Tuesday, March 02, 2010

Builders cry foul play as Govt imposes service tax

Finally the builders are getting the short end of the stick, the same stick they have used when they hiked prices indiscriminately every week. The best line is from Niranjan Hiranandani who shedding crocodile tears for affordable housing.

"The budget proposals are death knell for the affordable housing in the country. If housing will be taxed so heavily, how can you expect us to build homes. There is no other option before us than going to the government and ask for roll back," said Niranjan Hiranandani, managing director of Hiranandani Constructions.

Now Mr Hiranandani has never built homes for the middle class and prices in Hiranandani Powai are upwards of 18,000 per sq ft. If they don't like the proposals I would urge all the builders to quit this business and leave it to the individuals to build their own houses

Withdraw move on service tax, say developers
Raghavendra Kamath / Mumbai February 28, 2010, :01 IST

Stung by new service tax proposals on property transactions, real estate bodies such as CREDAI (Confederation of Real Estate Developers Associations of India) and Maharashtra Chamber of Housing and Industry (MCHI) are planning to approach the finance ministry to seek a rollback of some of the proposals.

The government yesterday brought transactions such as leasing vacant land and commercial spaces, payment made to developers before the grant of completion certificate and imposing preferred location charges among others under service tax net.

The transactions now attract a service tax of 10.3 per cent. Developers complain that levying service tax on payments during construction will push up prices and reduce home sales.

The proposal, according to developers, could push up prices by 10 per cent in Tier-II and Tier-III towns and 0.5-4 per cent in big cities, which have higher land prices. Service tax is calculated on construction cost.

For instance, in South Mumbai, where apartments are priced at Rs 35,000 per square feet, the effective tax burden will be 0.5 per cent (10.3 per cent on construction cost Rs 2,000 per sq ft). A house of 1,000 sq ft will attract a tax of Rs 175,000.

But in Umargaon, which is around three-hour drive from Mumbai, where apartment prices are around Rs 1,200 per sq ft, the service tax burden will be 7.25 per cent (on construction cost of Rs 900 per sq ft).

Developers have already increased prices by 15-20 per cent in the last nine months as demand for homes pick up. This has resulted in demand tampering off in the last two months.

"Either prices have to correct now or developers have to pass on the burden to buyers. I think the second option is most likely to happen. If that happens, home sales will certainly go down," Krishnan, partner, real estate practice, Ernst & Young.

Adds Kumar Gera, chairman of CREDAI and Gera Developments: "It is a burden on buyers and not on developers. Anything that increases prices reduces affordability. If developers have margins, they will absorb it, otherwise they can\'t." "We will approach the government to reconsider the proposal."

Krishnan said that by levying new service tax, the government had sent out a signal to the developers to reduce prices and clear their inventory.

Developers said the increase in excise duty on cement and steel, the key ingredients in construction, is also likely to see increase in prices. Excise duty on cement and steel have gone up by 2 per cent. Cement prices are likely to go up by around Rs 8-10 a bag of 50 kg, while the prices of steel are likely to increase by around Rs 600 a tonne.

"The budget proposals are death knell for the affordable housing in the country. If housing will be taxed so heavily, how can you expect us to build homes. There is no other option before us than going to the government and ask for roll back," said Niranjan Hiranandani, managing director of Hiranandani Constructions.


Anonymous said...

Nice video of Gurgaon real estate. Video is 50 mins long.First half is to keep bulls happy and rest to keep bears happy. Watch last 20 minutes of the video.


Vik said...

thanks for the video. I will post it in the main page as the next post

Anonymous said...

the RE goose is being cut or rather pulled in multiple directions. It might get ripped pretty soon...

The only saviors seem to be the slum dwellers sussu bhai was peeing about!! LOL

Rushabh said...

the good thing about this tax is ,it will imposed only on those cases where the buyer is buying a under construction property and not ready to move property

Anonymous said...

Sussu Bhai and Sundaas Bhai calling up builders to extort money!

Anonymous said...

I dont see an immediate respite from the price increases. February which is considered as a slow month saw an increase in real estate prices by 5% in Pune and Mumbai. Housing has become unaffordable to the vast majority of people in these two metropolis. This leads us to belief that the government is hand in glove with the builders. 50% of people traveling abroad on tours are government employees. Those who is to drink dimplomat have switched over to chivas regal. class 4 employees are flocking the dance bars. This small percentage is holding us at ransom.

Anonymous said...

The cops use Bhai to extort money from the builders and it is shared equally. This is a big racket

Anonymous said...

Foreign funds sneak into property business
4 Mar 2010, 0045 hrs IST, Sugata Ghosh, ET Bureau


Anonymous said...

This is so fricking depressing that w e must leave india and say FUCKOFF BHARAT!

Anonymous said...


BY starting this blog you have only messed up a lot of peoples life's. WHAT DO YOU HAVE TO SAY?

Laaloo Prasad Yadav said...

@ 11:10 PM

tum goooo khate ho.. just by reading a blog u have messed up ur life. This blog is just to share ideas and opinions and discuss things. U should use ur brain (if it exists) while making ur decisions.

Anonymous said...

Anonymous 10.22p.m

I can understand your frustration. I'm also sailing in the same boat. Only hopes keep me going. I too wish i could migrate, but it has become extremely difficult unless you have relatives willing to sponsor you. I don't have any, so I have to keep on dreaming while corrupt people get all they want. So much for Bha.Rat

Anonymous said...

Ok, one of the predictions made in this post is finally coming true. The banks are raising rates!


Shantanu B. said...

Bloomberg: Mumbai’s First Land Sale in 18 Months Gets No Bids


Wonder why? Didn't see a mention of this on Advertimes of India. Did all the clowns engaged in the ponzi scheme for so many years just wake up and realize that commercial real estate can be purchased for a fraction in the United States or other Western Nations?? It has always boggled my mind as to how businesses in India can overpay for real estate to such an extent (compared to the rest of the world) and still make money. All under the feeble excuse that India is on a tear-away growth trajectory. Abbey Dhakkans - India's GDP has to grow by 20% Y-o-Y to justify these outrageous valuations. House of Cards??

Anonymous said...

Builders are crying foul over service tax. It is only a very minor factor and very insignificant.

The major factor responsible for the unaffordability is the RE prices and the RE bubble.
These prices only will bring downfall of RE.

Shrini said...

FTW to the people abusing here and also those who blame Vik for ruining lives. Duh. I am a reader of this blog for 3+ years and still I bought my home when I saw a fool proof deal. We also have concluded that the Mumbai bubble is still hard to burst. However Delhi will see fizz run out after the Commonwealth games 2010.

In tier 2 cities its been time to buy since January 2009. If European market crashes again, I am sure US$ becomes the last safe resort which helps indians companies earning in $ and those here.

I think Congress Govt stands for High taxes and Big governement schemes - the opposition (notable BJP) should take the Republican party approach of Low Taxes, Free markets and Small Govt.
Among all the ills in India, taxation is highway robbery as those taxes end up in Swiss banks of politicians.

NREG not only started 20% inflation (as labor cost tripled overnight), it also helped Congress politicians build personal estates from free Govt labor.
All the people in India deserve this as they voted in MMS in spite of poor record and weak stand on terror. (unless of course the EVMs were rigged by Chawla and co for helping madam and chacha MMS)

Anonymous said...

I really wonder how many people will come to this blog after the RE market crashes and thank Vik and other posters here for saving their backsides!!!

Might not be a lot but there should be quite a few...

Inqilab said...

Except for few, the rest are basing their real estate assumptions on first world economies. I wish that similar things could happen here, but the fact is that they will not. All the hype about 10% growth doesn't consider 10% of population sliding into extreme poverty and hunger. Corrupt people rule the roost and the shelter less and hungry flex their muscle proudly boasting that their country is an emerging super power.

The only solution to this problem is to fight against injustice and nepotism. We do not want a super powe status. What we need is food ,shelter and a life of dignity. I have noted discussion about Bhais and how they extort money. These guys have realized that the path they are following is the right one and they aren't ashamed to take their cut by force. They consider white collar criminals are just like them and don't see extortion is a crime.

You may feel helpless but you can always support morally the people fighting injustice

Anonymous said...

Bandra Bunder here
Vik is right Prices are crashed ,in fact my previous owner returned me 6 lacks out of my 58 lacks as priceshae been crashed in Pali Hill!!!(Alongwith his filmstar mistress for some days "use"!!!

Inquilab said...

Please read:


JaiKrishna said...

6 lacks with film star mistress!!!!!!

You must have tried blow-job just like the swamiji nithyananda from bangalore. If you don't mind, please let us hear about your experience

Vik said...

Guys, My goal is to encourage debate on housing prices vis-a-vis the Indian economy and evaluate the potential. For many like me, I have no black money and I cannot afford to buy in Mumbai but I always find that many other cities are very inexpensive and provide value. Again there are areas in different cities which will be pricey but there are always some locations which provide value. A few days ago a friend of mine told me that his 35L apt in New Mumbai is worth 85L. This is for a location with no infrastructure and would take him 4 hours to commute every day. I told him that its best to sell it and buy 2 apts in Pune. Sooner or latet this 85L bubble will burst. In Pune one can easily get a 3 bed for under 50L with a 30-45 minute commute to work. I don't think anyone can enjoy any benefits of Mumbai when one spends 4 hours in commute. So whatosever attraction one has about Mumbai it is best to forget it. Those are to be enjoyed by the liks of SRK, Priety Zinta and Tendulkar. The rest of the folks are destined to suffer long commutes with zero life, unless you are originally from Mumbai and hold property in the right locations. For outsiders, there is no benefit at all.

Anonymous said...

Vik, What do you think about Bangalore?


Anonymous said...

Bangalore is in massive bubble.
50% haircut guaranteed in many parts of Bangalore.

Anonymous said...

The banksters have rescued their Real Estate Friends via Teaser Rate Home Loans trick and suckered in gullible home buyers. Now they have started hiking the home loan interest rates HDFC Bank, ICICI, Kotak hike rates for home, car loans
Please stay away from this game and save your precious money.

Risky Business: Are Teaser Rates for Home Loans Pushing Real Estate to the Edge?

Despite the insistence of the banks that they check on borrowers' ability to repay, one key issue is how much they are paying for the home in the first place. At the height of the boom two years ago, a mid-market apartment in Mumbai had a price tag of $200,000. This tumbled to $100,000 (in some cases). Buyers who had $170,000 in bank loans suddenly found themselves with a lot of negative equity. For the banks, they would be making significant losses even if they were able to seize the property and sell it off.

Another issue most borrowers don't realize is that most loans have a Depreciation of Security clause. A buyer is expected to contribute 15% of the cost of the house or apartment -- $30,000 in the example given. If the price falls to $100,000, the bank will still finance only 85% of the current cost -- $85,000. The borrower will have to pay the shortfall ($85,000) to avoid being labelled a defaulter. (In loans where shares are pledged as collateral, this has happened very often. Banks ask borrowers to top up their securities when prices fall. If they fail to do so, they sell the shares.)

So why are banks offering teaser rates? The reason is they make money through lending, and today there are limited takers. Banks have too much money sloshing around in their coffers. According to RBI data, by November 20, 2009, personal loans were up a meager 0.7% for the year. Advances against fixed deposits were down 11.80%; on credit cards they were down 24.70%, and on consumer durables down 11.80%. The saving grace was education, where loans went up 31%, and housing, where loans increased by 7.30%.

The increase in housing loans was essentially the effect of teaser rates, without which mortgage lending might have declined. Loans to the real estate sector were up 15.30%. This looks fine until compared with the 49% growth of the previous period.

Anonymous said...


What are your views on the Chennai real estate scene. You think there is a bubble there ? which are the areas in Chennai to watch out for.


Vik said...

My premise is that working professionals with dual income can afford something in the range of 40-60L apts/houses majority of which could be financed by banks if so needed. In bangalore and chennai these prices will buy u something in the outskirts, but those outskirts anyway are now housing leading employers. I think the key to apt is a quality builder since that matters most. For plots gated communities work best. My bet is that plots in Chennai in 4km vicinity of Mahindra World City (GST) provides the best investment in Chennai with a time horizon of 5-7 years. OMR near the sea is good but i think pricey so unless one is planning to work/live there it doesn't make sense to buy.

Anonymous said...

Guys in US are sadly screwed. The money is moving from West to the east. This is the paradigm shift which is happening. No point in comparing US with Inida. I totally agree with the bulls that prices will further go up.

Anonymous said...


Its good to be so confident. Usually when shit hits people like you, you will learn new lessons...

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 and sending such SMSes.

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.

Anonymous said...

@Anonymous 5.49am

Dear Friend,

your internet habits are studied by it companies and you start getting emails on subjects that you are interested in. Some companies trace you with the help of internet service providers and you start getting emails and maybe SMS messages if they are able trace you to your mobile. This is nothing new. I wouldn't arrive at conclusions from this. Most emails are generated by robots and there is little we can do to curtail this.

Real Estate companies are paying some IT companies to bombard you with soliciting emails and SMSs.

Anonymous said...

The ground situation in Mumbai

1. The builder or his management staff don't even want to talk to you lest negotiate, unless they are assured by someone known to him/them vouches that you have black cash to pay upfront. This applies to ready to occupy apartments

2. Black portion currently is 40% of the total

3. Builders are only interested in black money. Once they get this, they don't care about the rest.

4. Bank officials are in the payroll of builders. If you have a close relative banker, builders waive the black portion of the money. I'm not sure how the arrangement works out. This is only hearsay

Anonymous said...

sounds like builders are engaged in propaganda war...more sundaas and susuu's...

for me all this is hilarious...jokers thinking they have brains and everyone else are fools...while reality is that they are sundaas and susuu's...

Anonymous said...


Teri maa ka chut, abe band kar Sundas aur susu. Chutiya kuch kaam ka lekh.

Serious reader

kanekar said...

Realty and Reality, both bite. Few of the bloggers here make sense, and they are abused as it goes against someones perception and daydreams.
Anonymous 6.36 pm has stated the factual. As a home hunter in Mumbai, I've experienced most of what he said. Being treated like a untouchable by some high profile builders who have a uncanny ability to smell money, I'm left frustrated. It is all 'Black, Black, Black everywhere. I don't have black money to pay them though i earn quite well. As vik suggested, I've decided to move out of Slumbai and have been exploring alternatives

shailesh said...

Maha Chief Post-Master General held for taking Rs 2cr bribe

Manjit Singh Bali, a 1978 batch officer of the Indian Postal Services, was caught yesterday by the sleuths of the Anti Corruption Bureau of the CBI while allegedly accepting the bribe amount.

The CBI has recovered a sum of Rs 34 lakh, USD 10722, 3050 UK Pounds and 3470 Euro from his South Mumbai residence.

Bali, who is one of the senior-most officers in the postal department across the country, had demanded the bribe to issue a NOC for the development of land at Mira Bhayendar in Thane district.

"The 2000 sq mt land is owned by a private builder who had agreed to allot 25 per cent of the land for the construction of a post office. This, however, required a NOC from the postal department," CBI Joint Director (Western Region) Rishiraj Singh told reporters.

Vik said...

I would say look at Pune before those builders get the whiff of black money. For a loan borrower, black money makes no sense and it is best to buy where you can afford payments. When the black market crashes, nobody will come to help since by definition black equals illegal/tax evaded.

Anonymous said...

Builders are out to make the quick last minute buck!!

If you give them money in cash/black..there's no receipt and no way to trace them..which means when they run away, you can't turn to anyone!!! God help you if you go the black money route...

Anonymous said...

ICICI bank shitting bricks now! Is it a sign of impending collapse?

Laloo Prasad Yadav said...

Thanks to cong govt. The raise of duty on gold, silver would discourage inverters to invest in gold. And that money would flow to real estate.

i am sure, that it is builders lobby that is behind this raise of duty on gold, silver.

As long as Congress is in power, they will do any thing to keep the home prices going up...

Anonymous said...

'Vik' seems to be paid broker of Pune Real Estate. In all his posts he is trying to create an impression that Pune RE is cheaper than Mumbai RE and misguiding (or should I say trapping) the buyers to buy RE in Pune.

Buyers, its in your control. Just don't buy and prices will crash.

Vik said...

I like Pune, Bangalore and Chennai since they provide value and I don't need to pay any black money to buy. Assuming I paid 40% black and took a 60% loan, the black component is not known to the bank. To them the 1cr apt is worth 60L. If the market corrects by 20%, they will ask me to cover by 12L however I would've lost 20L in value. My goal is never to deter buyers but to ask questions and negotiate the best deal. the unfortunate aspect is that prices are driven by black money and a salaried person falls prey to it, he will be servicing the loan for the rest of his life

Dexter said...


You are terribly wrong for focusing on black money. I think someone having black money does not make them economic-smart. Short term crack boom is possible and ultimately it has to crack.

At current prices, I am happy living liability free by just renting and keeping my personal belong to a level that is sustainable. With own house wife and children will just fill it up with stuff which I personal consider liability.

House has big negatives for me right now at age 30.

Moving flexibility is paramount to me. Financially tied to a house is a losing decision at current prices and house are not liquid at this price (it will take good 12-18 months if you are not willing to reduce price to a level which is hot).

House is an asset, but so are bonds, stocks and saving in bank.

I don't want 100% of my asset to be house. 25% is ok; but the situation right now is that if I buy a house then 500-800% of my net-worth will in housing. Which is highly SPECULATIVE decision. My networth will be wiped out in one bad year.

So I will continue to diversify. Negotiated with landlord a 5 year deal with 1L security deposit such that I will pay almost constant rent of 15k per month for 5 years and then lumpsum 1L at the end of 4th year.

Not a bad deal.

5 year = 9L + 1L = 10L

the same house if I buy today it is 75L.

interest payment alone for next 5 year for home loan = 75L@10% = 38L
+ electical+paint and extra expenses = 5L.

My landlord is probably making a losing transaction. It would be best for him to sell now and get cash. As a rental I paying 2.5K more than current market price, but then getting a good stable deal for 5 years.

Personally I think I will ahead of the game at the end of 5th year, even if house price are high. I might as well take advantage of my move-ability then to move to a better place and not chain tied to my house.

I have my bases covered, would suggest every one to wake up and not speculate with future of your family at stake.

Anonymous said...

You are the man. Most RE investors are buying because of appreciation. Once the sentiment goes opposite and people lose confidence that RE cannot go up forever, the prices will start going down the way they went up.

50% correction guaranteed.

Anonymous said...

Dextar ?
are you from mumbai??

Which landlord is allowing you renting for 5 years??Pls let us know? :))

Anonymous said...

Dextar...Landlord hain ki Lundlord? Kya blowjob deke 5 saal ke liye pataya kya??

Ya apni bibi ka sauda kiya??

Anonymous said...

Vik said...
I like Pune, Bangalore and Chennai since they provide value and I don't need to pay any black money to buy

Are you serious? Do you think Pune provides value? And there is no black money? How long it was that I read the stories
about resident taking morcha for unfinished works? When did I read that the builders canceled bookings
when the prices rose?

Do you live there? To my mind, Pune is the most horribly expensive city, it is unreasonably expensive for what it offers in terms of infrastructure and quality of life.
It is thousand times more expensive in what offers in terms of quality, sizing of the apartments.

I assume that you have not lived in Pune, and do not have any first hand experience. If you happen to visit Pune, pay close attention to all the resident buildings constructions, you would find zig-zag marks on almost all the
buildings older or newer equally. Do you what this funny zig-zag marks are? Those are patches to cover cracks in
the wall. Ask any broker/bulder, he would tell you this "Pune weather is extreme, its hot in day and at night its terribly
code, so the walls crack" Makes you wonder what is more pathetic..

What does Pune offer? A rude attitude, a self proclaimed oxford of east. Narrow roads and mindless traffic.idiots...

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