Archive for July 22nd, 2009

Interest Rate dilemma for Indian policymakers

July 22, 2009

My earlier paper looked at the dilemma mainly from a US perspective. The new paper looks at the dilemma from an Indian perspective.

Let me know of your comments.

Built up, super built up or plain loot?

July 22, 2009

This post is about the state of housing market in Mumbai and it is the third option right away. ME has been a big critique of the way housing market functions in Mumbai (and as others point out the trend is same in other places as well). It is  a market highly distorted towards the sellers and brokers with customers having no choice but to get looted as everyone wants to buy a house.

I had earlier pointed out to the economics of house in Mumbai. I thought things might improve after the ongoing crisis where realtors were the most effected. As the crisis situation has eased the builders show that they have not only refused to learn the lessons but have even decided to distort markets further.

Okthe main problem one sees in buying an apartment is this concept of built-up/super built-up (i call it plain loot). Under this, the builders say the flat size is say 1000 sq ft but is based on super built-up area. It means out of 1000 sq ft, you would get around 650 sq ft carpet area (if super built up is 35%) and rest 350 sq ft is for elevator, stairs, terrace, play-area etc. After all builders have incurred costs not just on apartment but other things as well and people should pay up for the remaining facilities as well.

Fair enough. But how much built-up? 25%, 35%, 45%?? How much?? It differs from building to building. You ask 2 sellers how much is the built-up and you get 3 different answers (and we just blame the economists and accountants for the same). What is worse is that when you see the final papers you realise the built up is much more than what you thought was already very high. When you protest, you are told if you are spending so much how does a little more matter? Some even say, if you think this way you will never be able to buy a apartment here!! Most want you to pay all the built-up minus carpet area difference in unaccounted money and we aren’t talking about a few thousands here.

The old buildings which perhaps had much lesser built-up, the sellers in the same expect same kind of charges. Why can’t we have some kind of standards across housing buildings?

When the crisis started, the realtors started crying hoarse that demand has fallen, they have high excess capacity, sources of funding have dried etc and need support. Large part of the media weer sympathetic to their cause saying they employ large number of people and should be supported. However, media also added prices were too high and need to be lowered. Some builders started lowering base prices but actually raised prices elsewhere (parking charges, increased built-up area, floor rise charge (every floor rise you pay some amount extra) etc etc). Some started offering discount but it was a % (5%-10%) which was available even before the crisis.

Now as the crisis has eased, the base prices have also started to rise and the recent advertisements show the builders are actually doing us a favor by offering flats at what they think is very low prices.

And this is not the lone factor.  If you delay your EMI, you are charged a penalty but the builders can continue to delay their projects without any penalty. Some may never even complete their projects. All you can do is do a court case against them andloose more money in process. The quality of the construction is never known. You don’t know whetherthe builder has got all approvals from the concerned authority. You don’t know whether the building is on legalised land? We don’t have a list of brokers in the market who are authorised to serve this market.  I mean you name it and we have issues with this housing market.

And despite all the issues, no one really talks about them. All we get to know is whether share price of some realty form has declined or risen.  We have seen how bad housing market is linked to the real economy in this crisis. It is time we sort out this mess.

The other issues may take time but we can surely do something about this built-up/super built-up issue. You keep hearing carpet area regulation has been passed (builders to sell on carpet area) but no one complies with it. Even if the builders are charging a built-up we need some standard %. Is it too much to ask for? It will be great if media also takes up this issue with fervour instead of just looking at share prices and landbanks.

Liz Warren defends CFPA and Bernanke defends Fed

July 22, 2009

Two good articles in the web today. One is a blogpost by Elizabeth Warren on her brainchild – Consumer Financial Protection Agency. She says there are 3 myths wrt CFPA and addresses each of them.

MYTH #1:  CFPA Will Limit Consumer Choice and Hinder Innovation
MYTH #2:  The CFPA Will Add Another Layer of Regulation and Increase Regulatory Burden
MYTH #3:  Prudential and Consumer Regulation Cannot Be Separated

Then there is a oped by Bernanke in WSJ on Fed’s exit strategy. He looks pretty confident of exiting from various programs.

Both are a good read on the highly debated issues of current times.

 


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