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GLOBAL SCHOOL OF MANAGEMENT SCIENCE

FINANCE PROJECT ON“INDIAN REAL ESTATEINDUSTRY”

SUBMITTED BYSAM SUJEET MBA (PGPM)

INTRODUCTION

GLOBAL SCHOOL OF MANAGEMENT SCIENCE

The last five years in Indian real estate constituted a one-off boomperiod triggered by the emergence of India as a global investmentdestination. This is a general phenomenon that every sector goesthrough before maturity - we can compare it to the boom of 2000-2001or the stock market boom of 2007-2008. The end always comes as asurprise, and can never be accurately predicted. This is not to say that the good times have come to an end - the realestate industry is one of the basic industries of any economy and willalways be an important component. In times ahead, we will see theindustry revive and accelerate, though through smaller and shortercycles. We already know that every industry has a life cycle of explosive growth, stabilization and maturity, followed by moderategrowth. Real estate used to be a niche industry in terms of stockmarket exposure and private equity funding a now, it will emerge alarger, more-organized industry with realistic growth in line with theGDP, and it will represent a better and more sustainable valueproposition.Over the past six months, the real estate industry in India underwentand continues to undergo various changes. Now that the popular mythof India being a decoupled economy is finally broken, we are facedwith new challenges that will see the progression of the industry intothe next phase of a general industry cycle.It is historically established that as an industry matures, it gives way tofewer and stronger players who help to bring some sense in theindustry. The coming months will see consolidation in an industry thatis on a journey towards equilibrium price discovery, resulting in a win-win for both the developer and the end-user. Developers may not getthe high margins which they were used to, but they can still makemoney through higher volumes and a faster cash cycle.Consolidation will happen at different levels. Primarily, however, wewill witness it at the national as well as regional levels - there will beniche-specialized players who are experts in local municipal approvalprocesses, as well as national players who operate with a much largerfocus. This consolidation will mark the extinction of the fly-by-the-nightoperators who had entered the industry and had made it deviate fromits fundamentals. The projection of India needing approximately 22 million units stillholds true. Therefore, demand still exists, and increasing affordability

GLOBAL SCHOOL OF MANAGEMENT SCIENCE

in housing will help tap this demand. Also, affordability has totranscend the current far-flung locations and kick in at the suburbanlevels, closer to CBD areas.Currently, developers must not only complete projects under executionbut also re-strategize to sell them quickly. Once they get out of theexisting inventory and execution pipeline, they can look at new landparcels and new business ideas such as affordable housing andinnovate. While there is certainly demand, it is essential for thisstrategizing to take place, so that affordable housing schemes becomea win-win for both developers and end-users.

SOME OF THE HALL MARKS FOR FUTURE

1.The advent of affordable housing2.Increased consolidation, corrected valuations and a focus on deliveryto exist3.Decreased leverage4.Decreased land banking5.Increased focus on execution and timely delivery to gain end-userconfidence6.Emphasis on and more focused expansion in Tier-I and Tier-II cities,where demand is already proven7.Decrease in speculative supply in commercial real estate8.A better comprehension of the fact that buyers and sellers interestsneed to match for the market to exist9.Players re-examining their valuations to make sound acquisitiondecisions10.The return of the fundamental market focus An industry survivesbecause of the users, and not vice-versa. 2009, especially the secondhalf, will bring excellent bargains for investors, as well as to those whohave a medium-to-long term view on the industry and the necessaryrisk appetite. Much will depend on being bang on target in terms of location, product and entry valuation.