real estate- final (class)

8/8/2019 Real Estate- Final (Class)

1/71


2/71

Divya Manjari 12079

MJ Imran 12084

K Mythreya 12095 Sahil Vadgaonkar 12102

Spandana Khanna 12105

Sampada Vasishta 12120


3/71

INTRODUCTION

REAL ESTATE INDUSTRY - SIZE

REAL ESTATE INDUSTRY - STRUCTURE

REAL ESTATE INDUSTRY - SEGMENTATION

INDUSTRY VALUE CHAIN

INTERNATIONAL OVERVIEW

FIVE FORCES ANALYSIS OF THE INDUSTRY

PRODUCT LIFE CYCLE

KEY PLAYERS IN THE INDUSTRY SWOT ANALYSIS

CONCLUSION


4/71

The term Real Estate is defined as land, including the airabove it and the ground below it, and any buildings orstructures on it.

It covers residential housing, commercial offices, trading spacessuch as theatres, hotels and restaurants, retail outlets, etc.

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

residential and non-residential buildings.

The main players in the market are the landlords, developers,builders, real estate agents, tenants and buyers.


5/71

This industry is second only to agriculture in terms ofemployment generation and contributes heavily towards the GDP

In the next five years, contribution to the GDP is expected to rise

from 5 to 6%

Almost 80% of real estate developed in India is residential space,the rest comprises of offices, shopping malls, hotels and hospitals

According to the Tenth Five Year Plan, there is a shortage of 22.4million dwelling units


6/71

Current size: US $44 billion industry in India (2009)

Residential : 90-95%

Commercial :4-5%

Organized retail : 1% of the market

Over next five years, Indian real estate market is expected togrow at a CAGR of 30%, driven by

18-19% growth in residential

55-60% in retail

20-22% in commercial real estate


7/71

Fragmented sector with relatively few organized players of scale Large corporations beginning to show active interest Margins are higher in India (>20%) as compared to the developed markets (5-

6%) Top 10 players account for 10% of the total revenue of the industry

Active participation of institutional finance in real estate Real estate venture funds permitted: Prominent Indian corporates like Tata

Group, ICICI Bank, SBI and HDFC have promoted real estate venture funds Real estate Investment Trusts (REITs) expected to be set up shortly. Several Private Equity firms have specific funds for real estate investments.

Real estate fast displacing IT/ITeS as the top private equity investment sector

in India

Various foreign real estate and finance companies such as GE Commercial Finance,Tishman Speyer, Ascendas and Farallon Capital, Goldman Sachs etc. have enteredthe Indian market


8/71


9/71


10/71


11/71


12/71

Growth Driv rs

Growth in IT/ITES sector at 30% annually (source: NASSCOM)

Significant growth in FDI

Market tructure

Dominated by a few large national developers with pan-Indiapresence

Regional players are expanding to achieve a Pan-India presence


13/71

Segmentation Business activity shifting from

CBD to SBD and from Tier I toTier II & III

Outlook Commercial market

expected to grow at CAGRof 20 22% over the nextfive years

IT/ITES sector expected torequire in excess of 250million sq. ft of commercialoffice space by 2012-13


14/71

Growth Drivers Rising consumerism with

doubling of disposableincome

Growth in Organized

Retailing Entry of international

retailers

Market Structure Dominated by unorganised

retail Large corporate houses

entering the organized retailsector

International retail brands aretying up with Indian partners


15/71

Segmentation International retailers are

present through franchiseeroute

Outlook Organised retail expected to

grow at around 30%

Share of organised retail, bysales expected to reach 10% by2010

By 2012, 323 million Sq.ft. ofnew retail space will berequired.

Number of malls in India isexpected to increase from 105in 2006 to 600 in 2010


16/71

Growth Drivers The Indian hotel industry is adding over 90,000 more rooms across the

country to meet the demand. The contribution to the countrys GDPwas 6.1 % in 2008-09

India requiring recognition as a medical tourism destination International events such as Commonwealth Games

Emergence of India as a MICE destination - (Meetings, Incentives,Conventions and Events), exhibitions, conferences and seminars aswell

Market Structure Entry of several corporate houses such as Reliance

Existing hotel operators are scaling up their operations


17/71

Market Structure Developers are tying up with major international chains

Developers have set up Real Estate funds to finance theirventures

Segmentation Classification on the basis of Star Rating

Number of approved hotel rooms: 1,10,000 (including

approved projects), 30% of this is in the five star segment


18/71

Development triggered by:

Low per capita housing stock

Rising disposable income

Easy availability of finance

Currently growing at 30-35% p.a. Driven by retail investors whoview real estate as an attractive investment option as compared tomutual funds and stocks.

Geographically widespread with townships being built in both themetros and the tier II and III cities


19/71

Growth Drivers Rapid urbanisation: Urban

population expected to touch 590million by 2030.

Decreasing household size:Average increase in number ofnuclear families estimated to beover 300 million.

Number of rich householdgrowing at CAGR of 21%.

Increasing income levels: percapita GDP increased by 66% in

last five years. Market Structure

Highly fragmented andunorganized

Regional players are expandingto achieve a Pan-India presence


20/71

Segmentation Broad categories include

Low cost/Midmarket/Premium housing

Luxury segment growing

annually at 25-30% Outlook

Current shortage close to 25million units,predominantly in middleand low income group

Expected to grow at CAGRof 18-19 % up to2010 Mortgage finance will be

increasing penetration intothe urban housing financesector


21/71


22/71

A Special Economic Zone is a geographical region that has economiclaws that are more liberal than a country's typical economic laws

Usually the goal of a structure is to increase foreign direct investment byforeign investors, typically an international business or an MNC

The Government of India had in April 2000 announced the introductionof SEZ policy in the country, deemed to be foreign territory for thepurposes of trade operations, duties and tariffs.

As of 2007, more than 500 SEZs have been proposed, 220 of which havebeen created. This has raised the concern of the World Bank, which

questions the sustainability of such a large number of SEZs.

India passed special economic zone act in 2005. In India, the governmenthas been proactive in the development of the SEZs. They have formulatedpolicies, reviewed them occasionally and have ensured that amplefacilities are provided to the developers of the SEZs as well as to thecompanies setting up units in the SEZs.


23/71

Several factors are expected to contribute to the rapid growth in realestate Large demand-supply gap in affordable housing, with demand being fuelled by tax

incentives and a growing middle class with higher savings Increasing demand for commercial and office space especially from the rapidly

growing Retail, IT/ITeS and Hospitality sectors

Investment opportunities exist in almost every segment of the business Housing: about 25 million new units expected to be built in 7 years Office space for IT/ITES: 150 million sq. ft. across urban India by 2010 Commercial space for organized retailing: 220 million sq. ft. by 2010 Hotels and Hospitality: Over 100,000 new rooms in the next 5 years

Investment opportunity of over US $75 billion in the next 5 years

Major foreign institutional investors including Morgan Stanley, GoldmanSachs, Merrill Lynch, AIG, Blackstone and Calpers have invested or are inthe process of investing in Indian real estate


24/71


25/71

Two key success factors in the real estate developmentindustry

Land Acquisition

Maintaining Liquidity

If every other factor concerning the business of thedevelopment company is just average, but the land is welllocated and the firm maintains adequate liquidity, the

company will do well. Nothing is a greater determinant ofsuccess than having, or not having, the right piece of land,and remaining in a liquid position.


26/71

The success of any industry begins and ends on the demand side and wewere well and truly in the growth stage. We had a tremendous shift in allcities in India from an industrial economy to a service economy

Huge demographic shifts in the population

A lot of the aspects of what a building offers as a product had alsodramatically changed and improved over the past twenty years. Thismade older space less attractive an option, leading to an explosion on thedemand side.

Entry barriers into the industry were low, and a lot of new competitors

came in. Some of that competition came from financial buyers or realestate players backed by these financial players


27/71

Some of these large companies with their unlimited access to capitalbackward integrated into the industry. New competitors therefore alsohad access to more capital to build larger and bigger projects compared tothe industry veterans.

We forgot to see that real estate as an industry and buildings as a productwill go through the established product life cycles and reach a maturitystage, where the market is not growing as rapidly as earlier. To thisalready dangerous mix of over optimism was added the bursting of thehousing bubble in the mother of all economies, the US Housing Market.

The real estate industry differs dramatically in their profit potential andthat this profit potential changes over time and life cycle of the industryitself.

Real estate Industry went through a regular product market life cycle andreached the maturity stage.


28/71

Real estate in United States is the largest markets in the world

Residential property - $48 trillion

Commercial property- $15 trillion

The US real estate market is divided into 2 sectors: commercial real estate and residential real estate

Most discussion tends to focus on residential real estate, butcommercial real estate is also a critical sector of the economy, andis made up of offices, shopping malls, factories, warehouses andother commercial buildings.


29/71

Japan has the second largest real estate market after the U.S.

The real estate industry in Japan comprises more than 10% of the total GDP -(US$4.91 trillion in 2008). Although this value is smaller than that of themanufacturing and services industries, it exceeds the values for the steel,

automobile and electric machinery industries.

Currently, there is a shift from ownership-oriented business operations to realestate business operations focusing on utilizing properties.

Global and domestic investment capital inflows poured into Japans real estate

market since Japan launched its REIT system in 2001. The development of the realestate securitization system led to rapid growth and the expansion of REITs andother real estate funds as well as the advancement of real estate monetization in

Japan.


30/71

The prices of property vary depending upon the nature of the property aswell as the place where it is located.

A real estate property in Japan can be acquired by anyone. However, itwould be more convenient to those investors with a long term visa. Itwould be even better if an investor has a permanent visa. The prime

reason for this is due to difficulty in availing for loans.

However, an investor can easily acquire a property in the country, if hehas money suffice to invest in a property in Japan.

In Japan, the laws and regulations in connection with buying and sellingof real estate property is managed by the Legal Affairs Bureau, under theadministration of the Ministry of Justice.


31/71

The real estate sector was a key contributor to the UAE GDP in 2007, according to areport released by UAE Ministry of Economy. The segment accounted for 8% of thecountrys GDP. UAE economy attained an overall growth of 7.4% in 2007 over2006; the countrys GDP reached Dh698 billion, says the report.


32/71

Source: Summary of White Paper on Land and Real Property (2008) by the Ministry of Land,

Infrastructure, Transport and Tourism


33/71

The Recession, saw a dip in the demand of real estate market in theotherwise popular destinations like USA, UK and other major Europeancountries. However, during all this chaos one positive aspect came intoview and that was the distinctive increase in the popularity of real estatein other countries like Canada, Japan, Germany, etc.

After this roller coast ride, the investors are back with their money. Thedollar has gone weak and that has made the real estate market look all themore attractive.

Though the brief contact with recession and the resulting credit situationafter the US dollar loosing out on international market, there have beenfew adverse effect on real estate.

The expert predicts that the now ever increasing immigration trend andthe expanding globalization will in long term yield outstanding resultsfor the investors.


34/71


35/71

Suppl :Past 2-3 years have seen a substantialincrease in the number of contractors and builders,especially in the housing and constructionsegment.

Demand : Exceeds supply by a large margin. Demand for quality infrastructure construction is mainly

emanating from the housing, transportation and urbandevelopment segments. Threat of newentrants:

Low for road and housing construction.

However, high working capital requirements can creategrowth problems for companies with weak financialmuscle.


36/71

Bargainingpowerof sellers : Low Due to the rapid increase in the number of contractors and construction

service providers, margins have been stagnant despite strong growth involumes.

Bargainingpowerof customers: Low The country still lacks adequate infrastructure facilities and citizens have

to pay for using public services.

Competition:

Very high across segments like construction, housing and urbaninfrastructure development. Relatively less in airport and portdevelopment.


37/71

Economies of Scale

Product Differentiation

Capital Requirements

Switching Costs

Govt. Policies

Examplesof New Entrants: Bangalores

REBI has a tie up with Ansal Properties todevelop 10 acres near Gurgaon

Bhoruka Group from Bangalore hasdiversified from its existing power businessto premium residential propertydevelopment

Reactionfrom

Existingcompetitors

Threat ofEntry

Barriers toEntry


38/71

A potential entrant to the market ought toexpect retaliation

Existing Players: DLF, GMR,GVK, Ansal and

Unitech Retaliation can be expected when

Slow industry growth

In case of established firms


39/71

The various tactics which arecurrently being employed byfirms today are

Price competition Differentiation

Innovations

Rivalry occurs becausecompetitors seek to improvetheir market position

Competitive moves mayincite other firms tocounteract

Price cuts will lowerrevenues for the entire

industry Ad campaigns tend to

enhance the level ofdifferentiation


40/71

Balanced Competitors

Slow Industry Growth

Pricing

Diverse Competitors

High Exit Barriers


41/71

Competitor products and services tend to limit potential returns

The more attractive the offering of the Competitor, the morecustomers will flock there

Heavy and sustained advertising will improve the overall pictureof the industry

As far as the Realty Sector is concerned, the product is very muchsimilar

The sector tends to differentiate on the basis of the new andinnovative features that they can add

E.g. Spacious living, townships , integratedcitiesetc


42/71

Ability to force down the prices

Bargaining for higher and better quality

Playing competitors against each other


43/71

BUYER DOMINATION SUPPLIER DOMINATION

Importance of product quality tothe customer

Buyer is armed withfullinformation

Industry dominated by fewfirms

Virtually no substitutes

Product is of utmost importanceto the customer

High costs of switching anddifferentiation

Supplier poses credible threat toforward integration


44/71

Complementors are companies or entities that sell or offer goodsor services that are complementary to, the goods or servicesproduced and sold in a given industry

The presence of complementors can benefit or hurt the firmscompeting in an industry, depending on the circumstances.

Complementors and complementary goods do not necessarilyincrease or decrease the competitiveness of an industry, they

merely add another layer to the structural complexity of thecompetitive environment


45/71

Competitive advantage comes in two flavors.Routes to superior performance:

Lower cost. As a developer, you are able to finance anddevelop a project and deliver it at a lower cost which allowsyou to get a higher margin at prevailing price levels.

Differentiation is the ability to have some unique skills orresources that allow you to command a premium price. So the

idea here is that if you are skilled in design or in creating newconceptions of projects that you could get higher revenue persquare foot or better utilization of the land. Again, providingthat you can keep your costs in line, this differentiation willlead to superior performance.


46/71

100% FDI allowed. Subject to minimum scale norms

25 acres in case of services plots or integrated townships

50,000 sq. mtrs of built-up area for construction development projects

FDI in the realty sector in India would contribute towards making the

sector more organized. Besides increasing professionalism in thesector, it would bring in advanced technology and help in the creationof healthy and competitive market environment for both domestic andforeign investors.

Urban Land (Ceiling and Regulation) Act, 1976 (ULCRA) repealed by

increasingly larger number of states Minimum capital investment for wholly-owned subsidiaries and joint

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

The Finance Minister allocated US$ 207 million to grant a 1% interestsubsidy on home loans up to US$ 20,691. This subsidy is expected to givea further boost to the housing sector


47/71

1. IndianTransferof Propert Act: The Transfer of Property Actgoverns the transfer of property by various means - Sales,mortgages and exchanges of immovable property are requiredto be registered by virtue of the Transfer of Property Act.

2. I

ndian Registration Act,

1908: The purpose of this Act is theconservation of evidence, assurances, title, publication of

documents and prevention of fraud. It details the formalities forregistering an instrument.

3. Indian UrbanLand (Ceilingand Regulation) Act, 1976: Thisact fixes a ceiling on the amount of vacant land a person canhold at point of time.


48/71

1. StampDut : One has to pay Stamp Duty on documents whichare registered. This rate varies from state to state

2. Rent Control: This provides for payment of fair rent to

landlords and protects tenants against eviction

3. Propert Tax: This is levied by the local municipal authoritiesfor the civic upkeep of the city. Owners of property aresupposed to pay this tax every year.


49/71

DLF

UNITECH

GVK

ANSAL PROPERTIES


50/71

DLF Limited or DLF (Delhi Land and Finance)is India's biggest real estate developer based in

New Delhi Size : Rs.39,369 Cr total assets (2009)

Market Share : Rs 15477.70 millions


51/71


52/71


53/71

New products: DLF will continue to focus on affordable housing

with test launches across newer locations, along with

launching some strategic city-center housingprojects.

DLF will make selective launches of commercialcomplexes.


54/71

STRENGHTS Dominant position to leverage scale benefits Robust business model with developmental and rental earnings Pan-India presence across 32 cities with presence in all segments of the real estate

market Sufficient land resources in Metros 70 Fortune 500 clients out of a total of 110 corporate clients

WEAKNESSES Heavily dependent on the performance of the real estate market and real estate

financing

OPPORTUNITIES Total commercial real estate demand likely to be ~ 450-530 msf by FY2011

Organized retailing would require around 350-400 msf of retail real estate in Indiaby FY2016. Shortage of 22.4 million dwelling units. Over the next 10 to 15 years, 80 to 90

million housing dwelling units will have to be constructed with a majority of themcatering to middle- and lower-income groups.

THREATS Increasing competition from regional players Economic slowdown adversely affecting housing demand


55/71

Given the prevalent sentiments, DLF had followed a cautious approach tonew launches. However, as economic conditions stabilize, it plans tomake selective new launches based on targeted market research indifferent markets to catch the changing demand scenario.

DLF will continue to focus on affordable housing with test launches

across newer locations, along with launching some strategic city-centerhousing projects.

Its endeavor is to generate buyer interest by providing excellent locationand superior product specications. Focusing on the sales model, DLFwill also make selective launches of commercial complexes.

For ofces, they intend to expedite execution and deliveries whereverbacklog exists and pump up the construction activity based on visibilityof pre- leasing. They continue to strengthen their relationships with theirexisting customers.


56/71

Size:Rs 450 crore real estate company (Delhi based)

Market share: Unitechs focus on Capital Efficiency has enabled it

to grow to a US 15 billion market cap company withan external capital of under US 10 million.


57/71


58/71

Achieve high growth by establishing a pan Indiapresence focus on major economic centres

Focus on profitable projects that maximize returns

Undertake large mixed-use projects like integratedtownships in the suburbs of main cities


59/71

Consolidate its position as aleading real estate developerin India

Competitive advantage inthis segment of the housingmarket

To reduce costs and enhance

customer value

Strengthening its financialposition

Developing high qualityprojects at competitiveprices

Increased focus on theaffordable housingsegment

Implementation of valueengineering

Reducing capital-intensiveprojects


60/71

STRENGHTS

Strong brand and customer experience.

Large scale of operations.

Diversified portfolio, both in terms of product and geographies.

Large land reserve that can be developed in the future.

Track record of profitability

WEAKNESSES

Business heavily dependent on the performance of the real estate market in India.

High debt to equity ratio.

Negative net cash flows from operating and investing activities for the past three years

OPPORTUNITIES

Focus on affordable housing, a segment where a demand-supply mismatch exists.

The housing investments are expected to grow to Rs.17,338bn between 2006-07 to 2010-11 ascompared with Rs.9,810bn invested in the previous five years. (CRISIL)

Entry into the growing Indian telecom market

THREATS

Intense competition among the peer group to grab maximum market share.

Global economic slowdown may continue to affect the business of the company.


61/71

Their aim is to provide India with world class infrastructure inorder to boost economic growth and provide people with betterstandards of living

GVK has consolidated its position in the fields of airports, powerplants, roads, hospitality and manufacturing

GVK at present boasts of projects worth Rs150 billion on hand


62/71

GVK has diversified itself into a variety offields which include Airports

Power Plants Roads

Urban Infrastructure

Hospitality


63/71

STRENGHTS Expanding further into operations and maintenance Identifying new investment opportunitiesWEAKNESSES Uncertainty on monetising real estate around Mumbai airport High gestation projects of slum rehabilitation Risk to real estate prices in Mumbai

OPPORTUNITIES Substantial operating experience Quality and strength of execution Assured revenues and low tariff Strong managerial experience and training Low operating costs at facilities Innovative means of finance add value MRTS Project in Hyderabad Sezs in Tamil NaduTHREATS Had plans to upfront portion of real estate at Mumbai Airport


64/71

Operates primarily in Residential & Commercial asset classes

Developed over 2850 acres in Gurgaon and Delhi

Developing integrated townships, malls, hotels, IT parks andSEZs

Plan to construct 157.6 million sq.ft. of Built up area

Pan-India footprint with major presence in 16 North-Indiancities across four states


65/71

Environment upgradation

Retail Shopping Malls

Township Development

Hospitality Business Hi-tech Engineering

Overseas Ansal became the first real estate promoters and developers to

complete overseas projects

They have successfully completed several prestigious projects inIraq, Thailand, RussiaandBangladesh


66/71

GVK DPS Operating Profit RONW EPS

Mar-07 59.06 1.96 6.28

Mar-08 0.25 36.17 3.52 0.64

Mar-09 5.26 0.15

Unitech DPS Operating Profit RONW EPS

Mar-07 0.5 56.83 84.09 12.12

Mar-08 0.25 51.67 48.07 6.35

Mar-09 0.1 56.73 25.68 4.56

DLF DPS Operating Profit RONW EPS

Mar-07 2 59.76 62.16 2.65

Mar-08 4 55.88 22.83 15.1

Mar-09 2 62.33 12.5 9.08


67/71

Strength - Very good market to invest into

Weakness - Still a very unorganized market The real estate investment market is still in its infant stage.

The time required for liquidity of real estate property can varydepending on the quality and location of the property.

Opportunity - With more and more SEZs coming up inother areas than metros buying a land will fetch good valueeven in a short period of time

Threat - Increasing interest rates of Home loans, its gettingdearer to get a land or home. Reducing the profits


68/71

The Indian real estate sector promises to be a lucrative destinationfor foreign investors into the country.

The Indian realty sector, if channelized properly, could benefit the

growth of several other sectors in India through its backward andforward linkages.

However, there are potential constraints for domestic as well asforeign investments in India.

Absence of a single regulator to monitor business practices prevailingin Indian real estate market is perceived to be a risk factor byinvestors.

Since the liberalization of FDI norms, significant foreign investmentshave flown into real estate; but availability of suitable exit options forsuch investments is still constrained.


69/71

Maturity of the real estate markets will lead to infusion offoreign investment and adoption of international bestpractices by real estate players. Developers will get moreorganized, and become more transparent to avail

opportunities emerging in the market.

With the Indian securities market regulator SEBI allowingReal Estate Mutual Funds (REMFs) in India, equity investorswill have an exit option available to them.

All these factors will contribute in making the Indian realestate market more organized and structured, thus providingbetter investment opportunities.


70/71

www.ibef.org/industry/realestate.aspx www.nrirealtynews.com/nri-property/latest-

news.php www.credai.com/ www.indiainbusiness.nic.in/industry-

infrastructure/industrial-sectors/real-estate.htm www.moneycontrol.com www.dlf.in

www.unitechgroup.com www.gvk.com/ www.ansals.com www.asteriskrealty.jp


71/71

real estate- final (class)

Documents