The information in this section is derived from various government publications and industry sources. Neither we nor any other person connected with the Issue have verified this information. Industry sources and publications generally state that the information contained therein has been obtained from sources generally believed to be reliable, but that their accuracy, completeness and underlying assumptions are not guaranteed and their reliability cannot be assured and, accordingly, investment decisions should not be based on such information.
Overview
India, the world’s largest democracy in terms of population (1.156 billion people) had a GDP on purchasing power parity basis of approximately US$3,570 billion in 2009. This makes India the fourth largest economy in the world after the United States of America, China and Japan in purchasing power parity terms. (Source: CIA World Fact Book website). The Indian economy is expected to grow at 8.5% for year 2010 – 2011 at 8.5% as set out in the Second Quarter review of monetary policy 2010-2011. (Source: Reserve Bank of India, Second Quarter Review of Monetary Policy 2010-11, November 02, 2010) Indian Real Estate Sector
The Indian real estate sector involves the development of commercial offices, industrial facilities, hotels, restaurants, cinemas, residential housing, retail outlets, purchase and sale of land and land development rights.
Historically, the real estate sector in India was unorganized and characterized by various factors that impeded organized dealing, such as the absence of a centralized title registry, Lakhk of uniformity in local laws and their application, the non-availability of bank financing, high interest rates and transfer taxes and the Lakhk of transparency in transaction values and processes.
This is rapidly changing as the sector is experiencing higher growth rates and significantly improved quality expectations as India becomes more integrated with the global economy. The shift from family owned businesses to professionally managed ones. Developers, in meeting the growing need for managing multiple projects across cities, are investing in centralized processes to source material and organize manpower and hiring qualified professionals in areas like project management, architecture and engineering.
Real estate plays a crucial role in the Indian economy as it is the second largest employer after agriculture. The Real Estate industry has significant linkages with several other sectors of the economy, the positive effects of real estate growth spread far and wide.
The Real estate industry in India has been moving from strength to strength and has emerged as a significant driver of economic growth. In terms of GDP contribution, the sector is contributed to approximately 5% in year 2009. The industry has evolved from a highly fragmented and unorganized market towards a semi-organized market. Expansion in sources of capital has been a significant value addition in the sector’s progression in the country. The sector received capital flows of around US$26 billion in 2009.
In US$ million 2006 2007 2008 2009 FDI 38 467 2,179 2,801 Bank Loans 5,740 9,479 13,616 19,694 ECBs 334 157 - - IPOs 393 3,251 - 166 FCCBs - - - - AIM 2,438 322 - - QIPs 415 - - 3,316 Total 9,358 13,676 15,795 25,977
(Source: Indian Real Estate 2010 by Grant Thornton, CII Realty 2010: 6th International Conference on Real Estate - Changing Contours: Leading the Shift).
According to the report of the Technical Group on Estimation of Housing Shortage, an estimated shortage of 26.53 million houses during the Eleventh Five Year Plan (2007-12) provides a big investment opportunity. (Source: India Brand Equity Foundation, www.ibef.org)
Government Initiatives
(Source: India Brand Equity Foundation, www.ibef.org)
The government has introduced many progressive measures to unlock the potential of the sector and also to meet the increasing demand levels.
• 100 per cent FDI allowed in townships, housing, built-up infrastructure and construction development projects through the automatic route, subject to guidelines as prescribed by DIPP • 100 per cent FDI is allowed under the automatic route in development of Special Economic Zones
(SEZ), subject to the provisions of Special Economic Zones Act 2005 and the SEZ Policy of the Department of Commerce
• FDI is not allowed in Real Estate Business
Union Budget 2010-11 major initiatives with regard to the real estate sector:
• Allocation for urban development was increased by more than 75 per cent from US$ 660.3 million to US$ 1.17 billion in 2010-11
• Allocation for housing and urban poverty alleviation was raised from US$ 183.4 million to US$ 215.8 million in 2010-11
• Scheme of 1 per cent interest subvention on housing loan up to US$ 21,576 where the cost of the house does not exceed US$ 43,153 announced in the last budget has been extended up to March 31, 2011 and US$ 151 million has been earmarked for this scheme for 2010-11
• US$ 274 million has been allocated for Rajiv Awas Yojna, as compared to US$ 32.4 million last year
Market Segments
The sector can be divided into residential, commercial, retail, hospitality and Special Economic Zones.
(Source: India Brand Equity Foundation, www.ibef.org) Commercial Office Space
• This segment is dominated by a few large national developers with pan-India presence. • Regional players are expanding aggressively to achieve a pan-India presence.
• Shift in the type of operations from a sale to a lease and maintenance model.
• Business activity is shifting from Central Business District (CBD) to other areas, within the cities and from tier I cities to tier II cities.
• Demand growth is due to service sectors such as Telecom, Financial Services and IT& ITeS, which accounts for the maximum demand of commercial office space in the country.
Residential Space
• This segment of the industry is highly fragmented and unorganized. • Regional players are expanding to achieve a pan-India presence. • Broad categories include low-cost, mid-market and premium housing. • Current space shortage is largely in the middle and low income groups.
• Many developers are scaling up launch of affordable housing projects, which will mostly come up in the suburbs of large cities and tier I and tier II cities.
Retail Space
• The retail segment forms a small proportion of the total real estate industry in India. • Unorganized retail space providers have dominated the retail landscape in India.
• In the organized retailing segment, demand for good quality mall space has grown, with the entry of international retailers and large retailers in India.
• International retailers are present through the franchisee route.
• Contribution of organized retail to the retail industry has consistently increased from 2% in year 2003 to 5% in year 2007.
Hospitality Space
• The hospitality segment has witnessed robust growth in demand, primarily due to strong growth in tourism, including both business and leisure travel.
• India is acquiring recognition as a medical tourism destination.
Residential Space
Retail Space Hospitality Space Special Economic Zones (SEZs) Commercial Office Space Real Estate Sector
• Hospitality players are diversifying into budget hotels and service apartments and wellness spas gaining popularity.
Growth Drivers
The main factors that are driving demand of real estate in India are described in more detail below • Changing demographics
Demographics form the foundation for real estate growth. India being a country with increasing number of younger population - 0-14 year old comprise of 30.5% of population, 15-64 year old comprise of 64.3% of population and population growth rate of 1.38% (Source: CIA World Fact Book website). All the above factors will lead to a large consumer base and rising income levels along with more job creation, especially in sectors like IT/ITES services and declining mortgage rate have also resulted in enhanced demand for quality housing.
• Increasing urbanization
India is witnessing a trend of increased urbanization wherein people migrate from rural areas to urban areas. India has 29% of total urban population with an annual urbanization rate of 2.4%. (Source: CIA World Fact Book website) This urban population is creating an increasing demand for housing, retail and hospitality services.
• Institutionalization of the industry
In response to the changing external environment, developers have moved from an informal and unorganized setup towards institutionalization of their organizations. The move towards institutionalization has included steps such as the introduction of professional CEOs and other functionaries, release of financial results on a quarterly basis, adoption of the latest construction technologies and enhanced transparency in sharing information with customers. These moves have equipped players in the sector to tackle the rapid changes sweeping across the sector. It has also helped distinguish the corporatised market players from the unorganized ones, and to improve the overall perception of the sector to an extent.
• Emergence of multiple centre for development
Over the past few years, multiple locations such as Bangalore, Gurgaon, Hyderabad, Chennai, Kolkata and Pune have emerged and are competing with traditional business destinations such as Mumbai and Delhi, especially with respect to their commercial real estate sector. These emerging destinations have succeeded in matching their human resources base with necessary skill sets, competitive business environments, operating cost advantages and improved urban infrastructure.
Real Estate market in Mumbai
Mumbai is the capital city of Maharashtra, with a population of 11.91 million (Census 2001) and the total Mumbai Metropolitan Region has a total population of 18.89 million (source: www.mmrdamumbai.org/basic_information.htm)
Mumbai is the commercial and financial capital of India, generating about 5% of India’s GDP and contributes over one third of the country’s tax revenues. In addition, it handles major part of the port traffic of the country. (Source:www.mmrdamumbai.org/projects_muip.htm)
The city is home to important financial institutions like the Reserve Bank of India, the Bombay Stock Exchange and the National Stock Exchange. Besides being the entertainment capital of the country, the city has rich cosmopolitan demographics. These factors also ensure that the city remains foremost in terms of the real estate development. The region referred to as Mumbai Metropolitan Region (MMR), covers the city of Thane and Navi Mumbai along with Mumbai city.
There has been a continuous increase in the population of Mumbai, through the last few years. This rapid growth in population has led to a shortage of housing and informal and poor quality housing.
The rapid population growth and the process of urbanization have resulted into changing land-use patterns. With the saturation of land in the city being followed by saturation in the suburbs, residents are forced to move to other parts of the metropolitan region resulting in these areas now experiencing rapid growth. Infrastructure Initiatives in Mumbai
Some of the ongoing infrastructure development initiatives under taken in Mumbai improve the ageing infrastructure are outlined below:
• Mumbai Urban Development Project
• Shifting of Wholesale Markets from South Mumbai • Mumbai Urban Transport Project
• Mumbai Urban Infrastructure Project • Mumbai Metro Rail Project
• Skywalks - planned construction of 36 nos. of Skywalks in and around Mumbai Metropolitan Region
• Monorail
• Station Area Traffic Improvement Scheme (SATIS) • Rental Housing
Slum Rehabilitation Scheme (“SRS”) in Mumbai
In 1995, the Government of Maharashtra initiated the Slum Rehabilitation Scheme to be administered by the newly-created Slum Rehabilitation Authority (SRA). The objective of the SRS is to redevelop slums in the Mumbai area. Through the scheme, slum dwellings are replaced by residential buildings containing flats of 225 square feet that are constructed free of cost to former slum dwellers by private real estate developers participating in the scheme.
The government subsidizes this clearance and construction by granting developers the right to develop a proportion of former slum land for their own purposes, or by granting them transferable development rights (“TDRs”) which may be used to develop land elsewhere in Mumbai north of the slum land concerned. In other words, in exchange for the construction of flats for slum dwellers, real estate developers are allowed to construct residential, commercial and retail properties on slum land, whether it is government or private land, which they can then freely sell. Moreover, TDRs permit developers to develop land in certain parts of Mumbai that are outside the rehabilitated slum area. A TDR is made available in the form of a certificate issued by the municipal corporation of Mumbai, and its owner can use it either for actual construction or can sell it in the open market. Residential development on slum land that is subject to the SRS also benefits from a superior Floor Space Index (FSI) allowance which determines the total permitted construction area as a portion of the total land area of a site.
Under the SRS, the FSI is generally around 2.5 as against a normal FSI of 1.33 thereby making SRS development more attractive for developers. Moreover, the SRS can enable a developer to acquire land in prime locations in Mumbai, a city where the scarcity of land is a constraint on real estate development. The acquisition can be made at, in effect, lower cost (e.g., the cost of constructing replacement housing for the slum dwellers) than traditional purchases of land for cash, thereby reducing the asset cycle risk for the developer between land acquisition and sale of developed property or FSI/TDRs. The innovative subsidy
previously unattractive to real estate developers. In addition to helping fulfill the social obligations of the government, which does not have the resources to undertake rehabilitation projects on a large scale, an on- going benefit of the SRS to the government of Mumbai includes the addition of individuals to the tax rolls when they occupy new housing who, as slum dwellers, were not previously part of the tax base.
Indian Media & Entertainment Sector
Indian Media and Entertainment (M&E) comprises primarily of television, print, film, radio, music, animation, outdoor advertising and gaming. In recent times, the Indian M&E industry has been one of fastest growing sectors of the economy. This has been possible on account of a buoyant economy and favorable demographics.
M&E industry in India is indicating potential for growth
Media spend in India as a percent of GDP is 0.41%. This ratio is almost half of the world‘s average of 0.80% and is much lower compared to developed countries like US and Japan. This indicates the potential for growth in spends as the industry in India matures. As we move towards a more brand-conscious society, this is likely to get reflected in the future growth rates.
(Source: FICCI-KPMG Indian Media & Entertainment Industry Report, March 2010)
Industry Size
Segment wise break up of the India M&E industry is given below. The Indian M&E industry is projected to grow from its current estimated size of Rs. 587 billion in 2009 to Rs. 1,091 billion in 2014, translating into a Compounded Annual Growth Rate (“CAGR”) of 13% over the next five years.
(Source: FICCI-KPMG Indian Media & Entertainment Industry Report, March 2010) OOH Industry
Outdoor advertising is essentially any type of advertising that reaches the consumer while he or she is outside the home. Out of home advertising, therefore, is focused on marketing to consumers when they are "on the go" in public Places, in transit, waiting area and/or in specific commercial locations (such as in a retail venue). Outdoor advertising formats fall into four main categories: billboards, street furniture, transit, and alternative.
In 2009 the Indian OOH industry size was at Rs. 13.67 billion, this was after a fall of 15% due to slowdown in industry. The industry is still in a nascent stage of development and is still evolving. The industry is
(Source: FICCI-KPMG Indian Media & Entertainment Industry Report, March 2010)
0 5 10 15 20 25 30 2006 2007 2008 2009 2010 2011 2012 2013 2014
(Source: FICCI-KPMG Indian Media & Entertainment Industry Report, March 2010)
The growth driver for the sector is the private sector investments in malls, multiplexes, real estate, and high-end retailers. This can ensure a consistent supply of high quality advertising spaces thereby increasing the supply and demand of outdoor assets.
The growth could also come from the fact that consumers are spending more time out of home in retail outlets, on roads, airports and metros. This is likely to give more avenues for advertisers to target the audience while they are on the move.
The format of the medium is also likely to change in the near future. OOH players have already started investing in digital sign boards and digital TVs. With the emergence of organized retail outlets, modernized airports and metro stations, there is likely to be ample spaces relevant for the digital medium which is more engaging and is capable of having higher impact.