REPORT ON INTERNSHIP PROJECT AT MAANYA VENTURES & DEVELOPERS

Indian Property Bubble

The Indian Real estate sector is one of the most globally recognized sector across
the globe. In India Real estate sector is the second largest employment giving sector
after Agriculture and is stated to grow 30 percent over the next decade.

Indian Real estate sector comprises four sub-sectors Housing, Retail, Hospitality and
Commercial. And the growth of all these sectors are majorly interlinked with the growth
of Corporate Environment and also because of the demand for Office space as well as
Urban and Rural accommodations. The Constructions Industry ranks third among the
14 major sectors in terms of direct, indirect and induced effects in all the sectors of the
economy. Indian Real estate sector is also expected to incur more Non-resident Indian
(NRI) investments in both the short and in long term. The most favored property
Investments destinations for NRI’s in India is Bengaluru followed by the cities like
Ahmedabad, Pune, Chennai and Goa.

India reached 40th position among 57 International markets in Global House Price Index
with 3.3% in Q1 of 2018.Indian Real estate is expected 5-7% rental growth for office
assets in tech cities over FY19-FY20.In Indian Real estate Scenario where hundreds of
thousands projects are either stalled or delayed , leading to big slowdown in home sales.

The huge trust deficit between developers and property buyers is a key reason for the
slump in property sales. And even the big real estate giant like DLF Limited has
announced it will adopt the business model of first constructing and then selling.

While in Global reality we can say that this real estate marketing model is vogue for
years. Our Indian Real estate sector has been following the model of selling under
construction property to buyers.

But in 2006, The Indian Real estate sector was passing through a golden period and
property prices and demand were at an all-time high. But the 2008, recession made Real
estate builders think twice before investing, several changes were faced such as drying
up of fund in banks, stock market crashes, currency crisis and large scale job loss.

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The higher income group put off plans for investments in real estate. As a result the
demand of housing went down and developers struggled to find buyers and tenants for
the overpriced properties. They were eventually forced to sell the stock at a loss.

The Real estate market in India has been on a high for the last decade and as per simple
law of gravity or law of economics “What goes up must come down”. Though the
market was slowing down during recession of 2008 but the economist experts were still
optimist that the market will eventually consolidate. It will be more stable market. In
the long term, strong demand for Real estate in India will remain intact and will see us
through another real estate boom.

Goods and Service Tax on Real Estate.

Before the implementation GST the real estate industry was levied were like VAT,
Octroi or the local bodies tax. But with the implementation of GST on properties will
change the whole scenario of real estate in coming days. Before GST implementation
the VAT were 4 per cent in Bengaluru and in Mumbai it was 1 per cent, where total
taxation on properties was 15.2 per cent in Bengaluru whereas in Mumbai it was 11.5
per cent.

Under with GST coming into picture the tax regime on various construction materials
are under 18 to 28 percent slab.(Steel-18,Cement-28, Marble & Granite 28 percent etc.)

Residential Construction services will invite GST as the rate of 12 per cent which will
apply developers selling residential units before completion of construction to the home
buyers.

Under old tax regime developers used to pass on the transaction cost VAT (1 per cent)
and Service tax (4-5 per cent) to buyers (total 5-6 percent).

But in the GST regime, the transaction cost increases to 12 % with input credit available
on both services and materials. If developers pass on the input credit to buyers the
property price increase could be restricted to 1-2 per cent.

If the developers pass on the credits completely and bring down the base prices, then
home buyers may marginally benefit under the GST regime. But the tax benefit will be
hard to calculate or justify. Only the market forces will determine the as the material
input are volatile in nature.

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Government directs builders not to charge GST on affordable housing.

The Government on Feb 7 2018, asked builders not to charge any goods and services
tax from home buyers, as the effective GST rate on almost all affordable housing
projects is 8 per cent , which can be adjusted against the input credit.

It said builders can buy GST on buyers of affordable housing projects, only if they
reduce the apartment prices after factoring in the credit claimed on inputs.

Impact of GST on property prices -Luxury Segment

In the case of a premium properties, while the basic construction cost may come down
a little, but as the input tax credit is limited to 12 per cent, it will not be sufficient to
bring down the fresh tax liability to nil because of the taxes paid on the other
expenditures.

Bengaluru housing market on an Upswing.

Demonetization and the GST may have brought the country’s real estate sector to its
knees, but the near 12 month high stock prices of some of Bengaluru’s realty
developer’s offers a sense of optimism. Also while developers in other large
Metropolitan cities shrunk home sizes due to skyrocketing prices, but in Bengaluru
home sizes remained same (mostly unaffected)while average home size in most large
cities decreased by 12-21% last year. But in Bengaluru the reduction was a mere 2%.

Housing sales stood at 11,500 units in Bengaluru during Jan-Mar 2018 in comparison
to 3800 units in Hyderabad and 2300 units in Chennai. Bengaluru has emerged as the
front-runner in South India’s property market with housing demand and supply in the
city being higher than Hyderabad and Chennai during Q1.

Bengaluru witnessed increased demand for housing properties from IT-ITES sector and
start-ups. Even at a pan India level, Bengaluru’s residential market is currently only
second to the Mumbai Metropolitan Region (MMR) in terms of supply and absorption
for Q1 of the 2018 calendar year.

Rise in Sentiment

People who were in wait-and-watch mode, have now actively returned to the market on
the back of “overall sentiment upsurge”. Increased commercial activity, buyer

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sentiments, infrastructure upgrades and improved job opportunities in the city have
given a major fillip to Bengaluru’s housing market.

Housing supply in Bengaluru jumped over two fold to 6800 units in Jan-Mar 2018 from
3000 units in Q4 2017. “Unsold housing stock in the city declined by nearly 5 per cent
from 96,000 units in Q4 2017 to 91,000 units in Q1 2018.

Even the price have seen a marginal increase of 1 per cent from Q4 2017 to Q1 2018.
Currently property prices in Bengaluru being Rs 4850/sqft. Bengaluru is also home to
several mid-level IT professionals who have added to the demand for mid segment
housing (40-80 lakhs). The affordable housing options (less than 40lakhs) are also
catching up in the suburbs of Hosur Road and Mysore Road.

RERA- (Real Estate Regulation and Development Act, 2016)

Every game has a referee unless it’s being played in one’s own backyard. A regulator’s
job is similar to referee i.e. not only to manage and normalize the situation but also to
ensure that all the players play according to the rules.

The real estate sector gets its own regulator from May 1, 2017, the date when the Real
Estate Act, 2016 became effective in the entire country. Each state and UT will have its
own Regulatory Authority (RA) which will frame regulations and rules according to
the act.

Some of the key elements which the developers should take into consideration under
RERA Act are:

 It is compulsory for a state to establish a State Real Estate Regulatory Authority.

(like K-RERA, Maha-RERA)
 The property will have to be sold to buyers on the basis of carpet area.
 Failing to register a property will attract penalty upto 10 per cent of project cost.
 If the buyer finds any shortcomings in the project, he can contact the developer
in writing within one year of taking possession.

These are some of the RERA regulations which needs to be followed by the real estate
builders across the states.

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How much has RERA helped home buyers in one last year?

Real estate Regulation and Development Act (RERA) was introduced a year back from
now and it is yet to be rolled out across the country. Maharashtra has implemented
RERA Act in true sense, whereby several states is still trying to implement RERA Act
with all the delays (notifying the act or have diluted its provisions). Madhya Pradesh is
catching up now.

The economic times report of Dhruv Agarwala, Group CEO, Proptiger.com where he
states “It’s still early days of RERA, so there is no purpose in focusing on its slow
implementation. In 3-4 years from now, real estate will be a totally different industry.

The improving real estate environment is the key reason for expert’s optimism. “Recent
judgment’s by Maharashtra RERA –some of the judgment’s came within 30 days of
filing the complaint” which is making the buyers to think about their safety and security
which is leading the buyers to invest in new projects across the states.

It’s still early days of RERA, so there is no purpose in focusing on its slow
implementation.

Increased Transparency

After implementation of Rera Act across the country the real estate sector has become
relatively transparent. For instance, Builders cannot give false impressions of a
property’s size by citing “built-up” or “super built-up” areas.

Now it is mandatory to all the builders to quote the carpet area in all agreements. By
the help of RERA website, buyers can also see the status of their project, the site plans,
units sold, construction stage, possession date etc.

“The website with all the project details makes the real estate environment hugely
transparent”.

Reduction in supply slowdown in new launches was a short term drawback from Rera.

However “with strong builders taking over project from weak builders, the industry is
getting organized now and the supply will increase soon”. While it is harsh on small
and bad builders, Rera has opened up the opportunity for small and good builders as
they can get credit from financial institutions. So we can say that RERA is certainly
helping to expand the market and not consolidate it.
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RERA not a magic wand

Although RERA has brought transparency in real estate environment and even among
buyers but still we should not take all Rera-registered property as trustworthy for
investment. For instance, just like all the companies in the stock market are not
investment worthy though it is regulated by SEBI, so does not all the projects are not
investing worthy under RERA. Due diligence even on Rera-registered projects is a
must.

Karnataka RERA

Undisputedly K-RERA has lived upto its objective i.e. “to protect the interest of
consumers in the real estate sectors” both in letter and in spirit.

As population is increasing in the city like Bengaluru by 2030 it is estimated that 1400
new projects will come up every year in Karnataka, and even majority of Karnataka’s
population will be living in the cities. In this scenario, there is actual need for robust
real estate sector across the states to meet the demands of housing and commercial
projects which cannot be under looked.

As per the Union economic Survey service sector contributes 4.4 per cent which was
7.5 per cent and other sector contributes 35 per cent to GDP.

K-Rera notifications has put 542 real estate projects on hold. The notification states that
projects with prior approval from the authority will be given rights to do business in a
legal way.

The notification which came into effect in April 1 2018 which states builders should
get permanent approval before advertising projects, entering into agreement with
customers and accepting advance money from them.

Following the move: RERA-K authorities have stated issuing permanent registration
numbers to approved projects. Since the RERA on July 10 2017, RERA-K had adopted
a process of issuing a provisional approval number to applicants allowing them to do
business. So, far the authority has processed 2056 applications of which 1466 have been
approved. As many as 385 projects are under construction 157 are under query and 57
have been rejected. The biggest issue is that builders have collected money from
customers and invested in the projects.

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When K-RERA was implemented by the state government it was a bundle of joy for
the property buyers, and was a sigh of relief. But 3 months down the line it’s not the
same as expected to be by the buyers of Bangalore (especially).

The delay in processing applications which is leading to the discomfort for both the
buyers as well as the developers. And it is mandate to register the project for all the
developers before starting their projects and even before advertising about the project.
But many developers have failed to do this, they are advertising the projects first and
collecting money from the customers and putting the same money in to the project.

But according to Sec 3 of RERA Act which gave the notifications in the month of March
2018 no developers has to advertise or collect the money from the customers before
starting the projects. Now the issue in Bangalore real estate is that the how can the
developers return the money which is already put into the project?

The notifications given by KRERA was in the later stage of projects, so now it is
misleading to the developers and they are in the stage of dilemma .

So, Did K-RERA came back to its objectives for what it was
established for?

Yes, with not even one year completed for the act passed and implemented and with all
the hurdles K-RERA stands second in terms of transparency. The statistics speak for
themselves which is out in their website.

Penalty amount collected from violating the guidelines under RERA Act is Rs.7 crore
from over 500 building projects. Real estate projects rejected by K-RERA in this span
of implementation are around 175 projects, which was not following the rules and
guidelines stated under the Act, and around 936 projects are under investigations.

These regulations and quick case settlement will lead to bring back the confidence
among the buyers to invest in the projects and also the demand for housing its increasing
in the cities in past few years.

And the major player are the residential sector which will be in more demand due to
increase in IT-ITES in the city and many people choosing Bangalore for living. And
even the state Govt metro projects for Phase 2 and Phase 3 projects which connect the
International airport will increase the demand for residential housing across the cities.

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STRUCTURE OF REAL ESTATE INDUSTRY

Residential Commercial
INDIAN
PROPERTY
BUBBLE

Retail Hospitality

The Indian property bubble primarily consist of 4 structure (sectors). All the
sectors have their own importance in developing the bubble in the country. The
major sector which is gaining more importance in India is Retail and Residential
sectors. Majorly because of the increase in population, IT-ITEs exposure in
different states which is primarily leading the peoples working to invest in the
projects.

And this decade is primarily known for the decade of Retail and even the
investment made by big retail giants in this sector has given the boost to rise for
retail real estate sector across the country.

Commercial Real estate is exploding with new projects in the country majorly
in the smart-cities. Many Mergers which is happening in big corporate giants
are leading for the developers to start a new project. Cities like Mumbai and
Bengaluru are the major place for commercial property where the big corporate
giants head office are located.

Hospitality sector in India is a booming sector as it’s giving the higher GDP for
the country and even the tourist to visit India is increasing over the past decade
the hospitality sector is looking forward for the new projects in coming years
and leading to the employments across the states.

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 Residential Sector

India being the highly dynamic market structure across the globe because of
the government regulations and ease of doing business in the country which is
the major reason for the increase in residential sector in the country.

Housing being the most prominent sector for the Real estate in India and went
to a remarkable change in past few years.

Across many Indian cities, the financial “sweet spot” for the home buyers is
seen to be in range of INR 50-70 lakhs. In hyper-expensive city like Mumbai
the property price is under 1 crore. Mumbai serves the good example to illustrate
this sector is one of the toughest sector in the country.

During Q1 of 2018 India’s residential sector had 47 percent of investment in

real estate estimating around 59,000crore. Private equity inflows into the
residential sector is doubled to Rs 8518 crore in Q1 2018 compared to same
period last year which is also highest in last “10 Quarters”.

Home Buyers expects not more than a decent amenities which should be built-
up in and across the property. Developers are building the projects in such a
way it carters to all the essential and the potential buyers.

Increase in online advertisement is leading the residential sector to the new

level, it connects to large number of audience in a single touch. As well as more
developers are investing in affordable sites which will provide them a good
returns in the future.

Residential sector in the cities like Mumbai, Pune, Bengaluru is raising as the
IT companies are increasing in these cities, more affordable price for the
property are in the cities like Hyderabad, Pune and Bengaluru whereas in city
like Mumbai the price of residential is touching sky height.

After recent Demonetization move by the Government the property rates have
been slumped but still there is a hope of residential sector coming back to its
normal boom stage.

Cities like Bengaluru is still having its peak period in residential sector where
the GST and demonetization has not much effected. Areas like North Bengaluru

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and Whitefield are coming up with lot of new projects by big retail giants like
Godrej Properties, Brigade, Shobha developers etc.

 Commercial Sector

Commercial real estate sector in India is in upswing and the prices of the rentals
have also increasing from past few years. The first quarter witnessed a 23
percent year increase in office space demand.

Rental values have also increased in several active micro markets across India.
Commercial Real estate is likely to be robust with increased investor activity,
sustained demand from technology companies and growing interest from
various industry like manufacturing, logistics and Warehousing.

Bengaluru’s Bannerghatta Road topped the list of rental space of 26 per cent for
the year increase. Electronic city and secondary business district including
Indiranagar and koramangala also increased for this quarter with 17.6 per cent
and 14.5 per cent respectively.

The major demand for office spaces are from IT-ITEs sector, majorly in Tier 1
and Tier 2 cities. Commercial real estate should be backed with good
infrastructure and with all the essential amenities which the company wants.

Whitefield and Electronic city being the IT-hub in Bengaluru the commercial
property in those areas are at high prices, as Whitefield is closest to airport and
closest to railway station which is just 3kms. The average price range is around
Rs 4450-8670 per square feet.

Unlike residential real estate sector, which is still in process of recovery stage,
commercial real estate is going through a boom stage inspite of all economic
fluctuations in the country like Demonetization and GST. Commercial Real
estate will be the major player in coming years in Indian Property Bubble.
Industry watchers note that the high gestation period of commercial projects
notwithstanding, developers too are increasing their pipeline of commercial
real-estate projects across the country.

By this we can say that the coming years for commercial real estate projects will
be in high demand and even the property prices will be high.

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 Retail Sector

Primarily for retail real estate sector in 2017 was a watershed year, with the
roll-out-of game-changing policies such as GST and RERA.

But the Indian Real Retail industry sector is the biggest growing sector in
the world and is expected to be World’s 3rd largest consumer economy by
2025. We can say it is one of the fastest growing sector in India with good
number of employment opportunities.

As of now India stands fifth in largest preferred retail destination globally.

India is among the highest in the world in terms of per capita retail store
availability.

Indian Retail sector is experiencing exponential growth, with retail

development taking place not just in metro cities and even in semi urban
cites across the country. This is leading to the growth of Indian Retail Real
estate property in major Tier 1 and Tier 2 cities.

More number of retail real estate property is being established in the cities
like Mumbai Delhi and Bengaluru where the IT sector are doing great.
Healthy economic growth, changing demographics are the major reasons for
the growth of retail real estate projects.

New Retail space of 6.4 million square feet got completed in 2017 making
the year the second best after 2011 in terms of net absorption. As of now
majority of stock is concentrated in the cities like Delhi-NCR, Mumbai and
Bengaluru.

Even many International brands have entered India due to FDI and Mergers
in recent years which is making the country’s retail real estate projects to
increase rapidly in coming years.

Retail Real estate sector is one which didn’t get affected due to new
government policies like GST, RERA, Demonetization. It was the only
sector which was less affected and the projects were running smoothly in
that period.

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 Hospitality Sector

Tourism in India is driven by rich historical and traditional heritage and have
spread across the country. The future of the hospitality industry is inherently
related to that of the tourism industry with both foreign and domestic
travelers playing an important role in its rise.

The industry is witnessing significant growth in every year with its changing
business models and distinctive perquisites.

South Asia is the major destination for tourism in the world and many
Domestic and International players have started to tap the market
effectively.

Global hospitality players are entering India and starting their ventures in
different cities like Mumbai Delhi Bengaluru.

India is currently having more than one lac hotels across the country which
is well established and having all the good amenities which is essential for
the visitors of different country as well as domestic visitors.

Hospitality sector is one of the brisk expanding industry at present which is

estimated to earn 9-10 lac crore by the year 2020.

Though real estate market had a downfall in the year 2017, due to economic
fluctuations hospitality sector had a skewed growth during this period many
domestic and foreign players started their operations during this period and
had a good amount of profits as the demand for tourism in India is high in
recent years and even in future it is said to be one of the fastest growing
sector with numerous business opportunities so it might increase the
employment generation across the states.

In coming years, there are many hotels which are under construction in cities
like Mumbai and Bengaluru will be opened up for the visitors and even
many new projects will be started by the big real estate giants in the country.

By this we can say that Hospitality sector in coming years have a bright
future for investing in new projects and will surely bring fruitful returns to
the investors in future.

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Major players in real estate industry in India

 DLF

It is one of the largest real estate company with revenue of US $1.4 billion.
DLF has a 60 years of track record of sustained growth, customer
satisfaction and Innovation. The company currently has 314 msf of planned
projects with 52 msf of projects under construction.

DLF was launched its operations in real estate in the year 1946 by
Chaudhary Raghvendra Singh who was a true nationalist, and a great
philanthropist.

DLF started its journey by developing 22 urban colonies in Gurgaon in

1985, and later in the year 1996 it ventured into group housing projects
across the country. In the year 1999 they took up project of GRADE-A
offices to build. Coming to 2002 they entered by making projects under
Organised Retail Sector. In 2005 they took up projects for constructing IT
Parks in Mumbai and Bengaluru.

The year 2007 was the biggest year for DLF has they entered into capital
market (BSE & NSE) and recorded whooping IPO of USD $2.25billion.

DLF’s primary business is development of Residential, Commercial and

Retail properties. Unique business model of earning from developments and
Rentals.

Founder: Chaudhary Raghvendra Singh

Year : 1946

CEO : Dr. Kushal Pal Singh

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 Prestige Group

Prestige group owes it origin to Mr. Razack Sattar who envisioned, a success
story waiting to take shape in the Retail Business in 1956 itself.

Since its formation in 1986, Prestige estate projects has grown swiftly to become
one of the south India’s leading property Developers.

Prestige group has its projects under different sector of real estate like
Residential, Commercial, Retail and Hospitality.

As of now from inception Prestige group has completed around 210 projects in
south India and has developed area of over 60.08 million square feet, 59 still
ongoing projects comprising of 60.10 million square feet, and 29 upcoming
projects of 30.95 million square feet. In respect of Apartments, Shopping malls
and corporate structure.

Prestige construction as ISO 9001 2000 certification and it is the only real estate
company in Bengaluru which have been awarded FIABCI award for its software
and residential facilities.

Prestige group majorly concentrating its projects in cities like Bengaluru,

Hyderabad, Goa, Mangalore, Cochin and Chennai.

Prestige group entered Capital market with an IPO of 1200 crore, and current
net worth of Prestige group is 3518 crore in Q1 2018.

Founder: Mr. Razack Sattar

Year : 1986

CEO : Mr. Venkat K Naryan

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 Godrej Properties

Godrej properties was established in the year 1990 by Adi Burjorji Godrej. It
is Mumbai based organisation and it is the first real estate company to receive
ISO certifications for Quality management and environmental friendly
operations.

There are many upcoming projects which covers 83 million square feet. The
company majorly aims to deliver superior value to all stakeholders through
extraordinary and imaginative spaces created out of deep customer focus and
insights.

Godrej has its projects in 12 cities across India. And Godrej’s total revenue
earned is around 1440 Cr in March 2018.

Godrej Portfolio is diversified spanning 12 cities across India and containing

residential, commercial and township projects.

Planet Godrej was declared the best Residential in Western India in 2009 and
2010 and also received a seven star ratings by CRISIL in 2010.

In the past 3 years Godrej Properties has received 200 awards and recognition
including the “Real estate Company of the year” at the construction week
India Awards in 2015.

In 2010, Godrej Properties became a publically listed company through a

successful IPO in which it raised USD 100 million.

Founder: Adi Burjorji Godrej

Year : 1990

CEO : Mr. Pirojsha Godrej

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Industry Analysis using

Michael Porter’s 5 Forces Model

Michael Porter, Professor of Harvard Business School, has developed five

competitive forces theory of Industry Structure, which is considered to be the
major tools for analyzing the market competition, and reflects the real estate
market situation objectively, and will help the enterprise to realize the industry’s
current situation and future prospects which will make the enterprise to work
better for its sustainability.

Threat of
New entry

Supply Competitive Buyer

power Rivalry power

Threat
of
Substitution

These are the five forces which can act on any product, brand, company and
even industries. It draws from Industrial Economics which helps any company
to know where the industry standby and what is the current trends and what will
be the future prospects of that industry.

It gives a relatable insights about the stiff competition across the industry
whereby it considers all the players who are related to that of company as well
as industry. Mainly it focuses on its subordinate company/brand/products to
know where they stand and how the company can withstand the cut-throat
competition in today’s market scenario.

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 Competitive Rivalry

We can say that competition in Indian Real estate Market in current scenario as
a lot of competition and has a high risk of entering into the market as already
many big real estate giants have occupied the market in last 4-5 years.

Compared to other country India have major players who are doing really well
in this sector and have a good market capitalization. And it is not very easy for
the new players to enter and start reaching its gestation period.

The existing players have a stiff competition among themselves with new kind
of technology and the amenities they are providing to the end users.

Many players like DLF, Godrej Properties, Raheja, Hiranandani etc. These
players build and sell high end buildings and commercial space for the corporate
offices and have a very good market capitalization in the cities like Mumbai and
Bengaluru.

Though the competition is stiff the prices of these projects under this companies
is similar with just few minimal changes but every company has their own way
of targeting the customer and have a good marketing strategy to attract them.

As there are many players in the real estate market the competition is going to
be high even in coming years. And the players who have the best marketing
strategy as well as good reputation they will be more benefited even if there is
any change in future economic conditions.

Limits the seller to set the prices of properties as there is stiff competition the
players has to take into consideration all the prospects which.

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