This week in our Expert Take stories, we talk about:
Also, in our Investment Insights section, we explain how fractional real estate as an investment works.
Did you also try out the ChatGPT which became viral last week? This smart chatbot has been keeping many of us glued by answering questions, and writing code, all with human-like sensitivity.
There are high hopes that it might create disruptions in the space of content writing, journalism, or areas like customer support. Sure, but let's look at the predecessor chatbots that have been attempted earlier.
During Covid, the USA introduced a bot to help people know what to do if they have potential symptoms. Named "Clara", the “coronavirus self-checker” was released with certain caveats stating the allowed use cases.
For instance, Clara was not intended to be used for diagnosis or treatment purposes. it could only give recommendations if people needed medical care or not.
And what if the use cases were not disclosed above? In one study, with respect to the bots in the healthcare space, 29% of chatbot responses could have caused harm, and 16% could have resulted in death if acted upon..
Bots rely a lot on prior research and their source of information. And therefore having their bot game right will depend upon how accurate and latest the sources from which such bots are picking up information. Say ChatGPT currently is updated only until 2021.
Also, if it's a bot answering the questions (say in the case of a customer support chat), it should be upfront disclosed to the users of information. So that users go at their own discretion before making the decision.
The Covid chaos at Foxconn, Apple's manufacturing plant based out of China caused the sales of the smartphone to go down by 29%. And now we know why has Apple been thinking to move out of China for some time now.
By the way, it's not just Apple, but also Google, Amazon, and others who have been planning to move out of China.
In the 1990s: China's centralized decision-making led to a quick rise in industrialization and with its high population and cheap labor it became attractive for many companies to move their manufacturing base to China.
Now: The same centralized powers that made industrialization possible are now exercising their authority to impose extreme restrictions like Covid and also with the aging population of the country labor is now becoming expensive.
Foxconn is responsible for 70% of the global iPhone production and we, therefore, can also see the direct impact on Apple's sales that the Covid shutdown had.
Now, with Apple moving to other countries like India & Vietnam, each country will have its pros and cons. Say, India ranks pretty lower when it comes to ease of doing business, and Vietnam on the other hand is a relatively small country. But the point here is to avoid concentration and diversify!
Do you know that car exports in China surged by 60% last year touching a record high of $7 billion? But also another record being set: the costs of daily rates for shipping vessels that can carry up to 6,500 cars have surged to $100,000 a day, all time high again.
Keeping above two in mind, it’s a natural move for Chinese car makers to buy the ships themselves and take control of costs.
Even overall, between land and sea, shipping is cheaper and more efficient than transporting them by truck or train.
China has been investing heavily in its maritime infrastructure and has signed trade deals with other countries, which has opened new markets for them.
While for these car makers to have these ordered ships up and running and still a matter of few years. But we like the farsightedness and ambition to become the largest car exporter in the world.
And maybe that’s also the secret behind the Chinese car makers replacing Germany as the second largest car exporter recently.
As the name suggests, fractional investment means buying a small portion of a real estate property. While conceptually fractional investment can be done for residential as well as commercial properties, financially it makes more sense to do for the latter, because of better rental income. We’ll therefore only look at commercial real estate in this section.
So if you want to do fractional investing, you approach a real estate platform. The company has multiple investors like you, who together form a separate entity (Special Purpose Vehicle or SPV). This SPV then buys commercial property and rents it out. Every month, you receive income from rent paid by the tenant, and whenever you wish to sell off your share, you’ll also earn returns from price appreciation of your portion of the property. The overall return for investors, including rental return and price appreciation range around 10-15% per annum.
Well, neither. Fractional real estate has quite a few benefits:
You don’t have to go through the operational hassle of maintaining the property, finding tenants, making agreements etc. The real estate company does that for you.
Unlike REITs where you have no control over the actual property, here you can decide which property you want to invest in.
But it comes with its own set of concerns:
While real estate companies are registered with RERA as agents, they are not regulated by a regulator like SEBI.
It may be difficult to sell your fraction if you want to, because the market is still nascent and finding buyers isn’t easy.
There are a lot of small and big real estate players with very low standardization in terms of returns or deal structures across the industry.
Benefit of fractional real estate is that it helps you diversify your portfolio. But the downside is that there’s no regulatory framework. So a precursor to investing here is to understand:
The credibility of the real estate company you plan to invest with.
How the deal is structured?
What are the expected cash flows through rent?
Other terms and conditions of the SPV