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REAL ESTATE INDUSTRY

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Dear Readers,

This is an initiative from the LSI team to enrich our valued readers with information on the Real Estate industry as this report attempts to provide an overview of the industry, its concerns and the probable road ahead.

The Real Estate sector plays a critical role in the development of the Indian economy and has emerged as one of the most significant employer in the country providing succour to the ever-increasing population of India. I am sure, you are aware of the challenging scenario confronted by the Real Estate industry arising from spiraling interest cost, bulging cost of construction and the regulatory inaction by way of delayed amendments to the Land Ceiling Act. However, the silver lining exists in the form of increased demand from tier II/III cities. Moreover, the recent change in the FDI norms, allowing 100% overseas investment in single-brand and 51% in multi-brand in the retail space, are likely to be the future game changer for the industry as a whole.

I sincerely believe that you will find the contents useful and as usual, look forward to your valued feedback.

Raj Kajaria

FROM THE MANAGINGDIRECTOR’S DESK

FROM THE MANAGINGDIRECTOR’S DESK

1

3

CONTENTSCONTENTS

1. Executive Summary 4

2. Introduction

3. Residential Real Estate

4. Official Real Estate

5. Summary

6. Retail Real Estate

7. Hospitality Real Estate

8. Peer Analysis

9. The Way Forward

5

2.1 Growth Drivers 6

2.2 Key Challenges 6

2.3 Government Initiatives 6

2.4 Cost Breakdown 7

2.5 Major Deals in the Real Estate Sector 7

9

3.1 Chennai 10

3.2 Mumbai 13

3.3 Pune 15

3.4 Bengaluru 18

3.5 National Capital Region (NCR) 20

3.6 Kolkata 22

24

4.1 Chennai 24

4.2 Mumbai 25

4.3 Pune 26

4.4 Bengaluru 27

4.5 National Capital Region (NCR) 27

4.6 Kolkata 28

30

31

6.1 Government Initiatives 33

6.2 Foreign Direct Investment (FDI) 34

6.3 SWOT Analysis 34

6.4 Outlook 34

36

7.1 Outlook 40

43

44


Real estate has been amongst the fastest growing sectors in India in the few years before recession and now with the positive signs of recovery in the coming years, it is the opportune time to address issues that will help boost growth in the long term. The path from crisis to recovery is opening up. While the mature markets are struggling to make their presence on this path, the emerging economies such as India are well placed.

Although, the influx of global money has been the crowning event in the real estate markets, almost simultaneously there has been a huge upsurge of domestic institutional and classic private equity investment activity in the country. The real estate sector in India presents an attractive investment proposition. Increased disposable incomes and easy availability of housing loans coupled with encouragement to genuine home buyers by the Central Government in the form of income tax benefits are some of the factors that have fuelled

demand for quality real estate developments. The liberalization of the regulatory regime by permitting FDI in the real estate sector in India offers foreign investors an opportunity to exploit the potential of this sector.

Several global and local factors have converged over

the last two years to culminate the unprecedented

interest in Indian real estate by global and domestic

investment funds. While India has been the global

flavour of investment for some time now, it has taken

almost ten years for Indian property to evolve after a

full cycle and consolidate before it has come squarely

under the international spotlight.

This report discusses an array of such significant

matters and considers the customer's point-of-view

along with the industry. It touches upon the critical

aspect of the sector and Governance with an impact of

new bills.

1. EXECUTIVE SUMMARY1. EXECUTIVE SUMMARY

The real estate sector in India has come a long way from being dominated by a handful of players in the 90s to an expanding base of developers, investors and global stakeholders influenced by the growing construction industry in the country.

The sector has been undergoing corporatization and professionalization and recognized as a key sector contributing to the economic development of the country. Currently, it contributes 6.5% of the total GDP.

Structure of the Real Estate Sector

Real Estate Sector

The sector is divided into 4 sub-segments as above where the residential sector alone contributes to5-6% of the country's GDP. Meanwhile, Retail, Hospitality and Commercial sectors are also growing significantly, which cater to India's growing need for infrastructure.

After witnessing strong growth in FY2010-11 when the sector contributed 10.6% of the total GDP, a slight correction was witnessed in the year FY2011-12. The downside in the sector was primarily due to weakening in demand based on global economic turmoil, a slowdown in the domestic economic conditions, escalation in input costs including interest costs and controversies over land acquisition

Residential Space

CommercialSpace

RetailSpace

HospitalitySpace

The total revenue generated from the real estate sector in FY2011-12 stood at $64.5 billion and as per the study by India Brand Equity Foundation (IBEF), the market size is expected to reach $180 billion by CY2020.

Real estate trends in India have been changing for a while now as tier II/III cities are getting more attention than tier I cities from builders as well as from buyers. With the current stagnant state of residential real estate in tier I cities such as Mumbai and the National Capital Region (NCR), more and more investors are looking towards tier II/III cities to invest due to benefits like well-planned development, room for growth & change, relatively less congestion and pollution, better hygiene and sanitation etc.

Moreover, Mumbai has sky high property prices along with unplanned urban growth spurt and poor infrastructure. In contrast, tier II/III cities such as Naya Raipur, Ahmedabad, Nagpur, etc. have carefully planned urban development and so far managed to avoid severe congestion and pollution problems and thereby leaving enough room for further transportation and infrastructure building within the city. The saturation level that Mumbai seems to have reached when it comes to real estate development is dragging the market down but tier II/III cities are just

2. INTRODUCTION2. INTRODUCTION

Market size of Indian real estate (in billion)

80

50.1

FY2007-08 FY2011-12FY2010-11FY2009-10FY2008-09

53.3 55.6

66.8 64.5

0

20

30

10

50

60

70

40

Source: IBEF, CMIE

5


Multitude of statutory approvals adds 2-2.5 years to the pre-construction process

Conversion of land use

Project letter of intent and license/intimation of disapproval (IOD)

Pre-construction approvals from State level bodies

Pre-construction approvals from Central bodies

Approvals for construction plan

Approvals for commencement of construction

Construction period

Inspection and approval procedure for building completion

Occupancy certificate receipt from date of completion of above

8-12 months

4-6 months

6-8 months

5-7 months

5-7 months

2-3 months

24-30 months

2-3 months

2-3 months

Source: CREDAI-Jones Lang LaSalle Real Estate Transparency Survey 2011

2.3. Government Initiatives

®FDI in real estate business is prohibited in India. However, for the construction development, FDI of 100% is permitted under automatic route without any approval. Construction development include township, 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 Infrastructures). Construction development sector has attracted a cumulative FDI worth $21.1 billion from April 2000 to June 2012.

®Government of India has allowed FDI in multi-

brand retail up to 51% and in single-brand retail up to 100%.

®The Land Acquisition Bill has recently got passed by the Union Cabinet and is awaiting parliament's affirmation. Major clause of the bill focuses on the mandatory consent of 80% of land owners for private projects and 70% in public private partnership projects. Also with the consent, the bill proposes higher compensation and rehabilitation package to land owners.

®The lately passed Real Estate (Regulation & Development) Bill by the Union Cabinet would ask the builder to register all the projects with the prescribed authority. If not, then it is going to attract penalty and imprisonment up to three

coming into the game and their freshness is attracting buyers from across the country.

Commercial properties are also selling fast as BPOs and other companies look towards these smaller cities when it comes to setting up their offices. Salary and transport costs in smaller cities are reduced by as much as 30% when compared to Mumbai. Real estate costs in these cities are almost two-fifths of those in the tier I cities. Businesses are taking advantage of the affordability of skilled and unskilled work force as well as office space and choosing tier II/III cities over metros and tier I cities.

uUpsurge in industrial and business activities like the growth in IT/ITES sector at 30% annually.

uFavourable demographic parameters as more than 50% of the population in India age between 15-55 years.

uSignificant rise in consumerism lead to demand for newer avenues for entertainment, leisure and shopping.

uRapid urbanization and increase in disposable

2.1. Growth Drivers

income lead to creation of demand for new housing.

uGovernment policy like relaxation of FDI policies enhances the entry in the number of domestic and foreign players.

uSimplification of urban development guidelines increases developer's risk appetite and allows large scale development.

uInfrastructure support and development initiatives by the Government.

uLack of clear land titles.

uAbsence of proper insurance.

uLack of adequate sources of finance.

uShortage of labours.

uRising manpower and material costs.

uApprovals and procedural difficulties.

The lack of availability of serviced urban land and continued procedural delays in approvals are the major drawbacks of the industry.

2.2. Key Challenges

years. Another provision that makes things harder for the real estate sector is that they have to commit time frame for the completion of the project. Further, they have to deposit 70% of the money taken from the buyer in a separate account and it has to be used only for that purpose. Additionally, sellers cannot advertise or start booking flats without registering with the nodal agency and the developer will have to share all the details like land status, approval and contract structure before the nodal agency.

®The Government has planned to invest a total of $1 trillion in the next five years.

®The Union Budget 2012-13 gives major thrust on accelerating the pace of investment in infrastructure as this is critical for sustaining and accelerating an overall growth. Efforts to attract private investment into infrastructure through the Public-Private Partnership (PPP) route have met with considerable success at both Central and State Government levels.

®Also in the budget 2013-14, the Finance Minister, in view of shortage of housing for low income groups in major cities and towns, has proposed to allow ECB (External Commercial Borrowing) for low cost affordable housing projects (a project in which at least 60% of the permissible floor space index would be for units having maximum carpet area of up to 60 sq. meters). The interest to be paid on the ECB loan availed from the period July 2012 to June 2015 by the real estate developer is proposed to be subjected to a lower rate of tax at source (TDS) of 5% from the existing rate of 20%. Further, investment linked deduction available for low cost affordable housing projects increased from 100% to 150%. The lower TDS on ECB intererst and increase in investment linked deduction may reduce the cost of the developer and hence, he can pass that benefit to the final consumer by reducing the price, which in turn will help the industry as a whole to grow.

2.4. Cost Breakdown

®The cost of a building is determined by numerous factors such as size, specification, number of storey, level of involvement in the project etc.

®However, it is prudent to first estimate the total cost and then add further 20% to the figure for unforeseen costs. Every house is unique. But there are a number of different matrices available to estimate the overall costs. Although, every project is different in the type of construction, route of construction, the material used, the quality required and the place it is located, the following is only a guide to help work out an approximate cost of a project.

®The chart below shows the approximate percentage of the total cost of a new home through each stage of the build. This is based on an average detached home of two floors.

Particulars Percentage

Site clearance

Foundation

External walls

Roof

Windows and external doors

Upper floor

Stairs

Internal walls

Internal doors

Floor finishes

Wall finishes

Ceiling finishes

Heating

Electrical installation

Water installation

Waste & sanitary

Kitchen

Built in cupboards

Professional fees

Source: Myhome.ie

3%

9%

16%

9%

7%

2%

1%

3%

3%

4%

5%

2%

6%

4%

2%

7%

5%

1%

11%

Investee

Omkar Realtors & Developers Pvt Ltd

Investor

Indiareit Fund Advisors Pvt Ltd

Deal size($ million)

18.00

81.82

50.00

200.00

Blackstone

IFC

Blackstone

Panchshil Realty Pvt Ltd - Eon Free Zone

Smart Value Homes Ltd

Embassy Property Developments Pvt Ltd- portfolio of three business parks

2.5 Major deals in the real estate sector

PE deals

7

Investee Investor Deal size($ million)

PE deals (Contd.)

GMR Airports Holding Ltd

GMR Airports Holding Ltd

DLF Ackruti Info Parks (Pune) Ltd Blackstone

Xrbia Developers Ltd

Prestige Estates Projects Ltd

40.00

36.36

90.00

40.00

200.00

200.00

176.10

Brick Eagle Capital

Red Fort Capital Advisors Pvt Ltd

Morgan Stanley PE

Xander Group

Macquarie SBI Infrastructure Fund

Standard Chartered PE, JM Financial Ltd,Old Lane India Corporate and NYLIM Jacob Ballas

Sheth Developers Pvt Ltd, Mumbai Project

Appaswamy Real Estates Ltd, Chennai Project

Source: Grant Thornton

Source: Aranca Research; Grant Thornton

Deal size($ million)

Target company

DLF Ltd's wind turbine business in Gujarat

DLF Ltd's subsidiary Jwala Real Estate

Caraf Builders & Construction Pvt Ltd

Cowtown Land Development Pvt Ltd

Compact Disc India Ltd, film city

Oceanus Real Estate Pvt Ltd

Indiabulls Properties Pvt Ltd

M&A deals

Acquirer company

Bharat Light & Power Pvt Ltd

Lodha Developers Ltd

DLF Assets Ltd

Lodha Group

Jeff Morgan Capital Ltd

Warburg Pincus LLC

Indiabulls Property Invest Trust

51.00

490.91

696.50

513.60

320.00

318.00

223.10

Stake (%)

100%

100%

NA

NA

NA

NA

NA


3. RESIDENTIAL REAL ESTATE3. RESIDENTIAL REAL ESTATE

Residential demand is the mainstay of the Indian real estate sector as it contributes approximately 5-6% of the total GDP. Residential real estate industry has witnessed stupendous growth in the past few years owing to the following reasons:

®Increase in disposable income levels,

®Continuous growth in population,

®Phase 1 : Stable growth.

®Phase 2 : Initial growth phase with off take and prices picking up.

®Phase 3 : High growth phase with high demand and prices almost grew by more than double.

®Phase 4 : Substantial slowdown in demand due to dented affordability and economic environment.

®Phase 5 : Consolidation phase, with demand, supply and prices gradually moving up in line with improvement in the economic environment

The supply of residential properties priced below

®Migration towards urban areas,

®Ample job opportunities in service sectors,

®Rise in nuclear families,

®Easy availability of finance.

Broadly, residential real estate industry can be divided into five growth phases as can be seen in the chart below:

Phase 1(before 2001)

Phase 2(2001-2005)

Phase 3(2006-2008)

Phase 4(2009-2010)

Phase 5(2011-2014)

`3,000/sq.ft. is reducing based on the fact that from 43% in March 2009, supply in this segment is expected to come down to 8% by CY2013. Meanwhile, supply in the price range of `5,000-10,000/sq.ft. is expanding. On the surface, aspirational and affordability levels are driving such trends. However, smart residential property investment will mean identifying the right products priced below `4,000/sq.ft. in key growth cities as these are the best options. In cities like Bengaluru, Hyderabad, Chennai, Pune and Gurgaon, one can still find good residential projects in this price segment for long-term investments and appreciation.

3QCY’09 4QCY’09 1Q 10CY’ 2Q 10CY’ 3Q 10CY’ 4Q 10CY’ 1Q 11CY’ 2Q 11CY’ 3Q 11CY’ 4Q 11CY’ 1Q 12CY’ 2Q 12CY’ 3Q 12CY’ 4Q 13*CY’

Supply of residential units based on rate per sq. ft.

100%

0%

20%

30%

40%

10%

60%

70%

80%

90%

50%

Less than `2000 `2000-3000 `3000-4000 `4000-5000 `5000-7500 `7500-10000 `10000-15000 More than 15000`

Source: Jones Lang Lasalle * Expected

9

The residential sector in India accounts for 75-80% of the turnover of the entire real estate sector. According to the ministry of housing and urban poverty alleviation, there was a shortage of 18.78 million houses in the urban India as on March 31, 2012.

Break-up of housing shortages in urban India is as follows:

Category Shortage(million)

Families living in non-serviceable katcha housing

Families in obsolescent houses

Families living in congested houses

Homeless families

Total

0.99

2.27

14.99

0.53

18.78

Source: Ministry of Housing and Urban Poverty Alleviation

There was a 16% drop in the residential market across major cities of India in CY2012. State-wise data shows that Uttar Pradesh has a maximum number of housing shortages with over 3 million homes followed by Maharashtra (1.97 million), West Bengal (1.33 million), Andhra Pradesh (1.27 million) and Rajasthan (1.15 million). North-Eastern States are doing quite well mostly due to the fact that these States have lower population. 10 States contribute to three-fourths of the urban housing shortage.

Uttar P

radesh

Mahara

shtr

a

West

Bengal

Andhra P

radesh

Tamil

Nadu

Bihar

Rajast

han

Madhya P

radesh

Gujara

t

Karnata

ka

3.07

1.94

1.33 1.27 1.25 1.19 1.15 1.10 1.02 0.99

Top ten States with urban housing shortage (in million)

3.5

3.0

0.5

1.0

1.5

2.0

2.5

0.0

Source: Ministry of Housing and Urban Poverty Alleviation

The Lower Income Group (LIG) and Economically Weaker Section (EWS) segments account for a majority of this shortage. However, at present the private developers are focusing largely on the middle and upper segments of the market.

The Working Group on Rural Housing for the Eleventh Five Year Plan (2007-12) has estimated the total housing shortage in rural areas at 43.7 million units at the end of March 2012.

Break-up of urban housing shortage

Source: Ministry of Housing and Urban Poverty AlleviationMIG: Middle Income Group

Rural housing shortage in India*

Source: Working Group of Rural Housing, RBI, National Housing Bank* According to 2011 Census Report

50

0

10

1514.1

FY2001-02 FY2006-07 FY2011-12

14.3

43.7

20

5

30

35

40

45

25

Let's look at the snapshot of the six major cities of India.

Chennai's residential property market has witnessed a steady growth in terms of pricing, demand and supply in the past two years post the economic recession. The city has typically been a base for the automobile/auto ancillary industry and is one of the premier port cities in the country. In addition to these industries, the city's realty market has been driven by a host of other sectors, primarily led by the IT/ITeS sector that has brought considerable changes in the city's landscape.

With the advent of the IT sector, Chennai's residential real estate market has become increasingly dependent on its growth and expansion for continued residential demand. The current scenario of job stability in this sector is at a much better position than it was during 2008-2010. Thus, the demand for homes has reached a comfortable and stable growth trajectory and hence, leading foreign developers are initiating their residential projects in the area.

As of December 2012, nearly 77,500 residential units were under various stages of construction in the Chennai market where Southern region alone accounted for a share of around 60%, whereas West Chennai contributed 32%, followed by the Northern region with 7% and Central Chennai with 1% share respectively.

3.1. Chennai

MIG & above

56.18%

EWS

39.44%

LIG

4.38%


An important trend witnessed is the change in the preference for unit size. The preferred size for 3BHK flats has increased from 1250 sq ft to 1450 sq ft while for 2BHKs from 900 sq ft to 1150 sq ft.

Chennai's residential market has been quite resilient to the looming threat of global economic turmoil but the market witnessed a dip in sales velocity in CY2012. It has been envisaged that the corridor between Sholinganallur and Tiruporur in the Southern belt and Sriperumbudur-Oragadam belt towards the West will be the next investment destination for residential property in the city as these are the best options with large manufacturing companies and MNCs expanding their footprints.

The real estate market in Chennai is currently witnessing an upsurge with a forecast of a continuous

growth in the forthcoming years. Several factors have been attributed to the growth of the real estate market in Chennai and can be classified into segments listed below:-

®The land extent of the city's surrounding area.

®The city is easily accessible through an extensive network of transportation facilities including air travel, close proximity to the sea and a highly diversified railways network.

However, during CY2012, rental values for premium residential properties in high-end & mid segment markets did not appreciate much. Nevertheless, regions like Boat Club and Nungambakkam showed modest growth in the high-end segment while Adyar posted an extra ordinary growth of 39% y-o-y in the mid segment.

Rental values as of December 2012

Location Avg unitsize (sq ft)

Avg rate/sq ft (`)

High-End Segment

Boat Club

R. A. Puram

Besant Nagar

Adyar

2,325

2,325

2,325

2,325

94.62

53.76

53.76

49.46

Poes Garden 2,325 80.64

Nungambakkam 2,325 68.80

Anna Nagar 2,325

2,325

37.63

R. A. Puram

Adyar

Rajiv Gandhi Salai (Perungudi)

Velachery

T. Nagar

Kilpauk

Mid Segment

Mylapore

Nungambakkam

Anna Nagar

Kilpauk

Achievable rate (`)

avg

2,20,000

1,25,000

1,25,000

1,15,000

1,87,500

1,60,000

87,500

90,000

62,500

62,500

25,000

37,500

35,000

35,000

62,500

42,500

40,000

1,300

1,300

1,300

1,300

1,300

1,300

1,300

1,300

1,300

38.70

48.07

48.07

19.23

28.80

26.92

26.92

48.07

32.69

30.76

Source: Cushman & Wakefield


R.A. P

uram

Adyar

Rajiv G

andhi Sala

i

Kilpauk

Anna Nagar

Nungambakkm

Myla

pore

T. Nagar

Velach

ery

Y-o-Y change in price in the high-end segment


20%

10%

19%

0%

Boat Clu

b

R.A. P

uram

Besant N

agar

Adyar

Poes Gard

en

Kilpauk

Anna Nagar

Nungambakkm

0% 0% 0% 0%0%0%

4%6%8%

2%

12%14%16%

10%

18%

Y-o-Y change in price in the mid segment

45%

0%

5%

10%

15%

25%

30%

35%

20%

40%

4%

39%

0% 0% 0% 0%

9% 7%8%

11

Chennai's residential market continued to witness moderate demand in ownership housing and hence, the capital values appreciated in both established as well as emerging markets of the city.

During CY2012, capital values for premium residential properties in high-end & mid segment markets appreciated in the range of 4-33%. Regions like Anna Nagar, Nungambakkam, Velachery, Kilpauk and Mylapore witnessed an exceptional growth in high-end & mid segment due to new projects that were launched at a higher price than the prevailing market rate.


Capital values as of December 2012:

Avg achievable rate ( `/sq.ft.) Location

Boat Club

R.A Puram

Besant Nagar

Kotturpuram

Adyar

Poes Garden

Nungambakkam

Anna Nagar

Kilpauk

Mid Segment

Adyar

GST (Poteri)

Velachery

T. Nagar

Mylapore

Mogappair

Kilpauk

Rajiv Gandhi Salai (Perungudi)

High-End Segment

25,000

17,000

13,750

15,000

13,750

21,750

18,500

13,000

13,500

11,000

5,650

3,850

5,500

11,250

12,500

5,750

10,500



35%

11%

23%

33%

16%

9%

Boat Clu

b

R.A. P

uram

Besant N

agar

Kottupura

m

Adyar

Poes Gard

en

Kilpauk

Anna Nagar

Nungambakkm

7%

15%

10%

4%

0%

5%

15%

20%

25%

10%

30%



25%

15%

22%19%

Adyar

Rajiv G

andhi sala

i

GST (Pote

ri)

Velach

ery

T. Nagar

Kilpauk

Mogappair

Myla

pore

0%

22%

12%9%

23%

0%

5%

15%

20%

10%

In Chennai, it was observed that majority of the residential units launched during CY2012 were concentrated towards the Southern part of the city. Developers such as Unitech, Marg Properties, Cee Dee Yes Infrastructure etc have initiated their projects in Southern Chennai. Western Chennai witnessed the second highest of units launched during the year with projects by developers such as Hiranandani, ETA Star and Dugar Housing. Northern Chennai though accounted for 7% of the total number of new residential units launched, it has a number of prominent projects. The Central part of the city did not see much residential activity and accounted merely for 1%.

Region-wise split of units launched in CY2012

32%

60%

7%

1%

North South Central West

Source: Knight & Frank

During FY2011-12, it has been observed that nearly 56% of the units launched have been in the ticket size of `25-50 lakh, while its absorption stood at 42%. Meanwhile, 18% of the launch was in the ticket size less than `25 lakh, while its absorption stood at 20%. The ticket size between `50–75 lakh saw an exceptional absorption of around 23%, while units launched was around 14%. The premium segment i.e. above ̀ 75 lakh also witnessed a moderate growth.

Ticket size of units launched &absorbed in FY2011-12


60%

18% 20%

56%

42%

14%

23%

3%7% 9% 8%

0%< `25 lakh

Units Launched Units Absorbed

`20-50 lakh `50-75 lakh `75-100 lakh `100 lakh& above

10%

20%

30%

40%

50%


Together in CY2010 and CY2011, approximately 49,955 units were launched in Chennai, while only in CY2012 the city witnessed a launch of 26,000 units. As on December 2012, an estimated number of nearly 77,500 units were under construction in the city.

Launch & unsold units of residential projects

30000 45%40%35%30%25%20%15%10%5%0%0

5000

CY2007 CY2008

14

44

1

15

50

5

12

70

2

23

80

3

26

15

2

26

00

0

CY2009 CY2010 CY2011 CY2012

10000

15000

20000

25000

Residential Project Launched % Unsold Units


Value added tax

Statutory costs

DetailsCost

Stamp duty

Registration

Service tax

8% on undivided share of land based on guidance value. The effective rate of stamp duty is 1-12% of the property value.

1%, but upto a maximum of `30,000.

NIL.

3% of agreement value levied on under construction properties.


Market norms

DetailsNorm

Re-sale before possession

Time line for property registration

Loading

Brokerage

Allowed the range of `100- 200 per sq. ft.

subject to the payment of transfer charges to the developer in

Any time until possession.

30% of carpet area.

1- 2% of property value.

3.2. Mumbai

Mumbai is the financial powerhouse that fuels the I n d i a n e c o n o m i c g r o w t h e n g i n e a n d i s understandably the most active residential market in the country in terms of transaction density. The global economic crisis of 2008 affected the market adversely

as prices dipped in some micro-markets at the premium end but rebounded to 2007 highs in the subsequent two years. These unaffordable prices have consequently caused absorption numbers to fall consistently over the past few quarters. Increasing interest rates, liquidity pressures and regulatory bottlenecks have also hurt market sentiments.


Avg unitsize (sq ft)

Avg rate/sq ft (`)

2,325

2,325

2,325

2,325

2,325

2,325


Location

High-End Segment

South

South-Central

Central

North

Far North

North East

South

South-Central

Central

North

Far North

Mid Segment

North East

Achievable rate (`)

avg

5,20,000

1,300

1,300

1,300

1,300

1,300

1,300

6,00,000

4,35,000

6,15,000

70,000

2,70,000

2,12,500

2,75,000

2,00,000

1,87,500

35,000

75,000

223.65

258.06

187.09

264.52

30.10

116.12

163.46

211.53

153.84

144.23

26.92

57.69

13

Barring a 7% y-o-y increase in rental in the North in the high-end segment, the rental values in Mumbai in the high-end and mid segment remained stable in CY2012 as transaction activity remained at par. However, the high-end and mid segment capital values in Mumbai witnessed a notable price appreciation in CY2012 from the previous year.


Avg achievable rate(`/sq.ft.)

Capital values as of December 2012

Location

Mid Segment

High-End Segment

South

South

South-Central

South-Central

Central

Central

North

North

Far North

Far North

North East

North East

59,000

62,000

46,000

34,000

15,250

18,000

40,000

47,500

29,500

22,500

12,000

10,500

During CY2012, capital values for residential properties in the high-end and mid segment markets have appreciated in the range of 3-29% y-o-y where North East region witnessed the highest growth.

From the beginning of CY2012, construction activity r e m a i n e d s l o w a n d n o n e w r e s i d e n t i a l projects/phases of projects were completed in Mumbai.

The State Government of Maharashtra passed the Maharashtra Housing Regulation and Development Bill 2012, with an aim to bring transparency to the realty sector and empower end-users by protecting their interests from the objectionable practices of builders.



35%

7%

29%

3%

South

South-C

entral

Central

North

Far Nort

h

North-E

ast

7%

21%

11%

0%

10%

15%

20%

5%

30%

25%



30%

14%

27%

10%

South

South-C

entral

Central

North

Far Nort

h

North-E

ast

13%10% 9%

0%

10%

15%

20%

5%

25%

The residential market has been steadily shifting Northward of the Mumbai Metropolitan Region over the past few years as people are prepared to move further away from the Central area to find an apartment that fits their budget. This has prompted a flurry of construction activity in the peripheral suburbs to accommodate this demographic shift.

In Mumbai, it was observed that majority of the residential units were launched in Western suburbs and Navi Mumbai, which have accounted for 26% and 20% respectively.

13%9% 12%

26%

1%

4%

15%

Region-wise split of units launchedas on March 2012

20%

South Mumbai

Western Suburbs

Central Mumbai

Navi Mumbai

Peripheral Western Suburbs Peripheral Central Suburbs

Central Suburbs

Thane


Since CY2007, the residential segment witnessed a launch of more than 3.77 lakh units. The percentage of unsold units during the first nine months of CY2012 was 24%, a significant increase from the last year due to the supply overhang of the previous years.

Although, the steep drop in absorption levels should have resulted in a similar correction in prices, supply crunch through delay in approvals ensured that the market equilibrium was maintained. Supply has also been constrained as developers have been actively delaying project launches and looking to liquidate current inventory before launching any fresh project in order to ease pressure on prices in the coming year.

Further, rising interest and other input costs such as land and labour in addition to the ever increasing raw


material costs like cement and steel have constrained developers from cutting prices.


120000 30%

25%

20%

15%

10%

5%

0%0

20000

CY2007 CY2008

44

48

3

37

12

7

72

12

9

11

25

43

69

15

0

41

95

0

CY2009 CY2010 CY2011 CY2012*

40000

60000

80000

100000



* till September 2012

In March 2012, it was observed that nearly 55% of the units launched were in the ticket size of upto ̀ 75 lakh

Ticket size of units launched as on March 2012

28%

15%11%

12%

5%

6%6%

2% 2% 2%1%

11%

`<0.25 crore

`0.75-1.0 crore

`1.5-2 crore

`8-15 crore

`0.25-0.5 crore

`1.0-1.25 crore

`2-4 crore

`15-40 crore

`0.5-0.75 crore

`1.25-1.5 crore

`4-8 crore

`40-100 crore

as the developers were able to attract larger chunk of buyers within this ticket size.

Value added tax

Statutory costs

DetailsCost

Stamp duty

Registration

Service tax

5% levied on higher of the two: - agreement value / ready reckoner rate.

1%, but up to a maximum of `30,000.

1% of agreement value.



Market norms

DetailsNorm



Allowed.

Any time until possession.

Transfer charges payable to the builder

Loading (as a % of carpet area)

0.5% of base selling rate.

55-80%

3.3. Pune

Pune has witnessed an enormous change over the last decade. Approximately 150 km. east of Mumbai, it is the second largest city in the State of Maharashtra and the eighth largest urban agglomerations in India. Pune boasts of a strong presence in the engineering and automobile sectors. Economic activity in the city was triggered by the presence of corporate giants like Bajaj, Telco, Fiat, General Motors and Bharat Forge.

Over the past few years, Pune has also emerged as a major IT destination. Infosys, Wipro, TCS and Syntel have their base in the city and have been expanding their operation at a brisk pace. In recent years, real estate development across the city has geared up to keep pace with the changes in the demand. The past few years have witnessed an increase in the residential demand, which spread across all income categories.

However, rental continued to remain stable across most micro markets of the city due to adverse market conditions.

15



Avg unitsize (sq ft)

Avg rate/sq ft (`)

2,325

2,325

2,325

2,325

2,325

2,325

Achievable rate (`)

avg

1,300

1,300

1,300

1,300

1,300

1,300

1,300


Location

High-End Segment

Mid Segment

Koregaon Park including Boat Club

Aundh

Baner

Kalyani Nagar

Wanowrie

Kharadi including Hadapsar


Aundh

Baner

Wakad

Kalyani Nagar

Wanowrie


1,60,000

1,17,500

97,500

1,20,000

25,500

35,000

37,500

25,000

23,000

15,000

27,500

20,000

18,500

68.81

50.53

41.93

51.61

10.96

15.05

28.84

19.23

17.69

11.53

21.15

15.38

14.23

During CY2012, rental values for residential properties in the high-end segment appreciated in the range of 3-9% y-o-y where regions like Aundh and Kalyani Nagar saw a 9% increase in rental values as compared to the previous year. Rental values for residential properties in the mid segment appreciated in the range of 4-12% y-o-y where Koregaon saw the highest increase.



10%

0%

KoregaonPark

Aundh Baner KalyaniNagar

Wanowrie Kharadi

0%

5%

6%

7%

4%

3%

1%

2%

9%

8%

9%

3%

9%

0% 0%



14%12%

4%

KoregaonPark

Aundh Baner Wakad KalyaniNagar

Wanowrie Kharadi

0% 0% 0% 0%0%

6%

8%

10%

2%

4%

12%

9%


During CY2012, capital values for residential properties in the high-end segment appreciated in the range of 6-28% y-o-y, while that of mid segment increased in the range of 6-30% y-o-y. Baner in the high-end segment and Aundh in the mid segment saw an exceptional increase in capital values amounting to 28% and 30% y-o-y respectively.

In December 2012, construction activities picked up from previous months and few buildings were ready within the residential projects and townships located in Wakad, Aundh and Baner in the price range of `4,000 – 7,000 per sq. ft.

Capital values as of December 2012:

Location

Mid Segment

High-End Segment



Aundh

Aundh

Baner

Baner

Kalyani Nagar

Kalyani Nagar

Wanowrie

Wanowrie



Wakad

15,500

9,000

9,000

13,000

5,600

7,500

9,000

6,500

5,500

4,350

7,500

5,400

4,600

Avg achievable rate ( `/sq.ft.)




30%

9%

KoregaonPark

Aundh Baner KalyaniNagar

Wanowrie Kharadi

0%

5%

10%

15%

25%

20%

28%

6%

18%

15%13%



35%

6%

30%

KoregaonPark

Aundh Baner Wakad KalyaniNagar

Wanowrie Kharadi

16%

6%

14%

0%

15%

20%

25%

5%

10%

30%

2%

7%

The past few years have witnessed an increase in launch of residential units in Pune where in March 2012, East and West Pune accounted for 34% and 27% respectively. North Pune, which has evolved as an industrial area with various auto & auto ancillary and engineering industries, accounted for 17%, while South Pune has developed as a cheaper alternate residential zone with 20% share. Central Pune, which has evolved as the commercial heart of the city with many corporate offices, accounted for only 2%.

Since CY2007, Pune has witnessed a launch of more than 2 lakh units, of which 1,54,874 units have been absorbed in the nine months ended September 2012, resulting in 23% remaining unsold. The percentage of unsold units has increased in the last few years from 9% in 2009 to 23% in September 2012 as the absorption rate has not been able to match with the pace of new launches. Thus, many developers have been actively delaying project launches in CY2012 and looking to liquidate current inventory before launching any fresh project.

Region-wise split of units launchedas on March 2012

20%

27%

17%

34%

2%

Central East North South West


45000 25%

20%

15%

10%

5%

0%0

5000

CY2007 CY2008

42

63

7

33

10

4

20

43

3

38

80

9

40

45

2

24

86

6

CY2009 CY2010 CY2011 CY2012*

10000

15000

20000

25000

30000

35000

40000



* till September 2012

Value added tax

Statutory costs

DetailsCost

Stamp duty

Registration

Service tax

5% levied on higher of the two: - agreement value / ready reckoner rate.





Market norms

DetailsNorm



Allowed, subject to the payment of some transfer charges.

Within 15 days of booking.

Loading

Brokerage

30% of carpet area.

1-2% of property value.


17

3.4. Bengaluru

Bengaluru, known for its IT/ITeS sector, has evolved into a matured residential market with low volatility. Bengaluru residential market continued to remain upbeat despite the slowdown witnessed in other cities. Strong end-user driven demand and realistic pricing have aided the city in sailing through unfavorable economic conditions.

During CY2012, rental values for residential

properties witnessed robust growth in the high-end segment, which saw an appreciation in the range of 10-57% y-o-y. Central region in the high-end segment posted an exceptional increase in rental values amounting to 57% as compared to the previous year.

Rental values for residential properties in the mid segment appreciated in the range of 2-43%. Eastern and Southern regions posted a 43% and 27% yearly increase in rental values respectively.

Rental values as of June 2012


Avg rate/sq ft `)

High-End Segment

Mid Segment

Achievable rate (`)

avg


Central

South

Off-Central

East

North

Central

East

South-East

South

North

South-West

North-West

2,35,000

90,000

1,25,000

2,65,000

1,10,000

97,500

30,000

30,000

40,000

28,500

32,500

30,000

4,000

4,000

4,000

4,000

4,000

2,100

2,100

2,100

2,100

2,100

2,100

2,100

58.75

22.50

31.25

66.25

27.50

46.42

14.28

14.28

19.04

13.57

15.47

14.28



57%

20%

Central South Off-Central East North

47%

13%

0%

20%

10%

30%

40%

50%

60%

10%


Central East South-East South North South-West North-West


50%

26%

0%

25%

30%

35%

20%

15%

5%

10%

45%

40%

43%

20% 20%

27%24%

18%

Mid Segment


Capital values as of June 2012

Location

High-End Segment

20,500

8,250

7,250

7,750

7,250

Central

South

Off-Central

East

North

Central

East

South-East

South

North

South-West

North-West

7,000

4,300

4,750

6,000

4,500

4,750

5,250

During CY2012, capital values for residential properties posted a growth in the range of 5-28% y-o-y in the high-end segment where Central region witnessed the highest growth.

On the other hand, capital values for residential



properties in the mid segment appreciated in the range of 3-32% y-o-y. Eastern and South-Eastern regions saw a highest increase in capital values amounting to 32% and 27% y-o-y respectively.



28%

0%

Central South Off-Central East North

12%

5%0%

10%

5%

15%

20%

25%

30%

8%



6%

Central East South-East South North South-West North-West

0%

25%

30%

35%

20%

15%

5%

10%

32%

27%

4%

15%

10%

0%

South Bengaluru saw the highest number of new launches in FY2012-13 till mid-November 2012 accounting for 48%. Developers such as Nitesh Estates, Godrej Developers and Shriram Properties have initiated their projects in the Southern area. North Bengaluru accounted for 31% of the total units launched where developers such as Kolte Patil Developers, Bhartiya Group and Fortuna Group have entered the market. West Bengaluru, which accounted for 13% of the total units launched, witnessed a launch of some high-end residential projects by developers such as

Value added tax

Statutory costs

Cost

Stamp duty

Registration

Service tax

Details

5% of ready reckoner rate.





Market norms

DetailsNorm



Allowed.

Anytime until possession.

Transfer charges payable to the builder

Loading (as % of carpet area)

`200-300 per sq ft.

33%.

Sovereign Developers and Godrej Group. Finally, the Eastern part of the city accounted for only 8% of the total units launched as projects were not as large scale as in other parts of the city.

In June 2012, the National Highways Authority of India and the State Public Works Department initiated the Satellite Town Ring Road project to connect Bengaluru's satellite towns such as Ramanagar, Dobbespet, Devanahalli, Hoskote, Attibele and Magadi. With an improvement in connectivity, the project is further expected to boost the real estate activities in these locations in the near future.

Region-wise split of units launchedas on November 2012

13%

48%

31%

8%

East North South West


Since CY2007, Bengaluru has witnessed the launch of over 1.76 lakh units, of which 32% remained unsold in September 2012. Thus, many developers have been actively delaying project launches in CY2012 and looking to liquidate current inventory before launching any fresh project.


25%

30%35%

20%

15%10%

5%

0%0

10000

CY2007 CY2008

31

23

6

2060

8

1443

9 31

73

3

54

07

5

24

74

1CY2009 CY2010 CY2011 CY2012*

20000

30000

40000

50000

60000


Source: Knight & Frank * till September 2012

19

3.5. National Capital Region (NCR)

The National Capital Region (NCR), which is spread over 33,578 sq. km. is one of the largest urban agglomerations in the world. The NCR encompasses of the entire National Capital Territory of Delhi as well as selected urban areas from its neighboring States of Haryana, Rajasthan and Uttar Pradesh. The NCR is divided into six broad zones namely Delhi, Gurgaon, Noida, Greater Noida, Faridabad, Ghaziabad and Alwar. Industries like IT/ITeS, automobile and pharmaceutical contribute most towards the

economy of the region. Due to proximity to the national capital and enhanced connectivity courtesy metro line across the region, NCR has positioned itself as one of the most preferred destination.

During CY2012, rental values for residential properties in the high-end segment witnessed an appreciation in the range of 4-17% y-o-y where Central NCR saw an increase of 17%. Rental values for residential properties in the mid segment appreciated in the range of 4-11% y-o-y where Noida posted the highest growth.



Avg rate/sq ft (`)

High-End Segment

Achievable rate (`)

avg

South West

South-East

South-Central

CentralGurgaon-Luxury

Gurgaon

Noida

4,00,000

2,25,000

2,62,500

4,25,000

3,25,000

1,27,500

72,500

2,325

2,325

2,325

2,325

2,325

2,325

2,325

172.04

96.77

112.90

182.80

139.78

54.84

31.18

Mid Segment


1,300

1,300

1,300

1,300

South-East

South-CentralGurgaon

Noida

1,37,500

1,37,500

62,500

35,000

105.77

105.77

48.08

26.92

South W

est

South-E

ast

South-C

entral

Central

Gurgaon-L

uxury

Gurgaon

Noida


0%

10%

12%

14%

8%

6%

2%

4%

18%

16%


7%6%

5%

17%

0% 0%4%

During CY2012, capital values for residential properties witnessed a growth in the range of 10-22% y-o-y in the high-end segment where South-Western and Central regions appreciated most by 20% and 22% respectively. Capital values in the mid segment increased in the range of 5-28% y-o-y where South-Eastern and Gurgaon posted a growth of 28% and 24% y-o-y respectively.

South-East South-Central Gurgaon Noida


0%

4%

2%

6%

8%

10%

12%


8%

0%

4%

11%



Location

High-End Segment

South-East

Mid Segment

South-centralGurgaon

Noida

South West

South-East

South-Central

CentralGurgaon-Luxury

Gurgaon

Noida

55,000

35,000

38,500

70,000

25,500

13,000

7,150

27,500

27,500

8,650

5,250



South W

est

South-E

ast

South-C

entral

Central

Gurgaon-L

uxury

Gurgaon

Noida


0%

25%

20%

15%

5%

10%


20%

17%

15%

22%

0% 0%

10%

South-East South-Central Gurgaon Noida


0%

10%

5%

15%

20%

25%

30%


28%

0%

24%

5%

Nearly 33,500 residential units were launched in H2 (second half) FY2012-13, showing a dip of almost 31% compared to H2 FY2011-12. However, there was a 6% increase in project launches compared to H1 (first half) FY2012-13. Greater Noida witnessed the highest number of new launches in the H2 2012-13 accounting for 50% followed by Gurgaon and Ghaziabad.

Region-wise split of units launched

60%

50%

40%

30%

20%

3%

21%18%

50%

14%

29%21%

33%

8%3%10%

0%Faridabad Ghaziabad Greater Noida Gurgaon Noida

H2 FY 2011-12 H2 FY 2012-13

In March 2013, nearly 5,20,000 residential units were under various stages of construction in the NCR market. Quite a number of projects that were launched in 2010 have seen execution delays and pushing the completion dates to CY2014 and early CY2015.

In CY2012, NCR witnessed a launch of 64,500 residential units and 1,40,000 units of unsold inventory.

180000 30%

20%

25%

15%

10%

5%

0%0CY2007 CY2008


59

17

6

46

60

5 78

22

2

17

12

61

11

16

49

64

50

0

CY2009 CY2010 CY2011 CY2012

40000

20000

60000

80000

100000

120000

140000

160000




21

3.6. Kolkata

The residential real estate market of Kolkata has seen a significant change in its skyline over the past five years. The old colonial style bungalows and mansions have made way for high rise, showing the influence of modernization and changing lifestyle. Nuclear families with requirements for modern apartment lifestyles have become the order of the day. The Kolkata residential market has traditionally been an end user market with a very small proportion of investors. The growth of IT/ITeS sector and increasing floating population are the major factors

that have led to an increase in demand for the residential units in the city. The Government has also been offering land at subsidized rates to developers to start group housing projects in the PPP model, which has boosted supply and hence, a number of national players like DLF, Godrej and Unitech have set up their operations in the city.

Rental values declined in the high-end segment where South-Central region posted the highest decrease of 9% y-o-y during CY2012. However, in the mid segment, rental values remained stable.



Avg rate/sq ft (`)

High-End Segment

Achievable rate (`)

avg

2,325

2,325

2,325

2,325

2,325

2,325

2,325

Mid Segment


1,300

1,300

1,300

1,300

1,300

South

South-Central

South-East

South-West

Central

East

North-East

South

South-Central

South-East

North-East

North

71,000

1,25,000

76,500

1,37,500

1,15,000

51,500

55,000

27,500

32,000

37,500

30,000

23,500

30.53

53.76

32.90

59.13

49.46

22.15

23.65

21.15

24.61

28.84

23.07

18.07

South

South-C

entral

South-E

ast

South-W

est

Central

East

North-E

ast


-10%

0%

2%

4%

-2%

-4%

-8%

-6%


2%

-9%

0% 0% 0% 0% 0%

Capital values only changed in the high-end segment where Southern region witnessed a growth of 22%y-o-y. Source: Cushman & Wakefield


Location

High-End Segment

Mid Segment

South

South-Central

South-East

South-West

Central

East

North-East

South

South-Central

South-East

North-East

North

9,750

14,000

7,650

12,500

9,250

5,000

3,650

4,650

7,000

3,650

2,700

4,000




0%

25%

20%

15%

5%

10%


22%

0%

2%0% 0%0% 0%

South

South-C

entral

South-E

ast

South-W

est

Central

East

North-E

ast

A total of 8,900 units were launched in Kolkata in CY2012, of which nearly 62% units were in the mid-end segment (5,535 units) and priced between`36-60 lakh, while the balance were in the high-end segment, which is priced above `60 lakh. The maximum absorption was also in the mid segment.

Ticket size absorption in Kolkata

`<0.25 crore

14%

14%

11% 17%

44%

`0.25-0.5 crore

`0.75-1 crore `1 crore & above

`0.5-0.75 crore

Central Kolkata East Kolkata

Rajarhat South Kolkata

North Kolkata

West Kolkata

On a year-over-year basis, supply of mid-level homes increased by 26% to 5,535 units in CY2012 from 4,372 in CY2011. Similarly, the launch of high-end homes increased to 3,360 units, representing an increase of 17% from 2,863 units in CY2011. However, the supply of luxury homes dipped drastically in CY2012 to just 23 units from 280 units in

Region-wise split of units under constructionas on June 2012

32%

37%

3% 4% 5%

19%



In June 2012, the residential market in Kolkata had around 1,43,000 unsold units, of which nearly 47% was contributed by Western region followed by North Kolkata, Rajarhat and South Kolkata.

Unsold units as % of total unitsunder construction as on June 2012

0%

5%

10%

Central East North Rajarhat South West

15%

20%

25%

30%

35%

40%

45%

15%

8%

39%37%

34%

47%

50%


CY2011, representing a fall of 92% due to adverse market conditions.

In June 2012, approximately 42,000 residential units were under construction in the Kolkata market, of which nearly 69% were in South Kolkata and Rajarhat.

23

4. Official Real Estate4. Official Real Estate

The commercial office space in India has evolved significantly in the past 10 years due to the changes in the business environment. The growth of commercial real estate has been driven largely by service sectors, especially IT-ITeS. Previously, commercial properties were concentrated towards CBD (Central Business District) areas. However, with the emergence of IT-ITeS, which have huge office space requirement, commercial development started moving towards city suburbs. This has resulted in the multifold development of the city's outskirts and suburbs like Gurgaon near New Delhi, Bandra & Malad in Mumbai and the Electronic city in Bengaluru. In addition, over the last 10 years, locations such as Bengaluru, Gurgaon, Hyderabad, Chennai, Kolkata and Pune have established themselves as emerging destinations for commercial development, which are competing with traditional business destinations such as Mumbai and Delhi. Tax advantage on the profits of IT-ITeS companies has also led to stupendous development of IT Parks and Special Economic Zones (SEZs).

Of the three primary real estate sectors, commercial property is most closely linked with global economic dynamics. We are already seeing the impact of these dynamics in the reduced absorption of commercial spaces in India to 15% currently. Multinational companies are increasingly cautious about committing because their home countries are not doing well and even domestic companies are in wait-and-watch mode. The continuous volatility in the global and Indian financial markets coupled with rising inflation and interest rates have led corporates and developers to be cautious with their expansion plans.

CY2012 was defined by a notable decline of 26% in absorption of office space across most of cities in India from the CY2011 levels. The larger cities like Mumbai, NCR, Bengaluru and Chennai contributed to a healthy 72.5% of the country's net absorption of commercial real estate. The total absorption of prime office space for CY2012 was about 26 million sq ft in seven major cities of the country as against 35 million

sq ft in CY2011. The last quarter of CY2012 witnessed an absorption of about 7 million sq ft of office space compared to about 6 million sq ft in the previous quarter. About 70% of the transaction activity was dominated by the NCR, Mumbai and Bengaluru.

The total office space supply in CY2012 remained almost stable at 31 million sq ft as large chunk of the office pipeline lined up for CY2012 was delayed into CY2013. Further, the investment side of the market also witnessed subdued activity as demand from investors fell and capital value expectations sunk to the lowest reading for over the past two years.

Rents were stable in suburban office markets such as Gurgaon, Noida, Outer Ring Road, Whitefield, Hitec City and Gachibowli. Most micro markets in Mumbai such as Nariman Point, Bandra Kurla Complex and peripheral markets have entered the downward cycle and suffered from sluggish demand with increasing vacancy levels.

In the coming years, demand will derive from consolidation in and relocation to SEZs by large IT occupiers, who will seek to reduce costs by availing related tax incentives. Commercial office space rents and capital values are expected to increase across all cities, albeit marginally.

With business sentiments getting improved, the downward trend is likely to change in FY2013-14 and each quarter should see a 9-10 million of absorption with overall absorption likely to surpass 40 million by FY2013-14.

In the South, Hyderabad and Bengaluru should see the IT industry to dominate the office space. Office rents are expected to increase from the H2 CY2013 based on the supply crunch as very few new projects are expected to be launched in the near future.

In the Chennai office market during FY2012-13, cautiousness was adopted by potential occupiers as well as the existing ones on account of the ongoing economic crisis in the global markets. The prevailing

4.1. Chennai


Rental and capital values as on March 2013

Mount Road

RK Salai

Pre-toll OMR

Post-toll OMR

Guindy

Ambattur

Source: Jones Lang Lasalle

Area Rents(average `/sq ft

per month)

Capital value(average `/sq ft)

75.0

85.0

48.5

30.0

47.5

30.0

12,000

12,500

5,750

4,250

7,500

3,875

The IT/ITeS sector continues to be the prime demand driver of office space in Chennai. Some of the key IT/ITeS companies that took up space in the city in the H2 CY2012 include TCS eServe, CSS Corp, Aricent and Capgemini. Although, the H2 CY2011 saw 11% of the total office space being occupied by the Consulting sector, the figure reduced drastically to 3% during the same period of CY2012. Decline was also witnessed in s e c t o r s s u c h a s m a n u f a c t u r i n g a n d healthcare/pharmaceutical in the H2 CY2012. However, the BFSI sector saw an increase in its footprints in the H2 CY2012 to 15% as compared to 11% in the H2 CY2011. Prominent BFSI firms like Kotak, Barclays, World Bank and Mizuho were responsible for contributing towards the increase in office space absorption. Other sectors like media, telecom, aviation, automobile and internet retailing firms together contributed about 20% in the H2 CY2012, a significant increase over the previous year.

70%61%

55%

11% 11%3% 3%5% 7% 5%

20%

4%

15%

IT/Tes

BFSI

Consulti

ng

Healthca

re/Pharm

a

Manufa

cturin

g

Other S

ervic

e Sect

ors0%

10%

20%

30%

40%

50%

60%

Jul-Dec 2011 Jul-Dec 2012

Distribution of office space across sectors


In September 2012, Chennai had a total overall office inventory of 68.8 million units with Suburban-Perungudi-Taramani having the largest inventory of 15.5 million units.

Inventory as on September 2012 (million units)

18

16

14

12

10

8

6

4

2

0

Suburban -

Guindy

Off-CBD -

T. Nagar,

Alwarp

et

CBD - Anna S

alai,

RK Sala

i

Suburban -

Ambattu

r

Suburban -

Perugudi-

Taram

ani

Peiphera

l - R

ajiv

Gandhi Sala

i

Peiphera

l - G

ST

Source: Cushman and Wakefield

4.2 Mumbai

Mumbai's commercial office space market consolidated in CY2012 and showed signs of bottoming out. However, corporate activity, which was fairly stable after 2008 recession, weakened due to sluggish global and local environment, resulting in a significant fall in office space taken-up during FY2012-13. Moreover, rents and vacancy levels, which were observed to be firming up, again experienced a downward pressure as the demand-supply gap further widened.




per month)


Lower Parel

BKC

Andheri

Goregaon-Malad

Wagle Estate

Thane BelapurRoad

170.0

305.0

125.0

90.0

57.5

52.5

21,000

30,000

12,000

9,000

5,500

5,550

The BFSI sector has been the primary driver of the office space market in Mumbai. Banks and non banking financial companies such as SBI Mutual Fund, Development Credit Bank and HDFC Bank are among the active companies. The market share of the other service sector companies like media, telecom, consulting and logistics on occasion have eclipsed that of the BFSI and IT/ ITeS sectors but during Q2 FY2012-13, it fell to almost half of BFSI. The IT/ ITeS sector has maintained a steady market share over the consecutive three quarters of FY2012-13. The manufacturing sector has gained significant growning from 14% in Q2 FY2011-12 to 26% in Q2 FY2012-13.

uncertainty has led a number of IT/ITeS firms, the prime demand driver for office space in the city, to postpone their expansion plans and modify their revenue and employment projections for the year.

13.6

10.7

12.6

5.3

15.5

8.8

2.3

25

BFSI IT/ITeS Manufacturing Other ServiceSectors


40%

35%

30%

25%

20%

15%

10%

5%

0%

37%

33%

18% 18%

26%

14%

18%

36%

Q2 FY2012-13 Q2 FY2011-12


In September 2012, Mumbai had a total overall inventory of 106.99 million units with Andheri-Kurla having the largest inventory of 22.9 million units.

CBDSBD

Worli

Lower P

arel

Andheri-Kurla

Powai

Mala

d/Goregaon

Vashi

Thane-Bela

pur Road

Thane

25.0

0.0

5.0

10.9

7.6

4.3

10.8

22.9

6.1

11.7

3.2

13.0

5.3

10.0

15.0

20.0



4.3. Pune

Pune is among the top ten largest metropolitan economies in terms of Nominal GDP and per capita income in the country. It has evolved as a destination for automobile and pharmaceutical industries, which have set up their shops in a big way. However, the IT/ITeS sector has in recent times dominated its economy and Pune is today among the leading software exporters of India. The pace at which the IT/ITeS industry has grown coupled with the growth in the manufacturing sector, it has sparked off a flurry of construction activity in the grade A office space market over the past decade.

The Eastern and North-Western locations of Pune accounted for 37% and 23% of total office space respectively, where the IT/ITeS sector has the largest chunk. Central region accounted for 12% of the total office space in Pune whereas Northern and North-Eastern regions accounted for 10%. This was followed by Southern and Western regions.




per month)


Hinjewadi

Hadapsar

Bund Garden Road

Viman Nagar

S.B.Road

Koregaon Park

36.0

45.0

65.0

55.0

65.0

65.0

4,500

5,500

7,000

6,500

7,000

7,000

Regional share of office space

PMR Central PMR East PMR North-East

PMR WestPMR SouthPMR North-West

PMR North

37%

23%

10%

10%

12%4%4%

Source: Knight & FrankPMR = Pune Metropolitan Region

In Q1 FY2012-13, the IT/ITeS had the largest share of the total transacted space amounting to 70% followed by BFSI with 15% share. Manufacturing sector has experienced a tremendous amount of growth in the last five years in and around Pune city and accounted for9% of the total transacted space while other service sectors accounted for 6% share.


80%

15%

70% 67%

9%

21%

6% 4% 4%0%3%

0%

20%

30%

10%

50%

60%

70%

40%

BFSI

IT/IT

eS

Manufa

cturin

g

Other S

ervic

e

Sectors

Others

Q2 FY2012-13 Q2 FY2011-12


In September 2012, Pune had a total overall inventory of 52.3 million units with Peripheral-I having largest inventory of 9.7 million units.


CBD

Off-CBD -

I

Off-CBD -

II

Suburban -

West

Suburban -

East

Extended S

uburban

Periphera

l - I

Periphera

l - II



4.4. Bengaluru

Bengaluru retained the top slot for the highest office space absorption in the country in FY2011-12 despite global uncertainties looming large in the horizon. The office market of the city registered an absorption of almost 12 million .sq.ft., translating into an increase of about 10% over FY2010-11. The IT/ ITeS industry, which has been responsible for the rise in Bengaluru's office market, remained the key demand driver for the office space during FY2011-12. With an inventory of around 90 million sq.ft. of office space, Bengaluru remains one of the most preferred office space destinations in the country.



Area Rents

(average `/sq ft

per month)

Capital value

(average `/sq ft)

Outer Ring Road(North)

Old Airport Road

Outer Ring Road(Eastern)

Old Madras Road

Electronic City

51.5

62.5

49.0

32.0

27.0

6,000

6,500

5,350

3,250

2,750

Although, the occupancy of office space by the IT/ITeS sector dropped to 57% in CY2012, it is still responsible for occupying a greater part of the absorption pie in the Bengaluru office market. Some of the key space occupiers include companies like Intel, Cisco, HCL, Sapient, Genpact and McAfee.


80%

0%

10%

20%

30%

40%

50%

60%

70%

BFSIIT/ITeS Manufacturing Other ServiceSectors

CY2011 CY2012

CY2011 CY2012


67%

57%

10%18% 16% 15%

7% 10%

Bengaluru has observed consistent office space demand across most micro-markets with Whitefield and Outer Ring Road (ORR) being the more preferred office destinations due to considerable new office space supply and competitive rentals. The CBD and the Off-CBD office markets have typically been preferred by companies looking for smaller office configurations. These markets of the city have a strong presence of occupiers from the manufacturing, consulting and BFSI sectors, as well as IT/ITeS companies with smaller set-ups.

Absorption of office space

0%

10%

20%

CBD/Off-CBD SBD PBD ORR

30%

40%

50%

60%

Source: Knight & Frank PBD: Peripheral Business DistrictSBD: Secondary Business District

8% 8%

22%

30%

52%

41%

18%21%

4.5. National Capital Region (NCR)

The National Capital Region (NCR) has been one of the prime office markets of the country. In terms of office stock, the NCR has the biggest market. The region has seen tremendous development in the past 5 years. Fast paced growth in the IT/ITeS sector has contributed hugely to the demand. Most of the supply has come up in the PBD (Peripheral Business District) of Gurgaon, Noida, Greater Noida and the SBD (Secondary Business District) of Saket and Jasola.

Gurgaon is expected to contribute nearly 43% of the upcoming supply. Most of the IT/ITeS companies in Gurgaon are presently concentrated in DLF Cybercity.

12.0

10.0

4.8

7.2

5.8

7.68.2

7.8

9.7

1.1

8.0

6.0

4.0

2.0

0.0

27

A bulk of supply is planned in Noida and Greater Noida as well, which together will account for nearly 45% of the upcoming supply. Rentals are nearly 50% lower in Greater Noida as compared to Gurgaon, which has been the biggest pull factor for the companies looking for big campuses. Good connectivity, planned infrastructure and ample affordable housing options for employees are some of the key contributing factors to the growing commercial developments in Greater Noida. The proposed metro will further boost the real estate development in this region.


Micro-market split of upcoming supply (CY2012-2014)

45%

43%

9%2%

1%

SBD Delhi PBD Faridabad PBD Ghaziabad

PBD NoidaPBD Gurgaon


The market share of BFSI and consulting has been going down continuously. IT/ITeS has gained momentum in Q4 FY2011-12 compared to the previous quarter, but it is still quite low compared to Q4 FY2010-11. The other service sectors contributed to nearly 34% of the overall absorption in Q4 FY2011-12. Some of the prominent companies in this sector are Snap Deal and United Health Group, which took up space in Okhla and Noida respectively.

45%

0%

5%

10%

15%

20%

25%

30%

35%

40%

BFSI

Consulti

ng

IT/IT

eS

Manufa

cturin

g

Other S

ervic

e

Sectors

Q4 FY2010-11 Q4 FY2011-12


2%4%

26%

21%

40%

29%

12% 12%

19%

34%

NCR is the fifth costliest place in the entire Asia Pacific region and most expensive in terms of rentals in India. Rental and capital values in Gurgaon and Noida, the two commercial hubs of Delhi-NCR, have increased slightly despite the uncertain economic scenario and slow absorption rate.

NCR inventory as on March 2013 (in million)



per month)


Barakhamba Road

Jasola

DLF Cybercity

MG Road

Gold Course Road

Sohna Road

285.0

140.0

69.5

122.0

90.0

50.0

31,500

18,500

NA

17,250

13,500

7,250


Currently, NCR witnesses maximum inventory in the Gurgaon region. The break-up of the inventory is shown below.

35.0

0.0

Delhi CBD South-EastDelhi

GurgaonCBD

GurgaonOthers

Noida

5.0

10.05.1 5.9

15.9

30.4

18.2

15.0

20.0

25.0

30.0


4.6. Kolkata

Kolkata's office market noted marginal increase in leasing activities during the H1 FY2011-12 when the absorption recorded at 1.04 million sq.ft. Demand was driven by the IT/ITeS sector and majority of the absorption was in the peripheral micro markets of Salt lake and Rajarhat, which accounted for nearly 73% of the total demand mainly due to affordable rentals. Fresh supply of approximate 1.57 million sq.ft entered the market in the H1 CY2012, which was also concentrated in the peripheral location. On account of increased absorption, the vacancy level across the city has declined to 15.7% during the quarter ended December 2012.

The majority of the office space was consumed by the IT & BPO sector, which accounted for 42.5% of the total share. Telcom-infra sector came next with a share of 19.5%. The third largest share of the total consumption of office space was led by the Engineering sector.

During CY2008-CY2012, Topsia region witnessed an exceptional appreciation in rentals and grew in the range of 20%-21% while in Sec-V, the property rental


growth was subdued with only 1% increase. However, Rajarhat posted a decline in property rentals by 4%.

Sector wise distribution

17.00%

19.50%

42.50%

6.25%

4.75%

3.50%2.30% 1.70%

1.70% 0.50%0.30%



per month)



IT & BPO

Healthcare

Corporate

Telecom Infra

BFSI

Media

Engineering

Manufacturing

Automobile

Construction

Insurance

Source: Lemongrass Research

Park Street

Topsia

Kasba

Salt Lake includingSector V

Rajarhat &New Town

130.0

82.5

80.0

46.0

36.0

16,000

10,000

10,250

4,950

4,150

In September 2012, Saltlake had the largest stock of unsold units amounting to 9.28 million followed by CBD amounting to 8.20 million. Rajarhat had the third largest stock of unsold units amounting to 7.57 million, while Park Circus and Rashbehari Connector had the lowest number of unsold units.

Unsold units as on September 2012 (in million)

10.00

9.00

8.008.20

CBD Park CircusConnector

RashbehariConnector

Rajarhat Salt Lake

0.88 0.86

7.57

9.28

7.00

6.00

5.00

4.00

3.00

2.00

1.00

0.00


29

5. Summary5. Summary

The top six cities of India namely Bengaluru, Chennai, Delhi-NCR, Kolkata, Mumbai and Pune play an extremely important role in the country's economic growth. However, these cities have reached their saturation level in terms of space and rentals along with capital values. Hence, many industries are moving to smaller cities, which offer immense potential like cheaper talent pool, sizeable & cheaper land, relatively lower operating cost and better business environment created by State Government and local authorities.

The Government is taking special measures to provide smaller cities with infrastructural facilities and SEZs. These factors have also resulted in the promotion of the smaller cities. Various sectors like Pharmaceutical, BFSI, Education and IT/ ITES are coming up in these areas and hence, attracting more number of buyers.

During the last one-two years, there has been a shift in the interest of both of the developers and investors towards tier II and tier III cities. This was due to the congestion and land values, which have become exorbitant in tier I cities. Moreover, availability of land especially for developing big projects has become an

issue in larger cities. This, along with the lack of availability of business equipped infrastructure in the existing metros, various IT/ ITES and the BPO companies are targeting smaller cities with better infrastructure, state-of-the-art office spaces along with skilled and cheap manpower.

The above factors have also lead to the development of integrated townships. The demand for quality lifestyle and “walk-to-work” concept are some of the drivers of demand for integrated townships that offer commercial, retail, residential, and leisure facilities within a given area. Hence, a large number of retail developers are also shifting their focus to tier II and tier III cities.

Prominent tier-II and tier-III cities such as Ahmedabad, Jaipur, Visakhapatnam, Surat , Chandigarh, Vadodara, Indore, Lucknow, Coimbatore, Nagpur, Bhopal, Bhubaneswar, Kochi, to name a few, are witnessing increased interest by investors.

Despite the continued global economic downturn as a result of ensuing credit crunch, India's real estate sector is expected to witness double-digit growth in the tier II and tier III cities.


On December 31, 2012, the Indian retail market was estimated at $518 billion where organised retail accounted for only around 8% of the total market share and unorganised contributed the balance.

Retail market in India

1000

900

800

700

600

500

400

300

200

100

CY 2010 CY 2012 CY 2015E

0

424

10.6%

CAGR

18.8%

CAGR

518

869

Source: Deloitte

Source: PWC

India's retail sector has been traditionally dominated by small mom & pop stores i.e kirana stores, which are well-distributed throughout urban and rural areas. It is estimated that there are about 12-15 million outlets in India, including push carts, wet markets and kirana stores, selling food and related items.

OrganisedRetailing (8%)

Retail Industry

UnorganisedRetailing (92%)

Currently, the sector contributes approximately 8% of the total employment, employing more than 35 million people with wholesale trade generating additional 5.5 million employments.

According to the Global Retail Development Index 2012, India ranks fifth among the top 30 emerging markets for retail in the world.

The food & grocery segment is the largest retail category and accounts for about 70% of the total retail market.

Categories of retail market

8%

6%

5%4%

3%3% 11%

60%

Food and Grocery

Mobile and Telecom

Jewellery

Pharmacy

Apparel

Food Service

Consumer Electronics

Others

Source: Deloitte

The face of Indian retail sector is changing and new & innovative business models are being adopted. The formats prevalent in the retail sector are modern retail formats, which are in the form of:

lHyper Market like Spencer, Big Bazaar, etc.

lCash & Carry like Metro.

lDepartmental Stores like Ebony, Shoppers Stop, Westside, etc.

lSpeciality Stores like Archies, Woodland, etc.

lDiscount Stores like Subhiksha, Koutons, Nike, Levis, etc.

lConvenient Stores like In & Out, Safal, 6ten, etc.

High population density in the metropolitan cities and surrounding tier I towns is driving the geographic penetration of modern retail. India's huge rural market has also attracted retail investments and it is

6. Retail Real Estate6. Retail Real Estate

31

E = Estimate

seen as a viable growth opportunity by corporate India. ITC launched the country's first rural mall "Chaupal Sagar" where diverse products are being offered ranging from FMCG to electronic appliances and automobiles. It was done with a view to provide farmers a one stop center for all their consumption requirements. Many more new trends could possibly be tried in rural markets to unearth the huge potential.

Further, the recent change in the FDI policy in the retail sector is likely to positively impact developments across the commercial real estate sector. The move signifies a strong positive outlook for the retail as well as the real estate sector. FDI will be a powerful catalyst to the required growth in the retail industry and in the long term, it will prove beneficial for all the major stakeholders. The growth in the retail sector has fuelled the proliferation of shopping malls across the country. Hence, the total number of malls is expected to increase to 1,500 by CY2015 from 1,200 in CY2012.

Growth of retail stock (in million sq. ft.)

100

90

80

CY1999

CY2000

CY2001

CY2002

CY2003

CY2004

CY2005

CY2006

CY2007

CY2008

CY2009

CY2010

CY2011

CY2012*

CY2013*

CY2014*

70

60

50

40

30

20

0.2 0.4 0.7 1.34.610

0

Source : Jones Lang Lasalle

7.811.6

15.7

25.0

33.639.8

46.7

60.5

72.5

80.9

95.1

During CY2011, the absorption of retail space more than doubled to reach 10.7 million sq. ft, while new completions reached to a level of 13.8 million sq ft. Hence, the vacancy was almost 20%, slightly higher than CY2010.

Supply and demand of retail mall space(in million sq.ft.)

16 24%

0%

4%

8%

12%

16%

20%

0

2

4

CY2005 CY2006 CY2007 CY2008 CY2009 CY2010 CY2011

6

8

10

12

14

New Completions Net Absorptions Vacancy

3.8

2.8

4.1

3.7

9.4 9.6

8.5

6.6

6.3

4.0

6.9

4.0

13

.81

0.7

Source : Jones Lang Lasalle

In December 2012, there were millions of unsold properties in malls across the country. According to a survey conducted by the Associated Chamber of Commerce and Industry of India (ASSOCHAM), over 52% of malls in Mumbai were vacant partly due to economic slowdown, poor designing, lack of robust revenue generation model and unattractive location. As per ASSOCHAM, the total rate of vacancy in malls in Delhi-NCR was 55%, while in Mumbai it was 52% followed by Ahmedabad (51%), Chennai (50%), Hyderabad (48%) and Bengaluru (45%). The position in the nearby towns of these locations was much disturbing. Nationally, the vacancy in shopping malls was approximately 55% as more than 80% of shopping in India was done at unorganised one-off shops.

However, given the current uncertain economic conditions, the retail markets are showing a largely stable scenario. Retailers of foreign brands still remain committed to the Indian markets with the recent announcements, indicating the strength of the economy.

Rental across most malls in cities like Delhi-NCR, Chennai, Bengaluru, Mumbai and Kolkata remained largely stable, while some micro markets saw a growth in the range of 2-13% y-o-y during CY2012.

During CY2012, the highest appreciation in the rental value was recorded at Camac Street and Elgin Road in Kolkata at 12.4% and 25% respectively, due to renewals of existing tenants at a higher value. Other cities like Gurgaon, Pune and Bengaluru saw an increase in high street rents by 7-9% y-o-y.

However, posh areas of Hyderabad like Banjara Hills, Jubilee Hills, Ameerpet and A.S. Rao Nagar witnessed a fall in rentals in the range of 4-7% y-o-y during CY2012 due to significant amount of new construction available in these markets.

During CY2012, the sharpest decline in mall rental value was recorded in Delhi-NCR at 60% y-o-y followed by Mumbai at 58%, Ahmedabad at 55% and Chennai at 54%. Nationally, retail rents were down 60-65% from peak in CY2010 and it was especially painful for developers to service loans, which were expensive at 12-13% p.a.


* Expected

Malls

Prime retail rents as of December 2012

Main Streets

Main Streets

Kolkata

Pune

`/sq ft per month

`/sq ft per month

Main Streets

Chennai

Nungambakkam High Road

Khadar Nawaz Khan Road

Cathedral Road - RK Salai

Usman Road - South

Usman Road - North

Adyar Main Road

Anna Nagar 2nd Avenue

Purusavakam High Road

Pondy Bazaar

Velachery

135

190

150

125

110

160

150

110

150

140

`/sq ft per month

Malls

Chennai - CBD

Chennai - Western

Chennai - South

300

230

200

Park Street

Camac Street

Elgin Road

Theatre Road

Gariahat

Shyambazar

Hatibagan

Kankurgachi

VIP Road

400

400

320

185

200

115

110

140

70

South Kolkata

Salt Lake

Rajarhat

Elgin Road

360

450

150

600

Malls

170

145

MG Road

JM Road

FC Road

Koregaon Park

Aundh

Bund Garden Road

325

350

220

150

160

150

MG Road

Bund Garden Road /Koregaon Park

90

150

Ganeshkhind Road

Nagar Road

Main Streets

NCR

`/sq ft per month

Khan Market

South Extension I & II

Connaught Place(Inner Circle)

Greater Kailash Iincluding M Block

Malls

Rajouri Garden

Karol Bagh

Kamla Nagar

DLF Galleria (Gurgaon)

Sector 18 (Noida)

1,250

725

650

550

180

375

350

575

225

South Delhi

West Delhi

Gurgaon

Noida

450

250

225

250

Main Streets

Mumbai

`/sq ft per month

Linking Road

Kemps Corner/Breach Candy

Colaba Causeway

Lokhandwala Andheri

Fort Fountain

Vashi

Thane

Malls

Lower Parel

Malad

Link road (Andheri West)

Mulund

Goregaon

Vashi

Ghatkopar

Thane

850

440

700

310

350

240

260

480

460

400

275

300

240

300

280


6.1. Government Initiative

lThe Government has recently announced 100% FDI in single-brand and 51% in multi-brand retail.

lThe Department of Industrial Policy and Promotion (DIPP) is likely to relax the sourcing norms for global retailers to establish shops in India.

lThe Union Minister of Finance has provided relief to the software industry, which is estimated at `18,000 crore ($3.25 billion), by replacing a multi-level structure of TDS on distributors with a single

33

TDS. This would be deducted by the first distributor, one who directly purchases packaged software from a developer.

lWhile allowing 51% FDI in multi-brand retail, the Cabinet has left the States free to implement or reject it. Only 11 States and Union Territories have so far confirmed that they want to allow FDI.

lAlthough, the Government has permitted 51% FDI in multi-brand retail, the announcement of fresh investments would require another 6-8 months as foreign retailers have a lot of ground-work to do before building retail stores, like freezing agreements with Indian retailers for the remaining

6.2. Foreign Direct Investment (FDI)

49% stake, acquiring Government approvals, identifying suitable locations for stores etc.

lAccording to DIPP, during April 2000 to December 2012, FDI inflows in single-brand retail trading amounted to $42.70 million.

lThough the FDI limit in single-brand retail was raised from 51% to 100% in January 2012, investments have failed to pick up in subsequent months.

lThe relaxation in FDI limits is expected to have a direct impact on the commercial real estate market. The entry of foreign retailers would not just address the high vacancy rates in the retail real estate, but also help in the growth of such segments in the future.

6.3. SWOT Analysis

Strengths

1. Major contributor to the GDP

2. High growth rate

3. High potential

4. High Employment generator

Opportunities

1. Emergence of nuclear families

2. Growing trend of double-income households

3. Increase in disposable income

4. Increase in expenditure for luxury items

5. Large working population

6. Low share of organised retailing

7. Growing liberalization of the FDI policy

Threats

1. Political issues

2. Lack of efficient supply-chain management

3. Lack of required retail space

4. No fixed consumption pattern

5. Shortage of trained manpower

6. Lack of proper infrastructure and distribution channels

Weaknesses

1. Lack of competition

2. Highly unorganised

3. Low productivity

4. Shortage of talented professionals

6.4. Outlook

lAccording to the IBEF, India remains a high potential market with accelerated retail growth of 15-20% over the next five years. The sector is expected to reach approximately $900 billion by CY2014.

lInvestment bank, CLSA expects the retail sector in India to witness a double-digit growth over the

next five years with hypermarkets and fast food outlets growing faster than the overall market.

lOrganised retail sector is just 8% in India as compared to 85% in USA. The low penetration level of the organised channel leaves significant headroom for growth. In particular, it is expected that hypermarkets and fast food formats will sustain five year revenue CAGR of 19-22%.


Retail penetration across countries

100%

0%

20%

USA

Taiwan

Mala

ysia

Thailand

Indonesi

a

China

India

40%

60%

80%

Unorganised Retail penetrationOrganised Retail penetration

Source: Aranca Research

15% 19%

45%60%

70%80%

92%85% 81%

55%40%

30%20%

8%

lAs per the estimates made by ASSOCHAM, the organised retail in urban market is expected to grow at a rate of 50% annually to reach a value of 30% of the total retail market in India by CY2013. Currently, the rural organised retail in India is at its nascent stage with a value of 2% of the total organised retail but the industry expects it to grow over 10% by CY2013.

lOnline retail business is another format, which has

high potential for growth in the near future. The online retail segment in India is growing at an annual rate of 35%, which would take its value from `2,000 crore ($429.5 million) in CY2011 to `7,000 crore ($1.5 billion) by CY2015. For instance, the Tata Group firm, Infiniti Retail that operates its consumer durables and electronic chain of stores under the 'Croma' brand is in the process of tapping net savvy consumers. Similarly, the Future Group that operates a dedicated portal 'Futurebazaar.com' for online sale has revealed that it is targeting at least 10% of the company's total retail sales through the digital medium.

lConsumer markets in emerging economies like India are growing rapidly. The retail industry is highly competitive because of ever changing consumer preferences and the need for market differentiation. The retail enterprises need to focus on costs throughout the consumer value chain because of proliferation of new products and categories together with ever increasing demand to optimise value chain.

35

7. Hospitality Real Estate7. Hospitality Real Estate

Structure of hotels and restaurants

Hotels and Restaurants

Non-Revenue generating departmentsRevenue generating departments

Purchase department, HR department, Accounts department, Security department, etc

Front office,supported by sales

Foods and Beverages Housekeeping Maintenance

Source: Primary Research and IMaCS analysis

The Indian hospitality industry has emerged as the key industry for driving growth of the services sector. The fortunes of the hospitality industry have always been linked to the prospects of the tourism industry and hence, the tourism is the foremost demand driver of the sector. Tourism in India is the largest service industry contributing up to 6.23% of the GDP and providing 8.78% of the total employment opportunity in India. The industry has recorded healthy growth fuelled by robust inflow of foreign tourists as well as increased tourist movement within the country. It has become one of the leading players globally. The country has also experienced a change in the consumption pattern. Increased affordability and affinity for leisure travel are driving tourism in India and in turn aiding to the growth of the hospitality industry. Additionally, hosting of international sports events and trade fairs & exhibitions in the country help both in the inflow of international and domestic tourists.

Foreign Tourist Arrivals (FTAs) also registered a steady growth. FTAs during the period January-March 2013 were 20.27 lakh with a growth of 2.3% as compared to the FTAs of 19.81 lakh during January-March 2012. Foreign Exchange Earnings (FEEs) from

tourism during January-March 2013 were `30,075 crore with a growth of 20.5% as compared to ̀ 24,968 crore during the same period of the previous year. Interestingly, the fall in the rupee in comparison with the dollar has also enhanced the foreign exchange earnings in the year.

In the last three years, foreign tourists' arrivals have increased by a CAGR of 7.2%. This is a marked shift in the arrivals of foreign tourists', which slowed down in 2009 but has picked up in the last three calendar years.

According to the Ministry of Tourism, the number of foreign tourists' arrivals has grown only by 8,73,000 in the last three years to reach 66,49,000 on December 31, 2012. Hence, for hotels, this growth would not translate into huge revenues as premium hotels derive 70% of total revenues from foreign tourists' arrivals.

During the quarter ended December 2012, hotels showed muted growth in their revenues. One of the prime reasons for this was dwindling foreign tourists' arrivals in December 2012, which otherwise provide strong revenues for hotels due to peak season.


Growth in foreign tourist arrivals (%)

10%

-2%FY2008-09

-1.6

5.8

9.18.5

4.25.2

FY2009-10 FY2010-11 FY2011-12 FY2012-13 FY2013-14(E)

0%

2%

4%

6%

8%

Source: CMIE E = Estimate

According to the survey by TripAdvisor, in FY2011-12 India was ranked fifth in the world for hotels with the best business outlook, while Greece was ranked last.

However, FY2011-12 was a period of resilience for the Indian hotel industry. Slowing Indian economy coupled with depressed global economic conditions posed a threat to the industry. In FY2011-12, hotel supply across major cities witnessed a growth of 15% y-o-y while demand surged by only 12% y-o-y. They were over 84,000 rooms available across the country

Supply of rooms and hotels in India

160

20

40

60

80

100

120

140

FY2005-06

FY2006-07

FY2007-08

FY2008-09

FY2009-10

FY2010-11

FY2011-12

Number of Rooms (000’s) Number of Hotels

Average Number of Rooms per Hotel

Source: HVS Research


600

500133

33

25

2

39

26

8

47

31

6

48

34

9

62

40

7

71

46

2

84

55

1

130 126 122 122 127

400

300

200

100

0

127

in FY2011-12, while the average occupancy was down to 59.1% compared to 60.6% in the FY2010-11. Cities offering the highest rooms supply were Mumbai (12,052), Delhi (10,697), Bengaluru (7,713), Pune (5,672), Chennai (4,904) and Hyderabad (4,797). The highest growth rate in terms of room supply was recorded in Bengaluru (up by 30%) followed by Chennai and Pune (up by 21% in both the cities).

Agra

Ahmedabad

Bengaluru

Chennai

Delhi

Gurgaon

Noida

Goa

Hyderabad

Jaipur

Kolkata

Mumbai

Pune

Other Cities

Total

Supply of rooms

FY2006-07 FY2011-12FY2010-11FY2009-10FY2008-09FY2007-08

1,336

519

2,414

2,442

7,990

N.A

N.A

2,450

1,868

1,388

1,354

7,402

777

9,345

39,285

1,336

675

3,456

2,826

9,019

N.A

N.A

2,768

2,554

1,556

1,396

8,454

1,346

11,596

46,982

1,419

800

3,889

3,307

8,625

N.A

N.A

2,795

2,761

1,683

1,373

7,948

1,518

12,357

48,475

1,439

1,521

5,597

3,806

8,129

1,980

300

3,288

3,782

2,472

1,520

9,877

2,672

15,412

61,795

1,439

1,785

5,947

4,066

9,111

3,246

351

3,375

4,036

2,554

1,588

11,303

4,691

18,039

71,531

1,739

1,975

7,713

4,904

10,697

3,782

527

3,885

4,797

3,054

1,787

12,052

5,672

21,729

84,313

Cities

During the last quarter of CY2012, foreign tourists' arrivals grew by only 3% y-o-y, which was far below the growth of 10% y-o-y in Q4 CY2011.

Besides this, the hotel industry is also battling with high supply and low demand situation in the industry. As such, the occupancy rate in the industry in the H1 FY2012-13 has come down to 54% from 56% on a y-o-y basis.

In India, medical tourism is a new untapped sector valued at more than US$ 310 million. Currently, India receives more than 100,000 foreign patients a year.

37

Another serious challenge the industry is currently facing is the inflation, which was recorded at 8.8% in FY2011-12. High inflation levels throughout the year resulted in increased overhead costs, which in turn decreased the net income by 3.1% y-o-y.

During FY2011-12, average tariff rates increased by 2.2% as compared to the previous year and occupancies declined slightly by 1.5% despite a double-digit growth in room supply across major cities.

In terms of average tariff rates, all markets witnessed a decline with Goa as an exception. Goa posted an 8.9% increase in average tariff rate in FY2011-12 over the previous year. Pune suffered the highest decline by about 11.3% over the previous year, reflecting the trade-off the city witnessed with an increase in its occupancy. Despite a 3.9% yearly decrease in average tariff rates, Delhi witnessed the highest average tariff rate in the country during FY2011-12 at `8,293. RevPAR (revenue per available room) witnessed a decline in all the cities in the country barring Goa, Ahmedabad and Kolkata.


Agra

Ahmedabad

Bengaluru

Chennai

Delhi

Gurgaon

Noida

Goa

Hyderabad

Jaipur

Kolkata

Mumbai

Pune

Average Room Rate (ARR) (`)

FY2006-07 FY2011-12FY2010-11FY2009-10FY2008-09FY2007-08Cities

4,715

3,526

10,406

5,378

9,192

N.A

N.A

5,801

5,962

5,285

5,288

8,738

6,523

5,262

4,351

9,827

6,340

10,429

N.A

N.A

6,255

6,271

5,664

6,575

10,932

7,946

5,322

4,754

9,495

6,677

9,811

N.A

N.A

6,271

6,297

5,982

6,686

10,679

7,493

5,773

4,540

6,597

5,710

8,834

8,247

7,496

5,613

5,146

4,539

6,087

8,428

5,810

6,243

4,285

6,776

5,632

8,634

7,554

7,752

6,056

5,173

4,718

6,408

8,194

4,949

5,998

4,057

6,400

5,551

8,293

7,438

7,035

6,598

4,954

4,675

6,281

7,988

4,388

In FY2011-12, the percentage of revenue from Foods & Beverages (F&B) including banquets increased to 38% from 37% in FY2010-11. Also, income from minor operating departments and rentals increased from 6% of total revenue to 7% in FY2011-12. This was essentially due to two reasons: the overall decline in room revenue as a percentage of total revenue in FY2011-12 and the increase in social events & corporate functions being hosted in hotels.

Revenue from different sources

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

100%

FY2007-08 FY2008-09 FY2009-10 FY2010-11 FY2011-12

Rooms F & B and Banquets Others

5%

33%

61%

5%

34%

60%

6% 6% 7%

38%37%38%

57% 57% 55%

Sources: FH&RA, HVS

FY2006-07 FY2011-12FY2010-11FY2009-10FY2008-09FY2007-08

Key operating occupancy

Overall Average

Five-star Deluxe

Five-star

Four-star

Three-star

71.40%

73.00%

70.20%

71.70%

68.90%

68.80%

71.70%

67.20%

68.90%

64.70%

59.50%

62.50%

58.50%

58.50%

56.20%

59.50%

61.60%

58.60%

60.30%

55.50%

60.60%

60.90%

61.90%

60.70%

58.50%

59.10%

59.90%

58.60%

61.00%

56.70%




Agra

Ahmedabad

Bengaluru

Chennai

Delhi

Gurgaon

Noida

Goa

Hyderabad

Jaipur

Kolkata

Mumbai

Pune

RevPAR (`)

FY2006-07 FY2011-12FY2010-11FY2009-10FY2008-09FY2007-08Cities

2,777

2,394

7,544

4,017

7,069

N.A

N.A

4,223

4,299

3,462

3,992

6,807

5,440

3,068

3,189

6,417

4,616

7,707

N.A

N.A

4,516

4,120

3,665

4,859

8,155

5,522

2,790

2,908

5,181

4,210

6,600

N.A

N.A

3,829

3,515

3,234

4,648

6,473

4,661

3,227

2,642

3,509

3,546

6,034

5,443

5,547

3,654

2,743

2,601

4,108

5,268

2,957

3,758

2,327

3,957

3,785

5,932

5,023

6,256

4,100

2,954

2,722

4,377

5,113

2,311

3,389

2,426

3,635

3,703

5,133

4,775

4,411

4,493

2,685

2,604

4,485

5,096

2,220



FY2006-07

FY2006-07

FY2011-12

FY2011-12

FY2010-11

FY2010-11

FY2009-10

FY2009-10

FY2008-09

FY2008-09

FY2007-08

FY2007-08

ARR (`)

Revenue per available room (`)

Overall Average

Overall Average

Five-star Deluxe

Five-star Deluxe

Five-star

Five-star

Four-star

Four-star

Three-star

Three-star

7,071

9,778

6,506

5,111

3,012

7,989

11,200

7,652

5,722

3,488

7,722

11,096

7,268

5,745

3,530

6,489

9,277

6,410

4,638

3,255

6,513

9,350

6,380

4,905

3,348

6,257

9,192

6,016

4,777

3,349

5,049

7,138

4,567

3,665

2,075

5,496

8,030

5,142

3,942

2,257

4,598

6,933

4,250

3,362

1,985

3,861

5,715

3,756

2,797

1,806

3,947

5,694

3,949

2,977

1,959

3,698

5,506

3,525

2,914

1,899

39

FY2011-12FY2010-11FY2009-10FY2008-09FY2007-08

All India Average

Composition

Average occupancy

Average room rate (`)

68.80%

7,989

59.50%

7,722

59.50%

6,489

60.60%

6,513

59.10%

6,257

Amount per occupied room (`)

Revenue

Room

Foods & Beverages

Banquets & Conferences

Telephone & Other

Minor Operated*

Rental & Other Income

Total

4,605

1,910

609

44

195

161

7,524

4,487

1,900

656

42

166

167

7,418

4,149

2,098

650

41

206

179

7,323

4,578

2,161

772

39

210

249

8,009

4,677

2,367

880

33

261

258

8,476

Departmental Expenses

Room

Foods & Beverages

Telephone & Other

Minor Operated*

Rental & Other Income

Total

Departmental Income

740

1,303

48

118

24

2,233

5,291

666

1,412

33

116

16

2,243

5,175

708

1,541

37

135

16

2,437

4,886

739

1,550

41

148

28

2,506

5,503

844

1,849

31

150

19

2,893

5,583

Operating Expenses

Administrative & General

Management Fee

Marketing

Franchisee Fees

Property Operations & Maintenance

Energy

Total

House Profit

559

184

221

33

366

546

1,909

3,382

643

201

202

39

400

632

2,117

3,058

663

190

189

37

419

653

2,151

2,735

771

225

300

24

482

679

2,481

3,022

863

231

265

46

473

736

2,614

2,969

Fixed Expenses

Property Taxes

Insurance

Other Fixed Expenses

Rent

Total

EBITDA

EBITDA %

45

24

69

91

229

3,153

41.9

46

21

84

99

250

2,808

37.9

56

25

104

73

258

2,477

33.8

70

26

222

110

428

2,594

32.4

61

24

127

95

307

2,662

31.4

Source: HVS Research*Minor operated departments include laundry, gift shop, business centre, news stand, sports, health club, garage, parking and so forth

7.1. Outlook

FY2012-13 started on a weak note for the Indian hotel industry with RevPARs shrinking by 5-8% y-o-y during the first quarter due to declining room and occupancy rates. New Delhi has been one of the worst performing markets in India with RevPARs in May 2012 compressing by as much as 25% y-o-y.

Globally weak macroeconomic scenario, the European sovereign debt crisis, geo-political turmoil in the Arab countries, high interest rates, inflation and a muted domestic corporate performance have

sapped the industry's ability to sustain inflation adjusted average room realizations. Muted ARRs and high costs have led to one of the weakest nine-month periods (April-December 2012) in over five years. ICRA expects ARR growth during FY2012-13 to be limited to around 5% y-o-y and a little better at around 5-8% y-o-y during FY2013-14. ICRA expects demand growth in the industry to weaken by 5-6% y-o-y during FY2012-13. With supply addition of over 13-15% y-o-y expected across key markets in the premium room segment, ICRA expects y-o-y change in the average room rates (in the premium segment) to


range between -5% and 5%. The current down cycle in the Indian hotels industry has been longer than anticipated. While the global economic uncertainties continue to hamper demand growth, supply additions in several markets is impacting the industry's ability to hike tariffs.

However, the longer-term prospects of the industry remain robust, given that it can absorb significant capacity additions in a scenario of robust economic growth.

We continue to believe that there are significant opportunities across hotel positioning in the MICE (meetings, incentives, conventions and exhibitions) segment. While they wait for the development of full-fledged convention centers across various cities, hotel developers are increasingly taking matters into their own hands and building hotels with extensive meeting and conference facilities. The ITC Grand Chola in Chennai and the Sheraton and Vivanta by Taj in Bengaluru are some of the examples of this phenomenon. We believe that there is a need for meeting and conferencing facilities across tier I and tier II cities and investors should look into the potential of this segment in their respective markets and capitalise on the opportunities.

Environmental sustainability in hotels has quickly transformed from an optional philanthropic activity to one that bears close scrutiny in order to control spiraling operational costs. Where utility cost stands at 7-9% of a hotel's operational expenses, the number is getting bigger given the increasing demand of electricity from power plants and rapidly declining water availability, especially in India. An investment

in environmental sustainability has returned several times over in terms of instantaneously reduced operational costs, stable utility rates and guaranteed availability of resources in the upcoming years. A 10-20% reduction in energy consumption can be readily achieved through no-cost and low-cost measures and can amount to a considerable margin.

Upcoming industrial parks, manufacturing facilities and ports across the country are expected to provide good opportunity for hotels. Although around 100,000 additional rooms are expected to come up in India in the next five years, the supply of quality rooms in India is much lower compared to other countries across the globe. The increase in room inventories is expected to make the hotel industry more competitive and hotels would be under pressure to maintain quality and service levels at competitive prices. Competitive pricing amongst the branded hotels along with the addition of more budget and mid-market hotels would make the hotel industry cost competitive with other destinations.


FY2000-01 FY2011-12 FY2016-17*

160,000

140,000

120,000

100,000

80,000

60,000

40,000

20,00024,905

84,313

138,227

0

Supply of rooms

Source: HVS Research *expected

Agra

Ahmedabad

Bengaluru

Chennai

Delhi

Gurgaon

Noida

Goa

Hyderabad

Jaipur

Kolkata

Mumbai

Pune

Other Cities

Cities

Proposed supply across cities

ExistingSupply in

FY2011-12

1,739

1,975

7,713

4,904

10,697

3,782

527

3,885

4,797

3,054

1,787

12,052

5,672

21,729

Proposed AdditionalSupply in

FY2012-13-FY2016-17

650

2,550

9,716

7,547

5,626

5,818

5,522

2,422

5,265

3,356

3,118

10,896

4,645

26,224

Increase inFutureSupply

37%

129%

126%

154%

53%

154%

1048%

62%

110%

110%

174%

90%

82%

121%

ActiveDevelopment

of Supply

80%

69%

71%

58%

87%

55%

37%

53%

74%

52%

74%

47%

69%

48%

Luxury

20.0%

9.8%

20.0%

19.9%

18.4%

23.2%

32.5%

4.3%

12.4%

3.3%

21.6%

30.0%

12.2%

0.7%

Upscale

0.0%

39.4%

31.2%

19.3%

31.8%

38.3%

39.8%

4.5%

28.5%

51.1%

30.5%

22.3%

24.3%

29.3%

Mid Market

80.0%

26.9%

23.4%

32.9%

33.8%

20.7%

10.6%

40.5%

35.0%

26.3%

47.9%

32.4%

36.4%

49.0%

Budget

0.0%

23.9%

17.0%

22.6%

16.0%

15.6%

11.9%

45.5%

17.3%

19.3%

0.0%

9.8%

25.5%

21.0%

ExtendedStay

0.0%

0.0%

8.4%

5.3%

0.0%

2.2%

5.2%

5.2%

6.8%

0.0%

0.0%

5.5%

1.6%

0.0%

41

Indian Hospitality now-a-days is not limited to leisure activities only. Medical tourism is making great buzz with projected growth rate of 30% annually. Spiritual, rural, adventure, MICE, ecotourism, cultural and wildlife tourism are other different faces of hospitality in India. The large landmass, vivid topography, diverse culture & heritage and one of the world's fastest growing economies are the factors which are together contributing exceedingly in Indian tourism.

Further, Indian Government has allowed 100% FDI in hospitality sector. With an estimation of tremendous development in domestic tourism, the concerned department has given its nod for FDI in various sectors of hospitality including airport expansion projects, building of hotels and resorts, improvement

and addition in recreational facilities, infrastructure development etc. Those organizations that set up convention centers, hotels and resort will be endowed with incentive of tax holidays for five years. Hence, many internat ional brands l ike Marriott International, Hilton, Cabana Hotels have already revealed their major expansion plans in India. According to industry sources, automatic route of 100% FDI narrows the gap between demand and supply of hotel rooms along with better facilities. The Indian hospitality sector is expected to witness strong performance backed by proactive improvements by the Government in licensing and development policies, which will further facilitate growth of the industry and make India a strong and much improved competitor in the global arena.


8. Peer Analysis8. Peer Analysis

Snapshot of key financials of major companies inthe Indian real estate industry for the FY2011-12

HDILSobhaDeveloper

Unitech OMAXEDLF

Net Sales

Other Income

Total Income

Manufacturing Expense

% of Net Sales

Earnings Before Interest,Depreciation & Tax (EBITDA)

% of Net Sales

Earnings before Interest & Tax (EBIT)

% of Net Sales

Interest & Financial Charges

Profit Before Tax (PBT)

% of Net Sales

Tax

Tax %

Profit After Tax (PAT)

Net Profit Margin %

Earnings Per Share (`)

Total Debt

EBIDTA/Debt

Debt-Equity Ratio

Interest Coverage ratio

3,491.32

1,091.34

4,582.66

932.88

26.72%

3,201.31

91.69%

3,061.47

87.69%

1,553.78

1,500.53

42.98%

458.77

30.57%

1,041.76

29.84%

6.13

11,975.12

0.27

0.83

1.97

1,396.51

462.70

1,859.21

828.22

59.31%

440.18

31.52%

401.40

28.74%

106.17

295.23

21.14%

94.39

31.97%

200.85

14.38%

20.48

221.78

1.98

0.11

3.73

1,287.91

488.68

1,776.59

831.16

64.54%

745.97

57.92%

739.19

57.39%

279.94

489.78

38.03%

132.68

27.09%

326.71

25.37%

1.25

2,515.85

0.30

0.27

8.76

1,332.66

16.23

1,348.89

1,046.88

78.56%

210.07

15.76%

205.21

15.40%

128.13

77.08

5.78%

14.19

18.41%

62.9

4.72%

3.62

669.36

0.31

0.4

1.91

917.42

756.53

1,673.95

592.95

64.63%

1,002.15

109.24%

993.71

108.32%

578.33

424.94

46.32%

28.41

6.69%

386.96

42.18%

9.24

2,387.50

0.42

0.27

2.35

Source: Moneycontrol

(` crore)

43

9. The Way Forward 9. The Way Forward

Few initiatives like the introduction of FDI in the multi-brand retail and the Land Acquisition and Real Estate Regulation bills coupled with the expectation of lower interest rates by RBI would help in driving consumer confidence and sentiments.

The changes happening will definitely have an impact in all the sectors of real estate in India whether it is commercial, residential or retail. It is expected that CY2013 will be a much better year than previous years.

With the economy expected to improve during CY2013, demand for residential projects will be on

the upswing. Moreover, the influx of FDI will start to take effect in CY2013. The demand for both commercial and retail spaces will increase as international companies will be vying for space in the Indian market.

Since the economy is on an upward trend with huge potential in retail consumption, global companies who stalled their plans of expansion due to recession are now looking at entering India.

Overall, a positive outlook is in store for the real estate sector going forward, especially in the tier II and tier III cities.


Disclaimer:contained, we do not represent that it is accurate or complete and do not take liability for errors or omission. LSI Financial Services Pvt Ltd shall not be liable for any direct or indirect damages that may arise due to any act or omission on the part of the user due to any reliance placed or guidance taken from any portion of this report.

This report is based on publicly available data and other sources that we consider reliable. While every effort is made to ensure the accuracy and completeness of information

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