Slide1: 1 INDIA- ISRAEL OPPORTUNITIES
REAL ESTATE SECTOR IN INDIA
Indian Economy: 2 Indian Economy India is the fourth largest economy in terms of Purchasing Power Parity.
GDP growth accelerated from 7.5% in 2004-05 to 8.4% in 2005-06.
GDP growth estimated at 9.2% in 2006-07. Growth in Real Estate: 3 Growth in Real Estate Investment of US$320 billion required in next five years in infrastructure.
Real Estate sector is registering an annual growth rate of 30%. Investment of US$ 16 billion expected over the next five to six years in Real Estate.
Credit to the housing sector has continued to be strong and benefited from low interest rates and incentives. Growth in Real Estate (Contd.): 4 Growth in Real Estate (Contd.) 1.1% of the GDP constitutes FDI in real estate sector.
Returns in India range between 12-15% compared to 3-4% in the advanced countries.
Merrill Lynch forecasts that the Indian real estate sector will grow from US$ 12 billion in 2005 to US$ 90 billion by 2015.
Growth Drivers in Real Estate: 5 Growth Drivers in Real Estate The robust growth in IT sector has pumped up the growth in real estate sector. An estimated 70% of the new construction is for the IT sector.
Retail sector is growing at a fast pace. India has been ranked as 5th in the list of 30 emerging retail markets and 20% growth rate is predicted for the organized retail segment by 2010.
Spiralling demand for hotel rooms has brought boom in hotel industry. The demand supply mismatch will remain over 50% beyond 2009, generating substantial business for real estate.
Integrated Townships: 6 Integrated Townships Central Government permitted setting up integrated townships at the following places:-
Hyderabad (Andhra Pradesh) (two projects)
Chennai (Tamil Nadu)
Kolkata (West Bengal)
Retail and Shopping Malls: 7 Retail and Shopping Malls Spurt in extremely large retail spaces.
Shopping malls with over 1 million sq ft of space have become the order of the day.
About 20 of these are now at various stages of construction across the country.
In the National Capital Region (NCR), Unitech's Great India Place has a million square feet (sq ft) of retail space.
In Mumbai, at least 8 malls with over 1 million sq ft. each.
In Bangalore, at least 3 malls with similar dimensions are under development.
Ludhiana will soon have a 1.6-million sq ft mall by Today Homes. FDI in Real Estate: 8 FDI in Real Estate 100% FDI is allowed under automatic route in townships, housing, built-up infrastructure and construction-development project (including but not restricted to housing, commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities and regional level infrastructure), subject to certain conditions.
FDI up to 51% is allowed through FIPB route in single brand retail shops.
Guidelines for FDI in Real Estate : 9 Guidelines for FDI in Real Estate
Minimum area to be developed under each project would be as under:
In case of development of serviced housing plots, a minimum land area of 10 hectares
In case of construction-development projects, a minimum built-up area of 50,000 sq.mts
In case of a combination project, any one of the above two conditions would suffice Guidelines for FDI in Real Estate: 10 Guidelines for FDI in Real Estate The investment would further be subject to the following conditions:
Minimum capitalization of US$ 10 million for wholly owned subsidiaries and US$ 5 million for joint ventures with Indian partners. The funds would have to be brought in within six months of commencement of business of the Company.
Original investment cannot be repatriated before a period of three years from completion of minimum capitalization. However, the investor may be permitted to exit earlier with prior approval of the Government through the FIPB. Guidelines for FDI in Real Estate: 11 Guidelines for FDI in Real Estate At least 50% of the project must be developed within a period of 5 years from the date of obtaining all statutory clearances. The investor would not be permitted to sell undeveloped plots.
“Undeveloped Plots”, here will mean where roads, water supply, street lighting, drainage, sewerage, and other conveniences, as applicable under prescribed regulations, have not been made available. It will be necessary that the investor provides this infrastructure and obtains the completion certificate from the concerned local body/service agency before he would be allowed to dispose of serviced housing plots. Venture Capital Funds (VCFs): 12 Venture Capital Funds (VCFs) In 2004, SEBI allowed venture funds to invest in local real estate.
So far over 30 foreign funds have applied to start operations in India.
VCFs invest in new properties with a lock-in period averaging seven years. VCFs and Foreign Capital Venture Investors would be exempted from lock-in requirements if shares were held by them for at least one year at the time of filing of the draft prospectus with SEBI.
$7-$8 billion is estimated to flow into real estate in next 18-30 months. Real Estate Mutual Funds (REMFs): 13 Real Estate Mutual Funds (REMFs) SEBI has recently approved the scheme of REMFs/
This scheme has an objective to invest directly or indirectly in real estate property.
The units of REMFs will be compulsorily listed in stock exchanges and Net Asset Value (NAV) of the scheme will be declared daily/
REMFs (Contd.): 14 REMFs (Contd.) REMFs can invest directly in real estate properties within India, mortgage (housing lease) backed securities, equity shares, bonds, debentures of listed and unlisted companies, which deal in properties and also undertake property development and in other securities.
Special Economic Zones (SEZs): 15 Special Economic Zones (SEZs) SEZ is a specifically delineated duty free enclave and is deemed to be foreign territory for the purposes of trade operations and duties/tariffs. To augment infrastructure facilities for export production it has been decided to permit the setting up of SEZs in the public, private, joint sector or by the State Governments.
SEZ Act 2005 has now come into effect. SEZ Rules 2006 were also issued in February. The above Act and Rules enable India to leverage SEZs, like many East-Asian economies, to push investments and growth to a higher level.
Details at: www.sezindia.nic.in
SEZs (Contd.): 16 SEZs (Contd.)
So far 63 SEZs are functional.
237 SEZs have been approved.
Total investment in SEZs is expected to be over US $ 8.8 billion in the next five years.
SEZs (Contd.): 17 SEZs (Contd.) Incentives and Facilities available to SEZ Developers
Exemption from customs/excise duties for development of SEZs for authorized operations approved by the Board of Approval.
Income Tax exemption on export income for a block of 10 years in 15 years under Section 80-IAB of the IT Act.
Exemption from minimum alternate tax under Section 115 JB of the Income Tax Act.
Exemption from dividend distribution tax under Section 115O of the Income Tax Act. Exemption from Central Sales Tax (CST).
Exemption from Service Tax (Section 7, 26 and Second Schedule of the SEZ Act). Key trends in real estate boom: 18 Key trends in real estate boom According to Census 2001 there is a shortage of 24.7 million housing units across the country.
Indian middle class which is numbered around 92 million in 2005-06 will cross 153 million mark by 2009-10 (Source: NCAER)
Number of malls in Mumbai, Bangalore, New Delhi, Hyderabad and Pune was expected to grow to about 250 by 2010 as against 40 now. (Source: Merrill Lynch)
Specialized malls are coming up across the country. DLF Universal is developing the world’s biggest mall in Gurgaon. Major Players: 19 Major Players Real Estate Developers
Indian companies: DLF Universal, Parsvnath, Unitech, Omaxe etc.
Foreign Companies: Ascendas, Emmar Group, Salim Group, CESMA International Pvt. Ltd., LJ Hooker, etc.
Indian companies: IDFC, Kotak Mahindra, Dewan Housing Finance, HDFC, etc.
Foreign companies: Blackstone, Dawnay Day, Savvils, Macquarie Bank, etc. Major Players: 20 Major Players US-based global investment bank Goldman Sachs and Unitech from India are planning to set up a special purpose vehicle (SPV) with a corpus of US$ 208.7 million for investments in the real estate sector.
DLF Ltd is forging a 50:50 joint venture with a large international property developer for two integrated townships in India with an investment of US$ 10 billion.
Credit Suisse, is planning a US$ 1 billion fund to invest in India's real estate sector.
Major Players: 21 Major Players Citigroup is investing around $400 million of equity from a recently raised fund in India.
Hilton Hotels Corporation (HHC) has announced a joint venture company with DLF Ltd to develop and own 75 hotels and serviced apartments over 7 years.
Dawnay Day International, the UK-based investment company, plans to invest US$ 1.5 billion in Indian real estate in the next two years.