September 20th 2010

Principles of Investment Management

Submitted

Submitted
5th Semester BBA

Real Estate
Real estate is a legal term that encompasses land along with improvements to the land, such as buildings, fences, wells and other site improvements that are fixed in locationimmovable. Real estate law is the body of regulations and legal codes which pertain to such matters under a particular jurisdiction and include things such as commercial and residential real property transactions. However, in some situations the term "real estate" refers to the land and fixtures together, as distinguished from "real property", referring to ownership of land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof. Real property is typically considered to be Immovable property. The terms real estate and real property are used primarily in common law, while civil law jurisdictions refer instead to immovable property.

Real Estate Industry

Real estate is land, all of the natural parts of land such as trees and water, and all permanently attached improvements such as fences and buildings. People use real estate for a wide variety of purposes, including retailing, offices, manufacturing, housing, ranching, farming, recreation, worship, and entertainment. The success or failure of these uses is dependent on many interrelated factors: economic conditions, demographics, transportation, management expertise, government regulations and tax policy, climate, and topography. The objective of those engaged in the real estate industry is to create value by developing land or land with attached structures to sell or to lease or by marketing real estate parcels and interests. The real estate industry employs developers, architects, designers, landscapers, engineers, surveyors, abstractors, attorneys, appraisers, market researchers, financial analysts, construction workers, sale and leasing personnel, managers, office support workers, and building and grounds maintenance workers.

Real estate development is sensitive to fluctuations in the economy and in turn contributes to those cycles. The combination of a capitalist economy and a growing population makes the expansion of land uses inevitable, but developers can misjudge the market and produce too many office buildings, hotels, apartment buildings, or houses in any particular area. As a result rents and sale prices fall.

Real Estate in India

With property boom spreading in all directions, real estate in India is touching new heights. However, the growth also depends on the policies adopted by the government to facilitate investments mainly in the economic and industrial sector. The new stand adopted by Indian government regarding foreign direct investment (FDI) policies has encouraged an increasing number of countries to invest in Indian Properties. The positive outlook of Indian government is the key factor behind the sudden rise of the Indian Real Estate sector - the second largest employer after agriculture in India. This budding sector is today witnessing development in all area such as - residential, retail and commercial in metros of India such as Mumbai, Delhi & NCR, Kolkata and Chennai. Easier access to bank loans and higher earnings are some of the pivotal reasons behind the sudden jump in Indian real estate.

Parties Involved
Assessor: A public official, who establishes the value of a property for taxation purposes. Real estate agent: A person licensed to negotiate and transact the sale of real estate.

Broker: Broker has several meanings in different situations. Most Realtors are "agents" who work under a "broker." Some agents are brokers as well, either working form themselves or under another broker.

Indian Rates

City
Delhi Mumbai Pune Bangalore Chennai Kolkata

Rates 2004 2005

Per sq. ft.

Rates 2008 2009

Per sq. ft.

Rs. 15,000 Rs. 12,000

Rs. 26,000 Rs. 25,000 Rs. 7,500 Rs. 10,500 Rs. 9,600 Rs. 7,000

In Delhi, house prices increased by 4.8% during the second half of 2008. In real terms, house prices declined by 1.6%. Mumbais house prices rose 4.5% during the second half of 2008. In real terms, they fell by 2%. During the previous half year (H1 2008), prices had increased by 12% (6.7% in real terms).

NAV of investment in 2004-05 (real estate India)

Total Amount Taken = Rs. 10,00,000 Land Prices 2004 - 05 Delhi Rs. 15,000 Mumbai- Rs. 12,000 Land Acquired Land Prices 2008 - 09 Delhi - Rs. 26,000 Mumbai Rs. 25,000 Land Acquired

66.67 sq. ft. 83.33 sq. ft.

38.46 sq. ft. 40 sq. ft.

If we were to invest Rs. 10,00,000 in real estate of Delhi in 2004-05 We would acquire 66.67 sq. ft. land Which if we were to hold and sell after 5 years Average Delhi land rate Rs. 26,000 per sq. ft. Amount Received = Rs. 17,33,420 only Similarly it is for the rest of India

International Rates
China
Like in the case of the Indian Real Estate market, China, also a developing country, has similar trend in this market. As can be seen from Chart 1, taking 2004-05 as the base year the price index of the Chinese real estate market is showing a rise. This indicates that developing economies are a good and safe bet for real estate investors.

Of course stringent inter country investment laws are to be taken into consideration. China has over the years become open to foreign investments in almost all of its sectors. As can be seen from chart 2 the FDI in real estate has increased considerably by approximately 4,000 million US dollars.

Below are the rates of some highly developed real estate markets. As can be seen the land prices of these areas fell down after the economic crises of 2007-08. Therefore it can be noted that, an investment in these cities can bring momentous returns five years down the line.

UAE
Dubai Market
Apartments Commercial Land

Rates per sq. ft.

AED 650 >>> Rs. 8114.10 AED 674 >>> Rs. 8413.19 AED 400 >>> Rs. 4993.2923

Philippines
Different Markets
Apartments Land

Rates per sq. ft.

PHP 1852.7839 >>> Rs. 1937.97 PHP 427.35 >>> Rs. 446.999

Risk in Real Estate

Housing bubble trouble
Indian house prices rose rapidly from 2002 to 2007. Strong economic growth and urbanization supported house prices, while in city centers a housing bubble was encouraged by inadequate infrastructure, lack of planning and antiquated land use laws.

Delhis residential property prices rose by 26.5% on average (21.2% in real terms) from 2003 to 2006. Price rises slowed in 2007, to 10.8% (4.2% in real terms). Bangalores residential property prices rose by 28.8% on average (23.9% in real terms) from 2002 to 2005. Price rises continued strong in 2007 at 15.1% (8.2% in real terms). Surprisingly, prices fell by 1.1% in 2006 (-6.5% in real terms).

The liberalization of major sectors of the Indian economy during the early 1990s brought a rapid influx of foreign direct investment (FDI). A boom in the BPO industry generated rapid employment growth, increasing demand for housing, and caused a ripple effect in the construction and telecommunications sectors. Yet although house price increases were supported by these strong fundamentals, speculation also played a role. From 2000 to 2006, residential property became significantly less affordable. By 2002, a residential property in Mumbai cost around 85 times the average annual average income. By 2006, residential properties in Mumbai cost 100 times the average annual income. RESIDENTIAL PROPERTY AFFORDABILITY City 2000 2006 Percent Change 59.67 18.87 57.44

Delhi 45.15 72.09 Mumbai 84.14 100.02 Bangalore 27.42 43.17 Sources: IMF, HDFC

The capital of developers rapidly grew as their stock prices increased. Developers used the capital to bid high prices for huge plots of land, making it relatively easy to sell properties at very high prices.

Why Invest In Indian Real Estate?

Flying high on the wings of booming real estate, property in India has become a dream for every potential investor looking forward to dig profits. All are eyeing Indian property market for a wide variety of reasons: Its ever growing economy which is on a continuous rise with 8.1 percent increase witnessed in the last financial year. The boom in economy increases purchasing power of its people and creates demand for real estate sector. India is going to produce an estimated 2 million new graduates from various Indian universities during this year, creating demand for 100 million square feet of office and industrial space. Presence of a large number of Fortune 500 and other reputed companies will attract more companies to initiate their operational bases in India thus creating more demand for corporate space. Real estate investments in India yield huge dividends. 70 percent of foreign investors in India are making profits and another 12 percent are breaking even. Apart from IT, ITES and Business Process Outsourcing (BPO) India has shown its expertise in sectors like auto-components, chemicals, apparels, pharmaceuticals and jewels where it can match the best in the world. These positive attributes of India is definitely going to attract more foreign investors in the near future. The relaxed FDI rules implemented by India last year has invited more foreign investors and real estate in India is seemingly the most lucrative ground at present. The revised investor friendly policies allowed foreigners to own property, and dropped the minimum size for housing estates built with foreign capital to 25 acres (10 hectares) from 100 acres (40 hectares). With this sudden change in investment policies, the overseas firms can now put up commercial buildings as

long as the projects surpass 50,000 square meters (538,200 square feet) of floor space. Indian real estate sector is on boom and this is the right time to invest in property in India to reap the highest rewards.

BIBLIOGRAPHY
Dubaipropertysearch.net Dubizzle.com Manila.locanto.ph Globalpropertyguide.com Indianrealtynews.com