KAUNAS the Real estate is something that returns

KAUNAS
UNIVERSITY OF TECHNOLOGY

SCHOOL
OF ECONOMICS AND BUSINESS

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

Research
Project 2

Indian
Real Estate Market

 

 

 

POOJA
SETHI

PROF. Doc. dr. viesa Leitonien

 

 

 

 

 

 

 

 

 

 

 

Table of content

Introduction

Objective

1.1. Real estate
market and its classification

1.2. Factors
influencing the real estate market

1.3. Specific Factors
of the Contemporary Development of the Indian

Real Estate Market

2. Real estate market
research and its analysis

2.1. Comparative
analysis of real estate market research

2.2. Real estate
market analysis: techniques and applications

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-Introduction:

To
define fundamental of Real estate is “a property that holds essentials on it
depending on individual requirement which definitely has natural resources as
its only component of measure”. The Real estate can be an asset and on the same
time can be liability for anybody according to Robert Kiyosaki that is if the
Real estate is something that returns back in pocket, it is termed to be as
Asset whereas if the same thing empties the pocket, it will be a liability. It
has always been a favourite investment area of active or passive investors,
businessman or any profession as this is immovable. Moreover, with the
increasing population, the demand for shelter has greatly risen up which tends
to automatically increase this sector of business. On a business point of view,
Real estate is the profession of buying, selling or renting land, buildings or
housing 1. Figure 1 shows the European land values (euro per hectare) as an
overview of international land price.

Fig 1: European Land values (source: Politics.ie)

Everything
that is invented or discovered comes with not just pros but also with the cons,
picking the right property to invest will be the key to getting better returns.
Real Estate is a mixed product and returns depends on various aspects such as
location, constructions, economic scenario etc.

-Indian economy

The economy of India is ranked world’s 6th largest
by nominal GDP and the 3rd largest by purchasing power parity (PPP).
India due to its youth population and other scientific institutions ranks 141st
in per capita GDP (nominal) and 123rd in per capita GDP (PPP) 34.
After 1991 economic liberalisation, India grew by 6-7% average annually in GDP
and moreover, in the fiscal year 2015 and 2017, India became fastest growing
major economy surpassing china 5. As quoted by Robert Kiyosaki, a currency is
designed in such a way that its value decreases over the years thus, real
estate proves to be promising business but dependent on economic growth as
well. As per the recent example, demonetization, RERA and GST (goods and
service tax), in order to eradicate or more specifically reduce the black money
holders in India. This lead economy of India at greater risk as new notes of the
Rupee currency took almost a year to roll between citizens and government. Below
figure shows the impact of Demonetisation on real estate:

Fig 2: Inventory pileup due to demonetization in real estate
sector of India (source: business today)

But
the idea of designing Demonetisation was to build liquidity with better tax
collection, tax benefits, tax benefits, low interest rates, higher disposable
income, lower EMI which would enhance high loan eligibility. Along with this,
RERA is designed for consumer-friendly policies which would increase
transparency and good quality with timely delivery. This act would increase
customer protection, hence better demand and better fulfilment.

-Objective

India
is a land of diversity in heritage, culture, caste, race, religion, language
etc. The diversity also extends in the food and shelter, though food can be
adjusted but shelter is what everybody needs. Buying a property is not one
business, to make it available for investor is another sort of business which
Indians have come up which is termed as Broker or more interestingly a
negotiator. Not just this, for ease of buying a home, Home loan strategical
plans are issued by banks in India namely ICICI bank, Canara bank, IndusInd
bank etc, where an individual can buy any property on the cost of its Every
Monthly Investment (EMI) paid to bank for the specified period of time. Thus,
it is very interesting to know how just a real estate can be business hope for
various sectors of profession. This Research digs inside the overview of Real
estate components, Indian economy, Indian Real estate, its variance throughout
the country. The main objective lies in reviewing and analysing Indian real
estate market over the years. Shown below, figure 2 describes the change in the
type of use of land in India from 1970-71 to 2008-09.

Fig 3: Classification of land-Use in India (source:
shareyouressays.com – article by Pragati Ghosh)

The
reason for choosing Indian real estate are as follows:

Indian governance system and its
corruption level – The government of India earlier used to work on the 5-year plan policy
to which people vote and trusted, but politics now is all about muscle power
and money. Indian system by these in-power government bodies which hinder
Indian real estate market.

World’s second highest population – being world’s 2nd largest
by population, every citizen of it needs shelter. Though advanced
constructional methods make home availability for many families yet not a piece
of cake for all.

Family earning type classification – There are three levels

1.
upper class family

2.
medium class family

3.
lower class family

The
classified family types make sure the real estate is not stagnant or same for
the whole country which is another important foundation criteria of research.

Reservation/Beneficiary based on
different criteria in India – This system is an action such as reserving access to seats
from legislature to government jobs and even to enrolling in higher educational
institutions.

-Real estate market and its classification

The foundation of
Real estate lies in its history termed as Land reform which is effort the
reform the ownership and regulation of land in India. The most revolutionary
movement after Indian Independence is perhaps the abolition of the “Zamindari
system” that is the feudal and holding practices. The reform had two specific
objectives which is removal of impediments to increase agricultural production
and eliminate elements of exploitation and social injustice.

There are four main
categories of reforms 6

·        
Abolition of intermediaries – rent
collection system under the pre-independence land revenue system

·        
Tenancy system – improving the
contractual terms including security of tenure

·        
A ceiling or landholdings –
redistribution of surplus land to landless

·        
Attempts to consolidate disparate
landholdings

Since its independence in 1947, India has adopted the
voluntary and state initiated/mediated reforms in land in several states,
namely Kerala and west Bengal, with objective of efficient use of land 7 and
social justice ensuring 89. After the land reforms in India, people used
their land in agriculture, buildings, commercials etc as per their requirement.
Now, for some who had no land but had money, the business is then started to
roll which is now known as real estate.

-Classification
of real estate

Real estate can be classified as follows:

1. Residential real estate – this includes both newly
constructed and resale homes. Mostly such homes are categorized for
single-family homes. There are also condominiums, co-ops, townhouses, duplexes,
triple-deckers, quadplexes, high-value homes and vacation homes 10. Below
tables depicts the top real estate companies/developers in India:

Name of the builder

Total projects

Experience (in years)

DLF

94

72

Unitech

116

47

Omaxe

98

31

Godrej properties

79

28

Prestige group

134

32

Kolte Patil Developers

107

27

Ansal API

103

51

Sobha Limited

133

23

Puravankara

59

43

Eldeco Group

68

43

Parsvnath

54

11

Brigade Group

27

32

Table 1: List of Companies/builders in real estate (source:
makaan.com)

2. Commercial real estate – such real estate includes
shopping centers and strip malls, medical, educational infrastructure, hotels,
motels and offices.

3. Industrial real estates – includes manufacturing
buildings and property along with warehouses. These buildings are used for
various purposes such as those of research, goods storage and
distribution/production. In Figure 3, as per data 2015, the left graph shows
the state with highest percentage of forest converted industrial land whereas
the right graph shows the states with least percentage of the same.

Fig 4: Converted forest land into Industrial real estate
(source: Kenfolios blog by debopam Bannerjee 2015)

4. Land – the final classified real estate includes
vacant land, working farms and ranches 10. These lands are either not in use
or are undeveloped or are kept at hold till the market values reaches it double
worth value.

To manage this, there are specified authority
designated in every state by the government of India. Some of the metropolitan
or municipal level planning agencies are listed as below in table 2:

Name of the authority

Assigned state/UT

Andhra Pradesh capital region development Authority

Amaravati, Andhra Pradesh

Tirupati Urban Development Authority

Tirupati, Andhra Pradesh

Greater Visakhapatnam Municipal corporation

Visakhapatnam, Andhra Pradesh

Visakhapatnam Urban Development Authority

Visakhapatnam, Andhra Pradesh

Kurnool Urban Development Authority

Visakhapatnam, Andhra Pradesh

Bruhat Bengaluru Mahanagara Palike

Bangalore, Karnataka

Mysore Urban Development Authority

Mysore, Karnataka

Mangalore Urban Development Authority

Mangalore, Karnataka

Municipal Corporation of Greater Mumbai

Mumbai, Maharashtra

Chennai Metropolitan Development Authority

Chennai, Tamil Nadu

Greater Coimbatore Municipal Corporation

Coimbatore, Tamil Nadu

Greater Hyderabad Municipal Corporation

Hyderabad, Telangana

Hyderabad Metropolitan Development Authority

Hyderabad, Telangana

Kanpur development Authority

Uttar Pradesh

Kanpur Municipal Corporation

Uttar Pradesh

Delhi Development Authority

Delhi

Table 2: State wise planning agencies of India (source:
Wikipedia)

-Components
of Real estate business plan

As well said, every legend
has legacy, meaning every career has its component and so is real estate. There
are seven components of real estate business plan such as those listed below:

1. Mission statement – the statement should always be clear of your
purpose and include our specific value proposition

2. SWOT
analysis –  it is a
standard acronym used for business plan. It stands for strengths, weakness,
opportunities and threats. It is basically a self-assessment for real estate
market and the landscape of industrial experience. It is generally analysing
the opportunities, the helping hands, the good and the bad that will contribute
to the plan in real estate.

3.
Specific goals – defining the goals
is the most important component when it comes to planning a business in this
domain. In India, almost every type of market in real estate has its own value
depending upon the area and the time frame.

4. Strategic
plan – It is now being a trend to construct with a great planned interior
for most of the builders in India as people have now started looking luxurious
look and due to possibilities of low EMI loan sanctions. In a survey, it was
found that families staying in Delhi – the capital territory of India and
Punjab, has most expensive interiors in the country.

5.
Time frame – to get what is
expected, it is important to give what is expected, which is first and foremost
the timely delivery of any type of real estate construction. Government of
India has invoked RERA policies under which a builder has to timely deliver the
proposed construction to the buyer or they face a great penalty.

6. Target
audience – one of the important factor when it comes to business
plan of real estate is targeting specific audience. In the recent trends, the
real estate developers have come up making an isolated high-rise apartment with
all possibilities of shopping, grocery etc, which makes buyer relax being away
from traffic of the city.

7. Systems
and processes ­– shaping a plan into reality
requires a perfect system and processes and that is the reason for it being
last but not least.

-Factors
affecting real estate market

A real estate market
composed of its demand, supply and most importantly its valuation. Thus,
factors affecting any of these compositions cannot be ignored rather should be
mentioned as a highlight.

-Factors
affecting real estate demand

Demand, as by definition, is insistent and peremptory
request which in real estate is presented by the buyer or investor. In India,
real estate has always been a subject of fluctuation since 1991 but the fact
that between year 2001 and 2008, there was a high growth in the sector. This
growth could not stay for long and between year 2008 to year 2014, real estate
in India experienced a drastic slowdown. The demonetisation act of government
emptied the pocket but on the same time the various reforms such as REAL ESTATE
REGULATION Act (RERA), Benami transactions Prohibition Act, Amendments in REITs
(Real Estate Investment Trusts), Goods and Services Tax proved to a magnet for
most of the investors. This resulted in increment of Housing Price Index (HPI)
for the third quarter of 2016 by 2.3% as shown in figure 5. Moreover, the
sector is estimated to touch billions by the year 2020.

Fig 5: Variation in Housing Price Index for India for quarter
2 and quarter 3 (source: Ameer & Suchitra, 2016)

The demands are affected by following factors 11:

Increasing
affordability of consumers

To buy is to have capital, which in India was poor and
has now started risen exponentially after its shift from socialism to
capitalist economy. The entry of foreign companies created more jobs which in
return increased employability of Indian citizen. The Multinational companies
increased the standard of living and per capita income and so the demand for
real estate increased. Figure 6 shows the fiscal year increment of per capita
income.

Fig 6: Increasing per capita income of Indians each year
(source: Ameer and Suchitra, 2016)

Economic
growth

India recorded growth in economy which lead to
increase the inflow of foreign investments in construction sector. As per government
rules, there is 100% foreign direct investment allowance which thereby has
contributed for development. Thus, the macroeconomic factors also lead increase
in demand for real estate.

Interest
rate

Interest rate are inversely proportional to the affordability
of property. Lowest the interest rates higher the demand, for which Reserve
Bank of India, in the year 2015 announced reduction of repo rate 25bps to
7.75%. Due to this, all leading banks and NBFCs (Non-Banking Financial
Companies) also reduced their rate of interest on loans for home 12. The most
recent bank policy, IndiaBulls, launched attractive offer with Prateek groups
where the rate of interest was 3.99% till the possession and after that back to
nominal interest. Thus, the interest rate act as catalyst to Indian real estate
market demand.

Increasing
population and nuclear families

Bengaluru, Mumbai, Lucknow and Delhi have become a hub
for education and commerce 13. To acquire best education or to earn a good
living, people in India, travel to other parts for better opportunities which
creates a need for living place. Other relevant are rise in nuclear families
and also divorce’s rate which in return also demand for property in cities.

Availability
of property and property prices

Valuation of property is inversely proportional to
drop in availability in any area. For example, Chennai being one of the most
valued city faces lack of living place and thus experience high prices. India
for now is facing shortage of housing 14.

Consumer’s
confidence

Consumer’s confidence is an important role while
dealing with real estate and trying for generating its demand. Consumer’s
confidence is shown by their willingness of taking risk by investing in a
property. Noida, acronym of New Okhla Industrial Development Area, experienced
great lose due to their case by farmers claiming being underpay for land being
used as commercial. This delayed a leading builder Supertech ecovillage project
by 6 years, but the name of the builder is what kept people hold their emotions
due to which the builder did not faced give up in consumer’s investment.

Law and
regulation

Government policies and rules are the king of the
chess which greatly influence purchasing and selling rate of the market. Some
of the amendments included RERA bill, GST and Modern tenancy bill were intended
to increase residential property demand 15 16 17.

Fig 6: factors affecting for real estate

-Factors
affecting real estate supply in India

It is equally important to study factors affecting
real estate supply due to increasing affordability and living standards in
India. Supply is defined as schedule describing quantity of commercial space or
house units supplied at varying prices 18. As we have seen, there is increasing
demand of real estate but there remains difference between absorption and
launch more specifically demand and supply. Figure 7 shows how demand and
supply differs in both urban and rural areas. The shortage, in both urban and
rural, can be more specifically analysed in figure 8.

 

 

 

 

 

Fig 7: difference between demand and supply for rural/urban (source:
project guru)

Figure 8: Real estate supply shortage in India (in millions)
(source: Crisil, 2010)

thus, both the graph clearly show how supply and
demand are at a marginal gap in India. Both demand and supply are closely
linked and the relation between it can be best described as shown below in figure
9.

Fig 9: Relation between demand and supply (source: PSR
brokerage BLOG, April 2017)

Both demand and supply are affected by certain factors,
some of the factors by which supply are affected are as follows:

Construction
cost

First and foremost is cost of constructing a building or
a house, which determines the real estate supply. In a country like India,
where there are still classified lower class families, high construction cost
has caused slow rate of construction. Companies are loaded with money burden in
construction in the form of wages, insurance, land acquisition, raw material,
architecture and engineering 18. The longer the time of construction more is
the market price affected which causes a hole in builder’s pocket. Thus, cost
of construction must be preferred while planning business as this would create instability
between demand and supply.

Foreign
direct investment (FDI) and GDP

The government of India allowed 100% FDI investment in
real estate participation of which has levelled the market to different zone. Along
with this, the GDP increment also created a positive environment in the market.
The funding was through different means such as local funding, NRI (non-resident
Indian) and FDI which will boost urbanization in the country.

 

-Market
survey of Metropolitan cities over a Decade

 

-How to
start real estate in India

-Investments
in Real estate (include in thesis)

-The lacks
in Real estate

-Road Ahead
(thesis)

-Conclusion

-References

1 “Real estate”, Oxford English
Dictionary Online Retrieved Jan 20, 2018

2 Classification of Land-use in India,
Article share by Pragati Ghosh

Classification of Land-Use in India – Essay

3 Data refer to the year
2016. (selecting all countries, GDP per capita (current US$), World Bank

4 PPP (current international $)”, World
Development Indicators database, World Bank.

5 “IMF World Economic Outlook (WEO)
Update, January 2017: A Shifting Global Economic Landscape” imf.org

6 Besley, Timothy and Burgess, Robin. 2000. “Land
Reform, Poverty Reduction, and Growth: Evidence from India.” The Quarterly
Journal of Economics 115: 389-430.

7 Appu, P. S. 1996. Land Reforms in India: A
Survey of Policy, Legislation and Implementation. New Delhi: Vikas Publishing
House

8 Deininger, Klaus. 2003. Land Policies for Growth and Poverty Reduction. Washington, DC:
World Bank.

9 Basu, Kaushik,
eds. 2008. The Oxford Companion to Economics in India. New Delhi: Oxford
University Press

10 The
balance blog October 28, 2017

11 IBEF, 2017,
Indian Real Estate Industry Analysis

12 Shanu,
2015, Impact of interest rate cut on real estate

13
Projectguru – https://www.projectguru.in/publications/factors-affecting-real-estate-demand-india/

14 Ameer, M.,
& Suchitra, D (2016). Curiosity of investors and development of real estate
market in India. Anvesha’s International Journal of Research in Regional
Studies 48-57

15 Arora S,
2017, real estate – 2016 round up and outlook for 2017

16 Gupta,
M.Das, 2015. New law framed to do away with tenancy troubles, rental housing
all set to grow

17 Singh,
A.R, 2017. Budget 2017: Impact on India’s residential real estate Market

18 Project
guru – https://www.projectguru.in/publications/factors-affecting-real-estate-supply/