Sunday, January 10, 2016

The "Sim Sim" Word for Real Estate!

“In real estate, you make 10% of your money because you're a genius and 90% because you catch a great wave”…Jeff Greene

Jeff Greene is a successful American real estate entrepreneur. He is a member of the Democratic Party and was a candidate in the 2010 Senate election primaries in Florida. Greene began investing in real estate while he was in business school and built a successful real estate business from being a mere bus cleaning boy at the Breakers Hotel in Palm Beach. Needless to say his above quote though he lives exactly opposite side of the world in compare to Pune, yet is applicable here also & many Indian Greenes will agree to it though not in open. That’s the difference between the culture of ours & theirs, as here in our country politicians are the only breed who can speak anything on any topic & need not have to worry about the consequences; rest all has to think twice whatever they say on public forums. So frankness about the profession that too in business is a rare thing with us, & in USA it’s common that a successful person giving credit whatever he has made fortune to just stroke of luck & not to his own self. While we are used to watch people taking credit even if they win a fortune in gambling leave apart in business. 

And on such background when I got an opportunity to speak about risks rather minimizing the risk is proper word, in dealing with Real Estate Investment at Rotary Riverside Club, I took it as great start of the year. Though its a subject I have never been spoke on leave apart even thought as personally I don’t consider real estate as investment. Rather I don’t like to be called real estate as investors delight; though off-late it’s no more such thing still whatever remained of it. Actually it’s an accident as my friend Zelam who runs a travel empire under the name Kesari & who is member of this rotary club has asked me to share my experiences about social responsibility initiatives’, which I am fairly good at, subject wise. But some miss-communication & three days before the presentation I came to know the subject is needed to focused on risk factors rather how to safe guard against the same in real estate. The river side rotary club is elite gathering of business class people who surely are already invested or wanted to invest in real estate. So I took it as a challenge to polish my brain & got geared up for the topic. And then real estate indeed is important topic considering investment of millions in real estate, not just of those who looks at it for some decent returns but for those also who invests all their earnings just to have this investment in form of a home which is going to act like a safe deposit for life time!

It took me three days homework to prepare a proper presentation which I felt was sufficient to cover all the aspects, as it was a gathering of professional people & I didn’t wanted to leave any aspect untouched. Starting with first slide, I named it “The Sim Sim Word for Real Estate”, as what better way one can look at real estate than Alibaba’s cave, which holds vast fortunes for the incomer, provided he knows the key word to get in! And for that one must know or say understand the real estate. It’s true that for investing in any scheme or project or proposal you must know the product or industry but here real estate is a tricky, it indeed is very local thing. Even in USA a developer from east coast isn’t successful on west coast such is the real estate market. That’s why with hardly two & half hours driving distance in Mumbai & Pune yet developers from Mumbai has failed in Pune & vice versa. This is because you can’t import land from one place to another neither you can export it. One has to be well versed with the local conditions, as this is the only product which you can’t carry with you i.e. in any industry you can buy the product across the counter & take it to home but here you have to go to the end product i.e. the home.

And then in real estate one has to think global but act local; means every outside event will have its effect on local real estate yet this effect will reflect differently as per the local conditions. For example some foreign IT company will be investing in Pune that doesn’t mean entire Pune real estate will go up, it will go up only around the work area where the company will be actually setting up its work station. The first law of real estate industry is its successful only in the cities where there are jobs or education. Fortunately right now Pune has got both but then investment aspect doesn’t stop just here. One needs to understand why one is investing in real estate as depending on the end target the mode of investments needs to be changed. For e.g. you can earn here by leasing out the property or you can think of short term sale which means three to five years span or you might be thinking for long term which is usually ten years. Rental aspect is never profitable with residential units, only if the basic value is appreciating but most of the startup companies which are unable to invest in capitol does look for rental option so investment in commercial space is always good when target of investment is rental earning. This also needs to have knowledge of market condition of prospective IT or other such industries scene. As last few years commercial leasing was pretty bad but this year suddenly there is no vacant or empty commercial space around. Again this is around major IT hubs like Hinjawadi or Khardi only, so wont be true across the city. About short term, gone are the days of much gain in short time span as with loads of supply of new projects in market & policies of Govt for utilizing potential of the land in maximum way, the market will be flooded with homes. So here after mind two things, don’t expect appreciation more than fifteen percent at the most per year on homes & this too up to a certain limit. You must know the past & present sale rates of any locality before investing in it. As every location however best it may be it has a saturation point, some in terms of rate & some in terms of supply. Like two years back the rate at which land has been sold at Prabhat road, which is most sought after location in west Pune, today you can get flat at that rate. This is because rates & product size has taken away the end product from the real buyer. So buying a home at Prbahat road or developed location like Kothrud, won’t make at all good option for short term investment; though it will be a good asset for long term.

Rather when it comes to infrastructure or surrounding development in real estate, always lesser earns more is the funda I have observed. Means today where there is no proper roads, water or drainage, such lands but adjoining or in vicinity of developed suburbs always are cheaper & so are homes built on them. Obviously in our country as by now we all know whether it Delhi or some small town, the infrastructures follows only after people have started residing in a particular locality, many a times it doesn’t even after that! If  any area is developed with all day to day necessities then the rates  are so high that it becomes unaffordable, so always look for locations with lesser infrastructure as it’s here where the chances of your investment getting appreciated are more. And this comes true even for those who have plans to shift not in hurry, i.e. if you are ready to wait for two or three years for occupying a home then you save a lot in such buy. And for that do have a look at past of surrounding neighborhood which was undeveloped few years back & now its fully developed. Talk to the nearby residents about speed of infra development versus present as well past property rates & then only decide.

After zeroing down the locality & nature of investment then comes the size of unit; remember in a city like Pune where average income group is middle or higher middle class, one bed room & two bed room apartments will be always in demand. Few years back there was a huge demand for three bedroom or bigger & luxurious flats but then that niche is limited as think how many can afford homes worth Rs One crore & above & what money you will make it in those types? Again the simple law, margins may be a bit less yet smaller size of unit has more takers, even it’s easier to rent too. And then don’t go on just amenities, remember the end user is not looking for a Golf Course or a Jacuzzi or Party Lounge, but a Home! So it’s not the amenities which make a home but the four walls & usable area within them is what matters most. Many people likes to live in bigger colonies but at the same time those who mind every single rupee, they prefer single stand building with bare necessities taken care, as it gives less burden for the pocket to maintain. So you have to choose what kind of life you are looking for.

Then comes at what stage you should enter in to actual home buying; I am not against launch offers but be careful as of late many projects which have been launched with big bang & special launch offers, have never took  off at site is a bitter fact. Gone are the days of enjoying yearly appreciation at very high rate, so you can always be patient & choose when the project has come up a bit above the ground. And for this it’s very important to know the builder as well his team as it’s the track record which counts. Agreed even god can’t satisfy every living soul but do speak with few existing customers as they are like a mirror for any real estate organization. Try to have a dialogue with the builder himself as well his team & know their philosophy towards the work. Transparency is not be seen & felt in every action, right from giving area details of home you are buying to displaying all the necessary sanctions/permissions which are required by the law. And all this should be made available to the buyer on his demand without making any fuss about it. Many people don’t even bother to look at agreement draft leave apart making a check list of your own when it comes to buying a home. And then they mostly repent their hurry, remind yourself, no more real estate is a seller’s market, so make hay of it as a buyer!

Later in the question session one gentleman shared his experience with a builder that the agreement of the home was totally one sided (obviously needless to say which sided) & when he asked about few clauses about maintenance & possession, the builder refused to change them. So this gentleman asked what should be done in such case. I asked him, well if you are looking for a life partner & while talking to her she refuses to accept any of responsibility as a wife, will you marry that girl? Same is applicable here, a home deal is like a marriage as for most of the clients it’s a onetime buy. So ask as many questions you can & if you are not getting satisfactory answers to them, I will advice no need to go ahead with the deal however lucrative it may be on papers, as it’s not going to work later. Remember may it be just investment for you yet somebody’s generations are going to be live in that house so it’s not just any other deal or commodity. And the builder must understand responsibility of the deal or say his part of it.

In real estate however ups & downs there may be yet one thing is sure, like the great Einstein’s law about energy i.e. energy can neither be created nor be destroyed, it can just change forms; same way the raw material for real estate is land which can’t be created nor can be destroyed. And with ever growing population & limited lands, this is one industry which will always fetch good returns, may it be an investment or a genuine user; so it remains safest investment provided you do it with open eyes. 

Lastly, remember that real estate can never be mere investment for money making, as what you are investing in is basic need of millions. So don’t run behind just appreciation, do sale at right time & you only can decide how much you want to make money out of any real estate deal. Let’s not forget that home is not just the returns in form of money it gives to us but it’s the families living in those four walls are going to make those walls a home!

With this note I conclude my sharing, so go ahead say the “sim sim” words & enter the real estate cave to explore the treasure in the form of your own home!

Sanjay Deshpande 

Sanjeevani Dev.

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