1. Real Estate Within India -- A Complete Insight
India Real Estate
The size when it comes to total financial value of property development exercise of the indian native
real estate market happens to be US$40-45bn (5-6% of gdp ) of which residential forms the major
chunk with 90-95% of the market, industrial segment is distant 2nd with 4-5% of the market and
organized retail with 1% of the market. Over next five years, indian native real estate market is
expected to grow in a CAGR associated with 20%, powered by 18-19% growth in residential real
estate, 55-60% in retail real estate, as well as 20-22% within commercial real estate.
Long-term outlook
Long phrase industry perspective remains appealing : We believe which long term industry outlook
remains attractive, due to increasing urbanization, growing nuclear families and the increasing
number of Indian middle class. Fundamentally, strong GDP development , increasing travel and
leisure traffic as well as increase in for each capita income coupled with lower interest rates shall
improve the perspective of the field in the moderate to long term.
Key motorists of actual Estate
Economic Growth
• gdp growth rate associated with ~8-8.5%
• Double-digit income growth rate for the following 3-4 years
• Income development should improve affordability, driving demand for residential units
• lower interest rates
Demographics and Urbanization
• Positive demographic trends -- middle class or the aspirers to exhibit a CAGR of ten.4% to reach

2. 124m within 2013 compared to 46m within 2003
• Urbanization - UNDP forecasts urban population will constitute about 40% associated with total
population through 2030 from the current about 28%
• indian native household families moving through joint families to nuclear families
Favorable interest rate and fiscal Incentive
• real estate loan interest rate , despite the recent rise, still remain low compared to 15-16% in the
1990s
• Easy availability of finance
• fiscal incentives offered on due a residential house is also a significant need driver
IT/ITES Growth
• Strong IT/ITES growth ought to drive interest in commercial room - FY07-10 CAGR associated with
23% due to 568 thousand employee additions ; Indirect factor to residential demand because well
• They consume about 75% of the industrial space
Organized retail and hospitality Demand
• structured retail penetration level at 4.1% is lowest compared to other emerging markets
• Economic development and changing demographics ought to increase retail penetration levels
• Strong visitor arrivals ought to spur interest in hotels across India. Foreign Tourist influx is
forecasted to show the 20%+ CAGR to reach 10m by this year compared to four.4m within 2006
• room shortages have resulted in a clear , crisp jump in average room prices - Rs7,559 at end-FY07
versus. Rs2,004 in FY03; Approx. A hundred and five ,000 hotel rooms are available in India

3. The real-estate field offers a US$80bn-100bn opportunity within the next three years.
Growth in the next decade ought to come from tier II/III cities
• Higher real-estate prices within Tier we cities coupled with manpower as well as infrastructure
issues may pressure companies to check out Tier 2 and tier III cities for growing their operations
o Tier we cities- Mumbai, Delhi as well as Bangalore
o tier II cities- Kolkata, Hyderabad, Pune
o tier III cities- Nagpur, Ahmedabad, Indore, Lucknow, Jaipur
• next three to six many years , towns as well as cities such as Chandigarh, Jaipur, Mysore, Indore,
Coimbatore, Vishakhapatnam, etc will probably see a rise in real-estate need from the IT/ITES sector
• according to Nasscom's forecasts , Tier 2 and tier III cities , which take into account about 29% and
5% of the total commercial room in FY07, respectively, increases to 44% and 20% at the end
associated with FY17
Affordability
The cost index, even though at a reasonable 40% (EMI/net monthly disposable income), has risen
about 50% in the last two years, recommending a price run-up faster compared to income
development. The cost is also suffering from mortgage prices , which has risen by 400bp during the
same period. Lenders managed to limit the EMI increase to a certain extent by adjusting the loan
period , thereby manipulating the affordability as well. Currently, the domestic housing market has an
cost levels (home costs or Annual income ) of 4.five to 5.0x compared to global level of three.5x
Capitalization Rate
• It defines the proportion number accustomed to determine the current value of a house based on
estimated future working income we.e.
Cap Rate equals Annual cash flow / worth of property
• Capitalization prices are an indirect measure of how fast an investment will pay for itself in net cash
flows ; each year, the percentage amount of the limit rate is going to be repaid

4. • payback period equals 100% or Cap Rate
• In real estate appraisal within the U.s., a stylized measure of cash flow is often used , called net
operating income. It is basically the same as net cash flow, except that debt service and taxes are not
incorporated while the reserve for replacements is included
• 1 advantage of capital rate valuation is that it is separate from a "market-comparables" approach to
an evaluation (which only compares the other similar qualities have sold for with different comparison
associated with physical characteristics ). Given the inefficiency associated with real estate markets,
multiple approaches are generally preferred whenever valuing a real estate asset
• Cap rate would be determined based on an appraisal and/or the limit rates associated with similar
qualities that have sold recently
• By taking an additional property which sold lately , determining it's rental income , divide the income
by the sold cost to get the limit rate
• home price (IRR of expense ) decreases because Cap rate increases
Structuring tasks - an important element in efficient cash recycling
• Project constructing as an efficient mechanism to recycle funds and in the process earn higher IRRs
• 1 effective way to recycle money is to transfer a project or a number of projects on to a special
purpose vehicle (SPV)
• the SPVs are either sold to some REIT or even are for auction on a stock trade (for example,
Ishaan, a group organization of nited kingdom Raheja, was listed on goal in the fall of 2006)
• Companies tend to adopt innovative ways to make sure the property developed can be bundled up
into an SPV. One way is to give a differentiation value by personalisation , which can after that be
easily hived off in to an SPV when the situation demands
• developers tend to generate higher IRRs the faster they are able to sell properties to REITs
SPV (special Purpose vehicle )
• in an SPV, the developer ties up with a personal equity fund who provides capital, or even
alternately, ties up with foreign developers that not only have capital but also bring in specialized and

5. delivery capabilities
• it is much easier to establish the forecasted profits in an SPV instead of when it is pooled into the
entity
• Many developers are diluting a minority stake within their entity business or going in for particular
FDI certified SPVs for different projects
• SPVs are the only way out in FDI projects, in places you have a clear shareholder contract and
control in the project and exits becomes easier
• The foreign investor or even fund wants to join hands with the local developer as well as an SPV is
formed, so that any unsettled claims, litigations with respect to the current entity aren't carried forward
Residential properties: returns are highest in terms of IRR
From an IRR perspective, the residential section is the highest return earner. This is possible
because of the unique way in which the repayment for homes is organised , where the purchaser
pays a few upfront money and the stability by way of payments , which allows the builder to bar less
funds in the project. IRRs for residential tasks range in between 30% as well as 35%.
Commercial projects -- profitability analysis
The return through commercial property is always lower compared with the residential project due to
the following reasons.
• There is no cash inflow before property is completely developed as well as in a handover stage
• no outright purchase of the home occurs; the developer should contend with only lease rentals
As a result, the developer should invest much better capital associated with his own before he sees
any cash inflow, as well as due to lease rentals, their payback time period increases, in turn reducing
their returns from the project in contrast to the residential project.
REITS

6. Real estate expense trusts (REITs) are companies that personal and often positively manage
income-generating commercial real estate, such as shopping centers, flats , offices as well as
warehouses.
• A REIT is a organization that buys , develops, handles and offers real estate assets and allows
participants to purchase a professionally managed portfolio of properties
• Some REITs make or even invest in loans and other responsibilities , which are guaranteed by
property collateral
• the REIT works like a shared fund, exactly where investments associated with individual investors
are committed to real estate instead of in the stocks market
• REITS also help raise money for the real-estate business -- i.at the. To fund construction of new
offices , factories, residential flats, departmental stores , etc. NUmerous private real-estate
companies used REITs to access capital through the public marketplace
VALUATION
DCF-based NAV methodology to value the company's present land financial institution : The process
involves the following.
• Breakdown of the land financial institution into verticals - we.e., residential , commercial as well as
retail
• additional breakdown associated with land holdings by town (micro market )
• set up the development profile (number of years to develop and yearly development rate ) for each
micro market as well as vertical
• estimate average realization/sq ft as well as rentals/sq foot for all the verticals and micro markets
based on company guidance , channel checks and market reports published by home consultants
• the growth trend is projected based on the demand/supply dynamics regarding each vertical
All the above allows us to forecast cash flows as well as lease rental fees , which are after that
discounted or even capitalized based on our discount rate as well as capitalization rate assumptions.
This gives us the NAV for that land financial institution. Premium to NAV is really a more subjective
analysis in our view, directed by elements such as property bank high quality and delivery and
monetary strength.

7. Land Bank Quality
• Land financial institution quality is primarily determined by location of the same. Metros as well as
Tier we cities are the type that are favored in terms of area. Typically, high-growth potential places
centre around IT/ITES development
• IT/ITES may have a CAGR of 25%-plus over the next three years as well as driving 70% of
commercial real-estate demand -- presents immediate as well as roundabout drivers for real-estate
field growth, in our view
• an additional aspect of the land financial institution quality is the cost of property acquisition, exactly
where we believe the majority of the developers within India score well. The land-acquisition costs are
on average 10% associated with ASP, since the land aggregation was either done a long time back
or even is in suv areas where developers see possible in the long term
• A residential-commercial-retail-hospitality mix of the land financial institution is also essential. While
most of the land banks are residential-focused, a 60/40 residential/non-residential mix may be optimal
Financial and delivery strength
• the debt/equity ratio of 1:one would be reasonable for real-estate developers.
• Do a comparable analysis of the developers on the basis of interest coverage for more comfort
• to find out execution strength check
o Asset-Turnover ratio
o yearly GFA delivered
o Backward integration
o Initiatives such as partnerships with construction companies , centralized sourcing of recycleables ,
investment within high-end equipments etc
On the foundation of our assessment of the companies on the over four elements , we allocate a
premium or even discount towards the NAV as needed.

8. VALUING the LAND or even PROPERTY
Before we proceed i would like to know be it a vacant property or property with some enhancements.
Sales comparison Approach
• this utilizes costs paid within actual market transactions associated with similar qualities to estimate
the value of the site
• the market or product sales data should have been recent enough to reflect true market conditions
in accordance with the time period associated with appraisal
• comparable sales ought to be similar in dimensions , location as well as zoning
• this method could also be accustomed to estimate the rental value
Cost Approach
• it is based on the principle that the knowledgeable purchaser would pay no a lot more than the cost
to produce a substitute home with the same power as the subject property
Income capital Approach
• it is widely utilized in appraising income-producing qualities either through rents or leases
• Anticipated existing and long term net working income in addition to any long term revisions tend to
be discounted to some present worth figure although the capitalization process
• It relies on market data to establish market values as well as expense amounts to arrive at an
anticipated net working income
• the higher the limit rate the lower the requesting price
Gross rent Multiplier (GRM)
• GRM uses the gross rental fees of a home rather than the net operating income used limit rate

9. • there's two ways to do that calculation using either major Potential income (GPI) or even Gross
working Income (GOI)
• the value estimate is much better using GOI as losses for occupancy and non-payment are
considered
How do you estimate land value when there have been no vacant land product sales ?
It is really a typical problem in urban as well as built-up places. The solution is to select comparable
improved product sales and take away the value of the improvements- draw out the depreciated
replacement cost of the improvements.
Criteria for FDI in real estate
Project criteria
• minimum area of ten hectares in the case of servicing real estate plots
• minimum area of fifty ,000 sqm in the case of construction development projects
• For combination projects, any of the above two conditions will suffice
Project development
• 50% associated with project must be developed within five years, from the date associated with
obtaining all statutory clearances
• Not permitted to sell undeveloped plots funds requirement
Capital requirement
• Minimum capital of US$10m for wholly-owned subsidiaries as well as US$5m for JVs with Indian
partners

10. • Capital to become brought within six months of the incorporation associated with JV or even
subsidiary
• unique investment cannot be repatriated before a period of three years from completion of minimum
capitalization
• Repatriation allowed only after prior approval from the government
Facts and Trends
Impact on navigation in a declining property cost scenario: the 30% cost correction within residential
cost can lead to 50% erosion within NAV. In a few cases where margins are not sufficient , there
could be small value development. Hence, valuation assumption for big property banks will have to
be re-looked at in the current scenario (high rates of interest and declining price).
Each square feet from it space generates demand for 5 to 6 square feet associated with other
property segments, namely residential, retail , hospitality, and so on.
Retail as well as Hospitality
The provide would be more than need and the rental fees for all would get impacted since most
merchants are not making money. India too would move more towards income sharing followed in
many developed markets as opposed to the fixed rental concept. This forces the developer to keep
the mall and create value for the shoppers. This forces the creator to maintain the mall that will create
value for that shoppers. Same-stores sales in most markets happen to be facing stress owing to
increased mall denseness.
Execution Delays
Most of the companies are dealing with execution delays. Regulatory home loan approvals and
physical execution would be the main challenges. Companies want to overcome this challenge with
in-house construction and developing joint endeavors with worldwide construction majors (DLF as
well as Liang O'Rourke).

11. Pan-India ?
It doesn't matter. Exactly what matters is the economics associated with individual tasks. Focus ought
to be on the high quality (location, demographics/demand drivers of the micro-market) associated
with land financial institution , cost of the land as well as execution skills. Similarly, the pan-India or
perhaps a regional player who has bid aggressively to buy land lately is worse-off than a player with
current low-cost land-bank.
Sport the winners
Reasonable expansion plans, quality of the management, low leverage and so on are the key to spot
the winners, in addition to the quality associated with land financial institution.
Positive indicators for industry
• Lower interest rates
• decrease in new commences i.at the. Matching provide with demand
• Further FDI relaxation (area and secure period)
• Tax breaks for developers for residential development
• Increasing the taxes sops for people in buying houses
• introduction of REITs (Real Estate Investment Trusts)
• rest from RBI on financial institution lending to developers
Effect associated with inflation
Historically, higher than anticipated inflation has had damaging consequences for financial assets
(both bonds and shares being negatively impacted by unpredicted inflation). In contrast ,
unanticipated inflation seems to have a positive impact on actual assets. Why is real estate a possible
hedge towards inflation? there are a variety of reasons , ranging from more favorable taxes treatment
with regards to depreciation towards the possibility which investors lose faith within financial assets

12. when inflation runs out of control and would rather hold actual assets.
Factors affecting the sector
• higher interest rates
• US economic downturn and hence lower IT/ITES demand
• Increase in construction cost; expensive raw materials
Bangalore Real Sector
Office sector
Demand within 2008 (1st half) equals 7million sq ft compared to 6.6 million sq foot in the same period
last year.
Central company District (cbd )
It includes areas near MG road , Vittal Mallaya Road, post degree residency Road as well as
Richmond road. SCBD remains the most appealing and suitable micro-markets for new companies
entering Bangalore. The central areas offer easy accessibility as well as visibility for these new
companies and permit established companies to retain brand collateral by being down the middle of
the city. There is less way to obtain office space.
Non-CBD areas
It includes Indira nagar, Old Madras Road, airport terminal Road, resume Raman nagar, Inner ring
road, Koramangala. The non CBD area is being noticed as the most preferred place for setting up
workplace for high end engineering companies for setting up R&D centers/labs as well as high end
support capabilities. High amounts of absorption exercise continued to be observed even in the Non
cbd areas of the city where many corporates chose to relocate/expand due to availability of quality
choices offering adequate infrastructure and lower rental ideals compared to cbd. However, property
bank is restricted in these regions , which might place upward stress on the property in near future.

13. Suburban as well as peripheral areas
This includes Whitefield, Outer ring road, electronic city, Bannerghatta road as well as North
Bangalore. The suv micro market is another zone that has observed high level associated with space
consumption by business over the 12 months. Scarcity associated with space within the Non cbd
area is furthering the case for area of business in the micro markets. The Peripheral places remain
preferred by the corporate for building their campus design facilities. As a result these areas have
observed frenzied construction activity through both developers and also individuals possessing big
land banks.
Whitefield is now gaining favor as a viable micro market due to decongestion of the airport terminal
road, completion of the Marathahalli flyoverand availability of mid to low end housing infrastructure.
The area between Marathalli and Sarjapur on the outer ring road has a fair amount of STP, SEZ as
well as grade-A workplace supply. The surplus supply together with low occupancy has place
downward stress on the costs.
With growth and development of BIA as well as coming up associated with Peripheral ring Road
(PPR), properties costs in northern Bangalore turn to go up soon. PPR will connect Tumkur road,
Magadi road, Mysore road, Bellary road, aged Madras road , Hosur road and Kanakapura road. This
region has seen interests from leading IT firms , property developers for residential areas as well as
hospitality industries to set up celebrity hotels.
Residential
There has been a noticeable demand for perfect residential properties as well as developers tend to
be targeting residential areas within the outskirts associated with Bangalore such as Whitefield,
Sarjapur road, Banerghatta Road as well as Kanakpura road. Demand is also high for leased flats in
perfect areas of main Bangalore through company executives , due to limited supply there is upward
stress on rental fees.

14. New developments are shifting away from the main Bangalore due to close proximity to IT as well as
ITES places and availability of land for lifestyle tasks. Nearly six mega townships promoted through
reputed developers are on the anvil within Bangalore. The proposed super townships may have
thousands of real estate units and you will be a mix of flats , row homes and villas. Moreover the
townships will include educational, industrial , retail as well as medical facilities.
Capital ideals for flats in perfect residential areas of Bangalore are in between INR 3000-4000 or Sq.
Foot while rental values are in the range associated with INR 25-30/sq ft. G.m. Assimilation rates for
prime as well as quality residential apartments is extremely high thus demand is exceeding the supply
in the areas of Outer ring road, Whitefield and airport terminal road. There is scarcity associated with
luxury flats thus within last one 12 months capita; ideals in suburbs have increased around 35-50%
due to high demand. Yield on house in Bangalore is ranging between 6-7%.
Outlook
To check the trend within the residential properties find out from the local authorities on the trend
within stamp duty and registration fees.
Improved connectivity in between Bangalore as well as Mysore has led to gradual development of
homes in and around Bidadi (southwest associated with Bangalore)
• Upcoming DLF townships
• nice corridor
• upcoming BMIC (Bangalore-Mysore Infrastructure corridor ) project
• prepared theme parks as well as resort within Bidadi
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