KOLKATA: Short to middle-term parking of investible surplus is beginning to be quite a problem for that breed of near-faceless individual businessmen who look for suitable assets to invest in only to exit with a decent profit as soon as they can. There are hundreds like these across the country and their favourite parking slots are equities, gold and real estate.
Sometimes loosely called "investors", these traders and manufacturers have always favoured equities, except that the recent volatility has put an end to their hit-and-run tactics.
Gold, with its high import duty, the astronomical market price and the cold vibes of the government has also become much less of a favoured item of investment purchase than it was before. And now, these people have got stuck with their real estate assets due to a very poor demand for residential apartments.
These investors have always been used to the idea of "booking" flats much before a "project" actually got off the ground and selling them off as soon as the project's publicity drive led to bustling demand.
The situation has completely reversed in the last two months. The demand is so bad that these investors are now unable to dispose of their flats and therefore, both small and midsized investors are constantly revising the holding period of such assets. real estate consultants agree.
Cushman & Wakefield (C&W) South Asia's executive managing director Sanjay Dutt told ET: "With end user activities going through a period of cool down owing to poor sentiment, growing inflation and hardening of interest rates — many individual investors are now finding it difficult to offload their property in the secondary market."
"The phenomenon is specially accentuated in futuristic locations, where growth in capital value has been lesser than initially thought. Plus, there have also been some new primary market launches, that are better packaged. Result is that investors who entered late in many such locations will either have to remain invested for a longer period or settle for much less than they had bargained for."
Unable to roll their money, such investors are now picking up short-term funds at exorbitant interest rates to remain in business. While Delhi and Mumbai, financiers have been lending at rates ranging between 28- 35% depending on the collateral and security extended by the borrower, Kolkata lenders have been commanding 20-24% interest per annum.
"Quick calculations suggest that those who had taken loans at 24% to book flats, now find themselves burdened with a compound interest of about 80%. And to make matters worse, there are no takers for the loan portfolio in most cases even though many of these portfolios are available now at 20-25% discount, excluding interest and other penal charges," said Girija Jain, an investor in the lurch.
Jain had invested in more than six flats over a span of three years, shelling out a shade over Rs 2.5 crore. "The price of these assets have not increased at all and I did not therefore get a chance to exit. To service the mounting loss thereby, I just borrowed a tidy sum to service the account at - you will be shocked - 30% ! I now rue my decision to go for the flats. It would have been much better had I put money in the equity markets or in bank FDs," he lamented.
Private financiers refuse to name the "parties" that fund high-cost basis. "Transactions like these do not involve intermediaries and they are clinched on word of mouth basis" said a top executive of a leading manufacturing company who insisted that his name be kept out of controversy. "These may be cash-rich businessmen, or even some corporates ," he said.
One of Kolkata's leading financiers felt that the liquidity crunch in the wake of the global economic slowdown and the slack sale of both residential and commercial property have together made matters worse. "Since earnings from money rotation is an investor's mainstay, trapped assets create extreme stress within the system. So intense in fact is this stress, that the interest rates themselves or the demand for such high-cost money aren't the issues any longer," he said.
"Following some very high profile defaults in Mumbai and Delhi, fund availability itself has now dropped significantly. Lenders are extremely cautious and they are looking at ridiculous levels of security and even after all these security structures are created, they are still loath to lend.
In absolute terms, money itself has become very scarce for such financing needs," the financier said on conditions of anonymity . But Anshuman Magazine, chairman and MD, CBRE South Asia had a very interesting point to project.
"The story of stuck assets and highcost borrowings to service stuck loans can all be untangled if these investors bring down their return on investment (RoI) expectations and cut their losses by selling at reduced per square foot basis. Yes they will take a hit, but it will save them the agony of remaining so expensively stuck," he told ET.
"But all of them are holding on, because they are determined to sell only at the same peak price at which the last deal was struck and around that area," Magazine said - a fact that wasn't disputed by those stuck.
Giving a broad investment view, Rishi Nathany , a certified financial planner told ET: "Given the investment options available at present, I feel investors could look to increase their weightage in equities and bonds to manage volatility in their portfolio. This will also provide a scope for capital appreciation as well as steady income flow. Since real interest rates have turned positive, there is a strong possibility that financial assets like equities and bonds could outperform physical assets like gold and real estate".