Real Estate Investments Made Simple

The Inquisitive Minds, features guest authors who are interested to contribute to the readers of this blog and the author of this article is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.  He has been a regular on this blog for a while now. If you would like to contribute something then please let us know on guest [at] melvinpereira.com.

Gold and Real estate are very traditional investment avenues. Gold has evolved from its traditional investing and found its place in the modern sophisticated investment world via Gold ETFs. Similarly Real estate is also emerging as an investor friendly avenue with less hassle via PMS route or private equity route. Have you ever thought of investing in real estate will one day be as simple as investing in mutual funds? If no please read on….

Real Estate as an Investment:

 Buying a dream house or flat to reside ourselves is basically not a real estate investment. Buying real estate with a view to generate income and capital appreciation is considered as Real Estate investments.  Real Estate investments can be further classified into residential, farm house, commercial, retail, leisure. Leisure is a relaxation place where one can spend their free time or vacation.

Depends upon his/her risk tolerance and time horizon one can invest in real estate at different risk levels. It can be at the time of converting a rural land to urban land, or at the time of building development stage or in already developed city area.

Real Estate and Risk:

Most often investors assume real estate prices will not fall down and they only go up year after year. It is not so.  During the mid 2009 some of the real estate investments were quoting below 30% to 40% from their 2007 prices. Real Estate investments are also prone for price fluctuations.

Real estate Vs Stock market:

Real Estate is a complex and complicated investment when compared to stock market.

Non-transparent: There is no transparency in the price. It is not easy for a buyer or seller of real estate to identify the last transacted price in the same locality. There is no price discovery mechanism.

Illiquid Asset: Selling a real estate is a time consuming process. It is not liquidable easily. There is no organized market for the buyers and sellers to meet.

Impact Cost: Stamp duty and registration charges are really very heavy when compared to the other investment products.

No Regulator: There is no regulator for the real estate participants and intermediaries. Anyone can become a builder. Technical qualification is not mandatory. Also anyone can become a real estate intermediary or advisor. There is no certification or training to be completed before practicing.  As there is no qualification requirement for participants as well as the intermediaries, it is very difficult to see best business practices.

Real Estate hassles:

The other hassles with reference to real estate investment are documentation, maintaining the asset without any encumbrances, and genuineness of the title deed.

There are some practical problems with diversification. Normally an investor invests in a real estate in his own locality. It is very rare to find someone in Chennai investing in the real estate properties located at Mumbai, Delhi or Kolkata.  Affordability also limits diversification. An investor may not be able to diversify his investments across various cities with Rs.25 lacs or 50 lacs.

It may not be possible for an individual investor to buy a land and develop a viable project in that land and sell it in the market. Managing the project development need some kind of expertise.  Even if an individual is able to do it, he will be doing it in his limited ways and means.

Is there a solution for this? Of late yes.

There are some collective investment vehicles. These investment vehicles will be promoted by an investment management company. The investment management companies collect money from investors. Being professionals, they will identify good projects and do joint venture with the project developers. They will be able to diversify across various cities as well as various types of real estate investments such as housing, commercial, hospitality and the like. These investment management companies charge a reasonable management fees.

At times they collect money via PMS route and at times via private equity route.  The minimum investment ranges from 10 lacs to 25 lacs. This amount needs to be invested over a period of 3 years. That is they will collect money from investors in 4 or 5 installments. After 3rd year whenever they exit from a project they will repay the principal employed in the project as well as the profit generated out of that project. End of 6th year or 7th year, the investment management company will exit from all the projects.

The advantages of this collective investment vehicle are

  • One can invest into real estate without any hassles. All the hassles will be managed by the professional investment management companies.
  • One can invest in various real estate projects at a time.
  • One can geographically diversify his investments across India.
  • One will be able to apportion his total investment into small sums in large projects like township development, Technology Park, industrial estate, health city…
  • Cost advantage because of economies of large scale operation

This is really an investor friendly investment vehicle. Apart from the regular stocks, mutual funds and fixed deposit investments investors can consider investing in these real estate products also. This will give better diversification to your overall portfolio. Also Investors need to be careful in choosing such investment options. Background of the investment management company and their transparency levels are more important. Investors can seek the advice of the professional financial planners before investing.

This investment vehicle is in its primitive form only. It still needs to go a long way. As of now there are only a very few companies in India which specializes in promoting collective real estate investment products. But in a few years time these kinds of products will be available from various investment management companies and in different varieties like our present mutual fund schemes.

Change is Inevitable – Need your views

Its getting close to a year of the existence of this blog on a self sufficient domain at melvinpereira.com, having its own sub domain blog.melvinpereira.com, and I have been trying to be consistent with the content coming on to this blog, including the very popular Wordless Thursday and other regular articles. In the past few weeks, the viewer-ship on the blog has significantly increased and I would attribute this to maybe increased awareness and an updated Google Pagerank as well.

Ηράκλειτος (Herakleitos; Heraclitus) of Ephesus way back in the times of the greek, had a very famous quote that people use until this day.

“The only thing constant in the world is change”

And considering this I have decided to add more diversity in content, am also going to be working on a theme to change a bit of the look and theme of the site including some changes in the plugins that I am using etc, to help make the site a bit faster (yes I do realize that its slow at times). More changes will be bought over in some time, however for a start I have started to include Guest posts now, posts that stay within the realm of inquisitive and interesting but could be from different fields and not only confined to technology. The first two guest posts are already here on the blog and you can see them here :

Guest Post – Mutual Fund Myth Buster

Guest Post – How to create a workable budget that gives you money and life?

More importantly, I have been requested by some students and kids (surprisingly who read my blog) to write about careers and what they might entitle, in terms of the work that they are doing, what people would need to do to get into that industry etc. I hope that this section would really help some of these students and kids who are reading this blog. The new section named “Inquisitive Interviews” will feature weekly some interesting everyday people with varied job profiles helping students make informed decisions on their career paths, from people in those industries. I have already requested some of my friends from different fields to actually feature in this section and it will start in a few days. Please let me know of what you think about the sections and the content in them.

A shout out to the regular readers, any suggestions and comments are really welcome to help make this blog interesting and inquisitive enough for all of you. Waiting for your responses …

The Art and Science of Photography

I mentioned last week that I was heading to Bangalore to attend a photography workshop and I just did, the past few days have been an exhilarating experience when it comes to learning. The workshop that I attended was aptly called the Art and Science of Photography, teaching to use the device in hand to manipulate light in such a way, that the image produced by it would be stunning. Aperture, Shutter Speed, ISO, Exposure Compensation, and many other parameters that make up an image, forming the science of the photograph and the composition and story making the art part of the image. The workshop which was conducted by Kalyan Varma, who I believe is India’s best wild life photographer, was something f a revelation. From learning about the different components used to capture light to make brilliant photographs, to photo processing techniques used by early photographers using film cameras. Real eye opener.

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Photography has long been associated as an art form, and the DSLR’s have made it more of a gizmo that provides geek food. I would attribute the new SLR revolution to the Geekified image of the new SLR camera. And being a gadget the focus has shifted to photography as an art form but also as a small stream of science. The Science of manipulating light and producing mind boggling images. But like everything else these days, I think we as photographers are really getting carried away with the electronics and the gadgets. Good equipment does not always mean good photographs, however good photographer even with a crappy camera can take amazing photographs, if you search for Mobile Camera Photography you will know what I mean. Getting back to the topic of Gadgets and Photography. Here are some excellent examples of cameras ads that have aired over the years (the Polaroid one is the best), notice something similar… all of them try to convey the same message to the photographer, that the new camera is compact and light weight to take good pictures 😉

At the end of the day Photography is all about the photographer and his keep eye to freeze a moment to make a good photograph. This was one of the most important things I learnt at the workshop, having a great camera just helps the process. I am going to be posting images from my Photography workshop on my photo blog (http://photo.melvinpereira.com) soon.