SIP Report Sumit Chatterjee- Print Copy

“A STUDY ON THE MESS IN THE HOUSING MARKET IN INDIA- IS IT A BUBBLE
OR NOT?”
Summer Training Project Report submitted in partial fulfillment of the
requirements for the
Post Graduate Diploma in Management
At
Jaipuria Institute of Management, Lucknow
By
Sumit Chatterjee
JL15PGDM136
Supervisor:
Mr. Keshav Aggarwal
Indiabulls Ventures (Lucknow)

TO WHOMSOEVER IT MAY CONCERN
This is to certify that the Summer Project Study Report, Titled “A study on the Mess in the
housing market in India- is it a bubble or not” submitted by Mr. Sumit Chatterjee as partial
fulfillment of requirement of the two year PGDM (2014-2016) is a bonafide work carried out by
the student at our Institute.
This Summer Project Study is his/her original work and has not been submitted to any other
University/Institute.
Prof. Kajal Srivastava Dr. Raj Kumar Ojha
Project Supervisor Program Director- PGDM
Date:
Place:

Summer Internship Completion Certificate
Date:
To
The Director
Jaipuria Institute of Management
Lucknow
This is to certify that Mr./Ms........................................................ , student Batch PGDM 2014 –
16 at Jaipuria Institute of Management, Lucknow has successfully completed his/her Summer
Internship from…………………… to ……………………. in our organization.
During this period his/her performance was Satisfactory/ Good/ Very Good (Kindly tick one).
Remarks:
………………………………………………………………………………………………………
………………………………………………………………………………………………………
………………………………………………………………………………………………………
Signature
Name of the Issuing Authority……………………………………………………………………
Designation………………………………………………………………………………………
Official Seal ……………………………………

Declaration Certificate by Student
DECLARATION BY THE STUDENT
I Sumit Chatterjee student of PGDM batch (2014-1016) declare that the project entitled “A study
on the Mess in the housing market in India- is it a bubble or not”, is my own work conducted
under the supervision of Mr Keshav Aggarwal as a partial fulfilment of Summer Internship
Program for the course of PGDM submitted to Indiabulls Ventures, Park Road Hazratgunj and
Jaipuria Institute of Management, Lucknow
I further declare that to the best of my knowledge the project does not contain any part of any
work which has been submitted for any other project either in this institute or in any other
without proper citation.
Place :
Date: Signature of the Candidate

Acknowledgement
This project would not have been possible without the kind support and help of many individuals
and work of authors. I would like to extend my sincere thanks to all of them.
I am highly indebted to Mr. Keshav Aggarwal for his guidance and constant supervision as well
as for providing necessary information regarding the project & also for his support in completing
the project.
I would like to express my gratitude towards the members of Indiabulls Lucknow branch for
their kind co-operation and encouragement which helped me in completion of this project.
I would like to express my special gratitude and thanks to my faculty mentor for her constant
support and guidance.
My thanks and appreciations also go to my friends in developing the project and people who
have willingly helped me out with their abilities.

Executive Summary
This report provides a detailed analysis and evaluation of the current mess in the housing sector
in India along with its relationship with the financial sector. The basis of the study is the
speculation of a bubble in the housing sector along with its overall impact on the economy at
large. Methods of analysis includes housing affordability measure, housing debt measure,
housing ownership and rent measure and housing price indices. Other calculation includes Price
to Income Ratio, the housing debt to income ratio, and Gross rental yield. Results of the
calculations show that there is a housing bubble in the housing sector along with a possible
correlation with the financial sector of India. The report finds that the majority of housing
affordability measures indicates the poor state of the housing sector. The major areas of the
housing sector needs improvement and the recommendation discussed include:
 Need of regulatory and supervisory body on the housing sector both at states and center.
 The housing price index
 Need of a land index be made available.
 Strengthening institutional credit.
 Formulate policies to restrict Black money.
 Comparative study of the real estate market.
The report also investigates the fact that the analysis conducted has limitations. Some of the
limitations include:
 Lack of available and reliable data
 Lack of prior research and studies on the topic
 Methods used to reach to the conclusion
It is concluded that there is a bubble in the housing sector which can trigger a credit bubble as
well, but the impending bubble is not going to burst anytime soon as there is a lot of money
flowing into the system thus keeping the bubble inflated.

TABLE OF CONTENTS
Chapter 1 INTRODUCTION.......................................................................................................... 1
1.1 Industry Overview................................................................................................................. 1
1.2 Problem Statement................................................................................................................ 5
1.3 Rationale of the Problem ...................................................................................................... 6
1.4 Methodology......................................................................................................................... 7
1.5 Scope of the Study ................................................................................................................ 8
1.6 Limitations of the Study........................................................................................................ 8
Chapter 2 DETAILS OF THE ORGANIZATION....................................................................... 10
2.1 Introduction......................................................................................................................... 10
2.2 The Organization ................................................................................................................ 10
2.2.1 Projects......................................................................................................................... 11
2.2.2 Organization Structure................................................................................................. 14
2.2.3 HR Practices................................................................................................................. 16
2.2.4 Competition Analysis................................................................................................... 19
2.2.5 Industry Analysis ......................................................................................................... 20
2.4 SWOT Analysis of Company ............................................................................................. 21
2.5 PESTEL Framework Analysis of Company....................................................................... 22
2.6 Michael Porter‟s Five Forces Model- Industry Analysis.................................................... 24
2.7 Conclusion .......................................................................................................................... 25
Chapter 3 THE PROBLEM ON HAND....................................................................................... 26
3.1 Introduction......................................................................................................................... 26
3.2 Problem Area Identification................................................................................................ 29
3.3 Description of the Task....................................................................................................... 29
3.4 Detailed Analysis of the Task............................................................................................. 30

3.5 Criticality of the Task ......................................................................................................... 37
3.6 Conclusion .......................................................................................................................... 38
Chapter 4 LEARNING OUTCOMES .......................................................................................... 39
4.1 Comprehension of the Task ................................................................................................ 39
4.2 Problems faced during Accomplishment of the Task......................................................... 39
4.3 Methods adopted to solve the Problems ............................................................................. 41
4.4 Overall Learning from the Task.......................................................................................... 42
4.5 Conclusion .......................................................................................................................... 43
Chapter 5 RECOMMENDATIONS ............................................................................................. 44
5.1 Brief Description of Recommendations.............................................................................. 44
5.2 Details of Each Recommendation, Discussion of Its Technical Suitability, Economic
Justification and Feasibility of Implementation........................................................................ 45
5.3 Suggested Scheme of Implementation, Precautions and Monitoring Systems................... 50
5.4 Conclusion .......................................................................................................................... 52
Chapter 6 CONCLUDING REMARKS ....................................................................................... 53
6.1 Summary............................................................................................................................. 53
6.2 Gains from the Project ........................................................................................................ 55
6.3 Limitations of the Project.................................................................................................... 56
6.4 Scope for Further Work ...................................................................................................... 58
6.5 Conclusion .......................................................................................................................... 59
11. References............................................................................................................................... 60

of 69
Chapter 1 INTRODUCTION
1.1 Industry Overview
The real estate sector is one of the most growing sector in India and is expected to touch $853
billion by 2028. In the last few years the sector has received huge investments and became the
most preferred destination for investment as well. The housing sector alone contributes 8-9% of
GDP and is expected to grow as the sector is about to grow at 13.9% CAGR. The real estate
sector is comprised of housing, retail, hospitality and commercial sectors and is a central theme
of the government of India. As of 2016 real estate sector is the second largest employment
generator after agriculture and is expected to grow at 30% over the next decade. The demand for
commercial spaces have also grown in the top 8 metros- Mumbai, Bengaluru, Chennai,
Hyderabad, Ahmedabad, Kolkata, NCR, Pune and Delhi was up at 58% from the previous
quarter. The residential segment also saw an increase of 38% during the first quarter of 2016
with Bengaluru recording the largest number of units, followed by Mumbai and Chennai.
The demographics of India indicate that it can be a leading destination for real estate business
globally. The country has huge population and demand for the residential apartments are
skyrocketing as about 10 million people are moving to urban cities annually and is going to
increase to approx. 18.8 million in a decade.
Figure 1.1

of 69
The liberal economic policies of government of India have allowed a huge inflow of money from
foreign destinations and are still aiming to improve private participation. The strong
fundamentals of the Indian economy such as young population, rising urbanization and growing
middle class population has helped the overall sector to grow at an unprecedented rate. It is also
expected to attract more NRI investments as Bengaluru is expected to be the most favored
property investment destination for NRIs, followed by Ahmedabad, Pune, Chennai, Goa, Delhi
and Dehradun.
According to data released by Department of Industrial Policy and Promotion, the construction
development sector in India has received Foreign Direct Investment (FDI) equity inflows to the
tune of US$ 24.19 billion in the period April 2000-March 2016 and the 12th
five year plan has
pledged to invest a trillion dollars on Infrastructure.
Figure 1.2

of 69
Figure 1.3
The construction development sector including built-up infrastructure, housing, townships,
construction development projects etc. have garnered a total FDI of worth $23,131.64 million in
the period April 2000-February 2014.
The residential sector has ample growth in the nation and is bound to grow because of favorable
economic environment. Further, demand for space is going to increase as improvement in any
services be it education, healthcare, commerce or logistics require new infrastructure to support
the growth. Indian GDP has quadrupled to reach USD 2.6 trillion in 2016 and is expected to
become the third largest economy worth USD 6.6 trillion by 2028.

of 69
Challenges
There are broadly five challenges that the real estate sector may have to face in India.
First there is lack of suitable developable land as the prices of the land has sky rocketed and the
government has started the strategy of land pooling. The government has to do something with
the price of the land- the prices can‟t sustain for more and are bound to collapse when the money
runs out.
Secondly, the regulatory process in India is slow and confusing. It takes approx. 227 days to get
all the 34 mandatory approvals before the start of a project. Regulations need simplifications.
Third, there is land related issues and the government is working on the Land acquisition bill for
quite some time. Digitization of land records is also solving the problem to a large extent.
Fourth, Inadequate funding channels: In India due to huge NPA‟s of public sector banks there is
lending shortage in the banking sector as the banks have less capacity to lend. The government
needs to keep a balance in this arena.
Fifth, Shortage of manpower and technology. The skill India initiative has to be successful for
the real estate sector to fly. Increased digitization will help in the future.
The real estate industry is booming in India but the prices are going out of the reach of common
people. The government will have to keep a balance between the interests of the investors and
the consumers as well. Like in many western countries the prices of real estate can lead to
depression especially in the developing nation and hence the government need to check for the
impending bubbles and take necessary measure before it bursts.

of 69
1.2 Problem Statement
The Real Estate sector in India was a booming industry and is still among the fastest growing
industry in India thanks to the government‟s interest in infrastructure sector. Recently the prices
of the houses have gone down a little bit as compared to what it used to be just five years ago-
inflation adjusted, but the real question still exists whether the real estate sector is in bubble or
not. The house price to income ratio of India indicates that it‟s becoming increasingly difficult
for buyers to afford a house.
Figure 1.4
It is also important to note that the real estate bubbles are seen as a trigger of credit bubble as
well because property owner generally use borrowed money to purchase property in the form of
mortgages. When the prices increase the property owner feels rich and further borrows to
consume or make money against the increased value of their property by taking out a home
equity line of credit. Borrowers speculate by buying property with borrowed money in the
expectation that it will rise in value but when the bubble bursts, the value of the property
decrease but not the level of the debt. The burden of repaying or defaulting on the loan further
depresses the aggregate demand. When the demand is low real estate inventory increases

of 69
exponentially and they in return could pay back the loans that they have taken from the bank. It‟s
a situation when at a time a number of individuals and organizations default creating an
increasing pressure on the banking sector. The NPAs increases and the bank start to restrict
lending.
This study tries to figure out whether the real estate sector is in bubble or not.
.
1.3 Rationale of the Problem
This report is on the probable real estate bubble in India and its overall ramifications on the
economy at large. Due to lack of relevant statistics in the country there have not been much of
studies conducted on the real estate bubble but now it has come into the limelight of economists
and hence numerous research and studies are being done on the real estate sector. The problem at
hand can have significant impact on the economy and finance of the country as is evident from
the western real estate bubble burst. The housing sector in India plays an important role in the
economy and any shock in the housing sector can have significant impact on the overall
consumption and demand in the economy. Since the real estate sector contributes 10% to the
GDP hence it becomes important for the government to have control over the sector. In India
lifetime savings are used to buy properties and hence the government needs to be sensitive
towards the policies of the sector.
It is also rational to understand that the real estate bubbles are seen as a trigger of credit bubble
as well because property owner generally use borrowed money to purchase property in the form
of mortgages. When the prices increase the property owner feels rich and further borrows to

of 69
lending.
Hence the problem at hand makes an immense sense to have a thorough study to figure out the
impending bubble in the real estate market.
1.4 Methodology
There has been a lot of research done over housing bubble in the west and some Asian countries.
Some think tanks used housing affordability measure while others used housing debt measure.
Housing ownership and rent measure and housing price indices has also been used to figure out
whether there is bubble in the housing sector or not. In this study all the above mentioned
indicators has been analyzed. To do the same secondary data has been used from official and
concerned authorities. GOI declared data has mostly been used along with data from independent
authors and columnist.
Calculations such as housing affordability measure, housing debt measure, housing ownership
and rent measure and housing price indices has been accepted as a measure to investigate
whether there is a bubble in the housing sector and not and in this study secondary data has been
used for various calculations.
Calculations like per capita income by adjusting the inflation, rent yield of various cities,
weighted average price of a flat in various cities, years of savings to buy a home, % increase in
the prices of flats in various cities and months of unsold inventories have been made to further
calculate the relevant ratios.
This report uses the following statistical measures to spot a bubble in the real estate sector:
Price to Income Ratio =
The housing debt to income ratio =
Median ratio of free market price for housing unit
Median of household annual income
Total recurring monthly debt
Gross monthly income

of 69
Gross rental yield=
1.5 Scope of the Study
Risk analysis is a process that is often ignored by the investors particularly by the individual or
smaller investors who tend to be more vulnerable. The problem of bubble In the real estate can
be used in a number of different scenarios like housing affordability measure, price to income
ratio, the affordability index, housing debt measure and a number of other indictors which will
finally enable the management to take informed decisions in the real estate sector plus it will
enable the organization to provide information to the clients to make informed investments. The
scope of the study can have a wide impact on the way we look at the real estate sector because
Indiabulls is both in the real estate as well as in the housing loan sector.
1.6 Limitations of the Study
Due lack of data and Indices from the authorities a lot of data crunching has been done
independently and hence the calculations so made in this report are somehow understated as the
per capita income of some of the cities was not available. Recent data of almost all the cities was
not available and hence a 10% increase in per capita income is assumed to do the relevant
calculations. The data for Delhi Capital region and Mumbai were not made available by the state
level economic surveys and hence for Delhi capital region the per capita income of Delhi area
has been used, on the other hand the per capita income of Mumbai and Thane has been used to
calculate the per capita income of Mumbai. Further the rental yield data is also not available
apart from the major cities in India and hence the rental yield has been supposed to be the
average of all the seven cities that has been used in calculating the overall yield which is in
between 2 & 3.
At the time of making this report the housing index „Residex‟ has not been made public as the
website of Government of India was inaccessible. According to the news from few media
houses, the Residex is still not ready and the government officials are still trying to make the
Annual rental income * 100
Property Value

of 69
single most official index related to the housing sector in India. The government has a dedicated
website for Residex but it‟s not accessible.
Further due to the unavailability of data the following calculations couldn‟t be made.
The deposit to Income ratio: Due to the unavailability of statistics the minimum downpayment
for a typical mortgage couldn‟t be calculated and hence a ratio that measures the housing market
couldn‟t be calculated. Banking sector of India has not provided the information of how many
people have taken loans more than 50 Lakhs. The data of number of persons who has taken loans
of around 25 Lakhs for housing is available but not relevant for this study as there was no city
whose average house price was in the range of 25 Lakhs.
The housing debt to equity ratio couldn‟t be studied because of the unavailability of data. In
India it‟s impossible to find out how many persons are taking a second home equity loan using
the accumulated equity or house as collateral. A ratio greater than one implies that owners equity
is negative. The housing debt to equity ratio is an important measure. Had it been possible to
calculate this, the results would have been dramatically influenced.
The credit bubble that forms because of the bubble in the real estate sector is complicated to
study and not a subject matter of this report but few citations have been made as data which were
available in the credit sector that had a direct link to the real estate sector has been used to do the
calculations. Statistics and ratios related to real estate sector is seldom available and hence data
availability has been the main problem during the compilation of this report.

of 69
Chapter 2 DETAILS OF THE ORGANIZATION
2.1 Introduction
Indiabulls Real Estate is India‟s third largest real estate company with a Gross Development
Value of Rs. 34,566 Cr., and net worth of Rs. 7,899 Cr. (as of March 31st, 2016), and with 11
on-going projects with total saleable area of 30.51 million sq. ft. under its wing. The company
has planned two new projects with total saleable area of 7.29 million sq. ft. Additionally the
company has a land bank of 1,017 acres and also possesses 2,588 acres of SEZ land at Nasik,
Maharashtra. Recently, Indiabulls Real estate acquired the prime property, 22 Hanover Square in
Central London for Rs.1630 Cr.
2.2 The Organization
Indiabulls Real Estate has earned a distinct reputation for building projects that turn spaces into
inspiring places. With prime focus on construction and development of residential, commercial
& SEZ projects across major Indian Metros & London, Indiabulls Real Estate went on to expand
its projects portfolio. Today it ranks third amongst the top Real Estate companies with a total
Gross Development value of INR 34,566 crores and net worth of INR 7,899 crores as of March
31, 2016. Indiabulls Real Estate‟s strategic partnership with Farallon Capital Management LLC
of USA was instrumental in bringing the first FDI into real estate in India. Currently IBREL has
11 on-going projects in India with total saleable area of 30.51 million sq.ft. It also has three new
projects that are planned to be launched shortly with total saleable area of 7.29 m sq. ft. The
company has a fully paid for land bank of 1,017 acres and also possesses 2,588 acres of SEZ
land at Nashik, Maharashtra.
IBREL is currently developing 40.79 million sqft into premium quality, high-end commercial,
residential and retail spaces in the Metros- Mumbai, Delhi NCR & Chennai, apart from Tier I
cities. With its recent acquisition of the prime property, 22 Hanover Square in central London for
INR 1,630 crores IBREL is consolidating its presence internationally as well. Some of the iconic
landmarks of IBREL that have redefined commercial spaces in Mumbai are One Indiabulls
Centre & Indiabulls Financial Centre with over 3 million sq.ft. of sprawling commercial space.
Indiabulls Real Estate has delivered a record 3.3 million sq ft developed space valued at $ 1
billion (within 4 years of inception). This is fastest and largest delivery in value of terms by any
Indian real estate developer in the same time period.

of 69
IBREL has been assigned credit rating of AA- for long term debt and A1+ for short term loan by
CARE and International ratings of B+/B1/B+ by S&P/Moddy‟s/Fitch respectively.
2.2.1 Projects
Residential Projects
Indiabulls real estate has ongoing residential projects in Mumbai, Delhi NCR, Ahmedabad,
Chennai, Vizag, Hyderabad and Madurai.
In Mumbai they have eight ongoing residential projects-
1. Blu Estate and Club: Ganapatrao Kadam Marg, Upper Worli, Lower Parel, Mumbai,
Maharashtra 400018
2. Indiabulls Parks: Kon-Savle Road, Opp. Honda Warehouse, Next to Kon Toll Naka P.O
Ajivali, Kon, Panvel, Navi Mumbai, Maharashtra 410206
3. Indiabulls Sky: Senapati Bapat Marg, Saidham Nagar, Parel, Mumbai, Maharashtra
400012
4. Indiabulls-Sky Forest: Senapati Bapat Marg, Saidham Nagar, Parel, Mumbai,
Maharashtra 400012
5. Indiabulls Golf City: Savrolli, Khalapur Toll Naka, Mumbai - Pune Expressway,
Khopoli, Tambati, Maharashtra 410202
6. Indiabulls Greens: Kon-Savle Road, Opp. Honda Warehouse, Next to Kon Toll Naka P.O
Ajivali, Kon, Panvel, Navi Mumbai, Maharashtra 410206
7. Indiabulls Sky Suites: Indiabulls House, Indiabulls Finance Centre, Senapati Bapat Marg,
Elphinstone Road, Babasaheb Ambedkar Nagar, Mumbai, Maharashtra 400013
8. Silverlake Villas

of 69
In Delhi NCR region they have 4 ongoing projects-
1. One Indiabulls Gurgaon: Sector 104, Dwarka Expressway, Gurgaon, Haryana 122006
2. Indiabulls Centrum Park: Sector 103, 75Mtr Road, Dwarka Expressway, Gurgaon,
Haryana 122006
3. Indiabulls Enigma: Bajghera Rd, Block R, New Palam Vihar Phase 1, Sector 110, Pawala
Khasrupur, Haryana 122017
4. Indiabulls Sonepat.
In Ahmedabad they have two ongoing projects-
1. Vatika: Near GEC International Study Centre,, Ahmedabad, Gujarat, India
2. Indiabulls Centrum: Himadri Mill Compound, Near Haribhai Godani Hospital, Saraspur,
Ahmedabad, Gujarat 380018
In Chennai they have one ingoing project-
1. Indiabulls GREENS: 68/1A, Jalladianpet Joint Jalladianpet, Near, Perumbakkam Main
Rd, VGP Prabhu Nagar, Medavakkam, Chennai, Tamil Nadu 600100
In Madurai also they have one ongoing project-
1. Indiabulls Centrum: 2B, Kothandaram Mill Rd, Mahalipatti, Keerathurai, Madurai, Tamil
Nadu 625001
In Hyderabad also they have one ongoing project-
1. Indiabulls Centrum: 1-2-606/156, LIC Colony, Lower Tank Bund, Kavadiguda,
Hyderabad, Telangana 500080
In Vizag also there is one ongoing project-
1. Indiabulls Sierra: Plot No: 11, 100 Feet Road, Madhurawada, Visakhapatnam, Andhra
Pradesh 530041

of 69
Commercial Projects
Indiabulls have ongoing commercial projects in Mumbai, Delhi NCR and Vadodara.
Commercial projects in Mumbai are as follows-
1. Indiabulls Finance Center: Indiabulls Finance Center, K.G.Marg, Babasaheb Ambedkar
Nagar, Lower Parel, Mumbai, Maharashtra 400013
2. One Indiabulls Centre: One Indiabulls Center Tower Ii A, Balasheth Mandurkar Marg,
Saidham Nagar, Parel, Mumbai, Maharashtra 400012, India
3. The HUB at One Indiabulls Centre: One Indiabulls Center Tower Ii A, Balasheth
Mandurkar Marg, Saidham Nagar, Parel, Mumbai, Maharashtra 400012, India
Commercial projects in Delhi are as follows-
1. Indiabulls one 09: Sector 109, Dwarka Expressway, Gurgaon, HR 122001
Commercial projects in Vadodara are as follows-
1. One Indiabulls: India Bulls: 16, Akota Rd, Purushottam Nagar, Haripura, Vadodara,
Gujarat 390020, India
Special Economic Zone Project (SEZ)
Indiabulls Nasik SEZ is being developed jointly with Maharashtra Industrial Development
Corporation (MIDC), the premier Industrial Infrastructure Development agency of Government
of Maharashtra that has developed over 60,000 hectares of Industrial land in Maharashtra.
SEZ Projects are as follows-
1. Indiabulls Neo City: G-1, Ground Floor, Suyojit Moder Point, Sharanpur Road, Police
Parade Ground, Govind Nagar, Nashik, Maharashtra 422009

of 69
2.2.2 Organization Structure
Indiabulls real estate sector follows a matrix organizational structure in which a team of
employees accomplish a work in order to take advantage of the strengths of the each employee.
Since Indiabulls has many other businesses like Indiabulls housing finance and Indiabulls
ventures therefore the company follows the balanced matrix to have a to and fro relationship
with the other functional areas. The hierarchy of the organization is as follows.
Since the company has been formed in the year 2005 therefore the company‟s structure has not
consolidated yet and hence cross sectional hierarchy is common In Indiabulls Real Estate.

of 69
The hierarchy of the whole Indiabulls family is as follows
Hence the company follows a matrix structure.

of 69
2.2.3 HR Practices
Employment
1. Any permanent position to be filled in must be budgeted & must have Head HR &
Business Head approval before hiring.
2. After defining the job specifications and the skill & experience requirements (through a
Manpower Requisition Form), it is decided whether the position should be internally sourced or
through external recruitment.
3. In case of selection process involving internal candidates, Human Resource acts as a
coordinator, so that all issues related to transfer, release etc. between two departments are
resolved satisfactorily.
4. In the event of a decision to go for an external source, Human Resource is to be the
coordinating point with external agencies. Human Resource is also be responsible for
establishing contracts related to fee structure & processes etc. with the external search firms.
This is to ensure uniform & consistent communication on all recruitment matters.
Work culture
The work culture at Indiabulls is a perfect blend of performance acceleration systems,
innovation, technology, constructive means, robust rewards system, trust and integrity. Indiabulls
focuses on hard facts, business trends and productivity, and facilitates work-life balance by
supporting personal success. Even small achievements are noted and celebrated while laudable
actions and outcomes are duly recognized and rewarded. Every employee‟s ideas, opinions and
perceptions are recognized. Training, mentoring and development programs are an on-going
feature.

of 69
Indiabulls strongly believes that teamwork is the greatest driving force towards success and it
promotes an open door policy to encourage communication and understanding amongst its
employees. Diversity and inclusion are key components of the company‟s work culture. People
are valued for what they do and how they do it, and not for where they come from. All
employees are expected to contribute towards building an inclusive culture by working together.
Dress code
Employees are required to attend work in formal attire on weekdays. Formals imply either light
colored or pin striped or subtle checks (either full or half sleeves) with tie and formal trousers
(no chinos, jeans) for men. For ladies formals imply salwar kameez, western formals or sarees.
Employment benefits
Statutory Benefits
The Provident Fund and Gratuity are governed by Acts of Law and are statutory.
Provident Fund
Provident Fund is one of the mandatory schemes established by the Government of India to
provide social security to the service class. Each staff member from his date of joining becomes
a member of the Provident Fund scheme that is administered through Regional Provident Fund
Commissioner Office, Mumbai.
Contribution
• The staff member shall contribute 12% of their Base salary to the provident fund. The
contribution will be made by deducting the amount from the monthly salary. The Company also
makes a contribution equivalent to 12% of the base Salary of the staff member.

of 69
PERFORMANCE APPRISAL AND REWARD MANAGEMENT SYSTEM
Performance Appraisal
a) Annual Performance appraisal will be done every year for the performance in the
previous financial year.
b) The appraisal process consists of
• Self evaluation
• Appraisal by the immediate superior
• Review by the functional / departmental head
• Balancing by Head HR, Business Head
Awards Function
The awards function encourages the spirit of competition amongst the employees and inspires all
employees to better their performance in the previous years. On the eve of the function a
souvenir is brought out with the highlights of achievements of individuals, teams, branches and
states. Different types of awards are distributed to the winners.
BUSINESS ETHICS
Disciplinary Code & Procedure
It is the policy and the objective of the organization to promote exemplary behavior to attain high
standards of ethics and conduct. The organization expects its employees to display poise and
dignity in day-to-day affairs. It is the organization drive to establish itself as a safe, respectable
and pleasant working environment. The Disciplinary Code and Procedure has been developed to
ensure employees are aware of the high standards expected of them in the work place and to aid
management in implementing and maintaining discipline with fairness and consistency.

of 69
Code of Conduct
It‟s key to the maintenance of public confidence and proper functioning of the organization, that
every employee performs his/her duties with honesty and integrity. To this effect, employees are
required to adhere to the code of conduct, in force from time to time.
.
2.2.4 Competition Analysis
The competition in the real estate sector has become stiff in the recent past. Companies like DLF
Limited, Vatika, omaxe, BPTP and Jaypee are the major competitors to the Indiabulls Real
Estate sector.
DLF Country's largest realty firm has rental assets of about 30 million sq. ft., largely in Gurgaon,
with an annual rental income of about Rs 2,400 crore. Of this, about 13 million sq ft is in Cyber
City area where current monthly rentals are ruling at Rs 95-100 per sq ft. The company has
created a large platform of rent yielding commercial office and retail assets which is now ready
to be partially monetized through sale of equity. Also the company is planning to invest about Rs
900 crore over the next three years on construction of its new commercial project in Gurgaon
covering about 2.2 million sq ft of office space.
Vatika an affordable housing unit has been doing extremely well in the recent past and hence is
bound to have a substantial share in the affordable housing unit. The company can expect quick
sales from customer segment with income in the range of Rs 30,000 to Rs. 50,000.
Omaxe Ltd has claimed to be a leading real estate player in the country and has launched various
projects in just 3 years of time. The Lucknow township which is Spread over approximately
2700 acres is expected to yield an estimated revenue of over Rs 2,800 crores and would cater to
the growing demand of quality living space in the city. Realty major Omaxe has entered into an
agreement with the Lucknow Development Authority to develop a township in Lucknow.
Recently, it also forged a similar tie-up with Allahabad Development authority as well.
Jaypee group and its real estate division is one of the major player in the market. The group is
currently focusing in Noida where few of its ambitious projects are going on. Further the group
is involved in developing a sports city on a built area 2,500 acres.

of 69
The competition in the real estate sector is growing as there is an increased amount of inflow in
the companies due to attractive returns in the sector.
2.2.5 Industry Analysis
India has already been declared as a land of opportunities for business and investments. The FDI
in India stood at USD 30.93 billion in the year 2014-2015 and is bound to increase to USD 50
billion this fiscal. The real estate sector is expected to reach $180 billion by 2020 form $93.8
billion in 2014. It is currently the fourth largest sector in the country in terms of Foreign Direct
Investment inflows. Total FDI in the construction development sector during April 2000–May
2015 stood at around US$ 24.07 billion.
The Government of India has been supportive to the real estate sector. In August 2015, the Union
Cabinet approved 100 Smart City Projects in India. The Government has also raised FDI limits
for townships and settlements development projects to 100 per cent. Real estate projects within
the Special Economic Zone are also permitted 100 per cent FDI. In Union Budget 2015-16, the
government allocated US$ 3.72 billion for housing and urban development. The government has
also released draft guidelines for investments by Real Estate Investment Trusts in non-residential
segment.
Further upcoming requirement of the infrastructure development will lead a huge growth in the
real estate sector. There is a booming consumer in India along with organized retail growing 30-
35 percent annually.
India‟s population below 30 years of age having exposure to global retail is expected to drive the
demand for the organized retail. There is also a demand for commercial spaces as the business
environment is rapidly changing in the country and a lot of new ventures are coming in the
country.
Also the residential real estate has witnessed an good growth in the past due to migration, job
opportunities in cities, growing income levels, rise in nuclear families and easy availability of
finance.
The commercial real estate is booming as India is moving towards digitization and a lot of
infrastructure support is required for the new ventures to fly off.

of 69
Hence the industry is booming at a very fast rate as the need of countries infrastructure is
increasing to sustain the development.
2.4 SWOT Analysis of Company
Strengths Weaknesses
 3rd
largest real estate company in
India.
 PAN India Presence.
 Has already delivered numerous
projects.
 Best use of technology, from
websites to internal systems.
 Company has accumulated a sizable
land bank from government and
acquisitions at competitive prices
and hence has a solid presence.
 Has taken up large government
projects.
 Very efficient personnel and internal
system to successfully manage and
run large construction projects that
take several years to complete.
 Strong brand value.
 The margin has fallen down and the
prices of the houses have also gone
down.
 Tax Structure.
Opportunities Threats
 Growing demand.
 New markets as the company is
undertaking projects in 2 tier and 3
tier cities.
 Lots of money flowing into the
 Fluctuation in the global economy.
 Government Regulations.
 Rising costs of raw materials.
 Stiff competition from other
developers in the market and the

of 69
2.5 PESTEL Framework Analysis of Company
The real estate sector is thought to be in a sweet spot in India as a lot of money is coming in the
sector- it goes without saying that the easy money policy around the world and black money here
in India has definitely found its way in the real estate sector in India.
Politically the sector is stable because there is an incredible amount of wherewithal which is still
playing a big role and it‟s definitely a matter of time for the real beneficiaries to get unveiled as
the governor of RBI has definitely tightened the rules of the game and banks are forced to reveal
there NPA‟s and the way they have been lending to various builders around the country.
Corruption in the top notch of the country has significantly come down and it has definitely
played a significant role in curbing the black money of the politicians to directly flow into the
real estate sector fuelling the already hyper priced industry. Additionally, the government has
provided incentives to the real estate investment trust and has also planned to make 100 new
smart cities which will definitely benefit the industry and nation as a whole. One political hurdle
is still there which needs to be fixed is the land acquisition bill which is yet to be passed.
Economically the sector is booming as its getting help from all around the corner ranging from
government to the foreign investors. The government has allocated Rs 7,600 crore for 100 smart
cities, Rs 12,000 crore to the National Housing Board of which Rs 4,000 crore is for affordable
housing. Overall the economic sentiments is all bullish for the sector but the sentiments of the
people will play an important role as government can build buildings but at the end of the day
it‟s the buyer who will decide whether they have enough faith in the system or not.
sector and the laws are also in
favour.
 Development of SEZS and
affordable homes is the major
growth area in the near future.
competition is increasing day by
day.
 Consumer sentiments can bring
about a bearish situation in the real
estate sector as happened in so many
developed countries.

of 69
Socially there is a lot of negativity going around about real estate as in the past there were
innumerable cases of delay possession and no possession at all. In India 40% of the inventory is
still unsold and builders are continuing building and taking up new projects despite having
inventories for more than 2 years. The prices of the homes are artificially inflated and the
economically buyers don‟t have the capacity to buy homes to live in as the average prices of the
houses have gone up drastically but the income levels are approximately at the same level. Hence
socially it‟s going to be the responsibility of the builders and government to gain the faith of the
consumers in the long run.
Technological landscape is extremely dynamic and it has helped the real estate sector in various
ways. First the online platforms provide an incredible opportunity to the builders or underwriters
to connect with the potential customers, it has helped bring down the costs of building the
houses, fasten the process and can be helpful in bringing transparency in the system. Secondly it
can dramatically improve the efficiency of the sector as it can provide real time information of
what consumers actually want and catering to that would be a game changer. Currently India is
one among the most internet savvy country in the world and infrastructure is going to be a lot
better with the partnership of Cisco, Google, Microsoft and Facebook. India has become a lot
self-sufficient in technology and recently she has got its first indigenous GPS system which will
provide real time information related to the location and is going to be helpful in allocating the
land. GPS will indispensable for the allocation of land and it will greatly help bring transparency
in the system.
Legal system has not been consolidated yet as the sector is relatively new and the government is
still working on the legal frameworks for the real estate sector, but there are a number of
frameworks that are applicable to the real estate sector such as the obligation of the company to
pay the buyers If the builder fails to deliver in time. Secondly there has been a lot of regulations
on the amount of houses that person can have etc.

of 69
2.6 Michael Porter’s Five Forces Model- Industry Analysis
Michael Porters five forces to analyze the overall attractiveness and the level of competition
within an industry are Threat of new entrants, Threat of substitutes, bargaining power of buyers,
bargaining power of suppliers and Industry rivalry.
The detailed analysis of all the five forces is as follows;
Threat of new entrants: The returns in the real estate sector is very high and hence will attract
new firms which will eventually decrease the profitability of all the firms in the industry. Unless
the competition is killed by the major players the abnormal profits will tend towards zero.
Threat of substitutes: In the real estate sector there is no substitute available as of now as a house
can‟t be substituted with anything except of going to the competitors. No one has ever made
anything that can be considered as a substitute to house.
Bargaining power of buyers: Due to the abnormal pricing and availability of houses from the
competitors there is a huge power of bargaining that resides in the hands of the customer. Hence
bargaining power is high as the rates are not fixed and often confusing.
Bargaining power of suppliers: Huge bargaining is done on the supply side as a huge number of
suppliers of the same inputs are available in the market.
Industry Rivalry: There is an insane amount of rivalry in the real estate sector. The innovation is
there in the finances that a company gets in order to outperform the competition. There is less
sustainable competitive advantage though as innovation plays a small part in India.
Hence from Poter‟s model we can conclude that the real estate sector is highly attractive as of
now.

of 69
2.7 Conclusion
There is a lot of activity required in the real estate industry and that‟s exactly what is happening
in India. Indiabulls real estate sector as a business group is doing exceptionally well given the
current euphoria in the real estate sector. The overall industry is growing at an unprecedented
rate and is bound to grow given the requirement of infrastructure in the country. For the country
to develop at a faster rate it is very much essential to have a robust real estate industry.
The industry and the organization is getting a lot funding from the overseas. In fact Indiabulls
was the first company In real estate to receive first ever FDI in India. The trend is still going
bullish as there is a lot of hope from the country all around the globe. The future also seems to be
bullish.

of 69
Chapter 3 THE PROBLEM ON HAND
3.1 Introduction
In many developing and developed countries the real estate bubble just emerged when the prices
of the local or countries real estate increase rapidly, generally followed by the land boom in
which the land prices shoots to unsustainable levels due to various economic factors and then
decline in a bubble. In India the prices of land has already skyrocketed and the prices of the real
property such as housing has reached unsustainable level. The unsustainability for longer periods
may lead to crash of the entire sector as there won‟t be much of buyers in the market backed with
the purchasing power. Also as evident from various economies, real estate bubbles involve
longer boom and bust periods. It is also argued in the field of economics whether bubbles can be
identified or predicted but the speculative bubbles are persistent as it is the phenomena of
systematic and increasing deviations of actual prices from their fundamental values. It can be
argued that it‟s hard to spot a bubble but spotting a significant price hike in any sector is not very
hard and steps should be taken to first understand the basics behind the high prices and the
corrective measures.
In real estate the fundamentals can be estimated from rental yields. Gross rental yield = (Annual
rental income / Property value) x 100. In India the rental yields are totally out of whack.
Table 1.1

of 69
If the real estate market was correctly priced the rental yield should at least be close to
somewhere around the cost of borrowing. Instead it‟s around 2% when the lending rates are
around 10%. Even china which recently had a huge real estate bubble has better rental yield than
India. In fact table xyz shows that the difference between the interest rates in which the money
can be borrowed and the rental yield is one of the highest in India. Currently a home loan can be
borrowed at around 10% and the rental yield is 2%, a difference of 8%.
Table 1.2
What this tells us that at 2% rental yield the market price of the homes in India has risen at a
much faster rate than the rents. The rental yield in India has remained extremely low as
compared to its other Asian peers pointing towards the over valuation of this asset class mainly
because it can absorb black money- Mukhejea and Shekhar.
The problem is that the rent yield can‟t continue to remain out of proportion for a long time. For
it to come close to proportion either the rents need to increase or the house prices need to
decrease. Given the unsold inventory right now, it is highly unlikely that the rents will rise and
hence the chances of falling property prices are significantly higher.
Another problem at hand is the fact that the real estate bubbles are seen as a trigger of credit
bubble as well because property owner generally use borrowed money to purchase property in
the form of mortgages. When the prices increase the property owner feels rich and further
borrows to consume or make money against the increased value of their property by taking out a

of 69
home equity line of credit. Borrowers speculate by buying property with borrowed money in the
exponentially and they in return couldn‟t pay back the loans that they have taken from the bank.
It‟s a situation when at a time a number of individuals and organizations default creating an
lending. It constitutes the proximate cause of subsequent economic slump.
Hence the problem at hand is the speculation of bubble in the real estate sector and its
microeconomic implication on the overall economy.

of 69
3.2 Problem Area Identification
It is argued that the real estate bubbles can‟t be identified as they occur and cannot be prevented
with government and central bank policies rather cleaning up after the bubble has burst. The
British magazine „The Economist‟ and American economist Robert Shiller argued that the
housing market indicators can be used to identify real estate bubbles. The housing market
indicators focus on two aspects. A valuation component and a debt component; Valuation
component measures how expensive houses have become related to what an average person can
afford and the debt component measures how indebted households become in buying real estate
for home or profits and also how much exposure banks accumulate by lending for them.
The problem area so identified with respect to the real estate sector is the affordability of houses
using the housing affordability measure, the ability to repay the debt using housing debt measure,
the potential of profits from rent and the overall ownership using housing ownership and rent
measure and the overall price movements of the real estate sector using housing price indices.
All these problems finally led to the housing bubble which is the topic of this study. Hence all
the problems so identified in the real estate sector is finally converging into one big bubble. If
there is no bubble there won‟t be any problem area as such.
3.3 Description of the Task
The task at hand and the topic of the project is to investigate whether there is a bubble in the real
estate sector or not. It is also argued that a bubble cannot be identified but a speculative bubble
can be identified and the government along with the central bank should work on the various
indicators. The scope and task of this project is to figure out the appropriate economic indicators
and financial ratios that are generally used to investigate the impending bubble in the real estate
sector and use them to calculate mathematically whether there can be a bubble in the market or
not.
As mentioned in the problem identification the task then is to use the mentioned techniques to
investigate the bubble. The techniques used in this study are housing affordability measure,
housing debt measure, housing ownership and rent measure and housing price indices.

of 69
3.4 Detailed Analysis of the Task
The scope and task of this project is to figure out the appropriate economic indicators and
financial ratios that are generally used to investigate the impending bubble in the real estate
sector and use them to calculate mathematically whether there can be a bubble in the market or
not. The techniques used in this study are housing affordability measure, housing debt measure,
housing ownership and rent measure and housing price indices.
Housing affordability measure
Under this we will discuss in detail the affordability of real estate in India and its implications.
Recent data released by real estate research firm Liases Foras shows that homes in Indian cities
are terribly expensive.
Table 1.3
City Weighted Average Price of a Flat
Mumbai Metropolitan Region Rs 1.34 Crore
National Capital Region Rs 75 Lakh
Bangalore Rs 88 Lakh
Pune Rs 58 Lakh
Hyderabad Rs 75 Lakh
Chennai Rs 63 Lakh
Table xyz reveals the average prices of houses and flats in various cities but it doesn‟t tell how
bad the situation really is. In order to understand we needed to take the per capita income of
these cities into account.
The state level economic surveys provide the per capita income of various cities and the trouble
here is that the latest numbers are not available. Hence I have assumed an average increase of

of 69
10% of income per year and calculated the average of the respective cities for the year 2014-
2015. Further I couldn‟t find any data on the average income of Chennai and hence Chennai has
not been taken into account for calculation. For Mumbai I have used the per capita income of
Mumbai and thane and for Delhi capital region I have used per capita income of Delhi only.
Hence the calculations are a little understated but it surely serves the purpose as the real data
won‟t have much of deviation from the data crunched here in this study.
Table 1.4
City Per Capita Income
Mumbai Metropolitan Region Rs 1.97 Lakh
National Capital Region Rs 2.31 Lakh
Bangalore Rs 1.08 Lakh
Pune Rs 1.83 Lakh
Hyderabad Rs 1.46 Lakh
Table xyz reveals the per capita income of five cities in 2014-2015. In order to show high the
real estate prices are we will divide the entries of table xyz to table xyz to figure out how many
years of current income is needed to buy a flat in a particular city. The results are extremely
interesting and it speaks a lot about the real estate sector.
Table 1.5
City Years of Savings to buy a home
Mumbai Metropolitan Region 68
National Capital Region 32.5
Bangalore 81.5
Pune 31.7
Hyderabad 51.4

of 69
The table xyz shows the number of years a person need to save his income in order to purchase a
house in their respective cities. A person living in Bangalore will have to save for 81.5 years to
buy a house. The prices are not only unaffordable but unrealistic in any standard.
Further the sales data of real estate sector also paints the picture that the real estate prices are out
of reach of the common masses. People are not buying simply because they can‟t possibly afford
it. This becomes evident from the research report titled Indian Residential Market Preview; the
table is reproduced here in this study.
Table 1.6

of 69
The research provides data for the above six cities and despite the huge number of unsold homes
the prices are increasing. The research makes it clear how homes have become totally
unaffordable across the country.
Homes are so expensive that it has led to a situation where the share of real estate sector to GDP
in India is very less as compared to majority of nations.
Table 1.7
The table xyz shows that countries like Thailand, Malaysia and Singapore are far ahead of us in
terms of their real estate sectors share to overall GDP.
Hence affordability is a major issue when it comes to Real Estate.
The housing debt to income ratio or debt-service ratio
Under this we will discuss in detail the ability of a borrower to service his/her debt on the basis
of his/her income.
One of the most used ratios to measure the ability of a buyer to service his or her debt is housing
debt to income ratio or debt-service ratio.

of 69
According to RBI the monthly debt service amount should not cross 40% of the monthly income.
That is the EMI and other expenses that a borrower has to incur due to his/her loan should not
exceed 40% of his/her monthly income.
Let‟s say a person wants to purchase a house in Hyderabad and as mentioned earlier the average
price of a house in Hyderabad is 75 Lakhs. The individual has to put in a down payment of 20%
(15 lakhs)-mandatory and takes a home loan 60 Lakhs at 10% for 20 years. On this the EMI
would work out to be around Rs 57,900 per month. Now according to the norms this Rs 57,900
per month should be under the 40% bracket of the income of the borrower. Hence to get a loan of
60 lakhs a person has to make a minimum of 144750 per month which is close the average
annual income of a person living in Hyderabad. Hence the inventories are not going to be sold
soon till the house prices crashes as was the case in USA or China. The prices are not crashing as
long as black money is there in the real estate sector. The moment it gets over the bubble is
bound to burst.
The Housing rent measure
One of the key concepts in housing rent measure is the rental yields. Gross rental yield = (Annual
rental income / Property value) x 100. In India the rental yields are totally out of whack.
According to magic bricks the average rental yields of major cities are in between 2-3. Table
Xyz shows the rental yields of 7 major cities in India
Table 1.8
City Rental Yield (%)
Delhi 2.76
Mumbai 2.55
Bengaluru 3.68
Pune 2.79
Chennai 3.16
Kolkata 3.86
Hyderabad 3.71

of 69
If the real estate sector was correctly priced the rental yield should at least be somewhere close to
the borrowing rate of around 10%. Instead, Delhi for example has a yield of only 2.76% when
the borrowing rate is around 10%.
Table 1.9
China which recently had a huge real estate bubble has better rental yield than India. In fact table
xyz shows that the difference between the interest rates in which the money can be borrowed and
the rental yield is one of the highest in India. Currently a home loan can be borrowed at around
10% and the rental yield is 2%, a difference of 8%.
As the Firstpost editor R Jagannathan wrote in a column in November 2014: “In India,
borrowing costs for home loans are around 10.5-11 percent currently – when rental yields are a
fourth of that level. If rental yields in India have to catch up with those in New York and
London, Indian property rates have to fall by a third to a half as rents are not going to go 6 times
in future because there is a lot of unsold inventory and hence there is no real scarcity of houses in
the market.
Housing price indices
The most preferred ratio in the housing price indices is the house price to income ratio. Its
highest in India as compared to most of the countries. The house price to income ratio is the ratio
of cost of a housing unit of 100 meters, compared to countries GDP per capita.
The formula is: (Price per square meter / GDP per capita)*100.

of 69
Table 1.10
Source: IMFs GDP per Capita figures
As is evident from the table xyz that the house price to income ratio in India is more than double
the second highest which is Cambodia with 283.37 x points. The ratio shows that the prices of
the real estate properties are extremely high from the reach of the common people.
It is important to note here that the government of India has recently come up with the housing
Index which is called the Residex but it‟s still not available on the web. The moment it gets
online it would be easier for the consumers and investors to understand the overall health of the
sector.
Apart from the newly launched housing index- Residex is still not available online yet- all other
major measures clearly indicates that the real estate prices are highly unsustainable and is bound
to come down triggering a bubble burst.

of 69
3.5 Criticality of the Task
The task of identifying a bubble in the real estate sector is very much critical for the overall
industry and other associated industries as well. As discussed in the introduction section of
chapter 3 the rent yield can‟t continue to remain out of proportion for a longer period of time.
For it to come close to proportion, either the rents need to increase or the house prices need to
decrease. Given the unsold inventory right now, it is highly unlikely that the rents will rise and
hence the chances of falling property prices are significantly higher.
Further there is another big problem. The real estate bubbles are seen as a trigger of credit bubble
as well because property owner generally use borrowed money to purchase property in the form
of mortgages. When the prices increase the property owner feels rich and further borrows to
lending. It constitutes the proximate cause of subsequent economic slump.
From all the studies such as housing affordability measure, housing debt measure, housing
ownership and rent measure and housing price indices we have studied in detail that the housing
sector in India is definitely at a speculative bubble as the prices are very high but no restructuring
of pricing is going to happen soon.
At this point we can say that the bubble in the real estate sector can trigger a credit bubble as
well and hence the task of this study is critical for not only the sector but the economy and
finance of this country. Also due to the poor performance of the rating agencies in the west and
in some other countries we can‟t blindly rely on the rating agencies as they already have lost
their credibility during the subprime loan crisis in the United States and there is no guarantee that

of 69
it can‟t happen in India. During the subprime crisis a staggering proportion of debts were rated
AAA, when in fact they were junk. The story goes that the Lehman Brothers and AIG‟s were
rated safe by Fitch days before they went burst. The problem here is that the rating agencies are
funded by the very companies that they rate.
Hence this study becomes much more critical for the investors and the real estate companies.
This study has calculated the risk based on the housing market indicators. Housing market
indicators are basis on which the bubbles can be identified. Economists around the world uses
market indicators specially the affordability measures. For any sector to exist it should have
demand. Demand exists when the prices are under the purchasing power of the Individuals.
Hence the task of the project is critical to the sustainability of the economy as a whole.
3.6 Conclusion
Currently the real estate sector is booming as India is growing at the rate of close to 8%. As per
the analysis of this project there is a speculative bubble in the real estate sector specifically
because the money is coming into the sector from the person with wherewithal and from the
black economy. Real estate sector is absorbing a lot of black money as of now but the
phenomena will not last long as this Ponzi scheme of builders paying off their loans using fresh
loans in the name of new projects can‟t sustain for a longer period of time. All Ponzi schemes
have a timeline and the bubble will definitely burst when the builders and person with vested
interests will run out of money to fuel the Ponzi scheme. But the only question is how long can it
sustain. Given the size of the country and the sheer volume of homes that we need it‟s hard to
predict the bubble but one cannot deny the fact that there is a speculative bubble in the real estate
sector as the prices are not under the reach of majority of the people.
Note: A Ponzi scheme is a scheme in which the interest on the previous loan is paid back by
taking fresh loans.

of 69
Chapter 4 LEARNING OUTCOMES
4.1 Comprehension of the Task
This report describes what‟s happening in the real estate sector, specifically the housing sector
and hence it becomes important to comprehend the techniques used in various calculations to
reach to the conclusion. The task so performed concludes that there is a bubble in the real estate
sector but the question that remains unsolved is, when will the bubble burst in the near future?
The overall comprehension of the task is as follows.
The task of this project was to figure out the bubble in the real estate sector and we have
comprehended that there is a bubble as the prices have skyrocketed. Despite of having
inventories as high as 5 years in cities like Delhi the prices are not coming down. Various
measures have been used like the rent yield in India is only 2% whereas the borrowing is at
around 10% and hence the difference is too high in almost all the major cities in India. The
housing price indices such as housing price to income ratio is close to 650 in India which is more
than twice the second highest figure which is close to 300. The housing prices in India are highly
unsustainable and are bound to burst sooner or later.
4.2 Problems faced during Accomplishment of the Task
The availability of relevant data in India is very scanty as of now as the focus on the industry is
somehow new. Since the real estate sector is contributing approximately 10% to the GDP, hence
it becomes increasingly important for the country to have important statistics available on the
web.
The calculations so made in this report are somehow understated as the per capita income of
some of the cities was not available. Recent data of almost all the cities was not available and
hence a 10% increase in per capita income is assumed to do the relevant calculations. The data
for Delhi Capital region and Mumbai were not made available by the state level economic
surveys and hence for Delhi capital region the per capita income of Delhi area has been used, on
the other hand the per capita income of Mumbai and Thane has been used to calculate the per
capita income of Mumbai. Further the rental yield data is also not available apart from the major
cities in India and hence the rental yield has been supposed to be the average of all the seven
cities that has been used in calculating the overall yield which is in between 2 & 3.

of 69
At the time of making this report the housing index „Residex‟ has not been made public as the
website of Government of India was inaccessible. According to the news from few media
houses, the Residex is still not ready and the government officials are still trying to make the
single most official index related to the housing sector in India. The government has a dedicated
website for Residex but it‟s not accessible.
Further due to the unavailability of data the following calculations couldn‟t be made.
The deposit to Income ratio: Due to the unavailability of statistics the minimum downpayment
for a typical mortgage couldn‟t be calculated and hence a ratio that measures the housing market
couldn‟t be calculated. Banking sector of India has not provided the information of how many
people have taken loans more than 50 Lakhs. The data of number of persons who has taken loans
of around 25 Lakhs for housing is available but not relevant for this study as there was no city
whose average house price was in the range of 25 Lakhs.
The housing debt to equity ratio couldn‟t be studied because of the unavailability of data. In
India it‟s impossible to find out how many persons are taking a second home equity loan using
the accumulated equity or house as collateral. A ratio greater than one implies that owners equity
is negative. The housing debt to equity ratio is an important measure. Had it been possible to
calculate this, the results would have been dramatically influenced.
The credit bubble that forms because of the bubble in the real estate sector is complicated to
study and not a subject matter of this report but few citations have been made as data which were
available in the credit sector that had a direct link to the real estate sector has been used to do the
calculations. Statistics and ratios related to real estate sector is seldom available and hence data
availability has been the main problem during the compilation of this report.

of 69
4.3 Methods adopted to solve the Problems
A mixture of literature, mathematics and statistics is generally used by the economists to
speculate a bubble in any market and hence the methodology of this study is also a mixture of
literature, mathematics and statistics.
Literature: A speculation is something that we talk about by measuring various relevant
parameters of a sector. This report has used the methods that are being largely spoken by
economists like Satyajit Das, Vivek Kaul and Josef Stieglitz. The genesis of this study has been
founded by the books and columns written by the above authors along with the methods adopted
by various economists around the globe to spot a bubble in the market. Due to the unavailability
of data in India, this report has restricted itself to housing affordability measure, housing debt
measure, housing ownership and rent measure and housing price indices.
Mathematics: Calculations like per capita income by adjusting the inflation, rent yield of various
cities, weighted average price of a flat in various cities, years of savings to buy a home, %
increase in the prices of flats in various cities and months of unsold inventories have been made
to further calculate the relevant ratios.
Statistics: This report uses the following statistical measures to spot a bubble in the real estate
sector:
Price to Income Ratio =
The housing debt to income ratio =
Gross rental yield=
Median ratio of free market price for housing unit
Median of household annual income
Total recurring monthly debt
Gross monthly income
Annual rental income * 100
Property Value

of 69
Also the Housing affordability measure, housing debt measure, housing ownership and rent
measure and housing price indices have been used. At the end the available housing index has
been used to speculate the bubble in the real estate sector
4.4 Overall Learning from the Task
From the results of the calculations it is at least evident that there is already a bubble in the real
estate market because the prices of the properties have sky rocketed and has gone out of the
reach of the common masses. The Indian real estate market has the lowest rent yield, highest
price to income ratio and housing index is also not anywhere close to even china which has seen
a huge housing bubble in the recent past. The impending bubble can have a huge impact on the
overall financial stability of the whole economy as well. The possibility of a credit bubble is very
high in India as the real estate sector contributes approximately 10% to the GDP and hence a
bubble in the real estate sector can have significant impact on the banking sector as well. The
most important learning out of the whole task is the fact that the real estate sector is already in
the bubble but the sector is backed by the black money and easy money in the form of foreign
investment. The person with wherewithal, crony capitalists and black money is keeping the
money flow into the real estate sector; the moment money runs out from this sector the prices are
bound to crash as the business is not sustainable in itself. Further it can be concluded from the
overall study that the investors should take the ratings of the ratings agencies with the pinch of a
salt because they have already lost credibility during the subprime loan crisis in the United
States. More than the ratings investors should rely on the economic parameters like affordability,
rent, yield and other relevant measures used in this study.
Hence the key learning‟s from the task is the fact that the speculations about bubble in the real
estate market is right as according to the measures but when the bubble is going to burst is the
real question that needs more attention at this point of time. Also the learning‟s include the
measures that the government should take in order to have a control on the impending bubble
burst in the near or late future.

of 69
4.5 Conclusion
After the number crunching and various statistical measures we can safely conclude that there is
a bubble in the real estate sector and hence it can trigger a credit bubble as well. The real estate
bubble with a share of 10% to the GDP will definitely have an impact on the credit market
because property owner generally use borrowed money to purchase property in the form of
mortgages. When the prices increase the property owner feels rich and further borrows to
exponentially and they in return couldn‟t pay back the loans that they have taken from the bank.
It‟s a situation when at a time a number of individuals and organizations default creating an
lending. It constitutes the proximate cause of subsequent economic slump leading to a credit
bubble.
The question at hand is when will the bubble burst?
As discussed in the report the prices are not coming down simply because of the inflow of
money in the sector from the investors, government and people with wherewithal and black
money. The moment money inflow stops the prices are bound to fall given the large amount of
Inventory.
Hence we can conclude that since India is a big country it will take a long time for the market of
real estate sector to consolidate. Till than the prices will be high, the bubble will be there and the
sector will continue to boom at least at a lower rate than it is today.

of 69
Chapter 5 RECOMMENDATIONS
5.1 Brief Description of Recommendations
The housing sector contributes around 10% to the economy and hence plays an important role.
As discussed in this study, a housing bubble can trigger a credit bubble and can have significant
impact on the demand and economic growth. Bubble bursts in some western countries along with
the recent housing bubble in china are classic cases of a real estate bubble triggering the credit
bubble. The credit bubbles in those countries were so strong in nature that they are still
struggling to grow at a desired level even after several bail outs and huge quantitative easing in
the past several years. Some of the countries have inflated their balance sheet to such an extent
that it has become difficult for them to get out the debt trap. In a country like India where most
of the people use their lifetime savings to have a house the Indian government should have a
better control on the overall sector. There is a need of regulatory and supervisory body on the
housing sector both at states and center.
The housing price index released by NBH is not accessible to the general public as it reports
directly to the RBI whereas RBI releases the data. The data so released by the RBI and NBH are
not always similar as RBI takes the whole country into account. To bring more transparency
there is a need of single authority for the index in the housing sector as well. Further the NBH
should also provide the data to the masses. The NBH website is not accessible for a very long
period of time and hence there is a need of direct accessibility of data prepared by NBH.
The price of land is also increasing rapidly and most probably the reason behind the souring real
estate prices. Since land plays an important role in the cost and hence a separate land index is
needed for transparency in the land prices.
Institutional credit to the housing sector plays an important role and hence the credits are
required to be at par with other developing nations.
The prices are not coming down simply because there is a lot of black money invested in the real
estate sector. Over the years it has become a way for many Indians to hide their black money or
in fact turn their black money to white money by investing in the real estate sector. The
government has to formulate policies to restrict this kind of transactions.

of 69
While preparing this report one of the fundamental problem was the unavailability of relevant
data in real estate sector. Apart from the housing index data there are many ratios that can‟t be
calculated because of the unavailability of data. In order to study the bubble in the real estate
sector in details further studies in the real estate sector is hugely needed.
This report also recommends conducting comparative research on the real estate sector with the
real estate sectors of other nations like china, US, UK and Australia to have a deeper insight into
the overall sector.
Lastly, insight from the studies of the other countries in the housing bubble is highly
recommended as the measures so used in spotting bubble in the real estate sector in other
countries will be helpful to spot the impending bubble in India.
5.2 Details of Each Recommendation, Discussion of Its Technical Suitability, Economic
Justification and Feasibility of Implementation.
Regulatory and supervisory body on the housing sector both at states and center is important
because in India the safety of Individuals become much more imperative from the perspective of
finance as they are highly savings dependent and hence they use mostly their hard earned money
and savings to invest in the real estate sector. If there won‟t be any regulatory body the
transactions in the housing sector is not going to be transparent and hence the prices will remain
as high as today because the black money will still get into the sector debarring the common
people to have houses in India. There should be standard rules and regulations across the board
and among the real estate players along with standardization of the products offered by the
housing sector to avoid confusion and ease of accessibility. Housing, being a state subject, there
is a need to make and strengthen the new and existing laws, preferably, at the state level. Thus,
this would also imply that there is a need for a regulatory and supervisory body on housing
sector both at the Center and States.
Technically it‟s suitable for the overall economy as the regulations play an important role in
checking the overall market performance. Since real estate prices are already out of the reach of
the normal people and hence it‟s technically very much important for the country to have the
measures and regulation in place at the earliest.

of 69
Economically the regulations will not be a burden as the government already has the concerned
authorities in place and it won‟t cost much for the government to make them functional for the
overall growth of the economy. It is also highly recommended here that the government should
focus in the digitization of the whole sector as it will bring transparency in the transactions along
with the capture of data at the time of transactions just like what Wal-Mart has done using the
data so captured at the Point Of Sale (POS).
Implementation of regulations is highly feasible as the government is not required to invest much
on this front. All the authorities are already there except the digital services. What government
needs to do is to revamp the authorities and pressurize them to work.
The housing price index in India is full of ambiguity and it‟s not available to the public as well.
The NBH, which prepares the housing index reports to the RBI and then the RBI releases the
data of the whole country which is not even similar to the data released by the NBH. No one can
challenge the calculations of NBH as they are not responsible for any data errors. It is highly
recommended to have a separate authority for the housing index in India. The index should be
available to the investors and masses for taking decisions.
Technically the housing index is the most important measure for checking the overall movement
of the sector. It should function like the inflation indexes such as the consumer price index. In
India no one can possibly debate on the health of the real estate sector as the housing index is not
available in the first hand. It is highly recommended to have a single housing index in the
country.
Economically the housing Index is very much justified as it tracks the movement of the sector.
It‟s just like the Indexes we have for the stock market.
Movement in the land prices also impacts the overall price of the properties and hence a separate
land index should be established. The housing index do capture the land prices too but a separate
data related to the prices of land is needed in a country like India where land issues are common
and land prices are way too complex than the housing.
Economically it will require the modernization of land records and property registration. It will
also require to revamp the mapping and ownership details. Digitizing the mapping and

of 69
ownership details can help economically but the issues related to lands come under the
jurisdiction of state governments and hence there should be a close coordination between the
center and state.
Technically the land index will bring transparency in the whole system as all other rights related
to land such a leasing period, property rights and real estate regulations can be clubbed in the
index.
Implementation of land index is highly feasible as the same authorities responsible for the
housing index can carry out another separate study specifically on land. This will greatly help
bring transparency in the system.
Institutional credit to the housing sector plays an important role given the size and contribution
of the sector to the GDP. It is highly recommended to have robust credit flow in the system for
the sector to develop faster than today. There are a couple of issues here in the credit sector and
the government has to work upon those issues to bring the prices under control. The bubble like
situations arises mainly because of the loose credit policies. The people with wherewithal and
crony capitalists get easy credit from the public sector banks thereby inflating the prices of the
properties. It is highly recommended to clean the system as soon as possible and then bring in
transparency in the credit system to have a robust real estate economy.
Technically it‟s the credits that run the real estate sector. The investments are so huge and the
scale is so large that it becomes necessity to have a robust credit facility. The real estate sector
exists because of the credit from the banks and foreign institutions.
Economically Institutional credit to the housing sector is the back bone without it the sector can‟t
grow as real estate investments are long term investments and hence requires long term credits.
The whole economy of the real estate sector is dependent over the credit facility available to
them.
Implementation of a robust credit facility is a humongous task and it is the strength of the
institutions that provides credits on which the development of a country relies. All the developed
countries have robust credit institutions and hence they are largely a debt economy.

of 69
The feasibility of being a debt economy with robust credit mechanism is debatable from the
perspective of the current health of the developed nations but to get there India needs to have
strong financial institutions to facilitate the growth despite of having low demand or sky rocketed
prices. It‟s the balance between the government and business along with the financial institutions
that finally decides whether there will be a bubble in the market or not. Excessive lending or
credit can trigger the bubble and hence too much of credit without regulations is not feasible in
the long run as is the case with US and Japan.
Black money is one of the major contributor to the Ponzi scheme that is being run by the real
estate organizations. The money from the crony capitalists and other people with wherewithal are
going into the real estate sector which in turn is keeps the prices intact. The moment flow of
money stops in the real estate sector the prices are bound to fall.
Technically the investment of black money in the economy can be slashed by strict regulations
and keeping a tab on the transactions. It is very much important for the Indian economy to have
control over the black money as the prices have become unaffordable mainly because of the
black money.
Black money has wide economic implications as it threatens the existing economy by running
parallel to it. If the real economy need to grow the black economy should be curbed as black
economy doesn‟t provide a level playing field for all the participants. Also since the prices are
not coming down and money is flowing in the real estate sector thorough black economy the
bubble o formed will be there in the market for a very long period of time which will eventually
have major economic and financial consequences in the future. It should also be kept in mind
that the real estate sector triggers credit bubble and hence the finances of the economy can be
severely hit if the bubble survives for a longer period of time.
It‟s highly feasible for the economy to keep a tab on the black economy as it speaks volumes
about the efficiency of the income tax department and also the sources of the income of people in
the country. The implementation is again a humongous task for the government as it requires a
lot of efforts and regulations. But at the end to have a real economy better than the parallel
economy it is highly recommended to curb the black economy.

of 69
There is a lot of research opportunities in the field of real estate in India as most of the vital
statistics are not available as of now. The index that India has is also not available to the people
and investors. The data from RBI only releases every quarter and hence real time tracking of the
movements is not done as the stock market of India. To capture the bubble in great details the
country has to conduct a variety of research in this field. Apart from the metros and other more
populated regions the data should also come from the tier 3 cities for better understanding of the
problem. To reach to the solution the problem should be defined first and that can only happen if
there will be more data crunching in the field of real estate in India. Further there should also be
comparative studies between the housing market of India and other countries for better
understanding of the health of the overall sector. For example few economists has predicted the
housing bubble of South Korea by comparing it with the housing bubble in Japan. Similarly
housing bubble in a particular city can also be spotted by comparing it the housing bubble in
other cities. A lot of research and studies are required to be done on the real estate sector in
India.
Technically studies on the housing sector will lead to spotting of the bubbles and hence it is very
much important for any economy. The bubble can only be spotted if we study the market. Since
real estate is contributing 10% to the GDP hence it should be studied like the other major sectors
of the economy.
The studies and research on the housing and real estate sector has solid economic justification as
real estate sector is a major indicator of the overall economy when its share is 10% of the total
GDP. Through various studies the economists can get an insight of the overall economy and can
frame policies accordingly.
Research and studies are fundamental to development and India has a huge population of
youngsters who are well educated and hence it is economically and otherwise feasible for India
to conduct independent and joint research.
Lastly, insight from the studies of the other countries in the housing bubble is highly
recommended as the measures so used in spotting bubble in the real estate sector in other
countries will be helpful to spot the impending bubble in India.

of 69
5.3 Suggested Scheme of Implementation, Precautions and Monitoring Systems
The regulatory and supervisory body can be implemented in India by making it a new regulatory
wing under government of India. The government has already come up with India‟s Real Estate
(Regulation and Development) Act 2016 to increase transparency and improving accountability.
Under this act Government of India will establish a Real Estate Regulatory Authority (“RERA”)
within a year of the Act‟s commencement in order to facilitate the growth and promotion of a
healthy, transparent, efficient and competitive real estate sector. The Act also creates a Real Estate
Appellate Tribunal to hear appeals originating from RERA decisions, directions and orders. The
Tribunal has powers to pass such orders as it thinks fit in response to an appeal of a RERA decision,
with the appellant having the opportunity to file a further appeal with the High Court if aggrieved by
a decision of the Tribunal. Hence so far the government has already been working on this front and
everything seems to be going great so far.
Further the real estate sector is booming and is bound to cross USD 1 trillion mark by 2025 and
hence precautions should be taken in the implementation of the regulations so that it shouldn‟t
become a bottle neck in the booming sector. Ease of doing business along with strict regulations
should be followed. The honest capitalists should be given the opportunity to leverage the booming
market along with weeding out the crony capitalists from the sector. With a balanced approach the
sector can grow at an unprecedented rate given the demand it has in the economy.
Digitization is the only way that we have at hand to monitor the system. The government of India
should focus in the digital India scheme to have enough of information in the real estate sector. Data
generated in each transactions can transform the whole sector along with bringing transparency to the
system. Hence digitization along with a monitoring wing at the back office is the way to monitor the
regulations so implemented. It is highly recommended that all the transactions should be made online
or through direct bank transfers. Since the transactions range is very high hence its practically
impossible to have buyers who have no internet access. In this day and age the government should
focus on increased digitization to capture the data at the point of sale. The whole statistics and
indices can be automated only if the online transactions are made compulsory. Hence monitoring the
implementations becomes fully automated if the system gets fully digitized.
The housing price index and the proposed land price index can be implemented by the NBH .
Precautions should be taken during the calculations and while taking the sample- tier 3 cities should
also be included. The housing price index can be monitored by the RBI itself.

of 69
Institutional credit can be implemented by strengthening the banking sector in India. The banking
sector in India is in a huge mess as the NPA‟s of public sector banks in India is way too high. Most
of the banks are running out of money and a huge amount of money is required in the economy. The
banking sector needs approximately 1.8 lakh crores as of now but the GOI has flushed only 24
thousand crores to the public sector banks. The fresh lending‟s to the real estate sector is at an all-
time low. Hence to strengthen the institutional credit the institutions are required to be strong but
that‟s not the case in India. Indian banks are bleeding and are waiting for fresh inflow of money from
the government. The government has to figure a way out. The real question we have as of now is
whether we can go the zero interest rate way or not. The government needs to decide whether India is
ready to follow the Abenomics or not.
Development of a country is a game of finance and hence a lot of precautionary measures are
required to strengthen the overall financial system. The precaution recommended for the credit
institutions is the balance between development and inflation. As long as the inflation and real return
on investments are intact there should not be any problem with the credits.
Like all the developed countries the monitoring of financial institutions are in the hands of the central
bank and hence RBI‟s role in the overall strengthening of the financial sector is crucial. Monitoring
methods of RBI is not a subject matter of this report.
The government of India can strengthen the housing related institutions like NBH and RBI housing
unit by implementing new regulations as discussed in the regulations of housing sector. The same
can be monitored by RBI. Monitoring methods of RBI is not a subject matter of this report.

of 69
5.4 Conclusion
Given the size and growth of the overall sector there is a lot of room for improvements. The
sector is in its nascent stage in India and is bound to grow at an unprecedented rate only if the
boom in real estate sector sustains for a longer period of time. Mathematically there is only one
factor that can stop the growth in the sector and that factor is a bubble burst. It is very unlikely
that the bubble so formed in the real estate sector will burst as the government is already working
on the mess in the sector. To save the economy from the real estate bubble and an impending
credit bubble there should be a robust regulatory body to regularize the sector along with the
availability of relevant indexes to check the movement of the sector. Also the institutional credits
are required to be strengthening to sustain and continue the growth of the sector. The major
problem with credit is inflation and hence the government is required to figure out a balance
between the two. Parallel to the economy there is a black economy in our country that has huge
impact on the housing sector and hence black money should be curbed by implementing various
measures like mandatory online transactions in the housing sector. Another milestone in the
housing sector is the act of strengthening the housing related institutions like NHB. At last a lot
of research is required in the field of real estate and housing to fully understand and comprehend
the trends and bubbles in the market. To be more proactive and on the safer side, comparative
studies can also be done to spot a bubble in the market.

SIP Report Sumit Chatterjee- Print Copy

SIP Report Sumit Chatterjee- Print Copy

Recommended

Recommended

More Related Content

What's hot

What's hot (7)

Viewers also liked

Viewers also liked (10)

Similar to SIP Report Sumit Chatterjee- Print Copy

Similar to SIP Report Sumit Chatterjee- Print Copy (20)

SIP Report Sumit Chatterjee- Print Copy