Analytical view of real estate market
Empirical study of Nelamangala region and Kolar
Definitions of key terms
Real estate market
1. According to Cambridge English dictionary
“The buying and selling of land and buildings” is known as real estate market.
2. According to legal dictionary
“Land, buildings, and things permanently attached to land and buildings. It is also called realty and real property.
Real estate is the modern term for land and anything that is permanently affixed to it. Fixtures include buildings, fences, and things attached to buildings, such as plumbing, heating, and light fixtures. Property that is not affixed is regarded as Personal Property. For example, furniture and draperies are items of personal property”
Real estate is “property consisting of land and the buildings on it, along with its natural resources such as crops, minerals or water; immovable property of this nature; an interest vested in this (also) an item of real property, (more generally) buildings or housing in general. It is also the business of real estate; the profession of buying, selling, or renting land, buildings, or housing.”
It is a legal term used in jurisdictions whose legal system is derived from English common law, such as India, the United Kingdom, United States, Canada, Pakistan, Australia, and New Zealand.
Real Estate Markets
“Markets are the means by which buyers and sellers meet to exchange/trade goods and services or even information. The real estate market can be broken down into space markets and asset markets.
Space Markets – the mechanism for trading the rights to use land and buildings
1. Demand for space is created by those who are willing to pay for the use of space
2. Supply for space is provided by those willing to sell the rights that they own to the users
Space markets can be categorized by type of use:
1. Office Space
The A class are of superior quality and in posh location with all amenities that command the highest rents. B class is highly desirable but lack some amenities/attributes due to which they don’t command the top dollar. C class is buildings with few amenities but in good condition and moderately/modestly priced. D class buildings with very few amenities are generally in poor condition and poorer locations.
2. Retail Space
• Freestanding retail is small single tenant buildings with minimal amenities.
• Neighborhood centers serve a relatively small population within a 1½ mile radius which is often anchored by a supermarket with other stores providing convenience goods and personal services.
• Community centers serve a larger trading area of about 3-5 mile radius with a wider variety of stores often anchored by a department store.
• Regional centers serve an area of 7-12 mile radius often in the form of enclosed malls and anchored by two or more department stores.
• Superregional centers serve areas up to 50 miles in radius with a tremendous range of products and services.
3. Industrial Space usually consist of ¬¬¬¬¬¬¬¬¬¬¬¬¬- Warehouse and distribution (infrastructure) Manufacturing and production (factory), Materials processing (auxiliary/ancillary).
4. Agricultural Space- Annual and perennial cropland (farm land); Livestock facilities and grazing (pastures/grassland)
5. Lodging Space – Highway motels; Convention/business hotels (have convention space) Luxury hotels; Extended stay hotels/motels (apartments); Resort or destination hotels.
6. Residential Space- Single family detached homes; Single family attached homes (condos, co-ops and townhouses); Manufactured homes; Multi-family apartments.
Asset Markets – the market for cash flow rights to real estate ownership (value)
Capital Markets – the market for long-term (more than one year) assets. This includes stocks and bonds as well as real estate.
Public markets are publicly traded stocks (equity), bonds and money market (less than one year) instruments. REITs (real estate investment trusts) invest in real property and Mutual Funds invest in stocks and bonds (and other financial assets).
Private markets consists of Real property, Privately-held companies, Partnerships (oil and gas, leasing) Bank loans, Individual mortgages (as opposed to mortgage backed securities, which are publicly traded securities backed, or “securitized”, by mortgages) Private (venture) debt
Like all assets, both real and financial, market prices are determined by
1. Cost of capital (an opportunity cost) – this refers to the fact that investors have alternative investment opportunities in which to earn a rate of return on their invested capital. Thus, investors look at the rates of return that can be earned elsewhere before making an investment in a specific asset.
2. Expectations of future cash flows (which reflect growth opportunities) – how much an investor is willing to pay for an asset is a function of the future cash flows that they can anticipate realizing from the investment. This includes both increases (growth) as well as decreases (decline) in cash flows.
3. Risk – the risk related to the investment is an important consideration in order to compare apples to apples. Clearly, an investment in a government bond has no risk associated with the payments by the government, whereas investment in mortgages has default risk and investment in stocks or real property has uncertainty of cash flows in general due to the residual nature of the ownership claim. As will be seen later, the higher the risk of an investment, everything else the same, the lower price that investors are willing to pay since investors are risk-averse.
The definition of “fair market value” can be described as
the price at which an asset trades between a willing buyer and a willing seller, neither of whom is under compulsion to buy or sell, and both of whom are knowledgeable of the risks and future prospects of the asset
The relationship between the Space Market and the Asset Market in real estate is tied together through the cash flows. The price at which the use of real estate space is sold is a function of supply and demand which determines rent.
In addition, economic circumstances beyond the supply and demand for space determine the costs of providing space. The difference between rents and costs represent the cash flows available to investors which are valued in the asset market. Economic circumstances in other markets also impact the opportunity cost of capital and, hence, the value of real estate assets and the allocation of capital to providing additional space (supply) in the space market.
Real Estate Market Analysis – study of the supply and demand sides of a real estate space market
o Rents – what can be charged to tenants (competitors’ rents)
o Vacancy rate
o Amount of competing space currently and anticipated
o Rate of absorption of space
o Number of units/floor space on the property
o Type of building
o Growth prospects
All of these factors are interrelated. The term “month’s supply” of property refers to how long it will take before demand fills a given supply of real estate space. It can be defined as
This is one measure of the desirability of adding new space since it is directly impacts the revenue stream that can be anticipated from development.
Important considerations by market segment for revenues:
1. Office Space – employment in occupations requiring office space
2. Lodging – air passenger volume, highway traffic counts, tourism receipts, number of visitors
3. Retail – per capita income, aggregate income
4. Industrial – manufacturing employment, shipping volume
5. Apartments – population, household formation, housing affordability, employment growth
6. Owner-occupied residential – population, household formation, interest rates, employment growth, income growth, apartment rents
Indian real estate’s market
The real estate sector is one of the most globally recognized sectors. In India, real estate is the second largest employer after agriculture and is slated to grow at 30 per cent over the next decade. The real estate sector comprises four sub sectors – housing, retail, hospitality, and commercial. The growth of this sector is well complemented by the growth of the corporate environment and the demand for office space as well as urban and semi-urban accommodations. The construction industry ranks third among the 14 major sectors in terms of direct, indirect and induced effects in all sectors of the economy.
It is also expected that this sector will incur more non-resident Indian (NRI) investments in both the short term and the long term. Bangalore is expected to be the most favored property investment destination for NRIs, followed by Ahmadabad, Pune, Chennai, Goa, Delhi and Dehradun.
India’s rank in the Global House Price Index has jumped 13* spots to reach the ninth position among 55 international markets, on the back of increasing prices in mainstream residential sector.
The Indian real estate market is expected to touch US$ 180 billion by 2020. Housing sector is expected to contribute around 11 per cent to India’s GDP by 2020. In the period FY2008-2020, the market size of this sector is expected to increase at a Compound Annual Growth Rate (CAGR) of 11.2 per cent. Retail, hospitality and commercial real estate are also growing significantly, providing the much-needed infrastructure for India’s growing needs.
Private equity and debt investments in India’s real estate sector grew 12 per cent year-on-year to US$ 4.18 billion across 79 transactions in 2017. In 2017, M&A deals worth US$ 3.26 billion were made in India’s real estate sector. Private equity investments in Indian retail assets increased 15 per cent in CY 2017 to reach US$ 800 million. India is expected to witness an upward rise in the number of real estate deals in 2018, on the back of policy changes that have made the market more transparent.
Sectors such as IT and ITES, retail, consulting and e-commerce have registered high demand for office space in recent times. The office space absorption in 2017 across the top eight cities amounted to 18 million square feet (msf) as of September 2017. Private equity inflows in office and IT/ITES real estate have grown 150 per cent between 2014 and 2017 backed by a strong attraction towards office sector. In 2017, new retail space of 6.4 million has finished and supply of around 20 mn sq ft is expected in 2019.
The Indian real estate sector has witnessed high growth in recent times with the rise in demand for office as well as residential spaces. Private equity investments in real estate are estimated to grow to US$ 100 billion by 2026 with tier 1 and 2 cities being the prime beneficiaries. India stood third in the US Green Building Council’s (USGBC) ranking of the top 10 countries for Leadership in Energy and Environmental Design (LEED) certified buildings, with over 752 LEED-certified projects across 20.28 million gross square meters of space. According to data released by Department of Industrial Policy and Promotion (DIPP), the construction development sector in India has received Foreign Direct Investment (FDI) equity inflows to the tune of US$ 24.67 billion in the period April 2000-December 2017.
Some of the major investments in this sector are as follows:
In February 2018, DLF bought 11.76 acres of land for Rs 15 billion (US$ 231.7 million) for its expansion in Gurugram, Haryana.
In February 2018, Japanese conglomerate Sumitomo Corporation announced its US$ 2 billion partnership with Krishna Group to develop real estate projects in the country.
KKR India Asset Finance Pvt Ltd has invested over US$ 500 million in residential real estate projects in India in 2017, taking its total investments in real estate projects in India to US$ 1 billion.
The Government of India along with the governments of the respective states has taken several initiatives to encourage the development in the sector. The Smart City Project, where there is a plan to build 100 smart cities, is a prime opportunity for the real estate companies. Below are some of the other major Government Initiatives:
In February 2018, creation of National Urban Housing Fund was approved with an outlay of Rs 60,000 crore (US$ 9.27 billion).
Under the Pradhan Mantri Awas Yojana (PMAY) Urban 1,427,486 houses have been sanctioned in 2017-18. In March 2018, construction of additional 3, 21,567 affordable houses was sanctioned under the scheme.
The Securities and Exchange Board of India (SEBI) has given its approval for the Real Estate Investment Trust (REIT) platform which will help in allowing all kinds of investors to invest in the Indian real estate market. It would create an opportunity worth Rs 1.25 trillion (US$ 19.65 billion) in the Indian market over the years. Responding to an increasingly well-informed consumer base and, bearing in mind the aspect of globalization, Indian real estate developers have shifted gears and accepted fresh challenges. The most marked change has been the shift from family owned businesses to that of professionally managed ones. Real estate developers, in meeting the growing need for managing multiple projects across cities, are also investing in centralized processes to source material and organize manpower and hiring qualified professionals in areas like project management, architecture and engineering.
The growing flow of FDI into Indian real estate is encouraging increased transparency. Developers, in order to attract funding, have revamped their accounting and management systems to meet due diligence standards.
Exchange Rate Used: INR 1 = US$ 0.0155 as on March 04, 2018
Introduction to Nelamangala
Nelamangala is a town in the Bangalore Rural district (taluk headquarters) around 27 km from the north of Bangalore city. It is a junction which lies between two National Highways, NH-48 (Bangalore – Mangalore) and NH-4 (Mumbai – Chennai).
Nelamangala Town is spread over 14.1 km² with around 2.85 km2 (1.10 sq mi) of area at an altitude of 882 meters above mean sea level. It has a population of about 37,232 out of which 14,600 are employed or work or run a business.
Introduction to Kolar
Kolar also known as the golden city of India is a city located at a distance of about 70 kilometers from Bangalore, 50 km from Bangalore International Airport and 32 kilometers from Kolar Gold Fields. It is the headquarters of Kolar District and is known for the production of Milk, which recently surpassed Denmark, and gold mining.
Kolar is popularly known as the land of silk, milk, mango, (National fruit of India) and gold. The city is famous for the Someshwara temple and the Kolaramma temple. Kolaramma is considered as goddess of city of Kolar. Kolar has APMC market which is 2nd largest in Asia and largest in South India. Kolar is the leader in production of mangos, tomato and milk which is exported to various countries like UK, USA, and UAE etc.
Industrial hub of Kolar
• Narasapura industrial area
• Vemagal industrial area
Narasapura name translates to Praiseworthy dwelling place. Narasapura is an industrial area in Kolar district which contributes about 1.25% to the GDP of India. Kolar is one of the only 16 Districts established under the national investment and manufacturing zones (NIMZs) policy. It aims at enhancing the share of manufacturing sector and its contribution to GDP to 25 per cent and creating 100 million jobs over a decade starting from 2011.
An area of about 660 acres was developed in the first phase and later due to expansion of industries a further area of 520 acres were acquired under Section 28(1) of KIADB Act for the second phase.
There are many Realtors from Bangalore offering Plots in Gated Community, flats and Villas such as Paratus BuildCon Pvt.Ltd and Adisesh Projects which are aggressively developing residential properties.
Vemagal is around 10 km from Narasapura and 58 km from Bangalore city it was developed mainly for the purpose of alleviating the land pressure in Narasapura industrial area which is entering its third phase.
History of real estate market of Kolar (the Golden city of India)
In 1995 Kolar’s real estate market took a leap forward in terms of industrial development. Kolar being a largely agrarian district depended on agriculture but now has developed beyond agriculture by setting up the Tamka industrial area.
With the recent development of Tamka industrial area a large amount of small scale industries were established. Consisting mainly of polymer, plastic pickles etc which did not require a large amount of labour and hence growth was limited. And ultimately over a period of time the industrial area developed did not have the intended development that was expected in terms of real estate market. A large number of layouts were developed by KIAD which were left unused. Since the employment opportunities were not up to the mark.
In 2011 the Karnataka industrial area development board (KIAD) notified land for the purpose of setting up an industrial area near the town of Narasapura called as Narasapura industrial area. About 660 acres of land was notified under the first phase and about 520 in the second phase with a third phase also being proposed.
In Narasapura industrial area the first big player to enter the local market was Honda motorcycles and scooters PVT.LTD which set up its largest manufacturing plant in Asia on 96 acres of land.
Following this many ancillary industries to support Honda were established namely Indo auto tech, Advic and many more were established to strengthen the growth of the region. Further companies like Mahindra Aerospace manufactures 2, 4 and 6 seated family & commercial planes for the Indian and international markets. Triumph manufacturing of Cruise Bikes was the first such plant in India. Volvo bus manufactures which became immediate competition of Scania.
Scania a Volkswagen Company manufacturing luxury passenger bus (Volvo bus) competitor, and high end trucks. Bando manufactures of engines belts, high strength rubber products. Exedy Clutch India Pvt ltd manufactures of clutch systems. Lumax manufactures of automotive spares. Indo manufactures of electrical and electronics.
And now after all these establishments successfully creating employment the frequent travel between Bangalore and Narasapura industrial area were at an all time high. The six lane express way from Bangalore connecting to the industrial area further commemorated its successful growth.
Due to the impact of these industries the need for investments has increased and people started looking for good investment opportunities in land and assets. And in 2012 Paratus Buildcon Pvt Ltd started developing layouts in and around these industries. They are the first to develop layouts in this particular region.
“What we do is all around you”.
Paratus buildcon strives hard to leave a mark on the construction and engineering projects of Karnataka state which alter the lives of millions of people and aims for the betterment and improvement of the economy of the entire region while at the same time protecting and conserving the environment.
The company has handpicked specific projects that dealt with infrastructure and development that improve the socio-economic index of the state and is proud to have played a part in building the nation.
Paratus Sunshine at Narasapura Industrial Area presents exclusive spacious villa plots conceived for affluent and abundant living for all who want a more space and little more privacy. The Villa Plots at Paratus Sunshine are located within an established one of a kind gated community.
This was the first project that started around Narasapura industrial area.
Paratus Sunshine also offers a harmonious blend of independent homes and a thriving neighborhood with all amenities. It is located
• Just 6kms away from the Narasapura Industrial Area which is spread across 3000acres of land and entering its third phase.
• It is only 3kms away from the proposed Indian railway coach factory which is spread over 1000 Acres of land.
• It is also only 3kms away from NH-4.
• It is just 4kms to Narasapura Main Town.
• It is connected by 4 lanes express Highway.
• Just 38kms from the K.R. Puram Toll Gate.
• Easy accessibility to Bangalore city.
• It is Eco-Friendly and has all amenities while in the midst of nature.
With lush greenery, all modern amenities, major manufacturing and companies being setup the perfect stage has been set to boost real-estate market and perfect chance for one to buy their dream home.
The success of the project inspired the company to develop more layouts around the region; interest of people in terms of investment in the region had increased and various other developers had entered the real estate market to compete with Paratus Buildcon but the company still remains on the top position in terms of developing layouts as well as enhancing the growth of the region.
Paratus Buildcon started a subsidiary named as RJK developers to meet the requirements. The company has a decent amount of competition been provided by Kadam group, MCB assets and other small time developers.
Adisesh Projects Is A Premium Project Situated At Narsapura, A Fast Growing 4000 Acres Kiadb Industrial Suburb, Which Hosts Premium Industries Such As Honda, Scania, Gsk, Mahindra Aerospace, Volvo Etc.
What makes Adisesh Projects very special is that you can walk to work as it is attached to this industrial hub. Affordable villa plots designed to perfection that suits your budget, with various options starting from 1000sqft to 2500sqft are on offer.
The major attraction of Adisesh Projects is the world class amenities that are being dished out, starting from a clubhouse with an attached swimming pool, Barbeque area, Party hall, fully equipped gym (indoor and outdoor) , senior citizen park, children’s play area, manicured gardens, and lots more.
Not to mention basic amenities like, 24/7 security, grand entrance arch, cctv surveillance at every nook and corner, box type drainage, ugd cabling, overhead tank, STP, tree lined avenues, asphalted roads, etc.
Pricing strategy and market price
325 per sq feet sunshine
1100 per sq feet ELA
900 per sq feet green
Nelamangala vs. Kolar in real estate market
Developer and prices