Tuesday, March 10, 2009

Prices down 50% in Gurgaon

Livemint has an article on the crash of housing in the Delhi-NCR region. Not all builders are created equal and Unitech/DLF and Pasvanath seem to have taken the cake in the bad press they have seen over the past six months. This scenario will be repeated in every city where over money seem to have vanished for houses priced for over 50L. The sweet spot for now is between 25-45L. I think the rapid increases in salaries, combined with the low interest rates pumped up housing rates beyond affordability. People with soaring stock market portfolios leveraged loans for large houses. With everything unwinding, the highly priced properties are unwinding as well.
LiveMint reports
New Delhi / Bangalore: When he bought the four-bedroom apartment in Unitech Grande on the outskirts of New Delhi 22 months ago, the hefty price tag of Rs2.75 crore didn’t deter him. The economy was humming, the markets surging and nothing, it seemed, could go wrong.

Billed as India’s first ultra-luxury residential project, Unitech Grande promised a Greg Norman-designed golf course and luxury trappings, including a dozen theme gardens, an integrated sports complex and world-class health care, shopping and entertainment facilities.
The price of the apartment, promised for delivery in September 2010, has now dropped by about half to Rs3,500 per sq. ft, said the 37-year-old buyer, who didn’t want to be identified by his name or profession.
“I can’t even sell the property because of the erosion in value. I will lose money if I sell now,” he says, adding that he is fretful the project will be delayed because “not even a hole has been dug in the ground” at the site in Noida since he purchased the apartment.
His predicament illustrates the plight of homebuyers who bought apartments and houses at the peak of the property cycle after prices had surged 30% year-on-year during 2005-07. Those properties are worth half the price they paid after the economy and, with it, the real estate market, went into a tailspin last year.

33 comments:

Bharat said...

This is so reminiscent of what happened in the US :)

Housing prices dropped and people did not want to sell because they would have lost money...ultimately, housing prices have dropped further and now they are running around to get whatever they can!!

Seriously, I feel sorry for all the greater fools who bought houses at the top of the bubble. Even now the markets have not capitulated...once people rush for the exits disposing everything at bargain basement prices will we able to pick up houses at the bottom. Should happen in another 6-8 months.

Anonymous said...

Unitech grande spent a fortune in a series of ads in prime time TV, ironically in one ad showing a well heeled family saving up money and watching a cricket match clandestinely climbing a tree like a group of 'monkeys'! Just turned out that the real buyers turned out to have been taken to a ride by unitech which itself is barely surviving, making monkeys out of investors life time savings!

Anonymous said...

Buy property early to reap benefit

Desperation in full flow. ET putting this in bold on front page

shailesh said...

I wish we had webapp where buyers could post their desired price for a particular town/locality. The sellers can choose to contact those buyers, if they are willing to sell within percentage price range.

Kannan said...

We can initiate with google apps or Zoho. Lets us discuss and get some clarity so that we can create something that later public can use.

Venkateswaran K Iyer said...

Can I repeat my earlier question 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?

sonia said...

Do not buy it please wait.

Also recently i'm sure you must have read the views of Yogesh Chabria of the happionaire way openly saying how he feels real estate will really crash badly. it was very eye opening to read it and lots of interesting comments.

DhImAn said...

Venkateswaran, don't buy just yet. Remember, real estate is not an investment. By definition, an investment is something that yields an income. Something that you buy and hold and hope that somebody (a greater fool) will give you a higher price later is called a speculative buy, and that makes you a speculator.

In truth, real estate is a liability, because it requires constant upkeep - i.e., expenditure for maintaining it, replacing broken fixtures etc etc. Something that demands money from you is a liability, speculative appreciation in value aside.

Furthermore, the "value" of a flat or other real estate that you calculate in a fiat money is a fallacious concept. The simple reason is that you are pricing something whose numerical value in say Rupees may be increasing, but the Rupee itself is losing real value in terms of purchasing power.

So how do you compute whether you gained or lost by buying real estate? You can compare it with historical data regarding salaries and prices. By that measure, any appreciation in real estate has not outpaced any other inflating commodity, or if it has, then surely it has not when priced in gold, that barbarous relic that happens to be the best money there can be.

Also, think about this: plenty of people are losing their jobs in the US and in India - as they lose jobs, they don't immediately stop making their payments for their homes etc., but if they don't find jobs soon, they'll be forced to. Many of my friends here in Silicon Valley bought a house, then waited for it to appreciate by USD 200K, then took out a HELOC (Home Equity Line of Credit) for that amount and went and bought flats worth 1 crore in India. Several of those people have lost (or have nearly lost) their jobs, and have to make payments on their mortgage and their HELOC. If they don't find jobs soon, they'll have to dump one of the two properties; and since the reduction in value in India has been lesser than the US so far, they'll be tempted to dump that, meaning increased inventory, meaning decreased prices.

On the other hand, they may dump the US property, which will cause the real estate market to slump further here, causing more foreclosures, causing more financial institutions to go under, causing more layoffs, causing more pain everywhere.

No, Mr. Iyer; we are firmly in a downward spiral, and reversal to the mean is the iron law. This spiral has the potential to take us there and beyond. So if you have no real estate, rejoice, since you don't have a liability and a depreciating one at that. You'll be able to pick up your flat at much lower prices soon.

Venkateswaran K Iyer said...

Thanks Sonia and Dhimesh.

Sonia, I am afraid I havent read about Yogesh Chabria, could you post a link, I would really appreciate it.

Dhimesh, I agree with your views, hence I havent bought a flat so far, I rent.

But I feel that there will be inflation in the next few years in India. Congress has always caused inflation, third front has always caused hyper inflation. My savings are likely to depreciate and my salary will lose its value. I feel its better to be in a tangible asset.

Gold in India is a double edged sword. It is subject to both price fluctuation and dollar rupee exchange rate fluctuation. I have no idea where the exchange rate will go because while the Rupee depreciates, so will the dollar - a race to the bottom :-) There is no telling where gold prices will go in the end. Because of speculators, there is a disconnect between price and cost of gold production ($250 an ounce a few years ago, no idea about now)

That leaves a flat - where I cannot live, since it is far away from work. Which I cannot rent because I am scared of losing the flat and having it spoilt. So it has to be a weekend home.

I have already decided that some real estate has to be bought.

My issue is specifically with non-delivery by the developer - a default. Hence my question about BPTP and Vatika.

Anonymous said...

Not the right time to buy Mr.Venkat, certainly not a weekend home, most certainly not a yet to be excavated property no matter how reputed the builder is. If you have to, then go for a ready to occupy/nearly completed property- atleast you will have something tangible and not something that remains on paper with your life time savings safely locked up.

K said...

One year free rent for office space in London -

http://economictimes.indiatimes.com/Want-to-move-biz-to-London-Mayor-offers-free-offices/articleshow/4253492.cms

http://business.timesonline.co.uk/tol/business/industry_sectors/construction_and_property/article5887447.ece

Vik said...

Kannan and Shailesh,
Why dont we brainstorm on this one. I have an Google appspot account which we can use and I'm a decent python programmer. If we had a good web-ui designer we build this one quickly

Kannan said...

Lets discuss through email. Can you send a mail to both of us.

-- Kannan

Gadadhari_Bhim said...

Venkateswaranji,

Hold on for 6 months. India housing capitulation and acknowledgement should be mainstream and not just in internet blogs in the next 6-9 months. When everybody is crying and given up on real estate that's the time to Bargain hard and pick up your choice.

DhImAn said...

Gold in India is a double edged sword. It is subject to both price fluctuation and dollar rupee exchange rate fluctuation. I have no idea where the exchange rate will go because while the Rupee depreciates, so will the dollar - a race to the bottom :-) There is no telling where gold prices will go in the end. Because of speculators, there is a disconnect between price and cost of gold production ($250 an ounce a few years ago, no idea about now)

Let me just address the gold issue. Gold is deeply misunderstood, and to a large extent this is intentional from the viewpoint that a sound understanding of gold is antithetical to a fiat money.

Gold is not an investment, so don't go approaching it as if it were one. It is a money, and as such, has a very specific role to play. Gold becomes money by virtue of certain properties it has, namely:

1. It is the commodity with constant (or declining at the slowest rate) marginal utility. IOW, if you already have 1000 ounces of gold, the marginal utility of the 1001th ounce is the same or almost the same as the first ounce.

2. It has a large, almost constant stocks to flows ratio. This is the ratio of the stock (already existing supply) to the flow (newly added or subtracted supply). USD, INR etc have very low ratios - given the propensity of governments to create as much of them as they please.

3. Gold has intrinsic value, independent of the existence of a nation or its military. IOW, the USD ceases to have any value if the US ceases to exist - meaning that its value has encumbrances on it, i.e., USD or INR derive their value from something, i.e., they have extrinsic value.

4. Deriving from 3. above, gold has no counter party liability. Every fiat money does.

Gold is a marvelous currency as well, because it is

1. Fungible: half a coin has half the value of the full coin. Try splitting a diamond in two - you'll find out its lack of fungibility in a hurry.

2. Dense: Lots of value per unit.

3. Easily recognizable: Even more than USD, for instance.

4. Difficult to counterfeit: No other metal has that color. Even if an alloy could have that color, it wouldn't be as heavy. If something is that heavy and that color, it is almost certainly gold.

And finally, gold is a proven money. For over 10,000 years - from the time of the earliest Vedic civilizations in the Indian region to the Pharaohs of Egypt to the Incas of America - wherever you go, only gold has survived the test of time as a money.

So Mr. Iyer, with due respect to you, I must point out that thinking of gold as an "investment" is an insult to those esteemed Rishis who defined "hiranyam" as "dhanam". They defined land as "matr" (mother), as "dharaa", and as whatever else, but rarely as "dhanam". Heck even "go" (cows) were "dhanam" (hence the godaanam - donation of cows) but land was not.

Gold is no double edged sword. It is money, plain and simple, even though Keynesian economics would heartily disagree. Of course Keynesian claptrap is only 80 or so years old, as opposed to an um 10,000 year old history.

In these turbulent economic times, when every asset has some counter party encumbrance or the other, the only thing that does not is gold. It is erroneous to compare that with real estate, which you can't even really own in India (look up allodial title).

P.S. Who's Dhimesh?

Gadadhari_Bhim said...

Dhimanji,

Great post as always.

What is IOW?

DhImAn said...

"IOW" = "In Other Words"

Anonymous said...

The moronic article by shubha ganesh in ET looks to have been written for better times(down loaded I must say) a few years back and suddenly has been dusted out and printed as if it is relevant to current ground realiites.Not only morons like ganesh are on pay rolls of builder (desperate) lobby but unfortuntately even the ET, which I mistakenly thought was better than TOI, which believes in publishing any thrash as news provided the money is good.

Anonymous said...

What caused the Global credit crisis?
Sub prime lending OR Global economic Imbalances. Initially when the crisis started in US in 2008, the estimated sub-prime assets were around $700 bn & as per the analysis once the write down will reach to $700 bn, the crisis is supposed to over. But even after 2 Trillion write off, crisis is still going on. What’s going on? Another explanation to crisis is Global economic imbalances. The surplus in China + emerging economies & deficit in US are causing the imbalance. The cheap credit available in US caused rise in consumption & real estate bubble to unsustainable level. US central bank failed to control the long term interest rate due to external lending.

Looking back to 1.5 year, same scenario happened in India. The inflation was uncontrollable, even after rise in interest rate by RBI. Then Govt. put curb on external commercial borrowing (ECB) & foreign funding. The shadow banking system without the control of central bank caused all this trouble. This raises the question about the Country’s policy response. Globalization is good but poor policy can poses the unprecedented risk to the entire country.

The lack of compliance & regulation in financial market is another area where policy response failed. India opened the financial market 3-4 years before & what happened to asset prices today, the prices went up as if there was no end & now falling down without bottom.

Is this economic imbalance is going to transform to new equilibrium quickly?

http://online.wsj.com/article/
SB123672965066989281.html

http://www.economist.com/
displaystory.cfm?story_id=12972083

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

Vulture.

Anonymous said...

Job cuts at IT companies hit property demand


http://economictimes.indiatimes.com/Markets/
Real-Estate/Job-cuts-at-IT-companies-hit-property
-demand/articleshow/4252395.cms

Venkateswaran K Iyer said...

Hi DhimAn, sorry I mispelled your name - remembered it wrong when I came to the comment box.

Very nice write ups on both gold and real estate.

I was talking about e-gold (ETFs). I avoid real gold - no guarantee on purity, banks which do have hallmarked gold charge too much commision. Very difficult to sell in India - opaque buying and selling process, much like real estate.

In the end, gold is just a commodity subject to demand, supply and production cost. It is possible for gold to remain at $1000 and for production cost to rise to $1000 or close to it. That would be a depreciation in real terms.

The gold to oil price ratio is indicating gold is currently overpriced. I suspect that the price would stay the same, dollar would depreciate and oil will slowly appreciate over the next few years.

Gold is certainly not money - try going to the neighborhood mall and pulling out a gold coin to pay at the till :-)

It is certainly an investment, if you buy with the anticipation of a return.

About waiting for a few months and picking up property on a bargain, makes sense if I was buying already built property. But problem is that it is difficult to be sure of the title - property may be already mortgaged multiple times. Property dealers are sleazy and unpleasant. Takes a lot of time and effort to do it properly - I anticipate risk of defaults on ownerhip issues to be as bad as builder default.

If thats what I wanted to do, (buy built property for inflation hedge), it would make better sense to buy hotel stocks which are currently beaten down - a play on price/book value keeping pace with the replacement cost - which I can do sitting at home.

Appreciation is always more with new property than already built property. It is also more fun to buy a newly built house than a previously owned one - emotional, but that comes with being a human.

I am currently waiting and watching whether any more builders come up with new project announcements - probably not, in this slow market.

regds, Venkat

Anonymous said...

Good News at Last

Reality Sector Could be Next Under Scanner

Anonymous said...

To Venkat about gold: Gold is not money but a metric. Gold reflects the confidense of public in money and is viewed as competition for paper money. Physical gold knows no inflation (it is very precious to fake), and also has something called 'no default risk'. When investors believe that inflation is low and there is no default risk, gold goes down.

Now, tell whether you have confidense in rupee or dollar. At least, I don't. I prefer to forgo interest rate that is below the rate of inflation, for the sake of holding real gold bar.

DhImAn said...

Mr. Iyer, let me tackle your points one by one.

I was talking about e-gold (ETFs). I avoid real gold - no guarantee on purity, banks which do have hallmarked gold charge too much commision. Very difficult to sell in India - opaque buying and selling process, much like real estate.

ETFs are not redeemable in specie, so as far as being money, you are right, ETFs are not. They are merely a fund indexed to a number - the "price" of gold, or more correctly, the ratio of gold to the USD.

It is easy to sell a standard coin like a Maple leaf in India. I have tried, and been very encouraged by the lustful looks in the eyes of greedy jewelers I've been to. Nothing like showing them a Canadian 1 oz Maple Leaf to get the drool flowing.

It is probably harder to buy a Maple Leaf in India, but I have friends who have done it. The premia are often ridiculous, but that does happen when you try to exchange worthless paper for gold. Even today, the USD premium for a Maple Leaf is over $75. For reference, it used to be $10.

In the end, gold is just a commodity subject to demand, supply and production cost. It is possible for gold to remain at $1000 and for production cost to rise to $1000 or close to it. That would be a depreciation in real terms.

Yes, gold is a commodity. However, gold is the one of the very few commodities that have an inverted demand curve, so the usual supply and demand thingy doesn't exactly apply.

The gold to oil price ratio is indicating gold is currently overpriced. I suspect that the price would stay the same, dollar would depreciate and oil will slowly appreciate over the next few years.

Oil is an energy commodity, subject to the whims and fancies of a different kind. It has a 150 year or so old history, so it offers very little by way of comparison to gold. For that matter, even fiat moneys are almost a 100 years old.

Gold is certainly not money - try going to the neighborhood mall and pulling out a gold coin to pay at the till :-)

Quite the opposite is implied by your example, Mr. Iyer - please look up Gresham's Law. The fact that gold is not a free currency, but is hoarded is exactly why it is money - because only money is worth hoarding (saving). That is also exactly why legal tender laws are needed to stop it from being a currency.

It is certainly an investment, if you buy with the anticipation of a return.

By definition that is speculation. Once gold is acquired, it makes little sense to give it up for scraps of paper, no matter how well they circulate as a currency.

That is exactly why you don't want to hang on to the cash that is burning a hole in your pocket but get a flat - because it is devaluing every second it is there. If it were gold you were holding, I'm certain you'd be thinking twice before giving it away for a flat.

Think about that.

Anonymous said...

Indian Authorities are misleading us on Inflation. The inflation Is going up instead of coming down.

India Misleads on Inflation

Martin said...

The current global economic crash has affected one and all. Most of the industries are bearing the consequences of this massive economic slump. Countries like India that have seen unprecedented commercial and industrial growth in the last decade or so primarily due to the blooming of the IT sector and outsourcing have also been deeply affected by the global inflation and recession. Apart from the four metros, growth and development also touched other cities like Bangalore, Hyderabad and the four NCRs (National Capital Region) primarily Gurgaon and Noida. The latter two cities are no less than metros with excellent connectivity, admirable infrastructural growth and development and the presence of world famous companies and MNCs. Being near to the Capital also proved to be a definite advantage. The growth of business also meant the related and proportionate growth of the hospitality industry in these cities. Gurgaon being one of the first NCRs to be developed, most of the major hospitality groups have hotels in Gurgaon. Gurgaon being primarily a business hub, there are also exclusive business hotels in Gurgaon with all the modern and necessary business features like Wi-fi connectivity, conference halls, meeting rooms etc. However, with inflation and recession coming in, business suffered and so did the hospitality market. The occupancy rates fell drastically in certain cities. To tackle this dull spell, most of the hospitality giants are taking up alternative hospitality methods to churn out revenues like residential hotels, destination resorts, condo hotels, vacation ownership and private residents club. Important names in the hospitality industry are opening up apartments and some of the above mentioned properties in addition to their budget hotesl in Gurgaon in order to generate revenues. These steps are also adopted by the hospitality sector for other important places and cities of the country.

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Anonymous said...

Hi! I read your post today, much after you posted it. But it struck a chord with me. I am at this moment looking at buying a house/flat in Gurgaon, and something is telling me it would be a mistake and that I should hold on to my capital. But with the young and mobile population, would not buying now result in not being able to buy ever. What do you say on this?

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