Thursday, May 20, 2010

Investors end up holding the bag in high-end apartments

Mint has an article on how the builders get their initial funding from select investors who are given apartments at a discount to the market price. The investors then sell off the flats to the end-users at the going market rate once the project nears completion.

While this seems to be a legitimate way for businesses to raise funds, these investors who buying the highly priced apartments will stuck with these prohibitively expensive properties as the only buyers who could afford these apartments would the investors themselves. US/UK based NRI's cannot afford buying anything in Mumbai. The Dubai investor is reeling under the crisis in the Gulf leaving nobody but the investors themselves as the only folks with black money and the affordability. Bank's these days are very careful doling out loans and any loan over 50L attracts a lot of scrutiny.

Now imagine the investment decision made by a smart businessman in Mumbai with 2 crores of discretionary investment cash. Will he directly contact the builder and buy in it as a investor or will he be so stupid enough to buy from another investor by paying an extra 30% ?

Property prices heading north on pre-sales to investors
Investors have bought at least 80% of the project, fetching Unitech around Rs315 crore that it can use for construction and other needs

Bangalore: Unitech Ltd’s intense pre-sales pitch in October to investors for a part of its residential project in upscale Worli, Mumbai, is paying off in more ways than one—the company has been able to collect a tidy sum while the price benchmark has been pushed higher.

Investors have bought at least 80% of the project, fetching Unitech around Rs315 crore that it can use for construction and other needs. Around one-fifth of them have already resold their purchases at a profit, pushing up prices from Rs12,000-12,500 a sq. ft during the pre-sales to Rs19,000-20,000 a sq ft., the likely price tag for actual home buyers when Unitech opens the rest of the project for them later this year.

A similarly brisk rally is pushing up prices in several other projects in Mumbai and Delhi—a trend last seen in 2005-07, just before the bubble burst as liquidity dried up amid the financial crisis.

More here

46 comments:

Anonymous said...

HDFC Bank's Deepak Parekh talk sense in this Q/A with DNA. One doesn't have to be Einstien to decide that paying Rs 15 per sq/ft is better then paying Rs 80 Rs.

What about the years of talk about turning Mumbai into India’s financial centre...
At current prices, you cannot afford to have an international financial centre — unless the government has the heart to give land for educational institutions, schools and colleges first, land for housing at affordable and reasonable prices. You know at the Bandra-Kurla Complex, some developers are building houses that are being sold at Rs 30,000 per square foot. Now at this rate of housing and another Rs 25-30,000 per square feet for office space, who can afford to stay or work there? Which business will generate that kind of money, that kind of margins? South-central Mumbai will soon have only head offices and back offices will have to shift out. Actually, the Mumbai-Pune Expressway is a good place to develop habitats. I expect that in the next 20 years, Khopoli, Panvel and the areas along the expressway will see developments that will emerge much cheaper. In Hyderabad, when you come out of the new, very nice airport, you turn left to go to the city, which is a 30-40 minute drive. If you turn right, after about 10-15 minutes you see some buildings coming up where they say rent is just Rs 15 per square foot. Now which back office will be viable in Rs 80-100 per square foot? Here, 15 minutes from the Hyderabad airport, brand new construction is coming up with power and air-conditioning, at Rs 15 per square foot, ready buildings. They have the vision to give that land, they have the vision to see that they will become the back-office of the country and the only way to do that is by keeping the rents lower. I don’t know of a single place in Mumbai or its outskirts where the rent is Rs 15 per square foot.


http://www.dnaindia.com/money/interview_we-have-to-develop-new-cities-now-deepak-parekh_1385609-2

Jayant said...

Very apt Song for all the central banks (including Reserve Bank of India) who destroy the life savings of the common people by bailing out the crooks.

shailesh said...

Anon 6:03 pm

This is exactly the reason why Mumbai lost all its edge in IT, even though many companies in IT started early on in Mumbai. SEEPZ was where lot of IT started. I remember days when everyone from India came to work in SEEPZ. Now no more.

Anonymous said...

Talking about our reserve bank, the monetary policies are made as per the direction of politicians who in turn act on the advise of corporations and land mafia that include builders. Politicians being semi literate, always look for money for themselves and and their relatives. It is all money game. All these guys connive with each other see that most people are shelter less and starved. All the people/economists giving press statements are directed to do so. Deepak Parekh is one of the biggest crooks around and has amassed crores of rupees.

There is no salvation for bhaRAT.

Anonymous said...

Re:above post

I'm sad to say that Deepak Parekh is distantly related to me extremely cunningand

Anonymous said...

Correction:

I'm sad to say that Deepak Parekh is distantly related to me and extremely cunning/crooked

Anonymous said...

Check out ...>>>

http://uk.finance.yahoo.com/news/city-fears-of-great-depression-mark-ii-tele-12d592c21529.html

Anonymous said...

@Anonymous Desi Ghora !0:39

May we request you to post something relevant and not the links to crap from UK newspapers

Thank you

Anonymous said...

Anon above, Glad to see that you can read and write in GORA-ENGLISH...please read the news carefully and try hard to understand the context...

Anonymous said...

anon@5:50

Good one!

Hopefully anon@11:00 will migrate one day beyond just reading about India in English and understand that India is a part of something called earth and how global economics is making India interconnected and susceptible to global shifts...one can at least hope...

Anonymous said...

India is so much connected to World nowdays that if US/EU will sneeze, India will catch cold.

Moreover, all the money India is borrowing is from outside only. Major investors in India are from outside. Jobs that pay well are from outside companies.

But time has come for India to get its act striaght and get out to support the main street instead of builders/bankers/corrupt IAS etc.

It could be another Greece or Thailand if not controlled on time. Time is running out.

Anonymous said...

GOI released new rules for NRI to get Visas to India. A quick reminder to of babus in India making stupid decisions. Expect a huge drop in visitors from India, and the smart NRIs will pull out their money before the exodus starts.

Anonymous said...

Anon above

What new rules ? Can you elaborate.

Anonymous said...

One reason for the recent jump in prices could be Indian black money holders in European Union Banks are cashing in the Euros and converting their money to Rupees and parking it in Real Estate. Not sure why they cant convert into dollars since dollar will become even stronger.

Anonymous said...

‘Protesters have accused the government of Prime Minister Abhisit Vejiajiva of ruling in the narrow interests of the country’s moneyed and well-connected elites, especially those who are intertwined with the country’s royalty.’

Except for the presence of an officially-recognized royalty class, Thailand appears to be governed similarly to current India's governance.

Is India next Thailand?

Anonymous said...

Canada, Austaralia, Brazil, India, China and South Africa property markets are the next to pop.

A lot of pain ahead.

shailesh said...

So all the bulls, why is this happening all of sudden? Please explain ...

MMRDA awaits realty sector turnaround

The Mumbai Metropolitan Region Development Authority (MMRDA) has decided to put-off leasing of its vacant plots in the prime Bandra-Kurla Complex area, following volatility in the real estate sector.

Nearly 20 hectares of plots in BKC are still lying vacant and the authority is waiting for a turnaround in the sector so that it can obtain higher bids from interested parties for the land.

"The market is very uncertain presently and hence, we have decided not to lease the remaining plots. We feel that given prevailing market conditions, we will not be able to get a good amount from the bids," MMRDA's Deputy Matropolitan Commissioner, Anil Wankhade, told PTI here today.

Anonymous said...

Rules for NRI, India Surrender Certificate. Babus are in chare, pull your money out before they decide to tax you to oblivion.

Anonymous said...

Surrender Certificate - Another way for the As*holes in New Delhi to milk the poor desi who is contributing foreign exchange to India and who is probably supporting many many poor families. So what if I got my OCI card 4 years ago when they cancelled my passport, do I still need the Surrender Certificate?

Anonymous said...

Surrender Certificate - Another way for the As*holes in New Delhi to milk the poor desi who is contributing foreign exchange to India and who is probably supporting many many poor families. So what if I got my OCI card 4 years ago when they cancelled my passport, do I still need the Surrender Certificate?

Anonymous said...

Anonymous 8:42
I dont understand the hullabaloo. Why does anyone need 2 passports.

Anonymous said...

I HOPE ANOTHER BIG EARTHQUAKE HITS AHMEDABAD SO ALL NRI BLACK MONEY BUILT HOUSES COLLAPS, I NO LONGER CAN WAIT FOR THIS STUPID BUBBLE TO POP. OR PAKISTAN SEND MORE MISSILES IN GUJARAT TO KILL THIS BUBBLE. WASTED 15 YEARs IN USA COLLECTING PENNY AND DIMES TO RETIRE IN INDIA AND NOW I CAN'T BUY MY DREAM.

Anonymous said...

India Surrender Certificate is good news for people hoping for a Housing Crash. The smart NRIs just figured out that Babus in India will implment laws retroactively and will charge anyone anything they like. The smarter NRIs will pull their money out first, from housing and stock market. Then the exodus will begin as the prices start to fall and the fear grows. I suggest, move to cash for now.

Anonymous said...

I just checked Rupee is at 47.74 now.

The current Indian economy is based on borrowed money and majority is debt unlike all the failing countries like Greece, Spain etc. And on top of it there is a massive RE bubble.

I see Rupee going to Rs. 55-60 in a year or so. And the way Dow is going down, Euro is going down, Sensex will take a dive too. Foreign investors will fled India and there could be a drop of 6000-7000 points on Sensex. That means Rupee goes to RS. 60. And if RE bubble bursts, Rupee could take a further hit and if S&P downgrades India's debt, all growth goes to toilet for a long time. It will take India at least 10 years to come out of the bubble mess it has created for itself.

the only way out is if RBI increases interest rates by 400-500 basis points. Which it will not as it doesn't want the bubble to burst. It wants to maintain the bubble at somewhat okay inflation. But if Inflation is not controlled, there could be unrest.

Anonymous said...

Speculators in India would soon realize with the falling stocks that RE is no different. When it falls it will be in a freefall.

Stocks will be okay after a drop of few thousand on sensex, but RE will not recover for like 10 years or so.

It is a sellers market in India and not a buyers market. Be very careful if you are buying. The party seems to be getting over now.

Anonymous said...

In the last check, Sensex lost around 500 points.

Below 16K levels. It has already dropped like 2000 points in May.

shailesh said...

Lodhas clinch 22-acre Mumbai plot for Rs 4,050 cr

Lodha Developers on Tuesday emerged as the highest bidder at a Mumbai Metropolitan Region Development Authority (MMRDA) auction to bag a 25,000-sq metre (around 22 acre) plot at Wadala in central Mumbai for Rs 4,050 crore.

Lodha plans residential developments on the site. The project will be priced at around Rs 14,000 per sqft. Abhisheck Lodha, MD, said: “With the upcoming monorail and metro rail both converging here and the new freeway being built along the harbour also joining here, this site will be by far the most well-connected site in the city.”

Analysts said the price of was too steep. “Prima facie, it’s pretty difficult to justify the bid price at these numbers in that area. At 14,000 per sq ft, we see difficulty in the company making money. Given the price of Rs 4,050 crore and construction costs going up, they have to price it at an upwards of Rs 20,000 per sq ft. It will be difficult to attract buyers. A lot of inventory is coming up in that area, which will lead to downward pressure, impacting profitability,” said Ghulam Zia, national director, advisory services, Knight Frank India.

shailesh said...

I find expecting Rs 14K per sq ft in Wadala East (kind of middle of nowhere), is probably going to be pipe dream !!!

Vik said...

I think Lodha's have got it right here. The analyst is talking as if the project will be ready tomorrow. By the time the project is done it would be atleast 2016. Also rules might change which might give Lodha's extra FSI. In case of MMRDA development the builders don't have to pay the full amount at the time of getting possession of the land. They have 5-7 years to pay up. 4050 crores seems a lot of money but all they need to do is build 4050 flats each of 1 crore each to break even.

Given an FSI of 1:1 builders normally build 90k sqft per acre

here Lodha will build 90k x 22 = 2000 k sq ft

with an FSI of 1:4 they can build 8000 k sq ft

8000 x 1000 x 10000 per sq/ft =8000 crores.

double of what is paid. If they price the apt at 20,000 their profit will be triple.

the key here is the FSI.

ShouldWeFleeMumbai said...

Nice Analysid Vik,

Would like to know ur thoughts on where the power & water will be coming for these high end 4050 flats

Where is the infra to support these projects when people are facing 4-5 hrs of load shedding & mumbai itself is facing water shortage....

With Jacuzzis & Air Cnditioning & Cars that will be a given for people buying flats in the range of crores

WHERE IS THE POWER , WATER & ROADS...

WHERE IS THE INFRA ???

GetDFkOUTOFMUMBAI said...

The biggest game in town is Garden, Health Club and Swimming pool. I know this with good authority that complex with such facilities greater than 5 yeras have residents grumbling for paying outgoing for these facilities. Indians dont take care of their own homes or buildings, much less pay for all these facilities. also none the outgoings make any sense, when its upwards for 6000 rs. for a 2 BHK flat at a minimum. How does this not look expensive to people is beyond me??

shailesh said...

Land deal by Lodha group is ridiculous, says Parekh

Expressing concern, Gulam Zia, national director with Knight Frank, the global real estate consultants, said the figures do not justify the project. “Even if we assume the developable space of 54 lakh sq ft, we are talking of 2,000-2,500 apartments of a similar size. To recover his costs, he will have to sell 500 apartments a year or about 2 apartments a day over the next five years. With each flat costing around Rs5 crore at Rs14,000 a sq ft, a question comes in mind as to who has that kind of money,’’ asked Zia.

I think he meant 5400 homes of 1000 sq ft each for Rs 2 crore at 20K per sq ft. Good luck Mr. Lodha !!!

'Alternatively, even if we assume the flat size is roughly 1,000 sq ft, we are talking of 54 lakh flats costing roughly Rs2 crore each. Where would one find 54 lakh people having a salary of Rs40-50 lakh,’’ Zia added.

Zia said that there are many large developments already coming up in the neighbourhood with no demand. RM Bhattad group is constructing 1,500 apartments, Dosti Flamingoes by Dosti Developers and Ashok Gardens by Peninsula Group are expected to add roughly another 3,000 apartments.

Rachana, Brusells said...

The fuse is lit!!!!!!!!!
http://www.dnaindia.com/india/report_germany-hands-over-to-india-names-of-50-tax-evaders_1388307

The black money wallahs are frantic. Last 2 two days, the hundi wallahs handled a massive $450 million (nearly 1000cr)transactions. All this flood is going to one destination, that is real estate. If at all there was a bubble, it is likely to become a baloon.

Omkar said...

hello day dreamers,
the biggest deal in Indian real estate happened yesterday.
http://content.magicbricks.com/biggest-deal-6-acres-for-rs-4k-cr

Any comments ?
Can you imagine after buying at this hefty rate around 90k psf, lodha will sell at what rate to make double the profit as said??

hence why I am saying, If you have genuine need, go ahead and buy, that will start counting your payment towards EMI, then to pay rent, and create an asset for you.

Regards
OM

Amit said...

BB, any good project going on in Chem now that is decently priced (10-11k range)?

Anonymous said...

Looks like builderberg group has some Pune/mumbai builders in it too, along with indian central bankers who are allowing indian housing bubble to attain baloon levels.

Bindas Bhai said...

Dear Amit,

To be honest I am out of Chembur/Mumbai market. I see prices firming up further but frankly what is keeping me away is the loading factor.

I am putting all my money in Kharadi Pune. I am purely looking at value buy (not necessary cheap) so that even in worst case scenario the downfall will be limited whereas the upswing will definitely out beat Mumbai.

In case i come across anything, I will post.

All the best,

Bindas Bhai

SS said...

Pune real estate

http://www.business-standard.com/india/news/pune-wakesto-kharadi/353806/

BB is right. In all probability that call centres, IT companies will soon start their migration because of lower costs and better amenities.

If you have rokda, this is the best place to put in

Anonymous said...

The reality of realty is slowly dawning on people. All the theories floated so far in regard to the bubble have proven to be fictitious. Corrupt rule the roost. In cities like Mumbai, apartments are totally booked before the builders lay the foundation stone. The shelter less look at this in amazement and feel proud of bharat mata's achievement.

Jai hind

kasbekar said...

Just returned from house hunting. Saw some flats in malad, kandivili, borivili as i wanted closeby place to my work which is andheri.

To cut the story short, here is the summary.

The best place i saw was in a building near inorbit mall. The building is 5 year old but reasonably clean except paan tambaku spits on elevator, ground etc. Garden was semi alive due to the shortage of water but groomed daily. Cars were crammed up everywhere and some of them were being washed using water meant for garden.

Elevator is outdated but runs. The upkeep of the building was mas not satisfactory. One could see the streaks formed by muddy water on the exterior. This was due to people having mini gardens in their balconies.

The flat that was shown me was 1260 sq.ft (covered area. I estimated that the total living area including bathroom/toilet to be not more than 700-800 sq,ft.


Now the price. After bargaining, the real estate agent asked for 9500 rs/sq.ft , total being close to 1.2 cr. out of which 50 lakhs cash to be paid. Though i can not afford ven 1/3 of the asking price, i kept on bargaining, but little progress was made towards end price.
Next week, i am planning to explore mira road, virar etc. and let you know my experiences

Anonymous said...

kasbekar rao,

marathi maanusni yevhdhi mothi amount madhey padoo naye..
aapun appla dombivli kalyan bhandup madhech rahave...

Anonymous said...

@kasbekar

Mira road scenario is no better. In a dilapidated 10 year old building, the asking price is Rs 4000 onwards. There is also acute water problem, sanitation problem and to top it all, law and order problem. Mira road has become an muslim ghetto, therefore the high prices and crime.

Virar is slightly better but there too prices are shooting up.

If I were you, I would start looking at Thane and beyond

Best of Luck

Anonymous said...

friends,
there is a news from pune real estate, Indications are prices are nosing downwards, builders and investors are under pressure, buyers didn't turned up in much bigger numbers to the real estate exhibition in pune...
check out -
http://www.indianrealestateforum.com/pune/t-toi-property-exhibition-28th-29th-may-2010-11744.html

spread this forum link to as many people as possible, this will help to increase awareness among the buyers...this blog is also helping us to know the latest in RE across India, popularise this blog among as many people as possible..

Anonymous said...

I wouldn't go bye the opinions of losers.

Anonymous said...

anon above, you are surely sandaas or susu...better live in your own created shit...!!!

rajni sharma said...

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Nd one of your best post...Thanks
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