Monday, April 26, 2010

Realty firms under scanner for slush funds

Just what the doctor ordered. An anema of of the entire money laundering system. Ironically DLF and others will have Modi to blame for all the attention. If the heat turns on, new funds will be very afraid to enter the market. Expect the bubble to pop in the foreseeable future.

Economic times reports

NEW DELHI: Major realty firms of the country are under the probe of enforcement agencies for alleged violation of FDI terms and use of slush funds worth several thousand crore brought in from certain tax havens.

While the Enforcement Directorate has carried out raids at premises of realty firm Emaar MGF for alleged violations of Foreign Exchange Management Act in the recent past, the latest to feel the ED heat was realty fund and developer IREO.

Sources said more number of firms are under the scanner and a detailed probe is underway. The Income Tax department has also conducted its operations and is now planning to delve deep into the tax statement of the realty firms.

When contacted, IREO had said "Some officials from the department of revenue have approached IREO for certain information and clarifications, which are being duly responded to. IREO remains committed to fully cooperate with the authorities, like always."

Incidentally, the moves come following a report prepared by an arm of the Revenue Department late last year, which identified the real estate market as the sector having the highest percentage of black money.

The most common violation that the investigating agencies have found in the realty sector is the alleged breach of Foreign Direct Investment terms.


They said many firms are believed to have diverted investments meant for the real estate sector to purchase agricultural land.

Under various agreements with the Foreign investment Promotion Board (FIPB), agricultural land is a sector barred for investment.

The searches that have been initiated now by the ED are the culmination of months of discreet probe into the real estate sector by various arms of the Revenue Department.

They said many of the funds are being brought in from tax havens like the Caymen Islands, Mauritius among others.

In some cases, the Directorate has learnt that certain realty firms had opened up multiple companies to acquire more land than the prescribed ceiling and had even made their low level employees as its Directors without their knowledge.

37 comments:

Anonymous said...

Surging flows of capital from the west into emerging economies threaten asset-price bubbles that could trigger a new phase to the global financial crisis, one of the UK's leading banks said today.

Economists at Standard Chartered warned that urgent action was needed to address the potentially destabilising impact of "hot money" attracted by stronger growth and higher interest rates.

"A problem is brewing across much of the emerging world," the bank said in a report. "A host of economies, both large and small, are on the receiving end of a surge of capital and liquidity flows."

Gerard Lyons, chief economist at Standard Chartered, said Asia was the main recipient of western capital, but there was also evidence of speculative activity in Latin America, Eastern Europe and Africa.

While emerging markets needed foreign direct investment to help them grow, Standard Chartered said the influx of hot money was a big worry. "Although hot money is regarded as temporary, it persists until the incentive to speculate is eliminated."

Lyons said emerging countries needed to learn lessons from the west and use a range of policy tools - including floating exchange rates, deepening and broadening financial markets, and selective use of capital controls - to prevent speculative flows destabilising their economies. Singapore, China and Hong Kong had already introduced policies aimed specifically at reining in booming property markets, and Lyons said macro-prudential measures were a vital part of the policy response.

Anonymous said...

By Fiona Chan

CHINA yesterday indicated it would take further steps to cool its red-hot housing market amid growing concerns over asset bubbles emerging in Asia.

Beijing will take a stricter view of whether home buyers are purchasing a second home, Reuters reported, citing the Shanghai Securities News

Anonymous said...

New Zealand should follow Australia's lead and tighten foreign investment rules around housing to make it more affordable for New Zealanders, the Green Party says.

Australia is re-introducing restrictions on foreign home ownership which mean foreign citizens need Foreign Investment Review Board permission to buy houses, and they have to sell them when they quit the country.

"Foreign investors have contributed to the speculative bubble in housing prices in Australia and New Zealand over the last five years," Green Party co-leader Russel Norman said.

"This has made housing expensive and inaccessible for ordinary New Zealanders."

Dr Norman warned investors would opt for New Zealand as a result of the restrictions.

"We need to tighten rules around housing and land in order to help make housing more affordable for New Zealand citizens and residents," he said.

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shailesh said...

Standard Chartered warns of bubble in emerging markets

shailesh said...

Taiwanese solution to soaring house prices: don't have kids

China, in the midst of a full-scale housing bubble, has now done so. After real estate sales revenue jumped 75 per cent in a year, its state council last week hit investors with tighter rules. Banks are now forbidden to lend investors more than 50 per cent of the sale price (in Australia, 100 per cent is common). Investors must now pay a premium of at least 10 per cent above the normal interest rate, while first home buyers receive a discount. New loans are banned to investors who already have one property. And there is talk of a tax on rental property ownership.

China's goal is to deflate the housing bubble before it bursts, derailing the world's economic locomotive. Wish them luck.

But Chinese buyers are looking abroad, and so are their neighbours. In a bookshop in Taipei a few days ago, amid all the books and journals in Chinese, I spotted an Australian magazine on the shelves: Australian Property Investor. Clearly, people in Taipei are buying Australian real estate.

But Taiwan itself is the best example of what can go wrong if governments let housing investors and market anarchy push prices out of ordinary people's reach, leaving young snails without shells.

Taiwan has become rich very fast, largely by inching its way into a central role in global IT and communications manufacturing. This year, the International Monetary Fund estimates, its GDP per head will overtake that of its one-time colonial master, Japan. Its economy is almost as big as Australia's, and growing twice as fast. Yet its new wealth shows only fleetingly amid the grimy, cramped apartments built in earlier, poorer times.

Taiwan is in the grip of a housing crisis worse than ours. It is a rich country, but wages and most prices are roughly half the levels here - because the government, like China's, holds down the exchange rate to keep its manufacturing globally competitive.

Yet while wages remain low, apartment prices in Taipei are close to those in Melbourne, particularly for anything modern.

SabbalSeshu said...

Don't up your hopes too high. It is a well known fact that the so called Enforcement Directorate is highly corrupt and is acting on the order of some vested interests. This is a wild witch hunt.The real estate players are interlinked with politicians, bureaucrats and the justice system. They all have a common goal, i.e to fill their pockets and make their relatives rich. They release some fake news item now and then just to calm our nerves.

Those of you talking about China, Australia, US and Europe are living in fools paradise. Inwardly all of you know that you are being fooled but do not want to come to terms with it.

Mumbai population is predicted to reach 35 million in 2030. that is an increase of 20 million from the existing. A fool can tell that real estate prices aren't going to come down when a city is experiencing such a great demand.

Don't pin your hopes on the false bubble, for there is none. The longer you wait, the dearer real estate will be.

BTW, some of you may start name calling after reading my bit of advice. It is OK with me if it calm your nerves down. I've witnessed the market upheavals and for sure predict where it is heading.

Anonymous said...

Sussuu...It's not that people are frustrated and therefore want to hurl invectives at you.

People want to curse you because you are what you..a low life who tries to make money by conning people. A gutter stream...

No frustration about the prices either! You say prices are going up. People here are yawning and watching their fingernails waiting for prices to fall..as sure as night follows day...prices will go up and prices will go down..

Anonymous said...

Out of 100 , 3 are yawning but balance 97 are buying

Anonymous said...

I agree with sabal regarding the population. How can Slumbai withstand another 20 million is my question. Already, 10 million dont have toilets and defecate in parks, road sides, railway tracks. what will happen when population reaches 35 million.

I guess that rich guys will have private militias to guard areas like bandra, malabar hill, colaba etc to prevent bhayys, ghatis etc frequenting these places, just like they have security at inorbil mall.

This scenario baffles me and though i was born and brought up in Slumbai, i am seriously considering selling off my place and moving to some places in Maharashtra that is not discovered by Biharis

Jai Maharashtra

Pravin K said...

If following is true, then city crime will be pervasive and you will need private militias to walk around - the safe city will be a thing of the past in the next 20 years.

Here is an excerpt from EquityMaster.com's 5 minute update newsletter -

"Here's a quiz: By 2030, Mumbai's GDP is expected to exceed that of Thailand and Hong Kong. Is that a good thing or bad? Bad, in our view. It indicates that India's economic growth is going to be extremely urban centric. In fact, as per a recent McKinsey report, Indian cities will expand massively. Urban population will surge by 74%. India will have 68 cities with a population of more than 1 m, 13 cities with more than 4 m people and 6 mega cities with populations of 10 m.

Cities will also create 70% of the new jobs. All this will put huge pressure on the infrastructure of cities. And India spends just US$ 17 per head on infrastructure in its cities. That's about 15% of what China spends. The report says we need US$ 2.24 trillion to build the city infrastructure. That's an incredible figure. Our track record at focused and sustained spending on infrastructure is rather weak. Hence, in our view, we must also find ways of spreading economic progress beyond the cities."

Anonymous said...

Very interesting. Construction of a multistory building in Mumbai takes around 3 years. Availability of space is also limited. The new dwellings may house another one million people in the coming 20 years. If the forecast stands true, most newcomers to the city will be living in makeshift zopdas, that means 19 millions will be living in zopdas+the existing 10 million slum dwellers.

I dont think private militias will be able to provide security unless they are armed with high tech weaponry. Who knows how many naxalites with weapons training will be living among the 29 million.

The future is scary!! If you have money, it is high time to move away from the city and settle down in some clean place

Anonymous said...

Portugal is next Greece now. Spain and Italy are next in Queue. It will be interesting to see soon China, India and Australia would be in the same category due to their massive debts.

Anonymous said...

@Anonymous 8:56 AM

Sorry to defer from your observations. I think the first will be Nepal followed by Mongolia, Germany, USA, Angola, Malaysia, Chile, Belize, Saudi Arabia, Qatar ,and then India. The massive debt will sink all these countries. The countries that are on progressive path are Zimbabwe, Pakistan, Rwanda, France and Monte negro.

Cheers buddy boy. Keep on monitoring the economic conditions

Anonymous said...

You think if US sinks and Europe sinks, CHina and India will do good? What world are you living in?

Anonymous said...

Anon at 10:44:::

Read the news. Portugal has already been downgraded and the world markets are down. Wait to see Sensex fall 400 points today.

Anonymous said...

EU is now printing 60Billion Euros to bailout Greece. This massive printing is resulting in dollar rise and otherwise dollar is not gaining. Next they will print money for Portugal. And next year for Greece and Portugal again alongwith Spain and Ireland.

Debt for Indian Companies who are borrowing like crazy by selling bonds is going to get more expensive till this issue is resolved.

Anonymous said...

Indians are borrowing like crazy from whom ? Do you know the number of '420' Indian companies that exist in Europe. Indians living here and NRI's are playing Andhar-Bahar game. Therefore, the debt crisis in Europe will have little effect on India

Don't worry about Standard and Poor's rating. Nothing is going to change here. Sensex may fall a bit as bums like you may start panic selling but will rise as the Indian economy is still potent.

Anonymous said...

Anon above:
The Indian banks raise money by selling bonds in the tune of 700-1500 million dollars. The black money component you are talking is not of this amount.

Moreover, all emerging markets including India have to fall this year drastically due to inflation. Govt. all across will raise rates aggresively.

Looks like you are heavily invested in India. Be careful as you can never imagine what is coming. Stay tuned for the truth to come out.

You should go and suggest the PM to open a new ministry: Ministry of Truth, otherwise the way it went up, it will fall faster than that.

Anonymous said...

"Indian economy is still potent"

The economy has massive inflows of foreign investment which can disappear anyday.This is happening in all countries and moreso than India. Look at CHina, Korea andBrazil, they all have more foreign investments than India and their economies are behaving similar. Secondly, if the economy is really "Potent", why doesn't the Govt. withdraw the stimulus. Why are the rates so low. And one thing people forget that more than half of India's GDP is housing related. Once that bubble bursts, see where the growth goes.

Anonymous said...

This is the kind of borrowing most Indian companies and banks are doing:

http://economictimes.indiatimes.com/news/news-by-industry/energy/power/PFC-to-mop-up-1-billion-via-overseas-borrowings/articleshow/5865744.cms

Anonymous said...

Once this massive borrowings come at a higher price or stops, many projects would be toast. FOreign investment fromstocks would disappear.

Or if India keeps borrowing, it may become another Greece.

Anonymous said...

@Anonymous Bhai,

Why do you draw parallel between India and other developed countries. Greece's gdp per capita is $30,000 in 2009 whereas ours was $3000.

The readers of this blog are interested in the real estate scenario . Some of our own people are responsible for the current situation. These people are our government. If the government curbs black money, i'm sure the situation will turn turtle.

A apartment which was costing 2000 per sq. ft in Bangalore, is now 6500 sq.ft . The builder wants 4000 per sq.ft in cash. Now tell me, in what way the international economics has effected this situation. The builder with the black money gathered , is going to deposit in dollars somewhere and play havoc here in the guise of NRI.

Corruption and black money are the factors that have led to the situation.

Anonymous said...

Read this from Moneylife - Property sales down by 25%-30% in five cities


http://www.suchetadalal.com/?id=458479de-9609-e57d-4bd82ebe1a15&base=sections&f

Anonymous said...

Wow, kudos to anon who mentioned about Portugal and Spain etc.

I just read that Spain also has been downgraded by S&P.

I think it would get really hard to get money from outside for Indian banks in the wake of these deficits in Europe. I hope India does not borrow too much that the ratings are downgraded by Moodys or S&P for India. If that happens, all the growth in India is toast. I hope the Govt. is careful.

Anonymous said...

Builders/bankers and other RE folks are mistaking the Govt. stimulus as growth for India and they have been increasing the prices thinking the market would double now.

Stimulus is not permanent and the prices have to fall, probably more than 50% in many parts of the country.

I'll wait to buy my second house for another 2-3 years now. I'm thinking of selling my current flat while the market is hot and stay cash. I've found one buyer who will pay all white as I don't like to deal in stolen money.

Anonymous said...

Next Shoe to drop is Ireland. Probably in a few days.

Anonymous said...

With all the mess happening in Euro and other currencies, Gold is going to go higher and higher.

Rahul Bajaj said...

LoL.

Indian Banks/Builders/ Business Guys don't know the problems!!!!!! and you anonymous guys Know it!!!!!!. Are you guys on some kind of drug that makes you Einstein. What a joke

You guys have so much bitterness towards India. I think you are all Pakistanis or muslims. Whatever it may be, you guys are street guys talking rubbish.

Anonymous said...

Bajaj,
Indian Banks/Builders/ Business Guys know the problems but they look at the short term gain and "ONLY THEIR GAIN", not for the country.

If you know the reality why don't you tell. With rampant corruption in India, looks like you are part of it.

Can't street guys talk and make sense? Or one needs to have an MBA to create a scam and then talk? You have a sick mind who cannot see the reality and can't think beyond yourself.

Anonymous said...

Debt to GDP Ratio:

Italy: 103%
France: 67%
Germany:63%
USA: 61%
India 82%
Japan: 170%
Russia: 7%
UK: 47%
Argentina: 51%
Canada: 62%

India is definitely in RED.

Anonymous said...

The budget deficit:
Iceland is 14.3%,
Greece 13.6%,
Spain 11.2%,
Portugal 9.4%
China 2.2%
India: 6.9%

Anonymous said...

Countries the world over sell bonds, which help cover the costs of things like social services and government workers’ pay. In developed countries, this debt is considered relatively safe because governments can raise taxes or fees to pay their debts. But government revenue has dropped sharply during the recession, and levying higher taxes risks further slowing the economy.

With European budget deficits worsening, investors are now worried that — like American homeowners who borrowed too much in the last decade — some countries may have a hard time paying off their debts.

Anonymous said...

In Thane, just on the outskirt of Mumbai, the rates per sq ft used to be 2500 to 3000 sq ft depending on the location in 2003-2004. On advice from some relatives, I refrained from booking a flat as I was told that the rates would go below Rs.2000 in year 2006 as the supply would exceed the demand. Like a fool, I waited continuing in my rented flat in Mulund.

Now Thane builders are asking Rs 9000- 10000 per sq ft which is way way behind my means. Also, no one wants to discuss anything before 50% of the total value is paid for which they issue a dozen fake receipts. In case I back out, I wont be able to recover the advance money legally. Only way of recovering is to approach D-court (Dawood court) or R court (Rajan court) for which they charge 40-50 % commission.

I doubt very much the prices will ever reduce. Only way the homes would be affordable will be govt paying the stamp paper value to the builders and then auctioning them. This too looks like a distant dream as builders are also part of corrupt network

Anonymous said...

One of my friends just booked a flat in Pune, Pimple saudagar in S3 the going price couple of months ago was around 3250-3300. But he got it for 2650, his loan getting disbursed tomorrow.

Has the fall started?

Anonymous said...

Anon at 6:29::

Don't lose hope. Things are bad but not that bad. Wait to buy. Keep renting as you will be better off financially.

In the meantime look for some land in suburbs and combine with some friends and build flats for all of you. All your money would be safe as you'll be paying yourself and bank loans would be all legal affair. No black money involved and no dealing with money recovery issues. Even if 4-6 friends combine, you could build double the number of flats.

Anonymous said...

I know about emaar offices raids in 2008. but i think that news never gets published. I know that emmar sold their prime offices in cash in which transaction is more than crores.but this news never been published. and Income tax dept is fully aware about that.

rajni sharma said...

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Nd one of your best post...Thanks
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