Special Economic Zone projects (SEZ projects)

A special sector within the realty segment or rather closely dependent on its success is the Special Economic Zone projects. Many of them have failed to take off due to the funding or cost of the funding constraints. It becomes more prominent considering size of such projects that invariably makes them long term ones to complete. The ‘chicken-or-egg’ syndrome arises where dependence on sale of the properties of its proposed township projects is the base of its overall funding viability. The jinx can be easily broken through TROT product. It would enable the household investors to look at the SEZ projects as an attractive long term investment opportunity. The investment decisions would be sweetened by the additional opportunities to explore employment opportune if not for the head of the households then for their children. A SEZ project can resort to issue 5-7 year TROT products with full discloser of the development plans and the employment and small business opportunities. The option to resort to TROT product would prove to be an effective mechanism to overcome the initial funding constraints without over dependence on the banks and others for debt funding. An incidental but important benefit would be the market confidence in the project as to its economic viability that in turn can play a pivotal role for a successful public issue of the equity of such SEZ project companies.

Another major possible benefit is its capacity to unblock ‘land-bank’ value of many a public sector undertakings and the Government departments and agencies viz.  Ports Trusts, Railways and many a public sector units with substantial land-bank. It can prove to be a major source of revenue for the Government without resorting to the unpopular tax proposals or Govt. debt. Assured liquidity through a well developed market would enable even a 10-15 year TROT products. With approval of TROT products for investment by banks, FIs, companies and public trusts would ensure a more liquid market opening up a new avenue to place the short term surpluses.

Contribution of TROT product to ‘M’ factor for the economy would be an interesting point to debate.

Banking Sector

TROT products can be a viable answer to any risk of potential realty sector default. It would help bunde together such ‘unaffordable’ and affordable project properties even if situated at different sites or even belonging to different projects of a developer. Long term affordable funding would enable liquidation of such high cost properties over a period where realty inflation rate would eventually catch up the cost over-runs cushioned with affordable funding. The banks would be relieved with recovery of its overdue debts through the ‘initial cash surpluses’ without adversely affecting the cash flow needed for successful completion of the projects. It can help prevent the cascading effect of forced recoveries through auctions that may lead to mid-term collapse of the realty sector as a whole. Failure of a major realtor would create panic leading to crash of the market rates bring in all-around defaults. Such possibilities can be easily averted by resorting to TROT products.

Help conserve foreign exchange outflow

With this viable alternate investment avenue for the Indian households, it can effectively divert the household investment in gold to TROT products. Demand for gold jeopardized FOREX balance of payment issues for the country. Investment aggregating to about Rs. 3,50,000 crores or more a year is estimated to be made in gold during 2011-12. It results into pulling the already scarce resources to the black-hole of gold with un-ending appetite. The adverse impact is intensified further when major part of the demand for gold is met through imports. It has become a major contributor for weakening of Indian Rupee that in turn fuels the domestic fuel prices causing overall inflation with resultant unstable economy and hardships for the common people. TROT products have the capacity to break this vicious cycle without any active Government support or modification of its existing legal or regulatory mechanism.
   
TROT product is sure to help redefine the Indian realty sector through its unique features and in-build checks and balances incorporated for the benefit of all.