Beruflich Dokumente
Kultur Dokumente
The construction sector is the second largest employer in India after agriculture.
Currently, the construction industry in India, directly or indirectly, employs
approximately 32.0 million workers and also accounts for 40.0% of gross investment
and 60.0% of infrastructure costs. The construction sector accounts for a gross
annual business volume of Rs.2,300 billion and accounts for 5.0% of India‟s GDP
(India‟s total GDP is approximately $1 trillion).
Investment in the construction sector may be broadly classified into the following
categories:
• Infrastructure construction investments (i.e. roads, urban infrastructure, power,
irrigation and railways)
• Industrial construction investments (i.e. steel plants, textiles plants, oil pipelines
and refineries)
• Real estate construction investments (i.e. residential and commercial construction)
In order to boost the participation of the private sector in road development, the
Government has planned the following initiatives:
• The Government will carry out all preparatory work, including land acquisition and
utility removal. Right of way will be made available to contractor, free from all
encumbrances.
• National Highway Authority of India (NHAI)/the Government will provide a capital
grant of up to 40% of the project cost to enhance viability on a case-by-case basis
evaluation.
• The contractor will receive a 100% tax exemption for five years and 30% relief for
the following five years, which may be utilized in 20 years.
• Permitted concession period of up to 30 years.
• Duty free importation of specified modern high capacity equipment for highway
construction.
(Source: Public Partnerships in India, Ministry of Finance, Government of India)
Build-Operate-Transfer (“BOT”)
Under this type of Public Private Partnership (PPP) contract, the Government grants
to a contractor a concession to finance, build, operate and maintain a facility for the
concession period. During the concession period, the operator collects user fees and
applies these to cover the costs of construction, debt-servicing and operations. At
the end of the concession period, the facility is transferred back to the public
authority. BOT is the most commonly used approach in relation to new highway
projects in India, and is also used in the energy and port sectors. BOT projects can
be annuity-based or toll-based, as defined below:
• BOT toll-based projects: In order to reduce the dependence on its own funds
and to promote private sector involvement in developing projects, the NHAI has
awarded some highway projects on a toll basis. In this case, the concessionaire is
responsible for constructing and maintaining the project as well as being allowed to
collect revenues through tolls during the concession period. After the expiry of the
concession period, the project is transferred back to the NHAI.
Build-Own-Operate-Transfer (“BOOT”)
BOOT contracts are similar to BOT contracts, except that in this case the contractor
owns the underlying asset, instead of only owning a concession to operate the asset.
For example, in the case of hydroelectric power projects, the contractor would own
the asset during the underlying concession period and the asset would be transferred
to the Government at the end of that period pursuant to the terms of the concession
agreement.
Design-Build-Finance-Operate (“DBFO”)
The NHAI is planning to award new highway project contracts under the DBFO
scheme, wherein the detailed design work is done by the concessionaire. The NHAI
would restrict itself to setting out the exact requirements in terms of quality and
other structures of the road, and the design of the roads will be at the discretion of
the concessionaire. The NHAI expects that the DBFO scheme will improve the design
efficiency, reduce the cost of construction and reduce time to commence operations,
in addition to giving the concessionaire greater flexibility in terms of determining the
finer details of the project in the most efficient manner.
ROAD INFRASTRUCTURE
Roads investments to double over the next five years
Investment in the roads sector is expected to grow at a Compounded Annual Growth
Rate (CAGR) of 15% over the next five years, with an estimated increase from
Rs.1,167 billion in the past five years (fiscal years 2002-2006) to about Rs.2,306
billion in the next five years (fiscal years 2007-2011).
India continues to need significant investment in the road sector as the population
and economy continues to grow. The Indian road network consists of:
According to the NHAI, roads form the most common type of transportation in India
and accounted for approximately 80.0% of passenger traffic and 65.0% of freight
traffic. National highways accounts for nearly 40.0% of the total road traffic in India.
The following table sets forth information relating to the status of National Highways:
The number of vehicles grew at an average pace of 10.10% per annum over the
period from FY 2000 to FY 2004. Passenger traffic on roads as a percentage of total
passenger traffic has also witnessed a huge increase from 30% in 1951 to 86% in
2008. (Source: CRISIL Research, Road Network in India, June 30, 2009).
The focus of the road modernization program in India is the Golden Quadrilateral
(GQ) project. The flagship program to develop and upgrade Indian national highways
is the National Highways Development Program (“NHDP”). Besides NHDP, the road
sector in India is expected to see a greater level of development activity through
road programmes such as Pradhan Mantri Grameen Sadak Yojana (“PMGSY”), and
Special Accelerated Road Development Programme – North East (“SARDP-NE”) as
well as road projects at the state level.
The scope of the NHDP project is illustrated by the multi-phase approach set forth
below:
• Phase I of NHDP, Golden Quadrilateral Project (GQ) involves four-laning of
approximately 5,846 km of national highways between Delhi, Mumbai, Chennai and
Kolkata. Phase I is almost complete.
• Phase II North-South and East-West corridors (NSEW) involves upgrading of the
existing two-lane highways and the four-laning of approximately 7,274 km of
national highways connecting four extreme points of the country. Phase II is
expected to be completed by 2009/2010.
• Phase III involves the development of roads, connecting state capitals and places
of economic and tourist importance to Phase I and Phase II. Phase III involves two
development sections – Phase IIIA and Phase IIIB. While approval has been received
for the widening and the strengthening of 4,015km in Phase IIIA, only in-principle
approval has been granted for the development of 6,000 km in Phase IIIB.
• Phase IV involves the two-laning of a single lane network of approximately 20,000
km. Phase IV has only received an in-principle approval and has been planned
completely on a BOT-annuity basis.
• Phase V involves the six-laning of 6,500 km of high-density four-laned roads.
Phase V has only received in-principle approval.
• Phase VI involves the construction of expressways covering approximately 1,000
km of national highways. Phase VI has only received an in-principle approval.
• Phase VII involves the development of ring roads, by-passes, over-bridges,
flyovers, etc. Phase VII is still in a conceptual stage.
Source: CRISIL, Roads and Highways Annual Review, September 2006.
The table below sets forth the status of the NHDP as at June 30, 2009:
The targets for completion of the various components of the NHDP are as follows:
(Source: Plan Document, 11th Five Year Plan; CRISIL Research, NHDP Review & Outlook, Feb 23, 2009)
THE REAL ESTATE SECTOR IN INDIA
The Indian real estate sector involves the development of commercial offices,
industrial facilities, hotels, restaurants, cinemas, residential housing, retail outlets
and the purchase and sale of land and land development rights.
Historically, the real estate sector in India has been unorganized and characterized
by various factors that impeded organized dealing, such as the absence of a
centralized title registry providing title guarantees, a lack of uniformity in local laws
and their application, non-availability of bank financing, high interest rates and
transfer taxes and the lack of transparency in transaction values. In recent years,
however, the real estate sector in India has exhibited a trend towards greater
organization and transparency, accompanied by various regulatory reforms. These
reforms include:
• GoI support for the repeal of the Urban Land Ceiling Act, with nine state
governments having already repealed the Act;
• Modifications in the Rent Control Act to provide greater protection to homeowners
wishing to rent out their properties;
• Rationalization of property taxes in a number of states; and
• Computerization of land records.
Real estate investments are expected to grow from Rs.10,218 billion invested
between 2002-2006 to Rs.18,517 billion over 2007-2011.
The table below shows historic and projected annual growth rates for different
segments of India‟s population, classified by levels of annual income. The figures
highlight that strong growth is expected especially in the higher income segments.
For example, the number of households with annual incomes of between Rs. 2
million and Rs. 5 million per year, Rs. 5 million and Rs. 10 million per year and in
excess of Rs. 10 million per year is expected to increase in size by 23%, 26% and
28%, respectively, between financial year 2002 and 2010, as illustrated by the table.
These higher income segments of India‟s growing middle class are expected to
provide a strong impetus for the continued development and growth of the Indian
real estate sector.
Increasing Urbanization:
India has witnessed a trend of increased urbanization as people migrate from rural to
urban areas seeking employment opportunities. According to CRIS INFAC estimates,
India‟s urban population is expected to grow at a CAGR of 2.6% over the five year
period from financial year 2005 through 2010, as illustrated in the table below.
Urban areas must accommodate this increase in population which, in turn, is
expected to increase in demand for new urban areas and townships (CRIS INFAC
Annual Review on Housing Industry, January 2006).
Commercial locations in India: Over the past five years, locations such as
Bangalore, Gurgaon, Hyderabad, Chennai, Kolkata and Pune have established
themselves as emerging business destinations that are competing with traditional
business destinations such as Mumbai and Delhi, especially with respect to their
commercial real estate sector. These emerging destinations have succeeded in
matching their human resources base with necessary skill sets, competitive business
environments, operating cost advantages and improved urban infrastructure. The
current relative position of the urban growth centers in India can be summarized
either as (i) mature, (ii) in transition, (iii) emerging, or (iv) tier III destinations.
These classifications are described below:
Tier III Cities: Locations such as Jaipur, Coimbatore, Ahmedabad, and Lucknow
have a large talent pool combined with low cost real estate. As such, businesses in
the technology sector have demonstrated a growing interest in these locations as
they seek to expand their operations.
Historically, the Indian retail sector has been dominated by small independent local
retailers such as traditional neighborhood grocery stores. However, during the
1990s, organized retail outlets gained increased acceptance due to changing
demographic factors such as an increase in the number of women working, changes
in the perception of branded products, the entry of international retailers into the
market and the growing number of retail malls. The size of the organized retail
segment is expected to grow by 25% to 30% per year, reaching approximately Rs.
1,095 billion of sales in 2010. Although operators in the organized retail segment
have concentrated on larger cities, retailers also have announced expansion plans
into towns and rural areas. Major Indian business groups such as Reliance, Bennett &
Coleman, Hindustan Lever, Hero Group and Bharti as well as international retailers
such as Metro, Shoprite, Lifestyle and Dairy Farm International Wal-Mart, Carrefour
and Tesco have already commenced or are considering commencing operations in
India. There are 219 operational shopping malls in the six largest cities of India,
spread over 66 million square feet of land at an average size of 0.3 million square
feet per mall (CRIS INFAC Annual Review on Retailing Industry – September 2005).
A significant number of specialized malls, such as automobile, jewellery, furniture
and electronic malls also are being developed.
Entertainment:
India‟s entertainment industry is currently estimated at approximately Rs. 234 billion
with cinema accounting for a significant amount (28%) of the industry (The Indian
Entertainment and Media Industry (FICCI – PwC Report (2006)). While the
entertainment industry is expected to grow approximately 21% annually and reach
approximately Rs. 617 billion by 2010, the Indian cinema industry is expected to
reach approximately Rs. 153 billion in 2010, contributing approximately 25% to
India‟s entertainment industry. The key economic advantages of multiplex cinemas
over single-screen cinemas include better occupancy ratios and the ability for cinema
operators to choose to show movies in a larger or a smaller theatre based on
expected audience size. Multiplex cinema operators are therefore able to maintain
higher capacity utilization compared to single-screen cinemas and can provide a
greater number of film showings. As each movie has a different screening duration, a
multiplex cinema operator has the flexibility to decide on the screening schedule so
as to maximize the number of shows in the multiplexes, thus generating a greater
number of patrons. Multiplexes also allow for better exploitation of the revenue
potential of the movie. The key drivers of growth responsible for the expected
increase in the number of multiplex cinemas include an increase in disposable
income across an expanding Indian middle class, favorable demographic changes,
strong growth in organized retail and the availability of entertainment tax benefits
for multiplex cinema developers.
Foreign direct investment in real estate: In 2005, the government modified the
foreign direct investment (FDI) rules applicable to the real estate sector by
permitting 100% FDI with respect to certain real estate projects such as townships,
housing, built-up infrastructure and construction development projects, subject to a
number of guidelines. The new FDI rules mainly relate to the minimum area required
to be developed by such a project, minimum amounts to be invested and time limits
within which such a project must be completed.
Housing regulations: The Indian Government enacted the Urban Land (Ceiling and
Regulation) Act (“ULCRA”) in 1976 to prevent speculation and profiteering in land
and to ensure equitable distribution of land in urban areas in order to serve the
common good. Pursuant to ULCRA, urban cities were classified into A, B and C
categories. The act imposed a ceiling on the amount of vacant land that any
individual can possess in a particular urban area, based on the classification of the
city in question. In „A‟ class cities, such as Delhi and Mumbai, this amounts to no
more than 500 square meters. The excess land identified was acquired by the
government after compensating the owners thereof and used to provide housing to
various sections of the public. However, it is widely acknowledged that ULCRA has
failed to achieve its objective and has resulted in inflated prices and exacerbated
housing shortages. The Government therefore suggested the repeal of ULCA by way
of the Urban Land (Ceiling and Regulation) Repeal Act 1999 (“Repeal Act”), which
has so far been adopted by the state governments of Haryana, Punjab, Uttar
Pradesh, Gujarat, Karnataka, Madhya Pradesh, Rajasthan and Orissa, but has not
been repealed in a number of states, including Maharastra where Mumbai is located.
Increasing Raw Material Prices: Construction activities are often funded by the
client who makes cash advances at different stages of construction. In other words,
the final amount of revenue from a project is pre-determined and the realization of
this revenue is scattered across the period of construction. A big challenge that real
estate developers face is dealing with adverse movements in costs. The real estate
sector is dependent on a number of components such as cement, steel, bricks, wood,
sand, gravel and paints. As the revenues from sale of units are pre-decided, adverse
price changes in any of the raw materials directly affect the bottom lines of the
developers.
Interest Rates: One of the main drivers of the growth in demand for housing units
is the availability of finance at cheap rates. Rising interest rates may dampen the
growth rate of demand for housing units.
Tax incentives: Interest payment on housing loans are tax deductible and it is one
of the major factors influencing demand. The phasing out available tax incentives
could affect the existent demand for housing units.