Desicritics Category: BizTech: Real Estate

Vulture Funds - Recovering Non-Performing Assets

Dr Bhaskar Dasgupta — Mon, 18 Feb 2008 10:32:26 EST

Whenever a firm has to declare bankruptcy or has cash flow challenges, the assets then pass to the creditors' hands. In a specific case, when you are talking about a bank lending out money on the basis of assets as collateral, then the situation becomes tougher.

I mean, yes, if you stop paying, then the bank can take the asset/collateral, but think about it, what will a bank do with a repossessed car? Or a house? Or a patent? A bank is not a driver, house holder or a scientist to handle a patent. So even if it tried to take on the assets which backed the non-performing loan, it would still end up with the problem of what to do with them. Because of this, way too many non-performing loans and the collateral assets are simply stuck in litigation or on books without generating additional value.

This is where specialist asset disposal units come into the picture. But this article, despite being positive was a bit scary at the same time. First, the scary numbers:

Official figures indicate that there are more than $50bn in non-performing assets (NPAs) in India. This surprising statistic derives from two pronounced downturns in the 1980s and 1990s, before India started its current growth trajectory.

That is $50 Billion worth of assets which are wasting away in the country without generating any productive returns whatsoever. So what do these asset disposal people do? Well, putting it simply, they go to the banks, buy up the book at a 20-25% discount and then (I quote:

● The turnaround: taking an underperforming business, restructuring it, putting in new management and controls.
● Break-up and sale: Non-core assets, particularly real estate, are sold off.
● “Flips”: The company is taken out of the hands of the lender and simply sold on to trade or other buyers.
● Bridging: The company has been restructured but lacks the capital to repay the lender. The fund finances the payout to the lenders and takes a fixed return of, say, 25 per cent, on resolution.

So in a way, this is good, that these funds and special purpose disposal units pick up the lifeless and rotting carcasses, slice out the dead skin and turn them into productive assets which others can use and which generates some kind of benefit or profit. Now you might call them vulture funds, but these funds do work on what nobody else wants to touch. Good for them.

All this to be taken with a grain of piquant salt!!!

How Green is My Antilla!

arZan — Wed, 30 Jan 2008 01:00:28 EST

In a hard hitting and valid argument Daniel Brook talks about Mukesh Ambani's Antilla being billed as a Green Building by its American architects Perkins+Will.

When completed, the 24-story Ambani family home will include its own health club, terraced sky-gardens, and 50-seat screening room (the reclusive Ambani is reputed to be a huge Bollywood fan). Antilla also boasts three helipads and a 168-car garage. This may sound like transportation overkill, if not outright eco-terrorism, for a family of six. But despite its 38-to-1 car-to-person ratio, Antilla has been billed by its American architects as a “green building.” And under the leading standards for green architecture, the building will likely qualify.

The LEED rating system at best is a guideline and at worst is riddled with loopholes.

Installing a $395 bike rack is worth the same under the LEED checklist system as installing a $1.3 million environmentally sensitive heating system. Which is the cynical builder going to choose?

This allows for architects like Perkins+Will to claim to design green buildings while in reality it is all a hogwash.

The rating system is designed for US standards and when implemented on Indian conditions and buildings, every project could bag the "green" tag.

Perkins+Will is not the only ones who ride the hype-mobile. Even reputed Indian architects like Karan Grover do the same. By understanding the system and finding the loopholes, Grover has the "distinction" of being the first architect with both a LEED Platinum Building and a LEED Platinum Commercial Interior project.

Even FXFowle who is designing the India towers at Charni Road in Mumbai are billing their project to be

within a sustainable network of green roofs and hanging gardens; creating a singular, extraordinary building that, when completed, will be the tallest and greenest - building in India. [link]

Green has become the buzzword of the latter half of this decade. And it helps to sell everything from food to apartments costing millions (in whatever currency).

And from what I read and see, India seems to be picking up the hype which has somehow started clearing out in the US, as the article above points out .

The Indian Green Building Council has just now woken up to the big difference in standards and the first LEED guidelines are being formalized for India. However it will take a few years for the real effects to trickle down to the individual building level.

People like Mukesh Ambani and Reliance should be leading the way instead of being an example of the moral bankruptcy that Reliance has time and again shown.

Architects in India have an easier job designing in sustainable ways. A lot of our building materials procurement and construction technology are sustainable to start with. Indian architects, developers and designers have a real opportunity to push beyond the "green" envelope and set an example.

Citizens to Turn Bangalore Green

GV Krishnan — Wed, 26 Dec 2007 13:44:10 EST

Tabloids are not just about scandals, glambiz and other trivia. Bangalore Mirror and a local private trust have clubbed up to promote tree planting in their city. Mrs. Janet Yegneswaran, who founded the trust a couple of years back in memory of her husband, has been engaged in encouraging Bangalore residents and neighborhood communities to chip in their bit in her endeavour to make a difference to the city’s green cover.

Tree lovers can have saplings planted in their neighbourhood on payment of Rs.100. Janet’s Tree-for-free trust identifies vacant spaces (could do with volunteers) and seeks permission from authorities and site owners to have saplings planted on their land. Residents can sponsor saplings to be planted at specified spots, to mark special occasions such as birthday, death anniversary of dear ones, wedding day, graduation day, and what have you. A California-based NRI, at the end of her vacation in Bangalore, had 21 saplings planted the day she left India, as her farewell gesture to the city.

Imagine the number of city students going abroad for higher studies; young IT professionals leaving on their first posting abroad. If each one of them were to sponsor a sapling to mark the occasion, we would have green cover in many neighborhoods and also the stretch between the city to Devanahalli in three to five years. Isn’t this something that ought to interest the city authorities and BIAL? I would suggest they launch an ad campaign – ‘ A Green way to Leave the City; Leave behind a Tree’.

Anyway, the day Bangalore Mirror carried the story of the California NRI’s farewell gesture Janet’s phone started ringing; people called to have saplings sponsored in their names. Janet, who has been running the trust since Nov. 2005, hasn’t heard from so many sponsors, on any single day, ever since the trust was founded in 2005. She got a call from a public school boy in the 7th std who wanted to plant saplings near his house at Banashankari.

A resident of K R Puram wanted saplings for his site at Baglur layout. A residents association, representing 50 houses in Shakthinagar (near Banaswadi) wanted to have two saplings planted on every house-front. The NRI whose farewell gesture triggered a spurt in citizen-sponsors had 21 saplings planted at Cartman Eco Park in Koramangala. It is said the foreign nationals working for earth.org have planted 237 saplings, one each for every country.

Meanwhile, in Mysore, a grandiose plan launched to restore the city’s green cover, at an estimated cost of Rs.128.04 lakhs, has run into trouble. Why? Because of a fund-flow issue involving the Mysore Urban Development Authority (MUDA) and the forest department. Unlike Janet’s trust, government departments tend to get bogged down with cost estimates and funding. Costing is important, but fund-flow (between departments, which is usually a matter of book adjustment) can’t be the be-all and end all of a community welfare scheme.

According to a media report, trouble with the Green Mysore Project started right in the first year (2005), when the forest department planted only 37,000 saplings, instead of the targeted one lakh plants. There is no knowing as to how many of them survive today, as the department has stopped maintenance of the planted saplings. What is worse, the departmental nurseries have no saplings to be planted in 2008.

The forest department claims MUDA owes them Rs.32.76 lakhs till date, of which Rs.19.75 lakhs is required for nurturing saplings for planting in 2008. And repeated reminders to MUDA have gone unanswered. Going by the media report, MUDA has much to answer for, if the Green Mysore project is given up.

But the forest department doesn’t cover itself with glory either. As partners in the project, shouldn’t the department explore other ways to keep the tree planting going? The green Mysore story is typical of most government projects. Fund-flow falls short of budgetary commitment. There follows a flurry of letters, file-notes, meetings, and recorded minutes. And the project gets shelved for want of funds.

The point is that neither the forest department nor MUDA appears have given the Green Mysore project the priority it deserves. What’s more , they don’t appear accountable to the public, insofar as neither MUDA nor the forest department has seen it necessary to sustain public awareness in the greening project, with periodical progress report on the project. As partners in its implementation MUDA and the forest department could release through the media a quarterly progress review, giving details of not just the money spent, but also the number saplings planted during the previous quarter, their cumulative total, plants survival rate; and the localities covered till date.

Sakrama Stayed by Karnataka High Court

Aaman Lamba — Tue, 11 Dec 2007 08:11:30 EST

The Karnataka High Court stayed the controversial Sakrama regularization scheme today, asking the government to bring in amendments to the legislation in the greater interest.

The scheme involved the payment of hefty sums by property owners who had either purchased land outside the erstwhile city corporation limits, or had violated various building regulations. It had come under fire from almost all directions. Some groups felt it gave a free pass to property owners to gain legal sanction for unauthorized constructions. Others were mystified as to why permits had been granted and property taxes collected in the first place. It seemed to bring into question the value of the Panchayats themselves, who had granted the original approvals, collected taxes and more.

Political parties called into doubt the midnight passing of the amendment to the Karnataka Town and Country Planning Act in a special session at Belgaum in 2006. The State is currently under President's Rule and any legislative amendment was doubtful until the next elections. Further, the political situation in Karnataka is so divided as to make it hard to win consensus for any change.

The Court had quipped that it seemed this was one case where everyone wanted the same thing, for the courts to punt the ball into the future, and make it a future problem rather than a present conundrum. They granted everyone's wishes, as it were, and alleviated the potential spectacle of 500,000+ citizens queuing up at Corporation offices over the next three days, jostling with officials, touts, and shysters to submit their forms and payments before the original 14th December deadline.

Bangalore House-Owners Oppose 'Sakrama'

GV Krishnan — Wed, 5 Dec 2007 02:47:53 EST

Violators have rights, including the right to protest government action and to appeal against penalty for their violations. Several resident associations in Bangalore have moved the court, seeking a stay on the Karnataka Sakrama scheme; which gives house-owners time till December 15 to 1) admit violation of municipal laws in their buildings; and 2) seek regularization on payment of penalty.

Widespread stir, public interest litigation, and a wait-and-watch attitude adopted by most house-owners raise a question mark on the enforcablity of the scheme in its current form. Out of 2.1 lakh application forms sold in the state no more than 4,100 are reported have been filled and submitted to the authorities to date. The deadline for filing applications expires December 14. Such large-scale non-compliance may well force the authorities to extend the deadline and re-work the scheme to make it more widely acceptable.

The government came up with the Sakrama scheme to cope with building laws violations in Bangalore, Mysore and other towns in the state. Property owners have, over the years, become accustomed to flouting building regulations with impunity, presumably, with "currency persuasion" at the right quarters in babudom. Officials, whose job it is to ask questions and enforce building laws, would have us believe that building violations could not be addressed by the authorities due to "staff shortage and pressure of other work." A likely story!

Now that the government seeks to restore a semblance of respect for its building laws, protesters are crying "foul", calling for action against "guilty" officials who had led builders up the garden path. Wonder how many house-owners would follow up their charge against officials with complaints in writing? No one suggests that officials should go unpunished but the snag is in pinning down the guilty. It’s like a TV chef listing out the recipe for rabbit stew – "First, catch a rabbit..."

Meanwhile, Mr B K Chandrashekar, chairman of the Karnataka legislative council, has weighed in to back the Bangalore house-owners' cause. He has met the urban development department and the Bangalore municipal officials; plans to meet the governor and also talk to the Union Urban development minister. Such is the clout enjoyed by Bangalore's house-owning population.

The halla raised over the Sakrama scheme doesn’t necessarily make it a public-interest issue, like a power tariff hike or a stiff rise in bus fare. Sakrama adresses and impacts urban house-owners who have violated building laws. A majority (as high as 80 percent) in the property-owning segment of a city’s population may well be guilty of violations. Banglore is peopled by a huge chunk of residents who don't own landed property in the city. They aren't bothered by Sakrama. Nor are the law-abiding house-owners.

Building law violators may have reason to feel that regularization rules are stringent and the levy payable is "heavy." But then some banks and financial institutions have, thoughtfully, offered credit to meet penalty payments. A school of thought believes that a regularization levy, to be effective, ought to be punitive enough to deter future violations.

Giving into pressure for lowering penalties would amount to giving violators a tax break at the expense of law-abiding house-owners. Wouldn't they feel like the ultimate loser, for having gone by the book when they built their houses? The legislative council chairman calls for rules relaxation in respect of "genuine" residential sites and of buildings owned by lower middle-class and poorer sections. His suggestion sounds reasonable, and persuasive, if we ignore the point that everyone is, and must be seen to be, equal in the eyes of the law.

Mega Land Grab in Bangalore, The Silicon City

GV Krishnan — Sat, 1 Dec 2007 12:50:25 EST

It is absurd; it’s pure theatre; and it is unacceptable. My reference is to the records tampering allegation a Karnataka Congress MLC has made against the chairman of the joint legislature committee that exposed a 45,000 acre land grab in greater Bangalore. I don't expect Mr A T Ramaswamy to be recommended for a Rajosthava award for carrying out a thankless task of chairing the panel. But to accuse him of foul play is preposterous.

For those who haven’t heard, the Ramaswamy committtee has come up with the finding that 45,000 acres of government urban land in and around Bangalore has been grabbed by 46,000 individuals and institutions. The list is said to include politicians, builders, businessmen, showbiz people, and even heads of spiritual/religious institutions.

ABSURDITY: Mr V S Ugrappa, a Congress MLC, has charged Mr Ramaswamy and others with “tempering documents”, in a bid to “malign political opponents, notably, the Congress”. The encroachers named in the report include family members of a former Congress chief minister. On the face of it, it is hard to imagine that the panel chair would stoop so low as to meddle with documents obtained from government departments in the course of his committee investigation. Mr R would have had to be naive, and downright stupid to have attempted records tampering, even if such a thing were possible.

If Mr Ugrappa has any evidence to substantiate his charge, he hasn’t shared it with the media that reported his accusation. I have a problem with our media here. How could a responsible newspaper report a scandalous allegation without as much as asking the accuser (Mr Ugrappa) if he had evidence to substantiate his charge? The usual balancing ploy media adopts to get reaction from the targeted person (Mr Ramaswamy) isn’t enough in this case; Reporting faithfully what Mr Ugrappa alleged without questioning the veracity of his allegation is not my idea of fair reporting.

THEATRE: Which doesn’t mean his action could go unreported.The story was that this Congress MLC, along with some party folk, barged in to interfere with whatever Mr Ramaswamy and his committee men were doing in Vidhana Soudha. The Congress MLC was involved in an altercation with a committee official. Isn’t obstructing an official from performing his legitimate duty a crime?

Mr Ramaswamy and the committee official were at the Vidhan Soudha to meet the assembly speaker to hand over to him half a truckload of documents held by the committee, now that it had submitted its report.

UNACCEPTABLE: That a serious allegation undermining the integrity of a joint legislature committee and its chairman is made in so casual a manner. And that the person making the allegation is allowed to get away with it.

The Ramaswamy panel, in its seven-volume report lists 46,000 persons/agencies/institutions/companies held guilty of grabbing government land. The scale of encroachment could be much higher than what the committee has been able to detect (45,000 acres).

Mr Ramaswamy, in a letter to the governor, attributes the mega land grab to mischief and corruption “at all levels, with public servants creating and abetting bogus records on the basis of which government lands are grabbed fearlessly by builders and others”.

Legislation providing for special courts to try land-grab cases - the Karnataka Prevention of Land Grabbing Act, 2007 - has been awaiting the President’s assent for the last eight months.

Now that the state is under President’s rule; and that the committee report is with the government, the least we, the people, can hope is that the relevant Bill would get Presidential assent without any further delay.

New Private Sector Banks - Potential Trouble Ahead?

Ramki — Fri, 30 Nov 2007 12:51:00 EST

RBI recently published a report on trend and progress of banking in India (2006-07). This has information on the entire banking industry (scheduled commercial banks, co-operative banks, regional rural banks) as well as NBFCs.

There are a total of 82 scheduled commercial banks(SCBs) and the RBI categorises them into four broad categories - public sector banks(28), old private sector banks(17), new private sector banks(8) and foreign banks(29). Some of the salient features of the report are (data for scheduled commercial banks only):

Aggregate advances grew 30.6% as compared to 31.8% in 2005-06 and 33.2% in 2004-05.
Aggregate deposits grew by 24.6% as compared to 17.8% in 2005-06
Lending to sensitive sectors (defined by RBI as capital market, real estate, commodity) : Exposure to sensitive sectors was 20.37% of advances as compared to 18.84% last year. 20.37% is broken down as 18.71% to real estate sector, 1.55% to capital market and 0.11% to commodities.
Net NPAs as a % of net advances declined to 1.0% from 1.2% in 2006
Net profits increased by 27% as compared with 17.3% in 2005-06
CRAR of all SCBs remained at 12.3% as it was the previous year despite a significant increase in risk weighted assets, well above the minimum RBI
requirement of 9%
Tier I CRAR ratio declined to 8.3% from 9.3% of 2005-06 (due to slower growth in reserves and surplus) but Tier II CRAR increased to 4.0% from 3.1% of 2005-06. Still, Tier I CRAR is above the minimum of 6% prescribed by RBI

The report looks good in an overall sense but if we just focus on the section of new private sector banks (essentially comprising of Centurion Bank of Punjab, DCB, HDFC Bank, ICICI Bank, IndusInd, Kotak Mahindra Bank, Axis Bank and Yes Bank), there are some serious issues that crop up. Let me just point out a few
facts in this regard with respect to new private sector banks:

CRAR of new private sector banks, which had improved in 2005-06 to 12.60%, declined to 12.00%, below the industry average of 12.30% in 2006-07
Lending to real estate is highest among new private sector banks at 32.30% of their advances. This is quite a high figure - imagine that 1/3rd of the bank's lending is to real estate sector
Net NPAs as a % of advances increased from 0.8% in 2006 to 1.0% in 2007
Provisions made for NPAs increased by a whopping 39.43% in new private sector banks as compared to a 6.23% decrease for all SCBs
Spread on assets for new private sector banks was 3.2% against 3.3% for all SCBs - lowest among all bank categories
Operating profits of new private sector banks jumped by 46.7% as against 21.2% for all SCBs, the highest increase % among all bank categories

What does the above imply? How do we reconcile the fact that the net profits are growing, spreads are not really that great, NPAs have risen and lending to sensitive sector is very high for new private sector banks?

The answer is simple but not comforting - all deals done by private sector banks have a component of upfront fees in addition to the regular interest that is charged on the loan. These upfront fees are usually structured in such a way that they are a significant chunk so that this income can be booked for the quarter in which the deal is done. If the interest rate were higher, the money would come in over the life of the loan and structuring rates with a heavy upfront fee ensures higher incomes booked at the time of deal initiation. And this is a structure that is accepted by a lot of real estate developers and they are willing to pay the higher upfront. The core interest rate charged to real estate developers would also be higher due to the fact that there is a higher risk weight attached to the asset.

So what is the outlook? RBI is heavily coming down on lending to real estate and these banks would be forced to prune their real estate exposure and this would surely impact their bottomline. The real estate prices have marginally softened in the last six months due to lesser demand from individuals but has not seen a significant dip due to the fact that the developers are not willing to cut prices, even though the sales figures have gone down. And RBI is in no mood to cut interest rates and hence sooner than later, these developers would have to cut prices. And that would affect their repayment capability and this could create more NPAs for these new private sector banks in the coming months.

Stock prices of the new private sector banks are hitting all time highs - but it is time to be cautious on these names.

Rural Poor March on New Delhi Demanding Land Reform

Dr Bhaskar Dasgupta — Fri, 26 Oct 2007 01:40:04 EDT

Twenty five thousand people are on the march to Delhi. They are on the Delhi-Agra Road and will reach Delhi in a few days now. These are not even people in the eyes of the state and the urban populace blinded by the advertisements for TV, reality shows, cars and holidays. These are the tribals, the untouchables, landless labourers, people who have nothing left to loose.

They are marching on to Delhi to demand land, land that was promised to them, land that was stolen from them, communal land which was sold out under their noses, land that they cannot recover from corrupt land developers and politicians.

I talked about Naxalites last year and agreed with the Prime Minister that the Naxalites were the single most threatening issue to the integrity of India. But nothing much has happened to them. The same corruption, the same ignorance and same mindless consumerism has taken hold.

The Naxalites have used exactly this issue, the issue that the rural poor are not being looked after. The government has become a parasite at worst and uncaring at best. When that happens, there is a vaccume of governance and it is no surprise that ideologies such as Maoism have crept in and now threaten the viability of a large democratic state such as India. The same thing is happening in China as well.

Land reform which started promisingly in many states such as West Bengal, Kashmir, Kerela, Andhra Pradesh, etc. But the Bimaru states suck at this. See here for a great overview of this very complex issue.

Another factor, given the state of the world agriculture markets, it is impossible for a small 1-2 acre plot to be economically viable and support a family. It is simply impossible. But still, that is an asset to the family and if you do want to take away the land under the eminent domain laws, then you are then forced to pay compensation to that poor tribal, landless labourer or untouchable. That is fair, no? But corruption takes away his land, his living, his compensation and more importantly, rots away the framework of the state which allows termites like the Naxalites to bore away and weaken the state.

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Reverse Mortgage Loan - A Quick Review

Dr Bhaskar Dasgupta — Thu, 25 Oct 2007 11:45:37 EDT

A banker old friend of mine from India sent me this note (Thanks Anjan!) (note given at the bottom). It is an interesting financial product, it provides you with the way to take the returns from the main asset in your life and go enjoy. The concept is simple, you have got a flat/house which you have paid off and are living in it. So what do you do to unlock the value? You re-mortgage it to a bank, get loads of cash for it, and in return, the bank takes ownership of the house/flat. When you die, the bank asks your heirs to either purchase it back or sells it off.

I agree that old Indian people do not enjoy their lives. Look at the poor widow's, they aren't even supposed to eat spicy food!, and believe you me, this feeling is still out there in major waves. So getting some good ready cash in retirement and using it for fun purposes appeals to me. Far too often, old people are taken for granted and are used as cheap baby sitters or thought about as burdens.

While this sounds like a great thing, some aspects from the British and American perspectives should be checked as well. The house is one of the most common assets which are called as inter-generational assets. It is this passing down of the asset which provides one of the key links in the establishment of the family social unit.

If there is no asset link and the parents move the asset out of the hands of their children, then the link breaks. More importantly, one has to remember that if the link breaks, then the responsibility for their life also remains with the old couple. And there are loads of downsides to this. For example, you would see that the couple manage to take their house and re-mortgage it. Then spend the money in going on cruises. Now they have spent the money, and the children are alienated from them (a sadly common scenario).

Then they need nursing care, and what happens? They are either dumped into a council old age home if they are lucky or they go into hospital for long term care. The first is desperately lonely and the second means that your life is shortened, hospital beds are not meant for long term palliative care.

Remember that India does NOT have a welfare net to take care of the old people nor is there good quality public health care with long term hospital care at a cheap price. My father's open heart surgery cost about 1 million rupees in a B class city. Pretty much on the middle to higher scale, it would have cost much more in the metropolitan areas. A typical house would cost say 1-2 million. Now just imagine, just one operation would take up most of the asset price. Then what?

Finally, take a look at what happened recently. Given the fact that there is such a high level of inheritance tax, there was almost a huge political upset when the opposition conservatives promised to chop the inheritance tax. People DO want to pass on their assets to their children. But when the taxman takes 40-50% of the asset, then you are stiffed and the essential pact between the family, generations, society and political system is weakened badly

So I would be very hesitant in pushing this kind of mortgages with gay abandon, one has to remember very carefully what this means.

MUMBAI: Traditionally in India retirement from active service is usually considered to be the end of active life, and sooner or later a retiree becomes entirely dependent on his or her children. A promise in the current year's budget by Finance Minister P Chidambaram of introducing reverse mortgage products is now fast liberating the senior citizens from that conservative parental mindset, putting him at a par with his European or American counterparts.

Reverse Mortgage Loan (RML) is essentially for the benefit of senior citizens, above the age of 60 years, against the security of their self-acquired, self-occupied houses. The loan is usually paid off by the legal heir of the borrower or is recovered by the sale of the house.

According to trends being seen by a few leading banks which have already introduced RML product, they are receiving an overwhelming response from senior citizens.

"The old, who are otherwise deprived or enjoying a tour or making a purchase due to non-supportive children or any other commitment, can now avail of a loan, and that too, without bothering about repayments in their lifetime," said Sangeet Shukla, chief general manager of the State Bank of India (SBI), while talking to this website's newspaper.

On the encouragement of the National Housing Bank (NHB), several commercial banks like Punjab National Bank and SBI have already introduced RML product. Looking at the expected demand, not only private banks like Axis Bank and ICICI even co-operative sector banks like Kerala State Co-operative Bank are likely to announce a RML product very shortly.

"A RML need not be repaid by the borrowers during their lifetime. They will also continue to stay in their houses during their lifetime. Thereafter, an option is available to the legal heirs to repay the bank loan and redeem the property. If this option is not exercised, the bank will sell the property and liquidates the loan and surplus, if any, will be passed on to the legal heirs," Shukla explained.

The interest rate on the RML currently varies from bank to bank, however, they are usually available at a rate comparable to the normal housing loan rates of that bank. For instance SBI's RML carries a fixed interest rate of

10.75 percent.

Speaking to this website's newspaper, Imtiaz Ahmed, AVP mortgages of Axis Bank said that there is a good demand expected for RML as senior citizens have hardly any other options left to explore a particular activity, which may need hard capital.

"Unlike in the Western countries when a retiree actually begins his second inning by planning long tours, a new project a profitable community activities etc, his Indian counterpart usually manages with a little interest or pension, which he may be entitled to and can hardly think of enjoying any liberties. We are also encouraging more and more senior citizens to avail a RML which will surely envisage fulfilling their cherished dream in their spare time," Gita Srinivasan, working for a senior citizen welfare association, said.

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Picking Stocks in Real Estate

Ranjan Varma — Fri, 23 Mar 2007 12:40:17 EDT

One of the questions asked of my earlier post was how to choose a stock to invest in.

It is alright to say, " You can start with identifying a list of 10-15 companies out of 3-5 sectors which you know or which interests you. You can keep a tab on their management team, financials and future outlook and over a period of time, you will be able to take a call on them." I guess, it's good in theory.

How about we do an analysis of a sector and then take a look at some of its stocks. Let's take a look at the Real Estate/Infrastructure sector which is so much in the news.

When we do an industry analysis, what are the things we look at? Companies producing similar products are subsets of an Industry/Sector. For example, National Hydroelectric Power Company (NHPC) Ltd., National Thermal Power Company (NTPC) Ltd., Tata Power Company (TPC) Ltd., etc. belong to the Power Sector/Industry of India.

It is very important to see how the industry to which the company belongs is faring. Specifics like the effect of Government policy, future demand of its products etc. need to be checked. At times prospects of an industry may change drastically by any alterations in business environment. For instance, devaluation of rupee may brighten prospects of all export oriented companies. Investment analysts call this Industry Analysis.

To start with, let's look at some macro facts and observations about the industry.

The Tenth Five Year Plan has estimated a shortfall of 22.4 million dwelling units in the country. According to one estimate, over the next 10 to 15 years 80 to 90 million housing units will have to be constructed.

The investment required for constructing these dwelling units and for providing related infrastructure during this period will be of the order of $666 billion to $ 888 billion at roughly $33 billion to $44 billion per year ($1 billion = Rs 4,400 crore).

There is a steady growth in Housing Finance sector of approx. 30% over last four years. The rate of interest for housing finance has become reasonable and affordable which has resulted in more credit offtake and subsequent maturing of the housing industry. Even though there is an increase, the rates are still reasonable to my mind after factoring in the tax benefits.

Fiscal benefits provided by the Government of India have encouraged the end users and investors alike.

Income of the urban buyer has grown substantially. There is tremendous scope and growth in the Infrastructure Development.

Foreign investment by way of FDI has been approved. Emergence of professional builders in the market with proper accounting standards. There has been an emergence of rating systems for building projects.

The high growth of the real estate sector has led a lager financial institution to launch a dedicated real estate fund. These funds are simultaneously enticing large institutional investors as well as High Net worth Individual (HNIs) to expand their portfolio.

The award of ultra mega power projects and privatization of airports demonstrates a commitment at the highest level. So the momentum to build up roads, ports and urban infrastructure is building up for sure.

The JawaharLal Nehru Mational Urban Renewal Mission (JNNURM) initiative in 63 cities and urban transport projects will also drive up Investments in Infrastructure. Water Supply projects and sewerage projects would be part of the JNNURM.

So what do you think about the future of Infrastructure stocks in India? Ready to take a call?

There are three major stocks in the Infrastructure sector which are worth talking about: 1. Nagarjuna Construction (NJCC) 2. IVRCL and 3. HCC

Remember, do not go by the order book size alone, which is what many people do without understanding the intricacies. We need to understand the execution period of the order book, and the kind of margins that the company would make, given the kind of raw material prices at which it has booked these orders.

Even though it may look daunting, a little bit of research helps you in understanding the stocks as well as improving your general knowledge.