Real Estate ...
The word sends jitters down the spine of a common man residing in the city of Mumbai today.
The phrase "home sweet home" sounds good only when mentioned in the books. I have been trying to get my own place from the past three years!!.. That's right, three years. Every time I make an effort and begin my hunt for a new abode, the prices increase, and the idea of owning a home, floats away from my grasp, taunting me and blowing my self-confidence and conviction to smithereens.
For the past three years I have heard a lot of comments / arguments / stories and read a lot about the Real Estate scenario. All the while, poor blokes like me, who neeed some sort of self-assurance, come up with a renewed, confident, argument that the real estate prices will fall and its just a bubble. Well, being completely honest, I used to assure and convince myself that there is some truth in those arguments and it is only a matter of time before things will change. But that never happened. And finally, I became self-aware on this stream of thought. But, this change of mental being was thrust upon me by the real estate market facts, and I never understood the logic behind the prevailing, astoundingly exorbitant prices.
Lets go down the memory lane a few years back...namely 2006. Prices for the Andheri area hovered around INR 5000 per sq. ft. Now, in 2012, its around INR 14,000. From Jan '08 to the current year, the prices have increased from INR 7200 to INR 13,200...almost doubled !! (Source: Magic Bricks)
So what happened? Did we start making babies at twice the rate after the '08 era and the population doubled, thus rendering an acute shortage of land? Or did the raw material rates just increase by 200%?
Some people attribute the change to increase in income. True, the income of India Inc. did increase...also at a good rate. But then, the slowdown / recession of '09 should have mellowed down the price rate increase. But, like an adamant and stubborn bull, it continued to charge towards the skies. So, we're back to the same question. Why are the prices increasing? Time and again, latest reports from various institutions have proved that the sales have dwindled. Then how can the prices be explained?
One of the theories I encountered, was that the land in Mumbai is limited. Really? I don't see any land limitations in this horizontally expanded city (read slums). Well, to be a bit fair, maybe the land is just locked up, either in never ending cases ( which go on for years on end ), or morchas by the local politicians to protect their vote bank slum dweller buddies (done to death cliche, really!!). But, AFAIK, builders are very good at greasing the palms of the local corporator and getting the job done (read SRA projects), given the stupendous amount of profit they make. By the way, my close friends' spouse, who is an architect quoted that the development cost for the most luxurious apartments does not exceed INR 1500-2000 per sq. ft. So, do the math..
Another one of the theories is that, the builders pay approximately 40% of the total cost of the project as bribe, to get the projects approved, which is then passed on to us, the middle class. Well, they certainly won't pull that money out of their pockets. Nobody wants to share their profits.The result is little Uncle Scrooge's, mushrooming throughout the land, in the guise of govt. babu's. Anyways, from the word that is doing the rounds, the new Land Act provides free FSI to the builders, which they acquired previously by paying bribes. So, if this FSI is lets say even at 30% of the total project cost, the builders have a saving of around 10% ( 40% bribe - 30% FSI fees), which I frankly doubt they will ever pass on to the consumers..Have you ever seen inflated prices come down in India?...I guess then we need to gear up for more BMW's on the roads, driven by the rich builder fathers' spoilt brats.
Yet another theory doing rounds is that there is an ample amount of black money being pumped into real estate. Well, this is something that makes some sort of sense to me. How then can the easy payments of heavy debts being paid off by the builders be explained when there are no sales happening? This money can be accorded to the bribe takers, politicians and apna NRI's. I guess it was not surprising when I read in one of the daily's , that approximately 50% of the flats in Mumbai are owned by "investors".
Whatever the truth, the fact is that the middle class at the end of the day, always gets screwed..The rich have enough money to by umpteen number of residences, the poor plan their way to the SRA and other schemes, sell the flat, make a quick buck and then squat somewhere else by sending all the money to their gaon (village). We are the ones to get f****d.
Then there's also the money you pay for NOTHING (read super built up). If you have ever gone house hunting you will hear.."area 650...super built-up". And if you ask "How much is the actual carpet?", they say "30% less". And where is the area that we are paying for? Does it even exist? Do we ever get a measuring tape, and calculate the garden / steps / lobby / swimming pool etc, divide it by the number of flats and then add it to the carpet?. So this area is like a shadow which can be increased or decreased as per convenience, without a logical explanation. A brokers' own words..... "Bhau badhane ke liye hum logo ne super built-up badhaya. Usme kya hai...sab log karte hai" (We increased the super built-up area to make profits. Everyone does it.). He had actually inflated the super built-up area from 680 sq ft. to 730 sq ft. Right now the general norm of "loading" (extra area added to the carpet to convert it to super built-up) is 30% (they will quote 33% if you push a bit ). Now for the secret which you probably did not know.
Let me explain with the help of an example. Ideally, according to the norms, the super built-up area is calculated as the additional area above the carpet.Let the super built up area be 110 sq ft., with 10% loading. Now, when you go to a builder, he will tell you, "110 super built-up area. Carpet is 10% less". You calculate "Ummm..10% less is 110-(10% of 110 = 11) = 99 sq ft.". Now try the forward calculation. Adding 11 sq. ft. to the 99 sq ft of carpet area, to make it 110, super built up is actually 11.11%!!. . Huh? So where did the 1.1% sq ft of area get added from? Well, voila, they have managed to prove you an idiot in mathematics. So a personal tip. Always ask the exact carpet area and do the math. If you know the carpet and the super built-up, Just calculate
[(Difference between super built-up and carpet) / Super built-up * 100]
and you will get the exact percentage of loading. So, this means that the 33% is never 33% ...its always close to 40%. And you end up paying 40% of the amount for "nothing". Its like giving charity to the already cash-rich builder / seller. For an average flat costing INR 60 lakhs, guess the amount you "donate".
Now, lets turn towards the resale flat sellers. They follow a herd mentality with no ability to think for themselves. "The flat in the next building was sold for 70 lacs!!...I think I should sell it for 75". The virtual competition of one upping the other, combined with the ever increasing greed factor, makes this lot even worse. Oh yes, lets not forget the neighbourhood broker bhaiyya (brother) , who entice these brain dead lot even further. "What bhabhiji (sister-in-law)? Did you say 75 lacs? Do you know the current rate? Don't worry, I'll sell it for 80"
Their greedy mouths salivate with the thought of a higher brokerage from both parties.."Good, now i'll get more money from both the parties". Then begins all the lies and deceit. An ad is published. "An airy 1 BHK, with 24 hours water. Good peaceful society. Hurry, Lowest rate in area". It has to be interpreted as "A pathetic stinking chicken house, with 2 hours of water supply (rest, to be stored in overhead tanks inside your homes), and free earplugs to muffle out the infinite sounds around the flat". From my personal experience I have always learnt to ignore the "big area" part. I have seen "big" houses, where you could scan the entire house by just standing at the doorstep. Disgusting chicken houses. Also, "peaceful location", either is in contrast to what is mentioned, or it is the only building standing in the area, like a creepy haunted house. And we all know what their "lowest rates" mean. On the other hand, just to give these resellers some benefit of the doubt, they are just ignorant simpletons who know nothing about the real estate market, except that the bajuwala (neighbour) sold his flat for a certain price. So, they assume it to be the "market" rate.
Sigh! I don't have the strength to argue anymore. Perhaps, things will NEVER change and Mr. Pareto (80/20 rule: 20% of the world's population has all the riches), will be merrily singing "I told you so" in heaven.
So, WTF. I need a place to stay. And I'll buy one. My father struggled his entire life to get a 1BHK apartment. I may at the most get a 2 BHK by paying a loan my entire life ( which if you calculate, will be double the loan amount ). .. I'll live my life just for one more bedroom...Life sucks!
Now back to house hunting...
The word sends jitters down the spine of a common man residing in the city of Mumbai today.
The phrase "home sweet home" sounds good only when mentioned in the books. I have been trying to get my own place from the past three years!!.. That's right, three years. Every time I make an effort and begin my hunt for a new abode, the prices increase, and the idea of owning a home, floats away from my grasp, taunting me and blowing my self-confidence and conviction to smithereens.
For the past three years I have heard a lot of comments / arguments / stories and read a lot about the Real Estate scenario. All the while, poor blokes like me, who neeed some sort of self-assurance, come up with a renewed, confident, argument that the real estate prices will fall and its just a bubble. Well, being completely honest, I used to assure and convince myself that there is some truth in those arguments and it is only a matter of time before things will change. But that never happened. And finally, I became self-aware on this stream of thought. But, this change of mental being was thrust upon me by the real estate market facts, and I never understood the logic behind the prevailing, astoundingly exorbitant prices.
Lets go down the memory lane a few years back...namely 2006. Prices for the Andheri area hovered around INR 5000 per sq. ft. Now, in 2012, its around INR 14,000. From Jan '08 to the current year, the prices have increased from INR 7200 to INR 13,200...almost doubled !! (Source: Magic Bricks)
So what happened? Did we start making babies at twice the rate after the '08 era and the population doubled, thus rendering an acute shortage of land? Or did the raw material rates just increase by 200%?
Some people attribute the change to increase in income. True, the income of India Inc. did increase...also at a good rate. But then, the slowdown / recession of '09 should have mellowed down the price rate increase. But, like an adamant and stubborn bull, it continued to charge towards the skies. So, we're back to the same question. Why are the prices increasing? Time and again, latest reports from various institutions have proved that the sales have dwindled. Then how can the prices be explained?
One of the theories I encountered, was that the land in Mumbai is limited. Really? I don't see any land limitations in this horizontally expanded city (read slums). Well, to be a bit fair, maybe the land is just locked up, either in never ending cases ( which go on for years on end ), or morchas by the local politicians to protect their vote bank slum dweller buddies (done to death cliche, really!!). But, AFAIK, builders are very good at greasing the palms of the local corporator and getting the job done (read SRA projects), given the stupendous amount of profit they make. By the way, my close friends' spouse, who is an architect quoted that the development cost for the most luxurious apartments does not exceed INR 1500-2000 per sq. ft. So, do the math..
Another one of the theories is that, the builders pay approximately 40% of the total cost of the project as bribe, to get the projects approved, which is then passed on to us, the middle class. Well, they certainly won't pull that money out of their pockets. Nobody wants to share their profits.The result is little Uncle Scrooge's, mushrooming throughout the land, in the guise of govt. babu's. Anyways, from the word that is doing the rounds, the new Land Act provides free FSI to the builders, which they acquired previously by paying bribes. So, if this FSI is lets say even at 30% of the total project cost, the builders have a saving of around 10% ( 40% bribe - 30% FSI fees), which I frankly doubt they will ever pass on to the consumers..Have you ever seen inflated prices come down in India?...I guess then we need to gear up for more BMW's on the roads, driven by the rich builder fathers' spoilt brats.
Yet another theory doing rounds is that there is an ample amount of black money being pumped into real estate. Well, this is something that makes some sort of sense to me. How then can the easy payments of heavy debts being paid off by the builders be explained when there are no sales happening? This money can be accorded to the bribe takers, politicians and apna NRI's. I guess it was not surprising when I read in one of the daily's , that approximately 50% of the flats in Mumbai are owned by "investors".
Whatever the truth, the fact is that the middle class at the end of the day, always gets screwed..The rich have enough money to by umpteen number of residences, the poor plan their way to the SRA and other schemes, sell the flat, make a quick buck and then squat somewhere else by sending all the money to their gaon (village). We are the ones to get f****d.
Then there's also the money you pay for NOTHING (read super built up). If you have ever gone house hunting you will hear.."area 650...super built-up". And if you ask "How much is the actual carpet?", they say "30% less". And where is the area that we are paying for? Does it even exist? Do we ever get a measuring tape, and calculate the garden / steps / lobby / swimming pool etc, divide it by the number of flats and then add it to the carpet?. So this area is like a shadow which can be increased or decreased as per convenience, without a logical explanation. A brokers' own words..... "Bhau badhane ke liye hum logo ne super built-up badhaya. Usme kya hai...sab log karte hai" (We increased the super built-up area to make profits. Everyone does it.). He had actually inflated the super built-up area from 680 sq ft. to 730 sq ft. Right now the general norm of "loading" (extra area added to the carpet to convert it to super built-up) is 30% (they will quote 33% if you push a bit ). Now for the secret which you probably did not know.
Let me explain with the help of an example. Ideally, according to the norms, the super built-up area is calculated as the additional area above the carpet.Let the super built up area be 110 sq ft., with 10% loading. Now, when you go to a builder, he will tell you, "110 super built-up area. Carpet is 10% less". You calculate "Ummm..10% less is 110-(10% of 110 = 11) = 99 sq ft.". Now try the forward calculation. Adding 11 sq. ft. to the 99 sq ft of carpet area, to make it 110, super built up is actually 11.11%!!. . Huh? So where did the 1.1% sq ft of area get added from? Well, voila, they have managed to prove you an idiot in mathematics. So a personal tip. Always ask the exact carpet area and do the math. If you know the carpet and the super built-up, Just calculate
[(Difference between super built-up and carpet) / Super built-up * 100]
and you will get the exact percentage of loading. So, this means that the 33% is never 33% ...its always close to 40%. And you end up paying 40% of the amount for "nothing". Its like giving charity to the already cash-rich builder / seller. For an average flat costing INR 60 lakhs, guess the amount you "donate".
Now, lets turn towards the resale flat sellers. They follow a herd mentality with no ability to think for themselves. "The flat in the next building was sold for 70 lacs!!...I think I should sell it for 75". The virtual competition of one upping the other, combined with the ever increasing greed factor, makes this lot even worse. Oh yes, lets not forget the neighbourhood broker bhaiyya (brother) , who entice these brain dead lot even further. "What bhabhiji (sister-in-law)? Did you say 75 lacs? Do you know the current rate? Don't worry, I'll sell it for 80"
Their greedy mouths salivate with the thought of a higher brokerage from both parties.."Good, now i'll get more money from both the parties". Then begins all the lies and deceit. An ad is published. "An airy 1 BHK, with 24 hours water. Good peaceful society. Hurry, Lowest rate in area". It has to be interpreted as "A pathetic stinking chicken house, with 2 hours of water supply (rest, to be stored in overhead tanks inside your homes), and free earplugs to muffle out the infinite sounds around the flat". From my personal experience I have always learnt to ignore the "big area" part. I have seen "big" houses, where you could scan the entire house by just standing at the doorstep. Disgusting chicken houses. Also, "peaceful location", either is in contrast to what is mentioned, or it is the only building standing in the area, like a creepy haunted house. And we all know what their "lowest rates" mean. On the other hand, just to give these resellers some benefit of the doubt, they are just ignorant simpletons who know nothing about the real estate market, except that the bajuwala (neighbour) sold his flat for a certain price. So, they assume it to be the "market" rate.
Sigh! I don't have the strength to argue anymore. Perhaps, things will NEVER change and Mr. Pareto (80/20 rule: 20% of the world's population has all the riches), will be merrily singing "I told you so" in heaven.
So, WTF. I need a place to stay. And I'll buy one. My father struggled his entire life to get a 1BHK apartment. I may at the most get a 2 BHK by paying a loan my entire life ( which if you calculate, will be double the loan amount ). .. I'll live my life just for one more bedroom...Life sucks!
Now back to house hunting...
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