Real Estate Segment-Future Growth

Indian Real Estate Indian Real Estate IndustryIndustry Present….Present…. Future….. Future….. Opportunities Opportunities

Summary Report

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Indian Real EstateIndian Real Estate

India Real Estate Investment is a significant feature of the Indian realty market under the initiation of the investors and developers, leading to future real estate development in India. The development of private ownership of property real estate in India has become a major area of business with India Real Estate Investment playing the vital role. India Real Estate Investment involves minimum risk for getting maximum return.

India Real Estate Investment has rising demand in every sector like commercial, residential, retail, industrial and hospitality. But maximum demand is observed in the booming IT sector. The India Real Estate Investment is facilitated by the liberal economic policies of the government.

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Real Real EstateEstate

Current ScenarioOpportunitiesFunding Banks, NBFC, HNI, REITS, CMBS, LRD, NCD & LC

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Current ScenarioCurrent Scenario

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Factors favoringFactors favoring Factors Favoring India Real Estate Investment:

1.Increasing growth in residential properties due to lower interest rates, easy availability of housing finance, rising income, better job prospects and increase of nuclear families.

2.Growth of retail market in India due to increasing demand from retailers, higher disposable incomes and opening up of FDI in Retail.

3.Burgeoning IT and ITES industry

4.Growing commercial property market

5.Emerging hospitality or hotel industry due to the exceptional boom in inbound tourism and the IT sector

6.Development of the special economic zones

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Government Government RoleRole

Role of Government in India Real Estate Investment:The Indian government has been playing a proactive role in the India Real Estate Investment and thereby promoting investors to invest in Indian real estate market. The different laws governing real estate are -1.Indian Transfer of Property Act2.Indian Registration Act, 19083.Indian Urban Land (Ceiling And Regulation) Act, 19764.Stamp Duty5.Rent Control Acts6.Property Tax7.Foreign Exchange Regulation Act, 1973

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Foreign RoleForeign RoleForeign Role in India Real Estate

Investment:The liberal government policies have facilitated the expansion of the foreign involvement in the India Real Estate Investment sector. At present, the non-resident Indians have played a very important role in transforming the Indian real estate market. Some of the important foreign investors in the Indian real estate market are like-

Emmar Properties Laing O'Rourke (LOR) Morgan-Stanley Real Estate Vancouver-based Royal Indian Raj International Corporation (RIRIC) Indonesia-based Siputra Selim group US-based Warburg Pincus Blackstone Group Broadstreet Columbia Endowment Fund California Public Employees' Retirement System (CalPERS)

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InvestorInvestorss

India Real Estate Investors:

There are Indian institutions like HDFC, ICICI Venture and Kotak Mahindra launching funds to invest in real estate market in India. Indian Real Estate Investment Trust:

The Indian Real Estate Investment Trust will play significant role in the investment in real estate helping the individual investors to own a share of the profiting real estate market.Currently in the Real Estate Investment World India there has been an interactive discussion on the dynamic growth of the growing India real estate market and the strong growth opportunities in rising sectors like financial services, pharmaceuticals, telecommunications, and biotechnology will further enhance the scope for India Real Estate Investment.

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Real Estate Updates- Real Estate Updates- 20142014

NDA government has decided a slew of measures to give a boost to the real estate sector, including an allocation of Rs 7,060 crore for the development of 100 smart cities, a reduction in the size of projects eligible for FDI from 50,000 sq metres to 20,000 sqm and halving the minimum investment limit for FDI to $5 million. Budget for developing 100 smart cities, redeveloping satellite towns of major cities as well as other smaller cities. It also brought down the minimum capital requirement to USD 5 million from USD 10 million.

In case of development of serviced plots, the condition of minimum land of 10 hectares has been completely removed. NDA government has also decided Rs 4,000 crore to affordable housing for the urban poor through the National Housing Bank (NHB) and plans to extend incentives for housing loans. Slum development has been made part of corporate CSR activities.

Foreign investors to exit on project completion or 3 years from the date of final investment subject to the development of trunk infrastructure.

Setting up of an institution called 3P India with a corpus of Rs. 500 crore same will help in mainstreaming public-private partnerships (PPPs) in the sector.

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OpportuniOpportunityty

Affordable HousingHigh Street in Tier II & III cities (Including Fun, Shopping, Entertainment and

Food Zone)Offshore Construction Lease

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Affordable HousingAffordable Housing

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Affordable Affordable housinghousing

Affordable housing can be defined using three key parameters viz. income level, size of dwelling unit and affordability. While the first two parameters are independent of each other, the third parameter is correlated income. Housing costs here include taxes and insurance for owners, and utility costs. If the monthly carrying costs of a home exceed 30–35 percent of household income, the housing is considered 2 unaffordable for that household.

EWS

LIG

MIG

< INR 1.5 Lacs per annum

Up to 300 Sq.ft.

EMI to Monthly Income

• 30 to 40 Percent

House Price to Annual Income Rati• Less than 5.1 (Deepak

Parekh Force)

1 Income Level 2 Size of Dwelling Unit 3 Affordability

INR 1.5 to 3 Lacs per annum

INR 3 to 10 Lacs per annum

300 to 600 Sq.ft.

600 to 1200 Sq.ft.

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Is affordable housing and low-cost housing the same? Affordable and low-cost housing are often interchangeably used, but

are quite different from each other. Low-cost housing is generally meant for EWS category and comprises bare minimum housing facilities while affordable housing is mostly meant for LIG and MIG and includes basic amenities like schools, hospitals and other community facilities and services.

Affordable Affordable housinghousing

Parameters Low-Cost Housing Affordable Housing

Amenities Bare minimum to none BasicTarget Income Class EWS & LIG LIG & MIGSize of Dwelling Unit <=300 Sq. Ft. 300-1200 Sq. Ft.Location Generally which city but can also be

located on city peripheries due to high cost of land

Within City

Project Developer Mostly Government agencies Private Developers and Government

Most available source of finance

Micro finance institutions Traditional banking system

EMI to Monthly Income Not exceeding 30 percent of gross monthly income

Not exceeding 40 percent of gross monthly income 13

Role of PPP in Affordable Role of PPP in Affordable HousingHousing

Land Availability & CostConstruction & Other CostsConnectivity & InfrastructureCredit delivery & RiskOthers

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Effective use of available Government land Land parcels currently in possession can be used for development, thereby

reducing the cost of land Government can enter into joint ventures with developers with land as equity

Land Banking Purchase of large strips by State Governments / Agencies Distribution of land to private developers through a transparent process

FSI Relaxation of FSI norms to reduce per flat land cost FSI is an effective tool to provide a cashless subsidy to builders

Cross Subsidization Joint development of MIG, LIG and EWS flats – MIG to subsidize others Built-up space covering LIG and EWS to be sold / rented by Government agency;

developer can be allowed to sell MIG flats at market rates

Redevelopment / Rehabilitation Increasing availability of prime land by redevelopment / rehabilitation

Role of PPP in Affordable Role of PPP in Affordable HousingHousing• Land Availability &

Cost

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Single window approval for projects Delays incurred in project approvals result in substantial cost

overruns. A single window will help reduce delays and contain costs Reduction in approval related costs

Subsidizing construction costs Reduction / exemption / deferment of taxes and duties on construction

materials Subsidy to developers for R&D in new low cost materials and

technologies Subsidy to developer in view of employment generated Lower cost of borrowing for development of affordable housing

projects - can be achieved if Government agencies have a participatory interest in the project and guarantee the

loans

Sales Tax and Stamp Duty Exemption from sales tax and reduction in stamp duty

• Construction & Other Costs

Role of PPP in Affordable Role of PPP in Affordable HousingHousing

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Development of urban infrastructure PPP projects for accelerated urban infrastructure Metro rail, Inter-city highways, Mono rail Increase budgetary focus on urban infrastructure Increase support to State Governments to engage in PPP

projects

Integrated Townships Joint developers with private players Development of infrastructure and residential space Planned expansion of city limits

Development of Satellite Towns Upfront infrastructure development around major cities a pre-requisite

for planned development of satellite towns Mumbai and NCR have successfully developed satellite towns, which

other cities can emulate

Role of PPP in Affordable Role of PPP in Affordable HousingHousing• Connectivity & Infrastructure

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Access to lower cost of capital Relaxation of ECB norms for housing companies Increase in income tax ceiling on housing loans will

reduce post tax cost of capital for borrowed Increase support to State Governments to engage

in PPP projects

Housing as a priority sectorIncrease current limits on interest subsidies from

INR 2 million to INR 4 million

Role of PPP in Affordable Role of PPP in Affordable HousingHousing• Credit delivery & Risk

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Profitability of developers and housing finance companies 80 IB benefits for all approved affordable housing projects

and developers. Extension of 80 IB benefits for housing finance companies

lending to LIG and EWS lenders.

Special focus on EWS segment Significantly higher Government involvement and

subsidiaries are required to provide equitable housing for EWS segment.

Innovative cross-subsidization schemes, extensive subsidies and suitable credit delivery mechanisms needed to address the specific challenges of EWS segment.

Role of PPP in Affordable Role of PPP in Affordable HousingHousing• Others

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High Street- Tier II & High Street- Tier II & IIIIII

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High Street in Tier II & III CitiesHigh Street in Tier II & III Cities (Including Fun, Shopping, Entertainment and (Including Fun, Shopping, Entertainment and Food Zone)Food Zone)

Ideal Location: Tier II & Tier III cities, ◦ Population: 2-5Lacs◦ Identified location should be In the vicinity of population◦ Within 5 kms of the City periphery, and/ or within city premises◦ Preferably on the link road (highway connectivity) of two/ three

towns/ cities◦ Preferable location - A destination for Religious Tourism, and/ or

Medical set ups, and/ or Educational set ups, and/ or Industrial set up.

Land Cost: Max. 50 Lacs per acre Land Parcel : 5 - 7 Acres Total development: 1.75Lacsq.ft. - 2 Lac sq. ft. Land Use: Mix Use Development Architecture: Horizontal Structure, with lots of Greens, and open

parking21

UEPs- UEPs- Unique Emotional Unique Emotional PropositionProposition

◦ Multiplex 2-3 screen Multiplex of 100-150 seats 50 seater 3-D to 7-D Screen

◦ Theme Park/ Entertainment Zone Kid’s Gaming Zone/ Rides Water Park

◦ Food Court Kiosks serving a mix of World Cuisines Fine Dining/ Lounge

◦ Hotel Should project ‘MICE’ concept Approx. 40 Room Budget Hotel Marriage/ Party Lawn

◦ Nursing Home

◦ Festivals of India

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Offshore ProjectOffshore Project

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Offshore Offshore ProjectProject

China- Housing, Resort & Commercial Malaysia- Housing, Resort &

CommercialThailand - Housing, Resort &

CommercialIndia- Housing, Resort & CommercialSouth Africa-Housing & CommercialUAE- Housing & Commercial

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ComparisoComparisonn

Building Type Beijing, China

Kuala Lumpur,Malaysia

Mumbai, India

Bangkok,

Thailand

Jo’burg, South Africa

ResidentialAverage Multi Unit- High Rise

685 515 415 875 840

Luxury Unit- High Rise 1050 1165 550 1225 1460Individual Prestige Houses

810 1045 650 1010 1470

Commercial/RetailAverage Standard Offices- High Rise

975 825 495 790 1100

Prestige Office- High Rise

1300 1210 590 1035 1420

Major Shopping Center 1080 995 550 985 1100IndustrialLight Duty Factory N/A 480 435 630 380Heavy Duty Factory N/A 570 670 N/A 530

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ComparisoComparisonn

Building Type Beijing, China

Kuala Lumpur,Malaysia

Mumbai, India

Bangkok,

Thailand

Jo’burg, South Africa

Hotel(Including FF&E)3 Star/Budget 1205 1625 1580 1410 16905 Star/Luxury 1950 2485 2760 1980 2230Resort Style N/A 1760 1480 2345 2670OTHERMulti Storey Car Park N/A 310 215 370 410District Hospital N/A 1080 690 N/A 1110Primary & Secondary School

N/A 320 530 N/A 760

Exchange Rates CNY RM INR THB ZARUSD $ 1 6.46 3.14 54.58 31.58 8.93

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ComparisoComparisonn

Building Type Beirut, Lebano

n

Riyadh, KSA

Doha, Qatar

Manama,

Bahrain

Muscat,

Oman

Abu Dhabi, UAE

ResidentialAverage Multi Unit- High Rise

1200 1500 1500 1300 N/A 1360

Luxury Unit- High Rise 1700 1800 2100 1600 N/A 1700Individual Prestige Houses

2100 1600 1900 1700 1690 1250

Commercial/RetailAverage Standard Offices- High Rise

1250 1500 1800 1170 N/A 1500

Prestige Office- High Rise

1600 2000 2050 1280 N/A 1770

Major Shopping Center 1300 1300 1250 1230 1300 1350IndustrialLight Duty Factory 750 1700 2050 1800 1820 1900Heavy Duty Factory 1000 900 1100 700 910 890

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ComparisoComparisonn

Building Type Beirut, Lebano

n

Riyadh, KSA

Doha, Qatar

Manama,

Bahrain

Muscat, Oman

Abu Dhabi, UAE

Hotel(Including FF&E)3 Star/Budget 1700 1700 2050 1800 1820 19005 Star/Luxury 3000 2650 3350 2620 2925 2800Resort Style N/A 3200 3750 3200 2665 3400OTHERMulti Storey Car Park 600 600 760 620 650 820District Hospital 2700 2000 3590 2450 2340 3158Primary & Secondary School

N/A 1100 1250 1510 1235 1430

Exchange Rates LBP SAR QAR BHD OMR AEDUSD $ 1 1.507 3.75 3.64 .37 .38 3.67

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Funding OptionsFunding Options

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• Banks, • NBFC, • HNI,• CMBS, • REITS,• LRD, • NCD & LC

Funding OptionsFunding Options

CMBS CMBS TransactionsTransactions

What are Commercial Mortgage Backed Securities (CMBS)?

CMBS are debt securities using commercial assets as collaterals

Incomes generated from the property assets are used to service debt obligations

CMBS structures have no or limited amortisation during the tenure thus relying on full/partial refinancing

Rating is enhanced using the structural features such as maintenance of DSRA, pledge of shares, cushion between indicative and final legal maturity, etc

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Structure of Structure of CMBSCMBS

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Real Estate Investment Real Estate Investment TrustTrust

Vehicle for owning and operating income producing real estate assets

Structured like a Mutual Fund

Utilises pooled capital to deploy across real assets

Portfolio includes commercial office space, shopping malls, warehouses and mortgages

Established market participant in the developed economies

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Salient Points of SEBI (REIT) Salient Points of SEBI (REIT) Regulations 12 Sponsors Raising Regulations 12 Sponsors Raising Funds InvestmentsFunds Investments

Sponsors:–Maximum three sponsors collectively holding minimum of

25% of the REIT units for first three years and 15% thereafter

–Minimum of five years of experience in real estate industry on an individual basis

–Minimum net worth of Rs. 20 crore on a consolidated basis

Raising Funds:–Initial fund raising through an initial offer, thereafter

through follow-on offer, rights issue, QIP –Minimum initial offer size of Rs. 250 crore with at-least

25% public float –Minimum value of REIT assets of Rs. 500 crore

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Salient Points of SEBI (REIT) Salient Points of SEBI (REIT) Regulations 12 Sponsors Raising Regulations 12 Sponsors Raising Funds InvestmentsFunds Investments

Investments:–Minimum 80% in completed and revenue generating properties –Balance in other assets like developmental properties, MBS,

Debt/Equity of real estate entities, government securities & money market instruments

–Maximum 10% in developmental properties –Shall invest in at least 2 projects with not more than 60% of

value of assets invested in one project

Others:–Minimum 90% of income to be distributed on a half yearly

basis –Assets to be valued on an annual basis with a six monthly

update –NAV to be declared at least twice in a year –Borrowings and deferred payments at a consolidated level shall

not exceed 49%; in case borrowings exceed 25%, credit rating shall be required

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Structure of a REIT Structure of a REIT

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Investors(Minimum subscription

size of Rs. 2 Lakh)

REITTrustee

(Hold assets in the name of the REIT)

Sponsor(s)(Holds minimum

25% units of REIT to start with

Real Estate Assets (SPVs/Properties)

(Minimum asset size of Rs. 500 crore; 80% of investment in

operational revenue generating assets)

Income (Return/Dividen

d)

Pooled Capital

Minimum commitment

Monitoring

Income (Return/Divide

nd)

Capital Income (Rental, Capital Gains)

Lease Rental Lease Rental DiscountingDiscounting

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NCDs are fixed income debt instruments issued by a company wherein a company agrees to pay a fixed rate of interest on your investment for a specified period in order to raise money from market for business purposes. As the name suggests, these debentures cannot be converted into shares of issuing company unlike convertible debentures. Interest on NCDs is paid at different time period like quarterly, semi-annually or annually. They also have an option of cumulative interest in which case interest is cumulated & paid on maturity

An NCD can be secured or unsecured. Secured NCDs are backed by the issuer company's assets to fulfill the debt obligation unlike unsecured NCDs. The NCD issues are rated by credit rating agencies like CRISIL, ICRA, FITCH, and CARE to ensure the company's ability to service the debt on time & lower default risk.

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Non Convertible Non Convertible DebentureDebenture

What is a What is a Debenture?Debenture?

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• A Debenture is a type of a debt instrument used for asset allocation which helps diversification of your portfolio

TType Of Debentures?Debentures?

• Convertible Debenture Convertible debentures are unsecured bonds that can be converted to company equity or stock.

•Non-convertible Debentures (NCD) Nonconvertible debentures are unsecured bonds that cannot be converted to company equity or stock.

Client profile to be prepared for being in International Trade Owner of the Property (Converted land) to be inducted as partner/director

in the firm/ company Recognised International trade consultant to be appointed by the firm/

company to be as consultant The complete profile to be given to the bankers for processing of limits. Bankers would sanction limits to the tune of 80 to 85 percent and rest to

be arranged as Cash margin On approval of limits, the company/ firm will get the LC usance issued in

favour of the exporter identified by us.

On issuing of LC usance, goods will be exported from foreign destination to the firm/ company in India. The firm/ company in India would in turn sell the same to a pre-identified customer in India on immediate cash basis (High Sea Sale).

At the end of 180 days, another LC would be opened, issued and payment received in cash and would be used to settle the first LC. All pre-agreed cost i.e. Financing charges will have to be paid to the respective parties (i.e. Exporter, bankers etc) by the client. This would be rolled over every 6 months till the time the client wishes and wants to make use of the money. Once the client is in a position to return the principal, the same would be paid to the bank and property released.

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Letter of Letter of CreditCredit

Payment of financing charges at half yearly intervals No principal repayment till the tenure of roll over All cost like LC discounting charges, Bank charges and

exporters margin amounting to less than 13 percent per annum

Funding against converted land being a non bankable asset, can be used to raise the funds through this model.

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Letter of Letter of CreditCredit