Real Estate Sector in India

www.indiabusinessreports.com

Real Estate Sector In India: Info Review*

Sector: Real Estate

May-2016*IBR’s Info Reviews are not research reports, but a handy compilation of relevant information

Market size

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Source: India Business Reports

Contribution to GDP 6%

India’s GDP for FY16 (Apr’15 to Mar’16) in current prices USD 2068B

Annual real estate value add*

*reported sector turnover will be more than value add

USD 125B

Growth rate 12% (grows in line with nominal GDP)

Expected FY20 size USD 200B

Share of household savings 30% of India’s household saving goes in real estate

Segments

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Segmental value add – FY16

• Residential

• Commercial

USD 90B

USD 35B

Segmental value add – FY20

• Residential

• Commercial

USD 150B

USD 50B

Real Estate - India

Urban Housing market has massive growth potential



The urban housing shortage is estimated at 18.78 million units (Source: Ministry of Housing & Urban Poverty Alleviation, HDFC Ltd prsentation)

Growth drivers

– Improved Affordability • Rising disposable income • Tax incentives (interest and principal repayments deductible)

– Increasing Urbanisation • Currently only 31% of Indian population is urban

– Favorable Demographics • 60% of India’s population is below 30 years of age • Rapid rise in new households

Growth drags

– High interest rates• While interest rates have started edging down, still high compared to 7-8 years ago. The RBI has been following a strong monetary policy to bring down inflation and protect rupee. Now WPI is negative, rupee is stable. Interest rates are directionally headed down.

– High Capital Values• Real estate prices shot up over 2006-13. Have been in correction mode for last 3 years. Cycle could turn in 12-18 months

Real Estate - India

Indian Real Estate Index



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Base -2007

Oct-Dec 2012

Jan- Mar 2013

Apr-Jun 2013

Jul-Sept 2013

Oct- Dec 2013

Jan-March 2014

April-June 2014

July-Sept Oct- Dec 2014

Jan-March 2015

Correction from Peak

Peak

Ahmedabad 100 191 192 186 191 197 209 213 217 215 215 -0.9% 217

Bengaluru 100 106 109 108 107 111 107 108 109 113 115 0.0% 115

Chandigarh 100 0 194 191 192 188 183 175 174 173 169 -12.9% 194

Chennai 100 314 310 303 318 330 349 355 362 366 364 -0.5% 366

Coimbatore 100 0 184 178 178 173 170 176 180 176 179 -2.7% 184

Delhi 100 195 202 199 190 196 199 193 189 189 190 -5.9% 202

Faridabad 100 205 207 202 204 209 209 211 216 222 224 0.0% 224

Hyderabad 100 90 88 84 88 93 95 95 93 95 97 -3.0% 100

Jaipur 100 87 112 110 108 105 101 102 101 103 102 -8.9% 112

Kochi 100 87 89 86 86 85 85 86 88 88 88 -12.0% 100

Kolkata 100 209 197 189 199 196 206 211 209 215 212 -1.4% 215

Ludhiana 100 179 167 157 150 150 145 147 146 147 145 -19.0% 179

Mumbai 100 217 222 221 222 222 229 233 238 240 238 -0.8% 240

Pune 100 205 221 219 219 235 232 241 242 247 251 0.0% 251

Surat 100 150 140 142 145 154 165 161 160 164 168 0.0% 168

Vijayawada 100 185 184 174 167 161 160 163 161 162 163 -11.9% 185

RESIDEX is an index launched by government owned National Housing Bank in 2007. Select data..The latest available reading is a year old. Prices have largely corrected since then, except in cities like Hyberabadwhich is witnessing a long overdue revival.In general, non-metro cities (outside top 8) have witnessed strong appreciation in the last 3-4 years

India’s top cities: 53 cities have population above 1mn


City State Population Type City State Population Type

1 Mumbai Maharashtra 183,94,912 Metro 28 Ludhiana Punjab 16,18,879 Tier-I

2 Delhi Delhi 163,49,831 Metro 29 Nashik Maharashtra 15,61,809 Tier-I

3 Kolkata West Bengal 140,57,991 Metro 30 Vijayawada Andhra Pradesh 14,76,931 Tier-I

4 Chennai Tamil Nadu 86,53,521 Metro 31 Madurai Tamil Nadu 14,65,625 Tier-I

5 Bangalore Karnataka 85,20,435 Metro 32 Varanasi Uttar Pradesh 14,32,280 Tier-I

6 Hyderabad Telangana 76,77,018 Metro 33 Meerut Uttar Pradesh 14,20,902 Tier-I

7 Ahmedabad Gujarat 63,57,693 Metro 34 Faridabad Haryana 14,14,050 Tier-I

8 Pune Maharashtra 50,57,709 Metro 35 Rajkot Gujarat 13,90,640 Tier-I

9 Surat Gujarat 45,91,246 Tier-I 36 Jamshedpur Jharkhand 13,39,438 Tier-I

10 Jaipur Rajasthan 30,46,163 Tier-I 37 Jabalpur Madhya Pradesh 12,68,848 Tier-I

11 Kanpur Uttar Pradesh 29,20,496 Tier-I 38 Srinagar Jammu and Kashmir 12,64,202 Tier-I

12 Lucknow Uttar Pradesh 29,02,920 Tier-I 39 Asansol West Bengal 12,43,414 Tier-I

13 Nagpur Maharashtra 24,97,870 Tier-I 40 Vasai-Virar Maharashtra 12,22,390 Tier-I

14 Ghaziabad Uttar Pradesh 23,75,820 Tier-I 41 Allahabad Uttar Pradesh 12,12,395 Tier-I

15 Indore Madhya Pradesh 21,70,295 Tier-I 42 Dhanbad Jharkhand 11,96,214 Tier-I

16 Coimbatore Tamil Nadu 21,36,916 Tier-I 43 Aurangabad Maharashtra 11,93,167 Tier-I

17 Kochi Kerala 21,19,724 Tier-I 44 Amritsar Punjab 11,83,549 Tier-I

18 Patna Bihar 20,49,156 Tier-I 45 Jodhpur Rajasthan 11,38,300 Tier-I

19 Kozhikode Kerala 20,28,399 Tier-I 46 Raipur Chhattisgarh 11,23,558 Tier-I

20 Bhopal Madhya Pradesh 18,86,100 Tier-I 47 Ranchi Jharkhand 11,20,374 Tier-I

21 Thrissur Kerala 18,61,269 Tier-I 48 Gwalior Madhya Pradesh 11,17,740 Tier-I

22 Vadodara Gujarat 18,22,221 Tier-I 49 Kollam Kerala 11,10,668 Tier-I

23 Agra Uttar Pradesh 17,60,285 Tier-I 50 Durg-Bhilainagar Chhattisgarh 10,64,222 Tier-I

24 Visakhapatnam Andhra Pradesh 17,28,128 Tier-I 51 Chandigarh Chandigarh 10,26,459 Tier-I

25 Malappuram Kerala 16,99,060 Tier-I 52 Tiruchirappalli Tamil Nadu 10,22,518 Tier-I

26 Thiruvananthapuram Kerala 16,79,754 Tier-I 53 Kota Rajasthan 10,01,694 Tier-I

27 Kannur Kerala 16,40,986 Tier-I TOTAL 1916,27,571

Indian real estate private fund market size



Real Estate - India

• PE transactions in Indian real estate have picked up since 2015. This is both local money and foreign money

• Investments are expected to surge further this year.• This is due to improved regulations

• FDI data corroborates our own PE deal data

• Shows a surge in 2015 (this is only first half data)

Source: Morgan Stanley

Foreign Direct Investment Data0

500

1000

1500

2000

2500

3000

3500

2013 2014 2015

PE deals in Indian Real Estate

The main operator of the Indian real estate private fund (Asset management company)


Date Investor (s) Target Amount ($m)

03-Sep-15 GIC DLF Home Developers 300

21-Jul-15 Warburg Pincus Piramal Realty 284

25-Jun-15 SPREP Pte Ltd SP Infocity IT Park 220

30-Mar-15 Piramal Fund Management Omkar 1973 Worli 190

01-Jun-15 Blackstone 247 Park 166

17-Aug-15 Goldman Sachs Piramal Realty 150

31-Jul-15 Standard Chartered PE, IFC, ADB Shapoorji Pallonji & Company 140

17-Feb-15 Equis Funds Group Assetz Property 116

10-Apr-15 Piramal Capital VGN 107

16-Dec-15 ASK Property Investment Advisors Rajesh LifeSpaces 54

20-Jun-15 Temasek Oberoi Realty 51

09-Sep-15 IndoStar Capital Finance Orris 49

03-Aug-15 Ascendas aVance 3 46

04-Feb-15 GIC Pvt Ltd Jain Housing and Construction 38

28-Apr-15 Piramal Fund Management Ganesh Housing, 35

20-Feb-15 Piramal Fund Management, Aditya Birla PE Adarsh Developers 33

16-Jul-15 Edelweiss Financial Services Saya Homes 31

22-Dec-15 KKR SARE Homes Pvt Ltd 30

12-May-15 IFC Tata Value Homes 25

05-Mar-15 Aditya Birla Real Estate Fund Ozone Group 21

09-Jun-15 Stichting Van Herk Investments Value & Budget Housing Corporation 20

01-Sep-15 Reliance Capital Asset Management Unishire 19

25-Nov-15 ASK Group ATS Group 19

11-Dec-15 JP Morgan Asset Management Kolte-Patil Developers Ltd 18

17-Mar-15 Motilal Oswal Real Estate Rajesh Lifespaces 17.9

• Many large international funds are investing, like

• GIC & Temasek• Warburg• Blackstone, KKR• Goldman Sachs, JP Morgan

• Top Indian real estate funds• Piramal Fund Management• ASK Group• Motilal Oswal Real Estate Fund• Reliance Capital• Aditya Birla Real Estate Fund

Indian REIT market - USD 18B REIT potential


Source: Axis Bank Report

Real Estate - India

• REITs are yet to take off in India, but changes made in regulation recently raise the hope that this year we will see some REIT creation

• The Budget 2016-17 clearing the key hurdle of Dividend Distribution Tax (DDT)

• 1-2 foreign REITs have been around for last 5-6 years, the main one being Ascendas, located in Singapore, but for Indian assets (see note later on Ascendas)

• As per Jones Lang LaSalle, REIT-able Grade A office space totals ~229 msf in India across 727 assets. Conservatively assuming that ~50% of this is REIT-able and an average sub-dollar rent of Rs 70/ psf, it would translate into a USD 18B of REIT value creation potential (based on a cap rate of 8% and an exchange rate of Rs65/ $)

• With vacancies across Indian cities at near lows, rentals expected to inch up and interest rates coming down, this is an opportune time for listing of I-REITs

• With REITs accounting for ~75% of the ~USD 1.8T global real estate securities market (as of Sep’15), I-REITs too shall account for a bulk of the listed real estate space in India over the next decade

Indian REIT market - USD 18B REIT potential


Like REIT promoters: Annuity asset owners such as DLF, Prestige, Phoenix Mills, OberoiRealty,

Brigade Enterprises


Like REIT promoters


• Likely REIT promoters: Annuity asset owners such as DLF, Prestige, Phoenix Mills, OberoiRealty, Brigade Enterprises

• Ascendas India Trust (a-iTrust) is an existing trust launched in Singapore in 2007, with capital commitment of SGD 1000 mil. Its expiry is 2016

Ascendas India Trust – a Singapore based REIT for India



Ascendas India Trust – List of properties



Ascendas OneHub Gurgaon

OneHub Chennai International Tech Park Gurgaon

Ascendas OneHub

Coimbatore

Description IT Special Economic Zone (SEZ)

Mixed-use IT SEZ IT SEZ

Location Gurgaon Chennai Gurgaon Coimbatore

Area 63 acres 1,450 acres 110 acres 59 acres

NLA 548,000 sq ft N/A N/A N/A

Development Mix IT / ITES, commercial

Industrial, commercial and residential

IT / ITES, commercial

IT / ITES, commercial

MTB / Single user MTB N/A MTB MTB

Industry Cluster Target

IT / ITES F&B, Automotive, Electronics

IT / ITES IT / ITES

Major developers of India – Listed companies



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Figures in USDm

• These are some of the listed companies. Financials have shrunk due to slowdown in sales velocity

in the last 2-3 years

• However, many large companies are not listed

Company Name Market Cap Net Sales EBITDA PBT PAT Equity Debt

1 DLF Ltd. 3,410 1,311 485 100 75 4,378 3,932

2 National Buildings Construction Corporation Ltd 1,802 772 69 60 45 213 -3 Oberoi Realty Ltd. 1,452 154 99 79 51 744 145 4 Godrej Properties Ltd. 1,110 309 55 52 38 296 560 5 Prestige Estate Projects Ltd. 1,018 564 175 101 59 614 651 6 Indiabulls Real Estate Ltd. 729 439 113 56 44 1,151 1,051

7 Phoenix Mills Ltd. 717 270 127 22 14 267 567

8 Housing Development & Infrastructure Ltd. 593 174 139 48 35 1,667 1,734

9 Sobha Ltd. 461 392 101 60 39 390 330 10 Omaxe Ltd. 427 235 44 18 10 317 176 11 Mahindra Lifespace Developers Ltd. 286 184 78 68 46 235 198 12 Brigade Enterprises Ltd. 268 214 65 28 19 219 267


Top 10 Mumbai Residential Developers Listed? Top 10 Mumbai Office Developers Listed?

1 Lodha Group No Indiabulls Real Estate Yes

2 Indiabulls Real Estate Yes K Raheja Constructions No

3 K Raheja Corp No Peninsula Land Yes

4 Runwal Group No Lodha Group No

5 Kalpataru Group No K Raheja Corp No

6 Hubtown No Ekta Builders No

7 Oberoi Realty Yes Kanakia Spaces No

8 Hiranandani Developers No Raheja Universal No

9 Sheth Developers No Satellite Group No

10 Wadhwa Group No Wadhwa Group No

Major developers of India – Overall

• This is a city list for Mumbai. As can be seen, 8 out of 10 top developers are unlisted.

• Top developers in India develop do 3-10mn sft per year

Top 10 Bangalore Residential Developers Listed? Top 10 B'lore Office Developers Listed?

1 Brigade Group Yes Ascendas Yes

2 Sobha Developers Yes Bagmane Developers No

3 Mantri Developers No Brigade Group Yes

4 Nitesh Estates Yes Divyasree Developers No

5 Prestige Group Yes Embassy Property Developments No

6 Puravankara Yes Kalyani Developers No

7 Salarpuria Group No Prestige Group Yes

8 Shriram Properties No Primal Projects No

9 SJR Group No RMZ Corp No

10 Century No Salarpuria Group No

• Bangalore has slightly higher percentage of listed developers

Source: Bloomberg. This is a 2014 list

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http://www.exchange4media.com/topic/indiabulls-news

Real estate investment situation by India of institutional investors (the ratio of the real

estate investment in the portfolio)



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• The annual requirement:• Typically, the developer fund to have 10-20% of project cost, rest coming from customer• This implies developers needed to fund around USD25-50B

• Sources of developer funding• PE funding in 2015 was USD 3B as per IBR data. We have seen some other sources mention a figure of

USD 5B as well)• Bank financing to construction was around USD14B for FY16• We think the remainder would be builder’s equity, plus borrowing from unstructured markets – like

NBFCs and private lenders

• Mortgage market in India (consumer funding)• Annual incremental mortgage is around USD 45B

Size of outstanding mortgage credit in India – still less than 10% of GDP


Investment situation, such as a pension of foreign institutional investors to the Indian

real estate



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• Foreign pension funds are not investing directly currently, no deal as per our records. However, their money could be coming in via global funds like Blackstone and KKR which are actively investing

Property management companies active in India



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Most large property management and consulting first firms are there

1. JLL2. Knight Frank3. CB Richard Ellis4. DTZ / Cushman & Wakefield

Major industry bodies in India



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CREDAI: The Confederation of Real Estate Developers’ Associations of India (CREDAI) is the apex body for private Real Estate developers in India.

It has over 11500 Members through 23 State Chapters and 156 City Chapters

National Association of Realtors: NAR-INDIA has been fashioned as a single national level umbrella organization representing the interests of thousands of realtors/brokers operating all over the country

Ministries of real estate in India



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Ministry of Housing and Urban Poverty Alleviation (Central government)

The Ministry of Housing and Urban Poverty Alleviation is the apex authority of Government of India at the national level to formulate policies, sponsor and support programme, coordinate the activities of various Central Ministries, State Governments and other nodal authorities and monitor the programmes concerning all the issues of urban employment, poverty and housing in the country. The Ministry of Housing and Urban Poverty Alleviation is headed by Shri M. Venkaiah Naidu

However, role of central ministry in housing is limited. In the Federal structure of the Indian polity, the matters pertaining to the housing and urban development have been assigned by the Constitution of India to the State Governments. The Constitutions (74th Amendment) Act have further delegated many of these functions to the urban local bodies.

Indian universities and research institutions active in this sector



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Civil Engineering undergrad colleges• The IITs are the best. Among them, University of Roorkee (now called IIT Roorkee), IIT Kanpur, IIT Chennai, IIT Madras

Post graduate construction management• National Institute of Construction Management and Research (NICMAR), Pune and Hyderabad (has other centre also,

but Pune and Hyderabad are better). NICMAR is very active in research. NICMAR is recognized as “Scientific and Industrial Research Organization (SIRO)” by Dept of Scientific and Industrial Research, Ministry of Science and Technology since 1990.

Institutes with Urban Planning focus• CEPT University (Centre for Environmental Planning and Technology) at Ahmedabad: Has 5 departments – Architecture,

Planning, Design, Technology and Management

Architecture Colleges• School of Planning and Architecture, New Delhi• College of Architecture, Chandigarh• JJ School of Arts, Mumbai

Recent trends of the real estate market in India, Future Prospects


Better FDI Norms

Rapid relaxation of minimum investment norms

When FDI was allowed first in 2005, the conditions were • 50,000 sq meters of built-up area• Min USD10mIn Oct’14, this was relaxed to • 20,000 sq meters of built-up area• Min USD5mThen in Nov’15, these conditions were totally removed. This means, any project regardless of size which is under construction can have access to FDI. Foreign investment can now be brought into the construction sector in any amount and for any size of project.

Better exit normsEarlier, it was on completion of project. Now, 2 very important changes have been done:• A foreign investor is permitted to exit and repatriate foreign investment before the completion of project under

automatic route, provided that a lock-in-period of three years, calculated with reference to each tranche of foreign investment has been completed.

• Moreover, the transfer of stake from one non-resident to another non-resident without repatriation of investment will neither be subject to any lock-in-period nor to any government approval.

Furthermore, exit is permitted at any time if project or trunk infrastructure is completed before the lock-in-period

Recent trends of the real estate market in India, Future Prospects


Real Estate (Regulation and Development) Bill

This was passed in Dec’15, it is a big development provide a much better regulatory framework to the industry. Key points:

• It regulates both commercial and residential real estate projects;• It seeks to set up Real Estate Regulatory Authority in states and union territories to oversee real estate transactions;• It makes registration of real estate projects and real estate agents with the authority mandatory;• It makes mandatory disclosure of details of all registered projects, including those about the promoter, project, layout plan,

land status, approvals, agreements along with details of real estate agents, contractors, architect, structural engineer etc;• Developers have to deposit specified amount in a separate bank account to cover the construction cost of the project for timely

completion of the project;• It seeks to establish fast track dispute resolution mechanisms for settlement of disputes through adjudicating officers and

Appellate Tribunal;• The bill bars civil courts from taking up matters defined in it. However, consumer courts are allowed to hear real estate matters.

There are 644 consumer courts in the country. The more avenues for grievance redressal would mean lower litigation costs for the buyers.

• Promoters are barred from changing plans and design without consent of consumers.

Future trends likely to impact the sector



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FDI in real estate expected to increase

• We have already seen the trend in 2015, when FDI in reach estate increased by almost 3x

• In 2016, also trend remains robust

Commercial demand picking up

• Recent news flow suggest office demand is picking up after 3-4 years of stagnation

Mass housing the big trend in residential

• Most builders looking at mass housing, remains the fastest selling segment. For ex, Shapoorji Pallonji has inked a large USD 250m+ deal with JP Morgan and IFC

Reit IPOs may come about

• With tax guidelines simplified for REITs, expectations is that we could see a listing in FY17

• Some names being talked about – DLF, Blackstone-Embassy group, Phoenix Mills

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