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A

PROJECT REPORT

ON

CUSTOMERS/INVESTORS PERCEPTION
ABOUT INVESTING IN REAL ESTATE
AS A PARTIAL FULFILLMENT FOR THE AWARD OF MASTER OF BUSINESS ADMINISTRATION

SESSION: 2009-2011
Submitted to:
PUNJAB TECHNICAL UNIVERSITY, JALANDHAR

PROJECT GUIDE :~
SUBMITTED BY: ~

Ms. Priya Arora Abu Obaid


LECTURER MBA MBA- Semester III
Roll No. -94982238332

PUNJAB INSTITUTE OF MANGEMENT & TECHNOLOGY


By-GT Road, Mandi Gobindgarh, Punjab

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CERTIFICATE OF ORIGIN

This is to certify that Mr. ABU OBAID, a student of Master of Business Administration,
Punjab Institute of Management & Technology, Mandi Gobindgarh, has worked in UNICON
REAL ESTATES PVT. LTD., under the able guidance and supervision of Arpit Singh,
Manager Marketing & Mr. Ajay Krishnan, Senior Manager Marketing, Unicon Real Estates
Pvt. Ltd. Noida

The period for which he was on training was for 8 weeks starting from 16/06/2010 to
30/07/2010. This Summer Internship report has the requisite standard for the partial
fulfillment of the Master of Business Administration. To the best of our knowledge no part of
his report has been reproduced from any other report and the contents are based on original
project.

Signature Signature
(Faculty Guide) (Student)

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ACKNOWLEDGEMENT

I express my sincere gratitude to my industry guide Mr. Arpit Singh, Manager Marketing &
Mr. Ajay Krishnan, Senior Manager Marketing, Unicon Real Estates Pvt. Ltd., Noida, for
his able guidance, continuous support and cooperation throughout my project, without which
the present work would not have been possible.

I would like to thank the entire team of Unicon Real Estates Pvt. Ltd., for their constant help
in the successful completion of my project.

Also, I am thankful to my faculty guide Ms Priya Arora, for her continued guidance and
invaluable encouragement.

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TABLE OF CONTENTS

Subject
Executive Summary
Definition of Real Estate
Real Estate in India
Commercial
Residential
Retail
Growth Drivers of Real Estate

FDI in real estate

Major Player in India

Research Methodology:
Primary Objective(s)
Hypothesis
Research Design
Sample Design
Scope of the Study
Limitations
Critical Review of Literature
Real Estate Investment
Industry Profile
Company Profile
Study of Competitors
Data Collection
Primary Data
Findings and Analysis
Recommendations
Bibliography

Annexure

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CHAPTER 1

EXECUTIVE SUMMARY

EXECUTIVE SUMMARY

This research work is related to customers and investors research study, titled
“CUSTOMERS OR INVESTORS PERSPECTIVE ABOUT INVESTING IN REAL
ESTATE” in high tech cities like Greater Noida, Ghaziabad, Noida and New Delhi.

The research addresses the factors influencing the customers and investors decision to
allocate resources to real estate. The survey includes a sample of major customers and

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investors via a questionnaire. They answered question about their target real estate allocation,
their plans to increase or decrease their allocation, the major reasons for investing in real
estate, and their view point on major factors which are to be considered by a company before
starting a company.

The major empirical findings are:


• Customers/Investors have a short history of real estate investment but are currently
increasing their allocation to the real estate, more so than Equities, Debt, and
Commodities.
• Legal and regularity risk, Hard to determine the best opportunities and Risk of
poor professional advice are given as the risk involved for real estate investing.
• Despite of developers investing their large part of funds on Entertainment centers like
Shopping Malls, Multiplexes etc. large part of customers prefer to invest in
Residential Projects such as Plots , Group Housing, and Townships.
• Residential Property is gaining as an attractive mode of investment of middle class
people leading to growing demand.
• With the shifting of more and more companies and offices to the suburbs, growth in
suburban residential real estate market has also been witnessed. Lavish townships
with good quality construction replete with luxurious amenities and facilities are now
coming up. Survey reveals the factors or specifications needed by the customers
where they are investing their funds and also the lack of facility in their previous or
current residence.
• Despite the billions of money spent on brand advertising, customer’s rate – strength as
a weak influence at best on their purchase decisions.
• The most important factors influencing the real estate allocation decision are
statistical estimates of risk and return, advice from external consultants and long term
historical performance.

During the course of this research work I was provided with an opportunity to interact with
the number of people to receive their responses for questionnaire gave a glimpse of the
behaviors of people and how a researcher should proceed to elicit the responses comfortably.
The experience gathered during this research study will help me to understand the real estate
sector and customers perception about investing in real estate.

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CHAPTER 2

Definition of Real Estate

Definition of Real Estate

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The term ‘real estate’ is defined as land, including the air above it
and ground below it, and any buildings or structures on it. It is
also referred to as realty. It covers residential housing,
commercial offices, trading space such as theatres, hotels &
restaurants, retail outlets, industrial buildings such as factories &
government buildings. Real estate involves purchase, sale and
development of land, residential & non-residential buildings. The
main players in real estate market are landlords, developers,
builders, real estate agents, tenants, buyers etc. The activities of
the real estate sector encompass the housing and construction
sectors also.

REAL ESTATE IN INDIA

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Source: Knight Frank Research

Real Estate Boom in India:


India, like many other parts of the world is zooming
away in the face of a real estate boom. In India there is
a real estate boom in any direction you wish to see.
Whether it is Bangalore, Pune, Calcutta or Hyderabad
or even already sky high Mumbai and Delhi –the story
is the same.
Now apartments are more than just houses. They
are about lifestyle. So while the first housing colonies
had nothing but a security guard, these new housing
colonies have a gym (spa, Jacuzzi, steam), swimming
pool (heated, lined with Italian marble).

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Some have a multiplex, shopping complex. There are those which offer a servant entrance.
The next step is creating an ambience. What does on differentiate in a house? So you now
have themed houses.
The concern is that in India, the stock prices are at the height of a boom. As it happens,
a boom in one sector translates into a boom in another sector with invertors rushing to park
their money in a safe place. Also, add the foreign exchange glut in India fuelled to a great
extent by software engineers parking their dollar salaries in real estate (especially near the
tech hubs). Low interest rates (relatively, as compared to 10 years back) over the last few
years made bank loans easier.
Driven by positive growth in the economy, real estate in India is booming. The year
2006 started as on a promising note when the Government of India opened the construction
and development sector in February 2006, and allowed 100 percent foreign direct investment
(FDI) under the ‘automatic route’ in order to spur investment in the vital infrastructure
sector. The government has thrown open the lucrative parts of the Indian reality market to
global investors for the first time.
The relaxation of the FDI ceiling saw big names joining hands with the Delhi based
developments to announce India’s largest FDI in the reality sector. Groups showing interest
in India include major Indian and International Companies.

The development of real estate in India focuses on two primary areas: retail and residential.
• The global real-estate consulting group Knight Frank has ranked 5th in the list of 30
emerging retail markets and predicted an impressive 20 percent growth rate for the
organized retail segment by 2010.
• The organized segment is expected to grow from a mere 2 percent to 20 percent by the
end of the decade, it said.

The boom is also attracting interest from foreign players. In recent years, non-resident Indians
(NRIs) have played a very important role in transforming the Indian real estate market.
Opening–up of the Indian economy provided them with new opportunities and they have
shown a great deal of confidence in the changed set up. Since 1994, NRIs have invested in
sizeable amount, of which a big chunk has found its way into the property market.
Anticipation by NRIs has brought about a lot of maturity in the market which in the past had
solely banked on the actual users.

2.1 COMMERCIAL

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• India has been hit by the global outsourcing
waves. If IT/ITES continues to grow at the
estimated growth rate for the next four years
it will be an approximately US$24 bn.
Industry by FY 2010.
• NASSCOM-MCKINSEY surveys have
predicted that the ITES sector in India will
provide jobs to 1.1mn sq. ft. of office space.
• Over the course of the past five to ten years,
the major occupier of the commercial real
estate has been the IT/ITES/BPO sector as
opposed to banking, finance,
multinational, corporate and large Indian manufacturing companies. Almost 80
percent of demand for commercial space today is thanks to the above sector.
• Accordingly, a shift is happening towards cheaper and larger locations in the suburbs
closer to dense population pockets supplying quality workforce at competitive rates.
Thus, a gradual decline in the status of the CBDs, which is already experiencing
vacancy rates of over 20-30 percent, is expected over time.
• More and more developers are building quality built-to suit space catering to the end
user in the suburbs. In a nutshell, there will be a huge demand for commercial space in
suburban area of major cities.
• Most developers are providing a more efficient and better class of product than they
were five years ago. At cheaper costs. These products are of a global standard and
developers are using new age technologies in order to reduce delivery times.
• The capital values of commercial properties have moved up by 10-12 percent over the
past 12 months, even though the rental values have remained the same. This disparity
will cease once the interest rates moving upwards.
• Looking into the future, we expect supply to continue to match demand. A number of
developers will put up quality products on to the market, thereby stabilizing rental
property rates.

2.2 RESIDENTIAL

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• Residential property is gaining ground as
an attractive mode of investing for
middle-class people leading to growing
demand.

• The residential market has picked up


due to the lower interest rates coupled
with easy accessibility to loans.

• The increase in prices of residential


properties nationally has been 15-20
percent. This can be largely attributed to the increase in the land prices as well as the
input costs.

• With the shifting of more and more companies and offices to the suburbs, growth in
the suburban residential real estate market has also been witnessed. Lavish townships
with good quality construction with luxurious amenities and facilities are now
coming up.

• The demand for good housing is evident, as most of these developments have
witnessed a pre-construction booking of 75-80 percent and even 100 percent in
some cases, both by end users and investors.

• There is the total national housing shortage of 41 mn. Units. Out of the above, close to
80 percent consists of housing for the weaker section.

• A study has shown that 50 percent of the formal housing in the country is accessed
through the rental route and not ownership. It is thus pertinent to put in place an
environment to encourage more stock of rental housing.

2.3 Retail

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• Retail is considered the world’s largest private industry with total sales of US$ 6.6tn.
With close to 12 mn. Outlets, India has the largest outlet density in the world. The
consumers demand for international quality ambience, convenience and infrastructure
will drive future growth.

• Retailing is becoming the next boom industry with organized retail being a market of
US$6 bn. It is due to the growing eight fold in the coming decade. It is expected that
the share of modern retail shall grow from about 8 percent in 2007 to 20 percent by
the end of the decade.

• The total retail industry growing exponentially at 8.5 percent per annum and
consumer spending has increased at 12 percent per annum during the last 3 years.

• The Indian consumer today is evolving. The increased purchasing power of the urban
educated middle class, more exposure to brands and products through television and
foreign trips, and the growing number of working couples has led to a change in
buying habits and thus the retail scope in India today about 50 mn. Sq. ft. of organized
retail space will be coming up across the country by the year 2010.

• However, the real estate industry is at a critical point. Currently, we have a depleting
pool of retailers and successful department store chains with a lot of shopping center
space competing for the same tenants. This accordingly, creates an opportunity for
foreign retailers. There is a dire need to allow 100 percent in retailing.

• Developers who can show most ingenuity in creating an interesting environment, both
from a shopping and an experimental standing point, will be the ones that will create
an asset that will withstand the test of times.

• A notable trend in the market is the development of integrated retail-cum-


entertainment centers. An increasing number of retailers are focusing on malls as
opposed to stand-alone developments. Several factors determine a retailer’s attraction
towards a particular mall. A recent survey revealed that, for a retailer, the most
important parameters in selecting a mall as a potential allocation are:

1. Consumer demographics3
2. Developer reputation
3. Cost of leasing space
4. Quality of other tenants
5. Car parking
6. Support facilities
7. Infrastructure
8. Maintenance

Whilst the number of shopping malls has seen a surge in the recent past, the future
development is now focused on providing for leisure activities as well. A significant number
of multiplexes are being developed as an integral part of retail malls, along with amenities
such as food courts and video game parlors. PVR, INOX, Satyam Cineplex’s and Shringar

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Films are diving the multiplex business expansion across the nation while Appu Ghar, The
Delhi Based Amusement Park, has plans of starting operations in at least two new locations.

The next step in the evolution of malls in India is specialty malls and theme malls that
cater to a specific target audience. These would include wedding malls, auto malls, home
accessories and life style malls, factory outlet malls, etc.

Some of these chains after setting up in the metros are already looking to foray in to the non-
metros to reach out to a broader customer base.

ForecastedNewRetail SpaceDistributionby2010

NCR NCR
Others 22% Mumbai
35%
Pune
Mum bai
Hyderabad
15%
Bangalore
Kolkata
Pune Chennai
8%
4% Kolkata
Chennai Hyderabad
Bangalore Others
4% 7%
5%

Source: Knight Frank Research

Distributionofcurrent retaN
ilospaceinNCR
ida
5%
Ghaziabad Gurgaon Noida
26% 26% Gurgaon
GreaterNoida
Faridabad Delhi
4% Faridabad
Delhi GreaterNoida Ghaziabad
22% 17%

Source: Knight Frank Research

2.4 GROWTH DRIVERS OF REAL ESTATE

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• The robust growth in IT sector has pumped up the growth in Real
Estate Sector. An estimated 70% of new construction for offices is to
cater to the IT Sector. Examples are cities like Pune and Gurgaon where
real estate activity is primarily the offshoot of the IT sector revolution in
India and the dot com boom.

• Retail Sector is also growing at a fast pace. Currently, only 5% of the


retail sector is organized. Remaining 95% is still unorganized and offers
huge opportunities for growth. India is ranked 5th in the list of 30
emerging retail markets and 20% annual growth rate is predicted for
the Organized Retail segment by 2010.

• Spiraling demand for hotel rooms has brought boom in Hotel


Industry. India has been voted among the top 5 tourist destinations in
the world by the Conde Nast Traveler’s Guide. The demand-supply
imbalance will continue to be over 50% beyond 2010, there being
excess demand. This can generate substantial business for the real
estate industry where more and more players are joining the fray to
develop hotels.

• Booming economy with the GDP clocking 8% CAGR

• Rapid Urbanization

→ Urban Population expected to touch 590 million by 2030

→ Decreasing Household size: Average H/h size fell from 5.4 in


1981 to 5.1 in 2000 and is going to fall further

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→ Increasing working age population (Almost 64% in 16-64
age group)

• Market Structure

→ A lot of corporatisation has taken place in the last 2-3 years


and the sector has seen entry of giant corporate houses

→ Regional players are expanding to achieve a Pan-India


presence

State of the Real Estate market


• The sector remains largely urban & semi-urban and unorganized to
some extent. Though it has now begun to trickle down to the rural
areas. The sector is now incorporating a lot of professionalism and
corporatization and is now being run in a more organized and
transparent manner.

• The sector has recently shown a huge growth over the past decade
with action in all spaces; residential, commercial, retail, hospitality &
SEZ. However, all this activity has lead to skyrocketing of prices.
Many, including the FIIs’, feel that prices are high and that a
correction is in store.

• A key question: Is relative pricing predominantly set by investors or


end users? Industry sources say that end user buying has gradually
increased over the last ten years (to 60+% from 35%). The real
estate boom was fuelled by the increased liquidity and money
supply in the market. There was a shortage of real estate and the
investors saw this as an attractive investment opportunity to park
their excess funds. Investors invested huge sums of money to cash

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in on the rising prices of real estate. This is increasing demand. But
prices faced a downward pressure when the properties were ready
for delivery as the end users were limited. This lead to a situation of
excess supply at the existing rates, eventually leading to a
correction in prices.

• Entry of quality foreign developers are offering much needed


competition and is further improving the already improved quality
of residential and office offerings that mostly come to the end user
from less than a handful of Indian developers.

• The surprising ignorance of basic tenets of urban planning in our


cities is a major hurdle being faced by developers who have to bear
the responsibility of developing basic infrastructural amenities in
and around their projects. This situation exists across all Tier-1, Tier-
2 and Tier-3 cities.

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Indian Real Estate Market Growth Drivers:

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FDI in Real Estate
Till recently, FDI in real estate was restricted to development of industrial
parks, hotels, integrated townships and SEZ’s. On March 3, 2005,
Government of India replaced the integrated township policy to permit FDI
up to 100% in townships, housing, built-up infrastructure & construction -
development projects, under automatic route.

• FDI is now permitted in :

→ Townships

→ Housing

→ Commercial premises

→ Hotels

→ Resorts

→ Hospitals

→ Industrial parks

→ Resorts

→ Hospitals

→ Educational institutions

→ Recreational facilities

→ SEZ’s etc.

• 100% FDI is allowed under automatic route in townships,


housing, built-up infrastructure and construction development
projects including (but not restricted to) housing, commercial

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premises, hotels, resorts, hospitals, educational institutions,
recreational facilities and regional level infrastructure

• FDI up to 51% is allowed through FIPB (Foreign Investment


Promotion Board) route in single brand retail shops

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21
FDI in Industrial parks &
hotels:

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Growth in Real Estate

• 1.1% of the GDP constitutes FDI in Real Estate Sector.

• Return in India range from 12-15% compared to 3-4% in advance


countries.

• Merrill Lynch forecasts that Indian Real Estate Sector shall grow
from US 12Billion in 2005 to US $ 90 Billion by 2015.

• US $ 320 Billion investment is required in next 5 years in


infrastructures.

• Real Estate Sector is registering an annual growth rate of 30%


Investment of US $ 16 billion expected over the next 5 to 6 years.

• Credit to the Housing Sector has continued to be strong and


benefited from low interest rates and incentives.

• According to AT KEARNY, India is the 2nd most attractive destination


for FDI and the best location for off shoring business.

2.5 MAJOR PLAYERS IN INDIA


Real Estate Developers:

DLF

UNITECH

PARSVNATH DEVELOPERS

OMAXE LTD.

ELDECO &

EROS

ANSALS

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CHAPTER 3

OBJECTIVES

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Objectives
1. Study the profit margins of Real Estate developers in different projects.

2. Study the customer/investor perception about investing in Real Estate in NCR.


• Interest in investing in real estate.
• Reasons for investing in real estate. (Short term, Long term, End use, Recurring
Returns)
• Risk factor in real estate and Return.
• Project they like to invest their funds. (Office Spaces, Plots, Shopping Malls,
Multiplexes, Group housing)
• In which assets class they find themselves most comfortable. (Real Estates, Equities,
Debt and Commodities)
• Their need for specifications and factors they find appropriate where they are
investing their funds.
• Lack of facility in previous or current residence.

3.To study the risk and return factors in investing in real estate.

3.2 Hypothesis:

(1) H0: The customers do not have interest in investing in real estate.
H1: The customers have interest in investing in real estate.

(2) H0: The developers are unsuccessful in solving the problems and providing necessary
specifications to customers.
H1: The developers are successful in solving the problems and do not provide necessary
specifications to customers.

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CHAPTER 3

RESEARCH METHODOLOGY

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Research methodology
3.1 Research Design:

The study is to conduct on the part of business expansion plan of Unicon Real Estates Pvt.
Ltd. to expand their business and solve customer’s issues. On this part, Market Survey is
conducted to know the customer/investor perception about investing in real estate.
In this research focus is on current customers views about real estate as an asset class.
The approach is direct. The survey is going to be done through a large sample of major
customers/investors via questionnaire in NCR.

3.2 Sample Design:

The sample size for the above study was a total of 200 from the whole NCR. The
respondents of a sample are selected using non-probability procedures. The target
respondents were HNI’s (High Network Individuals), upper segment of middle class, high
level executive workforce of corporations.

3.3 Scope of the study:

Among the study key findings are:


• Customers have a short history of real estate investment but are currently
increasing their allocation to the real estate, more so than equities, debt and
commodities.

• Legal and regulatory risk, hard to determine the best opportunities and risk of
poor professional advice are given as the main reason for real estate investing.

• Despite of developers investing their large part of funds on entertainment centers like
shopping malls, multiplexes etc. large part of customers prefer to invest in residential
projects such as plots and group housing.

• Residential property is gaining as an attractive mode of investment of middle class


people leading to growing demand.

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• The most important factors influencing the real estate asset allocation decision are
statistical estimates of risk and return, advice from external consultants and long term
historical performance.

• Despite of billion of money spent on brand advertising, customer’s rate brand-strength


as a weak influence at best on their purchase decisions.

• With the shifting of more and more companies and offices to the suburbs, growth in
the suburban residential real estate market has been witnessed. Lavish townships with
good quality construction replete with luxurious amenities and facilities are now
coming up. Survey reveals the factors or specification needed by the customers
where they are investing their funds and also the lack of facility in their previous
or current residence.

3.4 Limitations:
• Our respondents locate real estate much more than any other asset class such as
equities, debt and commodities. But they mention that the cost associated in
investing in real estate is much more than these classes.

• The potential relevance of uncertainty is immediate evidenced from many of the


questionnaire results. In many questions, we observe significant differences in the
“Don’t know” response.
• In one of our question in questionnaire we ask the factors you find appropriate for risk
in real estate. i.e. asset volatility, lack of reliable valuation data, legal and regularity
risk, risk of poor professional advice, hard to determine best opportunities.
May be some of the factors are hard to determine and uncontrollable and
unavoided.

• The key fact is the ability to service the debt. The general thumb rule for debt serving
is to restrict all EMI payments to 45 percent of the investor’s disposable income. This
figure could vary according to the age of the person and his financial commitments.
25 years old unmarried person with no commitment can commit even to the extent of
75 percent of his disposable income to servicing a home loan EMI. But a 40 years old
person with a wife and a child may struggle to service an EMI of 55 percent of his
disposable income. The quantum of loan and structuring the EMIs has to carefully
plan before hand to fall in debt trap.

• In reality asset allocation is far more sophisticated process. It varies from person to
person and depends on person’s financial plan, background, disposable income, age,
and investor’s preferences.

• Consider middle-aged person from a middle class background seeking a stable life
long job. He cannot be expected to invest in equities and property. His preference
would be bank FDs. On the other hand, a market save young couple in the corporate
sector with high surplus would prefer to invest in property.

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CHAPTER 4

CRITICAL REVIEW OF LITERATURE

29
Critical Review of Literature

A just released customer/investor research study, titled Customers/investors perception about


investing in real estate throws a light on institutional investors and customers face a complex
set of choices with respect to the composition and management of investment portfolios.
In this research we collected information about the real estate allocation choices, beliefs
and view points of customers/investors.

Our investigation of the asset allocation gives interesting results.

• Our respondents locate real estate much more than any other asset class such as
equities, debt and commodities. But they mention that the cost associated in
investing in real estate is much more than these classes.

• The potential relevance of uncertainty is immediate evidenced from many of the


questionnaire results. In many questions, we observe significant differences in the
“Don’t know” response.

• In one of our question in questionnaire we ask the factors you find appropriate for risk
in real estate. i.e. asset volatility, lack of reliable valuation data, legal and regularity
risk, risk of poor professional advice, hard to determine best opportunities.
May be some of the factors are hard to determine and uncontrollable and
unavoided.

• The key fact is the ability to service the debt. The general thumb rule for debt serving
is to restrict all EMI payments to 45 percent of the investor’s disposable income. This
figure could vary according to the age of the person and his financial commitments.

• In reality asset allocation is far more sophisticated process. It varies from person to
person and depends on person’s financial plan, background, disposable income, age,
and investor’s preferences.

30
• Consider middle-aged person from a middle class background seeking a stable life
long job. He cannot be expected to invest in equities and property. His preference
would be bank FDs. On the other hand, a market savvy young couple in the corporate
sector with high surplus would prefer to invest in property. The age factor should be
properly defined before targeting.

Comparison of role of risk and uncertainty with US Market

• Diversification and inflation hedging are given as the main reasons for investing in
real estate in US market.
• The expected risk & return of real estate is perceived as midway between US stocks
and bonds.

CHAPTER 5

REAL ESTATE INVESTMENT

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5.1 Industry profile

India, like many other parts of the world is zooming away in the face of a real estate boom. In
India there is a real estate boom in any direction you wish to see. Whether it is Bangalore,
Pune, Calcutta or Chennai or Hyderabad or even already sky high Mumbai or Delhi –
the story is same.

Now apartments are more than just houses. They are about lifestyle. So while the first
housing colonies had nothing but a security guard, these new housing colonies have a gym
(spa, Jacuzzi, steam), swimming pool (heated, lined with Italian marble) some have a
multiplex, shopping complex. There are those which offer a servant entrance. The next step is
creating an ambience. What does one differentiate in a house? So you now have themed
houses.

The concern is that in India, the stock prices are at the height of a boom. As it happens, a
boom in one sector translates into a boom in another sector with invertors rushing to park
their money in a safe place. Also, add the foreign exchange glut in India fuelled to a great
extent by software engineers parking their dollar salaries in real estate (especially near the
tech hubs). Low interest rates (relatively, as compared to 10 years back) over the last few
years made bank loans easier.

Driven by positive growth in the economy, real estate in India is booming. The
year2005started as on a promising note when the Government of India opened the
construction and development sector and allowed 100 percent foreign direct investment
(FDI) under the ‘automatic route’ in order to spur investment in the vital infrastructure
sector. The government has thrown open the lucrative parts of the Indian reality market to
global investors for the first time.

The relaxation of the FDI ceiling saw big names joining hands with the Delhi based
developments to announce India’s largest FDI in the reality sector. Groups showing interest
in India include major Indian and International Companies.

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With property boom spreading in all directions, real estate in India is touching new heights.
However, the growth also depends on the policies adopted by the government to facilitate
investments mainly in the economic and industrial sector. The new stand adopted by Indian
government regarding foreign direct investment (FDI) policies has encouraged an increasing
number of countries to invest in Indian Properties.

India has displaced US as the second-most favored destination for FDI in the world. As the
investment scenario in India changes, India which has attracted more than three times foreign
investment at US$ 7.96 billion during the first half of 2005-06 fiscal, as against US$ 2.38
billion during the corresponding period of 2004-05, making India amongst the "dominant host
countries" for FDI in Asia and the Pacific (APAC).

The positive outlook of Indian government is the key factor behind the sudden rise of the
Indian Real Estate sector - the second largest employer after agriculture in India. This
budding sector is today witnessing development in all area such as - residential, retail and
commercial in metros of India such as Mumbai, Delhi & NCR, Kolkata and Chennai. Easier
access to bank loans and higher earnings are some of the pivotal reasons behind the sudden
jump in Indian real estate.

Why Invest In Indian Real Estate?


Flying high on the wings of booming real estate, property in India has become a dream for
every potential investor looking forward to dig profits. All are eyeing Indian property market
for a wide variety of reasons:

• It’s ever growing economy which is on a continuous rise with 8.1 percent increase
witnessed in the last financial year. The boom in economy increases purchasing power
of its people and creates demand for real estate sector.
• India is going to produce an estimated 2 million new graduates from various Indian
universities during this year, creating demand for 100 million square feet of office and
industrial space.
• Presence of a large number of Fortune 500 and other reputed companies will attract
more companies to initiate their operational bases in India thus creating more demand
for corporate space.
• Real estate investments in India yield huge dividends. 70 percent of foreign investors
in India are making profits and another 12 percent are breaking even.
• Apart from IT, ITES and Business Process Outsourcing (BPO) India has shown its
expertise in sectors like auto-components, chemicals, apparels, pharmaceuticals and
jewellery, where it can match the best in the world. These positive attributes of India
is definitely going to attract more foreign investors in the near future.

The relaxed FDI rules implemented by India last year has invited more foreign investors and
real estate in India is seemingly the most lucrative ground at present. The revised investor
friendly policies allowed foreigners to own property, and dropped the minimum size for
housing estates built with foreign capital to 25 acres (10 hectares) from 100 acres (40

33
hectares). With this sudden change in investment policies, the overseas firms can now put up
commercial buildings as long as the projects surpass 50,000 square meters (538,200 square
feet) of floor space.

Indian real estate sector is on boom and this is the right time to invest in property in India to
reap the highest rewards.

5.2 Company profile

ABOUT THE COMPANY: HISTORY & BACKGROUND


UNICON is an ISO certified company providing Total Real Estate
Solutions. We have a team of 200 plus professionals operating
from Noida & Gurgaon. We also have our presence in Mumbai,
Chandigarh , Dehradoon and Ghaziabad. It is the commitment and
service quality of this team that we are a great success. We are in
business to create and deliver value to our clients, stakeholders and
also to our own people. The ideology of our service delivery is the
creation a FORUM with the clients so that we can get them best
solution from the builders. Our priority is the clients’ interest. It is

34
our commitment levels and transparency of our deals that we have
a 100% client retention ratio and over 2000 satisfied
customers in just a period of over 2 yrs.
UNICON REAL ESTATE PVT.LTD is an
underwriting company that manages to lead all the sales charts for
the products we decide to promote. Investors today have two
choices; either they go through the grind manoeuvring through an
unorganized market or choose a Professionally Managed Group and
deal with the other party with a sense of security. We provide that
security; this is our strength and we welcome all to be a part of this
revolution with us and help regulate this industry.

MISSION OF THE COMPANY

"The mission of UNICON is to establish itself as the most successful real


estate brokerage firm nationwide. UNICON incorporates proven,
professional state of-the-art techniques specializing in the marketing,
listing and selling of new and resale luxury homes, residential
communities, condominiums, home sites, undeveloped land and
commercial and investment opportunities. UNICON maintains a full-time
staff of well-trained real estate professionals who continually strive to
provide top quality service for their individual clients and customers.
UNICON is a creative, innovative and people-oriented organization
providing individual opportunity, personal satisfaction and rewarding
challenges to all members, investors, owners related with the firm."

VISION OF THE COMPANY

"We are determined to be nationally respected real estate brokerage


organization that provides most comprehensive estate solution,
leveraging investment opportunities, rapidly growing market and
technology. We will continuously strive to always exceed our customer
expectations through active community involvement."

STRENGTH OF THE COMPANY

35
Whether you are looking to buy, sell or lease a home, office or retail
showroom, UNICON can assist you in every step of the way.

 Efficient and most proven, high technology and professional


management system.

 Largest database of property buyers and sellers.

 Absolute professional, transparent and law abiding system.

 Long term association with clients forged on openness, trust and


matchless professionalism.

 Capability to service the needs of our clients in most of parts of


India and the world.

Efficiency to professionally manage any requirement of the clients ranging


from apartments, houses, villas, land, commercial offices, commercial
shops, farm houses, malls, restaurants, industrial plots, information
technology parks, special economic zones etc.

We ensure to provide, within the allocated budget of the esteemed client,


the best possible property, at the best possible locations. We follow the
most transparent, professional and clean procedures to sell or to buy the
property, enabling such individuals to realize their cherished dreams of
owning a house of their own at the most competitive prices or to sell their
property at the best possible prevalent market rates.

36
CHAPTER 6

STUDY OF DEVELOPERS

THE DEVELOPER

37
DLF

UNITECH

OMAXE LIMITED

SOBHA DEVELOPERS

PARSVNATH DEVELOPERS

DLF

Company background

→ DLF is India’s largest listed real estate developer, with ~224mn


sq. ft. of completed development (including plots) since 1949

→ Pan India presence with strong execution capabilities

38
 Developed 22 urban colonies/ integrated townships over
the last 6 decades, including DLF City, a 3,000-acre project
in Gurgaon

Key Highlights

→ Land reserves of >16,000 acres (estimated


developable area of ~751mn sq. ft.) spread across 32 cities -
Avg. cost: Rs.314/sq. ft.
 92% of land reserves owned, with 8% tied up as JV/ JDAs

→ Strong execution with under construction projects of


~62mn sq ft

→ Acceleration of cash flows through sale of under


construction properties to DLF Assets (50-80% of comm.
assets), PE, listing of S-REIT planned.

 DLF Office Trust (DOT) = Planned Singapore REIT =


Early project exit = Faster capital Churn = Reinvestment in
high RoE land banking
→ Major thrust on mid-income housing - Recently launched
projects in New
Gurgaon, Chennai, Indore & Kolkata
 Mid segment contributed >95% of residential area
sold in FY08
→ JVs with strategic partners to augment
execution capability
 Lang O’Rourke - Construction, WSP - Design &
engineering,
 Feedback Ventures - Project management & Nakheel -
SEZ development

Key risk factors

39
→ Portfolio of largely developing
assets = Risk of delays in DOT/ non-compression of cap rates

→ Multi fold jump in development


activity = Execution challenges

→ High levels of debtors = Delayed


cash flows = High monitoring required.
Strengths & Opportunities

• Balanced development approach

→ Short term: High end city centric projects (luxury


housing, high end commercial & retail) with a ~1-3 year time
frame

 High land cost; Relatively high visibility of cash flows

→ Long term: Mid segment townships/ SEZs (incl. all


verticals) on outskirts/ Tier II & III cities with a >4 year time
frame

 Low land cost; cash flows over a longer gestation


period

• Accelerating its cash flows

→ Sale of commercial/retail assets via REIT structure (planned


listing of DLF Office Trust (DOT) in FY09)

 DOT to raise ~USD 1-1.5bn for purchase of 10.6mn sq.


ft. from DLF Assets Ltd. (of which ~3.2mn completed)

 Sale of 49% stake in 8 township projects to Merrill Lynch


(7) & Brahma Investments (1) for Rs.16.75bn

→ Early exit = Faster capital churn = Redeployment of funds into


further land banking (higher RoE business)

• Augmenting its execution capabilities

40
→ Exclusive tie up with Lang O’Rourke (50:50 construction JV) for
planned scale up from current levels

 ~37mn sq. ft. under construction by DLF-LOR JV

 Other tie ups: WSP - design & engineering, Feedback


Ventures - Project mgmt

• Foraying into New Verticals

→ Strategic tie ups for diversification into varied businesses

 Nakheel - SEZ development;

 Hilton - Hospitality;

 Pramerica - Asset management;

 Fraport AG - Airport development & management;

 Prudential Insurance - Life insurance;

• High quality developer

→ Credited with developing India’s largest


integrated private township (DLF City, Gurgaon)

 Leveraging the same to command premium prices


across segments and geographies

→ Land reserves of >16,000acres (~751mn sq. ft.) @


low cost of ~ Rs.314/psf across 32 cities

 ~79% of land bank in metros (46%) / Super


metros (33%)

 92% of the land bank owned, with 8% tied

up through JV/JDAs

• Diversifying itself further

→ Segments - Commercial - 19% ;


Residential - 66%; Retail - 15%
→ Near term focus on commercial and

41
office segment
 Large portfolio of REIT able
assets to help churn capital faster

→ New focus on mid-market


housing (Rs.3mn – Rs.6mn) leading to a steady state delivery
of ~20-25mn sq. ft. p.a. by FY10E.

• Strong balance sheet size

→ Strong holding power enabling acquisition of land during


downturns and inventory holding capacity during cyclicality

 Ability to aggregate land from multiple sellers at low


costs

→ Economies of scale: Bulk purchasing capabilities for


acquisition of raw materials/ better use of its construction
technology.

• Strong execution skills

→ India’s largest real estate developer with ~230mn sq. ft.


(including ~195mn of plots) of completed development

 ~62mn sq. ft. currently under various stages of


development (commercial: 68%; retail: 20%; residential:
12%)

→ Planned annual steady delivery of ~40-45mn sq. ft. by


FY11E
 ~10-12mn commercial, ~8-10mn retail, ~2-2.5mn high-
end luxury residential & ~20mn of mid-segment housing

Threats & Weaknesses

• Sale to DLF Assets Ltd (DAL) formed ~40% of total sales in FY08

42
→ Delay in listing of DLF Office Trust (DOT) on the
Singapore exchange lead to liquidity crunch impacting ability of
DAL to purchase assets from DLF Ltd.

• High amount of receivables

→ While DLF has recorded an unprecedented rise in sales in


FY08, it has come at the cost of a huge increase in receivables
to Rs.79bn (Rs.15bn in FY07)
 Incremental debtors in FY08 upwards of Rs.64bn
(Rs.79bn less opening balance of Rs.15bn)

 Receivables from DAL comprise only Rs.19bn of total/


Rs.100bn of incremental sales in FY08

• Execution risk

→ Significant challenges in scaling up execution


capabilities to reach desired steady state delivery of ~40-
45mn sq. ft. per annum.
 Entry into newer geographies further augments
challenges ahead.

 While its joint ventures with Lang O’Rourke,


Nakheel, WSP and Feedback will offer considerable
assistance in its scale up, the same will be needed to be
monitored on a consistent basis.

• Asset/ Business Cycle Risk

→ Current unsustainably high prices expose


DLF to an asset cycle risk, as any fall in prices would have a
significant impact on its profitability.

43
 Sentiment effect = Further slowdown
in sales = Inventory build up

DLF presently has its land bank in 31 different cities, through with a small presence (less than
100 acres) in 20 of these. In addition to 574 mn Sq. ft. land bank, DLF has 23 super luxury
hotel sites, a golf course and clubs.

7% NCR(Approx95%in
2% gurgaon)
3% Kolkata
4%
Goa
4%
Chandigarh
5%
52% Pune

Indore

Bangalore

23% Others

Too large dependence on Gurgaon:


The total land bank of 10,225 acres is highly skewed in favors of Gurgaon and to some extent
Kolkata too. DLF has approximately 72 percent of its total land bank in Gurgaon (46 percent)
and in Kolkata (23 percent) together.

44
UNITECH

Company background

→ Started in 1972, Unitech is a leading player


in the NCR & Kolkata markets, with plans to establish a strong
presence across Mumbai, Chennai, Vizag, Agra, Varanasi and
other growing cities.

Key Highlights

→ Large land reserves of ~13,758 acres


(~700mn sq. ft.)

 Diversified project portfolio which includes development


of residential, commercial, retail, hospitality and SEZ
projects.

→ Recent foray into lucrative Mumbai market by acquiring a 50%


stake in a slum rehab project of ~8mn sq. ft. (97 acres).
 Unitech has tied up ~300+ acres of land in Mumbai,
which is expected to be formally disclosed once finalized.

→ NKID project finally gets off the ground.

 1st tranche of 957 acres (near Kolkata)


transferred to Unitech with expectations of ~1,650 acres to
be transferred shortly.

→ Execution acumen displayed by strong


growth in area developed.

45
 1.56 mn sq. ft. in FY’05 to 7.15
mn sq.ft. in FY’07 -CAGR of 114%

 ~55mn sq. ft. of area under


development currently.

→ Multiple revenue streams


from development activity, sale of projects to Unitech
Corporate Park, investment mgmt. fees and carry.

 Planned listing of
Unitech Office Trust (UOT) in Singapore.

→ Major presence planned in other segments as well.

 Hospitality: 28 properties with ~5,000 rooms

 In-principle approval (10,000 acre SEZ) in Haryana &


West Bengal

46
Key risk factors

→ Delays in UOT listing + Inability to raise funds in parent


company = Strap liquidity = delaying projects and stretching
balance sheets

→ Scale up + pan-India presence = Significant execution


challenges

→ Significant portion of revenue from longer gestation


projects

Strengths & Opportunities

• Low risk/ high return model

→ Focus on residential projects (80% of land bank) = Low


working capital requirements
 Acquisition of land on outskirts of cities = Phased
developments = Low price volatility + steady appreciation

 Land acquisition preferred from govt. sources = Low title


risk

• Acceleration of cash flows

→ Sale of under construction projects to Unitech Corporate


Parks (UCP) to monetize projects early on.

→ Plans to list a business trust (UOT) in Singapore in


H1CY08

 UCP and Unitech to jointly sell projects to UOT

→ Plans to list other REITs across retail &


hospitality segments

→ Contribution from fee income to increase

47
going forward

• Land bank addition

→ Entry into lucrative Mumbai market by acquiring a 50%


stake in Rohan Builders, a developer with slum rehab expertise

 Currently land bank of 97 acres in prime suburban


Mumbai disclosed; further ~300 acres disclosure expected

→ Large township projects to kick off shortly


 Vizag Knowledge City: 1,750 acre (~102mn) township

° Land yet to be transferred to Unitech.

 New Kolkata International Development (NKID):

° First tranche of 957 acres transferred by


government - further 1,650 acres to be received in
next few weeks.

° 12,500 acres transferred to NKID for Petro Chem


SEZ at Naya Char

 Also 1 of 19 short listed players for Dharavi project

48
• Diversification into telecom

→ Telecom license for mobile services in all 22 telecom


circles

 Purely a financial investment, to partner with an


international operator

 Start up spectrum allotted in Orissa to start mobile


services

• Large scale of operations

→ Experience in execution of large projects better positions


it to successfully implement new projects

→ Management’s ability to identify and procure land parcels


in strategic locations from multiple sellers has helped Unitech
establish its footprint across the country - currently present in
~15+ cities

• High quality land bank

→ Substantial proportion of land bank acquired from


government- hence no title/ zoning risks

 These acquisitions have an added advantage in terms of


soft (deferred) payment terms provided by the government

→ Land acquisition is focused on the suburban areas of


major cities in order to efficiently diversify its presence

49
→ Focused on undertaking large mixed-use projects in high
growing suburban areas of
major cities
• Strong execution capabilities

→ To enhance its execution capacity, Unitech has partnered


with internationally acclaimed architects and design
consultants

 Callison Inc (USA), RMJM (UK), FORREC (Canada), RSP


(Singapore), HOK (USA)

→ Further, its ability to work and effectively liaise with


government agencies ensures timely completion of its projects

• Efficient capital allocation

→ Investing in high value added segment of the real estate


chain (acquisition and aggregation of land)

→ Focus on capital efficient segment residential segment

→ Outright sale of commercial/retail assets to allocate


capital efficiently.

• Multiple revenue streams

→ Development profits from real estate projects

 Profit from sale of projects undertaken by the company


(mostly residential projects and plot sales)

50
 Lease income from commercial/ retail/ hospitality
projects
→ Sale of properties to Unitech Corporate Park Plc (UCP)

 Early exit from sale of under construction projects to


Unitech Corporate Parks Plc = Cash flows upfront for
further re-investments

 Sale through SPV route in pre-identified projects to


further help in churning capital faster
→ Investment management & performance Fees

→ Telecom foray - plans to off load ~35% to a strategic


foreign partner

51
Threats & Weaknesses

• Paucity of Funds

→ Private equity at SPV level critical for achieving planned


execution.

→ Delay in UOT listing + Inability of company to raise


funds at the parent level = Strap liquidity = Delaying projects
and stretching balance sheets further.

• Long gestation projects

→ Significant portion of revenue expected from its larger


township/ SEZ projects at city outskirts

 Long term execution = Lower visibility as compared to


shorter city centric projects.

• Execution risk

→ Multifold jump in its planned development activity in new


geographies

 In addition to an aggressive development plan,


Unitech is also expanding into newer markets where it may
not have the same execution expertise as in its home turf.

• Asset/ Business Cycle Risk

→ Current unsustainably high prices expose Unitech to an


asset cycle risk, as any fall in prices would have a significant
impact on its profitability.

 Sentiment effect = Further


slowdown in sales= Inventory buildup

52
The Rs. 1600crores Unitech Group is one of the Major Township Planning and real estate
development companies in India and has a diverse business portfolio of heavy construction,
leisure and entertainment projects, hospitality business and residential property
developments.

After playing second fiddle to DLF in Gurgaon, the low-profile Unitech Group is gradually
asserting itself in the real estate market of the national capital region. In May 2006, in an
upset of sorts, Unitech got the better of DLF by grabbing 345 acres of prime land in Noida for
whopping Rs. 1582 crores. Unitech has a land bank of 10500 acres whose breakdown is
shown below and its future plans are of 500m sq ft for the year 2008-09 for which they need
huge amount of funding.

2% 8% 8%
8% Noida/G.Noida
4%
kochi
9% Gurgaon
11% Kolkata
Chennai

10% Varanasi
Agra
Hyderabad
18% Bangalore

22% Others

Unitech Builder plans to use the Noida land to make 4000 top-of-the-line apartments priced at
Rs. 2 crores (Rs. 20 million) each. The investment required to build this dream residential
project: Rs. 3000 crores (Rs. 30 billion). Besides inking this mega deal, Unitech has been on a
land-buying spread across the country – from Gurgaon to Kolkata, Kochi, Hyderabad and
Chennai – to establish a pan-Indian presence. In the last few months, the Group has created a
land of over 8,000 acres.

53
PARSVNATH

Parsvnath developers announced that they would invest Rs. 1600 crores over the next three
years to construct a metro station cum shopping mall near the Commonwealth Games
Village in the National Capital. The metro station cum shopping mall is spread over 7.3 acres
and about 3.65lakh sq. ft. of retail space would be developed. This will be the 12th mall which
the Parsvnath will develop at metro stations, owned by Delhi Metro Railway Station
Corporation, a building operator transfer basis.

Parsvnath projects cover saleable area of 134 million sq. ft, including owned land
development rights; this does not include land owned in SEZ business. Ongoing projects are
spread over 17 states and 46 cities.

Upcoming No. of Saleable Land Development Total Total Cost


Projects Projects Area Cost & Cost in in US$
Construction Rupees
Cost

Residential 31 32.88 1344.9 3978.32 5323.3 1183

Commercial 21 4.91 795.68 800.12 1595.8 354.62

Integrated 21 86.06 1121.0 7405.8 8526.8 1894.8


Township

IT Park 4 6 4.55 915 919 204

120
DMCR 6 1.46 276.64 260 536

Hotels 17 2.69 247.31 627 875 200

Total 100 134 3790 14000 18000 4000

54
Projects under Development

ITParks Hotels
5% 3%

Residential IntegratedTownship
22% Commercial
Residential
Integrated
Commercial ITParks
4% Township Hotels
66%

55
Omaxe Limited

The company was originally set up as Omaxe Builders Private limited in


1989, promoted by Shri. Rohtas Goel, the founder, to undertake
construction & contracting business. The company further changed its
constitution to a limited company known as Omaxe Construction Ltd., in
1999. The name of the company has now changed to OMAXE LTD from
2006.

The company began life as a civil construction and contracting company,


has successfully executed more than 120 prestigious Industrial,
Institutional, Commercial, Residential and Hospital construction projects.

Strengths & Opportunities:

• Strong construction background and execution skills

→ Omaxe has been into constructing and contracting


businesses for the past 18 years. The company was founded
as a civil construction and contracting organization in 1989,
which subsequently diversified its business in 2001, to focus
on real estate.
→ As on March 31, 2007, it has completed more than 120
construction projects and 10 real estate projects, including 7
Group Housing schemes, (GHS), one integrated township, and
2 commercial projects covering an area of 5.13 million sq ft.

• Extensive owned land bank

→ As of FY07 end, Omaxe had extensive land reserves ~3,255


acres, of which, 3,096 acres were under development or
under various stages of approval for development,
representing ~150 mn sq. ft. of saleable area.

56
→ Out of this total land bank, Omaxe owns 82% directly and the
remaining through JVs and subsidiaries. This mitigates risks
associated with any possible default in the company’s land
acquisition.

• Focus on Tier 2 and Tier 3 cities

→ Nearly ~69% of Omaxe’s land is in Tier-2 and Tier -3


cities that are estimated to drive India’s investment and
growth phase owing to their huge unexplored potential. Jaipur
(14 mn sq. ft., 9% of total saleable area), Raipur (14 mn sq. ft.,
9% of total saleable area), Patiala (12 mn sq. ft, 8% of total
saleable area), and Indore (10 mn sq. ft., 7% of total saleable
area) are the key cities where Omaxe has considerable land
reserves.

• Strong Brand image

→ Omaxe has been in the construction industry for over 18 years


and has completed more than 120 construction projects. By
delivering projects in timely manner, Omaxe has developed a
reputation amongst its customers of being a quality
developer.
→ Omaxe also has a strong marketing network of more than 800
business associates. These factors enable help Omaxe to have
a high visibility and a competitive advantage over its
competitors.

• Diversified across various verticals

→ Omaxe has projects and land reserves spread across 32


cities and 11states in India. The company focuses on
developing residential and commercial real-estate projects

57
ranging from integrated townships, group housing and retail
and other commercial properties, hotels, information
technology and bio-tech parks to special economic zones
(SEZ).
→ Omaxe’s wholly owned subsidiary M/s Eden Buildcon Pvt
Limited has recently bagged a 25 acre premium plot in
Hyderabad where it has plans for multi-purpose development.
Omaxe has also forayed in SEZ development and signed a
MOU with Government of Rajasthan for 5000 hectare SEZ in
Alwar District. Therefore Omaxe has a strong business model
with presence across all verticals.

• Diversification of portfolio and innovation

→ Omaxe’s project portfolio primarily comprises residential


and commercial segments. As on March 31, 2007, townships
[including sale of residential (GHS and Villas)], commercial
plots, and group housing schemes constitute 73%, 20% and
7% of developed area respectively.
→ Going forward, Omaxe is expected to be engaged in the
development and sale of townships (49.5% of land bank),
residential properties (47% of land bank), and sale/lease of
commercial properties (3% of land bank). It has also entered
into hotel business (0.5% of land bank) and intends to enter
into SEZs and IT parks.
→ The sale of plots helps the company to manage its
working capital requirements. Sale of residential properties
gives it free cash flows, which in turn, allows leasing out of
commercial properties for stable future income.
→ Omaxe has a well-diversified business model and is into
development of all types of real estate such as residential

58
houses, commercial complexes, retail, integrated townships
and hotels. This spread has provided the company opportunity
for both growth and risk mitigation. Omaxe is one of the first
few developers to conceptualize and develop theme malls in
northern India.
→ Omaxe is also entering into key arrangements with
strategic partners to enhance the real estate development
business. The company has entered into public-private
participation arrangements with the Patiala Urban Planning
and Developing Authority to develop an integrated township
at Patiala over an area of 336.5 acres.

• Foray into Infrastructure

→ Omaxe has entered the lucrative infrastructure segment


in the third quarter 2008 by forming a consortium with GVK
power & infrastructure limited and Nagarjuna construction
Company limited.
→ The consortium has bid for the 8-lane Ganga
Expressway project from Greater Noida to Ghazipur-Ballia on
Public Private Partnership model.
→ It has also bid for institutional and residential
development of vacant land admeasuring 20.21 acres situated
at Andhra Pradesh Bhavan, New Delhi, on Design, Finance,

59
Build and Recover basis under Public Private Partnership (PPP)
model.
→ Omaxe has also bid for revamping Udaipur Airport

60
Threats & Weaknesses

• Execution challenge

→ Till FY07 end, Omaxe has delivered 5.13 mn sq. ft. of


land and aims to develop another ~150 mn sq. ft. over next 5-
6 years.
→ Though the company has the execution capabilities and
will be able to deliver the same, but the timely completion of
these projects is a strong execution challenge for the
company. Any delay in the execution of projects will put strain
on cash flows and valuation and also will hamper the
company’s growth prospects.

• Regional concentration

→ Historically, NCR has contributed majorly to Omaxe’s


total revenues and is continue to do so. Around 40% of the
company’s total revenues are expected to come from this
region, going forward.
→ This poses a significant regional risk. Any significant
correction in property prices in NCR or any sort of adverse
change in government policies in that region will hurt the
profitability and valuation of the company.

• Interest rate risk

→ The interest rates have seen an uptrend during the last


year. Given that a bulk of sales are likely in the middle income
salaried class, any further hike in housing interest rates will

61
lead to a slowdown in real estate demand and will adversely
affect the sales, profitability, and valuation of the company.

• Limited land Supply and Fast Depleting Land Bank

→ Limited supply of land, increasing competition from


companies like DLF and Unitech and applicable regulations
can result in land price escalation and a further shortage of
developable land. This in turn will affect Omaxe’s business,
prospects, financial condition and results of operations.
→ Omaxe is developing projects on a large part of its land
reserves simultaneously. This would result in Omaxe reserves
depleting faster compared to Omaxe peers. So, a need arises
to replenish the land bank faster.

• No rights over brand name

→ Omaxe does not have intellectual property rights over


its brand name “Omaxe”. It is owned by the CMD of the
company, Mr. Rohtas Goel and the company pays him a
royalty for using the same.

• Highly Competitive Sector

→ The real estate sector is competitive and highly


fragmented. Less or low fixed capital requirements and

62
technical expertise have led to low entry barriers resulting to
fierce competition. This can adversely affect Omaxe’s
business prospects and financial condition.

• Title/Rights to develop land

→ Land reserves of the company include ~1,283 acres of


land, approximately 38% of the total land reserves, on which
development is currently not permitted as the change of land
use certificates for the conversion of agricultural land to land
eligible for real estate development are still pending.
→ Further, some of the land reserves of the company have
irregularities of title, such as non-execution or non registration
of conveyance deeds in respect of 84.82 acres (2.6% of land
reserves), litigation affecting title in respect of 69.07 acres
(2.12% of land reserves), mutation certificates yet to be
obtained on land measuring 108.58 acres (3.33% of land
reserves). Obtaining clear titles and certificates for conversion
of land use will be vital for the company.

63
Sobha Developers

Company background

→ Incorporated in 1995, Sobha Developers Limited (Sobha)


is amongst south India’s leading real estate developers having
completed ~22mn sq. ft. of construction since inception.

→ Sobha also undertakes contractual construction for key


clients such as Infosys (80%), Dell, HP, Taj etc.

Key Highlights

→ Contractual work in addition to own development helps


Sobha diversify risk, ensuring steady cash flows & profitability.

64
 While a correction in capital values is expected margins
expected to remain steady from increased focus on own
projects

→ Infosys factor = Critical visibility+ brand awareness +


experience

 Experience from execution of Infosys projects in various


cities = Strong brand awareness in new markets early on
= Premium pricing + De-risking from Bangalore market

→ One of the few developers to integrate backwards providing


scalability, timely execution, better margins and focus on
quality

 In-house glazing, metal works, wood works, concrete


block making, designing and procurement

→ Significant volume growth expected over the next 3-5yrs


on strength of its large land bank of 4,077 acres, across 10
cities.

Key risk factors

→ Multi fold jump in projects poses an execution challenge

→ Geographical concentration within Bangalore (~40%)

 Setback in the IT/ITeS sector to hamper Sobha’s


development plans in Bangalore (being a IT hub)

→ Multi fold jump in projects poses an execution challenge

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Strengths & Opportunities

• Shifting focus to own development work

→ Plans to increase share of own real estate projects as against


contractual projects

 Critical land bank of 4,077 acres locked in (development


potential of ~224mn sq. ft.) To be executed over next 10-12
yrs

 To result in higher operating margins = ~35-40% from


own real estate projects as against ~17-20% margins in
contractual projects

• Differentiating itself with high quality of construction

→ Superior execution quality = Strong brand name

 Backwardly integrated to maintain quality


standards within stringent timeframes without dependence
on 3rd parties = Premium pricing

 Exploring & adopting new technologies like


Mivan, top down construction, pre fabrication, etc.

• Expanding its reach

→ Expansion to lucrative markets outside


of Karnataka

 Entering cities such as Mysore,


Pune, Kochi, NCR, Trichur (launched), Chennai, Mumbai,
Mangalore, Coimbatore, Jaipur, Goa and Hyderabad

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 De risking itself from
geographical concentration within Bangalore (~60% of land
bank outside home market of Bangalore)

• Capitalizing on Infosys’ patronage

→ Preferred developer for all


the real estate requirements of Infosys Technologies

 Key catalyst in
helping Sobha establish its mark, improve its visibility to
expand its contractual clientele and build its brand

 Capitalizing on its
preferred status to further its footprint into other cities
where the software giant sets up shop

• High quality & timely execution

→ Sobha is regarded as a high quality developer having


successfully created a brand, by providing world-class
structures, in a time-bound manner

 Allows for higher margins than peers

 Also results in higher amount of presales upon launch

→ Timely delivery further strengthening brand name

 Sobha currently has ~12mn sq. ft. under


construction with ~22mn sq. ft. to be launched over the
next 1-2 years.

• Backward integration

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→ ‘Backward integration’ enables Sobha to build key
competencies in executing its projects

 In-house glazing, metal works, wood works, concrete


block making, designing and procurement

 Strategy has helped maintain high quality standards


without being dependant on any third party for key
products and services.

• Multiple revenue streams

→ In addition to own development work, regular income


from low risk, high volume contractual projects de-risk
Sobha’s from the asset cycle risk
Threats & Weaknesses

• Bangalore focused

→ As of December 2007, 85% of ongoing and planned


projects located in Bangalore and its outskirts.

 Bangalore market is currently facing an


oversupply situation in some micro markets resulting in a
drying up of transaction volumes.

• IT/ ITeS dependent

→ Demand for office space in Bangalore


is highly dependent on the sustainability of the current boom
in the IT sector, which accounts for ~80% of demand.

 The strengthening of the Rupee


against the Dollar, regional slowdown in construction or

68
delay in infrastructure projects in Bangalore can adversely
affect the financial condition of Sobha.

• Client concentration

→ Substantial portion of Sobha’s contractual projects continues to


come from Infosys.

 Billing to Infosys as a % of total contractual income was


83% in FY’06, 88% in FY’07 and 77% in H1-FY’08.

 Change in Infosys’ expansion plans or shift to lease


model can affect Sobha’s contractual business immensely.

• Asset/ Business Cycle Risk

→ Current unsustainably high prices expose IBREL to


an asset cycle risk, as any fall in prices would have a
significant impact on its profitability.

 Sentiment effect = Further slowdown in


sales = Inventory build up

CHAPTER 7

69
DATA

7.1 Data Collection

As a preliminary for the business development of the company it was essential to find the
customer/investor perception about investing in real estate.

For collecting the information a questionnaire was designed focusing on the main cities in
NCR like Greater Noida, Noida, New Delhi and Ghaziabad where the company is operating
its projects.

The respondents in our sample size are professionals from major public and private
institutions which include managers, consultants, proprietors, business class etc.
Approximately 200 questionnaires were filled and ultimately collected 169 with positive
response that they have their interest in investing their funds in real estate.

Table 1 summarizes the total sample size which reflects that majority of respondents have
their interest in real estate.

Table: 1 Sample size and Respondents:

City Total Respondents Interested in Real


Estate

70
Greater Noida 50 42

Noida 50 44

Ghaziabad 50 40

New Delhi 50 43

Total 200 169

No.OfRespondentsInterestedinReal Estate

NewDelhi25% Noida25%
Noida
GreaterNoida
Ghaziabad
NewDelhi
Ghaziabad24% GreaterNoida
26%

7.2 Primary Data

The whole of the study is primary data based oriented through a questionnaire. The contents
of the questionnaire are:

• Interest in investing in real estate.


• Reasons for investing in real estate. (Short term, Long term, End use, Recurring
Returns)
• Risk factor in real estate and Return.
• Project they like to invest their funds. (Office Spaces, Plots, Shopping Malls,
Multiplexes, Group housing)
• In which assets class they find themselves most comfortable. (Real Estates, Equities,
Debt and Commodities)
• Their need for specifications and factors they find appropriate where they are
investing their funds.
• Lack of facility in previous or current residence.

The questionnaire is attached in annexure.

71
CHAPTER 8

FINDINGS AND ANALYSIS

72
Findings and Analysis

The company, UNICON REAL ESTATE Pvt. Ltd. has presently 3 projects out
of which 2 have been already cleared and one is yet to be executed. The
company expect 30-40% returns/profit margins, although it varies from
projects to projects due to various reasons like time, cost of purchase, etc.

8.1

Question 1 among the questionnaire reflects the real estate investment policy specifically. We
asked our respondents do you have interest in investing your funds in real estate.

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The answer to the question 1 indicate that a surprising number of respondents, nearly 169 out
of 200 have their interest in investing their funds in real estate.

Exhibit 1: Question 1

Do have interest in investing in Real Estate?

No.ofRespondents
NotInterested16%

Interested84%

Interpretation:

Certain increase in property prices in the last four years, high income, cheaper loan rates, no
longer adverse to debt and ready to discount future earnings today could be the main reasons
for development of interest in real estate of customers.

8.2

Reasons for the customers/investors for investing in real estate, may it be Short term returns,
Long term returns, End use or recurring returns. Different respondents from different cities
show different perceptions. End use and long term investment are the two reasons among four
who votes majority of respondents.

Exhibit 2: Question 2

What are the Reasons for investing in Real Estate?

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ReasonsforInvesting

60

50

40 ShortTerm
LongTerm
30
EndUse
20 RecurringEarning

10

Interpretation:

Since real estate has beaten all forms of investment in last four years and sought to be
emerging as a key element in customers/investors portfolio and by paying an EMI instead of
paying taxes and rent they develop a compulsory saving habit and create a valuable asset for a
long period of time could be a possible reason for this above result.

8.3

The question mentioned states about the top risk factors associated with the real estate
investing. Asset volatility, lack of reliable valuation data, legal and regularity risk, risk of
poor professional advice, hard to determine the best opportunities are the various risks
associated with real estate and mentioned in questionnaire.

Exhibit 3: Question 3

75
What are the risk factors in Real Estate?

AssetVolatility
TopRiskFactors

40 Lackofreliable
35 data
30
Legal and
25 Regularotyrisk
20
Riskofpoor
15 professional
10 advice
Hardto
5
determinebest
0 oppurtunities

Interpretation:

Risk of poor profession advice, legal and regularity risk, hard determining the best
opportunities are the top three factors. Change in government policies, change in trend and
fashion cold be the main reason for above.

8.4

Various big players had registered its presence across the country with a healthy mix of
projects. The question revolves around the same perception about customers/investors view in
which project they would like to invest. – Office Spaces, Shopping Malls, Plots, multiplexes
& Group Housing are few of the projects.

Exhibit 4: Question 4

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In which project you would like to invest?

ProjectsofInterest

50

40
OfficeSpaces
30 ShoppingMalls
Plots
20 Multiplexes
GroupHousing
10

Interpretation:

There’s been an evident shift in perception and mindset in the Indian middle class over the
last five to ten years, thanks to the impact of liberalization and opening up of the Indian
economy, a rise in average income across households, and a palpable desire to own things
‘now’. The most crucial aspect of this ‘shift’ in the consumer’s mindset is perhaps explained
by the fact that the young (or Next Generation) are more in charge of their lives and eager and
impatient to assume the world. It’s a generation that is independent, self-reliant and nuclear in
nature. And it is this eagerness that is succeeding that has fuelled a drive to own what one
desires the most: a home, a car and a healthy lifestyle. Other drivers have been incentives
from the government to buy homes, improved quality of buildings and property services and
a bouquet of financial options. Tax concessions, property price dips and lower interest rates
have also helped.

8.5

The question ask “on a 5-point scale,….how does the long term expected return for the real
estate component and your portfolio compare with the long term expected return for the
following asset class in your portfolio”?

In which project you would like to invest your fund?

The research report that most respondents believe real estate has an expected return a little
above that for equities and debt. They expect commodities too significantly and somewhat
less.

What factors might explain this apparent contradict?

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• First, allocation might not be based on modern portfolios theory.
• Second additional factors affecting risk and return estimates-such as higher relative
cost of real estate.
• Consistent with this notion is the real estate has done well relative to stocks and bonds
recently, a number of customers reported investing in real estate only recently.

8.6 & 8.7

The question asks about the factors or specifications to be included by developer where the
customers/investors are investing their funds.

The factors listed below are most demanding among all:

• Affordable price range.


• Availability of loan at low interest rates.
• Easy payment plan.
• Clear title of property.
• Resale value.
• Connectivity to schools, hospitals, entertainment centers.
• Peaceful locality
• Pollution free environment.
• Quality construction and maintenance.
• Safety and Security, Water Availability, Power Back-Up, Car Parking, Recreational
Facility, Club Membership etc.
• ROI (Return on Investment)

Thus, we found that respondents are interested in investing in real estate and at the same time
developers are successful in satisfying the real estate investors. Each developer has an
average of 30-40% profit margins, although it varies from projects to projects because of
factors like cost of purchase, time, etc.

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CHAPTER 9

RECOMMENDATIONS

Recommendations:

• In reality asset allocation is far more sophisticated process. It varies from person to
person and depends on person’s financial plan, family background, disposal income,

79
age, and investor’s preferences. So before targeting the customers the company should
consider the factor.

• Consider middle- aged person from a middle class background seeking a stable life
long job. He cannot be expected to invest in equities and property. His preference
would be bank FDs. On the other hand, a market savvy young couple in the corporate
sector with high cash surplus would prefer to invest in property. The age factor should
be properly defined before targeting.

• Company should state to its customers that since real estate has beaten all forms of
investment in last 4 years and sought to be emerging as a key element in customer’s
portfolio and by paying an EMI instead of paying taxes and rent, they develop a
compulsory saving habit and create a valuable asset for a long period of time.

• Tremendous demand for residential property such as group housing, residential plots,
and townships rather than commercial property. The company should focus on
developing the residential property more rather than commercial property.

• There should be an option for discount for customers from registered dealers of the
company.

• Customers should be approached and asked them to see sample flat without forcing
them to buy the flat. The conveniences should be born by the company.

80
CHAPTER 10

BIBLIOGRAPHY & REFERENCES

BIBLIOGRAPHY:

• http://www.uniconindia.in

• http://www.uniconproperty.com

• http://www.ssrn.com

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• http://www.unitechgroup.com

• http://www.omaxe.com

• http://www.dlf.in

• http://www.parsvnath.com

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CHAPTER 11

ANNEXURE

Questionnaire

What are the customer’s and investors perceptions about investing in Real Estate!

Introduction

Thank you for taking the time to complete the survey. Your feedback is integral to our
academic research how customers think about investing in real estate. Specifically we want to
uncover why the real estate is such a limited part of most of the customers and organization
portfolios.

83
Your answer will remain strictly confidential and will be used for research purpose only. The
survey should take about 5-7 minutes to complete. Thank you once again for your time.

NAME: AGE:

ADDRESS: OCCUPATION:

1. Do you have interest in investing your funds in Real Estate?

[ ] Yes [ ] No

If yes, please answer the following questions.

2. Do you have invested your funds in Real Estate?

[ ] Yes [ ] No

3. What are the reasons for investing in Real Estate?

[ ] Short Term Return [ ] Long Term Return

[ ] End Use [ ] Recurring Return

[ ] we do not invest in Real Estate

4. What are the risk factors in Real Estate and return?

[ ] Asset volatility [ ] Lack of reliable valuation data

[ ] Legal and Regularity risk [ ] Risk of poor Profession advice

[ ] Hard to determine the best opportunities [ ] any other

5. In which project you would like to invest your funds?


Because various big players had registered its presence across the country with a healthy
mix of projects.

[ ] Office Spaces [ ] Shopping Malls

[ ] Plots [ ] Multiplexes

[ ] Group Housing [ ] Any Other, Please specify_________

6. Which is the best option to invest your fund?

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[ ] Real Estate [ ] Commodities

[ ] Equity [ ] No Idea

7. What would you like more in Real Estate; almost every builder provides the following
specifications in his project like:

• Affordable Price Range, Availability of loan at low interest rates, Easy Payment Plan.
• Connectivity to Public Transport, Work Place.
• Proximity to Schools, Hospitals, Entertainment Centers.
• Clear title of property, Resale value.
• Peaceful locality, Pollution free environment.
• Quality Construction, Maintenance, Safety & Security, Water Availability, Power
Back-Up, Car parking facility, Recreational facility, Club Membership etc.
• Return on Investment (ROI)

If any other factor or specification you find appropriate or useful in the area you are
investing, please specify______________________________________________

8. Which Brand name is something that immediately comes into your mind. Please rate the
developers according to brand image.

[] DLF
[] UNITECH
[] OMAXE
[] ANSALS
[] ELDECO
[] DREAMLAND
[] EROS
[] PARSVNATH

9. Please specify lack of facility in your previous or current investments.


___________________________________________________________________________
___________________________________________________________________________

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