Real Estate Industry

Presented by
Group 6_SEC B
Ankit Uttam
Arun KS
Achintya PR
Manish Watharkar
Nishigandha Sorte
Pankaj
Prashant Patro

Agenda
Sr.No
1.

Industry Analysis

2.

Opportunity Analysis

3.

Key growth drivers

4
5.

Segmental Analysis
KPIs of Industry

5.

Market Dynamics

6.

Critical Success Factors

7.
8.
9.
10.

Regulations
Analysis of Cost and profitability
Future Outlook
Recommendations

Introduction
Has a huge multiplier effect on the
economy
2nd largest employment generating sector
after agriculture
Growing at a rate of 20% per annum
Contributes about 6.3% to Indias GDP
Stimulates demand in over 250 ancillary
industries such as cement, steel, paint,
brick, building materials, consumer
durables etc.

Source: www.ficci.com

Introduction
Witnessed a boom due to increasing
globalization and allowance of FDI in real
estate in 2005 with the involvement of
both domestic and foreign players.
Evidently, due to global economic downturn
the growth has taken a U turn.
Still, FDI is expected to touch $ 25
billion in the next 10 years from its
current $ 4 billion.

Source: www.ficci.com

Indian Market Dynamics

Rapid growth in residential, commercial
and industrial segments
Once restricted only to bigger cities, now
expanding in smaller cities and towns due
to
Availability of bank loans
Improved earnings and
Higher standard of living
Projected revenue of the sector is $ 180
billion by 2020 against $66.8 billion in
2011, with a CAGR of 11.6%

Source: www.ibef.com

Indian Market Dynamics

Demand is expected to grow at a CAGR 19%
in the period 2012-2016.
Tier I cities expected to account for
about 40% of this growth which will later
shift to Tier II and Tier III cities.
Currently, about 30% of total mall supply
in India is in Delhi-NCR.
About 67% of total mall space is projected
to come from Kolkata, Pune, Chennai,
Hyderabad, Lucknow and Jaipur in the
period of 2012-2016

Source: www.ibef.com

Indian Market Dynamics

The FDI attracted by this sector has
fluctuated through year 2010, 2011, 2012,
2013 by 8.9%, 10.3%,11% and 6%
respectively.
But, the focus on affordable housing has
helped the sector to survive through the
financial crunch
Non consistent real estate price and
policies has pressurized the industry
immensely.

Source: www.indiatoday.in

Indian Market Dynamics

The market is very localized, each
location having its own dynamics.
Ex: in Hyderabad, prices have fallen
due to political turmoil, while in
Kochi has been seeing a fall in money
repatriated by NRIs.
Prime locations in South Delhi saw a
10-12% fall in prices, where as in
Noida and Greater Noida there has been
a 5% price rise.
In Mumbai, though the prices fluctuated
internally, but overall it remained
same.

Source: www.indiatoday.in

Real Estate
Real estateis "Property consisting of
land and the buildings on it, along with
its
natural
resourcessuch
as
crops,
minerals, or water; i.e. any immovable
property of this nature.
Segments in the Indian real estate sector

Residential
Commercial
Retail
Hospitality

 The real estate sector in India has come a

long way by becoming one of the fastest
growing markets in the world. It is not only
successfully attracting domestic real estate
developers.
Real estate in India continues to be a
favored destination globally for investors,
developers and non-resident Indians (NRIs),
driven largely by investor-friendly
government policies and increasing
globalization
The growth of the industry is attributed
mainly to a large population base, rising
income level, and rapid urbanization.
The cities and towns in India are expanding
and the space requirement for education,

 The industry in India contributes about 6.3

percent to the country's Gross Domestic
Product.
It is recognized as one of the key sector
contributing
to
the
country's
economic
development.
Playing an important role in the Indian
economy, as it is the second largest
employer after agriculture. The size of the
Indian real estate market is expected to
touch 180 billion USD by 2020.
The foreign direct investment (FDI) in the
sector is expected to touch US$ 25 billion
in the next 10 years from its current US$ 4
billion

Market Dynamics
The real estate sector in India is witnessing
rapid growth in the residential, commercial and
industrial segments.
Real estate development, once restricted to
bigger cities, have shown progress in smaller
cities and towns due to availability of banks
loans, higher earnings and improved standard of
living.
The real estate sector of India is projected to
post annual revenues of US$ 180 billion by 2020
against US$ 66.8 billion in 201011, a compound
annual growth rate (CAGR) of 11.6 per cent.
The demand is expected to grow at a CAGR of 19
per cent in the period 20102014, with Tier I
metropolitan cities expected to account for
about 40 per cent of this growth.

Residential sector
It is a fragmented market with fewer players and
has demand of more than 300000 units in seven
major cities of India.
Major categories of houses in India are:
Co-operative Housing Societies (CHS)
Condominiums (row houses)
Builder flats
Chawls
Villas
Kothis
Havelis
Lal Dora

The size is measured in Gaz (square yards),

Quila, Marla, Beegha, and acre.

Average price trends in 7 major cities

in residential sectors

Housing shortage
The urban housing shortage is estimated at
18.8 million in 2012
The housing shortage in rural India stood at
47.4 million as of 2012
The housing shortage in urban and rural India
will be around 21.7 and 19.7 million units
respectively in 2014
Significant increase in real estate activity
in cities like Indore, Raipur, Ahmadabad,
Jaipur and other two-tier cities
This has opened new avenues of growth for the
sector

Source: Ministry of Housing and Urban

Poverty Alleviation, RBI, CRISIL, Aranca

Facts about residential

property
Residential
property
prices
have
breached
affordability limits in cities like Mumbai.
Nevertheless, developers will have to factor
in the ground realities of the business while
debating the lowering of prices to catalyze
sales in 2013.

Obtaining the 57-odd permissions to begin

construction of a project can take as much as
two years. During this time, the cost of
acquisition or even just holding the land for a
project rises.
Builders are already beset with the increased
costs
of
license
costs
and
cost
of
construction.

However, it became evident in 2012 that homes are

not selling at the current price points, and
developers do need to re-calibrate their bottom
lines while still remaining viable as businesses.
The only way to catalyze healthier sales at this
point is offering buyers tangible financial
relief.
It is seen that drastic trimming of frills in
projects are done to make them more marketable
from a pricing point of view, and innovative
payment schemes.
Developers will also offer buyers attractive prelaunch benefits in a bid to accelerate sales
momentum in the initial months following a launch.
Although most of the cities of India will see an
increase in residential launches in 2013, the
southern cities of Bangalore and Chennai will
witness a decline in launches as compared to

Commercial & Retail

sector
Commercial and retail sectors are fragmented and
have fewer national players.
The commercial sector had a demand of 38.2 million
sq.ft in 2011.
The retail industry has a demand of around 15million
sq.ft in major cities
FDI is observed in retail sector so as to boost the
demand.
Unlike residential properties, commercial office and
retail spaces need big-ticket investments due to the
size of the units.

In 2010, average cost of commercial space

was around Rs 10,000 per sq. ft in the DelhiNational Capital Region (NCR).

In Mumbai, the average cost was around Rs

14,000 per sq. ft.

Assuming that you plan to invest in an

office unit of 5,000 sq. ft in an upcoming
location with a purchase rate of Rs 5,000 per
sq. ft, you would need Rs 2.5 crore.
With several new shopping malls slated to
complete in 2011, the vacancy rate for retail
spaces is expected to increase significantly

"In the absence of investment vehicles such as

real estate investment trust, retail investors
have not been able to invest in commercial real
estate
at
a
scale
similar
to
residential
properties (which involve low investment and easy
availability of credit).
Commercial real estate offers a good investment
opportunity and the risks are minimal.
"The risk attached with investments in commercial
office projects is not high now. The economy is
projected to grow at a faster pace and business
activities in the country are headed towards a
high-growth trajectory," Samantak Das, national
head, research, Knight Frank India.

Facts on retail sector

In
2013,
new
organized
retail
project
completions will increase significantly (by
109% ).

Chennai, Hyderabad, Kolkata and Pune will be

among the major contributors to this increase,
with a 53% share of the countrys overall mall
supply for 2013.
The primary reason is that a sizable amount of
supply that was expected to reach completion in
2012 has been being pushed to 2013. Altogether,
India`s major cities like Mumbai, NCR-Delhi,
Bangalore, Chennai, Pune, Hyderabad and Kolkata
will see the addition of close to 9.5 million
square feet of mall space in 2013.

 Mumbai, NCR-Delhi, Bangalore and Chennai will together

contribute 70% of the total retail space absorption.
Other cities like Pune , Hyderabad and Kolkata will
account for the remaining 30%.

The Government`s nod to FDI in multi-brand retail will

be a major driving factor for increased activity in
2013. Since the policy opens the portals to major MNC
retail brands in India, the organised retail sector
will see a major transformation in terms of its overall
contribution in the mid-term.

This, in turn, will positively impact the absorption of

retail space over the next 1224 months. The absorption
is forecast to touch 6.8 million square feet and 7.1
million square feet in 2013 and 2014 respectively.

Hospitality space
The hospitality space has a competitive
market with many players
There are around 121,000 hotel rooms in
the country as of 2011
The hotel industry grew 13 per cent during
201112
NCR and Mumbai are by far the biggest
hospitality markets in India, followed by
Bangalore , Hyderabad and Chennai

Hospitality space
Besides hotels, the hospitality market
comprises serviced apartments and
convention centers.
The recent trends observed are
Serviced apartments appear particularly
attractive within the hospitality space
Government initiatives to promote tourism
in Tier 2 and Tier 3 cities is generating
significant demand for hotels in such
cities, especially for budget hotels

Source: Knight Frank India, Aranca Research

Notes: FSI - Floor Space Index

Future estimated Growth

The Indian retail realty sector is projected to grow at
around 15 per cent year-on-year over the next 35 years
as against a 1213 per cent nominal growth of Indias
GDP estimated by the International Monetary Fund (IMF).
If the sector manage the above mentioned growth, it will
touch Rs 34 trillion (US$ 544.73 billion) by 2016.
Indias office space stock is estimated to rise by 40
per cent to 642.2 million sq ft by 2017, according to a
report by real estate consultancy Knight Frank India.
The share of luxury retail space in India will be 1.4
per cent by 2015, according to a report by real estate
services firm Cushman & Wakefield. NCR and Mumbai, areas
that have embraced the mall culture, are the two most
favored destinations for luxury retailers.

 India's real estate sector is estimated to have a

total supply pipeline of close to 3.6 billion sq.ft
lined up for completion in the year 2013, with
about 98 per cent of this being concentrated in the
residential segment.
It is expected to generate over 17 million
employment opportunities across the country by
2025, thereby making a significant contribution to
the GDP
The
total
economic
footprint
generated
by
construction of this real estate pipeline will
require a total investment of about Rs 254,000
crore adding that it will help generate revenues
worth Rs 370,000crore and provide jobs to about 7.6
million people across the country in 2013.

Investment destinations in
India

Government Initiatives
According to the existing FDI policy, 100 per
cent FDI in the construction development
sector is permitted through the automatic
route.
Department of Industrial Policy and Promotion
(DIPP) is looking at relaxing FDI norms
further to encourage investment.
DIPP also proposed a reduction in the minimum
capitalization for wholly-owned subsidiaries
from US$ 10 million to US$ 5 million, and
from US$ 5 million to US$ 2.5 million for
joint ventures with Indian partners.

 One of the major initiatives of the

Ministry of Housing and Urban Poverty
Alleviation
(MHUPA)
is
to
provide
affordable
housing
for
poor
people
living in urban areas.
India needs to invest US$ 1.2 trillion
over next 20 years to modernize urban
infrastructure and keep pace with the
burgeoning urbanization, as per a report
(India's urban awakening) released by
McKinsey Global Institute (MGI).

 The Jawaharlal Nehru National Urban Renewal Mission

(JNNURM) is one its flagship schemes, a reform
driven investment programme which started with the
objective of creating economically productive,
efficient, responsive and inclusive cities.
The Real Estate (Regulation and Development) Bill,
2013, as approved by the Union Cabinet is a
pioneering initiative aimed at delivering a uniform
regulatory environment to protect the consumer,
help in quick verdicts of disputes and ensure
systematic growth of the sector.

Top 10 Indian
competitors

DLF Ltd.
Jaypee Infratech Ltd.
Oberoi Realty
Ansal Properties & Infrastructure Ltd.
Parsvnath Developers Ltd.
Unitech
Merlin Group
Godrej Properties
Omaxe Ltd.
DB Realty

Industry Segmentation
Construction sector can be broadly classified into 2
sub-segments:
Real estate

Residential

Commercial/Corporate

Industrial

Special Economic Zones

Infrastructure

Transportation

Urban development

Utilities)

Indian Construction Industry

Landscape

The Real Estate segment contributes

around 24% to the Construction GDP of
India while Infrastructure segment
contributes around 76%.

Real Estate Sector

The contribution of thereal estate sector to
India'sGDPhas been estimated at 6.3 per cent
in 2013
The segment is expected to generate 7.6 million
jobs in the same period.
India's real estate sector is estimated to have
a total supply pipeline of close to 3.6 billion
sq.ft. lined up for completion in the year
2013, with about 98 per cent of this being
concentrated in the residential segment.
Source: CBRE report

The potential for development and growth in the real

estate sector is tremendous. It is expected to generate
over

17

country

million
by

employment

2025,

opportunities

thereby

making

across

the

significant

contribution to the GDP

The sector has been growing at a CAGR of 12%. It is

constituted

of

the

Residential,

Commercial

and

real

estate activities of Special Economic Zones.

The total economic footprint generated by construction

of

this

real

estate

pipeline

will

require

total

investment of about Rs 254,000 crore, it said, adding

that it will help generate revenues worth Rs 370,000
crore.
Source: CBRE report

Real Estate Segments

The
Indian
real
estate sector can
be classified into
two
major
categories;
Residential
Non-Residential

Office
Hospitality
Industrial (SEZ)
Retail
Malls and Multiplexes
Standalone outlets

Real Estate Segments

The Commercial/Retail sector still occupies a very small pie in

the big scenario of Real Estate in India with a measly 8-9%
While Residential commands the biggest pie of the lot with 82%.
The reasons for this can be :
Rising Urbanisation in India
Growth Drivers
* Increasing working age population (Almost 64% in 16-64 age
group)
* Increasing income levels: Average salary levels increased by
13.5% in 2005
* Easier access to mortgage, long tenure loans and tax
incentives
Market Structure
* Highly fragmented and unorganized
* Regional players are expanding to achieve a Pan-India
presence

Residential Segment Scenario

The shortage of
housing across
several states,
as illustrated
in the graph,
amounts
to
about
25
million houses
in the period
of the Eleventh
Five Year Plan.

We can infer that

housing
shortage
during the 11th plan
period including the
backlog is estimated
at 26.53 Mn.
As per the Ministry
of Housing & Urban
Poverty Alleviation,
around 97% of the
total
housing
requirement (25.73 mn
units)
is
required
for
poor
and
low
income households in
urban areas.

Demand drivers for Residential

Sector
Favourable demographics
Second highest populated country in the world after
China.
Average age of Indians is 26 years.
The demographic profile indicates that India's
working population forms around 61% of the total
population.
Youngest countries in the world
Strong economic growth led to sharp income
generation, which led to rise in middle class
segment.
Around 260 million persons in the middle class
segment.
Robust macro-economic scenario

 Majority of the population (around 57%) as of

2009 is estimated to fall under 30 years of age,
of which nearly 30% is male population and the
rest constitutes females. This trend is expected
to continue in the near future, with nearly 52%
of the total population anticipated to fall
under 30 years of age by 2020.

Urbanisation and Migration

The decadal growth rate of urban population (20%
between 1991-2001) in India is higher than the rural
population (18% during the same period).
Average annual rate of change (AARC) of the total
population in India during 2000-2005 is estimated at
1.41% with 2.81% for urban and 0.82% for rural
sectors.
AARC for urban areas by 2025 will increase to 2.25%
whereas the AARC for rural population will decline to
-0.4% showing a clear shift of population from rural
to urban areas
Average household size has been estimated by the
National Sample Survey Organisation as being around
4.47 in urban areas and only 67% of the houses are
pucca units.
Investment over the long term will be primarily led
by housing, which is expected to account for nearly
90% of the total real estate sector.

Commercial/Retail Construction

The rapid growth of the Indian economy has had a significant

impact on the demand for commercial
property to meet the
needs of business, by way of offices, warehouses, hotels and
retail shopping centres. Growth in commercial office space
requirement is led by the burgeoning outsourcing and
information technology (IT) industry and organised retail.

Size of
Commercial/Retail
Construction

Commercial Office
Space Absorption by
location

Demand drivers for

Commercial/Retail Sector
Sharp growth in organised retailing
At the moment, commercial real estate market is facing
tough times, with office space absorption across India's
seven largest cities dropped to 12%.
The

trend

quarters,

is
with

likely

to

absorption

continue
of

office

for

the

space

next

expected

few
to

drop by 10-15% for 2014 due to lower demand from the

information technology sector.

 Demand from IT/ITES sector has dropped from the

peak of 68% in 2005 to 35% at present due to
increasing cost pressures faced by these firms.
But organised retail, is expected to grow at
over 20% in the next few years, and is likely
to drive demand in the commercial real estate
sector.
With the new growth avenues in IT/ITES sector
providing

growth

investments

in

expected

grow

to

at

30%

commercial
faster

annually
Construction

than

investments

the
are
in

housing mainly due to the spurt in office space

construction driven by IT/ITES industry.

Special Economic Zones

Infrastructure related to SEZs is of two
types:
1. Facilitating internal functioning of SEZs (power
generation plants and distribution network, internal
water supply, sanitation and sewerage, and internal
roads) with direct implications on productivity;
2. Linking SEZs with non-SEZs through a supply chain
(railway

tracks,

roads

and

bridges,

airport

facilities, telephone lines and telecom network).

Geographical Distribution

South India is ahead of other regions in taking

advantage of the tax-free special economic
zones scheme as 91 of 143 operational SEZs are
located in the four southern states.

 Andhra Pradesh leads with a maximum number of

36 operational SEZs followed by Tamil Nadu
(28), Karnataka (20) and Kerala (7), according
to latest government data.
The sector-wise data shows that out of 143
operational SEZs a significant majority relate
to IT/ITES and electronic hardware.
One

of

the

reasons

for

the

rush

of

these

sectors in SEZs was stated to be the sunset

clause

on

earlier

schemes

like

Technology Parks of India (STPI).

Software

Status wise SEZs in INDIA

Over

the

Indian

next

five

Industry

additions,

led

years,

will
by

growth

in

be

driven

by

strong

growth

in

investments
strong

demand

in

capacity
and

high

existing operating rates. Special Economic Zones (SEZs)

will be at the forefront of this growth.

According

to

the

Ministry

of

External

Affairs3,

in

addition to seven Central Government SEZs and twelve

State/private-sector SEZs set up prior to the enactment
of the SEZ Act 2005, formal approval has been accorded
to

587

proposals

notified.

out

of

which

381

SEZs

have

been

Growth Drivers

Regulatory Framework

Real
Estate

KPIs of Real Estate

Key Performance Indicators

Residential Lots Sales
It measures the number of residential lots sold in a
period.
Commercial Tract Sales
It measures the number of commercial Tract sold in a
period.
Revenue per square meter sold
Revenue earned per square meter sold
Revenue per client
Measures the average revenue generated by customer or
client serviced.
Properties sold per real estate agent
Measures the average properties sold per real estate
agent.
% Commission Margin
Measures the value of the sales commission express as a
percentage from the sales completed.
Number of Projects

COMMERCIAL PROPERTY MANAGEMENT KPIs

Annual return on
investment in
percentage

Construction/purch
aser rate: New
constructed or
purchased units
over time

Cost per square

foot

Equity value growth

in percentage

Lease events
coverage ratio:
Number of lease
inquiries over
number of available
units

Management
efficiency: Number
of leased spaces
over number of
staf

COMMERCIAL PROPERTY MANAGEMENT KPIs

Monthly return
on investment
as percentage

Occupancy cost:
Cost per
occupied unit

Operation cost
to rent income
ratio

Percentage of
rent collected

Price to income
as percentage

Market rental
demands

COMMERCIAL PROPERTY MANAGEMENT KPIs

Renting cost:
Renting cost per
square foot

Revenue per
square foot

Renting return on
investment: Rent
income over cost

Market share
growth

Rental value
growth rate ROI

Utilization
(vacancy) rate:
Rented square feet
over total square
feet, or rented
units over total
units

% Net Profit Margin

Measures how much profit a company makes.
Indicating the operational efficiency and the
entity's ability to control costs and its
pricing policy.

Market Share
Its the scorecard. You might have increased
your sales by 20% last year, but the rest of the
market could have increased by 40% in
which case, youve really gone backwards.
Quarterly reviews are good enough, market
share is hard to shift. Significant increases
normally come with significant change - which
takes time.


Net Asset Value

Net Asset Value is a key measure for

real estate companies. The most
common definition is;
Net Asset Value = Assets less all
liabilities (except equity) adding
back any deferred tax for
revaluation gains and showing debt
at historic cost

Competitive Dynamics of Real Estate

 Real Estate Sector is a high cost sector

The sector is fraught with high precedence of
entry barriers
Regulatory barriers
Financial risk
High capital cost of entry
Marketing entry barriers
Technical entry barriers
Economies of scale

 Mumbai, Delhi-National Capital Region (NCR)

and Bangalore cater for 46 per cent of total
office space demand in India. This demand is
expected to be rise sharply in Tier II cities
such as Kolkata and Chennai in the period
201014.
Today, Delhi-NCR accounts for about 30 per
cent of the total mall supply in India. About
53 per cent of demand for total mall space is
projected to come from the countrys top seven
cities, namely Delhi-NCR, Bangalore , Mumbai,
Kolkata, Pune, Hyderabad, and Chennai, in the
period 20102014.

International players who have made a name for

themselves in India include

Hines
Tishman Speyer
Emaar Properties
Ascendas
Capitaland
Portman Holdings
Homex

Price Fluctuations across

Cities

Porter Five Forces Analysis

Application Of Porters 5 Forces

Model To Indian Real Estate
The analysis of 5 Forces model has
been done to determine whether the
Indian Real Estate sector will
remain profitable in the years to
come
It is important to consider the
impact of the Euro zone Crisis as
well as the Subprime Crisis

Threat Of New Entrants

There will be decrease in profitability due to
increase in the number of entrants.
As a result of the economic downturn around
the globe, it has been difficult for the new
entrants to get a hold because of cost
reduction in expansion plans by corporates in
real estate, little scope in commercial
construction, and strong rivalry between
existing firms.
Result: Relatively weak threat of new entrants

Bargaining Power Of Buyers

Powerful customers are able to exert
pressure to drive down prices, or
increase the required quality for the
same price, and therefore reduce profits
in an industry.
Customers significantly influence the
business operations in real estate.
Customers do possess a threat of
integrating backwards.
Consequently, the bargaining power of
the buyers is strong.

Bargaining Power Of Suppliers

An important category of suppliers is the
bank. They have the power to decide whether
to fund a venture or not and at what rate.
Banks have now become highly conservative
especially after the economic downturn.
Are significantly affected by the monetary
regulations like the Repo rate & CRR
formulated by the Central Bank of the
country. This is in turn affects the real
estate sector.
Consequently the bargaining power of
suppliers is very strong

Threat Of Substitute Products

And Services
In real estate business, substitute
might be some type of totally new retail
space, some new location for office
space or rehabilitation instead of new
construction.
The threat of substitute in real estate
business and its impact on profitability
of the industry is quite ambiguous and
difficult to establish given the
economic downturns and the recovery mode
of the real estate business cycle.

Rivalry Among Existing

Competitors
Rivalry is strong due to the large no. of
real estate firms operating in India (65 in
total) and the difficulty to differentiate
The services offered by real estate
companies cannot be differentiated because
these firms dont offer a product, other
than the facilities they lease and this
itself is very difficult to quantify.
In the current economic crisis, there is
minimal profitability and only companies
with large cash reserves are likely to
survive.

Analysis
Considering all the 5 forces, it can be
said that the real estate industry is not
very profitable at this stage as it was
before the subprime crisis of US in 2008
But considering the fact that the real
estate cycle is in the recovery stage
right now and given that the demand for
real estate is growing at a CAGR of 19%,
it can be said that there are still
bright prospects ahead in a country like
India.

Differentiation Strategy
20:80 Scheme

With sales drying up, developers are

attempting to lure homebuyers through the
lucrative 20:80 home loan scheme.

It involves the buyer having to just pay

just 20% of the total amount up front, and put
in the remaining 80% after getting possession.

Sr. No

State

Stamp Duty

Andhra Pradesh

8%

Gujarat

8% and 6% rural

Bihar

5%

Haryana

8% and 6% rural

Himachal Pradesh

5%

Karnataka

8%

Madhya Pradesh

10%

Kerala

13.5% and 10% rural

Maharashtra

5%

10

Odishha

11%

11

Punjab

8%

12

Rajasthan

7%

13

Tamil Nadu

8%

14

Uttar Pradesh

10%

15

Uttaranchal

10%

Source- www.cci.in

Waiver
Some builders waive Stamp duty charges in
order to attract buyers.
Charges are around 4% to 8% of total price.
Offering Small Flats
Instead of 2/3 BHK flats now to lure potential
flat owners by building 1 BHK flats.
Small flats are which most of the middle class
can afford.

 Free Gifts
Some realtors offer free gifts such as
coin , cars.
Gifts also include foreign tours.

gold

Early Bird
Early investors can avail of discounts.
Most real estate projects are developed in
phases.
Even before the basic approvals are in
place, developers start marketing projects to
brokers and some buyers at a discount.

Soft Launch

Developers offer 10% to 20% discount to

attract buyers and generate cash-flow.
Investors can earn quick profit by flipping
after the projects formal launch.
Brokers use pre-launches to offer clients a
lower rate.
For soft-launch sale, the builder signs an
agreement with the buyer to sell at a later
date. The final terms and conditions of sale
may not be clear at this stage.

Real Estate Scenario in MMR

The MMR (Mumbai Metropolitan Region)
There is huge latent demand but exorbitant
prices make property unaffordable for most
buyers.
The price level here is way above the average
price level of India but the annual
acceleration is not very steep; in fact, it
has been almost stagnant for quite some time.
The realty cycle in MMR follows a long drawn
pattern and has a low theta (angle of
correction)

 After that, the MMR market with sky-high price

levels and declining sales velocity was
considered an unproductive arena and the funds
inflow reduced.
By sales velocity , the ratio between monthly
sales and total supply.
The price rise after this, though persistent,
has been comparatively slow.
It is also interesting to note that even after
a slow growth rate of prices, the pace of offtake has been slowing.

Real Estate Scenario in NCR

NCR (National Capital Region, which includes
New Delhi), on the other hand, is an entirely
investor-driven market.
A lot of property is being sold in sectors
which may remain uninhabitable for a long
time.
The price rise post FY 2010-11 continued to be
sharp and persists even today.
After touching the threshold of 27 percent
year-on-year in the second quarter of FY 201213, the growth rate has started to peter out.
One can already see the correction in the
secondary market in NCR.

Critical Success Factors

Brand
Equity

Utilities

Real
Estate

Governmen
t
Regulatio
n

Easy
access to
finance

Brand Equity
According to report by Jones Lang-lasalle the
outlook of Indian real estate industry is
positive.
People perceive it worthy to invest in real
estate properties now and are increasingly
going for properties owned by branded
companies.
Reduction in frauds due to computerized
registration process has helped build customer
confidence.

Easy Access to Finance

Easy access to housing loans with flexible
interest payment options.
Financing for homes is done by large
commercial banks as well as credit unions and
co-operative societies.
Application and processing fees for loan has
drastically

come down.

Government Regulations
Reduction in stamp-duty and registration
charges has helped industry to grow.
Computerization of legal procedures from
government authorities

Utilities

Basic utilities like availability of

water
electricity
infrastructure
alternative power resources
have been critical for the real estate
industry.

Regulation that effect the

industry

Government initiatives
FDI of 100 percent in township, housing,
built-up infrastructure and construction
development projects to increase investments,
economic activity, employment opportunity
Ministry of housing & Urban poverty
Alleviation Single window system clearance
which decreases approval time from 196 days to
45-60 days
Government of India has sanctioned projects
worth Rs 41,723 crore for building 1,569,000
houses/dwelling units for weaker / low income
groups
Housing finance are becoming feasible with
housing loans limit being raised to US $52080
for priority sector lending

Regulations for NRI to invest in Real

Estate
Development of services plots and construction
of built up residential premises.
Investment in real estate covering construction
of residential and commercial premises
including business centers and offices
Development of townships.
city and regional level urban infrastructure
facilities, including both roads and bridges
Investment in manufacture of building
materials.
Investment in participatory ventures
Investment in housing finance institutions.

Initiatives taken in the Union Budget 201314

For homes and flats with area of 2,000

square feet or more or of value of Rs
1 crore or more, which are high end
construction, rate of abatement reduced
from 75 to 70 percent
Rs 6,000 crore were given to Rural
Housing Fund
National Housing Bank plans to set up
Urban Housing Fund, Rs 2,000 crore will
be provided to the fund in the current
financial year

Laws and Regulatory Authority

The Real Estate (regulation and Development)
Bill, 2013 approved on June 4, 2013.
This Bill aimed to create a Real Estate
Regulatory Authority and an Appellate Tribunal
Act as a watchdog for the housing sector,
primarily towards protecting consumer interests
while creating an alternative redress mechanism
for any disputes that may arise.
Till recent 2012, up to a certain percentage,
local corporation can bring about changes in
the regulatory within its geographical limits.

Major Highlights of Real Estate

Bill,2013

Prior approval before launch and

advertisement

provisions restricting launch of

projects or advertisements unless all
approvals are received
All the agents are not expected to
facilitate the sale of immovable
property which are not registered with
the Authority
To maintain books of accounts, records
and documents.

Mandatory deposits of fund

promoters to deposit 70 per cent or
such lesser percent as notified by the
government
to cover the construction cost of the
project of funds in a separate bank
account
to ensure timely completion and prevent
fund diversion.

Registration of real estate project and

real estate agent
mandatory registration of real-estate
projects and real-estate agents with the
Authority
except when the land proposed to be developed
is less than 1000 square meters
provide another level of protection to buyers
preventing concerns regarding money
laundering by the non-organised broker
community.

Disclosing of mandatory information

disclose material information such
as details of the promoters,
project, layout plan,
plan of development works, land
status, carpetarea and number of
the apartments booked, status of the
statutory approvals
disclosure of proforma agreements,
names and addresses of the real
estate agents, contractors,
architect,structural engineer etc
on the Authority's website

Restriction on taking advance

Prohibition on taking more than
ten percent as advance from the
buyers without a written
agreement
Developers/ agents are required to
refund to buyers the full amount
in case of delay of projects.

Liability/ Penalty
Civil and criminal liability for the
contravention of various provisions of
theBill.
Imprisonment up to three years or a penalty up
to ten per cent of the estimated cost of the
real estateproject For projecting out
misleading information in advertisements or
prospectus

Real estate regulatory authority

The Bill give the power to establish one or
more Real Estate Regulatory Authority in each
State/UT
appoint adjudicating officers to settle
disputes between parties, and to impose
penalty and interest

Investments
Private Equity(PE) investments in real estate
investment, revels that approximately Rs
118.54 billion is available with PE to be
deployed in real estate, even though a drop in
PE investment in the first half of 2013
PE investment in
residential sector Rs 9.3 billion, in 2013
Office segment Rs 7 billion, in 2013
Ready office space Rs 77.05 billion in last
three years

 Region wise investment in 2013

Pune Rs 7.8 billion
Mumbai- Rs 4 billion
NCR - Rs 2.3 billion
Bangalore Rs 1 billion
Mr. Akhilesh yadav, Chief minister
of UP has inaugurated and laid the
fountain of development projects
worth Rs 3,337 crore pertaining to
Noida, Greater Noida and Yamuna
Expressway

 Ashiana Housing Ltd plans to foray into

Gujarats real estate with first project worth
Rs 100 Crore at Halol.
Wave Infratech plans to invest Rs 500 crore in
Delhi national Capital region(NCR) area.

Some Major Investments

Godrej Properties Ltd plans to invest US$ 1.44 billion in

15 new real estate projects in India over the next 10
years.
NRI billionaire Mr. Ravi Pillai plans to purchase stake
worth about US$ 100 in a special purpose vehicle floated
by Pune-based realtor, Panchshil Realty. The investment
will go into the construction of Trump Towers and World
Trade Centre in Pune, Maharashtra.
Infrastructure Leasing & Financial Services (IL&FS) Ltd
has claimed a project worth Rs 244.46 crore (US$ 39.17
million) from realty firm Emaar MGF for construction work
at the latters residential project at Gurgaon, Haryana.
French luxury hotel chain Sofitel, which is managed by
Accor Group, is targeting 10 properties in India, mainly
in major luxury destinations, in the next few years.
One of the worlds top manufacturers of elevators, USbased Otis, is setting its sights on the Indian real
estate market. The company will be working with the Delhi
and Hyderabad Metro projects. The former has placed an
Source:
www.businesstoday.i
order for 222 escalators for its Phase
III project,

Mergers & Acquisition

Mahindra Life Space Developers has bought the
stake of private equity Arch Capital in its
joint venture residential project at Chennai
for around Rs 70crore
Godrej Properties Ltd(GPL) has signed a
development management agreement with United
Oxygen Company Pvt. Ltd to develop residential
housing project in Bangalore for approximately
1,000,000 Sq.ft developed as residential
housing project.

Target

Acquirer

Value($ million)

Year

Caraf Builders

DLF Assets Ltd

696.5

2009

Cowtown Land
Development Pvt
Ltd

Lodha Group

513.6

2011

Compact Disc Film

city

Jef Morgan

320

2011

Oceanus Real
Estate

Warburg Pincus

318

2011

Indiabulls
Properties Pvt Ltd

Indiabulls
Property Invest
Trust

223.1

2012

Embassy Property

Blackstone

200

2012

Joint Ventures
Laing O'Rourke(50:50 JV) is a UK based
construction company. It will construct all
DLF's landmark projects
Nakheel of Dubai are partnering with DLF for
developing townships in India.
WSP GroupPlc (50:50 JV)is also partnering
DLF, providing management and consultancy to
the built and natural environment.
Ventures is providing consultancy for faster
project execution
DLF has teamed up with Hilton Hotels to
jointly develop hotels in India.

Exits
In 2013, July DLF has sold 74 percent
stake in the life Insurance joint venture
with U.S based Prudential International
Insurance Holding Ltd to Dewan housing
Finance Corp.

New entrants
Large number of small new entrant are seen
in the last couple years because of the
huge profitability in this sector and
related

sector.

Cost & Profitability Margin

Cost
The cost of property in the real estate industry
includes the various types of costs involved in
the transaction and is not just restricted to the
transaction value of the property
The three main components of cost in this industry
are:
Transaction Costs: Duties and fees and other
charges to complete the transaction
Finance Cost: Application fee, processing fee,
pre-EMI (Equated Monthly Payment) costs and
expenses other than interest and EMI expenses
involved in obtaining a loan for the
transaction.
Cost of land, construction of property and other
development charges.

Analysis of various costs

Expenses as a % of
Particulars
Raw Materials Expenses
Compensation to
employees
Advertising expenses
Marketing Expenses
Interest expenses
Others Expenses

total income of real estate

FY companies
08
FY 09
FY 10
FY 11
FY 12
11.19

13.47

16.75

14.59

18.41

3.27
0.87
0.79
9.83
36.19

4.81
1.25
0.83
25.07
22.98

4.49
0.8
0.71
22.67
30.27

4.57
1.04
0.92
23.19
33.59

4.93
0.76
0.67
26.64
34.69

Expenses as a % of total income of real estate companies

40
30
Percentage 20
10
0
FY 08

Raw Materials
Expenses
Advertising
expenses
Interest Expenses

Financial Year

Compensation to
employees
Marketing
Expenses
Others Expenses

Raw material expenses

One of the major cost
in
the
real
estate
industry.
The raw material costs
have been increasing
due
to
raising
inflation
Increase in the demand
for the raw materials
has led to hoarding of
these raw materials by
the suppliers

Raw Materials Expenses

18.41

11.19

13.47
14.59
16.75

FY
FY
FY
FY
FY

08
09
10
11
12

Compensation to employees
The labour costs are
involved in the phase
of construction
Due
to
govt.
regulations of minimum
wages,
the
labour
costs have increased.
The demand for the
labour is also another
reason
for
the
increase in the wage
costs.

Compensation to employees
4.93

3.27

4.81
4.57
4.49

FY
FY
FY
FY
FY

08
09
10
11
12

Marketing expenses
The
marketing
costs
involves
the
selling
&
advertising expenses of the
real estate industry.
These costs are not very
high, but still the amount
spent
on
the
marketing
forms a part of the costs
involved in the real estate
project.
These
costs
include
the
advertisement expenses in
the newspaper, television,
maintaining websites etc.

Advertising expenses
0.76

0.87

1.04
1.25
0.8

FY
FY
FY
FY
FY

08
09
10
11
12

Interest Expenses
This is a major part of the cost in
this industry.
Since the capital required is high,
Loan is a major form of financing
option for the real estate industry.

Interest Expenses
9.83
26.64

Due to rising inflation and interest

rate hikes by the RBI, the interest
expense on these loans have been
increasing.
The costs involved in these includes
application fee, processing fee, preEMI costs and expenses other than
interest and EMI expenses involved
in obtaining a loan for the
transaction.

FY
FY
25.07
FY
FY
FY

23.19
22.67

08
09
10
11
12

Other Expenses
This includes various
commission, brokerage
fees paid to the agents.
It also includes various
machineries, insurance,
unforeseen expenses
It also includes various
stamp duty charges,
taxes, pre acquisition
costs, legal fees,
planning costs et al.
which are statutory in
nature

Others Expenses
34.69

36.19

22.98

33.59
30.27

FY
FY
FY
FY
FY

08
09
10
11
12

Profitability

REVENUE
The revenue factor is one of the most important factor while
ascertaining the profitability.
In the real estate sector, as is shown in the below graph, the
sales of the FY 08 was up by 82.38%.
This was during the boom period of the real estate sector
worldwide.
There was cheaper financing option and also the demand was high.
But since the 2008 real estate bubble burst, the sales in the FY
09 saw a negative growth in sales.
It is still in the recovery phase and the sales in the FY 12
increased by 23.39% compared to FY 11

Revenue

100.00%
50.00%
Percentage
0.00%
-50.00%

FY 08

FY 09

FY 10

FY 11

FY 12

Net Profit

The net profit shows the actual profits earned by the industry
after taxes and interest
The net profit in the FY 08 was up by 132.82% compared to FY 07
But due to the effect of real estate bubble burst, the industry
saw a negative profits for the next three years from FY 09 to
FY 11.
It was only in FY 12 that the industry posted profit
Another main reason for the decrease in profits is the high
inflation which is leading to higher operating costs.
The financing costs is also on raise which is again impacting
the overall profits of the industry
The DBS report forecasts a good financial performance (profits)
in the coming years FY 13 to FY 17

Net Profit
150.00%
100.00%
Percentage

50.00%
0.00%
-50.00%
-100.00%

FY 08

FY 09

FY 10

FY 11

FY 12

EBITDA

EBITDA is also one of the main criteria that is looked into to

ascertain the profitability of the industry.
It helps to meaningfully evaluate and compare the cash flow
generating capacity from quarter to quarter and year to year.
In this industry, the EBITDA margin is decreasing at greater
pace since FY 09
This may be the result of high raw material costs which is
hampering the operational effectiveness in terms of cost.
The raise in inflation and also the problems in supply side for
raw materials such as hoarding, strikes et al, has been a major
factor for the decline in the EBITDA margin

EBITDA Margin
80.00%
60.00%
Percentage 40.00%
20.00%
0.00%

FY08

FY09

FY10

FY11

FY12

Future Outlook

Future Outlook
Real estate is reaching a point of saturation in
developed countries and the demand and prices are falling
Global real estate players are looking at emerging
economies such as India for their investments
The Indian retail realty sector is projected to grow at
around 15 per cent year-on-year over the next 35 years.
If the sector does indeed manage the aforementioned
growth, it will touch Rs. 34 trillion (US$ 544.73
billion) by 2016.
The construction development sector, including townships,
housing and built-up infrastructure garnered total FDI
worth US$ 22,671.95 million in the period April 2000
August 2013.
Demand for space from sectors such as education,
healthcare and tourism has opened up opportunities in the
real estate sector.
Tier-3 cities like Surat, Lucknow et al, are beckoning
real estate players

Education Sector

The entry of major private players in the education

sector has created vast opportunities for the real estate
sector
The top seven cities i.e. Hyderabad, Bengaluru, Mumbai,
Delhi, Pune, Chennai and Kolkata are likely to account
for 70 per cent of total demand for real estate in the
education sector
NCR is expected to have the highest incremental demand
from the education sector
The rising young population of India is expected to drive
this space

Tourism Sector

Foreign tourist arrivals in India are expected to rise

a CAGR of 10.5 per cent during 2012-15
The number of foreign tourists arriving in the country
expected to be over 8.9 million by 2015
The number of hotel rooms in India as of 2011 stood
121,000
The number of hotel beds in the country is expected
increase to 443,000 by 2015 from the current capacity
262,000

at
is
at
to
of

Southern states offer significant

investment opportunities

The southern
Indian States Andhra Pradesh, Tamil Nadu and
Karnataka - have been the major
drivers of economic growth in
India.
The three states together account
for about 22 per cent of Indias
GDP
Nearly 45 per cent of Indias
office stock is represented by
these states; over 64 per cent of
the countrys IT SEZs are housed
in this region
Office stock projected to grow at
a CAGR of 8 per cent between 2014
and 2017
A growing migrant population due
to increasing job opportunities,
together
with
healthy
infrastructure
development,
is
underpinning
demand
in
the

Healthcare Sector
The healthcare sector is estimated to
grow at the rate of 15% per annum from
2013-16
This means that India is expected to
need additional 950,000 beds.
This has provided a great source of
opportunity for the real estate
industry and the investment towards
this is expected to be around $50 Bn
over a period of 10 years.

Key Challenges Ahead

Lack of clear land titles

Absence of title insurance
Absence of industry status
Lack of adequate sources of
finance
Shortage of labour
Rising manpower and material
costs
Approvals and procedural
difficulties
Source: www.ibef.com

Key Challenges Ahead

Need of improved delivery and project
execution
Lack of consistency in rules relating to
development of SEZs
Increased monitoring of sector by regulatory
agencies
Tightening of rules for lending to the real
estate sector
Fluctuations in key rates by RBI several
times
No incentives for R&D for developing new
building materials, low cost techniques etc.
High interest rates and fluctuating currency
Source: www.ibef.com

Recommendations
Putting in place a single window clearance
system
Evolving a rational structure on payment of
stamp duties for sale and purchase of land
and properties
Revision in limit of interest deduction on
housing loan of Rs 1.5 lakhs to five lakhs.
Easing the FDI policies in realty sector
The Indian real estate sector promises to be
a
lucrative
destination
for
foreign
investors into the country.

Recommendations
The Indian realty sector, if channelized properly,
could lead to the growth of several other sectors
in India through its backward and forward linkages.

Maturity of the real estate markets will lead to

infusion of foreign investment and adoption of
international
best
practices
by
real
estate
players.

Considering the growth of the industry and the

opportunities in it, we see that there is a great
chance to attract global players to India which
would lead to more matured, better utilization of
techniques in the sector

References
(August 2012). Real Estate Sector in
India. New Delhi: Competition
Corporation of India (CCI)
http://www.cci.in/pdf/surveys_reports/re
al-estate-sector-india.pdf
Warren, A. (September 14,2012). Global
Real Estate Trends. Toronto: Scotia Bank
http://www.gbm.scotiabank.com/English/bn
s_econ/retrends.pdf
Porter, M. E. (June 2002). Competitive
Strategy and Real Estate Development.
Harvard Business School , 9.
http://www.isc.hbs.edu/Porter_Strategy_R

Thank You