In recent years, many economists have recognized that the lack of effective real estate laws can be a significant barrier to investment in many developing countries. In most societies, rich or poor, a significant fraction of the total wealth is in the form of land and buildings. In most advanced economies, the main source of capital used by individuals and small companies to purchase and improve land and buildings is mortgages -- bank loans for which the real property itself constitutes collateral. Banks are willing to make such loans at favorable rates in large part because if the borrower does not make payments the lender can foreclose, that is, file a court action that lets them take the property and sell it to get their money back. But in many developing countries there is no effective means by which a lender could foreclose, so the mortgage loan industry as such either does not exist at all or is only available to members of privileged social classes.
1. Buying and selling real estate
There are differences between buying and selling real estate and dealing with things such as stocks, bonds, and mutual funds. For example Most investments can be bought or sold within minutes at the market price. Buying or selling real estate takes months. That difference introduces interesting wrinkles in timing when to buy or sell. Like other investments, selling at a high point, with the intention of buying back in at a lower price, is one way to make a profit. The difference in the time required is intriguing.
2. Stocks
Stock selling can be easy. When the stock continues to rise, there are often others that have declined but can now be predicted to rise again. The real estate market rarely offers those kinds of opportunities.
3. The other difference
The other difference is that companies differ but most stocks are alike. Real property is always unique.
4. Lower prices
If selling a person needs to get a new home, buy back in at a lower price or wait for a new opportunity. The costs of doing things can be very high.
There’s a new breed of high-networth individuals (HNIs) in India Inc �" farmers selling land for SEZ-notified projects. In an effort to woo such HNI customers, private banks like HDFC Bank and ICICI are reportedly keeping a close watch on their transactions on a regular basis. The moment a significant land deal is struck, the banks’ investment advisors rush to the new HNIs to sell a portfolio of wealth management services.
For instance, in Reliance’s SEZ project in Jhajjar, Haryana, the banks have recruited locals as their agents whose job is to keep the bank authorities apprised of 1 acre-plus land transactions and convince them to invest a part of the money received in fixed deposits (FD), mutual fund schemes, life insurance and annuity products.
Says Kanwar Vivek, head (retail liabilities group), ICICI Bank, “There are many farmers who have become rich by selling land to corporates. They, however, lack wealth management skills. We are treating this category as HNIs, at the same time flagging them as high-risk deposits as they tend to put only 30% of their money with us for a longer period.
On this front, a lot of awareness-building exercise has been initiated by us." According to sources, Reliance Industries has tied up with HDFC Bank, ICICI Bank, Punjab National Bank and State Bank of India for providing financial consultancy to farmers. This arrangement is turning out to be a win-win situation for all involved parties.
“For a farmer, the maximum monthly crop yield per acre of agriculture land is about Rs 13,000. Add to this transportation and labour costs. In Jhajjar, an acre of agricultural land is worth Rs 22 lakh which is capable of yielding interest of about Rs 15,000 per month in a 360-day FD," said an official in Haryana State Industrial Development Corporation (HSIDC).
This has led to a major change in the investment patterns of some of the farmers, who till now only bought land as an investment vehicle. “Earlier, land was the only investment option for farmers. A major part of the money is now being put in buying various financial policies," the official added.
According to statistics compiled by the rehabilitation & resettlement (R&R) department of HSIDC, in the last three months, private banks have bagged more than Rs 20 crore worth of FDs from farmers in Badli, Nimana, Faizabad, Ladpur, Munimpur and Sondhi villages of the Jhajjar area alone.
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