Study the effect of economic growth on the Real Estate

Industry in major cities of India

DONE FOR

Project report submitted in partial fulfillment of the requirement of

Pondicherry University for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION

Submitted By
M.TAMILVANAN
(Reg. No. 1095564)

Under the Guidance of

DR. R. KASILINGAM
Reader

DEPARTMENT OF MANAGEMENT STUDIES

SCHOOLS OF MANAGEMENT
PONDICHERRY UNIVERSITY
PUDUCHERRY 605014

MARCH-APRIL 2011
 DEPARTMENT OF MANAGEMENT STUDIES
SCHOOL OF MANAGEMENT
PONDICHERRY UNIVERSITY
PUDUCHERRY-605014

CERTIFICATE

This is to certify that this project entitled “Study the effect of economic growth on the real estate
industry in major cities of India.” done for ZENTA KNOWLEDGE SERVICES PVT. LTD. is submitted
by M.Tamilvanan, II year MBA (Reg. No. 1095564) to the Department of Management Studies, School
of Management Pondicherry University in partial fulfillment of the degree requirement for the award of
the degree Master of Business Administration and is certified to be an original and bonafide work.

DR. R.P.RAYA DR. R. KASILINGAM

Profesor & Head of the Department Reader

Place: Puducherry
Date:
 ACKNOWLEDGEMENT

I place on record my sincere gratitude and appreciation to my project guide Dr. R. KASILINGAM, Reader,
Department of Management Studies, for his kind co-operation and guidance which enabled me to complete
this project.

I express my sincere thanks to Dr.R.P.RAYA, HOD Department of Management Studies, School of

Management-Pondicherry University, who provided me an opportunity to do this project.

I am deeply obliged to Ms. Pravina Ravindaran, Manager Due Diligence & Ms. Vani Sekar, Senior
Analyst-Due Diligence, Zenta for their exemplary guidance and support without whose help this project
would not have been success.

I take this opportunity to dedicate this project to my parents who were a constant source of motivation and I
express my deep gratitude for their never ending support and encouragement during this project.

Finally I thank each and everyone who helped me to complete this project

M. TAMILVANAN
(Signature of the Candidate)
 EXECUTIVE SUMMARY

It is really an interesting job to study the unpredictable, expensive and unorganized sector in India. “The
Real Estate” the magic word created an unforgettable impact (RECESSION) at the end of the last decade.
The economy of the developed counties are just started to behave normal after the impact of the recession.
Interestingly Indian market is one of the markets which are not much affected by the recession, even though
this particular sector is unorganized when compared to US.

This project aims to study the Indian real estate market by analyzing the real estate prices of the major cities.
Delhi, Mumbai, Chennai, Bangalore and Hyderabad are taken into the thorough analysis and the real estate
prices are compared and correlated with the major economic factor such as interest rate, inflation rate,
unemployment rate and per capita income.

The statistical tools, Correlation, Regression and Trend analysis gives the reliable picture and interpretation
of the results given at the end of the report. The study is important in the point of view of organizations
doing real estate business, investment in real estate real and estate analysis for their real estate capital needs.

This project is to show how the prevailing interest rate, inflation, unemployment rate and per capita income
affecting the real estate prices. It is the first move to predict the unpredicted sector in India.
 TABLE OF CONTENTS

CHAPTER
TITLE
NO.
INTRODUCTION

Introduction about the topic

1
Industry Profile

Objective of the Study

PROFILE

2 Company Profile
Corporate Philosophy
Product Profile
RESEARCH METHODOLOGY

Research Design
3 Type of Research
Variable Used
Data Processing
Inputs
DATA ANALYSIS AND INTERPRETATION

4 Part 1 - Correlation and Regression

Part 2 - Trend Analysis

CONCLUSION

Findings
5
Suggestion

Conclusion

APPENDIX
 CHAPTER 1

INTRODUCTION

1. Introduction and Background of the Problem

1.1. Introduction
Riding piggyback on a booming economy and healthy GDP growth, Indian real estate industry has been
expanding at an exponential rate. Favorable demographics, rising purchasing power, availability of cheap
finance, professionalism in real estate and reforms initiated by the government are some of the major drivers
of this spectacular growth.
In the mid-nineties, the Indian real estate was booming. Projects were being launched (and sold) across all
cities and price points. It turned out that most of the frenzied buying was being done by investors – both
local and overseas. Towards the end of 1996–97, the party wound up. A bloodbath followed, investors
pulled out and projects were left incomplete. Property prices halved and in some cases even reached one-
third levels vis-à-vis their peaks.
From then on it was a very slow and painful recovery, leaving only the best men standing, a `going back to
the roots’ scenario. A turnaround was witnessed in 2000 when markets started strengthening; the middle
class consumption (driven by low rates of interest) increased dramatically. Also the off take by the IT sector
has been huge, prices have moved upwards, in some cases it is too sharply for comfort. There are
opportunities available today for investment across all types of real estate and across all budgets.
Indian real estate market is roaring thanks to the rapidly growing economy, soaring stock market, influx of
foreign investment and the growing middle class. Property prices have gone up at least 20 – 25% over the
past nine to twelve months across all segments. While Information Technology (IT) and Business Process
Outsourcing (BPO) companies continue to drive current real estate growth; the resurgence of manufacturing,
organized retail and distribution warehousing will be the additional drivers in coming years.
According to the NASSCOM-McKinsey Report 2006 “The IT industry will grow at a Compounded Annual
Growth Rate (CAGR) of 28% to reach $60 billion in export revenues by 2010 while the offshore IT
solutions business will grow at 25% to touch $35 billion in export revenues, the BPO business will witness a
CAGR of 37% to account for $25 billion of the projected $60 billion”. This will have a strong influence on
the buoyant real estate industry. Much of the current growth in the real estate sector across India is due to
the boom in IT and IT-enabled services, which needs fully-developed properties. This sector is also
projected to demand around 80 million SF of space over the next five years.
Indian property developers are moving to smaller towns and cities due to faster pace of growth and increase
in demand for quality development. Cities like Ahmedabad, Cochin, Chandigarh, Indore, Jaipur, Mysore and
Nagpur are gaining popularity over the metro cities due to increasing labour, real estate costs and attrition
rates. Many multinationals have unveiled plans for the small cities to take advantage of the availability of
large land parcels at affordable rates, improving telecom and infrastructure. Software Technology Parks of
India (STPI) will open 12 new software parks across the country targeting primarily tier- II and III cities.
STPI hopes that the proposed parks will generate employment for around two lakhs people over a couple of
years and will have significant impact on real estate development. Tier- III cities currently provide cost
advantages of 15 to 30% over tier I and II cities and will have the effect of prolonging India's position of
global leadership in the off-shoring of IT activities for the next few years.
The Indian retail sector is set to expand two-fold in the next three years, with food and apparel segments
expected to drive the growth. The UPA- Left alliance has approved 51% foreign direct investment (FDI) in
single brand retailing however, all FDI proposals will have to be approved by the Foreign Investment
Promotion Board (FIPB). The share of organized retail has gone from INR 50 billion in 1992 to INR 350
billion in 2005. Around 400 malls, shopping centers and multiplexes admeasuring to 50 million SF of
quality space are under construction in tier- I and II cities across India.
The overall industries-having a direct bearing on infrastructure and accounting for 27 per cent weight in the
Index of Industrial Production (IIP)-registered a growth of 8.3 per cent during April-December 2006, which
was higher than the 5.5 per cent registered during the same period in the previous year. In the first nine
months of 2006-07, crude petroleum, refinery products and electricity generation registered accelerated
growth rates.
While its global counterpart may grow a measly 5 per cent, India's construction equipment sector is growing
at a scorching pace of over 30 per cent annually-driven by huge investments by both the Government and
the private sector in infrastructure development.
With sustained growth in infrastructure, the order book position of the 10 large construction companies in
India has gone up by over 50 per cent year-on-year for the quarter ending June '06. With such bullish
prospects in infrastructure, affiliated industries such as cement are on a high. Cement consumption, for the
first time, is set to exceed the 150-million tonne mark. Reflecting the demand for the commodity, capacity
utilisation rose to over 100 per cent-to touch 102 per cent in January 2007-with dispatches touching 14.10
million tonnes as against the production of 14 million tonnes.
As opportunities in the sector continue to come to the fore, foreign direct investment has been moving
northwards. The real estate and construction sectors received FDI of US$ 289.1 million in the first half of
the current fiscal, with most inflows coming through the popular Mauritius route.
According to industry estimates, the real estate industry in India has been growing at 33 per cent CAGR
(compound annual growth rate) and could be a $50 billion industry in the next four years. The upturn
straddles all the major sectors of the industry such as commercial, residential, retail, industrial, hospitality
and healthcare.

The burgeoning outsourcing and IT/ITES industry have contributed to the demand for quality office space.
With most of the blue-chip MNC’s setting shop in the country, the estimated demand from IT/ITES sector
alone is expected to be 150 million sq ft of space across the major cities by 2010. In the residential segment,
availability of easy home finance and rising purchasing power has driven the growth. Builders are launching
high-end, lifestyle residential products to cater to the growing bunch of high net worth individuals. In
residential sector there is housing shortage of 19.4 million units out of which 6.7 million are in urban India.

In the retail segment, the country has experienced mushrooming of retail projects across the cities.
Specialized malls have become the order of the day. Gurgaon, on the suburbs of New Delhi will soon have
an auto mall, while Bangalore is about to get an exclusive furniture mall. The sprawling skyscrapers,
marvelously designed residence, awe-inspiring malls and promising infrastructure, along with exemplary
acumen to designing and scheming have made India's real estate sector, one amongst the bustling and
growing fields. With India being the most alluring destination for foreign investors, there is a huge market
waiting to be splurged upon.

1.2. Industry Profile

Real Estate
The real estate story in India is growing bigger by the day as it continues to receive an ever-increasing influx
of funds. While more than 35 big-ticket foreign funds have already checked in, the first half of 2007 will see
at least 20 more funds making an India entry. Meaning, US$ 10 billion of foreign direct investment (FDI)
will be injected into the real estate sector.
Merrill Lynch forecasts that the Indian realty sector will grow from US$ 12 billion in 2005 to US$ 90 billion
by 2015. Prominent global funds including Carlyle, Blackstone, Morgan Stanley, Trikona and Warbus
Pincus are sitting on a total corpus of US$ 12-15 billion, say experts.
Retailers in India--the most aggressive in Asia when it comes to expanding their businesses--are creating a
huge demand for real estate. The Jones Lang LaSalle third annual Retailer Sentiment Survey-Asia revealed
that India topped the chart with 45 per cent expanding rapidly followed by Greater China at 27 per cent and
other South East Asian capitals at 6 per cent.
After IT, it was Real Estate in the pipeline, two years back real estate showed a beginning of growth, boom
and huge profits. This trend followed for quite long but then came the time for this rosy picture to fade and
correction came into the scene. With the beginning of this correction phase, real estate turned to be not so
attractive, not so profitable and a difficulty for a common man who desired to own home or one who found
himself stuck in the home loan trap.
But one thing that draws incessant attention is the faces free from tension wrinkles of realty developers.
With these ripples being created in the industry how come realty developers have nothing that can shake
them?? Well the answer is simple-NRIs or more specifically ARIA (A Resident Indian Again).
High profile NRIs are now choosing to come back home, to their own land. Almost all the major cities, both
metros and tier II cities fall on the radar of NRIs who plan to come back and settle here in India, Bangalore
alone has witnessed a come back of 35000 NRIs. India being an economy that’s growing at a high pace and
seeing innumerable changes in almost every aspect portraits herself to be a challenge. Thus attracting all
those who love to challenge the challenges and crave to prove themselves all over again by working in a
startup. Also, these high profile NRIs have a lot added to their CVs by their working experience outside
India. Now with India expanding its horizons and with the upcoming of new and specialized sectors like
retail, real estate, financial services, R&D etc it is the right time for them to gain new experiences and add
another feather to their careers.
With this diaspora real estate is undoubtedly to grow despite of the severe dip in the domestic demand. NRIs
now constitute 20-25% of the total real estate market and this migration is expected to grow the industry @
20% annually. These days all the major upcoming townships, housing complexes etc are being developed
specifically to meet the demands of NRIs. With lavishly done condominiums, thoughtfully laid out
three/four bedroom apartments and beautifully landscaped villas are few efforts done by realty developers to
bag an amount of 1.5cr to 12cr in a convenient way.
This “Reverse Brain Drain” to what extent will help other sectors and Indian economy to grow as a whole
is still a question, but for sure NRIs coming back has turned to be a boon for Indian Real Estate Industry.
Indian Real Estate
In India Real estate is not as organized as in US. In the current scenario Real estate In India is booming. This
is due to the increase in the demand for the various segments of properties. Due to the foreign direct
investment in IT and ITES real estate market in some of states has developed:
• Chennai
• Bangalore
• Hyderabad
• Mumbai
• Delhi
Growth Opportunity
India’s strong economic performance, pro-reform government policies and increasing consumerism has
translated into macro opportunities for the real estate industry.
• Growth of Information Technology (“IT”), Information Technology Enabled Services (“ITES”) and
Banking Services has increased business opportunities with a consequent impact on the real estate
sector.
• Indian Government policies to relax existing Foreign Direct Investment (“FDI”) norms for the real
estate sector by allowing up to 100% FDI and setting up of real estate mutual funds will act as key
catalysts in fuelling growth in this sector.
• India, with a population of more than 1 billion has a 25% strong middle class segment. Also, 54% of
its population is below 25 years of age and is characterized by rising income levels and greater
exposure to media and international trends.
• India has 28 cities with an excess of one million population, however most of the investment in real
estate is concentrated in even major developing IT and business destinations, namely Bangalore,
Delhi, Mumbai, Chennai, Hyderabad, Pune and Kolkata.
Challenges
Challenges in the Indian real estate market are in its infancy and is poised for rapid growth and expansion.
Similar to all developing markets there are several challenging characteristics.
• The Indian real estate market is largely unorganized, fairly fragmented and dominated by a large
number of local small players with limited professional real estate expertise.
• Lack of transparency and a well defined regulatory frame work, along with complicated tax regime
and title ownership structures are major factors limiting real estate development.
• Indian real estate is a state subject with transaction costs, real estate norms, regulatory governance
and corruption varying widely across states.

Fig. 1.1 Emerging Cities in India

India Snapshots:

MACRO ECONOMIC INDICATORS

Population 1.21 billion

Gross Domestic Product (GDP) during 2010-11 US$ 1,597.5 billion
Gross National Income (GNI) during 2010-11 US$ 1,584.2 billion
Per Capita Income in 2010-11 US$ 1,020.3
Overall Industrial growth (January 2011) 3.7 %
For-ex Reserves (April 2011) US$ 303.5 billion
Amount of FDI inflows during 2010-11 (April 2010- US$ 17.0 billion
January 2011)
Cumulative amount of FDI inflows (August 1991 to US$ 143.9 billion
January 2011)
Exchange rate INR/1 USD (as on April 08, 2011) 44.22
Exports

February 2011 US$ 23.6 billion

Cumulative Exports

April-February 2010-11 US$ 208.2 billion

Imports

February 2011 US$ 31.7 billion

Cumulative Imports

April-February 2010-11 US$ 305.3 billion

Average literacy rate (census 2001) 64.8%
Life expectancy for males 63.9 years
Life expectancy for women 66.9 years

Language of commerce: English

Government: Democracy (world’s largest)
Legal system and accounting standards: Similar to US and Europe.
Corporate governance: Moving towards international best practices.
Key real estate drivers: IT/ITES, Banking and Insurance services.
Key real estate trends: Suburban sprawl, growing middleclass and increasingly assertive consumers, growth
of specialized malls, offers of built-to suit facilities, regulatory reforms, proposed real estate management
(regulation and control) legislation.
A buoyant economy, market liberalization and a growing middle-class are transforming real estate in
India. In February 2005, India liberalized rules for FDI in the real estate sector by allowing 100% foreign
investments in construction and development projects. This along with favorable economic variables has
made India an attractive investment destination.

India’s Economy in an Up-swing

• Indian economy on growth trajectory: India is the world’s second fastest growing economy, with a
projected GDP growth rate of 9.2% in 2006-2007. After the recession India in 2008 the GDP growth
faced slightly downward trend 2008 – 9.00%, 2009 - 7.40%, 2010 – 7.40%. Again it started booming
with the current GDP of 8.30%. Given the current trends, India will be the world’s fourth largest
economy within 25 years, ranking only behind those of U.S, China and Japan.
• Economic drivers: IT, ITES and banking services are the fastest growing industries, with IT and
ITES growing at more than 30% per year.
• FII infusion: Foreign Institutional Investors (“FII”) are investing into the Indian stock market at a
record pace. The net purchase by foreign funds was approximately $7 billion in 2005, the largest
inflow in a single year since Indian markets opened to foreign funds a decade ago.
• Creation of a highly-educated, low-cost workforce: Indian government-sponsored initiatives have
fostered the development of a massive higher education system which produces 3 million graduates
each year. Market rates for skilled labor in India are 10% - 30% of comparable rates in the developed
world.
• Favorable long-term demographic trend: With 54% of the population (600 million), below the age
of 25, and 25% of the population (300 million) as middle class consumers, India presents a positive
demographic outlook.

Opportunities
The IT & ITES sector would alone require 150 million sq ft of office space in urban Indian real estate
market by 2010. There is a requirement for more commercial office space due to organized retail. The
Indian organized retail industry in all probability would require an additional 220 million sq ft by 2010. And
to specify, the growth in the Indian real estate market is not only restricted to a few towns and cities but
spans across India - more coverage in the tier-I and tier-II cities. Almost 80% of real estate market in India
occupies the residential space, the remaining 20% comprises of offices, shopping malls, hotels and hospitals.
Another research report reveals that more than 100 malls with over 30 million sq feet of new shopping space
are estimated to open in India by end-2010. The average profit from construction in India is 18% - nearly
double the profitability figure as in US. There is a surge in the foreign institutional investors in the Indian
construction sector and that is why investment is surging-up.

The Indian real estate sector is supposed to get a boost from the Real Estate Mutual Funds (REMFs) and
Real Estate Investment Trusts (REITs). Specifically, the REITs have the capability to capture at least 5%
share of the total global real estate market by the end of 2010. The size of the global real estate market is
slated to touch US$ 1,400 billion in the coming 3 years. The figure in the report stated that by 2010, REITs
by themselves would hold a market size of US$ 70 billion of the total Global real estate market.

Foreign direct investment (FDI) in the real estate sector in India for 2008-09 stood at US$ 12.62 billion
approximately - this is as per the figure from the Department of Policy and Promotion (DIPP)

Key Demand Drivers and Characteristics

• Residential
o Increase in urbanization & working population.
o High disposable incomes & aspiration levels.
o Easier access and fiscal incentives on housing loans.
o Current gap of 30 million units between demand and supply.
o Approximately 90 million houses to be built over 10-15 years with an
investment of $666-$888 billion.
o Expected yearly capital infusion of $30 billion.

• Office
o India has emerged as a leading destination for IT & ITES, with ITES sector
currently contributing 80% of the total office space demand.
 o IT & ITES revenues at $22 billion in 2006 are projected at $77 billion by 2008
by Mckinsey.
o Projected office space demand of 66 million SF over the next five years and
300 million SF over the next 10 years.

• Retail
o Influx of global brands in clothing & lifestyle stores along with spurt in
restaurants and entertainment & leisure complexes.
o India ranked as second most attractive retail destination by AT Kearney.
o Indian retail market size of $200 billion with organized retailing only 3% of
total retail industry, growing at 35% yearly.
o Approximately 30 million square feet of retail space to be built up by 2006.

• Hotel
o Increased business travel – both domestic & foreign resultant of buoyant
economic growth & growing FDI.
o Year 2010 saw record tourist arrivals of 5.58 million.
o By 2020, India is expected to be a leading tourist destination in South-Asia
with more than 8 million tourist arrivals.

Global majors in India's real estate

Eminent global real estate business houses like the Philippines-based Ayala, and Signature group, Och-Ziff
Capital, EurIndia and Old Lane from Dubai are keen on sizeable investments into India. And, while FDI
from the UK is also likely to pick up in the next few months, investors in the US, Israel, Malaysia and
Singapore want to be a part of the India story.
• Australian real estate consultancy major LJ Hooker, with 700 odd franchisees in South East Asia, has
opened its India account with a franchisee in Bangalore.
• US-based global investment bank Goldman Sachs and Unitech, the largest listed real estate company
in India, will set up a special purpose vehicle (SPV) with a corpus of US$ 208.7 million for
investments in the real estate sector.
• DLF Ltd is forging a (50:50) joint venture with Nakheel, a large property developer of the UAE, for
two integrated townships in India at a whopping investment of US$ 10 billion.
• Zurich-headquartered Credit Suisse, the world's leading financial house, is finalising on a US$ 1
billion fund to invest in India's real estate sector.
 • Hilton Hotels Corporation (HHC) announced a joint venture company with DLF Ltd to develop and
own 75 hotels and serviced apartments over 7 years.
• Dawnay Day International, the US$ 10 billion UK-based investment company, plans to invest US$
1.5 billion in Indian real estate in the next two years.

Challenges in Indian Market

Indian real estate market, though positioned as an exclusive investment opportunity faces several
unique challenges and risks. Success will depend largely on investors conducting significant due diligence
and building relationships with experienced local partners.
• Complex Relationships
Multiple agencies, complex legislation and rampant corruption in the system have necessitated a
nexus between real estate developers, contractors, politicians and law making agencies. Execution of real
estate projects through foreign direct investment requires approval from several agencies and is largely
influenced by personal relationships of individuals.
• Different Real Estate Practices and Cultural Variances
The Indian real estate market is different from other developed markets. Industry norms and structure
are not uniform and varies across states. Currently there are seven major real estate development corridors
with different real estate norms and unique demand & supply characteristics.
• Transparency
Limited institutionalization and a nascent state regulatory and legal environment in the Indian real
estate market have resulted in limited transparency in real estate transactions. Information flow in the market
is unorganized and disconnected. Industry information is typically gathered using unconventional techniques
and relationships with local market players as recorded information is generally incomplete and incorrect.
• Unorganized Secondary Market
Characteristic of a market in its infancy, the real estate market in India does not have major domestic
institutional investors apart from the Housing Development Finance Corporation Limited (HDFC) and a few
small non-institutional private investors. The Secondary market is largely unorganized and unregulated.
• Lack of Uniformity in Regulations
Real estate in India is a state subject and the legislative regulations are diverse and have their own
local qualities depending on the state in which the real estate is located. Quality of governance and
implementation of regulations vary between states, based on the corruption quotient of the local government.

• High Transaction Costs

 Transaction Costs (Stamp duty, brokerage fees and tax) in India have been historically high. Stamp
duties and other transaction costs are different in all states with stamp duty being as high as 15% in some
cases, limiting real estate transactions and inventory liquidity. In order to avoid payment of stamp duty, it is
common practice to register the value of a property much lower than the actual transaction value thereby
distorting state recorded transaction information.
• Limited Corporate Presence
India’s real estate is widely fragmented and is dominated by 3,000 odd developers, primarily comprising of
family owned businesses and individuals, resulting in limited professional real estate expertise and below
average delivery standards. The recent past has seen the unorganized proliferation of small real estate
players leading to several unaccounted transactions and wide variations in delivery capabilities.
• Title Complications
Land in India is largely held by individuals/families and do not have clear ownership titles. Legacy
ownership is unclear and fragmented and therefore the land is off market, making transactions complicated
and difficult to execute.
• Regulatory Barriers
Complicated legislation such as the Urban Land Ceiling Regulation Act (ULCRA), Rent Control Act, Land
Acquisition Act and Pro tenancy laws limit real estate development and distort markets leading to
exceptionally high property prices.
• Infrastructure
Infrastructure in India is fast improving, however given the fast pace of urban migration, the in-place
infrastructure in growing metropolis is limited with regard to roadway systems, power, sanitation systems
etc.

1.3 Objective of the study:

Primary objective:
To study the effect of economic growth on real estate industry of major cities in India.

Secondary Objective:
• To examine the present & future prospects and constraints of investment in real estate

• To find out factors influencing real estate prices prevailing in major cities in India

• To forecast the real estate’s prices and identify the investment opportunities in real estate
sector.

• To identify the relationship between, the bank interest rates and demand for real estate.
CHAPTER 2

PROFILE
2. Profile
2.1 Company Profile
Established in mid 2000, Zenta’s unique onshore/ offshore outsourcing model focuses solely on providing
services to the real estate and financial services industries.
ZENTA in the KPO Industry
ZENTA is one of the leading providers of knowledge process outsourcing solutions to the real estate and
financial services industries. Their services enable clients to focus on their core business while outsourcing
complex analytics, accounting, and support services to a highly skilled and cost effective partner. With
experienced leaders and 450 global professionals, their business model delivers unprecedented speed, scale
and savings to their clients.
ZENTA pioneered the concept of developing and delivering higher level offshore solutions for the real
estate and financial services industry. Their unique onshore/offshore approach combines U.S. domain
expertise, a proven process migration methodology, and a large team of highly trained offshore finance
professionals. ZENTA allows their clients (generally financial institutions and real estate investment firms),
to focus on their core business by utilizing its cost effective resources and scaleable platform to execute non-
core activities.
In order to add sustained long term value, ZENTA believes that outsourcing firms must have as much
industry and process knowledge as their clients, particularly with the more sophisticated outsourcing
solutions ZENTA provides. Its 40-person team of U.S. professionals averages over 14 years of experience
working for financial services firms within the specific areas they operate. This experience enables us to
understand client concerns, mitigate potential risks and consistently deliver the rewards of offshore
outsourcing. Zenta’s global operations are supported by a highly capitalized and sophisticated investor base,
which includes some of the largest international financial institutions (Citigroup, Wachovia) and significant
providers of investment capital (Capital Trust, Actis).
With the business process outsourcing industry still in its infancy, ZENTA is one of the few companies with
a long track record of delivering successful results. To date, they have executed several thousand
commercial real estate transactions involving over 20,000 properties totaling $175 billion of asset value. For
the residential real estate industry, they provide primary and master servicing functions on several hundred
thousand mortgages each month, and manage a $25 billion portfolio of mortgages. As with any business,
experience counts. They believe that Zenta’s real estate and financial services industry focus, proven track
record and satisfied client base distinguishes us among the universe of outsourcing firms that will emerge as
U.S. corporations continue to seek the benefits of offshore resources.
2.2 Corporate Philosophy
Client Focused: We're passionate about our clients and are easy to do business with. We sell our clients
what they want to buy, how they want to buy it. We are flexible and responsive, tailoring our solutions to
our clients' unique needs. And we honor our commitments.

Employee Centric: We provide our employees with rewarding and satisfying career opportunities based on
their personal performance and contribution.

Cultural Compatibility: Our clients are primarily in North America and Europe. Our operations are
primarily in India. We must be adept at managing and leading in multiple cultures. We have assembled a
diverse management team that understands the Western business environment and the needs, aspirations and
motivations of our global work force.

Ethics: The line between right and wrong is not gray or blurred. It is a bright line and we will not cross it,
nor will we tolerate anyone who does.

Operational Excellence: We are committed to operational excellence. We employ a global work force. We
capture work anywhere in the world, move it to wherever in the world we can find the right blend of cost
and quality to work and deliver it back to our clients, wherever in the world they may be.

Accountability: We hold ourselves accountable for results. We push decision-making to the lowest possible
level. When approvals are required, they are given as rapidly as possible.

2.3 Product Profile

By combining Zenta’s industry expertise, proven offshore process methodology, and a highly trained
team of professionals, they are able to consistently deliver efficiency gains, quality improvements and cost
savings to their clients.
• Capital Markets Services
• Transaction Services
• Residential Services
• Information Services
Capital Markets Services
Zenta’s Capital Markets Group conducts a wide range of analysis and due diligence on loan portfolios and
real estate assets. The clients for these services are investors, lenders and transaction intermediaries, all of
whom conduct vast amounts of analysis using limited in-house resources or expensive third party providers.
The three primary service areas in the Capital Markets Group are Due Diligence and Underwriting,
Valuation, and Asset Management.
Due Diligence – ZENTA provides comprehensive loan and property due diligence/underwriting services,
including financial, accounting, property, market and third party due diligence. By dedicating large project
teams (100 professionals or more), ZENTA delivers quality due diligence assignments in a fraction of the
time typically required.
Contract Underwriting – ZENTA provides support for outsourced origination underwriting for
commercial real estate loan programs, including CMBS, DUS, balance sheet lenders, mezzanine lenders,
and other subordinate securities investors.
Valuation Support – ZENTA conducts tenant-by-tenant discounted cash flow and valuation analysis using
Argus, Dyna-lease, Project and internal models. ZENTA analyzes all major property types and is capable of
creating valuations on 100+ properties in less than two weeks.
Asset Management – ZENTA assists clients in managing large portfolios of mortgages or properties,
including real-time updated valuation models, property accounting, and risk exposure analysis and market
information.
Transaction Services
ZENTA’s Transaction Services Group provides high-volume accounting and portfolio risk management
services to institutional real estate lenders and investors. The Transaction Services Group has created an
efficient process that enables clients to outsource selected administrative functions. Zenta’s capabilities
include:
Financial Statement Analysis – ZENTA accounting services include high volume analysis and
classification of borrower and corporate financial statements for securitized and balance sheet loans.
Lease Abstracting – ZENTA deploys large teams of highly trained analysts to review and abstract key
provisions in lease and mortgage documentation. Zenta’s analysis provides a complete description of critical
legal and financial information to support institutional asset management and acquisition professionals.
Insurance Abstracts and Review – Using proprietary technology and a large team of insurance analysts,
ZENTA abstracts client insurance requirements from mortgage documents and provides ongoing
surveillance to ensure compliance with loan terms.
Capital Reserve Administration – ZENTA provides detailed analysis of borrower documentation and
reserve requests for compliance with loan documents and reserve agreements.
Special Servicing Analysis – ZENTA analyzes comprehensive market research, and conducts borrower and
property level financial and accounting analysis on distressed assets.
Residential Services
ZENTA’s Residential Services group provides processing, servicing and operational support for a variety of
residential real estate services. Zenta’s team of residential mortgage professionals has the operational
experience to implement a program specific to your needs and processes. Examples of Zenta’s residential
real estate capabilities include:
Residential Servicing – ZENTA allows mortgage services to achieve substantial efficiency gains and
servicing cost reductions by providing the following operational support: investor reporting, new loan setup,
outbound customer service call center support, early stage collection campaigns, data integrity audits,
research, special loan adjustments and lien release processing.
Title Support – ZENTA has a large pool of trained support personnel to enhance the clerical and
administrative elements of the title insurance and closing processes.
Mortgage Processing – ZENTA supports the processing of new loan originations through the use of its
imaging and database capabilities, enabling clients to achieve the benefits of scale regardless of the size of
their mortgage loan processing operation.
Underwriting – ZENTA is capable of deploying large teams of trained underwriting professionals to
complete the credit analysis of the loan application in accordance with investor guidelines.
Special Servicing – Zenta’s analyst team supports the due diligence, data validation, portfolio analysis, and
payment collection effort for distressed or non-performing portfolios.
Master Servicing – Through its Universal Master Servicing joint venture, ZENTA provides primary and
master servicing functions on several thousand mortgages each month, and manages a $25 billion portfolio
of mortgages. UMS utilizes a unique work process to provide auditing, cash management, and oversight and
compliance services.
Information Services
ZENTA’s Information Services Group develops research and technology solutions to assist in executing
client assignments, as well as independent database applications that capture due diligence information for
client and third party use. Zenta’s Information Services Group distinguishes itself by its ability to execute
large and complex assignments in a compressed timeframe.
Research – ZENTA efficiently sources relevant research and data for analysis and evaluation of lending,
investment and general market opportunities. Customized research solutions and reports are designed to
meet clients' portfolio analysis requirements.
Database Applications – ZENTA develops software and database applications that assist its clients in
underwriting and managing assets, as well as to create workflow solutions and aggregate deal-related due
diligence content.
 CHAPTER 3

RESEARCH
METHODOLOGY
3. Research Methodology:
Research Methodology is the way in which the data are collected for the research project.

3.1Research Design:
Research needs a design or a structure before data collection or analysis can commence. A research design is
not just a work plan. A work plan details what has to be done to complete the project but the work plan will
flow from the project's research design. The function of a research design is to ensure that the evidence
obtained enables us to answer the initial question as unambiguously as possible. Obtaining relevant evidence
entails specifying the type of evidence needed to answer the research question, to test a theory, to evaluate a
programme or to accurately describe some phenomenon. Research design `deals with a logical problem and
not a logistical problem'.

3.2 Type of Research

Analytical research
It is an analytical study. This study determines the various valuation approaches and the key factors
which influence the valuation of Indian Real Estate Prices. In this research, the researcher has to use
information or facts, which is already available, and analysis of these to make a critical evaluation of
the material.

3.3 Variables Used:

• Independent Variables: The independent variable is the variable that we use to explain a particular
outcome.
o Interest Rate

o Inflation Rate

o Unemployment Rate

• Dependent Variable: The dependent variable is what we are trying to explain.

o Real Estate Price

3.4 Data Processing
• Type of data

o Secondary Data

• Sources

o Web sites

• Research Period

o 5 years (from 2006 to 2010)

• Data Analysis
– MS-Excel
• Regression
• Correlation
• Trend
– SPSS software used for analysis.
Review Of literature:

Hedging Real Estate Risk

Frank J Fabozzi , Robert J Shiller

A number of real estate derivatives are available worldwide. The authors discuss the issues related to
the pricing of these instruments and to the managing of hedging instruments over time. The property
derivatives are classified by the type of real estate risk they hedge: 1) housing price risk, 2) commercial
property price risk, and 3) mortgage loan portfolio amortizing risk. Given the special characteristics of the
real estate asset class—an incomplete market, difficult to hedge, and reversion to a long-term trend—the
authors emphasize the main points that should be taken into account when pricing property derivatives.

Prospects & Problems of Real Estate in India

The present paper entitled “Prospects & Problems of Real Estate in India” is an

attempt to reveal the issues concerned with real estate investment sector in India. This

paper is concerned with the investment on real estate in India and the trends in the

concerned industry. The paper has been divided into three sections. Section one deals with
the fundamental factors affecting the real value like demand, supply, property, restrictions

To use and site characteristics. Section two and three explains the causes and the constraints

to the present real estate boom respectively in India. The paper also presents the

suggestions and future prospects of real estate in the country.

Forecasting residential rents: the case

Christopher farhi and James Young

A large number of studies have examined the price dynamics of housing markets and

the comparative forecasting ability of alternative methodological

frameworks. However, there has been relatively little work that focuses on

forecasting residential rents. This paper uses two alternatives methodological

Frameworks to forecast residential rents in Auckland, New Zealand from the early

1990’s onwards; namely a fundamental variable based Ordinary Least Squares (OLS)

model and a univariate Auto Regressive Integrated Moving Average (ARIMA)

approach. The results indicate that the simple ARIMA is superior in forecasting

residential rents. This suggests that the fundamental variable specification may be

Useful in estimating turning points in rental movements, but that the simple

autoregressive framework is more accurate in predicting rent levels. This is thought to

be due to the heterogeneous profile of residential investors and key behavioural

issues, such as myopic expectations surrounding returns that surround small-scale

Non-institutional investors dominating the residential rental market. Pacific Rim Property

The risk-adjusted performance:

Graeme Newell1, Rajeev Kamineni

Abstract

This paper reviews the real estate markets in India and assesses the risk-adjusted performance and portfolio
diversification benefits for the real estate markets (office, retail and residential) of New Delhi and Mumbai
(two largest cities in India) over the 1998: Q2-2005:Q4 period. The real estate markets were found to under-
perform the stock market in India over 1998- 2005, with most markets improving their performance in more
recent years, although there was some loss of portfolio diversification benefits for office and residential real
estate with stocks. Deregulation of the capital markets and international investment in India is also likely to
have a significant impact on future FDI levels and the growth of real estate funds for real estate investment
in India.

A Study on the Indian Real Estate Market

Investment: A Qualitative Approach

By

Rashi Mehta

Abstract

This dissertation aims to evaluate the investment opportunities present in the Indian real

Estate market. The surveys and responses of the representatives of the real estate market

have been analysed and the results of the study clearly establishes growth of the sector in the

forthcoming years. Different aspects of the market have been examined such as the

importance of India as an investment destination, hindrances in the market, sources of

capital available, scope of the industry etc to get a deeper insight of the market. These factors

have also helped to determine the factors to be considered before investment. New

techniques of investment such as REITs (Real Estate Investment Trusts) have come to light

inducing investors to plough their funds into the market to produce lucrative yet stable returns.

When Does Direct Real Estate Improve Portfolio

Performance?

Stephen L. Lee

Abstract

For over twenty years researchers have been recommending that investors diversify their

portfolios by adding direct real estate. Based on the tenets of modern portfolio theory (MPT)

investors are told that the primary reason they should include direct real estate is that they

will enjoy decreased volatility (risk) through increased diversification. However, the MPT

methodology hides where this reduction in risk originates. To over come this deficiency we
use a four-quadrant approach to break down the co-movement between direct real estate and

equities and bonds into negative and positive periods. Then using data for the last 25-years

we show that for about 70% of the time a holding in direct real estate would have hurt

portfolio returns, i.e. when the other assets showed positive performance. In other words, for

only about 30% of the time would a holding in direct real estate lead to improvements in

portfolio returns. However, this increase in performance occurs when the alternative asset

showed negative returns. In addition, adding direct real estate always leads to reductions in

portfolio risk, especially on the downside. In other words, although adding direct real estate

helps the investor to avoid large losses it also reduces the potential for large gains. Thus, if

The goal of the investor is offsetting losses, and then the results show that direct real estate would

have been of some benefit. So in answer to the question when does direct real estate improve

portfolio performance the answer is on the downside, i.e. when it is most needed.

Regional Variations of Residential Real Estate Returns in Malaysia

Kien Hwa Ting, Sherry Z. Zhou and Helen X. H. Bao

ABSTRACT

The real estate market in Malaysia has been recovering from the Asia financial crisis since

1997/8 as the outcome of the government’s economic policies and changes of policy to

encourage foreign investment in the real estate market. Residential property prices have

risen impressively over the past five years, whilst the overall property price remains

relatively low by international standards. In this paper, we analyze the real estate returns

among the three regions and fourteen states in this buoyant residential property market.

The empirical findings of this study shed lights on the regional dynamics of the residential

real estate market in Malaysia.

Using the annual data between 1988 and 2004, our findings show that the more developed

states i.e. Kuala Lumpur and Penang have a higher annual return and investment in

detached houses generates the highest return and price volatility compared with other

types of properties. These results imply that residential property investments in the more
developed states and luxury properties have been the most profitable and risky in our

sampling period. We also study the association between geographic and property types in

terms of real estate investment returns. The empirical findings indicate no interaction

between them in the Malaysia real estate market. Real estate investors share the same

preference towards property types across all regions in Malaysia, indicating the market is

relatively homogeneous.

James E. Larsen

Abstract

Today’s low mortgage interest rates make direct real estate investments attractive to individual investors.
However, low rates may result in an investor paying too much for the property. Sensitivity analysis
conducted on a set of projected financial statements for a direct real estate investment shows the potential
impact of changing rates on holding period return. Higher subsequent loan rates can have a significant
negative effect on the investor’s return, but the impact may be mitigated by extending the holding period.
Individuals can use the system presented here to compare the expected return of alternate holding periods
given expected interest rates. 2004 Academy of Financial Services. All

rights reserved.

USING PAST EXPERIENCES TO DEVELOP AN

EARLY WARNING SYSTEM FOR THAILAND’S

PROPERTY MARKET

PIRIYA PHOLPHIRUL

ABSTRACT

This paper has a two-fold purpose. First, it analyzes the causes, effects and
consequences of speculative bubbles, and Thailand are past real estate crises. The role of

excessive credit extended by financial institutions is discussed as the main cause of real

estate bubbles. Excessive credit is also believed to have been the major cause of passthrough financial
imbalances and economic instability. Second, an early warning system

for predicting a property-market crisis is created using two approaches: signal analysis

and probability analysis. It shows that there are two leading indicators; the “ratio of

post-finance to bank loans” and the “percentage increases in the price of construction

materials” that currently exceed the threshold level are signaling a future real estate

crisis. However, the interest rate, which the models reveal as the most significant

Indicator of a crisis, is still far below the threshold level. Moreover, many financial

institutions are currently offering competitive incentives for fixed-rate loans of, say, 1-3

years, to buyers of houses. For all these reasons, the probability of a real estate crisis in

Thailand is quite low for the next 1-2 years, i.e., 2005-2007. However, neither model

treats the potential impact of other incidents, such as restructuring of the financial

system, proper bank monitoring and new urban planning, all of which could change the

overall structure of the economy.

YanXiaodong; WuYongxiang;

ABSTRACT

In order to find out the main causes of real estate price' changes, the gray correlation analysis was used to
quantify the influence degree of each factor of real estate price. In order to modify the residuals of GM (1, 1)
model, the gray neural network is established. First, the simulated values and residuals of real estate price
sequence are produced by GM (1, 1) model, then, put the residuals which produced by model GM (1, 1) as
inputs to the neural network. The effectiveness of our methodology was verified with an empirical study that
compared GM (1, 1) model with the hybrid approach. And the results show that this method can be an
effective tool to predict the real estate price, the precision of this method is advantage to GM (1, 1) model,
which is useful to provide a scientific basis for the Marco control of government, investment decisions of
real estate developers and purchase strategy of consumer.

Gis supported hedonic model for assessing property value in west Oakland, California
Abstract

A hedonic linear regression model is constructed in this paper to estimate property value. In our model, the
property value (sales price) is a function of several selected variables such as the property
characteristics, social neighborhoods, level of neighborhood environmental contaminations, level of
neighborhood crimes, and locational accessibility to jobs or services. Definitions and calculation of
these variables are approached by using Geographic Information System tools. For improving
estimation, gravity model is employed to measure both levels of neighbourhood toxic sites and crimes;
and a time-based method is used to measure the location accessibility rather than simple straight-line
distance measurement. This study discovers that the relationship between house value and its nearby
highway is nonlinear. The methodology could help policy makers assess the external effects of a
property. Our model also could be used potentially to identify the current and historic trends of
development caused by neighbourhood or environments change in the study area.

INTERNATIONAL REAL ESTATE REVIEW

Relationship Between the Housing Vacancy

Rate, Housing Price, and the Moving Rate at

the Township Level in Taiwan, in 1990 and

2000

Li-Min Hsueh

In this research, cross-sectional data for the township level obtained from the

1990 and 2000 Population and Housing Census are used to study the

phenomenon of high housing vacancy rates in Taiwan. Three simultaneous

equations for housing price, vacancy rate, and moving rate are derived and

estimated using 3SLS. The estimation results show that, in 1990, in a

booming market situation, both expected housing price and current housing

price had a strong, positive impact on the vacancy rate; however, the housing

vacancy rate did not display a negative impact on housing price as expected.

The results for 2000 show that housing price did not significantly affect the

vacancy rate; however, the vacancy rate had a negative impact on housing

price that was highly statistically significant. This result reflected the fact that

housing market operation had swung to another extreme after the real estate
bubble that started in the late 1980s and burst in the mid-1990s. The natural

vacancy rate for each township can be obtained from the estimation results.

The average rate for 2000 was 0.11 to 0.12, compared to an actual vacancy

This research is funded by National Science Council, ROC (No. NSC 92-2415-H-163-003)120
Hsueh, Tseng, and Hsieh

rate of 0.158, which implied that 75% of townships had an excess supply of

housing. Only Taipei City, Kaohsiung City and townships in areas inhabited

by Taiwan’s indigenous peoples had, on average, a relatively low excesssupply rate.

Home Price Dynamics:

Man Cho,

The Korean HP Dynamics & Policy Implications 05/10/2007 WB Workshop 3

Key Findings Presented

• The recent home price booms are “unprecedented,” in terms of: (1)

ross countries; and, (3) disconnect size & duration; (2) correlation ac

Drops may be “large & protracted.” Î from the real business cycles

r Denmark, France, Ireland, New • Home prices are more at risk fo

and when facing a rising interest Zealand, Sweden, and the US, if

rate trend.

through a “quantity-adjustment” • Demand shocks are absorbed either

through a “price-adjustment” (South and Midwest in the US) or

(Northeast and West).

e for both upturns and downturns: • Policy ramifications are in stor

namely, deteriorating housing affordability and possibility of “bubble”

during the former; and, job losses, particularly in construction &

manufacturing, during the latter.

RESEARCH ARTICLE

Jinhai Yan, Lei Feng, Helen X. H. Bao

House Price Dynamics: Evidence from Beijing

To study the house price dynamics in China, this paper extends the

traditional life-cycle model by incorporating land supply, regime shifts and

government regulation factors. The models are estimated with an error correction

framework using quarterly data from 2000 to 2007 in Beijing. The conclusions

are as follows. (1) There exits a stable co-integration relationship between house

price and fundamentals; land supply and financial regimes are also important

determinants of long-run equilibrium house prices. (2) Short-run dynamics

depend on changes of fundamentals and the adjustment process of housing

market. Land supply has a significant impact on house price fluctuations while

demand factors such as user costs, income and residential mortgage loan have

greater influences. The adjustment speed of real house prices to the long-run

equilibrium has been reduced significantly since 2005 which means exogenous

shocks can cause prolonged deviation of real house prices from the equilibrium

level.

Structural Changes, Housing Price Dynamics and Housing Affordability in Korea

Housing Studies

Kyung-Hwan Kim

The Korean housing sector offers an interesting case study. It has had a highly regulated market
faced with a large demand pressure over an extended period of economic development, has solved the
problem of absolute housing shortages within a reasonably short time period, and has maintained an explicit
policy goal of achieving housing price stability. This paper documents the evolution of housing policy in
Korea, identifying the structural changes that have taken place in the housing market and government
intervention in it since the late 1980s. It also traces the trends in housing prices and affordability during the
past two decades. An econometric analysis is then conducted to explore the determinants of long-run
housing prices and how the structural change in mortgage lending around 2000 has impacted the housing
price dynamics in Seoul and several other major cities. Finally, a set of policy implications is drawn from
the analysis of housing prices and policy experiences.

Methods for comparing diversification strategies on the Swedish real estate market.
Sigrid Katzler

This paper compares the effectiveness of different property portfolio diversification strategies using five
methods. These are comparison of (1) correlation matrices, (2) efficient frontiers, (3) sharpe ratios, (4)
coefficients in equations explaining total returns and (5) R-square values in equations explaining total
returns. The evaluation methods are applied to Swedish real estate return data. No significant differences are
found between diversification over property type and geographic region when comparing correlation
matrices, sharpe ratios, coefficients and R-square values. This is probably due to high correlation between
Asset classes. Investigating efficient frontiers clearly shows an advantage for a property type strategy with
Investments in housing only. Part of the explanation for the dominance of housing is believed to be the Rent
control system in Sweden.

Supply elasticities and developers' expectations: a study of European office markets

Patrick McAllister,

Purpose – The purpose of this paper is to investigate the relationships between supply and demand in
19 European office markets in the period 1991-2006. It estimates the variations in the price elasticity of
supply across the different markets. The paper tests whether developers display evidence of myopic or
rational expectations in their behaviour.

Design/methodology/approach – The paper draws upon a time series of rental, take-up and new completions
for 20 European office markets. A static measurement of price elasticity is calculated for each office market.
To measure this expected supply response in the empirical analysis, the paper applies an impulse response
analysis.

Findings – There is an evidence of positive and negative price elasticity. In a significant proportion of cities,
supply increases following falls in rental levels. As a result, there is some evidence of myopic behaviour in a
proportion of the markets examined, there is little evidence to support the hypothesis that real estate
developers systematically display myopic expectations. The diversity in developer responses to price signals
is surprising. It is concluded that idiosyncratic rather than systematic factors may dominate supply-side
responses to market signals.

Research limitations/implications – This paper is essentially exploratory and raises a number of questions
for further investigation. There is scope to address the research questions using better data series, in
particular, net absorption rates, construction starts, real rental growth rates and different geographical
definitions. There is also scope to extend the research to examine the causal factors underlying differences in
supply elasticity, for instance, the relative contribution of constraining variables such regulatory restrictions
and limitations in physical capacity. It is also possible to model the supply adjustment process more
dynamically in an error-correction framework.
Practical implications – The findings would suggest that the complexity and diversity of economic,
institutional and capital market influences affecting European commercial real estate markets seem to be far
too numerous for any single model of market or developer behaviour to explain.

Originality/value – This is the first paper to examine supply elasticity across a broad range of European
office markets.

Bubbles in Real Estate Markets

Richard Herring

Introduction

Real estate bubbles may occur without banking crises. And banking crises may

occur without real estate bubbles. But the two phenomena are correlated in a remarkable

number of instances ranging over a wide variety of institutional arrangements, in both

advanced industrial nations and emerging economies. The consequences for the real

economy depend on the role of banks in the country’s financial system. In the US, where

banks hold only about 22% of total assets, most borrowers can find substitutes for bank

loans and the impact on the general level of economic activity is relatively slight. But in

countries where banks play a more dominant role, such as the US before the Great

Depression (where banks held 65% of total assets), or present day Japan (where banks

hold 79% of total assets), or emerging markets (where banks often hold well over 80% of

total assets), the consequences for the real economy can be much more severe. (BIS,

1995).

Multinational companies’ real asset ownership and its impact on diversification

Eun Sun Hwang, Vicky L. Seiler, Michael J. Seiler,

Percentage of real assets significantly impacts the risk and risk-adjusted return of U.S. based
multinational companies. Design/methodology approach – A series of rolling Two Stage Least Squares
(2SLS) regression models are used to analyse the relationships among corporate real assets, systematic risk
(beta), and risk-adjusted return. Findings – The results of this study show that U.S. based multinational
companies do have lower betas. However, U.S. based multinational companies’ cross border real asset
holdings do not affect diversification and do not provide significantly higher risk-adjusted returns to
stockholders. Originality/value – This study builds upon the prior work of Seiler, Chatrath and Webb to
consider multinational firms. This had never been done previously.
Effect of Housing Supply Control Strategy

Huang, Yi Kun

`High-cost threshold induces oligopoly for real estate market, which means a few

powerful developers may easily control the supply of houses. On the other hand, land

scarcity and regulation also induces the limited housing supply, therefore, housing

supply control strategy may exists which can increase the developers’ profit. While on

demand side, speculative demand exists in housing market as property is not only

consumption goods, but also an investment. Such demand is relatively vibrational

while it is strongly affected by supply signal. In the paper, we analyze the profit

change under supply control strategy and show that how property developers make

control decision by introducing a mathematical model. The result suggests supply

control strategy may achieve higher profit by stimulating the speculative demand if

Control Interval is nonempty. Additionally, we also found that marginal return and

Marginal cost is not equal when developers facing the discrete real estate demand.

VAR model is employed to test the dynamic relationship among housing supply,

House price index and developers’ profit in Hong Kong. During 1984 to 1997, housing

Supply was limited due to the Sino-British Joint Declaration; and we can see that

Supply controls in the period significant bring up developers’ profit.

Risk and Return in the U.S. Housing Market: A Cross-Sectional Asset-Pricing Approach

Susanne Cannon

Analysis of the U.S. metropolitan housing market. We use ZIP code–level housing data to study the cross-sectional role
of volatility, price level, stock market risk and idiosyncratic volatility in explaining housing returns. While the related literature
tends to focus on the dynamic role of volatility and housing returns within submarkets over time, our risk–return analysis is cross-
sectional and covers the national U.S. metropolitan housing market. The study provides a number of important findings on the
asset-pricing features of the U.S. housing market. Specifically, we find (i) a positive relation between housing returns and
volatility, with returns rising by 2.48% annually for a 10% rise in volatility, (ii) a positive but diminishing price effect on returns
and (iii) that stock market risk is priced directionally in the housing market. Our results on the return-volatility-price relation are
robust to (i) metropolitan statistical area clustering effects and (ii) differences in socioeconomic characteristics among submarkets
related to income, employment rate, managerial employment, owner-occupied housing, gross rent and population density.

Are U.S. States Economic and Real Estate Cycles Related?

Christos Giannikos

Using Markov Switching estimation technique on U.S. state level coincident index and

housing price index this paper calculates the turning points of the state as well as national

business and real estate cycles. The analyses in this paper suggest that there are no distinct

and persistent patterns between real estate cycles and state level economic fluctuations.

However, based on the formation of the real estate cycles we divide U.S. states into four

categories. We observe that real estate downturns are more persistent than economic

recessions. Comparison of the national and state level business and real estate cycle patterns

suggest that only two out of four recent NBER dated national recessions were accompanied

by predominance of real estate downturns in most of the U.S. states. Our results also

suggest that nearly forty five U.S. states as well as the U.S. on aggregate exhibited distinct

downturn of the real estate cycle between the third quarter of 2006 and the third quarter of

2007. Severity of state level real estate fluctuations, measured in this paper as a difference

between growth rates in expanding and declining phases, varied remarkably across states.

We, however, observe relatively greater dispersion of the growth rates of the state housing

index when the states economies are in recessionary phase of the business cycle. This

suggests that the housing market across states converges during periods of expansions.

Finally, we conclude that the magnitude and depth of real estate fluctuation is larger than

economic fluctuation.

Where are the speculative bubbles in US housing markets?

Allen C. Goodman

Thomas G. Thibodeau

In the first half of this decade, US house prices experienced significant real rates of appreciation. The
dramatic increase

in house prices led some economists to conclude that there was a speculative bubble in the US housing
market.
This paper explores how much of the recent appreciation in US house prices was attributable to the
fundamental economic determinants of house prices. On the demand side, we note that the rate of
homeownership in the US increased from

66.8% in 1999 to 69% in the fourth quarter of 2005.

accessed 10/17/2007. Each percentage point increase in the homeownership rate increases the demand for
owner-occupied

housing by about one million units. On the supply side, land prices and housing construction costs increased
substantially

in real terms over this period.

The national average increase in house prices conceals significant spatial variation in appreciation rates.
According to

OFHEO, house prices in some California cities increased by more than fifteen percent per year during this
period while

house prices in Texas cities increased four percent per year. The increase in aggregate housing demand had
different effects

on metropolitan area house prices because housing market supply elasticities vary spatially. We estimate
housing supply

Elasticities for 133 metropolitan areas and conclude that although areas on the East Coast and in California
had large

Observed price increases, they owe much of their house price increases to inelastic supplies of owner-
occupied housing.

Stephen Malpezzi1, Susan M. Wachter2

This paper develops and simulates a model to examine whether land speculation is primarily a cause of, or a symptom of,
property cycles. The model suggests that the volatility of prices—the biggest purported downside of “speculation”—is strongly
related to supply conditions. Moreover, while demand conditions in general, and speculation in particular, contribute to boom and
bust cycles in housing and real estate markets, the impact of speculation is dominated by the effect of the price elasticity of
supply. In fact, the large impacts of speculation are only observed when supply is inelastic.

Housing and the Korean economy

Kyung-Hwan Kim

This paper explores the nexus between housing and the Korean economy. It starts with an overview
of the size, growth, and volatility of residential investment in conjunction with long-term resource allocation
and short-term macroeconomic fluctuations. Then, the evolution of housing finance and its implications for
recent house price run-up are discussed. The relationships among housing price, consumer spending, and
inflation are also investigated. Particular attention is paid to the debate over house price bubbles, housing
wealth effects on consumption, and the causality between house price and inflation. The paper concludes
with a brief assessment of government intervention to stabilize house prices.

Mean-variance analysis with REITs in mixed asset portfolios: The return interval and the time period
used for the estimation of inputs

Doug Waggle:

Aims to test to determine whether the selection of the historical return time interval (monthly,
quarterly, semi-annual, or annual) used for calculating real estate investment trust (REIT) returns has a
significant effect on optimal portfolio allocations.

Using a mean-variance utility function, optimal allocations to portfolios of stocks, bonds, bills, and
REITs across different levels of assumed investor risk aversion are calculated. The average historical
returns, standard deviations, and correlations (assuming different time intervals) of the various asset classes
are used as mean-variance inputs. Results are also compared using more recent data, since 1988, with, data
from the full REIT history, which goes back to 1972.

Using the more recent REIT data rather than the full dataset results in optimal allocations to REITs
that are considerably higher. Likewise, using monthly and quarterly returns tends to understate the
variability of REITs and leads to higher portfolio allocations.

The results of this study are based on the limited historical return data that are currently available for REITs.
The results of future time periods may not prove to be

THE PROSPECTS FOR GEOGRAPHIC DIVERSIFICATION

IN UK REGIONAL PROPERTY INVESTMENT:

Helen Higgs & Andrew C. Worthington

This paper examines the short and long-term comovements among UK regional property markets
over the period 1976-2001. The markets examined are London, Outer South-East, East Anglia, South West,
East Midlands, West Midlands, Yorkshire and Humberside, North and North West. Multivariate
cointegration procedures, Granger Non-causality tests, level VAR and generalised variance decomposition
analyses based on error-correction and Vector autoregressive models are conducted to analyse short and
long-run relationships among these markets. The results indicate that there is a stationary long-run
relationship and significant long-run causal linkages Between the various UK property markets. In terms of
the percentage of variance explained other regional Markets are generally more important than innovations
in a given region, though this is not the case for the Outer South-East which is extremely segmented from
the remaining markets, as is, to a lesser extent, the North and North West. This suggests that opportunities
exist for portfolio diversification in UK regional property market.

US real estate investment performance in 2010 delivered third strongest annual returns over the last
decade

US real estate investment performance for 2010 delivered its third strongest annual returns over the last
decade, at 14.2%, as measured by the IPD US Annual Property Index

The all property annual double-digit performance represents a substantial turnaround for investment
performance after 2009’s revised annual total return of -18.9% - - the worst performance in its 12-year
history

An Analysis of Factors Affecting Indian Realty

K.P Singh,

sheds light on factors affecting the pace of Indian real estate. According to him, it’s stringent monetary policies and
subsequent high mortgage rates.

Prices of residential property in India would only begin to fall in a fast flourishing economy with an increase in supply, says Mr.
Singh. He also adds that property prices will take a slip only if pushed by increased supply and not mere monetary policies.

The Reserve Bank of India (RBI) raised interest rates five times since March 2006. The authority has also lifted banks’ reserve
requirements to curb rising inflation and credit growth.

This created a need for commercial banks to raise lending rates including those on home loans by more than 200 basis points.

Another factor affecting Indian property market is increasing interest rates on home loans. However, growth in home loans may
slow to 17-20 per cent in the current fiscal, as per the data showcased by the Associated Chambers of Commerce and Industry.

Mortgage loans have risen by 26.6 per cent in the last financial year. And it was lower than 29.1 per cent in 2005-06. And, the sale
of residential property in India has seen a sharp downslide by over 70 per cent in May-June 2007.

BERTRAND RENAUD

The globalization of financial markets is affecting real estate markets. During the period 1985 to 1994, a large number of
countries experienced strong real estate booms that peaked around 1989 followed by severe asset price deflation and an output
contraction that usually lasted until 1994. Global finance appears irreversible. Should we also expect the recurrence of real estate
cycles of strong amplitude? Or does this first global cycle represent a one-time adjustment to global integration happening in
many countries simultaneously? To facilitate further comparative analyses, this article inventories the international and domestic
factors, in their macroeconomic and intrinsic real estate cycle dimensions, that contributed to this strong global cycle. This
overview has three threads: What triggered this first global cycle? What has been its impact? Are there lessons for countries that
are not yet fully integrated into global capital markets such as semi reformed socialist economies, newly industrialized economies,
and other developing countries?

Real Estate Industry in China

Dianchun Jiang

This paper discusses the development of real estate industry in China in recent years. It argues that Hayek's theory of
economic fluctuations can help to explain the contraction of the real estate market in 1994 in China as a whole. However, as a
theory of the closed economy, Hayek's theory is found to be no longer robust when applied to cities where there is heavy foreign
direct investment, such as Shanghai. We believe that it is the foreign direct investment that is making the real estate industry in
Shanghai perform well, despite the government's tight monetary policy and the contraction of the industry in other parts of the
country over the same period. The paper also argues that, while most foreign investment in real estate is classified as direct
investment, it is very different from 'typical' foreign direct investment except in form and in fact shares most of the characteristics
of portfolio investment. Foreign direct investment in real estate reflects the imperfections of China's capital markets.

The 1980s property boom

M Ball

In this paper the causes and consequences of the property boom of the late 1980s are considered that in one way or
another affected most developed economies and several industrialising ones. It is suggested that technical change in key service
industries caused an upsurge in building demand from the mid-1970s onwards. Shifts in employment patterns then generated
repercussions in housing markets. The classic conditions were created for a 'Kuznets style' building cycle. The detailed effects of
these changes in specific countries depended on the responses by agents involved in the process of building provision, which in
turn were affected by the changing economic and institutional contexts that they faced. Property development, financial liberation,
housing markets, property taxation, and land-use planning are all considered in this context, with examples drawn from several
countries.

Journal of the American Statistical Association

Quality differences make estimation of price indexes for real properties difficult, but these can be
largely avoided by basing an index on sales prices of the same property at different times. The problem of
combining price relatives of repeat sales of properties to obtain a price index can be converted into a
regression problem, and standard techniques of regression analysis can be used to estimate the index. This
method of estimation is more efficient than others for combining price relatives in that it utilizes information
about the price index for earlier periods contained in sales prices in later periods. Standard errors of the
estimated index numbers can be readily computed using the regression method, and it permits certain effects
on the value of real properties to be eliminated from the index.
Real Estate Booms and Banking Busts: An International Perspective
Susan Wachter

Real estate cycles and banking cycles may occur independently but they are correlated in a
remarkable number of instances ranging over a wide variety of institutional arrangements, in both advanced
industrial nations and emerging economies. During the recent Asian financial crisis, the most seriously
affected countries first experienced a collapse in property prices and a weakening of the banking systems
before experiencing their exchange rate crises. Countries where banks play a more dominant role in real
estate markets and hold a greater percentage of assets are the most severely affected during such a crisis. In
this paper, the authors develop an explanation of how real estate cycles and banking crises are related and
why they occur.

The authors first discuss how real estate prices are determined and why they are so vulnerable to deviations from long-
run equilibrium prices, paying special attention to the role of the banking system in determining prices. Increases in the price of
real estate may increase the economic value of bank capital to the extent that banks own real estate. This then increases the value
of loans collateralized by real estate and may lead to a decline in the perceived risk of real estate lending. For these reasons, an
increase in real estate prices may increase the supply of credit to the real estate industry which is then likely to lead to further
increases in real estate prices. The opposite is also true. A decline in the price of real estate will decrease bank capital by reducing
the value of the bank's own real estate assets as well as reduce the value of loans collateralized by real estate. This may lead to
defaults, thus further reducing capital. A decline in the price of real estate is also likely to increase the perceived risk in real estate
lending. All of these factors reduce the supply of credit to the real estate industry. Supervisors and regulators may also react to the
resulting weakening of bank capital positions by increasing capital requirements and instituting stricter rules for classifying and
provisioning against real estate assets, leading to even further decline in prices and supply of credit to the real estate industry.

The persistence of real estate cycles

Steven R. Grenadier

This paper presents a model that attempts to explain the underlying causes of the prolonged cycles
observed in real estate markets. In addition, the paper characterizes the features that make some property
types more prone to such boom-and-bust behavior. The combination of demand uncertainty, adjustment
costs, and construction lags leads to two phenomena that may help explain market persistence. The first
phenomenon is the reluctance of owners to adjust occupancy levels, even in the face of large shifts in renter
demand. The second phenomenon is the occurrence of periods of sustained overbuilding: the addition of
new supply in the face of already high vacancy rates.

An Investment Model of the Demand and Supply For Industrial Real Estate

William C. Wheaton,

Raymond G. Torto

A recent inventory of industrial building in fifty-two major metropolitan areas of the country indicates that most such
space is either owner occupied or single tenant. This suggests that the production of industrial space may be modelled as a firm
“investment” decision. Using the completion date of each inventoried building, we construct a time series of plant completions
that moves similarly to some other national investment data. We are able to successfully estimate an “accelerator” type model of
plant deliveries, driven by movements in employment and the after-tax cost of corporate capital. Our model can be used to
estimate a measure of excess plant capacity in the market, and historic values of this measure do move parallel to some recent
industrial vacancy data.

Kenneth T. Rosen

High rise office buildings represent large capital outlays in very competitive markets. Investment and development
decisions require careful market analysis to assure sufficient demand to lease the office space at rental rates which will make the
venture financially attractive. Present methodology for analyzing future commercial real estate market conditions can at best be
said to be inadequate. This methodology relies on concepts such as “market absorption” rates and “normal” vacancy rates. These
concepts usually rely on accounting type and trend line techniques to provide forecasts of space demand. In this paper we provide
an alternative methodology for forecasting the key variables in the office space market by developing a statistical model of supply
and demand. The key variables that need to be forecasted are the stock of office space (in square feet), the flow of new office
construction (in square feet), the vacancy rate (in percent), and the rent for office space (net rent per square foot).

Dennis R. Capozza,

We explore the dynamics of real house prices by estimating serial correlation and mean reversion coefficients from
a panel data set of 62 metro areas from 1979-1995. The serial correlation and reversion parameters are then shown to vary
cross section ally with city size, real income growth, population growth, and real construction costs. Serial correlation is
higher in metro areas with higher real income, population growth and real construction costs. Mean reversion is greater in
large metro areas and faster-growing cities with lower construction costs. Empirically, substantial overshooting of prices
can occur in high real construction cost areas, which have high serial correlation and low mean reversion, such as the
coastal cities of Boston, New York, San Francisco, Los Angeles and San Diego.

William N. Goetzmann, K. Geert Rouwenhorst

The correlations among international real estate markets are surprisingly high, given the degree to
which they are segmented. While industrial, office and retail properties exist all around the world, they are
not economic substitutes because of location specificity. In addition, the broad securitization of real estate
property companies has, until recently, lagged that of other types of companies. Never-the-less, international
property returns move together in dramatic fashion. In this paper, we use eleven years of global property
returns to explore the factors influencing this co-movement. We attribute a substantial amount of the
correlation across world property markets to the effects of changes in GNP, suggesting that real estate is a
bet on fundamental economic variables which are correlated across countries. Decomposition shows that a
local production factor is more important in some countries than in others.

Real Estate Returns and Inflation

David Hartzell

The ability of assets to protect an investor from purchasing power risk due to inflation has received a good deal of
attention in the literature recently. The focus of much of this research has been on the properties of common stocks as inflation
hedges. Bodie [1976] finds that the real return on equity is negatively related to both anticipated and unanticipated inflation; a
similar result is obtained by Fama and Schwert [1977]. Bernard and Frecka [1983] examine individual common stock returns and
find that the majority exhibit this negative relationship. This paper uses similar logic to examine the ability of a well-diversified
portfolio of real estate to hedge against anticipated and unanticipated inflation.
The Impact of Inflation and Vacancy on Real Estate Returns

CharlesH.Wurtzebach
GlennR.Mueller
The impact of inflation on the value of assets is considered one of the primary financial
concerns of long-term investors. While actual and expected inflation have slowed considerably since
the early 1980s, concern over future increases is still a consideration for long-term investors. Ibbotson
and Fall, Ibbotson and Siegel, Brueggeman, et al., Fogler, hartzell, et al., and Rubens, et al., conclude
that real estate compensates the investor for inflation risk. When real estate is added to a mixed-asset
portfolio, the inflation risk of the expanded portfolio is substantially below that of the original portfolio
(ex-real estate).The purpose of this study is to examine the relationship between the performance of
commercial real estate and inflation. Unlike previous studies, this study examines real estate
performance during both high and low inflation periods. The results show that real estate does provide
an inflation hedge. Second, real estate returns are broken down by two major property type categories
(office and industrial) to determine if any property type differences exist. A major difference is found
between the inflation hedging effectiveness of office and industrial properties. Third, the differences are
further analyzed in relation to vacancy rates in the two property types. A structural imbalance in the
office market is evidenced by high vacancy rates. Therefore, the relative impact of vacancy rates upon
office and industrial property performance is examined and found to be a significant factor in
explaining returns, thus affecting inflation hedging characteristics.