Sunday, March 14, 2010

Twenty-25 per cent toh market tootega

The brokers have a vested interest to drop prices since at current prices there are no buyers. Builders launch projects and sell to investors, now investors get greedy and are not ready to drop prices to the higher levels held by the builders. Brokers are squeezed in between as there are no transactions as investors are not ready to drop prices. Builders have no incentive to drop prices as they have sold to the investors and if they drop prices, investors will start bailing out and demanding a reduction in prices, similar to the DLF fiasco in Chennai. End-users cannot buy since they are not eligible for bank loans. Its a catch -22 situation which this ponzi scheme has now reached. The bubble will unwind one apt at a time, as investors realise that they have been fooled by the builders. There is no denying the fact that there is demand, however the price at which the demand is satisfied is in the range of 4k - 6k per sq/ ft in Mumbai. There are always exceptions to the rule however in the general locations where income levels don't cross 10-15L this is the range.

The same scenario will unfold all over Mumbai. This article in the mainstream media is what I was waiting for. I have been crying myself hoarse over the past few years and a 25-30% reduction in investor prices will bring apts down to under 5k per sq ft.

Congratulations buyers for being sensible. I woudn't mind paying the broker 2% if he can convince the investor that the bubble has burst and ask him to drop prices to the 4,000-5,000 range.

Goregaon-Borivli to house 30,000 new homes by 2012

Buyers can expect a correction in realty prices soon, say experts

By Alka Shukla
Posted On Saturday, February 20, 2010 at 02:05:39 AM

According to data collated by suburban brokers, around three-crore square feet of residential property could be up for grabs between Goregaon and Borivli over the next three years.


Going by the average apartment area of 1,000 sq ft, some 30,000 houses could be ready for possession in the next two to three years. That’s almost three times the average supply of homes seen in this belt. The current real estate rate in this region is between Rs 7,000 and 9,000 per sq ft.

“Many developers were sitting on land banks for the past two years. Holding on to land also involves its own costs and post-downturn, it’s prudent to capitalise on it. So you’ve seen a slew of launches.

Even as of today in the said belt, there is an unsold ready stock of one crore square feet,” says Pankaj Kapoor of Liases Foras, a realty research firm, indicating that there will be a glut in the market in the next two years, bringing prices down by 25-30 per cent.

Another real estate expert Ajay Chaturvedi concurs, “Builders are not really seeing the kind of demand that is being projected. Prices are bound to drop in the range of 15-25 per cent,” he says.

Picture for representational purposes
In fact a survey done by Liases Foras suggests that there will be nine crore sq ft of homes by 2011-2012.

This translates roughly to 90,000 homes, around 30 per cent of which will be in the extended suburbs from Dahisar to Virar, Thane and Navi Mumbai.

Developers claim there is enough demand to absorb the supply. Niranjan Hiranandani, MD, Hiranandani Group which has launched a seven lakh sq ft project in Malad says, “I strongly disagree that there will be an over-supply situation. What we have today in fact is gross under-supply. Although it is difficult to speculate on prices.”

Vijay Wadhwa of Wadhwa Group which has launched eight lakh sq ft of residential construction in Borivli and 10 lakh sq ft in Goregaon feels the sudden surge in supply will shake the smaller players. “Lot of projects have been launched recently, but only few are that good. There is enough demand in the city, but only the ones will a steady track record will sustain. Over-priced products will suffer,” says Wadhwa.

Property consultants however sound a word of caution. Says Pranay Wakil, Chairman, Knightfrank, “It will depend on what segment these houses cater to.

If 30,000 houses in one region are in one particular segment, say over Rs 75 lakh, there could be an over-supply. There needs to be a healthy mix of affordable and premium housing.”

Local brokers, however feel prices will fall. “Twenty-25 per cent toh market tootega,” says a Malad-based broker, continuing, “Many local developers are trying to sell flats at the rate of Rs 4-5,000 per sq ft to investors first and then selling only part of the stock in phases to the buyers for a higher rate. That’s how they are holding on to high prices.”

9 comments:

Anonymous said...

Big cities in India have supply for the next 20 years. It is all overbuilt. Luxurious flats with poor people going to toilets just outside these compounds.

My take is that I'll wait to buy till the prices correct by 50-60% and not 25%. Otherwise I'm better off without loans and staying cash. Moreover, I don't have stolen money or black money. It is all hard earned money to be spent wisely. I don't have to hide any black money under these covers.

Anonymous said...

Realtors in Deep Deep Manure (or Sundaas as some would say :p)

So, realtors are back to share pledging. We all know the QIP route is not doing anything good for Realtors nowadays and is practically closed.

Share market?
DLF has plunged from 400 to sub 300 and going down.
Unitech from 90 to below 70 levels and still going down.
HDIL from 400 levels to below 300
IndiaBulls from 250 to 150 levels.

On the demand side, where these realtors need to generate cash, a multiple impact - rising prices of raw materials, labor, rising taxes and rising interest rates.

Looks like things are converging real fast! When people say 25% read between the lines..

Anonymous said...

Bank's NPA's soar!

I think they aint' seen nuthin yet! The level of opaqueness in the banking sector is fantastic. I hope at some point the regulators start enforcing rules leading to more disclosures...

Anonymous said...

No one will enforce anything and no one in power wants to rock the boat.

Once the world markets sees a double dip, the whole Indian economy will fall like a pack of cards.

Anonymous said...

Anon 4:07

Report of BS is something different

http://www.business-standard.com/india/news/orbit-hdil-highmumbai-realty-revival/388642/

Anonymous said...

Anon@12:20,

That BS article is purposely misleading. Its comparing stock prices from Mar 09, when everything in the market was at the bottom.

If you want to understand reality, from Mar 09 to Mar 10, sugar stocks raced to 300% !!! as against realty of 80%...

If you really want to see what is happening see stock prices for the last 4 months. How much it has dipped and continues to dip..

Anonymous said...

what nonsense . my observation in real estate in the last 14 years is that there will not be any major crashes. at the most there will be a period of stagnation before it goes higher. so people (including me) who wait / hope for a correction/crash will wait forever before they realise that it is futile

Anonymous said...

@Anon above.

There was a big RE crash from 1992 to 1998.


You have not observed properly. And this time the recession is deepest in 70 years and spread across all the sectors. Right now the economy is on ventilator support. So a RE crash is imminent.

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