, hotels, amusement parks and SEZs segments.Unitech was the first real estate company to be part of the National StockExchanges NIFTY 50 Index. The company has over 600,000 shareholders.Unitech and Norway based Telenor Group came together to build Uninor - atelecommunication services company providing GSM services across India.

Latest: Has ventured into the infrastructure business by launching UnitechInfra.


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Major Companies

West Region

K RAHEJA CORP

Headed by: Chandru L Raheja, Chairman

About: Incorporated in 1956, this Mumbai based real estate giant has beenengaged in real estate development for more than four decades. K RahejaCorp has built residences, commercial buildings and hotels throughout India.

The Group also diversified in the hospitality sector in 1981and in the retailsector in 1991. The company has several landmark projects to its creditsacross cities.

Quick fact: K Raheja Corp has given a firm commitment to have all of itsfuture projects undertaken anywhere in India to be Leed Certified Green

Building Projects.


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Major Companies

West Region

OBEROI REALTY LTD

Headed by: Vikas Oberoi, CMD

About: Founded in 1998, the company was recently in limelight for its IPO.The Companys consolidated total income and consolidated net profit after

tax and prior period items as restated were Rs8,054.95 million andRs4,576.20 million for the year ended March 31, 2010 and Rs 1658.27million and Rs797.96 million for the three months ended June 30, 2010. Thecompany has presence in Mumbai and Pune.

Project Spectrum: Oberoi Realty focuses on premium, single space andmixed used development across residential, office space, retail, hospitalityand social infrastructure segments.


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Major Companies

East Region

AMBUJA REALTY

Headed by: Harshavardhan Neotia, CMD

About: Ambuja Realty has been providing housing in West Bengal, in apioneering joint venture with West Bengal Housing Board for the past 15 yearsunder the name Bengal Ambuja. The first real estate company in Eastern India

to get ISO: 9002 Certification, in 1999, Bengal Ambuja has also earned them thehighest developer rating in India - DRI from ICRA, in 2003.

Project Spectrum: The Group has a diversified presence across segments likeresidential, retail, commercial and hospitality. The company is also planning anaggressive pan-India growth strategy to deliver an unprecedented number of

high-quality projects. Currently, it is building more malls, hospitals, IT Parks,luxury resorts, business hotels and are even aspiring to build a University.

Latest: To invest around Rs500 crore in developing three shopping malls underthe City Centre brand in Raipur, Haldia and Patna.


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Major Companies

East Region

HILAND GROUP

Headed by: Nayan Basu, CEO

Credited with more than 50 multi-storeyed landmark developmentsadorning the skyline of Kolkata, the Hiland Group has today emerged as oneof the most prominent developers in Kolkata.

Latest: The Group has also entered into a 50:50 joint venture with WestBengal Housing Board to form Bengal United Credit Belani Housing Ltd.Hiland Woods is the key project of this joint venture. It is a residentialdevelopment catering to a mix of demographic profiles across LIG, MIG andHIG.


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Major Companies

South Region

SOBHA DEVELOPERS LTD

Headed by: PNC Menon, Chairman

About: The Company was founded in 1995 by PNC Menon after he returnedhome from the Middle East where he was acclaimed for quality interiorsand construction since 1977. Today, this Rs10 billion plus company is one of

the largest and only backward integrated company in the constructionarena. Its IPO in 2006 was oversubscribed by 126 times that created history,being the first event of its kind in Indian capital markets.

Till date, Sobha has completed 47 residential projects, 13 commercialprojects and 166 contractual projects covering about 36 million sq ft area in18 cities across India (as of 31 March 2010). The company currently has 21ongoing residential projects aggregating to 8.5 million sq ft, while 4.24million sq ft of contractual projects are under various stages of construction.


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Major Companies

South Region

NITESH ESTATES

Headed by: Nitesh Shetty, MD

About: Founded in 2004, Nitesh Estates is an integrated property developmentcompany headquartered in Bangalore.

Project Spectrum: In just six years, the Company has brought more than ninemillion sq ft of space under development across housing, hotels, office buildingsand shopping malls.

The company is growing even faster with plans to expand its operations in othercities like Goa, Chennai, Hyderabad and Kochi. Nitesh Estates has to its credit aseries of firsts: the first to win Indias largest corporate housing project (ITC

Limited), one among the first few to attract FDI in real estate (Och Ziff andCitigroup) and has the distinction of bringing to India its very first Ritz Carlton.It has 27 ongoing and forthcoming projects in and around Bangalore and Goa. Ithas land bank of 19 million sq ft, which will be developed in the next 4-5 years.


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Causes of Recession on Real Estate

Retail and IT sector had created a very fast pace of demand

in Indian real estate sector which have gain a very highimpact image of investing in India.

Till October 2008 the real estate sector was a very booming

sector in India.

The impact of recession in US economy has badly hit Indianreal estate market along with sectors like retail, steel,

cement, hospitality and logistics


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Because of lack of uniformity of land laws, slowdown and

approval delays, the developers missed to complete theirprojects within the boom period.

The banking sector had not reduced interest rates

sufficiently. Banks rates were 10% to 12%.

Increase in the price of cement, steel, sand, labor haseffected the real estate sector .


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Many companies has given pink slips to their employees.

This has forced the employees to cancel their bookings andforego whatever deposit made by them to the builders.

Banks and foreign investor had starts withdrawing their

money from the market.

Investment in real estate sector became stagnant.


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Effect of Recession on Real Estate

The market rates in India were dropped by 10 to 30% in

most of prominent as well as upcoming cities.

Real estate slowdown affect revenue generation in country.

Progress of ongoing project was very slow and the futureproject has been postpone.

Owner want to sell their properties in any cost as a resultbargaining power of costumers increased.


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Recent Update on Industry

Industry Overview

The real estate sector in India is on a growth path. The development in the realestate market encompasses growth in both commercial and residential spheres.

It has been estimated that there would be shortage of 26.53 million houses duringthe Eleventh Five Year Plan (2007-12), which provides a big investment opportunity,according to a report by the Technical Group on Estimation of Housing Shortage.

Emerging trends in Real Estate include Jodhpur, Agra, Punjab, Uttar Pradesh,Haryana, Madhya Pradesh, and Rajasthan among others.

Industry Investment

During 2010-11, the Indian real estate and housing sectors received US$ 1.12 billionin foreign direct investment (FDI), according to the Department of Industrial Policyand Promotion India (DIPP).

Further, the industry also witnessed growth in private equity (PE) investments aswell. Around 20 deals worth US$ 1.32 billion took place during January-May 2011, ascompared to 22 deals worth US$ 483 million during the same period last year,according to Venture Intelligence, a research service focused on PE and mergers andacquisitions (M&A).


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Some of the major deals that were undertaken during the first five month of the

current calendar year include investment of US$ 320 million by Jeff Morgan Capital inCompact Disc Indias film city project, investment of US$ 318 million by WarburgPincus in Oceanus Real Estate and Ascendas Indias investment of US$ 190 million inPhoenix Infocity. Further, US$ 86 million was invested by Tata Realty in Peepul TreeProperties.

Major Developments

Phoenix Group, an infrastructure company, plans to invest around US$ 44.68 millionin six real estate ventures in Hyderabad.

Mumbai-based infrastructure and real estate company Atlanta is looking for apartner to buy 26 per cent stake in a US$ 2.12 billion entertainment township projectit is developing at Suvali near Surat in Gujarat.

Patel Realty India Ltd, a wholly-owned subsidiary of Mumbai-based publicly-heldPatel Engineering Group, plans to launch 3-3.5 million sq ft of projects valued aroundUS$ 66.48 million during 2010-11 across the country.


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Phadnis Group plans to invest US$ 176.68 million in sectors such as real estate,

hospitality and infrastructure in the next three years.

India Property Fund, managed by NRI investor Purnendu Chatterjee's TCG RealEstate and US-based Vornado Realty Trust, will be investing US$ 60.32 million in tworesidential developments in national capital region (NCR) and Mumbai.

Government Initiatives

The Government has undertaken various initiatives to help the sector grow in the recentpast. Some of the major government initiatives include:

Allowing 100 per cent FDI in townships, housing, built-up infrastructure andconstruction development projects through the automatic route, subject to guidelinesas prescribed by DIPP


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In the Union Budget 2011-12, Mr Pranab Mukherjee, Union Finance Minister

presented various initiatives for the real estate sector, especially focusing on affordablehousing. Some of these initiatives include:

Raising the limit on housing loans eligible for a 1 per cent subsidy in interestrates

Widening the scope for housing under "priority-sector lending" for banks,making interest rates cheaper on them

Earmarking substantial amount to the Urban Development Ministry forspending on extension of Metro networks in Delhi, Bangalore and Chennai

Allocating US$ 20.03 million for the urban infrastructure development project.The Urban Development Ministry received US$ 1.5 billion, an increase of US$68.53 million from the last fiscal 2010-11.

Increasing allocation for Bharat Nirman to US$ 12.89 billion. Bharat Nirmanconsists of 6 flagship programs, the Pradhan Mantri Gram Sadak Yojana (PMGSY),Accelerated Irrigation Benefit Program, Rajiv Gandhi Grameen VidyutikaranYojana, Indira Awas Yojana, National Rural Drinking Water Program and Ruraltelephony.


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SWOT Analysis

StrengthsAttracting High FDI Inflow

High Demand due to Urbanization

Rising Middle Class Numbers

WeaknessesHigh Government Regulation

High taxes on Raw Material

Availability of Finance

OpportunitiesAffordable Homes segment

Rural India Housing

ThreatsCompetition

Economic Inflation

political instability

SWOT


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Key Opportunities

Missing asset classes and formats

Logistics & Warehousing

Booming trade, both International and Domestic

Number of MNCs establishing Indian operations

Agricultural logistics requiring creation of cold chain infrastructure

Logistics required for large infrastructure and engineering projects Consolidation of warehousing if uniform tax regime is applied

Healthcare Infrastructure

Healthcare industry expected to grow at a CAGR of 11.6 per cent over thenext five years

Healthcare BPO is growing at steady pace

Medical infrastructure expanding with one million beds to be added by2012

Medical tourism growth driven by low cost and high quality services


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Key Opportunities

Education Infrastructure

Huge market with untapped potential and low competition Lack of enough world class educational institutions

Driven by Knowledge based industries, large demand for qualified Engineers

Research Laboratories adding value to Global outsourcing trend

Growing interest of leading global educational institutions in setting upinstitutions in India

Low Cost Housing

72 per cent of the total population is still rural areas

Current housing shortage of 22 million units at an estimated cost of US$ 88billion

Increasing shift from rented to owned house

Easy access to financing

Nuclear families increasing the demand for housing


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Indian Real Estate: Road Ahead

The affordable housing segment is expected to play an important role in the

growth of the real estate sector in India in 2011, on the back of increasingdemand for such housing, according to the Confederation of Real EstateDevelopers' Associations of India (CREDAI).

"Affordable housing will be a key factor in driving the sector and we havealready started working on progressive solutions in this area for effective andcustomised implementation of such projects," CREDAI Chairman Kumar Gerasaid.

Further, growth in the infrastructure sector is also expected to accelerate realestate activities, in commercial as well as residential segments, during this year.

Documents

Real Estate Industry in India Vijay - Copy