Wednesday, October 27, 2010

Prices go north as space ‘shrinks’ in Mumbai

Article Link

Developers across Mumbaihave hiked project prices by 7-43%, leaving genuine home buyers in a fix. Worse, despite the price hike, the carpet area, or the actual space the buyer receives for his use in the property, is nowhere near the usual proportion of saleable area the developers used to offer. Earlier, developers used to give as much as 70-75% as carpet area, which has now shrunk to 55-60%.

Among the bigger realty brands, Lodha Developers has hiked prices 11-30%, Ackruti City by 10-42%, Dosti group and Godrej Properties 10-18%, Kalpataru Constructions 9-24% and Runwal Group by 10-25%, to name a few. All the developers have increased prices for properties in Thane and nearby regions substantially.

“Across all the major micro-markets, prices have risen by 10-30% since April 2010. This is after the 20-40% increases between October 2009 and April 2010. For example, prices in Borivli, are quoting Rs8,000-11,000 per sq ft, up from last year’s Rs6,000-8,000p sq ft.”

An analyst from a domestic brokerage, who spent the whole day trying to gauge sale conversions, said, “We waited the whole day, but hardly saw any inquiry translating into a sale.” An analyst from an international brokerage had this reaction to offer, “if you don’t work in the financial services sector, you can’t buy these properties; they are unreasonable.”

Will this Analyst Firm give their honest opinion to Media, I guess not....

39 comments:

shailesh said...

BMC’s carpet call to builders

“Builders are constructing flats and apartments which cost more than Rs1 crore, which are unaffordable for the common man. He ends up paying for the built-up area and gets only 60% area in return. It means the builder cheats the common man and gets 40% of the margin,” said Shekhar.

The notice of motion said that the BMC should initiate criminal action against builders who sell flats on built-up and super built-up area.

“The state’s housing policy, which came into existence in 2007, says flats should be sold on carpet area, but these rules are still on paper and need to be implemented,” said BJP corporator Ashish Shelar.

Shelar added that in the same policy, there is also a provision to set up a regulatory body to scrutinise the sale of flats, but till date no such body has been formed.

NCP corporator Vidya Chavan alleged that builders and developers are robbing buyers of their hard-earned money and authorities can’t do anything to stop this loot.

“Buyers are usually unaware about the actual area of the flat, because the excess area charged for is not uniform and ranges from 30 to 50%. That means when the builder charges for a 1,000-sq ft flat, only 500 to 700 sq ft of area reaches the buyers’ hands,” she said.

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Anonymous said...

Prices have indeed shot up. Borivali average is now 12000. IC colony is quoting 16000. Surprised there are buyers. Where is all the money coming from is a mystery. Infrastructure in borivali isn't any different from other suburbs, i.e full of slums , poor sanitation, poorly maintained roads plus the crowd
God alone may be able to save people like me who are on regular salary. I'm 37 and still living with parents with wife and 2 school going kids.

The Glyph said...

Borivali is probably the worst affected suburb on the western line to this price spiral. There are lots of speculators belonging to just one community. All the brokers belong to that one community. So all the sales are happening between property speculators nothing else. Kandivali believe it or not is actually cheaper and has good schools.

Dont buy.....the bubble is gaining it momentum.


its true at the recent property exhibition there were scant buyers mostly browsers, and I think we need to wait till Dec to see this crack. I for one am waiting. Rs.1Crore even with a high salary like mine will requie a huge loan. and at 38years of age, I am not keen to take a huge loan at the cost of my retirement savings.

Anonymous said...

I've been watching the phenomenon. The original inhabitants, kolis, are selling land to gujarati/sindhi developers for crores and leading a extravagance lifestyle. Suddenly the place is crawling with luxury cars, bars are always full, and you see drunk young men roaming the streets sporting thick gold chain and crosses. Sooner or later, the very same people will be domestic workers.

The investors in Borivali as one mentioned belong to a particular communiy and are maling our lives miserable.

Desi Batman said...

Prices have indeed shot up. Borivali average is now 12000. IC colony is quoting 16000. Surprised there are buyers.

says who? - builders? Media? Investors? relatives? neighbours? pan-walla?

Any proof 'real' people can afford or are buying at these impossible unaffordable price?


God alone may be able to save people like me who are on regular salary. I'm 37 and still living with parents with wife and 2 school going kids.

Exactly, now just wait what happens to your kids. this is just a beginning.

Believe it or not there are TONS of flats available for rents, negogiate hard for best rents in city. I bet you will find paying rent is far cheaper than paying interest portion in EMI for loan amount in crores (or higher side of lacs).

Other solution is to move to location/city where cost of living is low.

Desi Batman said...

Analysis: EMI vs Rent for 1.2 crore flat.

EMI:
Purchase price: 1.2 crores
Down payment: 50% = 60 lacs
EMI per month for 60 lacs at 10% interest for 20 years: 57,901.30
principal portion = 7,901.30
interest portion = 50,000.00

Rent for same or similar flat: 25,000

Considering interest paid on EMI is gone same way as Rent is gone. feels like renting is 50% cheaper!! also no debt! mind you this calc is after paying hefty downpayment of 50%.

People who talk about demand, try shopping for flats available for rent, you will find supply is greater than demand BUT when you shop to buy flat all of sudden demand is greater than supply.

WTF!

DhImAn said...

Batman, you just calculated the effective PE ratio for real estate.

A high PE ratio is a defining characteristic of a bubble, which is what this is.

Desi Batman said...

DhImAn,

Yes, this is repeated logic. In previous post one gentleman did calc PE ratio to 42.

I sopke to couple of my friends and you will be surprised MANY don't calc what mess they are getting into or into. They just don't understand jargons of PE, etc. When I put forth this calc in simple way they say 'ohh is that so' and then they snooze back to illusion of wealth.

My point was perspective of demand and supply. Many just want to believe in demand in the way that profits them or when they are in denial.

samix said...

@Batman, many just wanna follow the crowd and own a house because their friend/neighbor/relative owns one.

And yes, how can I not pay a 50K EMI if mr X is paying one, hum kya unse kuch kam hai

shailesh said...

Mumbai property prices hit the roof

With prices becoming unaffordable, sales volumes are expected to plunge by 20 to 30 per cent this year, which could put the brakes on further price escalation, feel experts. Some analysts also feel that a price correction is just around the corner.

“Prices have increased by up to 33 per cent from their April 2010 levels, particularly in suburban areas such as Kandivali, Borivali, Malad, Andheri, Vile Parle, Chembur, Parel, Thane, Dahisar, Mira Road and Wadala,” said Suhas Harinarayanan, real estate analyst at Religare Securities.

“Potential buyers are shying away from booking flats as most of the projects have become unaffordable. Prices in Mumbai have not only risen sharply since April, but have also moved beyond their pre-downturn (2008) peaks. We don’t think prices can escalate any further,” he added.

Experts tracking the real estate sector feel that developers are increasing prices to enhance their valuations for proposed fund-raising initiatives and are not really interested in end users (buyers). Most of the flats are booked by speculators, thus sending prices out of control.

Anonymous said...

Realty biz expects cracker of a Diwali

http://www.mid-day.com/news/2010/oct/211010-Real-Eatate-Festive-season-Pune.htm
Where is our '50% guarantee' bhai.

Comments from him are much appreciated

Anonymous said...

I once saw a small time newspaper from Bihar that had a half page story on the front page with a huge picture about the inauguration of a shoe store! As it turns out, the owner of the newspaper was also in the shoe business.

Same goes for this midday thing you have posted a link to. The story is peddling real estate, and I might as well look at a real ad
in the newspaper. At least, you get to see cute models with big boobs ;-)

Rustamji

Desi Batman said...

Continuation of my calc - in different perspective:

If I had property that can be sold at 1.2 crores and if rented I can get rent of 25k. I would sell this 1.2 crores property and keep in the fixed deposit (the shitty investment) with 9% APY (6% after tax). I earn 1.2 crores * 6% = 7,20,000 per year tax free i.e. 60,000 per month and stay in same house of 25k rent a.k.a 1.2 crores ownership house with savings of 60k - 25k = 35k per month !!!!

what did I miss other than emotional drama of 'ownership - apna ghar hai'.

Desi Batman said...

And yes, how can I not pay a 50K EMI if mr X is paying one, hum kya unse kuch kam hai

50k EMI per month!! wow... then what has to be income of the person per month? Experts say that mortgage should be max 30% of your earnings. With that in mind the earnings should be 1.7 lacs per month i.e. 20,40,000 per year (20 lacs).

now question arises what is average earnings of people in Mumbai?

Anonymous said...

Chavan on all TV channels right now, making all Maharashtrians proud!

Land grab from the widows and orphans of Kargil. I should have guessed when the sea-link was named after Rajiv Gandhi the bofors thief. It is time to rename it after Chatrapati Shivaji Maharaj and throw Chavan in the sea.

Anonymous said...

arrre baba, what is your problem. chavan gave to mother in law and mother in law's daughter in law. when the word "law" is used so many times, how can this be illegal?

similarly, robert vadra is exempt from frisking at airports in india. who the hell is robert vadra? he is the son in law of the congress party's divine mother soniaji. since the word "law" is used again, this is legal.

surlekar said...

@anonymous baba 7:11,

Why do you 'jalta' on soniaji, robert vadra and chavan. They are oyr Netas and are entitled to certain power and privileges. If you happen to be in that boat, I am sure, you would do the same. No one goes against the fundamentals of 'Rajyaniti'.

What is the solution to our current problems. You all know it but reluctant to admit it. What we need is socialism. We need a person like Indira gandhi or Arundaty roy to lead our nation. Manufacturing mercedez, jaguar etc may bring happiness to few but vast majority still crave for a piece of roti to sustain themselves. Travel in a mumbai locals and you will see scores of people shitting on the side of railway tracks, some of them marvel ling the home built by Ambani. After all he is one of us.


My advise to you is stop 'jalna' and try to find some practical ways to sustain yourself and your family

The Glyph said...

Finally, Mumbai builders are unable to hold up prices and are offering steep discounts
http://moneylife.in/article/4/10186.html

Correction due in residential property at select locations and projects, says Anuj Puri
http://moneylife.in/article/4/10188.html

Meghana said...

RBI, takes no action, but thinks 10-90 scheme is risky for banks.

RBI is in cahoots with the land-builder-politico mafia.

http://www.moneycontrol.com/news/cnbc-tv18-comments/rbi-says-1090-housing-loans-risky_495650.html

Here is the text of the article:


A recent product in the housing loan market, called the 10/90 scheme is raising eyebrows at the Reserve Bank of India (RBI). Under this scheme, the borrower pays 10% upfront and the rest only after the possession of the building. CNBC-TV18’s Gopika Gopakumar reports on why this scheme is worrying RBI.

Many big developers have tied up with banks to introduce a product called 10/90 scheme. As per the scheme, borrowers pay 10% as down-payment while banks pay construction payouts to the developers. Developers in return service interest on behalf of borrowers.

This is like an interest subvention scheme because for a certain period the borrowers will not have to pay the interest payment.

Borrowers will start paying EMI upon possession and will pay interest if developers default. Currently Indiabulls has a tie-up with ICICI and HDFC for its Central Mumbai project. A developer called Neptune has a similar tie-up with Axis Bank.

Sources say that RBI is concerned about 10/90 scheme. The central bank feels that the product is opaque and risky on banks if builders default. However, RBI has not written to banks about it yet.

Thambi said...

@Surlekar anne,

well said

Thambi said...

@Meghna amma,

What is RBI ? In a nutshell, it is a corrupt branch of Indian govt that formulates policies benefiting the wealthy and powerful.

Raj said...

Surlekar & Thambi,
Could't let this go. Are you two serious? do you want Mrs. I.Gandhi's economic policies back? Haven't we been through them enough?

Remanants of those policies are the reason why certain sectors of Indian economy are hobbled. Any sector that has serious government involvement - agriculture, defense, banking, real estate, railways etc - are the worst performers.

Take agriculture - although contributing significantly to the Indian economy, it has one of the lowest productivity across major economies. Subsidies both on the supply side (fertilizer, free electricity...) and on the demand side (minimum support price) have made sure that capital (including human capital) is invested in worst possible way. And subsidies are not reaching intended place. e.g Sugar barons benefit not subsistent farmers.

Real estate in India is overpriced not because of greedy builders but due to variety of draconian regulations such as land control act, rent control act, poor property rights etc. However good intentioned they might be, they haven't produced desired result in all these decades. Why shouldn't a subsistent farmer be able to sell his land? These illogical rules have neither reduced food prices nor land prices. The builders are only pillaging through their know-how (loopholes in rules) and know-who (politicians/mafia/law-enforcement).

So what we need is simple and sensible rules/policies and not more socialism.

samix said...

Guys it does not matter what ism you implement, capitalism, socialism, communism or any other ism that you can think of.

If you put the banker at the top of the economic chain, and vest the power of creating unlimited credit at will, from thin air in their hands, you will loose in the long term , and no ism will help you.

Further if you demonetize sane money (read gold/silver) and get on a floating paper currency standard, then you do not stand a chance.

The common man will never win in this case, coz there is constant check kiting happening between the politicians and the bankers.

Imagine this scenario: All out politicians and babu want to change their rusty ambassadors for spanking new audi's what do you do ?

Simple, get quotes preferably from your wife's brother make him a middle man to procure the cars and draw millions of rupees check on the treasury.

What happens when the wife's brother goes to the treasure to redeem the check ? of-course it gets cleared, do you really think that there was enough money with the treasury ? Of course not they just created some out of thin air!, just one passbook entry and viola the inflation is on you! the common man.

This is why people die to become ministers my dear friends, so that they can run this check kiting scheme in cahoots with the bankers, if you follow the news, then something very similar happened with the Bank of Maharashtra, the politicians granted themselves crores of rupees as loans never to be payed back.

Yarrawonga real estate said...

Hi shailesh,

that is quite a raise usually it can take up to 3 years to see such a change in the market.

Do you think this has to do with tourism? or population increase?

Akhil Khanna said...

The Indian property, commodities and stock markets are a part of the worldwide gush of cheap funds and rampant speculation.

The prices of neither stocks, property or commodities are relflecting real demand by consumers. The rent to price ratio and income to price ratio of property are hovering at massive bubble levels.

http://www.marketoracle.co.uk/Article23662.html

shailesh said...

There is some thing called Price to Annual Rent ratio. Everyone here seems rent for these properties is Rs 25,000 and Price is being quoted at Rs 1 cr.

So annual rent is Rs 3 lakh. Hence price to Rent ratio is 33. In normal times, this ratio is supposed to be 15.

Only time will tell what happens !!!

Bachera India said...

Yes, you right when when rent will become 50,000 your ratio will be in line with what you stated.

Anonymous said...

@Bachera,

I am the person who earlier was talking about PE ratios for the realty market. The PE ratio of 33 (as per my calculation its around 41+ for most places in mumbai) is astoundingly high and tells you valuation wise that houses are over valued.

Interestingly, PE also illustrates affordability/availability. What I mean is that it illustrates that investors/home owners have an inventory of houses and they are trying to lower their cost of holding inventory by renting/leasing. A normal business practice, they would like to do so at rates which are palatable to the rentee and yet give the maximum yield. So after trying their best to raise, they have realized that something like 25K is the best they can get. It instantly gives people like us a vision into what is affordable today, despite whatever the hype machinery (press, developers, brokers..) may claim.

Second thing is availability. If supply is constrained, demand shoots up and therefore rentals/prices. Now prices have shot up yet, rentals have not been able to shoot up in a commensurate manner.

To illustrate -
Rental yield was 6.9%(approx 7%) when rents were 15K and houses were 26L ((15,000X12)/ 26,00,000)

Now rental yield is: (25,000X12)/1,20,00,000 or in other words = 2.5% !!!!

Which means that the rental yield has nosedived 64% in the last 5 years or so!!!

Point 2: Inventory carrying cost implies the opportunity cost of capital and debt servicing cost. This is huge.

Point 3: Sales. Sales have slowed down to a standstill. Which means that people who have acquired an inventory on the basis of market hype are doomed. Even if they managed to sell at these inflated price (and price upside is effectively capped at these rates) by say 2012..they would lose money.

I am sorry this post is getting to be too long. But one last point - The holders of debt and inventory are banks primarily....(ICICI, SBI, HDFC etc..).

These banks have been showing these debts and liens as assets..I foresee a meltdown at some point which is truly going to be catastrophic. I have never seen people leveraged to such a limit based on pure Cock and Bull stories...

Anonymous said...

I am the same anonymous@5:46 above -

My point on availability is that supply is extremely large. Which is the reason 25K is not getting pushed northwards. 15 K 5 years back to 25 K now implies inflation is being accounted for. But also implies supply is plentiful..so have patience my friends.

Anonymous said...

Not really related to the blog or commenter's intelliectual comments but it is interesting to read blogger's experience living in a rented apartment in Mumbai

http://cynublog.blogspot.com/2010/09/missing-in-action.html

Anonymous said...

Adarsh Scam: Was this General the mastermind?

http://www.ndtv.com/article/india/adarsh-scam-was-this-general-the-mastermind-63677

Shame on our establishment.

Anonymous said...

We are a long way away from seizing our ownership of our individual rights to life, liberty, property, and the pursuit of happiness. But they are ours all along, despite those thugs who label themselves “government.”

HB (is back)
Housing Bear

Anonymous said...

Just look at how the outsourced jobs from America have improved the standard of living for India:

MUMBAI, India (AP) — The Mumbai slum of Rafiq Nagar has no clean water for its shacks made of ripped tarp and bamboo. No garbage pickup along the rocky, pocked earth that serves as a road. No power except from haphazard cables strung overhead illegally.

And not a single toilet or latrine for its 10,000 people.

Yet nearly every destitute family in the slum has a cell phone. Some have three.

When President Barack Obama visits India Nov. 6, he will find a country of startlingly uneven development and perplexing disparities, where more people have cell phones than access to a toilet, according to the United Nations.

It is a country buoyed by a vibrant business world of call centers and software developers, but hamstrung by a bloated, corrupt government that has failed to deliver the barest of services.

Since there are no water pipes or wells here, residents are forced to rely on the water mafia for water for cooking, washing clothes, bathing and drinking. The neighborhood is rife with skin infections, tuberculosis and other ailments.

A large blue barrel outside a home is filled with murky brown water, tiny white worms and an aluminum drinking cup. To fill up two jerry cans costs between 40 ($.90) and 50 ($1.10) rupees a day, about one-third of the average family’s earnings here.

“If the government would give us water, we would pay that money to the government,” said Suresh Pache, 41, a motorized rickshaw driver.

Instead, it has issued demolition notices throughout the slum, which sits illegally on government land. Pache, whose home was razed 10 times, jokes that the destruction is the only government service he can count on.

Guess the residents there need a dose of Hope and Change.

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