indian real estate industry analysis

Click here to load reader

Upload: sivaprasad-gumparthi

Post on 09-May-2015

15.814 views

Category:

Education


1 download

DESCRIPTION

Real Estate Industry Analysis by Sivaprasad, Bhushan, Manav, Nagendra, Kishan and Parin - MBA Batch 2011-13, DoMS, IIT Roorkee.

TRANSCRIPT

  • 1.A Study onIndian Real Estate

2. Agenda 3. India Growth Story Today, India is one of the fastest growing economies of the world. Expected to be the 3rd largest economy by 2025 and the largesteconomy by 2050. 70% of the future employment opportunities will be created in thecities. India needs Rs.60000 Crores in the next 20 years to meet itsinfrastructural needs of approx. 68 cities that will have above onemillion population. Needs Holistic development with emphasis on construction and realestate sector.The real estate sector will be the one that writes the Indian growth story 4. Evolution of Real Estate Initially land was used as a tool to hijack a countrys economicindependence and subvert its social processes. Post independence, Indian real estate sector was unorganized anddisaggregated. Land prices were low because of low demand. FDI policies were too stringent, defensive and discouraging. Post liberalization, real estate sector has seen impressive growthowing to the following - Multinational Entrepreneurialism. Buoyant local stock markets. Robust economy. With great demand for housing and commercial and industrialpremises for a booming economy, it transformed into one of themost lucrative sectors in terms of investment and employmentopportunities 5. Stand Point Real estate sector is the second highest in employment generation. Contributes almost 5% to Indian GDP which is expected to be 6% incoming years. Increase in residential & commercial real estate, hotel accommodation andSEZ demand. IT/ITES sector and rising outsourcing trends have driven up demand forpremium offices. Rapid growth in retail, hospitality, infrastructure makes it most lucrativeinvestment area for next 5 to 10 years. It contributesto countrys infrastructure bybuildings, roads, flyovers, highways etc. Overall it can be concluded that a unit increase in real estate sector cangenerate a fivefold increase in national income. 6. Residential Real Estate Traditional mainstay of Indian property market - largely driven byrising disposable incomes, growing middle class, fall in interest rates,fiscal incentives, increase in nuclear families and urbanization. There will be a shortfall of 2.6 crore housing units by 2012. It is anticipated that India will add another 22 crore people to citiesby 2025 which is going to increase the demand-supply gap in housingsector. As a result of the immense growth potential in housing, many retailinvestors are viewing real estate as an attractive investment optioncompared to mutual funds and stocks. The global recession in 2008 has slowed down the growth in housingmarket. 7. Commercial Real EstateIt mainly consists of office spaces, retail, hospitality, multiplexes and malls.Demand for commercial properties was 40 mn sq.ft. in 2011.Driving forces for the commercial real estate: Increased revenues of service sector companies particularly IT/ITES. Retail sector is expected to grow at the rate of 25-30%. Overall increase in room rent and occupancy rates of hotels is expected to create demand for development of new hotels. Increase in demand for schools, colleges, hospitals, roads, airports to cater rapidly growing population. Education industry and healthcare sector boosted by medical tourism will create higher demands for commercial real estate. 8. Derived Demand 9. Government Policies, Regulations andRestrictionsDomestic Scenario: Government of India has realized the significance of real estate sector and hasgiven some relaxation of the norms and regulations keeping in view of - Employment Generation - Tax Revenues - Encouraging Investment In addition to changing the tax tariffs, it has also setup some regulatory bodies.Some of the key policy decisions taken by Govt. of India are :Indirect tax World Contract Tax (VAT) Activities like Construction of commercial and residential complexes andrenting immovable land are brought under this tax.Stamp Duty Sale of flats attract Stamp Duty up to 10 percent of the sale consideration. 10. Land ReformsTraditionally, Indian Approach to Real Estate was restrictive. First Land Reforms bill in 1950 Land Reform Legislation that abolishedZamindari, Maheshwari and Ryotwari systems. Land reforms has become an important issue from 1991 liberalization period. Current Land Acquisition law for Government :Allows the government to take over land for a public purpose sometimes without compensation leading to public acrimony. This Scenario is causing difficulties in acquiring the lands and many multibilliondollar projects have been held up for years. 11. Policy Initiatives by the Govt. Land Acquisition ,Rehabilitation and Resettlement bill (2011)Aimed at giving farmers better deal while helping fast track industrialization. Model Real Estate (Regulation and Development Act)Seeks to regulate realty sector by casting detailed obligation and duties on thebuilders to bring transparency. National Real Estate Development Council (NREDCO)Formed to induce transparency and ethics in Indian real estate to transform itinto a matured and globally competitive business sector.National Land Recordisation and Modernisation Program (NLRMP) Based on computerization, updating and maintenance of land records and the validation of titles. Direct Tax CodeThe income from all properties held for earning rentals shall be computedunder the head income from house property. 12. Risks Faced by Real Estate Sector: Liquidity RiskThe time required for liquidity of real estate property can varydepending on the quality and location of the property. Regulatory Risks :The rules, regulations and legalities, demonstration of frequent changesmake real estate sector a cumbersome investment option in India. Property Marketing Transparency Risks :Being a market with less than 100% transparency, a strong professionalvaluation and regulatory institutions are needed. Macroeconomic Risks :Interest rates, inflation and exchange rate risks are amongst theimportant macroeconomic indicators. Land Ownership and Title Issues :Lack of information and old property related issues also add to therisks faced by the investors. 13. Foreign Investments 14. FDI in Real Estate India is the second most attractivedestination for the Foreign DirectInvestments for the years 2008-2010.(world Investment Report). However, FDI in real estate is only1% of the total GDP in India.(US$ 4billion) Can be improved by liberalizingthe restrictive laws ensuringtransparency in operations and byconfidence building measures inthe foreign investors. 15. Policy Changes by Govt. to facilitate foreigninvestments Before 2005 After 2005 Foreign investors other India fully opened FDI inthan NRIs were allowed toreal estate. However, ainvest only in development minimum capitalization ofof integrated townships$10 million for wholly-and settlements either owned subsidiaries and $5through a wholly-owned million for joint venturessubsidiary or through awas mandatory.joint venture. 16. Policy Changes Cont. The department of industrial policy and promotion ,in March 2005,allowed FDI in real estate in projects in a minimum area of 25 acres. The finance ministry has allowed external commercial borrowing(ECB) in realty projects involving integrated townships of 25 acres or50,000 sq m In the Union budget 2011-12, FII limit for investment in corporatebonds having a residual maturity of over five years has been increasedby $20billion, taking the over all limit to $40billion. Foreign Venture Capital Investors (FVCIs) may invest in real estateassets, within the framework of SEBI. This has paved the way forcapital infusion into the market and a significant weight of foreigncapital is now chasing Indian real estate 17. FUTURE COURSE 18. A China ModelSecond largest economy in the world and also the most attractive FDIdestination in the world.The graph shows the real estate growth statistics in comparison to theGDP growth and population growth for China and India. India holds many similarities with China in terms of the size of thepopulation, size of the economy, FDI investments etc.The contribution to GDP by the real estate sector in China is 11% whereas in India it is approximately 6%. 19. Lessons from China Attracted foreign investors. Brought accountability and transparency in the operations. Licenses and approvals for construction projects were granted easily. The Policies and regulations have been framed in order to create encouraging and effective business environment in the construction and real estate sectors. The new Policies have more substantive implications & are expected to reshape the real estate sector for positive long-term growth. Stress Laid on regulation of real estate investment demand, improving the land supply policy & to strengthen the market order regulation. 20. Opportunities Vs Impediments OpportunitiesImpediments High domestic demand for Several procedural complexitieshousingfor a foreign individual or an entity to invest. Increase in income levels ofthe public. Serious discrepancies in urban planning. Strong economic growth and The opaque nature of businesspromising future. in India. Availabilityofboth The bureaucratic processes intechnically skilledand the legislation, archaicunskilled labor. rules,complexitiesand ambiguities in the laws. 21. Can India Open up? India requires large amount of capital in real estate industry. FDI can be encouraged and permissions may be given toforeign real estate firms to operate in India. The sector is currently dominated by a very small no ofplayers & entry of foreign companies will affect theopportunities of the small and medium real estate firms. Indian Govt. can permit foreign companies to enter intolease agreements with the Indian companies or builders for aspecific project for a particular period of time. The decisions should be taken in after seriously consideringthe impact on not just real estate sector, but also on othersectors and on the Indian economy as a whole. 22. Thank you !! Group No. 3 Bhushan Supe Nagendra Naik Parin Gosaliya Kishan S Manav Kaushik Sivaprasad Rao G V