FINANCING REAL ESTATE

THROUGH PRIVATE EQUITY

POOL FUNDING

Guided by:
PROF. RAJNIKANT TRIVEDI

PREPARED BY:
BRIJ PATEL
(UC3114)
FINANCING REAL ESTATE THROUGH PRIVATE EQUITY POOL FUNDING

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BRIJ PATEL UC3114
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UNDER GRADUATE PROGRAMME IN FACULTY OF TECHNOLOGY

STUDENT NAME : BRIJ PATEL (UC3114)

THESIS TITLE : FINANCING REAL ESTATE THROUGH PRIVATE EQUITY POOL FUNDING

APPROVAL

The above titled study by the student is approved as a creditable work on the approved
subject carried out and presented in a manner, sufficiently satisfactory to warrant its
acceptance as a pre-requisite for the degree of Bachelor of Construction Technology for
which it has been submitted.

It is to be understood that by this approval, the undersigned do not endorse or approve the
statements made, opinions expressed or conclusion drawn therein but approves the study
only for the purpose for which it has been submitted by him/her and satisfies the
requirements laid down in the academic programme.

Signature of the Guide Dean, Faculty of Technology

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ACKNOWLEDGEMENT
I take the great pleasure for presenting my thesis on “Financing Real Estate Through Private Equity
Pool Funding”. This is a work of four month from January 2019 to April 2019.

It gives me immense pleasure to thank CEPT University for design a curriculum in such a way that
at Bachelor level I get the great opportunity to do research work in my own interest field. This thesis
taught me the challenges and the complications to be faced during the professional career in civil
industry.

I am delighted to record my deep sense of gratitude toward my guide PROF. RAJNIKANT

TRIVEDI, for his constant support & motivation, constant encouragement and valuable suggestions
throughout the entire duration of dissertation. I am very much thankful to him for helping me in
turning a rough idea into a viable business plan.

I also would like to express my gratitude to PROF BHARGAV TEWAR and DEAN Dr. PARESH
SHAH for giving me useful insights during my thesis.

Last but not least, I would like to thank my family especially my father for always motivating me to
work on new ideas.

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Abstract
Population of India is increasing drastically, also concept of nuclear family is also getting popular.
Therefore, there will be a huge demand of residence. Also, there is a huge demand for commercial
space like offices and shops. Real estate sector is capital intensive sector. In most of the cases
developer must go for outside finance. Financial market for real estate hasn’t changed much over the
years not only in India but also all over the world. All over the world financial sector has evolved. so
many new instruments have been developed. There is a need to develop a new financial instrument
suitable for real estate market
In this thesis various type of finance avenues available in Indian real estate market are explored. Need
to develop a new model is identified and justified New equity-based model has been designed.
Interviews of developers are taken and their views on this model are considered. Also, 3 case studies
have been taken for checking financial viability.
Key words: Real estate finance, Private equity in real estate, Innovative financial model.

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Contents
CHAPTER - 1: INTRODUCTION .......................................................................................................................... 10

1.1 Background............................................................................................................................................. 10

1.2 Need for study ........................................................................................................................................ 10

1.3 Objectives ............................................................................................................................................... 10

1.3 Scope the work ....................................................................................................................................... 11

1.5 Research design...................................................................................................................................... 11

1.6 Expected outcome.................................................................................................................................. 11

1.7 Limitations of study ................................................................................................................................ 11

1.8 Thesis schedule ...................................................................................................................................... 12

CHAPTER-2: LITERATURE STUDY ...................................................................................................................... 13

2.1 Current real estate market ..................................................................................................................... 13

2.1.1 Problems with investing own capital in a project ............................................................................... 13

2.2 RERA ....................................................................................................................................................... 13

2.3 Finance option for a developer in India ................................................................................................. 14

2.4 Debt .................................................................................................................................................. 14

2.4.1 Types of debt-based finance ........................................................................................................... 14

2.4.2 Problems faced by banks................................................................................................................. 15

2.4.3 Problems faced by developer .......................................................................................................... 15

2.5 Equity...................................................................................................................................................... 16

2.5.1 Types of equity ................................................................................................................................ 16

2.5.2 Types of investors............................................................................................................................ 16

2.6 IPOs/FPOs ............................................................................................................................................... 18

CHAPTER-3: MODEL DEVELOPMENT ................................................................................................................ 19

3.1 Concept: ................................................................................................................................................. 19

3.2 Legal structure:....................................................................................................................................... 19

3.2.1 Company legal structure ................................................................................................................. 19

3.3 Escrow account ...................................................................................................................................... 21

3.4 Share holder ........................................................................................................................................... 21

3.5 Developer ............................................................................................................................................... 21

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3.6 Equity ..................................................................................................................................................... 22

3.6.1 Qausi equity .................................................................................................................................... 22

3.7 Overall benefits of model ...................................................................................................................... 22

3.8 Theocratical implication of designed model.......................................................................................... 23

CHAPTER -4: SURVEY AND CASE STUDY........................................................................................................... 25

4.1 Survey .................................................................................................................................................... 25

4.2 CASE STUDY............................................................................................................................................ 29

4.2.1 Case study 1 Kadamb Villas............................................................................................................. 30

4.2.2 Case study 2: Saya Skyz ................................................................................................................... 36

4.2.3 Case study 3: Shubh Aangan ........................................................................................................... 42

4.3 Summery ................................................................................................................................................ 49

4.4 Conclusion .............................................................................................................................................. 49

4.5 Future scope of study ............................................................................................................................ 50

5 REFERENCES .................................................................................................................................................. 51

6 APPENDICES ................................................................................................................................................. 52

6.1 QUESTIONNAIRE .................................................................................................................................... 52

6.2 Participants of interview ........................................................................................................................ 55

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LIST OF TABLES
Table 1.1 Thesis schedule ................................................................................................................. 12

Table 2.1 Pe deals took place in 2017 .............................................................................................. 17

Table 4.1 type of developer ............................................................................................................. 26

Table 4.2 type of project .................................................................................................................. 27

Table 4.3 Balance sheet of kadamb villa .......................................................................................... 31

Table 4.4 Profit and Loss of kadamb villa ......................................................................................... 32

Table 4.5 Modelling with promoter stake 10% ................................................................................ 33

Table 4.6 Modelling with promoter stake 25% ................................................................................ 34

Table 4.7 Modelling with promoter stake 50% ................................................................................ 35

Table 4.8 Balance sheet of Savya ..................................................................................................... 37

Table 4.9 Profit and Loss of Savya .................................................................................................... 38

Table 4.10 Modelling with promoter stake 10% .............................................................................. 39

Table 4.11 Modelling with promoter stake 25% .............................................................................. 40

Table 4.12 Modelling with promoter stake 50% .............................................................................. 41

Table 4.13 Balance sheet of Shubh Aangan ..................................................................................... 43

Table 4.14 Profit and Loss of Shubh Aangan .................................................................................... 45

Table 4.15 Modelling with promoter stake 10% .............................................................................. 46

Table 4.16 Modelling with promoter stake 25% .............................................................................. 47

Table 4.17 Modelling with promoter stake 50% .............................................................................. 48

Table 4.18 Summery table ............................................................................................................... 49

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LIST OF FIGURES
FIGURE 3.1 MODEL ...................................................................................................................... 23

FIGURE 4.1 TYPE OF DEVELOPER ................................................................................................. 26

FIGURE 4.2 TYPE OF PROJECT ...................................................................................................... 27

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List Of Abbreviations
GDP = Gross Domestic Product

Q4 = 4th Quarter

Bn = Billion

Mn= million

RERA = Real Estate Regulatory Authority

FDI = Foreign Direct Investment

REIT = Real Estate Investment Trust

JV = Joint Venture

HNI = High Networth Individual

NBFC = Non-Banking Financial Company

IPO = Initial Public Offering

FPO = Follow On Public Offering

PE = Private Equity

SEBI = Securities and Exchange Board of India

BHK = Bedroom Hall Kitchen

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CHAPTER - 1: INTRODUCTION
1.1 Background
India’s economy is growing at average 6% a year and one of the major sectors behind this growth is
real estate. The contribution of real estate sector in GDP of India is 6.3% and it is expected to grow
to 13% by 2025. Market size of real-estate in India is expected to grow to 1 trillion USD by 2030. [1]
“The extent to which the real estate sector has grown can be gauged from certain key numbers. While
in Q4 2012, the value of investment grade real estate under construction was at USD 173.9 bn, it has
touched USD 242.6 bn in Q2 2018.” [2] Real estate is second largest employer after agriculture. Real
estate sector has 4 sub sector housing, retail, hospitality, and commercial. [1]
Major structural reforms like RERA, the Benami Transactions Act have pushed real estate sector
towards more transparency, efficiency. An investor feels more comfortable and safe investing in real
estate. Also, FDI has increased in the Indian real estate.
Real estate sector is still highly unorganized being one of the largest sectors. Most of the developers
practice conventional ways for financing their projects.

1.2 Need for study

Real estate business is a capital-intensive business. Lack of liquidity is a major issue in real estate
business. In current situation mostly all medium and small-scale developers are partnership firms and
they pool their own capital for projects, or they take loans from a bank. Demand for real estate in
India is rising day by day. A need is identified to study the scope of New models and instruments of
finance in real-estate sector.

1.3 Objectives
• Also, to study other financial models currently being used in the real estate market.
• The primary objective of this research is to design an innovative financial model based on
Pool Funding through Private Equity and to find whether the model is feasible or not for Indian
real-estate market.

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1.3 Scope the work

• Studying different financial models currently being used in the real-estate market, their pros
and cons.
• Designing an innovative financial model.
• Case study of a real estate project, study of the financial model used in that project also the
probable outcomes if suggested financial model was used and comparison of outcomes of
both models.
• Study the legal and economic feasibility of suggested model in current market.

1.5 Research design

• Study of the different financial models and instruments being used in real estate market and
REITs will be covered in literature review
• Further, Designing the structure of the suggested financial model.
• Study of legal and economic feasibility of that structure.
• Data collection through interviews of real estate developers.
• Case study of a recently completed project.
• Concluding with the suggestions to improve financing in real estate.

1.6 Expected outcome

• If Indian market is ready for a new financial model or not will be answered.
• Probable effects on real estate market if suggested financial model being used.
• If the suggested model feasible or not.

1.7 Limitations of study

The model is designed for Indian real estate.
Legal aspect of model is not covered in depth.

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1.8 Thesis schedule

Table 1.1 Thesis schedule
No Activity Dec. Jan. Feb. March April
1-15 31 1-15 31 1-15 28 1-15 31 1-15 22
1. Literature study
2. Data collection
preparation
3. Data collection
(Questionnaire survey)
4. Data collection
(Case study)
5. Data Analysis
6. Findings and
Conclusion
7. Report compilation

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CHAPTER-2: LITERATURE STUDY

2.1 Current real estate market
In India most of the developers invest their own capital in their project.

2.1.1 Problems with investing own capital in a project

Real estate market is risky and volatile. Success of a projects depends on many factors such as market
demand, local culture, timing etc.
Delays in project is very common in the Indian real estate market. If for some reason the project gets
delayed or goes into loss the future planning of developer gets disturbed. Because once the money is
invested in the project, the developer will get back his money(returns) only after the product gets sold,
and after developer gets his money back, he can start other projects.
But at the same time if project is received well in market and product gets sold easily developer gets
all the profit.
So, it is risky for a developer to start a project with only his investment. So, developer should seek
alternative sources of finance.

2.2 RERA
RERA has changed the way developers used to do business. Earlier if a developer wanted to develop
a project and he didn’t have the land he would give some percentage of land value to land owner
which is called “token” or “baanu”(Gujarati word) and he would start the project. As he starts getting
money from sales, he would pay the land owner and remaining money he would spend on developing
the project. This is called working capital method. In India 70% of the project cost were financed by
advance booking. [3]

After RERA, it is compulsory to own the land in order to get the permission for developing. [4] In
this circumstances developer has 2 choices:

1. He has to buy the land before starting the project, which requires huge capital and most of the
developers don’t have that much capital before starting the project.
2. Developer has to go for JV with land owner. In this case Land owner becomes active partner
and majority stake holder in the project. And he has a say in every major decision.

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2.3 Finance option for a developer in India

1. Debt
2. Equity

2.4 Debt
“When a company borrows money to be paid back at a future date with interest it is known as debt
financing. It could be in the form of a secured as well as an unsecured loan. A firm takes up a loan to
either finance a working capital or an acquisition.” [5]
Interest rate can be fixed or floating. In fixed interest rate the rate is fixed before lending the capital.
In floating interest rate, the rate of interest is linked to a benchmark rate and hence remains floating.

2.4.1 Types of debt-based finance

2.4.1.1 Informal source

Finance through informal sources may not require any paper work or any formal process.
Examples
HNIs

2.4.1.2 Formal source

Finance through formal source requires paper work and has a formal process through which borrower
has to go in order to get the finance.
Example
Banks
NBFCs

2.4.1.3 Secured loans

Finance is backed by primary and collateral security in secured loan. Any financial asset can be
collateral. Financier feels secure if borrower provides collateral. In case of default financier can
liquidate the collateral. Risk is less in secured loan and therefore interest rates are lower in secured
loans.
Generally formal financiers give secured loans.

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2.4.1.4 Unsecured loans

Unsecured finance is not backed by any collateral security. If borrower defaults, financier cannot do
anything and has to bear loss. Risk is high and therefore interest rates are higher in unsecured loans
Informal financiers generally give unsecured loans, sometimes formal financiers also give unsecured
loans.
Developers majorly opt for secured loans.

2.4.2 Problems faced by banks

Sector is highly risky
Real estate sector is highly risky, and chances of default are high.

Lack of transparency
Real estate sector is infamous for lack of transparency. Banks do not feel comfortable lending money
to a business with lack of transparency. Sometimes developers lie about their financial data like profits
or sales.

Developer diverts the fund.

Sometimes developers use the sectioned fund for other projects or their personal use.

2.4.3 Problems faced by developer

Providing collateral
Young firms do not have financial assets for providing collateral and young firms need outside
finance the most.

Cost of capital is very high for young firms.

Young firms don’t have proven history, for that lending them money is risky for banks. Banks charge
higher interest rates for young firms because they are taking risk lending them money.

Documentation and approvals.

Banks requires lots of paper work. The process is lengthy and tedious. Also, for approvals banks
require all the financial data of all the partners like assets, data of their previous projects, sometimes
developers don’t feel comfortable sharing these data.

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Interest in case of delays

As mentioned, delays are normal in real estate market. Bank gives developer a repayment schedule.
If developer fails to comply with schedule, he has to bear penalties. If sales don’t take place as planned
developer won’t be able to repay on time and interest keeps on increasing.
Sometimes developer sells his product at much lower rate than planned in order to make repayment
on time. Ultimately this affects the overall profit of developer adversely.

Strict watch of bank.

Banks keep strict watch on every financial activity of the project including cashflows, sales etc.
sometimes developer doesn’t feel comfortable sharing this data.

Land purchase
Land is the biggest investment in any real estate project. Regulation doesn’t allow banks to lend for
land purchase. Any developer’s biggest need for outside finance would be capital for land purchase.

2.5 Equity.
“Equity finance is a method of raising fresh capital by selling shares of the company to public,
institutional investors, or financial institutions. The people who buy shares are referred to as
shareholders of the company because they have received ownership interest in the company.” [6]
In equity-based finance, financer receives a part of company. Financer’s Risk is high in equity-based
finance because if company makes loss or defaults, he has to bear the loss. Generally, there is no
maximum cap set on return. Financer receives his share of profit.

2.5.1 Types of equity

2.5.1.1 Private equity

When a company raises finance privately with limited number of chosen investors, it is called private
equity finance.

2.5.1.2 Public equity

When a company is listed on a recognized stock exchange and raises finance from public through
IPOs/FPOs, it is called public equity finance.

2.5.2 Types of investors

Majorly two types of financers invest in private equity.
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2.5.2.1 Financial Institutes/Funds

Sometimes financial institutes like NBFCs invest in private equity. Also, there are dedicated real-
estate funds managed by financial institutes that only invest in private equity. PE funds pool the
capital from investors and invest in different projects.

Problems
They generally only invest in tier 1 cities. Tier 1 cities like Mumbai Delhi.
They only invest in large scale projects like malls, town ships, commercial complexes.
They only finance big developers like DLF.

The average deal size of institutional PE investment is around 50 million USD. In 2017
Gurugram(56.4%) and Mumbai(39.8%) attracted 96.2% of the total PE investment.
These are some deals took place in 2017. [7]

Table 2.1 Pe deals took place in 2017

Date Developer Investor Deal value
(usd mn)
8-Mar-17 DLF Cyber City Developers Ltd. GIC Pte. Ltd, others 1,800
15-May-17 Indospace Core CPP Investment Board 500
8-Feb-17 K Raheja, Commercial Assets Blackstone Advisors India Pvt. 300
Ltd
5-Apr-17 Island Star Mall Developers Pvt. CPP Investment Board 246
Ltd.
9-Feb-17 L and T Seawoods Ltd. Blackstone Advisors India Pvt. 212
Ltd.

2.5.2.2 HNIs
HNIs are individuals with investible assets of 2 crore INR. Generally, HNIs invest small amount of
capital as compare to PE funds. Majorly HNIs invest in real estate PE.

Problems

Voting rights.
Generally voting rights are linked with equity. If someone receives equity, he also gets voting rights
of that company in proportion to his share.
HNIs come from all different sectors and markets, so not necessarily they have knowledge of how
real estate market works. Since they have voting rights developer has to consult investors in every
major decision. If an HNI has more stake than developer, developer has to comply with him even if
HNI takes wrong decision due to lack of knowledge or experience of real estate market.

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Lesser number of players in the sector.

Due to issues like lack of transparency, risk and volatility HNIs do not prefer real estate to invest.
Mostly who invest in real estate sector, invest in completed properties.
Also, many of the HNIs do not prefer to invest directly into real estate. They invest in real estate
mutual funds or real estate PE fund.
Lesser practiced avenues of finance

2.6 IPOs/FPOs
• Private company wants to raise fund from public, company launches it’s IPOs and get listed
on recognized stock exchange.
• Company raises money from public strategically in stages. After launching IPOs company
raises money through FPOs

Problems

• Smaller firms or firms with no proven history can not raise fund through IPOs.
• Raising fund through IPOs is very costly it requires lots of paperwork and approvals also once
company is listed, they have to share their all financial data with public
• Real estate developer firms’ stocks are one of the worst performing stocks in India for that
reason investors generally do not invest in real estate IPOs.

2.7 REITs

• Real Estate Investment Trust (REIT) is just like mutual fund. A financial institute raises
money from public and then invest that money into different real estate.
• According to SEBI guideline for REITS any REIT must invest minimum 80% of the money
into completed rent generating properties. [8]
• Remaining 20% they can invest in real estate stocks, bonds, real estate mutual fund, in
developing the property. Also, SEBI has directed that REIT must hold the property for at least
3 years if REIT has financed the project. [8]

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CHAPTER-3: MODEL DEVELOPMENT

After studying all financial avenues and their problems it was found that there is a need of a new
financial mode for Indian real estate market.

Such model is presented here:

3.1 Concept:
Private equity pool funding
Normally shares of a company is floated and traded but in this model shares of project will be floated
but not traded. Investors can buy shares and invest in particular project. Investor will invest in project
and not in the developer firm handling the project. In return investor will receive equity of project.
Developer will start the project with raised fund and investors will receive their part of profit after
sales take place.
Shares will not be floated on any stock exchange so the traded equity will be private equity. And since
we are pooling the fund from number of investors it is pool funding.

3.2 Legal structure:

Currently this model is not being practiced anywhere in the world, so legal framework is not available.
This model is developed by making some changes in the present legal structure.

3.2.1 Company legal structure

• Developer will have to form and register a separate subsidiary company for a project. That
newly created subsidiary company will be a private limited company.
• That newly created company will be dissolved compulsorily after completion of the project.
At the time of dissolving the company every share holder will receive his share of profit.

It is legal for a private limited company to from a subsidiary company and to dissolve it.

There are major 2 changes needed in the regulations provided for private limited company in
companies act for suggested model to work.

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3.2.1.1 Number of shareholders.

Regulation:
• According to Companies Act,2013 maximum share holder for a private limited company in
India is 200.
Problem:
• The main theme of this model is that for pooling large capitals, smaller investors should be
included because number of small investors is very high in Indian market.
• Real estate project requires huge amount of capital. If number of share holder is less than
investment per share holder will be very high.
• For example, if project size is 10 cr and there are 200 share holders, investment per share
holder will be 5 lakhs. There are smaller number of investors who can invest 5 lakhs into one
asset.

Suggestion:
• Maximum number of shareholders should be 500 or 1000, so that investment per shareholder
can be reduced and more number of investors can be attracted.
• So, if the project size is 10 cr. for 500 shareholders investment per shareholder will be 2 lakhs
and for 1000 shareholders ticket size will be 1 lakh.
• Eventually there should be no limit on maximum number of shareholders.
• Share price should be around 20,000-30,000 so that more people can invest.

3.2.1.2 Voting right

Problem:
• In real estate project decisions have to be taken on daily basis.
• If shareholders have voting rights, their approval will be required before taking every major
decision.
• That can be much more complicated and there will be delays in every decision.
• Also, shareholders may not have expertise regarding real estate market so they will not be
able to take right decision.

Suggestion:
• Share holder should not have any voting rights.
• So that developer can take faster and right decisions independently.

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3.3 Escrow account

• In escrow account third party hold the assets as per terms agreed by both parties. That third
party is called “ESCROW AGENT” or “TRUSTEE”.
• A trustee in escrow account regulates the release of funds.
• Generally, escrow account is used in house loans financer bank itself acts as trustee and as per
work progresses bank releases funds.
• For this model any financial institution can become trustee.
• Developer can give his work schedule to trustee and trustees may release funds according to
work schedule after inspection of work.
• Alternatively, developer can submit bills to the trustee and trustee can make payment from
the raised fund directly.
• Every project must have a separate escrow account. If same developer is raising funds for 3
different projects, he has to open 3 accounts, separate account for each project.

3.4 Share holder

• Share holder will not have any voting rights.
• There will be a platform on which all the projects will be listed with all the information and
Shareholder will be able to choose the project they want to invest in.
• Share holder will not be able to buy or sell shares during the project. As valuation of a share
during the project cycle will be very complicated to do.
• After investor invests the money, he will get back his money only after completion of the
project. Investor’s money will be locked down for entire project lifecycle.

3.5 Developer
• Developer must invest his own money in the project so that investors feel safe investing in his
project. If developer’s own capital is invested in project, he will have the incentive to work
hard and earn more profit.
• What amount of percentage developer must invest can be decided after inspecting the riskiness
of project and history of developer. If project is risky developer will have to invest more like
30-40% so that other investor feels comfortable investing. Also, if developer has history of
defaults and delays, he will have to invest more so that other investor feels comfortable
investing.
• Developer must have rating from national level rating agency so that investors can know about
developer
• Developer must provide data of all his previous projects so that investors can know about his
history like what type of project he has done.

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• Any RERA penalties related to delay of work will have to be paid by developer and not from
raised money.

3.6 Equity
Developer will be able to choose which type of equity he wants to float.
Developer can go for normal equity or quasi equity.

3.6.1 Qausi equity

In qausi equity the maximum return on a share is fixed beforehand, investor will only receive return
upto certain percent. In case of loss, company doesn’t owe anything, and investor has to bear the loss.
Quasi equity has characteristics of both equity and debt.
For example, a developer has chosen qausi equity in a project. Shares have been issued at a price of
20,000 INR and the cap on maximum return was fixed at 25% return or profit of 5,000 INR. After
completion of project profit came out to be 6,000 INR per share. So, investor will only get 5,000 INR
as agreed upon extra 1,000 INR will go to developer.

3.7 Overall benefits of model

• As this model requires lot of paper work, formal process and compliance, sector will become
more organized.
• Liquidity will be increased in market because so many investors will invest their money in the
market.
• As developer will get finance easily the number of projects will be increased with that supply
in the market will be increased and price of real estate will drop.
• Developers will be able to execute more creative and risky projects as risk is shared with other
investors.
• Projects which are socially important but less profitable can be funded like affordable housing,
student housing etc.
• Developers will be able to execute large scale projects which require large capital because
they can raise the fund from market.
• This model requires lots of paper work and all the finance go through bank account, amount
of black money in the sector will be reduced.

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3.8 Theocratical implication of designed model

If Sangath Pvt. Ltd. wants to raise fund for a project.
• Project name: Sangath Greens
• Sangath Greens Pvt. Ltd. will be created.
• If project cost is 10 Cr. INR and share price is 25,000 INR.
• Total number of shares will be 4000, those shares will be floated.
• If Sangath Pvt. Ltd. wants to hold 20% of the project, they will have to buy 800 shares for 2
Cr. INR.
• If developer makes profit of 2 Cr. INR, shareholder will receive 5,000 INR per share.
(All data and names are hypothetical, taken for just explaining the model)

Sangath Pvt. Other Investors

Ltd.

2 Cr.
8 Cr.

Escrow Account

Sangath Green Pvt.

Ltd. 2.4 Cr. 9.6 Cr.
Sangath
Pvt. Ltd.
20%
Sangath Pvt. Other investors
Ltd.
Other
Investors
80%

FIGURE 3.1 MODEL

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If Sangath Private Limited wants to raise fund for a project the procedure will be as per below.
Sangath Pvt. Ltd. Will have to create a new subsidiary pvt ltd company named after the project.
Here it would be Sangath Greens Pvt. Ltd.
A new escrow account will be opened in the name of Sangath Greens Pvt. Ltd with a financial
institute being trustee of that account.
Developer will make necessary drawings and prepare BOQ of the project from BOQ, cost of the
project can be known.
Here cost of the project is assumed to be 10 Crores INR.
Share price that is price of one share at the time of floating is then decided for attracting larger quantity
of investors share price should be around 20,000-30,000 INR. Here we have assumed it to be 25,000
INR.
So total numbers of shares floated will be:
= 10 Cr./25,000
= 4,000.
If developer that is Sangath Pvt. Ltd. wants to hold 20% of the Sangath Greens Pvt. Ltd, developer
has to buy 800 shares (4000*0.2) for 2 Cr. INR.
= 800 * 25,000
= 2 Cr. INR.
Remaining 3200 shares worth 8 Cr INR will be floated for other investors to buy.
All the raised fund of 10 Cr. (2 Cr. from developer and 8 Cr. from other investors) will be deposited
in the escrow account.
Developer makes profit of 2 Cr. INR in the project.
Profit per share = 2 Cr./4,000
= 5,000 INR
Price of share at the end of the project = Share price at the time of investment + PROFIT
= 25,000 + 5,000
= 30,000 INR
Developer will receive 2.4 Cr. and other investor will receive 9.6 Cr.
Developer = 800 * 30,000 = 2.4 Cr. INR.
Other investors = 3200* 30,000 = 9.6 Cr. INR.
After distributing the profit Sangath Greens Pvt. Ltd. will be dissolved.

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CHAPTER -4: SURVEY AND CASE STUDY

4.1 Survey
Interview of 10 participants were done regarding this model.
Participants were explained the entire model in person then their questions were answered, and their
responses were taken.
Total participants: 10

5 Experienced participants

• 3 Experienced developers
• 1 Real estate investor
• 1 Contractor/ small scale developer

5 Young participants

IF PROJECT IS VIABLE OR NOT?

Participants Yes No

Young 5 0

Experienced 4 1

DO YOU THINK THIS MODEL COULD WORK?

Participants Yes No

Young 3 2

Experienced 4 1

DO YOU THINK REAL ESTATE MARKET NEEDS A NEW FINANCIAL MODEL?

Participants Yes No

Young 5 0

Experienced 5 0

HOW MUCH POTENTIAL THIS MODEL HAS,TO CHANGE CURRENT REAL ESTATE
FINANCE MARKET ?
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Avg: 3.11
Avg of Young participants: 3.5
Avg of Experienced participants: 2.8

HOW LIKELY ARE YOU TO ADOPT THIS MODEL IN YOUR PROJECT?

Avg: 3.44
Avg of Young participants: 3.25
Avg of Experienced participants: 3.6
(Ratings were to be given on the scale of 1 to 5.)

WHICH TYPE OF DEVLOPER ARE LIKELY TO OPT FOR THIS MODEL?

Table 4.1 type of developer

SMALL
ALL 0%
25%

MEDIUM
37%

LARGE
38%

FIGURE 4.1 TYPE OF DEVELOPER

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WHICH TYPE OF DEVLOPER ARE LIKELY TO OPT FOR THIS MODEL?

Table 4.2 type of project

RESIDENTIAL
COMMERCIAL
0%
12%
INFRASTRUCTURE MIXED
25% 0%

ALL
63%

FIGURE 4.2 TYPE OF PROJECT

WHAT ARE THE BENEFITS OF THIS MODEL ACCORDING TO YOU?

Benefits to the developer.
• Risk is shared.
• Developer can concentrate on site work as he doesn’t have to stress about financing.
• Developer can launch project will much lesser capital.
• Finance will be easy to get and unlimited amount can be raised.
Benefits to the investor.
• Best investment for small capital in terms of return.
• Comparatively safer investment.
• Good diversification option for institutional investor and HNIs also.
Benefits to the sector.
• More idle money will come into circulation and eventually economy will grow.
• Sector will become more organized.
• Sector will be more competitive.
• Number of project default will be reduced.

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WHAT ARE THE FLAWS OF THIS MODEL ACCORDING TO YOU?

• Developer will have to do all the work and his return will be lower.
• Not a legally approved model.
• Too much documentation will be required.
• Cost of capital will be higher for small capital.
• It will be difficult for young firms to raise fund.

WHAT ARE YOUR SUGGESTIONS TO IMPROVE THIS MODEL?

• Better channel for communication.
• Easy exit option should be provided.
• More than 50% of the project should be held by developer.
• Funds should be raised in installments.
Ideally in 3 stages 30%,40%,30%
• Loss should be borne by developer.
• A clause should be made that for raising fund it must be a green project.
• Investment should be linked with developers’ assets.

During interview Mr. Himanshu Shah suggested that this model is also suitable for infrastructure
projects and below are the reasons for that:

• Infrastructure project requires very large amount of capital.

• In some projects client clears bill after partial completion of project. So, contractor needs
capital for initial work.
• Detailed tender document is already being drafted and available.
• In most cases client is government, so investor feels safe.
• Sector will become much more transparent.

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4.2 CASE STUDY

Analysis
In this analysis the incremental profit with designed model are calculated. Incremental profit is the
increase in the profit if suggested model was used.
Savings of the model
In designed model the money will be raised through equity hence no debt will be taken. So there will
not be any interest on debt that have to be paid. That amount of interest is saved in designed model
as in old model developer had to pay the interest on debt(loan). Also, bank charges will be saved as
there is no debt(loan) taken from bank.
Developer will have enough fund to complete the project as per schedule, so there will not be any
RERA penalties for delayed work. Penalties paid for delayed work could be saved in designed model.
In designed model the profit will be distributed as dividends to the shareholders so dividend
distribution tax will be paid, which is 20.36%
Add
Developer will earn interest on the uninvested capital. For example, if promoter’s stake is 25% in the
project that means he will invest 25% of the total project cost remaining 75% he will raise though
suggested model.
He can earn interest on that 75% capital that otherwise he would have invested in the project.
Less
The investors that have invested in our project in equity form could have earned the interest by just
giving the loan in the old model (actual model used in project). By investing in equity, they are losing
the interest that could have earned. So, interest must be deducted of all loan taken in actual project.

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4.2.1 Case study 1 Kadamb Villas

Developer: Shyamal developers

Area: Bhat

Type of product: 5 BHK villas

Number of units: 25

This project is not on prime location project was not well received by market and product turned into
dead stock.

3 cases are taken in which developer’s stakes are 25%,10%,50% remaining part is raised though
suggested model.

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Table 4.3 Balance sheet of kadamb villa

Shyamal Developers Shyamal Developers Shyamal Developers Shyamal Developers Shyamal Developers
as at 31-Mar-2015 as at 31-Mar-2016 as at 31-Mar-2017 as at 31-Mar-2018 as at 31-Mar-2019
Sources of Funds :
Capital Account 216871.00 4585980.00 24980166.00 7581277.26 26818107.26
Loans (Liability) 250000.00 1092614.00 6958116.00 13547634.00 9734841.00
Promoters' Capital 25% 116,717.75
1,419,648.50 7,984,570.50 5,282,227.82 9,138,237.07
Other Share Holders 75% 350,153.25
466,871.00 4,258,945.50 5,678,594.00 23,953,711.50 31,938,282.00 15,846,683.45 21,128,911.26 27,414,711.20 36,552,948.26
Promoters' Capital10 46,687.10
567,859.40 3,193,828.20 2,112,891.13 3,655,294.83
Other Share Holders 90% 420,183.90
466,871.00 5,110,734.60 5,678,594.00 28,744,453.80 31,938,282.00 19,016,020.13 21,128,911.26 32,897,653.43 36,552,948.26
Promoters' Capital 50% 233,435.50
2,839,297.00 15,969,141.00 10,564,455.63 18,276,474.13
Other Share Holders 50% 233,435.50
466,871.00 2,839,297.00 5,678,594.00 15,969,141.00 31,938,282.00 10,564,455.63 21,128,911.26 18,276,474.13 36,552,948.26
Current Liabilities 144515.00 9645691.00 21070824.18 116956489.34 157974817.64
Duties & Taxes 3515.00 157144.00 215245.00 3058706.84 -2377969.68
Provisions -2272.00
Sundry Creditors 141000.00 9488547.00 17720579.18 37869641.50 21872786.32
GST RECEIVED FROM MEMBER 2994000.00 9244588.00
MEMBER CONTRIBUTION 3000000.00 73036413.00 129235413.00
SERVICE TAX RECEIVED FROM 135000.00
MEMBER
Profit & Loss A/c -53371182.33
Opening Balance
Current Period 1051701.26 53371182.33
Total 611386.00 15324285.00 53009106.18 138085400.60 141156583.57
Application of Funds :
Fixed Assets 49395.00 41985.00 35687.00 35687.00
AIR CONDITIONER (PANASONIC) 42550.00 36167.00 30742.00 30742.00
REFRIDGERATOR VIDEOCON 6845.00 5818.00 4945.00 4945.00
Current Assets 611386.00 15274890.00 52967121.18 138049713.60 141120896.57
Closing Stock 511955.00 14151059.62 51421721.90 135122204.00 135122204.00
Deposits (Asset) 26216.00 43497.00 36216.00 36216.00 55250.00
Loans & Advances (Asset) 12360.00 211503.00 524972.90 200000.00 160000.00
Cash-in-hand 46384.00 462169.00 632522.00 398252.00 274025.00
Bank Accounts 14471.00 397211.38 351688.38 2267941.60 5484317.57
PREPAID INSURANCE 9450.00 25100.00 25100.00
Total 611386.00 15324285.00 53009106.18 138085400.60 141156583.57

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Table 4.4 Profit and Loss of kadamb villa

Shyamal Developers Shyamal Developers Shyamal Developers Shyamal Developers Shyamal Developers
Particulars 1-Apr-2014 to 31-Mar-2015 1-Apr-2015 to 31-Mar-2016 1-Apr-2016 to 31-Mar-2017 1-Apr-2017 to 31-Mar-2018 1-Apr-2018 to 31-Mar-2019

Trading Account :
Sales Accounts 3,75,61,817
Sale of Bunglow 3,27,93,862
Sale of Construction Agreement 47,67,955

Direct Incomes (1,997) 549 17,126 34,364

(1,997) 549 3,75,78,943 34,364
Cost of Sales : (4,745) (1,43,316) (18,96,142) 3,29,36,571 4,58,39,402
Opening Stock 5,11,955 1,41,51,060 5,14,21,722 13,51,22,204
Add: Purchase Accounts 2,49,810 68,82,402 1,51,75,488 9,39,34,108 2,57,47,638
Less: Closing Stock 5,11,955 1,41,51,060 5,14,21,722 13,51,22,204 13,51,22,204
2,62,145 67,56,703 2,20,95,174 1,02,33,626 2,57,47,638
Direct Expenses (2,57,400) (66,13,387) (2,01,99,032) 2,27,02,945 2,00,91,764
INTEREST EXP.UN.LOAN 1,02,904 1,31,113 11,55,020 9,27,453
Gross Profit : 4,745 1,41,319 18,96,691 46,42,372 (4,58,05,037)
Income Statement :
Indirect Incomes 63,51,750
4,745 1,41,319 18,96,691 1,09,94,122 4,58,05,037
Indirect Expenses 4,745 1,41,319 18,96,691 99,42,421 75,66,145
RERA PENALTY EXP. 73,009
Nett Profit : 10,51,701 (5,33,71,182)

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Table 4.5 Modelling with promoter stake 10%

Shyamal Developers Shyamal Developers Shyamal Developers Shyamal Developers Shyamal Developers

Particulars 1-Apr-2015 to 31-Mar- 1-Apr-2015 to 31-Mar- 1-Apr-2016 to 31-Mar- 1-Apr-2017 to 31-Mar- 1-Apr-2018 to 31-Mar-
2016 2016 2017 2018 2019
Savings of the Model: Total
Interest (Unsec Dep + Bank Loan) 1,02,904 1,31,113 11,55,020 9,27,453 23,16,490.00
Bank Loan Charges 69 724 48 1,832 2,757 5,429.84
Incidental Financial Charges '@2% of Total
Loan 6,31,664.10
RERA panelty 73,009 73,009.44

Total Savings 30,26,593.38

Less: Dividend Distribution Tax 6,16,214.41

Dividend Distributed to Share Holders 24,10,378.97

Add:
Alternative Investment of 4,20,183.90 51,10,734.60 2,87,44,453.80 1,90,16,020.13 3,28,97,653.43
90% of Public Funding

Interest @ Secured Rate @7% 29,412.87 3,57,751.42 20,12,111.77 13,31,121.41 23,02,835.74 60,03,820.34

Net Gain to Share Holders 84,14,199.31

Less:
Returns as per Old Model

Interest on Unsec Loans 1,02,904.00 1,31,113.00 11,55,020.00 9,27,453.00 23,16,490.00

Incremental Returns with our Model 60,97,709.31

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Table 4.6 Modelling with promoter stake 25%

Shyamal Developers Shyamal Developers Shyamal Developers Shyamal Developers Shyamal Developers

Particulars 1-Apr-2015 to 31-Mar- 1-Apr-2015 to 31-Mar- 1-Apr-2016 to 31-Mar- 1-Apr-2017 to 31-Mar- 1-Apr-2018 to 31-Mar-
2016 2016 2017 2018 2019
Savings of the Model: Total
Interest (Unsec Dep + Bank Loan) 1,02,904 1,31,113 11,55,020 9,27,453 23,16,490
Bank Loan Charges 69 724 48 1,832 2,757 5,429.84
Incidental Financial Charges '@2% of Total
Loan 6,31,664.10
RERA panelty 73,009 73,009.44

Total Savings 30,26,593.38

Less: Dividend Distribution Tax 6,16,214.41

Dividend Distributed to Share Holders 24,10,378.97

Add:
Alternative Investment of 3,50,153.25 42,58,945.50 2,39,53,711.50 1,58,46,683.45 2,74,14,711.20
75% of Public Funding

Interest @ Secured Rate @7% 24,510.73 2,98,126.19 16,76,759.81 11,09,267.84 19,19,029.78 50,03,183.61

Net Gain to Share Holders 74,13,562.58

Less:
Returns as per Old Model

Interest on Unsec Loans 1,02,904.00 1,31,113.00 11,55,020.00 9,27,453.00 23,16,490.00

Incremental Returns with our Model 50,97,072.58

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Table 4.7 Modelling with promoter stake 50%

Shyamal Developers Shyamal Developers Shyamal Developers Shyamal Developers Shyamal Developers

Particulars 1-Apr-2015 to 31-Mar- 1-Apr-2015 to 31-Mar- 1-Apr-2016 to 31-Mar- 1-Apr-2017 to 31-Mar- 1-Apr-2018 to 31-Mar-
2016 2016 2017 2018 2019
Savings of the Model: Total
Interest (Unsec Dep + Bank Loan) 1,02,904 1,31,113 11,55,020 9,27,453 23,16,490
Bank Loan Charges 69 724 48 1,832 2,757 5,429.84
Incidental Financial Charges '@2% of Total
Loan 6,31,664.10
RERA penalty 73,009 73,009.44

Total Savings 30,26,593.38

Less: Dividend Distribution Tax 6,16,214.41

Dividend Distributed to Share Holders 24,10,378.97

Add:
Alternative Investment of 2,33,435.50 28,39,297.00 1,59,69,141.00 1,05,64,455.63 1,82,76,474.13
50% of Public Funding

Interest @ Secured Rate @7% 16,340.49 1,98,750.79 11,17,839.87 7,39,511.89 12,79,353.19 33,35,455.74

Net Gain to Share Holders 57,45,834.71

Less:
Returns as per Old Model

Interest on Unsec Loans 1,02,904.00 1,31,113.00 11,55,020.00 9,27,453.00 23,16,490.00

Incremental Returns with our Model 34,29,344.71

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4.2.2 Case study 2: Saya Skyz

Developer: Aastha Enterprise
Area: Vaishnodevi Circle
Type of product: 3BHK apartment
Number of units: 144
Number of towers: 3
This project id located at prime location and it’s sales were good and developer made profit.

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Table 4.8 Balance sheet of Savya

Aastha Enterprise Aastha Enterprise Aastha Enterprise Aastha Enterprise
as at 31-Mar-2016 as at 31-Mar-2017 as at 31-Mar-2018 as at 31-Mar-2019
Sources of Funds :
Capital Account - - - -
Original Capital 40,342,040.00 45,591,468.00 72,258,981.00 18,236,727.00
Loans 9,892,541.00 53,508,104.00 92,245,812.00 -
Total Capital Required 50,234,581.00 99,099,572.00 164,504,793.00 18,236,727.00
Promoters' Capital 25% 12,558,645.00 24,774,893.00 41,126,198.00 4,559,182.00
Other Share Holders 75% 37,675,936.00 50,234,581.00 74,324,679.00 99,099,572.00 123,378,595.00 164,504,793.00 13,677,545.00 18,236,727.00
Promoters' Capital 90% 5,023,458.10 9,909,957.20 16,450,479.30 1,823,672.70
Other Share Holders 10% 45,211,122.90 50,234,581.00 89,189,614.80 99,099,572.00 148,054,313.70 164,504,793.00 16,413,054.30 18,236,727.00
Promoters' Capital 50% 25,117,290.50 49,549,786.00 82,252,396.50 9,118,363.50
Other Share Holders 50% 25,117,290.50 50,234,581.00 49,549,786.00 99,099,572.00 82,252,396.50 164,504,793.00 9,118,363.50 18,236,727.00

Current Liabilities 1,992,581.00 9,375,351.00 4,307,184.00 642,746.00

Duties & Taxes 72,122.00 316,301.00 (5,408,140.00) (15,846.00)
Provisions 150,139.00 224,954.00 181,041.00
Sundry Creditors 1,770,320.00 8,834,096.00 9,534,283.00 658,592.00
Profit & Loss A/c 57,683,168.80
Opening Balance
Current Period 57,683,168.80
Total 52,227,162.00 108,474,923.00 168,811,977.00 76,562,641.80
Application of Funds :
Fixed Assets 73,109.00 29,244.00 17,546.00 17,546.00
Computer & Printer & CC TV 73,109.00 29,244.00 17,546.00 17,546.00
Current Assets 65,916,266.00 182,039,767.00 316,642,258.00 110,306,728.80
Closing Stock 62,817,532.00 174,155,000.00 301,528,000.00 100,500,000.00
Cash-in-hand 14,295.00 27,519.00 59,437.00 (12,446.00)
Bank Accounts 1,138,490.00 1,837,849.00 157,004.00 117,279.80
FD Fedral Bank A/c 702,736.00 5,428,577.00 787,844.00
FD Vijaya Bank Vplatinium A/c 1,292,223.00 24,998.00
GST on Member Collection 3,830,076.00 990,872.00
Income Tax 13,555.00 23,614.00 349,000.00 7,000,000.00
Service Tax 618,796.00 5,258,051.00 5,280,164.00 913,179.00
Vat Deposit 10,000.00 10,000.00 10,000.00 10,000.00
Vat Paid Adv. 11,375.00
Savya Member's BU 2/5/18 (13,762,213.00) (73,594,088.00) (147,847,827.00) (33,761,633.00)
Member Block A 5,043,112.00 32,220,837.00 57,954,526.00 15,290,998.00
Member Block B 5,609,101.00 23,211,001.00 40,691,100.00 10,390,989.00
Member Block C 3,110,000.00 18,162,250.00 49,202,201.00 8,079,646.00
Total 52,227,162.00 108,474,923.00 168,811,977.00 76,562,641.80

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Table 4.9 Profit and Loss of Savya

Aastha Enterprise Aastha Enterprise Aastha Enterprise Aastha Enterprise

Particulars 1-Apr-2015 to 31-Mar-2016 1-Apr-2016 to 31-Mar-2017 1-Apr-2017 to 31-Mar-2018 1-Apr-2018 to 31-Mar-2019

Trading Account :

Sales Accounts 28,64,46,502.00

Sale As Per Agreement 28,64,46,502.00

Cost of Sales : (44,55,398.00) - (1,00,60,417.00) - (1,56,71,059.00) - 22,32,59,204.00

Opening Stock 6,28,17,532.00 17,41,55,000.00 30,15,28,000.00

Add: Purchase Accounts 1,39,19,302.00 6,38,22,224.00 6,71,15,340.00 54,73,422.00

Less: Closing Stock 6,28,17,532.00 17,41,55,000.00 30,15,28,000.00 10,05,00,000.00

balance stock 4,88,98,230.00 - 4,75,15,244.00 - 6,02,57,660.00 - (20,65,01,422.00) -

Direct Expenses (4,44,42,832.00) (3,74,54,827.00) (4,45,86,601.00) (1,67,57,782.00)

Gross Profit : 44,55,398.00 1,00,60,417.00 1,56,71,059.00 6,31,87,298.00

Add: Indirect Incomes 2,03,134.00 3,10,571.00 4,00,541.00 32,881.00

46,58,532.00 1,03,70,988.00 1,60,71,600.00 6,32,20,179.00

Less: Indirect Expenses 46,58,532.00 1,03,70,988.00 1,60,71,600.00 55,37,010.20

Interest Exp. 3,34,083.00 26,47,763.00 39,11,034.00 16,48,639.00

Interest Exp. Bank Loan 9,10,048.00 42,42,209.00 22,00,326.00

Nett Profit : - - - 5,76,83,168.80

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Table 4.10 Modelling with promoter stake 10%

Aastha Enterprise Aastha Enterprise Aastha Enterprise Aastha Enterprise

Particulars 1-Apr-2015 to 31-Mar-2016 1-Apr-2016 to 31-Mar-2017 1-Apr-2017 to 31-Mar-2018 1-Apr-2018 to 31-Mar-2019

Savings of the Model: Total
Interest (Unsec Dep + Bank Loan) 3,34,083.00 35,57,811.00 81,53,243.00 38,48,965.00 1,58,94,102.00
Bank Loan Charges - 10,51,000.00 15,000.00 - 10,66,000.00

Incidental Financial Charges '@2% of Total Loan 31,12,929.14

Total Savings 2,00,73,031.14

Less: Dividend Distribution Tax 40,86,869.14

Dividend Distributed to Share Holders 1,59,86,162.00

Add:
Alternative Investment of 4,52,11,122.90 8,91,89,614.80 14,80,54,313.70 1,64,13,054.30
90% of Public Funding

Interest @ Secured Rate @7% 31,64,778.60 62,43,273.04 1,03,63,801.96 11,48,913.80 2,09,20,767.40

Net Gain to Share Holders 3,69,06,929.40

Less:
Returns as per Old Model

Interest on Unsec Loans 3,34,083.00 35,57,811.00 81,53,243.00 38,48,965.00 1,58,94,102.00

Incremental Returns with our Model 2,10,12,827.40

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Table 4.11 Modelling with promoter stake 25%

Aastha Enterprise Aastha Enterprise Aastha Enterprise Aastha Enterprise

Particulars 1-Apr-2015 to 31-Mar-2016 1-Apr-2016 to 31-Mar-2017 1-Apr-2017 to 31-Mar-2018 1-Apr-2018 to 31-Mar-2019

Savings of the Model: Total
Interest (Unsec Dep + Bank Loan) 3,34,083.00 35,57,811.00 81,53,243.00 38,48,965.00 1,58,94,102.00
Bank Loan Charges - 10,51,000.00 15,000.00 - 10,66,000.00

Incidental Financial Charges '@2% of Total Loan 31,12,929.14

Total Savings 2,00,73,031.14

Less: Dividend Distribution Tax 40,86,869.14

Dividend Distributed to Share Holders 1,59,86,162.00

Add:
Alternative Investment of 3,76,75,936.00 7,43,24,679.00 12,33,78,595.00 1,36,77,545.00
75% of Public Funding

Interest @ Secured Rate @7% 26,37,315.52 52,02,727.53 86,36,501.65 9,57,428.15 1,74,33,972.85

Net Gain to Share Holders 3,34,20,134.85

Less:
Returns as per Old Model

Interest on Unsec Loans 3,34,083.00 35,57,811.00 81,53,243.00 38,48,965.00 1,58,94,102.00

Incremental Returns with our Model 1,75,26,032.85

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Table 4.12 Modelling with promoter stake 50%

Aastha Enterprise Aastha Enterprise Aastha Enterprise Aastha Enterprise

Particulars 1-Apr-2015 to 31-Mar-2016 1-Apr-2016 to 31-Mar-2017 1-Apr-2017 to 31-Mar-2018 1-Apr-2018 to 31-Mar-2019

Savings of the Model: Total
Interest (Unsec Dep + Bank Loan) 3,34,083.00 35,57,811.00 81,53,243.00 38,48,965.00 1,58,94,102.00
Bank Loan Charges - 10,51,000.00 15,000.00 - 10,66,000.00

Incidental Financial Charges '@2% of Total Loan 31,12,929.14

Total Savings 2,00,73,031.14

Less: Dividend Distribution Tax 40,86,869.14

Dividend Distributed to Share Holders 1,59,86,162.00

Add:
Alternative Investment of 2,51,17,290.50 4,95,49,786.00 8,22,52,396.50 91,18,363.50
50% of Public Funding

Interest @ Secured Rate @7% 17,58,210.34 34,68,485.02 57,57,667.76 6,38,285.45 1,16,22,648.56

Net Gain to Share Holders 2,76,08,810.55

Less:
Returns as per Old Model

Interest on Unsec Loans 3,34,083.00 35,57,811.00 81,53,243.00 38,48,965.00 1,58,94,102.00

Incremental Returns with our Model 1,17,14,708.55

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4.2.3 Case study 3: Shubh Aangan

Developer: Shubh Developers
Area: Ranip
Type of product: Flats and shops
Number of units: 99 flats, 11 shops
Number of towers: 3
This project id located at prime location and it’s sales were good and developer made profit.

Table 4.11 promoter stake 50%

Table 4.12 promoter stake 50%

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Table 4.13 Balance sheet of Shubh Aangan

SHUBH SHUBH SHUBH SHUBH SHUBH SHUBH
DEVLOPERS DEVLOPERS DEVLOPERS DEVLOPERS DEVLOPERS DEVLOPERS
as at 31-Mar-2014 as at 31-Mar-2015 as at 31-Mar-2016 as at 31-Mar-2017 as at 31-Mar-2018 as at 31-Mar-2019
Sources of
Funds :
Capital
Account 1,00,000.00 2,01,556.30 54,12,261.09 79,78,234.84 1,12,00,927.68 1,07,72,477.68
Loans
(Liability) 4,00,000.00 87,00,000.00 89,50,000.00 88,50,000.00 1,50,32,000.00 1,50,32,000.00
Promoters'
Capital 25% 1,25,000.00 22,25,389.08 35,90,565.27 42,07,058.71 65,58,231.92 64,51,119.42
Other Share
Holders 75% 3,75,000.00 5,00,000.00 66,76,167.23 89,01,556.30 1,07,71,695.82 1,43,62,261.09 1,26,21,176.13 1,68,28,234.84 1,96,74,695.76 2,62,32,927.68 1,93,53,358.26 2,58,04,477.68
Promoters'
Capital 10% 50,000.00 8,90,155.63 14,36,226.11 16,82,823.48 26,23,292.77 25,80,447.77
Other Share
Holders 90% 4,50,000.00 5,00,000.00 80,11,400.67 89,01,556.30 1,29,26,034.98 1,43,62,261.09 1,51,45,411.36 1,68,28,234.84 2,36,09,634.91 2,62,32,927.68 2,32,24,029.91 2,58,04,477.68
Promoters'
Capital 50% 2,50,000.00 44,50,778.15 71,81,130.55 84,14,117.42 1,31,16,463.84 1,29,02,238.84
Other Share
Holders 50% 2,50,000.00 5,00,000.00 44,50,778.15 89,01,556.30 71,81,130.55 1,43,62,261.09 84,14,117.42 1,68,28,234.84 1,31,16,463.84 2,62,32,927.68 1,29,02,238.84 2,58,04,477.68

Current
Liabilities 21,27,702.00 1,51,14,550.00 4,76,75,113.00 9,88,62,009.00 5,62,01,868.00 5,51,79,966.00
Duties &
Taxes (3,89,740.00) (35,08,819.00) (46,10,547.00)
Provisions
17,55,000.00 1,37,55,000.00 2,57,55,000.00 1,31,82,141.00 1,31,82,141.00
Sundry
Creditors 21,27,702.00 1,33,59,550.0 3,22,50,113.00 7,03,01,749.00 4,65,28,546.00 4,63,93,584.00
0
Cancelled
Flat 16,70,000.00 31,95,000.00 2,14,788.00
Profit & Loss
A/c 3,89,740.00 (11,52,340.00)
Opening
Balance 3,89,740.00
Current
Period 8,96,443.70 10,61,927.39 17,05,713.75 27,61,857.84 11,52,340.00
Less:
Transferred 8,96,443.70 10,61,927.39 13,15,973.75 31,51,597.84
Total
2,36,12,993.70 6,20,37,374.09 11,60,79,983.8 8,24,34,795.68 7,98,32,103.68
4
Application
of Funds :
Fixed Assets
34,300.00 20,580.00 20,580.00

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Computer
& Printer A/c. 34,300.00 20,580.00 20,580.00
Current
Assets 26,27,702.00 2,36,12,993.70 6,20,37,374.09 11,60,45,683.8 8,24,14,215.68 7,98,11,523.68
4
Closing
Stock 7,17,562.98 2,01,50,500.00 5,59,30,600.00 10,43,40,600.0 6,49,50,000.00 6,49,50,000.00
0
Loans &
Advances 4,00,000.00 23,00,000.00 62,00,000.00 1,09,50,000.00 1,35,00,000.00 1,40,50,000.00
(Asset)
Sundry
Debtors 21,684.00 21,684.00
Cash-in-
hand 12,91,000.00 12,500.00 55,000.00 52,617.00 17,971.00 17,971.00
Bank
Accounts 2,19,139.02 11,49,993.70 (1,69,909.91) 6,80,782.84 34,46,244.68 2,93,552.68
Advance
Income Tax 5,00,000.00 5,00,000.00
Total
2,36,12,993.70 6,20,37,374.09 11,60,79,983.8 8,24,34,795.68 7,98,32,103.68
4

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Table 4.14 Profit and Loss of Shubh Aangan

SHUBH DEVLOPERS SHUBH DEVLOPERS SHUBH DEVLOPERS SHUBH DEVLOPERS SHUBH DEVLOPERS SHUBH DEVLOPERS
Particulars 1-Apr-2013 to 31-Mar- 1-Apr-2014 to 31-Mar-2015 1-Apr-2015 to 31-Mar-2016 1-Apr-2016 to 31-Mar-2017 1-Apr-2017 to 31-Mar-2018 1-Apr-2018 to 31-Mar-2019
2014
Trading Account :
Sales Accounts
6,85,50,000.00
Sales A/c.
6,85,50,000.00
Cost of Sales :
(17,48,032.0 (31,44,027.0 (41,99,577.0 6,21,08,573.00
2) 0) 0)
Opening Stock
7,17,562.98 2,01,50,500.00 5,59,30,600.00 10,43,40,600.0 6,49,50,000.00
0
Add: Purchase
Accounts 1,02,150.0 1,28,57,514.0 1,77,81,908.00 3,17,35,518.00 1,45,44,716.00
0 0
Less: Closing Stock
2,01,50,500.0 5,59,30,600.00 10,43,40,600.0 6,49,50,000.00 6,49,50,000.00
0 0

65,75,423.02 1,79,98,192.00 1,66,74,482.00 5,39,35,316.00

Direct Expenses
5,00,606.0 (48,27,391.00 (1,48,54,165.00 (1,24,74,905.0 81,73,257.00
0 ) ) 0)
Gross Profit :
1,14,806.9 17,48,032.02 31,44,027.00 41,99,577.00 64,41,427.00
8
Income Statement :
7,17,562.9
8
Indirect Expenses
1,14,806.9 8,51,588.32 20,82,099.61 24,93,863.25 36,79,569.16 11,52,340.00
8
Nett Profit :
1,14,806.9 8,96,443.70 10,61,927.39 17,05,713.75 27,61,857.84 (11,52,340.00
8 )

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Table 4.15 Modelling with promoter stake 10%

SHUBH DEVLOPERS SHUBH DEVLOPERS SHUBH DEVLOPERS SHUBH DEVLOPERS SHUBH DEVLOPERS SHUBH DEVLOPERS

Particulars 1-Apr-2013 to 31-Mar- 1-Apr-2014 to 31-Mar- 1-Apr-2015 to 31-Mar- 1-Apr-2016 to 31-Mar- 1-Apr-2017 to 31-Mar- 1-Apr-2018 to 31-Mar-
2014 2015 2016 2017 2018 2019
Savings of the Model: Total
Interest (Unsec Dep + Bank Loan) - - - - - - -
Bank Loan Charges - - - - - - -
Incidental Financial Charges '@2% of
Total Loan

Total Savings -

Less: Dividend Distribution Tax -

Dividend Distributed to Share Holders -

Add:
Alternative Investment of 4,50,000.00 80,11,400.67 1,29,26,034.98 1,51,45,411.36 2,36,09,634.91 2,32,24,029.91
90% of Public Funding

Interest @ Secured Rate @7% 31,500.00 5,60,798.05 9,04,822.45 10,60,178.79 16,52,674.44 16,25,682.09 58,35,655.83

Net Gain to Share Holders 58,35,655.83

Less:
Returns as per Old Model

Interest on Unsec Loans 28,000.00 6,09,000.00 6,26,500.00 6,19,500.00 10,52,240.00 10,52,240.00 39,87,480.00

Tax paid on profit

Incremental Returns with our Model 18,48,175.83

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Table 4.16 Modelling with promoter stake 25%

SHUBH SHUBH SHUBH SHUBH SHUBH SHUBH
DEVLOPERS DEVLOPERS DEVLOPERS DEVLOPERS DEVLOPERS DEVLOPERS
Particulars 1-Apr-2013 to 31- 1-Apr-2014 to 31- 1-Apr-2015 to 31- 1-Apr-2016 to 31- 1-Apr-2017 to 31- 1-Apr-2018 to 31-
Mar-2014 Mar-2015 Mar-2016 Mar-2017 Mar-2018 Mar-2019
Savings of the Model: Total
Interest (Unsec Dep + Bank Loan) - - - - - - -
Bank Loan Charges - - - - - - -
Incidental Financial Charges '@2% of Total Loan -

Total Savings -

Less: Dividend Distribution Tax -

Dividend Distributed to Share Holders -

Add:
Alternative Investment of 3,75,000.00 66,76,167.23 1,07,71,695.82 1,26,21,176.13 1,96,74,695.76 1,93,53,358.26
75% of Public Funding

Interest @ Secured Rate @7% 26,250.00 4,67,331.71 7,54,018.71 8,83,482.33 13,77,228.70 13,54,735.08 48,63,046.52

Net Gain to Share Holders 48,63,046.52

Less:
Returns as per Old Model

Interest on Unsec Loans 28,000.00 6,09,000.00 6,26,500.00 6,19,500.00 10,52,240.00 10,52,240.00 39,87,480.00

Incremental Returns with our Model 8,75,566.52

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Table 4.17 Modelling with promoter stake 50%

SHUBH SHUBH SHUBH SHUBH SHUBH SHUBH
DEVLOPERS DEVLOPERS DEVLOPERS DEVLOPERS DEVLOPERS DEVLOPERS
Particulars 1-Apr-2013 to 31- 1-Apr-2014 to 31- 1-Apr-2015 to 31- 1-Apr-2016 to 31- 1-Apr-2017 to 31- 1-Apr-2018 to 31-
Mar-2014 Mar-2015 Mar-2016 Mar-2017 Mar-2018 Mar-2019
Savings of the Model: Total
Interest (Unsec Dep + Bank Loan) - - - - - - -
Bank Loan Charges - - - - - - -
Incidental Financial Charges '@2% of Total Loan -

Total Savings -

Less: Dividend Distribution Tax -

Dividend Distributed to Share Holders -

Add:
Alternative Investment of 2,50,000.00 44,50,778.15 71,81,130.55 84,14,117.42 1,31,16,463.84 1,29,02,238.84
50% of Public Funding

Interest @ Secured Rate @7% 17,500.00 3,11,554.47 5,02,679.14 5,88,988.22 9,18,152.47 9,03,156.72 32,42,031.02

Net Gain to Share Holders 32,42,031.02

Less:
Returns as per Old Model

Interest on Unsec Loans 28,000.00 6,09,000.00 6,26,500.00 6,19,500.00 10,52,240.00 10,52,240.00 39,87,480.00

Incremental Returns with our Model (7,45,448.98)

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4.3 Summery
In Kadamb the product has turned into dead stock and developer losing the interest he could have
earned on the investment.
In Savya Skyz developer has taken loan, that interest on loan could have saved if suggested model
were used.
In Shubh Aangan incremental profit is very less because already they have raised capital in equity
form.

Table 4.18 Summery table

Actual
Incremental Returns
Profit/Loss
Promoter Stake
Promoter Stake 25% Promoter Stake 50%
10%
Kadamb (5,23,19,481) 60,97,709.31 50,97,072.58 34,29,344.71
Savya
5,76,83,168.80 2,10,12,827.40 1,75,26,032.85 1,17,14,708.55
Skyz
Shubh
53,88,409.66 18,48,175.83 8,75,566.52 (7,45,448.98)
Aanagn

4.4 Conclusion
There certainly is lack of liquidity in the real estate sector. Lack of liquidity holds sector back from
growing at full potential. Literature study suggests that current avenues of finance have some
drawbacks. As new reforms are coming in the real estate sector old and informal ways of finance are
not useful anymore. Real estate sector is changing rapidly and becoming more transparent and formal.
Sector needs to be much more transparent and formal in order to attract foreign investors. Traditional
finance plays major role in real estate being informal.
There is a need of a new innovative financial model specially designed for real estate sector. Designed
model can make real estate sector more competitive, transparent. Also, it reduces the risk of a
developer in a particular project. As developer will be able to start project with much lesser capital.
Model also enables developer to take more risk and take innovative projects.
The qualitative and quantitative study concludes that the model is indeed unique in terms of
applicability and results into better financial gains for investors if implemented as proposed.

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4.5 Future scope of study

• Legal aspect of model is not covered in depth in this thesis, in depth study of legal feasibility
can be done of this suggested model.
• Contractual document can be drafted for this model, it can include all clauses, regulations. For
this study SEBI’s regulation for REITs can be referred.
• During interviews it was found that this model is also suitable for infrastructure sector, further
study on this can be done.
• Case studies were taken from Ahmedabad only, further analysis can be done with case studies
of project located in tier-1 , tier-2 and tier-3 cities.

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5 REFERENCES

[1] G. o. I. Ministry of Commerce & Industry, "www.ibef.org," India Brand Equity Foundation, [Online].
Available: https://www.ibef.org/industry/real-estate-india.aspx.

[2] K. F. Arvind Nandan Executive Director – Research, "India Real Estate - July - December 2018," Knight
Frank, 2019.

[3] p. jaysheel, Existing real estate finance option and evolving new mechanism, 2015.

[4] U. D. a. U. H. Department, "Real Estate (Regulation and Development) Act, 2016," Urban Development
and Urban Housing Department.

[5] T. Economictimes, "Definition of 'Debt Finance'," [Online]. Available:

https://economictimes.indiatimes.com/definition/debt-finance.

[6] T. Economictimes, "Definition of 'Equity Finance'," [Online]. Available:

https://economictimes.indiatimes.com/definition/equity-finance.

[7] K. Frank, "DECODING PE FUNDS IN INDIAN REALTY 2017," Knight Frank.

[8] S. A. E. B. O. INDIA, "SEBI (Real Estate Investment Trusts) Regulations, 2014," [Online]. Available:
https://www.sebi.gov.in/legal/regulations/apr-2019/sebi-real-estate-investment-trusts-regulations-
2014-last-amended-on-april-10-2018-_34614.html.

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6 APPENDICES

6.1 QUESTIONNAIRE
NAME: _________________________

NAME OF THE ORGANIZATION: ______________________________

DO YOU THINK REAL ESTATE MARKET NEEDS A NEW FINANCIAL MODEL?

YES / NO

DO YOU THINK THIS MODEL COULD WORK?

YES / NO

HOW MUCH POTENTIAL THIS MODEL HAS, TO CHANGE THE CURRENT REAL ESTATE FINANCE MARKET?

1 2 3 4 5

HOW LIKELY ARE YOU TO ADOPT THIS MODEL IN YOUR PROJECT (ON A SCALE OF 1 TO 5 FROM NEVER TO
FOR SURE)?

1 2 3 4 5

WHICH TYPE OF DEVELOPERS ARE LIKELY TO OPT FOR THIS MODEL?

Small / Medium / Large

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ON WHICH TYPE OF PROJECT THIS MODEL WOULD SUITE MORE?

Residential / Commercial / Mixed

Any other specific project __________________

REASON FOR THAT

________________________________________________________________________________________
________________________________________________________________________________________
______________________________________________________________________

WHAT ARE THE BENEFITS OF THIS MODEL ACCORDING TO YOU?

________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________

WHAT ARE THE FLAWS THIS MODEL HAS ACCORDING TO YOU?

________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________

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WHAT ARE YOUR SUGGESTIONS TO IMPROVE THIS MODEL?

________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________
________________________________________________________________________________________

SIGN: ___________________

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6.2 Participants of interview

Name Experienced Organization Occupation

Himanshu Shah 20 Yrs P.H Builders Contractor

Jashvantlal Patel 25 Yrs Shyamal Developers Developer

Poonam Patel 22 Yrs Shrinidhi Developers Developer

Gopal Patel 18 Yrs Shrinidhi Developers Investor

Kamlesh Patel 30 Yrs Shubh Developers Developer

Arth Patel - Super Developers Student

Happy Patel 3 Yrs Shyamal Developers Developer

Nilesh Patel 5 Yrs Shrinidhi Developers Developer

Darsh Shah 5 Yrs P.H Builders Contractor

Tirth Patel - Shubh Developers Student

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