INDUSTRIAL AWARENESS

REAL ESTATE

Group 10
Arindham Majumdar Gaurav Mohan Meghwant Thakur Pramit Pal SanotshKumar Tiwari Zonobia Safar

Index

Contents Overview Major Players Technological Trends in Real Estate Product Life Cycle Government Policies Impact of Budget 2011 Exhibits References

Page Number 3 4 6 8 10 13 14 20

EXECUTIVE SUMMARY

The real estate sector is a critical sector of our economy. It has a huge multiplier effect on the economy and therefore, is a big driver of economic growth. It is the second-largest employmentgenerating sector after agriculture. Growing at a rate of about 20% per annum and this sector has been contributing about 5-6% to Indias GDP. Not only does it generate a high level of direct employment, but it also stimulates the demand in over 250 ancillary industries such as cement, steel, paint, brick, building materials, consumer durables and so on. The Indian real estate industry has been on a roller coaster ride since 2005. Consequent to the governments policy to allow Foreign Direct Investment (FDI) in this sector, there was a boom in investment and developmental activities. The sector not only witnessed the entry of many new domestic realty players but also the arrival of many foreign real estate investment companies including private equity funds, pension funds and development companies entered the sector lured by the high returns on investments. The real estate sector has been riding through many highs and lows since then. The industry achieved new heights during 2007 and early 2008, characterised by a growth in demand, substantial development and increased foreign investments. However, by mid 2008, the effects of the global economic slowdown were evident here too, and the industry took a U turn. FDI inflow into real estate dropped significantly and what had emerged as one of the most promising markets for foreign investments experienced a downturn.

Overview

While India continues to be one of the fastest growing economies, this pace of growth is unlikely to sustain unless it is supported by an equally robust development of its infrastructure. Key requirements in order to achieve a GDP growth rate exceeding 8-9% include roads, power, ports as well as urban infrastructure. The last couple of budgets have taken steps in the right direction for growth of the sector. An allocation of Rs. 200 billion towards infrastructure projects under the 2011 budget is an attempt to achieve the Governments target for growth of Infrastructure under the Eleventh Plan. The real estate sector is one of the important growth engine of economy and it has been recognized as infrastructure service. it is the second largest employer next only to agriculture. Five per cent of the countrys GDP is contributed by the housing sector. India will have around 27 to 30 million shortage of housing units by 2013 and for this; huge amount is required to carry on the development.

The real estate sector in India is being recognized as an infrastructure service that is driving the economic growth engine of the country. In fact, Foreign Direct Investment (FDI) in the sector is expected to increase to US$ 25 billion in the next 10 years, from present US$ 4 billion. Indian real estate emerged as the popular sector for private equity (PE) funds investing around US$ 1,700 million in this sector during 2011. PE in real estate projects will fetch considerable returns by next year-end or early 2013, according to Vikram Hosangady, Partner, KPMG.

India needs to invest US$ 1.2 trillion over next 20 years to modernise urban infrastructure and keep pace with the growing urbanisation, as per a report released by McKinsey Global Institute (MGI)India's urban awakening.
3

Major Players DLF Headed by: Dr. K.P. Singh About: With a track record of 64 years, DLF is Indias largest real estate company in terms of revenues, earnings, market capitalization and developable area. It currently has pan India presence across 30 cities with approximately 238 million sq ft of completed development and 413 million sq ft of planned projects, of which 56 million sq ft of projects are under construction during FY10. BSE Code 532868 NSE Symbol DLF Year of Incorp. 1963 Bse Market Cap(in cr) 36823.48 Face value 2 525 Nse 36789.51 Offer price Listed Date- Listed Date BSE 05-05-07 NSE 05-07-07

Project Spectrum: Residential, townships, commercial complexes, IT Parks, hotels, multiplexes, etc Omaxe Headed by: Rohtas Goel, CMD About: Over the past 22 years, Omaxe has established itself through diverse range of residential and commercial projects. The company at present has 53 projects under execution and planning. Omaxe Ltd was the first Construction Company of northern India to receive an ISO 9001:2000 Certification. BSE Code 532880 NSE Symbol OMAXE Year of Incorp. 1989 Face value 10 310 Offer price Listed Date- Listed Date BSE 09-08-07 NSE 09-08-07

Bse Market Cap(in cr) 2663.43

Nse 2655.62

Project Spectrum: Integrated townships, Group housing, SEZs, Shopping malls & commercial complexes and hotels.

UNITECH Headed by: Ramesh Chandra, Executive Chairman About: Established in 1972, Unitech is today Indias leading real estate developer in India. It is the first developer to have been certified ISO 9001:2000 in North India. BSE Code 507878 NSE Symbol UNITECH Year of Incorp. 1971 Face value 2 50.75 Offer price Listed Date- Listed Date BSE NA NSE 02-01-95

Bse Market Cap(in cr) 5585.69

Nse 5572.61

Project Spectrum: Unitech offers diversified projects across residential, commercial/IT parks, retail, hotels, amusement parks and SEZs segments. ANSAL Headed by: Sushil Ansal, Chairman About: Established in 1967 as a family business, Ansal API today is clearly amongst the real estate leaders of India. Having established itself very strongly in the NCR region, Ansal API is now focusing on ventures in cities like Bhatinda, Mohali, Amritsar, Ludhiana, Jalandhar, Jaipur, Jodhpur, Ajmer, Sonepat, Panipat, Karnal, Kurukshetra, Faridabad, Gurgaon, Greater Noida, and Ghaziabad, Meerut, Agra, Lucknow, to name a few. Ansal API has till date, developed and delivered more than 190 million sq ft. The company currently has a land reserve of about 9,335 acres. BSE Code 500013 NSE Symbol ANSALAPI Year of Incorp. 1967 Face value 5 89.95 Offer price Listed Date- Listed Date BSE 23-06-93 NSE 08-02-95 API

Market Cap(in cr)

Bse 401.14

Nse 401.14

Project Spectrum: Integrated Townships, Condominiums, Group Housing, Malls, Shopping Complex, Hotels, SEZs, IT Parks and Infrastructure and Utility Services
5

TECHNOLOGICAL TRENDS IN REAL ESTATE Technology, innovation and changing human behavior have reduced the amount of required office space. Companies and employees are able to do more with less space the very heart of innovation. Technology-driven innovation in the commercial real estate industry is already prevalent in todays generation of internet addresses (IPv6), allowing all electronic products a unique address. With wireless broadband, GPS, location services and new apps, we thus see innovation across all areas of real estate, transforming the way we work. MAIN TRENDS Social Engagement:

The market place is conversing, learning, sharing and living on social networks (Facebook, Twitter, LinkedIn and the like). Many agents have embraced the social media world to promote their brand and their listings because it is free, easy and efficient.

The Worlds Gone Mobile:

The rise of app phone has been a major trend over the past four years. The iPhone is all pervasive, with the Android rising fast. REALTOR.com has a Mobile Real Estate App for the iPhone. Realtors Mobile App now available in ipad, android and windows phone 7 also. LifeStyle Search:

Another major trend is property web sites incorporating neighbourhood information, such as commute times, schools, nearby parks into their search, or lifestyle searches.

Other Technological Trends: The Adoption of eSignatures. The REALTOR adoption of eSignings was the biggest technology trend coming into 2012. eSignatures will become mainstream. Authentisign reached the 150,000-REALTOR mark by the start of 2012, thanks in part to enterprise relationships with MLSs and REALTOR.

QR Codes. There's a lot of talk about QR Codes, and more and more real estate offices are including them on business cards, print ads and yard signs, but the adoption by home buyers is still very low. The Bundling of Real Estate Technology Services as a Member-Benefit. Bringing members improved technology tools as a bundled member-benefit not only puts highvalue services in the hands of members, but it also allows Associations & MLSs to offer more services for less. ONGOING CHANGES AND IMPROVEMENTS IN REAL ESTATE: REAL ESTATE MARKET TURNS INNOVATIVE TO LURE HOME BUYERS VIRTUAL COMMUNITIES

Home buyers are realising the power of collective bargaining. They are coming together on common platforms to have better leverage, whether it is in buying properties or putting pressure on developers. Modelled on successful group-buying websites such as Groupon.com, some websites like GrOffr.com and SnapGhar.com are offering a platform for buyers to come together and get better deals through collective bargaining. FLEXI HOMES

Home buyers are no longer content with the pre-designed homes being offered by developers. They want more flexibility and control over how their apartments will eventually look. In order to allow home buyers to customize their apartments, developers are offering homes where buyers can select their own specifications. PE MUSCLE

Funding has remained a concern for several developers over the past few years. As investors do not want to be stuck in a stalled or delayed project, real estate private equity (PE) firms no longer just finance realty projects. PE firms are forming joint ventures with developers and actively participating in the development of the projects. Fire Capital Fund and Indus Capital Partners, for instance, have formed joint ventures with developers for realty projects in places like Delhi, Bangalore, Indore, Nagpur and Chennai. HOTEL APARTMENTS

Driven by demand from the corporate sector, particularly the IT and IT-ES segments, serviced apartments are the new buzz in the real estate industry. Leading real estate
7

companies across India are offering medium- to high-end serviced apartments in the price range of Rs 20-70 lakh. GREEN HOMES As people are turning more conscious about the environment and seek better lifestyle, ecofriendly homes are becoming popular. Developers are implementing eco-friendly building concepts in homes even if the properties do not have green certification from rating agencies.

PRODUCT LIFE CYCLE OF REAL ESTATE In the present state, the life cycle of a particular product/project in real estate could have a long flat phase, before it achieves growth as well as maturity. In such a case, the curve shall have a horizontal line of longer duration in stages. REAL ESTATE BUBBLE: A type of economic bubble that occurs periodically in local or global real estate markets. It is characterized by rapid increases in valuations of real property such as housing until they reach unsustainable levels and then decline. The financial crisis of 20072012 was related to the bursting of real estate bubbles around the world, which had begun during the 2000s. Other examples: Japanese asset price bubble of 1990, The Florida Real Estate mania of 1920. HOUSING BUBBLE:

Housing Market indicators: Financial ratios and economic indicators can be used to evaluate whether homes in a given area are fairly valued. By comparing current levels to previous levels that have proven unsustainable in the past, one can estimate whether a given real estate market is experiencing a bubble. These indicators describe 2 components: a valuation component and a debt (or leverage) component. The valuation component measures how expensive houses are relative to what most people can afford, and the debt component measures how indebted households become in buying them for home or profit. Driving Forces Stated below are the reasons that have led to the real estate boom in the country Indias emergence as an attractive offshoring destination and availability of pool of highly skilled technicians and engineers; Development of large captive units of major players include GE, Prudential, HSBC, Bank of America, Standard Chartered and American Express Rise in disposable income and growing middle class, increasing the demand for quality residential real estate and real estate as an investment option. Entry of professional players equipped with expertise in real estate development; Relaxation of legal rulings and processes by the governing bodies encouraging investments in real estate Government Policies Repeal of Urban Land Ceiling Act in 1999 can be considered as one of the major steps taken by Government of India (GoI) which has led to availability of considerable parcels of land that were earlier frozen. FDI draws major investments One of the most pressing requirements of the real estate sector was availability of adequate funds from different sources. Considering this need, the Government of India opened its doors to Foreign Direct Investment (FDI) in March 2005 by issuing the first Press Note 2 of 2005. Presently, FDI up to 100 percent is permitted under the automatic route in townships, housing, built-up infrastructure and construction development projects (which would include, but not
9

restricted to housing, commercial premises, hotel, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure). Since the opening up of the window for investment, the real estate sector has attracted a total investment of USD 8.9 billion. It is expected that the market size will increase to USD 180 billion by 2020. Guidelines for FDI application in Indian real estate The Government of India has set up certain guidelines for investors willing to apply in FDI in real estate, which have conditions like area, investment options and target for completion of a project. 1) Minimum area

In case of development of serviced housing plots, 10 hectares (25 acres) In case of construction-development projects, built-up area of 50,000 sq m. In case of a combination project, any of the above two conditions

2) Investment

Minimum capitalization o for wholly owned subsidiaries - US$ 10 million o for JV with Indian partners - US$ 5 million, to be brought in within 6 months of commencement of business

Original investment cannot be repatriated before a period of three years from completion of capitalization.

The investor may exit earlier with prior approval from Foreign Investment Promotion Board (FIPB).

3) Time frame & rules

At least 50 per cent of the project to be developed within five years from the date of obtaining all statutory clearances.

Investor cannot sell undeveloped plots - where roads, water supply, street lighting, drainage, sewerage and other conveniences are not available.

Similar to the FDI route, the Domestic Venture Fund route has also attracted significant amount from domestic investors for investments in the real estate and infrastructure sector.

10

Year 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

FDI inflow(Rs billion) 1.7 21.2 87.5 113.2 135.9 51.4 46.8

Thrust on housing Another major challenge for the government was to have a slum-free India. If statistics are to be believed, the number of people living in slums is expected to double by 2030. To address this challenge, the GoI announced the 'Rajiv Awas Yojana' in the Union Budget of 2009 with the objective of a slum-free India by 2014. It is estimated that India has a huge deficit of houses and in order to meet this expectation and achieve the vision of 'housing for all', the Jawaharlal Nehru National Urban Renewal Mission (JNNRUM) launched by the GoI is gaining momentum. Besides policies and regulations, the GoI has also provided income tax incentives depending upon the nature of project. Affordable housing projects (including slum redevelopment and rehabilitation projects) approved before March 31, 2008 are eligible for profit-linked incentives under Section 80-IB(10) of the Income Tax Act. The tax incentive is 100 percent of profits earned from the business of developing and building specified housing projects subject to certain conditions. The three land-mark legislations staring at the door step of the economy - Direct Taxes Code 2010, GST and IFRS - will change the rules of the game and hence these legislations should be crafted as also implemented carefully.

SECTOR FACTS

FDI flows into housing and real estate in April-March 2011-12 stood at US$ 731 million, according to the Department of Industrial Policy and Promotion (DIPP)

11

Housing and real estate sector including Cineplex, multiplex, integrated townships and commercial complexes etc, attracted a cumulative foreign direct investment (FDI) worth US$ 11,168 million from April 2000 to April 2012 Investment Opportunities Real estate emerged as the popular sector for private equity (PE) funds, which witnessed investments worth US$ 1,700 million in the sector during 2011. The Government has proposed one per cent TDS (tax deduction at source) on transfer of immovable property if the sale value exceeds Rs 50 lakh in urban centres and Rs 20 lakh in other areas in the Union Budget 2012-13. Some of the foreign players who have already tied up with Indian real estate developers are Lee Kim Tah Holdings, CESMA International Pvt Ltd., Evan Lim, and Keppel Land from Singapore, Salim Group from Indonesia, Edaw Ltd., from USA, Emaar Group from Dubai, IJM, Ho Hup Construction Co., from Malaysia etc. EMAAR Properties Emaar MGF Land Limited is a joint venture company formed by Emaar Properties PJSC and MGF Developments Limited of India. In December 2005 Emaar MGF announced India's largest FDI in real estate amounting to over half a billion dollars for projects with a capital outlay of US$4 billion (Rs 18,000 crore). CAPITALAND CapitaLand, one of Asias largest real estate firms, will spend about S$300 million, or over Rs 1,000 crore, over the next three years to grow its hospitality business in India. Impact of Budget 2012 on real estate sector: Allowing External Commercial Borrowing (ECB) for affordable housing translates into availability of capital for developers focusing on low-cost housing. Better capital availability will help in timely project execution, which will result in higher volumes. The allowance of ECB for low cost affordable housing projects will lower interest cost for developers. In order to ease liquidity, the government has also reduced withholding tax on ECBs for affordable housing from 20% to 5% for 3 years. Besides, 1% interest rate subsidy provided last year for loans towards affordable housing continues this year. Exemption of proceeds from the sale of a residential property from capital gains tax if it is invested in equity or equipment of an SME - earlier the only route for exemption was purchase of another property or tax saving bonds. Investment linked deduction available for low cost affordable housing projects increased from 100% to 150%. This amendment may provide a much needed fillip to the affordable housing segment by way of getting a higher rate of deduction on capital expenditure though cost of land (which constitutes majority portion of cost) is excluded. Venture Capital Funds (VCF') focussed on real estate sector can now breathe a sigh of relief with the reinforcement of tax pass through status for all types of VCFs. By virtue of
12

this amendment, the VCF making investment in a real estate SPV will not be subject to tax and the tax will be levied at the investor level. This amendment does away with the age old controversy surrounding taxation of trusts and will result in reduction of litigation. The increase in the service tax rate from 10% to 12% is likely to increase the cost of production for developers, who are already reeling under high input costs. It follows that this increased burden will be passed on to end users. With the increase in excise duty, the cost of basic inputs like cement and steel, furnishings, etc, will go up. This will roughly translate into Rs 40,000 on home costing Rs 75 lakh. The silver lining is that the affordable housing, being part of negative list, is exempted from service tax. Pradeep Jain, the chairman of CREDAI and chairman, Parsvnath Developers, claims the few positives are just a "last-minute window dressing". This refers to the extension of interest subvention of 1% on housing loans by extending it to housing loan up to Rs 15 lakh where the cost of the house does not exceed Rs 25 lakh. Developers however feel that this announcement is unlikely to have any major impact on demand across major Tier 1 cities like Mumbai, the NCR, Bangalore, etc, owing to the prevalent high property prices. However, affordable-housing segment in Tier 2 and Tier 3 cities may benefit from this concession. Raising personal income tax exemption limit from Rs 1.8 lakh to Rs 2 lakh is being seen as nothing more than tokenism. It will have no significant impact on the aspiring Indian middle-class homebuyer. However, the 1% tax rebate for home loans of up to Rs 15 lakh on homes costing up to Rs 25 lakh will prove beneficial for developers in this segment. The delay in implementation of the Direct Tax Code (DTC) and the continuing lack of clarity with respect to SEZs is a big disappointment.

Real Estate Industry - Key Events The real estate industry has been under scrutiny since the US subprime mortgage crisis and other current events, but it is still a large field which generates billions of dollars in revenue. In US, there were 165,000 companies operating in the residential brokerage and management field last year, which generated $170 billion in revenue, and there were 25,000 companies operating in the commercial brokerage and management field, generating annual revenue of $30 billion. FDI In multi-brand retail announced recently will be beneficial for real estate sector. The real estate sector will also be able to consume the fruits of this reform, in terms of boosting development of new shopping malls. CCI is investigating 70 real estate companies, including Unitech, Parsvnath Developers and Omaxe as well as several big builders in Mumbai, for alleged collusion In the biggest realty deal in the country this year, DLF Monday announced sale of 17 acres of prime land in Mumbai to Lodha Developers for Rs 2,700 crore, almost four times higher than the price it had paid in 2005.

13

EXHIBIT 1 Ratio Analysis COMPANIES Ansal Properties

Omaxe Key Ratios Investment Valuation Ratios Face Value Dividend Per Share Operating Profit Per Share (Rs) Net Operating Profit Per Share (Rs) Bonus in Equity Capital Profitability Ratios Operating Profit Margin(%) Profit Before Interest And Tax Margin(%) Gross Profit Margin(%) Cash Profit Margin(%) Adjusted Cash Margin(%) Net Profit Margin(%) Adjusted Net Profit Margin(%) Return On Capital Employed(%) Return On Net Worth(%) Adjusted Return on Net Worth(%) Return on Assets Excluding Revaluations Return on Assets Including Revaluations Return on Long Term Funds(%) Liquidity And Solvency Ratios Current Ratio Quick Ratio Debt Equity Ratio Long Term Debt Equity Ratio Debt Coverage Ratios Interest Cover Total Debt to Owners Fund Financial Charges Coverage Ratio Financial Charges Coverage Ratio Post Tax 1.67 1.03 0.44 0.32 1.6 0.44 1.64 1.53
14

DLF

Unitech

10 -11.17 76.78 81.71 14.54 14.01 14.18 5.02 5.02 4.66 4.66 9.43 4.17 4.17 86.74 86.74 10.35

5 -7.41 65.94 55.12 11.24 10.1 10.28 3.45 3.45 3.27 3.27 5.76 2.13 1.64 102.7 102.7 5.76 1.57 0.78 0.35 0.35 1.52 0.35 1.64 1.54

2 2 12.42 20.56 78.81 60.43 42.99 56.42 25.94 25.94 22.73 22.73 11.56 7.18 7.23 85.35 85.35 12.71 1.74 1.74 0.83 0.66 1.97 0.83 2.06 1.76

2 -0.98 4.92 60.45 19.97 14.1 19.45 18.76 18.76 18.38 18.38 6.08 3.38 3.38 36.84 36.84 6.77 2.31 2.83 0.26 0.13 2.64 0.26 2.66 2.19

Management Efficiency Ratios Inventory Turnover Ratio Debtors Turnover Ratio Investments Turnover Ratio Fixed Assets Turnover Ratio Total Assets Turnover Ratio Asset Turnover Ratio Number of Days In Working Capital Exhibit 2 Key ratios COMPANIES Ansal Properties 0.73 2.96 0.73 22.8 0.61 0.54 505.84 0.46 1.46 0.46 6.47 0.48 0.41 0.43 8.84 0.43 1.46 0.13 0.13 1.1 0.77 1.1 11.31 0.11 0.1

562.42 1,573.38 2,694.99

Omaxe Key Ratios Profit & Loss Account Ratios Imported Composition of Raw Materials Consumed Expenses as Composition of Total Sales Cash Flow Indicator Ratios Dividend Payout Ratio Net Profit Dividend Payout Ratio Cash Profit Earning Retention Ratio Cash Earning Retention Ratio AdjustedCash Flow Times Key Financial Statement Values Earnings Per Share Book Value

DLF

Unitech

-0.05 --100 100 9.88 3.62 86.74

1.45 0.09 --100 100 15.53 2.2 102.7

-1.52 37.89 33.4 62.37 66.8 10.07 6.13 85.35

-0.35 --100 100 7.55 1.25 36.84

15

Exhibit 3

Market Capitalisation(Rs Cr)

40000 35000 30000 25000 20000 15000 10000 5000 0 DLF OMAXE UNITECH Ansal Series1

Operating Profit Per Share (Rs)

14 12 10 8 6 4 2 0 Omaxe Ansal Properties DLF Unitech Operating Profit Per Share (Rs)

Operating Profit Margin(%)

70 60 50 40 30 20 10 0 Omaxe Ansal Properties DLF Unitech Operating Profit Margin(%)

16

Profit Before Interest And Tax Margin(%)

50 40 30 20 10 0 Omaxe Ansal Properties DLF Unitech Profit Before Interest And Tax Margin(%)

Net Profit Margin(%)

25 20 15 10 5 0 Omaxe Ansal Properties DLF Unitech Net Profit Margin(%)

Current Ratio
2.5 2 1.5 1 0.5 0 Omaxe Ansal Properties DLF Unitech Current Ratio

17

Quick Ratio
3 2.5 2 1.5 1 0.5 0 Omaxe Ansal Properties DLF Unitech Quick Ratio

Debt Equity Ratio

0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 Omaxe Ansal Properties DLF Unitech

Debt Equity Ratio

Investments Turnover Ratio

1.2 1 0.8 0.6 0.4 0.2 0 Omaxe Ansal Properties DLF Unitech Investments Turnover Ratio

18

Earnings Per Share

7 6 5 4 3 2 1 0 Omaxe Ansal Properties DLF Unitech Earnings Per Share

Book Value
120 100 80 60 40 20 0 Omaxe Ansal Properties DLF Unitech Book Value

FDI inflow(Rs billion)

160 140 120 100 80 60 40 20 0 135.9 113.2 87.5 51.4 21.2 1.7 46.8 FDI inflow(Rs billion)

19

Sources:
1. ET Intelligence Group 2. Jones Lang Laselle 3. DLF Ltd 4. Times of India 5. Delloite Report 6. Meryll-Lynch Report 7. Money Control

http://www.constructionweekonline.in/article-6937-indias_top_real_estate_companies/1/print/ http://www.sethassociates.com/Real_estate_sector_in_india.php http://www.prres.net/papers/Sonia%20_Real_Estate_Sector_The_India_Story.pdf http://www.ibef.org/industry/realestate.aspx

20