real estate

A
BRIEF REPORT

ON

REAL ESTATE SECTOR IN INDIA

August 2012












A brief report on Real Estate Sector in India

 
Private & Confidential Page 2 of 11
 
1. INDIA’S REAL ESTATE SECTOR

1.1 Overview
While India continues to be one of the fastest growing economies, this pace of growth is
unlikely to sustain unless it is supported by an equally robust development of its infrastructure.
Key requirements in order to achieve a GDP growth rate exceeding 8-9% include roads, power,
ports as well as urban infrastructure. The last couple of budgets have taken steps in the right
direction for growth of the sector. An allocation of Rs. 200 billion towards infrastructure
projects under the 2011 budget is an attempt to achieve the Governments target for growth of
Infrastructure under the Eleventh Plan.
India will have around 27 to 30 million shortage of housing units by 2013 and for this; huge
amount is required to carry on the development. Slowdown in the global economy along with
consistent increase in policy rates by the Reserve Bank of India (RBI) finally seems to be
impacting the domestic economy with the GDP growth cooling down since past few quarters.
The GDP growth recorded during first quarter of financial year 2012 has slowed down to 7.7
per cent as against 9.3 per cent during first quarter of financial year 2011.Even the projected
GDP growth for financial year 2012 has been revised downward to 7.9 per cent from 8.2 per
cent by the RBI.
The real estate sector in India is being recognized as an infrastructure service that is driving the
economic growth engine of the country. In fact, 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.
The country's urban population will soar to 590 million by 2030, from 340 million in 2008.
India's cities could generate 70 percent of the net new jobs created by 2030, produce more than
70 percent of the country's Gross Domestic Product (GDP), and stimulate a near four-fold
increase in per capita income. It also says that India needs to invest US$ 1.2 trillion over next 20
years to modernize urban infrastructure and keep pace with the growing urbanization.
Non-resident Indians and foreign citizens who are Persons of Indian Origin (PIO) are allowed
to purchase immoveable property in India. Residential property prices have stabilized now and
are deemed attractive for the NRI home buyer. Industry experts feel that with attractive pricing
and innovation in construction technology and variety of designs, NRIs are taking a fresh look at
India as a unique market in which they can invest.
1.2 Introduction
Real Estate business was one of the key drivers of growth before we witnessed the present
economic slowdown. Now, with companies trying to consolidate their positions and finding
effective means of sustaining growth, the management of real estate has emerged as one of the
key challenges for the corporate sector. The largest occupier of office space in the country has
been the Information Technology/ Information Technology enabled Services (IT/ ITeS)
A brief report on Real Estate Sector in India

 
Private & Confidential Page 3 of 11
 
segment, which primarily serves the US and European markets. The economic slowdown in
these markets have resulted in increasing pressures on the margins of companies operating out
of India, which in turn has led to the companies looking to cut costs through reducing
expenditure on the real estate segment.
The real estate sector in India assumed greater prominence with the liberalization of the
economy, as the consequent increase in business opportunities and labour migration led to rising
demand for commercial and housing space. At present, the real estate and construction sectors
are playing a crucial role in the overall development of India’s core infrastructure. The real estate
industry’s growth is linked to developments in the retail, hospitality and entertainment (hotels,
resorts, cinema theatres) industries, economic services (hospitals, schools) and information
technology (IT)-enabled services (like call centres) etc and vice versa.
The Indian real estate sector has traditionally been dominated by a number of small regional
players with relatively low levels of expertise and/or financial resources. Historically, the sector
has not benefited from institutional capital; instead, it has traditionally tapped high net-worth
individuals and other informal sources of financing, which has led to low levels of transparency.
This scenario underwent a change with in line with the sector’s growth, and as of today, the real
estate industry’s dynamics reflect consumers’ expectations of higher quality with India’s
increasing integration with the global economy.
1.3 Present Scenario of Real Estate

Currently, about 5 per cent of India’s GDP is contributed by the housing sector. The GDP share
of the real estate sector (including ownership of dwellings) along with business services was 10.6
per cent in 2010-11. After growing at 10.4 per cent in 2008-09, the rate of growth of this sector
has decelerated to 7.8 per cent in 2009-10 and further to 6.9 per cent in 2010-11. Estimates show
that for every rupee that is invested in housing and construction, 0.78 paisa gets added to GDP.
Housing ranks fourth in terms of the multiplier effect on the economy and third amongst 14
major industries in terms of total linkage effect according to Economic Survey 2011-12.

Demand for real estate is expected to grow at a compound annual growth rate (CAGR) of 19
per cent between 2010 and 2014 Tier 1 metropolitan cities are projected to account for about 40
per cent of this. Growing requirements of space from sectors such as education, healthcare and
tourism provide opportunities in the real estate sector. With institutional credit for housing
investment growing at a CAGR of about 18 to 20 per cent per annum in the next three-five
years, the housing sector’s contribution to GDP is likely to increase to 6 per cent. While India is
among the top countries in terms of housing and work space needs, it ranks 181st in
construction permission processes according to the World Bank’s Doing Business 2012 report.



A brief report on Real Estate Sector in India

 
Private & Confidential Page 4 of 11
 
2. REAL ESTATE MARKET

2.1 Real Estate Market Size
Activities in the real estate sector may broadly be classified into residential, commercial and the
retail segment and hotels. The size in terms of total economic value of real estate development
activity of the Indian real estate market is currently US$40-45bn (5-6% of GDP) of which
residential forms the major chunk with 90-95% of the market, commercial segment is distant
second with 4-5% of the market and organized retail with 1% of the market. Over next 5 years,
Indian real estate market is expected to grow at a CAGR of 20%, driven by 18-19% growth in
residential real estate, 55-60% in retail real estate, and 20-22% in commercial real estate.


2.2 Market Segment

In recent years, the Industry has evolved from a highly fragmented and unorganized Market into
a Semi-organized Market.






Real Sector Estate
Commercial 
Sector
Residential 
Space
Retail Space Hospitality    
Space
Special 
Economic
A brief report on Real Estate Sector in India

 
Private & Confidential Page 5 of 11
 
The sector can be divided into residential, commercial, retail and hospitality asset classes.
2.1.1 Commercial Sector
The commercial office space in India has evolved significantly in the past 10 years due to change
in business environment. The growth of commercial real estate has been driven largely by
service sectors, especially IT-ITeS. However, with the emergence of IT-ITeS, which had huge
office space requirement, commercial development started moving towards city suburbs. It
resulted in multifold development of city outskirts and suburbs like Gurgaon near New Delhi,
Bandra and Malad in Mumbai, and the Electronic city in Bangaluru. In addition, over the last 10
years, locations such as Bengaluru, Gurgaon, Hyderabad, Chennai, Kolkata and Pune have
established themselves as emerging destinations for commercial development, which are
competing with traditional business destinations such as Mumbai and Delhi. Tax sops on the
profits of IT-ITeS companies also led to stupendous development of IT Parks and SEZs.
However, the demand for office space is directly linked to addition in number of employees,
which in turn is dependent on economic growth. When economy slows down, companies hold
their expansion plans leading to lower demand for office space. Downturn in the commercial
real estate market in India, which had commenced during the second half of 2008, continued
during the second half of 2009. The sustained decline was largely the result of postponement of
expansion plans by corporate, which adversely impacted demand for office space. IT/ITeS,
which had been a major demand driver for the sector in the last 2 years, increased utilization
rates of existing commercial space by increasing the number of shifts.
2.1.2 Residential Sector in Real Estate
Residential demand is the mainstay of the Indian real estate sector. The major demand drivers
for the residential market include increasing disposable income levels, increase in the number of
nuclear families / households, tax savings on home mortgage products as well as real estate
being considered a “necessary” investment.
Demand for houses increased considerably whilst supply of houses could not keep pace with
demand thereby leading to a steep rise in residential capital values especially in urban areas.
Broadly, residential real estate industry can be divided into four growth phases
Phase I (2001-2005) was an initial growth phase with stabilizing residential real estate prices
following the global recovery post the “dot com” bust and 9/11 terrorist attacks in New York.
At the same time, there was steady growth in Indian economic activity, noteworthy recovery in
IT/ITES industry, growing urbanization and a rising trend towards nuclear families.
Phase II (2006-2008) was a high growth phase where high demand for residential real estate led to
doubling of housing prices. Demand rapidly increased due to India’s growing population,
accentuated urbanization, rising disposable incomes, rapidly growing middle class and youth
A brief report on Real Estate Sector in India

 
Private & Confidential Page 6 of 11
 
population, low interest rates, fiscal incentives on interest and principal payments for housing
loans and heightened customer expectations.
Phase III (2009-2010) witnessed substantial slowdown and part recovery in demand because of
the global economic downturn, which led to a decline in affordability and tight liquidity. The
retreat of various real estate investors, accompanied by slowdown in the capital markets, has
resulted in oversupply and falling prices.
Phase IV (2011-2014) is expected to remain a consolidation phase after slowdown. Demand is
expected to remain strong with capital values witnessing modest rise. This period is expected to
witness substantial supply of housing especially in urban areas.
In spite of the stupendous growth witnessed
in the past 10 years, substantial housing
shortage is still prevalent in India. The
housing shortage in India is estimated at 78.7
million units at the end of Phase II. The
overall housing shortage in India is likely to
decline to 75.5 million units by the end of
Phase IV.
However, housing shortage in urban areas will
continue to rise owing to migration towards
urban areas and increasing trend of nuclear
families. Housing shortage in urban areas is estimated at 19.3 million units at the end of 2008, up
from 15.1 million units at the start of 2005. Housing shortage in urban areas is likely to touch a
walloping 21.7 million units by the end of 2014.
Rural areas, on the other hand, will witness a reduction in housing shortage due to migration and
conversion of kutcha houses into pucca houses. The government’s continuous focus on
improving the housing situation, especially for population below poverty line, under schemes
like Indira Awaas Yojna, Rajeev Gandhi Aawaas Yojna, Two Million Housing Programme, is
expected to reduce housing shortage in rural areas. Rural housing shortage is expected to decline
to 53.8 million units by 2013-14 from 59.4 million units at the end of 2008.
2.1.3 Retail Real Estate
In 2010, India witnessed the addition of more than 5 million sq ft of organized retail mall space
across various primary and secondary locations. This was concentrated largely in NCR,
Mumbai, Bangalore and Chennai and was a consequence of the positive sentiments amongst
retailers on spatial expansion and enhancing their footprints across the country. The growth of
malls in India has increased to about 59 which comprises of the retail stock. The retail stock
share will increase to 36 per cent in the coming years. Results found out through a survey state
that the retail market is expected to grow in the coming years. There is an increased
A brief report on Real Estate Sector in India

 
Private & Confidential Page 7 of 11
 
development of retail malls which are primarily dominated by the local developers. All the 59
malls in the southern & Northern states are either in the stages of construction or are already
established. Few of the active project developers in the Southern & Northern region are the
Mantri Developers, The Prestige Group, DLF, RMZ Corp and so on.
Indian retailers are seeking to implement their expansion plans in the prime cities as well as
select Tier II and Tier III cities. FDI in multi brand real estate, when finally permitted, is
expected to catalyze a lot of demand from international retailers. That said, international luxury
brands will restrict their growth plans to Mumbai, Delhi and Bangalore.
2.1.4 Hospitality Real Estate
India’s hospitality industry has enjoyed robust growth over the past few years buoyed by a
benign economic and political environment. Increase in domestic, business and leisure travel
has benefited hotels in India. Rising incomes, higher weekend trips and increased access to
travel-related information over the Internet have propelled growth in hospitality. Premium
segment hotels are more prominent in major business destinations in India and are dominant in
popular tourist destinations like Goa, which attracts a lot of foreign clientele. In 2010, the
industry saw only five private equity deals with a cumulative value of $ 1 56 million.
By 2011, the amount grew to $299 million and during the first five months of 2012, hospitality
industry has raised $121 million from private equity. A few years back the industry was
polarized between large five star hotels and small lodges. Now, both domestic hotel chains and
international brands are queuing up with several categories of hotels to cater to different
travelers in the value chain and that is why the demand for real estate properties in India are
increasing. Private equity players are also keen on budget, mid-sized hotels that work on an
asset light model than the asset heavy models that take longer time to become profitable. The
entry of several global brands to fill the demand-supply gap has triggered private equity interest
in the industry.
2.1.5 Special Economic Zone (SEZ)
The Government of India 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
percent cheaper 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.
A brief report on Real Estate Sector in India

 
Private & Confidential Page 8 of 11
 
Under the new SEZ Policy, formal approvals have been granted to 574 SEZ proposals as of
March, 2010.As of March 2010, there were 350 notified SEZs and 146 have received in-
principle approval. The SEZ Policy allows usage of as high as 50 percent of the SEZ area as
non-processing zone, offering significant potential for residential and support infrastructure.
2.3 Growth Drivers in Real Estate

Demand Pull Factor
 Robust and sustained macro-economic
growth.
 Upsurge in industrial and business
activities, especially new economy sectors.
 Favorable demographic parameters.
 Significant rise in consumerism.
 Rapid urbanization.
 Availability of a range of financing
options at affordable interest rates.

Supply Pull Factor
 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 by the
government.
Impacts
 Increasing occupier base.
 Significant rise in demand for
office/industrial space.
 Demand for newer avenues for
entertainment, leisure and shopping.
 Creation of demand for new housing
Impacts
 Entry of a number of domestic and
foreign players; increasing competition
and consumer affordability.
 Easy access to project financing
options.
 Increases developers’ risk appetite and
allows large scale development.
 Improved quality of real estate assets.
 Development of new urban areas and
effective utilization of prime land
parcels in large cities












A brief report on Real Estate Sector in India

 
Private & Confidential Page 9 of 11
 
3. MARKET PLAYERS
India’s real estate market is on a high growth curve. The industry is projected to grow to US$50
billion by the end of 2010 at an average rate of 20%. Looking at the bigger picture, the
recession seems like a hiccup. Despite talks of price correction, the worse is definitely behind
us.
In this features, there are list of market leaders. Many are national players but some are purely
regional players and hence it would be unfair to compare them. The idea was to identify
national as well as local leaders. Of course, all such lists are subject to market dynamics.
3.1 DLF Ltd
With a track record of 64 years, DLF is India’s largest real estate company in terms of revenues,
earnings, market capitalization and developable area. It currently has pan India presence across
30 cities with approximately 238 million sq ft of completed development and 413 million sq ft
of planned projects, of which 56 million sq ft of projects are under construction during FY10.
Project Spectrum: Residential, townships, commercial complexes, IT Parks, hotels, multiplexes,
etc.
Quick fact: Only listed real estate Company included in the BSE Sensex, NSE Nifty, MSCI
India Index and MSCI Emerging Markets Asia Index.
Latest: It will take its luxury mall DLF Emporio (already operational in New Delhi) to other big
cities such as Hyderabad and Chennai.
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.
Latest: Has ventured into the infrastructure business by launching Unitech Infra.
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,
A brief report on Real Estate Sector in India

 
Private & Confidential Page 10 of 11
 
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
Latest: Raised Rs231.4 crore through private placement of shares with institutional investors for
reducing its debt and execute ongoing projects.
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.
Quick fact: First real estate Company to have integrated with ISO 9001, 14001 and OHSAS
18001.
Latest update: Has partnered with Red Fort Capital to execute a Concession Agreement with
DMRC for development of a prime Grade A office project in New Delhi’s Connaught Place.





A brief report on Real Estate Sector in India

 
Private & Confidential Page 11 of 11
 
4. POLICY INITIATIVES
4.1 Investment Policy

The Government has proposed one per cent TDS (tax deduction at source) on transfer of
immovable property if the sale value exceeds Rs 50 lakh in urban centres and Rs 20 lakh in
other areas in the Union Budget 2012-13.

The Reserve Bank of India (RBI) has granted permission to foreign citizens of Indian origin to
purchase property in India for residential or commercial purposes. The purchase consideration
should be met either out of inward remittances in foreign exchange through normal banking
channels or out of funds from NRE/FCNR accounts maintained with a bank in India.

According to the latest reforms, FDI up to 100 per cent under the automatic route in
townships, housing, built-up infrastructure and construction-development projects (which
would include, but not be restricted to, housing, commercial premises, hotels, resorts, hospitals,
educational institutions, recreational facilities, city and regional level infrastructure) is allowed
subject to the following guidelines (also for investment by NRIs)

The project shall conform to the norms and standards, including land use requirements and
provision of community amenities and common facilities, as laid down in the applicable
building control regulations, bye-laws, rules, and other regulations of the State Government/
Municipal/ Local Body concerned.

The investor/ investee company shall be responsible for obtaining all necessary approvals,
including those of the building/layout plans, developing internal and peripheral areas and other
infrastructure facilities, payment of development, external development and other charges and
complying with all other requirements as prescribed under applicable rules/ bye-laws/
regulations of the State Government/ Municipal/ Local Body concerned.

The State Government/ Municipal/ Local Body concerned, which approves the building/
development plans, would monitor compliance of the above conditions by the developer.

4.2 Investment Opportunities

Real estate emerged as the popular sector for private equity (PE) funds, which witnessed
investments worth US$ 1,700 million in the sector during 2011. PE in real estate projects will
fetch considerable returns by next year-end or early 2013. Limited partners (who write cheque
for funds) expect 15-25% returns from real estate deals. Foreign investors are optimistic about
India. All they want is prompt action and friendly policies.