The Intelligent Indian

No Dream Too Big!

2009-01-19T01:35:00.000-08:00

Understanding the Rise & Rise of Real Estate Prices in India - Part III

Industry experts say that with India Inc expanding into the country's major metros, the upward trend of rentals will be witnessed primarily in and around existing and upcoming business districts, due to huge demand from top and middle level executives with transferable jobs. With sale values going sky high and home loan interest rates being revised upwards, many potential home buyers have currently put off plans to buy, preferring rental housing for now.
The builders' bid for the land to match the reserve price of the land is decided by the development authority. If the land is expensive, it will have a cascading effect on the price of the houses as well. The government recently hiked the Cash Reserve Ratio (CRR), leading to the increase in the cost of the house. The rising construction cost and land prices will ultimately be passed on to the end user. Therefore, we are not able to fulfill the requirement of low cost housing in the country. The real estate sector gives service tax at two stages.
When the builder builds a house, he pays service tax on the bills of architects and those involved in the construction. Now he has to take service tax from those who buy his flats. The builder is treated as a contractor if the customer is buying a house during the period of construction. Besides service tax, the industry pays two types of tax -- VAT and stamp duty -- levied by the state government. So the industry has to bear the load of three types of taxes. Stamp duty rates are inconsistent and exorbitant across the states.
The government should treat housing as a priority sector. Housing is a need and not an industry. A policy will have to be framed integrating suppliers, consumers and municipalities. A big chunk of housing is lying locked. The problem must be addressed at the policy level. This can solve the problem partly. As far as incentives are concerned, adequate incentives are available on home loan.
Rental housing should be promoted. Tax incentives are given and rent control act be made uniform. The landlord will be encouraged to give his house on rent, if he is sure he will get it back after two years. The house owner should get a rebate on the rental income.

I’m for Sale, But at My Price!

2009-01-19T01:26:00.000-08:00

Understanding the Rise & Rise of Real Estate Prices In India - Part II

If home prices have risen disproportionately with increases in personal income and interest rates, then there is a cause of worry. Moreover, when expectations of rapid price appreciation appear to be a major factor behind the strong housing market, the results are discomforting. The volatility in the price has to be driven by changing fundamentals rather than personal agenda of a handful of investors. Weaker fundamentals and non-transparent policies cause price declines in those countries with inelastic supply like India.
But basic fundamentals like inflation and nominal interest rates on the one hand, and housing prices on the other have a far reaching and seep impact on the prices if the market is driven by fundamentals. This link suggests that long periods of elevated inflation followed by a sharp deceleration of price growth may, in the shorter term, breed misalignments between house prices and longer-term determinants of residential real estate values.

Situations like this might call for greater caution on the part of monetary authorities. The feedback from property prices to credit growth is strongest in countries with a greater prevalence of variable rate mortgages and more market-based property valuation practices for loan accounting. In these countries the risk of a build-up of mutually reinforcing imbalances in the real estate market and the financial sector is more pronounced, indicating that authorities should closely monitor developments in property values

Dreams: At What Price ?

2009-01-19T00:41:00.000-08:00

Understanding the Rise & Rise of Real Estate Prices In India - Part I

High prices are keeping buyers out of the market, making it harder for firms to attract workers in pricey markets and breeding high consumer debt and speculative buying. Potential buyers see warning signs of a speculative market but worry they run a bigger risk if they wait and prices jump still higher. But it also has economic pitfalls.

If the reason the price is high today is only because investors believe that the selling price will be high tomorrow—when “fundamental” factors do not seem to justify such a price—then a bubble exists. The price per unit of the existing stock is determined in the demand side of the model, making the difference between the actual home price and the estimated price of particular interest in assessing the existence of a bubble. A positive difference would imply that current prices are higher than what the fundamentals can support over the long run, thus suggesting a bubble.

Few fundamental factors that influence the demand for housing over longer horizons include growth in household disposable income, gradual shifts in demographics (such as the relative size of older and younger generations), permanent features of the tax system that might encourage home ownership as opposed to other forms of wealth accumulation, and the average level of interest rates (possibly related to the long-run behaviour of inflation). The availability and cost of land, the cost of construction and investments in the improvement of the quality of the existing housing stock are longer-term determinants of housing supply.

Another factor affecting the liquidity of the housing market is the specific transaction cost framework such as the level of VAT, stamp and registration duties and inheritance taxes. Finally, the uncertainty about future prospects that follows periods of heightened volatility in housing prices tends to lead to a more cautious response of housing construction to shifts in demand because of the inherent irreversibility of this type of investment.

You've got a suicide note !

2008-02-28T05:52:00.000-08:00

“It appears I am destined for something; I will live.” - Robert Clive

In a recent alarming study, The Economics of Suicide, researchers have tried t unravel as to why trying to kill yourself may be a smart business decision. Here’s an excerpt from Slate on the economics of suicide:

Marcotte’s study found that after people attempt suicide and fail, their incomes increase by an average of 20.6 percent compared to peers who seriously contemplate suicide but never make an attempt. In fact, the more serious the attempt, the larger the boost—”hard-suicide” attempts, in which luck is the only reason the attempts fail, are associated with a 36.3 percent increase in income. (The presence of non attempters as a control group suggests the suicide effort is the root cause of the boost.)

The economics of suicide were largely ignored in the ensuing decades. But last year Dave Marcotte, a professor of public policy at the University of Maryland, Baltimore County, pushed the field forward when he wondered what happens to people like Jones who attempt, but do not achieve, suicide.* There are about 20 attempts for every successful suicide. (Approximately 2.9 percent of the U.S. population has attempted suicide—1,760 attempts per day.). Previous studies had demonstrated that as personal incomes rise, the propensity for suicide falls (presumably, money does buy some happiness). Marcotte's insight was that individuals contemplating suicide do not just choose between life and death. Rather, they choose between three alternatives: life, death, and the gray area of unsuccessful suicide, which may be negative (expensive injury and permanent disability) or positive (a "cry for help" that elicits attention).

Why should suicide be an economic boon? Once you attempt suicide you suddenly have access to lots of resources—medical care, psychiatric attention, familial love and concern—that were previously expensive or unavailable. Doubters may ask why the depressed don't seek out resources earlier. But studies have demonstrated that psychological and familial resources become "cheaper" after a suicide attempt: It is difficult to find free medical care when you are sad, but once you try to kill yourself, it's forced on you. Read more.

But take a look at this with reference to India! You’ll be shocked! 1,00,248 farmers have committed suicide between 1993 and 2003. 195 farmers committed suicide after the PM’s two day-visit to Vidarbha. Ninety committed suicide in July and 105 in August, 2007. All these suicides were unfortunately successful and couldn’t quite fit in the report cited above. Even the unsuccessful ones have not brought in any ray of hope for hapless debt ridden producers of India.

Tehelka quotes

that the overwhelming cause of death is debt, sometimes less than Rs 10,000. While repayment of his(farmer) debt is impossible, he still requires money to feed his family, and prepare for the next sowing season. Blacklisted by the bank, or offered only a portion of his requirement, he must turn with leaden feet towards a private moneylender. Whoever this may be, he will possesses the ability to wring personal advantage from desperation — a first right on produce; a land sale deed, which may not be returned even after a debt is repaid.

Mainstream quotes,

that Most farmers’ suicides are desperation-driven due to heavy debt combined with inability to face usurious creditors, many of whom keep harassing his family members with insults and threats. He sees no way out of the debt-trap situation, because only a fresh, larger loan can pay off a previous one that has bloated due to unpaid interest, and he has already pledged his wife’s jewels, his land and even household utensils as security for previous loans. Money borrowed for social reasons usually leads to ruination, which is more rapid if a crop, the expected income from which is to service the loan, fails due to meteorological or technical causes. But excluding the social-cause loans, poor farmers’ survival-cause loans are on the order of several thousands to purchase seed or fertilisers and pesticides or draft or milch animals, or ten-twenty thousand to drill a borewell and buy a pump.

Mint adds

that amid concerns over suicides by debt-ridden farmers, RBI governor Y V Reddy has said the problem “goes beyond credit” and blamed the lack of risk mitigation mechanisms against natural calamities and other failures like pesticides for the crises. In India, Reddy says, there are not enough risk mitigating mechanisms either against natural calamities or against failures like seeds or pesticides or power supply by the government or water supply. “There are so many uncertainties, there are so many risks,” he said. Reddy says financial penetration doesn’t not mean just credit. “It is transactions and as people are moving in we have to see the whole penetration of the banking system.” Bank lending to agriculture is 18% but the RBI chief pointed out and that “in aggregate the rural areas give more deposits and take less money”.

So which ever way you look at it, whatever perspectives you may delve deep into, role of economics is a paradox of sorts when you talk about suicides. If you escape it(suicide), you’ll be well off, as the report points out. If you’re successful and that too in country like India, you’ll not just leave behind a family but also more economists working out the number game and politicians banking on their vote-numbers game. The eternal tussle between life and death will go on and who ever wins numbers will emerge. For the lucky ones numbers will be encouraging, for others numbers will just be a mere statistic left to languish in books, reports, news etc. leaving behind the trail of oblivious families in some forgotten village trying to make a living and remembering the dear ones who left.

At the "dead end" of the day numbers will resurrect from the ashes like some Egyptian mythic and shout silently.

Because numbers never die! People Do!

Project For Sale in Banagalore

2008-02-11T21:21:00.000-08:00

Or Click : http://docs.google.com/Presentation?id=dn3qtbd_21dqrxvkg6

From Commercially‘Try’-able to Commercially Viable?

2008-02-07T21:43:00.000-08:00

Commercial Real Estate Investments in '2008

Promises are the uniquely human way of ordering the future, making it predictable and reliable to the extent that this is humanly possible. - Hannah Arendt

The indications point that the Indian economy will moderate a bit in 2008, and the flow of capital into real estate will probably will remain focused on developing new properties. So we will continue to see the new commercial property development boom similar to what has already occurred in housing. And at the same time sustained increases in supply of such properties will decrease the profitability of commercial real estate within the next two years.

A report by DTZ suggests that

the NCR could have an surplus supply of 18% by early 2008, while Bangalore will witness an oversupply of 32%. Kolkata will have an surplus of 40% while Pune will see the maximum vacancy at 68%, followed by Chennai at 66%. Hyderabad too is expected to see 23% over supply by the first quarter of 2008. But the estimated oversupply is only in specific sub-markets of these cities.

The continued supply of new space for several years, could create enough new options to dishearten existing and new space markets by the way of increased vacancy rate and moderate rents in the mid term scenario. Consequently it’ll dampen the higher value appreciation that real estate has enjoyed in the past three years.

For tech savvy investors they’ll eye the higher initial yields from new Tier II/III city properties than rather than the existing ones. It is amply clear that the returns on a commercial property investment have a higher yield at 7 to 12% vis a vis a 5% rental yield in the residential sector, And if you were to chose amongst the best property investment options in today’s scenario, commercial real estate comes across an ideal choice.

Last two years have given a yield of 30% and 40% for any prudent investment in Real Estate. India's real estate industry has also gone from strength to strength. But now prospects for potential returns are moderating between 12% and 20% for next few years. Looming with uncertainties the Indian real estate market has only seen very negligible cut in interest rates while the land prices have gone galloping ahead with a gap which still lies unexplained.

For now, any short-term gains are out; and long-term scenarios still remain attractive riding on India's strong fundamentals. Optimism is the what the future indicators point to for Indian Real Estate in 2008. But Guarded Optimism is what it takes to succeed today as the market still needs to self regulate and organize.

Ms. Indian Economy needs the Sunscreen!

2008-02-07T03:39:00.000-08:00

Can anybody remember when the times were not hard, and money not scarce? - Ralph Waldo Emerson. Surely the Sun is out and shining scorching bright but there is a need for precaution or a "sunscreen" to avoid the bad weather being predicted by the global economists.

The World Bank said the slowdown in the US, the world’s largest economy, is being partly offset by the resilience of developing countries, which have powered through four consecutive years of record expansion. After modest growth of 3.3 % in 2008, global output should expand by 3.6% in 2009 as the US economy rebounds, the report said. US economic growth is expected to have slowed to 2.2% in 2007, from 2.9%. The World Bank forecast a 1.9% expansion in 2008, then a rise to 2.3% in 2009.

In the recent tehelka study Will Wall Street’s Flu Make India Sneeze?

The effects of US recession on India are brought to light. “India has become more integrated with the US and the rest of the world, but we have also become more resilient and our growth engines are very strong,” says DK Joshi, principal economist at rating agency Crisil. He believes that India’s strong purchasing power, growing in tandem with rising income levels, could act as a counterfoil to the dip in demand in the US and parts of Europe. Economic Advisory Council (EAC) chairman C Rangarajan also suggests that Indian companies can offset the disadvantage of a US slowdown by focusing on productivity gains and the domestic markets.

Not all experts are sanguine about the Indian economy’s ability to ride out the storm without some serious damage. If the slowdown balloons into a full-scale recession, the adverse impact is obviously going to be more severe. Many economists believe that there could be pressure on capital inflows — despite the fact that Indian markets offer among the highest returns in the world.

DESPITE SOME optimism, others point out that though India may be relatively insulated, sentiment plays a strong role in market behaviour. Negative sentiment, therefore, could adversely impact domestic markets.

In a study released by Goldman Sachs, Can India ride out the US recession storm?, authors Tushar Poddar and Pranjul Bhandari make a case for cautious optimism: “We think that the economy has sufficient internal ballast so that it won’t be blown off course, but it will lose some momentum. In particular, we believe merchandise and software and other services export growth will halve in FY09 due to the global slowdown, with negative implications for employment growth. The structural growth story remains intact and opportunities to invest in one of the more dynamic economies will remain plentiful and, as a result, our equity strategists remain overweight on India.”

While most experts and industry-watchers are either doomsayers or holding out the hope that India will be somewhat battered but safe, , there is a small minority that actually believes that India and other emerging markets might well ride out the storm largely unscathed, much like a champion surfer. What is the possibility that a recession in the US could actually work to India’s advantage? Infosys mentor NR Narayana Murthy is optimistic: he feels that a recession will create opportunities for Indian corporations, including IT companies, emphasizing that a focus on better allocation of money means a greater opportunity for India. Guruswamy categorically feels that a recession in the US will see organisations such as banks cut jobs, which means more BPO operations in countries like India. Kamdar agrees with the possibility that in the long-term, a prolonged recession in the US may well wean Indian industry from its heavy dependence on US markets and capital and push the development of other markets and sources of capital within Asia and across the world. “This diversification could be a good thing for India’s economy,” she says.

Livemint reports that globalization has brought more competitors and more threats. For many companies, the threat of new competitors in low-cost environments is real. Profitability and cost efficiency has become vital, as has customer relationship quality. So, people look to different models. A model that has been vastly adopted by many businesses is outsourcing and offshoring. India clearly has, over a relatively short period of time, demonstrated itself as being the expert in that area.

However, the US recession could “lead to a decline in capital inflows and weaker exports particularly of services. This could affect the capital and current account and put pressure on the balance of payment surplus,” said the S&P report ‘Asia Pacific sovereigns brace themselves for headwinds from US’. The report further pointed out that “economies with a relatively small export sector and a large domestic market, such as India ..., are going to be much less vulnerable to a US recession-induced fall in export demand”.

The Year of The Band Wagon!

2008-02-01T00:33:00.000-08:00

Blue skies smiling at me. Nothing but blue skies do I see. - Irving Berlin

Optimism is the what the future indicators point to for Indian Real Estate in 2008. But Guarded Optimism is what it takes to succeed today as the market still needs to self regulate and organize.

According to Economic Times predictions for Year 2008,

“The realty sector in the country is all set to enter into a new era in 2008 with a plethora of investment options lined up in the coming months. Investors may invariably be in a dilemma as to where to invest and what percentage should be earmarked for each category in the investment portfolio. It is one area where both yield and capital appreciation is assured for investors. What is more, today, one can use the asset acquired over the years to raise short term funds for a rainy day through multiple options like mortgage loan against immovable property , loans against rental income and reverse mortgage for senior citizens.

Those looking at residential property should remember there are three pertinent factors which are beyond investors’ control like increase in land cost, input cost and registration fee. They are moving up at regular intervals irrespective of the government in power and its policies to supplement the revenue for the exchequer . Though the return on investment may not be relatively lucrative in the short term, capital appreciation in the long-term will compensate the investors well.

For commercial property, developers themselves want to retain the premises and are keen on leasing. This is because they can realise substantial investments through rent discounting scheme offered by various banks. Leased commercial properties are sought-after and ideal for high net worth individuals. The yield varies from 10 percent and more, depending on the location, amenities offered, specification and proximity to landmark areas.

Investments in Tier II cities would be a viable proposition due to anticipated improvement in connectivity levels and infrastructure. Commercial property is currently exempt from the purview of payment of wealth tax and it is hoped that it would continue to remain so in the coming budget as well.

Rentals of office space in most of the markets of metropolis like NCR, Mumbai and Chennai went up by around 80%. CB Richard Ellis pointed out that amidst all the hype in the Indian real estate market, there are concerns now being raised about the viability of cost, amongst the MNC ranks, and all eyes are now intently looking at where rentals will move in 2008. The increased availability of office space in NCR and other metropolises will help bring down the prices in near future. The overheated markets of Mumbai and Gurgaon are in for a marginal rationalization in 2008.”

But come to think about it, there are lingering concerns about the credit markets for both residential and commercial real estate. Fact remains, that availability of finance remains crucial so does the policy. High interest rates and global liquidity crisis in all asset classes that is going to make financing much more difficult. Earlier anyone with his hear ticking could get a loan and could buy real estate, but now the loans have made even breathing that much more difficult. In addition to healthy fundamentals, commercial property valuations are well-supported by replacement costs. Because it still costs far more to build a building than it does to buy an existing one, not to mention the difficult approval process in most markets. The robust re-sale of existing supply is the key to the continued sustainability of the market. Also read Never Tell Me Odds! to know how speculators always have an important role in boasting the prices with their underwriting and long holding skills.

You're An Exception Mr. Seller!

2008-01-31T23:10:00.000-08:00

One sticks to an opinion because he prides himself on having come to it on his own, and another because he has taken great pains to learn it and is proud to have grasped it: and so both do so out of vanity. - Friedrich Nietzsche

Ever hear of the hard seller. Maybe you have them just around you, owners who believe they’re an exception, the idea that their homes are growing in value while real estate prices all around are stable. These owners truly believe that somehow their property is unique and different, a home so wonderful that general sales trends and everything else is irrelevant. They are unwilling to see any relation to reality. These kind of whimsical prices seem to enhance throbbing egos and hulabaloo rather than result in deals.

While such owners, having once they are firm and sure in their minds what a property is worth, sometimes see any lower price proposal as a loss when that's not the case.

If the home has been on the market longer while local properties typically take less time to sell.

Then what is "fair market value" and how is this number determined? The term "fair market value" generally means the price at which a seller will freely sell and a buyer will freely buy. Legally speaking definition speaks, "Fair Market Value is the price for property which would be agreed upon between a willing and informed buyer and a willing and informed seller under usual and ordinary circumstances; it shall be the highest price estimated in terms of money which property will bring if exposed for sale on the open market with reasonable time allowed to find a purchaser who is buying with knowledge of all the uses and purposes to which the property is best adapted and for which it can be legally used."

But what really happens is that house that is overpriced by 10 percent of its actual market value is much less likely to sell within the first 30 days than one priced within 5 percent of its true value. Not only does an overpriced home takes longer to sell, it is also likely to sell for less than its actual value. More so because of the negative effect often associated with properties that have been on the market for a longer than average time.

But referring to Market values is important because if a property value is set too high it's likely to languish on the market. If the value is set too low then owners won't get full value. The same problems also impact buyers: If the property is over-valued you'll pay too much if you buy, if it's undervalued it will be quickly sold, perhaps before you get to it. Also read, How NOT to lose your sight in the Indian Real Estate Market.

How to Lose your Money in 30 Days!

2008-01-31T04:01:00.000-08:00

When a person is born, he can embark on only one of three roads of life: if you go right, the wolves will eat you; if you go left, you’ll eat the wolves; if you go straight, you’ll eat yourself. - Anton Pavlovich Chekhov

Whatever said and done perhaps but one of the most important step in getting your property sold is entering the market with an offer that's priced right. Because over-priced property gets all the attention but for all the wrong reasons and loses out on the reasonable offers.

Invariably every seller looks for the highest price for his/her proposition. Usually a typical unreasonable seller starts at the highest price point possible, more than his own belief or reason. But the continued renegotiation of price can be a humbling experience.

But when numerous sellers are competing for fewer buyers -- adjusting price down may come bit too late and cost the seller less in gain. This can be avoided if the home is priced correctly from the start. Looking at properties that have sold in the last two months or so provide you a picture of what price range. And active properties in the market also give you an indication on where the market is headed. It may be a good idea to package the product accordingly. Read Sell It Fast! Sell it Right!

Even though home prices may have corrected a bit, real estate continues to be immensely expensive for most buyers, especially first-timers who lack cash flow. So it’s better that the property gets exposed to right and more number of qualified clients. And that happens with the right Value Proposition.

Arbitrary demands only result in arbitrary offers, which are least likely to materialize. And no one else would want to spend time promoting the whimsical offers, unless of course he is a big gambler himself. The key is to generate maximum response, the quicker you get those queries the better. More the queries, better are the odds of getting the best price at better terms. But then nothing is worth doing unless the consequences may be serious.

Sell It Fast! Sell it Right!

2008-01-31T03:13:00.000-08:00

A weak man has doubts before a decision; a strong man has them afterwards. But in either case you have to know the value of your decision and where it will take you thereon. In a volatile Real Estate Market common sense always speaks too late. You might be thinking to jack up the price a little bit more while the market would already be offering you what’s the best. But you would let yourself be driven by either greed or fear, but not the common sense.

Here are few tips to Sell Your Property Fast and Furious provided you’ve decided to do so:

1. Fix It Up! Don’t just do a cosmetic surgery. Add value to your home by getting it renovated and fixing up the old nagging glitches. Just try to figure out how does your house look compared to the new construction around you. Try to add the experience into your home, which is difficult to forget, pleasant of course. It’s just like a walk through of a Sample Show Home. Anything less, is not anything at all.

2. Price it Right! It’s better not to lose your money with your adamant unflinching demand for a little more. You’ll lose an equal amount by delaying your sale by even two months. If your competitors are selling less and offering more then you better get your value propositions right. And Value is what the buyer sees and not what you force upon. Attract by showing the bait, and sell sensibly, and invest at lower prices for own purchase. But if you’re absolutely sure that you’re holding a Gold Mine in your hand than Don’t Listen to Anyone! Wait as long as you would want to.

3. Try to Push the Deal rather than Just a house. Avoid stringent price tags. Think of your home as a value proposition which needs a proper marketing.

4. Come to think of it, it's not only about the buyers, even some agents want to chip in a little more incentive for their efforts. Devise ways to offer incentives in form of commission or an extra share if the property is sold at a higher price. When people ask for time, it’s always for time to say no.

5. Package it with other incentives to the buyer. Like the ease of deal flow, transparency, personal disposition, walking that extra mile to give the buyer a comfort level he always look for.

To Buy or Too Shy !

2008-01-30T20:18:00.000-08:00

“You see, most people never have to face the fact that at the right time, in the right place, they’re capable of anything.” - Roman Polanski

Over the last one year home sales have taken a plunge thanks to broad macro economic measure taken by RBI and a speculation driven unorganized market. Prices are more or less the same across some categories like apartments while dead investments like barren unproductive plots have taken a beating. Builders and sellers are offering concessions, and the most recent forecasts say the market is due for another correction.

But given the fact that it’s virtually impossible to pinpoint the ebb of the market, waiting for that the best price is as risky for buyers as it for sellers who are certain that market is about to peak. Logically speaking, it's only a right time for you to buy a home, normally, when owning is a cheaper and better option, than renting. More so when home ownership fits your financial portfolio, fulfills aspirations and offers personal/professional value. But is you only want a short term trade off than better wait, and understand the art of real estate investing.

There are other who say that in case you want to buy to live and if you don't take the plunge and home price appreciation carries on, you could be left out in the cold, with an opportunity lost. Especially if you are waiting for the perfect best deal, you could end up waiting for years on end, missing the bus while prices keep rising. Under such circumstances it’s always better to understand the nuances of Value Investing and the The Right Price Equation. Statistically, in the long run, real estate prices rise, by an almost of about 6 to 8 percent annually, getting your property to doubles every 10 years or so.

In short people buy real estate because it's an investment that provides shelter or security, tax benefits, loans, the appreciation and fosters the pleasure of and self actualization, with freedom to create, shape and develop, an option which you can not avail as a tenant. But whatever you do, know what you’re doing, because knowledge transcends these barriers of indecision and opens your eyes to seeing, creating and trading Value.

And when you can’t figure out what to do, it’s time for a nap.

Never Tell Me Odds!

2008-01-30T10:25:00.000-08:00

A Peep Into Speculative Real Estate Buying.

“There are two great pleasures in gambling: that of winning and that of losing.” - Anonymous

Never tell me the odds, someone once said. For there are none. Not to be seen at least for now.

Ever thought of speculative buying in Real Estate? Well if so many have done it before, why not you? Especially in a highly unorganized market like ours, where burning your fingers is the only way to learn. And you always have to learn it the hard way. Seen the unbridled unrealistic spiraling unreasonable prices in Delhi? What’s there to think! Or there is nothing to think at all! Indian real estate is like that, after all. So get ready to burn your fingers if you’re entering the Indian Real Estate with opaque colored glasses on your eyes.

What is Speculation after all?? Is it investing in residential real estate for long term? Or is it buying a home where you don’t have any plans to live? It can also be a short term gain where you want to buy cheap, add a little value and sell it fast? So what really qualifies as a speculative trading and investment? Users today buy property because they're not sure that they would be able to afford it next month and speculators know that very well. Speculation happens when a certain sect of investors, unlike true investors take risks bigger than their appetite with an aim of trading or reselling the property at a profit in the minimum possible time period. They differ from the Investors who would want to stick along with a property for a longer duration of time.

Speculators always have an important role in boasting the prices with their underwriting and long holding skills. Invariably, it’s for everyone to see that prices are going higher by each passing day only because speculators think they'll always be able to trade for a profit, at any given point of time. But what happens in declining market is, retail or small time investors may not know when to get out and exit gracefully. It becomes difficult to know the peak and the best price to exit. Excessive speculative buying also generates and brings into pipeline the "hidden supply" that could come back to disturb the market and speculators have no option but to offload their units at the best possible rate, setting a chain reaction. As someone rightly described that a speculator is a man who, if he dies at the right time, has a rich widow. So if you are an aspiring speculator, get yourself a plan to exit before you enter.

Would You Cross Over To Faridabad with BPTP?

2008-01-24T13:23:00.000-08:00

Clarion Group: Is It Worth?

2008-01-24T13:05:00.000-08:00

Why Gurgaon: Realty Review.

2008-01-24T12:44:00.000-08:00

Indian Retail & The Fear Factor !

2008-01-23T20:37:00.000-08:00

The Indian retail market is highly disorganized and fragmented. But with rising disposable incomes (especially amongthe middle class), increasing urban consumer base and a potentially strong rural market, the need for organized retail is increasingly being felt. The impetus for the Indian retail sector is high income and the upper middle income groups which together comprise 81 million households. Also the country’s population is urbanizing at a rapid pace with the urban Indian population projected to increase from 28 percent to 40 percent of the total population by 2020.No wonder then, that AT Kearney GRDI Index has rated India as the most attractive emerging retail market in the world for the third time in succession.

According to some, farmers will be the ultimate beneficiaries and the fear about contract farming is misplaced as it would ensure better and assured prices to the farmers. They would not be at the mercy of middle men who often dictate prices and laugh away with maximum profits. While others feel that the small retailer will be wiped off and the only buyers left in the market will be big corporations thus limiting the sale options for farmers. The big companies will motivate the farmers to go for contract farming. For instance a farmer in Punjab may be forced to grow tomatoes all the year round. And the quality norms of corporate retailers are so stringent that any deviance from the pre-conceived quality is out-rightly rejected and the farmer forced to either short sell his produce or dump it at substantially lower prices.

In the Mint, TCS Daily Editor Nick Schulz argues that the battle between large retail chains will ultimately be to the benefit of India's economy -- including independent retailers. Whereas some businesses will have to exit, the ones that adapt to the new business environment will thrive because of the increase in efficiency and productivity :

. . . the current debate over the future of retail in India is too constricted. Opponents of big retailers fret that small mom-and-pop shops will be put out of business. The study reported in Mint last week shows this worry is realistic.Proponents of large-scale retail typically counter that consumers will benefit from the lower prices large retail can provide as well as the greater range of goods. This is no doubt true. But as the McKinsey data demonstrates, there is so much more to the story.

The role multi-brand retailers play in large, modern economies is to inject knowledge and know-how into the sector and into the larger economy, touching almost every industry. Today's most advanced retailers serve as change agents, pushing through needed business reforms that make manufacturing and other sectors far more efficient and productive.The right answer to Singh's question now becomes clear. Large retailers in the West have been engineering efficiency gains for the better part of the last four decades. They have been among the main drivers of economic growth. And they do, indeed, know a lot that other retailers simply haven't had the opportunity to learn yet, mostly due to government policies protecting small retailers from competition.

There is hardly any shame in the fact that some Western retailers may know more than their Indian counterparts. Gains from trade work both ways. In the US last week, National Public Radio reported about American filmmakers and animation artists working with and learning from their counterparts in India. American industries, including Hollywood, are benefiting from the specialized knowledge in some of India's most dynamic industries.Given the importance of a sophisticated retail sector to economic performance, the latest row over retail's future couldn't happen too soon. India's continued rise on the global stage depends on reform and advance in this sector.

In the World Politics Review, Anuj Chopra reports on the retail wars in India, and highlighted some of the inefficiencies of the current system:

The Western-style stores feature long, boulevard aisles, refrigerated cases, uniformed and meticulous workers, and offer a large variety of products, from fresh produce to other consumer durables. All goods are neatly packaged, accurately weighed, and attractively priced.

India's small mom-and-pop stores, on the other hand, are chronically inefficient, with prices 20 percent higher than they are in big stores. They buy in small quantities, lack storage facilities to keep produce overnight, and have almost no expertise in inventory control.. . ."Organized retail is not the evil business it is being made out to be," said Mukesh Mehta, the Managing Director of Reliance Industries, in a statement. "India's retail market is so huge that there is place for everybody, including smaller players." He also asserted that his company's retail initiative was configured to improve supply chain and distribution efficiency, promote high-tech farming methods that bring better yields, and reduce waste. "Currently, 30 to 35 per cent of 60 million tones of fruits and vegetables -- more than the fresh fruit produce of the UK -- are wasted due to a lack of storage and other facilities," he said. "Organized retail chains will minimize such wastage."

The Great Indian Land Grab!

2008-01-23T20:07:00.000-08:00

In a glaring Tehelka expose it is shockingly revealed that how systematically the govt. policies have been drafted too aid the incessant and large takeover of the agricultural land to help corporates build their land banks.

OF THE 13 Bills introduced in Parliament this winter, two critical ones included the Rehabilitation and Resettlement Bill and the Land Acquisition (Amendment) Bill 2007. The Bills were preceded by a National Rehabilitation and Resettlement policy, which was passed by the Cabinet on October 11, 2007. These legislations and policies are being touted as timely and a solution to what many call a “trouble-free” land acquisition. On the contrary, activists and NGOs fear that the ground is being set by the state to arm itself, once again, with unprecedented legal powers to aid and abet the corporate takeover of land.

Politics of Bharat Ratna!

2008-01-23T19:57:00.000-08:00

Journalist Nikhil Chakravartty while refusing the Padma Bhushan said "Their legitimacy has hit rock bottom, so much so that some of those who get it are embarrassed while others flaunt it shamelessly. Let society honour its heroes." And it is indeed the society which has deserves to bestow any honor.

The Bharat Ratna has over the years become an integral politicking tool, ever since it was started in 1950 to honour achievers in various fields. And more recently BJP has made sure that the award dances to the tunes of such political considerations. It’s not that it has not happened before. But not this game is blatantly open and discrete! But for the politicians who make mockery of everything, it’s not a surprise that they have continued to make a mockery of an honour like Bharat Ratna. And till politicians decide the honors, it is not possible to keep it above politics. Such a prestigious honor lies at the hands of few who are trying to scale down the ‘greatness’ of the title to suit their partisan interests. These politicians are systematically lowering the scales for their own interests.

But there are others who said a BIG NO! But may be not anymore.

The Cocky Indian.

2008-01-21T06:15:00.000-08:00

There has been a smart recovery in overall business confidence in the current round of the survey. However, this optimism is not reflected at the company level. There has only been a moderate increase in the proportion of companies which expect better profits, higher domestic sales and a matching rise in their production compared to the previous round. This implies that business sentiment has improved from the lows touched during the April-June ’07 quarter, but companies are still cautious and are modest about future projections. They seem to be mainly concerned about the future direction of the economy and its impact on demand.

A resilient investment demand and inelastic consumption demand for essentials goods and food may be responsible for this optimism. On the other hand, optimism among companies belonging to consumer durables and services sectors has shrunk in the latest round. In short, the gain in confidence at the macro level may take time to trickle down to individual companies, which are still reeling under the effect of a tight monetary policy and an appreciating rupee. In the near term, we may have to stay with a deceleration in industrial production. However, the silver line is that companies’ financial position may continue to remain strong with rising corporate profitability. This will enable them to comfortably absorb an economic slowdown, if it takes place.

Don't SpOIL!

2008-01-21T06:06:00.000-08:00

The Big 5 of the oil business are spending less on exploration despite being flush with cash, a new study has found.

The study by Rice University’s Baker Institute said the five — Exxon Mobil, Royal Dutch Shell, BP, Chevron and ConocoPhillips — spent less in real terms on exploration compared to the early 1990s, despite a four-fold increase in operating cash flows. The trend, says the study, puts the companies’ long-term oil reserves at risk. “The handwriting is on the wall. The oil majors are not replacing reserves,” said Amy Myers Jaffe, co-author of the report. “It’s as if they are slowly liquidating their long-term asset base. They may see a declining rate of production over time and eventually that is bad news for both their shareholders and consumers.”

India Shrugged.

2008-01-21T05:28:00.000-08:00

Pricewaterhouse Coopers report: Building Strong Partnerships and India: A Manufacturing Destination Key Opportunities point out significantly the mammoth Manufacturing Genius of this Country.

India has an existing road network of more than 3.3 million km, which is the second largest in the world. This is, though lower than USA which has the largest road network of about 6.3 million km significantly more than China which has a road network of about 1.4 million km. India has 110 km of road length available per 100 sq. km, far exceeding the corresponding figures of 68 km per Sq. km and 15 km per Sq. km for USA and China respectively. Similarly, India has 3,064 km of roads per million of population which is although lower than corresponding figure of 22,064 km per million population for USA, is significantly higher than that of China at 1,072 km per million population.

In India, the fact that National Highways and State Highways together constitute about 6% of the road network and carry about 80% of the total traffic, clearly emphasizes the importance of National Highways and State Highways. On the other hand District roads and Village roads together constitute 94% of total road network and carry only about 20% of total traffic. Irrespective of this, their importance cannot be underestimated as District Roads and Village Roads are important from connectivity point of view.

Road network in India requires major initiatives for enhancing its capacity. Only 12% of the National Highways are four-lane with two-lane and single-lane being 50% and 38% respectively. State Highways have lower capacity, with only 0.7% of total State Highway length being four-lane and corresponding percentage for two-lane and single-lane being 20.3% and 79% respectively.

Such huge funds requirement cannot be met entirely from the government’s budgetary resources, loans from multilateral agencies and Central Road Fund alone and, therefore, an increased level of private sector participation in the development, operation and maintenance of the road projects has been planned. In this direction, NHDP Phase III to NHDP Phase VII have been planned on (Build-Operate-Transfer) BOT basis. BOT projects are transferred back to the government at the end of the pre-determined concession period. During the concession period, the private developer recovers his cost and earns a return on investment through tolls and budgetary support. The NHAI is also beginning to experiment with private sector participation in road maintenance for completed NHDP stretches. The move could herald the beginning of a new era in road maintenance.

Road sector in India is seeing a lot of activity and one can expect this level of activity to carry on in future. There are ambitious targets set by Government and those targets can be met if issues from this sector are suitably addressed and if role of private sector is enhanced in road construction, operations and maintenance.

The Wheezing Giant!

2008-01-21T05:17:00.000-08:00

Pricewaterhouse Coopers report: Building Strong Partnerships and India: A Manufacturing Destination Key Opportunities point out significantly the mammoth Manufacturing Genius of this Country.

The revival of the manufacturing sector has been a happy story in the country’s sustained economic growth. With a nearly 80 per cent weightage in the country’s industrial production the manufacturing growth rate has doubled in the last 5 years – from 6% in 2002-03 to a record 12.3% in 2006-07. Within the sector, industries such as machinery and equipment, food products, basic metals and alloys and chemicals have emerged as major growth drivers.

India is rapidly emerging as a force in manufacturing exports, with capital-intensive products featuring prominently”. And the best is yet to come. The manufacturing investments are the ‘first mile investments’ in as far as these are likely to be followed up by further investments to complete the projects and also for their further expansions.

The world’s top five mobile manufacturers -- Nokia, Motorola, Samsung, Sony Ericsson and LG – have all set up manufacturing facilities in India. India has become the second-largest market for Nokia in volume terms, displacing the USA. Nokia has gone ahead and set up a Special Economic Zone (SEZ) near Chennai as a developer. Nokia and many of its vendors have also set up their manufacturing plants in the SEZ which is used as a hub wherein the various suppliers of Nokia either manufacture or store their products and provide the same to Nokia as and when required.

Defying the traditional view that India is good only for services, the manufacturing sector in India has been moving up the value chain. While Hyundai is setting up a second car plant in the country, Toyota is exporting transmission systems from a new plant in Bangalore. The world’s largest auto parts’ maker, Delphi Corp, has relocated several product lines to India. So has Bosch, another auto parts giant. The phenomenon is not restricted to auto and auto-component firms alone. Companies like Unilever, Kodak, Whirlpool, Timex Watches, Cummins, Tecumseh, GE, ABB and Siemens are already sourcing products from their Indian plants for their global markets. And companies like Nokia and Elcoteq Network Corporation are considering setting up plants in India to meet their global demand for mobile phones.

India has a significant competitive advantage in the skill-intensive industries. Over the next decade, the global trend to manufacture and source products in low-cost countries is likely to gather strength. Taking advantage of this trend, India’s manufacturing exports could increase from US$40 billion in 2002 to approximately US$300 billion by 2015, leading to a share of approximately 3.5 per cent in world manufacturing trade.

If India is to achieve this quantum jump in manufacturing exports, several factors need to play their part. India’s manufacturing industry needs to adopt a global mindset and carefully select the product segments. The government needs to play its part by implementing key reforms in taxation, infrastructure, SEZs, labour and skill development.

Unraveling the Indian Retail Tale !

2008-01-21T05:00:00.000-08:00

Pricewaterhouse Coopers report: Rising Elephant takes a look at Indian Retail Industry. Several global studies rank India as the most attractive retail destination in the world. PricewaterhouseCoopers estimates that India’s retail sector is worth an estimated USD350 billion. Over 12 million retail outlets (or kirana stores) comprise India’s unorganised market; more than 80 percent of kirana stores are operated by small family businesses using household labour. Organised retail penetration in India is between three to eight percent. Organised retail is growing at a compounded annual growth rate of between 30 to 40 percent per annum.

India’s retail sector will witness increased growth due to the following factors:

• Stable GDP growth rates of nine percent are resulting in increased economic prosperity for the country and for consumers.

• India’s 300 million-strong middle class are demanding increased access to good and services.

• Changing lifestyle patterns are witnessed in the increase of lifestyle- and luxury-oriented purchases and a decrease in essential purchases.

• The higher numbers of working women are resulting in an increase in double income families who want to purchase more consumption-oriented goods. Also, the higher number of urban professional working women is driving demand in urban centers.

• India has one of the world’s largest youngest populations where half the population is under the age of 25 years.

• Increased access to credit is enabling consumers to spend more and save less. (Retail loans have doubled since 2003.)

• Residents in rural and Tier II, III cities are demanding that modern trade move into their localities. The population of rural India is the combined populations of the US and the EU and represents 51 percent of consumption. In addition, the spread of IT and BPO operations to Tier II and III cities is raising incomes, improving standards of living and resulting in a desire to acquire more goods and services.

The success of any retail format largely depends on the efficiency of its supply chain. India has a fairly organised and developed non-food manufacturing supply chain, mainly due to the presence of large local and multinational companies that have built significant experience and scale by following best practices in their respective fields. Like most other developing economies, however, India lacks in the last mile distribution segment. The supply chain in India is fairly unidimensional and there is very little value-added activity since the distribution remains fragmented and unorganised. This is primarily due to the geographical and cultural diversity and complexity of the region and the lack of capital available for investing in technology and modern retail formats.

PricewaterhouseCoopers’ position paper entitled The Rising Elephant: Benefits of Modern Trade to Indian Economy* indicates that India is among the top two producers of milk, fruits and vegetables in the world. Yet, the organised food retail business in the country is among the least developed in the world.

In order to encourage the development of farm-to-fork retail models, the Government can offer incentives and tax-related benefits to incentivise the development and upgradation of the food supply chain. A robust and comprehensive farm-to-fork retail model is required in order to:

• Ensure a smoother transfer of goods from point of origin to point-of-sale

• Increase operational efficiencies

• Reduce overall costs

• Improve customer service since goods can be moved rapidly and efficiently between factories, warehouses and outlets

• Gain insight into which goods move quickly off shelves and which remain in stock

• Reduce wastage across the agricultural supply chain from the current levels of 24 to 40 percent

• Improve farmers’ realizations

• Encourage safer crop management practices

• Ensure that India can supply more fruits and vegetables to overseas markets

A Good Reason Why to Study Abroad.

2008-01-21T04:40:00.000-08:00

Pricewaterhouse Coopers report: Building Strong Partnerships states that India is one of the world’s fastest growing economies. Its population has a median age of 25, which means that over 550 million people are 25 years or younger. While this gives India a huge demographic edge, it also puts considerable pressure on its policy makers to ensure that the young population is given quality education that will empower the future generations to contribute to and participate in the growth of the country. Is India’s education system geared up for this massive task? Is it ready to meet the current and future challenges?

In India, the formal education system consists of 1 to 3 years of preschool, 10 years of school; 2 years of higher secondary school; 3 to 4 years for under-graduate degree followed by Masters, M.Phil and Ph.D degrees. The focus of this paper is on higher education and vocational education in India. India has one of the largest higher education infrastructures in the world with 388 universities / institutions affiliating some 17,000 colleges. Over 450,000 teachers teach 10 million students; third largest after the US and China. This number is growing rapidly. Programmes are offered in all major disciplines. Professional education is imparted with English as the medium of instruction. Prestigious institutions get to pick the very best students. Only 1 out of 200 applicants gets admission into the famed Indian Institutes of Technology. The figure of acceptance is about 1 out of 10 at MIT(USA). Stories of students not making it to IITs, but securing admission in Ivy League colleges in the U.S. are commonplace.

India’s higher education system has been a great asset – it has not only catered to the manpower needs of the economy and helped India become self reliant in several areas but its doctors, engineers and scientists have been spectacularly successful in the global arena. Clearly the higher education system has done a good job. But is it good enough for the very rapidly changing present and a very demanding future? Perhaps not and that is the key issue. While there has been a 113% increase in enrolment in higher education (from 4.95 million in 1990-91 to 10.58 million in 2001-02), the net enrollment ratio in 2005-06 is still a mere 9.7% While we spend a meagre 0.37% of our GDP on education, developed countries like Canada spend 1.88% of GDP on higher education alone.

Turning our focus to primary education, India presents a dismal picture. Article 8 of the Indian Constitution mandates universal primary education. Yet, 41 per cent of children do not reach class 5 in India. In this respect, India fares worse than Gambia (20%), Mali (18%), Senegal (15%), Tanzania (17%) and Burkina Faso (25%). Further, the literacy rate in India is lower than that of many other developing countries. Many argue that the development of higher education in India has been at the cost of primary education. Higher education is highly subsidized by the Government – fees at universities have not been revised for several years. At present only 5% of the total cost of operating a university is generated through fees.

Yet there is a woeful lack of quality higher education institutions, giving rise to severe competition for entry. Admission to reputed colleges is extremely difficult; one such college in Delhi rejected students who scored less than 95% in their school leaving examination for its bachelors course in economics. This level of competition has resulted in increasing numbers of students seeking higher education overseas – US, Australia and UK being the chief destinations. It has been estimated that Indian students spend approximately USD 4 billion on education overseas every year. In 2004-05, about 80,000 Indian students were studying at US universities comprising roughly 14% of the international students there. A considerable percentage of this student group ultimately settles down overseas – a migration of talent and resources that India can do without.

There are two key issues on higher education in India.

1. The need to expand the infrastructure to provide quality education to much larger numbers and

2. The need to recognize that the Government alone will not be able to do so and it must seek out partners from within and outside India and that partners will come only when they are made to feel welcome.

These two issues are well debated and well understood. India’s policy makers now need to muster the will to do what is necessary to effect changes.

India needs to expand its educational infrastructure at all levels. Towards this end the Indian Government needs to seek out partners both within and abroad. India needs to put much more emphasis on Vocational Education and Training to bring about a transformation in its manufacturing sector and build entrepreneurship. A major expansion of the vocational education programme is the need of the hour.