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2.3 Growth Drivers in Real Estate

Demand Pull Factor

Robust and sustained macro-economic

growth.

Upsurge in industrial and business

activities, especially new economy sectors.

Favorable demographic parameters.

Significant rise in consumerism.

Rapid urbanization.

Availability of a range of financing

options at affordable interest rates.

Impacts

Increasing occupier base.

Significant rise in demand for

Office/industrial space.

Demand for newer avenues for

entertainment, leisure and shopping.

Creation of demand for new housing

Supply Pull Factor

Policy and regulatory reforms (100 per

cent FDI relaxation).

Positive outlook of global investors.

Fiscal incentives to developers.

Simplification of urban development

guidelines.

Infrastructure support and

development initiatives by the

government.

Impacts

Entry of a number of domestic and

foreign players; increasing competition

and consumer affordability.

Easy access to project financing

options.

Increases developers’ risk appetite and

allows large scale development.

Improved quality of real estate assets.

Development of new urban areas and

effective utilization of prime land

parcels in large cities

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3. POLICY INITIATIVES

3.1 Investment Policy

The Government has proposed one per cent TDS (tax deduction at source) on transfer

of immovable property if the sale value exceeds Rs 50 lakh in urban centres and Rs 20

lakh in other areas in the Union Budget 2012-13.

The Reserve Bank of India (RBI) has granted permission to foreign citizens of Indian

origin to purchase property in India for residential or commercial purposes. The purchase

consideration should be met either out of inward remittances in foreign exchange through

normal banking channels or out of funds from NRE/FCNR accounts maintained with a

bank in India.

According to the latest reforms, FDI up to 100 per cent under the automatic route

in townships, housing, built-up infrastructure and construction-development projects

(which would include, but not be restricted to, housing, commercial premises, hotels,

resorts, hospitals, educational institutions, recreational facilities, city and regional level

infrastructure) is allowed subject to the following guidelines (also for investment by NRIs)

The project shall conform to the norms and standards, including land use requirements

and provision of community amenities and common facilities, as laid down in the

applicable building control regulations, bye-laws, rules, and other regulations of the

State Government/ Municipal/ Local Body concerned.

The investor/ investee company shall be responsible for obtaining all necessary

approvals, including those of the building/layout plans, developing internal and peripheral

areas and other infrastructure facilities, payment of development, external development

and other charges and complying with all other requirements as prescribed under

applicable rules/ bye-laws/ regulations of the State Government/ Municipal/ Local Body

concerned.

The State Government/ Municipal/ Local Body concerned, which approves the

building/ development plans, would monitor compliance of the above conditions by the

developer.

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3.2 Investment Opportunities

Real estate emerged as the popular sector for private equity (PE) funds, which

witnessed investments worth US$ 1,700 million in the sector during 2011. PE in real

estate projects will fetch considerable returns by next year-end or early 2013. Limited

partners (who write cheque for funds) expect 15-25% returns from real estate deals.

Foreign investors are optimistic about India. All they want is prompt action and friendly

policies.

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4. A Review of India Real Estate in 2012

2012 was a sluggish year in terms of economic growth, largely because of high interest

rates and poor industrial production. Indeed, the index of industrial production rose by just

0.4% in April-August 2012, as compared to 5.6% in the same period of 2011.

Manufacturing activity, which contributes significantly to India's GDP, also took a big hit

in 2012. Inflation remained high, impacting sentiments and investor interest across

businesses - including real estate.

 

- RESIDENTIAL REAL ESTATE IN 2012

As has been the case in the past, the larger cities of Mumbai and NCR-Delhi recorded

healthy absorption of residential units during 2012, with a 60% contribution to the overall

absorption. Chennai and Pune were among the other two cities that increased their share of

absorption during 2012 to 26% from the 23% recorded a year ago.

At a country level, a total of 160,622 residential units were launched in 2012, as compared

to 154,701 units for the corresponding period of 2011. From the pricing perspective, the

average residential capital values in 2012 appreciated in the range of 1-3% y-o-y.

Among the top 7 cities of India, the capital value growth in Pune and NCR-Delhi was the

highest, while Hyderabad and Bangalore saw a slower rate of capital value growth. There is

still no price correction on the cards, but the quantum of appreciation definitely reduced

significantly in all the top seven cities of India in 2012.

- Although demand showed signs of improvement with the approach of the festive season,

developers are still struggling with rising inventories and have attempted to sell off their

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existing stock via out-of-the-box marketing techniques and pricing mechanisms to attract

end users and investors.

- Infrastructure deficit continues to be a key restraint for the growth of residential markets

across India.

- Overpricing has been an issue in Pune, Hyderabad and Kolkata, resulting in a relatively

smaller share of absorption from these cities during 2012.

- From a supply perspective, Hyderabad and Kolkata saw a decline in the number of

residential units launched, accounting for less than 2% respectively of the total in

2012YTD.

- COMMERCIAL REAL ESTATE IN 2012

The secondary business districts (SBDs) of Mumbai, Bangalore and Pune, followed by

central business districts (CBDs) of Bangalore and Gachibowli in Hyderabad, began

emerging as landlord markets. This is primarily because these areas have a lower-than-

average vacancy levels from a national perspective, and also because of the relatively

higher rental value change in these submarkets as compared  to the corresponding trough

levels in the past.

The CBDs of NCR-Delhi, Mumbai, Pune and Hyderabad remained neutral markets because

of negligible vacancies (5-10%) as compared to the national average of 19%. Also, these

locations saw persistent market stagnation because of negligible rental growth and lower

vibrancy.

The suburban business districts of NCR-Delhi, Mumbai, Chennai and Kolkata, which have

higher-than-average vacancies, remained occupier friendly markets. Higher vacancy

expectations continue to exert short-term pressure on their rental value growth.7

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- In 2012, the cautious occupier sentiment that resulted from the on-going global

uncertainties was one of the key reasons behind slow commercial property leasing activity

in the major cities of India.

- With domestic office occupiers going slow on expansion, MNC occupiers have been

delaying deal closures as they have to go through multiple levels of approvals to execute

expansion plans amid sustained cost pressures.

- Among the top seven cities, Mumbai and NCR-Delhi recorded a y-o-y absorption drop of

around 47% and 26% respectively during 2012.

2012 was defined by a notable decline in absorption of office space across most of the cities

in India from the 2011 levels. However, the larger cities of Mumbai, NCR-Delhi, Bangalore

and Chennai contributed to a healthy 72.5% of the country’s net absorption of commercial

real estate. In fact, the share of pre-commitments to absorption in 2012 was more than

recorded during the previous year.

- RETAIL REAL ESTATE IN 2012

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- With an operational stock of close to 65 million sq ft during 2012 YTD, the retail mall

supply across the top seven cities of India slowed considerably as compared to the supply

recorded in 2011.

- With a drop in supply of over 65%, new completions in 2012YTD were at a new low

when we consider the trend of the past five years (since 2007). Barring Hyderabad, all cities

recorded completions during 2012, albeit at a slower pace than witnessed in 2011.

-

Mumbai, NCR-Delhi, Bangalore and Chennai together absorbed 81% of the total retail

space in 2012. This is significant, considering their consolidated contribution of 70% in

total retail space absorption in 2011.

Retailers in cities like NCR-Delhi, Mumbai and Bangalore continued to actively lease space

in superior quality malls due to the limited availability of new space and the low vacancy

rates in existing prime malls. The total net absorption of retail space across India projected

for 2012 was 4.4 million square feet, led by NCR-Delhi and Bangalore (which together

absorbed 2.6 million square feet). They were followed by Mumbai, Pune and Kolkata,

where absorption was around 0.8, 0.5 and 0.4 million square feet respectively.

1. Bangalore

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Market Overview

Bangalore’s residential market was characterized by developers initiating significant

project launches during the quarter despite conservative demand. Sales market remained

subdued with buyers postponing their buying decisions on account of the high price points

compounded further by the high mortgage rates. The capital values mostly remained stable

during the first quarter of 2012. However, in select micro markets they were characterized

by widening of the price bands (both in lower as well as higher end) on account of the

pricing of the new project launches/under construction properties within the micro markets.

The city’s office space witnessed healthy absorption and pre-commitments in the

quarter. Absorption was observed to mostly comprise of space in the range of 10,000-

40,000 sf. whilst the IT/ITeS sector continued to be the prime absorber, small and medium

enterprises also accounted for significant transactions.

The city witnessed two major malls becoming operational during the quarter with

approximately 75- 80% of the spaces being leased out. Rentals in both malls and main

streets continued to remain stable barring exceptions in select micro markets. Leasing

activities continued, though scarcity of suitable retail space prevailed.

Trends & Updates

Ready Residential Property Update

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Demand in the primary and secondary markets remained subdued. Capital values of

ready property mostly remained stable during the quarter across most micro markets.

Substantial availability in new properties or project launches across different price bands

and locations were also influential in stabilization of the prices of ready properties.

Demand remained persistent in the rental market for locations in South and East

Bangalore on account of availability of premium developments as well as their proximity

and easy connectivity to the major commercial destinations. Increased demand was also

observed for the mid-value properties in North-West Bangalore resulting in marginal rental

escalation in the micro market.

Average Capital Values – High-end (INR’000/sf) Location 2008 2009 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Central 14.0-18.0 12.0-14.5 13.5-17.5 13.6- 17.6 14.0-18.0 14.00-18.00 14.0-18.0 16.0-21.0 South 7.0-9.0 6.0-8.5 6.0-9.5 6.1-9.7 6.5-10.0 6.5-10.0 6.5-10.0 6.5-10.0

Off Central 6.5-7.5 5.0-6.6 5.0-7.0 5.2-7.1 5.5-7.5 6.0-8.5 6.0-8.5 6.0-8.5 East 6.5-9.0 5.6-7.0 6.5-7.5 6.5-7.7 6.8-8.0 6.8-8.0 6.8-8.0 6.0-8.5

North 6.0-8.0 5.5-7.0 5.5-7.0 5.7-7.0 6.0-7.4 6.5-8.0 6.5-8.0 6.5-8.0 Note: The above values for high segment typically include units of 3,000-5,000 sq.ft.

Average Capital values – Mid range (INR’000/Sq.ft.) Location 2008 2009 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Central 5.8-7.0 5.0-6.0 5.5-7.0 5.6-7.1 5.8-7.4 6.0-7.5 6.0-7.5 6.0-8.0

East 2.7-3.1 2.4-2.7 2.7-3.1 2.7-3.3 3.0-3.5 3.2-3.8 3.2-3.8 3.8-4.8 South East 2.9-4.0 2.5-3.2 2.8-4.0 2.8-4.3 3.0-4.5 3.4-5.0 3.4-5.0 4.0-5.5

South 5.0-6.5 4.6-5.7 4.8-6.0 4.8-6.3 5.0-6.5 5.0-6.5 5.0-6.5 5.0-7.0 North 3.0-4.0 2.8-4.0 2.8-4.4 2.8-4.5 3.0-4.8 3.0-4.8 3.0-4.8 3.0-5.0

South West 2.8-4.2 2.7-3.9 3.2-4.5 3.3-4.7 3.6-5.0 3.6-5.0 3.6-5.0 3.6-5.0 Off Central* 4.0-6.0 3.7-5.7 4.0-6.2 4.2-6.4 4.5-6.7 4.5-6.7 4.5-6.7 4.5-7.0 Off Central** 3.5-6.0 3.3-5.7 3.8-6.2 3.9-6.4 4.3-6.7 4.3-6.7 4.3-6.7 4.0-6.5 North West 4.2-5.8 3.5-5.2 3.8-5.6 3.9-5.8 4.3-6.2 4.3-6.2 4.3-6.2 4.3-6.2

Note: The above values for mid segment typically include units of 1,700-2,500 sq.ft.

Key to Locations:

High-end Segment

Central: Lavelle Road, Off Palace Road, Off Cunnigham Road, Ulsoor Road, Richmond

Road

South: Koramangala, Outer Ring Road, Bannerghatta Road, JP Nagar

Off Central: Frazer Town, Benson Town, Richards Town, Dollars Colony

East: Whitefield (villas) 11

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North: Hebbal, Yelahanka, Jakkur, Devanahalli

Mid-end Segment

Central: Brunton Road, Artillery Road, Ali Askar Road, Cunningham Road

East: Marathalli, Whitefield, Airport Road

South-East: Sarjapur Road, Outer Ring Road, HSR Layout

South: Koramangala, Jakkasandra

South-West: Jayanagar, J P Nagar, Kanakpura Road, Bannerghatta Road, BTM Layout

North: Hebbal, Bellary Road, Yelahanka, Dodballapur Road, Jalahalli

Off Central*: Vasanth Nagar, Richmond Town, Indiranagar

Off Central**: Cox Town, Frazer Town, HRBR, Benson Town, etc

North-West: Malleshwaram, Rajajinagar

New Residential Launches:

Even in the backdrop of subdued demand in the market and buyers postponing their

purchase decisions, there were some significant new launches from prominent developers.

These new projects were across all segments with a mix of apartment and villa

developments. Prominent projects include Purva Seasons, Sobha Habitech, Clover Greens

and Provident Harmony among others. The new launches were spread mostly across the

city’s suburban and peripheral regions and were intended to cater to a wide range of buyers.

Project Name Developer Location Number of Units* Area of Units

Purva Seasons Puravankara Projects CV Raman Nagar 6601BHK -705 sf

2BHK -1,392 sf3BHK -1,659 sf

to1,980 sf

Clover Greens Assetz Homes Sarjapur Road 1674BHK -5,608 sf to

5,365 sf

Provident Harmony Provident Housing Thanisandra 5481BHK - 662 sf3BHK -1,241 sf

to1,262 sf

Shobha Habitech Sobha Developers Whitefield – Hopefarm Junction

318

2BHK -1,342 sf to 1,727 sf

3BHK -1,842 sf to 2,395 sf

4BHK Pent house - 3,530 sf to 3,583 sf

* Estimated and as per market information

Under Construction Residential Property Update

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Work progression continued with the same momentum across most of the under

construction projects even in the backdrop of subdued demand. Competitively priced under

construction projects with consistent sales were observed to record most of the appreciation

in the capital values. Developers continued to customize their offerings by providing value

added services to the customers. With significant number of projects under construction -

buyers had a wide range of options to choose across different price bands, type of

developments and locations among others.

Office

Bangalore’s commercial office market witnessed absorption of 2.45 msf and pre-

commitments of 2.9 msf approximately in the first quarter of 2012. Peripheral markets of

Whitefield and Electronics City recorded the highest absorption on account of

comparatively reasonable rentals. The overall vacancy level increased to 13.2% during the

quarter as majority of the new supply admeasuring 1.27 msf was delivered in the latter part

of the quarter. Rental values in CBD/off-CBD micro markets (M.G. Road, Millers Road,

Vittal Mallya Road, Residency Road, etc.) and suburban locations (CV Raman Nagar,

Koramangala, Bannerghatta Road, etc.) increased 17% and 12% respectively owing to

limited Grade A supply and buoyant demand.

Retail

The city’s retail market witnessed consistent demand across various segments, including

from big box retailers, resulting in lease commitments from them. The suburban micro

markets witnessed two major malls becoming operational during the quarter.

Notwithstanding the infusion of new mall supply, scarcity of mall space prevailed, resulting

in increased pressure on the main streets which faced by shortage of suitable retail space

witnessed many retailers vying for the same options.

Outlook

Demand in the sales market is likely to gather momentum by the second quarter of 2012 as

property buyers who have delayed their purchases are likely to revisit their buying plans

with the improving market conditions. Persistent demand in the rental market will also

continue, thereby some escalations in the rental values in select micro markets are likely.

On account of the high price points across most micro markets, coupled with comparatively

subdued demand prevailing during the last few quarters, significant capital value

appreciations are unlikely in the forthcoming quarters. New project launches will continue

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across the cityís various locations. Moreover, in view of the high land, construction and

other associated costs, the new launches will be at higher price bands with a greater share of

developments in the high-end segment.

Approximately 11 msf of new supply in the office sector is likely by the end of 2012.

Significant lease transactions are expected to be closed during the forthcoming quarters.

Vacancy too is expected to come down marginally by the end of 2012 and absorptions in

Grade B developments will continue in the suburban markets.

Two new malls - one in CBD and another in the peripheral market - approximating at

6,00,000 sf are likely to become operational in the forthcoming quarters of 2012. Scarcity

of options across both the malls and main streets are likely to get accentuated by the end of

2012, thereby resulting in escalation in the prime rentals.

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2. Mumbai

Market Overview

The residential market in Mumbai was characterized by a cautious approach by buyers as

sales continued to be subdued and no reductions in prices were observed over the last

quarter. High inventory levels of ready stock have lead the developers to follow a cautious

approach leading to fewer launches compared to last quarter. End-users exhibited

reluctance to invest in under-construction and newly launched projects due to the high

mortgage rates and price points resulting in reduced sales activity.

The commercial office market in Mumbai regained some momentum in the first quarter of

2012. Absorption levels improved significantly by 30% over the last quarter and were noted

at 14 lakh sf. BFSI sector remained the highest demand driver with nearly 27% of share in

absorption.

Mall rentals have remained stable during the quarter. The existing vacancy levels and some

activity in retail locations resulted in stable rentals.

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Trends & Updates

Ready Residential Property Update

Average Capital values – High end (INR’000/sq.ft.) Location 2008 2009 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012

South 43-55 42.5-58 43-60 43-60 45-65 45-65 45-65 45-65 South

Central 47-67 42- 66 45-70 45-70 45-75 45-75 45-75 45-75

Central 33-53 34-55 35-55 35-55 35-55 35-55 32-54 32-54 North 27-31 22-30 24-32 24-32 24-32 24-32 24-32 24-32

Far North 9-13 10-16.5 11-16.5 11-16.5 11-16.5 11-16.5 11-16.5 11-16.5 North East 14-18 10-16 10-16 10-16 10-17 10-18 10-18 10-18

Despite the poor sales, capital values at most residential locations were observed to remain

stable over the quarter as developers cited high raw material costs and high cost of funding.

However, capital values in the high-end segment of South Mumbai and mid-end segment of

Central Mumbai were recorded to register an annual appreciation of 7% and 11%

respectively.

Note:

High-end

- Approximately 2,500 - 6,000 sf for South, South- Central, Central and North (Bandra &

Khar)

- Approximately 1,800 - 4,000 sf for North (Santacruz & Juhu), Far North and North-East

Mid-end

- Approximately 1,400 - 2,500 sf for South, South- Central, Central and North

- Approximately 1,200 - 1,600 sf for Far North and North-East

Key to Locations:

South: Colaba, Cuffe Parade, Nariman Point, Churchgate, etc.

South Central: Altamount Road, Carmichael Road, Malabar Hill, Napeansea Road, Breach

Candy, Pedder Road, etc.

Central: Worli, Prabhadevi, Lower Parel/ Parel

North: Bandra (W), Khar (W), Santacruz (W), Juhu, etc.

Far North: Andheri (W), Malad, Goregaon, etc.

North-East: Powai

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New Residential Launches

Mumbai witnessed around 7,000 units launched in the first quarter of 2012. Ghodhbunder

Road witnessed about 5,000 units launched in the quarter. Several developers were also

seen to launch their successive phases, concentrated mainly in Thane.

Project Name Developer Location Number of Units* Area of Units Codename Dawn Lodha Group Thane 1,800 1BHK – 648 sf

2BHK – 864 sf to 1,068 sf

3BHK – 1,485 sf Lodha Dioro Lodha Group Wadala 240 2BHK – 1,300 sf to

1,400 sf 3BHK – 1,600 sf to

2,300 sf Hiranandani

Basilus Hiranandani Developers

Thane 28 5BHK – 3,668 sf

Serita Uma Group Thane 24 2BHK – 1,065 sf to 1,280 sf

3BHK – 1,375 sf Cosmos Enclave Cosmos Group Thane 150 1BHK – 700 sf

2BHK – 1,065 sf Cosmos Garden Cosmos Group Thane 560 1BHK – 710 sf

2BHK – 1,100 sf Dosti Imperia

Phase 2

Dosti Group Thane 315 2BHK – 1,155 sf to 1,328 sf

3BHK – 1,581 sf to 1,759 sf

Under construction Residential Property Update

Construction activity has witnessed a revival during the last quarter in locations like Thane

and Navi Mumbai. Developers were noticed to offer various incentives and favourable

payment schedules to induce demand. Under construction projects have maintained price

points quoted in the previous quarter while projects nearing completion have witnessed a

minor appreciation.

Office

The commercial office market in Mumbai regained some momentum in the first quarter of

2012 and recorded absorption of approximately 14 lakh sf spread across all micro markets.

The BFSI sector remained the highest demand driver with nearly 27% of share in

absorption. Absorption was concentrated in BKC (29%) followed by Thane- Belapur Road

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(23%) and Lower Parel (19%). The city saw decline in pre-commitments during the quarter

since companies preferred to take up space in ready developments due to high availability.

Additionally, supply remained subdued during the first quarter of 2012 and was recorded at

14.4 lakh sf which is 47% less than the last quarter. There was no change seen in the rental

values compared to last quarter and it is likely remain at current levels owing to competitive

pressure from upcoming supply.

Retail

The retail market in Mumbai witnessed an increase in enquires from new as well as existing

retailers in both malls and main street locations. Majority of the landlords in prime main

street locations are pressing for an upward revision in rentals so as to capitalize on higher

demand and lack of quality supply.

Outlook

Capital values are expected to remain stable in the next quarter. Thereafter, capital values of

new project launches may appreciate due to the new Development Control Rule norms

announced by the State, whereby the developers will have to pay a premium for additional

Floor Space Index for residential developments.

Fresh supply of approximately 17.5 lakh sf of commercial office space is expected to be

infused in the next quarter. This is likely to increase vacancy levels in the upcoming

quarters.

Main street rentals are expected to remain stable in the upcoming quarter. However, mall

rentals in locations like Malad, Lower Parel and Link Road are expected to exhibit a minor

appreciation on account of low vacancy levels and reduced supply in these micro markets.

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3. National Capital Region

Market Overview

The residential market was seen to be depicting signs of improvement, both on demand and

supply side. The high demand and supply gap led to an increase in capital values of 22%

over the previous quarter in select high-end locations in Delhi. On the back of improving

demand, developers have been re-focussing on luxury/high-end projects although mid

segment projects continue to be the mainstay. Rental values across the city saw an

appreciation in the range of 5-11% compared to last quarter, with highest increase noted in

Gurgaon. According to the media sources, the stamp duty collection in Gurgaon in 2011

increased at least 30% in comparison to the previous year. Also, Gurgaon contributed more

than 40% to the Stateís total revenue from property transactions. This indicates the

increasing real estate activity in the location.

The office market during the first quarter seemed sluggish with reduction in both supply

and demand compared to last quarter. Approximately 20 lakh sf of new developments were

completed which was double of the demand noted during the quarter.

The retail sector also saw reduced supply with only one mall getting operational in Gurgaon

during the quarter. Leasing activity was buoyant across main street locations compared to

the malls due to limited availability of quality space in malls.

Infrastructure sector is the focal point of the Government as it increased allocation to the

sector in Budget 2012-13. The allocation for Metro projects has increased by over 12%

from INR 5,166 crore to INR 5,798.57 crore, in line with finance ministerís push for

infrastructure projects through the Budget. Out of this, the Delhi Metro Rail Corporation

(DMRC) continues to have majority share of INR 2,116.69 crore which increased by 41%.

Delhi Metro Rail Corporation is expected to utilise the funds to add around 104 km to the

network in the National Capital Region in phase-III by the year 2016. In addition, the Delhi

Cabinet approved the transfer of INR 621 crores to the National Highway Authority of

India as its contribution to accelerate the construction of the Kundli-Manesar (KMP

Expressway). The expressway would connect National Highway 1 at Kundli north of Delhi

with National Highway 10 just north of Bahadurgarh, National Highway 8 south of

Manesar in Gurgaon and National Highway 2 near Palwal. This is expected to create

several corridors that will encourage housing developments.

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Trends & Updates

Ready Residential Property Update

Prices of ready property have increased significantly compared to the last quarter. Select

locations in Delhi such as South West and Central saw a quarterly price increase of up to

20%. Similarly, the suburban locations also saw notable increase in the range of 5-10%

during the first quarter of the year, owing to limited completions and high demand.

Overall, rentals values across the city increased in the range of 5-10% during the first

quarter of the year with relatively higher increment noticed in the suburban locations.

Average Capital values – High end (INR ‘000/Sq.ft.) Location 2008 2009 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012

South West 28-33 29-34 36-43 36-45 40-47 42-50 42-50 50-60 South East 19-23 21-24 24-30 24-30 25-32 25-35 25-35 25-40

South Central

20-23 21-25 25-32 25-35 27-40 27-40 27-40 27-40

Central 45-50 40-45 50-57 50-60 50-60 50-65 50-65 60-80 Gurgaon 5.2-11 5.3-12.5 6.2-18 7.5-20 8.5-21 8.5-21 8.5-21 9.5-25

Noida 5.2-6.2 5.2-6.5 5.5-7 5.5-7 5.5-7.5 5.5-7.5 5.5-7.5 5.8-8.0 Note: The above values for high end segment typically include units of 2,000-4,000 sq.ft.

Average Capital values – Mid range (INR ‘000/Sq.ft.) Location 2008 2009 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012

South East 14-16 14.5-16.5 15-20 15-22 15-25 15-28 15-28 20-30 South

Central 18-20 18.5-20.5 20-23.5 20-25 22-27 25-30 25-30 25-30

Gurgaon 3.8-5.2 4-6.5 4.5-7.5 4.8-8.5 5-9 5-9 5-9 6.5-9 Noida 3-4.5 3.2-5.5 3.8-5.6 4-5.6 4.2-5.8 4.2-5.8 4.2-5.8 4.5-6.0

Note: The above values for mid range segment typically include units of 1,600-2,000 sq.ft.

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Key to Locations:

High Segment

South-West: Shanti Niketan, Westend, Anand Niketan, Vasant Vihar

South-East: Friends Colony East, Friends Colony West, Maharani Bagh, Greater Kailash -

I, Greater Kailash ñ II.

South-Central: Defence Colony, Anand Lok, Niti Bagh, Gulmohar Park, Hauz Khas

Enclave, Safdarjung

Development Area, Mayfair Gardens, Panchsheel Park, Soami Nagar, Sarvodaya Enclave.

Central: Jorbagh, Golf Links, Amrita Shergil Marg, Aurangzeb Road, Prithviraj Road,

Sikandara Road, Tilak

Marg, Ferozshah Road, Mann Singh Road, Sunder Nagar, Nizamuddin, Tees January Marg,

Chanakyapuri.

Mid Segment

South-East: New Friends Colony, Kalindi Colony, Ishwar Nagar, Sukhdev Vihar, Kailash

Colony, Pamposh Enclave.

South-Central: Uday Park, Green Park, Saket, Asiad Village, Geetanjali Enclave,

Safdarjung Enclave, Sarvapriya Vihar, Panchsheel Enclave, Navjeevan Vihar

New Residential Launches

Improved demand led to increased luxury and high-end segment project launches during the

quarter in the suburban locations; by quantum the mid-value segment projects continue to

dominate the new launches. Most of the developers continued to increase prices of new

projects/launches on account of improved demand

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Project Name Developer Location Number of Units* Area of Units* Amstoria BPTP Sec 102, Dwarka

Expressway, Gurgaon

700-800 3BR+3T – 2,384 sf 3BR+3T – 2,435 sf

to 5,374 sf 4BR+6T+1ST –

5,709 sf Regal Garden DLF Ltd. Sector 90, Gurgaon 400-500 3BHK – 1693 sf to

1,818 sf 4BHK – 2,215 sf

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* Estimated and as per market information

Under Construction Residential Property Update

Construction activity was noticed to continue at a modest pace with a few projects in the

finishing stage in Gurgaon and Noida Expressway which are likely to be handed over in

2012. In addition, a few developers have commenced construction in the upcoming pockets

such Yamuna Expressway in Greater Noida, Dwarka Expressway and Southern Periphery

Road in Gurgaon.

Office

During the first quarter, new office supply admeasuring 20 lakh sf was completed

registering a 10% decline compared to the last quarter. Entire addition to the stock during

the first quarter was in Gurgaon and most of it catered to the IT/ITeS segment. There was

low absorption, registered at 5,50,000 sf with pre-commitments further accounting for

nearly 4,50,000 sf. The CBD locations recorded a rental appreciation of approximately 14%

over the last quarter, attributable mainly to the prevailing low vacancy levels and lack of

supply. However, across most other micro markets, the rental values remained stable in the

light of weak demand during the quarter.

Retail

The first quarter saw limited mall supply of approximately 125,000 sf in Gurgaon. Due to

limited quality supply and less churn, mall rents remained stable over the previous quarter.

However, leasing activity was buoyant across main streets mainly driven by local retailers

in the Jewellery and Food & Beverages segments. This lead to increase in rental values up

to 10% in select markets such as Connaught Place, South Extension and Karol Bagh.

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5. Mumbai Real Estate Predictions for 2013

Generally, 2012 saw a significant increase in absorption over 2011 in these markets,

in which capital values grew in the range of 9–10% y-o-y during the year.

In 2012, the Mumbai residential real estate market showed signs of revival after nearly 18

months of sluggishness, driven by increase in demand and steady pricing. The best-

performing submarkets were Parel, Wadala, Dadar (E), Sewri, Chembur and Tilak Nagar.

 

Generally, 2012 saw a significant increase in absorption over 2011 in these markets, in

which capital values grew in the range of 9–10% y-o-y during the year. The increased

demand for residential units came from  robust commercial office market activity in south

central Mumbai. Also, these sub-markets benefited from more attractive pricing when

compared to premium addresses of South Mumbai.

 

The 2012 performance of markets such as Colaba, Cuffe Parade, Mumbai Central, Worli,

Prabhadevi, Lower Parel, Dadar (W) and Mahalaxmi did not match that of 2011.

Absorption was 10-15% below 2011 levels, although capital values rose in the range of 3-

4%. The anticipated price correction did not materialize in these locations, which saw a

moderate number of new launches when compared to South Central Mumbai. South Central

Mumbai continued to benefit from competitive pricing and its location advantage.

 

With better clarity on the new DCR regulations, 2013 will see more projects launch on

schedule, with an implied  assurance that developers will focus on meeting the the

committed timelines. Given the increased demand, the high prices of land and the

significant increase in construction costs, 2013 will not bring any major correction. Though

the question of what the State Government will do in terms of providing the infrastructure

required to support the increasing population, the inherent demand for residential space in

Mumbai will remain strong in 2013. 

 

Mumbai Commercial Real Estate

 

In 2012, SBD North (Andheri) saw increased vacancy levels, which rose to 26% from the

17% noted towards the end of 2011. Office space rentals at Nariman Point remained stable

for Grade A buildings, while rentals for Grade B buildings showed a marginal decline. In

an environment of uncertainty, transactions took longer to complete as corporate occupiers

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evaluated their options carefully, with many choosing to postponing decisions. Rents in

most of Mumbai’s micro-markets stabilised in 2012, although vacancies remain high.

 

Generally, the absorption forecast for 2013 is 10–12% above that of 2012, during which

Mumbai saw an absorption of 6 million square feet of commercial space. New office

deliveries in 2013 will be at the lowest level since 2006, and construction is not expected to

pick up until 2015. The completion rate for office projects over the next two years will be

much lower than in the preceding three years. Many speculative completions will not see

the light of day till 2015-2016.

 

Any significant improvement in occupier demand will do nothing but add to the pressure on

supply, thereby stimulating further increase of rents and capital values in Grade A buildings

within the prime locations.

 

Given the basic scarcity of available good-quality, right-sized Grade A office stock in the

city’s prime locations, rentals are expected to go up in 2013. A wait-and-watch approach is

contra-indicated for occupiers who are intent of opening offices in prime areas. Most of the

micro-markets are now showing convincing indications of having bottomed out.

Mumbai Retail Real Estate

2012 saw the full-fledged deployment and functioning of Marketcity Kurla and R City

Phase II. The year saw the re-emergence of high streets, given the increasing demand for

such spaces by retailers. High streets such as Horniman Circle, Colaba, Turner Road, BKC,

Chembur, Borivali LT Road and Andheri Link Road saw an increase in demand and rental

values in 2012. Retailers stayed away from  Grade B malls, in spite of lucrative deals

offered by the developers.

 

In 2013, mall rentals are likely to see a nominal increase. With the high street rentals

already very high, such spaces have become unaffordable and unviable for many retailers

and will see decreased action in 2013 unless rentals become realistic. Markets such as Navi

Mumbai, Andheri (W), BKC are expected to see an increase in rentals in 2013, while

markets such as Bandra Linking Road, Parel and Ghodbundar Road (Thane) will see rent

stabilization. Over the next couple of years, many retailers will reduce their store sizes.

 

2013 will see malls such as Viva City in Thane becoming operational. The retail

development business will see the emergence of strong Pan India developers and more

institutional money in 2013.

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Going forward, mall supply in Mumbai will dwindle, given that most developers are

focussing on residential. FDI in retail is not expected to have any positive impact on rentals

for at least the next 12 months. Going forward, retailers will not commit to space unless

they see approvals in place and actual construction on site. Retailers will also take more

time to execute agreements, taking the route of detailed analyses before closing

transactions.

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6. Market Structure of Construction Industry

The Construction industry is highly fragmented, as the entry barriers are low due to less

fixed capital requirements. Reportedly, in 2004, over 3 million construction entities

(including housing contractors) existed, of which only around 28,000 were registered.

However, there is more fragmentation in the housing segment than the

industrial/infrastructure segment, as the unorganized sector accounts for 75% of

the same. Furthermore, the industrial/infrastructure sector requires far more technical

expertise. Around 96% of construction companies are classified as small and medium

enterprises.

Major Players

Post independence, in the First Five Year Plan, construction of civil works was allotted

nearly 50% of the total capital outlay. The first professional consultancy company,

National Industrial Development Corporation (NIDC), was set up in the public sector in

1954. Subsequently, many architectural, design engineering and construction companies

were set up in the public sector (Indian Railways Construction Limited (IRCON),

National Buildings Construction Corporation (NBCC), Rail India Transportation and

Engineering Services (RITES), Engineers India Limited (EIL), etc.) and private sector (M

N Dastur and Co., Hindustan Construction Company (HCC) etc.).

The Indian Construction industry comprises of about 200 firms in the corporate sector. In

addition to these firms, there are about 1,20,000 class-A contractors registered with

various government construction bodies. There are thousands of small contractors, which

compete for small jobs or work as sub-contractors of prime or other contractors.

The Major Players in the Construction Industry are:

Companies such as L&T, Unitech, GMR Infrastructure, HCC, Gammon, Jaypee

group, Jaiprakash associates, BL Kashyap etc. which undertake large infrastructure

projects.

Companies such as IVRCL, Nagarjuna, L&T, DLF, Omaxe etc. involved in the

construction of flyovers, pipelines, apartments and housing/office spaces.

Companies such as DLF, Purvankara, Raheja and others in residential and office space.

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Organized Real Estate Industry in India is only a couple of decades old .Real Estate

Industry in India took off with the global boom in the Realty Sector which percolated down

to India as well.Lack of clear land titles and litigation has made this industry one of the

most opaque and corrupt ones.Due to the massive price appreciation and huge

valuations,Land Scams have become quite common with Chief Ministers,Generals,Top

Bureaucrats all involved in the murky environment of Real Estate in India.The most recent

scam related to bribing of top public banks officials in the LIC Housing Finance Scandal

has again put question mark on the fundamentals of the industry.Valuing the industry

and making a real estate investment remains one of the most difficult investing tasks in the

Indian Stock Market.Even Fund Managers are staying away from the Sector due to lack of

trust in the Financial Statement given by the industry.That said modern India presents a

booming picture of tall buildings and huge office areas & shopping malls. A list of the chief

players in Indian market is given below:

DLF: DLF’s chief business is to develop housing, marketable and retail properties.

Currently it has undertaken the development of 70 million sq ft of housing projects which it

intends to finish in the next three years. DLF has joined hands with Delhi Development

Authority to develop townships in Amritsar, Pune, Gurgaon, Mumbai, Chennai and Goa.

DLF has been the construction company behind different malls in the major cities in India.

The company is also developing 50-75 hotels along with Hilton Hotels and infrastructure

and SEZ in India in collaboration with Laing O’Rourke (UK).The current market cap is

around Rs.51,832.22 crore.

Tata Projects: Tata Projects registered an annual turnover of Rs 2,300 crore on July 1,

2007. With more than 1,500 professionals the company has emerged as one of the chief

player in EPC projects. Over the last four years, it has attained a CAGR of 50 per cent

which quadrupled its annual turnover of 2006-07. Tata Projects functions in concentrated

divisions like broadcast and distribution, steel, power production, oil, gas and hydrocarbons

and industrial infrastructure.

Sobha Developers Ltd: With an annual turnover of Rs 1,189 crore, Sobha Developers Ltd

was initiated by the now chairman PNC Menon in the year 1995. On June 30, 2007, the

company has 3,706 skilled professionals working for it. At present it owns Rs 3,500-acre

land in eight Indian cities namely Coimbatore, Bangalore, Mysore, Chennai, Thrissur,

Kochi, Pune and Hosur. The company’s clientele include some of the top players in IT,

hotel and construction sector such as Hewlett Packard, Mico, Infosys, Ramaraju

Developers, Dell, Timken, etc.27

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Shapoorji Pallonji & Co: The Company has more than 3,500 professionals working for it

and is largely driven by its loyalty to consumer satisfaction. Some of the major projects

undertaken by Shapoorji Pallonji & Co are World Trade Centre, Mumbai; TELCO

industrial complex, Pune; Bhabha Atomic Research Centre, Kalpakkam; HSBC Bank,

Mumbai; Hotel Taj Intercontinental, Mumbai; Bank of India, Mumbai; Indira Gandhi

International Airport, New Delhi, etc. the company has created magnum opus of

construction and has been a consistent executer of challenging projects.

Unitech: Recently Ramesh Chandra, Unitech’s Chairman has declared the investment of $

720 million by his company in the coming four years to develop 28 hotels along with

Marriot International. The market capitalisation of the company is Rs.16,867.40 crore.Its

chief activities include construction, expansion of real-estate, consultancy in associated

sectors, hotels, electrical broadcast and information technology.

India Bulls Real Estate: One of India’s largest listed developers developing residential and

commercial real estate. Being a focused regional player, more than 90% of IBREL’s

portfolio by value is in the three major markets of Mumbai, NCR and Chennai. Established

in 2000, the company has grown into one of the leading Indian business houses with its

companies being listed on Indian and overseas financial markets having a combined net

worth in excess of Rs. 18,000 crores. The current market cap being Rs.6,545.17 crore.

HDIL: Ranked as India’s fastest growing real estate company by Construction World-

NICMAR in October 2007 & with a current market cap of Rs.8,567.76 crore, Housing

Development & Infrastructure Limited has established itself as one of India’s premier real

estate development companies, with significant operations in the Mumbai Metropolitan

Region. HDIL is a public listed real estate company in India with shares traded on the BSE

& NSE Stock Exchanges. With operations spanning every aspect of the real estate business,

from residential apartment complexes to towers & townships, commercial premium office

spaces and retail projects like world-class shopping malls. it is India’s largest slum

rehabilitation company, & was given the Mumbai International Airport Slum Rehabilitation

project in October 2007,one of the largest urban rehabilitation projects in India.

Emaar-MGF: One of the world’s leading real estate developers company in India and

Development of properties in the residential flats, Commercial Properties, premium

apartments etc. The ‘Commonwealth Games Village builder’ is still trying to get listed on

NSE. Currently not listed.

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7. Analysis

Quantitative

Pest Analysis of Indian Real Estate Sector

The various factors which influenced the Real Estate segment were Political, Technological, Social and Economical factors.

POLITICAL FACTORS:

Government’s regulations and policies in favour of real estate sector.

Heaviest tax imposed on the construction industry.

FDI experience in Indian real estate market.

ECONOMIC FACTORS: Controlled Inflation levels.

Low Interest Rates.

Provides further Liquidity

               

SOCIAL FACTORS: Increase in consumption.

Urbanization.

Increase in per capita income (current prices).

Rise in Demand for Quality Housing Projects.

TECHNOLOGICAL FACTORS: Internet revolution

Media

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SWOT Analysis

Strength

Employment and training opportunities in the field of construction

Construction of the multi building projects on the feasible locations in

the country.

Good structured national network facilitates the boom of construction

industry.

Low cost well- educated and skilled labour force is now widely

available across the country.

Sufficient availability of raw material and natural resources in the

country is supportive for the industry.

Weakness

Chances of Natural disadvantage are there.

Distance between construction projects reduces business efficiency.

Training itself has become a challenge.

Changing skills requirements and an ageing workforce may accentuate the

skills gap.

Improve in long-term career prospects is highly required to encourage staff

retention and new entrants.

External allocation of large contracts becomes difficult.

Lack of clearly define processes and procedures for construction and its

management.

Huge amount of money need to be invested in this industry and inefficiency

may lead to high level of risk.

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Opportunity

Continuous private sector housing boom will create more construction

opportunities.

Public sector projects through Public Private Partnerships will bring

further opportunities.

Developing supply chain through involvement in large projects is likely

to enhance the chances in construction.

Renewable energy projects will offer opportunities to develop skills and

capacity in new markets.

More flexible training delivery techniques are now available.

Financial supports like loan and insurance and growth in income of

people is in support of construction industry.

Historical cultural heritages like the TAJ MAHAL encourage and

provide a creative platform for the industry.

Remote areas in the country are easily accessible and plenty of land is

available in the country.

Threats

Long term market instability and uncertainty may damage the

opportunities and prevent the expansion of training and development

facilities.

Current economic situation may have an adverse impact on construction

industry.

Political and security conditions in the region and Late legislative

enforcement measures are always threats to any industry in India.

Infrastructure safety is a challenging task in construction industry.

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Porter’s five forces Model

1. Intensity of Industry Rivalry (Neutral to Favorable)

Compared to many other industries, the intensity of rivalry among

developers in residential development is relatively low. The area

where it is felt most is in competition for development land. When it

comes to selling end units, developers typically try to avoid competing

directly by 1) developing products in different markets / locations; 2)

launching products at different time periods; 3) differentiating product

types.

The key factor is that residential property is sufficiently differentiable

and not subject to any sort of perishability or technological

obsolescence such that developers have much more flexibility with the

timing of producing and selling their end product.

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2. Threat of new entrants (Neutral to Unfavorable)

When an industry has over 60,000 registered participants, it is hard to

conclude that barriers to entry are high. Although the number of entrants

varies over time and according to market condition, they are

sufficiently low relative to other industries that new entrants can

continue to enter and eventually push above average returns back to

historical means.

Generally speaking, the potential barriers to entry to any industry

fall into several broad categories: 1) capital; 2) technology; 3) legal

authorization; and 4) expertise and know-how.

Legal authorization is necessary for certain types of industries such as

telecoms

and utilities. The number of participants in these industries is limited

due to the

nature of the businesses (“natural monopolies”) or the return profiles

(massive

upfront investments which can only be recovered through limited

operating

competition).

For most real estate development, no special legal authority is needed to

enter

the industry. That is why many non-property companies find it relatively

easy to

migrate into this industry as and when returns become attractive or

simply out of

interest.

Furthermore, the technological and expertise/know-how component

of this industry is not particularly high. Designs, names and concepts

can all be copied as there is less ability to protect these through patents

or copyright. Large value supply chains such as agents, consultants,

property managers and employees of rivals can all be hired or co-opted.

Capital can be considered a barrier but mostly to larger scale projects.

The gross amount of capital needed to “enter” the industry is paltry

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compared to the likes of steel mills or chip fabs.

In addition to the above factors, the wide range of different types and

scales of development each entail different barriers to entry.

Obviously larger, more specialized developments in top tier cities

would have much higher barriers to entry than a small residential

project3. Threat of substitutes (Favorable for End Use; Neutral for

Investment)

Real estate development involves different types of products -

residential, office, retail and industrial being the most common. To

narrow the scope of discussion, we will just consider private residential

real estate.

Currently in China, residential real estate is in high demand both for its

utilitarian

value as accommodation and also for its investment value as a stable,

inflation-

proof store of wealth. As such we need to consider the substitutability

on both

fronts.

As accommodation, new private housing from any firm can be

replaced by

1) competitive product from another developer; 2) existing private

housing for sale or for rent; 3) social housing either for sale or rent. Any

specific developer can lower the risk of substitution by differentiating

their product offering by i) location; ii) type and iii) quality. The more

generic a developer’s product,the more substitutable . Developers that

have managed to distinguish their product or image will fare the best.

The threat from the secondary market varies by city. In T1 and large T2

cities, a sufficiently large stock of housing exists for the secondary

market to be a viable choice for potential homebuyers. In many T3 and

T4 cities, there are either not enough secondary units for sale or the

market is simply is too illiquid.

The threat from social housing exists but not significant. Usually, those

allowed to buy or rent social housing would only be able to enter the

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low end of the private housing market anyway - if at all. Moreover,

resale and other restrictions make it a far less liquid asset class. For

that reason, the threat is only to the lower end of the private housing

market.

Given China’s current state of negative real interest rates and capital

controls, most individuals have limited channels for savings and

investment. Real estate has helped fill this void. If investors were

given more alternatives and if other asset classes such as equities start

to perform better, investment demand for real estate would quite likely

cool.

4. Bargaining power of suppliers (Favorable)

Overall, developers are in a favorable bargaining position relative to

the key

suppliers in the industry. The 3 key suppliers to any residential

developer are 1)

land sellers (usually cities or other developers); 2) construction

contractors; 3)

building materials and home furnishing / equipment manufacturers; 4)

capital

providers. This situation is more or less reflected in that the typical cost

of sales

for any developer is made up of roughly 1/3 land, 1/3 construction

and 1/3

financing costs.

A typical developer’s bargaining position relative to a land seller varies

according

to 1) nature of sale and 2) location of sale. Developers typically

prefer to buy

land through direct bilateral negotiations with the government or 3rd

party

rather than be involved in a multi-party bidding ware. Auctions are

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the least desired channel for land acquisition but sometimes a necessity.

For land bought in smaller cities or newer areas of larger cities,

developers wield a lot more bargaining power. Smaller cities are

generally eager to entice well known national developers. For

example, if Vanke or COLI buys into a smaller T3/4 city, it would signal

to other developers that this city is worthy of investment. In such cases,

local officials are willing to give a discount to entire desired players.

This logic is also true of newly emerging districts in T1/2 cities.

Construction companies do not command much if any pricing

power and many

work on thin margins. Although developers can backward

integrate and take on

construction duties themselves, this is often more for ensuring

timeliness of

completion or maintaining quality standards than for cost

savings. Also, the

construction materials and household furnishings that developers buy are

mostly

commodity goods for which the manufacturers not only command no

particular

pricing power but would also yield a discount on bulk or volume

purchases.

Lastly, capital providers, be they banks, shareholders or bondholders,

may have different investment appetite for this industry at different

times but whether investors or bankers demand a specific risk premium

to provide capital is more dependent on the perceived risks at any point

in the property cycle and not any kind of structural risk premium.

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5. Bargaining Power of Buyers (Neutral)

Of all the five forces, this is perhaps the most dependent on 1) the stage

in the industry cycle; 2) regulations to protect consumer interests and 3)

financial state of individual developers. Given this wide variance, it is

very difficult to conclude definitively that buyer power is always strong

or always weak. The truth is buyer power will fluctuate greatly. Thus

developers that have a larger proportion of their business in markets

with weaker buyer bargaining power will obviously realize higher

returns.

Property Cycle Regulations

Near the peak of a property cycle, the combination of investment and end

user demand generally outstrip available supply. This gives developers

tremendous pricing power and leads to outsized returns.

Conversely, near the bottom of the cycle, developers are usually

overstocked and must cut prices to move units.

In the transaction of any large sized

purchases, information is the key to

knowing what a reasonabl\price to pay is.

In the absence of rules and developers often maximize revenue by

trying to extract the maximum possible price for each unit. They can do

this by

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1) Not publishing any standard price lists and

2) Not reporting critical information such as how many units have

been sold and at what price. This situation is generally known as

asymmetric information and gives the developer tremendous power.

However, in most large markets, regulators are aware of this and have

enacted laws to protect consumer interests by making information

more

transparent and readily available. In general, all else being equal,

consumers in T1/2 cities or those with consumer protection laws have

more bargaining power than cities without protection.

Lastly, developers that are on solid financial footing (larger resulting

from a more prudent management of working capital) would generally

have greater pricing and operational flexibility than those that are

financially overstretched heading into a cyclical trough.

Quantitative

Real Estate Industry: A Financial Analysis

I have attempted to capture the current trends in the Indian real estate

industry through financial analysis of a sample of listed companies. This

section provides a brief overview of the performance of the sample of

listed real estate companies.

The sample selected for this analysis comprised listed real estate

companies that had total income of र 750 mn and above. We then

narrowed down its choice to a fair representative list of 30 companies

for which financial information was available for the past five years.

It further categorised the 30 real estate companies into large-size, mid-

size, and small-size companies based on their total income, by using the

80:15:5 principle. Based on this categorisation, 12, 10, and 8 large-size,

mid-size, and small-size companies respectively were chosen.

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This classification primarily aims to study the dynamics and operating

efficiencies of the chosen companies in the real estate industry. Of the

30 companies under study, in FY10, large companies contributed 80%

of total income and had 40% representation.

Debt- equity Ratio

Real estate companies require significant resources to fund their

projects. Thus, they went on an equity capital raising spree during

FY06–FY08 to scale their operations aggressively. These companies

also procured considerably high debt to finance their capital-intensive

projects.

However in FY09 and FY10, growth in equity and debt declined due to

decreased demand, a downtrend in sales, stoppage in execution of projects,

rising interest expenses and the credit crunch arising out of the global financial

crisis.

The global financial crisis, volatile capital markets, slowdown in FII flows

made it difficult for companies to raise funds through equity markets.

Further, in FY10, the focus of companies was to enhance cash flows, release

cash blocked in non-core assets, increase process improvements and cost

cutting, and achieve better working capital management along with real estate

development. This resulted in renewal and progress of certain stalled projects

and new launch announcements.

ROCE

The return on capital employed (ROCE) is a measure of returns that a

company is realising from capital employed. ROCE is defined as the ratio of

profit before interest and taxes (PBIT) to capital employed.

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Another factor that led to a sharp decline in ROCE of real estate players

is increase in capital employed at a higher pace than PBIT growth. In

fact, small and large companies registered a sharp decline in PBIT as

against a positive growth in capital employed, which had a double effect

on ROCE. In FY10, PBIT of mid-size companies grew at a lesser rate of

19.7% compared with 27.8% growth in capital employed. However,

large and small companies saw a decline in PBIT of 20% and 30.2%

compared with 25.3% and 8.6% growth in capital employed.

Fixed Asset Turnover Ratio

Fixed Asset Turnover ratio shows that 12.32% . FATR is mostly modest

leaving one firm, which tell that most of the companies were able to sail

out with much fixed asset harm.

Compound Annual Growth Rate - CAGR ( Revenues )

Company Name

March 2012

Mar’11 Mar’10 Mar 09 Mar 08 CAGR

DLF 10,207.88 10,091.54 7,791.31 10,392.55 14,655.01-6.98%

Omaxe 62.90 62.51 90.77 78.12 398.80 -30.88%

UNITECH 326.71 510.08 544.30 739.66 1030.68 -20.53%

ANSAL API 10.32 10.55 6.41 10.06 7.24 7.39%

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Parsvnath Developers Ltd.

25.53 75.48 133.85 113.04 408.74 -42.57%

GODREJ PROPERTIES LTD

81.36 106.24 121.84 74.74 75.89 1.47%

Real Estate 10714.7 10856.4 8688.48 10668.51 16276.36 -8.02%

Where,Formula

 : start value,   : finish value,   : number of years. Actual or normalized values may be used for calculation as long as they retain the same

mathematical proportion. The CAGR can also be calculated as the geometric mean of 1 plus each year's return (i.e. +3%

becomes 1.03 and -2% becomes 0.98), minus 1

Analysis:

CAGR of Real Estate industry has Been -8.02, which clearly signifies that

industry has been suffering from low earning capability over 5 years or

so. The main reason for such Drastic fall is “recession” , which has made

consumer reluctant to invest. It was backed by Raising interest Rates.

Cumulative Average Growth Rate

Interpretation

Real Estate is suffering from down turn of cumulative average growth rate.

A -340 % of decrease show that industry is not healthy right now.

Recession has had adverse effect on Indian real estate industry.

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Suggestion

Real estate companies have to inject money to start new projects.

Companies have to formulate efficient policies to skip foreclosures.

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Data Interpretation & Analysis of Sahara City Homes

CASH OUTFLOW

(Amounts in lakh )

PARTICULARS TOTAL 2009 2010 2011 2012 2013

LAND COST 2865.02 2865.02        

GOVT. APPROVAL 771.45 771.45        

CONSTRUCTION COST

(RES) 42873.94 8191.32 12696.55 8826.15 8632.63 4527.29

SERVICE TAX 1937.1 387.42 581.13 387.42 387.42 193.71

COMPUTER & A.C 2435.8 487.16 730.74 487.16 487.16 243.58

CONSTRUCTION COST

(COM)            

MALL 4965.24 948.64 1470.4 1022.16 999.74 524.3

HOTEL 3775.51 755.11 1132.62 755.11 755.11 377.56

HOSPITAL 2755.688 526.508 816.08 567.34 554.86 290.9

SCHOOL 2982.063 569.77 883.013 613.92 600.46 314.9

TOTAL 14478.501 2800.028 4302.113 2958.53 2910.17 1507.66

DEVELOPMENT COST 11291.62 2157.32 3343.87 2324.53 2273.56 1192.34

ADMINISTRATION

COST 2166.59 413.94 641.61 446.02 436.24 228.78

MISC EXP. 2059.3 394.46 610.27 423.27 414.49 216.81

ADVERTISEMENT EXP. 1259.7003 251.94 377.91 251.94 251.95 125.97

COMMISSION EXP. 3779.1009 755.82 1133.73 755.82 755.83 377.9

PAYMENT OF LOAN 22500   5625 5625 5625 5625

TAX PAYMENT 18802.557 0 0 3152.978 5780.595 9868.984

INTREST PAY 9450 2700 2700 2025 1350 675

GRAND TOTAL(A) 136670.6 22175.8 32742.9 27663.8 29305.0 24783.048

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9 8 2 2 5 2

CASH OUTLOW

TOTAL OUTFLOW0

5000

10000

15000

20000

25000

30000

35000

2009

2010

2011

2012

2013

CASH INFLOW

(Amount in lakh)

PARTICULARS TOTAL 2009 2010 2011 2012 2013

             

INFLOW (RES) 125969.89 9372.89 21453.12 27284.35 33407.56 34451.97

IN FLOW (COM) 24716.01     3707.41 10504.3 10504.3

BANK LOAN 22500 22500        

PROMOTOR'S FUND 7500 7500        

GRAND TOTAL ( B) 180685.9 39372.89 21453.12 30991.76 43911.86 44956.27

             

NET INFLOW (A-B) 44015.212 17197.01 -11289.8 3327.942 14606.81 20173.25

CUMULATIVE NET

FLOW   17197.01 5907.209 9235.151 23841.97 44015.21

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P & L ACCOUNT

(Amount in Lakh)

PARTICULARS TOTAL 2009 2010 2011 2012 2013

BY SALES            

RESIDENTIAL 125970.03     21629.77 35364.68 68975.58

COMMERCIAL 24716.01     3707.41 10504.3 10504.3

TOTAL SALES 150686.04     25337.18 45868.98 79479.88

BY CLOSING WIP RESIDENTIAL 142307.4476 19375.85 42191.66 44229.762 36510.1752 0

BY CLOSING WIP COMMERCIAL 22436.76031 2800.028 7102.141 7888.8909 4645.70044 0

TOTAL 164744.2079 22175.88 49293.801 52118.653 41155.8756 0

GRAND TOTAL( Cr.) 315430.2479 22175.88 49293.801 77455.833 87024.8556 79479.88

BY OPENING WIP            

RESIDENTIAL 142307.4476   19375.85 42191.66 44229.7624 36510.1752

COMMERCIAL 22436.76031   2800.028 7102.141 7888.89087 4645.70044

TO LAND 2865.02 2865.02        

TO SERVICE TAX 1937.1 387.42 581.13 387.42 387.42 193.71

TO COMPUTER & AC 2435.8 487.16 730.74 487.16 487.16 243.58

TO GOV. APPROVAL 771.45 771.45        

TO DEVELOPMENT COST 11291.62 2157.32 3343.87 2324.53 2273.56 1192.34

TO ADMINISTRATION COST 2166.59 413.94 641.61 446.02 436.24 228.78

TO MICS EXPENCES 2059.3 394.46 610.27 423.27 414.49 216.81

TO ADVERTISEMENT EXP. 1259.7003 251.94 377.91 251.94 251.95 125.97

TO COMMISSION EXP. 3779.1009 755.82 1133.73 755.82 755.83 377.9

TO INTREST PAID 9450 2700 2700 2025 1350 675

TO CONTRUCTION COST (RES) 42873.94 8191.32 12696.55 8826.15 8632.63 4527.29

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TO CONTRUCTION COST (COM) 14478.501 2800.028 4302.113 2958.53 2910.17 1507.66

GRAND TOTAL ( Dr) 260112.3301 22175.88 49293.801 68179.641 70018.1032 50444.9156

PROFIT BEFORE TAX 55317.9178 0 0 9276.1922 17006.7524 29034.9644

CUMULATIVE PBT   0 0 9276.1922 26282.9446 55317.909

PROVISION FOR TAX @ 33.99% 18802.55727 0 0 3152.9777 5780.59514 9868.98438

CUMULATIVE PROVISION FOR

TAX   0 0 3152.9777 8933.57288 18802.5573

PROFIT AFTER TAX 36515.35173 0 0 6123.2145 11226.1573 19165.98

CUMULATIVE PROFIT AFTER

TAX   0 0 6123.2145 17349.3718 36515.3517

BALANCE SHEET

(Amount in lakh)

PARTICULARS 2009 2010 2011 2012 2013

LIABILITIES

Promoters Capital 7500 7500 7500 7500 7500

Bank Loan 22500 16875 11250 5625 0

P/L Account 0 0 6123.214498 17349.37176 36515.35173

Advance from customers 9372.89 30826.01 36480.69 34523.47 -0.14

TOTAL 39372.89 55201.01 61353.804 64997.84 44015.21

ASSETS

Closing W-I-P

Residential 19375.85 42191.66 44229.76237 36510.17521 0

Commercial 2800.028 7102.141 7888.890871 4645.700435 0

Cash in bank 17197.012 5907.209 9235.151258 23841.96612 44015.21173

TOTAL 39372.89 55201.01 61353.804 64997.84 44015.21

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NET PRESENT VALUE

(Amount in lakh)

PARTICULARS TOTAL 2009 2010 2011 2012 2013

             

Cost of capital 12%          

Cash Inflow 111051.16 9372.89 17107.75 24714.32 31276.25 28579.95

Cash Outflow 97193.3 22175.87 29234.74 19546.12 16755.3 9481.27

NPV 13857.9

ACCEPTANCE RULE

When ,

NPV is Positive project is accepted

NPV is Negative project is rejected

NPV is Zero Indifference your choice

The value of Net Present value is greater than Zero, so the Project of Sahara City homes may be accepted by the

Organization.

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PAY BACK PERIOD

(Amount in lakhs)

PARTICULARS TOTAL 2009 2010 2011 2012 2013

             

Outflow 97193.3 22175.87 29234.74 19546.12 16755.3 9481.27

Inflow 111051.16 9372.89 17107.75 24714.32 31276.25 28579.95

Cumulative Inflow   9372.89 26480.64 51194.96 82471.21 111051.2

Period 4+ 14722.09/ 28579.95 *12

PAY BACK PERIOD = 4yrs 8month

Ratio Analysis

1. Gross Profit Ratio = Gross Profit/ Net Sales *100

SALES 150686

COST OF SALES 95368.1

GROSS PROFIT 55317.9

GROSS PROFIT RATIO 36.7107

RESULT:- The Gross Profit Ratio of this project based on assumption is 36.71%.

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2. Net Profit Ratio = Net Profit/ Net Sales *100

SALES 150686

NET PROFIT 36515.4

NET PROFIT RATIO 24.2327

RESULT:- The Net Profit Ratio of this project based on assumption is 24.23%.

3. GROSS CAPITAL EMPLOYED = Net Profit(Before interest & tax) * 100

(RETURN ON TOTAL ASSETS) TOTAL ASSETS

PBT 18802.6

295830TOTAL ASSETS

RETURN ON ASSETS =

6.35587

RESULT:- Company earns a revenue of 6.35% of total assets.

4. NET CAPITAL EMPLOYED = Net Profit(Before interest & tax) * 100

( RETURN ON NETASSETS)

NET ASSETS = TOTAL ASSETS - CUURENT

LIABILITIES

PBT 18802.6

Net Assets 153738

Return on Net Assets 0.1223

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5. TOTAL ASSETS TURNOVER RATIO = SALES / TOTAL ASSETS

SALES 150686

TOTAL ASSETS 295829.9

Assets Turnover Ratio 0.509

LIQUIDITY RATIOS

CURRENT RATIO

CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITY

CURRENT ASSETS 264940.8

CURRENT LIABILITY 111202.9

CURRENT RATIO = 2.382498

RESULT:- The current ratio for this project is 2.38 times, which shows a good working condition

of the organisation.

LIQUID RATIO

LIQUID RATIO = LIQUID ASSETS / CURRENT LIABILITY

LIQUID ASSETS 131085.7

CURRENT LIABILITY 111202.9

LIQUID RATIO = 1.178797

RESULT: - Organization has a sufficient amount of asset to meet its liquid obligation.

NET WORKING CAPITAL RATIO

NET WORKING CAPITAL RATIO = NET WORKING CAPITAL / NET ASSETS

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a. NET WORKING CAPITAL = CURRENT ASSETS - CURRENT LIABILITY

CURRENT ASSETS 264940.8

CURRENT LIABILITY 111202.9

NET WORKING CAPITAL = 153737.8

NET WORKING CAPITAL RATIO = 1

RESULT:- Organization has a sufficient working capital to meet its day to day obligation.

RETURN ON INVESTMENT (ROI)

ROI BEFORE TAX = PBT / NET ASSETS

PROFIT BEFORE TAX(PBT) 18802.56

NET ASSETS 153737.8

ROI BEFORE TAX = 0.122303

ROI AFTER TAX =PBT(1 - TAX RATE ) / NET ASSETS

TAX RATE 33.99%

ROI AFTER TAX = 0.081955

Conclusion56

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After studying all the factors of the real estate it can be concluded that

the Real Estate is a very wide concept and it is highly affected by the

macro-economic factors like GDP, FDI, per capital income, Interest

rates and employment in the nation. The most important factor in the

case of Real Estate is location which affects the value and returns from

the Real Estate. India needs a stronger capital market base for property

financing. The debate on the potential introduction of REITs and real

estate funds points in the right direction. The introduction of REIT s in

2007, will give international investors in particular a familiar investment

vehicle. Private investors could also enter into indirect investment in

real estate. Although interest in new projects is most likely to come

primarily from institutional investors, the rising middle class is likely to

seek new instruments aside from direct property investments in the

medium term. So, in the end we can say that the investment in Real

Estate in India is a very good investment opportunity. But one should be

very careful while taking decision in this direction due to rising inflation

and interest rates. Legal issues should also be kept in mind while

choosing a property.

Owing to the correction in real estate prices and re-aligning of business

strategy, as per the ongoing business environment, has resulted in some

signs of revival in the Indian real estate sector, in the recent past. A

stable political scenario has also boosted confidence in the Indian capital

markets, and the overall business environment. This was further

complemented with the Indian economy managing to achieve a growth

rate of 6.7% during 2008-09, despite recession in the global economy.

At the first instance, such positive indicators reinforced the

potential of Indian domestic economy, while uplifting sentiments

otherwise enshrouded by negative movements on the front of

employment and deepening financial crisis in the global economy.

These small packs of positive developments slowly flowing into the

economy have also started generating interest amongst customers, and

some developers have experienced improving situation in terms of

demand of real estate in select pockets. The recent situation, however,

has sent the message home. The Indian real estate companies are

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urged to focus on customer satisfaction. The industry is no more

dominated by a developer, putting customer expectations at the

backstage and carrying on operations at his own sweet will.

More significantly, the ongoing correction in the real estate market has

indicated towards its fundamental strength wherein it tends to correct

itself with any excesses on the front of prices, and other demand relating

factors. Nevertheless, real estate companies are fast-learning to lay

emphasis on retention of existing customers and acquire new customers.

The present times have been calling for a fair level of flexibility, which

even the real estate companies have been expecting from their suppliers

and service providers. At the same time, many developers have found a

viable strategy in forging collaborations – leading to cost benefits,

synergies, and mutual Building, Construction Industry and Real Estate

Services strength. The potential areas of collaboration include supply

chain, procurement, production and brand promotion.

Nevertheless, this phase of market consolidation is a real opportunity

where weaker players will be defragged and stronger ones will increase

their market share through well-thought business strategies, and further

tighten their belts for high growth in the future. The Budget 2011

presented a mixed bag for real estate sector in India. However, it has

failed to address some of the key demands of the real estate developers,

including infrastructure status to the real estate sector, relaxation of

external commercial borrowings to fund projects, provision of separate

deduction for housing loan repayment or increasing the overall 80C

deduction to Rs. 2 lakhs etc.the key to growth of this sector lies in

growth of disposable income with the population and willingness of

property developers to build affordable homes for middle class.

“It is said, that success is not about how high you rise, but about how

high you bounce back when you hit rock-bottom. Real Estate companies

today are at that strategic inflection point, where they must define new

imperatives to be successful once again. Bridging the gap between the

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customers and themselves, taking a harder look at resource-sapping

processes, and above all gaining agility and flexibility as organizations,

will be the stepping stones to success.”

- Vinamra Shastri

Head – Strategic Services & Partner, Grant Thornton India

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