Wednesday, January 20, 2010

There’s a cloud over middle-class dreams of affordable homes

Reaching The Roof


Unaffordable Housing?
Around 15% price escalation in last six months hitting demand for affordable housing projects
Low appetite for risk, commute distance or drawbacks in infrastructure is holding back buyers
Perceptions of affordable housing differs across cities and income groups
Price is a starting point, but most consumers are also seeking quality and infrastructure

Similarly, PropEquity’s report till early November 2009 indicates that there has been better offtake in the sub-Rs 15 lakh category, particularly at locations closer to large cities. Overall, of the 90,000 units available in the ‘affordable’ category, only 40,000 had been bought. Describing 40 per cent absorption as not bad by industry standards, Jasuja adds that with market sentiments improving sales have since inched up.

Developers point out that land cost is a big decider in the final price tag. That’s why many projects are coming up further away from big cities. Where transportation and other facilities compensate, there is no lack of takers. Falcon Realty Services has got good response for its 2,500 units priced at Rs 5.9 lakh-Rs 28 lakh at Global Eco City, a 45-minute drive from Delhi international airport. Good facilities, including transportation, is proving the clincher.

As Rajiv Mehrotra of Noida-based Sunshine Enterprises puts it, “Demand is there, but there are hardly any houses below Rs 20 lakh available.” Already staring at rising inflation, people’s euphoria over affordable housing looks likely to fade—unless the government lends a helping hand.

29 comments:

shailesh said...

ICICI Bank, HDFC get notice on pre-payment penalty

Competition watchdog CCI has asked about two dozen banks and housing finance companies, including HDFC, ICICI Bank, and LICHF, to explain their imposing penalty on borrowers for pre-payment of home loans.

The move gives hopes to thousands of borrowers of foreclosing their housing loans without paying penalty. If the penalty is lifted, it may also lead to borrowers' shifting their credit to those lenders offering lower interest.

The CCI, official said, could also penalise the lenders for adopting such practices to discourage customers from pre-paying home loans or the the practice could be banned across the industry.

Market leader HDFC, for example, currently levies pre-payment charges ranging between zero and two per cent of the amount pre-paid by a borrower.

shailesh said...

RBI may consider withdrawal of excess liquidity: Suresh Tendulkar

The Reserve Bank of India (RBI) may consider withdrawing excess liquidity in the system to tame high inflation at its monetary policy review, veteran economist and former Head of Prime Minister’s Economic Panel, Suresh Tendulkar, said here.

“The monetary policy does not have a major role to play in combating inflation but as a signalling move, RBI may look to contain liquidity by opting for a hike in banks’ Cash Reserve Ratio (CRR),” Tendulkar said, adding that there was no room for the central bank to change its key policy rates.

Kaur also said that out of the Rs. 4,000-crore stimulus provided by the Government, the Small Industries Development Bank of India (SIDBI) had till December-end availed Rs. 1,900-crore. Similarly, out of the Rs. 2,000-crore approved, the National Housing Bank (NHB) has availed Rs. 700-crore during the same period.

Kaur said the Government attached greater importance to the grievances of the Micro, Small and Medium Enterprises (MSMEs), which were worst-hit during the recent economic crisis.

Shrini said...

http://www.businessweek.com/news/2010-01-19/rogers-says-shanghai-hong-kong-property-in-bubble-update1-.html

http://moneymorning.com/2010/01/20/greece-debt/

http://www.nytimes.com/2010/01/21/business/global/21lend.html


http://online.wsj.com/article/SB10001424052748704320104575014531777266738.html


New Whammies waiting to hit - china's RE bubble, Eurozone debt woes, Indias Inflation 2010 is going to be worse.

I am pretty sure the large RE companies DLF Unitech Omaxe Purvankara etc will be wiped out of the market. Can't say the same about financially sound old players.

Please be careful if you buy. Buy from small builders after big bargaining.
Once again RE wont collapse unless there is some major catastrophe but the economy wont improve and the inflation wont subside

shailesh said...

Reliance Infrastructure signs pact for $2.2-bn Mumbai Metro-II

2010-01-21 16:00:00
A consortium led by Reliance Infrastructure, a part of the Anil Dhirubhai Ambani Group, has signed an agreement with the Maharashtra government for the $2.2-billion second Metro Rail project (Mumbai Metro-II) in this India's commercial capital.

The project has been awarded to the consortium, which includes Reliance Communication and SNC Lavalin of Canada, based on international competitive bidding under the public-private partnership framework.

The 32-km corridor, conceived as a fully elevated project with 27 stations, will link Navi Mumbai and the western suburbs with Charkop in the north to Bandra and then to Mankhurd in the east, the company said in a statement.

shailesh said...

City's biggest land deal in a year inked

MUMBAI: The largest land transaction in the city in over a year was finally concluded on Monday morning, almost a month after TOI first reported the mega deal. Mumbai-based developer Wadhwa Group has bought the 18.18-acre Ghatkopar plot belonging to the Hindustan Composites Ltd (HCL) for Rs 571 crore.

The group intends to set up 11 residential buildings with about 1,200 flats, mostly high-end one, with penthouses and sky villas. The property has a development potential of about 15 lakh sq ft. This potential could shoot up substantially if Wadhwa takes advantage of the government’s parking FSI of 4. “We may apply for the parking FSI if it’s feasible,’’ said the spokesperson.

so lets do the math here,

1200 flats, assuming 1500 sq ft each, that would be 18,00,000 (18 lakh) total sq ft.

Total cost of building: 571 cr for land + Rs 1000 per sq ft construction cost = 180 cr + 571 = 751. We will round it to 800 crore.

Hence construction cost for 1 sq ft: Rs 4444 ( 800 cr / 18 lakh)

The retail price will be Rs 10,000

Profit margin of 60% - Priceless!!!

shailesh said...

571 cr for 18 acres in Ghatkopar

The Wadhwa Group plans a residential project and will construct 10 buildings of 25 storeys across a built-up area of 17 lakh sq ft. Flats will be priced at Rs 8,500-Rs 9,000 per sq ft. Bookings for the project, called Address, start January 31.

Well, I was pretty close to this math. What people do not know is construction cost. From what I know from sources, Rs 1000 per sq ft is pretty close.

shailesh said...

Didn't we have some Chembur fans on the board.

Hub of factories to blame, says study

The study’s findings reveal that water contamination here was 63.50 (critically polluted). In Navi Mumbai, water pollution was rated 59 (severely polluted). Chandrapur, the industrial hub of Vidarbha, tops the list with a score of 83.88 (alarming levels of pollution), followed by Dombivli (78.41), Aurangabad (77.44) and Navi Mumbai (73.77) (all three have been declared as critically polluted). The three other industrial centres of Nashik (69.25), Chembur (69.19 and Pimpri-Chinchwad (66.06) have been rated in the severely polluted category.

In Chembur, toxic fumes and gases, coming the Govandi dump and chemical and petro-chemical industries at Mahul are leading to high pollution levels. Air pollution stands at 59.75 while the overall pollution index of water contamination and land is 50.75 and 46 respectively.

Anonymous said...

Actually a price of 10000 over 4000 initial cost results in a profit margin of 150% !! and not 60%

See, this construction cost in per sq.ft basis is ambiguous. Most builders procure the material directly from the manufacturers (like Hindustan Ceramics, Jaquar, ACC/Ambuja for cement). This results in massive discounts when procured in bulk plus they disintermediate the dealers and retailers..so their price is severely discounted.

I remember also in a specific case, Godrej was promising to use ACC and was using manufacturers like Siddhee cement!! Resulting in massive discounting of the concrete cost..instead of sand they were using grit and so on...

The construction activity is given to a labor contractor and here too there is a lot of discount available based on scale.

So net-net, I have seen most builders in the suburbs achieve a construction cost of 500-550 rs/sft!!

The land deal is done in tranches with a bank acting as a guarantor. So this is not the back of the envelope calculation you just did. But its a cash flow based calculation and if you do that you will see the profit margin zoom to close to 250%!!

Yes the realty industry is very lucrative and the actual cost of the flats with around 50% profit would be roughly around 5000 rs/sft!!

Anonymous said...

Well, time is coming for Sensex to go back to 10K.

Wadhwa was a bit early in making the land purchase. It will bite them in the long run.

Dow has started the second dip.

Anonymous said...

And this happens

http://www.mumbaimirror.com/article/15/201001222010012202192378016f69e2e/Pricey-Nariman-Point-gets-a-new-middle-order.html

Anonymous said...

I think this is the second coming of Paul Volcker. China, US, India, the world might raise interest rates in 2010 sending stock markets and realty markets into a tailspin. As they try to correct the stagflation - a mix of depression and inflation.

Hang on to cash!

Liked the article on Nariman Point and affordable housing. The pricing sounds more realistic than anything we have seen yet...

Anonymous said...

Home prices almost back to 2007-08 levels
Raghavendra Kamath / Mumbai January 22, 2010, 0:46 IST

http://www.business-standard.com/india/news/home-prices-almost-back-to-2007-08-levels/383348/

We laughed at BB, now he is having the last laugh :-(

Anonymous said...

Times and tide change pretty rapidly these days, looking at the macro picture and the way paper currencies are losing value, real assets would continue to go up (real assets which not easy to produce). To every positive news as per above post, there's another one countering it...check out...

Indians struggle to repay credit card debt

http://www.ft.com/cms/s/0/fb796e98-06ab-11df-b426-00144feabdc0.html

Bindas bhai said...

I am still laughing. Guys your dreams of second dip and second burst. etc. bla bla.. Remember, its not housing bubble thats gonna burst but ur dreams about such burst.
India still need lot of housing. Look at the number of people that are moving to cities. with in a decade, 60% of indian population will move to urbans.

There is gonna be huge demand, buy now or never.

prices are going up another 50%.

Anonymous said...

BB, people like u sucks man... bcoz of greedy guys like u comman man suffers...

u will die in hell... thats for sure and then u can laugh at urselves

Anonymous said...

BB, agree that migrants will keep coming to cities. But will their income levels support the indlated prices ? Existing buyers in cities having relatively higher incomes are priced out of market, then how come new entrants can buy housing at high rates ?

I repeat, its the volume play thats the need of the hour for sustainable RE scenario. Else, only one way to go, down ....

Anonymous said...

BB, I wish what you desire comes true. But it looks highly unlikely in the current scenario that the RE prices will hold up. I think people in India are borrowing the slangs from US/UK:
--Housing always goes up.
--Buy now are be priced forever.
--We are not making any more land
--A lot of immigrants are coming from outside
etc...etc...

All this has happened in the west already. No matter what RE lobby says to convince, the fundamentals have to come for long term sustainability.

I'm afraid that a lot of people don't even know what may come if there is a burst. People like BB will vanish overnight including many big builders. And a lot of small banks. Big banks would be rescued by Govt. by borrowing more from outside or printing more money. It means higher interest rates again.

Once the downward cycle starts, there would be no chance to go up again for another 10 years or so due to collapse of the whole RE scam. In fact, India has oversupply of flats and houses all over that can cater to needs till at least 2025. A lot of projects are also coming to completion in the next few years.

Just ask yourself, why is the same thing happening in China, Singapore, Australia, Korea, Hong Kong etc. all at the same time????

Could it be a massive liquidity bubble created by Govts. of these countries or low USD????

I would suggest sell your assets and stay cash till you see good deals in the next few years.

Anonymous said...

These are the three issues that would take down the bubble throughout the world:

--Bernanke will not be confirmed by the senate.

--Obama/Volcker to break up banks, separate the investment activities from them, basically bringing back the GD1 Glass Steagall act back in place. Also, higher interest rates are coming in the US. Which means USD will be strong, which will lead to stocks going down and Gold going back to reality around $550 per ounce.

--China: China is going to take the whole world down. They are going to witness a long period of depression and deflation. As soon as China deflates, Australia/Hong Kong/Singapore RE markets are toast. Minimum 50% crash in RE prices in these countries.

Now what about India?
Any guesses? My guess is that it face the same fate as other countries in Asia.

Bindas Bhai said...

The Guy above (1.06AM) is fake BB as mentioned earlier I have stopped blogging.

I will only respond to specific queries and will let the forum know if there is any crash.

Bindas Bhai

Anonymous said...

Sundaas Bhai,

You moron! you showed your face here again? Mr. Shit Brain, if a crash happens it will happen in a hurry. The realty players and investors will be running for the exit doors and gone before the resounding noise of the crash echoes!!

I just saw HDIL analyst report: Rs -12000 cr!! FCF!!! and no PE player or ECB/FCCB is willing to touch them with a barge pole. Their draft prospectus looks like titanic after the iceberg hit it. The writing is on the wall and when the crash happens no one will need any sundaas bhai to tell them that RE has crashed!! The whole world will know it.

Samjha ? Sundaas Bheja!

Anonymous said...

BB.

Kindly ignore Sundas Bhai.....not worth commenting..

Anonymous said...

Vashi hunter here.
Bought aplace in sanpada - navi mum al ,I'm happy with it

It is 2 BHK converted in 3 BHk with a loft + Parking+ Club House with Swimming Pool1 month back in one old posh society.
@ 58 L

BB how do ya find thea de

Anonymous said...

India's housing bubble burst - coming soon ...

http://mekhiya.blogspot.com/2010/01/indias-housing-bubble-burst-coming-soon.html

Mortgage Home Loans said...

Thanks for sharing the useful and informative post. Keep it up.

Anonymous said...

RE bubble is about to burst in India
and all of Asia in the next few months.

Bindas bhai said...

I am reading this predictions...
'its going to burst'... 'its going to come down'. 'its going to be massive' 'bla bla bla'.. etc
for last 2 years.

for last 2 years we r witnessing increase in housing price. you can't compare India with western countries. they don't have population. they have excess supply for RE. Only country that matches in population with India is China.

But china's model is different. China's economy is mainly dependent on US exports. Any shake in US economy is felt immediately by Chinese.

And with India.. Indian population younger to Chinese. Indian economy is not really dependent on US, as much as Chinese does. 2009 US melt down has little effect on India.. and every one of u know this fact.

India needs housing... yes we r going to see cheaper rat holes in future (TATAs r offering). But a moderate decent housing is going to see big raise in price. Don't hold to cash. Your cash is loosing value very fast.

Buy now for cheap.. or later for high price. 50% raise is sure..

Anonymous said...

BB:
The market would have definitely crashed in the last 2 years had the Indian GOvt. not interfered and gave a 98billion USD stimulus. And all other incentives for builders and bankers. And to top it, historically low int. rates.

You are such a moron, you can't understand basic economics and are guiding mass people to suicide by buying at the peak of the market. Don't you have any conscience.

Are you just a bloody pimp?

Anonymous said...

Deepak Parekh (HDFC) comments on the Housing market and says that the Commercial Property is in a Glut and has some sage advise for the Developers, but will they heed ? Watch the full video @ http://www.moneycontrol.com/video/business/ipos-overpriced-see-commercial-realty-glut-deepak-parekh_437856.html

rajni sharma said...

Hey this is really very nice post...
Nd one of your best post...Thanks
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