This presentation represent the ground reality in establishing a Real Estate Firm in India.

1. My Experience in Real Estate in India By : Sunil Kumar N.S. D.G.M. – Sales & Marketing PBEL Property Development (India) Pvt. Ltd. Hyderabad. Mobile: 09885108839

3. Tales of (National) Real Estate Expansion

4. Reality of large projects

5. Way forward for large projects

7. One other example we can consider is Sahara which has land bank across India ranging from Tier-1 to Tier-3 cities. Acquired properties or ands since a decade but after acquisition or purchase of land except in couple cities it was not an easy go or matter of fact projects didn’t take-off in many cities.

8. IT Expansion or Spread across the nation: Since most of new housing projects announced or planned keeping in view of IT employees or IT growth especially in South lets take that as an expansion example across the nation.

9. How IT Industry spread into new locations? Faster expansion was the key strength of IT companies and reason fortheir success is very minimal or negligible interference ordependencyon Govt. or Bureaucracy; “its the darling industry of any State Govt”. They where given red carpet welcome and with lot of benefits such as free(or minimal cost) land and many other things. IT companies like Infosys, TCS, Wipro, Satyam etc have expandedand penetrated all major cities in India.

10. IT companies had very logical and business reason for the expansion such as to minimize the relocation expenses of employees and ample of local manpower availability led them to tap local talent in multilocations(cities) and save on relocation expenses. in some caseshead of unit influenced expansion in their preferred locations.

11. One important factor to notice, is the culture in IT companies was very similar...this made relocation easy for example Infosys in Bangalore does not look much different from Hyderabad or Pune this holds same for the employees attitude etc. Hence the relocation, expansion and operation started at quicker pace...

13. Opportunities in real estate that every analyst, media whole world was talking about… in every other week (day) summits or conferences across major metros !

15. Why large projects? There might be many reasons for taking up large projects but I think following are few key reasons. logic to develop small project in a new (foreign) city keeping in-view of brand, overheads and also keeping in-view of FDI regulations etc. As a national or international developer it didn’t make sense or business 2) All the PE (which is history now) firms had showed interest mostly (only) in large projects (i.e above 5 lakhs BUA or 25 acres) even some large nationalized banks encouraged (insisted). We keep hearing famous lines we don't look at projects less then $XX million (double digits) and we want equity not less then YY%. OOh you have land set aside for SEZ ...great vision it’s a walk to work …so at every given opportunity developer was encouraged and seduced to take large project.

16. 3) Other reasons can be over optimistic projections from IPC's (real estate experts of India fresh from college holding degrees frombest of the business schools ), window dressing projections from Govt. babus on infrastructure, by-laws, employment creation from SEZ's etc. The buzz word of SEZ's, FDI's, Unlimited FSI's, ORR's added music to this desi cum foreign rush. {Though lately we realized birds (homes) arrived before nest (infrastructure or SEZ’s) } 4) Other interesting group which joined the real estate band wagon are large business houses such as Bombay Dyeing, Godrej, Mahindra’s etc and infrastructure companies which added some more glory… companies such as L&T, Maytas, OMAXE, IDEB, NCC, Adani etc

17. Welcome to reality of expansion to newer cities: Lets looks at the big picture the process or cycle (roller coaster) involved from land purchase to selling the project. Believe me its NOTDOCUMENTEDor had been taught as a part of curriculumin famous IIMS or ISB etc. Its hardcore indigenous experience (Made in India)…the journey starts with land purchase. You have mixed bag of proposals from IPC’s, Friends, Family and important the warriors of land transactions “The Great Agents (brokers)” spread across the globe (undocumented multi tier levels)…its similar to you are most wanted bachelor or sought out groom remember the famous Hindi serial Mr Yogi !!! In the end you’ll put some logic, gut feeling and pressure to close or decide to purchase (marriage) the land.

18. The latest gadgets helps in making decisions quicker ( also transparently), fancy presentations (cut and paste), thanks to Google for bringing world map to your door step so the teams spread across the globe are debated, exchangedvolumes of emails in the end everyone is convinced ( its just a corporate bureaucracy). Land purchase involves multi level (2 or 3 or 4...) agents. Spread across city, state and nations so every one have a cut and pays...some want cash other wants you to pay his part of tax component, wire transfers or share in project it self. There is no defined wish list… Its very unlikely to find a new age law firm (partners) which has or shows interest in land due-diligence even though you may find one but that approach is outright (ly) rejected by your agent/friend etc in the end the fate of the due-diligence or legal opinion is done by typical local advocates ( they just learned to send emails through assistants ).

19. Most of the law firms are not equipped to answer questions related to building by-laws, land usage etc...you broker is guru for all these answer either he invites Govt. official for a dinner and in his creative chat extracts information…believe me you don’t get anything in writing. Its another night mare to convince your global counter part in a documented format… Also don't forget to publish your intention of purchasing land with some basic land details secretly or in hidden pages...the intention is to inform all but some how always this appears in no-man space in the leading news papers I am not sure if anyone hardly notices. It very strange and interesting that you are purchasing crores worth of property and your advocate want to save money on paper publication !!!

20. Land purchase through cheque (white money) is unknown or a foreign word. Just imagine the efforts to convince the land owner to accept white money and in our experience this always ends up with higher cost. At beginning of transaction agent informs and convinces you that land owner is willing to take cheque payment, even land owner is ignorant of the additional expenses he’ll end up paying as TAX but after signing MOU goes around with his trusted group or family and finds out reality of accepting check payment…then comes the surprise increase the land cost i.e. 33%…all your math goes for toss !!! Either you loose the payment made as part of MOU or arrive on a compromise price…anyway going for next transaction you are better experienced. All the happy members of large extended family should be part of the sale transaction. including minors to third generation sisters...in short a 10 acres registration from a farmer appears like a polling booth…its similar to the traffic jam in India where a car passes through a busy or over crowded junction without hurting anyone…you are just guaranteed (convinced) they are the owners.

21. If you can get this done without document pending you are very lucky since more or less you will find a red mark in sub-register office since some survey number is shared by different land owners and there is some or other issue with the transaction. Again the agent or broker becomes your savior (Please remember there is no written MOU or conditions with broker he his every where…one stop help or negotiator)…god knows what he talks to officer at Sub-Register every thing gets sorted out, again the procession of registration take off. ( Though we insist that advocate should be present during the registration process but we rarely see this happening…) Now comes the battle ground of Kurkeshtra...building the compound wall. If you are lucky you'll build this in three months with some lost land, you have added few claim petitions in court on other hand if you have strong local team you may gain some land but in any case no land is free without claim petitions thanks to our worlds best (respected) legal system and democracy….( don’t count on broker or land aggregator they are gone the moment they received the commission )

22. It’s the moment you want to show to some famous architect who is very creative, appreciates and falls in love with land and become emotional and starts giving ideas equivalent to TajMahal...its the point where “imagination and virtual” world starts...from brochures, video walk through etc developer lives in this world for next 2 to 3 years... Based on some ideas from architect, gut feeling and market survey from IPCs ( real estate experts don’t forget they are fresh from best of business schools) eventually developer defines a product mix (i.e how many 2 BHK, 3BHK etc and some commercial portion etc). For sure its the same product mix you see with 10's of other developer but still you are confident you are different. Based on the imagination or virtual plans ( in architectural world they are called Master Plan) we approach statutory authorities for feedback as first step basically this is to know each other etc (its called "liaison" in real estate world its a channel established btw the Govt. and the company). In some cases PE firms insist we should have strong liaison team (they learned through experience without approvals there is nothing one can do…) which is very important then rest of team.

23. Here you discover hidden world or some hard truths...land usage is not residential ( in some cases only some portion is residential); not enough road width to support the virtual towers ( broker or agent during purchase convinced neighbor(s) property has encroached road etc); so now developer had two big things to sort or address first to convert land to residential usage (if Govt. permits) and next access roads. Believe me this is one of the worst experience in developer career to convert land from one zone to other...this procedure involves all the important Govt. Depts. (Revenue, Industry, Planning, Municipal Administration, Minister). This procedure is nothing less then 8 to 10 months provided if you have smart liaison team. Its an experience one had to go in life… you'll find officers getting transferred, on an auspicious days (months) they are on long leave on daughter/sons wedding, local elections all official decisions are on hold etc. Believe me I am not exaggerating but its worse then that can be put in best of the words…

24. By this time developer might have added few engineers, support staff and a fancy office space and top of it goes on announcing in media about the purchase, investment, fancy project he his going to build...for sure you‘ll caught attention of one or more “marketing agencies”. Here comes the make-up-man of the project, marketing agency...who adds colors, tags and defines the course of action how to attack the market; virtually he his driving the entire show...in the world of adv this is called “branding”. They make you convince on lot of things which you where foreigner just few months back and was shy or very conservative to do. Lets come back to the Govt. world…with the all efforts and lobbying etc your land is converted to residential and now its eligible on paper (note nothing changed in your neighborhood or anything physically done in your land or in process) to build a housing project...believe me in this entire process you 'll have ONLY one or two inspections from a very junior officer who recommends the conversion (zone change) of the land and same file is “moved and moved from dept to dept” ...100% bureaucracy guaranteed !!!

25. Legal issues: At any given point of time you have to make sure that so called claims (from fake documents and forgotten relatives of the land owner) on land are NOT turned itself into status quo this will effect the conversion or matter fact even the building approvals...this may stuck project for ever and there are plenty of incidents like this... You are desperate to submit drawing with statutory authorities by this time you have already spent money on branding ( by this time you’re marketing agency already singed two or more clients based on your branding), salaries, office, traveling, 30% of payments to consultants etc...at this interesting or desperate moment you realize a very hard truth that the so called famous architect does not help in preparation of drawings for statutory approvals or it is not part of his scope !!! and he would not like to visit Govt planning dept since he would not like to waste his time or wok with high attitude Govt officials. Man you want to strangle yourself or your architect …its a crazy situation.

26. With experience you realize that there are specialized small time architects whose job is to convert virtual plan to statutory plans for submission. This involves 5 to 6 sets...in the end you'll see 100's of drawings which has to be signed and attested by structural engineer, architect and developer grouping and bring them all together is another expense and time consuming (private bureaucracy)…. As first step i.e. before submitting for building approvals its mandatory to get clearance from FIRE, Airport and Pollution even if we do this very aggressively with efficient "liaison" team its 6-8 months effort on lesser side. In this booming (virtual) economy the low lying depts. (Fire, Pollution) have started issuing guidelines and extra safety measures ( sprinklers in apartments that too concealed; Environmental clearance for lands which fall in 10 KM radius of large lake) in lines with developed world and interestingly it appears they are applicable only to PRIVATE DEVELOPERS ...where same is not noticed ( may be its not applicable) in GOVT BUILDINGS.

27. Piles of drawings are ready for submission...starting from Jr Planning Officers all way to 4 to 5 layers of other officers (JPO, APO, PO, CPO, Dir of Planning and Finally Commissioner). The file keeps on moving btw JPO's and APO's for months trying to understand the project... and its not their fault these officers are not equipped to understand the large scale projects, new concepts and lot of other new things since no training or exposure is given to them...in the end they make sure that plans are re-drawn or converted to his taste or experience...its mountainous task !!! Eventually the file submitted as Fox comes out like a beaten Dog...

28. In mean while have few visits to Tirupati and Shirdi to pray to LORD that policies (building by-laws etc) shouldn’t change during any of the above process, believe me this will take you to ground zero ( its equivalent to nature disaster which are not in your control)...if any policy changes happens literally your entire focus and effort will be centered around the changed policy and none of which is in your hand...you are just stuck running btw advocates to challenge the policy or lobby with politicians or putting every creative effort in front of bureaucrats etc. Only GOD can save you...One example of this in AP where Govt. came with policy of accommodating low cost housing and some portion of land to Govt. in private development and interestingly (intentionally) its applicable to only Residential zones where as most of the land Govt. auctioned are in multi zoning or SEZ’s…just cannot stop appreciate and admire Govt. foresight.

29. Assuming everything goes accordingly...finally the big day arrives... you are ready for selling...though the some part of fun is still balance i.e. bringing all the consultants to deliver good for construction drawings, tendering process etc and awarding the construction contract.

30. Reality of large projects: Suspense unfolds Now put simple math on above, land purchase is 4 months, approvals is 10-14 months, in short minimal time frame or gestation to start sale is 14-18 months and actual construction takes another 4 to 5 months; add or sum up all its minimum 2 years for take off of the project !!! and worst during this period you realize the cost of construction is increased ( by 30% to 40%) and actually you end up building a city (with STP, Sub Stn., WTP, backup power etc) though you planned only for homes !!! One fine morning you realize that you have the best of the project designed by best of the consultants and have strong finance strength to build and sustain but some where sales are slow…then you start brainstorming why things are going slow?

31. Few reasons I think are: Your sale price is high compared to smaller projects which are in much better or in closer vicinity to work places. You are located in place where infrastructure (road network) still under construction and other business developments are under planning stage. Interests rates (home loans) are all time high ( Interestingly the heads of the bank are advising the developers to lowers their profits by reducing the sale price so that it enables home buyers to avail home loans…man cannot appreciate the game plan…you’ll never raise your voice to lower the interest rates !!! ) Cost of the project has increased significantly and it became from affordable to unaffordable to you target audience. So called product mix (2BHK and 3BHK’s ) is no more unique…similar projects have mushroomed every where…

32. From above points the biggest challenge I see is “Point A” lets explore this little further: Lets understand where the Competition is coming from and who/how they can offer at lower price which you cannot do? Competition is not from the next door large project but its from smaller projects whose costs are low, deliverables are timely and located near to the infrastructure and has flexibility to sell at much lower then a large project !!!

33. Small Projects cycle: Developer himself or one of the cousin is expert in liaison ( give and take transactions are controllable or safe) Approvals time frame or gestation is only 4 to 6 months since they don't fall under high rise category ( No Pollution, Fire and Airport NOC is required ) Liability or Overheads is for 20 to 50 apartments; He picks land in already developed layout which for sure will be residential. Sub contracts the construction on item rate and have full control on expenses. Important no brand "he himself is brand" minimal or zero marketing expenses Huge army of indirect sellers (agents or brokers), old customer base. very minimal sale team Zero or minimal customer support. Project exit criteria is 2 years max 2.5 years Important he develops in localities where infrastructure (water, sewage, road) is already available or existing. IMPORTANT !!! He can sell at the price of large developer who had been marketing this price for last few months (thanks to our marketing agency).

34. Who are the winners in last couple of years speculated real estate market? In short a local developer with smaller or mid sizes projects in land area of 1000 sqyto 1 acre have been successful and capitalized the speculation. I think they are the real WINNERS !!! Also the some Govts such as AP which has sold land aggressively on all time high prices; same land was fraction of cost just 3 to 4 years back...it would be interesting to see how large projects can take off in the lands purchased at such higher costs… “Small projects are built in Rupees and sold in Rupees and in some cases in $” “IT Companies built in $ and selling products in $”; “Where as large projects are built in $ and are trying to sell in $ which is quite a herculeous task”.

35. Way forward for large projects: Put aside all the analysts data on economy such as by 2020 or 2025 we need X million number of homes blah, blah since same analysts will talk about slow downs in 2025 and his younger partner in 2027 repeats the same story. As business men and entrepreneurs I strongly feel we are the best to analyze the situation and take corrective measure. Lets take simple or basic analysis is there any finished apartment which is vacant or didn’t got sold !!! Historically in India I don’t think there is any single finished apartment which didn’t got sold or is vacant; Keeping this parameter as one of the main confident factor…lets move fwd on smarter execution of the project.

36. Take conservative approach for example if you have 10 towers start with 1 or 2 towers and build as you sell and design should support modular or phased execution and economical design such as explore the cost diff btw underground parking vs ground level parking, glazing, super luxury amenities, high end landscaping etc. Cut down where ever you can… Sustainability is the key strength in the current market , we bought land near the SEZ’s or ORR till they become reality either we should hold or go slow on execution remember your end cost of product is much higher then small apartments developer; and its not going to be easy to convince or justify your sale price to customer.

37. Lobby with Govt. to accept fee etc on pro rated basis, Green channel for faster approvals, reduce registration costs if we build smaller size units or sell to Govt. employees etc …convince Fire and Pollution dept of the cost we end up paying for over cautious safety measures. As an individual it would be very time intensive and expensive affair to work with Govt. would suggest to identify a suitable builders or developers association (there are so many association one is confused who is what ) and lobby via them as mutual benefit to everyone. Again hope is strength of the day…Lets all hope that Central Bank would bring down the interest rates and I think we are at peak of inflation and at highest level of construction costs and again lets hope this will come down and stabilizes and in turn will enables us to compete with smaller projects and deliver quality product we envisioned for the customers.

38. Also the important factor since the apartments or matter of fact housing business itself is very centric to local needs, culture etc in contrast to IT where culture is uniform across every campus in different cities. Developers should start looking for consolidations where ever its possible to minimize overheads and share rewards and risks.