Saturday, February 21, 2009

Goldman Sachs Research - Building up to a crisis














Also shows the trends are the last downturn in 1996.

Via R.N. Bhaskar at livemint.com. The original PDF can be found here.

Quoting Bhaskar:

The Mumbai attacks tipped real estate prices down by another 5-10%. This brings the decline in real estate prices in Mumbai to around 25% from peak levels. But market watchers say real estate prices in Mumbai could fall by another 25% over the next six months. Expectedly, most developers are bracing themselves for the worst of times (see the next item). The only silver lining appears to be the reduction in rates on home loans. But with consumers expecting real estate prices to fall much further, it is doubtful if too many people will queue up for such loans right away.

The last time when there was a crash in property prices (in 1996), it took four years for real estate prices to bottom out. This time, while property prices have fallen 25% rather sharply, the bottoming out is expected to take at least another year. So, evidently, the real estate sector could experience either a sharp downturn, or a slow prolonged one (see table).
Check out the article.

30 comments:

Vik said...

http://moneycontrol.com/india/news/market-outlook/buy-stocks-at-8k-sensex-for-20-return2-3-yrs-experts/386415

Moronic analysts don't realize that a FD will return 20% in 3 years, without an risk. What are these guys smoking ?

Anonymous said...

He Should Read President's Plan

Nothing in the president's proposal would help speculators, people trying to flip houses, or those who bought a house they knew they couldn't afford

Anonymous said...

The delusional buffoons ( read financial newspaper editors, Real Estate Developers, Speculators who raked in money during the boom and helped fuel the super bubble, IT Stalwarts bragging about 13-15 % growth) who made the life of common people horrible, have started peddling the lies about the economic recovery after mid 2009. The basis for the false agenda is US stimulus package (as per few economists it is just a drop in the bucket) please spend time reading the draft. No longer will the cheap money flow through FII, ECB conduits to India. The cheap money was the root cause of the unprecedented financial orgy.

The stimulus package is intended for laying the foundation of clean energy, Science & Technology, Modernizing transportation, reducing Medical bills and creating the jobs.

~~~~~~~~~

SUMMARY: AMERICAN RECOVERY AND REINVESTMENT Thursday, January 15, 2009

The package contains targeted efforts in:

• Clean, Efficient, American Energy
• Transforming our Economy with Science and Technology
• Modernizing Roads, Bridges, Transit and Waterways
• Education for the 21st Century
• Tax Cuts to Make Work Pay and Create Jobs
• Lowering Healthcare Costs
• Helping Workers Hurt by the Economy
• Saving Public Sector Jobs and Protect Vital Services

Unprecedented Accountability: A historic level of transparency, oversight and accountability will help guarantee taxpayer dollars are spent wisely and Americans can see results for their investment.

~~~~~~~~~~

The real estate developers are cribbing about the tight fisted policy of Indian Banks and how they are averse to loosen the purse strings. These beggars started raising the foul cry only after the supply of cheap money stopped all of a sudden. These morons don’t know that the things will move only southwards for them considering the pledge of the head of stimulus package for transparency, oversight and accountability for every dollar spent.

Anonymous said...

I came across a classical scam in Pune. A mega township project Blue Ridge(BR) on the outskirt of the city in Hinjewadi village is showcasing lot of amenities for town ship. But it is owned by another company floated by the builder, who is making club house business. To get the customers for club house the builder is setting up a town ship.

The poor buyer still do not understand that the projects quality is because of quality people lives in the neighborhoods, not because of builder tag & amenities. Will you like to live in south B’bay in luxurious apartment with neighbors as gangsters, pimp and prostitute?

The builders are using IT professional tag to pursue the buyers. If you realize this fact, you will detect the terms not the builder.

Vik said...

http://www.chartingstocks.net/2009/02/gone-in-60-days-citi-and-bank-of-america-wont-live-to-see-may/

Anyone suggesting this in dec 2008 would be considered a lunatic. Truly lifetime events

Anonymous said...

township-I'm starting to hate this word..sounds more like titanic
TMZ

Anonymous said...

@Vik

As some one with a bunch of money in Citibank India, I am beginning to think I should move the money immediately out of it, irrespective of nationalization or not.

Anonymous said...

What will be the impact (on our citibank india banking accoount) if its nationalized?. i have already created an accout in SBI for my wife. but she hasnt moved all to SBI.
Also can anyone tell how safe is HSBC? I have my account with them.

Anonymous said...

IN response to a rare show of consumer activism, India's realty giant
DLF may be compelled to change prices of its 3,493-apartment project
in Chennai apart from agreeing to a bouquet of demands to pacify irate
home buyers. Nearly 857 buyers, who have booked DLF's Garden City
project in Chennai last year, have come together to seriously
negotiate with DLF on issues such as refund of deposits while exiting
the project, pricing, access road and registration of undivided share
of land. They have sought a scrutiny of the original title documents
pertaining to the project.
They are angry over the delay in getting approvals from the local
authorities and what they see as DLF's reluctance to register the
undivided share of land as is the norm in Tamil Nadu. There are also
concerns over the inadequate nature of the access road. Some of the
buyers, about 200 of them, want to exit from the project and were
angry when DLF said that they would not refund their deposit money.
A group member said, 200 buyers have submitted their requests for
exiting from the project. They say DLF has agreed to refund the
deposit amount to facilitate an easy exit and is also planning to come
out with an attractive package on Monday evening to retain some of the
customers. SIMMERING CLAIMS
CUSTOMERS' WOES Nearly 857 buyers want to negotiate on refund of
deposits while exiting the project, pricing, and registration of
undivided share of land.
Seek scrutiny of project's original title documents.
Angry over delay in getting approvals from local authorities.
Concerned over inadequate access road.
DLF'S HEADACHES
Slowdown in demand and collapse of the credit market
Have to deal with falling stock prices, angry investors and unsold
apartments.
It had to cut prices of its prized Bangalore property by at least 30%.
Suitable package in the offing
"A SUITABLE package for existing customers is under finalisation and
shall be announced shortly," a DLF spokesperson said in a statement.
DLF also said it believes the package will be well received by its
customers, it said.
"We are sorry to note that you feel dissatisfied and wish to apologise
for the same. We have noted your observation about the lack of
communication from our office on the progress of construction etc and
will strive to improve on this score," a letter written on February 12
by K Srikanth, general manager, marketing, DLF Southern Homes said.
In another communication to an individual flat buyer, Mr Srikanth said
that DLF will shortly be announcing a package "which will be
attractive to individual buyers and reduce the cost of ownership". "If
you still decide to pull out, we will respect your decision and
process your request for refund of advance amount paid by you," the
letter written on February 16 said. DLF's problems highlight many of
the troubles facing realty companies. Stunned by the sharp slowdown in
demand and the collapse of the credit market, they are having to
grapple with a plethora of issues such as falling stock prices, angry
investors and a huge unsold stock of apartments. Many companies had
bought land at skyhigh prices in the recent boom. The current rates,
on the other hand, are simply not enough to recover their cost of
acquisition, forget about making a profit. DLF, recently had to cut
prices of its prized Bangalore property by at least 30%. Other realty
companies such as Unitech, Parasvnath and Purvankara are similarly
hard-pressed and have been forced to cut prices, scrap unviable
projects and raise money at high interest rates.
The Chennai home buyers have sought a 25% discount in the price of the
project. The DLF letter dated February 12 does not state clearly
whether the price will be cut. It only reiterates that the buyers'
sentiment will be kept in mind whenever the company initiates a cut in
light of market conditions.
Given the macro-economic climate, consumers, in general, are closely
monitoring every penny that leaves their pocket. With the realty
slowdown, crash in prices and an uncertain job market, consumers will
be looking at easy exit routes from projects that are not yet ready, a
realty tracker said.
DLF has sold over 1,500 apartments in its Chennai project in the price
range of Rs 2,800-3,200 per sqft. The bookings were done in January
2008 but the company got the approvals from the Department of Town and
Country Planning (DTCP) only in February 2009. The booking amount for
the flats is in the range of Rs 4-5 lakh. The approximate floor area
ranges between 1,200 and 1,938 sqft. The project, which is 3 km off
Old Mahabalipuram Road, passes through the Tamil Nadu tsunami
resettlement colony and the access road currently is 30 feet wide.
Apart from seeking a separate bypass access to the project, buyers
feel the road will not be adequate to meet the requirements for at
least 5,000 cars that will pass through it, once the project is completed.
"The site has 60 feet road access. Presently, around 30 feet out of
this in use. Subsequently this will be widened to 60 feet," says a DLF
spokesperson. The DLF reply is silent on the issue of a separate
bypass access to the project. The egroup of DLF Chennai buyers have
held several official meetings with company representatives in the
recent past apart from writing a letter to the company chairman in the
first week of February. A group member says that their collective
strength and perseverance has led the company to sit up and take
notice of their concerns.
Buyers are also keen on registration of undivided share of land as is
the prevailing practice in Tamil Nadu. They have also sought linking
of payments to progress of construction as against time-bound
payments, equitable penalty clauses for delay on payments by
consumer/delivery by DLF and operating of the club by resident
members. The DLF reply does not make a formal commitment on linking of
payments to progress of construction but has responded favourably to
the other two suggestions. DLF, which started taking bookings for the
flats early last year, bagged the Chennai DTCP approval only on
February 13, 2009. However, the company is confident of delivering the
apartments to existing buyers by April 2011.

Obelix said...

Regarding Citibank, it is anyone's guess what would happen to the money in Citibank India. The Indian Government does not protect the deposits more than Rs.1 lakh, that too I am not sure about NRI deposits.

If Citi is nationalized, it is expected they would provide the same safety net to overseas customers like they do to their US customers. Heck, even the Iceland banks were forced to protect the UK customers.

However, the question is, do you want to leave that to chance? :)

Anonymous said...

Folks ,

Nationalization of citibank will not affect your money in the bank in anyway . The whole purpose of nationalization ( if it happens ) is to safe guard the solvency of the bank thereby protecting the deposits . Don't panic .
It is a different story if you are a shareholder of the bank . Nationalization is going to wipe them off .

Anonymous said...

Anon above,
Citibank India can wipe out deposits of Indians by saying it will insure only 1Lac rupees whereas in US it is insured upto 1Lac dollars.

Anonymous said...

FDIC is now $250k as per the new law

Anonymous said...

crashing tech coolies...what remains is a bollywood crash that has bubbled up to unprecedented girth



http://www.telegraphindia.com/1090223/jsp/frontpage/story_10577409.jsp

Anonymous said...

Why 50% price guarantee? it’s not a magical number nor selected by Ratan Khatri.

“This apart, banks are cushioning themselves by seeking more equity participation from the developers, ranging between 40 and 50 per cent of the project cost, and providing loan not more than 50 per cent of the cost in commercial real estate projects.”

http://www.business-standard.com/india/news/
risk-averse-banks-seek-150-collateral-against-loans/05/42/349816/


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

Vulture.

Anonymous said...

* Emaar shares fall 9.6 percent

* Fears of further writedowns weigh

* U.S. unit John Laing Homes sought Chapter 11 on Thursday (Releads with shares, adds Emaar no comment)

By Jason Benham

DUBAI, Feb 22 (Reuters) - Shares in Emaar Properties EMAR.DU, the developer behind the world's tallest tower, fell 9.6 percent on Sunday on fear of writedowns and weaker earnings from its home market after its U.S. unit filed for bankruptcy.

In the first day of trading since its U.S. unit John Laing Homes sought Chapter 11 bankruptcy protection on Thursday, Emaar stock closed 9.6 percent lower at 1.89 dirhams, underperforming a 4.3 percent drop in the wider market .DFMGI. Emaar had traded as high as 2.18 dirhams earlier in the session.

Emaar, the largest listed Arab real estate developer, will now concentrate on its home market Dubai which has been hit hard by the global financial crisis.

"Emaar's exposure to the U.S is now very limited. The focus is now mainly on its UAE earnings, which will continue to fade as long as no major new sales are made. They have barely made any sales over the last two quarters, 2009 profit is likely to be lower than 2008," Roy Cherry, vice president, research, at Shuaa Capital in Dubai said.

Morgan Stanley said in a report earlier this month there was a risk that in full-year 2009 and 2010 Emaar would have to start writing down inventory in other markets, notably Dubai. It said in another report that Dubai property prices had fallen by an average of 25 percent since their peak in September.

Anonymous said...

Vik,

The analysts may not proof read... That could be a problem...

Did you see the video of the so called "Moronic Analysts"... I watched they are mentioning 20 % CAGR for the next 2-3 years...

I dont believe they say 20 % simple return for 3 years....

I guess in your urgency/temperment you made this error

thanks
Mathfan

Anonymous said...

Sobha Home Mela bucks the recession trend


Express News Service First Published : 22 Feb 2009 04:08:00 AM ISTLast Updated : 22 Feb 2009 10:29:35 AM ISTBANGALORE: The economic downturn was dealt a heavy blow on Saturday when huge turnout was witnessed at the Sobha Home Mela, which is organised by city-based realty major Sobha Developers. The two-day mela was inaugurated at the company’s St Marks Road property to showcase the company’s 18 projects. The projects include villas to luxury apartments, row houses to plots. This exclusive mela also provides a platform for the prospective buyers to explore opportunities to invest in properties owned by Sobha across all locations, which includes Pune, Coimbatore and Thrissur, apart from Bangalore.


The buyers can avail themselves of special offers at the mela too. Customers can book any flat of Sobha Developers by paying Rs 50,000 through credit card.

Other offers include reduced prices for the company’s Sobha Sunscape project at Banshankari extension- Rs 37.99 lakh and Rs 40.5 lakh for 2-BHK and 3-BHK apartments respectively. Those interested in acquiring property at Sobha Beryl will be exempted from EMI until the property is taken into possession.

Visitors were enthused at the schemes being offered at the mela. Jyothi, a visitor, said, “The prices (of flats) seem to have come down and considering the reasonable prices my brother will be booking one on February 22.” Sanjay Khosla, executive vice-president, sales and marketing, Sobha Developers, was visibly happy at the response for the mela. “As per our expectations we are getting a good response from people. Ever since bookings have opened for Sobha Lavender at Sarjapur Outer Ring Road, already 21 apartments out of 38, have been booked,” he said.

http://www.expressbuzz.com/edition/story.aspx?Title=Sobha+Home+Mela+bucks+the+recession+trend&artid=QnjrVdlu7WY=&SectionID=Qz/kHVp9tEs=&MainSectionID=fyV9T2jIa4A=&SectionName=UOaHCPTTmuP3XGzZRCAUTQ==&SEO=Pune,%20exclusive,%20mela%20,St%20,Marks,%20Road,%20property%20,

Anonymous said...

Jai Ho..!!!

Risk-averse banks seek 150% collateral against loans

~ banks are cushioning themselves by seeking more equity participation from the developers, ranging between 40 and 50 per cent of the project cost, and providing loan not more than 50 per cent of the cost in commercial real estate projects.

~ While banks generally seek land and the asset to be created as mortgage, which generally account for the total loan amount, they are now seeking some of the finished projects of the developers as collateral as well, to tide over the fall in property prices.

~ Banks are very cautious in lending to the real estate sector, especially to commercial projects. The problem arises when the interest burden accumulates and there is no cashflow due to the inability of the developers to lease out the property. Thus, banks are seeking at least 40 per cent as promoter's own contribution and rent agreements prior to lending

Anonymous said...

Economic upturn in two months: Expert
23 Feb 2009, 0016 hrs IST, Prabhakar Sinha, TNN

Print Email Discuss Share Save Comment Text:



NEW DELHI: During this season of gloom, when experts say the economy will not look up till at least 2010, Eliyahu M Goldratt begs to differ. Indian
economy should return to its path of high growth in two months, says the renowned management expert whose ideas have helped many global majors improve efficiency and do things better.

"Fears of recession are completely unfounded,'' says the man described by Fortune magazine as a "guru to industry''.

In an exclusive chat with TOI, Goldratt says the Indian economy, particularly manufacturing, is already showing sign of an upturn. "In the next couple of months, barring a few sectors like real estate and automobiles which are dependent on retail financing, it will be back on the growth path,'' he adds.

What's more, says the 60-year-old Israeli business thinker, corporates which are resorting to downsizing as a response to fall in sales will find themselves at a disadvantage a few months from now. "Companies that lay people off now will most likely be slow to respond to sales picking up shortly hereafter'', he said.

Goldratt, scientist whose celebrated `theory of constraints' helps manufacturers remove broken links from their value chains and improve performance, said the present gloom is just "an outcome of over publicity in the media of the failure of banks in US, which gripped the entire globe''.

He, in fact, feels 2009 will be better than the previous year for manufacturing. "The negative growth in the industrial production in India in December was because of fear of demand falling in the future and not because of a lack of demand,'' says the author of books like The Goal, It's Not Luck and Critical Chain, which typically use fiction to propound new business ideas. Goldratt is in India on a lecture tour.

Elaborating on the `fear factor', Goldratt gives the example of a Japanese electronic component manufacturer, which came to him for an advice after a 50% fall in production in December. Research showed the company had faced 50% reduction in demand despite a growth in demand at the retail level of around 14% in Japan. As the company was a big exporter, Goldratt assessed the market condition globally.

Surprisingly, his research found no evidence of a big economic crisis. Even in markets like the US, where the meltdown began, the fall in retail sales was in single-digit percentage points. "To find the cause of the steep fall in demand, we looked at the demand and supply of companies in the value chain. What we found was that the fear of a slowdown had led retailers to reduce inventories. Because of this, original equipment manufacturers (OEMs) were experiencing a substantial decrease in orders,'' he says.

For OEMs, this sales reduction was interpreted as a clear indication that the economic crisis was materializing. "Like the retailers, they too reacted by lowering their inventory levels which, in turn meant that they lowered their purchases from suppliers even more than the level their sales had dropped. This explains why the electronic components manufacturer suffered a dramatic 50% decrease in sales even though the consumer demand stayed about the same,'' he says.

Goldratt says the same amplifying effect was seen when the components manufacturers, in turn, dried up their orders to their material suppliers, who experienced an alarming sales drop.

Goldratt says the situation will normalize as the surplus inventories are flushed out. Since retailers typically hold three-four months of inventory, they will start increasing their orders to OEMs from February-March.

As OEMs hold about two months inventory, the component manufacturers will start experiencing increase in orders with a time lag of around a month. Therefore, by April, he says, the drop in orders crisis will come to an end.


http://timesofindia.indiatimes.com/Business/Economic-upturn-in-2-months-Expert/articleshow/4171973.cms

Anonymous said...

where were all these prognosticators in Feb 2008. forecasting 200$ oil and sensex at 30,000. I stand by my arguments "moronic analysts"
Vik

DhImAn said...

Economic upturn in two months: Expert

Haaaaahahahahaha - this entire crisis is merely that of a little excess inventory. No problem then, is there? Good times will be here in two to three months. Oh the Joy!

Never mind that there is a derivatives position of nearly a quadrillion - yes, a thousand trillion - US Dollars on the books of several institutions that is threatening the very existence of the system itself.

Never mind that anyone who has taken the littlest peek at the crisis is curled up in the fetal position crying like a newborn and talking about "something has to be done" with no idea what. Who you ask - none other than Volcker, none other than Roubini, none other than Nissim Taleb - the list is endless.

And never mind that this crisis was predicted quite accurately by several people - notably Ron Paul, Roubini, Meredith Whitney, Antal E. Fekete - again an endless list.

No, never mind all of that. Goldratt has got it right. It is just a few months of oversupply.

Bharat said...

Pls. note that Goldratt has become famous for his theory of constraints which is more like witchcraft and commonsense that anything else. Manufacturing is threatened in a major way by the impending deflation. Which would have a direct effect on Mr. Goldratt's consulting fees. So Mr. Goldratt is saying something which he thinks the feeble minded Indians would buy and continue paying him monies for consulting. On the other hand, I remember Bill Gates also making a forecast of 6 months which is almost up from the time he made the forecast...as also Nandan Nilekani..

Reminds me of a famous saying by Buffett - Don't ask a barber whether you need a haircut!

So look for vested interest of the analyst if someone seems to be making preposterous claims.

-Bharat

Shailesh said...

OT: If you have not yet watched Slumdog Millionaire, I definitely recommend it. Though many in Mumbaiites / Indians would have different opinions, I think it is still worth watching. At the least, it reminds us that most people (including middle class indians) are much better off than 60% or so people living in slums in Mumbai.

Growing up in Mumbai and having seen slum violance (up, close & personal), I could related to many scenes very easily. I would say majority of Indian educated Middle Class are not even aware of grim realities of slum life. I hope this movie brings attention back to what needs to be done in Mumbai. Government is building bridges for people who can afford cars, but they are ignoring millions who don't even have basic facilities.

Shriniwas K said...

780 million of us (yes that is 78 crore or 75% of India) lives on the edge of Poverty. The Software and IT industry was the hen that laid golden eggs benefiting the entire Indian community bottom up and not top down as the money fell into hands of middle class Indians who had some connect to the amasses below. Alas, the greedy builders and greedier speculators butchered this hen and also stole the existing Golden eggs it laid.... Jai Ho.

BTW I saw Slumdog in October (paid 8$ for that and thought it was worth it).
I have stayed in close proximity to a slum for sometime and also have faced the harsh realities of being impoverished (not by will but by compulsion). I think the west likes the truth that Bollywood hides. Behind the glitz and glam of Mumbai is the underbelly of hunger, slums, water crisis (thats everywhere in India), food adulteration, ignorance, illiteracy and destitute.

Anonymous said...

Bangalore rentals are down

Residential rents have fallen by nearly 30 per cent in areas such as Jayanagar, a sought-after location for IT professionals in south Bangalore that saw land value climb nearly 300 per cent during the boom years.

Anonymous said...

HDFC to charge borrowers for switching bank

Anonymous said...

Even affordable housing's hard to sell

An analyst with a domestic brokerage said Parsvnath has not been to sell anything and that if it continues to stick to projects without lowering prices, "nobody can help them."

Anonymous said...

slumdog subprime. The BUST is coming


http://www.thehindubusinessline.com/2009/02/24/stories/2009022451600100.htm

Anonymous said...

Govt uses SBI to bail out builders.

http://fraudsofindia.blogspot.com/2009/02/government-bailsout-builders-in-india.html