The Maharashtra government has made ready reckoner for real estate prices, its biggest cash cow, and increased its rates every year without any justification
The Maharashtra government is reportedly mulling a 10% to 25% increase in the ready-reckoner (RR) rates for residential and commercial properties across the state from next month. However, according to experts, such a hike is unrealistic.
"This kind of proposed hike in ready reckoner rates is unrealistic. At present, property prices are down by about 30% and there are no buyers. In addition there is abundant supply and the trend is of a further fall in property prices. In this scenario, proposed hike in ready reckoner rates is unwarranted," said Advocate Vinod Sampat.
According to a report from Business Standard, the (state) government intends to mobilise Rs20,000 crore during 2013-14 through stamp duty and registration fees. "From 1 January 2013, the state government had hiked RR rates in Mumbai by 5%-30%. Property buyers would have to shell out more as based on the revised RR rates, they would also have to pay higher value added tax, service tax and 50% increased stamp duty," the report says.
Ready reckoner rates are used to calculate market value of flats for stamp duty and registration charges. Since 2008, these rates are being calculated on built-up area of the flat.
During 2008-09, the income from stamp duty was Rs8,384 crore even as the state government refrained from revising ready reckoner rates due to the slowdown. However, over the next years, ready reckoner rates have been revises regularly, thus boosting revenues for the Maharashtra government. During 2009-10 its collected Rs10,901 crore (up 30%) as stamp duty, Rs13,411 crore in 2010-11 (up 23%) and Rs14,800 crore in 2011-12 (10% hike). The collection rose to Rs15,000 crore by end 2012-13, the news report says.
Sunil Mantri, president, National Real Estate Development Council, told Business Standard: “In the last few years, the government has made RR the biggest cash cow, with a rise in its rates every year without any justification. Any increase in RR rates is totally unjustified, especially when the realty sector is passing through a tough time. In fact, my suggestion is that the government should reduce the RR rates and also cut the stamp duty to 2%-3% from the present level of 5%. This will ultimately boost property transactions.”
The proposed increase in ready reckoner rates may not substantially affect transactions of new flats as the builders often sell it about 30%-80% higher than the RR rates. However, for the old flats, especially those in the redevelopment phases, the rates may go up due to proposed increase in construction cost in ready reckoner rates.
Adv Sampat said stamp duty collection is the second highest source of revenues for Maharashtra government. "Despite, the increase in property tax, prices would fall further as there is abundant supply and no buyers," he added.
However, Mumbai’s residential real estate market has always shown higher resistance for price moderation, largely because of the scarcity of land, says Anuj Puri, chairman and country head, Jones Lang LaSalle India in a report. “Currently, given the exceedingly high pricing and slow sales, we expect a marginal price correction in Mumbai’s residential property sector. However, the window of opportunity could be smaller than the previous one, since fence-sitting investors are jumping in quickly even with a modest price correction. With insufficient and belated infrastructure, Mumbai’s prime areas will continue to command premium valuations,” he added.
With the new Regulations from SEBI, the tribe of investment advisors will hardly grow in India as there is too much of responsibilities with limited freedom
The idea that investment advisors need to be regulated is not at all a subject of debate. In the US, Investment Advisors Act was passed in 1940. UK carried out several changes in the regulation of financial advisors from 2012.There are many other countries, which regulate investment advisors also called as financial planners. In India, the need to regulate investment advisors originated from many factors out of which two are very important factors which are as follows:-
a) Holding advisors accountable for what they suggest to the client and;
b) Ensuring that advisory business is not mixed with selling of financial products.
With a view to make financial advisory business more accountable, SEBI came out with “Investment Advisors Regulation”. From 21 October 2013 only those who had registered under the regulation with SEBI would be able to offer investment advisory services.
With the Investment Advisors Regulation coming into force, SEBI has received only limited number of applications for registration, with number of investment advisors barely crossing even 100 in a country, which has probably more investment advisors than investors at the current juncture. One of the obvious reasons is that many people are not keen to give up their business of selling financial products and just be investment advisor where the cash flow is not assured, but the matter does not end here.
Let us look at some of the obvious reasons for poor response to this regulation.
Investment advisors not classified based on business activity
SEBI classifies an investment advisor as either individual, partnership firm or a body corporate. Rather than doing this, SEBI should have classified investment advisors based on the volume of business they handle. For instances in USA, investment advisors that have "assets under management" of $25 million or more need to register with SEC and rest others can register with state securities commission. Though India has no such structure, the idea is to highlight the fact that investment advisors should not be treated at legal structure level but at the level of business they handle. A business investment advisor with higher level of activity can afford more costs than an investment advisor having a handful of clients.
Fees charged and cost of compliance are very high
The investment advisor regulation states the following with respect to the fees to be paid by investment advisors:
But this is not the total cost that an investment advisor has to pay. There are costs associated with infrastructure, maintain of records, audit costs etc. Net worth requirement can also act as a minor deterrent. The advisory business in India is in a nascent stage. It is difficult for investment advisors to charge fees to the clients. Also, with the market being so competitive and in absence of a level playing field, charging any decent fees by investment advisors is very difficult and challenging.
The grey areas in investment advisory guidelines are anti-investment advisor
Read this statement which is directly produced from the act: ” Whenever a recommendation is given to a client to purchase of a particular complex financial product, such recommendation or advice is based upon a reasonable assessment that the structure and risk reward profile of financial product is consistent with clients experience, knowledge, investment objectives, risk appetite and capacity for absorbing loss”. There is so much of subjectivity in this statement that an investment advisor will like to keep away from such products or has a risk of not meeting compliance requirement.
It is indeed doubtful that, with current guidelines, the tribe of investment advisors will grow in India. There is too much of responsibility with limited freedom. The cost is big de-motivating factor and compliance requirements are draconian. The guidelines are too investor-friendly and offer very little to the advisors. It is now, the right time to declare investment advisors as endangered species.
(Vivek Sharma has worked for 17 years in the stock market, debt market and banking. He is a post graduate in Economics and MBA in Finance. He writes on personal finance and economics and is invited as an expert on personal finance shows.)
PROVIDENCE, R.I. — Joseph Caramadre believed he had found the Holy Grail for investors, a risk-free way to speculate in financial securities — all upside with little or no downside. All he needed to make it work were people who would soon be dead.
On Monday, in a federal courtroom in Rhode Island, the scheme ended with a six-year prison sentence for Caramadre.
"Joseph Caramadre saw death as a holiday, a cause for celebration, a way to make money," U.S. Attorney Peter Neronha declared on the courthouse steps downtown. "He stole the identities of people and used it to make money from companies who should have probably done more due diligence."
The sentencing came more than a year after Caramadre and an associate pleaded guilty to conspiracy and wire fraud charges. In part, the delay was caused by Caramadre’s failed effort to rescind that plea.
ProPublica wrote about Caramadre in August of 2012, describing how the Rhode Island attorney and accountant fashioned his strategy around variable annuities that carried death benefits, payable if the annuitant died.
Before the financial crisis, insurance companies were so eager to sell these annuity policies that they didn't check the health of policyholders. In exchange for a small amount of money, Caramadre, 53, and his associate, Raymour Radhakrishnan, 29, convinced terminally ill people to serve as "measuring lives" on the policies.
Caramadre then lined up investors who put in much greater sums. When the sick person died, his investors would either reap the death benefit — usually at least the initial amount invested — or any gain from the investment, whichever was greater.
Toward the end of the scheme, Caramadre branched out to so-called death put bonds. These also had death benefits that allowed the holder to reap the full price of the bond even if it had been purchased at a discount.
When prosecutors began investigating in 2009, they found family members who claimed that, while their loved ones took the money, they hadn't fully understood the scheme. There were also allegations that some terminally ill participants had been purposefully deceived about the nature of what they were signing and even in a few cases had their signatures forged. Most of the contact with the terminally ill was left to Radhakrishnan.
"While the nature of the victimization of the terminally ill was not monetary, it was a very real emotional and psychological victimization," U.S. District Judge William Smith said at the sentencing.
Smith remarked several times during the hearing, however, about how "difficult" and "complex" the case was, even suggesting that but for a few allegations it might have been a civil rather than a criminal case.
In court filings and publicly, Caramadre has denied the prosecution’s accusations, saying that he instructed employees to properly explain the program to the annuitants and would never countenance forgery by an employee.
Four days into a trial last year, Caramadre and Radhakrishnan pleaded guilty to two counts of a 66-count indictment. Shortly after that, Caramadre tried to take back the plea, blaming chronic depression and his wife's nervous breakdown.
Smith didn't buy the argument and sent Caramadre to jail, where he’s been for seven months. The judge said the attempted plea change was a factor in the sentence he handed down, calling it "an incredibly cynical effort to manipulate the court."
Smith also sentenced Radhakrishnan to a year and a day of prison time, plus six months of home detention.
In his heyday, Caramadre operated a successful estate planning business and gave millions to charities and politicians. Now few charities will acknowledge that he was a donor, Caramadre said at the hearing. And his contributions have become political kryptonite.
One investor in his scheme was Terry McAuliffe, now the Democratic governor-elect of Virginia. Caramadre briefly became a factor in the Virginia governor's race last October when The Associated Press incorrectly reported that McAuliffe had "lied to a federal official" during the Caramadre investigation.
The report erroneously assumed that a "T.M." mentioned in the Caramadre indictment was McAuliffe even though the person with those initials was identified in a prosecution document as having worked construction, an unlikely pursuit for McAuliffe.
McAuliffe subsequently donated $47,000, approximately what he had made as a passive investor in Caramadre's scheme, to the American Cancer Society. McAuliffe's campaign also donated another $27,000 that Caramadre had contributed to his candidacy.
Caramadre, a devout Catholic, placed ads in the newspaper of the Roman Catholic Diocese of Providence in an attempt to find terminally ill participants.
The ads promised $2,000 to all who responded, and Caramadre gave that amount to as many as 135 people without enlisting them in his scheme, he said in today's hearing. Those who did participate usually received between $3,000 and $10,000.
Judge Smith said he will call a separate hearing to determine a restitution amount to be assessed against the defendants in the criminal case.