This document provides an overview of the Indian real estate sector in 2012. It discusses the major sectors within real estate like commercial, residential, retail, hospitality, and special economic zones. It outlines the growth drivers and market structures for each sector. It also examines demands in major Indian cities and the impact of foreign direct investment. The document discusses major players in real estate, investment opportunities, and recent policy updates. It concludes that while 2012 saw slower growth, the long term outlook for the Indian real estate sector remains positive due to strong economic growth and urbanization trends.
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CONTENT
Introduction: Real Estate Sector in India
Market Overview: Development & Sector In India
Majors Players In Real Estate
Demands In Major Cities
Impact On Indian Economy Of FDI In Real Estate Sector
Investment Opportunities & Policy Updates
Conclusion
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Real Estate Sector in India: An Introduction
The Planning Commission of India defines ‘ Real estate’ 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. The activities of the real estate sector encompass the housing and construction
sectors also. Real estate business involves transactions, such as purchase, sale, and
development of land, residential and non-residential buildings. Major players in the real estate
market 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 economic
growth, and coupled with a series of IPOs by property firms — so in recent years has India's
property sector changed substantially. These trends of growth and modernization are set to
continue, with some market participants forecasting that real estate development in India will
grow 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 seeking
transparent and liquid ways to invest. Furthermore, with a more global property market, the
level of competition in the Indian property business is rising, while the need for property firms
to strengthen their operational infrastructures, personnel and finances to better compete is also
becoming more acute.
India's GDP growth rate has averaged more than 8% over last few years, up from an
average of around 6% during the 1990s and has touched the 9% last fiscal. India emerged as
a land of opportunities. The principle drivers of India's GDP are changing demographics, rising
levels of foreign investment, a vibrant services sector powered by the IT and ITES sectors and
buoyant exports. Notwithstanding concerns over lack of structural reform, these factors are
likely 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 the
needs 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 the
demand for residential property. Tax incentives have also been granted to interest and
principal paid on home loans, which has made owner-occupied property more attractive.
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MARKET OVERVIEW: DEVELOPMENT & SECTORS IN INDIA
Commercial 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 2012-13
Residential
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
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Retail
Growth Drivers
* Rising consumerism with doubling of disposable income
* Growth in Organized Retailing and Entry of international retailers
Market Structure
* Dominated by unorganized retail
* Large corporate houses entering the organized retail sector
* International retail brands are tying up with Indian partners
Segmentation
* Organized retail contribution to the retail industry grew from 6% in 2009 to 10% in 2012
* International retailers are present through franchisee route
Outlook
* 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 sales
expected to reach 15% by 2013
Hospitality
Growth Drivers
* More than 17.85 million international visitors and more than 500 million domestic tourist visits
in 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 operations
Market Overview
* Developers are tying up with major international chains
* Developers have set up RE funds to finance their Ventures
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Segmentation
* 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 Deluxe
contributing close to 30,000 rooms
Outlook
* 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 popularity
Special 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 preferred
for
* Policy allows usage of as high as 50% of area as non-processing zone, offering immense
potential for residential & other support infrastructure
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MAJORS PLAYERS IN REAL ESTATE
OUTLOOK ON - DLF
Trend: - CONSOLIDATE
Resistance: -260, 330
Support: -170, 110
Strategy: - Buy on Dips
ACCORDING TO OUR TECHNICAL VIEW DLF WILL TOUCH 260 IN 4-5 MONTH
OUTLOOK ON - HDIL
Trend: - CONSOLIDATE
Resistance: -170, 205
Support: -60, 30
Strategy: - Buy on Dips
ACCORDING TO OUR TECHNICAL VIEW HDIL WILL TOUCH 170 IN 4-5 MONTH
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OUTLOOK ON- JP ASOOCIATES
Trend: - CONSOLIDATE
Resistance: -120, 150
Support: -70, 50
Strategy: - Buy on Dips
ACCORDING TO OUR TECHNICAL VIEW JP ASOOCIATES WILL TOUCH 110 IN 1-2
MONTH
OUTLOOK ON - LNT
Trend: - BULLISH
Resistance: -1900, 2200
Support: -1300, 1100
Strategy: - Buy on Dips
ACCORDING TO OUR TECHNICAL VIEW LNT WILL TOUCH 1900 IN 2-3 MONTH
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DEMAND IN MAJOR CITIES
Indian 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 as
alternative 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 in
Tier I is estimated at 15% to 20%.
Tier III cities: Given the rising costs in Tier II cities in recent years, companies are increasingly
eyeing Tier III cities. These are cities with populations of more than a million (10 lakhs) are not
yet completely established as outsourcing and off shoring destinations. Their absolute cost
advantage 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 to
154,701 units for the corresponding period of 2011. From the pricing perspective, the average
residential 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 the
highest, 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 definitely
reduced significantly in all the top seven cities of India in 2012.
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IMPACT 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
India's economic growth. Real estate in India
contributes about 5 per cent to India's 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.
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In fact, FDI in the sector is expected to increase to US$ 25 billion in the next 10 years, as per a
latest industry body report.
India needs to invest US$ 1.2 trillion over next 20 years to modernize urban infrastructure and
keep pace with the growing urbanization. Construction development sector (including
townships, housing, built-up infrastructure) has attracted a cumulative FDI worth US$ 21.1
billion from April 2000 to June 2012. FDI flows into the sector for the period April-June 2012-13
stood at US$ 348 million, according to the Department of Industrial Policy and Promotion.
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INVESTMENT OPPURTUNITIES & POLICY UPDATES
Investment 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 have
stabilized now and are deemed attractive for the NRI home buyer. Industry experts feel that
with 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 appreciating
in value compared to the rupee in the recent times. "Generally, NRIs are looking at this period
as an extremely advantageous one for realty investments. The Government has been making
proactive 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 India’s
booming real estate market. “The appreciation of the Singapore dollar, the Comprehensive
Economic Cooperation Agreement and the RBI’s liberalized policies are all progressive steps
for expats, NRIs and Singaporeans to invest in India’s booming real estate market.
The reputation of the realtors and the variety of properties available make it a reliable and
convenient investment opportunity for the Indian expats and Singaporeans alike.
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Investment Policy Updates:
The Government has proposed one per cent TDS (tax deduction at source) on transfer of
immovable property if the sale value exceeds Rs 50 lakhs in urban centers and Rs 20 lakhs in
other areas in the Union Budget 2012-13.
The Reserve Bank of India (RBI) has granted permission to foreign citizens of Indian origin to
purchase property in India for residential or commercial purposes. The purchase consideration
should be met either out of inward remittances in foreign exchange through normal banking
channels 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.
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CONCLUSION
RE 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 growth
curve, moving forward many companies will be spawned in each of these verticals and offer
great career opportunities. The sector is very important for the government as it is a big
generator of tax revenue. Urban planning is very critical to any growing city and provides huge
opportunities and liabilities. People tend to discuss, urbanization of India, if good planning and
development doesn’t take place in our cities, we are heading for “ruralization of Indian urban
centers”.
The year 2012 was a sluggish year in terms of economic growth, largely because of high
interest rates and poor industrial production. Indeed, the index of industrial production rose by
just 0.4% in April-August 2012, as compared to 5.6% in the same period of 2011.
Manufacturing activity, which contributes significantly to India's GDP, also took a big hit in
2012. Inflation remained high, impacting sentiments and investor interest across businesses -
including real estate.
Real Estate development is taking place in Residential, Retail, Office, Hotels, & Warehousing
and 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 five
years. The rising middle class and its consumer demand is driving the retail boom – around 22
malls are under development. The large shortage in the housing sector will continue to fuel the
growth in the residential market. The real demand is not in the high end residential market but
in the affordable housing segment and this will be the driver for the residential market.
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