Thursday, December 18, 2008

Bangalore: Builders Gasp while Buyers Wait with Bated Breath

Bangalore: Builders Gasp while Buyers Wait with Bated Breath
Sharath S. Srivatsa / The Hindu

* Discounts and freebies fail to work for the real estate sector which finds itself grounded by the economic downturn
* Developers are removing extra amenities to bring down the project cost
* Cancellation of bookings has gone up drastically in the recent months

BANGALORE, Dec 17: The real estate sector in Bangalore, affected by the recession, is in a dreadful situation.

A sector that was riding high on the economic boom till recently finds itself grounded by the economic slump.

This has left a large number of developers in the lurch even as customers wait with bated breath for the completion of projects.

The sudden downturn in the last three months has not only forced developers to postpone the launch of new projects, but also delay those under construction. The gap between demand and supply has widened as sales have come down in the last six months, and especially so from September.

“Let alone new launches, it will take a long time for the developers to clear the glut in the market. It will take a minimum of one year for the industry to overcome the slowdown even after measures have been initiated by the Reserve Bank of India (RBI) and Union Government,” an industry insider said.

Removing extras


In an effort to attract buyers, the developers are re-positioning the price by removing extra amenities to bring down the project cost. Though developers are offering discounts up to 10 per cent on the projects, some big companies, burdened with huge overheads, are struggling to bring down the rate.

A few developers are also offering plots along with a housing unit, an unusual move in an industry that has become price-sensitive.

Though figures on the number of unsold flats are hard to come by as no surveys have been taken up by the industry, sources estimate they run in tens of thousands. When the IT sector was bullish, the north-east, east and south-east parts of the city witnessed large-scale development — residential, office and retail — especially in K.R. Puram, Marathahalli and Sarjapur, as well as Bannerghatta Road, Kanakapura Road, J.P. Nagar and Jayanagar.

While the tightening money flow has hit the industry badly, analysts say the downward trend started with the Reserve Bank of India’s (RBI) increasing the risk weightage for the real estate sector a few months ago.

“The high risk weightage to real estate sector essentially meant cut-down on lending to the sector — both to developers and buyers, by the lending agencies,” said T. Venkatesh Babu, Senior Manager-Market Research at Nitesh Estates.

“Funds to the sector are choked as both developer and buyer found it difficult to secure loans. Several families have also postponed purchases due to the uncertain future. This has contributed to reduced sales, affecting project funding.”

Private lenders


With an estimated Rs. 2,000 crore locked up in the Bangalore market, many developers are scrambling to service their debts even as lending institutions have started recovering the loans. “Already some developers have defaulted on their loans; many have borrowed from private money lenders at exorbitant rates ranging between 24 and 36 per cent as they were unable to get institutional loan,” said M. Ramesh, Secretary of Builders’ Association of India –Karnataka.

He said that the plight of developers is so bad many of them have not only pledged their projects but also their residences to ensure completion of projects.

“An industry that believes time as the essence of any contract, schedules are not being adhered to even by big players,” Mr. Ramesh added.

Buyers too


While the builders found it extremely difficult to secure funding for their projects, many prospective buyers have failed to secure funding from the financial institutions and banks. “Cancellation of bookings has gone up drastically in the recent months.

These are mainly due to the fact that the buyer, who had already booked the flat by paying 10 per cent advance, does not get the desired funding from the banks,” confirmed a marketing executive of another leading real estate company.

In many cases, the executive said, the delay in completion of projects has caused anxiety among the customers.

“This is the case, especially among those who have bought flats from small builders, and are not sure when the project would be completed.”

According to secretary of Confederation of Real Estate Developers Association of India (CREDAI) - Karnataka S. Suresh Hari, “Genuine buyers have been affected by lack of availability of loans. The high taxation rate in Karnataka — close to 34 per cent — has also become a deterrent.”

The industry is hoping that the measures implemented by the RBI and Union Government will improve their fortunes by March.

If the sector does not begin to look up by then, the consequences may be disastrous.

25 comments:

Anonymous said...

Indian economy sect oral composition as of 2007:
Agriculture: 16.6%
Industry(manufacturing, mining etc ): 28.4%
services(IT, ITS, Financial, retail etc.): 55%

Who need house?—Speculator, --Genuine user

How is above sector doing? If not good, people working there can’t afford the house.
Speculator may have money but they are not sure when they can sell it for profit.

Will govt. lending help to drive up housing prices? Govt. can’t help to existing home owner & potential home owner. Their help will only ease to meet short term debt obligations of builder to pay interest & payment to D company.

Is the 6-7% GDP growth helping us any way? No, it’s illusion. We have a huge population so production per capita is resulting in high GDP. We have come up with new economic ratio to understand this relationship.

Disparity ratio= Income of richest person in the country/Income of poorest person in country

Now you realized how false is per capita income ratio, inappropriate use of average to fool people.

Govt. can try to save real estate companies but income has dried up so there won’t be much impact on demand.

So Guys, let fall then only pick up, minimum 50% price cut is guaranty.

Vulture.

Anonymous said...

This self-perpetuating real estate bubble was created by the fools who threw away the hard earned money in this mad frenzy. They were unstoppable and now they have spotted a 'Black Swan'.

Carl Sagan - “You can't convince a believer of anything; for their belief is not based on evidence, it's based on a deep seated need to believe.”

Anonymous said...

Discounts boost property sales in Navi Mumbai
18 Dec 2008, 0433 hrs IST, Vijay Singh, TNN

Navi Mumbai: A recently concluded property exhibition brought cheer to builders and property developers in Navi Mumbai. Discounts, coupled with the reduction in home loan rates helped developers woo the buyers back. And the results were there for all to see. Transanctions worth Rs 160 crore were carried out at the four-day exhibition of Builders' Association of Navi Mumbai (BANM).

The builders, who participated in the exhibition, have collected a total of Rs 10 crore as advance payment on flat bookings. Nirav Shah of the Shah Group of Developers, said, "Despite the recession, we found that there were many serious buyers for smaller and more affordable houses (1 BHK and 2BHK) in areas such as Panvel and Kharghar." Pointing out that property rates in Mumbai were still very high, Shah said: "The BANM is pleasantly surprised that Navi Mumbai is a preferred destination for housing." He added that his group managed to ink deals worth Rs 2.5 crore during the expo. While the Shah Group has already received 10% of the amount in cheques from buyers, they further expect sales of nearly Rs 7 crore in the next four months, as a follow-up to the property exhibition.

Secretary of Navi Mumbai Chamber of Housing, Manohar Shroff, said low-end flats in Panvel, Kamothe and Kharghar areas that were in the range of Rs 12 lakh to Rs 18 lakh, received better response from buyers than the high-end ones at Palm Beach Road that cost anything between Rs 70 lakh to Rs 1.2 crore.

"The rates of interest on home loan have also come down to 9.25% (for amounts less than Rs 20 lakh) and 8.5% (for amounts less than Rs 5 lakh). This has also helped move the realty economy in Navi Mumbai,'' said Shroff.

Prominent builder Rajesh Prajapati said the discounts offered at the exhibition helped him get satisfactory queries for his three towers at Kharghar. "In the next two months, I expect to make transactions of Rs 10 crore through sales of flats. People have realised that they are getting a good deal in Navi Mumbai,'' he said.

Close to 70 developers associated with BANM had taken part in the exhibition, and almost all had offered discounts at various nodes in order to attract buyers.

Meanwhile, the Haware group received the maximum bookings of around Rs 40 crore, mainly near their new affordable scheme near Khandeshwar, where they are offering 1BHK and 2BHK houses.

http://timesofindia.indiatimes.com/Mumbai/Discounts_boost_property_sales_in_Navi_Mumbai/articleshow/3853896.cms


This is just the begning!!


Bindas Bhai

Vik said...

It is the beginning of low priced housing in Khandeshwar where it will take you 3 hours to get to work. :)

Anonymous said...

Precisely, people are still ready to buy so far, that is the point i was always driving.

Mumbai, I am still maintaining prices will correct only where prices have gone exorbitantly high. The thumb rule is that suppose the cost of the house was 10L in 2000. It should not go more the 35 to 40L in 2008 if it is more then this I think there will be correction.

Kind regards,

Bindas Bhai

Vik said...

the people who buy in khandeshwar are the suckers since now they will deny themselves the opportunity to buy in the vashi or nerul because they have already parked their savings in far flung locations. the early bird gets the worm, however who wants to eat worms

Anonymous said...

"the early bird gets the worm, however who wants to eat worms"

Good One! I would prefer the carrion which vulture is promising..worms are yucky! and in this case too costly!!

Anonymous said...

OK Bindas, time to be real bindas.

You are avoiding my question (see below)


Whats your stake in this Bindas Bhai???

Why are you trying to convince others to invest now instead of waiting for the crash?

Are you
a)just a normal bored guy with plenty of time to kill?
b)good samaritan who is out to save us from missing out the oppertunity to cash in on great deals
c) someone from RE industry who is hell bent on being a contrarian

I can't fathom why someone would go to such lengths to convince everyone. Also Aashish, realityrider, abdullah dissappeared and now you are carrying the torch... are these aliases of the same person cause I have never seen any two of these guys comment on the same blog..


Come on about time you come clean...

Man up son!

Anonymous said...

I'm being paid by RE industry to make sure property prices don't crash. I'll soon have to look for a real job as the crash is imminent. These RE suckers are making me say things I believe are not true. Truth is that the prices will definitely go down by 70-80% in metro areas and all these people who are buying now are catching a falling knife.

Kind regards,

Bindas Bhai

Anonymous said...

Let us start a mass movement to bring down real estate prices and Car prices.
Let us agree NOT TO BUY any new car secondhand car.

Let us agree not to buy any realestate for 2009.

Belive me friends the prices will then crash.
Gandhi , Tajore , Tilak and Patel we will bring prices back to 2001 levels.

Anonymous said...

@Anon at 12:23PM:

There is no need to start any movement. People don't have any money to buy any of those things.

Just wait and watch how bad it will be when it unfolds. The only problem is Govt. will keep intervening and prolong the process of crash. It may take 2-3 years before you see any reasonable prices for the properties.

All the people in power have stake in the RE and will try their best by bailouts, low rate etc. to keep it propped up, but eventually it will fall. The party for India is over for at least a decade.

Anonymous said...

Guys, look at what is happening around the world, we are not the only one with Vulture strategy but lot of people following it.

http://www.youtube.com/watch
?v=rXF1dIEvtfs&feature=dir

Bhai, we have bought a technology with savings to preserve the freshness of flesh.

So guys let it fall then only buy, minimum 50% price cut is guaranty.

Vulture.

bengalurian said...

BANGLAORE December 20, 2008: Following economic slowdown and slump in the real estate market in Bangalore and other parts of the State, several banks in Bangalore- till recently the much favoured destination of real estate investors - are struggling to recover the huge advances they have made towards purchase of hundreds of high-end cars.

Land prices had skyrocketed in the city in the past few years as it emerged as IT hub in the country.

Several people from the city and surrounding villages had turned into real estate agents and were dealing in landed properties in the area.
Many small-time real estate agents had earned around Rs. 50 lakh in the past two years.

After making a down payment of Rs. 5 lakh, these real estate agents had availed huge loans from banks in the city, and purchased high-end cars and sports utility vehicles (SUVs).

With the demand for the real estate market crased, there have been no fresh business enquiries for the last few months. This has led to several real estate agents defaulting on loan repayments. In fact, in some cases, the banks have taken the possession of their vehicles and houses.

Some bank managers had even approached the police, seeking their assistance to seize the vehicles of the defaulters. It is estimated that around 400 such vehicles were in Devanahalli police station limits alone.

The situation is similar in Bellary, where banks and financial institutions are finding it hard to recover vehicle loans owing to the slump in the mining business. In the absence of mining activity, many truck drives searing for jobs. A couple of drivers committed suicide unable to pay debt, sources in Bellary said.

Officials in the sub-registrars office in Bangalore said that the number of property registrations have come down almost by 40 per cent in the past three months. Some of the officials who got transferred to some of the prime locations finding it difficult to earn extra money.

Following the slump, some major land developers, who had formed residential layouts around in the city, have announced attractive offers and discounts to woo buyers. A few builders have put on hold several mega projects in the city.

Anonymous said...

Sounds eerily like the sub-prime crisis here in the US. People going crazy during bubble time and banks lending money to all and sundry to show "growth" in their assets.

Usually when banks are behaving like this and the populace is going crazy buying SUV's and Country houses on loans its a sign of a major collapse around the corner. In India's case it was also excessive liquidity washing into Indian Shores. Which also gave rise to emerging markets becoming future growth areas since the developed country markets were already fully over valued. We are in the middle of a long drawn out correction which will impact India as well and the first asset class to be hit was the Stock Market. Realty is the next to be hit and realty will be hit far worse than stock markets...

As the vulture says wait a bit, minimum 50% discount expected. On the realistic side maybe 70-80% and also you will see a lot of people losing their houses and leveraged "ass"ets to Banks. A lot of banks might face severe problems due to NPA's and at least a couple of the big realty firms going bankrupt. That will be the bottom.

Anonymous said...

After real estate slump, Magic bricks also slashed down the rate by 20% as follows.

Single Listing - 700
10 Premium Listings for a Month – 2,247
Unlimited Listings for 3 months -10,000
Unlimited Listings for 6 months -18,000
Unlimited Listings for 12 months - 30,000

Lot of people had asked about the price authenticity on Magicbricks in past.

How magicbricks works?
--- If Magicbricks don’t get any listing from particular category, what they are going to display? They just update the date of old advertisement with current date & show it as latest ad.
--- If you will observe 2/3 weeks of data carefully , you will find the same ad is coming with new date. For an example if they have total 7000 listings, it’s get divided into batch of 1000 & it will come as today’s listing. Then tomorrow it will pick up another 1000 & display it as latest listing. In this way it keep rolling infinitely till the time advertiser de-list it.
--- For new visitors, it’s gave a false impression of price stability but the fact is that since year the property do not have any buyer.
---- Besides above rate why magicbricks is extending the ad tenure? If there are no ad what they are going to display. And If there is no data who is going to visit the site.
---- 90% ad on the magicbricks used to be by broker/agent who is not holding property in any manner. But in last couple of months builders has put lot of ad with out price details. Because they want people should at least call them so they can negotiate the price or show some carrot.


The current economic crisis is not good for any body; it is going to cause pain in every sector. But some greedy peoples are trying to pass on the toxic assets to other people for self gain.

So guys, let it fall then only pick up, 50% price cut is guaranty.

Vulture.

Anonymous said...

I wonder if the slowdown abates we are in for a reflation and back to property price rise. The Govt. is forcing the interest rates down. Whats scary is that till now the stable and solid PSU banks are being forced to cut rates and quickly. I wonder if this will create a small upturn in property prices.

But why isnt the Govt. forcing the builders to reduce prices instead.

Now with Zero interest rate regime in the US....some liquidity will come back to the stockmarket, real estate by overseas investors...

I wonder what will happen. These are uncharted times. But I certainly wont buy property at these price even if interest rates go down another percent or two.

Anonymous said...

http://economictimes.indiatimes.com/News_by_Industry/Rs_5_lakh_flats_from_realty_biggies/articleshow/3868066.cms

I think with this the Builders and the Govt. are digging a deeper hole. They are building 20 lakh flat where very decent houses were available for 7 lakhs about 2 years back. So this is nothing but using the taxpayer money to take the ponzi scheme to sec b towns.

The way this will be done is through leverage. When everybody is leveraged, the prices are touching the sky and people are not buying - maybe in a year or two, then this will be a worse crash. US has already seen what happens when one experiments with sub prime. But, I guess India needs to do her own experiment and have her own implosion...

Anyways, back to waiting for some more time.

Anonymous said...

The below content is not only important to Real Estate Buyers but it’s very important for every Citizen Of India.

As per the RBI analysis, they found bubble in real estate in 2006 & consequently asked banks to reduce the exposure to this sector. Banks tightened the lending norms gradually since 2007.
In 2008, when the bubble has reached at its peak, why RBI is relaxing the lending norms to real estate? It’s a clear sign of systemic corruption in India. Yes, the finance minister asked the RBI to do so. What will be the implication? The toxic illiquid housing debt will come on the balance sheet of Banks which will cause a Banks failure in India same as US. [ Banks will lend money to buyer to buy the house at inflated price , buyer will default & as the house price is much below even after liquidation bank will incur losses.]

Once banks will start failing, whole economy will be in trouble. Then under the pretext of economy saving, they will use tax payer money & print money to save these banks.
What is the effect of printing money? It will increase the inflation & every one has to keep paying high taxes to support the housing which they never bought. Cause on your rupee note the Governor of RBI has promised to pay the debt, on your behalf but without your consent.

If your will compare the scenario, it’s a same as US but one major difference. In US when the bubble busted at that time the housing assets were on the bank’s balance sheet. The real estate companies managed to sell majority of the assets to home buyer who took housing loan. So it’s became problem to Banks & home buyer.
NOTE: There is no Major real estate company failure in US.

But in India still lot of housing is owned by real estate companies, who are desperately trying to pass on this toxic to buyers & banks. The RBI policy change is nothing but the corrupt political decision for builder.

Even after the policy change the greedy Builders were not satisfied & they are demanding to Govt. to buy the pending houses which cost 50 Lakh & above out of public tax money or by printing more money.
--DLF is demanding 8% interest rate. Is DLF is going to decide interest rate in this country? Interest rate is used by RBI to fight against inflation.
---When inflation is still at 7%, why RBI is easing the liquidity?

Guys, please pass on this information to every body & stop the systemic failure in Economy. The systemic failure in economy will result in dire consequences like great depression.

http://rbidocs.rbi.org.in/rdocs/Publications/
PDFs/88980.pdf
Page# 312 to 314


This is a request to VIK please post it on the front page. It’s not only for real estate buyer but for every citizen of India.

Vulture.

Anonymous said...

http://www.narains.com/Text-Residential-Understanding-Cycles.html

Reading this made me laugh.

Anonymous said...

Warren Buffet once said - "it would be foolhardy for me to go and ask a barber whether in his opinion I should have a haircut"

He said this in the context of people going to analysts and brokers for tips..Similarly, If you go to housing brokers or realty folks websites they are going to advice you to buy during all seasons!!

Anonymous said...

Thank you anon@ 10:42 AM for the article

The Global Sophisticated Institutional Investors have been duped to the tune of millions by the Con artists.

Let these Real Estate builder/Consulatant ignore the Strong Singals as Noise. They are going to get hit harder 3-4 months down the line since the money supplier has not only sneezed and has caught pneumonia

Fischer Says Madoff Shows How Smart Investors Missed Crisis


Fischer, who advised Federal Reserve Chairman Ben S. Bernanke on his doctoral thesis at the Massachusetts Institute of Technology in 1979, said the U.S. economy has yet to feel the worst from the financial turmoil. This is going to be tough, Fischer, 65, said. “The worst of the real side is yet to come. St. Louis-based Macroeconomic Advisers forecasts that the U.S. economy will shrink at a 6.5 percent annual rate this quarter and a further 4.2 percent in the first quarter of next year.

Anonymous said...

http://www.nytimes.com/2008/12/21/business/21admin.html?_r=2&hp

That article really puts much of what has happened in the housing industry over the past eight years into perspective.

Anonymous said...

Hello,

One of my friend was excited about the RE and invested rather gave a token of about 500000.00 for a 3 BHK flat in a project of Goel Ganga Group on the outskirts of Pune.

I was first confused as to why did he invest without getting in the. Then he showed me the Glitzy brochure and I then I thought that may be just may be it was a wise move.

Then after about 6 months I asked him whether his loan from HDFC was passed. And He told me that HDFC had rejected the application with the reason that the land on which the builder wants to build is disputed and there can be no construction till the dispute is settled.

It now more than 1 year since he paid Now he wants to cancel it and the builders are refusing to give back the token amount.

What I want to bring out here is that Indian Real estate industry is full of frauds Cheats and thugs. One can never trust them.
We also know how the builders sell the same flat to multiple buyers

Look at the scam of SRA . We read all the times in paper that how original owners papers are forged and the builders bring in outsiders or how they force the signature or how they threaten people. And it is really a thing to wander why the media or the government does nothing about it.

So my advice to all is

DO NOT BUY NOW.
and when you want to buy ensure that u get a good lawyer to check out all the property documents and title.

BUT do not buy till prices correct from current levels to about a 60% drop

Anonymous said...

There seems to be one more Bindas Bhai in this forum who is convinced that the price will go up and hence trying to confuse the forum under Bindas Bhai identity.

I am just an investor who is currently working on the profits earned from this boom. I personally believe in not timing the market and exiting my investment based on the return I have expected. No sooner I see that I am getting my expected return I move out and put the same money it in an another project where i see value.

I believe that in Mumbai there will be correction area specific but will bounce back to the original levels once the interest rates come down to 8.5% levels, outside Mumbai there could be a deeper correction.

My belief is based on the following

1) Gap between urban India and rural India. In India there is huge scope of urbanisation and we will see huge migration from villages and smaller cities to Metro.

2) Thus an increased demand besides the aspiration of the existing people to upgrade or buy homes for the following generation.

3) Most of the people are not buying houses not because they don’t have money or requirement but they fear that their will be correct/crash after they buy.

4) Interest rates are bound to come down thus buying can trigger.

5) India will grow way above the other nation and will see return on funds to India.

We don’t need extraordinary intelligence, just a little common sense.


Bindas Bhai

Shailesh said...

In India for last 3 weeks of December. Went on tour to Delhi & Agra. On the way to Fatehpur Sikri, I show so many large signs and construction plots with big signs. One was really crazy. In middle on nowhere, large plot may be 30 or 40 acres, with large sign outside promising Golf Course + Luxury apts etc... The only thing builder had done was built wall around the plot. I wonder the logic on who would like to live so far away and pay any premium prices. I think this whole Land Bank idea is total BS. The fall is very hard. I am getting property in New Mumbai at prices same as 2005. In fact my contact in construction in Navi Mumbai, begged me at 2005 prices. I said thanks but no thanks.