Delhi remains preferred choice of real estate developers and investors; 82% of developers feel need for regulator:

FICCI - Ernst & Young report

MUMBAI, November 12, 2009. Delhi continues to be the preferred choice of developers and investors in the real estate sector, with Mumbai a close second, according to a FICCIErnst & Young (E&Y) ranking of top 30 cities of India in 2008. These rankings and factors influencing the growth of the 30 cities, key trends and tax & regulatory climate, a developer-investor survey are contained in a report on Staying real in India: What makes Indian real estate resilient and an exploration of opportunities? released here today at the FICCI Real Estate Summit.

The key results of the city rankings are:

Delhi retains the number one (#1) position. Some of key factors that have helped Delhi retain this rank are the fast paced improvements in physical infrastructure such as the functional metro railway, modernization of the international airport, road widening projects, and dedicated efforts to make the ring roads signal free. The emerging flyovers, underpasses, pedestrian walkways, high capacity buses, hotels and townships being developed on account of the forthcoming Commonwealth games. The improved air quality, reduced slum population has all contributed to improving the quality of life. The growth of Gurgaon and NOIDA as preferred destination for office space for some of the leading companies in the world has contributed to the business environment index, improving it considerably for 2007. Mumbai, a close second, scores better on the business environment index although the pace of infrastructure development in Mumbai has been slower, pushing the city down by a notch. When compared to the city ranking of 2007, cities ranking between 11 and 20 have shuffled among themselves. Goa is a notable entry in to the top 20 cities. Vishakhapatnam, Kochi, Coimbatore, Amritsar, Bhubaneswar, Guwahati, Madurai are some cities have gained in position and Vadodara, Bhopal, Rajkot, Lucknow are some the cities that have moved down a notch or two.

Says Mr. Ganesh Raj, Partner & National Leader, Real Estate Practice, Ernst & Young, We are pleased to present the FICCI-EY Real Estate Report 2009 for the fourth consecutive year. This year's report among others covers key trends and tax & regulatory climate across 6 key geographies, city rankings, developer-investor survey etc. The real estate sector seems to be one of the worst hit sectors across all geographies in the economic slowdown, given the peculiarity of the sector. In addition to high taxes, transaction costs continue to remain high across geographies and needs rationalization.
Page | 1

In India too, stamp duties need to be consolidated with GST with an appropriate credit mechanism to provide an impetus to the sector. Green shoots seem to be visible and it is encouraging to note that a majority of the stakeholders are optimistic and believe that the sector is on the threshold to recovery. The residential segment appears to have emerged as the most attractive and resilient asset class. Adds Dr. Amit Mitra, Secretary General, FICCI, The economic growth in the country is boosting industries life sciences and logistics and warehousing. With fast pace development, comes the responsibility of clean development. Sustainable development, which includes green cities and green buildings are our responsibility. Development and environment must co-exist is the route that we must strive hard to imbibe and adopt. These emerging concepts are today giving a whole new meaning and dimension to real estate development in the country. The report presents the opportunities in each of these concepts and their respective potentials set to transform the cityscapes of most of our cities.

Some of the key findings of the survey include:

The sentiment on the sector was optimistic, with 77 % of the respondents across the country believing that the pain was short-lived this time. The market seemed to have recovered faster than most expected. Interestingly 64 % of the respondents believe that it was the market sentiments that fuelled the slowdown. However, many warn that the quick recovery, frantic buying and new launches could once again cause a real estate bubble and advise cautious planning. Nearly half (around 46%) of developers surveyed across all regions were of the opinion that among the biggest challenges was adequate infrastructure development by the government. Denied availability of infrastructure made it difficult for them to implement projects to desired standards. Residential segment is the most resilient asset class and leading the way to recovery. The mature markets of Delhi and Mumbai saw high end residential continuing to be relatively strong compared to the rest of the country, though sales had considerably slowed down. Even investors expressed a preference for the residential segment for funding with 80 % of the investors expressing a preference for the sector. Prices in the middle income segment are currently stable, rising only marginally in select locations. Most respondents were ambivalent about the term affordable housing, emphasizing that it was relative what is affordable in one city was clearly in the premium range in another. The execution risks, the input cost of land and construction are all factors to be contended with.
Page | 2

Markets across most regions are primarily driven by end-users. The markets in Mumbai, especially the high-end residential segment is slowly experiencing short term investors creeping. This was not felt as strongly across other regions. Most developers are today going back to the age old philosophy that real estate is a local practice and are focusing their energies back on their home markets.

The FICCI-E&Y presents some very interesting findings with regard to Tier II and Tier III cities. The belief in expanding to medium and small cities is on shaky grounds currently, with most developers focusing back on tier I cities. The north was the one region- that still expressed a desire to move to the tier II cities. This could be attributed to the development of belts like the Kundli- Panipat belt. Some investors on the other hand were wary about working in tier II and tier III markets in the short term. They believe fundamentals in these markets with regards to economic activity and consumer base will take some time to mature. Of all the developers interviewed, 82% were of the opinion that a real estate regulator should be established, similar to those that regulation of the stock market and the telecom industry, as long as it created a platform for fair practice, helped in standardizing rules and regulations across states and helped with fast track dispute settlement. Whereas, the others were apprehensive that it could well turn out to be another bureaucratic hurdle. They believed that it was to take care of rights of a consumer, which could be protected by the setting up of a fast-track consumer court/tribunal instead, as they believed that the sector was already over-regulated.

Page | 3