Land is scarce. Or just a civilization myth!

You can Google this one. Just the way I did. Keywords ‘World Population’. 

The world population as of October 2016 is estimated at 7.4 billion. And the UN estimates it will further increase to 11.2 billion by the year 2100.

This one is on Google as well. 

Total Earth’s land mass is 36.8 billion acres. So, if we were to do the numbers, each living human being could get approximately 5 acres of land individually. While, most would request their land to be at a Hawaiian beach and not Antarctica, there’s a trigger in these numbers.

To counter the hospitable v/s inhospitable land debate brewing in your mind, allow me to submit that as yet we haven't even considered vertical living. We are only talking 5 acres horizontal land share per living soul. But does it occur to you that a whole lot of people around the world believed that we are running out of land in a rapidly growing economy, and the prices of houses and apartments should increase manifold!!

And thus, an investment value was stamped on to residential property and created a real estate bubble around the world whose collapse has fuelled the current economic crises.

Yes, all land is not equal. Economic activity concentrates in cities. Clustering of activities reduces time, logistics and costs. But then, all major countries have abundant land often tied up in regulatory barriers of conversion of land use or lack of economic incentives. This land is relatively undeveloped and yet in close proximity to some of the world’s largest economic and job centers. 

Rapid expansion of Delhi NCR engulfing as far as 40 kms outside of UT border is a step in the same direction. If land was scarce, Bhiwadi, Rohtak, Ghaziabad, Gurgaon, South Delhi, Noida should have all be priced similar.

Incidentally for the developer, realtor, home lending industry, there always exist the investors or the speculators who work on the premise that habitable land is in low supply and the increasing pay checks & population will only fuel more demand and the price for real estate can only go north.

Going back to the Googled numbers. If the population were to go up by even 50% by the year 2100, demand can only go up by the same number assuming that every single person earns and every single person takes charge of a home, because they are not making any more of the land! Is that true? 

What if the city allows an FSI of 1:6 instead of 1:1? Area for living will go up by 6 times. 

Will demand still surpass supply? Wow! 

This brings us to the next statement - land is not scarce, but it is the shaky social infrastructure that is restricting. The one keyword that real estate swears by is ‘location’. If the FSI of ‘sought-after’ location were to be revised, it would send the prices crashing for the people who hold land banks or properties there. The same would not find favour with some vested interests. And the word location continues to discount the fact that life away from the city center is more at peace, more affordable and allows for wider landscapes to enjoy life in.

Unless you are at the Hawaiian Beach part of the article still, there is plenty land all around to urbanize, and at a much better price point with latest in offering. Plenty of developers are moving that ways. Plenty of people are identifying this reality. The closer you remain to reality, the easier it is to fund your realty aspirations.

First published in ET Realty on November 21, 2016

Indian Railways needs to raise the bar for PPP projects

Image Credit: www.indiatoday.intoday.in

The Railways Minister set himself a daunting task when during the Railway Budget he set out a task to double revenue through non-fare sources from the 5% currently over the next five years. Interesting, because increasing revenue through fare revenue - both passenger and freight has been the norm till now.

Raising revenues by 5% over a five-year period isn't an insurmountable target. And as the railways are now seriously considering monetising available resources - infact as recently as late last week, announcements for gaining revenues through leasing out spaces in railway station were made by the Railways.

And if even a part of railways land assets could be monetised, it could change the way Indian Railways is looked at and, who knows, may even have investors making a beeline to be part of the action in the future.

400 of over 7000 railway stations are already being redeveloped so that they can be exploited as a commercial destination. That should help Indian Railways earn annuity rental income. The Indian Railway Station Development Corporation (IRSDC) has been set up and work at the stations has already started. The stations in the initial phase could well become the pilot models for future development, so it will be imperative to closely monitor their progress.

The redevelopment also presents a great opportunity for private companies to partner with Indian Railways to deliver projects that are world class, delivered in time and are customer focused. But, a few key issues will have to be kept in mind even as Indian Railways embarks on its multi-year visionary project that could transform not just itself but also the way it delivers value to the passengers.

Creating a shared vision for the effort that Indian Railways is making is the beginning of a successful partnership between the public and private sector. Monetisation begins with clearly putting on paper not just a vision and an objective as well as expectation, but also detailing the way to reach the set goals. A process document or road-map needs to be drawn up and for that consultation papers can be invited and the Government could create an expert panel from not only the public sector but also experienced consultants with exposure in the segment. 

Preparing for the success of the effort will require very detailed planning and sticking to the execution of the plan. The private company in the project will have its shareholders, investors and lenders to satisfy. Indian Railways has to protect the interests of its own consumers and its board as well.

There are some key risks that both sides will do well to consider. The partners need to sit and discuss the risks associated with the project not meeting the public purpose for which the two sides joined hands. The risks associated with the time, effort and finances being put into the project will need to be detailed so that both sides can weigh it independently and together.

For any project associated with real estate, susceptible to the ups and downs of economic cycles, it is critical that the two sides are committed to the project in the long run. Real estate driven projects, typically, tend to give great returns when the developer can hold it for the long term and Indian Railways can easily wait for that.

A clear and rational decision making process will need to be developed jointly. When the roles of both sides are defined clearly, there is little room for a bottleneck to emerge. The road map for the project could serve as the guiding light when any part of the project threatens to spin out of control.

Each project leaders needs to be assigned specified roles that relate to the resolution of a problem. Such leaders need to be ones who can communicate before a full blown crisis happens. One of the best joint development examples has been the Delhi Metro Rail Corporation (DMRC), which has monetized its land banks beautifully while working well with the developers.  Delhi Metro is a professionally run company that has made a marked difference while delivering on time and setting standards for others to follow. 

Organisations that bring about a change need to build that culture right from the beginning. Indian Railways ferries over 12 million passengers daily and, the scale at which it operates, it can be seen to be very efficient. 

Rail networks around the world have joined hands with realty companies to develop a partnership model, a model that can be aggressively executed at a national scale. The stations are being developed under a build-operate-transfer (BOT) model. Indian Railways land has been sold in the past which may not be required if long term value from the land has to be realised. As the dedicated freight corridor takes shape, Indian Railways may also consider developing commercial and residential real estate in partnership with various companies. The Railway Land Development Authority, set up under the Railway Ministry, must expedite the process of change so that the impact can be seen at the earliest.

The learning from the first few projects could help the top management understand the drivers for change and how it could create value by leasing or partnering with its companies for the land that it owns. It is very important to detail the learning so that its benefits could be applied to the next round of unlocking the value, when it happens.

There is an old saying in the world of project management: A bottleneck is usually at the top. With the rich management experience team that can address issues that can derail a project ahead of time, for Indian Railways this should not be a worry.

First published on www.magicbricks.com on 29/11/2016

Up, Up and Away for Facilities Management Business

Image Credit: www.colliersschools.com

As an interested party, with huge interests in Realty, I have been watching how almost unnoticed, an industry has spawned in the facility management category with the potential to employ lakhs and more...

Facility management in today’s parlance refers to the use of external agencies for the maintenance of a building or facility.  It is a revolution that has been happening for a few years. Realty and services companies were driving this change and, in turn, employing thousands of people. Commercial centres in large urban locations have undergone the change and, suddenly, the industry is appearing to be very big.

It is not just appearing to be big. It is bigger than what is, perhaps, the perception. Facilities management is witnessing huge growth: Strong growth in the commercial real estate market is driving a large number of blue collared workers to the facilities management industry.

An industry report has suggested that the industry is growing at about 20 per cent annually and will grow to become a $19 billion powerhouse by 2020. The boom in real estate has spawned the industry as has the requirements for global standards in professional delivery of service and management of facilities. Facility management services typically comprise of building operation and maintenance and support services. These include water and waste management, energy management, Electrical-Mechanical maintenance, Housekeeping, security, transportation and parking, and horticulture and landscaping.

Growing from typical "mom-and-pop stores" to the "integrated services" on offer today, facilities management has come a long way. With outsourcing finally coming to fore, Facilities Management is almost an industry today!  The numbers are so huge that it has evinced the interest of global and large Indian companies and interestingly the big three in the category are global behemoths: JLL, CBRE and Cushman and Wakefield, who together garner more than half of the category’s business.

The workforce from this category is making a difference and is almost omni-present in newer installations(retail, commercial, residential, hospitality and healthcare). Visit any large commercial establishment and the unseen hand of these workers will be visible. Facility Management is gaining huge acceptance among the customers in Commercial and Residential sector as it helps in the hassle-free management of buildings and facilities in a professional manner.

Like with any other industry, Facilities Management industry is also facing a huge people crunch and needs to skill the category since the customers are asking for more than mere basics. Those who are serious about the business have already started to invest heavily in skilling and constant skill up-gradation of the workforce, given the fact that there is a focus today on more and more innovative methods of managing the facilities. Safety and security are of paramount concern here, hence proper verification of the workforce is also a given in the category.

As the demand for the segment is moving from Metros and mini-metros to the tier 2 and tier 3 cities due to increased business activities in these areas, it is believed that a large chunk of business will also be from these segments. There is a huge opportunity here for global as well as home grown businesses to thrive and make a difference!

International Property Showcase – Opportunity or Desperation???

It was heartening to learn that 35 international real estate developers will be showcasing their residential, commercial, retail, hotel and leisure projects at IREX this weekend.

The interesting thing to note was the point of origin of these offers – New Zealand, Sri Lanka, Canada, Thailand, Europe and of course the US and the UK.

While most of the economies exploring investments from Indian HNIs have emerged from Global Financial Crisis relatively unscathed, I would like to outline key points that could be helpful for those looking for a concise explanation when I say that even these economies are experiencing bubbles in real estate and it is not advisable to push your monies in there:

• Real estate loans dominate total individual debit in most of these countries. Hundreds of thousands of their citizens are sending an ever increasing portion of their income to banks each week, leaving them with less to live on. To the extent that a significant number of people are not even able to pay off their family home before retirement age.
• Stagnant incomes, underemployment and job insecurity are key reasons so many voters in Europe and America are now willing to embrace political aspirants outside the mainstream. Donal Trump reaching this far is just resonating this. The non-financial private debt of $27 Trillion has become a drag on economic growth. When private debt is high, consumers and businesses have to divert an increased portion of their income to paying interest and principal on that debt – and they spend and invest less. It surpasses demand.
• While in the UK, the average cost of house may have increased by 50% over the last decade, the wages have failed 10.4% – a decline matched in the advanced Western Economies only by Greece! The gulf is widening particularly in London, where the ratio has increased 3.7 to 9 times of average incomes. Japan, other parts of Europe and New Zealand in particular echo similar tones.
• Just like India, the average home price to income ratio is way high in New Zealand and Europe. Primary culprit being the floating interest rates. The same mistake was committed by American home buyers during the crash in the last decade – using adjustable or floating rate mortgages, which will reset at higher interest rates when the low interest rate environment ends. This makes Finance the largest industry in the country wherein in the banking system is dangerously exposed to the property and credit bubble.
• India is witnessing tremendous cash inflows. India attracted $44 Billion in FDI in 2015 making it the 10th largest destination globally marking a 26% increase wherein more than half was in ‘greenfield’ manufacturing projects. With manufacturing, software exports, infrastructure investments picking up, India is home to 4th largest population of millionaires in Asia Pacific region. And by 2025, this is expected to witness 105% growth. 

Well, if you were to look at the turn of events, it is not an exaggeration to say that the companies flying-in to New Delhi to showcase their international properties are not here to do you any favour. They need a saviour. It is much the same as developers from Delhi NCR drive down to Bareilly, Hathras, Meerut & Kanpur to showcase properties to aspirational, cash-rich, Grade B townizens.

While there is apparent impetus being offered to Make in India, we should not slip away from the other reality – Keep in India. The wealth India has generated needs to be circulated within to keep the epicycle growing. Both on short-term and long-term, capital gains and wealth creation aspects – India is rising and we must keep it that way. Onus lies on each one of us.

Monetizing land assets for Government...

The central and state governments are faced with an acute challenge of raising revenues. With the Central Government committed to lowering Direct taxes and rationalizing Indirect Taxes through implementation of GST, resources are becoming scarcer. The Government needs to come up with newer ways of managing its cash flows without burdening the common man. 

Image Credit: www.thehindu.com

One of the most underutilized assets in the country is Land. This is also because land for India and Indians is a very emotive subject causing strong feelings amongst people. Monetization of land assets is usually unpopular, a long drawn process and does not have any clear process. Therefore land as an asset is hardly ever monetized until and unless the situation is really dire. 

Asset monetization is basically a business transaction that converts a dead/idle asset into an income generating one. This “unlocking of value” where economic benefits can be derived from embedded operational assets should be undertaken only after due diligence and the viability and benefits are demonstrated

Till date the land asset monetization was heard of only in context of recapitalization of the Non-performing/stressed assets for the banking system. But, slowly and surely this is changing and today it is also being heard of in the context of unlocking value from a zero-revenue asset.

An approach that is process-driven to monetizing the realty assets of Government(land and buildings) could help drive significant annuity revenues for the government. If thorough processes can be put in place to help drive the entire exercise, it could serve as a benchmark for others who may want to unlock similar values.

Land monetization has suddenly caught people’s fancy and there are all sorts of numbers being bandied around on how for example, even if a parcel of the total land can be monetized, its value will be bigger than India’s GDP. Some other numbers state that around 4000 sq kilometers of land is lying idle with state government PSUs itself. One needs to be careful of the numbers since it isn’t an easy 2+2 that makes 4 here. Not all land can be monetized equally and this is something that all analysts seem to have completely forgotten. 

A process needs to be set up by which, as a first measure, detailing the land assets for all government organizations should be undertaken. Once a detailed list of all such assets can be streamlined, it will help bring transparency to the process. 

Only after a thorough mapping, will the question of what can be monetized come up. Consulting companies could then get involved in the process so that the type of “value that can be unlocked” can be detailed for different parcels of land. These could be the very foundation on which public/private participation could be sought. 

Realty companies may be interested in being a part of such an exercise since it gives them an entry into locations that are developed and may help drive businesses. Ultimately, that should be the sole aim of the exercise – the government should help drive businesses and raise annuity revenues for itself in the bargain. 

For example, government-run company MTNL, which operates telecom services in Delhi and Mumbai, has a reported 250 acres of land in two of the biggest metros in India. Partnering with a company that can help lease the office space to companies could help the struggling company with a healthy annuity income. BSNL is reported to have carried out some work for identifying and monetizing land parcels across the country. Both the telecom companies under the Communications Ministry could focus on a turnaround strategy after such rental income can add cushion to their balance sheet. 

There has been a move in the past to monetise surplus land parcels with government owned companies. According to one estimate, 60 sick government companies together owned nearly 50,000 acres of land that could be monetised. Opposition from labour unions is often cited as one problem that has plagued the effort. If all the workers can be part of the solution and can see their own benefit in the changes that are sought to be brought about, it may be possible to get their buy in.

Land parcels like these can be used to bring around a sea change in the residential or commercial landscape of major cities. Should it be so devised, they could be used for budget housing projects with some commercial real estate opportunities so that it can be monetised too. If the government does go ahead with a project of this kind, it will need to be executed with clockwork precision so that the cost does not spiral out of control. The social implications of such a landmark could set a benchmark for various state governments too, if executed well.

The government can consider a lease-only model so that it can reap the benefits of annuity income. If one successful project can be showcased, its learning can be used to drive other similar projects in states. 

Earlier efforts to raise resources through disinvestment have kicked up storms over allegations of assets being undervalued and the process being fixed. In order to prevent a repeat of the past, sufficient checks and balances should be incorporated in such an exercise and all the stakeholders including the public should be sensitised. If properly implemented then monetisation of land can be a game changer for Government revenues.

First published in ET Real Estate

http://realty.economictimes.indiatimes.com/realty-check/monetizing-land-assets-for-government/1837