2. Contents
03 | Foreword
05 | Key highlights - 2011
06 | Regulatory developments: the big picture
14 | Investment scenario: the ins and outs
21 | Major issues and challenges: caution and diligence
27 | News round-up
32 | The way forward
3. Pg 3
Foreword
We are delighted to release the inaugural edition of "Indian Real Estate Sector - Handbook 2011", a publication focussed on
providing a yearly round-up of the significant developments in the real estate sector in India.
As expected, the year proved to be a mixed bag for the sector. Real estate companies continued to face a series of evolving
challenges: protecting profits while continuing to invest; seizing international opportunities; differentiating their brand; retaining and
attracting talent; and cultivating stronger relationships with lenders and fund managers. The volatility in markets reinforced the need
to focus on core competence.
In order to curb soaring inflation, the RBI raised interest rates 13 times in the past 19 months, seriously impacting demand for real
estate which is primarily driven by bank finance.
Vishesh C. Chandiok
Pessimism in the Western economies continued influencing market sentiments and foreign capital inflow in the sector. Mounting National Managing Partner
debts, rising interest costs and correction in real estate prices further exacerbated the condition. Companies with stronger Grant Thornton India LLP
fundamentals and ability to make quick strategic decisions, however, continued with growth despite multi-pronged market pressures.
In such a dynamic scenario, it has become critical for real estate companies to keep track of the key developments taking place in the
sector.
With this view, we have designed this handbook to provide you a quick summary of the key developments around the regulatory
environment along with a snapshot of the investment scenario, and major challenges and issues, which made news in 2011. I hope
you find it useful and welcome your feedback.
4. Pg 4
Foreword
I am delighted to know that Grant Thornton has come up with a comprehensive handbook on the Indian real estate sector with
an aim to provide a quick summary of the regulatory and investment issues during the year 2011. The importance of this sector
lies not only in the fact that it is the fourth largest in terms of the FDI inflows in the country, but also the manner in which it has
emerged as an integral part of every common man‟s dream.
The burgeoning middle class in the country with high aspirations, access to loan capital and increasing disposable incomes, drives
the demand for integrated township developments, across the country‟s urban landscape. With a shortage of approximately 25
million dwelling units at the beginning of the 11th five-year plan, the private sector is going to play a major role in fulfilling this
demand. On the infrastructure front alone, the country needs around US$ 1.2 trillion investments over the next 20 years.
The very fact that by the year 2030, nearly 70% of the country‟s GDP will be contributed by the cities, signifies the critical need of
Firdose Vandrevala
equipping our cities with quality real estate. Against this backdrop, such a contemporary handbook spreading awareness about the Chairman, CII National Committee
recent regulatory developments like Land Acquisition, Rehabilitation and Resettlement Bill, 2011 and the Draft Real Estate on Real Estate & Housing
(Regulation and Development) Bill 2011, would serve as a guiding document for the stakeholders.
Chairman and Managing Director
Hirco Developments Private
On behalf of CII, I once again compliment Grant Thornton and hope that the information provided in this handbook would
Limited
help in shaping an inclusive and sustainable growth path for the real estate sector in India.
5. Pg 5
Key highlights - 2011
May
July
March
January
September
November
DIPP & the Villagers in Noida
Finance Ministry and Greater Noida
released called off their
Coastal consolidated FDI Ministry of Housing agitation over the New draft of the
Regulation Zone policy to tighten prepared draft issue of land Real Estate Bill,
Land Acquisition 2011 released for
and Island FDI norms for the legislation of Model acquisition
Bill, 2011 cleared public consultation
Protection Zone sector Residential
by the Union
Notifications 2011 Tenancy Act, 2011
Cabinet
announced
Maharashtra
Government Delhi government
planned to Benami
hiked the circle
Gujarat reintroduce an Transactions
rates across
government additional 0.33 (Prohibition)
To promote affordable categories
hiked minimum Floor Space Bill, 2011
housing, Union Budget introduced in
base rate for land
December
Index (FSI) in
February
provided for 1% interest the Lok Sabha
by 400 to 1,000% the Mumbai
October
Maharashtra became
August
rebate on housing loans
up to Rs 15 lakh suburban the first state of India
April
June
district to get Real Estate
Regulatory Authority
6. Revenue recognition
Reforms
Environment Approvals Project costs
Land acquisition Affordable housing Growth
Development Regulatory environment Governance
Rehabilitation Resettlement Law Enforcement
Regulatory Authority
FDI in retail
Appellate Tribunal Land records Transfer Policies
Land acquisition Barter transactions Titles
7. Pg 7
Regulatory developments: the big picture
The constant evolution of the organised segment of the Indian real In a nutshell
estate sector, both in terms of size and growth, in the last two • Post acquisition, land cannot be transferred for any other purpose,
decades has drawn attention towards the need of introducing and except for a public use, such as government infrastructure projects
improving the regulatory environment. While self-regulation will be • Government cannot acquire land for private companies, or for
the key for better governance and sustainability, 2011 witnessed private purposes
introduction of a number of reform-oriented moves by the • Except as a demonstrably last measure, acquisition of multi-crop
government. Here below is a snapshot of the significant regulatory irrigated land should be avoided
developments that would affect the sector in the future. • For rehabilitation and resettlement, owners of the acquired land
will be offered subsistence allowance at Rs 3,000 a month for 12
Land Acquisition, Rehabilitation and months. In addition to this, land owners will also be provided Rs
Resettlement Bill 2011 2,000 a month a family as annuity for 20 years, Rs 50,000 for
In order to address the issue of land acquisition along with transportation, and mandatory employment for one member of a
rehabilitation and resettlement of the affected families, the new Land displaced family. The same provisions are proposed for those who
Acquisition and Rehabilitation and Resettlement Bill, 2011 was lose their means of livelihood due to land acquisition
introduced to overhaul the Land Acquisition Bill of 1894. The • If a private company succeeds in acquiring 80% of the land
significance of land acquisition issues in the country is evident from required for a project, the government may step-in to facilitate the
the disputes that impact a number of large projects amidst protests by acquisition of the remaining 20% of the land for the private
the affected families. Currently, most land acquisition deals result in project
legal issues that get further exacerbated due to ill-documentation of
title and ownership, especially in the case of agricultural land.
8. Pg 8
Regulatory developments: the big picture
• The Bill also empowers the village council to conduct social In a nutshell
impact assessment of any land acquisition and define the timelines • The Bill mandates the establishment of the "Real Estate
for providing compensation Regulatory Authority" in every state to oversee and regulate the
• In case the land is acquired in an urban area, an amount not less real estate sector
than twice the market rate needs to be paid to the landowner • Apart from adjudicating disputes between real estate developers
• In case the land is acquired in a rural area, an amount not less than and consumers, the proposed Regulatory Authority will also be
four times the original market value needs to be paid to the responsible for issuing registration certificates for projects that
landowner have a size of 43,052 square feet or more
• Before beginning the construction work on plots measuring 4,000
Draft Real Estate (Regulation & Development) square metres or more, it is mandatory for real estate developers to
Bill 2011 register with the "Real Estate Regulatory Authority"
The Bill aims at promoting transparency and accountability in the • The draft Bill makes it mandatory for promoters to stick to the
real estate sector, and proposes to create a "Real Estate Regulatory approved plans and project specifications
Authority" in each of the states. The draft guidance of the Bill also • The Bill also proposes to make it mandatory for developers to
possesses provisions that reduce the risk of a title dispute. In order deposit 70% of the amount realised for the real estate project from
to provide respite to end users, the Bill also proposes to make it buyers in a separate account maintained in a scheduled bank,
mandatory for developers to register themselves before launching within 15 days of the realisation of the project
any projects, comply with the approved plans and refund money • It further specifies that developers would use this deposited
to homebuyers in case of any default. amount only for the purpose of developing the property
9. Pg 9
Regulatory developments: the big picture
• In case of any default, the developers will be required to refund In a nutshell
money to buyers. Further, if the project gets delayed, the developer
This Guidance Note should be applied to all transactions in real estate,
is bound to pay interest, at an appropriate rate, to the buyers
which are commenced or entered into on or after 01 April 2012.
• In case the developers fail to adhere to the provisions, they are
liable to imprisonment of up to three years or a penalty of 10% of
This primarily provides guidance on application of percentage of completion
the estimated real estate price of the project
method as per Accounting Standard (AS) 7, Construction Contracts, in respect
• If developers are unable to comply with the directions of the "Real
of transactions and activities of real estate which have the same economic
Estate Regulatory Authority", they would be liable to pay a
substance as construction-type contracts. In respect of transactions of real
minimum penalty of Rs 1 lakh daily for each day during which the
estate which are in substance similar to delivery of goods, Accounting
default occurs
Standard (AS) 9, Revenue Recognition, is applicable.
Draft Guidance Note on revenue recognition
The Accounting Standards Board of the Institute of Chartered Scope
Accountants (ICAI) came out with a draft of the Guidance Note on • The exposure draft encompasses various types of models/ structures
Revenue Recognition by real estate developers. The proposed which are in practice and the related accounting in respect of:
Guidance Note is comprehensive and considers various dynamics of - Sale of land/ plots with or without any development
the sector. It aims at removing the subjectivity and judgments in - Development of residential/ commercial units
certain key accounting principles and attempts to bring consistency in - Acquisition, utilisation and transfer of development rights
the accounting for real estate transactions. - Re-development of existing buildings/ structures
- Joint development arrangements
10. Pg 10
Regulatory developments: the big picture
The current definition of project is very broad and identifies parameters (d) At least 10% of the total revenue as per the agreements of sale or
for defining the project, in terms of common set of amenities available any other legally enforceable documents are realised at the reporting
to the different unit holders in a township and accordingly, even a date in respect of each of the contracts and it is reasonable to expect
single tower can be treated as a project or a cluster of towers can be that the parties to such contracts will comply with the payment terms
combined and designated as a project. It will be useful if the common in the contracts
set of amenities within a project can be clearly defined and then link it
to the project definition. In a nutshell
Revenue recognition under the percentage completion method is Definition of Project
applied only when all the following conditions are fulfilled: Project is defined in terms of a group of units/ plots/ saleable spaces
(a) All critical approvals necessary for commencement of the project and its linkage with the common set of amenities in a manner that
have been obtained. These include the following as applicable: both are clearly dependent on each other for the intended effective
• Environmental and other clearances, approval of plans, designs, etc. use.
• Title to land or other rights to development/construction
(b) When the stage of completion of each project reaches a reasonable Revenue recognition conditions prescribed
level of development. There is a rebuttable presumption that a • Key approvals to be obtained
reasonable level of development is not achieved if the expenditure • Percentage threshold (rebuttable presumption of 25%)
incurred on project costs is less than 25% of the construction and • Sale of project to the extent of 25% of the project size
development costs • Collection to the extent of 10% of the total revenues as at the
(c) At least 25% of the estimated project revenues are secured by reporting date
contracts or agreements with buyers
11. Pg 11
Regulatory developments: the big picture
The recognition of project revenue by reference to the stage of In a nutshell
completion of the project activity should not at any point exceed
Revenue recognition linked to collections
the estimated total revenues from 'eligible contracts'/other legally
'Eligible contracts‟ means contracts/agreements where at least
enforceable agreements for sale.
10% of the contracted amounts have been realised and there are
no outstanding defaults of the payment terms in such contracts.
This is definitely a good thought in terms of linking the collection
Where the recognition of revenue due to this condition is lower
to the point of revenue recognition.
than the revenue determined by reference to the stage of
completion, the project costs to be matched with such revenue
The transaction of barter has been rightly picked up in the scope
are also proportionately adjusted.
of this Guidance Note, wherein the developer is giving a share in
the built up property to the land owner in consideration of land /
Barter transactions
development rights in the project.
Where development rights are acquired by way of giving up of
rights over existing structures or open land, the development
For this purpose, fair market value may be determined by
rights should be recorded either at fair value or at the net book
reference either to the asset or portion thereof given up or to the
value of the portion of the asset given up.
fair value of the rights acquired whichever is more clearly evident.
12. Pg 12
Regulatory developments: the big picture
FDI in retail sector Updates
The Union Cabinet, in December 2011, permitted 51% of Foreign
Direct Investment (FDI) in multi-brand retail and 100% FDI in In January 2012, the Department of Industrial Policy and Promotion
single-brand retail. However, the decision was suspended due to (DIPP) permitted 100% FDI in Single Brand Retail Trade (SBRT)
widespread opposition from the unorganised retail market and under Government approval as against the current limit of 51% FDI
absence of political consensus. in SBRT. All the key features of the policy liberalisation have been
retained in this Press Note along with the following additional
In a nutshell clarifications/ modifications:
• India's retail sector is estimated at US$ 450 billion, growing at the • With respect to proposals involving FDI beyond 51%, mandatory
rate of 15% a year sourcing of at least 30% of the value of products sold would have
• Currently, India permits 51% FDI in single-brand retail and 100% to be done from Indian 'small industries/ village and cottage
FDI in cash-and-carry industries, artisans and craftsmen'
• The Bill was meant to allow foreign investment in multi-brand • 'Small industries' would be defined as industries which have a total
retail, which is not permitted in India at present investment in plant & machinery not exceeding US$ 1 million
• The earlier press release dated 25 November 2011 had indicated
that such small industries could be located anywhere in the world
13. Pg 13
Regulatory developments: the big picture
Maharashtra Housing Bill 2011 • The developer would be required to maintain a separate account of
Maharashtra Housing Bill, 2011 aims at replacing the Maharashtra the money received from the buyers and, if required, provide usage
Ownership Flats (Regulations of promotion of construction, sale, details of the same to the "Real Estate Regulatory Authority".
management, and transfer) Act, 1963. Also known as the Regulation • In case developers contravene the provisions of the Bill, the Bill
and Promotion of Construction, Sale, Management and Transfer Bill, proposes to make them liable to a penalty ranging from a
it contains provisions meant to safeguard the interest of homebuyers. minimum of Rs 1,000 per day to a maximum amount of Rs 1
crore, along with an imprisonment for a term extending to three
In a nutshell years
• The Bill mandates the establishment of a "Real Estate Regulatory Updates
Authority" and an "Appellate Tribunal", while also offering
provisions for preventing the diversion of money received from The State Cabinet has recently approved establishment of "Housing
home buyers Regulatory Authority" and the "Housing Appellate Tribunal" in
• It makes it compulsory for developers to use the money received Maharashtra. The Bill is expected to be presented before the State
from homebuyers to timely execute the residential project, instead Legislature in March 2012. After being passed by the State
of using it for the acquisition of new land Legislature, all property transaction disputes will be handled by the
• To appeal against the orders of the "Appellate Tribunal", the three-member "Housing Regulatory Authority" followed by the
applicant can approach the State High Court "Housing Appellate Tribunal".
14. Crisis in Europe
Volatility
Special purpose vehicles IPOs Challenges
Joint ventures Capital markets Opportunities
Market sentiment Investment scenario FDI inflows
Private equity Returns Sustainability
Depreciation in rupee
Market consolidation
Global slowdown Exits Transactions Growth
M&A Deals Project viability
15. Pg 15
Investment scenario: the ins and outs
Real estate is the fourth largest sector in terms FDI inflows in the Year-wise FDI Inflows ( in US$ in million)
country. As per DIPP, the sector attracted investment to the tune of
US$ 453 million between April and September 2011. 3,500
2,935
Further, the period from January to May 2011 also witnessed various 3,000
prominent Private Equity (PE) and Mergers & Acquisitions (M&A)
deals. Some of the prominent deals that formed the chunk of the 20 2,500
deals worth US$ 1.3 billion occurring during this period include
investments made by Oceanus Real Estate and Ascendas India (US$ 2,000
190 million), Tata Realty (US$ 86 million), etc.
1,500 1,227
However, the global economic scenario remained volatile due to
1,000
unfavourable economic environment in the US and Euro zone.
Owing to this, foreign investors were seen becoming relatively 453
500
cautious.
0
2009-10 (April - March) 2010-11 (April - March) 2011-12 (April - September)
FDI Inflows ( in US$ in million)
Source: Department of Industrial Policy and Promotion, Government of India
16. Pg 16
Investment scenario: the ins and outs
Since equity inflows are largely sentiment driven, the pessimism in the Further, a recent report published by Jones Lang LaSalle India states
US and the UK, which form the major sources of equity inflows to that within the past four years, PE investors reaped average returns
the sector, was largely responsible in reducing the FDI inflows to the from the sector that were 1.21 times, or 20% higher than the global
sector. Apart from the US and the UK, the sector also attracts equity average of 0.8 times. The report, which also states that Mumbai and
from economies, including the Netherlands, Japan, Germany, Kolkata accounted for returns of 1.4 and 1.3 times, respectively,
Mauritius, Singapore, and the UAE. within the past four years, has lifted the aura of gloom hanging over
the sector for quite some time now.
However, the Indian real estate sector still occupies the topmost
position among all the major sectors for PE investment in 2011. As The report points out that even amid the bleak scenario of property
per our research, real estate and infrastructure management along markets between 2008 and 2011, when investors failed to profit from
with automotive, power and energy, banking and financial services their investment in the sector in other economies, India has provided
and information technology accounted for 67% of the total PE deal far better returns than the global average.
value for the year.
Moreover, although commercial real estate is a riskier option as
A survey conducted by a leading advisory firm also shows that while compared to residential, the former has given returns of 1.2 times,
planning to invest in various avenues in India, 55% of the investors while residential has given returns of 1.1 times. The report has also
expect to achieve their target returns, while 45% investors are analysed the profits from PE exits in the sector, and states that out of
optimistic to reap a return which is higher than their existing the overall PE exits worth US$ 3 billion in the past four years, 65%
portfolio. have been profitable.
17. Pg 17
Investment scenario: the ins and outs
2011: Prominent deals in Indian real estate sector
Investor Investee Investment Purpose
Warburg Pincus Lemon Tree Hotels Rs 1,400 An affordable housing venture was financed by the JV
crore called Oceanus Real Estate
Sun Apollo Parsvnath Rs 100 crore A residential project SPV
Developers
Blackstone DLF Rs 810 crore Acquisition of a DLF firm owning a SEZ in India
Red Fort Capital Ansal Properties & Rs 200 crore The deal financed a residential project in Gurgaon by
Infrastructure developing a 108-acre township
Red Fort Capital Delhi Heights Undisclosed A mixed use development having more than 2,000
residential units is planned to be developed
ICICI Prudential Logix Group Rs 80 crore The investment financed the development of Blossom
Asset Management Greens - a 2,500-unit residential project
Source: Grant Thornton research
18. Pg 18
Investment scenario: the ins and outs
As per an industry report, during 2011, PE firms invested US$ 2.68 Since 2009, Kotak Realty has exited from about US$ 175 million
billion in the real estate sector. Further, the year also witnessed an worth of investments. However, even amid the enhanced momentum
increase in deal activities of domestic fund houses such as Kotak, of exits, PE‟s found it difficult to exit with good returns, largely due
Indiareit, and ASK Investment Holdings. During the year, PE firms to volatile stock markets in 2011. As per a report by Bain and Co,
made 69 investments, of which 53 transactions were announced, about 120 PE funds, with a potential to raise approximately US$ 34
making the cumulative worth US$ 2.68 billion. The report also states billion were impacted by the bleak economic scenario in 2011.
that of the total investment, 57% were made in residential projects,
while commercial projects accounted for 19% of the chunk. Further, according to a report, 2010 and 2011 in combination
witnessed real estate PE exits worth US$ 3 billion. The low PE exits
Real estate sector had witnessed a flood of PE investments between in the year can also be attributed to high inflation, steep interest rates
2006 and 2008, which headed to a natural end in 2011-12 due to the and slow economic growth. As per another survey report, secondary
typical three-five year investment horizons. During Q1 of the year, a and strategic sales were the preferred exit choices, while IPO‟s and
total of 11 real estate focused PE funds exited the market. A report multiple exits, once the most popular routes for exits, lost their
released by a leading advisory firm states that during 2011, real estate charm to investors in 2011.
and the infrastructure sector witnessed nearly 22% of the total PE
investments. As per the research firm VCCEdge, Q1 witnessed six
exits worth a combined US$ 124 million, largely through equity
buybacks and secondary sales. During this period, returns from real
estate investments ranged between 1.4 and 4 times.
19. Pg 19
Investment scenario: the ins and outs
2011: Prominent PE exits in Indian real estate sector
PE funds Value Background
Indiareit Fund Advisors US$ 100 million Exit of an office project in Kurla, in suburban Mumbai. In 2006,
Indiareit Fund Advisors made an investment of Rs 145 crore
Kotak India Real Estate Rs 385 crore The PE firm sold its stake in Peepal Tree Properties, which it had
Fund-I purchased in 2007 for Rs 95 crore. The deal was made with Tata
Realty Initiatives Fund-I
HDFC India Real Estate Undisclosed The entire paid-up share capital of Udhay GK-Realty was purchased
Fund by Godrej Properties Ltd
Milestone Capital 2.04 times of the initial Milestone Capital Advisors exited from Stone Arc, a residential
Advisors investment project located at Thiruvanmiyur, Chennai, where it owned 26,800
square feet of saleable area
IL&FS Milestone Fund I 1.51 times of the initial The PE exit involved the sale of 29,490 square feet of area in
investment commercial property Raheja Titanium in Mumbai by IL&FS Milestone
Fund I
HDFC Property Fund Rs 540 crore The fund, sponsored by HDFC, sold its 21% stake in Manyata
Business Park, a 7.7 million square feet infotech SEZ in Bangalore, to
the Embassy Group
Source: Grant Thornton research
20. Pg 20
Investment scenario: the ins and outs
In a nutshell
• Investment in the Indian real estate sector between April and
September 2011 stood at US$ 453 million
• PE funds invested US$ 2.68 billion in the Indian real estate
sector during 2011
• Major PE and M&A deals that were witnessed in the sector
from January to May 2011 include investment of Oceanus Real
Estate and Ascendas India (US$ 190 million), Tata Realty (US$
86 million), etc
• The 53 transactions announced in 2011 had a cumulative worth
of US$ 2.68 billion. The materialisation of deals at a time when
the sector found it tough to receive bank funding stood
testimony to the optimism in investors
• NRIs, whose share of real estate buying in India accounts for
about 4% every year, rose to 8% in 2011, largely due to
depreciation in the value of rupee
22. Pg 22
Key issues and challenges: caution and diligence
Along with the rest of the global economy, the commercial property Hike in repo rate 8.5
9
sector is in a period of rapid change, with both owners and builders 8
8.25
questioning current strategies and future expectations. In the current 8 7.5
7.25
business environment, real estate developers face many obstacles to 6.75
6.5
their pursuit for growth. Yet, industry leaders are largely optimistic 7 6.25
6
about their business prospects, as they strategically plan for higher 5.75
6 5.25
revenues and profits in 2012.
4.75
5
Interest rate hike
4
In order to address the issue of rising inflation, the RBI hiked the
repo rate a number of times in the year. The increase in prime lending 3
rates at commercial banks and other housing finance institutions
became a major deterrent for homebuyers to take loans for buying 2
residential real estate, as a result of which, residential sales slumped
1
markedly. In addition to its impact on property buyers, the hike in
interest rate resulted in liquidity crunch for real estate developers. 0
Apart from decreased profitability from projects due to reduced
demand, developers also faced difficulty in raising finance from
banks. Further, the debt-to-equity ratio of developers also increased
during the year due to increase in the cost of construction, building Repo rate (%)
material and labour. Source: RBI
23. Pg 23
Key issues and challenges: caution and diligence
Pricing trends On the other hand, during the first half of the year, rents of malls and
According to National Housing Bank (NHB), during Q4, property high-streets increased by 15-20%. No price/ rent correction was seen
prices of residential units in Kolkata and Mumbai registered a decline in completed projects in both the residential and commercial
of about 0.5%, as compared to Q3. At 15.5%, Kochi registered the segments in the year, despite the slump in demand. Depreciation of
maximum decline, followed by Hyderabad (6%), Jaipur (1.5%), and rupee evoked the interest of NRIs in purchasing property in India.
Patna (0.7%). Among all the cities covered under the NHB Residex, City-wise housing price index - Tier I cities
six cities witnessed a decline in prices, while nine cities observed an 350
increasing trend during Q4, as compared to Q3. 300
250
During the fourth quarter of the year, prices in Delhi rose by 8.4%, as
compared to Q3. In addition to Delhi, other cities that witnessed a 200
positive movement in property prices include: 150
• Surat: 9.4%
100
• Chennai: 9.2%
• Pune: 8.9% 50
• Bangalore: 7.5% 0
• Lucknow: 7.1% Jan -
June
July -
Dec
Jan -
June
July -
Dec
Jan -
March
April -
June
July -
Sept
Oct -
Dec
Jan -
March
April -
June
July -
Sept
Oct -
Dec
• Faridabad: 5.8% 2008 2008 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011
• Ahmedabad: 2.5%
• Bhopal: 1.4% Hyderabad
Mumbai
Chennai
Bangalore
Kolkata
Delhi
Source: NHB Residex
24. Pg 24
Key issues and challenges: caution and diligence
City-wise housing price index
Tier II cities Tier III cities
250 250
200 200
150 150
100 100
50 50
0
0
Jan - July - Jan - July - Jan - April - July - Oct - Jan - April - July - Oct -
Jan - July - Jan - July - Jan - April - July - Oct - Jan - April - July - Oct -
June Dec June Dec March June Sept Dec March June Sept Dec
June Dec June Dec March June Sept Dec March June Sept Dec
2008 2008 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011
2008 2008 2009 2009 2010 2010 2010 2010 2011 2011 2011 2011
Ahmedabad Jaipur Lucknow
Pune Faridabad Patna Kochi Bhopal
Source: NHB Residex
25. Pg 25
Key issues and challenges: caution and diligence
Increased vacancy rates
During 2011, real estate sector witnessed a slowdown in transaction
activity, reduced launches of new projects and stagnant property
prices. As per a report released by Knight Frank India, residential
property prices depreciated by up to 10% across Mumbai, NCR,
Bangalore and Chennai. With a substantial number of prospective
homebuyers deferring their plans of buying property, almost 3,06,859
units of residential property are currently lying unsold.
Further, the NCR market had the highest proportion of vacancy rate
for residential property in 2011. The lack of buyer interest is also
evident from the fact that in 2011, 40,660 housing units remained
unsold in Mumbai. In 2011, the unsold inventory levels of residential
real estate stood at 46,596 units for Bangalore and 40,734 units for
Pune.
In the July-September quarter, demand for office space across the top
six cities in India was 8.5 million square feet. With a number of
corporates deferring their hiring plans, demand for office space in
2011 across the top seven cities also remained muted.
26. Pg 26
Key issues and challenges: caution and diligence
In a nutshell
• The frequent interest rate hikes led to liquidity squeeze, thereby
making cost of credit expensive for the real estate developers
• The hike in home loan rates compelled buyers to postpone their
buying decision, leading to a drastic reduction in sale of residential
units across segments
• Due to the reduced availability of capital to real estate developers,
the year also witnessed widespread delays in construction projects
• The slowdown in the demand of residential units was also evident
from the NHB Residex, with Tier I cities such as Kolkata and
Mumbai witnessing a downward trend in the prices of residential
properties
• As a result of the tough market conditions, numerous cities such as
Kochi and Hyderabad witnessed a decline in prices of residential
units during Q4
• Demand for office space also slumped during the year, resulting in
an increase in vacancy levels
• The NCR market registered the highest vacancy rate for residential
property during the year
27. Urban infrastructure
Benami transactions
Revenues Public offers Land acquisition
Black money Growth projections Environment
Market sentiment 2011 News round-up Overseas projects
Sale deed mandate Circle rates Green building
Priority sector landing
Customer grievance
Stamp duty Affordable housing New rating system
Evasion Finance Interest rate subsidy
28. Pg 28
News round-up: regulatory
Supreme Court mandated the sale deed Circle rates hiked in Delhi by up to 250%
In a landmark judgment, the Supreme Court held that General Power The Delhi government hiked the circle rates by up to 250% in
of Attorney (GPA) is not a valid instrument for transferring property October 2011. This was the second hike in circle rates in 2011.
rights. The decision is expected to curb evasion of duties, use of Earlier in February, the rates were increased by up to 100%. While
black money and unscrupulous transactions that often result in the move aims at curbing the use of black money in property
disputes. transactions, it would also help garner an additional revenue of Rs
800 crore a year, mainly through stamp duty and registration fees.
Benami Transactions (Prohibition) Bill, 2011
introduced
The Finance Ministry introduced the Benami Transactions
(Prohibition) Bill, in August 2011. The Bill prohibits benami
transactions done in someone else's name, except in the case of
transactions in the name of a spouse, brother or sister or any lineal
ascendant or descendant.
The Bill intends to replace the existing Benami Transactions
(Prohibition) Act, 1988, and proposes provisions for confiscation of
such property and imprisonment.
29. Pg 29
News round-up: regulatory
Budget 2011-12 highlights Developments in Tamil Nadu and Haryana
The Union Budget 2011-12 presented various initiatives for the real In July 2011, the government of Tamil Nadu revised the ceiling on
estate sector, especially focusing on affordable housing. Some of these stamp duty from Rs 5,000 to Rs 25,000. Applicable exclusively for
initiatives include: title deeds, the guidelines also revised the cap on registration fee from
• Raising the limit on housing loans eligible for a 1% subsidy in Rs 1,000 to Rs 5,000.
interest rates
• Widening the scope for housing under "priority-sector lending" for On the other hand, the ceiling on non-agricultural land was waivered
banks, making interest rates cheaper on them by the state assembly of Haryana, in an attempt to facilitate land
• Earmarking a substantial amount to the Urban Development assembly for apartments and townships.
Ministry for spending on extension of Metro networks in Delhi,
Bangalore and Chennai
• Allocating US$ 20.03 million for the urban infrastructure
development project. The Urban Development Ministry received
US$ 1.5 billion, an increase of US$ 68.53 million from the last fiscal
2010-11
• Increasing allocation for Bharat Nirman to US$ 12.89 billion.
Bharat Nirman consists of 6 flagship programmes, the Pradhan
Mantri Gram Sadak Yojana (PMGSY), Accelerated Irrigation
Benefit Program, Rajiv Gandhi Grameen Vidyutikaran Yojana,
Indira Awas Yojana, National Rural Drinking Water Program and
Rural telephony
30. Pg 30
News round-up: financial
Public offers deferred by a significant proportion Top 11 listed real estate companies accumulated
of real estate companies a debt of over Rs 5,000 crore
As per SMC research, at least 28 companies deferred their IPOs in According to Edelweiss Securities report, the total debt of the top 11
2011, including a number of real estate companies such as Lodha listed real estate companies of India increased by over Rs 5,000 crore
Developers, Lavasa Corporation, Ambiance Real Estate, Kumar to Rs 38,500 crore.
Urban Developers and Neptune Developers. The IPOs were called
off due to unfavourable market conditions.
15% growth estimates in 2011
As per media reports and expert estimates, the Indian real estate
sector registered a growth rate of about 15% in 2011. Albeit the
trends were not-so-negative despite the slowdown in the Western
economies, the growth rate was lower than 25-30% as projected
during the beginning of the year.
31. Pg 31
News round-up: miscellaneous
Major land acquisition dispute in Greater Noida India's largest hill city, Lavasa stalled on charges
The Supreme Court upheld the High Court decision cancelling of violating green laws
allotment of 156 hectares of land in Greater Noida. The decision was Lavasa Corporation came under the Ministry of Environment scanner
taken following the writ petition filed by farmers expressing dissent for allegedly violating environmental norms in its hill city project. The
on the massive difference in buying and selling rates. company was later provided conditional approval by the Ministry.
The land was acquired by Greater Noida Industrial Development Affordable housing scheme – ‘Rajiv Awaas Yojana’
Authority (GNIDA) and UP government at Shahberi Village at the In order to boost affordable housing schemes, the government proposed
rate of Rs 850 per square metre and allotted to private developers at an exemption of service tax for the construction or finishing of new
rates ranging from Rs 10,000 to Rs 12,000 per square metre. residential complex under „Jawaharlal Nehru National Urban Renewal
Mission‟ and „Rajiv Awaas Yojana‟ in the Union Budget 2011-12.
The Court also ordered the seven real estate developers to return all
the payments received from over 6,500 people towards the booking
of flats over disputed pieces of land.
New green building rating system introduced
To rate the level of environment friendliness and sustainability of
buildings, an upgraded Leadership in Energy and Environmental
Design 2011 (LEED 2011 for India) rating system has now been
introduced in the country. The new rating has come into effect.
32. Pg 32
The way forward
Tata Housing forays in By 2014, Vijay Shanthi Lodha Group will invest With an investment of Larsen and Toubro Following the opening
the international Builders will develop over Rs 10,000 crore in a Rs 500 crore, Malabar (L&T) plans to up of FDI in retail
market, announcing a projects worth Rs new project, titled New Builders will launch its construct the first sector, DLF will invest
Rs1,000 crore MoU 2,100 crore, beginning Cuffe Parade, in Mumbai, first township project in residential high-rise a sum of US$ 570.2
with the Government with a residential over the next 5-7 years Mangalore shortly building of the country million for developing
of Maldives project on a pre-cast basis malls over the next 5
years
Royal Institution of Chartered Surveyors (RICS)
CREDAI releases a code-of-conduct for its
launches India edition of the 'Red Book' which lays
members and also recommends setting up of
down mandatory rules for its members and serves
consumer grievance redressal cells to address
as best practice for industry professionals
complaints and disputes
To streamline brokerage practices and bring
transparency in property transactions, National
Association of Realtors-India and the Confederation of
Real Estate Developers' Associations of India (CREDAI)
signs an agreement of cooperation
33. Pg 33
About Grant Thornton
Grant Thornton International
Grant Thornton International is one of the world's leading organisations of independently owned and managed accounting and consulting firms.
These firms provide assurance, tax and specialist advisory services to privately held businesses and public interest entities.
Clients of member and correspondent firms can access the knowledge and experience of more than 2500 partners in over 100 countries in order to
consistently receive a distinctive, high quality and personalised service wherever they choose to do business. Grant Thornton International strives to
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Kolkata, Mumbai and Pune, and affiliate arrangements in most of the major towns and cities across the country. The firm specialises in providing
audit, tax and advisory services to growth-oriented, entrepreneurial companies.
34. Pg 34
About CII
The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the growth of industry in India, partnering
industry and government alike through advisory and consultative processes.
CII is a non-government, not-for-profit, industry led and industry managed organisation, playing a proactive role in India's development process.
Founded over 116 years ago, it is India's premier business association, with a direct membership of over 8100 organisations from the private as well
as public sectors, including SMEs and MNCs, and an indirect membership of over 90,000 companies from around 400 national and regional sectoral
associations.
CII catalyses change by working closely with government on policy issues, enhancing efficiency, competitiveness and expanding business
opportunities for industry through a range of specialised services and global linkages. It also provides a platform for sectoral consensus building and
networking. Major emphasis is laid on projecting a positive image of business, assisting industry to identify and execute corporate citizenship
programmes. Partnerships with over 120 NGOs across the country carry forward our initiatives in integrated and inclusive development, which
include health, education, livelihood, diversity management, skill development and water, to name a few.
CII has taken up the agenda of “Business for Livelihood” for the year 2011-12. This converges the fundamental themes of spreading growth to
disadvantaged sections of society, building skills for meeting emerging economic compulsions, and fostering a climate of good governance. In line
with this, CII is placing increased focus on Affirmative Action, Skills Development and Governance during the year.
With 64 offices and 7 Centres of Excellence in India, and 7 overseas offices in Australia, China, France, Singapore, South Africa, UK, and USA, as
well as institutional partnerships with 223 counterpart organisations in 90 countries, CII serves as a reference point for Indian industry and the
international business community.
35. Pg 35
Our real estate solutions
Our real estate practice Financing your business Communication and compliance
Real estate is a complex business. Owing to its capital intensive nature, any • analysing funding requirements • advising on financial reporting requirements
turbulence in the economic and business environment can affect a real estate • preparing submissions to financiers • clarifying directors‟ responsibilities
• benchmarking terms and pricing • mitigating fraud risk
business in a number of ways. With its depth of knowledge and global experience,
• considering alternative sources • evaluating and designing controls
Grant Thornton India can assist you in mitigating these inherent risks. At the
same time, we can help you identify and leverage potential opportunities as well. Working capital management Human capital management
Assurance, tax and advisory services are just the beginning of our suite of services • managing your cash • optimising pension and benefit schemes
for real estate companies. • forecasting and re-forecasting • retaining the right talent
• optimising tax cash flow savings • devising tax efficient packages
• improving management information • enhancing reward packages
Please contact our real estate experts at realestate.solutions@in.gt.com to know
more about how Grant Thornton can assist you achieve your objectives. Protecting profits Strategic direction
• product portfolio analysis • benchmarking against competitors
• optimising pricing strategy • entering new markets
• enhancing terms of trade • identifying acquisition opportunities
• identifying overhead savings • reviewing business plans
Operations and cost reduction
• establishing cost reduction
programmes
• improving supply chain
• enhancing operational efficiency
• outsourcing back office functions
