1MARCH 2013

LUXURY HOMES IN BANGALORE

A Vestian Global Report In Association with Assetz Homes

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Luxury Apartments, Marathahalli - Sarjapur ORR, Bangalore. Crafted by Assetz Homes

Visit eastpoint.assetzhomes.com

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Executive Summary

In the last two decades post economic liberalization in 1991, the Indian economy has witnessed unprecedented growth. This growing economy has led to wealth creation and an increase in High Networth Individuals (HNIs). HNIs desire their homes to reflect their wealth, status, aspirations and social identity, thereby becoming potential buyers of the most expensive homes in any market.

With Bangalore being an IT-driven market, senior management of the IT sector constitutes a significant proportion of HNI population. Based on the income levels and affordability of the senior management in IT sector, luxury homes in Bangalore are defined as properties with ticket sizes above INR 1.75 Cr developed by Grade A developers.

Our research indicates that the key preferences of luxury home buyers in Bangalore include privacy, developer reputation, quality of project, customized high end specifications, future profitability and easy exit options.

Luxury homes in Bangalore have evolved from the colonial bungalows in the pre-independence era to the current day luxury homes with exclusive theme based design features, high-end specifications, lifestyle amenities, third-party service and maintenance. Luxury real estate development today is spread across central, off-central, suburban and peripheral locations. While apartments are the dominant development type in the central and off-central areas due to limited availability of land and availability of larger FSI, villas and row-houses are seen mostly in the suburban and peripheral locations.

Since 2010, the number of projects launched in the

luxury segment has increased tremendously with an average of 3,625 units launched annually. The average annual absorption is 1,880 units, increasing at a CAGR of 30%. Key micro-locations for the development of luxury projects include central, off-central, Bangalore North, Whitefield and Sarjapur Road.

Nearly 10% of the total supply of third party residential development is in the luxury segment. Of this, more than 88% of the projects launched are in the price range of INR 1.75 Cr - INR 5.0 Cr and the remaining 12% are in >INR 5.0 Cr category. 2011 witnessed launch of number of villa and apartment projects in >5.0 Cr category in the peripheral areas.

Capital appreciation in key micro-markets range between 9% & 13% annually. Development margins are in the range of 2.5 - 3.5 times the FSI land cost in the central and off-central areas, whereas margins are in the range of 4.0 - 6.0 times the FSI land cost in peripheral areas like Bangalore North. These margins are much higher than those in other Tier I cities like Mumbai and Delhi. Average annual rental yield is in the range of 4%-6%.

Key USPs of luxury projects include branded homes, themed residences, high rises, boutique homes and smart homes.

2013 is likely to witness a drop in new project launches. Capital appreciation will be under downward pressure if new launches exceed 2,500 units. Emphasis will be on mixed use integrated townships, boutique residences and themed developments with customized interiors, home automation and third party services.

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Figure 1: Luxury Residential Locations in Bangalore

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Indian economy with an average GDP growth rate of 7.5% since 1991 has led to wealth creation thereby increasing the number of High Networth Individuals (HNIs).

In the last two decades, post economic liberalization in 1991, the Indian economy has witnessed unprecedented growth at an average of 7.5%1 . A rapidly growing economy has led to wealth creation thereby increasing the number of High Net worth Individuals (HNIs).

An HNI is defined as an individual with over USD 1 million in investable assets including the value of all forms of publicly-quoted equities, bonds, funds, and cash deposits, as well as private equity holdings stated at book value. A person with assets worth at least USD 30 million is called an Ultra HNI. However, investable assets exclude real estate used for primary residences, collectibles, consumables, and consumer durables2.

Profiling of HNIs3:• PrimaryresidentsinurbanIndia

• Notlimitedtoindividualswithvastinheritancesbutalso includes entrepreneurs, senior management in corporate India, professionals, politicians, etc.

• HNIs spend nearly one-fifth of their income oncustomized holiday packages and on luxury brands for watches, jewellery, cars, household electronics etc. Real Estate holds the largest share of investible surplus at 37.2%

• The average age of HNIs in India is around 45years

HNIs, mainly senior management in IT companies, and NRIs are the target segments for projects developed by third party real estate developers.

Bangalore being an IT driven market, HNI population comprises a large number of IT professionals at the senior management level. The average salary of the senior management of IT firms in Bangalore is around INR 35 L per annum4. Adding 50% as income from spouse, average household (HH) income is >INR 50 L. The affordability of households with income >INR 50 L per annum to buy a residential property is calculated based on taxation and banking norms. Based on this the affordability of the target segment is established as > INR 1.75 Cr. Therefore for the purpose of this study we have considered units with ticket sizes >1.75 Cr. Projects with ticket sizes >INR 5.0 Cr are categorized as ultra-luxury homes.

In Bangalore, projects developed by Grade A developers with ticket sizes >1.75 Cr account for about 10% of the total market size in terms of supply.

Other than self-use, as indicated in the profile of HNIs they invest their surplus income in Real Estate. They also buy luxury real estate for use as second homes or weekend homes.

1www.tradingeconomics.com, 20122Capgemini World Wealth Report, 20123Top of the Pyramid 2011, Kotak Wealth Management and CRISIL Research, Capgemini Wealth Report 2011.

4India Salary Guide 2011/12 by Kelly Services Inc.

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HNIs desire their homes to reflect their wealth, status, aspirations and social identity.

Luxury home buyers have certain preferences while buying the most expensive residences. As per our research, customers in Bangalore had the following top five “Must Have” preferences while deciding on a luxury project5:– Privacy– Developer Reputation and quality of project– High end specifications and possibility of

customization– Future profitability and easy exit options

Luxury homes have evolved from the colonial bungalows in the pre independence era to third-party developments with exclusive theme-based design features, high-end specifications and lifestyle amenities.

Luxury residences have evolved from the typical bungalows in the cantonment areas around MG

5 Based on a Consumer Preference Survey conducted by Vestian among HNIs in Q3 2012.

Road, Langford Town, Richmond Town etc. These were influenced by both the vernacular architecture as well as British villa design. The typical bungalow had vast amount of open and landscaped area around the house with a compound wall enclosing the land. The higher the rank of the officer, the larger was the ratio of the land to built-up space.

Post Independence, the influence of bungalows continued in single family residences of select high income residential pockets like Sadashiva Nagar, Jayanagar 7th and 8th Block, etc. However, the plot sizes reduced to 10,000 to 12,000 sqft and the influence of modern architecture was evident in the form of flat roofs and external design features.

Post liberalization (1991), with third party real estate development, luxury apartments became a preferred model, with expansive units mostly located in the central locations like Richmond Town, Langford Road and streets off M.G. Road. With increasing awareness of the products around the world, the types of units became varied with the development of apartments, villas, plotted developments and row-houses.

Today, luxury residential projects in Bangalore have come of age with exclusive theme based design features, high-end specifications, lifestyle amenities, third-party service and maintenance. Newer typologies of residences have evolved to cater to the changing needs of the rich and the famous like weekend homes, branded residences and doublements.

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Table 2: Evolution of Luxury Homes (Pre-Independence to 2012)

Source: Vestian Research, 2012

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Period Location Type of luxury homes

Size of development

Development Characteristics

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Luxury residential segment in Bangalore today offers an array of products located not only in the central and off-central locations but also in the suburban and peripheral regions.

Central: MG Road, Kasturba Road, Brunton Road, Lavelle Road, Richmond Road, Residency Road, Frazer Town, Cox Town and Hanes RoadOff-Central: Indiranagar, Koramangala, Jayanagar, JP Nagar, Malleshwaram, RMV Extension, Sanjay Nagar, RT Nagar, HSR Layout Suburban: ORR, Sarjapur Road, Whitefield, Bannerghatta Road, Hebbal, Nagawara, YelahankaPeripheral: Bangalore North, Sarjapur-Attibelle Road, Varthur Road

The table below details out products on offer in various micro-locations of Bangalore

Table 3: Characteristics of Luxury Homes in various micro-markets of Bangalore

Source: Vestian Research, 2012

Characteristics Central Off-Central Suburban Peripheral

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9

10%

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• The number of projects launched in the luxurysegment increased tremendously in 2010 and 2011. However, the new launches of luxury units have come down by 45% in 2012 in order to maintain a demand-supply balance

Figure 3: Supply and absorption of luxury projects, 2010-2012

Steady growth of the IT Sector is the key demand driver for the luxury residential segment in Bangalore

With increase in migrant population and income levels of households over the past two decades, the lifestyle and aspirations of the wealthy have led to an increase in demand for luxury homes in Bangalore.

• The economy of Bangalore is driven primarily bythe IT/ ITeS sector. Every year this sector adds about 100,000 employees going by the absorption of close to 1 million sqft of office space each year. 5% of these employees are senior management who aspire for a lavish lifestyle and are the target segment for luxury housing

• The second segment of the target population areNRIs, especially those employed in the IT sector, who prefer to invest in Bangalore due to reemployment options, scope for entrepreneurial ventures and availability of skilled manpower. Their preferred type of property in Bangalore is a suburban villa due to its proximity to economic hubs as well as the lifestyle amenities that these villas offer

• CapitalvaluesofluxuryhomesinBangalorebeingmuch lower than in other Tier I cities such as Mumbai and Delhi NCR, several HNIs from these cities also prefer to invest in luxury properties in Bangalore

Supply of luxury homes increased in 2010 and 2011 with an average of 3,625 units annually since 2010.

• Theluxurysegmentcomprisingunitswithticketsizes>INR 1.75 Cr accounts for about 10% of the total residential supply in Bangalore

Figure 2: Market share of luxury housing by supply

• On an average 3,625 units are launched in thissegment annually since 2010

• Currently there are about 10,655 units underconstruction under the ticket size INR 1.75 Cr and above. These units are expected to enter the market in the next 24 - 36 months

Source: Vestian Research, 2012

0

1000

2000

3000

4000

5000

6000

7000

8000

2010 2011 2012

Total Supply Fresh Supply Absorption

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Since 2010, average annual absorption of luxury units in Bangalore is 1,880 units and the absorption is growing at a CAGR of 30%.

• 2012witnessedthemaximumabsorptionof2,333units. Out of the 10,655 units under-construction, 4,860 are available. With new project launches in 2013, it is likely that there are unabsorbed units in completed projects over the next 24 months

• Micro-locations of Whitefield and Sarjapur Roadhave witnessed the highest absorption with 75% and 64% of the units under construction absorbed respectively

• Absorption in Bangalore North is lagging ascompared to Whitefield and Sarjapur Road, since most buyers are looking at this location as an investment option or for weekend homes and the development of economic hubs in this location is still in a nascent stage

Other than central and off-central locations, Bangalore North, Whitefield and Sarjapur Road are key micro-locations with significant supply of luxury projects

• Key micro-locations that account for 86% of thesupply of luxury segment are Bangalore North, Whitefield, Sarjapur Road along with central and off-central locations. This is owing to their proximity to IT/ITeS economic hubs which is the primary demand driver for residential projects in Bangalore

Figure 4: Micro location-wise supply and absorption

• Bangalore North with 33% has the maximumnumber of projects under construction in the luxury segment, closely followed by Whitefield (18%), off-central (17%) and Sarjapur Road (15%)

Luxury Golf Villas on Sarjapur - Attibelle RoadDeveloped by India Golf Assets in association with Assetz Homes

clovergreens.assetzhomes.com

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Key unit types are apartments and villas with variants evolving in each to suit consumer’s needs.

• Althoughvillasandapartmentsarethemaintypesof units, several variants have evolved within these like the row-houses (villas sharing common walls), doublements (twin apartments) and duplex apartments (apartment units spread across more than one floors) in order to adapt to site conditions and to cater to consumer’s needs

Ultra-luxury homes in the >INR 5 Cr category is only 12% of the luxury supply.

• Luxuryresidentialsupplycanbecategorizedunderticket sizes of INR 1.75 Cr – 5.0 Cr and projects above INR 5 Cr are categorized as ultra-luxury homes

• Over88%oftheluxuryunitslaunchedareintheINR1.75 Cr - 5.0 Cr range and absorption is also the highest in this segment

• 2011sawthelaunchofseveralprojectsinthe>INR5.0 Cr range in the central and off-central regions with exclusive amenities, specifications and services

• Severalvillaprojectswith ticket sizes>INR5.0Crwere also announced in the peripheral region in 2011. These projects are themed developments and also provided state of the art amenities along with expansive spaces and contemporary design features. 2012 witnessed only one project launch in > INR 5.0 Cr range, owing to the large supply under construction available in the market

Table 4: Supply of luxury and ultra-luxury units in Bangalore

2009 2010 2011 2012 2009 2010 2011 20121.75 Cr -5.0 Cr 499 628 2,485 1,719 109 1,731 1,377 1,366 >5.0 Cr 63 17 503 45 - 7 659 -

Ticket SizesNumber of units launched

Apartments Villas

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Capital appreciation for luxury projects range between 9% & 13%; and annual average rental yield rates are in the range of 3% - 7%.

• Capital values in various micro-locations alongwith y-o-y appreciation and yield rates are as encapsulated in Table 5

• Forretailinvestors,unitsbetweenINR1.75Cr&5Cr have shown annual appreciation in the range of 9% - 13% since Q4 2011

• UnitswithticketsizeaboveINR5Crhaveshownverylittle appreciation since Q4 2011 as these projects have been launched at high prices and prices are likely to increase only when the project is nearing completion

• For developers, development margins, calculatedas a ratio between the sale price to FSI land cost, ranges between 2.5 & 4.0. This is much higher than margins for luxury projects in other Tier I cities like Mumbai and Delhi

• For established micro-locations like Central, Off-Central and Outer Ring Road, this ratio ranges between 2.5 & 3.5. Peripheral micro-locations like Whitefield and Bangalore North provide returns in the range of 4.0 - 6.0, thereby making these the most profitable locations from an investment point of view

• Average annual rental yield rates range between3% & 7% in most micro-locations.

Table 5: Capital Values – Annual Appreciation & Yield Rates

Capital Values (INR/sqft) Micro-location

Plots Apartments Vil las Y-o-Y Change Yield Rates

Central _ 15,000-19,500 _ 11% 3%-4%

Off Central 6,000 - 25,000 8,000-12,000 _ 9% 3%-4% Bangalore North 1,250 - 6,000 5,900-11,500 4,500-11,000 13% 4%-7%

Whitefield 2,000 - 4,000 7,000-9,000 5,500-11,000 11% 4%-6% Sarjapur Road (ORR) 1,000 - 3,000 5,000-8,800 6,000-11,000 11% 3%-4% !

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Amenities in luxury residential developments are evolving to suit the needs of the clients.

Developers are coming up with newer USPs to sell their projects. Some of the key USPs include:

• Themeddevelopments:Mostvillaprojectsdevelopedas weekend homes are developed around themes like golf courses as in the case of Assetz Clover Greens & Prestige Golfshire; IGBC Green Building concepts as in the case of ZED Earth; or around club houses and spas as in the case of Prestige Oasis

• BrandedHomes:Brandedhomesropeinhospitalitypartners in the residential development that take care of provide services such as housekeeping, laundry and room service etc as in the case of West Court’s City View in RMV Extension. Also branded

homes tie-up with popular architects, designers and sports persons etc. who are brand ambassadors for the projects (Bangalore does not have any such residences as yet)

• HighRise:Homes in theCentralareasgoverticalthereby providing USPs such as tall towers, sky villas, 360 degree views etc.

• Boutique Residences: These are customizedhomes that emphasize on exclusivity and reflect the personality of the owners. These homes provide customized designs for both layouts; and specifications and finishes within units

• Smart Homes: Homes with automation systemsand touch screen controls for automation of air conditioners, geysers, burglar alarm system, gas detection, motion sensor lighting etc.

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Market Outlook

• In2013,thenumberoflaunchesinluxurysegmentislikelytoreducefromthecurrentlevelsduetoavailabilityof units under construction

• Basedoncurrentabsorptiontrends,Bangaloremarketmayabsorbcloseto3,000unitsintheluxurysegment

• Ifnewprojectlaunchesexceed2,500unitsin2013,capitalappreciationwillbeunderdownwardpressure

• NewprojectlauncheswillbeintheINR1.75Cr–INR5.0Crrange.Althoughprojectlaunchesinthe>INR5.0Cr range will be subdued in the short to medium term due to existing supply, long term outlook for these projects looks positive

• Emphasiswillbeonboutiqueresidences,mixeduseintegratedtownshipsandthemedresidentialdevelopmentsin the peripheral areas making these projects exclusive addresses in themselves

• BangaloreNorth,SarjapurRoadandWhitefieldwillcontinuetobekeymicro-locationsotherthanCentralandOff-Central areas

• CompletionofinfrastructureprojectslikeMetroRailandavailabilityofhigherFSIincentrallocationswillgiveway to development of high-rise luxury residential developments in these micro-locations

• CompletionoftheElevatedExpresswayfromHebbaltoBangaloreInternationalAirportwillfurtherstrengthenBangalore North for development of luxury villa projects

• Amenities will improve withmore andmore developers providing finished interiors, customized as per theneeds of the buyers. Home automation and third party maintenance are likely to be integral parts of these developments

• Concepts suchasbrandedhomes,whichare relativelynew inBangalore’s luxurymarket,willadvancewithdevelopers partnering with hospitality groups, designers, sportsmen and other celebrities as witnessed in other developed markets

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Glossary

CAGR Compounded Annual Growth RateGDP Gross Domestic ProductHH House HoldHNI High Networth IndividualIT Information TechnologyITeS Information Technology Enabled ServicesNRI Non-Resident IndianUSD United States DollarUSP Unique Selling PropositionINR Indian RupeeCr Crore [10 Million]L Lakhs [100,000]

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Disclaimer:

This report contains information available to the public and has been relied upon by Vestian Global Workplace Services on the basis that it is accurate. Neither Vestian nor Assetz Property Group (or its subsidiaries and affiliates) accept any responsibility if this should prove not to be case. No warranty or representation, expressed or implied is made to the accuracy or completeness of the information contained herein, and the same is submitted subject to errors, omissions, change of price, rental or other conditions and withdrawal without notice.