Home Equity

I’m looking to purchase a house. However, the amount of cash I have with me will not suffice to completely fund the house. Given that I’m confident of earning that difference amount in the future means that some bank will give me a mortgage, and I will thus finance my house with debt. Question is why I can’t finance the house with equity instead.

Let’s say the house I want to buy costs Rs. 1 Crore and I have with me Rs. 50 lakh. Instead of taking a loan for the balance Rs. 50 lakh, why can’t I sell equity instead? A consortium of investors can be invited to invest the balance Rs. 50 lakh in exchange for a 50% stake in the house. Rather, we set up a company that owns my house of which I own 50%, and every month I pay a rent to this company. As and when I get additional funds I start buying up additional shares in the company that owns my home and soon I’ll own it completely.

So who will be these people that will invest the balance 50% in my house? They are going to be dedicated real estate investment funds and their business will be to invest in minority stakes in properties of different sizes and in different parts of the town and country. This they are going to fund via a bunch of funds that allow ordinary investors to take exposure to real estate.

Currently there is no way I can invest in real estate except for taking on a large mortgage and purchasing a whole house. If I’m saving up money to buy a house some day and want to invest it in a way that will help me partially hedge against increase in real estate prices (something that I’m unable to do today) I simply buy units in one of these real estate funds. On the other hand, if I sense there might be some problems with my property (let’s say it is ripe for acquisition by the government for some road widening purpose, let’s say) I can sell some part of it to some of these real estate firms, thus reducing my risk of ownership.

These real estate funds can offer a variety of funds that invest in different kinds of properties in different proportions (like you can have a fund that invests 50% of its money in housing, 30% in commercial real estate and 10% in farmland, say). This allows ordinary investors to get exposure to real estate without any large down payments or mortgages. And reduce the risk of owning property in a particular place (let’s say I’m concerned that property prices in Bangalore might fall while those in tier 2 cities might go up. I will simply sell stock in my Bangalore house and invest the money in a fund that invests in houses in tier 2 cities, thus hedging myself).

Why is such a structure not popular already? In fact, I don’t think you have such structures anywhere in the world. One problem in India is the massive transaction taxes on real estate which makes the market illiquid. If that goes, is there anything that prevents us into getting into a culture of home equity?

The Aditya Birla Scholarship

I spent this evening attending this year’s Aditya Birla Scholarship awards function. Prior to that, there was a networking event for earlier winners of the scholarship, where among other things we interacted with Kumaramangalam Birla. Overall it was a fun evening, with lots of networking and some nostalgia, especially when they called out the names of this year’s award winners. My mind went back to that day in 2004, as I sat confident but tense, and almost jumped when I heard my named called out only to realize it was another Kart(h)ik!

You can read more about my experiences during that award ceremony here (my second ever blog post), but in this post I plan to talk about what the scholarship means to me. During the networking event today, one of the winners of the scholarship (from the first ever batch) talked about what the scholarship meant to him. As he spoke, I started mentally composing the speech I would have delivered had I been in his place. This blog post is an attempt to document that speech which I didn’t deliver.

People talk about the impact the scholarship has on your CV, and the bond that you form with the Birla group when you receive the scholarship. But for me, looking back from where I am now, the scholarship has primarily meant two things.

Back in the day, the scholarship covered most of my IIM tuition fee. When I’d joined IIM, my parents had told me that they wouldn’t fund my education, and I had taken a bank loan. However, the scholarship covered Rs. 2.5 lakh out of the Rs. 3 lakh I needed for my tuition fee, and the loan that I had taken for the remaining amount was cleared within a couple of months after I worked.

My first job turned out to be a horror story. It was six years before my ADHD would be discovered, but I was in this job where I was to put in long hours under extremely high pressure, and deliver results at 100% accuracy. I wilted, but refused to give up and pushed myself harder, and I’m not sure if I actually burnt out or only came close to it. But it is a fact that one rainy Mumbai morning, I literally ran away from my job, purchasing a one-way ticket to Bangalore and refusing to take calls from my colleagues until my parents told me that my behaviour wasn’t appropriate.

While my parents were broadly supportive, the absence of liabilities made the decision to quit easier. Of course I still had the task of finding myself another job, but I knew I would pull through fine even if I didn’t find another job for another six months (of course, I had saved some money from my internship at an investment bank, but the lack of liabilities really helped). The Aditya Birla Group, by funding my business school education, played an important role in my being free or financial obligations, and being able to chart out my own path in terms of my career.

My six-year career has seen several lows, aided in no small amount by my ADHD and depression, both of which weren’t diagnosed till the beginning of this year. I got into this vicious cycle of low confidence and low performance, and frequently got myself to believe that I was good for nothing, that I had become useless, and that I should just take some stupid steady job so that I could at least pay the bills.

During some of these low moments, my mind would go back to that day in September 2004 when I (at the end of the day) felt at the top of the world, having been awarded the Birla scholarship. I would then reason, that if I was capable of convincing a panel consisting of N. Ram, N K Singh and Wajahat Habibullah to recommend me for the Aditya Birla scholarship, there was nothing that was really beyond me. Memories of my interview and the events of the day I got the scholarship would make me believe in myself, and get me going again. Of course on several occasions, this “going again” didn’t last too long, but on other occasions it sustained. I credit the Aditya Birla scholarship for having given me the confidence to pull myself back up during the times when I’ve been low.

These are not the only benefits of the scholarship, of course. The scholarship has helped build a relationship with the Aditya Birla group. In the short run, when I won the scholarship, it helped me consolidate my reputation on campus. And last but not the least, it was a major catalyst in reviving a friendship which had gone awry thanks to some of my earlier indiscretions. Most important, though, was the financial security that scholarship offered, which made potentially tough decisions easier, and the confidence it offered me which has carried me through tough times.


Sponsorship Cannibalism

Back in 2004 Shamanth, Bofi, Anshumani and I started the IIT Madras Open Quiz. In some ways it was a response to critics of IITM quizzing, who blamed our quizzes for being too long, too esoteric, too disorganized and the likes. It was also an effort to take IITM quizzing to a wider audience, for till then most quizzes that IITM hosted were limited to college participants only. An open quiz hosted by the institute, and organized professionally would go a long way in boosting the institute’s reputation in quizzing, we reasoned.

Shamanth had a way with the institute authorities and it wasn’t very difficult to convince them regarding the concept. We hit a roadblock, however, when we realized that organizing a “professionally organized” quiz was a big deal, and would cost a lot of money, which means we had to raise sponsorship. And this is where our troubles started.

The first bunch of people we approached to help with sponsorship were the Saarang (IITM Fest) sponsorship coordinators, who had so successfully raised tens of lakhs for the just-concluded Saarang. Raising the one lakh or so that we needed would be child’s play for them, we reasoned. However, it was not to be. While the coordinators themselves were quite polite and promised to help, we noticed that there was no effort in that direction. Later it transpired that the cultural secretaries and the core group (let’s call them the Cultural Committee for the purpose of this post) ┬áhad forbidden them from helping us out. Raising sponsorship for an additional event would cannibalize Saarang sponsorship, we were told.

When we needed volunteers to run the show, again we found that the Saarang “GA Coordinators” (GA = General Arrangements; these guys were brilliant at procuring and arranging for just about anything) had been forbidden from working with us. The Cultural Committee wanted to send out a strong signal that they did not encourage the institute holding any external “cultural” events that were outside of its domain. It was after much hostel-level bullying that we got one “GA guy” to do the arrangements for the quiz. As for the sponsorship, we tapped some institute budget, and the dean helped us out by tapping his contacts at TCS (for the next few years it was called the TCS IITM Open Quiz).

One reason the quiz flourished was that in the following couple of years, the organizers of the quiz had close links with the cultural committee – one of the quizmasters of the second and third editions of the quiz himself being a member of the said committee. This helped the quiz to get a “lucrative” date (October 2nd – national holidays are big days for quizzing in Chennai), and despite being organized by students, it became a much sought after event in South Indian quizzing circles. Trouble started again, however, after the link between the quizmasters and the cultural committee were broken.

The Cultural Committee once again started viewing this quiz as a threat to Saarang, and did their best to scuttle it. The quiz was moved around the calendar – thus losing its much-coveted October 2nd spot, and soon discontinued altogether. Despite significant protests from the external quizzing community and alumni, there was no sign of the quiz re-starting. Finally when the cultural committee accepted, it was under the condition that the quiz be a part of Saarang itself. After significant struggle, finally a bunch of enterprising volunteers organized the quiz this year after a long hiatus. It is not known how much support they received from the cultural people.

The point I’m trying to make is that when you have one lucrative product (in this case Saarang), it is in your interest to kill all products which could potentially be a competitor to this product, which explains the behaviour of the IITM Cultural Committee towards the Open Quiz. And it is the same point that explains why Test cricket in India is languishing, with bad scheduling (Tests against the West Indies started on Mondays), bad grounds, expensive tickets and the likes. The Board of Control for Cricket in India (BCCI) now has one marquee “product”, the Indian Premier League (IPL). The IPL is the biggest cash cow for the BCCI, and the board puts most of its efforts in generating sponsorship for that event. And as a side effect, it does its best to ensure that most of the premium sponsorship comes to the IPL, and thus the stepmotherly treatment of other “properties” including domestic cricket.

Last evening, I was wondering what it would take for the BCCI to make a big deal of the Ranji trophy, with national team members present, good television coverage and the kind of glamour we associate with the IPL. And then I realized this was wishful thinking, for the BCCI would never want to dilute the IPL brand. Have you heard of a tournament called the Syed Mushtaq Ali Trophy? It is the domestic inter-state T20 competition. A potential moneyspinner, you would think, if all national team members are available. But do you know that last year the final stages of this competition coincided with the World Cup? I’m not joking here.

I’m sure you can think of several other similar examples (Bennett Coleman and Company’s purchase and subsequent discontinuation of “Vijay Times” also comes to mind). And the one thing it implies is that it’s bad news for niches. For they will begin to be seen as competition for the “popular” brand which is probably owned by the same owners, and they will be discouraged.