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  • 1
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      ["title"]=>
      string(69) "Coliving, Coworking & Student Housing Give 7-11% Higher Rental Yields"
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      string(206) "

    Changing demographics, proliferating entrepreneurship, digitisation and millennial demand are boosting the demand for various alternate real estate categories.

    " ["fulltext"]=> string(4295) "

    Their significantly higher rental yields attract major investor interest, according to the latest CII-ANAROCK report 'Emerging Asset Classes: The Future Looks Promising' which was released by knowledge partners ANAROCK Property Consultants at the 2nd CII Real Estate Confluence in Mumbai today.

    Anuj Puri, Chairman – 2nd CII Real Estate Confluence & Chairman - ANAROCK Group said, "Coliving, student housing and coworking have rental yields of anywhere between 7-11% - a significant step-up from the 3% national average rental yield of traditional housing formats. Coliving, student housing and senior living are the next evolutionary step in the residential real estate domain, while coworking has evolved from traditional office real estate. The drivers behind this evolution are changing social dynamics, a highly enabled start-up environment, rising interest in higher education by migratory student population, and the need for quality housing solutions for senior citizens."

    The report delves into these highly promising new Indian real estate asset classes and explores their growth drivers as well as the underlying opportunities for investors and other real estate stakeholders.

    "Coliving, student housing and senior living are fundamentally innovative and specialised residential assets, but with varied business models," said Anuj Puri. "The report highlights that a majority of millennials today prefer coliving over traditional rental models. The top 6 players alone now have 1.18 lakh beds, and are drawing investments from both domestic and global institutions. From seed funding to subsequent rounds of financing, private equity players, developers and individual investors have backed this segment. Start-ups have particularly benefitted from the infusion of funds and are scaling up operations in multiple cities. Likewise, ANAROCK is actively tapping the considerable opportunities of alternate asset classes like coliving, student housing and K-12 schools."

    While coworking as a segment has flourished in India, there are interesting differences in how local and global players address it. As of today, domestic coworking operators have restricted their presence to tier I cities, while global players are also penetrating into tier 2 and 3 cities.

    Meanwhile, the government's efforts to make data localization mandatory will ensure a promising future for data centres in the country. The recent budget's proposal to roll out a new policy for building data centre parks underscores the importance and relevance of this promising asset class. Currently, the major data centre companies prefer Mumbai, Pune and Bengaluru.

    Other Report Highlights

    • Senior living has immense potential in India largely because life expectancy here has improved to 68.8 years in 2018. Moreover, the population aged above 60 years has already breached the 100 million mark
    • Apart from holistically dedicated senior citizen spaces, many developers are also launching integrated townships with a proportion of units dedicated to senior living. Most of these projects will thrive in tier 2 & 3 cities.
    • Currently, for over 37 million students there are just over 6.54 million hostel beds which is merely a little over 17.4%.
    • 451 million active internet users, 1,173.75 million mobile subscribers, the rapid rise in digital transactions, Smart Cities Mission and Personal Data Protection Bill will boost demand for data centres.

    Download the report http://bit.ly/2wuIfTu

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    Coliving, Coworking & Student Housing Give 7-11% Higher Rental Yields

    Anuj Puri
  • 2
    object(stdClass)#13393 (59) {
      ["id"]=>
      string(4) "5571"
      ["title"]=>
      string(55) "Listed Players' Housing Sales Steady in Festive Quarter"
      ["alias"]=>
      string(54) "listed-players-housing-sales-steady-in-festive-quarter"
      ["introtext"]=>
      string(180) "

    Housing sales revenue of the top 9 stock exchange-listed developers continued to grow steadily in the last festive quarter.

    " ["fulltext"]=> string(2725) "

    Despite all headwinds, their collective revenues in Q3 FY20 stood at a little less than INR 5,800 crore, increasing by 4% on a quarterly basis and 2% in a year. Meanwhile, the total area sold by these top developers (excluding DLF) during the festive quarter was nearly 7.1 mn sq. ft. against 7.2 mn. sq. ft. in the preceding quarter, and 7.9 mn. sq. ft. a year ago.

    The top listed developers analysed include DLF Ltd., Sobha Ltd., Puravankara Ltd., Prestige Estates, Brigade Enterprises Ltd., Mahindra Lifespace Developers Ltd., Godrej Properties Ltd., Oberoi Realty Ltd. and Kolte Patil developers.

    The total area sold (in mn sq. ft.) was slightly higher during last year’s festive quarter (Oct-Dec FY 19), while the total revenue was more this year. This indicates that the sale of homes other than affordable housing saw a higher overall sales value.

    The collective data trends of the first three quarters of FY 2020 indicate that the overall revenue of the top 9 developers was close to INR 16,500 crore as against INR 15,730 crore during the corresponding period in FY 2019. The total residential space sold by these top players (excluding DLF) b/w Apr-Dec was approx. 21 mn sq. ft. against a little over 20 mn sq. ft. a year ago.

    Total Housing Sales Value INR Bn

    (Above data is collated from the investor presentation of each of the listed companies)

    Godrej PropertiesPrestige Estates and Sobha Ltd. were the top 3 players with maximum sales revenue during the first nine months of FY 2020. Together, they accounted for a 55% share of the total sales revenue of INR 16,500 crore. Last year too, these 3 players topped the list with collective sales revenue of INR 8,500 crores.

    The trend of developers deliberately restricting new supply continues, as increasing launches at this juncture can lead to more unsold stock and reflect negatively on cash flows. New launches by the top 9 listed developers (excluding DLF) more than halved during the period – from 31 mn sq. ft. area in Apr – Dec FY 2019 to nearly 15.71 mn sq. ft. in the corresponding period of FY 2020.

    New Launches in Mn. sq

    Source: ANAROCK Research

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    Listed Players' Housing Sales Steady in Festive Quarter

    Anuj Puri
  • 3
    object(stdClass)#13396 (59) {
      ["id"]=>
      string(4) "5558"
      ["title"]=>
      string(76) "India: Total Real Estate Loan Equals $93 bn, over 62% Completely Stress-free"
      ["alias"]=>
      string(72) "india-total-real-estate-loan-equals-93-bn-over-62-completely-stress-free"
      ["introtext"]=>
      string(220) "

    Over 62% of the total loan advances ($93 bn) to Indian real estate by banks and NBFCs/HFCs is currently completely stress-free, reveals a study by ANAROCK Capital.

    " ["fulltext"]=> string(4624) "

    Another 22% (approx. USD 21) bn is under some pressure but can potentially be resolved. In fact, the stress on this segment is largely on recovery of interest and not on principal amount.

    USD 14 bn (or merely 16%) of overall lending to Indian real estate is under ‘severe’ stress, meaning that there has been high leveraging by the concerned developers who have either limited or extremely poor visibility of debt servicing due to a combination of factors.

    Shobhit Agarwal, MD & CEO – ANAROCK Capital says, “The ‘stress’ loan amount in real estate is not as bad as seen in other major sectors like telecom and steel. For instance, the entire ‘severe stressed’ loan value in real estate is spread across more than 50 developers. In the telecom or steel industries, default by a single company alone equals a sizeable portion of the overall stress in the real estate sector. Also, every real estate loan is backed by hard security, which is anywhere between 1.5 times to 2 times. Even if the loan is NPA, there is enough security for the lenders to get a significant portion of their money back. Even if defaulting developers decide to sell their real estate at a discount, there is enough margin for them to pay back.”

    Meanwhile, HFCs accounted for the largest share of total realty loans equalling 38%, followed by banks which comprised nearly 34% share while NBFCs have 28% (including loans given under trusteeships). Of these, banks and HFCs are much better placed with 70% and 65% of their lending book in a comfortable position. However, it also comes as no surprise that nearly 58% of the total NBFC lending is on a watchlist.

    “In retrospect, there has been continuous shrinkage of lending to Indian real estate in recent years by both banks and NBFCs/HFCs amidst non-repayment of some loan dues and NBFC crisis post the IL&FS default,” says Agarwal. “One prime reason was that sluggish residential sales over the last few years completely dried up cash flows for many developers, resulting in unsold inventory pile-up and, thus, their inability to service their loans. Moreover, some developers have even filed for bankruptcy in the backdrop of stricter regulatory norms under RERA.”

    However, with both banks and NBFCs/HFCs now doing their due diligence before giving loans to developers, the situation is gradually getting ironed out. Nearly 84% of the overall loan amount has little or no stress at all. Going forward, residential sales are likely to pick up due to multiple measures being taken up by the government to relieve the sector. This fact itself will help developers to repay their loan dues.

    Realty Loans Breakdown: Builder-Type Wise

    On further analysis of the overall realty loans with respect to builder-type, it emerges that out of the total USD 93 bn realty loans, Grade A builders received over $65 bn loan advances, followed by $27 bn to Grade B players – and a mere $1 bn to Grade C developers.

    This presents a relatively safe outlook because more than 72% of the loans given to Grade A builders is safe and under no stress.

    On the other hand, a high amount of realty loans to Grade B & C developers needs strict monitoring. Nearly 28% of the loans given to Grade B developers is under ‘severe’ stress while for Grade C developers it is over 19%. However, this collectively equals to less than mere USD 8 bn of overall stressed loan.

    * Grade A developers are players that are currently active, with excellent execution track record and having till date developed real estate in excess of 3 mn sq. ft. 

    * Grade B developers include those with an established execution track record having developable area between 1 mn sq. ft. and 3 mn sq. ft. and are currently active. This category also includes players with excellent past execution track record but are currently largely inactive

    * Grade C comprises of players with less than 1 mn sq. ft. developable area.

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    India: Total Real Estate Loan Equals $93 bn, over 62% Completely Stress-free

    Shobhit Agarwal
  • 4
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    Auditing concepts can be difficult to understand, because an audit requires a different set of skills than posting accounting transactions or generating financial statements.

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    To succeed on the Audit CPA exam (AUD) you need to put yourself in the shoes of an auditor, and understand the tests performed to issue an audit opinion.

    Use these CPA Audit exam tips to better understand how to navigate the most difficult questions and topics and pass your upcoming exam! 

    1. Adjusting Entry

    The accrual method of accounting requires companies to use the matching principle, which matches revenue earned with the expenses incurred to produce the revenue. This rule applies, regardless of the timing of cash inflow and outflows.

    Now:

    When you see questions on adjusting entries, remember that the entry requires one balance sheet and one income statement account. Assume, for example, that you owe $3,000 in payroll for the last week of December, and that payroll will not be paid until January 5th of the following year. Here is the adjusting entry: 

    December 31st
    Debit wage expense $3,000
    Credit accrued wages payable $3,000
    (To post wage expense on 12/31)

    Wage expense is an income statement account, and accrued wages payable is a balance sheet account.

    Here is the entry when the wages are paid on January 5th:

    January 5th
    Debit accrued wages payable $3,000
    Credit cash $3,000
    (To pay wages on 1/5)

    2. Asset Valuation

    Most assets are valued at historical cost, or the purchase price of the asset. Accounting principles use historical cost, because the purchase price can be easily confirmed. Fair market value and other methods are not widely used to value assets.

    3. Audit Opinions and Fraud

    An audit opinion states whether or not the financial statements are free of material misstatement. Because an audit opinion does not state that the financial statements are free of all errors, the auditor can perform test work on a sample basis. CPAs use statistics to determine the required sample size, and the results of the sample can be applied to the entire population tested.

    Here’s the deal:

    Performing an audit may not uncover fraud, which is defined as willful intent to deceive. Fraud is particularly difficult to uncover if two or more employees collude and work together to avoid internal controls.

    If a business suspects that a fraud has occurred, the firm may engage a CPA to test every transaction in a particular account, in order to uncover fraud.

    4. Confirmations

    Every AUD exam includes questions regarding confirmations, and confirming information with a third party is considered more reliable the documentation provided by the client. An auditor may send confirmations to a bank to confirm an account balance, or send confirms to customers who have a large balance in accounts receivable.

    5. Engagement Letter

    The engagement letter is a written agreement between the client and the CPA firm performing the audit, and some components of the engagement letter may be confusing to exam candidates.

    An auditor uses judgment when selecting the audit procedures to be performed, and there is not one set of procedures performed for every audit. The client is responsible for implementing a system of internal controls, but the auditor must comment on any internal control weaknesses noted during the audit. Finally, the financial statements are the responsibility of management, and not the auditor.

    6. Inventory Count

    The best way to confirm the existence of inventory is to perform a physical count, and most auditors require that a count take place before issuing an unqualified audit opinion.

    If you haven’t participated in a physical inventory count, some aspects of the count may not be familiar to you. Here are some important components of an inventory count.

    • Access during the count: No inventory can move in or out of the area where inventory is stored during the count. Inventory counts typically take place in a warehouse or retail shop, and the access to the location should be restricted during the count. This ensures that the count is performed using the most recent inventory listing from the accounting system.
    • Obsolete inventory: Keep an eye out for obsolete inventory, or items that have been in inventory for a long time and are not selling. Obsolete inventory should be expensed by writing off the value of the inventory to cost of goods sold. Every inventory audit program requires the auditor to ask company managers about obsolete inventory.
    • All tags collected: Every physical inventory item is tagged, and the tag lists the number of items, a product description, and the cost of the items tagged. If you’re a sporting goods retailer, for example, you might carry a box of 50 baseball gloves in inventory. All inventory tags generated from the accounting system must be placed on inventory and checked during an inventory count.

    The AUD test includes several questions on inventory counts, so make sure that you understand these concepts. 

    7. Materiality

    Materiality is defined as a dollar amount that is large enough to be relevant to a financial statement reader, and there is not a set dollar amount that is considered material for every audit. The most important aspect of materiality is a misstatement of net income, because net income is a key metric used to value a company.

    But here’s the kicker:

    During audit planning, the audit staff will decide on a level of tolerable misstatement for each account balance. If, for example, the balance of accounts receivable is $2 million, the auditor may decide that any misstatement greater than $500 is material, which means an adjusted entry should be posted.

    8. Sales and Receivables

    When an auditor performs an analytical review, the accountant compares balances in the financial statement to see if the relationships are reasonable. This analysis includes a review of trends from one year to the next. It’s very likely that you’ll see questions on the relationship between credit sales and receivables.

    Credit sales are transactions that are not immediately paid in cash, and credit sales increase the accounts receivable balance. If your firm increases credit sales to new customers, you may find that new customers don’t pay as quickly as your existing client base.

    9. What’s the Bottom Line?

    If the accounts receivable balance grows at a faster percentage rate than credit sales, you may not be able to generate enough cash to operate each month. Growing credit sales by 10% will increase profits, but if the accounts receivable balance grows by 30%, if may create a cash shortage.

    10. Sampling

    Sampling is defined as applying an audit procedure to less than 100% of the items in a population. Keep in mind, however, that if exceptions are found as samples are tested, the auditor will expand the audit work by testing more items.

    Assume, for example, that an auditor pulls a sample of client checks with a dollar amount of $1,000 or more. The client’s internal controls require two signatures on every check of $1,000 or more, and the auditor selects 50 checks for test work. If the auditor reviews checks that do not have two signatures, the sample size will be expanded. An auditor cannot rely on a sample that contains errors, because the same error rate may apply to the entire population.

    11. Search for Unrecorded Liabilities

    Auditors plan the engagement so that each account in the balance sheet is audited, and auditors are concerned about overstatement of asset accounts and liability accounts that are understated. This auditing concept is based on the balance sheet formula:

    Assets – liabilities = equity

    If an asset account, such as accounts receivable, increases, the firm’s equity balance also increases. On the other hand, a decrease in accounts payable (a liability account) also increases equity. The auditor’s goal is to audit each balance sheet account, to ensure that each account is materially correct.

    The search of unrecorded liabilities is a procedure that confirms accounts payable. The auditor scans large checks written shortly after the fiscal year end and reviews the accounts payable detail. An auditor wants to see if the check is paying a liability that was posted to accounts payable.

    Assume, for example, that a company has a December 31st fiscal year end. A $5,000 check paid to a vendor on January 10th was not listed on the December 31st accounts payable detail. If the client was incurred the expense before year-end, the $5,000 should be added to accounts payable by posted an adjusting entry.

    12. Segregation of Duties

    Segregation of duties is a concept that applies to many audit procedures, and every accountant must understand this topic. This concept is the only way to reduce the risk of fraud, particularly fraud committed by workers within a business.

    You might be wondering:

    How can I protect my firm from fraud? To protect yourself, make sure that you understand the three types of duties that must be segregated among different employees:

    • Physical custody of assets: One worker should have physical custody of assets, such as the checkbook, or the keys to the warehouse.
    • Authorization: A second person, usually the owner, should have authority to move assets. An authorized check signer, for example, has the ability to move cash by signing a check.
    • Recordkeeping: If possible, a third worker should be responsible for posting accounting activity. That would include the task of reconciling the bank accounts, for example.

    Ideally, three separate people should handle these duties. The Audit CPA exam asks many questions on this topic, so make sure that you’re clear about segregation of duties.

    Invest In Your Audit CPA Exam Prep

    The AUD exam can be difficult, particularly if you haven’t worked as an auditor for a CPA firm. While this test does not have as many calculations as other sections of the CPA exam, you still need to invest a great deal of time to study for it.

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    Top 12 Audit CPA Exam Tips

    Bryce Welker
  • 5
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      ["title"]=>
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      string(139) "

    The company was losing sales when its popular products weren't in stock so it stopped using static forecasts to anticipate demand.

    " ["fulltext"]=> string(3620) "

    Brian Kalish began working this year with a spirits company whose products were so popular it periodically underestimated demand and lost sales from a lack of inventory.

    "They had no stranded inventory," Kalish, a financial planning and analysis (FP&A) consultant, told CFO Dive last week. "They sold everything they could make."

    Kalish said the company was on the classic Dec. 31 calendar-year close. "They were forecasting to the wall," he said. "They went into the budgeting process in late September, early October, to put together the budget, plan and forecast, but they weren't really getting a lot out of it. It was just more variance as they went through the year."

    Absent accurate forecasts, the company could never be sure it would have enough product available to meet demand, he said.

    "They were basically looking over what had happened the last 12 months, [made] a best-guess growth estimate, and assumed that’s how they were going to do it," Kalish said. “And it wasn’t bad. But the problem was stock-out. All of a sudden, orders were coming in and they just couldn't fill them as efficiently.”

    His prescription: Replace their static, 12-month forecast with a rolling 12-month forecast, updated quarterly.

    Longer Shelf Life

    A rolling forecast covers a designated period of time — four months, a year, 18 months, whatever makes sense for your organization and industry — and is updated at regular intervals. As you update your forecast with the latest monthly or quarterly data, the data from the earliest month or quarter of your time period falls away, giving you a continuously changing forecast of your company's financial condition.

    "By going to a rolling forecast, it gave them a much better idea, not only because they could see their internal information but because we structured it so they could start bringing third-party information in there," Kalish said. "All of a sudden, you can start seeing ramp-up."

    The transition has been easier than it might have been, he said, because the company was ready to make a big move. "To make any of this work, you have to have four pillars: culture, process, people and technology," he said. "They wanted to go from having pretty immature to world-class analytics, so that's a beautiful situation to walk into. It's not a question of convincing someone."

    The company is 25 years old, sells globally, and its finance function used Excel and an enterprise resource planning (ERP) platform. After conducting an audit to identify the tools and processes the finance operation was using, Kalish changed the company's architecture on the data analytics side and brought in a cloud-based tool for forecast planning and budgeting.

    "What you don't want to do is what we call a lift and shift, which would be taking the [Excel] process and doing it in [a cloud] environment, because then you're missing 95% of the advantage of bringing on the new technology," he said.

    Go for Small Wins

    Kalish said it's unnecessary for a company to transition its entire forecasting process to a rolling system at once, especially if you're a larger company with multiple lines of business. In such cases, it can make better sense to pick a discrete line of business and forecast just that part on a rolling basis.

    "It's always a challenge if you try to do something enterprise-wide, so I always argue, make little bets and wins and let them build, so there's nothing stopping you from doing it in parallel," he said.

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    How a Spirits Company Reduced Stranded Inventory with Rolling Forecasts

    Brian Kalish

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