Wednesday, August 13, 2008

Pune property loses sheen, many buyers forfeiting booking amount

Source: The Indian Express, Aug-09-2008
By Sumit Kumar, Section Real Estate
Posted on Sat Aug 09, 2008 at 04:30:53 AM EST
15-20 per cent slowdown, rampant cancellations by investors; 2009 to witness oversupply of residential, commercial space: KPMG

The real estate boom in Pune may well be all but over as the market has started witnessing a lot of cancellations, with people even opting to forfeit the money given as booking amounts, rather than going ahead with purchase of the property. This was revealed by Jai Mavani and Prafull Jain, executive directors of leading market surveyors, KPMG India Pvt Ltd at a press conference here on Friday. They further added that by 2009 Pune will witness an oversupply of residential and commercial spaces vis-a-vis demand.

Mavani said, "Pune's real estate market has seen a pretty hectic business in the last few years. However, as seen in other cities in India, Pune too, has started witnessing a slowdown of about 15 to 20 per cent in the real estate sector. Though the top-tier developers may not be feeling the pinch as yet, the small developers have certainly started to."

Attributing this drop in the real estate to factors like reduction in the investors, Jain said, "One-third of buyers in the Pune market are investors who buy properties in anticipation of the assets appreciating. But this appreciation is not happening anymore."

Mavani advised developers to release their stock rather than get into trouble later on since operating cash-flows are more important than land-bank. ``It is better to take a prudent view of the land prices, rather than holding on to them," he said.

As per the projections provided by KPMG, Pune witnessed a supply of two million sq ft of commercial space in the first half of 2008, while approximately 3.5 million sq ft of supply is expected over the next six months.

As far as residential space is concerned, Koregaon Park and Kalyani Nagar continue to remain the most expensive residential markets with Wanavdi emerging as a new mid-ranged residential location. As for the retail properties, Aundh is emerging as a preferred choice because of the presence of a large number of residential properties available for rent. "Cautious approach adopted by retailers will help rentals stabilize in the short term," said Mavani.

He added that the IT sector, that has been the major growth driver for real estate in Pune, has started slowing down. A shift to SEZs will further lead to oversupply in IT parks.

Commenting on the rise of malls across the country, Mavani said, "Malls have been built indiscriminately without any applications of how malls operate internationally. At one point, we will see these malls convert into commercial spaces. Some of these malls will fail entirely. Therefore they will have to strategize themselves."


Anonymous said...

Where is "Ashish" and "Boss"? The downfall is coming. In 2-3 years the true picture will start emerging. Events could play out like this:
1. People start cancelling.
2. People will even leave their deposits.
3. Builders will start incentives.
4. Major incentives from builders like cars etc.
5. RE Lobby will always claim that nothing is wrong. It is just a correction.
6. Interest rates will further rise.
7. banks will give loans only to qualifies borrowers.
8. Govt. will intervene to delay the downfall due to election year.
9. Govt. will try to force banks to move to the old rate for floating point rates.
10. Floating rate is same as SUBPRIME Mess of USA.
11. When the confidence goes down, the sales will stall.
12. Sales will go down by 80-90%.
13. Huge buildup of inventory.
14. People will start walking out of the houses and throw keys to the banks.
15. Banks will try to sell distressed properties.
16. Banks will try to liquidate huge inventories.
17. 30-40% banks would be bankrupt and would close.
18. With US/Europe recession and financial crisis/credit crunch, IT will see close to 50% layoffs.
19. No salary raises and salaries of new hires would be sustantially low in IT and finance.
20. In an year or so people will start getting out of denial and lower the property prices by 20-30%.
21. The air will come out slowly and by 3 years 75% realtors will be out of job, 50% loan officers, 80% construction workers, raw material would be 50% cheaper and etc.etc.

Atul said...

Well said Anonymous....

Addendum to your pointers:

1. People start cancelling.
Atul: Already started. 10% of booking made during herd race in Paranjapes' Blue Ridge is cancelled till now.

2. People will even leave their deposits.
Atul: Already started. Some builders, who denied returning the initial booking amount, investers left the deposit but denied to pay further.

4. Major incentives from builders like cars etc.
Atul: G.K. Builders is offering i10 cars with booking at Lords project.

5. RE Lobby will always claim that nothing is wrong. It is just a correction.
Atul: This will keep happening. In fact, some builders have raised the price and some fools have started thinking that this is a spiral again and they rushed for booking.

6. Interest rates will further rise.
Atul: I doubt about this. Our FM has proven interests in Real Estate. He will keep pressure on RBI to releave Home Loan rates.

9. Govt. will try to force banks to move to the old rate for floating point rates.
Atul: Yes... I agree to this. Look at my comments against point 6.

10. Floating rate is same as SUBPRIME Mess of USA.
Atul: This will be worst then US. Atleast US do have proven mechanism to monitor SubPrime, where as India do not have it.

11. When the confidence goes down, the sales will stall.
Atul: In Mumbai, the sales have stalled already.

The points from 14 onwards are exaggeration but to some extent this will happen for sure.

One thing is sure.. we are passing through a last stage of euphoria. This kind of peak normally endup with steep down slide.

The Boss said...

Anonymous said...

Where is "Ashish" and "Boss"? The downfall is coming. In 2-3 years the true picture will start emerging.
Come on guys, 2-3 more years just for the picture to start emerging? This will be remembered in history as the worst crash that never happened.

Anonymous said...

Some fools who have missed the bus are predicting all this. I think they feel that India growth story has come to an end. Stop dreaming a correction of around 10 to 20% is expected in Pune and beyond that if you are expecting a crash,then keep dreaming and miss this bus too.

Anonymous said...

A "right" advice for many in the IT/ITES/BPO/KPO industries might be the following. After all these "investors" and builders are targeting you guys only. I would recommend the following strategy until annual rental yields approach 10%, which would indicate that housing is no longer significantly overpriced.

Why do I say that focusing on average rental yield is better? This is because focusing on your personal income alone may not make sense. If you can afford a house with an EMI of less than 30% of your income, it may seem advisable to purchase an apartment/house. However, there is no guarantee that you will be continuously employed for 20 years at the same or higher salary. In the case of a job loss, it would be possible to rent out the place, while you move to a different city, or move in back with family till you land another good job. And if the average rental yields are of the order of 10% or so, it should be fairly close to the EMI, because long term housing loan interest rates are usually between 8-12%.

So it would be better to look at the average prevailing rental yields in addition to personal income before deciding whether to purchase an apartment or not.

1. If you are single, stay with friends close to work, and start saving money in an SIP with a reputable balanced Mutual Fund. Due to the ELSS scheme, you get a tax benefit. At this period in life, you can afford to take on more risk. Equity is the only asset class which has shown worldwide to appreciate significantly above the rate of inflation. Housing, Gold, and commodities have roughly appreciated at the rate of inflation. These are basically inflation-hedges. By sharing an apartment with friends and staying close to work, you can save more money on utilities, food, transportation and other expenses.

2. After getting married, if the average rental yield is approaching 8-10%, and you have a few years experience and a somewhat senior position, then go ahead and buy an apartment. Even if you lose your job, it will be easier for you to find a job since you will have experience, and you can also rent out your place to cover a substantial portion of your EMI. Also, take out a term life insurance policy with a value equal to the nominal loan amount, and a mediclaim policy to protect your family from a catastrophe.

3. However, if you get married, and the average annual rental yield is still very low, just rent an apartment with your spouse, and stash the money away in a less aggressive balanced mutual fund. Keep renting for as long as the rental yield is substantially lower than 10%. It also gives you flexibility to move whenever you get a better opportunity. Having to put up with a landlord is definitely painful, but if you take good care of the house, and keep good relations, it may not be so bad. Use the accumulated savings as a down payment to buy an apartment when the annual rental yield approaches 10%. Take a term life insurance policy for the lower home loan value, and a mediclaim policy as noted above.

4. Worst case scenario, where the rental yields never approach 10%. Keep renting till your child reaches 17 when he or she will be off to college. By that time, you will have accumulated a substantial sum of money, even though having to move as a tenant every few years is a pain. Use that sum of money to buy an apartment/house in a small town with no IT exposure and plan to make that your retirement home. Maybe if you have enough money left over, you can even start your own business.

In another 20-30 years, I think it would be safe to say that all the major facilities like communications, good power supply, hospitals, and shopping areas will be present in almost all small towns in India. So it may make sense to retire there happily, instead of slaving away for the rest of your working life to help make more and more profits for investors and builders and politicians.

mallapottell said...

Pune is witnessing a scenario reminiscent to 1996~1997. People were fooled by real estate agents/builders into buying property. All sorts of rumors were afloat about the boom, IT parks, Large industries migrating to Pune, HongKong billionaires investing in the city infrastructure, Bombay/Pune Highway, International Airport etc etc . Those who invested in property lost 40-50% of their investments in real terms in a span of 3 years when the apartments/bungalows were handed over to them in 1999-2000.

Now the builders lobby is targeting the IT professionals, middle level managers, retired people who lack the market knowledge. Those who have fallen prey are likely to loose their hard earned investments for Pune with abundant space for development will never witness a property boom.

Prashant said...
This comment has been removed by the author.
Prashant said...

I was wondering why some people still don't see that a severe housing crash is due in India even after seeing what happened in US.

One reason people give is that India is different - yes India is different, but that does not make it immune to asset bubbles which have been occuring all throughout the history and in all places including India. And it is instructive to know that in each one of the bubbles the people experiencing it said, that this time its different or that our case is different. These asset bubbles start with some fundamental shortage. So at the start the demand may have outstripped the supply. That would start it, but as the price keeps on increasing more people start producing the asset. Eventually there is an oversupply. This oversupply will need to be sold at a loss at some point - so that will contribute to price declines.

Another reason people give is the economy is doing good. Well it did in the last few years and the construction and global boom helped the economy. Now, the economy will slow because of less construction as well due to IT and general slowdown globally. Again, we are at the beginning of the economic slowdown which will last a couple of years. The slowdown and the declining prices will affect everyone - the builders, banks, consumers, investors, etc. This negativity will feed on itself and there will be further declines. The problem is that this will take a few years to play out - in my opinion at least 4-5 years. But we will start seeing some severe problems and declines one year from now.

Mind you along the way, there will be many calls by the parties vested in real estate (banks, builders, realtors, news media) that the bottom is reached, and that prices will start their upward trend. Make no mistake, the downtrend is here to stay until the most optimistic player has thrown in the towel. Even builders will see the futility of cheerleading. Welcome Mr Housing Bear!

Prashant said...

I have seen another set of people who have accepted that there is a bubble, but they think the decline will be 10-20%.

They do not think a 50% is possible. They argue, how can a flat worth 50 lacs today be available for 25 lacs three years from now? That just seems ridiculous. Now I admit it sounds ridiculous. But the same flat was sold for 15 lacs 3 years back and is now quoting 50 lacs - it has more than tripled in value. Isn't that ridiculous? Buy yet, people believed and accepted the fact. But if they were told in 2003 that this flat will triple in value, they would have said that's its ridiculous. You know where I'm going ...

mallapottell said...

Fate of real estate investors

Can the following news item be applied to real estate investors - Your comments appreciated

Mounting debts propel share broker to suicide
14 Aug 2008, 0834 hrs IST,TNN

A 38-year-old share broker, Mukesh Patel, committed suicide on Tuesday night at his residence in Ghatlodia. Patel, said Ghatlodia police, had suffered losses in share trading and had incurred debts in the process. The incident took place at 8.30 pm, soon after Patel returned home from work. Patel and his wife stayed in Ghatlodia with his brother, Satish and his family. The duo also had a screen printing business. After dinner he went to bed early. When his wife, Taruna, went to the bedroom, she found it locked. Later, when they broke down the door, they found Patel hanging by the ceiling fan. "The deceased's wife later told us that mounting debts must have driven her husband to suicide. We are, however, probing other angles too," said Ghatlodia police.

Anonymous said...

You'll see a lot of these sad stories about people who over extended themselves because of greed. Stock market has to go below 8000 mark, that itself would be a killer for a lot of investors. To top it, we'll see major housing correction. And layoffs, inflation etc...A lot of bad years are ahead for India.

Anonymous said...

You'll see a lot of these sad stories about people who over extended themselves because of greed. Stock market has to go below 8000 mark, that itself would be a killer for a lot of investors. To top it, we'll see major housing correction. And layoffs, inflation etc...A lot of bad years are ahead for India.

All speculators will be toasted.

Prashant said...

I highly suggest listening to this link on bubbles. It is extremely informative and well worth the time to listen. I would also go through the money and inflation chapters, because that is what is going to kill our savings! Though they are about US, you can very extend these to India.

Anonymous said...


your link is very very useful in today's scenario. Many thanks.

Anonymous said...

As in year from 2003 to 2006, as there was a substantilal growth in terms of salary hikes specifically in IT industry, and without thinking of future growth the Loan approvals from the Banks, the newly joined IT guys took the loan amount of around 25 Lacks onwards to buy a flat, which seriously shooted up the builders mindset and they started touching the new heights of profit making.

I am staying in Kothrud where I took a flat on rent for Rs. 10000/ per month. The flat purchased in 2005 was @ 1200 Rs. per square feet, but now we can see the rates in Kothrud are touching to the skies.



Anonymous said...

Last ditch attempt - "free parking, free furnishing, waiver of floor rise charges, EMI payments only after possession of the house"

Anonymous said...

Most of the events you stated in your first most comment are coming true.
Lehman & Merryl Down.
AIG, WaMu tottering.
This slowdown and uncertainity is affecting all other world economies including India.
IT/ITeS/BPO/BFSI further slows down.
Massive Layoffs have begun (in India also).
All this will affect the already down real estate industry.
Yes, we could see serious correction in real estate prices.
And genuine buyers would get benefited then.

Anonymous said...

This is true situation of Pune property market.

I’m more frustrated with Pune rental market. My owner suddenly raised rent of the flat where I live from 7500 to 9000. I’m in trouble now and searching for new flat since a month back, which could be cheaper and be in my budget. I’m not an IT guy and can’t bear this rent. No matter wherever you go in Pune, you will find sky touching rentals.

People are charging whatever rent they want. They also started to rent out old properties what they have purchased 10 years back in Rs. 2 to 3 laks. How would they expect 40 to 50000 deposit and 7000 to 8000 rent for the flat which is in worst condition. What the hell I can damage to their property which is already in bad condition. But they want money. Believe me upto this time I saw many old flats, thinking that I could save more money if I move to the budget flat. But I find it very hard. Legitimately the rent should be around 4000 to 6000 only.

Where the hell regulatory law or act about this? There is no limit of what people charging for the rent and deposit. According to Maharashtra Rent Act , one can NOT ask for more than 3 THREE months deposit. What the hell standard rate is? There is no definition given of what is ‘Standard Rate’ in Maharashtra Rent Act.

On top of this, one more evil added. Mr. Broker / Agent / ‘Dalla’

I don’t know why owners do not advertise their property in newspaper, website or even put a sign board outside of his society. 90% of flats in any area acquired by these bloody agents. They are asking for 2 months brokerage as per their fees. They even do not talk to you in proper manner. Obliviously you need them. I dot not refuse to pay their fees but it should be in limit.

I suggest following regulatory steps to control agents and rental hikes.

1) Compulsory registration of leave and license agreement. Which is already there.

2) Maharashtra Government should release the gadget every quarter and define the standard rent area wise.

3) There should be special complaint / arbitration cell run by PMC to protect the rights of owner and tenants. Listen to them and settle the issues.

4) Publish the printed guideline, which shows rights and obligation of owner and tenants. Do and Dont.

5) Tenant can not leave the property before end of agreement. If he/she has to leave, he/she must find the replacement.

6) Owner can not ask for more than 3 months of deposit. Refund deposit amount with 4% of interest at the end of agreement.

Especially for the brokers / agents:

1) Build a regulatory body (organisation) to control these guys. For e.g. we have SEBI for stock transactions.

2) Broker must register under this institution. He / she will be given an identity card. Charge him/her a registration fees every year. And he/she must register to do the business.

3) Owner / Tenant should ask for his registration / identity card and not to deal with the guy who is not registered under the body.

4) The regulatory body should release the legitimate price list every year. For e.g. what broker can charge on selling of the property? What he/she can charge on rental of the property? If excessive charges found, one can complaint against him / her.

5) Impose 25% annual income tax on broker’s income. I don’t think so that they even pay a penny in tax.

One noticeable thing, now a days, everyone becomes broker. Dhuhwala, security guard, plumber, super market guy, society chairman, laundry wala, kam vali bai or the worst case even you neighbour. "Abhi season hai to jitne paise thock ne thock lo"

Suggestion please.

Anonymous said...

Apologies friends, I did lot of typo errors in previous post.

Thank you.

Anonymous said...

I feel only when you can afford a flat easily without much of cash crunch on you then buy it.Some people think buying a flat as their top priority and leave aside all other expenses- lifestyle, children, car etc.
If that is how you want to live your life for next 20 years then go ahead. But if you want to live a healthy liefstyle then as said by someone, Buy a flat whose EMI is not more than 25-30% of your salary.

Dont make a big investment when there is such a hype created in market. Everything is cyclic, Like the way Reality boomed it will and it is coming down. Apply your own mind, dont listen to builders, brokers or fellow friends who are paying a big chunk of thier income in EMI and defending their act.

Buy a house when you can easily afford it (EMI 20-30% of your income. Otherwise dont stretch yourself and go for it.

Dont think that salary in IT will keep on increasing at a same pace.everyhting comes to moderation. US market is already affecting our IT industry which is to quite an extent based on cost arbitrage.

All the builder and Broker community are illetrate and semi illetrate poeple who know nothing about world economies. They just fool people to run their business.

So my piece of advice to you is dont go by the flow/hype, apply your own mind and then take a decision

Anonymous said...

Dear Friend,
A humble request to you "NEVER PURCHASE Any FLATS/ROW HOUSE FROM G.K. BUILDERS in AUNDH ANNEXUE AREA" as we the resident of roseland residency are still suffering from the false promises made at the time of purchasing flats. They are big time cheaters and still they are fooling the new customers by stating that we have ample space for parking, good amenities but in reality there is a small amenity for 800 flats and 200 row houses.

Builders are "Mr Vinod and Harish Chandwani" - G. K. Builders/Developers.

Current Issue: The narrow road for row houses is being marketed as entrance for the Rose valley project which is next to row houses. In reality the road width is very less for the trespassers.

Be careful when you deal with the GK builders.

Your Well Wisher,

Anonymous said...

Hello anonymous,

I was interested in the Lord's project of G.K.Builders can you please let me know what parameters i could take care about or else let me know how can I contact you. Mine contact no is 9767639960

manish. dhengle said...

I had seen before 2 years that there will be correction in property market by 30% when property rates 600/per sqft at hadpsar and 1200 /sqft in kothrud.but then it has increased three times now 2400 in Hadpsar and 4500/sqft in kothrud.But now builders are correcting/reducing there rates by 30% on price which is high by 300%. Is it worth to buy flats in such conditions?. no absolutely no we will wait till corrective rates 1000/sqft rate in hadpsar and 1600/sqft in Kothrud.. Manish 9921323010 pune.

makarand said...