Monday, October 26, 2009

Realtors make a cautious comeback

Flush with funds raised through QIPs and PE deals, builders are eager to cash in on the return of demand

The affordable housing concept too has pushed developers out of familiar territories. Unitech, which bought land nationally in the last five-six years, has launched projects in Lucknow, Mumbai, Kolkata, Chennai, Bhopal, Rewari and Mohali in the past six months, several under its affordable housing brand Uni Homes.

Even for its recently launched premium project in Worli, south Mumbai, Unitech slashed rates by at least 30%. In a pre-launch aimed at investors, it sold nearly 150 out of about 300 apartments in the project within a month, analysts said. Unitech is focusing on developing its existing land parcels, said R. Nagaraju, general manager, corporate planning and strategy. But the risk in expanding into other cities is in setting up a large team in each region to undertake the projects with enough freedom to operate, he said.

Bangalore-based Puravankara Projects Ltd plans to go pan-India through its affordable housing subsidiary Provident Housing Ltd. Encouraged by recent project launches in Chennai and Bangalore, it’s now aiming for Kochi, Hyderabad and Coimbatore.


shailesh said...

Will it last?

While there are visible signs of a recovery in the real estate market, price hikes by developers and any increase in interest rates could halt this momentum.

Higher sales...
While demand as of now seems to be buoyant in the residential space and is likely to gather momentum, is it significant? Says Sanjay Dutt, CEO, Business, Jones Lang LaSalle Meghraj, a realty consulting firm, “The slowdown hit the market shortly after the Navratri-Diwali season in 2008 after registering the usual 30-35 per cent upsurge in sales typical of the period. Sales increased 25-30 per cent this time around and is significant as this is the first upsurge in demand after a prolonged downturn.” Driving home the point, Ramnath cites the sales of DLF and Unitech, India’s largest listed realty companies, during the current financial year. “Unitech has launched about 17 million square feet (mnsqft) worth of properties across the country selling over 40 per cent of that. Incrementally, Unitech has launched about 6 mnsqft of affordable housing properties selling about 1 mnsqft of properties till date. DLF too has sold a total of about 4 mnsqft of properties till date. These events indicate an uptick in volumes in the sector.”

...leading to higher prices
The uptick has however led realty players to increase prices. Ramnath believes that new properties launched in Mumbai, for example, were offered at 10-15 per cent higher prices as against their lows in March 2009 quarter. Moreover, developers are now offering properties without any discount and freebies (such as waiver of stamp duty and registration charges). Says Dutt, “Developers in key cities have been hiking prices to test the flexibility of the market. At first, this trend was evident only in the luxury and semi-luxury segments, but it has now percolated down to the mid-income housing segment as well.” A good example is DLF’s Capital Greens project in Delhi. DLF increased its prices at Phase II of this project to Rs 6,750 per square feet in September 2009, which is at a 30 per cent premium to those in Phase I launched in April 2009.

Cool Head said...

Many of the so called sales have been dummy sales to group companies, shell companies controlled by the RE cos and other such henchmen. This is to con the fence sitters into believing that the market has started moving again and that they should hurry as otherwise they will "miss the bus".
This drives real users into panic like situations that they regret later on. I know of an engineer working in an engineering consultancy company (non IT related) who has leveraged himself to the hilt by taking a loan of 50 lakhs to buy a 60 lakh house (cramped 2BHK) in Thane. His CTC is around 10 lakhs.When asked why buy now, he says that the builder has said that "rates are rising" and he should hurry up or he will never ever be able to own a house in his lifetime. I wonder how rational people believe in such drivel. The worst case is that the flat is "nearing completion" for the last 2 months and this guy is now paying the rent on his existing flat and also the EMI for the new house. He seems constantly under stress.

Anonymous said...

3 More Black Swans for the U.S. Economy

October 23, 2009

While the majority of the subprime problems have passed there is another mountain of resets ahead that will wreak havoc on the housing market. Tilson argues that two waves have passed, but three lie directly ahead. These three waves include prime loans, jumbo prime loans and commercial real estate.

Tilson believes this is the “mother of all head fakes” for 7 reasons:

. Ultra-low interest rates

. The $8,000 tax credit for first-time homebuyers

. More middle- and upper-end homes are being sold (either voluntarily or via foreclosure), which has the effect of raising the price at which the average home is sold – but more defaults of higher priced homes is very bad news for mortgage holders

. A decline in resets

. A reduction in the inventory of foreclosed home

. The FHA is providing massive support to the housing market, in part by doing extremely risky lending

. Home sales and prices are seasonally strong in April-July due to tax refunds and the spring selling season

We are literally in the eye of the reset storm:

Chart - Mountain of Resets

Anonymous said...

@anon 12:46

My word!!

Nice gold, get off dollar and stocks. Lose your debt, move to commodities..because we are going to a global stagflation scenario.

Eye of the storm is the right metaphor!

Anonymous said...

Listening to the builder who says "rates are rising" is like asking the barber if you need a haircut or not.

Anonymous said...

So RBI is already revising its monetary policy!! The article says they have revised provisioning for commercial real estate upwards from 0.4 to 1% thats a 150% shift in policy!! I guess it also makes a comment on the true situation of commercial real estate. Also, the article goes on to say that realty index plunged 6% in one day!

All this reflects what the smart money thinks about the realty market. Would not be surprised if RE heads downwards in a hurry...

shailesh said...

Asset price bubble threat to Asia

POLICY-MAKERS in Asia, confronted with rising real-estate values that threaten to mimic the US mortgage bubble that roiled the global economy, are stepping up efforts to rein in prices.

Regulators in South Korea, Hong Kong and Singapore told banks in recent weeks that they needed to tighten lending standards. Central banks including India's and South Korea's have signalled a readiness to raise interest rates in coming months.

Anonymous said...

Interest rates to go up in India sooner than ever. Implications:

--Higher value of rupee.
--Higher mortgage rates.
--Lower stock market.

Anonymous said...

Looks like South Korea, Australia, India etc. countries are now ready to prick the RE bubble in their countries. A one bedroom flat in Hong Kong is selling for USD3.5 million. Those guys in HK are also very worried.

The central banks in all these countries are going to raise interest rates sooner than later. I'll not be surprised to see a second dip in stocks in the next 3-6 months going back to the lowest levels in the last 10 years.

As the interest rates are increased, the outsiders will start dumping their properties in Australia, India etc. and prices will start to fall drastically. Moreover, mortagage rates would go higher and banks would require close to 40% deposits to hedge against the downfall.

Anonymous said...

Looks like GD2 is really coming. US is so screwed with the greedy wall street folks.

And oil is going up and up now. Maybe the oil companies are trying to make profit before the market tanks again in a few months.

Anonymous said...

Banks asked to make higher provisions on bad loans
28 Oct 2009, 0408 hrs IST, ET Bureau

Banks will now have to set aside 1% of a loan given to commercial real estate as a provision, up from 0.4% now. RBI governor D Subbarao has categorised such loans as those given to builders for construction of commercial properties like offices, malls, entertainment zones and hotels.

RBI said the hike in provisioning for such loans was largely due to an increase in the flow of credit to this sector and the extent of restructuring of loans. “ Excess of credit to a particular sector is a concern for RBI, and thus, provisioning has been raised. This will reduce easy access to money (for builders). Hopefully, it should result in builders lowering the price of property, something most have refrained from doing so far,” pointed out M Narendra, executive director, Bank of India.

Anonymous said...

No more V shape recovery.

The recent economic data clearly suggest an anemic recovery & no bounce back like previous recessions. After May-09, the market went too far, which is now experiencing the correction. The Q2 results are disappointing as global growth is still very low, which reminds us that we are a part of global economy.

Instead of using the govt. policy lifeline to stabilize the housing market, the greedy builders started rate hike activities to boost the profits. Now the RBI’s policy response is a gentle pinch to RE bubble. Well the registration data till Aug was disappointing with fall in new launched absorption rate & rise in inventories. Before concluding the “dead cat bounce” we have to watch the Sept & Oct data.


Anonymous said...

Looks like the party is finally getting over. The Govt. has run out of all stimulus money. Major deficits are running with GOI budget. I wwonder how would the GOI support the 6th pay commission increases. P Chidarambaram was thier Greenspan who screwed it big time, especially when he saw the whole thing happening in US. What we see in India now is what US saw in 2007. Interest rate hikes for like 6-9 months and then a reversal after things have crapped and fallen to low.

Anonymous said...

Intrest Rates Set To Rise - RBI

... (RBI)it took the first step towards rolling back its easy money policies, pursued for the past year to counter the economic slowdown. It terminated special liquidity facilities like credit refinance limits extended to banks against the loans given to exporters and mutual fund companies ahead of the original March 31, 2010 expiry date

Anonymous said...

If RBI doesn't raise rates now, the congress govt. may fall mainly due to massive inflation that is underway. They can't keep on pleasing builders/banks unlike P Chidambaram did for years.

No way out now. Interest rate hikes, every few months and RE to tumble correspondingly. Stock market to go back to 8K level.

All that hot air is going away.

Anonymous said...

nice chart and headed for double top and double dip recession.

Anonymous said...

The modern looters have got the free hand under the aegis of the Central Banks to rip off the Home Buyers who have bet their life savings to realize the dream of Home Ownership.

The home buyers are not only at the mercy of Builders but also the Banks.

Woes of home loan borrowers

October 28th, 2009
By Olga Tellis

The problems that home loan borrowers have with the banks seems to be something that the Reserve Bank of India does not want to get involved in.

When the problems faced by home loan borrowers were brought up during a meeting with the RBI governor recently, one of the RBI officials suggested that these problems can be taken to the banking ombudsman.

However, what the official did not know is that the ombudsman is not borrower-friendly. It would be nice if the RBI could do a sting operation at the ombudsman’s office to know how difficult it is for anyone to get justice.

Omnibus killing clause

So, banks go on merrily bullying the home loan borrowers. There is this blanket omnibus clause that all borrowers get trapped in when signing an agreement with the bank.

It says “all terms and conditions are applicable to the borrower will be applicable to you.” This means that overnight your interest rate can go up.

For instance, the penalty rate charged by HDFC, the country’s largest and iconic home loan lender, changed the penalty rate from two per cent to three per cent overnight for those wanting to advance the repayment of their loans. Most banks do this and it defies all logic.

This was brought to the attention of the RBI and the RBI agreed that banks should not charge a penalty if a borrower wants to prepay his loan. On the contrary, the banks should be happy as they can lend this money to someone else.

But the RBI is fighting shy of making this a rule.
Maybe the Indian Banks Association should take up this matter. The RBI for instance, has made all banks to accept the ATM cards of other banks. This is a more difficult proposition than asking banks to desist from charging penalty on those who want to advance repayment of their loans.

A borrower cannot be blamed for believing that the banks are borrower friendly.

Look at their advertisements. The HDFC’s massive television and print campaigns convince you that they are the most helpful home loan people around. But one of our readers found to his chagrin that though he had taken home loans twice and always repaid his loans, his application was rejected recently on flimsy grounds that they were not satisfied with the source of the 15 per cent down payment which he had offered to pay by cash or breaking some FDs.

Sensex troubles

The Sensex has once again started to give sleepless nights to punters and retail investors alike. Globally, there is suddenly an uncertainty over whether the US economy can sustain a signs of the revival. There is also a view that since the markets has gone up nearly 70 per cent from their lows they are bound to go in for a correction. Moreover, the feeling of comfort could make the government globally to think of withdrawing the stimulus packages.

The RBI governor has already withdrawn some of the stimulus measures that it had introduced last September. And the other emerging markets are likely to do the same.

Anonymous said...

Few more craps from Toilet paper -

Time to invest in office property

Is buying real estate a profitable idea?
Earlier there used to be articles but for articles users used to react by postings so here comes slide shows w/o commenting space and highlited in front page. The rule is commercial space owners are in trouble nothing else...

- Anil

Shriniwas K said...

RBI readies to prick upcoming 'realty bubble'

Look at ratio of the amount lent by Indias banks to the real estate developers to the amount lent to end users.

This means the Builders have been holding on to high prices with utter disregard to Indias financial health as these banks lend from Central bank which shows up on nations exchequer ... So much for looting the nation ...

"For a one-year period till August 28, 2009, banks had lent Rs28,353 crore to the real estate sector, up 41.5% in comparison to the same period last year. In contrast, home loans amounted to Rs14,668 crore, up by only 5.4% over the same period last year. "

Anonymous said...

The real estate time bomb set to explode in early 2010 or
2011. Here are reasons..

1. Over Construction : It's visible everywhere across India. With some accounting tricks real estate majors are showing their undergoing projects as revenue and hence starting more projects.

But never forget the basic principle of all economy rule of demand and supply. Oversupply is visible and its a matter of time when this roof will fall.

2. Affordability : Even in small towns in India with
less job prospects or reliable future tax stream real estate prices are
lot higher than thriving American cities.

How can a Banker earning Rs 30000 per month can afford apartment worth 50 lakhs with monthly payment exceeding 60000/month.

3. Inflation : India is prone to big inflationaty pressure. Cost of food is big expense for Indian families and sugar and other commodity shooting up taking 20-30% of their income with it.

4. Interest Rate: Rates are at all time low, and there are more chances that RBI will push it up to control inflation. That means more monthly payments.

Anonymous said...

Interesting article from DNA which addresses upcoming cash flow issues for Realtors and unavoidable same situation - end users who paid their money will demand the construction progress and speculators who just paid 50K - 100K anticipating rate raise and exiting in near future will not find buyers and also will NOT keep next payment terms delaying overall construction activities leading same crisis. Speculators and brokers have spoiled the end users basic need of shelter. And in the end, these speculators can easily exit even w/o initial amount which they can easily afford and builders who already diverted most of the funds to pay debt face cash problem. most of the launches have not yet started any of the construction activity. read more...Investor play = cash-flow issues for realtors

- Anil

Anonymous said...

"If Indian government wouldn't have come to the developers' rescue, then some of the listed players would have had to file for bankruptcy. The real challenge now in real estate would be the next two years as now they have to tide through the market purely on the strength of selling," said Sanjay Dutt, business-CEO, Jones Lang LaSalle Meghraj, a real estate consultant.

Jai Ho

Anonymous said...

Somebody (obscure regulator - Brooksley Born ) predicted the current financial crisis way back in 1997 . Please check the PBS documentary.

The Warning

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