Documentos de Académico
Documentos de Profesional
Documentos de Cultura
g Real Estate
Submitted by:
Kumar Agnani
Research Guide:
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CERTIFICATE
This is to certify that the dissertation entitled “ Indian Real Estate Industry
and its Development ” is the bona fide project work carried out by Mr.
Management and that the dissertation has not formed the basis for the
Place: Mumbai
Date:
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DECLARATION
Date:
(Kumar Agnani)
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I am very thankful to Guide Prof. Manish Rai, and very grateful to, Faculty
Department of Business Management, Padamshree Dr. D.Y.Patil
University, Belapur for their everlasting support and guidance on the
ground of which I have acquired a new field of knowledge. The course
structure created for this curriculum has benefited with the inclusion of
recent development in the organizational and managerial aspects.
KUMAR AGNANI
ROLL NO. 64
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TABLE OF CONTENTS
Chapter. Page.
No Title No.
A List of Tables A
B List of Abbreviations B
1 Executive Summery 14
3 Research Methodology 19
4 Literature Review 23
5 An Introduction 24
5.1 Introduction 25
6.1 Background 35
6.3 Size 38
6.4 Structure 39
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Chapter.
Page.No.
No Title
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15 Conclusion 165
ANEXTURES 168
Reference 169
Bibliography 170
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LIST OF TABLES
No. Title Page.
No.
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LIST OF FIGURES
No.
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LIST OF ABBREVIATIONS
IT Information Technology
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Chapter 1
Executive Summary
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EXECUTIVE SUMMARY
Indian real estate has huge potential demand in almost every sector
especially commercial, residential, retail, industrial, hospitality, healthcare
etc. Commercial office space requirement is led by the burgeoning
outsourcing and Information Technology Industry. The leaders of the
IT/ITES world have set up or are setting up their centers in India. Estimated
demand from IT/ITES sector alone is expected to be 150mn sq.ft. of space
across the major cities by 2010. In residential sector there is housing
shortage of 19.4 million units out of which 6.7 million are in urban India.
The increase in purchasing power and exposure to organized retail formats
has redefined the consumption pattern. As a result the country has
experienced mushrooming of retail projects across the cities.The main
growth thrust is coming due to favorable demographics, increasing
purchasing power, existence of customer friendly banks & housing finance
companies, professionalism in real estate and favorable reforms initiated by
the government to attract global investors.
India, like many other parts of the world is zooming away in the face of a
real estate boom. In India there is a real estate boom in any direction you
wish to see. Whether it is Bangalore, Pune, Calcutta or Chennai or
Hyderabad or even already sky high Mumbai and Delhi - the story is the
same. Now apartments are more than just houses. They are about lifestyle.
So while the first housing colonies had nothing but a security guard, these
new housing colonies have a gym (spa, jacuzzi, steam), swimming pool
(heated, lined with Italian marble). Some have a multiplex, shopping
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complex. There are those which offer a servant entrance. The next step is
creating an ambience.
Along the length and breath of India, there are many small and big Indian
real estate companies. Each has a geographical stronghold, but there are
also bigger companies, which have a national presence. There are
innumerable agents, brokers, architects, property consultants, builders and
home finance companies in the metros and smaller cities. Indian real estate
news is hot news in the global real estate market. And Indian real estate
companies have geared up to meet the high demand from domestic as well
as international buyers. If you are looking for a reputed Indian real estate
company to help you with your property dealing, look no further. The
development of real estate in India focuses on two primary areas: retail and
residential. The global real-estate consulting group Knight Frank has
ranked India 5th in the list of 30 emerging retail markets and predicted an
impressive 20 per cent growth rate for the organized retail segment by
2010.The organized segment is expected to grow from a mere 2 per cent to
20 per cent by the end of the decade, it said.
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Chapter 2
Objectives of Study
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Management Objective
People Objective
To help HCL Insys people share in the company’s success, which they
make possible; to provide job security based on their performance; to
recognize their individual achievements and to help them gain of
satisfaction and accomplishment from their work.
Core Values
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Chapter 3
Research Methodology
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RESEARCH PROBLEM
RESEARCH DESIGN
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DATA COLLECTION
This included deciding upon various aspects for the project on which
the entire research is based. The research frame included:
NATURE OF STUDY
DATA SOURCE:
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INSTRUMENT USED
The researcher for the research used a Questionnaire cum Schedule for
market research for both the segments horizontal and vertical. The
Questionnaire was prepared by the researcher and Schedule was
provided by the company in which the researcher did its research report.
SAMPLE SIZE
Sample size for the research is fixed. It counts to 30. That is the Real
Estate companies and Developers and feed of Real estate in
comparison between other sectors.
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Chapter 4
Scope of Study
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The study is to know the latest crisis faced by the real estate companies
and how it can effect the growth of the country. The study is to also
determine the demand and future expectation of real estate companies.
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Chapter 5
Real Estate – An Introduction
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5 1INTRODUCTION
“It's tangible, it's solid, it's beautiful. It's artistic, from my standpoint,
and I just love real estate.” – Donald Trump
The most basic definition real estate is "an interest in land". Broadening
that definition somewhat, the word "interest" can mean either an ownership
interest (also known as a fee-simple interest) or a leasehold interest. In an
ownership interest, the investor is entitled to the full rights of ownership of
the land (for example, to legally use and transfer the title of the
land/property), and must also assume the risks and responsibilities of a
landowner (for example, any losses as a result of natural disasters and the
obligation to pay property taxes). On the other side of the relationship, a
leasehold interest only exists when a landowner agrees to pass some of his
rights on to a tenant in exchange for a payment of rent. If you rent an
apartment, you have a leasehold interest in real estate. If you own a home,
you have an ownership interest in that home. Some jurisdictions recognize
other interests beyond these two, such as a life estate, but those interests
are less common in the investment arena.
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The Urban Land (Ceiling and Regulation) Act, 1976 prescribes the limits to
urban areas that can be acquired by a single entity. It has, however, been
repealed in some states and union territories under the Urban Land (Ceiling
and Regulation) Repeal Act, 1999. Further, land holdings are subject to the
Land Acquisition Act, 1894, which provides for the compulsory acquisition
of land by the central Government or the appropriate state Government for
public purposes, including planned development and town and rural
planning. However, any person with an interest in such land has the right to
object to such compulsory acquisition and the right to compensation.
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The Registration Act, 1908 (‘Registration Act’) has been enacted to provide
public notice of the execution of documents affecting transfer of interest in
immoveable property. The purpose of the Registration Act is to conserve
evidence, assurances, title, and publish documents and prevent fraud. It
details the formalities for registering an instrument. Section 17 of the
Registration Act identifies documents for which registration is compulsory
and includes, among other things, any non-testamentary instrument which
purports or operates to create, declare, assign, limit or extinguish (whether
in present or in future) any right, title or interest (whether vested or
contingent) in immovable property of the value of Rs100 or more, and a
lease of immovable property for any term exceeding one year or reserving
a yearly rent. A document will not affect the property comprised in it, nor be
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There is a direct link between the Registration Act and the Indian Stamp
Act, 1899 (‘Stamp Act’). Stamp duty should be paid on all documents
specified under the Indian Stamp Act and at the rates specified in the
Schedules there under. The rate of stamp duty varies from state to state.
The stamp duty is payable on instruments at the rates specified in
Schedule I of the said Act. The applicable rates for stamp duty on these
instruments, including those relating to conveyance, are prescribed by the
state legislation. Instruments chargeable to duty under the Stamp Act,
which are not duly stamped, are incapable of being admitted in court as
evidence of the transaction contained there in. The Stamp Act also
provides for impounding of instruments which are not sufficiently stamped
or not stamped at all.
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State legislations provide for the planned development of urban areas and
the establishment of regional and local development authorities charged
with the responsibility of planning and development of urban areas within
their jurisdiction. Real estate projects have to be planned and developed in
conformity with the norms established in these laws and regulations made
there under and require sanctions from the government departments and
developmental authorities at various stages. For instance, in certain states
such as Haryana, for developing a residential colony, a licence is required
from the relevant local authority. In cases where projects are undertaken on
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lands which form part of the approved layout plans and/or fall within the
municipal limits of a town, generally the building plans of the projects have
to be approved from the concerned municipal or developmental authority.
Building plans are required to be approved for each building within the
project area. Clearances with respect to other aspects of development such
as fire, civil aviation and pollution control are required from appropriate
authorities, depending on the nature, size and height of the projects. The
approvals granted by the authorities generally prescribe a time limit for
completion of the projects. These time limits are renewable upon payment
of a prescribed fee. The regulations provide for obtaining a
completion/occupancy certificate upon completion of the project.
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Chapter 6
Indian Real Estate Industry – An Insight
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6.1 BACKGROUND
Indian realty sector will grow from US$ 12 billion in 2007 to US$ 90
billion by 2015.
The size of the real estate industry in India is estimated to be around $12
billion. And iti s continuously growing at the rate of 30% for the last few
years. Almost 80% of real estate developed in India is residential space
and the rest comprises of office, shopping malls, hotels and Hospitals. The
main reason for growth is mainly due to off-shoring business, including high
end technology consulting, call centers and software programming houses
which covers 15 million square feet of real estate development.
With an ever increasing influx of funds, the real estate sector in India is
growing bigger. In the first half of 2007, there will be atleast 20 more funds
making an entry in India while 35 big ticket foreign funds have already
made their presence in India. Northbridge Research expects that the Indian
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realty sector will grow from US$ 12 billion in 2007 to US$ 50 billion in 2010
and to US$ 90 billion by 2015. Global funds like Carlyle, Blackstone,
Morgan Stanley, Trikona and Warbus Pincus are sitting on a total corpus of
US$ 12-15 billion. Even the most aggressive retailers expands their
business creates a huge demand for real estate.
The real estate development in India focuses on two primary areas : Retail
and Residential. Northbridge research has predicted growth rate of 20% in
the organized retail segment by 2010. Lot of foreign players are attracted to
invest in real estate market in India. Examples are : Morgan Stanley Real
Estate has invested $68 million in mantri Developers private limited, a
private Banglore based Real Estate Developer.Vancouver-based Royal
Indian Raj International Corporation (RIRIC) will invest $2.9 billion in a
single real estate project named Royal Garden city in Banglore over a
period of ten years and the retail value of project is estimated at $8.9
billion.
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Construction Companies
Corporate Houses
Property consultants
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Architects
6.3 SIZE
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The industry has seen a rapid growth in the past few years.
6.4 STRUCTURE
Northbridge research estimates that the 70% of the new construction will
be for the IT sector.
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Projections are made that US$ 10 billion will be injected into Indian real
estate sector in the next 12 to 18 months.
Nearly 12 US funds are raising US$ 3.5 billion for investments in Indian
realty.Those raising the funds include Wall Street powerhouses such as the
Blackstone Group (US$ 1 billion) Goldman Sachs (US$ 1 billion), Citigroup
PropertyInvestors (US$ 125 million), Morgan Stanley (US$ 70 million) and
GE Commercial Finance Real Estate (US$ 63 million).
Organised retail is currently 4.6% of the US$ 270 billion Indian retail
sector whichis expected to grow at the rate of 37% in 2007 and 42% in
2008.
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The FDI in Indian real estate sector is permitted through the automatic
route across all real estate segments except agricultural and plantation
properties subject to the conditions mentioned below :-
i. Investment
Minimum Capitalization
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The investor may exit earlier with prior approval from Foreign
Investment Promotion Board (FIPB).
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v. Other Amendments
In addition to the above, the guidelines have also been relaxed for
investment by foreign and domestic venture funds in real estate. Venture
funds fall under the Foreign Institutional Investment (FII) category rather
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than FDI and have to be registered with the SEBI. Venture funds can invest
in real estate if each investor brings in not less than US$ 11,111 and eighty
percent of the funds are invested in companies not listed on the stock
exchanges or financially weak companies.
Housing
Townships
Commercial Premises
Hotels
Resorts
Hospitals
Industrial parks
Educational institutions
Recreational facilities
SEZ’s etc
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Minimum equity investment cap of $10 million for 100% FDI projects
and $5 million in Joint ventures.
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Residential
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Office
Hotels
ICICI Funds
HDFC Fund
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Ascendas – GE
Blackstone
Starwood Capital
Sun- Apollo
The Nakheel Group in Dubai signed a deal with DLF for development
of residential projects in Tier I & Tier II cities worth $10 billion.
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Yatra capital buys 49 percent in Indian real estate company for 21.6
million Euro.
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Chapter 7
Indian Real Estate Industry – Current
Scenario
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The demand and supply are on an even keel across India and estimate that
there would not be significant oversupply in either residential, office or retail
segments till end-CY09. However, further tightening of interest rate could
reduce demand, leading to lesser absorption of supply.
There would not be a sharp correction in real estate prices, although a mild
correction can not be ruled out. However, such a correction should not last
long and would be predominantly confined to a few overheated locations.
Given the significant capital appreciation in the past two years and higher
operating margins enjoyed by developer (50-80%), a marginal drop in
prices should not impact the sector significantly.
Residential segment
Residential markets are stabilizing and prices are not expected to rise
beyond the normal inflationary growth. Given the current supply scenario
and recent hikes in interest rate, home buyers have adopted a wait and
watch stance, implying that differentiated product offerings and brand name
would play a critical role in closing a sale. Further, this would increase the
possibility of a sporadic drop in prices in certain pockets. However, once
the interest rates stabilize, improving demographics and the latent housing
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As per the National Housing Bank (NHB), there was a housing shortage of
19.4mn units (12.7mn units in rural areas and 6.7mn units in urban areas)
in FY03. As per the five-year plan, there would be a shortage of 22.7mn
housing units by ’07. Industry estimates of cumulative demand supply gap
stand at 4.1bn sqft.
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Office segment
The estimated office space supply in India is ~50-55mn sqft in CY07. The
cumulative development pipeline for the key seven cities is ~105mn sqft.
Table 7.3 : Cumulative Office supply across 7 Key Cities Across India
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Retail segment
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3 YEAR SCENARIO
Realty sector is growing at the rate of 30% per annum to reach $45-
50 billion by 2010.
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Organised retail has the potential to add over US$ 45 billion business
by the year 2010.
This will create a demand of 220 million square feet of retail space by
2010.
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5 YEAR SCENARIO
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i) Joint Ventures
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Project Office
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Branch Office
i) Export/Import of goods
iii) Carrying out research work, in which the parent company is engaged.
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Chapter 8
FDI In Indian Real Estate Industry
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1.Emaar MGF has brought in the largest FDI of over US$1 billion in the
Indian real estate sector. In addition, the company is focusing on pan-India
projects in residential, commercial, infrastructure and hospitality sectors in
integrated master plans and SEZ.
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the first half of this The collective investment that got parked in real estate
and construction sector was to the tune of Rs. 1,252.79 crore.
8. Capital Land, Hong kong based group is also planning to invest in India.
10..Morgan Stanley Real Estate Fund is known to have made the largest
private equity transaction in property market till date and invested
$125million Mumbai based Oberoi Constructions.
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11. Emaar MGF Land Private Limited is India’s pioneering joint venture in
real estate with projects being implemented on a pan-India basis across top
30 cities.
12.DSP Merrill Lynch Limited, India’s leading investment bank and broking
firm that pump in more than Rs 2,230 crore between April 2006 and
October 2006.
15. French firm Carrefour has been showing interest in entering Indian
retail industry.
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16. World’s largest financial services group, Citi, which has sewed up
property deals of around $400 million in the past few weeks. This
prestigious group is also looking forward to enter into a joint venture with
HDFC and US based Portman Holdings.
17. Citigroup is all set to enter in the red hot property market through
Citigroup Property Investors (CPI) India.
19. Hong Kong based AEA Holdings announced that it plans to invest more
than $2 billion over the coming years in Indian realty projects.
21. Italian firm Rino Greggio’s plan to set up a joint venture for selling
silverware and UK-based Alpha Airport Group’s proposal to establish a
wholly-owned subsidiary for setting up duty-free shops, flight kitchens and
food and beverage outlets at airports in the country at an investment of Rs
22.5 crore was also approved other allied products.
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25. NSK Limited of Japan which has committed Rs 41.25 crore to set up a
new JV in Chennai.
26. Spain-based Lladro Commercials S.A. will pump in Rs 5.85 crore for
increasing its equity in Spa Agencies (India) from 26 per cent to 49 per
cent.
27. Sri Lanka-based Damro Exports Pvt Ltd’s proposal to sell furniture
under the single brand name ‘DAMRO’ and Italian firm Rino Greggio’s plan
to set up a joint venture .
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29. Hong Kong based AEA Holdings announced that it plans to invest more
than $2 billion over the coming years in Indian realty projects.
1. Cumulative amount of FDI inflows (from August 1991 to March 2006) Rs.
1,61,411 crore US$ 38,902 million.
2. Amount of FDI inflows during 2006- 2007 (from April 2006 – January
2007) Rs.50,652 crore US$ 11,194 million .
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7,718
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0
%age growth over last year (+) 298 % .
Hotel Development
Tourism
Hospitality
Township development
Built-up infrastructure
Building Resorts
Building Hospitals
Foreign Direct Investment in some of the aforesaid areas (not all) is subject
some conditions, some of which are as follows:
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• Conform with all applicable local and state laws, and abide by all
regulations and norms.
Set up of SEZ.
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Chapter 9
Factors Affecting The Indian Real Estate
Industry
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The real estate industry is not an isolated industry and the various
happenings in the market affect the real estate market at any place
,demand and supply .These factors may or may not have a direct impact on
the real estate market, but play a vital role in determining how the real
estate market would fare out. Some of the major factors are : -
DEMOGRAPHICS :
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The local land laws as well as those imposed by the governing bodies at
a particular place is another factor that determines the growth of real
estate industry at that place .If the laws at a particular area are to
stringent, it increases the vows of the developer as well as investor.
Thus a sound government backing is always desired to urge the
development and buying of property at a particular place.
The monetary policies and laws about lending rate directly hit the
demand for real estate at a particular place. The lending rates should be
low in order to urge investors to invest both in development as well as
buying of property.The monetary policy also determines how well the
investors would welcome a new initiative in the real estate segment.
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OVERSUPPLY :
MANAGEMENT/TRANSPARENCY RISK :
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Chapter 10
Major Market Players
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Sobha Developers is one of the leading real estate developers in India. The
Bangalore-based company has excellent reputation for its quality of
construction and timely execution. Also, the company has the requisite
capability to outperform its peers. Its real estate and contractual businesses
are growing at a fast pace supported by sound and visionary management.
We estimate Sobha’s NPV at Rs96.5bn or Rs1,324/share. The company is
among the finest large-cap stocks in the sector and will continue to trade at
a premium against peers.
Growing project pipeline. Till date, Sobha has developed 17mn sqft
property with another 18.7mn sqft in the pipeline. The company has a large
land bank of 3,489 acres having a saleable area of 134mn sqft, to be
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developed over the next nine years. We estimate the total NAV of existing
projects (137.4mn sqft) at Rs72.9bn or Rs1,001/share.
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the next 4-5 years. Two SEZs – bio-tech (Verna) and the IT SEZ in Pune –
have already been approved by the Ministry of Commerce. PLL is
developing two large township projects in Pune and Nashik with an
estimated total value of Rs2.9bn. The company is also managing a real
estate mutual fund (REMF) and has already raised close to Rs100bn.
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Attractive SEZ projects. Marg is developing two SEZs (one each for
multi services and light engineering) near Chennai, spread over 612 acres.
The SEZs have been approved by the Government in the Board of
Approval meeting. We estimate the NPV of both SEZs at Rs2.8bn.
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Capital gains on land bank. Prajay has been acquiring land in the
peripheral areas of Hyderabad for the past 10-15 years. With increasing
scale of development in the region and the ongoing work on arterial outer
ring road, which will reduce the distance from the airport, the capital value
of Prajay’s land bank has significantly appreciated. The current land bank
of the company is 850 acres.
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Robust project pipeline. At present, DSK has 17 projects with 23mn sqft
cumulative saleable area in various development phases. The majority
(97%) of the projects are in the peripheral areas of Pune with a few
developments forthcoming in Mumbai and Bangalore. We estimate the
projects’ NAV at Rs6.3bn or Rs284/share.
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We estimate the NPV for AFHL at Rs3.2bn or Rs460/share and believe that
it can increase further as only the project pipeline for the next three years
has been factored in. AFHL is among the best emerging real estate
companies from Chennai.
Robust Chennai market. Over the past one year, Chennai has been one
of the fastest growing real estate markets with increasing demand for
quality residential, commercial and retail properties due to comparatively
lower prices, improving demographics and corporate investments in
IT/ITES, manufacturing and auto sectors. Other reasons for growth are the
availability of skilled manpower and lowest attrition rates across India.
Chennai is likely to emerge as a key manufacturing and outsourcing hub of
India.
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Land bank and projects creating significant value. AFHL has a total
land bank of 130 acres, of which 45 acres are strategically located on the
IT corridor and another 45 acres are close to the Mahindra City. AFHL is
currently developing 15 projects with 10mn sqft saleable area, out of which,
the company’s share stands at 6.2mn sqft. We estimate the project value of
the current land bank at Rs1.6bn. Also, two of AFHL’s larger projects are in
a JV with Unitech and JP Morgan, lending further credence to timely
execution.
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Chapter 11
Research on Emerging Real Estate
Market
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In order to no more about the real estate sector I decided to conduct a little
research on the above parameters discussed so far. I prepared a
Questioner having three to four relevant questions which can give me the
exact picture of this fast growing sector.
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consultant
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1) Do you think there is a growth in real estate business over the years?
Result: surprisingly all of them said yes.
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6 YES
NO
4
0
Growth in Real Estate
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2) Did you experience any downfall in sales due to inflation and hike in
home loan Rates?
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8
7
6
5 YES
4 NO
3
2
1
0
Down Fall due to Inflation /
Home loan rates
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3) How do you see the future of real estate market? Is it going to grow
or fall?
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6 YES
NO
4
0
Will it grow in future or not
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Chapter 12
Indian Real Estate Industry – SWOT
Analysis
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12.1 STRENGHTS
About one in every sixth person on earth lives in India, and the
growth rate of the population is still rapid. The present fertility rate is
just over three children per woman. Although considerably lower than
in the 1960s or 70s when women gave birth to an average of five to
six children, it is still far higher than in, say, China (1.7 children per
woman) or Europe (1.4 children per woman). Since the lower birth
rate is primarily a reflection of better living conditions in India, the rate
of population growth has moderated to just 1.5% p.a. Since 1970, the
improved conditions have also caused life expectancy to increase by
15 years to around 65 years at present. In addition, during this period,
infant mortality has been halved. The high birth rates and fall in infant
mortality over the past few decades imply that India’s population is
very young. One in every three Indians is under the age of 15, and
only one in three is older than 35. This compares it favorably against
China, where nearly 50% of the population is older than 35, and
roughly 60% in Europe. The three demographic trends, i.e. high but
falling birth rate, increasing life expectancy and declining infant
mortality, are expected to persist in the coming years. Only during the
third decade of this century will the population growth rate drop below
1%. Consequently by 2030, India looks set to be the most populous
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country on earth. By 2050, roughly 1.6 billion people will live on the
Indian subcontinent, 200 million more than in China.
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12.2 WEAKNESSES
The Urban Land Urban Land Ceiling and Regulation act restricts the
area of land/property that can be owned by an individual.Land in excess
of the ceiling can be acquired by the government under the law of
developing mass housing.This has made it extremely difficult for
developers to consolidate large land parcels and take up projects of any
meaningful scale in urban areas.
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therefore tenants never move out of the premesis . Moreover, with the
rental income falling too short of the maintenance cost, the landlord
loses interest in the repairs and maintenance of the premises and the
property dilapidates over a period of time. The landlord is also
discouraged to sell the premises as he is forced to share the proceeds
with the tenant (under the ‘pagdi’ system).The combined effect of all the
above converts the property into a redundant asset for the landlord and
the land on which it stands is not reallocated for rebuilding or
redevelopment. This creates artificial supply constraints in the urban
areas.
In addition to ULCRA and the rent control act, there exist many rules
and regulations Coastal Regulation Zone (CRZ), Slum Development,
property transfer rules and charges etc., which govern land acquisition
and use. These laws tend to result in long approval procedures, litigation
and disputes as also general delays in land development, thereby
stymieing growth of the sector.
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Aggregators operating mainly in suburbs and rural areas, buy land from
individual holders of smaller land parcels. The aggregators establish
ownership and settle all legal disputes between multiple claimants to
clear the title of the land. They also get land converted for non
agricultural use from the local revenue assessing authority. Contiguous
parcels of aggregated land, with clear titles and designated for use in
real estate development are then transferred to the developer.
Moreover, aggregators remain discrete in their activities and donot
reveal the final buyer of the land, as the land prices tend to shoot up, in
case word spread of a leading developer accumulating land parcels.
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12.3 OPPURTUNITY
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Recent moves by the RBI to increase cash reserve ratio (CRR) &
repo rates and raise risk weightage of home & commercial real estate
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Gsec yields have moved up significantly from <6% two years ago to
>8% as on date; lending rates have increased even more sharply. On
the other hand, rental yields have not moved up more than 100bps.
Given the regulated scenario of gsec and lending rates, money flow
(particularly from foreign investors) into the real estate market has
been easier. That aside, reducing spreads also imply the assumption
of capital gains priced into the real estate assets or a possibility of
rental yields moving upward. Currently, the trend of reducing spread
between rental yields and other risk-free asset classes has been
witnessed across the globe. This highlights that in the long term,
investor’s world over view real estate as lower risk asset class.
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Chapter 13
“The Ground Floor” - Real Estate Industry
and Recession
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sectors. The impending concerns of this sector namely- skill shortage, non
availability of statistics, lack of low cost-affordable housing, lack of
sustainability, high RE prices and last, to meet a future that might have
downturn due to oversupply.
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investors has created a very fast pace of demand in Indian real estate
sector which have gain a very high impact image of investing in India.
As the money was coming in terms on investment in India from NRI as well
as Private Equity funds, the well known developers and real estate players
have grown their portfolio as well many small sized players have also
created in Indian market. It has provided a very high supply of real estate
segments either in residential or in commercial or in office space. SEZ has
also creates a very good opportunities for investors as well as corporate to
invest and get benefited from Indian real estate market. So the booming
market has created a niche as modern living in India and created a very
mass employment in Indian segment.
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liquidity funded by both of these firms. Also the IT segment which was
mainly funded by the PE firms or have their export to US markets have
noticed very sharp drop of net worth of their firms. This recession also
impacted the Sensex which has bullish very sharply and brings down the
net worth of the leader of Indian real estate player very low. The impact can
be shown in share price of DLF, Unitech, GMR group, Reliance group,
Wipro, Satyam etc groups.
13.1 RECESSION
We expect a GDP growth rate of 6.0% during FY10E. Our FY09 growth
forecast has also been revised down to 7.4% from 7.8% earlier. At 6%, the
FY10 GDP growth will be the lowest since FY03.
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As regards the services sector, it is believed that the growth rate will dip
from the current double-digits to ~9.2% in FY09E and further to ~7.9% in
FY10E. Amongst larger components of services, ‘banking, real estate, and
business services’ is likely to slowdown markedly from the current 12%
plus level to ~9% in FY09E and further to ~6.5% in FY10E. Our estimates
implicitly assume slowdown in trade, transportation, hotels and restaurants,
among others, to the levels of the most recent low growth phase of
FY1999-03. Communication (weight ~5% in overall GDP), however, is
likely to stay strong. The social and community services segment (~14% of
GDP) is likely to hold steady as well, as it is driven largely by government
activities.
Real estate markets in the United States could hit to bottom in 2009 and
then flounder for much of 2010. During this period, ongoing drops in
property values, foreclosures, delinquencies, and a limping economy will
continue to crimp property cash flows.
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Commercial real estate faces its worst year since the wrenching 1991–
1992 industry depression , which projects losses of 15 percent to 20
percent in real estate values from the mid-2007 peak. Only when property
financing gets restructured will pricing recorrect and this transition could
wipe out companies and people.
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The US financial crisis has caused disturbing impact on the Indian real
estate market, which is facing a plunge in real estate demand. The industry
is facing crunch of skilled manpower and it remains unorganised,
characterised by small players.
been a predominant trend to set up the world’s best business centres, often
campus-style establishments bearing a distinguishing corporate stamp.
Some of these locations are so distinctive that they are termed as the
’temples of new India’. It is just an indication of the extent to which the
development of real estate has been taking place.
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US markets have noticed very sharp drop of net worth of their firms. This
recession also affected the Sensex, which is bullish and brings down the
net worth of the leader of Indian real estate player very low.
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The impact can be shown in share price of DLF, Unitech, GMR group,
Reliance Group, Wipro, Satyam etc groups. All of these sudden changes in
Indian and US market created a point of thinking to investors and
individuals that where it will go and what will be the best option in real
estate investment. The market rates in India are also dropped by 10 to 30
per cent in most of prominent as well as upcoming cities and the trend
appears to be still continuing, till it recovers from the ill effects of financial
crisis.
With a slump in the Indian real estate sector due to excessive credit crunch
and demand slowdown, home buyers can expect a further correction in real
estate prices in the range of 15-20% in next six months. There are several
factors working against the Indian real estate sector that can bring about
such a price correction. With the Reserve Bank of India (RBI) tightening
money supply and increasing interest rates to fight inflation, the developers
are facing liquidity crunch. Banks are getting jittery over loan disbursals to
real estate developers. Even if the developers manage to get loans from
banks, they are hardpressed to keep more collateral with the banks.
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“We have been sitting idle for many days,” said Parminder Singh, a
property dealer in Jalandhar.
NRI buyers are also not as keen on buying property here as they have
been in the past. Kewal Singh, a US-based NRI from Jalandhar, said the
recession in USA has made it difficult for NRIs to invest here. “We are
unable to manage our own installments in the US as most of the things are
bought on loan there,” he said.
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The construction sector has also got a hit as NRIs are not investing in big
projects and only concentrating on the old projects, according to Anil
Chopra of PPR, a leading real estate developer.
The number of NRIs visiting India for vacations have also decreased this
time as many of them are doing over-time to manage their loans there, said
Nihal Singh, another US-based NRI.
“The travel expenses are huge and many of our friends who used to come
here every year are not coming this time,” said Parkash Raman, a UK-
based NRI from Hoshiarpur district.
Sobha’s net profit fell by 88% to Rs7.5 crore and revenue by 49% to
Rs181 crore in the December quarter against the same period a year
ago. The developer is also in the last leg of restructuring its debt of
Rs1900 crore. “We are restructuring over Rs1,000 crore and are in
the final stage of getting approvals from various financial institutions,”
said Sharma
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Big developers like DLF, Unitech, Ansals API and HDIL were
particularly hit as Lehman Brothers, along with Merrill Lynch, another
cash-strapped investment bank that had to be sold, had direct
investments in these companies. “What hurt the overall housing
sentiment was the increasing borrowing rate. The current cost of
borrowing for the company has risen to between 15.5 percent and
16.5 percent, compared with 12.1 percent for the year ended March
3. The liquidity risk was accentuated by the slowdown in the overall
real estate market and the increasing reluctance of financial
institutions and banks to fund real estate developers.
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STALLING OF PROJECTS
Facing acute liquidity crunch and poorer sentiments, the country's biggest
property developer, DLF, has reportedly stopped work at two of its biggest
mid-income housing projects.
The New Delhi-based builder has halted construction at DLF New Town
Heights in Gurgaon Sector 90 and Express Greens in sector M1 in
Manesar, both in Haryana. The two projects were launched in January and
August 2008, respectively.
Even after a year, the company has merely begun some basic work at its
New Town Heights project, according to a report by Nomura Financial
Advisory and Securities. In the Town Heights project, DLF has merely
undertaken excavation work while in the Express Greens project, the
company has just marked the boundary with its bill boards, the report said.
According to sources, the company has sold most of its apartments in New
Town Heights in the first few months, offering 3 and 4 BHK apartments at
Rs 2,125 and Rs 2,505 square feet, respectively.
However, sales in the Express Greens that offers 3 and 4-bedroom
apartments for Rs 1,760 and Rs 2,125 respectively have not been very
good. DLF did not respond to a detailed questionnaire sent on Friday.
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DLF's third quarter profit has dropped by 69 per cent to Rs 670.79 crore.
The developer has stalled work on nearly 16 million square feet of office
and retail mall space out of the 62 million square feet under development.
However, ers who have booked houses at the DLF projects may be partly
compensated if DLF fails to complete the project in 36 months after the
launch, a company official, who declined to be identified, said. The
company's debt has spiralled by Rs 1,500 crore to reach Rs 14,800 crore in
the third quarter of FY09, compared to the previous quarter, according to
sources. DLF had recently announced that new mid-income housing
projects in Panchkula, Gurgaon, Hyderabad, Bangalore and Chennai to
cater to the increased demand in this segment. However analysts say if the
company could not start construction on its already sold mid - income
housing projects, it is unlikely that the company can come up with any new
projects.
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in Uttar Pradesh. Unitech has not paid two installments worth Rs 150 crore
to the Greater Noida Authority for the 100 acres it had purchased for its
ambitious Uniworld City project.
The company is trying to reschedule the payment, but risks harming the
land deal if it doesn't pay up, the sources say. The company insists the
payment was stopped due to farmer agitation. Officials of the Greater
Noida Authority understand that real estate companies have been hit by
liquidity crunch and will be “understanding” to Unitech’s request. DLF group
chairman K P Singh says the financial crisis has hurt the real estate
business, particularly “fly-by-night operators”.
Mr Singh said that prices have come substantially down, so much that
projects will shut down. He said that “There is a lack of money supply to
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Mr Singh said that “There will be takers only when you bring down home
loans.”
Mr Singh recently said that the decline in raw materials costs including
steel and cement would help bring down property prices.
Sobha Developers Ltd, a leading realty firm in south India, has witnessed
its monthly revenue reduce by more than half, from Rs120 crore to Rs 50
crore. With sales down, Sobha has been forced to cut its 3,000-strong
workforce by about 30%, to 2,170. However, with revenue from the real
estate sector going down, the company’s other source of income, its
contractual business, has been the saving grace. “Unlike the real estate
sector, the income from our contractual business has been steady and we
don’t really have to look out for customers,” said J.C. Sharma, managing
director of the Bangalore-based company, which is expecting a Rs400
crore turnover from the contractual business by 2010 and has completed
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The company is also looking at various funding options ranging from equity
dilution, private equity funding at project level as well as land sales. Mint
had earlier reported that the developer would try to sell parts of its 3,000-
acre land bank—the process seems to have started. It has managed to sell
land worth Rs100 crore over the last few months. Sales have not picked up
even after developers such as Sobha are trying out various out-of-the-box
marketing techniques such as its recent Home Mela. The two-day property
exhibition that showcased 18 different properties of the company concluded
with only six apartments being sold.
Sobha, which till now, focussed on high-end and luxury apartments and
villas is finally joining the affordable housing bandwagon. It is launching its
first budget housing project in the next three-four months in Bangalore,
though officials didn’t divulge pricing details. “Contractual work in real
estate has also been hit as most corporates have stalled expansion plans.
Which is why, we find lot of contractual business coming in for developers
from industrial or education sectors. Like Sobha, we will find more
developers going in for debt restructuring to pull down high interest rates on
short term loans and converting them to long-term loans,” said Abhinav
Bhandari, research analyst (construction and infrastructure) with Pioneer
Invest Corp Ltd.
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RATE CUTS
Country’s largest real estate developer DLF has cut its prices in its on-
going projects in Chennai and Bangalore by 20-30 percent, and has
extended this benefit also to those customers who had earlier bought
homes in these projects.
Existing customers, who have paid more than the revised apartment
price, will be eligible for refund, although there may not be many such
cases, as most have made only part payment, the company said.
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DLF’s latest move is in line with the thoughts expressed by its vice
chairman Rajiv Singh at the quarterly earnings announcement almost a
month ago. He had said that the property prices would fall by 15-20
percent. He had also highlighted the need to take the lead and quickly
turn in products that are required in the current market.
“By the time one gets ready with products, the business cycle has
already turned and there are not many takers for such products,” he had
said.
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future due to poor job market scenario, slid into the wait and watch
mode late in the second half of last year. As sales dried up, credit
became expensive and private equity funds vanished, property firms
faced major pressure on their cash flow.
DLF’s closest rival, Unitech, which hasn’t launched any new project of
late, said it is still watching the market. Unitech head of strategy and
planning R Nagraju said company’s new launches will surely be at lower
price points.
DLF, as all other realty players, has been facing pressure on sales and
has put construction on more than half of its commercial projects on hold
due to lack of demand. The company reported a 69 percent decline in
profit in December quarter.
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Indian real estate developers are expected to cut prices by 30% and more
over the next three to six months. At a recent TiE-Indian Angel Network,
summit in the capital, industry players including real estate developers,
private equity players and real estate brokers and consultants, all answered
in the affirmative when asked whether they see the possibility of a price cut
in future. The Indian realty sector has been in a meltdown over the past few
months. Prices for both commercial and residential property have come off
by 20-25% over the past few months. Industry experts and players say they
expect them to go down further.
LAYOFFS
"We must have laid off some employees somewhere," DLF Chairman K P
Singh told reporters on the sidelines of India Economic Summit, but did not
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The company has also deferred some of its projects due to poor demand.In
hotels, residential and commercial everywhere... deferred because of lower
demand and liquidity crisis, again without sharing the specifics.
Singh also said high interest rates have taken a toll on demand. "There are
no takers for housing sector... Ideally, the interest rate should be around 7
per cent."
Asked if the current prices of the realty projects are inflationary, Singh
denied and said: "It cannot be inflationary as it has to be competitive. It also
depends on supply and demand."
Because of demand going down, many projects have been closed down by
many developers across the country, he added.
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Chapter 14
“RENOVATING REAL ESTATE” -EFFORTS
TO COUNTER RECESSION
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LEADING real estate developer DLF has called for a 5% cut in home loan
interest rates. DLF chairman K P Singh told ET that projects in the realty
sector are getting delayed because of the current liquidity crunch. “Home
loan interest rates should be slashed from the current 13% to 8% in order
to revive the real estate market and prevent the economy from sliding into a
recession,” he said. He also added that a 5-10% correction of property
prices is expected in the coming months. A temporary slowdown of the
economy can lead to a recession and ultimately even a depression. If the
government does not take any bold actions, recession is inevitable.
Emphasizing the importance of the multiplier effect of the sector, Mr Singh
said that the housing industry is the indicator of an economy’s health
across the world.Mr Singh also said that the government should aim at
making housing a key sector in the economy and make borrowing easy.
Hit hard by the global slowdown, export, housing and financial sectors
will get a fiscal as well as monetary package from the Government and
RBI. The Government and Reserve Bank may further ease money
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supply, provide interest subsidy for specific sectors and come out with
tax cuts for boosting demand. Despite RBI injecting around Rs 2,75,000
crore into the system, various sectors are facing liquidity problem and
there is demand for further steps from the central bank to ease money
supply.
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With real estate prices continuing to fall, builders have been forced to come
up with innovative schemes in order to woo buyers. Price guarantee
scheme is one such sop being offered by the builders. This scheme —
being offered by the members of Confederation of Real Estate Developers’
Association of India (CREDAI), Karnataka — is unique as it benefits the
buyers and not sellers. As per the scheme, the buyer would get back the
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difference amount if the builder sells the apartment at a lower price than the
amount received from the former. While a few of them honour the price
guarantee scheme, others (fly-by- night builders) never bother to refund the
difference. Suresh Hari wanted buyers to approach a reputed builder as
they can address the problems which are bound to arise in future
MEASURES BY DEVELOPERS
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Chapter 15
CONCLUSION
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Relaxing the FDI regulations for the real estate sector opened the
floodgates for foreign capital inflow into realty sector. The much-required
capital in the last few years has facilitated widespread development of
residential, office, retail and hotel space in the country. It has also been
instrumental in organizing the market to a large extent and bringing it closer
to real estate markets in other developing countries around the world. We
are excited about these developments as the growth that we witness today
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is a sign of the emerging far-reaching and long-term trends that will drive
robust growth for the sector in the years to come.
This will also lead to sophistication in the financial structuring of real estate
investments. They will provide access to capital, both debt and equity
capital from public and private sources. Apart from offering an exit route for
the developers to revolve funds and improve their margins, it will also allow
individuals investors to be a part of the real estate market.
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Real estate activity will become more widespread and will take many
smaller towns and cities in its fold. Improved infrastructure, the potential of
untapped markets, increased access to capital together with the saturation
and spiraling cost of metros will play a vital role in promoting new growth
centers. Infrastructural projects including roads, airports, ports and inter-city
connectivity will witness increased private sector participating and evolve
as real estate play. This will significantly augment the availability as well as
the quality of these services in the country.
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Chapter 16
FUTURE SCOPE
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Anecdotal reports are that activity in the property market has been slowing
- but that does come after an especially frenetic couple of years.
The real estate sector in India has grown by 30% to 35% during the past
five years, reflecting the rapidly increasing demand for office, commercial
and industrial space, as well as for bigger homes, that coincided with the
economic boom.
To some extent, property development may have failed to keep pace with
demand because of an underdeveloped investment market.
However, once the current global downturn is through, the Indian economy
should rebound, supported by a large, young workforce; gradual but
consistent liberalisation reforms; and a high rate of consumer and private-
sector savings.
The growing population and economic expansion will mean that India
needs not just homes but offices, schools, hospitals, and entertainment
centres.
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Vijay Shah, a prominent real estate developer, lamented that banks were
reluctant in extending project loans to developers. He said developers also
felt difficulty in sourcing down payment of loans lately. Shah pointed out
that banks had reduced valuation of assets for credit from 80 per cent to 60
per cent. S Srinivasan, chief executive officer of Kotak Real Estate Fund,
was optimistic about the real estate scene of Ahmedabad. He said it was
much better than other cities like Mumbai and Bangalore. He said nowhere
else was any developer able to offer a price of Rs 1,500 per square feet,
but in Ahmedabad. He said if a buyer called a price of Rs 2,000 as
unaffordable, it was a matter of mindset.
According to him, developers had capital in the past and yet had the luxury
of saying no to new investment in the last one year. That was time of
excessive commitments and it would take time to correct that situation in
the real estate sector. Srinivasan wondered over the abysmally small
number of developers who could declare business size in excess of Rs 150
crore. “Most developers have not built their balance sheets over the years,
though they borrowed a huge amount of Rs 72,000 crore from banks… this
calls for hard thinking. For, you have no choice but to prepare your balance
sheet if you want to build your business in the long run and if you do not
want to confine yourself to relationship banking,” he said.
Srinivasan said the Reserve Bank of India was often cursed for enforcing
restrictions on banks’ lending parameters, but it should be remembered
that this cautious approach was in the developers’ interest. He felt that
banks must first be able to build confidence in the lending activity to build
up stable banking operations. He also advised developers to work closely
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The Indian Real estate sector is taking the initiative to contribute to the
save the environment by developing green buildings. Jones Lang LaSalle
Meghraj, in its research report titled, ‘Greenomics,’ states that the Indian
construction industry is growing at 10% as compared to the world average
of 5.2%, and that the country is expected to develop 110 million sq ft of
green space over the next few years. The report focuses on the cost
benefit analysis for green buildings. One of the major findings from the
analysis is that a green building aiming for LEED (Leadership in
Environment and Energy Design) – GOLD certification can recover its
additional costs in a payback period of 2-3 years.
Anuj Puri, Chairman and Country Head, Jones Lang LaSalle Meghraj,
says, “The challenges faced inherent in the development of green buildings
in India are the extra investment in an unstable real estate market scenario,
and the difficulty in sourcing green building material and sustainability
consultants. Extra investments can be recovered in the medium-to-long
term from the non-sustainability discount, which gives green buildings a
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higher rental value than conventional buildings in their vicinity, and via the
carbon credits that can be earned from the reduced GHG emissions.”
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Annexture
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Estate
References
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Bibliography
Books & Journals
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Websites
www.IndianRealEstateForums.com
www.RealtyTimes.com
www.chicagotribune.com
www.Moneycontrol.com
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