www.thequicom.com AN OUTLOOK ON INDIAN REALTY SECTOR INDIA 2012 OVERVIEW INDIAN REAL ESTATE SECTOR
Economy & Finance
2. www.thequicom.com CONTENTIntroduction: Real Estate Sector in IndiaMarket Overview: Development & Sector In IndiaMajors Players In Real EstateDemands In Major CitiesImpact On Indian Economy Of FDI In Real Estate SectorInvestment Opportunities & Policy UpdatesConclusion 3. www.thequicom.com Real Estate Sector in India: An Introduction The Planning Commission of India defines Real estate as land, including the airabove it and the ground below it, and any buildings or structures on it. It is also referred toas realty. It covers residential housing, commercial offices, trading spaces such as theatres,hotels and restaurants, retail outlets, industrial buildings such as factories and governmentbuildings. The activities of the real estate sector encompass the housing and constructionsectors also. Real estate business involves transactions, such as purchase, sale, anddevelopment of land, residential and non-residential buildings. Major players in the real estatemarket are the land owners, developers, builders, real estate agents, tenants, buyers etc.As real estate construction and values have expanded in India buoyed by healthy economicgrowth, and coupled with a series of IPOs by property firms so in recent years has Indiasproperty sector changed substantially. These trends of growth and modernization are set tocontinue, with some market participants forecasting that real estate development in India willgrow from US$12 billion in 2005 to US$90 billion by 2015. The size of the real estate industry in India is estimated to be around US$ 12 billion.In addition, international capital has become more interested in Indian property and is seekingtransparent and liquid ways to invest. Furthermore, with a more global property market, thelevel of competition in the Indian property business is rising, while the need for property firmsto strengthen their operational infrastructures, personnel and finances to better compete is alsobecoming more acute.Indias GDP growth rate has averaged more than 8% over last few years, up from anaverage of around 6% during the 1990s and has touched the 9% last fiscal. India emerged asa land of opportunities. The principle drivers of Indias GDP are changing demographics, risinglevels of foreign investment, a vibrant services sector powered by the IT and ITES sectors andbuoyant exports. Notwithstanding concerns over lack of structural reform, these factors arelikely to be sustained in the foreseeable future, resulting in continued strong GDP growth. This economic growth has, in turn, stimulated demand for property to help meet theneeds of business, such as modern offices, warehouses, hotels and retail shopping centers.It has also boosted housing demand as a wealthier populace seeks upgraded accommodation.Moreover, shrinking household size and improved access to housing finance have boosted thedemand for residential property. Tax incentives have also been granted to interest andprincipal paid on home loans, which has made owner-occupied property more attractive. 4. www.thequicom.comMARKET OVERVIEW: DEVELOPMENT & SECTORS IN INDIACommercial Office Space Growth Drivers * Growth in IT/ITES sector at 30% annually * Significant growth in FDI Market Structure * Dominated by a few large national developers with pan-India presence * Regional players are expanding to achieve a Pan-India presence * Shift in the type of operations from Sale Model to Lease & Maintain Model Segmentation * Commercial Space can be classified broadly into Grade A and B * Business activity shifting from CBD to SBD and from Tier I to Tier II & III Outlook * Commercial market expected to grow at CAGR of 20-22% over the next 5 years * IT/ITeS sector expected to require 250 million sq. ft of commercial office space by 2012-13Residential Rising Urbanization in India Rapid Urbanization: Urban Population expected to touch 590 million by 2030 Growth Drivers * Decreasing Household size: Average H/h size fell from 5.4 in 1981 to 5.1 in 2000 * Increasing working age population (Almost 64% in 16-64 age group) * Increasing income levels: Average salary levels increased by 17.5% in 2011 * Easier access to mortgage, long tenure loans and tax incentives Market Structure * Highly fragmented and unorganized * Regional players are expanding to achieve a Pan-India presence 5. www.thequicom.com RetailGrowth Drivers* Rising consumerism with doubling of disposable income* Growth in Organized Retailing and Entry of international retailersMarket Structure* Dominated by unorganized retail* Large corporate houses entering the organized retail sector* International retail brands are tying up with Indian partnersSegmentation* Organized retail contribution to the retail industry grew from 6% in 2009 to 10% in 2012* International retailers are present through franchisee routeOutlook* FDI norms are likely to be relaxed in next 2-3 years* Organized retail expected to grow at around 30%; Share of organized retail, by salesexpected to reach 15% by 2013 HospitalityGrowth Drivers* More than 17.85 million international visitors and more than 500 million domestic tourist visitsin 2012* Low cost airlines; India acquiring recognition as a medical tourism destination* Emergence of India as a MICE destination Market Structure* International events such as Commonwealth Games* Entry of several corporate houses such as Reliance* Existing hotel operators are scaling up their operationsMarket Overview* Developers are tying up with major international chains* Developers have set up RE funds to finance their Ventures 6. www.thequicom.comSegmentation* Classification on the basis of Star Rating of 1 to 5 star deluxe* 100,000 hotel rooms in India in various categories, Five Star and Five Star Deluxecontributing close to 30,000 roomsOutlook* Demand to grow at 10% CAGR for the next 5 years* Room supply to increase; tremendous potential for budget hotels* Service Apartments, Hostels, Wellness space gaining popularitySpecial Economic Zones(SEZs): Opportunities Unlimited for Developers* IT/ITeS commercial office space development* Under the new SEZ Policy, formal approvals have been granted to 366 SEZ proposals* Fiscal benefits to IT Parks expected to come to an end in 2009; SEZs likely to be preferredfor* Policy allows usage of as high as 50% of area as non-processing zone, offering immensepotential for residential & other support infrastructure 7. www.thequicom.com MAJORS PLAYERS IN REAL ESTATE OUTLOOK ON - DLF Trend: - CONSOLIDATEResistance: -260, 330Support: -170, 110Strategy: - Buy on DipsACCORDING TO OUR TECHNICAL VIEW DLF WILL TOUCH 260 IN 4-5 MONTHOUTLOOK ON - HDIL Trend: - CONSOLIDATE Resistance: -170, 205 Support: -60, 30 Strategy: - Buy on DipsACCORDING TO OUR TECHNICAL VIEW HDIL WILL TOUCH 170 IN 4-5 MONTH 8. www.thequicom.comOUTLOOK ON- JP ASOOCIATES Trend: - CONSOLIDATE Resistance: -120, 150 Support: -70, 50 Strategy: - Buy on DipsACCORDING TO OUR TECHNICAL VIEW JP ASOOCIATES WILL TOUCH 110 IN 1-2MONTHOUTLOOK ON - LNT Trend: - BULLISH Resistance: -1900, 2200 Support: -1300, 1100 Strategy: - Buy on DipsACCORDING TO OUR TECHNICAL VIEW LNT WILL TOUCH 1900 IN 2-3 MONTH 9. www.thequicom.comDEMAND IN MAJOR CITIESIndian cities are normally categorized into three tiers:Tier I comprises the Delhi, Mumbai and Bangalore.Tier II consists of Hyderabad, Pune and Chennai, the cities targeted by companies asalternative off shoring destinations and which now possess a well-trained pool of skilled labour.According to a Deutch Bank (DB) Research the cost advantage of Tier II cities over those inTier I is estimated at 15% to 20%.Tier III cities: Given the rising costs in Tier II cities in recent years, companies are increasinglyeyeing Tier III cities. These are cities with populations of more than a million (10 lakhs) are notyet completely established as outsourcing and off shoring destinations. Their absolute costadvantage over Tier I cities is estimated at between 15% and 30%.At a country level, a total of 160,622 residential units were launched in 2012, as compared to154,701 units for the corresponding period of 2011. From the pricing perspective, the averageresidential capital values in 2012 appreciated in the range of 1-3% y-o-y.Among the top 7 cities of India, the capital value growth in Pune and NCR-Delhi was thehighest, while Hyderabad and Bangalore saw a slower rate of capital value growth.There is still no price correction on the cards, but the quantum of appreciation definitelyreduced significantly in all the top seven cities of India in 2012. 10. www.thequicom.comIMPACT ON INDIAN ECONOMY OF FDI IN REAL ESTATE SECTOR FDI in India is prohibited in Real Estate Business. However for Construction Development, FDI is 100% permitted under automatic route without any approval. Construction Development includes townships, housing, built up Infrastructure and other construction development projects (which would include, but not be restricted to, housing commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level Infrastructure). The Indian correlation of real estate industry to the GDP is very low compared to other developing and developed countries. The real estate boom, availability of cheaper housing loans and a booming economy are fueling the flow of FDI towards Indian real estate. FDI is being encouraged with a regulatory framework, simpler tax norms, public and private participation, managerial skill and technical expertise. The Indian economy has witnessed robust growth in the last few years and is expected to be one of the fastest growing economies in the coming years. Demand for commercial property is being driven by Indias economic growth. Real estate in India contributes about 5 per cent to Indias gross domestic product (GDP). The total revenue generated from the real estate sector in 2010-11 stood at US$ 66.8 billion. Demand is expected to grow at a compound annual growth rate (CAGR) of 19 per cent between 2010 and 2014, with tier I metropolitan cities projected to account for about 40 per cent of this. Growing infrastructure requirements from sectors such as education, healthcare and tourism are also providing opportunities in the real estate sector. Urban population has been increasing and is expected to cross 590 million by 2030.Urbanisation and increasing household income are some of the major factors that influence demand for residential real estate and growth in the retail sector. 11. www.thequicom.comIn fact, FDI in the sector is expected to increase to US$ 25 billion in the next 10 years, as per alatest industry body report.India needs to invest US$ 1.2 trillion over next 20 years to modernize urban infrastructure andkeep pace with the growing urbanization. Construction development sector (includingtownships, housing, built-up infrastructure) has attracted a cumulative FDI worth US$ 21.1billion from April 2000 to June 2012. FDI flows into the sector for the period April-June 2012-13stood at US$ 348 million, according to the Department of Industrial Policy and Promotion. 12. www.thequicom.comINVESTMENT OPPURTUNITIES & POLICY UPDATESInvestment Opportunities:Non-resident Indians (NRIs) and foreign citizens who are Persons of Indian Origin (PIO)are allowed to purchase immoveable property in India. Residential property prices havestabilized now and are deemed attractive for the NRI home buyer. Industry experts feel thatwith attractive pricing and innovation in construction technology and variety of designs,NRIs are taking a fresh look at India as a unique market in which they can invest. NRIs are looking forward to investing in real estate in India with the dollar appreciatingin value compared to the rupee in the recent times. "Generally, NRIs are looking at this periodas an extremely advantageous one for realty investments. The Government has been makingproactive policy changes clearly aimed at routing more NRI investments into India.Meanwhile, Indian realtors participated in an India Property show in Singapore.The show was organized to attract Indian Diasporas living in Singapore to invest into Indiasbooming real estate market. The appreciation of the Singapore dollar, the ComprehensiveEconomic Cooperation Agreement and the RBIs liberalized policies are all progressive stepsfor expats, NRIs and Singaporeans to invest in Indias booming real estate market.The reputation of the realtors and the variety of properties available make it a reliable andconvenient investment opportunity for the Indian expats and Singaporeans alike. 13. www.thequicom.comInvestment Policy Updates:The Government has proposed one per cent TDS (tax deduction at source) on transfer ofimmovable property if the sale value exceeds Rs 50 lakhs in urban centers and Rs 20 lakhs inother areas in the Union Budget 2012-13.The Reserve Bank of India (RBI) has granted permission to foreign citizens of Indian origin topurchase property in India for residential or commercial purposes. The purchase considerationshould be met either out of inward remittances in foreign exchange through normal bankingchannels or out of funds from NRE/FCNR accounts maintained with a bank in India.According to the latest reforms, FDI up to 100 per cent under the automatic route in townships, housing, built-up infrastructure and construction-development projects (which would include, but not be restricted to, housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure) is allowed subject to the following guidelines (also for investment by NRIs) The project shall conform to the norms and standards, including land use requirements and provision of community amenities and common facilities, as laid down in the applicable building control regulations, bye-laws, rules, and other regulations of the State Government/ Municipal/ Local Body concerned The investor/ investee company shall be responsible for obtaining all necessary approvals, including those of the building/layout plans, developing internal and peripheral areas and other infrastructure facilities, payment of development, external development and other charges and complying with all other requirements as prescribed under applicable rules/ bye-laws/ regulations of the State Government/ Municipal/ Local Body concerned The State Government/ Municipal/ Local Body concerned, which approves the building/ development plans, would monitor compliance of the above conditions by the developer. 14. www.thequicom.com CONCLUSIONRE sector is a large, huge diversified sector, one with many verticals such as land,design/construction, development, investment, lending etc. As India is experiencing the growthcurve, moving forward many companies will be spawned in each of these verticals and offergreat career opportunities. The sector is very important for the government as it is a biggenerator of tax revenue. Urban planning is very critical to any growing city and provides hugeopportunities and liabilities. People tend to discuss, urbanization of India, if good planning anddevelopment doesnt take place in our cities, we are heading for ruralization of Indian urbancenters.The year 2012 was a sluggish year in terms of economic growth, largely because of highinterest rates and poor industrial production. Indeed, the index of industrial production rose byjust 0.4% in April-August 2012, as compared to 5.6% in the same period of 2011.Manufacturing activity, which contributes significantly to Indias GDP, also took a big hit in2012. Inflation remained high, impacting sentiments and investor interest across businesses -including real estate.Real Estate development is taking place in Residential, Retail, Office, Hotels, & Warehousingand Industrial sectors. The key drivers of each of these property types are basic fundamentals.IT/BPO sector is expected to generate 100Mn sft of demand for office space over the next fiveyears. The rising middle class and its consumer demand is driving the retail boom around 22malls are under development. The large shortage in the housing sector will continue to fuel thegrowth in the residential market. The real demand is not in the high end residential market butin the affordable housing segment and this will be the driver for the residential market. 15. www.thequicom.comAbout TheequicomTHEEQUICOM is Indias leading Research Tips Providing Company.THEEQUICOM offers all over Indias customers a unique combination of local insights and globalperspectives, delivering independent information, opinions and solutions that help them make betterinformed business and investment decisions, improve the efficiency of markets and market participants,and help shape infrastructure policy and projects. 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