1132. Hoarding of unsold inventories by real estate developers....!

In a bid to curb hoarding of unsold inventories by real estate developers, the Income-Tax department is set to tax unsold flats that have been lying with developers for more than a year.

It is a very good move, considering the fact that the unsold flats could increase the property rates in view of the demand and supply ratio. The builder will never sell the property less than his demanded rate and the buyers find it exorbitant. The builder who is normally affluent is not bothered if the property is sold. And the property joins the list of unsold inventories.

With the unsold inventories piling up the demand and supply gap widens and the scarcity will increase the property price even more. Also with the exorbitant asking rate for the property, the land rates and the cost of the building materials will also go sky rocketing. There was a time when an ordinary citizen would save money from his salary and purchase a site and at the time of retirement with his Provident Fund (P.F), Gratuity and a minimal bank loan, he could build a small house. Now the land rates and building material cost in Bengaluru has made everyone feel that purchasing an apartment is better.

The Builder very manipulatively bypass the building Bye Laws and construct more than the permitted carpet area and also adds more floors to increase the number of apartments. Amazingly though the cost of each apartment will be less than the land cost in terms of Square feet value, the builder would be making heavy gains with the number of apartments on the same site dimensions. Suppose the site area is 2400 Sq ft. and the cost is Rs. 5000 per Sq ft. the builder will construct 8 apartments of 960 Sq ft, 2 in each floor with 4 floors.

Now the calculations, according to the architects in Bangalore the cost of residential construction here is Rs. 1300 per Sq ft, so for 8 X 960 Sq ft apartments it will be Rs. 1,00,00,000 + the land cost of Rs. 1,20,00,000 which will add up to Rs. 2,20,00,000. So the builder’s investment will be around Rs. 2.5 Cr. With each apartment being sold at 45 lacs the builder is making Rs. 3.6 Cr. The profit margin of more than 70%.      

Builders can afford to wait for more than a year with such a cushioning profit margin. However the apartment cost too will also be increasing as months pass by due to the widened gap between the demand and supply created by these blood sucking builders. The catch is that with an apartment for Rs. 45-50 lacs a site owner feels it lucrative to sell his plot and buy an apartment and save money to furnish the apartment. This is how these shrewd builders have made the Bengalureans tilt towards apartment culture. 

Mostly a domicile Bengalurean do not fall prey to these builders, it is the migrants from the North India who are the clients. Look at this scenario; a person from Andheri can sell his flat of 550 Sq ft. at Rs. 1 Cr and purchase an apartment in Bengaluru with only half of the sale amount he got. He can get his kids admitted to an esteemed educational institution and invests in business with the other half.

A few months back raids were conducted on the onion traders in Lasalgaon and Pimpalgaon as a drive to clamp down on hoarding and black marketing. When hoarding of onions to create gap between demand and supply is against law even these builder have to be booked for hoarding of unsold inventories. I have noticed many of the builders as well as private owners display “For Rent” “To-let” they levy heavy rent and wait for more than a year for a tenant. They are so comfortable that the loss of rent does not matter much to them.

This looks like a teaser before the release of the movie "Crack down on benami properties".