Deep Impressions

(Category: Marketing) Also published in  CNBCTV18 Can real estate be marketed as an IPO? Broadly speaking, it is inappropriate. However, there are extremely special circumstances when this can be tried. ----------------------------------------------------------------------------------------------------------------------- Proponents of IPO Style Marketing believe that this strategy creates an artificial scarcity resulting in the urgency of decision making for the consumers. They believe that when the customer sees the likelihood of being left out, he decides faster.  Technically speaking, IPO style allotment is inappropriate for real estate.  In Initial Public Offering for securities, all securities on sale are identical and have similar valuations and offer identical benefits to all purchasers. However, all homes in any given project do not offer the same value to all customers. Certain home buyers will never buy a south-facing home – even at steep

(Category: General Business Reading) ( also published in  CNBCTV18.com  )  If you thought falling home prices are good for the nation, this blog may clear some of your myths. --------------- --------------- --------------- --------------- --------------- --------------- --------------- ------- The general belief is that with homes getting more affordable, a larger share of the population will be able to buy homes, resulting in a better quality of life for the citizens. While this argument is correct but not without a fallacy. The fallacy lies in the fact that this logic only looks at interest of future home buyers. It neglects the interest of citizens who already own real estate.  Besides impacting existing owners of real estate, falling home prices will also hurt interests of banks and Housing Finance Companies (HFCs) as the value of underlying assets they hold shall come down, affecting their asset coverage ratios. Falling asset prices also create a disincenti

(Category: Finance) (also published in  CNBCTV18.com  ) In general, equity partners normally reduce the risk for promoters but do PE investors in real estate do the same? ------------------- ------------------- ------------------- ------------------- ------------------- ------------ One of the key expectations from any equity investor is that he would reduce the risk for the promoter. So does the entry of a private equity investor reduce the risk for the developer? By definition, equity investment can reduce the risk for the promoter if it can reduce the promoter’s loss in adverse market conditions. A developer’s risk, therefore, can come down only when the investor not just participates in the upside but also shares the developer’s loss. Most PE investments in India, however, are in the form of Structured Debt. Such structures have a minimum guaranteed return to the PE Investor. This guaranteed payout is independent of the profits from the project. With

(Category: Marketing) Also published in  CNBCTV18.com Real Estate can be very profitable but is it a scalable business? A lot of people believe real estate is a very scalable business, but in reality, it is not. There are numerous factors which hinder the future growth of real estate, making it non-scalable. Huge profits made by developers, quite often makes investors and analysts  conclude that real estate is a very scalable model. The fact is that real estate is very low on scalability. Scalability for any business is high where beyond a point, incremental growth of business requires neither large capital nor specialised skills. Also, in a scalable business, every new customer adds more value to the business. Most new users come to Facebook through references, requiring no major capital or specialised skills. And with every new user, the value of Facebook increases. But, in real estate business, every sale reduces the inventory available for sale, thus shrink

(Category: General Business Studies) Also published in CNBCTV18.com Purpose of Myth Series : While real estate is amongst the fastest growing businesses in India, it rarely finds respectable space in curriculums of business schools. Also, there are hardly any case studies available to explain the intricacies of the sector. For these reasons, many facts and theories floating about real estate follow a ‘common sense-ical logic’. Unfortunately, many of these are misconceptions, myths or even downright false.  The purpose of this series, therefore, is to take one real estate myth in each blog and provide insights on the real issues. The ten myths have been classified into three categories – Finance, Marketing and General Business Reading.  So the finance category will interest people associated with real estate and also people associated with Finance. Similarly, with other categories. ================================================================ Th

Is Salman Khan dominating loan books of  Housing Finance Companies Also published in CNBCTV18.com  on 16th Oct 2018. https://www.cnbctv18.com/finance/is-salman-khan-dominating-loan-books-of-housing-finance-companies-1100561.htm ----------------------------------------------------------------------------------------------------------------- Low delinquencies have been the key attraction of home loan business in India. But stagnant real estate market (with southward moving prices in some regions), has put a question mark at this basic proposition. Recent mild tremors in the debt market has put a Cntrl B qualifier as well - the question mark is now much bolder. If delinquencies (i.e. ‘ defaults in loan repayment’ ) in home loans are indeed expected to increase then the immediate question would be “which class of housing loans will show higher level of delinquencies ?” The class of home loans is generally defined either in terms of the size of a loan (less than 25 lakh,

The origins of India’s current housing glut began with the 9/11 attacks Also published in CNBC on 11th Sep, 2018 https://www.cnbctv18.com/views/the-origins-of-indias-current-housing-glut-began-with-the-9-11-attacks-773481.htm ------------------------------------------------------------------------------------------------------------------------- * Having raised money from the international market, real estate funds were under pressure to invest in India. * Indian real estate would have probably been left isolated but with the Indian government permitting FDI in real estate in 2004, the excess global liquidity also found its way into India. * A real estate boom ensued, but things began to go awry soon. Every second investment report on India sees housing as the most promising sector and yet we see defaults, slowdown in launches and declining sales dominating the industry. On the surface, the problem is, “Home prices are not affordable.” But a more eco

Affordable housing: Why Mumbai remains out of reach even for those willing to shell out Rs 10,000 per square feet Also published in CNBCTV18.com  on  26th June 2018 https://www.cnbctv18.com/views/affordable-housing-why-mumbai-remains-out-of-reach-even-for-those-willing-to-shell-out-rs-1000-per-square-feet-185671.htm     ---------------------------------------------------------------------------------------------------------------- “Mumbai Housing market remains a curious market to me. The developers that we have financed report high levels of unsold inventory. But our office boy, Tukaram, is ready to pay Rs 10,000 per square feet for a 250 square feet shanty in Malad, but finds no sellers” wondered Jaiku, a realty fund Manager as he ordered his Mysore masala at our breakfast meeting in Mumbai. Jaiku’s curiosity turned into an enigma as he learned that Tukaram is not even eligible for housing loan whereas his developer clients are unable to find bu

Real Estate: Addressing the risk-return anomaly The target of Housing For All by 2022 will need huge equity capital infusion. Therefore, policymakers can ill-afford the current Risk-Return anomaly. ( Also published in moneycontrol.com on 23 Jan 2018 ) https://www.moneycontrol.com/news/business/real-estate/real-estate-addressing-the-risk-return-anomaly-2488983.html -------------------------------------------------------------------------------------------------------------------------- Tectonic changes in the real estate sector have increased the risk level for real estate business and simultaneously reduced its avenues for risk capital   Increasing prices have now turned volatile, thus increasing business risk Post RERA, landlords prefer upfront cash over Joint Development, requiring developers to take larger risk Mandatory registration for home buyers after 10% of payment has dissuaded investors leading to shortage of risk capital for developers GST too has disi

Real Estate: In search of risk capital ( also published in Moneycontrol.com) The solution to uncertain cash flows, from middle ages to the times of Miller & Modigliani, has come through risk capital.        ...............................................................................................................................................  Q : Dear Common Man, What is the first thing that comes to your mind when you think of Real Estate Business ? Ans: Land Q :   Dear Banker, What is the first thing that comes to your mind when you think of Real Estate Business ? Ans : Risk Every human is subjected to gravitational force. Hence, every human craves for his piece of land. Real Estate business caters to this basic need of a common man. And for a banker, this fundamental need for land provides an ocean of opportunity but the risks associated with real estate business restricts his potential. Bankers love businesses with steady cashf