Wednesday, February 11, 2009

Al-Jazeera's coverage of the Indian housing bubble

Unfinished projects, shattered dreams, uncertain future, rampant greed, no accountability. This is what I was afraid of. Parsavanath and others builders need to take a lesson from this crash. Gravity is universal. In the credit unwinding spiral, there is the genuine buyer who is going to pay the price for the greed of the few. Lesson to be learnt for buyers. Go with completed projects and haggle hard. This is your time. Any investment in a project which is kicking off or half completed is destined to drag longer then you ever expected.

Here is Parsvanath's pricing At $400k per apt, at Rs 7000 per sq-ft, this is a price headed for a 50% correction in the next few years. I hope the couple hasn't take loans. If they have they will be bleeding pre EMI interest of close to 1.5L a month, not to mention the EMI interest which will kick in. This is a real life scary situation. God save these guys.

Thanks to Anon @ 9:34 am for the link


Anonymous said...

tech coolies are hurtling down to the reality.. Fast.

Harish Bijoor, who runs a consulting outfit out of Bangalore, suggests that the news will get worse before it gets better. He has advised many clients to trim the fat, or to sack mid-level employees making Rs 18-26 lakh a year first. "Yes, I'm one of the people asking companies to lay off employees to cut costs," he says. Add the gloomy HR picture in the US and Europe, and the potential return to roots of many non-resident Indians, and the picture becomes scarier. In response, business consultants have come up with yet another prediction—those fired today will happily re-enter the workforce with 30 per cent lower pay. If spending restraint doesn't signal a storm of lifestyle readjustments, the triple whammy of fewer jobs, lesser perks and acceptably lower pay should do it.

more here

Anonymous said...

This is just one of the many..There are many such projects all over Mumbai too by kalpataru in Vikhroli, Lodha in Sewri and many others which are left in between..And all these builders have pocketed crores all these years and still can afford their lavish mansions and top of line cars but there is no accountability when it comes to delivering their project on time..When will there be a regulator who will wield the axe on this builder mafia...

Anonymous said...

DLF puts housing projects on hold
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DLF, India`s largest property developers has put on hold two of its biggest mid-income housing projects due to acute liquidity crunch and poor buyer sentiments, reports Business Standard.

This move comes after the realty major stalled at least a quarter of its commercial projects. The company has halted work at DLF (Q, N,C,F)* New Town Heights in Gurgaon Sector 90 and Express Greens in sector M1 in Manesar, both in Haryana. The two projects were launched in January and August 2008, respectively.

Work on both these projects has just been started in New Town Heights project, the company had merely undertaken excavation work, while in the Express Greens project, the company has just marked the boundary with its bill boards.

The company has sold most of its apartments in New Town Heights in the first few months, offering 3 and 4 BHK apartments at Rs 2,125 and Rs 2,505 square feet, respectively. However, sales in the Express Greens that offers 3 and 4-bedroom apartments for Rs 1,760 and Rs 2,125 respectively are slogging.

The developer has stalled work on nearly 16 million square feet of office and retail mall space out of the 62 million square feet under development.

The company`s third quarter profit has dropped by 69% to Rs 6.70 billion and has seen its debt jump by Rs 15 billion to reach Rs 14 billion in the third quarter of FY09.

Shares of the company declined Rs 1.65, or 1.08%, to end at Rs 150.85. The total volume of shares traded was 5,892,639.00 at the BSE (Wednesday).


Yoko Ono's Owner said...

In Bambaiyaa Colliqual - Lagg Gayee!!

Shucks!! I dont feel sad for the Madan's in the video. They seemed loaded. Its the poor daily wagers who are really hurting.

As for those with high emi's - prayer is your only answer. Besides of course defaulting and losing a small fortune if you dont mind that.

Anonymous said...

Yoko Ono's Owner said...
In Bambaiyaa Colliqual - Lagg Gayee!!

Shucks!! I dont feel sad for the Madan's in the video. They seemed loaded. Its the poor daily wagers who are really hurting.

As for those with high emi's - prayer is your only answer. Besides of course defaulting and losing a small fortune if you dont mind that

A typical loosers talk, Buliders have pocketed and this John is laughing on innocent people.

Grow up buddy.


Shailesh said...

Housing prices down 30% in 4 months: JLLM

The prices of houses have come down by up to 30 per cent over the last four months but weak consumer sentiments continue to prevail resulting in subdued demand, says realty consultant Jones Lang LaSalle Meghraj (JLLM).

"JLLM expects Rs 1,800-Rs 2,000 per sq ft as the bare minimum pricing level in the current market," Puri added.

Couldn't they have said that in 2006 when the boom was going on in full swing.

Shailesh said...

Asia’s real estate market to crash

Experts warn Asia’s real estate markets are expected to crash by almost 50 percent in the next six months. Property prices which had primped up in the last two years will nose dive as banks, financial institutions and multinational companies sell property to keep businesses afloat.

“But in a market downturn, once expectations worsen, prices could smash previous estimates and even go below the cost (of construction),” he continued.

Governments in both India and China have taken considerable measures to plump up the real estate market. A large part of the country’s stimulus packages have already been diverted to infrastructure growth, banks have resumed lending to developers and greater tax concessions and cheaper mortgages are available to homeowners.

What about arguments of prices not falling below construction cost.

Shailesh said...

How a real-estate firm tries to buck the slump

A top company executive who did not wish to be named said under the proposed scheme, if the price of a house drops within a year of a consumer entering into a contract with the developer, the latter will pass on the benefit of any reduction during the year to the consumer. “The consumer would ultimately pay only the reduced price of the property,” the executive said.

Why would any home buyers jump the gun at this time is beyond me? Why give any fere money to builder, when there is good chance that they will go bankrupt the Satyam way.

Vik said...

The builders are trying to launch one retarded scheme after another. What is the use of price protection if the builder files for bankruptcy. Who will protect the buyer. The answer right now is simple. Layoff all most of the sales and marketing staff. Hire workers to complete the project. the biggest problem with many builders is the lack of cash flow. Since all the bubblemasters have tied up capital in illiquid speculative land, there is way they can fund the construction cost right now, without suckering new buyers. This is ponzi scheme also called cash flow. The sharks with money are waiting for the builders to pledge land against loans, most at 1/5 the valuation. This year I expect we will see hundreds of builders going bankrupt. Unfortunately not everyone is Ramalinga Raju to beat the system thru connections to the top.

Observer said...

Worst recession in 100 years to hit UK. Other developed countries also will not be spared. The Euro zone banks are even more leveraged than the US, and are the primary lenders to India. I think it is a safe conclusion that the US, UK, EU and Japan have entered a Depression. They account for almost 60% of world GDP. How will diversification help for the IT companies when all their major markets are in trouble?

Here is the speech by the UK PM's cabinet member, suggesting this downturn could last 10-15 years, and become worse than the Great Depression of the 1930s.

UK recession to be one of the worst in 100 years

Britain is facing its worst financial crisis for more than a century, surpassing even the Great Depression of the 1930s, one of Gordon Brown's most senior ministers and confidants has admitted.
Related articles

* 'Hint of arrogance' as bankers apologise
* Dismissed executive 'warned HBOS of risk'
* RBS to axe up to 2,300 jobs
* Oliver Wright: Failed bankers are Masters of the Universe compared to MPs
* Alistair Darling: The banks are to blame for this crisis
* Sarkozy says sorry to Brown over VAT cut comments
* Dominic Lawson: Bonuses are a political issue, not a moral one
* Jeremy Warner: Bankers' excesses require retribution, not reviews of pay
* Steve Richards: Politicians vilify the bankers – but they don't dare to act
* Leading article: These bankers must explain their disastrous decisions
* Bank employees set to sue over cuts in bonuses
* Division of the spoils – how the bonus billions are carved up
* 'Deeper' recession will lead to financial crime wave
* House hunters 'returning to market'
* MPs demand apologies from fallen bank bosses

In an extraordinary admission about the severity of the economic downturn, Ed Balls even predicted that its effects would still be felt 15 years from now. The Schools Secretary's comments carry added weight because he is a former chief economic adviser to the Treasury and regarded as one of the Prime Ministers's closest allies.

Mr Balls said yesterday: "The reality is that this is becoming the most serious global recession for, I'm sure, over 100 years, as it will turn out."

He warned that events worldwide were moving at a "speed, pace and ferocity which none of us have seen before" and banks were losing cash on a "scale that nobody believed possible".

The minister stunned his audience at a Labour conference in Yorkshire by forecasting that times could be tougher than in the depression of the 1930s, when male unemployment in some cities reached 70 per cent. He also appeared to hint that the recession could play into the hands of the far right.

Observer said...

I think many Indians will also lose jobs, particularly in sectors which export to developed countries, like in textiles, gems, leather, auto components, minerals and mining, cash crops etc.

IT may also be hit, but probably to a lesser extent, because salaries will drop by 40-50% and thus be consistent with reduced budgets in developed markets. Businesses will probably continue to spend, unlike consumers, who will sharply reduce their purchases of consumer goods like clothing, jewelry, shoes and other items exported by India and other developing nations.

Prices of high-end apartments will probably face the most severe stress, most of those 1crore apts in Bangalore, Hyd, Chennai, Mumbai are going to be sitting empty. In Bangalore, even 60+L apartments are barely selling.

I think only 30L apartments will find buyers to some extent this year. Many builders are going to go bankrupt. Even Indian banks are going to suffer significant losses, and the stock market is going to go down by another 30-40%. Sensex 5000 by the end of this year as the deleveraging continues.

Observer said...

For those NRIs who are living in the US, UK, EU zone, it might be wise to consider returning to India. As the downturn accelerates, and jobs vanish in the developed countries, they could face increased negative attention. The social mood will get progressively worse and result in the rise of xenophobia among the local population.

This depression will last many years, maybe 5-10 years before any meaningful recovery. The smart ones among the NRIs will quickly get a good position in India before things deteriorate much further.

Anonymous said...

West will survive because of their eslablished infrastructre. India and China who depend on west will hard hit. Indian Engineers don't make more than 10-15k in coming years as there are so many Engg colleges and flooded engineers in the streets. So the house prices will never go to for 15-20 years from now in India. In US it will be job loss and then slow recovery. In india it is salary loss and no recovery. Take care.

Anonymous said...

More Loss Expected in Real Estate Sector

Falling prices and interest rates are unlikely to woo once-thirsty home buyers now spooked by slim pay hikes and job cuts, and may push cash-strapped realty firms to drop prices further in order to stave off losses. For months, real estate firms, including top-listed developer DLF and No.2 Unitech have been looking to raise funds to boost liquidity and cash flows rather than to drive growth projects. “This is a major major recession and everything is affected; so everyone has pulled back and no one is willing to commit money or cash and hence there seems to be no other source to bring in that money,” said Anurag Mathur, Managing Director of real estate consultancy Cushman & Wakefield in India.

“Now, will that lead into bankruptcies? I don’t know because that’s going to be a very case-specific question. But very clearly there is a lot of distress in companies.” Banks’ aversion to lend to property firms has increased against the backdrop of the worldwide subprime meltdown, even as other lines of credit, such as debt and equity, dry up. And even though state-run banks, led by top lender State Bank of India, have cut lending rates for buyers following the central bank’s easing measures in October, demand has not nudged up in response. While the banks’ moves would help shift attitude, “many other factors” are now influencing buyers, said Ravi Ramu, director of Puravankara Projects Ltd.

“Let’s see, if things become worse in the world and worse in India then they won’t start buying even if interest rates come down,” he said. “People are worried about their jobs. There are many factors, it is a very complex environment.” Industry players say property prices have fallen by up to 25 percent, to near-2006 levels. In addition, buyer terms have also changed. Home buyers now want projects to be completed before honouring their payments, effectively crippling builders who typically derive a big chunk of their construction costs from buyer advances.

Even as developers hope for some relief on the demand front by March, analysts say they do not see a revival even after a year and anticipate several firms will slip into the red in coming quarters. This could prove a complete turnaround for real estate firms, which rode a four-year bull run that saw property prices more than double on soaring demand. “In the next two to three quarters, many companies might start posting losses. Its going to be really bad. Volumes have completely dried up,” said Shailesh Kanani, analyst at Angel Broking said. DLF reported a 69 percent slump in December quarter profit, while Unitech’s fell 74 percent. They are looking at selling some assets to shore-up against a property slump. But on Friday, midcap realty stocks had risen between 10 and 40 percent on hopes housing would benefit from the interim budget due later this month after the government said it may include some changes in the tax structure and further stimulus measures. The realty index has plunged 90 percent from its year’s high of 12,848.09 in January 2008.

Anonymous said...

Anon 1.39 PM - So the opening of many engg colleges reduced the pay of engineers... So the govt should reform medical education so that streets are filled with doctors...

About 10 - 15 K pay... Good prediction... Can you give predictions for exchange rates and GDP growths also... After all the purpose of predictions are to provide entertainment

Yoko Ono's owner said...

Enggineers are already available a dime a dozen for less than 15000 as starting pay. I dont think economy will decline to the level that salary reductions will become drastic. However unemployment amongst graduates and above will rise while salaries remain stagnant.

Cool Head said...

This year even IIT Bombay had problems in placements! All these years these engineers used to be snapped up by the Wall Street firms/Mgmt consultants and other idiots who offered sky high salaries. This drove away genuine manufacturing and engineering companies away from campus recruitments-now this years batch is finding placements hard to come by-so the statement about 10K salary levels is not outlandish

Anonymous said...

When too many people are thinking negative that is good indication of bottom and vice versa too. Frankly speaking we have no idea how long it will take to recover. If past history is any guide we all SMART people will be wrong again.

My personal opinion is China/India will do fine but US/UK will have problem for next 1-1.5 years. Do not compare this Depression with 1930 as world is different, economies are different, tools are different, magnitude is different, international trade is different.
I can keep talking here.

On the other side definitely I see overcapacity in lot of industry and companies need to work on that.

Indian real estate market will do fine overall. Bubble builders will not survive but some of the decent luxury builders will have good time since lot of capacity will not come to market and that will keep things balanced.

Vik said...

Anon at 8:42:
Its all about market sentiment which gets exaggerated in both directions. Noone knows the bottom. The key is to keep a cool head and don't roam with the herd. There was value is 2004, and there is value in 2009. The key is to find it. In 2004 it was in the developing areas. In 2009 it is the distressed areas. In 2008 it was euphoria so any purchase anywhere would be down big time. If one entered the market in 2008, my symphaties.
If one entered any market over 7k with a loan, my sympathies again.
If one entered the market at 3k in any year with a decent builder and locality and with or without a loan, congratulations on a job well done.

Its all about value and quality, whether its in stocks, real estate or the tomatoes you pick off the grocery store.

Prashant said...

Anon at 8:42 ...

Your statement is correct ...
"When too many people are thinking negative that is good indication of bottom .."

The only problem is that only the folks on this forum are talking negative .. the general public is still not negative. They are simply playing the wait and watch game. Some might be even thinking that 20-25% correction means bottom. The slide has just begun, and we have a long way to go. I suspect the maximum damage would be done within the next 2 years. Thereafter the housing scene will remain depressed for years to come.

The real test of the bottom is that the public should be VERY FEARFUL to buy. That time is certainly not now. I guess that will come within next 2 years.

Anonymous said...

Deepak Parekh has been talking abt a talking abt a 30-40% correction from almost 4 years now .. look what it did .. builders just went into a huddle and created a cartel and as an affront they defiantly increased the prices each time there was talk of correction .. so much so that today's realty prices in cities like Mumbai are more expensive than London and New York

Hope for the common good of all that these stupid builders now realize that they have taken things too far .. people's incomes are nowhere close to that of US or UK and they just cannot afford these prices .. period .. they can increase prices all they want and hold on to their unsold flats .. good for them .. but guess what .. we are NOT going to buy that crap for whatever its worth .. you can keep your flats for yourself and make achaar out of them .. we will wait for you to go bankrupt.

Builders should realize one thing .. someone who can afford a flat at today's prices won't be desperate and living on the roads .. they will continue living where they are living today instead of making a risky property investment in this market .. which is likely to lose value than appreciate .. and if they lose their job in the coming market upheaveal .. god forbid

Anonymous said...

After restrictions on Foreign bank for overseas lending, now the private equity is giving another jolt to RE. Surprisingly PE accepted that valuations have dropped to almost 50% of the original valuation at which the deal was decided.
--Chanda Kochhar (ICICI) also admitted the exorbitant RE profit margin & expecting further 15-20% price correction.
--Mr Chidambaram is now talking about recession & tough time ahead in 09-10.

Oops ! Vulture is advocating minimum 50% price cut since one year.

Last week, Mr. Bernanke & Krugman has raised the concern about deflation, we can not rule out the possibility of deflation then depression.
--Salaries has slashed down by 25%.
--IT contracts has been re-negotiated with 25% price cut.
--Oil is 400% down to it’s peak price.
--Steel prices have corrected to the tune of 20% worldwide, it can fall by 15% immediately provided govt. abolish the import duty.
-- Almost all companies has laid off or in process of lay off.
Though CPI is showing inflation(~5%) but asset classes are showing the signs of deflation.

What’s ahead?
Though Obama’s stimulus package looks to be promising, it will take a year to show the sign of relief. For Banking crisis, still there is no solution, means the crisis is getting elongated. Even with most optimistic view, the recovery will start in 1-2 years, complete recovery is not in short term.

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


MathFan said...


How oil is down 400 %?
If oil is 140 $ now if it is 40 $

Price decrease = ((140-40)/140 = 71.4 %
I like your views... But please improve on maths

I feel very uncomfortable when people have their own definition of things...

Anonymous said...

MathFan ..

Check your fundas before posting ...
its (140*100)/40 = 350% reduction which is closer to 400%

Anonymous said...

The avg. price of oil should be $35.00 If it went up to $140.00, it means it went up 4 times or 400% of the avg. price $35.00. When people say it went down by 400%, it still in reference to the original price of $35.00. Basically, back to senses and bubble free.

Anonymous said...

To Anon @ 2:00PM

When you calculate change (appreciation or depreciation), you take original price (in this case $140) as base and not the new price ($40).

Guess now you know why you could not clear that QA section in CAT :P

Anil said...

Anon at 8:42:

ref# My personal opinion is China/India will do fine but US/UK will have problem for next 1-1.5 years

Excellent..I wonder where you work (most likely not in china) and also what you read but have look at what TOI reported today Feb 15th. Neither china is doing or will do fine nor india..china at least started accepting the reality but india govt is hiding the real pic may be in view of comming elections.thats what happened in US.US media was asking Henry Paulson about possible resession late 2007 and I watched him on CNN ruling out and asking reporter mockery Q "where is resession - i don't see?" everyone know how he retired and saying what. They accepted it finally saying "US is in resession since year" why didn't they accepted its erlier...becasue they wanted to get the elections campaign over.

Same is the case in India now..elections are comming and govt will try to project as much rosy pict as possible


Once key to China’s boom, Guangdong reels under slump

Saibal Dasgupta | TNN

Beijing: Guangdong province, which has been at the heart of China’s economic miracle, is in serious trouble. The local government has admitted that 2,452 manufacturing companies have shut down.
But industry sources said the situation was grimmer. It’s said more than 20,000 companies in the province have cut back operations to just 30-40% as exports have dried up. Over 450,000 migrant workers have lost their jobs.
“This will be the toughest year for Guangdong since reforms as the global crisis has still to bottom out and the world economy is slowing down. We anticipate a growing downward pressure on the economy,’’ Huang Huahua, the provincial governor, said on Friday. China observers say the official figures do not cover firms that have either closed down since January 1 as the crisis deepened or those that are on the verge of closure. The next few months may see more closing down.

Medium-sized prodn units worst hit in Guangdong

Beijing: The high growth of China’s Guangdong province in 2007—a dizzying 14.7%—is faltering. Last year, the figure fell to 10.1%. Its governor Huang Huahua said this year it would be a challenge to achieve 8.5%, the lowest in 30 years.
“The economy of our province is closely linked to the outside world, and the task of maintaining stable and fast economic growth is extremely difficult,’’ he said. “The province will have to transform and upgrade itself from low-end manufacturing to highend industries in order to survive the crisis,’’ he added.
Liang Yaowen, head of the Guangdong provincial department of foreign trade and economic cooperation, said that 96% of the companies that have downed shutters are small or medium-sized firms. Guangdong’s exports exceeded $417 billion last year and the province accounts for onethird of China’s international trade.
As a desperate attempt to salvage companies, the local government has offered to reduce the contributions that companies make towards social insurance premiums by $2.2 billion this year.