Real Estate 2001 MARKS

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A STUDY ON REAL ESTATE PRICING IN SOUTH MUMBAI

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UNIVERSITY OF MUMBAI

PROJECT ON:

A STUDY ON PRICING OF REAL ESTATE IN MUMBAI WITH SPECIALREFERENCE TO INVESTORS PERCEPTION IN REAL ESTATE

NAME AND ADDRESS OF COLLEGE:

LALA LAJPAT RAI COLLEGE OF COMMERCE AND ECONOMICS

MAHALAXMI (WEST), MUMBAI- 400034

SUBMITTED BY:

PARTH DHARIA

SYBMS-C

SEMESTER-IV

PROJECT GUIDE: Dr. VINAY PANDIT

YEAR OF SUBMISSION: 2013-14


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CERTIFICATE:

THIS IS TO CERTIFY THAT THE PROJECT ENTITLED A STUDY ON PRICING OFREAL ESTATE IN MUMBAI WITH SPECIAL REFERENCE TO INVESTORS

PERCEPTION IN REAL ESTATE COMPLETED BY PARTH DHARIA ROLL

NO.121301175 IS AN AUTHENTIC WORK CARRIED OUT BY HIM AT LALA LAJPAT

RAI COLLEGE OF COMMERCE AND ECONOMICS UNDER MY GUIDANCE.

THE INFORMATION SUBMITTED IS TRUE AND ORIGINAL TO THE BEST OF MY

KNOWLEDGE.

EXTERNAL EXAMINER PROJECT GUIDE

INTERNAL EXAMINER PRINCIPAL


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DECLARATION

I PARTH DHARIA THE STUDENT OF LAJPAT RAI COLLEGE OF COMMERCE AND

ECONOMIC, SY.BMS C HEREBY DECLARE THAT I HAVE COMPLETED THISPROJECT ON A STUDY ON PRICING OF REAL ESTATE IN MUMBAI WITH SPECIAL

REFERENCE TO INVESTORS PERCEPTION IN REAL ESTATE IN THE ACADEMIC

YEAR 2013-2014 UNDER THE GUIDENCE OF DR.VINAY PANDIT.

THE INFORMATION SUBMITTED IS TRUE AND ORIGINAL TO THE BEST OF MY

KNOWLEDGE.

DATE: SIGNATURE OF STUDENT


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ACKNOWLEDGEMENT

WITH GREAT PLEASURE I THANK DR.VINAY PANDIT A PROFESSOR OF LALA

LAJPAT RAI COLLEGE OF COMMERCE AND ECONOMICS FOR BEING AN

INSPIRATION IN THE COMPLETION OF THIS PROJECT. I ALSO THANK HIM FOR

PROVIDING ME GUIDANCE AND NUMEROUS SUGGESTIONS THROUGHOUT THE

ENTIRE DURATION OF THE PROJECT. I AM THANKFUL FOR HIS INVALUABLE

HELP WITHOUT WHICH THIS PROJECT WOULD NOT HAVE MATERIALISED.

I EXPRESS DEEP GRATITUTDE TO MY ENTIRE COLLEGE, FRIENDS AND FAMILY

MEMBERS WHOSE EFFORTS AND CREATIVITY HELPED ME IN GIVING THE FINAL

STRUCTURE TO THE PROJECT WORK.

NEVERTHELESS I WOULD LIKE TO THANK THE COLLEGE LIBRARIAN FOR

PROVIDING ALL THE SUPPORT IN COMPLETING MY PROJECT.

I AM ALSO THANKFUL TO ALL THOSE SEEN AND UNSEEN HANDS WHICH HAVE

BEEN OF HELP IN THE COMPLETION OF THIS PROJECT WORK.

-PARTH DHARIA


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EXECUTIVE SUMMARY

The Indian economy is the second largest growing economy of the world and the Real estate sector is

one of the major contributors in the growth of the Indian economy. I have undertaken this study to

analyze the perception of the investor in the real estate sector and also to identify the various reason

contributing to the growth of the sector. The study is based on the data collected both through

primary sources such as questionnaires, personal interviews and secondary sources like internet,

journals, books and magazines. The sample size taken for the study was of 75 respondents who were

interviewed personally and on telephonic interview.

The study also looks into the role of the government by way of different policies that effect the

investment decision of the investor.


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INDEX

Sr No. Topic Page No.

1 CHAPTER 1 -INTRODUCTION 7

2 CHAPTER 2-REVIEW OF LITERATURE 11

3

CHAPTER 3-RESEARCH METHODOLOGY

-RESEARCH PROBLEM

-SCOPE OF STUDY

-HYPOTHESIS

-DATA COLLECTION

-RESEARCH INSTRUMENT-RESEARCH DESIGN

-SAMPLING PLAN

-TESTING OF HYPOTHESIS

-LIMITATION OF RESEARCH 17

4

CHAPTER 4- TOP PLAYERS OF REAL ESTATE

INDUSTRY 20

5

CHAPTER 5- PRICING STARTEGIES ADOPTED BY

INVESTOR 32

5

CHAPTER 6- DATA COLLECTION AND

INTERPRETATIONS 54

6 CHAPTER 7- CONCLUSION 62

7 CHAPTER 8 -RECOMMENDATION 64

8 CHAPTER 9 -BIBLOGRAPHY 65

9 ANNEXURE 66


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INTRODUCTION

REAL ESTATE

Real estate means an immovable property, either commercial or residential which may consist of a

building or a structure. Real estate can be divided into 3 main categories:

Commercial

Residential

Agricultural/Vacant Land

Real estate involves the purchase, sale, and development of land, residential and non-residential

buildings. The main players in the real estate market are the landlords, developers, builders, real

estate agents, tenants, buyers etc. The activities of the real estate sector includes the housing and

construction sectors.

Real estate is a 12$ billion (revenue) industry in India. There has been a rapid growth in the industry

in the past few years. It is one of the fastest growing sectors in India. The housing sector has been

growing at an average of 34% annually. In the residential sector, a growing middle class is enjoying

rising income levels. Combined with smaller household sizes, this demographic change has boosted

demand for more modern housing. Real estate is not just about housing these days it has become a

beneficial investment option as real estate can be pledged as collateral to secure a loan. One can also

earn rental income from the real estate properties .Profits can be earned from real estate as a result of

appreciation of real estate property prices. This is known as capital gains from real estate.

In the commercial property segment, strong growth in the services sector Specially the IT and BPO

industry have led to greater demand for commercial space.


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The importance of real estate sector, as a major player of nations growth, can be seen from the fact

that it is the second largest employer next only to agriculture. 5 % of the countrys GDP is

contributed by the housing sector. In the next three or four or five years this contribution to the GDP

is expected to rise to 6%

The real estate industry has significant linkages with several other sectors of the economy. It consists

of a collection of industrial and services sectors of the economy, such as construction (housing

construction, as well as construction of commercial offices, retail and industrial buildings, and

infrastructure projects such as dams, roads and bridges), brokerage services, real estate finance

services (mortgage banking, real estate investment), real estate operations, property management,

architecture and design.

The relaxed FDI rules implemented by India in the recent years have invited more foreign investors

and real estate sector in India is seemingly the most lucrative ground at present. Private equity players

are considering big investments, banks are giving loans to builders, and financial institutions are

floating real estate funds. Indian property market is immensely promising and most sought after for

the purpose of investment.

Growth Potential

India is currently the second fastest-growing economy in the World. The Indian construction industry

has been playing a vital role in overall economic development of the country, contributing 6% to

GDP. In 2005, the sector generated around 31 million jobs (of which only 1 million were generated

by the organized sector).

Developments in the real estate sector are being influenced by the developments in the

Retail, hospitality and entertainment (e.g., hotels, Resorts, cinema theatres) industries, economic

services (e.g., hospitals, schools) and information technology (IT)-enabled services (like call centers)


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etc. Also with the growing quantum of domestic and international capital inflow, economic growth is

likely to continue, and with it, the demand for infrastructure to maintain and accelerate the

performance. As a result, the public sector has remained a big investor in this sector, given the acute

shortage of infrastructure in India compared to the requisite level required to achieve the next growth

target.

The Government of India proposes to achieve 9.0% GDP growth during the Eleventh Plan period. To

achieve growth of this scale, adequate infrastructure is the most basic requirement. In order to

overcome the current constraint of insufficient modern infrastructure, the government is developing a

program for infrastructure investment through both public and private sectors, and expects to more

than double public investments from 1.2% of GDP in FY07 to 2.8% by FY12. It is also partnering

with private companies on initiatives such as the ultra mega power projects and Golden Quadrilateral

project and Delhi Mumbai industrial Corridor.

Future Prospects on Real Estate Industry

The real estate market in India is yet in an emerging stage and the scope is simply unlimited. It does

not resemble a bubble that will burst. An unhindered growth for the next twenty years is almost sure.This is because the outsourcing business in India is growing at a rapid speed and this entails a huge

demand for commercial buildings and urban housing besides improvement in infrastructure. The

organized retail market in India is also accelerating with players like Wal-Mart, Bharti etc. looking

forward to make a mark, thus stepping up the demand for real estate.

The Governments ambitious projects lined up for the Eleventh Plan period ,shows the demand for

construction is expected to grow by at least 8-9%, and 2.5 million employment opportunities per

annum are expected to be generated. Favorable government policies for globalization and

liberalization have put India on the fast track. In fact, today India is the second, fastest-growing

economy in the world, and is the centre of attraction globally. With greater quantum of domestic and

international capital flowing into various sectors of the economy, growth is likely to continue.

However, it has become a necessity for India to modernize and expand its infrastructure not only to


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sustain, but to benefit from the existing growth spree. Moreover, the governments initiatives such as

the ultra mega power projects, Golden Quadrilateral project, have been of great support for the sector.

Moreover, increased investment outlay in the Eleventh plan, and higher private investments, apart

from the public-private partnership, would prove beneficial in meeting the infrastructure needs of

various segments of the economy.

Government Policies

The government has taken various initiatives to improve the real estate sector. It has made the

policies for FDI in real estate very liberal. The new stand adopted by Indian government regarding

foreign direct investment (FDI) policies has encouraged an increasing number of countries to invest

in Indian Properties. The positive outlook of Indian government is the key factor behind the sudden

rise of the Indian Real Estate sector. The Government of India in March 2005 amended existing

norms to allow 100 per cent FDI in the construction business. This liberalization act cleared the path

for foreign investment to meet the demand into development of the commercial and residential real

estate sectors. It has also encouraged several large financial firms and private equity funds to launch

exclusive funds targeting the Indian real estate sector.

Until now, only Non Resident Indians (NRIs) and Persons of Indian Origin (PIOs) were permitted to

invest in the housing and the real estate sectors. Foreign investors other than NRIs were allowed to

invest only in development of integrated townships and settlements either through a wholly owned

subsidiary or through a joint venture company in India along with a local partner. The minimum land

area for development by foreign investors is lowered from the earlier floor of 100 acres to 25 acres

which has further made the real estate sector lucrative in the eyes of the foreign investors.

The Government is also initiating various projects like the ultra mega power project, Golden

quadrilateral project and the Delhi Mumbai Industrial corridor.


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CHAPTER 2: REVIEW OF LITERATURE

The real estate sector has become a major contributor of an economys growth. To understand the

significance of the sector and its implications there have been various research on real estate industryboth in India and abroad. The research are being conducted to gain more knowledge about the various

factors contributing to the growth of the industry and also to analyze the factors which effect the

decision of investment in the sector. I have tried to study few such research papers to get a better idea

about the current scenario of the real estate sector.

Graeme Newell and Rajeev Kamineni in their research paper assessed the risk-adjusted

performance and portfolio diversification benefits for the real estate markets (office, retail and

residential) of New Delhi and Mumbai. The real estate markets were found to under-perform the

stock market in India over 1998 2005, with most markets improving their performance in more

recent years, although there was some loss of portfolio diversification benefits for office and

residential real estate with stocks. Deregulation of the capital markets and international investment in

India is also likely to have a significant impact on future FDI levels and the growth of real estate

funds for real estate investment in India. They also studied that offshoring in the cities like Delhi and

Mumbai has created huge demand for better infrastructure. This area of offshoring has significant real

estate investment issues; particularly concerning technology parks, access to Grade A office space.

They have also concluded that deregulation of the Indian capital markets since 2004, and less

restrictive guidelines for foreign direct investment in real estate in India since February 2005 have

seen significant improvements in the real estate investment environment in India for both local and

international players. This has taken on increased importance as India significantly expands its

economic growth to potentially be the worlds third largest economy by 2020, and international real

estate investors seek global investment opportunities; particularly in the emerging Asian real estate

markets. The expected development of REITs in India in the next few years will also expand the real

estate investment opportunities available in India.


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Vandna Singh and Komal (2009) in their research paper found that as the GDP increases the real

estate prices also increases because there is a high degree of Positive correlation between the real

estate prices and GDP. The Real estate prices also increases with increase in the per capita income as

there is high degree of positive correlation between these two. The FDI into the country affects the

real estate FDI and real estate having a positive correlation leads to the boom in this sector. Increasein FDI from 2006 to march 2007 is 10%. Earlier it was 16% and now in 2008 it is 25%.

The interest rate also affects the real estate prices because it affects the lending and borrowing by the

investors. In residential segment, availability of easy home finance and rising purchasing power has

driven the growth. Builders are launching high-end, life style residential products to cater to the

growing bunch of high net worth individuals.

They suggested that due to high prices the lower income group is not able to purchase the land, so

govt. should take measures to protect the lower income group. The investors should analyze the type

of land in which they are going to invest and the potential

Returns from it. Due to lot of investment avenues in real estate in India, fraud cases are also

increasing day by day like in Delhi deconstruction of buildings. Thus careful measures and laws

should be enacted to deal with these types of situations.

Natalija stated that Advantage India: Real estate is one of the fastest growing sectors in India.

Market analysis pegs returns from realty in India at an average of 14% annually with a tremendous

upsurge in commercial real estate on account of the Indian BPO boom. Lease rentals have been

picking up steadily and there is a gaping demand for quality infrastructure. A significant demand is

also likely to be generated as the outsourcing boom moves into the manufacturing sector. Further, the

housing sector has been growing at an average of 34% annually, while the hospitality industry

witnessed a growth of 10-15% last year.

Jim Berrystated that the highest and best use analysis is another component of property investment

analysis, especially in the case of vacant land or deteriorated property that needs to be redeveloped.


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Highest and best use is defined as the most profitable use at which a site can be developed. Thus,

highest and best use analysis is usually carried out for land sites that are acquired for development

purposes. A sites highest and best use will depend on a number of factors including site physical

characteristics, its location, make up and purchasing power of the population in its area of influence,

competitive projects in its area of influence, market conditions and prospects at the time of analysis,and other factors. If the land site is zoned in an urban use, the highest and best use analysis will focus

on the feasibility and profitability of developing the alternative allowable uses.

Future of Real estate in Indian Economy

Analyzing the current scenario there has been various researches forecasting the future of the real

estate industry. According to them the Real Estate potential in India is vast. The market is expected to

grow at 33% through 2005-2010 to US 50 billion as per Negandhis (2007) estimates. Tremendous

potential demand along with an improving regulatory landscape, robust economic growth and

gradually improving 27 corporate governance standards of developers makes the real estate market in

India over the next five years highly sustainable. This strong potential demand is expected to result in

an exponential growth in development plans of real estate companies. According to Negandhi

(2007), development is expected to reach 16 billion square feet across all segments of the real estate

market by 2010 The plan ahead seems sustainable; however it would be unwise to forget the

experience of the 1985-93 boom/bust in real estate that has left industry players nervous about when

it might happen again. A paper by Kaiser (1997) examines the possible causes and the periodicity of

such major real estate cycles. The evidence suggests that both periods of negative returns, (early

1930s and early 1990s) were caused by excessive levels of new construction which caused an

inflation spike in the general level of prices, suggesting a 50- 60 year real estate bust cycle. The paper

safely concludes that India is not likely to witness another bust period for real estate in the

next four decades.

The conclusions of Kaiser can be witnessed with the bullishness underlying in the development

proposed by the cumulative strength of the Indian developers. Historically, Indian real estate

companies have undertaken development of 1million- 3million square feet of real estate annually.


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With strong growth in demand expected across segments of real estate over the next few years, Desai

& Rane (2006) estimate development plans of real estate companies to rise to 20million- 30million

square feet annually. To sustain these growth levels, the flow of capital into the sector will be carried

out through REITs. REITs is the future of the Indian real estate market. It is expected to lend the

much needed liquidity to developers and allow them to take out their capital value off ompletedprojects for deployment in newer projects. REITs also serve as an effective vehicle for broader

participation by investors in the market.

However, without demand and latent capital adequacy, none of these plans will materialize

effectively for the players in this segment and a good chunk of their demand and capital is expected

in the form of Foreign Direct Investments. The paper by Henley (2004) compares the performance of

India and China in attracting foreign direct investment (FDI). FDI statistics suggest that India's

performance has been significantly understated but India still falls behind for several reasons such as

high tariff structure, poor physical infrastructure, a regulatory system that is too often not business

friendly etc. Nonetheless, India has displaced USA as the second-most favored destination for FDI in

the world. ASSOCHAMs (The Associated Chambers of Commerce and Industry of India) study on

Future of Real Estate Investment in India forecasts that of estimated US$ 60 billion future market size

of real estate business in India, the share of foreign investments will be within the range of US$ 25-

28 billion by 2010. The overseas

investments will also be finding larger space in Indian SEZs and increasing number of shopping

malls that will naturally fatten their share in real estate market. Indian real estate sector is on boom

and this is the right time to invest in property in India to reap the highest rewards.

In the research paper onReal estate investment trust by KASB securities limited in Dec 2005 it

came to light that since REIT allows indirect investment in real estate for small investors who

otherwise could have not had this opportunity. And that it is one of the vehicles that have single

taxation and it also offer low volatility and ease of liquidity.it was suggested that REITs listed under


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NBFC should be allowed to invest in real estate development and acquisition. Exposure limits needed

redefinition with respect to a REIT, REITs should be allowed to borrow.

Regarding Modifications to Income Tax Ordinance it was suggested that

Gains from sale proceeds of land and or building to a REIT should be tax free;

REITs should be granted a status of investment scheme formed under NBFC Rules as a result of

which it would be tax exempted.

Changes in Voluntary Pension Rules suggested that Under Voluntary Pension Rules, pension funds

should be allowed to invest in REITs.

Various other recommendations included

The Land Record System should be computerized

Tenancy Laws should be strengthened and should be classified as criminal law for settlement

of disputes efficiently for property formed under REIT structure

Transaction costs should be reduced

Buyers of property from REITs should not be asked source of income;

Though the above recommendations were made however, it was concluded that the markets will not

function smoothly unless the rental yields improve, tenancy laws are strengthened, official and

unofficial pricing issue is settled, paghri system is abolished, and the time consumed in legal

proceedings is reduced.

The ups and down of Real Estate Markets

Dirk Brounen in Dec 2008 said that the Real estate markets around the world have earned a

complicated reputation. On the one hand, real estate markets offer investors a wide spectrum of

profitable investments opportunities, investments that nowadays can be executed by simply buying

shares of stock listed by real estate investment companies. In the first half of this inaugural address,

the boom of these real estate stocks is discussed. In less than three decades, the listed real estate

market developed into a sector with almost 400 listed firms worldwide, representing a sum aggregate

market capitalization of around one trillion dollars by the end of 2007. Three relevant lessons


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regarding these international real estate stocks are discussed in the first fifteen pages of this booklet,

lessons offered by real estate research from the Rotterdam School of Management. On the other hand,

real estate markets are notorious for attracting entrepreneurs with bad intentions, seeking for

opportunities to circumvent the strong arm of the law. These activities have yielded many headlines

in the daily press and have given real estate a gloomy reputation. The dynamics of foreclosureauction of homes is an example of a source of negative headlines, stressing that the suboptimal

organization of these auctions prohibits distressed sellers from earning a fair price for their home. In

the second part of this address, I focus on an empirical test of the matter. By analyzing over 700

auctioned homes the dynamics of the auction system is discussed objectively. This offers a fair view

on the problems at hand and searches for way to improve the system in the near future.


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CHAPTER 3

RESEARCH METHODOLOGY

3.1Research Problem

It is the pain area for which the researcher needs to find or suggest some solutions.The pain area of

the researchers topic, a study on tool to identify an investors perception while buying a real estate

property in south Mumbai.

3.2 Objective of Study

To identify the factors affecting the value of real estate.

To identify the main areas of investment in Real estate.

To identify the current trends in real estate.

To identify the factors effecting decision of investing in real estate.

3.3 Scope of Study

The researcher has made an attempt to collect data, which is representative of South Mumbai. This

scope of study was taken due to logistical problems and also Mumbai is a miniature of Maharashtra.

Thus the results of Mumbai can be used for further studies with respect to Maharashtra and India.

Also one more reason why this area was taken into consideration was that, the area under research

was heterogeneous in nature where all class people could be easily contacted.

3.4 Hypothesis

1. Null Hypothesis: The disposable income is the main factor that drives the investment

decision in real estate.

Alternate Hypothesis : The disposable income is not the main factor for investment

decision in real estate

2. Null Hypothesis: Government Policies play a major role in Real estate investment

Alternate Hypothesis :Government Policies does not effect the investment in real estate.


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3.5 Data Collection

Primary Data:

Primary Data are those data, which are collected for the first time (first hand information).

A structured questionnaire was built in correlation with objective of research and hypothesis.

Thus, data using structured questionnaire was collected from different consumers.

Secondary Data:

Magazines, Trade Journals, Internet, Reference Books, Etc. are used to collect secondary data.

3.6Research Instrument

Questionnaire formed in a structured format and accordingly surveys were carried out. The surveys

were filled by different age group people in southern & western Mumbai. The information provided

by them is 100 percent genuine and given in utmost faith.

The questionnaire includes both open ended and close open ended questions.

Open ended questions were used to find out the reviews of the respondents so that proper

recommendation can be made.

Close ended questions were used so that appropriate statistics could be calculated.

3.7 Research Design

Research Design is an outline of research study which indicates that what researchers will do right

from the initial stage till the final data analysis. Research Design constitutes decision regarding what,

where, why, when and how concerning with respect to an enquiry.

A Descriptive design was decided to implement as per the demand of this current research. Thus, the

research design adopted by the researcher for the study was Descriptive to cover the various facts of

the study.

A study a study on tool to identify an investors perception while buying a real estate property in south

Mumbai. The study is restricted to South Mumbai and the data used is primary data as well as


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secondary data. The study will be done with the help of a questionnaire and the report will be

prepared in the form of MS WORD and MS POWERPOINT.

3.8Sampling Plan / Sampling Technique

A sampling design is a definite plan for obtaining a sample from a given population. It refers to the

technique or the procedure the researcher would adopt to select units from the sample. It will also

indicate the number of units to be included in the sample also known as sample size.

The sampling technique adopted by the researcher was Simple Random Sampling.

3.9Limitation of Research

Small sample size

The sample size was only 50 respondents which a very small size to base a research and give

conclusion about the whole sector.These respondents are not sufficient enough to base our

conclusion for the group of investors.

Time bound research

The research was conducted in a short span of time.The responses of the respondents may be

affected by some particular situation prevailing at that particular time. If the time duration

would have been long it would have gien the general idea or perception of the investors.

Might get biased response

As discussed earlier that the sample size was small also considering that the interview were

conducted in a short span of time, there is high probability that the respondents might have

given biased responses.


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CHAPTER -4

Top Players of Real Estate Industry

o DLF:DLFs chief business is to develop housing, marketable and retail properties.

Currently it has undertaken the development of 70 million sq ft of housing projects

which it intends to finish in the next three years. DLF has joined hands with Delhi

Development Authority to develop townships in Amritsar, Pune, Gurgaon, Mumbai,

Chennai and Goa. DLF has been the construction company behind different malls in the

major cities in India. The company is also developing 50-75 hotels along with Hilton

Hotels and infrastructure and SEZ in India in collaboration with Laing ORourke

(UK).The current market cap is around Rs.51,832.22 crore.

o Tata Projects:Tata Projects registered an annual turnover of Rs 2,300 crore on July 1,

2007. With more than 1,500 professionals the company has emerged as one of the chief

player in EPC projects. Over the last four years, it has attained a CAGR of 50 per cent

which quadrupled its annual turnover of 2006-07. Tata Projects functions in concentrated

divisions like broadcast and distribution, steel, power production, oil, gas and

hydrocarbons and industrial infrastructure.

o Omaxe : Omaxe has successfully executed more than one hundred and twenty

industrial, institutional, commercial and residential projects for a number of prestigious

Indian private, public sector and Multinational's clients such as Amity University, LG,

Pepsi, Samsung, Wave Cinemas, National Brain Research Centre, P.G.I. M.E.R, Apollo

Hospitals and Delhi High Court.

o Shapoorji Pallonji & Co:The Company has more than 3,500 professionals working for

it and is largely driven by its loyalty to consumer satisfaction. Some of the major projects

undertaken by Shapoorji Pallonji & Co are World Trade Centre, Mumbai; TELCO

industrial complex, Pune; Bhabha Atomic Research Centre, Kalpakkam; HSBC Bank,


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Mumbai; Hotel Taj Intercontinental, Mumbai; Bank of India, Mumbai; Indira Gandhi

International Airport, New Delhi, etc. the company has created magnum opus of

construction and has been a consistent executer of challenging projects.

o Unitech:Recently Ramesh Chandra, Unitechs Chairman has declared the investment of

$ 720 million by his company in the coming four years to develop 28 hotels along with

Marriott International. The market capitalisation of the company is Rs.16,867.40

crore.Its chief activities include construction, expansion of real-estate, consultancy in

associated sectors, hotels, electrical broadcast and information technology.

o India Bulls Real Estate: One of Indias largest listed developers developing residential

and commercial real estate. Being a focused regional player, more than 90% of IBRELs

portfolio by value is in the three major markets of Mumbai, NCR and Chennai.

Established in 2000, the company has grown into one of the leading Indian business

houses with its companies being listed on Indian and overseas financial markets having a

combined net worth in excess of Rs. 18,000 crores. the current market cap being

Rs.6,545.17 crore.

o HDIL: Ranked as Indias fastest growing real estate company by Construction World-

NICMAR in October 2007 & with a current market cap of Rs.8,567.76 crore, Housing

Development & Infrastructure Limited has established itself as one of Indias premier

real estate development companies, with significant operations in the Mumbai

Metropolitan Region. HDIL is a public listed real estate company in India with shares

traded on the BSE & NSE Stock Exchanges. With operations spanning every aspect of

the real estate business, from residential apartment complexes to towers & townships,

commercial premium office spaces and retail projects like world-class shopping malls. it

is Indias largest slum rehabilitation company, & was given the Mumbai International


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Airport Slum Rehabilitation project in October 2007,one of the largest urban

rehabilitation projects in India.

.

o Emaarr-MGF: One of the worlds leading real estate developers company in India and

Development of properties in the residential flats, Commercial Properties, premium

apartments etc. The Commonwealth Games Village builder is still trying to get listed

on NSE. Currently not listed.

Factors determining the value of real estate

Demand

Demand refers to peoples willingness and ability to buy or rent a given property. In part demand

stems from a market areas base. In most real estate markets, the source of buying power comes from

jobs. Property values follow an upward path when employment is increasing. The real estate market

in India has seen remarkable changes in the past few years. The rapid expansions of information

technology, especially BPOs, spurt in the middle class income and 8% growth in GDP are the

potential key factors for the growth.

India is the 4th largest economy in the world, and has the 2nd highest GDP among the

Developing countries based on purchasing power parity. IT and IT enable services sector in India is

still in its growing stage due to increasing demand for business processing units in India and is

estimated to grow by 107% to $583 million in revenue. This could lead to a space requirement of 20-

25 million sq. ft. per annum, according to a Merrill Lynch report. Taking this factor into

consideration, the Total value of real estate created by the IT and ITES sector in the next three years

will be Rs.132000.

Supply Analysis

Supply analysis means sizing up the competition. Nobody wants to pay more for a property than the

price they can pay for competing property. An integral part of value analysis requires identifying


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sources of potential competition and then inventorying them by price and features. An analysis of

supply should not limit potential competitors to geographically and physically similar properties. In

some markets, for example, low priced single family houses might compete with condominium units,

manufactured homes and even with rental apartments.

The Property

In real estate the property itself is also a key ingredient. The price that people will pay is governed by

their needs and the relative prices of the properties available to meet those needs. To try to develop a

propertys competitive edge, an investor should consider five things:

1. Restrictions on use

2. Location

3. Site characteristics

4. Improvements

5. Property management

Rental Trends in India

Recent trends of rental properties in India are conspicuous by the immense potential that is being

realized today. Rental values in cities like Delhi and outskirts are witnessing an increase of 20-25%.

Real estate agents are devoting themselves to negotiations for rented homes than ever. Though the

interest rates on home loans, continued tax exemptions on such prompts people to buy property, those

with the ability to buy a flat among the middle-class are thinking twice.

In residential segment, the capital value or cost of flats has almost doubled in cities like

Gurgaon where prices went up to Rs. 45 lakh from Rs. 15 lakh a couple of years back. The demand

for more capital appreciation in the wake of rising prices coupled with home loan rate hike has

dampened the buying spirit. This has in ways propelled demand for rental property in India. Increased

demand for independent houses or paying guests occurs mainly in the metros like Delhi, Gurgaon,

and Mumbai etc. where the corporate sectors rent independent houses for their senior executives. A


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paying guest or PG accommodation in India is a convenient arrangement. Even PG hostels and

working

Womens hostels are considered safe and can be availed of on an individual or sharing basis mean big

business.

The real estate rental trends in commercial sector are momentous as the key tendency among the

investors is to rent a commercial space instead of buying. It will facilitate low risk and less worry on

maintenance. Commercial rentals including corporate office space, BPO spaces, mall space, shops

and showrooms are an integral part of the commercial rentals in India. Buying good space in high

quality development and leasing it to a good brand is a wise investment decision. Usually,

commercial lease agreements specify a 15% escalation in the real estate rental in every three years

which is a good enough yield. For those considering regular rental returns rather than capital

appreciation, mall space has the distinction to be an excellent option. It gives returns higher than that

received with office space and much higher than the rental returns from residential space.

Major Areas of Investment in Real estate

Real estate Stocks and REIT

The passive investor would likely want to place investment funds into the stock market in the form of

equities of major national homebuilders. Or they might invest in a Real Estate Investment Trust. This

is a fund set up and managed to invest in stocks, bonds and mortgage instruments in the real estate

area. People find it a convenient and safe mode of investment as small investors who do not have

large funds to invest directly in real estate property are able to benefit from the schemes as large

number of small investors come together and pool in their funds and invest them through people who

have specialized skills of investment. This option not just give small investors the benefit of enjoying

the income of real estate sector but also provide them with less risk as the risk gets distributes among

large number of investors and the amount is managed by fund managers. REIT are such ways of

investing


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Mortgage Instruments

Discounted notes are another investment strategy. Sellers many times accept a mortgage from a

buyer, and after payments have been made for a while, they want to convert to cash. They sell the

note to an investor at a discount and the investor then gets payments from the buyer.

Appreciation of the Market Value of Properties

This is the most widely known way of profiting in real estate. A property is purchased and held. Over

time, the value of the property appreciates, sometimes even faster than the overall market. Certain

areas of the country have experienced significant appreciation in home values over the last ten years.

Rental Income from residential Property

This type of income is at a rise these days .As it gives an ease of earning regular income. A person

can invest in a property and purchase it and then can lend it on rent to tenants, paying guest and earn

handsome rent every month. It is becoming a trend in the metropolitan cities as more and more

people are coming to metropolitan cities in search for work and when these people come to different

cities to make a career and settle down they live on rented accommodations, due to such reasons this

has become a huge business these days.

Investment in commercial properties

In todays time commercial property are very expensive. The price is really high due to increase in

trade. Commercial properties are in demand and so investors find it as a lucrative investment option.

Be it a small investor who invest in a commercial property like a small shop or big investors who

invest in malls, technology parks etc. Every investor can invest in these properties based on this level

of investment. There is scope for all types of investors.


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Vacant Land

People purchase vacant land, few keep it as it is and sell it off when the prices increase. Big

developers purchase vacant land at discounted prices in auctions and then construct huge apartments,villas, cities .and then sell these flats individually and earn large profits. Some others build up

amazement parks and earn from it. There are various ways in which a person can earn from vacant

land by converting it into different alternatives.

Major reasons for success of Real estate sector

Expansion and Development of the IT sector

Liberalization and Globalization has opened various avenues for investment. Number of MNCs have

set up their base in India and have given way to the growth in the real-estate sector especially in the

commercial property sector. This has also provided better employment opportunities to the people of

India and thus helping in the overall growth of the Indian economy and subsequently in the growth of

the real estate. There are large number of BPOs and KPOs that have set their base in India. These

companies require better infrastructure to match up with their work and so came up the concept of

Technology Park. This has not only benefited the real estate industry but other interlinked industries

as well effecting the Indias overall economic growth. We can see that as these companies are

increasing their presence so is the value of real estate .In the current time they are one of the major

contributors in the upliftment of the real estate sector.

Liberalized FDI Policy

The decision of the Indian Government to liberalize the FDI policy has bought a relief to the foreign

investors who can now invest up to 100 % in construction and housing development. This has made

investment in Indian real estate more lucrative. Since the policies are being liberalized and

restrictions are being removed India is becoming a favored destination for investment purpose for the

foreign investors. They prefer India as it is a developing Nation, that too a one with one of the largest

economies, these factors when added to the relaxation of policy brings about more funds from outside

India. Thereby increasing not just the worth of the real estate sector but also contributing in the


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growth of the economy. Some of the worlds famous builders are taking keen interest in investing in

the Indian real-estate market. Investment of foreign builders promises better prospects in the Indian

real estate industry in terms of regulatory policy, efficient management, and the use of more

advanced technology. This ensures that the Indian real estate has a brighter future. . The minimum

land area for development by foreign investors is lowered from the earlier floor of 100 acres to 25acres which has further made the real estate sector lucrative in the eyes of the foreign investors.

Convenience in obtaining Bank Loan.

There are number of banks in India. Due to the presence of large number of both nationalized and

private banks competition has also increased. Competition is not just between the Private Banks but

even amongst the nationalized banks. To compete each other these banks try and facilitate the

customer to get the best of products and services. In the recent years banks have been offering hassle

free loans to the customer which has increased the capacity of the investor to purchase real estate. So,

buying a property is not difficult even for those belonging to middle-class. Thus, it has enabled the

overall growth of the Indian real estate.

Growth of the Indian economy

The Indian economy is one of the fastest growing economies in the World. This has a direct effect on

the real estate sector as it is one of the largest sectors in the Indian economy. Some of the major areas

which have been greatly affected by the growth in Indian economy are Delhi NCR, Mumbai,

Hyderabad, Chennai, Bangalore, Pune and Kolkata. This growth is observed in all forms of property

such as commercial, residential and industrial.

Trends in Real Estate

Janta Flats

Until few years people use to live in Flats which were distinguished as LIG, MIG and HIG. The Low

income Group Housed which was 1 bhk house, Middle income group flats use to have 2 bhk house


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and High Income Group Houses were 3bhk houses. This trend stayed for quite a long time and even

today in few areas we can see LIG, MIG and HIG Janta Flats made by the government.

Builder Flats

Then came a time when Builder made Flats became a range among people. People preferred them as

they were well furnished homes as compared to the previous Janta Flats. Builders use to purchase

vacant land or some existing old house deconstruct the old building and reconstruct new flats with

latest designs. These flats were build keeping in mind the owners choice and preferences unlike those

of Janta flats. Even today builder Flats are being constructed majorly trying to develop the under

developed regions.

Apartments

They were like Builder flats but had better facilities as compared to them. Apartments had large

number of flats in the building.

Co-operative Societies

This was a corporation wherein the corporation owned two or more residential building. Each

member of the cooperative housing society was given a house each. The member needs to take the

approval of the society before selling off the property to the third person.

Penthouses

These are huge houses which cater to the needs of the upper class people. As space in metropolitans

are reducing because of increase in number of migrants the space required for living and constructing

individual houses has reduced drastically. So penthouses were built which are really huge apartments.

Villas

They are individual houses build in a locality, they look like cottage type.


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Cities

Big Builders are not just providing houses to live in but they are building up small cities within few

acres of land. The Cities are build in such a way that it consist of residential flats, schools, hospitals,

multiplex, malls, clubs all around the residential flats to bring the lifes of people at ease. This is the

latest trend in the real estate sector. Every Big builder/ developer are building their own cities as it

not just provides them with onetime payment but with regular income by way f various facilities

being offered by them.

Green HousesThis is another new concept which is doing great business.As people have become more

conscious about going green, about saving our resources so as to benefit from the in the future

,Customers are willing to pay more than the normal market price if they are getting

environment friendly alternatives . Solar panels are used and all possible steps are taken to

save our natural resources like Efficiently using energy, water, and other resources, Protecting

occupant health and improving employee productivity, Reducing waste, pollution

and environmental degradation.

Factors effecting decision of investing in Real Estate

Price

The prevailing price of the real estate is a major factor that influences the investment decision of

the investor. Every buyer has his own capacity to purchase a property at different prices. The

prices of property may rise due to different factors. Some people purchase property even when the

prices are rising as they expect that the prices may rise even further and then may have to regret.

whereas some people avoid purchasing when the prices rise as they wait for the prices to fall and

purchase at lower prices.


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Bank Rate

Bank rate is another important factor that determines the decision of the investor. The investor

would assess whether the investment that he is making is worth the interest that he would be

paying to take a loan for purchasing the property. He would assess it based on the amount that he

is expecting to earn from his investment. The Banks rate fluctuate based on different policies that

the government makes.

Location

The investor looks into the factors like the location of the property before investing any money in

the property. It is not just a deciding factor as to whether he should purchase it or not but also

helps in deciding how much is the investor willing to spend on the property based on the location

of the property. If a person is getting a Property in some prime location he might not mind paying

more than the market price but if the location is not as per his satisfaction he will bargain to get

the prices reduced. Location preference is different for each investor as per his requirements and

personal choice.

Economies Condition

The situation prevailing in a country is another important factor. If the country is going through a

bad phase the investor would not invest at that time. A stable economy is always a favored

destination among the investors.

Government Policies

Government policies are one of the major factors that affect the decision of the investors.

Government policies relate to taxation policy, stamp duties and various other things like FDI

involvement etc.


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This is an important factor while deciding. If the government policies keep changing then people

will be reluctant to invest in such an economy.

Disposable Income

The disposable income of a person is a major factor that determines his investment decision. If a

person has high disposable income he can invest in huge real estate properties whereas if the

disposable income is less then the investor might not be able to invest in real estate directly and

he may invest in REIT, equities of real estate companies.


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CHAPTER-5

PRICING STRATEGIES OF INVESTOR

What is Investment...

In simple, Investment is putting money into something with expectation of profit. More

specifically, investment is the commitment of money or capital to the purchasing of financial

instruments or other physical assets so as to gain profitable returns in the form of interest,

dividend or appreciation of the value of the instrument. It is related to saving or deferring

consumption.

An investment involves choice by an individual or an organization to invest its money or

capital in following instrument,

Assets like vehicles, machinery, appliances

Property such as home, building, lands

Commodity

Stock market

Bond

Financial Derivatives like future & option

Foreign assets denominated in foreign currency

Investment comes with the risk of loss of the invested sum of money. The investment that has

not been thoroughly analyzed can be highly risky with respect to the investment owner because

the possibility of losing money is not within the owners control. The above listed all the

investment instruments possesses less or more chances of risk.


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5.1 Classification of Properties :

Real estate has been broadly categories into 3 classes as follow

Types ofProperty

(A). Residential(B).

(C). VacantCommercial

Property landproperty

(A). Residential Property:


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The residential type of property is by far the most popular with both new and experienced agents.

Residential property offers a good investment avenue. People buy residential property for two

important reasons:

For staying

As an investment

Advantages of Investing in Residential Property

Expenses, including depreciation on the property and interest on your

borrowings, are tax deductible.

You make money as the value of the property increases.

You can leverage your investment.

You get rental income.

Risks of Investing in Residential Property

Interest rates could rise.

The property could be untenanted for a period of time.

You could get "bad" tenants.

It could take up a lot of your personal time. \

House prices could remain static, or even fall.


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Following are the types of residences:

Single Family Residence

1. Row Houses/ Townships

2. Flats

3. Bungalows

(B).Commercial Property:

1. Multi-Family Commercial Real Estate:

Commercial real estate property types include duplex homes, and other construction for

habitation by multiple family groups. Condominiums are frequently called multi-family because

of their construction as a group, but are normally listed and sold as single family residential units.

Duplex homes are also frequently listed and sold asresidential units to a buyer that lives in

one side and rents out the other.


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2. Retail Space Real Estate Properties:

This category would include single buildings used as stores for clothing, electronics and other

consumer products, as well as malls, strip centers and the like. Restaurant spaces are a specialty

subset of the retail category, with some listings shown as restaurant/retail. Valuations can be based

on size and land value, retail sales per square foot or other investment return calculations.

3. Office Buildings and Office Complexes

A single building designed for office use, or a group of offices in a single building or cluster of

buildings would fall into this category. When offices are grouped in structures with single ownership,

they are listed as commercial office rental property. The owner derives income from the rental

payments of the office tenants. These can be valued based on the rental income return on investment,

rather than methods using square footage and land value. Medical & Dental offices are a subset.

(C). Vacant Land

Land Investment has historically been the forte of large development companies, rich farmersor wealthy individuals. It can be a profitable business if proper development of land is undertaken.

Land Investment is referred to as a long term investment and with land prices on the rise in many

parts of the world, it is said to be


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the safest and smartest way of investing ones money.

Capital gains can easily be realized from land when land price increases. The most striking

feature of land investment is that investment takes place in a tangible asset which the investors can

readily put into use. It is a branch of real estate investment which is gaining ground as major part of

capital budgeting analysis. Real estate is basically defined as immovable property such as land and

everything permanently attached to it like buildings. It is essentially at this juncture that land as an

asset differs from real estate as it does not necessarily includes buildings and the attachments to the

land. Land is perhaps the most basic asset that we want to invest in and may include vast open tracts

with no significant estate on it. The job of developing the land lies with the developer, and with

proper care to include modern houses and the associated amenities, it will significantly appreciate its

value. Land situated close to developed areas will cost more as opposed to those in less developed

areas. Land developed for commercial purposes and those developed for building residential

complexes will have different prices and tax implications, if any.

Investing in land can be profitable as there is limited supply of land and the purchaser can really sell

dear if he wants to


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5.2 CHARACTERISTICS OF REAL ESTATE INVESTMENT:

Real estate properties have its own some important features. Some of the characteristics that make

real estate unique as compared to other investment alternatives are as follows:

(1). Tangible:

Real estate is, well, real! You can visit your investment, speak with your tenants, and show it off to

your family and friends. You can see it and touch it. A result of this attribute is that you have a

certain degree of physical control over the investment - if something is wrong with it, you can try

fixing it. You can't do that with a stock or bond.

(2). Requires Management:

Because real estate is tangible, it needs to be managed in a hands-on manner. Tenant complaints must

be addressed. Landscaping must be handled. And, when the building starts to age, it needs to be

renovated.

(3). Inefficient Markets:

An inefficient market is not necessarily a bad thing. It just means that information irregularity exists

among participants in the market, allowing greater profits to be made by those with special

information, expertise or resources. In contrast, public stock markets are much more efficient -

information is efficiently dispersed among market participants, and those with material non-public

information are not permitted to trade


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upon the information. In the real estate markets, information is king, and can allow an investor to see

profit opportunities that might otherwise not have presented themselves.

(4). High Transaction costs:

Private market real estate has high purchase costs and sale costs. On purchases, there are real-estate-

agent related commissions, lawyers' fees, engineers' fees and many other costs that can raise the

effective purchase price well beyond the price the seller will actually receive. On sales, a substantial

brokerage fee is usually required for the property to be properly exposed to the market. Because of

the high costs of trading real estate, longer holding periods are common and speculative trading is

rarer than for stocks.

(5). Lower Liquidity:

With the exception of real estate securities, no public exchange exists for the trading of real estate.

This makes real estate more difficult to sell because deals must be privately brokered. There can be a

substantial lag between the time you decide to sell a property and when it actually is sold - usually a

couple months at least.

(6). Underlying resident Quality:

When assessing an income-producing property, an important consideration is the quality of the

underlying residence. This is important because when you purchase the property, you're buying two

things: the physical real estate, and the income stream from the tenants. If the tenants are likely to

default on their monthly obligation, the risk of the investment is greater.

(7). Variability among Regions:

While it sounds clich, location is one of the important aspects of real estate investments; a piece of

real estate can perform very differently among countries, regions, cities and even within the same

city. These regional differences need to be considered when making an investment, because your

selection of which market to


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invest in has as large an impact on your eventual returns as your choice of property within the market.

5.3 CONSIDERATIONS WHILE MAKING INVESTMENT IN REAL ESTATE

When it comes to making money, Real estate is considered to be one of the surest investments. Lots

of opportunities abound, whether it be in the stock market or in business. But these areas also offer a

significant amount of risk. As a result, most people do not engage in these speculative activities. But

real estate is something which more people can be involved in, simply because everyone needs a

home to live in. However, no investment is entirely risk free, and so even here a certain amount of

due diligence is required.

Some important point you need to think about:

1. Who is the developer?

2. Is the project a self development / partnership or joint venture?

3. Past business / trading history

4. The location of the proposed project

5. Basic amenities

6. The growth prospects of the neighborhood development

7. Industrial and business development in the locality


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8. Price comparison analys


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9. Future property price valuation

10. What are the returns on your investment?

Affordability is a key consideration when making any purchase. One should factor additional

expenses such as electricity and property taxes to get a complete idea of how much can be afforded.

An integrated service model offering end-to- end - 360 Realty Services to cater to the diverse

needs of corporate & developers in project management & execution. Managing realty projects right

from identification to marketing is a lengthy process replete with many challenges. You may be keen

to execute realty projects for commercial / residential purposes but may not be equipped with the

right skill-sets / know-how for the undertaking.

Build- One offers you with a integrated service model meeting the entire realty business needs to help

you successfully undertake your realty projects. Build-One offers you with a unified value-chain of

core realty services with critical forward & backward integration of other value-added services. The

services are effectively streamlined enabling steady progression of the projects, right from idea

conceptualization to profit generation / hand-over, encompassing all functional & operational tasks.


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360* DegreeFirms significant Functions pertaining to Construction Project.

Market Feasibility Property Title

Identificatio

Study Study Check/Legal

n Work

Regulatory

Budgeting

Planning & Property

Approvals Designing acquisition

Project Mgt. / Marketing Selling,

Construction Plans

Leasing &

Hand over

1. Market study:

Market study refers to detailed analysis of market and locations in different

regions within the specific area. One has to look the trend and path of the property market in the


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area where he want to set up the project. A marketability study tries to create a market area demand

model based on available demographic information and the application of common sense to

develop a picture of the current and future market area trends that may effect demand.

2. Feasibility Study:

Feasibility Study typically involves testing geographic locations for a real estate

development project, and usually involves packages of real estate land. Developers often conduct

feasibility studies to determine the best location within a jurisdiction, and to test alternative land

uses for given packages. Jurisdictions often require developers to complete feasibility studies

before they will approve a permit application for retail, commercial, industrial, manufacturing,

housing, office or mixed-use project. Market Feasibility takes into account the importance of the

business in the selected area. Could the project be built?, Can the site support a building structure

that is planned?, etc. should be check out.

3. Property Identification:

Property identification refers to the type of project which the builder has to plan. It

mean whether put residential or row house or to put specific commercial project

looking at the locations and demand for the market. Property identification generally is driven by

demand of type of property in the market.

4. Title clear/Legal work:

Title clear is the phrase used to state that the owner of real property owns it free and

clear of encumbrances. In a more limited sense, it is used to state that, although the owner does not

own clear title, it is nevertheless within the power of the owner to convey clear title. For example, a

property may be encumbered by a mortgage. This encumbrance means that no one has clear title to

the property. However, standard terms in a mortgage require the mortgage holder to release the

mortgage if a certain amount of money is paid. Therefore, a buyer with enough money to satisfy both

the mortgage and the current owner can get clear title.


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5. Property Acquisition:

Generally, property acquisition refers to a person or other entity acquiring title to real

property by a deed. A deed is the legal instrument used to transfer ownership in real estate. Real

property can also be acquired by inheritance and by a court order.

6. Planning & Designing of Project:

Planning and designing is carried out only after finishing the above legal works. It is

concerned with the proper plans and the design of the project that the developer is going to construct.

Here, builder can approach architects to develop plan and design as per the requirements of builder.

7. Budgeting:

This point is also important to be considered by a builder. The budget of the real estate

project should be optimal as per the plan and designs of the structure. Budgeting needs to analyze the

size of the projects.

8. Regulatory Approval:

After the plans and design of the projects, it needs to be submitted the same at the

concerned govt. authority (Municipal Corp./Municipality) for further verifications and approval for

the project. If authority finds no objections, then after they can arrive at decision for approval and

sanction of project.

9. Project Mgt./Construction:

If government regulatory approvals and project get sanctioned by authority, then

after builder can take step further to start initial work of construction. A project management team

also has to form for various aspects of the


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project of residential or commercial. At regular interval of time, govt. executives checks the work

whether is going as per the criteria.

10.Marketing Plan:

While developer put the marketing plan for the project he has put. On the bases of

demand for the housing and location. As a promotional efforts and marketing for the project

Hoardings, newspaper ads. attractive schemes, agent/ broker approach has to be followed.

11.Selling, Leasing and Handover:

Builder may sell the entire project to other party, or he may sell the project on leasing

bases. Another option he may adopt is he can hand over to the party who want to handle this

project.

Below are some of the main points that were made along the way:

Real estate investments fall into one of the four following categories: private equity, public equity,

private debt and public debt. Your choice of which one to invest in depends on the type of exposure

you are seeking for your portfolio.

You can invest in either income-producing properties or non-income-producing properties. Any

leased property is income producing, and vacant properties are non-income producing. You can still

earn a capital return on a non-income producing property, just as you would on an investment in a

home.

Real estate can produce income (like a bond) and appreciate.

Real estate is tangible, so it requires ongoing management. On the other hand, you also have an

increased ability to influence the performance of a single investment as compared to other asset

classes.


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Some of the benefits of adding real estate to a portfolio includ e: diversification, yield enhancement,

risk reduction and inflation-hedging capabilities. However, real estate also has high transaction costs,

can be difficult to acquire and it is challenging to measure its relative performance.

Buying real estate requires substantial due diligence to ensure that you're getting what you expect

after you close.

5.4 ADVANTAGES AND DISADVANTAGES OF REAL ESTATE INVESTMENTS:

ADVANTAGES:

Investing in real estate is as advantageous and as attractive as investing in stock market.

Here are the main benefits of investing in property market.

Real Estate Investments are Less Risky:

As compared to other investments, less of misadventure is involved in a real estate property.. Real

estate investments are traditionally considered a stable and rich gainer, provided if one takes it

seriously and with full sagacity. The reasons for the real estate investments becoming less risky

adventure primarily relate to various socio-economic factors, location, market behavior, the

population density of an area; mortgage interest rates stability; good history of land appreciation, less

of inflation and many more.

No Need for Huge Starting Capital.

A real estate property can be procured for an initial amount as low as $8,000 to $ 15,000, and the

remaining amount can be taken on holding the property as security. This is what you call High Ratio

Financing. If you don't have the idea as to how it works, then let explain with the help of an example.


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Honing Investment Skills

A real estate investment, especially when you buy a condo for yourself, will be a pleasurable learning

experience. It gives you the opportunity to learn and when you went ahead with your first real estate

property.

Not a time taking Adventure

Real estate investment will not take out all your energies, until you are prepared and foresighted to

take the adventure in full swing. You can save hell lot of time, if you are vigilant enough to know the

techniques of making a judicious investment in the right time and when there are good market

conditions prevailing at that point of time.

Leverage is the Right Way

The concept of leverage in real estate is not a new one. It implies investing a part of your money and

borrowing the rest from other sources, like banks, investment companies, finance companies, or other

people's money (OPM). There have been many instances where people have become rich by

practically applying OPM Leverage Principal. Moreover, in case the lender is interested in selling the

property, the net proceeds resulting from the sale of the property should comfortably cover the

mortgage amount.

Real Estate Appreciation

An appreciation is an average increase in the property value over original capital investment, taking

place over a period. There are some neglected real estate properties that have an appreciation below

the average mark, whereas, some of the properties located in maintained geographical areas,

showing high demand, have an above average appreciation. In such centrally located and high

demand areas, the average appreciation can reach up to 25% in a year.

Low Inflation


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Inflation is the rise in the prices of the products, commodities and services, or putting it another way,

it is the decrease in your capacity to buy or hire the services. Supposing, a commodity was worth $10

a decade back, will now cost $ 100 as the result of inflation. Comparatively, real estate sector has

minimum rate of inflation.

Tax Exemptions

You get various tax exemptions on your principal and investment income property. The tax

exemptions available in real estate property investment are more than available in any other

investment. In other investments, you lose terribly on the

investments in your bank in the form of inflation and high taxes therein, but in real estate; you don't

actually have such hindrances.

There are several beneficial provisions in the Income-tax Act, 1961 which promote

investment in residential properties, having regard to the need for housing millions of citizens. Of

course, only those who pay taxes can take advantage of the appropriate incentives given under the

law.

Interest payable on loans taken for purchase or construction of house is deductible to the extent of Rs

1.5 lakh every year, though the annual value of one self-occupied residential property is exempt from

income-tax. In addition, repayment of the installment of housing loan is deductible to the extent of Rs

1 lakh per annum under section 18-C.

High Return on Investments

Real estate investment gives you potentially high Rate of investment before and after the taxes levied

on your income. In fact, investing in real estate gives you high ROIs after the taxes

Net Positive and High Income is Generated.

Increased demand for properties.


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DISADVANTAGES

Beside the large potential of return on Investments, there are certain levels of Disadvantages. These

disadvantages can be easily taken off, if you have an insight about the limitations of real estate

investment and what can be its short term as well as long-term repercussions.

Taking Wrong Decisions

People going for the real estate investment property take decisions in haste. Make a firm decision

when you go for purchasing your first real estate property, is just not easy man. If you are swayed by

emotions, you will be ruined.

No readily available Liquidity:

With your real estate investment, you need to know one thing straight, and that is you

simply cannot aspire hard cash immediately. You have to wait and watch the market movements and

other socio-economic and politico economic factors before selling your real estate property, like a

mall or your home.

Eats away your time and energy:

Real estate investment can get you real fatigue. It is a lethargic time consuming process that makes

you feel almost laid back. You need to plan and have those instincts to get going with your property.

You will learn more on about making you real estate investments more time efficient in later part of

the chapters.

A Risk full decision can harm:


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Investing in a real estate property can be a risky and costly even, if you are not prepared

before, you will make losses. Not just losses but, but you will become a pauper. Remember, as I said

in my earlier statements, Real estate market is speculative.

No Stringent Comparison Methodologies

Real estate market is variable. The price of two real estate properties can vary a great

deal, provided you keep other factors such as time and location, constant. No

two real estate properties can have exact. There always exists kind of variation and this need to be

taken into account. Though, you do have the existing rule of thumbs and set strategies, but all

these are workable, if tried in combination.

Guided and Drawn on Government Policies:

Government policies and regulations play an indispensable role in deciding on the

real estate investment. These policies and regulations include control the zone based bylaws,

construction activities; property prices; rent control procedures; license dispensations and property

transfers; taxesetc.


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5.5 Government regulations in Real Estate sector:

Much of the over 100 laws governing various aspects of real estate in India dates back to the 19th

century and major amendments to existing laws are required to make them relevant to modern day

requirements. The Central laws governing real estate include:

Registration Act, 1908

The purpose of this Act is the conservation of evidence, assurances, title, and publication

of documents and prevention of fraud. It details the formalities for registering an instrument.

Instruments which it is mandatory to register include:

(a) Instruments of gift of immovable property;

(b) other non-testamentary instruments which purport or operate to create, declare, assign, limit

or extinguish, whether in present or in future, any right, title or interest, whether vested or

contingent, to or in immovable property;

(c) non-testamentary instruments which acknowledge the receipt or payment of any

consideration on account of instruments in (2) above.

(d)Leases of immovable property from year to year, or for any term exceeding one year, or

reserving a yearly rent.

Urban Land (Ceiling and Regulation) Act

(ULCRA), 1976

This legislation fixed a ceiling on the vacant urban land that a 'person' in urban agglomerations

can acquire and hold. A person is defined to include an individual, a family, a firm, a company, or an

association or body of individuals, whether incorporated or not. This ceiling limit ranges from 500-

2,000 square meters (sq. m). Excess vacant land is either to be surrendered to the Competent

Authority appointed under the Act for a small compensation, or to be developed by its holder only


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for specified purposes. The Act provides for appropriate documents to show that the provisions of

this Act are not attracted or should be produced to the Registering officer before registering

instruments compulsorily registrable under the Registration Act.

The objective of acquiring the excess vacant land could not be achieved because of

intrinsic deficiencies in the legislation itself.

Stamp Duty:

There is a direct link between Registration Act and Stamp Act. Stamp duty needs to be paid on

all documents which are registered and the rate varies from state to state.

Rent Control Act:

Rent legislation in India has been in existence for a very long time. Rent control by the

government initially came as a temporary measure to protect the exploitation of tenants by landlords

after the Second World War. However these rent control acts became almost a permanent feature.

Rent legislation provides payment of fair rent to landlords and protection of tenants against eviction.

Besides, it effectively allows the tenant to alienate rented property.

Property Tax:

Property tax is a levy charged by the municipal authorities for the upkeep of basic civic

services in the city. In India it is the owners of property who are liable for the payment of municipal

taxes whereas in countries like the United Kingdom, the occupier is liable. Generally, the property tax

is levied on the basis of reasonable rent at which the property might be let from year to year. The

reasonable rent can be actual rent if it is found to be fair and reasonable. In the case of un-let proper-

ties, the rental value is to be estimated on the basis of letting rates in the locality.


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CHAPTER 6

DATA ANALYSIS & INTERPRETATIONS

Findings and Analysis

The findings and analysis are based on the survey done on prospective buyers. The survey was

conducted through the use of questionnaire. The following are the findings and analysis of the

survey.

1. Age group of Investors

The respondent of the survey were mostly in the age group of 36-45 years i.e. 42%. Followed by the

people in the age group of 45 years and above- 27%. 23% in age group of 26 to 35 years and the

least were people in the age group of 20 to 25 years. This shows the type of sample that we are

analyzing

8%

23%

42%

27%

Age Group of Investors

20 -25 years 26 - 35 years 36- 45 years 45 and above


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2. Income Level

The above analysis shows that the people covered under the survey mostly included people from the

income group of 6-10 lakhs i.e. 39% , followed by people with income above 10 lakh- 33% and the

remaining were in the category of 3.5 to lakh and 2- 3.5 lakh consisting of 22% and 6%

respectively.

0

5

10

15

20

25

30

3540

45

2 - 3.5 lakh 3.5 - 6 lakh 6- 10 lakh

Real Estate 2001 MARKS

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