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India Real Estate Report Q4 2011 Published on September 2011

Report Summary The signals coming from India's real estate and construction markets are at best mixed and at worst contradictory. The nub of the problem is uncertainty concerning the short- medium-term fate of the economy. The rate of economic growth is slowing, albeit to a level that would still be exceptional in a Western economy. We believe that FY2011/12 expansion will come in at 7.6%. The key problem is high ' and persistent ' inflation. The Reserve Bank of India has already raised interest rates on five occasions and by a total of 300 basis points (bps) in just 15 months. That latest tightening, in July 2011, was a further 50bps when the market had expected only 25. Many observers now believe that there is another 50-75bps of tightening still to come, although the consensus is that we are near the end of that process. In this environment, business has little appetite for major investments. Investment growth in the last quarter almost dried up, coming in at just 0.4% year-on-year. More importantly, this weakness is spreading from investment to consumption. The real estate and construction sectors are now caught in a double bind. On the demand side, business is postponing investment decisions and consumers are wary of borrowing at a time of high interest rates, with their potential impact on housing affordability. These factors, plus tight bank lending, are constraining demand. On the supply side, developers are facing both higher financing costs for their projects and cost inflation impacting most of their inputs. Softening demand means they cannot increase prices anywhere near fast enough to keep pace with costs. The result is a reduction in margins and in some cases serious liquidity pressures. The forward-looking statements being made by participants in the market are very mixed. Some are optimistic that the present difficulties are a mere bump that will quickly be passed and forgotten. Others are more cautious. Still others are concerned that a shortage of finance might seriously damage the market and force some participants into distressed sales in order to improve their cash positions. There are a number of positive factors pointing to opportunities in the real estate market: - The Confederation of Real Estate Developers' Association of India (Credai) believes that India will need to deliver an additional 27mn housing units during the 2012-2017 period, entailing an estimated investment of US$3.2trn. - Demand for commercial property space in India is, in most of the 15 sub-sectors we monitor, growing fast enough for new supply to be absorbed. - We expect investment growth to return during 2012. The key risks to the sector relate to economic conditions and the availability of finance. These include: - According to a report in Business Standard, the Reserve Bank of India sees high risk of an asset bubble forming in the country's commercial property sector. The bank has asked lenders to slow financing to commercial real estate projects. - India's famously slow, corrupt and complex bureaucracy makes the approval process for land acquisition or a new development slow and expensive. While the problem is well recognised there has been little evidence of improvement. - The combination of high interest rates, high inflation and slowing growth, if sustained, would be likely to lead to falls in property prices and failures among market participants.

Table of Content Executive Summary . 5 SWOT Analysis 7

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>> Get this Report Now by email! India Real Estate/Construction SWOT 7 India Economic SWOT ...... 8 India Business Environment SWOT .... 9 Real Estate Market Overview ... 10 Real Estate Market Analysis .... 11 Table: India's Real Estate Market ' Historic Rents, 2010 And 2011 (per m2/month, INR) . 11 Table: India's Real Estate Market ' Net Yields, 2011-2012 (%) .... 12 Table: India's Real Estate Market ' Terms of Rental Contract/ Leases, Mid-2011 ... 13 Industry Forecast Scenario ...... 14 Real Estate Outlook ........ 14 Table: India's Real Estate Market ' Rents, 2011-2012 (per m²/month, INR) .... 16 Table: India's Real Estate Market ' Forecast Net Yield, 2008-2015 (%) 17 Construction And Infrastructure Outlook .. 18 Table: India Construction And Infrastructure Industry Data . 18 Table: India Construction And Infrastructure Industry Data . 19 Macroeconomic Outlook . 22 Table: India ' GDP By Expenditure, 2008-2015 25 Business Environment ... 26 India's Business Environment .. 26 Table: BMI Business And Operation Risk Ratings ....... 26 Table: BMI Legal Framework Rating ........ 28 Table: Labour Force Quality ... 32 Table: Asia, Annual FDI Inflows ...... 35 Table: Trade And Investment Ratings ........ 37 Table: Top Export Destinations ........ 38 Competitive Landscape .. 40 Company Profiles ... 41 Ambuja Cements Ltd ....... 41 DLF ..... 43 Parsvnath Developers Ltd ........ 45 Sobha Developers Ltd ..... 46 BMI Methodology ... 48 How We Generate Our Industry Forecasts 48 Construction Industry ..... 49 Bank Lending 50 Sources 50

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India Real Estate Report Q4 2011  

The signals coming from India's real estate and construction markets are at best mixed and at worst contradictory. The nub of the problem is...

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