Vijay Gwalani

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Scarcity Creates Demand
August 4, 2022

Scarcity Creates Demand

Scarcity Creates Demand

Real estate is primarily a tangible asset. Real Estate rightly procured, is either good or very good investment. Today’s man can make anything under the sun, but cannot create more land.

Estate is the only thing that adds psychological value to your portfolio. Pure tangible value. A man is weighed by the estate he owns. Real Estate is the most secure asset class one can own. For time immemorial, the biggest wars have been fought for land. In medieval times, land acquired created kingdoms. The king got his subjects to stay on his lands, cultivate them, and in turn pay him his royalty.

In the modern world, as we have bisected and dissected the planet into countries, we still fight the biggest wars for land. The reason, it is scarce. On the micros, each of us is fighting for his or her share of the estate to create homes and offices which are the essence to livelihood. Once land is acquired, it needs to be cultivated. In Urban Areas, cultivation would mean creating structures with brick and mortar for commerce or housing. What we as middle-class investors need to do is identify our niche, purely basis our financial capabilities. No matter what the size of estate we buy with our limited resources, we must understand that we need to put our monies where there is scarcity, no matter whatever the size.

I shall give you an illustration. Every time an economy is performing, just like the penny stocks in the stock market, most of us get lured into buying properties in developing areas, far from the developed patches. This is only because we are sold futuristic stories with tall promises. But, as much as land is broadly scarce, scarcity for us would mean a shortage of land in a designated suburb, purely because it’s developed. Urbanized and developed infrastructure in your city is where you need to be. This assures you of marginalizing the downside. On the other hand, ambitious and futuristic areas blossom and appreciate when a lot of parameters to urbanize the neighborhood come together. Futuristic development depends upon big business houses/developers acquiring and developing new areas coupled with the government intervention to create huge amount of infrastructure and industry around it, to create opportunity and livelihood.

This theory of growth becoming a reality becomes extremely time consuming, making our ROI (Return on Investment) is unattractive. As a middle-class retail investor, we need to be part of the real estate investment process, but tagging along with

  • The right developer
  • In an urban/developed locale
  • At the right price

This is my modern-age theory of SCARCE for the retail investor. Apply this theory of SCARCITY, and remember land is scarce, buy it.

Just a Myth
August 4, 2022

Just a Myth

Just a Myth

Unlike the stock market, real estate is not a “we win some we lose some” investment. It’s a “Play to win” investment. The “win some lose some” approach is what most first-time buyers adopt while investing in real estate, and end up losing money. Investments are mostly random, through hearsay, and hence erratic and uninformed. This transpires with losing faith in the industry and consoling ourselves with the quote “ Real Estate is not just for me”.

That needs to change. We need a “Play to win” approach when we buy.

What is the difference? Being informed and hence making a prudent choice. So what is the criteria to identify a good investment for the layman?

Price: The most important criteria to survive any type of volatility is a good purchase price. Talk about buying price, on the macros, if the location is good, and the timing is perfect, make sure, on the micros you are in best price band. Buying cheaper than all the others in and around our intended area of purchase, comes with an assurance of early exit. Holding on to your money till you achieve an aggressive price offer now becomes the key. When the markets support the sellers, learn to hold money and await the right price opportunity. If it’s a buyer’s market, squeeze as much as you can, and deal only with the intention of buying tomorrow, until something really exciting comes your way. In both markets, on a negotiation table, always remember, if the deal strikes great. If it doesn’t even better, as tomorrow is another day.

Timing - The right time to enter and exit is another promising criteria, and if you are on the right side of the market, when the market mood is upbeat you will reap ROI beyond comprehension. Remember, WHEN THERE IS FEAR BE GREEDY AND BUY, AND WHEN THERE IS GREED, YOU MUST FEAR, FEED YOUR INVENTORY TO THE GREEDY AND EXIT.

Developer Financials and Project Financials: Developer financial strength plays a very important role in terms completion of the project. It also plays an important role in determining the ability to deliver a quality product. Usually, poor management of cash flow ends up with stalled projects or projects where quality/lifestyle of the project is compromised. Buying is like fishing. It is a game of patience and the one who is the patient gets the best catch. So wait there with your monies and you shall get the right deal. Always remember, it is great if we got the deal we looking for, if not, it never means the end of the world. There is always one waiting around the corner.

KEEP LOOKING !!!

Perfect Hedge
August 4, 2022

Perfect Hedge

Perfect Hedge

While you were saving for the rainy days, the cost of bread only got dearer than the returns you made on the savings. Layman in India broadly sees three avenues when it comes to saving / investing his hard earned surplus income

Stock Market / FDs in banks / Real Estate

What does one consider when choosing from the above?

  • Return on investment
  • Security of funds

But what we don’t really look at in MEHANGAYI. INFLATION. Have we, while investing covered the growing inflation. Read along to understand better.

STOCK MARKET INVESTMENT

While stock markets are extremely tempting and we read that they churn out a lot of billionaires, what we don’t read about is the losses, bankruptcies, and suicides that come as the dark side of these markets. In my tenure of 22 years in commercial markets I have witnessed not just losses but capital eroding more than just once:

  • The Harshad Mehta Scam of 1992
  • 9 - 11 terror attacks of 2001 that rocked not only the USA but the entire world
  • Subprime crisis of 2008 led by Lehman Brothers and then engulfing every financial institution and stock market of the world
  • The Covid crisis being the biggest jolt ever which took us by storm in 2020 and is still raking havoc

Apart from these huge jolts, several stock-specific issues/ scams that have time and again eroded investor capital is a phenomenon not hidden from anyone. In short, we put our hard-earned money, which we amass by saving our pennies by compromising our desires, in the hands of someone else who we believe is doing good and will make money for himself/ herself and us through his/ her business, and we hope he/ she is going to be integral forever and that all the external forces influencing this company we have invested always remain favorable to the business.

HOPE PRECEDING LOGIC, SOUNDS MORE LIKE A GAMBLE

FIXED DEPOSITS INVESTMENT

So, we as docile and modest people look at FDs as an option, to secure our wealth and liquidity, giving us modest returns of a mere 5 percent currently, which obviously comes with income tax deduction. Has anyone ever considered inflation (MEHENGAYI in Hindi) while investing??? Let us assume we put one lakh in an FD on 1 st Jan 2022. On, 31 st Dec 2022, the amount is one lakh and five thousand. As much as we have more money in our account, have we ever seen where the cost of living has gone in that one year?

Let me give you an example:
Sunday, June 12th , 2022 (Extract of the Times of India, Mumbai) BREAD PRICES RISE BY Rs. 2-5, SECOND TIME IN 5 MONTHS (Extract of Times of India, 12th June, 2022) The 800 grams of Wibs loaf used at the roadside sandwich stall now costs Rs. 70 from Rs. 65 as on June 12 th , 2022. The last increase had happened in Jan 2022, when the same loaf jumped from Rs. 60 to Rs. 65. Basics like bread in a mere six months have gone up over 15 percent, against our investment going up by a mere 5 percent, that too pre income tax. It means we are poorer in our wealth by 10 percent, given the hedge over the Consumer Price Index (namely cost of living)

What does that mean? It means from the commercial logic, we were better off spending the money in Jan 2022 then saving it, as post saving in Jan 2023, we won’t get that same bread.

Some other classic examples:

  • Petrol/diesel prices which have hit the roof
  • Your house help, who expects a 10 percent raise every Diwali
  • Your Land Lord who expects you to increase your house rent by 10 percent every year
  • The Covid crisis being the biggest jolt ever which took us by storm in 2020 and is still raking havoc

And the list is endless from electricity tariff, fruits, vegetables and whatever you can think of.

What’s the point of being in a space where slow death is inevitable?

REAL ESTATE

Real estate covers the capital erosion threat of Stock Markets and the safe but minimal return theory of Bank Fixed Deposits. It clearly is a more informed decision than the stock market as we are buying a more tangible asset. We see it, and if our decision is Prudent and Informed (my blogs cover these micros in How to Buy a Good Real Estate) we definitely have our hedge over our biggest concern, Inflation. Needless to say, unlike the stock markets, the scope of capital erosion is marginalized. Similarly, as safe as it is, the returns on Bank FDs is minimal. At 5 percent per anum, in no way hedge enough to tackle growing inflation. Real estate covers the failure of inflation over the Fixed Deposit rate of interest.

How does this happen: The only thing that runs hand in hand with growing inflation is REAL ESTATE. Brick, mortar, steel, fuel, labour, interest cost and every ingredient that goes into construction hedges your investment, and what’s more, you aren’t taxed till you actually sell.

Below is a layman’s logic of how real estate investment over the long term does not play spoilt sport in regards both inflation and appreciation on investment making it a sounder and safer investment.

The bungalow you constructed for 50 lakhs five years ago will not cost the same today. Someone who wishes to construct a similar bungalow today will pay much more as cost of raw materials and labor due to the rise in prices of raw materials. This is your hedge over growing inflation we are talking about for one.

Land costs go higher for several reasons. Government bettering infra, job creation around your area, growing neighborhood (my blogs cover these micros in How to Buy a Good Real Estate). This is what we typically term as appreciation. The rise in price is due to demand for a certain product, which surpasses the supply and gets you a price rise called appreciation, a by-product of demand and supply.

Finally, as an investment, we don’t keep the bungalow idle. We rent it out and get at least 2 to 3 percent net return per annum (my blogs cover these micros in How to Buy a Good Real Estate). This is the instant gratification, generally equivalent to minimum FD returns, real estate offers, no matter what phase broad commercial markets are in.

What is more important is that you own the asset and are actually driving your investment. You are the one who will take and informed decision of product, location, builder before buying what you buy and you are the one who would rent it to the right user at the right price. Finally, you will decide, what price you want to sell it for.

It’s a writing on the wall. In the current time and era,

  • Savings in FD will only make you poorer
  • Savings in stock market sounds more like a gamble to me
  • Savings in real estate will least cover you from inflation and will help you grow your asset valuation and never make you a popper

Hence, I say, Inflation is a rising concern, Real Estate our only hedge.

Purpose
August 3, 2022

Purpose

Purpose

What makes you aggressive while you are still poor is a PURPOSE!!

A strong purpose will automatically define milestones, and will also guide you to achieve them.

At the age of 19, in midst of all the survival stress, I wanted to marry the woman I loved. This beautiful but strange woman was willing to leave a rich father, easy-going lifestyle, and her comfort zone just to live with a penniless and directionless man like me. Marrying Divya became the purpose, and giving her every material happiness then became the only goal of my life. I wanted to do something of my own but I didn't know what. An underutilized car park belonging to my dad is where it all began. I took this space from my dad and me being me, I paid him rent . I started a data entry setup, tabulating data for Registrars handling stock market IPOs and the tabulation of data for Airlines for a mere 10 to 15 paise per entry.

All but 19, I had understood there is no better weapon, better power, a better feeling than having money. And marrying Divya being the purpose, the broad goal was set and that was to become RICH.

"No matter what the price, you cannot walk away from love"