[Type the document title] INDUSTRY PROFILE

INTRODUCTION TO INDUSTRY
The term real estate is defined as land, including the air above it and the ground below it, and any buildings or structures on it. It is also referred to as realty. It covers residential housing, commercial offices, trading spaces such as theatres, hotels and restaurants, retail outlets, industrial buildings such as factories and government buildings. Real estate involves the purchase, sale, and development of land, residential and non-residential buildings. The main players in the real estate market are the landlords, developers, builders, real estate agents, tenants, buyers etc. The activities of the real estate sector encompass the housing and construction sectors also. The Real Estate market offers inevitable vivacious reasons for many to invest. Owning a house or office at ones desired and wished location is an awe-inspiring chore. The entire process of purchasing or selling is inter-connected with emotions, excitement and exhilaration. There are various factors which are accountable to lay the flow and trend of the real estate industry. Despite the slump in the market due to the global economic slowdown, the real estate market has geared up to its place in encumber. With the technological advancements over the millennium even the real estate sector has undergone tremendous change with emphasis on infrastructural developments across various regions. Add to these the globalization and liberalization also plays an important part in placing the properties on the wish list for many. For any one venturing on purchasing a property it is vital to embark on a thorough research about the developments and availability of home or office in the desired region. This is where internet comes as a savior; one can search for a home or commercial space based on location, size, and amenities and much more as per ones requirements. Internet, newspapers, magazines, flyers or any other source of information proffers pages pertaining to real estate property available for sale, commercial or residential property availability on rental or lease basis. There are various websites where a seller can place an advertisement for sale of the house and to enhance or fasten up

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the process may also provide details and photographs of the house which may entice a prospective buyer. Getting ready for the real estate sector requires lot of research and speculation on behalf of both seller and buyer. The process is also linked with examination, investigation and conjecturing property in question. Preparing a house for its sale requires a lot of work to be done from the sellers end. Starting from painting, repairing, cleaning of interiors and exteriors are vital requirements that the seller is required to ensure before publishing the for sale board on the house. For the buyer it is vital not to fall in the trap set by some false sellers and agents. A personal visit before penning down the deal is important. A well said quote states that first impression is the last impression this very well fits believes and considerations from both buyer and sellers point of view. The seller wants to make some profit at the end of the whole deal where as the buyer wishes to own a house which is well in sync with the cost demanded with amenities and facilities offered. Internet revolution offers all these details just at the click of a mouse. It offers websites providing information and details about property available for sale, rent or lease. Various real estate agents or brokers also tender their websites filled with details about their proficiencies and projects they finalized.

REAL ESTATE IN INDIA

With around 1.1 billion people, India is the second most populous country after China and it is expected to overtake it by 2030. Its economic transformation over the past decade has pushed up real GDP growth to an average of 6 per cent per annum since 1992. India is emerging as an important business location, particularly in the services sector. Its favorable demographics and strong economic growth make the country an attractive place for property investors, given that demand for property is determined chiefly by business development and demographic trends. Historically, the real estate sector in India was unorganized and characterized by various factors that impeded organized dealing, such as the absence of a centralized title registry providing title guarantee, lack of uniformity in local laws and their application, non-availability of bank financing, high interest rates and transfer taxes,
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and the lack of transparency in transaction values. In India, the real estate and construction is a $16 billion (2006) (by revenue) industry. It is a major employment driver, being the second largest employer next only to agriculture. This is because of the chain of backward and forward linkages that the sector has with the other sectors of the economy. But, the Indian real estate market, as compared to the other more developed Asian and Western markets is characterised by smaller size, lower availability of good quality space and higher prices. Supply of urban land is largely controlled by State-owned development bodies like the Delhi Development Authority (DDA) and Housing Boards leaving very limited developed space free, which is controlled by a few major players in each city. Directorate of Estates is an attached office of the Ministry of Urban Development, Government of India. It is responsible for the administration and management of the office buildings for the various organisations of the Government of India as well as residential accommodation for the Government employees in the metropolitan cities of Delhi, Mumbai, Kolkata, Chennai and five other cities namely Shimla, Chandigarh, Ghaziabad, Faridabad and Nagpur. The Central Government Estates in the remaining cities and towns are managed by the Central Public Works Department (CPWD). CREDAI (Confederation of Real Estate Developer's Associations of India) is the apex body of the organized real estate developers/builders across India. 20 State/city level associations, namely, Andhra Pradesh, Chhattisgarh, Delhi-NCR, Goa, Gujarat, Jharkhand, Himachal Pradesh, Karnataka, Kerala, Madhya Pradesh, Maharastra, Odisha, Punjab, Rajasthan, Tamilnadu, Uttar Pradesh and West Bengal spread over across 18 States of India are members of CREDAI with over 3,500 individual members developers encompassing over 60% of the organised private state/cities in the country. The Central laws governing real estate include:

Indian Contract Act, 1872 Transfer of Property Act, 1882 Registration Act, 1908 Special Relief Act, 1963 Urban Land (Ceiling And Regulation) Act (ULCRA), 1976 Land Acquisition Act, 1894
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The Indian Evidence Act, 1872

In recent years however, the real estate sector in India has exhibited a trend towards greater organization and transparency, accompanied by various regulatory reforms. These reforms include: Government of India support to the repeal of the Urban Land Ceiling Act, with nine state governments having already repealed the Act. Modifications in the Rent Control Act to provide greater protection to homeowners wishing to rent out their properties. Rationalization of property taxes in a number of states. The proposed computerization of land records. The trend towards greater organization and transparency has contributed to the development of reliable indicators of value and the organized investment in the real estate sector by domestic and international financial institutions, and has also resulted in the greater availability of financing for real estate developers. Regulatory changes permitting foreign investment are expected to further increase investment in the Indian real estate sector. The nature of demand is also changing, with heightened consumer expectations that are influenced by higher disposable incomes, increased globalization and the introduction of new real estate products and services.

Categorization
The demand for new office space in India has grown from an estimated 3.9 million sq. ft in 1998 to over 16 million sq. ft in 2004-05. 70% of the demand for office space in India is driven by over 7,000 Indian IT and ITES firms and 15% by financial service providers and the pharmaceutical sector. In 2005 alone, IT/ITES sector absorbed a total of approx 30 million sq. ft and is estimated to generate a demand of 150 million sq. ft. of space across major cities by 2010. This data clearly demonstrates the growth of the real estate sector in the country. With reference to the availability of infrastructure facilities, following cities are currently attracting MNCs/corporate/real estate developers: Tier I cities, Mumbai (Commercial hub), Delhi (Political hub) and Bangalore (Technological hub): Preferred option for many new market entrants Command the highest international profiles and significant proportion of FDI Offer qualified labor pool and the best infrastructure facilities

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Exhibit development of sub-urban commercial real estate Yield of 9.5 10% Tier II cities, notably Hyderabad, Chennai, Chandigarh, Kochi, Mangalore, Mysore, Thiruvananthapuram, Goa, Bhubaneshwar, Ahmedabad and Pune Yield of 10.5-11.5% Offer competitive business environments, human resources availability, telecommunications connectivity, quality of urban infrastructure, Attract high value IT, ITES and biotech corporate houses Tier III cities, like Cuttack and Jaipur Low liquidity and still highly unorganized. Special Economic Zones: 28 operational SEZs in the country, including those converted from Export Processing Zones (EPZ) to SEZ Development of SEZs in various segments such as multi-product, Information Technology, Bio-technology, Gems and Jewellery, Textiles and technology intensive industries Attract both developers and corporate houses (refer table for a list of corporate that have shown interest in development of SEZs)

DEMAND DRIVERS
These trends have benefited from the substantial recent growth in the Indian economy, which has stimulated demand for land and developed real estate across the real estate industry. Demand for residential, commercial and retail real estate is rising throughout India, accompanied by increased demand for hotel accommodation and improved infrastructure. Additionally, the tax and other benefits applicable to Seas are expected to result in a new source of real estate demand. Residential Real Estate Development The growth in the residential real estate market in India has been largely driven by rising disposable incomes, a rapidly growing middle class, low interest rates, fiscal incentives on both interest and principal payments for housing loans, heightened customer expectations, as well as increased urbanisation and growing number of
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nuclear families. The residential sector is expected to continue to demonstrate robust growth over the next five years, assisted by the rising penetration of housing finance and favourable tax incentives. Commercial Real Estate Development The recent growth of the commercial real estate sector in India has been fuelled by increased revenues of companies in the services business, particularly in the IT and ITES sectors. Industry sources expect the IT and ITES sectors to continue to grow and generate additional employment, which they expect will result in increased demand for commercial space. Within the IT and ITES sectors, the Indian off shoring operations of multinational companies are expected to increase demand for commercial space. The trend for these companies has been to set up world class business centres to house their growing work force. India continues to lead the AT Kearney Offshore Location Attractiveness Index by a significant margin. Retail Real Estate Development The organised retail segment in India is expected to grow at a rate of 25 per cent to 30 per cent over the next five fiscal years. The growth of organised retail is expected to be driven by demographic factors, increasing disposable incomes, changes in shopping habits, the entry of international retailers into the market and the growing number of retail malls. Hospitality Industry The hotel industry in India has grown as a result of a growing economy, increased business travel and tourism. Special Economic Zones (SEZ) SEZs are specifically delineated duty free enclaves deemed to be foreign territories for purposes of Indian custom controls, duties and tariffs. There are three main types of SEZs: integrated SEZs, which may consist of a number of industries; services SEZs, which may operate across a range of defined services; and sector specific SEZs, which focus on one particular industry line. Regulatory approvals have been received for SEZs proposed to be developed by a number of developers. SEZs, by virtue of their size, are expected to be a significant new source of real estate demand.
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Infrastructure Development Projects Central and state governments in India are increasingly focused on infrastructure development. A significant portion of infrastructure development is expected to be undertaken through public-private partnerships, thereby increasing the flow of private capital into infrastructure projects. Key areas of infrastructure development include transport, power, telecommunications, ports, pipelines, sanitation, water supply and irrigation.

POLICY INITIATIVES
Foreign Direct Investment in Real Estate The real estate market is currently characterised by small players. None of the local developers have a truly national presence and large companies are still not fully involved in real estate development. None of the current players have the financial strength to invest in large-scale development projects. The development of new towns and cities would require huge massive investment and technical expertise that domestic players alone cannot provide. One way to overcome this hurdle is to raise funds through the FDI route. However, right now, FDI in the real estate sector is allowed only for the development of integrated townships. Allowing FDI in the real estate sector will result in the following advantages: (i) It will provide the much-needed investment for the funds-starved sector; (ii) it will bring in professional players equipped with expertise in real estate development; (iii) the introduction of new technology and quality real estate assets will have a demonstration effect on the local developers; (iv) it will lower real estate costs in the long run; (v) it will generate employment and revenue; (vi) it will improve the quality of related infrastructure. The real estate sector needs to be opened up to FDI as returns in the form of rentals (annual investment yield) and capital appreciation are assured. Rentals in Indian cities are amongst the highest across the world. The average yield from investments in commercial property has ranged between 11-13 per cent per annum in India over the last few years. Across the world, real estate is a preferred option for foreign investors. It is estimated that roughly, half the FDI flow into China is for the housing sector only.

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But the stumbling block is the fear that foreign investors may repatriate all the profits.These apprehensions are fuelled by the fact that the Southeast Asian financial crisis was partly the result of short-term investments in the real estate sector in these countries leading to flight of capital. To guard against this, a minimum lock-in period of three years must be fixed on investments and care should be taken to ensure that no long-term investment is funded by shortterm capital. Opening up the real estate sector will bring in substantial foreign investments into India which would result in developing the real estate market and making it more efficient. This is also likely to give a big fillip to the construction industry, which has tremendous spin-offs, especially in terms of employment generation. Legal problems, small individual land holdings, untraceable records and unavailability of organised finance are major entry barriers to FDI in real estate. These need to be tackled before the sector is opened up. Investment Trend There is a gradual shift in the way the construction of both residential and commercial property is being financed-away from debt and towards equity. Traditionally, developers funded their construction cost by pre-selling houses to buyers. But this mode has faded out, thanks partly to competition and financial sophistication. Private debt and bank lending have since emerged as the most important source of real estate finance in India, accounting for 60 per cent of the total money being spent on new construction activities. In the past four years, bank loans to commercial real estate have increased by more than 500 per cent to USD 2.4 billion. Municipal Laws Most urban and municipal laws and regulations in India date back to half a century if not more. There is a need to thoroughly review and modernise them in the light of the latest developments in urban infrastructure, transport, pollution control etc. A committee of eminent persons from the concerned fields should be set up to draw up a model municipal law. Such a law must make provision for private investment in and supply of all public utilities and services. It must ensure that the municipal authority focuses its attention on data gathering, analysis, planning, organisation and monitoring. In other words, the government should play the role of the facilitator more than that of the provider.

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