Table of Contents

Foreword
Preface
Introduction
Chapter-1: Introduction to Real Estate Finance
Objectives
Introduction
What is Real Estate?
Land, Improvements and Bundle of Rights
Translating Rights into Money
Real Estate Finance
Careers in Real Estate
Real Estate Developer: a Generalist or a Specialist?
Some Characteristics of Real Estate Markets
The Real Estate Activities Model
Node 1: Entrepreneurial Activity
Development versus Building versus Construction
Node 2: Investing Activity
Node 3: Lending Activity
Node 4: Governing Activity
Node5: Professional Activity
Node 6: Consuming Activity
Node 7: Successor Entrepreneur Activity
Some Misconceptions about Real Estate
Business Administration and Real Estate
Terms & Definitions
Real Estate Activities Model
End of Chapter Questions
References and Suggested Readings
Chapter 2: The Value of Time
Objective
Introduction
Scenario-I: The Classical Valuation Fallacy
The Two Rules of Money
Tools for Financial Calculations
MS Excel Basics
BA II Plus Basics
Getting Acquainted with the Financial Calculator
Scenario-II: Rental Allowance
Compounding
Scenario-III: The Opportunity Cost
Discounting
Scenario-IV: Saving for the Future
Rate of Return
Scenario-V: Another Look at Saving for the Future
Annuities
Scenario-VI: Future Value of an Annuity
Scenario-VII: Present Value of an Annuity
Scenario-VIII: Analyzing Rental Cash Flow
Uneven Cash Flows
Scenario-IX: Deal or No Deal?
Net Present Value
Internal Rate of Return
How to Interpret NPV and IRR
How to Use BA II Plus Financial Calculator to Analyze Un-even Cash Flows
Modified Internal Rate of Return (MIRR)
A Note on Uneven Cash Flow Analysis Measures
Terms & Definitions
End of Chapter Questions
End of Chapter Practice Problems
References and Suggested Readings
Chapter 3: Mortgage Banking in India
Objectives
Fundamentals of Debt Financing
Why Debt Financing?
Scenario-1: Leverage
Secured and Unsecured Debt
Mortgage Basics
A Historical Review
Types of Mortgages in India
Simple Mortgage
Mortgage by Conditional Sale
Usufructuary Mortgage
Mortgage by Deposit of Title Deeds
Mortgage Financing in India
Why is Mortgage Financing Less Popular in India?
Mortgage Deed
Salient Features of a Mortgage Deed
Legal Rights, Foreclosure and Debt Recovery Tribunals
Some Clauses of the Mortgage Deed
Acceleration Clause
Prepayment Clause
Competition and Risks in Issuing Home Loans
Who Holds the Title?
Mortgage Rates
Underwriting Process
Evaluation of the Borrower
Purpose
LTV (Margin)
Scenario-2: LTV
Demographics
Credit Appraisal
Evaluation of the Collateral
Terms & Definitions
End of Chapter Questions
End of Chapter Practice Problems
References and Suggested Readings
Chapter 4: Fixed Rate Mortgage
Objectives
Introduction
Mapping TVM Concepts to Mortgage
Mortgage Principal Calculation
Scenario-1: Mortgage Principal Calculation
Scenario-2: Mortgage Payment Calculation
Annual versus Monthly Reducing Balance
Monthly Amortizing Loans: Calculating the Monthly Rate
Amortization Concepts
Amortization Schedule
Scenario-3: Mortgage Balance Calculation
Calculating Mortgage Rate using Spreadsheet
Calculator Key Strokes:
Mortgage Scenarios and Financial Decisions
Administrative Fees and Other charges
Effective Borrowing Cost
Scenario-4: Effective Borrowing Cost Calculation
Prepayment
Scenario-5: EBC Calculation in the Case of Pre-payment without Penalty
Scenario-6: EBC Calculation in the Case of Prepayment Penalty
What is APR?
Limitations of APR
What are Your Takeaways from these Scenarios?
What is A Percent Point?
Terms & Definitions
End of Chapter Questions
End of Chapter Practice Problems
References and Suggested Readings
Chapter 5: Alternate Mortgage Types
Objectives
Introduction
Home Equity Loan
Scenario-I: Loan Against a Property
Reverse Mortgage
The Consumption Functions
‘House-Rich’ but ‘Cash-Poor’
The Utility of Home buying
Scenario-II: Reverse Mortgage
The Popularity of Home Equity Loans and Reverse Mortgages
Floating Rate mortgage
Fixed Rate Mortgage versus Constant Payment Mortgage
Teaser Rate
Caps and Floors
Scenario-III: Floating Rate Mortgage | Variable Payment
Scenario-IV: Floating Rate Mortgage | Constant Payment
Issues with Floating Rate Mortgage in India
EMI under Construction
Loan Schedule for EMI under Construction
Scenario-V: EMI under Construction-I
Scenario-VI: EMI under Construction-II
Comparing EMI under Construction with Lump sum Mortgage
Terms & Definitions
End of Chapter Questions
End of Chapter Practice Problems
References and Suggested Readings
Chapter 6: Managing Real Estate Companies
Objectives
Introduction
Assets, Liabilities and Equity
Property Owner’s Perspective
Lender’s Perspective
Developer/Builder’s Perspective
The Need for Financial Statements
Financial Snapshots of Housing Finance Companies
Financial Snapshots of Real Estate Development Companies
Balance Sheet
Sources of Funds
Share Capital
Book Value
Depreciation
Methods to calculate Depreciation
Straight Line Method
Written-Down Value Method
Does Land Depreciate?
Amortization
Price/Book Ratio
Interpreting Price/Book Value Metric
Share Holding Pattern
Profit & Loss Account
Incomes
Expenditures
Operating Expenses
Financing Expenses
Indirect Taxes
Excise Duty
Service Tax
Sales Tax
Property Tax
Profit
Why So Many Profit Measures?
Direct Taxes
Income Tax
Wealth Tax
Capital Gains Tax
Statement of Cash Flow
Chapter Supplement: A Primer on Depreciation
Definitions
End of Chapter Questions
References and Suggested Readings
Chapter 7: Interest Rates
Objectives
Introduction
Why Study Macro Economics to understand Real Estate Finance?
Macro versus Micro Economics
Debt Markets
Who governs the Interest Rate?
Demand for Loanable Funds
Case Study: Ahmedabad Municipal Corporation Issues Bonds
Supply of Loanable Funds
Monetary & Fiscal Policies
Fiscal Borrowings
Treasury Bills
Scenario
Treasury Bonds
Reining the Monetary Policy
Bank Rate, Repo Rate & Reverse Repo Rate
Cash Reserve Ratio
Open Market Operations
The Relationship between Interest Rate and Bond Price
How the Supply of Loanable Funds affects the Interest Rate
The Cycle of Capitalism
The Fisher Equation
Setting the Context for Real Estate
Benchmark Prime Lending Rate (BPLR)
Base Rate
Loan Hazards
Mortgage Modification / Balance Transfer
Scenario-9: Loan Modification Analysis
The Breakeven Rate
Scenario: A Balance Transfer Analysis
Terms & Definitions
End of Chapter Questions
End of Chapter Practice Problems
References and Suggested Readings
Chapter 8: Property Markets
Objectives
Introduction
What is a Market?
Real Estate Markets
The Wheaton- DePasquale Four-Quadrant model
Space versus Property Markets in India
Market Efficiency
Product Strata
Market Localization
Product Heterogeneity
Proprietary Transactions
Black Money and Untrue Transactions
Efficiency and Transparency in Indian Real Estate
CERSAI
The Pricing Function in Property Markets
Residex
Other Property Types & Space Markets
Some Application of Indices
Chapter Supplement: Ranking Indian Cities based on Home Price Movements
Chapter Supplement: How should Indian Realtors use Internet (and How Not)
Definitions
End of Chapter Questions
References and Suggested Readings
Chapter 9: Capital Markets for Indian Real Estate
Objectives
Introduction
Capital Markets
Debt Markets
Rating of Debt Instruments
Case Study: Real Estate Ratings
Spread Banking
Primary Mortgage Markets
Securitization
Risk Pooling
Liquidity
Monitoring
Conduit Banking
Secondary Mortgage Markets
Originators & Servicers
Issuers
The Mortgage-Backed Securities
Arrangers & Credit Enhancers
The Trade-offs of Securitization
Equity Markets
Private Equity Markets
Private Equity Funds
Portfolio Management Services (PMS)
Foreign Direct Investment (FDI)
Real Estate Stock Markets
The Initial Public Offerings (IPO)
Stock Markets
Real Estate Mutual Funds (REMF)
Real Estate Investment Trusts (REIT)
Ownership
Assets
Income
Distribution
REITs in India
Chapter Supplement | Is India Ready for REITs?
Chapter Supplement | How to Reform the Secondary Market Housing Finance: Lessons Learnt from the United States
Reform the Primary Markets first
Originators should have more Skin in the Game
Rethink the Organization of the GSE’s
End of Chapter Questions
References and Suggested Readings
Chapter 10 | Perspectives on Real Estate Sector in India
Introduction
List of Topics
Future of Mortgage Finance in India | Bal Krishna Hegde, Chartered Housing, Bangalore
Tracing Land Titles
Tracing Litigations
Bar on Financing Land
Rephasement
Collaterals and Third Party Guarantees
Stamp Duty on Registration of Mortgage Deeds
Hesitancy to Lend by Bank Executives
Primitive Sanction Procedures
Maturity Mismatch
Shortcomings in Housing Finance in India | M. Narendra, Indian Overseas Bank, Chennai
Suggestions
Additional Notes on Shortcomings in Housing Finance | Umesh Kumar Singh, Central Bank of India, Bhopal
Strategic Real Estate Consulting in India and its Future | Deepak Bhavsar, JLL
The Evolutionary Process
The Challenges
The Future
Real Estate Research in India | Dr. V. Chandrasekar, Indian School of Business, Hyderabad
Real Estate Research and the Role of the Industry
Opportunities for Research
Need for Education
The Future
Infrastructure Need and Real Estate | Dr. Anupam Nanda, University of Reading, UK
The Scale
Benefits of Infrastructure Spending
Conclusion
Affordable Housing Finance | Dr. Julia Freybote, Portland State University, USA
Background
Involving the Public and Private Sectors
Conventional Mortgages versus Innovative Financing
Support the Suitable Lenders
Catalyzing the Self-Construction Market via Home Finance | Mukta Naik, MicroHome Solutions, New Delhi
Shelter for the Urban Poor
Home Finance for Informal Settlements
Self-Construction
Finance for Self-Construction
References
Answers to End-of-Chapter Problems