Sucheta Dalal :Losing air
Sucheta Dalal

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Losing air  

Jan 1, 2007

It is an indicator the property bubble is beginning to go flat when inquiries for new properties decline and doubts are cast over so-called deals that had pushed prices into the stratosphere. Questions are being raised about the veracity of a newspaper’s report heralding the ‘record-breaking’ Rs 73,000 per sq feet deal for a South Mumbai apartment. While many in the property market deny such a deal, a more charitable version insists the sale occurred, but the buyer paid an exceptional price for personal reasons. The newspaper didn’t mention the price quoted was on a carpet area basis. Since all newly constructed property has a 40-45 per cent mark up (what are known as super-built up area) it leads to a huge price difference in for newly constructed properties. Sources also say insisting on a particular flat entails another mark up of anywhere between 10 and 20 per cent, depending on the seller’s demands. Once adjusted for these factors, the price looks less stratospheric. So there’s consensus that Rs 73,000 is by no means a new benchmark for Mumbai apartments. Markets sources say irrational prices paid for specific properties in Mumbai can never be considered a benchmark price.

Awry AIM

Another issue worrying realty developers looking to raise large chunks of premium-priced public money is the performance of companies recently listed on London’s AIM (Alternative Investment Market). Prices of three of the top Indian stocks fell below their issue price within a day of listing and continue to remain subdued. So far, 11 Indian companies have raised $1.2 billion from AIM in record time; almost all are trading at a discount. Realty companies love the AIM because the fund raising process is tremendously fast and requires much fewer disclosures. Although global investment interest in Indian realty companies has been high, there is worry aggressive pricing by the front-runners could ruin the chances of those to follow. Higher interest rates and the sharp rise in realty prices has already forced many Indians to drop plans to acquire or upgrade existing homes and the impact is apparent in fewer inquiries for new constructions. All this could impact fund raising plans of realty developers in the coming year.

Corporate rivalry v/s fertile land

As West Bengal remains exercised over whether or not Mamata Banerjee’s protest was instigated by ‘corporate rivalry’ as claimed by Ratan Tata, one issue has vanished from the media pages. The Singur land handed over to the Tatas is fertile, two-crop land. It may be recalled even Sonia Gandhi had publicly asked all states under Congress rule not allow land under cultivation to be given away to SEZs . Why should the same logic not apply in West Bengal, which is ruled by a Congress ally? Why would the Tatas not be willing to accept alternative, non-agricultural land? Simply because of Singur’s proximity to Kolkata and the access it provides to markets and transportation facilities. What does any of this have to do with the ‘nameless’ corporate rival? In any case, the only company capable of providing serious competition to the Tata plan to make a Rs 1 lakh car is probably Maruti Suzuki, where the centre has a little say. Another company that may pip the Tatas its neighbour in far away Pune. In a liberalised economy, where licenses do not rule decisions, companies are expected to fight fiercely for every percentage point of market share. In this changed scenario, even the Tatas must learn to identify the rivals and expose them in order to make their charges credible.

Electronic tax refunds

Our mailbox continues to be hit with tales of harassment over getting tax refunds. And most taxpayers express surprise at the existence of an ECS facility. IT sources now tell us the facility was open only to the salaried seeking a refund of Rs 25,000 plus. They claim to have made 2,482 ECS refunds worth Rs 11.56 lakh in 2004-05 and 11,267 ECS refunds worth Rs 3.15 crore in 2005-06. The facility is now being extended to all categories of taxpayers without a monetary cap in 12 cities — New Delhi, Mumbai, Chennai, Ahmedabad, Bhubaneshwar, Nagpur, Kanpur, Bangalore, Hyderabad, Patna, Kolkata and Thiruvanthapuram. It will then be extended to 15 other cities where SBI operates the ECS clearing house.

-- Sucheta Dalal