Friday, May 08, 2009

Impact of Satyam layoffs on real estate

We all know that Satyam cooked books. They had over 47,000  employees in various locations, primarily in Hyderabad. There is news that maybe 10,000 would be let go. The question is where will they find the "high" paying jobs. Everyone knows that service companies don't pay as much as MNC's and Satyam is one of the worst paymasters in this lot. I know several satyam folks who quit in US well before the scam since they were underpaid and overworked to the point of no return. Hyderabad has seen a boom which will rival no other city since AP folks are heavily  invested in lands, plots and apartments. The common acres to plots conversion technique is heavily ingrained in the local population and I was surprised to see many IT people buying acres on outskirts of Hyderabad just on speculation of the new airport in Shamsabad. Now with the airport hype dying down, and the disappearing  act of a regular paycheck, where does it leave Hyderabad. Maytas is another story and I know several people who have booked and now stuck with no exit. These folks are bleeding pre-EMI interest and will do so for years. It goes to show the due-diligence done by banks on properties in nil.

Here is a DNA article on Satyam layoffs.

Layoffs at Satyam set to begin with BPO unit

Hyderabad: Tech Mahindra, after gaining control over the troubled IT major Satyam Computer Services, seems to be getting straight to business.

The company intends to downsize operations beginning with the business process outsourcing arm Satyam BPO (formerly called Nipuna).

Sources in the company saidthe layoffs will begin with the support department. "The billable staff is not going to be disturbed now. It is the support staff that is likely to exit," the source said.

Satyam BPO has over 3,000 associates and the ratio of billable staff and the support staff is about 35:1. "The target is to make it 80:1. This means a major shake-up in the BPO arm," the source said.

About 60% of the support staff face the axe.

Tech Mahindra has decided to use Satyam's existing marketing, HR and other support functionaries for the BPO too instead of having a separate set-up.

Sources among employees said that there are about 80 people in the HR department alone and about 60 of them are likely to go.

"Particularly the support functions in both Satyam BPO and Satyam are obscenely overstaffed. Any effort to resurrect Satyam would happen only by rationalising these functions," the source said.

Wednesday, May 06, 2009

After small car, now a low-cost home from Tatas

After the launch of the world's cheapest car ‑ the Nano, the Tata Group is embarking on yet another low-cost dream. Tata Housing, a subsidiary of Tata Sons, has launched its low-cost housing initiative, with homes costing anywhere between Rs 3.9 lakh to Rs 6.7 lakh. CNBC-TV18's Priyanka Ghosh reports.

Tata Housing, a subsidiary of Tata Sons, today launched the project that will have 1,200 apartments under the Shubh Griha brand. To be built on a 63-acre plot in Boisar — north of Mumbai — the price range for the apartments would be between Rs 3.9 lakh and Rs 6.7 lakh. The project, whose timeline is about two years, is expected to clock a turnover of about Rs 100 crore, the company said. It is also learnt that the township will also have higher-priced homes above the Rs 3.9–Rs 6.7 lakh bracket. These may be in the price bracket of Rs 10 lakh and Rs 15 lakh.
The Tata Housing group also plans to take its value-home product, Shubh Griha, to other cities like Delhi and Bangalore this year and the company is looking for land parcels on the periphery of these cities.
When asked how the company would be able to keep costs low, it said their designs were innovative and that it had ‘some trade secrets’. Also, the Tata Housing group does not entirely own the land that it is building the township on. Here’s the deal: the group has tied up with the land owner and will work on a revenue-sharing model.
The group has struck an alliance with the State Bank of India and the bookings for the first thousand apartments started on Saturday and closes in about two weeks. After that, there will be an allotment through a lottery system.

Tuesday, May 05, 2009

Kiyosaki and Mahindra World City

Here is a good article I found on yahoo on buying value investments. Its a perfect article to illustrate why Chennai represents good value over Mumbai to live and make a career without take undue risk with housing investments. If Tata and Mahindra can find value, so can the middle class individual.

The other day a friend of mine approached me excitedly, saying, "I found the house of my dreams. It's in foreclosure and the bank will sell it to me for a great price."
"How good is the price?" I asked.
"Just before the real estate market crashed, the seller was asking $780,000 for the property. Today, I can buy it from the bank for $215,000. What do you think?" she asked.
"How would I know?" I replied. "All you've given me is the price."
"Yes!" she squealed. "Now my husband and I can afford it."
"Only cheap people buy on price," I replied. "Just because something is cheap doesn't mean it's worth the cost."
I then explained to her one of my most basic money principles: I buy value. I will pay more for value. If I don't like the price, I simply pass. If the seller wants to sell, he will come back with a better price. I let him tell me what he will accept. I know some people love to haggle; personally, I don't. If a person wants to sell, they will sell. If I feel what I am buying is of value, I'll pay the price. Value rather than price has made me rich.
Here is the Mahindra presentation on MWC. Land near this area is between 350-700 Rs for plots. In the next five years, one can easily expect this area to boom. the neighboring area of Singerperumail Coil is booming with houses, and so is Marmalai Nagar.

Chennai Facts Chennai Facts api_user_11797_saravana_blr

Monday, May 04, 2009

Sensex and real estate in India

With the sharp rally in the market, people have been questioning the impact of the recent uptrend to real estate prices in India. Some projections put the Sensex at 15000, some others say that this is a bear market rally and will fizzle out as the results get announced. There is another article I read which said almost more then half billion dollars of FII money went into the market in the past few weeks. This must have wiped out bunch of shorts, most local businessmen who shorted the sensex between 9k and 10.5k thinking the sensex will go back to 7.5k, the lowest level seen in the past 4 years. However the FII swooped upon the sensex in huge numbers and have wiped the bears out of the system. Goes to show the perils of investing in futures and options. 

If you read the first post in this blog it was made in Dec 2005, when the sensex was at 9057 and India was shining brightly. Now it is 3.5 years and the Sensex is 13,000 having visited 21,000 on the upside and 7500 on the downside. 

If one has to co-relate the market, even though any co-relation can be atmost be deemed co-incidental,  prices today are down 25-50% of the peak made in Jan 2008. Loan rates were lowest in 2003, when I remember Standard Chartered offering 8 % rates when I was in Bangalore. At that time, I could get a 3 bed for 30L the same today is at 80L. However in Bangalore one can easily find a 3 bed for 35-50L in some tech areas, same is case for Pune, Chennai, Hyderabad.

In Mumbai it is impossible to find any such deals except in far flung suburbs where one can break his back in the train commute. 

The question to ask is why should real estate be dependent on the stock market ? Real estate can be more co-related to the economic well being of a society, job security and availability of cheap loans. Expecting stock market profits to end up in real estate is at best fool hardy. I had several friends who bought 2nd houses on  loans in 2008 with the hope of paying them down with their stock market investments. With the wipeout in the markets, they are remorseful and regretting the whole episode of short term loss making trades. Now they live hand to mouth paying off their montly EMI's with their current salaries. With prices being down, they are in negative equity and bleeding every month. They are cut twice, once by the drop of their real estate values, 2nd by the interest they pay the banks and the biggest cut is the slicing of their portfolios by 70%. 

Please don't trade short term with the aim of investing in real estate. If you are investing in the market, it should be for a period of 4-5 years. If you buy real estate, buy the primary residence at minimum 30% discounts to the current price with a 40% downpayment. The cost of good night's sleep is priceless. Never compromise on this ever.

Sunday, May 03, 2009

Obama says financial sector to shrink

Now if the financial sector shrinks, so do the financial epicenters. New York, London, Hong Kong and Mumbai could be easily affected by the downturn. The process of creating money from thin air is now sub-primed. As the financial sector shrinks so will all other sectors which support this sector, be it Information technology, travel, real estate or offshoring.  Now who will buy or rent all the commercial real estate in BKC or Nariman point at 2007 prices. Mr Bhai argue with Obama on why these prices should not collapse. If I had properties with loans in these areas of Mumbai, I would exit immediately. If Mr Ratan Tata, a Mumbai icon, wanted he could've built the next TCS campus in horrendously expensive Bandra Kurla, but he didn't. He built it in OMR, on the outskirts of Chennai where he got land for cheap. The photo you see on this blog is of the TCS campus. 

The Tsunami is coming and sub Rs 10000 prices in prime areas is on the horizon. Lets continue the 24x7 debate.

The Yahoo article is here.

By Jeff Mason – Sat May 2, 6:28 pm ET
WASHINGTON (Reuters) – The financial sector will make up a smaller part of the U.S. economy in the future as new regulations clamp down on "massive risk-taking," President Barack Obama said in an interview published on Saturday.
Obama, whose young administration has spearheaded a raft of reforms in the banking sector as part of efforts to tackle the financial crisis, said the industry's role in the United States would look different at the end of the current recession.
"What I think will change, what I think was an aberration, was a situation where corporate profits in the financial sector were such a heavy part of our overall profitability over the last decade," he said told the New York Times Magazine.

"Part of that has to do with the effects of regulation that will inhibit some of the massive leveraging and the massive risk-taking that had become so common."

Obama said some of the job-seekers who may normally have gone to the financial sector would shift to other areas of the economy, such as engineering.

"Wall Street will remain a big, important part of our economy, just as it was in the '70s and the '80s. It just won't be half of our economy," he said.

"We don't want every single college grad with mathematical aptitude to become a derivatives trader."