Tag: kolkata property

India’s real estate market: Time for the bubble to burst?

It is a frequent motto used to emphasize the importance that a location has on the value of a real estate property. The heart of the message is clear — if you pick the right spot to invest your property in, you can be rewarded with a handsome return on investment.

The Indian economy is in an interesting stage right now. On one end of the spectrum, signs are pointing towards an economic surge. The Sensex hit an all-time high a week ago, the RBI seems to be making all the right moves to curb inflation and bring stability to the rupee and analysts can be frequently heard commentating that finally it’s a “trading market”. This means the economy is picking up, the share market is ripe for investments and therefore investors and traders can take advantage of the opportunities being presented to earn profits.

However, a quick way to see whether a country’s economy is improving is to simply look at its real estate prices. If real estate sales fall, then real estate prices eventually fall in tandem. This then reduces the value of all homeowners, whether they are looking to actively sell or not. The result is that there is a reduction in home loans granted to those same homeowners. Finally, this reduces consumer spending which results in reduced GDP.

So all in all, real estate prices or sales are a great indicator of a country’s economy.

With the Sensex hitting new highs and RBI Governor Raghuram Rajan promising all sorts of ground-breaking changes to propel the economy (on 6th November, the RBI unleashed a far reaching set of new rules that will allow foreign banks to enter India’s protected domestic environment), you would expect real estate prices to be surging upward. And yet, this is not what is happening.

The RBI has been consistently raising the repo rate, which is the rate that banks are charged to borrow from the RBI- in recent months. These past few days, major banks such as State Bank of India and HDFC Bank raised the rates to obtain loans to purchase houses, and the trend is unlikely to stop as the RBI is expected to continue raising rates to fight inflation.

This all translates to bad news for the real estate market. Home-owners will have a more difficult time obtaining loans to purchase houses. Already, cities such as Mumbai are facing a downturn in the real estate market, despite the mass public perhaps not being aware about it.

Usually, before a bubble “bursts”, price rises begin to slowly drop. This is currently being evidenced across the country. The National Housing Bank’s Residex, which tracks housing prices across 26 prominent cities in India, showed that in the April-June period, 22 cities saw a fall in prices compared to the previous quarter.

Mumbai and Delhi saw prices drop by 0.5 per cent and 1.5 per cent, respectively. While properties in Chennai dropped by 2.3 per cent and properties in Kolkata dropped by 4.1 per cent.

When looking at nominal numbers, which is not comparing to the previous quarter when adjusted for inflation, out of the 15 largest cities in India, house prices actually fell in 11 out of the 15 cities in the second quarter of 2013. This is absolutely alarming. For example, Kolkata saw a dramatic -12.9 per cent drop in prices when adjusted for inflation, and Surat saw a -11.5 per cent drop in prices when adjusted for inflation.

Source: NDTV Profit

Kolkata property prices up 60%, highest among cities: RBI report

Kolkata property prices have moved up 60% year-on-year, highest among all the Indian cities and much above the national average of 21%, the RBI said in its annual report.

To track real estate price movements, the RBI has compiled quarterly house price indices for nine major cities as well as an aggregate all-India index based on data on property transactions received from registration authorities of state governments.

The RBI, in its annual report, has pointed out that property prices in Kolkata witnessed the highest growth of 60% between the fourth quarter of 2012 fiscal and fourth quarter of 2013 fiscal. It was lowest for Mumbai at 10.6% during the same period.

Although Credai president and managing director of CSR Estates C Sekhar Reddy said the RBI’s assessment is based on presumptive valuation, data available from the West Bengal government show that property prices have sky rocketed mainly because of high value land sale pushed by the state government agencies since 2009.

The Kolkata Municipal Corporation (KMC), Kolkata Municipal Development Authority (KMDA) and the West Bengal Housing Board are mainly responsible for land deals and the three agencies together have sold a little above 5,000 acres for R18,000 core in the last four years, a KMDA official said.

KMC this June auctioned a 2-acre plot on the EM bypass for R115 crore, the biggest land deal in Kolkata so far with price per cottah translating to R96 lakh. In an earlier land deal in 2009 KMC sold a 3.35-acre plot on the same EM bypass for R135 crore via the auction route and this translated to R70 lakh per cottah. Housing Infrastructure Development Corporation (HIDCO) auctioned a 2.25-acre plot in the IT township of Rajarhat for Rs 51.13 crore.

The government agencies have set the trend, Harsh Vardhan Patodia, of Credai Bengal said. He however didn’t agree with the RBI figure saying property prices in Kolkata have gone up 18% in the last one year but prices in the city crashed during the fourth quarter last fiscal.

The latest National Housing Bank residex (for quarter to March 13) shows that property prices in Kolkata have dipped 5.57% quarter-to-quarter, the third most decline after Guwahati and Ludhiana among the eight cities that have shown a declining trend. According to the NHB data Jaipur witnessed the highest quarter-to-quarter increase 28.74% in the last quarter, FY13 with 10 other cities showing an increasing trend.

However, SS Bagaria, owner of AHW Steels, who won the bid in KMC’s recent auction, said land prices in Kolkata was sky rocketing because of an acute crunch in land availability. A number of infrastructure projects like the east- west metro corridor have occupied most of the land and the scarcity has created a good market for properties. He expects that his R400 crore ultra luxurious apartment project would fetch good returns with each apartments to be sold at prices between R5 crore and R6 crore.

Reddy said tracking real estate price movement on the basis of data received from registration authorities of state governments would not be perfect since the circle rate adopted for computation of gains is based on presumptive value.

The government has proposed taxation on property deals inserting section 43 CA of the Income Tax Act.

The taxation would be done on the assessed valuation of a property at the time of transfer instead of on the sale price fixed when the project was initiated. This has a cascading effect on the realty prices with buyers finally having to pay more; Reddy said adding that Credai was talking to the finance ministry on the issue.