Friday, August 08, 2008

Stupid reporting from Business standard

Here is another inane article on the decline of housing prices in Mumbai. Enquires are down, thats a ridiculous measure of volume of sales. What we need is hard data on the registrations. A quick visit to the registrars office and we should get this information. If they don't oblige one can get an RTI for it. Its good to see how much the black money component is of the sales in Mumbai. The decline is slow and steady and is going to bleed the high interest loan takers to a slow agonizing end.

Property developers, consultants and brokers have seen a 40 per cent decline in enquiries from home buyers over the last three months.

With home-buyers postponing their purchases owing to higher interest rates and increase in equated monthly installments, the slowdown in the real estate market is getting deeper.

The Mumbai-based Oberoi Constructions, which used to sell around 50-60 apartments in the June-July period, a traditionally lean period for property sales, has seen a sharp fall in sales during the same period this year.

Neelkanth Group, another Mumbai-based developer that builds homes in the central Mumbai suburbs, has also seen its sales dropping by over a third in the same period.

Property consultancy Knight Frank's chairman Pranay Vakil believes the situation is getting worse. "This is just the tip of an iceberg. The worse is yet to come,'' he said.

The 30 per cent year-on-year sales fall in June and July follows the 20 per cent decline in the previous six months. And no one sees any silver lining on the horizon.

The Reserve Bank of India [Get Quote] has raised the repo rate, the rate at which it lends to banks, by 125 basis points. Commercial banks have in turn raised their consumer loan rates by 50-100 basis points. Thus, on an average, the monthly installment on a Rs 10-lakh loan for 20 years has risen over 50 per cent to Rs 12,740 on a 14.25 per cent interest rate from Rs 8,060 (7.5 per cent interest rate) five years ago.

"Home buyers are adopting a wait-and-watch approach. While ready apartments are being sold, those under construction are not finding enough buyers,'' said Vikas Oberoi, managing director, Oberoi Constructions.

A cross section of property developers, consultants and brokers said enquiries from home buyers have gone down by 40 per cent over the last three months, compared to the same period last year.

While developers are not advertising any price cuts, most are willing to reduce the prices once the negotiations begin, according to investors.

For instance, in Gurgaon, where the prices are Rs 6,000 per square feet, developers are settling deals at Rs 5,500-Rs 5,400/sqft due to a sharp reduction in demand. This is apart from freebies such as free parking, waiver of stamp duty and equated monthly installments.

Property brokers point out that some pockets in Mumbai such as Andheri and Santacruz have seen the prices soften a bit in the last few months. In Andheri, for instance, prices declined to Rs 9,000 per sqft from Rs 10,000/sqft six months ago.

Wednesday, August 06, 2008

Nearly 80,000 forms sold on first day of Delhi housing scheme

Now this is a good way to make money by selling forms. 1L x 100 = 1crore. Not bad for a days work.

Times of India reports
NEW DELHI: Nearly 100,000 application forms were sold Wednesday for a Delhi Development Authority (DDA) housing scheme for the sale of 5,020 flats across the national capital.

The DDA Housing Scheme 2008 will provide over 5,000 flats way below the current market prices. The flats would be sold after a computerised lottery draw of the applicants.

“We sold about 80,000 forms today (Wednesday). Many of them were downloaded from our website,” DDA spokesperson Neemo Dhar told IANS. The application forms would be available till Sep 16.

“At least 10,000 forms were sold from the sales counter at Vikas Sadan (headquarters of DDA) and nearly 70,000 forms were sold from branches of various banks which are authorised to sell them,” a DDA official said.

“Nearly 15,000 forms were downloaded from our website,” the official added. The forms cost Rs.100 each.

The DDA is expecting more than 500,000 applications for the flats. “We have got nearly five lakh (500,000) forms printed but if they are sold out then we will get more printed,” Dhar said.

People thronged the sales counter to buy the application forms but many sensed that the odds were heavily against winning the draw.

“I was excited that I will be able to avail the opportunity to have a house in Delhi. But after hearing that five lakh (500,000) forms are being printed, the chances are very bleak,” said Ritu, a resident of Palam.

Sunday, August 03, 2008

What goes up comes down doubly fast

This is not a time to gloat about being right which we are but its time to reflect on how to asses the pitfalls which could encounter if we ever were to step into buying a house at some point in our lives. As the story will unfold we will see small builders being wiped out, projects delayed indefinitely, legal problems between landowners and developers magnified, large mega projects by tier-2 builders getting stalled due to cancellation in bookings, outskirt prices dropping like a rock. redevelopment deals shelved and many more black swan events out of scope of the human mind. The key to a good property is location so the good ones as always the case will suffer the least damage. The sun has stopped shining and most of the bulls have gone to the cow-sheds or tabela's they are called in Hinglish. The occasional bull who is still roaming the fields is going to be dinner for some big bad bear out there.

By CNBC-TV18s research analyst, Niraj Shah

Well, the biggie said it on Friday and it may well set the tone for what could be a full-blown cyclical downturn for the real-estate space.

DLF, in a press conference, mentioned about a possibility of volumes getting impacted due to a hike in interest costs (No wonder Dr Y V Reddy's actions have seemed like a sharp wedge in the hearts of Indian realtors). At the time of its IPO, DLF has mentioned that while residential prices may start to stagnate, the commercial customers will be strong and keep the company in good stead. The company has stated today that it believes that the upside in the rentals is capped and they, at DLF, do not expect rental incomes to go up here on.

Secondly - in an interview earlier, V Hari Krishna, CIO of Kotak Realty Fund came up with an interesting observation. He said that since January 2007, most of the consumers have withdrawn from the market and this is reflected in the fact that when one looks at home loan disbursements, they have declined by 22% on a YoY basis from 2006-07 to 2007-08.

The drop, in fact, would have been more had HDFC and ICICI Bank not increased their disbursement rate in this period. Ex-HDFC and ICICI Bank, the disbursements would have fallen by 50%, which is obviously a worrying factor as it indicates that end users have withdrawn from the real estate market.

Thus, one would be inclined to believe that the meteoric rise that one saw in property prices in regions such as NCR and some Tier-II and tier-III areas was more of investor and/or speculator demand rather than end-user demand. And thus, these prices tapering off have lead to a switching-off in that trade and thus a moderation in demand and prices.

Sure - in select pockets such as Mumbai, Delhi CBD, etc, you would still see the odd expensive land deal, rental increase, etc. But make no mistake about it-the property market is looking south. And the biggest property developer, both in terms of size and repute, coming out and sort of affirming it does speak a lot.

CNBC TV 18's MF team did some digging and figured out that while the number of PE deals, both outbound and inbound, have declined by 60% for Q1 on a YoY basis, there is increased traction in the PE deals in the real-estate space. With the Primary market route closed and the debt becoming expensive, it would either lead to a PE deal at a much lower valuation - or a faster tick of sales leading to increasing cash-flows, which would sustain the highly geared realty companies.

For the faster tick in sales to happen - which essentially means wooing the buyer in a high interest-rate scenario - the prices will have to drop significantly - and that is the way the real-estate space is poised to go, never mind the odd-exception here and there. How soon we get there? Anybody's guess - but from the looks of it, sooner rather than later.

Secret and lies about housing interest loans

DNA has a good article on how interest payments can exceed capital by a factor of three, thanks to the compounding effect of interest. For those who understand the details, this is a very good reason why high loans don't make sense any more. For those who are caught in this nightmare, not even Bernake or the 'Singh is Kingg' can save them. The effects of leverage and compounding work is reverse the same way as they on the way up.

Borrow Rs25 lakh home loan, repay Rs1 crore

MUMBAI: If the current interest rates stay, you might end up shelling out more than Rs1 crore to pay off a Rs25 lakh home loan. How? Read on.

Six months is a long time, especially if you happened to take a home loan back then.
Banks were charging a floating interest rate of 11% on their home loans. The equated monthly instalment (EMI) on a 20-year loan (or 240 months) of Rs25 lakh would have worked out to Rs25,805 a month.

Around one-month back, banks raised the interest rate on floating rate home loans to 11.5% and have now raised it by another 0.75% to 12.25%.

Last time, hike in interest rates were not accompanied by an increase in EMI. Banks did the smarter thing and increased the tenure of the loan. The remaining tenure of the loan went up from 240 to 269 months.

If banks were to follow the same strategy now and increase the tenure of the loan, instead of increasing the EMI, the remaining tenure of the loan would go up to 394 months. Add to this the six months of EMI you have already paid, and you are looking at a total tenure of 400 months. If you keep paying an EMI of Rs25,805 for a period of 400 months, you would have paid Rs1.03 crore (Rs25,805 x 400 months) by the end of it.

However, the bigger question is will banks allow tenures to shoot up to 400 months?

How it will hurt you
Principal Rs 25 lakh
Initial rate 11%
Tenure 240 months
Initial EMI Rs 25,804
Principal repaid Rs 14,707
in first 5 months
Principal left Rs 24.85 lakh
Rate after 5 months 11.5%
Remaining tenure if 269 months
EMI remains same
Increase in tenure 35 months
at the same EMI
Principal repaid in Rs 4,027
the 6th month
Principal repaid in Rs 1,8734
first six months
Principal left Rs 24.81 lakh
Rate after 6 months 12.25%
Remaining tenure if 393.5 months
EMI remains same
Increase in tenure 159 months
Extra money paid to Rs41 lakh
service the loan (Rs 25,804 x 159)
Total EMI to Rs1.01