Wednesday, March 04, 2009

Detailed Analysis on Indian Real Estate - From Edelweis & CreditSuisse

Key points from the report are ;

* Volumes are closely linked with GDP growth and real returns on properties
but share a weak relation with interest rates

*Down cycles in real estate cycles tend to give up their entire gains (in real terms) of the
preceding up move.

*Implications for Indian real estate – an additional correction of 35%

* Impact on Indian developers:
-Negative real returns on property are likely to drive property investors to exit holdings,
keeping prices under pressure, keeping large project launches by developers at bay
- Developer volumes and sales are likely to remain highly subdued over an extended period
of time and debt servicing will get increasingly onerous for developers

* Capitulation, though delayed, is likely to return to haunt the sector

* Volume recovery is likely after GDP recovery with a 1-2 year lag

http://0301.netclime.net/1_5/285/2f0/21c/Real%20Estate%20-%20sector%20update-Feb-09-EDEL.pdf

I am not saying the market is going to behave as exactly stated in the report; good to know the trend across many geographies. People should understand that real estate (particularly in India where no professional cos., data, regulation) can not be treated(speculated) like securities.Its just a redistribution of capital from one hand to another; essentially zero sum game.

If anyone who worked in the IT/Finance for the last 5 years and saved money conservatively like the old generation; they need not worry about any recession/lay off and would be able to survive for more than 10 years in any medium size town. Because of the delusion and madness; all the capital flowed from US/UK/Europe finally ended up on the hands of politicians.

17 comments:

Anonymous said...

http://tinyurl.com/bb78uv

Anonymous said...

For some time now sobha developers, a premium builder in south was known to be in severe financial trouble and even rumored to be close to bankruptcy- following article shows how they may be rapidly slipping on the slippery slope-
http://www.moneycontrol.com/india/news/news/cashcrunchcripplessobhadevelopersprojects/388040

Anonymous said...

I like the report and its analysis... But when it comes to india there factors which this article do not consider...

The 6th pay commission has increased salaries in some cases to the extent of 100 % (which country follows such policies).. A school teacher is getting 30K per month with 5 years experience... We need to see the effect of this in the housing market... /remember govt employs lot of people


I know there are sane minds in this blog... but thats not the representative of indian mind set... If more people follow the advice in this blog it will be good... Lets wait and watch....

Anonymous said...

News from Chennai - the enrollment in engg colleges has come down drastically in chennai in 2008 itself... Got the news from Satyabhama college... 2009 will be still bad for them...

Why are people so impulsive just based on 1 year data or is it because the fees have jumped a lot recently

Anonymous said...

Just beacuse i put a comment dont think i am against higher salaries for Govt employess...

I would like to see efficiency and hopefully eradication of corruption and better service to public

The govt employee salaries will not help cities like mumbai where the per sq ft rate is obscene

Anonymous said...

Cash crunch cripples Sobha Developers' projects


Bangalore-based real estate major Sobha Developers may be running out of elbow room, when it comes to managing its cash flow. Recent reports that the company was looking to sell a 26% stake to raise cash, may be just the tip of the iceberg. CNBC-TV18’s Sunanda Jayaseelan delvees deeper.



Here is a verbatim transcript of Sunanda Jayaseelan’s comments on CNBC-TV18. Also see the accompanying video.



This is where Sobha Developers was supposed to build a 5-Star hotel. But the project that was announced two years ago has been put on hold. The land is now being used as a venue for a home mela, marketing apartments developed by the builder. The company has a 99 year lease on this land, and CNBC-TV18 learns it is talking to several players to sell this lease.



When contacted specifically on this latest development, the management simply said it has now decided not to go ahead with the hotel project, and refused to explain why. But sources say cash flow problems may be forcing the company to rethink its aggressive expansion plans, and stick to its core business.



CNBC-TV18 also learns that Sobha Developers is now asking its suppliers to accept apartments instead of cash. A cement supplier who meets close to 70% of Sobha's cement demands says the company owes him close to Rs 90 lakh for supplies over the last three months. He says the company has asked him to accept apartments instead. He refused. A steel supplier, who meets around 35% of the developer's steel needs, says he's in the same boat.



When contacted, the company said, "There is no stated policy as to offer apartments to vendors. In the past also suppliers have taken apartments."



From what we understand, such apartments are being offered at huge discounts. But most suppliers are reluctant to accept these terms, and say they would much rather wait till the company's cash flow situation improves.

Anonymous said...

About Govt Employees- All the govt employees are not centered in 5-6 major cities to prop up this housing boom.

Vik said...

I'm a housing bear however the analyis from these investment banks is flawed. For starters, In Mumbai e cannot compare Malabar Hill property with Virar in the same league and same goes for other cites. I will analyse some more in a separate post

Anonymous said...

http://fraudsofindia.blogspot.com/2009/02/bartronics-ltd-mini-satyam.html

Anonymous said...

Another Fraud in Wating??

drake said...

regarding the post that central Govt. employees will start buying homes because of sixth pay commission i would like to add that in the present market most of the developers are selling apts. above 45-50 lakhs range. i do not think there are too many govt. employees who can afford houses at that price points.

Anonymous said...

Well it is just 6 months since this post and the rates of the housing properties have started rising slowly and steadily across India.
Almost all the builders have succefully able to hold their prices with just 20-25 % correction during the recession. And as people started thinking that because now global recession is over and Indian economy has started looking up the rates are going to go up , they start buying. And because people buy, the rates actually starts going up and not as feared by the buyers.
It is the cumulative fear that I will not be able to buy the house if I am late comes to the advantage of the builders. I am not sure what is the upper limit when people are going to stop buying the house. And when the real estate sector is going to crash. But I hope it will be soon enough.

Anonymous said...

If income tax authorities question all the transctions of black money in real estate it is good.Middle class people cn not afford any house now. For registration only 35-50% of the value shown. I thing income tax people are also making bribe and feeding these realators which is seen over years. The bubble will burst. Real estate brokers all frauds and goondas.

Anonymous said...

Real estste in Mangalore is taking a bad shape. Prices are spurt up and there will be a bubble soon like many boasting estate people in 1996 ran away from Mangalore not turned back. There is nothing in mangalore except some institutions. SEZ has its own area and no impact on real estate.

Anonymous said...

Is Weizmann Homes Involved in Housing Scams? Some agent Shivaprasad Rai was taking bribes there. Taking service charges @2% instead 1%. Whatis it right?

Anonymous said...

Tata AIG Home finance Mangalore was earlier Weizmann Homes and the Shivaprasad Rai was the defacto Mangaer & other manager looted money from customers abount 5% as their commission. They invested in their crusher business. Weizmann Tata AIG home finance not refunded many sevice charges collected. They are charging high closure fees

Udaya

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