The third in the series of books on the “Sobha Funds” set of property portfolio management strategies for India, “Sobha Projects: Combining Budgeting, Estate and Financial Planning” by Vikas Swarup concentrates on properties and financial assets owned by private limited. The book was published just before the boom of property auctions took a hold in Bangalore. Private Limited Companies (PLCs) in India used the auctions to sell land or block of flats at throw away prices, making a profit without ever having occupied the property. In these circumstances, land ownership became a buyer’s market, with buyers vying for land at premium prices. The Securities and Exchange Commission (SEC) has now intervened, with plans to prevent such fraudulent transactions.
This boom in Bangalore real estate saw the entry of many new private limited companies. The boom also brought a surge in infosys and property consultants who specialized in strategic planning and property analysis. The first contractual project in Bangalore, Mysore, was started by an entrepreneur from another, similar company, and was a spectacular success.
The entrepreneur, while setting up his company, had gone through an MBA from an eminent University, so he was well aware of the principles of economics and business. He decided to use these principles to start a venture in property development, and he chose Bangalore as his first commercial project. Bangalore was an ideal place for a first residential project because it was full of multi-cultural organisations and the population was highly educated. As a result, Mysore quickly became an industry leader in building homes for the educated middle class.
This is one of the first aspects of the book that throws light on the future scenario of Bangalore property market. The author shows how the inflow of private investors and finance resulted in the boom. However, in due course, the competition between investors and banks also forced some changes in the Bangalore property market. For instance, the trend of real estate companies offering fixed assets and bank limited partnerships (BPL) emerged. In turn, the developers started offering BPL mortgages to borrowers.
The second aspect of the book is about the changing structure of Bangalore properties. Bangalore houses started coming up with two kinds of structures-floating charge and fixed charges. The former refers to the ownership structure where the owner of a unit pays a certain rent for the use of the land and in return receives a certain percentage of profit over a period of time, known as a floating charge. The latter refers to the ownership structure where the landowner keeps the property free but maintains a separate property line against the unit for sale. The floating charge payment is generally lower than the fixed charge payment. The reasons for such a condition are varied but it basically results from the owner keeping the property without any encumbrances on his name.
In the second part of the book, the author highlights the need for restructuring Bangalore residential and commercial properties in order to retain the benefits of the original structure while making some necessary changes. These include removal of the floating charge and selling of the fixed charge to the highest bidder. The purpose behind these measures is to ensure that the project benefits the bank fully and does not lose money on the deal. It is important to note that the second part of the book specifically deals with bank limited partners (BLP) and how they can make money on projects by investing in property only.
The third and final chapter looks at the future of Bangalore property for non-residential development. This chapter looks at a few projects managed by Infosys Global Education Center. The author rightly points out that the success of these projects is a result of the right project selection, wrong project choice, wrong infrastructure planning, lack of understanding of local needs and opportunities as well as an absence of leadership. The projects managed by Infosys have shown great success since the inception of the project in 1997.
While the first two books look closely at the main players in the market, “The Making of an Infosys Property Program: Restructuring Property in Bangalore” is a detailed look at projects managed by the bank and its various partners. The book thus looks at the entire process and deals with all the problems that could come up during the projects. While these problems do not arise in every project managed by Infosys, it is important to recognize that they do exist and is what this book tries to address.