Monday, March 09, 2009

Buyers want lower prices in Pune

I'm not sure why the builders are complaining. had no symphathy for the buyers when they were increasing prices week. The market will find its footing. Based on this cursory analysis, Pune prices seem to still be above 2004 prices. More so the prices seem to an average of 2004 and 2008. If Pune buyers are hesitating to buy at 3000, what about their cousin's in Mumbai. There the builders saying they will not drop prices below 8k in far flung suburbs. For the Mumbaikar its best to sell his overpriced property to some sucker and retire in Pune at Rs 2500. For a 1000 sq ft apt worth 80L, he can buy one at half price and retire on the interest.
25% Divides Buyer & Seller
IndianExpress reports
By akansha, Section Real Estate
Posted on Mon Mar 09, 2009 at 04:09:02 AM EST
If there is a consensus among buyers, it is that the property rates need to come down further. On the other hand, most sellers insist that rates have bottomed out. In the concluding part of this series on the disconnect between buyers and sellers, both sides spell out their differences

Indeed, buyers are quoting rates that are 25 per cent lower than the offer prices. They are quick to point out that rates had grown absurdly in the last couple of years (see rate chart).

Buyers are treading cautiously and not taking hasty decisions given the economic slowdown, job insecurity and the likelihood of interest rates falling further. Sellers rue that of every 10 potential buyers, only a couple get back with an offer the rest are just buying time.

"My daughter is a serious buyer, as her friend is. Why would we run around the city, investing time and energy away from our jobs if we were not serious about buying an apartment?" said Renu Walia, whose attempts to find an apartment for her daughter has drawn a blank as she found most advertisements promising affordable/reduced rates to be incorrect.

"We liked a 2BHK apartment in Sopanbaug and the developer quoted Rs 42 lakh. How is the price any different from what it was during boom time? I have offered Rs 30 lakh," she said.

"That is precisely the trouble. You reduce the price on what was the earlier rate, and then the buyer wants to bargain on that reduced amount too. People are now quoting almost absurd figures," said city developer Rohit Gera, spokesman for the Promoters and Builders Association of Pune (PBAP).


GK said...

"People are now quoting almost absurd figures," said city developer Rohit Gera.

hahaha. That's funny.

That's exactly what we buyers are also complaining about. Isn't it?

Anonymous said...

The media is publishing some anonymous poll, have they informed the participants that economy is going to be bad for next 2 years? Just based on the past gloomy days you can’t project the future income.

The media will advice you from both sides, to buy an apartment then make a documentary on your sufferings. Just 6 months before there were news about no price correction. Now under the price cut pretext builders are throwing the same inventory with exorbitant prices.

Every one is aware of so called “SALE” in India, where the sellers hike up the prices by 100% then offer the generous discount of 50%. Same sale strategy now builders are playing. Instead of cutting down the real prices, just spreading out the news of 15-30% correction.

How the multi-centric economy of Pune is supporting high prices?
--Manufacturing is already in trouble.
Telco stock went down from 767 to138, 4 days working in a week.
Bajaj auto [945->533],
Bharat Forge[317->94],
--1Lakh migrants from Pimpri-Chinchwad returned home.
--IT-ITes industry started the lay offs & salary cut.[Infosys, TCS, Wipro, IBM, Cognizant, Tech Mahindra ]
--Students coming for education are not ready to pay the high rentals of 50K per month because a good accommodation is available at sharing in the heart of the city for 3K per month.
-- If multi centric economy is helping people, why PBAP started a scheme to pay 3 months EMI for people who lost jobs?

Where was Mr. Gera, when prices were going up absurdly in a day. Can’t it correct absurdly? May be slowly.

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


DhImAn said...

Quote: "That is precisely the trouble. You reduce the price on what was the earlier rate, and then the buyer wants to bargain on that reduced amount too. People are now quoting almost absurd figures," said city developer Rohit Gera, spokesman for the Promoters and Builders Association of Pune (PBAP).

Exactly as GK said - thats quite amusing. This moron builder has no concept of markets and pricing: that price is merely what the market will pay for his good.

Too bad his good is not in demand, and there are a million other morons peddling the same good at the same absurdly inflated prices. Gera the moron has evidently never heard of a little concept called marginal utility.

This retard somehow assumes that the market should be static and should simply say "Yes Sir" to his prices. Dream on. What he doesn't realize, or perhaps he does, hence the expression of his idiocy - is that he is losing money every single second he is hanging on to his inventory. He is losing by way of deflating prices, he is losing by way of opportunity cost of investing that money elsewhere and he is losing by annoying future customers who will find better deals elsewhere.

As Vulture says, a minimum 50% drop is a foregone conclusion. Personally, I think prices will correct all the way to 1998 levels and maybe even lower. It is called "reversal to mean".

Well, let me add a caveat. Real prices will revert to the mean. If the currency devalues and becomes worth half what it is today, and the price of real estate remains the same, in real terms it has corrected 50%, even though in nominal terms it hasn't changed.

Anonymous said...

I think part of this article is misleading. Under pretext of buyers demand prices, the article still quotes higher prices.

Best answer is buyers want 2004 prices today.

Not a penny more that that. Period.

rakesh said...

Interesting analysis of real estate crash and why it is good for the economy.

shailesh said...

Redeveloping Dharavi is not viable for us: HDIL

Mumbai-based property developer Housing Development Infrastructure says it has pulled out of the Rs 15,000 crore Dharavi Redevelopment Project as the latter does not seem viable.

The company bagged the contract for rehabilitation and resettlement of slums around Chhatrapati Shivaji International Airport (CSIA) in Mumbai in October 2007, where it is required to rehabilitate 85,000 slum dwellers from 276 acres of land. Depending on the area cleared, HDIL will get 25 per cent of the area for sale and 10 million sq ft of TDR by March 2010.

It has recently launched a 650,000 sq ft project for 759 apartments in Kurla, one of the central suburbs of Mumbai, and is planning to launch other residential projects at Andheri and Kurla (East). In Kurla, the company is selling houses at Rs 5,251 per sq ft or 30 per cent lower than the market price, Pande says.

"At Rs 1,800 per sq ft land cost and Rs 1,500 per sq ft construction cost, we still make around 35 per cent margin. We have to take a call on profitability and cash flows today," Pande said. The company has booked half the flats since the launch last week.

Analysts said the fall in TDR prices from Rs 4,000 per sq ft in March last year to Rs 1,100 a sq ft now and competition from local developers after the hike in floor space index (FSI) under slum development was expected to hit company revenues.

"They have a TDR pile-up of 1 million sq ft and nearly 8 million sq ft is expected to come from the airport project. They cannot utilise everything by themselves. After the increase in FSI from slum redevelopment projects to 4, the TDR generation will be high and they have to face a lot of competition from local builders," said an analyst from the Mumbai brokerage who did not wish to be quoted.

But the company is not worried, as it feels there is still room for profits. "The whole analysis of margins has gone down in the last five-seven years. Today, when our TDR cost is Rs 850 a sq ft and we sell it at Rs 1,100 a sq ft, we still make a margin of 15 per cent. We cannot sit on our inventory. We can use the proceeds to repay our debt, reduce interest burden and improve cash flows," Pande said.

"As long as the company utilises TDR proceeds to repay the debt and residential projects, the strategy looks good. If they invest the money in any other projects where they do not make money immediately, it is not the right strategy," said the analyst.

shailesh said...

Maharashtra govt may enter into JVs with pvt developers

The joint venture would certainly not bring any funding or capital on the table but it has a couple of incentives for the developers. The floor space index (FSI) or the developable area will move up from 2.5 to 4 — it means that on 10,000-square-feet plot, the developer can build 40,000 square feet.

Secondly, developers can also develop in a cluster. So, instead of re-developing individual buildings, they will be able to bring a whole one-acre cluster and develop it all together. More than 16,000 cessed buildings came in under the re-development scheme when the Supreme Court gave the nod last year in September, but not much has happened since then. The government, has therefore, now stepped into incentifying this space.

kunal said...

Rakesh posted a link to Mr. Yogesh Chabria's Happionaire blog and there he says per sq ft. cost of construction is Rs. 600, how come this HDIL builder is saying is is Rs. 1,500 sq ft.?

Venkateswaran K Iyer said...

First, I must compliment the excellent write ups and comments I have seen on this site, although pessimism does seem to be the norm.

I am afraid I must make my first comment a question, hoping for an answer from some of the clued in people here.

Does anybody know about the status of BPTP and Vatika? Both developers have come up with affordable home projects in the outskirts of Gurgaon (Fortune towers and Lifestyle homes). I wanted to buy, but feel jittery in the current market. The sites are of course just fields as of now.

Should I buy or wait?

Has anyone heard of any adverse news about either developer (Apart from BPTP returning its mega land purchase, keeping only 1300 crore worth)

Are these builders, who are saying they will start excavation next month, deliver?

Shantanu B. said...

The fun's just getting started. Shifting our gaze, let's take a look at median home prices in the US. In the state of California, after the bursting of the housing bubble, the price of a single family home is around $200k. Let's keep in mind a few things here - this is California (world's 11th largest economy) and not some interior state, the median price is for a single family home (bungalow style) and not some tiny 'super-built up' apartment in a tower and off course, it offers much superior infrastructure/facilities than most parts of India.

If the US administration is serious about fixing their housing crisis, they will relax their immigration rules to let the well-heeled immigrate to the United States. Mortgage modifications, refinancings, etc. are just stop-gap measures to halt the steep decline and are designed to delay the inevitable - at the end of the day, most of the underwater home-owners in the US do not have the financial wherewithal to sustain their abodes. The only way to stabilize the housing market is to shift these homes into stronger hands.

Now guess what happens when middle class India suddenly wakes up one day and realizes that it's much cheaper to buy a house in the Western hemisphere? Would they even be willing to pay Rs.1500/sq. ft for an apt that has water/electricity problems and is mosquito infested??

In the past few years, we have had some very beautiful projects come online. But at the end of the day, when I come down from the building to the streets, nothing much has changed.

Venkateswaran K Iyer said...

Shantanu, I had wondered about the reason for real estate price disconnect between India and US for many years and have found out the answers:

1. Houses in USA are built of wood and last 20-30 years

2. Taxes are high for the services you heap praise on

3. Land is cheap.

3.If Indians took their currency to USA, it would depreciate massively to a level where you would no longer be able to afford a house


Cool Head said...

I had always wondered why the prices in India are more expensive then in the US. There were no satisfactory answers from anybody. The wood construction may be just one, high taxes is not a reason, property taxes in India are pretty high (compared to the almost non existent services from the local govt. Why should a matchbox apartment in Thane (not even 1000 sq ft built up) cost more than $100,000 and even $200,000 (Hiranandani Meadows)? Especially now when the well heeled in todays economy can buy anything anywhere. I suppose the rich in India have simply not realised that they are getting a much inferior good at a very high price.

Kannan said...

Right. Even if we consider a 1000sq ft living for the entire population (4 member family with 1 FSI); It will take only about 0.8% of available land.Its amusing right!!!

Venkateswaran K Iyer said...

There are two issues here. First house prices in USA are very cheap compared to Japan (where land prices are much higher and quality of construction is very good- for 200,000$ you will get a tiny apartment), England (where land is slightly higher priced, for 200,000 $ you will get a small wooden town house), Germany and rest of Europe (land prices are higher, zoning laws very strict, very good quality houses are built - to survive a tank blast :-), 200,000 will get you a one room apartment, a million dollars will get you a slightly bigger two room apartment). All these countries offer good services and connectivity.

In India we have very high prices. Reasons are

1. Urban land cieling act (raises land price),

2.Agricultural land cant be used for urban land without notification (raises land price)

3. High stamp duty (raises cost of ownership and encourages black transaction

4. Poor law enforcement (increases transaction cost due to legal hassles)

5. Tenancy laws - they are so regressive that nobody wants to build for rental income, especially since law enforcement is so poor. Hence rents are high and house supply is low, increasing house prices

6. Political parties want to peretuate poverty (i.e. Congress). It wants to keep slums as such, so that they are given a Hobson's choice - vote for us and only then we will let you live in this lousy slum, which is illegal, but surviving because we let you be. That is why parties prefer to have reasons 1,2,3 and 5 - they benefit middle class directly. They would benefit the poor indirectly, but poor see their slum home demolition as a direct hit on their livelihood - they are too stupid to know better. They dont know that living in a slum is not their lot in life, with good tenancy laws they can all live in better housing. Politicians get away with it because it IS possible to live in a juggi. In the developed world, you would freeze to death.

7. Extremely poor connectivity. The moment one gets good roads, the prices of houses would plummet because rural land prices are extremely cheap. So that is why politicians dont want roads - their illegally amassed urban property would collapse in value.

It really makes sense for Indians to buy abroad. The moment they realise this there is going to be a likely flight of people and capital

Though it would be one hell of a commute from Delhi to New
York! :-)

Shriniwas K said...

India's housing is overpriced due to India's inability to have equal growth in all areas. Tier 1 and Tier 2 cities have been getting income via Indian expats and IT junta who had been earning in US$ or other foreign currencies.

From 1991 - 1996 when the first bubble happened the main influx of cash was from Indian expats working in the Persian Gulf (many were kicked out after the first Iraq War)

From 2003-2008 the second bubble happened fueled by IT-ITes and related sectors (dont blame IT for this - they have single handedly put India on Global map as a reasonably decent country) and NRI's who had saved money over the years.

How many of us work in IT/ITes or are NRI's 20%, 10 % or 2 %.

India has around 200 million households. The higher and middle classes makes up only the top 20% of these households. 40 million/4Crore

I am assuming these households are in a position to buy a house based on their sound income/existing assets

Even if all these households had one potential buyer the entire national demand would not supersede 4 crore housing units. Spread over 8 large cities and 12 medium cities the housing demand would be about 2 crore units in each tier approx 25 lakh units per city.

Now if the number of potential buyers is not 4 crore, but actually very less not even one crore (I would say 300,000 H1B holders + 15 lakh IT ITes workers + 3-4 lakh EU/Gulf expats + 3-4 lakh PSU/Financial sector 3-4 lakh in health/bio sector)

The way the leveraging of RE was done was assuming a demand of much more than 1 crore houses which is absolutely absurd and wrong on parts of speculators, experts and regulators.

This means even by a pessimistic standard the demand expectation should not have been more than 4 crore housing units. There is such a huge supply of housing now that every big city has at least 25 neighborhoods, Each neighborhood has about 20-40 of projects. Each project has at least 1000 houses. My point is the number of houses available today in India is very close to the actual demand of population of one entire generation of 30 years.

The same thing happened in Japan in 1989 when their real estate bubble was at its peak, the Japanese had more houses than their entire population would need for more than 30 years.!

I am more worried about India entering its lost decade after this!

Anonymous said...

FYI not all houses in California are made of Wood or particle board. Here in Arizona we have 90% houses made from concrete. Only partitions are wooden and the flooring perhaps. Labor is very expensive here compared to India (almost 15 times- in India the builders treat the laborers as slaves and pay them only min wage of < 100Rs a day but its 8$ an hour here for construction).

In AZ 1200 sq Foot house with 2 car garage is only 160000 US$
Also nice condos/patio homes 2 bedroom start at about 70,000 US$ why the hell should I pay 30 lakh for a flat in Pune without even 1/4 the amenities.

These houses have easy access to Freeways. 24*7 water hot+cold, electricity, daily garbage pickup, access to school, transport, shops and neighborhoods are pretty decent. By the Beauty of America's Zoning rules nearest Big street cannot be more than 1 mile away (check the map of Phoenix Metro area). Schools, Parks and Hospital have to be in 2 mile blocks.

Airport only 15 - 20 mi away
Daily office commute is about 20 - 30 minutes by car or 45 mins by bus

Shantanu B. said...

Anonymous from Arizona: You read my mind. I cited California in my case because it's such a large contributor to the US GDP. I'm sure that your money goes much further in Arizona or for that matter, most of the other states in the US.

Real Estate is much more expensive in India due to the various hidden costs (besides the reasons cited by Venky). Builders have to pay a 'cut' to crooked politicians like 'Shared Power' & Co., underworld mafia and corrupt bureaucrats (to clear the files). This 'cut' is financed by the home buyer (primarily from his black money contribution towards the purchase).

Homes in the Western Hemisphere are typically made of wood to better withstand earthquakes. The perception that wood homes are cheaper is erroneous. Superior quality wood is used to build houses here (to withstand hurricanes, tornado, etc.) The wood is pre-treated so that it can last longer (and not 20-30 years). Since the homes are sub-assembled, only some components may need to be replaced from time to time - like the roofs. These homes are insulated to deal with the extreme winter. I don't need to elaborate on the labor cost of building a home in the US. So all in all, it's much more expensive to build a home in the US.

Yes property taxes are cheaper in India relative to the US. But when juxtaposed to the fact that in some parts of India, you have to order water from tankers, spend a lot of money in purchasing mosquito repellents, install generators to power your home, etc., the debate becomes meaningless. For the much higher property taxes in the West, you get a much better law enforcement agency, school system, highway network, reliable water/electricity, etc. Besides, the higher property taxes need to be viewed in light of the higher wages.

That's the primary reason I refused to get sucked into purchasing a place in Bombay (despite the fervent pleas from the well-wishers in my family). I could never justify in my head paying more for a super built-up shack in Andheri, etc. (when I could potentially buy a house for the same price in the NY Metro region). IMHO, the price of a house should be primarily dictated by the amount of economic activity in the surrounding region (and not what one's chachaji thinks or the advertorials in Times of India, etc.). India's GDP needs to grow by more than 20% per year for the next many years to justify the prices that some of the fools paid for real estate in the metro India.

Let's just call the real estate industry in India what it has been all these years - a giant ponzi scheme (fueled by artificially suppressing availability). The moment middle class India wakes up and realizes that there are better opportunities available in the other parts of the world, watch out for the loud hissing sound from the balloon!!

Anonymous said...

I agree Shantanu. Ever since the British left, the mafia politicians, builders and goons have been running India as though it were their own backyard estate. They are absolutely shameless, irresponsible, unethical and corrupt. Moreover the dynastic and sycophant rulers have made sure that a just, liberal and sane system never gets established. The reason India is not like Pakistan is because our Army and Judiciary have held their moral grounds. Our Industry stalwarts are not as corrupted as they were 20 years ago.

There is no accountability in our system. I don't want 20 lakh Rupees of the price of the house goes to underworld, politicians and "David" Ibrahim in Dubai. That is equivalent to betraying your homeland.
Even the SEZ system is a big land grab scheme aimed at luring poor farmers to yield their land at cheap prices while the mafia makes millions. I am predicting that the massive buildup of supply in Urban India will begin unraveling in the next 2 - 3 years as the buyers demand price cuts and the builders refuse to reduce.

I think the best way out is for groups of buyers to form association (Like many being formed in Pune) and strike better deals with greedy builders - (This however may come at an expense of quality which was bad anyways).

I have put aside plans for buying house in Pune/Navi Mumbai from builder, I would rather buy a second sale house from someone or buy plot. I don't to be a slave of the underworld like every EMI payer is now.
I can easily buy a house in San Diego/ Phoenix for down payment of 20% of $200-250k (US$ 30-40k) and pay a mortgage of 1300 $ pm

Venkateswaran K Iyer said...

Shriniwas, your analysis is very persuasive. Even I am beginning to think we have enough housing now to meet the demands of the next decade at least.

Still makes sense to invest in real estate in the next year or so. It will keep place with hyperinflation (seems inevitable now).

Flipping is out though, it has to be a long term (20 year) investment.

Provided the current bulders build flats that lasts that long! :-)

Anonymous said...

Good News at Last

Reality Sector Could be Next Under Scanner

RAGA1900 said...

"People are now quoting almost absurd figures," said city developer Rohit Gera.

I think it's time for people like Rohit Gera and his tribe to do some soul searching themselves instead of quoting stupid prices for their products.

And the same goes for builders from Mumbai, Delhi, Kolkata, Bangalore and all the other places.

I am from the building / construction industry, and over a period of 12 years I have done various projects such as Shopping Malls, High Rise Towers, Commercial Complexes, Dams, Bridges, Flyovers, etc., etc.

I have seen how much it costs to build a residential tower of 50 floors with 8 flats per floor, and how much the builder asks, a whopping 300%-600% over the building / construction cost.

So now Mr. Gera please think twice before commenting. It is your greed which has got you and your tribe in this mess, and not the buyers.

And you deserve this, so just face it fair and square and behave in a responsible manner or quit the business.

Imagine a 1000 sq. ft. (Super built-up) property in Mumbai or Delhi costing you an average of Rs 50,00,000.00 ($100,000.00). Whereas for $100,000.00/- you could buy beautiful property in CA, USA with more amenities and better facilities.

So why should customer in India buy a sub-standard over-priced product when he / she can have an excellent property in USA, UK, Australia or NZ.

I would say ask every information from the builder, when you are buying the property. Quote 60% - 70% less than what the builder is saying. Start your negotiations from that figure.

The best option, buy the flat bare from all the niceties at 70% less price from the builder. Do all the interiors yourself, including the concealed wiring, the bathrooms, the kitchen, and the whole works. The best civil interiors would cost you no more than Rs 1.00 lakh. You can trust me on that.

Hire a civil contractor, you can negotiate a better bargain with them, since they are more in number than the builders and get good rate too.

Anonymous said...

Media has also played a great part in creating and maintaining the hype. When times were good every tom-dick-harry channels were suggesting to buy (but none of them alert the buyers), person staying in ludhiana was buying property in pune/noida.

Even now, so called reputed news papers like “Times of india” keep fooling people that prices are at rock bottom to buy. Actually, the fact is that media (news-papers and channel) had invested large amount when real-estate was in boom and now it’s not in their interest let the rates drop. Hence, they keep organizing real-state events to keep buyers in mirage.