Bldg Const Real Estate 120924115835 Phpapp02

8/12/2019 Bldg Const Real Estate 120924115835 Phpapp02

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Building,Construction andRealEstateServices

tSubmitted By :SURABHI AGARWAL

ERAM KHAN

FATIMA ABBAS

AARTI CHAUDHARY

ABHISHEK GANGWAR


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ACKNOWLEDGEMENT

Before we get into thick of things, We would like to add a few words of appreciation for

the people who have been a part of this project right from its inception. The writing of this project

has been one of the significant academic challenges We have faced and without the support,

patience, and guidance of the people involved, this task would not have been completed. It is to

them We owe Our deepest gratitude.

It gives us Immense pleasure in presenting this project report on Real Estate Industry.

It has been our privilege to have a team of project guide who have assisted me from the

commencement of this project. The success of this project is a result of sheer hard work, and

determination put in by us with the help of my project guide. I hereby take this opportunity to add

a special note of thanks for Prof. as! "!r#d!ar, who undertook to act as our mentor despite his

many other professional commitments. is wisdom, knowledge, and commitment to the highest

standards inspired and motivated us. Without his insight, support, and energy, this project wouldn!t

have kick"started and neither would have reached fruitfulness.

We $on%ey our !eart full t!an&s to t!e 'e'(er fa$ult#es of IIPM) *#t! t!e#r !el+ and

$or+orat#on.

We are very thankful to our #roject guide Prof. "*at# "r#%asta%a,IIPM ) L&o- for her fullsupport in completing this project work.

$ast but not least, we would like to thank our families and %riends for their full cooperation &continuous support during the course of this assignment.

The project is dedicated to all those people, who helped us while doing this project.


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#age of /0

1u#ld#n2) Constru$t#onIndustry and Real Estate

"er%#$es


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Building, Construction Industry and Real Estate Services

Ta(le of Contents

'. ()ecutive *ummery

'.'. Industry si+e and rowth of -onstruction Industry................................................................'

'./. Industry *egmentation ............................................................................................................'0

'.1. 2eal (state *ector .................................................................................................................../3

'.4. Infrastructure............................................................................................................... ............//

'.5. 6ey 2isk %actors for -onstruction Industry ........................................................................./7

'.7. 8arket *tructure of -onstruction Industry ...........................................................................13

'.9. 8ajor #layers........................................................................................................................1'

'. :nalysis

'.' #(*T :nalysis;;;;;;;;;;;;;;;;;;;;;;;;;;.. 15

'./ *wot :nalysis;;;;;;;;;;;;;;;;;;;;;;;;;; 17

'.1 #orter Industry si+e and growth of -onstruction =# at constant prices [email protected]

%igure /> Indian -onstruction Industry $andscape.................................................................................5

%igure 1> *hare of 2eal (state and -onstruction by =# contribution.................................................. 5

%igure 4> 2eal (state *egments ..............................................................................................................7

%igure 5> ousing *hortage by *tate over the (leventh %ive Aear #lan ?million houses ? of share of

various states@..........................................................................................................................................9


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%igure 7> *i+e of -ommercialC2etail -onstruction.............................................................................

%igure 9> -ommercial Office *pace :bsorption by location, /339...................................................0

%igure > =istribution of Outlay in Infrastructure *egments in Tenth and (leventh %ive Aear#lans..'3

%igure 0> Breakup of employment in Building, -onstruction and 2eal (state sector in India........'

%igure ''> Dalue chain within the 2eal (state segment ..................................................................../'

%igure '/> Dalue chain within the Infrastructure segment.................................................................//

%igure '1> :ctivities in the #roject ()ecution stage..........................................................................//

%igure '7> Investment planned under EnFG28 totalling 2s. 1,15,333 crore ...................................1

%igure '9> Investments under various heads of EnFG28 ?2s. [email protected]

%igure '> *tate"wise investments under EnFG28.......................................................................... 10

%igure '0> Investments in #ower eneration, Transmission and =istribution up to /3/'"// ?2s.crore@

......................................................................................................................................................... 10

%igure /3> *tate"wise investments in Transmission and =istribution.............................................. 43

%igure /'> #lanned Investments in 2oads in the (leventh %ive Aear #lan ?2s. crore@................... 4/

%igure //> #rojected 2eal =# of -onstruction sector [email protected]/

L#st of Ta(les

Table '> Grban #opulation in India.................................................................................................. '1

Table /> Total #ower eneration -apacity in India.........................................................................'4

Table 0> :irports commissioned C granted approval C under consideration ......................................4'

Table '3> *hare of economic activity estimated in the Infrastructure segment .............................


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Executive Summery


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T h e p r o j e c t H 2 e a l ( s t a t e i n d u s t r y H i s b a s e d o n t h e c u r r e n t i n d u s t r y

t r e n d s o f 2 e a l e s t a t e s e c t o r . The 'a#n o(7e$t#%esof the project are>

Gnderstanding the functioning of 2eal (state Industry

:nalysing the industry performance on ualitative and uantitative Basis.

%orecasting the %uture Investment in the *ector.

EnFurm *cheme in coming years.

To study the fundamental factors affecting the real estate value.

To e)amine the factors of real estate boom in /33.

To present the future constraints of real estate investment in India.

%or this project the financial performance of the major players of the industrywas studied and interpretation were drawn. We learnt -umulative :veragerowth 2ate and -ompound :verage rowth rate to conduct uanti tat iveanalysis of the Industry.

The 2eport Is =ivided Into Darious *ections>

Industry O%er%#e*

This par t descr ibes the Indus t ry p rof i l e . Th i s par t recogni+es the-ha ract eri s ti cs of 2eal (s ta te ,=riving %orces, it also gives little insights into 2eal (stateInvestment Banking . This sec tion also describes the 8ajor #layers Of the *ecto r.

Analys#s

uantitative and ualitative analysis are conducted in this sector and 2ecommendation are theoutput .

4nNur'

This #art =iscusses EnFurm *chemes and various investment to be made under this *chemes. It


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collected in the aforesaid manner have been tabulated in condensed form to


draw the meaningful results. To analy+e the data tables, percentage and graphswere used.

Findings

: =etailed :nalysis Of the industry *hows that rowth 2ate of The industry has declined since lastfive years , showing the effect of lobal 2ecessions in India. :lthough India


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Industry Overview


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Current "$enar#o of t!e Real Estate Mar&et #n Ind#a-ommercial real estate sector is in boom in India. In the last fifteen years, postliberali+ation of the economy, Indian real estate business has taken an upturn and ise)pected to grow from the current G*= '4 billion to a G*= '3/ billion in the ne)t '3years. This growth can be attributed to favorable demographics, increasing purchasing

power, e)istence of customer friendly banks & housing finance companies,professionalism in real estate and favorable reforms initiated by the government to attractglobal investors

C!ara$ter#st#$s of t!e Real Estate Mar&et #n Ind#a

rowing 8arket =emand

J 2eali+ation of large commercialprojects

J I#Os by developers

J radual organi+ation of the markets inthe Tier I cities

reater availability ofinformation

J (mergence of transparency andliKuidity

J (ntry of international real estateconsultancies

J overning legal framework rela)ed

J -ompetitive pricing

Cause-Effect scenario leading to emergence of organized real estate market in India

The property market in India has traditionally been unorgani+ed and fragmented.owever, the recent past has seen a consolidation of positions in the market asdevelopers are stretching their capacities to the ma)imum in order to meet the growingmarket demand, which in turn has encouraged large projects with sourced financing. TheI#Os by large real estate developers like *obha, 2aheja and =$% have led to organi+ationof the market in the Tier I cities, but the Tier II and Tier III cities still demonstrate thetraits of an unorgani+ed market. Whilst the Indian real estate market still lackstransparency and liKuidity compared to more mature real estate markets, the increasingreKuirements of multi national occupiers, as well as the influ) of international propertyconsultancies has led to the introduction of greater availability of market information,both in published and private form pushing the sector to an organi+ed market form.


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Dr#%#n2 6or$es*tated below are the reasons that have led to the real estate boom in the country

J Booming economyL accelerated =# to p.a.

J India


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captive units of major players include (, #rudential, *B-, Bank of:merica, *tandard -hartered and :merican ()press

J 2ise in disposable income and growing middle class, increasing thedemand for Kuality residential real estate and real estate as an investmentoption.

J (ntry of professional players eKuipped with e)pertise in real estatedevelopmentL

J 2ela)ation of legal rulings and processes by the governing bodiesencouraging investments in real estate

J Improvement in infrastructure facilities

Cate2or#9at#on

The demand for new office space in India has grown from an estimated 1.0 million sK. ft

in '00 to over '7 million sK. ft in /334"35. 93 of the demand for office space in Indiais driven by over 9,333 Indian IT and IT(* firms and '5 by financial service providersand the pharmaceutical sector. In /335 alone, ITCIT(* sector absorbed a total of appro)13 million sK. ft and is estimated to generate a demand of '53 million sK. ft. of spaceacross major cities by /3'3. This data clearly demonstrates the growth of the real estatesector in the country.

With reference to the availability of infrastructure facilities, following cities are currentlyattracting 8F-sCcorporateCreal estate developers>Tier I cities, 8umbai ?-ommercial hub@, =elhi ?#olitical hub@ and Bangalore?Technological hub@>

J

#referred option for many new market entrantsJ -ommand the highest international profiles and significant proportion of

%=I

J Offer Kualified labor pool and the best infrastructure facilities

J ()hibit development of sub"urban commercial real estate

J Aield of 0.5 M '3

Tier II cities, notably yderabad, -hennai, -handigarh, 6ochi, 8angalore, 8ysore,Thiruvananthapuram, oa, Bhubaneshwar, :hmedabad and #une

J Aield of '3.5"''.5

J Offer competitive business environments, human resources availability,

telecommunications connectivity, Kuality of urban infrastructure,J :ttract high value IT, IT(* and biotech corporate houses

Tier III cities) like -uttack and Eaipur

J $ow liKuidity and still highly unorgani+ed.

*pecial (conomic Nones>

J / operational *(Ns in the country, including those converted from ()port#rocessing Nones ?(#N@ to *(N


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J =evelopment of *(Ns in various segments such as multi"product,Information Technology, Bio"technology, ems and Eewellery, Te)tilesand technology intensive industries

J

:ttract both developers and corporate houses ?refer table for a list ofcorporate that have shown interest in development of *(Ns@

Cor+orate Lo$at#on

2eliance Industries urgaon, 8umbaiCFavi 8umbai

:dani roup 8undra

T- 2efineries aldia

*u+lon -oimbatore, Gdipi, Dadodara

indalco *ambalpur

enpact Bhubaneshwar, Eaipur, Bhopal

Dedanta Orissa

Corporate interested in development of SEZs in India and the location of interest

:part for the corporate clientele, the *(Ns also attract a number of real estate developers,including =$%, :nsals, Oma)e, #arsvnath, *hipra (state to name a few.:s per utili+ation, the real estate space can be classified as follows>

2eal (state Gtili+ation

2esidential -ommercial

Office

ospitality

2etail

8alls 8ultiple)es

Real estate utilization

$isted below are the salient features of each category>Commercial Real Estate


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ffice Space

J Backed by strong infrastructure

J #romoted by increasing demand from IT industry

J

*hift of focus from the traditional -B=s towards secondary centers owingsharply higher land prices in the city centers.Retail Space

J rowth of /5" 13 e)pected in the organi+ed retail sector ?malls andmultiple)es@ leading to an increased demand in real estate

J :ffected by government policies for foreign retailers

J #ronounced in the Tier I, Tier II and Tier III cities.

!ospitality SpaceCriteria Statistics

:nnual growth rate of the industry Fumber of foreign tourists in /335 "######

Total number of five star rooms ?/335@ $%###

Total number of five star rooms needed by/3'3

&'####

(ro)ing demand of real estate in the hospitality industry

J Increasing demand of lodging in commercial cities such as Bangalore,8umbai, =elhi etc. from business travelers.

J (stablished brands in this sector include :sian otels, Indian otels, IT-,$e 8eridien etc are in e)pansion mode with many new players such as

:ccor roup, 8arriot, -hoice, I roup

Residential Real Estate

J =evelopment triggered by>o $ow per capita housing stocko 2ising disposable incomeo (asy availability of finance

J -urrently growing at 13"15 per annum

J =riven by retail investors who view real estate as an attractive investmentoption as compared to mutual funds and stocks

J eographically widespread with townships being built in both the metros

and the tier II and III cities

Real Estate In%est'ent 1ann22eal (state Investment Banking is an approach to real estate financing M providing theclient a host of services including the structuring of real estate projects, legal advice,operative management of real estate projects and support in marketing properties. Thebanking focus in 2eal (state Investment Banking is on structured financing products and


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structuring of entire portfolios. ()tending on similar lines is the importance ofsyndication that forms the base line of larger"si+ed transactions.

2eal estate investment banking focuses on the following target market as prospectiveclient base>

Real Estate ConsultantsThe increase in transparency and liKuidity in the real estate market in India is attractinginternational real estate consultants to India. These consultants offer end to end solutionsfor their clients< real estate needs. These services include strategic consulting todevelopers, investors, advisors and lenders seeking assistance with e)isting assets,potential acKuisitions, new development projects and properties slated for disposition,feasibility studies, concept testing, business planning e)ercises, investment advice,market research and analysis, demand forecasting, financial modeling and projectstructuring e)ercises, portfolio optimi+ation and re"engineering strategies, e)pansion andoccupancy, location and entry, brokerage services, legal documentation review,valuations etc.2eal estate consultants also ensure that the financing needs of the client are well takencare of by liaising with bankingCnon banking institutions and providing them withinvestment and structured finance solutions including securiti+ation and sale &leasebacks, structured finance facilitating eKuityCdebt into development projects on behalfof private and government sector clients, structuring development financing, public "private " partnerships, joint ventures, portfolio transactions and privati+ation e)ercises.The recent players in the Indian market are Eones $ang $asalle, -olliers, -B2ichard

(llis, %rank 6night and Trammell -row 8eghraj.

*evelopers and Construction CompaniesWith the opening up of the real estate sector in the country, the construction houses arescaling up the commercial and residential constructions. :n increasing number ofdevelopers are offering I#Os for fund raising. :I8 too is a sought after solution to meetthe fund reKuirements for these developers.

roup 2outeC8arket

#arsvanath I#O

*obha I#O

#yramid *aimira I#O

=$% Gniversal I#O

6 2aheja -orp :I8

Gnitech :I8

iranandani-onstruction :I8

+und raising options y developers

*omestic Corporate !ouses


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:s the land prices in the Tier I cities have always moved upward, land was regarded as asafe investment which, regardless of how it was used, would produce capital gains farabove the inflation rate. It was thus common for companies in the manufacturing andservice industries to acKuire real estate even though they themselves were completelyunrelated to property rental or real estate investment, seeking collateral value and ta)benefits from depreciated assets, and e)pecting unreali+ed gains to absorb business risk.:cKuisition of real estate as an asset was further encouraged as part of a diversificationstrategy in the investment portfolio of these corporate houses..:s these real estate possessions are classified as fi)ed assets held for the company


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Real Estate and 6#nan$#n2 Trends #n Ind#aSecuritization and C/BS

%rom the perspective of companies who want to sell off assets, securiti+ation schemesprovide a greater diversity of alternatives to liKuidate real estate. *ecuriti+ation isprimarily used by the corporate houses to convert the corporate real estate to commercialreal estate.

Realty +unds Realty /utual +unds in IndiaInitiated by *(BI, the 2(8%s true potential would be tapped only after the setting up of2(ITs, as they infuse confidence among investors by serving as custodians of title deeds.?2(ITs pool various real estate assets, including warehouses, buildings, industrial estatesand parks, malls, commercial and residential premises and get listed on the stocke)change to enable investors to buy and sell. They afford an opportunity to diversify theportfolio within that limited sense as well. owever, *(BI has not allowed the creation of2(ITs in India as yet, though 2(ITs are well established in the more mature real estatemarkets. @ -urrently the 2(8%s in the Indian market are targeted at the FI* andcorporate investors.

R#s&s #n%ol%ed #n t!e Real Estate In%est'ent Mar&et

3i1uidity riskThe real estate investment market is still in its infant stage. The time reKuired for liKuidityof real estate property can vary depending on the Kuality and location of the property.

Regulatory risks

In terms of property ownership, permission from the 2eserve Bank of India is reKuiredfor foreign investors. %or capital repatriation, investors need to apply for approval fromthe 2BI, and foreign direct investment is limited to a limited set of opportunities ?e.g.townships@. The 2(8%s work within the *(BI framework. Being a developing andgrowing sector, the rules, regulations and legalities demonstrate freKuent changes,making it seem as a cumbersome investment option to the investors.

0roperty market transparency riskThe Indian property market has low transparency when compared to the more mature anddeveloped real estate markets. :lthough market transparency has improved, reliable andconsistent information on the Indian property market is still not easily available. There

are also more professional due diligence and valuation institutions needed. This holdstrue even for the Tier I cities.

/acroeconomic risksInterest rates, inflation and e)change rate risks are amongst the important macroeconomicindicators and have shown decreased volatility. The provision of facilities, is in manyregions, still inadeKuate ?education, transport infrastructure@. These risk factors are notlikely to disappear in the near future, impeding the development of the real estate sector.

)nership and 3and 4itle Issues


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$ack of information and low transparency in the real estate segment in India, coupled withthe age old property related issues discourages the investment of the large players in the semiurban and rural areas thus slacking an overall growth of the real estate sector.

Con$lus#on

The Indian real estate sector promises to be a lucrative destination for foreign investors intothe country. The Indian realty sector, if channeli+ed properly, could catapult the growthof several other sectors in India through its backward and forward linkages. owever,there are potential constraints for domestic as well as foreign investments in India.:bsence of a single regulator to monitor business practices prevailing in Indian real estatemarket is perceived to be a risk factor by investors. The *(N guidelines which are issued bythe -ommerce 8inistry are constantly modified, creating uncertainty. *ince the liberali+ationof %=I norms, significant foreign investments have flown into real estateL but availabilityof suitable e)it options for such investments is still constrained.

8aturity of the real estate markets will lead to infusion of foreign investment andadoption of international best practices by real estate players. =evelopers will get moreorgani+ed, and become more transparent to avail opportunities emerging in the market. Withthe Indian securities market regulator *(BI allowing real estate mutual funds ?2(8%s@ inIndia, eKuity investors will have an e)it option available to them. :ll these factors willcontribute in making the Indian real estate market more organi+ed and structured, thus

providing better investment opportunities.


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En%#ron'ent "$ann#n2 and Co'+et#t#%eness of Constru$t#on Industry

.. Industry s#9e and Gro*t! of Constru$t#on Industry

The si+e of the -onstruction industry is around 2s. /.' trillion'

in /33. The -onstruction sector in

India is the second largest economic activity after agriculture and provides employment to about 11

million people. India!s -onstruction industry has grown at a -ompounded :nnual rowth 2ate?-:2@ of about ''.' over the last eight years on the back of massive infrastructure investment and

rapid rise in housing demand. %oreign =irect Investment ?%=I@ inflow into the sector during /339"3

is estimated to be around 2s. /43 billion. *pending on infrastructure sectors such as ports, power

plants and roads is projected at more than 2s. /.5 trillion annually for the ne)t si) years, and will

reKuire 0/ million man years of labour/.

-onstruction investment accounts for around 5/.4 of the ross %i)ed -apital %ormation in India.

Investments in -onstruction have a positive domino effect on supplier industries, thereby contributingimmensely to economic development. The -onstruction sector has strong linkages with various

industries such as cement, steel, chemicals, paints, tiles, fi)tures and fittings. While in the short term it

serves as a demandbooster, in the long term it contributes towards boosting the infrastructure

capacity.

Figure 1: Industry size and growth of Construction GD at constant !rices "#s$ %i&&ion'

3):;;

3);;;

):;;

);;;

',34 ','/9',/'9

''.'',5

/',17/

',10 /,355

/,/71

:;;

3;;0

Source5 Economic Survey 6##7-#$ and I/aCS analysis

/-onstruction Industry =evelopment -ouncil


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.3. Industry "e2'entat#on

-onstruction sector can be broadly classified into / sub"segments>

'@ 2eal estate ?2esidential, -ommercialC-orporate, Industrial and *pecial (conomic Nones ?*(Ns@@

/@ Infrastructure ?Transportation, Grban development, Gtilities@

Figure (: Indian Construction Industry )andsca!e

-onstruction Industry

2eal (state Infrastructure

2esidential

GtilitiesGrban Infrastructure

Transportation

-ommercial

*pecial(conomic

Nones

#ower

Irrigation

2ailways

-ivil :viation

2oadways

Source5 I/aCS analysis

#orts

The 2eal (state segment contributes around /4 to the -onstruction =# of India while

Infrastructure segment contributes around 97.

Figure *: Share of #ea& Estate and Construction %y GD contri%ution

2s ',507Billion

97

2s 534

Billion

/4

2eal (state Infrastructure

Source5 Economic Survey 6##8-#7, I/aCS analysis


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Figure ,: -ousing Shortage %y State over the E&eventh Five .ear &an "mi&&ion houses "/ of share

of variousstates'

:ndhara#radesh ujarat

=elhi'.'14

Other *tates5.''/'

'.05 '.779

6arnataka'.719

8adhya#radesh

West Bengal/.34

Gttar #radesh

8aharastra1.9/'5

Tamil Fadu 2ajasthan

'./05

/.1'3 /./ ''' 4

Source5 0lanning Commission 9orking (roup on :ran !ousing, 6##8

1$*$($ Demand drivers for #esidentia& Sector

+avourale demographics - The demographics work strongly in favour of the Indian -onstruction

industry. India is the second highest populated country in the world after -hina. India!s estimated

population as of 8arch /33 is '.'4 billion, while the average age of Indians is /7 years. The

demographic profile indicates that India!s working population forms around 7' of the total

population. India is and will remain one of the youngest countries in the world for some time. The

strong economic growth led to sharp income generation, which led to rise in middle class segment.

India currently has around /73 million persons in the middle class segment. This segment!s rising

purchasing power and propensity to consume is e)pected to drive and support a robust growth rate of

the economy in the coming years. The middle class along with robust macro"economic scenario and

changing demographic profiles has a major role to play in the growth and emergence of the

-onstruction industry in India.

:ranisation and /igration " The decadal growth rate of urban population ?/3 between '00'"

/33'@ in India is higher than the rural population ?' during the same period@. :verage annual rate

of change ?::2-@ of the total population in India during /333"/335 is estimated at '.4' with

/.' for urban and 3./ for rural sectors. ::2- for urban areas by /3/5 will increase to /./5

whereas the ::2- for rural population will decline to "3.4 showing a clear shift of population from


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rural to urban areas1. The average household si+e has been estimated by the Fational *ample *urvey

Organisation as being around 4.49 in urban areas and only 79 of the houses are pucca units.

Though there is a slump in real estate activity in the last one year, investment over the long term will

be primarily led by housing, which is e)pected to account for nearly 03 of the total real estate

sector.

1$*$*$ Commercia&0#etai& Construction

The rapid growth of the Indian economy has had a significant impact on the demand for commercial

property to meet the needs of business, by way of offices, warehouses, hotels and retail shopping

centres. rowth in commercial office space reKuirement is led by the burgeoning outsourcing and

information technology ?IT@ industry and organised retail. %or e)ample, IT and IT(* alone isestimated to reKuire '53 million sKuare feet across urban India by /3'3. *imilarly, the organised retail

industry is likely to reKuire an additional //3 million sKuare feet by /3'34.

Figure : Size of Commercia&0#etai& Construction

2etail2s ''1 billion

49

Office2s '/7 billion

51

Source5 I-Sec Research, /inistry of Commerce and Industry, I/aCS ;nalysis

1#lanning -ommission M Working group on Grban ousing for the ''

th%ive Aear #lan

4*ource> India Brand (Kuity %oundation ?IB(%@


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Figure 2: Commercia& Office S!ace 3%sor!tion %y &ocation4 (552

Bangalore, /3

Others,

#une,

4otal 5 "' /illion S1uare+eet

8umbai, 0

F-2, '0

yderabad, '

/

-hennai, '/

6olkata, '/

Source5 IBE+

1$*$+$ Demand drivers for Commercia&0#etai& Sector

The following are some of the demand drivers in the -ommercialC2etail *ector>

*harp growth in organised retailing M Organised retail, which is e)pected to grow at over /5

in thene)tfew years, is likely to drive demand in the commercial real estate sector. rowth in

ITCIT(* sector at 13 annually " The investments in commercial -onstruction are e)pected

to grow faster than investments in housing mainly due to the spurt in office space construction

driven by ITCIT(* industry.

1$*$,$ S!ecia& Economic 6ones

Over the ne)t five years, growth in investments in Indian Industry will be driven by strong capacity

additions, led by strong growth in demand and high e)isting operating rates. *pecial (conomic Nones

?*(Ns@ will be at the forefront of this growth. :bout 1'5 *(Ns which have been notified as of now, of

which about /3/ belong to the ITCIT(* *ector.

./. Infrastru$ture

With the government!s focus on infrastructure development along with the active participation of the

private sector, this segment is growing rapidly. The #ower, Irrigation, Transportation including

2oadways, 2ailways, :irports and #orts, Grban =evelopment and -ommunications sectors have

witnessed investments of 2s. 7.0 trillion over the Tenth %ive Aear #lan ?'3th

%A#@ and will witness

around 2s. '4. trillion in the (leventh %ive Aear #lan ?''th

%A#@.


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Figure 7: Distri%ution of Out&ay in Infrastructure Segments in 8enth and E&eventh Five .ear

&ans

.)=;;);;;

.)/;;);;; Rs ?:5 (#ll#on

.)3;;);;;

.);;;);;;

Rs :.> tr#ll#on Co''un#$at#ons

Trans+ortat#on

0;;);;;

=;;);;;

/;;);;;

3;;);;;

. Ma7or Players

#ost independence, in the %irst %ive Aear #lan, construction of civil works was allotted nearly 53 of

the total capital outlay. The first professional consultancy company, Fational Industrial =evelopment-orporation ?FI=-@, was set up in the public sector in '054. *ubseKuently, many architectural, design

engineering and construction companies were set up in the public sector ?Indian 2ailways

-onstruction $imited ?I2-OF@, Fational Buildings -onstruction -orporation ?FB--@, 2ail India

Transportation and (ngineering *ervices ?2IT(*@, (ngineers India $imited ?(I$@, etc.@ and private

sector ?8 F =astur and -o., industan -onstruction -ompany ?--@ etc.@.

The Indian -onstruction industry comprises of about /33 firms in the corporate sector. In addition to

these firms, there are about ',/3,333 class": contractors registered with various government

construction bodies. There are thousands of small contractors, which compete for small jobs or work

as sub"contractors of prime or other contractors.

The major players in the construction industry are>

-ompanies such as $&T, Gnitech, 82 Infrastructure, --, ammon, Eaypee group,

Eaiprakash associates, B$ 6ashyap etc. which undertake large infrastructure projects.

-ompanies such as ID2-$, Fagarjuna, $&T, =$%, Oma)e etc. involved in the construction

of flyovers, pipelines, apartments and housingCoffice spaces.

-ompanies such as =$%, #urvankara, 2aheja and others are engaged in the construction of

residentialand office space.

#lanning -ommission M (leventh %ive Aear #lan


33/62


Organi+ed 2eal (state Industry in India is only a couple of decades old .2eal (state Industry in India

took off with the global boom in the 2ealty *ector which percolated down to India as well.$ack of clear

land titles and litigation has made this industry one of the most opaKue and corrupt ones.=ue to the

massive price appreciation and huge valuations,$and *cams have become Kuite common with-hief

8inisters,enerals,Top Bureaucratsall involved in the murky environment of 2eal (state in India.The

most recent scam related to bribing of top public banks officials in the$I- ousing %inance *candalhas

again put Kuestion mark on the fundamentals of the industry.Daluing the industry andmaking a real

estate investment remains one of the most difficult investing tasksin the Indian *tock 8arket.(ven%und

8anagersare staying away from the *ector due to lack of trust in the %inancial *tatement given by the

industry.That said modern India presents a booming picture of tall buildings and huge office areas &

shopping malls. : list of the chief players in Indian market is given below>

DL6=$%


34/62


International. The market capitalisation of the company is 2s.'7,79.43 crore.Its chief activities

include construction, e)pansion of real"estate, consultancy in associated sectors, hotels,

electrical broadcast and information technology. Ind#a 1ulls Real Estate One of India


35/62

Analys#s


36/62


3na&ysis

uantitaive

Pest Analys#s of Ind#an Real Estate "e$tor

The various factors which influenced the 2eal (state segment were #olitical, Technological, *ocial and(conomical factors.

#O$ITI-:$ %:-TO2*> overnment -ontrolled Inflation levels.

$ow Interest 2ates.

#rovides further $iKuidity

*O-I:$ %:-TO2*> Increase in consumption.

Grbani+ation.

Increase in per capita income ?current

prices@.

2ise in =emand for uality ousing

#rojects.

T(-FO$OI-:$ %:-TO2*> Internet revolution

8edia


37/62


"WOT analys#s

"tren2t!

employment and training opportunities in the field of construction

#rivate sector housing boom and commercial building demands

-onstruction of the multi building projects on the feasible locations in the country.

ood structured national network facilitates the boom of construction industry.

$ow cost well" educated and skilled labour force is now widely available across the country.

*ufficient availability of raw material and natural resources in the country is supportive for the

industry.

2eal estate development is on high and it is attracting the focus of the industry towards

construction.

Weakness

-hances of Fatural disadvantage are there.

=istance between construction projects reduces business efficiency.

Training itself has become a challenge.

-hanging skills reKuirements and an ageing workforce may accentuate the skills gap.

Improve in long"term career prospects is highly reKuired to encourage staff retention and new

entrants.

()ternal allocation of large contracts becomes difficult.

$ack of clearly define processes and procedures for construction and its management.

uge amount of money need to be invested in this industry and inefficiency may lead to high

level of risk.

Opportunity

continuous private sector housing boom will create more construction opportunities.

#ublic sector projects through #ublic #rivate #artnerships will bring further opportunities.

=eveloping supply chain through involvement in large projects is likely to enhance the chances

in construction.

2enewable energy projects will offer opportunities to develop skills and capacity in new

markets.

8ore fle)ible training delivery techniKues are now available.


38/62

%inancial supports like loan and insurance and growth in income of people is in support of

construction industry.


istorical cultural heritages like the T:N 8::$ encourage and provide a creative platform

for the industry.

2emote areas in the country are easily accessible and plenty of land is available in the country.

Threat

$ong term market instability and uncertainty may damage the opportunities and prevent the

e)pansion of training and development facilities.

-urrent economic situation may have an adverse impact on construction industry.

#olitical and security conditions in the region and $ate legislative enforcement measures are

always threats to any industry in India.

Infrastructure safety is a challenging task in construction industry.

Porters f#%e for$es Model

'. Intensity of Industry 2ivalry ?Feutral to %avorable@

-ompared to many other industries, the intensity of rivalry among developers in residential

development is relatively low. The area where it is felt most is in competition for

development land. When it comes to selling end units, developers typically try to avoid

competing directly by '@ developing products in different markets C locationsL /@ launchingproducts at different time periodsL 1@ differentiating product types.

The key factor is that residential property is sufficiently differentiable and not subject to

any sort of perishibility or technological obsolescence such that developers have much

more fle)ibility with the timing of producing and selling their end product.


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/. Threat of new entrants ?Feutral to Gnfavorable@

When an industry has over 73,333 registered participants, it is hard to conclude that

barriers to entry are high. :lthough the number of entrants varies over time and

according to market condition, they are sufficiently low relative to other

industries that new entrants can continue to enter and eventually push above

average returns back to historical means.

enerally speaking, the potential barriers to entry to any industry fall into

several broad categories> '@ capitalL /@ technologyL 1@ legal authori+ationL and 4@

e)pertise and know"how.

$egal authori+ation is necessary for certain types of industries such as telecoms

and utilities. The number of participants in these industries is limited due to the

nature of the businesses ?Rnatural monopoliesH@ or the return profiles ?massive

upfront investments which can only be recovered through limited operating

competition@.

%or most real estate development, no special legal authority is needed to enter

the industry. That is why many non"property companies find it relatively easy to

migrate into this industry as and when returns become attractive or simply out of

interest.

%urthermore, the technological and e)pertiseCknow"how component of this

industry is not particularly high. =esigns, names and concepts can all be copied as

there is less ability to protect these through patents or copyright. $arge value supply

chains such as agents, consultants, property managers and employees of rivals can all

be hired or co"opted.

-apital can be considered a barrier but mostly to larger scale projects. The gross

amount of capital needed to RenterH the industry is paltry compared to the likes ofsteel mills or chip fabs.

In addition to the above factors, the wide range of different types and scales ofdevelopment each entail different barriers to entry. Obviously larger, morespeciali+ed developments in top tier citieswould have much higher barriers to entrythan a small residential project1. Threat of substitutes ?%avorable for (nd GseL

Feutral for Investment@

2eal estate development involves different types of products " residential, office,

retail and industrial being the most common. To narrow the scope of discussion, we

will just consider private residential real estate.

-urrently in -hina, residential real estate is in high demand both for its utilitarian

value as accommodation and also for its investment value as a stable, inflation"

proof store of wealth. :s such we need to consider the substitutability on both


40/62

fronts.

:s accommodation, new private housing from any firm can be replaced by '


competitive product from another developerL /@ e)isting private housing for sale or for rentL 1@social housing either for sale or rent. :ny specific developer can lower the risk ofsubstitution by differentiating their product offering by i@ locationL ii@ type and iii@ Kuality.The more generic a developer


41/62

work on thin margins. :lthough developers can backward integrate and take onconstruction duties themselves, this is often more for ensuring timeliness ofcompletion or maintaining Kuality standards than for cost savings. :lso, the


construction materials and household furnishings that developers buy are mostly

commodity goods for which the manufacturers not only command no particularpricing power but would also yield a discount on bulk or volume purchases.

$astly, capital providers, be they banks, shareholders or bondholders, may have

different investment appetite for this industry at different times but whether

investors or bankers demand a specific risk premium to provide capital is more

dependent on the perceived risks at any point in the property cycle and not any kind

of structural risk premium.

5. Bargaining #ower of Buyers ?Feutral@

Of all the five forces, this is perhaps the most dependent on '@ the stage in the

industry cycleL /@ regulations to protect consumer interests and 1@ financial state

of individual developers. iven this wide variance, it is very difficult to conclude

definitively that buyer power is always strong or always weak. The truth is buyer

power will fluctuate greatly. Thus developers that have a larger proportion of

their business in markets with weaker buyer bargaining power will obviouslyreali+e higher returns.

Fear the peak of a property cycle, the

combination of investment and enduser

demand generally outstrip

available supply. This gives

developers tremendous pricing

power and leads to outsi+ed

returns.

-onversely, near the bottom of

the cycle, developers are

usually overstocked and

must cut prices to move units.

In the transaction of any

large si+edpurchases, information is

the key to

knowing what a

reasonablSprice to pay is.


42/62

%igure ' #roperty -ycle In the absence of rules andregulations,


developers often ma)imi+e revenue by

trying to e)tract the ma)imum possible price for each unit. They can do this by '@

not publishing any standard price lists and /@ not reporting critical information

such as how many units have been sold and at what price. This situation is

generally known as asymmetric information and gives the developer tremendous

power. owever, in most large markets, regulators are aware of this and have

enacted laws to protect consumer interests by making information more

transparent and readily available. In general, all else being eKual, consumers in

T'C/ cities or those with consumer protection laws have more bargaining powerthan cities without protection.

$astly, developers that are on solid financial footing ?larger resulting from a more

prudent management of working capital@ would generally have greater pricing and

operational fle)ibility than those that are financially overstretched heading into a

cyclical trough.


43/62


Fuant#tat#%e

Real Estate Industry A 6#nan$#al Analys#s

I have attempted to capture the current trends in the Indian real estate industry through financialanalysis of a sample of listed companies. This section provides a brief overview of the performance ofthe sample of listed real estate companies.

The sample selected for this analysis comprised listed real estate companies that had total income of 953 mn and above. We then narrowed down its choice to a fair representative list of 13 companies forwhich financial information was available for the past five years.

It further categorised the 13 real estate companies into large"si+e, mid"si+e, and small"si+e companiesbased on their total income, by using the 3>'5>5 principle. Based on this categorisation, '/, '3, and large"si+e, mid"si+e, and small"si+e companies respectively were chosen.

This classification primarily aims to study the dynamics and operating efficiencies of the chosen

companies in the real estate industry. Of the 13 companies under study, in %A'3, large companiescontributed 3 of total income and had 43 representation.

De(t< eu#ty Rat#o

2eal estate companies reKuire significant resources to fund their projects. Thus, they went on an eKuitycapital raising spree during %A37M%A3 to scale their operations aggressively. These companies also

procured considerably high debt to finance their capital"intensive projects.

owever in %A30 and %A'3, growth in eKuity and debt declined due to decreased demand, a downtrendin sales, stoppage in e)ecution of projects, rising interest e)penses and the credit crunch arising out ofthe global financial crisis.

The global financial crisis, volatile capital markets, slowdown in %II flows made it difficult forcompanies to raise funds through eKuity markets.

%urther, in %A'3, the focus of companies was to enhance cash flows, release cash blocked in non"coreassets, increase process improvements and cost cutting, and achieve better working capital managementalong with real estate development. This resulted in renewal and progress of certain stalled projects andnew launch announcements.

ROCE

The return on capital employed ?2O-(@ is a measure of returns that a company is realising from capitalemployed. 2O-( is defined as the ratio of profit before interest and ta)es ?#BIT@ to capital employed.


44/62

:nother factor that led to a sharp decline in 2O-( of real estate players is increase in capital employedat a higher pace than #BIT growth. In fact, small and large companies registered a sharp decline in#BIT as against a positive growth in capital employed, which had a double effect on 2O-(. In %A'3,#BIT of mid"si+e companies grew at a lesser rate of '0.9 compared with /9. growth in capitalemployed. owever, large and small companies saw a decline in #BIT of /3 and 13./ comparedwith /5.1 and .7 growth in capital employed.

%i)ed :sset Turnover 2atio

%i)ed :sset Turnover ratio shows that '/.1/ . %:T2 is mostly modest leaving one firm, which tellthat most of the companies were able to sail out with much fi)ed asset harm.

Co'+ound Annual Gro*t! Rate < CAGR , Re%enues -

Co'+anyNa'e

Mar$!3;3

Mar Mar; Mar ;? Mar ;0 CAGR

DL6 '3,/39. '3,30'.54 9,90'.1' '3,10/.55 '4,755.3'"7.0

O'aHe 7/.03 7/.5' 03.99 9.'/ 10.3 "13.

@NITECB 1/7.9' 5'3.3 544.13 910.77 '313.7 "/3.51

AN"AL API '3.1/ '3.55 7.4' '3.37 9./4 9.10

Pars%nat!

De%elo+ers

Ltd.

/5.51 95.4 '11.5 ''1.34 43.94 "4/.59

GODRE4

PROPERTIE"

LTD

'.17 '37./4 '/'.4 94.94 95.0 '.49

Real Estate '39'4.9 '357.4 7.4 '377.5' '7/97.17 start value, > finish value, > number of years.

:ctual or normali+ed values may be used for calculation as long as they retain the samemathematical proportion.

The -:2 can also be calculated as the geometric meanof ' plus each year!s return ?i.e. 1becomes '.31 and "/ becomes 3.0@, minus '
http://en.wikipedia.org/wiki/Geometric_meanhttp://en.wikipedia.org/wiki/Geometric_mean


45/62


46/62

4nNur'


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3.=. Prof#le of In%est'ents and Pro7e$ted Industry "#9e

iven the skill reKuirements outlined in the earlier section, it is also necessary to forecast the human

resource reKuirement reKuired in the Infrastructure and 2eal (state sector. The first step is to forecastthe industry si+e.

In this section, we will analyse the profile of investments planned in each of the sectors and arrive at

the projected industry si+e.

($$1$ ?n@9#A

:ccording to India!s -ensus in /33', more than /5 million people ?/9. of the total population@

live in urban areas. With this large base, which is growing at the rate of around /.9 annually, Indiahas the world!s second largest urban population. iven the current trends in population growth and

migration, India!s urban population is estimated to reach 595 million by /313. -onseKuently, the

Eawaharlal Fehru Fational Grban 2enewal 8ission ?EnFG28@ was set up to encourage reforms and

fast track planned development of identified cities. %ocus is to be on efficiency in urban infrastructure

and service delivery mechanisms, community participation, and accountability of Grban $ocal Bodies

?G$Bs@C#arastatal agencies towards citi+ens. The current list of 75'/

cities under EnFG28 together

host around '/3 million residents, which constitutes 4/ of all urban residents in the country, or '/

of total Indian population.

%or the 75 cities identified under the EnFG28, the total investments are e)pected to be over 2s.

1,15,333 crore directed towards Grban Infrastructure and overnance ?GI@, Basic *ervices to Grban

#oor ?B*G#@ and -apacity Building and Institutional =evelopment ?-BI=@. Of these investments in

Grban Infrastructure and overnance ?GI@ account for over 3 of the total investments under the

EnFG28, as below>

'/Including inputs on addition or deletion of citiesC G:sCtowns, the total number of cities under the

EFFG28will remain around 73 M the figure of 71 cities has recently been revised to 75 cities.


48/62

g

G

t

y

n

=

s

*

8

0

3

/

a

en

-

e

0


Figure 1: Investment !&anned under ?n@9#A tota&&ing #s$ *4*,4555 crore

Basic *ervicesto rban #oor

?B*G#@'9

-apacityBuilding andInstitutional

= velopment

?-BI=@'

Grban

Infrastructurend overna ce

?GI@

/

:s part of Grban Infrastructure and overnance, investments are being made under the heads of

Grban Transport, Water *upply, *ewageC*anitation, =rainageC*olid Waste =isposal, 82T*, and

*olid Waste 8anagement. Of these, the investments in Grban Transport, Water *upply, *ewage

C*anitation account for about 3 of the total investments under the EnFG28, with Grban Transport

alone accounting for over 53, as seen below>

Figure 12: Investments under various heads of ?n@9#A "#s$ crore'

Grban Transport '19,10'

Water *uppl 43,37/

*ewage C *anitation 11,1/4

=rainage C *W /3,'33

Others '7,97/

82T '/,353

*W8 7,30

" /3,333 43,333 73,333 3,333 '33,333 '/3,333 '43,333 '73,333

With respect to the states, investments in 8aharashtra, Tamil Fadu, :ndhra #radesh, =elhi, Gttar

#radesh, 6arnataka, 6erala, ujarat, Eharkhand and West Bengal account for over 3 of total

investments under the EnFG28, as seen below>


49/62

d

a

T

a

s

r

8

?

h


Figure 17: State;wise investments under ?n@9#A

West

1

4

ujarat

5

Other' 8aharashtra'

Tamil Fadu'1

6arnataka9 Gttar # adesh =elhi ?F-T@

:ndhra #radesh'/

6erala

7

9 9

($$($ ower

The total installed capacity of power currently in India is over ',53,333 8W. This is e)pected to

increase toover 1,',333 8W by /3/'"//. ence additional capacity of about ',7,333 8W will be

needed. %or this, it is e)pected that about 2s. 9,39,533 crore will be needed for eneration and about

2s. 7,'0,333 crore will be needed for Transmission and =istribution, as seen below>

Figure 1B: Investments in ower Generation4 8ransmission and Distri%ution u! to (5(1;(( "#s$

crore'

Transmission

and=istribution

49 eneration

51

The infrastructure for Transmission and =istribution needs to be set up in each state based on the

additional capacity reKuired in that state. The investments in power eneration cannot be attributed to


50/62

y

5n

u

h

a


the state which has the demand, since the power need not be generated at the same location where it is

needed. Thus, while the state"wise breakup of investments for Transmission and =istribution are as

seen below, investments in power generation cannot be attributed to particular states.

Figure (5: State;wise investments in 8ransmission and Distri%ution

West Bengal4

Bihar4

6arnataka4

Others'

=elhi

Gttar #radesh'3

:ndhra #radesh0

Tamil Fadu0

8aharastra0

ujarat

8adhya

#radesh

52ajasthan

5#unjab 9

9

4 aryana

5

($$*$ ortsIndia currently has '/ major ports and '9 minor ports. In /339"3, major ports accounted for about

93 ?5'0 million tonnes@ of the total port traffic in

remaining 13 ?//3 million tonnes@.

India, while minor ports accounted for the

:s regards investments going ahead, the investments in minor ports will account for abut 53 of the

total investments in ports.

($$+$ 3ir!orts

India has a total of '/5 airports and currently all '/5 airports are owned and operated by the :irports

:uthority of India ?::I@. The overnment aims to attract private investment in aviation

infrastructure, as seen in the cases of privatisation of the =elhi and 8umbai airports as well as the

new international airports at Bangalore and yderabad. The latest status of airports that have been

commissionedCgranted approvalCare under consideration is as below>


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8a%&e B: 3ir!orts commissioned 0 granted a!!rova& 0 under consideration

Na'e "tate "tatus

1an2alore Internat#onal

a#r+ort

6arnataka -ommissioned

Bydera(ad Internat#onala#r+ort

:ndhra #radesh -ommissioned

Mo+a a#r+ort oa :pproval ranted

Na%# Mu'(a# Internat#onala#r+ort

8aharashtra :pproval ranted

Kannur a#r+ort 6erala :pproval ranted

1#7a+ur a#r+ort 6arnataka :pproval ranted

"#'o2a a#r+ort 6arnataka :pproval ranted

Bassan a#r+ort 6arnataka :pproval ranted

Gul(ar2a a#r+ort 6arnataka :pproval ranted

"#nd!udur2 A#r+ort 8aharashtra :pproval ranted

Da(ra A#r+ort 8adhya #radesh :pproval ranted

Dur2a+ur A#r+ort West Bengal :pproval ranted

Greater NOIDA Gnder#nternat#onal a#r+ort

Gttar #radesh-onsideration

C!a&an #nternat#onal a#r+ort 8aharashtraGnder

-onsideration

Kara#&al a#r+ort #uducherryGnder

-onsideration4!a77ar a#r+ort aryana

Gnder

-onsideration

Lud!#ana #unjabGnder

-onsideration

Palad#


52/62


Fational ighway =evelopment #roject ?F=#@, *tate ighways, 2ural 2oads and the Forth (ast

roads *pecial :ccelerated 2oad =evelopment #rogram, the investments in which are as below>

Figure (1: &anned Investments in #oads in the E&eventh Five .ear &an "#s$ crore'

2ural 2oads17,33'/

F( roads *pl:cc 2oad =ev

#rogram4,33

/

*tateighways

''7,33319 Fational

ighways'54,133

40

($$$ roected Size of the Infrastructure and #ea& Estate sector1*

iven these investments, we forecast that the real =# of the Building, -onstruction and 2eal (state

sector to grow at a -:2 of 0.5 to '3 till /3//, in real terms. The =# economy of -onstruction

would be about 2s. ,333 billion in constant prices at /3//.

Figure ((: roected #ea& GD of Construction sector "#s$ %i&&ion'

?);;;

0);;;

>);;;

=);;;

:);;;

/);;;

5);;;

3);;;

);;;

Oil hits Q'45 a barrel and then collapse to Q14 within si) months. *eptember '5, /33>-ollapse of $ehman Brothers. Fovember /3, /33> =ow Eones at a record low of 9,440 points. Eune ',/330> eneral 8otors files for bankruptcy. We are living in a time that has seen unprecedentedvolatility. %rom boom to bust in a matter of monthsH.

To begin with let us define the term 2ecessionL Urecession is a decline in a country!s gross domestic

product ?=#@ growth for two or more consecutive Kuarters of a year. : recession is also preceded byseveral Kuarters of slowing down .

:n economy which grows over a period of time tends to slow down the growth as a part of the normaleconomic cycle. :n economy typically e)pands for 7"'3 years and tends to go into a recession forabout si) months to / years. : recession normally takes place when consumers lose confidence in thegrowth of the economy and spend less. This leads to a decreased demand for goods and services, whichin turn leads to a decrease in production, lay"offs and a sharp rise in unemployment.

The 2eal (state industry in India witnessed unprecedented growth in a relatively short span of time.With most companies having seen only the upward swing, the economic downturn proved to be alitmus test. -ompanies with stronger fundamentals and ability to make Kuick strategic decisions

continued to operate, though with reduced visibility and si+e of operations, the weaker ones found itchallenging to retain their position and image as a 2eal (state developer.

As !as (een sa#d) 1us#nesses *#t! t!e r#2!t strate2y and %#s#on $o'e out stron2er fro'

t#'es of de+ress#on.

In order for -ompanies to gear up to face the challenge, it is imperative to understand how the realestate market has been impacted. There is an overall slowdown in demand across India as has beene)perienced by industry players. #roperty prices and rentals are correcting which have led to the erosionin market capitalisation of many listed players like =$% and Gnitech. 8any current projects of realestate developers have been stalled due to lack of funds and investors either do not have funds to investor are reluctant to do so. -onseKuently, companies are forced to sell of the properties at a lower value.This scenario is ascertained by the fact that finding buyers is also proving to be a challenge.



55/62

Increasing input costs has led to margin shrinkages, in fact, companies with ordinary supply chainmanagement have stalled their projects.2ising costs, lack of capital, reluctance of buyers have all contributed to the current scenario. Thispaper aims to analyse various strategic initiatives by companies to combat the e)isting times and sustaintheir businesses through future turbulent times.

O(7e$t#%es of T!e "tudy

%ollowing are the objectives of the study>'. To study the impact of lobal recession on India s real estate sectors foreign direct

investment flows, rate of growth, sales and profit after ta) ?#:T@ and/. To analyse various strategic initiatives by companies to combat the e)isting times and sustain

their businesses through future turbulent times.1. To give suitable conclusion & suggestion.

By+ot!eses of T!e "tudy

'. There is no significant impact of recession on Indian real estate market ?o@

/. lobal recession has a definite impact on development of Indian real estate market ?a@

Resear$! Met!odlo2yThe study is primarily based on secondary data collected through journals, periodicals,Websites and newspapers

Results and D#s$uss#ons

The real estate market in India remains unorgani+ed, fragmented and characteri+ed by smallplayers with a local presence. The growth of the real estate sector is attributed to various factorssuch as growing economy, growing business needs etc. owever, this boom is restricted to areas

such as commercial office space, retail and housing sectors. The major concerns of this sectornamely are skill shortage, non"availability of statistics, lack of low cost"affordable housing, lackof sustainability and to meet a future that might have downturn due to oversupply.The industry is presently facing a major resource crunch M an obvious lack of Kualified andskilled people. -oupled with this manpower shortage is the shortage of availability of relevantstatistics, which has created an ambiguity as to how much construction activity is actually takingplace and one cant gauge the demand and supply trends accurately.

The major issues that plague this industry is tremendous shortfall of middle class housing asmajority of the developers are involved in developing high class housing. *o, there is a dearth oflow cost affordable units.

2ecession in G* economy has caused great impact on Indian real estate business. The real estateindustry was a booming industry in pace with information technology ?IT@ industry. =emand forit space and from high net worth individuals had created opportunities for the this sector.


56/62

RealGDP

Growth(%)

Rs.

in

Crores

Mar-06

May-06

Jul-06

Sep-06

No-06

Jan-0!

Mar-0!

May-0!

Jul-0!

Sep-0!

No-0!

Jan-0"

Mar-0"

May-0"

Jul-0"

Sep-0"

No-0"

Jan-0#

Mar-0#

May-0#


6#2ure Fuarterly Est#'ates of GDP At Constant ,???


57/62

Rs.

in

Crores


The trend in sales and net profit of Rworst affectedH 2eal (state is given in figure /. The 2eal(state has been 7/ per cent decline in revenues, 5 per cent decline in #B=IT, and 9 per centdecline in net profit, between 8arch /33 and 8arch /330. This decline has been accompaniedby a

significant fall in the property prices in India. owever, the sector shows a moderate

recovery in the Kuarter after 8arch /330.

Ta(le Rate Of Gro*t! At 6a$tor Cost At ??? ./ 5.0 .> >.0

-ommunity, social &

personal services5.4 7. 9.' 5.9 7. '1.'

Total GDP at fa$tor $ost .5 9.5 0.5 0.9 0 7.9

"our$e Central "tat#st#$al Or2an#9at#on

6#2ure 5 6DI Eu#ty In Ind#an Real Estate 1us#ness;

$&000

$%000

$%6%$

$0000"!

"000

6000

&000

%000

%$%$

&$% $&&%

0

006-0! 00!-0" %00"-0#

"our$e R1Is 1ullet#n Au2ust 3;;? ,Ta(le No. /= 8 6ore#2n In%est'ent Inflo*s-

:bove Table no ' reflects how the steady growth rate of real estate sector was slowed down in


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year /33"30 due the recessionary trend prevalent in the economy .this proves our hypothesis?a@ that recessionary effects were responsible for downtrend in the real estate sector and null

hypothesis is rejected from the observations made. In figure 1, it is seen that %=I eKuity inIndian2eal (state Business is increasing but in reality it is not so. In the year /339"3 it is increasedby4'/ per cent and in /33"30 it is only increased by '44 per cent. *o it is not rise as it is acceptedby the 2eal (state 8arket.

"trate2#es To Co+e @+ W#t! T!e A(o%e "#tuat#on

-hallenging times present an opportunity for -ompanies to capture market share byoutperforming competitors. : Kuick analysis of the market conditions and Kuicker response tomitigate e)isting risks differentiates companies.There can be multiple reasons why some companies continue to tread well while somecompanies falter badly, when faced by serious challenges. But, invariably, the mostsignificant role here is played by the strategic decisions taken by the company.

When the global economic crisis, compounded by the local economy issues, started hitting realestate demand in India, different companies reacted in different ways.

- 6#nan$#al De$#s#ons

Initially, developers were reluctant to reducing real estate prices in order to revive demand.owever, with no immediate respite and growing pressure to cut down losses, a gradualslash down in prices was introduced.The worsening situation of credit availability led developers into liKuidity crunch. 8anydevelopers succumbed to borrowing at a very high cost, #rivate (Kuity which was once easily

available became a very distant option.

3- D#%ers#f#$at#on of 1us#ness

2ecogni+ing the need of developing multiple streams of revenue, some cash"rich developersvertically diversified ?or attempted to diversify@ their businesses into telecommunications,financial services, insurance, etc. ori+ontal diversification into services related to propertymanagement and leasing also surfaced up as a preferred strategy for dealing with the downturn.Owing to increased competition in metropolitan cities, developers opted to diversifygeographically as well. Tier II and Tier III cities thus came under their radar. Interestingly,

one can easily find developers cheering their strategy of foraying in smaller cities, whichare relatively less"affected of the ongoing economic turbulence.8aintenance of high eKuity

:s part of long term strategy, instead of selling off properties, developers began to enter ontolease agreements with larger companies for commercial space. The long term rental arrangement,though at reduced rates, guaranteed a steady stream of income.

5- Cost Control

In the wake of controlling cost like most other sectors of the economy, Indian real estate

companies also embarked upon various cost cutting strategies. -apital intensive projects that


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had no impact on company s revenues in the short term were either put on hold or scaleddown, and even cancelled. IT related projects were among major ones in this case.


owever, some significant projects such as those including the use of IT to improve investoraccess to information are important, and most developers appear to agree on this. Therefore,projects meant for maintaining a fair interface between the company, investors and customershold water, especially during the turbulent times.

: number of companies also downsi+ed their e)tra manpower. owever, in many instances, thiswas not done in a thoughtful manner, thereby putting companies on the risk of losing essentialtalent in e)change of short term cost savings.: number of real estate companies in countries such as the G* and the Gnited 6ingdom ?G6@don t hesitate in outsourcing their marketing activities after carrying out the necessary duediligence. This acts as a measure to infuse efficiency and cut unnecessary costs involved inmany of the related processes.

/- 6o$us On Custo'er "at#sfa$t#on

The ongoing condition of economic contraction has also resulted in improved services to the

customer. In order to shed off an image of being non"transparent and unorganised, a numberof developers increased their focus on customer satisfaction.: customer was provided the facility of checking the status of construction of his property bylogging on to a website. (arlier, this was possible only after visiting the site and following upwith the concerned officials.With such initiatives, developers are fast changing their image as professionallymanaged corporate houses, committed for meeting customer e)pectations and empathetic inresolving the concerned issues.

Con$lus#ons "u22est#ons

Owing to the correction in real estate prices and re"aligning of business strategy, as per theongoing business environment, has resulted in some signs of revival in the Indian real estatesector, in the recent past. : stable political scenario has also boosted confidence in the Indiancapital markets, and the overall business environment. This was further complemented with theIndian economy managing to achieve a growth rate of 7.9 during /33"30, despite recessionin the global economy.

:t the first instance, such positive indicators reinforced the potential of Indian domesticeconomy, while uplifting sentiments otherwise enshrouded by negative movements on the frontof employment and deepening financial crisis in the global economy.

These small packs of positive developments slowly flowing into the economy have also startedgenerating interest amongst customers, and some developers have e)periencedimproving situation in terms of demand of real estate in select pockets. The recent situation,however, has sent the message home. The Indian real estate companies are urged to focuson customer satisfaction. The industry is no more dominated by a developer, putting customere)pectations at the backstage and carrying on operations at his own sweet will.

8ore significantly, the ongoing correction in the real estate market has indicated towards itsfundamental strength wherein it tends to correct itself with any e)cesses on the front of prices,and other demand relating factors. Fevertheless, real estate companies are fast"learning to layemphasis on retention of e)isting customers and acKuire new customers. The present times have

been calling for a fair level of fle)ibility, which even the real estate companies have been


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e)pecting from their suppliers and service providers. :t the same time, many developers havefound a viable strategy in forging collaborations M leading to cost benefits, synergies, and mutual


strength. The potential areas of collaboration include supply chain, procurement, production andbrand promotion.

Fevertheless, this phase of market consolidation is a real opportunity where weaker players willbe defragged and stronger ones will increase their market share through well"thought businessstrategies, and further tighten their belts for high growth in the future. The Budget/3'3 presented a mi)ed bag for real estate sector in India. owever, it has failed to addresssome of the key demands of the real estate developers, including infrastructure status to thereal estate sector, rela)ation of e)ternal commercial borrowings to fund projects, provisionof separate deduction of 2s. ' lakh for housing loan repayment or increasing the overall 3-deduction to 2s. / lakhs etc.the key to growth of this sector lies in growth of disposableincome with the population and willingness of property developers to build affordable homes formiddle class.

RIt is said, that success is not about how high you rise, but about how high you bounce backwhen you hit rock"bottom. 2eal (state companies today are at that strategic inflection point,where they must define new imperatives to be successful once again. Bridging the gap betweenthe customers and themselves, taking a harder look at resource"sapping processes, and aboveall gaining agility and fle)ibility as organi+ations, will be the stepping stones to success.H" Dinamra *hastri

Bead 8 "trate2#$ "er%#$es Partner) Grant T!ornton Ind#a


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