A Report

Real Estate Market

An analysis of competition, current and future
trends

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By Vikram Jethwani vikram.jethwani@gmail.com
Challenges and opportunities in the current business
environment

When the economy is on upward move, real estate

businesses, like most other businesses, enjoy favourable
conditions for success. The real test, however, starts with
the downturn. It is during this period, the intrinsic
strength of a company to withstand multi-pronged
challenges come to the fore.
of competitive advantage that the company may have
There can be multiple reasons why some companies
developed over a period of time. For instance, the loss of
continue to tread well while some companies falter
human resources on which the company had incurred
badly, when faced by serious challenges. But, invariably,
costs – direct and indirect and who have come to a point
the most significant role here is played by the strategic
of making valuable contributions, can affect the
decisions taken by the company. Meanwhile, the sector,
company far more than the direct costs incurred towards
which was once unorganized, has evolved quite well,
the same.
with large players emerging, moreover, in terms of
project planning, size, technology, quality and financial In fact, this is the right time to build on employer brand
management. equity. If your employees speak good about your
company in these testing times, it really matters.
However, with so many “positive” signs, the sector has
Therefore, the focus should be on engaging them as a
gained in a short period of time, the concern in the
partner rather than treating them as a cost.
present perspective, however, arises as how to deal with
the challenges posed by multiple pressures of declining Externally, the company ought to lay emphasis on
demand, squeezing credit, and rising input costs. The retention of existing customers and acquire new
question to be answered is – “how to build customer customers through a refined public relations strategy.
focus and new markets”.
The present times call for a fair level of flexibility, which
even you have been expecting from your suppliers and
In the current business environment, companies that
service providers. At the same time, this is the time to
were setting themselves on the trajectory of high growth
strike collaborations – leading to cost benefits, synergies,
have now shifted their focus on cutting costs in the first
and mutual strength. The potential areas of collaboration
instance. Although, this is also an opportune time when
include supply chain, procurement, production and
real estate players can sharpen their strategy, set the
brand promotion.
house in order and prepare for the next business cycle.
Nevertheless, this phase of market consolidation is a real
Now, the question that evolves here is: how to do this?
opportunity where weaker players will be defragged
Well, the confidence measures could be built internally
and stronger ones will increase their market share
and externally.
through well-thought business strategies, and further
Internally, the company should set its vision firmly on tighten their belts for high growth in the future.
growth in the long term rather than cost-cutting. An
aggressive cost-cutting in the short run may result in loss

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Competition Analysis

On the basis of their access to organized financing and market capitalization on the Bombay Stock Exchange, here
below is the list of top 10 real estate companies of India.

(Source: BSE | As on 18 September 2009)

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DLF Limited
DLF would launch the second phase of 1900 flats under its Capital Green project in Delhi this September, with
price 20%-30% more than phase I. This project will also offer 4 bedroom flats, unlike phase I, which had 2 & 3
bedroom flats only. The minimum price is likely to be Rs 6,500 per sq. ft. Therefore, the cheapest apartment
would cost Rs 80 lakh to the minimum. The company is also doing a market research to further finalize the
prices.

With a slight revival in the residential portion of the real estate sector gaining ground, developers in Mumbai are
banking heavily on the premium category. While relatively older apartments in South and central Mumbai
continue to command a premium, new properties in these locations have not been left behind.

DLF saw its January-March 2009 sales and profits plunge 96.6 per cent and 95.3 per cent, respectively, to Rs 55.5
crore and Rs 29.8 crore. DLF is also changing its housing designs in Gurgaon to squeeze in more two-bedroom
units, along with four-bedroom homes.

Joint Venture: Mothercare, a UK retailer for

kids and expectant mothers, is forming a 51:49 Current State of the Market
joint venture with DLF. This will be a equity Expecting high growth:
partnership. The company would continue its 15%
5%
15%
existing franchisee agreement with
18% Expecting high growth
department store chain Shoppers Stop, and with momentary slack:
62%
form a new JV with DLF. This way DLFwould
Stagnation: 18%
diversify in retail sector as well. A joint venture
with Mothercare further diversifies DLF's
portfolio of brands, which already has Giorgio 62% Decline; 5%
Armani, Dolce & Gabbana, Salvatore
Ferragamao, Sunglass Hut and Sia Home.

DLF is planning to get out of its movie hall

business by becoming a passive junior partner Present Asset Class Focus of Indian Developers
to multiplex operator PVR in a venture that
will run 26 screens owned by DLF-controlled
DT Cinemas. DLF will retain a 14.99 per cent 6%
3%
6% Residential: 76%
stake in a likely special purpose vehicle to run
9% Commercial: 9%
the cinemas while being the owner of the
Retail: 6%
properties that house the movie screens.
Hospitality: 3%

76% Industrial/ SEZ: 6%

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Unitech
Unitech Managing Director Sanjay Chandra says the company booked nearly 4,000 housing units in the first two-
and-a-half months of 2009-10. The largest QIP this year was by Unitech which managed to mop up Rs 2789.33 cr
in June '09. Unitech Developers launched much awaited residential project The Gateway at kona expressway.
Unitech gateway are available 2 to 3 BHK residential apartments ranging from 1468 sq. ft to 1921 sq. ft with all
best featuchers like Landscaped Garden, Gas pipelines, Sewerage Treatment Plant, Water Treatment Plant,
Garbage Disposal Room.

The country’s crowded telecom market is set to see more action with Unitech Wireless readying the nationwide
rollout of its services under ‘UniNor’ Brand.

For Telenor, which owns a 49% stake in Unitech Wireless, this is the first greenfield venture where the
Norwegian communications company is not using its own brand, said an industry executive privy to the branding
decision. Telenor is awaiting Cabinet approval to raise its stake in the venture to 67.25%.

Telenor had informed investors that its Indian arm Unitech Wireless would suffer Rs 15,500-crore losses in the
first five years of operation.

Key concerns for Developers

Sufficient availability of
land: 19%
19%
24% Cost of manpower: 17%

Availability of skilled
17% manpower: 28%
13%
Increase in input costs:
13%
27% Policy matters: 24%

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Parsvnath
Parsvnath is expecting to raise long-term funds with QIP of US$50-100 million in the next few months. The
company’s current debt is to the tune of Rs 1600 crore. The company has several projects under development
and it commands good respect in the market.

Parsvnath Exotica at DLF Golf Course road, Gurgaon is its landmark project in the heart of DLF Fort. Besides, its
Pride Asia project is one of its kind township in Chandigarh. The company is coming up townships in Rohtak and
Saharanpur. The company is reportedly scouting for suitable land in tier II cities such as Bhopal, Indore,
Lucknow, etc.

Indiabulls
IndiaBulls Real Estate sits on a very large kitty of cash; it has Rs 10,000 crore of market cap. Indiabulls Real Estate
has lot of triggers. The Nariman Point project is a big one, it would certainly add quite a bit to IndiaBulls.

Indiabulls Power, a unit of Indiabulls Real Estate, is in the final stages for a pre-IPO placement to raise Rs 410
crore from a group of banks and financial institutions. It is also looking to place the shares with a couple of
private equity players, said people familiar with the development. Indiabulls Power is talking to SBI, ICICI Bank,
Axis Bank, IDFC and HDFC.

Ansals
Ansal Properties to invest over Rs 35,000 cr on 19 townships – all in north India. The company has already
pumped in Rs 4,000 crore on these projects and will put in another Rs 1,600 crore in the remaining part of this
financial year.

Ansal Properties will invest USD 413.2 million in the current financial year. The company seeks to capitalise on
the demand for low-cost housing in India. The company plans to diversify into new businesses such as hotels and
higher-education services. It will build its first hotel in Ajmer. APIL will raise funds to the tune of Rs 203 crore by
issue of warrants to Mauritius based--IPRO Funds Ltd.

The Lucknow High Court stayed the construction of a multi-storeyed building being made by Ansal Group in
village Ahramau in Sarojini Nagar, Lucknow. It was learnt that Ansal constructions was raising a building on gram
sabha land.

Vatika
Vatika is focusing more on affordable housing and is offering one BHK @ Rs 17 lakh in Gurgaon. This strategy
bypasses all big players interested in launching big ticket projects, and focuses on mass affordable housing. The
company can expect quick sales from customer segment with income in the range of Rs 30,000 to Rs. 50,000.

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Omaxe
Omaxe Ltd, which claims to be one of the leading real estate players of the country, has launched about four to
five projects in just two months in different cities of the country. The recent news to share about the developer
is the announcement of the launch of two projects in just a week's time, one in Lucknow and the other in
Bulandshahar. Both the projects would be executed in phases over a period of five to seven years.

Spread over approximately 2700 acres, the Lucknow township is expected to yield an estimated revenue of over
Rs 2,800 crores and would cater to the growing demand of quality living space in the city. Garv Buildtech Private
Ltd, a subsidiary of Omaxe, has entered into a Memorandum of Understanding to develop the said hi-tech
township in Lucknow. Realty major Omaxe has entered into an agreement with the Lucknow Development
Authority to develop a township in Lucknow. Recently, it also forged a similar tie-up with Allahabad
Development authority as well.

BPTP
BPTP reported brisk sales for its Park Floors project in Faridabad. The company expects to generate revenues of
around Rs 1,300 crore over a period of two-and-a-half years through its recent sale of homes. “We are out of
this mess (Noida land deal). Home sales have picked up and we have received bookings for around 5,500
homes,” says BPTP director Sudhanshu Tripathi.

Emaar MGF
After last year’s aborted move to go public, Emaar MGF is now seriously considering a second attempt to to
raise around Rs 3,500 crore through an initial public offering. The company is considering to go in for a smaller
IPO, sometime in October, wherein it would dilute around 10-15 per cent of its equity. The company will also set
up a residential complex in the northeastern city of Shillong at an investment of Rs.400 crore.

Hiranandani
The company recorded sales of almost 8,000 apartments in the Mumbai region alone, spread in all sectors of the
real estate market, but especially focused on the lower segment. The company has achieved financial closure for
three of its new projects from private equity players for acquisition of land plots.

The developer has recently acquired 135 acres in three cities for about Rs 800 crore. The land comprises of 35
acres in Chennai, 80 acres in Bangalore and 20 acres in Hyderabad.

Jaypee
Jaypee sold its residential project Aman in Noida within a day of the official launch.

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Future trends

The Indian real estate market is expected to enter the recovery phase by this year-end and macro-economic and
sector-specific factors will speed it up. "Economic recovery during 2010-11 is likely to reinvigorate the interest of
foreign investors in India's real estate market. We expect enhanced capital inflow in the real estate sector in the
medium-to-long-term.

The initial yield is expected to show compression during 2010-11 and capital values are likely to decline during
2010 before recovering in 2011. the high fiscal deficit is likely to harden interest rates in the economy, all other
macro-economic variables are expected to improve during 2010- 11 which is likely to induce real estate market
recovery after the slowdown of 2008-09.

According to the World Economic Outlook Report by the International Monetary Fund (IMF), the world economy
is likely to contract by 1.4 per cent during 2009. While advanced economies are expected to contract by 3.8 per
cent by the end of this year, emerging and developing economies are likely to grow by 1.5 per cent.

Come next decade, Indian real estate landscape is expected to be dotted with SEZs, international standard
warehouses and specialized industrial spaces. Large integrated developments can become a norm among the
working population. The Indian Property Market is fast going through a learning-curve. Rising interest rates have
impacted the credit availability to the sector, global economic conditions seem to have subdued the demand
from investors and occupier’s alike, Indian real estate stocks are down by more than 50 per cent from their year
long high and the once soaring real estate values appear to be plunging.

This, no doubt is the reality. Nonetheless, it is hoped that this is a transitory phase and the picture that would
emerge once the churn is over will be an embodiment of permanence that is bound to happen as the sector
continues to move along a high growth curve.

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 Opportunities
Developers
There is a huge untapped market for affordable housing in the range of Rs 5 to Rs 20 lakh. Developers
may reduce cost of interiors and offer residential units with basic facilities. For example, expensive
flooring and fittings can be avoided and offered as a separate component.
Meanwhile, the number of registration agreements signed has also seen a healthy improvement. In
Mumbai and Pune, registrations increased 24 per cent and 21 per cent month on month.
The release of arrears to government employees, following the Sixth Pay Commission Report, thus,
putting massive sums of money in the hands of government employees. This will boost the demand for
properties in the range of Rs 15-Rs 45 lakh in Tier I cities, and Rs 5-Rs25 lakh in Tier II and Tier III.
Govt has offered 1% subsidy on loans up to Rs 10 lakh & doled out tax sops for developers. But this will
mainly boost affordable housing projects in Tier II & III cities. Metros will be missing from the list.
Developers can tap this opportunity by launching marketing schemes meant for government employees.

Investors
Investors can avoid buying residential properties and invest in commercial properties.
India’s economy. has potential to keep growing and there will be demand for office space and retail
outlets in select pockets with good location, infrastructure and reasonable cost.
Properties that are available at bottom rock prices can be bought with an investment horizon of 3-5
years. Short term gains may be that lucrative at this point of time.

End user
End users have more opportunities to bargain and command greater flexibility from developers.
All commitments should be taken on paper and verbal commitments should be avoided.
Buy a property as per your current income range. Later on, you can upgrade to the actual one as per
your taste. Do not put too much of pressure on cash flows by buying a property above your affordability.

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 More Competitors

More Indian Corporate Houses entering in real estate market

The revival of fortunes in the real estate sector has encouraged textile companies with huge land banks to foray into
property development. Bombay Dyeing, Raymond and Century Textiles (BK Birla Group) are the major ones.

Golden Tobacco, manufacturer of the Panama and Chancellor cigarette brands, is also mulling to have its real estate arm
to utilise its land assets across the country.

Earlier, groups like Tata, Mahindra and Godrej also entered the realty space. The Tata group has Tata Housing and Tata
Realty while Mahindra’s venture is called Mahindra Lifespace Developers. Godrej’s venture goes by the name of Godrej
Properties.

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