Sunday, November 02, 2008

Builders in crisis mode in Mumbai

The Times of India is reporting on the slowdown in the building industry.

New housing projects on hold in city

Mumbai: The city is unlikely to see any new housing project coming up soon as the screws turn on the property market. Last month, Mumbai’s leading developers met and discussed the possibility of not launching new residential projects considering the slowdown, sources said.
“New projects are not viable, sales are slow and buyers are sitting on the fence. Every developer is looking at his own cash flow and many projects have slowed down. Each one is wise enough to take a call on what to do,’’ said Mufatraj Munot of Kalpataru, one of the city’s oldest builders and past president of the Maharashtra chamber of housing industry. He, however, denied that builders had taken a unanimous decision not to start new projects.

But with each passing week, stagnant sales is turning up the heat on the construction industry. “Builders are deferring launching of new projects. With banks and financial institutions turning the screws, the real estate market has dried up. There are no investors and the actual users are waiting for prices to come down,’’ said a property developer, not wishing to be identified.
With their backs to the wall, a majority of builders has also started retrenching employees. Last week, a prominent developer known for his signature buildings decided to virtually halve the 450 employees on his payroll, it is learnt.

Even the once lucrative transfer of development rights (TDR) market has lost sheen. Builders used to purchase slum TDR at Rs 4,000 a sq ft till about six months ago. It is now down to Rs 1,200 a sq ft. Still, there are few takers. Moreover, builders who have bought TDR have been unable to pay sellers. It is estimated that about 100 builders owe close to Rs 200 crore to TDR owners and traders.

In the market, although builders are not officially reducing the rates of properties, they are negotiating with individual flat buyers and offering discounts to bulk purchasers. In Bhandup, a developer recently sold six flats after he reduced the price from Rs 7,500 to Rs 4,200/sq ft. In Goregaon, the builder has offered a similar reduction to six buyers.

BUILDING BLOCK
On Ghatkopar’s LBS Road, work on residential project of a prominent developer has come to a halt n Members of a housing society near Bandra’s Bhabha hospital were recently taken aback when a prominent developer from the eastern suburbs withdrew his offer to redevelop the property n Another society near Khar gymkhana received a similar withdrawal letter from a builder from the western suburbs who is said to be “neck-deep’’ in debts n A Delhi-based developer, who had won the bid for a prime mill plot in 2005, hasn’t progressed beyond the basement level in two years n A south Mumbai property redeveloper has mortgaged a high-end flat in his upcoming building to the lender from whom he has taken a Rs 9 crore loan at 39% interest n A young developer with projects in Goregaon, Virar, Thane and Juhu is reportedly in big trouble, having taken loans from Kutchi, Marwari investors at 36% interest. He is believed to have put all his projects on hold

17 comments:

Anonymous said...

Why dont u indicate that this was taken from The Times of India, 3 Nov, Mumbai edn or www.timesofindia.com?

The same is not mentioned clearly anywhere. i assume this is entirely accidental, of course.

regards

kalyan

Vik said...

Just updated it with the credits. It looks like the market is correcting as we have been taking about. Its a matter of time when this phenomenon is mainstream and the builders stop talking about it in the open. IT also appears the interest rates will drop 0.5-0.75 % in the next few months, however the housing prices are still insane in Mumbai.

Anonymous said...

Even if interests rates drops, the mortgage rates will not drop.
Banks are in such a squeeze for money, they will not do the same mistake again.

shailesh said...

Well, Sign of times....

Earn and burn generation is learning to save

Anonymous said...

The massive cranes around Mumbai are fast disappearing as the real estate industry goes down in to the dumps. Where one slab per month would be raised, it is now down to one in three months. Banks have become very choosy about lending to the real estate developers as investors disappear and home buyers wait for prices to drop.

It appears to be a game of who will blink first, with builders hoping for the prices to recover, and residentual apartments still costing between Rs 15,000 per square feet and Rs 21,000 per square feet in Juhu area of Mumbai, and Malad and Goregaon still commanding between Rs 9,000-15,000 per square feet.

In Mumbai, the same apartments that were on the market for the last 6 months continue to be circulated. For example, a builder demanding Rs 80 crore for a 8,000 sq ft super-built-up apartment has not been able to sell even one unit.

A few builders who have real estate purchased prior to 2004, are making optimistic noises, however most of them, for whom the interest rate is ticking, are squirming as the noose is tightening around their necks.

Some of the news in the market is of a 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 Hyderbad 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 percent.

One builder, who shook the property market last year after he paid a phenomenally-high 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 nationalized bank which funded him, now wants its money back. His desperation is now evident because he has started offering brokers a 4 percent 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 anymore.

Anonymous said...

http://timesofindia.indiatimes.com/Business/Home_loan_defaults_on_the_rise/articleshow/3670311.cms

Home loan defaults on the rise
MUMBAI: Defaults on housing loans are said to be on the rise, with individuals facing the brunt of the high interest rate regime. An indicator
of this is the fact that of the total security receipts (SRs) of Rs 1,100 crore issued by Asset Reconstruction Company (India) Ltd (Arcil) to banks between April-September 2008 for acquiring bad loans 20% were from home loan defaults.

Asset Reconstruction Companies (ARCs) expect a further jump in housing loan defaults in the coming quarters if interest rates do not climb down. Said Arcil, managing director & CEO, S Khasnobis: ‘‘The retail loans, mainly housing loan default, form about 20% of the total SRs of Rs 1,100 crore issued by Arcil between April-September 08. The portion of Arcil's acquisition comprising retail loans is likely to rise given the current environment.'' When an ARC acquires bad debts from a bank, based on a valuation they either pay cash or issue SRs which are held in a trust and redeemed after realisation of assets.

Arcil, which is the pioneer in acquiring distressed assets, had acquired these bad loans in question from around 20 banks. While details of individual banks is not available, it is learnt that ICICI Bank's portion of the total SRs issued by Arcil was about 30%. According to ICICI Bank, the total value of delinquent loans sold by the bank to Arcil April 2008 onwards stands at Rs 608 crore for a sale consideration in excess of 62% of the gross loan book. However, it is not known what portion of this comprises retail loan defaults.

According to an ICICI Bank spokesman: ‘‘Sale of retail NPAs has been one of the many tools adopted by the bank to proactively manage delinquencies in the portfolio. It is a standard activity undertaken in the normal course of business by all international banks. Sometimes the sale is conducted every quarter. Also, this is only a very small portion in the overall delinquency management strategy of the bank.''

NPAs have an adverse impact on shareholders' value of banks and financial institutions by eroding margins. ARCs acquire distressed assets at a discount depending on the credit realisation potential of the asset.

An industry expert said that banks would increasingly use ARCs to hive off their distressed retail assets so that they are not required to sully their hands in dealing with bad retail loans.

An official from ARC said even though bad retail assets offers a huge opportunity, it requires the right machinery (read, people) to gain monetary realisation from such assets. Since inception (August 2003), Arcil has acquired total distress debt including overdue interest of over Rs 40,000 crore at an average valuation of 25%. SRs issued were approximately Rs 10,000 crore since inception. So far, Arcil has already resolved 65% of the non performing loans acquired so far and have recovered and distributed about Rs 2,800 crore to all the SR investors.

Anonymous said...

Puravankara JV in a bind, land sale fails
Pooja Sarkar (DNA)

Tuesday, November 04, 2008 03:30

Rejection of FDI proposal means it must look for alternative sources of funding

MUMBAI: Difficult times call for desperate measures.

With funds increasingly hard to find, real estate developers are exploring every possible option to keep their projects going, including sale of surplus land.

Take Bangalore-based Keppel Puravankara Development Pvt Ltd (KDPL), a joint venture of Puravankara Projects Ltd with Keppel Investment Mauritius Pvt Ltd, subsidiary of Singapore-based Keppel Land Ltd, which in turn is a subsidiary of Keppel Corporation Ltd, majority owned by Temasek Holdings.

Keppel Puravankara’s bid to sell a part of the unused land it had earlier acquired to undertake a construction or housing project was thwarted last week. Its foreign direct investment (FDI) proposal was among the four rejected by the finance ministry even as 40 others, for a total of Rs 1,498.51 crore, were cleared.

An email sent to the company seeking details went unanswered.

Ravi Ramu, director, Puravankara Projects, refused to comment beyond saying: “This is not our company. Keppel Puravankara Development Pvt Ltd is a different company. We have not applied for any foreign direct investment or any proposal to the government,” Ramu told DNA Money.

But the draft red herring prospectus filed by Puravankara last year reads: “The company (Puravankara) owns 49% of the shares of Keppel Puravankara Development Pvt Ltd.”
The residential projects developed by the joint venture are in the premium segment, with the last project launched in Bangalore this September. However, it has not met with much success yet, say analysts.

“The premium segment is not selling where the joint venture has targeted itself and this quarter the company’s profit after tax have dipped to 17%. So it is an obvious choice to sell land and gain cash flow in their books. The company is also hunting for private equity investments,” said an analyst.

Another analyst had this to say on the larger trend: “They are selling land because banks have refused to lend them due to their stretched balance sheets and also from next year most of the players’ revenues will be equal to the profits they made this year.”

pooja_s@dnaindia.net

Ranjith said...

Nice blog and very interesting article. Thanks for posting.

Sravanti said...

Thanks for such an informative article.

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