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Emerging trends in Real estate sector- India 2012
 

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    Emerging trends in Real estate sector- India 2012 Emerging trends in Real estate sector- India 2012 Presentation Transcript

    • Emerging trends in real estate India | 2012© Grant Thornton International. All rights reserved.
    • Contents05 | Foreword07 | Future cities: a perspective12 | Regulatory environment: the changing dynamics29 | Managing risks for long-term sustainability41 | Technology: the game changer58 | Green practices: an option and a necessity
    • About the studyWe are delighted to release "Emerging trends in real Key highlightsestate | India 2012" report as knowledge partner forthe 8th International Conference on Real Estate organised • the real estate sector in India is in a phase ofby the Confederation of Indian Industry (CII) in New consolidationDelhi. • regulatory environment is evolving constantly to promote and support this consolidationThe report is third in the series of collaboration betweenGrant Thornton India LLP and CII that began in 2009- • a thought-out risk management framework has now become an imperative10. It strives to map industry opinions and interpretationof the emerging trends in the real estate sector in India. • technology is the key to drive efficiency and take the sector to the next levelThe report is based on an online and interview-based • adopting green practices is no more an option, theysurvey, and presents a mix of quantitative and qualitative are fast emerging as tools for sustainable andanalysis. harmonious growth in the long term Survey participants profile 28% 21% 19% 16% 9% 7% CMD/MD CXO Government VP/Director Architect/Planner Academician© Grant Thornton India LLP. All rights reserved. 4
    • ForewordThe real estate sector in India has come a long way from being dominated by a handful of players in the 90s to anexpanding base of developers, investors and global stakeholders buoyed by the growing construction industry in thecountry. The sector has been undergoing corporatisation and professionalisation and recognised as a key sectorcontributing to the economic development of the country.After witnessing strong growth in 2010, the sector witnessed a slight correction in the year 2011. The downside for thesector was a weakening in demand due to the global economic scenario, a slowdown in the domestic economicconditions, escalation in input costs including interest costs and controversies over land acquisition. The current easingstance of RBI has rejuvenated sentiments in the sector. However economic conditions can be termed challenging in theshort term. In the long run, urbanisation is inevitable and this will bring significant demand for real estate, and thereforewe are very optimistic about the sector‟s growth prospects.The year 2012 has begun on a sluggish note for the Indian economy, with the GDP expanding by 5.3% in March 2012,the lowest in nine years. However, the tough economic conditions have led developers to adapt quickly to the changingeconomic situation. While developers in the commercial segment are offering flexible leasing terms to attract occupiers,real estate companies in the residential space are concentrating on building affordable homes, thereby widening theirconsumer spectrum.Another factor that can help real estate companies tide over the difficult times would be the ability to judiciously use cashby liquidating existing inventories. The government has taken initiatives such as relaxation in external commercialborrowing norms, capping subsidies as a fraction of the GDP, new manufacturing and telecom policies to revive globalinvestor confidence. These steps are expected to generate positive results and will assist in generating investor inflows.The government is committed to introducing FDI in multi brand retail, introduce changes in the existing SEZ policy toresurrect developer interest and expand the role of the private sector in infrastructure development.© Grant Thornton India LLP. All rights reserved. 5
    • ForewordImplementation of key economic reforms is likely to result in a gradual improvement in macro-economic conditions inthe coming few months. This, coupled with a slow and gradual economic recovery in the Eurozone, is likely to result intoa revival in demand in the real estate market.To enable the stakeholders to have a clear perspective of the macro environment surrounding this sector, a survey wasconducted by CII and Grant Thornton India LLP. The results of the survey are included in this report, which alsopresents broad themes for discussion in this Conference – regulatory environment, governance & risk management,technology and green initiatives.CII has been actively engaged with the real estate sector addressing their key issues relating to policy matter anddeveloping a roadmap to leverage the growth potential of this sector. The 8th International Conference on RealEstate: REALTY 2012 is another step forward in this direction.We convey our sincere thanks to all the respondents associated with the survey for their tremendous support andvaluable inputs. Hope that you would find this report insightful and enriching.Anshuman Magazine Vishesh C. ChandiokConference Chairman National Managing PartnerFormer Chairman, CII National Grant Thornton India LLPCommittee on Real Estate & HousingChairman & MD, CBRE South AsiaPvt. Ltd© Grant Thornton India LLP. All rights reserved. 6
    • Future cities: a perspective
    • The complexity of citiesCities are complex organic entities. The complexity of The challenge cities face is putting these pieces back togetherthe cityscape (see Figure on the next page) in part to deliver an integrated approach to sustainability.derives from the diversity of stakeholders within cities,including citizens, communities, local government, the This requires a complex governance process and collaborationhealth service, universities, emergency services, between diverse parties to deliver city-wide agendas. Iftransport authorities, housing associations, utilities, defining and measuring sustainability has the potential to be alarge corporates and SMEs across a broad range ofsectors. life‟s work, creating structures for consensus and engagement around a common set of goals among these stakeholdersA city schematic in two dimensions underlines this could easily be another.complexity. Organisational structures have become morefragmented in both public and private sectors in recentdecades as responsibilities have been devolved and businesssupply chains have become more complex and the playersmore specialised.© Grant Thornton India LLP. All rights reserved. 8
    • Voluntary Voluntary organisations organisations Network Network Comms Comms Communities Communities Corporates Public Districts Districts Waste Resources sector Solid Food Liquid Transport Heat Water Power Bio Co2 Comms Superstructure NOX etc.. Power Infrastructure Cityscape© Grant Thornton India LLP. All rights reserved. 9
    • Developing sustainable citiesWhat does sustainability mean?Grant Thornton defines sustainability as assessing the long- The social: aterm viability of a project, programme or initiative in terms The economic: which is the good quality of lifeof its use of resources and its environmental, social and requirement for the city to sustain its for citizens, goodeconomic impacts. Clearly the key words are „long term‟ and competitive position and thrive in public health,„viable‟. business terms. mechanisms to tackle deprivationThere is plenty of room for debate. Nevertheless, both and inequality, andbusinesses and public bodies are now making a strong link creation of an The environmental: which is aboutbetween the sustainability of the environments in which they attractive both the physical envelope in which aoperate and their own long-term sustainability and viability. community or city exists, and the „footprint‟ of the communities to city as it draws on basic resources.The four pillars of sustainability live in.There are four key aspects to sustainability, which are widelydocumented. They can be illustrated as „pivot of The institutional dimension: This plays an interlocking or supportingsustainability‟. role to the other „pillars‟ – creating sustainable institutions and governance mechanisms which align with long term sustainability objectives. The recent institutional history of India is one of profound change, often leading to fragmentation and instability. The relationships between the individual, the businesses that sustain, the institutions that govern and the communities that provide the social context, have changed beyond recognition in the past two decades. Addressing the institutional, or governance dimension, is therefore a major component of any sustainability strategy. Pivot of sustainability© Grant Thornton India LLP. All rights reserved. 10
    • A sustainable city measures itself at the moment in qualitative terms – by theleadership and governance arrangements that are in place to ensure that thecharacteristics of a sustainable city are funded, protected, influenced and managedeffectively. For example:• what policy statements and commitments have been made to tackle climate change and sustainability?• how are these policies tied to the strategic long-term planning for the city?• how informatively are carbon emissions and energy usage measured?• how are responsibilities for climate change, energy use and sustainability managed across the city?• what level of collaboration exists between the city authorities, other public sector bodies, third sector and businesses to deliver an agenda focused on the city itself?• how successfully are behaviours being changed to move towards households and businesses becoming sustainable? And what is the role played by communities in this process?
    • Regulatory environment: the changingdynamics
    • Regulatory environment: the changing dynamicsFinance has unequivocally been the biggest challenge for the retrospective effect from 01 April 1962 amended section 9 ofreal estate sector of India. Hardening of interest rates has a the Income-tax Act, 1961 (ITA) to tax the indirect transfer ofmajor impact on the borrowing costs of the developers. At an asset in India.the same time, it has affected demand for real estate, which islargely driven by bank finance. Also with the inclusion of GAAR in the ITA (the applicability of which is deferred by one year), the tax authorities have beenThe real estate sector was looking forward at the Budget 2012 granted the wide ranging powers with respect to certain kindsto come with some major policy decisions, such as the long of transactions if the main purpose or one of the mainstanding demand of granting realty sector an industry status, purpose of a transaction of a part of the transaction is to availwhich would have eased the borrowing cost and avenues for tax benefit. The introduction of GAAR by the Budget 2012raising funds for the developers; an upward revision of the was widely criticised internationally. One of the biggestpresent limit of Rs. 1.5 lakh on interest cost deductibility on concerns was that onus of proving lack of tax avoidance wasself-occupied houses; re-introduction of profit based on the assesse.deduction for affordable housing and to exclude real estatedevelopment from the purview of service tax. However, the FM has assured that the onus would be on the department. There would be more clarity as events unfoldsGeneral Anti-Avoidance Rule (GAAR) from now till the next fiscal when GAAR becomes applicableMounting levels of fiscal deficit in the Indian economy has and the guidelines are framed for its application. The successput tremendous pressure on the Finance Ministry. In order to of an anti-abuse measure lies in astute selection and vigilantlycontrol it the income tax authorities have adopted a pro- supervised employment. The real estate sector will have torevenue attitude like never before. bear the brunt of GAAR as due to business and regulatory (such as land ceiling) needs, the transactions are structured in aThe Supreme Court (SC) settled, what was arguably the most manner that involve several steps and/or entities. One onlyeagerly tracked tax litigation in recent times, the case of hopes that there would be some free play in the joints and theVodafone International Holdings BV vs. Union of India unassailable evidence of commercial prudence for eachwherein the SC held that an indirect transfer would not be transaction is not required to be maintained.taxable in India. However the Finance Act 2012 with© Grant Thornton India LLP. All rights reserved. 13
    • Regulatory environment: the changing dynamicsThe recent growth in the Indian economy has stimulated The Bill also provides for establishment of an Appellatedemand for land and developed real estate across the country. Tribunal to adjudicate disputes and hear appeals from theTaking into consideration the rising demand for residential, decisions or orders of the Authority.commercial and retail real estate, the Finance Bill 2012 hadproposed insertion of section 194LAA in the ITA to deducttax by way of TDS @ 1% on consideration for transfer of Some of the key provisions of the Bill are:immovable property (other than agricultural land) if the value • mandatory registration with the Real Estateof the property exceeds Rs. 50 lakh in urban areas and Rs. 20 Regulatory Authority for any project to be spreadlakh if the property is situated in any other areas. over 4,000 square meters • the real estate developer shall be required toThe genesis behind such proposed amendment seems to be to deposit at least 70% of the funds received from endreduce the flow of black money in the market and ensure customers into a dedicated project account, which can be utilised only for the purposes of the projectreliable data collection, apart from collection of tax at the • no advance can be received without entering intoearliest point on transactions of immovable properties. an agreement with the customer. Sales opportunityHowever the proposal was dropped deferring to the plea that through pre-sales/soft launch may be curtailedit will put extra compliance burden on the consumer. • registration can be extended only up to two years beyond the original period for development grantedReal Estate (Regulations & Development) Bill, by the local licencing authority2011 • mandatory web-presence of the developer on theOf late, the Government reintroduced the Real Estate authority‟s website(Regulations & Development) Bill, 2011, the exposure draft • the Authority has the power to take over development work etc, in case of lapse/cancellationof which was available for comments. The bill seeks to of the registrationestablish the Real Estate Regulatory Authority for regulationand planned development in the real estate sector. Theobjective of the Authority shall be to take all possiblemeasures for the growth and promotion of a healthy,transparent, efficient and competitive real estate sector.© Grant Thornton India LLP. All rights reserved. 14
    • Regulatory environment: the changing dynamicsIn overall, the efforts of the Government are otherwise Real estate development (especially housing which has alaudable and the consumer would benefit by increase in sale model) is capital intensive but the investment is not atransparency and regulations. However, there is a need for Capital expenditure. Realising this, now a weightedreforms on the matters related to land title and registration. deduction of 150% of capital expenses has beenWithout the digitisation of land records, the condition itself introduced.may be ineffective. Further, though a mechanism forregistration within 30 days has been introduced in the Bill, The Income Tax rules provide that for a project tothere may be a reduction of supply due to delayed and denied qualify under affordable housing scheme, it has to fulfilregistrations. certain conditions.Major amendments by the Finance Act 2012 –Real Estate Some of the key conditions are as follows:The slabs for individual taxation have been raised only a little • the project shall have the prior sanction of the competent authoritybit and the consequent tax saving will be too insignificant to • the project shall be on a plot of land which has aprovide additional funds to young first time home buyers, minimum area of one acrewhose share in the customer base of residential real estate is • the layout and specifications including design of theincreasing. Transfer pricing provisions, which were thus far project to be developed and built shall be approvedapplicable only on international transactions, would now be by the State or Union Territory Government or itsapplicable on specified domestic transactions between related designated implementing agencyparties. Now transactions with the related parties will have to • the project shall be completed within a period of 5 years from the end of the financial year in which thebe benchmarked to demonstrate that they are at arm‟s length. project is sanctioned by the competent authorityIn the last year 100% upfront deduction of capitalexpenditure incurred prior to the commencement of businessof “developing and building a housing project under ascheme for affordable housing formed by the centralgovernment or a state government” was introduced.© Grant Thornton India LLP. All rights reserved. 15
    • Regulatory environment: the changing dynamicsFurther, realising the need to fund low-cost housing and in Floor Space Index (FSI)order to make the scheme of affordable housing more The Planning Commission in its recent report hasfeasible, the Government extended the benefit of External recommended vertical growth of Indian cities by selectivelyCommercial Borrowing (ECB) to affordable housing project. providing additional FSI beyond the permissible index at anFurther the budget also extended a beneficial rate of only 5% extra charge of at least 50% of the area/ circle rates.on interest to non-residents who fund such projects. In the present scenario, FSI values in India vary from city toAffordable housing thus continues to be the focus of the city however on an average it ranges between 1 and 4Government. An enhancement in the scope of deduction for (including all product mix – residential, commercial, retail etc.).the business of developing and building housing project However, this is far below considering other cities in theunder the scheme for affordable housing framed by the world; for example FSI in New York and Manhattan is 15, inGovernment will lead to a consequent increase in the Shanghai it is 13.1 and in Hong Kong (Central Businessinvestment in this sector. District area) it ranges up to 15.The rate of service tax and excise has been increased. It is With respect to Indian cities, the concept of low rise-lowanticipated that the increase in the rate of excise on steel and density has worked well considering the fact that sufficientcement (along with the increase in service tax) will push the land was available for horizontal growth. However with theprice, by approximately 1.5%. With the ever increasing exponential population growth and limited availability of landinventory, the industry may find it difficult to pass on the parcels for urban/ rural sprawl, going vertical with high rise-additional tax cost to the consumer. high density seems to be an optimal solution. But this underlines the need for increased and stronger infrastructure considering additional load on services such water, electricity, sewage, parking and most important security.© Grant Thornton India LLP. All rights reserved. 16
    • Regulatory environment: the changing dynamicsUrban planning in India, which is largely based on low rise- 1. Mumbai: TDR conceptlow density principle, has now led to either sprawl or even The transfer of development rights (TDR) concept wasworse, a situation of informal densification without any introduced in Mumbai through regulation no. 34 (Appendixsupporting infrastructure. However, in smaller cities the VII) in the Development Control Regulations for Greaterprescription of setbacks and building height generally governs Bombay 1991.the built up area. Need for TDR in MumbaiThe first consideration of low FSI in Indian cities has been The urban local body, the Brihanmumbai Municipalthe prevailing carrying capacity of basic amenities such as Corporation (BMC), is responsible for the development andwater, power, drainage, parking, transport and provision of public amenities as per the provision of 12thcommunication, and the second has been that low FSI shall schedule of 74th Constitutional Amendment Act.limit the population size of the city. Despite all shortcomings,the cities kept growing. Extraordinary low FSI in certain cities Due to finance-related constraints, BMC could not acquirelike Mumbai and Delhi has even led to an artificial increase in land for public amenities from private owners. In a few casesthe land prices and rental values. the corporation attempted to provide monetary compensation to the owner in lieu of the land acquired but that was felt to beVarious cities have tried different mechanisms to increase FSI inadequate. Hence the concept of TDR was introduced as anand in turn devise a system to improve the spending for alternative to monetary compensation.infrastructure development to cater to the needs of additionalpopulation coming in the area due to the result of increased To rehabilitate slums, the Government of MaharashtraFSI. introduced TDR as an incentive to attract developers to the slum redevelopment scheme and slum rehabilitation scheme where an owner or a builder redevelops slums free of cost and gets TDR as an incentive.© Grant Thornton India LLP. All rights reserved. 17
    • Regulatory environment: the changing dynamicsPermissible FSI 3. Andhra Pradesh – Limitless FSIThe permissible FSI, including the TDR on a plot, has a Andhra Pradesh is one state that does not limit vertical growthmaximum capping of 2. The permissible base FSI in the and where there is no limit on the FSI. However to check thesuburbs was 1 with a balance of 1 to be utilised for TDR. The pressure on the existing infrastructure in the surrounding areabase FSI has been increased from 1 to 1.33, hence reducing an additional fee called the “Infra Impact Fee” is charged inthe TDR component to 0.67. The additional 0.33 FSI can be case a building is required to go beyond the specified height inutilised on a payment of an amount (30% to 40% of the land that particular area as per the building bye-laws.value) fixed by BMC. In this case the additional FSI can be built by paying an infra It allows the BMC to finance the infrastructure required to support the increased FSI in the receiving areas and controls the flow of impact fee to the tune of Rs. 30-50 per square feet (on an TDR in the market. average, it may differ from area to area). This additional collection by the corporation is then utilised to improve the infrastructure of that area.2. FSI bank: Bandra-Kurla Complex (BKC), ‘G’ –Block (Mumbai) - 2009An additional built-up space was generated following the The change has impacted the skyline of many cities in thegovernment decision to hike FSI at BKC from 2 to 4. The state and there is a visible shift from FSI of 1.75 (prior to 2006revised availability of built up space in G-block provided 23 – when the new regulation came into being) to 4 to 6 inlakh square metre of construction space. peripheral cities and 3 to 4 in cities. Though there can be an endless list to the above, the question still remains the same,Under the previous FSI norm of 2, the built up space was are the cities of India ready to go vertical with the existing8 lakh square metre. Moreover, this move also resulted in an situation of urban infrastructure?estimated revenue of Rs. 13,000 crore from the sale of extrabuilt-up space.© Grant Thornton India LLP. All rights reserved. 18
    • Regulatory environment: the changing dynamicsLand Acquisition and Rehabilitation and Under our Constitution, land has been recognised as a StateResettlement Bill (LARR), 2011 subject however, land acquisition is a concurrent subject. TillDevelopment along with urbanisation demands for land date, before the draft LARR was introduced, the basic lawacquisition at one point or the other. Considering the scarcity governing land acquisition has been Land Acquisition Act,of land and growing pressure on the existing infrastructure, 1894. Although there are 18 other such laws of the centralefforts have been to try other initiatives like increasing the FSI government for land acquisition (like for SEZ‟s, railways,or increasing the density in the given areas to cater to growing defence, highways, etc.), the draft LARR shall enjoy thepopulation, however additional land shall still be required as primacy over such specialised legislations that are currently inmany cities have reached the threshold of their carrying force. This draft Bill shall be in addition to and not incapacities. derogation of the existing safeguards currently provided for in these laws.To cater to such needs either private parties buy landthemselves or government helps in land acquisitionparticularly for public purposes, however it has never been a FDI in organised retail sectorsmooth process and project affected people have more or less In January 2012, the Department of Industrial Policy andbeen neglected or under compensated. This has given rise to Promotion (DIPP) permitted 100% FDI in Single Brand Retailagitation and in worst situations, it results in stalled projects. Trade (SBRT) under Government approval as against the current limit of 51% FDI in SBRT. All the key features of theWith regards to public welfare and development needs, land policy liberalisation have been retained along with the followingacquisition has to be a fair mechanism, which ensures that additional clarifications/ modifications:there is no loss of livelihood of the affected people. In order • with respect to proposals involving FDI beyond 51%,to facilitate land acquisition along with proper compensation mandatory sourcing of at least 30% of the value of productsmechanism Draft Land Acquisition and Rehabilitation and sold would have to be done from Indian small industries/Resettlement Bill (LARR), 2011 was introduced by the village and cottage industries, artisans and craftsmenGovernment. • small industries would be defined as industries which have a total investment in plant & machinery not exceeding US$ 1 million© Grant Thornton India LLP. All rights reserved. 19
    • Regulatory environment: the changing dynamicsNeed for a new Law Scope of LARR, 2011Though there have been amendments in the original Land a) Land Acquisition and R& R provisions shall apply underAcquisition Act, the principal law continues to be the same the conditions as below:which is outdated and requires more focus on the need of the • land acquisition by the government for its own use, holdcountry. There has been no national/ central law to provide and controlfor resettlement, rehabilitation and compensation due to land • land acquisition by the government to be transferred toacquisition. private companies for stated public purpose (including PPP projects but other than national highway projects)LARR, in this scenario, attempts to address the concerns of • land acquisition by the government for immediate andfarmers and those who are dependent on land being acquired declared use by private companies for public purposeand facilitate land acquisition to cater to need of urbanisation,industrialisation and growing demand for infrastructure b) Only R & R provisions shall be applicable under thedevelopment. conditions as below: • partial land acquisition by government for private companies for public purposes • buying of land by private companies on their own for equal to or more than 100 acres Though there have been many checks and balances imbibed in the new Bill to resolve the concerns pertaining to project- affected people, there may be a threat towards notional increase in the land prices as according to the bill it implies “in case of urban areas the compensation amount would be not less than twice that of the market value so determined and in rural areas it would not be less than six times the original market value”.© Grant Thornton India LLP. All rights reserved. 20
    • Regulatory environment: the changing dynamicsRevised Guidance Note on recognition of revenue Key changesby real estate developers The scope of the Guidance Note has been significantlyThe real estate sector in India has been evolving consistently enlarged to capture all models/ structure of transactionsover the past few years. This transition from being a highly including sale of development rights, joint developmentunorganised business to an organised sector underlines the arrangements and transactions involving exchange of landneed to review varied accounting practices being followed by with developed property.the real estate companies. Definition of project: As per para 2.1, a project is defined asThe introduction of the “Guidance Note on Accounting for “a group of units/plots/saleable spaces which are linked withReal Estate Transactions” by the Institute of Chartered a common set of amenities in such manner that unless theAccountants of India (ICAI) is a step forward in addressing common amenities are made available and functional, thesesubjectivity and ambiguity in a number of areas, and is all units/ plots/ saleable spaces cannot be put to their intendedlikely to bring uniformity in accounting practices. The Note, effective use”. A larger venture can be split into small projectswhich supercedes the existing Guidance Note issued in 2006, if the basic conditions as set out.will also ensure comparability of financial statements. The pre-conditions to be satisfied for Revenue Recognition areThe objective of this Guidance Note is to recommend the as follows:accounting treatment by enterprises dealing in real estate‟ as • all critical approvals necessary for commencement of thesellers or developers. project have been obtained • expenditure incurred on construction and development is higher than 25% of the construction cost (excluding land cost) • at least 25% of the saleable project area is secured by eligible contracts or agreements • at least 10% of the total amount collectible in respect of an agreement to sell (ATS) has been so collected at reporting date© Grant Thornton India LLP. All rights reserved. 21
    • Regulatory environment: the changing dynamicsRevenue should be recognised for "legally enforceable Impact on the tax assessments: One of the keycontracts" only when there are no outstanding defaults of the considerations of this change should be acceptability of thepayment terms in such contracts. proposed accounting principles by the income tax authorities.Way forward Communication with stakeholders: On deferral of revenue,Transition: long term projects where even a small portion of some of the debt covenants may get broken. Time andrevenue has been recognised before 1 April 2012, will be effective communication with different stakeholders is goingcontinue to be accounted for on the basis of the existing to be a key in managing the transition to the new accountingguidance note. For the initial years, the companies may have rules.to keep two separate revenue recognition computations – forprojects pre and post the implementation of the revised GN "This new accounting development is a welcome step for the companies in the real estate sector. Apart from bringing in some common set of principles for accounting,Project: Identification of common set of amenities within a these new accounting rules will also take intoproject would be key for evaluating the project definition. consideration the current uncertainties impacting theResultantly any reassessment of project definitions may lead sector and shall ensure a more realistic picture ofto significant changes in the revenues/ profit calculations. revenues for these companies." David JonesPayment defaults: It is not clear if post balance sheet date Partner & Practice Leader – Real Estatedefaults or payments to be considered. A complete track of Walker, Chandiok & Cothe defaults made by the customers need to be maintained ona real time basis. Recognised revenues may result insubsequent reversal adjustments as a result of delayed cashinflows.© Grant Thornton India LLP. All rights reserved. 22
    • Regulatory environment: the changing dynamicsDelhi Master Plan 2021 Master Plan 2001 to develop an urban plan that was integratedUrban planning is core to the development of sustainable with the projected need of housing in the national capital. Thiscities, which have sufficient resources and infrastructure to Plan, which is commonly known as the Master Plan 2021, wassupport continuous increase in population. The steps leading notified on 07 February 2007.to the creation of sustainable cities need to be augmentedwith provisions for adequate and sustainable human With the passing of the National Capital Territory of Delhisettlements and services to support rapid urbanisation. In Laws (Special Provisions) Second Bill, 2011, the deadline ofrecent times, the phenomenal rate of urbanisation and finalising policies for achieving the Master Plan‟s targets havemigration has exposed cities to the challenges of urban been extended for three years to 31 December 2014. Theplanning and governance. Suffering from a lack of urban Ministry of Urban Development plans to utilise the extendedinfrastructure, cities succumb to the issues emanating from time buffer provided by the Bill to review the Master Planthe proliferation of urban slums, squat and informal 2001, and modify it to chart an urban plan that complies withsettlements. the pace of increasing population in the city in the next 25 years.Following the enactment of the Delhi Development Act 1957to streamline the process of planned development in the To develop a visionary plan that supports the development ofnational capital, the Government drew up the Master Plan of the national capital as a global metropolis, the Government isDelhi in 1962. Widely considered as one of the first steps also using remote sensing and GIS (Global Informationtowards modern planning in India, the Plan was prepared System) tools. The mapped data would be used to ascertain thewith a perspective of 20 years. In order to cater to the pattern of increasing population, and detect and preventchanging requirements of the city, the Plan was amended encroachment on public land. Further, the data will beunder Section 11A of the DDA Act. consistently updated in order to monitor the success of the Master Plan. The Master Plan also aims at delineating policiesKnown as the Master Plan 2001, the modified Plan was especially targeted for the protection of green belts andapproved by the Government in 1990. Further, the conservation of heritage infrastructure of Delhi.Government undertook the modification and revision of the© Grant Thornton India LLP. All rights reserved. 23
    • Regulatory environment: the changing dynamicsThe Plan also intends to explore the Floor Area Ratio (FAR) and monitoring, the Master Plan aims to explore options forlaws to optimise the monetisation of the available land, developing housing projects with amenities better suited toinnovative models of Public Private Partnership (PPP), etc. As meet the challenges of urban planning in the national capital.part of the initial review of the Plan, the prevailing guidelinesfor land use, floor area allotment, regulation in influence zone Guide for achieving slum free visionalong metro lines and industrial areas, notification of new The Master Plan will serve as a guide for all action towards itscommercial and industrial areas, etc. are being evaluated. aim to provide rehabilitation in the form of built-up houses with all civic amenities to the slum dwellers of the city. WithDelhi Master Plan 2021 is poised to revamp the national an intent to reinforce the capacity of the city to deal with thecapital with sweeping changes and aims to transform the city issue of unauthorised development of slums and otherinto a world-class city which provides its people with a informal dwellings, 23 slum areas have been identified by thesustainable environment. The guiding principle of the Master Delhi Development Authority (DDA) for rehabilitation ofPlan is to use the 27,628.9 hectares of unutilised land in the dwellers living in these areas in sub-standard conditions.city for achieving its objective of making the city slum-free,and to develop residential units equipped with essential civic The road aheadamenities, within a span of 10 years. As per the latest Once ready and implemented, the Delhi Master Plan 2021 isestimates provided by the Ministry of Housing and Urban expected to provide holistic benefits to the city, in the form ofDevelopment, the national capital will face a scarcity of about amenities better suited to suffice the needs of its ever-24 lakh dwelling units for housing an estimated 23 million burgeoning population, and an infrastructural framework thatpeople by the end of 2021. is conducive to the economic growth of the national capital. However, the success of the Master Plan 2021 in realising theThe Master Plan, which is to be re-implemented with the land vision of making Delhi a global metropolis is subject to thedevelopment policy, intends to ease the pressure on urban implementation of strategies, schemes, guidelines, policies andplanning in the city, including congestions and shortages of programmes. Further, it is imperative to enforce a monitoringcivic amenities, by constructing residential projects. Structured process at every stage of the implementation cycle to not onlyover distinct sequential stages such as social and physical evaluate and validate the enactment of the Master Plan withinfrastructure, mixed land-use regulations, development code the established goals, but also to realign strategies to overcome its shortcomings.© Grant Thornton India LLP. All rights reserved. 24
    • Industry point of viewDoes the increase in supply, due to increased Floor Space Index (FSI) would Should the FSI be incremental based on the ratio of the population of the cityresult in crash of land prices in Delhi? to the city area or should it be constant for tier I, II and III cities? Definitely Yes: 14% Definitely Not: 20% Yes for second option – Strongly agree: 6% Yes for second option – Agree: 18% Maybe: 52% Cant say: 14% Yes for first option – Agree: 41% Yes for first option – Strongly agree: 35% 14% Definitely Yes 41% Yes for first option – Agree© Grant Thornton India LLP. All rights reserved. 25
    • Industry point of viewShould the FSI be constant throughout the city for a particular product mix Will the concept of selling additional FSI (if so increased) to developers at a(residential/ commercial, etc) or it may vary within the city limits depending premium price be welcomed by the developers in Delhi? Since this additionalon the predefined parameters? If yes, then what should be the parameters money so coming to the DDA will help in infrastructure development.(example density, location, connectivity, etc)? Yes for second option – Strongly agree: 23% Yes for second option – Agree: 27% Definitely Yes: 34% Definitely Not: 10% Yes for first option – Agree: 31% Yes for first option – Strongly agree: 19% Maybe: 46% Cant say: 10% Yes for first option – Agree 31% 46% Maybe© Grant Thornton India LLP. All rights reserved. 26
    • Industry point of viewWill the new Rehabilitation & Resettlement (R&R) Bill solve the problem ofproject affected people or will it add to the increase in the land prices? Definitely Not, it will add to the increase in land Definitely Yes, it will solve the problem of prices: 14% project affected people: 25% Maybe: 38% Cant say: 23% Definitely Yes 25%© Grant Thornton India LLP. All rights reserved. 27
    • Industry point of viewWhich of these proposed covenants of the Draft Real Estate (Regulation& Development) Bill do you find to be the most regressive: After the expiry of the initial project No advance can be received without entering period, maximum of only two years into an agreement with the customer. The sales extension is provided. There is no opportunity through pre-sales/soft launch is specific provision for exigencies curtailed, as typically builders buyers agreement and exceptional circumstances: is executed only after first few advance 15% payments have been made: 17% Each project needs to be The requirements to keep 70% of the amounts registered with a regulatory realised for project in a separate account and authority. An industry which is use it only for the purposes of the project. This already reeling under multiple limits the ability of the developer to effectively approvals, an additional manage the treasury: 20% registration requirement has been introduced instead of making it a single window registration: 47% Each project needs to be registered with a regulatory authority. An industry which is already reeling under multiple approvals, an 47% additional registration requirement has been introduced instead of making it a single window registration© Grant Thornton India LLP. All rights reserved. 28
    • Managing risks for a long-termsustainability
    • Managing risks for a long-term sustainabilitySound corporate governance is critical to positive This has created a need for companies to introspect and workvaluation outcomes for both public and private real out a framework for improved governance. Doing this willestate companies. If the enterprise is publicly traded, help them in optimising their internal efficiencies and manageits rigorous focus on effective governance is mandated risks successfully to face the ever increasing challenges in thisstringently by regulations, which set high standards for dynamic environment.corporate transparency, internal organisationalcontrols and executive accountability. The increasing investor, regulatory, and public concern regarding corporate governance makes this an opportune timeA public company‟s management is responsible for assessing for real estate companies to assess the quality and structure ofthe quality, comprehensiveness and accuracy of internal their governance framework.corporate controls and financial reporting practices. Inaddition, the company‟s external auditors are expected to The quality of corporate governance can be an importantexpress an independent opinion relative to management‟s driver of shareholder value as companies with strongassertions concerning the quality, comprehensiveness and governance systems have always outperformed their peers in aeffectiveness of those controls and practices. wide range of settings. The composition and structure of corporate boards have been instrumental in determining theThe present day challenges of the real estate sector are companies‟ ability to cope and react to situations such asincreasingly complex and diverse. The industry is facing the declining operating margins, and increasing internal andheadwinds of recent regulatory changes, inflation, declining external risks, external challenges like regulatory changes, etc.demand, scarcity of skilled manpower, high cost of finance,stagnating selling prices and increasing land cost. Also, Corporate governance has to be perceived as a big opportunitymaintaining credibility while meeting customer expectations in for real estate companies in order to improve their enterpriseterms of quality and timely delivery is another major value.challenge plaguing the sector.© Grant Thornton India LLP. All rights reserved. 30
    • Managing risks for a long-term sustainabilityFundamentals of a sound corporate governance • meeting the need for information of a modern investmentstructure community is also paramount in terms of accountabilityWhat constitutes sound corporate governance will evolve in and attracting capital. Presenting a company‟s financial andthe light of the changing circumstances of a company and non-financial position requires processes that safeguard,must be tailored to meet those circumstances. both internally and externally, the integrity of company reportingAn in-depth understanding of the fundamentals of corporate • exercising effective oversight and internal control to managegovernance is essential for establishing a sound corporate the uncertainty and risk inherent in businessgovernance framework. These fundamentals include the • providing rewards and incentive schemes to attract skillsbelow: and talent into the company• establishing the roles of senior executives and the board • achieving the benchmark performance expected by various• maintaining a balance of skills, experience and stakeholders independence on the board, which is appropriate to the nature and extent of the company‟s operations• ensuring integrity among those who can influence a company‟s strategy and financial performance, as well as responsible and ethical decision-making, while taking into account not only the legal obligations but also the interests of the stakeholders• providing a timely and balanced picture of all material matters• clearly recognising and upholding the rights of company owners, that is its shareholders© Grant Thornton India LLP. All rights reserved. 31
    • Managing risks for a long-term sustainabilityEstablishing an efficient corporate governance Structure the board to add valuestructure within the organisation Companies should have a board having an effectiveLay down solid foundations for management and composition, size and commitment to adequately discharge itsoversight responsibilities and duties.Companies should recognise and disclose the respective rolesand responsibilities of the board and management. • an effective board is one that facilitates the effective discharge of duties imposed by law on the directors, whileThe company‟s governance framework should be designed to: adding value in a way that is appropriate to the company‟s• enable the board to provide strategic guidance to the circumstances. The board should be structured in such a company and effective oversight to the management way that it:• clarify the respective roles and responsibilities of board  has a proper understanding of, and competence to deal members and senior executives in order to facilitate their with, the current and emerging issues of the business accountability to both the company and its shareholders  exercises independent judgement• ensure a balance of authority so that no single individual  encourages enhanced performance of the company has unfettered powers  can effectively review and challenge the performance of the managementCompanies should recognise and disclose the functionsreserved for the board and those delegated to seniorexecutives.© Grant Thornton India LLP. All rights reserved. 32
    • Managing risks for a long-term sustainabilityPromoting ethical and responsible decision- Companies should establish and disclose a code ofmaking conduct pertaining to:Companies should actively promote ethical and • the practices necessary to maintain confidence in theresponsible decision-making. company‟s integrityTo be successful, companies need to have regard for their • the practices necessary to take into account their legallegal obligations and interests of a range of stakeholders obligations and the expectations of their stakeholdersincluding shareholders, employees, business partners, • the responsibility and accountability of individuals forcreditors, consumers, the environment and the broader reporting and investigating reports of unethical practices.community in which they operate. It is important forcompanies to demonstrate their commitment through “It’s hard to think of a time when corporate governanceappropriate corporate practices and decision-making. was more important for Indian real estate companies. While the sector is growing significantly, there isCompanies should: increasing competition, both buyers and institutional• clarify the standards of ethical behaviour required from the investors have more choice and all stakeholders are board, senior executives and all employees, and encourage getting cautious. A major differentiator is how well a the observance of those standards company demonstrates transparency, efficient use of• comply with their legal obligations and have respect to the money and business process effectiveness for quality and timely project execution. It is for this reason that expectations of their stakeholders governance framework and risk management in real estate is now much more than just a means to regulatory compliance.” Lav Goyal Partner & Practice Leader - Business Risk Services Grant Thornton Advisory Private Limited© Grant Thornton India LLP. All rights reserved. 33
    • The importance of transparencyWhile there are various reasons for the position in which the real estate sector finds itselftoday, there should be no question that improved transparency is required.Real estate has emerged as a mainstream investment asset class, with explosive growth incross-border capital investment via direct equity and indirect asset-backed capital marketsproducts. Within this context of globally distributed and highly leveraged real estate riskexposure, the bursting of the real estate asset bubble yielded disastrous consequences formany investors and lenders.A lack of investment in market transparency and risk management has allowed assetperformance data to remain siloed, tangled, disparate and error-prone. Data inconsistency,incompleteness and fragmented information flows mean that investors are making businessdecisions with a limited grasp of the far-reaching financial, risk and compliance implications.While the boom years for real estate allowed this situation to proliferate, today‟s marketpressures on asset valuations and profit margins, combined with a tsunami of regulations,make appropriate risk management and true investment transparency a prerequisite forattracting and retaining capital going forward. Successful investors will be the ones who canretrieve accurate data, translate it consistently and present it according to user requirements.
    • Managing risks for a long-term sustainabilitySafeguarding integrity in financial reporting • company announcements are factual and presented in aCompanies should have a structure to independently verify clear and balanced way. “Balance “requires disclosure ofand safeguard the integrity of their financial reporting. both positive and negative informationThis requires companies to put in place a structure for review Companies should establish and disclose written policies andand authorisation designed to ensure the truthful and factual procedures designed to ensure compliance statutory disclosurepresentation of the company‟s financial position. The requirements and to ensure accountability at a senior executivestructure would include, for example: level for that compliance.• a review mechanism that also considers financial statements by the audit committee Recognise and manage risk• a process to ensure the independence and competence of Companies should establish a sound system of risk oversight, the company‟s external auditors risk management and internal control.• a structure that does not diminish the ultimate responsibility of the Board to ensure the integrity of the Risk management is the culture, processes and structures that company‟s financial reporting. The board should establish are directed towards taking advantage of potential an audit committee opportunities while managing potential adverse effects.Make timely and balanced disclosures A risk management system should be designed to:Companies should promote timely and balanced disclosure of • identify, assess, monitor and manage risks related to theall material matters with regards to the company. clear title of land, compliance to the various statutory norms, adherence to the tight project schedules, frequentCompanies should put in place mechanisms designed to design changes, improper construction planning, frequentensure compliance with the requirements such that: changes in the prices of steel and cement, improper• all investors have equal and timely access to material reporting and monitoring of the projects, inadequate labour information pertaining to the company force to ensure timely completion of work at the sites, and• the information shall include its financial position, to manage timely availability of the material at the sites performance, ownership and governance© Grant Thornton India LLP. All rights reserved. 35
    • Managing risks for a long-term sustainability• identify inadequate tracking of the material being used in It is important that there be a clear relationship between construction activities, inadequate quality inspection of the performance and remuneration, and that the policy underlying material used/ installed and material changes to the executive remuneration be understood by investors. The board company‟s risk profile should establish a remuneration committee.• provide solutions to enhance the environment for identifying and capitalising on opportunities that create Conclusion value Corporate governance is a big opportunity for real estate companies to effectively manage risks, improve compliancesRisk profile and optimise process efficiencies and costs. This can helpThe board should establish policies on risk oversight and companies to meet customer expectations in terms of qualitymanagement. It should set out the company‟s appetite for risk and timeliness of delivery thus helping them to outshine in theand have regard to the material business risks faced by the industry by enhancing credibility.company as identified by the company‟s risk managementsystem. The risk profile should be regularly updated andreviewed.Remunerate fairly and responsiblyCompanies should ensure that the level and composition ofremuneration is sufficient and reasonable and that itsrelationship to performance is clear.The awarding of remuneration is a key area of focus forinvestors. When setting the level and structure ofremuneration, a company needs to balance its desire to attractand retain senior executives and directors.© Grant Thornton India LLP. All rights reserved. 36
    • Industry point of viewDo you feel that formal risk management process helps the real estate Does your company runs a formal risk management process?business? Disagree: 7% Strongly disagree: 7% Yes: 47% No: 53% Agree: 55% Strongly agree: 31% Agree 86% 53% No© Grant Thornton India LLP. All rights reserved. 37
    • Industry point of viewDoes categorisation of risks based on the risk appetite supports the objective Does a robust process for monitoring company’s risk appetite helpof the business? approaching organisational objectives in a better way? Disagree: 6% Strongly agree: 10% Strongly disagree: 2% Disagree: 7% Agree: 84% Agree: 84%% Strongly agree: 7% Agree 84% 84% Agree© Grant Thornton India LLP. All rights reserved. 38
    • Industry point of viewDoes effective mitigation planning across departments help company control Do you support having an established risk culture without documenting thethe risks in a timely manner? risk strategy? Disagree: 7% Strongly agree: 28% Disagree: 9% Strongly agree: 26% Agree: 65% Agree: 65%% Agree 93% 91% Agree© Grant Thornton India LLP. All rights reserved. 39
    • Industry point of viewHow are the risk management strategy and/or policy applied in practice? Does risk management believed to play a significant part in achieving organisational objectives? Strategy or policy not in place or not Strategy implemented by applied: 15% departmental instruction to other staff members: 23% Disagree: 10% Strongly agree: 10% Application of documented strategy and/or policy by Strategy and/or policy verbally Agree: 76%% Strongly disagree: 4% management: 34% communicated but application not monitored: 26% Application of documented strategy Agree 34% and/or policy by management 76%© Grant Thornton India LLP. All rights reserved. 40
    • Technology: the game changer
    • Technology: the game changerOperating in a dynamic environment, the success of The widespread deployment of technology across the variousreal estate companies hinges, in large part, on their operational phases is expected to enable the sector toability to deliver innovative, user-accepted products rationalise construction-related processes and improve theand services in a timely, seamless manner. With so quality, cost-effectiveness and timeliness of project delivery,much riding on the prosperity and future of their while also ensuring that the projects are developed andcompanies, more and more developers are turning to completed in consideration of long-term sustainability andadvanced technology as a tool for optimising the valueof their businesses in the marketplace. environment-related concerns.This section discusses how emerging technological trends are In countless industries, deployment of technology hasredefining the real estate space of India and taking it to the contributed to enhanced productivity and better businessnext level, for both now and in the future. Technology is performance. Even in the real estate sector, increased usage ofemerging as a catalyst of change for the real estate companies technology has permitted real estate players to markedlyof India – be it construction, project management, marketing, improve the construction efficiency, while also inculcatingbusiness management or customer service. sustainable practices across the construction cycle.Today, the real estate sector is grappling with a number of Research proves that the implementation of advancedchallenges such as shortage of skilled manpower, escalating technology has permitted the sector to significantly reduce theproject cost and prolonged construction period. Technology time wasted in coordinating activities and in managing,holds the key to not only address some of these issues, but moving, and installing materials for construction. From thealso a promise for the sector to react to the changing market commercial perspective, technology has enabled the sector toconditions more effectively and efficiently. reduce the losses arising due to lack of interoperability, as well as the transactional costs required to resolve disputes and claims associated with construction projects.© Grant Thornton India LLP. All rights reserved. 42
    • Technology: the game changerIn your opinion, in which of the the continuous demand for better structures - with respect to afunctions, technology makesthe greatest impact for the real construction and variety of performance considerations, such as environmentalestate companies of India at 52% designing impact, comfort, cost, etc. 3D and 4D model is another widelypresent? implemented technology in the design phase of the construction cycle. 38% project management/monitoring The performance of the building over its entire lifecycle is assigned to performance indices. Deployment of modelling 8% techniques permits architects and design engineers to sales and marketing determine the values of performance indices, and hence, 2% customer service predict the performance of the building over its entire lifecycle. The traditional techniques of sketching and drawingUse of technology in construction and design building plans, sections, elevations, etc. have currently beenThe rapid advances in technology present promising overtaken by new simulation techniques, largely due to theopportunities for real estate developers to make informed emerging need for architects and design engineers to havedecisions in the context of schematic phases of building more accurate performance information of the building.design. Through the integrated and concurrentimplementation of multiple simulation tools and technologies, In some countries, simulation models have been applied fordevelopers can gain insights for improving the efficiency of developing lighting, energy and environmental impact analysesthe building over its entire lifecycle, from design, through of buildings over their entire lifecycle. Once the performanceconstruction and commissioning, to operation and of the building has been predicted, technology is also applieddemolition. Technological advances including computer-aided to compare the possible solutions for improving thedesign and drafting (CADD), laser scanning, cost-estimating performance considerations. The understanding, quantificationand scheduling tools, and three-and four–dimensional (3D and evaluation of the performance considerations permits realand 4D) visualisation and modelling programs permit real estate developers to design strategies and deploy technologiesestate developers to design buildings which are able to fulfil that can strike a balance between the various specific performance criteria by comparing all the available options.© Grant Thornton India LLP. All rights reserved. 43
    • Technology: the game changerIn addition to CADD and simulation modelling tools, the To meet the demand of housing and commercial buildingsdesign phase of the construction cycle also requires the that can match the unprecedented pace of urban growth,deployment of simulation algorithms that permit developers developers are increasingly adopting prefabricated buildingto evaluate the energy performance considerations of the materials. By using cleaner resources which also save thebuildings. By forecasting the performance of the building energy consumed during the construction process,components and systems over their entire lifecycle, prefabrication techniques significantly contribute to sustainabletechnology assists decision-makers in improving the standards development. Further, the development and application ofof building performance as per the potential occupancy prefabrication techniques in the construction of buildings ispatterns. often supplemented with mechanisation, computer aided manufacturing, and intelligent building management systems.The deployment of technology in the real estate sector hasfacilitated real estate players to create advanced national and India Concept House, a housing solution beinginternational infrastructures and a built-environment that has developed by US-based architecture firmsignificantly liberated human intervention from building KieranTimberlake in partnership with ProjectWell, RICSconstruction sites. Further, technology has also been South Asia, and Sam Circle Venture, will design andinstrumental in enabling real estate players to align real estate manufacture an entire house in factories and assembleactivities with the pace of urban development. it at the construction site. As per an estimate, it will just take six weeks to assemble a 98 square metre house.However, the current challenges of urbanisation andsustainable development make it imperative for real estatedevelopers to explore new, innovative and advancedtechnological processes that can revolutionise the waybuildings are being constructed, operated and maintained.© Grant Thornton India LLP. All rights reserved. 44
    • Technology: the game changerUse of technology in marketing Use of technology in customer serviceIncreasing competition, trimming marketing budgets and need For the new age consumer, customer service forms anto identify and target potential customers cost-effectively is extension of the overall marketing process. This provides ancompelling real estate players to explore new and innovative immense opportunity to real estate developers to tap this facetstrategies and technologies for marketing their projects. of marketing to differentiate themselves from theirDeploying technology for marketing projects helps marketing competitors. By effectively leveraging technology solutions inteams to design and deliver innovative marketing programmes the context of customer service, real estate players canthat are much more efficient. transform the experience of end-users.The traditional methods of marketing construction projects Technological platforms, including web portals, social media,have proved to be extremely time-consuming and ineffective online forums and mobile applications, are increasingly beingat offering useful information of buildings such as design and tapped by real estate developers to enhance the efficiency ofplanning to potential customers. With customers seeking their customer service processes. Further, technology alsomore information for making informed decisions while empowers marketing teams of real estate companies to gathermaking purchases, deployment of technology provides an deep understanding of evolving customer needs andopportunity to savvy developers to differentiate their expectations.marketing efforts from that of their competitors. Across thesector, developers are investing in providing virtual tours of This understanding permits them to integrate relevanttheir projects to their potential customers to effectively information into traditional marketing channels to buildmarket their projects while saving both time and cost successful customer service models. Despite the efficiency of technology in providing rapid access to marketing teams toProviding a virtual tour of a property to a potential customer specific customer information, the widespread implementationis fast emerging as a preferred tool for realtors and buyers of technology to markedly improve customer servicealike. Housing projects are increasingly being shortlisted by productivity is still at a nascent stage.customers and often also selected on the basis of a virtualtour of the property.© Grant Thornton India LLP. All rights reserved. 45
    • Technology: the game changerAmong the several barriers to the overall deployment of Use of technology in project managementadvanced technologies in the customer service function, cost Project management in real estate sector is extremely complex,and complexity of implementation are of prime significance. owing largely due to the long lifecycle of projects, multi-units involvement in executing projects, unorganised nature of theOne of the most widely implemented technologies in the sector, etc. Technology including project management, materialcustomer service function is Customer Relationship management and sales and marketing tools is widely beingManagement (CRM). Deployment of CRM tools enable real considered as the solution to integrate the various phases ofestate companies to transform their existing business models the construction projects. Advances in technology have largelyand create entirely new ones which are far more efficient at overtaken the design and construction phase of real estateanalysing the diverse needs of customers and empowering projects and have created value for countless real estateteams to develop better strategies to interact with their companies by increasing the efficiency of their operationalcustomers. processes markedly.By enabling teams to efficiently manage pre-sales, sales and IP surveillance system permits builders to monitor andpost-sales forces, CRM tools enable companies to overcome supervise the progress of their projects and address delays inthe challenges emanating from increasing dynamism in market project completion by taking timely measures. Besides remotedemand. monitoring, video conferencing solutions, installation of Closed-circuit television (CCTV) cameras at the project site Homebuy360.com, a Koramangala-based technology and Geographic Information Systems (GIS) tools also permit start-up, connects builders and buyers over the internet builders to keep a close eye at the progress of their projects. to facilitate transactions. The company provides an Witnessing the vast potential of tapping technological online application-based account which enables buyers advances to markedly improve project management, several to monitor the progress as well as any other relevant real estate players are also exploring and evaluating solutions information pertaining to their homes. Developers, on for connecting their managers, operating at remote sites, to the other hand, are provided online modules to track update their project status, send bills for payment, etc. billing, collection and customer service related matters.© Grant Thornton India LLP. All rights reserved. 46
    • Technology: the game changerBy deploying technology including enterprise mobility With its far-reaching functionalities, ERP also enablessolutions, document management solutions, Management prospective buyers and developers to view the exact locationInformation System (MIS), Enterprise Resource Planning of the construction site and assess the exact distance of this(ERP) system, etc. businesses across industries have site from a particular point. Further, across numerous realnonetheless become far more efficient and robust. In the real estate companies, ERP plays a crucial role in keeping a trackestate sector, particularly, ERP has been deployed by builders, of expenses and financial accounts.property dealers and landlords to boost the productivity oftheir businesses. With ERP, the complex task of effectively Conclusionmanaging property business, and data pertaining to ownership In essence, continued improvements in technology havehistory, amenities, property address, etc. has significantly significantly revolutionised the way real estate companieseased. Further, ERP is also beneficial at maintaining records operate in the current business environment. However, theof legal documents, including property documents, loan impact on the performance of the real estate sector with thefunctions, agreements and loan history for the real estate deployment of technology is largely dependent upon theplayers and potential customers. depth of its involvement across the various facets of the operational processes. How real estate players innovate andThe benefit of improved project management is another respond to technological advances will undoubtedly play abenefit of ERP systems. By integrating ERP modules across major role in differentiating the companies, their projects andvarious phases of the project lifecycle, project managers can offerings in the minds of consumers.substantially enhance operational and performanceefficiencies of the systems associated with project execution In the long-run, the advent of technology exposes the playersand completion. ERP also replaces the traditional systems of to numerous challenges, as well as renders new opportunitiesproject management to improve the processes of budgeting, to improve innovation, product development and customerplanning and allocating resources as per the needs of the support. The key to driving growth in such a scenario willphases of the project by contributing at estimating, costing, nevertheless be dependent upon the willingness of real estateplanning, scheduling and execution of real estate projects. players to accept sophisticated technologies and seamlessly integrate them within their business operations.© Grant Thornton India LLP. All rights reserved. 47
    • Innovation and convergence of technologiesThe Indian real estate sector has to keep a keen eye on Convergence of Electrical and Information Technologytechnological innovations to sustain growth and keep pacewith global developments. The more receptive the industry Servicesgets for technological innovations, the greater will be the Networkspeed of change. Integrated BuildingAn integration of electrical and information technology Applications(illustration alongside) can enable a building to transform Internet Internet Communi-from a device-oriented, function-driven platform to a unified Building Platform cation Platformservice-oriented platform. SystemsEvery building has a multilayer infrastructure and it isextremely critical that the building should be designed and Life, Safety Building Data Voice Videoconstructed in such a manner that makes the collaboration and Security Automationof these layers possible. The resultant platform willstreamline processes, thereby tapping productivity and Devicesoperational efficiency in a significant way. Such models have Fire/Alarm Surveillanc HVAC Electricity Data Fax and text Voice TV andpotential to enhance a building‟s value and optimise Control e/Access Control Control Communica Communica tion tion Communi- cation Images controlcosts, in the long term. Electrical Technology Information TechnologyAfter the integration of information and electricaltechnologies, the Indian real estate sector can take a leap Model adapted from Zurich ETH and Technibanktowards convergence of Information and CommunicationTechnologies (ICT) with electrical, mechanical and civilconstruction techniques and technologies.© Grant Thornton India LLP. All rights reserved. 48
    • Smart homes: intelligent buildingsEmpowered with rising disposable incomes, the burgeoning Smart home technology is one such concept that has themiddle class of the country is driving the demand for potential to empower developers to meet the economic andimproved workplaces and homes that can provide them comfort-related expectations of the consumers, while effectingopportunities to lead better lifestyles, while addressing their a radical change in their living environment and lifestyle.need for sustainability, efficiency and functionality. Thanks tothe advances in technology and innovation, the real estate Major advantages of smart home technologysector is poised to identify and tap the market opportunities Safetyemerging out of these demands to deliver substantial Smart home technology integrates building, safety, andeconomic, environmental and quality of life benefits to the communications channels with an open Internet Protocol (IP)citizens of the country. standard with the purpose of developing an intelligent monitoring system to improve the efficiency of the building.Innovating and incorporating new value-added solutions in By facilitating multidisciplinary collaboration among thetheir project portfolios is increasingly emerging as a crucial systems for building management and safety anddirective for real estate players to allure new buyers and communication, the smart home technology helps createtenants, while also retaining the existing ones. Undoubtedly, intelligent building infrastructure that can effect markedthe real estate sector of the country has come a long way, in improvements in lifestyle and safety of its occupants.terms of the quality of infrastructure being developed, overthe last decade. Without question, technology has played a Such homes are equipped with embedded devices that canparamount role in shaping this growth path and arming the enhance the functionality of traditional safety and monitoringsector to become capable of meeting the rising real estate systems. By integrating these conventional devices with ademands. simple user interface, occupants can easily obtain information about what is happening inside the house or in its vicinity fromWith the growing demand for not only infrastructure and real any remote location. Besides remote monitoring for enhancingestate, but better infrastructure and real estate confronting the safety features of real estate, smart residential solutionsdevelopers, it has become imperative for them to transform also offers the potential to improve building performance bytheir projects by adding differentiating functionalities to them. drastically reducing their greenhouse gas emissions and their skyrocketing demand for energy.© Grant Thornton India LLP. All rights reserved. 49
    • Smart homes: intelligent buildingsSustainability Reducing carbon footprint of buildingsBuildings are the largest consumers of energy and emitters of The increased concern of climate change is expected to drivegreenhouse gases globally. Application of smart home the shift in real estate activities towards creating a low carbontechnology in buildings permits developers to integrate energy society.management systems in buildings for improving theirperformance. Such buildings are also equipped with energy Currently, smart home technology is one of the most powerfulconservation and power management systems that can help tools available to real estate developers to lower carbon andthe sector to efficiently address its long-term sustainability environmental impacts of their buildings. By implementingchallenges. smart home technology in buildings, developers can efficiently address the issues of rising energy costs, climate change,Moreover, the energy management systems can be monitored environmental concerns, resource depletion, human health andby the building occupants to ascertain their energy usage. The safety issues.easy monitoring of energy consumption permits occupants tokeep a tab on their energy usage, and thereby lower energy The ease of monitoring the energy consumption enablescosts. occupants to turn-off their HVAC systems with the touch of a button right from the comfort of their workplaces. Further, byFurther, by centrally monitoring the building facilities such as proactively monitoring building performance, building ownerselevators and HVAC (Heating, Ventilation, and Air- can strategically deploy systems that are either more energy-Conditioning) systems, owners can easily ascertain energy efficient or consume less power, with a view to achieve drasticusage patterns and proactively reduce the usage of reductions in the carbon footprint of their buildings.superfluous systems to reduce energy costs and improve theperformance of the building.© Grant Thornton India LLP. All rights reserved. 50
    • Smart homes: intelligent buildingsCurrent scenario Smart home technology in IndiaToday, technological awareness and its potential to drastically Increasing competition and need for tapping the high-endimprove the quality of life are widely emerging as the latest market segment are driving real estate developers tobuzzwords in the residential real estate market of the country. differentiate their projects by incorporating various value-Heightened concern for the environment and demand for added services. With a view to attract the high-end consumerfiner aesthetics at home are driving the demand for homes segment which has the purchasing power to buy premiumthat incorporate cutting-edge technology to improve safety of automated homes, several real estate players are nowthe occupants of the building, improve energy efficiency of considering smart home technology in their buildings. Lodhathe building, and lower energy costs. Group, for instance, is among the first ones in the country to introduce the concept of smart homes in its Bellissimo projectThe trend to invest in technology to improve the performance in Mumbai in 2006.of buildings is fast catching up with developers who areincreasingly incorporating solutions such as automated and The automation trend in residential projects has also beensolar protection curtains, home automation systems, wired picked up by Mantri Developers and Total Environmentswitches, remote controlled devices, etc. in their projects. The Building Systems for their projects launched in Bengaluru.growing interest in digital solutions also stems from the Sobha Habitech project is another prominent smart homeincrease in the number of working couples in the country project that has been launched in the country by Sobhawho are increasingly dependent upon automated home Developers Ltd in Bengaluru.solutions to seamlessly perform their day-to-day activities.© Grant Thornton India LLP. All rights reserved. 51
    • Pre-fabrication: the fast-catching trendBuilding concrete structures is time consuming, thanks to the The assembly line is automated and sections move from onenumber of steps involved right from sourcing the raw place to another for completion. The quality inspection ismaterial to giving the finishing touches. This becomes a major carried out at each and every stage. The regulations demandproblem especially if the requirement is immediate. strict adherence to manufacturing codes set in the country.Prefabricated (prefab) structures provide a viable solution inthis scenario. The use of prefab structures is on the rise which The sections or components take varied time for completion atmeans more convenience to the consumers and good business the factory. The installation time also varies from place tofor entrepreneurs. place and depends upon the complexity as well. The time consumed in completion of the project varies, dependingPrefab structures are dwellings manufactured off-site in upon many factors. But construction, with prefab structures,advance, usually in standard sections that can be easily time is shorter than regular or conventional building technique.shipped and assembled on-site. These are designed and builtto be movable rather than permanently located. These houses Weather and labour are not a matter of concern since most ofdiffer from regular buildings since many of their parts are the sections are built in an established factory. There areprefabricated in a factory and then assembled on-site. This certainly less impediments in prefab building methodology.type of housing construction is also known as modular home Quick completion of the job also means faster returns onconstruction. The modular homes may be constructed investments. Building extension also becomes easy as newentirely or partially with manufactured components. These section can be added without much difficulty.homes are suited for schools, certain government buildings,research institutions and civilian or military residentialcomplexes.This type of building work is mostly used in areas whereconventional construction is not possible. Another advantageis fast completion of the project. The construction of partsor sections usually takes place in a factory.© Grant Thornton India LLP. All rights reserved. 52
    • Pre-fabrication: the fast-catching trendThe role of prefabrication in architecture has been lauded for itspotential to increase productivity and efficiency while not sacrificingquality. Developing countries, including China, India, Africa and manyregions of South America, are exploring the potential advantages ofprefabrication which have the assurance of realising housing quicklyand affordably. Comparison Prefabricated V/S Conventional S. Prefabricated Buildings Conventional Building 1 Aesthetically appealing appearance Special aesthetic design required 2 Reduced time because of international design standards & codes using Increased design time due to scratch and availability of less design aids standard sections and connections 3 Higher resistance to seismic forces due to low weight flexible frames Rigid heavy weight structures not suitable for seismic zones 4 Less weight through efficient use of materials High weight due to excessive safety factor and heavy RCC work 5 Factory controlled quality Every project to be fabricated at site 6 Lower initial cost of Prefabricated buildings (cost per square meter about Special design and features developed for each project at higher costs 30% less than the conventional) and faster delivery 7 Simple foundation, easy to construct and light weight of structures Extensive heavy foundation 8 Span size may be designed up to 40m Span size with limitation of beam width may be limited to 10-15m 9 Average delivery time considerably less High average completion time© Grant Thornton India LLP. All rights reserved. 53
    • Pre-fabrication: the fast-catching trendScope of pre-fabrication In actual construction, the number of bricks or blocks that areIn a building, the foundation, walls, doors and windows, floor broken into different sizes to fit into position at site is veryand roof are the most important components. These large.components can be analysed separately based on therequirement. This improves the speed of construction and As a result of this, there is a wastage of material and thereduces the construction cost. quality of construction also suffers. Increasing the size of wall blocks will prove economical due to greater speed and less1. Foundations mortar consumption, which can be achieved by producing lowVarious types of foundations normally adopted are: density bigger size wall blocks and industrial wastes such as• open foundations blast furnace slag and fly ash.• rib foundations• columns and footings Several prefabrication techniques have been developed and• RCC raft foundation executed for walls but medium and large panel techniques have not proved economical for low rise buildings as compared toConventional methods using in-situ techniques are found to traditional brick work.be economical and more practical for low cost housing ofslums which generally consists of low rise structures. In 3. Floor and roofseismic regions, special attention is required to make the Structural floors and roofs account for a substantial cost offoundations continuous using horizontal reinforcement. construction. Therefore, any savings achieved in floor/roofPrefabrication is not recommended for foundations in normal considerably reduce the cost of buildings. Traditional cast-in-situations. situ concrete roof involve the use of temporary shuttering which adds to the cost of construction and time. Use of2. Walls standardised and optimised roofing components whereIn the construction of walls, different types of bricks, soil, shuttering is avoided prove to be economical, fast and better incement blocks, hollow clay blocks, dense concrete blocks, quality.small, medium and room size panels, etc. are used. However,bricks continue to be the backbone of the building industry.© Grant Thornton India LLP. All rights reserved. 54
    • Roof components Roof Panel Concrete Block • precast, lightweight, low density concrete • precast, lightweight, low density concrete • shaped as permanent formwork for site cast concrete roof slab Wall components Wall Panel Door Panel Window Panel Partition Panel• precast, low-density • lightweight aluminium • lightweight aluminium • precast, lightweight, concrete frame frame low density concrete• self-Supporting• load bearing and • quick connection to • quick connection to • quick connection to shaped to resist wall panel wall panel wall panel lateral forces• able to be set without • allows NBC 2005 • operable ventilations material handling compliant entry with protection during equipment monsoon season• provides east and west solar shading • glazed aperture• shape provides protection from solar storage and utility gain summer integration points Characteristics of components for prefabricated structures
    • Pre-fabrication: the fast-catching trendSome of the prefabricated roofing and flooring components 2. Doors and windowsfound suitable in many low-cost housing projects include the Innumerable types and sizes of doors and windows are used infollowing: buildings. This involves the use of additional skilled labour• precast RC planks both on site and off site and also wastage of expensive• precast hollow concrete panels materials such as timber, glass, etc. Economy can however be• precast RB panels achieved by:• precast RB curved panels • standardising and optimising dimensions• precast concrete/ferro-cement panels • evolving restricted number of doors and window sizes• precast RC channel units • use of precast door and window framesPrefab materials can also be used for constructing For most, less developed countries, and India in particular, thecomponents such as lintels, sun shades, cupboard shelves, need of production technology, or the knowledge of thekitchen working slab and shelves, precast ferro-cement tanks, process of prefabrication is critical and it cannot be directlyprecast staircase steps, precast ferro-cement drains, etc. transferred from other countries due to cultural barriers. Therefore, in order to utilise this technology in an optimum1. Thin precast RCC Lintel manner, it is imperative for India to develop its own methodsNormally lintels are designed on the assumption that the load of prefabrication specific to its requirements and uniquefrom a triangular portion of the masonry above, acts on the social, environmental and economic conditions.lintel. Thin precast RCC lintels are designed taking intoaccount the composite action of the lintel with the brickwork.The use of precast lintel speeds up the construction of wallsbesides eliminating shuttering and centering. Adoption of thinlintels results in up to 50% saving in materials and overall costof lintels.© Grant Thornton India LLP. All rights reserved. 56
    • Pre-fabrication: the fast-catching trendIssues and challenges Products which are being/can be offered in a prefabricated formSome of the problems faced by vendors dealing inprefabricated houses in India include the following: Site Portable Class Rooms Small Hospitals• lack of acceptance from consumers Office/Accommodation• lack of trained work force for installing prefab units Bathrooms Camp Site Terrace Rooms• lack of brand value Beach Houses Security Rooms Cellular Phone shelter• assumption that design choices are limited with prefab Farm Houses Bunk House Modular Cabin structures• perceived cost premium for quality prefab Portable Toilet Guard Rooms/ Post Clinics• lack of flexibility in on-site design changes Roof top Hotels Huts• cultural barriers including the perception that prefab Barracks Portable Kitchen Cold storages houses are temporary and do not provide reliability Exhibition halls kiosks Workshops WarehousesThe others include opposition from construction workers and Extended accommodation Disaster Relief Shelters Low Cost Housingcontractors to whom prefabrication appears to be a threat totheir jobs. Storage Shed Transit Camps Resorts House (one to three bedrooms and upto three-storey)© Grant Thornton India LLP. All rights reserved. 57
    • Green practices: an option and a necessity
    • Sustainable cities in IndiaThe massive demographic shift in the country from Eco-cities/ sustainable citiesrural to urban regions is expected to put enormous Recognising the importance of sustainable development topressure on urban planning, natural resources, counter the challenges associated with the dramatic pace ofinfrastructure and the environment. The key to urbanisation, the Ministry of Environment and Forest (MoEF)managing urban growth of the country lies in began the discussions on developing eco-cities in the countryformulating an urban strategy which is efficient in in 2000. The MoEF collaborated with Central Pollutionresponding to the dynamic needs of urbanisation and, Control Board (CPCB) and the German technical cooperationsimultaneously, address the issue of climate change (GTZ) to plan six medium and small eco-cities in the countryand environmental degradation. Designing anddeveloping sustainable cities are believed to form a in 2001. Environmental consideration is placed at the forefrontmajor component of the strategies of countering the of the urban planning process while designing thechallenges associated with rapid population growth development plan for eco-cities. The government chose theand urbanisation. towns including Vrindavan, Kottayam, Tirupathi, Thanjavur, Ujjain and Puri for the project.As India continues to face the mounting pressures ofurbanisation and challenges of climate change, various plans As part of the Delhi Mumbai Industrial Corridor (DMIC)and roadmaps are being laid down for achieving sustainable project, the Delhi Mumbai Industrial Corridor Developmentand inclusive development, and lowering the carbon footprint Corporation (DMICDC) also intends to develop eco-citiesof its cities. With a view to address the increasing along the length of the Delhi Mumbai Corridor. The firstenvironmental concerns, the Twelfth Five Year Plan has phase of this initiative involves the development of an eco-cityadopted a holistic approach to reinforce overall sustainability pilot project at Manesar, an industrial hub in Haryana. Thein the Indian cities. Further, although the country is currently pilot project, which is to be implemented at IMT Manesar, haswitnessing several radical experiments in sustainable been undertaken following the signing of a MoU betweendevelopment such as Magarpatta City, etc, the roadmap for Delhi-Mumbai Corridor Initiative Development Corporationcreating cities which embrace the aspects of economic, (DMICDC), Haryana State Industrial and Infrastructureenvironment and social sustainability within their framework Development Corporation (HSIIDC), and a consortium ofstill lies at a nascent stage. Japanese companies led by Toshiba, and including NEC, Tokyo Gas and Energy Advanced Companies Limited.© Grant Thornton India LLP. All rights reserved. 59
    • Sustainable cities in IndiaWitnessing the vast potential in India for developing Along the length of the project, an overall 51,000 hectares ofsustainable eco-villages and towns, the Prince of Wales also area has been earmarked for conserved mangroves, integratedintends to develop an eco-friendly community near either villages, green spaces, rail transport for local and regionalBangalore or Kolkata. The project, which will be financed transportation, and a compact city to minimise travel distances.through his charity “Foundation for the Built Environment”, In September 2011, the Central Government approved aninvolves the construction of a sustainable community with assistance of Rs. 18,500 crore over a span of 5 years for thethe capacity to house around 15,000 people. mega infrastructure project. The DFC that was set to be completed by 2013 is, now, expected to be completed by 2017,Delhi Mumbai Industrial Corridor project owing to the issues such as land acquisition and delays inThe Delhi Mumbai Industrial Corridor (DMIC) project is approvals from state governments.spread over a length of 1,483 kilometres and passes throughthe states of U.P, NCR of Delhi, Haryana, Rajasthan, Gujaratand Maharashtra. Intended to be developed in collaborationwith the Government of Japan, the US$ 90 billion project willpossess a high speed freight line, three ports and 9 mega-industrial zones covering an area of approximately 200-250square kilometres.As part of the project, Multi-modal High Axle LoadDedicated Freight Corridor (DFC) will be developed betweenDelhi and Mumbai, with end terminals at Dadri in NCR andJawaharlal Nehru Port near Mumbai.© Grant Thornton India LLP. All rights reserved. 60
    • Sustainable cities: global case studiesMasdar City in Abu Dhabi The city is comprised of five integrated units - Masdar City,With a view to develop a city capable of managing the pace Masdar Capital, Masdar Power, Masdar Carbon and Masdarand sheer scale of urban growth, the government of Abu Institute of Science and Technology.Dhabi has put in place the plan to develop the 2.7-square mileMasdar City in a desert 10.5 miles from downtown Abu Approach to sustainabilityDhabi. Projected to be completed in 2016, the city has a US$ Currently, various approaches and methods are being evaluated22 billion-corpus, and is designed with the intent to by the city developers to mitigate the perpetual impact ofaccommodate 40,000 residents. The initial intent of the large-scale developmental activities and urbanisation onproject was to develop a cleantech city cluster capable of environmental degradation and climate change. Some of theselowering Abu Dhabi‟s carbon footprint by being a zero- approaches include:carbon and zero-waste region. Later, the sustainabilityperformance indicators of the city were revised to reduce the • public transportation system comprising of Personal Rapidfollowing: Transit (PRT) vehicles • allowing pedestrian-friendly narrow streets through the• the overall energy demand by 50% construction of an undercroft and the utility trench• the embodied carbon emissions by 30% • combining shading, planting and water features to reduce• the operational carbon emissions by 50% the average temperature of the city by 20º Celsius• water waste by 30% • the Windtower that will rise 45-metres high above the• landfill waste by 50% podium will have LED lighting, which will change colour to help occupants monitor their energy use • design of the facades of the buildings of the city will enable the management of solar gain • linear parks and the streets will be oriented in a manner such that air movement gets enhanced© Grant Thornton India LLP. All rights reserved. 61
    • Sustainable cities: global case studiesNew Songdo City Fast factsDriven by the aim to develop a city that employed sustainable • 45 million square feet in areadesign principles and the best practices of urban planning, • Will house 65,000 residentsSouth Korea laid down the foundation of the New Songdo • 30 million square feet of residential spaceCity in 2000 on a man-made island about 40 miles from Seoul. • 10 million square feet of retail spaceIntended to be spread over an area of 1,500-acres, the city is • 5 million square feet of hotel spaceexpected to have green commercial buildings and homes that • 10 million square feet of public spacewill efficiently reduce its greenhouse emission by 33% of the • 40% green spaceamount emitted by a normal city of similar size. Cisco hascollaborated with New Songdo International City The city will also be home to the 68-storey Northeast AsiaDevelopment LLC to digitalise the entire city. Trade Tower – the tallest building in South Korea. An overview of other sustainable cities City Location Sustainability approach Dongtan City Chongming Island, near Shanghai,  reducing the ecological footprint of the city to 2.6 in the Yangtze River Delta, China  achieving zero-carbon footprint  energy generation through solar panels, wind turbines and bio- fuels  encouraging biodiversity through low car-usage and low- consumption approaches Sino-Singapore Tianjin Tianjin Binhai New  spread over an area of 30 square kilometres, the plan for the Eco-City Area, China development of the city will focus on 6 key factors  these include clean water, ecology, clean environment, green building, clean energy and integration of technology Sino-Singapore Nanjing 6.5 kilometres from Nanjing, capital  750 hectares of the island will be designated for eco-tourism Eco High-Tech Island of southern Jiangsu province,  water canals and lush greenery will adorn the island China  water reclamation and other green energy options will be explored Meixi Lake District Changsha, the capital city of Hunan  spread over an area of 1,675 acres, the lake environment will be Province, China surrounded by abundant green space© Grant Thornton India LLP. All rights reserved. 62
    • Green buildings in IndiaUnprecedented opportunities of economic growth and Faced by the inevitability of additional urban populationemployment are driving the rapid wave of urbanisation in growth, cities are facing the urgent need to address the issuesdeveloping countries worldwide. As per estimates from the of unplanned development characterised by slums or informalUnited Nations, urban population in the developing countries settlements, environmental degradation and climate change, bywill rise to 5.2 billion by 2050. formulating an effective roadmap for achieving sustainable urban development.The rapid pace of urbanisation has given rise to the conceptof „megacities‟ – cities housing a population exceeding 10 Sustainable cities form a major component of the holisticmillion people. It is projected that by 2015, the number of approach to optimise the efficiency of urban infrastructuremegacities in India will increase to 9, of which Mumbai, Delhi systems, while managing the impact of rapid urbanisation onand Kolkata, will be counted among the 10 largest cities in the the environment, ecosystem and natural resources.world. The key to developing sustainable cities lies in strategicallyWhile on one hand, the rapid migration of population to the deploying ecological principles to urban planning, design andcities of emerging markets is enriching the urban pool of management. For achieving sustainability in urban planning, ithuman capital and acting as a catalyst for the shift in the is also imperative to integrate these principles with theworld‟s economic geography, it is also creating novel effective implementation of a set of green policies, includingchallenges of achieving sustainable urban development. the deployment of renewable energy and carbon-neutral strategies, sustainable transport strategies and strategies leadingChallenges to sustain urban growth within the formal to eco-efficiency.planning process, redefining the capacity of cities to provideadequate services for their population and mitigating the Further, establishing effective processes for monitoring andimpact on climate are some of the challenges being faced by evaluating the spatial planning framework for developingthe cities in the developing countries. sustainable cities can go a long way in ensuring the success of this green initiative.© Grant Thornton India LLP. All rights reserved. 63
    • Green buildings in IndiaThe general sentiment among the developer community is With an increase in awareness and availability of resources, thethat green buildings cost higher than similar conventional cost premium in India is foreseen to realign with that of thebuildings, and it is difficult to get positive returns on this extra mature markets. It is important to note here that the capitalinvestment. This issue is mainly due to: cost of going green also depends on the level of rating that a• the still-evolving nature of green buildings; project aspires for.• the lack of technical information;• the incomplete/inefficient execution of green projects; The below table quite succinctly substantiates two important• the short-term view on returns, instead of focusing on trends: first that the payback period for going green in lifetime return on investment (ROI) of these buildings. buildings is showing a distinct declining trend over the years and second that as green technology is getting more accessibleIn mature markets the cost premium range from 1-6%. Cost and cheaper, the cost of greening the building is also comingpremium in India is in the range of 5–30% depending on the down.level of rating. This can be attributed to lack of technicalknow-how, immaturity of the market and lack of resources. Green buildings in India Project Hike in cost Payback period on City Area Rating (in %) cost premium (in years) CII-Sohrabji Godrej GBC Hyderabad 20,000 Platinum 18 7 ITC Green Centre Gurgaon 170,000 Platinum 15 6 Spectral Services Noida 15,000 Platinum 8 4 Wipro Gurgaon 175,000 Platinum 8 5 Technopolis Kolkata 72,000 Gold 6 3 Source: CII© Grant Thornton India LLP. All rights reserved. 64
    • Green buildings in IndiaA green building may cost more up front, but saves through Green Buildings ensure Triple Bottom Line (3 BL) which haslower operating costs over the life of the building. The green 3 parts- People, Planet and Profits. From the evidence widelybuilding approach applies a project lifecycle cost analysis for available, there is little doubt that creating green buildings isdetermining the appropriate up-front expenditure. This more beneficial for occupants and employees and isanalytical method calculates costs over the useful life of the undoubtedly much less demanding on precious environmentalasset. resources. This takes care of the People and Planet. The third P that of Profits is also guaranteed by the cost savings and otherSome benefits, such as improvement in occupant health, economic benefits it offers.comfort, productivity and reduction in pollution and landfillwaste, are not easily quantified. Consequently, they are notadequately considered in cost-benefit analysis. For this reason,setting aside a small portion of the building budget to coverdifferential costs associated with less tangible green buildingbenefits or to cover the cost of researching and analysing Peoplegreen building options should also be considered.The average payback period for all the buildings is around 4.6years, according to the Indian Green Building Council (IGBC) Planetreport of 2007. It has been 5 years since then, during whichgreen prices of products and services have become morecompetitive and the payback period is expected to comedown. Profits© Grant Thornton India LLP. All rights reserved. 65
    • Industry point of viewWhile residential real estate prices are at levels not easily reachable by Should the government mandate a minimum usage of alternative sources ofmasses, is it possible to offer houses that are environment-friendly and yet energy for all real estate projects?affordable? Cant say: 5% No: 35% Cant say: 4% No: 33% Yes: 60% Yes: 63% Yes Yes 60% 63%© Grant Thornton India LLP. All rights reserved. 66
    • Industry point of viewRank the top factors that can enhance adoptability of clean technologies inthe real estate sector in India? Stable government subsidies and Tax incentives: 25% regulation: 27% Corporate social responsibility: 11% Brand building: 4% Long term sustainability: 13% Pressure from customers: 8% Price of fossil fuels: 8% Public opinion: 4% 27% Stable government subsidies and regulation© Grant Thornton India LLP. All rights reserved. 67
    • “I would give a thousand furlongs of sea for anacre of barren ground.”-Shakespeare "Its tangible, its solid, its beautiful. Its artistic, from my standpoint, and I just love real estate." -Donald Trump“Every person who invests in well-selected realestate in a growing section of a prosperouscommunity adopts the surest and safest methodof becoming independent, for real estate is thebasis of wealth.”-Theodore Roosevelt
    • About CII The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the growth of industry in India, partnering industry and government alike through advisory and consultative processes. CII is a non-government, not-for-profit, industry led and industry managed organisation, playing a proactive role in Indias development process. Founded over 117 years ago, it is Indias premier business association, with a direct membership of over 7000 organisations from the private as well as public sectors, including SMEs and MNCs, and an indirect membership of over 90,000 companies from around 400 national and regional sectoral associations. CII catalyses change by working closely with government on policy issues, enhancing efficiency, competitiveness and expanding business opportunities for industry through a range of specialised services and global linkages. It also provides a platform for sectoral consensus building and networking. Major emphasis is laid on projecting a positive image of business, assisting industry to identify and execute corporate citizenship programmes. Partnerships with over 120 NGOs across the country carry forward our initiatives in integrated and inclusive development, which include health, education, livelihood, diversity management, skill development and water, to name a few. The CII Theme for 2012-13, „Reviving Economic Growth: Reforms and Governance,‟ accords top priority to restoring the growth trajectory of the nation, while building Global Competitiveness, Inclusivity and Sustainability. Towards this, CII advocacy will focus on structural reforms, both at the Centre and in the States, and effective governance, while taking efforts and initiatives in Affirmative Action, Skill Development, and International Engagement to the next level. With 63 offices including 10 Centres of Excellence in India, and 7 overseas offices in Australia, China, France, Singapore, South Africa, UK, and USA, as well as institutional partnerships with 223 counterpart organisations in 90 countries, CII serves as a reference point for Indian industry and the international business community. Confederation of Indian Industry The Mantosh Sondhi Centre Reach us via our Membership Helpline: 23, Institutional Area, Lodi Road 00-91-11-435 46244 / 00-91-99104 46244 New Delhi - 110 003 (India) T: 91 11 24629994-7 • F: 91 11 24626149 E: info@cii.in • W: www.cii.in© Grant Thornton India LLP. All rights reserved. 69
    • About Grant Thornton Grant Thornton International Grant Thornton International is one of the world‟s leading organisations of independently owned and managed accounting and consulting firms. These firms provide assurance, tax and advisory services to privately held businesses and public interest entities. Clients of member and correspondent firms can access the knowledge and experience of more than 2,400 partners in over 100 countries and consistently receive a distinctive, high quality and personalised service wherever they choose to do business. Grant Thornton India LLP Grant Thornton India LLP is a member firm within Grant Thornton International Ltd. The firm is one of the oldest and most prestigious accountancy firms in the country. Today, it has grown to be one of the largest accountancy and advisory firms in India with more than 1,200 professional staff in New Delhi, Bengaluru, Chandigarh, Chennai, Gurgaon, Hyderabad, Kolkata, Mumbai and Pune, and affiliate arrangements in most of the major towns and cities across the country.© Grant Thornton India LLP. All rights reserved. 70
    • Solutions for real estate companiesOur real estate practice Financing your business Communication and complianceReal estate is a complex business. Owing to its capital intensive • analysing funding requirements • advising on financial reportingnature, any turbulence in the economic and business • preparing submissions to financiers requirementsenvironment can affect a real estate business in a number of • benchmarking terms and pricing • clarifying directors‟ responsibilitiesways. • considering alternative sources • mitigating fraud riskWith its depth of knowledge and global experience, Grant • evaluating and designing controls Working capital managementThornton India LLP can assist you in mitigating these inherent • managing your cash Human capital managementrisks. At the same time, we can help you identify and leveragepotential opportunities as well. Assurance, tax and advisory • forecasting and re-forecasting • optimising pension and benefit schemesservices are just the beginning of our suite of services for real • optimising tax cash flow savings • retaining the right staffestate companies. • improving management information • devising tax efficient packages • enhancing reward packages Protecting profits • product portfolio analysis Strategic direction • optimising pricing strategy • benchmarking against competitors • enhancing terms of trade • entering new markets • identifying overhead savings • identifying acquisition opportunities Operations and cost reduction • reviewing business plans • establishing cost reduction Please contact our real estate experts at programmes realestate.solutions@in.gt.com to know • improving supply chain more about how Grant Thornton can assist • enhancing operational efficiency you achieve your objectives. • outsourcing back office functions© Grant Thornton India LLP. All rights reserved. 71
    • Acknowledgement Grant Thornton India LLP acknowledges the commitment and contribution of the following individuals in the development of this report: Vishwas Panjiar Vikas Gambhir Rajesh Laddha Swarnima Chauhan Harsh Singh We also thank Mr. Ajay Dhyani and Ms. Bhupinder Pal Kaur of CII for their valuable support. Editorial team Neeraj Sharma Vikram Jethwani Misbah Hussain© Grant Thornton India LLP. All rights reserved. 72
    • Our offices in IndiaNEW DELHI BENGALURU CHANDIGARHNational Office “Wings”, First Floor SCO 17Outer Circle 16/1 Cambridge Road 2nd FloorL 41 Connaught Circus Ulsoor Sector 17 ENew Delhi 110 001 Bengaluru 560 008 Chandigarh 160 017T +91 11 4278 7070 T +91 80 4243 0700 T +91 172 4338 000CHENNAI GURGAON HYDERABADArihant Nitco Park, 6th floor 21st Floor, DLF Square 7th Floor, Block IIINo.90, Dr. Radhakrishnan Salai Jacaranda Marg White HouseMylapore DLF Phase II Kundan Bagh, BegumpetChennai 600 004 Gurgaon 122 002 Hyderabad 500 016T +91 44 4294 0000 T +91 124 462 8000 T +91 40 6630 8200KOLKATA MUMBAI PUNE10C Hungerford Street 16th floor, Tower II 401 Century Arcade5th floor Indiabulls Finance Centre Narangi Baug RoadKolkata 700 017 SB Marg, Elphinstone (W) Off Boat Club RoadT +91 33 4050 8000 Mumbai 400013 Pune 411 001 T +91 22 2367 1623 T +91 20 4105 7000Disclaimer:The information and opinions contained in this document have been compiled or arrived at from published sources believed to be reliable, but no representation orwarranty is made to their accuracy, completeness or correctness. This document is for information purposes only. The information contained in this document ispublished for the assistance of the recipient but is not to be relied upon as authoritative or taken in substitution for the exercise of judgment by any recipient. Thisdocument is not intended to be a substitute for professional, technical or legal advice. All opinions expressed in this document are subject to change without notice.Whilst due care has been taken in the preparation of this document and information contained herein, neither CII nor Grant Thornton nor other legal entities in thegroup to which they belong, accept any liability whatsoever, for any direct or consequential loss howsoever arising from any use of this document or its contents orotherwise arising in connection herewith.
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