A Tool Book for Indian Realty

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.

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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.

FINE PRINT
• Real estate has not yet succeeded in establishing itself as a distinct academic field in India. As a result, from the 50 million people working for the real estate and construction sectors in the country, only 2 million are professionally qualified.
• 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 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
• 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 re al estate professionals and generalist real estate enthusiasts
• 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

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.

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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)

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