Sunday, December 14, 2008

Top city builders meet to discuss slashing prices

This meeting by the builders smacks of an oligopoly where these moneybags decide to raise or drop rates by consensus. The SEBI and other organizations should look into this meeting for price fixing and prosecute the ceo's of these companies. Imagine a meeting between Airtel , Vodafone and Reliance to decide on per minute rates. This is a cartel and should be accountable for monoplistic practices. The biggest irony of this article is the shedding of crocodile tears for the poor laborer who has seen his daily wages drop to 50rs from 150 rs. If these builders who prices apts for 50,000 per sq/ft , they can sure pay a half decent wage to someone who toils in the heat and sun, while these neo-rich bozos sip drinks in the comfort of a 5 star hotel

The 2nd bigger irony is blowing the trumpet of the Times of India, that they were the first to report on the price drops. While they reported price drops, they also reported why prices are going to go up and how 40,000 per sq/ft is real steal for a crappy apt in Bandra. Such irresponsible journalism has made the times of India, the toilet paper of India.


Nauzer Bharucha | TIMES NEWS NETWORK

Mumbai: At least half a dozen of the city’s top builders met at a prominent five star hotel in central Mumbai on Friday night to brainstorm about the one thing that has been worrying them for the past several months—how to kickstart the virtually stagnant apartment sales following the downturn in the real estate market.
Among the several issues discussed was the possibility of reducing prices of flats if it helps sales to pick up. According to industry sources, the Maharashtra Chamber of Housing Industry (MCHI), which has leading developers as its members, is expected to explore this possibility at its meeting on Tuesday, although the matter is not on its agenda. Already, some builders have informally reduced their prices between 12% to 20% in their projects in the suburbs.
However, Mohan Deshmukh, one of the developers present at the dinner meet, denied that builders can ever take an unanimous decision to cut prices. “Every developer has his own priorities and it is up to him to decide on a price cut. The MCHI cannot take a decision on their behalf,’’ he said.
Although the property market began to flatten out about 18 months ago, Mumbai’s builders, by and large, have managed to hold on to their prices. Between 2004-2007, home rates shot up between 100% to 300% on an average, going up to 500% in certain high-end projects. Builders may move Centre to plead their case
Mumbai: Top city builders, who were peeling the pinch after global meltdown, participated in the brainstorming session to decide price cut on Saturday. The meeting commenced at 7.30 pm and wound up only at around 11 pm, sources said.
It is learnt that among some of the leading builders who were present at the meeting included Rajni Ajmera of Ajmera Builders, Dharmesh Jain of Nirmal Lifestyle, MCHI chairman Pravin Doshi (Acme Group) and Deshmukh, who is CEO of Deshmukh Builders and past chairman of MCHI.
There was complete unanimity among the participants that the industry is passing through an “unprecendented’’ crisis. This has affected not only the developers, but a host of ancillary industries, including a large army of unskilled labourers working at the project sites.
“A labourer who used to earn Rs 150 a day is today struggling to barely eke out Rs 50 a day because many projects have come to a standstill,’’ a leading developer told TOI recently. Virtually every Mumbai-based developer is on a cost-cutting drive including retrenching employees across departments.
The Mumbai developers are also thinking of representing their case to the Centre to increase the priority sector lending to home buyers from Rs 20 lakh to Rs 40 lakh. Early this month, the RBI had allowed banks to classify housing loans up to Rs 20 lakh as priority sector advance. The interest rate on such home loans is 1.5% lower than the normal rate of interest.
The downward trend in the property market began in January 2007 when banks began hiking their interest rates, and since then, bookings have continued to drop with every rate hike announced. The crisis worsened after the global economic meltdown affected the Indian market since the past few months.

Property consultants said even existing loan account holders are finding it tough to hang on as EMIs threaten to upset their monthly budgets. Last year, TOI was the first to report that several builders, dealing on a one-to-one basis with home buyers, had begun offering freebies like not charging for parking slots, not charging a premium for a floor rise and, in some cases, even offering to pay the stamp duty.

22 comments:

Anonymous said...

Two possible translations of what builders are saying :
1: "We are SCREWED"
2: "The D Company is calling....what do we do reh!"

Anonymous said...

It was funny to see the Builders talk about how the unskilled laborers are suffering.

I mean this is like the Sharks or barracuda saying - I am worried about the minnows, maybe they should get more to eat!

These people are only worried about how to take something worth 1 rupees and sell it some innocent fool who has worked his butt out and saved money all his life at 10 rupees.

If the innocent fool gets shafted and lives on debt all his life its no skin of the builders nose. The builders will hold meetings in 5 star hotels to discuss how to make money out of this downturn also. Lets make the politicians rob the taxpayer money through some bailout mechanism or a policy change and so their lives keep revolving on how to steal more money...

Anonymous said...

I totally disagree with VIK on the re-distribution of wealth phenomena. It’s illusion to common man created by world’s most shroud economist. This is nothing but a inflation.
-- On Phillips curve inflation & employment rate are directly proportional, mean high inflation high employment.
-- As almost all worlds’s economy operates on the basis of Monetarist theory, where the money growth is much more than GDP growth.

In the developing economy as the money growth accelerated you have seen astronomical rise in price level & this will continue in future.
What this mean for common man? There is no accelerating growth for common person, huge disparity between rich & poor. Check in last 4 years how many Indians entered into world’s richest people list & how many people can afford the housing? Lot of peoples are feeling that the salary is growing like fourfold, check your purchasing power. After 10 years, if you will look back you will find you have earned nothing; you can’t fulfill your liabilities.

How the real estate prices went fourfold in India? The Foreign investor poured money in India & created a bubble.

http://money.cnn.com/magazines/fortune/fortune_archive/
2006/07/10/8380919/index.htm

How the foreign investor got the money? Cause US fed printed money & lend at 2% rate. The banks & investor invested this money in Indian real estate & earned 30% to 40% return.

How this paper money will convert into real wealth? The people who bought these houses have promised to pay the EMI till they die.

Looks like real estate companies are also reading this blog. In one comment we suggested that longer they will hold the prices, deeper will be the correction. After reading this fact they conveyed the meeting in news for price cut.

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

Vulture.

Anonymous said...

Thank you Anonymous@5:37 PM for explaining the genesis of this crisis. No wonder that the person who didnt see the things coming has been aptly honoured

Greenspan is Zero: Fortune

For his successor, the helicopter has run out of the fuel and yes the prinitng press is being run by cruthes..

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...

To Anon above:
You are totally wrong about the price declines. This is no camparison to US.

The current construction and housing supply in India is enough till the year 2025.

The prices in India will not fall 50% like US, but 80% in all metro areas. It will take 2-3 years for the whole thing to unfold, and it will leave a lot of very unhappy people, divorces, layoffs, suicides and all the bad things people can't think of.

The party has been long over and it is hangover time. The country is going to go back 10 years in time.

Anonymous said...

Housing and Homes !!!

Aha!!!

And to think of it the Mr Mukesh D Ambani and family of 4 would be staying in a house built at the cost of over Rs 10000.00 ( 2 billion US $)

We Indians are the biggest suckers.

Don't know who is paying for that --- The shareholders??

Anonymous said...

Anonymous @ 6:46 PM

read Rs 10000.00 crores

Ashish said...

Finally the Bubble has burst as these selfish and greedy realtors beg the government for aid...
Indian Express is reporting that the big realtors want a bailout. any government help to these real estate - underworld- political nexus would be a disastrous waste of the nations already strained coffers. The US bailout is being fiercely debated and Government has been criticized for spending Taxpayers money on bailing out the Big Banks who leveraged bad loans and the Big Auto giants who collapsed due to their obsession with inefficient and unreliable cars. This are perilous times, where the builders are shamelessly asking the government a bailout. They could easily drop prices to get some hanful of buyers but now no one is going to get loan unless they have sufficient funds (70%). So the builders can only dream to sell their high priced worthless apartments.

These builders who hook up with terrorists are no better than Dawood - Every time you make an EMI of your hard earn money at least make sure it doesnt reach the D company. I would rather live in a rental house than to own a house build by terrorists and their ilk!

Donna said...

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Are you open to such an opportunity? Please reply to discuss further. Thank you.


Regards,
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Donna said...

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regards,
Donna

p.s: pls state your blog URL when you reply.

Vik said...

Donna,

Who are your clients. Please elaborate

Vik

Anonymous said...

Vik, looks like Donna is your classic blogspammer...looks like she he or it has set its eyes on your blog. Please protect it.

Vik said...

Yeh, Thats why I'm asking her to come out in the open. There are just too many blogspammers everywhere

Anonymous said...

Real Estat Bubble aka PONZI SCHEME well explained by Peter Schiff

"To a large extent, the same concept has driven the major asset bubbles of the last decade. Given the ridiculously high valuations that were assigned to tech stocks and real estate during their respective booms, the only way the bubbles could be perpetuated was if newer “investors” could be found to pay even more outrageous prices (the greater fool). But when these new buyers balked, the whole structure crumbled. Although there was no Ponzi or Madoff to orchestrate these manias, the entire financial and economic apparatus of the country had successfully convinced the public that “investments” in tech stocks and condominiums were bullet proof and that the supply of new buyers was endless."

Anonymous said...

Hey VIK, looks like Donna is interested to advertise bear funds here. After reading the vulture strategies she might have inspired. And it’s true also, in this market only bear, vulture can make money.

Caution: Take care of personal safety, from Indian realtors.

Vulture.

Anonymous said...

Hey Anon@4:03 PM,

Thanks for the link to peter schiff's articles and the insight. The ponzi scheme metaphor to what is happening in the real estate sector is clear to me. So its the fodder of greater fools that has exhausted and the wonderful thing is that the cycle cannot stop until the prices have been driven beyond redemption. Everything is over leveraged and the people who are making the money are money lenders actually. The builders make their margins and if they are smart they keep some money to the side for when the ponzi scam collapses. Prices have reached the stratosphere and the greater fool(people like Bindaas Bhai) supply has eroded so now the whole thing will collapse.

Also, as vulture has elaborated since the prices are being artificially being held up for about a year plus not the implosion will be even more profound due to the stresses being built up in the price supporting structure. So we might see a complete collapse if this holds out for a bit longer.

It all makes sense now. Waiting for some time will be very handsomely rewarded.

The Satyam-Maytas deal was also illustrative of how desperate builders are becoming for support and cash.

Thanks all for making my education complete.

Vik said...

I've been reading and hearing about Schiff for some time and his points are bang on target. The thing right now which is not clear to me is how the almost zero interest rate policy in US impact lending in India. If one assumes Indian rupee to be range bound at 50, one can borrow at 5% in US and invest at 8-9% in India something similar to the Yen carry trade. This will in turn be lent to Indian investors which cab create another bubble. As a large percentage of these consumers are IT folks, without a substantial reduction in salaries or job cuts, these folks will be more blinded by greed then fear.

Anonymous said...

@Vic,

I am based out of the US and in the IT industry :)

I think amongst IT folks here its universally accepted that Realty prices in India are at a bubble stage. Most of my friends here have bought houses in 05/06 at the peak of the bubble. So almost everyone I know is thinking of buying a house when prices fall down in 2010/2011. Also, I think trading in equities is forbidden for NRI's so really doing a dollar carry trade or equivalent is a bit of a far fetched proposition.

Shivaji said...

@Anonymous 9:52 AM

It seems that your 'thinking' logic circuit has developed a fault and I suggest you dont use it until the fault is rectified

Regards

Anonymous said...

Shivaji,
What's wrong with Anon @9:52AM comment?

Shivaji said...

a) Most of my friends here have bought houses in 05/06 at the peak of the bubble.
b) So almost everyone I know is thinking of buying a house when prices fall down in 2010/2011.
c) Also, I think trading in equities is forbidden for NRI's so really doing a dollar carry trade or equivalent is a bit of a far fetched proposition.

Can you make any sense out of the above statements