A

BRIEF REPORT

ON

REAL ESTATE SECTOR IN INDIA

January 2015  

 

 

 

 

 

   

 

 

 

 

 

 

   

1. INDIA’S REAL ESTATE SECTOR

2.1 Overview

The real estate sector in India has come a long way by becoming one of the fastest growing markets in the world. It is not only successfully attracting domestic real estate developers, but foreign investors as well. The growth of the industry is attributed mainly to a large population base, rising income level, and rapid urbanisation. The sector comprises of four sub-sectors- housing, retail, hospitality, and commercial. While housing contributes to five-six percent of the country’s gross domestic product (GDP), the remaining three sub-sectors are also growing at a rapid pace, meeting the increasing infrastructural needs. The real estate sector has transformed from being unorganised to a dynamic and organised sector over the past decade. Government policies have been instrumental in providing support after recognising the need for infrastructure development in order to ensure better standard of living for its citizens. In addition to this, adequate infrastructure forms a prerequisite for sustaining the long-term growth momentum of the economy. The Indian real estate sector is one of the most globally recognised sectors. In the country, it is the second largest employer after agriculture and is slated to grow at 30 per cent over the next decade. It comprises four sub sectors - housing, retail, hospitality, and commercial. The growth of this sector is well complemented by the growth of the corporate environment and the demand for office space as well as urban and semi-urban accommodations. The construction industry ranks third among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy. It is also expected that this sector will incur more non-resident Indian (NRI) investments in the near future, as a survey by an industry body has revealed a 35 per cent surge in the number of enquiries with property dealers. Bengaluru is expected to be the most favoured property investment destination for NRIs, followed by Ahmedabad, Pune, Chennai, Goa, Delhi and Dehradun. Private equity (PE) funding has picked up in the last one year due to attractive valuations. Furthermore, with the Government of India introducing newer policies helpful to real estate, this sector has garnered sufficient growth in recent times.

   

2.2 Segments in the Indian real estate sector

Real Estate sector

Residential space

Fragmented market with few large players Demand of over 300,000 units in the seven major

cities in 2010

Commercial space

Hospitality space

Retail space

Few players with presence across India Over 38.2 million sqft demand in 7 major cities in

2011

FDI in multi- brand retail to boost demand Fragmented market with few national players Demand of around 15 million sqft in major cities

589 SEZs have been approved by the government so far

Majority of SEZs are in the IT/ ITeS sector

SEZs

A competitive market with many players Over 121,000 hotel rooms in the country as of

2011

   

2 REAL ESTATE MARKET

2.1 Market Size

The real estate sector in India is being recognised as an infrastructure service that is driving the economic growth engine of the country. The Indian real estate market size is expected to touch US$ 180 billion by 2020. Foreign direct investment (FDI) in the sector is expected to increase to US$ 25 billion in the next 10 years, from present US$ 4 billion. According to Department of Industrial Policy and Promotion (DIPP), the construction development sector in India has received foreign direct investment (FDI) equity inflows to the tune of US$ 23,874.1 million in the period April 2000-September 2014. The Indian real estate market size is expected to touch US$ 180 billion by 2020. The housing sector alone contributes 5-6 per cent to the country's gross domestic product (GDP). Also, in the period FY08-20, the market size of this sector is expected to increase at a compound annual growth rate (CAGR) of 11.2 per cent. Retail, hospitality and commercial real estate are also growing significantly, providing the much-needed infrastructure for India's growing needs. Mumbai is the best city in India for commercial real estate investment, with returns of 12-19 per cent likely in the next five years, followed by Bengaluru and Delhi-National Capital Region (NCR). Also, Delhi-NCR was the biggest office market in India with 110 million sq ft, out of which 88 million sq ft were occupied. Sectors such as IT and ITeS, retail, consulting and e-commerce have registered high demand for office space in recent times. The construction industry ranks third among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy. The industry's growth is linked to developments in the retail, hospitality and entertainment (hotels, resorts, cinema theatres) sectors, economic services (hospitals, schools) and information technology (IT)-enabled services (like call centres) etc and vice-versa.

The sector is divided into four sub-sectors: Housing Retail Hospitality Commercial

Growth drivers

Growth in tourism

Policy support

Easier financing

Epidemological

changes

Growing economy

Urbanisation

   

The housing sub-sector contributes five-six per cent to the country's gross domestic product (GDP). Meanwhile, retail, hospitality and commercial real estate are also growing significantly, catering to India's growing needs of infrastructure. The Indian real estate market size is expected to touch US$ 180 billion by 2020. 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.

2.2 Major acquisitions in real estate sector in India

Target Acquirer Value ($ million)

Year

Caraf Builders DLF Assets ltd 696.5 2009 Cowtown Land DvlpPvt Ltd

Lodha Group 513.6 2011

Compact Disc film city Jeff Morgan 320 2011 Oceanus Real Estate Warburg Pincus 318 2011 Indiabulls Properties Pvt Ltd

Indiabulls Property Invest Trust

223.1 2012

Embassy Property Blackstone 200 2012

   

3 MARKET PLAYERS

The Indian real estate sector has traditionally been an unorganised sector but it is slowly evolving into a more organised one. The sector is embracing professional standards and transparency with open arms. The major established domestic players in the sector are DLF, Unitech, Hiranandani Constructions, Tata Housing, Godrej Properties, Omaxe, Parsvanath, Raheja Developers, Ansal Properties and Infrastructure and Mahindra Lifespace Developers Ltd to name a few. International players who have made a name for themselves in India include Hines, Tishman Speyer, Emaar Properties, Ascendas, Capitaland, Portman Holdings and Homex.

3.1 DLF Ltd

DLF group is a leading real estate developer in India since 1946. DLF has been instrumental in putting Gurgaon on the urban landscape of India. DLF has over 220 million sq. ft. of existing development projects and 574 million sq. ft. of planned projects. DLF has so far developed 22 urban colonies, and an entire integrated 3,000-acre township - DLF City. DLF's development projects across India span over 30 cities: Gurgaon, Ambala, Shimla, Amritsar, Jalandhar, Ludhiana, Sonepat, Panipat, Chandigarh, Panchkula, Noida, New Delhi, Jaipur, Indore, Ahemdabad, Baroda, Lucknow, Faridabad, Mumbai, Pune, Nagpur, Goa, Kochi, Kokkanad, Chennai, Bangalore, Vytilla, Coimbatore, Hyderabad, Bhubhaneshwar and Kolkata.

3.2 UNITECH Established in 1972, Unitech is India’s leading real estate developer in India. It is the first developer to have been certified ISO 9001:2000 in 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 Stock Exchange’s NIFTY 50 Index. The company has over 600,000 shareholders. Unitech and Norway based Telenor Group came together to build Uninor - a telecommunication services company providing GSM services across India.

3.3 Ansal API Established in 1967 as a family business, Ansal API today is clearly amongst the real estate leaders of India. Having established itself very strongly in the NCR region, Ansal API is now focusing on ventures in cities like Bhatinda, Mohali, Amritsar, Ludhiana, Jalandhar, Jaipur, Jodhpur, Ajmer, Sonepat, Panipat, Karnal, Kurukshetra, Faridabad, Gurgaon, Greater Noida, and Ghaziabad, Meerut, Agra, Lucknow, to name a few. Ansal API has till date, developed and delivered more than 190 million sq ft. The company currently has a land reserve of about 9,335 acres. Project Spectrum: Integrated Townships, Condominiums, Group Housing, Malls, Shopping Complex, Hotels, SEZs, IT Parks and Infrastructure and Utility Services

   

3.4 Sobha Developers Ltd The Company was founded in 1995 by PNC Menon after he returned home from the Middle East where he was acclaimed for quality interiors and construction since 1977. Today, this Rs10 billion plus company is one of the largest and only backward integrated company in the construction arena. 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 commercial projects and 166 contractual projects covering about 36 million sq.ft area in 18 cities across India (as of 31 March 2010). The company currently has 21 ongoing residential projects aggregating to 8.5 million sq.ft, while 4.24 million sq.ft of contractual projects are under various stages of construction.

3.5 Parsvnath Developers Ltd

Incorporated in July 1990 by Mr Jain in New Delhi, Parsvnath today has a substantial pan India presence in over 45 cities across 16 states. The company has emerged as one of the most progressive and multi-faceted real estate and construction entities in India. Project spectrum: Housing (premium, mid-market as well as affordable), office complexes, shopping malls & hypermarkets, hotels, multiplexes, IT Parks and SEZs.

   

4 POLICY INITIATIVES

4.1 Government Initiatives Under the Sardar Patel Urban Housing Mission, 30 million houses will be built by 2022, mostly for the economically weaker sections and low-income groups, through public-private-partnership, interest subsidy and increased flow of resources to housing sector. The Government of India along with the governments of the respective states have taken several initiatives to encourage the development in the sector. Some of them are as follows:

The Securities and Exchange Board of India (SEBI) has notified final regulations that will govern real estate investment trusts (REITs) and infrastructure investment trusts (InvITs). This move will enable easier access to funds for cash-strapped developers and create a new investment avenue for institutions and high net worth individuals, and eventually ordinary investors.

The Telangana Real Estate Developers' Association (Treda) plans to host the Fifth Treda Property Show 2014 at Hitex Centre, Hyderabad. The show will be open to a mix of the populace, including prospective property purchasers, investors, architects and others.

The State Government of Kerala has decided to make the process of securing permits from local bodies for construction of houses smoother, as it plans to make the process online with the launch of a software called 'Sanketham'. This will ensure a more standardised procedure, more transparency, and less corruption and bribery.

The Government of India has proposed to release the Real Estate (Development and Regulation) Bill which aims to protect consumer interest and introduce standardisation in business practices and transactions in the sector. The bill will also enable domestic and foreign investment flow into the sector.

As the Indian economy grows, the real estate sector keeps benefiting. With the increase in foreign tourist arrivals (FTA) every year, there is demand for real estate in the tourism and hospitality sector. Also, with the entry of major private players in the education sector, the major cities, that is Hyderabad, Bengaluru, Mumbai, Delhi, Pune, Chennai and Kolkata are likely to account for 70 per cent of total demand for real estate in the education sector. Demand for improved healthcare facilities is also expected to provide a boost to the construction sector in the country.

4.2 Investments

The Indian real estate sector has witnessed high growth in recent times with the rise in demand for office as well as residential spaces. Some of the major investments in this sector are as follows:

Assotech Realty has tied up with Lemon Tree Hotels to manage and operate its serviced residences. The first project, 210 apartments under the branding of Sandal Suites, will be launched in Noida in 2015. The companies will launch 8-10 similar projects in a phased

   

manner over the next seven years with an investment of Rs 8000-9000 million (US$ 129-145 million) approximately.

Blackstone Group LP is all set to become the largest owner of commercial office real estate in India after a three-year acquisition drive in which it spent US$ 900 million to buy prime assets. Blackstone has acquired 29 million sq ft of office space in cities such as Bengaluru, Pune, Mumbai, and Noida on the outskirts of New Delhi.

L&T Infra Finance Private Equity (PE) plans to raise Rs 37,500 million (US$ 607 million) in an overseas and a domestic fund, and launch a real estate fund.

IDFC Alternatives Ltd has sold two of its real estate investments to PE firm Blackstone Group LP. The assets - a special economic zone (SEZ) in Pune and an information technology (IT) park in Noida - were sold for a combined enterprise value of Rs 11,000 million (US$ 178 million).

Goldman Sachs plans to invest Rs 12,000 million (US$ 194 million) to build a new campus in Bengaluru that can accommodate 9,000 people. The new campus is being developed in collaboration with Kalyani Developers on the Sarjapur Outer Ring Road, Bengaluru.

Snapdeal has entered into a strategic partnership with Tata Value Homes to sell the latter's apartments on its e-commerce platform, which marks the first time that an e-commerce company has tied up with a real estate venture.

   

5 CHALLENGES &INVESTMENT OPPORTUNITIES

5.1 Challenges The key challenges that the Indian real estate industry is facing today are:

lack of clear land titles, absence of title insurance, absence of industry status, lack of adequate sources of finance, shortage of labour, rising manpower and material costs, approvals and procedural difficulties.

5.2 Investment Opportunities The real estate industry in India is yet in a promising stage. The sector happens to be the second largest employer after agriculture and is expected to grow at the rate of 30 per cent over the next decade. A growing migrant population due to increasing job opportunities, together with healthy infrastructure development, is underpinning demand in the region’s residential real estate market. It is believed that the Finance Ministry's motivation through softening of interest rates and lending more to the real estate sector will have a positive impact on both developers and consumers. The real estate market could start to perform better as the easing of FDI norms will begin to show results during the second half of the year. The economy will also recover in 2013 which in turn will perk up the real estate sector in India. With the government trying to introduce developer and buyer friendly policies, the outlook for real estate in 2013 does look promising. Real estate contributed about 6.3 per cent to India's gross domestic product (GDP) in 2013. The market size of the sector is expected to increase at a compound annual growth rate (CAGR) of 11.2 per cent during FY 2008-2020 to touch US$ 180 billion by 2020. The Government of India has allocated US$ 1.3 billion for Rural Housing Fund in the Union Budget 2014-15. It also allocated US$ 0.7 billion for National Housing Bank (NHB) to increase the flow of cheaper credit for affordable housing for urban poor. The government has allowed FDI of up to 100 per cent in development projects for townships and settlements. The entry of major private players in the education sector has created vast opportunities for the real estate sector. Emergence of nuclear families and growing urbanisation has given rise to several townships that are developed to take care of the elderly. A number of senior citizen housing projects have been planned, and the segment is expected to grow significantly in future. Growth in the number of tourists has resulted in demand for service apartments. This demand is likely to be on the uptrend and presents opportunities for the unorganised sector.

   

Niche sectors expected to provide growth opportunities

5.3 Tourism market set for a surge; hotels to increase capacity

Foreign tourist arrivals in India are

expected to rise at a CAGR of 10.5 per cent during 2012-15

The number of foreign tourists arriving in the country is expected to be over 8.9 million by 2015

The number of hotel rooms in India as of 2011 stood at 121,000

The number of hotel beds in the country is expected to increase to 443,000 by 2015 from the current capacity of 262,000

•The healthcare sector is estimated to grow at the rate of 15 per centper annum from 2011-16

•India is expected to need additional 920,000 beds, entailing aninvestment between USD32 billion and USD50 billion over the period2010-20

Healthcare

•Emergence of nuclear families and growing urbanisation has given riseto several townships that are developed to take care of the elderly

•A number of senior citizen housing projects have been planned; thesegment is expected to grow significantly in future

Senior citizen housing

•Growth in the number of tourists has resulted in demand for service apartments

•This demand is likely to be on uptrend and presents opportunities forthe unorganised sector

Service apartments

6.6 7.4 8.2 8.90123456789

10

2012F 2013F 2014F 2015F

Foreign tourists arriving in India (‘000)

CAGR: 10.5%

98 109 121 135 154 176 197210

241 262295

339392

443

050

100150200250300350400450500

2009 2010 2011 2012F 2013F 2014F 2015F

Capacity of hotels in India (‘000)