Presented by
Group 6_SEC B
Ankit Uttam
Arun KS
Achintya PR
Manish Watharkar
Nishigandha Sorte
Pankaj
Prashant Patro
Agenda
Sr.No
1.
Industry Analysis
2.
Opportunity Analysis
3.
4
5.
Segmental Analysis
KPIs of Industry
5.
Market Dynamics
6.
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
Source: www.ibef.com
Source: www.ibef.com
Source: www.indiatoday.in
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
Market Dynamics
The real estate sector in India is witnessing
rapid growth in the residential, commercial and
industrial segments.
Real estate development, once restricted to
bigger cities, have shown progress in smaller
cities and towns due to availability of banks
loans, higher earnings and improved standard of
living.
The real estate sector of India is projected to
post annual revenues of US$ 180 billion by 2020
against US$ 66.8 billion in 201011, a compound
annual growth rate (CAGR) of 11.6 per cent.
The demand is expected to grow at a CAGR of 19
per cent in the period 20102014, with Tier I
metropolitan cities expected to account for
about 40 per cent of this growth.
Residential sector
It is a fragmented market with fewer players and
has demand of more than 300000 units in seven
major cities of India.
Major categories of houses in India are:
Co-operative Housing Societies (CHS)
Condominiums (row houses)
Builder flats
Chawls
Villas
Kothis
Havelis
Lal Dora
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
Hospitality space
The hospitality space has a competitive
market with many players
There are around 121,000 hotel rooms in
the country as of 2011
The hotel industry grew 13 per cent during
201112
NCR and Mumbai are by far the biggest
hospitality markets in India, followed by
Bangalore , Hyderabad and Chennai
Hospitality space
Besides hotels, the hospitality market
comprises serviced apartments and
convention centers.
The recent trends observed are
Serviced apartments appear particularly
attractive within the hospitality space
Government initiatives to promote tourism
in Tier 2 and Tier 3 cities is generating
significant demand for hotels in such
cities, especially for budget hotels
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.
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
Infrastructure
Transportation
Urban development
Utilities)
17
country
million
by
employment
2025,
opportunities
thereby
making
across
the
significant
of
the
Residential,
Commercial
and
real
this
real
estate
pipeline
will
require
total
Office
Hospitality
Industrial (SEZ)
Retail
Malls and Multiplexes
Standalone outlets
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.
Commercial/Retail Construction
Size of
Commercial/Retail
Construction
Commercial Office
Space Absorption by
location
trend
quarters,
is
with
likely
to
absorption
continue
of
office
for
the
space
next
expected
few
to
growth
investments
in
expected
grow
to
at
30%
commercial
faster
annually
Construction
than
investments
the
are
in
tracks,
roads
and
bridges,
airport
Geographical Distribution
of
the
reasons
for
the
rush
of
these
on
earlier
schemes
like
Software
Over
the
Indian
next
five
Industry
additions,
led
years,
will
by
growth
in
be
driven
by
strong
growth
in
investments
strong
demand
in
capacity
and
high
According
to
the
Ministry
of
External
Affairs3,
in
587
proposals
notified.
out
of
which
381
SEZs
have
been
Growth Drivers
Regulatory Framework
Real
Estate
Annual return on
investment in
percentage
Construction/purch
aser rate: New
constructed or
purchased units
over time
Lease events
coverage ratio:
Number of lease
inquiries over
number of available
units
Management
efficiency: Number
of leased spaces
over number of
staf
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
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
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
Hines
Tishman Speyer
Emaar Properties
Ascendas
Capitaland
Portman Holdings
Homex
Analysis
Considering all the 5 forces, it can be
said that the real estate industry is not
very profitable at this stage as it was
before the subprime crisis of US in 2008
But considering the fact that the real
estate cycle is in the recovery stage
right now and given that the demand for
real estate is growing at a CAGR of 19%,
it can be said that there are still
bright prospects ahead in a country like
India.
Differentiation Strategy
20:80 Scheme
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
Maharashtra
5%
10
Odishha
11%
11
Punjab
8%
12
Rajasthan
7%
13
Tamil Nadu
8%
14
Uttar Pradesh
10%
15
Uttaranchal
10%
Source- www.cci.in
Waiver
Some builders waive Stamp duty charges in
order to attract buyers.
Charges are around 4% to 8% of total price.
Offering Small Flats
Instead of 2/3 BHK flats now to lure potential
flat owners by building 1 BHK flats.
Small flats are which most of the middle class
can afford.
Free Gifts
Some realtors offer free gifts such as
coin , cars.
Gifts also include foreign tours.
gold
Early Bird
Early investors can avail of discounts.
Most real estate projects are developed in
phases.
Even before the basic approvals are in
place, developers start marketing projects to
brokers and some buyers at a discount.
Soft Launch
Brand
Equity
Utilities
Real
Estate
Governmen
t
Regulatio
n
Easy
access to
finance
Brand Equity
According to report by Jones Lang-lasalle the
outlook of Indian real estate industry is
positive.
People perceive it worthy to invest in real
estate properties now and are increasingly
going for properties owned by branded
companies.
Reduction in frauds due to computerized
registration process has helped build customer
confidence.
come down.
Government Regulations
Reduction in stamp-duty and registration
charges has helped industry to grow.
Computerization of legal procedures from
government authorities
Utilities
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 $52080
for priority sector lending
Liability/ Penalty
Civil and criminal liability for the
contravention of various provisions of
theBill.
Imprisonment up to three years or a penalty up
to ten per cent of the estimated cost of the
real estateproject For projecting out
misleading information in advertisements or
prospectus
Investments
Private Equity(PE) investments in real estate
investment, revels that approximately Rs
118.54 billion is available with PE to be
deployed in real estate, even though a drop in
PE investment in the first half of 2013
PE investment in
residential sector Rs 9.3 billion, in 2013
Office segment Rs 7 billion, in 2013
Ready office space Rs 77.05 billion in last
three years
Target
Acquirer
Value($ million)
Year
Caraf Builders
696.5
2009
Cowtown Land
Development Pvt
Ltd
Lodha Group
513.6
2011
Jef Morgan
320
2011
Oceanus Real
Estate
Warburg Pincus
318
2011
Indiabulls
Properties Pvt Ltd
Indiabulls
Property Invest
Trust
223.1
2012
Embassy Property
Blackstone
200
2012
Joint Ventures
Laing O'Rourke(50:50 JV) is a UK based
construction company. It will construct all
DLF's landmark projects
Nakheel of Dubai are partnering with DLF for
developing townships in India.
WSP GroupPlc (50:50 JV)is also partnering
DLF, providing management and consultancy to
the built and natural environment.
Ventures is providing consultancy for faster
project execution
DLF has teamed up with Hilton Hotels to
jointly develop hotels in India.
Exits
In 2013, July DLF has sold 74 percent
stake in the life Insurance joint venture
with U.S based Prudential International
Insurance Holding Ltd to Dewan housing
Finance Corp.
New entrants
Large number of small new entrant are seen
in the last couple years because of the
huge profitability in this sector and
related
sector.
Cost
The cost of property in the real estate industry
includes the various types of costs involved in
the transaction and is not just restricted to the
transaction value of the property
The three main components of cost in this industry
are:
Transaction Costs: Duties and fees and other
charges to complete the transaction
Finance Cost: Application fee, processing fee,
pre-EMI (Equated Monthly Payment) costs and
expenses other than interest and EMI expenses
involved in obtaining a loan for the
transaction.
Cost of land, construction of property and other
development charges.
13.47
16.75
14.59
18.41
3.27
0.87
0.79
9.83
36.19
4.81
1.25
0.83
25.07
22.98
4.49
0.8
0.71
22.67
30.27
4.57
1.04
0.92
23.19
33.59
4.93
0.76
0.67
26.64
34.69
Raw Materials
Expenses
Advertising
expenses
Interest Expenses
Financial Year
Compensation to
employees
Marketing
Expenses
Others Expenses
11.19
13.47
14.59
16.75
FY
FY
FY
FY
FY
08
09
10
11
12
Compensation to employees
The labour costs are
involved in the phase
of construction
Due
to
govt.
regulations of minimum
wages,
the
labour
costs have increased.
The demand for the
labour is also another
reason
for
the
increase in the wage
costs.
Compensation to employees
4.93
3.27
4.81
4.57
4.49
FY
FY
FY
FY
FY
08
09
10
11
12
Marketing expenses
The
marketing
costs
involves
the
selling
&
advertising expenses of the
real estate industry.
These costs are not very
high, but still the amount
spent
on
the
marketing
forms a part of the costs
involved in the real estate
project.
These
costs
include
the
advertisement expenses in
the newspaper, television,
maintaining websites etc.
Advertising expenses
0.76
0.87
1.04
1.25
0.8
FY
FY
FY
FY
FY
08
09
10
11
12
Interest Expenses
This is a major part of the cost in
this industry.
Since the capital required is high,
Loan is a major form of financing
option for the real estate industry.
Interest Expenses
9.83
26.64
FY
FY
25.07
FY
FY
FY
23.19
22.67
08
09
10
11
12
Other Expenses
This includes various
commission, brokerage
fees paid to the agents.
It also includes various
machineries, insurance,
unforeseen expenses
It also includes various
stamp duty charges,
taxes, pre acquisition
costs, legal fees,
planning costs et al.
which are statutory in
nature
Others Expenses
34.69
36.19
22.98
33.59
30.27
FY
FY
FY
FY
FY
08
09
10
11
12
Profitability
REVENUE
The revenue factor is one of the most important factor while
ascertaining the profitability.
In the real estate sector, as is shown in the below graph, the
sales of the FY 08 was up by 82.38%.
This was during the boom period of the real estate sector
worldwide.
There was cheaper financing option and also the demand was high.
But since the 2008 real estate bubble burst, the sales in the FY
09 saw a negative growth in sales.
It is still in the recovery phase and the sales in the FY 12
increased by 23.39% compared to FY 11
Revenue
100.00%
50.00%
Percentage
0.00%
-50.00%
FY 08
FY 09
FY 10
FY 11
FY 12
Net Profit
The net profit shows the actual profits earned by the industry
after taxes and interest
The net profit in the FY 08 was up by 132.82% compared to FY 07
But due to the effect of real estate bubble burst, the industry
saw a negative profits for the next three years from FY 09 to
FY 11.
It was only in FY 12 that the industry posted profit
Another main reason for the decrease in profits is the high
inflation which is leading to higher operating costs.
The financing costs is also on raise which is again impacting
the overall profits of the industry
The DBS report forecasts a good financial performance (profits)
in the coming years FY 13 to FY 17
Net Profit
150.00%
100.00%
Percentage
50.00%
0.00%
-50.00%
-100.00%
FY 08
FY 09
FY 10
FY 11
FY 12
EBITDA
EBITDA Margin
80.00%
60.00%
Percentage 40.00%
20.00%
0.00%
FY08
FY09
FY10
FY11
FY12
Future Outlook
Future Outlook
Real estate is reaching a point of saturation in
developed countries and the demand and prices are falling
Global real estate players are looking at emerging
economies such as India for their investments
The Indian retail realty sector is projected to grow at
around 15 per cent year-on-year over the next 35 years.
If the sector does indeed manage the aforementioned
growth, it will touch Rs. 34 trillion (US$ 544.73
billion) by 2016.
The construction development sector, including townships,
housing and built-up infrastructure garnered total FDI
worth US$ 22,671.95 million in the period April 2000
August 2013.
Demand for space from sectors such as education,
healthcare and tourism has opened up opportunities in the
real estate sector.
Tier-3 cities like Surat, Lucknow et al, are beckoning
real estate players
Education Sector
Tourism Sector
at
is
at
to
of
The southern
Indian States Andhra Pradesh, Tamil Nadu and
Karnataka - have been the major
drivers of economic growth in
India.
The three states together account
for about 22 per cent of Indias
GDP
Nearly 45 per cent of Indias
office stock is represented by
these states; over 64 per cent of
the countrys IT SEZs are housed
in this region
Office stock projected to grow at
a CAGR of 8 per cent between 2014
and 2017
A growing migrant population due
to increasing job opportunities,
together
with
healthy
infrastructure
development,
is
underpinning
demand
in
the
Healthcare Sector
The healthcare sector is estimated to
grow at the rate of 15% per annum from
2013-16
This means that India is expected to
need additional 950,000 beds.
This has provided a great source of
opportunity for the real estate
industry and the investment towards
this is expected to be around $50 Bn
over a period of 10 years.
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.
References
(August 2012). Real Estate Sector in
India. New Delhi: Competition
Corporation of India (CCI)
http://www.cci.in/pdf/surveys_reports/re
al-estate-sector-india.pdf
Warren, A. (September 14,2012). Global
Real Estate Trends. Toronto: Scotia Bank
http://www.gbm.scotiabank.com/English/bn
s_econ/retrends.pdf
Porter, M. E. (June 2002). Competitive
Strategy and Real Estate Development.
Harvard Business School , 9.
http://www.isc.hbs.edu/Porter_Strategy_R
Thank You