Lending Rates raised again

In a surprise move yesterday, ICICI bank has raised its lending rates further, becoming the bank with the highest rate of 13% on Fixed and 11% on floating loans. Though HDFC is lagging behind, it is also expected to move higher by 100bps or a 1% soon. PLR ( Prime Lending Rate ) the reference rate has been left untouched , keeping the existing loans at the same rates as of Feb 6th 2007. Many feel that this move by ICICI is in line with its strategy to slowing down growth in home loan portfolio. Many state owned banks have also raised interest rates for new borrowers and the rates are expected to go further up.

On deposits banks are increasing it further with SBI, ICICI offering upto 9.5% interest as of today. Senior citizens get an additional 0.25% on their deposits generating an annualized yield of 11.75% at 9.75% savings rate.

In other finance developments, Forex reserves of India increased to $190b, creating some more issues for the financeministry. Rupee is being reigned in through various measures by the government but the fact remains that rupee has appreciated against the dollar from 46.9/$ [ when I landed at hyderabad in july] to 43.9/$ [ last week ] and this may continue creating margin pressures for exporters as well as the outsourcing industry.

Disclaimer : I dont claim to be an economist or even some one with formal finance education..

Cash CRRunch in Hyderabad ?

Indian economy is overheated and its particularly visible in the metro's and Hyderabad. Frenzied M&A, Over valued real estate, Rising prices in commodities etc., shows why the finance ministry is worried. Inflation today at 6.75%, Recent increase in CRR and Repo rates by RBI is a very clear indication that the government is concerned about the common man not being able to afford anything anymore.

Bank lending rates have moved from a range of 8 - 10% to 10 - 14%. As banks are in a squeeze since increased CRR will drain 14000 crores out of the banking system as committments to RBI for their existing loan base. So, banks are willing to pay above 9% for deposits compared to the 5% they were paying when I landed here 6 months ago. May not be too long before it reaches the good-old 18% rate. It is not a distant possibility, considering the issues that RBI and the finance ministry are constantly warning about the over heated and overly liquid economy.

Hyderabad realestate prices according to realtors are still booming, but the reality is that they have softened more than I expected. Try to sell a plot and you will get a dose of reality. I have seen folks get offers of 50% of what the paper value was when they really wanted to get rid of it. In the recent days areas like Jubilee, Banjara, Kavuri Hills seem to have softened more than I wanted to see. 6 months ago no one was willing to even consider talking about less than 60-70K in these areas and now many options are available at 40 and above. Even gacchibowli and kondapur have pulled back considerably, and we recently took advantage of the low prices and acquired a small plot.

Coming to the builders, No doubt, there is a demand for apartments and houses, but with the interest rates inching up every day, there are very few people left with cash to invest. Anyone who has put into land is waiting for it to recover back to the 2006 levels. I dont mean any disrespect, but dont believe the realors and builders that are still looking for the 4000 - 7000 per sqft in Hyderabad. They must be really out of their mind. Recent announcement of L&T phase II at 4000/sqft and some complexes in Banjara Hills asking for 7000/sqft is way overblown. Villas are reasonably priced in the gopanpally area, but there is still room for negotiation since the area is not that close to the business areas like the builders seem to potray. Also, land around / behind chirec [ Some have clearances and some dont .. please be weary of narne and other lands with issues there.. but it may not make a difference in the long run since the govt is looking to get rid of ULC soon .. ] is available for good prices now a days if you look for bargains, you will certainly find them.

On the financing front.. I recently dealt with a large bank to get a loan to cover one of my apartment purchases from a long time ago. This was purely to get the basic deductions that I needed which I discussed in my prior post about tax deductions etc. Banks seem to readily agree to a loan of 60 times the net monthly income. Now lets take a techie who gets 50K Gross per month [ Which I feel is the median salary of some what experienced techies in hyderabad ], after taxes he/she ends up with 30K per month as net ... and that equates to a 18Lakhs of loan eligibility. How many sqft do you think they will be able to afford at the Rs4000/sqft ?.

That was a quick rant about hyderabad .. will try to blog more this week.. Keep reading..

Hyderabad Real Estate : Corruption, Investments and My Strategy

Housing / Real Estate are the most expensive in Hyderabad. With 1 sq. yard .. equivalent of 9 sq. ft going for an average of 20,000 in most live-able areas and upto 50,000 in the posh areas, it has become a challenge to find a suitable living space in Hyderabad. Commercial / Main road / prime plots if not kabza'd or taken over by crooks/politicians will fetch you 100,000 per sq yd on main roads of Jubilee and Banjara hills.

Corruption is very rampant in real estate transactions in the best areas of the city. There are some plots being sold with multiple registrations and some being put under litigation by the original owners / pattadar's of the nawab time. Now a days, it has become compulsory to have every member of the seller/original owners family sign on the sale deed to avoid any issues in the future. Settlement mafia's are rampant, they some how get the common people with good land into trouble and settle for 10-20% of the value etc..

On real estate investments in apts and houses, its important to realize that the days of 100-300% returns are gone if you invest today, and even the 50-100% returns are very rare. The large returns are available to the folks who are plugged in to the political/industrial families and can acquire land before projects are announced or for companies like infosys [ who is evolving to be the biggest land grabber in India today ].

Coming back to the housing thing, the house I currently rent would cost me around 3 to 4 crores to buy ( 30 to 40 Million rupees).. and the possibility of this area moving up 100% in 1 year is very unlikely.. [ who knows.. I have been wrong many times..;-) ]

My thought wrt buying in my favourite area is different.. Correct me if I am wrong.. I some how am not too big on house ownership after living through it in the US. Too much of dead capital .. Atleast we had home equity loans to draw upon in the US. Now, I pay 30,000 pm / ~Rs 10/sqft all inclusive.. [ No extra charge for maintenance, repairs, servant quarter, solar heater, 24 hr muncipal water .. and just have to let my landlord know to get things fixed when they are broken etc. ]. Yes, 30K are running out of your account pm, but I would hear a giant sucking sound if I had to pay the bank @ 11% on a loan of 24 Mil Rs...

Here is my understanding about deductability of interest in India.. The max deduction you can have on housing interest is 1.5Lac/annum so going to a max of 15 Lac loan@10% will get you the best benefit for the early years. A nice article here. . .... So, what good does it do paying 4 Lacs of interest on a 40 Lac Loan ?. I certainly agree that appreciation is there, but do you think its worth buying an apt in the current market at Rs.5000/sqft ?

Some of you asked me what I am doing with the money if I have not bought a house.. I still have a sizeable amount left in the USD, dont want to touch it unless I am sure I can consistently beat the ~15% I am able to generate Year over Year. Of the money I have in hand, some risk capital has gone into speculative land deals [ Jai Telangana ;-) ], invested in some mid level housing where the values are more affordable and can fetch some good rental income and thirdly sticking to the true and tried 15% compounding with some of the investments. With the small amount left, I am trying to leverage it as a down payment to leverage a govt subsidized investment in a family business/ industrial unit.

Hope this strategy will pay off in the long run and I am not too worried about the future since Uncle Sam and Social Security are supposed to take care of me and my family ;-).. Yeah Right !!!

All feedback regarding this article is welcome...

Hyderabadi's Travel Update

With my trip for an offsite meet, I really did not get a chance to update the blog.. My trip to kerala was very exhausting but rewarding. An excellent networking opportunity with global leadership teams. It exceeded all my expectations of an offsite meet. Work and Fun were well balanced with a cruise on kerala backwaters, snake boat races and performing arts demonstrations including panjavadyam, thayyam, kalari-payattu ( martial arts ) etc., and my favourite was kalari-payatt.

Kerala Cuisine, was heavily based in coconut sauces, and was centered around SeaFood/Fish dishes. I dont remember the names of all the dishes, but overall the food was excellent. I tried every item in the buffet for the first 2 days and ended up with an upset stomach towards the end of day 3. My favourite of all was Ada-Pradhamam { a payasam like dessert made with jaggery etc. }

2 Months since My Arrival

Its exactly 2 months since I arrived in hyderabad... No regrets, no challenges to deal with, enjoyed every bit of my stay here... bottomless biryani buffets... litres of teachers and blenderspride scotch [ may be thats a little exaggerated ;-) ] and the ability to re-live in a fun culture of dakhani [ hyderabadi ] phrases including my favourites "maakki kiri kiri" and "bindaas". Today I really laughed when a team member said "pareshan mat lena sir....", to calm me down about an issue....

In the last 60 days, I was able to complete the basic tasks like renting a house in hyderabad, move in, get connected, hire a maid+driver and move my family here. Couple of things I am really behind on are my son's school, drive on my own [ need to figure out how to get a license and insurance ], physical fitness / gym and a pet project I started while I was in the US. I hope to get on track by the 100th day or so..

With the global nature of the business that Indians deal with, work hours are not well defined. The higher you climb the ladder, the worse it gets.. though not a daily activitiy, you are expected to participate in calls, reviews etc., with australiam/APAC customers in the morning, Europeans in the afternoon and America's in the evenings. So a workday of mine goes from 11am to 7pm on some days to 2pm to 10pm on somedays. The best part is that you get to slack off on both Indian as well as Customer Holidays ;-). Companies have adapted well to this global demands with extensive work from home options, including wireless internet, vpn, blackberries/other devices that are tied into the company phone networks so that you have a virtual office extension that comes with you all the time.

Some of you asked me about lunch etc.. so here it goes. Cafeteria's at work are very well maintained / managed in many of the large companies. Food goes from the traditional thali between Rs 25 to 50 depending on the options along with traditional offerings like biryani, curry+paratha etc. at less than Rs 50 for a large serving. Cafeterias also have free coffee/nescafe/tea machines along with a coffeeday express or similar store that offers gourmet coffee between Rs 10 to 30 depending on your choice. Other standard things include a bakery counter where you can buy puffs, rolls, breads, sandwiches between Rs 5 to Rs 20, and a fruit bar that offers a medley of fresh fruits from Rs 10 to Rs 20 based on the size of serving. In some locations of our organization, food is free for the basic thali type and you pay extra for others. In some organizations like google, its all free including the gourmet varieties of everything and anything.

More later...