Here’s More Data to Show How Over-Priced Indian Real Estate Is

India-Real-Estate-Market

I know I am kind of going overboard with the analysis of the data released by the Income Tax department last week, but believe me it is necessary, to show how loaded things are against people who actually pay income tax.

Last week, the Income Tax department released some very interesting data-the kind of stuff that it had not released for a while.

It released detailed numbers for income tax returns filed in assessment year 2012-2013. In the assessment year 2012-2013, the income tax returns for the income earned in 2011-2012 was filed.

Let’s look at the income tax returns of individuals in detail. The Income Tax department has provided data for income for individuals under the head-salary, business income, other income, short-term capital gains, long-term capital gains and interest income.

Take a look at the following table:

This table tells us that the average income of individuals filing an income tax return is around Rs 4.40 lakh.

Table 1: Income under the head (in Rs crore)

Salary 6,27,200
House property income 29,927
Business income 4,03,251
long term capital gain 30,479
short term capital gains 3290
Other sources income 1,28,020
Interest income 44,918
Total (in Rs crore) 12,67,085
Total number of returns 287,66,266
Average income Rs 4,40,476

How do things look if we look at just the salaried class?

Table 2

Salary (in Rs crore) 6,27,200
Number of returns filed 116,76,493
Average income Rs 5,37,148

As can be seen from the above table the average income of the salaried class in India filing income tax returns is Rs 5.37 lakh. This is around 22% more than the average income of the individuals filing income tax return.

It is important to understand here that most individuals belonging to the salaried class would have an income lower than the average income of Rs 5.37 lakh. In order to understand this, we will have to take a look at the data in a little more detail.

Let’s divide the data in those earnings up to Rs 10 lakh and those earning more than Rs 10 lakh. Let’s consider those earning up to Rs 10 lakh first (See Table 3). As can be seen from Table 2, the total number of returns filed by the salaried class comes to around 1.17 crore.

Of this close to 1.06 crore have salaried incomes of up to Rs 10 lakh. This means around 91% of the salaried class filing income tax returns have an income of up to Rs 10 lakh. Take a look at the following table (Table 3).

Table 3

Salary range Number of returns Sum of Salary Income (in Rs crore)
>0 and <=1,50,000 16,00,167 14,956
>150,000 and <= 2,00,000 10,67,300 18,853
>2,00,000 and <=2,50,000 10,24,315 23,120
>2,50,000 and <= 3,50,000 19,18,714 57,075
>3,50,000 and <= 4,00,000 8,06,685 30,215
>4,00,000 and <= 4,50,000 7,54,202 32048
>4,50,000 and <= 5,00,000 6,96,210 33032
>5,00,000 and <= 5,50,000 5,95,298 31190
>5,50,000 and <= 9,50,000 20,23,583 140464
>9,50,000 and <= 10,00,000 1,00,155 9760
Total 105,86,629 3,90,713
Average Income Rs 3,69,063

The average income of those earning up to Rs 10 lakh is Rs 3.69 lakh. This is significantly lower than the overall average income of Rs 5.37 lakh of the salaried class filing income tax returns. How do things look for those earning an income of up to Rs 5 lakh?

Table 4

Salary range Number of returns Sum of Salary Income (in Rs crore)
>0 and <=1,50,000 16,00,167 14,956
>150,000 and <= 2,00,000 10,67,300 18,853
>2,00,000 and <=2,50,000 10,24,315 23,120
>2,50,000 and <= 3,50,000 19,18,714 57,075
>3,50,000 and <= 4,00,000 8,06,685 30,215
>4,00,000 and <= 4,50,000 7,54,202 32048
>4,50,000 and <= 5,00,000 6,96,210 33032
Total 78,67,593 2,09,299
Average income Rs 2,66,027

The average income of those earning less than Rs 5 lakh is around Rs 2.66 lakh. These individuals form around two-thirds of the overall salaried class filing income tax returns.

How do things look for those earning more than Rs 10 lakh per year?

Table 5

Salary range Number of returns Sum of Salary Income (in Rs crore)
>10,00,000 and <=15,00,000 5,92,418 71,464
>15,00,000 and <= 20,00,000 2,07,141 35,566
>20,00,000 and <= 25,00,000 1,10,700 24,708
>25,00,000 and <= 50,00,000 1,24,472 41,302
>50,00,000 and <= 1,00,00,000 36,775 25,032
>1,00,00,000 and <=5,00,00,000 17,515 30,661
>5,00,00,000 and <=10,00,00,000 655 4,375
>10,00,00,000 and <=25,00,00,000 156 2,158
>25,00,00,000 and <=50,00,00,000 26 809
>50,00,00,000 and <=100,00,00,000 6 412
Total 10,89,864 2,36,487
Average income 21,69,876

The average income of those earning more than Rs 10 lakh per year comes to around Rs 21.7 lakh more and is significantly more than the overall average of Rs 5.37 lakh for the salaried class.

What do these tables tell us? That the average salaried Indian who files income tax returns doesn’t earn much. As mentioned earlier, around 91% of the salaried class has an average income of Rs 3.69 lakh. Close to two-thirds have an average income of Rs 2.66 lakh.

This basically means that the income of the average salaried Indian filing an income tax return is significantly lower than the overall average salaried income as well as overall average income. At least that is how things were for the assessment year 2012-2013.

A question worth asking here is what sort of a home can individual earning a salary of Rs 3.69 lakh per year, actually afford. An annual income of Rs 3.69 lakh translates into a monthly income of around Rs 30,755.

What sort of a home loan would a bank give against this amount? Typically, a bank works with the assumption that 40% of the monthly income can go towards servicing an EMI and accordingly gives a loan.

In this case that amounts to around Rs 12,300. An EMI of Rs 12,300 at an interest rate of 10% and a tenure of 20 years, would service a home loan of Rs 12.75 lakh. Banks typically lend up to 80% of the official value of the property. This means an official value of property of around Rs 16 lakh (Rs 12.75 lakh divided by 80%). Please take into account the fact that I have used the word official because there is bound to be a black component as well.

What this number tells us is that most salaried class in 2011-2012, were not in a position to buy a home to live in, across large parts of the country. There is no reason to believe that things would have changed since then.

The point is that the demand for real estate is in the below Rs 20 lakh market price segment. But what is being built across large parts of the country is clearly above that price. As RBI governor Raghuram Rajan said in a recent speech: “I am also hopeful that prices adjust in a way that encourage people to buy.”

Let’s wait and see if Dr Rajan’s hope becomes a reality, any time soon.

The column was originally published in the Vivek Kaul’s Diary on May 6, 2016

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About vivekkaul
Vivek Kaul is a writer who has worked at senior positions with the Daily News and Analysis(DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System , the latest book in the trilogy has just been published. The first two books in the trilogy were published in November 2013 and July 2014 respectively. Both the books were bestsellers on Amazon.com and Amazon.in. Currently he works as an economic commentator and writes regular columns for www.firstpost.com. He is also the India editor of The Daily Reckoning newsletter published by www.equitymaster.com. His writing has appeared across various other publications in India. These include The Times of India, Business Standard,Business Today, Business World, The Hindu, The Hindu Business Line, Indian Management, The Asian Age, Deccan Chronicle, Forbes India, Mutual Fund Insight, The Free Press Journal, Quartz.com, DailyO.in, Business World, Huffington Post and Wealth Insight. In the past he has also been a regular columnist for www.rediff.com. He has lectured at IIM Bangalore, IIM Indore, TA PAI Institute of Management and the Alliance University (Bangalore). He has also taught a course titled Indian Economy to the PGPMX batch of IIM Indore. His areas of interest are the intersection between politics and economics, the international financial crisis, personal finance, marketing and branding, and anything to do with cinema and music. He can be reached at vivek.kaul@gmail.com

One Response to Here’s More Data to Show How Over-Priced Indian Real Estate Is

  1. Neil gordon says:

    Misses the point – which is that it is obvious the majority of Indians don’t pay income tax at all and this is one of the many reasons the place is rooted
    To live in a civilised society you need some systematic way of paying for and expecting delivery of public goods
    Neither do Indians want to pay for and their governments have been happy not to supply public goods
    That’s why the joint is rooted!!

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