The Best Real Estate Advice

Sometimes it’s hard to find investors who will give you the kind of advice that you really need. So what do you do?

A question that I’m often asked and which has been bothering me also for a while now is where can investors go to get the advice that they really need - the kind of advice that they can trust? It’s easy for me to ask them to mail their questions to editor@realtortoday.com. I won’t deny that lots of people do write to me, but there have been times when I’ve seen plenty of “sources” of information that are tainted and skewed away from what is best for investors and that really bothers me. So as I write today, it got me thinking about the question all over again.

No Lessons Learnt

Even after repeated acts of violations by rogue developers, we refuse to learn our lessons and return to invest with them

Even if you’re no backwoods philosopher, but when someone says it’s safer to live under a tree than invest in a Noida home, how right is that? Real estate, especially in Noida, has become something of a bad word to most investors. Rogue builders abound, so does a politician-authority-developer nexus. What’s surprising, however, is the buyer’s indifference to it all. Even when it’s well established that A, B & C builders are best avoided, you get the news that they are launching new projects and the response has been terrific. 

Downsizing: the Upside

Downsizing is now the main reason people sell their homes as growing numbers hunt for a smaller property in an attempt to cut their bills and boost their income

When my son started going to college a couple of years back, I was surprised to know the majority of his classmates bought a daily coffee and a muffin, or breakfast sandwich from either Barista or Starbucks at Kamla Nagar. Additionally, and this is no exaggeration, about 50% also purchased lunch from KFC or McDonald’s daily. For us, Chacha’s chhole-bhature was the ultimate but times have changed and people are very wasteful now. The implications should be obvious, but aren’t to most millennials (Born 1979 – 1996), 70% of whom have smart phones, but no savings. I don’t think the millennials will be collecting a pension at all. I will be surprised if Gen-X (Born 1965 – 1978) collects either. I don’t and that’s a whole lot of problem. The asset-rich, time-rich fiftysomethings are the last of the good-time generation. So what’s the story?

Credit Karma & Need to Score High!

Don't forget to think about money and credit scores because the latter determines your access to loans, credit cards, apartments and even jobs!

You probably already know that you can damage your credit by not paying bills on time. You probably also know that when you apply for a line of credit, the lender asks for copy of your Income Tax returns for the last three years, your salary details, bank account summary and stuff. “Any loans pending, Sir?” is a definite one followed by “Do you use credit cards?” Most of us do, but did you know about a credit score? Do you have any idea what the bank executive does with your reports and the PAN card details? No? Here’s what I learnt when we went refrigerator shopping. The four-door monstrosity cost a lakh, but thanks to Bajaj Finserv for a hassle-free personal loan, we managed. But not before we spent some anxious moments regarding my “credit score”. While my score didn't qualify me for getting the refrigerator, thankfully my wife’s did. Though we got the fridge home and I was too happy to put my bubblies for the evening party at home, I couldn’t put the rejection thought out of my mind. I had to tell it to the world, especially those who’re footloose and fancy-free like me.

Desperate times for brokers

Amid millions of searches but few purchases, brokers are being forced to tweak their business models. Some have turned lead generators for developers desperate for sales. A few, however, won’t stop at attacking others to keep them off the market!  

It was starting of this month (Truth Hurts) when we talked about how one of the biggest problems facing the real estate sector is the public’s perception of Realtors (read brokers). Tuesday morning, we saw another side of the profession. A mob of 50-odd agents and brokers stormed the Bangaluru HQs of NoBroker, a home rental startup. There were around 100 employees, including 30 women, when the group barged into the office, said Amit Agarwal, CEO, NoBroker.com. "We tried our best to pacify them but the group was aggressive. We finally had to call police," he said. They picketed the online house-hunting marketplace and shouted slogans, saying the company was ruining their livelihood. So that’s the stark reality. Business is in tatters and things are falling apart. The problem is there are way too many agents and brokers out there and many of them think that being an agent is an easy way to make some fast money. 

Fed up waiting!

Even if the Fed hikes rates for the first time in more than nine years, it may not be the end of the world, especially for investors with a time horizon longer than a few days

So Janet Yellen decided to hold off on pulling the trigger in September. The Central Bank’s grande dame held fire on the first rates rise in more than nine years as she admitted “uncertainties abroad” had made it more risky to tighten policy. Just before her press conference, however, the betting was about one in three that the hike will come on Thursday (September 17), two in three that it will be in October and three in three that it will be by the end of the year. This is called “tightening of monetary policy.” It’s also referred to as “the removal of stimulus.” The Fed Reserve wants to throttle back on cheap money since the economy there is growing smartly and too much stimulus could lead to explosive consequences.

Makings of an Intelligent Developer

Not everyone has what it takes to plan and undertake a successful property development business. From novice developers to seasoned practitioners, there’s a lot to learn from the way ATS works.

It requires some business sense and skills, but becoming a real estate developer is an endeavour that people from all backgrounds are capable of doing. From a minimally qualified landowner to IIT alum to a scion of a top real estate firm educated abroad, almost anyone can turn into a developer. However, it’s not always as easy as it looks to find a piece of property and turn it into a success. The flip side is many developers run out of cash before cashing in. If there’s a great opportunity to make money in property development, there is also a great opportunity to lose it all because the risks are higher. Mostly, poor cash flow is the primary cause of business failure. There are, of course, other reasons too.

Are these homes worth 50-km commute?

Location issues keep targeted buyers away, but bring in enough investors wanting to park their money in low-cost housing

It’s not easy locating the low-cost housing being built at Sector-22D, off Yamuna Expressway. In fact, if you don’t have your own commute, there’s no point taking all the trouble of wasting a whole day getting in and out of buses and shared autos that drop you a good distance away to walk the rest. “Close to 50km from Noida, with no public conveyance, schools, hospitals or jobs, the YEIDA scheme defeats the whole idea of affordable housing,” says Rati Ram, a vegetable vendor, who cancelled his allotment recently. “But how can we build low-cost housing in Noida when the land rates have gone so high and there’s hardly any land parcel left?” asks a Yamuna Expressway Industrial  Development Authority (YEIDA) official. “If the total cost has to be kept low, affordable houses can only be built at the periphery of the city,” he explains.

Better Aware Than Sorry

Passive real estate investing does not mean lying in a hammock on some faraway beach for the rest of your life sipping Pina Colada. If you think it does, then get ready because one day that hammock is going to send you flying!

Arshad is an NRI who lives in Singapore with his lovely wife and two pretty daughters. He’s 42, works for a leading American multinational, while his wife is a doctor. He tells me they’re doing well enough to invest in a few apartments in Delhi & NCR that can produce cash flow every month. “We are well settled here and have no intention of returning to India in near future, at least. But can you help us in identifying the locality and developers we can invest with? How’s Supertech Supernova to invest? Or should I try the villas on Dwarka Expressway?” he asks. Well! Arshad isn’t the only one who wants me to turn a few loaves and fishes into a lifetime feast. I know several HNIs who want to be real estate investors and sit back, relax, kick off their Birkenstocks, sip that deliciously refreshing Mai Tais and mumble to themselves in soothing tones, “my people are handling it.” It creates quite a vision as you are being sold all the advantages of hands-off, hands-free, completely passive real estate investing. If you visit personal finance or investing blogs on a regular basis, you’ve probably read countless articles on the virtues of passive income. Many personal finance experts believe that passive income is the key to early retirement, financial independence, and permanent wealth. They tell you that one of the most popular ways to generate passive income is to buy (or finance) an income-producing rental property and become a landlord. And as the percentage of households that rent is on the rise, now may be the perfect time to generate passive income.

Truth Hurts

Brokers need to do a better job explaining what they do to clients – it is not just about driving around, showing a few homes, and collecting a commission.

Hundreds of online portals or websites that claim to push only direct deals can't put the brokers out of business. That's for sure. Not yet. That means we have to bear the middleman and deal with the 'necessary evil' as most people like to term them for as long as they are around. Now, how has the profession of being a broker garnered such distrust? Is it because the realty sector has become saturated with a far greater amount of inferior or mediocre agents than those who want to stand out and be the best that they can be? The perception of a real estate broker is that their job is easy. Income is unearned. They make too much, which may not be easy right now. They lack training and real knowledge. They are just looking for a sale.Maybe they aren’t necessary at all. 

Loss of Faith

Customer behaviour has changed in the last few years and a developer’s biggest challenge today is to regain that lost faith and win the confidence of homebuyers

Struggling with slow sales, high unsold inventory, delayed construction and stalled project, a developer will do anything to make things work: deep discounts, free parking spots, and resort to gimmicks like gifts of gold coins and motorbikes. Anil Mithas even signed the sensuous Priyanka Chopra for a few crores hoping her million-dollar pout – she never looked worse - will jolt buyers out of slumber and rush to the nearest Unnati Fortune associate. Alas, there are no signs, yet, of things getting better anytime soon. Buyers have simply lost confidence in a developer’s ability to build and deliver a project on time. If an acute liquidity crunch was the big worry in the aftermath of the 2008 crisis, now it is buyer sentiment — potential homeowners simply don’t want to get into the market.

Fixing Our Housing Crisis

The Government says Housing for All is the answer and far more homes need to be built, but it doesn’t say what kind, where and by whom? Developers are hard pressed for money to complete their projects and deliver. At the same time, unsold inventory scenario reflects a state of emergency – a crisis enveloping more and more of the city's people and changing its neighbourhoods for the worse. It is a crisis with several causes but linked effects: the price of buying a home is soaring, there are hardly any affordable homes in sight and an expensive, often perilous, rented sector is expanding into the gap. The impacts are extending across Delhi NCR's broad social spectrum as an inflated property market excludes more of the middle class and government policies fail in their own terms and make bad situations worse. The consequences include anxiety, overcrowding, financial stress, economic harm and damaging forms of population churn – a bad recipe for any city. But what are the remedies? Fixing our housing problems will require realism, boldness, big policy shifts, serious political will and, guiding everything, clear ideas and principles about what makes a city work well as a place to live. None of this stuff is easy: there are balances to be struck, compromises to be worked out and competing needs to be reconciled. But the large task of making a bigger Delhi NCR better means accommodating its majority, those on low and middle incomes alike, more securely and affordably. Your wise thoughts on ways forward are welcome.

Meant To Rent

As house prices refuse to climb down, the high cost of raising a 20% down payment is further locking large segments of society out of the housing market. The day isn’t far when a significant number of those under 40 will be living in rented properties.

Most of our young believe our metros will become cities of renters within the next generation. They say that renting rather than buying will become the norm because housing costs are taking up so much of their income that they are struggling to save enough to buy a home of their own. “A large part of us might have to wait until we receive an inheritance before we can buy a house of our own,” says Damini Singh, a 26-year-old software professional, who shares a three-bedroom flat with her boyfriend at Sector-29, Noida. “There is going to be a generation that potentially has to wait for inheritance almost to get themselves on the property ladder. Otherwise where do we get the 20 percent down payment for the house? We will have to save for years for a decent house deposit.”

DLF: Rising From The Dust

The JV with Singapore's GIC is part of larger DLF plan to sell partial stakes in various projects to improve cash flow and lower debt

It is not the first time and it can’t be the last either when DLF Ltd stages a dramatic turnaround. For the investors, however, every move that India’s most valuable real estate firm makes to battle debt pile-up and sluggish sales is reason to cheer. No wonder on Thursday, September 3, DLF shares climbed 5.1% to Rs 115.20 in wake of company plans to raise about Rs 10,000 crore. 
Plus, the realty major said its shareholders had approved a proposal to pledge more than 50% of its shares in three of its units to raise as much as Rs 7,500 crore. What brought the loudest cheer, however, is the fact that DLF has inked a deal with Singapore’s sovereign wealth fund GIC to sell a stake in two upcoming projects located in Central Delhi. Here, we must add that the projects are close to the under-construction DLF Capital Greens in Moti Nagar and part of the same 38 acre land that DLF bought in 2007 from DCM Shriram and Lohia Group.

ATS bags a Grandiose deal

Even as unsold inventory level peaks in the NCR, ICICI Prudential AMC commits Rs 130 crore to the Noida-based developer

You know the tale about how the slow-but-steady tortoise perseveres to beat the speedy-but-inconsistent hare. It turns out that lesson applies to investing in the current slow market, too. It’s easy to be attracted to investments that surge ahead like the hare when the going is good. But ICICI Prudential AMC, India's second largest fund house, has invested Rs 130 crore in a Sector-150 project on Noida Expressway at a time when unsold inventory is bursting at its seams. The lucky developer happens to be ATS Infrastructure and this is definitely the first PE player trusting ATS with its funds. So when most developers are finding it tough to meet both ends, ATS has bagged the plum deal that should keep the developer busy delivering projects on time.

Tease Me Tease Me!

HDFC has cut its base rate by a steep 35-basis point, but SBI Chairperson suggests teaser loans to revive the property market. RBI Governor, however, feels lowering of home prices by developers is the only way forward.

The day HDFC Bank cut its base rate by 35-base points to bring it down to 9.35 per cent, far below the 9.7 per cent that leading lenders, like SBI and ICICI offer, the move spooked banking stocks. None of the major banks, however, are yet to follow with similar cuts of their own. SBI Chairperson Arundhati Bhattacharya, who doesn't miss a chance to speak her mind, however, feels we better go back to the teaser home loan days of 2009. Sharing centrestage at a recent Mumbai event with big man Raghuram Rajan, RBI Governor, she suggested for a limited period, “home loans could be given at below base rate for the already heavy stock of housing.” It was the same event where Rajan said: “It would be a ‘great help’ if realty developers sitting on unsold stock bring down prices … Once the prices stabilise, more people will be keen to buy houses … I think we need the market to clear.” Rajan said with growing unsold stock, “we need to see the ways to do it. Some of it might be by making loans easier, but we also don’t want to create a situation where prices stay high at the level which means demand can’t pick up.” But why teaser loans, Ms Bhattacharya?  “Today, the base rate is 9.7%. I am told that real estate inventory is at a two-year high and I was thinking if it is possible for a little while… could something of this (teaser loan) kind be allowed,” she said.