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FAQ's

IT is a new concept which is introduced to avoid unnecessary litigation by the Government with the land owners.

IN this policy no aquisition of any land by the Government takes place. 

THE land is consolidated by private parties/entities/developers by purchasing it from land owners at the prevailing market price. 

THUS consolidated land may it be in fragmented land holdings, is surrendered to the Government Agency which in turn gives a pro-rata single chunk for further development to the developer entity.

THE land use stands converted by the Government Agency.

THE classification of land can be on the basis of LOCATION as well as on the basis of LAND USE.

RESIDENTIAL

COMMERCIAL

INDUSTRIAL

INSTITUTIONAL

AGRICULTURAL

are the various uses.

plz visit the below link:

http://property.magicbricks.com/mb-product/Residential-realestate-investible-new.pdf

 

Residential realestate: Aninvestible asset Building, Construction and Real Estate sector June 2017 KPMG.com/in magicbricks.com Prelude What role does the housing sector play in our lives and the economic development of a nation? Housing is considered as one of the most important basic necessities of living. For some nations, the housing sector can be an engine of economic growth, owing to its linkages to over 250 ancillary industries, providing opportunities of growth, which can have a multiplier effect on the economy. For a nation like India, which has been witnessing rapid urbanisation over the past decade with an addition of over 10 million people to its urban population annually, the need for housing becomes even more important. India is the second-largest urban community in the world, after China, with an urban population of over 420 million, which is growingrapidly.1 Overall, India accounted for about 12 per cent of global urbanisation between 2000 and 2015. However, the penetration of urbanisation is low in India with nearly one-third (32.4 per cent) of its population residing in urban areas, far below in comparison with that of its global peers, such as China (54.4 per cent), Brazil (85.4 per cent) and Russia (74 per cent). On an annual basis, about 10–11 million people move to urban regions in India. As a result, the urban population is anticipated to grow approximately 36 per cent to over 580 million by 2030.2 This is expected to lead to substantial increase in demand for housing, and hence the Indian housing market holds significant potential. Purchasing a house entails large amount of investment by an individual, for which a majority of the population utilise their lifetime savings. Investing in property without analysing the market dynamics may sometimes erode a large proportion from the investment for a certain period of time and can also entail other associated risks. Hence, it becomes important to critically understand the property market dynamics. This KPMG in India report — ‘Residential real estate: An investible asset’, prepared jointly with Magicbricks, aims to decode the Indian housing market to educate homebuyers about the major factors, such as demographics, economic development, regulatory environment, and physical and social infrastructure, that could impact their investments. These factors coupled with others, such as demand– supply dynamics, have a major influence on property prices over various property market cycles. The Indian residential property prices have more than doubled over the last decade (2007–15) considering 2007 as the base year, with an index value of 100; it is now amongst the best performing markets globally.3Over the last decade, affordability to own properties have reduced 50 per cent, as the income growth has lagged behind the growth in property prices. The Indian government has undertaken several policy initiatives to address the bottlenecks arising from the demand and supply sides, which homebuyers and the industry, respectively, have been challenged with. Some of these initiatives are, providing the infrastructure status to the affordable housing segment, easing foreign direct investment (FDI) norms for the construction development sector, and the introduction of credit linked subsidy schemes (CLSS) for Economically Weaker Section (EWS)/Lower-income Group (LIG) and Mid-income Group (MIG) segments. We appreciate that the government is cognisant of the bottlenecks, and also acknowledges the fact that several initiatives have been undertaken to tackle them. However, there are a few areas that still need attention from the policymakers to restrict uneven/unplanned growth in the property markets, which puts pressure on the available resources and infrastructure — thereby impacting the property prices and affordability. Highlighting those factors, we have also offered in this report a few recommendations for the industry players — real estate developers, which can safeguard their interests, and help them identify new avenues of growth for a sustainable future. Overall, India holds a strong potential for residential property market growth as there would be a significant price appreciation over the next decade, with property market fundamental drivers, such as the GDP, urbanisation, income growth, savings rate, mortgage growth and affordability, expected to improve going forward. 1. Decoding Housing For All by 2022, KPMG in India,2014 2. World Urbanisation Prospects, The 2015 Revision, United Nations, Department of Economics and Social Affairs, Population Division (2015), KPMG in India’s Analysis, 2017 3. Property Prices Index for Country 2015, Numbeo.com, accessed on 17 December 2016 NeerajBansal Partner andHead ASEANCorridor, and Building,Construction and Real Estate Sector KPMG in India © 2017 KPMG, an Indian KPMG, an Indian Registered Registered Partnership Partnership and a member firm of the KPMG and a member firm of the KPMG network network of independent member firms affiliated with KPMG International of independent member firms affiliated with KPMG International Cooperative Cooperative (“KPMG International”), a (“KPMG International”), a Swiss entity. entity. All rights All rights reserved. reserved. Preface © 2017 KPMG, an Indian KPMG, an Indian Registered Registered Partnership Partnership and a member firm of the KPMG and a member firm of the KPMG network network of independent member firms affiliated with KPMG International of independent member firms affiliated with KPMG International Cooperative Cooperative (“KPMG International”), a (“KPMG International”), a Swiss entity. entity. All rights All rights reserved. reserved. India will soon have the largest number of home owners that it has ever had, thanks to the government’s stated objective of bridging the perennial housing shortfall that has been carrying forward for decades. With easy access to home loans too, the number of buyers has grown exponentially over the past two decades. Residential property currently accounts for over 70 per cent of the real estate industry and touches the lives of every one of us. Ownership of homes comes with a series of benefits and returns on investment that was never really computed. As the largest residential real estate online portal in the country, Magicbricks decided to partner with KPMG in India, to decode what the real estate asset class means to the buyer in the long term. Through the year of disruptive and dramatic policy changes, the two teams have steadily worked to decode the asset class that spells hope, social status and a definite return on the investment, intended or unintended. Houses are the only asset class that the consumer purchases for self-use but benefits from value appreciation. Among other major asset classes, stocks and mutual funds are not usable till encashed and gold is used sporadically, if purchased as ornaments. A home, on the other hand, is a product that is continuously usable from Day 1, continues to appreciate in value and gets the buyer the status of an asset owner. However, when the user turns seller he or she is often confused as to the final value since benchmark rates have traditionally not been available. Over the past few years, Magicbricks has been publishing and making available values of properties on a specially created calculator – Propworth. However, all properties within the same project, or all projects within the same locality, do not fetch the same value. Buyers are also confused about where to buy, from whom to buy and how long to hold the property to get best returns. To compute these, KPMG in India referred to various sources of information including Magicbricks data, to study and analyse medium and long-term trends. This study is the result of this comprehensive exercise. There is a lot more research that needs to be done in this eminently investible asset class. Here a significant beginning has been made. Sudhir Pai CEO Magicbricks Realty Services Ltd. contents Tableof © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Foreword Housing sectorin India – the next big thing Residential prices in India on a long-term uptrend Demographic drivers Economic drivers Regulatorydrivers Decoding the Indian residential market Residential market cycles in India Timing your property transaction decision Major trends in the Indian residential real estate Way forward Property buyer Government Industry © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Foreword The Indian housing sector is just out of its infancy. Its history as a mass market product, where a consumer has a choice to look around and purchase a unit he or she desires, began only in 1998 when the government evolved the first Housing and Habitat Policy. This was revised in 2007 when the first level of tax incentives to the private sector to construct smaller and more affordable housing units to match the pockets of consumers ended. The current dream of the Prime Minister Narendra Modi to provide every Indian family a liveable house by 2022 is one of the ambitious plans to house all of India. Housing is primarily a need-based purchase. It is the one where a consumer takes formal finance, pegged at today’s rates, for an asset that takes four years to construct and has a life of at least 25 years. This is not the case in either stock investments or in high-value investment assets such as gold. The roller coaster ride for property buyers in the past few years was because of the clouded vision of the new generation of buyers. When housing finance to retail buyers at affordable rates began during 1998-2001, end users purchasing for self-use were the beneficiaries. The need was so great and the yearning so high that they would not default on loans, for fear of losing the house. However, this need was replaced by greed – both of the buyer and the seller. As policy was unable to keep pace the effort floundered. Unlike the early buyers, investors looking for quick returns were driving the property market. While end-users wanted quick construction, good quality structure, social and physical infrastructure and most importantly, liveability, investors sought stretched timelines, slow delivery, with no concern for liveability, and wanted easy exit strategies. While the end user put pennies together, the investor, flush with cash became a developer’sfriend. During 2005-08 investors had a bull run in the housing market, trading on little slips of paper and holding the investment often only till the next tranche of instalment had to be paid. As a result, they invested in more units and spread the existing money across many projects to make more money. The housing market became only an investment-oriented sector. The developers, too, made money out of multiple investors who bought into and exited the project during the construction cycle, after which the end-user would buy into the almost complete project, to live in. Money paid by investors was used to purchase more land and completion of projects were replaced by more launches. This was anticipated by the early policymakers who were reluctant to open housing to Foreign Direct Investment and wanted to service end users. With delays of 5-12 years, end users warilyretreated. So is housing an investible asset at all, and should it be treated as such? Whether you are an end user or an investor, a secure, fully functional housing market gives good returns. It is second only to systematic investments in equity markets in terms of returns. However, unlike other asset classes, this investment is a usable asset. If one buys a unit at an early stage of a housing project, the asset should be ready in about three-four years. In that time the asset value growsmanifold. Unlike what a house used to be for early buyers, it is currently an asset that matches the young urban lifestyle mind-set.As jobs make the workforce mobile, the attachment to cities and houses also fades away. It makes sense to sell and purchase afresh in the next city. However, there are very few buyers who lose money exiting a good property. The only drawback is that the property market is cyclical and therefore the investment is not as liquid as other asset classes. Having said this, the smallest and most affordable property is an asset that yields big dividends long-term. The reason why Magicbricks and KPMG in India have decided to put this study together is because of the changing policy measures by the government that would impact the housing market significantly. Indian housing was benchmarked against global markets. Should one enter it as an end user or an investor? The more information and analysis tools there are for buyers, the more scientific the process and the safer the purchase will be. The government, on its part, has already started fixing policy to facilitate the marginalised end users with a real estate regulator, affordable housing policy to dovetail into the Pradhan Mantri Awas Yojana and the Credit Linked Subsidy Scheme for those who cannot afford to buy. With this umbrella of policy protection, go ahead, read the analysis and contribute to your asset wealth creation and managing it as well. E JayashreeKurup Head Content and Advisory Magicbricks Realty Services Ltd. © 2017 KPMG, an Indian KPMG, an Indian Registered Registered Partnership Partnership and a member firm of the KPMG and a member firm of the KPMG network network of independent member firms affiliated with KPMG International of independent member firms affiliated with KPMG International Cooperative Cooperative (“KPMG International”), a (“KPMG International”), a Swiss entity. entity. All rights All rights reserved. reserved. 1 | Residential real estate: An investible asset Residential real estate: An investible asset | 2 Housing sector in India– the next bigthing © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Key takeaways » Indian residential property prices have more than doubled over the last decade » It is among the best performing markets, globally » The property prices have weakened during calendar year (CY) 2013 and 2014 and have witnessed moderate growth during CY 2015 and 2016 » Over the last decade, affordability to own properties have reduced by 50 per cent, as the income growth has lagged property price growth » However, India’s propertymarket isrelatively affordable as compared to that of its global counterparts » Few cities, including Mumbai, are among the most expensive property markets, globally » Overall, the Indian real estate sector holds strong potential for residential property market growth and price appreciation, as propertymarket fundamental drivers,such as the GDP, urbanisation, income growth,savings rate, mortgage growth and affordability, are growing strongly in India. 3 | Residential real estate: An investible asset Residential prices in India on a long-term uptrend The sudden surge in property prices in India increased successively for about three years before witnessing some correction from 2013 onwards. Towards the end of 2014, property prices appeared to have bottomed out and Indian residential real estate witnessed a moderate growth. The income growth in India has been slower than the housing price appreciation, invariably affecting the housing affordability. In the last few years, housing prices in India have inflated by about 45-50 per cent in real terms1 . However, the increase has been witnessed across major economies and the change in property price to income ratio in India has been moderate. In fact, housing in India is not excessively expensive compared to its peers, such as Brazil, China, Hong Kong, Japan, Singapore, Russia and Indonesia. However, it is still expensive when compared to developed economies, such as the United Kingdom, the United States of America, Australia and Germany. India’s residential real estate has outperformed many of its global peers over the last decade. Based on available data from The Economist, residential real estate prices in India have more than doubled between 2007 and 2016. The only other markets to have delivered such returns during this period were Brazil and Hong Kong. Global property price index (Base 2007 = 100) Source:Global house prices, The Economist house-price index, The Economist, accessed on 12 December 2016 0.00 50.00 100.00 150.00 200.00 250.00 300.00 350.00 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2008 2009 2010 2011 2012 2013 2014 2015 2016 China India Brazil Russia Vietnam Indonesia U.S. U.K. Australia South Africa Singapore Japan Germany Hong Kong 1. Property Prices Index for Country 2015, Numbeo.com, accessed on 23 March 2017 Indian propertyprices have more than doubled since 2007 (without adjusting for inflation) – the second best globally. Some correction was witnessed in 2013 and 2014 followed by a moderate appreciation in Indian housingprices. © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Residential real estate: An investible asset | 4 © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. In the last few years, the number of property transactions by Indians in the U.S. and the U.K. have increased significantly as they offer a better value proposition compared to housing options in India. This is a compelling reason for several high-net-worth individuals in India to invest large sums of money abroad. House price to income ratio Source:PropertyPrices Index for Country 2015, Numbeo.com, accessed on 17 December 2016 %Change 40 35 30 25 20 15 10 5 0 200% 150% 100% 50% 0% -50% -100% Brazil Japan Germany Indonesia Hong Kong 2009 2015 China Singapore India Australia U.K. Russia U.S. % Change Ratio In real terms, propertyprices in India have appreciated by only 40-50 per cent – much slower than global trend 5 | Residential real estate: An investible asset The Indian investors have disposable income enough to buy a housing unit. However, arbitrary pricing and risk of delay locally has spurred investment abroad. Subdued housing demand for over three years also has hit returns on investments domestically E. Jayashree Kurup Magicbricks Realty Services Ltd. India property price index (Base 2013 = 100) Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 India 100* 100 102 103 104 102 104 104 103 104 104 104 104 Source: PropIndex, India Apartment Index, Volume 6, Issue 4, Jan-Mar 2017, Magicbricks, May 2017 *Note: This is not an actual capital value, but only used as a base for reference Residential real estate has exhibited strong upsurge in capital value trends on long-term basis (2007-16). However, in the medium-term (from September 2013 to September 2016), the growth in prices has been muted. The Magicbricks PropIndex, which captures price movements of residential properties in India, witnessed only 4 per cent increase in the index value over the past three years (September 2013 to September 2016), translating to CAGR of mere 1.3 per cent. This was primarily due to the following reasons: • Significant delay in project completions across India, which led to prolonged slump in sales. As a result, unsold inventory continue to increase across all cities over the years, which restricted the price growth • Over speculation in certain markets based on healthy demand during the boom period, led to number of projects being launched one after the other. However, residential sales started to decrease in subsequent years and supply entering the market far exceeded the sales, which resulted in lower price appreciation. • Banks have been reluctant to lend to real estate developers, due to higher risk-weightage assigned to the real estate sector by the RBI. Lack of sufficient funds led to substantial decrease in efficiency, leading to construction delays. This resulted in real estate developers resorting to Private Equity (PE) funds and NonBanking Finance Companies (NBFCs), which comes at a high cost compared to bank lending. • Lack of appropriate physical and social infrastructure in the peripheral regions of the cities, adversely impacted the decision of home buyers, who continue postponing their buying decision, which led to decline in sales. • Last but not the least, home buyers have continued to postpone their decision to buy properties as they kept on waiting for interest rates on home loans to come down. Further, they expected that slowdown in residential sales and construction delays would force developers to reduce prices of their projects, this did not happen and hence, buyers were deterred from making a purchase. © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The strong growth in property prices has been supported by a confluence of numerous factors, assembled under three broad categories. India has been amongst the leading performers in the following factors supporting the phenomenal growth in residential property prices. Economics • Gross domestic product(GDP) • Employmentgrowth • Incomegrowth • Householdsavings Regulatory • Mortgagegrowth • Tax incentives Demographics • Urbanisation • Householdsize Residential real estate: An investible asset | 6 © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Source:PropertyPrices Index for Country 2015, Numbeo.com, accessed on 23 March 2017 Property price to income ratio Top10 expensive cities globally Indiancities City Price to incomeratio Shenzhen,China 38 Mumbai,India 38 Hanoi,Vietnam 36 Hong Kong, SAR, China 35 Beijing,China 33 Shanghai,China 31 City Price to incomeratio Mumbai 38 Thane 21 Delhi 16 NaviMumbai 14 Chennai 13 Kolkata 10 Bhubaneshwar, Gurugram, Kochi,and Ahmedabad London, United Kingdom 31 Lviv, Ukraine 28 Kiev, Ukraine 26 9 Pune andBengaluru 8 Noida, Vadodara and Hyderabad 7 Guangzhou,China 26 Unaffordability exists in few cities Although the overall level of housing prices in India appears affordable, there are few markets which are amongst the unaffordable cities globally, suggesting that property price appreciation in India has not been broad-based. As per the data in the table below, it appears that only a few cities, such as Mumbai, Thane and Delhi, are part of the unaffordable market inIndia. Due to the focus and numerous reforms introduced by the Government of India in the last few years, the sector share in GDP is expected to double from the current 6-7 per cent by 2030. Demographicdrivers India is the urban community in the world, after China, with an urban population of over 420 million, which is growing rapidly. Annually, India is adding about 10 million people to its urban population2 . In the last 15 years, the urban population of India has expanded by about 46 per cent. While, it is lesser than Vietnam and Indonesia in terms of growth, the scale is extensive and second only to China. Overall, India accounted about 12 per cent of global urbanisation between 2000 and 20153 . Urban populationgrowth Significant potential for urbanisation led housing demand The penetration of urbanisation is low in India with nearly onethird (32.4 per cent) of its population residing in urban areas, far below, compared to its global peers, such as China (54.4 per cent), Brazil (85.4 per cent) and Russia (74 per cent). About 11- 12 million people are moving to urban regions in India on an annual basis. As a result, the urban population of India is anticipated to grow by nearly 36 per cent to over 580 million by 20302 . This is expected to lead to substantial increase in demand for housing in India. Urban population of total production Source:World Urbanisation Prospects, The 2015 Revision, United Nations, Department of Economics and Social Affairs,Population Division (2015),KPMG in India’s Analysis, 2017 70% 59% 57% 46% 43% 39% 36% 27% 23% 20% 18% 14% 7% 2% 80 70 60 50 40 30 20 10 0 -10 China Vietnam Indonesia India Singapore World South Australia Brazil Japan Africa U.S. Kong U.K. Hong Germany -2% Russian Federation 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 120.0% Hong Kong Singapore Japan Australia Brazil U.K. U.S. Germany Russia SouthAfrica China Thailand Phillippines Vietnam India 100.0% 100.0% 93.0% 89.0% 85.4% 83.0% 81.0% 75.0% 73.9% 64.3% 54.4% 49.2% 44.5% 33.0% 32.4% World’s leading urbanising nations (annualgrowth of urban population2000-15) China – 21 million India – 9 million Indonesia – 3.3 million USA – 2.7 million Brazil – 2.2 million 7 | Residential real estate: An investible asset Source:World Urbanisation Prospects, The 2015 Revision, United Nations, Department of Economics and Social Affairs,Population Division (2015),KPMG in India’s Analysis, 2017 2. Decoding Housing For All by 2022, KPMG in India, 2014 Affairs, Population Division (2015), KPMG in India’s Analysis, 2017 3. World Urbanisation Prospects, The 2015 Revision, United Nations, Department of Economics and Social © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Per cent Source: The World Factbook,Central Intelligence Agency, accessed on 20 December 2016, KPMG in India’s analysis, 2017 2% 0% -2% -4% -6% -8% -10% China India Brazil Russia Indonesia U.S. U.K. Australia South Africa Singapore Japan Germany HongKong Per cent Shrink in household size The shrinking of household size is a major cause of rapid urbanisation being witnessed in India. A massive proportion of youth population, migrating from rural areas to urban areas in search of employment has resulted the household size shrink inIndia. The average household size in India fell from 4.6 in 2007 to 4.2 in 2011, exhibiting the highest decline of about 9 per cent, amongst the developed and emerging economies4 . The shrinking household size is another facet adding to the demand for small and compact housing in India. Change in averagehousehold size It appears that the developers have been aligning their supply in line with market fundamentals. In the last decade, the average size of apartments have decreased suggesting that developers are focussing on smaller sized homes. Residential real estate: An investible asset | 8 4. Census 2011, Office of the Registrar General & Census Commissioner, India, Ministry of Home Affairs, Government ofIndia © 2017 KPMG, an Indian KPMG, an Indian Registered Registered Partnership Partnership and a member firm of the KPMG and a member firm of the KPMG network network of independent member firms affiliated with KPMG International of independent member firms affiliated with KPMG International Cooperative Cooperative (“KPMG International”), a (“KPMG International”), a Swiss entity. entity. All rights All rights reserved. reserved. Real estate developers have become more cautious. They have started aligning their business strategies with the changing dynamics of the industry. For example, the new residential supply has been controlled cautiously owing to headwinds in the real estate over the past two–three years. Further, the ticket sizes of housing units have been reduced in order to make housing units more affordable. Neeraj Bansal KPMG in India Source:Propequity, accessed on 28 November 2016; KPMG in India’s analysis, 2017 Decreasing size of average size of new launches over the years © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 1700 1600 1500 1400 1300 1200 1100 1000 900 800 Pune Chennai Bengaluru Mumbai 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 9 | Residential real estate: An investible asset Real GDP growth (2000-15) Nominal per capita GDP growth (2000-15) Employment growth innon-agriculture sectors (2000-10) Domestic savings (per cent of GDP) Source: Databank, World Development Indicators, The World Bank, accessed on 12 December 2016; KPMG in India’s analysis, 2017 250% 200% 150% 100% 50% 0% 350% 296% 300% 183% 153% 118% 113% 72% 70% 56TQ% 300% China India Vietnam Indonesia Singapore Hong Kong SAR, China Russian Federation South Africa Australia Brazil U.S. U.K. Germany Japan Per cent Russian Federation Vietnam Indonesia China India Brazil South Africa Australia Singapore U.K. Hong Kong SAR, China U.S. Germany Japan 1000% 800% 600% 400% 200% 0% -200% 1200% 1007% 645% 582% 525% 401% 316#8% 96% 77d% 64S% 44% -2% Per cent 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% China India World Indonesia South Africa U.S. United Kingdom Germany Japan 2000 2014 30% 20% 10% 0% 60% 50% 40% 37 23 31 30 27 26 24 24 24 33 2525 27 32 39 28 24 191818 2017 19 16 34 17 18 53 47 49China India Singapore Vietnam Australia Germany Brazil Indonesia World South Africa United Kingdom U.S. Japan Hong Kong SAR, China Russian Federation Economicdrivers Gross domestic product(GDP) In the last 15 years, India’s GDP has almost tripled to reach USD2 trillion (INR113.50 lakh crore5 ). It is amongst the fastest growing economies globally, second only to China. Higher GDP growth, led primarily by services and industrial growth, has supported one of the fastest employment growth trajectory, globally. It is estimated that India’s non-agricultural employees increased by more than 43 per cent between 2000 and 2010 to reach over 223 million6 . Despite the significant growth in the economy, India’s fast growing population restricted the per capita income growth. The increase has been slower than Russia, Vietnam, Indonesia, andChina. However, savings (which includes real estate investments), have increased sharply from 23 per cent in 2000 to 31 per cent in 20157 .An increase in savings rate suggests that Indians have diverted their increased income over the years in financial and physical assets, including real estate. Residential real estate: An investible asset | 10 5. Press note on provisional estimates of annual income, 2015-16 and quarterly estimates of gross domestic product for the fourth quarter (Q4) of 2015-16, Central Statistics Office, Ministry of Statistics & Programme Implementation, Government of India; KPMG in India’s analysis,2017 6. The World Factbook, Central Intelligence Agency; Employment in industry, The World Bank, accessed on 21 December 2016; KPMG in India’s analysis, 2017 7. India: Savings rate in need of a boost, DBS Group Research, September 2016 Per cent Per cent of GDP © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Over the next 15 years, India is expected to lead the global economic growth, surpassing China. By 2030, India is expected to grow five times and become the third-largest economy after China and the U.S. The youth population is expected to be an integral variable supporting the strong growth in India. The median age of the population is 27.6years, which is far below the developed economies (such as Germany, Japan, the U.K. and the U.S.) and China. Additionally, with nearly two-thirds or over 281.6 million population falling under the age group 15-64 years, India again has one of the largest base of potential home owners. Higher working age population led to comparatively higher economic output which resulted in increase in disposable income, because of which, the demand for housing increased over the years and raised the price of houses. Medianage Source:World Urbanisation Prospects, The 2015 Revision, United Nations, Department of Economics and Social Affairs,Population Division (2015);KPMG in India’s analysis, 2017 0 5 10 15 20 25 30 Japan Germany HongKong U.K. Russia Australia U.S. China Singapore Brazil World Vietnam Indonesia India SouthAfrica 35 40 45 50 46.9 46.9 44 40.5 39.3 38.6 37.9 37.1 34.3 31.6 30.1 30.1 29.9 27.6 26.8 Source: CrisilResearch The average age of borrowers has been declining over the years and was estimated at 33-35 years in 2015-16. It is expected that the average age of a borrower may decline further, encouraged by growth in salaries, population’s growing preference to accumulate assets as a means of investment and to gain tax benefits. Average age of home loan borrowers 50 45 40 35 30 25 20 15 10 5 0 1999-2000 2008-09E 2013-14E 2020-21F 43 36 34 31 11 | Residential real estate: An investibleasset Age (years) Age (Years) © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. GDP growth forecast (2015-30F) Source:World Economic League Table 2016,Center of Economic and Business Research 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% India China Indonesia Russia Brazil U.S. Australia U.K. Germany Japan India became one of the fastest growing large economies in the world in 2015, after it reported 7.57 per cent GDP growth8 . It even exceeded China where growth tapered to 6.9 per cent in 2015, from an average of 8.6 per cent in the last five years. Indian cities contribute over 62-65 per cent to the Indian GDP9 . With large scale unprecedented urbanisation growth projected over the next decade and a half, the contribution of urban regions in India’s GDP is forecast to grow to 75 per cent. This is likely to lead to increased demand for housing in India. Residential real estate: An investible asset | 12 8. India’s growth at 7.6%in 2015-16 fastest in five years, The Economic Times, 31 May 2016 9. Report on Indian Urban Infrastructure and Services, The High Powered Expert Committee (HPEC), Ministry of Urban Development, Govt. of India 2011. © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Globally, every sixth person getting urbanised is an Indian. The government has released several programmes on mission mode in urban infrastructure, housing and mortgage finance to tap the opportunity offered by the urban blessing. It is envisaged that by 2030, the real estate and construction sector in India is expected to become the third-largest globally, doubling its share to over 15 per cent in the Indian GDP. Neeraj Bansal KPMG in India GDP Growth (Per cent) Regulatorydrivers Healthy growth in mortgage in an otherwise under penetratedmarket The mortgage in India has grown at a CAGR of nearly 19 per cent over the past five years, which is one of the highest growth rates in the world.With this growth the total mortgage to the housing sector has reached INR11 trillion (USD167 billion) by201510 . A majority of the demand lies in affordable and mid segment housing and potential buyers falling under this category usually depend on home loans/mortgage to buy their homes. Hence, increase in loan disbursements supported the demand for real estate which led to the house price increase. Residential mortgage and growth Mortgage to GDP ratio Source:Countries, Housing Finance Network, accessed on 15 December 2016; KPMG in India’s analysis, 2017 Residential mortgage (USD billion) Mortgage growth 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 -5% 5% 40% 35% 30% 25% 20% 15% 10% 30%China India Brazil Russia Indonesia U.S. U.K. Australia South Africa Singapore Japan Germany 2000 2014 2015 CAGR(2000-2015) Source:Countries, Housing Finance Network, accessed on 15 December 2016; KPMG in India’s analysis,2017 38% 22% 18% 17% 6% 7% 13% 6% 18% -1% 2% 0% 0.0% 20% 40% 60% 80% 100% 120% Denmark U.K. U.S. Germany Malaysia SouthAfrica China India Brazil Russia 114% 75% 68% 42% 32% 21% 18% 9% 8% 5% 13 | Residential real estate: An investible asset 10. “PNB Housing Finance Ltd”, HDFC Securities, accessed February 2017 © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The housing mortgage in India has grown at one of the fastest pace in the world, supported by government policy reforms. The trend is expected to continue as the housing mortgage penetration in India is one of the lowest (9 per cent) in the world. Neeraj Bansal KPMG in India Potential for increased mortgage penetration in the comingdecade The mortgage penetration in India, which is gauged by mortgage to GDP ratio, is one of the lowest in the world at 9 per cent. India’s peers China and South Africa have more than double the penetration of mortgage, supporting the demand in their respective countries. There is still vast scope for mortgage penetration to increase considerably in India, and the growth in India is expected to accelerate in the coming years from nearly 19 per cent to over 20 per cent. Housing creditto grow rapidly in the long-term The Government of India has introduced several measures in the recent past to promote mortgage growth by making it cheaper. Some measures include – reducing loan-to-value ratio for housing loans; granting infrastructure status to affordable housing; and allowing External Commercial Borrowings (ECBs) in affordablehousing. Further,the government has taken focussed steps, especially Jan Dhan Yojna, for financial inclusion of poor and ensure access to financial services namely banking/savings and deposit accounts, remittance, credit, insurance, pension in an affordable manner. About 250 million bank accounts were opened through this reform, which is expected to help in bringing in large base of customers in the underserved rural economy. Also, the recent step to demonetise high value currency notes to promote digitalisation of economy is expected to open up the Indian population to financial products especially with respect to formal credit. Lastly, the expansion of interest subsidy scheme to the midincome group (MIG) segment, named as credit linked subsidy scheme (CLSS) urban for MIG, coupled with the extension of loan tenure of CLSS for EWS/LIG to 20 years from 15 years earlier, are expected to go a long way in increasing the mortgage penetration in India. These steps are likely to increase the genuine end-user demand for housing in India. It is anticipated that the recent policy initiatives are likely to result in affordable housing segment to grow at a much faster pace (30 per cent) than the industry growth over the next three years, and would be a key growth driver for the mortgage finance marketin India11 . However, in the short-term, it is expected that the growth in disbursement of a housing loan may moderate, as perception of wealth erosion coupled with the anticipation of a fall in property prices may affect demand for houses and housing loans. However, in the long-term, growth is expected to pick up; transparency, increased affordability and lower interest rates would drive the demand for housing and housing loans. Foreign DirectInvestment norms The construction development sector in India has attracted USD24.2 billion cumulatively between 2000 and 2015, and accounts for over 9 per cent share in total FDI inflows into India during the same period12 . FDI is one of the important sources of funding in real estate projects. Hence, the government has eased the FDI norms for building townships, housing, built-up infrastructure and construction development projects, to attract higher foreign capital. Need for more reforms Going by the above trends, India seems to require a significant amount of affordable housing or mass-housing in the next decade. India would need to build 11 crore houses by 2022 to provide accommodation to all its citizens, of which about 70 per cent of the housing requirement needs to be in the affordable segment (less than 60 square metres priced below INR10lakh)13 . In addition to housing ownership,there is potential for rental housing as significant number of youths are migrating from rural areas to cities. These youths primarily rely on informal rentals, as income and mobility factors restrict them to opt for house ownership. Lastly, about a quarter of Indian urban citizens are living in slums. Indian cities are increasingly rolling out broad slum redevelopment policies, some of which have been a success. Residential real estate: An investible asset | 14 11. Affordable housing segment to grow at 30%, faster than industry, ET Realty, 22 March 2017 12. Fact Sheet on Foreign Direct Investment (FDI), April 2000 to December 2015 13. Decoding housing for all by 2022, KPMG in India, September2014 © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Development of large scale formal rental housing stock is required to accommodate the migration of rural population to the urban regions in India, which has been growing at an unprecedented rate. Neeraj Bansal KPMG in India Decoding theIndian residentialmarket © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Key takeaways » Indian residentialmarket has a bull cycle of about four to five years followed by a two to three year bear cycle » The investor-driven markets, such as Gurugram and Mumbai, are much more volatile compared to end-user-driven markets, such as Bengaluru and Pune » Property pricesstart weakeningwhen inventory overhang exceeds the range of 24-30months » In property up-cycle, it isthe city-corewhich appreciatesfirst followed by suburban and periphery markets » Property prices are most volatile in a peripheries market compared to suburban and city core. City core isthe safestmarket for a property buyer as it is primarily driven by end-users » A suburban market generally trades at a discount of about 30-35 per cent to the average city coremarket, while a periphery market trades at a discount of about 60-65 per cent » A periphery micro-market in a city can witness about 100 per cent appreciation purely due to premium allocation (i.e. in addition to normal price growth) if it transformsinto a suburban market and about 70 per cent if it transformsfromsuburban to city-core » Generally, it takes about eight to ten years for a periphery to transforminto a suburban market and about 14-15 years for a suburban market to transforminto a city core market. For instance, regionssuch as Golf Course Road in Gurugramtook more than a decade to transformfroma suburban market to a CBD; Thane in Mumbai took a decade to transformfroma periphery into a suburb » Physical infrastructure projects have a strong bearing on a micro-market irrespective of its location. The nearby regions where infrastructure projects are being developed, generallywitness strong price discovery appreciation for three to four years. 15 | Residential real estate: An investible asset The housing market in India has witnessed significant growth since 2005 aided by strong economic expansion, growth in the IT-ITeS sector, rising infrastructure spending and opening up of the sector for foreign investments. The sector witnessed some weaknesses for a couple of years due to global financial crisis in 2009. However, the market rebounded quickly in 2010 and remained upbeat till 2013. However, in the past few years, significant construction delays have dampened the investor sentiment which led to rapid build-up of inventory, affecting the new launches and demand. As a result, the growth in capital value declined and some micro-markets even witnessedcorrection. Thus, investing in the Indian real estate is not as simple as it used to be a decade ago, primarily due to the opening up of the sector to foreign investment in 2005. With the availability of information related to launches, supply, pricing, etc., it has become comparatively easier to undertake a thorough analysis of the Indian residential real estate. Some interesting trends around the residential real estate cycle, timing of the market, price appreciation, volatility, micro-market classification, etc., have been showcased below. Residential demand-supply Source:PE Analytics; KPMG in India analysis 0 100 200 300 500 600 400 Correction phase Consolidation phase Growthphase Units (’000) 2008 2009 2010 2011 2012 2013 2014 2015 New launches Sales © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Residential real estate: An investible asset | 16 Residential market cycles inIndia Another factor for softening of the property prices after four to five years of run-up may be due to supply of completed properties, which facilitated the exit of investors and increased the choices for end-users. The initial investors start trickling in from the time a property is purchased at the time of its launch, leading to a sudden glut of supply leading to softening of property prices. The regions, which are largely driven by end-users (buyers occupying their properties and in close proximity to business districts, have witnessed some stability during the bear phase of the real estate sector. A steep decline was witnessed in peripheral areas, where limited physical and social infrastructure was present1 . The only exception to this is the Gurugram and Mumbai real estate market. While, Mumbai was already an established business centre; Gurugram evolved as a major business district from being just a periphery of Delhi in the late 1990s. The central region of both Mumbai and Gurugram (similarly Noida) witnessed significant appreciation during the first few years of the twenty-first century as investors continued to find value in emerging business hubs. In contrast, the cities of Bengaluru, Chennai and Pune have developed as major business districts in recent years leading to significant appreciation in central region property prices in the last decade. The establishment of a central business district with state level and national level importance led to price discovery of the entire property market. Going by this trend, we can expect property price appreciation in smaller cities to take place first in city centres and then in the peripheries of cities with a strong businessdistrict. Property price movementis an important indicator of property trends. Rising prices attract property buyers’ attention and vice-versa. However, like other asset classes, real estate also witnesses crest and trough periods. As per our analysis of key cities in India, property cycle in recent years has been volatile. In the last decade, property prices have risen strongly for four to five years, and remained either subdued or declined for two to three years. Price trends Source:Data, PE Analytics, accessed on 10 December 2016; KPMG in India’s analysis, 2017 20% 15% 10% 5% 0% -5% -10% 2007 2008 2009 2010 2011 2012 2013 2014 2015 Bullperiod Price (INR/sq.ft) Bengaluru Chennai Gurugram MMR Pune 17 | Residential real estate: An investible asset 1. PE Analytics; KPMG in India’s analysis,2017 © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Price discovery of a housing project is an important phenomenon in real estate, which is influenced primarily by three factors: livability, accessibility, and proximity to employment hubs. Neeraj Bansal KPMG in India In light of the above table, it is suggested that the industry stakeholders must adopt a cautious approach, during both, bull and bear phases, to prevent glut of the market with new projects. Observing discipline in supply of new projects may help reduce the price volatility during the bear and bull phases of the property market. Source:Data, PE Analytics, accessed on 10 December 2016; KPMG in India’s analysis, 2017 City-wise real estate price movement across different regions Annual return during the boom period (2010 - 13) Bengaluru Chennai Gurugram Mumbai Pune Central/Central –Prime 16% 12% 15% 9% 9% City-core 12% 13% 14% 9% 14% Suburb 13% 10% 19% 12% 12% Periphery 10% 7% 22% 15% 11% Annual return during the bear/subdued period (January 2014 to June 2016) Bengaluru Chennai Gurugram Mumbai Pune Central/Central –Prime 4% 7% 1% 5% 1% City-core 8% 2% 3% 5% 6% Suburb 5% 4% 2% 7% 6% Periphery 6% 2% 1% 6% 4% Residential real estate: An investible asset | 18 © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Timing your property transactiondecision On the basis of the above analysis, investors may choose appropriate markets suiting their budgets, location preferences, etc. However, there are few fundamentals that hold true for all micro-markets, and investors may consider them to time their entry into and exit from the propertymarket. Tracking inventoryoverhang Rapid supply during the bull period without corresponding absorption results in building up of inventory of unsold units with developers. The mismatch between demand and supply therefore creates pressure on property prices at a certain level. Our analysis reveals that unsold inventory with developers to the tune of 24-30 months of demand starts creating pressure on propertyprices. Impact of inventory overhang on property prices (city-wise) 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 H1 2016 30 25 20 15 10 5 0 Inventory overhang (months) Price (INR/sq.ft.) Bengaluru 8,000 7,500 7,000 6,500 6,000 5,500 5,000 4,500 4,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 H1 2016 85 75 65 55 45 35 25 15 5 Gurugram 7,000 6,500 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 H1 2016 45 40 35 30 25 20 15 10 Chennai 11,500 10,500 9,500 8,500 7,500 6,500 5,500 4,500 2007 2008 2009 2010 2011 2012 2013 2014 2015 H1 2016 Mumbai 40 © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 35 30 25 20 15 10 5 0 Source:Data, PE Analytics, accessed on 12 December 2016; KPMG in India’s analysis, 2017 19 | Residential real estate: An investible asset Price (INR/sq.ft.) Price (INR/sq.ft.) Price (INR/sq.ft.) Inventory overhang (months) Inventory overhang (months) Inventory overhang (months) 25 20 15 10 5 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 H1 2016 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Price (INR/sq ft) Inventory overhang (months) City coreareas 30 25 20 15 10 5 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 H1 2016 6,000 5,000 4,000 3,000 2,000 1,000 0 Price (INR/sq ft) Inventory overhang (months) 35 Periphery 40 35 30 25 20 15 10 5 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 H1 2016 12,000 10,000 8,000 6,000 4,000 2,000 0 Price (INR/sq ft) Inventory overhang (months) Suburb areas Source:Data, PE Analytics, accessed on 14 December 2016; KPMG in India’s analysis, 2017 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2007 2008 2009 2010 2011 2012 2013 2014 2015 H1 2016 Source:Data, PE Analytics, accessed on 12 December 2016; KPMG in India’s analysis, 2017 The timeline is a bit stretched for markets which are largely driven by investors (for instance Gurugram and Mumbai). However, a large inventory overhang impacts only the market which has substantial supply of properties. A micro-market, which has limited number of projects, may continue to witness high inventory overhang without any corresponding impact on property prices. Impact of inventory overhang on property prices (region-wise) MonthsINR /sf Pune 30 25 20 15 10 5 0 • In city core markets – the impact of high inventory overhang on property prices was limited due to limited supply • Most impact was on periphery and suburban markets Property prices have witnessed moderate or negligible growthafter inventory overhang reaches 24-30months Residential real estate: An investible asset | 20 © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Residential properties in core areas of a city tend to be more insulated from several factors, such as the slowdown in the real estate sector and domestic or global economy, owing to it being primarily an end-user-driven market with physical and social infrastructure in place. Neeraj Bansal KPMG in India Supply concentration The housing price across differentregions in a city does not move uniformly or there can be some lag in property prices appreciating in a city region. A major factor in this variation is the quantum of new launches affecting the supply concentration across regions within a city. As per our analysis of the primary data available of several property markets in India, the supply must be adequately distributed between central, suburbs and periphery regions in a city. Typical supply concentration across regions in a city, at any given point in time for sustainable growth in prices, is explainedbelow: Any variation in the supply concentration may have a direct impact on the property prices in a region. As per our analysis of the primary available data, the typical premium or discount of property prices across different regions over a city’s weighted average prices are: • City-core – about 2.5 times the premium over the city’s weighted averageprice • Suburbs – around the city’s weighted average price • Periphery – 20-40 per cent discount to the city’s weighted average price. • City-core – 5-10 per cent of total supply • Suburbs – Metro and large cities – 25-35 per cent of supply – Smaller cities – 70-80 per cent of supply • Periphery – Metro and large cities – 55-70 per cent of supply – Smaller cities – 20-25 per cent of supply Premium/discount to cityaverage Source:Data, PE Analytics, accessed on 14 December 2016; KPMG in India’s analysis, 2017 300% 250% 200% 150% 100% 50% 0% H1 2016 2007 2008 2009 2010 2011 2012 2013 2014 2015 Core Suburb Periphery Generally,a city centre trades at a premium of about 2.5 times the city’saverage. Suburban market generally reflects the city’sweighted averageprice. Periphery trades at a discount of about 20- 40 per centdiscountto a city’s weighted average price. 21 | Residential real estate: An investible asset © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Per cent A good way for a property buyer to gauge the health of the market is to look at the relative pricing and supply concentration in a micro-market.Any significant diversion in supply concentration without any corresponding change in price offers an opportunity to either buy or exit. It is to be noted that a market with frequent change in supply concentration is expected to witness significant volatility in property prices. It also suggests that the supply side is not efficient in balancing out the supply. In our analysis, we have witnessed significant changes in the supply concentration in the markets of Gurugram and Chennai – which resulted into significant volatility in property prices in both the markets. Supply concentration across regions Source:World Economic League Table 2016,Centre for Economics and Business Research 0% 80% 70% 60% 50% 40% 30% 20% 10% Suburb 2007 2008 2009 2010 2011 2012 2013 2014 2015 H1 2016 City core Periphery Per cent of total supply The above relationship is directly linked to supplyconcentration. City core generally accounts for about 4-5 per cent of total supply; suburb accounts for about 30-35 per cent and rest is in periphery Residential real estate: An investible asset | 22 © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Supply share (%) Source: PropIndex, India Apartment Index, Volume 6, Issue 4, Jan-Mar 2017, Magicbricks, May 2017; KPMG in India’s analysis, 2017 4% 15% 20% 15% 13% 6% 5% 3% 2% 2% 2% 1% 2% 3% 1% 1% 2% 1% 2% 2% 1% 0% 5% 10% 15% 20% 25% < 3,000 4,000-5,000 6,000-7,000 8,000-9,000 10,000-11,000 12,000-13,000 14,000-15,000 16,000-17,000 18,000-19,000 20,000-25,000 >35,000 Share of localities (%) Source: PropIndex, Volume 6, Issue 4, Jan-Mar 2017, Magicbricks, May 2017; KPMG in India’s analysis, 2017 5% 18% 21% 14% 9% 6% 3% 3% 3% 2% 2% 1% 2% 2% 1% 1% 1% 1% 2% 3% 1% 0% 5% 10% 15% 20% 25% < 3,000 4,000-5,000 6,000-7,000 8,000-9,000 10,000-11,000 12,000-13,000 14,000-15,000 16,000-17,000 18,000-19,000 20,000-25,000 >35,000 As can be seen from the above bar charts, over 62 per cent of the supply and consumer preference in the residential asset class in India, lies in the INR3,000-7,000 per sf bracket. Also, the share of locations falling under this price bracket is the highest (over 60 per cent). These are primarily in the peripheral and suburban micro-markets of a city. This price bracket usually caters to the affordable to mid-income segment of the society. Another 26 per cent lies in the INR7,000-16,000 per sf price bracket and located in the suburban and city core micro-markets. This usually caters to the upper middle income and high income groups. The remaining 10 per cent of the supply and demand lies in the INR16,000 per sf and above, and usually located in the city core and prime central regions of the city. This caters to the uber-rich segment of the society - the high income group and high net worth individuals who have the capacity to pay a premium for the advantages or the luxury which these regions offer. As the price bracket INR3,000-7,000 per sf, is a major influencer in governing the momentum of the residential asset class, the capital values of the projects in this segment are likely to persist at the current levels for the two to three quarters. 0% 70% 60% 50% 40% 30% 20% 10% 2007 2008 2009 2010 2011 2012 2013 2014 2015 H12016 City core Suburb Periphery Per cent of total supply Supply concentration scenario across different cities Supply concentration:Gurugram Supply concentration:Bengaluru Supply concentration:Chennai Supply concentration:Pune 0% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 2007 2008 2009 2010 2011 2012 2013 2014 2015 H12016 City core Suburb Periphery Per cent of total supply Supply concentration:Mumbai 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 H12016 City core Suburb Periphery Per cent of total supply 0% 90% 80% 70% 60% 50% 40% 30% 20% 10% 2007 2008 2009 2010 2011 2012 2013 2014 2015 H12016 City core Suburb Periphery Per cent of total supply 0% 70% 60% 50% 40% 30% 20% 10% 2007 2008 2009 2010 2011 2012 2013 2014 2015 H12016 City core Suburb Periphery Per cent of total supply Source:Data, PE Analytics, accessed on 14 December 2016; KPMG in India’s analysis, 2017 © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 23 | Residential real estate: An investible asset Source:Regional Plan 2021, National Capital Region, NCR Planning Board, 2005; Haryana Government Town and Country Planning Department Notification, 15 November 2012; KPMG in India’s analysis,2017 Infrastructure push It has been witnessed that irrespective of market conditions, the announcement of a major infrastructure project in a city often drives the real estate activities, leading to property prices appreciation. Some case studies have been presented to analyse the infrastructure-led growth in real estate. Casestudy Peripheral Gurugram submarket (Dwarka Expressway/Northern Peripheral Road and New Gurugram) Dwarka Expressway: The high growth corridor of real estate in the Delhi-NCR region Announcement of the Dwarka Expressway and its development in subsequent years led to the peripheral submarket outperforming other submarkets in the city. Projecthighlights • Conceived in 2007,it is an eight-lane, 150m-wide, and 18km-stretch that connects Dwarka in Delhi to Gurugram • The construction started in 2010 • Scheduled completion was 2012, however it got delayed, owing to hurdles in land acquisition. • Total investment outlay of INR3,000 crore Timeline and price appreciation – maximum appreciation was witnessed post the commencement of construction 2007-10 Projectapproved • Dwarka Expressway was proposed in the Master Plan-2021, connecting Dwarka in Delhi to Palam Viharin Gurugram • Price appreciation = 14 per cent 2010-13 Projectextended • The extension of the expressway from Palam Viharto NH8 was enlisted in the MasterPlan-2025. • This extension boosted real estate development along the Dwarka Expresswayroute • Price appreciation = 96 per cent 2013-June 2016 Projectdelayed • In November 2012, the Master Plan-2031 was released and seven new sectors were added along the New Gurugram and Dwarka Expressway micro- markets. • Project got delayed due to litigation issues • Price appreciation = 03 per cent © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Residential real estate: An investible asset | 24 Real estate dynamics along the peripheral submarket (Dwarka Expressway and New Gurugram) 25,000 20,000 15,000 10,000 5,000 0 6,500 5,500 4,500 3,500 2,500 1,500 Units 2007 2008 2009 2010 2011 2012 2013 2014 2015 H12016 Supply (LHS) Absorption (LHS) Pricing (RHS) Supply, absorption and pricing INR/sf 1,514 11,492 6,344 10,864 17,049 21,004 8,067 12,125 9,975 1,483 Source:Data,PE Analytics, accessed on 15 December 2016; KPMG in India’s analysis, 2017 Supply and absorption The peripheral micro-market of Gurugram accounted for approximately 55-60 per cent of the total supply as well as absorption of organised housing units in the area overthe past decade. © 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Productpricing Dwarka Expressway offers relatively less expensive residential options, which are available at 25 per cent discount to that of a city weighted average price. Majority of the projects are priced between INR3,500–12,000 per sq.ft Pricegrowth The expressway has witnessed approximately 130 per cent growth in residential prices between 2007 and June 2016, owing to a healthy demand The micro-market has outperformed all other submarkets in Gurugram and witnessed the highest appreciation overthe past decade. Investment Total investmentfrom home buyers has been estimated to have crossed INR60,000 crore (USD09 billion), spread over more than 70,000 units 25 | Residential real estate: An investible asset Betting on proposed infrastructure in anticipation of capital appreciation can be dangerous. If the infrastructure project gets delayed, the opportunity cost has already been paid but the capital appreciation is yet to happen. Those who exit when the curve is rising get the best returns on their investments. E. Jayashree Kurup Magicbricks Realty Services Ltd. Conclusion • The announcement and subsequent development of Dwarka Expressway over the years led to the emergence of a new real estate growthcorridor • The micro-market witnessed considerable real estate activity and remained on buyer’s radar till 201

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