Buying a home may become more expensive

After nearly 18 months of slowdown, property developers are looking at marginally increasing the prices of affordable homes. Whether it would help these cash-starved firms to improve their profit margins is yet to be seen, but such a move would send a strong signal that the phase of price correction is over.

Unitech, the country's second largest property developer, has already increased its apartment prices by Rs 50 a sq ft to Rs 3,000 a sq ft. These projects were launched under the brand names The Residency and Uniworld Garden-II in April and May, under the affordable home category, with unit areas of around 1,000 sq ft. These were one of the few projects that help in reversing the downward trend in the realty space.

"We had not thought we will see such a huge success for our mid-income projects. Though the price hike is minimal, it shows our projects are selling quickly, even with increased prices," said Unitech MD Sanjay Chandra. The company is planning to build 20 million sq ft of property in fiscal year 2010.

But property consultants are wary of developers' move to increase prices in the current market. "It looks like a pre-decided strategy to increase the valuations of projects or the companies, as most of these firms have lined up public issues or private placements,'' said Pankaj Kapoor, chief executive of Liases Foras, a real estate research firm.

According to his firm's research, the developers' sales to inventory ratio has moved up to 1:9.5 (a unit of sales for every 9.5 units of inventory) from 1:2 in 2005. "There is a bit of improvement in property sales, but sales are below sustainable levels. There is no way the market can digest the price increase," Kapoor said.

After the drastic fall in sales in 2007-08, developers have reduced the floor areas by 20-30 per cent and also price per sq ft by around 25 per cent. The top developers such as DLF, Unitech and the Lodha Group, among others, have shifted their focus to mid-income housing to generate cash, even as their margins fell from 50-70 per cent earlier to 20-30 per cent in these projects.

"We were selling homes at Rs 6,800 a sq ft a year ago and at Rs 5,000 before elections. Now markets have revived and we are in a totally different condition than we were seven or eight months ago. Prices will go up here onwards," said Manish Grover, vice-president, marketing, Sunil Mantri Realty, a Mumbai-based developer that is planning to raise its apartment prices from Rs 5,290 a sq ft to Rs 5,590 a sq ft at its Goregaon East project from Monday.

Other developers in Mumbai such as Nirmal Lifestyle and the Lodha Group are planning to increase their home prices by 4-5 per cent from next week. "We have seen very good sales in our projects. We are observing market conditions closely and think there is some room to raise prices," said Abhishek Lodha, director of the Lodha Group, which is planning to raise by 3-5 per cent in its mid-income projects in the city.

BPTP, a Delhi-based developer, is planning to launch a new project at its 1,500 acre township at a higher price than its existing project. "We have received 5,000 applications for only 500 apartments on sale. So, the new apartments we would launch would be in the higher price category and would be different from the existing project," said a spokesperson for BPTP.

"Developers want to send signals that they are good. But if they are increasing above 10-15 per cent, it would be irrational," said Sanjay Dutt, chief executive of Jones Lang LaSalle Meghraj, a property consultant.

Source: Harsha ;)

Inflation at -1.61%; what it means for you???

Why does deflation happen?

A fall in spending -- it could be personal spending or a cut in government expenditure -- leads to deflation. The decline in the supply of money and credit thus leads to deflation.

So, if money-supply decreases; supply of other goods increases, demand for money rises, and the demand for other goods slips, it is deflation.

So, if money-supply decreases; supply of other goods increases, demand for money rises, and the demand for other goods slips, it is deflation.

Why is it bad for the economy?

Deflation is a fall in the price of goods and services. Deflation occurs when the inflation rate falls below zero per cent. This is the opposite of inflation.

When the inflation rate is negative, the economy is in said to be in a deflationary period.

What are the consequences of deflation?

Deflation leads to a lower level of demand in the economy. It increases the real value of money. It also increases unemployment.

The main effect of deflation is that it gives people a huge incentive not to buy goods. This means that if something costs Rs 100 today, it will cost only Rs 95 next week, thus making people hold off their purchases. The good news is that gives people an incentive to save money.

But as fewer people buy, manufacturers are left with excess inventory. That means they need to reduce their supply, which means they can either stop manufacturing, which causes factory closures and layoffs, or they can reduce prices even further. But the latter causes even more deflation, leading to lower spending, leading to more deflation. Once an economy is caught in this deflationary spiral, it is very hard to climb out. That's why many economists are more worried about impending deflation rather than inflation.

Deflation also slows down business development as entrepreneurs are less likely to invest in new business plans if they see a trend towards lower profit margins. As noted in a earlier post, deflation is more of a hinder to a strong economy than inflation.

In a deflationary environment, those sectors with a high proportion of variable costs are likely to benefit from falling input prices, according to Goldman Sachs.

What could happen if India slips in deflation?

India would see deflation or reduction in general price level from next month due to slackening demand, according to financial services firm Goldman Sachs said.

"We expect yearly headline WPI inflation to fall rapidly below 1 per cent in March. And enter a period of deflation beginning in April, which could last till end-2009 due to not only continuing demand destruction but also a sharp step-up in the base," it said in a research report.

"There will be negative inflation for a few weeks in the first quarter of next fiscal, driven largely by higher base effect but we do not expect a pronounced deflationary trend in the economy," Dun and Bradstreet chief operating officer Kaushal Sampat said recently.

But prices may fall in deflation, so is it good?

Is deflation good for you as prices may drop?

A fall in the prices may sound good for consumers. But it is not actually good. The lack in demand may push companies to further lower prices.

This can lead to a situation where the prices of product fall bellow the cost of manufacturing a product. This in turn forces the companies to cut production, slash jobs and shut down business till demand picks up. This worsens the situation.

Will deflation dog India for long?

Deflation is not likely to last long. The monetary and fiscal stimulus measures of the government is likely to boost demand in the long run. In 2010, however, Goldman Sachs expects inflation to come back due to both a gradual pick-up in demand, and conversely, a low base from 2009.

It further said that the Reserve Bank could slash cash reserve ratio (CRR) for banks by 150 basis points by mid-2009 to provide liquidity into the system.

Source: Rediff

Home loan tax exemption may be raised

The government is trying to encourage lending to breathe fresh life into the real estate and banking segments, which are currently coping and bouncing back from the ill effects of a realty market crash and global recession.

One of the possible ways the government could opt to do this is by including a recommendation for increasing the tax slab for home loans in the upcoming Budget announcement slated for July 6, 2009.

This will favour the person opting for a new home loan and will specifically be for the tax concessions on the interest rate. Currently, taxpayers opting for housing loans get income tax exemption on interest payment of up to Rs 1.5 lakh (Rs 150,000) per year.

Sources indicate that the income tax exemption limit for interest payment of home loans is likely to be increased to Rs 2.5 lakh (Rs 250,000) for the upcoming year.

The Reserve Bank of India has been trying to revive the lending scenario to try and keep the liquidity crunch at bay. The RBI has cut the repo rate by 425 basis points (4.25 per cent) and reverse repo rate by 275 basis points (2.75 per cent) since September 2008. Responding to these cuts, public sector banks and private banks too have responded with interest rate cuts.

Even builders, although very reluctantly, have started to bring down the property prices. However, the pace of reduction in real estate prices is so slow that it does not match consumer expectations.

People are also very wary of new debt commitments at this point and the reluctance is obvious from the fact that despite cuts in lending rates, people have not been very forthcoming in taking new home loans.

A wait-and-watch approach is being adopted by people to see what level do property prices drop to.

Understanding the interest component of your EMI

Let us analyse how this increased tax sop will be useful for the common man. For this, you need to understand how the concept of the EMI works.

EMI, or equated monthly installment (EMI), is the amount of money that is paid back to the lender on a monthly basis.

This EMI is essentially made up of two parts: the principal amount and the interest on the principal amount divided across each month in the loan tenure. It is always paid to the bank, or the lender, on a fixed date each month until the total amount due is paid up during the tenure.

Now, you might assume that the equal parts of the principal and interest is repaid to the financial institution every month. However, this not the case.

During the initial years the interest component repaid is higher and during the latter years of repayment the principal component is higher. So, if you think you have paid half of the amount borrowed from the bank in 5 years in a 10-year loan tenure, that would not be the case.

You would probably have reduced the total interest component due considerably and would have only repaid the interest component.

An example to explain how the repayment of your EMI reduces your loan amount during the repayment period leading up to the end of the loan tenure can be seen here.

In the example provided, the loan amount taken is Rs 20 lakh (Rs 2 million), which is lent at a interest rate of, say, around 12 per cent, over a loan tenure of 20 years (240 months).

The monthly EMI is calculated at the annualized rate of 12 per cent and amounts to Rs 22,022 per month with the total interest component amounting to Rs 32.8 lakh (Rs 3.28 million).

You will notice from the example provided that the interest repaid decreases with each passing month starting at Rs 20,000 from the first month and the principal repaid increases with each passing month starting from Rs 2,022 from the first month.

This means that the interest component will be the greater portion of the EMI, which will reduce leading up towards the end of the loan tenure, while the reverse is true for the principal component.

How will the possible tax sop help?

Taking into account the fact that the interest outgo of your home loan will be the highest in the initial years of your home loan repayment, this tax sop will be highly useful for salaried individuals looking to obtain a home loan in the upcoming months.

Apart from allocating a portion of money towards the EMI for the loan repayment, balance other budgetary needs like children's education, household expenses, investment needs, medical expenses, etc., a salaried individual also needs to pay a monthly tax outgo as well by way of TDS (tax deducted at source).

The possibility of increasing the tax sop on the interest component of the EMI can provide welcome relief for people planning to take up a home loan as an additional sum of money can now be exempt from tax.

In the example provided it is clear that in the first five years there will definitely be a tax outgo that exceeds Rs 200,000. In such a scenario, this increase in tax rebate will help with the higher interest outflow in the initial years.

Is the tax sop useful for existing home loan borrowers?

The tax sop covering the interest rate would certainly favour the new home loan borrower. However, at this point when people are struggling to meet the existing loan commitments an increased tax rebate on the principal component would have greatly helped home loan borrowers who are in the middle of the their loan repayment.

From the example provided, it is also clear that home loan borrowers who are half way through their loan repayment or towards the end of their tenure might find an increased tax rebate on principal repaid highly useful.

However, the attempt is more focussed towards encouraging a more active lending process, as that is seen as the need of the hour to bring the realty market back on its feet. Also, there is speculation amidst the potential home loan borrowers regarding how long these benefits such a interest rate cuts and tax sops will last, as home loans are long-term commitments that last to the tune of 20 years.

They feel once the markets show signs of improvement, interest rates and property prices could see an upward swing and this could become a bottleneck for their monthly budget a few years down the line.

This leads one to think that the real solution lies elsewhere. In this respect more affordable property prices and issues like job security will be the real key in turning around the markets and accelerating the pace of home purchases. Everything else seems to be falling in place except for that aspect, which is not at the expected levels yet.

Currently the scenario seems to indicate that only if that happens will things change dramatically in the lending scenario!

Souce: Rediff

The ‘affordable’ mantra....

To boost slowing demand in the realty sector and tap the growing market for affordable housing, realty firm Unitech Ltd will build 20,000 homes this year, priced between Rs10 lakh and Rs30 lakh, launching its first such project in Chennai this month.

India’s second largest property developer by market value on Tuesday launched its new initiative branded Uni Homes, which will have apartment sizes starting at 660 sq. ft.

The realty firm said its second such project will be constructed in Manesar in Haryana, on the outskirts of New Delhi. The apartments in Chennai would cost around Rs10 lakh and those at Manesar around Rs15 lakh, it said.

Faced with falling sales on the back of an economic slowdown, India’s realty companies have been launching what they call affordable housing because they say there is robust demand in this segment.

Earlier this year, Unitech had launched a project in Gurgaon, south-east of New Delhi, where apartments are priced between Rs28 lakh and Rs40 lakh. All 750 homes were sold in 45 days, the firm said. Encouraged by the response, it launched another project, also in Gurgaon, with prices at Rs35-45 lakh. It has so far sold 180 of the 200 flats in that project.

In May, Mumbai-based Tata Housing Development Co. Ltd launched a low-cost housing project branded Shubh Griha in Boisar, around 50km north of Mumbai. The apartments of 283 sq. ft, 360 sq. ft and 465 sq. ft would cost between Rs3.9 lakh and Rs6.7 lakh, the company said.

In March, Mumbai-based developer Lodha Group launched Casa Bella, an integrated township project in Dombivalli, a Mumbai suburb, where apartments would cost between Rs11.7 lakh and Rs24.3 lakh.

In August, Bangalore-based realtor Puravankara Projects Ltd launched a unit called Provident Housing and Infrastructure Ltd to construct apartments priced at Rs10-20 lakh in cities such as Bangalore, Chennai, Hyderabad, Coimbatore and Mysore.

In May last year, Omaxe Ltd, another New Delhi-based developer, set up a subsidiary called National Affordable Housing and Infrastructure Ltd to build homes in the Rs3-15 lakh category in smaller cities such as Sonepat in Haryana, and Nimrana and Bhiwadi in Rajasthan.

“There is a demand in the affordable housing segment. Interest rates have come down and that helps because people can take loan at a cheaper cost,” said Anshuman Magazine, managing director of CB Richard Ellis, a real estate consultancy firm. “There is also a renewal of confidence among buyers.”

Unitech expects to start its Uni Homes projects in Hyderabad, Bangalore, Kolkata and Lucknow.

The company said these projects will all be well located. “The project in Chennai will not be very far away from the city.”

Unitech plans to invest Rs1,700 crore this year to build these homes.

“This is just the construction cost,” the spokesperson said. “Land for the projects has already been paid for,” the spokesperson said.

The real estate company says it owns around 8,000 acres of land in various cities, on which it can develop some 500 million sq. ft of residential and commercial space.

Dealings Started-Agents Roaming

With the Congress government successfully managing to hold its power for the second time, chief minister Y S Rajasekhar Reddy and his men are not taking it low. They have already started taking initiatives and projects that will keep them busy for the next five years and that way they are also want to score over the anti-incumbency that might possibly rise among the voters. In this process, the real estate market has been focused very well and slowly but steadily, the market is now said to be breathing some oxygen. Reports have been arriving from our real estate sources that the dealings have begun on a healthy note and even the buyers are said to have come out slowly into the open. To add to the good news, the dealing are said to be happening not in outskirts but within the city in areas such as Kukatpally, Patancheru. It seems that there is some good movement as per agents and they have begun to pull up their socks and are gearing up to get into the market more aggressively. For now, they have started to focus on small ventures but soon they are having plans to come up with some ambitious ones too. Usually, the Kukatpally and Patancheru segments are considered hot cakes among the real estate market and the prices tend to be at a high end in such places. So if the deals and transactions increase there, then it won’t be long before the word will spread into the market and even the other areas also will get the heat. However, many are saying that the brokers and real estate people must not make the blunder of coming up with exorbitant prices and try to hike up the market else it will lead to another collapse which will become very hard to come out of. Source: greatandhra.com

How India can wipe out fiscal deficit

The government may mobilise a whopping Rs 4 lakh crore, an amount which may help in wiping out the country's fiscal deficit, by bringing down its holding to 51 per cent in all the listed public sector firms, a report says.

"If the government plans to sell its stake in the listed PSUs maintaining its stake up to 51 per cent, the total amount that can be raised is about $94.77 billion (over Rs 4.46 lakh crore)," SMC Capitals said in a report.

With fiscal deficit rising to $62.26 billion (Rs 2.96 lakh crore) - over six per cent of GDP - last fiscal, taming the ballooning deficit would be on its priority agenda when the new UPA government presents the Union Budget in the first week of July.

"If the government goes ahead with disinvestment plans, the infrastructure sector will be the main beneficiary as the proceeds would be ploughed back into the company," SMC capitals equity head Jagannadham Thunuguntla said.

"It is unlikely that the government would go for divestment in the PSU lenders. Shipping, logistics firms would turn out to be the front runners as the government can mobile more funds by selling less stake," he added.

Addressing the first 15th Lok Sabha session last week, President Pratibha Patil had said, "My government will develop a roadmap for listing and people-ownership of PSUs while ensuring that the government equity does not fall below 51 per cent.

Source: Rediff

Real Estate Recovery in Coming 3 Months : ASSOCHAM

Anticipating strong policy measures for real estate in forthcoming Budget, embattled realty majors see positive signs of recovery taking place, within next Three months as affordable housing rev up demand and improved cash flows address their liquidity concerns, according to The Associated Chambers of Commerce and Industry of India (ASSOCHAM).

The ASSOCHAM Business Barometer (ABB) Survey on “Flowing Sentiments in the Real Estate Sector” released here today by its President, Mr. Sajjan Jindal says “based on an expert (focus) group of 25 real estate firms, found 88 per cent of respondent CEOs sensing a quick revival in the sectoral activity within next three months as developer’s strategic shift towards affordable housing and a significant price correction in the housing projects has pepped up the sale of residential property”.

As per the Survey (conducted between May 15 – 25, 2009), a whopping 92 per cent of the respondent developers considered affordable housing as the most dominating segment to shore up the demand in real estate sector. The policy actions supplementing the robust demand in the housing sector is likely to hold the key for a speedy recovery phase in the sector.

With developers’ concentrated efforts to target the lower and middle income consumer group during the downturn, 84 per cent of the surveyed CEOs signaled the least impact (in terms of demand contraction) in the affordable housing segment.

According to the Survey, at a time when luxury housing (more than 50 per cent), SEZ (40 – 50 per cent), retail space (30 – 40 per cent) and commercial space (20 – 30 per cent) were witnessing steep contraction in demand, affordable housing was the single most resilient segment with a minimal contraction of zero to ten per cent.

On the policy front, the surveyed CEOs sought single window clearances for all schemes under affordable housing in the line of SEZ clearances to enable fast development of units and achieve the short fall of about 26 million houses at the earliest.

A majority of 76 per cent of the ABB respondents viewed the stimuli given to the sector through fiscal and monetary measures as inadequate to help boost the demand-supply scenario. However, of all the measures taken by the RBI and the commercial banks, 64 per cent of the respondent CEOs were of the view that RBI’s allowance to banks to restructure loans to developers has been the most successful in improving the liquidity for real estate sector.

In the present market scenario, 60 per cent of the surveyed CEOs perceived resurgent stock market as the most prominent source of finance to fund the sector’s cash requirement, followed by 28 per cent viewing bank credit as the best viable option.

Hefty funds raised through QIPs in the stock market (exceeding Rs 8,000 crore) along with debt restructuring would allow the developers to manage their cash flows even more efficiently to address their liquidity concerns.

Almost 92 per cent of the respondent CEOs strongly agreed to the need to unify stamp duty on property across all the Indian States. The surveyed developers also sought reduced stamp duty charges to increase revenue and avoid duty evasion.

Among other policy issues, respondents asked for a central regulation body, recognition of real estate sector as industry, further relaxed norms for ECB and FDI along with a need for speedier and hassle free statutory approvals.

The Survey also found that metropolitan cities has been the worst affected market segment whereas tier II cities have been seen as the most promising one to boost up the sector as commercial activity moving to these cities and their greater yield has given a tremendous impetus to investment in the these market segments.

Among the six metropolitan cities, the financial capital of India, Mumbai, has been ranked first as the most saturated in terms of real estate assets (both commercial and residential) followed by Delhi NCR (second) and Bangalore (third) whereas Chennai, Kolkata and Hyderabad were ranked fourth, fifth and sixth respectively.

Source:http://www.webnewswire.com/node/456272