Mark Twain very famously once remarked

Buy land, they are not making it anymore

Personally, I feel, never has any real estate investments been better advised than above.

My good friend, Ajay Dabas returned from the USA in 2005, and we huddled together to identify the areas where he could invest his hard earned money. The brief was clearly to focus on three factors, on which to scale the investment strategy.

Risk

On a 5 year horizon, how much would each investment avenue Grow / Stagnate / or depreciate

Terms

Entry level pricing to be benchmarked against the stay-in period of investment over a 3-5 year window

Liquidity

How easy would it be to profitably exit, in parts or in whole?

Our detailed study & exercise led us to the conviction that land is less volatile compared to mutual funds, stocks, equities, investment trusts etc. Haven’t we all experienced and witnessed the massive erosion of wealth & valuation in the past few months, on most investment instruments mentioned above?

Ajay Dabas is not one of them. He is rather happy for his strategic decision to choose land over the other mediums, as the preferred investment three years ago. As for valuations, his investments have already  ppreciated over 300%, and still going strong.

It would be a good idea to share the seven reasons why we feel that investing in land is the best option within real estate compared to the much more “touted & publicised options” of built up spaces in buildings.

1. Land is an evergreen, ever-growing asset. Brick & mortar assets like buildings (mall space / office blocks) deteriorate with time, whereas land only appreciates with time. Remember, some studies confirm that the value of any commercial building becomes ‘Zero’ in 27 years. Even when the building is useless & demolished, what is left behind is land.
2. Land is an asset from day one. It has very little lead time to mature from purchase to progress. For e.g. If you are an early bird buyer for a residential or commercial property, it typically takes 3-5 years for your asset to be registered in your name, and to draw returns from them. One keeps investing money & time for 3-5 years, without returns. Land can be registered immediately, and can start delivering returns.
3. Land is one asset which affords the most flexible options, within the real estate products. You can choose to buy any size & dimension, any value, anytime. Besides, land can be put to multiple use during the period of ownership. Let me elaborate. Agricultural land if invested into; can be used for farming. Post zoning, land use can be changed and commercially used. Anything build on it can be redeveloped, for e.g. the same piece of land could end up being used as warehouse premise, commercial, residential, etc.
4. Land affords simple investment management. Once bought, it doesn’t incur high costs compared to built-up products. It is most likely that the land bought is self sufficient in deriving the maintenance cost, whereas, the other products attract a continually incremental maintenance.
5. If we analyze the supply vs demand for real estate products in our country, land as a commodity would remain in demand for the next couple of decades. There is an acute demand for finished products, which would have to be constructed on LAND. Hence, investments in LAND are bound to grow, provided the buying strategy is right. For e.g: Delhi as a city state is forecasted to grow from 136 lakhs to 240 lakhs of population in the next decade. That necessitates almost another few thousands of hectares to be brought under development. Hence, invest in land today, rather than wait for appreciation at a much later date; at much lower returns.
6. With the economy projected to grow at a fast rate, and with disposable incomes being higher, aspiration of green living, bigger houses, better amenities, affordable luxuries etc. would take over. Those can be achieved on bigger land chunks being brought under development. Hence, invest in land today.
7. Land affords the “right balance in your real estate portfolio“. While investing in real estate, one needs to have a right product mix to hedge the risk, with one or two products which are low on risk and high on returns. That is what land promises to be.

Having said the above, we also advise our clients to exercise the right amount of caution and source expertise while buying land. Seek out experts rather than take the ‘gut-feelapproach’.

Analyze-understand-replicate success stories in land as a portfolio rather than try to re-write a success story. Remember, all leading developers in our country grew at this scorching pace on valuations, using land as the growth engine.

Happy Land-ing!!!

Popularity: 18%

On Sunday the Government released a statement saying, Public sector banks will shortly announce a package for borrowers for home loans in two categories — for loans of up to Rs 5 lakhs and Rs 5-20 lakhs  The housing sector has been in trouble in the last 6 months with very few takers for houses.

With this bailout package, the government is going to subsidize the banks providing housing finance.  I believe, instead of doing this, it should try to control the price set by the builders. 

Tell me in which Indian city will you get a flat for 5 to 10 lakhs?  It is not possible in Tier I and Tier II cities.  Or only those who have 15 to 20 lakhs cash in hand will benefit from this package.  If you take a look at the top cities in India, the real estate prices are ridiculous. In cities like Hyderabad, it is almost impossible to find a flat which is less than 30 lakhs.  If you want a flat in the city or near the city it will not cost you less than 50 lakhs.

No government employee will ever earn more than 50,000 rupees a month and 90 % of private sector employees earn less than 25,000 rupees a month.  These people would never be able to buy their dream houses if flats are available only at such astronomical prices.

Have you ever tried to calculate the cost of construction?  I know a couple of builders and I got these figures from them.  For a super deluxe flat, for a square foot, cost of construction (including the land price) will be between Rs 800 to Rs 1400.  This might vary a bit depending on the land cost.  So if an sft is costing Rs 1400, have you ever seen builders selling it for 1600 or 1800?  They will never sell it below Rs 2500. They almost make 100 % profit.

Also remember that the prices of steel and cement have come down but flat prices wouldn’t come down in the last 6 months.

If government really cares for middle class people, they should set a cap on the profits made by realtors.  Like cement and sugar, regulate the prices of houses.  Ask the builder to provide the cost of construction and allow him to make a maximum of 30% on construction cost.

Providing cheap loans to people for buying houses is a failed American policy. 

The government is encouraging realtors to keep their high margins and using the tax money to subsidize loans.  I urge the Government to increase the affordability of houses.  In all the metros there should be at least 30 to 40 % reduction in the prices of houses and apartments.

Right now the sentiment is low and reality sector is under correction.  Please allow the correction so that it can regain its health. A correction in these overhyped cities will eventually bring down the prices.  Don’t coerce it to gain artificial health by spending tons of people’s money.  If people don’t buy flats for another 6 months, and we can see the prices drop by 30 to 40%.

In the last few years, people panicked and purchased houses, as they thought the property prices might further increase.  But what people forgot or didn’t notice is that in any economy nothing can keep increasing for ever.  It took a big crisis (subprime) in a big economy (America) to prove it.  Not just the people but even banks missed this simple truth and got into trouble.

We the people of India should understand how the economy works and make wise decisions while a buying house. 

So whom is this policy going to benefit?  Definitely not the people in Metros and Tier I cities. It will benefit Tier II and Tier III cities.  Our infrastructure is not able to handle the current growth. Cities like Mumbai, Bangalore and Hyderabad have become costly. This will force builders, IT, manufacturing, and other investors to invest in tier II & III cities.  People in these cities will start investing in Houses. 

This is the only solution to offer a competitive price to the world for our product and services.

I hope one day we will have a world class infrastructure like US or Europe.

Image Credit: Kevindooley

Popularity: 22%

Diversifying a portfolio means, deciding on how to divide the money available for investment between various investment options like shares, bonds, fixed deposits, Mutual funds, fixed property, gold and cash to be retained in hand.

In your personal investment plan try to ensure that there is adequate diversity. A clever investor will never put all his money in one type of investment. Let’s see why we should diversify our portfolio.

Main reason for a well diversified reason is mitigation of risk.

You can even add insurance to this list. But it’s slightly a different investment option in the sense its benefits are not available to you but to your dependants.

Once you have arrived at the money available for investment, it’s important to decide the ratio to be invested in different investment options. Before investing it’s important to know the amount of risk and return associated with each investment option.

Time is Money:

If you think of making money in a very short span it’s not possible with any type of investment option. Every investment needs certain time to generate returns. Before deciding on an investment option we need to be clear about how long we can hold that investment and what would be the approximate return. You must be clear as to go for capital appreciation or a short term return or a combination of both.

For example, if we remain invested for long term in stocks and fixed assets like a house, there are very few chances of incurring losses. Long term means you should keep the investment for at least 5 to 10 years.

History tells that those who have invested in stock market for 10 years have maximum lost 1.5 % of their investment.

So longer the duration lesser the chances of losses. There is also scope for making tons of money. Those who have invested money in stocks and real estate or gold between 2003 and 2007 have made tons of money.

Every investment has a cycle and it repeats. It’s very important to identify the right type of investment that has started churning money.

We can see that in the last 6 months, stocks are out and bonds are the preferred choice of investment.

• If your goal is long term, invest in stocks and real estate, this is the right time to buy as the valuations are very attractive. Though we can’t exactly say the % of appreciation, it will definitely yield good returns for long term investors.
• If your goal is short term, invest in fixed deposits or government bonds.
• It’s also very important to decide on the timing of the investment. Early birds will always make maximum money. When everyone is making money, realize that some will soon start loosing. Don’t buy when the market is at the peak. It’s very important to time the market.
• Finally ensure that you always have some cash in hand to attend to any emergency or to put in any attractive investment option that presents itself before you.

Finally remember that risk and return coexist in any kind of investment option and it’s always possible to lose money in any form of investment. Now the question you should ask yourself is “How much loss will I be able to bear?”

If you are not in a position to take more risk, put more of your money in FDs and Bonds and minimum in stocks. If you are capable of taking more risk, put more of your money in Equities and Real estate and very little in FD or Bonds. Those who have household responsibilities or those who are paying quite a bit of their money as interest towards loans should always be careful about the kind of investments they make.

Here is a small principle for dividing your funds amongst various investment options.

Reduce your age from 100 and what ever is the number you arrive at, you can put that much of money in high risk – high return investments.

For example, if your age is 30, you can put 70% of your money in high risk/high return assets and 30% in low risk – low return assets. As your hair starts turning grey, reduce your exposure towards equity, and increase it towards debt securities.

Image Credit: SMN

Popularity: 22%

If you invest in tax saving schemes right now, you can get your money back early. For example: If you have planned to invest in Fixed Deposit which can’t be withdrawn for 5 years, if you deposit today you will get your money back in 2013 December and you can use this money for tax investment again. Where as if you save it in March, you will get it back only in 2014 March and you will have to again go in search of cash.

Most of us spend all the cash in hand all through the year and try to find some cash in March. If we don’t find cash in March then your tax plan will go wrong.

Some people are of the opinion that even if I save on 31st March it will still come under this financial year, but this is not clever thing if you are trying to invest in Tax Saving Equity linked funds (ELSS) or Public Provident Fund. You will stand to loose 4 months of interest free income.

Some of us will wait till the year end to submit the medical bills or bills of books purchased for research etc. There is a chance of bills getting lost. It’s better to submit these bills every month to the concerned department in your office.

What about the investments I have made in the financial year ?

Before making any tax saving investments, it is always better to review the investments you have already made in the current financial year. In case you have made investments through Systematic investment planning (SIP), or already contributed to PPF, add all the amounts and plan for the remaining amount.

Get your calculations right:

• For employees there is PPF and it will anyway come under Section 80C. Some employees also would have taken health insurance, life insurance, or group insurance policy. First calculate the amount you have already paid towards premium.
• For those who have taken home loan, calculate the EMI you have paid for all the months. See the interest and principal component in that. You can get the principal paid on the loan exempt under Section 80C. You can claim exemption on interest up to 1.5 Lakh per annum.
• Also take into consideration, the tuition fee you have paid for your kids (allowed only for 2 kids).
• Take into consideration all the above and then decide on the amount for which you have to do tax planning.

• After all your tax planning is done if you are falling under 10% tax bracket and tax payable is not less than two to three thousand, it’s better to pay the tax instead of making investments only for saving these two or three thousands.
• Accounts folks in your office would have already informed you the amount of tax payable. Once you have calculated the amount invested so far, return from the amount invested, and the amount to be invested, all that you need to decide is to where to invest.
• If you don’t have the appetite to take risk invest in National Savings Certificates and Bank Fixed Deposits and if you are planning to invest for long term, put your money in Public Provident Fund.
• If you have the ability to bear risk, invest in Tax Saving Funds or ULIPs.

Instead of investing your money at once, it’s better to choose SIP and invest in 5 equal installments.

Image Credit: Kevin

Popularity: 26%

I often wonder when I read about the bailout packages dished out by Governments all around the world to aid banks and other financial institutions that are on the verge of bankruptcy especially the amount of money spent in bailouts in last couple of months is staggering. I am even surprised that there was not a single protest from anywhere and these financial criminals go unpunished. It is the common man who is going to bear the burden of additional tax and increased debt.

Why should tax payer’s money be used for bailing out greedy banks and corporations that have done business only with profit as motive and no concern for morals or ethics and absolutely no concern for the consequences for their acts. Putting public money in corporate coffers is just not acceptable. Financial crisis that has happened is a man made crisis done through substandard policies, deregulation and greed. I can understand putting in public money for natural disasters like earthquakes or folds. Governments all over the world have spent trillions of dollars on bailouts already

This kind of bailout is ABSURD!

We must collectively protest this .This is real money, my money, your money, our money which is hard earned paid in the form of tax.

Why should banks and financial institutions which never cared about the creditworthiness of people who lined up for loans or the soundness of derivatives business be rewarded. We should not allow government to write checks on tax payers’ account. This measure will increase the budget deficit by a significant amount, with no guarantee of recovering the amount and not holding anyone accountable for the misdeeds they have done.

What is the signal you are sending to the corporate world and investors through these bail outs? Do your businesses as you like and we will reward you for the blind errors you might commit. Is this the right way?

As far as I am concerned, there should be a thorough probe into the events that have led to this disaster and every CEO, Executive or Government who were part of this financial carnage should be jailed, their assets sold and put in a bailout fund.

It is time to wake up and realize that greed is the basis for all the financial disasters and find a way, may be strict disclosure norms, increasing the transparency in strategic decision making, making one responsible for his actions and

Few weeks back Finance Ministers of several Asian, Europe and Americas countries met and decided to act rapidly on the financial crisis

And now stock markets are being artificially manipulated by bailouts by governments.

When corporations see that the demand is coming down , it is natural for the stock to take a beating. But every other day we see CRR, SLR rate cuts which means our money is loaned back to us and the market stages a rally of any significance. FIIs and Badla traders slowly and routinely remove their money from our markets to invest elsewhere leaving the retail investor in a fix.

It is certainly not a good thing for a responsible, saving, taxpaying citizen, with no defaulted loans or credit card debt to compensate for the that Wall Street gamblers will go bust on their stupid and greedy bets, over-leveraged and poorly managed businesses with huge losses.

Let me tell you some interesting fact. Lehman has set aside $2.5 billion as bonus for their employees even as they went bankrupt for the great performance they showed in pushing the bank to bankruptcy.

What do you call this?

Popularity: 31%

The year 2008 has probably been the worst year that the world has seen in more ways than one. Ideally I would have liked to reflect upon the past year at the end of the year. But with the turn of events in the last couple of weeks, forced me to write this article.

In the last couple of weeks, we have seen bloodbath on Sensex like never before. It all started at the beginning of 2008 on January 22^nd, if I recollect, when most of the stocks plummeted 20% or so and then SEBI had to intervene. That signaled the doom. But many of us saw that as an opportunity and like many other greedy like minded folks across the world (including yours truly), most of us invested in the Indian stock market thinking it is the time to encash, when the chips were down.

Result – A meltdown, followed by another meltdown and yet another meltdown and till this date the saga continues with no end in sight. That the market will continue further in the same pattern  at least for the next 1-2 years, is a no brainer. Having the guts to fight it out and emerge as a winner, needs a lot more than that – It needs the will power of a monster.

Just take a look at the sudden turn of events on Wall Street and the ripple affect it had on you over the last few days, if not months.

• Market collapse in January – owing to Sub prime crisis in the US, resulted in many BIG firms reporting losses thus leading to cut in their expenditure. What followed was a spate of lay offs, less spending in marketing or advertisement expenses etc. Net result – job losses in IT and BPO jobs in India
• The situation continued further. As Q2 results became more apparent, some very reputed firms came out of their hidden shell and started showing their true color. Net results – Overnight bankruptcy or bailout. Lehman, Bear Stearns, Merrill Lynch, AIG et al bites the dust..
• Come end of Q3 and again we saw a global meltdown with Dow Jones losing almost 25% in the last 12 trading sessions. Sensex was no exception to the rule. We saw how Sensex tanked 20% in the last one week alone.

How has it affected the Indian market?

Many of you may have not realized it yet. But the truth is we are in some really difficult times. If you still haven’t realized that, take a look at the below and decide for yourself.

• Most of the IT institution has a large presence in the Financial Services sector providing support for many applications or software. When there is no business, where is the question of support? With it, all the support functions also will go away
• Industry would see lesser no .of transactions happening. This means a ramp down of the BPO industry.
• USA is a consumer economy. But now Americans are in a liquidity crisis. Most of the Americans will preserve their capital to meet their immediate needs. This means less expenditure. Bad for Exports
• No jobs in IT & BPO sector indirectly means relatively lesser disposable income and thereby lesser per capita purchasing power. That means our retail sectors get hit – Shoppers Stop, Lifestyle etc. will have to really gear up for this carnage
• Less of activity in retail would mean less activity in Manufacturing / Production based industries
• Job losses also means less housing, more housing defaults etc which indirectly hits our Banks and their liquidity – Folks in ICICI, HDFC etc better watch out. You are lucky if you are able to hold onto your job. Although the crisis in India may not be at the scale of the sub-prime market, but it could be very much closer to it.
• Job losses would also mean lesser chances of existence for service based organizations – Les Concierges, First Flight, Blue Dart etc
• First thing companies freeze when they have to cut cost is to cut travel expenditure. That means terrible to the airline, railway industries.
• Added to this, increasing fuel costs leads to less fuel consumption which in turn leads to a less vibrant auto sector.

The list can go on and on and on. The point is – All of us have to realize that this is the end of an era, an era where everything was booming, where everything sounded so hunky dory and everyone had an opportunity not just to survive but to excel. What can come out of this crisis is still a debatable issue – For all you know this could be just a passé and we would be sitting pretty again in the next 1-2 years..

What we have seen in 2008 is the end of a Dashing Era. What we have not seen is the beginning of a more Dashing, more Vibrant, more Bouyant and even more Colorful Era which is yet to come. I am sure, with all our combined efforts, it is just a matter of time.

I am an eternal optimist but slightly realistic too. While I do want to see growth all over, I know that there are limitations and everything may not work as per our plan. Hence the best option now is to hope for the best and prepare for the worst.

In the hope the best is yet to come, we at India Special wishes all its readers

A Very, Very Vibrant and Happy Dash-era!!!

Popularity: 10%

Image Credit:Jack English

Indian Mutual fund investors need not panic after seeing the blood shed in the US markets. This kind of crisis is not unusual in stock markets. It is only in times like this wheat gets separated from the chaff.

Market has seen even worse days in 1930s. Only if you withstand the crisis will you be able to make money. Indian fund managers strongly believe that our economic fundamentals are strong and in another 3 to 4 months this uncertainty will be gone.

Compared to developed economies our fundamentals, regulatory system are much stronger.  While Capital Adequacy Ratio in developed countries is 3% to 4%, our banks has CAR of more than 10%. Crisis in American markets will not affect Indian markets severely for long.  At most markets might come down a bit as liquidity might be a problem.  Our Economy is just bouncing back.  Inflation is coming down, Oil prices are coming down, Economy is registering a growth rate of 7%, and companies coming out with stronger bottom lines all indicate this.

Long term investors should just hold on to their positions and those who are entering the market now, don’t put all your money at once.  Many people think of investing heavily when the market falls heavily.  But it is really difficult to guess where the fall would stop.  Instead choose SIP route; the choice of an intelligent investor.

People who have put money in DSP Merrill Lynch equity funds, DSP Merrill Lynch top 100 fund through SIP might be worried as Merrill is now taken over by Bank of America.  Also those who have put money in AIG and JPMorgan Mutual Fund also might be worried a lot.  Already investors have lost money in the last six months as markets performed poorly due to Inflation and crude oil issues.  Now the fall of American investment banks have rubbed salt in the wound.  Those who have put money with international fund names are nervous as they are falling down like a pack of cards.

Merrill Lynch’s merger with Bank of America, nationalization of AIG, Morgan Stanley searching for a buyer … with all these happenings, investors who have put their hard earned money into these are asking fund agents and fund houses as to what would happen to their investments.

Few fund managers have stated that Indian mutual fund investors need not panic about what’s happening as all the fund houses have invested money in Indian companies itself.  Incase of mergers only management changes hands and nothing will happen to the funds of the investors.  Just because Merrill is merged with Bank of America DSP Merrill Lynch investors need not worry.  In fact even before Merrill merged with Bank of America it has sold its Mutual fund business to another international firm Blackrock.  DSP Merrill Lynch might be renamed to DSP Blackrock in future.  Except for a change tin the name nothing will happen to the investments made.

Coming to AIG and Morgan Stanley, only the ownership has changed and not the management who actually manage the business.  So investors can continue investing in these without any fears.

Will AMFI or SEBI able to help fund investors?

SEBI doesn’t provide any protection for the investments made in Mutual Funds.  It’s the responsibility of the investor to know the pros and cons of putting money in Mutual funds.  Most importantly they must understand that in stock markets it is possible to loose even the principal amount at times.  Unless you put your money in a capital guaranteed fund, you are never assured of your capital.

Asset Management companies act as a custodian for our money. Association of Mutual Funds of India (AMFI) or Securities and Exchange Board of India doesn’t give any guarantee for our money. Only those who are ready to take this risk must invest in mutual funds else bank deposits is the best place for them.< –>

Popularity: 11%

If you are new to the capital markets and want to know more about it and the forces that govern the direction of the economy, keep reading these articles. A plethora of knowledge is waiting to be tapped. Before I explain to you some of the complexities, please take a look at some of the investment basics, to get started.

For the wannabe investors there are various options for investment available in India. These can be divided into short term or near term investment and long-term investment options.

Short term

As simple as it may sound, the short term investment options vary from a day to a year. The most highly liquid of them are

Savings bank accounts

Most of you knows about this. Hence not getting into much detail. This is your account where you park your money for immediate withdrawal. Typically these accounts are opened in traditional banks. They usually give interest in the region of 4% -6% per annum

Money market funds

These funds aim at providing short term return by investing in short term instruments like fixed income and the like

Long term

The long term investment options available for investment are

PPF or Public Provident Fund

Usually the maturity is 15 years or more. These are also one of the most preferred tax saving instruments, issued & controlled by the Government of India.

Post office savings

This is like a traditional savings account. The difference is that interest is in the region of 8% and is paid on a monthly basis in addition to the bonus of 10%. Early withdrawal could cost a penalty of 5% of the principal amount, in addition to the bonus being denied at the time of maturity

Kisan Vikas Patra / National Savings Certificate

They are pretty much like the Post Office Savings except that a certificate with a predetermined value is printed and given to the holder. Gives an interest of around 8-9% per annum and is a tax saving instrument

Mutual Funds

Mutual Fund takes money from the general public and invests that money in projects or assets with an intention to receive some return. Usually there is an objective of each of the fund e.g. diversified fund. Each fund is managed by a professional fund manager. The profit generated based on the Net Asset Value calculated at the end of each trading session are either redeemed or issued.

Nav Calculation

NAV = (Total value – Expenses) / No.of units issued

Bonds

In India, the central or state government issues this. Bonds are nothing but interest bearing instrument with a maturity. A bond literally means a promise i.e. a promise to pay the holder the principal amount and the interest accrued there on. The interest accrued is usually either a fixed rate or a floating interest rate or a combination of both.

Fixed Deposits

This is nothing but the deposit that you make with your banker for a pre-specified length of time. Usually this last anywhere from a 45 day period to 3 years or even 5 years. Typically, the interest rate for the entire period is fixed at the beginning of the tenure and hence called fixed deposits.

There are many other investment vehicles & trading options for resident & non-resident Indians. We will be looking that are most common to our eyes and ears. These include equities, options, futures, forwards, foreign exchange etc.

This subject is an ocean and hence limiting to what you can take now. More later !

Image Credit: 24thcentury

Popularity: 17%