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Traversing through the epic, predicting the curve
Message from the Chairman
The economic reform measures such as Demonetization,
RERA and GST have introduced fundamental changes in the
rules of the game for the real estate sector. On the other hand,
boosting real estate investments is necessary to accelerate
the GDP growth and to achieve the development goal of
Housing for All. The issue, therefore, is what we as real estate
developers can and must do to treat a turning point in the history of the nation into a
beneficial opportunity.
The present report, co-authored with JLL addresses itself to precisely this task.
The report uncovers new formats of development, technological advancements,
organizational innovations and financial structuring which can all be effectively used to
enhance the efficiency and competitiveness of our businesses to the next level.
It is apt that the report is being unveiled at CONCLAVE 2018 devoted to the theme of
‘Embracing Change’ I am confident that CREDAI members and other stakeholders
would derive an enhanced vision of the imperatives for sustained and long term growth
of their businesses.
Getamber Anand
Chairman, CREDAI
Message from the President
“CREDAI has been a votary of economic reforms especially
those that strengthen the institutional structure in favour of
competition, transparency and fair play. We have extended
support for RERA and GST. CREDAI’s primary commitment,
however, is towards the real estate industry in terms of
preparing ourselves for the new ecosystem so that our
businesses continue to thrive and provide avenue for higher
investment, employment and growth.
The present report jointly authored with JLL is being released at the Conclave 2018
with the objective of understanding the new opportunities in the real estate sector
in the light of special requirements of the new economy. Structural transformation
of our organizations focusing on maximizing the satisfaction of all Government and
customers as intrinsic stakeholders is a necessary prerequisite to exploitation of the
new opportunities. The report also deliberates on the employment of technology as an
enabler for sustainable growth in an environment of continuous change.
The report and the Conclave 2018 are part of our constant pursuit of information and
knowledge as critical elements in differentiating members of CREDAI from the rest of
the real estate pack. I urge and invite all to use the report for wider dissemination and
thought provocation within their organizations.
Jaxay Shah
President, CREDAI
Preface Joining the future dots -
JLL’s picture of a new real
estate world
The Winds of Change are blowing through 314 mn sq ft of REIT-able stock readily
an exciting time in India Realty. Be it in available. Emerging alternative asset
the implementation of policy reforms, classes will provide developers, service
bringing in globally accepted and locally providers and operators newer prospects
implemented best practices, technology to create solutions specific to India, while • Data will become more and more secular. All stakeholders will need to be
enablers, newer formats and opportunities leveraging best of breed learnings from ‘Original’ to make a mark.
or the influx of foreign capital. The across the world. However, the most • A single nodal agency to grant all government approvals will emerge.
consumer is also viewing real estate in pivotal role will be played by Proptech • Technology will become the biggest enabler for the ‘experience’ of real estate.
a whole new light, which is a welcome - which is right at the convergence of • RERA will become the key body for conflict resolution.
change from the hitherto past outlook for property and technology, and given India’s
• Institutional Investors of property assets will forge a long-term ownership-
the sector. entrepreneurship ecosystem, has already
relationship with assets; each one embossing its own impression of built
Change is a result of innovation, made it bid. Blended with the IOT, AI,
environment and aesthetics on it
adaptability and improvement, ultimately Automation and Blockchain, it will certainly
render a mind-shifting transformation. • New large corporates will enter real estate
driving progress. A number of factors are
slowly but surely shaping the future of this Evolution is inevitable and we need to • A new ethical standard for brokers will emerge and only those passing the
industry. This paper attempts to forecast accept that the old manner of doing standard will be allowed RERA registration. We may see home-makers as
some of those key trends, which will be business will need to adapt to a newer brokers in the new professional markets!
large change makers in order to transform hierarchy of process and operations. Under
the future of real estate. such a scenario, change management,
A clear game-changer, RERA has played reputation and visionary acumen as
a key role in inducting best practice into displayed by the CREDAI leadership in
the sector, evolving higher transparency paving the path for such a game changing
and trust, along with compliances; and conference will be a milestone, that is
more importantly creating a platform when history stands up to be counted.
for grievance resolution. Coupled with Certainly, it is time for the inflection and
GST, this has improved the regulatory this report is an appropriate intervention in
environment, in turn rationalizing prices chronicling the trends which will pave the
and ensuring a setting in which only the path for the new way.
compliant players will thrive. With an I hope you find this an interesting read!
enormous push from the government,
Affordable Housing will be a key driving
force for residential markets in visible
future. Pure equity investment structures
are likely to come back to residential
markets, leading to a positive prediction Best regards,
that PE investments in real estate may Ramesh Nair
CEO & Country Head
touch the USD 100 bn mark over the next JLL India
10 years. Time is also ripe for REITs to ramesh.nair@ap.jll.com
become our reality, with an estimated
RERA:
The Key Architect of
Consolidation
The enactment of The Real Estate Regulatory Act in 2016 was one of
India’s biggest and most awaited regulatory reforms with a far reaching ‘RERA is a big game changer as it is
giving confidence to the home buyer to
impact on the real estate sector.
take the plunge and begin transactions
The Act came into effect on May 1, 2016 (69 of 92 sections notified) again. Slowly developers have started
with the remaining provisions coming into force on May 1, 2017. The becoming RERA compliant and we will Where are we now? What’s in store for each • Larger developers may explore
distressed opportunities in stalled/
see that as this process gains speed, the
Government had set July 31, 2017 as the deadline for all states to put the
trust deficit will be rectified’
of the stakeholders? unfinished projects and tie-up
infrastructure in place for the implementation of the Rules listed under Bouquets Developers with smaller developers to enter
the Act. However, the ground reality today could not be more different. Getamber Anand • Some states such as Maharashtra unexplored residential market
Chairman, CREDAI • Given that pre-launch of projects is now
Many states missed the implementation deadline and are still lagging have taken the lead in RERA offerings at attractive valuations
prohibited, developers need to self-fund
behind in setting up processes and support infrastructure. implementation with over 15,000 • Extensive disclosures under RERA
land cost and ensure all approvals are in
projects registered. will help attract more private equity
place before initiating sales process
• Most actively selling projects have investments in the asset class
• Investments in land and seeking
registered with the state RERA bodies • Smaller developers with poor
approvals for construction prior to RERA
and are following RERA guidelines in corporate governance practices and
registration will strengthen buyers’
Key Highlights of RERA: project advertising.
confidence in projects. inefficient financial management are
• Disputes between the buyer and the builder should be settled within 120 days. • Green shoots of recovery visible unlikely to survive in the long run
• Corporate developers and those with
• 70% of the money collected from buyers should be put in a separate account to meet project cost requirements and with RERA registered projects being
optimal financial prudence will have the Buyers
should be accessed upon achievement of project milestones and certified by accountants and engineers. preferred by buyers/end-users.
advantage of increased participation • RERA will provide an effective
• Penalties on developers for delays in promised construction timelines and penal provisions for continuous default. from investors and will also benefit from grievance redressal and conflict
• All sales on carpet area basis with clear definition of carpet area included within the Act. Brickbats improved sales resolution mechanism outside of the
• Barring Mumbai and Pune, data from • Project registrations under RERA will myriad and long-drawn civil court
• Structural defect liability period of 5 years from handover of project.
other states and cities is not readily help bridge the trust deficit between the procedures.
• Along with developers and project registrations, brokers also need to be registered with specific projects to
available in the public domain. Many buyers and developers • Higher project-level disclosures will
undertake project marketing and sales activities. Website to host detailed information related to profile and track
states are yet to establish processes • RERA data will set the benchmark for allow home buyers to make informed
record of promoters, details of litigations, project prospectus, details of apartments, plots and garages, registered
and put support infrastructure in developing future offerings in accordance decisions
agents and consultants, development plan, financial details of the promoters, status of approvals and projects etc.
place. with customer needs • Buyers will have the flexibility to
• Slow state-level implementation has • Developers with a strong financial exit delayed projects with nearly no
led to developers looking for guidance backing will be likely to offer projects only financial loss
from informal channels. after completion or after undertaking • The 5-year structural defect liability
• Lack of uniformity as the format of a substantial portion of construction in clause will ensure a better quality of
disclosures differs across states. order to reduce liability under the act. civil construction as well as proactive
• Project level information is difficult developer support
to comprehend with incomplete/ • Penalty provisions to compensate for
incorrect entries, reflecting lack of data delays will help create an equitable
‘Shrinkage of market
verification prior to it getting uploaded relationship between the buyer and
size and consolidation is
on the RERA website. the developer
expected.
• RERA registered projects are likely
Rohit Raj Modi, to see price appreciation in future
Vice President, CREDAI
and drive price growth in the
market; however, market timing
will be essential.
6 Traversing through the epic, predicting the curve
Private Equity Investors/Lenders RERA: Agency for equitable justice; not unilateral
• Transparency and disclosures under RERA will facilitate efficient due diligence punishment
Infrastructure status can
and reduce non-performing loans given to investors who are unlikely to choose the In recent MahaRERA rulings, the regulator has taken a more inclusive
reduce the gap between
right developer to partner. and conflict-resolution driven approach. Instead of simply penalizing the
mortgage rates and
• Higher partner and sector confidence will allow for return of equity participation developer, it has sought to bring the parties together to ensure that the
construction funding rates
project is delivered within a structured timeframe.
• Financial lenders will rework their financial agreements in accordance with RERA to
adequately cover their financial exposure and debt repayments. We expect the RERA bodies of other states also to adopt such an JLL View
approach. This will ensure that concerns of both parties are resolved in an
• RERA and revised Bankruptcy and Insolvency Code will allow for financial lenders to
equitable manner and projects are delivered on time.
achieve timely and efficient financial closure even for stalled projects.
The real estate project Tanvi Eminence was stalled right since
Points to Ponder
there was news of differences between the four promoters
• Approval/state/local authorities responsible for back in 2013. The MahaRERA Chairperson Gautam Chatterjee,
project sanctions are not covered under RERA. How directed promoters to complete the project by engaging
would a delay in later stages be accounted for in in discussions with both the promoters and the welfare
the overall project delay and who would be held association members (formed by aggrieved buyers). Based
accountable? on the agreement of both the parties an order was passed
• Construction funding rates are higher than mortgage whereby developers are required to give possession of the flats
rates; putting pressure on developers. Infrastructure on or before 31st December, 2019. In case of delay, the builder
status to the sector can help lower the gap and aid will be liable to pay interest on the investment made by the
debt-laden developers. home buyers.
• Projects that have been completed or have received their completion certificate
recently do not need RERA approval and hence developers are unlikely to register
such projects. How do buyers of such projects get protection under the structural
liability clause and other RERA provisions?
Crystal ball-gazing: RERA setting the future course
Current RERA provisions have
• More Joint Development agreements with revenue share rather than area share
completely overlooked the accountability
of Government offices as approvals are • More Development Management models creating an asset-light model for larger
not yet under RERA developers
• Increased land transactions with distressed asset owners selling parcels to larger
Jaxay Shah developers
President, CREDAI
• RERA and NCLT (National Company Law Tribunal) working together to resolve
issues of insolvent or stalled projects
• Timely delivery of projects
• Consolidation in the developer industry; non-serious players to be shunted out
• Smaller developers in Tier 2 and 3 cities could tap into institutional funding, if they
follow higher disclosure norms and efficient financial management
8 Traversing through the epic, predicting the curve
GST: As far as the cost of land is concerned, most Impact on pricing for residential markets:
Impact on
developers are of the opinion that taking
• The availability of Input Tax Credit (ITC) should ideally reduce the input
one-third of the total contract value as the
costs for developers and they should be able to pass these benefits in the
land value for deduction is not justified
Residential Markets across all locations. This is supported by the
fact that the cost of land could be as high as •
form of reduced prices.
However, grey areas in certain parameters are acting as impediments to
and Warehousing 50–60% of the total cost incurred in Tier I cities. actual value creation by GST.
India’s biggest tax reform post-independence, namely, the Goods
and Services Tax (GST) was implemented on July 1, 2017. The
new tax system seeks to transform the Indian economy with its Lack of clarity on
‘One Nation, One Market, One Tax’ principle by incorporating how much gst is
a host of indirect taxes charged at tiered rates by the Centre applicable and how
and the States. The primary objective of GST is to simplify and much of it is in turn
bring uniformity in the complex tax structure on the supply of available to the
goods and services. Real estate investors are expected to reap developer
benefits from GST, with an overall reduction in residential
pricing in the future, given developers are expected pass on
Taxability of club house charges,
the benefit of Input Tax Credit (ITC). Calculation of ITC for under
electricity and water deposits,
construction projects where
Under the GST regime, all under-construction properties will be preferential location charges,
purchase of raw materials
car park charges and eligibility
charged at 12% (excluding stamp duty and registration charges). has been undertaken prior to
of one-third land deduction
applicability of GST.
It will not apply to completed and ready-to-move-in projects, as abatement on such charges.
there are no indirect taxes applicable in the sale of such properties.
The GST applicable for various projects can be understood thus:
Taxability of land value
Manner in which
where the same exceeds
labour and raw
one-third of the total sale
Applicability of materials are
price and the developer Adopting
GST in case of being contracted
has contracted separate different tax
joint development can lead to
agreements for the supply computation
agreements (JDAs) difference in GST
of land and construction methods for
due to differences applicable.
portion. different projects/
in valuation of land
phases of the
owner’s share of
same project.
Nature of Tax rate Total Taxable value Tax under GST Remarks constructed area.
transaction under GST agreement (INR) (INR)
value (INR)
While the Central Government has clarified some of these
Sale of a flat under a 18% 100 including 66.67 12 (18%*66.67) Deduction of one-third of
aspects through specific press releases and FAQs, the effective
single agreement land value the contract price
towards land dissemination of this information to the industry has been Impact on pricing: The general consensus is that
piecemeal and slow. This has led to lack of clarity among the reduction in prices on account of GST will not
Sale of an NA 100 Nil Nil Non-taxable supply developers as they are currently unsure of exactly how much be more than 3 to 4% in the near future. Prices will
undeveloped plot under GST Input Tax Credit is available for their projects and what continue to remain dependent on demand and
should, in turn, be the reduction in price for residential units. supply dynamics within micro-markets.
Sale of a flat with No tax on land value 40 – towards Nil Nil While this should be the For most projects, the estimated benefit of Input Tax Credit
separate agreements land intention of the law, a strict (ITC) available under GST, may not exceed 3% of the overall
Construction portion 60 10.80
for land and 60 – towards reading should consider the construction cost
taxable at 18%
construction portion construction (18%*60) entire value (100) to arrive
at the taxable value of 66.67
as mentioned in 1 above ‘The Goods and Service Tax (GST) Council in its 25th meeting, held on 18 January 2018, recommended rationalization of GST rates on
various goods and services. The list included affordable and low-cost housing. The recommendations were accepted and included in the
Sale of a flat post the NA 100 Nil Nil Non-taxable supply official gazette on 25 January 2018. Now GST would be charged at 8% on the total value of under-construction properties, which would
receipt of OC or first under GST
be 4 percentage points less than the earlier effective rate of 12%. This will give a big boost to affordable housing and we see this sector
occupancy
dominate residential sales in the near future.
Traversing through the epic, predicting the curve 11
How the Anti-Profiteering Bill is relevant to Real Estate
A key feature of GST has been the be offset? Currently, amongst other
Government’s concerted efforts to convey costs, cost of approvals (which can be
that it is not a tool that will allow service substantial) is outside the purview of
and good providers to profit at the expense GST and in turn ITC.
of the consumers. Anti-profiteering is • Developers need to exactly calculate
thus an essential element and to this the per unit benefit arising on account
end, the GST National Anti-Profiteering of the implementation of GST. This
Authority (NAA) has been established by the is based on multiple factors such
Government. as the percentage of construction
completed, location of project, timing
The real estate sector which, so far, has of the purchase of raw materials,
been at the receiving end of negative change in the valuation method for
perceptions related to developer profits is computing taxable value, negotiations
also aligning itself to the spirit and ethos of on price reduction from suppliers and
GST. However, some practical issues remain amount of transition credit.
and need to be addressed: • How exactly should profits be
• How will a developer pass on the allocated towards Input Tax Credit
benefits of Input Tax Credits if other received? The methodology of doing
escalating costs are not allowed to this seems to be unclear.
IMPACT ON WAREHOUSING
Top 8 Cities - Grade A and Grade B Warehouse Stock Projections
15% CAGR (2014-16) 21% CAGR (2017-19) 20% CAGR (2020-21) • Increase in supply of warehousing stock: Emerging locations
2017-19 will see substantial growth due to diminishing state While the top eight cities are witnessing tremendous growth; GST
Pre - GST Implementation Post - GST Implementation
boundaries implementation ensures that in future the location for a project
297.0 • Hub and spoke model: would be determined irrespective of state. As a result, Tier 2 cities
300.0
Warehouse Space (Mn sqft)
250.0
246.5 This model is emerging with the proximity of raw materials are coming into focus. JLL has identified select cites (other than
204.0 and consumer markets as main consideration. the top eight) and evaluated their potential to become the next
200.0 170.3 180.2
153.9 • Efficient and larger warehouses: growth centre of logistics.
150.0 139.8
113.0 131.4
98.0 112.3 Large size, good quality, Grade A warehouses coming up.
100.0 85.7 96.6
70.9 80.2 • Consolidation:
50.0 63.3 92.5 116.7
57.9 72.7 Companies to re-structure their warehousing portfolio to
22.4 27.1 32.8 43.3
0.0 bring in larger and ‘supply-chain’ efficient warehouses. Tier 2 cities are making their mark as next-generation
2014 2015 2016 2017 2018* 2019** 2020** 2021*
warehousing destinations supported by important
Grade A Grade B 2017 - GST is Implemented • More organized logistics players:
factors such as:
More organized players are expected to enter the sector.
• Clients planning their warehousing distribution
Source: Industrial Services, JLL India Note: The future projections of stock for Grade A and B space is computed taking into • Larger investments:
consideration future supply of projects and market conditions in each city. The projections are cumulative total stock. close to the manufacturing facilities
Warehousing developers are investing in larger logistic
parks and buying land at strategic locations. Private equity • Supply chain & distribution networks increasingly
interest has also risen substantially in this asset class due its implying hub & spoke model
income-yielding ability and growing demand for this asset • Growing consumer & sourcing demand
class from various industries such e-commerce, FMCG, auto • Ease in connectivity to major urban clusters as
components, etc. well as an enabling business environment
• Reduced cost to customers:
N Srinivas, MD
Reduction in cascading taxes may lead to lower cost of Industrial Services, JLL India
production and distribution, which can be eventually
passed on to consumers.
12 Traversing through the epic, predicting the curve Traversing through the epic, predicting the curve 13
Relaxation of FDI:
Opening newer
LUDHIANA & AMBALA
8 PRIMARY CITIES investment avenues
AND 30 MAJOR
CHANDIGARH
DEHRADUN
NCR DELHI EMERGING CITIES With the objective of rendering greater transparency to the
real estate sector and enabling it to meet its massive capital
JAIPUR requirements, the Government has been introducing investor-
LUCKNOW &KANPUR SILIGURI friendly and streamlined policies from time-to-time.
JODHPUR
GUWAHATI
GWALIOR As policy push drives real estate markets
PATNA India’s real estate market is growing at a rapid pace and is to become more and more transparent
expected to reach a market size of USD 180 bn by 2020 from and organized, we believe the sector will
AHMEDABAD BHOPAL KOLKATA
USD 126 bn in 2015. The housing sector alone contributes 5–6 become increasingly attractive for FDI
INDORE RANCHI
percent to the country’s GDP, and from 2008 to 2020, the market
SURAT Hardeep Dayal
size of this sector is expected to increase 11.2 percent. Regulatory COO Capital Markets, JLL India
RAIPUR
NASIK NAGPUR reforms, steady demand generated due to rapid urbanization,
BHUBANESWAR
AURANGABAD rising household income and the emergence of nuclear families
MUMBAI
are some of its key drivers.
HYDERABAD
PUNE VISAKHAPATNAM
VIJAYAWADA
BELGAUM
GOA
TIRUPATI
BENGALURU CHENNAI
8 PRIMARY CITIES 30 MAJOR EMERGING CITIE
S
MANGALORE
COIMBATORE
KOCHI
TIRUCHIRAPPALLI
MADURAI
TUTICORIN Source: JLL Industrial Research. Map not to scale.
Road Ahead with GST
• As grey areas start being cleared in residential markets, benefits of uniform taxation will be visible and
should finally lead to rationalization in residential prices. However, deductions permissible for land will
play a key role in determining prices in the major cities.
• Warehousing will witness growing Grade A stock, private and institutional backed development and a
seamless market with more distributed networks resulting in an efficient supply chain.
14 Traversing through the epic, predicting the curve
Policy Change is Driving Fund Flow • Private equity and debt investments in real
Post relaxation in FDI norms for single-brand estate increased by 12% year-on-year across
retail investments by foreign companies at 79 transactions in 2017
the beginning of 2018, some of the notable
investments which were recorded in the retail • Investments in retail projects in Tier 1 & 2 cities
sector are as follows: reached USD 6.19 bn from 2006-17
• Swedish watch brand Daniel Wellington has
opened its maiden store in Mumbai • Investment inflows in the residential sector
• Chinese electronics major Xiaomi is planning since 2014 have been INR 59,000 cr;
to open company-owned stores in India approximately 47% of the total invested money
in real estate over the same period
• British tech firm Dyson is likely to invest
approx. INR 1,300 crore into its Indian
operations over the next five years • Private equity inflows in office & IT / ITeS
segment for 2014-2017 YTD are 150% higher
• Swedish furniture retailer IKEA is expected to
than the previous seven years’ inflows
invest INR 3,000 crore in Maharashtra
combined.
• The Government has further raised FDI limits
for townships projects to 100%, while real
• In the hospitality sector, strategic investors are
estate projects within the Special Economic
interested in acquiring operational hotels.
Zone (SEZ) are also permitted 100% FDI. With
these policies and relaxations in place, it is
Policy Initiatives to Ease Foreign likely that the real estate sector will witness Source: JLL Research
Direct Investment (FDI) inflow increased FDI investments in both short term
After a prolonged period of slowdown in and long term.
• 2005: Up to 100% FDI under automatic the retail sector over the last few years, we
route in townships, housing and saw a strong comeback with developers and
construction development projects was investors increasingly betting on the sector
allowed. This reform opened up newer
Pankaj Renjhen According to industry experts, regulatory Foreign companies looking for geographic
ways of funding and led to maturing of
MD Retail, JLL India
the industry in terms of business practices reforms like RERA, GST, Benami Transactions expansion, foreign private equity players and
and product offerings. FDI inflows to the Bill and Demonetisation have already paved institutional investors from different disciplines
sector grew by over 150% y-o-y on an the way for a consolidated, transparent and are likely to consider Indian real estate sector as a
average from 2005 till FY2009-10 investor-friendly real estate sector. With further potentially attractive investment opportunity
• 2014-15: The Government eased FDI relaxation in FDI norms, the following impacts
norms for the construction sector in 2014 are likely to follow:
PE investment in RE (USD million)
followed by further relaxations in 2015,
when minimum area requirements were 8000
removed and minimum lock-in periods 7000
6000 Further Relaxation of FDI
were freed.
5000
• January, 2018: The Government allowed
4000
Impact of 100%
100% FDI under automatic route (without 3000
Relaxation of FDI FDI in real
any government approval) in single 2000 Higher interest among FDI estate
brand retail trading and construction 1000 investors is likely to result in
development segment (which 0 standardization of the quality
includes townships, housing, built-up 2010 2011 2012 1213 2014 2015 2016 Till 3 Q of projects
2017 Likely increase in competitiveness
infrastructure).
PE Investment in RE (USD million) leading to better efficiency and
innovations in the sector
A few years back, foreign investors were shying away from the Indian real estate sector due to uncertainty in yields and tenure of lock-
in for investments coupled with a lack of transparency. In recent years, increased transparency through regulatory reforms and
adaption of modern designs and technology for improved project execution and timely delivery, has led to investor confidence
seeping back into Indian real estate.
16 Traversing through the epic, predicting the curve Traversing through the epic, predicting the curve 17
Key Investment trends that are likely to dominate the future of the
real estate asset classes are enumerated as follows:
• The office segment is likely to • Affordable housing is now a major
remain active in terms of attracting theme among investors. With ample
investments. Limited core asset policy support, numerous projects are
portfolios and reducing yields are being launched in this sector and FDI
likely to result in higher investments will find its way here.
for brown-field / build to core • The hospitality industry is showing
developments. signs of revival and with large hotel
• Retail investors are increasingly operator-investor partnerships already
focusing on emerging retail underway, we expect that private
destinations (Tier 2 & 3) over metros equity players will look to this sector
due to better growth prospects. These for strategic investments.
(Tier 2 & 3) cities have witnessed a • Warehousing and logistics
much higher investment (USD 6,192 destinations in the country will also
mn) compared to Tier 1 metro cities be attractive to foreign investors as
(USD 1,296 mn) from 2006-2017. We post GST the sector is getting more
expect new investment opportunities organized.
to continue in Tier 2 and 3 cities.
• There exists a vast untapped potential
• Due to lack of high-quality retail mall in India for alternative asset classes,
assets across cities, investors have such as senior living and student
adopted a multi-fold approach and housing projects. We believe that
have started investing in a portfolio of these newer assets are going to
assets through green-field and brown- be explored much more actively
field projects. by investors as they look towards
• According to industry estimates, expanding their footprint beyond
India’s retail market is expected to conventional real estate asset classes.
grow at 60% to reach US$ 1.1 trillion
Joining the Future Dots by 2020, fueled by factors like rising
incomes and lifestyle changes by the
Increased transparency and accessibility in the Indian middle class and increased digital
real estate segment is a growing pace of FDI flows into connectivity. 100% FDI through direct route will open up
the sector. Developers, in order to attract funding, have • The slowdown in the residential sector India as a global retail market. It will also
revamped their accounting and management systems over the last few years has resulted make way for some of the international trade
Private equity investments in
to meet due diligence standards and thereby the realty in a liquidity crunch. However, with practices to enter into Indian real estate
real estate are estimated to
market is expected to witness an upward rise in the stringent regulations and increased Amit Modi
grow to USD 100 bn by 2026
number of investments in 2018. A growing number transparency, pure equity investment Vice President, CREDAI-Western UP
with Tier 1 & 2 cities being the
of foreign brands entering the market is also likely to structures are likely to come back.
prime beneficiaries.
result in consolidation wherein small-scale local players
may receive the required support for growth. 100% FDI
relaxation is expected to improve ease of doing business
with higher FDI inflows resulting in growth of investment
across established and emerging real estate asset classes,
employment and income.
18 Traversing through the epic, predicting the curve Traversing through the epic, predicting the curve 19How the Architects of Change will impact the real estate life cycle
Land Acquisition Construction Sales
Will land acquisition continue to be meaningful? Faster speed of Construction will be seen Sales will pick up pace
RERA prohibits pre-launches in Residential markets and • Faster construction technologies like MIVAN and prefab • As RERA rebuilds the trust -deficit between buyers and
quick monetization of land is a dream designs will move from ‘Desirable’ to ‘Essential’ category developers, sales will pick up pace
• Speed of approvals will be the game changer for • RERA will ensure faster construction as penalties for delays • Affordable housing and mid segment housing
returns on land. Where approvals are quick land buying are huge transactions will continue to dominate
may continue • Timely completions will see the return of equity investments • Technology will aid sales as well as post sales service.
• Grey areas in GST on JDA agreements may see revenue into residential market
sharing models emerge as more popular
• Government owned land parcels will slowly come into
the market
Note: The above figure illustrates how the ‘Architects of Change’ will impact the residential real estate cycle at each stage, from
Decisions on lending will be quicker procurement of land to construction and finally sales.
as online project disclosures will aid
Consolidation in the Real Estate markets will be the key theme. Those developers who follow corporate governance
bank’s risk assessment process
stringently will find it easy to survive in the ‘New World.’ Those willing to ‘Embrace The Change’will reap the benefits of a more
Professional, Transparent, Ethical order.
20 Traversing through the epic, predicting the curveAffordable housing:
Policy initiatives to bear fruit
Affordable housing projects launched by private developers have significantly contributed
to the decline in urban housing shortage in the last five years. Although, the urban housing
shortage remains substantial (12 mn homes), it is clear that active participation from
private developers could help in tackling the issue.
Category of beneficiaries based on annual household income
Category of Beneficiary Annual Household Income
Economically Weaker Section (EWS) Up to INR 3,00,000
Low Income Group (LIG) INR 3,00,001 to INR 6,00,000
Middle Income Group (MIG I) INR 6,00,001 to INR 12,00,000
The 30 sq m limit will only be • In the 2018-19 Annual Budget,
Middle Income Group (MIG II) INR 12,00,001 to INR 18,00,000 applicable within the corporation the Government announced
limits of the four major metros “Affordable Housing and Healthcare are that it would create a dedicated
(Delhi, Mumbai, Bengaluru and going to be the biggest change drivers for real ‘Affordable Housing Fund’ in
Category of Beneficiaries and allotment of maximum carpet area Chennai). For fringe areas of these estate in the future. collaboration with the National
metros and all other cities, it will The challenge for Affordable Housing Housing Bank (NHB), taking another
Category of Beneficiary Maximum Carpet Area be 60 sq m carpet area. This will currently is to get a bidding system for the step towards realizing its ambition of
effectively serve to increase the PPP model which will not be questionable.” achieving ‘Housing for All’ by 2022.
EWS Up to 30 sq. m. number of projects falling under • As per Ministry of Housing and Urban
this segment. The Government has Getamber Anand
Affairs, 468 acres of government land
LIG Up to 60 sq. m. Chairman, CREDAI
been consistent in its efforts towards of merged printing presses across
addressing the need for affordable locations including Rashtrapati
MIG I Up to 120 sq. m. ( revised on 27.11.2017)
housing through the following Bhavan, Minto Road and Mayapuri in
of the broader objective of ‘Housing for
MIG II Up to 150 sq. m.( revised on 27.11.2017) initiatives : New Delhi, Nashik and Temple Street
All’, the Finance Bill 2016 introduced
• According infrastructure status to this Section 80-IBA which provided for a in Kolkata will be redeveloped for
Source: Ministry of Housing & Urban Affairs segment in the previous budget 100% deduction in respect of the profits construction of affordable housing
• Increasing the quantum of beneficiaries and gains derived from developing and other government buildings.
in Credit Linked Subsidy Scheme (CLSS) and building specific housing projects
Some mechanism for bank under Pradhan Mantri Awas Yojana subject to conditions specified.
funding of land has to be put in (PMAY)
place for affordable housing to
• Expanding the carpet area and re-
really take off
defining income definitions
Jaxay Shah • Providing incentives to the affordable “Lot has been done by the government for the
President, CREDAI housing segment, including sector, but we will need to wait a bit longer to see
categorizing this segment as a priority the fruitful results of these changes as developers
sector for the purpose of bank lending, are currently in a handicapped position with many
providing huge interest subventions stressed assets.’’
and direct cash subsidies. Rohit Raj Modi
With a view to incentivizing the Vice President, CREDAI
affordable housing sector and as a part
22 Traversing through the epic, predicting the curve Traversing through the epic, predicting the curve 23Construction technology The reasons for the shortage in • A massivee migration of rural
Use of economic and sustainable affordable housing on the supply population to urban areas: This will
technologies for better housing in rural side are: continue to be a challenge in the near
and urban areas is an urgent requirement • Lack of availability of urban land: future.
considering spiraling construction costs. Likely to be addressed through • The lack of access to home finance for
This usage of technology for efficient increased supply of government land low-income groups continues to be
and affordable housing should be done parcels the critical demand side constraint.
through: • Rising construction costs and small Policy interventions will be key in
• Developers adopting cost-effective regulatory issues: Construction aiding easier access to home finance
construction techniques – they have technology to aid faster construction for this income group.
immense potential in driving down at lower costs in the future
huge chunks of building budgets to
make it more reasonable
Major recent investments in affordable housing
• Government subsidizing the green
• Mumbai-based BSE-listed Arihant Superstructure Ltd plans to invest INR 4,000 cr
materials used for development
in the next seven years to develop affordable housing in Mumbai and Jodhpur.
of housing so as to encourage
sustainability • Piramal Finance Ltd, a unit of Piramal Enterprises Ltd, plans to focus on
investments in affordable and mid-income housing projects across major cities
• If houses are built without reference
with an initial investment pipeline of INR 3,000 cr.
to last mile connectivity issues,
affordable housing development • International Finance Corporation, the investment arm of World Bank, has
will take place only in the fringes. agreed to invest approximately INR 485 cr in L&T Housing Finance Ltd, a
Inhabitants of affordable homes need subsidiary of L&T Finance Holdings Ltd. This will be used to finance developers of
easier access to work through proper affordable housing.
infrastructure. This continues to be a • Mahindra Lifespace has partnered with HDFC Capital Advisors to jointly invest
challenge for the success of affordable INR 500 cr over the next three years to develop affordable housing projects.
housing in India and needs to be • Prestige Estates Projects and HDFC Capital Advisors to jointly invest INR 2,500 cr
addressed in the future. in low and mid-income housing projects.
The Road Ahead
Lower risk weights on loans for affordable housing, tax exemptions for developers burdened with completed unsold inventory,
amendment of section 80-IBA for relaxing the condition of period of completion of a project, funding incentives and central assistance
for affordable housing projects have all led to the belief that in future too, policy support will be ample for Affordable Housing to garner
greater success.
24 Traversing through the epic, predicting the curveKey Drivers for REIT listings:
• Global fund manager, Blackstone • New investments chasing brownfield/
is the biggest owner of commercial build to core strategy through platform
real estate in the country and is a level tie-ups between established
frontrunner in helping make REITs a commercial office developers and
reality in India. global PE players.
• Private equity inflows in the • Yields in Indian property markets
commercial office space for 2014-2017 are still in the 8-9% range for quality
are 150% higher than the previous assets; which is very attractive
seven years’ inflows combined. compared to other Asian markets and
• 314 mn sq ft of speculative Grade gives good margins for REIT listings.
A office stock is held under single • Sectors such as retail, hospitality and
ownership/lease only model; this is hospitals are also gaining momentum
more than 62% of total Grade A office creating room for a diversified REIT
stock across the top seven cities. portfolio.
Key Issues Current status (2015 till date)
• 80% in income generating assets
Investment criteria • 20% in under-construction property
• Allowed to invest in unlisted shares
• Hospitality, hospitals also allowed to be considered under REITs
• Two-tier structure with concept of Holdco (Holding Company) introduced in 2016
REITs – Investment Vehicles •
•
Crossholdings of REIT in HoldCo and SPV in HoldCo to the extent of 50% each;
but in line with safeguards under the existing regulations
Single asset REITs allowed
A Step towards • Equity rules remain same
Enhancing Liquidity Public Market Listing •
•
Qualified Institutional Placement (QIP) allowed to enable meeting the minimum
public float norms of 25%
Allowed to issue debt securities too
REITs are the next logical step of evolution picking up marquee, income-yielding • Foreign Exchange Management Act (FEMA) rules relaxed to allow for FII/QIP
Restrictions on foreign investors
for real estate assets as they provide access assets in commercial markets, propelled participation
to public markets and an exit to private the need for greater transparency and
a broad-based public market through • Concept of ‘Sponsor Group’ removing the limit on number of sponsors
equity investors. The popularly perceived Rules for Sponsor and REIT Manager
‘illiquid’ real estate sector will soon witness exchange-traded units. Moreover, as
enhanced liquidity once this instrument is institutional investor presence increased in
launched in India. the country’s real estate sector, it became Related Party Transactions • Rationalisation of shareholder consent for related party transactions
imperative for the Government and the
Increasing participation by foreign
securities regulator to create an enabling Rules for Sponsor and REIT Manager
investors who had been quite active in • Full pass-through status for income, dividend distribution
environment for REITs to materialise. Taxation Matters
26 Traversing through the epic, predicting the curve Traversing through the epic, predicting the curve 27Where are we now? Points to Ponder: Look out for:
Technology:
• Larger private equity players have
built up a sizeable portfolio of assets,
• Stamp duty rates are not consistent
and still quite high in many states.
• The first REIT likely to be launched by
the Embassy-Blackstone partnership
The architect for enabling
acquired over the past 5-6 years at
attractive valuations.
They take away from value creation for
REITs.
• Falling bond yields that could make
REITs more attractive
policy changes
• No REIT listings yet. • Allow for the ‘Sponsor Group’ • Office REITs may pave the way for Across the globe, technology is rapidly
• Many private equity-developer definition to be relaxed suitably Retail asset REITs in the second phase changing the way we live and do business.
platforms are firming up plans, but to allow banks, airlines and even
• Higher private equity investment Over the next few years, it is likely to Recently, the BMC became the first civic body in the
early days yet. corporates to undertake REIT listings.
interest in alternative assets such as permeate into almost every function within country to make the development plan reservations
Safeguards can be made in the
• Commercial office REITs are likely to senior living, student housing. Create the corporate sector. In its ongoing efforts,
investment manager definition. available on its mobile app. They have made use of
come first. a long-term strategy to strengthen the Government has recently announced Geographic Information System(GIS) a system used for
• Current 30% tax for domestic investors development portfolios in those asset an allocation of INR 3,073 crore in the 2018-
What’s in store? capturing, managing and presenting geographic data
likely to impact their participation classes. 19 budget for the Department of Science
• Typically, conventional asset classes • Current budgetary announcement and Technology to focus on emerging
form the first movers of REIT markets on Long Term Capital Gains Tax will areas like Big Data Analytics, Artificial
• Globally, the US and Singapore further reduce Intelligence (AI), Internet of Things (IoT) and
markets have their biggest REITs in the real returns for Blockchain.
commercial and retail asset classes. investors The Government is actively promoting the
• Expect Prime Grade office portfolios in • India’s 10-year use of existing and emerging technology in
India to look at REITs now that most bond yields are city management and governance. It was a Digitization, predictive analysis and like infrastructure, water resources,
of the taxation concerns have been at 7.6%; making crucial criterion in the Smart Cities initiative automation: housing, economy, labour and
addressed. them seemingly with even states undertaking local reforms • With RERA in place, technology is employment, finance, etc., in easy to
• Success of the first REIT is likely to set as attractive as and utilizing information technology to already being actively used in the consume formats. Such initiatives, in
the tone for others potential REIT improve administrative efficiency. dissemination of residential data in turn, provide valuable insights when
yields in India the public domain. In future, more combined with other industry-specific
• Expect higher participation from The real estate sector is no exception to this
data is expected to be digitized and data points.
institutional players – banks, pension technology revolution and some notable
funds, etc., both Indian and Global technology-driven innovative solutions are made available. • Some states are already working
already being developed that are acting • Government portals such as towards developing a database of
• Smaller portfolios to be acquired
as agents of change for business practices, data.gov.in are organizing and land transactions that are recorded
by larger private equity players or
processes and customer experiences. delivering various data points in areas and updated on the platform
platforms to diversify their real estate
immediately
assets.
28 Traversing through the epic, predicting the curveHere’s how it can impact major real estate asset classes:
Residential: Retail: Charting the future:
• Utility as a marketing tool. • Potential retailers and investors • Virtual reality is expected to become
• By offering 360º views in residential can get a sense of the space under cheaper and thus could be used more
projects, as a supplement to regular consideration and also the surrounding frequently.
photos and videos. layout. For instance, if a retail brand • More advanced solutions could be
is looking at taking up space in a offered in this space, providing an
• Realistic depiction of the finished
particular high street, they could use enhanced experience to the user
apartment with alternative layouts to
virtual reality. With this, they would not
visualize the final living space.
need to visit the high street physically
and could get a view of the property
Source: ET Realty, 27/02/2018 as well as the high street sitting in their
offices.
• Land records digitization is an by retailers as well as mall owners for
important initiative, given it is one creating a better buyer experience.
of the major reasons of lengthy • Various developers are already
due diligence time required by the adopting chatbots that assist potential
developers, investors and buyers customers when they visit the website
owing to the fact that these records of a developer. With improvements in
are the most critical legal documents AI, the use of chatbots is expected to Drones: 3D Printers:
of ownership. gain momentum in the future. • With a widespread usage the USA and • This technology is still relatively
• Predictive analytics on consumer We now look at some recent technological many European countries, drones expensive and at a nascent stage
behaviour in terms of spending advancements that can create a massive can create 3D images and videos of currently, costs could come down in
patterns and time spent is being used positive impact on the real estate sector. offices, commercial submarkets and the future, improving its use in the real
surroundings, enabling clients to gain estate sector.
a better understanding of the project. • 3D printers are already in use in
• With similar applications in the building homes in countries like the
residential space, drones can facilitate USA. In the next few years, these could
a bird’s eye view of the surroundings be used in India in the construction
to potential residential buyers. They of buildings, with huge implications
can also be used to track the progress for creating affordable homes and
of construction of projects. creating significant savings on costs,
• They can be used to highlight property labour and time.
features like landscaping, pools,
walking paths, backyards, internal
spaces, flooring etc.
• They could also be used in analytical
fields such as catchment analysis
Virtual reality: for commercial viability of office and
Virtual reality, a combination of architecture retail projects and traffic analysis by
design and gaming technology offers a simulated understanding vehicle density in a
experience. Many companies have devised particular area.
solutions for creating virtual tours of project sites
where buyers can explore the project simulating However, in India, in order to operate a drone, permits and other
the experience of being physically present at the operational requirements as per The Office of the Director General of
location. They can even rearrange objects on site. Civil Aviation (DGCA) are mandatory. Thus, due to safety concerns, it is
This is helping real estate online portal owners not easy to secure permissions. Future course of regulatory regimen
to virtually take their prospective customers to will determine the frequency of the use of drones.
customised property visits without having to
accompany them.
30 Traversing through the epic, predicting the curve Traversing through the epic, predicting the curve 31Building information Integrated Workplace
modeling: Management System (IWMS):
• Largely for applications in • This software platform enables
construction methodologies, building organizations to manage their real
information modeling is a technology estate portfolios through a mix of
that could be useful for large planning and analytics tools.
projects, used as a tool for managing • This platform has cross-linkages
both physical as well as functional with all real estate functions such
information. as facilities management, energy
• It is an intelligent model-based efficiency, sustainability management
process giving a 3D perspective for the and financial management. It can
creation and management of project- help optimize costs and reduce
level data. This includes the entire inefficiencies, improve productivity for
period of the project life cycle. properties and human resources and
• It could aid in visualizing building also increase the lifecycle of the assets.
level components and suggest any
changes before commencing the
actual construction, thus saving costs
and time.
• With the addition of data to the model,
a holistic view of the entire project is Some more technologies are enabling different workflow management and ease of information sharing, retrieval and validation. They are
also possible. It could soon become a likely to have a long-lasting impact on the overall real estate business. We look at two such technologies.
necessity for every project.
Internet of Things:
A large network of connected objects using the internet backbone, thus allowing for simultaneous as well as real-time data sharing
between all these devices has useful implications for the real estate sector.
Sensors could be used right from the construction stage of projects, where the use of
equipment like cranes can be tracked to understand the efficiency, utilization, idle time
Construction
and so on. It also could be used for keeping track of construction supply and monitoring
equipment for maintenance issues.
Retail stores could make use of sensors for shelves to replenish stock promptly after getting
Retail alerts when the stock gets over.
In offices, devices can be used to monitor the temperature, lighting levels, aiding in energy
Office management and efficiency and this can extend to the entire building. It can also become
useful in lowering usage of power.
In apartments too, in some places, there are devices, sensor-driven lights in place. In the
Residential future, apartments are expected to be filled with smart devices right from washing machines,
refrigerators right up to security systems.
Useful in areas like waste management where sensors are put in bins providing information
Waste
Management
on when the bin has reached full capacity. Thus, the collectors of trash can follow a proactive
approach here instead of a reactive one.
Devices in parking lots could provide information on the availability of parking spaces
Smart parking providing a real-time update to drivers via an app, saving time. In smart cities, use of sensors
and traffic
management to collect data on traffic helps in providing a viable route to drivers and reducing overall
congestion.
With the Internet of things, footage of a property can be viewed from any location. Security
Video Surveillance
and safety
alerts too could be sent to owners on handphones. Data can be collected to improve security
systems.
32 Traversing through the epic, predicting the curve Traversing through the epic, predicting the curve 33Alternatives –
A Promising Future
Unlike Western countries where alternative that these segments have been largely providing the possibility of high returns
segments have gained maturity, India unexplored within the Indian realty (much higher than the established assets
provides an opportunity for developers, construct, the time has come to examine of office, retail and residential) when
service providers and operators to create the potential they have to offer. For planned and executed correctly.
solutions specific to India while leveraging asset management entities and funds,
learnings from across the world. Given alternatives are emerging segments
Why Alternatives?
For developers, alternatives offer diversification from the current turbulence in the traditional RE sector
Key Drivers:
Senior Living Student Housing
• Growing nuclear families
Over 100 mn seniors • India has approximately 34 million students in the higher
in India today education space
Blockchain: • Increasing wealth among
• A revolutionary technology that is now a particular class of senior • The country has seen a steady rise in the number of students,
including brokers, bankers and The use of technology is going to be Will grow to 170
attracting a lot of attention due to its citizens growing at a high CAGR of 9.2% since almost a decade
lawyers. Smart contracts via ubiquitous in the future, bringing about mn in 2025
usage as an online ledger for tracking blockchain would offer a convenient significant positive changes in its wake. • Increasing desire for • The ten leading states in terms of number of students in the
transaction history across multiple automated solution reducing costs This would also have far reaching impact independence and privacy higher education space experience an unmet demand to the
240 mn by 2050
assets. involved, and ensuring greater on the nature of jobs in the market, future amongst seniors tune of 30-60% for Student Housing
• It has recently gained prominence due efficiency. workplaces, smart cities, construction
to its use in bitcoin transactions. • Progress made on deals could be technologies, client experiences and
• Mainly a digital ledger, where tracked via blockchain. In the future, interactions and modes of transactions
information held on a blockchain investors, occupiers and landlords amongst many other things. It would be
exists as a network of nodes. The data could make use of this. There is also prudent for everyone to embrace emerging
on this ledger is accessible to every certain reliability with blockchain technologies and derive immense benefits
computer on the network and thus because it is virtually impregnable to their business.
allows for data sharing. to tampering. Thus authenticity of According to Ashok Jayakumar, CIO, JLL
• This technology could have far contracts, records, and data would be India, “It is an exciting time to be in the
reaching uses, such as in the opaque guaranteed. sector with the number of innovations
world of land records which is an we keep seeing that will alter the way of
area in dire need of such technology. conducting business in this sector. “
States like Andhra Pradesh and
Maharashtra are already looking
at using blockchain in maintaining
land records and will make a Technology will play a major role in sales,
decision based on the results of the after-sales, as well as backend support for
pilot projects. transactions. However, developers will find it
• This technology could also be used in difficult to incorporate construction technology
property transactions. Currently, there effectively if the costs of technology do not
is a need for the physical presence of come down
all parties involved in transactions, Getamber Anand
Chairman, CREDAI
34 Traversing through the epic, predicting the curve Traversing through the epic, predicting the curve 35You can also read
