Indian Real Estate Sector - Handbook 2011

2012

Contents
03 | Foreword 05 | Key highlights - 2011 06 | Regulatory developments: the big picture

14 | Investment scenario: the ins and outs
21 | Major issues and challenges: caution and diligence 27 | News round-up 32 | The way forward

Pg 3

Foreword
We are delighted to release the inaugural edition of "Indian Real Estate Sector - Handbook 2011", a publication focussed on providing a yearly round-up of the significant developments in the real estate sector in India. As expected, the year proved to be a mixed bag for the sector. Real estate companies continued to face a series of evolving challenges: protecting profits while continuing to invest; seizing international opportunities; differentiating their brand; retaining and attracting talent; and cultivating stronger relationships with lenders and fund managers. The volatility in markets reinforced the need to focus on core competence. In order to curb soaring inflation, the RBI raised interest rates 13 times in the past 19 months, seriously impacting demand for real estate which is primarily driven by bank finance. Pessimism in the Western economies continued influencing market sentiments and foreign capital inflow in the sector. Mounting debts, rising interest costs and correction in real estate prices further exacerbated the condition. Companies with stronger fundamentals and ability to make quick strategic decisions, however, continued with growth despite multi-pronged market pressures. In such a dynamic scenario, it has become critical for real estate companies to keep track of the key developments taking place in the sector.
Vishesh C. Chandiok National Managing Partner Grant Thornton India LLP

With this view, we have designed this handbook to provide you a quick summary of the key developments around the regulatory environment along with a snapshot of the investment scenario, and major challenges and issues, which made news in 2011. I hope you find it useful and welcome your feedback.

the country needs around US$ 1. I once again compliment Grant Thornton and hope that the information provided in this handbook would help in shaping an inclusive and sustainable growth path for the real estate sector in India. across the country‟s urban landscape. The importance of this sector lies not only in the fact that it is the fourth largest in terms of the FDI inflows in the country. such a contemporary handbook spreading awareness about the recent regulatory developments like Land Acquisition. access to loan capital and increasing disposable incomes. With a shortage of approximately 25 million dwelling units at the beginning of the 11th five-year plan. signifies the critical need of equipping our cities with quality real estate. The very fact that by the year 2030. would serve as a guiding document for the stakeholders. Firdose Vandrevala Chairman. The burgeoning middle class in the country with high aspirations. drives the demand for integrated township developments. the private sector is going to play a major role in fulfilling this demand. 2011 and the Draft Real Estate (Regulation and Development) Bill 2011. Rehabilitation and Resettlement Bill. On behalf of CII.2 trillion investments over the next 20 years. On the infrastructure front alone. nearly 70% of the country‟s GDP will be contributed by the cities. CII National Committee on Real Estate & Housing Chairman and Managing Director Hirco Developments Private Limited . but also the manner in which it has emerged as an integral part of every common man‟s dream. Against this backdrop.Pg 4 Foreword I am delighted to know that Grant Thornton has come up with a comprehensive handbook on the Indian real estate sector with an aim to provide a quick summary of the regulatory and investment issues during the year 2011.

Union Budget provided for 1% interest rebate on housing loans up to Rs 15 lakh Gujarat government hiked minimum base rate for land by 400 to 1.33 Floor Space Index (FSI) in the Mumbai suburban district Benami Transactions (Prohibition) Bill.Pg 5 Key highlights . 2011 cleared by the Union Cabinet October Maharashtra became the first state of India to get Real Estate Regulatory Authority December February June August April To promote affordable housing. 2011 Villagers in Noida and Greater Noida called off their agitation over the issue of land acquisition Land Acquisition Bill.2011 May January March July September November New draft of the Real Estate Bill. 2011 released for public consultation Coastal Regulation Zone and Island Protection Zone Notifications 2011 announced DIPP & the Finance Ministry released consolidated FDI policy to tighten FDI norms for the sector Ministry of Housing prepared draft legislation of Model Residential Tenancy Act.000% Maharashtra Government planned to reintroduce an additional 0. 2011 introduced in the Lok Sabha Delhi government hiked the circle rates across categories .

Revenue recognition Reforms Environment Land acquisition Development Rehabilitation Appellate Tribunal Land acquisition Approvals Affordable housing Regulatory environment Governance Resettlement Regulatory Authority Growth Project costs Land records Transfer Barter transactions Titles Law Enforcement Policies FDI in retail .

land cannot be transferred for any other purpose. Rs 50. owners of the acquired land will be offered subsistence allowance at Rs 3. In a nutshell • Post acquisition. 2011 witnessed introduction of a number of reform-oriented moves by the government. in the last two decades has drawn attention towards the need of introducing and improving the regulatory environment. and mandatory employment for one member of a displaced family. especially in the case of agricultural land. except for a public use. Currently. In addition to this. acquisition of multi-crop irrigated land should be avoided • For rehabilitation and resettlement.000 a month for 12 months. Land Acquisition. or for private purposes • Except as a demonstrably last measure. such as government infrastructure projects • Government cannot acquire land for private companies. The significance of land acquisition issues in the country is evident from the disputes that impact a number of large projects amidst protests by the affected families. Rehabilitation and Resettlement Bill 2011 In order to address the issue of land acquisition along with rehabilitation and resettlement of the affected families. most land acquisition deals result in legal issues that get further exacerbated due to ill-documentation of title and ownership.000 for transportation. Here below is a snapshot of the significant regulatory developments that would affect the sector in the future. both in terms of size and growth.Pg 7 Regulatory developments: the big picture The constant evolution of the organised segment of the Indian real estate sector. the government may step-in to facilitate the acquisition of the remaining 20% of the land for the private project . the new Land Acquisition and Rehabilitation and Resettlement Bill. 2011 was introduced to overhaul the Land Acquisition Bill of 1894. The same provisions are proposed for those who lose their means of livelihood due to land acquisition • If a private company succeeds in acquiring 80% of the land required for a project. land owners will also be provided Rs 2.000 a month a family as annuity for 20 years. While self-regulation will be the key for better governance and sustainability.

In order to provide respite to end users. comply with the approved plans and refund money to homebuyers in case of any default. it is mandatory for real estate developers to register with the "Real Estate Regulatory Authority" • The draft Bill makes it mandatory for promoters to stick to the approved plans and project specifications • The Bill also proposes to make it mandatory for developers to deposit 70% of the amount realised for the real estate project from buyers in a separate account maintained in a scheduled bank. the proposed Regulatory Authority will also be responsible for issuing registration certificates for projects that have a size of 43.000 square metres or more. the Bill also proposes to make it mandatory for developers to register themselves before launching any projects. In a nutshell • The Bill mandates the establishment of the "Real Estate Regulatory Authority" in every state to oversee and regulate the real estate sector • Apart from adjudicating disputes between real estate developers and consumers. and proposes to create a "Real Estate Regulatory Authority" in each of the states.Pg 8 Regulatory developments: the big picture • The Bill also empowers the village council to conduct social impact assessment of any land acquisition and define the timelines for providing compensation • In case the land is acquired in an urban area.052 square feet or more • Before beginning the construction work on plots measuring 4. an amount not less than four times the original market value needs to be paid to the landowner Draft Real Estate (Regulation & Development) Bill 2011 The Bill aims at promoting transparency and accountability in the real estate sector. within 15 days of the realisation of the project • It further specifies that developers would use this deposited amount only for the purpose of developing the property . The draft guidance of the Bill also possesses provisions that reduce the risk of a title dispute. an amount not less than twice the market rate needs to be paid to the landowner • In case the land is acquired in a rural area.

Accounting Standard (AS) 9. they would be liable to pay a minimum penalty of Rs 1 lakh daily for each day during which the default occurs Draft Guidance Note on revenue recognition The Accounting Standards Board of the Institute of Chartered Accountants (ICAI) came out with a draft of the Guidance Note on Revenue Recognition by real estate developers.Acquisition. This primarily provides guidance on application of percentage of completion method as per Accounting Standard (AS) 7. It aims at removing the subjectivity and judgments in certain key accounting principles and attempts to bring consistency in the accounting for real estate transactions. the developer is bound to pay interest. utilisation and transfer of development rights . Further. the developers will be required to refund money to buyers. at an appropriate rate.Development of residential/ commercial units . In respect of transactions of real estate which are in substance similar to delivery of goods.Re-development of existing buildings/ structures .Joint development arrangements . Scope • The exposure draft encompasses various types of models/ structures which are in practice and the related accounting in respect of: .Sale of land/ plots with or without any development . In a nutshell This Guidance Note should be applied to all transactions in real estate. Construction Contracts. to the buyers • In case the developers fail to adhere to the provisions. they are liable to imprisonment of up to three years or a penalty of 10% of the estimated real estate price of the project • If developers are unable to comply with the directions of the "Real Estate Regulatory Authority". which are commenced or entered into on or after 01 April 2012. is applicable. Revenue Recognition. in respect of transactions and activities of real estate which have the same economic substance as construction-type contracts. if the project gets delayed. The proposed Guidance Note is comprehensive and considers various dynamics of the sector.Pg 9 Regulatory developments: the big picture • In case of any default.

There is a rebuttable presumption that a reasonable level of development is not achieved if the expenditure incurred on project costs is less than 25% of the construction and development costs (c) At least 25% of the estimated project revenues are secured by contracts or agreements with buyers (d) At least 10% of the total revenue as per the agreements of sale or any other legally enforceable documents are realised at the reporting date in respect of each of the contracts and it is reasonable to expect that the parties to such contracts will comply with the payment terms in the contracts In a nutshell Definition of Project Project is defined in terms of a group of units/ plots/ saleable spaces and its linkage with the common set of amenities in a manner that both are clearly dependent on each other for the intended effective use. It will be useful if the common set of amenities within a project can be clearly defined and then link it to the project definition. approval of plans. designs. Revenue recognition under the percentage completion method is applied only when all the following conditions are fulfilled: (a) All critical approvals necessary for commencement of the project have been obtained. etc.Pg 10 Regulatory developments: the big picture The current definition of project is very broad and identifies parameters for defining the project. Revenue recognition conditions prescribed • Key approvals to be obtained • Percentage threshold (rebuttable presumption of 25%) • Sale of project to the extent of 25% of the project size • Collection to the extent of 10% of the total revenues as at the reporting date . even a single tower can be treated as a project or a cluster of towers can be combined and designated as a project. • Title to land or other rights to development/construction (b) When the stage of completion of each project reaches a reasonable level of development. in terms of common set of amenities available to the different unit holders in a township and accordingly. These include the following as applicable: • Environmental and other clearances.

. wherein the developer is giving a share in the built up property to the land owner in consideration of land / development rights in the project. Barter transactions Where development rights are acquired by way of giving up of rights over existing structures or open land. fair market value may be determined by reference either to the asset or portion thereof given up or to the fair value of the rights acquired whichever is more clearly evident. the project costs to be matched with such revenue are also proportionately adjusted. Where the recognition of revenue due to this condition is lower than the revenue determined by reference to the stage of completion. In a nutshell Revenue recognition linked to collections 'Eligible contracts‟ means contracts/agreements where at least 10% of the contracted amounts have been realised and there are no outstanding defaults of the payment terms in such contracts. the development rights should be recorded either at fair value or at the net book value of the portion of the asset given up.Pg 11 Regulatory developments: the big picture The recognition of project revenue by reference to the stage of completion of the project activity should not at any point exceed the estimated total revenues from 'eligible contracts'/other legally enforceable agreements for sale. For this purpose. This is definitely a good thought in terms of linking the collection to the point of revenue recognition The transaction of barter has been rightly picked up in the scope of this Guidance Note.

the Department of Industrial Policy and Promotion (DIPP) permitted 100% FDI in Single Brand Retail Trade (SBRT) under Government approval as against the current limit of 51% FDI in SBRT. permitted 51% of Foreign Direct Investment (FDI) in multi-brand retail and 100% FDI in single-brand retail. artisans and craftsmen' • 'Small industries' would be defined as industries which have a total investment in plant & machinery not exceeding US$ 1 million • The earlier press release dated 25 November 2011 had indicated that such small industries could be located anywhere in the world In a nutshell • India's retail sector is estimated at US$ 450 billion. which is not permitted in India at present . growing at the rate of 15% a year • Currently.Pg 12 Regulatory developments: the big picture FDI in retail sector The Union Cabinet. India permits 51% FDI in single-brand retail and 100% FDI in cash-and-carry • The Bill was meant to allow foreign investment in multi-brand retail. All the key features of the policy liberalisation have been retained in this Press Note along with the following additional clarifications/ modifications: • With respect to proposals involving FDI beyond 51%. Updates In January 2012. the decision was suspended due to widespread opposition from the unorganised retail market and absence of political consensus. in December 2011. mandatory sourcing of at least 30% of the value of products sold would have to be done from Indian 'small industries/ village and cottage industries. However.

the applicant can approach the State High Court • The developer would be required to maintain a separate account of the money received from the buyers and. instead of using it for the acquisition of new land • To appeal against the orders of the "Appellate Tribunal". Sale. The Bill is expected to be presented before the State Legislature in March 2012. . along with an imprisonment for a term extending to three years Updates The State Cabinet has recently approved establishment of "Housing Regulatory Authority" and the "Housing Appellate Tribunal" in Maharashtra. while also offering provisions for preventing the diversion of money received from home buyers • It makes it compulsory for developers to use the money received from homebuyers to timely execute the residential project. if required.Pg 13 Regulatory developments: the big picture Maharashtra Housing Bill 2011 Maharashtra Housing Bill. After being passed by the State Legislature. In a nutshell • The Bill mandates the establishment of a "Real Estate Regulatory Authority" and an "Appellate Tribunal". all property transaction disputes will be handled by the three-member "Housing Regulatory Authority" followed by the "Housing Appellate Tribunal". the Bill proposes to make them liable to a penalty ranging from a minimum of Rs 1.000 per day to a maximum amount of Rs 1 crore. and transfer) Act. management. sale. it contains provisions meant to safeguard the interest of homebuyers. 2011 aims at replacing the Maharashtra Ownership Flats (Regulations of promotion of construction. provide usage details of the same to the "Real Estate Regulatory Authority". 1963. Also known as the Regulation and Promotion of Construction. • In case developers contravene the provisions of the Bill. Management and Transfer Bill.

Crisis in Europe Volatility Special purpose vehicles Joint ventures Market sentiment Private equity Global slowdown M&A Investment scenario Exits Transactions Project viability IPOs Capital markets Challenges Opportunities Sustainability Returns FDI inflows Depreciation in rupee Market consolidation Growth Deals .

Government of India 2011-12 (April . the sector attracted investment to the tune of US$ 453 million between April and September 2011.000 2. the period from January to May 2011 also stood witness to various prominent Private Equity (PE) and Mergers & Acquisitions (M&A) deals. As per DIPP. Owing to this. Year-wise FDI Inflows ( in US$ in million) 3.500 1.March) 2010-11 (April .000 2.935 1.500 3. However. the global economic scenario remained volatile due to unfavourable economic environment in the US and Euro zone.000 1.Pg 15 Investment scenario: the ins and outs Real estate is the fourth largest sector in terms FDI inflows in the country. etc.500 2.227 453 500 0 2009-10 (April .March) FDI Inflows ( in US$ in million) Source: Department of Industrial Policy and Promotion. Further.3 billion occurring during this period include investment made by Oceanus Real Estate and Ascendas India (US$ 190 million).September) . Some of the prominent deals that formed the chunk of the 20 deals worth US$ 1. Tata Realty (US$ 86 million). foreign investors were seen becoming relatively cautious.

The data shows growing importance of developing economies to the world economy. . although commercial real estate is a riskier option as compared to residential. when investors failed to profit from their investment in the sector in other economies. was largely responsible in reducing the FDI inflows to the sector. The report has also analysed the profits from PE exits in the sector. power and energy. respectively. Moreover. Further. the pessimism in the US and the UK. Germany. banking and financial services and information technology. 55% of the investors expect to achieve their target returns. Singapore. along with automotive. while residential has given returns of 1. The key findings from various avenues are expected to serve as a shove for real estate investors for bolstering their confidence in the Indian real estate sector. the Indian real estate sector still occupies the topmost position among all the major sectors for PE investment in 2011.3 times. including the Netherlands. As per our research. Apart from the US and the UK. 65% have been profitable. real estate and infrastructure management accounted for 67% of the total PE deal value for the year. Japan.2 times. The report.Pg 16 Investment scenario: the ins and outs Since equity inflows are largely sentiment driven. a survey conducted by a leading advisory firm also shows that while planning to invest in various avenues in India. has lifted the aura of gloom hanging over the sector for quite some time now. which form the major sources of equity inflows to the sector. the former has given returns of 1. PE investors reaped average returns from the sector that were 1. and the UAE. within the past four years. which also states that Mumbai and Kolkata accounted for returns of 1.4 and 1.8 times.21 times. a recent report published by Jones Lang LaSalle India (JLL) states that within the past four years. and enhanced engagements of foreign investors with the sector through a broadening array of investment models.1 times. or 20% higher than the global average of 0. The report goes on to prove that even amid the bleak scenario of property markets between 2008 and 2011. and states that out of the overall PE exits worth US$ 3 billion in the past four years. Further. However. while 45% investors are optimistic to reap a return which is higher than their existing portfolio. India has provided far better returns than the global average. the sector also attracts equity from economies. Mauritius.

500-unit residential project Source: Grant Thornton research .000 residential units is planned to be developed ICICI Prudential Asset Management Logix Group Rs 80 crore The investment financed the development of Blossom Greens .Pg 17 Investment scenario: the ins and outs 2011: Prominent deals in Indian real estate sector Investor Warburg Pincus Investee Lemon Tree Hotels Investment Rs 1.a 2.400 crore Purpose An affordable housing venture was financed by the JV called Oceanus Real Estate Sun Apollo Parsvnath Developers Rs 100 crore A residential project SPV Blackstone Red Fort Capital DLF Ansal Properties & Infrastructure Rs 810 crore Rs 200 crore Acquisition of a DLF firm owning a SEZ in India The deal financed a residential project in Gurgaon by developing a 108-acre township Red Fort Capital Delhi Heights Undisclosed A mixed use development having more than 2.

about 120 PE funds. and ASK Investment Holdings.4 and 4 times. which headed to a natural end in 2011-12 due to the typical three-five year investment horizons. largely through equity buybacks and secondary sales. During Q1 of the year. Real estate sector had witnessed a flood of PE investments between 2006 and 2008. largely due to volatile stock markets in 2011. real estate and the infrastructure sector witnessed nearly 22% of the total PE investments. making the cumulative worth US$ 2. once the most popular routes for exits. of which 53 transactions were announced. As per a report by Bain and Co. during 2011. Further. PE‟s found it difficult to exit with good returns. Q1 witnessed six exits worth a combined US$ 124 million. The low PE exits in the year can also be attributed to high inflation. As per the research firm VCCEdge. according to JLL. Indiareit. lost their charm to investors in 2011. a total of 11 real estate focused PE funds exited the market. However. . the year also witnessed an increment in deal activities of domestic fund managers such as Kotak. A report released by a leading advisory firm states that during 2011. 57% were made in residential projects.68 billion. The research firm also states that of the total investment. Further. Since 2009. 2010 and 2011 in combination witnessed real estate PE exits worth US$ 3 billion. During the year.Pg 18 Investment scenario: the ins and outs As per the research firm Venture Intelligence. As per a survey conducted by Protiviti India and Asian Venture Capital Journal. Kotak Realty has exited from about US$ 175 million worth of investments. secondary and strategic sales were the preferred exit choices. PE firms made 69 investments. while commercial projects accounted for 19% of the chunk.68 billion in the real estate sector. while IPO‟s and multiple exits. steep interest rates and slow economic growth. even amid the enhanced momentum of exits. with a potential to raise approximately US$ 34 billion were impacted by the bleak economic scenario in 2011. PE firms invested US$ 2. During this period. returns from real estate investments ranged between 1.

490 square feet of area in commercial property Raheja Titanium in Mumbai by IL&FS Milestone Fund I The fund.Pg 19 Investment scenario: the ins and outs 2011: Prominent PE exits in Indian real estate sector PE funds Indiareit Fund Advisors Value US$ 100 million Background Exit of an office project in Kurla. a 7. Indiareit Fund Advisors made an investment of Rs 145 crore Kotak India Real Estate Fund-I Rs 385 crore The PE firm sold its stake in Peepal Tree Properties. to the Embassy Group HDFC Property Fund Source: Grant Thornton research . where it owned 26. The deal was made with Tata Realty Initiatives Fund-I The entire paid-up share capital of Udhay GK-Realty was purchased by Godrej Properties Ltd Milestone Capital Advisors exited from Stone Arc. a residential project located at Thiruvanmiyur.04 times of the initial investment IL&FS Milestone Fund I 1. Chennai.51 times of the initial investment Rs 540 crore The PE exit involved the sale of 29. in suburban Mumbai.800 square feet of saleable area HDFC India Real Estate Fund Milestone Capital Advisors Undisclosed 2. sponsored by HDFC. In 2006. which it had purchased in 2007 for Rs 95 crore.7 million square feet infotech SEZ in Bangalore. sold its 21% stake in Manyata Business Park.

Tata Realty (US$ 86 million).Pg 20 Investment scenario: the ins and outs In a nutshell • Investment in the Indian real estate sector between April and September 2011 stood at US$ 453 million • PE funds invested US$ 2. largely due to depreciation in the value of rupee . whose share of real estate buying in India accounts for about 4% every year.68 billion in the Indian real estate sector during 2011 • Major PE and M&A deals that were witnessed in the sector from January to May 2011 include investment of Oceanus Real Estate and Ascendas India (US$ 190 million).68 billion. etc • The 53 transactions announced in 2011 had a cumulative worth of US$ 2. The materialisation of deals at a time when the sector found it tough to receive bank funding stood testimony to the optimism in investors • NRIs. rose to 8% in 2011.

Growth strategies Vacancy rates Buyer interest NRI transactions Market sentiment Interest costs Profitability Loans Revenues Sales Declining margins Demand Issues and challenges New avenues Prices Projections Oversupply Opportunities Correction Sustainability Market expectations Future prospects Finance .

the RBI hiked the repo rate a number of times in the year.25 Repo rate (%) Source: RBI .75 5 4 3 2 1 0 5. the debt-to-equity ratio of developers also increased during the year due to increase in the cost of construction.5 8. Further. In the current business environment. the commercial property sector is in a period of rapid change. the hike in interest rate resulted in liquidity crunch for real estate developers. Hike in repo rate 8 8 7 5. with both owners and builders questioning current strategies and future expectations. Yet.5 9 8. The increase in prime lending rates at commercial banks and other housing finance institutions became a major deterrent for homebuyers to take loans for buying residential real estate.25 6 6.75 6 4. industry leaders are largely optimistic about their business prospects. Apart from decreased profitability from projects due to reduced demand.75 7. developers also faced difficulty in raising finance from banks. real estate developers face many obstacles to their pursuit for growth.25 7. Interest rate hike In order to address the issue of rising inflation. as they strategically plan for higher revenues and profits in 2012.Pg 22 Key issues and challenges: caution and diligence Along with the rest of the global economy.5 6. In addition to its impact on property buyers. building material and labour. residential sales slumped markedly. as a result of which.25 6.

property prices of residential units in Kolkata and Mumbai registered a decline of about 0. At 15. other cities that witnessed a positive movement in property prices include: • Surat: 9.Pg 23 Key issues and challenges: caution and diligence Pricing trends According to National Housing Bank (NHB).5%). rents of malls and high-streets increased by 15-20%. during Q4.5% • Lucknow: 7. while nine cities observed an increasing trend during Q4. Among all the cities covered under the NHB Residex.8% • Ahmedabad: 2. as compared to Q3.Tier I cities 350 300 250 200 150 100 50 0 Jan June 2008 July Dec 2008 Jan June 2009 July Dec 2009 Jan March 2010 April June 2010 July Sept 2010 Oct Dec 2010 Jan March 2011 April June 2011 July Sept 2011 Oct Dec 2011 Hyderabad Mumbai Source: NHB Residex Chennai Bangalore Kolkata Delhi .5% • Bhopal: 1.4% • Chennai: 9. In addition to Delhi. Jaipur (1.1% • Faridabad: 5.4%.7%). during the first half of the year. as compared to Q3. and Patna (0. Depreciation of rupee evoked the interest of NRIs in purchasing property in India.2% • Pune: 8. despite the slump in demand. prices in Delhi rose by 8. City-wise housing price index . No price/ rent correction was seen in completed projects in both the residential and commercial segments in the year.9% • Bangalore: 7. During the fourth quarter of the year.5%. followed by Hyderabad (6%). as compared to Q3. Kochi registered the maximum decline.5%.4% On the other hand. six cities witnessed a decline in prices.

Jan .April .July .Oct .July .July .April .Jan .Oct .July .Jan June Dec June 2008 2008 2009 July .Pg 24 Key issues and challenges: caution and diligence City-wise housing price index Tier II cities 250 250 Tier III cities 200 200 150 150 100 100 50 50 0 Jan .Jan .Oct June Dec June Dec March June Sept Dec March June Sept Dec 2008 2008 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011 0 Jan .April .July .Jan .Jan .Oct Dec March June Sept Dec March June Sept Dec 2009 2010 2010 2010 2010 2011 2011 2011 2011 Patna Kochi Bhopal Ahmedabad Pune Jaipur Faridabad Lucknow Source: NHB Residex .July .July .April .

Further. reduced launches of new projects and stagnant property prices.596 units for Bangalore and 40.660 housing units remained unsold in Mumbai. With a substantial number of prospective homebuyers deferring their plans of buying property. real estate sector witnessed a slump in transaction activity.Pg 25 Key issues and challenges: caution and diligence Increased vacancy rates During 2011. the unsold inventory levels of residential real estate stood at 46. the NCR market had the highest proportion of vacancy rate for residential property in 2011.5 million square feet. Bangalore and Chennai. demand for office space in 2011 across the top seven cities also remained muted. 40. demand for office space across the top six cities in India was 8. With a number of corporates deferring their hiring plans. The lack of buyer interest is also evident from the fact that in 2011.859 units of residential property are currently lying unsold. NCR. As per a report released by Knight Frank India. In 2011. .06. residential property prices depreciated by up to 10% across Mumbai. almost 3.734 units for Pune. In the July-September quarter.

leading to a drastic reduction in sale of residential units across segments • Due to the reduced availability of capital to real estate developers.Pg 26 Key issues and challenges: caution and diligence In a nutshell • The frequent interest rate hikes led to liquidity squeeze. with Tier I cities such as Kolkata and Mumbai witnessing a downward trend in the prices of residential properties • As a result of the tough market conditions. resulting in an increase in vacancy levels • The NCR market registered the highest vacancy rate for residential property during the year . thereby making cost of credit expensive for the real estate developers • The hike in home loan rates compelled buyers to postpone their buying decision. numerous cities such as Kochi and Hyderabad witnessed a decline in prices of residential units during Q4 • Demand for office space also slumped during the year. the year also witnessed widespread delays in construction projects • The slowdown in the demand of residential units was also evident from the NHB Residex.

Public offers Black money Growth projections Market sentiment Sale deed mandate Circle rates Stamp duty Affordable housing Revenues Urban infrastructure Benami transactions Land acquisition 2011 News round-up Overseas projects Green building Priority sector landing Customer grievance Environment New rating system Evasion Finance Interest rate subsidy .

While the move aims at curbing the use of black money in property transactions. except in the case of transactions in the name of a spouse. 1988. Benami Transactions (Prohibition) Bill. The Bill intends to replace the existing Benami Transactions (Prohibition) Act. 2011 introduced The Finance Ministry introduced the Benami Transactions (Prohibition) Bill. and proposes provisions for confiscation of such property and imprisonment. The decision is expected to curb evasion of duties. This was the second hike in circle rates in 2011. use of black money and unscrupulous transactions that often result in disputes. it would also help garner an additional revenue of Rs 800 crore a year. the rates were increased by up to 100%. mainly through stamp duty and registration fees. the Supreme Court held that General Power of Attorney (GPA) is not a valid instrument for transferring property rights. Earlier in February. Circle rates hiked in Delhi by up to 250% The Delhi government hiked the circle rates by up to 250% in October 2011. in August 2011. brother or sister or any lineal ascendant or descendant. The Bill prohibits benami transactions done in someone else's name.Pg 28 News round-up: regulatory Supreme Court mandated the sale deed In a landmark judgment. .

the Pradhan Mantri Gram Sadak Yojana (PMGSY).03 million for the urban infrastructure development project.000. National Rural Drinking Water Program and Rural telephony Developments in Tamil Nadu and Haryana In July 2011. in an attempt to facilitate land assembly for apartments and townships.Pg 29 News round-up: regulatory Budget 2011-12 highlights The Union Budget 2011-12 presented various initiatives for the real estate sector.000 to Rs 25. The Urban Development Ministry received US$ 1. making interest rates cheaper on them • Earmarking a substantial amount to the Urban Development Ministry for spending on extension of Metro networks in Delhi.89 billion. the ceiling on non-agricultural land was waivered by the state assembly of Haryana. Bharat Nirman consists of 6 flagship programmes.5 billion. the guidelines also revised the cap on registration fee from Rs 1. Accelerated Irrigation Benefit Program. the government of Tamil Nadu revised the ceiling on stamp duty from Rs 5. Applicable exclusively for title deeds. Indira Awas Yojana. On the other hand. especially focusing on affordable housing.000 to Rs 5. Bangalore and Chennai • Allocating US$ 20. Some of these initiatives include: • Raising the limit on housing loans eligible for a 1% subsidy in interest rates • Widening the scope for housing under "priority-sector lending" for banks. an increase of US$ 68.53 million from the last fiscal 2010-11 • Increasing allocation for Bharat Nirman to US$ 12. Rajiv Gandhi Grameen Vidyutikaran Yojana.000. .

Ambiance Real Estate. the growth rate was lower than 25-30% as projected during the beginning of the year. . The IPOs were called off due to unfavourable market conditions. the Indian real estate sector registered a growth rate of about 15% in 2011.000 crore According to Edelweiss Securities report.000 crore to Rs 38. Albeit the trends were not-so-negative despite the slowdown in the Western economies. Top 11 listed real estate companies accumulated a debt of over Rs 5.Pg 30 News round-up: financial Public offers deferred by a significant proportion of real estate companies As per SMC research. Kumar Urban Developers and Neptune Developers. at least 28 companies deferred their IPOs in 2011. 15% growth estimates in 2011 As per media reports and expert estimates. the total debt of the top 11 listed real estate companies of India increased by over Rs 5.500 crore. including a number of real estate companies such as Lodha Developers. Lavasa Corporation.

The Court also ordered the seven real estate developers to return all the payments received from over 6. the government proposed an exemption of service tax for the construction or finishing of new residential complex under „Jawaharlal Nehru National Urban Renewal Mission‟ and „Rajiv Awaas Yojana‟ in the Union Budget 2011-12. Lavasa stalled on charges of violating green laws Lavasa Corporation came under the Ministry of Environment scanner for allegedly violating environmental norms in its hill city project. The decision was taken following the writ petition filed by farmers expressing dissent on the massive difference in buying and selling rates.500 people towards the booking of flats over disputed pieces of land. .000 to Rs 12. The land was acquired by Greater Noida Industrial Development Authority (GNIDA) and UP government at Shahberi Village at the rate of Rs 850 per square metre and allotted to private developers at rates ranging from Rs 10. New green building rating system introduced To rate the level of environment friendliness and sustainability of buildings.Pg 31 News round-up: miscellaneous Major land acquisition dispute in Greater Noida The Supreme Court upheld the High Court decision cancelling allotment of 156 hectares of land in Greater Noida. India's largest hill city.000 per square metre. Affordable housing scheme – ‘Rajiv Awaas Yojana’ In order to boost affordable housing schemes. an upgraded Leadership in Energy and Environmental Design 2011 (LEED 2011 for India) rating system has now been introduced in the country. The company was later provided conditional approval by the Ministry. The new rating has come into effect.

beginning with a residential project Lodha Group will invest over Rs 10. in Mumbai. Vijay Shanthi Builders will develop projects worth Rs 2.000 crore MoU with the Government of Maldives By 2014. announcing a Rs1. titled New Cuffe Parade.Pg 32 The way forward Tata Housing forays in the international market.2 million for developing malls over the next 5 years Royal Institution of Chartered Surveyors (RICS) launches India edition of the 'Red Book' which lays down mandatory rules for its members and serves as best practice for industry professionals CREDAI releases a code-of-conduct for its members and also recommends setting up of consumer grievance redressal cells to address complaints and disputes To streamline brokerage practices and bring transparency in property transactions. over the next 5-7 years With an investment of Rs 500 crore.000 crore in a new project. National Association of Realtors-India and the Confederation of Real Estate Developers' Associations of India (CREDAI) signs an agreement of cooperation . Malabar Builders will launch its first township project in Mangalore shortly Larsen and Toubro (L&T) plans to construct the first residential high-rise building of the country on a pre-cast basis Following the opening up of FDI in retail sector. DLF will invest a sum of US$ 570.100 crore.

Chandigarh. Hyderabad. entrepreneurial companies. Bangalore. high quality and personalised service wherever they choose to do business. The firm specialises in providing audit. Grant Thornton India LLP Grant Thornton India LLP is a member firm within Grant Thornton International Ltd. .Pg 33 About Grant Thornton Grant Thornton International Grant Thornton International is one of the world's leading organisations of independently owned and managed accounting and consulting firms. Gurgaon. Clients of member and correspondent firms can access the knowledge and experience of more than 2500 partners in over 100 countries in order to consistently receive a distinctive. tax and specialist advisory services to privately held businesses and public interest entities. Mumbai and Pune. tax and advisory services to growth-oriented. Grant Thornton International strives to speak out issues that matter to business and which are in the wider public interest. Chennai. Its aim is to emerge as a bold and positive leader in its chosen markets and within the global accounting profession. The firm has today grown to be one of the largest accountancy and advisory firms in India with nearly 1.100 professional staff in New Delhi. Kolkata. These firms provide assurance. and affiliate arrangements in most of the major towns and cities across the country.

France. and 7 overseas offices in Australia. which include health. building skills for meeting emerging economic compulsions.Pg 34 About CII The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the growth of industry in India. diversity management. This converges the fundamental themes of spreading growth to disadvantaged sections of society. Singapore. it is India's premier business association. including SMEs and MNCs. In line with this. skill development and water. China. Major emphasis is laid on projecting a positive image of business. Founded over 116 years ago. industry led and industry managed organisation. CII serves as a reference point for Indian industry and the international business community. .000 companies from around 400 national and regional sectoral associations. Partnerships with over 120 NGOs across the country carry forward our initiatives in integrated and inclusive development. CII is placing increased focus on Affirmative Action. as well as institutional partnerships with 223 counterpart organisations in 90 countries. South Africa. and fostering a climate of good governance. CII has taken up the agenda of “Business for Livelihood” for the year 2011-12. CII catalyses change by working closely with government on policy issues. and an indirect membership of over 90. enhancing efficiency. livelihood. partnering industry and government alike through advisory and consultative processes. competitiveness and expanding business opportunities for industry through a range of specialised services and global linkages. UK. not-for-profit. to name a few. education. assisting industry to identify and execute corporate citizenship programmes. CII is a non-government. Skills Development and Governance during the year. playing a proactive role in India's development process. and USA. With 64 offices and 7 Centres of Excellence in India. with a direct membership of over 8100 organisations from the private as well as public sectors. It also provides a platform for sectoral consensus building and networking.

gt. any turbulence in the economic and business environment can affect a real estate business in a number of ways. Please contact our real estate experts at realestate.solutions@in.Pg 35 Our real estate solutions Our real estate practice Real estate is a complex business. At the same time. Grant Thornton India can assist you in mitigating these inherent risks. Assurance. Owing to its capital intensive nature. Financing your business • analysing funding requirements • preparing submissions to financiers • benchmarking terms and pricing • considering alternative sources Communication and compliance • advising on financial reporting requirements • clarifying directors‟ responsibilities • mitigating fraud risk • evaluating and designing controls Working capital management • managing your cash • forecasting and re-forecasting • optimising tax cash flow savings • improving management information Protecting profits • product portfolio analysis • optimising pricing strategy • enhancing terms of trade • identifying overhead savings Operations and cost reduction • establishing cost reduction programmes • improving supply chain • enhancing operational efficiency • outsourcing back office functions Human capital management • optimising pension and benefit schemes • retaining the right talent • devising tax efficient packages • enhancing reward packages Strategic direction • benchmarking against competitors • entering new markets • identifying acquisition opportunities • reviewing business plans . With its depth of knowledge and global experience. we can help you identify and leverage potential opportunities as well. tax and advisory services are just the beginning of our suite of services for real estate companies.com to know more about how Grant Thornton can assist you achieve your objectives.

Pg 36 Thought leadership publications Through our thought leadership publications. and are designed to keep dynamic business leaders apprised of issues affecting their organisations.in/publications . A topical publication focussed on the emerging trends. These publications draw on our industry expertise. developed in knowledge partnership with the Confederation of Indian Industry (CII). clients‟ experience and our commercial know-how.wcgt. Future cities RealtyReality A thought-provoking research-based report on urban governance and management. challenges and issues in the real estate sector of India. www. we strive to provide leading-edge insights to the industry and the markets at large.

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