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.

Read more at Livemint.com

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.