Friday, November 26, 2010

Property prices could crash due to loan scam

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Finance Minister Pranab Mukherjee directed state-run lenders to avert the reappearance of the loans-for-bribes scandal and recommended banks to go for a critical appraisal of all real estate loans above Rs 50 crore. This, however, may curb projects and drive developers to private funds, according to industry experts. On Wednesday, Central Bureau of Investigation (CBI) arrested 8 finance executives on charges of taking bribes to pass loans.

Liquidity for the sector could dry up since bankers look cautious to sanction fresh loans which in turn will force builders to reduce prices to enhance cash output. But for prospective buyers, this is good news as many have been holding on due to high prices.

DB Realty dipped to 10%, Indiabulls Real Estate lost 5.2%, DLF fell 3.8%, and Unitech declined 6%. Shortage of funds is now threatening to act as a major hitch for project execution. This is an important cause for concern as the sector is only recovering now after the economic hiatus of 2008.

Mukherjee said, “Banks and financial institutions should strengthen the NPA (non-performing assets) monitoring and management in their institutions to ensure that advance action is taken to identify incipient sickness and take appropriate action on it”

A Bank of India official said, “All big-tickets loans, particularly to builders, will come under the scanner now. Recall of loans can happen if there is a fear that the quality of loans may suffer. But as of now, there is no such worry and hence it would not prompt us to recall loans.”

15 comments:

shailesh said...

Nothing new here. Official needed black component for his personal home. He took a personal loan and approved bigger loan. No conflict of interest here. Just part of business....

Home loan scam: Gifts, pleasure trips, friendship and loans as kickbacks

Central Bureau of Investigation (CBI) sources said Money Matters owners through their contacts would get in direct touch top officials of banks.

However, they would never involve bank executives in the early stages. The officials would be slowly given a taste of the high life through gifts and other gratification as a mark of their friendship.
Over time, the value of the gifts would increase.

Later, when the executives get really close, they were offered kickbacks for sanctioning loans.

“Since the amount sanctioned would be very high, one can only imagine the kickbacks the executives were getting,” said a CBI official on the condition of anonymity.

A few days back, cash of over Rs45 lakh was allegedly handed to Ramchandran Nair, director and CEO, LIC Housing Finance, by an owner of Money Matters as he required it to buy a flat in Goregaon.

shailesh said...

Seems like beginning of sub-prime comparison !!! I believe lot of folks were claiming, India has no subprime as most buyer have to put up large up front money. We forgot about Builders though. It seems that's they are the biggest subprime of all !!!

Post-scam, realty sniffs 15-30% price correction

The recent housing loan scam may end up deflating Mumbai’s overheated property market; realty analysts predict an imminent drop between 15 and 30 per cent in residential prices.

Figures compiled by Liases Foras show the current inventory of 81,000 residential units is the highest ever for Mumbai with an average of only 3,000 units being sold every month. “That means we have an inventory pile-up of more than 30 months, such a market can’t sustain itself for long. And now with the way events are unfolding, a 25 to 30 per cent correction in prices is inevitable,” said CEO Pankaj Kapoor.

He links the latest scam to the inflated valuation of property and risky mortgages in Mumbai’s property market, which is very similar to the sub-prime crisis in the US that triggered the recent economic meltdown. “If the valuations were done as per the fair value of the property, there would have been no need to grease palms in the first place,” he said.

Desi Batman said...

Before we debate that scams and corruption affecting RE prices, we need to remember that these malpractises are part of the rules.

Are these scams something new? Real issue is law, until that is implemeneted without bias, without prejudice, at ground level to highest level without any discrimination... we will keep seeing these scams discovered and undiscovered.

As far as RE prices, these depend on affordability and yhey are already out of syn with incomes.

Anonymous said...

Once the prices drop even 15%, it will take out the positive sentiment towards RE and people will start dumping their RE. This will increase more inventory in the market. All this will become a self fulfulling prophecy. Prices may end up correcting by 40-50% in 1-2 years. And Sensex already had its high. Let's see if QE2 would pour money into India. It would be like putting money into corrupt practices which will go in the toilet.

--Gold will go down
--Sensex by another 2-3K.
--RE by 10-15% in the next 3 months.
--Rise in unemployment.

Siva said...

All of you are dead wrong. The government measures are not going to make any difference to the current real estate situation. In fact these measures are going to give a boost to black money and related criminal activities. There are lot of other avenues to get cash rather than depending on banks for loans.

The one and only way the government can put an end to black money is by introducing laws to imprison money hoarders/black marketeers and confiscation of all their assets
and this will never happen in India as such people are part of government machinery , be them be politicians or bureaucrats

Siva said...

@Anonymous 5:44
I am surprised how a con trick by the government has made you day dream. Wake up buddy. There is no dearth of people in the government whose function is to keep the dreams of common man alive. For that, they get good money and favors. What I am saying is no conspiracy theory.Open your eyes to reality and look around.

I've spent 2 decades in Reserve Bank of India and seen, experienced lot of these tricks.

My entire saving in the last 20 years can not even buy me a 1 BR kitchen in far off place like domiciliary where i've a rented accommodation whereas i've seen some of my colleagues moving into apartments in Juhu, Bandra, Shivaji park, caddel road . Technically they dont own those places but live there. Don't as me how. You may draw your own conclusions

siva said...

domiciliary = dombivili , my apologies for spelling mistake

Anonymous said...

RE price crash will not benefit end users - because projects will be abandoned trapping the poor guy who has paid a big portion of his money and does not get a flat in return.

This RE scam will have the result of slowing RE activity, it will not bring about any improvements in product quality, price, transparency or better regulation

Anonymous said...

hehe, i am laughing on people who booked flats in bank financed schemes of pay 10% on booking rest on posession, many of these projects are going to get hamapered.

I just went to kharger today, i seen at least 10,000 nearly ready flats which was unoccupied but broker told me that due to recent air port news prices are jacked up by builders by 20% and there is no availability as investors want to hold. I was wondering who the hell is going to live in this concrete desert?

prices are high but end users are yet to be seen !!!!!!!!! LOL

who is going to live in these empty flats ?

Indian said...

Anonymous, why are you laughing. Are you some kind of sadist or some nut is loose in your head.

What goes through the people at the receiving end is anybody's guess but one thing is sure - anger , helplessness, anguish.

Jokers like you laugh. Keep on laughing

Anonymous said...

Siva:
Der hai andher nahin. If the Govt. could do everything, US would be rich again with bloated RE market. They are trying hard to re-inflate their RE market and no luck yet. They have already printed 3 trillion dollars and more coming in the form of QE2.

Corruption is everywhere. Similarly in India, no matter how hard the Govt.tries, once it falls, there would be nothing to stop the downfall. Did you forget the 2008 crash. GOI couldn't do anything and Sensex went down from 21K to 8K in a few months. GOI has been trying very hard for the past 2 years to keep inflation high by printing more money, stimulus in different forms and even raising salaries by 2-3 times for Govt. employees.

shayna said...

What caught my eye was the speech of sonia gandhi defending MMS in the ongoing 2G scam inv.
She sounded as a woman on the go, with the reigns back in her hands.
She is going all hammer and tongs against the political corruption as this feeds directly into the coffers of these politicians creating multiple power centres that threaten the party and govt.
Look at the happenings in Andhra and Karnataka, where JMR has started challenging the congress HC, and the reddy bros ratlling the BJP cage every now and then.
The CBI probe and Env ministry notice has brought the attention on LAVASA (read Sharad pawar). The Nira radia tapes will keep the Ambanis on their toes too.
The lady alongwith Chidambaram is going to cull the rampant corruption failling which it is going to cost the congress dearly in forthcoming assembly elections, as was evident in BIHAR.
Get ready for more revelations.

Additionally, the BSE could get hit by the IRELAND/EU crisis if it snowballs. All the major banks in UK, GERMANY and FRANCE are stareing into major losses as the contagion is likely to spread. These banks will recall loans and the FII invested in India will be selling soon to book their profits to shore up some of the loses from the EU banking crisis.
This is a double whammy as the fund flows from EU will also dry up.

The holding capacity of many of these builders will be eroded due to this scam. IMO we have to ask this question, is the CBI independent ? I would say NO.
So there is a definate outcome expected by the govt in power, which IMO is to reign in these builder-politico nexus.

In 6 months W-B goes to polls Congress has to do something spectacular to please the Left leaning voters of W-B. A few capitalist hides will be hung up for display by SONIA.

UP THE REVOLUTION

samix said...

I doubt if this new 'scam' will affect the real estate market.

I think this scam was just brought up so that the media focus shifts from the new Maharashtra cabinet to the babus, they have just been made scapegoats.

Come monday all newspapers and media outlets will STOP reporting totally on this front or sparsely(like adarsh), because everyone by that time would have got their pieces of the pie. Everyone will forget all this and life will continue unabated.

And just as desi batman/sailesh put it, I don't know why is everyone getting so exited about this scam, it's all in the game yaar, everyone knew this was happening.

Anonymous said...

We have always been looted

I think the reason is that we have always been weak and also we have always accepted the status quo rather than revolt against it.

So probability is that no one will revolt against it. But at least we can keep the light focused on corruption...even that will have incremental benefits.

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