EY Real Estate Making India

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Real estate — making India

Adapting Indian real estate toevolving avenues

November 2014



Real estate — making India Adapting Indian real estate to evolving avenues2

Real estate is a critical sector for India’s economy due to its large potential for employment generation,capital attraction and revenue generation for the Government. It is one of the fastest growing sectorscontributing about 11 percent of India’s GDP. After the initial boom and euphoria in real estatedevelopment and investment activities, the sector witnessed a lull in business activities in recent yearsowing to global factors and policy logjam in the country.

The real estate industry in India is witnessing positive changes post the Lok Sabha elections this year.Factors like political stability at the Centre, steps taken by Government to usher in reforms to speedup economic revival and growth, strong focus on removing bottlenecks to growth of housing andinfrastructure sectors, positive sentiments of global investor community towards India have positivelyimpacted the sentiments of stakeholders in Indian real estate. As a result the sector has begun showingsigns of recovery. Announcements in Union Budget 2014-15 of various tax incentives and a schemeto create 100 smart cities in the country have added to the optimism of industry towards revival andgrowth in the sector.

It is heartening to note that the Government of India is sensitive to the issues faced by the real estateindustry in executing housing and infrastructure projects. Efforts to resolve some of the most criticalbottlenecks like approval procedures, conditions under FDI policy, time bound approvals, delays dueto land acquisition norms etc. are currently on. New instruments of nancing like REITs will help theindustry to grow faster as it will give access to long term and steady funds for the sector.

The challenge for successive Governments in India has been to bridge the housing shortage in thecountry which is currently pegged at 18.78 million housing units. Despite many measures taken inthe past this challenge still looms large in the face of the Government. A fresh approach is required topursue the mission of “Housing for All by 2022”.

Smart Cities is an emerging area of focus for the Government of India. The stakeholders of this industryare anxiously waiting to understand the details of the scheme for creating 100 smart cities in the

country. There are many cities / towns in India that have imbibed features of smart cities. Existing andnew cities will have to be developed on the principles of smart cities for sustainable living.

I am con dent that FICCI Annual Real Estate Summit 2014 will be an important and meaningfulplatform to discuss some of these topics along with other critical areas like brand building andscaling up of real estate business. The FICCI-EY Real Estate Report 2014 is an endeavour to sharenew thoughts, trends and information with industry in its pursuit of higher growth and excellence inbusiness.

I wish all success to the launch of this report at the 11th Annual Real Estate Summit 2014.

Foreword

Ms. Anita ArjundasChairperson, FICCI Real Estate Committee &MD & CEO, Mahindra Lifespace Developers Ltd.



Real estate — making India Adapting Indian real estate to evolving avenues 3

With 31 out of every 100 people in the country living in cities or towns, India has a higher number ofpeople living in urban areas (377 million) than the entire population in the US (around 314 million). It isestimated that this number will increase to 590 million people, who will live in around 60 cities (from 42currently), by 2030. India has the largest rural population (857 million) in the world, followed by China(635 million). However, with growing urbanization, our cities need to gear up to the shift as the ruralpopulation decreases and moves to them.

The urban sector currently contributes around 60% of India’s GDP. The link between the economicperformance of cities and the national economy is only likely to get stronger as the rate of urbanizationincreases. India’s growth rate will therefore largely depend on that of its cities. The need for ef cientcities that offer a good quality of life is even more relevant in this age of digital connectivity due toincreasing interlinking of urban centers around the world that are now competing to attract talent.

Realising the importance of cities to the economic performance of the country, urban development andhousing form a key part of our new Government’s vision of a digitally evolved country.

Real estate is one of the most important mediums of urbanization. Our report elaborates on the roleplayed by real estate in India to achieve the goals set by the Government — be it establishment of smartcities or achieving housing for all. It also illustrates how our mega cities have been responding to theomnipresent demand for housing across income segments through extended development beyondtheir municipal boundaries. In addition, the report provides pro les of destinations that cater to thisdemand as well as of emerging trends in these.

Being capital-intensive, funding has emerged as one of the greatest challenges facing the real estatesector in recent times. The global economic crisis considerably reduced funding options available todevelopers, who have been looking for alternative sources of funding due to reduced deployment ofgross bank credit to commercial real estate and housing from 10% in FY10 to 8.3% in FY14. With theirlearning from the global meltdown and past investments in the country, investors have begun looking

at secure funding options such as mezzanine and structured equity instruments. This report providesrelevant details of trends in alternative sources of funding, e.g., from Non-banking Finance Companies(NBFCs), pension funds and sovereign wealth funds, which can bridge the gap between the demand forand availability of funding. It also outlines the regulations of the long- awaited Real Estate InvestmentTrusts (REITs) regime, , which is one of the landmark reforms undertaken by the new Government.The new Government has also liberalized the foreign direct investment regime signi cantly forthe construction development sector, which is a welcome step and should see renewed foreignparticipation in the sector

Policy reforms and a macro-government vision mark the start of a new era. In this report, we outlinethe role of real estate in the evolution of a new India.

Gaurav KarnikPartner, EY







1. Indian real estate: the year gone by 7

2. New age funding for real estate 15

3. REIT— the new investment vehicle inIndian real estate market 19

4. Housing for all 23

5. Mega cities: response to need forhousing for all 31

6. Real estate for smart cities 49

Content







01 Indian real estate:the year gone by




Indian real estate:the year gone by

Economic overview

The Indian economy has been reporting a growth of less than 5% for the past two nancial years due to the sustainedslowdown of the global economy, the Euro crisis, and structural constraints and in ationary pressures in India. The country’sGDP growth was 4.5% and 4.7% in FY13 and FY14, respectively. Almost all the sectors recorded a decline, but the servicessector, on which the commercial real estate is directly dependent, showed resilience with a marginal decline in its growth to6.8% in FY14 from 7.0% in FY13. Economic revival is expected in the near future due to the new stable Government in Indiaand its plans to revive the country’s economy.

Real GDP growth rate: India vs. World

0

2

4

6

8

10

12

G r o w t h ( % )

India World

1 9 7 0

’ s

1 9 8 0

’ s

1 9 9 0

’ s

F Y 0 1

- 0

3

F Y 0

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7

F Y 0

8

F Y 0

9

F Y 1

0

F Y 1

1

F Y 1

2

F Y 1

3

F Y 1

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F Y 1

4

Source: Centre for Monitoring Indian Economy (CMIE) and IMF

Indian real estate market

After witnessing uctuating business cycles in the lastdecade, the real estate sector slowed down due to reducedend user demand, rising inventory, increasing prices ofraw material and the high cost of debt. However, despiteadverse sector dynamics, prices are resilient in most citiesand have dropped in select micro markets. The trend ofcreating land banks, witnessed during the pre-crisis era,has dented the balance sheet of developers, while slowdemand has affected monetization of land banks further.The average funding cost of developers is hovering at

between12% to 13% and is eating into their margins 1.However, although the short-term perspective looksgloomy, India’s real estate market is progressing well in

its recovery mode and its long-term fundamentals seempromising. A stable Government at the Centre, with itsplans to relax Foreign Direct Investment (FDI) norms,provide housing for all by 2022, create 100 smart citiesand approve Real Estate Investment Trusts (REITs) inthe country, has boosted the con dence of stakeholders.The new Government is expected to drive reforms andregulations that are long overdue. This is likely to triggerrecovery and fuel growth in the country.

1 “India Real estate,” Barclays, 12 December 2013, via ThomsonOne.




2 “JLL meeting highlights,” Morgan Stanley, 13 September 2014, via Thomson One.

3 “JLL meeting highlights,” Morgan Stanley, 13 September 2014, via Thomson One.4 “JLL meeting highlights,” Morgan Stanley, 13 September 2014, via Thomson One.5 “Shopping malls projects delayed; retail supply down 80% in H1,” Press Trust of India, 12 August 2014, via Factiva, 2014. The Press

Trust of India Limited.

Residential demand: still not revived

High capital values but reduced sales

• While the capital values of properties have surpassed the 2008 peak value in several cities, demand continues tolag behind, primarily due to low affordability levels. Even after several quarters of low sales volumes, developers arereluctant to reduce prices in their ongoing projects. There is unsold inventory in prime markets (inventory overhang ofaround 29 to 40 months). To cope with this reduced demand and high pricing, developers are now reducing the sizesof apartments in new projects in order to target mid-income customers 2.

Affordable homes the new target segment

• Sales volumes are rising in the case of competitively priced properties — mainly at the peripheries of the top sevencities in the country. Furthermore, the Government’s mission on housing for all by 2022 has attracted severaldevelopers.

• The Government has also shown a keen interest in technological collaboration with countries such as Singapore, whichare pioneers in affordable housing.

• Moreover, the Government has relaxed its FDI policy for projects, demonstrating its commitment to provide housing forall its citizens.

Of ce space: in the recovery mode

Return of demand for of ce space in anticipation of revival of economy

• Although more than 70 million square feet of of ce space is vacant in the top seven cities including Mumbai, Delhi,Bengaluru, Hyderabad, Chennai, Ahmedabad and Kolkata, several micro markets in Gurgaon, Bengaluru andHyderabad have been reporting a moderate rise in rentals during the last two to three quarters. This is a positiveindication of recovery in the rental market 3.

• Domestic and multinational companies have both revived their expansion plans in anticipation of the country’seconomy picking up after the election of a stable Government.

• Unlike in the case of the residential segment, rental of of ce space in most cities (except Bengaluru) lags behind itspeak levels in 2008. Some companies are leasing space at high-quality of ce complexes to leverage this trend 4.

• The IT-ITES sector has been the main consumer of commercial of ce space and is likely to be a strong contender incoming years as well. The National Association of Software and Services Companies (NASSCOM) has projected that thesector is likely to employ 10 million people by 2020 from around 3 million in FY2012–13.

• REITs will provide an alternate means of raising funds and also help developers acquire high-grade of ce space todeleverage their balance sheets. It can also be the game-changer for major developers with large commercial assets.

Retail: cautiously moving ahead

Reduced supply in 1H14

• Vacancy rates in malls have been stable in the top cities in 2014, with Pune reporting healthy leasing activities, andAhmedabad, Chennai and Bengaluru witnessing a moderate demand. Stable vacancy rates are attributed to reducedsupply in 2014 5.

• However, macro-economic conditions have not been encouraging. Moreover, strict retail FDI regulations have led tointernational giants adopting a wait and watch policy.

Trends




Rental of mall space demonstrating a mixed trend

• The micro markets of several cities are witnessing varying trends. Mysore Road and Cunningham Road in Bengalurureported reduced rentals and Goregaon in Mumbai and Hadapsar in Pune a positive trend 6.

• High-grade space in core markets continued to be in demand with the growth of the rental segment. Retailers arehowever facing a challenge in entering key shopping areas due to dearth of high-grade shopping center space.

Hospitality: a moderate performance

Continuance of stable performance

• The hospitality industry has reported a marginal decline on several parameters such as occupancy levels and average

room rentals in the last few quarters.

Domestic travel on rise

• Rising affordability and an increased propensity for leisure travel are driving domestic tourism in India. Domestictourist visits were recorded at 1.14 billion in 2013 (provisional), up 9.59% over 1.04 billion in 2012. During 1H12,3.24 million tourists visited India — a 7.4% increase over 1H11 7.

• Foreign tourist arrivals registered a 7.6% growth from January to September 2014, compared to the same period lastyear.

International hotel brands increasing their presence in India

• Over the last few years, international hotel chains have expanded their India footprint to enter its rapidly growinghospitality industry 8.

• Developers are increasingly tying up with international brands and hospitality chains on highly priced serviceapartments. Some are also tying up with Five Star hotels to provide branded residences (luxury homes), wherecustomers receive hotel services at their homes 9.

Industrial sector: Government taking ambitious steps

Special Economic Zones (SEZs)

• As of August 2014, a total of 388 SEZs have been noti ed, and the Board of Approvals has given its nod to setting upof another 564 10 . The southern and western states lead SEZ development in the country.

• Investment in SEZs amounted to around INR2, 966 billion, including INR2,733 billion in newly noti ed zones, until 31March 2014 11 . The Government is looking at granting incentives to promote IT-related export hubs in small towns toattract investors back to these zones.

• The new Government has set up a high-level team to revive development of SEZs (which was lost after tax advantagesand other sops were removed in 2011) in the country. As part of the plan, states will soon be allowed to set up theirown Export Processing Zones (EPZs). Along with policy reforms of land acquisition and labor laws, this is likely to usherin a new era in the SEZ segment.

6 “Overall mall vacancy levels across eight India cities remained stagnant: C&W,” Indiainfoline News Service, 19 August 2014, via Factiva,© 2014. Indiainfoline Ltd.

7 “Statistics,” Ministry of tourism website, http://www.tourism.gov.in/, accessed on 14 October 2014.8 “Hilton to launch Conrad brand in India,” Food & Hospitality World, 12 August 2014, via Factiva © 2014 The Indian Express Limited.9 “Builders hardsell ultra luxe branded homes,” Business Standard, 10 April 2013, (c) 2013 Business Standard Ltd.10 SEZ India website, http://www.sezindia.nic.in/index.asp.11 SEZ India website, http://www.sezindia.nic.in/index.asp. Accessed on 14 October 2014.




Food parks

• The Government plans to set up mega food parks across the country to bring down wastage, control food in ation andtake processing in fruits and vegetables from its current level of 2% to 6% in the next ve years 12 .

• As part of the plan, INR20 billion has been allocated to the food processing sector and Central Excise duty leviedon it brought down from 10% to 6% in the Union Budget 2014-15 13 . Moreover, a mega food park has recently beenestablished in the Tumkur district of Karnataka.

Industrial corridors driving establishment of smart cities

• The Government has announced its plans to set up a National Industrial Corridor Authority with an initial corpus of

INR1 billion to drive the growth of India’s manufacturing sector. It has fast-tracked its development of the Amristsar-Kolkata Industrial Corridor, which will house industrial smart cities in seven Indian states. It also plans to completemaster planning of three new smart cities in the Chennai-Bengaluru Industrial Corridor region. These include Ponneriin Tamil Nadu, Krishnapatnam in Andhra Pradesh and Tumkur in Karnataka 14 .

• The Government is also looking at developing the Bengaluru Mumbai Economic Corridor (BMEC) and theVisakhapatnam-Chennai Corridor by setting up 20 new industrial clusters. Similarly, the Delhi-Mumbai IndustrialCorridor (DMIC) is expected to create around 25 manufacturing hubs (cities) and several smart communities/citiesalong its corridor, which covers six states 15 .

National Manufacturing Policy

• The Government’s National Manufacturing Policy seeks to boost the growth of the manufacturing sector by ramping-up its share in the country’s GDP to 25% from the current level of 15%–16% over the next decade. The policy also seeks

to create 100 million new employment opportunities by 2022 16 .

• The Government has taken certain initiatives, such as permitting 49% FDI in manufacture of defense equipment,providing tax bene ts for investment and removing the inverted duty structure of several products, to support itspolicy 17 . These initiatives and the Government’s policy are expected to drive the demand for industrial real estate incoming years.

12 “Government to set up 3 food parks in next six months,” The Economic Times, 3 December 2014, http://articles.economictimes.indiatimes.com/2013-12-03/news/44710589_1_food-park-food-processing-sector-food-safety, accessed 16 October 2014.

13 “Reduce waste of vegetables to beat in ation: Union Food Minister,” Business Standard, 19 September 2014, http://www.business-standard.com/article/economy-policy/reducing-wastage-of-fruits-vegetables-is-the-key-focus-since-it-would-help-to-address-in ation-union-food-minister-box-attached-114091800774_1.html, accessed 16 October 2014.

14 “Union Budget 2014: Finance minister Arun Jaitley’s full speech,” Live Mint, 10 July 2014, http://www.livemint.com/Politics/n2CKOUxRPwNprqgu2StUlL/Union-Budget-2014-Finance-minister-Arun-Jaitley-full-speech.html, accessed 16 October 2014.

15 Siddharth Gupta, “At Greater Noida, UP Govt Begins work on Creation of Industrial Township,” Indian Express, 18 Auguest 2014, via

Dow Jones Factiva, © Copyright 2014 Indian Express Online Media Pvt. Ltd.16 “Manufacturing sector prepares for hiring uptrend,” The Economic Times, 10 August 2014, http://economictimes.indiatimes.com/jobs/manufacturing-sector-prepares-for-hiring-uptrend/articleshow/39991826.cms, accessed 16 October 2014.

17 “‘Make in India’ drive to boost manufacturing,” The Economic Times, 30 August 2014, http://economictimes.indiatimes.com/industry/et-auto/news/industry/Make-in-India-drive-to-boost-manufacturing/articleshow/41253389.cms , accessed 16 October 2014.




Regulatory changes

Approval of REIT : In September 2014, the nal guidelinesfor REIT were noti ed by the Securities and Exchange Boardof India (SEBI). The guidelines require the Finance Minister’sapproval for tax concessions to make REIT attractiveand at par with similar norms in the rest of the world.Several developers are waiting on the sidelines to list theircommercial space stock. According to industry estimates,India has 200 million square feet “REIT-ready” space 18 . REITwill provide an alternative route of nance.

FDI in real estate : FDI in ows in construction (townships,housing and construction development) have been decliningsince FY12 due to India’s weak economy and regulatoryconcerns. FDI in construction development has declined toUS$1,226 million in FY14 from US$1,332 million in FY12 19 .

The Union Cabinet has approved the proposal of theDepartment of Industrial Policy and Promotion to relaxexisting performance-linked conditions relating to FDI.These include the following:

Built-up area to be reduced from the existing 50,000 sq.m.to 20,000 sq.m.

Minimum capitalization reduced from US$10 millionto US$5 million, with a three-year post- completionlock-in period

Projects with a commitment of at least 30% of the totalcost toward low-cost affordable housing exempted fromrequirements relating to minimum built-up area andcapitalization, with a three-year lock-in period

Real Estate Regulation and Development Bill : The RealEstate Regulation and Development Bill was tabled inParliament on 14 August 2013 and was thereafter sentto the Standing Committee, which submitted its reporton 17 February 2014 20 . The new Government needs toexpedite passage of the Bill in Parliament and enforce itsimplementation.

18 “India real estate,” J.P.Morgan, 29 September 2014, via ThomsonOne.19 “Factsheet on Foreign Diect Investment”, http://dipp.nic.in/English/Publications/FDI_Statistics/2014/india_FDI_June2014.pdf,Department of Industrial Policy and Promotion.

20 “PRS Legislative Research website, transport-tourism urban development, http://www.prsindia.org/billtrack/transport-tourism-urban-development/, accessed on 13 October 2014.




Outlook

Residential : The new Government’s thrust on smartcities, housing for all and urban renewal is expected togive a boost to the growth of the residential sector. Itsefforts are likely to create an adequate demand, butimplementation remains the key. The country has beenwitnessing a sharp decline in absorption since 2011,with potential buyers deferring their purchases. Thesebuyers are now gradually returning to the market. Thismay raise sales volume in the near future (primarily inthe mid-income and affordable segment).

Commercial : Corporate entities have already begunrolling out their expansion plans due to improvingsentiments in the country. The anticipated revival ofthe economy is expected to be a key trigger for thesegment. Given that the market has seen oversupplyin the last few years, the gap between demand andsupply is likely to shorten, leading to a further increasein rentals.

Retail : REIT is currently open for of ce space, butdevelopers of malls are anticipating extending of REITsto shopping centers, which will boost development ofmalls in the country. Furthermore, relaxation of FDInorms may encourage foreign single- and multi-brandretailers to set up shop in India and create a signi cantdemand for retail space.

Hospitality : The Government’s announcement ofe-Visa facilities at nine airports and its announcementof a clear roadmap on its Visa on Arrival Policy (VoA)is a positive step for India’s hotel sector 21 . Businessand leisure travel is expected to pick up are expectedto pick up in the country with economic recoverysupporting the revival of its hospitality industry, whichis expected to add more than 50,000 branded roomsin the next 5 years, taking the total supply in thecountry to around 144,000 such rooms by FY18.

Industrial : The industrial real estate segment isexpected to see new dimensions of growth in the nextfew years due to the Government’s thrust on foodparks and industrial corridors, and its promotion of themanufacturing sector.

21 “India real estate-Union budget measure, “J.P. Morgan, 10July 2014, via ThomsonOne.






02 New age fundingfor real estate




New age funding forreal estate

1 Considered deals for which the transaction size have been disclosed.2 Source: VCCEdge, EY Analysis.3 Considered lending to commercial real estate and priority sector housing.4 Source: Reserve Bank of India – Deployment of Gross Bank Credit by Major Sector Data.5 Source: International Investment Atlas Summary 2014, Cushman & Wake eld.6 Source: The Great Wall of Money, DTZ, October 2014.

India’s real estate transaction landscape has seen a surgeof investments made by pension funds (PFs) and sovereignwealth funds (SWFs) in large platform-level deals. Thepotential of and the challenges faced in investing in realestate as well as the investment philosophy of availablepools of capital have led to the evolution of this new form ofinvestment in real estate in the country.

Market opportunity — theneed gapThere was a major transformation in India’s real estatesector after FDI was allowed in the construction developmentsector in 2005. In addition to traditional sources of funding,the policy change opened up the oodgates for investmentsfrom global real estate, private equity and hedge funds aswell as from strategic investors and foreign developers.This led to big ticket equity transactions and successfulIPO listings becoming the norm before the global nancialdownturn in 2008.

The global nancial downturn in 2008 resulted in asigni cant shift in the funding scenario with investorsbecoming increasingly cautious. Along with a decline in thetotal quantum of investment, the average ticket size 1 ofdeals in real estate trickled down from US$140 million in2008 to US$30–US$40 million after the nancial downturn 2.Another notable trend was that investments became skewedtowards the project level rather than the entity level.

Developers have been looking for other sources of fundingdue to the decline in gross bank credit deployment to thecommercial real estate and housing sector 3 from 10% inFY10 to 8.3% in FY14 4. However, with learning derived fromthe global meltdown and past investments in India, investorshave begun looking at more secure funding options such asmezzanine and structured equity instruments. Non-BankingFinance Companies (NBFCs) have been actively looking at“last mile funding” opportunities, where projects in whichsubstantial investment have been made are delayed dueto temporary mismatches in cash ows. Therefore, thereis a large need (created over time) for equity funding frominstitutional sources. It is this gap that is being lled byplatform-level deals between PFs/ SWFs and developers.

The other market opportunity being seized by theseinvestors is consolidation of core assets. Residential projectshave always attracted investors’ capital due to their self-liquidating nature. However, given the high of ce spaceyield – India has a 10.5% 5 yield from of ce space, which isamongst the highest yields across leading developed anddeveloping economies – and with increasing visibility onIndian REITs taking shape, investors are looking at buildingsizeable portfolios of high-quality rent- yielding commercialspaces going forward. This has led to PFs/SWFs partnering

with developers, operators and managers to create aplatform of of ce space assets.

On the supply side, the emergence of the trend of directinvestment in Indian real estate by SWFs and PFs hasevolved due to the increasing allocations to real estateas an asset class by these SWFs and PFs. At the globallevel, an increased quantum of investment capital hasbeen speci cally set aside for the real estate sector due toincreasing real estate and sovereign debt yields. In the lastsix months, total global capital available for investment grewby 15% to US$408 billion 6. Global PFs and SWFs are alteringtheir investment strategies and increasing their allocation of

funds to the real estate sector.

Nature of platform-level dealsAttractive yields and the presence of large real estatedevelopers have led to global PFs and SWFs (which wouldearlier invest in the capacity of limited partners in privateequity funds) backing large real estate developers and funds,with wide experience in the real estate sector, to develop/invest in portfolios of projects.

Platform-level transactions are a hybrid of project-level and

entity-level transactions. Typically, it involves an identi edpool of projects as well as funding of a future pipeline thatis or may be available. In these “platform-level deals,” realestate developers contribute their equity as well and are theexclusive development managers of projects to be pursuedthrough such equity commitments for which they receivea development management fee. What is signi cant is thatPFs and SWFs that were earlier more likely to route theirinvestments through third-party funds are now investingdirectly in real estate. What is also critical is that these are




7 In addition to these joint venture platform level deals, these investors have also been focusing on managed accounts through other fundmanagers with more control on the investment vis-a-vis a third party fund. However, we have not covered these in this section.

8 Considers deals from CY 2012 to CY 2014 (till date).9 Source: VCCEdge, EY Analysis. It does not consider capital commitment through platform deals.

akin to joint ventures, with PFs/SWFs garnering close to 50%or higher stakes and thereby exercising control.

Apart from these platforms, PFs/ SWFs are also focusing ontapping the opportunity to provide structured debt fundingthrough NBFCs with capital commitment of US$700 millioninvestment in these in the recent past 7.

Investment fows

Since April 2012, there have been seven such largeplatform-level deals by PFs/ SWFs that we have tracked.Total investment in these deals amounts to US$1.9 billionwith an average deal size of US$270 million. The trendhas increased in the last year (since July 2013) when thenumber and size of these deals increased signi cantly. Interms of asset classes, while 74% of this investment is forof ce space assets, 20% is in the residential segment and6% in the hospitality segment. In terms of the number oftransactions, the share of of ce space is 57%, residential29% and hospitality 14%.

We have analysed the quantum of investment throughthe traditional private equity (including structured deals)route in order to gauge the relative importance of thesedeals. During the period April 2012 to September 2014,investment in such deals amounted to.US$3.9 billion vis-à-vis invested capital from private equity deals worth US$2.7billion9. Although capital from platform-level deals willbe invested over a longer period in portfolios of projects,the increasing number of such deals as well as the higherquantum of capital commitment indicates the con dence ofglobal funds in the Indian real estate sector.

No. of deals: 7Split by volume

Commercial.57%

Residential,29%

Hospitality,14%

Split by valueTotal value: US$1.9b

Hospitality, 6%Commercial,74%

Residential.20%

Capital commitment by asset class 8

Summary

Increasing investment ows from SWFs/PFs indicatetheir con dence in the potential of the Indian real estatesector.

The nature of this pool of capital as well as the formof investments — directly in platform level deals —overcomes some of the challenges faced by foreign

investors in the past. Given the nature of the sector, long-term capital has a better chance of generating expectedreturns, and therefore, this form of patient capital canaddress the needs of developers and investors by offeringthem enhanced exibility to tide over market cycles andproject gestation periods. Reduction in the developmentsize of projects for which FDI can be tapped will alsoopen up additional opportunities with shorter projectdevelopment time frames.

Development risk is also being mitigated by the focusof some investors on core asset strategies, whereinthey are concentrating on buying out developed of ce

space assets. The size of this opportunity has increasedsigni cantly in the last few years as high-speci cationof ce space assets have been developed and leased.Allowing REITs in India has opened up another exitavenue for investors in this class of assets.

A critical aspect of platform-level deals is that investorshave greater direct control over their investments. Thisform of investment offers them hybrid forms of projectand entity-level deal structures. While this enables ring-fencing of risks and returns (as in a project-level deal),it allows investors’ additional returns through a futurepipeline (as in an entity-level deal).

There has been an upward revision in growth forecastswith the formation of a new Government with a clearmajority at the Centre. Some policy changes with respectto real estate have already been initiated (e.g., relating toproject size and minimum capitalisation for FDI, REIT-related regulations, nance for affordable housing,etc.). These, along with the expected improvementin the macroeconomic environment, can give furthermomentum to investment ows from SWFs and PFs aswell as to platform-level deals in India.







03REIT— the newinvestment vehiclein Indian realestate market





21

Currently, the proposed tax treatment of REITsdifferentiates between a resident unit holder and a non-resident unit holder in relation to their income from interestthrough a reduced rate of tax (5%) for non-residents.This discrimination makes the structure unviable, sincea sponsor, being a resident, does not bene t from theeffective tax impact. Moreover, this will in uence thecapitalisation structure of the REIT and its SPVs. Toaddress this, it is imperative for the Government to exemptDividend Distribution Tax (DDT) on dividends distributed by

an SPV to a REIT.REITs should be accorded the same treatment currentlyavailable for listed equity shares. Accordingly, the period ofholding (for the purpose of capital gains) should be 12 andnot 36 months. Otherwise, the intention of the legislatureto grant same tax bene ts is not achieved.

Furthermore, bene cial tax treatment of sponsors is arequisite for incentivising them to create and sponsorREITs. Currently, tax laws are not geared to this, forinstance, while sponsors are exempt at the time REITs(transfer of assets/shares in exchange for units of REIT)are created, but are taxed when they sell the units on stockexchanges, even after paying Securities Transaction Tax(STT), which is different from listed equity shares.

Lastly, all investment products should carry a risk disclosureand disclaimer in their prospectuses. It is therefore criticalto educate investors about REITs as an investment product.This needs to be speci cally geared toward essentialelements such as how the performance of the REITmanager, etc., should be evaluated.

Global capital allocated to dedicated REIT investment isincreasing exponentially. Countries that do not yet haveREIT markets are currently missing out on a share of rapidly

growing REIT-dedicated capital. With the introduction ofREITs in India, the allocated global capital for dedicatedREITs can be channelised in the country, thereby, increaseforeign investments in it. However, to ensure that REITstake off in the intended manner, it is critical that foreigninvestments are allowed in it and the tax regime for it isenabled through requisite changes made in the proposedprocedure. This could clearly be the last chance availablefor the real estate sector to access public markets. It istherefore imperative for the sector to ensure the success ofthe initiative in the long term.

Real estate — making India Adapting Indian real estate to evolving avenues






04 Housing for all




Housing for all

Affordable housing in India

The Indian Government has recently announced its visionof “Housing for all by 2022,” the year in which India willcelebrate 75 years of its independence 1. To achieve thisambitious target, the Government will need to come upwith an optimum mix of budgetary support and policiesto strengthen investors’ sentiments and make housingprojects, especially in the affordable segment, nanciallyaccessible to people from all walks of life. The term

“affordable housing” is being used in reference to varyingincome ranges as well as to the sizes of dwellings. Tomake it more speci c, the Ministry of Housing & UrbanPoverty Alleviation has de ned these as “individual dwellingunits with a carpet area of not more than 60 sq.mt. andpreferably within the price range of ve times the annualincome of the household 2.”

The Government has been taking steps to promoteaffordable housing and has announced initiatives suchas the following 3:

1 “Housing for all by 2022 is govt priority,” Mail Today,” 6 July 2014, via Factiva, © 2014 Living Media India Ltd.2 “Task force on promoting affordable housing,” November 2012, http://mhupa.gov.in/W_new/AHTF%20REPORT%2008_07_2013.pdf.

3 “Budget Expectations: Real Estate Sector,” Indiainfoline News Service, via Factiva, © 2014. Indiainfoline Ltd; “FSI INCENTIVE FORRENTAL HOUSING,” Indian Business Insight, 31 December 2008, (c) 2008 Informatics (India) Ltd; “http://www.rajivswagruhaap.gov.in/cis/index.php?action=viewScheme, accessed on 08 July 2014. Union budget 2014-15, http://indiabudget.nic.in/ub2014-15/bh/bh1.pdf, accessed 11 July 2014, Union Budget 2013, http://indiabudget.nic.in/budget2012-2013/ub2012-13/bs/bs.pdf; Modi govt easesFDI rules in construction,” Mint, 29 October 2014, via Factiva, ©2014. HT Media Limited.

Initiatives proposed in Union Budget 2014–15► A total of INR70.6 billion has been allocated for the development of

smart cities as satellite towns. These satellite towns will provide landfor affordable housing projects at low rates. The budget alsoproposed to allocate INR40 billion to NHB to increase the ow ofcheap credit for low-cost affordable housing.

► For self-occupied house, deduction limit on account of interest onloan has been raised from INR150,000 to INR200,000.

Policy reforms approved by union cabinet till Oct. 2014► FDI norms for housing were relaxed through a reduction in built up

area to 20,000 sq.m from 50,000 sq.m and minimum capitalisationrequirements to US$5 million from US$10 million. Investor arepermitted to exit on completion of the project or after three yearsfrom the date of nal investment subject to development of trunkinfrastructure.

Announcement by the RBI► In the six metropolitan centres, loans of up to INR5 million (for

houses costing up to INR6.5 million) and in other cities of INR4million (for houses with values up to INR5 million) shall be eligible forpriority sector lending. The RBI has also exempted long-term bondsraised for funding affordable housing from mandatory regulatorynorms such as CRR and SLR. These measures will result in lowerinterest rates, reduced cost of funds and better liquidity.

Initiatives till June 2014

► External Commercial Borrowing (ECB) has been allowed for low-costaffordable housing projects.► A 1% subsidy is being provided on loans worth up to INR1.5 million

on the purchase of houses costing less than INR2.5 million.► Investment-linked deduction of capital expenditure in affordable

housing has been increased to 150%.

Initiatives until June 2014► TThe Tamil Nadu Government announced 30%

extra FSI for the mid-income group housingunder JNNURM.

► The MMRDA had initiated steps towardinitiating the Public-Private Partnership RentalHousing Scheme for 5 million houses;however, the project is stuck due to lack ofinfrastructure development, high prices ofconstruction materials and a slump in the realestate market.► In return for building and promoting the

rental housing project, the builder shallreceive FSI benets in certain xed area ofthe plots. In these specic pockets, it wouldhave the freedom to build and sellcommercial or residential units.

► As part of the master plan of Hyderabad, 4hectares of land has been reserved foraffordable housing.► Along with the Andhra Pradesh Housing

Board, the Hyderabad Government isoffering properties at a 25% discount to themid-income group.

Central level State level






Brazil 5 Mexico

Objective and scale of scheme

The Government launched the MINHA CASA, MINHA VIDA (MyHouse, My Life) program in 2009. It aimed to build one millionhouses for lower-middle income families by 2011. As part ofthe second phase, it planned to construct two million homesby 2014. (Its target has now been revised to 2.75 million.) TheGovernment has now announced its plans to construct anotherthree million homes in the third phase, which is slated forcompletion by 2017.

The Government is nancing housing for public and private sector workers.

Target income group

Under the program, the Government nances properties that arevalued up to US$67,820 (R$130,000).

Bene ciaries selected by government banks have incomesbetween 3 and 10 times their minimum salary bands, withvarying allowances 6.

Workers covered under the scheme have a broad range of incomes. The scheme focuses onthose earning less than four times the minimum wage (TMW) (<US$606) and those earning

between 4 and 11 times TMW. In 2013, an estimated 57% of the loans were reserved forworkers under 4 TMW, 31% between 4 to 11 TMW and 12% above 11 TMW 8.

Incentive and initiatives

The Government has xed a pre-agreed competitive sale pricefor properties (varying across cities). In return, it offers subsidiesand tax incentives to developers. It also provides discountedinsurance and has reduced notary registration fees.

From 2011 to 2014, US$205 million has been invested by state-owned companies and the private sector out of the total US$527million invested in this scheme 7. Under the scheme, investors canbuy multiple units from developers, fund construction and latersell the units to end users. Caixa National Bank provides 100%

nance for this program in order to enable low-income groups toavail mortgage.

The Government created the National Workers’ Housing Fund (INFONAVIT) in 1972 to supplythe bulk of mortgage nance in the country. Salaried employees contribute a mandatory 5%Payroll Tax to this fund, which is used to grant mortgages to low-income workers.

Challenges / solutions

The economic slowdown and price rise have signi cantly affectedprogress on this scheme. Furthermore, there have been reportsof unlivable, low-quality houses being constructed far away fromcities, which make them an unviable proposition for buyers.

The initiative resulted in successful construction of new homes. However, several of these arecurrently vacant because developers built the majority of them far away from jobs and citycenters due to rising in ation and land prices. This makes it dif cult for residents to travelto city centers without an adequate transport infrastructure. In some cases, transport costsare high and unaffordable for the residents. This has led to many unhappy customers andresulted in an increasing number of vacant homes (from 2.4% in 2005 to 14.2% in 2010).Several homeowners have stopped paying their mortgages, and developers have to deal withcancelled credit lines and law suits from lenders.

Learning from it experience, the new Mexican Government aims to revamp its policy. It isnow shifting its focus from providing single homes at distant locations to offering verticaldevelopments closer to cities. It also plans to enable increased coordination between

INFONAVIT and local government bodies9

.Outcome

The Government is able to provide mortgage to the lower-middleincome class through this innovative arrangement. This was notpossible previously. In addition, it has been able to cap the risingprices of dwellings by making housing more affordable.

Although the program has been facing challenges due to theeconomic slowdown and price rises, the rst phase of the projectwas completed in 2013 and has been a success. The secondphase is in progress, although it is facing some delays.

Millions of homes were built and 4.3 million mortgages offered by INFONAVIT to peoplethrough housing funds in 2001–2011. Mexico is a classic case where housing nance wasprovided to people and the Government was able to offer them affordable housing. However,inadequate planning, poor construction quality, high in ation and lack of infrastructuralplanning impeded the progress of the project.

Affordable and social housing a focus area for governments acrossthe world

Globally, affordable and social housing has been a key focus area for governments during the past several decades. Some oftheir best practices are as follows:

5 Brazil government website, http://www.myhousemylifebrazil.com/content/myhouse_mylife.php, accessed on 09 July 2014.6 1R$ = 0.5217 US$ (average taken of Jan 2010 to Sep 2014).7 INFONAVIT presentation 2013, http://portal.infonavit.org.mx/wps/wcm/connect/3204b7be-e0cc-4a18-9855-e8de87e7cba1/

MHD_2013_ingles.pdf?MOD=AJPERES&CONVERT_TO=url&CACHEID=3204b7be-e0cc-4a18-9855-e8de87e7cba1.8 “Brazil tackles housing gap head on,” Business Times Singapore, 25 March 2014, via Factiva, (c) 2014 Singapore Press Holdings

Limited.9 “China builds more affordable housing,” Industry Updates, 10 January 2014, via Factiva, ©2014 China Daily.




China Singapore

Objective and scale of scheme

Affordability of housing reduced signi cantly in China in 2010. Toovercome this situation, the Government planned to construct 36 millionhouses by 2015, out of which 70%, or 29.4 million, were to be constructedbetween 2011 and 2013.

The Housing Development Board (HBD) was set up by the Government ofSingapore in 1960 with the sole purpose of providing affordable housing tocitizens.

Target income group

Low and medium income households HBD provides a variety of properties under its scheme, ranging from one-room to ve-room dwellings, based on the income levels of individuals. The

Government provides several housing grants. In addition, the prices of thesehomes are subsidized on the basis of individuals’ incomes. Families earning lessthan SG$5,000 per annum receive an additional grant, while those earningbetween SG$1,501 and SG$2,250 and less than SG$1,500 receive a specialhousing grant.

Incentive and initiatives

The Government has been pushing for reforms to increase supply of landfor such projects, provide subsidies to end users and make these propertiesaffordable. It plans to spend US$18.8 billion on affordable housing in 2014.Out of the planned seven million affordable houses in 2014, constructionhas started on 2.86 million 10 .

One of the major sources of nancing, bonds, is provided through urbannancing vehicles. The Government also has a scheme in place to provideapartments on rent at discounted rates to low-income citizens.

It has also begun providing affordable apartments at US$3574 (50% lowerthan the market price in Beijing) to buyers with an average income, but theGovernment and the buyers will have joint ownership of such property 11 .

In 1968, the Government allowed the use of provident fund savings for people tomake down payments and pay the rest in monthly installments.

Over the years, it has provided funding and subsidies to make home ownershipaffordable and viable for lower and mid-income families in the country.

From 2006 to 2011, it improved subsidy rates regularly, based on increases inincomes and property prices. HDB has launched several schemes and subsidiestargeting categories including new parents and new married couples 13 .

In 2005, the Government introduced the Design, Build and Sell Scheme. Thisentails the private sector designing, building and selling HDB ats.

HDB, backed by government funding, has been able to achieve a low housingprice to income ratio.

Challenges / solutions

The signi cant investment required for this initiative would put pressure onthe Government’s revenues. It would have to sell land at discounted ratesto make housing projects affordable. In addition, it would need to providesubsidies to end users.

Despite land-related constraints, HDB has been able to build high rises with allthe requisite public amenities and infrastructure, even in the low-income housingsegment.

It has pioneered cost-effective designs and completes projects on time. It clubshousing for different income groups under its new projects to increase socialcohesiveness.

Outcome

By the end of 2013, China had completed 15.77 million units, falling shortof its target by 50%. Nevertheless, this was a signi cant progress madeby it within only two to three years 12 . However, as is the case in othercountries, projects are being developed at far-off locations in the country,and are low in quality, which defeats the purpose of the initiative.

More than 80% of Singapore’s population lives in HDB ats 14 . The country boastsone of the highest home ownership rates in the world.

Regular updating of policies and subsidies has made government schemesrelevant in all market conditions. Singapore’s citizens not only have a brick andmortar area under which to take shelter, but a sense of community as well.This de nes the success of the scheme. Several private equity funds have alsoinvested in HDB schemes.

10 “In Mexico, low-income homeowners watch their dreams crumble,” The Christian Science Monitor, 26 June 2013, via Factiva, © 2013Christian Science Monitor.

11 “Construction started on 2.86 mln affordable homes,” Real Estate Monitor Worldwide, 6 June 2014, via Factiva, © 2014 Global Data

Point.12 “Beijing debuts price-capped housing,” Xinhua’s China Economic Information Service, 23 June 2014, via Factiva.13 HDB website, http://www.hdb.gov.sg/ 10/ 10320p.nsf/w/AboutUsPublicHousing?OpenDocument, accessed on 09 July 2014.14 “Government ensuring affordable housing options for Singaporeans: minister,” Singapore Government News, 5 March 2012, via Factiva,

© 2012. Contify.com.





29Real estate — making India Adapting Indian real estate to evolving avenues







05Mega cities:response to needfor housing for all




Mega cities: response to needfor housing for allEmerging destinations aroundMumbai

Mumbai has spread far beyond its northern suburbs. Recentimprovements in connectivity through extension of thewestern railway local network have greatly enhanced thedevelopment potential in districts surrounding the city’ssuburban areas. This rail network now links its commercialhub at Churchgate station with Dahanu Road station in

the adjoining Palghar district — much beyond Virar (theerstwhile culminating station). In addition, the initiativeto make the NH-8 junction-free through construction ofyovers has helped industrial hubs on the route to haveeasy access to Mumbai. Palghar (~118 kms) and Boisar(~123 kms) are two such industrial hubs that have emergedas residential destinations. They offer real estate productsat lower price points compared to other parts of the MumbaiMetropolitan Region (MMR).

Emergingdestination

Palghar Boisar

Population(Census 2011)

68,930 1 36,151 2

Economic base Industrial units Industrial units andTarapur Atomic PowerStation (TAPS)

Distance fromMumbai Central(in kms)

118 123

NH-35

Boisar

NH-47

PalgharManor

Virar

Kalyan

Lower Parel

NH-8

Borivali Thane

NH-8

Wada

NH-4

Vasai

Badlapur

Colaba

Kelwa

Bhiwandi

Panvel

JNPT

National Highway

Internal roads

International Airport

Prominent locations

Growth directions

Legends

Growth drivers• Escalating real estate prices : Real estate prices in

Virar (around 85 kms from Churchgate), consideredthe northern most suburb on the western corridor,range from INR4,200 to INR5,500 per sq.ft. in 2014.Consequently, locations beyond these, such as Boisarand Palghar, have emerged as new centers, offeringproducts at lower price points.

• Industrial base : Maharashtra Industrial DevelopmentCorporation (MIDC) Tarapur is situated in Boisar. Ithouses over 1,500 industrial units and generatesemployment for more than 100,000 people. Asia’s rstnuclear power plant, Tarapur Atomic Power Station(TAPS), is located 12 km away from Boisar and has a

gated residential development for its employees. Inaddition to MIDC, there is also the Tarapur IndustrialEstate, with its bulk drug-manufacturing units . Thesecities are industrial hubs with a captive population thatrequire residential accomodation.

• Advantage of proximity to Maharashtra–Gujaratborder: Palghar and Boisar serve the industrial hubsin south Gurajat, e.g., Vapi, Valsad and Surat, and alsohave a working population in the peripheral areas ofMaharashtra, such as in the Vasai-Virar region.

• Extension of western railway line : Improvedconnectivity with Mumbai (through the western railwaywith 20 services scheduled to and from the city everyday 3) has been driving real estate in the region.

1 “2011-Prov-Results,” Census India website, http://www.censusindia.gov.in/(S(uuxrkiz0abigvi455ow25xzx))/pca/SearchDetails.aspx?Id=586499, accessed 08 October 2014.2 “2011-Prov-Results,” Census India website, http://www.censusindia.gov.in/(S(3gqrrajbmijl0ym5e3i5p3qt))/pca/SearchDetails.

aspx?Id=586837, accessed 08 October 2014.3 “WR brings Dahanu closer to city today,” The Times of India website, http://timeso ndia.indiatimes.com/city/mumbai/WR-brings-

Dahanu-closer-to-city-today/articleshow/19568779.cms, accessed 09 October 2014.




Destination Format ofdevelopment

Key clusters Prevalentcon gure-tion

Size range(SBUA insq.ft.)

Base rate onSBUA (INRper sq.ft.)

Block pricerange (inINR m)

Key projects Cost ofland (in INRm per acre)

PalgharTownshipswithapartments

New SatpatiRoad andPalghar Road

1BHK~ 60% ofsupply

2BHK~35% ofsupply

1BHK400 to 750

2BHK610 to 980

3BHK900 – 1,000

1Q 2013: 2,200 to3,300

4Q 2014:2,600 to3,800

4Q 2014: 1BHK1.0 to 2.4

2BHK1.6 to 3.3

ParadiseCity, VivaSmarangan,Raheja Prime,VBHC Vaibhav

4Q 2014:35–50

BoisarTownshipswithapartments

Boisar-TarapurRoad andBoisar RoadconnectingNH-8

1BHK~ 45% ofsupply

2BHK~46% ofsupply

1BHK550 to 850

2BHK680 to 1,050

1Q 2013: 2,150 to4,000

4Q 2014:2,350 to4,300

4Q 2014: 1BHK1.3 to 2.9

2BHK1.8 to 4.2

ChhayaNiwas, TataNew Haven,Eco Eden City,Wonder City

4Q 2014:30–40

Overview of real estate residential market

Note: SBUA- super built-up areaSource: EY research conducted in October 2014

The dominant format seen in Palghar and Boisar is ofapartments in integrated townships. Most projects house

350–400 residential units.

Residential real estate market in Palghar• Key cluster/micro-markets : Residential development

is mainly concentrated in two clusters. One is the NewSatapati Road, which is close to the city center and ison the route to Palghar beach, and the other is Palghar-Manor Road, which is in proximity to NH-8 and provideseasy access to both Mumbai and Gujarat.

• Prominent con guration : Supply of residential realestate in Palghar primarily includes 1BHK (60%) and2BHK (35%) apartments, which together comprise~95% of the total supply. The balance comprises 3BHKunits.

• Size : The typical area of a 1BHK apartment rangesfrom 400–750 sq.ft. (SBUA) and of a 2BHK unit from610–980 sq.ft. (SBUA). Limited 3BHK units of 900 to1,000 sq.ft. (SBUA) are available.

• Pricing : Average values in 4Q 2014 are in the range ofINR2,600 to INR3,800 per sq.ft. (SBUA). These priceshave witnessed an average appreciation of around 10%–15% in the past seven quarters (1Q 2013 — INR2,200

to INR3,300 per sq.ft. for SBUA). In 4Q 2014, the priceof a 1BHK apartment in Palghar ranges from INR1.0million to INR2.4 million and of a 2BHK from INR1.6million to INR3.3 million.

2,2002,600

3,3003,800

- 500

1,000 1,500 2,000 2,500 3,000 3,500 4,000

( i n I N R

p e r s q . f t .

)

Capital values of residential units in Palghar

Minimum Maximum

Source: EY research conducted in October 2014.

1Q 2013 4Q 2014

Residential real estate market in Boisar• Key cluster/micro-markets : Residential development

is predominantly focused on two clusters in Boisar —the Boisar–Tarapur Road leading to the Tarapur AtomicPower Station (TAPS) Colony and MIDC-Tarapur. Thesecond cluster is on Boisar Road, which connects Boisarto NH-8 (connecting Mumbai to Gujarat).

• Prominent con guration : Supply of housing in Boisarincludes an almost equal supply of 1BHK (45%) and2BHK (46%) units, together accounting for ~91%of total residential real estate supply in the area. In




addition, the Chhaya Niwas project has launched1.5BHK units, which are preferred to 2BHK apartments.

• Size : The typical area of apartment units in Boisar islarger than in Palghar, with 1BHK units ranging from550–850 sq.ft. and 2BHK units from 680–1,050 sq.ft.of the SBUA.

• Pricing : Average prices range between INR2,350and INR4,300 per sq.ft. (SBUA) as on 4Q 2014. Themarket has seen a 6%–10% appreciation in the past

seven quarters — from 1Q 2013 to 4Q 2014 (lower thanin Palghar). However, the projects that were completedduring this period saw a 10%–20% price rise.

• The block price of a 1BHK unit ranges from INR1.3million to INR2.9 million and those of 2BHK units fromINR1.8 million to INR4.2 million, depending on theSBUA of the units.


Minimum Maximum

1Q 2013 4Q 2014

2,150 2,350

4,0004,300

0

1,000

2,000

3,000

4,000

5,000

( i n I N R

p e r s q

. f t . )

Capital values of residential units in Boisar

With prices in Mumbai sky-rocketing, there is tremendouspotential in the peripheral areas of the city. Suburbs at adistance of 30–45 kms offer accommodation at INR7,000to INR12,500 per sq.ft. of their SBUA. Moving furthernorth, areas such as Virar ( ~ 75 kms) offer INR4,200 toINR5,400 per sq.ft. of the SBUA options. Today, peripheralareas such as Palghar and Boisar are emerging asdestinations with housing options, with ticket prices of lessthan INR4.0 million. Other upcoming residential locationsthat could offer products at similar price points are around85 kms from the city. These urban fringes of the MumbaiMetropolitan Region include areas such as Karjat (~75 kms),

where average prices range from INR2,350 to INR3,250per sq.ft. and Shahpur (~85 kms) with average prices in therange from INR1,650 to INR2,500 per sq.ft. of the SBUA.These areas were earlier perceived as second homes, butare now set to emerge as rst home destinations.

Emerging destinations aroundKolkata

Kolkata has been regarded as an end-user market ratherthan an investors’ market, which has kept the real estatesector immune to sharp price movements in comparisonwith other parts of the country. While Kolkata may not haveseen many large-scale township projects, its fringes arewitnessing a multitude of housing projects in areas includingRajarhat and the Eastern Metropolitan (EM) Bypass (towardGaria).

Sonarpur and Baruipur are located on the eastern fringeof the Kolkata Metropolitan region in the district of South24-Parganas and are linked with the city via the EM Bypass.

The congestion and saturation of Kolkata’s Central BusinessDistrict (CBD) has led to the growth of its eastern areas,e.g., Salt Lake, New Town Rajarhat and the EM Bypass.Areas including Salt Lake and New Town Rajarhat arenow increasingly facing issues relating to availability ofland. These markets are also investor-driven on accountof the growth of the Information Technology (IT) sector.Developers are shifting their focus to locations on theEM Bypass towards Garia, Sonarpur, Baruipur, DiamondHarbor and Kona Expressway, primarily due to improvedinfrastructure, connectivity and low land prices in theseareas.

Emergingdestination

Sonarpur Baruipur

Population(Census 2011)

424,368 4 433,119 5 (estimated forsub-division)

Economic base Educationalhub

Proposed governmentadministrative hub

Distance fromKolkata railwaystation (in kms)

22 32

4 “2011-Prov-Results ,” Census India website, http://www.censusindia.gov.in/(S(v43f2vi3fgvszk5514cepemo))/pca/SearchDetails.aspx?Id=354813, accessed 08 October 2014.

5 “2011-Prov-Results,” Census India website, http://www.censusindia.gov.in/(S(hb20tn551nkxmv45z01f3f45))/pca/SearchDetails.aspx?Id=352392, accessed 08 October 2014.




Growth drivers• Improving connectivity and social infrastructure :

Improving connectivity on account of the EM Bypassand metro networks is a key reason for the growth ofsouthern suburban locations in Kolkata. Moreover, theextended metro service from Tollygunge to Garia haseased traf c congestion in this area. Both Sonarpur andBaruipur are well connected by the metro, with the KaviNazrul Metro Station being the closest metro stationfrom Sonarpur (6.60kms) and Baruipur (15.50kms). Inaddition, these are also junction stations and the twomajor transit points in this area. They are served bythe EM Bypass, which connects them with Kolkata, SaltLake and the growing Rajarhat township.

• Shifting of district headquarters : It is proposedthat the district headquarters for South 24-Parganasshould be relocated from Alipore to Baruipur (an areaof more than 4,000 acres). According to the KolkataMetropolitan Development Authority (KMDA), thenodal agency for planning activities in the KolkataMetropolitan Area, there is a proposal to develop vemajor trans-metro growth centers around the city —Kalyani, Barasat, Rajarhat, Uluberia and Baruipur 6.According to the proposal, Baruipir should be thedistrict headquarters and part of a comprehensive planprogram.

• Government’s interest : Bengal Park ChambersHousing Development Ltd., the 50:50 joint venturebetween the West Bengal Housing Board (WBHB) andthe Sureka Group, has launched a residential apartmentproject that caters to the Middle Income Group (MIG)and Lower Income Group (LIG) categories in Baruipur(project Sunrise Junction).

National Highway

Metropolitan Highway

Railway Line

Howrah Railway Station

International Airport

Prominent locations

Kalyani

Barrackpore

Dum Dum

Chandannagar

Barasat

Rajarhat

Salt LakeHowrah

Park Circus

Ulluberia

CBD

Sonarpur

Growth directions

CBD

Legends

Garai

Baruipur

Kankurgachi

Jessore Road

AliporeKalighat

6 “Planning,”Kolkata Metropolitan Development website, http://www.kmdaonline.org/pdf/comprehensive_mobility26122007.pdf,accessed 08 October 2014




Eemrgingdestination

Format ofdevelopment

Keyclusters

Prevalentcon gure-tion

Size range(apts: SBUAin sq.ft.;plots: sq.ft. )


Plots: INRper sq.ft.



Sonarpur

Townships withapartments EM Bypass

Road andPrasadpur

1BHK~10% ofsupply

2BHK~27% ofsupply

3BHK~62% ofsupply

Above3BHK~1 % ofsupply

1BHK

450 to 6502BHK800 to 1,300

3BHK1,200 to1,650

1Q 2013:1,600 to3,500

4Q 2014:1,750 to4,200

4Q 2014:

1BHK —0.8 to 1.8

2BHK —2.1 to 3.9

3BHK — 2.7to 5.7

AmritaAbashan,Mega City,TirupatiParadise,Southwinds

4Q 2014:5–15

Plotteddevelopment Plots

4Q 2014:plots - 280 to300

Green Haven

Baruipur

Limitedtownshipswithapartments

Baruipur-AmtalaRoad andBaruipur-Canningroad

1BHK~4% ofsupply

2BHK~10% ofsupply

1BHK450 to 550

2BHK650 to 725

1Q 2013:1,400 to1,600

4Q 2014:1,750 to2,200

4Q 2014:1BHK0.6 to 1.2

2BHK0.8 to 1.6

SunriseJunction,Dakshinatya

15–24

Plotteddevelopment

Plots~86% ofsupply

Plots1,450 to3,600

1Q 2013:275 to 315

4Q 2014:300 to 350

Satya Park,Basundhar,BaruipurBloom eld

Overview of residential real estate market

Source: EY research conducted in October 2014

Residential real estate market in Sonarpur

Sonarpur primarily comprises township development withapartments and limited projects on plotted land. Most of theprojects have around 250–300 residential units.

• Key clusters/micro-markets : Residential developmentin Sonarpur is mainly concentrated in two clusters— on EM Bypass Road, which is close to the Gariametro station (good connectivity with Kolkata) andhas adequate social infrastructure. The second clusteris Prasadpur, which comprises plotted developmentsprimarily due to improved connectivity between Gariaand Prasadpur after the construction of the Sonarpuryover.

Capital values of residential apartments in Sonarpur


Minimum Maximum

1Q 2013 4Q 2014

1,600 1,750

3,500

4,200

0

1,000

2,000

3,000

4,000

5,000

( i n I N R

p e r s q . f t . )




• Prominent con guration : Supply of housing inSonarpur mainly includes 2BHK (~27% of the supply)and 3BHK (~62% of the supply) apartments, whichaccount for ~89% of the total inventory. Somedevelopers have also launched 1BHK units, whichaccount for ~10% of this market.

• Size : The typical area of 1BHK units ranges from 450sq.ft.–650 sq.ft. (SBUA), whereas 2BHK units are in therange of 800 sq.ft.–1,300 sq.ft. (SBUA) and 3BHK unitsfrom 1,200 sq.ft.–1,650 sq.ft. (SBUA).

• Price : In 4Q 2014, average values range fromINR1,750 to INR4,200 per sq.ft. (SBUA). On anaverage, projects have seen appreciation in the rangeof 10%-20% during the period 1Q 2013 and 4Q 2014.

• Block price : As on 4Q 2014, the block price of 1BHKunits in Sonarpur range from INR0.8 million to INR1.8million, 2BHK units from INR2.1 million to INR3.9million and 3BHK units from INR2.7 million toINR5.7 million.

Residential real estate in Baruipur:• Key clusters/micro-markets : Baruipur is witnessing

residential development in two clusters — Baruipur–Amtala Road, which is in close proximity to Sonarpur,and Amtala, which is one of the largest trading hubs inSouth 24 Parganas and has good road connectivity dueto existing and upcoming wide road (EM Bypass). Thesecond cluster is Baruipur-Canning-Kulpi Road, wherecontiguous land parcels are available at low rates andattract developers to launch township projects.

• Prominent con guration : Baruipur primarily comprisesplotted development projects (~86% of the supply) with

the balance being apartments. In the apartments, the2BHK format constitute ~10% of the total supply andthe 1BHK format ~4%. Most of the plotted projectslaunched and developed house 1,000 plots of varyingsizes on an average.

• Size : Plots are available in the size range of 1,450to 3,600 sq.ft. Apartments are available in twocon gurations, 1BHK and 2BHK, with 1BHK being

available in 450 sq.ft. to 550 sq.ft (SBUA) and 2BHKresidential units in the range of 650 sq.ft. to 725 sq.ft.(SBUA). The market seems favorable for independentlarge formats with plots dominating the supply.

• Price : In 4Q 2014, the average price in Baruipur is inthe range of INR1,750 to INR2,200 per sq.ft. (SBUA).The average price of plots in 4Q 2014 is in the range ofINR300 to INR350 per sq.ft. as on 4Q 2014, the blockprice of 1BHK units is in the range of INR0.6 million toINR1.2 million and 2BHK units from INR0.8 million toINR1.6 million.

The region is set to see a healthy demand, primarily dueto improved connectivity, the Government’s initiativesto provide affordable housing and shifting of districtheadquarters. Residential activity is expected to increasein coming years, attracting developers, especially in the

affordable and mid-segment category on account of thelarge land parcels available at comparatively low prices.Other upcoming residential locations in this area include theDiamond and Kona Expressway (with capital values in therange of INR1,900 to INR2,100 per sq.ft. (SBUA), wheredevelopment is also picking up.


Minimum Maximum

1Q 2013 4Q 2014

( i n I N R

p e r s q . f t .

)

1,4001,7501,600

2,200

0

500

1,000

1,500

2,000

2,500

Capital values of residential apartments in Baruipur




Emerging destinations aroundBengaluru

The “Garden City,” Bengaluru, has rapidly emerged as arealty and knowledge hub. In particular, the last decadehas seen a signi cant growth in developmental activity andestablishment of IT/ITeS service hubs, campuses of highereducation institutions and special economic zones (SEZs).This has led to a steadily increasing demand for housing and

integrated townships for all income brackets. Micro-marketssuch as White eld, Outer Ring Road and Hebbal havewitnessed the establishment of large commercial of ceestablishments and have emerged as the “commercialbelts” of the city. This has created a demand for residentialand other social infrastructure. Over the last ve years,the need for residential units in prime commercial belts hasresulted in escalation in capital values. This has resultedin the gradual shift of residential markets to the city’speripheral areas.

A key area of focus is however the continuously growingdemand for housing for low to middle income groups.

Domestic and foreign migration is high due to growingemployment opportunities, which adds to the demandfor housing in Bengaluru. Its peripheral city limits havebeen growing to meet this demand. This has led to theestablishment of satellite areas, which are being targeted bydevelopers to set up housing and integrated townships.

The four emerging growth nodes around Bengaluru:

Devanhalli

BengaluruInternational Airport

Electronic CitySouth

East

North

WestCBD

Doballapur

Nelamangala

Sarjapur-AttibelleRoad

South East

White eld

Hostoke

Kanakpura

Destination Population(2011census)

Economicbase

DistancefromBengalurucity (kms.)*

Dodaballapur 93. 105 Small-scaleindustries

41

Devanehalli 28,051 Aviation parksand cargohardware

37

Sarjapur-Attibelle road

11,807 Tech corridor 25

Nelamangala-Tumkur Road

37, 232 Small-scale andagriculturalindustries

31

* Distances from city center taken from M.G. Road

These locations were traditionally agriculture or industrialbelts. Gradual expansion of city limits led to the spilloverof real estate activity to peripheral locations. Plotteddevelopment layouts were initially seen in these areasdue to low land costs. However, over the last two to threeyears, peripheral locations have witnessed developmentof apartments, which are marketed at comparatively lowpricing, due to improved infrastructure and escalation inthe capital values of residential apartments in developedlocations. However, although the peripheral locationsselected have witnessed the development of apartments oflate, the micro-market still offers plots and villas to thosewho can afford these.




Eemrgingdestination



Size range(SBUA insq.ft.)




DodaballapurRoad

Apartmentsand plotteddevelopmentlayouts

Doda-ballapur Roadand Yelahanka

1BHK~ 25% ofsupply

2BHK and3BHK~ 75% of

supply

1BHK650 to 750

2BHK845 to 1,200

3BHK1,100 to

1,500

4Q 2014:3,700-4,500

4Q 2014:

2BHK2.5 to 4.8

3BHK3.7 to 7.5

CenturyArena,ProvidentWelworth city,Prestige GKlakeview

4Q 2014:20–40

Devanahalli

Town-shipdevelopmentwithapartments

NH-207and NH-7Devanahalli

1BHK,2BHK and3BHK

1BHK500 to 750

2BHK750 to 1,200

3BHK1,250 to1,500

4Q 2014:3,000-4,800

4Q 2014:

2BHK3.0 to 8.0

BrigadeOrchards,HiranandaniUpscale,Ozone Urbana

4Q 2014:30–60

Sarjapur Road


Sarjpur andSarjapur –

Attibele Road

1BHK~ 20% ofsupply

2BHK and

3BHK~ 80% ofsupply

1BHK750 to 900

2BHK1,050 to1,300

3BHK1,230 to1,650

4Q 2014:2,700-5,500

4Q 2014:

2BHK2.9 to 4.5

3BHK3.5 to 6.0

Con dentGardenia,SriramSmrithi,CitilightsSeasons

4Q 2014:20–70

Nelamanagla-Tumkur Road


NH-7 TumkurRoad

1BHK~ 30% ofsupply

2BHK and3BHK~ 70% ofsupply

1BHK600 to 900

2BHK1,000 to1,200

3BHK1,230 to1,400

4Q 2014:2,500-3,000

4Q 2014:2BHK – 2.9to 4.5

3BHK – 3.5to 6.0

Tata Haven,ArshiyaMeadows,ShriramSameeksha

4Q 2014:15–50


Source: EY market research conducted in September and October 2014




Dodaballapur Road

Dodaballapur is mainly a cluster of semi-rural villages, whichform a part of the Bengaluru rural district. It is locatedaround 41–43 km. from the city center.

Growth drivers:• Improved accessibility : Access to and from this

growth node is improving due to its proximity to theDodaballapur railway station and intra and intercityBangalore Metropolitan Transport Corporation(BMTC)-run bus terminals. Dodaballapur is thereforefast developing as a satellite town to Bengaluru. TheBengaluru-Hindupur State Highway 9 connects the areato the city. SH 9 is a two-lane road and is in excellentcondition. In addition, the area is well connected withBengaluru’s International Airport via NH 207.

• Commercial development: Dodaballapur is also closeto the upcoming Bengaluru Aerospace Park (BAP),Hardware Park, Apparel Park and IT/BT Park in North

Bengaluru, in addition to the Doddaballapur IndustrialArea and the Dabbaspet Industrial Area being locatedin it. This is an essential growth driver for residentialdevelopment in this peripheral area of the city. TheBAP has already generated substantial corporate andinvestor interest, which is contributing to the growingdemand for accessible and inclusive housing foremployees of economic hubs in the area. Furthermore,development of industrial clusters around the airporthas witnessed a spillover effect with regard to thedemand for residential housing and is expected to drivegrowth in the future. Up and coming housing projectsinclude Metro Park, North Paradise, IDEB Riverspring,Vaishnavi Elements and Mantri Layouts.

Residential real estate market• Key clusters/micro markets : The bulk of development

is seen on Dodaballapur’s main road and the Yehalanka junction. Since the road is expected to get saturated,it is likely that development will spread towardHonnenhalli on the State Highway 9.

• Prominent con guraton : Around 75% of the residentialsupply consists of 2BHK and 3BHK units. These haveseen a steady appreciation in their values since 2011.The demand for 2BHK units is the highest because

of nuclear families migrating to the area in search ofemployment opportunities. The preferred option forrst-time buyers are 2BHK apartments. Therefore, thebulk of development includes apartment complexes.The second most popular format consists of plotteddevelopments and layouts because of availability of vastland parcels in this semi-rural district.

• Size : The average size of 2BHK units ranges from 845sq.ft.–1,200 sq.ft. (SBUA) and that of 3BHK units from1,100 sq.ft.–1,500 sq.ft. (SBUA).

• Price : Capital values have witnessed a steady rise inthe last two to three years. Currently, prevailing capitalvalues in the area are in the range of INR 3,700–INR4,500 per sqft., depending on the location of thedevelopment, facilities and amenities provided, stageof completion, etc. On and around the Yelahanka–Doddabalapura Main Road, there are projects suchas Provident Welworth City, Nirmal Residency andVrindavan Bliss selling at INR3,000–INR3,500 persq.ft. (on the SBUA). Most 2BHK units are pricedbetween INR2.5 to INR4.8 million and 3BHK unitsbetween INR3.7 to INR7.5 million. In the case of plotteddevelopments, the price ranges from INR1,200–INR2,800 per sq.ft. on an average.

Based on recent developments, there is high potentialfor capital appreciation in the area because it is notyet congested and saturated with development, as isthe case in the Outer Ring Road. Developers are stillacquiring land parcels to develop townships, villas andplots on them. This is seen as a lucrative investmentopportunity by rst-time buyers and those who wantto buy second homes, and therefore, is expected toin uence capital values positively.

Devanahalli

Devanahalli is a large semi-rural area, located on NH7and NH 207. It is located around 40–42 km. from the citycenter and is considered one of the fastest growing areasin North Bengaluru. The location has already witnessed thedevelopment of integrated townships, high-end villas andplots. Furthermore, growth of an industrial cluster aroundthe airport has seen a spillover effect with regard to thedemand for residential housing, which is expected to drive

development in the future.




Growth drivers:• Development of transport infrastructure :

Devanahalli’s proximity to the International Airport,only ve km. away, has contributed to increased traf calong the highway, leading to rapid development ofinfrastructure in the corridor. Projects such as theOuter Ring Road and the planned six-lane carriagewayhave led to widespread improvements in roads andconnectivity with the central business district (CBD)and Inner Ring Road. The completion of the elevatedyover has provided the area seamless connectivitywith various parts of the city. Additionally, planningdevelopments such as that of the peripheral Ring Roadare expected to enhance its connectivity to importantlocations.

• Economic nodes : Operational economic hubs in the cityinclude the Kempegowda International Airport and BAP.A number of other nodes, such as the Hardware Park,IT/BT Park, ITIR, Logistics Parks and the DevanahalliBusiness Park are planned around this market.

Residential real estate market:• Key clusters/micro markets: Devanahalli is

witnessing residential development in two clusters— NH–7 Devanahalli Road a key cluster, which iswitnessing integrated development, high-end villasand plots. The cluster has developed on account of itsexcellent connectivity and proximity to KempegowdaInternational Airport. The second prominent clusteris NH- 207, which has emerged due to industrialdevelopment in and around the airport. Activitywitnessed in this cluster includes competitively pricedhousing options and plots.

• Prominent con guration : The dominant con gurationincludes 2BHK apartments. The remaining units include3BHK and 1BHK units.

• Size : The average size of a 2BHK unit ranges from 750sq.ft.–1,200 sq.ft. (SBUA).

• Price : Capital values have seen a steady rise in thelast two to three years. Currently, prevailing capitalvalues in the NH-7 Devanahalli zone are in the range ofINR4,000–INR4,800 per sq.ft. (SBUA), depending onthe location of the development, facilities and amenitiesprovided, stage of completion, etc. Capital values in theNH-207 region are in the range of INR3,000–INR4,400per sq.ft. (SBUA). The block price of a 2BHK apartment

ranges from INR3.0 million to INR4.5 million in the NH-207 region and from INR5.0–INR8.0 million in the NH-7Devanahalli region. In the case of plotted developments,prices range from INR1,800–INR3,500 per sq.ft. onan average.

The demand for apartments is predicted to rise in the nearfuture following the completion of planned infrastructureprojects such as Devanahalli Tech Park and BAP. There isample opportunity for projects at these price points due tothe current low competition from other community housingprojects and no major community housing planned for thenext two to three quarters.

Sarjapur–Attibelle Road

Sarjapur Road is a rapidly developing area, situated in thesouth-east of Bengaluru. It is around 23–25 km. from thecity center.

Growth drivers:• Connectivity : Sarjapur Road has access to all major

transport nodes of the city, including the local railwaystation (approx. 4 kms) and Bengaluru MunicipalTransport Corporation (BMTC) bus terminals. It has thusemerged as a preferred residential destination for mostpeople working on the ORR.

• IT hub : This hub is situated near the Outer RingRoad, which is a major IT/ITeS corridor in the city andcontributes around 25% of the total IT/ITeS space in it.This area is also well connected to Electronic City.

• Land banks : Gradual expansion of city limits andsetting up of land banks by developers are expectedto be the major drivers of growth on Sarjapur Road.Moreover, large IT/ITeS companies have land bankson the road to develop campuses, which are expectedto be major drivers of residential development in thefuture.

Residential real estate market:• Key clusters/micro-markets : Residential development

on Sarjapur is concentrated around the SarjapurMain Road, the Sarjapur–Attibelle Road and towardthe ORR. Due to near saturation of supply on themain road, developers are now targeting land parcels




located off the main Sarjapur and Attibelle roads.The Sarjapur–Attibelle road caters to people workingin organizations on the Outer Ring Road and thecity’s growing population. Large land parcels forresidential development have opened up following theconstruction of the Outer Ring Road in 2002.

• Prominent con guration : Around 80% of the totalresidential supply consists of apartment complexes,mainly comprising 2BHK and 3BHK units, with themajority of buyers being mid-level employees of ITcompanies in the area.

• Size : The average size of the SBUA for 2BHK unitsranges from 1,050 sq.ft.– 1,300 sq.ft. (SBUA) and thatof 3BHK units from 1,230 sq.ft.– 1,650 sq.ft.

• Price : Quoted capital values in developments in themicro-market ranged from INR2,700 to INR3,300per sq.ft. (SBUA). Those closer to establishedlocations on Sarjapur Road (around 3–4 km. from theSarjapur-Outer Ring Road junction) are in the range ofINR4,000–INR5,500 per sq.ft. (SBUA). The averageprice of a 2BHK at ranges between INR2.9 to 4.5

million and of a 3BHK at from 3.5 to 6.0 million. In thecase of plotted developments, the prices range fromINR1,600–INR2,200 per sq.ft. on an average.

Nelamangala–Tumkur Road

The Nelamangala–Tumkur Road area is located in thewestern periphery of Bengaluru and is around 17–19 kmfrom the Outer Ring Road. The area in its vicinity is mainlyagricultural, but also includes individual dwelling units inMallarbanavadi village and Nelamangala town.

Growth drivers:• Industrial corridor: Nelamangala is located around

10–12 km. from Peenya, which is considered one of thelargest small-scale industry hubs in Asia. The DobaspetIndustrial area is located around 8–10 km. fromNelamanagala. There are numerous industries locatedalong both the highways including NH 48 and NH 4 aswell as others. Nelamangala is a growing sub-urbannode in Bengaluru. It attracts an increasing numberof migrants and this consequently generates demand

among the local and domestic population in the area,driven by employment opportunities — particularlyin small businesses and agriculture-based industries.Since these industries dominate in the area, the bulk

of (85%) of residential development in Nelamangalaconsists of plotted developments and layouts.

• Connectivity : The completion of the Tumkur Roadelevated yover has provided seamless connectivityto various parts of the city. Furthermore, Metroconnectivity to Peenya has spurred real estate activityin the region and has spilled over real estate-relatedactivity to regions including Nelamanagala.

Residential real estate market:• Key clusters : Increased residential activity is currently

being witnessed across various locations alongTumkur Road. Locations that are around 10 km. andbeyond Outer Ring Road, such as Madanayakahalli,Nelamanagala and Huskur Road, are currentlywitnessing signi cant activity in terms of affordablehousing units due to availability of land at competitiveprices. The micro-market is currently seeing marketingof apartment developments such as Tata New Haven,Vaishnavi Rathnam and Janapriya 1st Avenue.

• Prominent con guration : Around 70% of the totalresidential supply consists of apartment complexes,mainly comprising of 2BHK and 3BHK units. Since themajority of buyers are mid-level employees at nearbyindustrial units, around 30% of the ats are 1BHK units.

• Size : The average size of a 2BHK unit ranges between1,000 sq.ft.–1,200 sq.ft. (SBUA) and that of a 3 BHKbetween 1,230 sq.ft.– 1,400 sq.ft. (SBUA).

• Price : The quoted capital values of housing units in themicro-market are in the range of INR2,500 to INR3,000(SBUA). The average block price of a 2BHK at rangesbetween INR2.9 to 4.5 million and that of a 3BHK

from INR3.5 to INR6.0 million. The price of aplotted developments ranges from INR1,000-INR1,400per sq.ft.

Locations such as White eld, Electronic City, KanakapuraRoad, Mysore Road, Peenya and Yelahanka have witnesseddevelopment of housing at comparatively low prices.However, the gradual expansion of the city has led to capitalvalues in these locations witnessing steady escalation.They currently consist of mid-upper mid-end apartments.Locations such as Dodaballapur, NH-207 Road, Sarjapur–Attibele Road, Tumkur Road and Mysore Road (close toNICE junction) currently offer ats in a low per sq. ft. price. Availability of relatively cheap land, good connectivity andproximity to commercial and industrial hubs lead to large-scale developers developing projects in these locations.




Emerging destinations aroundDelhi National Capital Region(NCR)

Bhiwadi and Dharuhera, which were once small villagesettlements, have now become industrial towns. They arestrategically located between Delhi, Gurgaon and Jaipur.Improved connectivity has led to increased industrial growthduring the last decade, giving an impetus to development ofreal estate in the area.

Growth drivers• Proximity to NCR : The NCR has witnessed an

unprecedented growth in its population and rapidurbanization over the past decade, leading to a shiftin growth patterns in the adjoining states of Haryana,Uttar Pradesh and Rajasthan. This has bene ttedcities including Gurgaon, Faridabad, Noida, GreaterNoida and Ghaziabad. The Government’s regional planrecognizes some priority towns in these three statesto cater to increasing demand in the NCR in order toabsorb the need for development activities outside the

NCR, which includes six urban complexes — Sonipat-Kundli, Bahadurgarh, Gurgaon-Manesar, Faridabad-Ballabhgarh, Noida and Ghaziabad-Loni. Among thesecomplexes, Alwar and Bhiwadi have been recognized aspriority towns for Rajasthan and Dharuhera, Panipat,Rohtak, Palwal and Rewari for Haryana. Developershave been shifting their focus to these towns due toeasy availability of land at relatively low prices, coupledwith the increasing demand for housing due to growingeconomic activities in them. Average capital values ofresidential development range between INR4,500 to

INR14,500 per sq.ft. in most parts of Gurgaon, whereas

7 “2011-Prov-Results”, Census of India website, censusindia.gov.in, accessed 8 October 2014.

Emerging destination Bhiwadi Dharuhera

Population (Census 2011) 7 30,344 104,921

Economic base Industrial units Industrial units

Distance from Delhi CBD(in km.)*

75 73

Distance from Gurgaon(in km.)

45 51

Distance from Jaipur(in km.)

200 195

* Distance from Connaught Place




in its prime areas, e.g., Sector 42 (on Golf Course Road)and Ambience Island (Sector 24 on National Highway8), they can be as high as INR16,000 to INR20,000 persq.ft. With high average residential real estate pricesin Gurgaon, Bhiwadi and Dharuhera have establishedthemselves as new housing centers at comparativelylow price points.

• Improving connectivity : Bhiwadi and Dharuhera arewell connected to Delhi via National Highway 8 (NH8),being located at a distance of around 75 km. fromConnaught Place — Delhi’s Central Business District(CBD) — around 45 km. from Gurgaon and around 60km. from the Indira Gandhi International Airport. NH8

Bhiwadi

Dharuhera

Tapukara

Khushkhera Chaupanki

SohnaBilaspur Kalan

Majra Gurdas

Bawal

Rewari

NainSukhpura

Pataudi

Pataudi

IMT Manesar

Gurgaon

Sare Khurd

Bahora Kalan

NH8

-Bhiwadi-Alwa r road

Growth nodesIndustrial clustersProminent centers

Dharuhera-Bhiwadi

Bypass road

is in the process of being widened from Gurgaon toJaipur — a part of the National Highway Corridor. Inaddition, the proposed Regional Rapid Transit System(RRTS), connecting Delhi with Alwar through Bhiwadiis expected to improve the region’s connectivity withDelhi. Furthermore, the proposed Western PeripheralExpressway (WPE), also known as the Kundli-Manesar-Palwal (KMP) Expressway, beginning at NH1 nearKundli, connects west Bahadurgarh, crosses NH8 nearManesar (~30 km. from Bhiwadi) and culminates at

Palwal (~55 km. from Bhiwadi). This should improveBhiwadi’s connectivity with important urban centersfurther and lead to substantial development of realestate in the region in coming years.

• Increasing industrial footprint : The region alreadyhas a well -established industrial base with 15 industrialareas in Alwar being developed by the RajasthanIndustrial Investment Corporation (RIICO), whichsupports more than 300 large and medium scalemanufacturing units . RIICO has developed clusters ofindustrial areas in and around Bhiwadi, with the keyindustrial areas being Chopanki (~5 km.), Sarekhurd

(~15 km.) and Tapukara (~17 km.) . Industries haveourished in the Bhiwadi region due to its improvedconnectivity with Delhi and Gurgaon. In addition, amulti-product SEZ (Somani Worsted Limited) hasbeen noti ed in the Khushkhera Industrial Area . TheKushkheda-Bhiwadi-Neemrana Investment Region(KBNIR) is proposed to be developed in Phase 1 ofthe Delhi Mumbai Industrial Corridor (DMIC). This isexpected to add to the economic importance of thisregion and attract further industrial development in it.




Eemrgingdestination



Size range(SBUA insq. ft.)

Base rate onSBUA (INRper sq. ft.)



Bhiwadi

Townshipdevelopment —

apartments

Alwar–BhiwadiRoad,Rewari–Sohna Road

1BHK~10%–20% ofsupply

2BHK and3BHK~80%–90%of supply

1BHK390 to 750

2BHK820 to 1,445

3BHK1,300 to1,600

1Q 2013:2,100 to2,900

4Q 2014:2,200 to3,200

4Q 2014:

1BHK1.25 to2.25

2BHK1.92 to5.68

3BHK2.53 to6.25

AshianaAngan,AvalonGardens andRoyal Park,

BDI SunshineCity, TerraCastle, OmaxeCity

4Q 2014:17–45

Plotteddevelopment

Plots Plots900 to 2,700

4Q 2014:1,400 to2,200

Plots1.62 to6.00

MappleGreens,Omaxe City

DharuheraTownshipdevelopment —

apartments

Delhi AjmerExpressway(NH8),Dharu-hera–BhiwadiBypass Road

NA

1 BHK750 to 760

2BHK980 to 1,500

3BHK1,225 to1,850

1Q 2013:2400 to 2650

4Q 2014:

2,600 to3,000

1BHK2.24 to3.42

2BHK2.74 to6.80

3BHK3.43 to9.11

AvalonRangoli,RahejaOma, VipulGardens,

Vardh-manSpring-dale

4Q 2014:33–40


Residential demand is not only met by the workforce inthese places, but also by Gurgaon (~40 kms) and Manesar(~30 kms) due to improved connectivity via NH8. BothBhiwadi and Dharuhera have witnessed residentialdevelopment, primarily in the form of townships with highrise apartments and limited plotted development.

Residential real estate market in Bhiwadi• Key clusters : Residential development is spread across

two clusters, the Alwar – Bhiwadi and Rewari–SohnaRoads, in Bhiwadi. However, a majority of the upcomingprojects are concentrated on the Alwar–Bhiwadi Roaddue to its proximity to NH8 on one hand and easyaccess to Alwar on the other. Moreover, this roadconnects industries in the old Bhiwadi industrial area(on the Rewari–Sohna Road) to industrial clusters inKhushkhera, Chopanki and Sarekhurd.

• Prominent con guration : Supply of housing inBhiwadi primarily includes 3BHK and 2BHK units (with2BHK apartments being the dominant con guration).Together, these account for ~80% to 90% of the total

Capital values of residential apartments in Bhiwadi

Minimum Maximum

1Q 2013 4Q 2014


( i n I N R

p e r s q . f t .

)

2,100 2,200

2,9003,200

-

500

1,000

1,500

2,000

2,500

3,000

3,500

inventory in Bhiwadi with the balance being 1BHKunits. 3BHK units range from 1,300 sq.ft.–1,600 sq.ft.(SBUA) — Krish City has smaller size 1,100 sq.ft. 3BHKunits, whereas MVL Coral goes as high as 1,900 sq.ft.(SBUA). The sizes of 2BHK units range from 820 sq.ft.–1,445 sq.ft. (SBUA), with Ashiana Angan and MVLCoral offering larger sizes that go as high as ~1,600

sq.ft. ( SBUA). 1BHK units are available in the range of












06 Real estate forsmart cities






2 Extrapolated from “Construction Opportunities,”http://www.constructionopportunities.in/IssueDetailPage?IssueMenuMasterId=1182&ParentMenuId=1175&ContentType=SubParent accessed 15 September 2014.

3 “The City,”Songdo IBD website, http://www.songdo.com/songdo-international-business-district/the-city/master-plan.aspx accessed 07October 2014.

4 Building the Bridge to the Future: New Songdo City from a Critical Urbanism Perspective, Essay Prepared for SOAS, University ofLondon Centre of Korean Studies Workshop. New Songdo City and South Korea’s Green Economy: An Uncertain Future. 5 June 2013,p.4.

5 Sustainable Cities: Oxymoron or the Shape of the Future?, Working paper 11-62, 20 March 2011, p. 13.

How will smart cities change theway we live?

• You will live in an ef cient ecosystem.

• Buildings and infrastructure in neighborhoods willwork collectively.

• You will know:

• How you are interacting with the environment:

Real time data on your consumption of water,energy and other resources

• How the environment is interacting with you:

Real time data on the quality of air you arebreathing, the quality of water you are drinkingand the consequences of the garbage you aregenerating

• Your behaviour and consumption choices will driveand lead to customized supply.

• You will help to optimize resources and choosewhat and how much you consume.

Model for smart cities — realestate and technology as thefulcrum 2

Planning smart cities is capital-intensive. For example,Songdo in South Korea, a centrally planned data-drivencity planned on 100 million sq.ft. over 1,500 acres 3, costan astonishing estimated US$35 billion 4. Plan IT Valley inPortugal, which includes 100 million sensors to monitorand adjust the ow of electricity, water and transport for apopulation of 2,25,000 people, is expected to cost betweenUS$8 and US$10 billion 5. With nance remaining one of thegreatest challenges, in most cases it is possible that privateplayers (including developers) will make investments andthe Government will provide incentives and tax relief toattract organizations to set up of ces in the development,

thereby putting in motion a demand for real estate. In sucha scenario, there is a shift in the way urban developmentis undertaken. Public services and amenities, which wereearlier provided by government agencies (central, stateor urban local bodies), could now be provided by privateplayers that can enhance ef ciency and sustainability byusing modern technology. Therefore, the onus of recoveryof investments made by them on such technology is solelytheir concern. Such a capital-intensive development canthen be regarded as an investment with a selling proposition

to recover the costs incurred, and sale and lease of realestate and royalties earned on technology as sources ofrevenue to recover these costs.




Model for smart cities-real estate and technology at the fulcrum

Plan IT valley,Portugal

USD10 billion100 million sensors to monitor and adjust ow of electricity,water, transport for a population of 2,25,000 people

Songdo,South Korea

USD35 billion

Investment intensive

Urban developmentregarded as a form ofpublic work handledby government agencies

Smart cities regarded asan INVESTMENT WITH ASELLING PROPOSITION

Smart cities regarded asCOMMERCIAL ENTERPRISESwhere capital providersplay a role

Real estate sales and lease,technology based royaltiesto off-set capitalrequirements.

Centrally planned, data driven city spread over 1,500 acres

Role of banks andcapital providers

Constraint

Shift

Result

Revenuesources

Governmentintervention

Economic and tax incentives to encourage organizations to set up ofces resulting in ademand for real estate

Transformation

FULCRUM:Technology

andReal Estate

CONCEPT

MODEL

PUSH

Information, communication andtechnology in real estate 6

In the case of large-scale real estate developments suchas integrated townships or industrial corridors, smartinfrastructure and buildings need to complement eachother. Using technology to develop real estate could resultin the following:

• Value addition for the product helping promotercommand a sale premium

• If integrated appropriately with the infrastructure ofa city, lead to cost-saving and ef cient utilization andmanagement of city resources

• Real estate, coupled with appropriate technology,becoming a mechanism to provide real time data onconsumption and supply of various resources providedby a city to its citizens

The Government has been aggressively implementingplans to develop industrial corridors along transport axesto spur urban development. For instance, it plans to alignabout 25 cities along the Delhi-Mumbai Industrial Corridor(DMIC). It is envisioned that these will include industrialestates and residential areas (with social infrastructureincluding schools, hospitals and recreation facilities). TheGovernment plans that each of these clusters willbe equipped with smart infrastructure and buildings thatwill be plugged into this smart infrastructure along theindustrial corridor.





Case study: Large-scaledevelopmentGujarat International Financial Tec (GIFT)City is located between Ahmedabad andGandhinagar on NH8, which connects Delhiwith Mumbai via Ahmedabad. The project hasbeen developed on lines of the benchmarks ofinternational nancial centers.

Focus areas identi ed Tools for implementation Outcome

Smart energy Technology

• District Cooling System (DCS) — to provide chilledwater to buildings from a centralized chilling plant(estimated capacity 10,000 TR)

• Piped gas

• Underground cabling for powerdistribution within GIFT

• GIFT would have the rst DCS in Indiato improve quality of air, and reduceuse of energy and maintenance costs

Smart mobility Intelligent transportation systems

• Integrated, monitored and controlled traf c ow

paths• Mass transportation system — MRTS/ BRTS• Personalized Rapid Transit (PRT) system• Multi-Level Car Parking (MLCP)

• Public Private Partnership (PPP) modelin the ratio of 90:10

•Improved connectivity with hinterland(Ahmedabad and Gandinagar)

• Reduced carbon footprint

Smart infrastructure Innovative techniques

• Collection of solid waste through pipes: wastetreated by plasma grati cation (process whichleads to production of liquid fuels and otherenergy sources from waste)

• Rainwater harvesting by arti cially createdconcrete storage reservoir to meet need fordrinking water for 15 days, water recycling andreuse, planned water distribution network andadvanced water treatment technologies

• Common utility trench through which allinfrastructure networks will pass

• Over 60% of space within city a greenzone

• Solid waste management to minimizeimpact on environment, requirement ofspace and health hazards

• Water conservation methods ensuringreliability, quality and quantity of waterprovisioning

• Smart utility trench helping to create

safe operational environment and easemaintenance process

Smart technology Centralized monitoring and control

• “City Command and Control Centre (C-4)”— a single platform to monitor and manageDCS, Automated Waste Management System(AWMS), Water Management System, PowerInfrastructure, City’s safety, security andsurveillance, and traf c

• Energy management system (monitoring ofelectricity/water/gas/oil), back-up for generation

Savings:

• 24% on building management system• 4.5% on total building cost• 36% on operational expenditure

Smart connectivity Information Technology systems

• Broadband FTTP*• WiFi/Wimax• Shared IT services• Pervasive wireless and mobile network• Data centers• City e-Portal• Sensor networks• Internet gateway

Seamless connectivity

• Competitive cost advantage inoperating from GIFT city• Improved operational ef ciency• Access to state-of-the-art

communication infrastructure

*Fiber-To-The-Premises (FTTP) is a technology that enables internet access through a direct ber optic cable from an Internet ServiceProvider (ISP) to users’ homes and/or businesses.

Framework




Greenhouse gases Greenhouse gas emissions savings Feedback on the effectiveness of green initiativesWater savings

►

►

►

►

Opex reduction

Environmental

Social

Energy savings (HVAC, lighting, equipment)Reduced building management costs

Reduction in capex, reduced building area, reduction

in equipment requiredCapex enhancement, prolonged HVAC, lighting and equipment life

►

►

Reduced sick daysStaff efciency due to improved work environment

Economic

►

►

GHG abatement creditsWater savings

►

►

Improved occupant comfortGreater sense of belonging

►

►

Greater occupant safetyImproved health

►

►

►

►

Capex reduction/enhancement

Productivity gains

Monetization ofenvironmental benets

EY’s perspective on Deployment of Information, Communication andTechnology (ICT) eco-system for smart buildings 7

A smart building is an integration of building, technologyand energy systems to put in place automation, life-safetymeasures, telecommunications, and user and facilitymanagement systems. All the systems of a smart buildingare operated over the Ethernet or IP. This enables people,systems and objects to communicate and interact with eachother in novel ways.

In order to include ICT in real estate projects, technologyproviders engage with real estate developers at every

stage, ranging from ideation to implementation, byleveraging vertical solutions built on networks as open andintegrated platforms with a broad ecosystem of partnersand innovative business models to change how communitiesare designed, built, managed and renewed. The requisitesteps in this process include a project’s initial feasibility,its concept and schematic designs, its detailed workingdrawings, construction, launch and operation, all of whichwill be carried out in a phased manner throughout itsdevelopment cycle.





Current ICT operating models used by developers of real estate insmart buildings

Implementing ICT solutions requires the involvement of ve primary stakeholders, depending on the scale of a project, e.g.,the occupants of a building, the property developer, the technology provider, the facility manager and the Government.

Model 1 : The System Integrator (SI) procures hardware from the technology vendor. The SI then integrates and sets up theinfrastructure and manages the system on behalf of the real estate developer. The required investment is made by thereal estate developer and costs are bundled and eventually passed on to the customer as a value-add when the real estate ispurchased.

►

Technology provider

No investmentIn-ow of cash

Monthly/Annual fee for AMC

In-ow of cash

Delivery of asset

Capex for equipment

Monthly maintenance fee for building

management

One time payment

Equipment

The SI procures hardwarefrom the technologyprovider.

►System integrator

Building management system

The SI integrates and sets upthe infrastructure and managesthe system without any rolein funding.

Real estate developer

Full investment

The SI is paid amonthlycharge asmaintenancefee for managingthe systems.The customerpays the SIdirectly from themanagement andmaintenance ofthe systems.

►

►

The developer provides automation facilities as avalue add to customers.The capex invested in this infrastructure is typicallybundled into the cost of the apartment and ispassed on to the end customer.Flow of cash

Relationship

Customer




Model 2: The SI procures hardware from the technology vendor and then integrates and sets up the infrastructure, andmanages the system. The former funds the capital investment on hardware required for deployment of ICT and marketsautomation services to customers. Revenue generated from automation products is shared between the SI and real estatedeveloper. The SI generate additional revenue by maintain these systems.

►

Technology provider

No investmentInow of cash

Marketsautomationservices tocustomers

Percentagefrom SI

Money paidupfront +monthly/annualfee for AMC

Delivery of asset

Equipment

The SI procures hardwarefrom the technologyprovider.

►

►

►

System integrator

Full investment. The SIintegrates and sets upinfrastructure and managesthe system

Real estate developer

No investment

The SI providesautomationfacilities. Thebuilder acts as anagent betweenthe SI and thecustomer.

Customers canchoose from avariety ofautomation levelpackagesaccording to theirpreference.

The SI chargescustomers amonthly/quarterly/

annual fee formaintenance,service and AMC.► The developer gets a certain

percentage of the revenuethat the SI generates byselling the automationproducts.

►

►

The customer paysupfront for automationproducts.An annual/monthlyAMC charges is paidto the SI.

Customer

One time paymentFlow of cashRelationship

Making smart initiatives workThe smart city initiative with an investment of INR70.6billion is likely to drive development of real estate fromexisting focus cities of mega-metros and metros to anumber of untapped cities. Proposed reduction of built-up area threshold from 50,000 sq.m to 20,000 sq.m andcapital requirement from US$10 million to US$5 millionwill help to boost FDI with more projects qualifying andincreasing the feasibility of implementing this capital-intensive proposition.

Provision and use of technology in smart townships and

buildings is expected to face initial challenges. Customersaccepting automation systems as comfort-enhancingfeatures, coupled with their readiness to pay a premium,

could be one such challenge. Moreover, given that a large

part of this added service will be the responsibility ofthe technology provider, the real estate developer andtechnology provider will need to work hand in hand, sincethe reputation of the developer could largely ride on theperformance of the technology provider. Furthermore,considering the wide demographic divide in India, withvaried levels of education and technical skills, the comfortof using such technology may vary drastically from cityto city. This will require a careful study to determine thepro le of end users in order to provide suitable technologyto them. Educating end users on the functions of suchtechnology (as well as its bene ts) during the initial phases

would be an essential element in determining the success ofsuch smart initiatives.




EY — Real Estate team

Ajit KrishnanPartner, EYTax & Regulatory ServicesTel: + 91 124 671 4490Mobile: + 91 98110 32628Email: [email protected]

Ranjan BiswasPartner, EYTransaction Advisory ServicesTel: + 91 80 4027 5131Mobile: + 91 98450 54017Email: [email protected]

Randhir S. KochcharPartner, EYTransaction Advisory ServicesTel: + 91 120 671 7190Mobile: + 91 98111 52600Email: [email protected]

Sushi ShyamalPartner, EYTransaction Advisory ServicesTel: + 91 22 6192 0570Mobile: + 91 98 2041 4541Email: [email protected]

Gaurav KarnikPartner, EYTax & Regulatory ServicesTel: + 91 124 464 4032Mobile: +91 98112 14668Email: [email protected]

Neville DumasiaPartner, EYAdvisory ServicesTel: + 91 22 6192 0230Mobile: +91 98205 03900Email: [email protected]

Avinash NarvekarPartner, EYTax & Regulatory ServicesTel: + 91 22 6192 0220Mobile: + 91 98201 55244Email: [email protected]

Kuldeep TikkhaPartner, EYTransaction Advisory ServicesTel: + 91 22 6192 0720Mobile: + 91 98201 44564Email: [email protected]




About FICCIEstablished in 1927, FICCI is one of the largest and oldest apex business organisations in India. FICCI’s history is closelyinterwoven with India’s struggle for independence, and its industrialisation and emergence as one of the most rapidlygrowing economies in the world. The organisation has contributed to this historical process by encouraging debate,articulating the private sector’s views and in uencing policies.

A not-for-pro t organization, FICCI is the voice of India’s business and industry.

FICCI’s members are from the corporate sector, private and public, including MNCs. Its direct and indirect members includemore 2,50,000 companies, various regional Chambers of Commerce as well as its 70-industry association.

FICCI provides a platform for sector-speci c consensus building and networking, and is the rst port of call for Indian industryand the international business community.

Our visionTo be the thought leader for industry, its voice for policy change and its guardian for effective implementation

Our mission

To carry forward our initiatives in support of rapid, inclusive and sustainable growth that encompasses health, education,livelihood, governance and skill development

To enhance the ef ciency and global competitiveness of Indian industry and expand business opportunities in domestic andforeign markets through a range of specialised services and global linkages

For more information on FICCI, please contact:

Ms. Mousumi RoySenior DirectorReal Estate and Urban DevelopmentFICCIFederation House, 1 Tansen MargNew Delhi – 110001Tel: + 91 11 2376 5318, 2348 7362Email: mousumi.roy@ cci.com





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