Thursday, October 23, 2008

Dark Diwali: Pink slips, pay cuts await realty staff

Observer,
Here is the post following up on your comment about the reality layoffs. Some of your other comments have some good advice which I will collate and post as a new article.
For Anil and other realty touts, this is the writing on the wall. Your jobs are no more secure then the IT/ITES folks, so better tighten your purse strings.
Also regarding the comment regarding the plot which Anil bought for Rs 150 in Pune and then later sold for Rs 5800 is pure BS. Baner-Pashan apts were at Rs 1800 3 years ago and now they are Rs 3300. So cut the crap and try selling the Taj Mahal to somebody else.
NEW DELHI: It’s not going to be a happy Diwali for people working in the real estate industry. Even as sales failed to pick up this festive season, most realty firms including DLF, Unitech, Omaxe, Parsvnath and BPTP, now plan to lay off staff in significant numbers soon after Diwali.
While spokespersons of all these companies denied there were plans to cut jobs or salaries, executives in these companies told ET that job cuts were in the offing and salaries have been delayed in some of these companies.

“All real estate players, including us, will have to reduce manpower cost significantly if we are to survive in the current hostile market conditions,” says a top executive at a Delhi-based listed mid-size realty firm, which plans to reduce manpower by almost 20%. The job cuts will start happening soon after Diwali.

Executives at many other real estate firms also confirmed companies plan to offload people and a list of staff was being prepared, who would be asked to leave soon after the festive season was over. Developers are waiting for Diwali as they didn’t want to dampen sentiments further.
“Job cuts at Jet Airways became a big issue also because it was done before Diwali. Developers are wary of raking up any political controversy,” explained a senior executive.
Also, realty firms needed large number of sales staff for the festive season. But now that their price discounts or other freebies have failed to stimulate the home market, developers feel they can cut back on staff. The developers have already started easing off some staff. Many developers, including DLF, had already asked around a few hundred employees to leave.
And sources say more job cuts are in the offing at DLF, as construction pace slows and expansion plans are put on hold. Unitech, Omaxe, Parsvnath and BPTP too prepare to issue pink slips.
Salaries have been delayed at many mid-size and small realty firms, even as management is asking employees to take salary cut. Even though he denies salaries are being delayed or cut at his company, Parsvnath chairman Pradeep Jain supports the idea of salary cut.
“Employees’ salaries have risen so much in the past few years that I see no harm in reducing it a bit,” says Mr Jain.
“Salaries at the top management level have already started to come down. A number of real estate players are already renegotiating salaries with staff so that overall wage bill comes down and not many jobs are lost. Companies are preferring to retain the jobs of those capable of multi-tasking,” said Executive Access MD Ronesh Puri.
Employees at most real estate firms are in a state of panic as job loss fears mount. Too many resumes have been floating around in the market. “Earlier it was extremely difficult for a smaller developer like us to hire talent. Now we are flooded with CVs. Surely, people are being fired somewhere else,” says Ambience group chairman Raj Singh Gehlot.

27 comments:

Observer said...

Vik, thanks for posting this on the main page. This should get picked up by RSS readers, and also by Google News and maybe other trackers, and increase the visibility and awareness. Buyers should know what is going on to counteract the rosy picture from the real estate lobby and investors.

Cool Head said...

I just heard that DLF has defaulted on payments to some NOIDA authority and is demanding a government bailout! They are divine, far higher than other mortals, so they will not reduce prices if the flats are not selling,eh? We will go bankrupt but will not reduce prices because realty HAS to rise at 12% a year, it is like a constant of physics like g=9.8m/s2 or like Avogadros number,eh?
And all the herd of sheep of "investors", come-on repeat after me...House prices always go up. Say that again & again.....

Sawant, Mumbai said...

Cool Head buddy, keep your cool. There is some more news. A group of money lenders (i guess marwaris) have been threatening a big time builder based in Mumbai, a guy with political connections and worth several 100s of crores, to return the money he borrowed, at least in part, or else they may have to resort to 'D' court, presently headquartered in some location in Pakistan. Black money has its own perils.

Anonymous said...

Realty bites: Unitech defaults on Rs 150-cr payments

CNN-IBN

TimePublished on Thu, Oct 23, 2008 at 22:47, Updated on Thu, Oct 23, 2008 at 23:49 in Business section
New Delhi: Unitech, the country’s second largest real estate company, has defaulted on two payments on a housing project in Greater Noida in Uttar Pradesh.

Sources told CNN-IBN Unitech has not paid two installments worth Rs 150 crore to the Greater Noida Authority for the 100 acres it had purchased for its ambitious Uniworld City project.

The company is trying to reschedule the payment, but risks harming the land deal if it doesn't pay up, the sources say. The company insists the payment was stopped due to farmer agitation.

CNN-IBN Correspondent Nayantara Rai reports officials of the Greater Noida Authority understand that real estate companies have been hit by liquidity crunch and will be “understanding” to Unitech’s request.

DLF group chairman K P Singh says the financial crisis has hurt the real estate business, particularly “fly-by-night operators”.

“Good clients will pay up, but there are millions of developers who are fly-by-night operators. My feeling is that they will be in trouble and if they are in trouble they won't be able to pay up and they are going to default,” said Singh.

Anonymous said...

@sawant

is the builder involved is raheja? just curious

Anonymous said...

I guess Unitech was waiting for money to come in from Lehman, which never arrived.

Anonymous said...

Unitech has been in trouble since Feb 08. It is having difficulty in getting money after standard chartered tightened credit and ever since is in decline. Share price has reached to 60 from an average of 450 during the beginning of the year. Losers are those who bought shares of this company and some analysts are predicting the share value of a single digit.

Looks like this one is going to out beat madras cement (From Rs.4500 at the beginning of the year to current 74)

Kannan Pothi said...

Anon,
Madras Cements is one of the best company that created enormous shareholder value. There was 1:1 split and bonus last month.

Anonymous said...

Even though builders are getting default why they are not reducing the prices ? the answer is very simple, with reduced prices builder can not pay the debt they have took
for the project. Say if they borrowed 100 Cr for project & if they will sell the project at reduced price which will fetch only 50 Cr, how they will pay for 50Cr loss. So they taking the easy rout, govt. Bailout Or declare Bankruptcy. Default is the 1st step towards bankruptcy. Here what builder is going to loose? Not much as majority of the projects are highly leveraged projects means the promoter has added only 20Cr in 100Cr project (5times leveraged).

If you will read the complete story of fall of Lehman brothers you will realize the path from default to bankruptcy. I will suggest every one, please read how the sub prime crisis ignited, when borrower failed to re-pay it started default on banks who was the middleman to sell toxic MBOs & the insurer.

Observer said...

I do not know how authorities can be trusted to certify these multistorey apartments being constructed. Prestige Shantiniketan, one project that I am familiar with, has collapsed during construction. It makes me worried that if there is a moderate earthquake, or a major storm, if these modern structures will stand? Is cost-cutting going to lead to shoddy construction?

http://www.hindu.com/2008/10/24/stories/2008102458730100.htm

BANGALORE: Four persons were injured and another 100 construction workers had a providential escape when a part of a 15-storeyed concrete structure under construction of the Prestige group crashed at Whitefield here on Thursday.

The block which collapsed is part of the 20 blocks under construction by Prestige in a joint venture with Shantiniketan. The top floor slab which collapsed first was laid only a few days ago.

The police told The Hindu that the accident occurred around 5 p.m. when a small portion of the top floor collapsed resulting in the slab of the floor below it collapsing in a short while. Owing to sheer weight, the slabs of the lower floors collapsed subsequently, all in a span of 50 minutes, although the embedded steel rods prevented the slabs from falling in a heap.

The injured were identified as Srinivas (20), Dasharat (25), Mahendra Prasad (25) and Dadudar (30). Dadudar is said to be a native of Bihar and the other three residents of Kadugodi and surrounding areas in Bangalore. They sustained minor injuries when they were running out of the building, and were initially taken to Vydehi Hospital and after first aid were reportedly taken away by the site engineers for further medical attention. The workers were evacuated from the site. Complete information relating to the building collapse is yet to be made available to the police. The Prestige Shantiniketan complex comprises several towers, each of them of several storeys and located in the vicinity of the International Technology Park. There is no information on the strength of the work force at the construction site.

Kannan said...

Vik,

Can you put the above message by observer as a separate post with photo?
Here is the link
http://www.hindu.com/2008/10/24/stories/2008102458730100.htm

Anonymous said...

Dear Observer,

Do your homework before terming as BS. Banner and Pashan area was not under Agri Zone till Feb 08. You are comparing apples with oranges. The problem with you all is most of this blog members do not understand dynamics of real eatste markets.

You can never compare land /sq ft with flat per /sq ft similarly you should also not compare Mumbai to Bangalore. Infact you cannot even compare Mumbai with Thane or New Mumbai

Just want to tell you that none of the Mumbai big wigs barring two guys have brought land at high prices. The guys who have brought at high prices had already gone public and one builder has an SPV arrangement with an Indian Bank. None of the builders in Mumbai be it Hiranandani, Raheja, Kalpatru, Neelkanth etc have never even participated in land deals with astronomical figures. These guys have seen various booms and busts and they are very careful. Besides this small time builders including big ones are going in for redevelopment of properties where he does not have to buy land and he is not under any pressure.

Now like India bulls there are couple of guys who have brought lands at high prices but these guys are not from Mumbai and their objective was commercial development. Trust me they are in for trouble.

Traditional Mumbai bigwigs are safe and i don’t see these guys crashing the rates which most of the people us are expecting. The problem with most of the people is that they are either over optimistic or over pessimistic and the optimistic guys will not sell when the time comes or pessimistic guy will never buy when the time comes. (I am not talking about timing the market but definitely if you see value either in buying or selling you must take decision. ) After the bus goes there is a role reversal. Pessimistic guy cries loud about so called bubble which will never happen because again his timings are wrong and then just before the burst he will end up buying, and through out his life he will defend his decision. Here is where the optimistic guys goes wrong he still wants to make more money and he will not sell. He will only sell when the product will come close to his acquisition cost or book some loss. There are some people who will still hold on for years without realizing that after the bust Infosys bounced back but Pentamedia will never come back.

Pal this is how the world works and it is here where the people who have guts with less greed makes money. Just want to inform you that today I just saw an add in HT Mumbai edition “GHAR PE EK GHAR FREE” I will call them and will get back to you. All the best guys.

Observer said...

Dear Anil, I am assuming the anonymous comment above is from you. It really looks like you have a repeated reading problem. I was not the one who posted about the prices in Pashan-Baner. It was Vik. Please read posts carefully instead of just responding blindly.

Also, please do not worry about teaching me about how business works etc. I will manage on my own thanks.

Anonymous said...

Dear Observer,

I am really sorry I mean it, sorry pal!!! :-(

Observer said...

As of noon today (October 24, 2008), the Sensex has touched the 9050 mark. I guess next stop down is 8K. I think one lesson in life is that anything which goes up very quickly also can come down very quickly. Ultimately it is the fundamentals that matter. If incomes triple over a couple of years, then it makes sense that property prices and rents in general (some micro-markets will always have exceptions), can also triple. One should always be suspicious of things which go up very quickly lacking sound fundamental reasons.

Similarly, the Sensex tripling in just a couple of years also made no sense because the Indian economy grew by only 9% over the last couple of years. Just like property rents are included in the inflation calculation, company revenues and profits are also included in the GDP calculation. Private sector activity cannot continuously keep growing faster than the overall GDP.

In 2003, the Sensex was approximately 3000. Assuming nominal GDP growth of 16% from 2003-2008, the Sensex should have approximately doubled in value. So, a fair value should have been 6000-8000. When it had crossed 15K, I knew something was wrong, and got out. I believe unless there is rapid growth of the Indian economy, at more than 15% nominal GDP growth rate, it would be best to stay away from stocks for a couple of years. I am not saying the Sensex will not go back up to 12K or higher next year. I am just saying that even if it does go back up to 12K next year, it would be overvalued.

Observer said...

With the FIIs exiting the stock market, I think Indian domestic investors would have to step in to prop up the market. However, in general Indians are very suspicious of stock markets, and this latest episode would make them even more cautious. So who is going to buy stocks now?

I heard there is a proposal that Govt agencies including LIC and other domestic institutions should prop up the market and save the Rupee by buying shares. So maybe the Sensex will not go below 8.5-9K levels. But I would still advise people to stay away until nominal GDP growth and company profits are strong next year.

To the poster who predicted that Sensex would touch 8K by later this year, that was a very good prediction. I was not anticipating the slide to be so quick. I was thinking that at most it might go down to 10K this year and then slowly climb back up next year.

Observer said...

I should clarify in the above posts that
nominal GDP growth = real GDP growth + inflation

So a 9% real GDP growth, and an 8% inflation in 2007 would translate to a 17% nominal GDP growth.

Observer said...

If anyone has any money in FMPs, please withdraw them as soon as possible. There is a distinct possibility that the money could be frozen, or it could be lost. Most of these FMPs have invested in corporate debt. With the deepening crisis, a wave of corporate defaults is imminent. As I said in my previous article, the best thing to do is to keep debts to a minimum, with a maximum 30% of income as mortgage, and one years living expenses as savings in FD/SB accounts, and invest the remaining in gold coins. These coins you can keep in your bank locker and it will preserve your investment for the short term.

Do not buy property as an investment. In this deleveraging environment, do not leverage yourself. If your investment horizon in more than 10 years, then invest in the stock market, but choose only top stocks, or go to a reputable conservative mutual fund.

Sensex is now down by more than 1000 points, and is now below 9000. Be careful people.

Here is the article:

http://economictimes.indiatimes.com/India_Inc_sees_widespread_defaults/articleshow/3635146.cms

Indian industry is beginning to push the panic buttons with the impact of the global financial meltdown sinking in deeper every day.


Industry leaders at a Ficci national council meeting on Thursday admitted to ToI that the impact threatens to be both severe and long-term and would soon be visible through large and widespread corporate defaults on debt.

The grim prospect of corporate defaults on debt comes in an environment of credit scarcity for businesses in the midst of a major investment cycle. It has propelled Ficci to seek an agreement with other industry chambers, including CII and Assocham to jointly represent a cohesive agenda for managing this challenging economic scenario to not just the FM, but also PM, Manmohan Singh.

“The problem is not just that of liquidity because of high interest rates. Banks are also risk averse which is impacting sustained credit flows to the main street”, Ficci president, Rajeev Chandrashekar said.

DLF chairman, K P Singh said that contrary to the government’s reassurance that India is insulated, the impact could be far more severe than policy makers can imagine.

K N Nemani, former Ernst & Young chairman highlighted the need to engage at the PM’s level along with multiple ministries rather than directing industry efforts only at the finance ministry. A Citibank representative said consumer finance is shrinking sharply due to lack of effective recovery mechanisms.

The private sector alleges that they have not been beneficiaries of the Rs 1,30,000 crore liquidity injection by the RBI as public sector companies operating in the oil and fertilizer space have mopped up the benefit.

Observer said...

IT companies are facing challenging times. People working in IT companies should be very very careful now in terms of making any investments. Cash in terms of FD and Govt Bonds is best. TCS is saying some of their customers are vanishing, and others are having difficulties. Even the drop in the Rupee is not helping.

http://in.rediff.com/money/2008/oct/24tcs.htm

How grave is the situation this time around?

Mahalingam: Compared to the last 40 years (of TCS' existence), this is by far the most challenging time. The last nine months, in particular, were quite challenging. Some of our top financial services customers were in a difficult situation.

Moreover, this quarter has seen some really violent changes. Some customers have vanished, besides, other firms were going through their own transformation and restructuring, because of which contract ramp-ups got delayed. It will still take time to understand the budgeting trend.

Anonymous said...

Unitech has slipped to 26.80. Looks like heading for bankruptcy .

Anonymous said...

Rumors are that unitech is going to declare bankruptcy on 31/10/'08, on which date the annual board meeting is scheduled.

Observer said...

From the original post:

" Even as sales failed to pick up this festive season, most realty firms including DLF, Unitech, Omaxe, Parsvnath and BPTP, now plan to lay off staff in significant numbers soon after Diwali.
While spokespersons of all these companies denied there were plans to cut jobs or salaries, executives in these companies told ET that job cuts were in the offing and salaries have been delayed in some of these companies."


Another indication of how these real estate developers lie. In the original post Parsvanath Developers had said they would not lay off any staff. But now, look, just a couple of days later they say they are going to lay off staff after Diwali. One should never trust what these developers say. Even if one wants to purchase a flat now, one should get all commitments in writing, check it out by a lawyer, and only buy ready flats.


Similarly, when he says below that sales have fallen by 50%, the true figure could be more like 80%. Also, he said prices had been raised by 15% from January. Maybe, just maybe, this builder should think that when sales are going down, will raising prices increase sales? What is the rationale? Was it to dupe buyers with the same old trick, "BUY NOW OR BE PRICED OUT FOREVER!". Sorry, these tricks will not work now and nobody will believe anything these developers say.



http://economictimes.indiatimes.com/News_by_Industry/Parsvnath_to_sack_staffs_after_Diwali/articleshow/3636659.cms

NEW DELHI: Hurt by a slowdown in real estate market, Parsvnath Developers today said it would sack under-performing employees as part of its cost
-cutting measures that would begin in the next 15-20 days.

Pointing out that sales in the current festival season have declined by about 40-50 per cent, the company's Chairman Pradeep Jain said: "Non-performer has to go away... cost-cutting measures will start in 15-20 days".

He, however, did not specify the number of people who will be retrenched. The company currently employs 1,400 people and about 30,000 people are indirectly employed, Jain told reporters on the sidelines of a real estate conference here.

"No percentage in mind," he said, when asked to put a number on non-performer employees. The company has not yet begun the process of identifying the non-performers.

He, however, clarified that non-performer would be replaced by good professional, which are currently available in the market in good number.

Asked about the property sales in the ongoing festival season, Jain said, it has dropped "significantly" compared with last Diwali and infact have fallen by 40-50 per cent.

Despite slowdown in the demand, he said the company has raised its property price by an average 15 per cent from January onward.

Speaking on behalf of the industry, he said the sector do not want any bailout package and government needs to increase liquidity in the market.

He pointed out that banks have not cut the interest rates even though RBI has brought down the cash reserve ratio.

"Government is not able to infuse proper liquidity in the hands of people and entrepreneurs," Jain said and demanded a further cut of 200 basis points in CRR and repo rates.

Observer said...

Builders are in denial. Lenders are telling builders to cut prices and increase sales. But builders are stubbornly refusing to do so, believing that the property market will soon pick up. Which dream world are these guys living in? With an oncoming global recession, how can people even think like this?! Stupidity knows no bounds.

http://economictimes.indiatimes.com/Markets/Real_Estate/Realty_Trends/Lenders_push_builders_to_start_selling/articleshow/3616765.cms

MUMBAI: Financiers have started talking tough with Indian property firms in trying to salvage the money they had lent. “Sell-before-it’s-too-late” is a point that some of the big lenders are driving home, while a few overseas funds which had committed equity investments
in tranches have gone into arbitration to wriggle out of the promise.

Most builders were prompt with interest payments till September 30. But lenders now fear that many would default in the December quarter or may be even earlier. A large builder has already failed to pay interest to a foreign fund, which had purchased the structured securities at the peak of the property boom.

Banks and institutions have lent over Rs 75,000 crore to Indian builders. This does not include around Rs 25,000 crore worth of bonds and debt papers which mutual funds had bought. While the total value of land and properties held as collateral is more than the outstanding loan, it’s still cold comfort. If builders start defaulting in a big way, the lenders will be left holding huge tracts of land amid crashing property prices.

“In the past few weeks, we have had several meetings with builders... we are telling them to reprice the properties, but many are in denial mode. They still think that properties can be pushed at earlier rates,” said a senior officer at a large lender. The lenders said that in some cases, loans coming up for repayment in October and November will not be rolled over — a threat they feel could push some builders to sell properties at a lower price and service the loan interest.

Shivaji said...

observer,
I totally agree with your view point. This Parsvnath Developers Ltd chairman is a big time bullshitter. Stock value is just 10% of what it was last year. At this rate, I wonder how long he will be able to pay the monthly salary of staff. These guys know the truth and are busy pumping out money to their swiss bank accounts. Once this job is done, they may just declare bankruptcy and the banks will be left land/building and will be forced to open a real estate department to get rid of the useless assets.

Shailesh said...

Developers offering 10% off on homes!

Shailesh said...

Realty check

The crisis in India’s real estate sector will cause a much needed course correction by the industry. It would start building homes for which there
is a genuine demand and not just for a small minority of speculators.

Much of the housing shortage in India is of the low income category. But property developers were focused on the top end segment with prices usually starting at Rs 60 lakh plus in the big cities.

The exuberance in this category was largely speculative, driven by cheap money. With high leverage fuelled supply of cheap money coming to an end, the demand for expensive housing has disappeared overnight.

Shriniwas Kulkarni said...

I agree that defaulting companies - realty, realtors and financial services (read brokers) will be the sub-prime of India. Can anyone tell me who have lent to these companies apart from the Markets? - their stock is worthless (DLF is less that 40% of its issue price which means its assets are already less than half the purchase value)
I heard that if the oil price slump, Dubai will send off huge amount of Indian workers back penniless. Same thing may happen here in US where job scene is grim and bleak

So builders cant expect an NRI supported bailout (which had helped India recover after Pokhran Test sanctions)

Who will be accountable if these companies like Unitech Omaxe, DLF simply vanish with huge debt ? What about the mutual funds who invested in them? What about banks and other institutions - they will need Govt Bailout. In short the politicians' will get back the land from the developers which they once sold to the developers and made huge profits.

In Pune, I am 100% sure that builders have reduced prices to 2005 levels and are hoping that existing ready buildings are sold. So please don't buy in schemes that are on paper. Also This might be good for Indians to rethink the whole apartment system of housing. Cities like Pune really dont need high rise apartments. Infrastructure is good to support independent houses/row houses (Like Bangalore and Chennai). It is more efficient to have spread out cities with each suburb self sufficient than to have congested neighborhoods with tall buildings but no supporting infrastructure!