Name: Muhammad Afaq

Furqan haider
Muhammad Hasnain

Real Estate in Indian

Development
Economy
Research Paper

ABHINAV SRIVASTAVA
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Contents
1. Background............................................................................................................................3

1.1 Introduction.................................................................................................................3

1.2 Importance...................................................................................................................5

1.3 Need..................................................................................................................................7

2. Review of Literature & Research Design..............................................................................9

2.1 Literature Review.............................................................................................................9

2.2 Statement of Problem.....................................................................................................12

2.3 Objectives.......................................................................................................................13

2.4 Scope the Study..............................................................................................................13

2.5 Sampling & Tools for Data Collection...........................................................................14

2.6 Limitation of the Study...................................................................................................14

2.7 Hypothesis......................................................................................................................14

3. Data Collection & Analysis.................................................................................................16

3.1 Role of Government in Real Estate Development in India............................................16

3.2 Parameters determining the real estate investment in India...........................................26

3.3 Comparative analysis of REIT’s & Crowd funding in Real Estate Investment.............28

3.4 Other Means to improvise Real Estate Development in India.......................................37

3.4.1 Foreign Direct Investment...........................................................................................37

3.4.2 Fintech in Real Estate Industry....................................................................................39

4. Conclusion............................................................................................................................41

ANNEXURE 1.........................................................................................................................43

ANNEXURE 2.........................................................................................................................46

Bibliography.............................................................................................................................49

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Executive Summary

With 1.1 billion population of India, It is emerging as important business location due to its
favourable demographics and strong economic growth providing for an attractive investment
location for property investors. India over its past decades has pushed up real GDP growth
average to 6% p.a since 1992.
In recent years Indian real estate sector has witnessed greater trend towards increased
transparency accompanied by various regulatory reforms i.e. permitting foreign investment to
extensive percentage with introduction of new real estate products and services accompanied
with fintech for a greater influence on potential investors

The project outline the background and development of Indian real estate sector providing the
roadway ahead for investors to improvise their portfolios via an alternative investment
wherein how the government of India and its introduction to new policies and regulation has
impacted the sector investment. With improving GDP, Indian real estate is figured as
attractive opportunity for foreign investment and improvisation of better channels of
investments are expected to lift the sector to contribute healthy to country’s economic
condition and investors returns.

The research project details the study of government policies and initiatives for further
improvisation and development of real estate in the previous year. Wherein their proposal as
per SEBI consultation paper to outcast the introduction of REIT’s and crowdfunding provides
the future roadmap for real estate sector via detail comparative analysis comparative analysis.

Further the research study provides for intensive hypothesis study over the investment pattern
of USA and India correlating important drivers leading providing a conclusion to our study of
real estate being a viable option for investment in India

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1. Background
1.1 Introduction
It is necessary that property development within the country takes place in a very healthy and
economical manner. Investors in India square measure these days exposed to what's
happening within the international market providing for effective Financial Planning for
investment in Indian property.

Government of India have taken initiative to bring out a legislation for registering and
regulation the activities of the builders, property developers and promoters with the first good
thing about crowd-funding to entrepreneurs seeking to lift funds while not leaving behind
giant parcels of equity interest ,leading to Urban Infrastructure disposition by establishments
like HUDCO/IDFC/LIC/ILFC/ICICI causative considerably within the development of utility,
social and economic or business infrastructure development. Providing for the
implementation of overarching restrictive mechanisms inculcation a far higher level of
confidence within the international capitalist fraternity.

Parameters Statistics
Property area 3,287,590 sq.km.
Residents 1,210 million (Metropolitan – 377 million)

Rank of doing business 132 out of 1852

Average household size 5.0

Key economic activities Information technology services,

manufacturing and agriculture

The increasing trend towards larger transparency has provided for improved development to
reliable demand indicators for worth to investment in real estate investment by domestic and
international establishments, conjointly it's provided for accrued investor expectation due to
higher income, accrued economic process and introduction to new alternatives of choices in
real estate product and services.

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• Estimated to contributed thirteen per cent by 2028
to India’s GDP as per the Market size of realty in India

•The market size of realty in India is predicted to extend

at a CAGR of fifteen point two per cent throughout
FY2008 – 20028E

•Increasing share of real estate within the GDP would be

supported by increasing industrial activity, Improving
per capita income, and urbanisation

Commercial workplace sector had the second largest

share of investments that stood at USD0.3 billion with

Hospitality sector has the biggest share with investments

around USD0.34 billion

Residential sector attracted a complete investments of

USD0.26 billion representing nearly twenty per cent of
the whole investments, declining at the speed of eighty
two per cents.

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1.2 Importance
Also the venture and seed capital requests square measure tough to access within the current
economic setting. Crowd-funding alternatives offer a reasonable and come-at-able possibility
for raising capital crowd funding resulting in facilitate economic recovery by funding little
and medium enterprises (SMEs) being the key engine of economic process. Providing
support to entities with efficiency to access capital for his or her development and growth
will contribute to job creation and economic recovery.

With potential constraints for domestic moreover as foreign investments in India and absence
of one regulator to observe business practices prevailing in Indian realty market is seemed to
be a risk issue by investors. However with these developments evolution, we have a tendency
to foresee India can still be a high rising marketplace for investors, with its highest total
returns this year up to eight to nine percentage for prime office yield. Providing for the Indian
real estate may be a maturing market, with high price creation potential for its investors
endorsing that there's huge growth potential

Offshore Listing
Offshore Offshore
Listing Listing REIT/REMF/AIF
Offshore Listing QIP QIP QIP
IPO IPO IPO IPO
Offshore Listing PE Fund PE Fund PE Fund PE Fund
IPO ECB ECB ECB ECB
NBFC NBFC
NBFC Lending NBFC Lending Lending Lending NBFC Lending
Bank Bank
Bank Lending Bank Lending Lending Lending Bank Lending
Private Private
Private Lending Private Lending Lending Lending Private Lending

2007 2008-2010 2011-2013 2014-2016 2017

High Average Low

*Major Channels of financing to Invest in Indian Real Estate

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The sector could be a major employment driver, being the second largest leader next solely to
agriculture. Because of the backward and forward linkages with the opposite sectors of the
economy, particularly with the housing and construction sector. Concerning 250 appurtenant
industries like cement, steel, brick, timber, building materials etc. area unit smitten by the
$64000 estate business

The real estate sector is stratified fourteenth among all sectors in reference to direct, indirect
evoked result into economy through expected higher investment by NRI’s (Non-Resident
Indian). India’s real value grew to six.8 per cent in 2014 and grew to 6.6 per cent in 2015
compared with rising economies’ average of 4.60 per cent and 4.2 per cent, severally. India’s
real GDP is calculable to be 6.8 per cent in 2019 because it necessary issue being, Demand
for business property is being driven by the country’s economic process

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1.3 Need
Real Estate is a crucial a {part of} the economy and is in control of an in depth part of its
development investment, advancement of the nation’s infrastructure stand & major
originators of trade and business activity. The estate sector has robust connections with varied
industries like tiles, paints, fittings & fixtures, cement & steel etc.

Real Estate of Bharat has seen several up and down from 2004- 05. Following to the
government’s strategy to allow Foreign Direct Investment (FDI) in realty, there was a
positive sign on investment and construction activities. realty Field not solely determined the
entry of the many native and large names however additionally the invasion of the many
realty Investment firms from foreign additionally to non-public equity funds, pension funds
and development firms inherit the phase attracted by the wonderful appreciation on
investments. This field touches the new summits in 2007 and first quarter of 2008, depicted
by a growth in demand, intensive development and larger than before investments from
foreign. On the other hand, within the middle of 2008, the reactions of the worldwide
financial condition were marked here too, and Indian realty took a back gear. Regular inflow
of FDI was born into realty extensively and what had appeared joined of the foremost capable
markets for foreign investments faced a recession

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Financial plan 2018 accommodated the RE segment, by permitting store allocation for
reasonable lodging. This will enable more designers to grasp this portion of land and make
truly necessary footing on the ground

Budget Proposal Impact

1 Increase limit in deduction for interest on

Allowance to more cash in the hands of
housing loan to INR 3 lakh from existing
taxpayer
INR 2 lakh (loss from house property)
2 Reduction or removal of MAT rates in
Develop real estate an attractive industry
Special Economic Zones (SEZ)
3 Decrease in MAT rates in Special Increase investment opportunities in real
Economic Zones (SEZ) estate and will enhance real estate price
4 Improve REITs to realty, allowing to reduce
of LTCG holding period for REITs from 3 REIT’s will be gaining alternative
years to 1 year
5 Industry status for real estate sector for Comfort the process of funding &
accessing long-term financing at lower cost borrowing

Enhanced spend on Infra aggregating to 14.34 lakh cr. and monetisation of assets being held
in the public sector undertakings through creation of InvITs will fast-track the agenda of
improving/ creating infrastructure in the country. Also, clarification around computation of
tax in case of circle rate variation is a pragmatic step by the government

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2. Review of Literature & Research Design

2.1 Literature Review

RICH PANDEY AND V.MARY JESSICA IN 2017, IN HER PAPER

PUBLISHED IN THE IIM INDORE MANAGEMENT RESEARCH BY
EDITORIAL ADVISORY BOARD (VOL.8, ISSUE, 2017) STATES;
The diversity and complexity of Property Market, its linkages with economy and
investment sphere and the role of real estate in a multi-asset portfolio and need of its
securitization in order to be investible in Indian context.

ADITI BHARGAVA,RASHMI BHAT & NITI TIWARI IN 2017, IN HER

PAPER PUBLISHED IN THE LAW BRIGADE GROUP JOURNAL (VOL.3,
ISSUE 2,2017) STATES; The mechanism of crowd funding is a new concept in
India. And Securities and Exchange Board of India (SEBI) Consultation Paper aimed
at comprehending crowd funding as a concept relevant to India and analyse the
proposed regulations that SEBI has put forth.

AKSHAY VERMA & SHWETAKETU RADIA TYAGI IN 2016, IN HER

PAPER PUBLISHED IMPERIAL JOURNAL OF INTERDISCIPLINARY
RESEARCH (VOL.2, ISSUE 11, 2016) STATES; Crowd funding has emerged as
an exciting alternative to the conventional financial market and whether India Real
Estate Market has the proper legal framework to enable and support crowd funding.

JEREMY COHEN IN 2016, IN HIS PAPER PUBLISHED IN UNIVERSITY OF

PENNSYLVANIA SCHOLARLY COMMONS (VOL.1, ISSUE 1, 2016)
STATES; Attractiveness of real estate as an alternative form of investment compared
to securities or other traditional methods. And the platform to provide several
competitive advantages for the consumer and the firm and a viable option for the
every-day investor.

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FORBES REAL ESTATE COUNCIL IN 2018, IN THEIR ARTICLE “How Are

Fintech And Proptech Changing The Real Estate Industry In 2018?”
The antiquated ways of the real estate market have paved the way for proptech and its
experience-based applications. Adding to the accessibility is the use of fintech on the
finance side to push home loans through and make it easier than ever for a buyer to
get financing and interface with their lender. The two technologies are making the
process of buying a home more intuitive and convenient. To see how these
technologies will weave their way into the real estate market, 10 members
of Forbes Real Estate Council share their own views on how fintech and proptech
developments.

DR. BHARTENDU KR.CHATURVEDI AND MR. AYUSH SHARMA IN

THEIR PAPER PUBLISHED IN INTERNATIONAL JOURNAL OF
BUSINESS AND MANAGEMENT INVENTION (VOLUME 4, ISSUE 5, 2015)
STATES; The paper summaries a brief overview of the increasing Real estate trends
in the booming infrastructural era of our nation. It edifies up with the new policies and
its impact in respect to the investments in the sector and also the policy environment.
It also defines the title role of the government with the sector and the scope of the
same in future aspects.
The facts and figures that are entertained in the resulting research have been taken
from numerous educational means such as newspapers, white papers, the
infrastructure sector magazines and research periodicals by various groups such as
Ernst and Young, KPMG, Cushman and Wakefield etc. These have been a source of
full knowledge and played a key role in detail up of the research.

FINTECH WEEKLY MAGAZINE STATES; Crowd funding is creating new and

valuable options for investors. Today there are many companies that will allow
investors to participate in real estate with as little as $5,000. In this sense, real estate
crowd funding companies have indeed begun to democratize real estate investing.
Also, they have created alternatives to some questionable practices such as the

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original non-traded REITs which often charged their investors high up-front fees to
invest. Thankfully, most of the new breed of companies we will discuss have avoided
this approach, and have instead funded early operating losses by raising venture
capital .

ROBERT HACKETT IN A REPORT PUBLISHES IN FORTUNE

MAGAZINE STATES; There is no dominant marketplace for real estate among
today’s players. In real estate crowd funding — as in the larger real estate investment
industry — there are no dominant players. CBRE is the most prominent commercial
real estate brokerage firm, but even this impressive global company has low market
share as compared with the entire brokerage industry. Meanwhile experts estimate
the value of global real estate at $217 trillion

JAN B. BRZESKI, ARIXA CAPITAL STATES;

Curating investments remains as important as ever. Most real estate fintech
companies are also curating or selecting investments, in one way or another. They
must identify sponsors (individuals) who are competent and honest, who have
projects that make sense. This may sound simple but as any experienced real estate
investor will tell you, it is easier said than done, particularly with the vagaries of the
market cycle. Choosing the right investments or opportunities to share with the
investors they have aggregated will prove to be the single most important factor in
the success or failure of these companies, as with any real estate investment business

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2.2 Statement of Problem

“Real Estate Development in Indian Economy”

The research project details on the “Real Estate Investment” providing a significant impact to
Indian economy and an alternative approach for investing through the means of REIT’s &
crowd funding.

Also it details on the impact of the advancement and inclusion of FINTECH, providing a
secure and Fast-track platform for investors.

Inventory Pile Up:

 According to the survey conducted by ASSOCHAM, Indian cities faced sharp decline
in property prices and lending rate.
 Particularly in Delhi-NCR, demand for real estate dropped by 25-30%
 Such pile up is due to a number of reasons like fall in Demand, Failure in delivering
projects, Poor Planning, litigation issues etc.

Low Rental Yield:

 Rental yield helps in determining the value of a property.

 Rental yield in India is lowest in the world i.e. 2.2%

Economic Slow Down after recession

 In 2008 due to recession, demand for housing went down due to lack of funds
available with bank, stock market crash and currency crisis etc.

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High Interest &Tax rate:

 India’s interest rate are 3-4 times higher than US & UK.
 High Tax rate and less transparent system of the country are a major challenge for the
investors.

2.3 Objectives
Following are the objectives for the study:

Role of Government in Real Estate Development in India (RERA)

REIT Contribution in Real Estate Investment in Indian Economy
Comparative analysis of REIT’s & Crowd funding in Real Estate Investment
Other Means to improvise Real Estate Development in India (Fintech &
FDI)

2.4 Scope the Study

The paper outlines a brief overview of the rising Real Estate trends in the infrastructure era of
our nation. It enlightens up with the new policies and its impact in respect to the investments
in the sector and also the policy environment. It entails upon the ways in which the
Government of India, Foreign Direct, Investments, REITs, Fintech and crowd funding
contribute to the development of the Industry.
It also studies all the parameters (GDP, Per Capita Income, Interest rates etc.) that determine
the increasing amount of Real Estate Investment in India through hypothesis testing, wherein
we further find the most significant parameters that affect the investment amounts at large.
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The hypothesis method to conclude the finding has been run on the software, SAS.

2.5 Sampling & Tools for Data Collection

“Convenience Sampling Method”
The details and statistics that are entertained in the subsequent research have been taken from
various informative means such as newspapers, the infrastructure sector magazines and
research periodicals by several groups such as Ernst and Young, KPMG etc. These have been
a source of full knowledge and played a key role in moulding up of the research. Also digital
libraries like jstor and ezproxy have been our primary source for secondary data.

2.6 Limitation of the Study

 The content in the Research Project is mostly taken from secondary sources i.e.
newspapers, reports, the infrastructure sector magazines and research publications by
various groups such as Ernst and Young, KPMG etc.
 The data availability, particularly for Real Estate Industry in terms of the instruments
(REITs, Crowd Funding etc.) used to invest in Real Estate sector is limited.
 Historical data of past 20yr investments in Real Estate is unavailable.
 The scope and profundity of discussions in our paper is compromised in many levels
as compared to the works of practiced scholars.
 Time available for the study was limited.

2.7 Hypothesis
The objective of our hypothesis here is to understand the parameters that are significant in
determining the investment in Real Estate Sector of India.

In general, the Real estate industry gets affected by various factors. Some of them are as
follows: -

 Inflation Rate
 Interest Rate
 Foreign Direct Investment
 Per Capita Income

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To run the model, we have considered all the factors that are significant for Real Estate
investments.

It is a Multiple Linear Regression model and has been run at 95% level of confidence on SAS
Enterprise Guide 6.1’

For the model the independent and dependent variables are as follows: -

The hypothesis to run the test is as follows-

Ho: All Parameters are not significant in determining the Real Estate investments.

Hi: At least one or some parameters are significant in determining the Real Estate
investments

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3. Data Collection & Analysis

3.1 Role of Government in Real Estate Development in India

Real Estate is one of the maximum revenue generating sectors of India. Its growth as well as
collapse both affect the economy of the country. So, the government keeps a track of the
growth in this sector. Every year, new strategies and laws are made and executed by the
government in order to bring growth in the real estate. All these policies comfort the investors
as well as buyers thereby enhancing the real estate growth. Below here are some recent
initiatives taken by the government to bring in trek in the Real Estate Sector.

The Parliament of India had passed the Real Estate (Regulation & Development) Act,
2016 (RERA) in March 2016 and it came into effect from May 1, 2016 onwards. The Act has
been passed with the sole intention of protecting the r ights of the home buyers across India.
The act is all about making homes affordable by making the purchasing process transparent.
This Act makes it binding for all commercial as well as residential real estate projects to
register with the Real Estate Regulatory Authority (RERA) for launching a project that is
projects with an area of 500 square metres or eight apartments, which were completed before
the Act came into being (projects earmarked for renovation/development and not for sale,
would not come under the jurisdiction of this act), in order to provide greater transparency
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in project-marketing and execution. This act is majorly aims to protect the interest of all
stakeholders and speedy execution of property disputes will also be ensured in due course.

Furthermore, every state in India will have an Appellate Tribunal to be able to solve real
estate disputes. This Act will depict and show the door to unscrupulous builders, who have
for extensive resorted to promotions in this industry and cheated innocent buyers

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Some advantages of RERA are:

Industry Developer Buyer Agents

 Governance  Common and  Significant  Consolidation

and best practices buyer of sector
transparency  Increased protection (mandatory
 Project efficiency  Quality state
efficiency and  Consolidation products, registration)
robust project of sector timely  Increased
delivery  Corporate delivery transparency
 Standardizatio branding  sale on  Increased
n and quality  Higher carpet area efficiency
 Enhance investment basis  Minimum
confidence of  Increase in  Money litigation
investors organised safety and cause of best
 Attract higher funding transparency practices
investments on utilisation
and PE
funding

Amendment to the Benami Transactions (Prohibition) Amended Act, 2016:

Though the Benami Transactions (Prohibition) Act, 1988 has been on the law book for more
than 28 years, but it was merely in the year 2016 act that came into result with rigid rules and
penalties associated with transactions related to ‘benami’ property transactions. It recognised
a regulatory mechanism to pact with the disputes arising from such transactions and charging
heavy penalties to increase the institution-investor involvement and to control the sector to
make India an attractive investment purpose. The law authorises specific authorities to
confiscate disputed benami properties. Through strict rules and penalties, the investors’
contribution is set to increase as it clears out the system for authorised business.

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Interest subsidy for fir st-time homebuyers:

To encourage the housing demand from first- time home buyers, the Union Budget 2016-17
proposed deduction of further interest of Rs. 50,000 per annum for first-time home buyers for
lending of up to Rs 35 lakh certified during the subsequent financial year for houses with a
value not greater than Rs 50 lakh. This move should positively affect home sales in non-
metros in the long tenure where residential product prices are not as great in comparison to
metros cities.

UNION BUDGET 2018-19

Sr. no Expectations from the budget Impact in the Industry

Increase limit in deduction for interest on
housing loan to INR 3 lakh from existing Will put more money in the
1 INR hands of taxpayer
2 lakh (loss from house property) (consumer)

Reduction or removal of MAT rates in Special Will make real estate attractive
2 Economic Zones (SEZ) for developers
Will significantly impact the real
Addition of stamp duty under GST on real estate prices and enhance the
3 estate and precision on tax treatment reach of real estate to consumers
To push REITs to realty, further reduction
of the LTCG holding period for REITs from
4 3 years to 1 year Will attract investments in REITs
Will significantly ease the
Industry status for real estate sector for process and cost of
5 accessing long-term financing at lower obtaining
cost capital from banks

Budget 2018 still continues its push for the Real Estate sector, by creating a dedicated fund
for affordable housing. This will now help more developers to embrace this segment of real
estate and create much needed traction on the ground. Enhanced spend on Infrastructure
aggregating to 14.34 lakh cr. and the monetization of assets being held in the public sector
undertakings through creation of InvITs will fast-track the agenda of improving/ creating
infrastructure in the country. Also, clarification around computation of tax in case of circle
rate variation is a realistic step by the government.

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REITs -Dividend Distr ibution Tax (DDT) exemption for SPVs to REITs:
The Union Budget 2016-17 discharged any distribution made out of the returns of the Special
Purpose Vehicles to the Real Estate Investment Trusts and Infrastructure Investment Trusts
(InvIT) from the charge of Dividend Distribution Tax. Provided for the way of REIT model
to develop financially feasible for retail investors.

The outline of REITs will deliver platform for entire the kind of investors, even with smaller
budgets. Through REITs Investors can mark safe and valuable investment into Indian Real
Estate market. REITs investors can start with as small as Rs.2 lakhs to protect their units in
the exchange. The money together from the REIT funds will far ahead be invested in
commercial properties to produce revenue.

Implementation of GST structure :

GST will combine host of indirect taxes and streamline accesses. Though there may be an
increase in taxes at the closing stage, but convenience of credits on input taxes will not let the
real burden rise. Although numerous goods associated to the real estate industry are sinking
under the 18% and 28% slab. A lot, therefore, will be contingent on the proper
implementation and a proper arrangement of claiming tax credits. GST is also likely to
enhance foreign investment and value the NRI community for investment real estate because
of a seamless all-inclusive channel offered.

Impact of GST on Pr ices of Glass, Aluminium Windows and Hardware

Contract price in outcome that would reduce due to removal of excise duty and following
taxes on it. However, ultimate cost to compete with taxes will rest on on the total
configuration of material involved in the project by calculating the individual items and
summing it up. E.g. In Aluminium window, the rate will be derived bearing in mind taxes on
glass, aluminium extrusions, wool pile, EPDM, locks etc.
It is projected that, post GST, the front works, i.e. Aluminium and glass rates, are likely to
decrease. Approx. 12.5 to 14% of rate benefit could be possibly provide all GST input credits
are entirely passed on to the successive links up to the end customer.

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GST Working for Aluminium Window & Glass Work. Rates are indicative only for illustration
Earlier GST
Particulars Qty Unit Basi Excis Previo Vat In Frig Tot Revise In Frig Tot GST Tot Net
c e us Vat Set s ht al d s ht al Benef al Benef
Rat Off ( GST ) it it in
e %
10mm Toug 1 m2 100 12.50 13.50 10.80 1 4% 28% 1 4% -28%
1 hened Glass 0 % % % % %
125 135 108 10 40 120 277 10 40 132 -277 105 -
2 7 0 0.126
5
Aluminiu 1 Kg 140 12.50 13.50 10.80 2 2% 18% 0 2% -18%
2 % % % % %
m
18 19 15 3 3 167 25 0 3 168 -25 143 -
0.144
3
Hardware 1 L.S 5 12.50 13.50 10.80 2 2% 18% 0 2% -18%
3 % % % % %
1 1 1 0 0 6 1 0 0 6 -1 5 -
0.144
3
This illustration is based on direct purchase scenario or with assumption that the entire GST
benefit of all mater ial will be passed on to Developer by the contractor

The Cost Factor

Due to GST, prices of window works will decrease. Though, due to RERA’s 5 Year warranty
section, contractors may control extra premium towards operation and maintenance and
values will go up. Five-year warranty clause has alternative implication too, where due to
opposition and to keep warrantee cost small, quality of work will in due course improve. At
the same time, due to close-fitting fiscal control in RERA and limited project launch,
competition between contractors will go up and hence in the end prices may go down.

Cur rency demonetization of 500 and 1,000 rupee notes

The recent demonetization of the Rs500 and Rs1, 000 rupee notes by our prime minister is
predicted as a substantial reform. In future, this measure along with Real Estate (Regulation
and Development) Act, 2016 (RERA) will bring in order the real estate sector to the global
business standards, subsequent in more fund flow from institutional investors, banks and
developed unit sales

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Foreign direct investment:

According to the report of 2017 gathered by the FDI Intelligence, a division of The
Financial Times Ltd. India is still the most prevalent FDI destination drawing approximately
$62.3bn investment in 809 projects in the year, 2016. India is gaining ahead of China and US.
Important reforms and the further liberalized foreign direct investment (FDI) regime with
improved transparency brings advanced investments into real estate sector. 100% FDI
allowed via the automatic route for townships, cities will only help sector grow, causing into
the economic development of the country.

Affordable Housing:

The Union Budget for 2016-17 has granted infrastructure the status of the affordable
housing. This is to catalyze the government’s much promoted mission of “Housing for All
by 2020”. This new status is likely to help developers access cheaper funding which would
lead to reduced cost of homes. It is also likely to see an incremental investment from the
national and international developers to actively take part in the affordable housing sector.
This initiative focuses on low-cost housing. Credit-linked subsidy, subsidy for beneficiary-led
individual house construction, besides slum rehabilitation are few key factors in it. A special
provision of Rs4, 000 crore is made for National Housing Bank. Hundred per cent service tax
exemption is provided for affordable housing developers along with 100% tax deduction in
profits for affordable housing construction. Affordable housing has given infrastructure status,
which will control the urban housing shortage of estimated 18.8 Million dwelling units and
47.4 Million units in rural India. This move will attract better investments in the sector. Real
estate projects in Mumbai will get boost with it.

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Smart Cities:
This was an initiative launched in 2005. In addition to a conducive investment environment,
the Government of India, in cooperation and with the support of the governments of the
chosen states, has taken several initiatives in the development of ‘smart cities’. The
Smart City Project plans to build 100 smart cities which serve as a great platform for real
estate companies. A boom in realty is also a positive indicator of rising levels of employment
and has a positive effect on the entire economy. Below is the representation of the status of
smart cities so far

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The Government of India is also taking numerous key initiatives to grow the infrastructure
of the entire country at large. Some of the most important initiatives contain the expansion
of airports in smaller cities, building more Metro Rail facilities, and building of national
highways facilitating connectivity between cities. These stated plans will make the
infrastructure sector attractive to huge investments which are going to profit the realty sector,
the makers, and the home buyers. The fruition of these plans is going to profit the economy in
an incredible manner for a time-consuming time

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Several other initiatives taken by the government are:

 Reserve Bank of India has come out with different concessional schemes. For increasing
the growth graph of real estate sector, RBI has given banks the authority to plan out new
schemes that will benefit this sector.
 The ULCRA i.e. Urban Land Ceiling and Regulation Act has been repealed by various
states thereby bringing in hike in the real estate sector.
 Increased share of FDI: In single-brand retail outlets this share has been raised to 51% and
in cash-and-carry, the share is 100%. In reality projects, 100% FDI is allowed but through
automatic route.
 Funds allocated by the government for Urban Development were increased to US$ 1.17
billion from US$ 660.3 million.
 The minimum area that can be developed in terms of integrated townships has been
reduced to 25 acres from 100 acres. This has greatly helped the developers in making
more profits and thus augmenting the real estate growth.
 Share for the Rajiv Awas Yojna has been increased from US$ 32.4 million to US$ 274
million.
 After three years of investment, there will be full repatriation.
 Increase in funds for Housing from US$ 183.4 million to US$ 215.8 million.
 Granted a tax holiday on profits from initiates in the financial year 2007-2008
 Investing on housing projects of unit type of 1000 to 1500 square feet will prove to be
highly profitable.

Steps taken by the Ministry of Commerce and Industry: It has accelerated up the
development of the SEZs. It has done so by making the procedure of getting the tax-free
industrial enclaves notified easier thereby easing the developers.

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3.2 Parameters determining the real estate investment in India

Ho: All Parameters are not significant in determining the Real Estate investments.

Hi: At least one or some parameters are significant in determining the Real Estate
investments.

The output of the model in the first run was as follows-

After the first iteration we had removed the parameter, Per capita Income because of its high
variance inflation i.e. high collinearity to the model. (Refer Annexure 1)

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The output of the model after the second run (excluding per capital income) was as
follows: -

After the second run we get the significant parameters, FDI and Interest rate that is the ones
with their P values less than 0.05, which signifies that these are the parameters which are
actually making a difference to the investment in the Real Estate sector. (Refer Annexure 2)

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3.3 Comparative analysis of REIT’s & Crowd funding in Real Estate

Investment
REITs and Real Estate Crowd funding have improved and have provide for easy access to
high-quality assets and permitting a constant return on investments. As 2012, there have been
over 500 REITs across 22 countries, with total market capitalisation of more than 850 billion
USD. Asia, with 138 REITs and entire market capitalisation of over 118 billion USD,
accounts for over 12% of the international REIT market, with Japan and Singapore being
significant markets in the region

Real Estate Investment Trust (REIT)

In India, SEBI announced its draft REIT regulations in 2007. After substantial modifications,
REIT regulations were finally passed it in India on 26 September 2014.
SEBI has developed detailed guidelines governing the markets for investments,
providing for the following:

• Eligibility of the sponsor; the manager of the trust and the trustee
• Investment conditions such as the ratio of the worth of income-generating assets as well
as other assets
• Plans and requirements with respect to dispersal of dividends, minimum capital required
for an initial public offer (IPO) etc.

Particulars Current Scenario Possible Regulatory Relaxation

Type of Rent yielding Debt, mortgage Real Yielding Debt, Mortgage
investment Real Estate and under- Real Estate and under-
including retail construction including retail construction
spaces, hotels, properties. spaces and properties.
hospitals and warehouses.
warehouses.
Yield/Returns 6-8% 12-14%* 6-8% 12-14%*
Permissible Min 80% Max 20% Min 60% Max 40%
investment limit

Blended returns 8-8.5% 9.5-10.5%

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With decreasing vacancies, greater quality buildings in CBDs, SBDs and PBDs are possible
to see extreme REITable assets. Close to 1750 million sqft of office space in India
is REITable. Presently, there are 901 REIT-worthy properties in India

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The REIT-able arena covers finished and rent-generating real estate assets. With a projection
of about USD 121 billion or 1.73 billion sq. ft. occupied CRE across office, retail and
warehouse divisions could possibly profit from the REIT prospect

Property Type REIT-Able Space (Million Sqft) Value (USD Billon)

Office 537 70
Retail 75 19
Warehouse 1,127 31
Total 1,739 121

The trust distributes more than 90% of its profit to the investors as dividends. In this context,
REITs provide a better opportunity to the investors as a fixed income instrument with more
liquidity and a good hedge against inflation since rental income corresponds to inflation.
Post 2008 2008-2010 2011-2013 2013-2015 2015-

Prior to FDI investment, bank and private lending were the major sources of funding in real
estate. Later Private Equity funds, foreign developers, hedge funds etc. were new sources
approached by the traditional investor to increase his return.

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Real Estate Crowd funding

Real estate crowd funding is the solicitation of minor amount of funds from numerous
investors done via web-based platform for real estate investment.
As per RBI report Indians have invested almost $112mn in the financial year (2015-16) in
foreign properties through LRS (Liberated Remittances Scheme)
Crowd funding has created splurges ample opportunities for small as well as big investors to
invest their money in high income generating real estate projects and providing to connect
businesses with potential investors.

It is estimated that there are up to 44 million Indian household’s projects able to make minor
crowd-fund investments in community dealings according to the World Bank report. “These
households have an earnings of at least $1,000 a year. Collected, they have the capability to
arrange up to $6 billion a year by 2025 in crowd funding investments.

As of 2013, the U.S. had 344 crowd funding platforms, the U.K. 87 and India only 10. With
following companies valuations in India,

Platforms Investment Received Source

Impact Guru $500,000 RBI

Fundnel (a Southeast Asia- $270,000 RBI

based private investment
platform

Ketto $700,000 Intellecap Impact

Investment Network.

*And numerous angels networks — Calcutta, Chennai, Singapore have sponsored other
platforms

Crowd funding platforms profit from robust network effects whereby the value of the
platform is improved as both campaigns and funders grow. The obtainability of campaigns
drives potential funders to the platform looking for projects to back.

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Indian real estate the market position remains concrete and crowd funding will be growing
the use of project portfolios that permit accredited investors to check investment ideas and
spread risk.

Private real estate investments (Real estate crowd funding) show a low correlation to the
public debt and equity markets (between -0.03 and +0.25) and thus have strong
diversification benefits in portfolios that also feature stocks and bonds.

*Correlation to Debt & Equity Markets

Private REITs offer insulation from the volatility of the public markets but are marked by
high fees and, at times, a lack of transparency. Most non-traded REITs have front-end fees of
12-15% and may have additional ongoing or milestone fees

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Particulars REIT Crowd Funding - Real Estate

Developer of the project/idea
1 Trust, with Trustee, sponsor (s) People- Crowd providing financial
Legal Structure
and manager contribution; and the moderating
organization
Accredited investors-provided
Sponsor to have combined net
with to be an unlisted public
wealth of at least 100 crore
company not more than 48
INR with each sponsors’ net
months old and aims to raise
worth being at minimum 20
capital up to INR 100 million
crore INR.
within a period of 12 months

2 Eligibility
Manager wealth to be 10 crore Minimum offer size must be INR
INR (1.56 million USD) 20,000

SEBI registered crowd funding

Registered with SEBI, and not platform. The procedure for
linked to the sponsor or manager private placement to be arranged
as per companies Act, 2013
Minimum cap of at least 80%
of the worth of the REIT must be The minimum investment size at
finished in rent-generating real should be at least INR 20,000 and
estate, with a lock-in period of the offer can be made to a
three years from the purchase maximum of 50 persons
date
At least 51% of the income to Base on certification that investor
be from rental , leasing and shall not invest outside 10% of
letting out of assets, or incidental
his wealth to become an eligible
revenue retail investor
3 Investment The ERIs and HNIs provide their
A minimum of 2 projects to be
Conditions agreement over the ' Risk
must be held by a REIT
Acknowledgement' that accepting
directly or through Hold Co/SPV
the risk of illiquid investment and
with an investment cap of 60%
possible loss of investment and
for an only project.
they can bear it.
Final holding interest of the For a QIB it is mandatory to
REIT in SPVs to be at least purchase at least 5 times of the
26% and the manager shall minimum offer value per person,
appoint the majority of the board collectively all the QIBs to hold
members of a Hold Co and/or minimum of 5% of the securities
SPV issued.

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Particulars REIT Crowd Funding - Real Estate

4 Public Offer Minimum value of REIT assets The minimum investment size
to be at least 500 crore INR cannot be a smaller amount than
with a minimum offer size of INR 20,000 (USD 300) and the
250 crore INR having a offer can be made to a maximum
minimum contribution amount: 2 of 50 persons, subject to overall
lakh INR limit of 200 persons per financial
year exclusive of qualified
institutional buyers
Maximum 10% of the total sum The allotment must be finished
raised by a REIT by public issue within 60 days of receipt of
of units can be used for ‘general subscription amount.
purposes’.
5 Disclosure Company has to provide the Unit holders’ must have meetings
Requirements crowd funding platform - an on one occasion every year within
Private Placement Offer Letter 120 days from the end of the
to the crowd funding Portal for financial year, gap between two
confirmation meetings not beyond 15 months
PPO to be circulated only to the For specific matters (for instance,
selected accredited investors a change in the manager or
registered with the crowd sponsor, or delisting) votes have to
funding platform not numbering be casted with at least 1.5 times
more than 200, and excluding the votes cast against
QIBs
6 Investor Sponsor group includes: – SEBI Investor category as per
Distribution Where the sponsor is a body Alternative Investment Funds
corporate:
entities/persons controlled by Category I – which includes real
such body corporate estate crowd funding through
entities/persons controlling such Venture Capital Funds, venture
body corporate funds etc.
Hold CO: Category II – which includes
A company or an LLP in which private equity funds or debt funds
a REIT holds or proposes to hold for real estate development
a controlling interest and at least projects
51% of the equity share
capital/interest
SPV: Category III – Crowd funding
A company or an LLP in which real estate investment through
a REIT or Hold Co holds or Hedge Funds”
proposes to hold a controlling
interest and an equity stake or
interest of at least 51%

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Particulars REIT Crowd Funding - Real Estate

7 Valuation & Complete valuation of a REIT “A description of financial
Disclosures (in the prescribed format) to be condition of the company
undertaken at least once every including Audited financial
financial year; Half-yearly statements of 1 year, with Price of
valuation of REIT assets to be securities offered and the rights
conducted for the half year and liabilities attaching to the
ending 30 September securities

Annual report needs to be Ownership details and capital

provided to unit holders within structure with broad details
three months from the end of the regarding Board, Management and
financial year; or 45 days for the Group entities, and persons with a
half yearly ending valuation shareholding of 20% or more.

8 Governance Multiple classes of REIT units EbC and DbC shall allow private
Aspect not permitted with Multiple placement offers through internet
classes of REIT units not based crowd funding platforms to
permitted with Multiple classes any number of QIBs and a
of REIT units not permitted maximum of 200 HNIs and ERIs

In case of Purchase or sale of A Company is required to

property; unit holders’ approval purchase at least 4 times of the
needed – minimum offer value per person as
The acquisition price is more specified in AFI .Provided with
than 110% of the HNI is required to purchase at
valuation least 3 times the minimum offer
–The sale price is less than value per person
90% of such valuation

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Real estate crowd funding has been providing minimum investment thresholds for most
private real estate deals leaving REITs to be the only viable option for investors wanting to
diversify their portfolio by investing in real estate. As an accredited investor has direct access
to pre-vetted real estate investments with lower investment minimums

Investment Curated by Real Estate Crowdfunding

Project Funding

5%

*Pre-vetting pyramid to highlight only the best opportunities for the investors

Investment Proportion Comparison – For Public (REIT) & Private (Crowd

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3.4 Other Means to improvise Real Estate Development in India

3.4.1 Foreign Direct Investment
FDI in Real estate is being permitted since January 2002. Despite the fact that it is almost a
year, since the FDI was allowed in Real Estate, the response is not encouraging. FDI in real
estate created major inflows of funds that can enhance domestic investment to achieve a
higher level of real estate development.

The potential of growth and contribution of the real estate industry to the GDP is tremendous
in India, as compared to other countries

Particulars Position under FDI Policy

Minimum
There is no minimum capitalization requirement.
Capitalization
 The investor is permitted to exit from the investment: (i) after 3
Exit and Lock-in years from the date of each tranche of foreign investment, or (ii) on
restrictions the completion of the project; or (iii) on the completion /
development of trunk infrastructure .
Transfer of stake
Transfer of stake by a non-resident investor to another non-resident
from a non-resident
investor, without any repatriation of investment is not subject to any
investor to another
lock-in or prior FIPB approval.
non-resident investor

Separate Each phase of a project is considered as a separate project for the

Phases/Projects purposes of the FDI policy

 There is no minimum area requirement. Earlier, minimum floor

Minimum Land area to be developed under each project was required to be 20,000
Stipulation sq. meters for construction-development projects.

100% FDI is permitted under automatic route into completed

Completed Asset projects for operation and management of townships, malls/
shopping complexes and business centers.

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Particulars Position under FDI Policy

Transfer of control from residents to non-

residents as a consequence of foreign
Transfer of control from residents to non- investment is also permitted. However, there
resident is a lock in period of 3 years applicable and
no transfer of immovable property is
permitted during this period.
FDI is not permitted in an entity which is
engaged or proposes to engage in ‘Real Estate
Business’. However the earning or
Earning or rent/income on lease of the
rent/income on lease of the property, not
property
amounting to transfer, does not amount to
‘Real Estate Business’ and hence is
permitted

As per repor ts it is 4th largest sector in terms of FDI inflows;

 FDI in the sector stood at US$ 24.66 billion from April 2000 to September 2017.
 FDI in the sector is estimated to grow to US$ 25 billion by FY22

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3.4.2 Fintech in Real Estate Industry

 Fintech has proven to be a boon for the RE Industry.

 Compared to 15-20 years ago, buying a house is much easier today. It is now possible
for buyers to purchase a home without leaving their couch by using online tools.
 It is also easier for buyers to get financing for their home or office etc.
 Fintech has made it very convenient for any individual to invest in Real Estate.
 Fintech has made it easy to reach out new investors.
 Real Estate is a notoriously imperfect market. Transaction cost are too high and with
time block chain will be the next step.
 Finding flats or spaces on rent is as easy as buying grocery online.
 REIT’s and Crowd funding are promoting investment in real estate industry.
 Constructor, Owner, Developer and investor can use Fintech platforms for variety of
services including leasing, acquisition, disposition decisions and managing the
underwriting process, and accessing detailed financial models for property financing.

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Fintech highly influences RE industry and also helps in increasing the speed of how things
are done.

Some benefits to investors from Fintech:

 No systematic Delays
 Less paper work required
 Liberalisation has made it possible for private NBFC to lend in an autonomous
manner.
 Commercial and residential investment option for institutional investors
 Online RE investment solutions for individual

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4. Conclusion

 India's Real Estate Sector has seen a revival with the several operational changes
initiated by the government in 2017. The Government has set housing on a high
development trajectory by contributing tax and fiscal encouragements to builders and
consumers, and concluded with new consumer-friendly policies.

 The improvements by government have taken about a swift, effective, accountable

and well-timed project distribution. By applying these policies, the interest of the end
buyers has been safeguarded, which has brought a constructive sentiment in the
property market. These constructive actions will bring in augmented transparency and
accountability, and by attracting the industry's reliability, it would draw more sources
of investment. Due to a better fluidity in the market, FDI could also surge.

 According to our hypothesis, out of all the considered parameters i.e. Interest rates,
FDI, Inflation and per capita Income only Interest rates and FDIs are the significant
parameters that affect the real estate industry in India.
 An increase in the interest rate is likely to decrease the investments in
Real Estate and vice versa.

Whereas, FDIs are directly related to the investments in Real Estate.

 Crowd funding has additional flexible underwriting norms than possibly what REIT
can offer. It is a high risk and high return game. REITable properties are established
revenue producing assets while crowd funded projects are mostly freshly launched
and start-ups that require early periods of funding

 ROI would be higher than the REIT for the parties interested to lend to the developers
through crowd funding. Yet, the risks are also much higher in a market like India
where access to right information is challenging and transparency is lacking.

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 Crowd funding is very different from REIT in terms of operational methodology,

nature of investable properties, legal framework and the alliance between the
concerned parties. Moreover, in the absence of guidelines, crowd funding in Indian
real estate, is generally covert, rather than overt.

 FDI policy-So, the impact on the real estate industry can be noteworthy, leading to
improved competition levels between the local developers, in terms of price, quality
and timing. The potential of development and influence of the real estate industry to
the GDP is remarkable in India, as compared to other countries

 Fintech companies are using the power of the internet to disrupt the financial
industry. By cutting out the middle man (i.e., banks) and lowering costs, they're able
to make financial services far more efficient and consumer friendly.
Fintech gives consumers easier, more direct access to financial transactions, allowing
them to commit to investing (or lending, or borrowing) that much faster.

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ANNEXURE 1

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ANNEXURE 2

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