The recent subsequent and steady economic recovery as well as the credit crunch has brought in to light the mounting need for the middle office and effective monitoring processes for the different kinds of real estate funds so as to improve the overall compliance functions, risk management as well as management efficiency.
As a general rule of thumb, one of the major as well as fundamental elements for any form of real estate fund monitoring is its cash flow or the financial modeling. From leading real estate firms to the small scale or start up real estate businesses, every industry requires a strong and robust financial structure especially when you deal with financial transactions as huge as the ones involving amounts dealing with selling and purchasing of houses and other property buildings. A concept like financial modeling plays a significant role for the real estate investors who are planning to or have already started big commercial and residential property projects in different parts of the world, for instance, the upcoming residential projects in Mumbai. Here is a brief overview of the entailments made by this process and the ways or methods in which it can be put to use.
Considering the above context, the primary basis that holds paramount importance is the generic as well as sound knowledge of invaluable modeling techniques. According to expert recommendations, any financial modeling structure targeting at high quality model must be robust and effective in its overall shape and structure. It must always allow for track able and safe changes throughout the course for which it is valid. It should embed integrity checks and vulnerable flexibility so as to allow for other major sensitivity analysis as far as structuring and implementation of major scenarios and inputs are concerned. A customized, flexible, robust and easy to employ financial modeling structure paves way for an efficient as well as effective every day compliance and management tool. In addition to these benefits, a strong financial also influences and impacts the major management analysis procedures for various distinctive and significant key investment decisions.
In the last three years, the real estate finance industry have experienced an depression in the overall returns, real estate values for volatile assets and other burgeoning concerns for risk management which have forced several leading, big and small investors across the globe to request additional quantitative as well as qualitative risk and performance information from different fund promoters, usually in a highly customized and clean format. Such an organized manner of format is also beneficial as far as keeping the record of your real estate funds is concerned. Several real estate investors who have started different property projects in major metropolis of the country such as the upcoming residential projects in Mumbai are also working on the lines of the above stated concept.
In addition to the above stated factors and areas, another sector where real estate finance modeling works wonders for both the investors as well as clients is the tax planning. On a general basis, prediction of trapped or stuck cash inside a fund structure can usually be a critical issue since this tends to directly impact and influence the overall fund returns and income yields. However, predicament of the trapped cash at any early stage has always proved to be beneficial in taking measures for mitigating its powerful and adverse consequences. Another category of tax risks that takes in to account things such as transfer pricing rules, thin capitalization requirements and other parameters of relevant structuring are also significant.
Mark Clair is a real estate investor who has currently invested in upcoming residential projects in Mumbai. He has also written for several real estate magazines.