Monday, December 14, 2009

Over Rs 25,000-crore Mumbai realty in limbo

There is no land within Mumbai at 3000 rupees per sq/ft. Average prices for these high rises are more then 8,000 to 20000 per sq/ft. At these prices, devolopers can hire tankers. If this ban is enforced, projects will be delayed for more then 3 years. Investors who have borrowed are going to lose out big time on interest payments. This is going to make life miserable for everyone except the builders. They can invoke the 'act of god' provision in their agreements and pass the buck to the investors without incurring any losses. Investment in under construction apts in 2010 seem to the worst decision anyone can make.

The Maharashtra government's decision not to provide water connection to high-rise buildings (above seven floors) in Mumbai till 2012 has dealt a body blow to the city's real estate developers.

Developers and independent observers said investments of over Rs 25,000 crore (Rs 250 billion) in the construction of around 1,400 high-rise buildings in the city are now in jeopardy.

The decision was announced by Chief Minister Ashok Chavan in the state legislature yesterday in view of the prevailing water scarcity in Mumbai. Stung by the decision, real estate developers have requested the state government to reconsider its decision on the ground that this will worsen the shortage of houses in the metropolis.

A Mumbai-based analyst, who did not want to be quoted, said the decision can be challenged in a court of law because it has made the real estate developers the sacrificial goat for its own failure to provide basic amenities like water.

A senior government official said the damage of Rs 25,000 crore is based on a minimum sale price of Rs 3,000 per sq ft for 1,400 projects. The loss to the real estate developers could be still higher if the sale price of Rs 7,000 per sq ft is considered.

He, however, defended the government's decision in view of the 15 per cent water cut already in place in the city.

This would in fact go up to 30 per cent if Mumbai did not have adequate rainfall by July next year. Water availability will be possible only after three reservoirs are built by 2012. Hence the ban, he said.

The official said builders and developers should also take the responsibility and avoid rampant wastage of water by going in for water recycling and treatment of saline water.

Very few developers have adopted these measures and want the government to carry the can.

Niranjan Hiranandani, the managing director of Hiranandani Construction, wondered why the government ban was only for the private sector and not on the projects set up by the state-run Maharashtra Housing and Area Development Authority.

"While every effort is needed to curb leakages and theft of water, the government should not do injustice to those who won't get water despite paying the required development charges and fees," he said, adding that his company has recycled water at its projects for the last 20 years.

Dharmesh Jain and Rajan Bandelkar, vice-presidents of the Maharashtra Chamber of Housing Industry, said a representation would be made shortly to Chief Minister Chavan in this regard. Bandelkar said any such decision should have been only on a case by case basis, and a blanket ban didn't serve any logic.

Ranjit Naiknavare, executive committee member of the Confederation of Real Estate Developers Association of India [ Images ], termed the government's move irrational.

"The government cannot simply stop giving commencement and completion approvals. Instead, the government can ask builders and developers to organise water supply on their own if the proposed reservoir projects are not complete within the stipulated time," he added.

It would also be a long wait for consumers who have already paid a part of the booking amount in these projects.


Anonymous said...

We all know how chaotic and mismanaged the governance is in India. With these kind of whimsical decisions the govt. has sought to do the perennial curb the supply and thus inflate the price phenomena...Sharad Pawar has been doing these kind of antics for the past 20 years and getting away with it.

On the other hand this also reinforces my belief that Slumbai is a city in its death throes...The topi's as we call these politician jokers don't have a clue as to what is required for them to discharge their duties...and the only thing they know is to steal and loot. So Slumbai will implode into chaos and anarchy...victim of its own success. Another case of the goose that gets slaughtered for its golden eggs.

I think as far as one can, one needs to look elsewhere for better living...slumbai, bangalore, delhi are just not places you would want to retire to...

Shriniwas K said...


Serves you right for electing stupid Congress Government.

I guess the only thing Mumbaikars can do is bathe in the sea and drink Pepsi.

Remember all major infra projects were done by BJP Govts - ABV's 4 lane GQ and corridor, BJP Central govt pushed for delhi Metro, Vajpayee also approved Ajay Makan's CNG proposal, Nitin Gadkari built 55 flyovers in Mumbai and the worli bandra link and Thackerays pushed for Mumbai pune Expressway Gopinath Munde pushed for Navi Mumbai deregulation. Modi has taken Gujarat 4500 MW surplus electricity where Maharashtra hasnt added single megawatt cap in last 11 years.

People say that the voter isnt stupid but by electing MMS in center and DF in state they have proven themselves to be wrong.

Now enjoy your 40 Rs per kilo Potatoes while I get mine from Costco at $4.88 for 20 lbs

Jayant said...

In the last ditch efforts, the zombie ( real estate ) is being administered the shots of morphine ( Junk IPOS, QIP , FCCB etc) to bring it back to the senses. The Reserve Bank of India is preventing the natural course of action by blatantly tweaking with the rules of FDI investments in Indian Real Estate sector, allowing restructuring of the loans. This is very similar to the game being played in the USA e.g. extension and expansion Home Buyer Credit, FHA Loans etc..

Please be patient until this game unravels and dont gamble your hard earned money in buying overvalued flats/homes.

Anonymous said...

The Outside View : Chairman of central bank disaster

Bunning Statement Opposing Federal Reserve Chairman Ben Bernanke

Senate Banking Committee
Thursday, December 3, 2009

"You stated time and again during the housing bubble that there was no bubble. After the bubble burst, you repeatedly claimed the fallout would be small."

Will this ever happen in India? One of the MPs taking the Chairman of Reserve Bank of India, to the task in full public view.

Venkateswaran K Iyer said...


Anonymous said...

Nice Article
Check out the last point ---
Downpayments risky
Here you are actually getting into the tricky area of financing a builder. Probably a builder who is not creditworthy enough to get a loan from mainstream lenders, which is why he is willing to offer discounts up to 25% for those who put up the cash. It’s a bad choice for customers as there are many projects that have not see the light of the day.

Anonymous said...

Another great article

Of all the bubbles that were floating around back in the heady days of 2007 and 2008, the one that was the biggest is still hanging around, being
maintained by a determined (or perhaps desperate) set of people.

At that time, it was clear to most of us that India’s real estate sector was a massive bubble. The froth was equally visible in the prices of real estate itself as well as the way real estate scrips were doing on the stock markets. And then came the crash and everything collapsed around the world. This is a crash that is still continuing — Dubai’s real estate disaster is still said to be only half done. And without a doubt, there are many more zombie developers around the world who are still staggering around in the hope that one day things will turn around.

In India, we now seem to have entered a phase where many of these zombies are now planning to try and revive themselves with IPOs. The coming months will see a spate of issues from real estate developers.

I am waiting for what sundassbhai has to say about this post.


Anonymous said...

Real estate bubble explained in 30 seconds... :) in husband wife debate

Anonymous said...

Confessions (trauma ?) of an Underwater Homeowner



Anonymous said...

I would love to read a follow up article on Mr. Fitzgerald in about a couple of years from now. 2011 or so would be a good time...

Jayant said...

the sordid saga of bail-out continues....

RBI to allow realty cos to take ECB route for integrated townships
15 Dec 2009, 0112 hrs IST, G Ganapathy Subramaniam, ET Now

The Reserve Bank of India (RBI) is considering a proposal to allow real estate players to access external commercial borrowings (ECBs) for integrated townships, even if they deal with other types of real estate projects

joke of the day

An escrow account for this purpose is what realty companies have proposed and they are willing to undertake strict accounting specifications to prove that ECB proceeds are used only for integrated townships.

Extend, Pretend , Bail out

The RBI has recently decided to allow real estate companies to access ECBs till December 31, 2010 for integrated townships. Originally, this facility was available only till the end of 2009.

Shriniwas K said...

@Everyone -

To be honest with the sheer scale of excess number homes being built I think in the next decade, there wont be any price rise in RE. So I seriously doubt anyone can make money off hoarding flats. There are genuine builders with good reputation (though they too hire crooks), and there are crooks in disguise of RE players.

While India wont face solvency issues like Dubai, I dont know why Tax payer money is used to bail out companies that are neither accountable nor stars in their field with great quality homes. This nexus of politicians and real Estate agents can only be broken by some outlawed anarchic way. Indian system is way too entwined in it to clean it up.

Both YV Reddy and Subbarao along with MMS, Chidu, Pranab and Montek, should constantly come out with the status of the slimulus and bailout funds given out to the RE folks. Tomorrow if RE collapses and these companies go bankrupt, thousands of crores of Government funds will vanish and make Indian economy even more vulnerable.

In US the bailout was criticized and there are lot of watchdogs. We need to start a Bailout watchdog but the RTI application process has immense holes. I want to know the $ amount spent on these RE companies from tax payer money in form of soft loans by Nationalized and private banks. The loose interest rates offered by these banks to the builders which defy the tight floating rates they set for customers

Anonymous said...

Housing’s Treacherous Path: From 44 Percent Homeownership to 70 Percent. The Levittown Dream and Nothing Down Madness. How a Nation lost its way with Homeownership

It is a fascinating case study in the perceived power of homeownership that even after our economy was brought to its economic knees by a massive housing bubble that the government, Wall Street, home buyers, and sellers somehow view homeownership as our ticket to getting out of the financial mess. That is, the housing poison is also the cure.

Anonymous said...

Another signal of the unraveling of the Realty industry. Another fraud and this is similar to the Satyam-Maytas merger...

There will be a huge outcry in the coming days on this fraud! HDIL is the next one with massive skeletons in its closet. Lastly, Unitech is a Zombie...which has been teetering around on QIP/FCCB for some time...The fourth largest player is Indiabulls.. The implosion is close at hand. Debt is huge, Inventory is immense...sales are almost zero...carrying costs are huge. If we get hit by a double dip in 2010...there will be a crash the sound of which will resound around the globe...the real estate crash will be much more than Dubai...

Another sign is that people like Vulture and many others have stopped posting on the board. One needs to be very patient, the patient one's will be rewarded beyond their dreams soon.

Anonymous said...

Things in the Pune market do appear shakey right now. My friend has just received a flat FOUR years after he had booked his flat. Congratulations to him, but the pocession has been delayed by 2 whole years! The builder was a premium builder, one of the biggest in Pune. Rumors abound that the builder is on the verge of going under/has already gone under and my friend is extremely lucky that he has managed to get his flat.

Makes me shiver!

Shriniwas K said...

New projects are total No.. Go for ready possession ones that too if you have to, as I did for my parents. I wanted to wait another year but eventually I bargained with the builder a lot and got a decent deal. Baner, Wakad and Pimple Saudagar are having decent deals raning from 2500 through 3200 psft

please reconsider if buying under construction. Make sure at least 80% is done. If builders says nothing is available then tell him to f&%@ off coz there is huge unsold inventory.

Jayant said...

Let the fundamentals i.e. monthly wages ( the amount getting deposited in the Bank and not the "paper" salary),construction costs rule the prices of the home and not the interest charged on the "cheap" money provided to the real estate builder by PE Funds, Hedge Funds, Mutual funds, Sovereign fund, the kingpin of black money and the greedy banks etc.

Just resist the temptation to buy the overvalued flats.

In USA, Real Estate market both Residential and Commercial is sinking in a deeper hole. The teaser schemes like first time home buyer credit etc is not working at all.

Homebuyer Tax-Credit Extension Fails as Catalyst:

By David Wilson

Dec. 16 (Bloomberg) -- President Barack Obama’s extension last month of a tax credit for first-time homebuyers failed to stir optimism among homebuilders or stock investors about the industry’s prospects.

As the CHART OF THE DAY shows, the National Association of Home Builders/Wells Fargo Housing Market Index and a Standard & Poor’s index of homebuilding shares dropped after Obama signed the legislation on Nov. 6. The chart tracks these indicators since 2000.

Homebuyers received another five months, until April 30, to take advantage of the government’s $8,000 credit. They also became eligible for an additional $6,500 credit if they owned their previous residence for at least five years.

Even the big Banks are just "walking away" from their obligations when in fact they are preaching to the common borrowers how is it immoral to walk away from the housing loan?

Morgan Stanley to Give Up 5 San Francisco Towers Bought at Peak

By Dan Levy

Dec. 17 (Bloomberg) -- Morgan Stanley, the securities firm that spent more than $8 billion on commercial property in 2007, plans to relinquish five San Francisco office buildings to its lender two years after purchasing them from Blackstone Group LP near the top of the market.

The bank has been negotiating an “orderly transfer” of the towers since earlier this year.

Most of the builder/real estate companies are bankrupt (beggars) and the Reserve Bank of India is making sure to help with every trick in the book to bail them out but it cant prevent the inevitable. Please be patient.

Anonymous said...

Most of the builder/real estate companies are bankrupt (beggars)...............

Where did you find that pearl of wisdom,Jayant SIR.

And thanks for sharing your immense acumen with us poor mortals who seem not to know in our utter folly that all RE companies are bankrupt..

And one other question, Is earth flat or round???

Anonymous said...

India's property market to go the Dubai way?

Jayant said...

@Anonymous 4:09 AM

Do you want to resort to using euphemism? i.e. instead of beggars call it bail-out, bail-in, restructuring of loans, allow ECB (External commercial borrowings), tweaking of rules not to classify the bad loans as NPA ( Non performing assets) and what not?

The credit card holder has already maxed out the credit limit and still on the binge. When he comes to senses and needs to pay debt...guess what give him one more credit card.

You will find a lot of examples of this, please search for yourself. For the reference I request checking following article.

Are real estate prices supported by your branch manager?

Real estate developers were about to go bust.
They were desperate for cash.
There was no money inflow from the sale of real estate.
But there were debts to be repaid.
And the real estate developers also had payment obligations for all the land that they had agreed to buy as they went about building their "land banks".

In this environment, what were the PSU banks doing?

Anonymous said...

If existing real estate development will come to hault and builders will bankrupt there will be no new homes.
So time to buy second sell home now!! or prices will shoot!

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