Friday, January 23, 2009

Second relief package to prop up real estate sector

"The commitment from the realty sector may include lowering of prices for houses and more and more investments in affordable housing" - Urban Development Minister Mr. Jaipal Reddy

1) Reduction in interest rates from 9.25% to 7.5% for home loans up to Rs 30 lakh

2) Doubling of income tax rebate on home loan interest to Rs 3 lakh from Rs 1.5 lakh

3) Raising of income tax exemption on rentals from 30% to 50%.

4) Infrastructure status to real estate sector

The first stimulus package had left realtors unhappy. They complained that the existing stock of unsold homes cost much more than Rs 20 lakh, so that the interest rate concession on loans up to Rs 20 lakh would not help their sale.
To read more, please, visit - The Economic Times

What is your take on "commitment of the realty sector to the politician"

2009 is an election year! We all know that promises made in the elections are honored by all political leaders.

Lalit Kumar Jain, President of Promoters and Builders Association of Pune (PBAP) has already announced that, "As there is no scope to reduce the prices further, we expect the affordability factor to come from a slash in the home loan rates."

PBAP has also declared that "An affordable house according to the PBAP is a 1,500 sq ft unit, for which the buyer will be ready to pay if the interest rate come down to 7.5 per cent."

In short, now you know what is the commitment of the realty sector to the Urban Development Minister. So, question is:
"Are you ready to book an affordable 1,500 sq.ft. flat at the current property rate if home loan interest rate comes down to 7.5 % and revive the real estate sector and contribute in GDP growth of Indian economy?"
As a responsible Indian citizen, please, give your promise in the comments (Comments Policy) to the president of PBAP and Finance Minister and Prime Minister of India.

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  1. Ravi,
    PBAP want min rate 3000/sq ft so affordable housing will come minimum 45L + other expenses. Even with 7.5% rate EMI is too much for average Punekar. If I get 1200 sq ft housing at 2000 to 2400 rate I will be more than happy. I will book at this rate. With 10 to 20% down payment (2.5L to 6L) & remaining home loan takes me comfortable range where I can pay EMI even in fututre loan rates increases upto 15%. Govt. may reduce loan now but who guarantee about future loan rates?
    PBAP are you listening.

  2. Good Point...

    PBAP has kept uptil now the rate around 3000 + in any locality.. so even a flat is 2 BHK with atleast 1000 SQFT goes more than35 lacks..and that is out of budget prevailing the present economic conditions..
    other point in the locality where rate is @ 3000.. like Katraj-kondwa road, Katraj, Ambegaon, Wagholi.. etc.. what infrastructure is there for which we should pay that much.. so even if the flat is affordable i wont pay that much...
    PBAP president Jain mentions taht its not affordable to reduce the prices further.. my question is why ? what is the problem.. now inflation has come down to @5%.. fuel prices, steel prices, and cement prices are reduced... so cost of building has came down.. the only factor is land.. these greedy builders have inflted aland prices so high.. also other thing is that these people has bought lands when real estate was on peak... so that on constraint... but why should we pay for their greed.. all builders operate business on atleast 50 % profit margin.. why dont they reduce it... why all the things are expected from Goverment..

    I will buy 3BHK 1500 SQFT house if ther rpice ranges between1800-2100... thats what i can pay most considering hte poor infrastructure in Pune..also interest rate cut does not mateer... if prices of house are reduced to that level only then it will be affordable.. else it wont be..

  3. We are counting down awaiting a biggest scandal in Indian History. The Real Estate Bubble created in India (INCLUDING PUNE) is an outcome of biggest scandal in Indian History and almost 90% of politicians (all parties) are involved.

    Look for the traces:
    - FM removes a RBI governor who is alarming against RE Bubble in India, when 6 month extension was available for him under law.

    - An inexperienced guy is plotted at RBI who reversed all good job done by Reddy.

    - FM cries in public for cartel in Steel and Cement industry for inflating prices which affects profitability of Real Estate Industry directly, but keeps mum on cartel prevailing in RE Industry.


    - Top Government official declares RE industry as Growth Engine which absolutely fake from all stands of economic text books written across the world. RE industry is not a growth engine but barometer of economic growth. Manufacturing and Agriculture are GROWTH ENGINES according to any sensible book on economics.

    - PM rejects further bailout for Auto industry but keeps considering more and more bailout for BHIKHARI Real Estate industry

    - The risk weightage to RE industry is lowered by RBI overriding a standard process of increasing it when the market demand is lesser. This is most dangerous step RBI governor has taken putting our banking system into a big time risk just to bailout Real Estate industry.

    There are many more pointers I have collected but have not got enough time to prepare an artical.

    This scandal will never be blown by any Indian Media because all of them are given enough 'petrol' to keep their mouth shut. Somebody from other country where ethics are very high, will find this scandal and expose to public.

    This is going to happen and it will be the last stage of Economic slow down in India. With this scandal coming out, the Real Estate prices will crash by more then 50% (as compared to the levels at the time of exposure of this scandal). The economic growth will come to a standstill.

    AFTER THIS WORST SCENARIO, A GOLDEN ERA OF THIS COUNTRY WILL START. Our country will become most prospering country in this world, once again.

    But, please remember, the golden era for this country will NOT START UNLESS THIS SCANDAL IS EXPOSED. The exposure of this scandal will give way to a clean system with least possible corruption level.

  4. # ref: "fuel prices, steel prices, and cement prices are reduced... so cost of building has came down.."

    But what about municipal and government government taxes? You know, taxes do not let the builders to reduce the property rates!

  5. Ravi,

    Do you have a real insight into how much tax levied on to Real Estate industry and most importantly how much is actually being paid by them? Please do not just restate what Lalit Jain is talking. I do not need to prove that he is the most notorious character in Pune's Society.

    The Real Estate promoters are WITHOUT ANY DOUBT most known notorious characters in INDIAN SOCIETY since many years. If they are paying taxes religiously, I can bet that every Indian is most genuine tax payer in the world. If somebody can prove this, I bet that there is no corruption in this country.

  6. @Atul! Relax! Just forget about the "biggest scandal in Indian History"!!

    Don't you know that DLF has paid back Rs. 1,000 Cr loan?

    Don't you know that Unitech has reduced its debt obligation from Rs 2,500 crore to Rs 600 crore?

    It's a life and death situation!:
    " First the patient (means economy = Indian real estate) was suffering from severe dehydration (liquidity drying up), then there was pneumonia (credit freeze), and now doctors fear that patient may be in a coma (recession, depression). Emergency injections of saline and glucose (monetary and fiscal infusion) are being attempted to revive the ailing entity.
    That's all!

    "The country should look at stimulating the economy rather than worry about increased fiscal deficit," says Chidambaram.

    So, relax! Every thing is fine!!

  7. >>>>
    But what about municipal and government government taxes? You know, taxes do not let the builders to reduce the property rates!
    Friday, January 23, 2009 10:48:00 AM IST

    LOL on the this comment by Ravi!!

  8. Ravi,

    Thanks for calming me. I am relaxed now. Oh... I am getting late.. I need to go an buy 2 or 3 flats now.. I must contribute my life to the economy of Chidambaram. If I do not buy, my country will become poor because the RE companies will go bankrupt.

    Thanks for realizing me.

    Please broadcast to all to go ahead and buy houses / flats as much as possible. After all, we all should learn from America - how to blow bubbles and go bankrupt. It is so FUN.

  9. Hello Atul! "I need to go an buy 2 or 3 flats now.."
    Oh! Atul, you have come up with a brilliant idea to revive the Indian economy!

    Pay only 1 lkah as a booking amount. No pre- emi. Take a possession and do not bother about paying emi!

    By the time, Rahul Gandhi will become the P. M. and Sanjay Dutta would be his F. M. He will launch the scheme of "Home loan waiver for the metro sexual male" on the lines on "Farmer loan waiver scheme"!

    Brilliant idea!! It will definitely revive the Indian economy because people will buy TVs, Fridges and all electronic goods, shop for household goods and furniture, consume more food and buy more cloths.

    Plus, Indian middle class will stop thinking as a victim of the system!

    You have not only boosted Indian economy but "moral of the Indian Citizens".

    Brilliant idea, Atul! Let us go for it!!

  10. Ravi,

    I thought I will keep mum and laugh on our jokes exchange. Did not work. I really could not laugh.

    When I keep thinking about 'Why Indian Government wants to get into this situation?' - The only answer I get is that, they are paid for this wish. It is for their own personal gain.

    What I am surprised about is that those so called 'PIL' masters are keeping mum on clearly visible wrong stance taken by RBI. Why nobody is filing PIL against RBI to reduce risk on RE industry? This is absolutly un-ethical. When the industry leaders are accepting the fact that the demand is decreasing in RE industry, why RBI should throw axe on its own legs by reducing the risk on the same industry?

    Surely, there is no 'Best Interst' objective because the result is known to even nerd of economy. The mafias got additional power to hold on to the bubble. Moreover, they started passing more impact on our, till now strong, banking system.

  11. Atul, all your posts are BRILLIENT, TRUE, FROM THE HEART...!!! Well done...

    One suggestion, contribute your views on a FORUM rhather than a BLOG... we have thousands of readers on the forum, your views will add value and make great sense to all forum members...

  12. PBAP builders are talking insane, they already made bullions but then want more for their next 200 generations. I request readers not to fall under PBAP's trap and buy crappy 50+ lacs apartments. Nature's law will operate and PBAP builders will be buried under their own greed.

  13. If Lalit Kumar expects the interest rate should be like before in 2005 as 7% then the PBAP shold also bring down the property rate as 2005 (1200 -2000 per sq. ft) afterall recession should affect in all sectors. I was suprised when Kalpataru launched a scheme in Manjri with rate as 1950sq. feet with high end specifications. I think this is the lowest rate in Pune suburbs. I expect the rate should come down further to buy a 1500 area flat.

  14. The idiotic builders have killed the golden goose to get more golden eggs. The persistent increases in prices have stabbed the RE market in its heart. Now they will suffer. Who will buy in this market? Wait till prices come down to 40-50% of the peak values. What goes up must come down, esp when idiots are at play.

    The government can be complicit in this "scheme" but its our money and we will not part with it. PBAP thinks they can use scare tactics to get us to buy? Those days are over. Lalit Kumar Jain and his bandits have killed the golden goose.

  15. Mr. Karandeekar,

    Can you explain how govt taxes do not allow builders to bring down property rates?

    This is the case of the tail (taxes) wagging the dog (property prices). Are you sure about this? If so, how?

    The way taxes usually work is that taxes are paid on the selling price of the property. The lower the selling price, the lower the taxes. But thats in the normal world. Not in the greedy world where builders are looking to rob you in daylight.

    In these times, you can do more service to the actual visitors of your blog by shedding some light on the facts. The readers of the blog will appreciate it a lot more.

  16. # ref: "Can you explain how govt taxes do not allow builders to bring down property rates?"

    PBAP claims that "various charges levied by the state government, PMC and centre constitute up to Rs 400 out of the per square foot rate charged by the developer"

    Only PBAP can explain how!

    In my research, till today, i am able to find out the answer.

    It only means, i have to go deeper!

  17. May be I'm putting something different in your Hot discussion. But, this can be ignored and go ahead...
    The point is very simple, the home price-to-income ratio is one of the metric, to find how much bubble is blowing.

    price-to-income ratio is the ratio of median home price to median annual income of cisizens...

    Now, we know home prices are not uniform in pune.

    But, still the average price for a 'middleclass' flat in and around pune will be around 25lacks. (i may be wrong)... Now, what is average income of middleclass with age 30 (1st time buyer)? is it 4lacks??(again not sure..)
    (Need more research on this.)

    So, we need to find out what is this ratio. If it comes more than 5, then prices are definitely higher.. need to come down atleast below 5.

    Other factors like inflation, interest rates, gdp also need to be considered.. but, i'm not economist, so don't know exact formula.

  18. I have often heard the following absurd reasoning: "Builders cannot reduce the rate below cost".

    Now this is pure non-sense. If no one will buy the houses, the finacers of the builders will come after them when they default. The financers may restructure the debt one or two times, but eventually will pull the plug. The builders must themselves sell at a loss or the finacers will liquidate the houses at a LOSS.

    BTW, everyone in the building industry will reduce the rates when they find that no one is buying. This includes, architects, laborers, engineers, raw material manufacturers (steel, cement, etc.). This will affect all the future constructions.

    Another central concept that the masses fail to understand is that those who benefit from real estate will not tell you the truth (this includes bluiders, banks, media, brokers, etc.). I have seen this very closely while following the US real estate bust. Everytime they would say, the market has reached bottom, the prices fell further, the banks went into more trouble. If you did not know, the current economic turmoil in the world today is entirely due to the real estate correction that is happening in the US, which BTW is only 60% over. So expect more trouble around the world.

    The funny part is that when the real estate downturn starts no matter how rosy a picture the vested interests try to paint, the public slow down their purchases because there is no hurry. They prefer to wait for the prices to fall further. This puts more pressure on the prices of the houses and the cycle continues downward. Welcome to the bear market in housing! The downturn will last for 5-6 years. No one will think of buying houses as an investment going further. This is because they will see that the prices are not going up. If you are in the market for houses, wait until everyone is FEARFUL of buying a house - that would be close to a bottom. I expect this to happen in the next 1 to 2 years.

  19. Dumb theories - one after the other - looking for crash. Just like stocks don't crash when there are too many bears but they head down when almost everyone in bullish (like looking for sensex 25000), home values will not slide significantly as long as everyone and his uncle/aunt is putting forth so called smart-from the heart analysis (or is it smart farts?). Of course their all too visible (and audible :-)) fellow crashwallahs will instantly support any theories like the one by Atul. It makes good reading for the desperate but has little predictive value.

  20. To the Anonymous above - (Loud Fart).

    Did you read the NYTimes during July 2007? If not, please go ahead read it. You will find the archieve on Net. There were people who were talking the same language that you are talking today.

    In fact, I still have a thread link available from my company's bulleting board where one of our friend challenged me that if stock market goes below 10000 mark, 'I will be your servant for my life time'. This challenge was given to me in Feb, 2008. I am trying to get that person, but unfortunately, I am not been able to trace him. You are the similar person. I hope you are not the same guy.

    The 'smart' people like you have blown this bubble - just to hide their Fart noise.

    Unfortunately, you have not seen the cycle of bears and bulls. You must be from the young group who have just seen a bull run started from 2002 onward and have not seen the bear phase et-al. I have seen atleast 3 bulls and bear cycle of Real Estate Market.

  21. Funny boy Atul,
    You assume my investment career started in 2003. I don't generally use cheap Hindi movie quotes, but this time I can't resist:

    "Beta, jis school mein tum padhte ho, wahan ke hum headmaster hai"

    I have seen many scared bears like you who come out of woodworks exactly at the wrong time. They are great predictors of bottom in asset classes against which they tend to rail. Regarding your concocted tale of the friend about stock index going below 10000, I say it is a good example. Too many believed the same and market crashed. On the contrary, in RE market, you represent the clone of your friend, but at the opposite end of the spectrum. You will probably guarantee that if RE market doesn't crash, you'll be slave of someone for life. Thanks God slavery is not legal, otherwise what would you do?

  22. Mr Anonymous Headmaster,

    US economy lost 70,000 jobs in one day yesterday. UK RE is below 2004 levels. So is US. I am looking to sell a house in US and there are no buyers. Wake up and smell the coffee my friend. Economic forces are larger than you or me or your school of which you claim to be schoolmaster.

    This slowdown is global. The shoulders from which Indian economy has been shooting its gun are in trouble. You think they will throw India a bone?

    Wake up, wake up, wake up!! Use your headmaster education. Read a newspaper.

    Mr. Karandeekar himself admits he does not know what is the relationship between taxes and prices. Prices cannot fall further? Ha!!

  23. Mr Headmaster,
    How many flats you own? I understand your arguments then :) Lets use your headmaster power to stop these market forces..great..all the best!!!

  24. Hi Ravi:
    I know everyone has an opinion and a right to put it here. But it seems that few like Atul are really upset for some reason and may not be putting up a rational argument.
    I hope Atul and his anonymous friends have not lost their jobs in US because they have way too much free time writing / venting on this blog.
    And if you are still employed no wonder US economy is down with "productive" workers like you.

    My friend we in India are fine as we have enough of domestic buying power for our merchandise from sewing machine to apartments. Yes we will be slower by 0.7% as per IMF but we are still at 6%+
    Time to wind up in US and head back to desiland. I assure you we will not let you guys down. We will find you a job for roti, kapada and a bargain makan.
    Atul you seem to have so much of knowledge about US markets. Are you sure your name is not Elaine Garzarelli.

  25. For all serious home buyers if you are old enough to buy a home then surely you are old enough to make a decision on right time and right price of your dream home. You do not need Atul's, Ravi's or my advice.
    I was advised in 2004 against buying a flat in Aundh at 2200-2600/- by many but I made my own decision and bought one lovely 3 BHK apt. No regrets long term. I am not thrilled about price appreciation 'cose I am not going to sell it. Perhaps my kids will enjoy the money after I am gone.
    There after I got another 3 BHK place in Pashan area in early 2008 at the peak for 3500/- Today the price is 3100/- and in worst case may go down to 2700/- Does this bother me. NO. I knew this was my investment home and had a mind set of selling it after 5-10 years. and I am sure in 5-10 years from now it will be much more than what I paid for.

    A primary home is a liability for but it is still a necessity to anchor yourself and your family. It gives you and your family a good sense of settlement.

    A primary home is never an investment that you can count on. It will be a long term asset for your kids.

    Do not buy a home if you think its installments are going to put a dent in your basic necessity like Food, clothes, kids education fees, your family time, your social obligations to your parents etc.

    Buy in a near ready or ready possession scheme to reduce the risk of delayed or no delivery from Builder.

    Expect delays in possession for under construction homes by 8-10 months no matter how reputed the builder is.

    Do not fall for "full down payment for a better price" due to market uncertainties.

    Book in complexes which are at least 60% booked.

    If the price is too low compared to average price of that area, then may be it is a distress sell from that builder. BE CAREFUL.

    Just some common sense tips. Hope these help.

    Ravi good work with the blog. But do not loose your focus on reporting of properties rather than getting into these analytical arguments on real estate market.

  26. # ref: "Ravi good work with the blog. But do not loose your focus on reporting of properties rather than getting into these analytical arguments on real estate market."

    Thanks for the advice! Actually, it is not an advice but an observation. Right? And i agree with you. Thanks for putting it in a nice way! You are absolutely right. In last couple of months, I have almost lost the focus.

    Now instead of 'analytical arguments' (mostly based on Metro Cities and listed builders like DLF , Unitech), i am going back to reporting about properties in and around Pune.

    About the state of real estate market, let us focus on Pune and instead of discussing let us explore the solutions. Because, i am not a critic or analyst but a real estate salesman. And i blog for the home buyers! (I am talking myself!)

    Thanks for tips! On blogs tips have a great value. But i have avoided posting "tips" or "how to" (how to negotiate property rates) blogs. However, now i think it's better to give some practical tips than keep on arguing! Isn't it?

  27. the so called Head Master, wrongly said, I thought it should be Post Master... posting for somebody...

    well, don't worry, we do earn our livelyhood and will continue to do that in a better manner wherever we live... you enjoy your time selling real estate...
    thanks for all your support.

  28. hahahaha
    Just went across the whole blog.
    Indians are great. Read the first few pages of this person and he has concluded in 2006 that there will be Real estate bust soon in US.
    And after two months .... seems Atul is right and "Headmaster" is wrong ..