HDFC Rate cutter offer

In the mortgage business the more you know the better it gets. Ignorance is definitely not bliss.

HDFC has comeup with a scheme called "Rate cutter" for the existing Loan customers . In this ,if you repay 0.5% of the outstanding principal, your interest will come down to 9.5 irrespective of your present rate. If you repay 1.5% , then it comes down to 9%.

There is a huge win for everyone since the differential payout could be in the 30k-50k range but the interest savings are in the lakhs. I have no idea why they don't publicize this but some friends have benefitted from this and are very happy. Hope more folks benefit. Also check with your local bank to see if they are able to match this offer. Enjoy and spread this news. This Diwali is definitely going to good for the HDFC loan borrowers. Kudos to Deepak Parekh for this.

Slow demand crimps India property rebound: PE fund

Finally people are getting the fact that the Indian bubble has popped. The unwinding in high priced locations will be slow just like air leaking out of a balloon. and this is the Economic times reporting. Good job guys to report the ground reality. Full article here

Sourav Goswami, managing director of Walton Street India Real Estate Advisors, sees the most potential in middle-income and affordable housing in top-tier cities and expects land that was initially earmarked for high-end development will be shifted to lower-cost housing as strapped investors sell at a loss.

"There are deals in the marketplace now where funds are offering to sell down some of their land positions at 50, 60 cents on the dollar. And once they do that, the next fund that's buying in at a much lower basis has the ability to sort of re-engineer, sort of reposition the product," he said.

Chicago-based Walton Street manages $3 billion globally. It has invested $200 million in India, including a position in a high-profile township project in Kolkata.


Also Read
→ Step carefully while buying a property
→ Rakindo, Appaswamy strike Rs 100-crore deal
→ Mafatlal puts city property on the block
→ HDIL to pay tax on Rs 350 cr more, says didn't evade tax


Once-soaring property prices in India tumbled by as much as 50 percent during the global financial meltdown as an asset price bubble collapsed, and while prices have crawled back by roughly 20 percent, Goswami said they have a long recovery ahead.

"I really think that even the 20 percent recovery from the lows may have gotten ahead of itself a little bit, and I think maybe you'll just see it stall here for a little bit before it starts to pick up again," he said in an interview.

Much of the bubble was driven by high-end, high-margin projects, and Goswami said the pool of buyers for such offerings has shrunk in the wake of the global financial crisis.

"To really sell into the marketplace you need to make sure that you're building something that the local population can afford," or a monthly mortgage of about 40 percent of a buyer's income, he told Reuters TV.

Action hots up in premium realty market

Another meaningless article from Economic Times. In a city of 20 million residents, these morons trumpet the realty purchases of few unnamed HNI and NRI's when in other articles they have quote studies which put the number of slum dwellers at 54%. Absolutely retarded reporting by the most moronic newspaper in India.

MUMBAI: With the revival in the residential portion of the real estate sector gaining ground, developers in Mumbai are focusing on the premium
category. While relatively older apartments in South and central Mumbai continue to command a premium, new properties in these locations too find takers.

Developers point out that big-ticket deals are in the range of Rs 5 crore to about Rs 35 crore, with the price on a per sq ft basis starting from Rs 25,000 to almost Rs 1 lakh.

Among the properties that attract huge interest are Mantri Ruby in Walkeshwar, Orbit Arya in Nepean Sea Road and Mittal Grandeur in Cuffe Parade. Adjoining areas like Worli Seaface and Mahalaxmi too are witnessing interest from potential buyers.

Prices in both South and central Mumbai did not drop during the slowdown. Read more here

Can you wait till after Diwali 2010 to buy your house?

Last month, a friend of mine called up asking for my help in looking for a 1 BHK flat in Pune area. He is thinking of closing the deal by Diwali. I suggested him to wait for one more year, more specifically till Diwali 2o10.

In my opinion real estate market in Pune is a game of "who blinks first". Builders who are sitting on ready possession homes are still quoting the astronomical prices from last year (30L to 50L). Builders who are quoting around 25L for a 2 BHK are promising castles in the air (i.e. new projects launched now and will complete god knows when). Real estate nerds (and investors) like us think these projects and builders are sub prime and will crash anytime soon.

For a genuine home buyer who wants to buy a flat and stay in it, this is a dilemma.

This is not a purely financial decision. Buying a flat which is going to be your home is a great emotional high. It means security and stability, freedom from increasing rents, not having to search for a new flat to rent every 2-3 years.

On the other hand, no one likes to buy a flat for 35L and see its value drop to 25L in 2 years, even though they planned to stay in it for the rest of their lives!

So here is a question for the person who actually needs to buy a flat and settle down:

Does it make sense to wait for one more year and see where the real estate market goes in Diwali 2010, or is it better to go for a deal today if you can afford it?

I-T dept raids HDIL premises

The Income Tax (I-T) department has raided 12 Housing Development and Infrastructure (HDIL) premises, reports CNBC-TV18 quoting sources. The raided premises include residences of two HDIL directors. Sources said the department has recovered unaccounted cash of Rs 1.54 crore so far.

HDIL has been claiming excess expenses and undermining profits, it has been alleged. Over 100 I-T department officials were involved in the raids today, sources said. HDIL is publicly listed and trading at 308 at close of business 9/10/2009. Lets see what 9/11 brings to HDIL. I'm not sure what the fuss is all about with builders and black money. Everybody knows that there is no way one can buy in Mumbai without paying 40% black. What is the fuss all about ? and why single out HDIL ? Why not others like Raheja's and Akruti and countless other big and small builders ?

More details here

Hitler parody on the Real Estate downfall

Rich in India aim for fixed returns, shy risk: Deutsche Bank

I love the dicotomy in reporting by Economic Times and the Times of India property times, both papers belonging to the same company, Bennett and Coleman. Deutsche Bank says that rich folks with minimum assets of 4crs and above have very little appetite for real estate, on the contrary the Times of India says that property sales are picking up in the upper segment. Now the question is are there two sets of rich folks in Mumbai, or are we suckers like they say in Mumbai "Alibag se ayaa hain".

MUMBAI: Deutsche Bank sees little appetite for riskier assets among India's rich despite a more than 60 percent rebound in the domestic stock

Ajay Bagga, head of the German bank's Indian wealth management arm, said its assets under advisement had risen by more than a quarter in 2009 but clients were seeking safe-haven investments. "Most of the money is still very short-term, very fixed return, very preservation oriented. Very little money is looking at taking risk," Bagga told Reuters in an interview.

Deutsche has a 55-member wealth management team spread over five large cities in India and services individuals with at least $1 million in bankable wealth. Bagga said while some clients had started to invest in stocks, demand for real estate and private equity investments remained low.

"Clients have lost that bull market frenzy of chasing returns. It is back to sober asset allocation," he said. The world credit crisis has wiped away trillions of dollars of wealth globally, cutting profits of wealth managers who charge higher fees on riskier asset classes such as stocks as compared with short-term investments such as money market funds.

In India, the number of wealthy fell by nearly a third to 84,000 in 2008, the fastest drop in the world after Hong Kong, as a 52 percent slump in domestic shares hurt the net worth of individuals. By comparison, the world's rich lost a fifth of their wealth in 2008 and their number fell 15 percent as the financial crisis wiped out two years of growth, according to a Merrill Lynch/Capgemini report. Their wealth dropped below 2005 levels to $32.8 trillion.

New real estate bill worries builders

NDTV.com reports. Will this regulator be as toothless as SEBI.  One more department for the builders to grease. All the regulator needs to do is crack down on the black money component. Everything else will fall into place. Who will bell the cat ? Not anytime soon is my guess

The government is all set to tighten the noose around the realty industry. Under the provisions of the new real estate bill, developers may have to face stringent reporting norms.

Besides recommending a regulator for the real estate sector, the new bill also mandates the auditing of account books every quarter. NDTV has learnt that the audit of real estate companies will be conducted by auditors approved by the regulator.

As a result, the realty sector is clearly worried saying that quarterly audit amounts to overregulation.

But what does the government hope to achieve through a real estate regulator and quarterly audits. It is believed that by doing this the government is looking to keep a track on sale of properties besides having clarity on developer’s land bank. The government is also looking to overvaluation of land in accounts.

For the realty sector which is used to work in an unorganised fashion, the real estate regulator is expected to bring in proper regulation.

The bill soon coming up for clearance at the Cabinet also gives the regulator power to cancel the license of a property developer on violation of their guidelines – a step welcomed by many experts who feel that it is high time the government steps in.

It remains to be seen how far the law could be implemented, if at all it gets Cabinet approval as land is a state subject and would need active participation from the states.

WSJ - Better to Buy or Rent?

The full article is here.

The San Jose CPA is advising to base the rent vs buy decision on a simple formula of dividing the home price with the annual rent and then checking if the result is less than15

Indian housing has to deal with 2 other negative factors as opposed to the US. Mortgage rates are two times US rates and there is 40% black money angle to properties in Mumbai. Both these factors affect the affordability of housing for the salaried employee. Add to that the US has a tax credit of $8,000, if the house is bought before Dec 1st, 2009. 

On the NRI H-1b perspective immigration backlogs prevent anyone taking a house purchase risk as any layoff can kill the home ownership dream in a second.

All this goes to say that the US government does far greater things to facilitate an easier lifestyle for its citizens and permanent residents. Motivated people all over the world work equally hard but the US and western countries provide its citizens an affordable high quality of life which only citizens of developing countries can dream of.

>>

With housing prices down significantly in many parts of the country and interest rates low, it may be an affordable time for twentysomethings to buy that first home.

In some instances, the price of owning can be comparable to renting in the long run. But a lot of uncertainty still remains about the housing market and the economy -- making the decision to buy more complicated.

Nicole Stivers, a 24-year-old who works in public relations in Contra Costa County, Calif., purchased her first home with her fiancé in February. They were able to capitalize on what she calls a "perfect storm" -- job stability, a desire to settle down, a surge in home foreclosures and the $8,000 tax credit for first-time buyers.

Still, the move was not without its concerns. "Would we be able to afford this if we both lost our jobs? Do we have enough for a down payment? Do I have enough for moving? It's really nerve-racking when you're first doing it," says Ms. Stivers.

Here are some questions to consider when deciding if buying or renting is the right choice for you:

How long do you plan to stay in your home? "There are high transaction costs associated with buying and selling" a house, says Dean Baker, co-director at the Center for Economic and Policy Research, so home buyers should plan to stay put for at least four to five years.

The reasoning? The costs for buying and then selling a home -- which can include a real-estate agent's fee, a transfer fee, closing costs, and inspector and surveyor fees -- could add up to about 10% of the sale price, or roughly 1½ years worth of rent. "If you average that over 10 years, it is not that big a deal," says Mr. Baker. "But if you average it over, say two years, you're paying an awful lot of money to own a house for a short period of time."

Can you handle the monthly expense? While a monthly mortgage payment may be comparable in some cases to a monthly rent, there are other expenses to consider.

To get a feel for the financial burden you'll be taking on -- and to see if you can handle it -- "practice" making payments. Each month, set aside projected mortgage and property-tax payments, maintenance costs, utilities and any other home-related expenses into a separate savings account, says Gary Smola, a certified financial planner with financial-educational firm Financial Finesse.

What's the price-to-rent ratio? Home prices have come down significantly in some areas of the country, but "nobody knows what tomorrow's going to bring in the housing market," says Daniel Morris, a certified public accountant in San Jose, Calif.

To determine whether it makes more financial sense to buy or rent in your area, compare home sales prices with the cost of renting a similar place.

Divide the price of the home by the total cost of rent for one year. If the result is more than 20, "I'd be very concerned that the price [of the home] might fall more," says Mr. Baker, and you should consider waiting to buy. If it's 15 or below, he says, "you're probably reasonably safe" with prices holding steady or growing.

What is your job and relationship status? Twentysomethings are still getting a grasp on their futures and a constantly changing lifestyle might require the flexibility of renting.

But "if your career stability is strong, you are comfortable doing what you're doing … and you are committed in some form to your lifestyle," Mr. Morris says, buying a home becomes a more attractive option.

How to become bankrupt once a loan is approved

As everyone knows the availablity of home loans in India has propelled the market to new highs in 2007, sometimes upto 300% in 3 years. Most homes are unaffordable to the average Indian who is somehow supposed to magically generate money out of think air. Indian loan rates are double that of the US so the average interest payment on a loan is more twice of an average US loan. Someone suggested in one of the comments on how one can double money in 3 years by buying a property. Lets analyse this myth and see if the investor doubles this money or just goes bankrupt.

Property value total including registration : 1,00,00,000 (1cr)

downpayment : 15L

loan amount: : 85L

interest rate: : 10%

loan period : 20 years

EMI : 82026.84

payment towards interest 1st year : 8.4L

toal payment towards interest after 2nd year : 16.7L

total payment towards interest after 3rd yar : 24.8L

total principal paid in 3 years : 3.5 L

Total equity in house : 15 + 3.5L = 18.5L

Loan early termination fee 1% of oustanding principal : 1% of 80L = 80k

After 3 years the property has to sell for atleast (1.25 +80k ) = ~1.26 crore to break

Lets tabulate the gains based on the projected returns.

increase = -20% gain = -46%

increase = -10% gain = -36%

increase = 0% gain = -24%

increase = 26% gain = 0%

increase = 50% gain = +129%

increase = 100% gain = +400%

All we can say is that leverage is a high risk, high reward game. If you have the guts to lose 50% of capital or 46L in 3 years, you can make anything from 129% to 400% in that same period.

All the best to the risk takers. You deserve the reward as it is commensurate to the risk.

 The above example is more relevant for an leveraged investor.  Let us now think from the point of view of the renter. If the annual rent is 3.6L,  over 3 years the renter pays approx 11L for 3 years. It makes sense for the renter to buy an apt for a price where EMI is closer to rent, rather then further way. Its more common sense then any complex math

Lets do the same calculations for a 60L apt with a rent of 20k

price 60L

downpayment 15L

loan                   45L

tenure               20 years

interest rate    10%

EMI                   43400

total interest over 3 years : 13.1L

total principal paid             : 2.4L

total equity                          : 17.4L

total rent paid  over 3 years  : 7L

here a 3 year rent payment leaves only 5L as a difference over 3 years over the interest paid. 

Macro Markets and Micro Markets poll

Lets take a poll of where bloggers would like to buy (apt/plot/independent house) and at what price. Also lets list the reasons for the selection. It could be close to work-place, relatives or snob value for all you know. Also list whether you are NRI or not and if salaried or businessman. If you have multiple choices lets list them as well. Agents like BB please stay off commenting on the thread. Let me start

1a. Mumbai apt  Vile-Parle(East)     8k(current price 12k)  - NRI - salaried - work/relatives

1b. Pune       apt  Kalyani Nagar        4k (current price 5k)   -  NRI - salaried - work/snob value

Tim Giethner cannot sell his house

if the US treasury secretary cannot price his house accurately to reflect the market, how can we expect any other seller to be realistic in this market.

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Home Crisis Investigation
www.thedailyshow.com
Daily Show Full Episodes Political Humor Healthcare Protests

Most property project delays in Ghaziabad, Gurgaon: Study

Ghaziabad and Gurgaon, the satellite towns in the National Capital Region (NCR), led in terms of the highest proportion of property projects delayed in the country, which were scheduled for completion in 2008 and onwards, a new study has found.

Both these suburbs have 71 per cent of projects delayed, as against the total number of projects scheduled for completion in 2008 and onwards, a study by real estate research firm PropEquity said.

In Bangalore, 309 of the 575 projects were delayed and the average delay in these projects was nine months. In Pune, 305 of 665 projects were delayed, with an average of eight months. Mumbai came third, with 233 of 501 projects, with an average delay of nine months, the study said.

“A lot of developers were diverting funds meant for a project to other projects, hence cash flow was an issue. Their order book was more than what they could actually execute. Many smaller developers jumped into the property sector and they could not complete the projects, resulting in delays,” said Samir Jasuja, founder and chief executive of PropEquity.

Thane, Mumbai and Gurgaon ranked first, second and third, respectively, in terms of percentage price drop in apartments in the country, as economic downturn and dwindling incomes of home buyers impacted property sales and led to a drop in prices. Between May of 2008 and 2009, Thane (a far eastern suburb of Mumbai), Mumbai and Gurgaon witnessed a drop of 22 per cent, 20 per cent and 19 per cent, respectively.

Most property project delays in Ghaziabad, Gurgaon: Study

Reality Expo-2009 gets good response

Deccan Herald reports. Does anyone think the Times of India article on saturday will be any different ?

The exhibition, that has stalls of around 30 developers and housing finance institutions, is expected to have more than 7,000 footfalls.

The rush to own homes in Bangalore was evident at the registration counter, as Karnataka Ownership Apartments Promoters Association (KOAPA) kicked off Reality-2009, its two-day real estate exhibition, on Saturday August 15th, 2009

The exhibition, that has stalls of around 30 developers and housing finance institutions, is expected to have more than 7,000 footfalls.

It will continue at the Grand Ashok on Sunday, between 10 am and 8 pm. The registration fee is Rs 50.

The exhibition features a huge project map of Bangalore City with the various properties of the participating builders marked on it. All the top-of-the-line industry players — including Total Environment, Golden Gate, Sobha Developers, Vaswani Estates, Mantri Developers, Gopalan Enterprises, Puravankara Projects, Brigade Group, Ranka Group, Vakil Housing Development Corporation and Kristal Group — have put up stalls at the venue.

Upcoming high-end projects, including Mantri’s Espana and Purvankara’s Venezia, had many enquiries on the first day. The stall put up by Total Environment — highlighting the use of natural materials like wire-cut bricks and exposed form-finish concrete — also got the visitors coming in. Some of the visitors found the prices steep, but were content with the choices on offer.

“The exhibition helps in keeping a tab on the actual property prices in Bangalore. The different finance options under one roof, also help the decision-making easier,” said Deepan, a chartered accountant.



Finance options

The developers are also offering financing options in association with many banks. That apart, LIC Housing Finance, ICICI Home Loans and HSBC have put up stalls at the expo. “We are offering a flat rate of Rs 5,000 as processing fee, and not the normal rate of one per cent of the loan amount taken. If the documents are pucca, we are also offering spot loan approvals,” said Sridhar, Area Manager, LIC Housing Finance, that also sponsors Reality 2009.

“The event offers a great opportunity for the buyers to avail competitive prices and special offers by builders and financial organisations,” said Mr Balakrishna Hegde, President, KOAPA. The expo was inaugurated Mr S K Mitter, Director and Chief Executive, LIC Housing Finance Ltd.

Change of plans

I just came across this article on DNA India and I am really appalled by the justified two timing by the real estate developers and builders. Is this even legal?

"Residentials hot, commercial space not.

With developers forced to return to the drawing board to make projects financially viable, the landscape is, indeed, changing."

Many commercial property areas are supposed to be only commercial. Its a way to ensure that there is uniform distribution of activities and that there is equitable growth withing the city's numerous sub sections. Also these builders claim incentives like cheap electricity and water from the civic authorities for commercial projects.

India has none or non existent zoning rules, you can mix educational, shopping, recreation, residential, commercial and industrial units in any city block without any awareness of consequences. Does this mean that zoning only for demarcating and industrial land. Why should a builder that owns a piece of land intended for commercial use - that can generate thousands of jobs and provide nearby residents place to shop, be allowed to switch to residential plans. Such haphazard plans not only lead to uneven development, it gives rise to unnecessary skewing of prices.

The same article also quotes

"Inventory days in the two cities have fallen back to early 2008 levels or better. However, the overhang in Bangalore, Chennai, Gurgaon and Hyderabad remains significant with at least 15 months of inventory in the pipeline," Goldman analysts Vishnu Gopal and Aditya Soman wrote.

Well, if GSachs is right, then I don't see how the over supply is going to be filled at current rates. In cities like Pune, there have been lot of shady dealings where builders have given huge discounts but have prolonged delivery of the house. This very similar to the years 1997-2000 where rates were decreasing but not collapsing.

On a Lighter note with the swine flu scare, I am hoping the rush of people to the city will at least pause :) and open some window of opportunity. :) FYI I genuinely think Pune will bottom post Diwali - at least in suburbs.

Six reasons why real estate is a good investment

Times of India, Bangalore trumpetting the cause of the builders. The article is right next to an advertisement from Credai - Karnataka (The builders lobby) which is touting a property mela on the 15th and 16th of August at the Lalit Ashok Hotel. Can someone from Bangalore visit and give us a real report of the ground situation. I'm tired of these soft marketing articles from the Times of India. They are as one-sided as a the coin from Sholay.

This is a good time for investors to buy property as part of a portfolio, says Kavita Sriram
Leading a life of luxury on borrowed money may not always be the right thing to do. How prudent would it be to make an exception on home loans? Should you buy your dream house or invest in some piece of land? Is it time to invest in real estate?

Stability
Real estate is less volatile than stocks. While real estate may be less liquid, and you may have to wait indefinitely before a buyer agrees to purchase your property for the price you seek, the prices are not as volatile as the stock markets. The transition towards a correction or boom takes place gradually, giving ample time for investors to read the transition and safeguard their positions.

Price correction
The economic slowdown had an impact on this sector. The rates have come down over the past few months. Wouldn't it make a lot more sense to invest in real estate when a price correction is taking place rather than in a heated market?
People with a large disposable income can explore investing in real estate for diversification of their assets. Lowering home loan interest rates and lower property prices makes it an opportunity hard to resist.

Good in recession
Some investments are considered safe in times of recession like precious metals and foreign currencies. In this list of investments that are popular during times of financial uncertainty, real estate can be included. Focus on achieving positive monthly cash flows rather than immediate appreciation. Cash flow refers to the amount of cash coming in relative to the amount going out.

Hedge against inflation
Real estate and gold are considered a hedge against forces of inflation. Inflation has led to the rupee value depreciating and property prices travelling upwards. Property investments are typically held over a long term.

Tax benefits
Home loan borrowers are eligible for tax deductions on their interest and principal repayments subject to a certain limit. Further, you can use the rental income from the property to make a portion of the EMI repayments.

Good returns in long term
Investments in property has always proved to be stable and yielded good returns over the long term. With lesser risk and probability of higher returns, this is a much favoured investment option.
Stimulus packages announced by the government are expected to show good results and bolster the economy. Cement, a key construction material, has indicated a growth of 12 percent in May. This is enough indicator of vigorous economic activity.
Borrow as little as possible and consider investing in property.

Underwater Mortgages Reach Epidemic Levels

Heard on the radio today. Caller bought a house in Merced, CA for 300k in 2005, now the house is worth 150k. Multiply this situation for all purchases made in 2005 in Merced. Isn't everyone who bought a house in merced in the last 4 years under water ? When the loan goes into foreclosure the caller loses all the equity he has paid up to the bank and the interest payments for sure. All housing loans are structured to pay of the interest first so the principal payment to the house is negligible.

Now assuming an area like Cupertino, CA which hasnt' seen such a drop, maybe 10%. By definition if the owner's equity portion on the house in the first few years is negligible so without doubt this buyer is under water too. By this metric all housing transactions made in the past 4 years should leave their owners under water. Houses prices have dropped to levels more then the outstanding loan amount because of negligible payments made towards the principal.

Lets random sample a house in Santa Clara, CA using Zillow in one of the sought of areas by Indians and Chinese first generation immigrants.

06/19/2009: $660,000

03/14/2001: $650,000

4% closing costs of $650k = $26,000

Total cost (2001) = $676,000

Downpayment ~10% = 76,000

Total Loan ~90% = 60,0000

Total interest paid at 5.4 % till date = 243,311.60

Total principal paid till date thru monthy payments = 80,000

Property taxes = 8,000 x 8 = ~64,000

Income Tax Interest deduction in taxes at 30% = -80,000

House maintainence cost 3,000 x 8 = 24,000

Total equity in the house = 76k + 80k = 156k

Total cost of ownership = 243k + 64k + 24k = 331k

Outstanding loan =520k

Total Loss = 660 -(520k + 331k)  + 80k(IT deduction) = -111k

Total Loss for owner over 8 years = ~$111,000

Lets assume owner had rented the place for 2k a month as an average over 8 years = 2 x 12 x 8 = $ 192k total

Assume the owner saved the difference between mortgage and the rent (3.3k -2k) = 1.3 x12 x 8 = $125k

Total savings in the bank of renter  = downpayment + difference = 76 + 124k = 200k

Assuming an average return of 3% over 8 years of 200k, yielding simple interest = 48k

Total savings with renter in the bank = ~248,000

http://www.zillow.com/homedetails/charts/19597851_zpid,1year_chartDuration/

24x7 Wallst reports

Underwater mortgages hurt home sales and increase delinquencies and foreclosures.

People who have to pay their mortgage holder to sell their homes are less likely to be sellers. A home sold for $200,000 when it has a $250,000 mortgage is a home that the owner may not be able to afford to sell.

People living in homes with monthly mortgage payment that stretch their abilities to cover their living costs may stay in homes that they believe have a lot of equity and where a sale will eventually bring them a profit. That hope for a bonanza may encourage them to go through the agony of making large payments. People who have no hope of making money on their homes are more likely to be willing to abandon them or be kicked out.

Both of these trends make it more likely that the housing sales pace will continue to be slow and property values will not recover.

Real estate research firm Zillow says that 23% of mortgages are now underwater. The company adds that the number could be 30% a year from now.

One of the major reasons for the trouble is that home values fell 12.1% year-over-year in Q2 to a Zillow Home Value Index of $186,500, resulting in a total 22.3% drop in value since the market peaked in mid-2006. Twenty-two percent of all transactions in June were foreclosures, a possible sign that people are not willing to fight until the end to save their houses.

Investors may have lost one-third investment in real estate

If Deepak Parekh is right investors have lost close to $8 billion dollars. There are numerous purchases made in the Bandra Kurla complex area which will end up as null and void with the buyer forfeiting on the token amount. Jet Airways is a good example where they don't have the cash to pay up 825 crores for the land which could now be worth 600 crores, a drop of 225 crores.  A huge bubble in QIP/HNI/AIM/Hedge fund real estate speculation has ended with a thud. Hirco.L is quoting down 70% from peak. How the mighty have fallen. 

DNAIndia reports

Mumbai: "Investors have pumped in $25 billion into the Indian real estate market over the last three years but with land values having gone down they could have lost a third of the value of their investment,"said Deepak Parekh,chairman,HDFC, in a letter to shareholders.

Parekh said that the $25 billion are invested through IPOs, QIPs (qualified institutional placements), AIM listing (alternate investment market) and foreign direct investment. A large part of these funds were used for buying land at exorbitant prices.

"With land values having come down, my estimate is that investors could have lost a third of the value of their investment," he said. Advocating caution, Parekh said investors in real estate have to be more discerning. They should be more realistic on valuation expectations and not throw caution to the wind, he said. He also criticised the recent trend where housing loans are offered at attractive interest rates in initial years.

"We are seeing some variations of teaser type housing loans being offered. The lure of low interest rate at the start of taking a housing loan is enticing. But are customers being made aware of future implications," he asked.

Its Official: Property rates in Pune have started to fall

National Housing Bank is the Apex Institution for Housing Finance in India. It is wholly owned by the Reserve Bank of India.
It maintains an index of real estate prices from all over the country.

Look at the data and charts for Pune: property rates have started to fall!

http://nhb.org.in/Residex/PUNEres.php

You can check the trends in 15 cities across India.

This is as official as it can get!

This just confirms our observations and conclusions that the real estate bubble in India is going to burst.

On offer in Chennai: Get new flats for old

TOI reports

CHENNAI: It’s commonplace to exchange old utensils, gold jewellery or cars for new. But ever heard of a builder coming up with an exchange offer 

that translates into: ‘You take my new flat; instead, I will buy your old one’? 

In what could well turn out to be a trendsetter, Chennai-based L&T Arun Excello Realty — a joint venture between an L&T subsidiary and a local real estate group — has offered an apartment exchange scheme exclusively to senior citizens. For them, the builder has reserved the ground and first floors of Estancia, an integrated township being promoted 18 km from the Chennai airport on the Madurai route. 

They have also tied up with international realty consultant Jones Lang LaSalle Meghraj (JLLM) to guide elderly customers through the nitty-gritty of the transaction, including evaluating the worth of their old apartments. It is also the first time in Chennai that senior-citizen-friendly flats are being launched within an integrated township. Two other builders had recently launched such apartments in the city. 

Detailing the concept, P Suresh, MD, L&T Arun Excello Realty, said, “Senior citizens quite often feel out of place in the din of city life. They would have put up with hardships for decades, for the sake of their children’s education. In retired life, instead of living alone, feeling insecure and coping with daily challenges in managing the household, we invite them to our gated community that provides a secure environment. They will not be neglected or left alone, but will form part of a community, including children. We also offer to organise even the housekeeping.”

Stock market bubble blog

Maybe it is time for a blog on the stock market bubble. All Indian indexes are fluctuating like pendulums and noone seem to know the direction of the market. Just few months ago, every commentator on CNBC India was forecasting doom and gloom. Now everyone is cheering the market rise and predicting the moon. Its time for a bottom up analysis of the situation and try to gauge the market commentary from the trenches of our desks. We might not be on Dalal Street, however let them not insult our intelligence by propunding gibberish market analysis. The blog is at indiastockmarketbbubble.blogspot.com. Hope to see some of you folks there.

Bangalore periphery realty prices slip below guidance value

Economic Times reports.

If Whitefied with all the IT parks can drop 30% offically, what about Devanhalli which has nothing but Greenfields :). In fact I know of deals in Shantiniketan taking place at below 3000 so the drop of 40% is not unheard of. Maybe a drop by 70% in Devanhalli is not a bad idea to start with.

BANGALORE: Bangalore’s realty market has thrown up a queer problem with property prices in peripheral areas falling below the guidance value set
by the government.

While buyers pick up property at prevailing (lower) market rates, they are having to cough up higher stamp duty for registration. This is because stamp duty is calculated on the guidance value set for each area/property.

“There could be strong case for downward revision of guidance value in peripheral areas,” says K R Niranjan, inspector general of registration and commissioner of stamps in Karnataka. Typically, the government conducts a valuation exercise around October every year and issues fresh guidance values based on property price trends.

If prices continue to be south-bound, the state will have to look at aligning the value to prevailing rates and this could well be the first downward revision in Bangalore. Instead of an annual revision, B S Shankaranarayanan, a legal expert in the realty sector, suggests timely and periodic revision of guidance values based on property price movements.

“This will help the public in cases where there is a price decline and enable the government to mop up more when prices go up,” he adds. And, like a builder in the Yelahanka suburb says, this is as good a time as any to bring about a correction in guidance value.

In a particular instance relating to Devanahalli, which witnessed a steep spurt in prices, given its proximity to the new airport, the value was revised during the year, a state government official says.

Requests seeking downward revision have started trickling in with buyers of the Prestige Shantiniketan project in Whitefield and builder ETA (for The Gardens project on Magadi Road) approaching the department.

The guidance value of Prestige Shantiniketan project is 3,200 per sq feet while it is Rs 4,200 per sq feet for ETA and hence, stamp duty would be calculated on these rates. But, realty sources quote the prevailing basic market rate for ETA at Rs 3,400 per sq feet while prices in Whitefield, where Shantiniketan is located, have suffered a very sharp decline of even up to 30%.

Typically, the guidance value is pegged approximately 20% to 40% below market prices to allow for escalation during the year. In the last three revisions, there has only been an upward revision of the guidance value. In fact, in April 2007, the revision was in the range of 100% to 300%, mirroring the realty boom. But, a builder says, the government hiked the rates when the market had already peaked out, marking the beginning of the downward curve.

Global warming, high tides and Mumbai sea-facing property prices

Yesterday I was one of the curious onlookers witnessing the ferocious waves as they lashed upon the sea-walls. My parents have lived their whole life in Mumbai and they havn't seen this phenomenon ever. Flooding in Bacchan's Juhu house due to rains has become a norm, now the sea water has started entering his house due to tides. All areas within the vicinity of the beach are flooded. This set me thinking that maybe this is a game changer for all these sea facing mumbai properties. Global warming is real, the tides are higher then ever, the rains are more then ever and this combination is lethal. I love the sea, except when it enters my house and destroys my car and all my possessions. I think its time to rethink prices on Mumbai's sea-front. We are witnessing a game changer here. What do you guys think ?

Price rise is realtor strategy, not indication of market lift: report

A July 2009 report by HDFC Securities notes that over the last three months, there has been an average price rise of 3 to 8 per cent in Mumbai. “We believe this increase, by a few hundred rupees per sq ft, is being used as a tool to sway potential buyers to close deals,” it states. It notes that banks providing home loans have reported a significant increase in home purchases and approvals in disbursements have been peaked in the central suburbs.

Between May and July, Kalpataru has increased rates for its projects in Thane, Ghatkopar and Kandivli in the range of 5 to 8 per cent, Nahar for its Chandivli project by 7 per cent, RNA Corp for its Kandivli project by 10 per cent. A few like HDIL and Lodha, which had launched projects at relatively low rates, have hiked prices now, HDIL by 23 per cent at its Kurla and Versova projects and Lodha by 20 per cent at Dombivli.

Registration of Power of Attorney to become compulsory

Hindu reports.

The government of Tamil Nadu has proposed amendments to the Registration Act to prevent fraudulent transactions, evasion of taxes and stamp duty , writes R.L.Narayanan

Photo: M. Srinath

Changes underway: Rules relating to registration of Power of Attorney will be changed.

Recently, the Government of Tamil Nadu has proposed that the rules relating to registration of Power of Attorney will be changed and the registration of instruments of power of attorney will be made compulsory.

Further, it is proposed that the registration of these instruments shall be made only in the office of the Registrar of Assurances concerned having jurisdiction in respect of the property dealt with under the Power of Attorney is situated. Necessary a mendments to the Registration Act, 1908, are likely to be made shortly and date of notification for implementation announced.

The immediate concern for the proposed amendment is the large-scale prevalence of a system known as “Power of Attorney Sales”.

The Supreme Court has considered this terminology and the practice covered by the term in a case pending before it.
Gained acceptance

Broadly speaking, Power of Attorney Sales is the practice of registering Sale Agreement, Power of Attorney with or without Will instead of one Sale Deed or other deed of conveyance on payment of full sale consideration.

The practice has also been to register only one of the three documents mentioned above. This practice has gained acceptance in the market and also before various authorities.

It was noticed that where restrictions such as compulsory permission from the Authority concerned and where such permission was granted on the basis of payments to be made were imposed on transfer of flats, a hybrid system with a Power of Attorney Sale was effected by the allottee / holder of the Flat to avoid the procedures and fees to be paid.

Full article here

Group buying using Twitter

I'm not sure but am wondering if we have use Twitter to post information on group purchases.

For e.g a post can be

Buy : Pune : 3 Bed : Kalyani Nagar : 50L

or

Sell : Bangalore : 2 Bed : Jayanagar : 60L

I guess we can gain some traction if there are people and maybe go for group purchases.

I've created a twitter page IndiaBubbleApt

Dharna by Maytas Hill County residents

Maytas hill county residents of Hyderbad staged a dharna in front of the house of their scamster promoter Mr Ramalinga Raju. The Satyam fiasco has caused Maytas to collapse under its own weight. The project work has stopped and investors and house owners are losing their hard earned money to bank loans. This is a very stark reminder to the state of financing in the real estate construction business. Maytas Hill county was supposed to have been completed by mid 2009. Now with the stopped construction, there seems to be no light at the end of the tunnel. These residents have to push their battle to the media like the Jet employees. Just a weekend protest is not going to help.

A friend of mine helped me translate the 2nd video.
The NRI mom is lamenting the lack of security for investments for NRIs. Her son is in London and got lured by the promises of Maytas. He has been paying EMI for 3 years now with no sign of completion in sight. She believed the builders promises but now nothing is happening. The bank is not reducing the interest rate and the government is not doing anything and not taking action against Maytas.

Beware of taking a home loan from ICICI Bank: Consumer court levies 1 Lakh penalty

From an article in Times of India:

Excerpt:
"After completing all formalities needed to avail a loan, Goyal entered into an agreement with a home finance company and the bank. A loan of Rs 37 lakh, which was to be paid in 180 instalments in a period of 15 years, was sanctioned and he started paying the instalments from March 2005 onwards on a regular basis. However, a letter took him by surprise in August 2008. The letter allegedly stated that the repayment schedule through EMIs was being revised to increase the repayment time from 180 to 502 months. He immediately approached the bank's local branch and requested cancellation of the payment rescheduling but to no avail. "

Read the full article here:
http://timesofindia.indiatimes.com/Chandigarh/Bank-to-pay-Rs-1-lakh-for-overhauling-loan-account/articleshow/4750737.cms

This means that first ICICI bank agreed to give a loan for 15 years (180 / 12). Then using some obscure terms and conditions (who reads those anyway?), they hiked the tenure to 42 years (502 / 12).
42 years means your children (and maybe your grandchildren) will still be paying EMIs!!!

It is not humanely possible to read terms of conditions for each financial product, and clearly it is the banks fiduciary duty to adhere to the spirit of the agreement. I think any bank which shows such tendencies to violate fiduciary duty will exploit its customers.

Another issue is that of charging higher interest rates to existing home loan customers, and lower interest rates to attract new customers, but that merits a blog post of its own!

Can we share our experiences of taking home loans with different banks.?I have two home loans, one from HDFC and one from LIC housing finance, and the experience has been good so far (for the past 2 years).

Thanks to Ravi Karandeekar for blogging about the article.

Ackruti City's Q4 results worst amongst listed realty companies

Ackruti City's Q4 results worst amongst listed realty companies

Mumbai-based real estate developer Ackruti City’s fourth quarter results were the worst amongst the pack of listed realty companies. Due to negative sales, its net profit for the quarter ended March ‘09 took a big hit. Despite a slight improvement in the sentiment for the sector, Ackruti could not register any sales. In fact, it had to write off close to Rs 105 crore worth of FSI sold in the previous year. The company reported a 300% drop in net sales in its fourth quarter and its net profit turned red. It fell to a negative Rs 123 crore from Rs 22 crore earned in the December ‘08 quarter.

Sea link hits Worli property prices

This is commonsense for everyone to see. If a calm area is invaded by 5000 cars an hour, think about the impact. Tough luck for the residents and lovers on Worli seaface. Maybe it is time to commercialize this area too.

DNA Reports

According to real-estate experts, increasing traffic and the consequent noise and air pollution are bound to have a negative impact on property prices along the promenade.

"Individuals who may have wanted to shift to Worli Sea Face will be put off," said Anuj Puri, managing director, Jones Lang LaSalle Meghraj, a real-estate consultancy firm. "There are many issues like pollution, easy access to buildings, and security of children due to the increase in vehicular traffic."

Residents are already complaining that noise levels and air pollution have gone up. Moreover, the exit of the sea link has created a bottleneck, ruining the peace of the locality. The press of the National School for the Blind is on this road which, interestingly, is designated a silence zone.

Budget impact on Indian housing loans

If SBI can lower car loans to 8%, how much lower can they go on property ? I remember in Jan 2003, StanChart was offering loans at 7.75% with the some other banks offering 7.25% variable. Now the rate schedules are announced in advance, so people will have visibility into the rates for the 2nd and 3rd year, instead of just floating/variable rate. As of the latest SBI announcements its 8% for the 1st year and 10% for the 2nd and 3rd year. Still not bad when compared to 12-14% rates a year ago. Add to this the increase in the income tax deduction for housing interest loans from 1.5L to 3L. It appears that just like the US, the Indian government bailout of the housing industry is on track to boost property prices. We are back to the races now. How much will the home buyer bite is everbody's guess ?

Understanding the long term trend with data

Hi All,

It would be great to have actual rates from various projects recorded over a period of time. This will help us to understand the trend of real estate prices.
The trend should be derived from data gathered from guys like us "on the street", not from some biased reports of property consultants.

The idea is that we can have a database-on-the-web to capture real estate rates.

With a few hours effort, I created a google spreadsheet to record the rates over time from a single project in Kothrud, Pune. The pricelists have been grabbed from the builder's website from March 2009 to June 2009.
The latest pricelist can be viewed here:
http://www.pethkarprojects.com/samrajya/availability.pdf

The spreadsheet can be viewed here:
http://spreadsheets.google.com/ccc?key=rmv0n4AJNHEfU_5RRg1I_bQ

Creating a chart, we can see that the rate is the same for the past 4 months!! Compare this with the boom period when rates used to increase every month. Definitely, real estate in Kothrud, Pune has flattened out.

The google spreadsheet is not appropriate for large amounts of data which can start pouring in from various cities, so I have also created a mysql database with multiple tables.

How to gather the data?
1. Quoted by builders - this can be done by gathering pricelists of the projects at exhibitions, or from the website of the builder.
From the pricelist, we need to calculate the carpet area (excluding terraces, balconies, and other non FSI related areas) and the total cost to the buyer (including stamp duty, registration, one time maintanenance etc i.e. everything).
The carpet area, total cost and date can be entered into the database.
Entering pricelists into the database will have to be done by moderators.

2. Posted anonymously by real buyers:
Anyone who has purchased a property can anonymously post the carpet area, total cost and date. The anonymous user is not allowed to enter data directly into the database, he can post in this blog and a few moderators like us who have write permission to the database will enter his post.
What if someone posts a misleading rate? I believe 1o people can lie, but 1000 people will not lie. When we have hundreds and thousands of unique users posting rates, the misleading posts become statistically insignificant. This is the same principle on which www.carwale.com operates.
Also a restriction is that a user can post only the rate for a property he has actually bought, so we can restrict posts to 1 post each month per email id.
People can also post links to builder's websites which have published pricelists.

There can be a discussion on how to allow anonymous posts.

We can have admin / moderators for each city, like I and someone else can do for Pune.

I can help with the perl code, sql and database, domain name, hosting, but I aint no website designer. Maybe we can form a team to collaborate on the website?

India's residential sector likely to see oversupply - Crisil

Crisil reporting accurately on the state of the housing market in India.

>>> Real estate companies have been launching newer residential projects at lower prices that >>>are located in "far-flung" locations (exhurbs) from the central business districts of cities. The Reuters article is below.

This statement is 1000% true. We see launches in Kalyan, Virar, Boisar in Mumbai which are 3 hours away from business districts. It makes no sense to commute 1/4 of your life every day and still be under the duress of loans. Life is more then loans and commute. Builders have bought land at sky high prices in the Mumbai suburbs and the only way out for them is an increase in FSI. I think in the coming years the Maharashtra govt will do just that. Prices will drop to more sober levels once that happens. Anyone buying at 8k per sq/ft will be rueing the decision for the rest of the loan life.

India's residential sector likely to see oversupply - Crisil

MUMBAI (Reuters) - India's realty companies will struggle to find buyers for about a fourth of their residential space between 2009 and 2011, the research arm of rating agency Crisil said in a report on Wednesday.

During 2009-2011, Crisil Research said it expects absorption of 506 million sq. ft. over the three years based on its expectation of a GDP growth of 6-6.5 percent in 2009/10, according to its study of 10 cities across India.

Although planned supply has been estimated at 1,202 million sq. ft., this supply "is unlikely to materialise in full due to the credit crunch and relatively sluggish demand," and the actual supply will be around 700 million sq. ft., it said.

This indicates 28 percent will be in oversupply while much of the planned projects will be delayed by up to two years and others in the planning stage, shelved.

Indian real estate saw demand for housing collapse in the second half of 2008 amidst a global credit crunch and the local market became stressed with buyers fearing job losses, Sudhir Nair, head-Crisil Research said.

The market is expected to stabilise in 2010, he added, "the Indian economy will stabilise and start accelerating and there will be stability in the global economy and fund constraints will be eroded."

Builders had also reduced unit sizes and cut prices, which will help stabilise demand, he said.

Residential prices are expected to fall further by 8-10 percent in 2009 before stabilising the next year and Crisil Research expects investors to maintain a cautionary approach until values stabilise, it added in the report.

Real estate companies have been launching newer residential projects at lower prices that are located in "far-flung" locations from the central business districts of cities.

Rotten apples on the blog

Readers and folks who comment on the blog like Priti, Shyna, Vandana, Abeer , the good BB, Retired old man, Bharat, Shriniwas, Shubh Chintak  have  noticed some several off-topic, irrelevant and offensive comments on the blog. I can turn on the moderator mode, however the feedback loop of posting a comment and seeing it visible on the blog immediately is lost. At the end of the day I can clean up the posts and comments.  BB or whoever is masquerading as BB will eventually tire out by entering the CAPTCHA characters, but  if his only goal in life is to troll this blog 24x7 and keep slandering, I will be forced to turn the moderator mode on and then reject all his comments. 

What do you guys think ? I think we have a good discussion going on prices, areas, builders and the collective wisdom of people is helping everyone including myself. I had no idea about the price rise in the DDA cluster of Mayur Vihar, so keep up the good work and let us all keep posting. Even the casual reader has something to contribute so don't be shy. We all are looking for insights from the real world, not bogus planted articles by TOI , Jones Meghraj and others. 

Resale home market fails to attract buyers

Resale home market fails to attract buyers

MUMBAI: The increase in the demand for housing in the past one month appears to be restricted to resale do not have too many takers, at least not in the large cities. In the case of new projects, developers have been offering attractive discounts, while prices in the resale segment have remained high.

Agreed Sunil Bajaj, another city-based property consultant, “The asking rate for old property market is not in line with the prevailing market rate. In Kandivali (a suburb in western Mumbai), the price of an apartment on the first floor on a per square foot basis was as expensive as the one on the penthouse in the same building.” He added that the flat has remained unsold.

Potential buyers have not been finding the going easy. Amit Desai, a Mumbai-based professional employed in a large business group, is one such person. “For a salaried employee, the rates for older property is out of reach since sellers ask for at least 30% of the price in black. This means you get a loan

only on the white component (the price after deducting the black component).”

Industry observers said new property has witnessed a price drop of 30-50% in the past six months that is the result of developers facing a liquidity crunch and falling demand. Some buyers have chosen not to go ahead with the purchase, as they feared the property might not be completed. This has led developers to offer schemes like getting the buyer to make a partial payment initially and pay the rest at the time of possession.

Psychology driven markets

After basic fundamentals are taken into account, most markets (housing, stock,loans ) are driven by psychology. People buy things based on what others are buying. The media plays its role in shaping the opinion and perception about goods and services and common sense will tell you how people buy and sell based on news articles in the media. Many times people are stricken by fear and sell too early - For this see the Cramer video on how market makers plant stories and move stocks. 

My theory is that the bad news trend is down. People yawn when yesterday's unemployment figures in the US were announced and the stock market moved higher, inspite of record unemployment.

What my little brain can infer is that the government is going to throw the kitchen sink at the problem and several articles have pointed to inflation to rise in the coming months. The US I-Bonds limit has been lowered to 5,000$ per person from 30000$. The government does not want to pay the CPI inflation for the bond since it thinks that is the what is on the horizon. Some people are forecasting US inflation at 5% in the coming years. 

In India  I see the government pumping money in by lowering rates and drawing out all the fence sitters to buy in the property market. However they will make loans very hard to get so the black component of the market will rise. I still don't see how we can justify 60L apts in remote areas or 1 cr apts in developed areas if only funded by loans.  

There are other issues like timely delivery of apts, poor construction, cheating which are bigger issues in the apt buying process. Those have to  be analyzed more closely and the only thing the buyer can do is to beware and go for ready possession clear titles properties. 

I still see a big demand in people wanting housing, the only thing as we all know is the price is too high even after the 25% drops in most mid-segment housing prices.

36 South Starts Hyperinflation Bet After Black Swan

Bloomberg reporting. I think this effect will be on India too as the Indian government begins a spending spree awarding contracts to Indian and foreign firms. Already there are indications of the F-16/F-18 deal with Raytheon and more will follow. The governments will try their best to spend themselves out of the recessionary spiral. More money will be printed and overall everyone will think they have more money, only that that money will buy less. The sixth pay commission is another example of spending. Instead of reiging in inflation, the government is printing more money which will make it less valuable. Elections cannot be won if people have less money which buy more things, but when people have more money which buy less things. In the latter case the government is seen as helping the citizens, and blaming the foreign governments including OPEC as the villians.

With reference to Indian housing I think this spells bad news. Prices drops will be stalled as money enters the system looking for value. Today I got an offer by ICICI bank which mentioned about a Chembur project for 5300 per sq/ft. Not sure what is the exact location previously these locations quoted 8k and above. Just shows that new projects are priced lower then existing ones. The floor is being set so it is time to look for deals. I'm officially abandoning my bearish position on projects which accept full white money. The theory being that banks in today's economy will not lend money if they think the house will lose value or the builder and borrower is not credit worthy. So projects accepting full white have to price themselves to perfection, else they will see no traction with the buyers. This is a time to hunt for value, if you have the down-payment, you can demand your price.
By Netty Ismail

June 16 (Bloomberg) -- 36 South Investment Managers Ltd., whose Black Swan Fund gained 234 percent in 2008, is raising money for a new hedge fund, betting that government efforts to pump money into economies could result in hyperinflation.

The Excelsior Fund targets returns that will be five times the average annual rate of inflation of the Group of Five economies -- France, Germany, Japan, the U.K. and the U.S. -- should the rate exceed 5 percent, Jerry Haworth, co-founder of the firm, said yesterday. Raising $100 million for the fund would be a “good” amount, he said.

“There is a sharply increased risk of greater than 5 percent inflation starting from now,” Haworth said in a telephone interview from London. “We are in the lag period between when the seeds of inflation are sown and when their off- spring, that is higher prices, are evident for all to see.”

U.S. President Barack Obama is selling record amounts of debt to try to end the steepest U.S. recession in 50 years, while Japanese Prime Minister Taro Aso has unveiled three stimulus packages worth 25 trillion yen ($261 billion) since taking office in September. Governments around the world selling record amounts of debt may devalue currencies against assets and spark inflation.

Most investors are underestimating the risk of inflation, Haworth said. Consumer prices in the U.S., the world’s largest economy, are set to rise 1.7 percent next year, following a 0.6 percent decline this year, according to the median of 70 economists surveyed by Bloomberg.

Inflation Risk

“There is certainly talk about inflation but people might think of inflation at 5 percent or 6 percent,” Zimbabwean-born Haworth said. “We’re talking 5, 10, 15, 20 percent or more.”

Investor Marc Faber said on May 27 he was “100 percent sure” that U.S. prices may increase at rates “close to” Zimbabwe’s gains, and the U.S. economy will enter “hyperinflation” because the Federal Reserve will be reluctant to raise interest rates. Zimbabwe’s inflation rate reached 231 million percent in July, the last annual rate published by the statistics office.

Universa Investments LP, the hedge-fund firm advised by “Black Swan” author Nassim Taleb, is also adding a strategy betting that stimulus efforts won’t prevent deflation or could result in hyperinflation.

Inflation will likely be “very low” through 2010, said Alvin Liew, an economist at Standard Chartered Plc in Singapore. There will only be “a risk of very high inflation” starting in 2011 if governments fail to rein in “those excesses that they did to stimulate the economy in the near future,” he said.

“For now, I will be more concerned about how sustainable the growth recovery path is,” Liew said. “When we move into the later part of 2010, investors should pay more attention to inflation.”

Options

36 South’s Excelsior Fund will buy long-dated options it considers cheap and that “stand a good chance of outperforming in an inflationary environment,” Haworth said. Options are contracts to buy or sell a security by a certain date at a specific price.

The fund will wager on an increase in commodity and equity prices, bond yields and increased currency volatility.

“It’s a very high-risk, high-return fund,” said Haworth, who has been trading derivatives for more than 20 years as the former head of equity derivatives at Johannesburg-based Investec Ltd., and co-founder of Peregrine Holdings Ltd., a South African money manager and stockbroker.

The firm will be marketing the fund in the next three months.

36 South has closed its Black Swan Fund, which bet on risk- aversion events, and returned the money to investors after profiting from last year’s global markets rout.

Returns on the inflation fund “could be even higher than the Black Swan Fund though the likelihood is smaller as options are more expensive than they were when the Black Swan positions were bought,” Haworth said.

Home loan exemption increases

It appears that the government is on an appeasement drive to help the builders. Loan based properties will soon see spikes in sales as these changes take effect. Still the impact will be almost zero on highly priced properties which are not served by the loan market specially Mumbai. For that you need 3/4 of your income to be generated by evading taxes. It is then possible to own in Mumbai. I think this move and the lowering of rates to the vicinity of 9% will drive a bunch of people to make purchases. I'm not turning bullish here but I think for the prospective buyer, doing some research locally is probably not a bad thing. You can always choose to back out of the final purchase but some research is definitely warranted. There was another article I read which mentioned that the 6th pay commission has raised government salaries of unskilled workers to 9500. With such rapid inflation, Rs 1000 will not hold much value any longer. Government jobs didn't pay much and everyone flocked to the private industry. Now the scales have been tipped and government jobs everywhere (US or India) will again be coveted with envy. We are seeing a complete reversal of trend unfolding before our eyes.

NEW DELHI:
The government is considering a proposal to hike income-tax exemption available for interest payment on home loans to Rs 2.5 lakh a Home Loan
Tax benefits on home loan year, to boost demand and rebuild the slowdown-hit housing industry.

The ministry of housing and urban development has urged finance minister Pranab Mukherjee to make an announcement to this effect as part of his Budget presentation in early July, a government official said on condition of anonymity.

At present, taxpayers taking housing loans are eligible for income-tax exemption on interest payment of up to Rs 1.5 lakh every year. Besides this, the repayment of principal amount is part of investments eligible for benefit under Section 80(C) of the Income-Tax Act, which has a ceiling of Rs 1 lakh.

The government has already identified housing as one of its focus areas, a fact highlighted by President Pratibha Patil in her address to both the houses of Parliament.

The existing tax exemption limit is considered inadequate at a time when a two-bedroom house in big cities costs at least Rs 25 lakh.

Considering a person takes a loan of Rs 20 lakh at an interest rate of 9.5%, he would pay Rs 1,88,493 towards interest alone in the first year. His annual interest payment in the first five years would be more than Rs 1.5 lakh.

If the exemption limit is hiked to Rs 2.5 lakh, then a person paying that much home loan interest in a year will save an additional Rs 31,000 in tax every year. This saving of over Rs 2,500 a month would be significant for most borrowers, making home purchases more affordable.

However, as per existing norms, the tax benefits start flowing in only after the construction of the house is completed, which usually takes 2-3 years in case of builder flats.

The housing industry has urged the government to allow for the deduction as soon as loan repayment starts, as it would give substantial relief to home buyers and boost demand.

The Budget documents do not provide an estimate of the revenue forgone on account of this exemption, but it is unlikely to be very significant.

Of the total Rs 38,107-crore tax revenue forgone on account of tax exemptions to individuals in 2007-08, nearly Rs 30,000 crore is on account of Section 80C benefit, one component of which is principal repayment on housing loan.

The housing sector in the country has been hit hard by demand slowdown, following a rise in interest rates. Besides lowering of home loan interest rates, the industry has been continuously pitching for greater tax benefit, as it had the potential of stimulating demand.

A roof over one's head

A roof over one's head

HDFC says that the multiple that operates for housing in a Mumbai suburb is between 4.5 and 5.25 times annual salary. If 85-90 per cent of the cost of a flat is taken as a loan, and a 15-year loan has a monthly repayment instalment that is 1 per cent of the loan amount, then simple arithmetic tells us that 40 per cent of income is needed to pay back the loan.

Now, the average (or median) Indian family earned about Rs 1.31 lakh last year, or Rs 11,000 a month. Can it afford to pay Rs 4,400 every month on a housing loan, for a modest one-bedroom flat that costs Rs 6.5 lakh? Probably not. But if it could, or if it had a little more income, would it get a flat for Rs 6.5 lakh? Not in the big cities. The Delhi Development Authority, which is not known for quality work, sells a one-bedroom flat (450 sq ft) for Rs 8-10 lakh; the open market rates are at least twice as high. So it is easy to see why most middle-class Indians see home ownership as a distant dream.

But hold it; flats are now being offered for Rs 4 lakh by Tata Housing (covering 280 square feet, which may mean a room plus kitchen). A 450-square foot (one-bedroom) flat would cost the magical sum of Rs 6-7 lakh. Jerry Rao, the banker-turned-IT entrepreneur-turned-housing evangelist, has set up a housing company that will offer flats for Rs 7 lakh—with construction cost in the region of Rs 700 per square foot. These entrepreneurs seem to be dropping the total cost from Rs 2,000 per square foot to Rs 1,500. If they are successful, others are bound to follow their lead. And housing might then become affordable for the average Indian, if not quite the aam aadmi that the politician has in mind.

The big real estate companies, which have been focusing on housing that costs Rs 4,000-6,000 per square foot and more, have seen the light—in part because they have found no takers in today’s real estate slump. So they have slashed prices, in some cases by a half, and have been rewarded with a rush of buyers. The problem in India is that much of the cost of the roof over your head is on account of the land beneath your feet—which has been kept hopelessly expensive by the politician-builder nexus. This has prevented more land from coming into the housing market, which is why upscale flats in Delhi and Mumbai rival the costs of those in Manhattan (where the typical flat costs Rs 6 crore). If more land were thrown into the market, home ownership would not remain a dream for the majority, it would become reality.