A REPORT ON REAL

ESTATE SECTOR OF
INDIA

SUBMITTED BY: POOJA BHAVSAR

ENROLLMENT NO : 10BSPHH010193
MARKET OVERVIEW

The real estate sector is a key growth driver of the country’s economy.
The contribution of the residential segment alone to India’s GDP is around
5 to 6 per cent.

Major empolyment driver of the country. 2ND largest employer after

agriculture.

According to ASSOCHAM and the Investment Commission of India, the

sector has been growing by 30% with returns in the range of 20-30%
with, the domestic real estate market reaching around USD 14 bn in 2007.
Despite the current slowdown, the sector is estimated to grow at a CAGR
of 26.19% to USD 90 bn by 2015 according to ASSOCHAM.

The real estate sector is one of the highest FDI-attracting sectors in India,
with recorded FDI inflow of more than US$ 8.9 billion (INR 403 billion)
between April 2000 and September 2010.

Favourable demographics (a young population and increasing

urbanisation) and growth in the services sector, especially the IT &
ITeSsector, have primarily driven growth in the real estate industry.

2
 DLF, Unitech, AnsalProperties, K.Raheja Corporation and Parsvnath
Developers are among the major Indian players in the sector.

In the last decade, FDI in real estate has increased due to the growing
interest of foreign players in the Indian market. Over the last decade,
many international players, including developers such as Emaar,
Ascendas, Keppel Land, Tishman Speyer and Nakheel Group, and
investors such as Morgan Stanley, Och-Ziff Capital, Citigroup, Goldman
Sachs, JP Morgan, Warburg Pincusand Deutsche Bank, have entered the
Indian real estate market.

In recent years, the industry has evolved from a highly fragmented and
unorganized market into a semi-organized market.

MARKET SEGMENT

Structure of the Indian Real Estate Sector

Real estate can be segmented into organized and unorganized sector

where the unorganized sector commands around 70% of the market share.

The unorganized players are characterized by contractors and small builders

who generally have only regional presence while organized players include
private real estate developers and government affiliated entities.

3
RESIDENTIAL SEGMENT

The residential real estate segment is highly unorganized and fragmented

and accounts for around 75% of the total turnover of the real estate
sector in India.
The segment is categorized into premium housing, mid-market, and low-
cost housing. In recent years, maximum number of developments has
taken place in the premium housing segment. The residential segment
has been experiencing tremendous growth in the past few years.
It has seen major transformation from its initial days of unplanned
development to the present times when majority of players are
introducing planned townships with enhanced product offerings. The
segment is also characterized by increasing investments and growing FDI.
However, much of this high growth was seen in the higher income
(premium) category as developers primarily focused on this category and
neglected the middle and lower income groups. Further, this development
was majorly concentrated in the tier 1/metro cities.
Nevertheless, the slackening demand in premium housing and changing
dynamics of the business propelled by the global slowdown, falling stock
markets and inflation compelled developers to shift their focus to
development of housing units for the middle and low-income group
categories which faced a shortage of affordable housing as well as in tier 1
and tier 2 cities; as a result, there has been a spurt in real estate projects
in these cities with the regional players expanding their presence across
India.

1. GROWTH DRIVERS

•Rapid urbanisation —the urban population is estimated to reach 590

million by 2030.

4
•INCRESE IN THE NUMBER OF NUCLEAR FAMILIES IN INDIA
Decreasing household size —growth in the number of nuclear families is
leading to an increase in the number of households, especially middle-
class households. India is expected to be home to 91 million middle-class
households by 2030.
•GROWING WORKING POPULATION
The growing working age population in the 15–60 age group is expected
to reach 918 million, or 64 per cent, of the population by 2025.
•The demand for affordable housing is growing, which is a priority segment
for both the government and developers.

2. Market structure

•The market is highly fragmented and unorganized.

•Regional players are expanding to achieve a pan-India presence.

3. Outlook

•HOUSEING SHORTAGE
The country’s housing shortage in 2007 totaled 24 million units, and this is
expected to increase to more than 26 million units by 2012.
•LOW INTEREST RATE ON HOUSING LOANS UP TO INR 2MN
While the GOI has announced reduced interest rates for home loans up to
US$ 41,667 (INR 2 million), developers have announced the launch of
affordable housing projects, which are expected to mostly be developed in
the suburbs of large cities and tier-I and tier-II cities.

5
COMMERCIAL OFFICE SPACE

The commercial segment includes commercial offices, IT parks, and

trading spaces such as hotels, and restaurants, industrial buildings such
as factories, government buildings, and special economic zones (SEZs).
The outsourcing boom coupled with economic uptrend has created a huge
demand for office space in India and this in turn has boosted the
commercial real estate segment.
Further, the hospitality sector is experiencing tremendous growth in India
on account of increased domestic as well as foreign tourists. The surge in
number of travelers, both leisure and business, has fuelled demand for
hotel rooms.
Further, the FDI policy that has permitted 100% investment through the
automatic route in hotels and tourism has attracted several international
hotel chains.
According to the Ministry of Tourism, currently India has 110,000 rooms
but there is a shortage of around 150,000 rooms and this demand-supply
gap is expected to further boost the demand for real estate in this
segment.
There are around 552 formally-approved SEZs in India, out of which 274
are notified since the SEZ Act came into force in 2005. The development
of SEZs attracts both corporate houses as well as developers. However,
with the companies, particularly the IT & ITeS sector, differing their
expansion plans due to the current economic conditions this sector is
experiencing a slowdown in demand.

1. Growth drivers

The commercial real estate (CRE) segment (primarily office space) has
expanded on the back of growth in the Indian economy.
•The influx of multinational companies (MNCs) and the growth of the
services sector have driven the demand for office space.
•Progressive liberalization and the relaxation of FDI norms in various
sectors have paved the way for growth in FDI in the real estate sector.
This, in turn, has led to a burgeoning demand for office space from MNCs
and other foreign investors.

2. Market structure

•A few large national developers with a pan-India presence dominate the

market.

6
•Regional players are expanding aggressively to achieve a pan-India
presence.
•The operational model has witnessed a shift, from a sale model to a lease -
and-maintenance model.

3. Outlook

•The demand for office space is expected to increase driven by the growth
in the services industry, which includes telecom, financial services and IT
& ITES, which accounts for the maximum demand of commercial office
space in the country.

RETAIL SPACE

The retail segment has undergone a major transformation as unorganized

players have given way to the organized sector (malls and multiplexes)
gradually. The Indian organized retail sector has good growth prospects
and hence prominent corporate houses have entered this segment under
multiple retail formats and have announced major expansion plans.
Over the past few years, the organized retail space has expanded rapidly.
According to ASSOCHAM the organized retailers occupied a space of
around 1 mn sq ft in 2002, which shot up to nearly 14 mn sq ft in just 5
years in 2007. The number of retail outlets in the organized sector in
2001 was around 3,000 and it covered an area of about 3 mn sq ft. In
2006, the number of outlets grew to around 27,000 covering an area of
31 mn sq ft.
Further, a number of big retailers had lined up expansion plans and had
geared up to tap new markets however, the current crises is expected to
act as a dampener for these expansions plans. The retailers are now
turning their focus on tier II and tier III cities and are also focusing on
rural areas.
Many corporates have opened rural malls like Chaupal Sagar (ITC),
Aadhaar (Godrej) and Hariyali Bazaars (DCM Sriram - focusing mainly on
agri products) where the aim is to cater and to leverage the opportunity
available at the bottom of the pyramid. This is fueling the demand for
retail real estate.

1. Growth drivers

•Consumerism is increasing on the back of rising disposable income.

•The entry of international retailers has boosted industry growth.
•Expansion by domestic retailers has also given impetus to the industry.

7
2. Market structure

•The retail segment constitutes a small proportion of the total real estate
industry in India.
•Unorganized retail space providers dominate the segment.
•In the organized retailing segment, the demand for quality mall space has
increased with the entry of international retailers in India.
•International retail brands are collaborating with Indian partners.

3. Segmentation

•The retail segment constitutes a small proportion of the total real estate
industry in India.
•Unorganized retail space providers dominate the segment.
•In the organized retailing segment, the demand for quality mall space has
increased with the entry of international retailers in India.
•International retail brands are collaborating with Indian partners.

4. Outlook

•The Ministry of Commerce and Industry has proposed 100 per cent FDI for
multi–brand retail outlets, the approval for which is awaited.
•The share of organized retail in the total Indian retail trade pie is projected
to grow at 40% p.a.

HOSPIT ALITY SECTOR

1. Growth drivers

•The hospitality segment has witnessed robust demand growth, primarily

due to strong growth in tourism, including both business and leisure
travel.

8
•India is becoming increasingly popular as a medical tourism destination.
•International sporting events such as the Cricket World Cup and Formula 1
in 2011 are expected to drive growth.
•According to a research by the World Travel & Tourism Council, travel and
tourism demand in India is expected to grow at 11.8 per cent between
2005 and 2010.

2. Market structure

•Existing hotel operators are scaling up their operations.

•International hotel chains are entering India.
•Developers are tying up with major domestic and international chains.
•Hospitality players are diversifying into budget hotels and service
apartments.

3. Segmentation

•The industry is classified on the basis of star ratings —one-star to five-star

deluxe.
•Number of approved hotel rooms has been estimated at 100,000.

4. Outlook

9
•A significant demand-supply gap characterisesthe segment. The demand
for hotel rooms is around 240,000 rooms, while the current supply of hotel
rooms caters to approximately100,000.
•This gap is expected to reduce in future, as several hotel projects are in
the pipeline. More than 15,600 rooms are expected to be added in 2010.
•The potential for budget hotels, service apartments, spas and other niche
products is significant.

REAL ESTATE INDEX (RESIDEX) :

On July 9, 2007 BSE had introduced yet another index – The BSE Realty
Index comprising of real estate stocks. This is to track the movement of
prices in the residential housing segment.

The base year for the index is 2005 and base index value is 1000. Like the
SENSEX, this index is also computed using free float methodology. 11
scripts are included in the Realty Index, representing about 95% market
capitalization of real estate development companies in BSE - 500 index. On
July 9, the index value was reported to be 7333.97.

The following table shows the list of 11 companies, their free float market
capitalization and weightage in the Realty Index.

Free float market

Company capitalization
(Rs. Crores) Weightage (%)
DLF Limited 14,542.01 35.94
Unitech Limited 12,773.71 31.57
Indiabulls Real Estate Limited 5,639.65 13.94
Parsvnath Developers Limited 1,375.80 3.40
Ansal Properties & Infrastructure 1,213.38 3.00
Limited
Mahindra Gesco Developers Limited 1,096.16 2.71
Sobha Developers Limited 1,011.35 2.50
Anant Raj Industries Limited 890.13 2.20
Phoenix Mills Limited 725.06 1.79
Peninsula Land Limited 707.12 1.75
Akruti Nirman Limited 489.84 1.21

10
TOTAL FREE FLOAT MARKET Rs. 40,464.21
CAPITALIZATION crores

Total market capitalization: Rs. 179,499.70 crores

11
The following table gives the yearly historical stock prices of the constituent
stocks.
31/03/04 2005 2006 2007 2008
Company
AKRUTI 405.85 499.90
ANANTRAJ 15.82 693.50 1103.45 1299.00
ANSALINFRA 19.70 111.95 721.30 527.50 311.45
DLF 590.45
GESCOCORP 21.05 122.45 462.20 568.30 558.20
IBREALEST 298.10 501.40
PARSVNATH 259.00 383.25
PENINLAND 34.25 132.40 661.25 371.70 484.75
PHOENIXLTD 1134.15 6105.00 976.25 1603.50 2009.75
SOBHA 800.70 955.00
UNITECH 85.05 337.35 2785.45 387.35 542.40

Considering BSE Sensex with base year 1978 – 79 and base value of 100, it
has appreciated nearly 150 times in 28 years. Realty index though, has
appreciated nearly 7.6 times in just about 2.5 years.

KEY PLAYERS IN AREA:

COMPANY MARKET SHARE

UNITECH 7%
DLF 54%
K.RAHEJA CORPORATION 2%
ANSAL PROPERTIES REST
SOBHA DEVELOPERS REST
PARSWANATH DEVELOPERS REST

UNITECH

•Unitechoperates in various asset classes in the residential, commercial and

retail segments.
•Unitechhas developed more than 24 million sq ft of property, with six
townships.

12
•Eleven hospitality projects are under development across India.
•Unitechis currently developing five IT & ITeSSEZs and one IT Park spread
across Gurgaon, Noida, Greater Noidaand Kolkata, with potential leasa ble
area of 21.4 million sq ft
•The company has strong presence in the National Capital Region (NCR)
and other cities such as Kolkata, Chennai and Hyderabad.

DLF

•DLF is the largest real estate developer in India.

•DLF developed Asia's largest private township, DLF City in Gurgaon,
Haryana, spread across 3,000 acres.
•The company is present across all asset classes —residential, commercial
and retail.
•The group has developed more than 220 million sq ft of built -up area
(BUA).
•DLF specialisesin planning hotels, infrastructure and SEZs.
•DLF has enhanced its focus on affordable housing.
•DLF has a pan-India footprint, with a major presence in Gurgaonand
Kolkata.

ANSAL PROPERTIES

•AnsalProperties operates primarily in residential and commercial asset

classes.
•The company has developed on more than 2,850 acres in Gurgaonand
Delhi.
•AnsalProperties is currently developing integrated townships, malls, hotels
IT parks and SEZs.
•The company plans to construct 157.6 million sq ft of BUA.
•AnsalProperties has a pan-India footprint, with a major presence in 16
North Indian cities across 4 states.

K.RAHEJA CORPORATION

•The company is present in commercial, retail and residential asset classes.

•The company has developed more than 5 million sq ft of BUA to date.
•K. Raheja Corporation is currently developing 15 self-contained townships
and 10 hotels.
•The company has a strong presence in Mumbai, with operations in
Bengaluru, Ahmedabad, Goa, Pune and Hyderabad.

13
SOBHA DEVELOPERS

•Sobha Developers operates in residential and commercial asset classes. It

also develops plots and contractual projects.
•The company completed 60 residential projects and 166 contractual
projects covering around 36.34 million sq ft of area as of March 31, 2010
in 18 cities across India.
•The company currently has 27 residential projects, aggregating 9.08
million sq ft, at the development stage and 4.24 million sq ft in ongoing
contractual projects.
•Sobha Developers is primarily concentrated in Bengaluru, but it also has a
presence in other cities such as Cochin, Chennai and Pune.

PARSWANATH DEVELOPERS

•The company has a presence in residential, retail, commercial and SEZ

asset classes.
•Parsvnathhas around193 million sq ft under development.
•The company has 98 ongoing projects.
•It has a strong presence in the NCR.
•The company, active in more than 45 cities across 16 states, is
strengthening its pan-India footprint.

FDI INVESTMENT IN REAL ESTATE

•Over the years, FDI in real estate has increased due to growing interest
among foreign players in the Indian market.

•FDI inflow to the sector from April 2000 to September 2010 was US$ 8.9
billion, of which US$ 2.8 billion was invested in 2009–2010 alone.

•The majority of FDI is from West Asia and investors from the US and
Europe, who have shown keen interest in the launch of several real estate
funds.

14
Conditions for investment

•Minimum capitalisationof US$ 10 million for wholly owned subsidiaries and

US$ 5 million for JVs with Indian partners.
•Funds must be infused within six months of business commencing.
•Original investment cannot be repatriated before a period of three years
from the completion of minimum capitalisation.
•The investor may be permitted to exit earlier with prior government
approval.

•The investor is not permitted to sell undeveloped plots.

•The project must conform to norms and standards laid down by respective
state authorities.
•The investor is responsible for obtaining all necessary approvals as
prescribed under applicable state rules/bye-Iaws/regulations.
•A designated authority must monitor developer’s compliance of the
conditions mentioned above.

15
UNION BUDGET 2010—IMPACT ON REAL ESTATE

Policy impact

•The Finance Minister announced a scheme of interest subvention on

housing loans in the Union Budget 2009–2010. The scheme allows interest
subvention of 1 per cent on housing loans of up to INR 1 million, provided
the cost of a house does not exceed INR 2 million. This scheme has now
been extended up to March 31, 2011.
•Allocation for housing and urban poverty alleviation has been raised from
INR 8.5 billion to INR 10 billion for 2010–11.

OPPORTUNITY

1. Major housing shortage

•According to the Eleventh Five Year Plan (2007–2012), the housing

shortage in urban areas was estimated at 24.7 million units in 2007, of
which more than 88 per cent was in the economically weaker section
(EWS). Meanwhile, the housing shortage in rural areas was estimated at
47.4 million units in 2007. For the Plan period, the total housing
requirement (including backlog) is estimated at 26.5 million units.

•This provides real estate developers with ample growth opportunities, as

unmet demand remains significant.

2. Retail space expected to increase in rural markets

•Growth of the services sector and organisedretail, increasing urbanisation,
rising income levels, contracting household sizes and the easy availability of
home loans are key growth drivers of the industry.
•India has one of the largest number of retail outlets in the world. In the
past few years, retail development has been taking place not only in major
cities and metros, but also in tier-II and tier-III cities.
•Going forward, companies are expected to tap rural markets as their key
growth drivers. This is expected to increase the demand for retail outlets in
rural areas.

3. EASY AVAILABILITY OF CREDIT

Bank loans were the most favored option for funding for the developers.
The total bank lending to the real estate sector has been increasing
steadily. According to the RBI, gross bank lending to the real estate sector
has increased from Rs 135 bn in FY05 to Rs 623 bn in FY08.

16
 The private sector banks with a share of 45% had the largest exposure to
real estate sectors (inclusive of both direct and indirect lending) as at
end-Mar 2008 in terms of their share in total loans and advances, which
was closely followed by foreign banks (23%) and public sector banks
(15%).
However, the RBI has been monitoring the growth in lending to the real
estate sector. As a result, the risk weight on commercial real estate
exposure was increased from 125% in Jul 2005 to 150% in May 2006,
which resulted in deceleration in real estate loans.
To mitigate the concern raised due to high credit growth and to maintain
the asset quality, the RBI raised the provisioning requirements for the real
estate sector. The provisioning requirements on the residential housing
loans beyond Rs 20 mn and commercial real estate loans were raised
from 0.4% to 1.0% in May 2006 and further to 2% in Jan 2007.

EMERGING SECTORS DRIVING GROWTH IN REAL ESTATE

1. Healthcare infrastructure

•The healthcare industry is expected to grow at 23 per cent per annum to

become a US$ 77-billion industry by 2012.
•Healthcare BPO is another growing segment.

17
•With India emerging as a preferred destination for medical treatment,
medical tourism in the country is expected to grow at 29 per cent to reach
US$ 2.4 billion by 2012.

2. Education infrastructure

•The market is large, with significant untapped potential and low

competition.
•Developing more world-class educational institutions is the need of the
hour.
•Driven by knowledge-based industries, the demand for qualified engineers
is significant.
•Research laboratories are adding value to global outsourcing.
•Interest among global educational institutions to set up institutions in India
is growing.

3. Logistics and warehousing

•Trade, both international and domestic, is booming.

•MNCs are increasingly establishing Indian operations.
•Agricultural logistics require the creation of cold-chain infrastructure.
•Logistics are required for large infrastructure and engineering projects.
•Consolidation of warehousing, if uniform tax regime is applied.

CHALLENGES:

1. HIGH STAMP DUTY

The stamp duty in India is not uniform and varies from state to state
(14.5% in Uttar Pradesh and 12.5% in Haryana) ranging between 10-
15%. According to the Planning Commission of India, the rate of stamp
duty is one of highest in India as compared to most developed countries
like Singapore and Europe where the duty ranges between 1% to 2%. In
some cases states levy double stamp duty, first on the land and then on
its development.
2. Fluctuating Prices of Raw Material
During the phase of implementing a project, the developers are
dependent on many components such as steel, cement, wood, sand,
gravel, bricks and paints. Any adverse movement in prices of these raw
materials puts pressure on developer’s margins.

18
3. Access to Funds
The companies in the real estate sector have leveraged substantially over
the last 2 to 3 years. Their expansion plans were primarily funded by
short-term debts. In the near future, these developers will face debt
redemptions; however, now that the banks have become cautious in
lending to the real estate sector, raising capital is a big challenge for the
developers.

19