Friday, March 16, 2012

Budget 2012 implications on Indian real estate, Gold , Stock markets and black money

Lets discuss how this impacts investments and taxability for Indian residents and NRI's.

1. IT exemption limit raised marginally so more income in every tax payers pocket.
2. Gold bars tax limit increased, making gold more expensive. The process of laundering black to white using gold also becomes more expensive.
3. Service Tax increase of 2% passed down to end users
4. Cars become expensive due to increase in excise duty
5. Electronics less expensive as the import duty is cut marginally
6. TDS for real estate transactions. This is a big one.
7. I don't understand how real estate capital gains become tax free after one year.
8. The first step for Indian government to tax all global income is proposed by the FM where NRI's/Indian residents are mandated to report foreign ownership of assets held abroad. Hell if the US government can do it, so can the Indian FM
9. Rail budget has increased Freight rates which directly inflates the cost of everything including steel, cement, coal
10. Coal prices are expected to increase in April which causes electricity prices to be hiked.
11. Petrol/Diesel will soon rise now that UP elections are behind us.

Instead of presenting the budget the FM should just increase the cost of everything by 10% every year. It will save us the trouble of analyzing

Please add comments and I will roll all salient points into the main post

124 comments:

Anonymous said...

a CRUEL budget for the salaried class. only 3% of the population paying taxes.

with the inflation and so many taxes on every minute thing. wonder if the people are mute, dumb or simply stupid.

Anonymous said...

There are two forms of taxes on salaried people -
1. All the govt. imposed state and federal taxes - like income tax, sales, tax, VAT etc..
2. Inflation.

Both forms of taxes will result in a wipe out of the salaried class.

Anonymous said...

I think that investors might cash out on real estate and move to stocks as has been proposed in the budget. After 1 year, LT Capital gains kick in and no taxes. People who put real estate gains back into real estate might stop doing that.

Anonymous said...

To update my earlier comment on capital gains, my understanding is that money earned from RE will not be taxed if invested in stock market or plant machinery. long term capital gains are 0 for equity. so after a year you get that money tax free. please correct me if i am wrong.

aam aadmi said...

There was a question by samix in previous post as to what the Central govt can do if you don't declare your assets abroad. I don't know what the govt will actually do but I guess the options are many, some of which include slapping cases against the NRI in India and seizing their assets in India.
What's an NRI gonna do then, Not come back here ever? I increasingly see this as a kind of concerted effort by all governments to repress the financial rights of their citizens.

In US IRS has also made such a rule. My guess is that most governments will sign bilateral agreements to find people who haven't declared their assets and penalize them appropriately.

Pawan said...

Anon you are right on Capital gains invested in stocks. One should just hope that the stocks don't lose value in a year.

aam aadmi said...

@Pawan
LTCG for Indian equities was 0% before as well. It's just that now the govt has cut STT as well and started some dumb Equity tax saving scheme to dupe retail investors as well.

Anonymous said...

So after allowing rupee to slip to all time lows the government is now encouraging those who have real assets (i.e. property/gold) to speculate in the dalal street casino so the retail investor can get cleaned out by the hedge funds and assorted market makers.

Thanks, but no thanks...

Anonymous said...

Looks like different ponzi schemes run by GOI.

Ready for stock ride guys !!

skeptic's ghost said...

That ponzi scheme is run not just by GOI but every single govt on the planet (maybe not Cuba and North Korea)

Fractional reserve banking means that you borrow from the future for today indefinitely and the ordinary salaried middle class members of society pay back either via taxes or via inflation

Mr. Mayank Patel said...

nice to see your post, it's take topic with budget, good and informatic topic sharing to us, thanks for sharing nice post,
Flat in Ahmedabad

GSM said...

To update my earlier comment on capital gains, my understanding is that money earned from RE will not be taxed if invested in stock market or plant machinery.

It won't be taxed if invested in SME too. Well, expect a lot of fake entities to prop up to convert black to white. So this helps in reducing black money isn't it?

Rustomjee said...

TDS for real estate transactions.

Can someone please explain this to me?

samix said...

The United States has threatened to impose sanctions on India if it fails to reduce its purchases of Iranian oil, according to a media report citing unnamed Obama administration officials.

A decision to levy penalties under a new US law restricting payments for Iranian oil could come as early as June 28, Bloomberg news agency said citing "several US officials who spoke on condition of anonymity."


http://www.ndtv.com/article/india/us-threatens-sanctions-against-india-over-iran-oil-186631

Anonymous said...

RE sales proceeds in Stock Market?
Next thing will be pension funds going to Stock Market just like usa.

Not to foget, Bombay Stock Exchange is now owned up partially by foreign stock exchanges.

It looks like lot of lobbying going on from stock market folks.

GOI is probabbly hoping that FII will turn to India in a big way. Good luck to that wishful thinking.

Vik said...

TDS is tax deduction at source for Real estate sales. Buyer will have to withhold tax and deposit it with the IT department

Vik said...

Plant machinery can be bought from RE proceeds.

samix said...

TDS is tax deduction at source for Real estate sales. Buyer will have to withhold tax and deposit it with the IT department

This is a very good incentive for people to now go to a 90 10 black-white ratio.

Not very far from now we will see real estate valuations on paper go from funny to ridiculous!

Vik said...

One cannot register the apartment for less then ready reckoner rates/guidance value. This should be the tool to reduce black, however that will never happen. Builder margins will get hit as their costs rise but they are unable to increase prices as buyers do not have purchasing power

Vik said...

One cannot register the apartment for less then ready reckoner rates/guidance value. This should be the tool to reduce black, however that will never happen. Builder margins will get hit as their costs rise but they are unable to increase prices as buyers do not have purchasing power

Anonymous said...

Honestly i dont see a means of how RE will become affordable.

renting is king.. but the fact is be prepared to have a shitty quality of life...

i think we are seeing a phase of degenerating economy.. its a matter of time before we implode..

water scarcity has started to set in. we dont have power here in TN. chennai being the big city has 2 hours of shutdown, the tier 2,3 and villages have 10 hours power shutdown.

The return on investment either in bank FDs or any other instruments is way lower than inflation..

and putting in these instruments means i am taxed even more because it is white. i am just imagining if i am cursed to be a middle class or white collared employee.. there seems to be no hope left...

another 3-4 years of egional politics and mindless taxation, i think we can kiss our growth goodbye as well as concept of being one nation...

having seen mamta's tantrums on a medium hike in train fares , its a matter of time before she kills the railways. i just wonder is there some savior in the horizon amongst our political class.

all that we can hope for is tht we work till 60 save 40% of our income and spend the saved amount for next 5 years and then depart before the going gets tough.. scary days for our generation. we could be leading our final days in pecuniary..

Rustomjee said...

TDS @ 1% on Real Estate Sales

I did some research on this, and found it to be quite interesting.

I don't agree with a previous comment that TDS will encourage black money transactions. I agree with Vik that there is a minimum price set by most registration departments, related to the circle rates. One cannot register below that price.

What this is going to do is that by shifting the onus on the buyer to deposit 1% TDS on behalf of the seller, the government is making sure that every real estate transaction in the country is logged. While this might sound like yet another crazy bureaucratic exercise, remember that the central government currently has no database of every real estate transaction in the country. Now, the IT department will have one database from which they can pull up real estate transactions from Manipur to Maharashtra, and this, should be quite scary for people investing black money in real estate.

From October 2012, if you have not reported a sale, or paid taxes on it, the IT department will immediately find out about it, as soon as you dispose of your property and the TDS is deposited by the buyer. There are thousands of high-end flats in India, that are lying vacant, and most are used to convert black money into physical assets. Now, any time assets like these are sold, the central government will know! This is a first step in identifying "black money" flats and tying them up with the PAN numbers of individuals who own these flats.

Frankly, I am very surprised that the builder/investor lobby allowed the government to get this into the budget. If you own a flat to stash your black money, my advice is to exit before October, or the tax guys will know exactly who you are. Believe me, this is much different than bribing your local registrar's office and hiding your property from the government's eyes. From October, we will see increased IT raids and arrests.

If you want to hide, the only way to do that is to never sell your flat. Yes, you are stuck with it.

Anonymous said...

Vik: I posted a comment on the TDS rates. It seems to have gone into your junk folder. Can you please "unshackle" it? thx Rustomjee

Anonymous said...

My prediction for 2012,

Debt downgrade followed by interest hikes.

Big stock market crash coming up followed by bursting of RE bubble.

We won't be as bad as Greece but it will be close.

Ghost Story said...

Capitalism, a Ghost Story http://www.outlookindia.com/article.aspx?280234

Anonymous said...

now circumvent the money from RE sale to stock market and pull out after 1 year.

No stock crash before that!

Anonymous said...

//Joke of the day: Someone told me today that new complex coming up in Mumbai. It is like living in USA. //

I bet that these people never lived in America... forget living they haven't even imagined living in America.

..and yes rates have increased by Rs.1000 psf from last year.

Anonymous said...

@No stock crash before that!

Fat chance. Ever heard of "pump and dump." This is a tried and true method for wealth transfer from the hard working middle class to the idle rich.

If middle class has all it's wealth tied in real estate or gold it is hard for the rich to "steal" it. However, once it's liquid in stocks or bonds then all bet's are off.

Instead of giving a tax break to the common man, the GOI has given him no choice but to sit on the casino table and gamble with the big players.

And you don't have to be a Hindi movie fan to know in whose favor this bet is going to turn out. Heck we have the Mahabarata that warns us from putting kingdom (home) and wealth (gold) on a gambling game (stock market)

Gotta wonder whom did Pranab consult while preparing this budget?

Anonymous said...

Capitalism, a Ghost Story http://www.outlookindia.com/article.aspx?280234

Must read for every independent-minded & thinking Indian.

Also the plight of the real Indian people serves in stark contrast to the selfish desires of the "globalized" Indian upper middle class (otherwise known as the IT crowd) who's all to eager to buy into the corporate and mainstream media propaganda.

Remember what our history books taught us about the strategy to rule over India: divide and conquer.

BTW. this is not just in India. This low intensity usurption of wealth has been taking place globally. In the US for example, one only has to look at the marvelous coup Apple has accomplished through it's control of the media perception that even when it's proven to employ slave labor, people line up like lemmings to support it's business.

Yet these same people went through an education system that exposed to them all about the history and oppression of slavery.

The slave masters of the American South sure would've appreciated the skills of the media and perception management staff at Apple.

Anonymous said...

@Anon above

Unfortunately, 99% of the people, given a choice, prefer to take the blue pill.

It's tough to be a hero in real life. Heck, even a movie hero is only good for posing in front of the camera and needs a stunt double to do the real work.

That's my 2 cents, time to get back on the hamster wheel to serve my corporate lords!

aam aadmi said...

@Above
You don't need a six pack to be a hero neither do you have to be some police officer or a journalist or a social worker.
One can be the change just by being different, I understand that many of us have compulsions but even when people have choice they just do things that society expects them to do.

24, get married. 28, buy a house. Buy a TV, listen to all that crap, take a mortgage. Buy stuff you don't need, eat the food which makes you sick, buy a car when you could do with a good bicycle. There are just too many examples, the truth is that most of us behave like sheep and are more than willing to jump from the cliff and then blame the society.

If one can resist peer pressure, half the work is done.

Anonymous said...

http://www.dnaindia.com/bangalore/report_bangalores-peripheral-areas-meet-their-waterloo_1664268

flats here are 80+ :))

aam aadmi said...

@Above
I looked at the groundwater levels in Bangalore two years ago and concluded that this city was a disaster in the making. Vowed to never buy a house in the city.

Haven't regretted my decision ever since, even if groundwater is to be recharged through conservation measures, a lot of toxins (byproducts of construction material) have seeped into the soil and will take years or even decades to clear out. The city has already dug it's grave.

Anonymous said...

// looked at the groundwater levels in Bangalore two years ago//

//even if groundwater is to be recharged through conservation measures, a lot of toxins (byproducts of construction material) have seeped into the soil and will take years or even decades to clear out. //

Thanks for sharing. How do you get this information, I mean source for this. I would like to dig up information something like this for Mumbai.

AnonymousLulz said...

"I would like to dig up information something like this for Mumbai"

Get off at Sion station and smell the stench of poop mixed with rotting fish and saltwater

Now go on comparing that smell with other smells throughout Mumbai

Anonymous said...

//Get off at Sion station and smell the stench of poop mixed with rotting fish and saltwater

Now go on comparing that smell with other smells throughout Mumbai//

So Sion smell is benchmark and technical data for whole Mumbai? well, that smell has been same for since 30+ years atleast... no change (should be awarded six sigma certificate).

I checked with several Mumbai people and they say they have no issues with water shortage or electricity shortage. People have 24 hrs water and electricity and hence wanted to know if there was any technical data to know what is 'reality'.

More over they compare Mumbai buildings to living style in America!!

AnonymousLulz said...

The Maharashtra Water dept and irrigation dept has the weekly dam capacity here but its in Marathi

http://www.mahawrd.org/
(navigate to dam storage)

Mumbai gets water from Tansa and Vaitarna -
Pune PCMC gets water from Panshet, Mulshi and Pavana,

Etc

Pawan said...

http://www.moneycontrol.com/news/real-estate/gurgaon-residential-property-investor-update_682406.html

aam aadmi said...

There's no single site for groundwater levels, there are scientific papers from time to time. You have to just google it.

Another useful but unscientific method is to ask people how deep their borewell is ? In Bangalore, borewells have been touching 1200 feet in the outskirts, some places have no water at all.

aam aadmi said...

I have also ordered two instruments from Amazon, one is a TDS (total dissolved solids) meter and the other is a pH meter. They can help you in getting a comparative idea about the quality of water you have.

Pawan said...

Don't kill the golden goose!

http://www.moneycontrol.com/news/features/is-it-time-to-look-beyond-chinaindia-stocks_682900.html#toptag

GSM said...

In Bangalore, borewells have been touching 1200 feet in the outskirts, some places have no water at all.

+1 , 15 years back, I remember as a kid, water would be available within 150 feet and at 500 feet digging would be abandoned. And we used to hear in the news that in Bellary it is very hot at 35 Deg celsius and in Delhi during winter, it reached 15 Deg centigrade!!!

Anonymous said...

Read this. It compares world RE markets and says India has the biggest housing bubble.

http://www.dailymail.co.uk/money/mortgageshome/article-2116034/Lloyds-TSB-Global-Housing-Market-Booming-India-leads-world-house-price-league.html#ixzz1pezPqHVw

Anonymous said...

Anon above:

I read the article and it doesn't say India has a bubble. It says that prices increased 284% in India and is the highest in the World and it comapares with other countries where prices rose evn 200% till 2007 have lost 59% of their gains.

Interesting to see how it will fare out with India. I think a 60% correction cannot be ruled out. And 10 years of pain. The Indian economy will go in a major recession and GOI will try to bail out failing banks. This would cause more money printing and rupee may depreciate to 70/USD.

What a shame, no country took lesson from US bubble and just kept on thinking they are different. It will get really bad when China, Australia, Canada, HK, Singapore, India etc. all bubbles burst around the same time. All these high salaried jobs would be story of the past. No more commodities bubbles and Gold will get back to $500 per Oz. No more mining or steel bubbles. I can't wait to see all these overpaid MBAs getting whacked and getting a taste of reality. Especially all these young people who got it all on a silver plate to taste what reality is and how their parents lived. Youngsters have been getting it too easy and a lot of it without any effort.

Anonymous said...

If it(price increase) carries on like this with price rises to how countries are doing wealth wise a tin shack in India will be worth more than many houses in the UK.

Read more: http://www.dailymail.co.uk/money/mortgageshome/article-2116034/Lloyds-TSB-Global-Housing-Market-Booming-India-leads-world-house-price-league.html#ixzz1pfL5owdv

Anonymous said...

Anon above.

All other countries do not have black and fake money generating economies... but India has it. Indian economy literally runs on black money... best part is people park their money in RE and have no need to sell for less because more black money is being generated.

Black money in India is business men's pride and salaried people's envy.

Many say that black money theory has been laid out so many times. Black is generated everyday, every income, mixed with fake money and is growing... so it is not only theory it is reality.

So crisis in India will be only for people who cannot generate black money, and who are those?

polt said...

In the long run home prices will rise at rate of inflation. This is what happened in UK,UK, etc. This was also the case in Mumbai for over 30 years till around 2002. The last ten years have been our version of 'Irrational Exuberance'. The dailymail article says a 284% real increase in prices in India!!. The point about prices keeping pace with GDP is just plain wrong. Home prices keep pace with inflation. Stock markets keep pace with income/GDP over the long term.

Expect a hard crash or a long period of stagnation till inflation catches up.

Pawan said...

@Polt,
But then how much is the inflation in India? It may be a very crude measure but let me tell you something. I have a nephew who loves Kaju Katli. Whenever I go to see him, I make sure I buy it for him. The price of that sweet has gone up from Rs 350 per KG to 520 per KG between 2009 and now. So that's 50% food inflation in 3 years. Whatever the govt. may say. RE has gone up 100% in that period but then 2008 was a low.
RE should track inflation - fine. But how do you measure inflation? And what option does GOI has other than to print to handle this kind of fiscal deficit. I expect more money printing this year and next year. A lame third front govt. in the next election and ensuing chaos. We are toast for the decade unless someone takes tough measures:
1. Deregulate fuel prices.
2. Scrap MNREGA.
3. Put food security bill on hold.
4. Raise power prices across the country.
5. Sell off all loss making govt. companies like Air India.

However, seeing what happened to Dinesh Trivedi, we know this is all pipe dream. RBI governor is trying to hold out but for how long?

polt said...

@Pawan,
Yes food inflation is high. For cereals, vegetables it is in the order of 12% (I think). This is an election-losing figure. GOI will not let this continue.
But costs of so many other things has fallen below inflation and wage growth. FMCG, white goods (microwave, fridge, etc), cellphones, communication, cars, etc. One reason is that these are manufactured goods. Technology and scale helps keep prices low.

Some weeks back I had posted a video of Robert Schiller (who predicted both the 2000 .com bubble and the 2008 RE crash and created the Case-shiller index). He says that most people forget that homes too are manufactured goods and that their prices will act the same way over the long term. No period of RE exuberance lasts forever.

And see http://www.nhb.org.in/Residex/Data&Graphs.php . Its a mixed bag. Some cities (including the "IT money" cities of Hyd and Blore) are languishing.

Anonymous said...

I don't understand where they have got the 284% figure. If a 25 lacs flat has become 1.5 crore..then the %age increase is 625%!!!

In 2003 it was 25 in Mumbai, western suburbs...and now it is 1.5 crores for a standard 2 BHK flat. Which means 625% increase in about 8 years..or about 78% a year increase!!!!

Where is the math wrong, pls. elucidate.

Anonymous said...

284% is just the white component on papers that they can prove. In fact, India's bubble is the mother of all bubbles as the other half (more than 50%) is black money appreciation which is not even counted in the bubble figures. It would end very very bad for a lot of speculators in India.

Anonymous said...

High inflation in India? May be not, it may be just new norm. Seen anyone complaining? Malls, Restaurants, Movie theaters are always full.

If some RE is at less than Rs. 8000 psf people are lined up to buy them. WTH, people spend on home renovation 20 lacs atleast.

Everyone talks of their community going for redevelopment and crores of their net worth.

My friend in Dahisar claim he is crorepati as his RE has increased several folds. Well, he bought more RE recently. He and many have money and they find RE safest bet.

GOI can make whatever budget and shit, people are smart to keep their black money humming and spinning.

So who is complaining? NRIs?

@Pawan - did you stop buying kaaju katli for your nephew? NO I guess. I'm sure Kajju Katli's business is flourishing better than before.

Anonymous said...

Anon above:

What is your point?

Inflation is good but not high inflation. It cannot go on forever and RE prices are not even counted in CPI numbers. If they count RE prices, inflation is 80%.

There is a difference in Kaju Katli and a house you live in. You will buy the sweet for a child even if it is double the price.

You sound more like one of the US Fed Governors who recently said there is no inflation in US and he compared the iPad prices. They have been same. I would say put a few iPads in his mouth for lunch and dinner. Food prices are 50% higher in US in the past few years but the Federal Reserve doesn't acknowledge this infaltion and say it is only 1-2%.

The point is do not trust Govt. cooked up numbers. Use your own common sense and invest based on that. Govts. are run by few people/lobbies who are very powerful/influential and have vested interests to make more and more money. Their lust for money is endless and they can sacrifice countries for there interest. They call themselves global citizens and are not Indians or Americans.

They fudge numbers till their interest is met and can exit the game anytime.

Btw, NRIs are worried for India not to have the same fate as Greece and that's why they are worried. They have seen the whole RE bubble movie first hand in US and UK.

Anonymous said...

The dailymail article quotes prices which are inflation adjusted. Over a 10 year period with an average inflation of 8% 1L is worth 2.15L. Next comes the 30% black component which is why the article quotes a more conservative figure of 287% over 10 years.

polt said...

>Food prices are 50% higher in US in the past few years but the Federal Reserve doesn't acknowledge this infaltion and say it is only 1-2%.

One possible explanation is that in a wealthy country, food constitutes a smaller expense as a percentage of an individuals income. So the weightage given to the food in the CPI number is lesser. Moreover, a lot of consumed items are processed food, so the price of raw food as a percentage of the final product is also lesser.

Anonymous said...

My dear Polt:

All the research and statistics are for the benefit of humanity and mankind all over the world for thier growth and prosperity.

But...it has been hijacked by a few influential folks who have immense lust for money. God know what they do with it, put it in their arse or what, they just want more and more.

The hired puppets at Fedreal Reserve and RBI and Deps. of COmmerce are also the same type who serve interests of their masters, the so called influential people.

There is definitely more inflation than 1-2% in US. But who wants to raise interest rates and who wants to raise wages or gives Cost of living adjustements to SS benefitors or federal employees. It all seems to be a big racket. I'm so shocked by all these happening in the past 4-5 years when I started to read, that I feel everything is a joke. A big JOKE everywhere in the world.

Anonymous said...

@A big JOKE everywhere in the world.

Yeah, this must be one hell of a joke since the 1% have been laughing all the way to the bank for the last 20+ years...

Read that Outlook article from Arundhati Roy. These global corporations have co-opted the middle class by controling every aspect of our life. You cannot even put salt on the table without being dependent on a corporation.

Pawan said...

You cannot even put salt on the table without being dependent on a corporation.
Bang on! It was the corporations who traveled half-way across the globe for trade to Asia, America and Africa and ended up subjugating them. Govt came in much later to protect the business interests. That remains same. A successful businessman has politicians on his rolls who in turn control the might of the state and anchor it for the businessman's benefit. Middle class is silenced by giving them the illusion that they are partners in growth by being a share holder/employee etc. Poor are silenced by force.

Look at IBM. Their 70% work force is outside US but if they are threatened by the US president/Congress to hire more in US, they will simply move their HQ to another country which promises to protect their world-wide business interest. So far only US has that kind of clout (Once UK had that) and soon may be China will have that.

That is how life/business has been for the past many centuries. The ground rules are same - only the facade differs.

aam aadmi said...

It's all anecdotal but in my office there is considerably less euphoria about buying a house now. Perhaps people are realizing the mistake of flushing down 50 lakhs down a property that will be worthless after 20 years due to environmental degradation.

For example some of my colleagues have properties in the outskirts of Bangalore. (Sarjapur, Kanakpura Rd etc) They bought those in 05-06. Back then the environment was much better, it was much cooler, quieter and water was easily available. Now there's no water, noise and pollution has worsened and the heat is unbearable, not to mention the frequent power cuts and rising bills from the backup diesel gensets. When I ask them what they intend to do with the property after 10 years. They all say sell it and move to a better place.

But the question is will they find a sucker after 10 years to buy this property.

Getafix said...

@ Aam Aadmi: "But the question is will they find a sucker after 10 years to buy this property"

"There's a sucker born every minute"
And in India's case there are 29 born every minute!!!
So there!!!

Real Estate India said...

It is really nice and informative. Thank you for posting.

Anonymous said...

"There's a sucker born every minute"
And in India's case there are 29 born every minute!!!
So there!!!

But even these suckers have atleast 10000 properties to choose from so there.

Its hard to find a sucker these days :)

Anonymous said...

For people bashing "business" class, maybe you should turn around and look for a better word - maybe, big businesses or corporate. It's hard for a small business owner to live with higher taxes and, to an extent, no security.

Anonymous said...

Anon above:

In India most business especially small ones steal so much money in cash dealings and don't pay much taxes. Even doctors who have their own clinics or nursing homes have bags full of cash in their homes, all black money that they didn't want to report for taxes. Who are you defending? The thieves.

Anonymous said...

//What is your point? //

My point. We discuss about increase in food and RE prices. What about increase in incomes. 15 years ago I used to earn Rs. 3000 pm and for almost same job today many earn minimum of Rs. 40,000.

More over fractional banking has increase further purchasing power. There are multiple earners in a household. There is more workforce available to work in early ages (21+ years onward). MBA is just common another education like KG.

Considering all this except for RE prices, everything seems reasonable if given proper thought process.

Anonymous said...

Anon above:

Still, the price rise in RE is not proportional to incomes. You also have to look at the income gap now. The role of Govts. is to bring prosperity to all the masses and not a selected few. In India there is a huge disparity.

Looks to me there are around 20 million people who are buying and selling RE to each other without adding any value. The rest of the country is going down and it would never fare well in the long run. I can see mass protests on the streets in the near future and maybe the Maoists rebels is a part of the same story.

Anonymous said...

Btw, have you looked at the poverty rate salary in India. According to Planning Commission it is around Rs. 28 per day. Which is less than Rs. 1000 per month.

What is wrong with this picture and the one someone here said about wages going from 3000 to 40K.

I would say that Planning Commission is trying to send good numbers to IMF and World bank to be able to borrow more for the coffers of the rich. Maybe all the GOI salaries should be slashed to Rs.1000 a month and let them live on it for just a few days to see it firsthand how difficult it is to live on these fake numbers from Planning Commission.

90% of the country is really poor and RE costs more than anywhere in the world. COuntry of speculators and gamblers.

Anonymous said...

So true. Really liked the post

Lodha codename Dawn

Anonymous said...

In India there are no poor. Just illusion of poor else how would you explain RE boom all over India!!

Even slum in Mumbai costs 20 lacs.

Real issue is: New Entrants (un-established entity) vs. oldies (established entity).

Cities have enough established entities to keep economy humming. But when ponzi schemes are in play , one always needs new player - in this case which are phased out.

All these years migrants came to city, now, they are pushed away. I'm sure many in cities should be rejoicing on this.

skeptic's ghost said...

All this debating here is not going to affect prices unless there is a calamitous event.

The elites of the world have figured out how to keep on kicking the can. First TARP, then PIIGS, now the coming bailouts in BRICS

My advice has been - People who want to buy to actually live in the place, should not blindly watch rent/EMI - if you feel the price fits the inflation adjusted value (or in terms of gold) w.r.t. 2006 prices - go for it.
At the same time people who are buying for investment should consider the fact that in the long run prices will stagnate.

India still has the option to cut interest rates for home loans upto 6.5-7.5% from the current 11% (I don't think this will cause inflation in other sectors) Given that its a no brainier that prices in good neighborhoods with amenities like access to good roads, schools and workplaces will not fall in the near future.

Pawan said...

@Skeptic
My advice has been - People who want to buy to actually live in the place, should not blindly watch rent/EMI - if you feel the price fits the inflation adjusted value (or in terms of gold) w.r.t. 2006 prices - go for it.

You seriously think people even know what rent/EMI ratio is? People are not buying because they are not able to. They have been priced out totally and decisively.

Spaze said...

That's really an inteesting post!!!

Anonymous said...

I am very curious to know what is the state of overleveraged households facing the double whammy of increased EMIs and high inflation of day to day consumption goods. Even though I dont have a mortgage, I have seen signifiantly increased spending for necessities and the occasional eating out.

REBear said...

You seriously think people even know what rent/EMI ratio is? People are not buying because they are not able to. They have been priced out totally and decisively.

Well that may be the case with most of the people, but as far as I am concerned, I do look at these figures very carefully. I am not priced out - I have enough resources to be able to buy one 1400 sq ft apartment in Delhi/NCR with little or no housing loan from a bank. However, I feel pained at the very thought of paying over 70-80 lakh INR for buying an apartment full of mosquitoes and pests, shoddy locality, traffic jams, smoke, pollution, water shortages, electricity outage, and so on - the valuations are not justified. I am saving money and hope that i would relocate with my family along with my small IT company to a country like US or Singapore for a better quality of life. Further, there is no evidence that if I buy today and sell after 2-3 years as and when I wish to relocate, the RE bubble would not pop. INR/USD conversion rate is another unpredictable factor that would affect me along with RE bubble phenomenon when I decide to move out of this place. Worse, the investment in house may become illiquid and may unnecessarily postpone my plans to relocate.

Pawan said...

@REBear,
I probably should have qualified my statement. People have been outpriced from the kind of properties they want.

A colleague was looking to buy a 3BHK DDA, then moved down to 2BHK DDA and finally ended up buying a 3BHK in a builder floor in a location he did not like much after a hunt for 2-3 years.

You and me, we can afford what we don't like and what we like we can not afford.

REBear said...

@Pawan

You and me, we can afford what we don't like and what we like we can not afford.

You missed the point - i meant there is NO location that I like in Delhi/NCR (I believe the same holds for most of the locations in India). Because be it any location, it will be managed by municipal corporation officers, who due to their incompetence will tend to ignore the mosquito menace situation, easily avoidable traffic congestion, smoke, noise, and the list goes on. Add to this the rampant food adulteration problem that causes us to consume slow poison foods with low level of nutrition - what price do you pay to escape this problem ? I believe you need to pay far more money per sq ft in India vs west for the same quality.

Pawan said...

@REBear
Agreed. But then moving out leaving your close family members, relatives and friends behind is also not an option. Most of us have to live here and comparisons with the developed world is meaningless.

Anonymous said...

@ Pawan,
Moving out is also not easy nowdays. Visa and GC issues. Western economies still tanking.

If RE prices correct, India is a good place to retire.

samix said...

it will be managed by municipal corporation officers, who due to their incompetence will tend to ignore the mosquito menace situation, easily avoidable traffic congestion, smoke, noise, and the list goes on. Add to this the rampant food adulteration problem that causes us to consume slow poison foods with low level of nutrition

This is so true, these are problems that are part of the new normal when it comes to Indian Cities, absolutely no attention is paid to provide people with a safe and healthy living environment. I moved out of India and realized the amount of stress that is paid to these aspects that we so completely ignore in Indian cities.

I only realized how adulterated food in Indian cities is when I stepped out of India and ate food that was not. I see the effect of good food water and air on my children also.

Anonymous said...

Samix, Which country did you move to? If USA, where in US?

Anonymous said...

Probably east coast as people are still sleeping in West coast. I'm in DC metro area.

Anonymous said...

Samix, you can e-mail me at forvg at hotmai...

If you are around DC area, it would nice to meet someone who thinks similarly as me.

Pawan said...

http://capitalmind.in/2012/03/building-affordable-housing-by-curbing-bubbles-in-real-estate/

Anonymous said...

it will be managed by municipal corporation officers, who due to their incompetence will tend to ignore the mosquito menace situation, easily avoidable traffic congestion, smoke, noise, and the list goes on. Add to this the rampant food adulteration problem that causes us to consume slow poison foods with low level of nutrition

I spoke to one of the municipal high rank officer who visited his daughter here in US.
He told the Indian high level officers are ignoring all the ideas from young officers with below attitude.
"I am here for long.I know better than you."
"It will not work here"
"I am the boss"
"Can you face the Ministers?"

Then second hurdle is the politician
One of the politician had a restaurant in the bus stand.
When corp decided to build the new bus stand at a better location, he was blocking the project.
They had to wait five years to get the plan approved

He says he is honest and not taking bribes.
But he has to sign certain projects as per his boss advice
You can protest and get transferred to diff diff location which will spoil the kids education
or get killed or be silent and survive.
So many honest officers just keep quiet.And they don't have energy to fight.

Third is people mentality and upbringing
No one knows how to use garbage cans,public toilets,public buses and parks

We all have to share the blame

Anonymous said...

//We all have to share the blame//

Correct. We all are part of this mess, part of problem. Think about standing on bus stand in a queue. When bus arrives even if a single person pushes his way in before rest by getting out of the line, rest of crowd will follow so as to not be left out.

Every person cheats because eventually he know some where he WILL BE cheated and has to find way to recover his losses. This is catch-22. India has no way out except as Skeptic's Ghost mentioned - 'Catastrophic event or war will clean this mess'.

RE is no exception. All I expect in India is high inflation and very poor quality of life. BTW, what are the prices of onion and rest of the vegetables? No one complaining?

skeptic's ghost said...

A large part for this culture of destitution in India is facilitated by a large government and its large programs -

Large ministry large bureaucracy large PSUs large schemes - poor police poor implementation poor regulations poor oversight poor judiciary

The city/state/central govt. is predatory - either directly or indirectly - either intentionally or by faulty design.

Example the government subsidizes 20 Rs on every liter of diesel but overcharges 30 rs via tax on every liter on petrol - which ends up in net loss to the masses. You can extrapolate this logic on every thing the government is in charge - right from defense, taxation, posts, PSUs, mines, land, water, electricity, healthcare, NREGS, mid day meals, loan waivers, roads, rails, airlines, banks and bailouts etc.

On paper these tend to alleviate poverty and help the needy, in reality they do nothing.

There are multiple ways of fixing the mess if a large part of the population decides that they are against large government and large government programs. Sadly this requires sacrifice which the nations is not in the mood for. The result is that everything that can go wrong - indeed goes wrong.
Currency devaluation and artificial shortage is the final result of this outcome.

The NDA government reluctantly was ushering a smaller government - with less duties outside of regulation, oversight, law and order and infrastructure. - Sadly the UPA undid that.

many writers on http://takshashila.org.in/ and pragati magazine, keep repeating that the state is not your friend but a wolf in sheep's clothing.

You might not agree but do go ahead and read!

skeptic's ghost said...

Another note - the Japanese and US bubbles burst due to oversupply.

In India the supply is limited because builders have to struggle with 11 government clearances to start construction - taking 11 bribes and minimum of 22 months to begin using land.

IMHO If all the governments implement a one window policy where the builders can get these approvals in 2 months - things will change for sure. This will give the necessary oversupply impetus to deflate the bubble.

Sadly this is not happening everywhere - I heard that Gujarat has already done this - is that right ?

Anonymous said...

skeptic's ghost, your anti national sentiment is clouding your judgement. Other than criticising GOI, you dont have any suggestions or constructive input.

Stop comparing foreign countries to India and try to do some research on local situation

Sorry, I I have hurt your feelings

samix said...

Anon at 6:57, I am based in the Middle East not in the US.

Anonymous said...

with new proposal of 1% TDS on real estate transactions worth 50 Lakhs (if seller doesn't have a PAN than 20%), which will be held by buyer and deposited, else buyer can't register.

I believe even govt of India wants to deflat property bubble. this policy looks like first step towards it. "Credai" has already started protesting against it. but if Buyers blink first it will encourage unaccounted money.
Any thoughts in this ?

Anonymous said...

If govt really desires to deflate property price, then they should levy annual property tax of 1% of market value. Use the money to build infrastrcuture - roads, parks, recreation center, clean garbage etc. Appetite to hold property will vanish and better infrastructure will make new area accessable for development. In addition, govt should develop registration system that is open to public for price discovery and price history.

Anonymous said...

@If govt really desires to deflate property price, then they should levy annual property tax of 1% of market value.

LOL, that is so unworkable. Imagine a lower middle class dweller in a dilapidated building in Mumbai who's market value will be worth multiple lakhs simply due to the increase in land value.

What we need is tough enforcement and highly punitive actions for tax evasion. Basically, 100% confiscation of untaxed wealth along with prison terms for serious offenders. Make an example out of a few dozen big shots and see how the rest fall in line.

Otherwise, we're no different than any African / South American basket case and it shows in our corruption/transparency index.

Anonymous said...

after a gap of 6 months, i looked up the prices of apartments at Hiranandani Powai...still inching up, nothing's changed! Demand's much higher than resale supply & with no new construction in sight, don't expect it to fall either. Alas! gotto wait and hope against reality :(

aam aadmi said...

What's the deal with stamp duty news in Mumbai? If it's true, it will be the final nail in the coffin for Mumbai. I would rather leave and find another job than pay such obscene amounts as stamp duty to the govt.

Anonymous said...

Warburg Pincus LLC, U.S. private equity firm, exited a more than seven-year-old investment in Kotak Mahindra Bank Ltd. (KMB).

The U.S. private equity firm, which first invested in Kotak in November 2004, sold 26.5 million shares in a block trade today, said Malini Roy, an external spokeswoman for Warburg.

http://www.bloomberg.com/news/2012-03-26/warburg-pincus-said-to-exit-kotak-with-272-million-stake-sale.html

opps said...

read this :
http://www.thehindubusinessline.com/markets/stock-markets/article3233038.ece?homepage=true&ref=wl_home

Anonymous said...

anon above. You must be kidding. People buying crores worth property - why would they crib for mere thousands.

This will create bigger bubble - people will rush in to buy RE as RE will increase with increase in TDS and stamp duty.

Enjoy Mumbai. Who said Indian's aren't creative !!

Anonymous said...

at time of taking my apt here in whitefield 3 yrs back. 'cauvery water in 6 months saar'.

http://www.dnaindia.com/bangalore/report_whitefield-residents-pale-without-water-in-bangalore_1667505

flats here now are nearing a cr. wow! its a steal, must buy a couple more.

Anonymous said...

http://economictimes.indiatimes.com/markets/real-estate/news-/no-room-for-fall-in-mumbai-home-prices-crisil/articleshow/12417691.cms

The last paragraph however, says that prices actually fell in Mumbai.

aam aadmi said...

@Anon at 6:58
You keep your money I'll keep my water :)

Anonymous said...

@10:15
:) :)

Anonymous said...

//flats here now are nearing a cr. wow! its a steal, must buy a couple more.//

Sure, buy more flats, open the taps and wait for water. If water does not pour in... Repeat.. buy, rinse, repeat. By that time your crore worth will be crores worth.. sell RE and buy water! Problem-O solved.

Hum honge kamyaab ek din....

aam aadmi said...

As Taleb says in his book, sometimes he enjoys telling people "I told you so" AKA fuck you money.

And so I tell everyone around me, what were you thinking when you bought that house in the desert. I read today's newspaper, there was one full page devoted to falling water levels in all reservoirs across the state. Krishnarajsagar, Almatti, you name it, no one has water. Tamil Nadu has filed a petition in SC to force them to release water, and it's not even April, SW Monsoon strikes on June 1st.

Wait and watch, the coming decade will be fun.

Anonymous said...

So let's say RE prices were not high, would that have solved water crisis? No.

Therefore RE prices - high or low have nothing to do with water crisis.

But yes, I would like to see how and where people move (run) when taps run dry.

Which state/city had abundance of water? may be amchi-Mumbai !!

aam aadmi said...

@Above
So let's say RE prices were not high, would that have solved water crisis? No.

High RE prices do tend to exacerbate the problem since it forces people (through greed) to buy houses where they are least viable. Forget India. Look at Las Vegas and Phoenix. Nature will reclaim them soon.

Anonymous said...

More Mumbai realty news - http://www.firstpost.com/economy/np-buyers-but-soaring-prices-a-scam-called-mumbai-realty-256716.html#disqus_thread

No buyers but prices still rising.

fucked mumbaikar said...

http://www.firstpost.com/blogs/living-in-mumbai-no-longer-makes-sense-255625.html

Anonymous said...

Now I am more confident, RE prices are not going to fall. Only way out is inflation to catch up to RE prices, which will not be pretty. This will cause spiral effect of everything being expensive. Now to curb that strong infrastructure and governance needs to be in place, which is obviously not.

Hence ready for f@#king ride. Water? LPG? just wait for Diesel and Kerosene to get expensive and man RE issue will seem timid.

Anonymous said...

When investment returns in RE exceeds 200 - 300% in short span of time, it is no surprise that demand is high.
This demand is fake. There are families planning to buy 3 rd / 4th flat why? they think they got good returns on their previois investment and if they invest further they could make 3-4 crore in next few years. There are many many people in the market having this thoughts. RE is another Harshad Mehata situation in making.

Most of the blog commenter are rationale thinkers. They look for basics, fundamentals, economics etc but what about others?

Demand will subdue only when RE investment returns reduces which is already happening. Prices are already peaked. Rates are going to be stagnant in future for unforeseen period of time.

Whoever is buying he/shes hould look at the construction quality. Otherwise we would have to read sad stories like recent Lift collapsing incident in Goregaon.

Getafix said...

Great "Gobarnance" by the current Gobarnment... Not a day goes by when stink is not raised on one issue or another...
Has anybody thought about the long term repercussions of the this daily crap???
Oh wait, RE is still going up by the day.
Hence AAAALL IZZZZ WELL!!!!
Better to be another idiot among a billion that try and think too hard.

Anonymous said...

http://www.thehindu.com/news/states/karnataka/article3259336.ece

Water Tankers are the solution. Now where do water tankers get water from ?

Anonymous said...

@Now where do water tankers get water from

What we're witnessing is the sheeple getting fleeced.

Democracy only works with an awake and engaged citizenry. Simply showing up every now and then to cast a vote does not make one a responsible citizen.

AnonymousLulz said...

Indian Citizens are awake and engaged all right - only that they are awake and engaged to fleece others and exploit the weak and make the best in gold, lavish lifestyle for themselves without any ethic, hard work or obeying laws.

on another note - here is how UPA anti business tax regime will destroy India growth story

http://www.telegraph.co.uk/finance/comment/9176672/Indias-tax-change-could-be-death-knell-for-inward-investment.html

http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/9176154/India-could-face-constitutional-crisis-over-tax-proposals.html

ritikadeshmukh said...

Really very nice information about property in delhi I really like it.

Anonymous said...

@how UPA anti business tax regime will destroy India growth story

the only reason this is shocking is that i always thought there was some honor among thieves.

apparently our chor government has proven it otherwise by going after a chor corporation.

Pawan said...

http://www.equitymaster.com/dailyreckoning/detail.asp?date=03/24/2012&story=4&title=Does-the-Mumbai-Property-Market-Make-Sense

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