Wednesday, June 24, 2009

India's residential sector likely to see oversupply - Crisil

Crisil reporting accurately on the state of the housing market in India.
>>> Real estate companies have been launching newer residential projects at lower prices that >>>are located in "far-flung" locations (exhurbs) from the central business districts of cities. The Reuters article is below.
This statement is 1000% true. We see launches in Kalyan, Virar, Boisar in Mumbai which are 3 hours away from business districts. It makes no sense to commute 1/4 of your life every day and still be under the duress of loans. Life is more then loans and commute. Builders have bought land at sky high prices in the Mumbai suburbs and the only way out for them is an increase in FSI. I think in the coming years the Maharashtra govt will do just that. Prices will drop to more sober levels once that happens. Anyone buying at 8k per sq/ft will be rueing the decision for the rest of the loan life.
India's residential sector likely to see oversupply - Crisil

MUMBAI (Reuters) - India's realty companies will struggle to find buyers for about a fourth of their residential space between 2009 and 2011, the research arm of rating agency Crisil said in a report on Wednesday.

During 2009-2011, Crisil Research said it expects absorption of 506 million sq. ft. over the three years based on its expectation of a GDP growth of 6-6.5 percent in 2009/10, according to its study of 10 cities across India.

Although planned supply has been estimated at 1,202 million sq. ft., this supply "is unlikely to materialise in full due to the credit crunch and relatively sluggish demand," and the actual supply will be around 700 million sq. ft., it said.

This indicates 28 percent will be in oversupply while much of the planned projects will be delayed by up to two years and others in the planning stage, shelved.

Indian real estate saw demand for housing collapse in the second half of 2008 amidst a global credit crunch and the local market became stressed with buyers fearing job losses, Sudhir Nair, head-Crisil Research said.

The market is expected to stabilise in 2010, he added, "the Indian economy will stabilise and start accelerating and there will be stability in the global economy and fund constraints will be eroded."

Builders had also reduced unit sizes and cut prices, which will help stabilise demand, he said.

Residential prices are expected to fall further by 8-10 percent in 2009 before stabilising the next year and Crisil Research expects investors to maintain a cautionary approach until values stabilise, it added in the report.

Real estate companies have been launching newer residential projects at lower prices that are located in "far-flung" locations from the central business districts of cities.

16 comments:

Anonymous said...

called two builders in goa,one quoted 85 lacs for a bunglow,which is unbelievable,then called and individual seller he quoted 22 lacs for a row house ,I said i have only 16 lacs ,he said he is ready to take the offer,this i did by sitting in canada,if you are down there you definitely will get a better deal

Anonymous said...

Anonymous,

[quote] "i did by sitting in canada,if you are down there you definitely will get a better deal" ..[quote]

How did you do this sitting in Canada, what resources do you use to find the deals. Can you educate us ?
I beleive the websites are targeted towards NRI and are exhorbitant to begin with.

thnx.

Anonymous said...

Anonymous said...
I am sorry Vik... will not repeat, promise. Sorry BB, please forgive me :-(

-Retired Old Man

Anonymous said...

Sensex going to 30,000 as per a JP Morgan idiot. Here is the story:
http://publication.samachar.com/pub_article.php?id=4527377&navname=Latest%20News%20&moreurl=http://publication.samachar.com/mint/business/latestnews.php&homeurl=http://business.samachar.com&nextids=4526212|4527377|4334690|4527378|4527379&nextIndex=2

Anonymous said...

Over supply as per CRISIL is in far flung suburb and not in Mumbai.
Vik CRISIL is also mentioning that Market will stablise in 2010.

Kindly advise is this right time to buy or should we wait.

My brother called me this eve and mentioned that the builders have already increased the price by 12 to 15% in Kandivili. Hope we are not totally wrong in judging the market.

I am with TCS over here and very shortly I will be moving to Mumbai(cost cutting stuff). We desperately need a house atleast a 3BHK. I think i am in for serious trouble on housing front.

Can someone please guide me, thanks.

Amul

Anonymous said...

To all buyers:

This is just an advice that do not fall prey to these high prices dealers are quoting. If you like something, lowball your offers. If something you see is worth 80 lacs, see what the price was in 2000-2001. Then add 5-7% inflation every year compounded. SUppose this 80 lacs house was worth 24lacs in 2000. I would add roughly an increase of 1.5 lacs per year and my offer price should not be more than 39-40lacs.

People who will rush into buying without properly assessing the situation will get burnt. Choice is yours.

--HB

Anonymous said...

Dear Amul,
Do not rush into buying. The prices have nowhere but to go down. If you buy a flat for 50lacs, your mortgage would be 5 times more than the rent you would pay for it. Buying is good only when market stabilises.

The market will see some stabilization by 2012-13. And the prices by then will fall to 2003 levels by upto 50-60%. Try to save your job as TCS doesn't pay well and massive layoffs are coming to IT industry.

--HB

Anonymous said...

Practical way of Price Discovery

There were a lot of discussions about RE pricing & correction. The media & brokers are singing different songs; builders are not providing real rates in casual inquiries. Yes there is a big incentive for brokers & builders to hide the prices. Brokers’ commission (2%) is solely based on asset price & by hiding the real price of RE builders can provide the overvalued asset as collateral for higher loans (in short avoid mark to market accounting).

In this illiquid market price discovery becomes very difficult, so to find out the worth of property a buyer needs to act like a trader.
 Never disclose your pocket size. [First question of any seller will be how much is your budget?]
 The brokers & builders are very patient; even though they are dying out of hunger they will not reveal it in first meeting. After a month they will start negotiation.

 As mentioned by VIK play a counter reactive policy .i.e. sale some ….. property.

 Post some sale ads on various web sites with similar property description & area with nearby price & observe the response.

 After a week decrease the prices & check the response.

 The whole exercise is to find out how many big fools are there in the market at each price level.

How trading works.
Say “YZ” sell an asset for 10 to “AB”, then AB sell the same asset to “CD” for 12, then CD sell the same asset to “EF” for 15. Now EF is not able to find any buyer means there is no bigger fool than “EF” in the market. This is called trader’s tactics, it’s an art of finding bigger fool in the
market.

NOTE: As banks are not extending the credit more than 60%, clearly shows that their valuation is much lower than market price. It doesn’t mean that banks are facing liquidity problem OR they are not interested to expand the loans.

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

Vulture.

Anonymous said...

the ads in 99 acres and magic bricks are all high priced,went to a local news paper on the internet and made several calls to different ads ,the person quoted 22 lacs i said my budget is 16 lacs only,had i to say 12 lacs may be he would have agreed to 12 lacs too,so guys be patient 50% discount is sure buy one get one free-spoke to a builder and he advised me that in mumbai and goa there is no slow down,the slowdown is in bangalore,and the return on investment in goa is 30% ,I told him good for him as he is in a very good business-so relax 50% discount for sure.

Vik said...

Amul,
I sense your pain in dealing with ruthless builders. What is the location, sq. ft and price per sq.ft. In this market re-sales will be better to negotiate then builders. Post some real numbers so we can comment.
regarding the 10-15% increase, that could be the builder playing poker with buyers. Its common strategy to force your hand.

The rates are getting cut, and liquidity is entering the market. there is no doubt about that. The question is what price is right to enter the market.
I sense a pickup in the hiring in the US market too and enough economists except the diehards have said that the recession could end in 6-9 months.

Today the Fed too released numbers which point to a decline in the recession.

You have to figure out your long term goals and look at your individual bank balance. Don't blindly go by what I or others say on this blog or any other article. Do you due diligence and keep posting your results. Waiting for the numbers

Anonymous said...

article in midday
Flat 50% Discount
By: Varun Singh Date: 2009-06-24 Place:Mumbai


Unbelievable, but true. A Pune-based builder offers apartments at half the existing rate; Mumbai builders say it's not possible here

A leading builder from Pune has done the unthinkable. Krome builders is offering 1BHK and 2BHK flats on the outskirts of Pune at half the existing rate in the area.

Krome is planning to construct a 425 apartment complex spread over 400 acres in Vishrantwadi, which is a 20-minute drive from Koregaon Park a posh Pune locality.


Coming Soon: The project by Krome builders will be launched in August and bookings start in the same month.

While the rates in Vishrantwadi are between Rs 2,800-3,500 per sq ft, Krome is offering flats at Rs 1,500-2,000 per sq ft.

This means a flat measuring 300 to 750 sq ft will cost you anywhere between Rs 5 to 15 lakh. The project will be launched in August and bookings start in the same month.

Quality conscious

Nainesh Nandu, managing director, Krome, said, "With the slashed rates, the profit margin will be a little less. But we will buy construction equipment in bulk and optimise our resources.

We plan to use vitrified tiles, aluminum windows and sanitary ware of the best quality. If people think we will compromise on quality, they are mistaken. They can have a look at our other projects."

Krome's competitors are stunned by the move. Michele Arora of Property Help, a brokerage firm in Pune, said, "Buyers will be attracted to the project if the builder offers flats at 50 per cent discount."

Meanwhile, builders in Mumbai say it's impossible to adopt a similar strategy here. A realty expert, who did not wish to be named, said, "Builders in Mumbai need huge profits. That's the only reason they are unwilling to reduce the rates."

A prominent builder said, "We are here to do business, not charity." Rajesh Vardhan of the Vardhaman Group says land rates are too high in the city for a similar move.

But Vibhoo Mehra of Mumbai Properties, a brokerage firm, said, "The land rates are a lot cheaper in the suburbs. I don't understand why the builders can't slash rates in those areas."

Free BMW, gold with bungalow

Krome builders that was earlier known as Kubix Realties had offered buyers a BMW car, two kilos of gold or a year's EMI free with their 5,400 sq ft, Rs 2.98-crore bungalow in Pune in November.

The bungalow had four bedrooms, a servant's room, three parking lots, and a password protected personalised elevator. The door locks were also password-protected.

Anonymous said...

Vik,
Rates are being cut and liquidity is entering the market. Why?

If the overall economy is doing good, people will not buy bonds and the yields would not be so low.

Basically, the governments all over the world are trying to avoid a big crash by lowering rates and putting ample steroids (stimulus) in the markets.

Recession or no recession, the housing bubble is not coming back and the prices have to come to sustainable levels all over. Banks have got burnt so bad that they will not give loans like before.

Even US will see a bottom in housing by 2012 or so. And don't believe a lot of these doctored numbers released by the commerce dept or Fed Res.

--HB

Anonymous said...

The game is different, to understand the liquidity & all improvement in market, become a fictitious seller, put your ads & see the response.

You will come to know at what level, how many people are ready to buy.

Vulture.

Anonymous said...

I think what India is seeing is what US saw in early 2007. It is not even intermission for this downward trend movie.

--Builders and sellers will be adamant on their prices till buyers really disappear and they will keep on providing incentives and lowering prices to entice them.

As suggested by HB above, do not rush into buying as the prices will keep going down for years.

Anonymous said...

The real estate prices rose substantially due to the illegal transactions. we all know this.

Now in a major turn of events which has gone unnotices real estate transactions under GPA ( General power of attorney). For the starters GPA is simply a tool to hide your black money in deals. You buy a house and own it by paying black money, and still legally you have not bought the house. Result black money is hidden. (Read more at http://www.deccanherald.com/content/9991/gpa-misuse-draws-sc-flak.html)

It is due to GPA that black money finds save haven in real estate.

Now if in a year or two GPA is banned and registry made mandatory what will happen.

1) A tremendous supply will come to the market. (folks do remember that a large no. of houses are not avlbl on registry and don't qualify for loans.) InHaryana builder floors can now be registered and qualify for loan. This has led to a little increase in these floor prices. However it has brought tremendous pressure on flats, as ppl can now go for cheaper builder floors rather than high rise apptmnts. I personally observed it in gurgaon.

2) Speculation happens on black money. only fools speaculate on his/her hard earned money. If GPA is banned than black money will not be available for speculation in real estate. And this is going to put extreme pressure on real estate prices.

Now that SC has set the ball rolling. Lets see how the Govt. acts on it. Going by the track record of Congress govt. I don't see this being implented in Mumbai/ Delhi NCR. However non-Congress ruled states may implement it in 2 to 3 years.

Comments on post welcome (Only logical & fact based.)

Retired Old Man

rajni sharma said...
This comment has been removed by the author.