Thursday, March 12, 2009

Realty prices show major decline

Bless Yashwant Dalal's soul for his frank opinion. Malabar Hill at 12,000-17,000. Now that is some bubble popping. I hope he doesn't deny his statment later. Its been 3 years since I first started blogging about outrageous prices in Mumbai. Finally this blog is vindicated. Its time to shut it down :). A crore of rupees finally has some real value.
Economic times reporting.
MUMBAI DELHI: Some two weeks ago, Mumbai-based stock broker Ashok Samani won an auction to buy eight apartments owned by the late Harshad Mehta

and his family in the posh Worli locality. Mr Samani, who put in a winning bid of Rs 32.60 crore, or Rs 26,080 per sq ft, for the apartments in the upmarket housing society, Madhuli, is pleased with the bargain.

“I feel it’s a reasonable price. Compared to prices a year ago, it’s a decent buy,” he says. Apartments in buildings of Madhuli’s class were selling for Rs 38,000-40,000 per sq ft around the same time last year, about a third higher than the rate at which Mr Samani struck his deal.

Mr Samani may be satisfied with his bargain, but a number of other potential buyers don’t seem to think that the time is ripe yet for the best deals. In early 2008, a Rs 18-crore deal was negotiated for a 2,925 sq ft house in Delhi’s upscale Defence Colony area by a builder who planned to demolish the house sitting on the land and develop apartments, hoping for a return of about 30%.

But after the downturn in the real estate market, he is trying hard to wriggle out of the deal, even at the cost of losing the Rs 50 lakh he had paid as ‘token money’ indicating his intention to purchase the property. “A few buyers have approached me with a price of Rs 9-10 crore, but exited mid-way,” said a broker who is negotiating on behalf of the property’s owner.


As in the rest of the world, the real estate market in India is trapped in a vicious cycle of plunging prices. With the bottom nowhere in sight, potential buyers do not want to try and catch a falling knife, says Pranay Vakil, chairman, Knight Frank India, a property consultancy firm. “They are expecting a further cut in prices, while developers themselves have been dropping prices, anticipating an increase in sales volumes.”

Rajneesh Chhabra, a property broker based in south Delhi, says asking rates are down 30% from their peak, but it’s still almost impossible to find a buyer. “Financiers have disappeared from the market and those dependent on bank loans do not buy property in south Delhi,” he says, adding that deal volumes have shrunk by more than 95% from their peaks about a year ago.

With the financial year drawing to a close this month, cash-strapped real estate developers have already cut prices by an average 40% in all their upcoming projects.

“I expect prices will soon come back to the 2003-04 levels, when rates were hovering between Rs 12,000 and Rs 17,000 in upmarket areas like Malabar Hill,” says Mumbai Estate Agents Association president Yashwant Dalal.
In Malabar Hill, the most expensive home address in India, prices have fallen by a fourth to Rs 25,000-45,000 per sq ft, depending on the age of the building and amenities.

Ten months ago, actor Vinod Khanna offered to pay Rs 1.25 lakh per sq ft for a 2,500 sq ft apartment in the ultra-luxury El Plazo housing society in the Hanging Gardens area of Malabar Hill. “Now the rates are in that area (Hanging Gardens) are around Rs 70,000 to Rs 75,000 per sq ft. Similarly, in Pedder Road, rates are around Rs 45,000 per sq ft,” Mr Dalal says.

A London-based Indian national acquired a 3,475 sq ft property at NCPA Apartments in the Nariman Point area at Rs 97,842 per sq ft nearly six months ago, but rates there are almost half that now, says a south Mumbai property dealer.

14 comments:

Venkatesh Babu K R said...

The bold letters should have bigger fonts ...

Vik said...

I've intentionally put the real estate agent's name in a bigger font. Its not some analyst who is taking. This is a guy whose bread and butter depends on the business. If he makes such strong statments we have a winner

lsjey said...

Guys,

Here is some piece of history. On how countries fared when faced with just two bubbles Stock market and Real estate.

http://select.nytimes.com/gst/abstract.html?res=FB0712FA3E540C768EDDAB0994DD404482

http://www.smh.com.au/news/national/slump-hits-home/2006/02/06/1139074171442.html?page=fullpage#

This time around we have had many bubbles popping
1. Stock Market
2. Real Estate
3. Commodities
4. Salaries

to name a few. The effect is going to be devastating to put it mildly.

Great blog Vik.

Regards,
Jey

RE hawk said...

There is a major disconnect between headline grabbing price declines quoted and ground realities.for e.g. in bangalore except for DLF who cut their prices by 30% and sobha who cut by pahtetic 8% no major builder has announced major cuts and perhaps are still in ostrich like attitude that things will 'blow over' and that the party will continue again after this short break!

Venkateswaran K Iyer said...

Isjey, those were great links.

But I have seen many busts in Indian stock (1994, 2001, 2008) and real estate markets (1994-2001, 2008). Usually in a mature economy the pains last. In a developing economy, they are more easily got over. Unless you buy on the top of the spike, there are gains in flat prices regardless of where in the cycle you buy

RE Hawk, I agree. I have tried to negotiate for pricing. In the area you want to buy, they offer 2% discount, then show disinterest and dont call back. The one who pesters you with calls is the one you dont want because of poor location.

shayna said...

RBI verifying solvency of 10 realty firms

Anindita Dey / Mumbai March 14, 2009, 0:25 IST



Internal assessment follows banks’ worries over systemic risks.

The Reserve Bank of India (RBI) is examining the books of ten real estate companies to verify their solvency and assess the systemic risks arising from possible defaults by these companies on various loans and public deposits.

Sources close to the development said the exercise followed concerns expressed by bankers over possible large-scale defaults in loans and deposits, which may have implications for the entire system.

The companies identified for assessment are DLF, Indiabulls Real Estate, Unitech, HDIL, Mahindra Lifespace, Peninsular Land, Ansal Properties, Phoenix Mills, Anantraj Industries and Akruti Citi Ltd.

The exercise is currently an internal assessment based on available information in the public domain. RBI has also sourced data on loans, cash deposits and other fixed deposits held by these companies from all banks and mutual funds. Most of these companies have also borrowed through non banking financial companies (NBFCs) that they have floated, and the central bank is verifying the books of these related NBFCs independently.

The exercise, said these sources, aims at a comprehensive analysis of the data relating to these companies for determining the correct debt-equity ratio, solvency, state of liquidity to avert defaults, cash flows and profit margin in the current operations.

After the review, the companies or their NBFC arms may be advised to check exposure in line with cash flows, and banks may also be asked to cut exposure.

Sources said these real estate companies had raised long-term loans from banks and had placed commercial paper amounting to thousand of crores to raise short-term financing from the mutual funds.

The mutual funds, in turn, got a major part of the subscription to their schemes from the banks who held public deposits. This means a default on even a single commercial paper will impact the mutual funds, the banks and ultimately public deposits.

Large-scale borrowing has distorted the normal debt equity ratio for most of the companies and made them highly leveraged. RBI is of the view that the debt is being camouflaged in cases where the ratio meets standard norms.
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
Would a crash in the RE market add to the feel good factor for the common man, a possible positive development for the congress govt.
They could go to town saying we are not going to prop up insolvent RE firms even if it means a crash in RE prices and devaluation of assets.
Once back in power things could be rapidly restored to status quo.

shailesh said...

K P Singh

Realty baron K P Singh, the 7th richest Indian, who was among the top ten in the world last year is now ranked at 96.

The realty sector has been badlly hit by the economic slowdown. His wealth has fallen to $5 billion.
Image: K.P. Singh, chairman of real estate firm DLF Ltd. strikes a gong during the listing ceremony of DLF

When does he gets off the forbes list?

Anonymous said...

How short will be the short? RE can go ahead & start the party, we will also join the party but
we will buy in auction.

Why govt. is investigating the books of RE, are they searching for party expenses?

When Malabar Hill prices has slashed down, do you think Mulund prices will go up?
Location factor is a major contributor to RE prices, but the prices stays in equilibrium with other neighboring localities. Other wise after 2-3 years Mulund will quote more price than South B’bay.
Based on the project condition different builders are holding the prices & reacting, only the question is how long?
If the holding is for 4 years Builder’s will incur interest at 16% per annum & buyers will gain at 10% per annum. Now you understand longer the holding deeper will be the correction.

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


Vulture.

Anonymous said...

City builders in a fix as parties seek ‘donations’

“A person who calls himself Tiwari and who claims to represent a Congress party functionary has been calling us, asking for Rs 5 crore from each builder. Many will probably bargain and beat this down to Rs 50 lakh as no one is in a position to cough up such large sums at present. Neither are they in a position to turn down the request," said a developer who is connected with the Maharashtra Chamber of Housing Industry.”

http://timesofindia.indiatimes.com/Cities/
City-builders-in-a-fix-as-parties-seek-donations/
articleshow/4262698.cms

Anonymous said...

Frustrated Builders Look Out for Schemes to Attract Buyers

“With real estate prices continuing to fall, builders have been forced to come up with innovative schemes in order to woo buyers. Price guarantee scheme is one such sop being offered by the builders. This scheme — being offered by the members of Confederation of Real Estate Developers’ Association of India (CREDAI), Karnataka — is unique as it benefits the buyers and not sellers. As per the scheme, the buyer would get back the difference amount if the builder sells the apartment at a lower price than the amount received from the former.”

http://www.indianpropertyreview.com/2009/03/
frustrated-builders-look-out-for-schemes-
to-attract-buyers/

RE hawk said...

Prize guarantee is another dubious scheme to fool buyers, builders who were forced to reduce prices after initial sales have other means to lure late buyers other than reducing prices upfront. Some for e.g. said that they would give 1 bedroom 'free', that is 3 BHK for price of 2 BHK. Note that per sq.ft. price is same but 3rd bedroom is free. Others have resorted to major free upgrades- from vitrified tiles to master bedroom with wooden floors, expesive gadgets like shower enclosures etc. when exisiting buyers ask for same, they are simply told to cough up the differnce amount.Price protection is nothing but duping gullible buyers.

David N said...

Indian Real Estate Market had seen lack of buying interest from last quarter to 2007. Throught 2008, Indian Builders hung on to high price. They have been too sluggish to react to the market.

Builders are like middle aged women. It takes a woman courageous effort, to come to terms with the harsh reality of aging. You can continue to live in a make believe world for months or even couple of years?but natural aging just can't be stopped.

Those who read the signals and adjust their lifestyle, carry on with minimal impact, on their lives. Those who refuse to read signals and adjust lifestyle, end up in medical care.

90% of women are smart enough to admirably adjust and are prepared well in advance. (Salutes to women on Women's Day!!). However, more than 90% of the builders react sluggishly to realities of the market which could affect, if not personal but definitely their financial health.

In a booming market, builders were quick to react by resetting prices upward, every week. The possibility of making larger profits drove them to be extra alert! When market trend shows negativity, it is rightly expected that the same builders would be quick to act, to cut losses. After all, cutting losses is MORE IMPORTANT than making quicker profit. (In boom, whether one reacts quickly or not, there is profit, always. Its only the quantity of profit that varies. But in a sliding market, money gets burned. And that could be deadly)

And this is exactly where builders have gone, dreadfully wrong. Even now, many are in a "make believe world". Comforting themselves, with grandiose vision of early boom! Unfortunately, they are unaware that they are shooting themselves in the leg. And soon, the self inflicted injuries may aggravate.

Cutting losses by aggressive pricing in anticipation of worsening market, should have been the mantra 9 to 12 months ago. But the opportunity was lost due to the blind belief that boom is perpetual and negative trend, a flash in the pan. Builders offered small cuts from August 08 onwards which had absolutely no impact.

There were opportunities as late as September 08 to offer aggressive pricing and convert leads to Sales. But once the negative trend firmed into solid slide, NOTHING could work. Its only in December 08, after a whole year and a half of negativity, that few builders started to react with larger cuts. But the horses had bolted in September 08 itself. And builders who reacted late, know that the stable is empty.

For the smarter builders, the market has indeed given an opportunity to prepare itself for the future. Those who have learned the lesson that procrastination will cause misery, may be quick to act during a slide, after the next boom!

David at www.exclventures.com

Venkateswaran K Iyer said...

David N, that was excellent. Could not agree more.

The builders were like Chdambaram parotting : We will have over 8 % growth through 2008. Obviously wrong.

RE Hawk said...

David is right.The major reason why builder lobby is able to delude itself that things will be hunky dory come tommorow is not because they are not smart enough to smell the earth just simply that even the worst of their lot made such money during boom they think ( may be true in some cases also), that they can ride it over anticipating the turnaround.Unfortunately for them the economic realities of the world right now is such that even a miracle cannot end this downturn atleast for 2 years at any rate.This no doubt will lead to bankruptcy of considerable number of real estate biggies and builders alike.No body I guess will shed too many tears for their well deserved fate.