High court quashes FSI increase in Mumbai

Buillders are anguished at this order since now they will have no other option but to raise rates by 10-15%.

The best thing is to move out of Mumbai into Pune, Bangalore, Hyderbad or Chennai .There is absolutely no point in paying 1.5 crores to live in 2 bed apt when your salary is a fraction of the loan.

The only people who can buy are those with black money or those whose Mumbai projects are going into redevelopment. Every building over 30 years in age is going for redevelopment and all these residents are getting a good package from the builders.

From what I hear the builders offer

18 months of rent
A lumpsum amount
20-25% extra carpet in the new building.

Many times some owners sell the flat to the builder and move into a different location.

I've seen some projects in my area getting sold out in no time and those flats are sold to mostly investors with deep pockets. End users rarely get a chance to participate in this process.

so the best thing for anyone who can, is to move out and get out of this mess. Ive also noticed a tendency of some of the owners to move to Pune. Today's Times of India - Mumbai edition has a 4 page supplement on Pune real estate. That should speak volumes that Pune builders are courting the Mumbai population with the terms 'affordable' in every other sentence. 3000-5000 per sq/ft seems to be a steal when compared to 10,000 per sq ft in the Mumbai suburbs.

Hindustan times article is below.

Buying a flat in the suburbs will now get even more expensive, after the Bombay High Court on Thursday struck down the state’s decision to increase the Floor Space Index (FSI) for suburban constructions to 1.33 from 1.

The FSI determines the maximum amount of construction that’s allowed on a plot of land. An FSI of 1 means that on a 1,000 sq ft plot, construction cannot be more than 1,000 sq ft.

All new projects have to adhere to the ruling, which came after the April 2008 Government Resolution (GR) was challenged by resident Amit Maru.

This means builders will now have to buy more FSI through Transfer of Developmental Rights (TDR) from the open market. The maximum permissible FSI for suburbs is 2 of which 1 is permitted by default, and builders can acquire the additional 1 through TDR.

In the 2008-09 Budget, the state had decided to offer an additional 0.33 FSI on payment of premium, which reduced the amount of FSI builders had to acquire from private parties. This had, to some extent, reined in TDR prices.

Under the GR, the premium to be paid for the additional FSI ranged from Rs 7,000 per sq ft in areas such as Manori to Rs 23,000 in Bandra.

“We have to pay extra money to buy TDR from the open market and will pass this burden to consumers,” said Sunil Mantri, president of Maharashtra Chamber of Housing Industry and owner of a construction firm.

The court struck down the GR saying it’s against the Maharashtra Regional and Town Planning Act, 1966, as it does not have a provision for levying a premium.

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Mumbai setup for redevelopment.

Its about time the old run-down structures are torn down and replaced with new developments. Needless to say here the big winners are the troika of builders, politicians and state government babus. Its hard to fathom the amount of black money which will be generated by 20,000 projects.

With the IPL scandal it has been apparent to everyone that Pawar had a big stake in the development of Amanora Town in Hadapsar, Pune and also he was involved in the Blue Ridge Hinjewadi project.. Every project has the backing of a big politician so now it remains to be seen if those projects are affected if he has to step down.

With DC rules clarified, Mumbai is set for a flurry of redevelopment

Mumbai: Greater clarity in rules and the pressing need for more houses in land-starved cities like Mumbai have builders eyeing opportunities for redevelopment after a two-year market slump and recession.

"Now we have the opportunity to do large redevelopment projects, as the policy on redevelopment has been clarified," Godrej group chairman Adi Godrej said last Friday. "We are hopeful that within the next six months, we will announce a few large redevelopment projects.

"Another reason [for redevelopment] is the scarcity of land for development in Mumbai," Godrej said, adding that some of the buildings in the island city are "very old, built during the British era".

Besides Godrej's realty unit, Godrej Properties, Housing Development and Infrastructure, DB Realty, Ackruti City and the unlisted Shapoorji Pallonji & Co and Kumar Urban Developers are among the big builders chasingre development contracts.

More here

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Will Property Prices Fall

Moneylife article

Housing prices are again reaching for the skies; demand is stagnating. How much should prices fall for the market to be reasonably valued? When can that come about? Moneylife reporters and analysts offer some answers.

If the current trend continues, it is likely that Mumbai will soon see stagnation in property sales; so will Bengaluru, Delhi-NCR and other metros. Teaser home-loan rates notwithstanding, buyers are showing no eagerness towards committing to their cherished new homes. If prices continue to spiral northwards, will buyers be eventually priced out of the market? Will we witness the bursting of yet another bubble or would that be just a temporary phenomenon?

Pankaj Kapoor believes that the government is actively fuelling a property price bubble in Mumbai. “The Mumbai Metropolitan Region Development Authority (MMRDA), in its own plans, says that increasing the valuation of the land sold is one of the key objectives. It is the government which is creating the bubble,” he asserts.

This is where the problem lies. Inflation is now touching almost 10%, prompting the government to gradually roll back the earlier monetary stimulus measures. Interest rates are expected to go up further. It is worth noting that every 0.5% increase in interest rate reduces home loan eligibility by approximately 7% (by making home loans costlier and also by reducing the eligibility of the lower-income segment).

In this scenario, what should home-seekers be doing? Many of you would be looking out for that cherished new home that you have wanted for so long. Does it make sense to take a plunge at these prices? Not if you are smart. Many buyers have postponed their home purchase decisions in view of the steep appreciation in property rates. Wait a bit for prices to cool down and then make a move for that dream house.

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Decoupling, local demand driven economy, green shoots

Here we have the Sensex down another 300 points and it gets blamed on the Euro Zone problems.

Indian stock market brokers have taken the Indian investor for a long ride and articles like this in the Economic Times only vindicate my position that the media in India is very biased and will not report the full truth. They will hype up the good news and play down the bad stories.

There is no independent reporting anymore and everyone including the TV channels are biased. The media knows that if the market sentiment is not propped up, they will lose viewers/readers and hence their sources of advertising revenue.

Investors have to tread very treacherous waters in India so they better be very skeptical of these bozo's in the media.

Every article is written with the intent of enticing investors into the market. This is the Ekam-Sat (Ultimate Truth) of Indian markets. Be very careful with your hard earned money and if you have to invest go with diversified low cost mutual funds with minimal expense ratios. I hate to see people lose sleep and their life's savings and hand them over to these sharks

Economic times reports

MUMBAI: The Indian markets fell on Tuesday, halting its four-day rally as concerns about the European economies turned investors jittery again. During the day, the BSE sensex fell 373 points, or 2.2%, to close at 16,572 while on the NSE, nifty closed at 4,970, down 116 points or 2.3%.

The day's selling was again led by foreign funds while buying by domestic funds cushioned the fall to some extent. BSE data showed FIIs were net sellers at Rs 527 crore while DIIs were net buyers at Rs 211 crore. Dealers said other than global concerns, speculation that the RBI could soon hike interest rates to stem inflation also prompted Dalal Street investors to book profit. The day's slide left investors poorer by Rs 90,000 crore with BSE's market capitalisation now at Rs 59.7 lakh crore.

During the day, most global markets also ended in the red as euro slipped to a four-year low level against the US dollar. Reports on slow growth of Chinese manufacturing sector, and its after effects on the eurozone and the global economy in general, also made the investors jittery.

In the the Asian region, Shanghai fell by nearly 1%, while Nikkei in Japan was down 0.6% and Hang Seng in Hong-Kong closed 0.4% off. In Europe, FTSE in London recovered much of its earlier losses and ended 0.6% down, while in Germany, DAX ended marginally higher and CAC in France ended marginally lower. In early trade, Dow Jones was flat, having recovered most of its earlier losses of nearly 1%.

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New Chennai beckons buyers

Maraimalai Nagar on GST is finally realizing its true potential is providing a higher quality of living for Chennai residents. Land is cheap for now in this area which extends upto Mahindra World City and should provide early bird buyers a good entry point for the foreseeable future. Connectivity is good via the GST road and Southern Railways. If I were to place a bet on any semi-urban suburb in India, this would be it. All the development in this area reminds of me Aundh in Pune in the late 90's, or some areas of Bannerghatta road in Bangalore in the early 2000's. A 2400 sq ft plot can be bought for under 15L. Adding another 10L for construction one can construct a very good quality independent house. Just as the development by big bulilders in Bangalore propped up the infrastructure in semi-developed areas, one can easily expect the same to happen in Chennai.

Hindu has an article on Maraimalai Nagar and when the media starts picking up stories like this, it appears that the time has come for this area to become one of the most talked up places in Chennai. Investors and end-users should closely evaluate this destination if they have a time horizon of 3-5 years and beyond. In my opinion plot prices could easily double in the next 5 years.

Here is the Hindu article

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India’s Economy Grows 8.6%, Adding Pressure on Rates

As the economy grew by 8.6%, can the FM please mention the growth of black money, a primary cause of the housing bubble. It should be apparent to everybody that growth of the economy should translate to higher profits for all stakeholders including those in the government who are involved in the approval process. All this underhand money props the value of land and apartments thereby pricing out the common man. India is entering an era which the Japanese became very familiar with in the 90's. India is prosperous but Indian's are not. India has 8.6% growth but Maoists are blowing up trains and killing their own countrymen. It just appears that the Maoists don't think they belong to an country called India, and why would they. They have been neglected all thru the 60 years of independence and now the mining mafia is out uproot them of their own land. There couldn't be a better movie then Avatar to illustrate the plight of the Maoists indigenous people and most probably the Maoists wouldn't even know that someone made a few billion dollars of their cause.

Interestingly we now have Jones Meghraj and others from the real estate business who are saying that the Lodha's deal in Wadala is unsustainable. A case of the pot calling the kettle black. Nobody likes their territory infringed upon and it appears that Lodha's have entered Wadala causing grief to the existing projects., some of which could belong to their clients.

May 31 (Bloomberg) -- India’s economic growth accelerated, adding pressure on the central bank to raise interest rates even as Europe’s sovereign-debt crunch threatens the global recovery.

Gross domestic product rose 8.6 percent in the three months ended March 31 from a year earlier after a revised 6.5 percent gain in the previous quarter, the statistics office said in a statement in New Delhi today. That matched the median estimate in a Bloomberg News survey of 22 economists.

India and China, the world’s fastest-growing major economies, are weighing the risk of Europe’s debt crisis reducing demand in the market that accounts for a fifth of their exports. For India, the room to pause on monetary tightening is limited because its benchmark inflation rate is more than three times that in China.

“The biggest threat in India is from inflation and the risk that the economy overheats,” Kevin Grice, an economist at Capital Economics Ltd. in London, said before the report. “This, in the end, would force the Reserve Bank of India to aggressively hike policy rates, which would inevitably bring far lower growth later on.”

India’s central bank said May 19 that it will raise rates only cautiously even though they are “out of line” with the key wholesale-price inflation rate, running at 9.59 percent. In comparison, China’s $4.3 trillion economy expanded 11.9 percent in the first quarter and consumer prices rose 2.8 percent in April from a year earlier

More here

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Investors end up holding the bag in high-end apartments

Mint has an article on how the builders get their initial funding from select investors who are given apartments at a discount to the market price. The investors then sell off the flats to the end-users at the going market rate once the project nears completion.

While this seems to be a legitimate way for businesses to raise funds, these investors who buying the highly priced apartments will stuck with these prohibitively expensive properties as the only buyers who could afford these apartments would the investors themselves. US/UK based NRI's cannot afford buying anything in Mumbai. The Dubai investor is reeling under the crisis in the Gulf leaving nobody but the investors themselves as the only folks with black money and the affordability. Bank's these days are very careful doling out loans and any loan over 50L attracts a lot of scrutiny.

Now imagine the investment decision made by a smart businessman in Mumbai with 2 crores of discretionary investment cash. Will he directly contact the builder and buy in it as a investor or will he be so stupid enough to buy from another investor by paying an extra 30% ?

Property prices heading north on pre-sales to investors

Investors have bought at least 80% of the project, fetching Unitech around Rs315 crore that it can use for construction and other needs

Bangalore: Unitech Ltd’s intense pre-sales pitch in October to investors for a part of its residential project in upscale Worli, Mumbai, is paying off in more ways than one—the company has been able to collect a tidy sum while the price benchmark has been pushed higher.

Investors have bought at least 80% of the project, fetching Unitech around Rs315 crore that it can use for construction and other needs. Around one-fifth of them have already resold their purchases at a profit, pushing up prices from Rs12,000-12,500 a sq. ft during the pre-sales to Rs19,000-20,000 a sq ft., the likely price tag for actual home buyers when Unitech opens the rest of the project for them later this year.

A similarly brisk rally is pushing up prices in several other projects in Mumbai and Delhi—a trend last seen in 2005-07, just before the bubble burst as liquidity dried up amid the financial crisis.

More here

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