Realty Acres

Address- D-59, Sector-2 Noida

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 nonresident Indians (NRIs), driven largely by investorfriendly 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, healthcare and
tourism provides opportunities in the real estate sector.

 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

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

 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 pre-launch
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 2012YTD.

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,

 In 2010, average cost of commercial space

was around Rs 10,000 per sq. ft in the
Delhi-National 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

 "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 multibrand retail will be a major driving
factor for increased activity in 2013.
Since the policy opens the portals to

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 2011
12
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 million
employment opportunities across the country by 2025, thereby
making a 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 a 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

Favorable 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 19912001) 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 organized 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 is likely to continue for the next few
quarters, with absorption of office space expected 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 at 30% annually the investments in commercial
Construction are expected to grow faster than investments
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 Software Technology Parks of India (STPI).

Status wise SEZs in INDIA

 Over the next five years, growth in investments in Indian Industry

will be driven by strong capacity additions, led by strong growth in
demand 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 out of which 381 SEZs have been
notified.

Growth Drivers

Regulatory Framework

Real
Estate

K Pis 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
Measures the number of successful projects handled in the past
& number of ongoing 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
staff

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

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

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

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

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.

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

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 gold coin , cars.
Gifts also include foreign tours.
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 off-take 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 2012-13, 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

Government
Regulation

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

Initiatives taken in the Union Budget

2013-14
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

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, US-based 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 order for 222 escalators for its Phase III
project, according to Otis.
Source: www.businesstoday.in

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

Jeff 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

Analysis of various costs

Expenses as a % of total income of real estate companies
Particulars

FY 08

FY 09

FY 10

FY 11

FY 12

Raw Materials Expenses

11.19

13.47

16.75

14.59

18.41

Compensation to
employees

3.27

4.81

4.49

4.57

4.93

Advertising expenses

0.87

1.25

0.8

1.04

0.76

Marketing Expenses

0.79

0.83

0.71

0.92

0.67

Interest expenses

9.83

25.07

22.67

23.19

26.64

Others Expenses

36.19

22.98

30.27

33.59

34.69

Raw material expenses

One of the major cost in
the real estate industry.

11.19
18.41

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

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.

3.27
4.93

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.

0.76

0.87

FY 08
FY 09
FY 10
FY 11
FY 12

1.04
1.25

0.8

Interest Expenses
9.83

This is a major part of the cost in

this industry.

26.64

Since the capital required is

high, Loan is a major form of
financing option for the real
estate industry.
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, pre-EMI costs
and
expenses
other
than
interest and EMI expenses
involved in obtaining a loan for
the transaction.

25.07
FY
FY
FY
FY
FY

23.19

22.67

08
09
10
11
12

Other Expenses
This includes various
commission, brokerage
fees paid to the agents.

34.69

36.19

It also includes various

machineries, insurance,
unforeseen expenses

22.98
33.59

It also includes various

stamp duty charges,
taxes, pre acquisition
costs, legal fees,
planning costs et al.
which are statutory in
nature

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

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

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

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 2000August 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 at a CAGR of
10.5 per cent during 2012-15
The number of foreign tourists arriving in the country is expected to
be over 8.9 million by 2015
The number of hotel rooms in India as of 2011 stood at 121,000
The number of hotel beds in the country is expected to increase to
443,000 by 2015 from the current capacity of 262,000

Southern states offer

significant investment
The southern Indian States - Andhra
opportunities
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 regions
residential real estate market

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

Thank You