Friday, January 16, 2009

Builders under pressure as buyers press for refund

Economic Times reports

Real estate boom are now under pressure from buyers and investors who look to exit these projects.

Already in a spot due to unavailability of bank loans and a fall in sales, the developers are less inclined to oblige the buyers who are coming together to mount pressure for refunds in projects that are yet to take off.

Several buyers and investors, angered by the developers’ inability to start work on projects, have stopped payment of installments on their purchases, adding to the companies’ cash problems.

Investors in DLF’s commercial projects in Delhi and Kolkata have come together with the help of brokers to put pressure on DLF to start construction or refund initial deposits. “DLF is way behind schedule in their projects. It should either start work on the project immediately and deliver in time or return our investment with 15% interest,” says Amit Jain (name changed), a senior executive with an MNC who invested Rs 1 crore each in DLF’s projects in Okhla in Delhi and Kolkata.

Mr Jain says since DLF follows a time-linked payment plan, it has been demanding payments from buyers even without starting construction.

The broker, who facilitated Mr Jain’s purchase, says DLF has not even paid the government to convert the industrial plots at Shivaji Marg and Okhla in Delhi into commercial plots. However, a DLF spokesman denied this saying, “We go by the agreement with the buyers signed at the time of booking. The allegations over the status of our projects are not true. We will deliver as per schedule.”

Several projects of Omaxe, Unitech and Parsvnath are also facing similar problems. Akash Verma, a Noida-based garment exporter, had booked an apartment each in projects of Omaxe and Unitech in Noida. He booked an apartment at the ‘soft launch’ of Omaxe’s Noida project in May 2007. Omaxe had promised to launch the project formally a few months later at a higher rate. The formal launch never happened and investors like Mr Verma are stuck. Omaxe has turned down requests for a refund. An Omaxe spokesman, however, said the company has ‘considered and taken care’ of all such requests.

Mr Verma has also been unsuccessfully seeking a refund of his investment in Unitech’s Grande project. “I am paying Rs 4.5 lakh as EMI. Unitech executives say the project will be delivered on schedule, but there is no worker at the site,” he says. A Unitech spokesman said, “We generally discourage cancellations. But if the buyers insist, we refund the money after deducting 10-15% of the total value of the apartment.”

Most realty firms do not encourage refund requests. Till the end of 2007, investors could easily sell their property in open market as the prices were going up. But with buyers disappearing from the market, investors are forced to approach developers for refunds.

Some property buyers are seeking refunds due to their weakened financial positions, while several others do so as they are not sure of the developers’ ability to complete the project. There are a few others who seek refunds as they feel that they can strike a better deal now with prices undergoing a major correction.



21 comments:

Shivaji said...

Following link is some what relevant to real estate/IT bubble.

http://www.mid-day.com/news/2009/jan/160109-Pink-slips-salary-slips-tsunami-crystal-gazers-astrologers-numerologists-Fengshui-consultants.htm

Real Estate developers/agents, I am sure are following suit.

Incredible India!!!!!!!!!

Jai Hind

Anonymous said...

I think all investors and buyers should try to get their deposits back, as much money they can from builders. The longer they wait, the builders will not pay them back. Even if they try now, it will not be easy to get money out from sinking builders.

Well, greed has no limit. I met someone who made 1.9 crore rupees from 2003-2007 by flipping houses in Delhi. He started with 10 lac rupees in 2003. Now he became more greedy and invested 2 crore on some builder project that is all in toilet. He basically is back to his starting place and even lost his 10 lacs.

HB

Anonymous said...

Thank you Shivaji for sharing the interesting article...

Pune IT professionals rush to astrologers

PUNE'S Information Technology sector has been severely hit by the economic tsunami. Pink slips and salary slips have been haunting the employees across companies.


These people have taken huge loans for house and car when the economy was rosy. Now, when economy is on the downturn, their salaries have been cut which has badly affected their cash flow making it difficult for them to pay bank EMIs," she said.


Astrologers, too, are a most sought after group. Astrologer K Soni has witnessed 25 per cent increase in his business in the last two months. His clients are mostly businessmen hit by credit crunch and those who have dabbled in the stock market.

Remedies

- change spellings of names (this will help crooks to bailout themselves when their deft financial maneuverings get exposed)

- change signature ( fudge the books and authorize it with the fake signature )

- position of the planets has a direct bearing on the mental condition of humans (unfortunately we cant change the position of planet. I request dear planets i.e. Jupiter, Mars, Venus etc to exert some pressure on Finance minister, RBI Governor for not playing in the hands of Real Estate Lobby by releasing some chemicals in their asinine brains...)

- change direction of sleep ( ????? )

Ananya said...

It is high time we have a regulator for builders. There should be unifrom standards for all.
1.They should be taking loan disbursements only on mile stone basis and not time bound as DLF and several others do- taking money even before any construction has started.
2.Exit norms should be clearly same across- some charge exhorbitantly some are reasonable in refunding (before agreement).
3.Pealty for delay- look at adarsh palm retreat- see their plight in yahoo groups- theere is no progress even after 4 years delay- they are all trapped with no recourse to justice.

Yoko Ono's Owner said...

Today (saturday) edition of times of india (Page 9 - Property prices drop but buyers dont bite) has coverage on the Real Estate - not favourable - but basically I havent seen so many Property adverts (that too full page - notably Mantri Group) since 2004! Its only a matter of time - prices role back to pre2004. Wait for a while.

Most of the so called Consultants from JLLM Megraj etc who till 2007 where bullish about the property sector - today - on CNBC Awaz actually commented to wait atleast 6 months before the prices become attractive - the same guy!! Which could mean that prices will keep dropping for a year or so.

Anonymous said...

Another story on ET - Bank stopped disbursals as there are no construction activities on site -

http://economictimes.indiatimes.com/Markets/Real_Estate/News_/Banks_builders_put_home_loan_buyers_in_a_spot/articleshow/3991990.cms

end result - buyers will be paying interests on whatever ammount has been disbursed so far with no clear completion timeline with looming job insecurity plus rentals on existing accomodation..not sure where this is leading...

-Anil

Anonymous said...

I think the link to my above post was incomeplete - pls follow the link below

Banks, builders put home loan buyers in a spot

-Anil

Shivaji said...

Re:
http://www.thehindubusinessline.com/2009/01/11/stories/2009011150770200.htm

Comments:
Another scam!!. The UK investor is Sunil Manti himself, and the money involved is part of stash hoarded in off shore banks, probably Swiss or Luxembourg. This is a last ditch effort to woo the investors.
I guess this wont work as in the present economic climate, no investor will risk his white or black money in real estate sector that is doomed.

The above is obtained through a very prominent Pune real estate developer

Anonymous said...

Editorial in today's economic times:

http://economictimes.indiatimes.com/Opinion/Realty_sector_must_adjust_to_new_reality/articleshow/3991492.cms

Observer said...

Check the comments section for this post:

HDFC reduces home loan rates

All those who plan to buy a house on a loan should realize that once the buyer signs on the loan document, he/she is a slave to the bank for the next 20 years. They can do anything, rates may go up or down after the teaser introduction rate, tenure may be arbitrarily increased, and the comments below show the lack of peace of mind among the loan-takers. Do not go into debt. Save money,
and pay as little as possible for houses so you do not end up frustrated like those below.

Some samples of comments:

Bishnu Agarwal,Delhi,says:HDFC is unfortunately not reducing interest rates for existing home loan borrowers. When rates go up HDFC is the first to raise rates and that too at higher than market rates. They are cheating people and have no business to be in home loan. I want correction in my home loan rates before they can reduce rates on new borrowers.

Amit,Gurgaon,says:I guess this is for new customers only. We need a law that such offer should be for existing customer too. It gives a feeling of being cheated whenever things like these happen

SK,Bhopal,says:When will ICICI cut the rates? They are still charging >12% on floating loan.

ANEESH GARG,NOIDA,says:TO ALL THE ICICI HOME LOAN HOLDERS: LETS US VOW NOT TO HAVE ANY FUTURE DEALINGS WITH THE NAME ICICI AND ANY OF THEIR SUBSIDARIES. BE IT FIXED DEPOSIT, INSURANCE, CREDIT CARD, CAR LOAN, SHARES TRADING ETC ETC. LET US ALSO TEACH THEM A LESSON FOR CHEATING US. ICICI IS CURRENTLY CHARGING OLD CUSTOMERS IN THE RANGE OF 13% TO 14.5%. THEY HAVE INCREASED THE RATE BY 2% IN ONE GO WHEN INTERST RATE WERE HARDENING BUT NOW REDUCED BY 0.5% ONLY. THIS IS RIDICULOUS. OUR GOVERMENT, MANMOHAN SINGH, CHIDAMBRAM ARE ALL TURNING A BLIND EYE TO THIS LOOTING BY THESE PRIVATE SECTOR BANKS. OTHERWISE WHAT IS THE RATIONALE WHEN RBI HAS REDUCED ITS RATES DRASTICALLY, INFLATION IS DOWN TO AROUND 5% FIGURE, BUT ICICI BANK SIMPLY REFUSES TO PASS ON THE BENEFITS.

Rahul,Mumbai,says:The cheating and fleecing of the customers continue, by the unofficial cartel of lenders. They will attract customers with discount rates, lock them in and then increase the rates, as soon as they get a chance, but will take ages to bring them down, even if the PLRs go down. The customers are treated like donkeys. They have noone to protect their interests.

Observer said...

Missed cutting-n-pasting one more comment from above link:


Radhakrishnan,Chennai,says:ICICI bank is the biggest looter in the country much bigger than Rajus, Parehks.. Even while reducing the 0.5% floating rate, ICICI bank has smartly reduced the EMI amount and kept the tenure as it was to suck more interest. I hope most of the ICICI customers would have received their letter/SMS on 14-Jan-2009 regarding this EMI revision as if they are doing big favour. I immediately contacted their home finance office and the explanation given by them was they reduced the EMI as a goodwill gesture to the customers it seems !!! What a shame to hear that ICICI shows goodwill to the existing customers ! ALL EXISTING HOME LOAN OWNERS OF ICICI, PLEASE REVIEW THE AMORTISATION SCHEDULE AND DON'T FALL PREY TO THEIR CLAIM THAT THE EMI AMOUNT WAS DECREASED DUE TO THE REDUCTION IN THE RATE. Reinstate your old EMI amount AS SOON AS POSSIBLE otherwise you will keep paying the interest for your lifetime! Best long term option would be to exit from all ICICI products and don't give the bank any opportunity to up-sell and cross-sell their money looting techniques !

Anonymous said...

Anyone been to realty expo by credai in bangalore.? (jan 17/18 . hotel ashoka). how is the response? please update.

Anonymous said...

R-Adag, realtors, RIL least trusted on ethics: Mint poll

Also rated poorly by the respondents were Delhi-based real estate companies DLF Ltd and Unitech Ltd, which were seen to have too many cash dealings which were opaque in nature
.....

An email sent to Unitech’s public relations agency and to R. Nagaraju, Unitech’s head of planning and strategy, did not elicit a response. Its managing director Sanjay Chandra did not answer calls made to his mobile phone.
..
A Reliance Industries spokesperson declined comment.
...
In an emailed response, a DLF spokesperson said that the results came “rather as a shock than surprise”.
...

Bharat said...

Dear Vic/All,

I have a request here. There are four categories of people one has to deal with when one makes the step towards buying a home -
1. Brokers
2. Builders
3. Banks
4. Govt. Authorities/Society

Can we summarise and categorise all the do's and dont's across these four dimensions for a potential buyer? This would be immensely beneficial for all people and attract many more people to come and comment/participate. Also if this even saves 200-500 people from falling into bottomless pits like banks or being locked up by builders then it would have done an immense social benefit.

I think this site has a plethora of information. We need to convert this into something that will do good for all. People like Vic, Shailesh, Vulture, HB, Shivaji, Observer contribute regularly and no doubt this is going to help quite a few middle class people, we need more contributors and checklists, scorecards, transparency indicators etc.

What do you folks think?

Anonymous said...

Bharat,
Potential buyers should just wait for 6 months to one year to see how it all unfolds. The houses that are priced at 80 lacs would be selling for 35-40 lacs in a year or so and still no buyers. Why would potential buyers want to catch a falling knife.

One should stay on the sidelines, save their cash and make sure they have a job. Once prices come to sustainable levels in the years to come, buyers can jump in.

Sustainable levels: I would say 1999-2000 price. I would suggest buyers to look at the rental price for the same house before signing on to a morgagae on that house. For example, if the rent is say Rs. 15,000 the mortgage should not be more than Rs. 20,000 per month. Otherwise it makes no financial sense in buying the house. One can easily save more by keeping the money in banks at 10% interest and double in 7 years. A house that rents for Rs. 15,000 pm shoulod not be more than Rs. 15,000x150 or close to 22-23 lacs. Or roughly 12 years of monthly rent.

HB

Anil said...

Hi folks, finally I decided to appear with identity for commenting / feedbacks

Anyways, very good suggestion Bharat@5:25AM

All this knowledge well deserves max reach to the masses. I believe its not possible to display all imp articles and comments on front page. No doubt blogging is the best collaberation platform but also its less likely beneficial for max users unless new commers digg out this huge knowledge base / experiences / dos / don'ts in articles and in comments. We know there were many excellent articles and comments out there b'coz we have been regularly reading. Even I think, there are many needy who deserve this collective asset and in return community benefits in return if reaches to many many like minded users who are in same boat.

Dear Vik, I guess its time to consider something like Wikki. I have name too "REWiki" RE for Real Estate. With this, a well organized KB will start building automatically with help from visitors and will be available in more formal / quick handy check list etc format. Being a techie I see its possible but again will have some financing issues. But I guess that shouldn't be too difficult issue as the effort/an attempt will certainly be a win-win to all promoter/contributors and readers as there can be advt options.
Also, there are many free websites including print media like TOI,ET etc, the real question is DO THEY REPRESENT REAL BUYERS AND COMMON MAN INTERESTS? CERTAINLY NOT!!! That's the reason we people never forget to check your blog at least once in a day.
Ultimate our common goal is to save ourselves and many more from this well organised lobby. Home purchase is dream for many and simultaniously a huge financial risk and probably once in life time decisions for many...

ananya said...

I had been to the CREDAI exhibition today and if anyone has not, they missed nothing.These guys collude and cartel together and pretend the world has not changed even if their shares have fallen by 90%, market is comatose and they have the gall to charge to see their 'old properties' some of which are being sold for 2 to 3 years now.No matter how poor or slow the sales are they are unwilling to cut prices, period.Time is running out to most of them and when the crash comes there would be no cushion to support it at the bottom.Brigade guys were so arrogant they would not even bother to answer queries properly.It is time consumers showed who the real boss is and bring these cartels down from their high horses.

Anonymous said...

Thank you Bharath, for initiating the discussion about thechecklist.

Brokers :

Keep in mind Warren Buffet quote "Never ask a barber if you need a haircut." The term broker conjures up the image of Raju,Bhai, Chootu etc on the streets parroting about the virtues of the given project and conveniently hiding all the possible financial hits you may take. The brokers are not only on the streets but you will find then in the guise of Real Estate “Expert”, editor of a major national newspaper, a bank manager, a guest publishing a column in a weekly Real Estate supplement, an expert on the TV show, your office colleague who must have hatched a deal with the developer to get a cut once you book a flat.

So even if we get all the information it is up to us to verify the authenticity of the pompous claims. I agree that it a daunting task but if we want to minimize the risk it is worth spending time doing the due-diligence.

Banks:

The Chairman of the HDFC Group has been telling from the top of the roof since 2005 that this is a Housing Bubble. He even quoted Stephen Roach "If it feels like a bubble, acts like a bubble and looks like a bubble, it probably is one." [Article].Next time during the interview with Shekhar Gupta on 'Walk the Talk' show he reiterated the same thing[Video of the Walk the Talk with Deepak Parekh] . He even expressed his surprise for the astronomical amount being paid for acquiring the lands for Commercial Real estate development in Mumbai/Delhi. As per his opinion there will be glut of excesses in commercial properties and there will be no takers and only undertakers.

So few of us must be thinking that why Mr Chairman kept it as secret. I remember Mr Vir Sanghavi interviewing Shahrukh Shan on Star TV and asking about the secret of the success and popularity. He answered that there are two ways to keep the secret. The first one is to never talk about it and the second one is to speak so loudly that people will never take it as secret. So please please please stop, listen and think.

Govt. Authorities/Society :

Check the News - Chidambaram Says India Growth to `Bounce Back' to 9%
Nov. 18 (Bloomberg) -- India's economy will ``bounce back'' to 9 percent growth next year as local demand holds up amid a global recession, Finance Minister Palaniappan Chidambaram said…………

The Government and the RBI have vested interests in the real estate sector. We know how the former finance minister once claimed that the Real Estate Business is the engine of growth when the automobile,manufacturing,cement plans were being shut down due to slowdown in the demand and reduced purchasing power. The RBI tweaked the rules so that banks could not classify the real estate loans as NPA (Non-performing assets) and could restructure the loans for delaying the payments from real estate companies.

Believe me had it been me or you defaulting on the EMIs, the bank's agent would have chased us like dogs and confiscated the assets to recover the dues. The memories of debtor committing suicide or receiving threatening text messages, email alerts are still fresh.

Builders :

Check our own affordability and stay away from the projects which are in the launching stage. Most of the real estate companies are reeling under the pressure of massive loans and it is very unlikely that the foreign investors will risk their money (considering the stings attached for udhar ka paisa form the bailout funds)

So there can not be a standard checklist or questionnaire. We need to plough through various sources and come with our won cheklist. Please visit the articles, blogs of various economists/bankers/professors who were parodied as Dr Doom, Bears, and Permanent Bears etc...e.g. Deepak Parekh, Nouriel Roubini, Peter Schiff, Stephen Roach, Elizabeth Warren etc..

We need to ask following questions to ourselves. This may help us to preparing our own checklist.

Q1. Why the banks are not reducing the interests on home loan in the same breath in which they were increased?

Q2. Why the banks are not reducing the interest rate for the existing the customer?

Q3. Why the real estate companies stocks have been trounced?

Q4. Why the real estate companies are not clearing off the excess inventory?

Q5. Why RBI is tweaking the laws eventhough the banks are not willing to do so?

Q5. Why banks are offering reduced floating rate for a limited period?

Q6. Why the IT professionals in Pune ( thank you Shivaji for the link ) are visiting astrologers, numerologist ? What are their implications for real estate sector?

Q7. Why the IT Company is beating the market expectations when posting the record profit in the guise of “Operational Excellence”? (reducing the variable and fixed components of monthly salaries, sending employees compulsorily on leaves without pay for fortnight, weeks..)

At last but not the least...In case of people who are in denial mode we can only hope and pray that they wake up to the reality otherwise even GOD cant help.

Vik said...

Anon and Bharat,
Good discussion. I will summarize your views and new post of it with my thinking. If Anon can post a user handle I can use it for further discussion. I need to mull over this for a day.

On a different note I was listening to a program on KGO 810 by Bob Brinker, a financial advisor and a comment made by a caller summarized the situation the US is in very well.
He said he graduated in 1985 with 25k in college debt and immediately got a job paying 25k. The debt to income ratio was 1.
In 1995 he bought a house for $140k when the combined income of his household was 120k, again a debt to income ratio of 1.1.

In todays economy a graduating student has a debt of $100k and can land a 60k job, a debt:income ratio of 1.66 When he/she goes to buy a house for 550k with a combined income of 180k the debt:income ratio is 3.

He said he expects the next 10 years to be even worse since the purchasing power of the dollar has been destroyed for the middle class.

No wonder people have a tough time in making ends meet since inflation and bubble economics have destroyed the purchasing power of the dollar.

The question is how did we get here ? Wall St with its obsession of productivity and profits has outsourced the middle class backbone jobs to boost productivity numbers and sold expensive and fraudulent mortagages to the gullible and unsuspecting citizens.

India has been a net beneficiary of the outsourcing boom, however the greed by Dalal Street and the Satyam scandal seem to have triggered a wave of unfavorable sentiment towards investing by FII's.

It will be long unwinding cycle as the availablity of cheap money becomes scarce.

In India due to lax law enforcement, corruption and a culture which looks down upon failure, citizens will suffer more then the west. This was the premise of my first posting. Its sad the prophecy is coming true.

Anonymous said...

I think this is the second MBA bubble I'm seeing the last 10-15 years. In mid nineties there was no demand for MBAs especially finance people.

Once again it is coming to the same situation. Most of the recent MBA grads will not find a job in the coming years as this bubble is bursting.

It is likely that 20-25% of currently employed MBAs will lose jobs and there could be salary cuts for at least 50% of these high paid idiots. It seems to be the most non value added degree. The corporations will soon realise their mistakes and letting go many of these people who are responsible for creating this financial mess all over India and even MBAs in US would suffer.

HB

saurabh kumar said...

Hello author,
Nice information shared by you.
Doon Square Dehradun is the standard class residential projects in the city of Dehradun. It offers 1 bhk flats with the sizes of 555 square feet at an affordable price.