Thursday, November 26, 2009

Increase in prices sours revival in demand for real estate

Article Link

Mumbai: The much-heralded revival in home-building could come to nothing as property developers may have raised prices too much too soon, data from realty research company Liases Foras shows.

“Average prices in Mumbai corrected 34% after the downturn until March, following which we saw the maximum sales in two-and-a-half years between March and June,” Kapoor said. “However, realtors have increased prices since then (June), pulling down sales as of the quarter ended September.”

“This market is very price sensitive and not all locations have touched a fair price level,” Kapoor said. “For example, Andheri has seen no major drop in prices. Thane has seen the largest drop from Rs5,000 per sq. ft to Rs3,000 per sq. ft in March, now prices have again increased to Rs3,800 per sq. ft, affecting demand.”

“Sales have dropped 14% till September, affecting the efficiency of these companies. In January 2005, realtors had an inventory to sales ratio of 2:1, that worsened to 12:1 in November 2008, and improved only to 5:1 lately,” Kapoor said. “This means that prices have been increased and inventory has been allowed to build up, a clear sign of an asset bubble.”


shailesh said...

Reliance to venture into low-cost housing

Mukesh Ambani-led Reliance Industries (RIL) is planning to get into no-frills, low-cost housing. The proposal, though on the drawing board, could be kicked off by 2010

According to a company official, RIL, country’s largest private sector company, is planning large projects and at multiple locations. The official said that the company, owing to its deep pockets and excellent execution skills, it can handle large projects.

The company holds a land bank of 5,000 hectares in Haryana through Reliance Ventures, a subsidiary of RIL created by forming a joint venture with Haryana State Industrial Investment Development Corporation and over 4,840 hectares in Navi Mumbai

shailesh said...

Satyam Fraud Larger Than Raju Claimed, India Says

Nov. 25 (Bloomberg) -- Satyam Computer Services Ltd.’s accounting fraud was 40 percent larger than what the Indian software company’s former chairman previously said, according to the nation’s Central Bureau of Investigation.

Investigators found 28.09 billion rupees ($607 million) of additional fraud at Satyam, V.V. Lakshmi Narayana, a deputy inspector general at the agency, said in a telephone interview from Hyderabad today. That’s on top of the 71.36 billion rupees former Chairman B. Ramalinga Raju, 55, said in January he misrepresented by inflating company assets and understating debt.

Satyam shares fell 10.7 percent to 90.75 rupees, the biggest drop in 10 months in Mumbai today. Tech Mahindra declined 4.9 percent, while India’s benchmark stock index climbed 0.4 percent.

Investigators also found 1,065 real-estate properties purchased by the accused with the siphoned money, including 6,000 acres (2,428 hectares) of land, 40,000 square yards (33,445 square meters) of housing plots and 90,000 square feet of building space. Together they have a value of 3.5 billion rupees, the agency said in an e-mailed statement yesterday.

shailesh said...

Monorail from Thane to Bhiwandi to be reality

Mumbai: The Mumbai Metropolitan Regional Development Authority (MMRDA) will float tenders for the second monorail, Thane-Kalyan-Bhiwandi, by end of next month. The authority has completed a feasibility study which was being carried out to find out the necessity of such a transport system which would ease the burden on the existing modes of public transport in the area.

The second monorail--unlike the first one which is under construction between Chembur and Jacob Circle via Wadala in Mumbai--will be on a public private partnership (PPP) basis. The 30-km route will have almost the same number of stations and will cost around Rs3,750 crore.

Anonymous said...

Restructring the debt - this game is being played by the Indian Banks to bail out the real estate crooks while destroying the life savings of common people...but the similar game is unravellling in other parts of the world, unsettling the greedy investors..Lets see how this pans out here ..

Dubai debt fears hit world markets hard

27 Nov 2009, 0400 hrs IST, AGENCIES

LONDON: World stock markets tumbled on Thursday as investors fretted over the debt problems at Dubai World, a government investment company

Stocks Tumble, Bonds Rally on Dubai; Credit-Default Swaps Soar

By David Merritt

Nov. 26 (Bloomberg) -- European stocks fell the most in seven months and bonds jumped as Dubai’s attempt to reschedule its debt rattled investors seeking higher returns in emerging markets. The dollar slid to a 14-year low against the yen.

Dubai World, the government investment company burdened by $59 billion of liabilities, roiled markets around the world yesterday by seeking to delay repayment on much of its debt.

Dubai, which borrowed $80 billion in a four-year construction boom to transform its economy into a regional tourism and financial hub, suffered the world’s steepest property slump in the first global recession since World War II. Home prices fell 50 percent from their 2008 peak, according to Deutsche Bank AG.

Losses and writedowns at banks around the world have reached $1.7 trillion after the collapse of subprime mortgages and the credit crisis trashed the value of their assets.

Anonymous said...

Dubai seems like a can of worms! Its truly open and exposed to the world now...

I think if Dubai collapses next week as it may well should be a lesson to Indian banks and hopefully these jokers start reducing their exposure to Indian Realty.

Anonymous said...

Following story tries to answer what likes of BB are into when dealing with RE

Once there was a little island country. The land of this country was the tiny island itself. The total money in circulation was 2 dollars as there were only two pieces of 1 dollar coins circulating around.

1) There were 3 citizens living on this island country. A owned the land. B and C each owned 1 dollar.

2) B decided to purchase the land from A for 1 dollar. So, now A and C own 1 dollar each while B owned a piece of land that is worth 1 dollar.

* The net asset of the country now = 3 dollars.

3) Now C thought that since there is only one piece of land in the country, and land is non producible asset, its value must definitely go up. So, he borrowed 1 dollar from A, and together with his own 1 dollar, he bought the land from B for 2 dollars.

*A has a loan to C of 1 dollar, so his net asset is 1 dollar.
* B sold his land and got 2 dollars, so his net asset is 2 dollars.
* C owned the piece of land worth 2 dollars but with his 1 dollar debt to A, his net residual asset is 1 dollar.
* Thus, the net asset of the country = 4 dollars.

4) A saw that the land he once owned has risen in value. He regretted having sold it. Luckily, he has a 1 dollar loan to C. He then borrowed 2 dollars from B and acquired the land back from C for 3 dollars. The payment is by 2 dollars cash (which he borrowed) and cancellation of the 1 dollar loan to C. As a result, A now owned a piece of land that is worth 3 dollars. But since he owed B 2 dollars, his net asset is 1 dollar.

* B loaned 2 dollars to A. So his net asset is 2 dollars.
* C now has the 2 coins. His net asset is also 2 dollars.
* The net asset of the country = 5 dollars. A bubble is building up.

(5) B saw that the value of land kept rising. He also wanted to own the land. So he bought the land from A for 4 dollars. The payment is by borrowing 2 dollars from C, and cancellation of his 2 dollars loan to A.

* As a result, A has got his debt cleared and he got the 2 coins. His net asset is 2 dollars.
* B owned a piece of land that is worth 4 dollars, but since he has a debt of 2 dollars with C, his net Asset is 2 dollars.
* C loaned 2 dollars to B, so his net asset is 2 dollars.

* The net asset of the country = 6 dollars; even though, the country has only one piece of land and 2 Dollars in circulation.

(6) Everybody has made money and everybody felt happy and prosperous.

(7) One day an evil wind blew, and an evil thought came to C's mind. "Hey, what if the land price stop going up, how could B repay my loan. There is only 2 dollars in circulation, and, I think after all the land that B owns is worth at most only 1 dollar, and no more."

(8) A also thought the same way.

(9) Nobody wanted to buy land anymore.

* So, in the end, A owns the 2 dollar coins, his net asset is 2 dollars.
* B owed C 2 dollars and the land he owned which he thought worth 4 dollars is now 1 dollar. So his net asset is only 1 dollar.
* C has a loan of 2 dollars to B. But it is a bad debt. Although his net asset is still 2 dollars, his Heart is palpitating.
* The net asset of the country = 3 dollars again.

(10) So, who has stolen the 3 dollars from the country ? Of course, before the bubble burst B thought his land was worth 4 dollars. Actually, right before the collapse, the net asset of the country was 6 dollars on paper. B's net asset is still 2 dollars, his heart is palpitating.

(11) B had no choice but to declare bankruptcy. C as to relinquish his 2 dollars bad debt to B, but in return he acquired the land which is worth 1 dollar now.

* A owns the 2 coins, his net asset is 2 dollars.
* B is bankrupt, his net asset is 0 dollar. ( he lost everything )
* C got no choice but end up with a land worth only 1 dollar

* The net asset of the country = 3 dollars.

************ **End of the story;

Anonymous said...

BUT ************ ********* ******

There is however a redistribution of wealth.
A is the winner, B is the loser, C is lucky that he is spared.
A few points worth noting -

(1) When a bubble is building up, the debt of individuals to one another in a country is also building up.
(2) This story of the island is a closed system whereby there is no other country and hence no foreign debt. The worth of the asset can only be calculated using the island's own currency. Hence, there is no net loss.
(3) An over-damped system is assumed when the bubble burst, meaning the land's value did not go down to below 1 dollar.
(4) When the bubble burst, the fellow with cash is the winner. The fellows having the land or extending loan to others are the losers. The asset could shrink or in worst case, they go bankrupt.
(5) If there is another citizen D either holding a dollar or another piece of land but refrains from taking part in the game, he will neither win nor lose. But he will see the value of his money or land go up and down like a see saw.
(6) When the bubble was in the growing phase, everybody made money.
(7) If you are smart and know that you are living in a growing bubble, it is worthwhile to borrow money (like A ) and take part in the game. But you must know when you should change everything back to cash.
(8) As in the case of land, the above phenomenon applies to stocks as well.
(9) The actual worth of land or stocks depend largely on psychology.

Talent hits a target no one else can hit; Genius hits a target no one else can see.
- Arthur Schopenhauer

Anonymous said...

Do nothing and earn the money. How long will this insanity go on? A Big Bubble after bubbles...

Dollar carry trade

Anonymous said...

Same characters on a different stage....

Japan Shows Concern as Dollar Slides

Published: November 26, 2009

The dollar’s slump against the yen, and against many of the world’s major currencies, is part of a wide, multiyear decline, set off by worries about the U.S. economy and its swelling debt — and more recently, a belief that the United States was unlikely to raise interest rates soon.

The dollar’s weakness is especially causing jitters in Japan, whose economy is still struggling to emerge from a deep recession. A strong yen — which makes exporters’ good more expensive for consumers in the United States — is something Japan’s export-oriented economy can ill afford.

But near-zero interest rates set by the Japanese government for much of this decade encouraged the rise of the so-called yen carry trade , where investors borrowed money in Japan to invest in countries with higher yields.

Meanwhile, the United States Federal Reserve has lowered interest rates to below those of Japan, and analysts see little prospect of a rate increase soon, making the dollar a less attractive currency to hold. A dollar carry trade is also in the making, analysts say.

Anonymous said...

he article is thought provoking. It seems that RBI jumped in too quickly to bail the greedy developers out on behalf of PSU banks. Had it allowed some of them to bite dust & allowed banks to sell the assets mortgaged under them, the property prices today would have reflected the true demand. Asset bubbles always bloat & burst, the current bubble will burst soon. It is fairly evident that salaries over past 2 years are static, the gains next year will not exceed 20% to compensate for past 2 years, but the property prices in suburban pockets have gone beyond lifetime highs. It is time for government to bring in a Property Regulator on line like TRAI to bring about transparency & discipline in the property market.

rajni sharma said...
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