June 2016

Interested in purchasing a property ~ Understand the Actual cost of buying a house !!!!

housing bubble in mumbai, real estate, stamp duty, registration costs, various charges associated with purchasing property.

If there is time to reflect, slowing down is likely to be a good idea. ~ Daniel Kahneman (Nobel laureate ~ Economics)

Lots of people are interested in purchasing a house over the past few years. Not surprising, because the land and real estate investments have had a phenomenal run over the last decade.

Recency Bias leads most to believe the the same will continue to happen in the future as well. The bias towards investing in property is so high that people are planning for their children’s education and retirement by investing in property. Their argument is that they can easily sell out for “5X” times the cost and live happily ever after. Bummer!!!!!  if it were so easy then technically smart businessmen (which are there to make profits) would all in the business of investing in real estate. Why dosen’t the developer, who advertises that the land near the highway will double in 2 years, himself take a loan , pay interest costs and keep the land for himself, is a question worth pondering. 

If Recent Gold price  & commodity crash is any indication then the probability, of the music stopping sooner rather than late in this ever increasing real estate prices musical chair game, is getting higher by the day. Given the pressure from banks, Already the game of 20/80 has begun. Developers are eager to sell off/offload assets from their books as soon as possible.  (20/80 ~ 20% now and rest on possession, Soon this will turn into 10/90 and even lower when the pressure to dispose off the property increases)

So, if you have a house and are interested in investing, it would be prudent idea to wait for some time at least the elections are over to see where the markets are heading. And do not forget to Negotiate hard. You will get discount to the tune of 25% or so.

Real Estate developers are under stress to sell the supply build up which has happened over the past few years. And, it is also payback time for the builders. They will be asked to fund the political parties in the coming election year. Squeezed from all sides, it has already turned into a buyers market today. 

Do understand the various costs involved when buying a property (The image is from Time Property article which appeared on Saturday, May 18)

Financial Planning Thane, Real Estate Investments, Mumbai Property prices crash, Stamp Duty, Registration, VAT, Taxes when purchasing a house

The taxes & costs are a whopping 10% of the purchase price. And on top of this there are the regular maintenance costs, interest costs on the loan, property taxes etc which all add up. Understand that Buying a property is a leveraged transaction. The deal has been sweet over the years due to price appreciation factor. The rentals on residential property  are pathetic (2-3%).  The 20% which you put down gives you a fabulous return. However if the market stagnates, or even if there is a slight dip of say, 10% – then the implications will be damaging, especially for the working salaried class.

So , focus on asset allocation, Be aware & Happy Investing ~ Get a Financial Plan ~ With clear financial goals defined, investing becomes a lot easier, as you are driven by goals and not asset price movements. (More on this later)

July 2012

Mumbai realty: How the builder-politician nexus cheats us

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Noting this article in my blog : Sourced from firstpost article : Mumbai realty: How the builder-politician nexus cheats us

The ordinary Mumbai citizen dreams of owning a home in the city, even if it is in the distant the suburbs, but the nexus between politicians, property tycoons and the powerful builder lobby ensures that no property is priced at affordable levels. And this despite 80,000 flats worth over Rs 1 lakh crore remaining unsold in Mumbai.

A Knight Frank  report points out that five of the biggest developers in Mumbai are sitting on debt of Rs 6,200 crore, while they are holding on to a total unsold inventory of Rs 14,300 crore — 14  percent  of the total MMR ( Mumbai Metropolitan Region) market.

So why aren’t they selling even at discounts to reduce their interest costs? Economic logic dictates this, but when supplies of land are artificially restricted, the laws of economics kick in favour of the realty tycoons.

Mumbai’s problem is that land is in short supply, thanks to regulator-imposed artificial bottlenecks that have resulted in delays in new launches, says Samanthak Das, national advisory head at Knight Frank. This is what has helped hold prices up by keeping fresh supplies low.

Before the new Development Control Regulations  were put in place in January this year, most developers were exploiting  floor space index (FSI) and selling non-salable FSI as extra floor space to consumers by commanding a higher price. “Earlier DCR norms permitted areas like staircases, passage, lifts, AC plant rooms, etc, to be counted as free of FSI, and developers calculated their profits based on the extra areas they could exploit in the building by selling them to buyers,” says Pankaj Kapoor, Managing Director at Liasas Foras, a property research and consulting firm.

But with the new proposal to  restrict this additional construction – flowerbeds, pocket terraces, decks, voids, etc – to just25 percent of the total built-up area and charge builders a 100 percent premium for had upended construction plans. This is because the builders  can no longer pocket the extra space as profit, or  dupe consumers by selling them additional space. The move not only resulted in stalled projects but a major drop in launches too.

Some 55,000 units were launched in FY 2012, down almost 40 percent from the 92,000 units launched during FY 2011.

In fact, most of the real estate developers in Mumbai like Indiabulls and Lodha are all in a catch-22 situation because they sold flats in the pre-launch phase even before obtaining regulatory approvals. The net result: Projects are on hold, and prices cannot be brought down because private equity (PE) money has already been invested in these properties. New flats cannot be sold without untangling the DCR mess. But here too it is not the developer that suffers, but the consumer.

“The developer encashed his stock by selling flats in the pre-launch phase, an investor will inevitably make his money, but the consumer is in the hibernation phase of  old properties and exceptionally high rates,” said Kapoor.

Mumbai Realty, Politician Nexus, Real Estate Crash Expected, Thane, Belapur, Dombivili

The  real problem is more deep rooted in Mumbai’s political and bureaucratic system where our own netas and babus play a big role in making property valuable.

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A scam called Mumbai Realty ~ Sales Drying up but prices rising

mumbai real estate, crash, june 2012, Mumbai Realty, High Prices, Price Crash, Sales Slowdown, 2012 Piling Inventory, Slowing Sales, thane, Vashi, South Mumbai

June 2012 ~ Property exhibitions have been cancelled. Sales have dried down (especially in the Premium segments – read South Mumbai). Real Estate Developers are doling out freebies to keep up sales. Everything is being done tomaintain the price levels at the same levels as 2007-2008. 

Are houses within means of ‘Aam Aadmi’.? – Resoundng answer is NO

Take an example of Thane area. 2 BHK apartments (around 900sq ft super built up) are available upwards of 75 lacs+, in decent multiplexes. These match box apartments are gradually getting beyond reach for first time buyers, especially with rising inflation and interest rates and slowing economy. Things are even more difficult for people who want to upgrade from 2 BHK. 

Indeed, it appears like a huge scam of the PE Investors ~ Real Estate Developers ~ Politicians. The PE Investors make an investment in the properties in the beginning and are assured a return. The real estate developers cannot being the prices down due to high land prices. And of course the involvement of Black money holds/supports the property market.

Wherein, the ‘Aam Aadmi’ ~ working middle class gets milked for life, when he makes the single largest purchase of his life – a highly inflated and highly priced “12 walls in air” -a Home – literally mortgages himself for life by paying EMI’s  for 20+ odd years ~ working 13-15 hours a day, travelling in pot-holed roads, never ending jams, and over burdened repulsive mumbai local trains. 

Reminds me of a story of the frog kept inwater which is slowly being heated to boil. The frog happily keeps adjusting to the temperature, never realizing the danger of the rising temperature & the boiling water , which ultimately consume his life. 

My personal view (which I hold every right to be wrong :-)) is that the the real estate market is ripe for correction, especially in Mumbai. No asset keeps giving Y-O-Y returns of 25-35% CAGR which has been the case in real estate market since year 2003. 

Read more here

Not just buyers, but Mumbai developers too are feeling the pinch of the overheated real estate market owing to  poor sales. This is evident as three property exhibitions have been cancelled in Mumbai until further notice.

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