Advance Indian Real Estate-Charting a Global Course

7/27/2019 Advance Indian Real Estate-Charting a Global Course

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Indian Real Estate -

Charting a Global

Course

The Essential Ecosystem for a Sustainable Future


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Advance - Indian Real Estate - Charting a Global Course

The past decade has witnessed a period of economic transformation

of the Indian Real Estate Industry. After the Global Financial Crisis, the

pace with which India bounced back as compared to the most other

economies across the globe is nothing short of magnicent. The moot

point to be debated now is what next? Given the state of the Real Estate

Industry in India, are we well poised to leverage this quick recovery and

ensure that in coming 5-7 years, this industry is at par with some of the

best in matured markets like Asia Pacic and US? A comfortable ground

that we are on today, does it allow us to strengthen our foundation and

leapfrog ahead to be recognized as one of the best? India has started

to receive similar accolades from around the world for various other

industries. Are similar accolades for the India Real Estate industry just

around the corner?

In this paper, we discuss the answer all the above questions by

analysing the market forces that impact the dynamics of the Indian Real

Estate Ecosystem. A typical real estate ecosystem comprises of different

stakeholders that include architects, developers, government/regulatory

authorities, banks, private equity players, other funding agencies,

buyers, brokers, and property consultants.

For any such ecosystem to remain successful over a long term, it is

imperative that all its key industry participants are on a level playing

ground despite the changing real estate dynamics. The dynamics

in Indias real estate ecosystem is driven by Extrinsic and Intrinsic

factors (Figure 1). While the extrinsic factors are those which impact the

dynamics from outside the real estate ecosystem, the intrinsic factors

are those which impact the dynamics of the ecosystem from within.

With a vision to drive the transformation of the countrys real estate

best practices to the next level, Confederation of Indian Industry (CII)

and Jones Lang LaSalle (JLL), through this paper, aims at gaining

perspective on factors that could turn India into a global Real Estate

Powerhouse in the next decade.


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AFFORDABILITYBuild per the needs of the affordability pyramidConsider H + T affordability through Transit Oriented Development (TOD)Maintain ofce rents at less than a-dollar-psf to reap IT/ITeS dividends

TRANSPARENCY Improve transparency to ensure better quality products and servicesSynergise efforts towards a transparent system and harvest collective benets

TECHNOLOGYAND INNOVATION

Innovate to benchmark real estate developments to global standardsUse information technology extensively for planning in real estate

SUSTAINABILITYBe responsible to the environment through resource optimisation to achieve sustainable goalsIntroduce sustainable concepts in each sector from green leases to green homes

IMAGEABILITYEstablish unique imageability to compete as global destinationsRevitalise city centres to improve efciency and imageability of prime locations

PROFESSIONALISMManage real estate assets professionally to gain from global best practicesImpart training to industry personnel for achieving higher quality of products and services

REGULATIONRegulate to introduce accountability within a national framework but having a local thrustCreate a business friendly ecosystem to facilitate fair play and encourage industry stakeholders

INVESTMENTDrive investment a key externality that cuts across all the other extrinsic factorsEnact practical REIT and REMF regulations to make real estate an investable asset classEnhance sources of funding to real estate developers

LANDStreamline the procurement of land assets to reduce barriers of entry for new playersFormulate policies and framework with emphasis on transparent transaction processes

INFRASTRUCTUREDevelop infrastructure to ensure an inclusive growthAdopt global best practices customized to the local needs

Professionalism

Land

Technologyand

InnovationInfrastructure

Regulation

Investment

Affordability

Transparency

Sustainability

Imageability

INTRINSIC

EXTRINS

IC

INDIAN

REAL

ESTATE

Source: Real Estate Intelligence Service (Jones Lang LaSalle)

Figure 1: Indian Real Estate Ecosystem


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Figure : Income Groups and Housing Affordability (Based on 008-09 Income Levels)

Income Groups Households(Thousand)

(% Share) Per Household Income in008-09 (INR)

Affordable Ticket Size forHousing (INR)

Rich , 1.0% 1,01,85 ,500,000

Higher-Middle Income 5,8 15.0% 09,950 1,50,000

Middle Income 8, 0.6% 1,79 550,000

Lower-Middle Income - I 8,85 0.8% 79,5 50,000

Lower-Middle Income - II 55,9 .8% 50,085 15,000

Bottom of Pyramid - I 7,6 11.7% ,69 50,000

Bottom of Pyramid - II 16,665 7.1% 18,851 5,000

Consider H + T affordability through Transit

Oriented Development (TOD)

Access to transit and proximity to daily

destinations prevent the creation of low-density

spread-out urban sprawls dependent on cars.

Transit poor neighbourhoods lead to cities with

trafc congestion, long commutes, air pollution,

green house emissions and reduction in open

spaces. Dense, transit-rich communities are

location efcient because they connect residents

to shopping, work, and recreation while limiting

the strain on public infrastructure and natural

resources.

Intrinsic Factors

AffordabilityBuild per the needs of the affordability pyramid

The income pyramid in India is heavy at the

bottom, with over 60% of the households earning

averagely less than INR 80,000 per year. Nearly

19% of the households (at the Bottom of the

Pyramid) cant afford any type of housing through

their income. Another .6% of the households

in the Lower Middle Income Group cant afford

a house in Tier I or II cities (Figure ). Builders,

architects and government have to plan real estate

development, which conforms to the needs of the

income pyramid of India.

Source: Consumer Pyramids, Centre for Monitoring of Indian Economy (CMIE); Real Estate Intelligence Service (Jones Lang LaSalle)

Rich

Higher-Middle Income

Middle Income

Lower-Middle Income - I

Bottom of Pyramid - II

Bottom of Pyramid - I

Lower-Middle Income - II

09,950

1,79

79,5

50,085

,69

18,851

35.38 million

48.43 million

48.85 million

16.67 million

1,01,85

(Per household income in INR) (Number of Households)

2.42 million

55.94 million

27.46 million


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Advance - Indian Real Estate - Charting a Global Course 5

Figure : Residential Affordability Radar for Indian Cities

Source: Real Estate Intelligence Service (Jones Lang LaSalle), 1Q11

Note:

1. The radar shows the average distance from the city centre at which a residential property would be priced at the given

capital value ranges (See legend).

. The city centres considered for the respective cities are as follows: Mumbai - Nariman Point; NCR - Connaught Place;

Bangalore - MG Road; Chennai - Nungambakkam; Pune - Deccan Gymkhana; Hyderabad - Begumpet and Kolkata - Park Road.

Due to lack of available land parcels within the

cities, suburbanization has accelerated in several

metropolitan areas during the past decade.

Several ofce, retail and residential developments

have dotted the suburban landscape. Unaffordable

land prices have resulted in leapfrogging

of residential development to even suburbs

of suburbs or exurbs. By 01, 60% of the

operational ofce space in the metropolitan cities

will be at suburban locations. The retail market

has been suburbanized earlier than ofce, with

more than 50% of the operational retail space at

suburban locations since 00. The residential

construction activity is even more skewed in the

metropolitan cities, with over 95% of the housing

projects being constructed at suburban locations.

With rapidly expanding city limits due to increased

suburbanisation of Indian cities, the focus of

affordability should not only consider the market

value of the products, but also the travel costs to

the workplaces, retail and recreational centres.

Housing and transportation affordability (H+T

Affordability) involves a more holistic approach

of assessing the utility of a product to the buyer

through not only the intrinsic value in terms of size

of apartment, property rate and amenities provided

but also the linkage value such as accessibility to

workplaces. Transit oriented developments involve

a mix of land uses, including commercial ofces,

residential and community amenities such as

schools, hospitals and parks. They are integrated

with a well developed rail transit network to

discourage proliferation of cars.

Maintain ofce rents at less than a-dollar-psf toreap IT/ITeS dividends

The emergence of information technology

industry in India during the past two decades hascontributed signicantly to the growth of real estate

in several top metropolitan cities in India. Several

concessions from the government under the ambit

of Software Technology Parks of India (STPI)

Mumbai

Bangalore

NCR

ChennaiPune

Hyderabad

Kolkata

8070605000010

INR ,000-,000 psf INR ,000-6,000 psf INR 6,000-8,000 psf > INR 8,000 psf

Distancefro

m

CityCentre


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6 Advance - Indian Real Estate - Charting a Global Course

and Special Economic Zone (SEZ) facilitated this

growth in the past. Nearly 50% of the transactions

of investment grade ofce space are done by

IT/ITeS companies. While IT/ITeS industry has

necessitated higher grades of construction, it

has beneted due to the affordable rents offered

at several Tier I cities of India. Over 60% of the

operational investment grade ofces in top seven

cities currently provide space at a lease rental

of less than a-dollar-per sq ft per month (or less

than INR 5 psf pm), primarily in secondary and

suburban locations. These locations offer large

land parcels that are ideal for the development of

IT/ITeS campuses (Figure ).

With tax benets to IT/ITeS industry ending in

the coming years, the rms shall deviate to cost

effective locations. If Indian real estate has to reap

the dividend of the IT/ITeS industry in the future,

it should maintain the dollar-psf rents for arbitrage

against other competing locations in Indonesia,

China and Philippines.

Figure 4: Micro-Markets in India Offering Ofce Space at INR 25-55 psf pm (As of 1Q11)

Source: Real Estate Intelligence Service (Jones Lang LaSalle), 1Q11Note: Each dot represents a micro-market among the top seven cities of India.

Transparency

Improve transparency to ensure better qualityproducts and services

Is Real Estate in India a market of lemons1? In

information-inefcient markets, sellers tend to sell

lemons to buyers, who have lesser knowledge of

the goods than the sellers. This has an adverse

impact on the industry, as the incentive to produce

a higher quality of product is reduced. On the

other hand, high levels of transparency make

it conducive for buyers to understand the pros

and cons of a specic project and accordingly

make investment decisions. This in turn facilitates

an increase in foreign direct investment a

powerful incentive for encouraging the free ow

of information along with the fair and consistent

application of local property laws.

Transparency of Indias real estate markets

has been gradually improving and is largely

5

0

5

0

15

10

5

50 100 150 00 0050

Gross Rental Values (INR psf pm)

Stoc

kAso

f1Q1

1(mns

f)

SBD Bangalore

Suburbs Chennai

Whiteeld NH-8 GurgaonSBD Chennai

SBD Pune

Hitec City

Thane & Navi MumbaiNoida

Suburbs Pune

-

-

1The Market for Lemons: Quality Uncertainty and the Market Mechanism is a 1970 paper by the economist George Akerlof. It discusses information asymmetry, which occurs when the seller knows

more about a product than the buyer. Lemons in popular parlance are those sub-standard products which are passed by sellers as good ones.


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driven by improvements in data availability on

market fundamentals, the regulatory and legal

environment, as well as governance of listed

entities (Figure 5). The increasing presence of

international real estate developers, investors

and occupiers especially in the Tier II and Tier III

cities has acted as a catalyst for the increase in

transparency outside the Tier I cities.

Data on ofce market fundamentals is now

more comprehensive in the Tier II cities such as

Hyderabad, Pune and Kolkata, as they develop

into IT/ITES and manufacturing hubs. Dataavailability for the retail and residential sectors

has improved across all tiers due to the rapid

development of the residential sector and modern

retail formats. However, when compared to the

other countries in the Asia-Pacic, Indian cities fall

in the category of being semi-transparent. They

rank differentially on various parameters of real

estate transparency.

Synergise efforts towards a transparent

system and harvest collective benets

Transparency is the key to improve efciencies

in the system, which benets all stakeholders,

particularly buyers. While developers should

avoid misrepresentation and unfair practices,

government needs to be unbiased and

participative (Figure 6).

Appropriate indices to measure market

fundamentals and performance is a key indicator

of market transparency. There is an absenceof national indices on real estate sectors, due

to lack of market data. Some international

property consultants, online real estate portals

and government authorities such as National

Housing Bank have begun providing real estate

market data, which is improving this facet of real

estate transparency. However, available data has

a grade bias which results in the performance

Figure 5: Transparency of Indian Cities by Tier

Source: Global Real Estate Transparency Index 010, Jones Lang LaSalleNote: Tier I cities Mumbai, Delhi, Bangalore and Chennai. Tier II cities Hyderabad, Kolkata and Pune. Tier III cities 0 other prominent Indian cities

PerformanceManagement

MarketFundamentals

Listed Vehicles Legal &Regulatory

TransactionProcess

Composite

1

II III I II III I II III I II III I II III I II III

5

INCREASING

TRANSPARENCY

I


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Approvals and TaxationStreamlined and transparent approval process to reduceproject costs. Formulate effective simple taxation rules to

avoid double taxation.Redressal MechanismsSetup an effective grievance redressal mechanism for

all interested stakeholders.

Transaction RecordsMake transaction records available for a

transparent information ow to buyers andinvestors.

Development PlansEnsure civil participation in develop-

ment plans to address concernsand requirements of citizens.

ServicesProvide an objective andunbiased service to buyers anddevelopers.

Cost of FundingMaintain the right cost of funding to buyers anddevelopers to ensure smooth completion of realestate projects.

Credibility ReportingReport credibility ratings of developers and buyers toreduce transaction risks

and fundamentals of investment grade assets

being reported. Also, there is a tier bias since

there is relatively more transparency in the tier

I and II markets and lesser in tier III cities. The

transparency also differs by sectors as residential

market has relatively more transparency, when

compared to ofce and retail transactions.

Real estate sector in India is subject to multiple

taxes such as corporate tax, service tax, minimum

alternate tax, value added tax, stamp duty,

property tax etc. Although there is transparency

in terms of the enactment of legislations, certainkey areas such as evaluation of property tax is a

signicant concern as reliable and easy methods

of its calculation is not available. Also, there have


been certain disputes in the taxes being levied

onto real estate developers and buyers. Moreover,

such regulations also differ between states. With

the possible introduction of a single uniform GST

(Goods and Services Tax) in FY 011-01,

several of these issues pertaining to multiplicity of

taxes and even double taxation will be resolved.

The payment of unaccounted and protection

money is also a key lacunae in the transaction

process. There are legislations to regulate foreign

investment in the sector, which are progressively

being relaxed to cater to the increased demands

for funding in the sector.

Figure 6: Role of Stakeholders in a Transparent Ecosystem

ProductsProper representation of product quality, area, amenities,location, efciency and other project characteristics that

inuence buying decision.

ServicesProvide information regarding project progress,approvals, registration and transfer processes andmaintenance.

Performance ReportingReport correct performance of theproject in terms of sales andconstruction.

Accounted Purchases

Should purchase real estate

through accounted means

Information Seeking and Distribution

Seek information through multiple sources and

relay right information to other interested parties

Reporting

Report income and taxes on properties accurately, following

laws and regulations

DEVELO

PERS

BUYERS

GOVERNMENT

FINANCINGAGENCIES

REAL ESTATETRANSPARENCY


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constructed in future as energy efcient spaces.

Government of Maharashtra is considering the

proposal to provide both nancial and non-

nancial incentives including higher Floor Space

Index, reduction in consent fee, rationalization of

property tax and reduction in state taxes including

VAT and Octroi and other incentives, for the

development of green projects in the state. Apart

from Maharashtra, several state governments

are planning to develop their own green building

byelaws.

Builders commitment to respond to the initiativestaken by the government would lead to inclusion

of more green buildings to their portfolio. Also,

they are becoming active participants in guiding

the government towards the enactment of these

byelaws, since they have a better understanding

of the ground realities.

Introduce sustainable concepts in each sector from green leases to green homes

A sustainable lease, often referred to as a greenlease is any lease that has a sustainability

outcome built into it. This can include criteria

around energy, waste and water. The introduction

of these sustainability criteria does not replace the

need to consider the implications of the base lease

clauses. Essentially, the green lease schedule

reects the parties desire to improve and be

accountable for sustainability in the building.

A sustainable lease meets the unique objectives

and challenges faced for every individual situation

reecting the prole of the building, current

building performance, willingness of parties to

share savings in outgoings and the intended use

of the space.

Inclusion of mandatory sustainable norms and

directives in the development control regulations

will ensure the development of low energy city

envelopes. Since the largest contributor to the

demand for electricity in India is the residential

sector, it is imperative that both government and

builders focus on building a sustainable housing

sector, banking on low energy needs. Indian

Green Building Council (IGBC) recently rolled out

Green Homes, which is its rst rating programme,

exclusively for the residential sector. Also, the

IGBC Green Townships Rating System, a pilot

version of which has been launched, should be

benecial at a larger scale for certifying residential

townships.

Imageability

Establish unique imageability to compete asglobal destinations

In his most important work, The Image of the City

published in 1960, Kevin Lynch has studied how

users perceive and organize spatial information as

they navigate through cities. According to Lynch,

city dwellers and visitors form mental maps with

ve elements:

Paths, the streets, sidewalks, trails, and other

channels in which people travel;

Edges, perceived boundaries such as walls,

buildings, and shorelines;

Districts, relatively large sections of the city

distinguished by some identity or character;

Nodes, focal points, intersections or loci;

Landmarks, readily identiable objects which

serve as external reference points.

From Vastu to Vistas, Indian architecture has

come a long way in amalgamating styles and

grammar into its urban fabric. However, there is a

serious imageability crisis in the Indian cities, due

to near absence of implementation of guidelines,

if any. While Indian cities are progressing in terms

of nodes and landmarks due to iconic construction

happening at places, paths, edges and districts

require the attention of planners and designers.

Instead of following global architectural styles,

some of which are probably not appropriate for

Indian cities due to different climatic conditions,

materials of construction and cultural or aesthetic

considerations of the local city, designers should

architect an Indian image, which will create a

unique branding of the urban fabric.

Early examples of urban branding in India are

the cities of Jaipur, Jodhpur and Udaipur (all in

Rajasthan) in India, which follow distinct urban

Inclusion of mandatory

sustainable norms

and directives in the

development control

regulations will ensure

the development of low

energy city envelopes.

Since the largest

contributor to the

demand for electricity in

India is the residential

sector, it is imperative

that both government

and builders focus on

building a sustainable

housing sector, banking

on low energy needs.


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tenancy. Common problems in old ofce building

stock at the city centres include

Deteriorated facades

Poorly maintained common areas such as

lobbies and corridors

Lack of /7 power back up and centralised air

conditioning

Outdated staircases and lifts/elevators, and a

lack of efcient mechanisms for modication of

the same

Lack of new technology for building safety and

security

Poor mechanisms for energy efciency

However, the tide is turning as buildings in newer

locations are providing better grade premises,

amenities and infrastructure to the tenants. There

is a need for an urban renaissance in the coming

decade in which massive investment is required

to upgrade the internal infrastructure of the cities,

as well as revitalize the existing buildings. The role

of architects and designers assumes signicance

due to the heritage importance of these districts.Several buildings were built during the colonial

period, which add to the imageability of the city.

Since most of these redevelopment or retrotting

projects will be inll developments, a localisation

of concepts including form, function and

sustainability is required to preserve the character

of the area, and harmonise with and complement

the existing streetscape rather than compete with

it. This sympathetic inll is vital in providing an

imageability to Indian cities, which is lacking and

prevents them from attaining a global standard.

Professionalism

Manage real estate assets professionally - to

gain from global best practices

Professional management of real estate

encompasses a gamut of services including

positioning, zoning, promotions and marketing,

facility management and nance management.

While this will result in better services being

provided to occupiers, a direct benet would

be in reducing operational costs. Several

shopping centres and ofces have begun availing

professional management services for their

operations; in view of maintaining the long term

viability and success of the asset.

International property consultants bring global

best practices for the optimization of maintenance

costs, which can typically be achieved by

Adoption of efcient planning strategies for

achieving the optimal level of future costs and

expenses

Optimizing the actual costs incurred for themaintenance of the property

Ensuring the long-term viability of the asset and

income stream associated with it.

Impart training to industry personnel for

achieving higher quality of products and

services

With a large unorganised network of real

estate brokers, construction workers and other

intermediaries in the industry, there is a need for

focused training and certication programs for

their skill upgradation.

Government of India recognises this need and

has formed the National Skill Development

Corporation (NSDC), whose objective is to

contribute signicantly to the overall target of

skilling / upskilling 500 million people in India by

0, mainly by fostering private sector initiatives

in skill development programmes and providing

viability gap funding. Real estate is one of the 22focus sectors identied under NSDC. According to

the NSDC report prepared by ICRA Management

Consulting Services, nearly 5 million people shall

be employed in the real estate sector in 0,

with the incremental human resource requirement

between 008 and 0 to be 1 million. The

report further observed that substantial skill

building is required at the skilled workforce level

to build capacity. This would stem from modular

courses of anywhere between months to 8months duration in areas such as carpentry,

plumbing, operations, and other occupations. It

Retrotting Indias Central Business Districts, Jones Lang LaSalle, March 2011.Inll development is the development of a building among other old buildings with heritage value and character in an established streetscape.

The tide is turning

as buildings in

newer locations areproviding better grade

premises, amenities

and infrastructure to the

tenants.There is a need

for an urban renaissance

in the coming decade

in which massive

investment is required

to upgrade the internal

infrastructure of the

cities, as well as

revitalize the existing

buildings.


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is also required to examine models in which such

skills can be delivered to the skilled and minimally

educated workforce near the construction sites.

Estate agents and real estate brokers are a vital

component of the real estate industry. However,

India lacks a national association which can provide

certied licenses for real estate broking and regulate

their conduct through education and ethics. This has

resulted in an unregulated and unorganised sector,

which leads to high search time and costs for the buyer.

Project Life Cycle Property & Asset Management

Value Add

PLANNING

Project feasibility, land procurement, nalizing

project brief, consultants, budgeting, nancial

modeling

Operations stage expenditure can be

predicted to accurately dene feasibility

DESIGN

Finalizing spatial layout, construction

materials, development phases

Layout can be improved to prevent

additional expenditure at later stages

PRE CONSTRUCTION

Tendering, site preparation, sales, promotion,

advertising, brand building

Efcient property management can be

a signicant marketing USP

CONSTRUCTION

Onsite erection of the building structure, from

excavation to internal nishes, tendering ofmaintenance contracts, selection of equipment

Benchmarking of equipment and

operations costs along with generating

tendering documentation for vendors

PHASED OCCUPANCY

Provisioning for ancillary services, security, etc

Supporting transitioning of the project

including commissioning of equipment

Property will be maintained efciently

to the satisfaction of the client/tenants

MAINTENANCE

Asset optimization through maintenance of

equipment, facility & infrastructure and rent

collection

Reports are generated periodically

and analysed to attain operational cost

optimisation, inventory control and

efcient vendor management

RENOVATIONS

Additions & alteration in the building &

infrastructure along with improvement in

management techniques

Re-assessment of existinginfrastructure

Renovation & capital expenditure

planning

Figure 10: Typical Real Estate Project Lifespan andCorresponding Property and Asset ManagementValue Adds

PLANNING

PRECONSTRUCTION

DESIGN

PHASEDOCCUPANCY

CON

STRUCTION

MAINTENANCE

RENOVATION

PRE-OCCUPANCY

MANAGEMENT

POST-OCCUPANCY

MANAGEMENT

RENOVATION

MANAGEMENT

Source: Property and Asset Management, Jones Lang LaSalle, 009


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Extrinsic FactorsInvestment

Drive investment a key externality that cutsacross all the other extrinsic factors

The market value of investment grade real

estate assets under construction across the three

sectors of ofce, retail and residential in India is

more than USD 100 billion. This fact reiterates

the importance of investment in to real estate

sector in order to ensure timely completions of the

projects which are currently under construction. A

sustained capital ow through multiple channelsincluding foreign players, local funding agencies/

banks, and internal accruals of the developers

is of prime importance to ensure growth of real

estate sector in India. Investment, both at a project

level as well as at a market level is imperative for

a sustained growth of real estate sector.

Investment leading to capital infusion can be done

either directly or indirectly into the real estate

ecosystem (Figure 11). While direct investments

include those initiatives leading to money ow

directly towards development of a particular real

estate asset, the indirect investments are those that

involve capital infusion towards developments that

are external to the real estate asset but yet have a

signicant impact on marketability of the same.

Investment in Indias real estate market is further

driven by multiple factors which are listed below:

Growing disposable incomes of along with

favourable demographics leading to diverse real

estate demand calls for niche / unique investment

strategy from a developers point of view.

Increased focus on both traditional manufacturing

sectors as well sunshine services sectors

positions India as one of the fast emerging

economies with multiple economic drivers

resulting in need of improved thrust on

investment in to real estate.

Rapid urbanization rate in India, lack of

availability of land within the city limits and

rise in number of nuclear families leadingto fall in density per household would result

in investment in the form of geographical

expansion of cities and product innovation

especially in terms of residential offerings in

the market.

Need for global infrastructure standards which

would act as a key enabler for development of

new satellite towns and transformation of the

same in to business epicentres.

Enact practical REIT and REMF regulations tomake real estate an investable asset class

Real Estate Mutual Funds In 008, SEBI (the apex

regulatory body in India for the securities markets)

approved the guidelines for real estate mutual

funds (REMFs). As per the guidelines, all the

schemes having an objective to invest directly or

indirectly in real estate assets or other permissible

assets are governed by the provisions and

guidelines under Securities and Exchange Board

of India (Mutual Funds) Regulations 1996.


Direct Investment(Project/Company Level)

Indirect Investment(Market Level)

Foreign Direct Investments Urban Infrastructure (JNNURM Scheme)

Private Equity Investments Public Private Partnership ModelsBank Credits Investment in Technology and Innovation

REITs / REMFs Investment in Training and Skill Development

Figure 11: Direct and Indirect Investment into Real Estate

The key features of the guidelines are as follows:

REMFs shall be closed end funds and its units shall be listed on a recognised

stock exchange. The net asset value (NAV) shall be declared at the close of each

business day.

Title deeds pertaining to the real estate assets shall be kept in safe custody with

the custodian of the REMF.

No lending or housing nance activities should be taken up by REMFs.

The investments by an REMF are to be made in the prescribed ratios among

real estate assets, mortgage backed securities (but not in mortgages), equity

shares or debentures of companies (whether listed or not) engaged in dealing

in real estate assets or in undertaking real estate development projects and

other securities. They must invest at least 5 percent of net assets in completed

properties and at least 75 percent of net assets directly in real estate assets,

equity shares, or debentures of real estate companies engaged in real estate

development, whether listed or unlisted.

Real estate assets may be let out or leased out if the term of such lease or letting

does not extend beyond the period of maturity of the REMF.

Real Estate Investment Trusts Under the draft

Real Estate Investment Trust (REIT) regulations,

a REIT is dened as a trust registered under theRetrotting Indias Central Business Districts, Jones Lang LaSalle,March 011.


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sector. If the housing sector is granted

infrastructure status, it could benet from greater

access to long-term nance5.

Relax Foreign Direct Investment (FDI) norms

By lowering the minimum area requirements,

especially for Tier I cities, where land is not

available in plenty, more real estate projects can

garner funding through Foreign Direct Investment

(FDI). Also, early exits should be allowed in cases

where either the project has been completed or is

uninitiated due to lack of statutory clearances.

Regulation

Regulate to introduce accountability within anational framework but having a local thrust

The Indian real estate market has taken a

paradigm shift towards a much organized future as

compared to a couple of decades ago. India has

witnessed multi-fold growth of real estate sectors

across varied asset classes such as ofce, retail

and residential in the past decade underpinned

by a healthy economic growth in the country.

Further, the rising inow of global capital in to

the Indian real estate ecosystem calls for a much

transparent and liquid ways to invest. As a result,

the property rms in India are strategizing towards

strengthening their operational infrastructure,

personnel, and nancial practices to be at part with

global standards. While the industry participants

are the key to ensure fair business practices

of their respective rms, it is important for the

government to roll out the regulatory policies

through a national structured framework which

enforced at a state or city level.

Governments move to introduce market regulatorfor the real estate market could lead to the following

advantages to the countrys real estate ecosystem:

Effective single window clearances of approvals

leading to cost and time advantages to all the

key stakeholders of the industry.

Technologically advanced, e-Governance

mechanisms to reduce barriers of entry for new

developers

Rationalised stamp duty rates across states

through uniform stamp duty policy.

Clear classication of real estate property as

either a product or a service to avoid double

taxation regime which in turn would result in

realistic price points to the buyers.

Structured bank provisioning for lending to

Indian Trusts Act, 188, and registered with SEBI,

whose objective is to organize, operate, and

manage real estate collective investments.

It is similar to REMFs in structure, except for a few

signicant differences:

REITs can invest in income generating real

estate but can acquire real estate under

construction as long as the value does not

exceed 0 percent of the total NAV.

REITs must distribute at least 90 percent of their

annual net income after tax to unitholders and

leverage cannot exceed 0 percent of gross

assets.

REITs and REMFs would demand a greater

transparency from the real estate developers, for

appropriate and periodic valuation of assets and

investment decisions, in turn assuring a higher

transparency to the investor.

The major challenges to enactment of REIT and

REMF legislations in India is the issue over clarity

of taxation and high real estate transaction costs

in India. Government should expedite theselegislations to bring more investment into real

estate, as well as increase transparency in the

sector.

Enhance sources of funding to real estate

developers

Several developers are currently grappling with

funding issues for their ongoing projects, resulting

in execution delays. A concerted effort is required

to enhance sources of funding to real estate

developers.

Reduce bank provisioning for lending to real

estateReserve Bank of India (RBI) has increased

provisioning for lending to real estate, which has

adversely affected the availability of bank funds

for massive amounts of real estate construction

happening in the country. Authorities should look

into reducing the provisioning for a smoother and

timely execution of realty projects.

Provide infrastructure status to housing The

Insurance Regulatory and Development Authority

(IRDA) regulations mandate insurance companies

to invest up to 15% in the social and infrastructure

5Realty Decoded Investing Across Borders, Ernst & Young & FICCI, 010

While the industry

participants are the

key to ensure fair

business practices of

their respective rms,

it is important for the

government to roll out

the regulatory policies

through a national

structured framework

which enforced at a state

or city level.


16/20


developers to ensure timely execution of real

estate projects.

Deeming the real estate sector with

infrastructure status to ensure greater access to

long term nance.

Relaxation of the foreign direct investment (FDI)

norms to ensure qualication of more projects for

foreign investments primarily in the larger cities of

India where the availability of land is scarce.

Streamlined procedures to relax the provisions

of real estate investment trusts (REITs) and

Real Estate Mutual Funds (REMFs) would result

in adequate funding opportunities for real estate

developments in India.

LandStreamline the procurement of land assets toreduce barriers of entry for new players

Land is one of the vital and indispensable

components of any real estate development.

Throughout the world, as economies and

populations grow, the consumption of land for real

estate, infrastructure and public services is rapidly

increasing. India, a country where the availability of

land is scarce, is no exception to the above trend.Lack of availability of land parcels in major Indias

cities has led to the prices within the city limits to

touch record levels in the past ve years. This in

turn has driven geographical expansion of cities in

to the suburbs and suburbs of suburbs or exurbs.

Land acquisition being the rst step towards any

real estate development, it is of prime importance

to have a streamlined and transparent land

procurement process. While still there are risks

involved in buying land in India, the investmentlandscape in the country has signicantly

improved in the recent past. The additional issues

that owners and investors in land have to concern

themselves with are those pertaining to ownership

titles, clarity of permitted use and fairness of

governmental bodies when land is repossessed

for the greater public good. These risk elements,

while particular to the stakeholders of land,

are by no means particular to India. Although

developing nations are often considered to offer

an environment of greater risk in regard to these

elements relative to more developed nations, it is

interesting to note the improvement that India has

made in this area.

InfrastructureDevelop infrastructure to ensure an inclusive

growth

Infrastructure development, a key enabler of real

estate growth, is one of the most critical drivers of

demand for real estate as it allows for geographic

expansion of cities. Major infrastructure initiatives

that are particularly effective in this regard includeimproved connectivity through road, rail and air

networks, as well as the sustained availability of

power and water.

According to Goldman Sachs, India will need to

spend more than $1 trillion on infrastructure from

010 to 019, with roads requiring $7 billion,

power $88 billion and railways $81 billion.

Indias investment in infrastructure is expected to

be around 10% of GDP at the end of 00801

Five Year Plan, as compared to the 7.5% of GDPinvested in the previous plan. While there are

numerous infrastructure initiatives proposed by

the Indian government, we have highlighted few

of the major ones both at a country and city level

(Figure 1).

Source: Draft of Model Real Estate (Regulation of Development) Bill; Real Estate Intelligence Service(Jones Lang LaSalle)

Figure 1: Model Real Estate (Regulation of Development) Bill

Need for Enforcement: The regulation of activities of property developers and

builders in India is a state subject and comes under the purview of the respective

state governments, urban local bodies (ULBs) and development authorities, under

the provisions of State Town and Country Planning or City Development Authority

Acts. This has led to inconsistency, vis-a-vis rules and regulations being followed in

governing, constructing, purchasing, transferring and leasing of properties across

the country.

Proposal: The Model Real Estate Regulation Bill proposes to establish a regulatory

authority and appellate tribunal to regulate, control and promote real estate

construction, keeping in view the interest of the buyer and enable smooth andspeedy construction. All properties being developed on land greater than 1,000 sq

m or have proposed number of residential units greater than four shall come under

the purview of the act and shall be registered with the regulatory authority. All details

regarding the property shall be maintained on a website and the promoter of the

project shall be responsible for recording and entering the project details within a

stipulated timeframe.

Figure 1: Risk Elements for Land Owners & Investors


Comprehending the land title documents

Complications and lack if clarity in title deeds when it comes to strata t itle properties

Lack of information on loans, liens and easements

Encroachment hassles and lack of title insurance


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City Initiative Comments

India

JawaharlalNehru NationalUrban Renewal

Mission(JNNURM)

This initiative is primarily to encourage reforms and fast track planned developments in select cities. The mission is to speedthe infrastructure initiatives and to ensure that the gaps in funding for the same are lled. Other initiatives that this mission is

expected to drive would include, provision of basic services to the urban poor including security of tenure at affordable prices,improved housing, water supply and sanitation, and ensuring delivery of other existing universal services of the government foreducation, health and social security.

NationalHighwaysDevelopmentProject (NHDP)

National Highways Authority of India commissioned the Golden Quadrilateral project to connect the four metros (Delhi, Mumbai,Kolkata and Chennai). The project is under progress and is aimed at minimizing the travel time and casualties on the road. Withover 98% of the 5,86 km expressway project completed, the entire project is expected to be fully operational in the near term.The recent announcement of road transport and housing ministry to increase the per day construction of roads from 9 km to 0km is expected to speed up the Indian road infrastructure in the long run.

NCR

Delhi Metro

Initiated with the objective of improving connectivity and combat increasing trafc situation in Delhi city, the Delhi Metro has

spread its wings to the suburbs of Gurgaon and Noida as well. It has now interconnected various parts of Delhi as well as itssuburbs and has eased trafc situation and contributed to local public transport to a great extent.

T InternationalAirport Terminal

The newly made terminal of the International Airport claims to be one of the largest airports in Asia with highly increased passengercapacity and state of the art facilities. Equipped with a dedicated express metro line with check in facility at metro stations and soon tobe integrated domestic and international ight operations, the new terminal will give an edge to Delhis air travel.

Mumbai

Mumbai Urban

TransportProject (MUTP)

This is a multi modal project initiated by Mumbai Metropolitan Region Development Authority (MMRDA) to bring aboutimprovement in trafc and transportation situation in the MMR. MUTP envisages investment in suburban railway projects, local

bus transport, new roads, bridges, pedestrian subways and trafc management activities.

Mumbai MetroRail Project

Aimed at improving the trafc and transportation scenario in Mumbai, Government of Maharashtra (GoM) has commenced the

Metro Rail Project in Mumbai. This is the rst MRTS project in India being implemented on Public Private Partnership (PPP)

format and is envisaged in three phases expected to be completed by 2021. Currently st phase of the project connecting

Versova to Ghatkopar is under construction and expected to become operational by end 011.

Bangalore

BangaloreMetro Rail

Owing to a rise in trafc congestion in Bangalore roads, the Government of Karnataka has initiated the metro rail project which

will connect the North-South and East-West parts of the city. Development of the Metro Rail Corridor is expected to drive the realestate market along the Metro Rail alignment on the EastWest and NorthSouth corridor of the city.

Peripheral RingRoad (PRR)

The Peripheral Ring Road is a 116-km stretch connecting the ci ty with the periphery. About 11.5 km away from the outer ringroad, the PRR will connect Tumkur Road, Magadi Road, Mysore Road, Bellary Road, Old Madras Road, Hosur Road andKanakapura Road.

Chennai Second Master

Plan (SMP)

With a vision to decongest the Chennai city and decentralize central business district, the Chennai Metropolitan DevelopmentAuthority (CMDA) has unveiled the Vision 06 in the second master plan. It is aimed at strengthening the potential for growthin the three satellite towns of Gummidipoondi, Thiruvallur and Maraimalai Nagar and creation of new ones near Thiruporur andnear Sriperumbudur.

Chennai MetroAimed at easing the connectivity and trafc ow between the city centre and the fast emerging suburbs of the city, Chennai

Metro Rail work is under progress and is expected to become operational in phases in the next ve to ten years.

Hyderabad HyderabadGrowth Corridor

Limited

This is a special purpose vehicle formed by the GoAP for the development of Outer Ring Road at an estimated cost of INR ,000

Crores. While the phase I of the project connecting the km stretch connecting Gachibowli to Shamshabad is operational,the 10 KM stretch in the phase II to connect Narsingi, Kollur, Patancheru, Medchal, Shamirpet, Peddamberpet, Turkayamanjil,Tukkuguda and Shamshabad is under construction.

HyderabadMetro Rail

Phase I of the metro rail project includes lines covering a distance of around 71 km. The ground work on the project isexpected to commence by early January 2011 and the entire project is expected to be completed in ve years

Kolkata

Kolkata East-West Metro

EastWest corridor of Kolkata metro rail system is aimed at connecting howrah to salt lake sector V. The improvement inconnectivity in this corridor is expected to drive the real estate developments along this corridor. The metro rail alignment isexpected to go under ground (8 km) as well on an elevated corridor (1.7 km).

Joka-BBD BaghMetro RailExpansion

The foundation for the project was laid during September 010. The 17-km stretch will be built at an estimated cost of more thanRs ,600 crore will connect Joka in South- Parganas district to BBD Bagh, the central business district of the metropolis, andhelp decongesting the arterial Diamond Harbour Road.

Pune

Pune Metro RailConnectivity

Proposed Metro line for Pune is implemented in phases. While the phase I is expected to connect PCMC to Swargate (Metro

Line 1-16.5 Kms), PMC Depot (Kothrud) to Ramvadi (Metro Line -1 Kms), the phase II is designed to link ASI to Hinjewadi (18Kms.).

Outer RingRoad

To avoid trafc congestion in the city the local muncipal corporation has planned a ring road for Pune city that will divert the trafc

of heavy duty vehicles. The length of the ring road is 169 Kms and is divided in to parts, Part 1 is from Theurphata to Chimbli(8 Kms), Part is from Chimboli to Pirangut (6 Kms), Part is from Pirangut to Shriramnagar; Part is from Gogalwadi toTheurphata. While the part 1, part and part is complete, the part is under implementation.


Figure 1: Notable Central and State Infrastructure Initiatives in India


18/20


Technology and Innovation

Innovate to benchmark real estatedevelopments to global standards

Developing suitably priced real estate assets

depends a lot on effective planning and scheduling

of various project timelines along with a prompt

delivery. As the rates of raw materials such as

steel, cement and other building materials like tiles

and t-outs continue to uctuate depending on

the demandsupply situation in the commodities

market and the overall macroeconomic weather;

these can impact the delivery schedule of projects.Therefore, it is highly imperative for developers

to ensure adherence of schedule to control costs.

This can be better achieved by utilising technology

to innovate effective methods to construct and

deliver on time.

Despite having large needs for rapid and efcient

construction techniques, the Indian construction

industry is yet to embrace pre-fabrication to the

extent practiced in the developed countries.

It has the benet of planned mass production

under factory conditions, safe from the weather

uctuations. Also, the economies of scale

distribute several costs to a larger number of

units. However, some of the issues that have

been cited with pre-fabrication in the past include

unavailability of skilled labour, expensive transfer

of technology, perceived downsizing of human

labour (from governments point of view) and

simply lack of aesthetics and uniqueness due to

mass production.

However, pre-fabrication is the need of the hour

for India, especially in the low-cost housing sector,

where the targets and benets are huge. One

of the major inputs to pre-fabrication is freight

cost, since modules have to be transported from

the factory to the site. Since there is a large

need for housing in almost every Indian city, a

decentralised network of pre-fabrication factories

can effectively reduce freight costs. Also, local

materials such as y-ash, lime and earth can

be used extensively in pre-fabrication. While

accelerating schedule of projects, pre-fabrication

can help reduce construction costs as well and

increase affordability to the home buyer.

Value Engineering Developers Tool to Ensure Optimal Cost with Enhanced

Quality

1. Effective usage of locally available materials including marginal and industrial

waste for the reduction of cost, yet maintaining the functional requirements of

buyers;

. Rainwater harvesting, low-cost sanitation, waste-water management, and

landscaping with recycled water

. Solar-operated street lights;

. Main electrical equipment to be located together, which helps in further cost

reduction;

5. Trenches for electrical, data etc and cabling to take the shortest route possible;

6. Passive cooling, providing adequate natural ventilation systems to avoid forced

ventilation/pressurisation systems.

Use information technology extensively for

planning in real estate

Geographical Information Systems

Geographical Information Systems (GIS)

based planning and analysis of urban areas

will lead to a better understanding of urban

morphology, merging the exogenous factors such

as demographics, income, trafc and climate

to endogenous factors such as built and open

spaces, green cover and public amenities. Indian

real estate needs to leverage its expertise in

information technology to ensure a holistic urban

development process, which results in equitable

growth of cities.

Property Title Certication System (PTCS)

and Transaction Records One of the optional

reforms required to be undertaken by cities that

are receiving funds under Jawaharlal Nehru

National Urban Renewal Mission (JNNURM)

is the creation of Property Title Certication

System (PTCS). PTCS will be a comprehensive

database of land transaction records, utilizing

Information Technology. It shall have three

registers register of titles, register of disputes

and register of charges and covenants, which

shall together constitute the total record of title of

all lands. It will have far reaching implications in

making the land market transparent and enabling

better policymaking and urban planning. While

none of the states have achieved this, most of

the cities have committed to a 5-7 year timeline


19/20


AuthorsHimadri Mayank, Manager, Research & REIS

[email protected]

+91 07 1500

Himadri Mayank joined Jones Lang LaSalle India in July 008 and is responsible for managing the

quarterly research offering Real Estate Intelligence Service (REIS), which tracks, analyses and

forecasts trends in ofce, retail and residential property sectors for Indian cities. Based out of Mumbai,

he also contributes towards regional and local research publications covering economy, sector analyses,

market forecasts and investment strategies. He holds a bachelors degree in Architecture from Indian

Institute of Technology Kharagpur and has four years of experience in the eld of real estate. He ispursuing the Chartered Financial Analyst (CFA) program offered by CFA Institute, Charlottesville and is a

011 Level III CFA candidate.

Hariharan Ganesan, Manager, Research & REIS

[email protected]

+91 07 1500

Hariharan Ganesan joined the Jones Lang LaSalle India in April 008 and is responsible for managing

the quarterly research offering Real Estate Intelligence Service (REIS) publications. Based in Mumbai,

he contributes to research publications on ofce, retail and residential real estate markets in the city.Prior to joining the Mumbai team, he managed research operations for Jones Lang LaSalle based out of

Chennai region and has worked on multiple topical white papers, property market digests and bespoke

research projects spanning diverse geographies within India. With over ve years of research and

marketing experience, Hariharan holds a dual degree from Bits Pilani and an MBA from IIPM, Delhi.

Abhishek Kiran Gupta, Head of Research & REIS

[email protected]

+91 611 6500

Abhishek Kiran Gupta leads the Jones Lang LaSalle India Research team and is based in Mumbai. Hemanages research operations on a Pan-India level and is responsible for the teams outputs, including

research reports such as topical white papers, property market digests and bespoke research projects

based on specic client requirements. Prior to joining Jones Lang LaSalle, he had seven years of

experience in market research, business analysis and market strategy consulting, servicing diversied

industries including pharmaceutical, software publishing and insurance.

estate market. The registration departments

should integrate these records with Geographical

Information Systems (GIS) and make it available

for analysis, which will enable faster and effective

urban planning. The computerised records should

also be integrated with the Unique Identication

(UID) project that is currently underway, which

is providing a unique identication to all Indian

citizens. This will enable reliable identication of

ownership and transfer of assets.

to accomplish the reform, considering the vast

amount of effort required in compiling this.

Another optional reform under JNNURM is

the introduction of computerized process of

registration of land and property. Over half of the

cities had already achieved this by June 010.

Government should make available the deeds

and titles under the ambit of Right to Information

(RTI) in order to foster transparency in the real


20/20

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About Jones Lang LaSalleJones Lang LaSalle (NYSE:JLL) is a nancial and professional services rm specializing in real estate. The rm offers integrated services delivered by

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About Jones Lang LaSalle IndiaJones Lang LaSalle is Indias premiere and largest professional services rm specializing in real estate. With an extensive geographic footprint across

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Real Estate Intelligence Service (REIS) Indiais a subscription based research service designed to provide you with cutting edgeinsights into Indias diverse and challenging real estate markets through collation, analysis and forecasts of property market indicators andtrends across all major Indian markets across various real estate asset classes - ofce, retail, residential.

REIS empowers you with consistent and complete market data and analyses for all real estate indicators by specic micro markets. It issupplemented by value added services including client briengs, presentations and rapid market updates.

For more details, contact,Abhishek Kiran Gupta +91 9801065 [email protected] orHimadri Mayank +91 9975610 [email protected]

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