Real Estate Valuation: How to increase value of your Property?

This is in continuation to our real estate valuation discussions in our last posts:

• Valuation by Rental Prospects - Real Estate Valuations
• Can Value in Real Estate be created, artificially?
• Valuation of Real Estate: How can you value your RealT?

Everyone, including you & us, is looking to make money in real estate & increase valuation of assets. Today let’s discuss how you can increase your assets’ worth manifolds, just by a small manipulation.

Recipe to Increase Asset Value

This might look like an unorthodox and risky approach to some of our readers, but it works.

‘You find an uninhabited area in the city, almost barren land, where no one would want to reside. Increase the worth of the area and exit gracefully.’

To explain in detail, let’s consider the following real case study:

Following is the satellite snapshot of an uninhabited area in Udaipur, Rajasthan (India).

Satellite snapshot of Chitrakoot Nagar, Udaipur

Surely no one would prefer to build a house in this part of the city. But now let RealT Horizon guide you on how to create value in this region.

If you look carefully, you will see some upcoming development in the nearby region (as shown below).

Potential & developing areas marked in red

As the area is uninhabited, most likely you will find the land in the potential marked area in the above snapshot at very nominal price. Now as an investor you have following choices:

If you go for this option, you will help others and make losses yourself. You will purchase the plot and struggle to receive the returns which this property is capable of providing.

You will create a handsome chunk of fortune for yourself by this decision. Suppose you have bought 3 plots here. Construct a building on one plot and sell it at par with your costs. Once one building has been constructed in the area, the prices shoot up for the remaining plots. Now you can make a good fortune on your remaining 2 plots.

You miss out on a golden opportunity in this area.

The reason why this area will develop in due course of time is because there is a developing area in the vicinity.

So in this manner, you have created money out of a barren land, just by streamlining your investment decisions.

Disclaimer: The above analysis is based on our understanding and experience. What happens in future will totally depend on your due-diligence about the area in the picture!

------ Thanks for reading RealT Horizon J ------

Channel Partners: An Emerging Trend in Real Estate

In our first post “Understandingthe Reality in RealT”, we mentioned Transaction as an essential part of the 5 step value chain. We further elaborated its details in our following post – “Transacting & Using your RealT”. Today we bring to you a fast emerging trend in the Transaction phase of real estate projects – the introduction of Channel Partners.

The figure below shows exactly where Channel Partners have made their place in the value chain:

   

What are Channel Partners?

Essentially CPs are the agencies that take the responsibility to sell-off whole or part of the realty projects in a pre-agreed upon duration & take their commission/fees in doing so. In this process, they underwrite the properties which are to be sold by them. More on this will get clear in the following discussions.

How are Channel Partners different from Brokers?

Although doing the same work, there is a huge difference between Brokers and Channel Partners.

A Broker acts as a liaison between the Seller & Buyer and in this process he takes his commission from both the parties.

A Channel Partner on the other end underwrites the property to be sold for a particular duration by paying the owner some percentage of its cost (refundable). The CP is then free to use any means of promotion & sale including sub-broking, conducting events, etc. to sell the property. Once the property is sold in the pre-decided duration, the CP gets a handsome cut from its sale, much larger than a broker’s, and gets his underwriting amount back from the builder.

If in case a CP fails to sell the underwritten properties in the specified time duration, he is liable to pay to the builder, an amount that is pre-specified in the agreement between him and Builder.

Why do Builders prefer Channel Partners?

With the evolution of new ways & processes in Real Estate, Builders have quickly adopted the concept of Channel Partners. We were perplexed at first about the acceptance of Channel Partners in this sector but when we looked at its profitability by putting ourselves in the shoes of a Builder, we got all our answers.

Following are some of the benefits that a builder enjoys in partnering with a Channel Partner:

• Immediate funding of Operational Costs: The builder uses the underwriting amount to fund his immediate cash requirements. This is similar to funding by booking amount, the difference being that the percentage of cash is relatively small.
• Guaranteed sell of the property: By partnering with the CPs, the Builder ensures that his property will be sold. He no longer has to worry about the marketing and promotional activities. Even if the CP is unable to sell the property in the specified time, the Builder easily gets the interest amount by penalizing the CP.
• Better than Broking: Using CPs is better than relying on the brokers. This is because of the fact that brokers have no liability to sell the property, whereas CPs have!
• Free Promotion: Suppose that a CP has underwritten 50 units out of total 100 units constructed by the Builder. Now, to sell those 50 units, the CP will carry on promotional activities by conducting events, advertising etc. But in this whole process, the Builder is getting benefit of free publicity of remaining 50 units as they fall under the name of same project.

These and several other benefits have made Channel Partners a hot topic in emerging markets. Also, it is noteworthy that this trend is picking up pace quickly in Tier 2 cities. RealT Horizon is glad that our vision of development in the Tier 2/3 cities is getting much air!

---------- Thanks for reading RealT Horizon J ----------