Introduction

It is also referred to as realty

 It covers residential housing, commercial offices, trading spaces

such as theatres, hotels and restaurants etc

 It involves the purchase, sale, and development of land,

residential and non-residential buildings

 250 ancillary industries such as cement, steel, brick, timber,

building materials etc. are dependent on the real estate industry

 Developments in the sector are being influenced by the

developments of other sectors Ex: retail, hospitality and
entertainment
 !ont«
 It includes 3 categories:
Housing
Real estate services
!onstruction
 SWOT Analysis
Strengths

 Employment Generator

 Always backed by the government

 Low cost well- educated and skilled labour force is now widely
available across the country.

 Sufficient availability of raw material and natural resources in the

country is supportive for the industry.

 It is a supportive industry

 Fast growing industry that attracts a lot of FDI in the economy

SWOT Analysis
=eaknesses

 o complete protection against natural calamities

 Training itself has become a challenge

 !hanging skills requirements and an ageing workforce may

accentuate the skills gap

 External allocation of large contracts becomes difficult.

 Lack of clearly define processes and procedures for construction

and its management.

 Huge amount of money need to be invested in this industry and

inefficiency may lead to high level of risk
SWOT Analysis
°
rtunities
 !ontinuous private sector housing boom will create more
construction opportunities.
 Public sector projects through Public Private Partnerships will bring
further opportunities.
 Developing supply chain through involvement in large projects is
likely to enhance the chances in construction.
 Renewable energy projects will offer opportunities to develop skills
and capacity in new markets.
 Financial supports like loan and insurance from RBI & REIT¶s
 Remote areas in the country are easily accessible and plenty of land
is available in the country.
 Growing population
 SWOT Analysis
ïhreats

 !urrent economic situation may have an adverse impact on

construction industry Ex: Recession, Inflation etc

 Political and security conditions in the region and late legislative

enforcement measures are always threats to any industry in India.

 Infrastructure safety is a challenging task in construction industry.

 atural abnormal casualties such as earth quake and floods are

uncertain and can prevent the construction boom.

 !ompetitors are emerging in the industry by leaps and bounds.

uargaining P
er
 Su iers uargaining
er
 uuyers
High bargaining power in the hands of
few suppliers the buyers
Monopolistic competition
More power in buyers hands ïhreat
 substitutes
Less bargaining power if suppliers Technology upgrades
FDI¶s
ïhreat
 ne entrants uarriers t
entry
Increase in supply Fierce competition
!ongested market Monopolistic competition
Differentiation strategy High !apital requirement
Economies of scale
Brand identities
 Real Estate Industry in India
 2nd largest employment generator after agriculture

 Tremendous upsurge in commercial real estate on account of the Indian

BPO boom

 Lease rentals have been picking up steadily

 Housing sector has been growing at an average of 34% annually

 Hospitality industry witnessed a growth of 10-15% last year

 Average profit from construction in India is 18%, which is double the

profitability for a construction project undertaken in the US

 India leads the pack of top real estate investment markets in Asia for 2010
!ont..
 Major employment driver, being the second largest employer
next only to agriculture

 Growing importance with the liberalisation of the economy

 ºarket Analysis & Forecasting
 Size: Around US $ 12 billion and grows at about 30% per annum

 5% of the country¶s GDP is contributed by the housing sector

 Expected to touch 6% within 5 years through US$ 12.11 billion in real estate
investment

 Has significant linkages with several other sectors

 One Rupee invested in this sector results in 78 paise being added to the GDP
of the State (multiplier effect)

 If the economy grows at the rate of 10% the housing sector has the capacity to
grow at 14%

 Generate 3.2 million new jobs over a decade

esidentia Heavy / civi
C
nstructi
n C
nstructi
n
(80%) (4%)

ea Estate
C

siti
n
in India

uuiding Industria
C
nstructi
n C
nstructi
n
(6%) (10%)
ºarket Structure
 The industry is highly fragmented

 The top 10 players account for approximately 10 percent of the

total revenue of the industry

 Major part is attributed to unorganized real estate contractors

 The main focus area of almost all real estate companies is the
µaffordable housing,¶

 !ontrols more than 50 percent of residential sales in key

residential areas
 !ompetitors
ïhe ist be
 r
vides the nae
 the best ea estate
C
 anies in India:
Ambuja Realty Group
DLF Building
Sun !ity Projects
Merlin Groups
Magicbricks
L&T
HAI
Hindustan !onstruction
Tata Projects
Mittal Builders:
 Analysis & Forecasting
 Huge demand for realty due to the foll:
Outsourcing boom moves into the manufacturing sector
Private equity players are considering big investments
Banks are giving loans to builders
Financial institutions are floating real estate funds
IT & ITES sector alone is estimated to require 150 million sq ft of office
space across urban India
Retail industry to require an additional 220 million sq ft by 2010
 There is a shortage of 22.4 million dwelling units
 80 to 90 million housing dwelling units will have to be constructed with
a majority of them catering to middle- and lower-income groups
 Indian real estate sector is likely to experience consolidation
 Analysis & Forecasting: REIT·s
 REMF¶s & REIF¶s are likey to boost the real estate industry

 REIT¶s are of 3 types:

Equity

Mortgage

Hybrid

 REITs would have the potential to hold at least 5 per cent share of the
total global real estate market by 2010 (!RISIL Paper)

 REIT Size will reach 1400 US$ 1,400 billion in the next 3 years

 REITs alone would hold a market size of US$ 70 billion of the total real
estate market
 FDI in India
 US$ 12.62 billion for the 2008-09 fiscal year (DIPP)

 Until now, only on-Resident Indians (RIs) and Persons of Indian

Origin (PIOs) were permitted to invest in the housing and the real estate
sectors

 Foreign investors were allowed to invest through a wholly owned

subsidiary or through a joint venture company in India, along with a
local partner

 Press N
te N
 2 (2005 Series) Indian FDI P
icy 2006

Government of India has decided to allow FDI up to 100% under the
automatic route
Includes townships, housing, built-up infrastructure and construction
development projects
 FDI in Real Estate: Basic Guidelines
ÿ ïhe iniu area t
be deve
ed under each r
ect
a) In case of development of serviced housing plots, a minimum land area of
10 hectares.
b) In case of construction development projects, a minimum built-up area of
50,000 sq.mts.
c) In case of a combination of the above two projects, any one of the above
two conditions would suffice.
2 ïhe iniu ca itaizati
n n
r
a) US$ 10 million for a wholly owned subsidiary and US$ 5 million for
joint ventures with Indian partner/s.
b) The funds would have to be brought in within six months of
commencement of business of the companyá
j °rigina investent cann
t be re atriated be
re a eri
d

three years r
 c
 eti
n
 iniu ca itaizati
n.
However, the investor may be permitted to exit earlier with prior
approval of the Government through the Foreign Investment
Promotion Board (FIPB).

4 Deve
ent
 at east 50%
 the integrated r
ect

has to be completed within a period of five years from the date of
obtaining all statutory clearances
The investor would not be permitted to sell underdeveloped plots

5 ïhe r
ect sha c
n
r t
the n
rs and standards

including land use requirements & provision of community amenities
and common facilities
Real Estate Boom: Reasons

ÿ Ex anding industria sect
r

Surge in demand for office-buildings and dwellings
The industrial sector grew at the rate of 10.8 percent in 2006-07 out
of which a growth of 11.8 percent was seen by the manufacturing
sector

2 Liberaisati
n
icies
 g
vernent

the need for permissions and licenses has decreased
Opening the doors to Foreign investments
 Government Initiatives & Regulations
 100 per cent FDI allowed in realty projects through the automatic route.

 In case of integrated townships, the minimum area to be developed has

been brought down to 25 acres from 100 acres.

 Urban Land (!eiling and Regulation) Act, 1976 (UL!RA) repealed by

increasingly larger number of states.

 Minimum capital investment for wholly-owned subsidiaries and joint

ventures stands at US$ 10 million and US$ 5 million, respectively.

 Full repatriation of original investment after three years.

 51 per cent FDI allowed in single-brand retail outlets and 100 per cent in
cash-and-carry through the automatic route.
Other Benefits
 Developers of affordable housing projects (units of 1,000-1,500 sq
ft) have been granted a tax holiday on profits

 FM allocated US$ 207 million to grant a 1 per cent interest subsidy

on home loans up to US$ 20,691 provided the cost of the home is
not more than US$ 41,382
 Problems !onstruction Industry is facing
 Our construction industry suffers from capacity constraints

 Lack of trained manpower

 Managerial skills with performance much below international level

 The industry is starved of finance (Banks not reducing interest rates)

 Small and medium contractors do not have the wherewithal to upgrade

their capability, both hard and soft, to undertake high value time bound
projects.

 Quality, safety, environment and social aspects are also not being
addressed appropriately
 Suggestions
 Increase & encourage investment in REIT¶s

 A price index for the housing market to track price movement must be
incorporated

 Minimum land requirement for FDI¶s should be reduced

 Building effective R&D !entres

 Public-Private Partnerships (PPP¶s) to take up mega projects