indian real estate sector handbook 2011

Indian Real Estate Sector - Handbook 2011 2012

Foreword

We are delighted to release the inaugural edition of "Indian Real Estate Sector - Handbook 2011", a publication focussed on

providing a yearly round-up of the significant developments in the real estate sector in India.

As expected, the year proved to be a mixed bag for the sector. Real estate companies continued to face a series of evolving

challenges: protecting profits while continuing to invest; seizing international opportunities; differentiating their brand; retaining and

attracting talent; and cultivating stronger relationships with lenders and fund managers. The volatility in markets reinforced the need

to focus on core competence.

In order to curb soaring inflation, the RBI raised interest rates 13 times in the past 19 months, seriously impacting demand for real

estate which is primarily driven by bank finance.

Pessimism in the Western economies continued influencing market sentiments and foreign capital inflow in the sector. Mounting

debts, rising interest costs and correction in real estate prices further exacerbated the condition. Companies with stronger

fundamentals and ability to make quick strategic decisions, however, continued with growth despite multi-pronged market pressures.

In such a dynamic scenario, it has become critical for real estate companies to keep track of the key developments taking place in the

sector.

With this view, we have designed this handbook to provide you a quick summary of the key developments around the regulatory

environment along with a snapshot of the investment scenario, and major challenges and issues, which made news in 2011. I hope

you find it useful and welcome your feedback.

Pg 3

Vishesh C. Chandiok

National Managing Partner

Grant Thornton India LLP

Foreword

I am delighted to know that Grant Thornton has come up with a comprehensive handbook on the Indian real estate sector with

an aim to provide a quick summary of the regulatory and investment issues during the year 2011. The importance of this sector

lies not only in the fact that it is the fourth largest in terms of the FDI inflows in the country, but also the manner in which it has

emerged as an integral part of every common man‟s dream.

The burgeoning middle class in the country with high aspirations, access to loan capital and increasing disposable incomes, drives

the demand for integrated township developments, across the country‟s urban landscape. With a shortage of approximately 25

million dwelling units at the beginning of the 11th five-year plan, the private sector is going to play a major role in fulfilling this

demand. On the infrastructure front alone, the country needs around US$ 1.2 trillion investments over the next 20 years.

The very fact that by the year 2030, nearly 70% of the country‟s GDP will be contributed by the cities, signifies the critical need of

equipping our cities with quality real estate. Against this backdrop, such a contemporary handbook spreading awareness about the

recent regulatory developments like Land Acquisition, Rehabilitation and Resettlement Bill, 2011 and the Draft Real Estate

(Regulation and Development) Bill 2011, would serve as a guiding document for the stakeholders.

On behalf of CII, I once again compliment Grant Thornton and hope that the information provided in this handbook would

help in shaping an inclusive and sustainable growth path for the real estate sector in India.

Pg 4

Firdose Vandrevala

Chairman, CII National Committee

on Real Estate & Housing

Chairman and Managing Director

Hirco Developments Private

Limited

Key highlights - 2011

Jan

uary

Feb

ruary

Coastal

Regulation Zone

and Island

Protection Zone

Notifications 2011

announced

To promote affordable

housing, Union Budget

provided for 1% interest

rebate on housing loans

up to Rs 15 lakh

Marc

h

May

Ju

ly

No

vem

ber

Sep

tem

ber

Ap

ril

Ju

ne

Au

gu

st

Octo

ber

Decem

ber

DIPP & the

Finance Ministry

released

consolidated FDI

policy to tighten

FDI norms for the

sector

Gujarat

government

hiked minimum

base rate for land

by 400 to 1,000%

Ministry of Housing

prepared draft

legislation of Model

Residential

Tenancy Act, 2011

Maharashtra

Government

planned to

reintroduce an

additional 0.33

Floor Space

Index (FSI) in

the Mumbai

suburban

district

Villagers in Noida

and Greater Noida

called off their

agitation over the

issue of land

acquisition

Benami

Transactions

(Prohibition)

Bill, 2011

introduced in

the Lok Sabha

Land Acquisition

Bill, 2011 cleared

by the Union

Cabinet

Delhi government

hiked the circle

rates across

categories

New draft of the

Real Estate Bill,

2011 released for

public consultation

Maharashtra became

the first state of India

to get Real Estate

Regulatory Authority

Pg 5

Land acquisition

Rev

enue

reco

gnit

ion

Affordable housing

Rehabilitation

FD

I in retail

ResettlementAppellate Tribunal

Regulatory environmentGrowth

Land records

Land acquisition

Titles

Development

Ref

orm

s

Environment

Regu

latory A

uth

ority

Approvals Project costs

Barter transactions

Governance

PoliciesTransfer

Law Enforcement

Regulatory developments: the big picture

The constant evolution of the organised segment of the Indian real

estate sector, both in terms of size and growth, in the last two

decades has drawn attention towards the need of introducing and

improving the regulatory environment. While self-regulation will be

the key for better governance and sustainability, 2011 witnessed

introduction of a number of reform-oriented moves by the

government. Here below is a snapshot of the significant regulatory

developments that would affect the sector in the future.

Land Acquisition, Rehabilitation and

Resettlement Bill 2011 In order to address the issue of land acquisition along with

rehabilitation and resettlement of the affected families, the new Land

Acquisition and Rehabilitation and Resettlement Bill, 2011 was

introduced to overhaul the Land Acquisition Bill of 1894. The

significance of land acquisition issues in the country is evident from

the disputes that impact a number of large projects amidst protests by

the affected families. Currently, most land acquisition deals result in

legal issues that get further exacerbated due to ill-documentation of

title and ownership, especially in the case of agricultural land.

In a nutshell

• Post acquisition, land cannot be transferred for any other purpose,

except for a public use, such as government infrastructure projects

• Government cannot acquire land for private companies, or for

private purposes

• Except as a demonstrably last measure, acquisition of multi-crop

irrigated land should be avoided

• For rehabilitation and resettlement, owners of the acquired land

will be offered subsistence allowance at Rs 3,000 a month for 12

months. In addition to this, land owners will also be provided Rs

2,000 a month a family as annuity for 20 years, Rs 50,000 for

transportation, and mandatory employment for one member of a

displaced family. The same provisions are proposed for those who

lose their means of livelihood due to land acquisition

• If a private company succeeds in acquiring 80% of the land

required for a project, the government may step-in to facilitate the

acquisition of the remaining 20% of the land for the private

project

Pg 7


• The Bill also empowers the village council to conduct social

impact assessment of any land acquisition and define the timelines

for providing compensation

• In case the land is acquired in an urban area, an amount not less

than twice the market rate needs to be paid to the landowner

• In case the land is acquired in a rural area, an amount not less than

four times the original market value needs to be paid to the

landowner

Draft Real Estate (Regulation & Development)

Bill 2011 The Bill aims at promoting transparency and accountability in the

real estate sector, and proposes to create a "Real Estate Regulatory

Authority" in each of the states. The draft guidance of the Bill also

possesses provisions that reduce the risk of a title dispute. In order

to provide respite to end users, the Bill also proposes to make it

mandatory for developers to register themselves before launching

any projects, comply with the approved plans and refund money

to homebuyers in case of any default.

In a nutshell

• The Bill mandates the establishment of the "Real Estate

Regulatory Authority" in every state to oversee and regulate the

real estate sector

• Apart from adjudicating disputes between real estate developers

and consumers, the proposed Regulatory Authority will also be

responsible for issuing registration certificates for projects that

have a size of 43,052 square feet or more

• Before beginning the construction work on plots measuring 4,000

square metres or more, it is mandatory for real estate developers to

register with the "Real Estate Regulatory Authority"

• The draft Bill makes it mandatory for promoters to stick to the

approved plans and project specifications

• The Bill also proposes to make it mandatory for developers to

deposit 70% of the amount realised for the real estate project from

buyers in a separate account maintained in a scheduled bank,

within 15 days of the realisation of the project

• It further specifies that developers would use this deposited

amount only for the purpose of developing the property

Pg 8


• In case of any default, the developers will be required to refund

money to buyers. Further, if the project gets delayed, the developer

is bound to pay interest, at an appropriate rate, to the buyers

• In case the developers fail to adhere to the provisions, they are

liable to imprisonment of up to three years or a penalty of 10% of

the estimated real estate price of the project

• If developers are unable to comply with the directions of the "Real

Estate Regulatory Authority", they would be liable to pay a

minimum penalty of Rs 1 lakh daily for each day during which the

default occurs

Draft Guidance Note on revenue recognition

The Accounting Standards Board of the Institute of Chartered

Accountants (ICAI) came out with a draft of the Guidance Note on

Revenue Recognition by real estate developers. The proposed

Guidance Note is comprehensive and considers various dynamics of

the sector. It aims at removing the subjectivity and judgments in

certain key accounting principles and attempts to bring consistency in

the accounting for real estate transactions.

In a nutshell

This Guidance Note should be applied to all transactions in real estate,

which are commenced or entered into on or after 01 April 2012.

This primarily provides guidance on application of percentage of completion

method as per Accounting Standard (AS) 7, Construction Contracts, in respect

of transactions and activities of real estate which have the same economic

substance as construction-type contracts. In respect of transactions of real

estate which are in substance similar to delivery of goods, Accounting

Standard (AS) 9, Revenue Recognition, is applicable.

Pg 9

Scope

• The exposure draft encompasses various types of models/ structures

which are in practice and the related accounting in respect of:

- Sale of land/ plots with or without any development

- Development of residential/ commercial units

- Acquisition, utilisation and transfer of development rights

- Re-development of existing buildings/ structures

- Joint development arrangements


The current definition of project is very broad and identifies parameters

for defining the project, in terms of common set of amenities available

to the different unit holders in a township and accordingly, even a

single tower can be treated as a project or a cluster of towers can be

combined and designated as a project. It will be useful if the common

set of amenities within a project can be clearly defined and then link it

to the project definition.

Revenue recognition under the percentage completion method is

applied only when all the following conditions are fulfilled:

(a) All critical approvals necessary for commencement of the project

have been obtained. These include the following as applicable:

• Environmental and other clearances, approval of plans, designs, etc.

• Title to land or other rights to development/construction

(b) When the stage of completion of each project reaches a reasonable

level of development. There is a rebuttable presumption that a

reasonable level of development is not achieved if the expenditure

incurred on project costs is less than 25% of the construction and

development costs

(c) At least 25% of the estimated project revenues are secured by

contracts or agreements with buyers

Pg 10

In a nutshell

Definition of Project

Project is defined in terms of a group of units/ plots/ saleable spaces

and its linkage with the common set of amenities in a manner that

both are clearly dependent on each other for the intended effective

use.

Revenue recognition conditions prescribed

• Key approvals to be obtained

• Percentage threshold (rebuttable presumption of 25%)

• Sale of project to the extent of 25% of the project size

• Collection to the extent of 10% of the total revenues as at the

reporting date

(d) At least 10% of the total revenue as per the agreements of sale or

any other legally enforceable documents are realised at the reporting

date in respect of each of the contracts and it is reasonable to expect

that the parties to such contracts will comply with the payment terms

in the contracts


The recognition of project revenue by reference to the stage of

completion of the project activity should not at any point exceed

the estimated total revenues from 'eligible contracts'/other legally

enforceable agreements for sale.

This is definitely a good thought in terms of linking the collection

to the point of revenue recognition.

The transaction of barter has been rightly picked up in the scope

of this Guidance Note, wherein the developer is giving a share in

the built up property to the land owner in consideration of land /

development rights in the project.

For this purpose, fair market value may be determined by

reference either to the asset or portion thereof given up or to the

fair value of the rights acquired whichever is more clearly evident.

Pg 11

In a nutshell

Revenue recognition linked to collections

'Eligible contracts‟ means contracts/agreements where at least

10% of the contracted amounts have been realised and there are

no outstanding defaults of the payment terms in such contracts.

Where the recognition of revenue due to this condition is lower

than the revenue determined by reference to the stage of

completion, the project costs to be matched with such revenue

are also proportionately adjusted.

Barter transactions

Where development rights are acquired by way of giving up of

rights over existing structures or open land, the development

rights should be recorded either at fair value or at the net book

value of the portion of the asset given up.


FDI in retail sector

The Union Cabinet, in December 2011, permitted 51% of Foreign

Direct Investment (FDI) in multi-brand retail and 100% FDI in

single-brand retail. However, the decision was suspended due to

widespread opposition from the unorganised retail market and

absence of political consensus.

In a nutshell

• India's retail sector is estimated at US$ 450 billion, growing at the

rate of 15% a year

• Currently, India permits 51% FDI in single-brand retail and 100%

FDI in cash-and-carry

• The Bill was meant to allow foreign investment in multi-brand

retail, which is not permitted in India at present

Updates

In January 2012, the Department of Industrial Policy and Promotion

(DIPP) permitted 100% FDI in Single Brand Retail Trade (SBRT)

under Government approval as against the current limit of 51% FDI

in SBRT. All the key features of the policy liberalisation have been

retained in this Press Note along with the following additional

clarifications/ modifications:

• With respect to proposals involving FDI beyond 51%, mandatory

sourcing of at least 30% of the value of products sold would have

to be done from Indian 'small industries/ village and cottage

industries, artisans and craftsmen'

• 'Small industries' would be defined as industries which have a total

investment in plant & machinery not exceeding US$ 1 million

• The earlier press release dated 25 November 2011 had indicated

that such small industries could be located anywhere in the world

Pg 12


Maharashtra Housing Bill 2011

Maharashtra Housing Bill, 2011 aims at replacing the Maharashtra

Ownership Flats (Regulations of promotion of construction, sale,

management, and transfer) Act, 1963. Also known as the Regulation

and Promotion of Construction, Sale, Management and Transfer Bill,

it contains provisions meant to safeguard the interest of homebuyers.

In a nutshell

• The Bill mandates the establishment of a "Real Estate Regulatory

Authority" and an "Appellate Tribunal", while also offering

provisions for preventing the diversion of money received from

home buyers

• It makes it compulsory for developers to use the money received

from homebuyers to timely execute the residential project, instead

of using it for the acquisition of new land

• To appeal against the orders of the "Appellate Tribunal", the

applicant can approach the State High Court

• The developer would be required to maintain a separate account of

the money received from the buyers and, if required, provide usage

details of the same to the "Real Estate Regulatory Authority".

• In case developers contravene the provisions of the Bill, the Bill

proposes to make them liable to a penalty ranging from a

minimum of Rs 1,000 per day to a maximum amount of Rs 1

crore, along with an imprisonment for a term extending to three

years

Updates

The State Cabinet has recently approved establishment of "Housing

Regulatory Authority" and the "Housing Appellate Tribunal" in

Maharashtra. The Bill is expected to be presented before the State

Legislature in March 2012. After being passed by the State

Legislature, all property transaction disputes will be handled by the

three-member "Housing Regulatory Authority" followed by the

"Housing Appellate Tribunal".

Pg 13

M&A

Cri

sis

in E

uro

pe

Capital markets

Private equity

Dep

reciation

in ru

pee

ReturnsGlobal slowdown

Investment scenarioOpportunities

Exits

Joint ventures

Market sentiment

Vo

lati

lity

Special purpose vehicles

Market co

nso

lidatio

n

IPOs Challenges

Project viability

FDI inflows

GrowthTransactions

Sustainability

Deals

Investment scenario: the ins and outs

Real estate is the fourth largest sector in terms FDI inflows in the

country. As per DIPP, the sector attracted investment to the tune of

US$ 453 million between April and September 2011.

Further, the period from January to May 2011 also witnessed various

prominent Private Equity (PE) and Mergers & Acquisitions (M&A)

deals. Some of the prominent deals that formed the chunk of the 20

deals worth US$ 1.3 billion occurring during this period include

investments made by Oceanus Real Estate and Ascendas India (US$

190 million), Tata Realty (US$ 86 million), etc.

However, the global economic scenario remained volatile due to

unfavourable economic environment in the US and Euro zone.

Owing to this, foreign investors were seen becoming relatively

cautious.

Pg 15

2,935

1,227

453

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2009-10 (April - March) 2010-11 (April - March) 2011-12 (April - September)

FDI Inflows ( in US$ in million)

Source: Department of Industrial Policy and Promotion, Government of India

Year-wise FDI Inflows ( in US$ in million)


Since equity inflows are largely sentiment driven, the pessimism in the

US and the UK, which form the major sources of equity inflows to

the sector, was largely responsible in reducing the FDI inflows to the

sector. Apart from the US and the UK, the sector also attracts equity

from economies, including the Netherlands, Japan, Germany,

Mauritius, Singapore, and the UAE.

However, the Indian real estate sector still occupies the topmost

position among all the major sectors for PE investment in 2011. As

per our research, real estate and infrastructure management along

with automotive, power and energy, banking and financial services

and information technology accounted for 67% of the total PE deal

value for the year.

A survey conducted by a leading advisory firm also shows that while

planning to invest in various avenues in India, 55% of the investors

expect to achieve their target returns, while 45% investors are

optimistic to reap a return which is higher than their existing

portfolio.

Further, a recent report published by Jones Lang LaSalle India states

that within the past four years, PE investors reaped average returns

from the sector that were 1.21 times, or 20% higher than the global

average of 0.8 times. The report, which also states that Mumbai and

Kolkata accounted for returns of 1.4 and 1.3 times, respectively,

within the past four years, has lifted the aura of gloom hanging over

the sector for quite some time now.

The report points out that even amid the bleak scenario of property

markets between 2008 and 2011, when investors failed to profit from

their investment in the sector in other economies, India has provided

far better returns than the global average.

Moreover, although commercial real estate is a riskier option as

compared to residential, the former has given returns of 1.2 times,

while residential has given returns of 1.1 times. The report has also

analysed the profits from PE exits in the sector, and states that out of

the overall PE exits worth US$ 3 billion in the past four years, 65%

have been profitable.

Pg 16

Investment scenario: the ins and outs Pg 17

Investor Investee Investment Purpose

Warburg Pincus Lemon Tree Hotels Rs 1,400 crore

An affordable housing venture was financed by the JV called Oceanus Real Estate

Sun Apollo Parsvnath Developers

Rs 100 crore A residential project SPV

Blackstone DLF Rs 810 crore Acquisition of a DLF firm owning a SEZ in India

Red Fort Capital Ansal Properties & Infrastructure

Rs 200 crore The deal financed a residential project in Gurgaon by developing a 108-acre township

Red Fort Capital Delhi Heights Undisclosed A mixed use development having more than 2,000 residential units is planned to be developed

ICICI Prudential Asset Management

Logix Group Rs 80 crore The investment financed the development of Blossom Greens - a 2,500-unit residential project

Source: Grant Thornton research

2011: Prominent deals in Indian real estate sector


As per an industry report, during 2011, PE firms invested US$ 2.68

billion in the real estate sector. Further, the year also witnessed an

increase in deal activities of domestic fund houses such as Kotak,

Indiareit, and ASK Investment Holdings. During the year, PE firms

made 69 investments, of which 53 transactions were announced,

making the cumulative worth US$ 2.68 billion. The report also states

that of the total investment, 57% were made in residential projects,

while commercial projects accounted for 19% of the chunk.

Real estate sector had witnessed a flood of PE investments between

2006 and 2008, which headed to a natural end in 2011-12 due to the

typical three-five year investment horizons. During Q1 of the year, a

total of 11 real estate focused PE funds exited the market. A report

released by a leading advisory firm states that during 2011, real estate

and the infrastructure sector witnessed nearly 22% of the total PE

investments. As per the research firm VCCEdge, Q1 witnessed six

exits worth a combined US$ 124 million, largely through equity

buybacks and secondary sales. During this period, returns from real

estate investments ranged between 1.4 and 4 times.

Since 2009, Kotak Realty has exited from about US$ 175 million

worth of investments. However, even amid the enhanced momentum

of exits, PE‟s found it difficult to exit with good returns, largely due

to volatile stock markets in 2011. As per a report by Bain and Co,

about 120 PE funds, with a potential to raise approximately US$ 34

billion were impacted by the bleak economic scenario in 2011.

Further, according to a report, 2010 and 2011 in combination

witnessed real estate PE exits worth US$ 3 billion. The low PE exits

in the year can also be attributed to high inflation, steep interest rates

and slow economic growth. As per another survey report, secondary

and strategic sales were the preferred exit choices, while IPO‟s and

multiple exits, once the most popular routes for exits, lost their

charm to investors in 2011.


PE funds Value Background

Indiareit Fund Advisors US$ 100 million Exit of an office project in Kurla, in suburban Mumbai. In 2006, Indiareit Fund Advisors made an investment of Rs 145 crore

Kotak India Real Estate Fund-I

Rs 385 crore The PE firm sold its stake in Peepal Tree Properties, which it had

purchased in 2007 for Rs 95 crore. The deal was made with Tata Realty Initiatives Fund-I

HDFC India Real Estate Fund

Undisclosed The entire paid-up share capital of Udhay GK-Realty was purchased by Godrej Properties Ltd

Milestone Capital Advisors

2.04 times of the initial investment

Milestone Capital Advisors exited from Stone Arc, a residential

project located at Thiruvanmiyur, Chennai, where it owned 26,800 square feet of saleable area

IL&FS Milestone Fund I 1.51 times of the initial

investment

The PE exit involved the sale of 29,490 square feet of area in

commercial property Raheja Titanium in Mumbai by IL&FS Milestone

Fund I

HDFC Property Fund Rs 540 crore The fund, sponsored by HDFC, sold its 21% stake in Manyata

Business Park, a 7.7 million square feet infotech SEZ in Bangalore, to the Embassy Group

Source: Grant Thornton research

2011: Prominent PE exits in Indian real estate sector


In a nutshell

• Investment in the Indian real estate sector between April and

September 2011 stood at US$ 453 million

• PE funds invested US$ 2.68 billion in the Indian real estate

sector during 2011

• Major PE and M&A deals that were witnessed in the sector

from January to May 2011 include investment of Oceanus Real

Estate and Ascendas India (US$ 190 million), Tata Realty (US$

86 million), etc

• The 53 transactions announced in 2011 had a cumulative worth

of US$ 2.68 billion. The materialisation of deals at a time when

the sector found it tough to receive bank funding stood

testimony to the optimism in investors

• NRIs, whose share of real estate buying in India accounts for

about 4% every year, rose to 8% in 2011, largely due to

depreciation in the value of rupee

Pg 20

Loans

Vac

ancy

rat

es

Declining margins

Interest costs

Buyer in

terest

CorrectionProfitability

Issues and challengesOpportunities

Prices

NRI transactions

Market sentiment

Gro

wth

str

ateg

ies

Revenues

Market ex

pectatio

ns

Sales Demand

Oversupply

New avenues

Future prospectsProjections

Sustainability

Finance

Key issues and challenges: caution and diligence

Along with the rest of the global economy, the commercial property

sector is in a period of rapid change, with both owners and builders

questioning current strategies and future expectations. In the current

business environment, real estate developers face many obstacles to

their pursuit for growth. Yet, industry leaders are largely optimistic

about their business prospects, as they strategically plan for higher

revenues and profits in 2012.

Interest rate hike

In order to address the issue of rising inflation, the RBI hiked the

repo rate a number of times in the year. The increase in prime lending

rates at commercial banks and other housing finance institutions

became a major deterrent for homebuyers to take loans for buying

residential real estate, as a result of which, residential sales slumped

markedly. In addition to its impact on property buyers, the hike in

interest rate resulted in liquidity crunch for real estate developers.

Apart from decreased profitability from projects due to reduced

demand, developers also faced difficulty in raising finance from

banks. Further, the debt-to-equity ratio of developers also increased

during the year due to increase in the cost of construction, building

material and labour.

Pg 22

Source: RBI

Hike in repo rate

4.75

5.25

5.75 6

6.25 6.5

6.75

7.25 7.5

8 8.25

8.5

0

1

2

3

4

5

6

7

8

9

Repo rate (%)

Pricing trends

According to National Housing Bank (NHB), during Q4, property

prices of residential units in Kolkata and Mumbai registered a decline

of about 0.5%, as compared to Q3. At 15.5%, Kochi registered the

maximum decline, followed by Hyderabad (6%), Jaipur (1.5%), and

Patna (0.7%). Among all the cities covered under the NHB Residex,

six cities witnessed a decline in prices, while nine cities observed an

increasing trend during Q4, as compared to Q3.

During the fourth quarter of the year, prices in Delhi rose by 8.4%, as

compared to Q3. In addition to Delhi, other cities that witnessed a

positive movement in property prices include:

• Surat: 9.4%

• Chennai: 9.2%

• Pune: 8.9%

• Bangalore: 7.5%

• Lucknow: 7.1%

• Faridabad: 5.8%

• Ahmedabad: 2.5%

• Bhopal: 1.4%

Source: NHB Residex

City-wise housing price index - Tier I cities

On the other hand, during the first half of the year, rents of malls and

high-streets increased by 15-20%. No price/ rent correction was seen

in completed projects in both the residential and commercial

segments in the year, despite the slump in demand. Depreciation of

rupee evoked the interest of NRIs in purchasing property in India.

Pg 23


0

50

100

150

200

250

300

350

Jan -June2008

July -Dec2008

Jan -June2009

July -Dec2009

Jan -March2010

April -June2010

July -Sept2010

Oct -Dec2010

Jan -March2011

April -June2011

July -Sept2011

Oct -Dec2011

Hyderabad Chennai KolkataMumbai Bangalore Delhi

Key issues and challenges: caution and diligence Pg 24

City-wise housing price index

Source: NHB Residex

Tier II cities Tier III cities

0

50

100

150

200

250

Jan -June2008

July -Dec2008

Jan -June2009

July -Dec2009

Jan -March2010

April -June2010

July -Sept2010

Oct -Dec2010

Jan -March2011

April -June2011

July -Sept2011

Oct -Dec2011

Ahmedabad Jaipur Lucknow

Pune Faridabad

0

50

100

150

200

250

Jan -June2008

July -Dec2008

Jan -June2009

July -Dec2009

Jan -March2010

April -June2010

July -Sept2010

Oct -Dec2010

Jan -March2011

April -June2011

July -Sept2011

Oct -Dec2011

Patna Kochi Bhopal


Increased vacancy rates

During 2011, real estate sector witnessed a slowdown in transaction

activity, reduced launches of new projects and stagnant property

prices. As per a report released by Knight Frank India, residential

property prices depreciated by up to 10% across Mumbai, NCR,

Bangalore and Chennai. With a substantial number of prospective

homebuyers deferring their plans of buying property, almost 3,06,859

units of residential property are currently lying unsold.

Further, the NCR market had the highest proportion of vacancy rate

for residential property in 2011. The lack of buyer interest is also

evident from the fact that in 2011, 40,660 housing units remained

unsold in Mumbai. In 2011, the unsold inventory levels of residential

real estate stood at 46,596 units for Bangalore and 40,734 units for

Pune.

In the July-September quarter, demand for office space across the top

six cities in India was 8.5 million square feet. With a number of

corporates deferring their hiring plans, demand for office space in

2011 across the top seven cities also remained muted.

Pg 25

Key issues and challenges: caution and diligence Pg 26

In a nutshell

• The frequent interest rate hikes led to liquidity squeeze, thereby

making cost of credit expensive for the real estate developers

• The hike in home loan rates compelled buyers to postpone their

buying decision, leading to a drastic reduction in sale of residential

units across segments

• Due to the reduced availability of capital to real estate developers,

the year also witnessed widespread delays in construction projects

• The slowdown in the demand of residential units was also evident

from the NHB Residex, with Tier I cities such as Kolkata and

Mumbai witnessing a downward trend in the prices of residential

properties

• As a result of the tough market conditions, numerous cities such as

Kochi and Hyderabad witnessed a decline in prices of residential

units during Q4

• Demand for office space also slumped during the year, resulting in

an increase in vacancy levels

• The NCR market registered the highest vacancy rate for residential

property during the year

Evasion

Urb

an in

fras

truct

ure

Growth projections

Sale deed mandate

Prio

rity sector lan

din

g

Circle ratesStamp duty

2011 News round-upEnvironment

Affordable housing

Black money

Market sentiment

Ben

amitr

ansa

ctio

ns

Revenues

Custo

mer g

rievance

Public offers Land acquisition

Interest rate subsidy

Overseas projects

New rating system

Green building

Finance

News round-up: regulatory

Supreme Court mandated the sale deed

In a landmark judgment, the Supreme Court held that General Power

of Attorney (GPA) is not a valid instrument for transferring property

rights. The decision is expected to curb evasion of duties, use of

black money and unscrupulous transactions that often result in

disputes.

Benami Transactions (Prohibition) Bill, 2011

introduced

The Finance Ministry introduced the Benami Transactions

(Prohibition) Bill, in August 2011. The Bill prohibits benami

transactions done in someone else's name, except in the case of

transactions in the name of a spouse, brother or sister or any lineal

ascendant or descendant.

The Bill intends to replace the existing Benami Transactions

(Prohibition) Act, 1988, and proposes provisions for confiscation of

such property and imprisonment.

Pg 28

Circle rates hiked in Delhi by up to 250%

The Delhi government hiked the circle rates by up to 250% in

October 2011. This was the second hike in circle rates in 2011.

Earlier in February, the rates were increased by up to 100%. While

the move aims at curbing the use of black money in property

transactions, it would also help garner an additional revenue of Rs

800 crore a year, mainly through stamp duty and registration fees.

News round-up: regulatory

Budget 2011-12 highlights

The Union Budget 2011-12 presented various initiatives for the real

estate sector, especially focusing on affordable housing. Some of these

initiatives include:

• Raising the limit on housing loans eligible for a 1% subsidy in

interest rates

• Widening the scope for housing under "priority-sector lending" for

banks, making interest rates cheaper on them

• Earmarking a substantial amount to the Urban Development

Ministry for spending on extension of Metro networks in Delhi,

Bangalore and Chennai

• Allocating US$ 20.03 million for the urban infrastructure

development project. The Urban Development Ministry received

US$ 1.5 billion, an increase of US$ 68.53 million from the last fiscal

2010-11

• Increasing allocation for Bharat Nirman to US$ 12.89 billion.

Bharat Nirman consists of 6 flagship programmes, the Pradhan

Mantri Gram Sadak Yojana (PMGSY), Accelerated Irrigation

Benefit Program, Rajiv Gandhi Grameen Vidyutikaran Yojana,

Indira Awas Yojana, National Rural Drinking Water Program and

Rural telephony

Pg 29

Developments in Tamil Nadu and Haryana

In July 2011, the government of Tamil Nadu revised the ceiling on

stamp duty from Rs 5,000 to Rs 25,000. Applicable exclusively for

title deeds, the guidelines also revised the cap on registration fee from

Rs 1,000 to Rs 5,000.

On the other hand, the ceiling on non-agricultural land was waivered

by the state assembly of Haryana, in an attempt to facilitate land

assembly for apartments and townships.

News round-up: financial

Public offers deferred by a significant proportion

of real estate companies

As per SMC research, at least 28 companies deferred their IPOs in

2011, including a number of real estate companies such as Lodha

Developers, Lavasa Corporation, Ambiance Real Estate, Kumar

Urban Developers and Neptune Developers. The IPOs were called

off due to unfavourable market conditions.

15% growth estimates in 2011

As per media reports and expert estimates, the Indian real estate

sector registered a growth rate of about 15% in 2011. Albeit the

trends were not-so-negative despite the slowdown in the Western

economies, the growth rate was lower than 25-30% as projected

during the beginning of the year.

Pg 30

Top 11 listed real estate companies accumulated

a debt of over Rs 5,000 crore

According to Edelweiss Securities report, the total debt of the top 11

listed real estate companies of India increased by over Rs 5,000 crore

to Rs 38,500 crore.

News round-up: miscellaneous

Major land acquisition dispute in Greater Noida

The Supreme Court upheld the High Court decision cancelling

allotment of 156 hectares of land in Greater Noida. The decision was

taken following the writ petition filed by farmers expressing dissent

on the massive difference in buying and selling rates.

The land was acquired by Greater Noida Industrial Development

Authority (GNIDA) and UP government at Shahberi Village at the

rate of Rs 850 per square metre and allotted to private developers at

rates ranging from Rs 10,000 to Rs 12,000 per square metre.

The Court also ordered the seven real estate developers to return all

the payments received from over 6,500 people towards the booking

of flats over disputed pieces of land.

New green building rating system introduced

To rate the level of environment friendliness and sustainability of

buildings, an upgraded Leadership in Energy and Environmental

Design 2011 (LEED 2011 for India) rating system has now been

introduced in the country. The new rating has come into effect.

Pg 31

India's largest hill city, Lavasa stalled on charges

of violating green laws

Lavasa Corporation came under the Ministry of Environment scanner

for allegedly violating environmental norms in its hill city project. The

company was later provided conditional approval by the Ministry.

Affordable housing scheme – ‘Rajiv Awaas Yojana’

In order to boost affordable housing schemes, the government proposed

an exemption of service tax for the construction or finishing of new

residential complex under „Jawaharlal Nehru National Urban Renewal

Mission‟ and „Rajiv Awaas Yojana‟ in the Union Budget 2011-12.

The way forward Pg 32

Tata Housing forays in

the international

market, announcing a

Rs1,000 crore MoU

with the Government

of Maldives

By 2014, Vijay Shanthi

Builders will develop

projects worth Rs

2,100 crore, beginning

with a residential

project

Lodha Group will invest

over Rs 10,000 crore in a

new project, titled New

Cuffe Parade, in Mumbai,

over the next 5-7 years

With an investment of

Rs 500 crore, Malabar

Builders will launch its

first township project in

Mangalore shortly

Larsen and Toubro

(L&T) plans to

construct the first

residential high-rise

building of the country

on a pre-cast basis

Following the opening

up of FDI in retail

sector, DLF will invest

a sum of US$ 570.2

million for developing

malls over the next 5

years

Royal Institution of Chartered Surveyors (RICS)

launches India edition of the 'Red Book' which lays

down mandatory rules for its members and serves

as best practice for industry professionals

To streamline brokerage practices and bring

transparency in property transactions, National

Association of Realtors-India and the Confederation of

Real Estate Developers' Associations of India (CREDAI)

signs an agreement of cooperation

CREDAI releases a code-of-conduct for its

members and also recommends setting up of

consumer grievance redressal cells to address

complaints and disputes

About Grant Thornton

Pg 33

Grant Thornton International

Grant Thornton International is one of the world's leading organisations of independently owned and managed accounting and consulting firms.

These firms provide assurance, tax and specialist advisory services to privately held businesses and public interest entities.

Clients of member and correspondent firms can access the knowledge and experience of more than 2500 partners in over 100 countries in order to

consistently receive a distinctive, high quality and personalised service wherever they choose to do business. Grant Thornton International strives to

speak out issues that matter to business and which are in the wider public interest. Its aim is to emerge as a bold and positive leader in its chosen

markets and within the global accounting profession.

Grant Thornton India LLP

Grant Thornton India LLP is a member firm within Grant Thornton International Ltd. The firm has today grown to be one of the largest

accountancy and advisory firms in India with nearly 1,100 professional staff in New Delhi, Bangalore, Chandigarh, Chennai, Gurgaon, Hyderabad,

Kolkata, Mumbai and Pune, and affiliate arrangements in most of the major towns and cities across the country. The firm specialises in providing

audit, tax and advisory services to growth-oriented, entrepreneurial companies.

About CII

Pg 34

The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the growth of industry in India, partnering

industry and government alike through advisory and consultative processes.

CII is a non-government, not-for-profit, industry led and industry managed organisation, playing a proactive role in India's development process.

Founded over 116 years ago, it is India's premier business association, with a direct membership of over 8100 organisations from the private as well

as public sectors, including SMEs and MNCs, and an indirect membership of over 90,000 companies from around 400 national and regional sectoral

associations.

CII catalyses change by working closely with government on policy issues, enhancing efficiency, competitiveness and expanding business

opportunities for industry through a range of specialised services and global linkages. It also provides a platform for sectoral consensus building and

networking. Major emphasis is laid on projecting a positive image of business, assisting industry to identify and execute corporate citizenship

programmes. Partnerships with over 120 NGOs across the country carry forward our initiatives in integrated and inclusive development, which

include health, education, livelihood, diversity management, skill development and water, to name a few.

CII has taken up the agenda of “Business for Livelihood” for the year 2011-12. This converges the fundamental themes of spreading growth to

disadvantaged sections of society, building skills for meeting emerging economic compulsions, and fostering a climate of good governance. In line

with this, CII is placing increased focus on Affirmative Action, Skills Development and Governance during the year.

With 64 offices and 7 Centres of Excellence in India, and 7 overseas offices in Australia, China, France, Singapore, South Africa, UK, and USA, as

well as institutional partnerships with 223 counterpart organisations in 90 countries, CII serves as a reference point for Indian industry and the

international business community.

Our real estate solutions

Pg 35

Our real estate practice

Real estate is a complex business. Owing to its capital intensive nature, any

turbulence in the economic and business environment can affect a real estate

business in a number of ways. With its depth of knowledge and global experience,

Grant Thornton India can assist you in mitigating these inherent risks. At the

same time, we can help you identify and leverage potential opportunities as well.

Assurance, tax and advisory services are just the beginning of our suite of services

for real estate companies.

Please contact our real estate experts at [email protected] to know

more about how Grant Thornton can assist you achieve your objectives.

Financing your business

• analysing funding requirements

• preparing submissions to financiers

• benchmarking terms and pricing

• considering alternative sources

Working capital management

• managing your cash

• forecasting and re-forecasting

• optimising tax cash flow savings

• improving management information

Protecting profits

• product portfolio analysis

• optimising pricing strategy

• enhancing terms of trade

• identifying overhead savings

Operations and cost reduction

• establishing cost reduction

programmes

• improving supply chain

• enhancing operational efficiency

• outsourcing back office functions

Communication and compliance

• advising on financial reporting requirements

• clarifying directors‟ responsibilities

• mitigating fraud risk

• evaluating and designing controls

Human capital management

• optimising pension and benefit schemes

• retaining the right talent

• devising tax efficient packages

• enhancing reward packages

Strategic direction

• benchmarking against competitors

• entering new markets

• identifying acquisition opportunities

• reviewing business plans

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