REAL ESTATE SECTOR IN INDIA

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Contents
Growth in Real Estate Sector Why to Invest In Indian Real Estate Sector Opportunity of Investor in Indian Real Estate Sector Integrated Township Retail Sector and Real Estate Sector Latest trends of FDIs and Guidelines for FDIs Real Estate Mutual Funds Special Economic Zones (SEZs) Key trends in Real Estate boom Major players References Websites

Growth in Real Estate

Investment of US$320 billion required in next five years in infrastructure.
Real Estate sector is registering an annual growth rate of 30%. Investment of US$ 16 billion expected over the next five to six years in Real Estate. Credit to the housing sector has continued to be strong and benefited from low interest rates and incentives.

Growth in Real Estate (Contd.)

1.1% of the GDP constitutes FDI in real estate sector. Returns in India range between 12-15% compared to 3-4% in the advanced countries. Merrill Lynch forecasts that the Indian real estate sector will grow from US$ 12 billion in 2005 to US$ 90 billion by 2015.

Why Invest in Indian Real Estate Sector

The Economy is growing with GDP Rate 9.2% IT, ITES and Business Process Outsourcing (BPO) India has shown its expertise in sectors like auto-components, chemicals, apparels, pharmaceuticals and jewellery where it can match the best in the world. Presence of a large number of Fortune 500 and other reputed companies India is going to produce an estimated 2 million new graduates from various Indian universities during this year, creating demand for 100 million square feet of office and industrial space.

Opportunity in Indian Real Estate Sector

Commercial Ventures Retail Outlets and Malls Sprawling Malls and Multiplexes Building of Apartments In Hotel Industry

Integrated Townships
Central Government permitted setting up integrated townships at the following places: Gurgaon (Haryana) Hyderabad (Andhra Pradesh) Mohali (Punjab) Jaipur (Rajasthan) Bangalore (Karnataka) Kolkata (West Bengal)
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Retail and Real Estate Sector

Spurt in extremely large retail spaces. Shopping malls with over 1 million sq ft of space have become the order of the day. About 20 of these are now at various stages of construction across the country. In the National Capital Region (NCR), Unitech's Great India Place has a million square feet (sq ft) of retail space. In Mumbai, at least 8 malls with over 1 million sq ft. each. In Bangalore, at least 3 malls with similar dimensions are under development. Ludhiana will soon have a 1.6-million sq ft mall by Today Homes.

Latest Trends Of FDIs

100% FDI is allowed under automatic route in townships, housing, built-up infrastructure and construction-development project (including but not restricted to housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities and regional level infrastructure), subject to certain conditions. FDI up to 51% is allowed through FIPB route in single brand retail shops.
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Guidelines for FDI in Real Estate

Minimum area to be developed under each project would be as under: In case of development of serviced housing plots, a minimum land area of 10 hectares In case of construction-development projects, a minimum built-up area of 50,000 sq.mts In case of a combination project, any one of the above two conditions would suffice
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Guidelines for FDI in Real Estate

The investment would further be subject to the following conditions: Minimum capitalization of US$ 10 million for wholly owned subsidiaries and US$ 5 million for joint ventures with Indian partners. The funds would have to be brought in within six months of commencement of business of the Company. Original investment cannot be repatriated before a period of three years from completion of minimum capitalization. However, the investor may be permitted to exit earlier with prior approval of the Government through the FIPB. 11

Guidelines for FDI in Real Estate

At least 50% of the project must be developed within a period of 5 years from the date of obtaining all statutory clearances. The investor would not be permitted to sell undeveloped plots.

Undeveloped Plots, here will mean where roads, water supply, street lighting, drainage, sewerage, and other conveniences, as applicable under prescribed regulations, have not been made available. It will be necessary that the investor provides this infrastructure and obtains the completion certificate from the concerned local body/service agency before he would be allowed to dispose of serviced housing plots.
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Real Estate Mutual Funds (REMFs)

SEBI has recently approved the scheme of REMFs/ This scheme has an objective to invest directly or indirectly in real estate property. The units of REMFs will be compulsorily listed in stock exchanges and Net Asset Value (NAV) of the scheme will be declared daily. SEBIs has permitted to mutual funds companies to launch REMFs. It announced that all REMFsplans will be close ended.
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REMFs (Contd.)
REMFs can invest directly in real estate properties within India, mortgage (housing lease) backed securities, equity shares, bonds, debentures of listed and unlisted companies, which deal in properties and also undertake property development and in other securities.
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Special Economic Zones (SEZs)

SEZ is a specifically delineated duty free enclave and is deemed to be foreign territory for the purposes of trade operations and duties/tariffs. To augment infrastructure facilities for export production it has been decided to permit the setting up of SEZs in the public, private, joint sector or by the State Governments. SEZ Act 2005 has now come into effect. SEZ Rules 2006 were also issued in February. The above Act and Rules enable India to leverage SEZs, like many East-Asian economies, to push investments and growth to a higher level. Details at: www.sezindia.nic.in 15

SEZs (Contd.)

So far 63 SEZs are functional.

237 SEZs have been approved.

Total investment in SEZs is expected to be over US $ 8.8 billion in the next five years.
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Key trends in real estate boom

Legislation Transaction Costs Absence of REITs and REMFs Land Acquisition Lack of corporatization

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Major Players
Real Estate Developers DLF Universal OMAXE Ltd.

ANSAL BUILDWELL Ltd

REVFs/REMFs Indian companies: IDFC, Kotak Mahindra, Dewan Housing Finance, HDFC, etc. Foreign companies: Blackstone, Dawnay Day, Savvils, Macquarie Bank, etc.
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Major Players
Citigroup is investing around $400 million of equity from a recently raised fund in India. Hilton Hotels Corporation (HHC) has announced a joint venture company with DLF Ltd to develop and own 75 hotels and serviced apartments over 7 years. Dawnay Day International, the UK-based investment company, plans to invest US$ 1.5 billion in Indian real estate in the next two years.
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References Websites
www.indianground.com www.indianrealestateforum.com www.assocham.org

www.sezindia.nic.in

REAL ESTATE IN INDIA

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