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Why buying a house is outrageously expensive

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Can some one explain this anaomaly raised by Aakar Patel...Is it that people who buy such expensive real estate of the order of Rs 5 crore to 7 crore understate their income..In Professional Companies understating income is a rarity..Are these then in business or in the film & media industry?

[h=1]Why buying a house is outrageously expensive[/h]

Last updated on: July 07, 2016 10:10 IST


'For such prices you could get a place inside New York City and inside London.'
Rs 7 crore is a million dollars and will bring you a handsome place in any city in the world.'
'The truly strange thing is that the conversion of the rupee's actual value makes India's real estate even more expensive,' says Aakar Patel.

18prop1.jpg


A few years ago, my one-day-old car was stolen from outside my home in Mumbai's Bandra neighbourhood.
I went to the police station to file the FIR and was told to meet the senior inspector. He was a plump man of about 50 who was at his desk circling classified advertisements in a newspaper. After I had told him about the theft of my car I asked what he was doing.
He said he was retiring soon and would have to leave his official quarters. His wife had been pressing him to buy a house and he was shortlisting what was available. I asked if he had found anything and he laughed and said: "There is nothing here I can afford."
One of the strangest things about Indian cities today is how expensive real estate is. I often cycle to work, but on days that I do not, or I cannot because of the rain, I take a taxi.
It is a distance of 6 km and the fare is between 85 and 100 rupees depending on traffic. It is impossible to get a taxi for this price in any major city of the world.
In London, a trip of the same distance would be over Rs 1,200.
The same is true for New York and for Tokyo, Helsinki, Paris. It may be slightly cheaper in Dubai and Shanghai, but not as cheap as Bangalore, where I now live.
The same is true for food. One can get a reasonably good meal for about Rs 50 in many parts of India, but this is not possible in all the cities I have named above.
Rs 50 represents half a pound in London or about 70 cents in New York, and that is just loose change.
When it comes to real estate, the thing reverses.
The new building next to mine has two flats available for sale, and the asking price is Rs 7 crore (Rs 70 million). The building a couple of hundred yards further down also has two flats available and these are for over Rs 5 crore (Rs 50 million).
There are at least two dozen hoardings advertising properties on the road to the city's airport. Many of these mention the price and there is nothing for less than Rs 4 crore and these are all properties on the outskirts of the city.
Sometimes I see a hoarding for basic, middle class homes and even these are not particularly cheap.
When I lived in Bandra, I stayed in rented homes. Today the rent in those places starts at Rs 1.5 lakh (Rs 150,000) a month and the price of the properties is over Rs 7 crore. These are basic two-bedroom apartments in buildings that are not fancy and offer nothing special.
For such prices you could get a place inside New York City and inside London. Rs 7 crore is a million dollars and will bring you a handsome place in any city in the world.
The truly strange thing is that the conversion of the rupee's actual value makes India's real estate even more expensive. The rupee has a purchasing power parity of more than 3 to the dollar. Meaning that with one rupee in India you can buy three times what you can buy with that value in America.
That is why my taxi fare of Rs 100 is actually equal to about Rs 300 in New York and then it doesn't seem so low.
Similarly my meal of Rs 50 becomes Rs 150. But by the same logic the flat of Rs 7 crore now becomes Rs 21 crore (Rs 210 million). In the same cities where transport and food are much cheaper than most parts of the world, real estate is outrageously expensive. The question is why.
One easy answer is that the British built and left some excellent neighbourhoods and these are unique. This explains why Lutyens Delhi or South Mumbai are so much more expensive than other parts of Delhi or Mumbai.
But it doesn't explain the issue of why flats in Bangalore should cost so much.
The other thing is: Who buys these places and where and how do these people make their money? Only 5,430 Indians pay income tax of more than Rs 1 crore (Rs 10 million).
I know that there is very high non-compliance of income tax payment, but even that does not explain who are these individuals buying the multi crore flats in every city of India.
Corporate salaries are high for a few hundred individuals who might be CEOs or in the second and third highest job at major companies. But that still does not explain the thousands of flats and hundreds of buildings which I can see all around me.
It is a very strange thing, the price of real estate in India, and I wish someone would explain to me why this mismatch of value in this one area exists.
Aakar Patel is Executive Director, Amnesty International India. The views expressed here are his own.

http://www.rediff.com/news/column/why-buying-a-house-is-outrageously-expensive/20160707.htm

 
Quite a logical study. Indirectly he is pointing his fingers towards parking of Black money in real estate in India. There should many more in the 1 cr + club than the 5430 at present. Don't know the exact timing of this study. The reality industry is steadily going southwards for the past two years or so in India. Let us see the situation once the VDS scheme comes to a close.
 
Politics , Real Estate , Movies , Educational Institutions - these are the areas where lot of black money freely flows and you will not be surpised to find the same person holding stakes in all these 4 ( i.e Politics , Real Estate , Movies .Educational Institutions ) or having their proxy to manage the same as that promotes free flow of Black Money from one area to another .
 
Hardly 5% of indians pay any taxes.

Most of the transactions are cash..

Real estate -rural or urban holds the key to riches..

Real estate makes possible land for educational institutions.One builds on real estate , schools, colleges , commercial complexes, movie theatres.Land is the enabler of

all business.

Brahmins made the mistake of parting with their land holdings in rural areas of tamilnadu and migrated to cities.They made education and serving the british their life

time goal.Their marginalisation is more due to their parting with their landholdings and they became rootless. In andhra and telengana, kammas and reddys are ruling

based on the power they derive from their land holdings. To develop roots in anyplace, best buy property there and get a local identity.That explains my philosophy to

develop roots in several states of india thru purchase of property.If we purchase land in rural areas-farm lands, we can become farmers over night and we are out of

the tax net.lol.

The price of property is covered for inflation and its value escalates if it is located in prime areas where it is scarce.Over a few decades anyone can be a multi

millionaire even by sitting on real estate.
 
.Over a few decades anyone can be a multi millionaire even by sitting on real estate.

In the late 90s when there was a severe fall in Real Estate all over India ,I knwo of a Rich lady who had lots of properties in Prime Location in Chennai but no cash and she had to borrow cash regualrly from her close family members and friends to keep the household going . She was able to get some cash only after liquidating some of her properties after 5-6 years and till then she was a Rich beggar .

The Great Producer GV ( Manirathinam's brother ) who became famous for being the higest tax payer ( in a single day he paid around Rs.3.5 crores in Mid 90s ) and used to drive in Chennai with a Rs.80 Lakh improted Car at that time itself struggled for cash though he had lots of properties and was unable to liquidate the same when entire India was hit by the Real Estate Crash in the late 90s and he took to borrowing heavily from Private finaciers to keep his film business and day to day liffe going on to such an extent he was unable to pay the interest of those boroorwers and finally committed suicide inspite of having many properties .

So Properties are useful only as long they give you good rental yields or agricultural output ( if they are agricultural lands ) or at least you must be able to liquidate the same easily if you need cash . Otherwise it is a very big burden .BTW The Rich lady I spoke of had a close rich friend ( from whom she used to boroow regularly ) and this friend jokingly told her husband that do not leave me any property but leave me a big fat bank balance as I do not want to end up as a rich beggar in the last phase of my life going round begging for money inspite of having huge property LOL .
 
Nkrishnaji
wisdom is in having a balance between real estate and liquidity.

That is easily possible .

Unregulated speculative business has its pit falls.

One requires to be an excellent money manager to do well in life.

Brahmins have brain power than physical strength. They at least can use it to do well
 
It is just demand and supply.

There is a silent and uneventful huge migration going on in this country from the rural to urban areas. This also explains the heavy booking of tickets in all trains going south just before a festival. this despite the four line railway available for half the distance and two line for the rest half of the distance.

when education and the appended dreams of a white collar job in an Airconditioned office takes possession of people, this migration becomes a real menace. Agriculture even with modern equipments is not at all attractive.

Coming back to our question in hand, the migrating population has a basic need for shelter. And the dream of owning a flat in Chennai or any other metro becomes an obsessive disorder with many. Even for taking a shelter on rent, needs a shelter first. And the shelter has to be nearer to the happening city centre/work place. These are the constraints which are the inputs into the chemistry of land pricing here. For every apartment the land price (price of the ubiquitous UDS-undivided share of land) is more than 200% of the material cost for the construction in many areas in the Chennai city. It may sound ridiculous but that is the truth.

Government had generally turned a blind eye all along. Only now the Central Govt. appears to be picking up the thread. Let us wait to judge.
 
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wisdom is in having a balance between real estate and liquidity.

Unfortunately not many people have this balance and that leads to crashes ( real estate , stock market ) .I have seen people struggling for money for day to day ( or emergency expense ) inspite of having some good real estate . The problem is that they did not beleive in having any other asset class apart from Real Estate and those people struggled hard in the late 90s when the real estate market was at its lowest and many had to liquidate their property for very low prices to keep some cash in their hands . A relative of mine had no money even to paint and renovate one of his property to fetch some decent rent for the same .I feel a simiar situation is emerging now when RE market is moving downwards .
 
Everything depends on how one lives life.

Every purchase of real estate needs to be hedged with easy liquid investments.

Every speculative investment should be accompanied by purchase of liquid gold or hard securities.

Every borrowing should have reasonable pay backs.

Meaninglessly plunging and getting hurt is foolishness .

As a brahmin this is the minimum expectation
 
I know several properties that are not fetching rent...Two newly constructed flats in Saligramam, Chennai in a good locality have no tenants...One for the past 30 months & other for 6 months...The person is frustrated...They have tried all means (dealer, website advertising...)
 
I know several properties that are not fetching rent...Two newly constructed flats in Saligramam, Chennai in a good locality have no tenants...One for the past 30 months & other for 6 months...The person is frustrated...They have tried all means (dealer, website advertising...)

Ask that person to bring down the rent by 25% and you will find lot of tenants for the same . A relative of mine was looking after his sister's property in South Chennai and it was a small 2 Bedroom Ordinary apartment and was regularly getting decent rent as it was closer to schools and situated in a central locality with shops , banks etc very close by . It was an Old apartment but fairly decent and he became sort of greedy and was increaing rent regualrly and in the past when one person left another came by quickly but now very few takers for the same for the rent he was quoting .Actually he wanted to help his siter ( who had lost her husband rental income is her only source ) .I told him in the past he could get any tenant but now with hunderds of modern apartments coming up in OMR and other areas no one will be intersted in this Old style middle class apartment for the rent he was quoting and the only way to attract people is to cut the rent by 25% to get and he did so and was lucky enough to get a tenant .
When it comes to renting people become greedy and no doubt their greed will be pay for few years but not all times ( unless it is a premium apartment which they keep regularly painted , neat with all fittings ) . If you need steady rentals then you need to keep your rent 25% less than what the market demands .If you keep raising rent the way the market raises rent then be prepared for market crashes also like the way it is happening now in Chennai .
 
Hardly 5% of indians pay any taxes.

Most of the transactions are cash..QUOTE]
If this statement is in context with cash transactions on real estates its okay.. In all other cash transactions the tax component is in built, for eg. you do any kind shopping, you pay VAT/ST, you buy petrol for your car/two wheeler more than half of the price of the petrol you buy is taken in the form of state as well central taxes, you obtain any service from a registered service provider - you pay service tax, you go and watch a movie there you pay entertainment tax, you pay your electricity bill you also pay energy tax, not convinced just check your Mcdee/Pizza hut/Big bazaar bill to see the amounts of taxes you have paid without even notice. Your air travel includes many taxes, you buy any vehicle and pay number of taxes.... tell me where you are not paying taxes?
 
Everything depends on how one lives life.

Every purchase of real estate needs to be hedged with easy liquid investments.

Every speculative investment should be accompanied by purchase of liquid gold or hard securities.

Every borrowing should have reasonable pay backs.

Meaninglessly plunging and getting hurt is foolishness .

As a brahmin this is the minimum expectation
 
Hardly 5% of indians pay any taxes.

Most of the transactions are cash..QUOTE]
If this statement is in context with cash transactions on real estates its okay.. In all other cash transactions the tax component is in built, for eg. you do any kind shopping, you pay VAT/ST, you buy petrol for your car/two wheeler more than half of the price of the petrol you buy is taken in the form of state as well central taxes, you obtain any service from a registered service provider - you pay service tax, you go and watch a movie there you pay entertainment tax, you pay your electricity bill you also pay energy tax, not convinced just check your Mcdee/Pizza hut/Big bazaar bill to see the amounts of taxes you have paid without even notice. Your air travel includes many taxes, you buy any vehicle and pay number of taxes.... tell me where you are not paying taxes?
Of course , you are right. You are referring to indirect taxes on expenditure.


S Swamy is in fact suggesting doing away with income tax.

May not be a bad idea really.
 
I think we should talk of "white Money" real estate. The "black money " real estate is totally out of control as the variables are not obvious.

How much house can you afford?




Methodology

To arrive at an "affordable" home price, we followed the guidelines of most lenders. In general, that means your total debt payments should be no more than 36% of your gross income.

Once you enter your monthly debt (including credit cards, student loan and car payments), we come up with a maximum monthly home payment you could handle while staying under that threshold.

Why do lenders use this guideline? It’s been shown to be a level of debt that most borrowers can comfortably repay.

That home payment assumes a 30-year mortgage at current rates, and includes 1% property tax and 0.4% for homeowners insurance.

It does not factor in private mortgage insurance, which you'll owe if your down payment is less than 20% of the purchase price.

You should reduce the maximum target if you have other savings needs (such as retirement and college) or additional expenses (such as child care, private school tuition, health care, or alimony payments).


This is the USA and other western society model. Of course the market price is the registered price, and is generally white (not black).

Rules vary for how much house you should buy based on a your yearly income. Some lenders, for example, indicate that a home's sale price should not exceed 2.5 times your annual salary. Following this example, if your annual salary is $75,000, you should avoid buying a home that costs more than $187,500. However, individual mortgage lenders set their own price-to-borrower yearly income rules.

http://money.cnn.com/calculator/real_estate/home-afford/
 
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When Reserve Bank of India Governor Raghuram Rajan asked real estate developers to start reducing prices so that more people would be willing to buy, he was only stating the obvious. According to real estate consultants, only double-income families can afford to buy a decent-sized flat (say, a 2 BHK flat with 1,000 sq ft of super built-up area) in India’s top eight cities, except Mumbai.

Slow growth in salaries in comparison with the rise in property prices has dealt a blow to home buyers. In FY15, the average annual cost-to-company of an employee in India’s two top-paying sectors, information technology (IT) and banking, was Rs 13.3 lakh. This means a take-home salary of Rs 70,000-80,000 a month. By comparison, a 1,000 sq ft flat in India’s top seven cities would cost Rs 50 lakh-Rs 1.3 crore. At an average cost of Rs 28 lakh, flats in Ahmedabad alone are cheaper, according to data from Liases Foras.


As such, the only way out is for both husband and wife to take a home loan together. So, if the annual household income is Rs 26 lakh and the post-tax income is Rs 20 lakh, a couple can afford a loan of Rs 75 lakh and, in effect, a flat worth Rs 90 lakh, without considering registration fees and stamp duty. This amount could help one purchase a flat in all leading cities except Mumbai.

Pankaj Kapoor, managing director, Liases Foras, says in the past five years, prices in top markets such as Mumbai and Bengaluru have more than doubled, but salary increments haven’t matched that. This has led to steady erosion in affordability, with salaried professionals now being a minority in most housing markets. For example, in Bengaluru, IT professionals are a minority among home buyers. “In a study commissioned by one of the city’s top builders, we found IT professionals accounted for only 14 per cent of the home buyers; the rest were businessmen and self-employed,” he says.

1440187811-7331.jpg

The difference between a flat worth Rs 1.30 crore and an average annual salary of Rs 13.3 lakh is the salary for 10 years. But if an employee has to borrow from a bank or a housing finance company, she/he would be denied this amount. First, a borrower from a bank will have to raise Rs 26 lakh, 20 per cent of the property price, excluding registration or stamp duty costs. Then, if one were to borrow the remaining Rs 1.04 crore, the equated monthly instalment (EMI) for the home loan for 20 years will be Rs 1,00,362 (at a rate of 10 per cent). As both banks and housing finance companies only consider 40-50 per cent of the take-home salary, an employee’s annual take-home salary has to be at least Rs 24 lakh. In other words, the overall cost to company has to be more than Rs 30 lakh.

For one seeking to borrow even Rs 50 lakh, the average salary has to be more than Rs 1.13 lakh a month because the EMI would be Rs 48,251 (with the same rate of interest and tenure).

“Affordability is certainly a stretch. And, when that happens, end users tend to wait for prices to correct further,” said Muddasar Zaidi, national director (residential), Knight Frank. Industry veterans say for housing finance companies and banks, 90 per cent of the buyers come from the outskirts of major cities.
http://www.business-standard.com/ar...-class-cantafford-a-house-115082101003_1.html
 
In the op Mr. patel was comparing the Taxi rate, here are some other comparisons.
Buy Apartment PriceIndiaUSA
Price per Square Feet to Buy Apartment in City Centre8,976.02 Rs
(133.66 $)
14,368.99 Rs
(213.97 $)
+60.08 %
Price per Square Feet to Buy Apartment Outside of Centre4,387.28 Rs
(65.33 $)
9,591.37 Rs
(142.83 $)
+118.62 %
Salaries And Financing
Average Monthly Disposable Salary (Net After Tax)33,586.26 Rs
(500.14 $)
190,338.72 Rs
(2,834.37 $)
+466.72 %
Mortgage Interest Rate in Percentages (%), Yearly10.614.00 -62.31 %
Last update:July, 2016July, 2016
Contributors:


614119096
http://www.numbeo.com/cost-of-livin...ult.jsp?country1=India&country2=United+States
 
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In addition to black money and its influence on escalating housing cost in Indian cities, there may be another variable.

It is actually NRI money that also has skyrocketed the price of flats. A good percentage of these flats are locked up and unoccupied.
Many NRIs with liquid cash are more than willing to 'invest' in their favorite location only to lock up the place in the hope of using the space one day.
 
It is actually NRI money that also has skyrocketed the price of flats. A good percentage of these flats are locked up and unoccupied.

True .In Indian Cities especialaly in the Heart of the City , the property is bought by the following set of people : i ) People with Black Money ii) NRIs iii) High Networth Individuals ( HNIs ).
Of these NRIs mostly buy for their own use but the people with Black Money and HNI buy porperty purely for investment /speculation .
 
Hardly 5% of indians pay any taxes.

Most of the transactions are cash..


Real estate -rural or urban holds the key to riches..

Real estate makes possible land for educational institutions.One builds on real estate , schools, colleges , commercial complexes, movie theatres.Land is the enabler of

all business.

Brahmins made the mistake of parting with their land holdings in rural areas of tamilnadu and migrated to cities.They made education and serving the british their life

time goal.Their marginalisation is more due to their parting with their landholdings and they became rootless. In andhra and telengana, kammas and reddys are ruling

based on the power they derive from their land holdings. To develop roots in anyplace, best buy property there and get a local identity.That explains my philosophy to

develop roots in several states of india thru purchase of property.If we purchase land in rural areas-farm lands, we can become farmers over night and we are out of

the tax net.lol.

The price of property is covered for inflation and its value escalates if it is located in prime areas where it is scarce.Over a few decades anyone can be a multi

millionaire even by sitting on real estate.
hi

i agreed...if every purchase through through computer....all transactions must be in checks.....every see the purchase

through online.....all purchases after tax paid....the accountability and transparency in every transaction....our country

can become a super developed soon....but here ..lawmakers are first law breakers...only common man money

can deduct through TDS...ONLY MIDDLE CLASS PAY TDS...neither super rich nor super poor....
 
hi

i purchased a home with in half an hour in USA....BOTH PARTIES DECIDED TIME AND DATE...its closing date here in USA...

just in front of agent ...both both parties....seller and buyer.....both signed some papers and handed over the keys...

all documents through computer....no cash transaction.....i got house document in HARD DISC COPY TOO....
 
hi

i purchased a home with in half an hour in USA....BOTH PARTIES DECIDED TIME AND DATE...its closing date here in USA...

just in front of agent ...both both parties....seller and buyer.....both signed some papers and handed over the keys...

all documents through computer....no cash transaction.....i got house document in HARD DISC COPY TOO....

I would blame the Goltis. I Lived in Bangalore and everywhere some Telugu guy would build 6-10 apartments even in a 2400 sq ftlot.. which was not less thn 35 lakhs and in someremote area.

The bigger brand builders - better left unsaid. The worth of a 3cr property ( approx 500k USD) is more is US thanin India...for 500k you can easily get a 10000 sqft lot , 3000 sqft house in a decent white suburb.

Again wherever ou are, the rich make the laws.( or know how to break).
 
Is there going to be reasonable discussion, or just some 3rd hand chatter?

To have a reasonable discussion we must have ground rules.
In India
1. What percentage of property is sold with bank financing?
2. What portion of house price can be financed?
3. How do you get the down payment (customer portion)? Do you have to show the source of this money?

Instead of blaming a "group" can we have discussion on the economics?
Lot of wage earners do not have black money, so obviously there is white money purchase.
What percent of real estate is owned by NRI's?

The government can easily eliminate the black money in real estate by forcing all transactions through bank. Of course you have to implement record keeping at the courthouse much more transparent. Do the politician have the stomach for that?
 
I would blame the Goltis. I Lived in Bangalore and everywhere some Telugu guy would build 6-10 apartments even in a 2400 sq ftlot.. which was not less thn 35 lakhs and in someremote area.

The bigger brand builders - better left unsaid. The worth of a 3cr property ( approx 500k USD) is more is US thanin India...for 500k you can easily get a 10000 sqft lot , 3000 sqft house in a decent white suburb.

Again wherever ou are, the rich make the laws.( or know how to break).
hi

i agreed this....this make problem in USA TOO....they buy a huge house....even H1B person...no gurantee to stay here...

still they take a big risk......in many builders know very well about patels/goltis....sometumes these two groups

make unbearable to others...even after getting green card/ citizenship.....our TBs are not ready to buy a home in USA...

becoz relocations of job,,,,generally we wont involve in risk matters....
 
Is there going to be reasonable discussion, or just some 3rd hand chatter?

To have a reasonable discussion we must have ground rules.
In India
1. What percentage of property is sold with bank financing?
2. What portion of house price can be financed?
3. How do you get the down payment (customer portion)? Do you have to show the source of this money?

Instead of blaming a "group" can we have discussion on the economics?
Lot of wage earners do not have black money, so obviously there is white money purchase.
What percent of real estate is owned by NRI's?

The government can easily eliminate the black money in real estate by forcing all transactions through bank. Of course you have to implement record keeping at the courthouse much more transparent. Do the politician have the stomach for that?

Good Questions...
For 1, I do not have an answer...

For 2, Loan to Value is 80-85% for funding home loan where you will construct a house or apartment..In case of land loan (Not for agricultural but only residential & land should be in corporation or municipal limits) you can avail 70% max ..

For 3, down payment is to be arranged through own funds...Some borrow this from relatives..Some even take a personal loan for this with very high rate of interest
 
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