A wide spectrum of the investors in realty

Different categories of the investors would be viewing TROT products for its different benefits and opportunities, each of them comparing it with the available alternatives from the point of view of liquidity, returns and security with different weightage for each depending on his preferences. A totally different category of the persons looking for long term usance TROT products would be an additional unique feature of the product.

Support of retail household investors would be backbone of TROT product. The product meets his typical needs while offering interesting benefits to attract him for this new product. Benefits offered by TROT products can be summarized into :

Hedge against realty rate increase

Distinct identity of TROT product is the long term hedge it provides to the prospective home buyers. TROT product holders will have right to acquire a realty unit being a house or shop or office from amongst the floating stock earmarked at a rate committed in the TROT terms. He can purchase any number of TROT products over a period depending on the funds available to him from time to time. His hedge benefit, naturally, will be affected by the market price of TROT products as it is likely to move in sync with the market rates. Depending on his financial strength he can hedge any part of the area of the realty unit and pay market rate for the balance build-up area. Thus, he can hedge even a small area at a time and does not need to invest substantial amount to ‘book’ the entire area at one time. No other such ‘flexible hedge product’ is presently available.

Table

Estimated Hedge benefit at different property rates

Persons looking for settlement on retirement or wishing to buy a residential unit for their children would find this benefit irresistible. It does not put any obligation on TROT product holders to buy the property and he can simply liquidate his investment with good returns. TROT product is distinct from options as the cost paid for it is not lost. The formula for arriving at the ‘compensation amount’ factors in the expected future rates ensures that the benefit is not entirely lost to TROT product holders.

The hedge benefit is protected through the floating stock and allotment through the ‘lots’ conditions. It would protect TROT product holders from a developer robbing the benefit by misusing his insider information. The hedge benefit can also be encashed by selling TROT products during the period of the ‘window of opportunity’ particularly in bullish realty market.

Security (Click on ‘TROT Safety’ – Home page for details)

The Holder of TROT products can acquire the project property at any time and the right is not lost due to the time factor. It is open and exercisable any time after the ‘Buy-date’ and does not suffer from any expiry date. Its termination or expiry arises when the developer issues the ‘Recall’. In case the developer fails to honor the by delivery before the ‘Recall’, he is required to buy back TROT products at the rate equal to the market rate of the property under TROT terms. So, TROT product holders’ interest is protected.

TROT products are sold and maintained in d-mat form with adequate security measures to guard against fraudulent loss to its holder. Realty Card is valuable but only as an additional facility to enhance liquidity and not an instrument to execute any sale transaction except to a limited extend as discussed earlier. In case of loss of the Realty Card, a new one can be availed on de-activation of the old one.

Security of the investment of TROT product holders depends on assurance of the developer to fulfill his obligations. It not being a deposit or a debt instrument, the normal considerations of security as asset back up does not apply for TROT products. It is also unlike ‘equity’ where net-worth of the entity becomes a comforting factor.’ For TROT products sold by a reputed developer, say, by Tata Housing, it will be considered as ‘secured’ by confidence in the company itself. Such luxury, however, would not be available to most of the realtors. There are two ways of ‘securing’ the obligations. One is introduction of a reputed corporate as market maker who provides open buy-bids. The other one is procuring Contractual General Liability (CGL) insurance cover by TROT products Trading Company. Thus, TROT product holder is assured of selling the product to the Market maker at any time to liquidate his investment with minimum assured returns. Additionally, many confidence building measures like assured transparency of the operations, regular verification and certification of the floating stock, legal due diligence by reputed firm and project rating would add to investor confidence in TROT products.

Liquidity and easy exit

Liquidity quotient of TROT product is very high and would rank even above the bank fixed deposits. The basic liquidity is assured through providing e-com platform enabling buy-sale of TROT products even at midnight on a holiday. The liquidity is assured through the market maker arrangement with appropriate payment gateway functionalities and can also be backed up by appropriate line of credit wherever possible. The confidence level can be further improved by the market maker availing line of credit facilities, thus, proving his credit worthiness further.

Returns on the Investment

Besides the hedge benefits, attractive returns are necessary as the hedge alone may not attract the hesitant investors tending more to be as investors for fixed returns than as home buyers. It would attract general retail household investors who may or may not be sure of buying the property in future but are interested in investing for better returns. The returns would arise on its market sale or on the compensation payable by the developer. It is designed to provide returns on the non-financial investment better than a corporate debt instrument or any Government security or deposit scheme or a bank deposit. Under the present market conditions the post-tax returns would be in a range of 11.46% to 12.83% p.a. for a long term investment in TROT products. It compares to a fully taxable interest income at an annual rate of 16.37% to 18.33%, respectively. Very few debt instruments or any other fixed return investment provides this rate of returns. This rate of post-tax returns will attract even High Net-worth Individuals (HNIs).

Returns for the short term investors would be in the form of short term capital gains on sale of TROT products before three years of its purchase. In that case the pre-tax returns would range between 11% - 14% depending on the project. With assured liquidity without any involvement of any agent for trade in TROT products, it can be a preferred destination for parking of short term surpluses by non-institutional investors. There is no bar on a company other than a bank or NBFC to buy TROT products.