Wednesday, July 29, 2009

Bangalore periphery realty prices slip below guidance value

Economic Times reports.

If Whitefied with all the IT parks can drop 30% offically, what about Devanhalli which has nothing but Greenfields :). In fact I know of deals in Shantiniketan taking place at below 3000 so the drop of 40% is not unheard of. Maybe a drop by 70% in Devanhalli is not a bad idea to start with.

BANGALORE: Bangalore’s realty market has thrown up a queer problem with property prices in peripheral areas falling below the guidance value set
by the government.

While buyers pick up property at prevailing (lower) market rates, they are having to cough up higher stamp duty for registration. This is because stamp duty is calculated on the guidance value set for each area/property.

“There could be strong case for downward revision of guidance value in peripheral areas,” says K R Niranjan, inspector general of registration and commissioner of stamps in Karnataka. Typically, the government conducts a valuation exercise around October every year and issues fresh guidance values based on property price trends.

If prices continue to be south-bound, the state will have to look at aligning the value to prevailing rates and this could well be the first downward revision in Bangalore. Instead of an annual revision, B S Shankaranarayanan, a legal expert in the realty sector, suggests timely and periodic revision of guidance values based on property price movements.

“This will help the public in cases where there is a price decline and enable the government to mop up more when prices go up,” he adds. And, like a builder in the Yelahanka suburb says, this is as good a time as any to bring about a correction in guidance value.

In a particular instance relating to Devanahalli, which witnessed a steep spurt in prices, given its proximity to the new airport, the value was revised during the year, a state government official says.

Requests seeking downward revision have started trickling in with buyers of the Prestige Shantiniketan project in Whitefield and builder ETA (for The Gardens project on Magadi Road) approaching the department.

The guidance value of Prestige Shantiniketan project is 3,200 per sq feet while it is Rs 4,200 per sq feet for ETA and hence, stamp duty would be calculated on these rates. But, realty sources quote the prevailing basic market rate for ETA at Rs 3,400 per sq feet while prices in Whitefield, where Shantiniketan is located, have suffered a very sharp decline of even up to 30%.

Typically, the guidance value is pegged approximately 20% to 40% below market prices to allow for escalation during the year. In the last three revisions, there has only been an upward revision of the guidance value. In fact, in April 2007, the revision was in the range of 100% to 300%, mirroring the realty boom. But, a builder says, the government hiked the rates when the market had already peaked out, marking the beginning of the downward curve.


Vik said...

Sumee, If you would like to post articles send me your email address in the comment section. The blogger platform has no way to delegating comment moderation without granting full admin rights. For now I will moderate the comments.

Anonymous said...

can someone tell when this RE fall/correction started in Bangalore ? (or may be in India). I know we cant tell this clearly. But i have a feeling it started somewhere around September 2008.

Anonymous said...

It started after Diwali in 2008 and will continue till 2012-13.

shailesh said...

Mumbai's neglect of slums

Often we hear and read about the plans to clear Mumbai [ Images ] of its slums. Also about the time-consuming decision making on the redevelopment of Dharavi, touted as the largest Asian slum, as if that festering wound on a civic space is a matter of pride.

The slums ought to be cleared and people have housing which are good, affordable and enable them to lead a civilised life. But in Mumbai, I think it is an uphill task, possibly intractable. And there are several reasons why it would most certainly be hopelessly intractable. I think Mumbai would find it extremely difficult to become slum-free.

One is the sheer size of the problem. Not all spaces are large and centrally located for the private builders to step in, use the extra FSI allotted to him to make his money and subsidise the flat for the poor souls forced to live in the teeming slums in conditions which are inhuman. That "inhuman" is an understatement.

Anonymous said...

Has the housing market hit bottom?

"Just as there was virtually no experience with home prices that rose as fast as they did from 2002 to 2006 or falling as fast as home prices fell between 2007 and 2009, there is little background that anyone can draw on to predict what a "bottom" in home prices might look like, but you can just about be guaranteed that the price bottom will lag the sales bottom by at least a year as it did during the peak."


Anonymous said...

@11:40 AM. thanks.
Now my question/doubt. Do you guys think RE will improve just when the overall economy improves?. I am hoping it would not. But i have a feeling that it will. Please throw some light.

Bindas Bhai said...

RE will improve selectively based on demand/supply. Outskirts of all major cities will see further correction and will only see upward trend in the years to come. We have being reading about budget apartments coming up on the outskirts of the Mumbai and other cities and this will put further pressure on the prices around this area.

Tier II and Tier III cities besides IT dependent cities like Bangalore, Hyd will also take some more time probably a year or two to see some light and more for tier II and tier III cities.

Mumbai the prices have already seen a 10 to 20% hike in most of the pockets and will likely to see some more hike during Diwali.

This is the right time to buy before the economy really takes of. A lot of people have realised this in Mumbai and we have seen a lot of transaction in last two months despite the rains.

I had mentioned 50% increase in 3 years for Mumbai from the lowest corrected price and after the election results were out i had changed it to 50% increase in two years for Mumbai. The fact remains most of the property in Mumbai have already increased by 10 to 20%and will increase further by another 10 to 20% this Diwali. I am sure my judgment of 50% increase will come true before the end of two years.

Now guys keep your mind open and analyse what I have said or you can start abusing me like what generally failures do.

Bindas Bhai

Jey said...


a friend forwarded this link. Read through the story and was stunned. I knew that the story of lay-offs in Indian IT cos was bad, but not this bad. The comment of " The voluntary attrition of 13% for TCS and 11% for Infy" was very revealing...


Anonymous said...

That is interesting. But is that true? We know that media usually sensationalize things especially IT related. Anybody can confirm the things mentioned in the article?

Anonymous said...

Yes, Most of all in the outlook article is indeed true.

Things are bad and they will get ugly in the first six months of 2010.


Anonymous said...

The following is an article by Mr.A Dayal,CEO,equitymaster.They have relegated real estate to junk status.



There is no doubt that there is a huge demand for all kinds of real estate in India.
Unlike the situation in the developed countries like USA or UK, most people in India still need to buy their first home - their primary residence.
And, for many that do own their first home, there is a huge desire to buy a larger or better home.

And what passes off for office buildings is mostly concrete junk. Office buildings lack the simple facilities like wide staircases, parking spaces, and breathing areas.

There is little safety or comfort in residential or commercial buildings.
And, yet, the price of real estate in India is way above what most people can afford.

As Table 1 indicates a typical very decent quality building should cost anywhere between Rs 1,000 per square foot and Rs 1,500 per square foot to construct.
A very well-fitted building with high quality tiles or average quality of marble flooring may cost Rs 1,500 per square foot to construct. A more modest building may cost Rs 1,000 per square foot to construct.

Table 1: Typical cost of construction for a residential or commercial building
Quantity needed per square foot Cost per square foot (Rs)
Steel 8 kilos 320
Cement 35 kilos 150
Labour 250
Other costs 280 to 780
Total materials 1,000 to 1,500

Then why do we pay Rs 5,000 per square foot for buying property in places like Bangalore, Gurgaon, Pune, or Thane? These are all circular cities with abundant land supplies around them. Every time land "runs out" the city can grow outward and create new city "centres" - like a ring of concentric circles.

South Bombay (like the Manhattan area in the southern end of New York City) is a problem because you cannot really create any new land - though it can be reclaimed from the sea. But the rest of India does not have the geography of south Bombay.

So why is constructed real estate so expensive in many parts of India?
Primarily, because of the cost of land.

Shortage of zoned land
Not that land is in short supply.
As Sam Zell, one of the most brilliant real estate investors of our times, explained to me on a trip to India a few years ago: There is no shortage of land, there is a shortage of zoned land.

Dwell on this statement.

Anonymous said...


For it is the foundation of a corrupt system which forces the price of developed real estate in most parts of India to be sold to users at prices which are a lot more than what the land is really worth.
Or, rather, what the price of the developed real estate could be worth if the conversion process of land into zoned, usable land was "freely" allowed.

I recognise that land can never be "freely" converted.

There will - and should - always be zoning rules and regulations to ensure that there is supporting infrastructure for all the newly constructed projects that come to fruition. If there are hundreds of acres of development in Powai or Pune or Gurgaon, those areas should have sufficient roads, buses, power, water, schools, colleges, and hospitals to support the human activity around that new development.

But, as buyers of property in these newly developed areas will vouch for, the price they paid for their island of prosperity does not give them access to any necessities. In fact, the few skeletal infrastructure facilities that these projects come with are greeted with sheer joy and ecstasy by the duped buyers.

Land is not expensive in most parts of India.
The powerful and well connected buy land for maybe between Rs 20 per square foot to Rs 200 per square foot from ignorant farmers.
Then they use their political connections (of course, many times the land grabber is a politician!) to convert what was classified as agricultural land into zoned, "sale-able" land.
Some municipalities have development charges (which can be Rs 500 per square foot) for the amenities that they are supposed to provide. Much of that money, needless to say, does not find its way into the purpose it was raised for.

Table 2: The abnormal, super-profits of a residential property in the rising cities
Rs per sq ft
Cost of construction 1,500
Land cost 200
Land development cost 500
Total cost of project 2,200
Selling price to buyer 5,000
Profit before financing costs 2,800

Developers can also "creep" their way into low priced land banks.
They do this by first buying lands where there is a development charge and then buying the neighbouring lands - just outside the area in which they have these developing charges. In the example in Table 2, they would save Rs 500 per square foot and also get the land a bit cheaper. But their selling price would change by maybe Rs 250 per square foot. This ensures that the developer’s average cost of land declines and profits surge. The buyer, on the other hand, ends up paying a high price and gets the same pathetic infrastructure.

Falling over their own greed?
We have no doubt that there is a huge demand for real estate in India.
But my negative view on real estate is based on one known fact: there is a significant amount of corruption in the land acquisition process.
Left to a more "free" market and an improved zoning process, the cost of real estate would decline.

Anonymous said...


And, unless the governments want to deal with a national Naxalite problem, they would deliver on:
providing housing at lower prices,
providing the infrastructure around it,
controlling the amount of profits that real estate companies make from "arranged" deals of zoning land.
Not that it will happen in a hurry.
Prime Minister Manmohan Singh has shown no courage so far in rooting out the corrupt - or corruption - from his government.
Armed with a wax smile and a mild manner, he is still busy building macro economic policies when the detail is in the micro-corruption.

But greed has played an important role in holding real estate prices down for the past 12 months.
Driven by their own frenzy to get rich quick, the real estate developers have started to build too much property.
The projects under construction are probably 5x what the actual demand will be at the price points being currently quoted.
Drop the price by 20%, and the demand could jump by 100%: still leaving an oversupply of 2.5x.
But drop the price by 40%, and probably every square foot available will be sold out.

The "problem", though, is that all the developers will be bust.

A game of chess
So, rather than let this happen (as suggested in a previous Honest Truth), the government arranged for the Indian banks to bail out many of these debt-laden developers. The arrangement must have been like what transpires when two friendly brothers meet over the dining table.

The surge in the Indian stock markets gave the developers a further respite: some of them were able to sell their overpriced shares and pay off some of their debt.
But they are still leveraged.
And they are still playing "survivor": they are hoping that you will read the trash in the media that makes it sound like real estate is in short supply. It is not.
The ability of the developer to wait out the slow down and tolerate lower volumes at lower prices is in short supply.
This is a game of chess. Of patience.
There is a limit to what banks can lend to the real estate sector.
There is a limit to what people will tolerate.
There is no limit to the attractiveness of the disenchanted towards a Naxalite kind of movement.
Or a genuine uprising.

Companies and businesses built on government favours can disappear pretty quickly.
Companies with no public sympathy can disappear pretty quickly when the monopoly over zoned land is challenged.
And if you happen to be around as a shareholder, remember it took Satyam a few minutes to lose -70% of its value.
If you are an investor in the real estate stocks dancing to this music, stay close to the door.

If you are looking to buy real estate - start asking your local politicians what they are doing about giving you quality houses at prices you can afford.
A flood of letters will not be ignored.
Any break in support from politicians, will cause a collapse in many real estate markets.

Never underestimate the power of the written question.
Or the politicians' desire to stay around for the next elections.
But never estimate the power of corruption to keep you from owning your own home.

It is, indeed, a game of chess

Anonymous said...

Shameless creature Bindas Bhai.

Of all the shamelesss creatures ever seen on this planet thou remain at No. 1 position.

Despite a self promise of never posting on this blog this Dog's tail has again appeared on this blog.

Shameless creature and sucker of human blood, go away and don't show your face again. People like you loot poor Indians and keep them poor. You will rot in hell and your black money will be a curse on your sons and daughters. The curse of thousand souls be on you Bindas Bhai

Anonymous said...

Shameless creature Bindas Bhai.

Of all the shamelesss creatures ever seen on this planet thou remain at No. 1 position.

Why are you getting personal. it is not Bindas Bhai who is driving the market nor we are making our decesion based on BB's comments. I think we very much need a contra view for this blog.

You are diluting this forum by getting personal with BB. I would request BB and more like BB to express their views. We all need to take informed decesion and hence we need likes of BB in this forum.

If you have anything personal against him why dont you sort out with him outside this forum.

The more you write about him the more attention he is getting.


Anonymous said...

I completely agree with K Gokul.

But I see no way out of the 60 years chakravyuh created by politician RE nexus.

Write letters to our illiterate MP? Get real Gokul.

I see more chances of a Naxal revolution than RE situation getting better.

I think there is a 5-10% chance of China supporting a Maoist revolution splintering West Bengal, Orissa, Chattisgarh, Jharkhand and adjoining areas, out of India. China itself will swallow most of north east. Bangladesh and Burma will assist China in this. Bangladesh will get Assam while Burma will get many of the small NE states (and nuclear weapons).

That may not come to pass, but the above explanation is definitely the long term strategy adopted by China and what China and Pakistan hope to achieve.

India of course has no strategy. We are idiots and would deserve to be enslaved by the Chinese if we persist in idiocy, unlike the Chinese who at least think properly as big powers should.

Venkat ND

Anonymous said...

Paul Krugman: "I focus on crises"

Looking back, where do you see the major cause of the current economic crisis?
For me this is quite clearly the steady expansion of debt, particularly in the United States. But this is actually a trend that dates back around 25 years. The indicator I use most often is household debt relative to income, which had been stable for a generation until the beginning of the 1980s, when it began rising inexorably and eventually reached 100% of GDP on the eve of the crisis. However, this alarming development was even welcomed by many people, who saw it as a confirmation of markets functioning properly. But in retrospect you have to say that people were taking on much more than they could handle. It is worth nonetheless recalling some of the excesses of recent years in particular: The limitless granting of credit, the excesses in Eastern Europe, and other developments that have now come home to roost with a vengeance.


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