Saturday, February 14, 2009

ICICI CEO and DLF talk price corrections

Looks like the banks are exerting pressure on the builders to dispose off inventory and pay their debts. DLF has slashed prices of its Bangalore Bannerghatta road prices to Rs 2000 per sq/ft.
Now with Banerghatta road at 2000rs, what should be the prices in Whitefield, Devanahalli, Electronic City all peripheral locations to Bangalore. With DLF starting a price war, the small builders will be squeezed to liquidate their holdings. Brigade, Prestige and Sobha might have the holding capacity to wade thru the DLF marketing blitz. Incidentally DLF did the same in Chennai for its project on OMR road. However even after 1 year of booking, there is hardly any construction activity on that project. Incredible as it sounds, the price of thin air is still Rs 2000 rs. Realistically this concrete jungle of G+19 floors should take another 4 years to complete. God save the investors.

Reuters reporting.

India property prices need to fall 20 pct or more-ICICI exec

MUMBAI, Feb 14 (Reuters) - The incoming head of India's largest private bank ICICI Bank (ICBK.BO) said real estate prices needed to fall by 20 percent or more as the market corrects amid the economic slowdown, the Times of India reported on Saturday.

Prices need to fall by "maybe 15-20 percent, or maybe more", Chanda Kochhar, who is set to become chief executive of the bank, was quoted as saying.

"Piecemeal corrections have already happened ... But they also need an adjustment in the paradigm."

Kochhar said there was no pressure on the bank's books from souring housing and auto loans.

"Maybe a little delayed, but there is no real increase in losses or non-performing assets," she said according to the report. "But we have not only substantially tightened credit norms there, we have also budgeted for any losses that may arise there."

She added interest rates and loans were expected to fall. (Reporting by Ruchira Singh; Editing by Jan Dahinten)

30 comments:

Anonymous said...

Where is the action? Builders are still talking of 10 to 15% discount in Mumbai. there are so many unoccupied flats / apartments in Mumbai suburbs. There are towers in the suburbs with 20% real occupancy even though claimed to be all sold.

When will this holding out stop? Its too expensive to buy. One year back a 3 Bhk from Nirmal lifestyles was quoting for Rs.1.1 Crore, today its down only 12 to 15 lakhs or so. Mulund - 35 kms from Nariman Point about 20Kms from BKC is over-priced to the point that its just not affordable. a 3 bhk in Mulund given all the amenities (or lack of) and travelling to any point in Mumbai should not be more than Rs.40 lakhs all told. Prices are still awefully expensive.

Anonymous said...

Anon above,
Just have some patience. It has taken almost 2 years in US for prices to go down around 50% in suburbs and the metros are still down only 25-30%. Us is going to see metro prices drop this year to upto 40% and then to upto 50% by mid 2010.

Similarly, in India it will be around 2010 when you will see at least 30-40% declines and then by 2011 upto 50% drops. The bottom could be around 2013. This is a slow process. Just keep your cash and invest in 9-10% fixed deposits.

Looking at the current scenario, there will be a slow air leak from the housing bubble till it deflates completely. Thanks to all the Govt. policies and the corrupt builders. Just makes life of normal people more difficult.

HB

Anonymous said...

These chor bankers should stop talking crap .. they have been hand in glove with the builders .. like the US they have been arming both sides .. and now since the transactions have dropped .. suddenly they have started singing a differen tune .. I have seen ICICI reps inside builders offices doling out loans to prospective buyers .. this lady Chanda Kochar maks about 13Lakhs a month .. for what?? shuffling papers??

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...

wow, this is very intersting. btw the smaller builders are still in denial mode. a friend of mine is builder. he lauched a project with 30 apartments some 3 years ago. still more than 15 units not sold.i dont know how many of them cancelled. he was able to sell the remaining because it was launched a long ago. the other day i met him he pretends nothing happened. he said they reduced price by about 150-200 rs. and they cant reduce further due to increasing input cost,labour charge etc. and he said he sold one unit the previous day.:) few months ago he wanted me to buy a unit in his project. he gave a very rosy picture saying if u dont want u can sell it off with with 10% profit in no time or rent it out. the rent value he mentioned was double the prevailing rent rate. he played another trick. he said sofar it was advertised in paper and they were going to put it and all will be sold right away. i didnt buy it as i was never intersted in it. this was his only apartement project. he also has a so called investement site project somewhere in outskirts. he had showed that to me too. i was reluctant to buy. apparently one guy who sells pani puri too had booked one site there with a payement of 5 lakhs. he said, even those guys are investing and why are u scared..luckly he didnt force me to me. i think i wud have bought it had he convicned me. thank god

Anonymous said...

the the above is in bangalore. forgot to mention

Vik said...

yeh, Small builders are in deep sh**. Most of these builders know that this is their last chance to make it. They are holding out and are in denial mode thinking the market will recover. However investors who are wounded by the rapid fall in the stock and real estate market are now obviously more circumspect. I feel sorry for the buyers in these small projects. The law just does not have enough teeth to enforce the fraud associate with the thousands of deals.

Anonymous said...

No wonder why Banks are pushing for RE price cut.
“Some bankers have complained to the central bank that after making use of the relaxed rules, which permit banks not to classify loans to real estate firms as bad loans the moment they are restructured, builders continue to hold on to artificially inflated prices.”
http://www.propertywire.com/news/asia/
indian-developers-refuse-cut-prices-200901182431.html

Now it’s clear, why Indian Banks are not facing any losses & how the prudent lending practices prevented our Banking system.
Banks are worried that this ponzi scheme will not work, it may lead to bankruptcy & that’s why they started shouting against the bubble price.
Home Buyer<= Banks => RE

Who all are the beneficiaries of this bubble?
--Builders – Exorbitant profits
--Govt - high revenues.
--Banks – high interest+processing fees, on higher loan amount.
--Investors – Exorbitant returns.

Who is paying for all this?
-- Common man.[home buyer]

If you will not pay for this who will pay for this? Let them fight among themselves & decide. This is the benefit of patience; you don’t have to worry about market, transparency, scam or high EMI.

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

Vulture.

Kapil said...

I am one who wrote at Anon: 8:42 in last article. Let me give myself a name for this blog: Kapil.

Some of you advocating 50-60% cut in property price. Most of you agree that housing price try to follow household income.. Let me ask some question to you:

Are you getting same salary as 2001? Answer is not at all. Typically you might be earning 400-500% more than your 2001 salary?

I have not seen companies cutting much salary in India may be 10%. Why do you expect 60% price cut in housing? Be realistic, this is not going to happen.

Anonymous said...

Kapil,
Are you on dope?

HB

shayna said...

To Kapil,

Which industry as seen a increase in wages of 400%-500%, other than the builders i cannot think of any industry having seen such huge salary increases.

Talking of wage cuts, i know for sure that the airlines are reducing the wage of their core staff i.e. pilots, engineers and flt attds by 20%. The same is happening in IT.

The reason for the predicted 50% drop in RE prices is due to the age old demand supply equation. Builders are sitting on huge inventories without adequate buyers and will need to lower prices to stimulate demand. Going by the present global downturn, a discount/reduction amounting to 50% of peak 2008 prices COULD have a effect on restarting the housing market.

Kapil said...

To Shayna:

Go and check your old paycheck. I do not think have you have good memory.

Back in 2001 fresh Software Engineer salary used to be around Rs 5000/- per month. In 2009 fresh Software Engineer is getting around Rs 20,000/- per month. Same rule apply for experienced people too.

I live in US from last 10 years and ready for health debate on this topic. Have my home in US and India.

US salary has not changed much in last 5-6 years. So don't compare US crash with India. Understand economy 101 before comenting.

Anonymous said...

Kapil,
What you are saying about salaries maybe right, but it is not only the IT people who buy houses in India. IT people account for less than 1% of all purchases. Moreover, it is not just salaries that drove the market. It was a rat race, speculators, corrupt banks with easy lending and corrupt builders. When the story unfolds in India, you'll be thinking why I didn't sell it at the right time like here in US many people are crying now.

India has been shining for the past 8 years but it was all a bubble. I hope you didn't buy your home in US at the peak.

If you are really confident that RE prices in India will not go down, please buy some more flats in Bangalore and Delhi. If you already have some, sit on them till they go even higher.

HB

Anonymous said...

Dear Kapil,
Can you please explain why the stock market in India is less than half from its peak? It would be the same principles applied to housing. There is no magic in this world that any asset doubles in value every year for 5 years straight. Same applies for salaries. Even salaries are in a bubble in India. Wait till they adjust to normal norms.

Anonymous said...

Anon above:
I don't if salaries in India are in a bubble but will surely go down quite a bit in coming years with the west going into depression. And with this new H-1B restrictions, there would surely be less remittances to India's housing. H-1B is just the beginning, there will be many people going back to India this year who are in US who will further depress the salaries as there will be huge pool of people looking for jobs.

Kapil said...

Software Engineer was just an example same rule apply to:

MBAs.
BPO
Retails

Almost all the sectors has positive impact on salary in last 6-7 years. It varies from 300-800%.

Ask MBA guys they will tell if same experience salary is not atleast 600% times more than it was in year 2001.

Ask managers, middle mgmt, CEO they will tell you story about salary growth. It was everywhere in India from 2001 to 2008.

In the same time US salary growth was hardly 20%.

ram said...

we are living in fool's paradises if we think Builders will be affected big time due to Price correction.

Well..I think builders knew price correction could happen anytime.. thats why they invested most of the profit heavily buying lands.

Logic is simple increase the price to 400%-500% .. so even 100% correction is still 200% increase.. once that is stabilized build new houses on the already purchased land and make big moolha (again).
If you ask me I am ready to buy property at 4000/ sqft today if it was 2000 / sqft in 2002.

Unless Govt can't do anything about the idle land, builders will never loose a dime.

Anonymous said...

I dont understand which world some people are living. I still a few enquires/feedbacks about apartements in my companies maling list. And I see one more as see write this. This person is in a Business Unit which is not stable and has a high risk of lay off. And the person asks for feedback about project in a high end builder.
When i see yahoo finance etc, people are talking about depression. forget about resession. And there are a lot of people still confident of buying.

Anonymous said...

Kapil,
Salaries itself are in a big bubble in India. They will correct by themselves in coming years. In US even with just 20% raise in the last 8 years, salaries are being slashed.

In India, with layoffs and supply of people coming back from US/UK/Australia/Middle East is increasing big time and there will be big supply of workers, thereby reducing salaries.

Moreover, there will be less demand from Western companies for work from India as these economies will take at least 5-6 years to come out of this depression.

RAM: Please buy @4000psft. Then wait for a thrashing from your parents and wife by next year.

People who think they should buy, please keep on buying and catch a falling knife.

The following is coming in India:
--Sensex to go around 6000 level.
--MBAs will be begging on streets.
--People who bought in 2008/9 will repent and thrashed by families.
--People who bought in 2003-2006 will see prices going back to 1998 levels.
--Govt. will change but motto would be to save the economy by pumping money and saving builders/banks.
--Many investors would get suicidal thoughts as people are yet prepred mentally for the coming downfall.

Salaries would be reduced by almost half, especially for people making 15-18 lacs p.a. and above. A lot of middle managers would be laid off. US/UK will kick out Indians on visas diplomatically.

And above all the RE prices will come down by 70%. A flat selling for 1 Crore today will be selling for 30 lacs in 2-3 years time.

Cash is king. Keep your cash and wait for liquidation by banks/builders.

A sincere advice: Don't worry about housing. Just worry about your jobs. People will Govt. jobs will be fine. All jobs tied to western countries will see major pain either by reduced salaries or layoff.

HB

Anonymous said...

HB Said..

The following is coming in India:
--Sensex to go around 6000 level.
--MBAs will be begging on streets.
--People who bought in 2008/9 will repent and thrashed by families.
--People who bought in 2003-2006 will see prices going back to 1998 levels.
--Govt. will change but motto would be to save the economy by pumping money and saving builders/banks.
--Many investors would get suicidal thoughts as people are yet prepred mentally for the coming downfall.

Dear HB,

Pls. think before you comment something like this you are spoiling the santity of this forum.

Dear Kapil,

I agree to you by a large extent but still we dont know when the buying will start for RE.

Wait and watch maybe by June we will get some clear signals.


Regards,

Bindas Bhai

Anonymous said...

Bindaas Bhai,
This blog is waiting to see people like you begging on the streets. People like you are a big disaster for the country, who mis inform people and take advantage of working class naive people.

This is a housing bubble blog for like minded people. You should go and spew your nonsense to all the current buyers and not in this blog.

And you should get a real job instead of pimping for RE folks.

Anonymous said...

HB,

You are a sick person, asuming even if the RE prices falls, pls. dont use such languages.

I think you have missed the bus earlier, now pls. dont even think you will get pre 2007 prices even if the market falls.(atleast in Mumbai)

Pls. grow up and be generous in life maybe your kids will benefit.

Kind regards,


Bindas Bhai

Anonymous said...

Kannukuttis (HB and Bindas),

No fighting please...

Important point - Tamil serial Kolangal is deeply discussing about the real estate problems as the heroine is in the business of building constructions.. The heroine is coming to Boston to seal a deal with PE player :-)

Though i dont like serials i like tamil serials compared to Hindi ones...If you watch hindi serial you will feel as beggar (Everyone will speak only in terms of crores of rupees) The+point for hindi serials are the actresses...All are in general awesome.. dont know how they such cure actresses for serials :-)

Observer said...

Salaries have gone up by a lot definitely in the last 8 years. According to an article that I saw in the "Week" magazine a year ago, salaries have gone up by nearly 400% from 2001 to 2008. Land prices have gone up by almost 1000% however. In 2001, the market value for land near my parents home in Chennai was 450 Rs/sq.ft., while it is now being quoted at almost 4,000 Rs/sq.ft.

The crucial point that Kapil is missing is that affordability has decreased relative to the income that people earn on average. One should not look only at IT people, because they skew the average a lot. The vast majority of the population does not make those huge salaries, and hence the large runup in values does not make sense. This is the real reason that sales are stagnating, because builders have run out of IT people to sell these flats to.

As the depression in the developed countries takes hold (Japan's GDP contracted by an annualized 12.7% in Q4 2008), the IT budgets are going to be slashed. The rate of increase of IT people in India will slow down sharply. So now, the builders will have to sell flats to ordinary people, whose salaries are far lower than IT people's salaries. These represent the bulk of the demand for 24 million homes in India. Flats priced between 10-20 lakhs.

This is why it makes sense to wait, as land bank valuations become cheaper, and companies are forced to launch projects at lower prices. Otherwise, they will have to curtail supply. CUrtailing supply will have the effect of dropping land-bank values anyway since people who want to sell land will not be able to at the prices they thought they could command.

Anonymous said...

mungerilal india:
interim budget shows real fiscal deficit is 10% of GDP highest amongst emerging market..public debt is 90% of GDP and that is not even toal debt and also amongst the highest among emerging market. This will soon lead to credit rating downgrade.

The tribalish chidbamarama is an architypical mungerilal expecing things to turn around soon. Instead the situation next decade will bring out the hare rama (heebie jeebies)amongst injuns. Expect 2-4% GDP growth. Salries for IT/BPO coolies shrinking to pre 2001 level & massive harikari in mungerilal land as injuns face the wrath of capitalism for the first time in their charmed lives.

For the remaining 80% who live on less that $2/day, is doesn't matter much. They will keep watching the monkey clown shorukkaan prancing & homoing around.

More trouble ahead, as indians face the western culture onslaught: A classic clash of civilization. More beating up of injuns aping western lifestyle could affect societal well being.

An uncertain future lies ahead even as demographic bomb forms in full force what with a massive number of young injuns enter the working age in the next decade.

Do not be surprised if the fissures in nation open up & long feared balkanization takes hold.

Anonymous said...

No economy can sustain soley on doing IT maintenance work for big US/Europe companies . That is precisely happening in B'lore right now . Salaries have reached such a tipping point where any more increase will make the outsourcing financially unattractive for the western companies . Also look at the number of engineering graduates coming out of colleges every year..where are they getting jobs other than IT ?
The size of the IT pie is not growing much , but the number of people who want a piece of that pie are increasing at an alarming rate. When there is an over supply of IT workers it is no doubt going to bring the salaries down .

Real Estate prices in B'lore have reached a point where very few people can afford . Even those who have jobs , they are not as confident about their jobs as they were 3 years ago thus cannot commit themselves to a 30k EMI.

I believe that the prices will go back to atleast 2005 levels - it will not happen overnight though , could take another year for sure.

Bottom line - Cash is king right now.

shayna said...

To Kapil,

Sir, living in the west is no qualification for intelligence, i left India 17 yrs back. Lived in Dubai for 7 and now am in U.K. for the last 10.

With ref to your uncorrobarated claims on 500% increases in wages, you've given the exzmple of fresh starters. Here again i'll draw your attention to the DEMAND SUPPLY EQUATION.

Companies were in a euphoric state of projected growth and hence wanted the requisite numbers to man these EXPECTED project which as we all know now has not materialised. Infact to make things more difficult (for the fresh starters) a few firms (huge ones) have collapsed. For all practical purposes opening for new starters have all but collapsed.

For the RE market to survive it needs all segments of the market to thrive i.e. First time buyers and middle age families moving up.

All of these segments have been put off by the increased uncertainity, its only the few money bag investors that are now in the market like vultures picking off from the greater fool novice investors.

I hope you have not purchased your house/s in India hoping to cash on it like some of the GREATER FOOLS.

Cheers

Kapil said...

20-30% price correction is normal and is required in healthy market.

I have not seen many builders reduced the price. They are basically selling 500 SQFT home for 20 lacks vs 1500 SQFT home at 60 lacks before.. Where is the correction here? Box size change does not mean cheap.

I am not saying you to go and buy the house now but I do not see those 50% correction people are yelling. If you are getting good projects at 20-30% discount and need house for living go buy it. If you are investor, sit on your cash, and you can buy distressed home in California/Florida in next 1-2 years at much lower rate.

Anonymous said...

Co-relation is good but time frame is incorrect. When RE prices were going up in a day in 06-07, have you asked the same question, what is changing in a day? What kind of productivity is this? How come economy improved so much in just 3 years(05-07)?

--IT salary constitutes 2 adjustments(40%), individual performance & company performance. Every individual know how much salary will come in hand this year.
--Big fish in IT(managers), they manage 3-5 projects so they can snatch 30-20% from each project to build the higher salary. Now companies are trying to get rid of these non performing non billable assets.
--Manufacturing story is still bad. For the fresh engg. getting a 5K job is difficult.

Before talking the nonsense, please go in the market & search for a job then talk about the 20 years commitment for housing.

What percent of salary goes into EMI? For 60K salary 41K will go in EMI. Even 10% salary cut how you are going to manage the expenses & how long?

I recommend 101 till you understand what you are talking.

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

Vulture.

Shriniwas Kulkarni said...

I hate to see people fight here. Please discuss and don't hurl personal abuses. The real fact today is that there is no one who is not feeling the pain of recession. If husband wife are both working then its fine, for people who have single source of income these are hard times.

what needs to be seen is the need for housing in India. I think 80% of the so called "luxurious" apartments are lying vacant in the suburbs of Navi Mumbai - THane - Kalyan DMBVL, Noida-Gurgaon, Pune-PCMC, Bangalore, Hyderabad and nearly 40-50% of flats in Kolkatta, Chennai, Jaipur Ahmedabad, etc must be lying vacant. This kind of supply buildup will not allow any price increase for a long time. Moreover why would I pay 30 lakhs for a flat to go 15 kms from city centres if I could get a bungalow for 40 lakh at 20 km. Similarly in India male kids don't see the point of leaving parents home at 20, 30 or 40 for that matter. In the west 25 year old youngsters create new consumers for housing.

There lies one more aspect of the problem Builders due to their greed went for luxury and apartment style homes while in reality apart from Mumbai India does not need apartment style housing.

Now demand cannot be forcibly created by any stimulus. I can still guarantee that even if interest falls to 6% in India, the demand for flats will not pick up anywhere except for the island city of Mumbai. Everywhere else there will be a demand for bungalow type houses by the wealthy enough or NRI's.

When prices fall given a choice anyone would opt for independent housing. All big players like DLF, Unitech, Sobha, Parsvanath and smaller players concentrated on flat based housing as they felt that for small input on land they can make huge amount of profit for every floor, I think this greed will have to bite the dust. I can certainly guarantee that for RE 2009 - 2015 will be a lost decade.

As it is their commercial ventures are in deep trouble as the retail sector in India will take a nice beating in 2009.


With Mayawati as prime minister in June, God alone can save us ...

Anonymous said...

Why Banks are shouting for price cut?

This is how it works.
BBB = Bhai-Bhai Bank
BSC = Bhola Sing Company
200 apt project = Project A

Project A is valued at 100crore by BSC. To execute the project, BSC raised 30 Crore from PE, 20crore from own pocket & 50crore from BBB. When you will purchase an apt., BBB will lend you money & will get back the money from BSC. So BBB will have zero exposure with BSC. BBB is ready to lend long to home buyers as the risk is very low, by burning all earnings & himself, he will re-pay the loan. Also BBB is making exponential returns on home loan.

If you will not buy home, the project A is collateral with BBB. As home prices went down by 20-30% last year the collateral value felled down by same %. Now BBB should demand more collateral with BSC, but as per the instruction from govt., BBB rolled over the loan with same collateral value, it means you pretend that 10Rs is equal to 13Rs. To compensate for these liabilities, BBB is supposed to make adjustment for Bad loan a/c or write down the asset from balance sheet.
Now how long this ponzi scheme will run?
--What will happen if new govt. will not support this?
--Nationalized banks have govt. guaranty, what about private banks.

Yes, BBB is worried about this, that’s why they started shouting.

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

Vulture.