Education sector the next target for Real Estate players!

At a time when the biggies of real estate are divesting non core businesses, a clutch of mid-level developers are chalking up plans to invest in the ‘recession proof’ education sector. In the last one month, four real estate developers have announced plans of setting up business schools across the country with the combined investment exceeding Rs 500 crore. The Chennai based R. R Industries, Ahmedabad based Omega Realty, Delhi based Ansal Plaza and Kolhapur based Sanjay Ghodawat group are betting heavily on the `business of education’ to diversify their businesses; a model that has worked successfully in some countries like US and Canada.

With diminished demand for housing and a cash constraint, it’s a natural progression for many developers with available land banks. The reason for the rush into education is the burgeoning demand supply gap and also a logical extension into an adjacent category for builders who have the necessary wherewithal.

Ansal has tied up with Educomp and has leased out its three operational schools in Gurgaon to Educomp. The realty major also plans to build school in townships being developed by them. Similarly, the Ahmedabad based Omega Realty plans to get into business schools - to be named as United World School of Business - with a proposed investment of Rs 105 crores. The three proposed schools in Mumbai, Delhi and Ahmedabad will commence operations in academic session 2009-10.

Sanjay Godhwat Group plans to offer courses in engineering, management and also in the pipeline is an international school. The development of the 150 acre Sanjay Godhwat Institute will happen in three phases with an investment of over Rs 250 crore. The trend is being seen amongst the builders in south too. Chennai based real estate firm R. R Industries has tied up with National Management School (NMS) which is being set-up by US academics to start 25 business schools across the country with an estimated cost of Rs 9 crore.

It is only time before which the biggies, i.e, DLF, Unitech, Sobha get into education.

DLF surrenders 5 IT/ ITES SEZs

Notwithstanding, the relief rally in the stock market , the real estate sector has not much to cheer about yet. The country's largest property firm DLF which has been facing credit crunch like most of its smaller peers, is now said to have approached the government to surrender five of its nine IT-ITeS notified special economic zones (SEZ), according to a PTI report quoting a senior Commerce Ministry official.

As per the SEZ Act, the tax-free enclaves cannot be surrendered once they become operational. DLF, however, has not started work on the five SEZs that it wants to surrender. Its nine notified SEZs are located in various states. 

According to official data, the land bank of DLF's nine notified SEZs include 10.61 hectares near Hyderabad, 10.12 hectares in Gandhinagar, 12.06 hectares and 10.73 hectares in Gurgaon, 10.24 hectares in Sonepat, 10.33 hectares in Pune, 10.23 hectares in Bhubaneswar, 13.29 hectares in Kanchipuram and 10.48 hectares in Kolkata. It is not clear which SEZs are now sought to be cancelled.

Realty firms have been facing credit crunch which had forced them to shelve some projects. DLF had earlier surrendered its 40-acre IT SEZ in central Delhi and Parsvanath had put on hold its 12 IT/ITeS SEZ projects.

The government has till date given formal approval to 571 SEZ projects and notified about 270. Firms cutting across sectors rallied to announce SEZ projects when the economy was growing very fast and stock markets were on a high. Many analysts saw it as a mere strategy to profit by procuring cheap land to be sold later.

It all changed last year after the market crash followed by serious liquidity problem. Most of the promoters of SEZs have either dropped plans of further development or postponed plans indefinitely as there are no takers for setting up greenfield units in these zones nor are there lenders who are ready to provide debt.

Personal Financial Planning!

At what stage in life where should the money go and how best to plan my taxes.

1. Don’t confuse investments with tax planning. First decide in which financial instrument you want to park your money. This is because whether you want insurance, property, FD/bonds or mutual funds, there is always some tax saving instrument to help you.

2. At any given point of time have liquid assets to cover for 6 months of expenses. This could be parked in savings bank, or FDs or other financial instruments that can be prematurely encashed instantly without attracting much penalty. This cash often comes handy when you are between jobs, during emergencies esp. medical and when family/friends need you. I strongly advise that an individual should not dip into it and also refrain from any long term investments until this reserve has been created.

3. Work towards reducing your loans. If you have a education loan which costs you more than the Bank Fixed deposit (even after accounting for the tax break it provides) then it is advisable to retire it before doing any financial planning.

4. I would recommend you to keep your personal finances separate from that of the parents. However, what good of is all the money if it is not there for those who need it, when they need it. If your parents/family needs money or has taken a high cost debt, work towards retiring that.

5. After taking care of all these, I would recommend you to read this amazing book “Rich Dad, Poor Dad”. This simple book gives a remarkably different insight about how one should classify various assets and investment options.

Now some serious stuff……. 
6. FDs are a good place to park the money. You can be sure that your money is safe and will be there when you need it. However the returns this generates is hardly sufficient and inflation eats into it. Hence One should invest in the Stock Market linked instruments (Shares, Mutual Funds, ULIPs etc.) Early on when your savings are small and risk appetite sufficient, then one should park upto 50% of the money these instruments.
However it is also advisable to reduce it as you age. The best way I found is to put an artificial cap of 3 years of Salary on your Market portfolio. 3 years of salary is large enough that it will be a substantial part of your investment. Yet at 15% p.a. expected returns, it won’t be able to generate half of what you earn from 8-10 hours of labor. Hence the market performance will not be a major distraction from work.

7. Now comes property/home: Some people who want to take less risk want to buy a property immediately after graduating. However I would recommend you to push off this decision by a couple of years. The reason for this is that even if land prices don’t fall, it often involves taking a EMI on floating rate. With EMI payments exceeding 50% of the salary, the financial flexibility one has to cope up with unexpected events is severely limited. Once you have sufficient savings and/or a working spouse, then investing in property is advised.

8. Insurance: It is one of the most mis-sold financial instrument. An insurance is neither an investment avenue, nor a tax saving instrument. It is taken to enable a person to take care of the unexpected. The best times in life to buy a life insurance are:
a. When you take a long term loan (for property/education etc.)
b. Marriage (esp. to a non working home-maker)
c. Planning for Kids
Also whenever possible, please buy Term Insurance (huge insurance cover for a small premium) and medical insurance.

So to summarize we have covered liquid assets, market linked portfolio, property and insurance. Last is tax.

9. Most tax savings happen under 80c. If you buy an insurance, its contributes under this segment.
If you plan to go for bonds: then NSC, Infrastructure bonds, PPF are few of the avenues
If you want to invest in market then ELSS (Equity Linked Savings Scheme)
If you want to invest in property then Home Loans give you tax shields.
Hence you should first look into what lock in period you are looking for and what risk/return profile you fall into and then select the tax saving instrument accordingly.

I hope this really long and boring post helps. How different is your investment philosophy?

Got this off a blog that I follow...Hope it helps