REAL ESTATE INDIA

SECTOR

IN

high interest rates and transfer taxes. accompanied by increased demand for hotel accommodation and improved infrastructure . commercial and retail real estate is rising estate throughout India. accompanied by various regulatory reforms. These reforms include: • • • • Government of India support to the repeal of the Urban Land Ceiling Act. the real estate sector in India has exhibited a trend greater towards organisation and transparency. lack of uniformity in local laws and their non-availability of bank financing. Historically.2 The trend towards greater organisation and transparency has contributed to development of reliable indicators of value and the organised investment in the the real sector by domestic and international financial institutions. such as the absence of a centralized title registry providing title guarantee. particularly in the services sector. In recent years however. Regulatory changes foreign investment are expected to further increase investment in the permitting real estate sector. . increased and the introduction of new real estate products and globalization services. stimulated demand for land and developed real estate across the real which has industry. Demand for residential. The nature of demand is also changing. since India is emerging as an important business location. Its economic transformation over the past decade has pushed up real GDP growth to an average of 6 per cent per annum 1992. Its favourable demographics and strong economic growth make the country attractive place for property investors. INDIA’S SECTOR 1. the real estate sector in India was unorganised and characterized by factors various that impeded organised dealing. of transparency in transaction values. with heightened Indian consumer expectations that are influenced by higher disposable incomes. nine state governments having already repealed the with Act Modifications in the Rent Control Act to provide greater protection homeowners wishing to rent out their to properties Rationalization of property taxes in a number of states The proposed computerization of land records 1. given that demand for property is an determined business development and demographic chiefly by trends. India is the second most populous country after and it China is expected to overtake it by 2030.1 Overview REAL ESTATE With around 1. Demand Drivers These trends have benefited from the substantial recent growth in the Indian economy. and the lack application.1 billion people. and has also resulted estate the in greater availability of financing for real estate developers.1.

which they expect will result in increased demand commercial space. the Indian off shoring operations of companies are multinational expected to increase demand for commercial space. 10 million per year.2. and in excess of Rs. income with annual incomes between Rs. heightened expectations. classes m 5 illion and Rs. as well as increased urbanisation and growing number of nuclear customer families. 1. The trend for these companies has been to set up world class business centres to house their growing force. for Within the IT and ITES sectors. the tax and other benefits applicable to Seas are expected to result in a ew source of real estate demand. a rapidly growing middle class. from to increase 2005 fiscal to fiscal 2010. particularly in the IT ITES and sectors. respectively. assisted by the rising penetration of housing finance and favourable next incentives tax . work India continues to lead the AT Kearney Offshore Location Attractiveness Index a by significant margin. low interest rates. 25 per cent and 28 per cent. Industry sources expect the IT and ITES sectors to continue to grow and generate additional employment.1 Residential Real Estate Development The growth in the residential real estate market in India has been largely driven by disposable incomes. 2 million and Rs. . 10 million per year are expected in size by 23 per cent. Rs.Additionally. 5 million per year. The residential sector is expected to continue to demonstrate robust growth over the five years. According to National Council of Applied Economic Research (NCAER). These higher income households are expected to be the target customers for the luxury and super luxury residential developments.2.2 Commercial Real Estate Development The recent growth of the commercial real estate sector in India has been fuelled by increased revenues of companies in the services business. fiscal incentives rising on both interest and principal payments for housing loans. n 1.

duties and tariffs.4 Hospitality Industry The hotel industry in India has grown as a result of a growing economy. The general increase in room rates and occupancy rates is expected in to contribute significantly to the demand for new hotel developments. where the rates have more than doubled. While organised retail has so far been limited to larger cities in the country. The growth of organised retail in India will also be affected by smaller the reported entry into the sector of major business groups such as Reliance. The growth of organised retail is expected to per driven by demographic factors. Hindustan Lever. The major organised retailers in India currently include Tata-Trent. the average With room in metropolitan markets have grown by approximately 50 per cent over the rates two last years. Shopper’s Pantaloon. Lifestyle and Dairy Farm International have already operations the commenced in country. may operate across a range of defined services. where they have risen only marginally notwithstanding strong growth occupancy rates. 20 billion and Rs.5 Special (SEZ) Economic Zones SEZs are specifically delineated duty free enclaves deemed to be foreign territories for purposes of Indian custom controls. International retailers such as Metro. increased business travel and tourism. investments in the premium segment of the hotel industry are expected to be between Rs. Regulatory approvals have been received for SEZs proposed to be developed by a number of developers. 23 billion in the aggregate over the next five years. SEZs. and sector specific SEZs. expected to be a significant new source of real estate are demand. .2. There are three main types SEZs: integrated SEZs. which may consist of a number of industries. increased demand and limited availability of quality accommodation.2.3 Retail Real Estate Development The organised retail segment in India is expected to grow at a rate of 25 per cent to 30 cent over the next five fiscal years. retailers have announced major expansion plans in cities and towns. 1. Bennett C &oleman. Further. by virtue of their size. 1. Shoprite. the majority of segments in the Indian hotel industry have shown robust recent growth in room rates as well as occupancy rates.2. services of SEZs. the entry of international retailers into the market and the growing number retail of malls. Hero Group and Bharti. and Kolkata. According to an industry report. changes in shopping be habits. which which focus on one particular industry line. the exceptions being Bangalore. Stop and the RPG Group.1. increasing disposable incomes.

Assuming estimate as it the that growth of India’s industrial activity and high-end services grow at an aboveaverage rural exodus could speed up sharply. Growing Satellite Business Destinations With commercial space in the CBDs and SBDs in the metros getting saturated. Just like other global a locations. In northern part of the the country. It is worth noting.g. Applying this average to the biggest urban agglomeration areas in the country. and face constraint in terms of expansion. by virtue of its geographical conditions of being surrounded by sea. such as Pune. ease of access by the most and car public transport and regional growth potential. airports. undertaken through public-private partnerships. similar to the development in pace. Hyderabad or in the Chennai. However.e. ports. Key areas of infrastructure development capital transport. In Indian cities it is also important the technical infrastructure provision (e.1. retail and residential. with mixture of office. Tier I cities) are already straining the limits of their capacities. Firstly. pipelines. . leading to average expansion in the second-tier above cities. the rate in urbanisation throws into particularly sharp focus the possibility that accelerated established centres (i. sanitation. surrounding non-metro areas are getting investor attentions. Their infrastructure (schools. the Southern adjoining areas of Bangalore like Hosure district of Tamil Nadu have provided space for extension of the industrial areas. telephones and to access supply) to ensure that it meets water requirements.important locational factors are the availability of staff. thereby increasing the flow of be private into infrastructure projects. Similarly in India. India’s cities must gear to upa dramatic increase in size. include power. Secondly. roads. telecommunications. the Mumbai Chennai. electricity. have been built. The most transparent and liquid office markets are that of Delhi. The most important office locations are in Central Business Districts (CBD). There are two clear outcomes following from this. as space has become more limited in the CBDs It and higher quality offices with lower prices have been built in peripheral locations new demand has shifted from downtown areas out to the new locations Secondary that called Districts Business (SBD). This could still be considered a conservative puts urbanisation in India then only at China’s level today. has the only been in the last few years. additional development areas. however. water supply and irrigation. Most recently. the China.2. Neemrana (in Alwar district) areas has attracted a lot of domestic and foreign industrial investments.) and housing capacities will need to expand massively. it follows2030 Mumbai will have a population of roughly 35 million and Kolkata that in Delhi and just under 30 million in 2030. the enormous potential of the growing and marketsTier II and Tier III cities. the business activities of Delhi NCR are getting extended to the adjoining of Rajasthan adjacent to Delhi NCR like Bhiwadi. seaports etc.6 Infrastructure Development Projects Central and state governments in India are increasingly focused on infrastructure A significant portion of infrastructure development is expected to development. Mumbai Bangalore.

however. The majority of new space is being built in Bandra Kurla.g. the main sources of demand are IT and ITES In addition. although there is very little space for new buildings there. Delhi has established itself as a call centre hub. The central bank (the Reserve of India). Samsung by media etc. Most of the office date from buildings the 1980s and 1990s B. As a result. Demand space for has spiraled in recent years. Thus. The new Metro makes it easier close to reach downtown Delhi. these markets are still relatively illiquid and offer greater risks. The extensive development activity will result in importance increased for the secondary locations.). In addition.1. the two most active stock exchanges in the country (the National Bank Stock Exchange and Bombay Stock Exchange).2 NCR Delhi Due to insufficient information.3. India’s second biggest city is the seat of government and represents the central 1. As in the other metro cities. Delhi. private Noida/Greater Noida in the east. increasing numbers of factory sites in the city are being sold to vestors. the capital markets supervisory authority Securities and Exchange Board of India) and numerous domestic and for eign (the financial providers have their headquarter there. Gurgaon was the first non-metropolitan location in which an international IT company (IBM) opened an office. Its far bigger supply space and low office rents make it extremely attractive. area to the neighbouring towns of Gurgaon in the south metropolitan and High demand has also led to extensive new development. Nortel.3. lawyers. many IT and ITES firms services to the catering financial sector have established themselves in Mumbai and its surroundings. companies. comparatively high and new office blocks are being built on the outskirts rents are the in south of the metropolitan area and in peripheral districts.1 Mumbai – India’s Financial Centre traffic hub in the north of India. New Satellite Office Locations Immediately to the south of Delhi. CBD Still Prime Location The CBD is located in the centre of New Delhi. The prime address. is around Connaught Place. Banks and corporate service providers (e. smaller real estate stock and a poor level of infrastructure. . a fact increasingly of recognised and technology companies (Microsoft. which draws on the workforce’s excellent and almost accent-free English language skills. Delhi’s office market extends beyond the Mumbai is India’s economic and financial centre. tax consultants) with proximities to the ministries are also situated there. for office use and retail.

. they are still way below the CBD level. nearly all well-known internationalrepresented there. the city was already an coined location important as the centre for aerospace research. like Whereas a large number of buildings are already complete in Noida. Corridor and SBD.3. Both the road network and the electricity and rapid water are overloaded . Greater Noida is still in the.3. too. although supplies underground railways is being an planned. Today. making 1. Meanwhile. The shortage of space in Gurgaon makes other out-of-town locations interesting well. In addition IT to Ambattur . new IT city's hub. Both towns city. IT firms are However. But even before that. Noida and Greater Noida are to the east of Delhi.Offices were followed by residential developers for the staff. the infrastructure of the city has not been able to keep pace with the development of the IT market. are based on a master plan assigning individual districts specific purposes. Noida is about 10 km from as the and Greater Noida is being built another 20 km east of Noida. is rapidly emerging as this. T Nagar and other areas. so office rents are beginning to climb in Gurgaon. giving rise to a satellite town with high-grade infrastructure that is also conveniently located for international airport.a western industrial suburb of Chennai. construction work can no longer keep up with demand growth as reserves of space shrink. 1.3 Bengaluru In the last few years Bangalore has developed as India’s IT centre and has since been India’s “Silicon Valley”.4 Chennai Prime office properties in Chennai are located in three principal sub-markets– CBD. and But at roughly INR 40 per sq ft and month. The only hurdle is that the motorway to Delhi is not yet the open. though. SBD comprises of Guindy. Gurgaon.Local public transport is provided only by buses.

transit systems etc). street lighting. drainage. 22005) permitted FDI up to 100% under automatic route in townships. such guidelines: following The minimum area to be developed under each project would be as follows: • In case of development of serviced housing plots. two The minimum capitalization norm shall be USD 10 million for a wholly owned subsidiary and USD 5 million for joint ventures with Indian partner/s. water supply. by-laws. infrastructure as roads and bridges. . The investor be permitted to sell underdeveloped plots (underdeveloped connotes. resorts. 10 • In case of construction development projects. • In case of a combination of the above two projects.mts. commercial premises. sewerage and other conveniences as applicable under prescribed regulations./Municipal/Local Body State concerned. POLICY INITIATIVES 2.000 sq. The funds have to would be brought in within six months of commencement of business of the company. be restricted to. However. subject to the facilities. Original investment cannot be repatriated before a period of three years from completion of minimum capitalization. wher would not r eoads. recreational facilities. the investor may be permitted to earlier with prior approval of the government through the Foreign exit Investment Promotion Board (FIPB). The must provide this infrastructure and obtain the completion certificate from investor the concerned local body/service agency before being allowed to dispose of the serviced housing plots. but not educational institutions. any one of the above conditions would suffice. Development of at least 50% of the integrated project within a period of five from years the date of obtaining all statutory clearances has to be completed.1 Foreign Direct Investment in Real Estate The Department of Industrial Policy and Promotion (DIPP) vide Press Note No. a minimum built-up area of 50. rules and other regulations of the Govt. The project shall conform to the norms and standards. have not been made available). ( built-up housing. hotels. including land use and provision requirements of community amenities and common facilities as laid down in the applicable building control regulations. a minimum land area of hectares. housing. city and regional level hospitals. infrastructure and construction development projects (which would include.2.

. payment of development. external development and charges and complying with all other requirements as prescribed under other applicable rules/bye-laws/regulations of the State Government/Municipal Body/ Local Body 2. including of the those building/ layout plans. bank loans to commercial real estate have increased by more In the past 500 than per cent to USD 2.2 Investment Trend There is a gradual shift in the way the construction of both residential and property is commercial being financed-away from debt and towards equity. developing internal and peripheral areas and other infrastructure facilities.The investor shall be responsible for obtaining all necessary approvals.4 billion. thanks partly to competition and financial sophistication. activities. four years. developers construction cost by pre-selling houses to buyers. But this mode has funded their out. Private debt and faded bank have since emerged as the most important source of real estate finance in lending accounting for 60 per cent of the total money being spent on new construction India. Traditionally.

Employing 5000 people nationwide.1 MAJOR Ansal Properties & Infrastructure Limited Name Year of Establishment Company Profile The Group Ansal It was established in 1965 The Ansal Group is a conglomerate of 35 companies. and a focus on premium locations in into Tier cities of North II India. with Ansal Properties and Industries Ltd. PLAYERS 3.2 Group The DLF The DLF Group Founded in 1946 The DLF group is a leading real estate developer based in New Delhi. India. 9001-2000 certificate. -Increase land reserves in strategic locations -Expand core business verticals -Diversify into SEZ nationally development -Diversify into hotel -Enhance execution development capabilities Year of Establishment Company Profile Future Prospects . (ABL) at the (AHCL) of core the Group. Future Prospects 3. to Ansal’s thrust areas would be expansion hospitality.3. ISO The company intends to shift its focus value-added development. API). (Ansal Ansal Housing and Construction Limited. or constructed property. All three are public limited companies. over 1000 of these in supervisory and with managerialall three companies have acquired the positions. and Ansal Buildwell Ltd. and engaged in the entire gamut of civil and real estate development activity in India construction and abroad.

consultancy in related areas. The Group operates in India and exports engineered construction products to Middle East. integrated townships group and housing. it set its eyes on real estate business in the Gurgaon. the – Achieve high growth by establishing a pan India presence – focus on major economic centres – Focus on profitable projects that maximize – Undertake large mixed-use projects like integrated returns townships in the suburbs of main cities. In 1986. The activities of the information Construction segment include highway projects. Year of Establishment Company Profile Global Presence/ Marketing Network Future Prospects . shopping malls. – Participating in re-development of land near Railway – Exploring possibilities of power Stations. The Parsvnath has a diverse business portfolio of commercial Group complexes.4 Parsvnath Limited Developers Parsvnath Developers Ltd. It was founded in 1990 Parsvnath Developers Limited is one of the leading real estate companies in India. Real estate development projects includes the development of commercial as well as residential properties. industrial and overseas projects. Already submitted Highway EOI for development of five Airports at Jalgaon. recognition to its commitment towards In technical and world-class real estate solutions. initially as a consultancy firm for soil and foundation engineering.3. Parsvnath Developers core is striving to broad base its product offerings by catering to emerging markets and segments. Year of Establishment Company Profile Future Prospects 3. 2Parsvnath Developers Limited has a panIndia presence and an experience of more than 17 years offering state of the art in construction – Plans to have at least 17 hotels across 13 cities operational by – Expanding footprints in newer 2011 locations across India. This will get to their extended townships and SEZ locations – also. construction. Karad. The Group's principal activities are the real estate development. generation and distribution. electrical transmission and technology. Besides strengthening its position in operations of real estate. excellence Parsvnath Group has become the first real estate company to achieve a NAREDCO-ICRA DR rating. Exploring infrastructural projects such as and Airport development. hotels.3 Limited Unitech Unitech Limited Unitech Limited was established in 1972 by a group of engineers.

Home Stores.5 Limited Omaxe Omaxe Limited Year of Establishment It was established in 1989. 20billion in its hotel projects in 11 cities across – India. 20-30 billion They real estate project in – Punjab. contractual and commercial projects. has Successfully executed and more than 120 prestigious Industrial. Future Prospects They anticipate building a presence in industries including Hotels & Resorts. is also planning to invest Rs. Dhulia & Chandrapur – Maharashtra.6 Limited Sobha Developers Sobha Ltd. Explore opportunities for taking up the estate projects outside India. The company entered the Real Development business in Estate 2001 Future Prospects – Omaxe is planning to invest a total of Rs. dependability and honesty.Developers pioneered in India the concept Company Profile Sobha truly international quality in construction of industry. varied Hypermarkets. Developers Year of Establishment Sobha Developers was incorporated in Bangalore 1995 by Mr P N C in Menon. and Building Materials.Phaltan. Institutional. 2 billion Omaxe in Dubai real estate projects. believe that the Sobha brand is Today. Company Profile Omaxe began life as a civil construction contracting company. Commercial. Having built for innumerable residential. Residential and Hospital construction projects. Here again. real in 3. they accepted as the industry benchmark for world well class building techniques and quality standards. are also planning a Rs. . – They have exhaustive plans to upgrade living environs of smaller cities in North India 5 in next years 3. such superior standards set by ensured consistent international quality to him customers became the industry benchmark which soon international quality. and enjoys an ever widening reputation for also reliability. Sobha enjoys excellent brand presence in Bangalore.

3. marketing and execution. In addition. retail and hospitality sectors. they have also healthcare. project planning. commercial. such as land identification and acquisition. Their operations span lines for various across aspects of real estate development.7 Emmar MGF Year of Establishment Company Profile Emaar MGF commenced their operations in India They February in 2005. designing. . MGF Land Limited is a joint venture Emaar betweenProperties PJSC (“Emaar”) of Dubai Emaar MGF and Development Limited (“MGF”) of India. education and infrastructure as identified business future growth. Their business is the development of properties primary the in residential.

Title insurance. OPPORTUNITIES CHALLENGES AND 4. to regulate the construction of buildings on such land and for connected matters therewith. as well as title complexities and imperfections.1 Opportunitie s The opportunities in the Indian real estate sector. The ULCA provide for the imposition of on vacant land in urban agglomerations. each having a population of 0. for the acquisition of such land in excess of ceiling the ceiling limit. 4. Impediments to Investment Despite the huge investment potential there are certain snags related to investment India’s real estate. Ownership records and land titles are one of the biggest blind spots in valuations. property Further there is no title insurance in the country. guarantees against massive losses in case of faulty title. While domestic funds able to negotiate these issues. Topping the list of impediments is the opaque nature of the business in in India.5 • million Total project value dedicated to low and middle income housing in the next seven is estimated at USD 40 years • billion Instruments such as residential mortgage-backed security (MBS). limited history market and forecasting difficulties. Major Impediments • Limited market history of property •Procedural complexities •Title complexities •No title insurance •Lack urban available of planning Stamp duties and archaic laws such as Urban Land Ceiling Act (ULCA) and Rent Control Act need to be rationalized or scrapped. There are challenges of investing in India relate to tr ansparency.2 . foreign funds too are learning to handle are them. with a view to preventing the concentration of urban land in the of a few persons and speculation and profiteering therein and with a view hands bringing about an equitable distribution of land in urban agglomerations to subserve to the common good. as the name suggests. has been highlighted as follows: • There is a shortage of 12 million housing units in urban • areas is scope for 400 township projects over the next five years spread across There to 30 35 cities.4. commercial MBScollateralized debt obligations (CDO) are being used to make capital and more work efficiently and de-risk project incomes from promoter risk while creating a robust secondary market for commercial real estate.