CBREInvestmentIndia-3

8/10/2019 CBREInvestmentIndia-3

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ASIA PACIFIC

INVESTMENT GUIDEINDIA


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KEY MARKETS

New Delhi, Mumbai andBangalore are the country'smajor business hubs and the

main markets for commercialreal estate. Tier II cities includingChennai, Hyderabad, Pune andKolkata are also beginning toattract attention from investors

Modern I.T. office space and Grade Aoffice buildings in core markets

Foreign private equity groups arealso investing as fund providers fordevelopers or participating in residentialdevelopment in joint ventures with localpartners

There have not yet been any major

investments by foreign capital in theretail and industrial sectors

TYPICAL INVESTMENTGRADE ASSETS

The market is dominated by domesticdevelopers, high-net-worth individualsand domestic companies in primelocations

Major developers include DLF,Unitech, Oberoi Realty, Prestige EstateProjects, Godrej Properties, SobhaDevelopers, DB Realty and Indiabulls

Real Estate Foreign investors can invest in

greenfield developments which aremainly in new emerging areas. Underconstruction properties (built upto acertain limit) are also considered asgreenfield

MAJORPLAYERS

Rapid urbanisation is creating strongdemand for modern residential andcommercial real estate

Current and future improvementsto infrastructure will stimulate thedevelopment of new commercialsubmarkets

Although foreign investment in real

estate is still limited by ownershiprestrictions, these will gradually berelaxed in the coming years

MARKETSTRENGTHS

NEW DELHI

MUMBAI

PUNE

HYDERABAD

KOLKATA

CHENNAIBANGALORE

Prepared in April 2013


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1ASIAPACIFICINVESTMENT GUIDE |INDIA

COUNTRY OVERVIEW

India is the second most populous country in the world with over 1.2 billion inhabitantsand the tenth-largest economy in the world by nominal GDP. Average GDP growth in thedecade up to 2012 reached approximately 7.8% p.a. and the economy is expected to

grow at a similar pace over the next ten years.

Economic growth has been led by the services sector comprising sub-sectors includingtrade, hotels, transportation, communications, financial institutions and real estate,which together contribute approximately 59% to overall GDP. Industry contributes about27% and agriculture contributes about 13.7%. The services sector is led by the exportof Information technology and business process outsourcing services. According to TheNational Association of Software and Services Companies (NASSCOM) Indias IT-BPOsector generated over US$100 billion of aggregate revenue for FY 2012, at an annualgrowth rate of more than 14%. India accounted for approximately 58% of the globaloutsourcing industry in 2011 as its large pool of low cost English speaking labourcontinued to attract investment from western multinationals. Around 90% of workers in the

industry are based in Bangalore, Chennai, Delhi, Mumbai, Hyderabad, Pune and Kolkata.The growth of the IT-BPO sector has been the key demand driver behind the expansionof the Indian commercial real estate sector. The IT-BPO sector is the biggest user of officespace in the country and occupies around 70% of all office stock nationwide, including ITparks and special economic zones.

The investment grade commercial office real estate in the country stood at around 365million sq. ft.as of the end of 2012, with another 80-90 million sq. ft. scheduled to becompleted by 2015-16.

INDIAKEY FACTS

Land area3,287,590 sq km

Population1,210 million

LanguageEnglish, Hindi

Currency (2012, Period average)*Indian Rupee(US$1=INR 54.83)

GDP (nominal, 2012) *US$1,815 billion

Ranking in easeof doing business#132 out of 185(2013)

*Source: Oxford Economics estimate

Global prime office occupancy cost (as of Q3 2012)

0 50 100 150 200 250

Global RankMarket

US$ psf annum

1

2

3

5

11

13

14

15

16

19

22

25

26

47

72

97

Hong Kong (Central)

London - Central (West End)

Toyko (Marunouchi Otemachi)

New Delhi (Connaught Place - CBD)

Mumbai (Bandra Kurla Complex)

Paris Ile-de-France

Sydney

Shanghai (Pudong)

New York (Midtown Manhattan)

Singapore

Washington DC (Downtown)

Mumbai (Nariman Point - CBD)

San Francisco (Downtown)

Frankfurt am Main

New Delhi (Gurgaon)

Bangalore (CBD)

Source: CBRE


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2 ASIAPACIFICINVESTMENT GUIDE |INDIA

LAND SYSTEM

Types of land use tenure

The land system in India is state governed with two types of land ownership adopted:

freehold and leasehold. Freehold land is subject to the zoning usage designated bythe development plan and there are no restrictions to sell or transfer. The governmentallots the freehold land to Indian citizens or social institutions and the allotment rate isdetermined by the government on the basis of regional land use. The central bank hasstipulated that a foreign national of non-Indian origin (a resident outside India) cannotpurchase any immovable property in India unless such property is acquired by way ofinheritance from a person who was resident in India. However, he / she can acquire ortransfer immovable property in India, on lease, not exceeding five years. In such cases,there is no requirement of taking any permission of /or reporting to the central bank.Moreover, no person being a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan,China, Iran, Nepal or Bhutan without prior permission of the central bank shall acquire ortransfer immovable property in India, other than lease, not exceeding five years.

For leasehold land, the land use or occupation is granted by the government for a specificlease term generally ranging from 90 to 99 years. The tenant is required to pay a leasepremium and an annual lease rent as fixed to the government. Leasehold land cannotbe transferred theoretically. However, it may be transferred upon the approval of thegovernment with a transfer fee charged by the government based on the zoning and theland location.

Land sales system

The Indian government allots land through a public auction or tender. The ownership ofland (whether government or private), as mentioned previously does not extend to non-resident foreign nationals (with limited exceptions). A foreign company, moreover, (havingan established branch office or other place of business in India), in accordance with theForeign Exchange Management (establishment in India of branch or office or other placeof business) Regulations, 2000, can acquire any immovable property in India, which isnecessary for or incidental to carrying on their activity. In addition, under the proposedLand Acquisition, Rehabilitation and Resettlement Bill, an investor will be able to acquireland of area equal to or more than 100 acres in rural areas or equal to or more than 50acres in urban areas through private negotiations with the land owner. The governmentrecently eased the minimum land requirement norms for SEZs, reducing requirements formulti-product SEZs from 1,000 ha to 500 ha and for sector specific SEZs to 50 ha.

Land use

Land development for state owned or privately held land is subject to the development

plan prepared by the development authority of the city. The plan states developmentguidelines such as zoning uses, height restrictions, ground coverage and plot ratio ofthe land plot. The plot ratios vary across cities and are based on the permitted use,size, context and approach roads, as well as the location in a city. The proposed usageshould be in accordance with the defined zoning in the development plan for the area.Modification of land usage is permitted subject to prior approval by the local governmentand conversion charge imposed by the development authority.

Property ownership

Most recent transactions in India have been strata-title, with markets such as Gurgaon andMumbai witnessing active investor interest in commercial property ownership. However, thereare instances of investors acquiring entire commercial assets. Prime commercial assets can

also be held in multiple structures - single ownership, joint ownership, etc.


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FOREIGN INVESTMENT

Foreign ownership restriction

Foreign investors are allowed to have up to 100% ownership under the automatic route

in the development of townships, housing, built-up infrastructure and construction ofdevelopment projects, which includes but is not restricted to residential, commercialpremises, hotels, resorts, hospitals, educational institutions, recreational facilities, city andregional level infrastructure. Under the automatic route, foreign investors do not requireany approval from government but they are subject to the fulfillment of the followingconditions:

Area restrictions: For construction development projects mentioned above, the minimum builtup area is 50,000 sq. m.; for the development of service housing plots, the minimum land area is10 ha

Capital stipulations: The minimum capital contribution for wholly owned subsidiaries isUS$10 million while the capital contribution for joint ventures with Indian entities is US$5 million.The funds have to be brought in within six months of the commencement of business of thecompany

Time restrictions: At least 50% of the project should be constructed within 5 years from thedate of obtaining all government approvals. Original investments cannot be repatriated withinthree years after completion of the minimum capital contribution requirement, unless the investorobtains prior government approval

However, buying and selling of developed commercial and residential properties isprohibited for foreign investors. Also, they are not allowed to buy and sell undevelopedland where infrastructure and utilities have not been built.

Incentives to foreign investors

The Indian government provides tax incentives for investors developing and operatingindustrial parks, hotels and healthcare facilities. The government also provides taxtreatment for companies in special economic zones to promote foreign direct investment.

Currency control

There is no restriction on foreign currency exchange but there are certain restrictionson repatriation. The original investment in development projects cannot be repatriateduntil at least three years after fulfilling the minimum capitalisation criterion (unlessprior government approval has been received for early exit). The sale proceeds of acommercial/residential property (after deducting tax) can be repatriated after three yearsfrom the date of acquisition of the property or from the date of payment of final installmentof consideration amount for the acquisition, whichever is later. Moreover, the government

has restricted the repatriated amount to the extent of the amount paid for the acquisitionof the property in remitted foreign currency through normal banking channels.


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4 ASIAPACIFICINVESTMENT GUIDE |INDIA

PROPERTY TAXES

Taxation on owners

Property Tax

Property tax is levied at a certain percentage of the ratable value of property except thevacant land plot. The local government determines the ratable value depending on theusage. If the property is leased, the ratable value is computed based on the actual rent. Ifthe property is self-occupied, the value is based on the comparable rent that the propertycan achieve. The tax is payable by the property owner.

Taxation on transfer

Stamp Duty

Stamp duty is levied on the transacted price and is generally payable by buyers or lesseesof properties. The tax rate ranges from 4% to 8% for major cities such as Mumbai, NewDelhi, Bangalore and Chennai. Every state in India has a different set of criterion to

calculate stamp duties.

Registration Fees

Registration fees are levied at 1% of the transaction value and payable by the buyer.

Capital Gains Tax

Capital gains tax is levied on the profit realised from property transactions and payable bythe seller. The tax is divided into two types, namely short-term and long-term. The short-term tax is applicable to the property with a holding period of less than 3 years with a taxrate of 15%. The long-term tax is applicable to the property with a holding period 3 yearsor more with a tax rate of 20%. However, an individual can be exempt from the capitalgains tax if the proceeds from selling a residential property is being reinvested in anotherresidential property. However, the new residential property has to be purchased withinone year prior or two years after the sale of original house property. Alternatively, the newresidential property has to be constructed within three years after the sale of original houseproperty. The new property cannot be sold for a period of three years.


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TYPICAL LEASING TERMS

TYPICAL SALE AND PURCHASE TERMS

Rent quotationINR/sq ft/month; can be quoted based on gross area, carpet area or saleable area; servicecharges and management fees are excluded in the rent

Lease termOffice: 5 years (3+2), 6 years (3+3), 9 years (3+3+3)Retail: 9 years (3+3+3)Industrial Land: 10-90 yearsLogistics: 1-10 years

Frequency of payment Monthly in advance

Free rent 1-2 months rent (with a maximum of 90 days)

Deposit 2-6 months rent

Rent reviews Escalates 15-20% every three years or fair market rental at renewal

RenewalsMultiple options with renewal twice (3+3) of the prevailing lease term at the prevailing marketrate

Right to sublet Requires landlord consent but rare (allowed for subsidiaries/affiliates excluding third parties)

Breaks After lock-in period with 3-6 months notice

Fit-out Depends on the space condition; the tenant usually pays

Agent feeNormally 1-1.5 months net rent from tenant and 1-1.5 months net rent from landlord; with amaximum of 2-3 months rent

Price quotation INR based on gross area, carpet area or salable area

Agent fee 1-2 % of the transacted price and payable with additional service tax at 12.3%. Each party bearsits own agent fees

Legal fee Legal fee is negotiable plus additional service tax at 12.3%; each party bears its own legal fee

Tax on transactionBuyer is liable for Stamp Duty and Registration Fees while seller is liable for Capital Gains Taxwhen making a profit on the sale (with indexation benefits)

Loan terms15-year to 20-year terms, maximum of 80% LTV ratio (for residential properties) and 65-70%(for commercial properties)

Borrowing rateTypically based on Floating Reference Rate or Prime Lending Rate plus a mark-upPrime lending rate for Commercial: 12.5-14.5%Prime lending rate for Residential: 11.75-12.5%

Mode of payment

Repayment with recourseLoans are repaid generally through the following method:EMI (equated monthly installment): a fixed amount which is paid every month towards the loancomprising of the principal repayment and interest payment through post-dated cheques (PDCs)or Electronic Clearing System (ECS)


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CONTACTS

ASIA PACIFICINVESTMENT PROPERTIES

INDIAINVESTMENT PROPERTIES

ASIA PACIFICRESEARCH

Nikhil BhatiaCo-headCapital Markets, India#202/203, 2/F, Naman CentreG-Block, Bandra Kurla ComplexBandra (E), Mumbai 400 051,IndiaT: +91 22 4069 0200E: [email protected]

Gaurav Kumar

Co-headCapital Markets, India#202/203, 2/F, Naman CentreG-Block, Bandra Kurla ComplexBandra (E), Mumbai 400 051,IndiaT: +91 22 4069 0200E: [email protected]

Nick AxfordHead of Research, Asia Pacific4/F, Three Exchange Square8 Connaught PlaceCentral, Hong KongT: +852 2820 8198E: [email protected]

Ada ChoiDirector, Asia4/F, Three Exchange Square

8 Connaught PlaceCentral, Hong KongT: +852 2820 2817E: [email protected]

INDIA RESEARCH

Abhinav JoshiGeneral Manager19/F, DLF Square, M BlockJacaranda Marg, DLF CityPhase IIGurgaon, 122 022, India

T: +91 12 4465 9819E: [email protected]

Global Research and Consulting

This report was prepared by the CBRE APAC Research Team which forms

part of CBRE Global Research and Consulting a network of preeminent

researchers and consultants who collaborate to provide real estate market

research, econometric forecasting and consulting solutions to real estate

investors and occupiers around the globe.

Greg PennManaging DirectorCapital Markets, Asia4/F, Three Exchange Square8 Connaught PlaceCentral, Hong KongT: +852 2820 2857E: [email protected]

Reid MackayExecutive Director

Capital Markets, AsiaCEA Reg No.: R047931H6 Battery Road #32-01Singapore 049909T: +65 6326 1225E: [email protected]

Rick ButlerSenior Managing DirectorCapital MarketsInternational Investments,Australia

Level 21, 363 George StreetSydney NSW 2000T: +61 29333 3324E: [email protected]

Marc GiuffridaExecutive DirectorCapital MarketsInternational Investments, Asia6 Battery Road #32-01Singapore 049909T: +65 6229 1154E: [email protected]


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2013 CBRE Group, Inc. The investment guide only provides a brief summary of major property related

issues and taxes associated with the acquisitions, disposition, transfer and possession of real estate assets.

CBRE Limited confirms that information contained herein has been obtained from sources believed to

be reliable. While we do not doubt their accuracy, we have not verified them and make no guarantee,

warranty or representation about them. Any projections, opinions, assumptions or estimates used are for

example only and do not represent the current or future performance. It is your responsibility to confirmindependently their accuracy and completeness. This information should not be used as a substitute for

consultation with independent professional advisors and is presented exclusively for use by CBRE clients

and professionals and all rights to the material are reserved and cannot be reproduced without prior

written permission of CBRE.

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