Monday, November 08, 2010

RBI tightes home loan norms


shailesh said...

New nomenclature for super-built area

MUMBAI: The super-built area is now being given a new nomenclature ___ usable area. While earlier super-built up actually resulted in a diminished carpet area, the two are now being actively shown separately by builders.

Carpet area is now confined to the four walls of the house or habitable area. Everything outside the home now constitutes super-built up including the balcony, terrace deck, passageway, flower beds, lift area, entrance lobby, club-house and in some cases even open spaces.

The space that constitutes super-built or usable area is also increasing. Till recently super-built up was in the range of 40-50%. It has now increased to as high as 60-80%. The trend has been set in the mill area where over 5,000 super-luxury flats are under construction.

Asked about Lodha's charging 80% of the carpet area as super-built up for their World Crest project at Worli, Abhisheck Lodha, Managing Director Lodha Builders, strongly denied it saying, "We charge only on the height of the building and it is between 24-31%. the maximum we have charged is 32% for Bellissimo,'' he said. Ali Lokhandwala, director Lokhandwala Infrastructure, who too is said to charge 80% of the carpet area as super-built up said his company did not charge more than 25% of the carpet area as usable area.

shailesh said...

The rise, fall and rise of affordable housing

Anuj Puri, chairman and country head, Jones Lang LaSalle India, said, "When the downturn happened, affordable housing had become the most saleable product rather than luxury or premium segment. Therefore, every developer wanted to focus on affordable housing at that time. However now the demand is coming back in luxury and premium segment, developers who were most comfortable in such projects are making a comeback, as it gives better margins compared with affordable housing."

Nevertheless, there is still hope for affordable housing and all may not be lost. Some developers such as Tata Housing and Puravankara have stuck to their plans of producing affordable housing. Besides, new and existing developers such as Jerry Rao, focussing exclusively on affordable housing, have shown that by following a few methods, one can profit from these projects too.

Mr Vakil said, "There is a very good future to affordable housing provided the government takes it up seriously. There are four components to delivering low-cost affordable housing. Land, construction cost, technology and interest. If you take care of all these four, then you can come up with affordable housing."

shailesh said...

"We were looked upon with contempt whenever we went to Mantralaya for housing rights for slumdwellers. Chavan would not spare even two minutes for us," Patkar said.

She said that the Urban Land Ceiling Act had been repealed depite the fact that a handful of people own 30,000 acres in Mumbai. "Can't the government acquire a fraction of this land to house the poor?," she asked.

"When slum dwellers living by the sea are evicted because they are in the coastal regulation zone, how come Adarsh housing society was permitted in the same zone?," Medha said, adding that the law was used only to deprive the poor of their basic right to housing.

She wondered how the army was to defend the country when it could not protect its own land. "Let the army also probe how a private builder gobbled up their land in Golibar in Santa Cruz (E)?," she said.

"If roadside hawkers are called encroachers, what do you call officials who reduced a 60-metre road to 18 metres to facilitate Adarsh housing society?," she said.

Read more: The poor have cursed Chavan, says Medha Patkar - The Times of India

Anonymous said...

Teaser rates cannot be continued ad nauseum. It would not make business sense!

The right way would be to use teaser rates for 3-4 years to build you mortgage portfolio and then up the interest rates. So at some point, this house of cards has to reach a tipping point..

One suggestion - can we create a list of these unscrupulous builders? (almost all of them are crooked...) but can we build a list and a rating that people can come over to this blog and rate, compare builders before making choices?

Desi Batman said...

Forget teaser rate, law should go after black money and strength the 'true carpet' mentioned by seller rather anyone quoting as it feels on build up area.

These alone should bring corrections in RE market.

What is amount of loans people take on home loans? My guess is average 10 to 20 lacs max - that's it. Well in Mumbai one buy only bathroom for that price. So where is rest of money coming from, how is it paid? Income Tax and law officers may be are busy counting their share.

Raj said...

I think the current tax rules make the tax evasion easy and tempting. Both the buyer and seller have incentives to under report the sale price. The buyer would like to under report in order to pay lower property tax. The seller is motivated to lower the sale price to reduce his capital gains.

This assumes that both buyer and seller are reasonably law abiding and will cheat only at the margins.

The tax rules do not create the classic prisoner's dilemma. If we remove the property tax (or make it independent of the sale price), it will create a natural tug between buyer and seller. The buyer will be motivated to reduce future capital gains and seller to reduce current capital gains. The invisible hand will force them to report correct price. This will not only remove the so-called investor from real estate but also reduce black money.

Alas - the government is not interested in either.

Anonymous said...

Raj: the government is interested in property tax.

shailesh said...

RBI to raise rates by 75 bps in 2011: Deutsche

MUMBAI: The central bank is likely to resume its rate tightening cycle in January and raise key interest rates by another 75 basis points in 2011, Deutsche Bank said in a note this week.

The Reserve Bank of India (RBI) has raised rates by 150 basis points in six moves since mid-March, with its latest move earlier this month, to try to tame stubbornly high inflation but said there was little chance of another increase in the near term.

Taimur Baig and Kaushik Das, economists at Deutsche Bank, wrote in the note that even if inflation heads below the RBI's target of 6 per cent by March, the risks to inflation are likely to be tilted towards the upside.

Raj said...

Samix: Sorry. I should have been clear.

I meant that Govt is neither interested in curbing the speculative excess in RE nor taking out black money in RE.

Anonymous said...

150 bps is 1.5%. In 6 easy moves means that RBI is barely nibbling at the scourge of inflation.

Congress jokers have been stoking inflation and MMS has gone on record saying that we should continue the policy of QE. MMS is scared of deflation and desires inflation.

These jokers want to be seen as doing something as opposed to be doing something. I am afraid, only runaway inflation and people rising up to scream murder is going to change things...else Indians are headed to hellsville.

Desi Batman said...

Anon above:

Have you been resturants, car's showroom, jewelery shop, cinema theaters, malls, etc ?

I see no sign of inflation or anything that is pinching people, then why should MMS be worried. GOI feels there is more room for creating inflation. RBI is doing something to help bankers get little more money but at same time not to touch inflation.

India is heaven for western countries. India today is place of consumers. It is place with people with lots of disposable income.

Anonymous said...


I agree with you. But break up the population of India into -
Middle Class,
Lower Middle Class

Rich and middle class might comprise 15% of the population. Which means say 150 million consumers and mainly in cities. So you might see restaurants and cinema's etc as full of people. But on the other hand about 800 million people earn hardly anything. For these people the prices of everything seems to be running in a day to day basis.

So is there inflation? Yes! Are people feeling it? extremely so!

Anonymous said...

Anon above:
This is I would classify:
Upper Middle Class
Middle Class

And the Rich plus Upper middle class is not more than 5% of the population. Middle class is fast approaching to become poor class. Thanks to monetary policy of MMS and Montek Singh. Upper Middle Class now comprises of people who are in decent jobs earning 8-10lacs and above.

Desi Batman said...

Hmm... Many so called poors (e.g. maids, auto drivers, etc) working in Mumbai have marble flooring in their house(s), have mobile phone(s), they have good amount of jewellery that would put 'middle-class' population to shame. what they don't have is cars... but hey now they have option - 'Nano'.

Poor in India are born poor. These poor have been always poor with or without inflation. So I count these out. Inflation doesn't impact lifestyle of these bottomed out population.

Let's talk about middle class which makes huge population. Are they really getting pinch of inflation. Again look around you to know more.

Anonymous said...


I have seen similar "affluence" and consumption in US economy in 2006 and 2007.

Debt fueled consumption and spending is easy. Indian middle class is rapidly converting to EMI slaves. Its colonialism all over again.

In history there have been 2 categories of people -
1. The people who save, live far below their means and grow prosperous. These people then become businessmen and/or money lenders..
2. The people who borrow and live on debt. These people are people who do not think. They borrow, mortgage and end up in a mess. Barely save, earn less, but need to keep up with "society" or borrow for their honor...and other such stupid things.

If the entire middle class has started flashing their credit cards and buying their houses on can see where they will end up in the future.

When everyone is buying, prices will shoot up and inflation will be present. Now, whether you want to be sensible at that time and buy sensibly or justify saying since everyone is buying let me also spend beyond my means is a decision for you to make.

As far as I am concerned, even If I have tons of money, I will still make the purchase only when the price is reasonable. Other times, just sit patiently and watch what is happening..

Desi Batman said...

Are you implying that loans / credit cards play a big part in transactions in India today? Really?

RE sold has 30 to 50% black money paid upfront. From the pending 30 to 40% is paid in white. that leaves only 25% of total loan (if any) from Banks.

Gurus on these forums can give their feedbak on the the average amount of loan taken for the big item ticket RE purchased.

ALL of my friends, families, reliatives, I know of are not using their credit cards... heck, they don't have credit cards.

shailesh said...

Desi Batman: The whole RE boom has not happened due to one factor. There are many factors at play,

1. In last 10 years large amount credit has been made available to middle class, which was never the case before. This is not going away, since Indian banks are not in bad situation and they only lend in most cases upto 50% to 75%.

2. The salary increases especially in IT have been much more than anytime in history. Also in IT, you have folks doing on-site assignments bringing in large cash. That gives down payment for many.

3. The supply of housing does not come up fast in India. Urban infrastructure is in doldrums. Politicians are in bed with builders. Hence supply does not come up quickly to meet demand. This creates shortage.

4. People's expectations have gone up significantly. Just 10 years ago, in Mumbai everyone was happy in 1BHK flats, and now everyone wants 2BHK to 3BHK.

Even if this factors are applicable for only 2% to 5% of population, it is large enough to start boom. The issue now is Boom has turned into Bubble and greed of builders have turned into self fulfilling prophesy.

Until Government solves Infrastructure issues, I don't see major corrections coming soon.

Desi Batman said...


Until Government solves Infrastructure issues, I don't see major corrections coming soon.

So what is your best analysis and guess? No correction in RE prices i.e. prices of RE will go further upward - from 1.5 crores to 2+ crores for 2BHK in Mumbai ?

Even if there is no correction with no growth in RE prices that itself is correction!

What are the fundamentals to support 2 crores houses?

Anonymous said...

Mumbai Shining!

Project : Orchid Paradise
Location : Bandra(East) (Near MIG Club)
Completion : January 2015
Unit Size : 4.5 BHK (4050 sqft)
FLOOR Rise => Rs 108 per sqft
Car Parking => 15 Lakh
Project is in pre-lanuch phase.
EXCLUSIVE pre-launch price Rs 25,000 per sqft.

I am just wondering why dont we start quoting prices in dollars,
$2.5 Million seems easier ON eyes than Rs 10 cr.

jai ho!

Anonymous said...

I think all the BRIC countries and in fact the whole world is screwed. See what Brazil's Lula says: One thing he says is right that US is the biggest consumer.

SEOUL (AFP)–Brazilian President Luiz Inacio Lula da Silva said Thursday the world economy is headed for “bankruptcy” unless rich nations raise consumer demand rather than relying on exports to power recovery.

“If they don’t consume, and they just bet on exports, the world will go into bankruptcy,” he said.

Anonymous said...

How would BRIC countries export when Obama goes to them begging for jobs and that Americans can't consume anymore...Party is over in BRICs

Anonymous said...

builders are not reducing prices because they have made fortunes in last 5 years.

Even if project is sold out 40% they can still hold prices for 2-3 years because their cost of construction is out when 20% flats are sold out. They acquired lands in pennies and now they are making fortunes. Example is Hiranandani Estate, Thane, we bought whole lands for few car ores in 1990's and now 1 flat cost 1cr+ in this location. 75% of mumbai lands is owned by such big builders hence they are able to keep consumer hostage.

Housing prices are not going to correct any time sooner, however as some one said, No increase in prices for 3 years is correction in itself.

Hence, investors and renters STAY AWAY from investing in housing.


Sumali said...

very good communication...very interesting blog

Anonymous said...

DB@8:21 AM

There is a truism which had an a-ha impact me quite a while back. When we generalize, we need to think in terms of sample sizes..

A sample size of family and friends is not a statistically relevant sample size. You need to look at what's happening out in the malls and restaurants and the mortgage market.

If you open up the income statement of any bank and see their interest income over the last 5 year, you will notice that income interest has grown by about 350 - 500% over the last 5 years!!! What does that tell you? It says that people are out there with debt and paying too much interest. This is the case when interest rates are low...imagine what happens when interest rates are raised (much more than 150 bps)!! people will be jumping off the balconies...

I called it EMI slavery and I saw something recently which helps to visalize this.

Vizualizing how the things you own end up owning you!

Can you imagine that most folks in India might be barely 2 or 3 days in black and in the case of interest rate change how they will be in the red! Which then becomes a downward spiral...I foresee this happening within the next 5 years. Especially if there is a global crisis again and we face hyper inflation.

Its either people jumping from their "luxury" houses and/or banks closing down in a wave of defaults.

Anonymous said...

By the way Desi Batman, Indians are a financially prudent lot and being in debt and using a lot of credit card is harmful to an Indian's social standing, they will be jeered at and laughed at.

Thus, My personal opinion is that people in India will always lie and hide their debts and their credit card spending sprees.

shailesh said...

This is crazy funny. It would be tough to find any politician who has not used their connection to obtain land or house. With prices in Mumbai in stratosphere, there is huge incentive to use connections to get hold of some golden eggs.

Prithviraj Chavan Got Rs 40 Lakh Flat For Peanuts Under CM's Poor Quota

Anonymous said...

shailesh said...

Builders face cancellations as 10:90 loans dry up

The 10:90 bubble’s going phut, contrary to the view of developers who were convinced that the innovation was a perpetual goldmine.

The scheme, under which a real estate buyer paid only 10% of the property cost at the time of booking and 90% at the time of possession, was the buzz during the festival season.

The problem with the 10-90 scheme is also that developers agree to pay interest only till the construction is completed. A buyer, on the other hand, gets possession only after the civic authorities give the occupancy certificate, pointed out an analyst with a foreign real estate consultancy.

“So you have this one-year gap because OCs normally take that much time after the construction is complete. That would mean buyers will have to foot the interest bill for the period.”

“If the developer is selling property claiming it would undertake interest subvention for that period, then the buyer should ensure that mentioned clearly in the agreement,” the aforesaid consultant said.

shailesh said...

High realty prices spell dim Diwali for city’s homebuyers

The sharply rising prices of property have dampened the Diwali mood for homebuyers in the city. Diwali, considered an auspicious period in the Hindu calendar, usually sees people rushing to buy property and gold to celebrate the festival of lights. However, this year, the situation seems gloomy
and homebuyers seem unable to honour tradition. “People have no incentive to buy in the current scenario as realty rates are very high,” said Pranab Dutta, vice chairman and managing director, Knight Frank India Limited, a leading real estate consultancy company. “Homebuyers are waiting for prices to come down,” he added

Prick said...

Prices will correct for sure - we all know that. However, correction can come for two different reasons.

A quick steep correction can come because of some catastrophic event. That will we bad for all of us trust me. We have already seen that in 2008. People will lose jobs, banks will hold credit and there will be mayhem in all asset markets.

The second reason could be the natural progression of things. I see current state of RE market like the early telecom market where bulky cell phones sold for 50K and call rates for incoming/outgoing were 20/18 Rs per minute. If people wanted to buy those phones and call plans at that time and they could afford it, would you call them stupid? But ultimately the telecom companies had to slash call rates and equipment price had to fall for the market to grow. That is the natural progression of things and that will happen in RE too. However, it took 10-15 years to happen for telecom and it may take the same for RE.

If you are expecting the quick short correction then keep your cash handy. If you believe in scenario 2 then have patience for a few years. Trust me bank and builders want you to buy and they will offer you what you can buy.

shailesh said...

So what is your best analysis and guess? No correction in RE prices i.e. prices of RE will go further upward - from 1.5 crores to 2+ crores for 2BHK in Mumbai ?

My observation were not Mumbai specific. Mumbai has huge speculation going on. So, I would not recommend purchase in Mumbai. I am myself waiting for correction. Mumbai has history of bubble and bust.

Personally I have no hope for Mumbai. Even bubble bust, the quality of living has gone down so much, its not worth it. I know for folks who grew up or lived in Mumbai for many years, it is difficult to consider other areas. But once you move out to better options, one will realize why it is much better to not live in mumbai and pay thru nose for it. Tier 2 cities are much better option just to maintain some work life balance.

Anonymous said...

RBI is talking something else & doing different. Now they easing the liquidity telling that food inflation 12% is negligible.
Don't fall prey of this news. Right from govt common people do not want RE prices to go down. So the bubble will remain intact.

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