After Reddygate, I thought I had seen everything Bangalore real estate had to offer. Little did I know that, I was barely getting started. A friend said the Reddygate experience felt like a Bollywood movie. It was barely a trailer.
Once I walked out of Reddygate (that property hasn't sold yet, looks like they haven't found another loser yet), we kept looking around. We witnessed the enormous greed of Bangalore's flippers. People who don't consider a 250% return of their investment in an one year period a satisfactory return, for instance.
We zeroed in on another townhouse property, this time again by the same big name builders (if you remember from Reddygate, a tier 1 builder in Bangalore). This is an older property (~8 years old) and "BDA Approved", so I thought once we negotiate and settle on the price, things should settle down rather quickly.
We haggled on the price with the seller. We went back and forth for a while and settled on a fair price. We liked dealing with the sellers as well. They were pretty straight forward, "educated", would deal with "100% white money". Ideal match. We gave a token deposit and got the legal documents to start the legal vetting process. That's where the fun started.
You don't appreciate the genius of a real estate developer like this one until you see what methods they use to penny pinch the Government out of stamp duty and registration costs. Agreed, it is moronical to charge ~9% of the sale value as tax and stamp duty per sale. But the developers take it to a different level to beat it.
1) For properties under 1500 sq ft of area, the stamp duty is less. Over 1500 sq ft, it is a "luxury" property, so the stamp duty is more. Since this property was about 2500 sq ft, the developer came up with an ingenious plan.
They sold the two level "row house" as two different units. The ground floor was sold as a different unit and the first floor was sold as a different unit. Two sale agreements, two sale deeds, the full shebang.
This property was about 2500 Sq Ft built on 2200 Sq Ft of land. As equal opportunity provider, they split this as two different "villas" of 1250 Sq Ft constructions built on 1100 Sq Ft of land :).
This physical impossibility of building a structure more than the land allows in one level is missed completely. Enough people were greased along the way that this property was registered successfully.
2) This might be a good time to introduce my seller. My seller is a PhD and MS from IIT Delhi. He has a MBA from IIMB to boot. He is also the CEO of a top tier company. As smart and savvy you can get.
Remember the two sale deeds? That implies, he should have two "kathas" [a Kannada document that says this is your property] and thereby he has to pay two different property tax each year. But the seller has one katha and he has been paying one property tax. Apparently, there is a way to "merge" the two properties into one by a process called "amalgamation", which my seller says he isn't "aware" of and is what he has probably done.
3) The address in the property tax he pays is about two kilometers away from the actual property. The "villa" is in Deverbesarahalli and the property tax is paid for an address in Marathahalli, which is about two kilometeres away and is a different village ;).
This is just the beginning of the legal paperwork mess. This goes on and on and on. The seller hasn't given the most basic set of documents needed to my lawyer to inspect. The seller points to the realtor, the realtor points to the developer, the developer points to the home owner's association and the home owner's association says they don't have all the documents needed.
Basically, the critical documents that have the appropriate approval from the authorities have gone "missing". No one knows where the documents are.
My "broker" suggested gently that I should be using "his" lawyer, the same lawyer he used to buy the neighboring row house for his "gelf" customer. The "gelf" customer trusted the broker to "do the needful" and "make sure all documents are correct legally". So the broker asked "his" lawyer to "verify" and of course, all documents checked out correctly there. So I must be doing this wrong.
Now, this is where things get a tad bit more interesting. I had hired a lawyer to help me through this. Turns out the seller is also a client to the lawyer at his corporate day job. The chief legal consul of the parent megacorp where the seller works for, makes a "friendly" call to my lawyer "enquiring" what's going on with the legal difficulties with the property.
Around the same time, my seller calls me and says that based on his professional experience with my lawyer, my lawyer is too conservative and I shouldn't consider her words completely. After all, when he bought the home, he didn't hire a lawyer, nor did he verify all the documents. He took a 90% loan from HSBC bank who verified everything, so everything must be hunky dory, you see.
That, to me, sums up India's real estate woes. Really smart people, really intelligent people who run companies buy real estate on a whim, without doing the basic document checks and sanity checks needed. They assume and trust the wrong people.
The real estate developers, even the supposedly very good ones, find out ways to scam people and they get away every single time. At the end, the careless one who buys this last ends up at the end of this Ponzi scheme, with a piling dump of crap. Sad.
There are a few learnings with regards to Bangalore real estate, both as a seller and as a buyer. I will add them in a bit. For now, I am still looking for a property with clean titles.
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83 comments:
What a bloody mess. If this experience is typical, then there are extraordinary risks in purchasing property in the secondary markets.
I can't believe your IIT-educated seller asserted that things would be A-ok just because HSBC "verified" all the documents. I think you're doing the smart thing by hiring a lawyer, who seems to have his eye on the ball from the looks of things. Better safe than sorry. At least you can sleep at night.
Just one comment, if your lawyer's firm is also working for the Seller, this may be a professional conflict and in that case your lawyer should have advised you of the fact before he commenced work for you. You may want to inquire as to why that did not happen.
Good luck with your villa search. It is good to know that sensible people who don't buy into myths and do their due diligence still exist in India.
Anon
Regarding conflict of interest, when my lawyer took the case, she didn't know why the seller was. It was a surprise to her when MegaCorp's consul called her.
There are some great lawyers in Bangalore. The system is so broken that they are very conservative. They can sniff out language out of POA and NOC documents and smell a rat. At times, they go overboard in their checks.
But in both cases, I have heard that I should change the lawyers from the seller and the broker. That's a very good sign.
Bullshit!! Is your intention is scare off property buyers? Well, you wont be able to fool anyone passed 5th standard.
Nothing like this happens in Bangalore. Unlike other states there is a strong consumer court. Guilty can not get away. If push comes to show, there are third party grievance addressing panels, who normally help the cheated, waiving the fees. Call them mafia or any name, no resident of Bangalore dares to challenge these panels.
Bangalore is safe.
"Nothing like this happens in Bangalore. Unlike other states there is a strong consumer court. Guilty can not get away.
Bangalore is safe."
Dear Sir,
You seem a well-learned, savvy and intelligent individual. I own a bridge over the river Thames with two lovely ornate towers in London that I would love to sell you.
Please let me know if you are interested.
Dear Above Sir,
I am interested in buying your towers and the bridge Sir. I will pay whatever you ask, but I need a 20% discount on the final asking price. This is how we do real estate in Bengaluru. If you don't negotiate the starting price, we give you 20% discount.
Other terms - payment 50/50, cash ours but suitcase yours.
No documents needed, as long as its your area.
Any sins committed by either of us cannot be washed in Thames. One trip to Godavari if necessary followed by head-shave in big holy place on top of hill.
When do you want to make the deal-ah?
Yours below Sir,
RKVVGV Reddy
Dear above Sir,
I think we have a deal. I will have my agent Seller Reddy to give you a call to iron out the details.
Sincerely.
London party.
Thank you sir. Also, to iron out the details if you need iron, which comes from iron ore, there is a place called Bellary, from which I can get you top quality ore. Also, real estate available there. You pick land, we get it vacated. Just let us know.
RKVVGV Reddy
Author here. I am amused by the bullshit comment.
This is just my honest experience. Take it or leave it. I strongly recommend using a good conservative lawyer. They will unearth such things easily.
I have no benefits scaring off potential buyers. I definitely want to help potential buyers to be careful without any future litigation.
That's my story.
Anon @ 3:14am
"Bullshit!! Is your intention is scare off property buyers? Well, you wont be able to fool anyone passed 5th standard."
Are you nuts?
When there are believers like you who think that nothing can go wrong, why can't there be cheaters like in the author's note? To take people like you for a ride?
Property deals involve a big sum of money - possibly the largest sum that non-business people ever deal with in their lives. Its possibly the best opportunity that cons have of cleaning you completely off your money. And that too - you will hand it over to them without anything messy like guns and knives!
Good you read these blogs - will hopefully knock some reality into you!
Every second person is here to take your money be it lawyers, or builders or even your close ones. Be careful in where you invest and do not trust blindly. Unlike other parts of the world, Indians are also human and they also cheat others to profit. You have to be smart enough to know where you can get cheated and prevent yourself.
In fact, India has more cheats than western countries. False stories and even IT people cheat on their resumes. I've seen at least 80% resumes are with false experience in IT field. Sabse bara rapaiyah.
cont -
One small piece of advise. If you are not a kannadiga or south Indian, do not buy property in Bangalore. It is just a matter of time for a situation like mumbai shivsena erases. Unlike marathis, the local gowdis, reddys, shettys and ilk, are far more militant and the govt/police will support them to the hilt.
I am from calcutta and been employed here in a MNC. I've live prior to this in kanpur, mumbai and pune. Recently I met with a small traffic accident, to be precise brushed a two wheeler. It wasn't my fault and there was absolutely no damage to the other vehicle and my car too was not damaged. When the cops arrived, i do not know what the two wheeler guy told them as they were talking in kannadi, he took me to the station and locked me up. I had to spend 5000 to get out.
This kannada people are racist. Even one speaks kannadi, they know that you are an outsider due to accent
Let's hope realty investors like Marwaris, Gujratis, Sindhis wake up after reading this article.
http://timesofindia.indiatimes.com/world/europe/Irelands-former-richest-man-declared-bankrupt/articleshow/10697064.cms
Anon
Sorry to hear your accident experience.
Anon
The good thing about Bangalore RE is you can buy or sell a property with 100% white money through legal channels, if you want. Your choice is limited, but possible.
That is what I did when I sold, that is what I am doing when buying.
In most new developments, cash doesn't work at all. I know of a businessman who wanted to fund the property in cash but wasn't able to. Banks didn't give him the loan amount he wanted as well.
There is hope. (Or I wouldn't even be trying).
Indian real estate ads in newspapers are such spectacular pieces of bullshit.
1) The layout is always shown as a piece of land surrounded by greenery for miles in every direction. In reality, you might see an open sewer on one side and a garbage dump on the other, when you visit the site.
2) Why are all the residents in the ads shown with blond hair? These morons photoshop everything, don't they know how to make their "stolen" models look a little Indian?
3) Why do most ads in this week's newspaper address "investors" and not residents? Are these homes being constructed to live in?
@Anon above:
Very true. But as someone else mentioned, look at these adverts for the sexy, big b**bed models and ignore other details. I do the same ;)
Sorry for the off topic post -
The chickens are coming home to roost. Teaser rates will be reset starting April 2012. More money diverted to EMIs = less money to spend = slower growth.
http://timesofindia.indiatimes.com/business/india-business/Home-loan-EMIs-to-rise-by-6k-cr/articleshow/10319227.cms
@Polt,
After 2008 stock markets crash, Ramesh Damani said that the Sensex highs of 21,000 will not be seen for another 5 years. I made a similar prediction about RE prices (before hearing his). Both of us turned out to be wrong.
Sensex did almost touch those highs again but we are back down to below 18K and looks like we are going further down. And convincingly crossing and staying above 21K may be some time away.
RE prices went even higher that the 2008 peak in 2011 but I believe its time to make that prediction again. We have seen the highest RE prices of the next five years.
Lets see if I am found wrong again!
On another note, a lot of folks on this blog think that RE is a good hedge against inflation. I disputed this before saying that as inflation increases, RE becomes a poorer hedge and during hyperinflation it becomes worthless. Folks remained unconvinced with my argument.
If you have the time, please consider reading this - http://www.doctorhousingbubble.com/housing-apocalypse-prediction-of-hyperinflation-real-estate-values-debunking-hyperinflation-argument-deflation/ .
OR for a shorter read, one of the comments in the same page (See the comment by "John CPA JD November 6, 2011 at 4:35 pm".
Its not a hedge against inflation per se, it is an alternate place to store your money. If you store your wealth in a Fiat currency like the Rupee or Dollar, over a time of a few years it will erode. However even with this metric RE is way overpriced. And of course this logic applies when you have a lot of wealth and no place to keep it-it does not work if you have to take on debt to acquire RE.
@Polt
What you are missing is the magic of leverage. If you're levered up 90% of your equity, then you can pay back your mortgage with depreciated money.
Indeed, this is what all the home buyers of the early 2000's have done. Inflation is your friend! These folks bought houses at criminally low interest rates (relative to inflation) and were able to pay off their EMIs through inflation.
And it is frankly idiotic to say that RE prices aren't helped by inflation. India has had very high inflation over the past decade and house prices have marched higher and higher during this period, RELENTLESSLY.
@Polt
Look at our (Indian) experience with RE and inflation over the past 10 years. You will then know why that article you have quoted is dead wrong (or at least doesn't apply to the Indian context).
@Anon - "What you are missing is the magic of leverage. If you're levered up 90% of your equity, then you can pay back your mortgage with depreciated money."n
That is true if you have a fixed rate mortgage. When you have floating rates, its almost inevitable that rates will increase to match or beat inflation. Banks will go bankrupt if they consistently lend below inflation.
As for the article not being applicable here (this time is different :), that notion too is incorrect. At moderate inflation (6-8% is moderate by developing country standards), real estate tracks inflation. But the article and the comment clearly state that as inflation rises, people spend more and more on basic needs such as food and fuel. That will be true here too. How can it not be ! . And ultimately in hyperinflation, when people lose faith in currency, a barter economy takes over. In case you dont know, real estate makes for poor barter :)
"That is true if you have a fixed rate mortgage. When you have floating rates, its almost inevitable that rates will increase to match or beat inflation. Banks will go bankrupt if they consistently lend below inflation. "
True, but if you have a penalty-free pre-payment mortgage (as is the case with many mortgages), this takes away all risks. The bank may hike your interest rates
to 1000% in a month suddenly upon the onset of inflation, but you don't have to pay the interest. Just sell some XAU and any real assets that you have and prepay the loan in full before the EMI comes due. Simple.
"But the article and the comment clearly state that as inflation rises, people spend more and more on basic needs such as food and fuel. That will be true here too. How can it not be! "
Here's the problem. Indians hold vast reserves of personal wealth in XAU. As inflation or hyperinflation sets in, XAU will take off (indeed as it already as). For Indians, any decline in income or RE equity will be MORE THAN offset by increases in their XAU holdings.
THIS IS WHY EVEN THOUGH THE WHOLE WORLD IS COMING APART AT THE SEAMS, INDIAN RE PRICES HASN'T BUDGED BY AS MUCH AS ONE PAISE.
What rankles me,is the fact that a real estate bubble is looming large and is very evident,yet people fails to recognize it.Take mumbai,i have known many the so called investors renting out flat to the amount less then what a normal bank interest on the principle amount would have fetched.Builders lie about escalating material prices,but how that explain the low cost of houses in outskirts of cities.I scare to think about the fate of buyers who have bought flats in south mumbai skyscrappers on 30th floor for upward of 5 Cr,,20 years from now,would they find any buyers for reselling?Anyone fancy the idea of buying a resell 20 year old flat on 30th floor!Well for personal safety i wouldn't,even if it was offered free.
Do the maths...
So when will the bubble burst?Ofcourse when the realization comes,u dont have to wait for 20 years.
RE prices have shot to the roof in mumbai,mostly on speculation.Every house is bought on a perception that,the rates would double,and so it had,but not always.Builders who makes a killing does not sit quite,but put everything back again,to earn exponetial.Like any ponzi scheme,the chain has to break.And what happens then?
Every politician,has his whole arm in this pie,the mayhem will be unbeleivable!Cannot wait to see that happen,its already happening..the unsold flats in mumbai is just tip of an iceberg!
What will apparently start in mumbai will be spread whole of india or vice versa.There is only way the RE prices are going to go in mumbai and that is down!
@polt
While I agree with the pre-termination fee, I also see people stretching themselves too thin.
In my apartment, I know of at least 3 people who are willing to take 80% loan of a 2.5 Cr property (they currently own their apartment and have loan on that one).
Even at a 40 lakh salary, the EMI is about 2.2 lakhs per month TODAY. Do you think they can afford it?
If they have sufficient cash to prepay, why do they take such a huge loan at 11.5% interest? Are you telling me the returns on their current investment is better?
Or are they just plain dumb?
For my own sanity, I am putting nearly down 70% of the value (I sold land recently for this) and still my EMI is about 2x my current rent. I would aggressively pay off the loan. Even if my house becomes worthless, it won't ruin me, just leave a huge dent in my ego and savings.
Am I am an outlier in this mad market then?
India became a part of the 'Washington Consensus' during the narashima rao govt. All the NDA economists(clowns) running the show here have no clue how this game is played.
Regarding this indian RE situation,only a BLACK SWAN event will sink it. Dont know what it is, but all the global macro events have so far failed to slow down local RE.
GL
Money is not a "Store of value", but a commodity that is used to barter for goods, assets, services ...
It is infact more vulnerable to demand and supply than other commodity for obvious reasons.
Allthough lot of folks like gold, if one examines security issues of it during times of extreme strife it will bring it own issues...
Biggest problem here is not store of value but over consumption and over production.
Indeed, this is what all the home buyers of the early 2000's have done. Inflation is your friend! These folks bought houses at criminally low interest rates (relative to inflation) and were able to pay off their EMIs through inflation.
This is not correct. In 2000, the interest rate on home loan was 15-18% with little inflation and and with loans very difficult to get by. It came down to as low as 6% in 2006 with practically anybody able to get a loan upto 90% and because of that housing prices went up. If the same thing has to be repeated, today's ~11% interest rate should come down to 5% over next 5 years, or else just to break even with your EMI interest, your house price should increase by 40%. If the inflation is going up or rupee is depreciating, either of them is not going to happen. It can happen though if Rupee appreciates and because of that inflation and interest rates come down.(just like 2004- 07)
Guys,
All said and done, what I have understood in my short investing experience is that there is only one rule which must be followed for successful investing - everything reverts to mean. As a corollary, one should try to buy when the prices are below the mean and try to sell when prices are above the mean. Of course prices could overshoot in either direction and stay there for a long time.
Btw, let me throw in an example. Sir Isaac Newton invested some money in south sea bubble early days, got some decent return and cashed out. His friends then jumped in, made even more money. Sir Newton then jumped in again with leverage and took a big bet. The bubble popped and Sir Newton said his famous words - ‘I can calculate the movement of the stars, but not the madness of men.’
When a genius like Sir Newton failed, what chance do we stand?
And let me rub it in a little more. Were you amongst the top 3 in your class in sports, academics, co-curricular activities in school, college, work? What makes you think then that you are a top investor? Don't confuse getting lucky once with ability to pick up multi-baggers consistently.
A slightly more lucid article about inflation/real estate. (Dont know who the writer is though). The basic argument is the same. Demand for RE plummets, and if demand for an asset you own is low, then its price must follow eventually.
http://www.infiniteunknown.net/2011/07/12/inflation-hyperinflation-and-real-estate-price-collaps/
I sort of disagree with the immense gold holdings theory. If that were true, we would not have people groaning in despair at the interest rate hikes, nor would we have rising NPAs at banks. Besides the gold that most Indians have is in the form of jewelry, which is not as liquid as bars/ETFs. For a quick sale of jewelry, you probably would have to sell it below the cost of equivalent amount of gold.
" And let me rub it in a little more. Were you amongst the top 3 in your class in sports, academics, co-curricular activities in school, college, work? "
I was all this. But im not an investor nor will i be one.
I just laugh at people who tell me to jump in and buy property.
I just smile and tell them "After you, After you" :)
People get great joy in laughin at others misery. I get great joy in laughin at them for wasting their time laughin on others.. lol
"I sort of disagree with the immense gold holdings theory. "
If you "sort of disagree", does that you mean you sort of agree then?
"If that were true, we would not have people groaning in despair at the interest rate hikes, nor would we have rising NPAs at banks."
The people are "groaning in despair" because they don't want to sell their gold holdings. But if push came to shove and they ran out of money to pay their EMIs, make no mistake, they will sell their gold. Indians will sell anything, including their mothers, to hang on to real estate. Why? Because real estate can only go up. Why would you want to sell something whose value will be 5% higher in just the next month? I'm afraid way too many of us have heard the story about that uncle or aunt who bought that flat in for 3 lakhs in 1970 which is now worth 5 crores.
"For a quick sale of jewelry, you probably would have to sell it below the cost of equivalent amount of gold."
Wrong again. Most jewellery in India is 22K (i.e. 22/24 parts of gold). Most jewellry stores will happily pay you the spot rate minus a small commission for gold jewellry adjusted for the ratio above if you turn in your gold jewellry.
With respect, you appear to be seriously ill-informed.
@anon (7.25)
big jewellers like tanshiq take your old gold only if you are purchasing new jewellery. all jewellers discount some percentage as making charges. also see this:
http://marketvision.in/short-takes/physical-gold-con-job.html
@san
If you paid 70% of the value of the flat, then the bank has the last laugh. You have mortgaged the whole flat to the bank for just 30%of the loan amount?
"If you paid 70% of the value of the flat, then the bank has the last laugh. You have mortgaged the whole flat to the bank for just 30%of the loan amount?"
Exactly why does the bank have the last laugh simply because he mortgaged the whole flat for 30% of the loan amount? Regardless of how much collateral he provides the bank, the bank has the right to pursue him for any deficit in his payments above and beyond the provided collateral.
So it makes pretty much no difference (from the borrower's perspective) how much of the flat is encumbered by the bank. In fact, it may make absolute sense to do so in that the higher amount of collateral may provide the bank with an additional sense of security that will let the bank lend at a lower interest rate.
@Anon who thinks gold holdings will save RE - " INDIAN RE PRICES HASN'T BUDGED BY AS MUCH AS ONE PAISE."
Were you born after 2008. ? How do you explain the RE crash then? What happened to our "XAU" holdings then.
>If you "sort of disagree", does that you mean you sort of agree then?
I agree that we have gold holdings, but I disagree with your (rather inane) point that they will somehow preserve RE prices.
There will always be sellers (normal times or during super high inflation). And these sellers will have to settle for low prices during super high inflation. And once a similar house in your neighbourhood is sold, your house will be automatically repriced by the market (up or down as the case may be).
As for being 'ill-informed' show me a jeweller who will give you spot price -commission and I will show you a jeweler who will soon go out of business. How much you get depends on the make, how well it is preserved, and on demand for jewelry in general at that time.
Interesting conversations here... some points based on what I read in multiple posts above.
1. Not sure why the resale price of gold is being debated so much. Someone who bought gold at Rs. 1000/- a gram is not going to lose sleep even if he is paid 5% less than the market price today! The point is that gold has appreciated and holds value.
2. I am a regular guy who makes a decent income - after the scale up in income levels in the last few years people like me are saving a high absolute chunk of money every year that will get converted to real estate assets at least partly a few years down the line. Over a period of time, thanks to monetary expansion, we will be able to pay much higher prices for houses. My bet is that prices will stay flat for some time - no crashes here. Governments have pumped so much currency into the market that there is no question of "reversion to mean" implying prices falling to 2006 rates anymore.
3. There will always be cheats and con-jobs in any asset market. Its caveat emptor - buyer beware.
4. I am worried about teaser rates reverting to normal rates from 2012. This will constrict a lot of cash flow in the economy and finally start controlling inflation. Demand for houses will go down but there will be buyers who need it for end-use - blame that on the population and movement into urban centers.
5. RBI has done a splendid job compared to other economies by reducing the total quantum of loan that can be granted on a property and keeping a sharp eye on bank NPAs. It is right in increasing interest rates now - cashflow is not the issue anymore, diverting all of it into productive investment assets is.
6. Inflation is bad and continues to erode value of "cash holdings". Indians lack adequate avenues to "save" their assets in. Other than PF, bank FDs and stocks (there is a lack of enough investment worthy companies for a country our size) the only other significant asset class that can absorb large cash holdings is realty. Cannot change that in a short period.
7. Tax benefits: There are people buying property just to save tax. The benefits available shave one-third of the interest rate. Why would they not take the funds at an effective 8% RoI to invest in something that could beat that cost in just inflationary costs. After all, land in prime areas is still scarce and construction costs continue to go up along with the cost of everything else!
@Anon above
Bang on right points. If "Polt" thinks RE is going to correct significantly in nominal terms, please let me have whatever he's smoking because it's not gonna happen here.
There are three things that are certain in India: death, inflation and higher RE prices.
Borrow more money at 11.5% APR, when I have cash burning a hole in the bank? That sounds very smart.
RE has to correct,without a doubt.
Indian economy is ruled by the middle class.RE is sustained by the purchasing power of the Middle Class.But what happens if it goes beyond their level of affordability?
Blame inflation,Interest Rates but affordabilty is Key here.
Cannot afford = lesser Demand = Unsold assets = Realtors in Debt = = slight desperate correction = Can afford now,but still wait to fall more.
And thus begining of a RE Crash !
@Anon - " If "Polt" thinks RE is going to correct significantly in nominal terms, "
My argument was that RE works as a hedge against moderate inflation. At super-high inflation rates, this relation breaks down. One could argue that the RBI will never allow high inflation here and hence RE in India will remain a good hedge over the long term. That may well be true.
In any case,you should not care about nominal values. Real prices are what matter.
Building Developers in India are creating great housing properties across India.And the best part if their state by state concern which touches the heart of an average Indian.
Thanks for your blog. After reading this I googled "Checklist for buying property in India" and found out the following link.
http://www.indrealty.in/knowledgebase.php?id=14
However if anyone put some sample document and explain everything in detail will greatly appreciated.
Like
1. what is a good document?
2. What is a problem document?
3. What are all the problem one has to face if the document is not correct
4. Tricks the sellers try to use to convince the buyer.
5. which part of Government body involved with that document? ( Basically whom we have to bribe )
Empowering the common man is essential. In your case you got lucky you found a good lawyer. It may not be the case for everyone.
Thanks,
Krishna
All major economies headed for slowdowns: OECD
India's reading decreased to 93.8 from 94.4.
"In any case,you should not care about nominal values. Real prices are what matter."
Please define "real prices". Measured against exactly what? Let me emphasize the last question. Measured against exactly WHAT?
Measured against exactly WHAT?
Real money, of course.
@Anon - Please define "real prices". Measured against exactly what
http://en.wikipedia.org/wiki/Real_versus_nominal_value_%28economics%29
If you think the government underestimates inflation, you can always apply a 'safety' margin to the CPI number. Example if the govt stated CPI is 8%, you could chose to use say 10 or 11% for your calculations and financial planning. That is what I do.
Krishna
I will post a blog with my experiences as both a seller and a buyer (unsuccessful one so far).
But that indrealty link is fairly accurate. The thing that throws a curveball here is based on the nature of the land, there will be additional documents, which only a local law aware lawyer can tell.
Some lands go through arbitration (private judge who settles dispute), some need hissa (gram panchayat lands) and so on.
A good trustworthy lawyer is what is needed.
Regarding the tricks sellers use - man. Anytime the seller says
"Your lawyer is asking too many questions".
"You should change your lawyer".
"Your lawyer is asking unwanted documents".
These are tell tale signs :).
@polt
thanks for the link, I will share this with others.
@Polt
"In any case,you should not care about nominal values. Real prices are what matter."
This would make sense only if your earnings are in real money. For the vast majority of people in India, wages do not keep up with inflation. Also, you cannot easily send savings abroad to convert into other "real" asset classes like CHF or AUD unless you're a part of the well-connected elite.
Interesting read from R2I forum @ http://www.indianrealestateforum.com/mumbai/t-price-correction-fiction-19859.html
I have come to a realisation that now if I buy a house it will be in a fucking distant suburb of mumbai, 2 bhk whatever I can afford and rent in the city till my kids education, then shift there.
@Anon " This would make sense only if your earnings are in real money.
In every country in the world, you will earn in nominal terms. But if you want a true measure of your wealth, if you want to plan for retirement, etc you should account for inflation.
"For the vast majority of people in India, wages do not keep up with inflation. "
Thats true in the short term pretty much everywhere. In the long term wages catch up, or technology makes things cheaper. Otherwise, the world would not be getting richer as a whole nor would real per capita income be growing. ( real GDP growth for the world has been positive for decades I think ).
In Mumbai, the $50,000 Slum Shack
Piles of garbage in front of shanties near Mahim East, Mumbai; the cost of these dwellings ranges from $35,000 to $58,000.
You reach the house of Indu Prakash Vaidya, a 32-year-old housewife, by trekking down a two-foot-wide alley through an inch of stinking, wet mud, filled with plastic bags and kitchen scraps.
Her 200-square-foot shanty, in Rajiv Gandhi Nagar, in the Dharavi neighborhood of Mumbai, has faulty electrical lines, no water supply and a non existent sewage system. Still, Ms. Vaidya’s house is her most prized possession. “If I decide to sell it, it will fetch me more than Rs 10 lakh” rupees, or about $24,000, she estimates, based on the offers she has been getting.
Ms. Vaidya isn’t alone. Many of Mumbai’s slum dwellers, some 60 percent of the city’s 21 million people, are living in hovels that suddenly command high prices.
Some of us are in no hurry, finally waiting for the crash to happen for next round of investment. Remember cash is king. Only people who are on rent are desperate.
This blog has lost its fizz. Whatever predictions made have been proven dead wrong. Prices have been rising unabated. It seems that our 'Bharat Mahan' is running soley on black money.
Anon @ 7:09am
This is exactly what will limit the crash... too many people still waiting in the sidelines to buy some "real need" housing - not just investors!
"This blog has lost its fizz. Whatever predictions made have been proven dead wrong. "
People on this blog have been predicting a major correction over the past 3 years, a period when RE prices have skyrocketed. Now, even in the midst of a 15% decline in the stock market, super high inflation, record petrol prices, Eurozone going to hell in a handbasket, global economic slowdown, etc. RE prices haven't budged.
There isn't enough egg in the world to place on the faces of the posters of this board.
I'm sorry to drive it in, but sometimes truth hurts.
Maybe it is time to say it. Maybe the houses in our crappy, decrepit, third world country are really worth the first world prices for which they sell. Overpopulation, Demand>Supply, Black money, yada yada yada.
India is still rising, but it is not shining
The calls have added urgency with signs the economy is heading for trouble.
GDP growth may come in at 7.2 percent in the current fiscal year, a respectable enough number but a sharp fall from 8.5 percent in 2009/10. Industrial output has slowed sharply, consumer confidence is waning and inflation remains near double digits despite 13 interest rate increases.
I have been a regular poster here and I have always claimed that nothing short of a full blown war or internal resurrection/ revolt/coup will bring down RE prices (at least in INR terms)
RBI and GoI have tight grip on the white market money supply through normal avenues like printing, interest rates, reserve ratio and state owned bailoutable banks.
OTOH we have the black economy pumped by inflation generated cash, untaxed farm income, illegal activities like mines, bribes, laundering. As long as India's deficit doesn't reach dangerous proportions of 1.5 times GDP neither Govt nor RBI will take drastic steps.
I have been pointing fingers at China because Chinese cities built projects from borrowed money raised by selling bonds in the open market - making them liable were property prices were to crash below purchase price these cities paid to build the giant empty cities.
In India this hasn't happened - what you see is what you get - borrowing has been through private builders and Individuals and the banks involved are TBTF kind (i.e. a run/systemic collapse of banking will be always prevented by the govt and reserve)
Then there is the demand supply equation, poor zoning, limited good neighborhoods, urbanization and no dearth people moving to cities. Given these - India has plenty of breathing room and even if prices fall they wont fall below (land + construction cost) ever in INR terms.
Given these circumstances I don't see any giant Black Swan event that will reverse RE prices other than external or civil aggressive strife (example Manipur blockade)
skeptic's ghost said... "Then there is the demand supply equation, poor zoning, limited good neighborhoods, urbanization and no dearth people moving to cities. Given these - India has plenty of breathing room and even if prices fall they wont fall below (land + construction cost) ever in INR terms."
Brilliant point above... Demand could fall a bit but so can supply with builders artificially constraining supply or delaying projects.
Poor Zoning: The worst problem "ever" of Indian realty! Add to it a corrupt bureaucracy.
Limited good neighbourhoods... prices literally fluctuate society to society... building to building in cities like Mumbai!
Urbanization... show me one tier 2/3 town that is attracting the crowds and you will have one good reason realty prices will stay controlled. The upcoming cities are attracting investments at a slow pace - not enough to hit tipping point in the near future!
@Anon - "RE prices haven't budged."
Not sure where you live. Here in Bangalore, prices have been flat in many places for over a year. At 9% inflation and 11% mortgage rates, that to me looks like a correction. Unless you are one of those folks who say only nominal prices matter.
And I hear, Hyderabad has taken a bigger hit (due to the agitation). Hyd residents please confirm or deny this. Land prices on the outskirts have fallen 40% or more.
@Skeptic's ghost:
"Given these circumstances I don't see any giant Black Swan event that will reverse RE prices."
Very much possible that RE does not correct. Gold is also at lifetime highs. So what is not? Stocks. Go buy them!
Nifty is selling at PE 18 with a dividend yield similar to what you get on houses (less than 3-4% rent on which if you honestly pay tax you will end up with even less). Capital appreciation would be more or less similar on an average. Plus you can average down your buy price as equity markets are still in correction mode. Look at your stock portfolio and RE prices again in 2020 and hopefully you would emerge a winner.
Not sure where you live. Here in Bangalore, prices have been flat in many places for over a year. At 9% inflation and 11% mortgage rates, that to me looks like a correction. Unless you are one of those folks who say only nominal prices matter.
I live in Bangalore too, the selling prices have gone up more than 10% but don't know about the transaction prices. Of late I am seeing there are many sellers coming into the market, but the offer prices have not gone down.
@Pawan Again you are talking about RE (residential especially) only in terms as an investment and return (as if it were merely a financial instrument)
RE is much more than just a place to park money - it is a place to live and grow and experience too (which Gold/currency isn't) People who are buying properties to make profit are not the majority. Many people merely want a home to have a stable place to live and raise their families. (renting does not make sense if you have to move during your own or your kids important event 10th grade/12th grade exam). Nobody wants to marry their daughter to any person who has no property.
What I said only applies to residential RE - commercial RE in India is a sham and it will suffer the fate of the rest of the world.
There is much more than mere Rupee value associated with Real estate especially residential and especially in decent localities.
It is not just in India - it is mostly everywhere in the world which do not have social safety net. It is like social security of a different kind.
The real lesson is to check with the prices gone wild properties - i.e. in certain locations of Mumbai, NCR, which are probably trading hands between investors and no end users. In such areas prices will correct but not as everyone anticipated to sub 2004 levels in INR mainly because of Uncle Ben and his inkjet $ press.
@Polt - yes prices might stagnate but them falling back to pre 2004-05 levels is now nearly out of question unless there is war/riots (example Hyderabad telangana riots or Manipur blockade/Naxal Attack).
Also today USD is 50.55 - happy day for people paying off the remainder of home loan by working in US.
@Skeptic's Ghost:
yes prices might stagnate but them falling back to pre 2004-05 levels is now nearly out of question
I totally agree. But how does this help anyone looking to buy?
I have a friend who was house hunting for last 3 years and finally bought last month in a locality which was kind of the last choice for him.
My advice to him was to keep saving and investing in stocks. My opinion is that if 10 years later RE is up 50% from where it is today, stocks will be up 100%.
What is your advice to him? Buy anything which is available and what you can afford whether you like it or not?
Only time will tell who turns out to be right. He has taken his bet and I am taking mine.
The most disturbing trend now is that Realty is going from Asset to Investment to Commodity now! And, those who have dealt with commodity markets know how nasty it can get.
Prices are in flux and there are multiple grades in property within the same locality combined with over-standardisation. Its as if houses are no longer statements of a family's lifestyle - its just Area, Loading, FSI, Artificial view and Price!
We have lost the focus on having a peaceful place in a calm locality built to specifications, with a nice garden, loads of space around, terrace and custom-made rooms. All this is muddled and repackaged by builders within "apartment" complexes!
Calm locality is 50 kms from the city, Built to specs is an option among three different types of "flats", gardens are small plots of space carved against much needed parking lots, terraces are sold as part of the house and custom-built rooms are translated to wooden flooring in master bedrooms and not so in the others!
Besides, some readers will even defend their stance against this post!! We sure have become poor.
@Anon "but them falling back to pre 2004-05 levels is now nearly out of question"
I can give you a large list of countries where this has happened, but the bulls on this list will immediately jump in and say - "We are gods children. we are different. It wont happen here". :))
In any case, I am not saying it WILL happen, but I would say it is too early to rule it out.
I am curious, when you guys talk about future how far are you thinking ? 5-10 or 15-20 years ?
I heard some accusations about predictions made on this forum gone wrong. I realize that to make a good investment decision you need accurate predictions but I always thought of blogs like these as giving general pointers about the future, this is not a jhunjhunwala site. If you are thinking about guidance for next 6 months or a year, you are looking at the wrong place.
Market Rumors:
NRI investment is expected to flow into real estate and in anticipation builders have set up shops in Dubai, Port Louis and have been knocking on the doors of US/Canada NRI investors. Most invested money would be laundered money.
Dollar rate today is Rs 51 in Banks, Rs 54 to 56 in Zaveri/Bhendi Bazar . Rupee is expected to slide further and Marwari/Banias are scrambling to make a kill out of this. Moreover, there is a great demand for Indian Rupees by political parties. Indian Rupees are sold in swiss market in tons, bought by anonymous buyers
In light of the above, a steady rise in real estate prices in Delhi/Mumbai expected.
Jai Hind
Market Watcher
Dear Vik: why are all my posts going to your spam folder? I do not spam and never had spam for breakfast or lunch or dinner...
Well i wud not say prices have to revert to 2004 levels
Prices in my locality in 2004 were 1900-2200
So fair value at this point wud be double the amount.. + more
so around 4500
so a 1000 sq ft house wud be upto 50 lakhs or less.
right now its more than double of that so these are 2018 prices. better stay away or rather better buy in 2018 cuz eventually prices have no option but to correct itself
Also the best part is 2004 the world was beautiful. So taking into recession and hte downslide and markets of the world in general
these prices right now are definitely 2018 prices
Anyone wanna bet? :)
You lose, I take your house
im the anon above
Just got this article
"http://www.theatlantic.com/business/archive/2011/11/the-housing-market-is-still-in-a-depression/248533/?google_editors_picks=true"
7 yrs on still in depression.
Well now i just have the gut feeling that those are not indeed 2018 prices but 2021 prices
So 10 yrs frm now please will stay the same as they are now.
THIS FEELS SO RIGHT.
2021 - I will buy for 1 crore :)
PERFECT
Anons above...
Sure, buy in 2021... but best of luck with the locality where you will be able to buy then.
Price rise or not, the prime areas of every city will keep getting occupied. So, unless you are OK with buying in 10 year old buildings, prime areas are going to be out of reach.
I will take Anon@6:28am's bet. If prices are the same in 2018, you take my house, if not, you pay me the price of my house then.
Finally news of price drop in China
http://www.chinadaily.com.cn/cndy/2011-11/16/content_14101590.htm
This example says the price dropped from 19800 RMB/CNY to ~13000
In INR that translates to a fall from Rs 15000 psqft to about 9500 psqft.
So India too and should expect all those 1.5 crore flat prices to come down to about 95 lakh - from there will prices really fall further is the big question.
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