India GRI is a get-together of senior international and local real estate investors, lenders and developers active in India. View the discussion summaries from the event compiled by Cushman & Wakefield. View the current edition of India GRI here: www.indiagri.com

1. D I S C U S S I O N S U M M A R I E S
Investing in India
FOOL’S GOLD OR INVESTOR PARADISE?
FDI inflows into India have seen an upward trajectory
as cumulative FDI inflows into India amounted to
approximately INR 2,159 billion during January-
September of 2016, a growth of 22% over the
corresponding period last year. At the same time,
year to date (YTD) PERE in 2016 increased 20% to INR
278 billion, up from INR 232 billion recorded during
the same period last year. Given this background, the
question was if we are at a juncture similar to 2004
when the India Shining campaign was in full swing.
The markets are much more evolved now, given the
down cycle the industry went through recently.
• India is a small player in terms of global
allocation of capital. The Indian market is dynamic
and is subject to event risks such as Goods &
ServicesTax (GST), Real Estate Regulatory Act (RERA),
currency demonetisation, etc. Foreign investors
spend considerable time in ascertaining the impact
of such events on the economy, before delving
into the terms of the deal. Thus, it is important that
foreign investors either have a local team or tie-ups
with local partners to operate in the country.
• Last year, India attracted a higher proportion
of money from sovereign and pension funds. This
was driven by government reforms and improved
ease of doing business. Legislation such as RERA are
definitely improving the confidence of investors and
are expected to facilitate their smoother entry and
exit in Indian markets. Sectors such as office, logistics
and residential are the preferred areas of investment.
There is flight to quality aided by measures such as
RERA and demonetisation; thus attracting deep-
pocketed investors.
• The strategy of foreign investors is to identify
and invest in growth markets like India. While
reforms such as GST, Bankruptcy code are being
introduced, it will be critical to monitor the effective
implementation of the same.
• Most of the funds are currently coming in the
form of sovereign and pension funds, especially
from Canada. The Canadian funds are active in other
markets such as Mexico, Colombia, China and Brazil.
They are also looking at the Philippines; however,
the scale is limited.
• While foreign investors are optimistic about
their outlook for India, they will be willing to put in
more money if the following things are in place:
INDIAGRI
2016
S E S S I O N S S U M M A R Y
scribed by Cushman & Wakefield

2. o Strong risk management framework
o Management team
• Foreign investors expect a higher return than
domestic funds owing to the inherent risk in the
Indian market and given the complexities involved
and event risks.
Investors believe that equity investments can be
lucrative for players with a long term horizon in the
Indian market. Currently, structured debt strategy
remains the most preferred investment mode
as it ensures stable and secured returns at pre-
determined terms, mainly in the residential segment.
Given the optimism surrounding the Indian market,
investors are confident that funds will flow into the
Indian real estate sector with higher focus on equity.
Capital flows
WHERE ARE WE IN THE CYCLE
Private equity investments in the years 2015 and
2016 have been buoyant in both the residential and
office assets led by expectations of quick economic
recovery resulting from the Indian government’s
proactive steps.
How have funds seeped into the market
• The PERE inflow has seen good momentum
since 2008 except for a break in 2013, wherein the
lull in investments was marked by fears of political
instability with elections due the following year.
• Over the last three years, funds from domestic
funds have remained largely range-bound, while
foreign funds have increased their exposure over
these years as they see great potential in the India
growth story.
• With RERA expected to bring in structure into
the Indian realty market, investors want to wait
to watch its implementation across the various
states. States need to upgrade their software and
technology spectrum and also need to weigh in
the need for increased manpower that would be
required to implement RERA.
Asset class preference
• The commercial office sector is garnering large
inflows in top cities as investors seek rent-yielding
office assets in light of the impending listing of REITs.
In 2016, several large-ticket office deals are expected
to be closed, marked by strengthening leasing and
improving office fundamentals. Capital is seen to
be chasing office assets in Delhi-NCR, Mumbai,
Bengaluru and Hyderabad. In SEZs, companies are
purchasing land before before the March 31st 2017
sunset clause sets in.
• In the residential markets, while the overall

3. residential market is seeing a slowdown, southern
markets of Bengaluru and Hyderabad are witnessing
reasonable velocity with structured debt being the
most preferred method.
• Although still at a nascent stage, the trend
of insurance companies purchasing office assets
is picking up across cities. These companies are
purchasing assets with hedging against future yields.
• With the imminent introduction of GST and
the deeper penetration of e-Commerce, investors
are seeing greater traction in the warehousing
sector. The increased efficiency and modernization
expected in warehouses led by GST has boosted
investor activity in this segment through this year.
Demonetisation impact on inflows
• Tapering of HNI investments due to the impact
ofdemonetisationwouldfurthersteertheIndianreal
estate market moves towards institutionalisation.
• Some investors have taken a pause and are on a
wait-and-watch mode as they take a relook at deals
due to the impact of demonetisation.
• In the residential market, sales volume are
expected to decline with Delhi-NCR being the most
impacted. Therefore, developers may be required to
make payments through their own reserves over the
next few months, especially if investors are in a wait-
and-watch mode.
Lenders and consultants were of the opinion
that capital flows into the real estate sector are
concentrated - both in terms of source of funds
and in terms of flows. This essentially means that
a handful of institutional investors are looking to
fund projects of chosen top developers and only
these top developers are seeing higher interest
from investors. A lender remarked that with various
countries giving negative yields, capital flows into
India will find their way despite certain short-term
hiccups in the economy. An international property
consultant was of the opinion that the commercial
office markets may continue to witness investments,
especially as higher investment-grade supply comes
into the market.

4. Inventive deal
structuring
REPLACED THE TRADITIONAL EQUITY/DEBT
MODEL OR TEMPORARY FIX?
With funding structures evolving over time, even
innovative methods of funding will deem to be
traditional over a period of time. Tailor-made
solutions are required as investment strategies
differ and as the real estate sector advances in the
maturity cycle.
• There were arguments about the lack of equity
funding, which is much required in the real estate
sector. It is understood by a few investor funds that
equity is available but only for crème of the industry.
One of the international developers in North
India also mentioned that the pricing of equity is
mismatched. In earlier years – 2008/9, equity deals
were prominent and there is no dearth of such
capital. However, most funds did not make money
and found it difficult to exit the market as most
developers negotiated at the time of exit. However,
with debt funding the relationship is clear and there
is no re-negotiation.
• Also, since cost of equity is higher than debt,
some investor funds argued that why will the
developer take the equity route and share returns?
In addition, effective return on debt is higher due to
tax breaks.
• It will be a natural progression for equity
structures to come back in the market in the long
run. Although exits have been challenging in the
past, global equity investors may still take the risk
despite lack of trust between the investor and the
investee.
• The market has seen innovative structures in the
form of recent loan against property (LAP) and lease
rental discounting (LRD) deals, which was much
required in the current scenario.
• The sector has seen entire investment cycle with
investor interest shifting from hospitality assets to
a variety of residential assets and now commercial
(both office and retail) assets.
• Developers own multiple asset classes and try
to attain maximum value by trying to get funding
for specific (project level) assets.
• There are large funds coming into India for
large, strategic, credible developments. Some of the
investors were cautiously optimistic about achieving
their goals of value and timing while investing.
Innovative structures should not be adopted while
comprising the vision of the company / project; it
is important that the developer and the fund are
aligned for a successful deal.
• There was a suggestion that land acquisition
should be funded by commercial banks.
• Currently funds are looking at cash flows only
with limited interest in hospitality sector.
• A prominent fund house questioned if
developers are ready for equity locked-up for 6-7
years since most of them are looking for 2-3 years
of investment cycle. Hence, synchronization in the
market is necessary. As a result, mezzanine structures
have evolved over time.
• An international developer mentioned that post
implementationofRERA,pre-salesbyadeveloperwill
be different from the current scenario. Developers
will be shifting towards“make and sell”and projects
will be well-executed with developers being more
disciplined and thereby attract more equity funding.

5. South India
INDIA’S RUNAWAY SUCCESS OR TOO
GOOD TO BE TRUE
The three main southern markets of Bengaluru,
Chennai and Hyderabad have been resilient in a
time when the overall India market has been reeling
under a slowdown. The office markets, especially
in Bengaluru and Hyderabad, have performed well
led by demand from the IT-BPM market, while the
residential market have been more resilient as
compared to other markets in the north and west.
Residential and office developers opined that
transparency in the southern market was relatively
higher for status of approvals, documentation and
delivery leading to greater ease of doing business.
Bengaluru’s infrastructure leaves much to be desired
• Being the most cosmopolitan of the three
cities, Bengaluru is the most preferred by occupiers
especially in the IT-BPM sector as they expect talent
from outside to assimilate quickly.
• In the office sector, the Bengaluru market is
also seeing a shift in terms of occupiers from pure-
play BPOs to knowledge-intensive businesses and
research & development centers.
• Developers and investors rued that while the
city’s office market has grown at a steadfast pace, the
development of infrastructure has not kept pace.
• Developers and investors noted that several
locations including Whitefield do not have proper
access due to poor quality of roads and lack public
transport.
• The strength of the office market has percolated
to the residential market.
Hyderabad emerges as a market darling
• Investors and developers are extremely
optimistic about Hyderabad market’s potential in
the office and residential sectors.
• The city was in slowdown mode due to the
political turmoil until the state’s bifurcation in 2014.
Sincethen,thestategovernmenthasplannedforand
implemented several infrastructure and commercial
development projects across the city such as the
Transit-oriented growth corridor, Information
Technology Investment Region (ITIR), Strategic
Road Development Plan and the Hyderabad metro.
These initiatives are expected to give Hyderabad a
competitive edge over other cities in the medium
term.
• Developersfeelthatthestategovernmentisalso
ensuring minimum political interference, thereby
increasing the ease of doing business improves.
• A real estate investment management company
noted that although the government has been
proactive, growth was not equitable as the majority
of the activity is in the city’s western quadrant.
• Investors noted that improved infrastructure
and roadways would also benefit the warehousing
sector with hubs located close to cities.
Chennai to gain strength from industrial sector
• The real estate development in Chennai is
driven by the industrial segment, followed by the
office segment through the IT-BPM sector.
• The residential market here is fairly mature with
non-resident Indians (NRIs) actively owning second
homes.
• A regional developer opined that affordable
housing is viable only in those location wherein land
is available cheap
• Industrial and warehousing activity in the
peripherals of Chennai would receive a boost from
the Bengaluru-Chennai industrial corridor that is
being planned.

6. Overall, developers and investors stressed on the
importance of infrastructure development in these
cities, which would give these cities a further edge
over others. Participants see high potential in cities
such as Kochi and Coimbatore, which would see
rapid development over the next few years.
Residential
mid-market
AT WHAT PRICE POINT DOES IT WORK?
The focus of this discussion was largely on the
affordable segment. Despite huge demand,
affordable housing has not been very successful
in India due to several structural and regulatory
challengeslikehighcostofland,lackofinfrastructure
in areas where land is relatively cheaper and cost
escalation due to lengthy approval processes.
The government, in recent times, has taken steps to
spur affordable housing, such as 100% deduction
on profits to housing projects building homes up
to a certain limit, and service tax exemption for
construction of affordable housing up to 60 sq. m.
under state and central housing scheme, interest
subvention scheme, etc. However, while these tax
concessionscoupledwithrelaxationindevelopment
norms (e.g. higher Floor Space Index) will make
development of affordable projects somewhat
financially attractive and viable from developers’
perspective, it is very important to provide a
supportive regulatory frame-work to ensure that
delivery timelines can be shortened so that more
units can be completed within time-frames.
There are limited examples of large affordable
projects in India such as development of affordable
housing in Bhiwadi, Neemrana, etc. The major
inhibiting factor for developers to foray into this
segment is the lower profitability owing to the
higher cost involved. Hence, the focus needs to
be directed towards lowering the costs to make
the projects viable. In terms of controlling costs,
following elements need greater attention:
• Scalability of the project (minimum developable
area of 100 acres)
• Execution of the project (construction
management and delivery)

7. • Marketing and customer service
Constructionmanagementanddeliveryarethemost
important factors that determine the profitability of
an affordable housing project. Thus, the adoption of
the latest and cost efficient method of construction
is of utmost significance in the development of
affordable housing projects. Prefab is currently the
most widely employed technology in India. It is also
important for developers to realign their strategies
with respect to developing affordable projects.
Unlikeothersegments,developingaffordablehomes
is more like an assembly line in manufacturing and
not a service.
Therearelessonstobelearntfromglobalcounterparts
such as China where they sell affordable homes of
up to 200 sf for 4.5 lakhs. They lay greater emphasis
on cost, quality and execution time.
There was a consensus that there is a need to define
a niche segment, referred to as ‘Value Housing’ with
houses in the ticket size of INR 25 to 50 lakhs.
The government also needs to incentivise research
and development of more cost effective, efficient
and faster ways to build technologies as presently
none of the developers are keen on exploring or
promoting these. Going ahead, developers are
expected to increase the focus on development
of affordable projects (through adoption of latest
construction technology) to meet the pent-up
demand in this segment. Also, the mortgage rates
are expected to soften in the coming period, aiding
favourable demand sentiments. The combined
impact of these measures will help augur well for
this segment in the long term.
Warehousing
SHORT-TERM EXCITEMENT OR LONG-TERM
WINNER?
Warehousinghasalwaysbeenanunorganizedsector
in India but in recent years it is becoming better and
more organized and there is an anticipation that
demand for organized warehousing will be stronger
in the coming years.
• A developer noted that he demand for high-
quality – Grade A warehouses has risen considerably
andcurrentlyitis25msfinIndiawithtotaldemandfor
warehousing in India consistent at 105 msf over the
past few years. Going by these numbers, the interest
in warehouses is not a short-term phenomenon.
Though e-commerce industry presently accounts
only 20% of the total absorption of warehousing,
it is expected to grow exponentially over the years.
This industry, led by Amazon, Flipkart, and Snapdeal,
is expected to invest an additional USD 2 - 3 billion
in warehousing over the next 2-3 years a developer
opined. Property developers are excited because
such large warehouses would ensure a steady
income at relatively low investments.
• Important factors to be considered for
warehousing sector are location, connectivity, land
price, quality of construction and expansion. A
study by a top developer states that the availability
of labour is not a major challenge in warehousing
sector as most of them placed in peripheral areas,
which can attract cheap labourers from nearby
villages.
• Most of the funding for warehousing comes
from service sectors, not from investing companies.
The main challenge in warehousing is acquiring the
land. Usually, in India, warehousing activity takes
place via leasing not buying the land.
• There is an urgent need for a master plan to
be in place for a successful warehousing business,
which clearly indicates the structure of operations

8. and type of tenant. There is clearly a lack of expertise
in building and designing the warehouses in
India. Generally, all the developers prefer single-
storey warehouses, because construction costs for
double-storey warehouses are higher and tenants
are reluctant to pay for it. The suggested land cost
should be 50-60% of the total cost for setting up a
warehouse.
GST effects on warehousing:
• Positive impact on export and import centrally
• Centralised warehouses would enable large,
modern and more efficient warehouses
• The reduction in multiple taxes at different levels
will transform the country into one single
common market without any state borders.
• GSTwouldleadtoamoreefficienttransportation
and selling cycles of goods.
Developer Outlook
DO HOPES OUTWEIGH FEARS?
An international developer mentioned that RERA will
lead to consolidation and higher market share for
larger developers. Land has become a commodity
as Floor Space Index (FSI) has increased and is now
cost based, which can be bought. However, near
term risk includes effects of demonetization, which
cannot be defined, and impact of Goods & Sales
Tax (GST) on the industry as it may undergo several
iterations before getting implemented.
Some of the thoughts shared by other developers/
investors:
• Sales have been near zero currently but scenario
should be better going forward
• Developers are chasing capital; however, only a
few good developers are successful in attracting
it from PE and other funding agencies
• Yields are compressing
• Refinancing will continue for next 6-9 months,
enough capital is available
• Consolidation is expected
• Institutionalization is happening and will be
stronger
• Some of the NBFC’s may also look at
opportunities with Tier 2/3 developers
One of leading developers mentioned that risk
assessment is necessary with respect to economic,
political factors and also micro factors like location.
The pricing of the product should withstand the
changes in policy and design.
One of the global fund house stated that though
developers have been exposed to onslaughts of
policy changes and urban planning, etc., some

9. promoters have been savvier about the marketing
campaigns and promotions.
Outlook
National Developer – Hopeful
Global fund house – Tough time
Overall consensus – Hopeful
Global Investors
CURIOUS OR READY TO POUNCE?
One of the global fund manager mentioned that
LPs are hesitant to invest in India since processes
take longer and there is a lot of underwriting that
needs to be done. However, the government is
reform-oriented and that signals right messages to
investors. Going forward, there will be significant
consolidation and the stakeholders will try to adjust
to new normal.
Anotherglobalfundmanagerstatedthatoneshould
partner with the best in class who may have done
less developments but executed them in the right
manner – so finding the right match is important.
India offers opportunities in residential, office and
logistics; hence, matching the expectations of
developer and investor group is imperative for the
fund manager for a successful partnership.
The opportunity window for investment in a
particular asset class in India is shorter, and hence,
opportunist funds should identify them and take
decisions accordingly.
Institutional money in fund houses has increased for
deployment over the last few years as the country’s
fundamentals are strong. Also a lot of balance sheet
money from China is expected in the coming years.

10. NBFCs bridging
capital deficits
DEBT PANACEA OR NECESSARY
BAND AID?
The prolonged tepid demand and lower sales have
adversely impacted the ability of the developers
to service debt in a timely manner and banks have
become cautious and restrictive in their lending
norms. In this scenario, NBFCs and private equity
(PE) funds have come to the rescue of the real
estate sector and offered innovative methods of
lending and repayment to developers. Unlike the
traditional debt model of banks, NBFCs extend
credit in the form of lease rental discounting (LRD),
structured finance and construction finance. NBFCs
are also underwriting residential buildings under
development. NBFCs also offer higher flexibility with
respect to deal structuring and application of funds.
In the last 1-2 years, NBFCs and private equity funds
have reduced the interest rates on debt deals with
realestatedevelopersonthebackofhigherinvestible
money and limited deals. The deals are currently
transacted at 16-18%, lower than the levels of 19-
21% seen before 2014. The financiers are focusing
at quality projects backed by strong corporate
governance and there are limited investible grade
assets in the market. Thus the financiers have
reduced the rates in a bid to garner a higher share of
this limited investible opportunity.
NBFCs are tweaking their lending norms to offer
better refinancing and repayment flexibility to tide
over the cash flow issues of the developers.
Given this background, financiers and developers
shared following perspectives:
• Developers had a consensus that there exists a
sizeable funding deficit as banks do not fund land
acquisition and even construction funding norms
are more stringent. Over the next few years, the
capital requirement is expected to increase and the
funding will be mainly based on cash flow.
• The top 15 developers to whom NBFCs have
lent money are in crisis. The prolonged slowdown
in the market has been further hit by event risks
such as RERA, demonetisation, etc and thus NPAs
are expected to go up from the current levels.
However, developers are optimistic about the long
term outlook of the sector, given the government
initiativestomakeitmoretransparentandorganized.
• Given this scenario, there was a consensus that
the benchmark of 90 days is too short to detect non-
performing assets in a NBFC.
• NBFCs need to be more resilient for the next 2
years, as they believe that the sector will take about
2 years for recovery.
• At the same time, transactions are expected
to increase from the current levels. The proportion
of funding will be higher for both refinancing and
inventory funding. NBFCs need to structure the deal
to accommodate for the expected slowdown over
the next 2-3 years.
• Given the current bleak scenario, it is important
to relax norms on cash management and offer
higher repayment flexibility. In some cases, there
will be a need to restructure the deal and match
the project with the cash flows anticipated from the
project than the earlier fixed repayment schedules.
• NBFCs are already extending moratoriums
to provide repayment flexibility to real estate
developers. Thus, debt funding has reached its peak
and there is a need for‘Patient Capital’.
• There is an urgent need for NBFCs to be more
regulated and make pricing more scientific. It is
essential to create a robust internal system and
develop a risk-adjusted return system.
• Over the next few years, consolidation is
inevitable in the sector and the players with weaker

11. financial wherewithal will find it difficult to survive
and sustain.
Hospitality
investment
BECOMING INSTITUTIONAL OR FOREVER A
FAMILY BUSINESS?
The hospitality business in India is at a nascent stage
and is historically led by families. Therefore, ‘return
on ego’ is a major factor that drives the hospitality
sector in India, instead of return on capital. Being
highly capital intensive, most Indian operators are
highly leveraged in an already cyclical low.
• Institutionalisation is limited in the sector as
returns for institutional investors are lower than their
expectations. Also, in the past PE funds have burnt
their fingers in the hospitality business as the return
on capital is typically low for hotel assets.
• A pan India hotel operator remarked that India’s
hospitality sector is massively underpenetrated
with an average of 1 room per 10,000 people. High
cost of capital, cost of land acquisition have raised
a question over the viability of hospitality models
in India. Moreover, there is a disconnect between
hotel operators and owners of hotels in most cases
in India.
• An investor noted that while the current
market is sluggish, demand is expected to grow
steadily with increased MICE (meetings, incentives,
conferences, and exhibitions) and higher domestic
travelers. With supply having tapered over the last
few years, occupancy rates have picked up in hotel
and investors expect rates to improve.
• A resort operator noted that reducing the cost of
borrowing is the key to improvement in profitability.
• An operator explained the service-hotel
apartment concept, which received significant
interest from participants. Under this, retail investors
fund serviced hotel apartment that will be built to
the standards of a 3 star hotel. This is then leased

12. out to corporates and MNCs. The total revenue
generated by the entire tower is then shared in a
50:50 ratio between the investors and the operators,
giving yield of 5-7% in year one, rising to 10%
upwards from year 3 of the investments.
• Revenue per available room (RevPar) and GDP
have strong correlation, an investor said, adding
that with the Indian economy’s growth expected to
accelerate over the next few years, hotel operators
expect RevPar to improve.
• Going forward too, the sector is likely to be
insititutionalised to only a limited extent, owing to
inherently lower returns in the business and longer
gestation period.
Commercial
IS THE OPTIMISM JUSTIFIED?
The commercial office market in India has been on
the upswing since last year with the IT-BPM sector
being the major driver of space. The discussion
centered on the optimism in the commercial office
sector and the various trends emerging across the
spectrum.
Newer genre of occupiers to emerge
• While the Indian office sector is driven by the
IT-BPM sector, the space take-up by the sector may
stagnate over the years owing to lower job creation
due to automation.
• Various MNCs have formed their own captive
operations in India, moving away from third party
vendors. A consultant explained that these captive
centers, which are undertaking sophisticated work
in various spheres, are looking for buildings with
modern amenities with large floor plates.
• Demand also shifting from pure-play BPOs to
data centers, knowledge-based work and research &
development especially in cities such as Bengaluru.
Occupiers to form multi-layer collaborations
• As demand emanates from various sectors,
newer submarkets are being created across the
top cities as occupiers, especially in the IT-BPM
sector, look for achieving efficiencies in costs and
operations.
• These submarkets would be driven by the scope
of multi-rapid transport system (MRTS), which would
play a significant role in creating these new markets.
• An international investor noted that last mile
connectivity for employees would emerge as a
significantopportunityfordevelopersandoccupiers.
Occupiers, especially captive centers, are also
beginning to form multi-layer collaboration across

13. transport, facilities and entertainment options.
Potential disrputors
• Co-workingspaceshaveaddedanewdimension
to the office space demand with flexibility and agility
offered to the employees. An interesting discussion
regarding the competition from co-working spaces
posing conventional office space with high lock-
in and capex was put forward. The forum did not
answer directly but consensus was formed that it is
difficult to assess the direct impact. However, from
a perspective of REITS listing, long term leases are
given a higher weightage as they promise steady
cash flows.
• A developer opined that automation and
artificial intelligence may impact demand from other
sectors such as pharmaceuticals or e-commerce,
with minimal impact on demand from the IT-BPM
sector. Divergent views were presented with some
of the developers and investors suggesting that
impact on IT-BPM would be the maximum.