Affordable housing- A mirage

Affordable housing is going to be the growth engine in real estate market. Although there has been a constant push from Government to reduce prices, builders have shown their inability.

Input costs have been increasing on a continuous basis. Governments push on infrastructure development is already fueling the demand leading to price rise. Various cartels in these core sectors are making things worse for builders.

With almost no control over the input cost, builders are left with very limited levers to make ‘affordable’ flats a reality. One of the areas which can be worked upon is the open space utilization. Most of the builders are trying to showcase open/green space to attract buyers. Although, this sounds very lucrative to potential customers, builders literally don’t get any penny for this part of the land. These are areas blocked for playground, jogging tracks, tennis court etc. High rise towers help them make money and recover cost for these open areas.

The moment they start generating more revenue per square feet of land, affordable housing can be a reality. After setting aside a certain profit margin, builders will definitely pass on the benefit to customers making affordable housing a reality even in mid and luxury segments.

Big Question- How to make the most of these open space?

1. Utilize the power of association– Most of the renowned builders are under an umbrella of real estate association. They should use this forum to bring consensus on critical things. Have a common open area for a group of builder/townships. Instead of setting aside open spaces in each and every project, builders of a particular locality should jointly develop the open area either through land pooling or cost sharing basis. Net impact would be, more area available for construction leading to more revenue generation. Common open space shared between 3-4 society will have all the sports facilities and a restricted access, pay and use, common maintenance. These intricacies can be dealt later when these builders work together on such plans.

2. Involve local government bodies during planning phase– Most the town planning is not done meticulously hence we hardly find municipal park. It may be available in some areas but with very minimal maintenance. These bigger societies are good source of revenue for Government as property tax collection is high and with almost no defaulters. As a group of builders/society, request local municipality to build play area or at least share the cost. An organized approach will definitely help. These new clusters of townships are often seen as a good vote bank. No one will try to annoy these middle class voters.

The above looks very simple on paper but in reality there will be some hurdles and the biggest would acceptance level among prospective customers. Some may not like sharing the open area if another township people. Cost benefit evaluation will largely depend on how much rate cut a builder is ready to pass on to customer making it a win-win for all.

Manage the risk…

Current financial meltdown across the globe has been an eye-opener for lot of people. A very strong looking rally has suddenly changed to a bearish trend. Although, it was expected but the impact is beyond any one's imagination.
Big I bankers have either become Bankrupt or are looking for help from the Govt. The ripple effect has gripped Indian market as well. Our financial sector is very much secluded and with quality of credit far better than that of our US counterpart. Still it has impacted not only the Fin sector but reality and manufacturing sectors are feeling the heat.
Till now majority of us have been focusing more on the micro economic factors while investment in the share market. Assuming Indian economy is doing well, if the company has a good management and the sector is performing well, people were ready to put in the money in those stocks. But the current meltdown has changed everything. All the sectors have got impacted. Share prices of most of the scrip have reached near 52 week low mark.

How to survive in such situation
1. It is always advisable to put your money in quality stocks. The prices will crash even for these shares but the recovery will be fast. These companies will try to get the maximum out of the slowing down economy. They will focus on streamlining their process during this phase. Some buyouts might happen as they will get some good companies readily available in the market at throwaway valuation.
Once the economy revives, these companies will lead the pack by giving good returns to the shareholders.
Reliance capital made an announcement to foray into Investment banking and Housing finance on the very next day of Lehman’s bankruptcy. Some might feel that is this the right time for them to make this announcement. Well I feel yes because Interest rates have already reached the peak. In coming few months things should improve and rates will fall leading to a rise in credit off take. As far as I-banking is concerned, the key to success is how well connected you are with the prospective clients. It’s all about relationship which guarantees some good opportunities and hence good business. Timing would not have been better when best of the brains of these distressed companies are looking for new avenues. Reliance Capital will get these top quality people who in turn can help a big bang launch of I banking business.

2. Averaging is a good tool to minimize your losses and increases the probability of faster breakeven. But the only concern is we are not sure when the stock price will bottom out. At times you average out assuming market has already bottomed but the very next day it falls again. It’s better to do it in phased manner based on your risk appetite and how much disposable income you have. There is no full proof way to beat the market but managing the same may be helpful.

3. Commodities can be another option to look into. The nature of the collapse in US is entirely driven by consumer spending. The main beneficiary of the situation is China and the Middle East countries. The appetite for taking huge loans on the part of US consumers driven by very high spending on household needs accounted this downfall.

In the last 9 recessions since 1950, S & P 500 index rose by 30% in the first 12 months once the market reached bottom. Surprisingly in 8 of the 9 recoveries the market reached bottom before the end of the recession.

Whenever such great correction, collapse, recession, war, terrorism, any other natural calamities etc happens …people at large go back to basic which is the old theory. They either keep the money in cash in the locker or they invest in Gold. Gold is one commodity which trades like money and the exchange/liquidity is also very high. Historical events show that Gold is very good long term investment and it has beaten the Inflation number in the last 50 years of history in India atleast.

Price of Gold was Rs. 200 per ten grams in 1968. Today in 2008 the price for the same 10 grams has reached to Rs. 12500 which is 62 times higher than the 1968 price.

Happy Investing!!!

Where is the Bull?

Party is over in Dalal Street. One of the longest bull-run has come to an end. Thanks to Inflation and not so enthusiastic growth figures from various sectors. Oil prices are at an all time high. In the middle of this uncertain environment, there are people with some disposable income but not sure where to put the money.
The Banks are giving handsome returns in Fixed Deposits. Suddenly 9% return from FD is looking more lucrative than share market.
There are ways to beat the negative returns from the market. Try looking for those sectors which are somewhat secured from these negatives factors. Firstly I will go for the media and entertainment sector. No one is going to stop watching movies (read PVR, ADLABS).These big multiplex groups are into movie production as well. Our film industry is doing well which in turn will lead to better numbers for these companies. Still the mantra is to buy and hold these shares as you won’t get some extraordinary returns in short term.
Another share which looks good from a long term perspective is Dish TV. It’s the only listed company in its category. Currently they are busy in capturing the market as the biggest challenge is to move Indian viewers from cable operators to set top box. Hence free set top box scheme will definitely make a dent in the financial books in short term but in the long term the picture looks bright. They will start getting the subscription fees which will improve the cash inflow. At current levels this share looks good. In a span of two years it will definitely give some handsome return.
Beating the street may not be easy but people are making money. Happy Investing!