CHAPTER – 1

INTRODUCTION AND
RESEARCH METHODOLOGY
1.1 INTRODUCTION

India today can be acknowledged as one of the fastest growing

economy in the world and in this current economic status; real estate
has emerged as one of the most appealing investment areas for
domestic as well as foreign investors. The real estate market offers a
high returns to the investors.

Real estate is basically defined as immovable property such as

land and everything permanently attached to it like buildings. Real
property as opposed to personal or movable property is characterized
by the right to transfer the title to the land whereas title to personal
property can be retained. The investment in real estate essentially
depends on the risks associated with it, that is to say, even if the
venture succeeds when the future stream of income will accrue to the
investor and the alternative investment opportunities. Real estate
investment can be attractive if viewed as a business opportunity; it
can generate rental income, using it as collateral to secure a loan for
a business venture, to offset otherwise taxable income through cash
savings on tax-deductible interest rate losses, or simply from the

1
profits garnered from its resale. Notable, in this context is the gains
reaped by real estate speculators who trade in real estate futures (by
buying and selling purchase options).

Common examples of real estate investment are individuals

owning multiple pieces of real estates one of which is his primary
residence and others are occupied by tenants from where the rental
income accrues. Real estate investment is also associated with
appreciation in the value of property thereby having the
potential for capital gains. Tax implications differ for real estate
investment and residential real estates. Real estate investment is long
term in nature and investment professionals routinely maintain that
ones investment portfolio should have at least 5% - 20% invested in
real estate.

The Indian real estate industry is on a high growth path with a

current market size of $15 bn approximately. Moving on, it is
expected to be over $50 bn by 2010, growing at a CAGR of 35-40%.
The growth of this sector is crucial for the economy as Rs. 100 spent
on real estate adds Rs. 78 to the GDP. The growth is being propelled
by a variety of factors which include, political reforms, favorable
interest regime leading to easy finance availability, rising
income levels and the market getting more organized. The growth is
organic, as the majority of the demand is primary, i.e., consumption
demands in different areas of real estate development.

2
1.2 OBJECTIVES OF THE STUDY

The basic objective of the present study is to present a detailed

picture of real estate as an investment avenue. Within the framework
of this overall objective, it aims at the following:

1. To find out whether real estate is one of the hottest investment

option.

2. To identify the factors which are supporting boom or bubble in

real estate?

3. To identify future prospects of investment in real estate.

1.3 HYPOTHESIS

Real Estate Is The Most Fruitful Investment

Avenue.

1.4 SCOPE AND LIMITATIONS

The scope of the study is limited to real estate only. Other

investment avenues are not taken into consideration. The scope of
real estate investment is very wide. Thus, the subject is also very
wide. I have limited its scope by using approximated data. The
advantages and disadvantages of secondary data are embedded in it.

3
1.5 RESEARCH METHODOLOGY

The research study is mainly based on secondary data.

References of various books on various investment options for
getting inputs and incorporating tax implications is made. Analysis
of related articles, reports and comments published in leading
newspapers and magazines is made for incorporating current trends,
rates, mechanics and regulations etc. Personal interactions with
guide, faculties and seniors are made. Surfing on internet for
understanding current and latest investment portfolios opted by
investors and to find out the future prospects of real estate
investment.

1.6 PROBABLE CONTRIBUTION

This study will help all the people in identifying the

advantages and disadvantages of investment in real estate. Moreover,
they will also come to know what are the characteristics and types of
real estate. This study will also throw light on identifying the future
prospects of investment in real estate as it also points out the factors
which are supporting boom and bubble in real estate.

4
 CHAPTER – 2
CHARACTERISTICS AND
TYPES OF REAL ESTATE
2.1 CHARACTERISTICS OF REAL ESTATE

Valuation of real estate portfolio is different from that of bonds or

stocks because of the following characteristics:

1. Each Packet is Unique: No two real estate investments can be the

same, at least if they arc located in different places. This difference
may not be very significant but the price of one of them may not
give any clue about the price of allot her. Thus the principle or
pricing or similar products cannot be applied to real state prizing.

2. Relatively Fewer Players in the Market : While there are a large

number of players in the stock market or bond market, there are a
very few players in the property market. This is because the amount
required for investment in properly markets is comparatively higher
than that required in other asset markets.

3. The Prize of a Property is Influential : In a perfectly competitive

market, buyers cannot determine the price. Buyers have no choice.
But the situation is different in the case of real estate markets
because a buyer who can hid for a much higher price than the second

5
 bidder will definitely influence the price of the propriety. Real estate
does not have a market mechanism which allows short selling.

4. Real Estate Investments are Large Economic Units: Property

investments cannot be divided into smaller units like equity shares.
This may. be overcome to a certain extent by way of securitization of
real estate investments, but still a property investment must be made
as a single unit.

5. Extensive Government Controls: Property markets are subject to

several regulations such as tax laws, building codes, environmental
norms to be adhered to, etc. These act as detrimental factors to the
development of real estate. Frequent changes in government
regulations may cause change in ownership position or a real estate
which poses an additional risk.

6. Slow Reaction of Supply to Demand : Supply and demand in Real

Estate do not balance. This is because it takes time for conversion of
a property from one use to another use. This adds to the complication
of the valuation of an investment

7. Insufficient Data about Market Prices : Absence of an organized

market and indivisible nature of real estate investment are the
reasons for the availability of reliable information about the prices of
real estate. Even the buyers and sellers are not willing to disburse the
price information. Even the buyers and sellers are not willing to
disburse the price information. Unless a lease agreement is signed, it

6
 is not possible to estimate the price of a vacant space in any building,
Thus, price information about the property is difficult to obtain.

8. Illiquid Nature : Very few transactions occur in real estate over a

period of time. So a definite trend of the prices over time is difficult
to determine. The risk and return characteristics are also difficult to
estimate.

2.2 TYPES OF REAL ESTATE

The most important asset for individual investors is generally

a residential house. In addition to this, the more affluent investors are
likely to be interested in other types of real estate, like commercial
property, agricultural land, semi-urban land, and time share in a
holiday resort.

1. Residential House:

A residential house represents an attractive investment

proposition for the following reasons:

1. The total return (rental savings plus capital appreciation) from a

residential house is satisfactory.

2. Loans are available from various quarters for buying/constructing

residential property.

3. For wealth tax purposes, the value of a residential property is

reckoned at its historical cost and not at its present market price.

7
 4. Interest on loans taken for buying/constructing a residential house
is tax-deductible within certain limits.

5. Ownership of a residential property provides psychological

satisfaction.

Due to these advantages, a residential property (independent

house or flat) represents the most important part of the portfolio for
the bulk of investors. Further, they may be interested in buying some
semi-urban land and/or a share in some holiday home project
because they involve relatively modest outlays.

2. Commercial Property:

The more affluent investors may be interested in investing in

commercial property. This may take the form of constructing a
commercial complex or buying office or shop space in a commercial
complex.

The appeal of such an investment lies mainly in the form of

regular rental income which can be revised upward periodically.
Further, the commercial property may enjoy some capital
appreciation over a period of time. The disadvantage of such an
investment is that it requires a large outlay and may require time and
effort in managing it.

8
3. Agricultural Land:

The appreciation in the value of agricultural land makes it an

attractive investment proposition. Its appeal is further enhanced by
the following factors:

1. Agricultural income is not taxable. However, it is included in

the total income for determining the tax rate applicable to the
non-agricultural income of the assessee.

1. Agricultural land is exempt from wealth tax.

2. Loans are available for agricultural operations at a concessional

rate.

3. There is a charm in living in a farmhouse.

4. Capital gains arising from the sale of agricultural land may be

tax-exempt in some cases (as certain types of agricultural land
are not regarded as capital assets) or may be taxed at a
concessional rate.

As against the above attractions, investment in agricultural

land has some problems associated with it. The principal ones
are:

1. In many states, land ceiling laws are quite restrictive. Moreover,

in some states the law precludes non-agriculturists from
acquiring agricultural land.

9
 1. Many states have laws that confer ownership to the cultivating
tenant.

2. Farmhouses, in general, are not very safe.

3. Agricultural activity is often uneconomical or unprofitable,

particularly if it is done on a part-time basis.

4. Suburban Land:

Land within city limits is often very costly. However, you can
buy residential land (converted land) in private layouts in suburban
areas at affordable prices. Such an investment offers scope for
capital appreciation. Further, it gives you an opportunity to move to
a quieter location that may not be very far from the city as the
city expands.

If you are considering buying suburban land, make sure that

the developer satisfies all zonal requirements and has a clear title.
Many people have been cheated by fit-by-night land developers.

5. Time Share in a Holiday Resort:

In the last 15 years or so, a number of time-sharing holiday

resorts has come up. You can buy one or two weeks in a holiday
resort of your choice. Such an investment offers several advantages:

1. The outlay is modest and affordable.

2. Often you get a choice of two or more locations.

10
3. If you do not use a certain week, you can rent it or accumulate
it.
4. The value of your time share appreciates like any other property
does.
5. You do not have to bother about security or safety.

11
 CHAPTER – 3
REAL ESTATE AS AN
INVESTMENT AVENUE
3.1 ADVANTAGES OF REAL ESTATE

1. High capital appreciation compared to gold or silver particularly

in the urban area.

2. Availability of loans for the construction of houses.

3. Tax rebate is given to the interest paid on the housing loan. In

assessing the wealth tax, the value of the residential home is
estimated at its historical cost and on its present market value.

4. The possession of a house gives an investor a psychologically

secure feeling and a standing among his friends and relatives.

3.2 DISADVANTAGES OF REAL ESTATE

1. To purchase a land or house in the urban area, the investor

needs money in lakhs whereas he can buy equity, gold or other
form of investment thousands of rupees.

2. Often gullible investors become cheated in the purchase of land.

The properties already sold are resold to the investors. The
investor has to lose the hard-earned money.

12
 3. The land ceiling Act restricts the purchase of agricultural land
beyond a limit.

4. If the investor wants to sell the property, he cannot immediately

realize the money. The waiting period may be months or years.

3.3 APPROACHES TO ESTIMATE THE MARKET VALUE

There are several ways of appraising the real estate

information and arriving at a value. Some of them are :

a. Cost approach
b. Comparison of sales approach
c. Income approach

The appropriate method to calculate the market value in these

three cases in given below.

Alternative Method

1. Buy an existing one Market or direct sales comparison

2. Buy a clear site and develop it Cost approach

3. Buy a property with same Risk Income approach

Return characteristics

13
a. Cost Approach

According to this approach, value of property is equal to the

same of the land value and the replacement cost of the building.
From the value thus obtained, the cost of repairs to be done, and the
cost associated with obsolescence of its utility if any (functional or
others) are deducted to arrive at the net value. The rationale behind
this approach is that any rational investor would not be ready to pay
more than the cost of replacing the same building with an equivalent
property.

When the existing building cannot be put to the best use, its
value is assumed to be diminished.

The steps involved in the Cost Approach are :

1. Estimating the market value of the site,

2. Estimating the improvisation or development charges,

3. Estimation of depreciation charges and deducting them from

development charges, and

4. Estimating the market value of the property in question

The drawbacks of cost approach are :

a. It is difficult to quantify the functional and external obsolescence.

14
b. A developer would not raise any building without any expectation
of return. This profit motive has not been considered in arriving
at a value under the cost approach.

c. It always assumes that the owner has the first right to the
property. If the owner has leased the property, then he would
have partial ownership only. Adjustments have to be made in
arriving at a value for a building when it is leased.

b. Comparison of sales approach

In the approach, the value of a property is determined based

on the sales of similar properties. The appraiser should be able to get
enough information to adjust for the difference in prices between the
properties. The factors that are considered for comparison purposes
are similar :

1. Location, type of property

2. Ability to generate identical income
3. Lease structure
4. Risk
5. Ability to finance
6. Rights associated with them.

Assigning a value of the property under consideration based

on the value of similar property is an difficult task. This cannot be
done without making any adjustments, for we cannot find a hundred
percent identical property. The second problem is that this approach

15
 ignores market changes. If the comparable property has been sold a
few months earlier or a year carlier the same price may not be valid
now and using that value without any adjustments does not make any
sense.

The steps in Market or Direct Sales c comparison Approach are :

1. Select properties which have similar characteristics to that of the

subject property,

2. Then subdivide them into units so that it would aid us in

comparing and performing calculations,

3. Then adjust the sales figures with that of the subject property and

4. Estimating the market value of the subject property.

c. Income Approach

Based on the ability to generate income, the value of a

property is determined according to this approach. The present value
of the future benefits that would arise out of holding the property is
determined to assign a value to it. This method also relies on Market
related data such as market rent for a similar property, expenses that
would be incurred on the property, etc. The rate that should be used
for arriving at the present value is more important and more difficult
to estimate.

16
 The crude way of arriving at a capitalization rate is to divide
the net operating income on a comparable property being evaluated.

The income approach, has two methods. They are gross

income multiplier method and direct income capitalization method.

(1) Gross Income Multiplier Method

The steps involved are :

1. Ascertaining the gross market carnings of the subject,

2. Calculating the gross income multiplier, and

3. Estimating the value of the said property.

(2) Direct Income Capitalization method

The steps involved are :

1. The calculation of the net operating income of the subject.

2. Deriving the income capitalization rate from the market and

3. Estimating the market value of the subject.

3.4 TYPES OF RETURN ON INVESTMENT

Three types of return on investment (ROI) are found with real

estate. They are Cash Flow, Return on Taxes and Appreciation

17
1. Before Tax Cash Flow:

Cash Flow is the amount to an investor annually as cash. It

represents the most direct type of return, since it is money one can
"put in his pocket" right away and as a result is most desirable.

However, the amount returned as cash may not be that

significant, and it itself would not justify the investment. Cash flow
typically will be lowest in the early years of a project, and may
initially even be negative, meaning additional cash will need to be
put into the project over the short term. Cash flow hopefully will
stabilize after a number of years, but often still will be least of the
three ROIs.

2. Return on Taxes:

Many investors, especially those in higher tax brackets, are

less concerned with cash return than they are with the tax advantages
of real estate investment. For them, real estate provides some of the
best tax opportunities available.

3. Appreciation:

The greatest ROI is typically from appreciation, which is the

continuing increase in the value of a property due to higher market
values each year. Properties can have significant increases in value

18
over time simply due to such market forces. The assumption of
property appreciation may initially seem contradictory, for tax law
assumes a assumption, while true market instead shows increases
over time.

19
 CHAPTER – 4
REAL ESTATE PRICES IN
METRO CITIES
The real estate prices in different metro cities are:

DELHI PROPERTY RATES

Location Residential
Karol Bagh 7000-11000
Rajendra Nagar 7500-10500
Gole Market 6000 - 10500
Chanakyapuri 17500 - 22500
South Extension 8000 - 13000
Defence Colony 11000 - 15000
Greater Kailash 9500 - 15000
Hauz Khas 9000 - 13000
Kalkaji 3500 - 5000
Saket 9000 - 13000
Vasant Vihar 13000 - 19000
Mayur Vihar 2500 - 4500
Malviya Nagar 3500 - 5000
Noida 3000 - 5500
Shastri Nagar 2200 - 3500
Sadar Bazar 2000 - 2400
Kamla Nagar 3500 - 6500
Vaishalli 2800 - 3600
IFCI Colony 2000 - 2500
Rajouri Garden 3750 - 7000
Janakpuri 3000 - 5000
Dwarka 3500 - 4500
Suryavihar 2500 - 3800
Palam Gurgaon 3000 - 4500
Gurgaon (Smaller) 3500 - 6500

20
 Lodi Colony 15000 - 18000

** Price as per the market value in May 07

** Property Rates are subject to change due to market vagaries and may differ by
virtue of location and project, depending and facilities and other factors.

21
 MUMBAI - SOUTH MUMBAI PROPERTY RATES

Location Residential Commercial

Colaba 18000 - 45000 17000-55000
Cuffe Parade 15000 - 45000 21000 - 55000
Nariman Point 10000 - 40000 11000-17000
Churchgate 10000 - 25000 11000-22000
Marine Lines 8500 - 17000 9000 - 18000
Fountain Area 5000 - 7500 5500-11000
Ballard Estate 7000 - 17000 8000 - 16000
Kalbadevi 4500 - 7500 4000 - 7500
Byculla 4000 - 11000 5500 - 12000
Girgaum 8000 - 20000 7000 - 12000
Marine Drive 10000 - 30000 11000 - 26000
Opera House 9000 - 20000 18000 - 32000
Malabar Hill 14000 - 45000 10000 - 45000
Neapean Sea Road 14000 - 45000 10000 - 49000
Warden Road 9000 - 30000 10000 - 17000
Peddar Road 9000 - 30000 9000 - 31000
Worli 10000 - 35000 11000 - 26000
Prabhadevi 7500 - 25000 7500 - 31000
Parel 6500 - 16000 6500 - 19000
Dadar 6500 - 16000 5500 - 12000
Mahim 5000 - 14000 3500 - 11000

22
 MUMBAI - WESTERN SUBURBS PROPERTY RATES

Location Residential Commercial

Bandra - East 6000 - 22500 11000 - 31000
Bandra - West 6500 - 22000 11000 - 24000
Khar - East 5000 - 9000 9000 - 18000
Khar - West 8000 - 17500 11000 - 21000
Santa Cruz - East 5200 - 9000 6000 - 12500
Santa Cruz - West 7000 - 25000 7000 - 26000
Vile Parle - East 6000 - 11500 6000 - 19000
Vile Parle - West 6500 - 21000 8000 - 24000
Andheri - East 5000 - 7500 6500 - 8500
Andheri - West 6000 - 15000 5000 - 8500
Jogeshwari 3800 - 6500 3500 - 6000
Goregaon 3400 - 7200 3000 - 8000
Malad 3400 - 6000 5000 - 9000
Kandivali - East 3000 - 5600 4000 - 5500
Kandivali - West 3100 - 5700 4500 - 8500
Borivali - East 3500 - 5700 4500 - 6500
Borivali - West 3000 - 6300 4000 - 6000
Dahisar 1600 - 5300 2600 - 3800
Mira Road 1000 - 2751 2000 - 4800
Bhayander 1000 - 2200 2000 - 4600
Naigam 600 - 1450 700 - 1900
Vasai 700 - 1750 1100 - 3500
Nala Sopara 800 - 1700 900 - 2300
Virar 950 - 2400 2000 - 4000

MUMBAI - CENTRAL SUBURBS PROPERTY RATES

Location Residential Commercial

Wadala 2700 - 8000 4000 - 7200
Kings Circle 3500 - 10000 5000 - 12000
Sion 3800 - 12000 3500 - 9000
Kurla 2800 - 7000 4000 - 8000
Chembur 3500 - 7000 4500 - 8000
Ghatkopar 4500 - 8500 5000 - 19000
Vikhroli 3500 - 7500 3500 - 6500

23
Bhandup 3600 - 4500 3000 - 6500
Nahur 3100 - 4100 3000 - 6500
Mulund 3600 - 6191 3000 - 6200
Thane 1000 - 4800 2500 - 4500
Mumbra 850 - 900 1000 - 2200
Vdombivli 1200 - 2000 1000 - 2500
Kalyan 900 - 2500 2500 - 3000
Ambernath 600 - 1000 900 - 1300
Badlapur 700 - 800 1000 - 1500

24
 NAVI MUMBAI PROPERTY RATES

Location Residential Commercial

Vashi 2100 - 6100 2800 - 8000
Kopar Khairane 1800 - 4500 2000 - 5400
Airoli 2100 - 3500 1600 - 6000
Sanpada 2100 - 6000 1500 - 5400
Nerul 3100 - 6000 1500 - 5200
Konkan Bhavan 2100 - 3300 1200 - 4600
Kharghar 1900 - 4500 1200 - 4200
Kalamboli 1700 - 3100 2900 - 4400
Kamothe 1250 - 2500 2900 - 3400
Panvel 1750 - 3100 2900 - 4200

** Price as per the market value in June 07

** Property Rates are subject to change due to market vagaries and may differ by
virtue of location and project, depending and facilities and other factors.

25
 KOLKATA PROPERTY RATES

LOCALITY RESEDENTIAL (RS. / PER SQ. FT.)

Alipore 4000 - 6000
Anwar Shah Road 2500 - 3000
Bagbazar 2000 - 2800
Baghajatin 1300 - 1800
Ballygunge Place 2000 - 3500
Ballygunj Circular Road 6000 - 7000
Ballygunj Park Road 6000 - 7000
Bangur Avenue 1300 - 1500
Bansdroni 1100 - 1350
Barahnagar 900 - 1100
Barisha 900 - 1100
Baruipur 1000 - 1200
Behala 900 - 1400
Belgachia 1300 - 1700
Belghoria 900 - 1250
Beliaghata 1700 - 2400
Bhawanipore 2800 - 3500
Bidhannagar 1900 - 2400
Birati 900 - 1050
Bowbazar 2000 - 2500
Burtala 2500 - 3000
Chittaranjan Avenue 3000 - 4000
Circus Avenue 3000 - 5000
Cossipore 1200 - 1400
Dakshineswar 900 - 1050
Deshbandhunagar 900 - 1100
Dhakuria 1250 - 1600
Dumdum 1100 - 1500
E M Bypass 2500 - 4000
Entally 1500 - 2200
Golpark and Gariahat 3000 - 3500
Garia 1100 - 1500
Ghughudanga 1250 - 1500
Gurusday Road 6000 - 7000

26
Haltu 1350 - 1500
Haridevpur 1250 - 1300
Hastings 3000 - 4000
Hiland Park 2500 - 2800
Jadavpur 1400 - 2000
Jodhpur Park 2200 - 3000
Kalighat 2000 - 2700
Kalindi 1100 - 1300
Kankurgachi 3000 - 4000
Kasba 1150 - 1700
Kolkata Airport 1000 - 1300
Lake Gardens 1600 - 2500
Lake Town 1800 - 2500
Lansdowne 3500 - 4500
Loudon Street 6000 - 7000
Manictola 2000 - 2500
Mall Road 1200 - 1500
Mayfair Road 5500 - 6500
Middleton Row 3000 - 4500
Motijhil 1300 - 1500
Moore Avenue 1600 - 2000
Naktala 1350 - 1500
Narkeldanga 2500 - 3500
New Alipur 2500 - 3000
Park Street 6000 - 7000
Parnasree Pally 1250 - 1500
Paschim Putiary 1250 - 1350
Purba Putiary 1250 - 1350
Queens Park 6000 - 7000
Rajarhat 1800 - 3100
Rash Behari 3500 - 4500
R B Connector 1800 - 2500
Regent Estate 1700 - 1850
Regent Park 1700 - 1850
Ruby Hospital 2500 - 3000
Salt Lake 2500 - 3500
Santoshpur 1200 - 1600
Sarat Bose Road 2800 - 4000
Sarsuna 1000 - 1300

27
 Shyambazar 2000 - 3000
Sinthee 1400 - 1550
Sreebhumi 1600 - 1900
Sunny Park 6000 - 7000
Thakurpukur 900 - 1300
Theatre Road 6000 - 7000
Tollygunge 1500 - 2000
Ultadanga 2000 - 3000
VIP Road 1300 - 1700

** Price as per the market value in June 07

** Property Rates are subject to change due to market vagaries and may differ
by virtue of location and project, depending and facilities and other factors.

28
 CHENNAI PROPERTY RATES

Location Residential (Rs/Sqft)

Adyar 4500 - 8000
Alwarpet 8000 - 15000
Besant Road 6500 - 9500
Chetpur / Kilpauk 6000 - 7000
K. K Nagar 4500 - 5500
Tiruvanmiyur 4000 - 6000
Mylapore 5000 - 6000
Nugabkkam 7000 - 12000
T. Nagar 5000 - 7000
Kodambakkam 4000 - 6000
Raja Annamalipuram 8000 - 10000
Royapettah 4500 - 7200
Egmore 5000 - 6000
Valasaravkkam 4500 - 6000
Anna Nagar East 5000 - 7000
Guidy 4000 - 5000
Velacherry 5000 - 6000
Shastrinagar 4500 - 5000
Ashok Nagar 3000 - 4500
Lloyds Road 4500 - 5500
Radhakrishnan Road 7000 - 10000

** Price as per the market value in May 07

** Property Rates are subject to change due to market vagaries and may differ by virtue
of location and project, depending and facilities and other factors.

29
 CHAPTER – 5
FACTORS SUPPORTING BOOM
AND BUBBLE IN REAL ESTATE
5.1 FACTORS SUPPORTING BOOM

The factors supporting boom in the real estate are:

1. Political reforms:
The government is quite rational when it comes to
infrastructure and development in the country as it is required to
achieve and maintain a growth rate for the economy. The real estate
sector being directly related to it, is being given due importance. The
government has made suitable amendments in the FDI regulations,
taxation structures and various land acts in order to attract more
foreign investment into the country.

Contribution of FDI in Real Estate

30
2. Economic factors:

The lower interest rates and ease of credit availability is

fueling the demand for real estate in the country. This scenario
coupled with the huge potential for consumer credit penetration in
India is favoring the real estate sector.
Besides these factors there are many factors which encourage
investment in real estate such as:
 High capital appreciation compared to gold or silver
particularly in the urban area.
 Availability of loans for the construction of houses.
 Tax rebate is given to the interest paid on the housing
loan. In assessing the wealth tax, the value of the
residential home is estimated at its historical cost and on
its present market value.
 The possession of a house gives an investor a
psychologically secure feeling and a standing among his
friends and relatives.

3. Demographic factors:

Demographic factors like increasing literacy rates, higher

disposable incomes, and increasing urbanization in the country are
important factors propelling the demand for real estate in the
country.
The above factors are going to generate huge demand for
residential space, which comprises 80% of the total real estate
demand in the country.

31
32
Item 1999- 2000- 2001- 2002- 2003- 2004- 2005-
2000 2001 2002 2003 2004 2005 2006
Personal 1,614,59 1,763,74 1,943,50 2,058,55 2,291,63 2,453,38 2,772,57
Disposabl 0 6 9 0 2 0 5
e Income

Personal Disposable Income in India (Rs. Crores)

Period Rural Urban
1987-88 to 1992-93 1.36 2.77
1992-93 to 1997-98 2.03 3.39
1999-00 to 2000-05 1.58 2.55

Urbanization in India

4. Service sector:

33
 The service sector is experiencing a double-digit growth and
the silver lining has been the IT/ITES sector. The IT and ITES
exports are expected to double and triple respectively by 2010. The
sector is expected to create large employment opportunities and is
expected to add over 1.51 million IT professionals implying a
demand of over 900 million sq. ft of commercial and residential
space by the year 2010.

GDP Growth Work Opportunities

Sector (% p.a.) (Million)
1997 -02 1997 2002
Real Estate 8.5 4.55 5.68
Projections of work opportunities 1997 – 2002
5. Market getting institutionalized:

34
 Now with concepts like Real Estate Mutual Funds being
introduced in the country and Real Estate Investment Trusts still to
come, the public is expected to have a greater participation, making
the real estate market more transparent, widening the capital base.
Industry experts believe that REMFs and REITs will definitely
ensure more availability of funds to the developers and faster growth
of real estate sector. A few real estate entities like HDFC Real Estate
Fund, ICICI – Tishman Speyer, Ascendas India IT Park Fund, Kotak
Mahindra Realty Fund, IDFC and Edelweiss Capital have received
approval and started investing in real estate.

5.2 FACTORS SUPPORTING BUBBLE

The various reasons which point towards a bubble may be:

1. Spiraling land prices (sign of overheating and excessive

speculation):

The land prices have really shot up in the last 2-3 years.
Builders continue to get enough buyers for whatever absurd prices
they quote. So, when such people make a beeline for things priced
exorbitantly, there may be large amounts of speculative investment
money entering the market. Also, people now assume that property
moving up is a sure thing. There is nothing called a sure thing in
investing and this is a sign of overheating.

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2. Questioning the capability to deliver:

Although there have been huge plans of development in all the

areas of real estate development whether residential, commercial,
office, retail or SEZ, various questions have been raised on the
execution capability of the developers in delivering the promised
product within the specified time period.
The concept of townships has become very popular but the
developers have not been successful in delivering the product at right
time. Sahara City Homes is a good example in this regard as their
project was launched in the year 2004 in Indore but the actual
construction began in July 2007 and still the pace is very slow which
means it will still take ample of time to take shape.

3. Market still unorganized:

India's property market remains unorganized underdeveloped.

This creates risk for investors. In the absence of a clear title to
property, the risk of litigation is high. For those foreigners who
invest in India via real estate investment trusts, there are no rules on
the marking of their stakes to market or on whether they must pay
stamp duty on transactions.

All said and done, our long-term view on the Indian real estate is
bullish. Key long-term indicators like demographics and the economy are
in a secular uptrend and, hence, property prices will have to follow.

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 CHAPTER – 6
CONCLUSION
6.1 POINTS TO BE TAKEN CARE OF WHILE PURCHASING

REAL ESTATE

1. The plots should be approved by the local authority because on

the unapproved layout construction of a house is not permitted.

2. Possibility of capital appreciation. It depends upon the locality

and other facilities of the site.

3. Originality of title deeds. The site should be free from

encumbrance. Encumbrance certificate for a minimum period of
last 15 years should be got from the Registrar's Office

4. Plinth area should be verified.

6.2 TESTING OF HYPOTHESIS

From the present study, it is revealed that real estate is one of

the most fruitful investment alternative because real estate as an
investment opportunity offers high returns on investment similar to
those offered by stocks and precious metal, as compared to bonds
and bank deposits, which offer moderate returns. Real estate and
bank deposits have low volatility of stock market and moderate

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 volatility of precious metals and bonds. If we combine the returns
with the appreciation rate, real estate provides almost 50% more
returns than that of most other investment options.

Real estate offers higher, risk adjusted returns as compared to

other investment options over a period of time, assured regular
income, prices unaccompanied by inflationary trends and above all
appreciation in capital values.

Thus, these are some of the reasons which make real estate the
most fruitful investment alternative. This shows that the hypothesis
is proved and accepted.

6.3 CONCLUSION

With property boom spreading in all directions, real estate in

India is touching new heights. However, the growth also depends on
the policies adopted by the government to facilitate investments
mainly in the economic and industrial sector. The new stand adopted
by Indian government regarding foreign direct investment (FDI)
policies has encouraged an increasing number of countries to invest
in Indian Properties.

India has displaced US as the second-most favored destination

for FDI in the world. As the investment scenario in India changes,
India which has attracted more than three times foreign investment at
US$ 7.96 billion during the first half of 2005-06 fiscal, as against

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 US$ 2.38 billion during the corresponding period of 2004-05,
making India amongst the "dominant host countries" for FDI in Asia
and the Pacific (APAC).

The positive outlook of Indian government is the key factor

behind the sudden rise of the Indian Real Estate sector - the second
largest employer after agriculture in India. This budding sector is
today witnessing development in all area such as - residential, retail
and commercial in metros of India such as Mumbai, Delhi & NCR,
Kolkata and Chennai. Easier access to bank loans and higher
earnings are some of the pivotal reasons behind the sudden jump in
Indian real estate.

Why Invest In Indian Real Estate?

Flying high on the wings of booming real estate, property in India

has become a dream for every potential investor looking forward to dig
profits. All are eyeing Indian property market for a wide variety of reasons:

 It’s ever growing economy which is on a continuous rise with 8.1

percent increase witnessed in the last financial year. The boom in
economy increases purchasing power of its people and creates
demand for real estate sector.

 India is going to produce an estimated 2 million new graduates from

various Indian universities during this year, creating demand for 100
million square feet of office and industrial space.

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 Presence of a large number of Fortune 500 and other reputed
companies will attract more companies to initiate their operational
bases in India thus creating more demand for corporate space.

 Real estate investments in India yield huge dividends. 70 percent of

foreign investors in India are making profits and another 12 percent
are breaking even.

 Apart from IT, ITES and Business Process Outsourcing (BPO) India
has shown its expertise in sectors like auto-components, chemicals,
apparels, pharmaceuticals and jewellery where it can match the best
in the world. These positive attributes of India is definitely going to
attract more foreign investors in the near future.

The relaxed FDI rules implemented by India last year has

invited more foreign investors and real estate in India is seemingly
the most lucrative ground at present. The revised investor friendly
policies allowed foreigners to own property, and dropped the
minimum size for housing estates built with foreign capital to 25
acres (10 hectares) from 100 acres (40 hectares). With this sudden
change in investment policies, the overseas firms can now put up
commercial buildings as long as the projects surpass 50,000 square
meters (538,200 square feet) of floor space.

Indian real estate sector is on boom and this is the right time to
invest in property in India to reap the highest rewards.

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