REAL ESTATE- AN INDIAN SUB PRIME CRISIS

Most investors live in the wonderland that falling stock prices do not mean a collapse in the Real Estate market. They are wrong. For the first time since 2005, Real Stocks and India Real Estate are in sync as a collapse means a collapse for both. The much touted House For All program will either bankrupt the GOVT OF INDIA or fail entirely. Alongside will fail are the ambitions of the common Joe to find Value and Wealth in Residential property. Beyond economic travails, most States have dramatically raised circle rates for registeration of Real Estate. In the so called affluent locales of New Delhi, most circle rates are 4 times the levels of 2005, and the reality is that the deals are not transacted and in most instances the Real Estate itself is valued lower than circle rates.

As if raising the circle rates was not enough, the house and property taxes will rise in sync. And registration charges will have an additional component of processing and service tax charges. All the moves-raising circle rates, property tax, and registration have ensured that Real Estate in the NCR has fallen by atleast 40 per cent over the last 2 years. This is a huge loss for a Buyer-Investor who was in the game only to flip homes or bookings.

The other part is that the cash or black money component cannot be deployed anywhere. Thus, 40-50 per cent cash in a Real Estate transaction has actually been hidden under the mattress. It cannot be used in Land and it cannot be used in buying gold. As here a single purchase over Rs 1 lakh will invite the production of a PAN card. See, all this may be good news in cleaning up the sector. But it has an adverse effect, no realtor will be able to move inventory especially homes priced above Rs 10 mn as people generally will not have that much to show in their Bank accounts when making a price. This high priced inventory sufficient for 5 years of normal purchase may never move.

What is more important all such property will cause NPAs in the hands of housing finance cos and Banks with a Real Estate exposure. All Real Estate stocks are duds and will remain so. The travails of the individual are now in perfect sync with the Realtor, Banks, and the Nations Economy. Ultimately all will go bust. leading to dramatic losses spread over multiple years.Sell All Realty and HFC stocks.