Leverage Your Real Estate Investments for Higher Returns

Newsletter January 2014
Ethical Consulting Pvt. Ltd., A 24/21, DLF Phase –I, Gurgaon-122002
www.ethicalwealth.in , www.facebook.com/ethicalconsulting

Page 1

Boardroom Communiqué
Last few months has opened many magic boxes; one year old political party overthrew 125 year old
party from the power center of national capital which has ruled the country for better part after
independence, main opposition party did not form government because it was short of four seats for
majority in national capital and feared any effort to obtain majority may not go down well with the
voters, power of ballot triumphed over power of money and muscle. Responding to movement and
outrage in social media against rampant corruption, elite and ruler class thundered couple of year back,
from the heart of Delhi that participants of social media does not represent India, this is just a fad, they
make the rule and told everyone to prove otherwise. On December 2013, people of this country proved
that who runs this country, what is fad and what is change. New chapter of hope, courage, action and
achievement has started opening up in this country and it will reach to newer heights. This year is year
of hope, more changes, and more power in the hands of common people; because they represent India,
they are real India and nothing can change that.
From team Ethical Consulting (www.ethicalwealth.in), we wish a year filled with hope, love, care,
respect and happiness to you all.


Page 2

Nitin Kumar,
Founder Director, Ethical Consulting Pvt. Ltd. (www.ethicalwealth.in)

Service Apartments: Diversification in Your Real Estate Portfolio

India has seen sharp surge in business travel over the last few years thereby becoming more
integrated with the global economy. According to Reuters report, Indian companies spent USD
22.1 Billion in 2011 and 2012 saw a growth of 5.8% above this figure. According to VISA
sponsored GTBI outlook, Global spending on business travel is to touch USD 1.12 Trillion.
Business Executives from India and abroad frequently travel to business hubs and have to stay
there for short or long periods depending upon their nature of work.
Staying at hotels for such long periods is costly. Serviced apartments offer an alternative and
are much cost competitive. For house owners, they serve as an alternative to giving their
premises on rent.
HOMES AWAY FROM HOME
A serviced apartment is a furnished accommodation (it can include, ACs, TVs, Couch, Beds and
all Luxury fittings) with a small kitchnette and rooms are always more spacious than in a hotel
with a separate sitting area for guests. These days they come fitted with all modern
communication facilities such as telephone, fax and an Internet connection. Some also offer
conference rooms, besides housekeeping staff and a concierge service.
The concept of serviced apartments arrived in India in 2003-04. Starting from Mumbai,
Bangalore and Delhi, serviced apartments have extended their presence to smaller cities, driven
by commercial activities. They have become quite imperative for all business travelers and are a
tool of travel cost optimization for companies as well.
The main client base is the corporate sector. The demand is primarily driven by executives of

Page 3

multinational companies (MNCs) and expatriates who come to India on deputation for periods
ranging from weeks to months. There is a huge demand for high-end serviced apartments in the
National Capital Region (NCR), especially Gurgaon, where lots of developers have launched
their projects in recent past, due to the presence of a large number of MNCs.
Globalisation and continuous play of economic activity is resulting in an increasing number of
expatriates coming to India for work. As the duration of their stay is assignment-based, it makes
lot of sense to take a serviced apartment on rent rather than staying in a hotel. These
residences are owned and managed by the builder or some service providers like Keys or
Hayaat and are usually sold to individuals.
Top serviced apartment brands are operated mainly by mainstream hotel chains which want to
lower operating costs and reduce the staff/guest ratio. A number of international brands have
developed serviced apartments with local developers in Delhi, Mumbai and Bangalore, catering
largely to the corporate sector.
Leading hotel chains such as Hotel Leela Venture, Grand Hyatt and Marriott International and
KEYS run several serviced apartments in the country. All major developers are have lined up
Service Apartments for development to cash in on the opportunity offered by the demandsupply gap.
CASE FOR INVESTMENT OPPORTUNITY
Athough mainstream hotel companies are major players in the business, several developers are
offering these apartments to individual buyers. Some of these are targeted at the ultra rich who
want to own accommodations in different locations without worrying about their maintenance.
Several small- to mid-size builders are marketing serviced apartments as an investment
opportunity with Assured Returns in the range of 9-14% per annum. At present, investment in
residential properties is more for capital appreciation than rental income. Annual yield via
rental income from a residential property is generally 3-4% a year while capital appreciation is
10-15%.
The concept of serviced apartments arrived in India in 2003-04. Central Park is constructing a
serviced apartment complex in Gurgaon, a suburb of Delhi. The company plans to build studio
and 1 BHK (bedroom, hall, kitchen) apartments, both with and without a study room. It will also
build space for retail outlets, fitness centres and multi-cuisine restaurants. ELAN Ltd is currently
offering similar kind of Service Apartments “ELAN MERCADO” in Sec-80 of Gurgaon with
Assured Return of 11% PA for a period of 4 years hence.

Page 4

One of emerging hotbed for Service Apartments is around NOIDA and adjoining areas such as
Indirapuram where Victory Infra is coming with its much coveted project “Indirapuram Habitat
Centre.” Which offers 12% Assured Return and a prospect for huge capital appreciation. More
Delhi-based developers plan to build serviced residences for sale to individuals. Several projects
are on the drawing board for other locations as well.
Like any property investment, location is important in this case too. Proximity to business
centres and good connectivity will lead to higher rental income and capital appreciation. As the
quality of service also decides the rental yield, it is important that the facility is managed by a
reputed service provider.
PROFESSIONAL MANAGEMENT FOR HIGHER RETURNS
Serviced apartments can become a popular option for generating higher rental income from
value-added services when professional property management companies start offering
services and finding guests.
As India's economy expands, the demand for serviced apartments will increase along with the
floating population. These apartments can also become a preferred choice for those seeking a
luxurious lifestyle. With demand rising, more developers will start offering facility management
services, either directly or in collaboration with hospitality firms.
If you want to invest in real estate, it may be a good idea to diversify your exposure to serviced
apartments for a higher annuity income than what residential apartments can give. Don't forget
to undertake a due diligence of the project before sealing the deal.


Page 5

Nitin Kumar
Founder Director, Ethical Consulting Pvt. Ltd.(www.ethicalwealth.in )

Tips for Investing in Real Estate: ‘Leverage’ - Understanding the power and
Pitfalls

Leverage means use of other people`s money (OPM), like bank or financial institutions in an
effort to increase the reward for investing. To a lot of people, it means risk. The fact of the
matter is, using leverage in real estate investing is an exciting way to earn big yields on small
investments, and you should not fear taking a chance. When you are building real estate
wealth, leverage will help you grow your investment quickly without involving too much risk (as
long as you watch out for some pitfalls, which will be discussed later). High leveraged investing
in real estate is especially powerful when inflation is in full swing. High leverage investors have
numbers going for them because property values rise faster than the interest charges on their
borrowed money.
To see the full power of high leverage investing, take a look at the following example:
Example
You pay a seller Rs.1,00,000 cash for a piece of property. During the next 12 months, the value
of property appreciates 5 percent and grows in resale value. The Rs. 5,000 gain equals a 5
percent yield on your investment. But suppose you had put down only 10 percent (Rs10,000) in
the property and mortgaged the balance. Now, your return on investment leaps to an
astonishing 50 percent! (Rs.5,000/Rs10,000). Another way of looking at the result is: Since you
only put down Rs.10,000 on Rs.1,00,000 worth of property, you actually control the asset 10
times the value of your actual cash outlay. This means 5% x 10 times = 50%. (In this example,
for simplicity, we have omitted mortgage interest costs as well as the return on the Rs10,000

Page 6

you would have invested somewhere else, plus any rental income you would have earned from
the property).
Let us expand the scenario to further see the impact of leverage.
Example
Instead of putting 100% down (Rs 1,00,000), you put down 10% (Rs. 10,000) and bought nine
more pieces of property, each costing Rs.100,000, and each bought with 10% down (Rs.10,000).
Again assume that they appreciate at the rate of 5 percent. Therefore, your wealth increases:
Rs. 5,000 a piece x All that in one year. 10 pieces = Rs. 50,000.
Tip: Tying up your wealth in one property (Rs.100,000) cost you Rs. 45,000 (Rs.50,000 –
Rs.5,000). Conversely, by spreading your funds over more properties and leveraging the
balance, you would multiply your earnings 10 times.
Remember: The lower the amount of cash invested, the higher your return (from value
appreciation and/or rental income). On the other hand, the larger your cash investment, the
lower your return. Also, remember, a higher appreciation will greatly increase earnings on your
leveraged investment.
Pitfalls of Leveraging
We have seen the power of leveraging in the above explanations. It has some latent pitfalls
which an investors usually omits while taking investment call. Few factors are discussed which
one should consider while following this approach in investment:
1) Leverage Rationally: One should leverage rationally while taking decision like their total
earning expected in the ensuing period of investment and total outlay, which in any case
should not be more than two to three times the investible surplus that they generate
during the said period. Going overboard can even eat your capital.
2) Study Market Scenario: While one can’t predict market but can analyze it decently using
different tools in the market or taking help of professionals who are engaged in this
business for a larger period of time.
3) Target Returns: One should always exit at a pre-decided targeted returns and expecting
unprecedented return is sometimes major dampener. You would not find any buyers for
your investment if you wait for longer period and suddenly market turns negative. Have
a strong communication network in the field to get all kind of information; which
ultimately helps in decision making.

Page 7

4) Don’t get too greedy: People never learn from their mistakes and its happening since
the dawn of civilization. You have to create a right mental frame and have principles of
Investing clear in your mind. Following the discipline always helps in taking decision.
Your entry and exit should not be guided by emotional factors. You have to be RUDE and
RUTHLESS to your investments. Don’t wait for “dreamt-of” returns, instead exit at what
market offers.


Page 8

Mukul Bhartiya
Marketing Consultant, Digiage (www.digiage.in, www.digi-age.in )
Why Affordable Housing Merely A Statement and Far Fetched
According to Central Statistics Office, Ministry of Statistics and Programme Implementation,
Government of India, national per capita income in real terms ( at 2004-05 prices ) 2012-13 is expected
to attain a level of Rs.39, 143 as compared to the First Revised Estimate for the year 2011-12 of
Rs.38,037.
At
current
prices,
per
capita
income
is
estimated
at
Rs.68,747
(http://pib.nic.in/newsite/erelease.aspx?relid=92062).
Another report from National Housing Bank says that Technical Group of Housing Shortage (TGHS) has
estimated the housing shortage in Urban India at 18.78million with 95% shortage in Economic Weaker
Section(EWS)/Lower Income Group(LIG) segment in 2012. Further, according to TGHS’s definition,
housing for EWS should have carpet area of 21-27 square meters and housing for LIG should have carpet
area of 28-60 square meter area. By government’s definition, EWS housing falls between the price range
of Rs.4-10 Lakh.
Taking a cue from my earlier blog(http://digi-age.in/2013/11/19/why-real-estate-prices-in-bigger-citiesare-high-an-outsiders-view/) and if my assessment holds any ground, then major expenditures of a
household falls in following category:
1)
2)
3)
4)
5)

Accommodation
Food & Clothing
Education
Health; and
Social Security (near future and post retirement expenditure)


Page 9

So, a household should spend a maximum of 6 years total income on housing and if it goes beyond that
then it will have to compromise on other prominent heads of expenditure.
I love mathematics and that’s why I recite numbers in most of my blogs. Let’s take this love of mine a
little further and find out whether affordable housing in tier- I urban area is possible in India within the
pricing scope provided by government as well as the per capita income at current prices.
According to Ethical Consulting Pvt. Ltd. (www.ethicalwealth.in), a leading wealth managers in real
estate based out of Gurgaon, price of residential land in Delhi-NCR ranges between Rs.1.75-15 lakh per
square meter. Please note that this price is mentioned for the areas, which are connected with basic
amenities and agricultural or non-developed area may have different pricing than what is mentioned
above.
Now let’s do the mathematics:
Minimum price of land per square meter: Rs.1.75 Lakh
Minimum Carpet Area for EWS Housing: 21-27 Square Meter
Minimum Carpet Area for LIG Housing : 28-60 Square Meter

Then, what the cost of land alone at lowest price will be:
For EWS: Rs. 1.75 Lakh X 21- 27 Square Meter = Rs.36.75-47.25 Lakh
For LIG: Rs. 1.75 Lakh X 28-60 Square Meter = Rs.49-105 Lakh
Further, in the household with two adult members, per household income at current prices would be
Rs.68,747 X 2 = Rs.1,37,494/- .
So, a household should spend somewhere around Rs.8-9 lakh on housing.
Now, correlate these costs, household income with price band given by government (Rs. 4-10 lakh for
EWS Housing) and see the gap yourself.
Now, let’s bring on few more numbers. Delhi’s area is 1484 sq. km and population according to 2011
census is 1.68 crore, which means there is only 88.33 square meter space for each individual for
everything; housing, profession, road, medical facility, park etc. I am not seeing any sense in these
numbers; if you are seeing any sense then good for you.

Page 10

I am not a town planner, I am not an architect, I am not a real estate developer, I am only a common
man who is trying to understand whether two plus two is equal to four or not and here I am not seeing
that happening in Indian housing scenario. I am seeing the following challenges in affordable housing
segment:
1) Affordable housing can’t see any growth unless government steps in a big way.
2) Land Acquisition Bill 2014 to benefit the land owners is alright, but land has to come for
affordable housing.
3) Urbanization, infrastructure development and economic activity have to move towards smaller
cities. According to UNESCO reports internal immigration in India accounts for a large population
of
309
million,
which
is
nearly
30%
of
total
population
(http://www.unesco.org/new/en/newdelhi/about-this-office/singleview/news/internal_migrants_in_india_the_millions_who_cannot_exercise_their_rights/#.Ur3Y
HfRDtXY) .
4) Since land is scarce, to bring down the cost of housing, technology has to play a role and seeing
the huge cost to expected realization gap, I don’t see any private builder spending so much on
technology. Here also, government needs to focus on it.
5) Price o raw material also has to go down, which can either be through government subsidy or
technological development and who else can do it other than the government.
So far I have not come across any piece of news of this magnitude which can give impetus to affordable
housing. Till then, I am considering media reports about market tendency towards affordable housing as
statements only and nothing else.
In reality, housing sector in India will continue to consume around 12-15 years of income of middle class
and upper middle class population. With good inventory level in Tier-I markets, there will be lot of
activity in the real estate market, with little bit correction upward and downward in different phases,
but there will not be any drastic price cut or dynamic shift in pricing structure in near future.
This is my individual opinion and does not represent the industry’s point of view. Experts may differ
from what I have mentioned here and they are more than welcome to correct me….


Page 11

Mukul Bhartiya
Marketing Consultant, Digiage (www.digiage.in , www.digi-age.in )
13 Steps to make your day more productive

If you are an entrepreneur, you are really hard pressed of time. You have to be the attend the calls, you
have to attend the meetings, you have to do the business development, you have to run the office; in
short, this is your baby and you have make it grow strong. In this quest, you find that a lot has been
done but even more is left to be done. With every passing day, your diary becomes even more chock-ablock and you don’t know how to correct it. Below given is following steps, which will help you to rearrange your work, life and make it more productive:
1. Start your day early: Start your day before your network of people starts their day. Be at least
one hour earlier than them. It is almost like boxing match, where, if you are on the equal footing
than your opponent, first punch will give you the winning advantage.
2. Put your phone on silent mode for one hour: Since you will spend this one hour for planning
your day, you need no distraction and you will agree with me that along with being a big utility
tool, mobile phones are big distraction. So, put that distraction away from you for one hour.
3. Let your network know about your schedule: People may not be aware about keeping your
phone silent for one hour and they may call you during that period. If they are informed about
your practice, then they may not bother you, unless and until, there is something very urgent.
4. To Do List- Your First Job: Your first job in the morning should be to make the list of work to be
done that day. Make a bucket list first and arrange it by priority.


Page 12

5. Set Specific Goals: While making the list of work to be done during the day, make specific goals,
so get the specific results. If you write down that you have to go for a business development
meeting, then it won’t give you a clear picture at the time of meeting. You should very
specifically about time of the meeting, person concerned for the meeting, objective of the
meeting etc. It will help you to set your priorities and points right during the meeting.
6. Shoot the work down to be done by others: Yes, before you start your work, you must allocate
the work to be done by others. If you put the ball in somebody else’s court, then responsibility
to hit or leave the ball will rest with him and you will have time to focus on your strategy. If you
engage the workforce in your network in the work as you have planned, then they will be busy
in acting according to you and allow you the time to concentrate on your work.
7. Check your mail quickly within 30 minutes: After doing above points, check your mails and
priority wise, answer it within 30 minutes. After that stay away from emails till the evening.
Above 7 points must be done in the extra one hour you have given yourself by starting early. And now
you get down to doing your work. But, that’s not all, there is something more for you to adhere to.
8. Strike down the completed work from ‘to do list’: As you keep finishing your work, keep
striking down it from the list. At the end of the day, you will be able to figure out how many of
the planned work you have been able for finish.
9. Write down the result of each work; may be just couple of line: Writing down the result of
each work should be part of work plan, so that you will be able to match up the expectation
with the result.
10. Check and respond your day’s mail in last one hour of the day: As the day will progress, you
will also keep getting the mails. Don’t let it distract you. Stick to your schedule and answer it in
last one hour of your work schedule.
11. Review your performance: Before pulling down the shutter for the day, quickly review the day’s
work. Today’s left out must be your tomorrow’s priority, so that it is not left out forever.
12. Get somebody to hold you accountable: Common; we are human and we sometime hide inside
the cocoon of our incompetency or lethargy. So, we need to pulled out of it by somebody. Get
somebody who will hold you accountable for non-delivery of results.

13. Plan for tomorrow: Now, you will say that from where it is coming. Yes, pre-empt the
opposition by thinking that what they will think for you tomorrow. Be pro-active and see
the result.


Page 13

Work with us:
We are growing fast with branch offices in Delhi, Patna and Ranchi along with corporate office
in Gurgaon. You can send us your profile at atul@ethicalwealth.in to avail the opportunity to
work with us.
Locate Us:
Ethical Consulting Pvt. Ltd.,
A 24/21, DLF Phase-I, Gurgaon-122002
Website: www.ethicalwealth.in
Facebook: www.facebook.com/ethicalconsulting
Twitter: www.twitter.com/ethicalindia
LinkedIn Profile: in.linkedin.com/pub/ethical-consulting/80/30a/454/
LinkedIn Company Page: http://www.linkedin.com/company/ethical-consulting-pvtltd-?trk=company_name
Blogs: www.ethicalconsult.wordpress.com , www.ethicalconsulting.tumblr.com
Slideshare: www.slideshare.net/ethicalconsulting


Page 14

Leverage Your Real Estate Investments for Higher Returns

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Viewers also liked

Viewers also liked (20)

Similar to Leverage Your Real Estate Investments for Higher Returns

Similar to Leverage Your Real Estate Investments for Higher Returns (20)

Recently uploaded

Recently uploaded (20)

Leverage Your Real Estate Investments for Higher Returns