Sunday, December 14, 2008


DNAIndia reports from Bangalore.

As techies default on EMIs, banks are reclaiming their homes

N Raghuraman. Bangalore
If you are a code jock or call centre employee, watch out. Your dream home is about to become a nightmare. Worried about your ability to repay, banks are in overdrive to repossess your property if you have not been paying your equated monthly instalments (EMIs) for more than three months.

Over the last few days, nationalised and private sector banks have issued a rash of repossession notices in newspapers to recover properties from borrowers who have been defaulting on EMIs. Industry insiders say that one out of every 10 homes bought with loans is in default in Bangalore city, most of it from the technology and BPO sectors. The houses being reposssessed are spread out across the city, from HAL Stage III to Kumara Swamy Layout and from Vignana Nagar to RT Nagar.

"The IT sector is one of the main contributing factors for the repossession drive that banks are undertaking in Bangalore. Several IT companies have laid off employees and the bonuses of several others have been cut, which has resulted in defaults in home loans," admits BR Bhat, general manager, Corporation Bank. The bank has a Rs 1,000 crore home loan portfolio in the city and the share of IT staffers is nearly half of that.
According to banking industry insiders, almost all banks in the city have registered a 20% increase in loan defaults, and thousands of properties are being recovered under a stringent law called Sarfaesi – or the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act, 2002.

The Act empowers banks and housing finance companies to recover their dues in case of defaults within a specified timeframe. Earlier, banks had to file civil suits against defaulters, which could take more than 20 years to settle cases.

In the first half of this month alone, the recovery process has been initiated on various flats and independent houses worth Rs 80.23 crore. The number will surely bloat as this is only the tip of the iceberg, and banks are worried about the impact of these defaults on their bottomlines.
"It would be foolish to live in denial that there will be no impact of the (global) slowdown on our books. This will be reflected in our books in the coming quarters. In Bangalore, there might be more home loan defaults under the current circumstances. But things are not out of control," says Syndicate Bank chairman and MD George Joseph.

At least 15 nationalised and old private sector banks have initiated recovery proceedings and they are in various stages of execution. The list includes Vijaya Bank, Andhra Bank, Syndicate Bank, SBI, State Bank of Mysore, the Bangalore City Cooperative Bank, Corporation Bank, Canara Bank, Federal Bank, Bank of India, Karnataka Bank, Karnataka State Financial Corporation, Citibank and Indian Bank.

If one goes by the printed notices, Canara Bank, Vijaya Bank and State Bank of Mysore seem to be worst affected with their non-performing assets (or bad loans) contributing 80% of the dues which are under process.


Anonymous said...

…and the plot thickens….

The IT companies have not only cut the bonuses but also the MONTHLY SALARIES.The captains of IT companies have started going into the reverse gears..25 to 30% growth since we will be benefiting from the current Global Economic Crisis ( of which India is not a part) because it will present us unique opportunities of doing more business. There are going to be more mergers & acquisitions and for which our “Expertise” will be sought… but don’t tell anybody that we are sending some of the employees on Sabbatical …..after few days….there is going to be only 10 -15 % growth….errrr no growth since our clients are reducing the billing rate and no development/testing projects are coming and spin continues…..

Not only Bangalore but other city i.e. Pune is going to face the rise in home loan defaults

Anonymous said...

However, India will issue a bailout package of 1 lac crore for real estate sector and also reduce the rate and also they will stimulate the economy creating more jobs. So all this is temporary. Demand is going to pick up.

One more thing, India will continue to grow at 6% so people will continue to make crores and also there is a lot of demand for property so property rates can only go up!

You know what? I am still going to by buying a lot of flats to meet the demand for tomorrow. In the worst case, I will become a zillionaire by collecting rental returns....rant rant rant.

In 40 years my property will be worth lacs of rupees per sft my houses will be worth crores.


**Laughing maniacally, with wild eyes flashing**

Bindaas Bhai.

Anonymous said...

Dear Vik, I think you can ban any responses which are irrelevant and purposely written to instigate others. Simpley filter out the responses with key words like Bindaas Bhai who seems to be a paid columnist on special duty and not a common reader

Vik said...

i don't believe in censoring the comment unless it is racist or sexist and below the belt. All the level headed folks should read Bindas Bhai's comment as a the joke of the day. He is making a mockery of himself by showcasing his greed via his juvenile behavior.
David Learah, chief economist from the US National Realtors association did the same. Finally after the bubble burst he admitted he was wrong. Ofcourse we all know what happened to the people who listened to his advice. Time is the best teacher and for now it is on our side. Let BB shout himself hoarse and drown in the debt of thousand EMI's, However if he has invested before 2005, more power to him for getting it right. Ofcourse being right is not good enough in a dismal economy unless he has sold out to a greater fool.

Anonymous said...

BAILOUT PACKAGE …. don’t get fooled since this is only for the Banks, Politicians to protect their own money which is at the biggest risk. This money is badly needed for the forthcoming elections/"FISCAL STIMULUS".

Just check what is happening in USA. Oversight committee chairwoman (Harvard Law Professor) is finding it hard to know what is happening with Bailout Package.

Congressional Panel Overseeing U.S. Bailout Criticizes Treasury
“An oversight committee set up by Congress criticized the U.S. Treasury for not using the $700 billion financial bailout to help average Americans, and questioned its commitment to stem home foreclosures. The panel issued a report faulting the department for not having a comprehensive plan for stabilizing financial markets and urging it to more clearly explain its efforts.”

Anonymous said...

Few weeks ago only we informed to respectable readers about the short strategy. Every one know housing sector is week & Bank is extending support to this weak sector, so here is a huge opportunity to make a money by short selling both sectors.
Even after bailout US/Europe couldn’t stop the meltdown, so no question about India. Our genius politicians will wipe out all bailout money.
Please inform to CPM party about capitalist bailout & they will pull the plug.

As IT industry is facing uncertainty, no question of realty sector going up. Simple to understand, at whichever place any IT sez used to start, overnight prices got doubled.
Lot of town ship projects started in IT sez, with little space for IT & remaining residential & commercial. E.g. In Pune Amanora, Blueridge, Megapolis all this big townships are started in IT sez.

Bhai, your crying sound is coming as hehhehehe….. , what happen?

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


Observer said...

10% is a huge number! If this is right, then Indian banks are in real trouble. They could suffer massive losses. Even in the US, with less than 10% of home loans in default, banks are in so much trouble. I think in India everyone tries to suppress negative information to the maximum extent possible, and given the complete lack of transparency, it is extremely hard to know what is going on.

I can tell you that people in Bangalore are scared. What is not mentioned is that in many small IT and BPO shops, there is talk of salary cuts and more layoffs to come. A friend in TCS said nobody is hiring at senior levels. Most hiring is being done at fresher level to bring down average salaries. They hardly pay 15,000/month.

Property rates on the outskirts of Bangalore for example Whitefield near ITPL, may come down to 2000 Rs/sqft. In 2004, prices were around 1600-1700/sqft.

I think if it goes below 2000/sqft I may buy. But I feel it is best I buy some land near my parents hometown. It is a small town, with no IT jobs. Plots are now available for about Rs. 250/sqft in approved layouts with gate, compound walls, internal roads, electricity and telephone connections upto plot done. Only problem is sewerage is not available, so septic tanks and borewells will have to be used. Construction costs are around Rs. 800-1000/sqft for a modern house, with vitrified ceramic flooring, and OBD painted walls, with a total cost of 1050-1250/sqft. For a standard one-story 1200 sqft building, the total costs are Rs. 14 lakhs + registration + connection charges, which comes to around Rs. 16 lakhs total. Best thing is it is not a flat, but an independent house.

If I save Rs. 40,000 per month by renting in Bangalore, then in 1 year, I will have enough money to buy the land. I will save money for another 3 years, and then construct the house, and rent it out. Rents are only Rs. 2,500/month for such a house in that area, but at least the house will be occupied and maintenance will be taken care of by that amount.

After the house is built, I can continue to save money for another 15 years or so, and then take early retirement with a savings of more than 1.5 crores. That amount may be equal to more than 75 lakhs in inflation adjusted Rupees. It is enough. Even broadband is now available through BSNL in that small town. Maybe a small consulting service can be started from home after early retirement.

I am sure in another 20 years or so, small towns like this throughout India will become attractive to retire. One already has phone/mobile phone/Internet/Satellite TV (Tata Sky, Sun, ...), electricity, unpolluted air and water and petrol stations there.

Only thing missing is good hospitals, and train/airport facilities, but I am hoping in another 20 years, such hospitals will come up nearby, and the road network will improve to neighboring big cities.

The real advantage is even if I lose my job, I will not lose the house. I can delay the construction till I find another job. Since I will pay with cash, the question of a loan does not arise. Life should preferably be lived debt-free so no one has control over your life.

If more and more people start thinking like me, then these 60 lakh flats in metros are going to look very unattractive.

Vik said...


If I were you, I would save as much money as I can and then invest in an apt/house/plot in your chosen location in a metro area. The other thing would be advance your careers as much as you can so that you make more money. I'm not sure which field you are in, however the fact remains that there was redistribution of wealth which took place from 2001 to 2008, from the richer countries to emerging markets like India. People who owned land profited the most in the redistribution and the trickle down effect continued. However the effect was good enough and rapid to counteract the rise in housing prices and inflation. This is a primary reason why housing has become unaffordable to the common man. The issue of moving to tier-3/4 towns in lieu of metro areas is something which is possible only for someone who is not interested in fighting the rat race and to those who are not very ambitious. In India ambition is directly proportional to the income you generate and not be aspirational is considered mentally weak.
Indian tier 3/4 towns are unlike the US and funds are not available to the degree to take care of power/electricity/sewage etc, unless you stay in government/banks/armed forces/steel/power plants quarters.

As prices hit 2000 rs per sq/t, It makes sense to buy if someone has a steady job and can afford the EMI at 10% interest rate, again with a 20-25% downpayment.

Living in rental housing is something to consider if you are unable to afford exhorbiant house prices like those in Mumbai and certain areas of Bangalore.

There is no greater satisfaction then owning a house, loan free. Ask your folks that and they will agree. The only question to answer is whether you can afford to pay the EMI and is your job secure enough to guarantee the payment. I think the big question of whether there will be a decline has been answered. The next question is how much and for that we have to watch the market and the top tier builders as they keep reporting numbers quarter over quarter.

Anonymous said...

I wonder about Mumbai

Here is a city where beyond Andheri , there is NOT A SINGLE good hospital
NOT A SINGLE 5 Star hotel.
NOT A SINGLE A rated school
NOT A SINGLE A rated college.


And THINK of the assholes paying 14000.00 plue per square feet.

I am an investor who invested early 2003 and got out by early 2007 made some very good profits .

Though I can still afford to buy flats from builders for 40000 psf I do not think It is worth buying now with such super inflated prices. I would like to enter again only with 2004 prices else no sense even if prices fall by 40%


Anonymous said...

I am surprised to see one more Bindas Bhai in this forum. I never knew this name will become a topic of discussion.

The above message is not from me although in past I have posted similar messages.The message posted early with HA HA HA was purely to irritate specific individual which i regret now. I am sorry!!!

Now if you ask me honestly i feel market can turn anyway. We will have to wait and watch.


Bindas Bhai

Observer said...

Staying in a metro is only necessary if one is working. If one is retired, then other things like a peaceful life become more important. Yes, life is slow in a small town, but then what is the hurry? With the spread of Internet facilities to small towns, it is even possible to earn something part-time by doing some consulting work from small towns. I am not in IT really, but in mechanical engineering.

I know of a couple of uncles who are 52 and 54 respectively. They have already developed diabetes and high blood pressure because of the intense stress involved at the senior levels, even though they get a pay packet of approx 36L/year. By the time I reach that age, I would like to have 75L in today's equivalent in the bank, and also own my own home, and be completely debt-free.

Even if prices do come down to 2000/sqft in places like Whitefield, the quality of life is poor. One has to commute for almost 2 hours each way to the city in traffic, entertainment choices are poor, good schools are very far away, so children's education will suffer. Autos are not available, and a car is a must.

But by staying on rent in a place like Koramangala, I can actually walk to work, my kids can walk to school. There is the famous Forum Mall just nearby, plus libraries, banks, gyms, courier offices, temples, travel agents and other services. Lalbagh is just a short auto-ride away. We save so much time that it is possible to spend time at home, go to the park or temple or Mall together. It really comes down to quality of life.

Now, if the flat I was staying at were to come down to some 20L from 56L, then sure, it would be worth buying. But if it does not, then I would rather have a good quality of life now, when I am still relatively young and able to enjoy life with family, and then retire to a small town later on. Children will anyway go to college by then, and who knows where they will get a job.

Ambition is good, but quality of life is very important. What good is it to make 40L/year, and spend 14 hours a day at work, just see the wife and children on Sundays, and develop all kinds of health complications by 50?

In the US, it is different. The average commute is only 25 minutes. Also, the excellent highway system and other infrastructure allows people to have time for family. Very few Americans work more than 50 hours/week on average. In India, even in the Engineering field nowadays, working is becoming more like an endurance test to see how long one can spend sitting in the office. The top boss does it, so the junior does not want to leave before the boss to be sycophantic, and down the chain it goes, with implicit pressure for others to stay. You will find people chatting around, and aimlessly working at 50% efficiency but staying till 8pm at night. Maybe for some people this is a great life, and would be considered the pinnacle of ambition, but not for me.

Vik said...

Your points are well taken. I'm not saying work long hours or bear an endless commute. You're assumption is that you can live in Koramangala at the provided rent. However a renter is a nomad and things work differently in the US as compared to India. In US the apt complexes are businesses you can live 10 years in an apt complex and no one will evict you if you pay your rent on time. In India, the landlord is an individual and his whims and fancies can change like a weathercock. To fully settle in a place and develop roots. It is not possible to do that if you are asked to move every other year. Again this will work till you are not married, or need to have ur family close to you. As soon as that happens, you will realise that renting is a bad option.

I agree that living in whitefield and commuting to Koramangala can be a royal pain. However the goal should be home ownership as prices slide and get to the point of affordability. I think in India, there is no alternative to metros and mega cities as we have seen every city I've seen whether its Mumbai, Bengaluru, Chennai or Delhi NCR, Hyderabad, Pune have expanded beyond wildest dreams.

Observer said...

Actually, myself and my family prefer moving every 3 years or so. We get to move into a brand new apartment and enjoy the amenities at the new place. Moving nowadays is extremely easy. It is over in a couple of days at most. If prices come down from 56 lakhs to 20 lakhs in Koramangala, then sure I would buy. Otherwise, I do not see any point paying far more in EMIs than rent.

Metros, in my opinion, are becoming unlivable. The enormous pollution, traffic, noise, garbage, and extreme overcrowding everywhere, are becoming worse every year. It is becoming hard to even see greenery anywhere. All this is leading to more and more stress and health problems for the metro population. More and more people from villages are migrating to metros for jobs, and the growth of slums is astronomical. It takes me 10 minutes even to cross the street next to my flat, and old people have an even tougher time. They are even giving up going outside in the evenings because of this.

In small towns, most of these problems are absent. In my opinion, they make good retirement places. There is peace and quiet. Freedom from the extreme overcrowding in metros. Whenever I visit my parent's hometown, I feel a sense of calm. Local functions at the temple are well celebrated. Also, there is a greater sense of community, as everyone has time to say hello to each other. The train station in the town next to my parent's hometown is at least 10 times cleaner compared to Bangalore City Junction, and has absolutely no crowd or plastic garbage or stench.

I think it would be good if more and more entrepreneurs would go to small towns and set up businesses there. This would relieve the crushing pressure on the metros and help spread development around. Maybe after taking early retirement, I would contribute my share to such an effort. At least I will have the money to start something to help the community.

Some of my colleagues, particularly those who are in their early forties are beginning to share a similar line of thinking. One of them was saying that the daily commute to the office was responsible for his developing his blood pressure problem! I am in my early thirties, and want to stay healthy in life. No amount of money is worth losing one's health. I want to plan ahead, and not be in the situation that my colleagues in my forties find themselves to be in, or my uncles. They are stuck with very high EMIs, high lifestyle expenses, and in fear of losing jobs so they compromise on their health and mental well being at work. For what? The industrialist makes all the profits by squeezing the manager's life. Ambition is good, but who is benefiting? Only the industrialist or the promoter of the company. Similarly the builders are the ones who are profiting from the enormous increase in flat prices. The builder/politician/industrialist class is growing ever richer.

Entrepreneurship is the way out, and to do that one must have capital and a low cost of operation. So best to save money instead of giving it to the builder/politicians, and to work for oneself rather than some promoter.

Anonymous said...

Observer, I liked your comments and have similar thoughts myself. I think the Metro's are already beyond redemption. Living and retiring in these metros will definitely kill me early. If not physically from a health, mental state of mind life will not be worth living. Therefore one has to run to the smaller cities or villages. Its like a de-addiction, initially it will be tough but over the longer run it will be better for the body and soul. Entrepreneurship in smaller cities will be possible only when infrastructure develops. Roads in India might take another 50 years to develop. Such is the awful combine of the politicians, PWD and contractors. But maybe telecome will develop WIMAX or other wireless broadband ways of helping develop these remote areas.

I am drifting a bit here. But, I liked your thoughts keep thinking like that and posting more such thoughts.

Anonymous said...

Dear Observer/Vik,

Both your point of view are really different from differnt people. For Vik it is more important to live city life and have great ambition and he is ready is deal with cons of city life for it. In India there is always stigma associated with staying in small towns. It directly reflects your lack of potential to make it big in cities.

But at the same time observer's comments are very valuable to have little perspective in life. It is obviously not worth it to work like a dog and not enjoy little things in life.

But then again it a matter of personal choice. Personally I would like to stay away from metros. Metros have very heavy problem of very few resources which results in air pollution, scarcity of water, high living costs, very little quality of life, etc etc but at the same time its easier to make living in metros than small towns.

I still think its matter of personal choice. If you have enough money to generate quite a bit of passive income then surely I think its worth it to retire in small towns.

If you can save (easier said than done) nearly 1crore (obviously considering that your house and car are paid off) and invest in very safe FDs at return of 10% then you can easily live on 10lakhs per year. At the same time you can also generate some active income by working. This will give you peace of mind to not slog in cities.

Anonymous said...

What started in US 2 years back is happening in India. Still a long way to go before the house prices in Indian fall by 50%

Remember the US sneezes first and the rest of the world catches the cold.

5% of India's population inflated the housing sector. Now are in the begining of a steep correction. Indias' correction will be much worse them US or Europe. The good news is this will have impact only in Metro, A grade and B grade cities.

Anonymous said...

Guys, Yes I too like to move away from the Metro and live in Tier-2-3 Towns.

The quality of life is not about lifestyle but about discovering about onself and the community. Basically reduce the Pace of life to that of the 1970-80's. What is the use of earning lakhs during the earlier part of life and spending the same on health during later part of life? Invest in Health without much Insurance.

My perception is there is nothing more than having a comfortable landed property in a town with a monthly income of Rs 25 lakhs coming from means other than JOB. This would help us in pursuing our other interests outside of Job.

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