1. Financialisation of Real Estate Markets Prof Sunder Ram Korivi, PhD National Institute of Securities Markets (Est. by SEBI)

2. Nature of Real Estate Real estate investments are lumpy Transaction processes and due diligence is of a higher order Investment horizon could be longer Exit could be as tedious as entry Transaction costs high and uncertain Valuation & Price Discovery – a black box

3. Financialisation Credit Markets Take-out financing Securitization Other Credit Derivatives Shares/Bonds of RE companies/HFC Mutual, Hedge and Other Funds Moral Hazards

4. Securitization: Six blind men and the elephant Less understood In India, mostly misunderstood In developed markets, mostly misused

5. Securitization: Process Real Estate (Commodity market) Loan origination (Credit markets) Loan parceling (Capital markets) Loan Guarantee (Insurance markets)

6. PODD Model of Real Estate Produce: Construction of property Originate: Loans from banks Distribute: Securitized Loan Paper Divest: Sale of Paper by Investor

7. Moral Hazards: Classic case: Goldman Sachs Origination by Investment Banking Distribution by Broking Trading by Prop Trading Desk Insurance from Credit Enhancers Advice to Hedge Funds Bailout from Government Bonuses to employees – perverse incentives …a celebrated case of Wall Street greed and deceit

8. Regulatory Framework Skin in the game Seasoning period Lending curbs on banks Covered bonds Capital Adequacy Stamp duty Diversity in various states

9. Summary Financialisation is a double-edged sword Innovation could be corrupted by moral hazard problems Failures could lead to systemic disruption Leverage is commoditized Corporate Governance in the RE sector is a question mark Quantum and pace, a consideration

10. Thank You