Friday, October 10, 2008

Bldrs tread cautiously on realty street

Bldrs tread cautiously on realty street
Nauzer Bharucha | TNN

Mumbai: Some of the tastefully done-up stalls at the property exhibition at Bandra-Kurla Complex (BKC) are as large as one-bedroom apartments. Smart marketing girls move around with glazed brochures, pitching upcoming residential projects to prospective home buyers.
In the adjoining seminar hall, there is much bonhomie among the assembled builders, gorging on a lavish vegetarian spread. To many, it may seem to be business as usual for Mumbai’s property czars. But behind the broad smiles is a growing concern about the stormy days ahead.
The construction industry is suddenly down in the dumps and builders are still unwilling to say when they will relent and reduce prices. But across the city, massive cranes, which were once swinging at frenzied pace, have slowed down considerably.
“Developers have drastically cut down work on their under-construction projects. For instance, if a builder was laying one slab a month, the pace has slowed down to one slab in three months. When flats are no longer selling as briskly as they used to, there is little point in speeding up construction work,’’ a leading builder confessed privately to this newspaper recently.
Some of them are also believed to have postponed launching new projects. Banks and financial institutions have also turned on the screws. A couple of years ago, they stopped lending money to builders for land acquisition. Now, even loans for construction has virtually come to a halt since the past three months, industry sources said. “Banks have become extremely choosy about lending money to builders,’’ they said.
In the residential segment, prices in some of the upscale projects coming up in Malad and Goregaon are in the range of Rs 9,000 to Rs 10,500 a sq ft. In Juhu, the rate is anywhere between Rs 15,000 a sq ft to Rs 21,000 a sq ft in upcoming projects. In south Mumbai, there is an eyeball to eyeball confrontation between buyers and sellers of premium apartments. “The seller is still adamant and refuses to lower the price, while the buyer is still not falling for it. In the past six months, the same flats which were put up for sale are still circulating in the market,’’ said a CEO of a real estate company, not wishing to be identified.
At Pedder Road, a builder who has just finished an upscale apartment block, is finding no takers. “He has been demanding a whopping Rs 80 crore for each apartment, which is spread over 8,000 sq ft super built up area. Not a single unit has been sold at this price,’’ said market sources.
“Confronted by a bleak scenario, builders are twiddling their thumbs and waiting for the real estate market to revive,’’ said an insider. A handful of developers who are sitting on large chunks of land since many years, and who have little exposure to banks, are in a comfortable position at present. The rest are finding the going tough while some who had purchased land at unrealistically high rates, are finding the noose tightening.
According to the market grapevine, the brother of a prominent developer from the eastern suburbs, who has branched out on his own now, is stuck after a US-based bank allegedly stopped funding his projects in Hyderabad and Chennai. Another developer with residential projects in Goregaon, Virar and Thane finds himself pushed into a corner after taking a Rs 100 crore loan from a Kutchi industrialist at hefty interest rate of over 40%.
One builder, who shook the property market last year after he paid a phenomenallyhigh price for a plot in BKC, is also believed to be now on the edge. “His investors are breathing down his neck and even the nationalised bank which funded him, now wants its money back. His desperation is now evident because he has started offering brokers a 4% brokerage for getting clients,’’ said sources.
In the commercial segment, the lease rental prices in BKC has come down from an average of Rs 450 a sq ft to Rs 325-Rs 350 a sq ft over the past three months, it is learnt. “Developers setting up IT parks are also getting worried as they are not getting the price they were expecting,’’ said a broker.
According to housing experts, about $4 billion has been pumped into the Indian real estate market by FIIs and venture capital funds. Another $12 to $14 billion was to flow in within the next 18 months. This will not come any more.

12 comments:

Observer said...

I think all this IT outsourcing business is going to get hit soon. The quality of the IT employees in recent years has taken a huge dip. People are faking their experience, and doing bad quality work, since many are in it just for the money. Satyam recently lost a major contract with the World Bank because some of their employees installed Spyware on their Washington servers, when they went there on an H1-B visa.

More and more I hear about people getting disillusioned with the quality of work and security of the major Indian outsourcing companies. I fear this growth is going to come to a halt as unemployment increases in developed countries. What will that do to the inflated housing prices?

Here is the story:

http://www.foxnews.com/story/0,2933,435681,00.html

The second major breach — of the bank's treasury network in Washington — was discovered in April 2008. The World Bank's Treasury manages $70 billion in assets for 25 clients — including the central banks of some countries. It carries out substantial collaborations with the world's finance ministers on public wealth and debt management, runs an active bond-trading desk in Washington, and does everything from currency trading to capital markets financings.

After a forensic analysis of the treasury breach, bank investigators discovered that spy software was covertly installed on workstations inside the bank's Washington headquarters — allegedly by one or more contractors from Satyam Computer Services, one of India's largest IT companies.

The software — which operates through a method known as keystroke logging — enabled every character typed on a keyboard to be transmitted to a still-unknown location via the Internet.

Upon its discovery, insiders report, bank officials shut off the data link between Washington and Chennai, India, where Satyam has long operated the bank's sole offshore computer center responsible for all of the bank's financial and human resources information.

Satyam was also banned from any future work with the bank. "I want them off the premises now," Zoellick reportedly told his deputies. But at the urging of CIO De Poerck, Satyam employees remained at the bank as recently as Oct. 1 while it engaged in "knowledge transfer" with two new India-based contractors.

Satyam — one of the largest and most prestigious IT companies in India — is publicly listed on the NYSE and boasts having $2 billion in sales and more than 150 Fortune 500 companies as clients. In 2003, Satyam — it means "truth" in Sanskrit — won a much-heralded and lucrative five-year "sole source" contract to design, write and maintain all of the World Bank's information systems.

The contract — which began at $10 million and grew to more than $100 million by 2007 — was suddenly not renewed this year. Satyam so far declines to comment.

Anonymous said...

Economic meltdown will hit realty sector hard

http://economictimes.indiatimes.com/articleshow/msid-3583651,flstry-1.cms

sabbalseshu said...

The real estate sector is not affected by the present economic down turn. Real Estate thrives on underground economy, and this is not dependent on stocks, employment, banks etc. Anyone wants to buy a apartment now has to pay 80% in black. Few months back this was 40%. Majority of the people can not afford this and the market may face stagnation, but it is unlikely to drive the prices down. In the coming years rich guys currently living in slums, will buy these apartments by paying 80% black. People are just waiting for the govt property assessment so that the white portion equals the value of assessment. The only problem faced by this segment of people is proving the legitimacy of white portion of the money

India is the most corrupt country in the world and will remain so in the foreseeable future. Our social fabric itself is corruption.

Shailesh said...

sabbalseshu: Who wants to live near these goons from slums that have so much black money? I don't. Please tell us about your house purchase in last one year. Put money where your mouth is.

sabbalseshu said...

Shailesh Bhai. Khem cho. Saru che ?

Don't assume that all slum dwellers are goons. Of course, they finance the goons. That doesn't make them goons. There are lot of Bhaiyyas, Marwaris,Shettys living in chawls (slums) who have flourished in business and are extremely wealthy.Just a month back, I negotiated a transaction of a restaurant in a slum. The price tag was 8 Khoka (crores). The buyer and seller, both live in slums.

Anonymous said...

sabbal..
Black money has always been there in the Indian economy and that is not the cause that would keep the bubble intact. You will be surprised to see how a lot of black money would also be lost with this downturn. Just wait and watch. Being in denial mode and hoping that the market will rebound or stay healthy is just trying to convince yourself when you sit with all people who have similar stakes.

Major catastrophe is coming for India. Listen to Jim Rogers. Lot of these MBAs would soon be cleaning toilets and all this is not going to correct for at least 8-10 years.

Anonymous said...

all the indian mungerilals wake up from the trance. I have stated here and elsewhere on the web. Listen to my forecast and do not wet that dhoti or lungi or whatever stuff you are wearing at the time.

1. Last 5 yrs of Global credit orgy led to easy money. So companies/indiv. around the world feasted on the borrowed money and levered it up. This led to unprecedented asset inflation. Whether it was mungerlal sensex, benagluru/mumbai/delhi real estate, monkey sharook khan's earnings or avg kishorilal's assets. Everything went up crazy as discounted value based on low interest was higher.Now the deleveraging has started.
2. Sensex target: 3000 (in next 1-2 yrs)
3. India metro real estate crash : Back to 2000 level (will take longer, perhaps 3-4 yrs)
4 Massive layoffs in IT/BPO sector leading to setback to indian reforms. INjuns got scared w/ this kinda capitalism and ask for old PSU type security.
5. Bankruptcies:
ICICI
HDFC
Tata motors
A good number of IT co. are wiped out.
6. A new PM waits in the wings: Mayawati
7. Indian GDP reverts its natural hindu rate of growth: 3-5%
8. Social unrest as mass poverty increases (80% of indians still live on less than $2/day)

Anonymous said...

Anon above:
You hit it right on the nail except that I think SENSEX would not go to 3000 but would bottom out around 5500-6500.

Still there will be a bloodbath.
A lot of Indians I met in the last 2-3 years were puffed up with all that hot air. They would seen be facing reality and get truth about their smartness in RE investments.
I would be very happy to see all new MBA grads facing reality check with jobs and salaries and thousands of them who were making more than their worth looking at the ground.

Anonymous said...

The prices of 2/3 BHK flats are still exorbitant. The quality of construction is inversely proportional to the price and it doesn’t take an expert to figure out the same. Last week I could see the large cracks/patch up work on the recently completed projects in Pune (Baner/Pashan/Aundh areas). It is the IT people who have helped creating this mess. I believe that these people are not just realizing the importance of their hard earned money. The local news media ( Marathi/English) is not telling the real story. They are publishing the columns of "EXPERTS" (with the knowledge of impending job losses, recruitment freeze) explaining how the current one is the best time to buy property. Is this not a classic example of MORAL HAZARD?

In US, there are leaders who urge people to wake up the reality..but the same is not the case here
Dennis Kucinich at the DNC: Wake Up America!
http://www.youtube.com/watch?v=C4EN7ibO1ec

sabbalseshu said...

Even if the sensex goes below 1000, the underground economy will be intact as it is not tied to stocks, commodities, foreign institutions etc. Indian economy flourished after Manmohan Singh introduced reforms and the cash stacked by Indians in foreign countries started flowing in, IT companies became large corporations, India started exporting computer coolies to US/Europe, credit cards were introduced creating a economic boom.Now the paper wealth has started disappearing. India is going back to the old scenario that was prevailing in 1970's. Life will go on.

Somebody mentioned that I am in a denial mode. I am not. As a person extensively involved in real estate and underground banking, I can authoritatively say that nothing is going to change significantly, at least for coming few years

Anonymous said...

Sabbal:
Nothing would change drastically in the coming year or two. But the mess has been created. The way people always used to says Sensex is going to 40,000 now see it at
10K levels. Housing may take time to come down but pressures are building up for a major correction. With the world financial crisis, it all may unwind faster than you are thinking.

Moreover, Indian govt. doesn't have any money to bail out investors, stock market or banks unlike the western countries.

Anonymous said...

I agree with both sabbalseshu and the next comment from anonymous

Finance minister Chidambaran is going to inject 60,000 crores into the economy which is about $12 billion. This is a drop in the ocean and not likely to make any change. The paper wealth is being destroyed rapidly. No one can deny that we are heading for a severe recession.

Underground economy can not sustain the growing needs of people. It leads to law and order situation and the administration, however corrupt it may be, will be forced to step in to control the prices and confiscate illegitimate wealth. This has happened before and will happen again. All this will take its own time.

The story in the west is little different. They are developed and their population is stagnant. In our case we have to feed a 1.6% increase of new human beings from the present population of 1.3 billion, and every year and this increase is compounded.

Real Estate will crash but those who have invested in it will hold on until there is no recourse but to sell. No one wants to loose money.People always hope for a miracle