The first-ever book on the Indian real estate sector ‘Real Estate Finance in India’ by Prashant Das and Divyanshu Sharma may well be recognised as the stepping stone for the sector to develop in the academic sphere besides being a reference manual and a veritable tool-book for professionals and real estate enthusiasts.
Real estate finds itself at a turning point in India today: new regulatory reforms, such as the Development Act, might well be as a critical game changers for all stakeholders as were the creation of Housing Finance Institutions (HFIs) in the 1970s and 1980s for the development of housing loans. However , real estate has not yet succeeded in establishing itself as a distinct academic field in India. Asa result, from the 50 mil lion people working for the real estate and construction sectors in the country, only 2 million are professionally qualified.
Dr Prashant Das and Divyanshu Sharma decided to participate in fostering indigenous real estate academics by authoring Rea l Estate Finance in India, the first book dedicated to Real Estate from an Indian perspective. The result shows that rather than a sheer participation, they might have built what will be recognised as a foundation stone in the Indian real estate academics.
Real estate as a specific discipline
In the Introduction chapter , the authors interestingly remind us that some ‘modern’ finance concepts such as differential risk, ‘Time-Value of Money’ and interest rate caps that are discussed in the book, are deep-rooted in the Indian civilisation. Although traditional finance provides pricing and decision making tools, it is unable to fully represent all real estate dimensions the authors ably draw, the distinct nature of real estate as a discipline. As reported in the introduction, Dr James Graaskamp coined that real estate refers to “arbitrary delineated space over time” a definition later supplemented by Dr Julian Diaz Ill who stated that to become an estate, space needs human intervention. Hence, real estate indeed does not stop at the threshold of real estate agents and dealers but encompasses a full set of different domains from investment to urban planning, through management, engineering, economics, policy, etc., but being different from infrastructure and construction sectors, even though they require overlapping skills and have strong interactions.
Organisation and readability
The book consists of ten chapters covering general discussions about real estate finance concepts and chapters dedicated to Indian real estate specificities. For an academic audience, the book offers a hand study plan, with clear learning objectives stated at the beginning of each chapter. The chapters are systematically developed from basic concepts to more complex discussions through the use of real life scenarios. End of chapters offer practice problems along with their solutions as well as glossaries and valuable academic references and suggested readings. The whole book is also pleasantly spiced with numerous figures and real estate scholars and professionals interviews that deepen the concepts being discussed, that will catch the attention of real estate professionals and generalist real estate enthusiasts.
The chapters can be divided in two sections. The first section helps in understanding the finance concepts (chapters 2, 4, 5, 6, and 7) and the second section expose the facets of real estate Indian environment and market (chapters 3, and 8 to 1 0). The first section first covers Time-Value of Money (chapter 2) concepts and calculations. The use of a financial calculator and MS Excel for this purpose are well described, and conveniently illustrated with screenshots of the output screens of the different steps of the calculations. The book offers in-depth discussions on fixed and floating rate mortgages, alternate mortgage types, effective borrowing costs, prepayment, balance transfer , home equity loans, reverse mortgages and equated monthly installments under construction. Thanks to living examples, the understanding of these concepts are clearly rendered, e.g. when discussing the economic rationale behind reverse mortgages in a high transaction costs environments like India. Rather mundane topics such as financial statements, interest rates and bond valuations are very tastefully described that prompts one to read further with interest.
The second set of chapters initiate with discussion of the general mortgage underwriting process, and a brief history of the Indian mortgage system, and product types. The common representation of mortgage borrowing evolved from assuming the ” ill financial status of the borrower” derived from the ancient conflicts between borrowers and ‘Sahukars’ in the ‘Girvi’ system, to a reflection of the prosperity of the mortgagor in modern times. Topics related to market efficiency, legal concepts, capital markets and property markets are an interesting read. These chapters also give an oversight of debt and equity markets, insisting on the secondary mortgage markets for the debt part, and on stock markets for the equity part. The authors have provided a synthetic and clear map of the participants to secondary mortgage markets and of their interactions, that proves to be very helpful when discussing securitisation and refinancing.
Their analysis of equity markets starts with a focus on the different types of equity markets available for real estate financing (private equity, mutual funds, REIT s, portfolio management services, stock markets), and then develop details how the stock market operates, and how stock markets indices are constructed and calculated.
The final chapter , ‘Perspectives on Real Estate Sector in India’ is made only with expert views from various real estate professionals, both academic and from the industry, in an attempt to broaden the scope of the book, originally focused on fundamental discussion on real estate, through eight topics that the authors believe to deserve further attention.
In conclusion, even if we can reasonably hope that further editions will cover the different topics in a more detailed approach, or that the book’s success will encourage the authors to develop the material for an “Advanced” version of their book, the holistic approach of Real Estate in India, the clarity of its construction and the quality of the invited speakers make it as well a reference manual for teaching purpose as a valuable ‘tool-book’ for professionals and real estate enthusiasts. By addressing the specificities of the Indian real estate market it scouts a brand new academic approach in India, which is promised with certainty to great developments in the near future .
(The reviewer supports real estate courses as a finance specialist at Ecole Hoteliere de Lausanne (Switzerland). He graduated from Reims Management School (France), after having several finance and entrepreneurial experiences)