CNBC Aawaz and Liases Foras · 2019-07-23 · Figure 6: Price Trend in Tier 1 Cities Source: Liases...
Transcript of CNBC Aawaz and Liases Foras · 2019-07-23 · Figure 6: Price Trend in Tier 1 Cities Source: Liases...
Liases Foras Real Estate Rating & Research Pvt. Ltd.
Independent Non-brokerageReal Estate Research Company
Housing Charter 2018
The
CNBC Aawaz and Liases Foras
CONTENTS
01 MARKET TRENDS
02 WHY IS THE RECOVERY SO SLOW?
03 URGENT NEED TO FIX INEFFICIENCIES
04 EFFORTS TAKEN SO FAR
05 WHAT ELSE COULD BE DONE?
01
05
07
08
09
Independent Non-brokerageReal Estate Research Company
2017 has been the year of reforms for the real estate industry. Since the
introduction of Real Estate Regulatory Authority (RERA) Act and Goods and
Services Tax (GST) the real estate business has never been as usual. The
policies have forced developers to readjust their business models from a
finance and marketing perspective. Through these teething troubles the
market slowed down - but it has not tumbled. It is, in fact, beginning to show
signs of recovery. However the recovery is slow and needs match up to
urgent need for affordable housing in the country.
Productive land and rational taxation systems are crucial to increase the
supply of housing. But market inefficiencies, speculative accumulation, and
lack of transparency in land deals have inflated the cost of urban land in the
recent years. On the taxation front GST has tried to resolve the inefficiencies
of double taxation, but there remain inconsistencies and confusions about
its application.
The 2018 CNBC Charter notes the trends in the market and deliberates on
further measures that can help stimulate the supply of affordable housing.
PREFACE
Independent Non-brokerageReal Estate Research Company
MARKET TRENDS Data from Liases Foras’s quarterly surveys indicate that the market is slowly recovering. In Tier 1 cities, sales
have increased and prices have stagnated or marginally decreased. It is the cautious end users rather than
the exuberant investors that are driving the recovery process. Increase in income levels and availability of
funds from PMAY has helped some consumers bridge the affordability gap, this might be responsible for the
increase in sales. Developers who have targeted the priority sector have managed to sell more homes.
Improvement in Tier 1 Sales
Financial year comparisons between the last two years show a marginal improvement in sales. Overall,
sales in the country have grown at 8%. Tier 1 cities are fueling this growth. Metropolitan regions of Mumbai
and Delhi have emerged as top performers. Sales in these cities have increased by 25% and 19%
respectively. Tier 2 and 3 cities however, have shown a decline in sales
Table 1: All India Sales FY 17-18
Annual Sales Unsold
FY 17 FY 18 % Growth FY 17 FY 18 % Growth
All India 295,345 320,078 8% 1,123,128 1,129,499 1%
Tier 1 234,129 265,564 13% 953,856 929,415 -3%
Tier 2&3 61,216 54,514 -11% 1,69,272 2,00,084 18%
01
Figure 1: Quarterly Sales (units)
Source: Liases Foras
Tier 2 13,695 14,152 13,529 12,476 14,039 14,470
Tier 1 50,398 60,807 64,841 64,756 66,866 69,101
All India Months_x000d_Inventory 53 45 43 43 41 41
Q3 16-17 Q4 16-17 Q1 17-18 Q2 17-18 Q3 17-18 Q4 17-1810
15
20
25
30
35
40
45
50
55
60
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
Mo
nth
s In
ve
nto
ry
Un
it S
ale
s
Un
it S
ale
s
Figure 2: FY 17-18 Sales for Tier 1 Cities
Source: Liases Foras
FY 17 24031 32019 14302 12766 10294 52800 52505 35412 61216
Fy 18 26489 30331 12105 14922 12035 66001 62322 41359 54514
Ahmedabad Bangalore Chennai Hyderabad Kolkata MMR NCR Pune TIER 20
10000
20000
30000
40000
50000
60000
70000
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Independent Non-brokerageReal Estate Research Company
Priority Sector Leads Sales:
Financial Year comparisons for Tier 1 cities show that sales have grown at 25% in the priority segment. The
luxury segment has also shown a growth of 16%. This growth is largely driven by discounts and new
launches.
Figure 3: Sales by Segment for Tier 1 cities
Source: Liases Foras
FY 17 55,417 71,049 68,554 25,552 13,557
Fy 18 69,342 74,585 76,736 29,603 15,298
Priority
Segment
Affordable
Segmen
Mid
Segment
Luxury
Segment
Ultra Luxury
Segment
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
Tier 2 cities have witnessed an overall drop in sales of 11%. But here too, sales in the priority segment have
merely dropped by 3%.
Un
it S
ale
s
Figure 4: Sales by Segment for Tier 2 cities
Source: Liases Foras
FY 17 19,971 20,637 15,900 3,684 1,024
Fy 18 19,356 17,705 13,569 2,984 900
This is not a surprising trend. As per the report of the technical group on urban housing shortage (2012)
there is a need for 18.78 million homes in urban India and 95% of the demand is from the EWS and LIG
segment. Given the volume of demand among the low-income groups, developers who have targeted the
priority sector are selling homes faster and in larger volumes.
Un
it S
ale
s
0
5,000
10,000
15,000
20,000
25,000
Priority
Segment
Affordable
Segmen
Mid
Segment
Luxury
Segment
Ultra Luxury
Segment
02
Rationalization in Size and Price
In order to sell at affordable rates, the developers have begun rationalizing sizes. The composite weighted
average size of newly launched units in the 8 Tier 1 cities, show a decline from 1254 sqft to 1084 sqft. This
trend is accompanied by a decline in price as well. This has led to a cumulative decline in the ticket size of
the unit of up to 20%.
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Independent Non-brokerageReal Estate Research Company
Figure 5: Decrease in Unit Size and Price of New Launches in India
Source: Liases Foras
Depending upon geography, prices in the country have marginally decreased or remained steady over the
past 5 years. The graph below shows an exuberant spike in housing prices between 2009-14 for all Tier 1
cities; especially MMR where prices escalated two fold. After this initial spike, the prices have marginally
decreased or stabilized. In the meanwhile incomes have grown, thus bridging the affordability gap for some
buyers.
FY 14
-15
FY 15
-16
Fy16-
17
FY 17
-18
950
1000
1050
1100
1150
1200
1250
1300
Are
a (
sqft
)
Apt Sizes (Sqft) 1254 1198 1143 1084
Source: Liases Foras
FY 14
-15
FY 15
-16
Fy16-
17
FY 17
-18
Pri
ce P
SF
Price PSF 6105 5949 5771 5638
5400
5600
5800
6000
6200
Figure 6: Price Trend in Tier 1 Cities
Source: Liases Foras
0
2000
4000
6000
8000
10000
12000
14000
Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Mar-18
Ahmedabad Bangalore Chennai Hyderabad
Kolkata MMR NCR Pune
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Closing Affordability Gap
The graph below measures the housing price index against Liases Foras’s affordability index for service
sector employees in MMR. As is evident, stagnancy in the prices, increase in incomes and reduction in
interest rates has led to a decrease in the affordability gap. The affordability gap was at its maximum in
March 2014 (340 bases points). Since then it has gradually decreased. The gap between the two indices has
reduced to a level of 95 bases points as of March 2018. Availability of additional funds under PMAYs Credit
Linked Subsidy Scheme has further helped consumers bridge this gap. Developers are also enabling
consumers by offering them subvention schemes and freebies on maintenance and parking for the first few
years. For all these reasons, housing is potentially within the reach of the service class in the Mumbai
Metropolitan Region.
Figure 7: Affordability Gap for Service Sector in MMR
Source: Liases Foras
0
100
Jan
-05
Oct
-05
Oct
-06
No
v-0
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Jun
-08
De
c-0
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Ma
r-0
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Se
p-0
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r-1
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-16
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r-1
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Jun
-17
Se
p-1
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De
c-1
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Ma
r-1
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200
300
400
500
600
Interest adjusted Affordability Index Inflation adjusted Price Index
Ind
ex
10
0
11
8
14
4
13
6
12
0
10
9
13
3
13
0
12
5
12
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0
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1
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91
2
47
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88
51
1
51
1
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6
51
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51
1
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Independent Non-brokerageReal Estate Research Company
WHY IS THE RECOVERY SO SLOW?In the past 7 years, unsold stock in the country has grown more than three times. Having a high supply of
units in the market need not be bad from a consumer point of view as it keeps prices in check. But in order to
prevent stagnation increase in sales needs to accompany the increase in housing stock.
Figure 8: Increase in Unsold Stock In Tier 1 Cities
Source: Liases Foras
311155 324805405712
454736511530
607201
711539
897924 953867 921828
0
200000
400000
600000
800000
1000000
Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 Dec-17
MMR Pune Hyderabad NCR Bangalore Chennai Kolkata Ahmedabad Series9 Total
Inefficiencies in economic geography could explain why developers are left with large inventory of unsold
homes in spite of the high demand for housing in the country.
Market exuberance between 2005-2014 led to increase in urban land prices. During this period of 12 years
land prices have grown 9 times for tier 1 cities. Developers who wished to build homes at affordable prices,
moved further away from city centers in search of cheaper land. The diagram given below shows the
distance at which the maximum supply of homes less than 30 lakhs is available.
In Mumbai, there is a negligible supply of homes less than 30 lakh for the first 40 km of the city radius. For
Delhi NCR and Chennai this distance shrinks to 20 km. Bengaluru performs better as the distance further
shrinks to 10 km. (see graph below)
05
Ahmedabad
Tie
r 1
Cit
ies
Distance in km
Bangalore
Chennai
Hyderabad
Kolkata
MMR
Pune
0 - 10
NCR
10 - 20 20 - 30 30 - 40 40 - 50 50 - 60 60 & Above
Percentage of homes below 30 lacs
0-10% 11-30% 31-50% 50% & Above
6%
0%
1%
2%
2%
0%
0%
2%
11%
58%
34%
54%
39%
0%
21%
36%
0%
13%
26%
3%
7%
7%
25%
19%
0%
0%
2%
3%
0%
44%
22%
0%
1%
3%
9%
3%
1%
32%
28%
5%
0%
0%
0%
0%
0%
17%
4%
0%
82%
26%
27%
36%
52%
0%
0%
39%
Source: Liases Foras
Figure 9: Total Supply of homes under 30 lakh till March 2018 by distance
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Independent Non-brokerageReal Estate Research Company
While the city has expanded due to price, infrastructure hasn't kept
up. Neighbourhoods emerging in the peri urban areas often lack the
necessary physical and social infrastructure for daily needs and fast
and efficient transit connectivity to workspaces in the city. This
mismatch between job and housing locations pushes people who
buy peri urban homes to spend more time commuting. The value
proposition of ill equipped affordable housing in the peri urban areas
may simply not be worth the work travel time they impose on their residents. This makes peri urban housing
less desirable for the urban working population and could be the cause of slow sales despite the high demand
in the priority and affordable housing segment.
06
While the city has expanded
due to price, infrastructure
hasn't kept up.
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URGENT NEED TO FIX INEFFICIENCIESThere is an urgent need to fix the affordable housing deficit. The Census tells us that, India is a young country,
riding on its demographic dividend. Approximately 35% of the urban population fell within the working age
group of 25 to 45 in 2016. But the window for this working age population to buy formal homes is limited.
Middle class working couples between the age of 25-45 have traditionally been the preferred target customers
for developers as this demographic begins to have the surplus income for downpayment and is eligible for
loans. Over the years the mortgage market has expanded to include the lower income groups as well. However,
in the past decade, the expansion in housing finance has been accompanied by an escalation in housing costs.
Consumers are holding off on buying homes as they are unaffordable or far away from their place of work. This
has led to an increase in the average age of the housing mortgage seeker. As per analysis done by Liases Foras,
the age of a mortgage seeker has risen from 31 in 2005 to 41 by 2016. Only 54% of target customers can seek
loans and the mortgage market is shrinking. As banks begin to factor
in mortality risks, interest rates on loans increase for older age
customers adding to the cost of housing.
If affordable housing market misses the demographic window there
is a risk, that in the future, India will have to provide for a large
population of retired senior citizens that are living in rental homes or
worse in slums or homeless conditions. Thus, there is an urgent need
for the economy to provide for jobs as well as affordable housing for
its working age population. The construction industry can play a key
role in providing for both these needs.
In order to provide homes at favorable locations and at affordable
rates, the government needs to take efforts to make land and finance
cheaper and more productive.
Figure 10: Age and Population Graph (2016)
Source: Census 2011 – extrapolated for 2016
0 10 20 30 40
5-910-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-7475-79
80+Not stated
Persons in Millions
Ag
e I
nte
rva
ls
07
If affordable housing market
misses the demographic
window there is a risk, that
in the future, India will have
to provide for a large
population of retired senior
citizens that are living in
rental homes or worse in
slums or homeless conditions
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EFFORTS TAKEN SO FARGovernment policies like PMAY, RERA and GST have tried to address some of the hurdles mentioned in the
section above.
Pradhan Mantri Awas Yojana (PMAY): The government is working towards a daunting task of providing
affordable housing for all by 2022. As per estimates, there is a need for 18 million homes in urban India and
another 43.6 million homes in the rural areas. Although work has begun on approximately 20% of
requirement of homes in both the urban and rural category; only 2% homes in urban areas and 8.3 %
homes in rural areas have been completed.
Figure 11: PMAY Progress Report April 2018
Pradhan Mantri Awas Yojana- Housing for All (HFA)
PMAY Urban Progress
(Including RAY & CLSS)
No of
Household units
% of Urban
housing shortage
PMAY Gramin
Progress
No of Household
units
% of Rural housing
shortage
Urban Housing
Shortage 1,80,00,000
Rural Housing
Shortage 4,36,00,000
Houses involved 44,35,663 25% Total Target 94,69,918 22%
Houses grounded
forconstruction 19,30,844 11%
Total
Beneficiaries
Registered
97,26,560 22%
Houses Completed 4,00,074 2%Total House
Sanctioned 78,61,513 18%
Houses Occupied 3,55,741 2%Total House
Completed 36,34,865 8%
Source: http://ruraldiksha.nic.in/RuralDashboard/PMAYG_NEW.aspx & http://mohua.gov.in/upload/uploadfiles/files/All_India_PMAY(U)(1).pdf
Real Estate Regulatory Act: RERA’s consumer protection policies have played an important role in reshaping
the industry from being investor driven to being end user driven. The policy protects consumers from
undisciplined builders by ensuring that projects are sold only after building permissions are attained and all
necessary disclosures pertaining to project launch, possession, amenities and facilities are provided.
Builders are expected to put 70% of the money collected from buyers into an escrow account to ensure that
consumer money for one project is not diverted into other projects. RERA has not been uniformly
implemented in all States. But there is a push from the center to see the implementation through without
dilutions.
Goods and Services Tax: The GST bill has tried to simplify the taxation process and prevent double taxation
that took place under the VAT system. GST on property is now 18%, the effective rate is 12%, thanks to
abatement provided on land value. Before GST, the rate was 10-15%. However reports[ See: Impact of GST
on residential markets, JLL, 2018] suggest that contractors and developers are still adjusting to the system
and compliance in the entire production chain is shoddy. It also points out that there remain some design
problems with respect to land. Only 1/3 of the contract value is deductible as land value for GST purposes.
However there are cities where land values are as much as 50-60% of the entire project cost. Once these
problems are resolved we might begin to see some benefits to the consumers.
Further government efforts to bring in the Benami property law can help check land corruptions. A multi
pronged approach that includes incentives through taxation, finance and planning along with punitive
measures for those who are speculating can help curb price escalations
1See: Impact of GST on residential markets, JLL, 2018
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WHAT ELSE COULD BE DONE? While taxation, consumer protection, and transparency are important issues being addressed by the
government; little has been done to address the issue of land and finance costs.
Given below is a the cost structure for housing development in Mumbai. It shows that the cost of land has
increased 9 times since 2005. Finance cost has increased close to 7 times. The percentage of developer
profit has shrunk. This is the primary reason why despite rising inventory prices are stagnant in the city.
Similar patterns can be seen in cities across the country.
In our previous charter on land, we have elaborated on the problem of land speculation and suggested
punitive taxation measures like the vacant land tax to curb the speculative bubbles that lock land expensive
and decrease its mobility for housing. In this charter we would like to explore the various incentive
measures that can decrease the cost of land and finance and make housing more affordable.
Period 2005 2007 2009 2012 2015 20172005 -2017
(Change Multiple)
Price in PSF 2,700 6,700 5,100 10,300 11,600 11,820 4.38
Developers Profit (in INR) 464 1,644 428 1,416 552 727 1.57
Finance Cost (in INR) 720 1,786 1,860 3,842 5,024 4,839 6.72
Land Cost @ Salaeable Area (in INR) 300 1,500 1,000 2,300 2,800 2,800 9.33
Approval Cost (in INR) 216 670 612 1,442 1,624 1,655 7.66
Construction Cost (in INR) 1,000 1,100 1,200 1,300 1,600 1,800 1.80
Construction and Sales Time (Years) 3 4 4 5 6 6 2.00
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Figure 12: Structure of Cost
Independent Non-brokerageReal Estate Research Company
Reduction in Land Price
As explained in the section above, price of land is pushing affordable housing to the outskirts of cities, but
due to inefficient transit to places of work and lack of social infrastructure, peri urban areas are not attractive
to all consumers as housing locations.
Provision of infrastructure and amenities in the peri urban areas can help increase the supply of suitable
land for affordable housing. The Central government has taken cognizance of the need for better
infrastructure and planning for our expanding cities. Starting with JNNURM & RAY to AMRUT & PMAY, there
has been a consistent effort by the Central government to allocate money for development of cities and
urban regions. However, there remain bottlenecks in comprehensive planning and governance that produce
disconnected undesirable development patterns.
Cities would benefit from planning at the regional level. Further, to ensure that decisions regarding land are
supported with efficient transportation, State governments could consider setting up of land and
transportation authorities that work in tandem. This can help ensure that when land is opened up through
highways, additional social, physical and transit infrastructure for affordable housing is planned along with it.
Providing higher FARs where infrastructure is available can help increase supply of housing in favorable
locations within a city. However, it’s important that the FAR should be provided at rational costs and
subjected to time bound delivery of project for which the additional FAR is given. Master Plans that monetize
additional FAR through an expensive premium, in turn risk making the housing supply from it expensive.
Making FAR time bound is important to prevent speculation on the increase.
Both measures, if planned strategically, can help increase the supply of housing in favorable locations and
bring down the cost of its development.
Improve Planning and Infrastructure:
10
Reduce Other Costs
l Improve Planning and Infrastructure
l Increase FAR in strategic locations
l Allow private sector banks to finance
land for affordable housing
l Bring Taxation measures to curb
speculation
l Decrease GST on real estate
l Lower taxation for housing delivered on
time
l Increase Loan To Value for the purchase
of housing
l Expedite approvals
Re
du
ce
La
nd
Co
sts
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Reduction in Other Costs
The RERA act ensures that developers adhere to a strict committed timelines. But in order to remain on the
right side of law most developers are committing to inflated timelines in their contracts. Affordable housing
production is time sensitive and must be produced and sold quickly to avoid speculation or cost over run. In
order to further incentivize the process, governments could lower taxation for projects produced within a
lower time frame.
Lower taxation for housing delivered on time:
As explained in the section above, housing prices have stagnated in the country. Sales are seeing an
improvement. The risk of price correction is minimal. Given that the market has endured shocks like
demonetization without a drop in price, our outlook is that the prices for the next two years will remain
stagnant. At this point the government can revise the loan to value for housing from 75% to 90% of the
contract value. This can help younger buyers buy homes quicker.
Increase Loan To Value for purchase of housing
Auto DCR systems have been implemented in many parts of the country, however, the approval process
has not undergone a dramatic change in time frame. Approval process is still long and tardy. In order to
expedite production and lower the cost of production, the cost of approvals and related timelines must be
reduced.
Expedite Approvals
Currently banks are not allowed to finance land purchase for real estate. Developers looking for loans for
land are approaching non banking finance corporations (NBFC). These loans are expensive and the cost is
passed to the end users. Governments could consider the option to allow Private banks to give loans to
developers looking to buy land for time bound production of affordable housing. This would help bring
down the cost of finance.
Allow private sector banks to finance land for affordable housing:
We would like to reiterate the need for taxation measures that prevent speculation on of land and in turn
make land more productive. Vacant land that is not being used for primary activities (like agriculture or fish
drying) or any other job creating functions should be subjected to a vacant land tax. Similarly inventory and
vacant house tax can help prevent speculation on built housing in turn reducing cost of rental and capital
values.
Bring Taxation measures to curb land speculation and accumulation of inventory and
vacant stock
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12
Disclaimer
Information contained here, has been obtained from sources believed to be reliable. While we do not doubt
its accuracy, we have not verified it and make no guarantee, warranty or representation about it. The
readers are encouraged to independently assess the relevance, accuracy and completeness of the
information of this publication. This report is for general guidance and informational purposes only, and
does not constitute professional advice.
Whilst every effort has been taken to provide authentic data and analysis, Liases Foras Real Estate Rating &
Research Pvt. Ltd. Or any of its employees are not responsible for any loss, major or minor incurred on the
basis of the information and analyses provided or are liable to any damages in any form or shape All rights
to this material are reserved and cannot be reproduced without prior written permission from Liases Foras
Real Estate Rating & Research Pvt. Ltd.
www.liasesforas.com
Ms. Namrata Kapoor
Research Lead
Email id: [email protected]
Authors:
Mr. Pankaj Kapoor
Founder and MD - Liases Foras Real Estate Ratings and Research Pvt. Ltd
Email id: [email protected]
Independent Non-brokerageReal Estate Research Company
Liases Foras is an independent real estate research institute having offices in Mumbai, Bangalore and New
Delhi. Liases Foras was founded in 1998 as a boutique non-broking real estate consultancy, and has since
evolved into a data-focused real estate research lab employing over 120 people. Liases Foras tracks and closely
examines the health of the real estate sector in over 60 cities across India, including all metro and capital cities.
Liases Foras is the official consulting partner of the National Housing Bank and is currently engaged in re-
building the RESIDEX property price index for NHB.
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between lenders, valuators,
and surveyors in carrying
out valuations using
automation and mobile
devices.
Highest and best-use
analysis
Every structure belongs to
its location and time. The
analysis scans various
options to find out the one
which gives the highest/
maximum development
realisation.
Valuation advisory
Liases Foras offers
transparent, scientific,
data-driven and unbiased
valuation solutions.
Urban planning services
We prepare City
Development Plans
outlining the vision and
development strategy for
unlocking land in a city.
Preparing design briefs
Extending beyond the best-
use prognosis, we write
uncluttered, contextual
design briefs for Master
Planners/Architects.
Consumer survey &
profiling
We specialise in the field of
real estate-specific
consumer surveys.
Product viability study
This study is to ascertain
whether the envisaged
development and product
plan of the developers are
correct or risky.
Risk reports
Risk Reports are carried out
primarily to assess the state
of the market and measure
the price correction during
oversupply scenario or
default risks in the market.
Portfolio optimization
strategy
Every structure has an
opportunity cost. We
analyse organisational
functions, manpower and
real estate assets to arrive
at an optimal cost and an
effective portfolio.
Location & Entry strategy
This study understands the
growth patterns of a city
and real estate
developments, to arrive at
an ideal location for
projects and
establishments.
Marketing strategy
Partnering with the
developer to formulate a
marketing plan keeping in
mind the target audience,
positioning, product and
pricing.
ADVISORY SERVICES
Wholly Owned by Reserve Bank of India
NATIONALHOUSING BANK
OUR CLIENTS:
13www.liasesforas.com
Independent Non-brokerageReal Estate Research Company
Liases Foras Real Estate Rating & Research Pvt. Ltd.
Office No. 208, 2nd Floor Square1,
Saket District Center, New Delhi -
110017. Tel: +91 11 40105461
103, Raheja Chambers (Next to Post
office), Museum Road, Bengaluru
560001. O: +91 8041139314
Reg Office: S-6, Pinnacle Business Park,
Mahakali Caves Rd, Nr Ahura Centre,
MIDC, Andheri E, Mumbai 400093. O:
+912228391486/63
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