Real Estate & Why a big no!

Wife: See there are so many ads from magic bricks, we should buy some property it is the best investment option...
Mom: Son, property prices always go up, Why don't you invest in real estate.
Dad: I know you have already taken a house, but what is the harm in buying a second house ? It is an investment which only appreciates
Relatives: You have not yet bought a house/ second house ?
Friends: Take it & keep it, you are a rich guy... You cannot trust the stock market. Real Estate you can actually touch and feel it

So these are the arguments that go for any individual. People coerce and push you to the limits to acquire either a single house and if you have already bought one, a second house! Do you succumb to the pressure?

I always make it a point to visit each and every property exhibition @ Navi Mumbai... for one my wife loves the stick ice candy and they are typically sold @ these exhibitions, and two we get to see how a 10X10 sft room is made to look like a palace through smart interior designs, though that is not the purpose for which the exhibition is held.

Beyond this, I have been noticing that the participation of the crowds is only thinning and the number of exhibitions are only increasing... Does this mean that the supply is more than the demand ? Seems so!

When I visited Shanghai, Tokyo, I noticed that the residential buildings are really skyscrapers and the buildings in Thane, Navi Mumbai dwarf in comparision! A logical question is, if we do not have space laterally, why don't we build vertically ? The answer is the FSI in Navi Mumbai is pretty low. Question no 2, Why is the FSI low ? A possible answer is, the prices drop like a stone or the construction quality is not good enough to warrant skyscrapers.

I also noticed that the property prices in Mumbai prime location like Nariman point has only come down! We had an office in Nariman point which we had acquired @ 35,000 INR per sft back in early 2000. Reccently concluded the deal by selling it @ 29000 and that too to a SOBO (South Bombaite) as they fashionably call themselves. The prices were actually hovering @ 27,500 - 28000.

This brought me to another conclusion. We Indians are an emotional lot when it comes to personal property buying. This guy was buying the property for his son in the US who would come back and setup an office. Instead of looking @ BKC or any other upcoming location he was hell bent on Nariman point as it was a booming district in his growing up years. So the conclusion from the above two is that:
      Property prices do go down
      We make emotional decisions and inflate the price

Apart from this there are numerous anecdotes I can share where the property prices have infact come down. My brother in law was in 2007 a proud owner of a brand new flat in I town area of Visakhapatnam, bought @ 90 lacs odd. In 2009 - 10 a dispute between the Indian Navy and the port trust started wherein the port wants to expand. So the property prices have tumbled in the I town area. You certainly cannot predict such situations.

Last but not the least, whenever you try to buy property, there is a white component and there is a black component. The black component is the invisible money, builders give you multiple reasons for the black money component:
      It will reduce the cost of registration
      It is for the higher ups.
     

How does studying Law help a business professional ?

The day I enrolled myself to do an MBL from NLSIU, I have been plagued with questions.

Why am I studying Law ?
How do I expect it to help me in my career ?
How do I manage studying the flagship course of the best law school in India with a son who is 2 year old ?
Does it disrupt the work life balance ?

Reading and writing is my passion. I took a hiatus for a few years to be involved in building a family and watching my child grow. This was a fascinating stage and, you know that getting involved into the day to day rigarmarole of family life does leave an impact on your passions.

To get back to the question, Why am I studying Law ?
Reason no 1 would be, over the past 2 years, with a loving wife who added 20 kilos to my belly and an office which is just 6 km from home in Mumbai, I was sort of slipping into a comfort zone. Henkel, where I'am still working as I write the blog has been the organization where I have served the longest till date. So a nice family, a workplace close to home and a profession which I can just sleepwork. Time to get out of the comfort zone.

I personally need the rap and fear of exams to be able to divert my attention and bring it back to the world of books. Why Law ? During the 10 years of career, I have found that the only fear of any business man or corporate is to be caught on the wrong side of law. Apart from that this represents a challenge of epic proportions to me. Sit and study law OMG!!!

and ofcourse as a purchasing professional, I'am signing contracts and dealing with external agencies day in and day out. The last thing I want is to be personally or professionally on the wrong side of law as it damages both me and my organization. Further, many a time we know how to deal effectively with our partners so that we build a lasting relationship. For eg, when an offer is made and accepted a contract is deemed to have formed. So if one of the parties reneges on the promises, it can be brought up as a breach of contract. How many times, in your career have you had a purchaser or a seller renege on the promises made and accepted by just dropping a simple mail to you ?

You seem so helpless!!! Not anymore really. I can give countless examples where a thorough knowledge of business law helps a business professional deal effectively in every negotiation.

How do I expect this to help me in my career ?

Don't you think I will be better respected and better able to close deals more favorable to the organization ?

How difficult is it to study a flagship course from the premier law school of India ?

No words, It is absolutely tough, but then if it were so easy would we be proud of doing it ? The best thing to do is be disciplined, babies need more sleep than adults this is the only mantra I can suggest to you. You study 1-2 hrs everyday that should do the job for you.

Does it disrupt work life balance ?

Well it is both a yes and a no. Yes because you need to spare an hour or two and as the exams near you need to be absolutely focussed on the subjects. No because you can still spare sufficient time with your loved ones if you can sacrifice a bit of the news hour and a bit of other activities to ensure that you still get to maintain your balance. Just that the balance shifts.

So I shall keep writing, you can keep reading!!!

Phase II - Discussions Start

The past few months I have been reviewing the topics and a faw that came @ the top of my mind:

> With a CAGR of > 25% during my career, I believe that I can certainly share my learnings and ups and downs of my professional life

> With a CAGR of > 35% in my wife's career, I can share her views also here!

> I have started investing in stocks and yes I do have an MBA in Finance so will try to put in my views on financial planning. Trust me there will be no hi fi stuff here I have not been in the financial world for the past 8 years!

I had one motto (among the many) when I started my career! Live Life King Size! and being in my profession and career I most certainly have and am living it!

I'm Back

I'am back...

1 year I serenaded a girl & then married her and I completed my first marriage anniversary! Guess that was a long 2 year break... Bring on your telescopes, microscopes and binocs to view the world with me and see a different perspective!

 

B.E.S.T Vs N.M.M.T - A case of niche marketing & appropriate positioning

Every weekday that the clock strikes 7:30AM, the picture unfolds with a shrill ring of the alarm. It is time out, dreams over. A quick shave and a bath: dressed in formals, I'am off to work. I live in Seawoods the peninsular part of Navi Mumbai. My eyes open up to the Arabian sea on all three sides. A romantic evening spent with a loved one with the sun setting in the distant horizon can inspire a donkey to bray poetry. This was the view that compelled me to take up residence at this corner of the world. The flip side is that the connectivity is really bad.

So I revv up my cruiser and take a long drive on the palm beach highway, arguably the most beautiful stretch of road in Mumbai. At speeds of more than 100 kmph it takes me 8 mins to cover a distance of 10.5 kms. So, here I'am at Vashi by 8:30 AM. Driving in Mumbai can be a real pain and so I avoid driving all the way to my office in Chembur which is 11 kms from Vashi. What are the options I have to travel?

Local Train: Not an option, If Shashi Tharoor could call the economy flight, cattle class. I wonder what we can say about the Mumbai local. I have seen people travel on the roof tops and some die travelling, by just falling off the moving train, as simple as that. You cannot move a finger without touching someone & therefore the local train just gets shelved.

Taxi Cab: Bad Option, A cab charges 300/- from Seawoods to Chembur. So the total travelling expenses would come to 12000/- per month, This without the climate control. With so many other options would I want to travel in a taxi everyday?

Local Buses: Decent Option, Local buses are run by two corporations B.E.S.T & N.M.M.T (BrihanMumbai Electricity & State Transport) & (Navi Mumbai Mahanagar Transport) A local bus charges me 10/- from Vashi to Chembur. The frequency is good, the flip side? Crowded and it stops every 0.5 - 1 km. Also as the fleet is pretty old it really takes a long time to travel from Vashi to Chembur close to maybe 45 mins to 1 hr.

Local Cabs: Not a very good option, Individuals moving in & out of Mumbai generally provide lift for a nominal charge. While this is attractive, the problem is that you never know whose car you are entering into. The other day my friend prodded me to get into an Indica and as we were travelling the two guys were talking in Hyderabadi Urdu. One of them then pulled out a pistol and showed it to the driver and said "Today I'm gonna kill that SOB", to which the driver replied "Calm down dude, we will decide after we reach Raghu's place". That day I decided that this is not really a very good option.

State Transport: The best option under the circumstances, The State transport is run by the M.E.S.T (Maharashtra Electricity & State Transport). It charges me 12/- and takes me to Chembur in about 30 mins. So even if I catch hold of a bus by 8:40 AM, I'am in office by 9:10 AM, the official start time being 9:15 AM. This is my preferred mode of travel.

It was one of the mornings, as usual I had a shave and a bath and revved up my engine and I was at Vashi at 8:25 AM. Smiled at the pretty girl who also gets down at Chembur and waited for MEST to arrive, the clock struck 8:30 AM and whoosh!!! what was that? A Volvo arrived and the doors opened under pneumatic pressure. I checked the signage and it was going to Bandra, I asked the conductor if the bus stops at Chembur ? He nodded in the affirmative and I hopped in. Air conditioned with the FM radio and the bus was empty. I plonked on the seat and looked around feeling good. I was ready to pay 50/- and the conductor handed me a 20/- ticket to Chembur. This was value for money I felt. N.M.M.T had caught onto my pulse and come up with a product offering that just suited my needs. As a week passed I could see that the bus was getting a bit crowded, this was not what I expected. I could see myself travelling in a Volvo and standing at times !!!

One more morning and whoosh!!! the Volvo comes and opens its doors in perfect unision. I decided to give it a pass, MEST was better, if not air conditioned, if not music, atleast I got to sit in a corner and travel the distance. As I let the Volvo pass by another vehicle arrived. This was not a Volvo, it was from B.E.S.T, It was air conditioned and it looked empty. I gave a peek in and asked the conductor, does it go to Chembur? An affirmative and I hop in, hmmm the accelaration is not as good as a Volvo. The design also looks tacky, but it is air conditioned and has music playing at a very low volume. The conductor comes up and I hand him over 20/- for Chembur and he says, Sir 30/- for Chembur. I felt that he was ripping me. I protested, the Volvo charges me 20/-. The conductor replied back saying that the Volvo is run by the N.M.M.T while B.E.S.T runs these chinese make buses and B.E.S.T charges 30/-. I shelled out the money and continued the journey.

Later on I realised that I was travelling more frequently by chinese make BEST buses than Volvo make NMMT buses. This was because:

Both offered Airconditioning,

Both offered music, but BEST put on a very low volume while NMMT had blaring music

The low accelaration of BEST ensured that when I opened a book to read there was no strain in the eyes due to jerks.

The differential in pricing ensured that people who really wanted to travel in peace actually travelled in peace.

I was able to complete Outliers by Malcom Gladwell and Kane & Abel by Jeffrey Archer travelling in BEST.

When you look at the bus it may appear that the revenues of NMMT maybe higher than BEST and also the profits of NMMT would therefore be higher than BEST.

However, while an NMMT Volvo maybe taking 30% - 40% more passengers than BEST, BEST has priced it's tickets higher by 50%. Also the Chinese make vehicles must definitely be cheaper than a Volvo leading to lower capital costs. I may not be able to comment on the maintenance but looking at the fact that 40% more passengers board the NMMT, I belive that the maintenance cost of NMMT would be higher than BEST. All of this leads me to only one answer.

BEST is defintely the best and a clear winner.

Cricinfo.com Vs CricketNirvana.com

As the India Vs Australia fever catches on I could not help myself but watch the last 10 overs of each side. Cricket purists may slam me for missing out on the joy of Cricket, but frankly I'm neither a cricket purist, nor a great fan of cricket. For me the fun is in how each of the teams collectively handle the final moments of pressure and come out trumps with both the teams running to the finish line.

There is another catch to my viewing pattern, I do follow the scores as the teams slug it out. Incase of a not so tight finish I may as well avoid watching the match altogether. Incase it is a nail biting match I may as well watch upto 20 overs of the chasing side. The question is how do I track the scores? With a Net connect of 3.1 Mbps it is pretty easy. I open www.cricinfo.com and keep the tab live with score updates.

It was during one of these matches that I took note of an ad for www.cricketnirvana.com. The usp it claimed was quicker updates. cricinfo's 30 sec update does miss some of the action at times, but that is inconsequential as I check back only every 5-10 mins. However, given how much we are hooked onto the speed phenomenon, I definitely checked onto cricketnirvana.com. Here are a few things that I felt are the undoing of cricket nirvana.

My IE7 stores all the recently visited sites so when I type in "c" a pop down appears which shows cricinfo.com and the different pages I must have visited under the same. I select cricinfo.com and view the same. However, to visit cricketnirvana.com for one I need to type in the entire name first up which is definitely very long. Once I have done that, it did take a long time to open up. Once it did open up, it did look interesting. Then again a few more issues.

As the third ODI went underway today on a weekend, I opened up my IE7 and printed "c" there was a listing of all the cricinfo sites I had visited. I typed in "c" "r" "i" "c" "k" & what did I see? cricketnext.in.com and all the different pages I visited under the same. I then had to go all the way to "e" "t" "n" "i" and there I was at cricketnirvana.com. It sure taught me a lesson "KISS" "Keep it Simple Stupid". Why is cricinfo more successful as compared to cricketnext.in.com? A major part must be because in all browser sites as soon as we feed in "cr" it automatically pops out cricinfo after all "k" in cricket comes after "i" in cricinfo.

I believe this is one dimension that marketers need to be aware of...

What caused the financial crisis?

The US $ 700 bailout package proposed by the US government is one of the most extensive government interventions in the financial markets since the great depression. The bailout plan is similar to the 1933 Home Owners' Loan Corporation of the post-depression era. Way back in 1933 it helped in stopping foreclosures and refinance defaulting mortgages , and increasing liquidity. That a similar proposal is being considered indicates the extent of damage caused to the banking and financial services systems all over the world.
But how did the banks and investment banks create this crisis? Let's cut through the financial jargon and understand in simple words how this problem was created in the first place. The root cause for the current crisis seems to be the excessive use of leverage.

Excessive leverage:

To take an example, a company with a net worth of US$ 25 billion borrowed 26 times its net worth and creates leveraged funds of US$ 650 billion to invest or lend them. When a small portion of the company's investments turns bad, as is the norm for the industry, the company's capital is under threat. To put things in perspective a 3.8 percent misjudgment in their books was enough to wipe out their shareholders' capital of $ US 25 billion.

Bad lending policies:

In 2005-07 the property markets were on a high growth path. The property prices kept increasing. A sense of complacency had set in the real estate markets . It was assumed that the residential property prices would keep increasing forever. Mortgage lenders relaxed lending standards. Billions of dollars of sub-prime loans were to given borrowers with the sketchiest credit histories on recommendations of mortgage brokers who were more interested in their commission. Loans were structured very innovatively. Some gave borrowers the ability to skip repayments and some had interest rates that rose over the life of the loan. Lenders were not worried about repayments as defaults if any, on loans, could be recouped from the property itself.
Contrary to this assumption, the property bubble burst leading to sharp depreciation in property prices. As loans were given to people who could not repay it in the best of time, mortgage repayments defaults kept increasing, triggering off a chain of events that led to the bankruptcies of the hallowed institutions of Wall Street.

Financial engineering:

Now you may ask how investment banks of the Wall Street who generally deal in investments in stocks, bonds and commodities have anything to do with mortgage loans. To understand this we move into the realms of financial engineering. Wall Street investment banks purchased the mortgages from the banks. This freed up banks' funds to lend more and gave the investment banks an underlying asset to create their financial magic.
Using these assets as collateral, they created derivative instruments and sold them to various institutional investors like hedge funds, pension funds, mutual funds and banks in all parts of the globe, including Europe and Asia. The instruments were to be redeemed as and when mortgage payments were received from borrowers.
The mortgages were categorised according to their quality. The good ones were pooled together under one derivative instrument. After being highly rated by credit rating agencies and insured from insurance companies these instruments were sold to institutional investors. The second quality ones got lower ratings, but nevertheless could be sold off with higher interest rates. The investment banks decided to keep the junk quality ones with themselves under separate companies called special purpose vehicles (SPVs) paying them the highest interest rates.
In all there was approximately US$ 1 trillion invested in these securities. Things were cruising along as long as property prices were on an upward trajectory . Once the tide turned the echo of defaults were heard far and wide. The value of mortgage-backed securities fell sharply. All institutional investors that had bought these highly-rated bonds in large volumes expecting a good rate of return now faced complete erosion of capital.

The jigsaw puzzle:

So, now, if we look at it as a giant jigsaw puzzle we have many independent pieces. One, a home owner who borrowed a loan; second , a mortgage lender who sold off his loans as income streams; third, an investment bank that purchased and re-engineered them; fourth, an insurer who through credit default swaps insured these debtbacked securities; and finally a bond holder who invested in these highlyrated instruments.
Now, due to defaults by homeowners all institutions up the chain are already bankrupt or facing bankruptcies.

Bailout to the rescue:

This is where the bailout plan is expected to solve the problem. The US government wants to buy mortgages and bonds from these near bankrupt companies with taxpayers' money. The plan as of now seems to be, after acquiring them at steep discounts, to hold them till maturity.
If all mortgages are paid back in full, the government can earn a handsome return on the taxpayers' money. This move will also help banks remove these illiquid assets from their balance sheets and free up the funds to be lent again, hopefully to good borrowers.
While experts seem cautiously optimistic that this bailout will solve the credit crisis to a certain extent, questions remain on whether it can prevent more failures of banks and Wall Street firms.