What impact will RBI move of changing currency notes printed before 2005 and coming Loksabha Elections have on Real Estate sector in India?

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

• Land purchase may slow down due to RBI move to change currency notes printed before 2005

We all are aware of the fact that virtually all land deals whether large or small takes place with huge amount of money paid in cash to avoid stamp duty charges. Now, Let’s assume, there is a land transaction that is going to take place between party A and party B and the market price of the land is rupees 5 crores. As per the circle rates, the land price comes out to be rupees 2 crores. The remaining 3 crores will be paid in cash by party A to party B. Given that, RBI has announced that currency notes before 2005 needs to be exchanged. In this situation, Party B is not going to accept cash amount with currency notes printed before 2005. Therefore, it puts pressure on party A to exchange his/her currency notes with the banks. And in certain instances, party A may not be in a position to go to banks for the exchange of currency notes due to the fear of income tax authorities taking note of such huge levels of unreported income. However, it is yet to be seen what impact will there be on realty sector, but there is all the likelihood of fewer land transactions due to the RBI’s latest move to change the currency notes printed before 2005.

• Elections and real estate

Elections are a democratic phenomenon, which happens every 5 years in India. There are two kinds of election namely assembly elections for respective states and general elections for parliamentary system in India. All political parties whether small or large, regional or national strive hard to win elections and form the new government. It is commonly known that to win elections, political parties use all kinds of methods from announcing distribution of laptops, offering cycles, to free subsidies. The idea is to target the voters with such schemes in order to swing the pendulum in their favor.

And to win these elections, large amount of money is spent on advertising, organizing rallies, pamphlets, banners, press, traveling to various constituencies. About Rs 10,000 crore was spent in Lok Sabha campaign in 2009. And according to some estimates, this time that figure will be between Rs 15,000 crore and Rs 20,000 crore. There is no hidden fact that, the huge amount of money required is spent in form of cash. So, where does this money come from? Well, political parties will claim that this money is raised from their followers, supporters. Who are these followers? To put it bluntly, there is no free lunch here. All these so called followers who provide cash to political parties will like to claim their spending if the party they support comes in power. These claims may vary from allocation of natural resources, tax benefits, subsidies, dissolved cases, etc.

Now, how are all these followers able to provide such large amount of cash to these parties? We all know that in India even though most businesses claim to do business by the rule of law, but in reality they do under report their income and it is that income that is ploughed in real estate, gold, or elections. All these sectors have the unending capacity to absorb unaccounted cash. Therefore it is fair to say that when elections are round the corner, the investment in gold or real estate may dip and funds may be diverted towards elections.

• Impact of elections on property sector in India?

As observed earlier that during the time of elections, the funds are diverted towards political parties’ election campaign. And the sectors that suffer the most are real estate and gold. Large amount of unaccounted cash is provided to these political parties which until now would have been parked primarily in real estate. In fact, during election times one can notice the increase in distress sale activity in real estate. Since, huge amount of money is required for elections; properties worth millions are sold at below market rates to generate sufficient cash for elections. It is also highly likely that real estate developers will cut down on new launches of housing units or commercial real estate and will solely focus on selling the existing inventory.

• Should I buy the property during election times?

From the end-uses point of view, it is possibly the best time to buy. One can focus on buying from secondary market or resale market. As suggested earlier, there is strong likelihood that distress sales will increase and it presents end-users with an opportunity to buy at lower rates. However, buying in secondary market means, one has to pay huge amount of property value in cash. It is also the good time to negotiate hard with the developer if one is buying directly from the developer.  Since developers are only focusing on clearing the existing inventory, it presents end-user with an opportunity to bargain hard and get substantial discounts on the property.

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Non Resident Indian (NRI) and Person of Indian Origin (PIO) looking to sale/purchase property in India

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

Non Resident Indians (NRIs) and Person of Indian Origin (PIOs) can acquire Immovable Property (either Residential or Commercial) in India by way of purchase, gift, inheritance, or share of joint property received upon partition of family/property, etc. as per the guidelines laid by the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000.

There is no ceiling on the number of immovable properties acquired or sold in India by NRIs and PIOs. However, NRIs/PIOs belonging to Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan require a prior approval of the Reserve Bank of India for acquiring Immovable Property in India.

It is mandatory to file a declaration of the acquired property with the Reserve Bank of India within 90 days of acquisition of property, on the prescribed Form - IPI 7.

Below is a detailed list of guidelines that an NRI or PIO must adhere to for selling, purchasing, and financing a property in India:

Non resident indian (nri) and person of indian origin (pio) looking to sale purchase property in india from Green Realtech Projects Pvt. Ltd


Source: National Housing Bank

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How does black money hurt the country where it originated and how does it travel to foreign countries?

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

Black money hurts the country a lot. The tax revenues if reportedly accurately by individuals and businesses would have gone to the country’s exchequer. The government with right intentions could have used these revenues judiciously by building infrastructure (ports, roads, educational, healthcare, communication, power, etc) and that would have resulted in higher GDP growth, more jobs, and poverty reduction. Instead these revenues now lie with individuals & businesses and some of them invest these amounts in domestic assets such as real estate and gold. Why only real estate and gold? Primarily because of the ability of these assets class to absorb cash and this is turn distorts the property and gold market. Housing becomes unaffordable in a country where there is shortage of about 18.78 million houses as per the 2012 estimates. There are various other disadvantages of black money as we have covered in many of our other posts.

However, in this post, we are focusing our energies on black money that travels abroad. This is the worst form of corruption because money which could have been used for nation building is now building other nations. We pondered a lot and thought of ways in which this black money can travel outside. In recent times, stashing of black money in foreign banks (read, tax havens) has been the topic of debate between the political parties, media, and the public at large. There have been theories that Indians are the largest depositors of black money in foreign banks. There have been murmurs that the amount of black money stashed abroad could be as high as India’s GDP, which is close to 1.84 trillion US$.

In a press conference few months back CBI director (central bureau of investigation) put that number to be 500 billion US$, almost 35% of India’s current GDP. By any stretch of imagination, this is huge amount for a country, whose fiscal deficit is at record high level, whose infrastructure needs investment at a scale which has been unprecedented in human history.

There are various discussions, round tables with tax havens countries to bring back the money deposited to India. But so far, only a pittance of the total amount has been declared. It will take time, says government sources.

Now, the whole scene of stashing black money to foreign banks got us thinking…how the hell this black money would travel to those foreign banks? How? And in this article, we encourage readers to answer this very question.

Explored a bit and two possible scenarios came to our mind

Formal Routes:

1. Wire transfer: Wire transfer or credit transfer is a method of electronic funds transfer from one person or institution (entity) to another. This one looks formal and we are sure it can be traced with proper tools and training.
2. Buying foreign assets such as real estate, companies, etc: But this is all in white and traceable.
3. People traveling abroad: People traveling abroad carry the allowable cash with them and deposit it in foreign accounts. But that is going to take years to reach 500 billion US$.

Informal (or should we say black) routes:

1. Gold Transfer: Gold is bought by these tax evaders in the parent country and then the same is transferred to foreign shores in ships or chartered planes.
2. Money transfer: Rupee or parent country currency is converted to internationally accepted currency (usually US$) with central bank knowing all the details and then that converted money is flown to foreign shores in chartered planes. Now, this amount in internationally accepted currency is used by the foreign country for their own investment purposes which ultimately lead to growth in those countries at the cost of growth in parent countries where the money actually originated.

In all these informal (black) routes, we fail to understand, why central bank or country’s top political leadership is clueless in tracing the black money? As far as we understand, money just cannot move out of the country without their approval.

Our imagination took us to these ideas…but we are sure, there are talents out there who could help us in deciphering all this. Waiting to hear from all you guys out there about the possible routes of black money traveling to foreign shores.

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Reasons to buy a home during Christmas and New Year Holidays

When others around the corner are merrymaking and celebrating Christmas and new year holidays, the question of property investment can be an odd thing to consider. But experts reveal that the festive season is indeed the perfect time to purchase property for several good reasons. Christmas and new year comes with mixed options and the property market during this time may take entirely different toll depicting optimistic scenario. In fact there are several advantages of purchasing property during these holidays that are worth considering.

Good quality time: -
Christmas and new year holidays are the best time to invest in the property as you have entire week off. With ample time in hand you have complete freedom to explore new opportunities and seek out different potential sites. Contacting to different property sellers, reaching out to different realty agents and maneuvering different property sites all becomes easy. Whereas on the other regular days, you are engrossed with your office work and engaged in meetings right from morning to evening, sparing time for property hunt on the go will be next to impossible.

Auspicious time: -
It’s the festive time and many in the industry plan to invest in new ventures. To meet the festive season demand different renowned developers come up with investment projects in the city and around. Besides, many home owners look forward for property buyers who could take off their properties. All of these ensure numerous investment opportunities for the buyers to choose from.

No rush: -
With majority of the population engrossed in festive feel, enjoying holidays with family and friends, realty market during this time experiences less footfall. This provides even better chances to the buyers to explore different ventures and negotiate well.

Less competition: -
Planning for home purchase in spring and autumn would mean that you have to spend more time in hunting properties. As market stands competitive with demand more than the supply, the developers and property sellers may sell of their properties at high prices in order to make large profits. However during Christmas and New Year holidays, there are usually fewer property investors in the market which offers complete privilege to invest and take up best offers.

Elated Feel: -
With less work and ecstasy laced in the air, people all over the globe are more relaxed and happy. With cheerful heart, one can easily negotiate to make better property deals and is more likely to act smart.
Starting of the New Year and passing of the old is indeed the perfect time to celebrate and build memories in your new house.

Realty brokers: -
In ordinary days when real estate agents have several important chores to manage and different set of clients to handle, there are chances that the percent attention you and your dream project receive are probably less. On the contrary during Christmas time most of the property agents are less involved in their office work. Approaching them now can result in fruitful deal. They might come up with some really spectacular options and quality deals you might have never thought off.

But before you actually rely on them for property deal make sure you draw complete background details of the brokers. If possible get in touch with registered real estate agents. They are experienced players and serve the clients with authentic results and quality products, taking all the needs and requirements of the customers in to consideration. Also contact them to know whether they work on holidays or not.

This is a guest post by Subhadra Bhadauria who is a zealous writer for leading real estate portals.

It’s all about perception…isn’t it? And how is real estate sector in India perceived? Can the perception be changed? Let’s make it a New Year resolution :)

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

Good bye 2013 and welcome 2014, Happy New Year to each and everyone out there. Last year was tough for realty sector in India with GDP slowing down, high inflation and interest rates, and lack of demand from end-users. Will 2014 be different? Yes, it can be. However, the perception towards real estate sector needs to change and all the participants have to do their tiny bit in bringing out the positive image for the sector.

Current perception towards real estate sector in India:
Well, what is perception? It’s nothing but how people from outside view the sector. And how do they view it? Just talk to any common man and one would get the answer. The sector is perceived to be entrenched in corruption, black money, political maneuvering, builder – politicians nexus, etc. If one were to draw a sketch of the real estate sector on people’s perception, this is how it will appear:

The perception is that builders, politicians, and bureaucrats are working for each other when it comes to realty sector. This nexus is so strong that, policies are made, tweaked to favor the rich and powerful builders. Look at what happened at Campa Cola compound in Mumbai. The project was approved in 1980s by the BMC. Builder not only constructed the towers as per the approved plan but also illegally constructed some additional floors. Now, who would believe that these illegal floors were constructed without the knowledge of BMC or some local politicians? And now citizens are facing the heat. Doesn’t the picture above clearly highlight the situation in Campa Cola Compound of Mumbai?

Let’s examine the role of each stakeholder in the real estate sector closely:

• Town planning department or the authorized government agencies:

The department is armed with civil services officials with foresight to develop the city and plan for increased urbanization. New areas are demarcated for future residential, industrial, and recreational growth within the city. The process of demarcating land, allocation it to developers, tax collection, etc. is perceived to be inefficient and corrupt. We as citizens have no idea on what basis or methodology these areas are demarcated. Real estate project approval process is so cumbersome and opaque that there is no way out but to bribe the officials to obtain project approvals on time. And therefore, what we get is increased cost of property and unorganized real estate development.

Our team members have been visiting the new upcoming areas in Delhi NCR region. Real estate development in these areas has been taking place for almost 8-9 years and all we found is ghost cities. The infrastructure including electricity, water, sewage, roads, waste management is nowhere to be seen and yet we find plethora of high-rise development of brick and mortar. Some of these developments are self-sustainable. One can imagine the cost of living in these self-sustainable townships. More importantly, what will happen to unauthorized slums in the region? How those living in slums will be rehabilitated? Or will urban class who has tasted global standards live in conjunction with slum dwellers? There seems to be no answer.

To our question of who will live in those new buildings? Many builders, brokers, and investors would respond by saying that there is such a dearth of housing in the country that customers would lap up whatever is offered to them.

• Real estate developers:

With the planning and foresight of government officials, builders would enter the fray and acquire land for residential, industrial, or recreational purposes. There is strong perception that if builders are loaded with sufficient funds, there is no way in this world that they can be stopped from developing those ghost towns. Market research, planning, and concrete data are all fancy words for builders with deep pockets. To say that there is an utmost disrespect for planning & research would again be an understatement. Promoted as world-class real estate, there is perception that quality of construction is compromised in most of the final product delivered to the customer. The builder's focus on maximizing the profit often results in squeezing of the room-sizes and cut down on the open areas.

The question to be asked is how it is sustainable for builders to develop these ghost towns. Well, when party is on, the credit is available on cheap rates and there is always this heavy component of black money entering into real estate sector. However, when credit availability becomes tight and there is supervision on black money component, things start to change. This is what seems to be happening today and there seems to be no respite for builders from huge debt levels, customers’ lack of interest, and high rate of credit availability.

Will the bubble burst? Well, as long as entering of black money into the sector is not prohibited or controlled, this can continue although at slower pace than what we witnessed during 2003-2007.

• Media:

No one can deny the positive role of media in today’s times. However, there are occasions when media is perceived to be doing the services for politicians – builder’s nexus. As soon as the builders announce their 'world-class' projects with fancy western names, the media related to real estate development will go gung-ho about new development in the city and how it will shape the future of the city. Glorifying articles with questionable data related to infrastructure development will be published which forces customers/investors in believing about the merits of investing in these new ghost towns. Articles about roads, connectivity, metro projects, and industrial development will be published on a daily basis to lure people to invest in these new cities where no one lives for years before people actually start to move in. That movement of people however can take upward of 10 years is another matter. Maybe that’s the foresight of government officials or builders who don’t mind delaying the project since everything is in their favor and customers are at their mercy.

Case in point is the Noida extension fiasco in 2011-12, and promotion of upcoming airport on Yamuna expressway which was eventually canceled, etc.

• Investors:

Investors with unreported cash or income are the first ones to invest in these ghost towns. Where else can they park this hard earned money of theirs but for the real estate sector? What happens is the money which should have gone to the government in form of taxes would now sit in these ghost towns. The government with right intentions could have developed the necessary infrastructure with tax revenues which could have led to an organized economic growth in the region. But those are fairy tale stories and happen only in utopian societies.

• End users:

End users with modest income who have been sitting on the fence for all those years finally give in. They start buying for homes from investors in secondary market involving white and black transaction. Why white and black transaction? Well, to save on ridiculously high stamp duty and registration charges. And they just hope that situations like Campa Cola do not happen to them.

So, this is all about the existing perception. Can the perception be changed?

Yes, after all, we are all part of one common society and there is contribution from each one of us.


What can the Town Planning department or government agencies do to change the current perception?

1. There is already an effort being made by the government in bringing the real estate regulatory act. Although a small step, but this is a welcome step.
2. Land allocation process should be made transparent by auction mechanism or whatever the best possible alternative is.
3. Upcoming infrastructure in the city should be presented in the public domain credibly so that everyone has the information about the city development and therefore can participate in the process of real estate investment. The idea is to curb insider information practices wherein some investors connected to the policy makers make windfall profits and rest languish.
4. Project approval processes should be streamlined and made transparent. There is a wider belief among experts that by doing so, real estate costs can come down by whopping 20%.
5. Construction laws should be looked and analyzed on regular basis to improve the city development and curb illegal construction practices.

What can builders to change the current perception?

• Sell projects only when all the approvals have been obtained
• Clear distinction between carpet area and saleable area
• Clear deadline for project completion
• Third party supervision of construction quality

What can media do to change the current perception?

• Continue to report facts accurately about city development and upcoming infrastructure.
• Highlight the wrong practices by any of the participants in realty sector.

What can end-users do to change the current perception?

• Be an extrovert buyer. Ask questions before buying in a particular project
• Make payments in cheque and pay the taxes accurately.
• Thorough due-diligence
• Coming together with other buyers and forming a group

There is no denying that perception reflects reality. Even a single step of correction can go a long way in changing the reality of realty sector and change the current perception.

Cheers

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The Real Property Market of North India - an Insight

The property market of northern India has scaled great heights in the last few years. From Gurgaon to Noida and now Bharatpur to Bhiwadi in Rajasthan, the property market of northern India has evolved to a great extent.

Decades after the real estate giant DLF developed Gurgaon, the realty boom in northern India has been creating ripples ever since. Initially it was Gurgaon that emerged as the hottest property destinations in Delhi/NCR during the mid 2000s. Then on the other part, Noida in Uttar Pradesh also started gaining popularity as a realty destination. As the country’s economy started gaining new grounds, the real estate landscape also underwent tremendous changes. Now, in the last five years, major cities across north India has joined the realty boom bandwagon. Among them tier II cities like Chandigarh, Jaipur and Manesar are worth mentioning. The real estate market, especially the residential segment in these cities has proliferated rapidly over the last five years. Affordable Flats in Chandigarh, Jaipur and even Manesar have been experiencing a huge demand among the end users.

Coming back to the real estate scenario of the nucleus, that is Delhi/NCR, surrounding areas have been developing at a great pace; so much so that new areas are being included with each passing day, though most of them are nondescript. Mahendragarh and Bhiwani in Haryana have been announced to be a part of NCR. Developers are queuing up and investors are banking on the capital values of these regions. At a more recent event, Bharatpur in Rajasthan, known for its famous Keoladeo Bird Sanctuary has also been declared to be included within NCR. Though the property market in the region is yet to develop, but industry experts opine, that the market will develop pretty soon. It is estimated that these areas will experience at least 15 percent rise in the property prices. So, properties in Bhiwani and Mahendragarh, now available at a price of INR 3000 on an average are bound to increase to at least INR 4000 in the next four years.

Barely a year or two old, the residential property segment of Bharatpur, is already selling at INR 1500 per square feet while the industrial plots come at a cost of nearly INR 200 per square feet. The government’s plan for the development of a rapid rail transit system is expected to add to the realty market of these areas.

On the other hand, Bhiwani, 125 kilometres from Delhi and Mahendragarh about 70 kilometres has already witnessed the foraying in of top international brands in retail; and some leading finance companies have also set up operations in these regions. These are all signs of a bright future of the property market of these areas. At the Rajasthan front, in Bharatpur, builders have already started constructing in-roads. Demand for residential apartments has increased in areas like Manesar, Bhiwadi and even Bharatpur.

The industrial hub of Bhiwadi in Rajasthan is one of the fastest emerging residential townships in northern India. Spread over nearly 5300 acres of area, Bhiwadi has long attracted a lot of attention from investors and developers. Real estate developers have been highly instrumental in developing the property landscape of Bhiwadi. The township today boasts of the presence of well-known developers, like Omaxe, Avalon and Ashiana.

Moreover, the rapid infrastructural developments, like the expansion of the Honda factory has seen an increase in the workforce of the area which in turn has had a positive impact on the real estate market.

So, initially restricted to Gurgaon, Noida, now the real property market has spread to areas like Punjab, Haryana and Rajasthan. Towns like Manesar and Faridabad in Haryana, Bhiwadi and now Bharatpur in Rajasthan; and of course the state capitals like Jaipur and Chandigarh have raised the bar when it comes to the property market of northern India. Following the current status, it can be said that the property market of north India has loads to offer in the coming ten years.

This is a guest post by Sampurna Majumder. Currently she is writing about latest trends related to real estate.

What lessons can real estate sector in India learn from Aam Aadmi Party?

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

Well, it’s been an incredible journey for Aam Aadmi Party. Although still in its nascent stage, the party has chosen the path less traveled by political parties so far in India. The party was the product of anti-corruption movement in India with Anna Hazare at its helm. However, due to internal differences among the anti-corruption movement members and a burning desire of the leaders of Aam Aadmi Party (AAP) to make a substantial change to the Indian political system led its entry into formal politics. If the anti-corruption movement was all about putting pressure from outside on the political system in India, the members of Aam Aadmi Party has vowed to make a difference by getting inside the political system. The party is led by Arvind Kejriwal, who has a substantial track record in Indian Revenue Services, RTI activism, other NGOs, and joining Anna Hazare for bringing in Lokpal bill in India.

As things stand in Real Estate sector in India, there is this need to clean up the sector. Property transactions, construction, track record of real estate developers, soaring home prices, housing shortage, etc. are issues that require immediate clean up. And it is in this environment, what we need is a set of leaders who can change or rather clean the existing system and processes. These leaders can be real estate developers, architects, policy makers, or entrepreneurs looking to enter the realty sector in India. What can these new set of leaders learn from the spectacular achievement of Aam Aadmi Party?

• Take big risks:

Just like Arvind Kejriwal stood against Sheila Dikshit and did not play safe, the leadership in real estate sector needs to take big risks. For example, a builder can come into the real estate sector and act transparently and professionally. Why don’t we still see any real estate developer selling their projects based on the carpet area? Why don’t anyone of the developer state the actual project completion time instead of the industry trend of 3 years? Each one of them knows that the project will be completed in close to 5 years, then why don’t they say it when selling the apartments to customers. Most developers still play safe and the result is that we have a real estate sector which is perceived as corrupt.

• Efficient execution:

Aam Aadmi Party did not have the resources to compete with well established political parties such as Congress, and BJP. Neither, they had money, nor the backing of big corporate houses. Still, they had the passion, hunger, and discipline to win against all odds. Remember how the established parties will use volunteer by paying about 5000-6000 Rupees in reaching out to voters. AAP simply inspired the existing resources such as volunteers and media to take their message forward to the voters. Similar results can be achieved in realty sector with the contribution of honest government officials, set of developers, and media. The sector would go a long way if few of the government officials simply don’t sit on project approval files and sanction the real estate projects on their merits rather than on black money, and the developers focusing on completing the existing projects rather than building the land bank by diverting the funds.

• Putting pressure on the existing system and processes:

Aam Aadmi party declared their funding, processes, volunteer model on the website for everyone. They also carried out internal surveys and declared the survey results along with the methodology and data for anyone to scrutinize. Even after the election results, they had been consistent in their approach to sit in the opposition rather than form the government by any means. Contrast this with the political maneuvering we see in India wherein MLAs and MPs are bribed, traded to form governments. Similarly, a set of real estate developers and entrepreneurs can stand on their principles of fair practices, no bribe, timely execution and delivery of projects. And all of this will put pressure on the established developers to fall in line and ultimately sector as a whole will benefit.

• Perseverance:

Aam Aadmi Party simply did not get lucky and did so well in elections in a year or two. They had been at this anti-corruption movement for about a decade. From Anna Hazare to Arvind Kejriwal, they have persisted with their idea of cleaning the system. Real Estate sector demands that kind of perseverance to truly achieve results. Policy makers will not change over-night and bring in transparent systems of project approvals, financing, taxes, etc. One has to persevere and put pressure on the system continuously by leveraging the support of media, and customers.

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What is the Return on Your Investment? Find the detailed analysis of returns on Gold, Silver, Property, Stocks, Bonds in India!

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

What is the Return on Your Investment? Analysis of returns on Gold, Silver, Property, Stocks, Bonds in India | Create infographics

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Housing Prices in India and price appreciation trends across different cities

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

How does one justify his/her returns on investment? Simply, by comparing the price point at which they bought and the current/latest price point. Until recently, justifying one’s return on residential property investment was difficult due to lack of credible data. However, now, one can get sense of housing prices appreciation across different cities in India and micro-markets within a particular city. The data is assembled by the team of National Housing Bank and can prove to be very useful for people looking to invest in housing across India.

Here is a trend for housing prices appreciation till quarter July-Sept 2013.

Following point should be kept in mind:
The above chart shows the housing price appreciation across various quarters in different cities. For example, in Faridabad, housing prices have doubled from 2007 to Sept 2013. While in Patna, housing prices have appreciated 1.5 times from 2007 to Sept 2013. However, it does not suggest that housing prices were same in 2007 in these cities.

Observations:

1. Chennai has witnessed the highest housing price appreciation across India with prices increasing about 3.18 times from 2007 to Sept 2013. Within Chennai Ayanavaram; Purasawalkam; Kolathur; Virugambakkam; Anna Nagar; Kilpauk; Nungambakkam registered maximum appreciation of more than 6 times within the same period. While, Chetpet; Egmore saw the lowest price appreciation of about 1.8 times during the same period.
2. Housing prices in Hyderabad and Kochi have depreciated from 2007 to Sept 2013. However, certain micro markets in Hyderabad such as Shamshabad; Kapra, Uppal Kalan, L.B.Nagar have seen slight appreciation during the same period.
3. Faridabad housing prices have appreciated almost twice during the period 2007 to Sept 2013. Maximum price appreciation of 2.34X have been witnessed in the Neharpar region of Sector -75, Sector -76, Sector -83, Sector - 85, Sector – 86.
4. Patna has seen price appreciation of 1.50X during the 2007 – Sept 2013 period. Kankar Bagh; Phoolwari; Bailey Road (New); Gola Road in Patna have appreciated by 1.71X during the same period.
5. Ahmedabad and Lucknow have appreciated 1.91X in this period. Bhadra, Dudheswar, Gaikwad Haveli, Girdhar Nagar, Wadigam in Ahmedabd saw price appreciation of 3.45X during the period 2007 – Sept 2013. While in Lucknow micro markets such as Malviya Nagar; Tilak Nagar; Rajendra Nagar; Raja Ji Puram;Aish Bagh; Raja Bazaar; Sarojni Nagar Pratham; Hind Nagar; Sharda Nagar; Om Nagar; Chitra Gupt Nagar witnessed maximum price appreciation of 2.22X.
6. Housing prices in Jaipur and Bangalore have remained static during the period of 2007 – Sept 2013. However Lavelle Road in Bangalore has appreciated tremendously by 2.61X during the same period. While in Jaipur Agra Road has seen maximum appreciation of about 2.64X in the same period.
7. Pune and Bhopal appreciated by about 2.20X from 2007 – Sept 2013. Kharadi; Hinjewadi; Thergaon; Chinchwad; Baner; Yerwada; Wakad; Pimple Saudagar; Chakan in Pune grew approximately by 3X during the same period. While in Bhopal maximum housing prices appreciation was seen in Koh – e- Fiza, Shyamala Hills.
8. Housing prices in Kolkata grew by 2X from 2007 – Sept 2013. Rajpur Sonarpur; Barrackpur; Bidhan Nagar; Thakurpukur, Sorsona; Bhawanipur witnessed the most significant appreciation. While Rajarhat; Madhyam Gram; Chandan Nagar; Barahnagar grew at below average rate.
9. Mumbai witnessed the price growth of 2.22X from 2007 – Sept 2013. Lower Parel, Matunga East, Mahim West grew at rapid rate of 3.71X during the same period. Vashi, Khar Garh Road, Pokaran Road 1 &2, Kalyan, Mira Road, Virar Vasai, Badlapur grew at below average rate.
10. Delhi along with the NCR region grew at 1.90X from 2007 to Sept 2013. Dakshinpuri, Hari Nagar, Jahangir Puri, Jhilmil Colony, Sangam Vihar, Mangol Puri, Ghazipur Dairy, Khyala(I-III), Sriniwas Puri, Sultan Puri were the fastest growing sub-markets in Delhi.

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Who are the private & public sector banks, and housing finance companies that offer home loans to customers in India?

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

As we highlighted in our previous post about home loan that housing finance disbursed to individuals has grown at a rate of 20% year on year. It presents an opportunity to existing banks, and housing finance companies to develop new products in order to satiate this massive demand for home loan across India. At the same time, the sheer market size of housing finance sector presents new entrants the big opportunity to innovate and target specific customer segments within the housing finance market.

As on today, the need of long term finance for housing in the country is catered to by the following types of institutions:

1. Financial Institutions
2. Scheduled Commercial Banks
3. Scheduled Cooperative Banks (Scheduled State Co-operative Banks, Scheduled District Co-op Banks and Urban Co-op Banks)
4. Regional Rural Banks,
5. Agriculture and Rural Development Banks
6. Housing Finance Companies
7. State Level Apex Co-operative Housing Finance Societies
8. NBFCs/MFIs/SHGs have also been lending for housing though in a small way.

Here is a comprehensive list of these public and private sector banks, housing finance companies:

List of home loan providers in india from Green Realtech Projects Pvt. Ltd

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Why US like sub-prime (housing) crisis will not happen in India?

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

If one were to observe the recent trends across real estate sector in India, he/she would realize that market is slow. Damn slow. From increasing unsold stock of housing units to slowdown in office space absorption across major cities in India, the trend has been depressing to say the least. Will it lead to price correction? Yes, we predict so, read "Real Estate Bubble in India" to get a sense.

However, question to be asked is “will prices fall so dramatically that it leads to US like sub-prime crisis”? And the answer is BIG ‘NO’. Why? Let us explore!

First of all what is a sub-prime crisis?

It was about 5 years ago, some of us were in business schools and the shocking news of Lehman Brothers going bust filled the classroom. Most of us were new to business jargon like ‘sub-prime’, ‘securitization of home loans’, ‘derivatives’ and therefore could not grasp the solid reasoning behind the banking crisis. However, as days passed by, we began to understand this better by discussing with professors; peers; and reading articles. One of the better anecdotes that explains US sub-prime (housing) crisis goes like this:

“Linda is the proprietor of a bar in the city. In order to increase sales, she decides to allow her loyal customers - most of whom are unemployed alcoholics - to drink now but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans). Word gets around and as a result increasing numbers of customers flood into Linda's bar. Taking advantage of her customers' freedom from immediate payment constraints, Linda increases her prices for wine and beer, the most-consumed beverages. Her sales volume increases massively.

A young and dynamic customer service consultant at the local bank recognizes these customer debts as valuable future assets and increases Linda’s borrowing limit. He sees no reason for undue concern since he has the debts of the alcoholics as collateral. At the bank's corporate headquarters, expert bankers transform these customer assets into DRINKBONDS, ALKBONDS and PUKEBONDS. These securities are then traded on markets worldwide.

No one really understands what these abbreviations mean and how the securities are guaranteed. Nevertheless, as their prices continuously climb, the securities become top-selling items.

One day, although the prices are still climbing, a risk manager (subsequently of course fired due to his negativity) of the bank decides that slowly the time has come to demand payment of the debts incurred by the drinkers at Linda's bar. However they cannot pay back the debts. Linda cannot fulfill her loan obligations and claims bankruptcy.

DRINKBOND and ALKBOND drop in price by 95%. PUKEBOND performs better, stabilizing in price after dropping by 80%.

The suppliers of Linda's bar, having granted her generous payment due dates and having invested in the securities are faced with a new situation. Her wine supplier claims bankruptcy, her beer supplier is taken over by a competitor.

The bank is saved by the Government following dramatic round-the-clock consultations by leaders from the governing political parties (and vested interests). The funds required for this purpose are obtained by a tax levied on the non-drinkers”.

Well, simply, replace unemployed alcoholics by home loan seekers, Linda with a housing company, and throw in a mortgage company and investment banks with all their financial engineering skills. And what you had was major financial crisis.

Why can’t it happen in India?

Reason 1: Black money

Yes, it’s actually true that no matter how much we curse the existence of black money into the real estate sector, but it actually won’t allow a sub-prime (housing) crisis to happen in India. In US, banks started to lend 100% of home value at lower rates in initial years (known as teaser loans in India) to borrowers and this led to default when home prices fell. However, in India, even if a bank lend 100% of home value to its borrowers, a borrower will still have to pool in the equal amount of cash to buy the house at market value. 

For example:

A housing deal takes place between a buyer and seller and the market price is Rs 80 Lacs. However, as per the government circle rates, the home value on paper is 35 Lacs. Due to high stamp duty charges, the buyer will not report the actual value of Rs 80 Lacs to the registrar office. And the seller will not report the actual value of 80 Lacs in order to save on capital gains taxes. Therefore, what we get is a property which is worth Rs 80 Lacs, is actually registered at Rs 35 Lacs. The remaining 45 Lacs is paid in cash by the buyer to the seller. So, even if the buyer’s bank offered 100% of home value which is 35 Lacs on paper, the remaining 45 Lacs is arranged by the buyer. And who on earth would walk away from this home where he/she has invested 45 Lacs of their cash even if the home prices dip.

Reason 2: RBI Policies

Reserve Bank of India (RBI) has put in place certain policy measures which until a few years ago looked conservative to many people. But these very measures will not allow the Indian banking system to lend aggressively and these measures are:

• In India Banks provide home loans for about 70-80% of property value. The remaining 20-30% has to be arranged by the buyer. Whereas, in US this norm was relaxed and banks began giving loans equal to the entire value of the house.
• In India, banks check the credit worthiness of the borrowers and lend only to people who have income records and have the capacity to pay EMIs. Whereas in US, home loans were granted to people with no documented income, job or assets. 
• In US, banks came up with teaser loans (interest rates are low in initial 4-5 years and then are aligned to market rates). Borrowers were happy to get home loans at sub-prime rates; however, they found EMIs too hard to pay as soon as the interest rates were realigned to market rates. And they simply walked away. In India, the concept of teaser loans is not allowed.
• Non-recourse debt in US. This kind of debt is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable. If the borrower defaults, the lender/issuer can seize the collateral, but the lender's recovery is limited to the collateral. However, in India, the borrower is personally liable. In other words, banks can seize his/her other assets to recover their claim.

Add to these above reasons, the fundamental issues of housing shortage and emotional attachment of owning a home will make sure that housing sub-prime crisis will not happen in India.

In a nutshell:

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What are the lessons that we as buyers can learn from Campa Cola fiasco in Mumbai?

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

Campa Cola is in news and thankfully Supreme Court has stayed the Campa cola society demolition. The next hearing is on November 19, 2013. But what went wrong? The society was built in 1980s and the plan for 9 buildings of 5 floors was sanctioned. However, rules were flouted and only 7 buildings were constructed. 4 of those buildings were of 6 floors, 2 buildings of 20 floors, and 1 building of 17 floors. BMC seeks to demolish these buildings in order to set a precedent that such unauthorized construction will not be tolerated. BMC and the residents are against each other for last decade or so. One can surely ask BMC a question, why the hell did you allow the construction of these apartments in first place? And why didn’t you penalize the builders then and there? We can ask many such questions to BMC, and maybe the local politicians.

However, we will focus our attention on buyers in this post. We need to learn the lesson and learn it quickly. The primary lesson that we as buyers can learn is to be demanding, to be an extrovert property buyer, and asking questions. At the end of the day, you are going to invest your lifelong savings and none of us want to go through the pain that Campa cola residents have gone through. So, what are the things which we should be vary of before investing in a residential project? We have put together a comprehensive list and it surely does make sense to ask these questions from the real estate developer.

7 easy steps to buy property in india with clear title and no encumbrances from Green Realtech Projects Pvt. Ltd

Thanks and all the best!

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Market for Office Space in Gurgaon and analysis of micro markets such as MG Road, Sohna Road, NH-8, Golf Course Road, Udyog Vihar, Cyber City, IMT Manesar

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

Delhi NCR region comprises of the national capital Delhi, and satellite towns of Gurgaon, Noida, Faridabad, Ghaziabad, and Greater Noida. Among all the cities, Gurgaon has truly become the millennium city. Ever since Maruti set-up their base in the city and subsequent turn of events with back office services company such as Genpact started their operation from here, the city has never looked back. Many auto ancillaries, IT, ITES companies have set-up their office and manufacturing facilities here. This has led to real estate boom for residential and commercial real estate alike. Companies continue to lease office space in Gurgaon and it is no surprise that Gurgaon leads the way for commercial real estate development in Delhi NCR region.

Here is an overview of some of the office space micro markets in Gurgaon:

Udyog Vihar and IMT Manesar offers space for office space and industrial units and have been developed by HSIIDC (Haryana State Industrial & Infrastructure Development Corporation LTD). The other office space micro markets such as MG Road, Sohna Road, Cyber City, Golf Course Road and Golf Course Extension Road, NH-8 have been developed by private property developers in Gurgaon.


Some of the most prominent real estate developers in these micro markets are:

The rental and capital values differ in these micro markets on account of proximity to Delhi, age of property, presence of social infrastructure, and connectivity.

Companies looking to buy or lease office space in Gurgaon will have to pay highest rental/capital amount for micro market of MG Road, whereas IMT Manesar offers lowest value.


Overall, the office space absorption in 2013 across entire Delhi NCR region has fallen substantially which has put pressure on rental and capital values.

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How does the new Real Estate Regulatory Bill in India help me? What impact will this bill have on real estate sector in India? And what are its shortcomings...

Author: Sachin Gupta | Find me on Twitter Follow @sach_gupta

In June 2013, Government of India brought in Real Estate Regulatory Bill to provide for a uniform regulatory environment, to protect consumer interests, help speedy adjudication of disputes and ensure orderly growth of the real estate sector and has been much awaited by all aspiring home buyers.

The Real Estate (Regulation and Development) Bill, 2013 is a pioneering initiative to protect the interest of consumers, to promote fair play in real estate transactions and to ensure timely execution of projects.

The Bill focuses on 3 principle parties namely, the real estate developer, the buyer, and the regulator.

What does the Bill intend to provide in nutshell?

1. Introduction of the concept of using only ‘carpet area’ for sale which has till now been ambiguously sold as super area, super built up area etc.
2. Register real estate agents which have hitherto been un-regulated, with clear responsibilities.
3. Promoters (Builders) to register all projects, prior to sale; and only after having received all Approvals from development/municipal authorities and functions.
4. Real Estate Authority(s) and Appellate Tribunal in the States, to enforce accountability norms for the promoter buyer and the real estate agents.
5. Timely completion of projects, and prevent fund diversion.
6. Speedy and specialized adjudication mechanism to settle disputes between the promoter, buyer and real estate agents.
7. Developers or builders have to put aside 70 per cent of the proceeds of a particular project in a separate bank account which will help to fund the project and in timely delivery.

Well, in its present form the bill appears to be a "Real Estate Thana" and every wrong doing by real estate developer can be reported in this "Thana" and necessary action will be taken as per the Bill's guidelines. However, we all know, how long and tedious it gets to get justice from "Police Thanas". So, let’s wait and watch what action or justice comes out from this new "Real Estate Thana".

Make no mistake, even though the bill falls short on policy front...yet it could prove to be helpful for buyers. However, the bill would have served the larger purpose if it were to encourage people including builders, buyers, and government agencies to do right things instead of taking action when something wrong has been committed. Lets explore...

What is needed?
We need environment ministry, income tax authorities, revenue department to work in tandem with Real Estate Regulatory Authority to provide clearances, keep a check on fair practices, and study the real estate market regularly.

1. The idea is to have a single window clearance mechanism wherein real estate developers submit their plans for approvals and the regulator approves or disapprove the same. It is estimated that, this alone can reduce the cost of housing by about 20%. Phew…
2. Income tax department to check who is buying the property from developers. In other words, it should be made mandatory by law for real estate developers to disclose the buyer details. This will ensure true demand for the housing and keep away speculators. After all housing is a need first and then investment vehicle.
3. Revenue department to study the real estate and housing market carefully and then levy stamp duty. It is widely believed that reducing stamp duty and registration charges will encourage buyer and seller to report the market value of property instead of the circle rate value. Thereby, eliminating cash from resale market.
4. Environment ministry to provide timely and consistent environment clearances with regards to water, natural resources, forestation, etc.
5. Land acquisition department to ensure that land has been acquired as per the governing law.

Well, we do not live in an ideal world and let's hope slowly but surely, the role of real estate regulator evolves and we have an act that promotes fair practices on part of all the concerned parties involved.

Thanks

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