Tuesday, January 02, 2007

Losing air by Sucheta Dalal

Losing air
01 Jan, 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.

You can track the hiranandani ticker on yahoo finance as HIRC.L and Raheja's Ishaan Real estate as ISH.L

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