C&W The Metamorphosis

20
Changing Dynamics of the Indian Realty Sector THE METAMORPHOSIS

Transcript of C&W The Metamorphosis

Page 1: C&W The Metamorphosis

Changing Dynamics of the Indian Realty Sector

THE METAMORPHOSIS

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TABLE OF CONTENTS

INTRODUCTION

CHANGING DYNAMICS OF THE REAL ESTATE SECTOR

DEMAND FORECAST

REAL ESTATE SECTORAL OPPORTUNITIES

REAL ESTATE INVESTMENT SCENARIO

CONCLUSION

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India is facing a cyclical downturn in its economy at present; but we believe this phase to be a short one. Though recent downturns in investment activity have contributed to the overall deceleration in manufacturing and construction, this in no way indicates a long-term slowdown. The country's strong economy coupled with existing domestic demand in the realty sector will continue to attract investments. In this paper Cushman & Wakefield Research projects the robust demand of the

Indian real estate sector for the next five years,

highlighting the current investment scenario with its

challenges and sectoral opportunities.

The country's economy has been growing at an average rate of 8.8% in the last four fiscal years (2003-04 to 2006-07), with the 2006-07 growth rate of 9.6% being the highest in the last 18 years. The industrial and service sectors have been contributing significantly to this effect. Projections made by the International Monetary Fund (IMF) earlier this year indicated that global growth was expected to slowdown to 4.1% in 2008 – down from estimations of 4.9% made last year, due to intensified market conditions led by the U.S. sub-prime crisis. It is however expected that the strong domestic demand from emerging markets, such as India and China, will

lessen the impact on capital inflows by positively affecting

world economic growth.

India's GDP growth for the current fiscal year is expected to be in the range of 7.5-8.0% which is an impressive figure by itself though down from earlier expectations of 9.0%. This is

essentially due to the tight monetary measures that have been

called in to control the country's inflation rate, which has reached a 13-year high. The average growth of the economy for the last five years has been impressive; but such a

continuing growth pattern cannot be predicted for the next

five-six years, considering the general global economic slowdown and oil price crisis. Though certain economists argue that India is isolated and 'Decoupled' from global

uncertainties, present market realities indicate otherwise.

Despite the global slowdown, India is expected to be the

second fastest growing economy in the Asia Pacific. India's

long-term growth story continues to remain intact, against the backdrop of an increase in FDI over the last fiscal year, which

stood at USD 24 billion. According to the Department of Industrial Policy and Promotion (DIPP), the country is

INTRODUCTIONexpected to receive USD 35 billion of FDI in the current fiscal

year, with the first quarter having attracted USD 10 billion. A

sizeable portion of this FDI inflow went into the real estate and

housing sectors, with services and infrastructure being other

the recipient sectors.

According to ASSOCHAM, currently the domestic real estate

market in India is expected to be USD 15 billion, of which

FDI contributions are estimated to be less than USD 4 billion.

With the gradual relaxation of ceiling in construction space permitted to foreign developers, the share of FDI in real estate is expected to increase manifold over the decade. A growing trend also points to an increasing number of global direct real estate investment deals that are going through India-specific real estate funds, rather than taking the FDI route.

According to Cushman & Wakefield research estimates, the

pan-India cumulative demand projection for the real estate

sector across office, residential, retail and hospitality is

expected to be approximately 1,098 million sq.ft. by the year

2012. The residential segment will continue to drive real

estate demand in the country accounting for nearly 63% of the

total space demand during the period 2008-12. While the

demand for commercial office space is expected to be 243

million sq.ft. during this time frame, the retail and hospitality

segments are expected to constitute 95 million sq.ft. and 73

million sq.ft. of this total demand, respectively.

India Snapshot

?Real GDP Growth 2007-08: 9.10%

?Projected Real GDP Growth: 7.5-8.0%

?GDP as per Economic Activity: ¡Trade, hotels, transport and communication –

12.0% ¡Financing, insurance, real estate & business

services – 11.8%¡Construction – 9.8%

?India ranked #2 in the Global Retail Development Index 2008

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CHANGING DYNAMICS OFTHE REAL ESTATE SECTOR

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Ever since India's inflation rate accelerated to 11% in June

2008, peaking since the mid '90s, fears of a spectre of the

1995 scenario loomed large. Thirteen years ago India's

economy presented eerie similarities with circumstances today,

leading to current and popular speculations of a 1995 revisit.

After hovering at around 1.4% during 1991-92, the GDP

growth rate had shot to 6.4% in 1994-95 depicting increased

confidence in the economy post liberalisation. This resulted in

many firms (including those in the realty sector) to embark

upon expansion plans, encouraging them to go in for huge

investment outlays. The euphoria, however, did not last long and the country was confronted with double-digit inflation of over 11% during April-May 1995. Much like today, the RBI

had hiked interest rates to contain inflation that point in time

as well. On the realty front, the property market had crashed,

creating widespread turmoil as demand and money supply

witnessed constraints. Faced with a severe liquidity crunch,

companies had found it difficult to fund their ambitious plans

and by 1997-98, India's economic growth had fallen to a

growth rate of 4.3%.

Thirteen years later the situation looks apparently similar or worse considering the general global economic slowdown and the oil price crisis. The economy was growing at 9% per annum; Forex reserves had risen to over INR 300 billion; the dollar-rupee conversion stood at less than INR. 40 to a dollar.

But by mid-June 2008 inflation hit the country with double

digit figures (for the week ended 6th September 2008, the inflation rate stood at 12.1%). Food prices and those of other essential commodities like steel and cement went soaring,

with little signs of coming under control.

There has been a progressive slowdown in the sale and lease of

real estate since early 2008 across the residential, commercial

and retail segments. Demand has moderated with the sharp increase in real estate prices, coupled with rising interest rates that have made housing loans increasingly unaffordable for the

common man. The RBI's decision to yet again raise the repo

rate and cash reserve ratio have caused tightening of liquidity for developers and put a dampener on end-user demand by

putting pressure on home loan rates.

But despite all such apparent similarities, it would be unfair to

liken the economy's performance in 2008 with that in 1995.

The economy continues to remain strong in comparison to

that in the mid-'90s. Consumption demand too has remained

strong despite dire predictions. The savings rate is at a high of

35%; and as interest rates rise, the likelihood of investors to

save money will rise too. Taken together, that should help the

economy to sustain a growth rate in the range of 7.5-8.0%.

This in comparison to the 6.4% GDP growth rate in 1994-95

followed by its fall to 4.3% during 1997-98 makes the current

situation rather different.

Indian Economy: Then & Now

Returns from Various Financial Instruments 1995¹ 2008²

Bank deposit rates (1-3 year deposits) 11.50 9.50

Post office deposit rates (1-3 year deposits) 10.50 - 12.50 6.25 - 7.50

NSC* 12.00 8.00

Kisan Vikas Patra** 13.43 8.25

PPF 12.00 8.00

PF 12.00 8.50

91-day treasury bill 12.60 8.81

364-day treasury bill 12.00 9.17

10-year treasury bill 13.99 9.13

Corporate bonds NA 10.50

Source: RBI's Handbook of Statistics on the Indian Economy

¹ Inflation rate as on 6th May 1995 was 11.11%

² Inflation rate as on 8th August 2008 was 12.44%

* National Savings Certificate

** Maturity period in 1995 was 5.5 years, now it is 8.7 years

Interest Rates (%)

0

1

2

3

4

5

6

7

8

1970-71 to 1991(pre-reform)

1992-93 to2007-08

1992-93 to1999-00

2000-01 to2007-08

GDP Growth (%) Per Capita Growth (%)

Source: Confederation of Indian Industry (CII)

Gro

wth

(%)

Economic Performance of India

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Even if one goes by the differences in GDP composition between then and now, the increase in the share of the services

sector is glaring while the industry segment has remained

more-or-less constant and the agricultural sector has declined.

With the services segment comprising sub-segments like

trade, hotels and restaurants, real estate, banking and

insurance, etc., the growth of the segment clearly indicates a

space demand for commercial office, retail and hospitality

verticals.

It is important to reiterate that with a moderate growth rate predicted for the time being, the real estate sector will revert

1995-96 2007-08

Agriculture Industry Services

28%

28%

44%

18%

29%

53%

GDP Composition: Then & Now

to its strong uptrend over the long term, performing in line with the overall economy. The long term robustness of

demand for real estate in India will remain intact and we will

probably see resurgence once the market finds its own level by

responding to these short to mid-term global and domestic

factors. The BRIC report citing indian economy's potential

with the view of surpassing the richest countries by 2050 is

indicative of it being among the fastest growing markets. In

the following section we present real estate demand

projections for the country over the next five years.

Source: Central Statistical Organisation (CSO)

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The real estate demand projection has been based on a model

that is leveraged on a correlation between GDP estimates,

historical commercial office real estate demand and current

market scenario. Based on this, the demand in India's real

estate sector has been forecasted for the next five years. Having

first computed the demand in the commercial office segment,

the projections for the other realty segments have been based

on their respective sectoral shares in relation to office space in

2007, together with the estimated future supply of each.

According to Cushman & Wakefield Research, the pan-India demand projection across office, residential, retail and hospitality segments is expected to be approximately 1,098 million sq.ft. in the coming five years. The residential segment continues to drive real estate demand with 687 million sq.ft., contributing 63% throughout the term under

consideration. Despite the expected slow down in the office

market, the demand for commercial office space is projected to be 243 million sq.ft, which is around 22% of the total demand projections for the next five years. The retail and hospitality

segments are expected to constitute 95 million sq.ft. (9%) and

73 million sq.ft. (6%) of this total demand, respectively, driven by an increase in income levels as well as by accelerated travel in the domestic and international sectors.

The top seven cities in India account for nearly 80% of this

pan-India demand with around 877 million sq.ft. The

residential sector still remains the largest segment for the top

cities with 60% share, the commercial office segment coming

up to 23%, followed by the retail (9%) and hospitality (8%)

segments. The residential segment is expected to be the major

demand contributor over the next five years with a total space

requirement of 529 million sq.ft., followed by office space at

DEMAND FORECAST

Demand Projection - Pan India

Source: Cushman & Wakefield Research

50

0

100

150

200

250

Commercial Residential Retail Hospitality

2008E 2010E 2011E 2012E2009E

Mil

lion

Sq.

Ft.

44

125

1713

47

132

1814

48

136

1914

50

142

2015

54

152

2116

203 million sq.ft., retail at 79 million sq.ft. and hospitality at

66 million sq.ft.

The real estate demand is expected to increase marginally over

the period with the Tier I cities expected to generate majority

of the demand during 2008-2012. The Indian economy is

expected to perform well with growth driven by domestic

factors which will add momentum to the real estate sector in

addition to expected improved global economic situation with

reinforced investor confidence in the coming years.

The demand for commercial office space, which is estimated to

be approximately 243 million sq.ft. across India, reflects the performance of the economy at a micro-level, helping to generate further demand in the residential, retail and

hospitality segments. Commercial real estate demand is

essentially driven by the performance of the economy, infrastructure developments, inherent talent pool and state-level policies to encourage investment. In sync with corporate

India's expansion plans, these demand dynamics lead to a few

cities continuing to remain the preferred destinations with buoyant demand in the country.

According to Cushman & Wakefield Research projections,

Bangalore is likely to lead the pack with an estimated office

space demand of 51 million sq.ft. by 2012. The city is the

largest IT hub in the country and the infrastructure

improvement initiatives of the city will only add impetus to

commercial office space demand. National Capital Region

(NCR) and Chennai are expected follow with approximately

48 million sq.ft. and 33 million sq.ft. demand respectively,

COMMERCIAL SPACE

Demand Projection - 7 Cities

Source: Cushman & Wakefield Research

50

50

50

50

0

Commercial Residential Retail Hospitality

2008E 2010E 2011E 2012E2009E

Mil

lion

Sq.

Ft.

4542403937

11711010410297

17161615

14

1514

131312

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segment. The high residential demand witnessed in NCR is

most likely because of the buoyant corporate sector in the

region, which requires a huge migrant working population

with residential needs, in addition to working professionals in

the city aspiring for a second home. However, the highest

growth rate is depicted by Chennai (9%) which is attributed to

the increasing migrant population driven by the buoyant

manufacturing as well as the IT/ ITeS sector; the latter having

envisioned the need for multi-storeyed residential

developments. Bangalore (6%), Pune (4%) and Mumbai

(3.7%) are most likely to be second in line with regards to

growth in residential demand forecasts.

Other cities that are expected to witness an increase in residential demand through 2008-2012 are Mumbai, Pune,

and Hyderabad accounting for 6%, 10% and 9% respectively,

of the total residential demand projected across india.

The demand drivers for retail space in a city typically include demographics, such as resident consumer age profile, dominant consumer occupation, spending capacity, etc., in addition to macro policy decisions, such as allowing FDI in single brand retailing and cash-and-carry formats. The projected retail demand figures (essentially representing shopping mall development) depict a large variation in demand among the Tier I, II and III cities. With the share of organised retail in the country likely to increase to USD 30 billion by 2010, according to Ernst & Young estimates, there exists immense prospect for retailers to consider expansion plans in this growing sector. Incase of the city ranking NCR leads with 19 million sq.ft. of the total estimated retail demand (20%), followed by Mumbai at 15 million sq.ft. (16%) owing to the high consumer spends.

RETAIL SPACE

Residential Demand Projection (2008-12)

Source: Cushman & Wakefield Research

PuneHyderabadChennaiKolkataMumbaiBangaloreNCR

foreseen in each city by 2012. NCR has witnessed emergence

of business districts like Gurgaon and Noida over the years

that has strengthened the presence of corporate firms in the

region.

The highest growth in demand during the period is likely to

be witnessed by Chennai although it lags in terms of absolute

demand numbers through the term under review. The city is

likely to emerge as a promising location for real estate

developments due to large skilled workforce and huge floating

population. The thriving services and manufacturing sectors

will provide the much needed momentum for the same. The

Silicon Valley of the country, Bangalore, depicts the second

largest compounded annual growth in demand for commercial

office space over the next five years and represents the highest

cumulative demand among the top seven cities. Mumbai ranks

fourth in terms of the cumulative absolute numbers and the

demand growth because of its sky-high real estate values that only a few corporate firms can afford. As validated by the projections, Pune is gradually gaining prominence, set to be

the third fastest growing city with favourable demographics

resulting in IT/ ITeS companies increasing their presence in the city. The state government too has helped by initiating

infrastructure developments such as the Mass Rapid Transit

System (MRTS) there in.

The total demand estimated for the residential segment is

approximately 687 million sq.ft. across India, of which nearly

77% is accounted for by the top seven cities. NCR surpasses

all other cities with 114 million sq.ft. of demand projected

through 2008-2012, followed by Bangalore and Chennai that

account for 16% each of the total demand projected in this

RESIDENTIAL SPACE

Commercial Office Demand Projection (2008-2012)

Source: Cushman & Wakefield Research

PuneHyderabadChennaiKolkataMumbaiBangaloreNCR

20%

21%

9%3%14%

8%

8%

17%

17%

16%

6%4%

16%

9%

10%

22%

5

Others

Others

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In terms of aggregate growth, Hyderabad(59%) and Chennai(59%) take the lead, followed by Bangalore(28%). The growing Indian middle class (with income levels ranging from INR 200,000 to 1,000,000) is expected to surpass 153 million by 2009, which would provide opportunities for retailers to explore newer geographies.

The growing economy and increasing commercial activity, coupled with the entry of several trans-national corporations in the past few years have provided the necessary impetus for the growth of the Hospitality sector in India. The demand for the sector continues to be fuelled by the rising number of business and leisure travellers within the country as well as by a significant increase in foreign travellers coming to India. Major cities like Bangalore, Mumbai, NCR, Hyderabad, Chennai and Kolkata are witnessing significant developments in this sector and are likely to generate demand of more than 60 million sq.ft. over the next 5 years. This accounts for over

HOSPITALITY SPACE

90% of the all-India hospitality space forecasts that is nearly 73 million sq.ft. Bangalore and NCR are expected to generate majority of the demand in this sector (together adding 31 million sq.ft or 43% share of pan-India demand projection), followed by Mumbai with 12 million sq.ft. (16%). The forthcoming Commonwealth Games in 2010 scheduled in NCR have brought the region in focus, where bed-and-breakfast (B&B) formats and home stays are being promoted by the government in anticipation of the large volume of expected visitors to the city. Apart from the seven major cities under consideration, other locations such as Jaipur, Ahmedabad, Kochi and Goa too add a significant share with approximately 6 million sq.ft. of upcoming hospitality space in the rest of the country between 2008-2012. This is largely due to the government's initiatives to promote tourism in the Tier II and Tier III cities of India. Of course the growth in inventory in these cities is nothing compared to their bigger cousins but in relative terms to inventory and quality available, the future looks rather bright for these cities.

Hospitality Demand Projection (2008-12)

Source: Cushman & Wakefield Research

PuneHyderabadChennaiKolkataMumbaiBangaloreNCR

25%

19%

16%5%

11%

10%

5%9%

Cumulative real estate demand (2008 - 12) by sectors

Office

Rank

Retail Residential Hospitality

Bangalore 1 51 3 11 3 107 2 14NCR 2 48 1 19 1 114 1 17Chennai 3 33 5 6 2 108 4 8Mumbai 4 23 2 15 5 41 3 12Pune 5 21 7 8 4 67 6 4Hyderabad 6 21 6 10 7 61 4 8Kolkata 7 7 4 10 6 30 6 4

Estimated demand (mn sq.ft.) Rank

Estimated demand (mn sq.ft.) Rank

Estimated demand (mn sq.ft.) Rank

Estimated demand (mn sq.ft.)

Retail Demand Projection (2008-12)

Source: Cushman & Wakefield Research

PuneHyderabadChennaiKolkataMumbaiBangaloreNCR

20%

11%

16%9%

8%

10%

8%

18%

Summary

At 114 million sq.ft., 19 million sq.ft. and 17 million sq.ft.

NCR leads in the demand requirement among the top

Indian cities in the residential, retail, hospitality sector,

respectively. While Bangalore tops the commercial office

space requirement (51 million sq.ft.), followed very closely

by NCR (48 million sq.ft.) Chennai also indicate healthy demand with nearly 108 million sq.ft. required in the city's

residential sector, followed by a robust demand of nearly 33

million sq.ft. of office commercial space by 2012.

6

Others

Others

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REAL ESTATE SECTORAL OPPORTUNITIESOFFICE SECTOR

During the first six months of 2008, the seven major cities in

India witnessed commercial office space supply over and above

space uptake, validating the temporary slump in the economy

and in the realty sector at large. An oversupply situation was

prominent in a few micro-markets, primarily in the suburban

and peripheral locations of certain cities. For instance, during

the second quarter of 2008 the total office demand was 9.74

million sq.ft, as against a supply of 18.07 million sq.ft. Micro-

markets such as Noida in the NCR, Lower Parel and Bandra

Kurla Complex in Mumbai and Rajiv Gandhi Salai in Chennai

recorded majority of the excess supply. However, at the same

time there are also instances like Chennai and Bangalore where

the first half of 2008 saw a definite increase in demand over the same period last year. On the supply side, the number of new developments getting the status of Special Economy Zones (SEZs) is on the rise too, with SEZs helping in attracting investments and promising employment generation.

With the sunset clause on STPI benefits which concludes on

31st March 2010, IT/ITeS firms are most likely to set up IT SEZs in the Tier I and Tier II cities where as in case of the Tier

III cities with planned IT SEZ's may get attention from

IT/ITES sector, however, alternative industries, such as IT hardware, auto ancillaries, gaming and animation, etc., form the preferred business options. The point to be noted here is that such locations require a longer gestation period to grow into mature markets, in terms of delivery capabilities, talent pool, supply chain logistics, etc.

In order to ride over the economic slowdown, several corporate

entities have deferred their expansion plans. Based on

investors' varied risk appetites and risk horizons there exist

several opportunities at different stages of commercial

developments. Certain investors may perceive that they can

manage to take the risk of investing in a distressed property

and re-develop the project to get a defined rate of return. For

instance, small and medium players in select cities have been

seen selling projects to big developers to ride over the sluggish

phase. This provides an exit opportunity for sellers, while large

developers and private equity (PE) investors specialising in distressed buy-outs acquire the property at a comparatively lower valuation. However, this situation is only applicable to

the case of partial or complete ownership where the project has

not been launched.

This correctional phase, partially gripping the office sector at

present, is expected to lead to a more stable market situation in

the near future. Despite the likelihood of the IT/ ITeS sector

continuing as the primary demand driver of office space in the

country, the share of non-IT sectors is also expected to increase

Supply Vs. Adsorption: First Half of 2008

Source: Cushman & Wakefield Research

1.00.0

2.03.0

4.05.06.07.0

8.09.0

10.0

Supply 1H08 Absorption 1H08

Are

a (M

illi

on S

q.Ft

.)

NCR Pune Kolkata HyderabadMumbai Bangalore Chennai

Absorption lagging supply - Result oftemporary slowdown in the econmy

BIG 7: IT/SEZ Supply

Source: Cushman & Wakefield Research

01

2345

678

9

10

Are

a (M

illi

on S

q.Ft

.)

NCR Pune Kolkata HyderabadMumbai Bangalore Chennai

2007 2008 2009

Big 7: Commercial Office Space Supply

Source: Cushman & Wakefield Research

10

0

20

30

40

50

60

2006 2007 2008 2009

Are

a (M

illi

on S

q.Ft

.)

NCR Pune Kolkata HyderabadMumbai Bangalore Chennai

7

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in this sphere. Diversification/expansion of business activities

in line with the anticipated revival in the economy will

support more demand for commercial office space. Hence, it is

advisable for investors to stay focused on this sphere with a

long-term investment horizon. In this regard, the biotech

sector is likely to emerge as the next growth driver for office

space demand coming up as a close second to the IT/ ITeS

industry, especially in the southern cities of Bangalore,

Hyderabad and Chennai.

RETAIL SECTOR

The retail sector in India is currently riding the growth phase

with retailers, domestic as well as foreign, aggressively

investing in this sector. India's retail boom primarily

originated in the metros and then trickled down to the Tier II

and Tier III cities. Leading retailers and developers have continued to plan shopping malls and hypermarkets in these locations. The increased purchasing power of the growing middle class and its consumerist aspirations are some of the factors propelling planned retail activities in the country.

The soaring rentals of malls and main streets in major

metropolitan cities have turned retailers cautious, with many

stalling their immediate expansion plans or altering their

business strategy by entering value retailing, for instance. This

movement is likely to open a plethora of opportunities for

developers and investors alike, particularly in the Tier II and

Tier III cities that offer quality space and affordable rentals for

retailers with product offerings that are suited for consumers at these locations.

Established global retailers such as the German Metro AG, the

South African Shoprite, Wal-Mart and now UK's Tesco, etc.,

have already made their entry into India. Luxury brands such

as Armani, Aigner, Versace, Louis Vuitton, Dolce & Gabbana,

Zegna and Hugo Boss among many others have also

established their presence across major Indian cities. The

Collection at UB City, Bangalore and DLF Emporio at New

Delhi's Vasant Kunj are the country's first operational luxury

malls for Indian consumers. However, the concept of 'Specialty

Malls' though not new in India, is yet to taste success. Such

developments require more expertise and planning in terms of

location evaluation, zoning, pricing and promotional

strategies; and therefore this space continues to attract

opportunities for investors specialising in niche retail

operations.

India is one of the world's fastest growing hotel markets at

present. With the surge of leisure and business travellers

headed towards India, it is boom time for the country's

hospitality industry.

A strong domestic economy, business opportunity, the government's open sky policy, initiatives to liberalise foreign investment and especially the Ministry of Tourism's (MoT)

efforts to communicate the "Incredible India" campaign have

together contributed to a robust demand for hospitality space

in major cities across India. In keeping with the current

growth rate, India's hospitality industry is anticipated to grow

at 8% per annum between 2007 and 2016.

As compared to office or retail development, investment in hospitality as a real estate asset class takes a longer time to generate returns. This is primarily due to the very nature of the product since a hotel takes at least 2.5 to 3 years for a full

service product to become operational. However, a sound

investment horizon is expected to earn good returns. While all

other real estate segments are witnessing growing demand in

tier-II cities, the hospitality industry has not lagged behind.

Be it luxury chains like the Taj, Oberoi, Hyatt or ITC

WelcomGroup, or mid-segment chains like Ginger Hotel,

Lemon Tree, Formule One, Peppermint, etc., most of them are

foraying into smaller cities.

The development of airports, roads and convention centres in

these locations has also created a platform for such hotel chains to flourish. The foray of IT/ ITeS firms in these towns and

cities, coupled with tourist attractions, has generated a

congenial business and leisure environment to trigger an

increase in travel. Cities like Pune and Gurgaon, for instance,

are witnessing a rise in demand for quality rooms due to the

development of IT and BPO industries; at the same time cities

like Goa and Kochi thrive on tourism. The organised

HOSPITALITY SECTOR

8

Mall Supply Distribution: 2006-11

Source: Cushman & Wakefield Research

Pune NCR Mumbai Kolkata Hyderabad Chennai Bangalore

5

10

15

20

25

30

35

2006 2007 2008 (E) 2009 (E) 2010 (E) 2011 (E)

o

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hospitality sector is just beginning to realise the potential of

these untapped markets.

One of the most noticeable trends in the Indian realty sector

has been the emergence of service apartments. The potential of

this business segment is estimated to be nearly 20% of the

total hospitality industry. As the hospitality sector touches

new heights, service apartments will become a lucrative

investment option offering high profit margins. The typical

investors in this property class include pure-play property

developers, high net worth individuals and hotel operators.

Organised operators, such as the Oberoi Group, Taj Group and

the Intercontinental Group to name a few have already

ventured into this space with high-end offerings. Major

developers like Parsvnath, Ansal API and Kolte-Patil have also

initiated serviced apartment projects in Greater Noida,

Bhiwadi in Rajasthan, Chandigarh, and Hinjewadi in Pune. New contenders too are coming in, such as Mennen Aviation & Hospitality Ltd., with plans to set up 15 service apartments by 2010. Tourist hubs like Goa, Kochi and Jaipur will also see

hospitality developments, with Hilton Hotel Corp. coming up

with a five-star property in Goa by end-2008, the

Intercontinental Group launching the five-star Crowne Plaza

at Kochi by 2009, and the Accor Group setting up a four-star property, Ibis, at Jaipur in 2008.

According to Cushman & Wakefield Research, the total

expected supply of hotel rooms in the country is estimated to

be 52,000 for the top cities by 2008-11, while the existing

stock at the below-mentioned locations stands at 64,000

rooms. The 11 cities considered include Mumbai, Bangalore,

Delhi NCR, Chennai, Kolkata, Hyderabad, Pune, Jaipur,

Ahmedabad, Kochi and Goa (classifications include five star

deluxe, five star, four star, and three star hotel rooms in the organised sector). Five star deluxe, five star and four star hotels

together form around 68% of the existing room stock,

followed by budget hotels. NCR, Mumbai, Bangalore and

Chennai together account for approximately 60% of the

existing room stock among these major cities. By 2011 nearly

28,000 - 29,000 new hotel rooms are expected in the five star

deluxe and five star segments, as compared to a total of nearly

25,000 hotel rooms in the other segments under consideration.

The NCR, followed by Bangalore, Mumbai and Hyderabad are

expected to lead in terms of infusion of these new hotel rooms.

On the whole, the international hospitality sector has been

resilient amidst tough economic conditions, with emerging

economies like India having maintained its strength. The hotel

industry in general has continued to witness a rise in average

room rates, albeit at a much slower rate in comparison to the

corresponding period in 2007. With the overall growth of

travel in India and especially with a large portion of this

consequent demand for hospitality space being generated within the national sector, a robust demand for further development of hotels exists across the country. Emerging trends include domestic and international hotel brands continuing to enter the Indian market at a growing pace as well as that of hotels increasingly utilising mixed-use development structures to capitalise on the surging demand for

other major commercial asset classes, such as office and retail.

Rising property prices and increased interest rates, coupled

with a demand-supply mismatch has brought down the overall

affordability of residential properties in the country today. Suburban and non-metro locations have mostly been affected due to this economic slowdown and some developers have even

resorted to freebies and early bird discounts because of a fall in sales. Developers have also come up with innovative schemes like “Book Now & Pay Later on Possession”, as well as home

loan instalment payment for the initial one to two years. A few

high-end residential projects in Chennai have even marketed their property with the unique concept of an unlimited and unconditional lifetime guarantee, which includes guarantee on

title deeds, complete structural guarantee against leaks and

cracks and a lifetime warranty for standard fixtures. However, established developers with substantial cash reserves have up till now remained insulated from this trend.

Middle income housing projects as envisaged by industry

experts is gaining visibility. For instance, under a newly

launched residential scheme, the Greater Noida authority has offered the middle-income group an opportunity to book and

own exclusive, independent and well finished houses. In order to meet the demand for affordable housing, the Confederation

of Real Estate Developers Association of India (CREDAI) has

RESIDENTIAL SECTOR Total supply of rooms* projected till 2011 in

prominent Tier I & II cities

Source: Cushman & Wakefield Research

* Comprises of 5 star deluxe, 5 star, 4 star & 3 star hotels in organised sector

3% 3%13%

7%

11%

5%3%7%19%

6%

23%

Jaipur Ahmedabad Mumbai Pune Hyderabad Kolkata

Cochin Chennai Bangalore Goa NCR

9

Page 12: C&W The Metamorphosis

even proposed a concept of Special Residential Zones (SRZ) as

a solution. An SRZ is a notified geographical region that is

free of domestic taxes, levies and duties, with special

development rules to promote large-scale, greenfield

affordable housing projects. The objective is to create an

independent living system that is not only self-sufficient but

can also offer growth potential into the geographical areas

around the SRZ. The SRZ is expected to have a prescribed

minimum number of dwellings of specific sizes with adequate

social infrastructure, including schools and medical facilities.

According to the housing ministry estimates, urban housing

backlog assumes alarming proportions, especially for the

economically weaker section (EWS) and low-income group

(LIG), who constitute more than 99% of the total urban

housing shortage of 24.71 million (11th Plan Period, 2007-

2012). The magnitude of this backlog is evident from the fact

that 21% of India's urban population lives in slum-like

conditions and 35% in one-room accommodations. In this

scenario, incentives from the government in the form of tax

sops such as duty cuts, subsidisation of various construction

inputs, procedures like the Valmiki Ambedkar Awas Yojana

(which provides subsidies for construction of housing and

sanitation), mobilisation of funds from various agencies,

increasing private-public participation (PPP) in projects,

micro-financing, developing land and infrastructural facilities,

etc., would definitely boost the move towards low-cost

housing initiatives. A notable initiative in this direction has

come from the floor space index (FSI) increase in Mumbai,

with the Mumbai Metropolitan Regional Development

Authority (MMRDA) planning to build over 500,000 houses

over the next six years as part of the slum rehabilitation

scheme of the Maharashtra State Government.

With more structural policy reforms for the segment being

implemented in recent times, low-cost housing is slowly

taking shape on the agenda of developers too. If innovative

approaches are taken, there is immense prospect for developers

in such projects, in addition to an enormous population

benefiting from such schemes. In New Delhi, for example,

private developers are being provided with 40% FSI for

developing low-cost housing projects. Developments such as

Shapoorji Pallonji's SP City, a mass housing project at

Rajarhat, Kolkata and Marathon Realty's mass housing

projects in Thane, Badlapur and Karjat, near Mumbai, have

already started low-cost housing projects. If housing finance

firms show their interest in tapping the low-cost segment

with flexible terms and innovative home loan packages, more

such activities can be expected to crop up.

On the larger residential front, tie-ups are taking place

amongst developers and venture capital funds for development

of townships, where project costs are equally shared. Re-

development of properties has also become lucrative, where

developers acquire lands or dilapidated buildings and convert

them into premium residential properties. However, this

process is mainly limited to Mumbai, where the state

government is aggressively pursuing the re-development of

such buildings. A large number of developers are keenly

participating in such projects in anticipation of high returns.

In view of the fact that 50% of the population of India is

expected to be living in urban areas by 2041, it is necessary to

develop more integrated townships in tier-II and III towns.

Finally, a 10-15% fall in price or a decline in mortgage rates is

most sought after in the current scenario to improve

affordability and for end-users/home buyers to come back into

the market. If this happens, demand is likely to pick up again

with rising income levels.

10

Page 13: C&W The Metamorphosis

REAL ESTATE INVESTMENT SCENARIO

The Reserve Bank of India (RBI) recently declared real estate

space as a sensitive sector under its prudential norms. In tune

with the rising cost of funds and the need for additional

capital for risky assets, banks in India have increased their

lending rates for real estate projects. The prime lending rate

(PLR) of most public sector banks has increased to 13.75%

from 12.75% effective from August 12th 2008 in comparison

to last year's rate of 10%. Since banks have to set aside a

comparatively higher amount of capital for real estate exposure

compared to other sectors, real estate attracts higher-risk

weightages and lending too becomes closely monitored. Banks

have also begun to ask for higher contributions from

promoters and developers as a precautionary measure to

safeguard themselves against loans. Given the inflationary

pressure that the current government is facing, it is more

likely that monetary policies will put more pressure on already

very high interest rates and that, by no means, is good news.

Increased construction cost due to rising commodity prices

have already increased input costs for companies; and the

increasing cost of construction materials like steel and cement,

is putting further pressure on developer margins. As far as the

Indian mortgage market is concerned, the share of the same in

the top cities has risen steadily over the past few years,

indicating that in value terms the industry is fairly

concentrated. The fastest growth in mortgages among the top

cities includes Mumbai, Bangalore and Hyderabad. According

to the RBI, the share of the top six cities (Mumbai, Delhi

NCR, Bangalore, Hyderabad, Chennai and Kolkata) in the

mortgage market reached 47% at the end of fiscal 2007-08, in

comparison to 36% in fiscal 2003-04.

In addition to the above developments, the union budget

announcement of February 2008 includes a few initiatives

taken by the central government in the corporate tax segment:

• A five-year tax holiday has been extended to existing hotel

groups that intend to expand to Tier II and Tier III cities.

• A five-year income tax holiday has also been granted to two, three and four star hotels established in districts that have been declared as 'World Heritage Sites'. However, to

avail this, the hotels in question need to become

operational by 31st March 2013.

As a major relief to the IT/ ITeS industry, the Central

Government has extended the tax exemption available to IT/

ITeS firms under the Software Technology Parks of India

(STPI) scheme by one year. Originally expected to lapse on

31st March, 2009, the extension is now in place till 31st

March, 2010.

For the housing sector, RBI has relaxed its norms for housing

loans by cooperative banks. It has reduced the risk weightage

on home loans upto INR.3 million, from 75% to 50%. This

will reduce the cost of funds for home loans upto INR.3

million; earlier home loans upto INR.2 million had a risk

weightage of 50%.

Regulatory changes are geared towards sustaining long-term growth while dealing with changing domestic economic conditions. The Indian government has so far followed a cautious approach in its macro-level policy changes by:

• Hiking interest rates in various phases,

• Considering venture capital investments in real estate and

• Easing ECB norms

The government also released regulations for REMF (Real Estate Mutual Funds) and REIT (Real Estate Investment Trusts) as an investment option for the individual investors in the country. In addition to this, these instruments also offer funding options to developer by the retail investor in the

country.

CRR HIKE

To control credit growth and contain inflation the central bank

recently hiked both its repo rate and cash reserve ratio (CRR)

to 9%. This has made lending expensive, with borrowers

paying a higher EMI for home loans, resulting in a slackening

demand in the residential sector. These monetary measures have successfully restricted credit growth as banks have

adopted a cautious approach and are being selective about

extending loans, especially to the realty sector.

FOREIGN VENTURE CAPITAL INVESTMENT (FVCI)

Venture capital investment provides risk capital to the

project/enterprise in certain sectors stated under the regulation

governing venture capital investments. Current regulations

permit such investments under the FDI route without

REGULATORY CHANGES

11

Page 14: C&W The Metamorphosis

complying with the post-IPO investment lock -in period of

one year, sector-specific restrictions and the entry-exit pricing

regulations.

The central bank has forwarded that there are regulatory

variances in terms of tax treatment and capital commitment

for domestic and foreign venture capital investments that

needs to be rectified. The policy review is aimed at providing a

level playing ground for foreign and domestic VCs on taxation

jurisdiction and capital base front. As most of the FVCIs are

based out of countries with which India has a double taxation

avoidance treaty that exempts them to pay taxes and therefore

puts them in an advantageous position to the domestic VCs.

Also, the domestic venture capital funds are required to have

capital base of INR 50 million while the foreign entities do

not need any capital commitment.

Securities and Exchange Board of India (SEBI), the market regulator, cleared 50 applications in the current year that

conformed to the FVCI norms, on which the Reserve Bank of

India (RBI) expressed reservations on the nature of venture

capital investment. However, the finance ministry directed the

RBI to approve the applications to avoid uncertainty among

foreign investors and delay in procedures. Of the 50

applications, real estate sector witnessed 20 applications that

raised concerns about the expected amount of money flowing

into the sector.

ECB NORMS

External Commercial Borrowing (ECB) norms were relaxed to

enable the small and medium enterprises easy access to

overseas debt market and repatriation of funds to India. The

interest rate ceiling was raised from 150 to 200 basis points

annually over Libor having average maturity of three to five

years and to 350 bps from 250 bps for an ECB of more than

five years. The repatriation norms were also relaxed, under the

approval route the limit for infrastructure and others has been

raised to USD 100 million and USD 50 million respectively.

This would provide access to the debt market for infrastructure

companies which can now borrow up to USD 100 million for

investments on the infrastructure sector.

The easing of norms would aid higher capital flows which have

been rapidly receding after the restrictions imposed in 2007 to

reduce the high capital inflows, which caused the rupee to

appreciate. As the Prime Minister's Economic Advisory

Council (PMEAC) projected a 34% decline in foreign capital

flows, it has been recommended to further relax the ECB

norms to assist domestic companies in raising funds overseas.

As developers cannot source funds through this route as the

SEZs are not stated in the list of 'infrastructure' or 'real sector',

the government shall consider the easing of the norms.

REAL ESTATE MUTUAL FUNDS (REMF)

The regulations governing the REMF circumvented the

mutual fund guidelines with certain conditions to be adhered

which was long due keeping in mind the nascent stage of the

real estate market. Recently released amended guidelines for

REMF have brought clarity about the instrument that would

help the entities to structure the instrument to bring liquidity,

institutionalisation and transparency into the real estate

market. The guidelines state the valuation disclosure and

periodicity, impose cap on investment in a single city and

project, spell out the requisite expertise to float an REMF,

refrains the fund to transfer asset among different schemes of

the Asset Management Company and the nature of the

instrument i.e. close ended and listed on the recognised stock

exchange.

In April 2008, Securities and Exchange Board of India (SEBI)

announced amendments to the SEBI (Mutual Funds)

Regulations 1996 permitting the launch of REMFs. The

regulations offer a wide definition of real estate to include

immovable property in India located in certain specified cities

or SEZs which is fully constructed and usable, transferable and

free from any encumbrances, litigation and with clear title

documents. Agricultural land and vacant land however are

excluded. REMFs are required to invest at least 35% of the net

assets of the scheme directly in real estate (in ready to use

property that assures rental income and capital appreciation)

not stating the maximum investment limit. The balance can

be invested indirectly in the real estate sector through

investment in mortgage backed securities and securities of

companies dealing in or engaged in the development of real

estate. According to the recent developments, the finance

ministry allowed NRIs and FIIs to invest in REMFs as the

investment decisions of the fund is purely dependent on the

fund management company and the investors do not steer the

investment decision to any asset class.

REAL ESTATE INVESTMENT TRUSTS (REITS)

The market regulator SEBI released a draft guideline on REITs

in 2007 with a formal regulation and more clarity underway.

The draft guidelines outlined the scope of investment, structure and regulatory requirements to be complied with to

launch the financial product. REITs cater to the capital requirement of the real estate sector as it enables the company

12

Page 15: C&W The Metamorphosis

easy access to funds and preferable exit options. They are

primarily income generating instruments as 90% of income

shall compulsorily be distributed as dividend. These funds are

managed by professional with expertise to provide diversified

portfolio of the asset class. At present REITs are yet to make

an entry into India.

CURRENT INVESTMENT SCENARIO

Since the opening up of the real estate sector in 2005, Private

equity funds in India have been very active with a number of

transactions taking place in the past three years at entity,

portfolio and SPV level. According to Department of

Industrial Policy & Promotion data, a good amount of Foreign

Direct Investment (FDI) inflows have been channelled into the

Housing and Real Estate (RE) sector, with approximately 50%

of last years inflows already having been accumulated during the first two months of second quarter 2008. This acts as a testimony for the investor confidence in the sector.

Recently private equity funds have adopted a cautious

approach towards the kind of projects they pick up and there

is an increased emphasis on the reputation of the developer

particularly the execution bandwidth and corporate

governance. As a result, the lesser known developers are

finding it difficult to raise funds. This has in turn resulted in

availability of more suitable investment terms for the funds.

Private Equity players have also increased their internal rate of return (IRR) expectations from projects to cater for the increased risk. As an indication of the rising concerns over

projects being undercapitalised investors are insisting on

developers to achieve financial closure for debt funding before they sign the definitive agreement. Investors are also growing

more restrictive about the end us of funds and their diversion

to other projects.

An analysis of 79 deals from mid August 2007 to mid August

2008 shows an investment commitment to the tune of INR

269,000 million. If we look at the distribution of number of

deals; most of the funds are still being diverted to SPV level

(51%)deals as they are individual projects and cater to more

focused investment approach apart from giving the funds more

control on the investment. It is also suitable for investors who

are looking to test the market and diversify through multiple

partners, locations, assets and size of transactions. As funds

grew more focused towards one sub-sector, interest for

portfolio level deals (24%) has also grown as it provides a

focused approach to a particular asset class and offers benefits

of automatic diversification. Entity level (25%) deals were the

least in number terms as these are significant ticket size which

suits the appetite of very few capital providers. It can be seen

that there is an even distribution in the quantum of

investment in both SPV and Portfolio level deals as they

attracted a total investment in excess of INR 100,000 million

each.

Source: Cushman & Wakefield Research

SPV Entity Portfolio

51%

25%

24%

Distribution of the number of PE deals in RE sector

Source: Cushman & Wakefield Research* Indicative samples of reported deals from mid August 07 to mid August 08 in the Indian Real Estate sector

SPV Entity Portfolio

38%

22%

40%

Distribution of Investment in PE deals across the RE sector*

(total quantum is INR 269,000 million)

FDI Inflow in Housing & Real Estate Sector

Source: Dipp.nic.in

50

50

50

50

50

0Apr 05 - Mar 06

Apr 06 - Mar 07

Apr 07 - Mar 08

Apr 08 - Mar 09

Inve

stm

ent

(IN

R m

illi

on)

13

Page 16: C&W The Metamorphosis

This year investments have diversified across asset classes,

with the highest share going to the residential (41%) and

township (21%) sectors with the quantum of investment in

the range of INR 128,600 million. Due to high composition

of housing in these two sectors they have received higher

investments on account of certainty of exit and high latent

demand. Commercial real estate sectors (office, retail, SEZ and

mixed use) have attracted significant investment to the extent

of approximately INR 57,600 million which forms 28% of

the pie. Logistics and Healthcare are other asset classes that

found new interest from investors.

A region-wise distribution of PE deals during the period under consideration shows the western (37%) and southern (32%) zones accounting for almost 70% of the total investment which is followed by the north region (26%). South zone has seen the maximum number of deals (24) and the average size of deals in this zone (INR 2,800 million) is significantly lesser than the northern (INR 3,700 million) and western zones (INR 3,700 million). This is largely on account of southern cities showing definite market trends and rationalised valuations. Higher valuations in Mumbai and

Delhi (NCR) have contributed to a large extent to the higher average size of the deals in this region. Eastern zone (primarily West Bengal) has not been able to evince significant interest amongst investors.

Tier-wise categorisation of cities shows the following trends: Fourth quarter in 2007 witnessed an even distribution of investor interest across all tiers. With the market conditions changing over the first half of 2008 investors have become cautious and have chosen to remain in tier-I cites, where market trends are more definite. As a result there is a marked reduction in investors interest in projects across Tier II & Tier III cities. The southern cities of Bangalore (9) and Hyderabad (6) have been able to attract maximum numbers of SPV deals; which is closely followed by Mumbai (8) and Delhi NCR (7).

Q4 07 (34%) witnessed the highest quantum of investment, which was in the range of approximately INR 77, 300 million with the average size of deal being INR 4,700 million. Conversely, the subsequent quarters saw a remarked reduction in the investment quantum largely due to the more cautious approach adopted by investors in wake of global and

Distribution of PE deals across asset classes

in RE sector (INR 209,300 million)

Source: Cushman & Wakefield Research* Indicative samples of reported deals from mid August 07 to mid August 08 in the Indian Real Estate sectorNote: Does not include entity level deals

3% 4% 10%

41%

7%7%

0%6%

21%2%

Office Residential Retail Pune SEZHealthcare Township Logistics Unpecified Mixed Use

Source: Cushman & Wakefield Research* Indicative samples of reported deals from mid August 07 to mid August 08 in the Indian Real Estate sectorNote: Does not include entity level deals

East South North West

32%

5%

26%

37%

Region-wise distribution of PE deals(Investment quantum - INR 209,300 million)

Real Estate PE deals break up quarterwise and Tierwise

Source: Cushman & Wakefield Research

40%

60%

20%

80%

100%

0%

Tier I Tier II Tier III

Q4 07 Q2 08 Mid Aug 08Q1 08

24%

36%

40%

68%

28%

4%21%

34%

45%

71%

29%

Real EstatePE deals quarterwise and tierwise

Source: Cushman & Wakefield Research

40,000

60,000

20,000

80,000

0 0

5

10

15

20

Tier I Tier II Tier III Number of Deals

Q4 07 Q2 08 Mid Aug 08Q1 08

Inve

stm

ent

(IN

R m

illi

on)

Num

ber

of d

eals

14

Page 17: C&W The Metamorphosis

domestic economic scenario. The average deal size reduced significantly to approximately INR 1,900 million as investors were taking smaller exposures and demonstrating enhanced preference for diversification. Notwithstanding this, the fact that there has been nearly even distribution in the number of deals (Q2 08 recording the highest) clearly shows the interest and activity of investors in the market

In a nutshell, though the investor activity still remains high they are adopting a selective and more cautious approach to investments. The fact that the real estate developers are struggling with execution of projects in a market where uptake is slowing and credit is becoming tighter gives justification to this approach.

Prominent Private Equity Deals in the Market

• Deutsche Bank and a group of PE firms are investing USD 425 million (25% stake) in the Lodha Group for a SPV spread across 70 acres in three FDI-compliant real estate projects at Thane and Dahisar, Maharashtra.

• German real estate fund MPC Synergy has picked up equity in various SPVs floated by real estate developer, Phoenix Mills for INR 1300 crore

• Credit Suisse, the Swiss investment bank, has made investments to the tune of about USD 77 million in Hyderabad-based Indu Projects

15

Page 18: C&W The Metamorphosis

The economic slowdown is real, it is broad and it is impacting the entire real estate sector, including many other industries. But fortunately it is unlikely to continue beyond the next 2 - 3 years. The Asia Pacific is expected to perform stronger than other markets; and even though transaction volumes have currently dropped across the region, the activity levels remain well above the long-term average for the Asia Pacific.

The region has also seen a widening gap between values that sellers quote and what buyers are ready to shell out in the present circumstances. But this gap between reality and expectation is beginning to diminish in markets such as China and India where in case of the latter there is already a decline in quoted land prices as against soaring price points of the previous years.

The current short-term stagnation in commercial and residential activity in India has led to an overall reduction in the number of land transactions as developers have deferred their decisions to occupy additional land reserves. On the bright side, the present turmoil will only strengthen the Indian realty sector, encouraging continual growth of quality developments. Reputed grade-A developers will not be as affected as small-time operators, even leading to consolidation of the industry by bigger players. From a highly fractured presence, this can only prove to be beneficial for the sector's future stability and transformation into a mature and more confident market. Pioneering developments in India by trans-national developers like Ascendas, CapitaLand, Keppel Land, Tishman Spyer, Hines, IJM, etc. together with a host of fast-growing national developers will also help the market to mature, compared to the more matured Asia Pacific markets.

The country's real estate sector might be witnessing ebbs but the downturn can only make things attractive for foreign investors. The slowdown, in fact, has set in more realistic them more reasonable. A correction of land prices, together with a slow-down on the frantic run for creating land-banks may lead to a possibility of more PE investments in the real estate sector in the coming quarters.

valuations and growth-oriented investment opportunities for big players to close in on lucrative deals. With the property market stagnating in many areas and a wait-and-watch sentiment developing among buyers, PE funds focussed on the real estate sector will now be better off -- forcing developers to re-work on valuations and construction timelines to make them more reasonable. A correction of land prices, together with a slow-down on the frantic run for creating land-banks may lead to a possibility of more PE investments in the real estate sector in the coming quarters.

One could even term the current market upheavals to be necessary for the Indian real estate sector - a welcome correctional phase in any emerging market on its way to transforming into a strong and sustainable sector. The unabated growth of the sector over the last couple of years had led land rates to inflate irrationally, affecting the overall real estate market in the country. But it is the long term robustness of demand for real estate in India (as projected earlier in this paper) that will remain intact; and will probably see us through another business cycle once the market finds its own level by responding to these short- to mid-term global and domestic factors.

In conclusion, it will help to keep in mind that the positive aspects of the Indian market -- a dynamic workforce, liberalised economy, robust demand for real estate across all sectors, investments for the future -- continue to remain in tact. It is after all the fundamentals that count. While success comes easy in a booming market, the true test of ability lies in dealing with the trough in business. Past success stories are generally not applicable to new situations and this is the time to reinvent India's real estate sector by responding to change with innovative business models and investment options.

16

CONCLUSION

Page 19: C&W The Metamorphosis

The GRI is a global club of senior real estate investors, developers and lenders.

Its mission is to help its members build personal relationships and work

together in creating better places as a legacy to our children. Founded in 1998,

its core constituency consists the world's leading real estate players.

The GRI runs its activities through a series of Annual Meetings focused on

different regions of the world, mainly across Europe and Asia to date. Individual

and Corporate Membership of the GRI is open to senior players in the real

estate industry that find it beneficial to belong to a global community of elite

achievers in their industry.

Cushman & Wakefield is the largest privately owned real estate services firm in

the world with more than 15,000 professionals in 227 offices in 59 countries.

The firm delivers integrated solutions by actively advising, implementing and

managing on behalf of landlords, tenants and investors through every stage of

real estate process. C&W also provides valuation advice strategic planning and

research, portfolio analysis, and site selection and space location assistance,

among many other advisory services.

Cushman & Wakefield commenced its India operations in 1997 and today has

grown to over 1000 employees working from the firm's New Delhi, Gurgaon,

Mumbai, Bangalore, Chennai, Hyderabad, Pune and Kolkata offices. The first

international real estate service provider to have been granted permission by

the Government of India to operate a wholly-owned subsidiary, Cushman &

Wakefield in India is strategically poised to service the varied needs of clients

throughout the sub-continent. The firm offers a full range of real estate services

combining local expertise and experience with technology and standards of

service that are consistent across all Cushman & Wakefield's offices worldwide.

To find out more about Cushman & Wakefield, visit www.cushmanwakefield.com

Page 20: C&W The Metamorphosis

www.cushmanwakefield.com

The GRI welcomes industry leaders who find it useful to chair a discussion at a future GRI event to contact:

Henri AlsterChairman, GRI

GRI-Global Real Estate Institute11th Floor, 1379 High RoadLondon N20 9LP UKTel: +44 20 8492 2621Fax: +44 20 8445 6633

www.globalrealestate.org

©20

08 C

ushm

an &

Wak

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ight

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ved

For further information on the report, please contact:

Sitara AchrejaDirector, IndiaMarketing & CommunicationsCushman & Wakefield Tel: + 91 124 469 5555Fax: + 91 124 469 5566 E-mail: [email protected]

www.cushmanwakefield.com