Setting the Stage for Indian

Realty: Modis Mid-term

Performance Report
India Report / January 2017
 EXECUTIVE SUMMARY REAL ESTATE METRICS:
HOW THEY PERFORMED?

A MID-TERM REPORT

PERFORMERS
CARD OF THE NDA

HIGH
GOODS AND
GOVERNMENT:

REAL
SERVICES TAX
SMART CITIES

ESTATE INFRASTRUCTURE
AFFORDABLE
HOUSING

FOCUS MODI
GOVERNMENTS
HALF TERM LAND ACQUISITION
INVESTMENTS
(2.5 YEARS) REHABILITATION
AND RESETTLEMENT
OVERALL WHAT DID IT MEAN (LARR) BILL

64%
RATING FOR REAL ESTATE?

PERFORMERS
TOURISM/HOSPITALITY

LOW
MAKE IN INDIA REGULATIONS
AND
TRANSPARENCY

2 Setting the Stage for Indian Realty: Modis Mid-term Performance Report Setting the Stage for Indian Realty: Modis Mid-term Performance Report 3
 FROM THE ELECTION REAL ESTATE PERFORMANCE
MANIFESTO HOW DID THE VARIOUS REAL ESTATE
TRACKING THE PROMISES MADE ASSET CLASSES PERFORM IN THE PAST
NINE QUARTERS OF MODIS REGIME?

OFFICE MARKETS: HOSPITALITY:

HEALTHY RECOVERY RECOVERY
Total Net Absorption Office Stock Room occupancy at

28 23
63.4%
compared to Growing interest in the
58.4% sector by stakeholders -
earlier hoteliers, investors

GOOD
PROGRESS
MODERATE
PROGRESS
WEAK
PROGRESS
270
bps drop in vacancy
Average revenue per
room has improved

Corruption and Black

Price Stabilization Improved quality of life
Money RETAIL MARKETS: RESIDENTIAL MARKETS:
RECOVERY CONTINUED SLUGGISHNESS

24
Vacancy level dropped by

250
Employment and
Legal wrangles Poverty alleviation
Entrepreneurship
Rents rising as Partial recovery in
opposed to rents falling the job market, slow reduction
bps previously growth in salaries in residential sales
Policy Announcements and E-governance and
Effective Communication Digital India Unsold inventory grew by

Limited quality
supply leads to
lower absorption
40
Note: Performance in nine quarters post election (2Q14-3Q16) versus nine quarters prior to the election (4Q11-1Q14)

4 Setting the Stage for Indian Realty: Modis Mid-term Performance Report Setting the Stage for Indian Realty: Modis Mid-term Performance Report 5
 INTRODUCTION
On November 26, 2016 the Modi government completed half term. Like individuals, governments
across the world, can be judged on the twin parameters of intent and action. At JLL, our half term
report card for the government seeks to dig deep into that set of intent/dreams and discover how
close or far they are to being realized.

The Indian economy looks comfortable with growth for the full year FY2016-17 expected to be
7.1% as per the latest government estimates and on the inflation front too, the situation remains
fairly in check. With the recent demonetization of INR 1000 and INR 500 currency notes in
India, consumption growth may have dampened a bit, but the intent for reforms has been clearly
emphasized.

On the real estate matrix, JLL has in this paper rated the governments performance on certain key
parameters like the progress on the GST bill, the Real Estate Regulatory Bill, LARR, Affordable
Housing, Smart Cities and several others. It is a mixed bag, with some parameters achieving
higher success on the ground, while others are high only in terms of intent. We see that there is a
continued political will towards real estate reforms, but there are very real challenges. Whether they
be in the form of resistance from state governments, differences in interpretation of the law or the
sheer volume of the task undertaken, the report presents the challenges and achievements on a
scorecard with a definitive logic.

It also provides a brief summary of the real estate sectors performance during the Modi rule,
encompassing the residential, retail, commercial, hospitality and warehousing sectors.
Undoubtedly abundant progress has been made on parameters like REITs, Investor confidence
has grown, GST is set to be a reality and there are huge hopes for a more transparent,
better regulated real estate market.

We need to see the dots defining each of our parameters drawn faster, in
cohesive, full bloom patterns, for the promised dreams to be fulfilled.

6 Setting the Stage for Indian Realty: Modis Mid-term Performance Report Setting the Stage for Indian Realty: Modis Mid-term Performance Report 7
 15 3.0
GST is the single-largest taxation reform post economic liberalisation
(1991) as it will eliminate geographical barriers for businesses by mitigating
differences in indirect taxes applicable across various states. It will have very
GOODS AND strong ramifications in the economy and so we assign it the highest weightage.
SERVICES TAX

13 4.0
India was witness to two real estate cycles in the past and both were triggered

MID TE RM VERDI CT
by regulatory reforms. JLLs transparency surveys show improved transparency
driving increased participation by institutional investors in India.
With strong linkages between regulations, transparency and real estate, we

FOR R EAL ESTATE

REGULATIONS AND assign it a high weightage.
TRANSPARENCY

Key to sustainable development is both urban planning and infrastructure.

13 3.0
JLL, strongly believes its pivotal role in providing affordable housing to people,
cheaper rents to cost-conscious IT office occupiers, and in opening-up new land
parcels for future development. Good infrastructure can solve multiple issues
INFRASTRUCTURE and, therefore, it deserves a relatively heavy weightage.

Unless there is a formidable land acquisition policy in place, mutually

11 2.5
OVERALL agreeable to both buyers and landlords, India will continue to witness
COMPOSITE LAND ACQUISITION bottlenecks while executing manufacturing /infrastructure projects. Progress

3.2/5
SCORING REHABILITATION AND on LARR is important to measure the performance of the government and,
RESETTLEMTENT thus, deserves a medium-heavy weightage.
(LARR) BILL

11 2.5
Providing housing for all by 2022 is one of the biggest election gambles of the
Modi government and electorate would measure developments on this front
very closely. Given the huge ramifications it has on welfare of people; this is
an important parameter to look at.
AFFORDABLE HOUSING

10 4.0
For a capital-intensive sector such as real estate, investments are extremely
crucial. Policy initiatives on FDI liberalisation, interest rates, REITs and private
equity flows etc. have a strong bearing on the overall investment scenario.
Therefore, we assign this parameter a moderately high weightage.
INVESTMENTS

Close to 50% of Indias employed population is in the agriculture sector,

MAKE IN INDIA (MII)
9 3 .0
but contributes 17% to GDP. Manufacturing contributes nearly 30% to GDP
by employing merely 20% of its work force. The need to shift labour from
agriculture to industrial sector is clear. With its likely impact on demand for
industrial / warehousing space, a moderate weightage is assigned.

The Smart City initiative has the ability to build new urban agglomerations

9 3 .5
across various regions of India. Executed well, it has the potential to
decongest existing cities, improve quality of life, promote sustainable
development, improve digitisation of local bodies and enable new growth
SMART CITIES avenues. We assign it relatively moderate weightage.

Tourism / hospitality has been an undermined sector in India and this initiative

TOURISM/ HOSPITALITY
9 3 .5
by the Modi government was to revive the same. Like manufacturing, the
tourism industry too has the potential to hire semi-skilled labourers and
generate precious foreign exchange earnings for India. We assign it a
moderate weightage.

WEIGHTED AVERAGE
SCORE AND SCORING 100 3.2/5

Scoring scale: 1.0 Failure; 2.0 Largely unsuccessful; 3.0 Moderate success; 4.0 Fairly successful; 5.0 Successful

8 Setting the Stage for Indian Realty: Modis Mid-term Performance Report Setting the Stage for Indian Realty: Modis Mid-term Performance Report 9
 3/5

GOODS &
Reinforcing its importance for real estate in India Achievements / Results

There exists multiplicity of taxes at central and state level; also, Majority of states have ratified the Bill Clarity on tax credit for real estate transactions and allowing input

SERVICES compliances existing at multiple stages. Developers and buyers pay

service tax and state VAT (in certain states).
First GST Council meeting held on 22nd September, 2016. Service
tax assessment by Centre and State discussed. Companies with
credit is likely to bring about a reduction in home prices. Clarity to
also come on applicable GST rate for the real estate sector.

TAX (GST) Works Contract resulting in creation of immovable property remains

a debatable area (whether to classify as a service or not). Though
annual turnover of up to INR 20 lakhs exempt from GST, therefore
saving compliance costs for small scale industries.
Tax rules to be suitably designed to comply with GST Rules,
especially related to location of services (real estate work contracts).
government deemed it as service in a notification issued in 2010 and it GST Councils second meeting held on 30th September. Draft rules Consolidation of warehouses in strategic locations/cities without
is applicable currently, it has been challenged in courts in recent times. governing payments, refunds, returns, invoices, debt and credit any entry barriers should result in supply chain efficiencies resulting
GST envisages such works contract and sale of under-construction notes discussed. Few disagreements erupt over minutes of the in rationalising of goods prices. Third party logistics to evolve
property to be service and hence they are covered under GST. GST will previous meeting. and become an industry separately, thereby, attracting private
subsume all state and central indirect taxes, except the stamp duty. GST Councils final meeting held on 3rd November. A four-tier investments and will act as a good support to the manufacturing and
In the current form, there are tax credit restrictions against construction structure for GST comprising a lower rate of 5 per cent, two standard food processing industries.
materials purchased by a developer in creation or sale of immoveable rates of 12 per cent and 18 per cent, and a higher rate of 28 per cent
property. with an additional cess for luxury and demerit goods finalised. Mid-term versus One-year
GST will create a unified national marketplace allowing for free
movement of goods across state borders without issues of local Outlook for the next 2.5 years As of May 2015 (one year of Modi government), GST bill was not
levies - octroi, entry tax - along with tax during the manufacturing and allowed to be tabled in the parliament by opposition. However, as of
production stages. Currently, tax incidence is estimated to be 29.37% GST implementation timeline is 1st April, 2017, but states will mid-term of the government, there is progress on discussions between
on indigenous goods. be allowed to levy VAT and service tax till September 2017. It is political parties.
GST will enable creation of consolidated warehousing and logistic hubs- anticipated that a multi-tier tax structure will be in place initially. With
essential for supply chain & transportation efficiencies which will further operational efficiencies and learnings, additional cesses should be
reduce cost of goods. removed and a uniform tax slab should be in place.
Initial deadline appears likely to be missed, although with most
states onboard GST should be implemented soon. States will be
Initiatives announced / Progress so far
compensated for revenue loss through indirect taxes levied earlier,
for a period of 5 years.
Cabinet approval for the Constitution Amendment Bill (122nd) to GST
took place on Dec 18, 2014.
Then the Amendment Bill (122nd) was passed by the Lok Sabha on
May 6, 2015.
In May 12-14, 2015, the Amendment Bill was presented in the Rajya
Sabha. The Bill was forwarded to a joint committee of Rajya Sabha
(Upper House) and Lok Sabha (Lower House).
In Aug 2015, the Government failed to win the support of opposition
parties to pass the bill in the Rajya Sabha where it lacked a majority.
On Aug 3, 2016, Rajya Sabha again passed the Constitution
Amendment Bill by two-thirds majority.
Finally on September 8, 2016 - 18 states ratified the GST and President
gave his assent.
In September, 2016, GST Council and Secretariat was constituted.
By November, 2016 - GST Council has met three times in the past two
months.
10 Setting the Stage for Indian Realty: Modis Mid-term Performance Report Setting the Stage for Indian Realty: Modis Mid-term Performance Report 11
 4.0/5
REGULATIONS &
Reinforcing its importance for real estate in India
The residential real estate sector currently suffers from a trust deficit
TRANSPARENCY between buyers and developers. Without a regulator, malpractices of
a few unscrupulous developers creates a bad name for the industry.
An independent regulator can help bridge the gap of information
asymmetries and create equitable redressal mechanisms.
The worlds 10 most transparent commercial real estate markets
account for 75% of global direct investments. Institutional money
flowing into real estate demands greater degree of transparency. In
India, only few states have achieved digitisation of land records to some
extent while title insurance remains almost non-existent.
Approval related delays have led to many projects in real estate and
infrastructure suffering from cost escalations.
Initiatives announced / Progress so far
The Real Estate Regulatory Bill was passed by parliament in March
2016. Rules and procedures have been framed and various states
are in different stages of setting-up their respective regulatory bodies.
States have to meet the deadline of implementation within 1 year of the
bill being passed.
Securities and Exchange Board of India (SEBI) notified the REIT
guidelines on 26th Sept, 2014. Amendments were made in the budget
for FY16-17 that exempted dividend distribution tax (DDT) by special
purpose vehicles (SPVs) to business trusts. Few more clarifications/
relaxations on structure, sponsors, investment caps etc. were provided
in Sept-2016. According to market sources, Indias first REIT listing
could happen anytime within the next 6-12 months from now.
Benami Transactions Bill (to check black money flowing into real estate)
notified on 25th Aug, 2016. Steps were taken in the budget 2015-16 to
impose heavy penalties for property transactions in cash.
Anti-competitive laws are in place and consumer courts are helping
consumers.
National Land Record modernisation programme is underway to digitise
land records and is now slated to be completed by 2021.
12 Setting the Stage for Indian Realty: Modis Mid-term Performance Report
Achievements / Results
Central government has already notified rules for all the Union
Territories, paving way for setting up of real estate regulator.
Chandigarh has set up an interim regulator. Separately, Gujarat and
Uttar Pradesh have already notified the rules.
In the run up to RERA, some pro-active developers have already
started disclosing accurate project details, clear delivery timelines
and reworking their sale agreements to reflect changes related to
carpet area measurements.
REITs - After rounds of discussions with stakeholders, dividend
distribution tax (DDT) has been exempted at the hands of SPVs.
Recent relaxation of rules for REITs - investment cap in under-
construction projects raised from 10% to 20%, Special Purpose
Vehicles (SPVs) allowed to have holdings in other SPV structures.
Limit on the number of sponsors has been removed.
Competition Commission of India is very active in investigating abuse
of contracts by unscrupulous developers, giving comfort to consumers.
Amendments have been made to the Benami Transactions Act,
1988 to make it foolproof w.r.t. curbing black money flow in to real
estate and also render holding of property under fictitious names
a punishable offence. More recently on 8th of Nov-2016, the
government demonetized a few higher denomination notes (after
evidences suggested suspicious trading activity using these notes)
through a public announcement and it was implemented overnight.
JLLs Global Real Estate Transparency Index (GRETI, a bi-annual index)
- Indias tier-1 cities moved up to 36th position/rank in 2016 on the back of
improvements in structural reforms and liberalisation of FDI policy.
Several states are making noticeable progress over digitisation
of land records, thereby enabling public access to land records.
Karnataka, Chattisgarh, Madhya Pradesh, Maharashtra, Tamil Nadu,
Andhra Pradesh and Gujarat lead the way.
Indias tier-I, II cities move up in JLLs GRETI-2016 rankings
MARKET
TIER I TIER II
50 41 48 40
36 52 49 49 42 39
2008 2010 2012 2014 2016 2008 2010
Source: JLL APAC Research
Outlook for the next 2.5 years
Most states will likely meet the deadline of notifying rules for setting
up a real estate regulator soon.
Governments draft model sale agreement to set the template for
all new sale agreements for the residential sector will be suitably
amended.
Given current adherence to proper disclosures and promised
delivery timelines, corporate efficiency and accountability within the
developer community is on the rise.
Increased transparency in financial transactions will aid anti-money
laundering initiatives and prevent benami transactions that will
weed-out black money.
REITs - At least two REIT listings are likely within next 6-9 months.
Move towards single-window clearance for real estate projects likely
to become a reality soon.
Indias tier-I cities at the cusp of breaking into the transparent
markets group, as per the JLL 2016 GRETI survey. Key enablers
of this change include increased likelihood of commencement of
REITs, improved land record digitisation, reduction in transaction
fees and good corporate governance shown by developers.
Going forward, measure to better enforce contracts by overhauling
the contracts act is required. Also, urban local bodies must be
strengthened for better land planning/pooling.
Mid-term versus One-year
Most of the initiatives on the regulatory front were only on paper as
of May 2015, but RERA and REIT are likely to see fruition in the near
future. The demonetization of INR 500 and INR 1,000 denomination
notes was a huge step towards improving transparency.
MARKET MARKET
TIER III
62 55 50 50 52
2012 2014 2016 2008 2010 2012 2014 2016
Setting the Stage for Indian Realty: Modis Mid-term Performance Report 13
 Achievements / Results Outlook for the next 2.5 years

From more than 450 stalled projects pan-India as of end-2014, close Standard procedures appear likely to be in place for land acquisition

3.0/5 to 150 projects (or 33%) have been resolved as of 1Q-2016.

Stalled projects as of 1Q-2016 were at a record 30-quarters low.
Large infra companies such as Reliance Infra and Gammon India
have already made successful exits by selling their projects to
institutional investors such as Brookfield.
Indias largest bank, the State Bank of India, has entered into a joint
venture with investment firms to create a corpus to invest in lucrative
across various states which could result in land being acquired
faster and with less complexities involved.
Environment ministrys direct involvement in the PMG is a big plus
and will likely help issues get resolved faster.
The real challenge is now with respect to reinforcing market
confidence in the PPP model as interest among foreign investors in
Indias infrastructure story remains a bit cautious -- demonstration of

INFRASTRUCTURE Reinforcing its importance for real estate in India

One of the productive ways of reviving economic growth and in turn the
real estate sector, is to step-up infrastructure spending.
By connecting city centres to the peripheries, Indian metros can
become congestion-free while commercial rents and houses can be
more affordable.
Prior to elections, many large-scale and critical infrastructure projects
(including airports and industrial corridors) were stalled due to land
acquisition issues, lack of supply of raw materials, environmental
issues, frequent delays & subsequent cost escalations, and/or
lack of funding sources.
New-age infra projects connecting cities can be a
catalyst for faster development of real estate.
infra investment opportunities.
NIIF has been entering into MOUs with other sovereign wealth funds
success required.
Local government bodies will have to soon introduce financing tools
such as that of the UAE to build a large corpus. such as municipal bonds to become independent in their needs for
NIIF also creates niche funding avenues for airports and ports. funds. With SEBI releasing a draft notification on the same in July
Budget 2016-17 - InVITs exempt from dividend distribution tax at the 2015, municipal bond market has been streamlined.
hands of Special Purpose Vehicles (SPVs).
Companies such as IRB, IL&FS, MEP Infra, and Sterlite Mid-term versus One-year
Technologies have expressed interest in introducing InVITs.
While issues faced by the infrastructure sector were identified and
Given the tax exemptions and removal of other hurdles, analysts
corrective steps were thought-through as of May-2015, today we are
expect Indian InVITs to yield around 10%, which is attractive for
beginning to see results of those corrective measures to some extent.
foreign investors.
NEW-AGE INFRASTRUCTURE HAS THE POTENTIAL TO IMPROVE CONNECTIVITY
OF AFFORDABLE RESIDENTIAL LOCATIONS TO CITY-CENTERS

Initiatives announced / Progress so far

MMR* DELHI-NCR* BANGALORE CHENNAI PUNE HYDERABAD KOLKATA
Project Monitoring Group (PMG), set-up in 2013 to closely
monitor issues faced by the sector, came under direct
METRO LINE METRO LINE METRO LINE RING ROAD METRO LINE METRO LINE
supervision of the Prime Ministers Office (PMO) from (CBD EXTENSION METRO LINE PHASE I
(ALANDUR (MIYAPUR TO (JOKA
BELAPUR- (NOIDA TO (NAGASANDRA - TO (THEURPHATA- SR TO
September 2015. INFRASTRUCTURE KHARGHAR- GREATER PUTTENAHALLI) WAGHOLI-
MEENAM-BAKKAM) NAGAR) ESPLANADE)
TALOJA) NOIDA) NH50)
The environment ministry, where close to 40% of stalled PROJECT
projects find their roots, is part of the PMG.
TALOJA NOIDA HUSKUR ALANDUR WAGHOLI, MIYAPUR -
Monthly meetings between PMG and the Chief Ministers of all AND EXTENSION, AND BHAVDI, NEW TOWN
AND CHANDANAGAR ACTION
states to discuss pending / stalled projects. ADJACENT GREATER ADJACENT ARUMBAKZKAM TULAPUR, BELT
LOCATION FOR AREAS NOIDA AREAS ALANDI AREA III
AFFORDABLE HOUSING
A recent 2016 directive suggests when a private infra
developer is facing delays due to long & arduous arbitration
INR INR INR INR INR INR INR
process, the government will still have to release 75% of the
4,000-5,500 3,100-3,500 3,500-5,000 4,000-7,000 3,000-4,500 2,500-3,200 3,600-5,500
funding into an escrow account for the construction work to PRICES APPLICABLE PSFT PSFT PSFT PSFT PSFT PSFT PSFT
continue. CURRENTLY

National Investment & Infrastructure Fund (NIIF), created

with a corpus of INR 40,000 crores, to fulfill long-term funding INR INR INR INR INR INR INR
PRICES IN MORE 7,500-9,000 5,200-5,800 7,000-8,000 7,500-10,000 6,000-7,500 4,500-5,200 6,000-9,000
requirements through equity investments in other infra- ESTABLISHED
LOCATIONS IN CLOSE PSFT PSFT PSFT PSFT PSFT PSFT PSFT
financing vehicles such as Indian Rail Finance Corporation
PROXIMITY
and National Housing Board.
Infrastructure Investment Trusts (InVITs) created to enable
developers to monetize completed assets and also free- 2017 2017 2017 2017 2019 2017 2019
up banks from the burden of lending long-term finance to TARGETED
COMPLETION YEAR
infrastructure on priority basis.
Note: PSFT = per square feet on built-up (or saleable) area; *MMR=Mumbai Metropolitan Region and NCR=National Capital Region. Source: JLL Research
14 Setting the Stage for Indian Realty: Modis Mid-term Performance Report Setting the Stage for Indian Realty: Modis Mid-term Performance Report 15
 Achievements / Results REASON FOR STALLING OF IMPLEMENTATION

2011-12 2012-13 2013-14 2014-15 2015-16

Any amendments suggested in the 2015 version of the bill continues

2.5/5 to face stiff opposition in parliament.

The ruling government tried to enforce relaxed clauses through the
Raw material 14.9 24.1 23.2 18.3
supply
problem
3.7
Ordinance route thrice, although it backfired as it further aggrieved
members from other parties while also attracting resentment from Land
16.9 13.4 16.3 6.0 7.8 acquisition
media and public.
problem
Each time the bill got tabled in the last few parliamentary sessions,
Lack of non-
opposition was stiff and vociferous. 6.0 25.2 6.3 12.1 2.2
LAND Reinforcing its importance for real estate in India environmental
As of date, the government is hoping that pro-reform states would clearances

ACQUISITION,
The four broad aspects of land acquisition process come up with their own versions of the bill having relaxed to some
5.0 7.7 6.6 3.0 3.1 Lack of
A. Higher realization for farmers extent the stringent clauses in the parent bill, as discussed above. environmental
clearances

REHABILITATION
B. Adherence to stricter social impact assessment (SIA) While states like Gujarat, Rajasthan and Tamil Nadu already passed
C. Differential consent norms for public and private projects their own versions of LARR, other states such as Uttar Pradesh,
5.5 1.2 13.9 15.1 1.3
& D. A comprehensive resettlement and rehabilitation condition Madhya Pradesh and Odisha have expressed intent in making the Lack of
funds
has put enormous upside pressure on time and cost of acquiring land. land acquisition business easier.

RESETTLEMENT Some analysts assume cost escalations to the tune of ~250% assuming
500 acres to be acquired and 500 families that are affected. Outlook for the next 2.5 years
5.1 12.0 2.2 2.4 33.9 Lack of
promoter
interest

(OR LARR) BILL Given infra projects in recent past have been unviable in many cases,
increased land & compensation costs would make it more unattractive.
In real estate, a 21-month saving in time adds up to 20 percent
cost savings, which the CREDAI (largest developer lobby in India)
Unfavourable
market
3.4 4.0 9.0 7.6 15.2
If government is stepping in to purchase land from individuals, public conditions
promised would be passed on to consumers.
finance could deteriorate.
While the consent clause and the SIA could more than double the 0.5 0.2 NA 0.0 0.0
Sustainability of livelihood of affected individuals post compensation is Natural
cost of land, developers are fine with it provided the acquisition time calamity
a concern, especially where new skillsets have to be acquired to find a comes down significantly.
new job.
The Bill does not prescribe much on government involvement in Reasons not 7.2 4.9 4.5 3.7 11.6
Easier and fair land acquisition process plays a key role in real estate available
acquisition for private purposes. However, there is ample scope
growth as land is scarce and the most important raw material. for states and the centre to formulate their own policies with
regard to public-private partnership projects. Going forward, state 35.2 7.0 18.0 31.8 21.2
Others
Initiatives announced / Progress so far governments may have to take the onus of land acquisition in the
latter case. All figures represent share of total value of stalled projects in that year. Source: CMIE
Discarding blanket exemption on social impact assessment (SIA)
In the foreseeable future, some states may move to a land
and consent clauses for all govt. projects, the 2015 version of the bill
pooling concept which can act as a support to speed up industrial
(promulgated earlier by the Modi govt.) had granted SIA exemption to
development.
projects for following purposes - defence manufacturing, rural infra,
affordable housing, government-initiated industrial corridors, and Until FY2013-14, land acquisition was a major reason for projects
infrastructure (only PPP where government would own land). stalling, although this situation has improved over the last two years.

Acquisition is to be done purely on minimum required land basis, where

excess land may have to be returned to owners or a land bank. Mid-term versus One-year

Definition of private company / entity revised to include all entities As of May-2015, Modi government had passed an ordinance to
that are non-govt., including non-profit organisations and proprietary / enforce a revised LARR act, having relaxed SIA for few critical sectors.
partnership firms. However, as of today, the 2013 version of the bill is upheld and no
The 2015 version has been criticised by opposition parties as one that more ordinances have been issued.
favours only the industry. As of this day, LARR is yet to be discussed in
the lower house peacefully and, therefore, the 2013 version released by
the previous government is upheld.

16 Setting the Stage for Indian Realty: Modis Mid-term Performance Report Setting the Stage for Indian Realty: Modis Mid-term Performance Report 17
 2.5/5

AFFORDABLE Reinforcing its importance for real estate in India VALUATION MODEL FOR MUMBAI METROPOLITAN REGION (MMR)

HOUSING
The United Nations estimated (in 2014) that much of the population
increase in India between 2015 and 2030 will take place in urban areas.
The rapid pace of urbanisation owing to the ruralurban migration is
putting high amount of stress on urban infrastructure and is likely to AFFORDABILITY CHALLENGE FOR MMR: LAND AT AFFORDABLE PRICES
result in a massive shortage of urban housing. RESIDUAL VALUE CALCULATION FOR LAND ASSUMING MMR AFFORDABLE HOUSING
DISTANCE FROM CITY CENTRES
The existing shortage in housing is already prominent within the EWS SALES PRICE@ RS.3,500 PSF
Boisar (111 km)
(economically weaker sections) and LIG (lower income groups) segments, Land Area Acres 25 Total Cost of Development INR PSF
and is estimated at 18.78 million households (as per 2012 estimates).
FSI Num. 1.1 Cost of Construction 1600 Palghar
Land remains a price-sensitive commodity and its current shortage in major
(108 km)
city centric areas is not allowing development of affordable housing. FSI Area sq ft 1,197,900 Consultants 80
Shahpur (75 km)
Affordable housing is largely concentrated in peripheral areas where CA Factor % 88% Sales & Mktg 70
connectivity and infrastructure development remain a challenge. Vasind (65 km)
CA for
Land holdings of government bodies and public sector undertakings sq ft 1,054,152 Misc / Contingency 80
Development
need to be released to tide over the shortage of land in city centres. Badlapur (55 km)
Loading
% 30% Interest Cost 150
Factor Neral (76 km)
Initiatives announced / Progress so far
Bandra Kurla
SBUA sq ft 1,370,398 Deposit 100 Cmplex
Housing for All initiative aims to create 2 crore houses for urban poor Rasayani (52 km)
Infra Cost 400 Karjat (66 km)
by 2022, translating into 30 lakh houses per year. However, as per the Note: CA= Carpet Area, SBUA=Super
Khalapur (70 km)
housing ministry data, only 14,511 houses have been constructed after Built Up Area Total Cost of Development 2480 Khapoli (73 km)
one year of the scheme. Work is progressing on merely 144,321 units
Note: City Centre: BKC, Affordable Housing Locations
(less than 15% of the approved units). Source: Jones LangLaSalle

Credit subvention and subsidies offered for new homes and upgrading of
existing homes for the urban poor in some cases. RESIDUAL VALUE CALCULATION AFFORDABLE HOUSING MARKETS
AHP - Affordable housing in Partnership - part of the Rajiv Awas Yojana
INR PSF MARKET PSF INR
to incentivise private participation in creation of affordable housing stock.
Around 24,000 units sanctioned and 11,000 units completed with 70% AVG SALES PRICE 3,500 Karjat 2500 - 3000
Note: MMR=Mumbai
already inhabited. COST OF DEVELOPMENT 2480 Metropolitan Region Palghar 2000 - 3500
Budget 2016-17 allows for additional INR 50,000 income tax exemption Source: Jones Lang
DEVELOPER MARGIN 630 LaSalle
for first-time homebuyers. Boisar 2300 - 3700
LAND COST 390
100% tax exemption for developers undertaking affordable housing Khapoli 3300 - 3600
projects with unit size of 30 sqm (in metros) and 60 sqm (in other cities).
This Residual Value Method does a back of the envelope calculation for the value of Khalapur 3800 - 4200
National Housing Bank to disburse funds to banks / lending institutions at land by estimating the average sales price acheivable and deducting from that the
a lower interest rate. Loans for affordable housing will be available at 1.5- cost of development and the developer margin. Shahpur 2600 - 3300
2.0% cheaper than market rates to incentivise developers to construct
What is left over or residue should ideally be the value of land. While this gives us Neral 2500 - 3000
affordable homes.
a cost of land value in the range of INR 1.7 - 2 crores per acre, for MMR, the land Vasind 3000 - 3500
Further tax benefits offered on repayment of principal as well as interest
value could vary depending upon the location and accessibility of land parcel. Hence
payments. Badlapur 3000 - 4500
in the affordable location map for MMR we have considered areas where the land
Supply of affordable homes are largely in locations that form part of city- price is approximately INR 2 crore per acre as derived from this model. Rasayani 2750 - 3200
peripheries lacking in seamless connectivity with city-centers.
18 Setting the Stage for Indian Realty: Modis Mid-term Performance Report Setting the Stage for Indian Realty: Modis Mid-term Performance Report 19
 Achievements / Results Outlook for the next 2.5 years Mid-term versus One-year

Under Housing For All scheme - over INR 6,000 crores sanctioned The stated objective of nearly 20 million urban homes by 2022 Policy on Housing for All by 2022 was announced, although with
while INR 3,570 crores released so far. appears likely to be missed given the slow progress at present. limited clarity on delivery mechanism. As of today, however, the goals
While investor interest may go up, land availability is likely to remain set by this policy appear daunting and are likely to be missed.
Additional tax benefits for first-time homebuyers and tax breaks for
a concern.
developers undertaking affordable housing projects
State governments are likely to take the Centres advice and identify
Progress: Infrastructure status has been accorded to the affordable state undertakings with substantial unused lands and put them to
housing segment in the Union Budget for financial year 2014-15 that use for development of mass housing.
will enable borrowing at a lower cost for stakeholders. Infrastructure improvements to connect city-centres with peripheries
An increase in the limit of individual loans for affordable housing are likely to be announced. This will enable creation of newer
residential and economic centres.
from INR 25 lakhs to INR 65 lakhs (in metropolitan cities) and INR
50 lakhs (in other cities) -- this move brings the policy closer to Support to micro-finance institutions and a broad-based mortgages
market realities - a strong boost on the demand side. market reforms may also be considered.

BANGALORE AFFORDABLE HOUSING NCR AFFORDABLE HOUSING - DISTANCE FROM CITY CENTRES
DISTANCE FROM CITY CENTRES
Sidlaghata Main Road (66 km) Chintamani
Road (70 km)
Ghaziabad- Raj
Nagar Ext (31 km)

Rajankunte
(28 km)
Hesaraghatta
(32 km)

Thavarekere Ghaziabad -NH24 (26 km)

(27 km) Malur (50 km)
MG Road
Connaught Place

Chandapura (24 km)

Kaggalipura (33 km)
Ramanagara (51 km) Anekal (35 km)
Note: City Centre: M G Road, Affordable Housing Locations Source: Jones LangLaSalle

NOIDA-Greater NOIDA (40 km)

Note: City Centre: Connaught Place, Affordable Housing Locations Source: Jones LangLaSalle

20 Setting the Stage for Indian Realty: Modis Mid-term Performance Report Setting the Stage for Indian Realty: Modis Mid-term Performance Report 21
 INDIA INDUSTRY DISTRIBUTION OF ANNOUNCED GREENFIELD
INVESTMENT IN MANUFACTURING, 2014 VS. 2015

2014 2015

4.0/5
1 .1 ELECTRICAL AND
13.5
ELECTRONIC
EQUIPMENT

INVESTMENTS Reinforcing its importance for real estate in India

Given the scenario of rising NPAs within the Indian banking space and
Outlook for the next 2.5 years

1) UNCTAD WIR report: New liberalization steps enacted since the

1 .2 5 .9
reluctance to lend to sectors such as infrastructure and real estate, inauguration of the new Government have contributed to attracting
there was a need to create alternate channels of funding. FDI from all quarters.
METALS AND
The need to introduce financing tools such as REITs was critical. UNCTAD: India to remain amongst the top three destinations for METAL
PRODUCTS
Higher institutional participation was the main driver behind the real receiving FDI inflows along with USA and China during 2016-18 period.
estate sector becoming more transparent. UNCTAD: Significant rise of announced greenfield investments in
manufacturing industries may provide further impetus to FDI in 2016
Initiatives announced / Progress so far Policy rates reduced by 175 bps in the last 2.5 years making
borrowings attractive to investors and there is still some scope left
Restrictions on FDI w.r.t. minimum capital and minimum size of
development relaxed significantly towards end-2015.
for further softening.
Rupee exhibited stability in the last 1.5 years against other major
3 .8 MOTOR VEHICLES
AND OTHER
3 .5
To become more open an economy, many sectors were fully TRANSPORT
emerging market currencies, gaining faith of investors w.r.t. its stability. EQUIPMENT
liberalised including some politically sensitive sectors such as defence
manufacturing & railway infra.
Mid-term versus One-year
FDI and private equity inflows saw strong revival post 2014 elections - a
first since the financial crisis of 2008. The issue w.r.t. dividend distribution tax (on REITs) was unresolved
as of May 2015. This was considered as the final hurdle, which

4 .1 2 .4
Progress on REITs legislation was faster during last 2.5 years.
got resolved in the March 2016 budget. Also, FDI cap on minimum
Given successful efforts in bringing down the fiscal deficit, the RBI got
capitalisation, area and project exit timelines were relaxed further. OTHER
substantial room to reduce interest rates, thereby, making borrowings
MANUFACTURING
cheaper.

Achievements / Results

UNCTAD World Investment Report (WIR) 2016: India amongst top-10

0 .8 2 .1
in terms of FDI inflows in 2015; best y-o-y growth in FDI inflows over
2014.
World Bank Doing Business index: India moves up 12 places over the MACHINERY AND
past two years in 2016 to Rank 130. EQUIPMENT

AT Kearneys FDI Confidence Index: India is at rank 9 (up by 2 spots

v/s 2015).
Total FDI inflows increased by 28% annually on average over the last
two years until 1Q-2016 as against a fall of 14% in the previous 2-year
period (FY2012-13 and 2013-14).
PE inflows were at record high in 2015 (first time since GFC) and 2016
0 .0 COAL, PETROLEUM
1 .2
PRODUCTS AND
too looked good. NUCLEAR
FUEL
Note: All figures represent percentage share of manufacturing sub-sectors.
Source: UNCTAD World Investment Report 2016
22 Setting the Stage for Indian Realty: Modis Mid-term Performance Report Setting the Stage for Indian Realty: Modis Mid-term Performance Report 23
 NUMBER OF PRIVATE EQUITY PRIVATE EQUITY INVESTMENT IN INDIAN REAL RUPEE EXCHANGE RATE VOLATILITY (%) AGAINST USD
INVESTORS IN INDIA FROM 2008 TO 2016 ESTATE FROM 2006 TO 2016

2008
2006 7504 272%
2011
100
Peak Inflows

2009 34,683 2007

54% 227%
41 2008 15,342 YTD2016* 2012
2010

68 4,573 2009
opportunities --> PE activity on the rise!
Gradual recovery and attractive buying

2011
Number of PE investors active in India

2010 8,820
71
2012

11,130 2011
Difficult real estate market forces

57
many PE firms to go inactive

2013
2012 8,621
40
2014
6,644 2013
167% 379%
2015 2013
40
2015
2014 12,401
114%
78 23,253 2015 2014
2016

57 2016* 21,019

Source: JLL Capital Markets Research Source: JLL Capital Markets research Source: Investing.com (exchange rate data)
*Note: For year 2016, data upto Aug-2016 month. All figures are in INR crore *Note: YTD 2016: Data is till 25th Oct. 2016
24 Setting the Stage for Indian Realty: Modis Mid-term Performance Report Setting the Stage for Indian Realty: Modis Mid-term Performance Report 25
 3.0/5
MAKE IN INDIA Reinforcing its importance for real estate in India
While shifting excess labour force from agriculture to manufacturing,
challenges include imparting necessary skills to the unskilled labour,
relaxing stringent investment norms that would otherwise deter foreign
investments in manufacturing, make taxation a simpler process,
improve Indias Doing Business rankings, remove bottlenecks w.r.t.
land acquisition, delays in approval of projects, corruption and emission
related inefficiencies, etc.
Real estate sector could witness a tremendous boost as demand for
land, office (from new manufacturers) and warehousing will go up
significantly.
Initiatives announced / Progress so far
Within four months of coming to power, the Modi government
announced the Make in India (MII) initiative, and subsequently
promoted the idea of inviting companies to make India as their
manufacturing base.
Under the MII initiative, government has targeted industries that are
labour-intensive and requires advanced skilled manpower (for better
value addition) such as automobiles, electronic hardware, defence
manufacturing, food processing etc.
To address the labour skill crunch, government announced two plans
in July-2016 involving a total spending of $3.3 billion to train 15 million
people by 2020. Government it has started easing decades-old labour
rules and is trying to centralise the multiple bodies that lead to over-
regulation of employment.
Make in India events are being organised across leading cities in order
to facilitate one-stop shop for interested manufacturers.
26 Setting the Stage for Indian Realty: Modis Mid-term Performance Report
Achievements / Results
Increased FDI caps in many sectors, including the politically
Outlook for the next 2.5 years
Several global manufacturing giants have applied through the Make
sensitive defence and railways equipments manufacturing. in India initiative to set-up a base in India.
A proposal to merge 40 odd labour laws and create just five - four labour The UN Industrial Development Organisation, in its 2016 publication,
code laws and one for small factories as they need special treatment. recognises India to be amongst top destinations globally to attract
hi-tech and advanced manufacturing facilities.
Given pressure from the government to make approval process
transparent, Indias corruption perceptions index has improved
Mid-term versus One-year
significantly since last two years (2014 and 2015). This will likely
improve further with the governments recent demonetization move.
Make in India, announced in 2014, had started showing results with a
In the Ease of Doing Business ranking, India has improved 12 places
few global tech manufacturers signing MoUs to expand operations in
to rank 130, largely on account of improved access to electricity, better India. As of today, many more companies have expressed interest to
start-up environment, and faster construction permits. set-up a base in India, attracted by additional incentives provided.
India ranks poorly in contract enforcement and resolving
insolvencies in Doing Business survey. However, to resolve
insolvency issues and enforce contracts, the Insolvency and
Bankruptcy code and public contracts dispute resolution bill was
introduced recently.
Setting the Stage for Indian Realty: Modis Mid-term Performance Report 27
 Indias Smart City Mission-foreign participation

3.5/5 COUNTRY
NAME 1
CITY NAME JAPAN
Varanasi,
alongside Delhi-
Mumbai Industrial
2
Corridor

SMART CITIES Reinforcing its importance for real estate in India

Indias urban centres are its economic growth engines and currently
Achievements / Results

Out of 60 cities, 20 cities have formed SPVs for implementation

USA

Allahabad,
Ajmer and
face increased pressure on existing infrastructure from rising inward of smart cities. Bhubaneshwar and Pune are leading the race in Visakhapatnam

migration. implementation as execution work has started in these cities. 3

GERMANY
Poor water and electricity supply, lack of social infrastructure, primitive Countries like Japan, USA, UK, Germany, France, Sweden, Spain,
sanitation, and proliferation of slums owing to lack of affordable housing Israel, Singapore, Korea, etc. have expressed interest in developing Kochi,
Bhubaneswar
are, sadly, the most easily identifiable problems of many Indian cities. various smart cities and have signed individual city-level MOUs with and
Coimbatore
Indian cities also need a dose of better infrastructure and a healthy, the SPVs 4

37 consulting firms have been appointed for preparing action plans FRANCE
sustainable living ecosystem.
Smart cities programme aims to create multiple centres of economic for 88 cities. Nagpur,
Puducherry and
activity while also providing better quality of life to residents. Chandigarh
Outlook for the next 2.5 years
Upgrading existing cities and creating newer cities will provide 5

opportunities for real estate development across all asset classes while
also fostering private participation in nation-building.
Initiatives announced / Progress so far
Under the Smart Cities initiative, 100 cities were to be identified. A total
of 60 cities have been announced as of date.
Over 300 projects worth more than INR 100 crores each have been
announced for these 60 cities under the Smart Cities Program (SCP).
Centre has approved an outlay of INR 98,000 crore to make cities
more liveable through two schemes in the next five years: Smart
Cities Programme (SCP) and Atal Mission for Rejuvenation and Urban
Transformation (AMRUT). INR 100 crore per city per year for five
years under SCP and INR 50,000 crore total outlay under the AMRUT
scheme.
83 new projects like solid waste management under Swachh
Bharat Mission, water supply projects, sewage treatment plants and
development of open and green spaces under AMRUT launched in
SWEDEN
All 100 cities are likely to be announced over the next 6 years. More
Karnataka,
cities would be added based on strength of their proposals. Maharashtra,
All shortlisted cities will form SPVs, appoint a CEO, shortlist project Telangana and
6 U.P.
management consultants, and start the execution work.
SPAIN
Each city to earmark one locality to execute a pilot project, which will
then be replicated throughout other localities within the city. New Delhi
We expect greater international participation to provide technical
assistance and consultation to smart cities. 7
ISRAEL
We expect Smart Cities to influence convergence of several central/
state government schemes such as the SBM, National Heritage City
Mumbai
Development and Augmentation Yojana (HRIDAY), Digital India, Skill
development, Housing for All, etc. 8
SINGAPORE
All target dates in terms of announcement of schemes or shortlisting
of cities have been met diligently. However, active involvement of
Vijaywada
other participating countries (investors) is still sought.
Under the ambit of the Smart City Council (of USA), an industry 9
coalition of leading technology companies, universities & research KOREA

most of these cities. bodies, development banks and standards organisations, the
Ambassadors of 150 countries invited to Investment Summit (May mission is likely to get appropriate guidance. Thane

2016), where projects worth INR 50,560 crores were pitched 10

representing around 20 cities. Mid-term versus One-year AUSTRALIA

As of May 2015, states had already submitted proposals under Coimbatore

the smart city competition, of which proposals for 98 cities were
shortlisted. As of today, 60 cities have been shortlisted for receiving
funding across the first two phases.
28 Setting the Stage for Indian Realty: Modis Mid-term Performance Report
Source: JLL whitepaper (Dec-2015) - Smart Cities: An opportunity to transform Indian cities into
global destination.
Setting the Stage for Indian Realty: Modis Mid-term Performance Report 29
 3.5/5
TOURISM /
Reinforcing its importance for real estate in India
HOSPITALITY
Tourism policies, schemes and development projects will directly open
opportunities for real estate development (retail & commercial) in areas
such as:
Tourist spots
Airports and Railway passenger terminals
Foreign investment opportunities in hotels and new hospitality chains
(expansion and entry)
Improved connectivity to enhance real estate potential across tier-2 &
tier-3 cities
Improved liveability quotient of Indian cities attracting a lot more
occupiers across all real estate asset classes in the city, and
Impetus to green / eco-sensitive real estate development.
Initiatives announced / Progress so far
Swadesh Darshan initiative for integrated development of tourist circuits
around specific themes - development of 50 thematic tourist circuits/
destinations by March-2019
Tourist Visa on Arrival scheme extended to 150 countries.
Under Incredible India initiative, tourism ministry has been formulating
media plans for releasing centralised global media campaigns
throughout FY2016-17.
An Incredible India Tourism Investors Summit (IITIS) was held in 2016,
offering a platform for investors worldwide to explore opportunities in
Indias tourism sector.
Free wi-fi points at 100 major railway stations in partnership with
Google to improve access to travel & tourism information.
New civil aviation policy was released in 2016 to increase air
connectivity in tier 2 and tier 3 cities.
Creation of smart hubs across railway stations to improve passenger
amenities, thereby, also creating real estate opportunities.
e-initiatives extended to various tourist services under Digital India
through mobile application.
City wise ranking of Indian cities on cleanliness and other stated parameters
as part of the Swachh Bharat Abhiyan launched in October 2014.
Emphasis on providing last mile connectivity to all major heritage sites
and making them disable-friendly launched in December 2015.
30 Setting the Stage for Indian Realty: Modis Mid-term Performance Report
Achievements / Results Upgradation of all railway coaches is less likely during the next 2.5
years as the scale of conversion is huge. Similarly, project of bio-
13 thematic circuits and 13 destinations have been already toilets in all trains will also require time beyond 2.5 years.
identified for development of tourism. Twenty projects under
The new Civil Aviation policy, 2016 and a timely delivery of new
Swadesh Darshan (worth INR 1666.5 crores) and 10 projects under
airports has potential to uplift the aviation infrastructure of the tier-2
Pilgrimage circuits development (INR 249.8 crores) have been
and 3 cities. Several new regional aviation companies are in various
sanctioned.
stages of induction and will further increase the connectivity in the
Contribution of tourism to overall FDI inflow consistently on the rise - regional routes.
2014: INR 2949 crores; INR 2015: 4740 crores; 2016: INR 8761 crores.
During 2015, a total of 445,300 visas on arrival issued as compared Mid-term versus One-year
to merely 39,046 visas issued in 2014. In 2015, foreign exchange
earnings from tourism were USD 21.1 billion compared to USD 20.3 Initiatives such as development of 100 tourist circuits and Swacch
billion in 2014. Bharat Abhiyaan was introduced as of May-2015. Post that, there have
been other developments with regards to visa on arrival and foreign
86 MoUs were signed in the Incredible India Tourism Investors
investor summit on tourism. Focus on this sector has been consistent
Summit held in 2016, aggregating close to INR 15000 crores.
throughout during the last 2.5 years.
Letter of Intent for collaboration on tour operators , civil aviation
bi-laterals etc. signed with France, China, Tanzania, Cambodia,
Uzbekistan, Turkmenistan, Egypt, United Arab Emirates, Germany,
Singapore-Srilanka combined, Australia, China, Romania, Japan
and Bulgaria
Gatiman Express was launched (benefiting tourists visiting Agra
from Delhi) in April 2016 that runs faster than the existing Shatabdi
Express. Trials with Talgo rakes, part of the semi-HSR operations,
and feasibility studies for HSR routes are underway as of 2016.
Outlook for the next 2.5 years
India has potential to become a preferred tourist destination.
The sector employs 9% of total workforce (2015) and can support
a much higher number (12 per cent) by 2019. By 2018, the sector
aims to contribute 8-9% to Indias GDP if we achieve 1% share of
International tourist arrivals.
So far 52 out of 100 railway stations have been made Wi-Fi enabled
(as on Sep, 2016). There could be an expected short fall from the
target by a small number (20-25 stations).
As per industry observers, modernization of railway stations
requires minimum 3 years, the government might fall short of
meeting this target by the end of its current term and only piecemeal
development is expected given the progress so far.
Setting the Stage for Indian Realty: Modis Mid-term Performance Report 31
 PRE-ELECTION PROMISES AND PROGRESS SO FAR:

PROMISES MADE
SHORT- Price stabilisation
TERM Employment & entrepreneurship
GOOD
ELECTI ON Policy paralysis / governance deficit
Indias lost credibility: Cooperative Federalism
PROGRESS
MANI FESTO
Legal wrangles
Corruption & black money
GOALS
ANALYSI S
Legend: Good progress moderate progress weak progress

Promises Delivered

Inflation fell consistently post elections and currently lies within RBIs
comfort range of 4-6%
Initiatives like INC-29 (single form registration) for entrepreneurs to
speed-up the process of setting-up a new business
Start-up India initiative to foster entrepreneurship. Incentives include:
A. Startups incorporated from 1st April, 2016 to receive 100% tax partner in global geo-political relations. April-2016: India has been
exemption for 3 years in a block of 5 years
B. A fund of funds of INR 10,000 crores for start-ups has been and investment agreements were signed during these visits.
established by the government
C. Startups eligible for environment laws-related exemptions
D. Regulatory exemptions extended to start-ups w.r.t. self- community and Indias assistance in Yemen was sought by other
certification on labour law compliance, and
E. StartUp India Hub established to provide mentorship to new
entrepreneurs.
Performances of bureaucrats across ministries is being tracked
closely to ensure improvements in efficiency.
Legal framework put in place to tackle corruption and black money
- Benami Transactions (Prohibition) Amendment Act, 2016 is in
effect, particularly to check illicit transactions in the real estate
sector. In a recent move on 8th Nov, 2016, high denomination notes
(500 and 1000 rupee notes) were demonetized overnight, thereby,
signaling a major step towards curbing corruption and acting against
unaccounted money held by such individuals.
Policy paralysis is a thing of the past and emphasis is now on
collective decision-making between states and centre. Restructuring
of the erstwhile Planning Commission of India into the newly-formed
Niti Aayog that gives states an equal say in policymaking.
Focus on scrapping redundant laws. As of May 2016, over 1,150
obsolete laws were identified and repealed.
New Bankruptcy Code passed in Rajya Sabha in 2016 making it
easier to deal with insolvency.
Labour reforms underway with the process of converting 44 labour
laws in 4 simplified rules.
The Indian PM has visited over 40 countries with some
unprecedented firsts to his credit. The country has gained a lot of
international prominence lately and is today considered as a major
termed a bright spot in global economy by IMF. Also, multiple trade
Indias evacuation of its citizens from Yemen - one of the largest
rescue operations by any country - was lauded by the global
countries.
Action Points for the Future
India is already the third largest start-up hub in the world. It will
become home to over 10,500 start-ups by 2020, employing over
2,10,000 people. Major improvements foreseen in the near-to-medium
term: single-window approval process across civic authorities, labour
reforms and entry to the global Nuclear Suppliers Group (NSG).
April-2016:
India has been termed a bright spot in
global economy by IMF.
POST ONE
YEAR-TERM
MODERATE
PROGRESS

32 Setting the Stage for Indian Realty: Modis Mid-term Performance Report Setting the Stage for Indian Realty: Modis Mid-term Performance Report 33
PRE-ELECTION PROMISES AND PROGRESS SO FAR: PRE-ELECTION PROMISES AND PROGRESS SO FAR:

PROMISES MADE PROMISES MADE

MEDIUM- LONG-
TERM States working in collaboration TERM e-Governance and Digital India
GOALS Involvement of people in governance
MODERATE GOALS Youth initiatives & national skill development
MODERATE
PROGRESS PROGRESS
Harnessing innovation across government functions Poverty alleviation
Effective communication with electorates Modernisation of security forces & judiciary system
Improved quality of living for people
Legend: Good progress moderate progress weak progress Legend: Good progress moderate progress weak progress

Promises Delivered Action Points for the Future Promises Delivered

Several online public forums have been formed where opinions on
policy matters are sought. mygov.in is a crowdsourcing platform
where citizens can access data related to government schemes,
provide public insights on various governance issues and even raise
grievances. It has nearly 4 million registered members.
Modi is active on social media trying to engage directly with
electorates - his twitter handle has 23 million followers (in the top
50 worldwide), his facebook profile has 37 million followers (second
only to Barack Obama). All ministers of the central government
Big Data and social media analytics can be used to create actionable High focus on empowering youth through industrial skill training,
insights based on public feedback and opinions. investing in sports and other youth initiatives. Skill India campaign,
launched in July-2015, aims to train over 40 crore (cr) people in
India by 2022.
Direct benefits to poor through targeted subsidies. JAM Trinity - Jan
Dhan Bank Accounts for all, Aadhar unique identity card, and mobile
All ministers of the central governance to help in directly transferring subsidies to the intended
government have active twitter beneficiaries. 25.05 cr bank accounts were opened as of Oct 2016.
handles and are encouraged to Social security: MNREGA (Mahatma Gandhi National Rural
Modernisation of the armed forces and judicial reforms actively
under consideration
For improving the quality of living of people, initiatives such as smart
cities, digital India, green technology etc. need to work in tandem.
Such long-term measures need to be evaluated suitably over a
longer time frame. Also, launched mass public initiatives such as
International Yoga Day, Swacch Bharat Abhiyaan etc.
Action Points for the Future

have active twitter handles and are encouraged to respond to online
tweets/requests. 3) Integrating technology, big data and social
media platforms to highlight achievements, drive future programmes
and receive citizen feedback. Innovative social media campaigns
such as Beti Padhao Beti Bachao (girl child education) attracted
huge response from people. 4) Introduced Mann Ki Baat, a radio
programme hosted by the Prime Minister once every month. It
encourages participation of the people to suggest subjects to be
covered via the Narendra Modi App and mygov.in.
respond to online tweets/requests. Employment Guarantee Act) allocation has been hiked to INR
Ensuring tangible increase in employment numbers and equitable
38,500 cr for 2016-17 fiscal year (increase of INR 3,800 cr).
distribution of resources.
Multiple pension schemes at low rates - Atal Pension Yojana: Govt
POST ONE India has been consistently ranking low on the World Economic
YEAR-TERM back pension scheme for the unorganized sector, Pradhan Mantri
Forums Networked Readiness Index (latest report is of 2016)
LOW TO Suraksha Bima Yojana: accident insurance scheme (offering death
MODERATE Broadband fibre network reach still missing in many villages and rural
disability cover) and Pradhan Mantri Jeevan Jyoti Bima Yojana: life
PROGRESS areas.
insurance for the needy.
Reducing wasteful subsidy: Give it Up initiative: a request to
relatively higher income groups to give up subsidies on LPG cooking
fuel. Over 1 cr people have given up their subsidised LPG cylinders
as of April-2016.
Launched the Digital India initiative in 2015 enabling access to
government departments and services through online channel. Skill India campaign,
Introduction of DigiLockers for online storage of physical documents launched in July-2015, aims to train
through an account linked to Aadhar.
over 40 crore (cr) people in India
Promoting domestic electronics manufacturing through incentives
for MSME (Micro, Small and Medium Enterprises) and preferential by 2022.
treatment during government procurement.
Launched PRAGATI in 2015: a multi-modal platform aimed at POST ONE
YEAR-TERM
addressing common mans grievances while simultaneously
LIMITED
monitoring and reviewing important programmes and projects of the PROGRESS
centre or state governments.

34 Setting the Stage for Indian Realty: Modis Mid-term Performance Report Setting the Stage for Indian Realty: Modis Mid-term Performance Report 35
 PERFORMANCE OF OFFICE MARKET:

Amongst major economies globally, India has been the fastest

MAJOR REAL ESTATE growing (above 7.0% y-o-y) since last few quarters, attracting
many occupiers to enter or expand operations in India.

SECTORS PAN-INDIA New sectors such as e-commerce & start-ups are emerging
fast. With policymakers high emphasis on Make in India, Smart Demand from IT/ITES,
E-commerce, start-ups
(that had insignificant
occupancy earlier) accounted
Cities, GST tax reforms etc., sector share in office occupancy is BFSI & back-offices led to a for 5-6% of total absorption.
likely to witness a turnaround in the medium-term. 270 bps drop in vacancy as Two office markets amongst
against rise in vacancy the top-7 acheive their
Demand is rising and more companies (including domestic firms) in the first period previous rental peak
are likely to demand quality speculative space as opposed to (of 3Q07).
owned spaces. Productivity expectations from commercial space
is on the rise.
Rising FDI confidence and possibility of REITs to become a
reality soon has led to increased participation by private equity, Total net absorption
giving developers the much-needed funds as well as exits from grew 28% while office
stock was higher by 23%
completed projects.
With demand coming from diverse industries, vulnerability
towards global shocks such as the BREXIT or interest rate hikes
by US Fed will be limited, although they do pose as an external risk.

36 Setting the Stage for Indian Realty: Modis Mid-term Performance Report Setting the Stage for Indian Realty: Modis Mid-term Performance Report 37
RESIDENTIAL MARKET:

Only partial recovery in the job market, slow growth in salaries, sluggishness in residential market, and minimal reduction in home loan rates
(despite fall in policy rates) are likely reasons for the ongoing sluggishness.

Delays from approval authorities, continued difficulty in new land acquisition persists.

Recent initiatives to bring transparency and accountability - well-structured RERA clauses, strong support from consumer courts, Housing for
All - is likely to improve consumers confidence on the sector, consequently translating into improved sales over the medium-term.

Innovative schemes and

Subtle capital value efforts by developers to bridge
24% reduction in residential Unsold inventory grew appreciation; investor-heavy affordability gap - 80:20
sales from period one to by 40% during the said markets remain sluggish, financing, compact sized
period two period. while real demand- apartments, discounts
driven markets / freebies - finds
RETAIL MARKET:
outshine. good takers.
Note: Comparison between market performance in period two (2Q14-3Q16: the Modi PRIMARY REASONS FOR RECOVERY AND A BROAD
government period) over period one (4Q11-1Q14: 2.5 years prior to Modi becoming the OUTLOOK FOR RETAIL
Prime Minister)

With FDI norms relaxed for retailers, many international as well as Given the faster rise in rents and dearth of quality space, PE firms
online retailers started operation for the first time, creating demand line up to buy quality mall space in pursuit of high rental yielding assets.
for premium space or experience centers in malls.
Model retail policy makes provision for 24X7 retail and aims at
International retailers demand premium space, which quality malls
dedicated retail zones, relaxed norms on back-end investments etc.
could offer. Therefore, vacancy in quality malls dropped fast during
have boosted confidence of retailers in the India story
period two. Therefore, rents witnessed faster rise.

Net absorption was lower

by almost 50% in period two From rents stagnating in
when compared with period period one, the latter period
one - limited supply one of the saw rents appreciating
principal reasons.

New mall completions happened Retail market undergoes transition

at a slow pace in period two as various levels - mall managers
Dearth of quality retail space
compared to previous period. avoiding strata-sales, tenant mix
was felt in period two as
Importantly, however, developers is given due importance, more
vacancy levels were down 250
were realizing the importance of space dedicated for experiential
bps compared to period one
supplying quality malls shopping etc.

Note: Comparison between market performance in period two (2Q14-3Q16: the Modi government period) over period one (4Q11-1Q14: 2.5 years prior to Modi becoming the Prime Minister)
38 Setting the Stage for Indian Realty: Modis Mid-term Performance Report Setting the Stage for Indian Realty: Modis Mid-term Performance Report 39
HOTEL MARKET:

PRIMARY REASONS FOR RECOVERY AND A BROAD OUTLOOK FOR HOTELS MARKET

Given a prolonged slowdown in the sector in period one, several listed hotel chains focused on shedding debts by selling non-core assets
rather than focusing on expansion.
However, with increased focus on tourism by the government, the sector is likely to witness high interest in India from investors and
international hotel chains.
Given higher engagement with foreign delegates, and visa on arrival been granted to 150 nations, the number of international tourists coming
to India is likely to rise.
This has excited the institutional investment community to look at the sector closely.

Last two CII Real

Estate Conclaves
Demand indicators
Average revenue (2015 and 2016) held Supply of hotels came
witnessed a positive
per room has improved in Mumbai saw increased at low intervals - growth in
change in period two with
in period two as against a participation from major number of rooms was merely
room occupancy rising to
stagnancy witnessed in it hoteliers; interest in this 14% in period two over level
63.4%, compared to
in period one sector by stakeholders, seen in period one
58.4% as in period one
particularly investors,
is on the rise

Note: Comparison between market performance in period two (2Q14-3Q16: the Modi government period) over period one (4Q11-1Q14: 2.5 years prior to Modi becoming the Prime Minister)

INDUSTRIAL & WAREHOUSING MARKET:

PRIMARY REASONS AND A BROAD OUTLOOK FOR THE INDUSTRIAL & WAREHOUSING MARKET

M
ake in India, Goods & Services Tax reforms, Land Acquisition bill, and developments w.r.t. infrastructure are critical elements for growth of
manufacturing.
Manufacturers need more clarity on future prospects and, therefore, new capital investments are slow currently.
Having said that, gradual progress witnessed in implementing above-mentioned initiatives. As a result, Indias Doing Business rank has
improved significantly during period two. Progress on GST and land reforms need to be a bit faster for the sector to witness healthy growth.
Indias warehousing space is gradually moving up the value chain from merely facilitating space for storage to now acting as a critical
distribution partner. More organised developers (at times backed by PE investors) were seen entering to construct new warehouses.

Warehousing
As per UN Industrial
supply, however, Pharma, FMCG,
Development After rising consistently
grew by 21% in period Auto components and
Organisation report 2016, for a brief period post
one over level recorded Engineering have been
share of employment in the 2014 elections, Indias
in period one. Vacancy in driving warehouse demand.
manufacturing sector in India industrial production
warehouses was down New sectors such as
has remained somewhat remained weak since last
by 400 bps to 16% in e-commerce is adding to
stagnant post the 2008 9-10 months.
period two compared this demand.
financial crisis
to period one.

Note: Comparison between market performance in period two (2Q14-3Q16: the Modi government period) over period one (4Q11-1Q14: 2.5 years prior to Modi becoming the Prime Minister)
40 Setting the Stage for Indian Realty: Modis Mid-term Performance Report Setting the Stage for Indian Realty: Modis Mid-term Performance Report 41
 SOURCES
CONCLUSION
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Measuring the success or failure of a governments performance, especially with reference to a particular sector, needs a close look at the http://www3.weforum.org/docs/WEF_Emerging_
Horizons_in_Real_Estate_2015.pdf
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AUTHORS
Suvishesh Valsan
Assistant Vice President
Research
+91 9920879808
suvishesh.valsan@ap.jll.com
With contributions from
Vivek Sahasrabudhe Ketan Bhingarde
Assistant Manager, Research Senior Executive, Research
vivek.sahasrabudhe@ap.jll.com ketan.bhingarde@ap.jll.com
Acknowledgement for their assistance: Sparsh Sharma (Assistant Manager) and Neel Lalka (Senior Executive)
42 Setting the Stage for Indian Realty: Modis Mid-term Performance Report
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article8419242.ece
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Aritra Das Sushma Vemuri
Analyst, Research Analyst, Research
aritra.das@ap.jll.com sushma.vemuri@ap.jll.com
Setting the Stage for Indian Realty: Modis Mid-term Performance Report 43
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Rohan Sharma
Associate Director
Research
+91 9910484222
rohan.sharma@ap.jll.com
Sumedh Gadgil
Analyst, Research
sumedh.gadgil@ap.jll.com
About JLL
JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased
value by owning, occupying and investing in real estate. JLL is a Fortune 500 company with, as of December 31, 2015, revenue of $6.0 billion
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