cushman & wakefield_investment report 2009 - survival to revival

8/9/2019 Cushman & Wakefield_Investment Report 2009 - Survival to Revival

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REVIVALI n d i an R e a l t y S e c t or o n t h e pa t h t o r ec o v e ry

SURVIVAL TO


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EXECUTIVE SUMMARY

DEMAND FORECAST

ATTRACTIVE LOCATIONS

INVESTMENT SCENARIO

SIGNIFICANT REAL ESTATE

REGULATIONS

THE ROAD AHEAD

FOR REALTY

1

37

2227

28

Table of Contents


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Prevalent market sentiments indicate that thereal estate sector around the world (with a few

exceptions such as Europe) has begun to bottom

out. Attracted by correcting values, investors

and end-users have begun to cash in on good

bargain buys, bringing momentum to the

activities in this sector. Asian economies, with

strong fundamentals to cope with the ongoing

economic crisis, have performed better than

their North American and European

counterparts. Over the second quarter of 2009,

1the Asia Consensus Economics Forecasts on

principal macroeconomic indicators, improved

for large Asian countries (although a few

smaller nations continued to remain

pressurised).

Executive SummaryThere is no doubt that the fiscal stimuluspackages, which were offered as remedial

measures by various Asian governments, have

started to show results. The forecasted

improvement is based on an upward revisions of

the first quarter GDP estimates. Despite

divergent views amongst large international

institutions, Asia is believed to be better placed

economically because of its low levels of debt

exposure at the government, corporate and

consumer levels, which has aided an early

recovery process, now underway.

It has been observed that in certain mature

Asian markets, positive sentiments have

translated into higher occupier confidence. A

few major locations in India too have seen a

significant turnaround in the number of

viewings/enquiries for commercial spaces in 2Q

2009, indicating rising interest and growth in

activities. Despite weaker demand in 2009, the

rise of activities in the sector can be taken as a

positive indication for the country's realty

sector, which is expected to revive by mid-2010.

Coinciding with the return of buyer interest in

select locations, land deals too have begun to

stage a slow recovery. Land, being the key

requisite for all real estate activities, is also the

component which usually lags in the recovery

cycle and hence a revival in this segment can be

considered as an indication of gradual revival of

the market. The window of opportunity in

investments now lies in entering or reinvesting

before the market bottom shifts out.

The real estate sector in India is now on a

gradual improvement curve with new projects

being launched and the liquidity position of

developers improving on the back of Qualified

Institutional Placement (QIP) issues and

proposed public offers. Despite a lack of any

serious announcements made during the interim

and final Union Budget for India's realty sector,

there has been an increased emphasis on the

1. Based on recent Asia 2009 report of Consensus Economics

1


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FDI Inflow in Real Estate & Construction (in USD million)

2006 - 07 2007 - 08 2008 - 09 2009-10 (F) Cumulative inflow(Apr'00 to Jun'09)

Housing & Real Estate 467 2,179 2,801 1,181 6,693

Construction985 1,743 2,028 603 5,874(Including roads & highways)

At this juncture of the country's economy,

Cushman & Wakefield Research revisits its

real estate demand estimates. The forecasts

for pan-India commercial office space demand

for the period 2009-2013 stands at

approximately 196 million sq.ft., while retail

space demand for the same period across India

is estimated to be about 43 million sq.ft.

Demand for hospitality and residential

segments are likely to be over 690,000 room

nights and 7.5 million units, respectively.

Over the next 3-5 year period, a fair amount

of investments would be required for slaking

this anticipated demand. In this report

Source : Department of Industrial Policy & Promotion

infrastructure sector with higher allocation of

funds. The Reserve Bank of India (RBI) has also

directed the banking sector to reconsider

lending to the realty sector.

India's economic performance vis--vis other

economies over the past year has encouraged

many global investment firms to reconsider

India as a potential investment destination.

According to the Indian Brand Equity

Foundation (IBEF), the quantum of investments

by Foreign Institutional Investors (FIIs) in

domestic equities crossed the USD 60 billion,

for the first time since the recent economic

slowdown from mid 2008. The netinvestment position of FIIs increased from

USD 53.3 billion on March 9, 2009 to over

USD 60.3 billion till June 10, 2009. Foreign

Direct Investment (FDI) inflows in the first

six months of 2009 began on a good note too,

with a cumulative influx of about USD 1,382

million for the first 5 months of the year. Our

analysis indicates that Maharashtra continues

to be the most favoured location forinvestment amongst the institutional

investors followed by the National Capital

Region (NCR) and Karnataka, which have

also attracted substantial investments.

The role of FIIs and FDI in the country's real

estate sector has been exponential in its

growth and development. For the period

under consideration (August 2008 - August

2009), an asset class-wise analysis of total

foreign investments indicates that the

residential sector has been the highest

investment grosser followed by the township

sector. The table below indicates the quantum

of FDI inflows into the realty and

construction sectors.

Demand Projection (2009-2013)

20% 40% 60% 80% 100%

Hospitality

Residential

Retail

Office

0%

2009 2010 2011

Source : Cushman & Wakefield Research

Over 690,000 Room Nights

Over 7.5 million units

Over 43 million sq.ft.

Over 196 million sq.ft.

2012 2013

Cushman & Wakefield Research has further

attempted to identify and examine select

locations with high potential that may be

viable investment opportunities.

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The Indian real estate sector has undergone a

rapid transformation during 2008-09 due to

the global economic crisis. The high growth

trajectory of the previous years saw a setback

during this period. Inherently strong

economic fundamentals, low exposure to debt

and state intervention, however, have helped

the sector to gradually return to the path of

recovery.

Cushman & Wakefield Research revisits the

demand estimates post the economic crisis

which resulted in weakening business

sentiments and demand contraction. The pan

India cumulative demand during 2009-2013is estimated to be 196 million sq. ft. for office

and 43 million sq.ft. for retail. While

demand for the hospitality segment is likely

to be over 690,000 rooms nights, that for the

residential segment is expected to be 7.5

million units for the period under

consideration.

The estimates for various asset classes were

arrived at by considering variables which

form the primary demand drivers or major

Demand Forecastinfluential factors of that particular asset

class:

Office: The variables considered for demand

forecast are the Gross Domestic Product

(GDP), historical demand trend in the real

estate sector and anticipated future

commitments.

Retail: Factors influencing the demand for

retail segment are the occupancy levels in

existing markets which were analysed in sync

with the growth of the Indian retail sector

and the growth of consumerism.

Residential: The growth in income, increase

in the number of urban households, and the

growth in loan disbursement were some of the

considerations for residential demand forecast.

Hospitality: The demand estimate for the

hospitality segment, referred to as

Accommodated Demand, is computed

based on the estimated supply and anticipated

occupancy levels during the years under

consideration.

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Retail MarketCumulative retail demand across India is

estimated to be 43 million sq.ft. by 2013 ofwhich, demand in the top seven cities is

estimated to be nearly 34.6 million sq.ft. The

demand is expected to be concentrated in the

tier 1 cities constituting nearly 46% of the

total estimated pan India demand during the

period under consideration. Pune is expectedto record the highest compounded annual

growth of 51% due to the current limited

stock of operational malls and favourable

demographic profile which cites potential for

the growth of organised retail segment within

the city.

Bangalore, Mumbai and NCR are all expected

to see the highest demand, together

comprising approximately 20 million sq.ft.

The anticipated increase in the share oforganised retail is expected to grow from 5%

to 15.5% by 2016, according to the

Investment Commission of India, highlighting

the potential for retailers to expand pan India.

Retail Demand (Pan India, 2009-2013)

0

2009E

MillionSq.ft.

2

2010E 2011E 2012E 2013E

4

6

8

10

12

14


Retail Demand (Million Sq.ft., 2009-2013)

0

1

2

3

4

5

6

7

Hyderabad Kolkata

NCR

Chennai

Bangalore

Mumbai

Pune

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Hospitality MarketThe increasing contribution of in bound and

domestic travel and tourism to the GrossDomestic Product (GDP) of India has

provided the necessary impetus for the

growth of the hospitality industry. According

to the Travel & Tourism Competitiveness

Report 2009 by World Economic Forum, the

contribution of travel and tourism to GDP is

expected to be approximately 6% in 2009

and the real GDP growth for travel and

tourism economy is expected to be at 0.2% in

Accomodated Demand(Room Nights, 2009-2013)

Hyderabad Kolkata

NCR

Chennai

Bangalore

Mumbai

Pune

80,000

0

120,000

100,000

60,000

40,000

20,000


Hospitality Demand (Pan India, 2009-2013)

02009E

Room

Nights

50,000

2010E 2011E 2012E 2013E

100,000

150,000

200,000

2009 with a potential of increase to an

average 7.7% per annum over the next 10years. The pan India accommodated demand

for the hospitality sector is estimated to be

over 690,000 room nights by 2013. Tier 1

cities are likely to drive the demand in the

hospitality segment led by NCR which is

estimated to constitute 15% of the total

demand by 2013, followed closely by

Mumbai at 14%. The upcoming

Commonwealth Games in 2010 is one of the

main demand drivers of room nights in theNCR. Bangalore, however, is expected to

register the highest compounded annual

growth of about 26% in demand, followed by

NCR at 24% and Pune at 23%.

Tier 2 and 3 cities are also likely to generate

demand for 242,000 room nights by 2013

owing to various initiatives taken by the

Indian government to promote commercial

and tourism activity in these locations.

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With signs of economic stabilisation andmoderate global economic growth forecasted

for 2009-10, the property markets in Asia

Pacific, have begun to exhibit signs of revival

in the second quarter of 2009 as hope for a

wider economic recovery continues to grow.

With the country's economic outlook

beginning to improve, foreign institutions are

finding a way to buck the downward trend by

investing in India.

According to Indian Brand Equity

Foundation, in 2009 alone, India received

approximately USD 5.5 billion of FIIs out of

a total of USD 23 billion that flowed into

emerging markets. India also received close to

25% of the portfolio funds coming into

markets in Asia, Africa and Latin America.

This is significant in the light of the fact that

till 2007, India had received less than 15% of

the funds flowing into these emerging

markets.

Attractive LocationsEven though the overall demand for realestate space saw a decline in 2009 over the

previous years, the sector is expecting to see a

demand growth in the next five years backed

by inherently strong economic fundamentals.

In this section, Cushman & Wakefield

Research highlights a few high potential

micro-markets, among many others spread

across the country, investing into

development projects across various asset

classes. These locations have been evaluated

on existing base, expected demand, current

and future infrastructure, end user

attractiveness, potential in growth of rental

and capital values, investor interest,

performance of existing projects, expected

investment returns and availability of viable

investment options.

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The Outer Ring Road (ORR) stretch from

Hebbal to Sarjapur is an established

commercial destination with key IT

clientele (IBM, Intel, Accenture, CISCO

etc). In the last 3-4 years, this stretch has

witnessed significant growth in commercial

and residential developments. Besides good

physical infrastructure, this micro market

has other added advantages like consistentgrowth in office demand, better

connectivity to CBD/off - CBD and

suburban locations and good social

infrastructure. One of the key infrastructure

initiatives underway in this micro market

is the underpass at Hennur Banaswadi Ring

Road by the Jawaharlal Nehru National

Urban Renewal Mission (JNNURM).

The current quantum of leased stock in this

micro market is approximately 15 million

sq.ft. There has been an increasing share of

absorption in this micro market since 2006

with an average annual growth rate of 12%.

As previously indicated, demand for office

space in Bangalore in the next five years

will be approximately 34 million sq.ft. in

spite of weak demand in 2009-10 the city

is likely to see healthy activity thereafter. In

the year 2008, ORR micro market

witnessed approximately 48% share of thecitys total absorption and would continue

to attract interest from corporate. Most of

the prominent developers have their land

banks in this stretch and approximately 8 -

10 million sq.ft of commercial office space

has been planned over the next 3 5 years.

BangaloreOuter Ring Road Hebbal Sarjapur

Current warm shell rentals in this micro

market are in the range of INR 40-45 per

sq.ft per month, which is higher than other

peripheral micro markets like Whitefield

and Electronics City which command

rentals in the range of INR 20 - 25 per

sq.ft per month. Despite having higher

rental values, parameters such as low

vacancy rates (10%), proximity to several

residential catchments and improved

connectivity have worked in favour of this

micro market.

Outer Ring Road Hebbal toSarjapur, Bangalore

?Demand of 34 million sq.ft.expected in Bangalore in 5 years

?Established commercialdestination with key IT clienteles

?Underpass at Hennur BanaswadiRing Road

?Expected investment returnsfrom development projects 22-24%

The land along the Marathalli-Hebbal

stretch has undergone a price correction of

approximately 10-15% over the previous

year and is currently valued in the range of

INR 120-180 million per acre, whichenhances the affordability of this location.

Keeping all of the above parameters into

consideration, investments in development

projects within this micro-market are likely

to realize an Equity IRR (post tax) of 22-

24% in the medium term.


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Gurgaon has evolved as the alternate

business destination with influx of

corporate across diverse sectors. Majority of

the real estate activity in NCR has been

concentrated in this location leading to an

increase in the total demand of office space

in this location from 59% in 2007 to 72%

in 2008. According to the estimates,

demand for commercial office space in

Gurgaon is likely to be approximately 12-

15 million sq.ft. by 2013.

Golf Course Road has established itself as

an attractive office location in the past few

years. This stretch constitutes of a diverse

occupier mix spanning across IT/ITeS, BFSI

and pharmaceutical companies. The rental

values have corrected to the prevailing rates

of INR 70-80 per sq.ft. per month from

their peak values of INR 120-130 per sq.ft.per month in early 2008. It is anticipated

that demand for office space in this location

will double in the next few years with the

rental values appreciating to their peak

values, highlighting the potential of

healthy returns. To cater to the growing

demand of the location, approximately 3.5

million sq.ft. of commercial office space

supply is planned over the next few years.

National Capital Region (NCR)Golf Course Road, Gurgaon

Commercial developments in this location

are likely to realize an equity IRR (post tax)

of 23-25% in the medium term.

The infrastructural developments have

already helped this location to gain

prominence along with its proximity to the

airport and proposed connectivity to Delhi

through the metro network. The extension

of the road also offers lucrative

opportunities for Greenfield projects where

land has been amassed by several developers

and can be potentially exploited for future

commercial real estate developments.

Golf Course Road, Gurgaon

?Demand likely to double in nextfew years

?Diverse occupier mix?Upcoming Metro connectivity

and proximity to airport


For investors looking at commercial real

estate options in North India, may take a

closer look at this micro-market.


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Navi Mumbai has emerged as a preferred

destination for the IT/ITeS companies due

to existing talent pool in the vicinity and

robust connectivity through rail and road

network. The availability of large land

parcels in this location, has been more

suitable for such companies. In order to

further support the growing office and

residential developments in the region,

several infrastructure projects such as metro

rail, Navi Mumbai airport and inter-state

bus terminal are being planned by City and

Industrial Development Corporation of

Maharashtra (CIDCO).

As the IT/ITeS sector regains its previous

growth rate post the recession, the demand

for office space in Navi Mumbai is also

expected to increasing proportionately. The

micro market possesses a potential ofadding approximately 8 -9 million sq. ft. of

fresh supply in short to mid term.

However, the supply will be intrinsically

linked to the demand pattern of the IT/ITeS

sector and is expected to enter the market

gradually in an effort to balance the supply

demand dynamics.

MumbaiNavi Mumbai (Vashi and Thane Belapur Road)

From December 2006 to December 2008,

rental values for IT space in Navi Mumbai

have appreciated at a Compounded Annual

Growth Rate (CAGR) of 15%. This growth

in rental values has been at par with

established micro markets like Andheri,

Lower Parel and Worli. Additionally, the

slowdown in real estate sector over the last

12 months has resulted in only a marginal

softening of rental values in the range of

11-13% compared to other markets which

witnessed corrections of about 20% to

40%.

Navi Mumbai

?Extensive land parcels withquality developments

?Potential IT/ITeS hub

?

Connectivity through rail androad networks


Based on the above, investors in Navi

Mumbai can expect an Equity IRR (post

tax) of 21-22% for commercial

developments in short to medium.


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Retail real estate had, till recent years,

attracted investors attention due to theexponential growth in the organised retail

sector. However, with the economic

slowdown, the retail sector witnessed

constrained leasing activities and high

vacancy rates, thus adding to the segments

current low investment worthy status.

While the current market upheaval has

temporarily decelerated investment activities

in the sector, it is expected that the countrys

organised retail market would be back on its

growth trajectory in the next 3-4 quarters

(mid-2010), following which demand for

quality retail space would also begin to

improve, as retailers would begin to

restructure their portfolio with reviving

consumer sentiments.

With market demand recovering, there would

be a substantial requirement for quality retail

real estate over the next 3 to 5 years. As perCushman & Wakefield Research's estimates,

the future demand for fresh mall space in the

top seven cities is estimated to be about 35

million sq.ft in the next five years. Our

research estimates also indicate that

Retail Marketapproximately 60 million sq.ft of fresh mall

space is likely to come up across 40 cities inthe next three years.

Till recently the market saw the creation of

low quality spaces commanding unrealistic/

inflated prices, thus in situations of over-

supply and hyper-demand, many brands and

retailers were chasing a few good properties.

For retail, we have refrained from focusing on

any particular micro-markets for investments

as most locations still continue to hold the

potential for offering good quality mall

spaces; and that a quality product would

continue to remain profitable and

investment-worthy even in an over supplied

micro-market. However, most locations across

the country, are yet to fully exploit the

potential of the existing catchment through a

quality product.

Creating a successful mall is all about gettingthe right mix of elements from the very

beginning. More centralised mall operations

and efficient management will be favoured in

the long-term for sustainability. The emphasis

will be on long-term perspective and

unrealistic valuations will have no takers.

Matching operational costs with revenue

generation is also likely to take dominance.

Continued focus on customer and retailer

needs together with innovative approach to

design and commercial viability will pave the

way forward. But above all, extensive research

and professional consultancy regarding each

aspect of mall operations is likely to gain

prominence to ensure project sustainability.

Retail : Mall Rental Growth Index

2006

50

0

2007 2008 2009

100

150

200

250

Hyderabad (Banjara Hills)

NCR (Gurgaon)

Pune (MG Road)

Chennai (Central)Kolkata (Elgin Road)

Mumbai (Lower Parel)

Bangalore (Koramangala)


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Residential : Capital Values Growth Index

100

0

Bangalore (Brunton Road, Lavalle Road)

NCR (Satya NiketanAnand Niketan)

Mumbai (South)Pune (Koregaon Park)

Chennai (Boat Club)

Kolkata (Ballygunge)

200

300

400

500

600

700

Hyderabad (Banjara Hills)


2001 2002 2003 2004 2005 2006 2007 2008 2009

800

Over the past couple of years the residential

segment in India has witnessed varied sizes

and product mix, targeted towards a wide

range of buyers. The bouquet of offerings

have included apartments, villas, row houses,

builder floors, plotted developments and even

townships by major developers across the

country. The period of heightened real estate

activities also witnessed the entry of manyfirst time or relatively new developers who

concentrated on creating apartments or

Residential Marketindependent floors mostly in the suburban

and peripheral locations across the country.

However, due to the economic slowdown and

the ensuing credit crunch, many of the major

developers were forced to revisit their

portfolio. High-end luxury apartments and

villas, which had been the key focus areas in

recent times, were replaced by mid-scale

developments targeting the middle income

group. Since the beginning of 2009, the

housing segment has generated an increased

interest amongst end-users for affordable to

mid-end products and has resulted in an

increase in sales volumes in the residential

sector.

Cushman & Wakefield Research evaluated the

investment potential within the residential

market for a mid to long term horizon. It has

identified key micro-markets which on

evaluation against others, demonstrate

stronger fundamentals, making them viableinvestment opportunities:


City Location Investment Equity Internal Rate of term Return (IRR) - Post Tax

Bangalore North & North East Bangalore 3-5 years 30-32%

NCR Golf Course Road Extension 3-5 years 33-35%

Mumbai Lower Parel 3-5 years 37-38%

Investment Opportunities in Development Projects

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Locations in North and North East

Bangalore (comprising of Hebbal,

Yelahanka, Sahakarnagar, Jakkur, Coffee

Board Layout, HRBR and HBR Layout,

Banaswadi, Off Kempapura Road,

Amruthahalli, Hennur Road, Thanisandra

Road, etc) are considered to be favourable

investment options in the mid term.

Among the key attractions of the locationare good connectivity, improved social

infrastructure, proximity to destinations

like ORR (Hebbal-Sarjapur) and

equidistant from CBD/Off CBD micro

markets.

With growing commercial development in

the ORR stretch, there is an increasing

demand for residential development in the

above mentioned residential catchments.

The total residential stock in these micro

markets is approximately 6,500 units,

with majority of them purchased; while

approximately 7,000-8,000 units are

expected to be added to the stock over the

next 3-4 years, the majority being in the

mid-range category. The residential

demand for Bangalore is expected to be

approximately 500,000 units in the next

few years and a significant share is likely to

be catered in the above mentioned micromarkets.

BangaloreNorth & North East Bangalore

The physical infrastructure and the

connectivity in this region are favourable,

including proximity to the airport. There

are many educational institutions and

hospitals in and around these micro

markets. Approximately 1.5 million sq ft.

of the retail mall supply is also planned for

the next 3-5 years. Additionally other

organised retail in the form of supermarketsand standalone stores also have an active

presence in a few of these locations.

North & North East, Bangalore

?Residential Demand forBangalore estimated at 500,000units in five years

?Preferred location for Mid rangedevelopments

?

Expected investment returnsfrom development projects 30-32%

3. We have considered high-end apartments/villas with an area of approximately 2,500-5,000 sq.ft.

The values for mid range properties are for apartments with an approximate area of 1,200-2,000 sq.ft

3The average current capital values for the

mid-end sector is INR 2,800-4,000 per

sq.ft; while that for the high-end properties

(Jakkur and Hebbal) are in the range of

INR 5,500-7,000 per sq.ft. From a

medium term perspective, investment in

north and north east micro markets

mentioned above are likely to have an

Equity IRR (post tax) of 30-32%.


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Within NCR, Gurgaon's Golf Course

Extension (the stretch from the end of Golf

Course Road to Sohna Road) offers large

land parcels which have the potential to be

developed as prime real estate property in

medium term. There are currently only two

residential projects in this location, both of

which have been rapidly absorbed and are

now commanding premium in thesecondary market. The location is currently

witnessing strong interest from both end

users and investors, so while the location is

attractive, the right product mix, project

design and implementation will also be

essential for the success of the project.

Adjacent to this corridor there is also a

proposed commercial development zone (in

Sectors 62, 64 and 65) as per the master

plan which will ensure commercial activity

in the future and would support potential

buoyancy in capital values. There is also the

proposed metro route along this road in

addition to the existing 4 - laned road

ensuring smoother traffic movement and

connectivity if the planned infrastructural

projects are completed in time. The Delhi

Airport is about 15-18 km, while the

nearest Metro terminal at City Center is

approximately 7 km. The NationalHighway - 8 (Jaipur Expressway) and

National Capital RegionGolf Course Road Extension, Gurgaon

Mehrauli Gurgaon Road the two

existing links to Delhi are both in close

proximity. The existing and proposed

infrastructure would ensure a potential

upside on the capital values as these

infrastructural projects get completed.

Golf Course Road Extension,

Gurgaon

?Proximity to InternationalAirport and upcoming Metroterminal

?Preferred location for Mid rangeprojects


Golf Course Extension currently will feed

off Golf Course Road and Sohna Road

infrastructure. However, in the near future,

various hotels, malls, hospitals and schools

are expected to become operational, with

more proposed to come up in the next 3-54

years. The average current capital values

for the mid-end sector are in the range of

INR 3,000-4,000 per sq.ft; while that for

the high-end properties are in the range of

INR 4,500-5,000 per sq.ft. The expected

equity IRR (post tax) from residential

development projects would be in the range

of 33-35%.

4. We have considered high-end apartments/villas with an area of approximately 2,000-4,000sq.ft.

The values for mid range properties are for apartments with an approximate area of 1,000-2,000 sq.ft


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Equidistant from the northern suburbs

(Bandra Andheri) and South Mumbai

(established CBD) the micro markets of

Lower Parel and Parel are emerging as one

of most attractive investment destinations

in the residential sector in Mumbai. When

compared to south Mumbai and even

Bandra, where there are limited

opportunities for further developmentowing to non availability of land parcels,

Lower Parel and Parel offer large tracts of

land for development in the heart of the

space starved city, largely due to opening

up of mill land for redevelopment .

Lower Parel and Parel micro markets lie in

proximity to key commercial hubs like

Nariman Point and Bandra Kurla Complex

(BKC) and has good connectivity to other

locations across the city through rail and

road networks. Additionally, the presence of

existing retail hubs (Phoenix High Street

and other retail projects on the anvil) along

with several hotels give this location the

right mix for a successful residential

precinct. Another major factor favouring

this location is its transformation into an

alternate business district. Having the

above advantages, the location is also an

attractive end user residential market ascurrently mid range residential apartments

are priced approximately 30% - 40% lower

than south and south Central Mumbai.

MumbaiLower Parel & Parel

Thus demand for residential space in this

location is expected to be bullish from both

end users and individual investors'

perspective.

5The average current capital values for the

mid-end sector are in the range of INR

13,000-25,000 per sq.ft; while that for the

high-end properties are in the range ofINR 34,500-55,000 per sq.ft per. The

expected equity IRR (post tax) from

residential development projects would be

in the range of 37-38%. The residential

demand for Mumbai, as mentioned earlier,

is approximately 1.6 million units in 5

years; and a significant share of this

demand is likely to come up in the above

mentioned micro market.

Lower Parel & Parel

?Availability of large tracts of millland

?Preferred location for high endand mid end projects


The location boasts of good connectivity

through rail (both central and westernrailway stations are about 1-2 km away)

and road networks. The micro market is

about 11 km from the domestic airport and

about 14 km from the international airport.

5. We have considered high-end apartments/villas with an area of approximately 3,000-5,000 sq.ft.The values for mid range properties are for apartments with an approximate area of 1,7002,500 sq.ft


19/32

The Indian hospitality sector witnessed

unprecedented growth over the last few years.In the next 3-5 years too, new hotel

developments are expected in various


City Category Investment term

Mumbai Mid Scale 3-5 years

Gurgaon Mid Scale 3-5 years

Hyderabad Mid Scale 3-5 years

Kumarakom (Kerala) Luxury 3-5 years

Hospitality Marketcategories across different cities in the

country. The quantum of new supply enteringthe market against the current demand has

initiated a new trend amongst investors,

where innovative concepts are viewed to have

potential based on the extended value

proposition derived from the product to

achieve a development model that is

perceived to be profitable.

The last few years witnessed a series of mixed-

use developments designed to help hedge

future cash flow risks, providing the investor

with the ability to absorb the initial years of

low profitability from a hotel product.

However, it has been noted that the demand

environment over the last three years has been

conducive to provide reasonably short

stabilisation and payback on hotel

developments.

Going forward, it is likely that incremental

and new hotel developments (in addition tothe inventory proposed to enter the market)

will be based on new and innovative models

with investors seeking to achieve stable

returns. Based on our experience of the

market, we have identified the following

micro-markets for investment in the

hospitality segment for the next 3-5 years:

Investment Opportunities in Development Projects

17


20/32

The main demand driver for the growth

and sustenance of the hospitality industry

in Mumbai is the steady flow of leisure and

business travelers from across the globe.

Being the financial capital and a near

essential stop over for travelers, demand for

hospitality in the city has historically

grown faster than most other tier 1 cities in

the country. The rising demand for office

space has also been instrumental in

strengthening the need for additional room

nights, especially keeping on the anvil the

year-on-year growth of domestic and

international business travelers. The

development of suburban locations as

alternate commercial micro-markets to

Nariman Point, has also seen substantial

growth in the branded star category hotels

in the locations around Andheri, Bandra-

Kurla Complex, Juhuand Santa Cruz.

MumbaiMid-Scale

Although Average Room Rate (ARR) has

undergone a correction of 4% in the last

two years, occupancy levels have remained

strong. The current stock of approximately

Mumbai

?Good potential for Mid-scalehotels

?Hospitality demand backed bydemand for commercial space

?Average occupancy rate 58-60%

?Healthy return of 18-20%

2,100 mid-scale rooms with an average

occupancy level of approximately 70%

seems to be inadequate for the projected

demand in spite of the 1,400 rooms that

are likely to be added in the next 2-3 years.Despite high land and input costs,

investments in this segment are likely to

generate returns of approximately 18-20%

in the medium term.


21/32

Gurgaon - National Capital RegionMid-Scale

Development of business districts and

IT/ITeS clusters in Gurgaon has

contributed to the incremental rise of

business travelers in this region. Till a few

years back there were only a few branded

operators, in this location with the

hospitality scene being dominated by local

players. The increasd interest in developing

the hospitality sector in the location

coincided with the commercial office space

boom in Gurgaon which led to the rise in

demand for room nights, triggering the

development of mid-scale hotels for

business and Meeting, Incentive,

Conference and Exhibition (MICE) travelers

to the city.

The existing stock of mid-scale rooms in

Gurgaon is approximately 1,000-1,200

with an average occupancy rate of 58-60%.Average room rates for the city in the mid-

scale category are in the range of INR

5,500-6,000. Upcoming supply in this

category over the next 3-5 years is expected

to add another 1,000-1,050 rooms to the

city.

Backed by the demand estimation for

commercial office developments in

Gurgaon for the next 3-5 years, the city is

expected to grow as a healthy market for

the mid-scale hotel category, generating

enough demand for room nights. Given

that land is usually acquired in lead time of

4-5 years at the then prevalent prices, new

project developed in proximity to office

locations can generate upto 20-21% return

on investment.

Gurgaon


?Hospitality demand is backed bydemand for commercial space


?Healthy return of 20-21%

Upcoming locations that hold potential for

investments in the mid-scale category in

Gurgaon include the stretches along Golf

Course Road and NH 8 (Gurgaon to

Manesar).


22/32

Traditionally Hyderabad has had multiple

business districts spread across the city,

including locations of Somajiguda,

Ameerpet, Nampally, Banjara Hills,

Kukatpally and the Charminar. This led to

the hotels being established in proximity to

these business districts. Indian Hotels

Company Ltd (IHCL) with a room

inventory of over 500 had the longest

presence in the city. ITC Hotel The

Kakatiya, The Green Park, Hampshire

Plaza and the Marriott Hyderabad Hotel &

Convention Centre, were other prominent

city hotels. The average occupancy in

Hyderabad is estimated to be 58-62%. Till

the emergence of the IT/ITeS and Biotech

sectors, the city saw no new branded hotels.

However, boosted by the demand for room

nights generated by the growth of new

commercial office spaces, Hyderabad began

to see a host of new brands come up in the

periphery, especially in and around

Madhapur, the city's IT hub.

The development and establishment of

HITEC City has had a number of

implications on the city's hotel market in

the creation of a new captive micro-market,

resulted by a shift in demand centres. Our

HyderabadMid-Scale

research indicates that a considerable

amount of demand for city hotels in the

mid-scale category is generated in this new

region. The development and operational

commencement of mid-scale hotels in the

HITEC City (e.g. Trident, Westin, Lemon

Tree, Quality Inn, etc.), including those

that are currently in planning or

development stage are all likely to result in

Hyderabad


?Hospitality demand isconcentrated in HITEC Citybacked by IT/ITeS demand


a self sufficient market, with only the spill-

over demand from the area being

accommodated by other city hotels. The

total supply in this new market is currently

top-heavy, with a large proportion of hotel

supply being in the upper mid-market,

upscale or luxury segments with negligible

mid- scale options, therefore a good

opportunity for the mid-scale category

exists.


23/32

Kumarakom, as a leisure destination, is

increasingly being viewed as an

international spa retreat, focusing on

Ayurveda whilst providing a unique

backwater leisure experience matched only

by a few other destinations worldwide.

Kumarakom was historically considered as

an international leisure destination,

however as per Cushman & Wakefield's

research, the destination is also

experiencing considerable demand from the

individual and group domestic leisure

market, as well as from MICE travellers for

Indian and multi national corporates.

Kumarakom has performed reasonably well

over the past three years, achieving average

occupancies and rates of between 60% and

65% and INR 7,800 and INR 8,000 in

2006 and 2007, respectively. Despite thedecline since mid-2008, there are

Kumarakom, KeralaLuxury

expectations of a market revival by 2009-

10, initiating greater sales and marketing

efforts for target segments.

Kumarakom

?Good potential for luxury hotels

?Demand driven by leisure andMICE travellers

?Average occupancy 60-65%?Viewed as international Spa

Retreat focusing on Ayurveda

Kumarakom provides a unique cultural and

environmental experience matched only by

a few other markets and therefore is likely

to be able to retain its market share

compared to other competitive leisure

destinations. It is also likely that leisure

travel will experience a quicker revivalcompared to corporate travel, encouraging

leisure travelers to this destination.


24/32

The first quarter of the current year and the

second half of 2008 witnessed significant

decrease in investments owing to the

prevailing recessionary conditions. Being a

synchronised recession, the severity or

aftermath defied most forecasts. However, asthe global recession softens to give way to the

much anticipated green shoots in the

economy, industrial sectors in India have

witnessed a positive growth, thereby

Investment Scenarioimpacting the GDP growth outlook. Indian

realty market is also showing signs of recovery

which is expected to continue presenting

opportune times for investors to take medium

to long term possessions. In addition to this,

yield expectations, which were experiencingupward pressure, are gradually stabilising and

are likely to see a marginal decline in the

coming months.

22


25/32

Foreign Direct Investment in IndiaThe overall FDI equity inflow has gained

some momentum in the last two quartersaccruing to a total of INR 646,600 million

from January 2009 - August 2009. There was

also an increase of nearly 28% in the FDI

inflows since the second half of 2008. Fiscal

stimulus packages and increased

regulations/policies to improve the economy

have had a positive impact on the FDI inflow

too.

Maharashtra continues to be the most

attractive investment location for

Institutional Investors. This location

attracted a cumulative FDI inflow of INR

563,721 million from third quarter of 2008

to second quarter of 2009 with a steep hike inJanuary 2009.

While NCR, despite receiving low

investment to the tune of approximately INR

16,517 million in last two quarters of 2008

and the first quarter of 2009, ranked second

due to substantial quantum of investment in

the second quarter of 2009. Karnataka on the

other hand has continued to witness slow and

gradual cumulative FDI equity inflow of INR

67,179 million from third quarter of 2008

second quarter of 2009.

FDI Equity Inflows (RE & Housing Sector)

0

Q307 Q407 Q108 Q208 Q308 Q408 Q109 Q209

20,000

40,000

60,000

80,000

100,000

-20,000

-40,000

INRmillion

Source : Department of Industrial Policy & Promotionand Cushman & Wakefield Research

FDI Equity Inflows

0Q307

INRmillion

Q407 Q108 Q208 Q308 Q408 Q109 Q209

100,000

200,000

300,000

400,000

500,000


FDI Equity Inflows in Prominent States

50,000 100,000 150,000 200,000 250,000 300,000 350,0000

INR million

Maharashtra, Dadra & Nagar Haveli, Daman & Diu

Delhi, Parts of UP and Haryana Karnataka

Q307

Q407

Q108

Q208

Q308

Q408

Q109

Q209


FDI in Real Estate & Housing SectorThe inflows into real estate and housing

sector dropped by a huge margin during thelast two quarters of 2008 accounting for a

total quantum of INR 34,360 million. While

2009 started on a good note, there was asignificant equity inflow of INR 97,880

million in the first half of 2009, an increase

by 1.8 times. The slowdown in the real estate

sector has had adverse impact with one of the

key fallouts being that of investors closely

scrutinizing the projects/developer profile

(debt position) before investing in any project

apart from scope for good/moderate yields and

easy exit.

23


26/32


27/32

6An analysis of investment in the real estate

sector shows that 36 deals have taken placebetween August 2008 - August 2009, which

suggests that similar to last year, Special

Purpose Vehicle (SPV) accounted for the

highest number of deals at approximately 42%,

Current Investment Scenarioas it caters to a single project, where the risk

is low with quick returns and easier exitoption. This is followed by the Entity level

deals estimated at 28%. QIPs, a more recently

considered alternate investment type,

accounted for 22% of the total deals in this

period while Portfolio level investments made

up the remaining 8%. However, unlike last

year where most of the investment was in the

SPV level, there has been a more equitable

distribution amongst all PE deals.

The total quantum of PE deals announced

during the time frame under consideration is

approximately INR 203,000 million of which

QIPs account for majority share of 60% at

approximately INR 122,000 million. The

average size of QIP level deals is

approximately INR 15,300 million. Both

SPV Level and Entity level deals saw similar

quantum of investment of INR 29,000

million and INR 28,000 million with an

average deal size of approximately INR 1921

million and INR 2813 million respectively.

Portfolio level investments accounted for INR

24,000 million, subjugated largely by a

single deal of INR 20,000 million invested

by IREO III in Orange Realty.

Announced PE deals in the RE sector

0SPV

EquityInflow(INR

million)

Entity Portfolio

20,000

0

20

Announce

dDea

ls(n

um

ber)

Quantum of announced deals (Aug 15 2007 - Aug 15 2008)

Quantum of announced deals including QIP (Aug 15 2008 - Aug 15 2009)

Number of announced deals (Aug 15 2007 - Aug 15 2008)

Number of announced deals including QIP (Aug 15 2008 - Aug 15 2009)

40,000

60,000

80,000

100,000

120,000

140,000

160,000

40

60

80

SPV Portfolio Entity QIP

12%

60%

14%

Distribution of PE deals announcedin the RE Sector (INR 203,000 million)

14%

Source : Compiled by Cushman & Wakefield Research

6. Indicative sample of announced deals from mid-August 2008 to mid-August 2009 in the Indian real estate sector. This does not includeinfrastructure and proposed deals.

SPV Portfolio

42%

28%

22%

Distribution of PE deals announcedin the RE sector (36)

Entity QIP

8%


25


28/32

It is noteworthy to state that investment is

lower by 24% over last year. The total

number of deals (including QIPs) reduced by

a significant 46% year-on-year. Investors havebeen cautious and selective about the asset

classes, location, developer profile (debt

position) while deciding on the project for

investment leading to a significant drop in

the numbers as well as the volume of deals.

The asset class - wise distribution shows

preference towards the residential sector

which grossed up the highest share (17%)

followed by township (5%). Commercial,

retail and hospitality sectors witnessed a

major decline in investments over the

previous year, grossing only marginal share of

1 - 2%. These sectors are expected to remain

under par till the demand gains significant

momentum.

Distribution of PE deals across asset classesin RE Sector (INR 203,000 million)

Residential Hospitality Mixed Use

17.0%0.9%

1.8%

0.7%

5.0%

0.7%

73.9%

Retail

Township Office Entity


Note: The study has been conducted on an indicative sample of announced deals from mid-August 2008 to mid-August 2009 in the Indianreal estate sector. This does not include infrastructure and proposed deals.

Region-wise distribution of PE deals during

the period under consideration indicates a

clear drift in investment towards the north

region (48%). This can be largely attributedto two huge QIP's raised by Unitech and DLF

during the first half of 2009. Western region

(37%) saw a huge inflow of investment across

all categories - SPV, Portfolio and Entity level

deals.

With signs of steady economic recovery like

strengthening stock market, growth in trade

and industrial production, backed by

inherently strong fundamentals of the Indian

economy, the interest amongst investors in

the Indian real estate market is also reviving.

This can be inferred from the fact that

majority of both PE deals and FDI's in the

realty sector took place between April

August 2009.

48%

15%

37%

Distribution of PE deals across region(INR 203,000 million)

North South West


Representative Private Equity Deals

?IREO Investment Holding III invested

INR 20,000 million in Orange Realty

for setting up of SEZ, IT/BPO Parks,and development of real estate projects.

?Och-Ziff Invested INR 270 Croroes in

Marvel Realtors on the residential and

commercial projects in Pune.

Source: Complied by Cushman & Wakefield Research based on publicly available information through media and other sources

?Kotak Realty has picked up 50%

holding in an integrated township of 5

million sq.ft at Kapra by JanapriyaProjects for INR 10,000 million.

?Swiss-German Fund MPC Synergy

invests USD 296 million in Phoenix

Mills for its various special purpose

vehicles.

26


29/32


30/32

The initial impact of the global recession was

limited in India, with a marginal deceleration

in the GDP to 7.8% in April-September

2008 as against 9% in fiscal year 2007-08.

However, it was only after September 2008,

with the Wall Street collapse that the

country's economy began to feel therepercussions in true earnest and the growth

rate plunged to around 5.8-6.1% for the next

three quarters. Although this was a

considerable drop from the earlier 9%, it was

still higher than the World Bank's forecast of

4% for India in 2009. A year later, the Indian

economy has managed to fare better than

many of its global counterparts, and is

steadily on the road to recovery.

With signs of economic stabilisation and

moderate global economic growth forecasted

for 2009-10, property markets in India have

begun to exhibit signs of a revival from the

second quarter of 2009. Attracted by

correcting values, investors and end-users

alike have begun to reconsider the market,

accelerating activity in the Indian realty

sector. With the return of liquidity in recent

months via FDI, QIPs, non-core asset sales

and banks reconsidering lending to the realty

sector cash flows of realty players have also

improved.

Though the Net Asset Values (NAV) of major

real estate developers across Asia are still

below the levels they were a year ago, India is

currently witnessing the most significant

downward revisions. This also means that

India will have the best prospects, amongst

The Road Aheadfor Realty

other Asian nations, for NAV upgradation

including a positive NAV revisions potential

for the next four quarters, should the

economic improvement continue at the same

pace. Even though the overall demand for real

estate saw a decline in 2009, an improving

economy, backed by strong fundamentals,suggests that the sector is likely to see a

demand growth in the long-term.

India's large domestic market is one of its

biggest economic assets, accounting for the

largest share of the demand pie. India, for

instance, has an unmet housing shortage of7

approximately 25 million units , which alone

offers a huge growth potential for the realty

sector in India; besides a growing acceptancefor low-cost and affordable housing projects

even in a downtrend. India's sizeable pool of

technically qualified manpower is yet another

domestic strength, together with a stable

internal policy framework that has withstood

turbulent times.

Factors, such as the above, make India an

attractive investment destination. According

to the favourable outlook of the Ministry of

Commerce & Industry, FDI into India is

expected to be at least USD 40 billion in the

fiscal year ending in March 2010. It is

noteworthy that even under strained

circumstances, India managed to attract FDI

inflows of approximately USD 10.53 billion

in the period from April-July 2009, higher

than other emerging economies. With the

economy inching towards recovery,

investments into the country are expected to

see regular quarterly increments.

7. Union ministry for Housing and Urban Poverty Alleviation

28


31/32

Cushman & Wakefield is the largest privately owned real estate services firm in

the world with more than 15,000 professionals in 230 offices in 58 countries. The

firm delivers integrated solutions by actively advising, implementing and

managing on behalf of landlords, tenants and investors through every stage of

real estate process. C&W also provides valuation advice, strategic planning and

research, portfolio analysis, and site selection and space location assistance,

among many other advisory services.

Cushman & Wakefield commenced its India operations in 1997 and today has

grown to over 1,200 employees working from the firm's New Delhi, Gurgaon,

Mumbai, Bangalore, Chennai, Hyderabad, Pune and Kolkata offices. The first

international real estate service provider to have been granted permission by the

Government of India to operate a wholly-owned subsidiary, Cushman &

Wakefield in India is strategically poised to service the varied needs of clients

throughout the sub-continent. The firm offers a full range of real estate services

combining local expertise and experience with technology and standards of

service that are consistent across all Cushman & Wakefield's offices worldwide.

To find out more about Cushman & Wakefield, visit www.cushmanwakefield.com

This report contains information available to the publ ic and has been relied upon by Cushman & Wakefield on the basis that it is accurate and complete. Cushman & Wakefield accepts

no responsibility if this should prove not to be the case. No warranty or representation, express or implied, is made to the accuracy or completeness of the information contained

herein and same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal without notice. Our prior written consent is required before thisreport can be reproduced in whole or in part.

Changes in socio-economic and political conditions could result in a substantially different situation than those presented at the stated effective date. C&WI assumes no responsibility

for changes in such external conditions.

Copyright 2009 Cushman & Wakefield (India) Pvt. LimitedAll Rights Reserved

The GRI is a global club of senior real estate investors, developers and lenders. Its

mission is to help its members build personal relationships and work together in

creating better places as a legacy to our children. Founded in 1998, its core

constituency consists the world's leading real estate players.

The GRI runs its activities through a series of Annual Meetings focused on

different regions of the world, mainly across Europe and Asia to date. Individual

and Corporate Membership of the GRI is open to senior players in the real estate

industry that find it beneficial to belong to a global community of elite achievers

in their industry.


32/32

ushman&Wakefield

Reser

ved

www.cushmanwakefield.com

For further information on the report, pleasecontact:

Sitara AchrejaDirectorMarketing & Communications, IndiaCushman & Wakefield

Tel: + 91 124 469 5555Fax: + 91 124 469 5566E il i h j @ h k

The GRI welcomes industry leaders who find it usefulto chair a discussion at a future GRI event to contact:

HenriAlsterChairman, GRIGRI-Global Real Estate Institute11th Floor, 1379 High Road

London N20 9LP UKTel: + 44 20 8492 2621F + 44 20 8445 6633

cushman & wakefield_investment report 2009 - survival to revival

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