Friday, May 01, 2009

Fair price for an apartment in Mumbai/Pune/Bangalore

Now that we have got all the bulls charged up to challenge the bears, it is time to discuss what the right price to pay for an apt in the suburbs of Mumbai, Pune, Bangalore. We can discuss Delhi, Chennai, Hyderbad later.

Lets say I'd like to buy a 3 bed 1500 sq-ft ready possession apt with amenities, not in a noisy place, close to schools and work places and away from the slums and garbage dumps. Lets say my salary is 8L per year, I can get a 11% loan and of at-most 25L sanctioned. How much should I be looking at ? Note I'm not looking at under construction apts as there is no guarantee how long my money will be locked in and I don't want to pay pre-emi interest. My current rent is 20k a month and my other expenses are another 20k. As you can see I'm an average middle class invidual and not born with a golden spoon, and I don't have the capital to gamble on the Indian stock market exchanges. Its another story that my parents were govt employees and didn't take fancy to earning money under the table.

Now Mr Bulls will I be able to buy anything at this price or I just have to rent my whole life ? Give me my choices if you think I should become a bull and buy an apt. I invite any bulls in either of these three cities to come by and plead their case. I'm willing to relocate to any of the cities which affords me the apt I desire.

Thursday, April 30, 2009

Will garbage dumping grounds affect real estate prices ?

I'm surprised Mundwa is chosen as a garbage dumping site as it is close to the city and adjacent to Kalyani Nagar and Wanawori. i guess now you can be close to the IT parks, airports and the garbage dump as well.

Source: The Indian Express Finally, two new garbage dump options
Mundhwa And Digraswadi, Finally, Two New Garbage Dump Options
Municipal Corporation proposes to cap Urali Devachi site and move on.

Mundhwa and Digraswadi could be come the new garbage dumping sites for Pune city. The Pune Municipal Corporation (PMC) has shortlisted them as alternative sites to replace Urali Devachi, which it hopes to cap in a one year's time.

The upcoming area of Mundhwa, chosen for many future urban infrastructure projects, is around 6 km from the city while Digraswadi is in Shirur taluka, about 30 km away.

Following an agitation by villagers of Urali Devachi, Principal Secretary of Environment Valsa Nair had asked the PMC to cap the site and suggest, within 15 days, an alternative.

The PMC submitted the plan to the Maharashtra Pollution Control Board (MPCB) on Monday. "The MPCB will have to ensure that the plan is implemented in the timeframe," Nair said.

MPCB regional officer P K Mirashe said the old site of 43 hectares will be capped. However, the site at Phursungi adjacent to the old site will be in use.

"Besides the Mundhwa and Digraswadi sites, 13 more locations in the district are being assessed as garbage treatment sites," said Mirashe.

According to the plan submitted, the PMC will take precautionary measures while caping he site. The area will get a proper effluent treatment system and be sprayed with chemicals to ensure an insect-free environment. The plan also mentions tackling of frequent fires by parking two fire engines at the site. An RCC water tank and water tankers will be deployed daily, said Mirashe.

Wednesday, April 29, 2009

Rediff: Housing prices could fall 25% more


Property prices have been on a slow but steady decline over the past year-and- a-half. Experts predict that this trend will continue and one can expect a 20-25 per cent further drop in prices in the next year or so.

While interest rate cuts by banks have been comparatively faster in being implemented, largely through the consistent efforts of the Reserve Bank of India [Get Quote], the builder community has been reluctant to follow suit with ready price cuts, even when the uncomfortable truth remains that there is no choice in the matter.

Cutbacks and compromises

Though the initial interest rate cuts and a discounted interest rate for the initial year introduced by some banks resulted in a lot of loan transfers, new loans did not pick up pace on the expected lines.

Another fact that contributed to this factor is the prevalent grim mood of the job market. People are wary of taking on new debt liabilities while struggling to meet their existing commitments. Builders who had been concentrating on high income groups and premium housing needs are now stuck with incomplete projects and lack of funds.

The builders, sensing the buyer's mood, slowly started to relent and made attempts at slashing property prices. Prices have definitely started to slide in favour of the buyer. However, there have been several instances where there have been compromises over the square feet area of the house.

For example, balconies have disappeared from floor plan, 1,000 sq. ft homes are being converted to 850 or 900 sq. ft. in a bid to make space for more apartments in a block, 544 square feet, single bedroom apartments which had practically disappeared are making a come back!

So, there have been a lot of cutbacks from the offerings of several builders to enable slashing of prices and yet not make deep dents in their profit margins.

On the other hand, builders have also entered into tie-ups with banks to offer discounts in the former of special lower interest rates, waiving off the processing fee, slashing the down payment rates, et cetera apart from other discounts of 10-25 per cent on the actual property from their side.

Market reports are suggesting a slew of new launches announced have a price correction of nearly 30 per cent in and around Mumbai and Chennai.

What needs to be done?

As price cuts are now a visible reality for builders they need to make the most of the existing situation and identify new opportunities to counter the challenge of debt and losses they are currently facing due to the credit crunch in the present and the realty boom of the past.

A bit of innovation, some significant changes in outlook and proactive help from the government could pull them out of the current mess.

Innovation could be introduced in many ways. New building materials that are more cost effective could be used, for example use of prefabricated cement blocks can reduce cost by around 10-15 per cent.

A possible tie-up between CMDA (Chennai Metropolitan Development Authority) and private players is in the discussion stages and there is dire need for mass housing needs for lower and middle income groups, which can provide some relief for private players who are currently struggling to finish projects.

Recent statistics reports suggest that the urban population currently at 328 million is rapidly increasing and will touch 576 million in 2030.

This means there is going to be a significantly huge demand for housing. So builders can take heart in the volume of requirements and adapt their real estate strategy accordingly.

Builders are also expecting the government to pitch in and bring down stamp duty charges, taxes, etc to make price reductions more feasible.

A strategic approach to affordable housing

A methodical analysis of income profiles across sections should be matched with housing requirements. Depending on the percentage of population in a particular price segment, housing requirements need to be planned and accommodated. This can be possible only if the authorities and builder groups get together and formulate a plan of action based on surveys and recommendations.

As housing is a key subject during the current elections, things are being implemented at a faster pace. In fact, one such development in the right direction involves a task force set up by the housing ministry in Jan 2008, with HDFC [Get Quote] chairman Deepak Parekh in the lead.

The committee has come up with significant ideas like revamping of State housing boards, upward revision of FSI (Floor Space Index), making available land conducive for construction, etc. More such evaluations should be brought to the table for discussion and accordingly new plans should be devised and implemented to evolve from the current situation.

This is a time for review and change. The learning gathered from the past year-and-a-half should be the basis for a brand new start.

The stage is set for a complete change in the real estate scenario that is more 'real' and 'affordable' to enable everyone to own a home.

The author is Head of Content & Research at

Monday, April 27, 2009

H-1B Visa curbs impact on outsourcing and real estate

Bindas Bhai has asked a very relevant question on the impact of H-1b Visa curbs on outsourcing. here is my analysis on that question and I will assess the impact to real estate in India as well. Others can chime in and discuss further.
Question :
Will IT revenues/salaries be hit by the H-1B/L-1B visa clampdown ?
Short Answer : YES
Long Answer : The revenue earned by IT service providers will decrease since the wage arbitrage between the salary paid to the H-1B/L-1B employee versus the hourly rate billed to the client will decrease. Its a well known fact H-1B employees are paid up to 40% lower then local US citizens or green card holders. Many IT service providers charge a hybrid rate or a blended rate to account for onshore and offshore resources. As the number of local onsite employees reduces, the blended rate will tend to decrease. As the revenue earned by the IT companies reduce, so does their inclination to grow the workforce in India, invest in training and hire more employees. The focus is now on cost-cutting be it reduced transportation options, decreased food subsidy and elimination of fringe benefits. All IT companies have a variable pay component which will reduce to zero or almost zero as they face pricing pressure, project cancellation and reduction in onsite billing.
The net impact on the IT service employee is that he has less income when offshore and reduced options to go onshore. Most IT employees factor the onshore component into their salary. Now since that component will be zero for the foreseeable future due to the visa clampdown, their ability to take more liabilities in terms of housing loans and car loans will reduce.
Will H1 visa problem increase outsourcing jobs in India ?
Short Answer : NO
Long Answer: Conventional wisdom will dictate that as H1-B's visa reduce, most work done by the H-1B's will move offshore or to the home country of the H-1B workers. However this is not the case this time. There is huge unemployment within the IT workforce as companies in every corner have cut any surplus employees and are operating with minimum capacity. There is still room for more layoffs and more employees are coming to the market as the quarter revenues keep declining and layoffs mount. There is increased pressure on local salaries and it is no uncommon to see pay cuts up to 30% in many cases. In the case of startups, there are some cases where people are willing to work for free to gain experience with the hope that the employer will hire them when the market turns around. I've seen some billing rates of $10-15 in this market, something which the IT offshore companies cannot match even in India. Tech salaries will continue to decline into the next year and it will not be uncommon to find someone with experience working for $60k, a level we last saw in 1997. As the minimum salary to be paid to an H-1b worker is 60k, there is no wage arbitrage left for the IT service provider. The bigger issue is the clampdown on L-1 visa. L-1B visas have no quota and were used by every IT provider to bring in Indian employees to work in client locations.
The most interesting quote I saw today was from Mohandas Pai, the Infosys CFO. He said we are trying to understand the meaning of the word "employee" as it relates to the new H-1B bill. This sums up the conundrum Infosys is in. If they hire more local citizens and green card holders, they lose the wage arbitrage, they have to pay severances if they layoff locals, they cannot employ the performance appraisal sham to boot out employees by giving tests like they do in India. They now have to play by the US Dept of labor rules, something they have resisted till now. All things considered they will be forced to hire locals, reduce offshore resources to operate more efficiently.
As any experienced professional will tell you, there is a 10x productivity difference between a top IT employee and an inexperienced employee. IT companies operate on the premise that they can hire lower paid fresh graduates in bulk and replace the experienced bunch as the experienced bunch moves onshore. Now with the H-1B clampdown the option to move offshore been taken away, they will be faced with more experienced employees earning higher salaries on bench. As with the sub-prime the whole model worked beautifully as long as the employees kept moving onsite Now that the flow has reversed they have to adapt to the changed scenario. Will IT companies fire experienced staff and replace them with new graduates ? If some of them do, who will hire these experienced folks at their high salaries. Either these folks join new employers at lower salaries or they remain unemployed.
As we discuss IT companies, they are mostly concentrated outside Mumbai. Their real estate markets they affect are mostly non Mumbai. If you look at the polls, there are hardly any NRI's moving to Mumbai. Most end up in Pune, Bangalore, Chennai, Hyderabad and Gurgoan/Nodia. There is a trickle which makes Mumbai their homes after their return.
Now the question to ask is why will someone facing an uncertain future in India, with no hope of going onsite invest in a property of 1 crore ? This question is more pertinent to Mumbai more then any other place. All other cities you can get apts for under 50L, some even at 30L. Now if Mumbai is never considered an IT hub, apart from black money operators who has disposable income of 1cr or will get a loan of 80L in this market ? Now if still one believes Mumbai has headed for 50% jump in prices in the next few years, invest and check back in 2 years.

Sunday, April 26, 2009

Nasscom in denial mode has an interview with the Nascomm chief to discuss the implications of the new Grassley/Durbin legislation on H-1B visa curbs. I find Nasscom defense to be absolutely weak and even a 10 year old will  have the IQ to understand why it holds no water. The bigger story here is the abuse of the L-1 visa by IT companies to shop Indian bodies to the US. Increased scrutiny of those applications will have bigger implications then the H-1b visa where according to Nasscom only 30% of the visa's are granted to Indian IT companies.
How this affect property prices in tech capitals is another story.

Don't see new H1B proposal turning into an Act: NASSCOM

Published on Fri, Apr 24, 2009 at 20:50 , Updated at Sat, Apr 25, 2009 at 17:32 
Source : CNBC-TV18

US lawmakers have introduced a new bill with additional restrictions on H1 B visas. Ganesh Natarajan, Chairman of the National Association of Software and Services Companies (NASSCOM), said if this proposal passes in the current format then it will have a fairly disastrous impact on the IT sector.

“But I am hopeful that over the next three-months we will not see this really becoming an Act.”

Meanwhile, Commerce Minister Kamal Nath said he is concerned by the contents of H1B visa bill by Senator Durbin and Senator Grassley. "The bill will restrict the ability of Indian IT companies to compete in the US market place. The bill is not in line with US President Barack Obama's stand against protectionism at the G20 meet and not in line with our desire to mainstream development in the Dohanegotiations."

Also Read:

US's new H1-B proposal anti-trade: NASSCOM 

New H1-B bill wants Indian IT cos to hire more in US

Here is a verbatim transcript of the exclusive interview with Ganesh Natarajan on CNBC-TV18. Also watch the accompanying video.

Q: This is not law as yet and it is only presented for legislation but what kind of an impact does this likely to have?

A: If it passes the way it is, obviously it is going to have fairly disastrous impact because this particular piece of legislation is very different from the last time they presented. 

This proposal also includes a provision called 50/50, which means that if you employ more than 50% of your people who are visa dependent, then you cannot employ more people with visas. So that’s very problematic.

We have spent a lot of time with Senator Grassley and Senator Durbin and we hope that they understand the implications.

The implications being that this kind of fly in the face of free trade, it primarily will target Indian companies. So I am very hopeful that over the next three-months we will not see this really becoming an act.

Q: If this does go through what does this do to cost structures because this gives on site off shore a completely new meaning especially given the 50-50 provision?

A: If a company is employing 5,000 employees in the US on a normal basis, 70% of them could be H1 or L1 Visas, it could literally mean that you will have to find replacement of about 1500 people and its not just the difficulty of finding the replacement but training them the cost involved, there could be a lot of business discontinuity and I personally feel that people will realize it when they go for the debate in the house, it wont get passed atleast certainly the way its being filed.

Q: A lot of people in the US might be viewing this as a restrictive trade practice what Indian IT companies are doing in terms of explaining the situation as far as our position is concerned?

A: We have had 3-4 meetings we worked with Tech-America which is the local association there, we have had sit down meetings with various people and they understand this. We even mentioned that this will specifically be seen as against India which is not a good thing and they have heard us and I think atleast the indication that we got was okay let this get filed, we will discuss it whether the US legislation discusses it before during and after the event, so that’s why I am not particularly perturbed, it could be disastrous if its passed in the current format but I am pretty sure that it wont.