Many writers including Vivek Kaul have a strong view that the existence of black money is what is pushing up the real estate prices. I have a different take. If the EXCESS SUPPLY of black money is what is holding the RE prices high, is it not the excess of BANKING money that is holding up the RE prices?
The bank’s exposure to the RE business is about 12,00,000 crore rupees. Is this a small amount of money? What about black money in RE? can we assume it is HALF the amount? so about Rs. 6,00,000 crore rupees? Is that small?
Let us say the government says:
– one person can own only one house, and all the other houses that he buys will be treated as a business
– so all the RE income from 2nd house onwards will not get capital gains benefit, will NOT be treated under Income from House prop
-will be subject to wealth tax @ 1% of the cost of acquisition
– levy service tax on rent
-levy TDS on rent @ 10k per month
All this will ACTUALLY reduce the yield on RE. No problems people buy RE for appreciation. The lesser income yield will not have an impact at all.
The bank funding is assuming that there will be a continuous 8% increase in the value of the property prices and hence there is reduced risk for the lender. People associated with the banking industry know how easy it is to evergreen the Real Estate book, do they not? So if a small builder is in trouble, go to a big builder and get the distress sale funded at a higher value. Go to a compliant valuer and you can get a value which is 3x the current prices in that location. Forget RBI even the regular auditor has no way in hell of knowing anything about the valuation reports.
Now look at Navi Mumbai. The industrial units in Rabale are slowly but surely moving their operations ot Gujarat (land is about 1/10th the price), electricity is about HALF, and labor is about 40% of Mumbai’s rate. So if there is a mega shift will prices in Mumbai go up or down? Your guess is as good as mine.
Maybe the cash element is having an impact but it is the big banks that are funding this frenzy of RE prices esp in metros…
Post Footer automatically generated by Add Post Footer Plugin for wordpress.