Saturday, April 18, 2009

Builders scandal highlighted by CNN-IBN

Financial media responsibility

Here is a good article on how the incestuous relationship between the financial institutions and financial media can be terminal on your financial health. We see this in India all the time and we need to keep our eyes open  to financial spin and soft marketing articles planted in the TV and news media every day.

Where's the accountability?

By Aravind Srinivasan 

A well publicized conversation between Jon Stewart and Jim Cramer last month opened a lot of eyes. Jon Stewart is the incredibly funny and intelligent host of Comedy Central's "Daily Show" and Jim Cramer is the loud-mouthed, hyperactive host of CNBC's "Mad Money". Stewart had Cramer on his show and conducted a serious interview especially by Daily Show standards. This three part interview is a must-see for everyone interested in the stock market. Its message is very relevant to Indians living in the US and in India since a lot of us are involved in stock markets to varying degrees and the dynamics behind these markets and media in both countries are very similar. This interview was all about accountability or the lack of it in the financial media. You could tell Stewart was disturbed by the whole financial crisis and what was going on in Wall Street for years. Stewart went after Kramer and CNBC and just stopped short of calling them liars. His basic
question to Kramer and CNBC was, "Who are you working for?" Are you on the side of the viewers or are you siding with big corporations and financial firms? These questions blind-sided Kramer who didn't have coherent answers. The reality is, in bull market, these questions don't matter as everybody makes money and it appears like the interests of all parties involved are aligned. But when things go south like it has over the past months, then somebody is losing money and somebody is taking their money. Now you wonder what role channels like CNBC play here? 

Stewart accused CNBC of hiding the truth and not exposing what they knew about these corporations to average investors so that the latter could make more informed decisions. After all, these guys call themselves the financial experts and know lot more about stock market than us. They spend all day researching these companies because it's a part of their job and this puts them in touch with numerous CEOs, federal regulators and economic experts. The question is, how they didn't know about or predict or understand the credit crisis, over-leveraging and toxic assets? Or did they know but preferred to hide it from you and me because it could harm their business? Stewart was spot-on with these insinuations and the average Joe is definitely happy with his line of questioning in this interview. The answer to me is obvious. 

These channels had access to a lot more interesting information than they revealed and should be held accountable. Financial media betrayed the average investor, not only did they not tell you what was going on in Lehman brothers or AIG they sometimes asked you to buy Lehman or AIG stocks. Channels like CNBC are guilty of omission and commission. They didn’t cause the meltdown, but failed in educating people about it. Experts on these channels understand economic theories, subtleties and market nuances but they don't look at their job as one of educating and protecting average investors. Their knowledge is used to produce quality programs, hold intelligent discussions and improve their ratings. The lesson the average viewer learnt is; you are on your own when it comes to your money. Don't look up to these guys on TV for help and direction. They have enough problems holding on to their jobs, dealing with competition and ratings, your welfare’s the
last thing on their mind. An investor with some money in the market is usually an interested viewer of these channels. Many stop watching these channels when they get their money out. So like any good business, these channels and newspapers try their best to hold on to their customer base meaning they want to keep you interested and invested in the markets. It’s important for us to understand this especially today when financial channels are doing good business in India as well. It's our job to learn how to handle this flood of information and noise drowning us from all sides. This discussion on media accountability can and should be extended beyond the financial media. For instance, do we really believe that mainstream news channels do a great job in telling us all they know about politics, executive, judiciary and legislature? Definitely not! They pick and choose what works for them and we need to make them accountable for what they say and what
they don't. While it's obvious to see the impact of bad financial media on our wallets, what happens in mainstream media affects our lives far more comprehensively including causing these financial meltdowns in the first place? Afamous football coach once said - "you think you know, but you don't and you never will". This is the predicament of the average citizen of this world and the media in democracies can help fix it. Let’s hope this Stewart-Cramer conversation nudges them in that direction. 

Aravind Srinivasan is a Software Engineer at Yahoo! Incorporated in the Silicon Valley. Born and raised in Chennai, India he has lived in the US for 14 years and is involved in socio-political work. He can be reached at his blog 

Tuesday, April 14, 2009

Satyam - A real estate company

Here is an interview snippet with the board members of of Satyam Computer.

Q. What is the current headcount and assets of Satyam?
Manoharan: When the government-appointed board took over, the headcount at Satyam was 51,000. At the end of the fourth quarter, it has come down to 48,000.

Satyam has 450 acres of land -- 50 per cent of which is freehold and the remaining is leasehold. Of the 50 per cent that is owned, they have 125 acres in Hyderabad, encompassing two campuses. Both these campuses are valued at Rs 1,700 crore (Rs 17 billion).

There is no mention of the work Satyam does, the technology competency, domain expertise or project execution.

Now imagine the same question posed to Bill Gates

Q. What is the current headcount and assets of Microsoft ?

Bill Gates: We have currently 92,000 employees and 1000 acres of land in Redmond , another 400 acres in Hyderabad with 10 acres in Silicon Valley.

Goes to show, how real estate prices are influencing market valuations. Morons don't realise without projects or customers, the real estate is nothing more then rocks and sand.

The real estate cookie crumbles

From today's article.

The story of Sashwat Brahma is an interesting one. His story, unverified by me, appears as a post on and goes like this.

He applied for a 4 BHK apartment in DLF's New Town Heights in Gurgaon and put money down. A year has passed; but there is no sign of the project, launched in February 2008.

He then says that DLF delayed in sending the agreement, thanks to which there was a delay in payment of loan instalments from his bank. DLF, according to him, charged him interest for the delay, saying had the disbursal come in time, then he would have paid the finance company interest and hence he should pay DLF interest even though the delay was at their end!

I am only hoping I am not getting something here.

Sashwat says he has a signed agreement with several unsigned pages and the witness page unsigned. He wants to exit, as do a few other potential apartment mates. DLF's response: 'Feel free to take us to court.'

'DLF has charged customers when they have not even started work. Why should I pay them if the project has not taken off?' he asks.

If you think I am being led down the garden (pun not intended) path by one biased property speculator, well, you can visit an entire Yahoo group( which has apparently rallied 300 prospective owners saying, 'This (group) is to bring all future residents of DLF New Town Heights and DLF Express Greens residents together. We all need to need to be together to make it happen,' they say. The web page says there are 672 new messages.

Unitech, the other Delhi-based giant, is facing similar ire for delays over its World Spa project, delivery date for which was mid-2006, and is still not done.

There are similar tales in Mumbai where scores of home buyers hold ownership papers, without the keys to their homes. And the wait has been pretty tough, particularly for those whose EMI clock has begun ticking. Though there are very few of those and more of the speculative variety.

From a layman's perspective, it was, just to recount a fantasy all over again, an amazing run. The big builders who already owned land at close to throwaway prices were getting funded both ways, by the banks, private equity players and hungry small investors on one end and the other, well, you and me, funded in turn by the banks.

It's a miracle that the banks, at least some of them, have not blown holes in their balance sheets. Or have they?

All the money, believe it or not, was being collected upfront, to fund other grandiose projects, of four and five bedrooms, with extensive landscaping, water bodies and modern security systems. And of course, most home buyers were also diving in, thinking prices would appreciate 400 per cent all over again. And most of them have first-owned homes already.

So the law of the unregulated market says buyers must pay the price for trusting the DLFs and Unitechs and scores of builders across the country. Yes and no. Because rising real estate prices have created a level of arrogance in the developer community unseen or unheard of in any other business.

Keep paying up, buddy, or go to court. Because the fine print in our contract says you have no choice.

Now this is not about disgruntled second and third home owners banding together on the internet or wherever they are. This is about how India's real estate industry lacks any body or regulator that can haul up realtors who take buyers for a ride.

And let's be fair -- DLF and Unitech are soft targets because they are visible. There are hundreds of cases in Mumbai which never make it to Yahoo Groups, or anywhere, for that matter. Except in some corner of a consumer court where they can grind on unnoticed for years.

Let's assume a regulator will not come about in a hurry because the real estate industry --which wants a return to the golden era of 7 per cent interest rates so that they can make you pay for their delays -- will howl in protest.

Don't be surprised if the protests hit home because most politicians are inextricably linked to real estate, at least in the city of Mumbai where I often find it difficult to separate one from the other.

What are we doing in the meanwhile, is the question. Let's face it. Assume the grand gong signalling the downturn went off in October 2008. But many of the projects in question, including in Mumbai, were supposed to be completed even before that. There was no real funding problem as I see it. So where were the glitches?

Well, this is where the arrogance of the builders (and the stupidity of the buyers) sets new benchmarks. Turns out the delays were more to do with land clearances, lack of occupation certificates and the like.

Puneet, writing on indianconsumercomplaints, says DLF told him they have no environmental clearances. When he said he wanted to back off, they asked for a Rs 5 lakh (Rs 500,000) penalty!

Now, DLF is apparently willing to renegotiate with buyers. Which it should have done in the first place, without the media shindig.

So this is how the real estate cookie is crumbling. But let's assume, as we always optimistically do, we can't do anything about anything, legal or otherwise. Surely we should not be listening to the real estate sector's demands on interest rates. Clearly we know where the problem is.

The writer is editor of UTVi Business. He is not chasing any half-constructed properties, for himself or anyone known to him.

Monday, April 13, 2009

Economic Times calls for the bottom in the market

Another useless article from Economic Times on the property market in Pune. There is no mention of per sq ft prices per area, transactions, re-sales, property tax collections from the registrars office. All they have are quotes from builders and realtors. It is in ET's vested interest to get the market going. After all the builders will bring out full page ads once they start getting some buyers suckered in. The whole ploy seems to create an illusion that people are buying, thereby forcing fence sitters to commit to the market. This is how marketing and the herd mentality work. Lack of accurate data forces people to make decisions without analysis.

The good news is that the builders have concluded that prices have dropped and that buyers will not buy beyond a certain price point. It goes to show that buyers have become cautious and educated, know the implications of pre-EMI and resetting rates so they can make purchases they can afford. The mad scramble to book apts like hot vada-pav's has been replaced by suspicion, caution and careful analysis of their own personal finances.

Modi was right, just as Congress has become budiya, as has the Times group. The grand old lady of Bori Bunder has become senile

The recent interest rate cuts and attractive real estate prices have made perfect combinations to bring buyers back into the market, says Archana Sinha

There has been considerable activity in the property market in the last two months, thanks to proactive measures of the government and the developers in Pune, who started corrective measures, by reducing the home loan rates and the prices of homes. A number of new projects have been launched in the last few months and are reported to have been sold out, almost completely within the first week of launch. Although more concrete measures will be welcomed, the developers and the home seekers are not holding back their decisions any more.
Confirming the reports Rohit Gera, director, Gera Developments says, "Yes, most projects launched during the last 10 days have seen robust sales with a spill-over of a good number of wait-listed buyers. The negative sentiments that were sweeping the market are now ebbing out and people are putting the events behind them; in the true spirit, life must go on. The buyers have now concluded that prices have bottomed out and there is no point in waiting further, hence business is picking up."
Explaining the phenomenon further, he says, "If you look at the story of Satyam, people were worried on the account of 50,000 people losing jobs. Pundits predicted that the worst time is yet to come and that the company will close down, but today there are five companies that are ready to buy the company. In general, the mood is swinging back towards positive feelings and all that is translating into business."
In a similar tone, Manish Kaneria, MD, Mont Vert Homes, says, "Traffic has been coming from across the sectors and we are seeing quality enquiries for the past two months for homes between Rs 25 lakh to 50 lakh. Couples with an income of Rs. 50,000 to 60,000 per month are returning to the market as the feeling has begun to sink in that the correction has happened and the loan interest rates have come down considerably. So those who are comfortable in their jobs and have the capacity to pay are returning. I saw eight to nine closures last month and am expecting a good result this month too. The RBI is continuously taking steps to stimulate the market and results are showing up."
Kaneria pointed out that the NRIs who had retreated a few months ago have also started returning to the market as they find better investment opportunities now with the rupee weakening and the prices correcting.

Aniruddha Deshpande, MD, City Corporation Ltd, the makers of Amanora Park Town, echoes similar views. "I think the moves are good and they are showing their impact now. People have finished with their year-ending activities and children's exams, and are now concentrating on buying their homes. These are the months when they take their decisions to purchase and move into their new homes. In Pune, prices are very reasonable now and with friendly home loans they are finalising their deals."

Anand Jog, MD, Darode Jog Properties, informs that they have sold out all the 456 flats of their new project Greenland County at Narhe-Ambegaon on Sinhagad Road, within the first week of its launch.

Atul Goel, MD, Goel Ganga Group, is happy about the market now. "The rate of interest deeply impacts the buying behaviour of the customer. The buying motivation had lowered in the past, but since January-February, as the government started focusing on lowering home loan rates, the lower property prices become attractive. Although an interest rate between 7 to 7.5% would be ideal, we have received a good amount of inquiries and our sale figures have also improved in the past two months."

Of course, the slow speed of implementation of interest rates and the cautious approach of the banks in sanctioning loans are concerning people. Mohammed Aslam, regional head, Jones Lang LaSalle Meghraj says, "In a scenario like this speedy action is important. Also, SBI's rate reduction for one year is not enough; they should come up with a comprehensive policy for at least four years, to boost confidence among buyers. Moreover banks are rather apathetic towards loans below Rs 25 lakh and this is the segment that comprises government employees, who are stable in their jobs. They are less likely to default and will be the most genuine customers."

Another group of experts feel that in a scenario like this banks do become cautious, especially now with the elections approaching. But these factors are temporary and do not deter those who are in a stable job with good companies or government departments.
A senior banker from a private bank says, "The growth in home loan portfolio of banks during the last three to four years is a testimony to Indian banking policies. Expecting them to jumpstart lending is too much for the asking at this time of uncertainty. It depends on many factors. There is room to cut interest rates further given the latest cut in policy rate by RBI, but that will depend on how the cost of funds for each bank pans out in the coming months. The result of election will direct further policies which have been good and have protected us from the downslides and turmoil that have occurred in other developed economies. They are studying the situations and will come out with policies suitable to the domestic requirements."

Geo-political situations like the terror attacks and elections could create uncertainty, but only temporarily, feel developers. The salaried class is aware of these facts and does not defer its decisions. Moreover in the recent years governments have continued on the path of progress.
On a retrospective, says Kaneria, "These have been times for the market and buyers to take stock of the situation and emerge mature with realistic pricing and realistic selection of homes. Those who have the genuine need and are in a comfortable position regarding their jobs are beginning to seriously scout for homes within their budget."

Sure enough they are, as Suman Maheshwari a lawyer who is considering buying her own flat says, "If the banks lower their interest rates further, they will include the old buyers too. Prices look attractive and within reach."