Prices of GOLD ARE DIPPING,US$ V/S RUPEES
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Luxury Villas, Flats, Homes - Should you buy now?

Everyone is talking of an imminent correction in real estate market but when is it coming? And then, some people are expecting a bull rally in stock markets to begin by Diwali. If that happens then how can we see a correction in realty market? Will sentiments differ for the two?

My analysis is that markets are continuing to be cautious for some time now. Deep corrections from these levels are far-fetched thoughts. Another 20% correction in stock market from 13k levels even if it happens would happen because someone selling like crazy at such levels has actually gone crazy somewhere else (read: Land of the Subprime).

What I feel would be a good buy today is real estate. Liquidity has dried out. Buyers as well as sellers are few. Advantage is in the hands of the people with power to buy whether by cash or by power to borrow. And my bet would be on residential as it is easier to get it financed and easier to turn it into a money making asset as compared to commercial where there is a lot of skepticism. And then there are tax benefits too (follow this link for tax benefits).

Resale or Original booking? Well, lots of developers are willing to fund the interest portion as of now for any booking received as a result of no loans available to them in money markets. so, they arrange a home loan to you and are willing to fund the interest for two years (which is at 12-13% as compared to 20% plus being available to them through banks). Do bargain to avail of tax benefit on the same once you get the possession.

Resale: Well, whoever is willing to sell is surely not finding enough buyers and so you can easily get a cool bargain and then you get to stay in it immediately or you can put it on rent and reduce EMI burden.

So, whether stock market or real estate, choice is yours. All I can say is that timing is tight.

Is DDA flat sale really at a DISCOUNT?

DDA has announced sale of approx 5000 flats to Delhites (TOI, Express India)- that too at a significant discount to market rates. DDA officials are quoted as saying that these are being sold at no profit. However, the process inherently is quite profitable (or should I say profiteering!) i.e. if DDA realises it.

Consider this: Flat prices average around 40 lakhs as range is from 7 lakhs to 77 lakhs. Response from public is overwhelming. People are expecting 200 times of form sales and 150 times of subscription. Approximately 10 lakhs form are going to be sold at a price of 100 bucks each. This amounts to Rs 10 crores itself or Rs 20,000 per flat. Quite a paltry amount and commendable too as it puts the form in pocket of all. Now, the real thing. Each applicant needs to submit 10% of flat amount as earnest money for a minimum of 3 months from September 16 i.e. the last date of submission. Considering 100 times subscription, and for a flat's average price of 40 lakhs, this amounts to Rs 4 crores per flat (10% earnest money). On this amount DDA stand to earn interest at close to 9% p.a. i.e. 2.25% for the 3 months which comes out to 9 lakhs. Whoa!!! Pls recheck. Yes, thats correct. And there is a chance that money would lie with DDA for at least another month and throw in average period of 20 days (half of 40 days between Aug 6 and Sept 16), this amounts to another 5 lakhs. So a neat profit of 14 lakhs awaits DDA i.e. a 35% return on the flat amount. I bet DLFs of the world would follow suit with such a practise.

And what about cost to applicant. If its own money, the guy stands to lose 1% of the amount calculated above per application i.e. 14,000 for a flat of 40 lakhs. Banks have come forward to finance 100% of amount which should come at around 12-14% and the cost for these applicants is 12/9*14,000 i.e. 19,000.

I think whether 14,000 or 19,000, the sale process amounts to a costly lottery ticket for applicant. If DDA really doesn't want to take the profit away then it could've simply asked for a Fixed Deposit or other security in the name of applicant which could've been pledged in its favour. But DDA has its experience since 60s and last sale in 2006 of 3000 flats elicited a response rate of 60x.

I hope my blog puts things in perspective and clears notion of people about DDA selling flats for no profit. Let the buyer beware. I find this akin to a lottery ticket and I'll try to figure out if that is allowed.

Related Articles:

Business Standard: DDA, banks to earn Rs 475 cr from housing scheme charges : Talks about DDA ploying funds to Low Income Group Housing. My question is why make 99% people pay for something simply because they don't have choice.

India Housing: DDA Housing Scheme 2008

Rasoni, the Investment Guru: Bank loans for DDA Flats Registration amount

Real Estate Blog: 5020 DDA Flats Going, Will You Get Lucky?