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Building, Construction and RealEstateServices

t Submitted By :
SURABHI AGARWAL ERAM KHAN FATIMA ABBAS AARTI CHAUDHARY ABHISHEK GANGWAR

ACKNOWLEDGEMENT
Before we get into thick of things, We would like to add a few words of appreciation for the people who have been a part of this project right from its inception. The writing of this project has been one of the significant academic challenges We have faced and without the support, patience, and guidance of the people involved, this task would not have been completed. It is to them We owe Our deepest gratitude. It gives us Immense pleasure in presenting this project report on Real Estate Industry. It has been our privilege to have a team of project guide who have assisted me from the commencement of this project. The success of this project is a result of sheer hard work, and determination put in by us with the help of my project guide. I hereby take this opportunity to add a special note of thanks for Prof. as! "!r#d!ar, who undertook to act as our mentor despite his is wisdom, knowledge, and commitment to the highest many other professional commitments.

standards inspired and motivated us. Without his insight, support, and energy, this project wouldn!t have kick"started and neither would have reached fruitfulness. We $on%ey our !eart full t!an&s to t!e 'e'(er fa$ult#es of IIPM) *#t! t!e#r !el+ and $or+orat#on. We are very thankful to our #roject guide Prof. "*at# "r#%asta%a,IIPM ) L&o- for her full support in completing this project work. $ast but not least, we would like to thank our families and %riends for their full cooperation & continuous support during the course of this assignment. The project is dedicated to all those people, who helped us while doing this project.

1u#ld#n2) Constru$t#on Industry and Real Estate "er%#$es

#age . of /0

Building, Construction Industry and Real Estate Services

Ta(le of Contents
'. ()ecutive *ummery

'.'. './. '.1. '.4. '.5. '.7. '.9.

Industry si+e and ,rowth of -onstruction Industry ................................................................ '. Industry *egmentation ............................................................................................................ '0 2eal (state *ector ................................................................................................................... /3 Infrastructure ........................................................................................................................... // 6ey 2isk %actors for -onstruction Industry ......................................................................... /7 8arket *tructure of -onstruction Industry ........................................................................... 13 8ajor #layers ........................................................................................................................ 1' '. :nalysis '.' './ '.1 '.4 '.5 #(*T :nalysis;;;;;;;;;;;;;;;;;;;;;;;;;;.. 15 *wot :nalysis;;;;;;;;;;;;;;;;;;;;;;;;;; 17

#orter<s %ive %orces 8odel;;;;;;;;;;;;;;;;;;;;;;19 2atio :nalysis;;;;;;;;;;;;;;;;;;;;;;;;;;;.4/ -:,2;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;44

3. 4nNur' /.' #ower;;;;;;;;.........................4 . /./ #orts;;;;;;;;;;;;;;..40 /.1 :irports;;;;;;;;;;;;;.40 /.4 2oads;;;;;;;;;;;;;;53 5. Resear$! 1.' :bstract;;;;;;;;;;;;51 1./ Introduction;;;;;;;;;;..;51 1.1 Objective of the *tudy;;;;;;;.54 1.4 ypotheses Of the *tudy;;;;;;.54 1.5 2esearch 8ethodology;;;;;;;54 1.7 =iscussion;;;;;;;;;;;....54 1.9 -onclusion and *uggestions;;;;....5. L#st of 6#2ures %igure '> Industry si+e and growth of -onstruction ,=# at constant prices ?2s. billion@...................... 4 %igure /> Indian -onstruction Industry $andscape ................................................................................. 5 %igure 1> *hare of 2eal (state and -onstruction by ,=# contribution.................................................. 5 %igure 4> 2eal (state *egments .............................................................................................................. 7 %igure 5> ousing *hortage by *tate over the (leventh %ive Aear #lan ?million houses ?B of share of various states@.......................................................................................................................................... 9

Building, Construction Industry and Real Estate Services

%igure 7> *i+e of -ommercialC2etail -onstruction ............................................................................. . %igure 9> -ommercial Office *pace :bsorption by location, /339 ................................................... 0 %igure .> =istribution of Outlay in Infrastructure *egments in Tenth and (leventh %ive Aear #lans.. '3 %igure 0> Breakup of employment in Building, -onstruction and 2eal (state sector in India ........ '. %igure ''> Dalue chain within the 2eal (state segment .................................................................... /' %igure '/> Dalue chain within the Infrastructure segment ................................................................. // %igure '1> :ctivities in the #roject ()ecution stage .......................................................................... // %igure '7> Investment planned under EnFG28 totalling 2s. 1,15,333 crore ................................... 1. %igure '9> Investments under various heads of EnFG28 ?2s. crore@ ............................................... 1. %igure '.> *tate"wise investments under EnFG28.......................................................................... 10 %igure '0> Investments in #ower ,eneration, Transmission and =istribution up to /3/'"// ?2s. crore@ ......................................................................................................................................................... 10 %igure /3> *tate"wise investments in Transmission and =istribution.............................................. 43 %igure /'> #lanned Investments in 2oads in the (leventh %ive Aear #lan ?2s. crore@................... 4/ %igure //> #rojected 2eal ,=# of -onstruction sector ?2s. billion@ ............................................... 4/ L#st of Ta(les Table '> Grban #opulation in India.................................................................................................. '1 Table /> Total #ower ,eneration -apacity in India......................................................................... '4 Table 0> :irports commissioned C granted approval C under consideration ...................................... 4' Table '3> *hare of economic activity estimated in the Infrastructure segment .............................

Executive Summery

Building, Construction Industry and Real Estate Services

The projectH 2eal (state industryH is based on the current industry t r e n d s o f 2 e a l e s t a t e s e c t o r . The 'a#n o(7e$t#%es of the project are> Gnderstanding the functioning of 2eal (state Industry :nalysing the industry performance on Iualitative and Iuantitative Basis. %orecasting the %uture Investment in the *ector. EnFurm *cheme in coming years.

To study the fundamental factors affecting the real estate value. To e)amine the factors of real estate boom in /33.. To present the future constraints of real estate investment in India.

%or this proj ect the fina nci al pe rfor ma nc e of the ma jor pl a ye r s of the i ndustr y was studie d a nd inter pret ation wer e dr awn. We lea rnt -umula ti ve :ver age ,rowt h 2ate and -ompound :ve rage ,rowt h rat e to conduct Iuanti tati ve a nal ys is of the Industr y.

The 2eport Is =ivided Into Darious *ections> Industry O%er%#e*


T hi s p a r t d e s c r i b e s t h e I n d u s t r y p r o f i l e . T h i s p a r t r e c o g ni + e s t h e - h a r a c t e r i s t i c s of 2 e a l ( s t a t e ,=riving %orces, it also gives little insights into 2eal (state Investment Banking . This section also describes the 8ajor #layers Of the *ector.

Analys#s
Iuantitative and Iualitative analysis are conducted in this sector and 2ecommendation are the output .

4nNur'
This #art =iscusses EnFurm *chemes and various investment to be made under this *chemes. It<s (ffect on 2eal (state industry.

Resear$!
This #art -ontains the *tudy -onducted in year /33.. The factors in the present paper are the

8acro (conomic factors for which the secondary data is more suitable and reliable. The

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


Building, Construction Industry and Real Estate Services

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

Findings
: =etailed :nalysis Of the industry *hows that ,rowth 2ate of The industry has declined since last five years , showing the effect of ,lobal 2ecessions in India. :lthough India<s 2eal estate<s situation is very much healthy against over countries of the World. But =evelopers did face the =rop in demand of the properties which has decreased the prices of #roperties indirectly. :s companies are trying to achieve large number but lower margin sales these day. :t the end submitted to IIPM 8 l&o.

Industry Overview

Building, Construction Industry and Real Estate Services

Current "$enar#o of t!e Real Estate Mar&et #n Ind#a -ommercial real estate sector is in boom in India. In the last fifteen years, post liberali+ation of the economy, Indian real estate business has taken an upturn and is e)pected to grow from the current G*= '4 billion to a G*= '3/ billion in the ne)t '3 years. This growth can be attributed to favorable demographics, increasing purchasing power, e)istence of customer friendly banks & housing finance companies, professionalism in real estate and favorable reforms initiated by the government to attract global investors C!ara$ter#st#$s of t!e Real Estate Mar&et #n Ind#a

J ,rowing 8arket =emand J J

2eali+ation of large commercial projects I#Os by developers ,radual organi+ation of the markets in the Tier I cities (mergence of transparency and liKuidity (ntry of international real estate consultancies ,overning legal framework rela)ed -ompetitive pricing

J ,reater availability of information J J J

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

Dr#%#n2 6or$es *tated below are the reasons that have led to the real estate boom in the country J Booming economyL accelerated ,=# to .B p.a. J India<s emergence as an attractive offshoring destination and availability of pool of highly skilled technicians and engineers L =evelopment of large

Building, Construction Industry and Real Estate Services

J J J J

captive units of major players include ,(, #rudential, *B-, Bank of :merica, *tandard -hartered and :merican ()press 2ise in disposable income and growing middle class, increasing the demand for Kuality residential real estate and real estate as an investment option. (ntry of professional players eKuipped with e)pertise in real estate developmentL 2ela)ation of legal rulings and processes by the governing bodies encouraging investments in real estate Improvement in infrastructure facilities

Cate2or#9at#on The demand for new office space in India has grown from an estimated 1.0 million sK. ft in '00. to over '7 million sK. ft in /334"35. 93B of the demand for office space in India is driven by over 9,333 Indian IT and IT(* firms and '5B by financial service providers and the pharmaceutical sector. In /335 alone, ITCIT(* sector absorbed a total of appro) 13 million sK. ft and is estimated to generate a demand of '53 million sK. ft. of space across major cities by /3'3. This data clearly demonstrates the growth of the real estate sector in the country. With reference to the availability of infrastructure facilities, following cities are currently attracting 8F-sCcorporateCreal estate developers> Tier I cities, 8umbai ?-ommercial hub@, =elhi ?#olitical hub@ and Bangalore ?Technological hub@> J #referred option for many new market entrants J -ommand the highest international profiles and significant proportion of %=I J Offer Kualified labor pool and the best infrastructure facilities J ()hibit development of sub"urban commercial real estate J Aield of 0.5 M '3B Tier II cities, notably yderabad, -hennai, -handigarh, 6ochi, 8angalore, 8ysore, Thiruvananthapuram, ,oa, Bhubaneshwar, :hmedabad and #une J Aield of '3.5"''.5B J Offer competitive business environments, human resources availability, telecommunications connectivity, Kuality of urban infrastructure, J :ttract high value IT, IT(* and biotech corporate houses Tier III cities) like -uttack and Eaipur J $ow liKuidity and still highly unorgani+ed. *pecial (conomic Nones> J /. operational *(Ns in the country, including those converted from ()port #rocessing Nones ?(#N@ to *(N

Building, Construction Industry and Real Estate Services

J J

=evelopment of *(Ns in various segments such as multi"product, Information Technology, Bio"technology, ,ems and Eewellery, Te)tiles and technology intensive industries :ttract both developers and corporate houses ?refer table for a list of corporate that have shown interest in development of *(Ns@

Cor+orate Lo$at#on 2eliance Industries ,urgaon, 8umbaiCFavi 8umbai :dani ,roup 8undra T-, 2efineries aldia *u+lon -oimbatore, Gdipi, Dadodara indalco *ambalpur ,enpact Bhubaneshwar, Eaipur, Bhopal Dedanta Orissa Corporate interested in development of SEZs in India and the location of interest :part for the corporate clientele, the *(Ns also attract a number of real estate developers, including =$%, :nsals, Oma)e, #arsvnath, *hipra (state to name a few. :s per utili+ation, the real estate space can be classified as follows>

2eal (state Gtili+ation

2esidential

-ommercial

Office

ospitality

2etail

8alls

8ultiple)es

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

Building, Construction Industry and Real Estate Services

ffice Space J Backed by strong infrastructure J #romoted by increasing demand from IT industry J *hift of focus from the traditional -B=s towards secondary centers owing sharply higher land prices in the city centers. Retail Space J ,rowth of /5" 13B e)pected in the organi+ed retail sector ?malls and multiple)es@ leading to an increased demand in real estate J :ffected by government policies for foreign retailers J #ronounced in the Tier I, Tier II and Tier III cities. !ospitality Space Criteria Statistics :nnual growth rate of the industry .B Fumber of foreign tourists in /335 "###### Total number of five star rooms ?/335@ $%### Total number of five star rooms needed by &'#### /3'3 (ro)ing demand of real estate in the hospitality industry J J Increasing demand of lodging in commercial cities such as Bangalore, 8umbai, =elhi etc. from business travelers. (stablished brands in this sector include :sian otels, Indian otels, IT-, $e 8eridien etc are in e)pansion mode with many new players such as :ccor ,roup, 8arriot, -hoice, I , ,roup

Residential Real Estate J =evelopment triggered by> o $ow per capita housing stock o 2ising disposable income o (asy availability of finance J -urrently growing at 13"15B per annum J =riven by retail investors who view real estate as an attractive investment option as compared to mutual funds and stocks J ,eographically widespread with townships being built in both the metros and the tier II and III cities Real Estate In%est'ent 1an&#n2 2eal (state Investment Banking is an approach to real estate financing M providing the client a host of services including the structuring of real estate projects, legal advice, operative management of real estate projects and support in marketing properties. The banking focus in 2eal (state Investment Banking is on structured financing products and

Building, Construction Industry and Real Estate Services

structuring of entire portfolios. ()tending on similar lines is the importance of syndication that forms the base line of larger"si+ed transactions. 2eal estate investment banking focuses on the following target market as prospective client base> Real Estate Consultants The increase in transparency and liKuidity in the real estate market in India is attracting international real estate consultants to India. These consultants offer end to end solutions for their clients< real estate needs. These services include strategic consulting to developers, investors, advisors and lenders seeking assistance with e)isting assets, potential acKuisitions, new development projects and properties slated for disposition, feasibility studies, concept testing, business planning e)ercises, investment advice, market research and analysis, demand forecasting, financial modeling and project structuring e)ercises, portfolio optimi+ation and re"engineering strategies, e)pansion and occupancy, location and entry, brokerage services, legal documentation review, valuations etc. 2eal estate consultants also ensure that the financing needs of the client are well taken care of by liaising with bankingCnon banking institutions and providing them with investment and structured finance solutions including securiti+ation and sale & leasebacks, structured finance facilitating eKuityCdebt into development projects on behalf of private and government sector clients, structuring development financing, public " private " partnerships, joint ventures, portfolio transactions and privati+ation e)ercises. The recent players in the Indian market are Eones $ang $asalle, -olliers, -B2ichard (llis, %rank 6night and Trammell -row 8eghraj. *evelopers and Construction Companies With the opening up of the real estate sector in the country, the construction houses are scaling up the commercial and residential constructions. :n increasing number of developers are offering I#Os for fund raising. :I8 too is a sought after solution to meet the fund reKuirements for these developers. ,roup #arsvanath *obha #yramid *aimira =$% Gniversal 6 2aheja -orp Gnitech iranandani -onstruction 2outeC8arket I#O I#O I#O I#O :I8 :I8 :I8

+und raising options ,y developers *omestic Corporate !ouses

Building, Construction Industry and Real Estate Services

:s the land prices in the Tier I cities have always moved upward, land was regarded as a safe investment which, regardless of how it was used, would produce capital gains far above the inflation rate. It was thus common for companies in the manufacturing and service industries to acKuire real estate even though they themselves were completely unrelated to property rental or real estate investment, seeking collateral value and ta) benefits from depreciated assets, and e)pecting unreali+ed gains to absorb business risk. :cKuisition of real estate as an asset was further encouraged as part of a diversification strategy in the investment portfolio of these corporate houses.. :s these real estate possessions are classified as fi)ed assets held for the company<s own business purposes, it becomes feasible recent moves to increase real estate liKuidity often involve the conversion of corporate real estate into commercial use. The corporate houses in India are also demonstrating a shift from ownership to leasing. With the advent of 8F-s into the country, a growing number of companies no longer see real estate ownership as an absolute necessity. %rom the perspective of companies who want to sell off assets, securiti+ation schemes provide a greater diversity of alternatives to liKuidate real estate. This has been greatly encouraged by corporate restructuring and a return to focusing on core competencies. Thus, there seems an opportunity to tap the corporate houses who have a large corpus of real estate and are willing to trade this asset for want liKuidity. +*Is-+IIs #ost liberali+ation, the investment opportunities in real estate for the %=Is and %IIs have greatly opened up. %oreign investors can now purchase commercial development projects ?under construction@ over 53,333 sK m ?543,333 sK ft@, or plotted residential developments with a minimum si+e of '3 hectares. %oreign investors may purchase an eKuity stake in an unlisted real estate company and thereby partner in its growth plans across asset classes and cities. $isted real estate companies also offer good liKuid investment opportunities routed into designated special purpose vehicles that hold the asset?s@ being developed, thereby reducing risk. These investors look for innovative financial products to suit their investing needs. +inancial Institutions . Real Estate /utual +unds 8ajor financial institutions such as I-I-I, =%-, I$&%* and 6otak 8ahindra have all launched real estate funds, either as joint ventures or sole investors. 8ost institutional funds operate on a pan"Indian basis, and are increasingly looking at opportunities in Tier III cities, in order to gain Ofirst mover advantageO. 0rivate E1uity-2enture Capital +unds :s per the *ecurities and ()change Board of India ?*(BI@, %oreign Denture -apital Investors ?%D-Is@ may invest in real estate assets, within the framework of *(BI. This has paved the way for capital infusion into the market and a significant weight of foreign capital is now chasing Indian real estate. Indirect real estate investments are made into a pooled investment fundL such funds are usually created in partnership with domestic developers or financial institutions. *uch D- firms, partnered with developers form a potential client base, keen to invest in the real estate sector.

Building, Construction Industry and Real Estate Services

Real Estate and 6#nan$#n2 Trends #n Ind#a Securitization and C/BS %rom the perspective of companies who want to sell off assets, securiti+ation schemes provide a greater diversity of alternatives to liKuidate real estate. *ecuriti+ation is primarily used by the corporate houses to convert the corporate real estate to commercial real estate. Realty +unds- Realty /utual +unds in India Initiated by *(BI, the 2(8%s true potential would be tapped only after the setting up of 2(ITs, as they infuse confidence among investors by serving as custodians of title deeds. ?2(ITs pool various real estate assets, including warehouses, buildings, industrial estates and parks, malls, commercial and residential premises and get listed on the stock e)change to enable investors to buy and sell. They afford an opportunity to diversify the portfolio within that limited sense as well. owever, *(BI has not allowed the creation of 2(ITs in India as yet, though 2(ITs are well established in the more mature real estate markets. @ -urrently the 2(8%s in the Indian market are targeted at the FI* and corporate investors. R#s&s #n%ol%ed #n t!e Real Estate In%est'ent Mar&et 3i1uidity risk The real estate investment market is still in its infant stage. The time reKuired for liKuidity of real estate property can vary depending on the Kuality and location of the property. Regulatory risks In terms of property ownership, permission from the 2eserve Bank of India is reKuired for foreign investors. %or capital repatriation, investors need to apply for approval from the 2BI, and foreign direct investment is limited to a limited set of opportunities ?e.g. townships@. The 2(8%s work within the *(BI framework. Being a developing and growing sector, the rules, regulations and legalities demonstrate freKuent changes, making it seem as a cumbersome investment option to the investors. 0roperty market transparency risk The Indian property market has low transparency when compared to the more mature and developed real estate markets. :lthough market transparency has improved, reliable and consistent information on the Indian property market is still not easily available. There are also more professional due diligence and valuation institutions needed. This holds true even for the Tier I cities. /acroeconomic risks Interest rates, inflation and e)change rate risks are amongst the important macroeconomic indicators and have shown decreased volatility. The provision of facilities, is in many regions, still inadeKuate ?education, transport infrastructure@. These risk factors are not likely to disappear in the near future, impeding the development of the real estate sector. )nership and 3and 4itle Issues

Building, Construction Industry and Real Estate Services

$ack of information and low transparency in the real estate segment in India, coupled with the age old property related issues discourages the investment of the large players in the semi urban and rural areas thus slacking an overall growth of the real estate sector. Con$lus#on The Indian real estate sector promises to be a lucrative destination for foreign investors into the country. The Indian realty sector, if channeli+ed properly, could catapult the growth of several other sectors in India through its backward and forward linkages. owever, there are potential constraints for domestic as well as foreign investments in India. :bsence of a single regulator to monitor business practices prevailing in Indian real estate market is perceived to be a risk factor by investors. The *(N guidelines which are issued by the -ommerce 8inistry are constantly modified, creating uncertainty. *ince the liberali+ation of %=I norms, significant foreign investments have flown into real estateL but availability of suitable e)it options for such investments is still constrained. 8aturity of the real estate markets will lead to infusion of foreign investment and adoption of international best practices by real estate players. =evelopers will get more organi+ed, and become more transparent to avail opportunities emerging in the market. With the Indian securities market regulator *(BI allowing real estate mutual funds ?2(8%s@ in India, eKuity investors will have an e)it option available to them. :ll these factors will contribute in making the Indian real estate market more organi+ed and structured, thus providing better investment opportunities.

En%#ron'ent "$ann#n2 and Co'+et#t#%eness of Constru$t#on Industry .... Industry s#9e and Gro*t! of Constru$t#on Industry
The si+e of the -onstruction industry is around 2s. /.' trillion in /33.. The -onstruction sector in India is the second largest economic activity after agriculture and provides employment to about 11 million people. India!s -onstruction industry has grown at a -ompounded :nnual ,rowth 2ate ?-:,2@ of about ''.'B over the last eight years on the back of massive infrastructure investment and rapid rise in housing demand. %oreign =irect Investment ?%=I@ inflow into the sector during /339"3. is estimated to be around 2s. /43 billion. *pending on infrastructure sectors such as ports, power plants and roads is projected at more than 2s. /.5 trillion annually for the ne)t si) years, and will reKuire 0/ million man years of labour . -onstruction investment accounts for around 5/.4B of the ,ross %i)ed -apital %ormation in India. Investments in -onstruction have a positive domino effect on supplier industries, thereby contributing immensely to economic development. The -onstruction sector has strong linkages with various industries such as cement, steel, chemicals, paints, tiles, fi)tures and fittings. While in the short term it serves as a demand booster, in the long term it contributes towards boosting the infrastructure capacity. Figure 1: Industry size and growth of Construction GD at constant !rices "#s$ %i&&ion'
3):;; 3);;; .):;; ',3.4 .);;; :;; < 3;;. 3;;3 3;;5 3;;/ 3;;: 3;;= 3;;> 3;;0 ','/9 ',/'9 /,355 /,/71
/ '

''.'B',5.
/ ',17/

',.10

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

-onstruction Industry =evelopment -ouncil

Building, Construction Industry and Real Estate Services

..3. Industry "e2'entat#on


-onstruction sector can be broadly classified into / sub"segments> '@ 2eal estate ?2esidential, -ommercialC-orporate, Industrial and *pecial (conomic Nones ?*(Ns@@ /@ Infrastructure ?Transportation, Grban development, Gtilities@ Figure (: Indian Construction Industry )andsca!e -onstruction Industry 2eal (state 2esidential -ommercial *pecial (conomic Nones Gtilities #ower Irrigation Infrastructure Grban Infrastructure Transportation 2ailways -ivil :viation 2oadways #orts
Source5 I/aCS analysis

The 2eal (state segment contributes around /4B to the -onstruction ,=# of India while Infrastructure segment contributes around 97B. Figure *: Share of #ea& Estate and Construction %y GD contri%ution

2s 534 Billion 2s ',507 Billion 97B /4B

2eal (state Source5 Economic Survey 6##8-#7, I/aCS analysis

Infrastructure

Building, Construction Industry and Real Estate Services

..5. Real Estate "e$tor


In terms of ,=# contribution, 2eal (state sector is estimated at around 2s. 534 billion in /339"3.. The market si+e of the Indian real estate sector is estimated to be around 2s. /,741 billion in /339"3.. The sector has been growing at a -:,2 of '/B. It is constituted of the 2esidential, -ommercial and real estate activities of *pecial (conomic Nones. Figure +: #ea& Estate Segments
-ommercial C 2etail 0B

*(N 0B

2esidential ./B

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

1$*$1$ #esidentia&
:t around 2s. /,'9' billion, the housing sector is estimated to grow at '/B in the long term. =emand for housing is estimated to be around 4.. million houses per year over the (leventh %ive Aear #lan period. In addition to the need for new housing tenements, the demand is also likely to be fuelled by the housing shortages already prevalent in several states. The shortage of housing across several states, as illustrated in the graph below, amounts to about /5 million houses in the period of the (leventh %ive Aear #lan.

Building, Construction Industry and Real Estate Services

Figure ,: -ousing Shortage %y State over the E&eventh Five .ear &an "mi&&ion houses "/ of share of various states'
:ndhara #radesh ,ujarat '.05 '.77 .B 9B 6arnataka Other *tates '.71 5.'' 9B /'B 8adhya #radesh 8aharastra 1.9/ '5B './0 5B

=elhi '.'1 4B West Bengal /.34 .B

Tamil Fadu 2ajasthan ' /../ 4B ''B Source5 0lanning Commission 9orking (roup on :r,an !ousing, 6##8 /.1. '3B

Gttar #radesh

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


+avoura,le demographics - The demographics work strongly in favour of the Indian -onstruction industry. India is the second highest populated country in the world after -hina. India!s estimated population as of 8arch /33. is '.'4 billion, while the average age of Indians is /7 years. The demographic profile indicates that India!s working population forms around 7'B of the total population. India is and will remain one of the youngest countries in the world for some time. The strong economic growth led to sharp income generation, which led to rise in middle class segment. India currently has around /73 million persons in the middle class segment. This segment!s rising purchasing power and propensity to consume is e)pected to drive and support a robust growth rate of the economy in the coming years. The middle class along with robust macro"economic scenario and changing demographic profiles has a major role to play in the growth and emergence of the -onstruction industry in India. :r,anisation and /igration " The decadal growth rate of urban population ?/3B between '00'" /33'@ in India is higher than the rural population ?'.B during the same period@. :verage annual rate of change ?::2-@ of the total population in India during /333"/335 is estimated at '.4'B with /..'B for urban and 3../B for rural sectors. ::2- for urban areas by /3/5 will increase to /./5B whereas the ::2- for rural population will decline to "3.4B showing a clear shift of population from

Building, Construction Industry and Real Estate Services


1

rural to urban areas . The average household si+e has been estimated by the Fational *ample *urvey Organisation as being around 4.49 in urban areas and only 79B of the houses are pucca units. Though there is a slump in real estate activity in the last one year, investment over the long term will be primarily led by housing, which is e)pected to account for nearly 03B of the total real estate sector.

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


The rapid growth of the Indian economy has had a significant impact on the demand for commercial property to meet the needs of business, by way of offices, warehouses, hotels and retail shopping centres. ,rowth in commercial office space reKuirement is led by the burgeoning outsourcing and information technology ?IT@ industry and organised retail. %or e)ample, IT and IT(* alone is estimated to reKuire '53 million sKuare feet across urban India by /3'3. *imilarly, the organised retail industry is likely to reKuire an additional //3 million sKuare feet by /3'3 . Figure 1: Size of Commercia&0#etai& Construction
4

2etail 2s ''1 billion 49B

Office 2s '/7 billion 51B

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

1
4

#lanning -ommission M Working group on Grban ousing for the '' %ive Aear #lan
*ource> India Brand (Kuity %oundation ?IB(%@

th

Building, Construction Industry and Real Estate Services

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


Bangalore, /3 Others, .B B 4otal 5 "' /illion S1uare +eet

#une, .B

8umbai, 0B F-2, '0B -hennai, '/ B yderabad, ' /B


Source5 IBE+

6olkata, '/B

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


The following are some of the demand drivers in the -ommercialC2etail *ector> *harp growth in organised retailing M Organised retail, which is e)pected to grow at over /5B in the ne)t few years, is likely to drive demand in the commercial real estate sector. ,rowth in ITCIT(* sector at 13B annually " The investments in commercial -onstruction are e)pected to grow faster than investments in housing mainly due to the spurt in office space construction driven by ITCIT(* industry.

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


Over the ne)t five years, growth in investments in Indian Industry will be driven by strong capacity additions, led by strong growth in demand and high e)isting operating rates. *pecial (conomic Nones ?*(Ns@ will be at the forefront of this growth. :bout 1'5 *(Ns which have been notified as of now, of which about /3/ belong to the ITCIT(* *ector.

../. Infrastru$ture
With the government!s focus on infrastructure development along with the active participation of the private sector, this segment is growing rapidly. The #ower, Irrigation, Transportation including 2oadways, 2ailways, :irports and #orts, Grban =evelopment and -ommunications sectors have witnessed investments of 2s. 7.0 trillion over the Tenth %ive Aear #lan ?'3 %A#@ and will witness around 2s. '4.. trillion in the (leventh %ive Aear #lan ?'' %A#@.
th th

Building, Construction Industry and Real Estate Services

Figure 7: Distri%ution of Out&ay in Infrastructure Segments in 8enth and E&eventh Five .ear &ans
.)=;;);;; .)/;;);;; .)3;;);;; Rs :.> tr#ll#on .);;;);;; 0;;);;; =;;);;; /;;);;; 3;;);;; < .;t! 6 P ..t! 6 P Rs ?0? (#ll#on Rs 3.3 tr#ll#on Rs 503 (#ll#on Rs ..;5 tr#ll#on Rs 3.5 tr#ll#on Co''un#$at#ons Trans+ortat#on Rs ..3 tr#ll#on Rs 3.. tr#ll#on Po*er @r(an De%elo+'ent Irr#2at#on Rs ?:5 (#ll#on

Rs /.0 tr#ll#on

Source5 Economic Survey 6##8-#7

India!s infrastructure is set to improve rapidly with an estimated -:,2 of '5B. #ublic spending would continue to dominate this sector. The ,overnment of India projects that for the economy to grow at 0B per annum over the (leventh #lan period the ,ross -apital %ormation
5

in the

infrastructure should increase from 5B of ,=# at the start of the Tenth #lan to around 0B at the end of the (leventh #lan. The central government would contribute 19B, the state governments 1/B and the private sector would contribute 1'B of the total investments in infrastructure for the ne)t five years.

1$+$1$ #oads
2oads occupy an eminent position in India<s transportation as they carry nearly 75B of freight and .5B of passenger traffic in the country. The ,overnment of India in the Tenth #lan provided for an outlay of 2s.505 billion for development of roads. The largest highway project ever undertaken in the country is being implemented by the Fational ighways :uthority of India ?F :I@. #hase I and II of the Fational
5

ighways =evelopment #roject ?F =#@ envisaged 4C7 laning of about '4,/90

8easure of the net new investment by enterprises, government and households in the domestic economy in fi)ed capital assets, during an accounting period

Building, Construction Industry and Real Estate Services

kilometres of Fational

ighways at a total estimated cost of 2s. 753 billion ?at /334 prices@. These

two phases consist of the ,olden Iuadrilateral, the Forth"*outh & (ast"West -orridors, port connectivity and other projects. The upgradation of '/,'30 km of e)isting national highways has been approved by the ,overnment under F =# #hase"III at an estimated cost of 2s. .37 billion. The ,overnment has also approved si)"laning of 7,533 km of F s comprising 5,933 km of the ,olden Iuadrilateral and balance .33 km of other sections of F s under F =# #hase"D at a cost of 2s. 4'/ billion. The ,overnment has approved construction of ',333 km of e)pressways with full access control on new alignments at a cost of 2s. '77 billion under F =# #hase"DI and the construction of ring roads including improvement of F $inks in cities, grade separated intersections, flyovers, elevated highways, underpasses and service roads at a cost of 2s. '77 billion under F =# #hase"DII. One of the physical targets for state infrastructure in the (leventh %ive Aear #lan is the construction of a core network would include e)pressways, four"laned roads, strengthened pavements, and pavements with good riding Kuality, bypasses, bridges, etc. for a length of about 9',533 km, with a financial outlay of about 2s. .3,333 crore covering the states. This network could be based on the Pcorridor concept<, such that a commercial vehicle can cover about 533 km on this network in one day ?.33 km or more on e)pressways@ with adeKuate road safety. 2ural roads would also be an important thrust area The ,overnment of India has launched the #radhan 8antri ,ram *adak Aojana ?#8,*A@ which aims to provide good all"weather road connectivity to unconnected habitations.

1$+$($ 3ir!orts
India has '/5 airports. Of these, '' are designated as international airports. :irports :uthority of India ?::I@ has taken up the development of infrastructure in the country through the ### model. Eoint Dentures formulated for the modernisation of =elhi and 8umbai airports, and development of greenfield airports at Bangalore and yderabad are cases in point. ::I has also drawn an action plan to develop and modernise 15 non"metro airports. :n investment of about 2s. 433 billion is projected for the development of airports during the (leventh %ive Aear #lan.

1$+$*$ #ai&ways

Building, Construction Industry and Real Estate Services

The premier transport organisation of the country, the Indian 2ailways is the largest rail network in :sia and the world<s second largest. owever there is a need to upgrade facilities to meet the growing rail transportation needs. The proposed investment in railways over the eleventh five year plan is 2s. /.. trillion. ### projects are estimated to account for 0B of total investment over the period to ramp up infrastructure in // metropolitan city stations, increase terminal capacity by 41B and construct /,933 km of rail lines. The Tenth %ive Aear #lan document had envisaged construction of =edicated %reight -orridors ?=%-s@ on selected trunk routes. This has since been given effect to with the announcement of construction of =%-s separating freight traffic from passenger traffic on trunk routes. The proposal for capacity augmentation through construction of =%-s along the highly saturated freight routes is a part of the new long"term strategy to provide premium services in freight and passenger travel. : Western -orridor of ',470 km will connect Eawaharlal Fehru #ort to =adri and Tughlakabad in the Forth. :n (astern corridor of ',/1/ km will connect $udhiana to *onnagar via =adri and 6hurja, thus facilitating transfer from one corridor to another. The (astern corridor will further get e)tended to 6olkata region to connect the proposed deep"sea port. The estimated cost of construction of both these corridors is e)pected to be around 2s. 19/ billion and it is likely to take about five years for completion of these corridors and have a spill"over beyond the (leventh #lan.

1$+$+$

orts and Shi!!ing

There are '/ 8ajor #orts and '.5 8inor #orts along India<s 9,5'9 km long coastline. '33B %=I under the automatic route is permitted for all port development projects. ### is seen by the ,overnment as the key to improve the e)isting facilities. This sector would see 2s. ' trillion investments on shipbuilding and port infrastructure development within the ne)t 5 years. The (leventh #lan outlay for the shipping sector is 2s. ',333 crore at /337M39 prices. The sector is also e)pected to generate I(B2 amounting to 2s. '/,/.5 crore at /337M39 prices. In addition, the budgetary support for ship"building and repairs is 2s. '53 crore ?2s. '93 crore at current price@. The I(B2 for this sector is 2s. 553 crore at /337M39 prices. The total projected outlay for the (leventh #lan for the =epartment of *hipping ?including #orts@ is 2s. 41,.94 crore at /337M39 price ?2s. 407/1 crore at current price@ which includes 2s. 4475 crore of
7

Internal & ()tra Budgetary 2esources

Building, Construction Industry and Real Estate Services

,ross Budgetary *upport at /337M39 price ?2s. 5,353 crore at current price@ and 2s. 10430 crore of I(B2 at /337M39 price ?2s. 44591 crore at current price@. The Indian shipbuilding industry is centred around /9 shipyards comprising . public sector ?7 yards under -entral ,overnment and / under *tate ,overnments@ and '0 private sector shipyards. The shipyards between them have /3 dry docks and 43 slipways with an estimated capacity of /,.',/33 =ead Weight Tonnage ?=WT@. : major share of this capacity is held by the . public sector yards and only -ochin *hipyard $imited ?','3,333 =WT@ and infrastructure to build large vessels. India<s share in the world shipbuilding market has increased from an insignificant 3.'B in the beginning of Tenth #lan to '.1B in /337. On the e)port front, one public sector shipyard, that is -ochin *hipyard $td ?-*$@, and three private sector shipyards, vi+., :B,, Bharti, and -howgule performed remarkably well during the Tenth %ive Aear #lan period and were able to get e)port orders. The Indian *hipbuilders :ssociation has estimated that the industry can grow at a rate of more than 13B and this momentum can be maintained for the ne)t '3 years to reach a level of 5 million =WT order book for the (leventh %ive Aear #lan as against '.1 million =WT for the Tenth %ive Aear #lan. *$ ?.3,333 =WT@ have the reKuired

1$+$,$ 9r%an Infrastructure


India<s total urban population is around /.5 million, which is 13Bof India<s population. There has been significant growth of the urban population over the past decade and the trend is e)pected to continue. This warrants an urgent up"scaling and up"gradation of urban infrastructure. This sector is e)pected to be the second"largest contributor to infrastructure investments after roads. 8a%&e 1: 9r%an o!u&ation in India ear Nu'(er of 'etro $#t#es ,+o+ulat#on<. '#ll#on APo+ulat#on ,'#ll#onPer$enta2e of ur(an +o+ulat#on total .?0. '/ 4/ /7 .??. /1 93 1/ 3;;. 15 '3. 1.

Source5 Report of the Steering Committee on :r,an *evelopment, &&th +<0, 0lanning Commission of India

Grban Infrastructure covers basic civil services such as water supply, sewerage, solid waste management and urban transportation. Water supply and sanitation projects alone offer scope for

Building, Construction Industry and Real Estate Services

annual investment of 2s. /04 billion. Grban infrastructure investments will get a boost from the Eawaharlal Fehru Grban 2enewal #rogramme ?EnFG28@. The programme was started in /335"37 to enable sustainable urban infrastructure development of 71 mission cities. Gnder this scheme, the programme receives 2s. 533 billion as central assistance and 2s. 533 billion from state governments and urban local bodies. 2s. 1.1 trillion was allotted under the -ity =evelopment #lans scheme. *ome other notable schemes for urban development include the 2s. /. billion sub"mission on infrastructure development scheme and the 2s. ''.9 billion additional central scheme. -urrently, '33B foreign direct investment ?%=I@ under the automatic route is allowed in townships, housing, built"up infrastructure and construction"development projects. Grban transport development is currently supported by the Fational Grban Transportation #olicy ?FGT#@.

1$+$1$ 9ti&ities " ower and Irrigation'


India has a power generation capacity of '// ,W. The sector has been growing at a -ompound :nnual ,rowth 2ate of 4.7B over the last four years. India has the fifth largest electricity generation capacity in the world. The 8inistry of #ower has formulated a blueprint to provide reliable, affordable and Kuality power to all users by /3'/. This calls for an investment of 2s. 1.9 trillion in the ne)t five years. The gross electricity reKuirement by the end of the (leventh #lan projected by the #lanning -ommission Working ,roup on #ower is ',31. Billion Gnit ?BG@ and peak demand estimation is ',5',333 8W. To fulfil the estimated electricity demand reKuirement, the Working ,roup recommended the capacity addition programme initially of 9.,513 8W and updated at 9.,599 8W during the (leventh #lan. 8a%&e (: 8ota& ower Generation Ca!acity in India "our$e Bydro T!er'al Nu$lear Total Central 07.5 /7.33 11.3 10.75
th

"tate 1735 /4149 3 /905/

Pr#%ate 1/71 9409 3 '3973

Total '7551 5.744 11.3 9.599

Source5 0lanning Commission, && 0lan

+ive <ear

The emphasis of the -entral ,overnment to improve irrigation facilities in the country through programmes such as Bharat Firman, :ccelerated Irrigation Benefit #rogramme ?:IB#@, and state" level initiatives will be the main driver of investments in the irrigation sector. The plan outlay under the Tenth #lan for irrigation sector was 2s. 0// billion. There is a renewed emphasis on this front

Building, Construction Industry and Real Estate Services

with states like :ndhra #radesh drawing ambitious plans. Increased focus on irrigation is evident from the fact that the Tenth #lan irrigation outlay was 53B more over the Finth #lan. Investment in irrigation in the (leventh #lan is projected to increase to 2s. /,511 billion from 2s.',''5 billion spent in the Tenth #lan . ;part from the a,ove, (overnment spending on infrastructure activities for defence and other specialised construction )ould also ,e a demand driver for the sector=
9

1$+$2$ Demand drivers for Infrastructure Sector


(conomic growth would be around 9B -:,2 over ne)t decade Increased domestic investments and foreign direct investment in sectors such as communications ,overnment policies with a thrust on developing infrastructure and increased government spending on transportation, urban development and utilities.

..:. Key R#s& 6a$tors for Constru$t#on Industry


/anpo)er Shortages - :lthough the construction industry employs 11 million people, second only to the agricultural sector, the incremental workforce reKuirement is around four million people per year over the ne)t seven years to sustain the current growth rate. The construction industry is set to face a challenge in terms of sourcing manpower. :dding to this problem is the shortage of contractors. 0rocedural and 3egal 2ulnera,ility - =evelopment projects entail clearances and permissions from various government departments. =elays are tedious and vary from state to state depending on local laws. ence this adds to overall comple)ities of transaction, increasing the need for local e)pertise in each market. 3o) pro>ect risk, ,ut high payment receiva,le risk - The project risk for a contractor is low, due to low financial commitments. 8ost construction projects are e)ecuted on a cash contract basis and are funded and managed by the ownerCsponsor. The number of construction projects with eKuity participation by contractors is limited to a few projects.. #ayment security concerns are high, and they depend on the credit profile of the client. Gsually outstanding payments and retention money payable to the contractor are delayed, as these payments are made after the entire construction activity and project period is completed. This may affect the smaller players in the industry.
9

#lanning -ommission, ,overnment of India

Building, Construction Industry and Real Estate Services

Infrastructure Bottlenecks - Infrastructure is a cause of concern in majority of cities across the country as recent infrastructure developments have been slow and has not kept in pace with the development. InadeKuate power, absence of drinking water, electricity failure, traffic congestion and pollution are common features across the major cities in India. On the basis of current plans, electricity generating capacity will rise by 7B annually over the period /339 to /3'/, double the rate of the past five years and the second largest absolute increase in capacity in the world. owever, this is still well below the likely growth rate of ,=#. #ower shortage could be an impediment to construction activities in the future.

!igh level of fragmentation - The industry is highly fragmented, as the entry barriers are low due to less fi)ed capital reKuirements. It is estimated that in /334, over 1 million construction entities ?including housing contractors@ e)isted, of which only around /.,333 were registered. owever, there is more fragmentation in the housing segment than the industrialC infrastructure segment, as the unorganised sector accounts for 95B of the same. %urthermore, the industrialCinfrastructure sector reKuires far more technical e)pertise and it is difficult for smaller players in the unorganised sector to compete effectively.

4itle clearances for SEZs are invaria,ly delayed - Title clearance in India is a complicated process in the absence of a central database of properties. This also adds to the costs and delays in a project.

*elays in land ac1uisition5 =elays in land acKuisition is a major source of project delays and escalating project costs. This is applicable to large infrastructure projects such as *(Ns, power plants, and others.

*elays in /aster 0lan - *evelopment 0lan Revie) and Implementation - ()perience of implementing the 8aster #lans has not been encouraging because of weak data base, financial constraints, lack of resource mobili+ation, over ambitious plan proposals, lack of integration between spatial planning proposals with economic development plans and inadeKuate legislative support and enforcement.

+re1uent and e?pensive reconstruction " The maintenance reKuirement of the high density corridor of F s under construction and post implementation support is provided by F :I. owever, the non"F =# F sections, which are maintained by *tate #W=s, are poorly managed, primarily because the funds made available to them for maintenance are well short of the reKuirement as per norms.

..=. Mar&et "tru$ture of Constru$t#on Industry

Building, Construction Industry and Real Estate Services

The -onstruction industry is highly fragmented, as the entry barriers are low due to less fi)ed capital reKuirements. 2eportedly, in /334, over 1 million construction entities ?including housing contractors@ e)isted, of which only around /.,333 were registered . owever, there is more fragmentation in the housing segment than the industrialCinfrastructure segment, as the unorganised sector accounts for 95B of the same. %urthermore, the industrialCinfrastructure sector reKuires far more technical e)pertise. :round 07B of construction companies are classified as small and medium enterprises.
.

..>. Ma7or Players


#ost independence, in the %irst %ive Aear #lan, construction of civil works was allotted nearly 53B of the total capital outlay. The first professional consultancy company, Fational Industrial =evelopment -orporation ?FI=-@, was set up in the public sector in '054. *ubseKuently, many architectural, design engineering and construction companies were set up in the public sector ?Indian 2ailways -onstruction $imited ?I2-OF@, Fational Buildings -onstruction -orporation ?FB--@, 2ail India Transportation and (ngineering *ervices ?2IT(*@, (ngineers India $imited ?(I$@, etc.@ and private sector ?8 F =astur and -o., industan -onstruction -ompany ? --@ etc.@. The Indian -onstruction industry comprises of about /33 firms in the corporate sector. In addition to these firms, there are about ',/3,333 class": contractors registered with various government construction bodies. There are thousands of small contractors, which compete for small jobs or work as sub"contractors of prime or other contractors.

The major players in the construction industry are> -ompanies such as $&T, Gnitech, ,82 Infrastructure, --, ,ammon, Eaypee group,

Eaiprakash associates, B$ 6ashyap etc. which undertake large infrastructure projects. -ompanies such as ID2-$, Fagarjuna, $&T, =$%, Oma)e etc. involved in the construction of flyovers, pipelines, apartments and housingCoffice spaces. -ompanies such as =$%, #urvankara, 2aheja and others are engaged in the construction of residential and office space.

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

Building, Construction Industry and Real Estate Services

Organi+ed 2eal (state Industry in India is only a couple of decades old .2eal (state Industry in India took off with the global boom in the 2ealty *ector which percolated down to India as well.$ack of clear land titles and litigation has made this industry one of the most opaKue and corrupt ones.=ue to the massive price appreciation and huge valuations,$and *cams have become Kuite common with -hief 8inisters,,enerals,Top Bureaucrats all involved in the murky environment of 2eal (state in India.The most recent scam related to bribing of top public banks officials in the $I- ousing %inance *candal has again put Kuestion mark on the fundamentals of the industry.Daluing the industry and making a real estate investment remains one of the most difficult investing tasks in the Indian *tock 8arket.(ven %und 8anagers are staying away from the *ector due to lack of trust in the %inancial *tatement given by the industry.That said modern India presents a booming picture of tall buildings and huge office areas & shopping malls. : list of the chief players in Indian market is given below>

DL6C =$%<s chief business is to develop housing, marketable and retail properties. -urrently it has undertaken the development of 93 million sK ft of housing projects which it intends to finish in the ne)t three years. =$% has joined hands with =elhi =evelopment :uthority to develop townships in :mritsar, #une, ,urgaon, 8umbai, -hennai and ,oa. =$% has been the construction company behind different malls in the major cities in India. The company is also developing 53"95 hotels along with ilton otels and infrastructure and *(N in India in collaboration with $aing O<2ourke ?G6@.The current market cap is around 2s.5',.1/.// crore.

Tata Pro7e$tsC Tata #rojects registered an annual turnover of 2s /,133 crore on Euly ', /339. With more than ',533 professionals the company has emerged as one of the chief player in (#projects. Over the last four years, it has attained a -:,2 of 53 per cent which Kuadrupled its annual turnover of /337"39. Tata #rojects functions in concentrated divisions like broadcast and distribution, steel, power production, oil, gas and hydrocarbons and industrial infrastructure.

"o(!a De%elo+ers LtdC With an annual turnover of 2s ','.0 crore, *obha =evelopers $td was initiated by the now chairman #F- 8enon in the year '005. On Eune 13, /339, the company has 1,937 skilled professionals working for it. :t present it owns 2s 1,533"acre land in eight Indian cities namely -oimbatore, Bangalore, 8ysore, -hennai, Thrissur, 6ochi, #une and osur. The company<s clientele include some of the top players in IT, hotel and construction sector such as ewlett #ackard, 8ico, Infosys, 2amaraju =evelopers, =ell, Timken, etc.

"!a+oor7# Pallon7# D CoC The -ompany has more than 1,533 professionals working for it and is largely driven by its loyalty to consumer satisfaction. *ome of the major projects undertaken by *hapoorji #allonji & -o are World Trade -entre, 8umbaiL T($-O industrial comple), #uneL Bhabha :tomic 2esearch -entre, 6alpakkamL *B- Bank, 8umbaiL otel Taj Intercontinental, 8umbaiL Bank of India, 8umbaiL Indira ,andhi International :irport, Few =elhi, etc. the company has created magnum opus of construction and has been a consistent e)ecuter of challenging projects. @n#te$!C 2ecently 2amesh -handra, Gnitech<s -hairman has declared the investment of Q 9/3 million by his company in the coming four years to develop /. hotels along with 8arriott

Building, Construction Industry and Real Estate Services

International. The market capitalisation of the company is 2s.'7,.79.43 crore.Its chief activities include construction, e)pansion of real"estate, consultancy in associated sectors, hotels,

electrical broadcast and information technology. Ind#a 1ulls Real EstateC One of India<s largest listed developers developing residential and commercial real estate. Being a focused regional player, more than 03B of IB2($<s portfolio by value is in the three major markets of 8umbai, F-2 and -hennai. (stablished in /333, the company has grown into one of the leading Indian business houses with its companies being listed on Indian and overseas financial markets having a combined net worth in e)cess of 2s. '.,333 crores. the current market cap being 2s.7,545.'9 crore.

BDILC 2anked as India<s fastest growing real estate company by -onstruction World"FI-8:2 in October /339 & with a current market cap of 2s..,579.97 crore, ousing =evelopment & Infrastructure $imited has established itself as one of India<s premier real estate development companies, with significant operations in the 8umbai 8etropolitan 2egion. =I$ is a public listed real estate company in India with shares traded on the B*( & F*( *tock ()changes. With operations spanning every aspect of the real estate business, from residential apartment comple)es to towers & townships, commercial premium office spaces and retail projects like world"class shopping malls. it is India<s largest slum rehabilitation company, & was given the 8umbai International :irport *lum 2ehabilitation project in October /339,one of the largest urban rehabilitation projects in India..

E'aarr<MG6> One of the world<s leading real estate developers company in India and =evelopment of properties in the residential flats, -ommercial #roperties, premium apartments etc. The P-ommonwealth ,ames Dillage builder< is still trying to get listed on F*(. -urrently not listed.

Analys#s

Building, Construction Industry and Real Estate Services

3na&ysis Iuantitaive
Pest Analys#s of Ind#an Real Estate "e$tor
The various factors which influenced the 2eal (state segment were #olitical, Technological, *ocial and (conomical factors. #O$ITI-:$ %:-TO2*>

,overnment<s regulations and policies in favour of real estate sector. eaviest ta) imposed on the construction industry. %=I e)perience in Indian real estate market.

(-OFO8I- %:-TO2*>

-ontrolled Inflation levels. $ow Interest 2ates. #rovides further $iKuidity

*O-I:$ %:-TO2*>

Increase in consumption. Grbani+ation. Increase in per capita income ?current prices@. 2ise in =emand for Iuality ousing #rojects.

T(- FO$O,I-:$ %:-TO2*>

Internet revolution 8edia

Building, Construction Industry and Real Estate Services

"WOT analys#s
"tren2t!
employment and training opportunities in the field of construction #rivate sector housing boom and commercial building demands -onstruction of the multi building projects on the feasible locations in the country. ,ood structured national network facilitates the boom of construction industry. $ow cost well" educated and skilled labour force is now widely available across the country. *ufficient availability of raw material and natural resources in the country is supportive for the industry. 2eal estate development is on high and it is attracting the focus of the industry towards construction.

Weakness
-hances of Fatural disadvantage are there. =istance between construction projects reduces business efficiency. Training itself has become a challenge. -hanging skills reKuirements and an ageing workforce may accentuate the skills gap. Improve in long"term career prospects is highly reKuired to encourage staff retention and new entrants. ()ternal allocation of large contracts becomes difficult. $ack of clearly define processes and procedures for construction and its management. uge amount of money need to be invested in this industry and inefficiency may lead to high level of risk.

Opportunity
continuous private sector housing boom will create more construction opportunities. #ublic sector projects through #ublic #rivate #artnerships will bring further opportunities. =eveloping supply chain through involvement in large projects is likely to enhance the chances in construction. 2enewable energy projects will offer opportunities to develop skills and capacity in new markets. 8ore fle)ible training delivery techniKues are now available.

%inancial supports like loan and insurance and growth in income of people is in support of construction industry.
Building, Construction Industry and Real Estate Services

istorical cultural heritages like the T:N 8: :$ encourage and provide a creative platform for the industry. 2emote areas in the country are easily accessible and plenty of land is available in the country.

Threat
$ong term market instability and uncertainty may damage the opportunities and prevent the e)pansion of training and development facilities. -urrent economic situation may have an adverse impact on construction industry. #olitical and security conditions in the region and $ate legislative enforcement measures are always threats to any industry in India. Infrastructure safety is a challenging task in construction industry.

PorterEs f#%e for$es Model


'. Intensity of Industry 2ivalry ?Feutral to %avorable@
-ompared to many other industries, the intensity of rivalry among developers in residential development is relatively low. The area where it is felt most is in competition for development land. When it comes to selling end units, developers typically try to avoid competing directly by '@ developing products in different markets C products at different time periodsL 1@ differentiating product types. The key factor is that residential property is sufficiently differentiable and not subject to any sort of perishibility or technological obsolescence such that developers have much more fle)ibility with the timing of producing and selling their end product. locationsL /@ launching

Building, Construction Industry and Real Estate Services

/. Threat of new entrants ?Feutral to Gnfavorable@ When an industry has over 73,333 registered participants, it is hard to conclude that barriers to entry are high. :lthough the number of entrants varies over time and according to market condition, they are sufficiently low relative to other industries that new entrants can continue to enter and eventually push above average returns back to historical means. ,enerally speaking, the potential barriers to entry to any industry fall into several broad categories> '@ capitalL /@ technologyL 1@ legal authori+ationL and 4@ e)pertise and know"how. $egal authori+ation is necessary for certain types of industries such as telecoms and utilities. The number of participants in these industries is limited due to the nature of the businesses ?Rnatural monopoliesH@ or the return profiles ?massive upfront investments which can only be recovered through limited operating competition@. %or most real estate development, no special legal authority is needed to enter the industry. That is why many non"property companies find it relatively easy to migrate into this industry as and when returns become attractive or simply out of interest. %urthermore, the technological and e)pertiseCknow"how component of this industry is not particularly high. =esigns, names and concepts can all be copied as there is less ability to protect these through patents or copyright. $arge value supply chains such as agents, consultants, property managers and employees of rivals can all be hired or co"opted. -apital can be considered a barrier but mostly to larger scale projects. The gross amount of capital needed to RenterH the industry is paltry compared to the likes of steel mills or chip fabs. In addition to the above factors, the wide range of different types and scales of development each entail different barriers to entry. Obviously larger, more speciali+ed developments in top tier cities would have much higher barriers to entry than a small residential project1. Threat of substitutes ?%avorable for (nd GseL Feutral for Investment@ 2eal estate development involves different types of products " residential, office, retail and industrial being the most common. To narrow the scope of discussion, we will just consider private residential real estate. -urrently in -hina, residential real estate is in high demand both for its utilitarian value as accommodation and also for its investment value as a stable, inflation" proof store of wealth. :s such we need to consider the substitutability on both

fronts. :s accommodation, new private housing from any firm can be replaced by '
Building, Construction Industry and Real Estate Services

competitive product from another developerL /@ e)isting private housing for sale or for rentL 1@ social housing either for sale or rent. :ny specific developer can lower the risk of substitution by differentiating their product offering by i@ locationL ii@ type and iii@ Kuality. The more generic a developer<s productthe more substitutable . =evelopers that have managed to distinguish their product or image will fare the best. The threat from the secondary market varies by city. In T' and large T/ cities, a sufficiently large stock of housing e)ists for the secondary market to be a viable choice for potential homebuyers. In many T1 and T4 cities, there are either not enough secondary units for sale or the market is simply is too illiKuid. The threat from social housing e)ists but not significant. Gsually, those allowed to buy or rent social housing would only be able to enter the low end of the private housing market anyway " if at all. 8oreover, resale and other restrictions make it a far less liKuid asset class. %or that reason, the threat is only to the lower end of the private housing market. ,iven -hina<s current state of negative real interest rates and capital controls, most individuals have limited channels for savings and investment. 2eal estate has helped fill this void. If investors were given more alternatives and if other asset classes such as eKuities start to perform better, investment demand for real estate would Kuite likely cool.

4. Bargaining power of suppliers ?%avorable@ Overall, developers are in a favorable bargaining position relative to the key suppliers in the industry. The 1 key suppliers to any residential developer are '@ land sellers ?usually cities or other developers@L /@ construction contractorsL 1@ building materials and home furnishing C eKuipment manufacturersL 4@ capital providers. This situation is more or less reflected in that the typical cost of sales for any developer is made up of roughly 'C1 land, 'C1 construction and 'C1 financing costs. : typical developer<s bargaining position relative to a land seller varies according to '@ nature of sale and /@ location of sale. =evelopers typically prefer to buy land through direct bilateral negotiations with the government or 1rd party rather than be involved in a multi"party bidding ware. :uctions are the least desired channel for land acKuisition but sometimes a necessity. %or land bought in smaller cities or newer areas of larger cities, developers wield a lot more bargaining power. *maller cities are generally eager to entice well known national developers. %or e)ample, if Danke or -O$I buys into a smaller T1C4 city, it would signal to other developers that this city is worthy of investment. In such cases, local officials are willing to give a discount to entire desired players. This logic is also true of newly emerging districts in T'C/ cities. -onstruction companies do not command much if any pricing power and many

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

Building, Construction Industry and Real Estate Services

construction materials and household furnishings that developers buy are mostly commodity goods for which the manufacturers not only command no particular pricing power but would also yield a discount on bulk or volume purchases. $astly, capital providers, be they banks, shareholders or bondholders, may have different investment appetite for this industry at different times but whether investors or bankers demand a specific risk premium to provide capital is more dependent on the perceived risks at any point in the property cycle and not any kind of structural risk premium.

5. Bargaining #ower of Buyers ?Feutral@ Of all the five forces, this is perhaps the most dependent on '@ the stage in the industry cycleL /@ regulations to protect consumer interests and 1@ financial state of individual developers. ,iven this wide variance, it is very difficult to conclude definitively that buyer power is always strong or always weak. The truth is buyer power will fluctuate greatly. Thus developers that have a larger proportion of their business in markets with weaker buyer bargaining power will obviously reali+e higher returns. Fear the peak of a property cycle, the combination of investment and end user demand generally outstrip available supply. This gives developers tremendous pricing power and leads to outsi+ed returns. -onversely, near the bottom of the cycle, developers are usually overstocked and must cut prices to move units.

In the transaction of any large si+ed purchases, information is the key to knowing what a reasonablSprice to pay is.

%igure ' #roperty -ycle regulations,


Building, Construction Industry and Real Estate Services

In the absence of rules and

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

not publishing any standard price lists and /@ not reporting critical information such as how many units have been sold and at what price. This situation is generally known as asymmetric information and gives the developer tremendous power. owever, in most large markets, regulators are aware of this and have enacted laws to protect consumer interests by making information more transparent and readily available. In general, all else being eKual, consumers in T'C/ cities or those with consumer protection laws have more bargaining power than cities without protection. $astly, developers that are on solid financial footing ?larger resulting from a more prudent management of working capital@ would generally have greater pricing and operational fle)ibility than those that are financially overstretched heading into a cyclical trough.

Building, Construction Industry and Real Estate Services

Fuant#tat#%e
Real Estate IndustryC A 6#nan$#al Analys#s
I have attempted to capture the current trends in the Indian real estate industry through financial analysis of a sample of listed companies. This section provides a brief overview of the performance of the sample of listed real estate companies. The sample selected for this analysis comprised listed real estate companies that had total income of 953 mn and above. We then narrowed down its choice to a fair representative list of 13 companies for which financial information was available for the past five years. It further categorised the 13 real estate companies into large"si+e, mid"si+e, and small"si+e companies based on their total income, by using the .3>'5>5 principle. Based on this categorisation, '/, '3, and . large"si+e, mid"si+e, and small"si+e companies respectively were chosen. This classification primarily aims to study the dynamics and operating efficiencies of the chosen companies in the real estate industry. Of the 13 companies under study, in %A'3, large companies contributed .3B of total income and had 43B representation.

De(t< eGu#ty Rat#o


2eal estate companies reKuire significant resources to fund their projects. Thus, they went on an eKuity capital raising spree during %A37M%A3. to scale their operations aggressively. These companies also procured considerably high debt to finance their capital"intensive projects. owever in %A30 and %A'3, growth in eKuity and debt declined due to decreased demand, a downtrend in sales, stoppage in e)ecution of projects, rising interest e)penses and the credit crunch arising out of the global financial crisis. The global financial crisis, volatile capital markets, slowdown in %II flows made it difficult for companies to raise funds through eKuity markets. %urther, in %A'3, the focus of companies was to enhance cash flows, release cash blocked in non"core assets, increase process improvements and cost cutting, and achieve better working capital management along with real estate development. This resulted in renewal and progress of certain stalled projects and new launch announcements.

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

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

%i)ed :sset Turnover 2atio


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

Co'+ound Annual Gro*t! Rate < CAGR , Re%enues Co'+any Na'e DL6 Mar$! 3;.3 '3,/39... MarE.. '3,30'.54 MarE.; 9,90'.1' Mar ;? '3,10/.55 Mar ;0 '4,755.3' "7.0.B 03.99 544.13 7.4' 9..'/ CAGR

O'aHe @NITECB AN"AL API Pars%nat! De%elo+ers Ltd. GODRE4 PROPERTIE" LTD Real Estate

7/.03 1/7.9' '3.1/ /5.51

7/.5' 5'3.3. '3.55 95.4.

10...3 '313.7. 9./4 43..94

"13...B "/3.51B 9.10B "4/.59B

910.77 '3.37

'11..5

''1.34 94.94

.'.17

'37./4

'/'..4

95..0

'.49B

'39'4.9

'3.57.4

.7...4.

'377..5'

'7/97.17

<0.;3I

Where, %ormula

> start value,

> finish value,

> number of years.

:ctual or normali+ed values may be used for calculation as long as they retain the same mathematical proportion. The -:,2 can also be calculated as the geometric mean of ' plus each year!s return ?i.e. T1B becomes '.31 and "/B becomes 3.0.@, minus '

3na&ysis: C3G# of #ea& Estate industry has :een ;7$5(4 which c&ear&y signifies that industry has %een
Building, Construction Industry and Real Estate Services

suffering from &ow earning ca!a%i&ity over , years or so$ 8he main reason for such Drastic fa&& is <recession= 4 which has made consumer re&uctant to invest$ It was %ac>ed %y #aising interest #ates$

Cumu&ative 3verage Growth #ate


Interpretation

2eal (state is suffering from down turn of cumulative average growth rate.

: "143 B of decrease show that industry is not healthy right now.

2ecession has had adverse effect on Indian real estate industry.

*uggestion

2eal estate companies has to inject money to start new projects. -ompanies have to formulate effeicient policies to skip florclosures.

4nNur'

Building, Construction Industry and Real Estate Services

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


,iven the skill reKuirements outlined in the earlier section, it is also necessary to forecast the human resource reKuirement reKuired in the Infrastructure and 2eal (state sector. The first step is to forecast the industry si+e. In this section, we will analyse the profile of investments planned in each of the sectors and arrive at the projected industry si+e.

($1$1$ ?n@9#A
:ccording to India!s -ensus in /33', more than /.5 million people ?/9..B of the total population@ live in urban areas. With this large base, which is growing at the rate of around /.9B annually, India has the world!s second largest urban population. ,iven the current trends in population growth and migration, India!s urban population is estimated to reach 595 million by /313. -onseKuently, the Eawaharlal Fehru Fational Grban 2enewal 8ission ?EnFG28@ was set up to encourage reforms and fast track planned development of identified cities. %ocus is to be on efficiency in urban infrastructure and service delivery mechanisms, community participation, and accountability of Grban $ocal Bodies ?G$Bs@C#arastatal agencies towards citi+ens. The current list of 75 of total Indian population. %or the 75 cities identified under the EnFG28, the total investments are e)pected to be over 2s. 1,15,333 crore directed towards Grban Infrastructure and ,overnance ?GI,@, Basic *ervices to Grban #oor ?B*G#@ and -apacity Building and Institutional =evelopment ?-BI=@. Of these investments in Grban Infrastructure and ,overnance ?GI,@ account for over .3B of the total investments under the EnFG28, as below>
'/

cities under EnFG28 together

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

'/

Including inputs on addition or deletion of citiesC G:sCtowns, the total number of cities under the EFFG28 will remain around 73 M the figure of 71 cities has recently been revised to 75 cities.

Building, Construction Industry and Real Estate Services

Figure 11: Investment !&anned under ?n@9#A tota&&ing #s$ *4*,4555 crore
Basic *ervices to Grban #oor ?B*G#@ '9B -apacity Building and Institutional =e velopment ?-BI=@ 'B Grban e Infrastructure a nd ,overnan ce ?GI,@ ./B

:s part of Grban Infrastructure and ,overnance, investments are being made under the heads of Grban Transport, Water *upply, *ewageC*anitation, =rainageC*olid Waste =isposal, 82T*, and *olid Waste 8anagement. Of these, the investments in Grban Transport, Water *upply, *ewage C*anitation account for about .3B of the total investments under the EnFG28, with Grban Transport alone accounting for over 53B, as seen below> Figure 12: Investments under various heads of ?n@9#A "#s$ crore'

Grban Transport t Water *upply *ewage n g C *anitation =rainage C *W= s Others 82T * 43,37/ 3 11,1/4 / /3,'33 '7,97/ '/,353 7,.30 0 " /3,333 43,333 73,333

'19,10' 0

8 *W8

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

With respect to the states, investments in 8aharashtra, Tamil Fadu, :ndhra #radesh, =elhi, Gttar #radesh, 6arnataka, 6erala, ,ujarat, Eharkhand and West Bengal account for over .3B of total investments under the EnFG28, as seen below>

Building, Construction Industry and Real Estate Services

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

West 1B d 4B ,ujarat 5B 6arnataka a 9B Gttar #radesh =elhi ? ?F-T@ B B 9B 9B Others '.B 8 8aharashtra '.B Tamil Fadu '1B :ndhra h #radesh '/B

a 6erala 7B

($1$($

ower

The total installed capacity of power currently in India is over ',53,333 8W. This is e)pected to increase to over 1,'.,333 8W by /3/'"//. ence additional capacity of about ',7.,333 8W will be needed. %or this, it is e)pected that about 2s. 9,39,533 crore will be needed for ,eneration and about 2s. 7,'0,333 crore will be needed for Transmission and =istribution, as seen below> Figure 1B: Investments in ower Generation4 8ransmission and Distri%ution u! to (5(1;(( "#s$ crore'

T Transmission and =istribution 49B

,eneration 51B

The infrastructure for Transmission and =istribution needs to be set up in each state based on the additional capacity reKuired in that state. The investments in power ,eneration cannot be attributed to

Building, Construction Industry and Real Estate Services

the state which has the demand, since the power need not be generated at the same location where it is needed. Thus, while the state"wise breakup of investments for Transmission and =istribution are as seen below, investments in power generation cannot be attributed to particular states. Figure (5: State;wise investments in 8ransmission and Distri%ution

West Bengal 4B Bihar 4B 6arnataka 4B 8adhya #radesh 4B aryana y 5B

Others '.B

Gttar #radesh '3B

:ndhra h #radesh 0B

Tamil Fadu 0B 8aharastra a 0B =elhi 5B 2ajasthan 5B 5 #unjab n 9B ,ujarat u 9B

($1$*$

orts

India currently has '/ major ports and '.9 minor ports. In /339"3., major ports accounted for about 93B ?5'0 million tonnes@ of the total port traffic in India, while minor ports accounted for the remaining 13B ?//3 million tonnes@. :s regards investments going ahead, the investments in minor ports will account for abut 53B of the total investments in ports.

($1$+$ 3ir!orts
India has a total of '/5 airports and currently all '/5 airports are owned and operated by the :irports :uthority of India ?::I@. The ,overnment aims to attract private investment in aviation infrastructure, as seen in the cases of privatisation of the =elhi and 8umbai airports as well as the new international airports at Bangalore and yderabad. The latest status of airports that have been commissionedCgranted approvalCare under consideration is as below>

Building, Construction Industry and Real Estate Services

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

Na'e 1an2alore Internat#onal a#r+ort Bydera(ad Internat#onal a#r+ort Mo+a a#r+ort Na%# Mu'(a# Internat#onal a#r+ort Kannur a#r+ort 1#7a+ur a#r+ort "#'o2a a#r+ort Bassan a#r+ort Gul(ar2a a#r+ort "#nd!udur2 A#r+ort Da(ra A#r+ort Dur2a+ur A#r+ort Greater NOIDA #nternat#onal a#r+ort C!a&an #nternat#onal a#r+ort Kara#&al a#r+ort 4!a77ar a#r+ort Lud!#ana Palad#<Ra's#n2!+ur 1!aru$! Ra'es*ara' Itana2ar

"tate 6arnataka :ndhra #radesh ,oa 8aharashtra 6erala 6arnataka 6arnataka 6arnataka 6arnataka 8aharashtra 8adhya #radesh West Bengal Gttar #radesh 8aharashtra #uducherry aryana #unjab 2ajasthan ,ujarat Tamil Fadu :runachal #radesh

"tatus -ommissioned -ommissioned :pproval ,ranted :pproval ,ranted :pproval ,ranted :pproval ,ranted :pproval ,ranted :pproval ,ranted :pproval ,ranted :pproval ,ranted :pproval ,ranted :pproval ,ranted Gnder -onsideration Gnder -onsideration Gnder -onsideration Gnder -onsideration Gnder -onsideration Gnder -onsideration Gnder -onsideration Gnder -onsideration Gnder -onsideration

($1$,$ #oads
India has an e)tensive road network of 1.1 million km M the second largest in the world$ 2oads in India carry about 75B of the freight and .3B of the passenger traffic. The ,overnment of India plans to spend about 2s. 53,333 crore per annum on road development over the ne)t five years. 2oad projects in India consist of the Fational ighways that are being constructed under 9 phases of the

Building, Construction Industry and Real Estate Services

Fational

ighway =evelopment #roject ?F =#@, *tate

ighways, 2ural 2oads and the Forth (ast

roads *pecial :ccelerated 2oad =evelopment #rogram, the investments in which are as below> Figure (1: &anned Investments in #oads in the E&eventh Five .ear &an "#s$ crore'
2ural 2oads 17,.33 '/B F( roads *pl :cc 2oad =ev #rogram 4,.33 /B

*tate ighways ''7,333 19B

Fational ighways '54,133 40B


1*

($1$1$

roCected Size of the Infrastructure and #ea& Estate sector

,iven these investments, we forecast that the real ,=# of the Building, -onstruction and 2eal (state sector to grow at a -:,2 of 0.5B to '3B till /3//, in real terms. The ,=# economy of -onstruction would be about 2s. .,333 billion in constant prices at /3//. Figure ((: roCected #ea& GD of Construction sector "#s$ %i&&ion'
?);;; 0);;; >);;; =);;; :);;; /);;; 5);;; 3);;; .);;; < 3;;0 3;.3 3;.0 3;33 /,/71 1,4/9 5,.11

" 0.5B to

9,0/5

Source5 I/aCS analysis

'1

Our overall approach to macro"economic modeling and forecasting is e)plained in a separate anne)ure

Building, Construction Industry and Real Estate Services

While 2eal (state ?including housing and commercial@ would account for 13B of the activity, the rest of the infrastructure activity ?93B@ would be shared across the following areas in the proportion indicated below. 8a%&e 15: Share of economic activity estimated in the Infrastructure segment "e$tor #n Infrastru$ture Ele$tr#$#ty Road and 1r#d2es Tele$o''un#$at#on Ra#l*ays ,#n$lud#n2 MRT"Irr#2at#on Water "u++ly and "an#tat#on Ports A#r+orts Ot!ers 4.1B '.5B '.0B I of e$ono'#$ a$t#%#ty 1/.4B '5.1B '/.7B '/.9B '/.1B 9.3B

Source5 0lanning Commission@s 4enth and Eleventh +ive <ear 0lan and I/aCS analysis

Building, Construction Industry and Real Estate Services

A(stra$t
4he (lo,al Credit Crises that ,egan like a small fire in the :S housing finance market in 6##8 spread and ,ecame a forest fire that first engulfed the :S, then the 9estern economies, and eventually the rest of the )orld, including India= 4he crisis is clearly the deepest and the most )idespread economic meltdo)n that the )orld has faced since the (reat *epression= Indian industry started e?periencing the real impact of the glo,al financial meltdo)n from the last 1uarter of 6##7= 4he Indian economy, )hich )as on a ro,ust gro)th path up to 6##8-#7, averaging at 7=$ per cent during the period 6##A-#" to 6##8-#7, )itnessed moderation in 6##7#$, )ith the deceleration turning out to ,e some)hat sharper in the third 1uarter= I4 industries, financial sectors, real estate o)ners, car industry, investment ,anking and other industries as )ell are confronting heavy loss due to the fall do)n of glo,al economy= 8he #ea& Estate :usiness has seen 1( !er cent dec&ine in revenues4 ,7 !er cent dec&ine in :DI84 and 27 !er cent dec&ine in net !rofit4 %etween Aarch (557 and Aarch (55B$ 8his dec&ine has %een accom!anied %y a significant fa&& in the !ro!erty !rices in India$ 4he importance of the real estate sector in India cannot ,e understated given the strong for)ard and ,ack)ard linkages that it generates= 4he sector has demand implications for intermediate inputs like steel, cement, etc=, )hile keeping afloat the )hole construction industry including transport and other intermediate la,our services= (iven its importance for the economy it is )orth)hile to see ho) adverse e?pectations are playing a role in this sector and )hat the possi,le solutions are=

Introdu$t#on
R8arch '7, /33.> Bear *tearns is acKuired for Q/ a share against its 5/"week high of Q'14. Euly '4, /33.> Oil hits Q'45 a barrel and then collapse to Q14 within si) months. *eptember '5, /33.> -ollapse of $ehman Brothers. Fovember /3, /33.> =ow Eones at a record low of 9,440 points. Eune ', /330> ,eneral 8otors files for bankruptcy. We are living in a time that has seen unprecedented volatility. %rom boom to bust in a matter of monthsH. To begin with let us define the term 2ecessionL Urecession is a decline in a country!s gross domestic product ?,=#@ growth for two or more consecutive Kuarters of a year. : recession is also preceded by several Kuarters of slowing down. :n economy which grows over a period of time tends to slow down the growth as a part of the normal economic cycle. :n economy typically e)pands for 7"'3 years and tends to go into a recession for about si) months to / years. : recession normally takes place when consumers lose confidence in the growth of the economy and spend less. This leads to a decreased demand for goods and services, which in turn leads to a decrease in production, lay"offs and a sharp rise in unemployment. The 2eal (state industry in India witnessed unprecedented growth in a relatively short span of time. With most companies having seen only the upward swing, the economic downturn proved to be a litmus test. -ompanies with stronger fundamentals and ability to make Kuick strategic decisions continued to operate, though with reduced visibility and si+e of operations, the weaker ones found it challenging to retain their position and image as a 2eal (state developer. As !as (een sa#d) 1us#nesses *#t! t!e r#2!t strate2y and %#s#on $o'e out stron2er fro' t#'es of de+ress#on. In order for -ompanies to gear up to face the challenge, it is imperative to understand how the real estate market has been impacted. There is an overall slowdown in demand across India as has been e)perienced by industry players. #roperty prices and rentals are correcting which have led to the erosion in market capitalisation of many listed players like =$% and Gnitech. 8any current projects of real estate developers have been stalled due to lack of funds and investors either do not have funds to invest or are reluctant to do so. -onseKuently, companies are forced to sell of the properties at a lower value. This scenario is ascertained by the fact that finding buyers is also proving to be a challenge.
Building, Construction Industry and Real Estate Services

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

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


%ollowing are the objectives of the study> '. To study the impact of ,lobal recession on Indias real estate sectors foreign direct investment flows, rate of growth, sales and profit after ta) ?#:T@ and /. To analyse various strategic initiatives by companies to combat the e)isting times and sustain their businesses through future turbulent times. 1. To give suitable conclusion & suggestion.

By+ot!eses of T!e "tudy


'. There is no significant impact of recession on Indian real estate market ? o@ /. ,lobal recession has a definite impact on development of Indian real estate market ? a@

Resear$! Met!odlo2y
The study is primarily based on secondary data collected through journals, periodicals, Websites and newspapers

Results and D#s$uss#ons


The real estate market in India remains unorgani+ed, fragmented and characteri+ed by small players with a local presence. The growth of the real estate sector is attributed to various factors such as growing economy, growing business needs etc. owever, this boom is restricted to areas such as commercial office space, retail and housing sectors. The major concerns of this sector namely are skill shortage, non"availability of statistics, lack of low cost"affordable housing, lack of sustainability and to meet a future that might have downturn due to oversupply. The industry is presently facing a major resource crunch M an obvious lack of Kualified and skilled people. -oupled with this manpower shortage is the shortage of availability of relevant statistics, which has created an ambiguity as to how much construction activity is actually taking place and one cant gauge the demand and supply trends accurately. The major issues that plague this industry is tremendous shortfall of middle class housing as majority of the developers are involved in developing high class housing. *o, there is a dearth of low cost affordable units. 2ecession in G* economy has caused great impact on Indian real estate business. The real estate industry was a booming industry in pace with information technology ?IT@ industry. =emand for it space and from high net worth individuals had created opportunities for the this sector.

Building, Construction Industry and Real Estate Services

6#2ure .C Fuarterly Est#'ates of GDP At Constant ,.???<;;- Pr#$es<Gro*t! > Rates


$%
Real GDP Growth (%) #.! $0.%

$0 " 6 & % 0

#.&

#."

#.%

#.'

".6

!." !.! (." (."

%006-0!

%00!-0"

%00"-0#
)$ )% )' )&

"our$eC Reser%e 1an& of Ind#a 1ullet#n The Indian industry has dealt with economic slowdowns in the past but this one is in the nature of contagion effect of the western recession. The full spectrum of the shades of the contagion is not evident in the ,=# growth trend. Fumbers alone would indicate that economic slowdown, so far, has been barely a two"Kuarter phenomenon. In figure ', the real slowdown was seen only in the last two Kuarters of /33."30. *ales growth respectively dropped to 0.5 per cent and '.0 per cent in I1 and I4 with much worse impact on the net profits that respectively fell by 51.1 per cent and '0.0 per cent.

6#2ure 3> "ales And Prof#t After TaH Trend of Ind#a Real Estate "e$tor

(000 &(00 &000

real-estate sales real-estate pro*it

Rs. in Crores

'(00 '000 %(00 %000 $(00 $000 (00 0 No -06 No -0! No -0" Jul-06 Jul-0! Jan-0! Jan-0" Jul-0" May-06 Sep-06 May-0! Sep-0! May-0" Sep-0" Jan-0# May-0# Mar-06 Mar-0! Mar-0" Mar-0#

Building, Construction Industry and Real Estate Services

The trend in sales and net profit of Rworst affectedH 2eal (state is given in figure /. The 2eal (state has been 7/ per cent decline in revenues, 5. per cent decline in #B=IT, and 9. per cent decline in net profit, between 8arch /33. and 8arch /330. This decline has been accompanied by a significant fall in the property prices in India. recovery in the Kuarter after 8arch /330. owever, the sector shows a moderate

Ta(le .C Rate Of Gro*t! At 6a$tor Cost At .???<3;;; Pr#$es ,Per Cent/331" 34


:griculture, forestry & fishing

/334" 35 3 ../ ..9 9.0 '7.' 9.9 '5.7 0.> 7..

/335" 37 53. 4.0 0.' 5.' '7./ '3.1 '4.0 .../ 9.'

/337" 39 4 ... ''.. 5.1 ''.. '3.4 '7.1 .5.0 5.9

/339"3. 4.0 1.1 ../ 5.1 '3.' '3.' '5.5 ...> 7.. 0
.;

/33." 30 '.7 1.7 /.4 1.4 9./ 0 0 >.0 '1.' 7.9

'3 1.' 7.7 4.. '/ '3.' '5.1 :.= 5.4

8ining & Kuarrying 8anufacturing


(lectricity, gas & water supply

-onstruction Trade, hotels & restaurants Transport & communication Real estate D 6#nan$#n2
-ommunity, social & personal services

..5 9.5 0.5 0.9 Total GDP at fa$tor $ost "our$eC Central "tat#st#$al Or2an#9at#on

6#2ure 5C 6DI EGu#ty In Ind#an Real Estate 1us#ness


$&000 $%000 $0000

$%6%$

Rs. in Crores

"!&#

"000 6000 &000 %000 0 %006-0! %00!-0" %00"-0#

&$%%
%$%$

$&&%

"our$eC R1IEs 1ullet#n Au2ust 3;;? ,Ta(le No. /= 8 6ore#2n In%est'ent Inflo*s:bove Table no ' reflects how the steady growth rate of real estate sector was slowed down in

Building, Construction Industry and Real Estate Services

year /33."30 due the recessionary trend prevalent in the economy .this proves our hypothesis ? a@ that recessionary effects were responsible for downtrend in the real estate sector and null hypothesis is rejected from the observations made. In figure 1, it is seen that %=I eKuity in Indian 2eal (state Business is increasing but in reality it is not so. In the year /339"3. it is increased by 4'/ per cent and in /33."30 it is only increased by '44 per cent. *o it is not rise as it is accepted by the 2eal (state 8arket.

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


-hallenging times present an opportunity for -ompanies to capture market share by outperforming competitors. : Kuick analysis of the market conditions and Kuicker response to mitigate e)isting risks differentiates companies. There can be multiple reasons why some companies continue to tread well while some companies falter badly, when faced by serious challenges. But, invariably, the most significant role here is played by the strategic decisions taken by the company. When the global economic crisis, compounded by the local economy issues, started hitting real estate demand in India, different companies reacted in different ways.

.- 6#nan$#al De$#s#ons
Initially, developers were reluctant to reducing real estate prices in order to revive demand. owever, with no immediate respite and growing pressure to cut down losses, a gradual slash down in prices was introduced. The worsening situation of credit availability led developers into liKuidity crunch. 8any developers succumbed to borrowing at a very high cost, #rivate (Kuity which was once easily available became a very distant option.

3- D#%ers#f#$at#on of 1us#ness
2ecogni+ing the need of developing multiple streams of revenue, some cash"rich developers vertically diversified ?or attempted to diversify@ their businesses into telecommunications, financial services, insurance, etc. ori+ontal diversification into services related to property management and leasing also surfaced up as a preferred strategy for dealing with the downturn. Owing to increased competition in metropolitan cities, developers opted to diversify geographically as well. Tier II and Tier III cities thus came under their radar. Interestingly, one can easily find developers cheering their strategy of foraying in smaller cities, which are relatively less"affected of the ongoing economic turbulence. 8aintenance of high eKuity :s part of long term strategy, instead of selling off properties, developers began to enter onto lease agreements with larger companies for commercial space. The long term rental arrangement, though at reduced rates, guaranteed a steady stream of income.

5- Cost Control
In the wake of controlling cost like most other sectors of the economy, Indian real estate companies also embarked upon various cost cutting strategies. -apital intensive projects that

had no impact on companys revenues in the short term were either put on hold or scaled down, and even cancelled. IT related projects were among major ones in this case.
Building, Construction Industry and Real Estate Services

owever, some significant projects such as those including the use of IT to improve investor access to information are important, and most developers appear to agree on this. Therefore, projects meant for maintaining a fair interface between the company, investors and customers hold water, especially during the turbulent times. : number of companies also downsi+ed their e)tra manpower. owever, in many instances, this was not done in a thoughtful manner, thereby putting companies on the risk of losing essential talent in e)change of short term cost savings. : number of real estate companies in countries such as the G* and the Gnited 6ingdom ?G6@ dont hesitate in outsourcing their marketing activities after carrying out the necessary due diligence. This acts as a measure to infuse efficiency and cut unnecessary costs involved in many of the related processes.

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


The ongoing condition of economic contraction has also resulted in improved services to the customer. In order to shed off an image of being non"transparent and unorganised, a number of developers increased their focus on customer satisfaction. : customer was provided the facility of checking the status of construction of his property by logging on to a website. (arlier, this was possible only after visiting the site and following up with the concerned officials. With such initiatives, developers are fast changing their image as professionally managed corporate houses, committed for meeting customer e)pectations and empathetic in resolving the concerned issues.

Con$lus#ons D "u22est#ons
Owing to the correction in real estate prices and re"aligning of business strategy, as per the ongoing business environment, has resulted in some signs of revival in the Indian real estate sector, in the recent past. : stable political scenario has also boosted confidence in the Indian capital markets, and the overall business environment. This was further complemented with the Indian economy managing to achieve a growth rate of 7.9B during /33."30, despite recession in the global economy. :t the first instance, such positive indicators reinforced the potential of Indian domestic economy, while uplifting sentiments otherwise enshrouded by negative movements on the front of employment and deepening financial crisis in the global economy. These small packs of positive developments slowly flowing into the economy have also started generating interest amongst customers, and some developers have e)perienced improving situation in terms of demand of real estate in select pockets. The recent situation, however, has sent the message home. The Indian real estate companies are urged to focus on customer satisfaction. The industry is no more dominated by a developer, putting customer e)pectations at the backstage and carrying on operations at his own sweet will. 8ore significantly, the ongoing correction in the real estate market has indicated towards its fundamental strength wherein it tends to correct itself with any e)cesses on the front of prices, and other demand relating factors. Fevertheless, real estate companies are fast"learning to lay emphasis on retention of e)isting customers and acKuire new customers. The present times have been calling for a fair level of fle)ibility, which even the real estate companies have been

e)pecting from their suppliers and service providers. :t the same time, many developers have found a viable strategy in forging collaborations M leading to cost benefits, synergies, and mutual
Building, Construction Industry and Real Estate Services

strength. The potential areas of collaboration include supply chain, procurement, production and brand promotion. Fevertheless, this phase of market consolidation is a real opportunity where weaker players will be defragged and stronger ones will increase their market share through well"thought business strategies, and further tighten their belts for high growth in the future. The Budget /3'3 presented a mi)ed bag for real estate sector in India. owever, it has failed to address some of the key demands of the real estate developers, including infrastructure status to the real estate sector, rela)ation of e)ternal commercial borrowings to fund projects, provision of separate deduction of 2s. ' lakh for housing loan repayment or increasing the overall .3deduction to 2s. / lakhs etc.the key to growth of this sector lies in growth of disposable income with the population and willingness of property developers to build affordable homes for middle class. RIt is said, that success is not about how high you rise, but about how high you bounce back when you hit rock"bottom. 2eal (state companies today are at that strategic inflection point, where they must define new imperatives to be successful once again. Bridging the gap between the customers and themselves, taking a harder look at resource"sapping processes, and above all gaining agility and fle)ibility as organi+ations, will be the stepping stones to success.H " Dinamra *hastri Bead 8 "trate2#$ "er%#$es D Partner) Grant T!ornton Ind#a

+i,lo-raphy

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