13/8/2014 New avenues in India’s real estate sector - EY - India

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Due to rapid urbanization, positive demographics and rising income levels, the Indian

real estate sector has attracted significant investment over the past few years.

The contribution of the real estate sector to India’s gross domestic product (GDP) has been estimated

at 6.3% in 2013 and the segment is expected to generate 7.6 million jobs this year.

While housing contributes approximately 5%–6% of the country’s GDP, the retail, hospitality and

commercial subsectors have also grown simultaneously, meeting the increasing infrastructural needs.

Overview of the real estate sector in India

Sales of residential property declined in 2013 in all metro cities, particularly in the National Capital

Region (NCR), Mumbai and Bengaluru.

An increase in supply, not commensurate with demand levels, led to an oversupply situation in most

cities.

The Government of India developed the draft Real Estate Regulation and Development Bill, 2013, a

policy measure to bring in increased transparency in the sector and protect customer interest.

In the commercial segment, NCR, Mumbai and Bengaluru continue to be the leading cities

accounting for more than 75% of the entire space getting absorbed in the country in the last two to

three years’ time frame.

Introduction of REIT is likely to have a positive impact on the retail market segment.

The retail real estate market appeared to be promising despite global concerns and economic

uncertainty.

Norms for FDI in multi-brand retail has been eased to attract global retailers.

The draft Real Estate Regulation and Development Bill, 2013 is a policy

measure to bring in increased transparency and protect customer interest.

Proposal worth US$132 million (INR810 crores) was cleared by the Foreign Investment Promotion

Board (FIPB) with regards to single brand retail in the last 6–7 months.

Domestic travel spends generated approximately 81% of the direct travel and tourism GDP, with

domestic tourist visits (1,036 million) registering an increase of close to 20% from 2011.

International tourist arrivals were recorded at 6.6 million in 2012, an increase of 4.3% over the

previous year. Foreign Exchange Earnings also increased by 7.1% over the same period.

According to World Travel & Tourism Council’s (WTTC) estimates, domestic travel spending will grow

by 6.1%, while international visitor spending will increase by 8.7% per annum in 2013–15.

In 2012–13, the SEZ sector contributed 29% of India’s total exports of approximately US$ 266 billion

(INR16.35 lakh crores).

13/8/2014 New avenues in India’s real estate sector - EY - India

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The development of Delhi Mumbai Industrial Corridor (DMIC) has set a new precedent to the

development of the logistics and warehousing sector.

Current funding trends in India’s real estate market

Primary source of real estate financing

Source: EY research

Banks’ credit exposure to the real estate and housing sector declined from 10% (as a percentage of

Gross Bank Credit) in FY10 to 7.9% in FY13.

Mezzanine and structured equity instruments have become the instrument of choice for foreign

investors.

There has been an increasing dependence on non-banking finance companies (NBFCs) for funding in

the real estate sector.

Divestment of non-core assets and leased assets is another very strong theme that has been visible.

Raising funds from the capital markets continues to remain an unviable option for the sector.

Recent changes to the SEZ policy, in terms of reduced area requirements, easing of external

commercial borrowing (ECB) norms for affordable housing and enhancement of limits for listed NCDs

for all are positive steps for the sector.

Game changers such as FDI in multi brand retail, can provide the necessary spark to revive investor

interest in the sector.

REITs are expected to have a positive impact on the real estate industry and open another avenue for

investment in the real estate sector.