CBRE RESEARCH |2018

01
EXPLORING NEW
OPPORTUNITIES IN
REAL ESTATE

11
POLICY REFORMS:
SETTING THE STAGE
FOR CHANGE

CONTENTS
25
MOULDING
THE REALTY
LANDSCAPE WITH
TECHNOLOGY &
INNOVATION

35
SKILL DEVELOPMENT:
SKILLING AND
UPSKILLING –
ARE WE DOING
ENOUGH
 CHALLENGES TO OPPORTUNITIES

EXPLORING NEW FIGURE 2: HOUSES COMPLETED UNDER PMAY

60,00,000

OPPORTUNITIES IN REAL 50,00,000

ESTATE 40,00,000

30,00,000
Introduction
20,00,000
The Indian real estate sector is at the cusp of change as policy reforms by the government have resulted
in new capacity building and opened new opportunity sectors. The implementation of these reforms has
resulted in greater transparency, thereby ushering in newer funding formats as well as leading to the 10,00,000
emergence of “newer” asset classes for these funding avenues. The below section tries to analyse the
synergies between recent government reforms, the opportunities and asset classes that have either come 0
under fresh focus or have “come back” into focus. 2016-17 2017-18 2017-19*
*No. of houses completed in 2017 - 18 are 44.54 lakh;
Source: Ministry of rural development and PMAY-Gramin (Cumulative progress as on July 30, 2018)
Becoming the Residential Fulcrum - Affordable Housing
FIGURE 3: FUND UTILISATION FOR PMAY
Affordable housing, especially in India, has always had the potential to drive the growth of the residential 100
segment in the country. The government’s focus over the past two years has resulted in various steps to
ease both supply and demand side issues impacting the affordable housing sector in India. These steps
included relaxation in carpet area and granting of infrastructure status to the sector.

FIGURE 1: TIMELINE FOR GOVERNMENT INITIATIVES ON AFFORDABLE HOUSING

50

2017 2018 2018 2018

SEPTEMBER JANUARY FEBRUARY JUNE

0
Government GST for affordable Budgetary allocation Carpet area under PMAY's
formulates policy for and low-cost housing for PMAY raised from Credit Linked Subsidy 2016-17 2017-18 2018-19*
public-private rationalized from INR 15,000 cr to INR Scheme raised; it was last Funds available (in INR Lakhs)

partnerships for 12% to 8% 23,000 cr; affordable raised in November 2017; Utilisation (%) Source: Ministry of rural development and PMAY-Gramin (*as on July 30, 2018)
affordable housing housing gets RBI revises housing loan
infrastructure status limit for priority sector
lending PROGRESS OF PMAY IN URBAN AREAS
Source: CBRE Research, Q3 2018

The Pradhan Mantri Awas Yojana (PMAY), a flagship scheme promoted by the government, aims to
construct 10 million homes by 2019 for families living in ‘kucha’ houses. It provides a host of incentives
2.82 51,10,821 7,93,531
to enable private participation and spur the supply side for affordable housing. Some of the key Total investments (in INR lakh cr) Houses sanctioned Houses completed
highlights of the PMAY are illustrated below: Source: PMAY (Urban) ; Data as on 16 July 2018

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 CHALLENGES TO OPPORTUNITIES

CLSS Scheme – Three Revisions in carpet area since January 2017

WHAT TO EXPECT NEXT?
PARTICULARS EWS LIG MIG I MIG II
We expect credible developers to start making inroads into the sector, buoyed by the
up to 300,001 to 600,001 to 12,00,001 to
government’s push and the broadening of funding avenues following the grant of
Household Income (in INR) infrastructure status to the sector. Moreover, the government’s decision to raise the
300,000 600,000 12,00,000 18,00,000
carpet area norms will bring a majority of the under-construction dwelling units under
the MIG category of the CLSS. Not only will this move give impetus to first-home buyers,
Eligible housing loan amount for the revision in carpet area will bring more under-construction dwelling units under the
600,000 600,000 900,000 12,00,000
interest subsidy (in INR) purview of the CLSS. Most of the impact is likely to be felt in the peripheral locations of
tier I cities and in tier II and III cities, where the size of units are comparatively higher.
This will not only bolster homebuyer sentiments, but also further propel construction
Carpet area of the dwelling unit (in 160 (revised from 200 (revised from activity in the affordable housing sector.
30 60
sq. m.) 120) 150)

*EWS- Economically weaker section; LIG - Lower income group; MIG - Middle income group ; Source: Ministry of Housing and Urban Affairs

Progress Report – Smart Cities

Drawing Synergies – Affordable housing under Smart cities
The government has been working towards ensuring synergetic benefits between its various flagship Launched in 2015, the government’s ‘100 Smart Cities Mission’ aims to convert our cities into
schemes. For instance, it has been leveraging the Smart City mission to expand the reach of its sustainable and livable urban centres of growth. The focus is on sustainable and inclusive development
affordable housing initiatives. Of the cities selected for the Smart City mission, 60 have undertaken through the use of ‘smart’ solutions.
affordable housing projects worth a total of INR 17,035 crore to improve the lifestyle of their population.
Below are a few prominent examples of these cities- FIGURE 4: PILLARS OF A SMART CITY

COST
STATE CITY PROJECTS
(in INR crores)

Maharashtra Thane Cluster redevelopment of Kisan Nagar 3,974

EMPLOYMENT QUALITY ENVIRONMENT INVESTMENT
COMPETITIVENESS
& SOCIAL SUSTAINABILITY OPPORTUNITIES
OF LIFE

Janpath Government Housing Redevelopment, Mission

Odisha Bhubaneshwar Awaas, Rental Housing for Construction Workers, Project
Kutumb
2,128
SMART CITY

Slum housing projects, Compensatory housing project,

Madhya Pradesh Indore 1,921
Free-sale housing project

Affordable housing project, Compensatory housing

Madhya Pradesh Jabalpur 1,597
project, Real estate sale components built-up

Source: CBRE Research, Q3 2018

Area-based development project; Government, The mission mandates the selection of cities based on a nationwide challenge, requiring them to first
Madhya Pradesh Bhopal 922
affordable, EWS and LIG housing project
compete at the state level and then at the national level. Scores are awarded on the basis of the cities’
implementation of reforms in areas such as sanitation and governance. As of June 2018, the government had
Source: Smart City Mission, GoI selected all of the 100 cities for the Smart City Mission, with Shillong being chosen as the 100th smart city.

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 CHALLENGES TO OPPORTUNITIES

Leveraging technology for smart cities

Developing smart cities would require building advanced communication systems, metro rail systems,
traffic management systems, smart meters, GPRS for solid waste management, GIS to manage property
tax, online water quality monitoring, and online building plan approval, etc. One of the major steps in this
direction has been developing app-based solution projects that address problems such as SOS response and
even parking management by bringing both public and private parking spaces on a single platform.

According to government estimates, the total cost of such projects undertaken by the first 20 lighthouse
cities could reach INR 800 crore. Below are a few cities that have developed such ‘smart’ solutions –

BHUBANESHWAR PUNE JAIPUR

Parking availability app, Smart public transport system Air quality monitoring app,
emergency response and city which includes app to track bus app for reporting street
incident management app, location, e-challan android problems, incident alert app
app for bus transit usage app, grievance redressal and
bill payment app

Source: Smart City Mission, GoI

Funding Smart Cities

The development of smart cities is a considerable task that requires financial support from all quarters.
As a result, the government has earmarked INR 48,000 crores over five years i.e. an average of INR
100 crore per city per year. Below is a lowdown of the funds that have been released for several smart
projects of the selected cities over the years:

FIGURE 5: FUNDS RELEASED FOR THE

SMART CITY MISSION*

5,000
(In INR Crore)

2,500

FIGURE 6 : SMART CITY PROGRESS REPORT

1,333 50,626 2,03,979

No. of completed projects Worth of Worth of total projects
0 or at implementation/ completed projects identified for the 99 smart
2015-16 2016-17 2017-18
tendering stage (INR crore) cities so far (in INR crore)

*Until 31 March 2018; Source: Smart City Mission, GoI Source: Ministry of housing and urban affairs; figures for FY 2017-18

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 CHALLENGES TO OPPORTUNITIES

The selected cities have come up with varied ways of utilizing these funds. Several of them have launched
Encouraging Private Sector Participation for “Smarter” Cities
ambitious projects varying from highway development and railway modernization to improving the water
supply and developing a solar energy network. Below is a list of a few smart cities which have announced Many of the proposed and under-development projects in the selected cities are based on the PPP model,
projects (each exceeding INR 100 crore) under the Smart City Mission : which the government has sought to encourage in a bid to boost private participation and funding. As on
AMOUNT 31 March 2017, work on 16 PPP projects worth INR 1,328 crore had begun, while 46 PPP projects worth
CITY (IN INR CRORES) NO. OF PROJECTS INR 4,208 crore were at different stages of tendering process. Listed below are a few projects based on
the PPP model –
CHANDIGARH
Housing project for the homeless, solar project, bus
transport system, multiple urban retrofit development 5,109 11 PPP PROJECTS ON WHICH WORK HAS BEGUN
projects in several sectors FUNDS UNDER PPP
CITY (IN INR CRORES)

THANE AHMEDABAD, GUJARAT

Mobility improvement projects, brownfield township,
waterfront development 4,993 5 City Card Payment System, slum rehabilitation
project
469
INDORE
Slum housing project, public land redevelopment BHOPAL, MADHYA PRADESH
projects, parking projects, road development project, 3,410 9 Bicycle project, tracking system for municipal vehicles, launch of 350
solar project, improved traffic management system 8 citizen services through a single intervention

BELAGAVI, KARNATAKA
BHUBANESHWAR
Transit-oriented development projects, urban
Piped gas distribution network 173
regeneration project, government housing project, 3,323 7
slum redevelopment projects, city wi-fi project, traffic PPP PROJECTS AT TENDERING STAGE
management project
SURAT, GUJARAT
AMRITSAR Affordable housing, parking project, traffic control
Water supply project, intelligent traffic management system, parking-cum-commercial project 890
projects, open space development, redevelopment of
urban facilities, urban relocation project, solid waste
3,271 8
management, piped natural gas network BHUBANESHWAR, ODISHA
Slum redevelopment project, smart parking project,
common payment card system 776
RAIPUR
Electricity supply project, drainage improvement
project, market redevelopment, road development 3,148 8 COIMBATORE, TAMIL NADU
projects, parking project, intelligent traffic Water supply system 557
management system

Source: Smart City Mission, GoI Source: Smart City Mission, GoI

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 CHALLENGES TO OPPORTUNITIES

A comparison with the global scenario

Case Study – How Surat emerged as the top smart city
In order to ensure competitiveness among cities and to monitor the pace of development, the Some smart cities are a paradigm for the metropolises that have still not started down the path to a
smarter future. Among them, Singapore is one of the most innovative. It is now possible in Singapore
government holds the India Smart Cities Award on an annual basis to reward cities, projects
to know the movements of any vehicle that is registered with the system. Most of the data collected goes
and innovative ideas that promote sustainable development of cities. One of them is the City
to an online platform, called Virtual Singapore – which shows, in real time, how the city is working. But
Award, which was granted to Surat this year for its fast-paced development of projects under in order to save money, one has to invest it. The smart cities market is expected to attract USD 15,000
categories as diverse as urban environment, transport and mobility, and sustainable integrated million by 20211 just in big data handling software.
development. Surat is implementing projects at two levels: pan-city and localized. Below are a
few such prominent projects – The McKinsey Global Institute (MGI) evaluated the potential impact of technologies such on cities, and
stated that cities across China, East Asia, Europe and North America have relatively strong tech bases,
• The pan-city project will act as the administrative control as do a few cities in the Middle East. However, cities in Africa, India, and Latin America are quite behind
particularly in terms of installing the sensor layer, the most capital-intensive element. CBRE reworked
center of the city.
their data and generated a list of top 10 smartest cities for real estate investment –
• It will use automated sensors/ systems to collect and
transmit data from all departments in real time to the FIGURE 7: SMARTEST CITIES FOR REAL ESTATE INVESTMENT (FULL SCORE = 300)
Smart City center; data would be analysed to help maintain service
(SMAC) Center delivery standards.
HongKong 253.6

Singapore 243.0
• The center will manage projects/entities involved in NYC 239.0
managing pan-city traffic. Beijing 234.7

• It includes the BRTS, city bus service, traffic police and London 234.4
fire services; will deploy digital applications to improve Shenzhen 233.3
coordination between these services.
Integrated Traffic and San Francisco 230.8
Mobility Administration • The city already has an intelligent transit system for the Shanghai 229.4
Center BRTS network which provides real-time bus and passenger
Paris 228.3
information; will be extended to citywide bus operations.
Stockholm 225.8

• The solution will make use of four water treatment plants 0 50 100 150 200 250
and three ESRs in the selected area. Smart Tech Base Digital Application Public Usage Yield Index Prime Office Rent Index

• It involves upgrading the existing supply system to ensure Source : Mckinsey Global Institute & CBRE Research, July 2018

24x7 water supply, installing smart meters for remote

meter reading, reducing water losses by up to 15%,
Water supply management, advanced water quality monitoring and recycling of
quality and recharging backwash water among others.
WHAT TO EXPECT NEXT?

Apart from Surat, Bhopal and Ahmedabad bagged the Innovative Idea Award for While the development of smart cities has begun, the path to their creation is
their projects – the Integrated Command and Control Center (ICCC) and Safe and Secure not easy. For one, it requires efforts from across all quarters – the governments,
Ahmedabad (SASA), respectively. The Bhopal ICCC is a cloud-based monitoring center that municipal bodies as well as the citizens. It has been three years since the mission
allows authorities to monitor the status of civic amenities in real time using GPS sensors installed was launched, and yet several of the selected cities are still grappling with the
in buses, police vehicles, ambulances, smart poles, traffic management cameras, etc. The SASA implementation of these ambitious projects. However, the task of remodelling
project involves deploying technologies such as IoT sensors, smart LED display boards and Indian cities is an onerous one, and the pace of development is slow but the
surveillance cameras to enable the command and control center to monitor parameters and
momentum is now picking up steadily.
systems as diverse as pollution levels, water and sewer system, transport system and complaint
redressal system among others.

1 Juniper Research

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 CHALLENGES TO OPPORTUNITIES

POLICY REFORMS: SETTING • Strong track/performance record and corporate governance will play a critical role in gaining
investor trust and funding. Players such as GIC, Xander and Blackstone last year made
acquisitions/picked up stakes in key properties of leading developers.

THE STAGE FOR CHANGE • Traditional bank credit has also evolved as housing finance companies as well as Non-Banking
Financing Companies (NBFCs) are providing lease rental discounting loans to real estate
players. The NBFCs have been further sweetening the deal by offering LRD with added flexibility for
The Changing Face of Real Estate Finance developers in terms of both serving and repayment.

Government reforms such as GST and RERA have increased transparency in the real estate sector and • However, lending from the traditional banking sector is likely to come with some caution, which
enhanced consumer and investor confidence, thereby resulting in significant interest from offshore could lead to some tightening of liquidity in the sector.
equity investors, large Indian corporates and high net worth individuals (HNI). Institutional funds have
strengthened their presence in the country’s investment market, a sign of their long-term confidence • While office and residential segments have remained the traditional investment drivers, alternative
in the country’s growth prospects. With quality assets being available in core and core-plus locations, sectors such as retail and warehousing have also come to the forefront. With the implementation
investment activity in the segment has remained hectic. Not only has the sector witnessed high levels of GST, the warehousing sector has attracted interest from domestic as well as national players,
of investment activity in office, residential and retail sectors, there has been active interest in the resulting in the emergence of better quality, investment-worthy assets.
warehousing sector as well. The cost and availability of funding have also eased up for the sector. While
structured continued to be a viable source of funding, equity is slowly but steadily making a comeback, REITS – The New Wave of Financing
especially for the larger, established players.
The introduction of REITs in India was first proposed in 2007, with initial draft guidelines released by the
Securities and Exchange Board of India (SEBI) in December 2007. However, lack of clarity on taxation
FIGURE 8: REAL ESTATE INVESTMENT TRENDS IN INDIA norms and the global financial crisis in 2008 resulted in the idea taking a backseat over the next few
PRE-2005 2005-08 2008-12 2012-17 years. The idea got a second lease of life in 2013 after SEBI released its second draft guidelines.
NASCENT EQUITY DEBT COMBINATION Mapped below is the progress of REITS over the years –
CAPITAL MARKET

Developers FDI allowed – Dominated by Core investments, FIGURE 9: REIT EVOLUTION IN INDIA
predominantly flood of equity structured credit more structured
dependent on: capital credit, selective
equity 2007 2008-2012 2013 Aug 2014
Key Investors : Key lenders : Structured Debt :
• Informal Sources of • Xander • HDFC • Piramal
Capital - For growth • MSREF • Indiabulls • Indiabulls Limited progress SEBI’s
SEBI’s First Final guidelines
funding & land • Merrill Lynch • Piramal Finance • PNB Housing Finance due to global Second
acquisition • IREO • Kotak Prime • L&T Finance Draft issued by SEBI
financial crisis Draft
• Strata Sales • UIOF • Reliance Capital
• Banks - • IL&FS Core Investors :
For Construction Funding • AIG • Blackstone, GIC, APG
• Wachovia
Very few lenders – Few players raised Equity : Jun 2015 Mar 2016 2015-2016 Mar 2015
led by HDFC capital from AIM, • GIC, JP Morgan, ASK,
Standard Chartered SEBI’s
London Allowance
proposed further of Foreign investors Government
Source: CBRE Research, Q3 2018 relaxations including including Foreign Clarifications
Clearance on Portfolio Investors
20% investment on Tax exemptions
DDT2 (FPIs) and
allowed by REITs in from MAT1 and
Trends Defining the RE Financing Environment non-resident Indians
under-construction (NRIs) to invest capital gains
projects in I-REITS
• With the availability of well-leased assets across core locations, PE investments in core assets have
continued. Yields are expected to remain stable, resulting in the continued attractiveness of core Nov 2016 Sep 2017 Jan 2018
assets for investors.
Revised
guidelines released; SEBI amends
• Developers have remained keen on the commercial sector as the office sector continues to scope of REIT assets
REITS
REITs regulations allowed to invite
maintain its growth momentum. widened, holding by allowing subscriptions from
companies introduced, them to issue multiple strategic
other amendments debt securities investors
• There has been a gradual shift from debt as a dominant source of funding to equity financing. for sponsors, unit
holders etc.
The focus of equity investments is no longer only on returns/IRR, but the quality of the asset is now
an overriding theme.
Source: CBRE Research, Q3 2018

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 CHALLENGES TO OPPORTUNITIES

Below are the guidelines for forming a REIT in India: FIGURE 11: TOTAL NUMBER OF REITS IN APAC

CRITERIA MINIMUM REQUIREMENT 200

Size of assets listed in REITs INR 500 crore

Initial offer size INR 250 crore

150
Public float 25% of total outstanding assets

No. of holders 200 (excluding sponsors)

100
Subscription size INR 2 lakh

Distribution policy Minimum of 90% net distributable cash flow for every 6 months

At least 80% of REIT assets can be invested in completed revenue generating real estate 50
properties. A maximum of 20% can be invested in under-construction properties (to be
held by the REIT for a minimum 3 years after completion), or those which are a part of
Quantum of investments by existing rent generating properties owned by the REIT
a REIT Up to 20% of REIT assets can be invested in mortgage-backed securities, government
securities, unutilized FSI of a project already invested, TDR acquired of a project already 0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 H1
invested, money market instruments or cash equivalent, equity shares of listed companies 2018
with 75% of income from real estate, listed or unlisted debt of companies in real estate. Taiwan New Zealand South Korea Hong Kong Thailand Australia Singapore Japan

Source: CBRE Research, Q3 2018

Note: APAC includes: Japan, Singapore, Hong Kong, Taiwan, Thailand, South Korea, Australia, New Zealand Total number of REITs has taken into
account the delisting and merger of REITs and is end of the year number. For Thailand, the data on REITs indicated the number of property funds
historically. After REITs were introduced in 2014, the data reflects both property funds and REITs.
India in Asia – The region’s REIT market in perspective Source: CBRE Research, S&P Capital IQ, August 2018

REITs in Asia have proved to be a viable choice for alternative investments, with successful launches While the APAC REIT market size is still smaller than the US, it offers vast untapped opportunities
observed in several Asian countries including Japan, Singapore, Malaysia and Thailand. In 2017 alone, for an investor.
the total acquisitions undertaken by REITs in APAC crossed USD 20 billion, with an approximate share
of 15% in the overall commercial real estate acquisitions undertaken in the region. In the first half of FIGURE 12: COMPARISON OF REIT MARKET SIZE WITH THE US
2018, REIT acquisitions touched USD 10 billion, accounting for a share of 17% in the overall investment
volume in the region during the period. 2,000

FIGURE 10: COMMERCIAL REAL ESTATE ACQUISTIONS BY REITS IN APAC

1,500

Market Cap. US$ Billion

25 35%

30%
20
25% 1,000
15 20%

10 15%
500
10%
5
5%

0 0% 0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 H1 US APAC Australia Japan Singapore HK Thailand China India

REIT Turnover (LHS) % of Total Investment Turnover in APAC (RHS) 2018 REOCs* REITs
Note: Transactions include deals above US$10 million in the Office, Retail, Mixed, Industrial, Hotel and other sectors. *listed Real Estate Operating Companies Source: CBRE Research, S&P Capital IQ, August 2018
Total number of REITs has taken account the delisting and merger of REITs and is end of year number Source: CBRE Research, August 2018

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 CHALLENGES TO OPPORTUNITIES

Ten critical factors for a successful REIT market in India Where are we now?

CBRE in 2014 had identified the ten critical success factors for I-REITs, covering three key aspects - • Large PE players have acquired a portfolio of quality assets over the past 5-6 years in anticipation of
regulation, market performance and issuers / investors. The same have been elaborated below: a REIT listing

PRESENT STATUS OF SUCCESS FACTORS – 2018

• The Indian market is expected to see its first REIT listing in August 2018 – Embassy Group, an Indian
partner of Blackstone Group LP and a commercial real estate developer, expects to raise about USD
REGULATORY FACTORS 1 billion, depending on the assets that are included. These assets could include properties that are
occupied by premium tenants.
• MAT exemptions on gains from transfer of shares by SPV to REIT
Tax Pass Through • The office sector is expected to dominate REIT listings initially, followed by retail.
• DDT on rental income distributed by SPVs to REIT

What’s expected to unfold?

Clear Regime • Activities of REIT stakeholders subject to strict regulation/monitoring by SEBI
• A successful REIT listing would prompt other prominent asset-holding companies such as Xander,
Brookfield and CPPIB to issue their own offerings, thereby widening the real estate investment
scenario of the country.
• The government has addressed stakeholder concerns by releasing revised guidelines in
Enable Growth
November 2016 and subsequent changes in 2017 and 2018.
• REIT listings are likely to substantially move from the office sector to retail and logistics sectors,
thereby resulting in creation of quality assets across segments.

Transaction Tax • Clarity has been given on applicable transaction taxes • These listings are expected to improve investor sentiments, potentially propelling major corporations
to lease or purchase space in quality buildings.

MARKET FACTORS

• The timing for the Indian market currently seems right as rental growth of most
Market Cycle
commercial prime assets (in core micro-markets in particular) is likely to continue

Risk Adjusted Returns

• A REIT is likely to offer higher yields (compared with 10-year government bonds), WHAT TO EXPECT NEXT?
thereby appealing to investors

The enhanced transparency ushered in by government reforms is expected to

ISSUER/INVESTOR FACTORS result in a more secure environment for investors and provide them better exit
opportunities. We expect the warehousing sector to see increased investment
• Players with serious intentions of launching REITs have been purchasing prime momentum, while the commercial sector will continue to attract interest. We also
Core Stabilized Assets
properties over the past few years expect the average ticket size of investments to increase as corporates keen on
monetising their land assets and smaller developers looking to retire debt bring
• The recent allowance of 20% investment in under-construction projects and other attractive land deals to the market. Moreover, if REITs take off, they will open a
Increase investible
assets supply
instruments, widened definition of real estate, establishing a ‘Holdco’ and allowance of new investment avenue for investors by allowing them to invest in the property
REIT to invest through a holdco are steps in the right direction
market with a minimum amount of INR 2 lakh – which is much more realistic
than investing in a property.
Broad Investor • Foreign investors (including Registered Foreign Portfolio Investors or RFPIs), portfolio
Base investors and NRIs can now invest in REITs

Investor • REITs are now likely to be viewed as a viable investment option vis-à-vis development
Preference projects

Addressed; ready for REITs

Source: CBRE Research, Q3 2018

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 CHALLENGES TO OPPORTUNITIES

Opacity to Clarity -Real Estate Regulatory Act (RERA) The website is only partially complete. While
it contains details such as the organisational
Haryana has set up a permanent
structure and provisions of the act, the search
RERA, which came into effect on 1 May 2017, paved the way for a formal governance authority for HARYANA RERA authority and appointed a 400
functionality remains unavailable. Moreover,
chairman
India’s real estate sector. The act mandates the registration of real estate projects and directs developers the website does not provide information on
registered projects or agents
to delineate functions and duties of promoters and sets out penalties for non-compliance. While RERA’s
implementation has been slow, more than 20 states have already notified the rules and almost 15 have
The government has appointed
an active online portal. Below is a lowdown of the status of the RERA authority in key states, the number officer on special duty in the
of projects registered and the status of the RERA website: MA and UD department as the The website is completely functional and
ANDHRA temporary member secretary even features a graph and dashboard on the
2
PRADESH of the Andhra Pradesh RERA. number of projects, agents and complaints
However, no information on the registered with the authority
Projects appointment of a chairman was
State Status of RERA authority Status of RERA website
registered* available
The MahaRERA website provides all the required
The Maharashtra Real details on the state act’s provisions as well as Kerala was one of the few states
Estate Regulatory Authority registered projects and promoters. It enables a which implemented RERA before
16,292 (excludes the central act was notified.
(MahaRERA) has a four- visitor to conduct project and location-based
Dadra and Nagar However, the new government, Although the Kerala RERA has a website,
MAHARASHTRA member primary team search. It also provides additional statistics such as
Haveli & Daman which came into power last year, only the home page containing details of
consisting of a chairperson, the number of registered projects and agents as
and Diu) KERALA repealed the act citing that it did NA the old RERA act and contact information
a secretary and two well as those awaiting approval. The website also
members provides information on complaints registered, not protect the interest of the is functional. The remaining pages are still
being heard and orders passed buyers. After the act was repealed, under construction
there has not been much progress
The Gujarat Real Estate on the new rules as well as the
Regulatory Authority (Guj- appointment of an authority
The Guj-RERA website is similar to that of
RERA) has a five-member
Maharashtra in terms of the information contained
primary team consisting of a
GUJARAT 2,664 and the search functionalities offered. It also offers Although the rules have been
chairperson, two members,
judgement documents pertaining to complaints filed notified by the government, it has
an adjudicating officer TELANGANA NA NA
with the authority yet to form an authority or appoint
and legal adviser, and a
a chairperson
secretary

In the absence of a WEST The act is still at the discussion

permanent regulatory NA NA
BENGAL stage
authority, the Karnataka
The website enables the public to access all the
government has appointed Source: CBRE Research; *Projects and status as on 15 May 2018
required information, including projects under
KARNATAKA the principal secretary in the 1,677
investigation. Its search feature is extremely
state department of housing
dynamic, and it also has a complaints tracker page
as the interim authority. It
has also appointed a RERA
secretary

The Uttar Pradesh Real The UP RERA website is largely functional, although
769 in Gautam
Estate Regulatory Authority a few pages are still under construction. Not only is
UTTAR Buddha Nagar and
has six members, with the the website a repository of necessary information,
PRADESH 1,631 in rest of the
RERA secretary acting as the but it also allows you to search for relevant projects,
state (total: 2,400)
highest level of authority promoters and agents

The state has yet to appoint

a RERA chairperson.
As a result, the housing
and urban development
The website contains information on registered
secretary has been acting 480 (280 in 2017
residential projects and agents until date, along with
TAMIL NADU as the interim chairman of and 200 so far in
details of projects whose applications were rejected.
the authority. In addition, 2018)
It also enables online submission of grievances
there are two more team
members – an appellate
authority and a public
information officer

Delhi has appointed the

The website is largely operational and contains
vice-chairman of the Delhi
all the required information such as registered
Development Authority as the
DELHI 8 promoters, projects registered and complaint forum.
interim regulatory authority. It
However, a few pages (such as list of defaulter
has also appointed a director
promoters) are still under construction
for the authority

17 | CBRE RESEARCH © 2018 CBRE, Inc. | 18

 CHALLENGES TO OPPORTUNITIES

The Ups… The “Good(s)” and Services Tax

• Some states (such as Maharashtra and Gujarat) have taken a lead in RERA compliances, while a More than a year ago, on 1 July 2017, the government of India implemented the landmark indirect tax,
few others (e.g. Telangana and Kerala) are still putting together a functional website. Goods and Services Tax (GST). The removal of various federal tax barriers and creation of a common
market was done with the intention to improve supply chain efficiencies, thereby attracting more FDI
• Despite slow implementation, several state regulatory authorities have become active in upholding
through better tax conformity and removal of the cascading effects of the erstwhile tax regime.
the act and penalizing developers that flout norms. For instance, the Haryana authority recently
stripped two builders of their rights over prime land for delaying a Gurgaon project.
Continuous evolution of the act to align with industry/end-user interests
• The Union government has made efforts to further uphold the spirit of the Act by clearing an
ordinance to amend the Insolvency and Bankruptcy Code (IBC) in order to treat homebuyers at par • The GST Council decided to tax construction of a building for partial or complete sale at 18%.
with institutional financial creditors during bankruptcy proceedings. However, partly addressing the industry’s need to exclude land from GST, it mandated that the 18%
tax would be chargeable on only two-third of the under-construction property value, which brought
• Developers are increasingly ensuring that their under-construction projects and new launches are the effective GST rate on under-construction properties to 12%.
registered with the state RERA as buyer focus is concentrated across RERA registered projects.
• As a relief, the government gave the construction industry 100% Input Tax Credit (ITC) on raw
• The act is gradually reducing the risk perception associated with real estate in India as it has materials and services used.
stringent disclosure norms and penal provisions.
• More relief came in November 2017, when the government shifted almost 178 of the 227 listed
goods under the 28% tax slab to the 18% slab; these goods included marble, granite, ceramic
…And the downs articles and fly-ash bricks.

• Several states have diluted key provisions of the central act – which include exempting a majority of • In the latest tax cut, carried out in July 2018, the government further revised the GST rate for about
under-construction projects from RERA’s purview or easing non-compliance penalties. 88 items. The tax on paints and varnishes, glaziers’ putty, grafting putty and resin cements was
reduced from 28% to 18%. Several goods, such as washing machines and TV sets, also saw a cut in
• While the Bombay high court has ruled that RERA provisions will apply to all ongoing projects and taxation, although cement still remains in the 28% tax slab.
that it was fair to protect buyers; it deviated from the pro-buyer stand by saying that in exceptional
cases, the RERA authority has the power to provide an extension to the project without a penalty.
Understanding the impact: GST and construction costs
• Project-level information on RERA websites could sometimes be difficult to understand, owing to
incomplete /incorrect data. To assess the impact of GST on construction costs and the real estate sector, CBRE compared the pre-
GST taxation rates with the current system. We divided our analysis into two categories – warm shell
packages and interior works. Each of the components in both the categories were analysed in terms of
the individual change in taxation as well as the overall impact of this change on the project depending
upon the component’s share in project costs.

CBRE VIEW

RERA, if implemented in its true spirit and intent, can be a classic example of
short-term pain and long-term gain. In the short term, the act heightened delivery
pressures as well as developer compliance costs as companies were forced to plan
better and set accurate timelines to avoid being penalised. As the developer
community is getting used to RERA, we are seeing momentum in the growth
of the residential segment in 2018. We expect fence-sitting buyers to enter the
market, especially in the mid-end and affordable categories. Overall, we expect
the market to undergo a sieving process, with credible and sustainable developers
differentiating themselves from the others as the focus slowly but steadily moves
towards an end-user-centric market.

19 | CBRE RESEARCH © 2018 CBRE, Inc. | 20

 CHALLENGES TO OPPORTUNITIES

FIGURE 13: TAXATION IMPACT DUE TO GST

FIGURE 14: WHAT’S IN STORE FOR THE RE SUB-SECTORS?
Highest percentage increase in construction works components
OFFICE
WARM SHELL • Occupiers’ outgo could increase due to hike in taxation from 15% (service tax) to 18% (GST )
• Cost-sensitive occupiers might try to minimize their occupation cost by looking at buildings/
SECURITY locations with lower rentals
(ACS, CCTV, VERTICAL
BMS
15% WORKS
TURNSTILE,
BOOM-
DG SETS
16% TRANS-
-PORTATION RETAIL
BARRIER)
• Occupation cost could increase as occupiers will have to pay an 18% GST, up from the previous
service tax of around 15%
INTERIOR WORKS • Taxation on numerous FMCG goods has reduced, resulting in lowering of prices of essential
goods and consequently increased demand for such products in rural and urban areas
FALSE CARPET WORKSTATIONS
15.2% FLOORING 11% WORKS & MODULAR RESIDENTIAL
WORKS FURNITURE
COMPLETED BUILDINGS
• No GST on completed projects; completed projects under the GST regime mean not only ready-
to-move-in projects, but also those that have been granted completion certificates
LOOSE AV CHAIRS / NETWORKING • To reduce ambiguity on the right price points, most developers are trying to complete projects
9% FURNITURE EQUIPMENT
WORKS
SEATING (SUPPLY &
INSTALLATION)
before launching them

AFFORDABLE AND LOW-COST HOUSING

• Developers are factoring in the full ITC that they will receive on construction/development cost to
arrive at the right price points
Highest percentage decline in construction works components
• Projects launched before July 1, 2017 are unlikely to gain significantly due to the ITC and hence
will have limited flexibility to adjust price points
WARM SHELL • To spur sales, such developers are devising innovative payment schemes to attract customers,
chief among which are subvention schemes
HVAC
ELECTRICAL PHE WORKS BASEMENT • Under-construction projects that are still in initial stages of construction will have the flexibility to
7% WORKS WORKS (LOW SIDE
WORKS)
VENTILATION adjust their price points according to the ITC

UNDER-CONSTRUCTION BUILDINGS

FIRE FIRE • Benefit of 8% GST2 extended to all units under the CLSS scheme in January 2018
FIGHTING ALARM & STP & ARCHITECTURAL
SYSTEM PA SYSTEM WTP FINISHES
WAREHOUSING
• Warehousing operators are no longer making investment decisions on the basis of comparative
tax advantages offered by various states, but on the basis of supply chain dynamics
HSD LPG
YARD • The average size of space take-up rose from 60,000 sq. ft. in 2016 to 90,000 in H1 2018,
indicating that demand for large-sized warehouses (exceeding 20,000 sq. ft.) is gaining traction
• GST has helped remove inter-state checkpoints and reduce the movement time of cargo, thereby
lowering inventory carrying costs and working capital requirements.
INTERIOR WORKS
FIGURE 15: A SPURT IN WAREHOUSING SPACE TAKE-UP POST GST –
MAIN CIVIL HVAC
WORKS & ELECTRICAL WORKS UPS 10 MN SQ. FT. LEASED IN H1 2018; EQUIVALENT TO THAT OF ENTIRE 2015
-6.8% INTERIOR WORKS HIGH AND WORKS
WORKS LOW SIDE
6 Pre-GST Post-GST
5 4Q Rolling 4Q Rolling
Avg - 2.85mn sq. ft. Avg - 4.85mn sq. ft.

Million sq. ft
4
LIGHT
-2.5% FIXTURES 3
2
1
0
The Impact
Q1 2017 Q2 2017 JULY 17 Q3 2017 Q4 2017 Q1 2018 Q2 2018
TAXES ON INTERIOR OVERALL, TAXATION ON
TAXES ON WARM SHELL CONSTRUCTION Source: CBRE Research, Q3 2018
WORKS HAD
PACKAGES DECLINED BY INCREASED BY DECREASED BY

1.62% 0.6% 1%*

2
The concessional rate of 12% GST was already applicable on houses constructed under three components of the Pradhan Mantri Awas Yojana
(Urban) --- (i) ln-situ redevelopment of existing slums using land as a resource component; (ii) Affordable Housing in partnership and (iii) Beneficiary
led individual house construction/enhancement. In January 2018, the benefit was extended to CLSS for Economically Weaker Sections (EWS)/
Note : The analysis for warm shell packages does not include consultancy charges while those for interior works does Low(EWS)/Lower Income Group (LIG)/Middle Income Group-1/Middle Income Group-2 (MlG-2) under the PMAY (Urban) programme
* Based on the assumption that both warm shell packages and interior works account for an equal share in construction costs

21 | CBRE RESEARCH © 2018 CBRE, Inc. | 22

 CHALLENGES TO OPPORTUNITIES

Occupier Perspective a year back – CBRE’s GST Implication Perspective

According to a 2017 CBRE survey of leading warehousing space occupiers, which was
WHAT TO EXPECT NEXT?
conducted to gauge their views on the new GST regime, 63% of the occupiers were positive
about the impact of the new taxation regime on their overall business operations. Almost By unifying taxation policies across the country, GST has increased India’s
45% believed that the tax will reduce operating costs. While almost 28% said that they would attractiveness as an investment destination by making it easier to conduct
consolidate their operations and opt for larger warehouses, 23% stated they would further business in the country and introducing transparency in processes. However,
expand their operations across the country. Around 11% said they would prefer to adopt the
to ensure all-round positivity, the government needs to bring in more clarity
on certain practical issues that have created hindrances in the proper
hub and spoke model in the post-GST regime.
implementation of the taxation act, especially related to its anti-profiteering
FIGURE 16: MOST LIKELY STRATEGY FOR WAREHOUSING PORTFOLIOS POST-GST clause. In addition, it needs to engage with all relevant stakeholders in this
IMPLEMENTATION AND PREFERRED FORMAT OF OPERATIONS sector to address their concerns in order to make the regulation productive.
35%

30%

25%

20%

15%

10%

5%

0%
Consolidation

Expansion

the same

Not Sure

Both
expansion
and

Downsizing

Expansion,
relocation
and
consolidation

Both
downsizing
and
consolidation

Relocation
consolidation
Remain

PRE GST POST GST

5% 1% 6% 5%
3% 11%
3% 4%
1% 5%
5%
8%

28%

30%
52% 33%

Multiple warehousing Mix of all Mother Hub for a region,

facilities in one state/city supplemented by spokes
Both Multiple warehousing facilities in
Only one warehousing one state/city and only one warehousing Mother warehouse in the city/
facility in one state/city facility in one state/city state with urban fulfillment centres
Both Multiple warehousing facilities in Both Hub for a region, supplemennted
one state/city and Mother Hub for a by spokes and only one warehousing
region, supplemented by spokes facility in one state/city

Source: CBRE’s ‘Towards a Unified India – How are Warehousing Operators Approaching the GST’, July 2017

23 | CBRE RESEARCH © 2018 CBRE, Inc. | 24

 CHALLENGES TO OPPORTUNITIES

MOULDING THE
Technology has impacted the real estate sector by modifying occupiers’ needs and business operations
(including hiring). In November 2017, CBRE conducted a survey of leading Indian and global
corporates, including Fortune 500 majors to understand the impact of technological innovation. The

REALTY LANDSCAPE survey, “Arrival of the Tech Age – Is India CRE Ready to Embrace the Change”, primarily focused on how
technology is moulding the real estate sector as well as transforming current and prospective business
operations.

WITH TECHNOLOGY & Tech and Real Estate

INNOVATION • As technology evolves rapidly, digitization among both occupiers and developers is happening
‘NOW’. According to our survey, more than 90% of occupiers and developers plan to adopt their
preferred technologies within the next five years. Digitization has also resulted in a more coherent
Introduction relationship between developers and occupiers, with the former fine-tuning their strategies so as to
be in line with occupier expectations on tech and infrastructure.
Billed as the fourth industrial revolution, technology has become deeply entrenched in our everyday
lives. It has also become a key differentiator in the way companies conduct business operations. While • This has given rise to a growing preference for Smart Buildings, with 80% of respondents saying that
the multifaceted impact of tech is yet to be fully realized, firms continue to re-evaluate the way they it is likely to be the most popular space choice.
develop their business and people.

FIGURE 17: WHAT ARE SMART BUILDINGS?

Big Data in Customized Security system Bookable

asset/portfolio workplace and control access meeting rooms
management environment

Enable mobile
working Smart sensors

Apps for Smart End-user Electric Energy

Provide
end-users sensors apps to vehicle management
wearables
to track to track control charging systems
space usage people flow hardware stations

OPTIMISE SPACE USAGE MONITOR SPACE USAGE OPERATIONAL EFFICIENCY ENERGY EFFICIENCY

Source: CBRE's 'Arrival of the Tech Age – Is India CRE Ready to Embrace the Change', February 2018

25 | CBRE RESEARCH © 2018 CBRE, Inc. | 26

 CHALLENGES TO OPPORTUNITIES

Occupiers Optimizing And Monitoring Space Usage FIGURE 20: DEVELOPERS: WHICH OF THE FOLLOWING FACILITIES ARE LIKELY
TO BE MORE WIDELY USED IN OFFICE BUILDINGS OVER THE NEXT 3-4 YEARS?
• New tech is being rapidly adopted as optimizing space usage is a top priority for Indian corporates, OPERATIONAL EFFICIENCY ENERGY EFFICIENCY
with increasing instances of corporates becoming equipped with tech such as Big Data in portfolio 100%
management or customizing working environments by designing activity-based workplaces (ABW). 15%
25% 24%
• However, the trend of monitoring space usage (via apps, smart sensors etc.) is yet to fully catch on 80% 31% 31%

in the country, with only leading corporates currently moving towards installing these technologies. 8%

60% 55%
• This trend is also visible in our survey results: when occupiers were asked about which technologies 38% 23%

should be provided by landlords, their preferences tilted towards those which monitor space usage,
67% 85%
as tech for optimizing space usage has already been widely adopted. 40% 69%
18%
46%
FIGURE 18: ALL OCCUPIERS: WHICH TECHNOLOGICAL ADVANCEMENTS IN 20% 38%
THE WORKPLACE WILL INFLUENCE YOUR BUSINESS THE MOST? 27%

OPTIMISE SPACE USAGE MONITOR SPACE USAGE OTHERS 0%

100%

for multiple tenants

Bookable meeting facilities

Security system and

control access

Smart sensors

Energy management /

Apps for end users to

control hardware

charging stations
sustainability system

Electric vehicle
5% 7%
17% 17% 20% 26%
80%
45%
Already have
60%
Increased usage
95% 93% 83% 83% 80% 74% 55% Will implement
40%

20%
Source: CBRE's 'Arrival of the Tech Age – Is India CRE Ready to Embrace the Change', February 2018

0%
Use wearables to
monitor
people flow
within the office
Apps for end-users
(track usage
utilities)

to monitor
Use smart sensors
usage of facilities

learning algorithms,
digital escort)
Portfolio mgt. /
Big Data in asset /
Planning
Enable mobile
working

Customized
workplace
environment

of space and

Others (e.g. circadian

lighting,HVAC
visitor vehicle

A closer look at the survey results revealed the same: developers are well in line
Have / will implement
with occupier needs for maximizing operational efficiencies. About 80% of both
Expect landlords to provide sets of respondents have already installed/increased usage of an imperative
Source: CBRE's 'Arrival of the Tech Age – Is India CRE Ready to Embrace the Change', February 2018 technology - security control systems. Similarly, about 70-75% of both sets of
respondents have already have /increased usage of bookable meeting rooms
FIGURE 19: OCCUPIERS: WHICH OF THE FOLLOWING FACILITIES ARE LIKELY and smart sensors. On another note, a higher number of developers prioritized
TO BE MORE WIDELY USED IN OFFICE BUILDINGS OVER THE NEXT 3-4 YEARS? energy efficiency - by already providing cost-sensitive technologies such as
energy management systems and electric vehicle charging stations.
OPERATIONAL EFFICIENCY ENERGY EFFICIENCY
100%
19%
23% 27%
80% 32%
48% 48%
19% 27%
60%
38%
40% 54% 22% 30%
58% 54%
20%
35% 30% 22%
14%
0%
Bookable meeting
facilities for
multiple tenants

Security system
and control
access
Smart sensors

Energy
management /
sustainability
system
Apps for end
users to
control
hardware

charging stations
Electric vehicle

Already have
Increased usage
Will implement

Source: CBRE's 'Arrival of the Tech Age – Is India CRE Ready to Embrace the Change', February 2018

27 | CBRE RESEARCH © 2018 CBRE, Inc. | 28

 CHALLENGES TO OPPORTUNITIES

Focus On RE Flexibility Due To Tech, However Leasing May Dip Due To Digitisation Tech and Business Operations

• The hyper speed at which firms are now moving through the lifecycle, combined with longer life • In this age of growing digitization, C-suite priorities no longer keep IT and business solutions in
expectancy, especially in high income countries, is resulting in decreasing tenure at organizations. isolation from each other. Rather, the focus is on leveraging the synergy between the two. Both
All age groups are now spending less time working for the same company. developers and occupiers have started recognizing the technologies that are affecting their business
• These trends have a direct impact on corporate decisions to rent or purchase space, and has operations.
resulted in an increasing preference towards shorter, more flexible leases. • Our survey revealed that occupiers consider Artificial Intelligence (AI) and the Internet of Things
• Our survey reiterated this trend: 30-40% of respondents would opt for flexibility of lease conditions (IoT) as direct influencers for their business models as they can be tailored to streamline business
(both in terms of time period and terms) and increased use of third-party spaces. operations. Developers, in a bid to reach out to occupiers and meet their needs, consider social
media, virtual/augmented reality (VR/AR) and 3D printing as the key technologies influencing their
FIGURE 21: OCCUPIERS VS DEVELOPERS: WHICH OF THE FOLLOWING TECHNIQUES WOULD business operations.
BE A PART OF YOUR OFFICE EXPANSION STRATEGY IN THE NEXT 3-5 YEARS IN INDIA?

Use of activity 54% FIGURE 23: OCCUPIERS: WHAT ARE THE MAJOR TECHNOLOGICAL INNOVATIONS
based workplaces 54% THAT ARE IMPACTING YOUR BUSINESS?
Use of innovation hubs/ 54%
data centers 54% Automation 95%
Increased data analytics 50% Cloud computing 85%
on spaceusage for
expansion strategies 38%
Internet of Things 84%
Increased Co-working 46%
space utilization 62% Big Data 79%
Increase focus on research 42%
and innovation 54% Artificial Intelligence 78%
6% Smartphones 77%
None of the above
8%
Occupiers Developers Social Media 70%

Source: CBRE's 'Arrival of the Tech Age – Is India CRE Ready to Embrace the Change', February 2018 Virtual Reality /Augmented Reality 55%
Contactless payment services 52%
FIGURE 22: GLOBAL VS INDIAN RESPONDENTS: DO YOU THINK TECHNOLOGICAL
INNOVATION WILL BE POSITIVE OR NEGATIVE FOR YOUR OFFICE DEMAND? 3D-printing 48%

41% 0% 20% 40% 60% 80% 100%

5 - Very Positive 40%

34% Source: CBRE's 'Arrival of the Tech Age – Is India CRE Ready to Embrace the Change', February 2018
4
35%

13% FIGURE 24: DEVELOPERS: WHAT ARE THE MAJOR TECHNOLOGICAL INNOVATIONS
3
20% THAT ARE IMPACTING YOUR BUSINESS?
9%
2 Social Media 89%

3% Automation 83%
1 - Very Negative
5% Smartphones 83%
Global Respondents Indian Respondents
Internet of Things 78%
Source: CBRE's 'Arrival of the Tech Age – Is India CRE Ready to Embrace the Change', February 2018
Virtual / Augmented Reality 78%
• While tech innovation is the order of the day, like all changes this evolution is not without its risks. A Cloud computing 72%
small share of respondents revealed their plans of deferring future office expansion plans, indicating 3D-printing 72%
a decline in RE demand, particularly offshoring demand.
Big Data 67%
• CBRE anticipates this dampening of demand to be short term with great long-term benefits in store Contactless payment services 61%
for both occupiers and developers in this digital era. Moreover, it is important to note that Indian Artificial Intelligence 56%
CRE evolution does not only have space expansion as a part of the growth equation, but also has
0% 20% 40% 60% 80% 100%
other qualitative and quantitative factors impacting its growth equation. About 75% of respondents
in our survey are thus positive about their future office space needs in India, an opinion shared by
both global and domestic players. Source: CBRE's 'Arrival of the Tech Age – Is India CRE Ready to Embrace the Change', February 2018

29 | CBRE RESEARCH © 2018 CBRE, Inc. | 30

 CHALLENGES TO OPPORTUNITIES

Influence on business plans Tech and Talent

• With imminent digitization, it is clear that both occupiers and developers, in order to remain • The digital age has recalibrated the fundamentals of organizational working, with no business
competitive, would have to factor in higher budgets for tech-related changes. function remaining devoid of the impact of technology. As mentioned previously, IT staff is no longer
a means of support but an important stakeholder driving business decisions.
• Our survey indicates that the responses of developers and occupiers are broadly similar when asked
how they are inculcating tech; both have already increased capex/ opex expenditures. They are • When asked about which function of employees would change the most due to tech, more than
also focusing on recreating client service offerings by providing new tech-based solutions – leading 60% of respondents gave the obvious answer: IT Professionals. This is likely to result in a higher
Indian developers are now, for instance, fine-tuning business specific, and using geospatial software demand for data centers, innovation/R&D labs, business campuses etc.
for addressing individual client needs.

FIGURE 25: OCCUPIERS VS DEVELOPERS: WHAT ARE THE MODIFICATIONS UNDERTAKEN

IN YOUR BUSINESS OPERATIONS TO ADAPT TO TECHNOLOGICAL INNOVATIONS?
Increased expenditure on 67%
technological innovations 60%

Use of data analytics for 67%

streamlining business operations 53%

Increased focus on online operations/ 56%

smart media tools 67%

Hire resources for establishing 51%

a technology based team 53%

Inculcating technologies which would 52%

allow for increased virtual collaboration 40%

43%
Recreating service offerings 53%

18%
Recruiting more millennials
27%
Occupiers Developers

Source: CBRE's 'Arrival of the Tech Age – Is India CRE Ready to Embrace the Change', February 2018

FIGURE 26: OCCUPIERS VS DEVELOPERS: WHAT ARE THE OBSTACLES FACED BY

YOUR COMPANY WHILE IMPLEMENTING TECHNOLOGICAL INNOVATIONS?

67%
Increased costs
62%

42%
Lack of technological awareness
77%

Restructuring of teams adversely 42%

impacting business operations 31%

32%
Low availability of basic infrastructure
31%

22%
Increased attrition rates
8%

Occupiers Developers
Source: CBRE's 'Arrival of the Tech Age – Is India CRE Ready to Embrace the Change', February 2018

31 | CBRE RESEARCH © 2018 CBRE, Inc. | 32

 CHALLENGES TO OPPORTUNITIES

Millenials Have Brought In A New ‘Digital Culture’; Hiring In India To Continue In This Digital Era
Employee Mobility Is A Top Priority
Overall, hiring in all firms, except IT, is expected to increase over the next few years. The RE sector is
• Technology is reorganizing traditional organizational patterns, with a primary reason for this change expected to reflect this trend too as augmented demand from corporates of other industry segments
being the influence of millennials who account for almost 25% of the working age population in India. (such as BFSI, engineering and manufacturing, etc.) is expected to offset declining demand from IT firms.

• The importance that is placed on a fluid workplace is no longer underestimated, particularly when
Indian millennials are willing to go the extra mile or even take a modest pay cut for a better office Conclusion
environment.
Globally, tech has become a fundamental driver of change among corporates, India being no
• The impeding traffic has resulted in jobs being increasingly chosen basis preferred peripheral locations exception. The digital age has brought occupiers and developers closer as the latter are now trying to break
within a city, by not just millennials but all employees. It is no wonder that almost 90% of respondents traditional limitations of space design in order to meet occupier demand. Below is a lowdown of how tech is
cited increasing employee mobility as the reason for adopting tech. expected to continue shaping the real estate sector and the businesses operating in this space:

FIGURE 27: ALL OCCUPIERS: HOW WILL THE ADOPTION OF NEW TECH IMPACT FUTURE OCCUPIERS
EMPLOYMENT GENERATION IN YOUR COMPANY IN INDIA IN NEXT 3-5 YEARS?
DEVELOPERS
TECH AND RE TECH AND BUSINESS

Space and cost efficiency, short Streamline business operations, meet Meet occupier needs, offer quality
WHY? and flexible leases client needs space
Not willing to comment 5-10% increase
24% 40% Increased use of smart buildings, Increased capex, data analytics, Develop smart buildings; increase
HOW? workplace strategies, third-party recreate service offerings use of social media; raise capex
space

Decline/deferment of space Change management issues, lack of Lack awareness, long gestation
BUT.. decisions in some cases tech-related awareness, high costs period, no fixed returns

5-10% decrease Make provision for a tech-enabled Make data-informed decisions about
14% WILL.. environment that encourages
employment productivity and incorporating tech to maximise Reduce the gap between developers’
perceived and actual occupier needs
0-5% increase operational efficiencies
0-5% decrease satisfaction
02% Remains unchanged 12% Source: CBRE's 'Arrival of the Tech Age – Is India CRE Ready to Embrace the Change', February 2018
08%

Source: CBRE's 'Arrival of the Tech Age – Is India CRE Ready to Embrace the Change', February 2018

FIGURE 28: ALL OCCUPIERS: HOW WILL THE ADOPTION OF NEW TECH IMPACT FUTURE
EMPLOYMENT GENERATION IN YOUR COMPANY IN INDIA IN NEXT 3-5 YEARS?

3% 3%
SE 3%
3%
A
RE
NC

7% 11%
%I
0-10

11% DECREA IT
0%
7%
0-1

SE

Research, Consulting and Analytics

53%
11% Infrastructure, Real Estate and Logistics
Engineering and Manufacturing
10% 67%
Media and E-commerce
TER Automobile
LET
ER
FF BFSI
10% O

Telecommunications
Others

Source: CBRE's 'Arrival of the Tech Age – Is India CRE Ready to Embrace the Change', February 2018

33 | CBRE RESEARCH © 2018 CBRE, Inc. | 34

 CHALLENGES TO OPPORTUNITIES

SKILL DEVELOPMENT: While there is enough employment, what is the skill status?

SKILLING AND
• More than 80% of the building and construction workforce is minimally skilled.

• The highest growth in workforce (in 2011 over 2005) has been in the technician/foreman category,

UPSKILLING –
followed by unskilled workers; the lowest growth has been in the skilled workforce category.

• Of the 32 million casual workers in the construction sector, only 31% are registered.

ARE WE DOING A BREAKDOWN OF EMPLOYMENT IN THE CONSTRUCTION SECTOR IN 2011

ENOUGH
NO. OF
PERCENTAGE
WORKERS
OCCUPATION OF WORK- GROWTH FROM 2005 (IN %)
IN 2011 (IN
FORCE
THOUSANDS)

Engineers 1,050 2.56% 28%

What is the current employment status?

• The real estate and construction sector is the second largest seasonal employment provider in Technicians, foremen, etc. 1,120 2.74% 95%

India, just after agriculture. Of the estimated 15.2 million short duration out-migrant workers,
about 36.2% are employed by this sector alone3. Clerical 930 2.26% 26%

• According to the 64th National Sample Survey Office (NSSO) round, the non-agriculture sector
employed 58.6 million casual workers, of which 32 million (or 58%) were working in the Skilled workforce 3,730 9.10% 14%
construction sector.

• As of 2017, the sector is estimated to employ over 59 million employees, which is estimated to Unskilled workers 34,200 83.30% 34%
increase to 76 million by 20224.
Source: 12th five-year plan

FIGURE 29: EMPLOYMENT BY CONSTRUCTION AND RE SECTOR OVER THE YEARS

2017-22
Employment
growth (in
million)

2013-17

2022
Employment base
(in million)

2017

2013

0 10 20 30 40 50 60 70 80 90
Overall Infrastructure Building, construction and real estate

Source: Human Resources and Skill Development Report by NSDC

3
NSDC report ‘Human Resource and Skill Requirements in the Building Construction and Real Estate Sector (2013-17, 2017-22)
4
NSSO 68th Round of EU Survey

35 | CBRE RESEARCH © 2018 CBRE, Inc. | 36

 CHALLENGES TO OPPORTUNITIES

Why is there a gap? Under this programme, the NSDC has established 38 sector skills council (SSCs) which have been
mandated to bridge the gap between what the industry demands and what the skilling requirements
should be. The construction and real estate sector too has its own SSC – the Construction Skill
Limited job permanence, migratory nature: Workers switch between agricultural and Development Council of India (CSDCI). The CSDCI is a public-private partnership organization
construction jobs, especially contractual labourers. Since the job is of a semi-permanent nature, training/ promoted by the Construction Federation of India (CFI), Builders' Association of India (BAI), National
investment in upskilling seems unnecessary. Highways Builders Federation (NHBF) and Confederation of Real Estate Developers Association of India
(CREDAI). It aims to develop mechanisms to ensure skill development and meet the current and future
Low inclination towards higher education: According to the Ministry of Human Development, skill needs of the construction industry.
the gross enrollment ratio for higher education in India is 25%. This ratio for secondary education and
senior secondary education is 78.4% and 65.3%, respectively. The gap between the UG and PG levels In terms of skilling, while the AICTE has recognised that institutes for architecture are dismally low, this
is also high – the student enrollment ratio at the under-graduate level is 86.33% while at post-graduate number for architecture colleges, according to the Council of Architecture, is 464 (average intake of 40
level is only 9.71%. As a result, most of the workforce remains concentrated at the bottom end of the students). Also, according to the Institute of Town Planners, the number of institutes offering town / urban
labour pyramid, with very few opting for specialised skills, especially in the construction sector. planning courses is 22. These institutes also provide a steady stream of talent for the construction sector.
Encouraging these institutes is imperative to ensure that the sector does not fall short of adequate and
talented resources.
Lack of institutes/organisations offering training/courses: According to the All India Council
for Technical Education (AICTE), the total number of approved architecture and town planning institutes
in India in 2018-19 stood at 192, with a total intake of only 14,047 students. Of these, only 90 What More can be Done?
institutes offer PG/diploma programmes, with a total intake of 4,088 students. This restricts avenues for
higher education for students opting for such courses at the UG level, which in turn may be a deterrent While government initiatives will go a long way in bridging the skill gap, more needs to be done
to enroll in such courses at the UG level itself. considering the fact that 75-80% of the labour in the construction sector is concentrated in the bottom tier
of the labor pyramid . Poor labour productivity is often a result of short-term cost cuts in a cost-sensitive
market. As a result, companies are unable to pay attention to skilling or upskilling their workforce.
Limited government thrust compared with other sectors: According to the AICTE, the total
number of institutes for pharmacy courses in 2018-19 stood at more than 1,900, while those for MCA
However, as we move towards times wherein the use of technology will result in the need for a better
exceeded 1,000. This number for architecture and town planning institutes, as mentioned above, stands skilled workforce, the industry needs to see a concerted multi-dimensional approach and swift action from
at a dismal 192. While there is some ancillary workforce that joins the sector from management as well the government, contractors, firms and construction professionals alike. Below are a few steps that can
as engineering colleges, the current number of institutes offering specialised courses is inadequate. accelerate the pace of skill development in the sector –

Evolving skill requirements and limited avenues for developing these skills: Jobs in the • Due to the sheer spread and quantum of employment in the sector, government support will go
sector are witnessing a shift due to the advent of technology. The arrival of advanced technologies in a long way in addressing the skill gap. Recognition as an industry will provide much-needed stability
and acceptance for the workforce employed in the sector.
construction and maintenance as well as the advent of technologies such as prefabricated technologies
will make the need for specialisation imperative and may widen the skill gap. However, no proactive • The government should incentivise firms that employ a greater proportion of skilled
steps are being taken to train the workforce for these changes. workforce and lay stringent conditions for manpower quality and certification while selecting
contractors.

Addressing the Skill Gap • The government should also incentivise and promote collaborative training with the private
sector; corporates can offer financial assistance/create awareness about specialisation programmes
Recognising the need to bridge this gap, the Ministry of Skill Development and Entrepreneurship among employees as well as sponsor their apprenticeship.
launched the Pradhan Mantri Kaushal Vikas Yojana (PMKVY), also known as the Skill India programme,
• Wage parity is a key reason why people skilled in construction/building/civil engineering take
in 2016 with a target to benefit about 10 million people. The PMKVY is a government-funded skill up jobs outside the sector. By ensuring wage parity, a significant portion of the workforce can be
certification scheme that seeks to provide industry-relevant skill training to the youth and help them absorbed within the sector.
procure a better livelihood. As part of the PMKVY, the NSDC is working with hundreds of funded and
non-funded training partners that run training centres to promote different sectoral skills. Below are a few • It is imperative to encourage and incentivise registration of the workforce to ensure better
statistics that can help map the spread of the PMKVY – labour force visibility, which can assist in identifying and addressing gaps in the workforce value chain.
• A standard definition of processes and procedures for construction and its management
2,249 8,461 needs to be laid; proper training should be provided to the workforce for each role at every step. This
will allow for a clear segregation of roles and ensure no intermingling/overlapping of roles (which is
Training partners No. of training widespread currently).
centres
• There should be integration between curriculum/courses in colleges with the ground reality;
30.7 Lakh 6.2 Lakh institutes need to start offering specialised courses rather than generic, overarching courses that allow
little room for niche specialisation.
No. of people enrolled No. of people placed by
for PMKVY training partners • The industry should develop strong linkages with trainers which would not just provide easy
Source: PMKVY, as on 25 june 2018 access to talent, but also help in designing training modules that keep the latest technologies in mind.

37 | CBRE RESEARCH © 2018 CBRE, Inc. | 38

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