Udgam Newsletter

UDGAM MATTERS - NEWSLETTER JUNE 2013 from Manaan Choksi

5 Reasons Why CBSE Students Qualify IIT Exams

The recent revelation that more than half of the candidates who happen to join Indian Institute of Technology (IITs) were from the Central Board of Secondary Education (CBSE) has left the educationists looking for reasons for the unprecedented success of the CBSE students in the fiercely competitive IIT examination.
  
According to available data, out of 9,700 students who qualified for the IIT this year, 5,500 were from the CBSE. It means the CBSE board students contributed to 56 per cent of the total students joining the IITs.

In the year 2011, the success rate of CBSE board student was 56 per cent and in 2010 it was 58 per cent. This is a remarkably high percentage as compared to other boards, which contribute marginally in sending their students to the IITs.

According to education experts, the reasons why more CBSE students get admitted to IITs are:

1. The CBSE has a numerical advantage as more students appear in the Class 12th board exam than any other board. In 2012-2013 over 6.99 lakhs students appeared for the class XII CBSE examination.

2. It enjoys a geographical advantage as the numbers of schools affiliated to CBSE board are more in metro and major cities of the country.

3. These cities have better IIT coaching facilities and many of these coaching centres start training students from an early age.

4. The course syllabus also contributes to the success of CBSE students in joining the IITs. The syllabus, although marginally similar to IIT examination, lays a sound foundation for facing the IIT entrance examination.

5. The other reason which contributes to high CBSE success rate is its course structure - It's based more on reasoning and analytical abilities than memorizing the facts.

Source: India Today

Real Estate Regulator Will Bring Oligopoly In The Sector

With the Union Cabinet approving the Real Estate (Regulation and Development) Bill, the popular view is that it will help property buyers benefit and make the system more transparent. The real purpose of the bill is to give a reliability of the delivery of the project once it is launched. While the bill has its good intentions, precedents show us how such regulations usually eliminate the small builders completely.

Highlights of the bill:

1.     All residential projects having units that are more than 4000 sq mts will fall in the ambit of this regulation.

2.     All projects to be launched only after all the permissions have been received for the construction of the project.

3.     About 70% of all the money collected for the project has to be used only for this project.

4.     Projects to be sold on carpet area only.

5.     Each state will have a tribunal for redressal of complaints.

In the past India has seen regulators like IRDA, SEBI, TRAI, CCI, RBI, DGCA, ICAI. What each of the regulator has undoubtedly brought in is the required “buyer benefit”. However, a side effect of such a regulator’s impact on the market is consolidation. For example, the proposed real estate regulator in the new bill makes it compulsory for all new projects which are more than the size of 4,000 square meters to follow a few rules. Now such a regulation would actually harm the big projects and builders would try to divide projects and do smaller projects only. However, a few factors like cost of construction, cost of marketing and the cost of providing common facilities push builders to do larger projects only. The customer eventually thinks that he should invest his hard earned money in a project which is regulated rather than an ‘unscrupulous’ builders’ unviable project. This breaks the back of small builders, who survive on a single scheme at a time.

These days in a metro city there is already a lot of consolidation with a few names like Lodha, DLF, Hiranandani, etc. dominating the real estate sales market. Lodha claims sale of Rs. 10,000 crores in the last fiscal which is more than DLF’s sale of Rs. 9,000 crores in the same period. In a Tier 2 city there are lot of local builders operating in selected areas of the city. Usually the local builder association has about 2,000 small and medium builders which are now dormant – due to slow market conditions. The SME segment has already got the burden of lack of reliable brand, inability of having fixed salaried staff and inability to invest in modern techniques of construction. When such a builder wants to scale up to large sized projects, he will need to comply with the regulator’s provisions which will deter him further.

We have seen in stock market that eventually all the small and medium sized IPO and brokers are eliminated from the market. It is said that SEBI regulations have closed more brokers than the slow market. So we have a handful of stock broking houses like Motilal Oswal, Angel Broking, Share Khan, etc. who own practically the lion’s share of the market. It is said that unless a broking house has 10,000 customers there is no viability to run the operation. Oligopoly is the future of real estate sector, be it a builder or a broker.

The proposed bill has a concept called “registered brokers”. Hence brokers are also going to fall in to the ambit of regulation, which until now has been totally out of regulation. Such regulations in other countries have streamlined the entire industry and have brought a lot of transparency. Brokers slowly adapt to the regulated world and start building their own brand. This indirectly regulates the secondary market also.

Even the CREDAI (Confederation of Real Estate Developers Associations of India) has ‘strong reservations’ according to the Credai president C Shekhar Reddy. He has expressed his concerns about the License Raj re-entering the real estate world and unnecessary victimisation of members. It is important that the Bill maintains equilibrium between the developers and end users. Implementation of this Bill as it is will cause substantial increase in cost to buyers. In the long run the bill has the potential to actually shatter the government’s initiative of ‘housing for all’ at affordable rates.

Right now the cabinet has passed the bill and it is scheduled to be tabled in both the houses in the monsoon session. The bill most probably will get passed uneventfully as officially only the state of Chhattisgarh has opposed it. So the regulator will actually cause ‘irregulations’ as it is not conducive to the small time brokers and is quite lopsided in approach. Oligopoly seems to be imminent. 

WHERE ARE THE TOP SCHOOLS OF YESTERYEARS?

Escape the dinosaur syndrome- change with the times!

Let me share a startling fact with you. The top 10 US exchange companies that were roaring and unputdownable in 1900s are no longer around, except one. Even the ones that were in top form just a few decades back are mere skeletons of their old form. You will certainly be amazed that of the top 10 US companies of 2013, based on market capitalization, none of the giants of yonder years exist, except General Electric. No, this is not a blog canvassing the GE Company. I am trying to draw a parallel between the failure of top companies and top schools. Most top schools in Ahmedabad in 1980 are no longer top schools. While one would want a proven schooling system for their child, but last 50 years’ experience shows that people have to put in new schools! The reasons for failure are quite similar and there is plenty to learn from those who managed to sustain their lofty heights.

                                              GROWTH VALUES AT GE

Source: Harvard Business Review

Reasons why top schools fail to sustain themselves?

  1.       Not adaptable enough: Let’s leave the US companies aside and strike closer to home, in our own city, Ahmedabad. A few decades back, the top schools of Ahmedabad were CN, Diwan Ballubhai , Udgam, A G High School,St. Xaviers, Mount Carmel, GLS and Shreyas to name a few. Today when we talk about top schools, how many of these erstwhile good schools feature on the list? The main reason why these schools could not sustain over the years is that they did not adapt themselves to the changing needs of their market segment. Happily one name remains evergreen. Can you guess which one? The only reason is ‘adaptability’.

  2.       Burgeoning classrooms: Earlier most schools had one section with limited students with a teacher student ratio of 1:25. With the ever increasing demand of Indian population, schools started growing but the teacher student ratio suffered as the infrastructure did not adjust to the additional needs.

  3.       Medium of education: Gujarati to English is a leap indeed but this leap has been necessitated by hard core globalization. So change we must keeping with the times. But many of the old giants did not feel this necessity or were very rigid about changing and the school standards suffer as a result.

  4.       Board of education: If a board like CBSE is regarded to be the best in terms of the changing times, then what better than to switch over and reap the benefits. After all a school which has the interest of the students at heart should make changes wherever possible. But again many of the older schools feel happy with their lot and are averse to change.

  5.       Location of school: Most old schools have grown and so has the city around them. The result is restricted spaces or the need to move to a bigger campus.

  6.       Facilities of school: With the growing needs and changing times, it is no longer ok to confine to the old method of ‘chalk and talk’. Resorting to the blackboard as the only teaching aid and restricting learning to the prescribed book no longer suits the wide scale globalisation which necessitates that a teacher brings the world to the classroom. Along with academics extra-curricular activities play a major role too but are sidelined in many schools.

  7.       Technology in education: Today technology plays a very important role in education and not only as a part of Computer Studies. But how many teachers have been retrained and how many schools actually spend on technology in the real sense?

The changing scenario and accompanying hitches

There has been rampant change in all fields and the world is no longer what it used to be a few decades back. Companies have either adapted by making major changes or faded out. Moving ahead with the times is the mantra but is easier said than done at times. Some of the obstacles that schools face in the pursuit to change are-

·         The outcome of schooling from a parent’s perspective has changed. Parents are overambitious with child being the centre of all planning and the outcome being more important than the process. In a bid to satisfy their own ambitions and outweigh their associates, parents are no longer satisfied with what the best Indian colleges have to offer in terms of higher education. They now yearn for international education and the number of students who flock westwards and sometimes further east, stands testimony to this.

·         Schools are forced to raise the fees and this may be higher in proportion to the facilities offered or additional facilities are included to justify the whopping fees that the schools charge. The main reason for this is the increasing income of parents. Schools are of the view that if the fees do not match the income of parents then parents have a preconceived notion about the standard of the school. Higher fees indicate better standards for most schools, whether true or not.

·         Almost everything has transformed drastically except Government regulations. The cap on fees and other factors that the Government has made mandatory for schools makes it difficult for schools to adapt even if they want to. Newer schools are better off in this aspect than the existing ones.

So what is to be done to remain at the top?

The necessary edge that schools have over companies is they are like old wine. They get better as they mature due to proven practices, intellectual research and the absence of experimentation. Parents still prefer the teachers who have become stalwarts with their experience and tenure. But it is also a fact that it is difficult to retain the old and adapt to the new at the same time.

So what is actually required is making change in doses or increments. Measure by measure is the method to be used to avoid becoming a dinosaur in the field. Extinction is imminent if a school stays rigid and unbending.

The Udgam Example

Udgam School for Children has been around for the last 48 years! There are no two views about the good name of Udgam and this has been so for the past four decades. This is one name that has remained on the Top 10 list while others have either fizzled out or closed down or are mere remnants of what they used to be. So, what makes Udgam tick and stand the test of time? The answer is one word- ADAPT!

Over the period of almost half a century, Udgam School has grown from a handful of students in one small building to almost 3000 students in two branches in sprawling premises. When the need arose and students increased,   Udgam grew and changed location to accommodate the increasing amenities. Udgam was performing outstandingly as a Gujarat Board affiliated school but changed over to CBSE as a means to dissolve boundaries in education. Udgam School is the only reasonably good school in Ahmedabad which has changed its board and its location its lifetime. This makes the school the most Adaptable school also. The good name in academics has remained unchanged and year after year Udgam toppers have done brilliantly, if you see the recent results of CBSE of 10^th and 12^th.

Udgam implemented technology like no other. The environment friendly initiatives are ahead of the times.  One finds a seamless confluence of tradition and change, academics and activities, values amidst street smartness, experienced stalwarts and innovative freshers in a school that is of the children, for the children and by the children.

Truly justifying its name! 

Comparison Of The RE/MAX Business Model With SEZs Of China

China, as you may be aware, is the world’s factory. Most of the products used by the people in the world are Chinese. Be it electronics, toys, clothes, accessories, appliances, furniture or such other articles, one is sure to find a ‘Made in China’ tag attached.

What is the success mantra of China?

The major contributor to China’s growth is the formation of 4 SEZs (Special Economic Zone) in 1979. These SEZ are focused on providing comprehensive services needed by industries so that the cost of production remains most economical. For example if there is a textile SEZ, it would have the following:

1. Dyes and Chemical plant which can supply to all plants

2. Affluent management

3. Captive power plant

4. Raw Textile manufacturers

5. Processing house

6. Manpower training

7. Stitching factory

8. Export quality check

9. Legal and compliance consultants

10. Banks and health care facilities

In this way the group of industries work in a collaborative way to make the cheapest products, in the quickest time and on a large scale. The products are so competitive that most of the countries in the world have stopped their manufacturing units altogether and removed import duties for products from China.

Lessons for a normal broker from China’s success story

A broker’s business needs a lot of common services. Let us scrutinise each service separately.

a. Office space. Now if 50 brokers in a city individually have 200 sq feet office, they would occupy about 10,000 sq feet in total. Then to look better than each other, successful brokers will start looking for bigger offices so net effect would be about a 1,00,000 sq feet of office space. The cost of real estate increases when the customer doesn’t get any value for dealing with a broker who has a bigger office space. So the RE/MAX Business model is all about sharing office space. So if 5 big offices have 10 brokers each sharing desk space, the total office space occupied will be around 5,000 sq feet and the overall cost of running the entire office will be drastically low. The overheads like electricity, administration and other common services reduce which saves a broker a lot of money each month.

b. Technology. It is a lateral need of any broker. The cost pattern of technology is such that it has a high fixed cost and very nominal variable costs. So if brokers share the same technology platform it is cheaper. Right now most of the brokers use portals. The portals charge per listing per month for each individual broker ID. Therefore if a broker has 10 employees, each need a separate ID and they cannot have the benefit of bulk pricing. RE/MAX technology has fixed monthly charges. A broker gets to upload unlimited properties for an unlimited period on to the RE/MAX portal. Also each broker gets an ID and hence there is no need of ID per office.

c. Branding. Then there is a need to have a brand image and each individual broker has to build one. If a small broker starts his business today and tries to build brand image by giving small display advertisements then the first person to earn out of it would be the media house. It takes years to build a recognisable brand and also a lot of investment. RE/MAX on the other hand offers a common brand and when any of the broker advertises, it slowly and steadily builds the brand and all brokers gain from it.

d. Training. It is an important need for brokers as in today’s economy, a well-trained person always earns more than an untrained one. Brokers individually do not know where to get trained from as there are no formal training programs for real estate brokers. However, RE/MAX has the most comprehensive training program in the real estate broking industry. The training programs solely focus on increasing the real estate business and its measure of success is growth of agent productivity.

e. Networking. The last need of a broker which is addressed by cooperation is establishment of a network. As brokers deal with unique properties, to find a matching buyer or seller would require to get connected with a lot of buyers and sellers. A network of brokers helps in accessing a lot of buyer seller requirements. RE/MAX is one such network. Due to its model of large broker offices with a lot of agents in one office there is a lot of networking amongst agents.

SEZ has changed the way manufacturing is done across the world and the RE/MAX franchise model is about to change how real estate broking is done worldwide. Just a matter of time when brokers realise that the benefit of joining hands has more advantages and creates a win-win situation for all.

Education Suffers When GDP Grows

What is wrong with the picture?

Profession	Avg yearly income
Management trainee	$35,811
Teaching	$29,733
Consulting	$49,781
Sales	$37,130
Accounting public	$41,039
Financial Analysis	$45,596
Software design	$53,729
Registered nurse	$38,775
Accounting	$44,564

Source: National Association of Colleges and Employers (US)

Teacher’s income paints a dismal picture

Imagine after years of grueling studies and facing bitter competition, one makes it to his or her dream career ‘teaching’. The happy bubble bursts when one realises that he or she is being paid a lot less than the friends who took up other professions. And that’s when a teacher starts having second thoughts and others around learn from her mistakes early in life and pursue other careers.

Unless a person has taken up teaching as a career because of fewer working hours, secure work environment, or the paid holidays or other reasons apart from the joy of teaching, he or she will soon be rethinking this particular career choice.

So what happens when a talented person with degrees is paid less? Of course he or she makes one of the two obvious choices-a. resorts to other means of income b. opts for a career change.

The story is same everywhere

The disparity in teacher’s income is true for almost all nations, whether a developed one like US or a growing one like India. Even in US the top college grads do not opt for teaching as their desired work area as there are other well-paying jobs and even people who take up teaching supplement it with other part time jobs to subsist.

 In India a teacher’s income is not enough to run the house and one often comes across teachers with dual jobs or with an extra income source like private tuition, which is actually an illegal income making source.

Higher GDP means more job opportunities

GDP is on the rise and most countries are economically booming. But what we don’t realise is that with a booming economy and better salaries, teaching as a career does not appeal to most.

Take a look at the GDP growth of US, a developed country, and India, a growing nation. You will find that the trend of growth in India follows on the lines of US in recent years.

So if in US college grads are not taking up a career in education, the same fate can be expected in India too as the GDP is growing and there are other well paying career avenues.

Teaching is a recession-proof career and it was only during the recent economic depression that one found a surge in people opting for school jobs as ‘safe jobs’. Speaks volumes, doesn’t it?

News excerpt during recession:

Government jobs are probably the best places to find real security. That includes people who work in public schools. Recently, even former Wall Streeters accustomed to megabonuses and fast routes up the corporate ladder have been turning to teaching opportunities in the New York City public school system, where pay is much lower but security is much greater. While private-sector employees are generally vulnerable to the whims of their employer thanks to at-will employment contracts, tenure laws in most states protect teachers. Tenure generally comes after a few years of teaching, and employers must then provide just cause and due process in a firing.

Why should we be bothered?

Since education is the background of any country and makes more difference to a nation’s progress than we can imagine, what can be said for any nation where teaching is not the number one priority even for teachers? Not only that even those who made the mistake of pursuing their dream career as a teacher leave for greener pastures when they find that their hours of toil are not getting them anywhere or stay on because of the secure job environment.

Why don’t schools pay more?

The popular opinion of people who are not so wise about these things is ‘why doesn’t the school pay more in terms of salaries?’ or ‘why don’t schools collect more fees so that they can pay their teachers well?’ This is rendered impossible because of the government’s directive according to which a school cannot escalate the fees as and when they want.

The government norm is that a school can make a hike of only a certain percentage on the total fees. If it is a new school with a high fee structure then the cap will not affect the teacher’s salary. However most new schools then go empty and a few also close down. If it is a 20 years plus school then it will have an existing fee structure which even hiked by a percentage every year will not be able to do justice to the pay educators get. This is basically the reason why new schools have better teachers and old schools end up with “Talent Exodus”!

Conclusion: Better GDP leads to poor quality of education

Indian surveys indicate that the top students would like to take up teaching provided the pay is raised substantially. The question is whether this can be done. If we are looking at the ‘future’ then this should definitely be done.

Finally we come to our topic- how does the improvement in GDP reduce the quality of education? By now you must have guessed what I am getting to. Yes, if the economy is doing well, well-paying jobs will be more in number and we can expect most top grads to take these up. So, what about the educator jobs then which try as much as we can cannot compare with the pay doled out by other professions?

We are back to where we began. Less pay, incompetent employees and the education system takes a major hit. And who suffers the loss if education quality is dismal?- of course the country!

Gold VsReal Estate: Investment Competitors

 Is Gold losing its lustre?

On Monday, the day of Akshaya Tritiya to be precise, one is sure to find crowds clamouring to buy a piece of the yellow metal that indisputably has been in vogue for 5000 years. But fans of gold have diminished and are now looking at other investments (except on days when they buy the yellow metal to appease their superstitions).

It is true that even a few decades back people used to buy gold, especially during economically uncertain times. But then there was no other choice in terms of investment. In recent years Real Estate investments is giving gold a run for its money, literally!

The biggest common factor because of which they are comparable to each other is the investment of black money. There are very few options available in the market for keeping black money safe, and earning a return on such investment.

Gold advocates proclaim that the metal is immune to inflation, economic or political crises. And Realtors argue that investing in property is secure. They consider gold or any other metal to be money and are vulnerable like other currencies. They can be considered a part of savings but not as an investment as such.

In the Gold Vs Real Estate scenario, real estate definitely has the upper edge as a potential of yielding higher returns consistently. A few reasons are-

• Gold can be confiscated easily
• Gold liquidity doesn't work in terms of profitability as one needs to consider handling expenses, deductions for ‘melting’ and other expenditures
• Lack of liquidity of Real Estate makes it less volatile and this is beneficial
• Rise in Gold value coincides with paper currency devaluation and hence the appreciation of gold is actually nominal and not an increase in the buying power as we often think
• Gold like other precious metals, is prone to manipulation by those who wish suppress its value to boost paper currency in a bid to benefit
• Real estate has further income potential in terms of rent/lease which gold doesn't have

Ever since there was recession of 2008, Real Estate prices went south and Gold prices went north. Looking at the disparity the layman started investing more in Gold which further jacked up the prices. In fact most of the investment done in Gold is because of the reason of lack of avenues of investing. One major thing which Real Estate provides and gold doesn't is "yield". Gold is the single biggest non yielding investment in the global economy. This makes gold the most speculated investment: as there is no discounted cash flow!

Also if the capital appreciation is not present then the investors have no interest in investing in Gold. In the chart below you can see that gold has crashed for 5 years in 1963. And hence a crash was evident and which is exactly what we are experiencing now.

So how to use this information to convince investors to invest in Real Estate?

*         Investors have to be explained that Gold is a speculative asset which cannot be consumed. Real Estate on the other hand is consumed and there is a demand of real estate due to demographics.

*         Gold is a movable asset which can be stolen

*         Non yielding asset, so no rent you can earn on this.

*         Can’t be used for own jewellery beyond a point.

The main argument for buying gold as an investment was the capital price but now even that is as uncertain as real estate escalations.

So go out and sell more real estate!