drivers for future growth

Drivers for Future Growth

Ramesh NairMarch 23rd 2007

Family & Local Play Single Asset Type Play Mono / Oligopolies per city Decisions – based on “Gut” Pre – sell formula Finance – “Traditional” No Secondary Market Debt support limited

Traditional Metrics

The Real Estate Industry in India…

Emerging Metrics

“Corporatisation” Tier II / Multi City Growth Portfolio Approach Increasingly Multi player Decisions – Research based Increasing Pvt Equity interest Finance – Structured REITS / MF to emerge.

Industry Overview – The Growth Factors

Growth Sectors Office space (IT and BPO)Residential (Increased Homeownership) Retail Malls (Increased spending power)

Growth Numbers 30 m sft leased in commercial Office space in 2006US$ 22b Market (2006)Annual Growth rate of 30%200 new malls being developed

Growth Centres Delhi, Mumbai, Bangalore, Chennai, Hyderabad and PuneEmerging Tier 3 cities

Growth Enablers I. T Policies and government support (business continuity) STPI/SEZ (admin convenience) Talent and network reliability (quality and cost) Real Estate (quality, cost and administrative convenience)

Real Estate Trends Peripheral relocation Demand for built to suit Quality and configuration of space is on the rise.

Initiatives required from the government

*SOURCE - CRISIL

FDI in retail Clear SEZ policy Integrated City planning Township Development Relax FDI norms Change Legal System More govt land for devpt

Computerisation of records Create clusters More PPP’s Township Development Invest in infrastructure Improve Public Transportation Faster approvals

Less of these…

More of these…

More of these…

Global Megatrends

Demography is destinyGlobalisationUrbanisation

Conventional Wisdom vs Visionary Alternative

Slums are natural, they are inevitable Slums are created artificially, needlessly

Space is scarce; so, only a minimal space should be allowed even for the rich

Only when the rich get large spaces can the poor hope to get their due

Rural-urban migration is inevitable Rural-urban migration is unnecessary

Capital creates jobs Employers create jobs

Rural poor will migrate to cities only Rural poor follow wherever employers go

Employers like only CBDs Basically, employers seek connectivity only

Cities alone can supply large connectivity Dedicated bus lanes linking a loop of villages can provide similar connectivity

Business must be at the city centre and residences far off at the periphery

Businesses can be distributed around the loop and located close to residences

Space is scarce, hence expensive. So, poor can have slums only

Space is in surplus; so, land prices can be made low enough for the poor to afford

Need for a Strategy

Past strategies wont carry you through the next decade.

Before developing an effective strategy ask: What’s happening in the industry?

What’s my position in the industry?

Some companies do better that others irrespective of industry.

Competitive forces include existing competition, new entrants, bargaining power of suppliers, tenants and investors.

Current Issues

Current success based on a very favorable environment.

Entry barriers low, so a lot of new competition coming in.

Development for a fee is emerging.

Investors backward integrating to become developers.

Real estate advisors helping increase landlord returns.

Tenants, investors and suppliers becoming smarter and more sophisticated.

Most developers still doing deals without a strategy.

Future - Focus

Have a sustainable competitive advantage.

Cost or differentiation.

Cost: Finance, develop and deliver at a lower cost.

Differentiation: Unique skills that help in premium pricing. Decide on scope – project, location and tenant.

Different industries vary in profitability and its hard to have a competitive advantage in everything.

THANK YOU