Professional Documents
Culture Documents
IN PARTIAL
FULFILLMENT OF THE REQUIREMENT FOR
THE AWARD OF THE DEGREE
OF
MBA PROGRAM
By
Harjeet Kaur
Roll No. 820463325
4rth SEM (FINANCE)
Year: 2008-10
SUBMITTED TO:-
QUEST INFOSYS
AUTHORISED LEARNINIG CENTRE OF
PUNJAB TECHNICAL UNIVERSITY
JALANDHAR
HARJEET KAUR
This is to certify that Project Report Entitled “The Real estate market”
submitted as major project in FINANCE is based upon personal
experience and observations gained during the preparation of Project
Report. This project report is submitted in fulfillment of the
requirements for “MASTERS IN BUSINESS ADMINISTRATION” is an
original work carried out by me under the guidance and supervision of
our faculty guide and this work or any part of it has not been previously
submitted for the MBA.
Bibliography 58
Questionnaires 59
List of Respondents 63
When we speak of real property we use the words in their technical legal
sense. When we speak of real estate as a commodity and as a business, it
embraces the various parts of the business which engage the attention of
those who follow it as a vocation, and includes interests which in the eye
of the law are not real property, as for example, leases, mortgages, etc.
The methods of dealing in real estate and the laws governing it are not
arbitrary and were not made for the mystification of others or for the
purpose of multiplying legal fees. All systems of law are expressions of
two things, the historic customs of the people whom they affect, and the
modification of those customs, as changes made those modifications
advisable.
(1) the derivation of rental—that is, the direct return for the use of real
property for definite periods, or
(2) the obtaining of income through others upon money lent on the
security of real property.
No fixed maturity
Unlike a bond which has a fixed maturity date, an equity real estate
investment does not normally mature. In Europe, it is not
uncommon for investors to hold property for over 100 years. This
attribute of real estate allows an owner to buy a property, execute a
business plan, then dispose of the property whenever appropriate.
An exception to this characteristic is an investment in fixed-term
debt; by definition a mortgage would have a fixed maturity.
Tangible
Real estate is, well, real! You can visit your investment, speak with
your tenants, and show it off to your family and friends. You can
see it and touch it. A result of this attribute is that you have a
certain degree of physical control over the investment - if
something is wrong with it, you can try fixing it. You can't do that
with a stock or bond.
Requires Management
Because real estate is tangible, it needs to be managed in a hands-
on manner. Tenant complaints must be addressed. Landscaping
must be handled. And, when the building starts to age, it needs to
be renovated.
Inefficient Markets
An inefficient market is not necessarily a bad thing. It just means
REAL ESTATE MARKET 11
that information asymmetry exists among participants in the
market, allowing greater profits to be made by those with special
information, expertise or resources. In contrast, public stock
markets are much more efficient - information is efficiently
disseminated among market participants, and those with material
non-public information are not permitted to trade upon the
information. In the real estate markets, information is king, and can
allow an investor to see profit opportunities that might otherwise
not have presented themselves.
Lower Liquidity
With the exception of real estate securities, no public exchange
exists for the trading of real estate. This makes real estate more
difficult to sell because deals must be privately brokered. There
can be a substantial lag between the time you decide to sell a
property and when it actually is sold - usually a couple months at
least.
CHAPTER 2
Major Investment
Opportunities
And
Reasons Behind
Investment
REAL ESTATE MARKET 16
In Real Estate
1. Office Property
REAL ESTATE MARKET 18
Offices are the "flagship" investment for many real estate owners. They
tend to be, on average, the largest and highest profile property type
because of their typical location in downtown cores and sprawling
suburban office parks.
At its most fundamental level, the demand for office space is tied to
companies' requirement for office workers, and the average space per
office worker. The typical office worker is involved in things like
finance, accounting, insurance, real estate, services, management and
administration. As these "white-collar" jobs grow, there is greater
demand for office spaces.
Returns from office properties can be highly variable because the market
tends to be sensitive to economic performance. One downside is that
office buildings have high operating costs, so if you lose a tenant it can
have a substantial impact on the returns for the property. However, in
times of prosperity, offices tend to perform extremely well, because
demand for space causes rental rates to increase and an extended time
period is required to build an office tower to relieve the pressure on the
market and rents.
The demand for retail space has many drivers. Among them are:
location, visibility, population density, population growth and relative
income levels. From an economic perspective, retails tend to perform
best in growing economies and when retail sales growth is high.
Returns from Retails tend to be more stable than Offices, in part because
retail leases are generally longer and retailers are less inclined to relocate
as compared to office tenants.
2. Apartments
An individual unit in a multi-unit building. The boundaries of
the apartment are generally defined by a perimeter of locked or
lockable doors. Often seen in multi-story apartment buildings.
3. Terraced Houses
REAL ESTATE MARKET 22
A number of single or multi-unit buildings in a continuous row
with shared walls and no intervening space.
4. Condominium
Building or complex, similar to apartments, owned by
individuals. Common grounds are owned and shared jointly.
There are townhouse or row house style condominiums as well.
5. Duplex
Two units with one shared wall.
1. Cash flow: Yes, it is still possible in some parts of the country to have
a cash flow return. In other words after all expenses have been covered:
mortgage, vacancy factor, repairs, property management etc., there still
can be some money left on the table. Most banks will not lend money to
buy a property if there is no hope of a cash flow.
3. Equity build-up: You reduce your mortgage and increase your equity
with every mortgage payment made on underlying debt. A portion of
your payment goes toward reducing the principal. The shorter the loan
period, the faster the equity builds.
DEVELOP THE
CORRECT
ATTITUDE
DEVELOP
MEANINGFUL
OBJECTIVES
DEVELOP THE
MARKET RESEARCH
DEVELOP A
RELATIONSHIP
WITH A QUALIFIED
REAL ESTATE MARKET 24
REAL ESTATE
PROFESSIONAL
START INVESTING
As your first order of business, then, it's crucial to develop the correct
mind-set about investment real estate and be able to make this
distinction between buying a home and investing in real estate:
"You buy a home to live and raise a family; you buy real estate
investment property to pay for the home, live comfortably, and raise
your family in style"
As one very successful real estate investor said, "Only women are
beautiful, what are the numbers?" In other words, you will not succeed
at real estate investing until you acknowledge that it's not curb appeal,
amenities, floor plan, or neighborhood that should turn you on or off to
the investment opportunity; what counts most is the property's financial
performance.
How much cash are you willing to invest comfortably? What rate of
return are you hoping to achieve by making the investment in real
estate? Are you expecting instant cash flow, looking to make your
money when the property is resold, or merely looking to achieve tax
shelter benefits? How long are you planning to hold the property before
you dispose of it? What amount of your own effort can you afford to
contribute to the day-to-day operation of running the property? What net
worth are you hoping investing will help you to achieve, and by when
would you like to achieve it? What type of income property do you feel
most comfortable owning, residential or commercial, or does it matter?
If you're new to real estate investing, you undoubtedly know little about
investment real estate in your local market. So, do market research to
learn as much as you can about income property values, rents, and
occupancy rates in your area. The better prepared you are, the more
likely you are to recognize a good (or bad) deal when you see it.
(a) The local newspaper, (b) A local appraiser, (c) The county tax
assessor, (d) A qualified local real estate professional, (e) A local
property management company
Be sure the agent has a firm grip on key financial measures inherent to
real estate investing, knows how to measure profitability and rate of
return, has the ability to present the data you need to make wise
investment decisions, and, most importantly, shows a genuine interest in
how you spend your money. The last thing you want to do is to get
involved with a real estate agent that would throw you under the bus just
to make a commission.
Here's a good way to interview for an agent. Ask them for the property's
cap rate and then request an APOD. If their response (even to these
basics) is to stand there looking at you like a deer into the headlights of a
car, find another agent.
5. Start Investing
Hopefully, this has given you some insight into real estate investing,
highlighted a few things to make you a more prudent real estate investor,
and perhaps alerted you to a couple of things that should be avoided.
The Real Estate in India today is growing at a phenomenal pace with all
aspects to buy, sell, and rent properties in India explored and enhanced
to make full use of the economic policies. This had made investors and
buyers to believe, they could make a great deal if invested at the right
time to buy, sell, rent properties in India and in conjunction with right
players. Major foreign Funds and investors are tying up with Indian
Realty companies to enter the in creative market of Real Estate in India
The hustle –bustle of Real Estate India is thriving in all verticals, be it
residential, commercial Property and Retail. The real of property in
India is witnessing a huge upsurge with mega IPO’s, Joint Ventures and
several big Indian Realtor companies. With the business of property in
REAL ESTATE MARKET 28
India assuming bigger dimensions by the day, newer sectors seem to be
emerging by the day with greater promises to buy, sell, and Rent
properties in India.
The real estate sector is also responsible for the development of over 250
ancillary industries such as cement, steel, paints etc. A study by rating
agency ICRA shows that the construction industry ranks 3rd among the
14 major sectors in terms of direct, indirect and induced effects in all
sectors of the economy. A unit increase in expenditure in this sector has
a multiplier effect and the capacity to generate income as high as five
times. If the economy grows at the rate of 10 per cent, the housing sector
has the capacity to grow at 14 per cent and generate 3.2 million new jobs
over a decade.
Apart from the huge demand, India also scores on the construction front.
A McKinsey report reveals that the average profit from construction in
India is 18 per cent, which is double the profitability for a construction
project undertaken in the US.
Realty Funds
The boom in the real estate industry has attracted a large number of
realty funds to tap into this market. Recently, IL&FS Investment
Managers (IIML), the private equity investment arm of Infrastructure
Leasing & Financial Services (IL&FS), announced the closure of a real
estate fund at about US$ 895 million, exceeding its target of US$ 750
million.
IL&FS India Realty Fund–II, which is the second IL&FS fund focused
on the real estate sector, also exceeds the corpus of IIML’s first similar
fund, which had raised US$ 525 million from international investors in
April 2006.
Real estate has been responsible for India emerging as one of the top
destinations in Asia for attracting private equity investments. According
to a report by global realty consultants, Cushman & Wakefield, titled
‘The Metamorphosis – Changing dynamics of the Indian Realty Sector’,
PE funds struck 79 deals in the country during August 2007–August
Global Majors
Foreign direct investment (FDI) in real estate has also been rising over
the years. The real estate sector, thrown open in 2004–05, saw the FDI
picking up significantly between FY 2004–05 and FY 2007–08; it was
US$ 38. 71 million in 2005–06 surging to US$ 470.18 million in 2006–
07 and rising to US$ 2.18 billion in 2007–08.
Moreover, the Indian real estate sector is expected to receive US$ 25
billion as foreign direct investment in the next 10 years, according to an
Assocham study.
The real estate sector is also likely to get a boost from Real Estate
Mutual Funds (REMFs) and Real Estate Investment Trusts (REITs). In
fact, according to a Crisil paper, the REITs would have the potential to
hold at least 5 per cent share of the total global real estate market by
2010, the size of which would turn to US$ 1400 billion in the next 3
years. The paper titled, ‘Indian REITs; Are We Prepared', says that by
2010, REITs alone would hold a market size of US$ 70 billion of the
total real estate market as its concept is gaining ground in countries like
India and other developing nations.
India’s image as an investment destination has also steadily moved up
the value chain over the last six years with increasing transparency in the
real estate sector. According to the Jones Lang LaSalle 2008 Real Estate
Transparency Index, India scores highest among BRIC (Brazil, Russia,
India and China) nations with a large number of listed real estate players
that adhere to the stringent guidelines by the Securities and Exchange
Board of India (SEBI).
The transparency index helps the investor to assess the risk that can be
associated against the expected returns across developing nations.
The Index not only details the reasons between the historic
improvements in transparency from 3.9 in 2004 to 3.34 in 2008, but also
looks well into the future to showcase further improvement identifying
the key reasons for the same.
REAL ESTATE MARKET 31
Goldman Sachs and CalPERS – the largest pension fund, with around
US$ 208 billion in assets under management – are major global
investors looking at opportunities in India's real estate sector. Some
other big players include J P Morgan, Warburg Pincus, Morgan Stanley
Real Estate Funds, Warren Buffett's Berkshire Hathaway, the Blackstone
Group, Colony Capital, Starwood Capital, GE Capital and HSBC,
Government of Singapore Investment Corporation, and others.
With falling real estate values in the US and the downturn in Indian
property market making local valuations more attractive, real estate fund
Millennium Spire — part of the UK-based Millennium Group — is
looking to invest US$ 300 million into realty projects in India in the next
12–18 months.
Morgan Stanley Real Estate is planning to invest an additional US$ 1
billion over the next five years. The company had earlier invested about
US$ 750 million in India.
A unit of Deutsche Bank aims to invest more than US$ 1 billion over
three years in Indian construction and real estate projects.
Dawnay Day International, a London-headquartered group with gross
assets to the tune of US$ 4 billion, is setting up a chain of four-star
hotels in India, starting with one in Jaipur.
India Land Ventures (ILVL), a part of the Madrid-headquartered
Americorp Group, will invest US$ 585.48 million in eight infrastructure
projects across the country over the next two years.
Jones Lang LaSalle (JLL), the world's leading integrated global real
estate services firm, plans to invest around US$ 1 billion in the country's
burgeoning property market.
Landmark is likely to invest US$ 993.38 million in 12 projects across
the northern region in the next three–four years.
Israel-based real estate developer, Elbit Imaging (EI), has tied up with
the UK property firm, Plaza Centres NV, a leading emerging markets
property firm, to develop the former's three mixed-use real estate
projects in India—at Bangalore, Chennai and Cochin—worth US$ 3.4
billion.
Private investment company, Berggruen Holdings (BH), has forayed
into the realty space in India, pumping in US$ 30 million so far and a
REAL ESTATE MARKET 32
likely addition of another US$ 20 million. Its first commercial project in
Hyderabad, for US$ 76.79 million, will kick off at the end of the year.
The other locations include Nagpur, Coimbatore, Mysore, Raipur and
Vizag.
On Home Turf
Government Initiatives
Objectives OF
THE
STUDY
REAL ESTATE MARKET 35
OBJECTIVES
Research
Methodology
REAL ESTATE MARKET 37
RESEARCH METHODOLOGY
NATURE
RESEARCH PLAN
SOURCES OF INFORMATION
POPULATION SPECIFICATION
The sample size consists of 100 investors, which includes residents of
Ludhiana only. Both male and female above the age of 18 years have
been included for the purpose of conducting the study. It consists of the
following
Employees
Businessmen
Professionals
Self-Employed Persons
Data Analysis
And
Interpretation
REAL ESTATE MARKET 40
People Perception and Awareness about Real Estate
Total
Respondents Percentage of Total Income people Generally Invest
Between Between
Less than 25000 25000-50000 50000-100000 Above 100000
No. % No. % No. % No. %
50 6 12% 15 14% 22 30% 7 44%
30%
44%
The graph clearly depicts the income level of the people that generally
invests in real estate. It clearly shows that people who have their income
above 1, 00,000 have the highest percentage of 44%
4) Tax Benefits 8%
The above graph states that the main consideration for the people
investing in real estate is the return that they get from their investment
and least consideration they pay to is tax benefit i.e.: 8%
The above graph states that most people wants to invest to invest their
money in residential sector which is 61% as compare to commercial
sector which is 39%
2-3% 38%
3-5% 36%
5-8% 22%
8% And Above 4%
35%
30%
25% 22%
20%
15%
10%
4%
5%
0%
2-3% 3-5% 5-8% 8% And Above
This graph shows the rate of return that people generally expects from
their investments. It shows that people generally expects 14-18% of
growth in their property.
Agents/property
dealers 57%
Friends and family 32%
Internet 7%
Others 4%
REAL ESTATE MARKET 45
7% 4%
Agents/property dealers
32%
Friends and family
57% Internet
Others
This graph shows that 57% of the people get all the information
regarding investment in properties from property dealers and agents
followed by family and friends 32%
Risk Averter
47%
The above graph depicts the amount of risk that people are ready to
undertake while investing in real estate. It clearly indicates that 47% of
the people are risk averters and 43% are moderate risk takers. Only 10%
of people having very high income group are high risk takers.
Urban 74%
Town 15%
Mountain Area 3%
Suburbs 8%
70%
60%
50%
40%
30%
15%
20%
8%
10% 3%
0%
Urban Town Mountain Area Suburbs
The graphs show that 74% of people like to invest in urban areas
followed by towns15% and only 3% of them invest in mountain area.
Leasehold 22%
Freehold 78%
Leasehold
Freehold
78%
Investments?
SATISFIED 56%
NEUTRAL 34%
DISSATISFIED 10%
REAL ESTATE MARKET 49
56%
60%
50%
34%
40%
30%
20%
10%
10%
0%
SATISFIED NEUTRAL DISSATISFIED
CHAPTER 6
REAL ESTATE MARKET 50
FINDINGS
CHAPTER 7
REAL ESTATE MARKET 52
Limitations
Of
Study
CHAPTER 8
CHAPTER 9
REAL ESTATE MARKET 56
Annexure
BIBLIOGRAPHY
www.surfindia.com
http://www.livemint.com/2009/03/27113651/E28F8F2B-D822-
4E2A-85C1-16771F917D2AArtVPF.pdf
http://www.blanchardonline.com/investment_news/vol5_advantag
es.php
John J. Burnett – Real Estate Investment, 1998
Brochures/Manuals of various Property Dealers
John T. Reed- Distressed Real Estate Times, 2nd Edition.
Diane Kennedy. Dolf Deroos --Real Estate Investing Loopholes
QUESTIONNAIRE
Investments?
1) Highly Satisfied 2) Satisfied
3) Neutral 4) Dissatisfied
1) Urban 2) Town
11. Will you prefer investment in Real Estate to your friends/ Family
Members?
1) Yes 2) No