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Final Full Black Book On Real Estate
Final Full Black Book On Real Estate
NO NO.
1 INTRODUCTION 3-4
SUMMARY
OBJECTIVES
RESEARCH METHODOLOGY
LIMITATION OF STUDY
2 OVERVIEW OF INDIAN REAL 5-8
ESTATE
OVERVIEW
TYPES OF OWNERSHIP INTEREST
3 BASIS OF PRICING ON THE REAL 9-12
STATE
CATEGORIES
FACTORS INFLUENCING PRICE OF
REAL ESTATE
FEATURE OF REAL ESTATE MARKET
FUNDAMENTAL FACTORS
PROPERTY TRANSFER PROCESS
4 OPPORTUNITY ON REAL ESTATE 13-28
ESTATE
10 BIBLIOGRAPHY 71-72
CHAPTER-1
INTRODUCTION
The real estate industry today has changed so much that each sector needs special skills to make it work
efficiently. All over the world, prices are fluctuating. Global agencies monitor trends in the top influential
cities. With many foreign investments in India and NRIs returning, the Indian property market watch is
Mumbai is the costliest city to live in Asia. To understand real estate marketing one should at least have
The purchasing power of the new generation of Indians has increased. They are investing in real estate in
a big way- in terms of investment and assets. People have acquired refined tastes in housing needs and
become professional in dealing with builders. Financial companies and banks have given a boost to real
estate marketing as well. To add to this the government has allowed foreign investors also to test the
market conditions here have helped. Every area of real estate be it industrial, retail space, malls, office
complexes, residential colonies, hospitals, clinics and other healthcare units have a vast potential for
growth.
The present study entitled “Indian Real Estate – Market & Opportunities” is an attempt to understand the
current Real Estate scenario in India. This study is concerned with the investment on Real Estate in India
and the Trends in Real Estate industry and the VIth semister project study will consist of a comparsioon
1.2 OBJECTIVES
The present study is exploratory nature. Accordingly the use is made of secondary data. The secondary
data is collected mainly through various newspapers, magazines, Internet and RBI review. To supplement
the secondary data, some primary data has also been used which is collected through interviews and
personal visits to the various companies to know the present situation of the market.
The present study is dependent more on secondary data. The factors in the present paper are the Macro
Economic factors for which the secondary data is more suitable and reliable. The collected in the
aforesaid manner have been tabulated in condensed form to draw the meaningful results.
CHAPTER-2
Real estate or immovable property is a legal term (in some jurisdictions) that encompasses land along
with anything permanently affixed to the land, such as buildings. Real estate is often considered
synonymous with real property (also sometimes called reality), in contrast with personal property (also
called personality). However, in technical terms, real estate refers to the land and fixtures themselves and
real property are used primarily in over real estate. The term real estate and real property are used
primarily in common law, while civil law jurisdiction refers instead to immovable property.
With the development of private property ownership, real estate has become a major area of business.
Purchasing real estate requires a significant investment and each parcel of land has unique characteristics,
Real Estate Marketing – Managing the sale side of the property business
Real property (immovable property) can refer to the real estate itself or to various types of ownership
• Freehold: Provides the owner the right to use the real estate for any lawful purpose and sell when and
• Life estate: An interest in real estate which is granted to a life tenant until that person dies. The interest
• Estate for years: Similar to life estate but term are a specified number of years.
• Leasehold: The right to posses and use real estate pursuant to the terms of a use.
• Reversion: The right to posses the free interest in real estate after the expiration of a life estate, estate
• Concurrent or co-tenancy: The ownership of an interest in real property by more than one party.
Rights of any single party may be limited in various ways depending on the jurisdiction and type of
concurrency.
• Participants of Real Estate Market: The main participants in the real estate markets are244
• Owner/User: These people are both owners and tenants. They purchase houses or commercial
• Owner: These people are pure investors. They do not consume but rent out or lease the property to
someone else.
• Developers: These people prepare raw land for building which results in new product or the market.
•Facilitators: This includes banks, real estate grocers, lawyers and others that facilitate the purchase and
sale of real estate. The owner/user, owner and renter comprise the demand side of the market, while the
developers and renovators constitute the supply side. In order to apply the simple demand and supply
analysis to real estate markets a number of modifications need to be made to standard microeconomic
CHAPTER-3
3.1 Real estate can divided into three categories: These are:
We can invest into all the given areas and can make return by capital appreciation, rental income,
3.1.1 The following factors influence the price and cost of the real estate:
4. Geographical area
In particular, the unique features of the real estate market must be accommodated. These include:
Durability
Heterogeneous
Immobility
1. Demand Analysis
Demand refers to people’s willingness and ability to buy or rent a given property. In part demand stems
from a market area’s base. In most real estate markets, the source of buying power comes from jobs.
Property values follow an upward path when employment is increasing. The real estate market in India
has seen remarkable changes in the past few years. The rapid expansions of information technology,
especially BPOs, spurt in the middle class income and 8% growth in GDP are the potential key factors for
the growth. India is the 4th largest economy in the world, and has the 2nd highest GDP among the
developing countries based on purchasing power parity. IT and IT enable services sector in India is still in
its growing stage due to increasing demand for business processing units in India and is estimated to grow
by 107% to $583
million in revenue. This could lead to a space requirement of 20-25 million sq. ft. per annum, according
to a Merrill Lynch report. Taking this factor into consideration, the Total value of real estate created by
the IT and ITES sector in the next three years will be Rs.132000.
2. Supply Analysis
Supply analysis means sizing up the competition. Nobody wants to pay more for a property than the price
they can pay for competing property. An integral part of value analysis requires identifying sources of
potential competition and then inventorying them by price and features. An analysis of supply should not
limit potential competitors to geographically and physically similar properties. In some markets, for
example, low priced single family houses might compete with condominium units, manufactured homes
3. The Property
In real estate the property itself is also a key ingredient. The price that people will pay is governed by
their needs and the relative prices of the properties available to meet those needs. To try to develop a
Restrictions on use
Location
Site characteristics
Improvements
Property management
In efficient markets, information flows so quickly among buyers and sellers that it is virtually impossible
for an investor to outperform the average systematically. As soon as something good or bad occurs, the
prices of the affected company’s stock adjust to reflect its current potential for earnings or losses. Real
CHAPTER-4
The phenomenal growth witnessed in Indian real estate has widened the opportunity spectrum of the
sector even beyond the established asset classes viz. commercial, retail, residential, industrial and
hospitality. This section maps the opportunity in both the asset classes and the emerging asset classes.
The boom in the Commercial Real Estate (CRE) segment is being fuelled by a robust demand from
MNCs and corporate India alike, particularly from IT/ITeS, BFSI, Telecom and Pharma companies. In
the year 2016 supply of commercial grade A office space, remained concentrated in the top seven cities.
According to E&Y estimates total supply of commercial office space (grade A, non captive) in the
National Capital Region (NCR), Mumbai, Hyderabad, Bengaluru, Pune and Chennai together was
recorded in the range of 40-45 million sq. ft. The absorption was primarily driven by the IT/ITES industry
accounting for almost 70-75 per cent of the total absorption. The supply format was primarily in the form
The primary growth driver of commercial real estate is the IT/ITES sector, which, is growing at 25-30 per
cent annually. Further according to NASSCOM estimates, India’s IT/ITES industry is expected to grow
to US$ 148 billion by 2012. As per E&Y estimates this translates into in excess of 250 million sq. ft of
Driven by increasing urbanisation, rising incomes and decreasing household sizes, the residential segment
in India has been on an upswing over the past few years. In terms of value, the residential property market
constitutes almost 75 per cent of the real estate market in India. The Working Committee of the 11th Plan
(2007-12) has concluded that the total shortage of dwelling units at the beginning of Eleventh Plan Period
i.e. 2007 was 24.7 million. E&Y estimates that more than 70 per cent of the shortage of dwelling units is
for middle and low income brackets. Several policy interventions and initiatives are expected to correct
Several other sectors such as financial services, biotechnology, telecom, pharma, insurance, and
consulting businesses are witnessing strong growth and have added to the rising demand.
Progressive liberalisation and easing of FDI norms in various sectors have paved the way for growth in
FDI. This has further led to burgeoning demand for office space from multinational companies and other
foreign investors.
Over next five years, the commercial real estate market is expected to grow at a CAGR of 20-22 per cent
and would continue to derive its growth from the thriving offshoring industry. Over the medium term, the
further opening up of the economy is expected to lead to a broader occupier base. The supply of
commercial office space will remain concentrated in the suburban areas and in the form of IT Parks and
integrated campuses. Large supply of commercial space is also expected from SEZs over the next few
years.
• According to the United Nations Population Fund (UNFPA), India is getting urbanised at a faster rate
than the rest of the world and by 2030 more than 40.7 per cent of the country’s population would be
living in urban areas. Presently, more than 28.7 per cent of India’s area is urban as against the global
average of 48.7 per cent. However, the growth rate of urban areas was 2.3 per cent in 2005, as against the
world average of 2 per cent. The urban population of India was estimated to stand at 316 million in 2005
and is the second largest in the world after China. It is estimated to reach 590 million by the year 2030
• India’s cities have been the driving force in shaping India’s socio-economic profile. Urban areas which
constitute only 28.7 per cent of the population, have been a major contributor to the GDP with a major
share of industry and almost the entire services sector concentrated in the urban agglomerations. During
the last sixty years, post independence the population of India has grown two and a half times, whereas
• According to Census of India 2001 estimates, 30 per cent of the total population of India would be
living in urban areas by 2011. The number of cities with one million plus population is further expected
to double from 35 in 2001 to 70 by 2025. India’s ‘Mega-Cities’ of Mumbai and Delhi would be the
world’s 2nd and 3rd largest cities by 2015. With a rapid influx of migrants in these cities there is a
corresponding increase in the demand for space. Rapid urbanisation is fostering real estate growth in
India.
The growing popularity of nuclear families in India has decreased the average household (HH) size in the
country, leading to an increase in the number of households in the country. The average HH size in India
has declined from 5.4 persons per HH in 1981 to 5.1 persons per HH in 2001. In 2001, there were roughly
India has a much younger population compared to most other economies. Currently the population in the
working age group (16-65 years) is about 700 million representing about 64 per cent of the total
population. India is expected to emerge as the highest contributor to the global work force by 2010. Given
that a majority of the population would still be young the per capita income generation capability of India
would continue to remain robust. With the average age of home buyers declining fast the young working
population would further push demand for housing units higher. First-time home buyer numbers have
multiplied over the years and the median age of home buyers has reduced from 38 years in the early
The per capita disposable income has grown manifold in the past one decade. The current annual per
capita disposable income stands at around US$ 693 and is further expected to grow by 8-13 per cent in
the next five years. Robust economic growth, particularly in the services sector has led to an increase in
income levels in the country. Several studies have indicated that salaries in India have been increasing by
an average of 10-15 per cent on a yearon- year basis. This has increased the affordability of homes in
spite of higher property prices and has further created more discerning buyers.
Besides rising incomes other factors that have increased home affordability are: easier access to mortgage
finance, longer loan tenures, higher loan-to-value ratios and tax incentives. Though home loan rates have
increased by almost 200 basis points in the past two years they are still 45 per cent cheaper than what they
were in March 2001. Tax savings on interest payments (US$ 3488) and principal repayments (US$ 2325)
per annum on mortgage loans have also made home purchases more attractive.
As per estimates from the National Council of Applied Economic Research (NCAER) the proportion of
HH in the top five income brackets (>US$ 11,651 per annum) has increased from 0.6 per cent in 1996 to
2.4 per cent in 2006 and is likely to increase further to 4.5 per cent by 2010. Also, the number of HH in
the top four income brackets (>US$ 23000 per annum) is expected to grow at a CAGR of over 20 per
cent till 2010. Thus, housing is expected to become increasingly affordable especially in the mid-market
Over the past five years loan disbursals by housing finance companies have grown by 30-40 per cent
annually. However, despite such growth, mortgage loans are presently only 4-5 per cent of GDP,
primarily due to the low penetration of mortgage financing. Banks and housing finance companies have
planned to increase penetration aggressively. Most of the growth is expected to take place in the
midmarket and premium/luxury sub-segments. With the Government promoting low-cost housing,
developers may also start investing in the budget sub-segment. Overall as housing supply catches up with
demand in the next few years the residential prices are expected to stabilise.
Government of India habitat policy envisages that by the year 2012 the housing shortage should be
removed and everybody should have a house of his own. Fructification of such a policy will translate into
large scale development in this segment. Due to availability of land and proximity to upcoming
Greater NOIDA and Gurgaon, Kolkata- Rajarhaat, Chennai-along OMR) are expected to attract
maximum development. Though national developers are expanding their geographical base, regional
developers are expected to dominate supply in short term, especially in mid-segment category. Several
satellite cities on the lines of Navi Mumbai for Mumbai, NOIDA and Gurgaon for Delhi are expected to
emerge to offer housing to burgeoning population and demand for affordable housing.
Emergence of SEZs has also given the given the Indian residential segment a considerable push, with the
Indian SEZ Act allowing for 65% non-processing development that includes housing and other support
infrastructure.
The Indian retail industry is witnessing a structural change with individual small format stores making
way for large format shopping malls and hyper-markets. On the policy front, the partial relaxation in FDI
regulation (51 per cent FDI in single brand retailing) has provided a boost to the retail segment. Presently
the top seven cities of India account for a dominant share in mall space. The total organised retail space
absorbed for the year 2006-07 in the top seven cities was around 19 million sq. ft. The following chart
depicts the absorption scenario of organised retail space for the year 2006-07. National Capital Region
(NCR), one of India’s most affluent urban centres, dominates the absorption scenario followed by
Mumbai and Kolkata. Bengaluru is also emerging as a major retail hub owing to its cosmopolitan
character.
With growth in India’s economy over the past two decades, the spending power of Indians has also
increased manifold. Real average household disposable income has roughly doubled since 1985. The
combination of rapidly rising household incomes and a growing middle-income population has led to a
striking increase in overall consumer spending which in turn has been driving the exponential growth of
Retailing in India is witnessing a huge makeover. In recent years, retail has emerged one of the fastest
growing industries in the Indian economy. The industry is currently estimated to be about US$ 240 billion
in size and is growing at over 6-7 per cent annually. Organised retailing accounts for a small but fast-
growing share of the total industry; its share has more than doubled from 2 per cent in FY2003 to 4.4 per
cent (US$ 10.5 billion) in FY2006. Several factors such as increasing disposable incomes, rising
consumption due to increasing use of credit cards and easy finance options and shopping convenience
India is attracting large international retailers to its doorstep. As per the latest AT Kearney Global Retail
Index 2007, India has been ranked the most attractive country for international retail expansion. Large
international retailers are attracted by the huge potential of the Indian retail industry and steady opening
up of the sector for FDI. Many international retailers are already present in the country primarily through
the franchisee route and are actively considering expansion. Besides several other large retailers are
planning to enter the country. These include Woolworths and Wal-Mart, who have already tied-up with
Indian partners and Carrefour and Tesco who are finalizing their plans. In addition to larger retailers
entering the market and new retail formats being introduced, growth in demand is also expected to gain
momentum.
Several Indian corporates including Reliance, Bharti, Tata amongst others have diversified into the retail
segment. Prozone, a 100 per cent subsidiary of Provogue (India) Limited a joint venture agreement with
the Omaxe Group, plans to develop India’s largest shopping malls across the country focused on tier two
cities. In a bid to offer products directly to customers at a competitive rate, large corporate are looking to
control the entire retail supply chain by forging tie-ups and opening company owned outlets having
The concept of specialised malls is gaining popularity with several auto malls, jewellery malls, furniture
malls and electronics malls coming up. Many developers are further setting up mixed-use projects
Slum-rehabilitation
Mass housing
CHAPTER-5
KEY PLAYERS
Currently, the real estate sector is quite fragmented with most players having presence limited to select
cities or regional geographies and relatively few players having national presence. Ernst & Young expects
a radical change in the next 2-3 years with most of the larger regional players anticipated to expand
aggressively across the country. While at least 10 major developers are estimated to have a national level
presence, some of the well known city focused developers are expected to venture out into other locations
based in that region. Larger regional developers increasing their footprints across the country include
Rahejas (Mumbai), DLF (NCR), Ansals (NCR), Unitech (NCR), Sobha (Bengaluru) who have already
Affordable housing can be described as the housing units whose costs are 'affordable' to those having a
Affordable housing does not mean houses in far flung areas with little connectivity and far away from
work places. It should provide a value proposition and make an economic sense to buy depending on the
In the western countries like USA a commonly accepted guideline for housing affordability is a
housing cost that does not exceed 30-35% of a household's gross income.
In developing countries like India this may go to as high as 50%. In terms of demand and supply, the
most affordable places can be the ones where supply outcasts demand and vice versa.
In terms of market potential, there is a huge potential for affordable housing in India considering the acute
• Urban poverty in India remains high, at over 25 percent. Over 80 million poor people live in the cities
and towns of India. (Source: National Sample Survey Organization's survey report).
• The urban population in India is expected to reach 575 million in 2030 from the current 286 million
(Source: Ministry of Housing and urban Poverty alleviation, GOI with the support of United Nations
development program (UNDP)). With this rapid urbanization, one of the biggest challenges will be
• Affordable housing in India includes value housing, which is the need of every middle class family, as
• As per the conclusions of the Working Committee of the 11th Plan (2007-12), the total shortage of
dwelling units at the beginning of the Eleventh Plan period in 2007 was 24.7 million. Approximately 70-
80% of this shortage is Marjory in the middle and lower income category as the majority of demand
exists at bottom of the pyramid. Developers have accepted this fact and are focusing on this segment as
Plans to spend Rs 150bn over the next three years to develop various residential projects across the
40,000 housing units in the mid-income category, sizes of which would vary between 1,000 sq ft and
1,800 sq ft. DLF has launched mid-income housing projects in Bangalore, Gurgaon, Hyderabad, Indore,
2. Unitech
Plans to construct 20,000 affordable houses at a cost of Rs 17 bn within the next 2 years and to become
India's numero-uno realty company within a year. It is aiming to sell 15,000 flats in the current fiscal.
These will be low-cost homes with prices ranging between Rs 1.0 - 1.5 mn. The company would launch
over 40 projects this fiscal, predominantly affordable housing with apartment sizes ranging from 500-
1100 sq ft. The company is planning to construct such houses, whose average construction cost is
estimated at about Rs 1,000 per sq ft, on a total area of 16-17 million sq ft. Besides low-cost housing, the
company would also develop 1,500 dwelling units every year on mid-income category
3. TATA Housing
Tata Housing, the unlisted real estate development arm of the Tatas plans to build up to 15,000 low-cost
homes priced in the range of Rs 0.39 - Rs 0.67 mn in the next 3-4 years across several cities including
Mumbai, Delhi, Chennai and Bangalore. The company is coming up with a 1200-unit township being
developed at Boisar, 100 km from Mumbai where a one BHK flat with a total saleable area of 465 sq ft
would be available at Rs 0.67 mn on the upper end. In the first phase, it will develop 1,000 units and sell
these in association with State Bank of India, it said. The company will hold a lottery to allot flats and
will sell application forms at Rs 200 each. The flats will be delivered in about two years.
4. Rahejas
Raheja Developers will build up to 30,000 apartments in the affordable housing category in the National
Capital Region in the next two years, which will be offered at Rs 0.4 - 2.5 mn, with the minimum size of
The company expects to complete the construction in two years and start delivery in 2011.
HOUSING
Affordable housing is not purely commercial but also has a strong social angle to it. It involves provision
of safe, clean and better accommodation to the low income, economically weaker sections of society who
still live in slums and shanty locales. With the creditworthiness of this segment being low, the
government's role becomes indispensable as the banks and the developers may not be willing to bear the
risk alone. Therefore, the government should take the initiative and launch public-private partnership
The various steps which can be fruitful for the success of affordable housing are:
• Incentives like providing higher floor space index (FSI) to low cost housing project with smaller unit
sizes.
• Introduction of real estate regulators at state level, in order to ensure monitors the affordable housing
progress and more transparency in real estate transactions involving developers and low income buyers.
Having said that, the UPA-2 recently announced some measures for promoting affordable housing in
• Resumption of Section 80 IB of the Income Tax Act, 1961 in order to make the profits from housing
projects approved by a local authority between April 1, 2007 and March 31, 2008, tax free if they are
• The government urged the developers to pass on these tax benefits to the consumer and also further
reduce prices in order to make housing affordable for the lower and middle income households.
Number of
(million)
Group
Income
Group
Group 192.4
Real estate industry in India plays a crucial role in the overall development of India’s infrastructure. The
real estate industry is highly cyclical in nature and price movements in the real estate market causes
fluctuations in the property market. This is due to the changes in the economic, demographic and policy
changes in the economy. The real estate industry’s growth is linked to the development in retail,
hospitality and entertainment (hotels, theatres etc), economic services (schools and hospitals) etc. Real
estate contributes about 5% to India’s GDP and total revenue generated from this sector stood at USD
I. Residential Space
Residential growth in the real estate sector has been huge. There have been a number of reasons for the
same. Indian population has been growing at a tremendous rate. The below graph shows the rise in Indian
The demand for houses has increased considerably and so have prices because of the demand supply gap.
With growth in population, the demand for real estate is expected to increase. Urbanisation, increasing
income, easy availability of finance and growth of nuclear families are other factors that will drive
The office space in India has also shown a growing trend in the last few years. The growth has been
usually due to the services sector and IT sector. IT companies have huge requirement for space because of
the large employee size and their ever growing business needs. Tax benefits have also led to the growth
During the recession period, the commercial space demand decreased drastically which led to excessive
supply of office space. This demand supply gap has led to many vacant office spaces. This also led to a
K.P.B. HINDUJA COLLEGE OF COMMERCE Page 38
T.Y.BFM FINANCIAL ANALYSIS OF REAL ESTATE SECTOR IN INDIA
fall in the rentals by almost 25-30%. Although the economy has picked up slightly, the rental rates have
not fallen further but neither has it led to the appreciation of the rents. Because of the lesser amount of
office spaces are being rented out; the operating trend for the trend is moving from buying the property to
The retail industry had been growing at a very fast pace before the 2008 recession, post which the growth
is not that high. The key drivers for the growth of this sector have been mainly lavish lifestyles, high
disposable income and tendency to spend. Because of this growth in the industry, the real estate industry
recorded an increased demand. This demand has been mainly in the Tier II and Tier III cities where the
A numerous malls have come up in the various cities. The footfalls in the malls had increased immensely
till 2008 post which foot falls have reduced due to which profits have reduced. This sudden change forced
developers to delay newer projects. Many new project launches are postponed due to the weak market.
Going forward it is expected that with the revival of the economy the growth in this sector would boom
again. Also, with various MNC retailers entering the Indian market along with the increased FDI limit for
Increased domestic, business and leisure travel has led to the increase in hospitality real estate demand.
The hospitality market comprises of not only hotels but service apartments and convention centres too.
And, service apartments are particularly attractive in this industry. Rising incomes, packaged tours, easily
available travel guides and lavish lifestyles are the key drivers that have promoted this segment of the
industry.
Prior to 2008, ARR (Average room rate) and OR (Occupancy Rate) were higher post which hotel industry
1. Deposit to Income Ratio: The deposit to income ratio is the minimum required down payment
2. Affordability Index: Actual Monthly cost of mortgage/ Take home income: An index value of
100 means the maximum affordable mortgage for a family with the median income is large
enough to purchase a home at the current median price. With increased affordability, prices of
3. Debt Service Ratio Or Housing Debt to Income Ratio: Receiving a ratio of less than 40%
4. Housing Debt to Equity Ratio: Percentage of your income would go toward your housing
expenses, including your monthly mortgage payment, real estate taxes, homeowner's insurance
and association dues. Higher ratios tend to increase the likelihood of default on the mortgage.
5. Valuation of Land held: As the land value increases, it tends to push stock prices up.
6. Ownership Ratio: The ownership ratio is the proportion of households who own their homes as
opposed to renting. A high ownership ratio combined with an increased rate of subprime lending
7. P/E Ratio = House price / (Rent – expenses): The price-to-earnings ratio or P/E ratio is the
8. Price – Rent Ratio = House Price/ Annual rent: It can be viewed as the real estate equivalent of
Government of India has relaxed the housing loan limits. Earlier, banks were allowed to give out
loans upto 10% of their total assets. This limit has been increased by 5% for granting loans to
individuals’ upto 25 lakhs limit which would be covered under priority sector lending.
At present 100% FDI in real estate sector is allowed through automatic route subject to minimum
criteria. For housing plots, the project must have at least 10 hectares. Group-housing projects
(apartments) are eligible for FDI if the total built-up area is at least 50,000 square metres. The
ministry is considering recommending some relief in three areas: one, minimum built-up
area requirement should be reduced, two, the definition of the minimum lock-in period should be
changed and, third, the minimum capitalisation -(investment) that is required should be reduced.
When the Real Estate (Regulation and Development) Bill 2013 comes into effect, all projects will
have to be registered with a real estate regulatory authority. Promoters will have to disclose details
about the project. All brokers and agents will have to be registered with the regulator before they
can practise. Builder will have to provide a list of agents who will represent each project.
Way Forward:
India's real estate sector is estimated to have a total supply pipeline of close to 3.6 billion sq ft
lined up for completion in the year 2013, with about 98% of this being concentrated in the
residential, said a report prepared by CBRE titled "Assessing the Economic Impact of India's Real
Estate Sector".
Potential for growth in this sector is tremendous. It will generate employment and will contribute
to the GDP of the economy. The total contribution of the real estate sector to the national GDP has
been estimated to be about 6.3% in 2013.This industry, however, requires government support
through policies because of the numerous challenges like high borrowing costs, high gestation
CHAPTER-6
FEELING THE PINCH
Hoping to cash in on a property he owns in the prime Juhu area, KV Satyamurty razed his bungalow in
2001 to make way for a seven-storey building. Almost a decade later, he says his hopes stand destroyed.
After the Brihanmumbai Municipal Corporation (BMC) migrated to the capital value-based system of
assessing property tax system in 2010, Satyamurthy suddenly had to begin paying 30 per cent more in
property tax.
“Most of what I earned is going in paying property tax. It’s becoming almost impossible to own
legitimate property in this city. Property tax is increasing exponentially, but our incomes are not. If this
continues, only slums will survive here because it is not remunerative to invest in property at all.
Somehow, the BMC just does not factor this in while deciding the budget,” complains Satyamurty, a
builder by profession.
Not just Satyamurty and owners of large properties, Mumbaikars across the board are expected to be
critically impacted by the BMC’s budget estimates for 2015-16 to be presented in the coming week.
While the old rateable value-based system was unscientific and kept taxes artificially low in South
Mumbai, the fact that the new system bases property tax on the ready reckoner means Mumbai’s residents
will be hit this year by the 15 per cent upward revision in the ready reckoner rates.
For example, the Ready Reckoner pegs residential property in Juhu around Rs 33,000 per sq ft — and
Satyamurty will not be alone in suffering a sharp spike in property tax bills.
Officials and corporators alike expect that Municipal Commissioner Sitaram Kunte’s budget speech will
In addition, the civic body has formed a committee to review the existing rules of property tax collection.
“We are mainly studying the impact of the capital value based system on property owners and what
measures we can take,” said Ramosh Arote, the BMC’s chief Assessor and Collector.
Other property tax related matters in the budget speech will have wide-ranging impact on Mumbaikars
too. There are 35,000 old tenanted residential buildings in the city, and the new assessment system affects
approximately 40 lakh people, according to BR Bhattad, executive president of the Property Owners
Association. The association and some individual property owners have challenged the capital value-
based property tax rules in the Bombay High Court. In a March 2014 order, the HC directed litigants to
pay as per the old rates plus 50 per cent of the differential.
The order led to the number of petitions in the HC reducing from 47 to 36, but the BMC still finds Rs
1,800 crore in property tax dues stuck in litigation. Already struggling to shore up revenue in anticipation
of the GST regime in 2016 that will land a Rs 15,000-cr revenue loss to the corporation, the
commissioner is also expected to address in his budget speech the issue of revenue stuck in litigation.
According to BMC officials, the capital value-based system brings in transparency and parity. Not only
was its introduction a mandatory reform under JNNURM, but the BMC has also found its property tax
collections rise by Rs 90 crore — despite the Rs 1,800 cro stuck in litigation. While this year’s target for
collections is Rs 4,000 crore, Kunte is expected to announce an 8 per cent increase in projections for
From April 1, even smaller tenanted shops would have to pay taxes based on capital value. Earlier,
commercial establishments below 500 sq ft were exempted. This would adversely affect small shop
“There are many landlords in the city who own dilapidated structures. Since their building is slated for
redevelopment, they don’t get rent from the tenants but are expected to shell out a huge sum as property
tax, which is completely ridiculous. The BMC should charge citizens on the basis of services they provide
and not look to just fill its coffers,” says Ramesh Prabhu, chairman of the Maharashtra Societies Welfare
Association.
CHAPTER-7
The Indian real estate market is expected to touch US$ 180 billion by 2020. The housing sector alone
contributes 5-6 per cent to the country's Gross Domestic Product (GDP).
In the period FY08-20, the market size of this sector is expected to increase at a Compound Annual
Growth Rate (CAGR) of 11.2 per cent. Retail, hospitality and commercial real estate are also growing
During the first nine months of 2015, PE funds invested about US$ 2.4 billion in the real estate sector,
across 53 transactions compared US$ 1.3 billion across 57 transactions in the same period last year. Deal
sizes have also increased in 2015, and residential projects both luxury and affordable have attracted a
Private Equity (PE) funds and Non-Banking Financial Companies (NBFCs) in India are seen increasingly
investing jointly in real estate projects, in order to hedge risk and undertake bigger transactions.
Mumbai is the best city in India for commercial real estate investment, with returns of 12-19 per cent
likely in the next five years, followed by Bengaluru and Delhi-National Capital Region (NCR). Also,
Delhi-NCR was the biggest office market in India with 110 million sq ft, out of which 88 million sq ft
were occupied. Sectors such as IT and ITeS, retail, consulting and e-commerce have registered high
India's office space absorption stood at 35 million sq ft during 20152, which is the second highest figure
in the India's history after 2011, and was driven by corporates implementing their growth plans.
India had the strongest activity in office leasing space in Asia and accounted for half of Asia’s total office
leasing in third quarter of 2015, with Delhi being the most active market3.
Delhi’s Central Business District (CBD) of Connaught Place has been ranked as the sixth most expensive
prime office market in the world with occupancy costs at US$ 160 per sq ft per annum.
7.2 INVESTMENTS
The Indian real estate sector has witnessed high growth in recent times with the rise in demand for office
as well as residential spaces. According to data released by Department of Industrial Policy and
Promotion (DIPP), the construction development sector in India has received Foreign Direct Investment
(FDI) equity inflows to the tune of US$ 24.156 billion in the period April 2000-September 2015.
1. Edelweiss Alternative Asset Advisors Ltd plans to raise US$ 1 billion for its first residential real
estate fund called the Edelweiss Real Estate Fund, which will finance investments in five property
markets in India - National Capital Region (NCR), Mumbai, Pune, Bengaluru and Chennai.
2. Quikr, an online classifieds platform, has acquired real estate portal Commonfloor.com for US$
3. Edelweiss Alternative Asset Advisors and Milestone Capital are investing Rs 7,200 crore (US$
1.08 billion) in India’s real estate sector while private equity firms like Goldman Sachs, Warburg Pincus
and Singapore’s GIC are exploring viable projects for investments, as a result of government’s effort to
4. Macquarie Infrastructure and Real Assets (MIRA), the realty investment arm of Australian
Macquarie Group Ltd, plans to invest in real estate projects in India and is in talks with Tata Housing
CommonFloor.com.
6. Omkar Realtors and Developers Private Limited is in discussions to raise Rs 400 crore (US$ 60
million) from KKR India, the local arm of PE firm Kohlberg Kravis Roberts and Co.
7. Goldman Sachs bought shares worth Rs 255 crore (US$ 38.3 million) in Vatika Hotels Private
Limited, a company owned by real estate and hospitality firm Vatika Group.
8. SoftBank, Falcon Edge Capital and a few others invested US$ 90 million in Locon Solutions
9. Real estate firm Supertech has planned to invest about Rs 2,000 crore (US$ 300 million) in
Gurgaon over the next few years by launching several luxury and affordable projects.
10. PE firm Warburg Pincus invested Rs 1,800 crore (US$ 270 million) in Piramal Realty for a
11. China’s Fosun International Limited is seeking to invest US$ 100 million in Locon Solutions, the
owner of Housing.com.
The Government of India along with the governments of the respective states has taken several initiatives
to encourage the development in the sector. The Smart City Project, where there is a plan to build 100
The Government of Rajasthan became the first state to initiate private investments in affordable
housing by signing four Memoranda of Understanding (MoUs) with private players for an investment of
The Ministry of Housing and Urban Poverty Alleviation (HUPA) has commissioned a study by
Indian Institute of Technology, Kanpur on testing of new construction technologies, with the objective of
India’s Prime Minister Mr Narendra Modi approved the launch of Housing for All by 2022. Under
the Sardar Patel Urban Housing Mission, 30 million houses will be built in India by 2022, mostly for the
economically weaker sections and low-income groups, through public-private-partnership (PPP) and
interest subsidy.
The Government of India has relaxed the norms to allow Foreign Direct Investment (FDI) in the
construction development sector. This move should boost affordable housing projects and smart cities
The Securities and Exchange Board of India (SEBI) has notified final regulations that will govern
real estate investment trusts (REITs) and infrastructure investment trusts (InvITs). This move will enable
easier access to funds for cash-strapped developers and create a new investment avenue for institutions
The State Government of Kerala has decided to make the process of securing permits from local
bodies for construction of houses smoother, as it plans to make the process online with the launch of a
software called 'Sanketham'. This will ensure a more standardised procedure, more transparency, and less
Responding to an increasingly well-informed consumer base and, bearing in mind the aspect of
globalisation, Indian real estate developers have shifted gears and accepted fresh challenges. The most
marked change has been the shift from family owned businesses to that of professionally managed ones.
Real estate developers, in meeting the growing need for managing multiple projects across cities, are also
investing in centralised processes to source material and organise manpower and hiring qualified
The growing flow of FDI into Indian real estate is encouraging increased transparency. Developers, in
order to attract funding, have revamped their accounting and management systems to meet due diligence
standards.
Today, the market is stagnant because most genuine buyers can't afford to buy their dream home as the
market is overpriced. The investors who were pumping in black money have also paused as prices have
stagnated.
Curiously, the escalation of prices itself has happened because of the large inflows of black money into
realty. Even though no official figures are available, it is safe to assume that anywhere between 30% and
40% of real estate transactions — be it the purchase of land or an apartment in a metro — involve black
money.
Of course, higher the price tag of an apartment, bigger is the black money component. For instance, there
is hardly any black money involved in an apartment priced between Rs 15 lakh and Rs 20 lakh but in a
luxury apartment priced above Rs 3 crore, the black money component could go up to 60%.
So, where does the problem start? It starts right at the time land is purchased, let's say for the construction
of an apartment. In a city like Mumbai, virgin land isn't available. So, invariably developers have to buy
land in outskirts or villages outside the city limits, where the ready reckoner rates (or circle rates) are low.
Often, the people who own the land ask for a significant part of the payment in black, sometimes as much
as 25-30%, so that they can avoid getting taxed. The next step is getting approvals, which invariably
involves getting building approvals from local civic bodies which in turn are controlled by politicians and
All these underthetable payments mean that a developer has to have a significant kitty of black money.
So, the developer starts putting price tags on things he isn't legally allowed to sell, parking in apartments,
for instance. It is this chain of black money transactions that has raised the launch prices of apartments,
resulting in the fact that most genuine buyers can't afford a home.
The only ones who can afford a home are, unfortunately, not the salaried class but traders and other
dubious buyers who have a steady flow of black money. Given that Indian tax norms favour people who
are buying a second or third house more than a first-time buyer, most people who can indulge in inflated
real estate transactions are investors who have black money. They have unyielding capital that they
Between 2001 and 2005, real estate in India boomed. Interest rates were low, housing was affordable and
first-time buyers were entering the market. One could understand a bump-up in prices then. But between
2009 and 2013, something strange happened. Despite the fact that there wasn't a great wave of buying
from first-time buyers, prices went upwards sharply. Most of this was fuelled by investors who invested
in the premium and luxury segments and most of them involved black money transactions.
State governments have responded by reducing ready reckoner rates to almost the same level as market
value but that alone hasn't been enough. If the government is serious about achieving its stated goal of
housing for all by 2022, then it will have to make a few systemic changes. One, incentivize first-time
buyers.
Two, make the process of getting approvals transparent. Make the process automated. Cut off all political
The Real Estate Regulation Bill is a first step towards that. But in its current form, there are some loosely
defined terms in the draft and oversights which can be misused. For instance, approval authorities are not
brought under the purview of the Bill. Most delays of housing projects happen because of delayed
approvals.
India has a shortfall of 18.7 million homes — over 95% of this is in the economically weaker section.
Only 1.4% of that demand is being met. If we want India's real estate sector to blossom again, this
CHAPTER-8
BUBBLE
In a nation where the practice of investing in real estate with untaxed income or unaccounted wealth is
widely prevalent, that may be about to change if Prime Minister Narendra Modi has his way. His
government is planning a new bill to curb “black money” that has inflated property prices, narrowed
options for buyers like Sharma and kept homes beyond reach for many Indians.
Finance minister Arun Jaitley told Parliament on 28 February that he plans to introduce a revamped
version of a lapsed Benami Transactions (Prohibition) Bill in the current session of parliament. Benami
means anonymous, and such deals often involve concealing the identity of the true buyer or the seller.
“The first and foremost pillar of my tax proposals is to effectively deal with the problem of black money
which eats into the vitals of our economy and society,” Jaitley said. “This law will enable confiscation of
benami property and provide for prosecution, thus blocking a major avenue for generation and holding of
Data provided by Mumbai-based Liases Foras Real Estate Rating and Research Pvt. Ltd show the real
estate industry accounts for a large share of illicit deals in the South Asian country, with an estimated
That’s high for a sector making up 6% of India’s $1.88 trillion economy and for an industry forecast to
grow fivefold to $676 billion by 2025 and 13% of GDP by 2028, according to KPMG.
If enacted, the law could mean a “healthy” correction to property prices, said Samir Arora, founder of
“The biggest beneficiary of black money in India is real estate,” Arora said. “The government looks all
serious on this bill. Once you make the rules tough, somebody will get caught. When a few get caught,
For land deals, the cash component could range between 30% and 50% of the deal value, said Pankaj
Kapoor, founder of Liases Foras. Politicians and businessmen hold a lot of land as they expect asset
“If black money goes away, property prices could see a sharp correction,” Kapoor said.
The S&P BSE Realty Index comprising 13 property stocks, has already dropped 87% from a high reached
in January 2008 as developers grappled with debt, high interest rates and declining sales after the global
financial crisis.
Unitech Ltd led the slump during this period, tumbling 96% while DLF Ltd, the country’s largest, slid
86%.
The proposed bill will seek to prohibit accepting cash ofRs.20,000 and above for the purchase of
immovable property while buyers will have to provide their income tax identification numbers for
“In principle, the more checks and balances they bring, the better for the industry,” said Rohit Gera,
managing director of Pune-based Gera Developments Pvt. Ltd. “Everytime one talks of black money, it’s
always linked to real estate. We are an easy play because of the perception we are a dirty industry.”
Gera, differentiating “reputed” builders from others, said his company accepts only checks and never any
cash.
“The prevalence of unaccounted wealth being pumped into real estate is more acute in land deals rather
than in developed housing,” said C. Shekar Reddy, president of the Confederation of Real Estate
“Where developers are concerned, I can say black money in residential transactions is almost nil,” Reddy
said.
The passage of the bill hinges on Modi’s ability to push it through the upper house of parliament, where
his Bharatiya Janata Party (BJP) lacks majority. In his first legislative victory since becoming prime
minister in May, lawmakers this month approved a proposal pending since 2008 to raise the cap on
After the government failed to notify an original law in 1988, another version of the bill was introduced
in 2011, which lapsed a few years later. That draft recommended jail terms ranging from six months to
two years and a fine of 25% of the fair value of the property held in “benami”.
The government’s efforts to tackle unaccounted wealth aren’t just confined to domestic black money. The
cabinet this week approved the Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, which
India ranked third in the world for money illegally moved overseas in 2011, behind China and Russia,
according to a 2013 report by Global Financial Integrity, a Washington-based group researching cross-
Modi’s avowed intent to unearth black money was a key campaign pledge that helped him win the largest
Undisclosed income is among the reasons for a surge in property prices in India despite the lack of a
Weighted average apartment prices in Mumbai, the nation’s most expensive real estate market, have more
than doubled since 2009 to Rs.13,120 a square foot in the December quarter, according to Liases Foras.
A three-bedroom apartment in Mumbai’s upscale Malabar Hill neighborhood costs between Rs.12 crore
($1.9 million) andRs.25 crore. The median price of apartments that changed hands in Manhattan last
quarter was $980,000, up 15% from a year earlier, according to a report by appraiser Miller Samuel Inc.
As for Sharma’s search for a suitable property near New Delhi, he says he hasn’t seen a happy ending yet.
“Property prices have become unaffordable in India, and with some developers asking for cash, its pricing
According to the study, a whopping 69% of the overall unsold flats within the Brihanmumbai Municipal
Corporation limits are worth more than Rs 1 crore each, which is out of bounds for an average
Mumbaikar whose household income stands at just Rs 7.5 lakh per annum (as per the Economic Survey
for 2014-15).
In absoulute terms, 30,501 units out of a total number of 44,032 unsold inventory fall in this price
Accroding to the note, at this income level, it will take 13 years for a person to find an apartment that is
affordable for her. Interestingly, the weighted average of house prices in the Mumbai city is much higher
- it is slightly above Rs 2 crore. To buy a Rs 2 crore house, an average Mumbaikar will have to wait for
Precisely, the key reason for the demand slowdown in the sector, which has resulted in a rise in the
number of unslod flats with the developers, is that the prices of the houses are unaffordable.
According to an earlier note by JLL, the National Capital Region (NCR) had the most unsold homes in
the country, followed by Bangalore and then Mumbai as of the second quarter. While NCR had nearly
1,80,000 homes yet to be sold, the corresponding figures for Bangalore stood at more than 84,000 and
Unaffordability of the houses is extreme in Mumbai. According to JLL, the share of Rs 1 crore houses in
the overall unsold inventory has fallen sharply during the second quarter from the first quarter. But that
offers no respite.
"Although the share reduced from 90% at the end of 1Q15 due to some new launches in suburban
locations, it is still overwhelmingly high for a city where only a limited percentage of residents are able to
afford ticket sizes of over Rs 1 crore," said Ramesh Nair, COO & International Director, JLL India.
Of the launches that happened in the second quarter in Mumbai, only 3.21 percent of the houses fell in the
"Compared to pan-India figures, the numbers are highly skewed towards the higher ticket sizes in
Mumbai. Very few units in the affordable range were available from all these launches and mostly were
in the suburban locations. Even if the overall inventory is considered, there is very little stock in the
affordable range (INR 65 lakh and below) in the city," the note said.
In comparison, houses in the price range of Rs 35-80 lakh are sold off quickly in Bangalore. Units with
ticket sizes of Rs 1 crore and above take longer to sell, JLL had said in the earlier note. Most of the
The situation in Mumbai is only getting worse because of an expected increase in land prices, said JLL.
"All the launches expected within the city limits in the future too, will largely consist of units priced
According to the consultancy firm, of the new launches that happened in the second quarter within BMC,
Now let's return to the finance minister's argument. As this article illustrates, a 25 bps reduction in RBI
policy rate (if the banks are kind enough to pass on the cut, that is) will bring down the EMI by a paltry
Rs 800 for a Rs 50 lakh loan, an estimated minimum loan amount required for a Rs 1 crore house.
To hope that such a marginal fall in EMI will encourage somebody to go and buy a Rs 1 crore house is
The key factor that will revive demand in the sector is a fall in prices. Until that time, the dream home of
CHAPTER-9
ELECTION VERDICT
BANGALORE|MUMBAI|NEW DELHI: Not all asset classes have been on a bull run in anticipation of
the election result on May 16, when votes will be counted. Stocks may have been surging over the past
few months but the secondary residential market has been going the other way, according to anecdotal
Prices of tens of thousands of homes built by local builders and investors in the metros have crashed by as
much as 20-30 per cent in the past one year, with their owners desperate to exit a market in which buyers
Brokers are left with a lot of free time. Inside his tinted-glass offices in south Delhi's Safdarjung Enclave,
realtor Sunil Kapur holds up a list of 50 houses in the area that are for sale.
Since there are no buyers, he's been whiling away the time by surfing the Net or watching Narendra Modi
and Rahul Gandhi on TV during the month-long election campaign. "There is no point... there are no
buyers. Those who come by are also not interested to buy at these prices," he said, as he winds up for
lunch followed by an afternoon siesta, hoping that the situation will change dramatically after the election
result is out.
Deepak Parekh, chairman of India's largest mortgage lender HDFC, agreed: "The market is certainly soft
today. Secondary sales have slowed down and prices in that segment have come down."
The number of unsold homes is rising, said Anshuman Magazine, managing director of property
consultant CBRE South Asia. "The situation in the residential market is getting worse and piling
K.P.B. HINDUJA COLLEGE OF COMMERCE Page 69
T.Y.BFM FINANCIAL ANALYSIS OF REAL ESTATE SECTOR IN INDIA
inventory is mounting extra pressure on the investors' holding capacity. This seems to be a good time to
Stocks have been rising on the expectation that the Narendra Modiled BJP will be well-placed to form a
stable government, but that assurance doesn't seem to have enthused people to buy homes.
To be sure, economic confidence is yet to be restored with growth still down in the dumps and the
possibility of a weak monsoon adding to the uncertainty amid the likelihood of inflation accelerating
again, which could in turn mean rising interest rates as the central bank tries to clamp down on prices,
"Income levels of people have not risen unlike an exceptional rise in property prices due to slowdown in
the economy. Home buyers want to see a stable government and policy enacted to make informed
decisions," said Alexander Moore, chief executive officer at property brokerage firm LJ Hooker India.
Analysts also pointed to the overall negative sentiment because of uncertainty hanging over some real
estate projects and deals that have got tangled up in court cases or are being cited in corruption
allegations.
Most of the data for this report has been obtained from property consultants, who collate and share market
data with the industry, and banks that usually compile information about new homes in micro-markets
Bibliography
Magazines
Realty Plus
Construction World
Research Papers
Deutsche bank India - Building up India ,Outlook for India’s real estate markets
Prospects & Problems of Real Estate in India : study by Vandana Singh , Head-MBA
Department , Seth Jai Prakash Mukand Lal Institute of Engeenring &Technology (JMIT)
Papers by ICICI Bank, Motilal Oswal, Yes Bank and Nomura financial advisory and securities
Websites
www.wikepedia.com
www.magicbricks.com
www.ibef.org
www.indiahousing.com