CAN YOU AFFORD YOUR MONEY TO BE EMOTIONAL IN REAL ESTATE?
“Whatever be the product, marketers have always sold three things – Fear, Hope & Greed. Real estate has been no exception.” ~ Ramesh Menon
Are you one of the many with multiple real estate assets in your portfolio & no cash flow?
Did the investor community throw caution to the wind while investing into Real as a category during the past decade?
Was the investment into a ‘Real’ asset largely led by emotions?
Can we be strategic about including Real estate as an asset class into our portfolio and be scientific about it?
The two most worrying problems plaguing the stakeholder in the Indian real estate industry are: (a) Inventory Pile up
(b) Devaluation of asset OR Non performing investment
Our internal think tanks have been deliberating about the cause & remedy of this phenomenon over the past three years, and working out customized solutions thereof. Primarily three factors:
- Tax efficient monetization
- Capture value from the RE assets
- Impact of new policies on overall efficiency of investments
Let us admit that this prolonged slow down wasn’t exactly predicted by many investors, and that the emotion led investment strategy into a few low hanging segments like Residential, retail, commercial & land weren’t exactly backed by a strategic entry & exit plan. Most times, multiple agencies have represented Real estate projects/ Products to the investor community & the purchased assets haven’t formed a part of the ‘Managed assets & wealth’
While we have forever advocated that the patient capital must be deployed with a clear vision into assets which deliver the forecasted results over multiple milestone, backed by institutional research, our focus over the past 3 years has been to critically evaluate the RE portfolioof individual organizations & work out a strategic plan, including divestment, monetization & overall yield from the financial investment. We go much beyond the traditional investment products & specialize in monetizing assets into segments like Warehousing, Land under Land pooling, Farm houses, Data centers, educational institutions and those industries wherein the respective governments seek, facilitate & mentor investments by way of favorable incentivized policies.
Policies make a big impact on RE investment & conclusively put to rest the speculative element from investments, and de-risks both the investor & investee. Said that, it also becomes the way forward for unlocking the value from non performing Real estate assets.
To exemplify the point, let us take the example of Delhi and critically re-look at three policies which have been notified, or are likely to be notified within the month of July’ 2018.
- Notification titled “Regulations for enabling the planned development of Privately owned lands”
~ You would recall that there has been a lot of debate on the sealing & unauthorized developments within Delhi, with the highest policy making bodies & the Supreme court involved in the same too. There are private lands in Delhi, pre 1962 master plan, which hitherto were not eligible to be monetized / developed by the land owning entity / individual. When read with the MPD 2021 & the Building bye laws now, these assets can be unlocked to their full value.
- “Notification for allowing permitted changed land use in Industrial plots for non Industrial use”
~ With the change in Policies, lack of investment into hard manufacturing projects, environmental norms & escalating costs & price of Land, many industrial houses & owners find it unviable to manufacture in Delhi. Said that, they still hold on to Real Estate Industrial assets which can be monetized for non industrial use. Why not re-look at the asset portfolio dispassionately and create a profitable manufacturing business.
- Land-pooling & Farmhouses in MPD 2021
~ DDA recently concluded the public hearing against the 735 objections & suggestions towards Land pooling in Delhi. This is also significant against the suggestions put forth by the Supreme court in the matter of sealing as well as Urbanization of Delhi to accommodate the demand for more than a million housing units to be developed.
We have a specialized team of professionals who have been able to advise, assist & structure transactions, end-to-end, thereby facilitating monetization of non performing real estate assets, as well as investments @ a predefined healthy IRR.
If you ask the wish list of any investor into real estate, it would be to monetize & own assets simultaneously; to derive tangible & intangible benefits.
If one scans through the business newspaper headlines, it is evident that the importance of “Monetization of Real estate assets”has dawned on Governments, Organizations & HNIs, who are critically & scientifically (not emotionally) re-evaluating their RE portfolio to convert them into performing assets, and also improve cash flows. Be it Air India, or Railways or any PSU, traditional manufacturing organizations or Neo service entities, or even Individuals who have an ‘Inventory pile-up’ on their portfolio.
Culturally, Indians have been attuned to believe that monetizing RE assets is akin to ‘selling family silver’, which sadly is untrue. Agreed, to sell inherited assets is an emotional decision, but to re-arrange one’s assets following a more scientific methodology is a strategic call. After all, if you’re tracking the performance of your financial assets on a periodic basis, why not real estate? How often have we been emotional about re-arranging our financial portfolio for better cash flow management & enhanced business profits?
Mark Twain had famously remarked “Buy Land, they don’t make it anymore.” He said Buy, possess; not hoard. Monetizing assets is about allowing your portfolio to perform at an optimum potential, rather than rest on a residual value.
We have always advocated that the best time to buy is during the ‘low tide’; said that, the best time to monetize is when newer opportunities emerge. And there are multiple new avenues which seek the smart investor who dares to look beyond the traditional avenues & products in real estate.
An interesting facet emanating out of an informal gathering of RE investors is that “there are MNC brokers, there are domestic brokers, but hardly any ‘Customer centric’ consulting organizations with deep rooted understanding of both finance & Real estate, who work towards the success of the venture, rather than the transaction.”