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Chapter No. 1
Introduction to Real Estate
Business
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Real Estate
The most basic definition real estate is "an interest in land". Broadening
that definition somewhat, the word "interest" can mean either an ownershipinterest (also known as a fee-simple interest) or a leasehold interest. In an
ownership interest, the investor is entitled to the full rights of ownership of
the land (for example, to legally use and transfer the title of the
land/property), and must also assume the risks and responsibilities of a
landowner (for example, any losses as a result of natural disasters and the
obligation to pay property taxes). On the other side of the relationship, a
leasehold interest only exists when a landowner agrees to pass some of his
rights on to a tenant in exchange for a payment of rent. If you rent anapartment, you have a leasehold interest in real estate. If you own a home,
you have an ownership interest in that home. Some jurisdictions recognize
other interests beyond these two, such as a life estate, but those interests
are less common in the investment arena.
Supply of urban land is largely controlled by State-owned developmentbodies like the Delhi Development Authority (DDA) and Housing Boardsleaving very limited developed space free, which is controlled by a few
major players in each city.
Directorate of Estates is an attached office of the Ministry of UrbanDevelopment, Government of India. It is responsible for the administrationand management of the office buildings for the various organizations of theGovernment of India as well as residential accommodation for theGovernment employees in the metropolitan cities of Delhi, Mumbai,Kolkata, Chennai and five other cities namely Shimla, Chandigarh,Ghaziabad, Faridabad and Nagpur. The Central Government Estates in theremaining cities and towns are managed by the Central Public WorksDepartment (CPWD).
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CREDAI (Confederation of Real Estate Developer's Associations ofIndia) is the apex body of the organized real estate developers/buildersacross India. 20 State/city level associations, namely, Andhra Pradesh,Chhattisgarh, Delhi-NCR, Goa, Gujarat, Jharkhand, Himachal Pradesh,Karnataka, Kerala, Madhya Pradesh, Maharashtra, Odessa, Punjab,Rajasthan, Tamilnadu, Uttar Pradesh and West Bengal spread over across18 States of India are members of CREDAI with over 3,500 individualmembers developers encompassing over 60% of the organized privatestate/cities in the country.
Real Estate Laws in India
Investing in real estate in India require compliance with various laws which runinto dozens, some of them more than 100 years old and some very new. Inaddition to federal laws of India, there are many state laws governing realestate transactions and investment. The federal laws governing real estateinclude:
Indian Contract Act, 1872
Transfer of Property Act, 1882 Registration Act, 1908
Special Relief Act, 1963
Urban Land (Ceiling And Regulation) Act (ULCRA), 1976
Land Acquisition Act, 1894
The Indian Evidence Act, 1872
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While each State has its own set of laws, which govern planneddevelopment, the two laws that exist in every State are the stamp duty andrent laws.
The sector has assumed growing importance with liberalisation of theIndian economy. Developments in the sector are being influenced by thedevelopments in the retail, hospitality, entertainment industries, economicservices and information technology (IT)-enabled services, etc. and viceversa.
Foreign Direct Investment (FDI) in real estate is being permitted sinceJanuary 2002. Previously, only NRIs and PIOs were allowed to invest in thehousing and the real estate sectors. Foreign investors other than NRIswere allowed to invest only in development of integrated townships and
settlements either through a wholly-owned subsidiary or through a jointventure company along with a local partner.
India fully opened up the sector to FDI in 2005. However, norms issuedlater made a minimum capitalization of $10 million for wholly-ownedsubsidiaries and $5 million for joint ventures mandatory. Besides, minimumarea requirement were also imposed by the Government. At present,foreign institutional investment (FII) is not permitted in the real estatesector.
India's real estate sector is witnessing an unprecented high. Enablingregulatory changes, high industrial growth, easier financing options andsteady growth in equity markets have resulted in an upturn in the realestate investment activity. This, coupled with the Government's relaxationof FDI policies have made the real estate an attractive investment option.
With the development of private propertyownership, real estate hasbecome a major area ofbusiness, commonly referred to as commercial
real estate. Purchasing real estate requires a significant investment, andeach parcel of land has unique characteristics, so the real estate industryhas evolved into several distinct fields. Specialists are often called on tovaluate real estate and facilitate transactions. Some kinds of real estatebusinesses include:
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Appraisal: Professional valuation services
Brokerages: A mediator who charges a fee to facilitate a real estate
transaction between the two parties.
Development: Improving land for use by adding or replacing buildings
Net leasing
Property management: Managing a property for its owner(s)
Real estate marketing: Managing the sales side of the propertybusiness
Real estate investing: Managing the investment of real estate
Relocation services: Relocating people or business to a differentcountry
Corporate Real Estate: Managing the real estate held by acorporation to support its core businessunlike managing the realestate held by an investor to generate income
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Within each field, a business may specialize in a particular type of realestate, such as residential, commercial, or industrial property. In addition,almost all construction business effectively has a connection to real estate.
Professional university-level education in real estate is primarily focused atthe graduate level. Focus in towards the commercial real estate sector,primarily real estate development or investment rather than residential realestate sales conducted by a REALTOR.
Real Estate Financing
There are different ways of real estate financing: governmental and
commercial sources and institutions. A home buyer or builder can obtain
financial aid from savings and loan associations, commercial banks,
savings banks, mortgage bankers and brokers, life insurance companies,
credit unions, federal agencies, individual investors, and builders.
Savings and loan associations
The most important purpose of these institutions is to make mortgage loans
on residential property. These organizations, which also are known
as savings associations, building and loan associations, cooperative
banks (in New England), and homestead associations (in Louisiana), are
the primary source of financial assistance to a large segment of American
homeowners. As home-financing institutions, they give primary attention to
single-family residences and are equipped to make loans in this area.
Commercial banks
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Due to changes in banking laws and policies, commercial banks are
increasingly active in home financing. In acquiring mortgages on real
estate, these institutions follow two main practices:
First, some of the banks maintain active and well-organized departmentswhose primary function is to compete actively for real estate loans. In areas
lacking specialized real estate financial institutions, these banks become
the source for residential and farm mortgage loans.
Second, the banks acquire mortgages by simply purchasing them from
mortgage bankers or dealers.
In addition, dealer service companies, which were originally used to obtain
car loans for permanent lenders such as commercial banks, wanted to
broaden their activity beyond their local area. In recent years, however,
such companies have concentrated on acquiring mobile home loans in
volume for both commercial banks and savings and loan associations.
Service companies obtain these loans from retail dealers, usually on a
nonrecourse basis. Almost all bank/service company agreements contain a
credit insurance policy that protects the lender if the consumer defaults.
Savings banks
These depository financial institutions are federally chartered, primarily
accept consumer deposits, and make home mortgage loans.
Mortgage bankers and brokers
Mortgage bankers are companies or individuals, who originate mortgage
loans, sell them to other investors, service the monthly payments, and may
act as agents to dispense funds for taxes and insurance.
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Mortgage brokers present the consumer home buyer with the best loan
from a variety of loan sources. Their income comes from the lender making
the loan, just like with any other bank. Because they can tap a variety of
lenders, they can shop on behalf of the borrower and achieve the best
available terms. Despite legislation enacted that could favor the majorbanks, mortgage bankers and brokers keep the market competitive so the
largest lenders must continue to compete on price and service. According
to Don Burnette of Bright green Home loans in Port Orange, Florida, "The
mortgage banker and broker conduit is vital to maintain competitive
balance in the mortgage industry. Without it, the largest lenders would be
able to unduly influence rates and pricing, potentially hurting the consumer.
Competition drives every organization in this industry to constantly improve
on their performance, and the consumer is the winner in this scenario."
Life insurance companies
Life insurance companies are another source of financial assistance. These
companies lend on real estate as one form of investment and adjust their
portfolios from time to time to reflect changing economic conditions.
Individuals seeking a loan from an insurance company can deal directly
with a local branch office or with a local real estate broker who acts as loancorrespondent for one or more insurance companies.
Credit unions
These cooperative financial institutions are organized by people who share
a common bond for example, employees of a company, a labor union, or
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a religious group. Some credit unions offer home loans in addition to other
financial services.
Federally supported agencies
Under certain conditions and fund limitations the Veterans
Administration makes direct loans to creditworthy veterans in housing credit
shortage areas designated by the VA's administrator. Such areas are
generally rural areas and small cities and towns not near the metropolitan
or commuting areas of large cities areas where GI loans from private
institutions are not available.
The federally supported agencies referred to here do not include the so-called second-layer lenders who enter the scene after the mortgage is
arranged between the lending institution and the individual home buyer.
Real Estate Investment Trust
Real Estate Investment Trusts (REITs), which began when the Real Estate
Investment Trust Act became effective January 1, 1961, are available.
REITs, like savings and loan associations, are committed to real estate
lending and can and do serve the national real estate market, although
some specialization has occurred in their activities.
In the U.S., REITs generally pay little or no federal income tax, but are
subject to a number of special requirements set forth in the Internal
Revenue Code, one of which is the requirement to annually distribute at
least 90% of their taxable income in the form ofdividends to shareholders.
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Chapter No. 2
Major players in the Real
Estate sector & their
performance
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 RealtySector which percolated down to India as well. Lack of clear land titles andlitigation has made this industry one of the most opaque and corrupt ones.Due to the massive price appreciation and huge valuations, Land
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Scamshave become quite common with Chief Ministers, Generals, TopBureaucrats all involved in the murky environment of Real Estate in India.The most recent scam related to bribing of top public banks officials inthe LIC Housing Finance Scandal has again put question mark on the
fundamentals of the industry. Valuing the industry and making a real estateinvestment remains one of the most difficult investing tasks in the IndianStock Market. Even Fund Managers are staying away from the Sector dueto lack of trust in the Financial Statement given by the industry. That saidmodern India presents a booming picture of tall buildings and huge officeareas & shopping malls.
A list of the chief players in Indian market is given below :
Sobha Developers Ltd
DLF Ltd
Unitech Ltd
Emaar MGF
Shapoorji Pallonji & Co
India Bulls Real Estate
HDIL
Sobha Developers Ltd
Headed by: PNC Menon, Chairman
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About: The Company was founded in 1995 by PNC Menon after hereturned home from the Middle East where he was acclaimed for qualityinteriors and construction since 1977. Today, this Rs10 billion pluscompany is one of the largest and only backward integrated company inthe construction arena. Its IPO in 2006 was oversubscribed by 126 timesthat created history, being the first event of its kind in Indian capitalmarkets.
Till date, Sobha has completed 47 residential projects, 13 commercialprojects and 166 contractual projects covering about 36 million sq ft area in18 cities across India (as of 31 March 2010). The company currently has 21ongoing residential projects aggregating to 8.5 million sq ft, while 4.24million sq ft of contractual projects are under various stages of construction.
Vision - Transform the way people perceive 'Quality'
Mission - No Short Cuts to Quality
Philosophy - Passion at Work
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 companys clientele include some
of the top players in IT, hotel and construction sector such as Hewlett
Packard, Mico, Infosys, Ramaraju Developers, Dell, Timken, etc.
Capital Structure - Sobha Developers Ltd.
Period InstrumentAuthorizedCapital
IssuedCapital
- P A I D U P -
From To (Rs. cr) (Rs. cr) Shares Face Capital
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(nos) Value (Rs. Cr)
2010 2011 Equity Share150.0 98.1 98063868 10.0 98.1
2009 2010 Equity Share150.0 98.1 98063868 10.0 98.1
2008 2009 Equity Share150.0 72.9 72901733 10.0 72.92007 2008 Equity Share80.0 72.9 72901733 10.0 72.9
2006 2007 Equity Share80.0 72.9 72901733 10.0 72.9
2005 2006 Equity Share30.0 21.1 21104080 10.0 21.1
2004 2005 Equity Share22.0 21.1 21140480 10.0 21.1
2003 2004 Equity Share22.0 21.1 21140480 10.0 21.1
Shareholding pattern - Sobha Developers Ltd.
Holder's Name No of Shares% ShareHolding
Promoters 45000 0.05%
Foreign Promoter 59331350 60.50%
Foreign Institutions 31599481 32.22%
General Public 2605008 2.66%
Other Companies 1339875 1.37%
N Banks Mutual Funds 1261576 1.29%
Others 1069170 1.09%
Financial Institutions 589948 0.60%
Foreign NRI 199214 0.20%
Directors 21235 0.02%
Foreign Others 2000 0.00%
Foreign Ocb 11 0.00%
Profit & Loss - Sobha Developers Ltd.
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Mar'11 Mar'10 Mar'09 Mar'08 Mar'07
12Months
12Months
12Months
12Months
12Months
INCOME:
Sales Turnover 1,451.65 1,110.61 983.87 1,436.34 1,194.75
Excise Duty 3.24 3.39 9.13 13.84 8.28
NET SALES 1,448.41 1,107.22 974.74 1,422.51 1,186.46
Other Income 0.00 0.00 0.00 0.00 0.00
TOTAL INCOME 1,463.96 1,118.89 982.17 1,434.22 1,189.18
EXPENDITURE:
ManufacturingExpenses 729.98 517.60 599.92 1,032.80 694.85
Material Consumed 116.69 97.20 -173.89 -283.34 3.41
Personal Expenses 124.24 96.28 126.09 126.20 81.40
Selling Expenses 88.36 65.73 61.16 94.22 77.49
AdministrativeExpenses
90.74 82.86 91.60 98.98 73.14
ExpensesCapitalised
0.00 0.00 0.00 0.00 0.00
Provisions Made 0.00 0.00 0.00 0.00 0.00
TOTALEXPENDITURE
1,150.01 859.68 704.89 1,068.87 930.30
Operating Profit 298.40 247.54 269.85 353.64 256.16
EBITDA 313.94 259.21 277.28 365.36 258.87
Depreciation 27.77 32.31 36.03 35.04 24.39
Other Write-offs 0.00 0.00 0.00 0.00 0.00
EBIT 286.17 226.90 241.25 330.32 234.49
Interest 42.93 67.14 105.21 59.69 48.07
EBT 243.24 159.76 136.04 270.63 186.41
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Taxes 61.14 23.61 35.84 42.58 25.06
Profit and Loss forthe Year
182.10 136.15 100.19 228.05 161.35
Non Recurring Items 0.36 0.39 9.49 0.25 0.17
Other Non CashAdjustments
0.00 0.12 0.00 0.00 -0.0
Other Adjustments 0.00 0.00 0.00 0.00 0.00
REPORTED PAT 182.46 136.66 109.68 228.30 161.52
KEY ITEMS
Preference Dividend 0.00 0.00 0.00 0.00 0.46
Equity Dividend 29.42 24.52 7.29 47.40 40.10
Equity Dividend (%) 29.99 25.00 9.99 65.01 54.99
Shares in Issue(Lakhs)
980.64 980.64 729.02 729.02 729.02
EPS - Annualised(Rs)
18.61 13.94 15.04 31.32 22.16
Balancesheet - Sobha Developers Ltd.
Particulars Mar'11 Mar'10 Mar'09 Mar'08 Mar'07
Liabilities12Months
12 Months12 Months12 Months12 Months
Share Capital 98.06 98.06 72.90 72.90 72.90
Reserves & Surplus 1,758.56 1,610.40 1,016.59 915.44 742.64Net Worth 1,856.62 1,708.47 1,089.49 988.34 815.54Secured Loans 1,202.62 1,446.58 1,878.34 1,438.09 545.23Unsecured Loans 8.35 7.45 33.84 324.96 38.45TOTALLIABILITIES
3,067.59 3,162.50 3,001.67 2,751.39 1,399.22
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AssetsGross Block 314.77 294.21 293.02 271.13 233.37(-) Acc.Depreciation
177.49 151.30 119.80 84.18 49.48
Net Block 137.28 142.91 173.22 186.95 183.89Capital Work inProgress.
66.80 63.20 51.56 1,652.05 902.83
Investments. 51.61 42.94 36.16 29.40 52.77Inventories 972.64 1,017.39 1,049.19 787.86 377.80Sundry Debtors 391.39 416.58 355.32 545.16 157.74Cash And Bank 27.54 80.04 21.05 12.59 68.36Loans And
Advances2,159.04 2,014.48 1,898.70 104.43 289.88
Total CurrentAssets 3,550.60 3,528.48 3,324.27 1,450.04 893.77Current Liabilities 645.53 561.32 555.56 477.12 531.00Provisions 93.17 53.71 27.98 89.91 103.04Total CurrentLiabilities
738.70 615.03 583.54 567.04 634.04
NET CURRENTASSETS
2,811.90 2,913.46 2,740.72 883.00 259.74
Misc. Expenses 0.00 0.00 0.00 0.00 0.00TOTAL ASSETS
(A+B+C+D+E) 3,067.59 3,162.50 3,001.67 2,751.39 1,399.22
DLF
DLFHeaded by: Dr Kushal Pal Singh, Chairman
About: With a track record of 64 years, DLF is Indias largest real estatecompany in terms of revenues, earnings, market capitalization and
developable area. It currently has pan India presence across 30 cities withapproximately 238 million sq ft of completed development and 413 millionsq ft of planned projects, of which 56 million sq ft of projects are underconstruction during FY10.
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Project Spectrum : Residential, townships, commercial complexes, ITParks, hotels, multiplexes, etc.
Quick fact :Only listed real estate Company included in the BSE Sensex,NSE Nifty, MSCI India Index and MSCI Emerging Markets Asia Index.
Latest : Will take its luxury mall DLF Emporio (already operational in NewDelhi) to other big cities such as Hyderabad and Chennai.
DLFs chief business is to develop housing, marketable and retailproperties. Currently it has undertaken the development of 70 million sqft of housing projects which it intends to finish in the next three years.DLF has joined hands with Delhi Development Authority to developtownships in Amritsar, Pune, Gurgaon, Mumbai, Chennai and Goa. DLFhas been the construction company behind different malls in the majorcities in India. The company is also developing 50-75 hotels along withHilton Hotels and infrastructure and SEZ in India in collaboration withLaing ORourke (UK).The current market cap is around Rs.51,832.22crore.
Capital Structure - DLF Ltd.
Period InstrumentAuthorizedCapital
IssuedCapital
- P A I D U P -
From To (Rs. cr) (Rs. cr)Shares(nos)
FaceValue
Capital(Rs. Cr)
2010 2011 Equity Share499.5 341.0 1697571794 2.0 339.52009 2010 Equity Share499.5 341.0 1697390890 2.0 339.5
2008 2009 Equity Share499.5 341.0 1704832680 2.0 341.0
2007 2008 Equity Share499.5 341.0 1704832680 2.0 341.0
2006 2007 Equity Share499.5 305.9 1529421080 2.0 305.9
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2005 2006 Equity Share39.5 37.9 37767997 10.0 37.8
2004 2005 Equity Share4.5 3.6 3508007 10.0 3.5
2003 2004 Equity Share4.5 3.6 3508007 10.0 3.5
2002 2003 Equity Share4.5 3.6 3508007 10.0 3.52001 2002 Equity Share4.5 3.6 3508007 10.0 3.5
1999 2001 Equity Share4.5 3.6 3508007 10.0 3.5
1997 1999 Equity Share4.5 3.6 3508007 10.0 3.5
Shareholding pattern - DLF Ltd.
Holder's Name No of Shares% Share Holding
Promoters 1334803120 78.60%
Foreign Institutions 270569137 15.93%General Public 63121125 3.72%
Other Companies 17192737 1.01%
Others 5566356 0.33%
Financial Institutions 3768716 0.22%
Foreign NRI 2168272 0.13%
NBanks Mutual Funds 947004 0.06%
Foreign Industries 126600 0.01%
Foreign Ocb 11 0.00%
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Profit & Loss - DLF Ltd.
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Mar'11 Mar'10 Mar'09 Mar'08 Mar'07
12 Months 12 Months 12 Months 12 Months 12 Months
INCOME:
Sales Turnover 2,916.08 2,307.08 2,827.90 5,496.96 1,101.66
Excise Duty 0.00 0.00 0.00 0.00 0.00
NET SALES 2,916.08 2,307.08 2,827.90 5,496.96 1,101.66
Other Income 0.00 0.00 0.00 0.00 0.00
TOTAL INCOME 4,046.14 3,203.84 3,834.62 6,057.70 1,429.32
EXPENDITURE:
Manufacturing Expenses 848.68 889.25 778.34 2,141.29 237.75
Material Consumed 0.00 0.00 0.00 6.06 8.72
Personal Expenses 89.90 90.50 71.12 103.78 44.82
Selling Expenses 53.71 56.92 59.28 45.70 63.42
Administrative Expenses 143.99 225.45 156.39 128.16 88.51
Expenses Capitalised 0.00 0.00 0.00 0.00 0.00
Provisions Made 0.00 0.00 0.00 0.00 0.00
TOTAL EXPENDITURE 1,136.27 1,262.13 1,065.14 2,424.98 443.22
Operating Profit 1,779.81 1,044.95 1,762.76 3,071.98 658.44
EBITDA 2,909.87 1,941.72 2,769.48 3,632.72 986.11
Depreciation 129.77 126.05 114.08 25.68 9.44
Other Write-offs 50.40 41.47 37.86 41.79 0.00
EBIT 2,729.70 1,774.19 2,617.54 3,565.24 976.67
Interest 1,286.70 847.24 809.86 447.65 356.25
EBT 1,443.00 926.96 1,807.69 3,117.59 620.42
Taxes 309.05 175.71 261.00 543.52 214.56
Profit and Loss for the Year 1,133.95 751.24 1,546.68 2,574.07 405.86
Non Recurring Items 105.45 11.80 -2.15 0.16 -0.1
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Other Non Cash Adjustments 30.16 2.01 33.05 0.36 1.24
Other Adjustments 0.02 -0.0 -29.81 -0.1 -1.14
REPORTED PAT 1,269.58 765.06 1,547.77 2,574.40 405.77
KEY ITEMS
Preference Dividend 0.00 0.00 0.00 0.00 0.00
Equity Dividend 339.51 339.48 339.44 681.93 340.97
Equity Dividend (%) 100.00 100.00 100.00 200.00 111.46
Shares in Issue (Lakhs) 16,975.72 16,973.91 16,972.09 17,048.33 15,294.21
EPS - Annualised (Rs) 7.48 4.51 9.12 15.10 2.65
Balancesheet - DLF Ltd.
Particulars Mar'11 Mar'10 Mar'09 Mar'08 Mar'07
Liabilities 12 Months 12 Months 12 Months 12 Months 12 Months
Share Capital 339.51 339.48 339.44 340.96 305.88
Reserves & Surplus 13,470.98 12,490.53 12,035.39 10,928.19 346.92
Net Worth 13,810.49 12,830.01 12,374.82 11,269.15 652.80
Secured Loans 14,700.70 11,590.19 7,979.97 4,945.91 6,242.81
Unsecured Loans 358.85 1,047.67 1,635.00 3,440.49 526.48
TOTAL LIABILITIES 28,870.03 25,467.86 21,989.79 19,655.55 7,422.10
Assets
Gross Block 2,143.37 2,002.85 1,968.40 1,533.72 365.58
(-) Acc. Depreciation 400.27 273.84 152.87 59.34 37.01
Net Block 1,743.10 1,729.02 1,815.52 1,474.37 328.57
Capital Work in Progress. 2,199.25 1,718.51 1,657.73 1,781.79 665.03
Investments. 7,037.24 6,558.88 2,956.32 1,839.83 769.17
Inventories 8,389.41 6,533.69 6,627.43 5,928.13 4,281.07
Sundry Debtors 270.21 607.96 212.89 930.18 173.79
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Cash And Bank 176.27 171.43 761.20 994.82 179.49
Loans And Advances 15,415.91 11,631.40 11,117.09 10,492.80 4,807.90
Total Current Assets 24,251.81 18,944.48 18,718.62 18,345.94 9,442.25
Current Liabilities 5,394.09 2,047.37 1,699.75 2,531.21 3,059.67
Provisions 967.27 1,435.66 1,458.64 1,255.16 723.25
Total Current Liabilities 6,361.36 3,483.03 3,158.40 3,786.38 3,782.93
NET CURRENT ASSETS 17,890.45 15,461.45 15,560.22 14,559.56 5,659.32
Misc. Expenses 0.00 0.00 0.00 0.00 0.00
TOTAL ASSETS (A+B+C+D+E) 28,870.03 25,467.86 21,989.79 19,655.55 7,422.10
Unitech
Unitech: Recently Ramesh Chandra, Unitechs Chairman hasdeclared the investment of $ 720 million by his company in the comingfour years to develop 28 hotels along with Marriott International. Themarket capitalisation of the company is Rs.16,867.40 crore.Its chiefactivities include construction, expansion of real-estate, consultancy inassociated sectors, hotels, electrical broadcast and informationtechnology.
Headed by: Ramesh Chandra, Executive Chairman
About: Established in 1972, Unitech is today Indias leading realestate developer in India. It is the first developer to have beencertified ISO 9001:2000 in North India.
Project Spectrum: Unitech offers diversified projects acrossresidential, commercial/IT parks, retail, hotels, amusement parks andSEZs segments. Unitech was the first real estate company to be partof the National Stock Exchanges NIFTY 50 Index. The company hasover 600,000 shareholders. Unitech and Norway based TelenorGroup came together to build Uninor - a telecommunication servicescompany providing GSM services across India.
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Latest: Has ventured into the infrastructure business by launchingUnitech Infra.
Capital Structure - Unitech Ltd.
Period Instrument Authorized Capital Issued Capital - P A I D U P -
From To (Rs. cr) (Rs. cr) Shares (nos)FaceValue
Capital(Rs. Cr)
2010 2011 Equity Share 800.0 523.3 2616301047 2.0 523.3
2009 2010 Equity Share 800.0 487.8 2438801047 2.0 487.8
2008 2009 Equity Share 800.0 324.7 1623375000 2.0 324.7
2007 2008 Equity Share 500.0 324.7 1623375000 2.0 324.7
2006 2007 Equity Share 200.0 162.3 811687500 2.0 162.3
2005 2006 Equity Share 25.0 12.5 12487500 10.0 12.5
2004 2005 Equity Share 25.0 12.5 12487500 10.0 12.5
2003 2004 Equity Share 25.0 12.5 12487500 10.0 12.5
2002 2003 Equity Share 25.0 12.5 12487500 10.0 12.5
2001 2002 Equity Share 25.0 12.5 12487500 10.0 12.5
2000 2001 Equity Share 25.0 12.5 12487500 10.0 12.5
1997 1999 Equity Share 25.0 12.5 12487500 10.0 12.5
1996 1997 Equity Share 25.0 12.5 12487500 10.0 12.5
1995 1996 Equity Share 25.0 12.5 12487500 10.0 12.5
1994 1995 Equity Share 25.0 12.5 12487500 10.0 12.5
1993 1994 Equity Share 15.0 10.9 10887500 10.0 10.9
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1992 1993 Equity Share 15.0 10.8 10804676 10.0 10.8
1991 1992 Equity Share 15.0 7.2 7208600 10.0 7.2
1990 1991 Equity Share 10.0 7.2 7208600 10.0 7.2
1989 1990 Equity Share 10.0 7.2 7208600 10.0 7.2
1988 1989 Equity Share 10.0 6.0 5992500 10.0 6.0
Holder's Name No of Shares % Share Holding
Promoters 1267023868 48.43%
Foreign Institutions 824924490 31.53%
General Public 343082921 13.11%
Other Companies 103423632 3.95%
Financial Institutions 58845042 2.25%
Foreign NRI 11357497 0.43%
Foreign Promoter 3822000 0.15%
Others 2275357 0.09%
NBanks Mutual Funds 1546229 0.06%
Foreign Ocb 11 0.00%
Profit & Loss - Unitech Ltd.
Mar'11 Mar'10 Mar'09 Mar'08 Mar'07
12
Months
12
Months 12 Months 12 Months 12 Months
INCOME:
Sales Turnover 1,340.41 1,849.49 1,767.27 2,486.79 2,441.74
Excise Duty 0.00 0.00 0.00 0.00 0.00
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NET SALES 1,340.41 1,849.49 1,767.27 2,486.79 2,441.74
Other Income 0.00 0.00 0.00 0.00 0.00
TOTAL INCOME 1,715.91 2,196.57 2,421.80 2,615.18 2,507.40
EXPENDITURE:
Manufacturing Expenses 884.14 920.51 568.06 981.25 853.98
Material Consumed 3.92 58.45 23.87 45.57 78.97
Personal Expenses 115.41 93.18 106.44 98.43 65.62
Selling Expenses 5.70 14.37 16.41 11.90 13.13
Administrative Expenses 94.14 64.70 49.83 64.51 42.35
Expenses Capitalised 0.00 0.00 0.00 0.00 0.00
Provisions Made 0.00 0.00 0.00 0.00 0.00
TOTAL EXPENDITURE 1,103.31 1,151.22 764.62 1,201.68 1,054.04
Operating Profit 237.10 698.28 1,002.64 1,285.11 1,387.69
EBITDA 612.60 1,045.36 1,657.17 1,413.51 1,453.35
Depreciation 6.68 5.95 10.04 8.58 4.54
Other Write-offs 0.00 0.00 0.00 0.00 0.00
EBIT 605.92 1,039.41 1,647.14 1,404.93 1,448.82
Interest 329.21 346.70 722.12 393.38 193.71
EBT 276.71 692.71 925.01 1,011.55 1,255.11
Taxes 218.09 171.13 216.98 334.83 361.27
Profit and Loss for the Year 58.62 521.58 708.03 676.72 893.84
Non Recurring Items 451.46 22.72 31.63 353.96 89.72
Other Non Cash Adjustments -1.84 -18.83 0.00 -0.3 0.44
Other Adjustments 1.84 18.83 0.00 0.38 -0.4
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REPORTED PAT 510.08 544.30 739.66 1,030.68 983.56
KEY ITEMS
Preference Dividend 0.00 0.00 0.00 0.00 0.00
Equity Dividend 26.16 48.78 20.44 40.58 40.58
Equity Dividend (%) 5.00 10.00 6.29 12.50 25.00
Shares in Issue (Lakhs) 26,163.01 24,388.01 16,233.75 16,233.75 8,116.88
EPS - Annualised (Rs) 1.95 2.23 4.56 6.35 12.12
Balance sheet - Unitech Ltd.Print
Particulars Mar'11 Mar'10 Mar'09 Mar'08 Mar'07
Share Capital 523.26 712.96 324.68 324.68 162.34
Reserves & Surplus 8,758.61 7,415.47 2,534.89 1,819.14 998.66
Net Worth 9,281.87 8,128.43 2,859.56 2,143.82 1,161.00
Secured Loans 3,566.83 3,907.54 5,931.02 5,506.45 2,839.67
Unsecured Loans 2,002.24 1,016.02 1,747.98 2,611.08 765.39
TOTAL LIABILITIES 14,850.93 13,051.99 10,538.56 10,261.35 4,766.06
Assets
Gross Block 154.27 151.09 148.63 132.05 99.87
(-) Acc. Depreciation 49.78 44.03 40.79 35.96 30.24
Net Block 104.49 107.07 107.84 96.08 69.63
Capital Work in Progress. 10,870.28 9,666.03 8,688.46 7,083.41 4,408.59
Investments. 2,054.02 1,654.15 1,954.94 1,397.99 518.93
Inventories 9.79 5.74 10.48 13.66 32.77
Sundry Debtors 1,679.67 1,007.74 793.00 739.74 97.55
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Cash And Bank 265.26 209.43 103.15 371.18 795.82
Loans And Advances 7,872.87 7,427.77 5,489.72 7,624.58 3,090.88
Total Current Assets 9,827.59 8,650.68 6,396.36 8,749.17 4,017.01
Current Liabilities 7,859.01 6,895.87 6,580.13 6,316.27 3,798.30
Provisions 146.44 130.07 28.91 749.03 449.80
Total Current Liabilities 8,005.45 7,025.94 6,609.04 7,065.30 4,248.10
NET CURRENT ASSETS 1,822.14 1,624.75 -212.67 1,683.87 -231.08
Misc. Expenses 0.00 0.00 0.00 0.00 0.00
TOTAL ASSETS (A+B+C+D+E) 14,850.93 13,051.99 10,538.56 10,261.35 4,766.06
Chapter No. 3
Trends in Real Estate
business
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Indian Real-estate industry has become one of the biggest investmentsectors over the past few years. Currently, it plays a major role in shaping
the countrys economy. This sector is witnessing a marked boon owing tochanging trends and developments. Some of the major factors responsiblefor the current upward movement of the Indian real estate graph are asfollows:
Steady expansion and development in the IT sector of India : InIndia there has been a constant expansion in the IT sector. VariousMNCs and corporate houses have come up that have given way to the
growth in the real-estate sector especially in the commercial propertysector. This has also provided better employment opportunities to thepeople of India and thus helping in the overall growth of the Indianeconomy and subsequently in the growth of the real estate.
Adoption of Foreign Direct Investment (FDI) policy: The growth inthe real estate sector of India largely depends on its government policies.Currently, the government of India has adopted Foreign Direct Investment(FDI) policy, which has allowed the coming in of the foreign investors inthe Indian real estate market. Some of the worlds famous builders aretaking keen interest in investing in the Indian real-estate market. Comingin of foreign builders promises better prospects in the Indian real estateindustry in terms of regulatory policy, efficient management, and the use
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of more advanced technology. This ensures that the Indian real estate hasa brighter future.
Easy access to bank loans: Today, various national andmultinational banks are present in India that has madethe home/property loans easily accessible. So, buying a property is notdifficult even for those belonging to middle-class. Thus, it has enabled theoverall growth of the Indian real estate.
Growth in Indian economy: Indian economy is one of the fastestgrowing economies of the world. It has a direct influence on the real-estate sector of India. Some of the major areas which have been greatlyaffected by the growth in Indian economy are Delhi NCR, Mumbai,Hyderabad, Chennai, Bangalore, Pune and Kolkata. This growth isobserved in all forms of property such as commercial, residential andindustrial.
Today, the investors from all the major sectors are getting attracted
towards the Indian the real-estate sector. This sector has become a centreof attention amongst all the corporate sectors of India. Owing to all therecent developments in the Indian real estate sector, it has moved fiveplaces upwards in world rankings.
The Indian economy has witnessed robust growth in the last few years and
is expected to be one of the fastest growing economies in the coming
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years. Demand for commercial property is being driven by India's economic
growth. Real estate in India contributes about 5 per cent to India's gross
domestic product (GDP). The total revenue generated in 2010-11 stood at
US$ 66.8 billion.
Demand is expected to grow at a compound annual growth rate (CAGR) of
19 per cent between 2010 and 2014Tier 1 metropolitan cities are
projected to account for about 40 per cent of this. Growing requirements of
space from sectors such as education, healthcare and tourism provide
opportunities in the real estate sector. FDI of more than US$ 9 billion was
infused in real estate in the last decade.
In 2010, over 11 per cent of total FDI in India was in the real estate sector.
There have been 110 deals in this sector during the period 2001 to the firsthalf of 2011.
Urban population has been increasing and is expected to cross 590 million
by 2030. Urbanization and growing household income are some of the
major factors that influence demand for residential real estate and growth in
the retail sector.
Investments
Real estate emerged as the popular sector for private equity funds whoinvested US$1,700 million in this sector during 2011. Private equity in real
estate projects will fetch considerable returns by next year-end or early
2013.
Some of the recent investments in this sector are mentioned below:
Sahara India has joined hands with the US-based Turner Construction
Company. The JV, Sahara Turner Construction, will build integrated
townships called Sahara City Homes and other Sahara India projects inIndia worth US$ 25 billion over the next 20 years
DLF acquired the additional 26 per cent stake in its joint venture company
DLF Hotels & Hospitality Ltd (DHHL)from Aro Participation Ltd and
Splendid Property Company Ltd, affiliates of Hilton International. At
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present, the company holds 74 per cent equity in DHHL
Pride Group of Hotels, which owns a chain of upscale mid-market and
business hotels is planning to set up a series of new properties and this will
involve an investment of Rs 1,000 crore (US$ 203.18 million) over the nextfew years. The company plans to have a mix of owned and managed
properties having 3,500 rooms by 2015-16
Government Initiatives
The foreign direct investment (FDI) up to 100 per cent is allowed with
Government's permission for developing townships and settlements
New home loan borrowers of up to Rs 1.5 million (US$ 30,477) will get Rs
14,865 (US$ 302) as interest subsidy from the Government, on thecondition that the cost of the house should not exceed Rs 2.5 million (US$
50,798)
Allowing 100 per cent FDI under the automatic route in development of
Special Economic Zones (SEZ), subject to the provisions of Special
Economic Zones Act 2005 and the SEZ Policy of the Department of
Commerce
In the Union Budget 2011-12, Mr Pranab Mukherjee, Union FinanceMinister presented various initiatives for the real estate sector, especially
focusing on affordable housing. Some of these initiatives are listed below:
Increasing the limit on housing loans eligible for a 1 per cent subsidy in
interest rates. Widening the scope for housing under "priority-sector
lending" for banks, making interest rates cheaper on them
Allocating substantial amount to the Urban Development Ministry for
spending on extension of Metro networks in Delhi, Bangalore and ChennaiEarmarking US$ 20.03 million for the urban infrastructure development
project. The Urban Development Ministry received US$ 1.5 billion, an
increase of US$ 68.53 million from the last fiscal 2010-11
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Road Ahead
Real estate plays an important role in the Indian economy. This sector
happens to be the second largest employer after agriculture and is
expected to grow at the rate of 30 per cent over the next decade. The sizeof the Indian real estate market is expected to touch US$ 180 billion by
2020.
The housing sector alone contributes to 5-6 per cent of the India's GDP.
Retail, hospitality and commercial real estate are also growing
considerably, providing the much-awaited infrastructure towards India's
growing needs.
According to a study by ICRA, the construction industry in India ranks 3rd
among the 14 major sectors in terms of direct, indirect and induced effects
in all sectors of the economy. A unit rise in construction spending
generates five times the income, having a multiplier effect across the
board. With backward and forward linkages to over 250 ancillary industries,
the positive effects of real estate growth spread far and wide. Therefore,
real estate acts as a catalyst for adding momentum to growth of the Indian.
New Delhi: The current global scenario might be one of gloom, with
markets in the US and in Europe on the brink of a double dip recession, but
interest in Indian real estate is still high among global investors, said Carlo
Barel di Sant' Albano, chairman of the board of global property advisory
firm Cushman & Wakefield. "If a private equity player with a good track
record comes up with a project in India, he will still find capital," he says. Of
course, the time taken to raise money has increased, as many international
investors are averse to investing at the moment. "But it is clear from all theinvestors we speak to that they are trying to figure out how to put money in
this part of the world, even today,"
Today Asia is a very critical part of any corporate or investors' strategic
plan. For Albano, India is at the centre of that strategy, alongside China
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because of its size and growth prospects. "If you look at the growth
prospects in other parts of the globe, given what is happening in the US
and in Europe, Asia is clearly an important driver for growth in the future,"
says Albano. Over the next few years, investor confidence in India is
expected to improve, as transparency and regulation improve. "This willpush more capital into real estate," he says. In India, foreign direct
investment in real estate already ranks fourth among other sectors, which
is a fairly high position considering the regulations that exist for FDI in real
estate. When one talks about investments, a comparison between India
and China is inevitable.
Albano points out that China is ahead in terms of investment in
infrastructure and India has some catching up to do in terms of
infrastructure. "This scale in different cities in China provides extra flexibility
and a bigger canvas for investors." India, on the other hand, is ahead in
terms of availability of human capital.
Gross Domestic Product : Housing, Real Estate Services andConstruction
(at 1993-94 prices) (Figures In Rs Crore)
Year 1993-
94
1994-
95
1995-
96
1996-
97
1997-98 1998-99 1999-00
Housing 43,507 44,706 45,958 47,252 48,585 49,968 51,391
Real EstateServices
317 333 351 370 390 413 437
Construction 40,593 42,830 45,496 46,452 51,195 54,342 58,728
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Total 84,417 87,869 91,805 94,074 1,00,170 1,04,723 1,10,556
Gross Domestic Product : Housing, Real Estate Services andConstruction
(at 1993-94 prices) (Share in Per Cent)
Year 1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
Housing 5.6 5.3 5.1 4.9 4.8 4.6 4.5
Real EstateServices
0.04 0.04 0.04 0.04 0.04 0.04 0.04
Construction 5.2 5.1 5.1 4.8 5.0 5.0 5.1
Total 10.8 10.5 10.2 9.7 9.9 9.7 9.6
Source : National Accounts Statistics 2001
Price Variations in Different cities
Price variations in Mumbai
MUMBAI MAR-04 MAR-05 MAR-06 MAR-07 MAR-08
CuffeParade
11500 18000 25000 35000 42000
Malabar Hill 15000 22000 28000 38000 46000
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Worli 8500 12000 18000 26000 32500
Bandra
(west)
8500 10000 13500 21500 26500
NaviMumbai
1 800 2300 2800 3500 5500
Price variations in Delhi/NCR
Delhi/NCRMAR-04 MAR-05 MAR-06 MAR-07 MAR-08
ShantiNiketan
1150015000 18000 22500 27000
Vasant Vihar 1100014500 17000 21000 26500
FriendsColony
60008000 10000 13500 18000
Gurgaon 2 0002500 3700 4850 6100
Nodia 2 000
2800 3700 4900 6850
Impact of Union Budget 2012 On The Mumbai Real EstateMarket
The Positiveso By allowing external commercial borrowings (ECBs) in the low-cost
housing segment, the supply of affordable housing projects willincrease in the outskirts of Mumbai in areas such as Karjat, Boisar,
Nalasopara, Virar, Dombivali etc. on the heels of increased liquidityfor budget home projects.
o The extension of 1% interest subvention scheme on housing loans upto Rs 15 lakh wherein the cost of the house does not exceed Rs 25
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lakh, for another year will also help sustain demand for affordablehousing in Mumbai.
o The increased allocation for highways and other infrastructure
projects will help boost development of Mumbais outskirts andincrease the supply of housing units there. This will result in pricestability and affordability over the long term. The investment-linkeddeduction of capital expenditure in affordable housing, proposed tobe raised to 150% from 100%, will also encourage more supply oflow-cost housing in the city.
o The reduction of the withholding tax on ECB interest from 20% to 5%will help Mumbais affordable housing segment by creating much-
needed liquidity for budget home developers. End users will havemore money available for home loans with the setting up of a creditguarantee trust fund to ensure better flow of institutional credit forhousing loans.
o The announcement of central assistance and Japanese participationin the Delhi-Mumbai Industrial Corridor project is a big plus. Areas onMumbais outskirts that lie along the corridor will see increased landvalues.
o By reinforcing the tax pass-through status for all types of VentureCapital Fund (VCFs), there will be renewed confidence levels of realestate private equity investors to invest in cities such as Mumbai(which has seen most of the PE investments post the GlobalFinancial crisis.)
The Negatives
o The overall cost of apartments in Mumbai is likely to go up becauseof the hike in service tax from 10% to 12%. This will render realestate in the city even less affordable bad news for those who werewaiting until the budget before buying homes.
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o The requirement of deduction of tax at source at the rate of 1% onpayment of consideration for purchase of an immovable property willimpact the cash flows of real estate developers.
o The lack of a decision on FDI in multi-brand retail will furtherdiscourage developers from constructing malls in the city. This willlead to increased rentals in existing malls which are performing well.It will also delay re-tenanting and re-positioning of existing failedmalls.
o The budget made no mention of re-introducing the 80 IB (10) taxbenefit scheme for smaller-sized units. This would have helped
developers reconfigure and offer smaller units, which is the need ofthe hour in Mumbai.
o Nor were any new tax exemption schemes for IT/ITES companiesmentioned. Such exemptions would have increased demand for thevacant IT parks all over Mumbai.
o The finance ministry ignored the urgent need for an increase in the
limit on tax deduction available on home loans interest from presentRs 1.5 lakhs.
o There was also no indication of the real estate sector being grantedindustry status, which would have brought down the borrowing costfor developers thereby reducing home prices in Indias mostexpensive city.
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Chapter No. 4
Impact of Dubai crisis onReal Estate business
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Following the passage of the long-awaited foreign property ownership lawin March 2006, a deluge of foreign money boosted Dubais ambitions.Europeans, including Russians, accounted for 20% of the buyers of allproperty categories. GCC, Arab nationals and UAE nationals make up28%, Asians 40%, and Iranians 12%, according to figures from GlobalRealty Partners . The overall foreign ownership index of property keptby Colliers International soared 116% from Q1 2007 to Q3 2008.From 2002 to 2008, Dubais property prices almost quadrupled, and large-scale developments turned Dubai into one of the fastest growing cities in
the world. Some of the biggest projects include Jumeirah Garden City(estimated cost: US$95 billion), Dubailand (US$64 billion), The Lagoons(US$25 billion), Palm Jumeirah (US$14 billion), and The World (US$14billion).
Then the global credit crunch hit. Amlak and Tamweel, the UAEs twolargest home finance companies, stopped offering new loans. The twomortgage lenders accounted for more than 50% of all mortgages in thecountry.Foreign investors suddenly disappeared at the end of 2008, as theglobal financial crisis hit the emirates. This caused transaction volumes to
plummet. The overall foreign ownership index was 50% down by Q4 2010,from its peak in Q3 2008. Almost half of all the construction projects in theUAE, worth around AED1.1 trillion (US$582 billion), have been either puton hold or cancelled, in response to falling demand and deterioratingmarket conditions. The table lists some of the megaprojects being delayedor cancelled:
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Universal City Dubailand Dubailand 2.2 billion On hold
Emerald
Gateway
Along Coast Road,
between Abu Dhabi
downtown and AbuDhabi International
Airport
Abu Dhabi
Municipality 1.9 billion On hold
Aqua Dunya Dubailand Dubailand 1.8 billion On hold
Dolphin CityIsland near Abu
Dhabi
Emirates
German Group1.7 billion On hold
Nad El ShebaRace course
5-km southeast ofDubai
Meydan LLC 1.3 billion Cancelled
Al FalahOutskirts of Abu
DhabiAldar Properties
0.72
billionOn hold
Falcon City
of WondersDubailand ETA Star
0.68
billionCancelled
DubaiExhibition City
Within the Jebel AliAirport City
n/a 0.45billion
Cancelled
However, with the economy already returning to growth, construction onsome halted projects is expected to resume by end-2011.
In an effort to help the market, the government has announced overAED165.25 billion (US$45 billion) worth of future projects, which includesinvestment in transport infrastructure. This is expected to create more jobsand increase demand for real properties.
New benchmark rate introduced
Mortgage interest rates in Dubai have, in the past, followed key US Fedrates, because of the peg to the US dollar. The dirham (AED) is pegged to
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the US dollar at AED3.67 = US$1. In 2008, when the Fed successively cutkey rates, the UAEs central bank was forced to track US monetary policy,causing inflation to hit a record high of 12.9%.
The Central Bank of the UAE set its first benchmark interest rate (overnightrepurchase rate) at 4.75% in September 2007. The new repo rate gives thecountry slightly more flexibility in responding to changes in the US Fedfunds rate.
In January 2009, UAEs benchmark rate was reduced to 1%, from 1.5% inDecember 2008, to mitigate the impact of the global meltdown.
Mortgage lending stops
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The UAEs mortgage market has expanded rapidly in recent years. Totalreal estate mortgage loans grew from 4.1% of GDP in 2001, to 15.2% ofGDP in 2008. In September 2008, total outstanding mortgage loans rose bya spectacular 97% to AED115.7 (US$31.5) billion from December 2007.
Then the global credit crunch hit. Banks and other mortgage lendersimposed tighter lending criteria; they increased interest rates, and reducedLTV ratios.
Amlak and Tamweel, the UAEs two largest home finance companies, havestopped offering new loans. The two mortgage lenders accounted for morethan 50% of all mortgages in the country.
Government to the rescue!
In September 2008, the UAE government made AED120 (US$32.7) billionavailable to shore up bank liquidity. In February 2009, Abu Dhabiannounced an additional AED16 (US$4.36) billion cash injection into theemirates five banks.
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"The first and most important agenda priority for the UAE is to fix theliquidity problem so that the banks can start lending again," notes aStandard Chartered Bank report. Government measures were insufficient,
it added, saying at least AED100 (US$27) billion more is needed to kick-start lending.
The government is also widely expected to help the real estate market.Now theres a role for the government to stimulate the (real estate) sectoras it did with the banking sector. It must stimulate the constructioneconomy, said Fatima Obaid Al-Jaber, CEO of Al Jaber Group.
Rent caps and the new rental index
In 2006, the peak of the property boom, the government introduced a rentcap of 15%, to control rent increases. Then in 2007, the rent cap wastighted to 7%. In 2008, the rent cap was again reduced to 5% in an effort tocurb inflationary pressures.
In January 2009, Dubais Real Estate Regulating Agency (RERA) unveileda new rental index to replace rent caps. Following this a new rental law wasreleased, establishing the rental index as a benchmark for rent increases.
In the Greens, the rental index places the annual rent of 2BR apartments
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between AED168,000 (US$45,777) and AED180,000 (US$49,046), and 3-
BR apartments at a range of AED200,000 (US$54,496) to AED260,000
(US$70,845). In the Arabian Ranches,rents for 4-BR villas vary between
AED320,000 (US$87,193) and AED350,000 (US$95,368).
In Jumeira Lake Towers, 3-BR apartments cost between AED240,000(US$65,395) to AED350,000 (US$95,368). In Marina, 3-BR apartmentsvary from AED220,000 (US$59,946) to AED300,000 (US$81,744).In Mankool, 3-BR flats rent for AED150,000 (US$40,872) to AED200,000(US$54,496) annually.
Rents and yields falling
Even the rental market is cooling. Homeowners unable to sell propertiesare renting units out, causing the supply of rental houses to rise sharply.
Rents for residential properties dropped 25% in 2008 from the previousyear, according to some estimates. Dubais most prestigious locations, likeDowntown Burj Dubai and Palm Jumeirah, were the worst hit, with rentsplunging as much as 33%.
Prices and rents in Dubai have both declined very significantly since ourlast survey in September 2009 and even then, they had fallensignificantly from 2008, according to research conducted by the GlobalProperty Guide. Prices for apartments typically range from aroundUS$3,700 to US$4,200, except on the very largest apartments, which are
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somewhat less highly priced. This compares with a range of US$6,650 toUS$7,300 at the peak of the boom.Overall, gross rental yields in Dubai are moderate at around 5.6% to 6.5%.
Yields for smaller-sized apartments have moved up, but not those for
larger-sized apartments
New index shows Abu Dhabi price falls
According to a new property index launched recently by the real estate
agents Cluttons, prices in Abu Dhabi were down by around 12% in the lastquarter of 2010 from the previous quarter.
The new index shows comprehensive price data for both villas andapartment sales over the past year. The index is based on prices andtransactions in ten leading residential areas in Abu Dhabi. Propertiesincluded were categorized into high-end (e.g. Raha Beach), medium (e.g.
Al Reef), and low end (e.g. Mohammed Bin Zayed City) according tospecification.
An important feature of the Index is that it only considers valuations andsales achieved, and excludes new launches, that are typically pricedhigher. This helps it reflect the real story and act as a true barometer of thestate of the market, said Harry Goodson Wickes of Cluttons.
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UAEs mortgage market springs back to life!
Perhaps surprisingly, banks and other mortgage lenders in the UAE arereturning to the market and offering new mortgage products.Tamweel , oneof the largest Islamic mortgage lenders, is back in the market, havingstopped trading its mortgage shares in November 2008 due to the globalcredit crunch.More fixed-rate mortgage products have been introduced. In addition, feefree products, which allow borrowers to switch to a new lender at a lowercost, have been offered starting during the last quarter of 2010.
The UAEs mortgage market has expanded rapidly in recent years.Mortgage loans grew from 4.1% of GDP in 2001, to 14.7% of GDP in 2010.In December 2010, total outstanding mortgage loans rose by 15.2% to
AED163.2 billion (US$44.44 billion) from December 2009. Loan-to-value(LTV) ratios are also increasing again, with some lenders offering as muchas 80% LTVs on some projects. In the first quarter of 2011, mortgage loans
were offered with interest rates ranging from 5.8% to 6%.
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Rent control survives, alas
In 2006, the peak of the property boom, the government introduced a rentcap of 15%, to control rent increases. Then in 2007, the rent cap wastightened to 7%. In 2008, the rent cap was again reduced to 5% in an effortto curb inflationary pressures.
In January 2009, Dubais Real Estate Regulating Agency (RERA) unveileda new rental index to replace rent caps. Following this a new rental law was
released, establishing the rental index as a benchmark for rent increases.
Then in January 2011, RERA issued Decree No. 2, allowing adjustmentof the rental index tables every four months to keep the rental values up-to-date which will also help in capping the rental rates.Landlords and real estate leasing companies are required by RERA toregister rental contracts on the newly-established e-registration portalsystem, the Ejari System , or face penalties for non-compliance. This will
enable the authorities to track the movements of rental values in Dubai andto construct a full and accurate picture of the market. In addition, RERAintroduced a rental increase calculator to assist tenants and landlordscompute their rent cap figures.
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On the other hand, in Abu Dhabi, the 5% rent cap was kept unchanged in2011 from last year, according to theAbu Dhabi Executive Council . Inaddition, some amendments were issued to laws concerning the tenant-landlord relationship. These include:
A lease will now be automatically renewed at the end of thecontract period unless either party requests it terminated before then.
The notice period to vacate a property is two months before theend of the contract term for residential properties.
Rents still falling
Residential rental rates are still falling. Homeowners unable to sellproperties are renting units out, causing the supply of rental houses to rise
sharply. Based on the latest report released byAsteco , a propertymanagement company:
In Dubai, apartment rents dropped by about 3% in Q4 2010from the previous quarter, and 17% from the same period last year
In Abu Dhabi, apartment rents fell by 7% q-o-q in Q4 2010, and16% to 30% from a year earlier
Annual rents in Q4 in Dubai ranged from AED23,000 (US$6,263) toAED120,000 (US$32,679) for one-bedroom apartments, to fromAED70,000 (US$19,063) to AED190,000 (US$51,742) for large three-bedroom apartments, according to Asteco.
On the other hand, annual rents in Abu Dhabi in Q4 ranged fromAED35,000 (US$9,531) to AED130,000 (US$35,402) for one-bedroomapartments, to from AED70,000 (US$19,063) to AED260,000 (US$70,804)for three-bedroom apartments.
Rents in specific developments:
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GDP growth for UAE was 3.2% in 2010, after a 3.15% contraction in 2009.
Economic recovery is expected to continue in 2011 with GDP growth of3.3%, which is of course far below the 9.3% average annual GDP growthprevailing from 2003 to 2008. Higher oil production and prices are expected
to boost the economy in 2011. Abu Dhabis economy is expected to grow by 3.8% in 2011,according to theAbu Dhabi Chamber of Commerce and Industry . Dubais economy is expected to expand by up to 5% in 2011,according to the Dubai Chamber of Commerce and Industry .
Inflation is expected to rise to 4.5% in 2011, due to higher commodity
prices. Although higher than the level in 2009 and 2010 (at 0.9% and 1.6%,respectively), this inflation rate is benign compared to the average inflationrate of 9.7% from 2005 to 2008.
The UAEs property market, which suffered one of the biggest crashesduring the global crisis, is gaining momentum. House prices have fallen byaround 60% from their Q4 2008 peak, according to Jones Lang LaSalle,but positive economic growth, strong government support, and mortgagelenders returning to the market are helping property prices stabilize, though
local analysts are generally pessimistic about future price prospects.The residential property price index rose slightly by 0.8% in Q4 2010 fromthe previous quarter, down 6% on a year earlier, according to ColliersInternational Middle East .During Q4 2010:
House prices rose by 0.9% during the quarter to AED10,344(USD2,817) per sq. m. (6% down on the year).
Apartment prices were unchanged during the quarter at
AED11,344 (USD3,089) per sq. m. (5% down on the year). Villa prices rose 3.3% during the quarter to AED 9,666(USD2,632) per sq. m. (2% down on the year).
Townhouses fell 3.3% during the quarter to AED 7,546(USD2,055) per sq. m. (21% down on the year).
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The total number of property transactions increased by 5% in Q4 2010 fromthe previous quarter, according to Colliers. Of the total Q4 transactions,villas constituted about 45%, followed by apartments (37%) andtownhouses (18%).
During 2010 real estate transaction values in Dubai plunged 65%,according to Jones Lang La Salle . And while demand fell, oversupply kepton rising. In Q3 2010, less than 600 transactions were completed,significantly down from 1,200 during the same period in 2009.
The completion of 36,000 housing units in Dubai in 2010 hassqueezed prices down.
The anticipated completion of 25,500 units in 2011 is expectedworsen the glut of residential properties.
Chapter No. 5
Conclusion
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The Real Estate explosion in the Indian real estate is in large part due to
the by the burgeoning outsourcing and IT and BPO industries, which are
bringing large amounts of cash. The underlying reason for all these moves
is that the Indian real estate is tremendously attractive, because of basic
demographics and a supply shortage. Truly Indian real estate is having adream run for last five years. Though there is a sort of saturation in the Tier
1 cities but the good news for Indian real estate is that Tier II cities started
growing with the IT Sector and the industrial sector investing in such
places. Thus Indian real estate is poised for a boom, taking the rest of the
economy with it.
The main problems of Dubai real estate werent really about the credit
crunch or lack of availability of funds. The main reason why the things
turned out that way in Dubai were lack of proper laws and regulations to
control the different market forces. Capitalism even under its freest form is
regulated and checked by laws in every country to ensure everyones rights
have been guarded.
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The notion that Indian real estate is expensive is based more on the cost of
undeveloped land, which is becoming a scarce commodity, than finished
residential or office space, which is still available at reasonable prices in
most places, except maybe places like Marine Drive in Mumbai or
Connaught Place in Delhi. Indian Real Estate will remain bullish for theforeseeable future.
ANNEXURE
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BIBLIOGRAPHY
http://www.google.com
http://www.wikipedia.com
http://www.managementparadise.com
http://www.investopedia.com/.
http://www.moneycontrol.com/
http://www.google.com/http://www.wikipedia.com/http://www.managementparadise.com/http://www.investopedia.com/http://www.moneycontrol.com/http://www.google.com/http://www.wikipedia.com/http://www.managementparadise.com/http://www.investopedia.com/http://www.moneycontrol.com/