unfolding the new landscape of india real estate · real estate (regulation and development) bill,...

Unfolding the New Landscape of India Real Estate

September 2014

Exploring New Horizons

Exploring New Horizons 3Exploring New Horizons 2

Pessimistic attitude of investors • FDIinflowsintherealestateindustrydecreasedsignificantlybyalmost16%

• Declineintheservicesectorgrowthratecauseddecreaseinrealestatedemand

• Pilingrealestateinventorycausedcorrectionofrealtyprices

Difficult times for the economy - start of the global financial crisis (GFC)• CreditcrisisduetosubprimecrisisandglobalbankingleadersweredeclaringbankruptcyintheUnitedStates

• SqueezeofcreditflowinIndia-withdrawalofforeignfundsfromequitymarkets

• GDPgrowthratedroppedto6.7%• Servicesectorgrowthratedroppedto8.2%whileindustrialsectorgrowthratedroppedto5%

eCON

OMY

REaL

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atE

sentiments improved • Officespaceabsorptionincreased• OfficespacerentincreasedinDelhi,MumbaiandBangalore

• Increaseinresidentialpricescauseddeclineinabsorptionofunits

Optimism continued• GDPgrowthrateincreasedfurtherto9.3%

• Servicesectorreboundedstrongly• Creditsituationimprovedtheindustrialsector,whichgrewto9.5%

eCON

OMY

REaL

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atE

sentiments dampened because of credit crunch • FDIflowsinrealestatesloweddown• Officespaceabsorptiondroppedsignificantlyandnationalaveragevacancyroseto17.3%

• Therewasaspurinnewlaunchesintheresidentialsector,andabsorptionrateimproved

Uncertainty in global economy continued to dampen growth• GDPgrowthratedroppedfurtherto5%• Indiafacedheatfromglobalcredit-ratingagencies(CRAs)becauseofhighcurrentaccountdeficit

• TheRBIreducedinterestratestoimproveliquidityandpromotegrowth

• Rupeedepreciateddrasticallyagainstdollar

eCON

OMY

REaL

Est

atE Game-changing economic reforms to boost

investments • Economicreformsaretheneedofthehourtobringbacktheeconomyonthegrowthtrack

• Theplantocontrolfoodinflationbyimprovingsupplycangraduallyhelpinsofteninginterestratesandbringingbackliquidityinthemarkettosurgegrowthinthemedium-to-longterm.Thiswillhelptherealestateindustry-whichisstrugglingwithliquiditycrunch-toalargeextent

• Goodsandservicestax(GST)willbeanotherstrongfactorinstreamliningthetaxationprocessandmakingithassle-freefordevelopers

New wave of optimism • Thenewgovernmentbeingformedbyfullmajorityhasbroughtinanewwaveofoptimisminthecountry

• Thestockmarkethaswitnessedanewpeak,andrupeehasstrengthenedagainstdollar

• NewdevelopmentpoliciesthatarelikelytoimproveinvestmentsentimentsinIndiaarebeingplanned

• ImprovingeconomicsentimentsarelikelytoimproveIndia’screditrating,andthisisseentoboostinvestmentsinthecountry

• ThenewgovernmentplanstoincreasetheGDPgrowthratetoabove5%

eCON

OMY

REaL

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atE

State of the Economy - Past, Present and Future

Investment sentiments remained low• Investmentinlandsloweddrastically,ascomparedwith2008

• Officeandretailrentsslumped• Residentialsalesimprovedbecauseofcorrectedpricesandlaunchofaffordableprojects

Indian economy showed resilience but not real estate• GDPgrowthrecoveredandwasat8.6%• Capitalmarketsgraduallystrengthened• TheReserveBankofIndia(RBI)raisedinterestratetocontrolrisinginflation

eCON

OMY

REaL

Est

atE

Huge optimism in real estate and construction industries• PhenomenalgrowthinFDIflows-FDIintherealestateindustryincreasedthreetimes

• Consistentincreaseintheservicesectorimprovedrealestatedemand

• Availabilityofcapitalandpositivebusinesssentimentsdroveinvestmentsinrealestate

strong growth and high investment sentiments• AnnualaverageGDPgrowthrateinfiveyearswasabove8%

• Servicesectorgrowthratewasat10.8%,andindustrialsectorgrowthratewasat8%

• Strongforeigndirectinvestment(FDI)andforeigninstitutionalinvestment(FII)flows

• Stockmarketwassurging-BSESensexabove20,000points

eCON

OMY

REaL

Est

atE

Cautious investment sentiments• FDIinrealestateremainedslow• Officespaceleasingstabilisedandrentalrecoverybegan,althoughstillfarfrompeak

• Residentialabsorptionandlaunchesremainedslow

Indian economy saw the slowest growth • GDPgrowthdroppedfurtherto4.7%• Investmentsentimentsdroppedsignificantly• FDIinflowswereweak• Servicesectorimproved,butindustrialsectorremainedweak

eCON

OMY

REaL

Est

atE

Global economy again uncertain because of the Eurozone crisis• SovereigncrisisinEurozoneagaincausedslowdownincapitalflows

• Weakenedcreditsituationaffectedindustrialproduction• GDPgrowthratedroppedsignificantlyto6.2%

eCON

OMY

Recovery continued • Officespaceabsorptionincreased• Increaseinofficerentssloweddown• AbsorptionrateofresidentialunitsimprovedmarginallyRE

aL E

stat

E

Pre-2008 2009 2011 20132008 2010 2012

Legend:MarketSentiment

FavourableNeutralUnfavourable

2014 - 2017


Repealing - Urban land Ceiling (ULC) Act, 1976

TheUrbanLandCeiling(ULC)Act,1976gavethestategovernmenttherighttoacquireanddisposeofexcessland(asspecifiedintheAct)fromindividualsandentities,therebyservingthecommongood.However,theActcausedshortsupplyofland,makinglandpricesunaffordable.ManyIndianstateshaverepealedthisActundertheJawaharlalNehruNationalUrbanRenewalMission(JnNURM).However,ifallstatesrepealthisAct,landcanbemadeaffordableandavailablefordevelopment.

Repealing - Rent Control Act

TheRentControlLegislationhasbeeninexistenceforalmostacenturyinIndia.Thecommonintentofeverystateenactingthelegislationistoprotecttenantsfromforcefulevictionandunfairrentalhikes.Inanattempttoprotecttenants,thisActhasinfactcreatedunfavourabletermsforlandlords,therebymakingtheentiremodelofrentalhousingunviableandinefficient.RepealofthisActcouldunleashalotofredevelopmentactivity,ashasbeenwitnessedinmanymajorcitiesalloverthe

world.Thisisnotonlynecessarytomeetthegrowingunmetdemandforhousinginkeylocationsofdenselypopulatedcities;itwouldalsohaveaveryfavourableeffectonemploymentgenerationwithincreasedconstructionactivity.

The Direct Tax Code (DTC) - Deferred

TheGovernmentofIndiahasdeferredtheimplementationoftheDirectTaxCode(DTC)from2014to2015,whichgivesofficeoccupiersmoretimetocapitaliseontheirexpansiondecisionswhilecarefullynegotiatingwithdevelopers.ThedelayintheimplementationoftheDTChasresultedinagoodportionoftheofficespacedemandforITSEZsspillingoverfrom2013

to2014.WiththedemandforITSEZstoremainhealthyinthenext12–18months,weexpectthedevelopersofITSEZstofocusonexecutionandcompletionofprojectsforthedurationtoensureareadysupplytomatchtheimmediatelyupcomingdemand.

BPLR to Base Rate System by RBI in 2010

TheRBIhasintroducedanewregulatorysysteminplaceoftheexistingbenchmarkprimelendingrate(BPLR)forbanksthatoffercommercialloansin2010.Thisnewbaseratesystem,whichsetsafloorforinterestratesthatbanksarenotallowedtolendbelow,isexpectedtoenhancetransparencyandhelpsmallerborrowersinraisingfunds.TheBPLRsystem,which

wasinitiallystartedtobringintransparency,ledwaytogiveloansatsub-BPLRrates.ThiswasnotservingBLPR’soriginalpurpose.Therefore,thereplacementofBPLRbroughtintherequiredtransparency.Althoughbankscanchoosetheirbaserate,theycannotdisburseloansbelowthebaserate.Thissystemwillhelptheborrowersevaluatetheirloancostinabetterway.

Goods and Services Tax to be introduced

TheGoodsandServicesTaxisexpectedtoreplacealltheindirecttaxesleviedbystateandcentralgovernmentinIndia.ThistaxislikelytobeintroducedinIndia.Thistaxisexpectedtolowerthetaxasitisexpectedtobroadenthetaxbase.Thisislikelytomaketaxationhasslefreewhichwillbeanadvantagetodevelopers.

Smart Cities

SmartCities,bydefinitionimplyconsiderabledemandfortechnology-enabledservices,whichspellsgoodnewsforIT/ITeScompanies.Significantly,asmuchasone-thirdofthecountry’sdemandforofficespaceemanatesfromthissector.Thiswillhavepositiveimplicationsforrealestate,acrossmultipleassetclass.Aspromisedinthenewgovernmentsmanifesto,

thecreationof100smartcitiesacrossIndiahasbeenproposed.ThebudgetallocationofRs.7,060crorestowardsthisend,therebygivingafinancialsign-offforthisconcept.

REIts

WiththestampofapprovalbySEBI,REITsarefinallyaformalizedconcept.Thisisabigchangefromtheambiguityanduncertaintythatprevailedaboutthisveryimportantinstrumentinpreviousyears.ItisgratifyingtonotethatSEBIfullyintendstodeliveronitsassurancesofbringingbetterandfasterfundingintoIndianrealestate.

Policies - Setting New Rules to Open New Opportunities for the Real Estate Industry

SeZ Act, 2005

UndertheprovisionsoftheSpecialEconomicZones(SEZ)Act,2005,severalzonesinIndiahavebeennotifiedasSEZs.TheSEZshavebeenpromotedbyprovidingtaxholidays-foraplethoraoftaxesincludingincometax,salestax,customsduty,minimumalternatetax(MAT),dividenddistributiontax(DDT)andothers-fordevelopersandoccupiers,withtheobjective

tocreateemployment,promoteexportsanddevelopinfrastructure.TheincentivesledtoseveralSEZsbeingdevelopedacrossIndia.Thisacthasprovidedthemuch-neededimpetustotheITindustryandhasdriventhedevelopmentofITinfrastructureacrossseveralcitiesinIndia.

FDI Policy in Real estate and Relaxations

FDIofupto100%forthefirstcategoryispermittedundertheautomaticrouteintownships,housing,built-upinfrastructureandconstructiondevelopmentprojects(whichwouldinclude,butisnotrestrictedto,housing,commercialpremises,hotels,resorts,hospitals,educationalinstitutions,recreationalfacilitiesandcity-levelandregional-levelinfrastructure).Thepoliciesarebeingrelaxedprogressivelytoattractinterestfrominvestorsandprovidethemwithaprofitableexitstrategyinthefuture.

Inaddition,thegovernmenteasednormsforinvestmentsbyforeigncompaniesactiveinIndiathroughjointventures(JV)in2010.Foreigncompanieswillnolongerhavetoseekano-objectioncertificate(NOC)fromtheirIndianpartnertoinvestinthesectorwheretheJVoperates.Also,theminimumsizeforhousingestatesbuiltwithforeigncapitalwasloweredfrom100to25acrestoattractforeigninvestments.

Inordertofurtherencourageinvestmentinthissegment,FDIinvestmentnormsintermsofminimumarearequiredfordevelopmenthavebeenloweredfrom50000sqmto20000sqmandfromUSD10milliontoUSD5millionrespectivelywithathreeyearpostcompletionlockin.

Concerningretailrealestate,FDIisnowallowedupto100%insingle-brandretailproducts.TheobjectiveofthispolicyhasbeentoenhancethecompetitivenessofIndianenterprisesthroughaccesstoglobaldesigns,betterpracticesandtechnology.Additionally,100%FDIispermittedviatheautomaticrouteincash-and-carrywholesaletrading.Thisisaimedatimprovingthedistributioninfrastructurebetweenmanufacturersandretailers.ThenewgovernmenthaskepttherelaxationofFDIinmultibrandretailcurrentlyonholdtosafeguardtheinterestsofsmalltradersandfarmers.

Land Acquisition, Rehabilitation and Resettlement Act, 2013

TheLandAcquisition,RehabilitationandResettlementActtriedtoensuremaximumprotectionforlandowners,whoareoftenindividualsandattimesnotfullyawareofthefutureconsequencesofdisowningtheirland.ThisActhasthepotentialtounlockallthelandthathasbeenlockedforseveralyearsbecauseoflackofwaysandmeansthatensurefaircompensation.

WhiletheActhadtheobjectiveofbalancingtheinterestsoflandownersandlandacquirers,thefinaldraftofthepolicydidnotreallydeliveronthisfront.TheclausesthatappearintheActnotonlyensurethatlandcostsgoupfortheacquirer,butalsorenderstheacquisitionprocessmorecomplexandtime-consuming.Thisisevidentintheclausespertainingtoobtainingmandatoryconsentof80%oftheowners,futureincrementalgainsfromlandtransactionstobesharedbythelandownersanddifferentresettlementproceduresfordifferentsectionsofthepopulation(suchasscheduledcastes/tribes).

Real estate (Regulation and Development) Bill, 2013

TheRealEstate(RegulationandDevelopment)Bill,2013,whichtheUnionCabinetapprovedafteralonghiatusinJune2013,willbeagame-changerforpropertybuyersandtherealestateindustryasawhole.Thebillislikelytobringinthemuch-neededtransparencyintheindustry.Thiscanencourageinvestmentsintheindustrythroughmechanismssuchasreal

estateinvestmenttrusts(REITs)andrealestatemutualfunds(REMFs).

Theaimofthebillistocreatearealestateregulatorthatwillactasawatchdogforthehousingsector,withaviewtoprotecttheinterestofconsumerswhilecreatinganalternativeredressmechanismforanydisputesthatmayarise.However,thebillcurrentlyhasitsownsetofchallengeswaitingforitsstakeholders.Implementationofthisbillislikelytodelaytheprojects,asputtingalltheapprovalsinplacebeforelaunchingaprojecttakeampletimefordevelopers.Thedelay,inturn,willalsoincreasethecostoftheproject.However,effectiveimplementationofthebill,alongwithstreamliningapprovalprocesses,canbearealgame-changerfortheindustry.


TheneedforbetterinfrastructureispressingwithIndia’srapidurbanizationandburgeoningmiddleclass.Some590millionpeople-377millionin2011-willliveincitiesby2030,andcouldaccountfor70percentofIndianGDP,accordingtoaMcKinseyreport.Inaddition,therapidgrowthoftheIndianeconomyinpasthasplacedincreasingstressonphysicalinfrastructurei.e.electricity,railways,roads,ports,irrigation,watersupplyandsanitation,allofwhichsufferfromdeficitintermsofcapacitiesaswellasefficiencies.TheinfrastructuresectorinIndiahasevolvedfrompurelyGovernmentfundedprojectstonewerbusinessmodelsinvolvingpartialorcompleteownershipoftheprivatesector.Meanwhile,intherecentpast,theinfrastructuresectorwasinastateofflux,withthesectorbeinghitbyslowdownintheeconomyandstrainbeingfacedbyvariousinfrastructuredevelopers.Goingahead,thesectorispoisedtobouncebackwithnewopportunities.Butgrowthoftheinfrastructuresectorisdependentonsolvingsomekeychallengesrelatedtoreducingregulatoryuncertainty,developingappropriatefinancingmechanismsandensuringefficientprojectmanagement.Andahighinclusivegrowthforthecountrycouldonlybeachievedifthisinfrastructuredeficitisovercomewithinvestmentopportunitycomesinplacetosupporthighergrowth.

Infrastructure

Dedicated Freight Corridor (DFC)• EasternCorridor(sanctioned)-Ludhiana-Kolkata,1,805km• WesternCorridor(sanctioned)-1,515km,Mumbai(J.N.Port)toDadri

• ExpectedSpeed:100-120+kmperhour• Providesgreatscopeforlogisticsandwarehousingrealestateatimportantnodes

Delhi Mumbai Investment Corridor (DMIC)• 1,483-kmlength• 200-sq-kmsizedinvestmentregion• Sixmega-investmentregions• INR175billioninvestmentapprovedinfirstphase,whileestimatedtotalpojectcostisINR5.5trillion

• About50%priceappreciationinthelasttwoyears

Infrastructure that has changed the game

• GujaratInternationalFinanceTec-City(GIFT)-aninternationalfinancecityon986acresofland,builtatacostINR700billion

• BusRapidTransitSystem(BRTS)-Whenfullycompletedin2015,itwillcover115kmandwillhavecostINR15billion

• YamunaExpressway-Asix-lane(extendabletoeightlanes),165-km-longexpresswayconnectingGreaterNoidawithAgra,builtatacostofINR130billion

• DelhiMetro-AmetrosystemservingDelhi,Gurgaon,NoidaandGhaziabadwithanetworkofsixlines,plusanAirportExpressline,withatotallengthof190km

• KolkataMetro-Thenetworkconsistsofoneoperationalline(NorthSouthMetro)andthreeunderconstruction,withfurtherlinesinvariousstagesofplanning

• KolkataBusRapidTransitSystem-BeginningatUltadanga,theroutewillcover15.5kmalongtheEMBypass

• ChennaiMetroRail-Underconstruction,theprojectconsistsoftwocorridorscoveringalengthof87km

• OuterRingRoad-A62-km-longcorridordevelopedalongtheperipheryoftheChennaiMetropolitanArea

• PuneMetro-Theproposed82-km-longmetrorailprojectisexpectedtocommencein2018.• PuneRingRoad-ThetenderfortheDPRoftheproposed170-kmRingRoadthatwillconnectthefringeareasofPuneandPimpriChinchwadislikelytobeissuedinJune

• NammaMetro-PhaseIcoversadistanceof42km,whilePhaseIIcovers115km• TheBangalore-MysoreInfrastructureCorridor(BMIC)-AlsocalledNICERoadwithalengthof111km,ithasbeenproposedthatthecorridorisupgradedfromfourtosixlanesbetweenBangaloreandMysore

• MumbaiMetro-FirstphasefromVersovatoGhatkoparwillbeoperationalbyend-2014.Theentireprojectwillhavealengthof146km,builtatacostofINR360billion

• MumbaiMonorail-Thecompletenetworkof135kmandeightlineswillcostINR202billion• EasternFreeway-The16.8-km-longhighwaybetweenSouthMumbaiandGhatkoparwascompletedin2013atacostofINR15billion

• HyderabadMetroRail-PhaseIcoversadistanceof71km,whilePhaseIIcovers80km;thethreephaseswillcostINR170billion

• RegionalRingRoad-A290-kmringroadconnectingthedistrictsaroundthecityandlinkingnationalhighwaysNH4,NH7,NH9andNH202

Delhi Mumbai Investment Corridor (DMIC)

Dedicated Freight Corridor (DFC) sanctioned part

Dedicated Freight Corridor (DFC) proposed part

Delhi NCR

Ludhiana

Kolkata

Hyderabad

Vijayawada

Chennai


Impact of Infrastructure Development on Real Estate On the Cards: Proposed Infrastructure

Proposed Indian experiment of ‘Smart Cities’

Infrastructuredevelopmentshavedirectimpactonpropertyvalues.Especiallytransportinfrastructurepositioninghasseriousimpactsonpeople,communitiesandpropertyvalues.Residentialandcommercialpropertieslocatedclosetotransportationinfrastructuretendtocommandapremium-ithasbeencommonforrealestatepricestoappreciateintandemwiththedevelopmentofinfrastructure.Thegeneralrulebeing-thebettertheinfrastructure,thebetterthepropertyvalue.ManycitiesinIndiahavewitnessedthebenefitsofinfrastructureprojectdevelopmentssuchasmetrorailways,peripheralringroads,andbusrapidtransitsystems(BRTS)onthebackofthefuturegrowthpotentialoftheseprojects.Theygenerallywitnesssuddeninfluxofrealestatedevelopmentandriseinpropertyvaluesaroundtheinfrastructureproject.Inaddition,priceincreasesduringtheyearswhenaninfrastructureisbeingbuilthavebeencatalyticallyfunctionaltominimisegapsbetweenpricesontheperipheryandinthecentreofthecity.

Ifwetakeacloserlook,upcominginfrastructureprojectsgenerally

Thecreationof100‘smartcities’islikelytobeagame-changerforthenextgenerationofIndianinfrastructuredevelopment.Thegeneralcharacteristicsofthese‘smartcities’include:

• Utilisationofnetworkedinfrastructure,includingbusiness,housing,leisureandlifestyleservices,aswellasinformationandcommunicationinfrastructure(ICT)toimproveeconomicandpoliticalefficiencyenablesocial,culturalandurbandevelopment

• Applicationofstrategytoincreaselocalprosperityandcompetitiveness

• Socialinclusionofvariousurbanresidentsinpublicservicesandemphasisoncitizenparticipationinco-designingwhilefocusingonsocial,environmentalandeconomicsustainability

Case Study: Mumbai Metro Railway

MumbaiwitnessedthecommissioningoftheVersova-Andheri-Ghatkopar(VAG)corridoroftheMumbaiMetroinJune2014.ThisPublicPrivatePartnershipinitiativeoftheMumbaiMetropolitanRegionDevelopmentAuthorityhasequityparticipationfromRelianceInfrastructureandVeoliaTransport.Themetroconnectivityreducestraveltimeto21minutesfromthecurrent90minutesbetweenVersovaandGhatkoparwithimprovedEast-Westconnectivity.Theareasthatbenefitfromthemetroconnectivityhavealreadyseenapriceappreciationof400%overthepasteightyears,andthistrendissettocontinuewiththelaunchofthelink.

Railways

OneoftheprominentschemesinthissectorcouldbethelaunchoftheDiamondQuadrilateralproject,ahigh-speedtrainnetwork(bullettrain).Othersincludetouristrailsandresearchanddevelopment(R&D)centresforindigenousrailways

airports

Modernisationofexistingandoperationalairportsaswellasbuildingnewones,especiallythoseconnectingsmallertownsandalltourismcircuits,arelikelytotakeplace

Ports and Waterways

Modernisationofexistingportsanddevelopmentofnewones,andthenlinkingthemtogether,aswellasdevelopmentofwaterwaysforpassengerandcargotransportarealsoonthecards

Roads and Transport System

Apublictransportsystemthatreducesdependenceonpersonalvehiclesandcost,timetotravelandecologicalcostcouldbethefuture,alongwiththeconstructionandexpansionofnewhighways

leadtothedevelopmentofnewresidentialhubs.And,iflandpricesinsuchlocationsarenothighthenitcreatesimmensepotentialforaffordableandbudgethousingwhicheventuallygetscrowdedandmakeswayforhighpricedresidentialunits.Normally,landacquisitionandconsolidationarebasedonpreliminarynewsregardinginfrastructureprojects.However,commercialprojectsshowaslightlyskewedbehaviour.Theytrulygathermomentumwheninfrastructureprojectshavemovedfromthedrawingboardtotheexecutionphase.

Meanwhile,thecompletionoflargeinfrastructureprojects,suchastheDMICandDFC,willbeexpeditedinthecomingyears.This,inturn,wouldmeanthedevelopmentofmanynewcitiesacrossthebeltoftheseprojects.Thesemassiveon-goinginfrastructureprojectswillalsoleadtoahugedemandforwarehousespace,therebygivingasignificantboosttowarehousing-relatedandlogistics-relatedrealestatedemand.OncetheDMICandDFCarecompleted,thegrowthofrealestateinIndia’shinterlandsthatwillbeconnectedbythesecorridorswillbeexponential.


Capital Flows - The Vital Fluid of Indian Real Estate

Investing in Indian Real Estate

Investinginrealestatehasbecomeincreasinglypopularoverthelastfewdecadesandacommoninvestmentvehicle.Realestateisconsideredtobeoneofthesoundestinvestmentoptionsinmaturedcountries,andnotwithoutreason.Subsequently,inIndiancontext,therealestatemarkethasplentyofopportunitiesformakingbiggainsamidthechangingsocioeconomicconditionsandfluctuatinggoldandstockmarketvalues.Althoughmanycomplexitiessurroundedthebuyingandowningofrealestateinthecountryand2013wasmiredinchallengessuchassubduedsales,pilesofunsoldinventoriesandbuildersfacingcashcrunchwiththechangeingovernment,Indiaislikelytowitnessaninfrastructuralboom,providingrealestatewithanadvantageousedgeasaninvestmentvehicle.Thenewpoliticalenvironmentislikelytomakepolicyreformswhichwillbringtheeconomybacktothegrowthtrack,therebyimprovingtheinvestmentsentimentsinrealestateintheshort-to-mediumterm.

However,itisimportanttomentionthatcautionshouldbeexercisedatallcostwhileinvestinginrealestate,consideringmanyfacetsincludingpossiblecapitalappreciationduringtheprojectlifecycleandstudyingthereputationofthedevelopersfordeliverywithinstipulatedtimeaswellaslegalissuesrelatedtotheproject.

FDI in Indian Real estate

AccordingtotheDepartmentofIndustrialPolicyandPromotion(DIPP)data,FDIintotheconstructionsector-townships,housingandbuilt-upinfrastructure-declinedtoaboutUSD1.3billionovertheApril2013toFebruary2014periodfromUSD3.1billionintheApril2012toMarch2013period.ThisisprimarilybecauseinvestmentsentimentsinIndiadroppedsignificantlygiventhepre-electionpoliticaluncertaintyandunveilingofscams.Meanwhile,fromApril2000toFebruary2014,acumulativeFDIofUSD23.1billion-11%ofthetotalinflows-hascomeintotherealestatesector.Although,atpresent,100%FDIispermittedthroughtheautomaticrouteinthesector-whichcoverstownships,housing,commercialpremises,hotels,resorts,hospitals,educationalinstitutionsandrecreationalfacilities,aswellascity-levelandregional-levelbuilt-upinfrastructure,theFDIinflowwasreducedoveracoupleofyearsastherealestatesectorhavebeenbattlingdecliningsalesandhighinventory,alongwithcashcrunchandpiled-updebt.

Now,aftertheelectionresult,FDIinIndianrealestateisexpectedtogetalift,resultinginamplificationoffundflowsandstrengtheningofthebatteredIndianrupee.Withaclearmajoritytriumph,theincumbentgovernmentwillenjoyunwaveringstabilityatthecentre,whichwillinturnencourageinvestors’sentimentswithregardtotherealestatemarket.GlobalinvestorsarenowmarkedlyoptimisticabouttheIndianeconomy,whichisexpectedtowitnessincreaseinforeigninvestmentinflows-bothviaFDIandFII-inthecurrentfinancialyear,ascomparedtoUSD29billionduringFY2013–2014.

Positive aspects of Real Estate Investment

MORe CHOICe ThereisawidearrayofchoicesforinvestinginrealestateacrossIndia.Itcanbeland,commercial/residentialspaceoranythingthat

generatesinterest.

LeSS RISk INvOLveD Investorsarelesslikelytoendupwithalossbyinvestinginrealestate.Realestateisrelativelyfreefromdrasticfluctuationsandrarelylosesvalue.Ontheotherhand,factorssuchassurroundingdevelopments,i.e.,anewroad,canincreasethevalueofreal

estatemanytimes.

A SOLID INveSTMeNT Thebestthingaboutinvestinginrealestateisthatthereismore

appreciationwiththepassageoftime.

PROFITABILITY Investmentchurnsupprofitinmanywaysasreturns,including

appreciation,resaleandrents.

Permission Status of FDI in Indian Real estate and Infrastructure

ExistingAirports-beyond74%

AtomicMinerals

Incaseofjointventureortechnologycollaborationagreementinthesamefield

Greenfieldairports

Construction&maintenanceofinfrastructurelikeports,harbors,roadsandhighways

Powergeneration,transmissionanddistributionandtrading(Notatomicenergy)

Massrapidtransportsystems

Townships,housing,built-upinfrastructureandconstruction-developmentproject

Freely PermittedPermission Required

Sharp fall in FDI in Real estate & Infrastructure in India7000

6000

5000

4000

3000

2000

1000

1,652

3,922

5,787

1,663

3,141

1,332 1,226

FY06-07 FY08-09 FY10-11 FY12-13FY07-08 FY09-10 FY11-12 FY13-140

USDmn

Source: DIPP, India

4,829


TransparencyLevel

2014 Composite

RankMarket

2014 Composite

RankRemark

High3 Australia 1.36

4 NewZealand 1.44

Transparent

13 Singapore 1.81

14 HongKong 1.87

26 Japan 2.22

27 Malaysia 2.27

Semi

29 Taiwan 2.55

35 ChinaTier1 2.73 Movedupby11places

36 Thailand 2.76

38 Philippines 2.84

39 Indonesia 2.85

40 IndiaTier1 2.86 Movedupby8places

42 IndiaTier2 2.90 Movedupby7places

43 SouthKorea 2.91

47 ChinaTier2 3.04 Slippedby1place

50 IndiaTier3 3.14 Sameposition

Low 68 Vietnam 3.59

Opaque 99 Mongolia 4.47

Real estate Investment Trust (ReIT)

Theglobalcommercialrealestatesectorwitnessedashiftfromtheprivatesectortopublicmarketsoverthepasttwodecades,whiletheIndianrealestateindustrybegantoseekadditionalsourcesoffundsoverthesameperiod,asthiscapital-intensivesectorfacedsevereconstraintsintermsofadequateandstructuredfinancingoptions.Asaresult,thesuccessstoryofglobalREITsiscompellingenoughtoencouragetheimplementationofasimilarregimeinIndia,withrequisiteadjustments.REITshaveproventobeanattractiveinvestmentoptionforretailinvestorsaswellasforinvestors’long-termpoolsofcapitalsuchaspensionfundsandinsurancecompaniesthatpreferaregularincomestream.REITshaveotheradvantages:

• Bringinincreasedtransparencybyadoptingbettercorporategovernance,disclosureandfinancialtransparency

• Deliverregularinformationexchangeandavailabilityinthepublicdomainwithhigherprofessionalism

• Equityfinancingwouldimprovethedebt-equitybalanceinthemarket• Provideavehicleforaddressingnonperformingassets• Givecommoninvestorsahugeopportunitytoshareinthegainsofthisassetclass

REITsarelikelytoprovideinvestorswithanavenuethatislessriskywithinvestinginincome-generatingpropertiesthaninvestinginunder-constructionproperties.Theywillalsoprovideanincomesourceintheformofrents,which,inturn,couldbeagoodhedgeagainstinflation.Moreover,beingamoreliquidinstrumentamongthecurrentrangeofpropertyinvestmentvehicles,REITsholdthepotentialofimprovinganinvestor’sinvestmentprofilethroughdiversificationoftheinvestmentbaseandtheincreasingstabilityoftheincomesource.Furthermore,notonlytaxbenefitsbutclarityontaxationisevenmoreimportant.ThereasonREITsaresuccessfulinothercountriesisthatonlytheendinvestorortheunitholderistaxed.Inaddition,whenREITsareintroducedforthefirsttimeinIndia,theyneedsomeincentivesandtaxbreaks-whichcouldbeonetimeorforastipulatedperiod-togivetheinitialpush.Oncetheindustrymatures,thenthegovernmentcanthinkofremovingorreducingthetaxincentives.

ThereleaseofdraftregulationsforsettingupREITsinIndiaisaneffortbythemarketregulator,theSecuritiesandExchangeBoardofIndia(SEBI),tobringahigherlevelofmaturitytotheIndianrealestatesector.ItisexpectedthatwiththeopeningofthesectortoREITs,therewillbeincreasedcapitalinflowsfromoverseasmarkets.

TheintroductionofREITsisgoingtoprovideatimelyopportunityforbothinvestorsandtherealestateindustrytodevelopamatureandtransparentmarket.Overaperiodoftime,itwillalsohelpindevelopingapricediscoverymechanismforthecommercialpropertymarketinselectcities.

Improving Transparency: Facilitating Better Investment Scene

India’simprovingtransparencywouldlikelyactpositivelyforforeigncorporatesandinvestors.Everytwoyears,JLLreleasestheGlobalRealEstateTransparencyIndex,whichincludes97marketsworldwide.Auniquesurveythatcovers83differentfactorsacross 13transparencytopics(mentionedbelow),theindexprovidesaholisticscorethatindicatesimprovementordeteriorationinanycountry’stransparencylevel.Theindexaimstohelprealestateinvestors,corporateoccupiers,retailersandhoteloperatorsunderstandimportantdifferenceswhentransacting,owningandoperatinginforeignmarkets.Itisalsoahelpfulgaugeforgovernmentsandindustryorganisationswhoareinterestedinimprovingtransparencyintheirhomemarkets.Thelastpublishedindexin2012showedthatIndiaimproveditsoveralltransparencyratingalongwithstabilityinranksofTierIIcitiesandincrementinranksofTierIIIcities,comparedwith2010.Althoughthecountryisstillunderasemi-transparentstage,theimprovementisencouraging.

However,India’sgovernmentandregulatoryauthoritiesareworkingtoimprovetheinvestmentclimatethroughmarkettransparency-albeitataslowpace-whiletherelaxationofFDIlaws,animprovementintheavailabilityofdataandthestrengtheningof regulationsintherealestatesectoraresome oftheotherinitiatives.

• DirectPropertyIndices

• ListedRealEstateSecuritiesIndices

• UnlistedFundIndices

• MarketFundamentalsData

• FinancialDisclosure

• EminentDomain

• DebtRegulation

• Regulation

• Valuations

• LandandPropertyRegistration

• SalesTransactions

• CorporateGovernance

• OccupierServices

13 Transparency Topics

key Steps towards Reducing Opaqueness

• TheRealEstateRegulationBillisregardedasakeypolicythatwilllikelyimproveIndia’stransparencyscore

• WiththeincreaseinmultinationaloccupiersinIndia,theclarityofcontractsinoccupierservicesisexpectedtoimprovefurther

• AsbothinternationalandnationaldevelopersinIndiaarepenetratingdeepintothecities,transparencyscoresareexpectedtoimprovefurther

• Introductionofthegeneralanti-avoidancerule(GAAR)andthecomputerisationoflandrecords(CLR),alongwithstrengtheningofrealestateregulations,areexpectedtoimprovetransparencyintheapplicationoftaxandbuildingcodesandtheavailabilityoftitlerecords

• In2014,India’sTierIcitiesarelikelytobeclosetotransparentwiththeavailabilityofmoreaccuratedataonreturnsandmarketfundamentals.TierIIandTierIIIcitieswillcontinuetobelowerdownthesemi-transparenttier,albeitwithhighertransparencyscores.In2014GRETI,IndiahasseenimprovementinoveralltransparencyscoresforTierIandTierIIcitiesandlimitedgainsforTierIIIcities.

• Theavailabilityoftimeseriesdataonmarketfundamentals,suchasdemand,supplyandrealestatepricesfortheoffice,retailandresidentialsectors,isexpectedtoimprove.IndicesonrealestatereturnswillimprovewiththeincreaseinthenumberoflistedrealestatecompaniesandinstitutionalinvestorsinIndia


Office Market - Superimposing the Growth of India

State of Office Market in India

TheservicesectoristhebackboneoftheIndianeconomy,contributing

tomorethan58%oftheGDP.Itisalsothekeydriveroftheoffice

spaceleasingmarketinIndia.Theloomingeurocrisisanduncertain

globaleconomicconditionssloweddownbusinessoutsourcingin

India,leadingtoslowdowninofficespacedemandin2012.These

conditionsledtosignificantdropinnetabsorptionofofficespacein

Indiaduringthesameperiod.However,in2013,theservicesector

stabilised,contributedbythemoderategrowthoftheinformation

technology/informationtechnology-enabledservices(IT/ITES)industry

andthestablegrowthofotherservicesindustryinIndia.Theyear2013

wasmoderatelygoodfortheIT/ITESindustry,whichwitnesseda7%

y-o-ygrowthaspertheNationalAssociationofSoftwareandServices

Companies(NASSCOM)estimate.Thissectoraloneaccountedfor

8.2%ofIndia’sGDP.Recruitmentsinthissectorgrewby32%y-o-y

duringthesameperiod.Inaddition,otherservicesectorssuchas

finance,insurance,businessservicesandrealestatealsowitnessed

stablegrowthin2013.Therefore,thesefactorskepttheofficespace

demandstabledespitethesloweconomicgrowthinIndia.Mumbaiand

Bangalorewerethetwocitiesthatwitnessedmaximumdemandfrom

officeoccupiersin2013andcontributedtomostofthenetabsorption.

OfficespacedemandremainedstrongeveninNCR-Delhiwheremost

oftheleaseswerepre-commitmentinofficespacesthatwereunder

construction.Apartfromthesethreeprimecities,Punealsowitnessed

healthydemandforofficespacein2013.

TheNASSCOMestimatesthecurrentFY2013-2014toberelatively

morepositivefortheIT/ITESsector.Italsoestimatesthat,duringthe

sameperiod,exportrevenueswillgrowby12-14%-owingtosustained

economicrecoveryintheUnitedStatesandEurope-anddomestic

revenueswillgrowby13-15%,owingtoincreasedspendingbythe

governmentandthebanking,financialservicesandinsurance(BFSI)

sector.Meanwhile,officespacedemandisexpectedtoimproveor

remainstablein2014.Thepositivegrowthsignshownbythenew

governmentislikelytoimproveinvestmentsentimentsandbusiness

climateinIndia.Thiscanencouragecompaniestoexpandtheir

operationsfurtherinthecountry.Fence-sittingoccupierswhowere

waitingfortheelectionresultscantakepositivedecisionsthisyear.

MumbaiandBangalorearelikelytocontinuetobethemostpreferred

citiesbyofficeoccupiers.

Supplyconditionsremainedstableover2013,andthisisexpectedtocontinuein2014.Thesuddenburstofoptimismbroughtbytheelectionresultsislikelytosupportdeveloperstocontinuebuilding.

Source: JLL Research and ReIS, 1Q14

60

50

40

30

20

10

20102009 2011 2012 2013 2014 20150Ne

wCo

mpletion

/NetAb

sorption(inmillio

nssq

ft)

42.0 44.4

30.9

26.8

21.6

3.0

17.9

New Completion NetAbsorption CBDSupplySBDSupply PBDSupply

Demand and supply of office space across major seven cities in India

Country Usa singapore UK India

System REIT S-REIT UK-REIT -

Date Established 1960 1999 2007 2014

Listed/Unlisted Both Both OnlyListed OnlyListed

Closed-end or Open-end Closed Closed Closed Closed

Fund vehicle Corporation,Trust Corporation,Trust Corporation Corporation

Investment in Real Estate Atleast75% Atleast70% Atleast75% Atleast80%

Minimum Number of stockholders 100 None 100

Publicfloat*fortheREITunitsshallbeminimum

25%atalltimes

REIt IncomeNotlessthan

75%fromrentsormortgageinterest

Notmorethan10%ofitsrevenuefromsourcesother

thanrentsormortgageinterest

Atleast75%ofgrossincomefromrentsormortgageinterest

Atleast75%ofgrossincomefromrentsormortgageinterest

Distribution of REIt income Atleast90% Atleast90% Atleast90% Atleast90%

Conduit Structure Passthrough Passthrough TaxExempt PartialPassthrough

key Conditions:

• CompulsoryregistrationwithSEBI

• MinimumsizeofassetsunderREIT-INR500crore

• MinimumIPOsizeofREIT-INR250crore

• Sponsorsrequiredtoholdminimum15%(25%forthefirst3years)

• Minimumpublicfloat-25%

• Minimumsubscriptionsizeforunitholders-INR2lakhs - Tillthemarketdevelops,onlyHNIsandInstitutionswillhave participatingrightsinREITs

• Consolidatedborrowings+Deferredpaymentsshouldnotbemorethan50%ofvalueofREITassets

taxation

Interest income of REIt

• REITgetsapassthroughhowever,itneedstowithholdtaxondistributionoutofthisincome@10%forresidentunitholdersand5%fornon-residentialunitholders

Dividend Income of REIt

• DDTwillbeleviedatSPVlevel• DividendexemptinthehandsofREIT• DividenddistributedtoUnitholdersinthisregardisexemptinthehandsofunitholders

Capital Gains on disposal of shares in SPv

• TaxableinthehandsofREITasCapitalGainTax• Distributionofcapitalgainexemptinthehandsofunitholders

Capital Gains on transfer of units held in ReIT by unit holders

• Asperotherequitieslistedonstockexchanges• CapitalGainstosponsoronexchangeofsharesinSPVwithunitsofREIT

• Liabilityoftaxinthehandsofsponsor• DifferedtothetimeofdisposalofunitsofBT

Any other income

• TaxableatMMR(MaximumMarginalRate)@30%

30.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

40.5

37.0

21.6

30.4 33

.326.8 6.0

27.8 16.5

28.1


Mumbai City includes CBD, SBD Central, BkC and SBD North. Mumbai Suburbs includes eastern and Western Suburbs. Delhi City includes -CBD & SBD of Delhi.


Office rental value Index

Capitalmarketsareexpectedtoimprove,andthismaybringinthemuch-neededimpetusfordeveloperstocompletetheirprojects.Developerscanleverageonthestableofficespacedemand,whichislikelytocomebykeepingtheirbuildingsreadyforoccupancy.

Intermsoffinancialindicators,theofficesectorenteredapreliminarygrowthphasewithagradualincreaseinrentsinend-2013.AveragecapitalvaluesintheofficesectorinIndiawerestill25%lowerthantheirmostrecentpeaksseeninmid-2008.Ontheotherhand,capitalvaluesintheresidentialsectorhadsurpassedtheirpreviouspeakbyend-2011.In2013,selectsubmarketsinMumbai,PuneandChennaiwitnessedmoderategrowthinrents,whilethecitiesofBangaloreandNCR-Delhiwitnessednegligiblerentalgrowth.AmongtheTierIIcities,Hyderabadsawnegligiblegrowth,whereasinKolkata,rentalvaluesremainedstableinmostsubmarketsamidthedownwardpressurecreatedbyslowabsorptioninthecity.RentalvaluesinChennai

remainedlargelystablewithstabledemand.However,increaseddemandandrelativelylowvacancylevelssupportedrentalgrowthintheSBDandSBDOldMahabalipuramRoad(OMR)submarketsinChennai.

Changing Occupier Profiles in India

Share of leasing activity by occupier type across India

2009 2010 2011 2012 2013

100%

80%

60%

40%

20%

0%

ProfessionalServices

ConsultancyBusiness

Telecom,Healthcare-Biotech,RealEstate &Constructionandotherindustries

BFSI

Miscellaneous

IT&ITES

Manufacturing/Industrial

23%

22%

23%

25%

5%

34%

26%

11%

18%

8%

39%

29%

8%

18%

4%

46%

18%

16%

13%

5%

34%

14%

13%

10%4%

24%

Meanwhile,thepost-GFCandsovereigncrisisinEurozonemadetheBFSIindustryverycautious.BFSIcompaniesconsolidatedtheiroperationsandreducedexpansionplans.Asaresult,theirshareinofficespaceleasinggraduallydroppedfrom23%in2009to14%in2013.MumbaiandPuneremainedastheirmostpreferredcitiesin2013.Thetelecom,healthcare,biotech,realestate,constructionandotherindustriesalsofollowedthesamepatternastheBFSIindustries,seeingtheirsharedropfrom25%in2009to13%in2013.PuneandHyderabadreducedtheirdependencyontheIT/ITESindustry.Hyderabadhasbeenthefirstchoiceforhealthcare,biotech,telecomandconstructioncompanies,whichhavecollectivelytakenupmorethan25%ofthetotalspaceleasedinthecity.

Interestingly,themanufacturingsector-whichpassedthroughchoppywatersacoupleoftimesduringthelastfiveyears-continuedtoleaseofficespaceinastablepattern.Manufacturingcompaniesincreasedtheirsharefrom22%in2009to24%in2014.Bangalore,whichisconsideredasthesiliconhubofIndia,interestinglyturnedouttobetheleaderinofficespaceleasingbymanufacturingfirms.Anotherindustrythatincreaseditsshareinofficespaceleasingconsistentlyoverthelastfiveyearswasbusinessconsultingcompanies.NCR-DelhiwasthemostpreferredcitybybusinessconsultingfirmsinIndiatosetuptheiroperations.

Overthelastfiveyears,officespaceoccupierprofilesinIndiahaveseenaseaofchange.AlthoughtheIT/ITESindustrycontinuestoremaintheleaderinleasingofficespacesinIndia,thelastfiveyearssawagradualincreaseintheshareofofficespacetake-upbymanufacturingfirms.Duringthesameperiod,therewasagradualdecreaseintheshareofofficespacetake-upbytheBFSIindustry.Thisisadirectimplicationoftheperformanceofthesesectorsintheturbulenteconomicconditionofthenation.Meanwhile,theIT/ITESindustrywitnessedaslowdownduringtheGFC.PosttheGFC,thisindustryslowlyrevivedgrowthastheUSandUKeconomiesrecoveredandwitnessedstrengtheneddomesticdemandforIT/ITESservices.TheshareofIT/ITEScompaniesintotalspaceleasedacrossIndiawas46%in2010andfellto34%in2013.ThisindicatesanothertrendthatIT/ITEScompanieshaveadoptedstrategiesofefficientusageofspacestoreduceexpansionofoperationsastheybecomecautiousabouttheirrealestateexpenditure.Amongthecities,Mumbai,Pune,KolkataandNCR-DelhistrengthenedtheirshareofIT/ITESleasedspace,whereasBangalore’ssharedropped.



FLeXI DeSkS Smartoccupancyorflexidesksareastrategythatallowsmaximumworkspaceefficiencyorreductionofunusedrealestatespacesordesks.Insuchoffices,therearenofixeddesksorspacesfortheemployees.Theofficespacehasanoptimumnumberofdesksbasedonaverageoccupancyoftheoffice,andeveryday,employeesareallottedadeskwhentheylogintotheofficeanduntiltheylogout.Thisarrangementdoesnotallowdeskstoremainunusedwhenthe

employeeisoutofofficepremisesforclientmeetingsorotherofficialworks.Thisarrangementalsoimprovesnetworkinginofficeandupgradestheenergyefficiencyoftheofficepremises.ThisisalreadybeingusedinothercountriesandisslowlygaininggroundinIndia.TheJLLMumbaiofficehasalreadyadoptedthisstrategy,whichiscalledtheWorkSmartprogramme.

TheWorkSmartconceptworksthisway:Anemployeewouldlogintothesystemass/heentersthe‘cubicle-less’officeinthemorningandreceivesthecodeforhis/herworkdeskforthatday,takechargeofthedeskphoneandlaptoppointandworkthereuntils/helogsoffintheevening.S/hewouldhavealockersomewhereintheofficeforkeepinghis/herbelongingsand,withthissystem,wouldhavetoadapttoapaperlesswayofworking-awayofworkingthatcreatesnowastepaperbutleavesadeskcleanontopandunderneath.OnekeyachievementofthisprogrammeisthatthisarrangementhasallowedtheJLLMumbaiofficetosave30%onrealestatecosts.

Corporate Real estate Dynamics- Occupiers’ Needs Giving Way to New Occupancy Strategies

PosttheGFC,officeoccupiershavefocusedoncostcuttingandcostefficiency,alongwithgrowth.Realestateexpenditureisoneofthekeyexpensesthatanoccupierhastobear.Undersuchcircumstances,occupiersstartedadoptinginnovativestrategiestomanagerealestatecosts.Theseinnovationsandcreativestrategiescameupasnewtrendsinofficeoccupancyoverthelastfewyears.Threeofthesetrendsarediscussedbelow:

GReeN BUILDINGS GreenfootprintisincreasingconsistentlyinIndia.TheincreasingawarenessaboutsustainabilityandrisingenergycostsaredrivingthedevelopmentofgreenbuildingsinIndia.Currently,thegrowthofgreenbuildingsinthecountryismorevisibleinthecommercialsectorthaninotherrealestatesectors.Thisisprimarilyledbymultinationalanddomesticoccupierswhowanttoproactivelydemonstratetheircorporatesocialresponsibility(CSR)stewardshipandalsofocus

onsavingenergycosts.Asidefromoccupiers,manydevelopersinIndiaarealsoadoptinggreendesigntechnologiesinconstructingnewofficebuildings.ChennaiandMumbaiaretheleadingcitiesinthedevelopmentofgreenofficebuildingsinIndia.

SMART BUILDINGS Risingenergy,waterandotherresourcecostshavedriventheriseofsmartorintelligentbuildingsinIndia.SmartbuildingsarealsousedinIndiaforthesafetyandsecurityoftheinhabitantsofthebuildings.Thesebuildingsaredevisedwithcomputer-aidedbuildingmanagementsystemsthatcanallowmanagingthebuildingsremotely.Developers,occupiersandfacilitymanagershaveeffectivelyadoptedthebuildingmanagementsystemsinsmart

buildingsacrossthecountryinalltypesofbuildings,suchasoffice,retail,residentialandhotelprojects.Fromsmallbuildingmanagementsystemstohighlysensitiveandadvancedmanagementsystems,Indiahaswitnessedgrowthofintelligentbuildingmanagementsystemsinallsegments.CompaniessuchasCisco,Cognizant,HSBC,IBM,InfosysMicrosoftandWipro,amongothers,haveadoptedbuildingmanagementsystemsintheircampusfacilitiesinIndia.Inaddition,manyotherstand-aloneofficebuildingsinIndiahavealsoadoptedintegratedbuildingmanagementsystemsintheirbuildings.OlympiaTechParkandTIDELParkinChennai;TechnopolisinKolkata;andCMCBuildingandGodrejBhavaninMumbaiaresomeofthesmartofficebuildingsinIndia.

Retail Real Estate - Reinvigorating Growth

Retail Industry: Advantage India

Favourabledemographics,ayoungandworkingpopulation,risingincomelevels,urbanisationandgrowingbrandorientationarehelpingconsumerisminIndiawitnessunprecedentedgrowth.Subsequently,accordingtoarecentreportbyErnst&Young(EY)andtheRetailersAssociationofIndia(RAI),India’sretailmarket,whichin2013wasestimatedatUSD520billion,isexpectedtogrowatacompoundannualgrowthrate(CAGR)of13%toreacharoundUSD950billionby2018.Meanwhile,thereportalsostatesthatorganisedretailpenetrationisexpectedtoclockannualgrowthof19–20%toreach10%by2018.PenetrationinTierIIandTierIIIcities,animprovementinbusinessmodelsandoperations,aswellasmovementfromunorganisedtoorganisedtradewouldlikelyplayanintegralroleindrivingthisgrowth.

Source: eY and RAI, 2014

2013

7.5%US$ 520 bn

201810%US$ 950 bn

Size of Indian Retail Industry


Retail Real estate in India: Benchmarking With Other Retail Cities of Asia Pacific

South-EastAsia,inparticular,continuestomaturerapidlywiththecompletionofnewretailspaceandincreasinglysophisticatedconsumers,spurringthearrivalofnewretailersfromoverseas.Domesticconsumptionishealthyinmostpartsoftheregion,albeit

Thefalteringtrendsofhighervacancyrates

• AmongtheemergingretailcitiesofAsia,Indiancitiessufferfromthehighestvacancyrates - Largebuilt-upofaverageandpoor- grademallsisthemainculprit - Consumersandretailersincreasingly prefermallsthataremanagedwell

• Retailershavemovedtosuperior-grademallsupontheiravailability,thusvacatingspacereluctantlytakenupearlier,owingtoanabsenceofsuperiormalls

• ExistingstockinIndianTierIcitiesislesserthaninTierIIcitiesofChina

• PrimecitiesinsmallermarketssuchasThailandandthePhilippineshavestockscomparablewithIndianTierIcities

• RentsinIndianTierIcitiesarecomparablewithotheremergingcitiesintheAsiaPacificregion

• RetailpenetrationinIndiaisgovernedbytheavailabilityofrelevantsupply

• ShenzhenandHangzhouinChinaandMumbaiandDelhiinIndiaofferlargeconcentrationsofhigh-net-worthindividuals(HNWI)butalimitedstockofqualityretailspace

Hyderabad

60Indiahasproportionatelylessersupplydespitebeingalargemarket

Orgnise

dReta

ilstoc

kandFutu

re

Supply(millionsq

ft)

80

100

40

20

0


Mumb

ai

Hefei

Pune

Chennai

Changsha

Shenyang

Bangalo

re

Bangkok

Kolka

ta

Hangzou

Jakarta

Shenzhen

Chengdu

NCRDe

lhi

Manila

RetailStock(Asof2013) FutureSupply(during2014-2016)


Hyderabad

1500

Rentalsareincomparionwithmature

citiesofAPAC

PrimeR

etailR

ents(USD

/sqm/year)

2000

2500

1000

500

0

Mumb

ai

Pune

Chennai

Bangalo

re

Bangkok

Kolka

ta

Hangzou

Jakarta

Shenzhen

NCRDe

lhi

Manila

RetailStock(Asof2013) FutureSupply(during2014-2016)

Shenyang

Chengdu

cloudedtoacertainextentbylargerglobaleconomicuncertainty.Asaresult,Indiawillcontinuetoseegoodretailactivity,evenatthegivenfactthatitwillseelessersupplydespitebeingalargemarket.clouded

Retail Realty: Demand Supply Dynamics in India

DrivenbythiseconomicgrowthandfactorsfavourabletotheIndianconsumer,therealestatesectorhasshownexemplarygrowth,growingfromlessthan1millionsqftofmallspacein2001.TheIndianorganisedretailsectorhasalsowitnessedamanifoldincrease.However,onthebackofeconomicupsanddownsandirrelevantsupply,theperformanceoftheretailindustryhaswitnessedswings,withseveralchangesinabsorptionlevelsandvacancyratesovertheyears.

Retail Realty in the Past: key Pointers

• Afterdisplayinginherentgrowthduring2003-2008,retailrealestatewitnessedaslowerpaceofgrowthaftertheGFC

• Themarketbouncedbackin2011withtheadditionofalargeamountofspace

• Themarketwitnessedaslowadditionofnewsupplyin2012and2013

70.6 millionsqft

organisedretailstockinmajorsevencitiesat1Q14

18.4% vacancyinorganisedretailstockinmajorsevencitiesatend-

1Q14

5.1 millionsqft

netabsorptionin 2013

5.7 millionsqft

newsupplyaddedin2013

key Challenges in the Retail Real Estate sector

• Lackofsophisticatedretailplanning

• Inmostcities,itisdifficulttofindsuitablepropertiesincentrallocationsforretailbecauseoffragmentedprivateholdings,infrequentauctioningoflargeplotsofgovernment-ownedvacantlandandlitigationdisputesamongowners

Thecomingyearsarelikelytohavenearlystablemovementwithmoderatesupplyfromthedevelopersamidexpansionrequirementofretailers.However,lukewarmdemandformallspacenotinfavourablelocationmightaffectthevacancyrate.

Completion NetAbsorption VacancyRate

(‘000sqm) (VacancyRate)

1,500 30%

1,250 25%

1,000 20%

750 15%

500 10%

250 5%

2009 2010 2011 2012 20132013 2014 20150 0%

Forcast

Supply and demand of organised retail space in India in top seven cities



Major Concerns for the Retail Real estate Sector in India

• Polarisation in demand in Indian retail real estate - In Tier I citiessuchasMumbaiandNCR-Delhi,vacancyratesvaryhugelyacrossmallsthatareingoodlocations,backedupbyasustainableconsumercommunityandover-ambitiousprojectslaunchedinpoorlocationswithalackofinfrastructureandsupportingconsumerpotential.Evenwithexpectedcorrectioninsupplyinthelongterm,thismismatchinvacancylevelsisexpectedtochangelittle.

• Bigger malls versus smaller malls - Largeshoppingmallsthatmostlyhavearangeofstoresalongsidecinemasandentertainmentarcadesinoneplacearebetteratbecoming‘destinations’inacity.However,securingalargelandparcelisdifficultincitycentres.Therefore,attimes,inbiggercities,largeshoppingmallstendtobelocatedinotherprimeareas.However,insmallercities,largeshoppingmallstendtobethemaincityattraction,i.e.,,LuluMallinKochi.Subsequently,smallermallsareeasytoimplementwhilevisitorcomfortandstorevarietyarethebiggestdownsideswhencomparedwithtypicallarge-sizedmalls.Inaddition,smallcentres,especiallythoselocatedinanofficeorcondominium,havealimitedcatchment.

• Absence of clear demarcation of use and strata sales - It is evidentthattheideaofretailcumofficespaceisbeingusedevennow,asdevelopersdivideexistinglargefloorplatesintosmallerofficespaces.However,mixed-usedevelopmentsintegratingdifferentuseswithinthesamestructurecouldactasasolutionwithcleardemarcationandidentificationofuse.Apartfromthis,stratasalesarehurtingamall’sattractiveness,withthebrand-mixandretailers’presencegettingahit.

Retail Real estate as a Long-term Business

Amidtheconcernsofventuringintoretailsector,thereisenoughpotentialintheIndianretailrealtytoperformasamajorassetclassforinvestment,asthepaceofgrowthislikelytowitnessnorthwardmovementinthecomingyears.Themajorpotentialoftheretailrealtysectorhasremaineduntapped,unlikeinothermajorAsiancitieswhereitisalreadybeingusedasawealth-generatingassetwhenproperlylookedupon.

30%

35%

2000150010005000

25%

20%

15%

10%

5%

0%

Vacancy

Stock(in‘000sqm)

MumbaiPrimeCityMumbaiPrimeOthersMumbaiSuburbs

DelhiNCRPrimeCityDelhiNCRPrimeOthersDelhiNCRSuburbs


Polarisation in demand in NCR-Delhi and Mumbai

However,thisrealestatesegmentiscomplexwhencomparedwithotherassetclassessuchascommercialandresidentialrealestate.Investorsinretailrealtyneedtoevaluatemanyfactors,includingdemandforretailspaceinthelocation,expectedreturnoninvestment(ROI),pastperformanceofretailersandfutureexpectations,changingpatternofconsumerspendingandshiftingcommercialtrendswithe-tailing,aswellasthelocalrulesandregulationsmanagingtheretailleases.

the Retailer

Retailersarethedeterminingfactorbehindaninvestor’sROIthroughrentorminimumguaranteeorrevenueshare,oracombination.Theamountofsalesaretailercanexpectinanareaonthebackofconsumers’spendinghabitsanddisposableincomesisthemotivationfor

leasingspace

the Developer

Developersareanothercriticallink.Aninvestorchoosingmallsthatare

managedbyaprofessionalagencyoradeveloper,ascomparedwithstrata-salemalls,offsetsriskbyhavingcaptive

demandforresidentialandretailspaceandofferslong-termstability

ROI and Revenue Model

Therevenuemodelhasevolvedoverthepastfewyears,withagradualshiftfromonlyrenttominimumguaranteeorsharingrevenue.Retailersarenowpayingabaserentalongwithashareoftherevenue.Thisallowsretailerstobringdownfixedcostsandpasssome

businessrisktotheowner

Case Study: CRCT

CapitaMallTrustholds122.7millionunitsinCapitaRetailChinaTrust(CRCT)-approximatelya15%stake-asat31December2013.ThetotalassetsizeofCRCTwasapproximatelyUSD2.2billionasatend-2013.

• CRCTisthefirstandonlyChinashoppingmallthatisREIT-listedinSingapore,withaportfoliooftenincome-producingmalls• Acrosstheportfolio,CRCTachievedastrongrentreversionof13.8%andoperatedatahighoccupancyrateof98.2%• CRCThasageographicallydiversifiedportfolioofmallsinsixcities-Beijing,Shanghai,Zhengzhou,Hohhot,WuhuandWuhan

Allthemallsintheportfolioarepositionedasone-stopfamily-orientedshopping,diningandentertainmentdestinationsforthesizeablepopulationcatchmentareasinwhichtheyarelocated.Theyareaccessibleviamajortransportationroutesoraccesspoints.Asignificantportionoftheproperties’tenanciesconsistsofmajorinternationalanddomesticretailers,suchasWalmart,CarrefourandtheBeijingHualianGroup,undermasterleasesorlong-termleases,whichprovideCRCTunitholderswithstableandsustainablereturns.Theanchortenantsarecomplementedbypopularspecialitybrands,suchasUniqlo,Zara,VEROMODA,Sephora,Watsons,KFC,PizzaHutandBreadTalk.

Mixed-use Development: Another Solution for Retail Real estate Growth

Whilemanyretailmallsacrossthecountry-fromsmallstripstomegamalls-sufferfromdouble-digitvacancyrates,designing,owningormanagingamixed-usefacilitymeansthereisanopportunityformultiplechallenges.However,italsoopensthedoortomultipleopportunities,whichinclude:

• Efficientuseoflandresources• Reductioninthelong-termmaintenancecostsofindividualbuildings• Brighteningofcommunitieswithopportunitiesforbuildingandenergyefficiencyaswellassustainability

key Challenges in Mixed-use Developments

• Ontheflipside,shopsinmixed-useprojectsinmanycaseshavelimitedscopeforretailactivity(stationeryshops,chemists,florists,smallrestaurantsandsoforth)

• Additionalproblemsthatariseinvolvetrash,badodour,trafficandnoisetransferringfromoneuseofthebuilding(abustlingrestaurantorstore)toanother(apartments)

• Parkingisanothercommonissuethatarisesinmixed-usefacilities

Case Studies: Mapletree Mixed-use Projects

• Future Cityisa200,000sqmmixed-usedevelopmentinthehistoricalcityofXi’aninShaanxiProvince.ItcomprisesapartmentsinfourexclusiveresidentialtowersandVivoCityXi’an,Mapletree’sfirstoverseasVivoCitymall.VivoCityisalifestyleshoppingmallofferingdiverseshopping,diningandentertainmentoptions.

• Nanhai Business City isbeingdevelopedasanintegratedoffice,residentialandleisuredevelopmentlocatedbetweenthetwobustlingcitiesofFoshanandGuangzhou.Thisplanned42hectaresmixed-usedevelopmentcomprisesretail,residential,officeandhotelcomponents.


FDI in Retail: e-commerce a Game-changer

E-commerceinIndiahaswitnessedstronggrowth,increasingfromUSD3.8billionin2009toUSD12.6billionin2013,whilethee-tailingsharewithintheretailindustrywasabout16%in2012,accordingtoareportbytheInternetandMobileAssociationofIndia(IAMAI)andtheIndianMarketResearchBureau(IMRB).AlthoughFDIpoliciesinIndiarestricte-commercecompaniesfromofferingservicesdirectlytoretailconsumersand100%FDIisallowedonlyinbusiness-to-businesse-commerce,thee-commerceindustryisopentotheproposalforupto51%automaticrouteforFDIinbusiness-to-consumere-commerce.FDIine-commercecouldgiverisetoaparadigmofinvestmentintheretailsectorofIndiawhilethegovernmentisagainstFDIinmultibrandretail.

Growth in e-commerce and Development of Associated Industries

The future of retail real estate investment could be decided based on the following pointers:

• Venturingintolocationswithfavourableresidentialcatchmentsandbetterlong-termretailpotential• Selectingthecorrectstrategyforoperationsandgrowth• Churningofnewandinnovativeideasforpotentialretaildevelopment• Understandingtheneedsandwantsoftheconsumer

Thesefactors,whencombined,canmakerealestateusedfortheretailindustryagreatsourceofinvestmentopportunity

FDIine-commercecouldbringcapitalforinfrastructuredevelopment,actingasanimpetustothemanufacturingsector.Inaddition,itwouldprovideoptionsforincreasedoutreachandadoptionofglobalbestpracticesinIndia.Ontheotherhand,theincreaseinFDIcouldactagainstsmall-timebrick-and-mortarstoresandIndia-basedlargee-tailingorganisations.Apartfromthis,intheend,growthine-commercehasaspillovereffectonassociatedindustriessuchaslogistics,onlineadvertising,mediaandIT/ITES.

e-TAILING

It/ItEs

ONLINe ADveRTISING

MeDIALOGISTICS

Residential Real Estate - Steering in the Right Direction

Acountry’seconomicperformancehasdirectrepercussionsonhowitsrealestatemarketbehaves.Thisisespeciallytruefortheresidentialpropertysegment.Moreprosperitymeanshigherfinancialconfidenceamonghomebuyers,andthisleadstoagreaterdemandforhomes.Theoppositeis,ofcourse,equallytrue.

Subsequently,residentialrealestatehasremainedthefocalpointofIndianrealestate,regardlessofthemarketconditions.Consideringthemassivedemandforhomesinthecountry,thisishardlysurprising.However,thedemanddoesnotequalabsorptioninaprice-sensitivecountrysuchasIndia,wherethegreatestrequirementforresidentialpropertiesstemsfromtheEconomicallyWeakerSection(EWS)andmiddle-incomegroup.Thehighdependenceonhomeloansbythesalariedclassunderscoresthepricesensitivityfactorevenfurther.Anditisimportanttomentionthat,ingeneral,2013wasnotagoodyearforIndia’sresidentialrealestatemarket.Thesluggishnesswasmostpronouncedintheprimecities.

Residential Real estate: Demand-Supply Pointers

AftertheGFC,India‘shousingmarketloomedwithslowerdemandduringtheyearsafter2009.However,since2010,theresidentialrealestatesectorhasstartedbouncingbackbasedontheresilienceshownbyIndiaintheinitialaftershockoftheGFC.Itisalsoevidentfromthemorethan15%absorptionrateduring2Q09–2Q11.However,withthesluggishnessoftheeconomy,theresidentialrealestatemarketstartedwitnessingnotonlyalessernumberofnewadditionsin2013butalsoaslowerrateofabsorption.Inaddition,thereweremorereasonsforthegeneralisedslowdowninmostIndiancitiesasinflationledtodecreasedpurchasingpowerandloweredbuyer’sconfidence.Meanwhile,theRBIwentthroughtheceilingwithitsspateofhikesininterestratestocontrolinflation.


80-85%

Mumbai

Thisobviouslyledtoasteepriseintheequatedmonthlyinstalments(EMIs)thathomeloanborrowershadtobear.Meanwhile,propertypricesremainedhighinmostcities,largelybecausedeveloperswerehithardbythevastlyincreasedcostsofconstructionanddebt.Atthesametime,thepotentialformostsalariedpeopleinthecountrytoswitchtomorelucrativejobstookanosedivebecauseofthefalloutofeconomiccrisisindevelopedcountries.Allthesecombinedtobringaboutasortofstalematebetweendevelopersandpropertybuyersincitieswhereinventoryaswellaspropertyratesremainedhigh,mostnotablyMumbai,NCR-DelhiandBangalore.

(AbsoluteNumbers)3,00,000

2,50,000

2,00,000

1,50,000

1,00,000

50,000

2008 2009 2010 2011 2012 1H1420130

NetAddition UnitAbsorbed

1Q08

1Q09

1Q13

3Q10

4Q11

2Q140% 30%25%20%15%10%5%

AbsorptionRate

TheRBIislikelytocontinuetryingtotameinflationandcreateabalancebetweengrowthandinflationforsomemoretime.Hence,weexpecttheresidentialsectortoshowmoreactivityonlyinthemedium-to-longtermwithincreasedlaunchesandgoodsales.AstherearenoforeseeableratecutsbytheRBIintheshort-to-mediumterm,residentialsalesvolumesareexpectedtoremainslowdespitetheimprovementinoverallmarketsentimentsaftertheelections.Theboostinmarketsentimentsisseentoimprovecapitalavailabilityintherealestatesector.Thisislikelytocomeasabreatherfordeveloperswhoarefacingsevereliquiditycrunch.

Absorption Rate (1Q08-1Q14)

Demand and supply of residential units across major seven cities in India


Source: JLL Research and ReIS, 1Q14AbsorptionRate

80-85%

Navi Mumbai

65-70%

Kolkata

60-65%

Gurgaon

Rise in Prices of Residential Properties in Last Five YearsProperty prices in most markets have regained strength after the correction triggered by the global inancial crisis of 2008

Figure represent capital value change between April-June 2009 and April - June 2014 (2Q14)

Source: JLL

80-85%

thane

25-30%

Noida & Greater Noida

28%

Hyderabad

31%

NCR Delhi

50%

Chennai

50-55%

Bangalore

65-70%

Pune


Affordable Housing in Indian Context

Withintheattractivepost-electionresidentialrealestatesectorofIndia,affordablehousingappearsasaparticularlylucrativeopportunity.Thepotentialisbolsteredwiththebusinessmodel,asitisinsyncwiththecountry’ssocioeconomicparadigmshiftwiththeriseofthemiddleclassandlower-middleclass.Affordablehousingbecomesakeyissue,especiallyindevelopingnationswheremajorityofthepopulationarenotabletobuyhousesatthemarketprice.

Thedisposableincomeofthepeopleremainstheprimaryfactor

indeterminingaffordability.Asaresult,thegovernmenthastheincreasedresponsibilitytocatertotherisingdemandforaffordablehousing.TheIndiangovernmenthastakenvariousmeasurestomeettheincreaseddemandforaffordablehousingalongwithsomedevelopersandtostressonpublic-privatepartnerships(PPP)forthedevelopmentoftheseunits.

Intermsoftherelieftothehousingsector,thebudgethasallocatedRs.4000Croresforlow-costhousingschemesinurbancities.

INCOMe CATeGORIeS INCOMe LeveL SIZe OF UNIT AFFORDABILITY

EconomicallyWeakerSections(EWS)

<INR150,000perannum Upto300sqft EMItomonthly income-30-40%

LowerIncomeGroup(LIG) INR150,000perannumto INR300,000perannum

300to600sqft EMItomonthly income-30-40%

MiddleIncomeGroup(MIG) INR300,000to INR1,000,000perannum

600to1200sqft Housepricetoannual income-Lessthan5.1X

Definitions of affordable housing in India (as developed by kPMG and CReDAI)

Factors leading to emergence of affordable housing

Source : kPMG

Better cash collection of developers, lower development

costs of affordable projects

Mass appeal of affordable housing evinces strong

response in volumesacquire land with part

paymentImproved finances of residential real estate

developers

Start construction, avail construction finance

Launch of projects, collection of customer advances, payment of land dues

acquire land with part payment

Use surplus funds as down payment for

additional land

High leverage among

developersWeak launches muted response

Lack of construction

finance

acquire land with part payment

Postponement of project launches

Deleveraging and distressed sales

Befo

re

Crisi

sDu

ring

Crisi

saf

ford

able

Hous

ing

Theweaknessindeveloper’soperatingmodelwhichwascausedbyacashcrunchduringthecrisis,gotsuccessfullyaddressedbyashifttoaffordablehousing

Source : kPMG, Aranca Research

New Developments in the Affordable Housing Sector Since 2012

• The Rajiv Rinn Yojna (RRY):ArevisedinterestsubsidyschemeasanadditionalinstrumentforaddressingthehousingneedsoftheEWSandLowerIncomeGroup(LIG)segmentsinurbanareas.Theschemeenvisagestheprovisionofafixedinterestsubsidyof5%(500basispoints)oninterestchargedontheadmissibleloanamounttoEWSandLIGsegmentstoenablethemtobuyorconstructanewhouseorforcarryingoutaddition(i.e.,room,kitchen,toiletorbathroom)totheexistingbuilding

• The Credit Risk Guarantee Fund TrustforLow-incomeHousing(CRGFTLIH)wassetupandregisteredbytheGovernmentofIndia(GoI)on1May2012throughtheMinistryofHousingandUrbanPovertyAlleviation(MoHUPA)

• TheNationalHousingBank(NHB),inassociationwithGenworth,theAsianDevelopmentBank(ADB)andtheInternationalFinanceCorporation(IFC)setupIndia’smaidenmortgageguaranteecompany,theIndiaMortgageGuaranteeCorpPvtLtd(IMGC).ThecompanywasgrantedcertificateofregistrationbytheRBIinApril2013

• INR60billion(INR8,000crore)wasallocatedforruralhousingfundin2013-2014.Intermsoftherelieftothehousingsector,thebudgethasallocatedRs.4000Crores(USD???Billion)forlow-costhousingschemesinurbancities.

• TheNHBsetupanurbanhousingfund,andINR20billion(INR2,000crore)wasallocatedinthisregard.RBIhaseasednormsforaffordablehousing.HomeloansuptoINR50LacforapropertyvaluedatINR65LacinsixmetrocitiesandhomeloanuptoINR40LacfrompropertyvaluedatINR50Lacinothercitiestobeconsideredasaffordablehousing.

the potential market size for affordable housing in India

Source: India Urbanization Affordable Housing Model, Mckinsey Global Institute Analysis

Tier1city UrbanIndia(2010E)

UrbanIndia(2030E)

Tier4cityTier3cityTier2city

In 2010e In 2030e

25 million households

total market size (aggregate of slum and non

slum population

38 million households

5.6

1.8

1.1

8.1

16.6

4.2

0.9

0.4

3.0

8.4

38

SlumPopulation

Non-SlumPopulation

1.5x


New Developments of Precast Technology: Latest for Quality of Construction

Developersandbuildersarenowadoptingprecasttechnologytoavoidlabourshortageandtimedelays,alongwithanaimtodeliverqualityproducts.Themainadvantagesofprecasttechnologyarespeedofconstructionandavalue-for-moneyproduct.Inaddition,itenhancesthequalityofthefinaloutputwiththecreationofabiggercarpetarea.Theuseofsuchtechnologyhelpsinsavingupto64%ofthetimetakenforsimilarprojectsusingnormalconstructionmethodsandtechnology.

Thistechnologyconsistsofcustom-designedprecastconcretecomponentssuchasroofslabs,beams,columnsandwallpanels,amongothers,whichofferflexibilityinshapeandsizewithavarietyofsurfacefinishesandcolours.Thecomponentsaremanufacturedorcastinstrictlycontrolledenvironmentwithstate-of-the-artmachineryerectedonthesitewiththehelpoftowercranesandthenjoinedtoeachotherasperspecification.

New Policy: Real estate (Regulatory and Development) Bill - Reorganising Residential sector in India

TheRealEstate(RegulatoryandDevelopment)Billaimstoinstiltransparencyintoasectorthathasbeensofarunregulatedandhaswitnessedhaphazardgrowth.Althoughinitscurrentformthebillonlycoversnewprojectsofover4,000sqmintheresidentialsector,consumerscanexpectsomeofthebestpracticesinthisindustrytocomeintoforce,includingprotectingtheirinterestsinthetimelinessofprojectcompletion,delayinaccountabilityanddisputeresolution.Oncethebillcomesintoforce,therewillbeastandarddefinitionofcarpetareathroughoutthecountry.Inaddition,itproposesaregulatorineachstateandunionterritory.

Nevertheless,withtheapplicationofthebill,developerswouldbecomemoredependentoncostlierbankandnon-bankingfinancialcompanies(NBFCs)lendingforprojectfunding,astheycannotlaunchaprojectuntilallapprovalshavebeenreceivedfromtherelevantauthorities.Asidefromthis,withthismeasurethatencouragestimelycompletions,thebillislikelytolureinvestorsandenduserswithgreaterfaiththatthepropertywillbedeliveredtothepromisedspecifications.Inaddition,misleadingprojectadvertisementsmayresultinpunitiveactionbythestate.Asaresult,thisbillcouldhelpininculcatingaprofessionalattitudeamongthedevelopercommunity.

Thebillmayhelptoreducemoneylaunderingthroughrealestatebykeepingatraceofthemoneytrailthroughorganisedbrokerage,asitwillbecompulsoryforrealestateagentstohavealicence.Banksandfinancialinstitutionswillnowbecomemoreconfidentinlendingmoneytothissectorbecauseofthelowerriskofmisuseoffunds.Itmighthelptherealestateindustrytowardaparadigmshiftintermsoftransparencyandconsumerfriendliness,increasingIndia’stransparencyscoreandusheringinamorematureIndianrealestatemarket.However,thepossibilityofanincreaseinprojectcostonthebackoftransparencymeasureswithoutasinglewindowclearancemightactasasubduingparametergoingforward

Cost factor Intheory,thecostofconstructionwiththistechnologyismarginallyhigherthantheconventionalmethod,butinpractice,consideringthewastage-controlandspeedofconstructionwithbestofqualityandvirtuallynorepairorreworkingcost.theoverallvalueisthesame.

Investment-friendly Whilemarginsarenotgoingtobeaffectedmuch,thequalityoftheproductwillbeenhancedexponentially,andthedeliveryoftheprojectcanbemadewithinthestipulatedtimeframe.Thegovernmentisalsopromotingthistechnology,and,recently,theDelhiDevelopmentAuthority(DDA)completedaround800unitswiththistechnology.

India’s Manufacturing Footprint

DELHI/ NCR

AHMEDABAD

PUNE

HYDERABAD

BANGALORECHENNAI

MUMBAI

KOLKATA

•automobiles•Fast Moving Consumer Goods (FMCG)•Heavy Industries

•automobiles•Fast Moving Consumer Goods (FMCG)•Heavy Industries

•automobiles•Fast Moving Consumer Goods (FMCG)

•Heavy Industries

•automobiles•Fast Moving Consumer Goods (FMCG)

•Heavy Industries

•Life Sciences (Pharma and Bio-technology)•automobiles

•electronics and Communication•aerospace

•Life Sciences (Pharma and Bio-technology)

•Life Sciences (Pharma and Bio-technology)

MANUFACTURINGZONESININDIA

West Zone Mumbai,Pune,Bhiwadi,Jaipur,Ahmedabad,VadodaraandPanaji

North Zone Delhi(NCR)/Gurgaon,

Kanpur,Lucknow,ChandigarhandIndore

East Zone Kolkata,Guwahati,Patna

andJamshedpur

South Zone Hyderabad,Visakhapatnam,Bangalore,ChennaiandCoimbatore

Overview of the Manufacturing Sector in India

evolution and Growth of the Sector

Indiawashardlyanindustrialisedcountryatthetimeofgainingindependence,andthefirststepIndiatookwastorecognisethemanufacturingsectorasaveryimportantinstrumentforthecountry’seconomicgrowth.Ineveryfive-yearplan,thecountrycontinuedtogrowthemanufacturingsectorwhilstencouragingandincentivisingtheprivatesectorinthemid-capandsmall-caprealms.Progressively,Indiastrengtheneditsmanufacturingsectorfurtherunderamixedeconomyfrom1947to1991,andunderaliberalisedeconomysincethen.

India’smanufacturingexportershaveplayedakeyroleinpromotingthesector’sprowesstoconsumersacrosstheworld.ManufacturingexportshavealwaysbeenamajorcontributortoIndia’stotalmerchandiseexports.ThemainexportmarketsforIndianmanufacturinggoodsaretheUnitedStatesandWesternEurope.WithinWesternEurope,GermanyandtheUnitedKingdomaretwomostimportantexportmarkets.

Prominent Manufacturing Clusters

Manufacturingclustershavedevelopedalongmajorinfrastructurecorridors.Thesearespecificareasdevelopedforinter-regionalindustrialgrowth,includingthedevelopmentofmanufacturingareasandclustersalongthecorridor.Thesecorridorsprovideinfrastructuresuchasroads,powerandotherutilityservicestofacilitatethegrowthofmanufacturingindustriesandregionaleconomicdevelopment.IndustrialdevelopmentinIndiaisscatteredandcanbedividedintofourzones-north,south,eastandwest.Thechartbelowshowsthemajorindustrialstatesandcitiesineachzone.

•Life Sciences (Pharma and Bio-technology)•automobiles

•Fast Moving Consumer Goods (FMCG)


AEROSPACE

HindustanAeronauticsLimited(HAL) UTCAerospaceSystems | TycoElectronics DynamaticTechnologies | StarragHeckert

Indiaisfastbecomingamajorglobalaerospaceconsumermarket,aidedbyacombinationofincreasingdefencespending,boomingcommercialaviationmarketandrisingtechnologicalandmanufacturingcapabilitiesamonglocalcompanies.

AccordingtotheInvestmentCommissionofIndia(ICI),investmentopportunitiesofUSD110billionareenvisagedupto2020,withUSD80billioninnewaircraftandUSD30billioninthedevelopmentofairportinfrastructure.

HEAVY ENGINEERING

TheengineeringindustryisthelargestsegmentofallindustrialsectorsinIndia,accountingfor3%ofIndia’sGDPandofferingemploymenttomorethan4millionskilledandsemiskilledworkers.

TheDepartmentofHeavyIndustry(DHI),asitsvisionfor2020,plansthattheIndianmachinetoolsindustryshouldsecureadomesticmarketshareof67%by2020.

JosephCyrilBamford(JCB) | Sany | AlfaLaval| BharatHeavyElectricalsLimited(BHEL) | LeeBoy

FMCG Fast Moving Consumer Goods

P&G | IndianTobaccoCompany(ITC) | PepsiCo Coca-Cola | Amway

TheFMCGsectorinIndiaisthefourthlargestsectorintheeconomy.Itisalsocalledtheconsumerpackagedgoodssector.AccordingtotheConfederationofIndianIndustry(CII),theFMCGsectorinIndiahadamarketsizeinexcessofUSD13.1billionasof2012.

Key

Fac

ts a

bout

Maj

or M

anuf

actu

ring

Indu

stri

es

LIFE SCIENCES (Pharmaceuticals and Biotechnology)

Biocon | DrReddy’sLaboratories | Cipla SunPharmaceutical | CadilaHealthcare

TheUnitedNationsIndustrialDevelopmentOrganization(UNIDO)recognisesIndiaasoneofthetop-rankingcountriesamongdevelopingcountriesintermsoftheproductionanddistributionofpharmaceuticals.

AccordingtotheDepartmentofPharmaceuticals,thepharmaceuticalindustryinIndiaistheworld’s3rdlargestintermsofvolumeand14thintermsofvalue.

AccordingtoarecentreportbyErnst&Young(E&Y),thebiotechnologysectorinIndiaisexpectedtoachieverevenueofUSD11.6billionby2017,growingatacompoundannualgrowthrate(CAGR)of22%.

ELECTRONICS AND TELECOMMUNICATIONS

Philips | Sony | Havells LG | Samsung

AccordingtotheDepartmentofElectronicsandInformationTechnology,thecurrentsizeoftheelectronicmanufacturingindustryisUSD70billionandisaimedforUSD400billionby2020,whichmeanstheindustrymustincreasebymorethanfivetimesoverthenextsevenyears.

AUTOMOBILES

Ford | AshokLeyland | RenaultNissan MarutiUdyog | TataMotors

TheproductionofpassengervehiclesinIndiawasrecordedat3.23millionin2012–2013andisexpectedtogrowataCAGRof13%during2012–2021,accordingtodatapublishedbytheAutomotiveComponentManufacturersAssociation(ACMA)ofIndia.


Crystal Gazing into

2015

TheRealEstateRegulatoryBillislikelytobeapproved,anditwillbringinthemuch-neededtransparencyintheIndianreal

estatesector.

TheNASSCOM estimates2014tobe

relativelymorepositive,with IT/ITESexportsrevenuesgrowingby12-14%anddomesticrevenuesgrowingby13-15%.Thisisalsoexpectedtoimprovetheoffice

spacedemandorkeepit stablein2014.

Asdemandforofficespace islikelytoimproveandsupplyconditionsalsoremainstable,

rentalandcapitalvaluerecoveryisontheway.Gurgaon and Pune areforecastwithhighestrentalappreciationbyend-2014.

FDIine-commerce canbeagame-changer.Itcouldbringcapitalfor

infrastructuredevelopment,actingasanimpetustothe

manufacturingsector.

Capital Markets

Office Market

Retail

Residential Market

REItsarelikelytobe allowedin2014.Thiswill

improvethesituationofcreditcrunchinrealestate.

AreportbyEYandthe RAIstatesthatorganisedretailpenetrationisexpectedto

reach10% by 2018

AstheRBIisnotlikely toeaseoutinterestratesintheshortterm,residentialsalesvolumesarelikelytoremain

lowintheshortterm.

Affordablehousing appearsasaparticularlylucrativeopportunityinthe

currenttimes.TheNHBhassetupanurbanhousingfundandallocatedINR20billionin

thisregard.

GDPgrowthrateis estimatedtobeat4.5-4.7%

in2014bytheRBI,WorldBankandtheInternationalMonetaryFund(IMF).However,thenew

governmenthasplanned toincreaseitto 5% or above.

Theinvestmentclimateislikelytoimprovewithastablenewgovernmentatthecentre.RatingagenciesmayimproveIndia’sinvestmentratingin

2014.FDIflowsareexpectedtoimprove.

economy

India’s Advantages and Growth Opportunities

force,adequatelandlawsandthereasonablecostofcapital.Indiaisincreasinglyadoptingaglobalapproachtobecomeastrategicplayerontheinternationalplatform.

TheGovernmentofIndiahasannouncedanationalmanufacturingpolicywiththeobjectiveofenhancingtheshareofmanufacturinginGDPto25%withinadecadeandcreating100millionjobs.Italsoseekstoempowerruralyouthbyimpartingnecessaryskillsetstomakethememployable.Sustainabledevelopmentisintegraltothespiritofthepolicy,andtechnologicalvalueadditioninmanufacturinghasreceivedspecialfocus.

Toachievethedesiredgrowthrateforthemanufacturingsector,itisalsonecessarytohaveahighgrowthrateforthecountry‘sexports.Consideringthis,theDepartmentofCommercehascomeupwithastrategyondoublingIndia‘sexportstoacceleratetherateofgrowthofmanufacturingexportsandreachalevelofUSD534billionby2016-2017.

Thegovernmenthasalsotakenstepssuchaseasingforeigninvestmentrestrictionsinretail,civilaviationandtelevisionbroadcastingaswellasembarkingonafiscalimprovementpathbyloweringunproductivesubsidiesinanefforttorestorewaninginvestorconfidence.

TheIndianmanufacturingsectorhasregisteredmoderategrowthinthepast,evenintimeswhentheglobaleconomywasgoingthroughamajorslowdown.Thecountryplaceshighpriorityoninfrastructuredevelopment,thusofferinghighgrowthopportunitiesforawiderangeofmanufacturingindustriesandawiderangeofuntappedopportunitiesinothersectors.Theentryofforeignmanufacturingcompanieswithtechnology-basedorientationishelpingIndiacreateacoreandcontemporarymanufacturingsectorfedbyancillarymanufacturersthatrelyonsimpletechnicalskills.

Low Real estate Costs

OccupiersseekingtobuylandandconstructtheirownfacilitiescanfindnumerousopportunitiesinIndia.LandvaluesaregenerallylowinIndia.ManufacturingsectorrentsarealsoaffordablecomparedtoSydney,Melbourne,Brisbane,Shanghai,Beijing,GuangzhouandShenzhen.

Low Labour Costs

ThecostcompetitivenessoflabouristhekeydriverforthemanufacturingsectorinIndia.ThecostoflabourformanufacturingsectorischeaperwhencomparedtoothercountriessuchasJapan,theUnitedStates,theUnitedKingdom,Poland,Korea,Australia,Germany,BrazilandTaiwan.ThiscontinuestotransformtheIndianmanufacturingindustrywithrespecttocreatingacompetitiveadvantageinmanufacturing.Inaddition,risingmanufacturingwagesinChinaarelikelytobringnewentrantstoIndia,andthecountryexpectedtobecomeadestinationformanufacturing.

Favourable Policy

Indiaislargelymovingtowardhigh-endmanufacturing, withthegovernmentannouncingmultiplereformsandpoliciesinthesector.TheIndianmanufacturingindustryislargelydrivenby low-costandskilledlabour


Ministry of Overseas Indian Affairs Confederation of Indian Industry

TheMinistryofOverseasIndianAffairs(MOIA)isadynamic,youngandinteractiveministry,dedicatedtothemultitudeofIndianNationalssettledabroad.EstablishedinMay2004astheMinistryofNon-ResidentIndians’Affairs,itwasrenamedastheMinistryofOverseasIndianAffairs(MOIA)inSeptember2004.Drivenbyamissionofdevelopmentthroughcoalitionsinaworldwithoutborders,MOIAseekstoconnecttheIndianDiasporacommunitywithitsmotherland.

Positionedasa‘Services’Ministry,itprovidesinformation,partnershipsandfacilitationsforallmattersrelatedtoOverseasIndians(comprisingPersonsofIndianOrigin(PIOs)andNon-ResidentIndians(NRIs)).

Itisacontemporary,leanandefficientMinistryheadedbyaCabinetMinister.TheMinistryhasfourfunctionalservicedivisionstohandleitsdiversescopeofservices:

• Diaspora services

• Financial Services

• Emigration services

• Management Services

TheMinistryfocusesondevelopingnetworkswithandamongstOverseasIndianswiththeintentofbuildingpartnershipwiththeDiaspora.

BesidesdealingwithallmattersrelatingtoOverseasIndians,theMinistryisengagedinseveralinitiativeswithOverseasIndiansforthepromotionoftradeandinvestment,emigration,education,culture,healthandscience&technology.

Ministry of Overseas Indian Affairs GovernmentofIndia AkbarBhawan,Chanakyapuri NewDelhi-110021(India) Tel:+911124197900,Fax:+911124197919, Email:[email protected] Website:www.moia.gov.in

TheConfederationofIndianIndustry(CII)workstocreateandsustainanenvironmentconducivetothedevelopmentofIndia,partneringindustry,Government,andcivilsociety,throughadvisoryandconsultativeprocesses.

CIIisanon-government,not-for-profit,industry-ledandindustry-managedorganization,playingaproactiveroleinIndia’sdevelopmentprocess.Foundedin1895,India’spremierbusinessassociationhasover7200members,fromtheprivateaswellaspublicsectors,includingSMEsandMNCs,andanindirectmembershipofover100,000enterprisesfromaround242nationalandregionalsectoralindustrybodies.

CIIchartschangebyworkingcloselywithGovernmentonpolicyissues,interfacingwiththoughtleaders,andenhancingefficiency,competitivenessandbusinessopportunitiesforindustrythrougharangeofspecializedservicesandstrategicgloballinkages.Italsoprovidesaplatformforconsensus-buildingandnetworkingonkeyissues.

Extendingitsagendabeyondbusiness,CIIassistsindustrytoidentifyandexecutecorporatecitizenshipprogrammes.Partnershipswithcivilsocietyorganizationscarryforwardcorporateinitiativesforintegratedandinclusivedevelopmentacrossdiversedomainsincludingaffirmativeaction,healthcare,education,livelihood,diversitymanagement,skilldevelopment,empowermentofwomen,andwater,tonameafew.

TheCIIthemeof‘AcceleratingGrowth,CreatingEmployment’for2014-15aimstostrengthenagrowthprocessthatmeetstheaspirationsoftoday’sIndia.Duringtheyear,CIIwillspeciallyfocusoneconomicgrowth,education,skilldevelopment,manufacturing,investments,easeofdoingbusiness,exportcompetitiveness,legalandregulatoryarchitecture,labourlawreformsandentrepreneurshipasgrowthenablers.

With64offices,including9CentresofExcellence,inIndia,and7overseasofficesinAustralia,China,Egypt,France,Singapore,UK,andUSA,aswellasinstitutionalpartnershipswith312counterpartorganizationsin106countries,CIIservesasareferencepointforIndianindustryandtheinternationalbusinesscommunity.

Confederation of Indian Industry TheMantoshSondhiCentre 23,InstitutionalArea,LodiRoad, NewDelhi110003(India) Tel:+911145771000/24629994-7,Fax:+911124626149, Email:[email protected] Website:www.cii.in


Overseas Indian Facilitation Centre (OIFC) Author Profile

Sujash BeraAssistantManager,Research&[email protected]+913322273293SujashBeramanagestheResearchandRealEstateIntelligenceService(REIS)offeringsforKolkata.HejoinedJLLin2012andisbasedinKolkata.Hecontributestotopicalwhitepapersandpropertymarketdigestaswellasresearchdeliverablesonthecommercial,retail,residentialandindustrialrealestatemarketsinIndia.

SujashholdsaMaster’sdegreeincityplanningfromIndianInstituteofTechnology,Kharagpurbesidesbeinganarchitect.Hehasfouryearsofexperienceintheindustry.

Trivita Roy AssistantVicePresident,Research&REIS [email protected] +914040409123

TrivitaRoyhasjoinedJLLResearchteamin2007.BasedoutofHyderabad;shecontributestotopicalwhitepapers,propertymarketdigestandresearchdeliverablesonindustrial,commercial,retailandresidentialrealestatemarketsin

India.SheisalsoresponsibleforIndianrealestateintelligenceservice(REIS)

TrivitaistrainedasCityPlannerfromIndianInstituteofTechnologyKharagpurbesidesbeinganarchitectandalsoholdsaDiplomainExecutiveGlobalBusinessManagementfromIndianInstituteofManagementCalcutta.Shehaseightyearsofexperienceinrealestateresearch.

ashutosh Limaye Head,ResearchandREIS [email protected] +919821107054

FormoreinformationaboutResearch

TheOverseasIndianFacilitationCentre(OIFC)setupbytheMinistryofOverseasIndianAffairs’(MOIA)in2007,inpartnershipwiththeConfederationofIndianIndustry(CII),providesfacilitationservicestotheOverseasIndians,especiallyassistingthemindeepeningtheireconomicandintellectualengagementwithIndia.TheOIFCisgovernedbyaCouncilofprominentOverseasIndians,IndustryleadersandseniorpolicymakersfromtheGovernment.

OIFChasbeenuniquelyconstitutedandpositionedtoserveasasingle-pointcontactfortheoverseasIndiansthroughitsfacilitation-whetherinareasofinformation,economicengagement,knowledgepartnering,mentoringorbuildanyotherassociationwithIndianstatesthathelpstheIndianDiaspora,professionalsandsmall/mid-sizedentrepreneursbuildstronginterlinkageswithIndia,thuseffectivelyenablingthemtobuilduponorexpandtheirengagementwithIndia.

OIFCenjoystheduecredibilityofservingIndiansgloballyextendedundertheumbrellaoftheGovernment,theMinistryofOverseasIndianAffairs’(MOIA),theConfederationofIndianIndustry(CII),coupledwiththesupportofanetworkof‘KnowledgePartners’,Indianstates,IndianmissionsandIndianDiasporaassociations.

CurrentlyOIFC’sactivitiesinclude,queryaddressalonvariousissuesfacedbytheNRIs&PIOs,arobustonlinebusinessnetworkingportal,projectionofmemberstates’projects,DiasporaEngagementMeetsinvariouscountries,MarketPlacebusinessforumsinIndiaandmore.

Overseas Indian Facilitation Centre (C/oConfederationofIndianIndustry) 249-F,Sector18,UdyogVihar,PhaseIV Gurgaon-122015.Haryana(India) Tel:+911244014055/56,Fax:+911244309446, Email:[email protected] Website:www.oifc.in

About JLL

JLL(NYSE:JLL)isaprofessionalservicesandinvestmentmanagementfirmofferingspecializedrealestateservicestoclientsseekingincreasedvaluebyowning,occupyingandinvestinginrealestate.Withannualfeerevenueof$4.0billionandgrossrevenueof$4.5billion,JLLhasmorethan200corporateofficesandoperatesin75countriesandhasaglobalworkforceofapproximately53,000.Onbehalfofitsclients,thefirmprovidesmanagementandrealestateoutsourcingservicesforapropertyportfolioof3.0billionsquarefeet,or280.0millionsquaremeters,andcompleted$99.0billioninsales,acquisitionsandfinancetransactionsin2013.Itsinvestmentmanagementbusiness,LaSalleInvestmentManagement,has$50.0billionofrealestateassetsundermanagement.JLListhebrandname,andaregisteredtrademark,ofJonesLangLaSalleIncorporated.

JLLhasover50yearsofexperienceinAsiaPacific,withover28,453employeesoperatingin80officesin16countriesacrosstheregion. Thefirmwasnamed‘BestPropertyConsultancy’insevenAsiaPacificcountriesattheInternationalPropertyAwardsAsiaPacific2014,andwonnineAsiaPacificawardsintheEuromoneyRealEstateAwards2013.www.jll.com/asiapacific.

Forfurtherinformation,pleasevisitourwebsite, www.jll.com.

About JLL India

JLLisIndia’spremierandlargestprofessionalservicesfirmspecializinginrealestate.Withanextensivegeographicfootprintacross11cities(Ahmedabad,Delhi,Mumbai,Bangalore,Pune,Chennai,Hyderabad,Kolkata,Kochi,ChandigarhandCoimbatore)andastaffstrengthofover7000,thefirmprovidesinvestors,

developers,localcorporatesandmultinationalcompanieswithacomprehensiverangeofservicesincludingresearch,analytics,consultancy,transactions,projectanddevelopmentservices,integratedfacilitymanagement,propertyandassetmanagement,sustainability,industrial,capitalmarkets,residential,hotels,healthcare,seniorliving,educationandretailadvisory.ThefirmwasnamedtheBestPropertyConsultancyinIndiaattheInternationalPropertyAwardsAsiaPacific2014-15.

Forfurtherinformation,pleasevisitwww.joneslanglasalle.co.in

JonesLangLaSalle©2014JonesLangLaSalleIP,Inc.Allrightsreserved.Allinformationcontainedhereinisfromsourcesdeemedreliable;however,norepresentationorwarrantyismadetotheaccuracythereof.

ahmedabad+917940150000

Bangalore tel+918041182900

Chandigarhtel+911723047651

Chennaitel+914442993000

Coimbatoretel+914222544433

Delhitel+911133141000

Gurgaon tel+911244605000

Hyderabad tel+914040409100

Kochitel+914843018652

Kolkata tel+913322273294

Mumbai tel+912266207575

Pune tel+912040196100

JLL India Offices

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