Noah George - The Real Estate Sector by Noah George

Noah George - The Real Estate Sector

 The Early human dwellings as pointed by archeological evidences started in caves  Zhoukbodian caves system near Beijing, China dates at 500,000 years  Chinese caves contain some of the earliest evidence of human use of fire, approximately 400,000 years ago  Easily inhabitants of Australlia, the Middle east and the perusian Andes have also left remains in caves  Gradually as agriculture became important to people, some 4500 years ago, people established villages of permanent houses and found new uses for hunting and herding activities

Key Features  The term ‘Real Estate’ is defined as land, including the air above it and the ground below it, and any buildings or structures on it. It is also referred to as realty  Real estate involves the purchase, sale, and development of land, residential and nonresidential buildings  The activities of the real estate sector encompass the housing and construction sectors also  The real estate sector is a major employment driver, being the second largest employer next only to agriculture  About 250 ancillary industries such as cement, brick, steel, timber, building materials etc. are dependent on the real estate industry

Impact of Real Estate Industry on some other key industries  Retail(Malls)  Hospitality (Resorts, hotels, lodges, spa, inns)  Entertainment Industries(Multiplexes, Theatres, Recreation centers )  Economic Services( Hospitals, school)  Information technology(IT) Enabled companies( call centers)

REAL ESTATE

RESIDENTIAL

OFFICE

GOVT. OFFICES

NONRESIDENTIAL/CO MMERCIAL

HOSPITALITY

PRIVATE OFFICES

INDUSTRIAL(SEZ)

MALLS AND MULTIPLEXES

RETAIL

STANDALONE OUTLETS

Physical Targets for Infrastructure in the Eleventh Plan  Power  Additional power generation capacity of around 78500 MW

 Roads and highways     

Six- laning 6500 km of Golden quadrilateral and selected National Highways Four laning 6736 km on North-South and East-West Corridors Four-laning 20000 km of national Highways Widening 20000 km of National Highways to two lanes Developing 1000 km of expressways

 Railways  Constructing dedicated freight corridors between Mumbai-Delhi and Ludhiana-Kolkata  8132 km of new railway lines: gauge conversion of over 7148

 Seaports  Capacity addition of 485 million tones in major ports, 345 million tones in minor ports

 Airports  Modernization and redevelopment of 4 metros and 35 non-metro airports  Constructing 7 greenfield airports  Constructing 3 airports in North-east region

 Telecom  Achieving a telecom subscriber base of 600 million, with 200 million rural telephone connections  Achieving a broadband coverage of 2-0 million internet connections

 Irrigation  Developing 16 million hectares through major medium, and minor irrigation works 2.18 million

FY06

FY10

1.10 %

16.50% Other FDI

98.90 %

83.50%

Housing & Real Estate

   

Boom

    

Increasing vacancy Slowing down Construction growth Property price starting to fall

Capital outflows Declining prices Lending curbs Low consumption High vacancies

Recession

Total number of Census houses(in crores) 1.58

Total number of vacant censes houses Total number of Occupied census houses

23.33

Total number of houses: 24.91

India’s Real GDP(at Constant 2004-05 Prices) Growth Rate Trend 14.00% 12.00% 10.00% Gr o wt h rat e ( % )

12.40% 10.60% 9.50%

9.70%

10.00% 9.20%

8.00%

7.40% 6.70%

6.00%

5.90 %

6.50 %

4.00% 2.00% 0.00% FY06

FY07 Growth rate

FY08

FY09

FY10

Total share in real estate sector

25%

Residential Segment Commercial Segment

75%

Real Estate Market Size(USD Bn) 200 180

180 160 140 120 90

100 80 60

60 40 20

0 2006

2010

2015e

2020e

100% 90% 22.98

80% 70%

40.27

30.27

36.19

Depreciation

60%

1.76

50%

22.67

40%

Advertising expenses

8.74 1.24

20% 10%

3.41

Interest paid Marketing expenses

25.07

30%

Others

9.83 2.38

0.83

0.79 0.87

3.27

1.25

4.81

0.71 0.8 4.49

14.16

11.19

13.47

16.75

FY07

FY08

FY09

FY10

Compensation to employees Raw material expenses

Major challenges faced  Land availability and acquisition issue  Lack of Transparency  High stamp duty charges  Variable prices of raw materials  Absence of a centralized regulatory authority  Constraints of funds

leading Real Estate Companies(as per Total Income) Sr. No Company Name

Total Inco01me( Rs. Cr)

DLF Limited

3220.43

National Buildings Construction Corporation Limited

2947.73

DLF Home Developers Limited

2469.78

Unitech Limited

2221.71

Housing Development and Infrastructure Limited

1599.58

Ahluwalia Contracts (India) Limited

1573.43

DLF Retail Developers Limited

1501.89

True Value Homes(l) Private Limited

1400.00

Emaar MGF Land Limited

1172.35

Sobha Developers Limited

1119.28

leading Real Estate Companies(as per net worth) Sr. No Company Name

Net worth( Rs. Mn)

DLF Limited

128036.0

Unitech Limited

79032.3

Housing Development and Infrastructure Limited

70385.8

Emaar MGF Land Limited

46093.7

Anant Raj Industries Limited

34967.2

D B Realty Limited*

30967.2

DLF Home Developers Limited

24733.7

IVRCL Assets & Holdings Limited

22884.8

Parsnath Developers Limited

22174.7

DLF Commercial Developers Limited

20966.8

Year

Building

City

Country

Roof

2010

Burj Khalifa

Dubai

United Arab Emirates

828m

1963

KVLY-TV mast

Blanchard

United States

628.8

2011

Abraj Al Bait Towers

Mecca

Saudi Arabia

601m

2011

Tokyo Sky Tree

Tokyo

Japan

634 m

1962

BREN Tower

Neveda Test Site

United States

462 m

1962

Lualualei VLF transmitter

Lualualei

United States

458 m

1998

Petronas Twin Towers

Kuala Lampur

Malaysia

452 m

1997

Ekibastuz GRES-2 Power Station

Ekibastusz

Kazakhstan

419.7 m

2008

Dimona radar Facility

Dimona

Israel

400 m

1987

Kiev TV Tower

Kiev

Ukraine

400 m

Breakthroughs

Burj Dubai  Tallest structure ever built, and freestanding  Highest elevators ever installed  World’s fastest elevators at 64 km/hr.  Worlds highest installation of an aluminum and glass façade, at a height of 512 meters  Highest number of floors in a building – 160, breaking 110 of World Trade Center buildings

Stakeholders  Constructing companies  Developers  Engineers  Technicians  Design consultants  Landlords  Foremen  Clerical staff  Skilled workers  Unskilled workers  Banks  Insurance companies  Tenants  Suppliers of material( Electrical, Material, etc.)  Buyers  Government  Licensing/ Registration offices( e.g. BMC)

Investments -Investors -Speculators -Specu-vestors -Investor-occupiers -Owner-occupiers

Organizations -Govt. owned buildings -Organizations/companies

-Self rented Types of end users

Type of occupation Service class Business class Labor class

On the basis of size of family -Nuclear Family -Extended Family -Joint Family

Budget Small Medium Large

Value Parameters(Residential)  Slum in the area Price Location Connectivity

 Neighbourhood Access to facilities like hospitals, schools, gardens, markets etc.  Future growth prospects Brand name 

Reputation of the builder Lifestyle Quality of construction Legality of construction Speed of  Construction  Space ( S/B area vs. Carpet Area) Environmental friendliness  Earthquake Resistance Security Parameters like distance from the police station, fire  station.   

 Quality of Amenities Upcoming projects, infrastructural developments  Developing/ Ready to possess buildings  Permissions by necessary Govt. bodies  Investment/ Lease / Self occupancy  Parking Space Financial Aspects  Cash/ Cheque component  Home Loan Interest rates  Property and other tax  Terms of Payment  Monthly outflow or maintenance cost  Down payment  Fixed/Floating  Slab duration/  Difficulty in getting Loan  Affordability

Comparative chart (on the basis of New worth) 200000 180000 160000 140000 120000 100000 80000 60000 40000 20000 0

128036

70385.8 46093.7 34958.3

79032.3

Net Worth(Rs. Mn) Net Profit(Rs. Mn) EBITDA( Rs. Mn) Total income( Rs. Mn)

Comparative chart (on the basis of New worth) 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

62.2 6.8 8.3

8.3

1.9 7.3 6 8.1

2.5 3.2 3.2 4.1

2.4 11.8 8.5 11.3

3.1 5.7 6.6 8.9

23.7

12.7

37.3

23.7

78.5

70.9 65 93.3

33.4

Interest cover(times) Debt-toequity(times) ROA(%) RONW(%) ROCE(%) NPM(%) EBITDA Margin(%)

Distribution chain  Portals like 99acres.com, Magicbricks.com, Indiaproperty.com  Property exhibitions  Newspaper ads  Property magazines  Leaflets  Agents, brokers  Leaseholders  Government allotments( MHADA, Tata Housing)  Neighbors, friends, colleagues  Word of mouth  Auctions  Banks  Investment Banks

Backend supply chain

Backend Supply Chain  Land  Architects  Cement Industry  Steel Industry  Sandstone  Petrol Prices  Electrical wiring and hardware fittings  Flooring( Tiles, Marbles, Granites)  Paints  Heavy equipments(Cranes, Land movers, etc.)  Glass Industry  Bank and Insurance companies  Road and Infrastructure  Government agencies for plan approval, NOCs, DCRs

Basis of questionnaire  Current trend  Expected trend  Profit margins  Overall market growth overview

Runwal Symphony, Vakola, Santacruz(east)  Project  16 floors  2 wings  2, 3 bhk

 Total area- 10000 sq. ft.  Construction cost- Rs. 2500 per sq. ft.  Land cost – Rs. 2500 per sq. ft.  Other expenses- Rs. 600 per sq. ft.  Considering 30% area sold while booking or bhoomi poojan.  Interest = around 10-12%  Therefore total cost= 10000 * 5600= 5.6 cr  Total sales cost = 9800* 11000= 10.78 cr(avg out)  Booking sales= 4200(30%) * 8000= 3.36 cr[Construction cost averages out]  Total sales revenue= 10.78 + 3.36= 14.14 cr  Total profit % = 152% profit

Laws Governing Real Estate Market In India  Indian Transfer of Property Act  Indian Registration Act, 1908  Indian Urban Land (Ceiling And Regulation) Act, 1976  Rent Control Acts  The Town & Country Planning Acts

No specific tax incentives for real estate sector, however the following incentives will boost the real estate.  Excise duty rates on bulk cement and packaged cement brought on par; bulk cement to attract excise duty of Rs.400 per Metric Tone or 14 per cent ad valorem, whichever is higher  Cement clinkers excise duty at Rs.450 per Metric Tone.  General CENVAT rate on all goods reduced from 16 per cent to 14 per cent to give a stimulus to the manufacturing sector.  Reduction in the excise duty from 16 per cent to 14 per cent.  Reduction in customs duty from 5 per cent to nil on steel and aluminum melting scraps

Regulations from Primary survey  Under the Income tax Act:  Valuation of the property is done as per three values:  Fair Valuation  Municipal Valuation  Market Valuation  Valuation can be done on the basis of any of the above three but the registration and stamp duty cannot be paid at a rate lesser than the Municipal Valuation, better known as Ready Reckoner rate of the property.

 (CLIS) Change of land Use  NOC – At least in 2 stages  Plan verification  Registration  NOC post completion  As per new rule an additional Service tax of 2.5% will be levied on the registration value

Stamp Duty Rates  Non-residential Properties – Flat 5%  Residential Flats in a housing society and buildings covered under Article 25(d) of schedule I of Bombay Stamp Act 1958 attracts concessional rates depending upon the market rates depending upon its market value as follows:  Below 100000 - Nil  100000- 250000 - 0.5% of the value  250000- 500000 – 1250 + 3% above 500000  Above 500000 – 8750 + 5% of the value above 500000

Registration  Post January 2010 the registration fees of a property in Maharashtra has gone up to 1% of the ready reckoner rate.  Earlier this rate was Flat Rs. 30000.

TRENDS

 A large number of projects that have come up in the past decade have placed a lot of importance on additional amenities like swimming pool, gymnasium, etc thereby increasing the maintenance cost for thee projects.  A lot of developers are now considering moving to the construction of 1BHK and BK apartments in prime locations because of growing demands for this particular format by the lower-middle and middle income groups

 Some of the builders that I visited have now gone on to make apartment sizes much larger than the ones prevalent for that particular segment. E.g. A normal 3 BHK should be between 1500-1700 sq. ft. RNA Builders are now coming up with areas like 2400 and 2800 sq. ft. These flats are brought over by a lot of investors  Builders too are looking forward to developing compact houses with reduced space. For e.g. 3 BHK usually having 1500 to 1800 sq. ft are reducing their floor size to 1000 and 1200 sq. ft. catering majorly to the people with limited budget and higher requirement  Concept of satellite cities like Amby valley and Lavasa too is experiencing a boom. Urban crowd are slowly moving from cities like Delhi to Gurgaon and Noida. This trend can also be seen in Mumbai in the past decade.

NEED GAPS

Medical Travelers  North Carolina has over 5 lakh patients travelling every year for medical purpose  People from abroad travel to India for  Orthopedic surgeries like hip/knee replacement  Birmingham hip resurfacing  Cardiac surgeries like cardiac bypass  Valve replacement  Pediatric heart surgeries for congenital heart disease

Prevalent Long term illnesses  Cancer – GIT(Gastro Intestinal Track)  Cancer – Hepatocellular Carcinoma  Bone Marrow Transplant( Leukemia, Hodgkin's)  Brain Cancer  Pancreatic Cancer  Terminal Stage of HIV( Full Blown AIDS)  IVS( In vitro fertilization)

SATELLITE CITIES  Development of satellite cities unlike Amby valley and Lavasa catering to the need of the lower-middle and middle age group.  Basic Requirement of this particular segment being affordable houses with basic amenities and safety.