Intro to Investing in Real Estate Sector #Thread #Investing

A rather complex sector to understand the business models

cc @dmuthuk @Vivek_Investor

Segments in this sector:

- Residential Segment
- Commercial Segment
- Retail Segment
- SEZ Segment
- Hospitality Segment

1/n
Segment 1 - Residential Segment is highly fragmented and contributes to around 75% to the Real Estate Sector

- 20000+ residential builders in the India
- National, Regional & Local focus

Godrej - National
Shobha, Prestige - South
DLF - North
Oberoi, Hiranandani - West

2/n
Segment 2 - Commercial

- Very few players
- Reputation & branded names often considered for huge establishments
- B2B Business model

Namely DLF, Prestige, Oberoi, Nesco, RMZ (Not listed)

3/n
Retail Segment

- Warehousing & Office spaces (beyond commercial)
- Warehousing attracted private equity (PE) investments of US$ 971 million in 2020

Important for growing retail needs

Key players in commercial are involved in retail as well

ibef.org/industry/real-…

4/n
Hospitality Segment

Construction of Hotels. Accor is a big player and the business model in this sector is generally build & lease

India currently has more than 35,000 hotel rooms above five star

Caters to premium & ultra-premium segment and growing gradually.

5/n
SEZ Segment

- Special Economic Zones to promote growth with special tax rebates

- India formally approved 425 SEZs out of which 265 are already operational. Typically we see a lot of IT companies as a part of these SEZ businesses

6/n
Based on the sector, the business models vary and the risk-return ratio also vary by the model

Land bank model
Development model
Joint Venture
Contractors

Project types include New projects, Redevelopment, Govt Driven etc.

7/n
Geography and Segment

National - Godrej
Regional - discussed above
Tier 2 - Ashiana, Eldeco

Luxury - Sothebay's
Mid-range - Purvankara
Affordable - Kotlepatil

To manage the customer perception, often the players create sub-brands

Ex: Puravankara

8/n
How to read this sector? Some key metrics

Residential Real Estate Sector
- Inventory to Sales conversion cycle
- Area booked for construction
- Rental yield
- Realization - Value per square foot sold
- Advances & Collection
- New project roadmap

9/n
Commercial Real Estate Sector

- Cost of construction to Rental Yield
- Inventory to Sales conversion cycle
- Inventory with-held (Early stage vs. late stage)
- Certifications RERA, LEED etc.

Debt is often seen in reality businesses due to huge upfront construction costs

10/n
Reality OUTLOOK in India

India is a growing and its a good accelerator for infrastructure and reality growth.

11/n
Now where and how to invest??

Most of the experts say, Real-estate is a cyclical business. Indeed, its true and one needs to understand the cycles to invest in Real-estate.

12/n
India is currently at juncture of best affordable housing in 2.5 decades which will lead the growth forwards

13/n
Both residential and commercial real estate businesses are cyclic irrespective of builder class.

Indirect way to play this sector is through Ancillaries, Housing Finance Companies etc.

Even if the new demand in real estate goes down, the after-market keeps them stable

14/n

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