TITLE – Real Estate Growth in India

A Project submitted to University of Mumbai for partial completion of the degree of

Bachelor in Commerce (Accounting and Finance)
Under the Faculty of Commerce

BY
Arnav Bothra

Under the Guidance of

Miss Poonam

H.R. College of Commerce and Economics

Vidyasagar Principle K.M. Kundani Chowk, 123, Dinshaw Vacha Road, Churchgate,
Mumbai, Maharashtra – 400020
 Abstract

The real estate sector is one of the most globally recognised sectors. In India, real
estate is the second largest employer after agriculture and is slated to grow at 30 per
cent over the next decade. The real estate sector comprises four sub sectors - housing,
retail, hospitality, and commercial. The growth of this sector is well complemented by
the growth of the corporate environment and the demand for office space as well as
urban and semi-urban accommodations. The construction industry ranks third among
the 14 major sectors in terms of direct, indirect and induced effects in all sectors of
the economy.
It is also expected that this sector will incur more non-resident Indian (NRI)
investments in both the short term and the long term. Bengaluru is expected to be the
most favoured property investment destination for NRIs, followed by Ahmedabad,
Pune, Chennai, Goa, Delhi and Dehradun.
The Reserve Bank of India’s decision to push banks to clean their balance sheets by
recognising non-performing assets, resolving bad debts of large defaulters and, failing
that, taking them to bankruptcy court for liquidation, has focused attention on the
crisis in a few sectors. Among those, besides power, steel and textiles, is real estate,
consisting of housing, commercial real estate and hospitality assets.
Firms such as Unitech, Jaypee Infratech and Amrapalli are being pursued by banks
and home buyers who had paid them advances but not received their houses have
turned to the courts. They fear they would lose out in case of liquidation because
home buyers’ claims will be considered only after those of secured creditors like the
banks have been settled.
The real estate story is of special interest because the post-liberalization evolution of
this sector reveals quite starkly the characteristics and contradictions of post-reform
growth. An overriding objective of neoliberal reform is to get (domestic and foreign)
private investment to drive economic growth by providing it the right environment
and offering it the appropriate incentives. But in a market economy, while supply side
initiatives may help nudge into activity a private sector afflicted with inertia, those
initiatives would work only if the fruits of such activity find a market. So even if it is
not among the stated objectives of reform, a parallel thrust of policy must be that of
stimulating demand.
 Index

Topic Page number

Chapter 1: Introduction
1.1 Background of Study 7
1.2 Literature Review 8
1.3 Objectives 9
1.4 Research Methodology 9
1.5 Limitations 10
1.6 Chapter Planning 10
Chapter 2: Conceptual Framework 11
Chapter 3: Data Analysis and Interpretation 13
3.1 Residential Sector 14
3.2 Commercial Sector 17
3.3 Retail Sector 20
3.4 Hospitality Sector 23
Chapter 4: Growth Drivers of Real Estate 25
4.1 Economic Growth 26
4.2 Urbanization 27
4.3 Tourism 28
4.4 Office Market Review 30
4.5 Emergence of SEZs 31
Chapter 5: Investment Avenues 32
5.1 Mergers and Acquisitions 33
5.2 Private Equity Investment 34
5.3 Niche Sectors 35
5.4 Start ups 36
Chapter 6: Major Challenges Faced 38
Chapter 7: Key Government Policies 44
Chapter 8: Real Estate Act, 2016 51
Chapter 9: Impact of GST 54
Chapter 10: Conclusion 58
Bibliography 60

Table of Graphs
 Topic Page Number
Demand Supply Analysis of Residential Sector 15-16
Demand Supply Analysis of Commercial Sector 18-19
Demand Supply Analysis of Retail Sector 21-22
Demand Supply Analysis of Hospitality Sector 23-24
GDP Growth Analysis 26
Analysis of Urbanization 27
Tourism Growth Analysis 29
Housing Growth Rate 39
Rental Income as percent of property’s purchase price 41

List of Tables

Topic Page Number

Growth Drivers for Real Estate 25
Investment Avenues 32
Major M&As 33
List of Private Equity Funding 34
Hits and Misses of Real Estate Act 52
Scenario after Implementation of GST 55

Chapter 1: Introduction
 1.1 Background of Study
The term “Real-estate‟ is defined as land including the air above it and the ground
below it, and any buildings or structures on it. It is also referred to as realty. It covers
major three segments. E.g. residential housing segment, commercial offices segment,
trading spaces
such as theatres, hotels and restaurants, retail outlets covered under the retail real-
estate
segment, It also cover industrial buildings such as factories and government buildings.
Real estate also involves the purchase, sale, and development of land, residential and
non-residential buildings. The main players in the real estate market are the landlords,
builders, buyers, real estate agents, developers, tenants etc. The activities of the real
estate
sector encompass the housing and construction sectors also.
The legal definition of real estate or real property is land and the buildings on it. Real
estate law governs who may own and use the land. This simple concept includes a
wide range of different legal disciplines. First, real estate may be either residential or
commercial. It can be owned by one person but used by another through rental
arrangements. Land can be bought or sold, and due to its high value, there are many
local laws that ensure real estate transactions are properly performed and recorded.
Land may also pass between family members through estate planning, or may be
owned by more than one person. Finally, state and local governments have rules
concerning the purposes for which land may be used -- for example, each plot of land
must be used according to local zoning laws, and landowners may not damage the
surrounding environment. Few authors have given the various definitions for the real
estate as per the use of the property and nature of use of particular real estate and
further with a view to engagement of a particular property for the different intent,
Real estate is property consisting of land and the buildings on it, along with its natural
resources such as crops, minerals, or water; immovable property of this nature; an
interest vested in this, an item of real property; buildings or housing in general. Real
estate is sometimes inaccurately spoken of as a profession, but it is essentially a
business.

1.2 Literature Review

The literature pertaining to the real-estate market in India consists primarily of reports
published by the Indian Brand Equity Foundation (IBEF) and by the National
Housing Bank. A large number of studies is done on the growth of the different real
estate sectors as well as a very detailed look has been put into the notable trends in
these sectors over the years and what can be predicted about the same for the coming
years. Demand for residential properties has surged due to increased urbanisation and
rising household income. India is among the top 10 price appreciating housing
markets internationally. About 10 million people migrate to cities every year. In 2016,
India secured 3rd position in the US Green Building Council (USGBC) annual
ranking of the top 10 countries for LEED (Leadership in Energy and Environmental
Design. This will generate attractive opportunities for companies to expand their
portfolio. Private equity and debt investments in Indian real estate increased to US$
4.18 billion in 2017, compared to US$ 3.73 billion 2016.

The government has allowed FDI of up to 100 per cent for townships and settlements
development projects. Under the Housing for All scheme, 60 million houses are to be
built which include 40 million in rural areas and 20 million in urban area by
2022.Real Estate Bill was passed in March 2016 to establish a real estate regulatory
authority for regulating and promoting the sector.

The urban housing shortage in India is estimated at around 10 million units which is
being addressed through Pradhan Mantri Awas Yojana (PMAY), Urban, under which
1,427,486 houses have been sanctioned in 2017-18. Significant increase in real estate
activity in cities like Indore, Raipur, Ahmedabad, Jaipur and other 2-tier cities; this
has opened new avenues of growth for the sector. Relaxation in the FDI norms for
real estate sector has been done to boost the real estate sector. In March 2017, the
State Bank of India (SBI) and the Confederation of Real Estate Developers’
Association of India (CREDAI) signed an MoU for three years to work towards the
development of real estate sector. The market size of real estate in India is expected to
increase at a CAGR of 15.2 per cent during FY2008 – 2028E and is estimated to be
worth US$ 853 billion by 2028.

1.3 Objectives of the Project

- Analysing the growth and scope of growth in the real estate industry
- Examining the current situation or scenario, the key drivers and notable trends of
various segments within real estate market in India - To forecast the investments to be
made through the different avenues in this sector
- To explore and quantify the present and future impacts of key or notable growth
drivers
- To note and adapt to the changes in the taxation structure through Government
initiatives in the real estate sector
- Lastly, to inspect the impact of introduction of GST in this sector

1.4 Research Methodology

• Secondary data is the sole source of information used for the various topics of the
study.
• The material has been compiled after reviewing numerous articles, reports, research
papers etc. from government as well as private sources.
• For better understanding, Pie charts, Bar graphs and line graphs are used throughout
the project.
• The data used has been cross-checked with alternate sources on sample basis and the
data gives an accurate overview of the Real estate market.
• Period of the study is: 2014 – 2018

1.5 Limitations
• The complete reliance on the data provided by the government and private
organisations is a limitation since the data may not differ but can be inaccurate.
• The unorganized nature of the real estate sector makes the data compiled to not take
into account the contribution and the effect on small players in all the segments.
• Doesn’t take into account the exchange rate with INR for the investment whose
valuation is available in USD
• Heavy reliance on estimates for the study which is based on growth, it may be
uncertain depending upon various circumstances.

1.6 Chapter Planning

The chapter planning for the project is as follows:
Chapter 1: Introduction
Chapter 2: Conceptual Framework
Chapter 3: Data Analysis and Interpretation
Chapter 4: Growth Drivers for Real Estate in India
Chapter 5: Investment Avenues in the Real Estate Sector
Chapter 6: Major challenges faced by the growth
Chapter 7: Key Government Policies for the growth
Chapter 8: Regulations of Real Estate Act, 2016 Chapter 9: Impact of GST on Real
Estate Sector
Chapter 10: Conclusion

Chapter 2: Conceptual Framework

Real estate is “property consisting of land and the buildings on it, along with its
natural resources such as crops, minerals or water; immovable property of this nature;
an interest vested in this (also) an item of real property, (more generally) buildings or
housing in general. Also: the business of real estate; the profession of buying, selling,
or renting land, buildings, or housing.” It is a legal term used in jurisdictions whose
legal system is derived from English common law, such as India, England, Wales,
Northern Ireland, United States, Canada, etc. There are four types of real estate:

RESIDENTIAL REAL ESTATE

includes both new construction and resale homes. The most common category is
single-family homes. There are also condominiums, co-ops, townhouses, duplexes,
triple-deckers, quadplexes, high-value homes, multi-generational and vacation homes.

COMMERCIAL REAL ESTATE

includes shopping centres and strip malls, medical and educational buildings, hotels
and offices. Apartment buildings are often considered commercial, even though they
are used for residences. That’s because they are owned to produce income.

INDUSTRIAL REAL ESTATE

includes manufacturing buildings and property, as well as warehouses. The buildings
can be used for research, production, storage and distribution of goods. Some
buildings that distribute goods are considered commercial real estate. The
classification is important because the zoning, construction and sales are handled
differently.

LAND
includes vacant land, working farms and ranches. The subcategories within vacant
land include undeveloped, early development or reuse, subdivision and site assembly.
Here’s more at Land Broker Transactions.
However, according to the topic chosen, the 4 categories of Real Estate in India that
will be studied in the project are:
• Residential Sector
• Commercial Sector
• Retail Sector
• Hospitality Sector

Rajiv Gandhi, gives this interesting definition of Real Estate in India as per 10th Plan
Com document (wonder whether Plan Com docs will be referenced in future):
The term “real estate” is defined as land, including the air above it, the ground
below it, and any buildings or structures on it. It is also referred to as realty. It covers
residential housing, commercial offices, trading spaces such as theatres, hotels and
restaurants, retail outlets, industrial buildings such as factories and government
buildings. Real estate involves the purchase, sale, and development of land,
residential and non-residential buildings.
Chapter 3: Data Analysis and Interpretation

Residential Sector

Commercial Sector

Retail Sector

Hospitality Sector
3.1 Residential Sector
In contrast to developments in the corporate office space, demand for residential
space remained subdued during January–March 2016 period. Despite price
movements remaining stable, home buyers’ demand remained low in recent months
due to existing high price points coupled with a cautious buyer sentiment. In many
ways, the year 2015 was a defining one for the residential real estate segment in India.
This was the period when the market began to evolve, along with customer
expectations as well as market dynamics. The most important change among these,
perhaps, came about in the outlook of the home buyer. Apart from the Government’s
renewed focus on large scale urban infrastructure and development of affordable
housing, the Central Bank, for its part, remains accommodative towards further easing
of interest rates. These moves could help spur property purchase decisions, propelling
the market forward. Several regulation and policy initiatives launched recently—such
as the Real Estate Bill—are also expected to boost home buyer sentiments. The
residential market is expected to see a qualitative change, going forward. While home
buyers will continue to remain discerning in terms of quality products delivered
without delays; development firms will likely turn their focus on quality construction
and on timely delivery of their projects. Monetary easing, meanwhile, is expected to
be fully passed on to end-users by 2016. It is hoped that the Government will continue
to provide incentives to sectors such as construction materials, while aggressively
driving urban infrastructure projects.

Scenario
• A localised, fragmented market presents opportunities for consolidation with only
few large, pan-India players such as DLF and Unitech
• More foreign players might enter the market as FDI norms have eased
• Furthermore, norms on land acquisitions is expected to be relaxed

Key drivers
• Rapid urbanisation
• Growth in population
• Rise in the number of nuclear families
• Easy availability of finance
• Repatriation of NRIs and HNIs
• Rise in disposable income

Notable Trends
• Demand growing at a CAGR of 2.0 per cent over the period 2013-17 across top 8
cities in India
• NCR is expected to generate maximum demand in MIG and HIG category followed
by Bengaluru
• Developers now focusing on affordable and mid-range categories to meet the huge
demand
• During the period January-June 2016, residential sector commanded the largest
share of PE investments with a total value of US$ 1.29 billion (44 per cent)
• During the third quarter of 2016, cumulative investment in residential assets
increased at 9 per cent on q-o-q basis

Demand –Supply analysis according to income groups

Demand analysis of top 8 cities (‘000 units) 2014-18 (MIG+HIG)

Source: Cushman & Wakefield, TechSci Research

3.2 Commercial Sector

Following a particularly strong fourth quarter of 2015, the first quarter of 2016 was
comparatively sluggish as most corporate space occupiers were still strategizing their
real estate plans for the year, with limited transaction decisions being implemented
during the January–March 2016 period. Corporate office space take-up during the
quarter was led by Delhi National Capital Region (NCR) with a share of 31% of total
transacted space in the leading cities, followed by Mumbai (23%) and Bangalore
(17%). Industry sectors such as IT/ITES and banking / financial services are likely to
remain the dominant demand drivers for office space in the country, with
manufacturing / engineering, e-Commerce, and pharmaceuticals being the other active
sectors that are likely to generate demand for corporate real estate space. Occupiers
are also likely to keep a strong check on space utilization ratios and innovate their
workplace strategies. Demand for SEZ space and pre-commitments in projects
nearing completion are expected to continue to improve in the coming months. Rental
values were largely stable across most Central Business Districts of leading cities in
the first quarter. Furthermore, increased occupier demand in quality IT and SEZ
projects in Mumbai, NCR, Chennai, Pune, and Hyderabad, resulted in a quarterly
rental appreciation of 2–10%. Office space leasing demand is expected to remain
steady in the coming months, backed by new and expansionary activities from
technology firms, domestic / multi-national financial institutions, engineering /
manufacturing firms, along with the culmination of pre-leased space in newly
completed developments.

Scenario
• Few large developers with a pan-India presence dominate the market
• Operating model has shifted from sales to a lease-and-maintenance

Key drivers
• Rapid growth in services sectors: IT/ITES, BFSI and Telecom
• Rising demand from MNCs
• Demand for office space in Tier 2 cities
Notable Trends
• Mumbai, NCR and Bengaluru account for 60 per cent of total office space demand
in India by 2017
• Bengaluru is likely to experience highest demand over 2013-18 followed by
Mumbai and NCR
• Business activity shifting from CBDs to SBDs, Tier 1 to Tier 2 cities
• As on September 2016, the total prime office space absorption across seven leading
cities in the country was about 28 million sq. ft

Demand projections across top 8 cities (million sq. ft)

Demand analysis of top 8 cities (million sq. ft) 2014-18

Source: Cushman & Wakefield, TechSci Research

3.3 Retail Sector
On the commercial retail real estate front, brands displayed robust leasing demand in
key cities with a number of new retailers who entered the market, while others
expanded their presence. Although the lack of quality supply and scalability remained
the key challenges for the Indian retail market, foreign retailers continue to view the
country as a positive market and a key growth priority within the Asia Pacific region.
Alongside the rise of online retail, physical stores continue to remain strong as well.
Overall market sentiments during the first quarter of 2016 remained upbeat as the
economy continued to improve. European brands accounted for the bulk of shopping
space demand in Q1 2016, followed by US groups. Within the country, domestic
retailers have been expanding steadily, especially in tier-II and III cities and towns,
largely led by F&B groups. Overall, retailer demand was broad based in Q1 2016,
although fast fashion and F&B remained the two most active retail segments. The
most popular formats within the F&B segment continued to be quick service
restaurants (QSRs), coffee shops and cafés. The growth of the mid-range fashion
sector continued. The F&B and fast fashion segments are expected to remain the
primary retail real estate demand drivers. By and large, the year 2016 is perceived as
a positive year for the Indian retail market. Leasing activity is expected to witness
an uptick over the next few months. Although shopping centres are the focal point
of F&B and fashion brands, retailer interest is going to be mainly confined to the
top shopping centres run by the most reputable operators. Recent quarters have seen
several shopping centre landlords reduce shop sizes to create space for new overseas
brands. More retailers are also implementing omni-channel retail strategies by
establishing online portals as well as strengthening their network of physical stores.

Scenario
• Currently, retail accounts for a small portion of the Indian real estate market
• Organised retailers are few, and the organized retail space is mostly developed by
residential/office space developers

Key drivers
• Booming consumerism in India
• Organised retail sector growing 25-30 per cent annually
• Entry of MNC retailers
• India’s population below 30 years of age having exposure to global retail are
expected to drive demand for organized retail

Notable Trends
• NCR accounts for about 49 per cent of the total upcoming mall supply
• Total mall vacancy is 14.1 per cent across eight cities
• Total 213 malls are operational in India
• Demand for retail space on high streets is quite high, as well as increase in FDI limit
for multi brand retail will lead to significantly higher demand for retail space

Demand projections across top 7 cities (million sq. ft)

Upcoming mall supply across top 8 cities (2015)

Source: Cushman & Wakefield, TechSci Research

3.4 Hospitality Sector

Scenario
• NCR and Mumbai are by far the biggest hospitality markets in India, followed by
Bengaluru, Hyderabad and Chennai
• Besides hotels, the hospitality market comprises serviced apartments and convention
centres

Key drivers
• A robust domestic tourism industry
• The increasingly global nature of Indian businesses boosting business travel
• Tax incentives for hotels and higher FSI
• Expansion of physical infrastructure during the 12th Five Year Plan

Notable Trends
• Serviced apartments appear particularly attractive within the hospitality space
• Government initiatives to promote tourism in Tier 2 and Tier 3 cities is generating
significant demand for hotels in such cities, especially for budget hotels

Trend analysis (stock - no of rooms) (‘000)

Occupancy Vs. Stock (2017)

Source: Cushman & Wakefield, TechSci Research

Chapter 4: Growth Drivers of the Real Estate Sector
in India

Growth Growth
Drivers Drivers

Growth
Drivers

Growth Growth
Drivers Drivers
4.1 Economic Growth
GDP and real estate sector of India are interlinked with each other. With a rise in
GDP, employment increases due to investment in infrastructure and business. This
leads to increase in income and purchasing power of people. As purchasing power
increases, demand for housing (rental and purchase) also rises. Therefore, the prices
of property also increase in that region.
The Indian economy experienced robust growth in the past decade and is expected to
be one of the fastest growing economies in the coming years
Demand for commercial property is being driven by the country’s economic growth
India’s real GDP grew to 6.8 per cent in 2014 and would rise to 6.6 per cent in 2015
compared with emerging economies’ average of 4.60 per cent and 4.2 per cent,
respectively. India’s real GDP is estimated to be 6.8 per cent in 2019
4.2 Urbanization
India’s urban areas are classified on the basis of two criteria. First, the state
Government grants municipal status-corporation, municipal council, notified town
areas committee or nagar Panchayat, etc., to a settlement. Such settlements are known
as statutory or municipal town in the census definition of urban areas. Second, if a
settlement does not have an urban civic status, but satisfies demographic of more than
5,000 a density of 400 persons per square kilometre and 75% male workforce in the
non-agriculture sector, it can be declared urban. Such urban areas are termed census
towns.
India’s urban population as a percentage of total population is around 32.7 per cent in
2015 and is expected to rise to 40 per cent by 2030
Better wages and better standard of living is expected to result in an increase in urban
population in India to above 600 million by 2031 from 429 million in 2015
Government initiatives such as various urban development policies and programmes
(e.g., JNNURM) are expected to contribute to enhanced urbanization.
Urbanisation and growing household incomes are driving demand for residential real
estate and growth in the retail sector

Population breakdown of India (million)

Source: Indian Census, World Bank, Mckinsey estimates

4.3 Tourism
• In 2015, 8 million foreign tourists arrived in India, whereas, from January 2016 to
May 2016, foreign tourists in India reached to 3.6 million
• The number of foreign tourists arriving in India is expected to increase at a CAGR
of 7.1 per cent during 2007–25E
• India’s tourism & hospitality industry is anticipated to touch USD418.9 billion by
2022.
• India earned foreign exchange of about USD21.1 billion from tourism sector in 2015
• During 2006-15, India’s foreign exchange earnings from tourism grew at a CAGR
of 10.5 per cent
• During January to May 2016, India earned USD9.3 billion from tourism sector
• The growing inflows from tourists is expected to provide a fillip to the hospitality
sector
• Booming Indian medical tourism industry is expected to grow with a CAGR of over
27 per cent during 2012–15
• The Indian Medical tourism is gaining momentum with 8 million medical tourist
targeted by 2020
• Foreign tourist arrivals are expected to increase at a CAGR of 6.7 per cent during
2012–25E
• The number of foreign tourists arriving in India in 20161 has reached 3.6 million
• As of 30 July 2015, the country had 972 approved hotels with 63715 rooms

City wise analysis

• Bengaluru -Corporate clients expected to provide steady growth to room demand

• Chennai-Emerging as promising commercial destination with Chennai Bengaluru

Industrial Corridor, likely to witness strong demand

• Hyderabad Room demand is expected to be driven by commercial and office space

projects in the city
• Kolkata - Projects like Light Rail Transport System, Mono Rail, Eco-Park, Airport
expansion etc. are likely to boost travel which would result in increase in demand for
hotel industry

• Mumbai- Improved infrastructure, new airport terminal and upcoming airport in

Navi Mumbai expected to provide growth to hotel industry

• NCR-Higher Floor Space index, inclusion of hotel projects in infra lending lists
provide a positive outlook to hotel market in NCR

• Ahmedabad - Upcoming office space likely to boost hospitality segment

• Pune - IT parks are attracting global players and increasing traffic. New business
units are likely to increase business conferences, events which in turn would boost
hotel demand

Foreign tourists arriving in India (million)

4.4 Office Market Overview
• In 2015, the top 8 cities recorded a net office absorption of 32.45 MSF, displaying
strong growth potential
• Office market has been driven mostly by growth in ITeS/IT,BFSI, consulting and
manufacturing
• Moreover, many new companies are planning a foray into Indian markets due to
huge potential and recently relaxed FDI norms
• Demand for prime office space was recorded at 11 million sq. ft. for the period July
– September 2016, showing a growth of 14 per cent on a year-on-year basis
• Rental rates likely to see a gradual upward trend in Bengaluru
• Supply will exceed demand and hence increase vacancies In Hyderabad
• Rent will remain stable, oversupply will impact non-core locations in 2014-15 in
Delhi
• In 2015, with a share of more than 83 per cent, majority of transactions in Mumbai
was driven by commercial office sector
• Moderate demand, high vacancy and an increased preference for suburban market
with low rentals could pressure the core areas in Pune
• As of November 2016, Singapore’s DBS Bank announced its plans to secure 100
thousand sq. ft. of prime office at Mumbai’s Nariman Point, on lease basis. With a
total tenure of nine years, the deal will be the largest transaction in the history of the
area
• Commercial office sector garnered the second largest share of investments which
stood at USD0.3 billion; hospitality sector has the highest share with investments
around USD0.34 billion during January-September 2015
• Primal Fund Management has expanded its portfolio to offer Flexi - Lease Rental
Discounting (LRD). By 2018, the fund aims at securing lease rental discount deals
worth USD 1.49 billion

Source: Cushman and Wakefield, TechSci Research

4.5 Emergence of SEZs
India was one of the first in Asia to recognize the effectiveness of the Export
Processing Zone (EPZ) model in promoting exports, with Asia's first EPZ set up in
Kandla in 1965. With a view to overcome the shortcomings experienced on account
of the multiplicity of controls and clearances; absence of world-class infrastructure,
and an unstable fiscal regime and with a view to attract larger foreign investments in
India, the Special Economic Zones (SEZs) Policy was announced in April 2000.
This policy intended to make SEZs an engine for economic growth supported by
quality infrastructure complemented by an attractive fiscal package, both at the Centre
and the State level, with the minimum possible regulations. SEZs in India functioned
from 1.11.2000 to 09.02.2006 under the provisions of the Foreign Trade Policy and
fiscal incentives were made effective through the provisions of relevant statutes.
100 per cent FDI permitted in real estate projects within Special Economic Zone
(SEZ).
100 per cent FDI permitted for developing townships within SEZs with residential
areas, markets, playgrounds, clubs, recreation centres, etc.
In FY16, exports from SEZs accounted for 27 per cent of total exports.
Industry players, including realtors and property analysts, are rooting for the creation
of "Special Residential Zones" (SRZs), along the lines of SEZs
Minimum land requirement has been brought down from 1000 hectares to 500
hectares for multi-product SEZ and for sector-specific SEZs to 50 hectares
In 2016, the government has approved six proposals from four developers to set up
new special economic zones (SEZs) across three states in areas such as IT and
biotechnology.

Source: Ministry of Commerce and Industry, SEZ website, TechSci Research

Chapter 5: Investment Avenues and Opportunities in
the Real Estate Market

Investments and Investments and

Opportunities Opportunities

Investments and
Opportunities

Investments and Investments and

Opportunities Opportunities
5.1 Mergers and Acquisitions
• Canada –based real estate giant Brookfield Asset Management Inc announced the
acquisition of Unitech Corporate Parks Plc (UCP) for approximately USD337.4
million in June 2014. Brookfield would acquire Candor Investments Inc, the holding
company for UCP
• A Singapore based wealth fund named GIC and Ascend has set up a growth fund
with an initial corpus of USD600 million. The main objective of the program is to
invest in business space in major cities
• In June 2015, online real estate platform Housing.com had acquired 100 per cent
equity of a risk assessment firm Realty Business Intelligence for USD1.7 million.
This acquisition would empower Housing.com customers with risk assessment and
credible real estate market intelligence in taking informed decision making while
investing in new projects
• In April 2016, Blackstone Group announced its plans to acquire a majority stake in
Mphasis Limited. The deal would be the largest acquisition by Blackstone in the
country.
5.2 Private Equity Investment
In 2015, Mumbai reported maximum PE investments in real state sector, followed by
NCR, Chennai and Bangalore
In March 2016, Piramal Enterprises Ltd. Jointly with APG Asset Management
company invested USD132 million in Essel Infrastructure Ltd.
In July 2016, PE firm Apollo Global Management invested in Logix Group to fast
track existing commercial and residential projects of the company
For the period January-September 2016, total PE investments in the real estate sector
were recorded at USD 4.24 billion, showing a 22 per cent increase compared to the
same period last year
As of October 2016, Cerestra Advisors Ltd, a real estate-focused PE firm, bought
Alexandria Knowledge Park at Genome Valley in Hyderabad, for US$ 61.10 million.
The company plans to build an office portfolio focused on R & D

Major Private Equity Funding’s

Investor Investee USD Million
KKR & Co LLP Sunteck Reality Ltd 22.4
Apollo Global Logix Group 59.5
Management
Piramal Fund Lodha Group 63.2
Management
KKR & Co LLP Mantri Developers Pvt 21.5
Ltd
Govt of Singapore Nirlon 328.3
Blackstone Group 3C Company 104.2
Clearwater Capital Lotus Greens Developers 75.0

Source – Corporate Catalyst India, Business Standard

5.3 Niche Sectors Expected to Provide Growth

Healthcare
• The healthcare market reached USD100 billion in 2015 • India requires additional
1.1 million beds by 2015 • India needs to add 2 million hospital beds to meet the
global average of 2.6 for every 1,000 people

Senior Citizen Housing

• Emergence of nuclear families and growing unorganized have given rise to several
townships that are developed to take care of the elderly
• A number of senior citizen housing projects have been planned; the segment is
expected to grow significantly in future

Service Apartments
• Growth in the number of tourists has resulted in demand for service apartments. • In
2015, number of foreign tourist arrivals in India was recorded at 8 million
• This demand is likely to be on uptrend and presents opportunities for the
unorganized sector

Education
India has one of the largest young population in the world
There is huge demand of the education sector because of initiatives of the government
towards education and awareness being created in the society
Heavy investments are being made in educational infrastructure in the forms of
schools, colleges, universities, coaching institutes etc
5.4 Start-ups in Real Estate and E-commerce Websites
Over the last few years, a slew of start-ups in the real estate sector have tried to
transform the property market in India. Plenty of brokerages are trying to tap into the
start-up rage. Overall, the focus is to up customer-centricity, solving even the smallest
of problems in this space
High net-worth individuals (HNIs) are increasingly investing in real estate start-ups,
hoping that fast growth will lead to high returns. Some of the start-ups that have
received funding from HNIs or in the process of doing so include Property Share,
NoBroker, home rental and aggregator Zenify, co-working spaces firm Wired Hub
and home rental platform NestAway. With investments varying between USD 25,000
and USD 100,000 (about Rs 1767 lakh), HNIs usually take 2-5 per cent stake at the
seed stage. HNIs fall into three broad categories: professionals who have done well in
their respective fields, businessmen who have built small and medium businesses and
founders of other start-ups who are either successfully running their companies or
have sold the firms.

So, what made real estate sector come online?

• Indian Real Estate sector is expected to touch USD 180 billion by 2020 with housing
sector alone contributing 5-6 per cent to the country’s GDP. After assessing the
success of e-commerce post 2011, gradually, real estate players started drawing up
their strategies for entering this space.
• It was all about leveraging the use of technology. The success of Zillow and Trulia
in the US created a template to follow for early entrants like 99 acres and
CommonFloor, a decade ago in India. This was followed by the launch of many
online portals like Housing, PropTiger, Magic and NoBroker.

Cracking the right business model

• The biggest pain point while renting, buying or selling a property is the large
brokerage that one has to shell out for using the services of the brokers. If you go to
the online portals and start searching for flats in any area, you would note that most of
the searched results are posted by brokers. Ultimately, you are getting in contact with
the same brokers, and have to pay the same brokerage. Some online platforms like
Flatmates and Nobroker are working on eliminating the brokerage by removing the
interim broker community from the transaction. These platforms are only for owners
and end-users. While these two platforms have gained immense popularity, one major
drawback is the limited inventory. Also, property owners avoid the trouble of creating
listings on multiple portals, and prefer the assurance of a local broker whom they
know personally. Most often we spend hours in finalising some properties online only
to discover fake or unavailable listings. Real estate portals are now spending heavily
on the verification of the properties. Now they go to the extent of visiting the property
before displaying it on their website. All this effort has increased their operational
cost, but this is basic hygiene. Real estate portals are also trying to solve another big
pain point of physically visiting and comparing various properties. With real estate
portals, one can easily browse thousands of options. Virtual Reality (VR) enabling
aerial views, virtual tours, 3-D views, retina etc. is making these platforms, even more
engaging.

Source – 1. www.economictimes.indiatimes.com
2. www.exploringstartups.com
 Chapter 6: Major Challenges Faced

6.1 Job loss in other sectors affect the Indian real estate sector
majorly
People earning in the bracket of Rs. 2 million and Rs. 8 million per annum are the
major investors in the Indian real estate sector. They thus make up for a huge portion
of the factors responsible in the sector’s growth. Most people in this category are
employees in IT and other service sector companies. According to IIFL (2017) India’s
IT and BPO sector employs over 4 million people. However, recently according to
many reports, employees working in the middle management of these industries are at
a higher risk of job loss due to increased automation and artificial intelligence tools
(Money Control, 2017). This affects their ability to purchase a premium or mid-
premium house. Thus, the issue of job loss has hit the sector directly, and demand for
housing will continue to drop (particularly in cities) as a result.

6.2 Inventory pile-up in the Indian real estate sector

According to the survey conducted by ASSOCHAM, some of the major Indian cities
have faced a sharp decline in property prices as well as lending rates. Delhi-NCR
witnessed the sharpest drop with fall in demand by 25-35% (SIC, 2015). The pile up
has been caused due to a number of reasons like fall in demand, litigation issues,
failure to deliver projects on time, poor planning, etc. This has resulted into 2,50,000
units of unsold residential houses in Delhi-NCR alone. Most of the builders consider
unsold flats as work in progress but until the property is sold, they have to pay high
interest rate. This also delays launch of new projects.

6.3 Economic slowdown since recession has affected the real estate
sector

In 2006, the Indian real estate sector was passing through a golden period and
property prices and demand were at an all-time high. However, in 2008 when the
recession hit, several changes were faced such as drying up of fund in banks, stock
market crashes, currency crisis and large-scale job loss (Chaturvedi, Guru, Singh, &
Sharma, 2013). The higher income group put off plans for investment in real estate.
As a result, the demand of housing went down and developers struggled to find
buyers and tenants for their overpriced properties (Tranquils woods, 2012). They were
eventually forced to sell the stock at a loss.

Housing growth rate after and before global crisis of 2008 (Source: Crisil, 2010)

6.4 Need of support from the Government

Of all the challenges reviewed real estate sector of India, only two issues have lately
been addressed on a macro scale;
• eradication of a complex tax structure with the implementation of GST and
• addressing inventory pile-up by implementing the RERA (Real Estate Regulatory
Authority) bill.
Although it will take some time for the effect of these changes to show, it has uplifted
the mood in the sector. However, other issues primarily that of job loss in other
sectors is yet to be addressed effectively. Implementation of attractive schemes and
policies such as Affordable Housing, Housing for All, etc. will be redundant in face of
growing issue of lack of jobs nation-wide, particularly in rural areas. Therefore, more
attention needs to be paid by the governments in tackling this challenge.
6.5 High interest rate and unclear tax rates
Higher interest rate is a vital challenge to the real estate sector. While compared to
countries such as USA and the UK, India’s banks are found to give loans at 7-8%
higher rates. Currently the rate of interest hovers around 10% which is 3-4 times
higher than the interest rate charged by US banks for purchasing a property (IBEF,
2008). The higher the interest rate the lower the demand for property, causing a ripple
effect. Thus, interest rate on home loans is also considered a challenge to developers
of the real estate sector.
As discussed in the previous article, high tax rates and less transparency in the
taxation system of the country are a major challenge. Until recently developers as well
as buyers were faced with multiple taxes such as service tax, VAT, and excise duty
which varied from state to state. The lack in clarity of tax and high prices dissuaded
them from investing in it.
However, with the recent implementation of a standardized tax format (GST of 12%),
the scenario is set to change soon.

6.6 Difficulty in getting bank loans and delay in possession

Home loan seekers commonly face difficulties in procuring a loan from banks and
non-banking financial institutions (NBFCs). The top reason is facing rejection of
application due to lack of knowledge about documentation and lack of required credit
score. Another reason is lack of required sum for down payment on the loan.
Furthermore, dilemma in choosing the interest rate, time taken for property evaluation
and the lengthy loan disbursement process (Financial Express, 2016). In most cases
banks approve loans quickly, they take much longer to disburse the loan. During this
period customers are faced with increased costs and waning interest on the property.
Despite the launch of friendly mobile applications and instant customer service, this
issue remains grave in the financial sector.
Most developers initiate several projects at a point of time and start advertising much
before the completion of the project to attract the customers. However, stoppage in
construction of property due to varied reasons such as lack of funds, litigation, failure
to procure necessary licenses, etc. causes a delay in completion of the project. Due to
this, buyers fail to get their property on time but are faced with the burden of
repayment of loan.
6.7 Low rental yield from the Indian real estate sector

Rental yield is the key determining factor of purchase and the value of a property
(Jagannathan, 2016). A high yield is important for making an investment in the
property. Rental yields in India is among the lowest in the world at 2.2%
(Equitymaster, 2016). This makes buyers looking for property only as investment
somewhat skeptical of purchasing. Also, gross rental income in the major cities
Mumbai, New Delhi, and Bangalore are quite poor despite a consistent rise in
property prices (Shanu, 2016; Singh, 2017). This indicates that real estate in India is
overpriced in some locations, making it a dull investment option. Thus, low rental
yield is a major challenge for real estate.

Rental Income as a % of property’s purchase price in the Indian real estate sector
(Source: Equitymaster, 2017)
6.8 Private preference
This is challenging for a policy frame that refrains from using autonomous state
expenditure as the principal stimulus to growth. The belief is that this is not necessary
and should be avoided when tax and other concessions are used to incentivise private
investment, since increased public expenditure would lead to large deficits that defeat
the purpose of fiscal reform. It must also be avoided because it goes against the grain
of a growth strategy that seeks to give primacy to the private sector.
This implies that demand must come from the private sector. Some of this comes
from derived demand, as is true of commercial real estate. When business is doing
well, demand for office space rises. Nothing illustrates this better than the rapid
expansion of steel and glass-fronted structures in the major metropolitan cities to
accompany the export-led boom in the software and information technology-enabled
services sectors.
As compared with this, the component of the real estate sector that was waiting to
explode due to consumer demand was the personal housing market. Based on the
Census 2011, the total number of households in urban India was placed at 81.1
million in 2012, while the urban housing shortage in that year was estimated at 18.78
million. That is, close to a quarter (23.2 per cent) of households in urban India needed
new houses because they were homeless or lived in dilapidated or over-congested
accommodation.
But this is only indicative of the fact that the “technical” demand for housing in a
rapidly urbanising economy with a high share of youth in the population is bound to
be high. The challenge for the reformers was to convert this technical demand into
effective demand. The opportunity to do this came from two sources, especially from
the early 2000s. The first was the rapid build-up of liquidity in the economy, resulting
from a combination of an easy money policy and a sharp increase in foreign capital
inflows. The second was financial liberalisation that allowed banks to hugely expand
credit based on that liquidity, even if it entailed substantial increases in exposure to
certain sectors.
6.9 The rise of housing loans

One area that benefited from this credit splurge was real estate. The growth of
housing loans gathered momentum at the end of 1990s and remained at extremely
high levels right up to 2006-07, before the global crisis. As a result, the share of
housing finance in total credit rose from 5 per cent in 2001-02 to 12 per cent in 2006-
07.
What is interesting is that despite the effects of the global financial crisis in 2007-08,
the expansion of credit to both housing and the overall construction sector remained
high till very recently.
The increase in housing investments is often attributed to the low level of penetration
of the mortgage market in India, standing at 7 per cent in 2006, as compared to 12 per
cent in China, 17 per cent in Thailand, 26 per cent in Korea, 29 per cent in Malaysia
and as much as 80 and 86 per cent respectively in the US and UK respectively. But
these differential penetration rates have to be seen in the light of differentials in per
capita income and the degree of income inequality, both of which do not favour a
significantly large mortgage market in India. So it was the willingness of the banks to
lend without collateral to a larger universe of borrowers that generated the boom. As a
result of the increased exposure to debt, a number of realty firms are in default and
some are facing bankruptcy.
A similar boom was seen in the infrastructural area, which also received large loans
from the banking system. Before the 2000s, banks were wary of lending to this area
because of the long maturity, low liquidity and higher risk involved in loans to this
sector. Partly because banks dropped that reticence and hugely increased lending to a
few large borrowers in this sector, they are now finding themselves burdened with
large NPAs. This is what has set off the bad debt resolution process based on the
recently announced Insolvency and Bankruptcy Code.
6.10 Defaulting developers

Within the real estate sector, it is developers rather than home buyers who seem to be
defaulting on payments. Competition between developers led to massive accumulation of
land, as they built up land banks as a strategic weapon against one another. Borrowing for
this purpose and land development meant that the interest burden accumulated by
developers was huge, and in excess of what could be met by the development and
marketing of house properties and commercial floor space. So leading developers have
also stopped servicing debt and have become part of the NPA problem. The impact on
construction is reflected in the deceleration and recent decline in cement production
(Chart 3), which is a commonly used proxy for real estate growth.
A fallout of the NPA problem is, banks are less willing to lend as they work on cleaning
up balance sheets and finding funds to recapitalise themselves. This has hit even the
housing sector, where defaults have been far less than in areas like construction. Here too,
while credit and demand for housing are still growing, they are fast losing momentum.
Thus, trapped between rising interest and other costs and faltering demand that affects
prices, the real estate sector is experiencing a severe version of the crisis stemming from
the inability of the system to sustain growth-driven by private debt-financed spending.
 Chapter 7: Key Government Policies for 2016 and
2017

7.1 Key Highlights of Government Policies in 2016

January
• Government releases list of 20 smart cities winners
• Ship building gets infrastructure status

February
• ECB norms eased for infrastructure firms
• Additional interest deduction for first homebuyers
RBI notified companies in infrastructure sector, non-banking financial companies-
infrastructure finance companies (NBFC-IFCs), NBFCs-asset finance companies
(NBFCAFCs), holding companies and core investment companies (CICs) will also be
eligible to raise ECB under Track 1 of the framework with minimum average maturity
period of 5 years. But this will be subject to 100 per cent hedging. Companies in
infrastructure sector, Holding Companies and CICs will continue to have the facility
of raising ECB under Track II of the ECB framework subject to the conditionalities
prescribed. Under Track III, the NBFCs can raise ECBs for on-lending for any
activities including infrastructure as permitted by the concerned regulatory
department of the central bank.

March
• Real Estate Bill receives President’s assent
• Budget 2016 exempts REITS from Dividend Distribution Tax

April
• Government’s Rs 20,000 crore radial road plan to decongest Delhi
• Italy eyes India’s USD 1.2 trillion Smart Cities mission

May
• Real Estate Act comes in force after 8 years
• New RBI caps expected to hit infra projects’ funding
Future infrastructure projects will need Rs 11 lakh crore outside the banking system,
following the RBI’s rules which propose to restrict lending for large borrowers. At the
same time, around 57 borrowers might find their future borrowings from banks
capped. A report by SBI’s economic department said that Rs 41.5 lakh crore is the
borrowing limit for borrowers with a credit limit of over Rs 25,000 crore. Similarly,
the requirement of debt funding for infrastructure projects is estimated to be Rs 22.6
lakh crore. While the new norms cap lending, they seek to move corporates to issue
bonds by channelizing some money into the bond market.

June
• Government notifies new land acquisition policy
• No service tax on purchase of under construction flats

July
• Joint Parliamentary Committee on Land Bill gets seventh extension
• Rs 24,000 crore raised as building cess lying idle.

August
• Tata Realty to invest Rs 10,000 crore in infra projects
• Rajya Sabha passes bill to tighten noose around loan defaulters

September
• Cabinet approves initiatives to revive the construction sector
• SEBI eases norms for REITs, InvITs.
• List of additional 27 cities under the Smart Cities Mission announced
REITs are allowed to invest up to 20 percent in under construction assets. Allowed
REITs to invest in two level SPV structure through holding company (Holdco),
subject to sufficient shareholding in the Holdco and the underlying SPV and other
safeguards including REITs to have right to appoint majority directors in the SPVs.
Holdco will distribute 100 per cent cash flows realised from underlying SPVs and at
least 90 per cent of the remaining cash flows. SEBI reduced the mandatory sponsor
holding in InvIT to 15 per cent and rationalised the requirements for private
placement of InvIT.
October
• Revenue from Income Declaration Scheme to be spent on infrastructure
• Homebuyers expected to get relief for delay in delivery
On August 31, 2016, the Cabinet Committee on Economic Affairs (CCEA) chaired by
the Hon’ble Prime Minister, approved various measures to revive the construction
sector.

November
• Demonetisation impacted the liquidity in the sector
• RERA rules notified
• Housing prices expected go up by 20 per cent post the announcement of
demonetisation
Real estate developers will have to furnish additional information regarding the
ongoing projects for the benefit of the buyers besides depositing 70 per cent of the
unused funds in a separate bank account to ensure their completion. This has been
stipulated in the Real Estate (Regulation and Development) (General) Rules, 2016
notified on October 31, 2016 by the Ministry of Housing & Urban Population. Rules
have been specified in relation to ongoing projects, registration of projects,
registration fees and compounding of punishment.

December
• Indian realty expected to provide USD 77 billion REIT investment opportunity by
2020
• Canada Pension Plan Investment Board (CPPIB) to invest in India’s largest realty
deal
Indian real estate is likely to provide investment opportunity worth up to USD 77
billion through Real Estate Investment Trust (REIT) - eligible commercial - office and
retail, properties across the country’s top seven cities by 2020.
7.3 Real Estate Investment Trusts (REITs)

REITs, which raise funds from a large number of investors and directly invest that
sum in income-generating real estate properties, are trusts which are listed on stock
exchanges so that investors can buy units in the trust. The assets of an REIT are held
by an independent trustee on behalf of unit holders. REITs are similar to mutual
funds. While mutual funds provide for an opportunity to invest in equity stocks,
REITs allow one to invest in income-generating real estate assets. The investment
objective of REITs is to provide unit holders with dividends, usually generated from
rental income and capital gains from the profitable sale of real estate assets. Typically,
the trust distributes 90 per cent of its income among its investors by issuing dividends.
On 23 September 2016, the Securities and Exchange Board of India (SEBI) in its
board meeting held approved certain amendments in the regulations to facilitate
growth of InvITs and REITs. These amendments include: • REITs are allowed to
invest up to 20 per cent in under construction assets • Allowed REITs to invest in
two-level SPV structure through holding company (Holdco), subject to sufficient
shareholding in the Holdco and the underlying SPV and other safeguards including
REITs to have right to appoint majority directors in the SPVs and Holdco to distribute
100 per cent cash flows rational from underlying SPVs and at least 90 per cent of the
remaining cash flows
• SEBI reduced the mandatory sponsor holding in InvITs to 15 per cent and
rationalized the requirements for private placement of InvITs

• Several companies will now be able to move ahead with their REITs plans without
changing the existing capital structure. Until now, the companies had to dissolve the
holding company structure, and bring the existing SPVs under the parent company

• The changes are favourable to small real estate companies as five different
companies, with limited number of assets can pool them together for a REITs listing

• Foreign fund managers allowed to act as Portfolio Managers

• SEBI has proposed to provide permanent registration to merchant bankers,
investment advisers, research analysts and 8 other categories of market intermediaries
for ease of doing business

• Allowing companies to allot more shares for their employees during public offers,
SEBI increased the limit for the value of such allotments to Rs 5 lakh, up from Rs 2
lakh under staff quota

• Markets regulator SEBI also allowed foreign investors to own up to 15 per cent
stake in domestic stock and commodity exchanges, as against the current policy
where the foreign entities could hold only up to 5 per cent stake in an exchange
7.4 Cabinet approves initiatives to revive the construction sector
As one of the largest contributors to India’s GDP, accounting for around 8 per cent,
the construction sector generates the highest level of direct and indirect employment
for about 40 million people and creates 2.7 new jobs indirectly for every lakh
invested. In recent years, the construction sector has been affected by the large
number of projects which got stalled during the period of stagnation between 2011
and 2014 and also, liquidity constraints arising on account of their payments not being
released by Government Departments/ Public Sector Undertakings (PSUs) pursuant to
the arbitral awards. To address these problems of the construction sector, on August
31, 2016, the Cabinet Committee on Economic Affairs (CCEA) approved various
measures to revive the construction sector.

Initiatives by the Government:

• In case of claims where the PSUs/departments have challenged the arbitral award,
75 per cent of the award amount may be paid by the PSU to the contractor/
concessionaire against margin-free bank guarantee
• In case a court order requires refund of money paid by a PSU/Department against a
bank guarantee, the amount shall be refunded by the contractor/concessionaire along
with interest
• The promoter cannot make any addition or alteration in the approved and sanctioned
plans, structural designs, specifications and amenities of the apartment, plot or
building without the previous consent of the allottee
• All PSUs/departments issuing public contracts may consider setting up Conciliation
Committees/Councils comprising of independent subject experts in order to ensure
speedy disposal of pending or new cases
• PSUs/departments may seek the consent of the contractors/ concessionaires to
transfer the arbitration cases initiated under the pre-amended Arbitration Act to the
amended Arbitration Act, wherever possible
• Item-rate contracts, may be substituted by EPC (turnkey) contracts, and
PSUs/departments may adopt the Model EPC contracts for construction works; and
• Department of financial services, in consultation with the Reserve Bank of India,
may evolve a suitable onetime scheme for addressing stressed bank loans in the
construction sector
Expected benefits of these initiatives:
• Financial support and quicker project execution will ensure that the objectives of the
government and the industry remain in sync, and that both move forward together.
The cascading impact on the economy will be significant.
• Stalled projects have a major bearing on debt recovery of the financial institutions,
which in turn fuel stress within the financial system by increasing bad debts and
stretching the recovery period. The new measures will ensure that the resulting
financial stress on the funding institutions is managed to ensure that bad debts are
controlled and the funding supply remains healthy. This is possible only when
construction loans are recovered in time.
• The advisory to switch from item-rate contracts to EPC mode of contracts is being
viewed positively. Under the EPC, the entire responsibility of project analysis,
investigation, design and construction is given to the project contractor for a lump
sum amount achieved through a competitive bidding process. This allows for project
implementation to specified standards with a higher degree of certainty related to
costs and time. It sets a higher liability and risk on the execution party.
• Government departments have been advised to adopt the model EPC which has been
designed based on international best practices and clearly outlines the risk and
rewards along with ensuring a fair and transparent process through its contractual
framework.
Chapter 8: Real Estate (Regulation and Development)
Act, 2016

The Real Estate (Regulation and Development) Act, 2016 is an Act of the
Parliament of India which seeks to protect home-buyers as well as help boost
investments in the real estate industry.
• The bill was passed by the Rajya Sabha on 10th March, 2016
• By the Lok Sabha on 15 March 2016.
• The Act came into force from 1 May 2016 with 69 of 92 sections notified.
• The Central and state governments are liable to notify the Rules under the Act
within a statutory period of six months.
• Applicable to whole of India except Jammu and Kashmir
• Real estate regulatory authority (RERA) is the governing authority.
• The law is not Retrospective.

Purpose
• An Act to establish the Real Estate Regulatory Authority for regulation and
promotion of the Real Estate sector.
• To ensure transparency in projects.
• To protect the interest of consumers in the Real Estate Sector and to establish an
adjudicating mechanism for speedy dispute redressal.
• To provide proper information about the Builder.

Salient Feature
• It establishes the State Real Estate Regulatory Authority for that particular state as
the government body to be approached for redressal of grievances against any builder.
This will happen once every state ratifies this Act and establishes a state authority on
the lines set up in the law.
• This law vests authority on the real estate regulator to govern both residential and
commercial real estate transactions.
• This law makes it mandatory for developers to post all information on issues such as
project plan, layout, government approvals, land title status, sub-contractors to the
project, schedule for completion with the Real Estate Regulatory Authority (RERA)
and then in effect pass this information on to the consumers
• The current practice of selling on the basis of ambiguous super built-up area for a
real estate project will come to a stop as this law makes it illegal. Carpet area has been
clearly defined in the law.
• The maximum jail term for a developer who violates the order of the appellate
tribunal of the RERA is three years with or without a fine.
• Currently, if a project is delayed, then the developer does not suffer in any way.
Now, the law ensures that any delay in project completion will make the developer
liable to pay the same interest as the EMI being paid by the consumer to the bank
back to the consumer
• The developer cannot make any changes to the plan that had been sold without the
written consent of the buyer.
• This put paid to a common and unpopular practice by developers to increase the cost
of projects.
• Lastly, every project measuring more than 500 square metres or more than eight
apartments will have to be registered with the RERA.
• The law mandates every builder to keep 70% of collection from every project in
Separate Bank Account.
Hits & Misses of Real Estate Act

For Consumers
Hits Misses

 Increased assertion on the timely  The timelines of approvals by

completion of projects and regulatory authorities have not been
delivery to the consumer.  defined. Any delay in approvals from
 A step towards safeguarding their regulatory authorities could impact
investment, as 70 per cent of the buyers as well. 
sales receipt will now be locked  The Bill may lead to slightly higher
in an escrow account.  prices of properties due to the reduced
 An increase in the quality of competition. 
construction due to a defect  New project launches might be limited
liability period of five years. as developers may not be able to launch
 Balanced builder-buyer without obtaining approvals, which
agreements. could take two to three years.
 Faster dispute resolution
mechanism through dispute
settlement forums and appellate
tribunal.
 Sale on the carpet area to help
improve transparency.
 An increasingly-regulated broker
environment. 
 Greater visibility into the
developer’s delivery track record.

For Developers
Hits Misses

 Increased scope for eliminating casual  An additional layer of approvals

operators, leading to the better may be introduced against the
organization of the sector.  extended list of approvals already
 Minimum standards of governance and required for projects. 
accountability have now been set to an  No provision to rationalize the
extent, and there’s potential for driving number of approvals required for
standardization and professionalism in a project or expedite approvals
the sector.  through a single window
 Greater visibility into the developers’ mechanism. 
delivery performances, segregating the   Increased reliance on external
established and casual operators.  capital to achieve high growth.
 Higher investment in the sector and a   Possible impact on joint venture
possible reduction in the cost of funds, arrangements. 
leading to a lowered cost for the end  Potential delay in cash-flow
users.  realizations from projects.
 Chapter 9: Impact of GST

One of the most complex areas of the tax levied by the Centre and the States is works
contract and sale of property. Currently, such transactions are broken into three parts
– the value of goods and materials, value of services and value of land. The States
apply VAT to the goods portion and the Centre taxes the services portion, with no
explicit tax on the transaction value of land. The State also collects stamp duty and
registration charges for the registration of property. Each authority taxes on aspects
and valuation independent of the others. More than 200% of the value is being taxed
in some States which is no fair. Real estate transactions unfortunately are subject to
manipulation and undervaluation in most parts of India.

Current tax structure

• Construction contractors are issued with Material and Labour.
• Service tax is charges under works contract service with following two option:
• Service tax on 30% value including value of material and land
• Service tax on 40% value including value of material
• VAT: VAT is charges as per state government rules in difference state. Rate of VAT
on Works Contract in Rajasthan is 3%
GST Regime for Real Estate Sector
GST would bring a lot of transparency in the real estate sector and minimize
unscrupulous transactions. Under the current tax laws, VAT and Service tax charged by
different Contractors and excise duty, entry tax, octroi is paid on the procurements. GST
law will increase the margin in the hands of contractor/developer by removing all the
above-mentioned taxes. Now, whether this benefit gets passed on to the end-consumer is
unsure as pricing of real estate is driven by market forces than on costing principles.
Real estate sector enjoys a lot of benefits from facilities in SEZ and same are expected to
be carried forward in GST. GST will help in filling the overwhelming gaps currently
existing under the supply chain management process.
There will be many projects of developers which would require the transition from
current tax laws onto GST. GST model law did not specify any provisions for the
transition.

GST Regime for Real Estate Sector

GST would bring a lot of transparency in the real estate sector and minimize
unscrupulous transactions. Under the current tax laws, VAT and Service tax charged by
different Contractors and excise duty, entry tax, octroi is paid on the procurements. GST
law will increase the margin in the hands of contractor/developer by removing all the
above-mentioned taxes. Now whether this benefit gets passed on to the end-consumer is
unsure as pricing of real estate is driven by market forces than on costing principles.
Real estate sector enjoys a lot of benefits from facilities in SEZ and same are expected to
be carried forward in GST. GST will help in filling the overwhelming gaps currently
existing under the supply chain management process.
There will be many projects of developers which would require the transition from
current tax laws onto GST. GST model law did not specify any provisions for the
transition.

CONCLUSION
The impact of GST on real estate sector is expected to be neutral under GST. Though
still, there is going to be a substantial benefit from GST as it will bring a lot of required
transparency and accountability. Developers/Contractors would reap the benefit of many
taxes which will be subsumed by GST. “Real estate sector should be happy with GST
even if the rate declared is higher than current rate”
 Chapter 10: Conclusion

Apart from India's sound economic growth environment, several policy initiatives
undertaken by the Government in recent times are viewed as opportunities for the
sector to grow further. The much-awaited Real Estate (Regulation and Development)
or RERA Bill was approved by both houses of the Parliament during March 2016—
covering residential as well as commercial realty segments. Although the actual
implementation of the Bill can only be affected once all states create their respective
state level authorities, an effective implementation of this Bill can be a game changer
for the real estate and construction sector in India.
The Model Building Bye-Laws, 2016, were also released recently and is expected to
improve the ease of doing business in the real estate and construction sector in the
country. A single-window clearance mechanism, reduction in time for approvals,
environmental considerations, and the added influence of Urban Local Bodies and
Development Authorities, among other measures, are all steps in the right direction.
Coming on the back of the passage of the RERA Bill, it has been among key
measures the Government has been trying to implement for the development and
regulation of real estate in India. The third positive regulatory announcement was that
of allowing 100% FDI in e-commerce. Although it covers only the marketplace model
and not the inventory-based model, nonetheless, rise in overseas investments in the e-
commerce segment will have a positive effect on the real estate and construction
sector. We expect this announcement will specifically benefit the commercial,
industrial and logistics segments.

Key Challenges Faced by India's Realty Sector

Despite positive policy initiatives for the sector and a robust macro-economic growth
story, a number of issues continue to plague India's real estate market. The most
important among these is perhaps the awaited passage of the Land Acquisition Bill.
Stringent land acquisition norms currently hinder the development of large-scale
infrastructure and urban development schemes. A political consensus has to be
reached and uniform policy across states has to be implemented for faster project
execution. Sustainable development of our urban built environments is another key
challenge. It is important to ensure that our cities are SMART. This could be achieved
by enhanced focus on mass transit systems, Green construction methods, creation of
Green spaces, and sustainable technologies for managing water, waste and energy
resources, among other aspects. Despite the directive for a regulatory authority for the
sector under the RERA Bill, decentralized implementation under the aegis of a central
planning authority may pose a challenge. The responsibility for implementation must
rest with state governments and city municipal authorities, however, with an effective
monitoring mechanism in place. Private participation is yet another challenge,
especially for Affordable Housing and large-scale infrastructure creation. Policy and
process barriers should be addressed to increase private participation in key
infrastructure projects. This will bring in the necessary capital and management
experience needed for successful project execution. Lastly, the ease of investment
flows into the sector from overseas as well as domestic sources is an area that would
need careful attention for further development of the sector. Overall, however, the
abundance of a technically skilled workforce and India's demographic and economic
dividend have created immense opportunities for a thriving real estate market.
Furthermore, these factors are likely to help override most concerns posing as
challenges for the growth of India's real estate sector.

Outlook
India will continue to retain its position as a bright spot in the global economy, with
better growth prospects expected to support office space leasing in 2016. Even though
the global economic scenario remains muted, India's appeal as an established
outsourcing market will still continue to fuel expansion initiatives from corporate
firms based out of the US and EMEA. Positive domestic macro-economic sentiments
are likely to propel leasing from domestic corporate firms as well. Additionally,
reforms such as clearance to REITs, relaxed foreign investment norms in the real
estate sector, and the implementation of the RERA Bill (which also covers the
commercial segment) might work towards enabling ease of doing business in the
country; while supporting corporate entities entering or expanding their footprint
across leading cities. The Government's recent GDP growth announcement,
moreover, is expected to impact consumer sentiments positively. Coupled with
targeted Government initiatives, this is likely to boost real estate growth in the
country—particularly in the residential segment. Several cities continue to face
subdued home buyer demand, resulting in unsold inventory levels. Against this
backdrop of improving economic growth, therefore, it is imperative that the Central
Bank work with various commercial banks to ensure that the full impact of monetary
easing is passed on to home buyers. In addition, the Government should take steps to
ease regulatory, infrastructure and policy bottlenecks that are currently stifling the
revival of the housing sector in India.
 BIBLIOGRAPHY
ARTICLES:
• “The Residential Real-Estate Industry in India: Investigating Evidence for an Asset
Bubble” – Nikhita Narendran, Claremont McKena College The objective of this
thesis is to examine the differences in residential property prices across different cities
in India. Soaring prices have led to increasingly unaffordable property prices in large
metropolitan cities. As a result, there has been academic discourse about the existence
of a housing bubble in recent years.

• “India Real Estate July-December 2017” – Knight Frank This article provided with
the analysis of the demand and supply of different sectors of Real Estate in India for
the top cities.

WEBSITES:
• www.investopedia.com

• www.exploringstartups.com

• www.economictimes.indiatimes.com

• www.ibef.org

• www.sezindia.nic.in

REPORTS:
• Real Estate January 2018 – India Brand Equity Foundation

• Cushman Research

• Wakefield Research

• TechSci Research

• IMF, World Bank Economic Outlook Database

• McKinsey Estimates

• Report by Ministry of Commerce and Industry

• Report by Corporate Catalyst India (CCI)

• Reports by Crisil
 Certificate

This is to certify that Mr __________________ has worked and duly completed his
Project Work for the degree of Bachelor in Commerce (Accounting & Finance) under
the Faculty of Commerce in the subject of ___________________________ and his
project is entitled, “ ___________________________________________ ” under my
supervision.

I further certify that the entire work has been done by the learner under my guidance
and that no part of it has been submitted previously for any Degree or Diploma of any
University.

It is his own work and facts reported by his personal findings and investigations.

Name of Guiding Teacher:

Signature of Guiding Teacher:

Date of Submission:
 Declaration by learner

I the undersigned Mr. __________________ here by, declare that the work embodied
in this project work titled “ ________Title of
Project_______________________________________ ”, forms my own contribution
to the research work carried out under the guidance of _Name of Guiding
Teacher_______________________ is a result of my own research work and has not
been previously submitted to any other university for any other Degree/Diploma.
Wherever reference has been made to previous works of others, it has been clearly
indicated as such and included in the bibliography.

I, here by further declare that all information of this document has been obtained and
presented in accordance with academic rules and ethical conduct.

Name of Guiding Teacher:

Signature of Guiding Teacher:

Certified by

Name of Guiding Teacher:

Signature of Guiding Teacher:
 Acknowledgement

To list who all have helped me is difficult because they are so numerous and the depth
is so enormous.

I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of this project.

I take this opportunity to thank the University of Mumbai for giving me a chance to
do this project.

I would like to thank my Principal, ___________________ for providing the

necessary facilities required for completion of this project.

I take this opportunity to thank our Coordinator, ______________________, for her

moral support and guidance.

I would also like to express my sincere gratitude towards my project guide

________________________ whose guidance and care made the project successful.

I would like to thank my College Library, for having provided various reference
books and magazines related to my project.

Lastly, I would like to thank each and every person who directly or indirectly helped
me in the completion of the project especially my Parents and Peers who supported
me throughout my project.