When we see such articles hitting the mainstream media, we know that the bubble is on its way to pop, sooner or later. Fast money never lasts and Mr Yadav will soon realize this. New York times link. Farmers owing land in outlying areas of all Indian metro's have experienced this windfall. Personally I have witnessed farmers become overnight millionaries in Pune, Bangalore and Nagpur. However as we all know that is just a fraction of the farming population in India.

On the other post of Persistent, that IPO has been oversubscribed 93 times. I would not be surprised if the stock doubles in a few days. Some people are going to be very rich, and others very poor.

NOIDA, India — Bhisham Singh Yadav, father of the groom, is stressed. His rented Lexus got stuck behind a bullock cart. He has hired a truck to blast Hindi pop, but it is too big to maneuver through his village. At least his grandest gesture, evidence of his upward mobility, is circling overhead. The helicopter has arrived.
Kuni Takahashi for The New York Times

At a wedding on Delhi’s outskirts, the groom, Kapil Yadav, and the helicopter his father hired.
Enlarge This Image
Kuni Takahashi for The New York Times

Girls protected their faces from the dust near Delhi as a helicopter carried the groom to his bride’s village less than two miles away.

Mr. Yadav, a wheat farmer, has never flown, nor has anyone else in the family. And this will only be a short trip: delivering his son less than two miles to the village of the bride. But like many families in this expanding suburb of New Delhi, the Yadavs have come into money, and they want everyone to know it.

“People will remember that his son went on a helicopter for his marriage,” a cousin, Vikas Yadav, shouted over the din. “People should know they are spending money. For us, things like this are the stuff of dreams.”

The Yadavs are members of a new economic caste in India: nouveau riche farmers. Land acquisition for expanding cities and industry is one of the most bitterly contentious issues in India, rife with corruption and violent protests. Yet in some areas it has created pockets of overnight wealth, especially in the outlying regions of the capital, New Delhi.

By Western standards, few of these farmers are truly rich. But in India, where the annual per capita income is about $1,000 and where roughly 800 million people live on less than $2 a day, some farmers have gotten windfalls of several million rupees by selling land. Over the years, farmers and others have sold more than 50,000 acres of farmland as Noida has evolved into a suburb of 300,000 people with shopping malls and office parks.

The Stock Market As Propaganda

The Stock Market As Propaganda

Since 91% of stocks are owned by the Plutocracy, the much-ballyhooed rise in the stock market as proof the recession is over is perception management/ propaganda.

The 75% rise in the stock market from its lows a year ago is ceaselessly offered as "proof" the economy is recovering. Too bad very few Americans are drawing any benefit from this stupendous rise. As I detail below, the Great Middle Class owns at best only 7% of all stocks and mutual funds.

So the constant, breathless heralding of the stock market's carefully manufactured ascent has only one purpose: to create perceptions of "recovery"and distract the populace from the fact that in terms of employment and tax revenues, the U.S. economy is still shrinking rapidly.

Let's begin with the facts presented in the Wealth, Income, and Power website (G. William Domhoff).

In the United States, wealth is highly concentrated in a relatively few hands. As of 2007, the top 1% of households (the upper class) owned 34.6% of all privately held wealth, and the next 19% (the managerial, professional, and small business stratum) had 50.5%, which means that just 20% of the people owned a remarkable 85%, leaving only 15% of the wealth for the bottom 80% (wage and salary workers).

In terms of financial wealth (total net worth minus the value of one's home), the top 1% of households had an even greater share: 42.7%. Table 1 and Figure 1 present further details drawn from the careful work of economist Edward N. Wolff at New York University (2009).

In terms of types of financial wealth, the top one percent of households have 38.3% of all privately held stock, 60.6% of financial securities, and 62.4% of business equity. The top 10% have 80% to 90% of stocks, bonds, trust funds, and business equity, and over 75% of non-home real estate. Since financial wealth is what counts as far as the control of income-producing assets, we can say that just 10% of the people own the United States of America. (end of excerpt)

Here is a chart from the website:
wealth distrubition

According to the asset class breakdown on Wealth, Income, and Power, the bottom 90% owned 18.8% of all stocks and mutual funds in 2007. Since the bottom 60% own very little (only 22% of the bottom 60% own stock/mutual funds worth more than $10,000), and the bottom 80% own a mere 8.9% of all stocks/mutual funds, then the top 10% owns 81% of all stocks (of which the top 1% own 38%) and the "managerial/professional" slice between 80% and 90% owns about 10%.

Some 47% of the "middle class" (those between the bottom 40% with few financial assets and the top 20% with the vast majority of the assets) own stocks/mutual funds worth more than $10,000, but since the bottom 80% own a mere 8.9% of all stocks, it seems the Great American Middle Class owns about 7% of all the stocks and mutual funds in the U.S. (with the bottom 40% holding the remaining 2%).

According to BusinessWeek, the profits of the S&P 500 corporations rose in 2009 to over $500 billion--a vast sum presented as "yet more proof" that the recession is over.

Over for some perhaps, but not for the bottom 80%. It is no secret that the spurt in productivity which fueled those gargantuan profits was made by reducing headcounts and getting more work out of the remaining workforce. Bully for the S&P 500 managers and those who reap the profits.

Since there are about 130 million U.S. households and total corporate profits are around $1 trillion, we can do some simple math to see where all those profits flow.

If you dig through the BEA website and other sources, you find that Corporate profits were about 13 percent of GDP in 2007, their highest level in 40 years and significantly above the post-World War II average of 9.4 percent of GDP. Nonfinancial profits for 2006 were $1.08 trillion. Real GDP peaked in Q2 2008 at 13,415.3 billion; in Q3 2009 GDP was 12,973 billion (calculated annually).

Even assuming corporate profits have dropped back to 9% of GDP, we still get a number around $1 trillion in profit for 2009.

Based on the ownership of stock and mutual funds, we can estimate that 9% ($90 billion) of all that profit flowed to the bottom 80% of households (104 million), $100 billion flowed to the 13 million Managerial/Professional households (the 10% of all households between 80% and 90%), and $810 billion flowed to the top 10% (13 million households), of which $400 billion flowed to the top 1% (1.3 million households).

Since total household income runs about $9 trillion, then the $90 billion distributed among 104 million households doesn't really ring a lot of chimes when the estimated loss of wealth in the U.S. as the credit bubble popped has been estimated at $15 trillion.

The rise in the stock market and corporate profits benefitted the relative few--yet is touted in the mainstream media as heralding the end of the recession for the entire nation. That is pure propaganda. How easy it's been to manufacture a rising stock market, compared to engineering a recovery in the economy.

Indeed, the biggest problem facing the manipulators is the lack of participation by the professional and middle classes which have steadfastly kept their cash in money-market funds ($3 trillion) and put money in "safe" bond funds (about $350 billion went into such funds in 2009) while they withdrew money from the stock mutual funds.

The Grand Game has always been to engineer a rising stock market, sell to the middle class suckers and then go short, making a fortune as the bubble pops and the middle class loses the "sure bet."

Now that the middle class isn't responding to the endless propaganda about how great the stock market is doing, then the Powers That Be are forced to trade between themselves--hence the low daily volume and high-frequency trading.

The stock market isn't about building middle class wealth, and the middle class seems to have finally figured that out. The equity market is all about concentrating wealth and managing perception: if the top 10% is doing well, then the bottom 90% are supposed to feel better about the whole thing, too, even if they are poorer by every financial metric.

Charles Hugh Smith has been an independent journalist for 22 years. His weblog, www.oftwominds.com, draws two million visits a year with unique analyses of global finance, stocks and political economy. He has written six novels and Weblogs & New Media: Marketing in Crisis and just released Survival+: Structuring Prosperity for Yourself and the Nation.

Impact of Persistent Systems IPO on Pune real estate

The Persistent Systems IPO opens today and is intended to raise over 167 crores. I have known about Persistent Systems for a long time and know some people who work there. Dr Deshpande the CEO is different then the rest of the businessmen in India, most of whom are ready to scam the people and make a quick buck in the stock market. I remember visiting the Persistent office in the PCMC MTDC STP in Aundh in Jan 93 when Pune was a sleepy town and everything used to shutdown at 7:00 pm. It has since grown organically as they kept building on their core strengths of systems programming as their niche rather then become the jack of all trades.

My feeling is that quite a few employees in Pune will have excess of 10-20L post the IPO as their options become liquid. With 4400 employees on their payroll, I have a feeling atleast 70-80% of them will cash out their options and buy some real estate in Pune, but I am also guessing that the Mumbai style purchases by investors with 10-20% down is going to eat up supply as people start to get greedy.

I think Pune builders are going to benefit big time in the short run as this mania is induced by the builders thereby driving other fence sitters into taking the plunge. Remember Pune is still cheap as compared to Mumbai and a lottery of 20L is almost a once in a lifetime opportunity.

If this blog has ever given a bullish signal it is giving now, only for Pune real estate. The key would be to negotiate prices before the Persistent folks start cashing out. I don't know the lock-in period of the IPO but I presume that it will be atleast 3-6 months before they are eligible to cash out. In essence investing in Pune real estate is a proxy for investing in the Persistent IPO, where you can leverage the bank for 80% of the amount. I would only advise this only to serious buyers in Pune and not those who would like to flip in 6 months. Livable areas close to Persistent, Pashan, Baner , lesser degree Hinjewadi, Wakad should be good bets

If we have any readers of this blog from Persistent I would like to know what they are doing with their liquid stock options

L.K Advani wants to get back black money from Swiss accounts

Here is your chance to comment in the blog and urge Mr Advani to generate pressure on the government to recover lost assets rightfully belonging to the Indian people. Corruption is the root cause of disproportionate assets in India and this is a way to fix it. Here is a link to Mr Advani's blog. Apart from Switzerland there are hundred other places where one can launder money. In this age of the internet it is not hard to know where all money can be stashed. Just the other day UBS released a statement of data theft of account names and numbers which were stolen by an employee. HSBC reported a similar theft few days ago. In this age there is no privacy and employees can be easily swayed by easy money to get hold of critical account data. Banks will try to tighten security policies and restrict access but to a motivated data thief, getting few megabytes of data is a cake walk.

We are going to see a lot of skeletons tumble from the black money cupboard. Its not a question of 'IF, its a question of 'WHEN'.

Indian inflation is real nasty

One will never see such articles in India's self censoring media. Editors and columnists think that the big three of Indian finance are demi-gods like Tendulkar or SRK. Not to mention leaders in the opposition who have their head stuck in the 19th century. Here is what is happening to the salary of the Indian citizen. Link

Factory gate prices are not a true reflection of cost-to-consumer, but these WPI figures, as the best available data, seem to indicate that the Singh Administration grossly underestimated the potential for inflation as the desired stimulus led output and investment gains have exacerbated the agricultural complex after last year’s disastrously dry monsoon season. The public assurances of Singh’s administration and Central bank Governor Subbarao that food prices will moderate in the new year (March to March) is meaningless if this year’s monsoon rainfall disappoints. Note that ,with agriculture accounting for nearly 20% of GDP but employing over half the population, water is the most volatile commodity in the Indian economy.

Sheela Murthy's interview on the latest USCIS

I found this recent video of Ms Murthy's interview with Sneha TV. Some people might find it off topic, however given the number of Indian IT professionals in the US and/or aspiring to go to the land of opportunity I thought it would be of interest to a wider audience. She makes some excellent points and it is a must see. Here is the link

Twenty-25 per cent toh market tootega

The brokers have a vested interest to drop prices since at current prices there are no buyers. Builders launch projects and sell to investors, now investors get greedy and are not ready to drop prices to the higher levels held by the builders. Brokers are squeezed in between as there are no transactions as investors are not ready to drop prices. Builders have no incentive to drop prices as they have sold to the investors and if they drop prices, investors will start bailing out and demanding a reduction in prices, similar to the DLF fiasco in Chennai. End-users cannot buy since they are not eligible for bank loans. Its a catch -22 situation which this ponzi scheme has now reached. The bubble will unwind one apt at a time, as investors realise that they have been fooled by the builders. There is no denying the fact that there is demand, however the price at which the demand is satisfied is in the range of 4k - 6k per sq/ ft in Mumbai. There are always exceptions to the rule however in the general locations where income levels don't cross 10-15L this is the range.

The same scenario will unfold all over Mumbai. This article in the mainstream media is what I was waiting for. I have been crying myself hoarse over the past few years and a 25-30% reduction in investor prices will bring apts down to under 5k per sq ft.

Congratulations buyers for being sensible. I woudn't mind paying the broker 2% if he can convince the investor that the bubble has burst and ask him to drop prices to the 4,000-5,000 range.

Goregaon-Borivli to house 30,000 new homes by 2012

Buyers can expect a correction in realty prices soon, say experts

By Alka Shukla
Posted On Saturday, February 20, 2010 at 02:05:39 AM

According to data collated by suburban brokers, around three-crore square feet of residential property could be up for grabs between Goregaon and Borivli over the next three years.


Going by the average apartment area of 1,000 sq ft, some 30,000 houses could be ready for possession in the next two to three years. That’s almost three times the average supply of homes seen in this belt. The current real estate rate in this region is between Rs 7,000 and 9,000 per sq ft.

“Many developers were sitting on land banks for the past two years. Holding on to land also involves its own costs and post-downturn, it’s prudent to capitalise on it. So you’ve seen a slew of launches.

Even as of today in the said belt, there is an unsold ready stock of one crore square feet,” says Pankaj Kapoor of Liases Foras, a realty research firm, indicating that there will be a glut in the market in the next two years, bringing prices down by 25-30 per cent.

Another real estate expert Ajay Chaturvedi concurs, “Builders are not really seeing the kind of demand that is being projected. Prices are bound to drop in the range of 15-25 per cent,” he says.

Picture for representational purposes
In fact a survey done by Liases Foras suggests that there will be nine crore sq ft of homes by 2011-2012.

This translates roughly to 90,000 homes, around 30 per cent of which will be in the extended suburbs from Dahisar to Virar, Thane and Navi Mumbai.

Developers claim there is enough demand to absorb the supply. Niranjan Hiranandani, MD, Hiranandani Group which has launched a seven lakh sq ft project in Malad says, “I strongly disagree that there will be an over-supply situation. What we have today in fact is gross under-supply. Although it is difficult to speculate on prices.”

Vijay Wadhwa of Wadhwa Group which has launched eight lakh sq ft of residential construction in Borivli and 10 lakh sq ft in Goregaon feels the sudden surge in supply will shake the smaller players. “Lot of projects have been launched recently, but only few are that good. There is enough demand in the city, but only the ones will a steady track record will sustain. Over-priced products will suffer,” says Wadhwa.

Property consultants however sound a word of caution. Says Pranay Wakil, Chairman, Knightfrank, “It will depend on what segment these houses cater to.

If 30,000 houses in one region are in one particular segment, say over Rs 75 lakh, there could be an over-supply. There needs to be a healthy mix of affordable and premium housing.”

Local brokers, however feel prices will fall. “Twenty-25 per cent toh market tootega,” says a Malad-based broker, continuing, “Many local developers are trying to sell flats at the rate of Rs 4-5,000 per sq ft to investors first and then selling only part of the stock in phases to the buyers for a higher rate. That’s how they are holding on to high prices.”

India's Real Estate Boom Is on Shaky Ground .

The Indian version of Forbes magazine lists the 100 richest Indians. Apart from the usual suspects, what intrigued us was that most of the new entrants in it were from the real estate industry. India is a services-based economy and a lot the people were from technology or other export services and products. But real estate?

India's Real Estate Boom Is on Shaky Ground

It is a bricks and mortar industry that caters to the local market. Yet it is so vast that it is creating untold riches. As people move to cities to build their careers, builders are fueling their aspirations for a dream home. The builders themselves have built their companies with successful initial public offerings and by attracting foreign investment. It's a good time to be in Indian real estate, with buoyant prices and never-ending demand.

Builders cry foul play as Govt imposes service tax

Finally the builders are getting the short end of the stick, the same stick they have used when they hiked prices indiscriminately every week. The best line is from Niranjan Hiranandani who shedding crocodile tears for affordable housing.

"The budget proposals are death knell for the affordable housing in the country. If housing will be taxed so heavily, how can you expect us to build homes. There is no other option before us than going to the government and ask for roll back," said Niranjan Hiranandani, managing director of Hiranandani Constructions.

Now Mr Hiranandani has never built homes for the middle class and prices in Hiranandani Powai are upwards of 18,000 per sq ft. If they don't like the proposals I would urge all the builders to quit this business and leave it to the individuals to build their own houses

Withdraw move on service tax, say developers

Raghavendra Kamath / Mumbai February 28, 2010, :01 IST

Stung by new service tax proposals on property transactions, real estate bodies such as CREDAI (Confederation of Real Estate Developers Associations of India) and Maharashtra Chamber of Housing and Industry (MCHI) are planning to approach the finance ministry to seek a rollback of some of the proposals.

The government yesterday brought transactions such as leasing vacant land and commercial spaces, payment made to developers before the grant of completion certificate and imposing preferred location charges among others under service tax net.

The transactions now attract a service tax of 10.3 per cent. Developers complain that levying service tax on payments during construction will push up prices and reduce home sales.

The proposal, according to developers, could push up prices by 10 per cent in Tier-II and Tier-III towns and 0.5-4 per cent in big cities, which have higher land prices. Service tax is calculated on construction cost.

For instance, in South Mumbai, where apartments are priced at Rs 35,000 per square feet, the effective tax burden will be 0.5 per cent (10.3 per cent on construction cost Rs 2,000 per sq ft). A house of 1,000 sq ft will attract a tax of Rs 175,000.

But in Umargaon, which is around three-hour drive from Mumbai, where apartment prices are around Rs 1,200 per sq ft, the service tax burden will be 7.25 per cent (on construction cost of Rs 900 per sq ft).

Developers have already increased prices by 15-20 per cent in the last nine months as demand for homes pick up. This has resulted in demand tampering off in the last two months.

"Either prices have to correct now or developers have to pass on the burden to buyers. I think the second option is most likely to happen. If that happens, home sales will certainly go down," Krishnan, partner, real estate practice, Ernst & Young.

Adds Kumar Gera, chairman of CREDAI and Gera Developments: "It is a burden on buyers and not on developers. Anything that increases prices reduces affordability. If developers have margins, they will absorb it, otherwise they can\'t." "We will approach the government to reconsider the proposal."

Krishnan said that by levying new service tax, the government had sent out a signal to the developers to reduce prices and clear their inventory.

Developers said the increase in excise duty on cement and steel, the key ingredients in construction, is also likely to see increase in prices. Excise duty on cement and steel have gone up by 2 per cent. Cement prices are likely to go up by around Rs 8-10 a bag of 50 kg, while the prices of steel are likely to increase by around Rs 600 a tonne.

"The budget proposals are death knell for the affordable housing in the country. If housing will be taxed so heavily, how can you expect us to build homes. There is no other option before us than going to the government and ask for roll back," said Niranjan Hiranandani, managing director of Hiranandani Constructions.

Montek says Goldman Sachs analyst is wrong

“We think the Reserve Bank of India will need to raise effective policy rates by 300 basis points in 2010 to bring policy rates to neutral, in the face of rising domestic demand and inflationary pressures,” Goldman’s Mumbai-based economist Tushar Poddar said in a note on Feb. 26 after the budget was announced.

“300 basis points is quite a huge increase but certainly I don’t expect that kind of increase to take place,” Montek Singh Ahluwalia, the deputy chairman of the Planning Commission, an agency that sets India’s growth and investment targets, said in an interview. He added that a narrowing budget deficit will help restrain any rise in corporate borrowing costs.

>>>

Lets take a hypothetical example

Principal 75L
Interest 10%
Tenure 10 years
EMI ~1L x 120 months = 120L
Total interest paid = 45L

With an increase of the interest rates to 12%

EMI = 1.076L

Total payments 1.076L x 120 = 129 L

Total interest paid = 54L


What about builders who finance the projects thru loans ? They are hit as well. Now if they pass on this cost to the end-user by a 20% increase in prices, the sky-high prices now will reach the Gods and only Indra will be able to afford these prices.

What a mess the UPA government has created.

Lets hear the detractors on this.


Here is the Businessweek article

Jim Rogers says high spending to haunt Indian economy

To quote Rogers, "India has nothing to show except a bunch of rich politicians". I am expecting sharp deceleration in the growth numbers coming out of India as the stimulus is rolled back. The stock market is headed to the previous lows and 12500 doesn't seem too far. Here is the link to the video. Be afraid, be very afraid.

The Budget - Dr Jekyl and Mr Hyde

The Finance Minister of India seem to have mastered the fine art of writing suspense thrillers, only here we know who is to blame. Giving direct IT tax breaks and taking it back using indirect forms like service tax, excise tax, petrol tax is pulling wool over the eyes of the millions of middle class Indians. With farmers he can write off loans, with this stupid NREGA scheme he pump thousands of crores into rural India without accountability, but when it comes to the middle class he has magically suckered it into believing that he is doing them a favor.

The news media is in the cahoots of the Congress government and is unable to make unbiased assessment of the budget. The stupid corporate CEO's don't care since they know they will pass the tax to the consumer, and the stupid consumer is happy to watch Tendulkar and SRK heroics instead of seeing that he is being robbed in broad daylight.

Consumer inflation is running at 18% which will spike by another 5% due to hikes in duties and petrol. How does a 10% reduction in income taxes help you when there is a 25% increase the cost of living ? This is the most regressive budget I've seen as the money supply with the consumer will decrease due to record inflation.

And to add icing to the cake, the Finance Minister will eliminate whatever peanuts can be deducted off the taxes once he implements the uniform tax code in 2011. That will roll back the tax cuts for the middle class to zero thereby causing a 50% drop in savings over 2 years with this rampant 25% inflation Y-O-Y. For government employees who had just begun to see the benefits of the sixth pay commission, you will soon see all the extra cash vanish at a record rate thereby negating the impact of any hike.

Add to this the interest rate hikes for floating rate home loans, and we have a case where the Indian savings rate will now be competing with the Americans to see who is the lowest of the two.

In summary the Finance minister has magically created money by lowering interest rates and the sixth pay commission salary hikes and now has taken that same money away by higher taxes and record inflation. To combat inflation he will raise interest rates, thereby siphoning off more money from the borrower, however inflation wont reduce as he has increased indirect taxes on the economy. This is truly the case of the left hand not knowing what the right hand is doing, or a split personality like Dr Jekly and Mr Hyde.

On one had we have Obama fighting for the American middle class with tax cuts, increased unemployment benefit spending, curbs on foreign visas, speaking tough to China to revalue its Yuan and trying hard to get health care for a vast majority of uninsured, and on the other had we have the 3 idiots who are ready to bite the middle-class hand which has been feeding it over the past 40 years.

A finance minister is known by how well he manages inflation, interest rates and taxes. With Mr Mukerjee (Manmohan and Sonia included) this will be year which they will be remembered for and that too not very fondly.

Frustrated buyers, Why not take some Action !!!

I have read many stories on this board about House buying related issues. The main one is un-affordability. The second one is scrupulous nature of unregulated business of Builders. Third one is on Banks and Loans.
I was thinking what can be done to make any impact. Here is a simple thought,

Why not write a small petition to Prime Minister of India. On their website, there is online form to write your petition. In my opinion, once you have written it, post what you sent in Comments section. This way other can see what is being sent. lot of comments are posted, we can send link to all Newspaper editors.

Wite to PM

I posted following, Honorable Prime Minister,

I would like to point out one concern from large number of citizens. Today home prices in most urban cities in India has become totally un-affordable to most indians, even those who are well educated and contribute significantly to country's economic growth. In addition to that, buyers face lot of issues like timely delivery and quality construction with un-regulated builder lobby. Home is necessity to everyone. Please do the needful to bring necessary changes.

Please do not use Comments in this post for any other purpose.

Ripoff by Indian banks

Passing the buck, this is what banks do. I remember asking for a fixed rate loan and the bozo's didn't even know the details of their own product. Floating rate loans are the ARM mortgages of India. Interestingly in the US, most loans are 30 year in duration. In India they are betweeen 10-20 years and if one looks at the interest payments for the loan at high interest rates, the amounts are staggering. Indian banks have suckered people into these products and soon borrowers will be paying 10-20 extra EMI's. With 50k on average, a nice 5-10L extra for the banks. If a 48 year old Chartered Accountant is running into these problems, what about lesser educated folks in the finance field

Livemint reports.

In the ocean of disagreement about India’s economic indicators—gross domestic product growth, inflation, share prices—there is an island of consensus: the direction of interest rates. “Going up” are the words on everyone’s lips. The governor of the Reserve Bank of India pithily stated: “The direction of policy is clear—we had to ease at the time of the crisis, we have to tighten now.”

While the average Indian will get indirectly affected in many ways by rising interest rates, there is one area where the impact will be direct. And severe. This is in home loans.

I asked one of my senior colleagues, Francis D’souza (name changed), about the home loan that he had taken from a respected private sector institution (Francis is a chartered accountant, all the more surprising!).

“What was the kind of home loan product that you took?” I asked.

“Well, they only had one standard product, a floating-rate loan that was priced off their PLR (prime lending rate). The choice of tenor was flexible—I took a 10-year loan, since I am already 48 years old.”

“So you got a your credit score, which resulted in a discount to their PLR, and this EMI (equated monthly instalment) was for 120 months?” I asked.

“Yes, that’s right.”

“And what happens now, if interest rates go up? How do you get to know, and what impact will it have on your EMI?”

“The loan document said that the PLR gets adjusted every quarter, and it’s apparently on their website, but frankly, I don’t get any communication on it at all. But yes, if the rates go up, I will be affected—the EMI will remain the same, but I will have to pay more than 120 instalments, maybe 130 or so, depending on many factors that I don’t understand.”

“When you took the loan, was there any discussion about this exposure? And also, did you have any alternative—say, a fixed-rate home loan—that was discussed with you?”

“No, the floating-rate loan was their only product, and no, there was no discussion about the exposure that I had to moving interest rates.” He paused, and added, laughing nervously, “Frankly, I don’t look at the statements, we just hope that we will be done in 120 months!”

Francis’ situation is similar to hundreds of thousands of Indians who have taken out floating-rate home loans over the past several years. The home mortgage business today is around Rs2 trillion, growing at 35-40% a year, according to data from the National Housing Bank. Precise data on fixed/floating mix is not available, but Adhil Shetty of BankBazaar.com tells me that “over 90% of it will be floating-rate-based. Banks don’t market fixed-rate products, and sales people are generally trained to sell floating-rate home loans”.

A detailed check of the market suggests that most banks offer only floating-rate home loans, and a few offer hybrid fixed products. There are no pure fixed- rate loans—one large public sector bank offers a fixed-rate loan for 20 years, but it resets after five years.

Many market observers have written about how India’s mortgage market is unfair to customers. But these debates have invariably been about one particular issue—that of the arbitrary and subjective nature of PLR setting by each individual bank.

However, the fixed versus floating exposure issue has received little attention. Some argue that this is because there is no demand for fixed-rate mortgages—customers invariably choose to pay a few per cent less for floating-rate loans.

But this issue cannot be dismissed as one of informed choice and caveat emptor. There are two critical aspects that need attention: One, the deeper systemic issue underlying the absence of fixed-rate home loans; and two, the issue of consumer rights and financial literacy.

Current market practice clearly proves that banks have no incentive to sell fixed-rate home loans. But they don’t do this because there is no deep long-maturity debt market in India that allows banks to offset their duration exposure. Essentially, the banking system has no way to offset the risk of long-dated assets on their balance sheet.

The solution? Pass on this risk to the customer. In essence, what a sophisticated banking industry cannot manage is now being handed off to the man on the street. There’s something wrong here. In the medium term, the answer will clearly come from a deepening capital market, one that can absorb longer dated assets such as home loans.

This brings us to the second point—while deeper markets and so on will take time, banking practice needs to change right away: to educate customers about the implications of their choices, and the extent of the exposure. EMI calculators can easily have “what-if” scenarios going out over the life of the loan.

In the meantime, my message to Francis was: “Please get in touch with your loan officer and understand your exposure. Don’t rest on the hope that ‘all is well’.”

Telangana stir worsens outlook for realty sector in Hyderabad

Where are all the morons who said that the Satyam/Maytas fiasco and now the Telangana agitation will have no impact on business and residential real estate ? 100 storey buildings in a city where land is abundant was the signal that Dubai and Hyderabad are no different when it comes to greed.

Hyderabad: Dotted with the sprawling campuses of information technology (IT) firms such as Microsoft Corp. and Wipro Ltd, Hyderabad’s fast-moving growth corridor—the Gachibowli area—looks skeletal with half-done buildings, yellow construction cranes and giant billboards that promise delivery of homes on time.

Skeletal buildings: One of the many incomplete realty projects in Hyderabad’s Gachibowli area. Bangalore is gaining from Hyderabad’s loss. Many real estate investors consider the Karnataka capital a safer bet. Madhurima Nandy / Mint


Hyderabad was hailed some years ago as one of India’s hottest property destinations, with firms such as US-based Tishman Speyer Properties and Malaysia’s Sunway City Bhd coming in to launch their maiden projects in the country.

In its present condition, Andhra Pradesh’s capital city remains the lone realty victim of the slowdown.

“Other cities are already on the recovery route. But Hyderabad has been in the news for all the wrong reasons,” said George Johnson, city head (firm management), Jones Lang LaSalle Meghraj, a property advisory.

The downturn perhaps shook Hyderabad more than it did other large cities due to certain disturbing events.

The first was the unravelling of a multi-crore accounting fraud at Hyderabad-headquartered Satyam Computer Services Ltd last January, followed by the death of chief minister Y.S. Rajasekhara Reddy in a helicopter crash in September.

And just as the sector was beginning to recover, the struggle for a separate Telangana state that includes Hyderabad, intensified.

“Whether the market bounces back depends on if they can control the Telangana agitation,” said N.R. Aluri, managing director, NCC Urban Infrastructure Ltd. “The residential segment particularly looks uncertain though we are expecting some demand in the budget category.”

City-based NCC Urban, a subsidiary of Nagarjuna Construction Co. Ltd, has moved its focus to Bangalore, where it is building four projects, compared with one in Hyderabad.

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Thackarey vs SRK vs Thackarey

Thousands of articles have been written about the issues surrounding the movie 'My name is Khan'. Hundreds of celebrities have voiced their opinion on it. Tens of politicians have expressed their support for SRK and the Shiv Sena stands isolated on the issue with no one expressing support apart from their own clan.

However as this issue dies down with the Sena having tactfully withdrawing the campaign it has Sena achieved its goal. The very fact of the Chief Minister having to summon all policemen to duty prior to release of the movie proves that the congress is very fearful of the Sena and its ability to disrupt things at will.

I remember the days when I was growing up in Mumbai in the 80s and early 90's, the Shiv Sena had a history of muscle power and citizens used to go to the Shaka pramukh to solve their problems instead of the police. When they won the elections in 1995, the Sena realized that they couldn't continue their rowdy behavior against the ruling government since they were now the party in power.

I now believe that Sena is on its way to those bygone days Raj and Uddhav are leading the aggressive charge in the name of the Marathi Manoos.

I would like to quickly point out that while I detest the tactics of the Raj and Uddhav I find that Congress and the NCP are equally incompetent to handle issues dealing with the ethos of Maharashtra and the Marathi people.

Politics has turned into a game where the party in power is a broker for grabbing land and handling out contracts at a fee. There is no attempt made by the government to 'govern' or take a stand on the 'right' side. This pattern repeats itself at every level, whether it state, central or the city.

We see this is action in the rampant inflation in India where Mr Pawar blames the sweet tooth of citizens for the doubling of prices of sugar. What about Onion prices, maybe Indians like to shed tears more often while the peel more onions then the citizens of other countries.

We now will have the IPL coming up and the tamasha of cricket and movies will drive the news flow. The SRK issue will be forgotten and delirious fans will be rooting for Tendulkar and Sehwag as SRK and Shilpa Shetty egg them along.

India is country of short memories. We have forgotten the deluge which killed thousands in Mumbai in 2005. We've dont remember what happened in the Tsunami in Chennai, the 26/11 attack in Mumbai and the recent floods in AP/Karnataka which almost sunk the famous Raghavendra Swami mutt in Mantralaya and we will soon forget the Pune blasts of Feb 2010.

Jai Ho

Mumbai builders hit sand trap

Business Standard reports

Construction in Mumbai has come to a near halt due to a serious shortage of sand, the most essential component. Ready-mix concrete production units in and around the city have also closed temporarily for want of sand.

A revenue department official said against 4,500 sand spots across the state, only 1,300 which had been cleared by the respective gram panchayats are available for auction. The government proposes to increase the royalty rate to Rs 200 per brass from the next financial year from the present Rs 100 per brass.

This is because the Maharashtra government has made it mandatory for the area’s gram pachayat to approve any sand auction.

As a result against a daily sand demand of 600-1,000 trucks, hardly three to 10 trucks are now coming into the city and that, too, from neighbouring Gujarat. Sand prices, earlier Rs 2,500 per truck of 2.5 brass (1 brass is equal to 100 cubic feet of sand), have surged to Rs 12,000 per truck.

If the shortage continues, says the the realty and construction industry, construction cost will surge and projects will be delayed.

A leading builder and developer, who did not want to be quoted, told Business Standard, “The licences used to be extended every year. There was no monopoly, as any person could buy from any of the sand dredging villagers and from various village,s depending on their quality, quantity and price. The royalty for the dredging used to be collected by the revenue department, for the extent of sand dredged. Local villagers were granted dredging licences, under which they used to dredge and sell the sand to any supplier in bulk.”

He said an average building of 14 floors with two wings, of 100,000 sq ft, requires 2,500 trucks of sand for just the civil work.

Dharmesh Jain, chairman and managing director of the Nirmal Group and vice-president of the Confederation of Real Estate Developers Association, confirmed the shortage had brought realty development in the city to a standstill. So did Pravin Doshi, president of the Maharashtra Chamber of Housing Industry. Navin Kothari of the Bhakti Group, a Mumbai based real-estate developer, said over 90 per cent of construction activity in Mumbai’s suburbs had been affected by the acute shortage for over a fortnight.

Now, even Mira road is unaffordable

Property rates have gone up by 20-25 % in the last six months

Savita Rijhwani (24) is all set to get married in the coming months -- the families are ready, shopping is on in full swing -- but one major hindrance, despite a budget of Rs 30 lakh, is a house. She was earlier looking for a two-bedroom hall kitchen flat in the Mumbai region up to Dahishar and Mira road, but now, with real estate prices moving northwards again, she has to look even beyond Mira Road.

During the recession, property rates in the city had come down by 20-35 per cent depending on the location.

However, in the last six months, the rates have escalated by 20-25 per cent. V Sharma started looking for a 1 BHK flat in Mira Road nearly six months ago and the owner was demanding Rs 13 lakh for the flat. Two months later, the prices shot up to Rs 15 lakh and currently the rate is nearly Rs 19 lakh. Sharma says he has to act now, "I cannot wait any longer as the prices are escalating and very soon the flat would become unaffordable I wish I had bought the flat last time itself."

Builders are a happy lot with the growing prices but are also careful and understand that if the rates reach an astronomical high, the market will fall soon. Abis Rizvi, Director, Rizvi builder, said, "The prices in areas like Bandra have gone up by 30 per cent in locations, the real estate market is back on its feet. But the prices has to be checked, if they rise above affordability then it won't be a good sign."

Vibhoo Mehra, a real estate consultant from western suburbs, claims prices have gone up in the last three months and have touched a peak.

Stone shortage to push housing prices up in Pune

This is by far the most ridiculous conclusion one can reach when it comes to the co-relation of stone with housing prices. In the past cement , steel, shortage of land. labor costs, electricty and loan costs were listed as the reasons for prices to move higher. Now add stone to the mix. Dagad ani Dhonde are equally precious when it comes to housing. The Indian Express article is below

Crushed stone is set to become costlier in the city, which may give another reason for builders to jack up prices of projects yet to take off.
The Pune Stone Crushers and Mine Owner's Association has stopped supplying crushed stone, an unavoidable commodity for the construction industry as use of sand is restricted, saying they want to hike prices. "Our association has stopped supplying crushed stone to the construction industry with effect from today.
The supply will resume only when prices of crushed stone are increased," said Pradeep Kand of the association.
He justified the move saying the government had increased royalty on stones, their raw material extracted from mines, and the power tariff too was going up. The other variables, employee salary, cost of diesel, tyre and spare-parts of machines have been on the rise for the last few years, Kand said.
The builders are caught in a bind, as they cannot do without crushed stone since the government has imposed restrictions on use of sand for construction. The move also caught the city builders unawares as there was no prior communication from the association.
Satish Magar, president of the apex builders body in Pune, CREDAI, said if there is no supply of crushed stone for the next few days, then construction activities in the city will come to a halt.

"We will hold a meeting with the suppliers of crushed stone to resolve the issue," he said.
Magar admitted there has been an increase in royalty of stone, but argued that it would not have a big impact on price of crushed stone. "We are yet to be apprised of the exact demand by the association and the hike they seek," he said.
"We can discuss the issue with the association, but one thing is sure, that it will have a cascading effect on property rates. Home buyers will have to shell out more as builders will need to recover the extra cost," Magar said.
However, Kand said builders should not complain as the demand to hike rates of crushed stone was coming after a long gap. "Property rates in the city have more than doubled in the past few years and builders have been making money out of it but stone crushers continued to supply at the earlier rate," he said.
Kand said it was up to the builders to bear the extra cost and not pass it on to customers as they have been doing each time the cost of some raw material went up. The builders so far have been attributing the increase in property rates to increase in rates of steel and cement as also shortage of labour.

India Swaps to Rise on Record Jump in Rate, Morgan Stanley Says

Let the party begin. BoooYaaah. Loan interest rates will go back to 12-13% from 9-10% a jump of 20%. Expect EMI's to rise by greater then 20%. Borrowing costs for builders will jump too and they will want to pass this to the customer, thereby forcing a further decline in affordability. There are no political compulsions for the government to keep rates low. They will use the next few years to reverse the bogus interest policy implemented by the supposedly independent RBI over the past few years. I feel sorry for speculators in Mumbai as the crash in stock markets is going to resonate loudly in the real estate sector. Be very careful of under construction projects. They will hold the biggest risk to the buyer.

By V. Ramakrishnan and Anil Varma

Feb. 1 (Bloomberg) -- India’s swap rates will surge as the central bank increases the benchmark borrowing costs by a record 1.5 percentage points this year to curb inflation, Morgan Stanley said.

The cost of swaps that mature in a year will rise 0.52 percentage point to 5.5 percent by April, Morgan Stanley India Primary Dealer Pvt. Ltd. said. Reserve Bank of India Governor Duvvuri Subbarao on Jan. 29 estimated wholesale-price gains will quicken to 8.5 percent by March from as little as 0.5 percent in September. He also raised reserve requirements for banks and said interest rates will increase “in future.”

“Inflation is becoming a bigger worry and that sets the tone for higher interest rates going forward,” Manoj Swain, Chief Executive Officer at Mumbai-based Morgan Stanley India Primary Dealer, said in an interview. “Upward pressure on swaps will increase because of the rising requirement to hedge against higher rates and tighter liquidity.”

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