R E A L E S TAT E

April 2010
REAL ESTATE April 2010

Contents

 Advantage India

 Market overview

 Industry Infrastructure

 Investments

 Policy and regulatory framework

 Opportunities

 Industry associations

2
ADVANTAGE INDIA
Real Estate April 2010

Advantage India
The Indian real estate industry is expected to reach a size of US$ 180 billion by 2020.

• High growth in the services The real estate sector in India is on a

sector — telecom, financial rapid growth trajectory. Over a short
services, IT & ITeS, etc. High growth
projections span of time, the industry has evolved
• There is a growing demand from a highly fragmented and
for affordable housing and unorganised market into a semi-
high rate of urbanisation. organised market, with a large number
• Growing penetration of Multiple growth Rapid evolution
drivers of the sector of listed companies.
mortgage finance into the
urban housing finance
market. Advantage
India
Liberal foreign Demand for
FDI of up to 100 per cent is affordable The Indian Government and
investment private developers, realising the
allowed under the automatic regime housing
route in most asset classes. growing demand for affordable
Well-defined housing, are strongly focussing
regulatory on affordable housing.
framework

The Government of India has well-drafted regulations for the Indian real estate sector.

Sources: CREDAI (Confederation of Real Estate Developers’ Association of India) website accessed on 12th March 2010
Ernst & Young-FICCI Real Estate Report – 2009
Eleventh Five-year plan (2007–2012).

3
REAL ESTATE April 2010

Contents

 Advantage India

 Market overview

 Industry Infrastructure

 Investments

 Policy and regulatory framework

 Opportunities

 Industry associations

4
MARKET OVERVIEW
Real Estate April 2010

Market overview
• The current contribution of real estate to India’s GDP is about 5 per cent.

• The real estate sector is one of the highest FDI attracting sectors in India, having recorded FDI inflows
worth more than 2.8 billion between 2000 and 2009.

• Growth has been driven primarily by the IT & ITeS sector, with an increase in the demand for office
space, growing presence of foreign businesses in India, global strides of Indian corporates and a rapidly
increasing consumer class.

• The major Indian players in the sector are DLF, Unitech, Ansal Properties, K. Raheja Corporation and
Parsavnath Developers.

• After the 2008–09 global economic slowdown, the Indian real estate industry is now charting a path to
recovery.

• In the last decade, FDI in real estate has increased due to the growing interest of foreign players in the
Indian market. Many international players, including developers such as Emaar, Ascendas, Keppel
Land, Tishman Speyer and Nakheel Group, and investors such as Morgan Stanley, Och-Ziff
Capital, Citigroup, Goldman Sachs, JP Morgan, Warburg Pincus and Deutsche Bank, have entered the
Indian real estate market during the last decade.

Sources: CREDAI(Confederation of Real Estate Developers’ Association of India) website, www.credai.com, accessed on 23 March 2010;
Ernst & Young-FICCI Real Estate Report – 2009.

5
MARKET OVERVIEW
Real Estate April 2010

Market segments

Real estate
sector

Commercial Special economic

Residential space Retail space Hospitality space
office space zones (SEZs)

• In recent years, the industry has evolved from a highly fragmented and unorganised market into a
semi-organised market.

• The sector can be divided into residential, commercial, retail and hospitality asset classes.

6
MARKET OVERVIEW
Real Estate April 2010

Commercial office space

• The commercial real estate (CRE) segment (primarily office space) has grown with the
growth in the Indian economy.
• The demand for office space has been driven by the influx of multinational companies
Growth drivers (MNCs) and the growth of the services sector.
• Progressive liberalisation and relaxation of FDI norms in various sectors have paved the
way for growth in FDI in the real estate sector that has led to a burgeoning demand for
office space from MNCs and other foreign investors.
• Dominated by a few large national developers with a pan-India presence.
Market structure • Regional players are expanding aggressively to achieve a pan-India presence.
• Shift in the type of operations from a sale to a lease and maintenance model.

• Business activity shifting from central business district (CBD) to special business district
Segmentation (SBD) and from tier I cities to tier II cities.

• Growth in services — telecom, financial services, IT & ITeS, etc., which accounts for the
Outlook maximum demand of commercial office space in the country.

7
MARKET OVERVIEW
Real Estate April 2010

Residential space … (1/2)

• Rapid urbanisation — urban population estimated to reach 590 million by 2030.

• Decreasing household size — number of nuclear families estimated to cross 300 million
(middle-class population).
Growth drivers • Growing working age population in the 16 to 64 age group — almost 64 per cent of the
total population.
• There is a growing demand for affordable housing, which is a priority segment for both the
government and developers.
• Highly fragmented and unorganised.
Market structure
• Regional players are expanding to achieve a pan- India presence.
Segmentation • Broad categories include low-cost, mid-market and premium housing.
• Current space shortage is close to 19.4 million units, largely in the middle and low income
groups.
• While the government has announced lower interest rates for home loans up to US$
Outlook 41,667 (INR 2 million), developers have announced the launch of affordable housing
projects, which will mostly come up in the suburbs of large cities and tier I and tier II cities.
• Mortgage finance is expected to increase penetration into the urban housing finance
market.

Sources: Ernst & Young-FICCI Real Estate Report – 2009.

8
MARKET OVERVIEW
Real Estate April 2010

Residential space … (2/2)

Growing urbanisation in India

70 65 70
60 62
60 54 61 60

50 45 51 50

40 41 40
35

Cities
30
(in %)

29
30 24 26 30
20 22 25
20 20

10 15 10
10
0 0
1971 1981 1991 2001 2006 2011

Urban population (%) Contribution to national income (%) Cities-population morethan

Cities-populationmore than11mn
mn(RHS)
(RHS)

Source: National Institute of Urban Affairs, UNDP, Ernst & Young analysis.

9
MARKET OVERVIEW
Real Estate April 2010

Retail space

• Rising consumerism with doubling of disposable income.

Growth drivers • Growth in organised retailing.
• Entry of international retailers.
• The retail segment is a small proportion of the total real estate industry in India.
• The segment is dominated by unorganised retail space providers.
Market structure • In the organised retailing segment, demand for good quality mall space has grown, with the
entry of international retailers in India.
• International retail brands are tying up with Indian partners.
• Contribution of organised retail to the retail industry increased from 2 per cent in 2003 to 4
Segmentation to 5 per cent in 2007.
• International retailers are present through the franchisee route.
• Government is exploring the possibility of a relaxation in FDI norms.
• Organised retail expected to grow at a compound annual growth rate (CAGR) of 19 per cent
over the next five years.
Outlook
• The share of organised retail in the total retail space, in terms of sales, is expected to reach
5.6 per cent by 2010.
• By 2010, there will be an estimated requirement of 220 million sq ft of new retail space.

10
MARKET OVERVIEW
Real Estate April 2010

Hospitality space

• The hospitality segment has witnessed robust growth in demand, primarily due to strong growth in
tourism, including both business and leisure travel.
• India is acquiring recognition as a medical tourism destination.
Growth drivers
• International events, such as the Commonwealth Games, 2010, are expected to drive growth.
• According to a research by the World Travel & Tourism Council, travel and tourism in India is
expected to grow at 12.7 per cent per annum until 2019.

• Existing hotel operators are scaling up their operations.

• Developers are tying up with major international chains.
Market structure
• Developers have set up real estate funds to finance their ventures.
• Hospitality players are diversifying into budget hotels and service apartments.

• Classification on the basis of star rating — one-star to five-star deluxe.

Segments • Number of approved hotel rooms has been estimated at 110,000 (including approved projects), 30 per
cent of which are in the five-star segment.

• The total estimated supply of hotel rooms is expected to reach 2.9 million and 6.6 million in 2010 and
2020, respectively.
Outlook • High potential for budget hotels.
• Service apartments, hospitals, wellness spas gaining popularity.

Sources: Tourism Statistics at a glance, 2008, Department of Tourism (DOT); India report, The Voyage, January 2009,World Travel and Trade
Council (WTTC) estimates.

11
MARKET OVERVIEW
Real Estate April 2010

Key trends
• Geographic de-concentration of real estate activity from large metros — Bengaluru, Chennai, Mumbai and
NCR — to tier II and tier III cities (cities such as Chandigarh, Chennai, Jaipur, Pune, Hyderabad, Kochi and
Visakhapatnam).This transition has been driven primarily by the shift of IT-BPO companies towards tier II
and tier III cities, which has increased the demand for commercial and hospitality real estate.

• The global economic slowdown in 2008–09, slowed the demand and investor interest in all segments of
real estate. Industry players adopted a two-pronged approach to survive the slowdown. First, they worked
upon improving their balance sheets and liquidity position and second, they focussed on developing self-
funded projects such as affordable housing.

• Correction in prices — the decrease in demand due to the global economic slowdown in 2008–09 forced
developers to offer discounts and incentives to boost sales. The offers for purchases ranged from a
discount in base price, free parking/modular kitchen, free vacations, extension of equated monthly
installment (EMI) period, EMI reimbursements, free luxury cars with the purchase, etc.

• In recent months, the residential real estate segment has witnessed a revival in demand, primarily due to
improved affordability. Several players have launched new projects in the affordable housing sub-
segment, which has received an encouraging response.

12
MARKET OVERVIEW
Real Estate April 2010

Growth drivers
Demand pull factors Supply push factors
Robust and sustained macro-economic Policy and regulatory reforms (100 per cent
growth. FDI relaxation).
Upsurge in industrial and business
Positive outlook of global investors.
activities, especially new economy
sectors. Fiscal incentives to developers.

Favourable demographic parameters.

Growing Indian real Simplification of urban development guidelines.
Significant rise in consumerism. estate Infrastructure support and development
Rapid urbanisation. initiatives by the government.

Availability of a range of financing

Impact
options at affordable interest rates.
Entry of a number of domestic and foreign
Impact players; increasing competition and consumer
affordability.
Increasing occupier base.
Easy access to project financing options.
Significant rise in demand for Increases developers’ risk appetite and allows
office/industrial space. large scale development.

Demand for newer avenues for Improved quality of real estate assets.

entertainment, leisure and shopping. Development of new urban areas and effective
utilisation of prime land parcels in large cities.
Creation of demand for new housing.

13
MARKET OVERVIEW
Real Estate April 2010

Key players — international

Ascendas, Singapore Emaar, Dubai

• Present in India since 1997. • Present in India since 2005.

• Established a wholly-owned subsidiary, Ascendas India • Developing integrated township at Mohali, spread over
Private Limited. 3,000 acres.
• Operating five IT parks across Bengaluru, Hyderabad and • Plans to develop integrated townships, commercial offices,
Chennai. IT parks, SEZs and hotels.
• Key ongoing projects are International Tech Parks in Pune • Planning to venture into the healthcare and education
(ITPP) and Nagpur (ITPN) and CyberVale, an IT park sectors.
within Mahindra World City in Chennai.
• Joint venture with MGF Development Limited, India
• Invested US$ 270 million in its flagship project,
• Emaar MGF has a joint venture with Accor Hotels (France)
International Tech Park (ITPB), Bengaluru.
and Premier Travel Inn (UK).
• Ascendas Advantage India Development Fund worth US$
• Capital outlay of US$ 4 billion for real estate projects in
325 million launched in 2007.
India.
• Ascendas India IT Fund worth US$ 520 million launched in
2005.

14
MARKET OVERVIEW
Real Estate April 2010

Key players — Indian … (1/2)

Unitech DLF Ansal Properties

• Operating in various asset classes in • Largest real estate developer in India. • Operates primarily in residential and
residential, commercial and retail commercial asset classes.
• Developed Asia's largest private
segments.
township, DLF City at Gurgaon, • Developed over 2,850 acres in
• Completed development of more than Haryana, spread over 3,000 acres. Gurgaon and Delhi.
24 million sq ft with six townships.
• Present across all asset classes — • Developing integrated townships,
• Eleven hospitality projects are under residential, commercial and retail. malls, hotels IT parks and SEZs.
development across various cities of
• Developed more than 220 million sq ft • Presently planning to construct 157.6
India
of built-up area (BUA). million sq ft of BUA.
• Presently developing five IT & ITES
• Specialises in planning hotels, • Pan-India footprint with major
SEZs and one IT Park spread across
infrastructure and SEZs. presence in 16 North Indian cities
Gurgaon, Noida, Greater Noida and
across four states.
Kolkata, with potential leasable area of • DLF is focussing strongly on affordable
21.4 million sq ft housing.

• Major presence in the National Capital • Pan-India footprint, major presence in

Region (NCR) and other areas such as Gurgaon and Kolkata.
Kolkata, Chennai and Hyderabad.

15
MARKET OVERVIEW
Real Estate April 2010

Key players — Indian … (2/2)

K. Raheja Corporation Sobha Developers Parsvnath Developers

• Present in commercial, retail and • Asset classes include residential, commercial, • Presence in residential, retail,
residential asset classes. development of plots and contractual projects. commercial and SEZs asset
classes.
• Developed over 5 million sq ft of • Completed 60 residential projects and 166
BUA. contractual projects covering about 36.34 million • Land for development of over
sq ft of area as of 31 March 2010 in 18 cities 193 million sq ft
• Presently developing 15 self-
across India.
contained townships and 10 hotels. • The company has 98 ongoing
• The company currently has 27 ongoing residential projects.
• Major presence in Mumbai with
projects aggregating 9.08 million sq ft and 4.24
operations in Bengaluru, • Major presence in National
million sq ft in ongoing contractual projects
Ahmedabad, Goa, Pune and Capital Region.
Hyderabad. • Major concentration in Bengaluru with presence in
• Increasing pan-India footprint
other cities such as Cochin, Chennai and Pune.
— active in more than 45
cities across 16 states.

16
REAL ESTATE April 2010

Contents

 Advantage India

 Market overview

 Industry Infrastructure

 Investments

 Policy and regulatory framework

 Opportunities

 Industry associations

17
INDUSTRY INFRASTRUCTURE
Real Estate April 2010

Industry infrastructure — SEZs

• The Government of India introduced the SEZ Industry-wise classification of formally approved SEZs
Act, 2005, to generate additional economic
activity, promote exports and create employment
opportunities in the country. IT/ITeS 62%

Others 22%
• Developing an SEZ is approximately 15 to 20 per
cent cheaper than developing non-SEZ Multi Product 4%
commercial space, given the various fiscal benefits
available to SEZ developers — several real estate Textile 3%
developers have been attracted to these projects.
Pharma 4%

• Under the new SEZ Policy, formal approvals have Biotech 5%

been granted to 574 SEZ proposals as of
March, 2010.

• As of March 2010, there were 350 notified SEZs Source: SEZ India website, www.sezindia.nic.in.
and 146 have received in-principle approval.

• The SEZ Policy allows usage of as high as 50 per

cent of the SEZ area as non-processing
zone, offering significant potential for residential
and support infrastructure.
Source: SEZ India website,www.sezindia.nic.in.

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REAL ESTATE April 2010

Contents

 Advantage India

 Market overview

 Industry Infrastructure

 Investments

 Policy and regulatory framework

 Opportunities

 Industry associations

19
INESTMENTS
Real Estate April 2010

Investments
FDI in Indian real estate

• FDI inflows were recorded at US$ 2.80 billion in 2008–09, as per the Department of Industrial Policy
and Promotion (DIPP).

• Over the years, FDI in real estate has increased due to growing interest of foreign players in the Indian
market.

• Majority of FDIs are from West Asia and investors from the US and Europe, who have shown keen
interest in the launch of several real estate funds.

• FDI in the real estate sector is expected to witness an increase of US$ 21 billion from the current
values over the next 10 years.

Source: Fact Sheet on Foreign Direct Investment (FDI) from August 1991 to October 2009, Department of Industrial Policy and Promotion

20
REAL ESTATE April 2010

Contents

 Advantage India

 Market overview

 Industry Infrastructure

 Investments

 Policy and regulatory framework

 Opportunities

 Industry associations

21
POLICY AND REGULATORY FRAMEWORK
Real Estate April 2010

Policy and regulatory framework … (1/2)

Guidelines for FDI in real estate in India

Conditions for development Conditions for investment Other conditions
• Minimum 10 hectares to be developed • Minimum capitalisation of US$ 10 • Investor is not permitted to sell
for serviced housing plots. million for wholly-owned subsidiaries undeveloped plots.
and US$ 5 million for joint ventures
• For construction-development • Project to conform to norms and
with Indian partners.
projects, minimum built-up area of standards laid down by respective state
50,000 sq mt prescribed. • Infusion of funds within six months of authorities.
commencement of business.
• In case of a combination project, any • Investor responsible for obtaining all
one of the above two conditions • Original investment cannot be necessary approvals as prescribed
should be met. repatriated before a period of three under applicable rules/bye-
years from completion of minimum Iaws/regulations of the state.
• At least 50 per cent of the project to
capitalisation.
be developed within five years from • Designated authority to monitor
the date of statutory clearances. • Investor may be permitted to exit compliance of above conditions by
earlier with prior government developer.
approval.

Source: India Foreign Direct Investment Policy

22
POLICY AND REGULATORY FRAMEWORK
Real Estate April 2010

Policy and regulatory framework … (2/2)

Budget analysis

Union Budget 2010 — impact on real estate

Policy impact Direct tax impact Indirect tax impact
• Interest subvention on housing • Threshold slabs for individual taxation • Service tax rate maintained at 10.3 per cent.
loans — a scheme was introduced broadened, which is expected to
• Relevant definition of taxable service,
by the Finance Minister in the result in more disposable income in
provided in relation to renting of
Union Budget 2009–2010, which the hands of the consumers.
immovable property, has been amended
allowed an interest subvention of
• Corporate tax rates remain with retrospective effect from June 2007 to
1 per cent on housing loans of
unchanged. However, surcharge in the clarify that renting of immovable property
upto US$ 20,833 (INR 1 million),
case of a domestic company having would constitute a taxable service.
provided the cost of house does
income above INR 10 million reduced
not exceed US$ 41,666 (INR 2 • Service tax to be levied on lease of vacant
from 10 per cent to 7.5 per cent.
million). This scheme has now land if the lessor undertakes construction
been extended up to 31 March, • Minimum alternate tax (MAT) hiked on such land for furtherance of business or
2011. from 15 per cent to 18 per cent. commerce during the tenure of lease.

• Allocation for housing and urban • Turnover threshold limit for getting • Peak excise duty rate has been increased
poverty alleviation has been raised accounts audited (under section from 8 per cent to 10 per cent.
from US$ 177 million (INR 8.5 44AB) has been relaxed to US$ 12,500 Accordingly, peak effective customs duty
billion) to US$ 208 million (INR (INR 6 million) from the existing limit rate has been increased from 24.42 per cent
10 billion) for 2010–11. of US$ 83,333 (INR 4 million). to 26.85 per cent.

Source: EY India Budget 2010

23
REAL ESTATE April 2010

Contents

 Advantage India

 Market overview

 Industry Infrastructure

 Investments

 Policy and regulatory framework

 Opportunities

 Industry associations

24
OPPORTUNITIES
Real Estate April 2010

Opportunities … (1/2)

• Growth of services sector and organised retail, increasing urbanisation, rising income levels, contracting
household sizes and easy availability of home loans are key growth drivers of the industry.

• According to the Eleventh Five Year Plan (2007–2012), the housing shortage in urban areas was estimated
to be 24.7 million units in 2007, of which over 88 per cent was in the economically weaker section (EWS).
Further, the housing shortage in rural areas was estimated to be at 47.4 million units in 2007.

• In recent months, the residential real estate segment has witnessed a revival in demand, primarily due to
improved affordability. Several players have launched new projects in the affordable housing sub-
segment, which have received an encouraging response.

• Long-term view on the Indian real estate industry is positive as the fundamental demand drivers such as
increasing urbanisation, favourable demographics, growth of services sector and rising incomes are still
intact.

25
OPPORTUNITIES
Real Estate April 2010

Opportunities … (2/2)

• Demand in coming years is expected to be driven primarily by the unmet need in the housing
segment, stable economic reforms and large infrastructure investments from the government, besides the
strong demographic profile of the Indian consumers.

• The Government of India plans to spend about US$ 350 billion on infrastructure development under the
Eleventh Plan, which is expected to drive demand in the real estate sector.

• Further, upcoming industrial clusters, improved infrastructure and growing availability of land for
development in emerging tier II and tier III cities are also expected to fuel growth in the real estate sector.

26
OPPORTUNITIES
Real Estate April 2010

Opportunities — emerging asset classes and formats

Logistics and warehousing Healthcare infrastructure Education infrastructure Low-cost housing

• Booming trade, both • Healthcare industry • Huge market with untapped • Over 70 per cent of the total
international and expected to grow at a potential and low competition. population lives in rural
domestic. CAGR of 12 per cent over areas.
• Need for development of
the next five years.
• MNCs establishing Indian more world-class educational • Housing shortage is expected
operations. • The industry was valued at institutions. to increase to 26.53 million
US$ 38.8 billion in 2008. units by 2012 and requires an
• Agricultural logistics • Driven by knowledge-based
investment of US$ 877
require creation of cold • Healthcare BPO is a industries, large demand for
million.
chain infrastructure. growing segment. qualified engineers.
• Shift from rented to owned
• Logistics required for • Medical infrastructure • Research laboratories adding
house.
large infrastructure and expanding, with one value to global outsourcing.
engineering projects. million beds to be added • Easy access to finance.
• Growing interest of leading
by 2012.
• Consolidation of global educational institutions • Growing demand for housing
warehousing, if uniform • Medical tourism growth in setting up institutions in among nuclear families.
tax regime is applied. driven by low cost and India.
high-quality services.

Sources: Healthcare industry: opinion, August 2009, CRISINFAC

India real estate - shifting gears, Ernst & Young 2008

27
REAL ESTATE April 2010

Contents

 Advantage India

 Market overview

 Industry Infrastructure

 Investments

 Policy and regulatory framework

 Opportunities

 Industry associations

28
INDUSTRY ASSOCIATIONS
Real Estate April 2010

Industry associations
The Confederation of Real Estate Developers’ Associations of India (CREDAI)

National Secretariat, 703, Ansal Bhawan,

16, Kasturba Gandhi Marg, New Delhi – 110 001.
Tel: (011) 43126262/43126200
Fax: 91 11 43126211
E-mail: info@credai.org
Website: http://www.credai.com/

Builders' Association of India (BAI)

G-1/G-20, Commerce Centre, J. Dadajee Road,
Tardeo, Mumbai 400034
Tel: (91-22) 23514134, 23514802, 23520507
Fax : (91-22) 23521328
E-mail: bai@vsnl.com, baihq.mumbai@gmail.com
Website: http://www.baionline.in/

29
NOTE
Real Estate April 2010

Note

Wherever applicable, numbers in the report have been rounded off to the nearest whole number.
Conversion rate used: US$ 1= INR 48

30
REAL ESTATE April 2010

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31