Saturday, February 27, 2010

The Budget - Dr Jekyl and Mr Hyde

The Finance Minister of India seem to have mastered the fine art of writing suspense thrillers, only here we know who is to blame. Giving direct IT tax breaks and taking it back using indirect forms like service tax, excise tax, petrol tax is pulling wool over the eyes of the millions of middle class Indians. With farmers he can write off loans, with this stupid NREGA scheme he pump thousands of crores into rural India without accountability, but when it comes to the middle class he has magically suckered it into believing that he is doing them a favor.

The news media is in the cahoots of the Congress government and is unable to make unbiased assessment of the budget. The stupid corporate CEO's don't care since they know they will pass the tax to the consumer, and the stupid consumer is happy to watch Tendulkar and SRK heroics instead of seeing that he is being robbed in broad daylight.

Consumer inflation is running at 18% which will spike by another 5% due to hikes in duties and petrol. How does a 10% reduction in income taxes help you when there is a 25% increase the cost of living ? This is the most regressive budget I've seen as the money supply with the consumer will decrease due to record inflation.

And to add icing to the cake, the Finance Minister will eliminate whatever peanuts can be deducted off the taxes once he implements the uniform tax code in 2011. That will roll back the tax cuts for the middle class to zero thereby causing a 50% drop in savings over 2 years with this rampant 25% inflation Y-O-Y. For government employees who had just begun to see the benefits of the sixth pay commission, you will soon see all the extra cash vanish at a record rate thereby negating the impact of any hike.

Add to this the interest rate hikes for floating rate home loans, and we have a case where the Indian savings rate will now be competing with the Americans to see who is the lowest of the two.

In summary the Finance minister has magically created money by lowering interest rates and the sixth pay commission salary hikes and now has taken that same money away by higher taxes and record inflation. To combat inflation he will raise interest rates, thereby siphoning off more money from the borrower, however inflation wont reduce as he has increased indirect taxes on the economy. This is truly the case of the left hand not knowing what the right hand is doing, or a split personality like Dr Jekly and Mr Hyde.

On one had we have Obama fighting for the American middle class with tax cuts, increased unemployment benefit spending, curbs on foreign visas, speaking tough to China to revalue its Yuan and trying hard to get health care for a vast majority of uninsured, and on the other had we have the 3 idiots who are ready to bite the middle-class hand which has been feeding it over the past 40 years.

A finance minister is known by how well he manages inflation, interest rates and taxes. With Mr Mukerjee (Manmohan and Sonia included) this will be year which they will be remembered for and that too not very fondly.

29 comments:

Venkatesh Babu K R said...

Congress government is ruling this country like crazy that's all ...

Laaloo Prasad yadav said...

they r not crazy. when they can pay 1000 to 2000 Rs per vote during elections, they have to get the investment and profit in 5 years. This is simple business rule. Now tell me who is crazy. janta or sarkar...??
wake up India.

Anonymous said...

Problems for Real Estate Sector

1) Price Rise for Cement, Steel
2) Price Rise for Petrol, Diesel resulting in increased transportation costs
3) 10.3% Service Tax on the payments made for Under Construction flats. (Before the completion certificate of the Flat.)

All these factors would make Flats more and more costly and unaffordable for buyers.

Also, the RBI and Banks will not be able to continue restructuring the loans forever, which are given to Builders and Real Estate Companies.

Seeing this high unaffordability, Indian Real Estate would start crashing in coming months.

Buyers, do not buy and do not get trapped.

SabbalSeshu said...

There is no doubt that real estate prices are going to rise and I'm glad that all of you agree with this.
Many of you are hoping that the affordability factor will make the prices crash thus leading to the burst of imaginary real estate bubble. Most of the derivations of this imminent crash is based on the happening in developed economies where no one can fool the educated class. The difference between our country and others is that, such class comprises only 5% of the population and the rest couldn't care less a their last priority is makaan, roti & kapda being first.

Let us assume that average 2 b/r flat prices in bandra reach 20 cr. It is a large amount equivalent to 4million dollars. One can buy a mansion in america/europe with this money. But wait, the buyers are there plenty. You may not believe it, but there are more people who can afford these places than the rate builders can construct them. Therefore, the prices have been and will increase at a steady rate.

Those of you who are wise, please analyse the situation rationally and don't pay attention to the 'bubble' hype as there is no bubble.

This the the opporune time to buy. The longer you wait, the more pricey the apartments will become

SabbalSeshu said...

The real estate in India has not and will not depend on the mortgages and therefore the rise in interest rates, banks tightening their lending policies to employees of big firms etc has no affect on the market. There are plenty of moneyed people who don't need any assistance from banks when it comes to property. Those who is to bury gold or hoard cash are now investing in real estate. A guy buying an apartment for 1 cr and renting it out for rs 20000 per month may not make ant economic sense to you guys, but for him this is one of the way of keeping excess money than burying it. This is our tradition.

It is wise to make use of the current situation while you have access to loans if you dont have cash, and buy a place than wait for the imaginery bubble to burst

Jai Hind

Anonymous said...

Sussu,
You talk like Sussu.

You need to take lessons in economics 101. People like you are a burden on our country.

Jai Hind.

shailesh said...

You might have seen my previous post.

Frustrated buyers, Why not take some Action !!!

Let me see how many posters really take at least this minimum action. We all can complain, agree, fight BB and SS, but nothing will happen till someone points these issues, and take some action on it. Let me see how may do it.

Anonymous said...

prices cannot go up just because it has to go up. People will automatically move out the city.
There will be many new 2 tier - 3 tier cities built near the expensive cities.
Today Bandra Andheri area in Mumbai fetches huge value but back in 1970s it was not the case and only south mumbai was considered expensive.There was Jungle beyond Andheri.Cowboys lived in jingle supplying milk to the rest of Mumbai. No company had Head quarters/big offices in Bandra-Andheri belt. That lasted up to 1985-1990. Today it is one of the sought after area.
If I had money I would
invest in the surrounding area of any city instead buying 1 Cr flat and renting out for 20K / month.

Anonymous said...

throw the government out.

Anonymous said...

i like the word cowboys for the tabelas. jogeshwari used to be a huge tabela and even in midst of the city you will find tabelas. Those tabela owners now have banners saying "property of so and so".

Anonymous said...

On one had we have Obama fighting for the American middle class with tax cuts, increased unemployment benefit spending, curbs on foreign visas, .. and on the other he has got 3 idiots Tim Geithner (Link1 ), Lawrence Summers & Ben Bernanke (Link1 ,Link2 ).

Come March when the Fed stops buying the MBS ( Mortgage Backed Securities) and Home Buyer Tax credit programme expires , we will experience the second part of US Housing Bubble burst. The cascading affects will be felt across the globe.
'
In USA, the homeowners have become wise and they are just walking away from the "underwater" home. Around 24% homeowners owe more on their mortgage than the home's worth. This number will keep on increasing as the teaser rates Alt A, Option ARM set in. This once for all unmasks the lies being propagated by the media ( Economic times..bootlicker of Real Estate companies/Builders) that NRIs who have been whacked by the ballooning monthly mortgage payments are fool enough to invest in over-heated Indian property market


Housing Woes To Continue, More Losses Coming

24th Feb 2010

Home owners are increasingly walking away from their mortgages. Some can afford to make their payments; others are drowning in debt. But both groups are starting to realize it makes more sense to mail the house keys to their lenders than make payments on a house that's worth much less than the mortgage.

This week, real estate research firm First American CoreLogic reported that at the end of last year, more than 11.3 million, or 24 percent, of all homeowners with a mortgage owed more on their mortgage than their home is worth . The number of "underwater" homeowners is up six percent from Sept. 30.



This egregious drama is yet to be unfolded in India.

Anonymous said...

WInter Olympics:

What are those Olympic medals worth?

Once upon a time, a gold medal was gold, a silver metal was silver, and a bronze metal was, well, bronze.

* A gold medal contains 550 grams of silver and is layered with just 6
grams of gold.
* A silver medal has 509 grams of silver and about 41 grams of copper.
* The bronze medals contain about 450 grams of copper and 50 grams of mostly tin and zinc.

At current market prices, a gold medal is exchangeable for about $494, a silver for about $260, and a bronze for just $3.

Anonymous said...

Maybe by mid 2010, RE bubble may start unwinding in these countries:
--Australia
--India
--China
--Singapore
--Korea

And Greece will be bottom up by then with these countries in bad shape due to deficit:
--Spain
--Italy
--Ireland
--Portugal

With EU down, Euro would go down substantially in value. With RE down, most of Asian countries will see a slump, high unemployment and a long period of RE price drops which may last 3-4 years.

Buy or not buy is your decision. I'm keeping all my money cash and would wait for opportunities in a year or so. I still get more in savings than I would get in rent by buying an investment flat.

Buyers beware. Don't become a bali ka bakra.

Anonymous said...

I am searching for a rental house/flat in a central location in Bangalore. Not a single house impressed me from all aspects and most of them are pathetic. This is despite my budget being the max that this particular demands. I wonder what made the owner buy these in first place.

Bangalorean said...

@Anonymous 4:24,

Bangalore has many ethnic enclaves and the quality of homes and surroundings depend on who lives in that particular area. If you are serious about decent housing, you should look in the cantonment area. Central areas are inhabited by migrants from Tamilnadu/northies/gujratis etc whose last priority is hygiene and therefore even the posh places are not decent. I am a native Bangaloean and gave been witnessing the steady decay of my city

Anonymous said...

@ano above
Well said. That is exactly what I found during my search.Sometimes i wonder if i am living in karnataka. 95% of the owners i spoke to are outsiders. ( Mainly Tamilnadu and Kerala). And in some of the smaller apartment complexes, not a single kannadiga family is living.
I know that things are better in south bangalore areas like jayanagar etc. (I am not sure of quality of homes though). However these areas are ruled out due to some reasons.

Bangalorean said...

I was referring to north east areas of Bangalore where most native bangaloreans live. Southern areas are full of immigrants from taminadu/keral and rural karnataka

Anonymous said...

Friends,

Please think like Indians and not like Kannads or Tamils or Andhraites or North Indians or Gujjus or Punjabis etc.

If you stand united, India will remain undivided and strong against external forces like Pakistan or China.

Think big and on Global scale now. Indians should be free to go anywhere in India. Be it North or South. For hundreds of years Britishers ruled India based on this divide and rule policy. And before that Mughals ruled India for 6-700 years.

China is already wanting pieces of India like Sikkim and Arunachal. They took Tibet and India couldn't do anything.

So, put your energy and thinking in the proper direction against forces that are against united India. And forces within India that are making it weak.

Anonymous said...

California is almost bankrupt:

SACRAMENTO, Calif. — California has put the “for sale” sign on 11 state office buildings, including the San Francisco Civic Center and the Ronald Reagan State Building in Los Angeles, as a way to raise cash to shrink the budget deficit.

Los Angeles-based real estate firm CB Richard Ellis released a sales brochure Friday titled the “Golden State Portfolio” as part of its marketing strategy to lure potential buyers. Combined, the buildings have more than 7 million square feet of office space.

Anonymous said...

India is in such a massive bubble, so bad that once it unwinds even people in Chile(quaked Chile) will feel sorry for India.

Anonymous said...

@Anonymous Bozo 8.25am

To hell with your california, LA and the dollar store you run

We are discussing here about the indian real estate. We aren't interested in your california. If you have something positive to contribute, do so, otherwise take a walk

Anonymous said...

@Anonymous 7.38am

Dear friend,

we are concerned with our basic needs like a roof on our head & decent living. It is the govt.'s job to see that china doesn't split india into 100 pieces. The purpose of electing them is to safeguard the nation and run the country in an efficient manner. I am a kannadiga and i make no secret of my hatred towards people from north , east, west coming to my home state and destroying it. I can not bear to see bhayyas , biharis , bengalis urinating/defecating in public places, running criminal enterprises, indulging in prostitution etc. I agree that india is for everybody but I cant tolerate uncultured people coming in and making our life hell.

Every state has resources. If that state government is corrupt, it isn't our responsibility to look after the people from that state

Anonymous said...

Anon at 11:52:::

I guess it is important to know what is going in LA as it could very well be future for India.

US has already seen what India is seeing now like high commercial values for RE, high house values, high employment, high salaries etc. US saw a big jump in everything right from car sales to all durable goods and consumer goods during their property bubble from 2001-2007. In fact US didn't even have inflation and very low interest rates.

Now move to India, it is still in the phase what US say in 2006-7. Wait till India reaches the 2008 phase and then 2010 phase. The whole same story will be repeated in India.

SO, learn from mistakes of other countries. Don't be too optimistic on India's growth as it is solely based on steroids and not fundamentals.

Anonymous said...

Anon at 12:04 PM:

You elected Govt. but the Govt. is busy pleasing their friends to get re-elected. It is a catch 22 situation for them. They have to please all the lobbies that paid money during their campaign.

As far as National Security is concerned, all Indians have a role to play and by just saying that it is Govt.'s job, is not enough.

I know a lot of people from South and North both who don't stay clean and cause pollution. It is not good to classify them as Noth or South. It is the way India works: Chalta hai attitude.

You are Indian first and then from Karnataka. Your identity is Indian and that is what your passport would say. So get over your narrow thinking, and think like an Indian. In fact I would be happy as a kannada that so many smart people from different parts of India have come to Karnataka and put it on World map. I would be happy that all the IT boom has created so many jobs and business for the state. And high home values too.

Anonymous said...

I get the feeling that everyone is out to cut the golden goose and get the golden eggs! Cement companies hiked rates, steel rates are up, labor rates are up, govt. (both state and central) are raising all kinds of taxes and the Banks are also trying to squeeze maximum profits out of the RE sector.

When so many players are trying to cut the golden goose, then someone will succeed. RE will soon be dead! Just a matter of time...

Sachin said...

Indian infrastructure is compared to third world countries, but the real estate prices are compared to developed countries like Europe and US. What a Joke!!!!!

Anonymous said...

Problems for Real Estate Sector

1) Price Rise for Cement, Steel
2) Price Rise for Petrol, Diesel resulting in increased transportation costs
3) 10.3% Service Tax on the payments made for Under Construction flats. (Before the completion certificate of the Flat.)
4) Teaser Loan Interest Rates have started disappearing.

All these factors would make Flats more and more unaffordable for buyers.

Also, the RBI and Banks will not be able to continue restructuring the loans forever, which are given to Builders and Real Estate Companies.

Seeing this high unaffordability, Indian Real Estate would start crashing in coming months.

Buyers, do not buy and do not get trapped.

Anonymous said...

Almost every other weekend I receive many SMSes which beg the customers to attend some realty exhibition or realty expo.
Newspapers like TOI are printing paid news and acting like pimps for RE.

Due to recession, economic downturn, layoffs and job insecurity people are scared to purchase Flats because they are afraid of huge EMIs for 20 to 25 years.
Also, lot of RE projects are on hold or suspended.
This indicates that lot of flats and RE is not getting sold.

Indian Real Estate is also going to crash like US and Dubai Real Estate.

rajni sharma said...
This comment has been removed by the author.