Saturday, August 08, 2009

Investors may have lost one-third investment in real estate

If Deepak Parekh is right investors have lost close to $8 billion dollars. There are numerous purchases made in the Bandra Kurla complex area which will end up as null and void with the buyer forfeiting on the token amount. Jet Airways is a good example where they don't have the cash to pay up 825 crores for the land which could now be worth 600 crores, a drop of 225 crores.  A huge bubble in QIP/HNI/AIM/Hedge fund real estate speculation has ended with a thud. Hirco.L is quoting down 70% from peak. How the mighty have fallen. 

DNAIndia reports

Mumbai: "Investors have pumped in $25 billion into the Indian real estate market over the last three years but with land values having gone down they could have lost a third of the value of their investment,"said Deepak Parekh,chairman,HDFC, in a letter to shareholders.


Parekh said that the $25 billion are invested through IPOs, QIPs (qualified institutional placements), AIM listing (alternate investment market) and foreign direct investment. A large part of these funds were used for buying land at exorbitant prices.

"With land values having come down, my estimate is that investors could have lost a third of the value of their investment," he said. Advocating caution, Parekh said investors in real estate have to be more discerning. They should be more realistic on valuation expectations and not throw caution to the wind, he said. He also criticised the recent trend where housing loans are offered at attractive interest rates in initial years.

"We are seeing some variations of teaser type housing loans being offered. The lure of low interest rate at the start of taking a housing loan is enticing. But are customers being made aware of future implications," he asked.

43 comments:

Anonymous said...

I dont trust Deepak Parekh, he has made a fool of himself on a number of ocassions. He is shit scared of competition and hence these satements. On number of ocassion he has opened his mouth and the crows have shat in it.

Couple of years back he had mentioned that the prices of RE will crash and i believed him and till date i am waiting for the crash. HDFC will give the lowest on deposit and will charge higest on lending. This fellow on one hands gives loan to the builders and the other hand he talks exactly the opposite.

God knows what his hidden agends is?

Anonymous said...

Deepak as much as any seasoned observer has not seen this much liquidity sloshing around over the last few years. Hence his caution.

Deepak knows this hike in prices is abnormal and this will result in a crash..the timing is not for him to decide,but economics will hold true, eventually.

Once the liquidity is sucked up with the current stock market rally and commodity rally followed by crash, then the Real estate will be a burden on every single person who has a bought a home in recent years.

The liquidity that was sucked up last time was in the stock market crash 2008 september, and the govts compensated with stimulus. But the problem with another liquidity suck will be that the govts will be in no position to intervene and hold the market.

And now, that will be interesting to watch.

K.Gokul

(Part of the views from reports of the thinktank CRPA, Trivandrum)

Anonymous said...

Gokul,
Now govt will have to control excess liquidity and not other way round.

Anonymous said...

@ K . Gokul "But the problem with another liquidity suck will be that the govts will be in no position to intervene and hold the market."

-you have hit the nail on the head..there will not be any "Greenspan Put" this time!

Anonymous said...

Deepak Parekh had predicted the Housing Bubble a way long back in 2005. The million dollar question is why nobody listened to him? The answer is when the party is in full swing nobody wants a bitter dose. Nobody stopped for a while and questioned the phony rally in the real estate market. Whoever questioned, his voice was smothered in the entire speculative din.

In USA also, one of the iconoclasts was ridiculed repeatedly for his sane advice and prediction about the financial crash until the day of reckoning arrived. Check Peter Schiff Was Right


Following is the reference to the 2005 article.

Beware housing bubble: Parekh.

Financial Daily from THE HINDU group of publications
Saturday, Jun 18, 2005

Mumbai , June 17

THERE is a need to make sure that all the stakeholders in the housing sector - development authorities, regulators, housing finance companies, banks and developers - work together to check the speculative angle in rising residential property prices, Mr Deepak Parekh, Chairman, HDFC, has said.


"At the risk of sounding overcautious, I would like to draw your attention to pointers that support the idea that housing markets could be more prone to bubbles than stock markets. One of the reasons is imperfect information. No two homes are alike nor are there exchanges where prices are recorded. There are no organized futures or options markets for properties, so it is a market with no place for short selling.


"In this scenario I cannot help but be reminded of what Stephen Roach, Chief Economist, Morgan Stanley, said recently, "Housing is an asset class as prone to excess as stocks, bonds, currencies and commodities. If it feels like a bubble, acts like a bubble and looks like a bubble, it probably is one."

Cynic said...

I keep wondering why people think that the current prices are sane. I spoke to a close friend of mine who was going to buy a house in 2005 in a particular building for 30 lacs.

He informed me that after so many years he has decided to finally buy the same house but at 1.25 cr!!!!

I mean why would a sane, highly educated man feel that a house which has appreciated 300% plus in 3 years be poised to take off like a rocket beats me!

His justification is that he waited for the prices to fall and now believes that prices are going to double from here in 2 years at a minimum!!

So lets see, that would mean the same flat would be priced at 2.5 cr in another 2 years or an appreciation of 730% in 5 yrs??!!

Or about 146% returns per annum!!

I had to laugh at those crazy numbers...because that's what it is at the end of the day, crazy. I know to some jokers like Bindass, these kind of returns make perfect sense and are normal.

Bindass, Andy and others might even exclaim - there are smugglers, policians out there and more millionaire's being made with every passing hour and so of course 150% appreciation every year is nothing new...

I think that Mumbai deserves what's coming next, sooner or later.

Anonymous said...

Hey Cynic,

I don't know about speculators, but if you need a house u need to get one. Get one today then to be sorry later... (applies for Mumbai for sure... )

This is what is going on here ... From what you wrote, it's difficult to believe that your friend is an investor, I think he bought for his own needs .... waited and waited for the market to correct and finally bought, btw this is my story .. and there are thousands like me out there ....

I don't know where are they getting the (white) money to buy a 1 cr+ house .... but the bitter truth that I have come to realize is ... if I can manage 60 lac (white)... there are many more people who can manage 1 cr+ white.

Anyways .... seems like, there is demand and there is affordability ... I would like to quantify both of these things but in today's unorganized real estate market thats impossible. So the thumb rule is (at least in mumbai) if you need a house and if u can afford ... go ahead and buy ...

Ex-TCSer and a recent home buyer in Bhandup Mumbai.

Anonymous said...

In the late nineties, real estate was really subdued .... u could see empty apartments in CBD belapur ... and could buy one at Rs 1000 per sq feet ... Somehow, Buying a house was not on anyone's agenda .... none of my peers had it on there priority list. A decent 2 BHK in Kalyan cost 5 lac ... but nobody bought (even if they could afford) .....

This is sentiment I'm talking about ... things are very different now ... Everybody has a house on their agenda, sometimes even if they own one already.

The rental culture is also not helping .... the 11 month lease is killing people who would like to keep renting ... I would've never bought a flat, but one fine day, my landlord told me this is the last yr ... (we had been lucky so far and had been living in the same house for rent since the past 5 yrs ) ...

Rental availability and archaic laws are two key factors ... there are millions of empty flats in mumbai ..... but these are not part of the supply ... probably can be changed by legislation .... but would it happen ... I'm not betting on it ... so guys if u r planning to stay in mumbai for long term and and don't have ur own acco .. ... go get one ..

Ex-TCSer

Anonymous said...

I was told by an Analyst that in last 40 years Mumbai has given on an average of 12% return CAGR. Year 2008 is also taken into account for calculating the above.

Can someone throw some light on this?

Anonymous said...

Cynic said...
I keep wondering why people think that the current prices are sane. I spoke to a close friend of mine who was going to buy a house in 2005 in a particular building for 30 lacs.

He informed me that after so many years he has decided to finally buy the same house but at 1.25 cr!!!!

I mean why would a sane, highly educated man feel that a house which has appreciated 300% plus in 3 years be poised to take off like a rocket beats me!


Cynic, why dont you work out the last 20 years return instead of last 3 years. RE is always worked on long term basis and looking at three years data is really stupid. RE cycles are typically 10 years+. We need data for atleast 20 years to comment on your post.

AlphaSmurf said...

Read this InformationWeek Article on Outsourcing to India - its bad news for outsourcers.....
http://stormdetector.com/essays/IndiaOffshoringFailures.pdf

catch22 said...

Check out this blog.

compilation of rates in cuffe parade for a period of 5 years.

Cynic said...

Anonymous@8:50 AM

You need data of 20 years to work out return??!!!

Do you mean to imply that RE has 20 year cycles?

I know that RE collapsed in 1996-1999..remained flat till about 2004 and then has gone into super bubble mode.

Does that help explain things to you? I tried to do it slowly this time..if you still have problems understanding this and stick to 20 yrs of data, then I would know who I am talking with.

Anonymous said...

The phony growth driven by FII in the Indian Stock Market (in tandem Real Estate Market) will sink to new lows in the years to come because of following factors in USA markets...

No verification of income/assets/jobs (LIAR loans)-

Following elements have not so far played their part fully.....

Alt-A loans

Option ARM - Negative amortization-Teaser rates-

Commercial Real Estate Defaults ( running into Trillions of dollars)

USA Consumers spooked by dwindling asset values, job losses resorting to sane practice i.e. "Savings"

Anonymous said...

Read this Orange Properties Scam
Bindaas Bhai , All of us hope that you and your miserable broker friends had invested in this. You Dumb@$$

Anonymous said...

video of the same
http://ibnlive.in.com/news/properties-group-dupes-customers-of-crores-of-rupees/98750-7.html

their ads were too good to be true. the buyers were fools

Anonymous said...

Question : Why Bindas Bhai will never get affected by Swine Flu?
Any Answers?

Bindas Bhai said...

Just thought of posting this. Hope none of us have to use this.

City Hospital Address Contact
King Institute of Preventive Medicine (24/7 Service) Guindy, Chennai – 32 (044) 22501520, 22501521 & 22501522
Communicable Diseases Hospital Thondiarpet, Chennai (044) 25912686/87/88, 9444459543
Chennai Government General Hospital Opp. Central Railway Station, Chennai – 03 (044) 25305000, 25305723, 25305721, 25330300
Naidu Hospital Nr Le'Meridian, Raja Bahadur Mill, GPO, Pune – 01 (020) 26058243
Pune National Institute of Virology 20A Ambedkar Road, Pune – 11 (020) 26006290
Kolkata ID Hospital 57,Beliaghata, Beliaghata Road, Kolkata - 10‎ (033) 23701252
Coimbatore Government General Hospital Near Railway Station,
Trichy Road, Coimbatore – 18 (0422) 2301393, 2301394, 2301395, 2301396
Hyderabad Govt. General and Chest Diseases Hospital, Erragadda, Hyderabad (040) 23814939
Kasturba Gandhi Hospital Arthur Road, N M Joshi Marg, Jacob Circle, Mumbai - 11 (022) 23083901, 23092458, 23004512
Sir J J Hospital J J Marg, Byculla, Mumbai - 08 (022) 23735555, 23739031, 23760943, 23768400 / 23731144 / 5555 / 23701393 / 1366
Mumbai Haffkine Institute Acharya Donde Marg, Parel, Mumbai – 12 (022) 24160947, 24160961, 24160962
Government Medical College Gandhi Nagar P O, Kottayam - 08 (0481) 2597311,2597312
Government Medical College Vandanam P O, Allapuzha - 05 (0477) 2282015
Taluk Hospital Railway Station Road, Alwaye, Ernakulam (0484) 2624040 Sathyajit - 09847840051
Kochi Taluk Hospital Perumbavoor PO, Ernakulam 542 (0484) 2523138 Vipin - 09447305200
All India Institute of Medical Sciences (AIIMS) Ansari Nagar, Aurobindo Marg Ring Road, New Delhi – 29 (011) 26594404, 26861698 Prof. R C Deka - 9868397464
National Institute for Communicable Diseases 22, Sham Nath Marg,
New Delhi – 54 (011) 23971272/060/344/524/449/326
Dr. Ram Manohar Lohia Hospital Kharak Singh Marg,
New Delhi – 01 (011) 23741640, 23741649, 23741639
Dr. N K Chaturvedi – 9811101704
Gurgaon &
Delhi Vallabhai Patel Chest Institute University Enclave, New Delhi- 07 (011) 27667102, 27667441, 27667667, 27666182
Victoria Hospital K R Market, Kalasipalayam, Bangalore – 02 (080) 26703294 Dr. Gangadhar - 94480-49863
Bangalore SDS Tuberculosis & Rajiv Gandhi Institute of Chest Diseases Hosur Road, Hombegowda Nagar, Bangalore – 29 (080) 26631923 Dr. Shivaraj - 99801-48780

Anonymous said...

Bindaas Bhai will never get Swine Flu because Swine Flu doesn't impacts Swines. They are the cariers not the victims.

BB - Take this in a light spirit :)

Bindas Bhai said...

No problem my friend, I am used to all this.

Bindas Bhai

shailesh said...

Parekh bats for real estate regulator

Mumbai, August 9
Housing Development Finance Corporation chairman Deepak Parekh has said there is a compelling need to have real estate regulators at state level to deal with issues concerning the housing sector.

"There is a compelling need for state level real estate regulators," Parekh said in an annual report of the company sent to shareholders.

Discussing various aspects of real estate, he said, "It would be a missed opportunity if the government were not able to lay out an institutional framework for a real estate regulator".

According to Parekh, regulators' role would be to monitor the affordable housing agenda, promote real estate reforms, ensure transparency especially by mandating that flats be sold only on carpet area and act as a platform to protect buyers from real estate fraud.

Referring to the affordable housing, Parekh observed that affordable housing is not about box-sized, budget homes in far-flung places where there is no connectivity to work places and little surrounding infrastructure.

"Affordable housing has to be able to cut across all income segments and has to make economic sense in terms of proximity to work place", he said.

About challenges being faced in rural housing, he said challenges of rural housing are vastly different from urban housing and key reform like permitting the mortgage of agricultural land for residential purpose was needed.

Parekh also criticised the tendency of state housing boards to make profits by selling lands.

He said that many housing boards have shifted their focus to merely selling land for profit and sitting on cash surpluses. Such tendency of developing profits should be stopped and deployed only for affordable housing, he said.

shailesh said...

Royal Palms Estates slashes prices by 40% in Mumbai

Royal Palms Estates has begun offering ready to possess apartments at Goregaon, a north-western suburb, for Rs 3,999 a sq ft (PSF). This is lower by around 40 per cent compared with the prevailing property rates of around Rs 5,500-5,700 PSF.

When spoken to, Royal Palms Estates’ joint managing director Dilawar Nensey confirmed the development. “There is still a price resistance in the market, and traditionally the monsoon is a slack period for property sales. A number of bargain hunters surface during this season and take quick decisions if they find a property worth acquiring, either for personal use or for investing,” Nensey said.

More important, Royal Palms Estates needs to generate funds for future plans and is doing so by disposing of existing properties. It’s better to sell at discounted prices, rather than holding on to it, he added.

Royal Palms is setting up two Special Economic Zones (SEZ) at Goregaon – one for information technology and another for gems and jewellery – and needs funds for these projects.

shailesh said...

Maha plans Rs 2.5 lakh cr investment for Mumbai infrastructure upgrade

The Maharashtra government has prepared a business plan requiring an investment of around Rs 2.5 lakh crore for development of infrastructure in Mumbai and peripheral areas, a top official said today. “We are envisaging an investment of up to $60 billion (around Rs 2.5 lakh crore) for developing transport, water-supply and sanitation in the Mumbai Metropolitan Region (MMR),” Additional Chief Secretary and MMRDA Metropolitan Commissioner Ratnakar Gaikwad told reporters here today.

“We need public-private-partnership (PPP) in a big way to bring about development in MMR,” he said. Gaikwad said the state was focusing on the rental housing models and aimed to have 300,000 flats/tenements ready in the next three-years. “We have received 45 proposals to build 300,000 houses in the next three-years,” he said.

For improving sanitation in the city, the state government will also construct 14,000 toilet seats in the city by December this year, he said. “Besides, we will be investing Rs 4,700 crore to generate up to 3,100 million litres per day of water for the next 10 years,” Gaikwad said.

catch22 said...

Something about the Royal Palms in Goregaon. This is my personal opinion. Went their last year to look at properties. Its inside the Arey milk colony(please corrent me if I am wrong) Very green but lot of trash everywhere. Then you drive along a small hillock and you see hotels and flats. Seems most of the apts/hotels/bungalows are on higher elevation. It does not seem to be a residential place. Mostly short term stay.
So if you buy a place their the best option would be to give it to a property management co. and rent it out. Why would anyone want to stay in a non-residential place for a long time...Frankly I did not like the place a a personal residence.

catch22 said...

Sorry guys my website is
http://desifinancialfreedom.blogspot.com

thanks again

Anonymous said...

@ catch 22
The construction quality of the apts also leaves much to be desired, if you notice.

Anonymous said...

Thank yo bindaas bhai - this is called big heart..
wish everyone good haelth!
This is person looking for home in Chembur on a budget of 50 L..

No decent home in this budget

Catch 22 I am ex goregaon - parents still stay there

IMHO Royal Palms is trash - too far away - and these buggers are trying to sell property nder various scheme for last 5 years..
once they claimed Royal palms is 20 Minuts from Airport - can you beleive this!!!!

anyway as per this blog till now 50 l should fetch 3 bhk in chembur!!!!anyone ready to sell??? (all white deal

catch22 said...

Both the anons. Thanks for responding.
IF you look at royal palms, the place looks like some "funny business" is going on. If you get the drift...
When we went to enquire we were ushered into a room with a table and four chairs and told to wait. The sales person came in and enquired about our requirements. He discouraged us from buying a property to stay there saying its generally bought as a "holiday home"...
The only ones which looked decent enough were the bungalows, priced beyond imagination(I have heard that Hema malini's son..sorry daughter:) has bought a house there)..

Anonymous said...

Anon:
Don't worry what Deepak Parekh says. If you think he has fooled you, it is still not too late and you can buy even now before prices triple again in the next 3 years.

The reality as I see is that Real Estate prices are not Real anymore and are unsustainable. In a matter of few years, all flats and houses all around India including big cities would be selling for half the price. Worry about your jobs as 3Q and 4Q is going to be really ugly.

Bindas Bhai said...

Thanks Anon 10:30 for your kind words. A week back a broker had come to with a proposal.

Maitri park for 860 carpet asking price is 1.50 cr. This flat we need to buy from the tenant and not the builder. Hirandani in turn will give the owner of the flat 1720 carpet + 10%carpet area on 860 @ Rs.4000. Besides this the builder is also giving a corpus fund of Rs. 2000/sq ft on 860.

Three people can buy say around 50 L each and then after 3 to 4 years. They can expect 2BHK flat each from the builder.If interested pls. let me know, i will give you his number.

All the best my friend.

Bindas Bhai

Anand Vyas said...

BB has every right to express his views and I find his comments/views rational. If someone does not like his advise, they can just ignore it. The outburst shows that certain people take him seriously but yet find it difficult to come to terms with their own predictions. whatever, he doesn't deserve bad words such has those penned by 'Rao' and Anon.

I once again advise you not to bank on 'bubble burst' as there is none. The more you wait, the more disappointed you will be. As long as black money remains in Mumbai, the prices are going to increase steadily. My own prediction is that the average increase will be around 10% which means prices will double approximately in 7 years time.

Accept the reality and get on with your life. False dreams will only frustrate you

Anonymous said...

Consumer Bankruptcy Filings Hit 4 Year High

The facts as reported by the American Bankruptcy Institute: consumer bankruptcy filings reached 126,434 in July, a 34.3% increase year over year, and an 8.7% increase sequentially (116,365 in June). July's number is the highest monthly bankruptcy total since the October 2005 bankruptcy reform aka the Bankruptcy Abuse Prevention and Consumer Protection Act.

Today's bankruptcy filing number reflects the sustained and growing financial stress on U.S. households," said ABI Executive Director Samuel J. Gerdano. "Rising unemployment on top of high pre-existing debt burdens is a formula for higher bankruptcies through the end of this year.

In short, the main driver of US GDP, the consumer, has yet to experience any of the fringe benefits that have driven the S&P up by 50% in the last 4 months.

Anonymous said...

Crackdown on Consumer Credit Continues
by: Ockham Research August 09, 2009

According to a report issued by the Federal Reserve, consumer credit contracted for the fifth consecutive month in June. This decline marks the longest sustained drop in available credit to consumers since 1991, and the last quarter was the weakest for consumer credit since 1980.

From all the evidence we see, consumers are shrinking their personal balance sheets; personal savings is rising and consumer credit is falling .

Even as confidence over the direction of the market has improved for the last quarter or more, these trends are not abating. Home equity loans, which are not tallied in this report, are almost certainly down a lot as home values have drastically fallen and many homeowners are underwater on their mortgages. Wages and salaries have fallen 4.7% over the last twelve months, the most since record keeping began in 1960.

Vik said...

Why is the flat owner interested in selling ? If holds, he makes all the money. Why share ?

Anonymous said...

A party liquored up by the cheap & easy money is on the last leg. The ripple effects of reduced spending in the US markets are very clear. Once there are enough suckers in the current Indian stock rally, the FIIs will unwind the positions, leaving the speculators (bankers,technies,brokers) to reel under their risky bets. This will automatically lead to bursting of India real estate supper- bubble.

U.S. Underwater Mortgages May Reach 30%, Zillow Says (Update1)

Aug. 11 (Bloomberg) -- Almost one-quarter of U.S. mortgage holders owed more than their homes were worth in the second quarter and that figure may rise to as much as 30 percent by mid-2010 as job losses and foreclosures climb, Zillow.com said.

Homeowners are being hurt by price declines. The estimated median value for single-family houses slid to $186,500 in the period, a 12 percent drop from a year earlier and the 10th consecutive quarterly decrease , the Seattle-based real estate data service said in a report today.

“The negative-equity rate will rise and spin off more foreclosures,” Stan Humphries, Zillow’s chief economist, said in an interview. “I see a substantial downside risk to prices and don’t think we’ll see a bottom until the middle of next year.

Bindas Bhai said...

Vik,

I have not met the owner but there could be various reasons why he wants to sell, relocation, urgent need of money or maybe he feels that the market will crash.

These kinds od deal we have to be very careful and do all the necessary documentation. We need to hire a good lawyer before we proceed

Bindas Bhai

Bindas Bhai said...

Anand,

Thanks for your kind words.

Bindas Bhai

Ms Risk Taker said...

I have been seeing all of you abuse BB. That is really sad. I thought I should not step in but then some of you are being really rude. BB, I really enjoy what you write and although I do not agree, I cannot help but wonder why you must continue to post when no one appreciates your goodness. You must realise that even if no one else supports you I will.

Bindas Bhai said...

Thanks Ms Risk taker for you kind words. I learn a lot in this forum from people like you. It hurts at times but you need to loose something in life to gain somewhere else. Thanks once again.

Bindas Bhai

Anonymous said...

Though I am a bear and strongly oppose Bindaas Bhai's comments i appreciate the maturity with which he is answering. we need two sides to have a healthy debate and Bindass bhai and few other bulls are chugging along. lets see who wins... i strongly hope the bears win.. but it is getting frustrating not seeing the price corrections. hope it corrects at least by 10-12% over the next one year..

Average Indian Buyer

Ms Risk Taker said...

BB, I thought property was a lose-lose game, but you seem to trying to convert that to win-win. Are you based in Mumbai? I need some advice related to some property i want to buy.

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