Resized (2) - KF Investment Advisory Report 2012

7/28/2019 Resized (2) - KF Investment Advisory Report 2012

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INDIAS TOP RESIDENTIALDESTINATIONS TO INVEST INInvestment Advisory Report November 2012


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This report LGHQWLH V thetop residentialdestinations in thecountry from theinvestment point of viewover the next YH

years (2013-2017)

Balancing return with the associated risk is thefocal point of any investment decision. Equity anddebt are considered to be the mainstream assetFODVVHV +RZHYHU WKH WUDGHR EHWZHHQ UHWXUQand risk in both these asset classes is strikinglyGLHUHQW :KLOH HTXLW\ DV DQ DVVHW FODVV LVassociated with high returns albeit with a greater risk score as measured by volatility, a relativelystable debt investment comes with a larger compromise on returns.

Real estate, the third mainstream asset class,RHUV WKH EHVW FRPELQDWLRQRI UHWXUQV DQG ULVNFrom the perspective of return, real estateinvestment in India has garnered superior returnsin comparison to other asset classes over a longterm. Further, an investment in residential

INVESTMENTadvisory REPORTIndias Residential Destinations

INTRODUCTION

property is generally done with leverage in theform of a housing mortgage. This leverage further increases the potential for earning higher returnssince the initial equity contribution is a fraction of the property value.

From the perspective of risk, property investmentfares better because asset price generallyremains stable. It has been established that aninvestment in real estate based on sound

research can seldom go wrong. In the sense thatin comparison to an asset class like equity whichis dependent on several factors related to theXQGHUO\LQJ EXVLQHVV OLNH SU RWDELOLW\ OHYHUDJHand corporate governance, a real estateinvestment is based on the underlying asset. Asound research is inherently founded on deep

IMPORTANT TERMS USED IN THE REPORT

TERM MEANING

Metropolitan region 7KH XUEDQ UHJLRQ DV GHQHG E\ WKH UHJLRQDO GHYHORSPHQW DXWKRULW\

Zone A Zone is a geographical division of the metropolitan region comprising of severallocalities that possess similar characteristics in terms of access to employment hubs,connectivity and demography. In most cases, the metropolitan region is divided into 4-5] RQHV WKDW DUH ODEHOHG DV &HQWUDO 6RXWK1RUWK :HVW DQG (DVW

Destination Destination is the most promising residential locality from the perspective of investment

Benchmark location ,GHQWLHG EDVHGRQ WKH QHDUHVW SULFH FRQWRXU D EHQFKPDU NORFDWLRQ LV DQ HVWDEOLVKHGresidential locality that has saturated in terms of real estate growth and infrastructuredevelopment and is considered as the most sought after residential market within the] RQH :LWK UHVSHFW WR SULFHIRUHFDVWLQJIRU WKH GHVWLQDWLRQ D EHQFKPDU NORFDWLRQ SUHI HUDEO\

in the same zone, becomes the reference point

Property price This map splits the geography of a city in accordance with the prevailing residentialcontour map SU RSHUW\ SULFH 5HVLGHQWLDO PDU NHWVI DOOLQJ ZLWKLQ D FRQWRXU OLQH FRPPDQG SULFH LGHQWLHG

by such line

Investor Return It is the IRR (Internal Rate of Return) for a typical investor in residential property

Assumptions for Size of property: 1000 sq. ft. Investment horizon: 5 yearscalculating Investor Loan to Value ratio: 60% Mortgage rate: 10.5% paReturn Loan tenure: 20 years

Residential Property The price indicates the average capital value in the residential market of the destinationPrice ( ` per sq.ft.) and benchmark locations

Hidden Gem Locations where we expect the real estate drivers to gather momentum beyond year 2017

We have developed aframework built on top-down approach in theselection of WKH YH PRV Wpromising cities and zoneswithin them and bottom-up approach in theselection of topinvestment destinations


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From the perspective ofrisk, property investmentfares better because assetprice generally remainsstable

understanding of the property market along withthe study of factors that drive it.

Real estate is an asset class where an educatedinvestor can mitigate the risk and enjoy theassociated superior returns at the same time.Coupled with the other mainstream asset classes,this investment vehicle can make for an optimallyGLYHUVLHG SRUWIROLR ,Q P RVW FDVHV LQYHVWPHQW LQreal estate is fraught with decisions based on gutfeeling and tips which result in poor investments. Hence, an investor has to clearlydelineate a real estate investment fromspeculation.

7KH JOREDO QDQFLDO FULVLVRI KDV EU RXJKWabout a striking change in the attitude of investors. This change towards expectation oninvestment returns, growth and risk does notsingle out any one asset class but applies to mostof the assets whether it is equity, debt,commodity or real estate. Amidst this changedscenario it is evident that an advice oninvestment in any asset class cannot be generic.Real estate as an asset class is the foremostexample that will witness the challenge thrown bythis tenet particularly in this tough economicscenario. Even within real estate as an assetclass, the judgment on investment outlook oncommercial real estate and residential real estateFDQQRW EH D XQLHGRQH 7KH GRPLQDQWI DFWRUVthat drive investment returns for both these arediverse to a great extent. Hence, the investmentopinion should take into account each of thesefactors.

INVESTMENTadvisory REPORT,QGLDV 5HVLGHQWLDO 'HVWLQDWLRQV

Although the prominence of real estate as anasset class is increasing, the investment researchin the subject lags much behind in comparison to

other asset classes. With this report, we will makean incipient foray into the subject by identifyingthe top residential destinations in the countryI U RP WKH LQYHVWPHQW SRLQWRI YLHZIRU WKH QH[W YH\HDUV 7KH GHVWLQDWLRQV DUHresidential markets that we expect willoutperform in terms of the investor returns onaccount of the appreciation in property prices. WeKDYH GHYHORSHG DI UDPHZRU NEXLOWRQ WRS GRZQDSSU RDFK LQ WKH VHOHFWLRQRI WKH YH PRVWpromising cities and zones within them andERWWRP XS DSSU RDFK LQ WKH VHOHFWLRQRI WRSinvestment destinations. Since real estateactivities are not restricted to city limits, we haveconsidered the entire metropolitan region in our analysis. Our understanding of the local propertymarket and experience in dealing withSDUDPHWHUV WKDW GHWHUPLQH DQ XUEDQ FHQWgrowth equips us to develop the framework for this pioneering report.

While selection of the top residential investmentdestinations remains the core of this report, weDOVR SUHVHQW YH ORFDWLRQV ZKHUH ZH H[SHFW WKHreal estate drivers to gather momentum albeitGXULQJ WKH HORQJDWHG WLPH KRUL]RQ EH\RQG7KHVH ORFDWLRQV KDYH EHHQ LGHQWLHG DV KLGGJHPV LQ WKH UHSRUW

In most cases, investmentin real estate is fraughtwith decisions based ongut feeling and tips whichresult in pOorinvestments. Hence, aninvestor has to clearlydelineate a real estateinvestment fromspeculation


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Regional growth within acity is anything but evenand the direction of suchgrowth is a criticalfactor in determining thefate of a particularresidential property

APPROACH FOR IDENTIFICATION OF THE TOP RESIDENTIALINVESTMENT DESTINATIONS

IndiaU rb an c en tr e s

Top 100 cities

Business activity: Banking penetration , hotel room demand , air passenger traffic

Infrastructure development: Current and proposed infrastructure expenditure

T op 100 cities based on population

Employment: Occupied office space , industrial activity

Social & physical infrastructure: Analysis of development plan of respective

authorities and extensive field survey

Connectivity withimportant locations

Access to socialinfrastructure

Special factors:Proximity to

premium officespace , landavailability ,

lifestyle shift , planned

development

Top 5 cities

Zone

Destination


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The top residential destinations have been pickedfrom the universe of all urban centres in thecountry. In this multi stage selection, eachparameter was chosen in a manner that capturesWKH FDXVH DQG HHFW UHODWLRQVKLSRI VXFKparameters with the growth of residentialdevelopment in the city.

The population base of a city is a crucial indicator RI WKH SRWHQWLDORI LWV KRXVLQJ PDU NHW ,Q WKH UVWVWDJHRI VHOHFWLRQ WRS FLWLHV ZHUH LGHQWLHGbased on their population. The extent of businessactivity and thrust on infrastructure developmentDUH FULWLFDOI DFWRUV DHFWLQJ WKH KRXVLQJ PDU NHWand accordingly these selected 100 cities werestudied. Banking penetration, hotel roomGHPDQG DQG DLU SDVVHQJHU WUDF ZHUHconsidered as surrogates for business activitiesand current and proposed infrastructure


From the growth andinvestment perspective,zones that have highconcentration of businessactivity at present andprojections of meaningfulincrement in future willhave a comparativeadvantage over othersthat have saturated onthis

METHODOLOGY & APPROACHSelection of top cities in the country

expenditures were taken as proxies for infrastructure development. The cities wereranked on these individual parameters and basedon the average ranking Mumbai, Delhi,Bengaluru, Chennai and Pune emerged as the topYH FLWLHV

With the fundamental prerequisite already inSODFH WKHVH YH FLWLHV DUH ZHOO SUHSDUHGRparticipate in the growth trajectory for theforeseeable future. While a framework wasSUHSDUHG DQG WRS FLWLHV ZHUH LGHQWLHGRXUHQGHDYRXU ZDV HYHQ PRUH VSHFLF :H KDYHstriven to provide a crystal clear view oninvestment destinations for a typical investor in aresidential property. This objective meantLGHQWLFDWLRQRI UHVLGHQWLDO GHVWLQDWLRQV WKDWwould outperform others on the investment returnscale.

Selection of zone within a cityRegional growth within a city is anything but evenand the direction of such growth is a criticalfactor in determining the fate of a particular residential property. We therefore, split each cityinto 4-5 zones to capture the quantum andGLUHFWLRQRI VXFK JU RZWK 7KLV VSLOW LQWR GLHUHQWzones is based on the homogeneity of

characteristics with respect to access toemployment centres, social and physicalinfrastructure and demography.

The selection of a preferred zone depends on theSHUVSHFWLYHRI VXFK VHOHFWLRQ ZKLFK GLHUVdepending on the purpose of purchasing propertywhich is either end-use or investment. From thegrowth and investment perspective, zones thathave high concentration of business activity atpresent and projections of meaningful incrementin future will have a comparative advantage over others that have saturated on this. Growth of business activity will create abundantemployment opportunities which in turn will leadto a rise in inward migration and high demand for residential property in these zones. Hence, weLGHQWLHG WKH GULYHU LQGXVWULHV LQ HDFK ]RQH DQGassessed the impact of their business activity on

the kind of employment generated by suchindustry. We have captured the extent of employment generation by measuring theTXDQWXPRI RFFXSLHGRFH VSDFH DW SUHVHQW DQGIRU WKH QH[W YH \HDUV

A regression model capturing the impact of

change in revenue of driver industry on change inRFFXSLHGRFH VSDFH ZDV GHYHORSHG 5HYHQXHSU RMHFWLRQVIRU UVW WZR \HDUV ZHUH EDVHGRQ WKHrevenue guidance by the respective industryassociations. Projections for the remaining threeyears were based on the moving average trend of WKH SUHFHGLQJ YH \HDUV $OVR WKH XSFRPLQJVXSSO\RI RFH VSDFH LQ QH[W YH \HDUV LQ DOO Wzones was analysed to understand the balancebetween the incremental employment andXSFRPLQJ RFH VSDFH 7KXV D FU\VWDO FOHDU YLHon employment potential in a particular zone hasbeen provided. The service sector has emerged asa driving force in most of the cases with theInformation Technology and InformationTechnology enabled Services (IT/ITeS) industryemerging as a dominant employment driver.Besides the quantum of employment generationin the driver industry, the nature of jobs in


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accordance with its position in the value chain inWKH LQGXVWU\ ZDV WDNHQ DV D GLHUHQWLDWLQJelement. For instance, employment in software

development within the IT/ITeS industry has aGLHUHQW LPSDFWRQ WKH LQFRPH SU ROHRI employees in comparison to that in the Business3U RFHVV2 XWVRXUFLQJ %32 U ROH 7KLV GLHUHQFH LQLQFRPH SU ROH ZLOO LPSDFW D RUGDELOLW\ LQ Ddiverse manner.

Besides employment, the other important factor I U RP WKH JU RZWK DQG LQYHVWPHQW SHUVSHFWLYH LVLQI UDVWUXFWXUH GHYHORSPHQW 5HJLRQDOGHYHORSPHQW SODQV DQG HOG YLVLWV WR WKH ]RQHVequipped us to assess the scope of infrastructure

development that will have an impact onUHVLGHQWLDO PDU NHWV ZLWKLQ D ]RQH :H DVVHVVHGWKH LPSDFWRI H[LVWLQJ DQG XSFRPLQJ SK\VLFDO

infrastructure like road, rail and airport projectsRQ WKH UHVLGHQWLDO PDU NHWVRI HDFK ]RQH 3UHVHQFHRI VRFLDO LQI UDVWUXFWXUH FRPSULVLQJ HGXFDWLRQhealthcare and recreation was also reviewed.

:H VHOHFWHG ]RQHV KDYLQJ WKH PRVW SU RPLVLQJI XWXUHRQ DFFRXQWRI WKH JU RZWK LQ WKH TXDQWXPRI RFFXSLHGRFH VSDFH DQG LQFUHPHQWDOLQI UDVWUXFWXUH GHYHORSPHQW2 YHU WKHIRUHVHHDEOHI XWXUH WKHVH SUHI HUUHG ]RQHV ZLOO EH WKH ELJJHVWEHQHFLDULHV EHFDXVH WKH\I DOO LQ WKH GLUHFWLRQRI movement of employment and infrastructure.

&RPPHU FLDO2 FH6SDFH

IT Sector

Industrial Physical

Connectivity

%DVLF XWLOLWLHV :DWHU 3RZHU

(GXFDWLRQ +HDOWKFDUH

Entertainment

6RFLDO

The service sector hasemerged as a driving forcein most of the cases withthe InformationTechnology andInformation Technologyenabled Services (IT/ITeS)industry emerging as adominant employmentdriver

Non IT Sector

Selection of DestinationZLWKLQ ]RQHAll the residential markets within the preferred] RQH ZLOO EHQHWRQ DFFRXQWRI WKH JU RZWK LQ

employment opportunities and infrastructureGHYHORSPHQW +RZHYHU DI HZ RI WKHVH ZLOO KDYH DFRPSDUDWLYH DGYDQWDJHRYHURWKHUV $ ERWWRP XSDSSU RDFK ZDV DGRSWHG WR DQDO\VH WKH H[LVWLQJand proposed connectivity and social andphysical infrastructure facilities. The approachZDV PRGHOOHG EDVHGRQRXU HOG YLVLWV WR HDFKRI WKH UHVLGHQWLDO PDU NHWV LQ WKH SUHI HUUHG ]RQH DQGdiscussions with various stakeholders. Thisprimary survey coupled with our real estateH[SHUWLVH KHOSHG XV WR DUULYH DW WKH EHVWdestinations from the perspective of investment.7KH GHVWLQDWLRQV KDYH EHHQ DQDO\VHG YLV YLV DEHQFKPDU NORFDWLRQ ZKLFK LV DQ HVWDEOLVKHGresidential locality that has attained a relativelyKLJKHU VDWXUDWLRQ OHYHO LQ WHUPVRI UHDO HVWDWHJU RZWK DQG LQI UDVWUXFWXUH GHYHORSPHQW DQG LVFRQVLGHUHG WR EHRQHRI WKH PRVW VRXJKW DI WHUUHVLGHQWLDO PDU NHWV ZLWKLQ WKH ]RQH 7KH

EHQFKPDU NORFDWLRQIRU HDFK GHVWLQDWLRQ KDVEHHQ LGHQWLHG EDVHGRQ WKH QHDUHVW SULFH

FRQWRXU :LWK UHVSHFW WR SULFHIRUHFDVWLQJIRU DGHVWLQDWLRQ D EHQFKPDU NORFDWLRQ SUHI HUDEO\ LQWKH VDPH ]RQH EHFRPHV WKH UHI HUHQFH SRLQW

As mentioned earlier, our analytical focus wasSULPDULO\ WR XQGHUVWDQG WKH VWDWHRI WKH VXEMHFWmarkets connectivity with important locationsand social and physical infrastructure facilitiesDYDLODEOH FXUUHQWO\ DQG DOVR LQ WKHIRUHVHHDEOHI XWXUH +RZHYHU LQ FHUWDLQ GHVWLQDWLRQV WKHUHZHUH YDULDWLRQV ZLWK UHVSHFW WR I DFWRUV LPSDFWLQJfuture price movements like:. 3U R [ LPLW\ WRSU HPLXP R FHPDU NHWV :DGDOD

RQHRI WKH VHOHFWHG GHVWLQDWLRQV LQ0 XPEDLZLOO EHQHW GXH WR LWV FRQQHFWLYLW\ ZLWK WKHSUHPLXP EXVLQHVV GLVWULFWRI WKH %DQGUD .XUOD&RPSOH[ %.&

. / LPLWHGODQGD Y DLODELOLW\ Limited landDYDLODELOLW\ ZLOO OLPLW WKH VFRSHRI QHZ

Besides the quantum ofemployment generation inthe driver industry, thenature of jobs inaccordance with itsposition in the value chainin the industry was takenas a G LHUHQW LDtingelement

5($/ (67$7( ' 5 ,9( 56

Business activity Infrastructure

0 DQXI DFWXULQJ


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Empirical evidenceindicates that pricevariation of establishedresidential markets isVLJQ LF D QWO y explained bythe changes in economicactivities

similar impact of incremental employmentgeneration and new infrastructure projects, theproperty price in the destination has beenforecasted by applying an estimated discountfactor on the future price movements of thebenchmark location.

2 XU UHVHDUFK LQGLFDWHV WKDW D RUGDELOLW\ ZLOONHHSa resistance on price movement in manydestinations. Hence, we have created an incomepyramid of the employees in the driver industry.This pyramid is a distribution of all the employeesaccording to their income. Thus, a ceiling wasapplied to our destination price forecast as per

the change in this pyramid for the forecasthorizon.

REGION-WISE TOP INVESTMENT DESTINATIONS FOR NEXT 5 YEAForecasted Price Appreciation in Percentage

Additionally, in cases where land availability isnot a concern, price growth will not breach theD RUGDELOLW\ WKUHVKROGRI WKH WDUJHW FRQVXPHUgroup. As a result of this factor some destinationsdid not qualify for the projected price growth andwere dropped from the top destinations list.For a typical investor in residential property whatPDWWHUV LV WKH HHFWLYH UHWXUQ UHVXOWLQI U RP WKHleverage provided through the housing loan. Thesame has been calculated and labelled asInvestor Return arising out of investment inunder construction residential property, in theseWRS GHVWLQDWLRQVRYHU D SHULRGRI WKH QH[W YH\HDUV 3U RSHUW\ VSHFLFDWLRQ DQG LQYHVWPHQW VL]H

available at a destination along with selectresidential projects have also been provided inthe report.

NORTH

Mumbai Pune

N C R

C h

e nn

ai

B an

g a l or e

SOUTH

W E S T

#1 Noida Extension

#2 Dwarka Expressway

111%

108%

#2 Hebbal

#1 Medavakkam

#3 Pallikarnai

#4 KR Puram

94%

103%

93%

91%

# 4 H i n j e w a d i

# 5 T a t h a w a d e

# 6 R a v e t

# 7 W a k a d

1 0 0 %

9 8 %

9 7 %

9 1 %

# 1 U l w e

# 3 C h e m b u r

# 2 W a d a l a

1 4 5 %

1 3 3 %

1 2 5 %

E A

S T


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in cases where landavailability is not aconcern, price growthwill not breach theD ordability thresholdof the target consumergroup

. With property options ranging from ` 3,200/sq.ft. to ` 15,000/sq.ft. and investor returns in the range of 18.6% - 29% paresidential real estate will emerge as aSU RPLVLQJ DVVHW FODVVIRU WKH QH[W YH \HDUV

. With seven destinations, the western regionhas the highest number of promisingresidential investment options.

. The top three investment destinations, withinvestor returns in excess of 25% pa, are fromMumbai.

. Only Mumbai ranks ahead of the topinvestment destinations of the NCR, thebiggest residential market in the country.

. Enhanced connectivity and the proposition of WKH GLSORPDWLF HQFODYH ZLOO VLJQLFDQWO\ EHQHWthe Dwarka Expressway, placing it in high

KEY takeaways

Risk factors for our outlook

2 XUIRUHFDVWIRURFFXSLHGRFH VSDFH UHOLHVlargely on the service sector led by the IT/ITeSindustry. The sectors revenue growth during theQH[W YH \HDUV ZLOO KDYH DQ LPSDFWRQ WKHemployment, which is one of the biggest driversof real estate. For the IT/ITeS industry, therevenue growth estimates for the initial two yearshave been taken from the industry associationand for the remaining three years they have beenWDNHQ DV WKH SUHFHGLQJ YH \HDU PRYLQJ DYHUDJHgrowth rate between 10-12%.

While the Indian IT/ITeS industry isinterconnected with the global economy, reputedresearch studies have highlighted theinterlinkage between the domestic manufacturingsector and this industry. As a result, the weakglobal economy and a slowdown in the domesticmanufacturing sector will have a direct impact onthis industry. Our analysis puts a great emphasison the fate of the IT/ITeS industry because of its

HPHUJHQFH DV D VLJQLFDQW HPSOR\PHQW SU RYLGHULQ WKUHHRI WKH WRS YH FLWLHV

The BFSI industry has a meaningful role in theemployment trend in cities like Mumbai andDelhi. We have considered a revenue growth rateRI EDVHG RQ WKH SUHFHGLQJ YH \HDUmoving average growth rate for this industry.The employment generated by these industriesKDV D VLJQLFDQW LPSDFWRQRXUIRUHFDVWIRURFFXSLHGRFH VSDFH +HQFH DQ\ PDMRUdeviation in their revenue growth will have an

DGYHUVH LPSDFWRQRXUIRUHFDVWIRURFFXSLHGRFHspace and therefore the fate of the respectivedestination.

Additionally, in several cases, the fate of thedestinations is linked to the delivery of LQI UDVWUXFWXUH SU RMHFWV ZKLFK PDNHVRXU DQDO\VLVYXOQHUDEOH WR DQ\ VLJQLFDQW GHYLDWLRQI U RP WKHSU RJUHVV WLPHOLQHRI VXFK SU RMHFWV

ranks on the investment return scale.. The IT/ITeS industry is the driving force behindthe growth in most of the destinations.

. With four investment destinations, Pune hasthe maximum number of promising residentialproperty options.

. IT/ITeS, Automobile and Engineering sectorsare the primary employment drivers in Pune

. The destinations in Chennai will immenselyEHQHWI U RP WKH JU RZWKRI WKH ,7 ,7H6 DQGAutomobile industries in Tamil Nadu during theQH[W YH \HDUV. IT/ITeS and Bio-technology sectors will be thedriving forces behind the growth of destinations in Bengaluru.


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BENGALURU METROPOLITANREGION POPULATIONPopulation in Millions

Source: Census 2011, Knight Frank Research

Population Average Annual Growth

1991 2001 2011

Bengaluru (also known as Bangalore), the capital of Karnataka is locatedin the south-eastern part of the state. The city is located at analtitude of 950m. above the sea level, thereby making its climate veryserene. Bengaluru is the third most populous city of India with a very diversedemography. It is also known as the Garden City of India. It houses thelargest number of Information Technology (IT) and Information TechnologyEnabled Services (ITeS) companies in India for which it earned thesobriquet of the Silicon Valley. It also houses numerous public sector companies including defence, aerospace and bio-technology.

Bengaluru urban agglomeration is known as Bengaluru MetropolitanRegion (BMR) comprising Bengaluru urban district, Bengaluru rural districtand Ramanagara district. The Bruhat Bengaluru Mahanagara Palike(BBMP) is in charge of the civic administration of the city. The corporationis spread over an area of 741 sq. km. Bangalore Metropolitan Region

Development Authority (BMRDA), an autonomous body created by theGovernment of Karnataka is the nodal agency looking after the overalldevelopment of the BMR. During the last two decades the populationgrowth was phenomenal in the BMR. It rose at an annual rate of 3.9%GXULQJ SULPDULO\ GXH WR D KXJH LQX[RI ,7 ,7H6 HPSOoyees.

BENGALURU

4.84 6.54 9.595.2% 3.1% 3.9%


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CHIKKABOMMASANDRA

VARTURVARTUR

CHIKKA

15000

6000

3500

Major Roads

Railway Line

Existing Metro

Under Construction

South Zone

West Zone

Central Zone

East Zone

North ZonePrice Contours ( ` / sq.ft)

Proposed Metro

Nagawara

:KLWHHOG

% +DOOL 7HUPLQDO

0* 5RDG

Gottigere

%RRPDVDQGUD $QMDQDSXUD 1,&( -XQFWLRQ

1DJDVDQGUD

%DQJDORUH ,QWHUQDWLRQDO([KLELWLRQ &HQWUH

3XWWHQDKDOOL

0\VRUH5RDG

.HQJUL

BENGALURU MAP



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Bengaluru MetropolitanRegion (BMR) is spread over

741 sq. km.

Market Overview

ZONE MAJOR RESIDENTIALDESTINATIONS

Central MG Road, Vitthal Mallya Road,Frazer Town, Lavelle Road,Richmond Road, Langford Town

West Malleswaram, Rajajinagar, Tumkur Road, Vijayanagar, Yeshwanthpur

North Banaswadi, Hebbal, Bellary Road,Hennur, Yelahanka, Jakkur, HBRLayout

East :KLWHHOG2 OG $LUSRUW 5RDG 2 OGMadras Road, KR Puram

South Koramangala, Sarjapur Road, HSRlayout, Jayanagar, JP Nagar,Bannerghatta Road, KanakapuraRoad

7KH %0 5 PDU NHW FDQ EH GLYLGHG LQWR YH EU RDGzones: Central, West, North, East and South.

South Bengaluru, a locale which until the mid-1990s housed a strong Kannada (native language of Karnataka) speaking population now boasts of being a cosmopolitan region. This was mainly onDFFRXQWRI D KXJH LQX[RI SRSXODWLRQI U RP DOORYHUIndia. Electronic City located on Hosur Road in theVRXWK HPHUJHG DV WKH UVW ,7 KXERI %HQJDOXUX LQ1990. Many IT giants like Infosys, HCLTechnologies, HP, Wipro, Genpact and Siemenshave setup their campuses in this region. With thesetting up of these companies, the SouthBengaluru region became a preferred commercialas well as residential destination. The availability of land, strong infrastructure and presence of themiddle-income segment have contributed to thedevelopment of this zone. The residential clustersLQ SU R[LPLW\ WR WKH (OHFWU RQLF &LW\ OLNH 6DUMDSXUKoramangala, Jayanagar, BTM Layout,Bannerghatta Road and Hosur Road have attracteda large number of immigrants especially the IT employees. Social infrastructure like the availabilityof quality hospitals, prestigious educationalinstitutions and retail malls are some of the major reasons behind residential demand in this part of Bengaluru.

This region started losing its charm since 1998when the Government of Karnataka announced thenew international airport at Devanahalli - a townlocated in the north of Bengaluru. Major IT/ITeScompanies started acquiring land closer to theDLUSRUW LQ WKH QRUWKIRU WKHLU H[SDQVLRQ 7KH\refrained from buying any new land in this region,hampering the overall growth of the SouthBengaluru region. In this bargain North Bengaluru

emerged a better investment destination comparedto the south.

The new international airport at Devanahallicommenced in 2008. By virtue of this, NorthBengaluru became one of the most sought after destinations of Bengaluru. Numerous real estateand infrastructure projects were announced toenhance the connectivity between Bengaluru citycentre and the airport; this included High SpeedRail Link (HSRL), monorail and Metro rail. Moreover,to generate employment in this region, the

government in association with private companiesHDUPDU NHG ODUJH LQYHVWPHQWV VXFK DV .,$'% 3DUN$LUSRUW 7 RZQVKLS $HU RWU RSROLV ,QIRUPDWLRQTechnology Investment Region (ITIR), DevanahalliBusiness Park (DBP) and Global Finance District(GFD). These also attracted a lot of institutionalbuyers like real estate developers andhoteliers.This region is on the cusp of becoming thenew commercial business district (CBD) of %HQJDOXUX +HQFH LW LV ZRUWKZKLOH WR H[SORUH WKLVregion with respect to the real estate investment.Major micro-markets covered under this zone areHebbal, Devanahalli, Yelahanka and Hennur.

Before 1990, the eastern zone was home only tosome of the reputed heavy manufacturingLQGXVWULHV OLNH +LQGXVWDQ $HU RQDXWLFV /LPLWHG+$/ %( 0 / DQG ,7, WKDW ZHUH LQVWUXPHQWDO LQ Wgrowth of this region. With the dawn of the IT sector some of these industries have gradually turned intoWHFK SDU NV 3U R[LPLW\ WR WKH2 XWHU 5LQJ 5RDG 2 55FRXSOHG ZLWK WKH DYDLODELOLW\RI JUDGHGRFH VSDFHattracted major IT/ITeS companies in the eastern] RQH 7KLVI XHOOHG WKH H[SDQVLRQRI FRPPHUFLDO DQGresidential development in this region.&RQVHTXHQWO\ :KLWHHOG &9 5DPDQ1 DJDU %U RRNH)LHOG2 OG0 DGUDV 5RDG ,QGLUDQDJDU .5 3XUDP2 OG$LUSRUW 5RDG 0 DKDGHYDSXUD +RRGL &LUFOH DQG 6DL

%DED $VKUDP HPHUJHG DV WKH SUHI HUUHG UHVLGHQWLDOdestinations among the IT employees. Moreover,


2007 2008 2012*2009 2010 2011

* Till September 2012

RESIDENTIAL PROJECT LAUNCHTREND IN BENGALURU

Launches Source: Knight Frank Research

31,236

20,60814,439

31,733

54,075

24,741

9.59 mn.population in the BMR, an

increase of 98% in thelast two decades


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* Till September 2012

2007 2008 2009 2010

5%

180,000160,000140,000120,000100,00080,00060,00040,00020,000

N o

. o

f U n

i t s

Stock Cumulative Absorption % of Unsold Units

RESIDENTIAL DEMAND-SUPPLY ANALYSIS OF BENGALURU

2011

Source: Knight Frank Research

2012*

2 OG0 DGUDV 5RDG :KLWHHOG 5RDG ,73/ DQG 9DUWKXURoad emerged as a business district having manytech-parks, SEZs, captive campuses and businesscentres.

Central Bengaluru is the commercial and retailKHDUWRI WKH FLW\ ZLWK YDULRXV FRUSRUDWHRFHVORFDWHG LQ PLFU R PDU NHWV OLNH WKH0 * 5 RDG 9LWWKDOMallya Road, Commissariat Street, Ulsoor and/DYHOOH 5RDG ([FHOOHQW FRQQHFWLYLW\ ZLWK YDULRXVparts of the city, good physical and socialinfrastructure along with the presence of organizedretail has ensured the highest property prices inWKLV SDUWRI WKH FLW\ 7KH SU RPLQHQW UHVLGHQWLDOmicro-markets of this region include MG Road,/DQJIRUG 5RDG 5LFKPRQG 7 RZQ /DOEDJK 5RDG9LWWKDO0 DOO\D 5RDG 5HVLGHQF\ 5RDG DQG )UDVHU7 RZQ 0 DMRULW\RI WKH UHVLGHQWLDO GHYHORSPHQWV LQthe central locations are bungalows andindependent residential units, however someSRFNHWV OLNH 5LFKPRQG 7 RZQ 5LFKPRQG 5RDG0 DOOHVKZDUDP 3LSHOLQH 5RDG DQG0 * 5 RDG DUHwitnessing growth in multi-storey high-riseconstructions as well.

3ULPDULO\ DQ LQGXVWULDO KXE :HVW %HQJDOXUX KRXVHVRQHRI WKH ODUJHVW LQGXVWULDO DUHDVRI $VLD 3HHQ\D,QGXVWULDO $UHD 7KHUH DUH KXJH VHWXSVRI VHYHUDOrenowned engineering, transformers, motors andgenerator companies here. Being an industrial hub,WKLV UHJLRQ ZDV QRW FDXJKW LQ WKH ,7 ,7H6 ZDYHRI the mid-1990s, that transformed South and EastBengaluru as one of the most sought after residential markets. However, this region gained alot of traction with the announcement of theXSFRPLQJ LQI UDVWUXFWXUH SU RMHFWV YL] HOHYDWHGH[SUHVVZD\ PHWU R DQG WKH U RDG FRQQHFWLYLW\ DORQJWKH 7XPNXU 5RDG 0 LFU R PDU NHWV VXFK DV0 DOOHVZDUDP


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Real Estate Drivers

Infrastructure Development

Employment Indicators

Service Sector

IT Sector

Manufacturing Sector

Biotech Sector

Rail Network

Bangalore Metro Corridor I & II

Monorail Corridor

Infrastructure Development

Pheripheral Ring Road

Elevated Road / Expressway

Road Network

62 km. Outer Ring Roadconnects all the major IThubs from North to South

EXISTING ARTERIAL ROAD NETWORK

DISTANCE OBSERVATIONS

Outer Ring Road (ORR) 62 km. ORR provides connectivity with all the major highways around thecity. Passing across the major suburbs viz. Hebbal - KR Puram -Marathahalli - Sarjapur Rd. - Silk Board Junction

Nandi Infrastructure Corridor 42 km. Long peripheral road, connecting Jalahalli in the north with theEnterprises (NICE) Electronic City on Hosur Road in the South. The corridor connectsRing Road Mumbai and Chennai through NH-4 in the western region and NH-

7 in the southern region respectively. Initially a four-lane structurewith provision for expansion upto six-lane. NICE Ring Road hasHQDEOHG WUDFI U RP 0 XPEDL WR P RYH GLUHFWO\ WR &KHQQDL ZLWKRXWcrossing downtown Bengaluru

Hosur Road (NH7) 40 km. A four to eight-lane national highway (Part of NH7) connectingBengaluru city with Hosur, a town in Tamil Nadu. The Hosur Roadpasses via the Electronic City one of the largest IT industrial parksof Bengaluru

Bengaluru Elevated Toll-way 10 km. A 10 km. long elevated and tolled expressway connectingBomanahalli to Electronic City


High Speed Rail Link

EXISTING SUBURBAN RAIL NETWORK

DISTANCE OBSERVATIONS

Metro Train Network 6.7 km. Reach I, a 6.7 km. part of the East-West corridor, connectingPhase I, Reach I Byappanahalli with MG Road is operational since October 2011

Metro rail operationalbetween Byappanahalliand MG Road since Oct 2011

ROAD NETWORK

METRO TRAIN NETWORK


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A 33 km. High Speed RailLink proposed - willoperate between CubbonRoad and BengaluruInternational Airport

UPCOMING ARTERIAL ROAD NETWORK

CONNECTIVITY & LENGTH OBSERVATIONS CURRENT EXPECTEDSTATUS COMPLETION

Road widening from Hebbal A six-lane elevated road over the Under 2013-14to Bengaluru International Airport existing road connecting with the Cons truction20 km. international airport is under

construction. The elevated stretch thatstarts from Kodigehalli gate will be asix-lane highway extending over 4 km.The project will have a series of seven\ RYHUVI U RP +HEEDO WR WKH 7UXPSHWJunction near the airport

High Speed Rail Link (HSRL) $ NP +65/ KDV EHHQ SU RSRVHG Five Post 201633 km. that will connect the city centre with consortiums

WKH DLUSRUW 7KH +65/ ZLOORSHUDWH shortlistedEHWZHHQ &XEERQ 5RDG DQG %HQJDOXUXInternational Airport with two halts inEHWZHHQRQH DW +HEEDO DQG DQRWKHUat Yelahanka.

Monorail Project %HQJDOXUX $LU 5DLO /LQN/WG %$5/ KDV Proposed Post 201541 km. proposed 31 km. monorail from JP

1 DJDU VRXWK WR +HEEDO QRUWK DQGNP EHWZHHQ 3HULSKHUDO 5LQJ 5RDG

355 DQG 0 DJDGL 5RDG 7KLV SU RMHFWwill function as a feeder service to metrorail as well as the international airport

Peripheral Ring Road (PRR) $ NP 355 KDV EHHQ SU RSRVHG LW Pre-feasibility Post 2016116 km. will connect the entire peripheral stage

arterial road linking all the major KLJKZD\V DQG WKH GLVWULFW U RDGV0 DMRUFRQQHFWLQJ DUHD ZRXOG EH +RVXU 5RDGWR 7XPNXU 5RDG YLD .5 3XUDP %HOODU\5RDG 2 OG0 DGUDV 5RDG DQG 6DUMDSXU5RDG 7KH 355 LV H[SHFWHG WR HDVH WKHFRQJHVWLRQRQ WKH2 55

Bengaluru Metro Rail Phase I D $ NP 1RUWK 6RXWK 1 6 PHWU R Under 2014-1542 km. FRUULGRU KDV EHHQ SU RSRVHG LW ZLOO construction

FRQQHFW +HVDUDJKDWWD FLUFOH LQ QRUWKZLWK 3XWWHQDKDOOL LQ VRXWK

E $Q NP (DVW :HVW (: PHWU RFRUULGRU KDV EHHQ SU RSRVHG LW ZLOOFRQQHFW %\DSSDQDKDOOL ZLWK0 \VRUH5RDG 5HDFK , D NP SDUWRI WKH (:FRUULGRU FRQQHFWLQJ %\DSSDQDKDOOLZLWK0 * 5 RDG LVRSHUDWLRQDO VLQFH2 FWREHU

Bengaluru Metro Rail Phase 2 D 3KDVH ,, HQYLVDJHV H[WHQVLRQRI WKH In-principle %H\RQGNP 0 HWU R 3KDVH ,RQ WKH1 6 FRUULGRU 7 R approval

the north it will be extended upto received from%HQJDOXUX ,QWHUQDWLRQDO ([KLELWLRQ WKH *RYWRI &HQWUH %,(& DQG WR WKH VRXWK LW ZLOO EHKarnataka.H[WHQGHG XSWR 1 ,&( -XQFWLRQ Awaiting

approval fromE (: F RUULGRU LV SODQQHG WR EH the UrbanH[WHQGHG XSWR :KLWHHOG WR WKH HDVW Development

and Kengeri to the west. Department0 LQLVWU\

F )XUWKHU WZR QHZ OLQHV KDYH EHHQSODQQHG LQ 3KDVH ,,RQH FRQQHFWLQJ


A 116 km. Peripheral RingRoad proposed -connecting Hosur Road toTumkur Road via KR Puram,Bellary Road, Old MadrasRoad and Sarjapur Road


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Over 2,000 IT & ITeScompanies present inBengaluru including morethan 100 Fortune-500companies

UPCOMING ARTERIAL ROAD NETWORK

CONNECTIVITY & LENGTH OBSERVATIONS CURRENT EXPECTEDSTATUS COMPLETION

Rashtreeya Vidyalaya (RV) Road withBommasandra in the South,Electronics City on the Hosur road withthe city centre

d) Another line will be parallel to theNS Corridor of Phase I, runningbetween Nagawara in the north andGottigere in the South. It will have twointerchange stations, one at MG Roadand another at Jayadeva hospital

Elevated corridor from Central Silk A 15 km. elevated corridor connecting Pre-Feasibility Beyond 2015Board Junction to Jayamahal Road Central Silk Board Junction to stage15 km. Jayamahal Road is envisaged to ease

WKH WUDF RZ EHWZHHQ1RUWK DQGSouth Bengaluru. This will alsofacilitate in reaching the newinternational airport in the North.

Construction of elevated corridor A 28 km. West-East elevated corridor Pre-Feasibility Beyond 2014between Jnanabharathi and along the Ring Road connecting stageOld Airport Road Tumkur (Jnanabharathi) with Old28 km. Airport Road. The corridor will pass

through Sirsi Circle, Town Hall, HudsonCircle, Vellara junction and Old AirportRoad. The proposed corridor isexpected to ease the East-West cityWUDF RZ

Bengaluru - Mysore Expressway A six-lane expressway connecting Land Beyond 2017140 km. Bengaluru with Mysore is under acquisitions

construction. Only peripheral part of 56 km. has been completed till date.


Bengaluru is the IT and Bio-technology capital of India. It also houses numerous Governmentpromoted heavy industries including defenceRUJDQL]DWLRQV VFLHQWLF HVWDEOLVKPHQWVaerospace and telecommunication companies. Italso has renowned Indian educational institutionsRHULQJ D SOHWKRUDRI MRE RSSRUWXQLWLHVHowever, Bengalurus economy is primarilydriven by the IT/ITeS sector and bio-technologysector.

IT/ITeS SECTOR

Over 2,000 IT/ITeS companies, including morethan 100 Fortune-500 companies haveestablished their operations in Bengaluru. Thesecompanies in all, generate software exports worth

` 700bn. and directly employ over 650,000

professionals. Prominent Fortune-500 companiesoperational in Bengaluru are IBM, Dell, HP,CISCO, Sun Microsystems, Microsoft, Toyota, ING,Tesco, Citigroup, JP Morgan Chase, GoldmanSachs, Bosch and Tyco. Prominent Indian IT &ITeS companies like TCS, Infosys, Wipro andMahindra Satyam have major operations in thecity.

Bengalurus IT/ITeS sector accounts for almostone-third of Indias IT/ITeS revenue and a lmosthalf of the Indian Bio-Technology companies arelocated in Bengaluru. These sectors play a very

vital role in the growth of commercial andresidential real estate in Bengaluru.

IT/ITeS companies have been predominantlyconcentrated in South, South East Bengaluru andthe Outer Ring Road (ORR) stretch from Hebbal to

Employment Indicators in Bengaluru

Bengaluru generatessoftware exports worth

` 700 bn.

650,000 ITprofessionals directlyemployed in Bengaluru

IT/ITeS and Bio-technologysector are the drivingfactors for Bengaluru'sgrowth


17/123

Silk Board junction. This region houses manyrenowned tech-parks, IT/ITeS SEZs and captivecampuses of Fortune-500 IT companies. Micro-

PDU NHWV DORQJ :KLWHHOG (OHFWU RQLF &LW\2 556DUMDSXU DQG %DQQHUJKDWWD 5RDG KDYH GHYHORSHGinto self-sustaining hubs. East Bengaluru hasRYHU PQ VTI WRI RFH VSDFH $SDUWI U RP WKHlarge campuses of IT/ITeS companies such as'HOO 7&6 / 7 ,QIRWHFK *( +3 DQG L*DWH WKHUHDUH QXPHU RXV VWDQGDORQH FRPPHUFLDORFHEXLOGLQJV OLNH %ULJDGH0 HWU RSROLV 3UHVWLJH6KDQWLQLNHWDQ (PEDVV\ &UHVW ,73% *95 7HFK3DU N 6-5 L3DU NDQG 6DODUSXULD 7HFK 3DU NDFU RVVWKH ,7 KXERI :KLWHHOG LQ (DVW %HQJDOXUX

(OHFWU RQLF &LW\ ,QGXVWULDO 3DU NORFDWHG LQ WKHsouthern region is spread over 330 acres havingRYHU PQ VTI WRI RFH VSDFH LQFOXGLQJ WKHFDSWLYHRFHV ,W LV GLYLGHG LQWR WKUHH SKDVHVRI which one is completely dedicated to the bio-technology sector, while the other two pre-dominantly house IT/ITeS sector companies.0 DMRU FRPSDQLHV KDYLQJRFHV KHUH DUH ,QIRV\V:LSU R +&/ *HQSDFW 6LHPHQV 7&6 DQG0 DKLQGUD6DW\DP1RQ FDSWLYH FRPPHUFLDORFH VSDFHVLQFOXGH 6-5 (TXLQR[ +DULWD ,7 3DU N *OREDO 7HFK3DU N 695 ) RUWXQDH DQG +LUDQDQGDQL 8SVFDOH

7KH2 55 VWUHWFK EHWZHHQ +HEEDO WR 6LON%RDUG-XQFWLRQ DFTXLUHG LPSRUWDQFH ZLWK WKHcommencement of the Bengaluru International$LUSRUW LQ LQ 'HYDQDKDOOL 7KLV VWUHWFK VHUYHVas a main junction between the airport and theestablished IT hub of Bengaluru i.e. Electronic&LW\ DQG :KLWHHOG 7KLV VWUHWFK KDV ODUJH PXOWLtenanted IT parks. Major IT parks include Manyata(PEDVV\ %XVLQHVV 3DU N 6DODUSXULD 6XSUHPH&HVVQD %XVLQHVV 3DU NDQG 3UHVWLJH 7HFK 3DU N

The countrys IT/ITeS sector grew at an annualUDWHRI W R ` EQ GXULQJ DQGis estimated to reach EQ E\ $V SHU1 $66&20 WKH ,7 ,7H6 VHFWRU KDV FUHDWHG

tremendous job opportunities, generating over 11mn. direct and indirect jobs. It isestimated that the sector would createRYHU PQ E\ DQG FORVH WR PQ M REV E\

%HQJDOXUXIRUPVRQH WKLUGRI WKH FRXQWU\VWRWDO ,7 ,7H6 UHYHQXHV :H H[SHFW %HQJDOXUX WRcontinue its growth trajectory in-line with theFRXQWU\V ,7 ,7H6 JU RZWK )XUWKHU WKH *RYHUQPHQWof Karnataka proposes to increase employmentRSSRUWXQLWLHV LQ WKH VRI WZDUH H[SRUW HOG WR DERXWPQ E\ I U RP PQ DW SUHVHQW

With the strengthening of the global economy,

robust domestic fundamentals and easyavailability of skilled human capital the IT/ITeSLQGXVWU\ KHUH LV H[SHFWHG WR JU RZ VLJQLFDQWO\ LQthe coming years.

`

IT/ITeS sector constitutes

70% of the total R FHspace in Bengaluru

OFFICE SPACE BREAK-UP

Source: .QLJKW )UDQN5HVHDUFK

BENGALURU OFFICESPACE DYNAMICS

before2008

2009 2010 2011 2012 2013E 2014 E 2015E 2016E 2017E


140

100

40

ZONE WISE DISTRIBUTION OF OFFICE SPACE STOCK

Source: .QLJKW )UDQN5HVHDUFK

&HQWUDOWest South East North

Currently the total R FHspace stock in Bengaluruis 92 mn. sq.ft. of which79.80 mn. sq.ft. is occupied

2 mn. direct and indirectJoBS TO BE GENERATED BY2020 IN BENGALURU


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NORM DETAILS

Time line for property registration Any time until possession

Re-sale before possession Allowed

Transfer charges payable to builder ` 200-300 psf

Loading (as % of carpet) 33%

Remarks Investor friendly market. Gains from lower Stamp Duty are taken back byKLJKHU 9$7 UDWH (HFWLYHO\ WD[HV DUH KLJKHU LQ FRPSDULVRQ WR 0 XPEDLand Pune

MARKET NORMS

BIO-TECHNOLOGY SECTOR

India is ranked among the top 12 biotechnologydestinations in the world and third largest in the$VLD 3DFLF UHJLRQ 7KH *RYHUQPHQWRI .DUQDWDNDis committed to establishing a Biotech corridor for the development of the biotech industry in.DUQDWDND 7KH FRUULGRU LQ %HQJDOXUX VKDOO H[WHQGfrom the Indian Institute of Science to the8QLYHUVLW\RI $JULFXOWXUDO 6FLHQFHV .DUQDWDND KDVD ODUJH QXPEHURI ELRWHFK FRPSDQLHV VXFK DV$VWUD=HQHFD ,QGLD %LRFRQ ,QGLD &DGLOOD6PLWK.OLQH %HHFKDP DQG :RFNKDUGW

7KH ,QGLDQ %LR WHFKQRORJ\ 6HFWRU LV H[SHFWHG WRgrow to USD 10 bn. by 2015 from USD 4 bn.

SRVWHG LQ VFDO %HQJDOXUX KDV HPHUJHGDV D %LRWHFK FDSLWDORI ,QGLD DFFRXQWLQJRYHU40% or USD 1.6 bn. of the countrys totalUHYHQXHV2I WKH ELRWHFK UPV DFU RVV WKHFRXQWU\ RU DUH ORFDWHG LQ .DUQDWDND DQG

RU DUH LQ %HQJDOXUXRZLQJ WR ULFK KXPDQcapital and cost advantage over peers overseas.&XUUHQWO\ WKH WRWDORFH VSDFH VWRFNLQ %HQJDOXUXLV DERXW PQ VT I WRI ZKLFK PQ VT I W LV

USD 10 bn. the size ofIndian Bio-technologysector by 2015. Current sizeUSD 4 bn.


RFFXSLHG UHVXOWLQJ LQ D YDFDQF\ OHYHORI Bengaluru retained the top slot for the highestRFH VSDFH DEVRUSWLRQ LQ WKH FRXQWU\ LQ )

Documents

Resized (2) - KF Investment Advisory Report 2012