Reserves ! Savings

http://www.arthayantra.com/latest-blogs/item/379-three-out-of-four-indians-would-go-bankrupt.html
Three out of four indians would go bankrupt

Mr. Horace Mann said ‘There is nothing as costly as ignorance’. We follow an age old habit of ignoring the consequences of an emergency in our life. The practice of maintaining emergency fund is not in the highest priority list amongst the most of the professionals. ArthaYantra conducted a research on 2000+ working professionals across various cities of India covering various age demographics, some alarming results came out which expose the preparedness of these professionals to meet an emergency in their life. An emergency is the risk caused due to death/disability, risk of health or loss of job.

Entry Level Professionals

When it comes to preparedness for an emergency, Entry Level professional fared surprisingly low. As high as 85.6% of professionals do not have enough savings for emergencies or have inadequate liquid reserves.

The entry level professional are generally those who have less than 6 years of working experience, mostly single with less financial burden. But considering the future aspects, it is very important for them to start having adequate reserves.

Mid - Level Professionals

The midlevel professionals are categorized as young family with mortgages to pay and some immediate financial requirement. This category ideally should have a sufficient reserves as the cash requirement are short term and immediate. But they fall short when it comes to preparedness for emergencies. Research shows that 61.60% percent do not have proper surplus to meet any future contingencies.

Although the numbers as compared to the entry level professionals are slightly better, but looking at their future burden of responsibilities, they are the most vulnerable to such emergencies. It would be prudent for this group of professionals to proactively start building an emergency corpus to face any adverse situation in life.

Senior Level Professionals

When it comes to even higher level professional the picture doesn’t look good at all. Alarmingly, 70.83% of senior level professional do not have proper buffer for emergencies.

Consider middle age families with young kids in a situation where the sole breadwinner dies due to accident or loses the job or one of the family members get seriously ill. In such circumstances, they would be forced to either sell their assets like jewelry or even their homes. Personal loans, hand loans and credit cards start playing their role in addling on to their debts and hence disturbing their financial life completely.

Planning for future financial goals should never be done at the cost of ignorance of planning for an uncertain future event. One needs to make sure that the amount spent for securing such a risk is not treated as an unnecessary expense. Just like planning for retirement, planning for an uncertain job loss by setting aside a multiple of the monthly expenses is also very important. It would ensure the lifestyle remains unchanged even when the situation gets tough.

In personal finance there are three risks which are required to be covered.

Risk of death/disability

For a family where the earning member either dies or suffers disability which results in the loss of income, a proper insurance coverage against such situation would ensure adequate support to the dependents. The insurance coverage should only be in the form of a pure term plan or personal accident insurance policy.

Risk of health

With the change in lifestyle and increase in hospital expenses, one has to ensure that proper health insurance coverage is taken. This would cover the expenses in case of illness of any family member. Although there is coverage provided by the employer in some cases, this coverage is always not adequate. Hence one should not rely only on the coverage provided by the employer but also buy some coverage on their own to ensure the entire risk is adequately covered.

Risk of Job Loss/Major expenses

Planning for this kind of emergencies is the most ignored aspect of personal finance. Proper liquidity has to be maintained throughout so that any possibility of personal/hand loans and credit card usage is minimized. The ideal amount to be kept aside should be 3 to 6 months of monthly expenses.

Conclusion:

Before determining future financial aspirations, the savings for an emergency should be considered as the highest priority objective. Although there are other options that can be used in such contingencies like personal loans, hand loans, etc. but they would finally end up as a liability and hence will cause serious dents in surplus levels. Ignoring the savings for emergency can even cost future goals impacting the entire personal finance of the individual. It would be good to start saving with a disciplined approach to face any emergencies in life.

The Difference Between Real Estate Investment and Speculation

http://www.realtyplusmag.com/rpnewsletter/fullstory.asp?news_id=25988&cat_id=1
Property Pulse - the Realty Plus Newsletter

The Difference Between Real Estate Investment and Speculation
Arvind Jain,
Managing Director - Pride Group

In financial circles, the terms real estate investors and real estate speculators are used to refer to people who are buying property to make a profit, rather than for personal use. Though the two terms are often used interchangeably, they are not exactly the same. Nevertheless, even veteran financial specialists tend to get mixed up between the two.

In order to understand the difference between the real estate investor and the speculator, it is necessary to have a look at their methods of operation. A speculator predicts (or attempts to predict) the future return on any investment, and tends to be focused on short-term profits. He or she is often not very well informed on how the asset class of real estate works in a particular locality. Since speculators are usually also active in other investment segments such as stocks, bonds and bullion, they tend to use the same approach for all asset classes. The general approach is to buy low and sell high in a very short period of time.

A real estate investor, on the other hand, makes a careful analysis of the current market position, market trends and related affecting factors so as to make an informed and forward-looking investment decision. Investors are not looking at short-term profitability, which is in any case not a viable objective to operate from in Indian real estate. While investors also tend to invest into other asset classes, they do not do so without fully understanding them.

The next question about the difference between speculators and investors would pertain to the returns they get. While a speculator may make a lot of money if he makes an accurate guess, all such returns are short lived. If the real estate market is facing a short-term decline, the speculator stands to lose all his money because he is also investing only for the short term. A related facet of real estate speculation is that it is, for the above reasons, not suitable for rental income generation.

An investors, however, is looking at healthy, steady returns on capital appreciation and rental income. For this reason, he maintains a reasonable investment horizon which is tailored to the market dynamics of this particular asset class. This is important because Indian real estate is subject to cyclical ups and downs. A property cycle is dictated by various factors related to population growth, GDP, policy framework and sentiment, and boom and slump periods are more or less a given. Indian property investors aim to ride through the predictable ups and downs of this cycle. To do so they must remain invested for a period of at least 5-7 years.

Another reason why a longer investment horizon is important is that most investors look at buying properties at a lower rate at new locations in anticipation of the demand to come. For this to bear fruit, they must give these locations sufficient time to receive basic infrastructure and spillover demand from adjoining areas.

Long-term investments made by property investors provide stable and reliable returns. Investors are not prone to losing their money due to a receding market, because they have made a more careful analysis of the market condition and are willing to wait till their expected results are delivered as per the market data before they make their move.

As Robert Kiyosaki puts it ‘Real estate investing, even on a very small scale, remains a tried and true means of building an individual’s cash flow and wealth.’ Also, real estate is by far the ultimate asset since it not only grows in value but also performs as a rental income generator. But it must always be approached from an investor's perspective rather than from speculative objectives.

Realty demand looking up: Credai

http://wap.business-standard.com/article/companies/realty-demand-looking-up-credai-114082101416_1.html
Realty demand looking up: Credai

The Confederation of Real Estate Developers of India (Credai) said the property market across the metros in the country was looking up and it expects good absorption in residential property in the next 6-9 months.

"In my communication with some of the builders in the south, I was told the demand scenario has picked up in the last few months. Demand in the metros in the last 3-4 months was also encouraging, when compared with the same period last year," said C Shekar Reddy, national president of Credai.

According to him, the RBI's recent move to lend support to the affordable category by allowing banks to raise exposure through priority sector lending was a positive step for the realty sector.

He said the Rs 4,000-crore allocation to the National Housing Bank in the Budget for affordable housing would help developers leverage funds at a lower cost.

Reddy, however, said regulatory issues related to acquiring no-objection certificates (NOCs) and environmental certificates, and absence of single window system were impacting the developer community at large.

"To plug the shortfall of 80 million homes in the country regulatory issues have to be simplified as more and more developers were seeing themselves at a disadvantage to build homes for economically weaker sections," said Reddy.

Is it right time to take a home loan and a property?

Is it right time to take a home loan and a property?

New Delhi: Because of the on-going economic uncertainties, many aspiring home owners in Pune are still hesitant about taking a home loan and buying a residence. One of the questions that people, who seek to make this beautiful city their permanent home, ask is does it makes more sense to rent now and await a price correction.

For those who are thinking of renting a home in Pune, there are many aspects to consider. In the first place, the affordability of both rental and purchased property is highly location and project specific. To illustrate – someone in Pune who can afford to buy a home in Undri may not even be able to afford the rentals at Boat Club Road, Koregaon Park or Kalyaninagar.

Secondly, whether it makes more sense to rent rather than buy a property would also depend on one's future plans in a particular locality. Does one wish to settle down there, or is also open to other areas? It definitely makes sense to rent a home while someone is deciding upon a particular locality.

If an individual is certain of a locality in Pune and is committed to settling down there, the right time to buy a home is now. There are many projects available in the excellent new residential areas that have come up in Pune, and prices are still competitive. There will not be a correction in real estate prices in Pune, as demand for a movement of residential properties in the city is healthy.

The wait-and-watch policy is only valid if there are informed reasons for anticipating a correction in a certain locality. On the whole, property rates in Pune will either remain stable or appreciate, depending on the area. Also, there are no prospects of home loan interest rates rationalizing over the mid-term, and economic indicators suggest that inflation will continue to drive up costs.

Given that it is the right time to avail of a home loan and purchase a property in Pune, one still needs to consider the financial implications. As a thumb rule, an individual's home loan EMI should not exceed a rational percentage of his or her net monthly disposable income. Generally, EMIs can amount to 50 per cent of monthly income.

However, home loans are not the only cause of debt in the contemporary context. People take out personal loans and have pre-existing debts, too. In other words, even a 'fair' EMI percentage could prove unaffordable. The 'ideal' EMI component can only be calculated vis-à-vis a debt-free person's salary. This would be between Rs. 1000-1200 per lakh.

People availing of home loans sometimes forget that they are under legal obligation to repay. There are numerous cases where borrowers have neglected to undertake a due diligence with regards to their financial capabilities and the suitability of the loan of which they have availed. As a result, they find themselves in debt traps and sometimes default on their repayments. Borrowers should stretch themselves only to the extent that they realistically foresee their financial position improving in a given time frame.

No home loan strategy should ever be based on anticipated financial windfalls as a means to pay off the loan. It should be based on realistic factors such as reasonable salary hikes and maturing of insurance policies and investments. If one anticipates a salary hike, even if this amounts to only a certain annual increase, one can consider a 'step-up' option for the existing home loan. Here, the borrower pays a lower EMI initially and steps up the repayment of the home loan in proportion to the assumed percentage increase in income.

(Kishore Pate is CMD of Amit Enterprises Housing Ltd.)

How to build new cities

http://indianexpress.com/article/opinion/columns/how-to-build-new-cities/99/

How to build new cities
Resources are not the problem. We need to change controlling mindsets.

India’s rapidly urbanising population needs space to live in, and providing that space in the form of new cities is easily within reach, provided we change our mindsets. No fresh resources are needed other than what is available within India’s Plan budget. But in order to see those resources, we should desire what Harry Potter figured out in the Room of Requirement — the object alone, and not how to do it or what can be done with it. It is the desire to control all processes and be the prime mover that renders us unable to see what should otherwise be evident. Let’s see what it would take to create 200 new cities over the next five years. Four cities in the periphery of every large one, only at a distance of, say, 50 km, so that people need not live in Delhi, Mumbai, Pune, Chennai or Hyderabad; they can merely commute and still lead a life of dignity and better in quality. It would take an average investment of Rs 2,000 crore per new city, or say Rs 400 crore every year for five years. The total bill comes to about Rs 80,000 crore per year for 200 cities.

How would we acquire the land, given its astronomical costs? You would not acquire any land at all, but merely propose a business model in which every group of landholders able to provide 500 hectares of land would be given 50 per cent equity in the venture that is a new city. The other 50 per cent would belong to the government. That way, the farmer would get a real share of the return on investment and a steady yearly income. Once it is clear to the farmer that the government is not planning to take away his land at rock-bottom prices to gift it to a real estate major for a commission, there would be a queue of farmers lining up, asking the government to develop their spaces into a liveable city. This is the kind of model used by Magarpatta City, a township next to Pune, spread over 430 acres and owned by 120 farmers, each a shareholder in proportion to his landholding. In Magarpatta City, farmers came together on their own and did everything by themselves. With some help from the government, the experiment could be widely replicated. The rub is that there is no agency that would benefit from such a proposition: only the people. Perhaps this is why no one has so far proposed what should be otherwise evident.

The next question is where the Rs 80,000 crore would come from. It would come from two sources. The first is the cost of food security for the nation and the second is the MGNREGA. Far be it from us to suggest that India does not need to feed its hungry or give them employment. It certainly does. If not for moral or ethical reasons, then for the reason that hungry and illiterate people can neither participate in nor contribute to a growing economy. But similar objectives can be achieved for one third their present cost, provided we scale down our desires somewhat and abandon age-old shibboleths. The basic proposition is that subsidies be limited to BPL families and small and marginal farmers. Here again, we repeat Harry Potter’s exercise. If we were to give the approximately six-seven crore BPL families an annual subsidy of Rs 5,000 to buy food, the bill would still be a third of the current cost of food security. What’s the balance being used for? To support organisations like the Food Corporation of India (FCI) and its operating costs.

The food subsidy bill is the operational deficit of the FCI, or the amount spent by it on market operations and buffer stocking over and above its sales realisation. This bill in the last budget was around Rs 90,000 crore. These operations serve dual objectives: to provide market support to farmers and also to subsidise consumers through the present public distribution system. If we were to provide cash subsidies for food to all BPL families, a similar objective could be achieved at Rs 35,000 crore, and if we were to further provide cash subsidies to all small farmers — even of Rs 2,000 per tonne for up to 30 million tonnes per annum as support against low market prices, it would take another Rs 6,000 crore. What you would not get would be the huge buffer stock India has been building for the last so many years.

This buffer stock, as also the FCI, is simply a relic of a time when the fear of famine dominated our mindset. The memory of PL 480 is bitter indeed, but surely we are long past that barrier now. Our cash reserves are no longer rock bottom. If needed, we can still engage in market operations to provide food. But leaving market operations to private traders does not mean abandoning all interest in the food market.

In return for dismantling the FCI, what the government would need to do is bring about transparency in food pricing and set about eliminating the hidden costs in food prices. The way is not difficult: set up internet-enabled markets in all cities for foodgrain and for fruits and vegetables, remove inter-state restrictions on movement of farm produce, impose checks on hoarding, abolish the agricultural produce market committees that function in the interests of traders and not farmers, and keep detailed records of transactions and markets. Removing all these hidden costs would bring down food prices far more effectively than any FCI or food security bill. These are the tasks the government seems unwilling to do. Surely, it is the government’s job to keep detailed records, conduct market regulation, pre-empt artificial scarcities and remove restrictions rather than be the prime mover.

As far as the MGNREGA is concerned, the recipe is even simpler. The scheme should be restricted to only the poorest districts. That’s the only way one can prevent it from interfering with the farm economy. A recent study shows that while Bihar, Uttar Pradesh, Madhya Pradesh and West Bengal — which account for 59 per cent of the rural BPL population — accounted for only 34 per cent of total employment generated by the scheme. Andhra Pradesh and Tamil Nadu, which account for only 8 per cent of the rural BPL population, provided 23 per cent of employment generated. Such anomalies can be sorted out only by restricting the MGNREGA to districts where it’s really needed. This would halve the MGNREGA bill of Rs 33,000 crore as per the last budget and free up scarce resources.

Doing these is not so difficult. This is far more a question of mindset than anything else. The great desire to control all decisions and the sneaking desire to make a private profit are the only obstacles that prevent us from building new cities, from making the investment in infrastructure that India really needs.
Views are personal

Brand vs budget: What is important while buying property?

http://www.moneycontrol.com/news/real-estate/brand-vs-budget-what-is-important-while-buying-property_1042959.html?page=1

Brand vs budget: What is important while buying property?

Arvind Jain
Pride Group

It is often assumed that Indian property buyers are more focused on budget than brand value. This is a glaring miscomprehension of the ground realities - in fact, few consumer classes are as attuned to the value of a brand than Indian homebuyers. Moreover, developers have been responding to this trend by making best practices in their offerings as well as business operations as an integral part of their manifesto.

In most Indian cities, reputed developers have maintained consistency in these aspects and are even raising the bar on best practices in construction design, quality and business transparency. This focus is a natural consequence of the need to remain relevant in a highly competitive market. Even in smaller cities such as Pune, quality developers are known for the higher grade of their deliverables on the market. This explains why certain brands command a greater degree of trust among consumers than others.

The fact is that real estate as a business, from construction to marketing of the end product, is one of the strongest contributors to the country's GDP. Real estate fulfills a very necessary need, as is evidenced by the unrelenting demand for homes all across the country.

Brand loyalty is certainly not missing in Indian realty. This is amply evidenced by the fact that certain brands command instant attention while others do not even register on buyers' radars unless questionable marketing ploys such as marked-down rates in exchange for inferior quality and location come into play. In India, home buyers are very aware of the fact that some developers can be expected to deliver on their promises, while others represent a potentially costly gamble. This is also why the more reputed developers have no problems with obtaining domestic as well as international institutional financing for their projects.

Nevertheless, the image that has been created about the real estate sector in general is a persistent one. When it comes to changing public perception, the primary instrument of change will always be the media. Unfortunately, the Indian media has made it its business to portray the entire real estate domain in a negative and mercenary light.

Indian real estate is becoming a force that even global players are beginning to take very seriously. This change will become more pronounced as more and more serious players come to the fore-front of the sector. We are already witnessing a process of consolidation wherein smaller players are merging with or selling their stakes to bigger names, since these banners of repute are able to sustain their businesses as a result of their larger market share, higher credibility quotients and their superior funding options.

Not surprisingly, many people continue choosing real estate as a career because the business is based on the strongest possible fundamentals. With the rapidly improving transparency norms and considerable success of reputed developers despite the challenging economic environment, it makes a lot of sense for qualified people to choose top-rated real estate companies as their career partners and be part of the great Indian real estate movement.

Pune real estate's hottest growth corridor

http://www.moneycontrol.com/news/real-estate/pune-real-estates-hottest-growth-corridor_1036478.html

Pune real estate's hottest growth corridor

Anil Pharande
Pharande Spaces

The Pune residential real estate boom, initially kick-started by the IT/ITeS industry, has brought about a lot of unregulated development. While property prices in Pune rose unrealistically, the city’s traditional ease of living and pleasant climate, which were previously its USPs, suffered. Hills and trees have been razed to accommodate the rapidly expanding concrete jungle that all but defines central Pune today. The town planning commission found itself impotent in the face of the development mania, which soon transcended all reasonable, sustainable boundaries.
Real Estate Woes In Central Pune


In Pune, infrastructure challenges have been increasing because of the ever-increasing population. This has also put escalating pressure on available land, resulting in the forced extension of the city limits.

The pattern of development has been decidedly mercenary and unplanned, with the only criteria being accessibility to existing and upcoming IT hubs. While the rise of Hinjewadi created increasing demand for homes in its immediate vicinity, places like Aundh soon witnessed a slew of projects by property developers. Similarly, property prices in Baner and Wakad rose so steeply that they finally corrected.
New Focus On Pimpri Chinchwad Municipal Corporation (PCMC)

As things stand now, central Pune no longer has an iota of its previous quality and ambience in residential property offerings. It is therefore not surprising that homebuyers are beginning to focus on the Pimpri-Chinchwad Municipal Corporation. This area has, in fact, emerged as the last outpost Pune’s previous residential property comfort levels.

The Pimpri Chinchwad Municipal Corporation first came into the limelight as an industrial area. However, it also has an advantage that central Pune does not – planned development. The growth of the real estate sector in the Pimpri Chinchwad Municipal Corporation is closely regulated by the PCNTDA, which works together with the PCMC to ensure planned and realistic growth.

Central Pune continues to suffer from pollution, depleting greenery, traffic jams, water and power scarcity, lack of proper infrastructure and unrealistic residential property rates. Meanwhile, Pradhikaran (the location that defines the PCNTDA) has been benefiting from sensible real estate development.

If one studies the demographical development of Pune real estate growth, it is evident that Pradhikaran is precisely where the city’s growth is headed in the North/North-Western direction. This is extremely significant in terms of long-term residential property investment.
The Importance Of Pradhikaran

In years gone by, the PCNTDA began to acquire land in the PCMC area so that planned development could take place in the future. This planning included the allocation of specific areas for industrial activity, residential property development, public parks, unobstructed spaces, shopping centres, office buildings, roads and utilities.

Water supply to all sectors was ensured by the construction of several mammoth water tanks, each with capacities of several million litres, before development was permitted in each sector. Once this was done, the PCNTDA made the developed land parcels available to property developers.

The PCMC master plan also provides for generous road widths, the likes of which are impossible elsewhere in Pune. This goes a long way in preserving one of Pradhikaran’s natural splendour and hygiene.


Because of these factors, and also because of the growth in the PCMC industrial belt, the last two years have witnessed a huge increase in demand for residential property in the Pradhikaran area.


The fact that a number of large international companies are operating in nearby Chakan has, in fact, been a primary criterion for the area’s development profile. These companies regularly deliver thousands of jobs at all levels, which has had a telling effect on Pradhikaran’s general economic status. Specifically, there has been a huge surge in demand for residential property there.

Pradhikaran’s expansion, which has been inspired by the Chandigarh model of controlled development, began with a few hundred acres. Today, the area speaks for about 7000 acres. Pradhikaran is continually seeing infrastructural enhancements on all fronts – including roads, water and electricity supply and digital connectivity.

Pradhikaran now boasts of massive integrated township projects that offer all the hallmarks of ambient, sustainable living. Apart from the high lifestyle quotient, the investment potential of these townships benefits from a magic mix of real estate market drivers. The presence of Tata Motors , Talawade, Hinjewadi, Chakan and the Pimpri-Chinchwad industrial belt add to the value of these townships, while the Mumbai-Pune highway and Expressway make it advantageously accessible to the financial capital of Mumbai