INDUSTRY PROFILE Real-estate sector is a big driver of India's economic growth and therefore, is a vital sector of the nation's

economy. It is the second-largest employmentgenerating sector after agriculture. Growing at a rate of about 20% per year, this sector is contributing around 5-6% to India's GDP. It stimulates the demand in more than 250 subsidiary industries, like steel, cement, brick, paint, building materials and consumer goods. The Indian real-estate sector has traditionally been an unorganized sector but it is slowly evolving into a more organized one. Real estate business has boomed in India over the past few decades. Due to rapid urbanization, increasing income and favorable demographics, the sector attracts a major investment and has a huge potential to attract large foreign-investments too. With real estate arriving at a point of saturation in developed countries and the prices and demand falling, international real-estate players are looking at rising economies, like India, for tapping opportunities in real estate. Even NRIs (NonResident Indians) and other international private and corporate entities are attracted to invest in India's real estate. Residential Real Estate: There is an acute shortage in residential housing-projects in India. It is expected that housing shortage in rural areas will witness a reduction in housing shortage due to migration and conversion of kuccha houses into pucca houses. Thus, rural-housing shortage is expected to decline to 53.8 million units by the end of 2014 from 59.4 million units at the end of 2008. However, housing shortage in urban areas will continue to rise due to migration towards urban areas and rising trend of nuclear families. Housing-scarcity in urban locations is

estimated at 19.3 million units at the end of 2008, which is likely to touch 21.7 million units by the end of 2014. Commercial Real Estate: The commercial-office space in India has evolved significantly in the past 10 years due to change in business-situation. The expansion of commercial real-estate has been driven mainly by service segments, especially IT. Earlier, commercial lands were concentrated in CBD (Central Business District) areas in big cities. However, with the surfacing of IT and ITeS, commercial expansion started moving towards city suburbs as more office-space is now required. Retail Real Estate: In last few years, India's organized retail industry has recorded high growth-rates. The retail real-estate is an unorganized market with a few national players. Chief driving factors are luxurious lifestyles, high disposableincomes and increased tendency to spend. India's retail market was mainly unorganized until early 2000. The organized retailing is likely to grow in India despite the fact that the supply in retail real-estate industry is higher than the demand. Hospitality Real Estate: India's hospitality industry has enjoyed robust growth over the past few years sustained by a benign political and economic environment. Growing incomes, more weekend trips and better access to travel-related information over the Internet have led to growth in hospitality. Premium hotels are more famous in key business-destinations in India and are leading in popular tourist-destinations, like Goa, which attract loads of foreigners. Demand-growth in this sector is anticipated to outstrip supply-growth. Demand is expected to increase at a CAGR of 15% while room availability is expected to record a CAGR of 9%

across premium segment. Business destinations are poised to see higher growth in room-inventory compared to leisure destinations. The Indian real estate market has seen a sharp upturn in the recent years. Even when the world economy was reeling from the aftershock of the huge recession that hit hard even some of the largest & leading economy, the Indian real estate market remained immune to the downturn that was seen in almost every other sector. The real estate sector witnessed and is still getting investment from a large number of investors of both India and abroad. It has been a golden harvest even in this turbulent financial market. For most investors, real estate has been a refuge from the burn most bear due to the downturn in almost every other sector.

The question arises what kept the real estate such a prosperous option even during a time when every other investment option seemed such a huge risk. Studies have revealed the transparency in the way the real estate sector works and the strong legal rules guiding almost every aspect governing investments in this sector has made it a great option for the investors. With India becoming one of the major targets for the Foreign Direct Investors, the need for new property is on the rise. People need more residential complexes, places to build shopping malls, offices, industries, and even agricultural lands. And they need these in proper locations which will benefit the business. Thus the demand for real estate properties at some of the key locations within the country skyrocketed within a few years.

India today is a fast growing economy and almost 50% of the population comprises of the young, dynamic generation. As they establish themselves in the society, their requirements also increase. From tourism department to hospitality, all are grabbing the opportunity. The high income younger generation today is their

primary target. Thus, demand for real estate is also on the rise. Space is required for hotels, restaurants, leisure activity zones, etc.

While the rise can be seen in all the parts of India, but the major towns and metro cities are most in demand. And it can be safely assumed that an investment at property in India is one of the safest options which can yield a high return for certain. With the continuing rise of the price of properties available in India it is one of the smartest choices when the question of investment decision arises.

One might be apprehensive given the recent news of major frauds happening in the financial sector, but one can always rely upon some of the oldest available options when it comes to buy real estates. There are many websites as well as companies which deal in the sector and one can always rely upon these to grab a great deal. These property sites will also provide excellent guidance to the first time investors. With such lucrative options available and such high returns guaranteed, the Indian real estate sector is one of the primary investment options one should look out for. Riding high on the back of rapid urbanisation, positive demographics and rising income levels, the Indian real estate sector has attracted significant investment over the past few years. The sector that once grew at 7.8% in 2009-10 witnessed a deceleration during 2012-13 to 6.5% (till June 2012) owing largely to the sluggish growth of the Indian economy, rising input costs and an overall slowdown in the global economy.

As per latest estimates, the housing sector contributes about 5% to the overall GDP growth of the country. The Economic Survey 2011-12 shows that the housing sector ranks fourth in terms of the multiplier effect on the economy. While the populist objective is to ensure people losing land should be adequately compensated, the obverse that this will help the acquirers of the land to be more assured of the acquisition process and there by rule out problems of unwarranted claims and issues of inadequate compensations. The provisions of the Bill will be applicable in cases of land acquisition of 50 acres in urban areas or 100 acres in rural areas. The compensation for land acquisition will now at least double in urban areas and will go up by 4 times in rural areas, according to the new LARR guidelines. Thus, the cost of land acquisition will surely go up for all projects irrespective of them being government or private or public-private-partnership (PPP) projects as they will have to adhere to the new norms. Further, the clause of mandatory consent of 80% of owners for private projects and consent of 70% landowners for PPP projects will delay the process of land acquisition and the projects in turn. As land titles are not clearly documented in our country, it will take quite some time to change the current situation. The bill is expected to add to the cost of a project substantially as the expected time taken for acquisition of land thereby delaying the entire process. Apart from the existing requirement of going through the regular the legal and regulatory process which usually adds up to the time and cost factor of any major large scale project. Impact on infrastructure & urbanization

Infrastructure projects are the ones that will receive the sharpest blow. In many instances, this rise in input costs is likely to yield the projects unviable. As it is, the infrastructure projects are under pressure, especially those in the rural areas as it is difficult to monetize them; so the private sector is not interested in them. The growth of India is largely dependent on the infrastructure development which the government cannot take up single handedly and co-operation of private sector becomes necessary. The consent clause will delay the start of the project; further making the required returns from the project difficult to achieve. Thus if India's growth story is to continue then a user development fee will have to be charged and the price of utilities like electricity, water etc. will have to go up to rake in the revenues. All in all, this is a laudable reform by the government for providing equitable sharing of profits while also moving a step closer to laissez faire kind of environment. The high rate of migration and natural growth rate of our population in urban areas highlight the need for building new cities as existing ones are overburdened. Satellite towns depend on the parent city for their work and employment requirements, while the need of the hour is to build self-sustaining urban centres. With the LARR Bill developing cities on a large scale would be difficult due to the requirements of getting consent from 80% of project affected people, arranging for their rehabilitation and resettlement (R&R), as well as paying a premium price for land shooting up the overall budget to very high levels. Higher cost of land acquisition & overall real estate cost

For the real estate industry too, the addition of R&R component will be a big financial burden due to which the LARR Bill has received flak from them. Post the Bill, the cost of land acquisition will increase across the board and the real estate developers intend to pass on this increase in input cost to the buyers. So certain sections of the industry feel that an increase in property prices will ensue the LARR; thus negatively affecting the ordinary buyers. Considering the present scale of projects, most of the residential, commercial and retail real estate projects occupy an area of land smaller than the stipulated parcel size. Many big private real estate players have bought the land at market prices and with 100% consent of the landowners. However, their input costs will rise as a result of the increase in compensation and minimize the profit margin. Since the developers will want to preserve their profits, we will see more joint development projects happening, wherein the profits as well as the resources and the risks will be shared. Already in many Tier-1 cities, joint development is route followed by developers, so this practice will now spread all over

As per the industry reports, the total economic value of the real estate activity in the country ranges between US$40-45 billion, which contributes 5-6% to the GDP growth. Of its total size, residential segment, with 90-95% size, forms the major chunk of the market, followed by the commercial segment (4-5%) and organised retail segment (1%). The demographic advantage of the country and the rising thrust on infrastructure is triggering a plethora of events, significant among which is the rising FDI in the

sector. It is estimated that the FDI in the sector will grow from the current US$4 billion to US$25 billion within a span of 10 years. A report released by the United Nations (UN) states that India ranks third after China and the US in terms of the most favoured investment destination for global companies. As per the report, the FDI inflow in the sector is expected to increase by 20% during 2012-13. Some of the recent policy initiatives which are expected to serve as a trigger to boost the investment in the sector include: the Union Budget 2012-13 proposed 1% Tax Deduction at Source (TDS) on transfer of immovable property if the value of the sale is beyond Rs 50 lakh in urban areas and Rs 20 lakh in other regions foreign citizens of Indian origin have been granted permission by the Reserve Bank of India (RBI) to purchase property in India for residential or commercial purposes FDI up to 100% is allowed under the automatic route in townships, built-up infrastructure and construction development projects subject to certain conditions the government has allowed 51% FDI in multi-brand retail subject to conditions Besides, RBI has also proposed to increase the minimum capitalisation requirement for any company with over 75% foreign holding by treating it as a wholly owned subsidiary of the foreign company. As per a recent report prepared by the global property consultant, CBRE, Assessing the Economic Impact of Indias Real Estate Sector, The real estate sector of India is estimated to have a total pipeline of nearly 3.6 billion square feet lined up for completion in 2013, out of which 98% is concentrated in the residential areas. The real estate sector, an inherent component of the construction industry, has a tremendous potential in our country. The proper tapping of the real estate sector will also generate considerable economic opportunities.

Real estate is also an employment intensive sector and the predictions are it will generate employment for at least 17 million people by 2025. However, exhaustive cooperation of the Government is necessary for the real estate to become an economically viable sector contributing consistently to the national GDP. The 2013 statistics of the real estate sector shows that an investment of Rs 2,54,000 crore is necessary for the implementation of the construction projects in the available land mentioned in the CBRE report which in turn will generate a revenue of Rs 3,70,000 crore and provide countrywide employment opportunity for 7.6 million people. Challenges faced by the Real Estate Sector The growth of the real estate sector, in spite of its immense potential to contribute to Indias economic development and its wide employment providing capacity, is restricted by many factors. Borrowing costs are extremely high, a creaky infrastructure undergoing very slow development, approval processes after crossing numerous red tapes prove to be extremely lengthy, a majorly choked supply line and of course lack of proper institutional funding are some of the major impending factors. Real Estate consultancy, Cushman & Wakefield, furnished a report on private equity (PE) in real estate investments according to which, Around US$ 2 billion (Rs 11,854 crore) is available with PE firms for deployment in the Indian real estate sector. However, PE investments plummeted by 46% in the first half of 2013. The PE investments recorded in the first half of 2013 was a discouraging US$ 276 million (approximately Rs 1,638 crore), as compared to last years valuation of US$ 514 million (Rs 3,050 crore) for the same period.

2013 also witnessed a very low number of major real estate deals, only 13 in the first half of 2013. Cushman and Wakefield attributes this to an uncertain market, and the sudden deceleration in Indias economic growth, the major factors for which are the record devaluation of rupee against dollar and political deadlocks (factors that has been plaguing numerous industries all over the country). However, Sanjay Dutt, executive managing director, Cushman and Wakefield, South Asia, commented, It is noteworthy that despite a slowdown in the construction market and reduced number of investment worthy projects in India, real estate features as the fourth most invested sector by PE funds. Currently, it was estimated that about US$ 2 billion is ready to be deployed in the real estate sector of the Indian market. Though PE funds are still interested in investing in the real estate sectors, the market sentiments paint an entirely different picture. Because of the current shadow of uncertainty looming over the market, funds other than the PE funds are only interested in investing in real estate deals with solid basis, so the exploration for the right projects continue, which is slowing down the development of the real estate sector. Points of encouragement Real estate has always been a much preferred investment sector due to the supernatant nature of the sector. An educated guess on the positive side is Indian economy will be able to turn around in time to arrest the free fall of rupee against dollar. That will definitely help to lift the shadow of uncertainty currently hovering over the market and prove to be a shot in the arm for the real estate sector. Besides the keenness of the PE funds to invest in the real estate sector is definitely another encouraging factor.

Once again a positive anticipation would be that the Government will show further understanding and cooperation towards the real estate sector of our country and be proactive in resolving the political stalemates and introduce timely economic reforms that are posing to be major hindrances in the development of this extremely potential sector. Once the real estate sector gathers the necessary impetus, new doors to more investable options will be flung open, attracting a hefty investment from the core investors, both domestic and abroad. The demand for ready office spaces is increasing steadily, which has already witnessed an investment of over US$ 1.3 billion (Rs 7,705 crore) in the past three years. 2013 also witnessed the highest PE fund investments in the real estate sector namely US$ 131.6 million in Pune (Rs 7.8 billion), US$ 67.5 million in Mumbai (Rs 4 billion), US$ 38.8 million in NCR (Rs 2.3 billion) and US$ 16.9 million in Bengaluru (Rs 1 billion). In spite of the 46% slump in the real estate sector, the contribution of this sector towards the National GDP has been an estimated 6.3%, quite impressive considering the volatile market.