Real Estate Industry
Group 6_SEC B
Key growth drivers
KPI’s of Industry
Critical Success Factors
Analysis of Cost and profitability
• Has a huge multiplier effect on the economy
• 2nd largest employment generating sector after
• Growing at a rate of 20% per annum
• Contributes about 6.3% to India’s GDP
• Stimulates demand in over 250 ancillary
industries such as cement, steel, paint,
brick, building materials, consumer durables
• Witnessed a boom due to increasing
globalization and allowance of FDI in real
estate in 2005 with the involvement of both
domestic and foreign players.
• Evidently, due to global economic downturn
the growth has taken a “U” turn.
• Still, FDI is expected to touch $ 25 billion
in the next 10 years from its current $ 4
Indian Market Dynamics
• Rapid growth in residential, commercial and
• Once restricted only to bigger cities, now
expanding in smaller cities and towns due to
– Availability of bank loans
– Improved earnings and
– Higher standard of living
• Projected revenue of the sector is $ 180
billion by 2020 against $66.8 billion in
2011, with a CAGR of 11.6%
Indian Market Dynamics
• Demand is expected to grow at a CAGR 19% in
the period 2012-2016.
• Tier I cities expected to account for about
40% of this growth which will later shift to
Tier II and Tier III cities.
• Currently, about 30% of total mall supply in
India is in Delhi-NCR.
• About 67% of total mall space is projected to
come from Kolkata, Pune, Chennai, Hyderabad,
Lucknow and Jaipur in the period of 2012-2016
Indian Market Dynamics
• The FDI attracted by this sector has
fluctuated through year 2010, 2011, 2012,
2013 by 8.9%, 10.3%,11% and 6% respectively.
• But, the focus on ‘affordable housing’ has
helped the sector to survive through the
• Non consistent real estate price and policies
has pressurized the industry immensely.
Indian Market Dynamics
• The market is very localized, each
location having its own dynamics.
– Ex: in Hyderabad, prices have fallen due to
political turmoil, while in Kochi has been
seeing a fall in money repatriated by NRIs.
– Prime locations in South Delhi saw a 10-12%
fall in prices, where as in Noida and
Greater Noida there has been a 5% price
– In Mumbai, though the prices fluctuated
internally, but overall it remained same.
• Real estate is "Property consisting of land
and the buildings on it, along with its
natural resources such as crops, minerals, or
water; i.e. any immovable property of this
• Segments in the Indian real estate sector
• The real estate sector in India has come a long
way by becoming one of the fastest growing markets
in the world. It is not only successfully
attracting domestic real estate developers.
• Real estate in India continues to be a favored
destination globally for investors, developers and
non-resident Indians (NRIs), driven largely by
investor-friendly government policies and
• The growth of the industry is attributed mainly to
a large population base, rising income level, and
• The cities and towns in India are expanding and
the space requirement for education, healthcare
and tourism provides opportunities in the real
• The industry in India contributes about 6.3
percent to the country's Gross Domestic
• It is recognized as one of the key sector
• Playing an important role in the Indian
economy, as it is the second largest employer
after agriculture. The size of the Indian
real estate market is expected to touch 180
billion USD by 2020.
• The foreign direct investment (FDI) in the
sector is expected to touch US$ 25 billion in
the next 10 years from its current US$ 4
• The real estate sector in India is witnessing
rapid growth in the residential, commercial and
• Real estate development, once restricted to bigger
cities, have shown progress in smaller cities and
towns due to availability of banks loans, higher
earnings and improved standard of living.
• The real estate sector of India is projected to
post annual revenues of US$ 180 billion by 2020
against US$ 66.8 billion in 2010–11, a compound
annual growth rate (CAGR) of 11.6 per cent.
• The demand is expected to grow at a CAGR of 19 per
cent in the period 2010–2014, with Tier I
metropolitan cities expected to account for about
40 per cent of this growth.
• It is a fragmented market with fewer players and
has demand of more than 300000 units in seven
major cities of India.
• Major categories of houses in India are:
Co-operative Housing Societies (CHS)
Condominiums (row houses)
• The size is measured in Gaz (square yards), Quila,
Marla, Beegha, and acre.
Average price trends in 7 major cities
in residential sectors
• The urban housing shortage is estimated at
18.8 million in 2012
• The housing shortage in rural India stood at
47.4 million as of 2012
• The housing shortage in urban and rural India
will be around 21.7 and 19.7 million units
respectively in 2014
• Significant increase in real estate activity
in cities like Indore, Raipur, Ahmadabad,
Jaipur and other two-tier cities
• This has opened new avenues of growth for the
Source: Ministry of Housing and Urban Poverty
Alleviation, RBI, CRISIL, Aranca Research
Facts about residential property
• Residential property prices have breached
affordability limits in cities like Mumbai.
• Nevertheless, developers will have to factor
in the ground realities of the business while
debating the lowering of prices to catalyze
sales in 2013.
• Obtaining the 57-odd permissions to begin
construction of a project can take as much as
two years. During this time, the cost of
acquisition or even just holding the land for
a project rises.
are already beset with the
increased costs of license costs and cost of
• However, it became evident in 2012 that homes are not
selling at the current price points, and developers do
need to re-calibrate their bottom lines while still
remaining viable as businesses.
• The only way to catalyze healthier sales at this point
is offering buyers tangible financial relief.
• It is seen that drastic trimming of frills in projects
are done to make them more marketable from a pricing
point of view, and innovative payment schemes.
• Developers will also offer buyers attractive pre-launch
benefits in a bid to accelerate sales momentum in the
initial months following a launch.
• Although most of the cities of India will see an
increase in residential launches in 2013, the southern
cities of Bangalore and Chennai will witness a decline
in launches as compared to 2012YTD.
Commercial & Retail sector
• Commercial and retail sectors are fragmented and
have fewer national players.
• The commercial sector had a demand of 38.2 million
sq.ft in 2011.
• The retail industry has a demand of around
15million sq.ft in major cities
• FDI is observed in retail sector so as to boost
• Unlike residential properties, commercial office
and retail spaces need big-ticket investments due
to the size of the units.
In 2010, average cost of commercial space
was around Rs 10,000 per sq. ft in the
Delhi-National Capital Region (NCR).
• In Mumbai, the average cost was around Rs
14,000 per sq. ft.
• Assuming that you plan to invest in an
office unit of 5,000 sq. ft in an upcoming
location with a purchase rate of Rs 5,000
per sq. ft, you would need Rs 2.5 crore.
• With several new shopping malls slated to
complete in 2011, the vacancy rate for
retail spaces is expected to increase
• "In the absence of investment vehicles such as real
estate investment trust, retail investors have not been
able to invest in commercial real estate at a scale
similar to residential properties (which involve low
investment and easy availability of credit).
• Commercial real estate offers a good investment
opportunity and the risks are minimal.
• "The risk attached with investments in commercial
office projects is not high now. The economy is
projected to grow at a faster pace and business
activities in the country are headed towards a highgrowth trajectory," Samantak Das, national head,
research, Knight Frank India.
Facts on retail sector
• In 2013, new organized retail project completions
will increase significantly (by 109% ).
• Chennai, Hyderabad, Kolkata and Pune will be
among the major contributors to this increase,
with a 53% share of the country’s overall mall
supply for 2013.
• The primary reason is that a sizable amount of
supply that was expected to reach completion in
2012 has been being pushed to 2013. Altogether,
India`s major cities like Mumbai, NCR-Delhi,
Bangalore, Chennai, Pune, Hyderabad and Kolkata
will see the addition of close to 9.5 million
square feet of mall space in 2013.
Mumbai, NCR-Delhi, Bangalore and Chennai will together
contribute 70% of the total retail space absorption.
Other cities like Pune , Hyderabad and Kolkata will
account for the remaining 30%.
The Government`s nod to FDI in multi-brand retail will
be a major driving factor for increased activity in 2013.
Since the policy opens the portals to major MNC retail
brands in India, the organised retail sector will see a
major transformation in terms of its overall contribution
in the mid-term.
This, in turn, will positively impact the absorption of
retail space over the next 1224 months. The absorption is
forecast to touch 6.8 million square feet and 7.1 million
square feet in 2013 and 2014 respectively.
• The hospitality space has a competitive
market with many players
• There are around 121,000 hotel rooms in the
country as of 2011
• The hotel industry grew 13 per cent during
• NCR and Mumbai are by far the biggest
hospitality markets in India, followed by
Bangalore , Hyderabad and Chennai
• Besides hotels, the hospitality market
comprises serviced apartments and convention
• The recent trends observed are
• Serviced apartments appear particularly
attractive within the hospitality space
• Government initiatives to promote tourism in
Tier 2 and Tier 3 cities is generating
significant demand for hotels in such cities,
especially for budget hotels
Source: Knight Frank India, Aranca Research
Notes: FSI - Floor Space Index
Future estimated Growth
The Indian retail realty sector is projected to grow at
around 15 per cent year-on-year over the next 3–5 years
as against a 12–13 per cent nominal growth of India’s GDP
estimated by the International Monetary Fund (IMF).
If the sector manage the above mentioned growth, it will
touch Rs 34 trillion (US$ 544.73 billion) by 2016.
India’s office space stock is estimated to rise by 40 per
cent to 642.2 million sq ft by 2017, according to a
report by real estate consultancy Knight Frank India.
The share of luxury retail space in India will be 1.4 per
cent by 2015, according to a report by real estate
services firm Cushman & Wakefield. NCR and Mumbai, areas
that have embraced the mall culture, are the two most
favored destinations for luxury retailers.
• India's real estate sector is estimated to have a
total supply pipeline of close to 3.6 billion
sq.ft lined up for completion in the year 2013,
with about 98 per cent of this being concentrated
in the residential segment.
• It is expected to generate over 17 million
employment opportunities across the country by
2025, thereby making a significant contribution to
construction of this real estate pipeline will
require a total investment of about Rs 254,000
crore adding that it will help generate revenues
worth Rs 370,000crore and provide jobs to about
7.6 million people across the country in 2013.
• According to the existing FDI policy, 100 per
cent FDI in the construction development
sector is permitted through the automatic
• Department of Industrial Policy and Promotion
(DIPP) is looking at relaxing FDI norms
further to encourage investment.
• DIPP also proposed a reduction in the minimum
capitalization for wholly-owned subsidiaries
from US$ 10 million to US$ 5 million, and
from US$ 5 million to US$ 2.5 million for
joint ventures with Indian partners.
• One of the major initiatives of the
Ministry of Housing and Urban Poverty
affordable housing for poor people living
in urban areas.
• India needs to invest US$ 1.2 trillion
over next 20 years to modernize urban
infrastructure and keep pace with the
burgeoning urbanization, as per a report
(India's urban awakening) released by
McKinsey Global Institute (MGI).
• The Jawaharlal Nehru National Urban Renewal
Mission (JNNURM) is one its flagship schemes, a
reform driven investment programme which started
with the objective of creating economically
productive, efficient, responsive and inclusive
• The Real Estate (Regulation and Development) Bill,
2013, as approved by the Union Cabinet is a
pioneering initiative aimed at delivering a
uniform regulatory environment to protect the
consumer, help in quick verdicts of disputes and
ensure systematic growth of the sector.
Top 10 Indian competitors
Jaypee Infratech Ltd.
Ansal Properties & Infrastructure Ltd.
Parsvnath Developers Ltd.
Construction sector can be broadly classified into 2 sub-
• Real estate
– Special Economic Zones
– Urban development
The Real Estate segment contributes
around 24% to the Construction GDP of
contributes around 76%.
Real Estate Sector
India's GDP has been estimated at 6.3 per cent in 2013
• The segment is expected to generate 7.6 million jobs in
the same period.
• India's real estate sector is estimated to have a total
supply pipeline of close to 3.6 billion sq.ft. lined up
for completion in the year 2013, with about 98 per cent
of this being concentrated in the residential segment.
Source: CBRE report
The potential for development and growth in the real estate
sector is tremendous. It is expected to generate over 17
million employment opportunities across the country by 2025,
thereby making a significant contribution to the GDP
constituted of the Residential, Commercial and real estate
activities of Special Economic Zones.
The total economic footprint generated by construction of
this real estate pipeline will require a total investment of
about Rs 254,000 crore, it said, adding that it will help
generate revenues worth Rs 370,000 crore.
Source: CBRE report
Real Estate Segments
The Indian real
estate sector can
be classified into
Real Estate Segments
The Commercial/Retail sector still occupies a very small pie in the
big scenario of Real Estate in India with a measly 8-9%
While Residential commands the biggest pie of the lot with 82%.
The reasons for this can be :
Rising Urbanisation in India
* Increasing working age population (Almost 64% in 16-64 age group)
* Increasing income levels: Average salary levels increased by 13.5%
* Easier access to mortgage, long tenure loans and tax incentives
* Highly fragmented and unorganized
* Regional players are expanding to achieve a Pan-India presence
Residential Segment Scenario
The shortage of
in the graph,
amounts to about
houses in the
period of the
housing shortage during
the 11th plan period
including the backlog
is estimated at 26.53
As per the Ministry of
Housing & Urban Poverty
Alleviation, around 97%
of the total housing
requirement (25.73 mn
units) is required for
poor and low income
Demand drivers for Residential
• Favourable demographics
– Second highest populated country in the world
– Average age of Indians is 26 years.
– The demographic profile indicates that India's
working population forms around 61% of the
– Youngest countries in the world
– Strong economic growth led to sharp income
generation, which led to rise in middle class
– Around 260 million persons in the middle class
– Robust macro-economic scenario
– Majority of the population (around 57%) as of 2009
is estimated to fall under 30 years of age, of which
nearly 30% is male population and the rest
constitutes females. This trend is expected to
continue in the near future, with nearly 52% of the
total population anticipated to fall under 30 years
of age by 2020.
Urbanisation and Migration
– The decadal growth rate of urban population (20% between
1991-2001) in India is higher than the rural population
(18% during the same period).
– Average annual rate of change (AARC) of the total
population in India during 2000-2005 is estimated at 1.41%
with 2.81% for urban and 0.82% for rural sectors.
– AARC for urban areas by 2025 will increase to 2.25%
whereas the AARC for rural population will decline to 0.4% showing a clear shift of population from rural to
– Average household size has been estimated by the National
Sample Survey Organisation as being around 4.47 in urban
areas and only 67% of the houses are pucca units.
– Investment over the long term will be primarily led by
housing, which is expected to account for nearly 90% of
the total real estate sector.
The rapid growth of the Indian economy has had a
significant impact on the demand for commercial property
to meet the needs of business, by way of offices,
warehouses, hotels and retail shopping centres. Growth in
commercial office space requirement is led by the
burgeoning outsourcing and
information technology (IT)
industry and organised retail.
Commercial Office Space
Absorption by location
Demand drivers for Commercial/Retail
Sharp growth in organised retailing
– At the moment, commercial real estate market is facing
tough times, with office space absorption across India's
seven largest cities dropped to 12%.
– The trend is likely to continue for the next few quarters,
with absorption of office space expected to drop by 10-15%
– Demand from IT/ITES sector has dropped from the peak
of 68% in 2005 to 35% at present due to increasing
cost pressures faced by these firms.
– But organised retail, is expected to grow at over
20% in the next few years, and is likely to drive
demand in the commercial real estate sector.
providing growth at 30% annually the investments in
commercial Construction are expected to grow faster
than investments in housing mainly due to the spurt
Special Economic Zones
Infrastructure related to SEZs is of two
1. Facilitating internal functioning of SEZs (power
generation plants and distribution network, internal
water supply, sanitation and sewerage, and internal
roads) with direct implications on productivity;
2. Linking SEZs with non-SEZs through a supply chain
(railway tracks, roads and bridges, airport facilities,
telephone lines and telecom network).
• South India is ahead of other regions in taking
advantage of the tax-free special economic zones
scheme as 91 of 143 operational SEZs are located in
the four southern states.
• Andhra Pradesh leads with a maximum number of 36
operational SEZs followed by Tamil Nadu
Karnataka (20) and Kerala (7), according to latest
operational SEZs a significant majority relate to
IT/ITES and electronic hardware.
• One of the reasons for the rush of these sectors
in SEZs was stated to be the sunset clause on
earlier schemes like Software Technology Parks of
Over the next five years, growth in investments in Indian
Industry will be driven by strong capacity additions, led by
strong growth in demand and high existing operating rates.
Special Economic Zones (SEZs) will be at the forefront of
According to the Ministry of External Affairs3, in addition
to seven Central Government SEZs and twelve State/privatesector SEZs set up prior to the enactment of the SEZ Act
2005, formal approval has been accorded to 587 proposals out
of which 381 SEZs have been notified.
Key Performance Indicators
Residential Lots Sales
– It measures the number of residential lots sold in a period.
Commercial Tract Sales
– It measures the number of commercial Tract sold in a period.
Revenue per square meter sold
– Revenue earned per square meter sold€
Revenue per client
– Measures the average revenue generated by customer or client
Properties sold per real estate agent
– Measures the average properties sold per real estate agent.
% Commission Margin
– Measures the value of the sales commission express as a
percentage from the sales completed.
Number of Projects
– Measures the number of successful projects handled in the past &
number of ongoing projects.
COMMERCIAL PROPERTY MANAGEMENT KPI’s
Annual return on
rate: New constructed or
purchased units over
Cost per square foot
Equity value growth in
Lease events coverage
ratio: Number of lease
inquiries over number of
Number of leased
spaces over number of
COMMERCIAL PROPERTY MANAGEMENT KPI’s
Monthly return on
Occupancy cost: Cost
per occupied unit
Operation cost to
rent income ratio
Percentage of rent
Price to income as
COMMERCIAL PROPERTY MANAGEMENT KPI’s
Renting cost: Renting
cost per square foot
Revenue per square
Renting return on
income over cost
Market share growth
Rental value growth
rate: Rented square feet
over total square feet,
or rented units over
% Net Profit Margin
• Measures how much profit a company makes.
Indicating the operational efficiency and the
entity's ability to control costs and its pricing
It’s the scorecard. You might have increased your sales by
20% last year, but the rest of the market could have
increased by 40% – in which case, you’ve really gone
backwards. Quarterly reviews are good enough, market
share is hard to shift. Significant increases normally come
with significant change - which takes time.
Net Asset Value
• Net Asset Value is a key measure for
real estate companies. The most common
• Net Asset Value = Assets less all
liabilities (except equity) adding back
any deferred tax for revaluation gains
and showing debt at historic cost
• Real Estate Sector is a high cost sector
• The sector is fraught with high precedence of
• Regulatory barriers
• Financial risk
• High capital cost of entry
• Marketing entry barriers
• Technical entry barriers
• Economies’ of scale
• Mumbai, Delhi-National Capital Region (NCR) and
Bangalore cater for 46 per cent of total office
space demand in India. This demand is expected to
be rise sharply in Tier II cities such as Kolkata
and Chennai in the period 2010–14.
• Today, Delhi-NCR accounts for about 30 per cent of
the total mall supply in India. About 53 per cent
of demand for total mall space is projected to
come from the country’s top seven cities, namely
Delhi-NCR, Bangalore , Mumbai, Kolkata, Pune,
Hyderabad, and Chennai, in the period 2010–2014.
International players who have made a name for
themselves in India include
Application Of Porter’s 5 Forces
Model To Indian Real Estate
• The analysis of 5 Forces model has been
done to determine whether the Indian
Real Estate sector will remain
profitable in the years to come
• It is important to consider the impact
of the Euro zone Crisis as well as the
Threat Of New Entrants
• There will be decrease in profitability due
to increase in the number of entrants.
• As a result of the economic downturn around
the globe, it has been difficult for the new
entrants to get a hold because of cost
reduction in expansion plans by corporates
in real estate, little scope in commercial
construction, and strong rivalry between
• Result: Relatively weak threat of new
Bargaining Power Of Buyers
• Powerful customers are able to exert
pressure to drive down prices, or
increase the required quality for the
same price, and therefore reduce profits
in an industry.
• Customers significantly influence the
business operations in real estate.
• Customers do possess a threat of
• Consequently, the bargaining power of
the buyers is strong.
Bargaining Power Of Suppliers
• An important category of suppliers is the
bank. They have the power to decide whether
to fund a venture or not and at what rate.
• Banks have now become highly conservative
especially after the economic downturn.
• Are significantly affected by the monetary
regulations like the Repo rate & CRR
formulated by the Central Bank of the
country. This is in turn affects the real
• Consequently the bargaining power of
suppliers is very strong
Threat Of Substitute Products And
• In real estate business, substitute
might be some type of totally new retail
space, some new location for office
space or rehabilitation instead of new
• The threat of substitute in real estate
business and its impact on profitability
of the industry is quite ambiguous and
difficult to establish given the
economic downturns and the recovery mode
of the real estate business cycle.
Rivalry Among Existing Competitors
• Rivalry is strong due to the large no. of
real estate firms operating in India (65 in
total) and the difficulty to differentiate
• The services offered by real estate
companies cannot be differentiated because
these firms don’t offer a product, other
than the facilities they lease and this
itself is very difficult to quantify.
• In the current economic crisis, there is
minimal profitability and only companies
with large cash reserves are likely to
• Considering all the 5 forces, it can be
said that the real estate industry is
not very profitable at this stage as it
was before the subprime crisis of US in
• But considering the fact that the real
estate cycle is in the recovery stage
right now and given that the demand for
real estate is growing at a CAGR of 19%,
it can be said that there are still
bright prospects ahead in a country like
With sales drying up, developers are attempting
to lure homebuyers through the lucrative 20:80
home loan scheme.
It involves the buyer having to just pay just
20% of the total amount up front, and put in the
remaining 80% after getting possession.
8% and 6% rural
8% and 6% rural
13.5% and 10% rural
• Some builders waive Stamp duty charges in order to
• Charges are around 4% to 8% of total price.
Offering Small Flats
• Instead of 2/3 BHK flats now to lure potential
flat owners by building 1 BHK flats.
• Small flats are which most of the middle class can
• Free Gifts
Some realtors offer free gifts such as
coin , cars.
Gifts also include foreign tours.
• Early Bird
Early investors can avail of discounts. Most
real estate projects are developed in phases.
Even before the basic approvals are in place,
developers start marketing projects to brokers and
some buyers at a discount.
Developers offer 10% to 20% discount to attract
buyers and generate cash-flow.
• Investor’s can earn quick profit by flipping after
the project’s formal launch.
• Brokers use pre-launches to offer clients a lower
• For soft-launch sale, the builder signs an
agreement with the buyer to sell at a later date.
The final terms and conditions of sale may not be
clear at this stage.
Real Estate Scenario in MMR
• The MMR (Mumbai Metropolitan Region)
• There is huge latent demand but exorbitant prices
make property unaffordable for most buyers.
• The price level here is way above the average
price level of India but the annual acceleration
is not very steep; in fact, it has been almost
stagnant for quite some time.
• The realty cycle in MMR follows a long drawn
pattern and has a low theta (angle of correction)
• After that, the MMR market with sky-high price
levels and declining sales velocity was considered
an unproductive arena and the funds inflow
• By sales velocity , the ratio between monthly
sales and total supply.
• The price rise after this, though persistent, has
been comparatively slow.
• It is also interesting to note that even after a
slow growth rate of prices, the pace of off-take
has been slowing.
Real Estate Scenario in NCR
• NCR (National Capital Region, which includes New
Delhi), on the other hand, is an entirely
• A lot of property is being sold in sectors which
may remain uninhabitable for a long time.
• The price rise post FY 2010-11 continued to be
sharp and persists even today.
• After touching the threshold of 27 percent yearon-year in the second quarter of FY 2012-13, the
growth rate has started to peter out.
• One can already see the correction in the
secondary market in NCR.
• According to report by Jones Lang-lasalle the
outlook of Indian real estate industry is
• People perceive it worthy to invest in real estate
properties now and are increasingly going for
properties owned by branded companies.
• Reduction in frauds due to computerized
registration process has helped build customer
Easy Access to Finance
• Easy access to housing loans with flexible
interest payment options.
• Financing for homes is done by large commercial
banks as well as credit unions and co-operative
• Application and processing fees for loan has
• Reduction in stamp-duty and registration charges
has helped industry to grow.
• Computerization of legal procedures from
Basic utilities like availability of
alternative power resources
have been critical for the real
FDI of 100 percent in township, housing, built-up
infrastructure and construction development
projects to increase investments, economic
activity, employment opportunity
Ministry of housing & Urban poverty Alleviation –
Single window system clearance which decreases
approval time from 196 days to 45-60 days
Government of India has sanctioned projects worth
Rs 41,723 crore for building 1,569,000
houses/dwelling units for weaker / low income
Housing finance are becoming feasible with housing
loans limit being raised to US $52080 for priority
Regulations for NRI to invest in Real
Development of services plots and construction of
built up residential premises.
Investment in real estate covering construction of
residential and commercial premises including
business centers and offices
Development of townships.
city and regional level urban infrastructure
facilities, including both roads and bridges
Investment in manufacture of building materials.
Investment in participatory ventures
Investment in housing finance institutions.
Initiatives taken in the Union Budget
For homes and flats with area of 2,000
square feet or more or of value of Rs 1
crore or more, which are high end
construction, rate of abatement reduced
from 75 to 70 percent
Rs 6,000 crore were given to Rural Housing
National Housing Bank plans to set up Urban
Housing Fund, Rs 2,000 crore will be
provided to the fund in the current
Laws and Regulatory Authority
• The Real Estate (regulation and Development) Bill,
2013 – approved on June 4, 2013.
This Bill aimed to create a Real Estate Regulatory
Authority and an Appellate Tribunal
Act as a watchdog for the housing sector,
primarily towards protecting consumer interests
while creating an alternative redress mechanism
for any disputes that may arise.
• Till recent 2012, up to a certain percentage,
local corporation can bring about changes in the
regulatory within its geographical limits.
Prior approval before launch and
provisions restricting launch of projects
or advertisements unless all approvals are
All the agents are not expected to
facilitate the sale of immovable property
which are not registered with the
To maintain books of accounts, records and
Mandatory deposits of fund
promoters to deposit 70 per cent or such
lesser per cent as notified by the
to cover the construction cost of the
project of funds in a separate bank account
to ensure timely completion and prevent
Registration of real estate project and real
mandatory registration of real-estate projects
and real-estate agents with the Authority
except when the land proposed to be developed is
less than 1000 square meters
provide another level of protection to buyers
preventing concerns regarding money laundering by
the non-organised broker community.
Disclosing of mandatory information
disclose material information such as
details of the promoters, project,
plan of development works, land
status, carpet area and number of
the apartments booked, status of the
disclosure of proforma agreements,
names and addresses of the real
estate agents, contractors,
architect, structural engineer etc on
the Authority's website
Restriction on taking advance
Prohibition on taking more than ten
percent as advance from the buyers
without a written agreement
Developers/ agents are required to
refund to buyers the full amount in
case of delay of projects.
Civil and criminal liability for the contravention
of various provisions of the Bill.
Imprisonment up to three years or a penalty up to
ten per cent of the estimated cost of the real
estate project For projecting out misleading
information in advertisements or prospectus
Real estate regulatory authority
The Bill give the power to establish one or more
Real Estate Regulatory Authority in each State/UT
appoint adjudicating officers to settle disputes
between parties, and to impose penalty and
• Private Equity(PE) investments in real estate
investment, revels that approximately Rs 118.54
billion is available with PE to be deployed in
real estate, even though a drop in PE investment
in the first half of 2013
• PE investment in
residential sector – Rs 9.3 billion, in 2013
Office segment Rs 7 billion, in 2013
Ready office space Rs 77.05 billion in last three
• Region wise investment in 2013
Pune –Rs 7.8 billion
Mumbai- Rs 4 billion
NCR - Rs 2.3 billion
Bangalore – Rs 1 billion
Mr. Akhilesh yadav, Chief minister of
UP has inaugurated and laid the
fountain of development projects
worth Rs 3,337 crore pertaining to
Noida, Greater Noida and Yamuna
Ashiana Housing Ltd plans to foray into Gujarat’s
real estate with first project worth Rs 100 Crore
Wave Infratech plans to invest Rs 500 crore in
Delhi national Capital region(NCR) area.
Some Major Investments
Godrej Properties Ltd plans to invest US$ 1.44 billion in 15
new real estate projects in India over the next 10 years.
NRI billionaire Mr. Ravi Pillai plans to purchase stake worth
about US$ 100 in a special purpose vehicle floated by Punebased realtor, Panchshil Realty. The investment will go into
the construction of Trump Towers and World Trade Centre in
Infrastructure Leasing & Financial Services (IL&FS) Ltd has
claimed a project worth Rs 244.46 crore (US$ 39.17 million)
from realty firm Emaar MGF for construction work at the
latter’s residential project at Gurgaon, Haryana.
French luxury hotel chain Sofitel, which is managed by Accor
Group, is targeting 10 properties in India, mainly in major
luxury destinations, in the next few years.
One of the world’s top manufacturers of elevators, US-based
Otis, is setting its sights on the Indian real estate market.
The company will be working with the Delhi and Hyderabad Metro
projects. The former has placed an order for 222 escalators for
its Phase III project, according to Otis.
Mergers & Acquisition
• Mahindra Life Space Developers has bought the
stake of private equity Arch Capital in its joint
venture residential project at Chennai for around
• Godrej Properties Ltd(GPL) has signed a
development management agreement with United
Oxygen Company Pvt. Ltd to develop residential
housing project in Bangalore for approximately
1,000,000 Sq.ft developed as residential housing
DLF Assets Ltd
Development Pvt Ltd
Compact Disc Film city
Oceanus Real Estate
• Laing O'Rourke(50:50 JV) is a UK based
construction company. It will construct all DLF's
• Nakheel of Dubai are partnering with DLF for
developing townships in India.
• WSP Group Plc (50:50 JV)is also partnering DLF,
providing management and consultancy to the built
and natural environment.
• Ventures is providing consultancy for faster
• DLF has teamed up with Hilton Hotels to jointly
develop hotels in India.
• In 2013, July DLF has sold 74 percent stake
in the life Insurance joint venture with U.S
based Prudential International Insurance
Holding Ltd to Dewan housing Finance Corp.
• Large number of small new entrant are seen in
the last couple years because of the huge
profitability in this sector and related
• The ‘cost of property’ in the real estate industry
includes the various types of costs involved in
the transaction and is not just restricted to the
transaction value of the property
• The three main components of cost in this industry
– Transaction Costs: Duties and fees and other
charges to complete the transaction
– Finance Cost: Application fee, processing fee,
pre-EMI (Equated Monthly Payment) costs and
expenses other than interest and EMI expenses
involved in obtaining a loan for the
– Cost of land, construction of property and
other development charges.
Analysis of various costs
Expenses as a % of
total income of real estate companies
Raw Materials Expenses
Compensation to employees
Expenses as a % of total income of real estate
FY 09 FY 10 FY 11
Raw material expenses
• One of the major cost
in the real estate
• The raw material costs
have been increasing
• Increase in the demand
for the raw materials
has led to hoarding of
these raw materials by
Raw Materials Expenses
13.47 FY 10
Compensation to employees
• The labour costs are
involved in the phase
regulations of minimum
wages, the labour costs
labour is also another
reason for the increase
in the wage costs.
• The marketing costs involves
the selling & advertising
expenses of the real estate
• These costs are not very
high, but still the amount
spent on the marketing forms
a part of the costs involved
in the real estate project.
advertisement expenses in the
maintaining websites etc.
• This is a major part of the cost in
• Since the capital required is high,
Loan is a major form of financing
option for the real estate industry.
25.07 FY 09
• Due to rising inflation and interest
rate hikes by the RBI, the interest
expense on these loans have been
• The costs involved in these
includes application fee, processing
fee, pre-EMI costs and expenses
other than interest and EMI
expenses involved in obtaining a
loan for the transaction.
• This includes various
commission, brokerage fees
paid to the agents.
• It also includes various
• It also includes various stamp
duty charges, taxes, pre
acquisition costs, legal fees,
planning costs et al. which are
statutory in nature
22.98 FY 11
The revenue factor is one of the most important factor while
ascertaining the profitability.
In the real estate sector, as is shown in the below graph, the sales
of the FY 08 was up by 82.38%.
This was during the boom period of the real estate sector worldwide.
There was cheaper financing option and also the demand was high.
But since the 2008 real estate bubble burst, the sales in the FY 09
saw a negative growth in sales.
It is still in the recovery phase and the sales in the FY 12 increased
by 23.39% compared to FY 11
The net profit shows the actual profits earned by the industry after
taxes and interest
The net profit in the FY 08 was up by 132.82% compared to FY 07
But due to the effect of real estate bubble burst, the industry saw a
negative profits for the next three years from FY 09 to FY 11.
It was only in FY 12 that the industry posted profit
Another main reason for the decrease in profits is the high inflation
which is leading to higher operating costs.
The financing costs is also on raise which is again impacting the
overall profits of the industry
The DBS report forecasts a good financial performance (profits) in
the coming years FY 13 to FY 17
EBITDA is also one of the main criteria that is looked into to
ascertain the profitability of the industry.
It helps to meaningfully evaluate and compare the cash flow
generating capacity from quarter to quarter and year to year.
In this industry, the EBITDA margin is decreasing at greater pace
since FY 09
This may be the result of high raw material costs which is hampering
the operational effectiveness in terms of cost.
The raise in inflation and also the problems in supply side for raw
materials such as hoarding, strikes et al, has been a major factor
for the decline in the EBITDA margin
EBITDA Margin 54.91
• Real estate is reaching a point of saturation in developed
countries and the demand and prices are falling
• Global real estate players are looking at emerging economies
such as India for their investments
• The Indian retail realty sector is projected to grow at
around 15 per cent year-on-year over the next 3–5 years.
• If the sector does indeed manage the aforementioned growth,
it will touch Rs. 34 trillion (US$ 544.73 billion) by 2016.
• The construction development sector, including townships,
housing and built-up infrastructure garnered total FDI worth
US$ 22,671.95 million in the period April 2000–August 2013.
• Demand for space from sectors such as education, healthcare
and tourism has opened up opportunities in the real estate
• Tier-3 cities like Surat, Lucknow et al, are beckoning real
The entry of major private players in the education sector has
created vast opportunities for the real estate sector
The top seven cities i.e. Hyderabad, Bengaluru, Mumbai, Delhi,
Pune, Chennai and Kolkata are likely to account for 70 per
cent of total demand for real estate in the education sector
NCR is expected to have the highest incremental demand from
the education sector
The rising young population of India is expected to drive this
Foreign tourist arrivals in India are expected to rise at a
CAGR of 10.5 per cent during 2012-15
The number of foreign tourists arriving in the country is
expected to be over 8.9 million by 2015
The number of hotel rooms in India as of 2011 stood at 121,000
The number of hotel beds in the country is expected to increase
to 443,000 by 2015 from the current capacity of 262,000
Southern states offer significant
The southern Indian States - Andhra
Pradesh, Tamil Nadu and Karnataka have been the major drivers of
economic growth in India.
The three states together account for
about 22 per cent of India’s GDP
Nearly 45 per cent of India’s office
stock is represented by these states;
over 64 per cent of the country’s IT
SEZs are housed in this region
Office stock projected to grow at a
CAGR of 8 per cent between 2014 and
A growing migrant population due to
together with healthy infrastructure
development, is underpinning demand
in the region’s residential real
• The healthcare sector is estimated to grow
at the rate of 15% per annum from 2013-16
• This means that India is expected to need
additional 950,000 beds.
• This has provided a great source of
opportunity for the real estate industry
and the investment towards this is expected
to be around $50 Bn over a period of 10
Key Challenges Ahead
Lack of clear land titles
Absence of title insurance
Absence of industry status
Lack of adequate sources of
• Shortage of labour
• Rising manpower and material costs
• Approvals and procedural
Key Challenges Ahead
• Need of improved delivery and project
• Lack of consistency in rules relating to
development of SEZs
• Increased monitoring of sector by regulatory
• Tightening of rules for lending to the real
• Fluctuations in key rates by RBI several
• No incentives for R&D for developing new
building materials, low cost techniques etc.
• High interest rates and fluctuating currency
• Putting in place a single window clearance
• Evolving a rational structure on payment of
stamp duties for sale and purchase of land and
• Revision in limit of interest deduction on
housing loan of Rs 1.5 lakhs to five lakhs.
• Easing the FDI policies in realty sector
• The Indian real estate sector promises to be a
lucrative destination for foreign investors into
The Indian realty sector, if channelized properly, could
lead to the growth of several other sectors in India
through its backward and forward linkages.
Maturity of the real estate markets will lead to infusion
of foreign investment and adoption of international best
practices by real estate players.
Considering the growth of the industry and the
opportunities in it, we see that there is a great chance
to attract global players to India which would lead to
more matured, better utilization of techniques in the
• (August 2012). Real Estate Sector in India.
New Delhi: Competition Corporation of India
• Warren, A. (September 14,2012). Global Real
Estate Trends. Toronto: Scotia Bank
• Porter, M. E. (June 2002). Competitive
Strategy and Real Estate Development.
Harvard Business School , 9.