"In the spring, at the
end of the day, you should smell like dirt."
—Margaret Atwood (Canadian,
1939)
Word
for the day
Ripsnorter (n)
Something or someone
exceedingly strong or violent, e.g., a ripsnorter of a gale.
Malice
towards none
From "Har Har
Modi" to "Et tu Modi"; from "Great Expectations" to
"Great Betrayal"; from "Divine Intervention" to "Ruthless
Tuglaq" - the spring to autumn cycle is complete in two and half year.
Where do we go from here?
First random thought this morning
Economic reforms often mean transformational changes that may not
necessarily lead to immediate rise in corporate profitability and aid in
resource grabbing.
On the other hand these usually do lead to lesser protection, more
competition, stricter compliance standards and larger accountability for
businesses.
If you do not want to pay taxes, cost of compliance and market
linked compensation for exploitation of natural resources and labor, clamoring
for economic reforms would not yield much.
Cash is colorless, it takes color of the hand that is holding it
As I mentioned last Friday (see here),
I totally disagree with the prognosis that the demonetization of HDNs by the
government will severely hurt the real estate sector in the country.
I feel the sector that has been undergoing an overhaul since past
few year will get a great impetus from the demonetization drive.
The arguments suggesting a collapse in the real estate market
suffer from a multitude of wrong assumptions. For example, it appears to assume
that—
(a) The pricing of real
estate in India is predominantly a function of "cash component"
involved in the deal.
(b) The demand for housing,
commercial complexes (malls etc.) and office space is mostly discretionary and
could be deferred/suppressed for a considerable period of time.
(c) All "cash
component" in real estate deals is black at the time of the transaction
itself.
(d) A large part of the
real estate stock is in the hands of financial investors who are all leveraged
and stressed.
In my view, these assumption may not be completely fair. Property
prices are usually a function of cost of land & construction, affordability
(income and saving rate of the target buyer group) rental yields vs. mortgage
rates. Black cash is only a top up and deterrent to fair price discovery.
In my view, the latest developments like (a) changes in laws
relating to land acquisition; (b) regulation of real estate sector; (c) rising
trend in urbanization; (d) rising demand for urban commercial real estate as
self-enterprise accelerating; (e) rising growth in organized retailing; (f)
need for development of logistic infrastructure (warehousing etc.) to reap the
benefits of GST; (g) changes in regulation relating to foreign investment in
real estate sector and institutionalization of real estate ownership (through
REIT etc.) - are majorly positive for the real estate sector in India.
A significant impetus should be provided to the real estate demand
by (a) rising affordability through higher income (e.g., pay commission, rise
in minimum wages); (b) falling trajectory of mortgage rates; (c) consolidation
of real estate development business through elimination of smaller, inefficient
and weaker developers from the market; (d) better town planning under smart
city initiative.
All cash component in real estate deals in not black (illegal or
unaccounted money). Many a times home buyers are forced to withdraw cash from
bank accounts to pay to the seller as seller does not want to pay tax on gains
or he needs to pay cash to seller of the property he is buying in lieu of the
property he is selling.
In the worst case, assuming 50% average cash component in the deal, it
would be 18% higher cost for the buyer (15% tax on 50% cash component @30% and
3% higher stamp duty @6%) and 10% higher tax for the seller (@20%). If both
buyer and seller have to share the cost equally, a 5% price correction should
be sufficient....to continue
I read the above article and I got some knowledge from your article. Real Estate for sale in Queens, It's actually great and useful data for us. Thanks for share it.
ReplyDelete