Thursday, January 28, 2010

Schiller's Bubble diagnosis

Shiller’s List: How to Diagnose the Next BubbleJanuary 27, 2010, 7:33 am —
Sharp increases in the price of an asset like real estate or dot-com shares
Great public excitement about said increases
An accompanying media frenzy
Stories of people earning a lot of money, causing envy among people who aren’t
Growing interest in the asset class among the general public“New era” theories to justify unprecedented price increases
A decline in lending standardsIf your asset class is suffering from these symptoms, consult your neighborhood economist or licensed broker, and maybe a good psychotherapist, too.
Here is the link

Tuesday, January 26, 2010

Outsourcing dollars fund real estate in Bangalore

The big headline in the following story is that Sobha has called off his deal with Shriram properties but the bigger headline is that Infosys founder N.S. Raghavan sold off his Infosys stock and now is investing in land and my guess is in locations close to Infosys campuses all over India. One has to read between to lines to see the impact Infosys, Wipro and other outsourcing companies have on Bangalore real estate. The investment made by Raghavan to the tune of 225 crores is the entire turnover of Sobha for a fiscial year. It appears that Raghavan got a bargain for his price. Will Raghavan get into the consturction business ? Only time will tell.

Sobha Developers calls off land sale talks with Shriram Properties
BANGALORE: Sobha Developers, which was in talks with Shriram Properties for the sale of around 400 acres in four cities, is learnt to have called
off its negotiations following differences over price, people familiar with the matter told ET. While Sobha confirmed that talks have been called off, it did not provide details. Shriram Properties MD M Murli said his company was "not pursuing the deal aggressively." Some of the land the firm had put up for sale include 100 acre at Hinjewadi in Pune, 3.8 acres on St Marks Road, Bangalore, 7 acres of NBCC land behind the Bangalore railway station, 330 acres comprising two islands of Valanthakad & Nadukeri and adjoining lands in Manakunnam & Thekumbaghom villages in Kochi. The total value of these land could be between Rs 600 and 800 crore, according to estimates by Mumbai-based research firm Enam Securities. The latest move by Sobha Developers comes after it managed to strike a deal with an investment fund owned by Infosys co-founder N S Raghavan to raise Rs 225 crore by selling a part of its land bank. The company has also managed to reschedule a substantial part of its loan portfolio. Last year, Sobha raised around Rs 530 crore by diluting close to 22.5% equity through a qualified institutional placement (QIP). Sobha MD J C Sharma had earlier told ET that the company was looking at a stake dilution of up to 25% at the project level through a special purpose vehicle. While the deal would have generated the much-needed cash for Sobha to develop its projects, it would have also helped Shriram Properties, a part of the $5.5-billion Chennai-based Shriram group, scale up its size in the residential market. In fact, Murli of Shriram Properties had earlier said that the firm was in talks to buy 1,500 acres of distressed assets which could be land with development rights, projects under development or mid-sized real estate company. The company was eyeing bad assets in Mumbai, Pune and Ahmedabad which were available at throwaway prices to expand its presence in the market. Shriram has completed projects covering 4.5 million sq ft in Bangalore, Chennai, Coimbatore and Kolkata and has 9 million sq ft of residential space under various stages of development in Bangalore, Chennai, Vizag and Kolkata. Sobha has sold 3.92 lakh sq ft space in Q2 of this financial year compared to 2.5 lakh sqft in Q1. Currently, it has about 9 million sqft of ongoing projects. The company's Q2 net profit was down to Rs 27.5 crore versus Rs 51.3 crore in the corresponding quarter last year. The turnover during the same period was Rs 226.3 crore as against Rs 230.4 crore last year. Walton Street Capital made its first investment in India through Shriram Properties.

Bubble Bursts for India's Once-Booming Real Estate Market

Bubble Bursts for India's Once-Booming Real Estate Market

(MUMBAI, INDIA) -- After nearly four years of aggressive growth, India's once-booming real estate market is in a freefall.

In an eye-opening analysis, Business Monitor International of Blackfriars, London, and Fast Market Research of Williamstown, MA are reporting:

Prices have dropped 20-40% since their peak.
Property sales have fallen over 50% year-on-year.
Developers are burdened with many unsold and unfinished projects.
Bank lending has tightened.
REITs have lost 80% of their value.

"Potential buyers are delaying purchases in the hope that prices will go down further," according to the report. First-home buyers are seen as a major driver for the residential segment. Luxury residential prices fell dramatically in early 2009.

Demand is sharply down. "Affordability is now one of the main drivers in the residential market," the report notes. "There has been resurgent interest by developers in affordable housing schemes, especially as the market has stalled for luxury houses and apartments."

The report cites Chanda Kochhar, the incoming chief executive of the ICICI Bank India's largest private bank, who said in February 2009 that real estate prices still need to fall by at least 20% if the market is to pick up.

The share prices of Real Estate Investment Trusts have fallen in value by up to 80% since their peak.