Who is jacking up property prices in Mumbai?

A bunch of vested interests seem to be working together to fuel India’s new property bubble, especially in expensive real-estate markets like Mumbai

Real-estate prices in India, which are already reaching for the stratosphere, are being further fuelled by a set of vested interests such as established brokerage firms and leading media houses through reports which exaggerate demand and suggest that realty prices may go up even further. Meanwhile, angry investors are struggling to get the regulators to act quickly and decisively to dampen the price escalation.

Recently, ICICI Securities released an all-India survey (across eight cities) which was headlined—‘Affordability not a concern—healthy demand for homes at current prices: ICICI Securities survey’. A closer look suggests that things are not so rosy.

In fact, apart from vaulting prices, potential property buyers are outraged at how they are being cheated with regard to the actual usable area that is being sold to them. Moneylife has already reported on how the loading, which used to be anywhere between 20% (built-up) to 40% (super built-up) has now been pushed up to as high as 80% by several builders in Mumbai. With the government showing no signs of setting up a property regulator, builders and developers clearly feel confident that nobody will check their dubious selling tactics.

Another factor that has increased prices in Mumbai is the loading of taxes (in form of value-added tax (VAT) and service tax) on the already high price being forked out by consumers.

A research report circulated by ICICI Securities says that Ahmedabad has the highest inventory of 59%, Chennai has inventory of 10% while Mumbai has an inventory of 8% and National Capital Region (NCR) has only 1%. However, property experts are sceptical about these numbers. “It is a doctored report to show optimism. In fact, Chennai represents the least inventory and Mumbai & NCR the maximum. I am surprised to see such a false picture being painted by one of the credible brands,” said Pankaj Kapoor, founder, Liases Foras.

For many media companies, headlines that point to property prices rising even further, usually translates into increased advertising revenue. In some cases, they have equity deals with realty companies which include an agreement to project reports that favour these companies. A reader has written to point out that some of these headlines sound like “quotes from the builder”.

A senior executive of a leading information technology firm has even been writing to the governor of the Reserve Bank of India, pointing to how vested interests are pushing up property prices.

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    COMMENTS

    Tarak

    9 years ago

    Yeah true but there is a rcent entry of a company called RK's Home solutions Mktg & Cons P Ltd, they have launched a Real Estate Mall prject thru which there will be no brokerage charged, the deal will be transperant and it is specially for Aam Aadmi, plus there are 26 types of services under one roof and there will be a 250 outlets all over Mumbai,isn't that great....what u say?

    Hitme

    9 years ago

    Really true.. the property price of 2 BHK was 3900 in Feb in Thane in Mumbai and now it is quoting at 4900 rs/sqft eventhough cement prices are dropped.. It is really frustrating times to buy home in Mumbai. This people are cheating the emotions and aspiration of working class. May be God there to help us out as nothing is happening as long as inverstors and politician have vested interest in real estate.

    B.M.Shetty

    9 years ago

    Thanks for MoneyLife and like this few more org. should extend the hands and fight for the poor consumer's right. It is the strong builder/broker lobby like Abhimanu's Charakvyua. All builders/developers charge 20-40% extra under the disguise of built up and carpet since there is no proper yard stick to measure . Can any benvolent minds come forward and awake the sleeping govt to enact some law on it.?? If they wish they can. Now she needs revolution. Let all the poor consumer move forward. some one has to start from where, else unscrupluous broker, builders and developers take undue advantage.

    Sachin

    9 years ago

    i',m totaly agree by Rambabu Shastri'a view

    Rambabu Shastri

    9 years ago

    Thanks to unbiased reporting by Moneylife, we smart investors did not invest in a lame duck like Nitesh Estates. Keep up the good work. The big problem with real estate is, that the govt. is very slow on reform and regulation. It is due to vested interests from the ruling party. How else can one explain Supriya Sule building a bridge in Baner Pune, to connect the plots there to proper developed area across the river in Baner. It is a thorough stink, and these politicos do not realise that they are making life miserable for aam aadmi. My thought now is that the aam aadmi is a sucker. Else, why would that sucker keep voting in the NCP and the Congress in Maharashtra. And suckers deserve what they get. Compared to Maharashtra, MP, Haryana are at least a bit better off. And the stupid aam aadmi is expected to flock to Mumbai, leading to intense infra pressures that cannot be cured. It is no use spending money on a dead city like Mumbai. The climate change report says that South Mumbai will be underwater in another 25 yrs.

    Sherna

    9 years ago

    Appalling how consumers are being taken for a ride and how complacently they are going along. No flat is worth the money being asked and given. The design of most - even in 'posh' areas - is average if not poor, parking space is restricted, green space is non-existent and there is nothing remarkable in the flats to justify the high prices. Do we Indians just have low standards, plenty of money and a tendency to fall prey to media hype, (much of it well paid, I'm sure)?

    Amit Mantri

    9 years ago

    it seems that a common man interest are not accounted for.Who is going to stay in 60 lakhs and above apartment in Mumbai? Now the disbursement of loan has become more stringent it would be impossible to buy a home in mumbai. Govt should intervene and set regulations on price, but how they can do it as many MLA and M.Ps have invested in the real estate boom in mumbai thru hawala.if not intervened volcano may erupt against builders would create chaos.

    ROOPSINGH SOLANKI

    9 years ago

    THE SIMPLE FUNDA FOR VIABILITY OF ANY INVESTMENT IS VALUE BUYING-IN PROPERTY MARKET IF THE PROPERT CANNOT PAY RENTED INCOME MORE THEN INTEREST RATE-IT IS NOT VIABLE-BUT MOST INVESTORS ARE LURED DUE TO ACUTE SHORTAGE OF PROPERT IN INDIA-BUT JUST THINK A SITUATION WHEN A INVESTOR SAVING 10000 RS A MONTH-HOW WILL HE MANAGE TO PAY EMI OF 40000 FOR A LOAN OF 40 LAKH-WHICH HAS BECOME BASE PRICE OF ANY FLAT-I AM SURE HE WOULD PREFR TO GO FOR RENT AND THEN HIS PRIMARY NEEDS LIKE ROTI AND KAPDA AND MEDICINE AND CHILD EDUCATION IS MORE IMPORTANT THEN PAYING EMI- SO I DONT BELIEVE THIS PRIVCE RISE TREND IS SUSTAINABLE-THOSE WITH BLACK MONEY WILL DEFINITELY GO FOR INVESTMENST AT THESE LEVELS-BUT NOT THE REAL USER

    REPLY

    amit

    In Reply to ROOPSINGH SOLANKI 8 years ago

    good analysis.....rent vs int no one understands this though

    H. E. Nagarwalla

    9 years ago

    Some months ago I had read an article in a national newspaper saying that, while prices of stocks and commodities had fallen by 50% and more since early 2008, those of real estate have gone down by just 20% and were then (which was sometime in the second half of 2009) back to their previous high levels. The author said that, if market forces were allowed to prevail, builders' loans would not have been rolled over by banks and this would have forced them to make distress sales of properties, which would have resulted in crashing prices. Nothing like this has happened because public-sector banks have freely advanced further money to distressed builders under pressure from politicians–even though this flies in the face of economic prudence.

    And our union finance minister and the chairperson of the ruling coalition, the UPA, have the cheek to tell us that nationalisation of banks by Indira Gandhi has saved the nation!

    Rohit

    9 years ago

    Very honest article. Many media houses and builder lobby is jacking prices. Its high time Govt taken a significant action in this direction

    S.D.Israni

    9 years ago

    I fully concur with your report. There is no doubt whatsoever about the nefarious role being played by vested interests. After all mega bucks are involved in the real estate sector. Every wortwhile businessman in any field has a finger in the real estate pie and there is the hidden hand of politicians in many such projects.

    vivek

    9 years ago

    Gr88 article...

    No regulation in real estate because politician are involved in it.

    Main reason for prices rise is BLACK MONEY !!!

    Can anybody tell this to FM !!!

    Raj Kumar Verma

    9 years ago

    Thanks for highlighting on such type of issues which is basic need for a common man.One has to read and think on it.

    sushil jangid

    9 years ago

    excelliant report.

    Assets under management of JPMorgan and AIG Mutual Funds dwindle

    Average assets under management of the 37 fund houses fell 5% in March; JPMorgan Mutual Fund plummeted 24% while Peerless and Edelweiss jumped 150% and 30% respectively

    According to data available with the Association of Mutual Funds in India (AMFI), out of the 37 fund houses, the average assets under management (AAUM) of 14 fund houses witnessed an average growth of 18% while 23 fund houses saw their AAUM slipping by an average of 9% compared to February 2010.

    Among the 37 fund houses, JPMorgan Mutual Fund (Rs3,541.36 crore), AIG Global Investment Group Mutual Fund (Rs1,137.81 crore) and Shinsei Mutual Fund (Rs367.41 crore) recorded the highest fall of 24%, 21% and 20% respectively. Data for Baroda Pioneer Mutual Fund, Goldman Sachs Mutual Fund and AEGON Mutual Fund was not available.

    Peerless Mutual Fund gained the maximum AAUM of 150% at Rs302.60 crore compared to last month—followed by Edelweiss Mutual Fund (Rs149.28 crore) and DSP BlackRock Mutual Fund (Rs21,490.78 crore) which gained 30% and 8% respectively.

    Fidelity Mutual Fund, Franklin Templeton Mutual Fund, and Escorts Mutual Fund remained flat. While the AAUM in February 2010 grew by 3% at Rs7,81,711.50 crore, March has disappointed the mutual fund industry with a 5% fall.

    The total AAUM has recorded a fall of 5% at Rs7,43,950 crore in the month of March 2010 compared to Rs7,81,711.50 last month while the BSE Sensex gained 7%, closing at 17,527.77 points in March compared to 16,429.55 in February 2010.

    Among the top fund houses, HDFC lost 7% (Rs88,779 crore), UTI gained 1%
    (Rs80,217 crore), SBI (Rs37,417 crore) gained 4% and Reliance Mutual Fund (Rs1,10,412.70 crore) lost 5% AAUM in March compared to last month.

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    COMMENTS

    sunil papneja

    9 years ago

    this is v. imp. information . i am thankful to u.

    A cement glut may flood the market

    An analysis of the monthly dispatch figures and the newly-commissioned capacities indicates a clear annual over-capacity of a minimum of 36.27MT in the demand-supply situation

    Over the past few months, the cement industry has been enjoying an upward momentum in cement prices due to the peak demand period. However, an analysis of the monthly dispatches and the new capacities commissioned paint a gloomy picture for the months to come.

    According to Cement Manufacturers’ Association data, total installed cement capacity in India was around 219.17 million tonnes (MT) as on 31 March 2009. During FY2010, around 35MT of new cement capacity has been added. Thus, total commissioned cement capacity has gone up to around 254.17MT.

    Total cement dispatches for January 2010 stood at around 18.15MT. Given that dispatches in January 2010 were one of the highest-ever recorded monthly figures, yearly dispatches can be calculated at a projected figure of 217. 89MT.

    Thus, comparing a total commissioned capacity of around 254.17MT with a yearly dispatch of around 217.89MT, an annual over-capacity of around 36.27MT is expected in the demand-supply situation.

    However, 36.27MT could be the least possible annual over-capacity figure, as January 2010 has been taken as the base. Again, recently-added capacities are likely to run on full steam in the months to come. In addition, analysts expect cement demand to decline in the future.

    The onset of the monsoon season from June is likely to slow down construction activities, resulting in lower cement demand, much lower than the figures for January 2010. In addition, demand created due to construction activities for the New Delhi Commonwealth Games will start petering out by July 2010. This will impact the northern region in particular, pointed out an analyst.

    Among the companies that have commissioned new cement capacities over the past one year are Madras Cements, Chettinad Cements, Grasim Industries, Jaypee Cement, UltraTech Cement, Dalmia Cement, India Cements, JK Lakshmi Cements, and Kesoram Industries.

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    COMMENTS

    Deep

    9 years ago

    Good article. Further analyis on capacity utilization levels in industry as well as inventory (channel and company) would help

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