Saturday, January 29, 2011

Owed Rs6,000 crore, banks cut off funds to Mumbai builders

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MUMBAI: Money has suddenly stopped flowing into Mumbai's real estate sector with banks and financial institutions tightening the screws on builders. In the past two months, cash-strapped developers have flocked to private money lenders who provide short-term loans at exorbitant interest rates of between 24% and 30% a year. Banks charge builders between 13% and 15% interest a year.

Market sources said leading banks now lend to only credible builders for select projects, but have turned off the tap for most others in the construction sector. "They are busy mopping up what is due to them. By March 2011, Mumbai builders alone are scheduled to return roughly Rs 6,000 crore to banks," said the CEO of a leading property fund. Market sources said some leading developers in Mumbai have loan exposures of Rs 3,000-4,000 crore each.

Mumbai-based developer Wadhwa Group's Vijay Wadhwa said banks have stopped disbursement to second-rung builders.

"Banks are flush with funds, but they want to give it to the right people. They are now more concerned about whom they give it to,'' he said. Wadhwa added that financial institutions became cautious following the LIC Housing scam.

28 comments:

shailesh said...

Big-ticket land deals drying up in Mumbai; realtors worry about lack of sales

The pace of big-ticket land deals in Mumbai, the third-costliest residential market in the world, is slowing down; it’s mostly joint developments or joint ventures that are coming to the table, according to real estate experts.

The 108-acre Bayer Crop Science land at Thane was up for grabs and at least five local developers, including Oberoi Realty, Lodha Group, Kalpataru, DB Realty, were in the race, but two sources directly involved in the transaction said the sale has now been called off.

“They had come close to finalising a deal, but a few weeks back, the bidder-developers wanted to lower their quotes because of the prevailing market conditions. Also, there is a new municipal commissioner in Thane, so the files have not been moving. Bayer is not selling the land anymore; they have taken it off the block,” a source said.

The trend till a few months ago was developers buying land wherever they could grab some. In September, Kalpataru bought four acres for Rs80 crore from Western Rolling Mills on LBS Marg, Bhandup, next to Asian Paints. The Lodha group bought four acres at Goregaon next to the Hub Mall on the Western Express Highway for Rs221 crore. Knight Frank India was the advisor for the deal.

With buyers shying away from residential purchases - as seen from the continuously declining home sales data, developers worry they will be able to pass off the cost of land deals.
Ambar Maheshwari, head of real estate advisory services in Mumbai for DTZ, international property consultant, says, pricing is not a function of supply but of demand, there is a lot of demand, but not at the prices which are being quoted. “The margins will have to be taken care of by the developers whose days of high margins are going to be tight in coming times,” Maheshwari said.

shailesh said...

Wah !! Indian Innovation !! Oil stations keep 2 tanks one to show government and 2nd one for everyone else...

Oil mafia: Mumbai-Delhi corridor worst affected

“Several gas station owners have laid additional underground tanks. These are not permitted by oil companies. We have made a representation before the petroleum ministry, asking for mapping of all gas stations on the highways to unearth the big racket.”

Industry sources said that pump owners use a sophisticated valve system, which allows them to manipulate the diesel flow from the authorised and unauthorised tanks. “Whenever a government vehicle arrives for filling, the operator adjusts the valve to deliver pure diesel. When a trucker wheels in, the valves shifts to the adulterated tank,” said a transporter

Banker said...

Don't believe in what appears on news print.Cutting off loans to builders is is a fabricated news. Huge kick backs are involved in sanctioning loans. The people who benefit are banking officials including some in RBI and govt bureaucrats.

Anonymous said...

Banker above:
If the RE sales go down and eventually we do see say even a 10%decline in RE prices, there will be chaos in the RE market. There would be many properties on the market thereby increasing inventory.

It all would become a self fulfilling prophecy. The bankers and corrupt people with kickbacks would see the shit falling on their face as those high priced land and RE would be worth say 80-90% of original purchase price.

Eventually in a year or so due to huge building up of inventory, RE prices will keep falling. And this downfall will keep on increasing with more people putting their investments on the market. More supply and very less demand. What would it do to the prices further.

To add to this, RBI will have to increase rates to avoid a Egypt style movment in India caused due to inflation. People will start defaulting more on their EMIs as a lot of mortgages in India are on variable rates and would adjust to higher prices.

The point is that even corruption has its limits. Only way GOI could save the country would be to print more and more money and borrow more and more. Then what would it do to Rupee? Hopefully the India's debt doesn't get downgraded.

Anonymous said...

To all bloggers wasting their time here.. I just coming back from visiting CREDEI Pune property exibition.. Builders are in no mood to reduce prices.. in fact we seen them increased .. in the most remote areas of Pune like wagholi , ambegaon , rates being quoted 2500+.. While gossiping with some builders we figured out that, media is all crap, most builders nowadays don't go to Banks for getting money.. There is hell load of black money available at as low as 1% interest rate in the market..and more money will be added in coming cricket world cup.. So keep dreaming that prices will go down any time soon ..

Anonymous said...

anon above. agree with you. no point comparing black money economy to white money economy.

so what happened to onion prices and inflation? looks like now most of people are back to buying.

if rbi tightens the reins, we will see value of white money rising, which ofcourse is not much use as black money supply will increase.

Anonymous said...

I sort of agree with bankers comments. After all , why should the banking staff worry about the future of banking as the banks belong to the nation. They will take their chunk and let the nation bleed. It is we are at the receiving end, not the bank officials.
In a nation like ours where Amitab Bachhan and Sha rukh khan are considered as direct decedents of Gods, the probability of Egypt like protests are almost nil. So far, any real action has not been taken by anyone on the recent scams except on newspapers and no action will be taken on bankers who may loot the nation.

I tend to agree with the blogger above, and i don't see a respite in the real estate prices

Anonymous said...

Anon@8:31 AM
In black market the interest rate is always referred on monthly basis & not on annual basis. So 1% is interpreted as 12% per annum. Also the lender do not lend without collateral. The collateral may be in the form of few flats in the apartment which later on sale as investors’ flat by builder because the lenders always prefer cash.

I am also looking for 3-4 khoka @1% rate but since last 6 months couldn’t find a fool to lend. My genius friend, can you please give me at least 2-3 contacts, who is ready to lend at 1% rate, cause all my contacts are demanding above 2%.

As far as Pune CREDAI is concerned, please ask them how many more exhibitions they are going to host? Since last 3 months this may be 3 rd or 4th exhibitions. Instead of finishing the project why are they wasting time.

There are already promotional schemes started but this time it’s not been advertised openly.

Vulture.

Anonymous said...

Anon@7:06

I think your khoka is khali...your mind is empty

Anonymous said...

Anon above:
You are a fool. Think deeply what Vulture is saying.

Anonymous said...

Should we worry about India’s default instead of Europe & US?


2 weeks before we posted that India is competing to join PIGS club. Now, Suboo is also iterating the same thing.

“India did not have a deliberate strategy to accumulate foreign exchange reserves, Subbarao said. “Although India does not have a deliberate strategy of building up reserves for self-insurance, our reserves got built up as a result of our relatively flexible exchange rate policy. The reserves so built up have been used to contain volatility in the event of capital flow reversals,” he said. In the recently published Financial Stability Report, the central bank had expressed concern that India’s foreign exchange reserves had not risen much in the recent past and this was a risk in the event of large outflows.”

http://www.business-standard.com/india/news/india%5Cs-reserves-more-vulnerable-to-reversalcapital-subbarao/423603/

The emerging market theory was a marketing tool created by walls street & many analyst started using it to support their view. Without knowing underlying data & implications every tom & dick started giving BRIC fundas. What if India defaults & couldn’t reduce the deficits? It will be much worst than US. In 2008, lot of so called elite economist refused to accept the coming financial storm & everyone knows what happened.


Vulture.

Should one rely on economic indicator or registration data to track RE bubble? May be, but one reliable indicator is blog. Often in trouble times the builders & brokers post abusive comments on blog or forum. One can see such activities since past 3-4 months at increasing peace. Another activity is exhibitions, first in Pune then Nashik then Aurangabad then Bombay then USA, UAE etc. After exhausting this, there will be virtual expo. :)

Anonymous said...

At what price would you buy? 20% drop from here? 30%? Prices in NCR have gone up 100% in last two years and prices will have to fall 50% to get to that value. Will that happen? Let the smart guys on the forum answer how much fall will make them buy?

Anonymous said...

When the rent/EMI ratio makes sense, just like P/E ratio in stocks.

If the rent is 20K, the price should be 200x20K=40lacs.

Otherwise, I'm not putting my money in a sinkhole. I don't care about bubble prices and appreciation. It has to make financial sense and not a rat race.

Anonymous said...

I am the 7:30 anon commentor.
If price of 20K rent aptt. goes to 40L, I will buy 2 and that's exactly the reason it will never go there ;)

Anonymous said...

Anon above:
Why don't you buy in US now. The price is $40K for apartments just outside DC beltway and they rent for $1400-$1500 per month. People in US also used to talk same nonsense that you just said.

You have to understand that when the confidence goes away, no bank lends money cheap, no one wants to buy and no one knows when the bottom would be. The liquidity dries up and unemployment increases. There is huge inventory in the market with no buyers. US currently has supply of houses for the next 10 years and India also has overbuilt flats all over the country. There is an oversupply.

If you are convinced to buy now, go ahead. Why are you here on this blog. Is someone stopping you to buy. Buy 2 or 3 or more. It is your money and your mind. You can do whatever with it.

Desi Batman said...

I am the 7:30 anon commentor.
If price of 20K rent aptt. goes to 40L, I will buy 2 and that's exactly the reason it will never go there ;)
9:23 AM



WOW!! In a way you are agreeging with the anon at 8:14 AM !!

If you can buy two apts at 40L each it means you have purchasing power of 80L - correct! Now what stops you today from buying one apt. today at 80L? Financial sense - correct?

At 40L it will make sense to buy each apt. and Anon at 8:14 AM will buy too, because it makes financial sense.

BTW, you are very funny.

Anonymous said...

If the rent is 20K, the price should be 200x20K=40lacs.


If we look at it closely, suppose a house that rents for 20K sells for 1 cr today. If I rent it for 1 year, my rent payment is 2,40,000 per year. In 5 years I pay 12 lacs as rent. If I keep my 1Cr in bank, @10% I get 10lacs per year and in 5years I get 50 lacs. This is not even compounded interest.

Now my 1Cr. investment becomes 1.38Cr. in 5 years if I had not bought the house after taking out the rent. If I had bought the house, I would have had to pay annual taxes, stamp duty and maintenance on it. Roughly 1L per year of overheads brings my savings to 1.43Cr.

If my house had I bought sells for close to 1.5 crores in 5 years, I'm still breaking even and not making any money on it. Moreover the risk of RE crash, job loss etc. I would prefer to keep the money cash and enjoy as a renter.

At the top of the RE bubble, I seriously doubt my house will be worth 1.5Cr in 5 years. Too much risk.

Desi Batman said...

Anonymous at 7:30 PM
At what price would you buy? 20% drop from here? 30%? Prices in NCR have gone up 100% in last two years and prices will have to fall 50% to get to that value. Will that happen? Let the smart guys on the forum answer how much fall will make them buy?



Let me give you absurd answers to your absurd questions. I will buy when they are given for free. More fun if these are given free with additional money :-)

Seriously, what is your financial IQ? I would suggest you to read more on real estate, finance and economy 101 knowledge. To start with there is enough on these blogs. More on www.patrick.net and other internet sites.

Good luck

Anonymous said...

Desi Batman, 7:30 PM anon again for you. Reading financial blogs to raise my IQ is too much effort so I would rather ask the gurus on this blog to please help this ignorant soul out.

Q1. Should the US stock markets with revenues growing at 9% CAGR for last 5 years trade at the same PE as Indian stock markets with revenues growing at 26% CAGR for last 5 years?

Q2. Should India with its very different demographics have the same Price/Rent ratio applicable to it as the USA?

Q3. In last 10 years, rents have gone up 2-3 times. No one knows how long the cycle would be. But if prices stay the same or say fall 20% and then stagnate and rents double from here in next 10 years, would it make you happier buying at that time having lived in a rented aptt. for a good part of your working life?

I know 200 X rent would hold true some day but cribbing about it on a daily basis will not hasten it.

I really hope all this cribbing does not affect you in the long term.

Good luck to you too.

Anonymous said...

Anon 9:48 PM

Brilliant well said....

shailesh said...

Anon 9:48

Granted India is different than US, but when you look at India by itself, the RE prices quoted today do not make any sense. In previous post, I noted that we recently built a bunglow in Gujarat and construction cost was about Rs 700 per sqft. Someone commented that Grade A construction in multistory apartment in most cities costs about Rs 1100 per sq ft. If that is the cost, why in most of Mumbai the builders are quoting rates in Rs 10,000+ sq ft? Is the land so scare? Assuming the land costs Rs 3000 (which is about TDR price in mumbai), the cost to builder runs to about Rs. 4000 per sq ft, for which they are asking Rs 10,000. Are builders so special to command 60% profit margin? What is so special about construction industry that it can defy all laws of gravity...

There is definitely India growth story, but I think like everything else, it has become hype than reality. It is common bubble cycle. We are at peak. I don't think one will have to wait another 5 years for this story to play out. I would bet max 2 year, and we will see the correction.

The biggest challenge in Indian context is we don't have reliable numbers. We don't know how many units are owned by Investor/speculator Vs owner residents.

Anonymous said...

Anon @9:48:

Agreed India is different than US. The per capita is less than USD3K whereas in US it is $40,000.

--Rents have gone up in the US also. Apartments that were renting for $700-800 in 2001 rent nowdays for $1600 and up. Almost double.

--P/E ratio for stocks is lower in US and people are now shorting emerging markets as their P/E in stocks is very high. Wall street stocks are a lot cheaper than BRIC. Sensex is down by 10% in one month and another 20% downfall is coming.

--What really puzzles me is that India is different but why are the house prices more than the prices in US? In US a normal household makes $40K and still buying a $200K house in US is a big deal.

India ia definitely a bubble and the Govt/builders/banksters will drag it for the next ten years to deflate it. No use buying for the next 10 years or so till inflation and some price correction of 30% will bring the houses to make financial sense.

I like the justification by Anon above to keep money cash and be liquid rather than risk it in RE.

Anonymous said...

If the Arab world crisis spreads, you'll see more than 10 lac people coming back from the middle east. This would put pressure on Indian economy as foreign remittances go away. Those investors would have to sell their properties. And they would bring high unemployment in India with such a huge supply of labor force. There are currently 1.5 crore Indians in middle east.

Anonymous said...

Anon 6:06, I am anon 9:48 (and 7:30) and from now onwards will call myself 'V'.

--What really puzzles me is that India is different but why are the house prices more than the prices in US? In US a normal household makes $40K and still buying a $200K house in US is a big deal.


I have answer to this question. In India, people are ready to stop eating out, go for movies or vacations, delay having babies (I work in an MNC IT company and I have seen people do all this) to be able to save and buy a house.

So far, it worked. Primarily because food prices, fuel prices, cost of educating kids, medical expenses and whatever you need before or as much as a house remained stagnant. So a DINK couple could easily divert up to 80% of their take home to service and retire debt. However, such imbalances could only last so long. Now other expenses are going up and in a few years, most households will not be able to spare more than 30-40% of their take home to service housing loans. That situation already exists in US and we are getting there.

But we will not reach there in 2 years or even 5. Unlike stock markets where liquidity is huge, price quotes instantaneous and buying/selling happens in a flash, RE market can not have very fast cycles _unless_ we see another black swan event of global proportions (whole Arab world self destructing?). Barring any such catastrophe, RE will take its sweet time to deflate and those idiots who are flying high today having doubled their money in 3 years will find their CAGR in 2020 to be only marginally above inflation.

Now what is the important Q therefore?

Let me rephrase it again for the experts since no one seems to have answered it despite all theoretical gyan.

If Sensex earnings are 1000 and at 18,000 it is available at PE 18, would you buy today or wait for earnings to go to 1200 so that 18,000 becomes PE 15 (and take whatever multiple you like plus add the scenario Desi Batman is waiting for where he would buy when sensex is available free and he is paid cash to trade).

Regards,
V

Anonymous said...

I'llo wait for P/E to be not more than 12. Anything above it is speculation.

I'll wait for RE to be 200xRent or I'll never buy. I'm happy renter and will use my cash for other opportunities.

Anonymous said...

"If Sensex earnings are 1000 and at 18,000 it is available at PE 18, would you buy today or wait for earnings to go to 1200 so that 18,000 becomes PE 15 (and take whatever multiple you like plus add the scenario Desi Batman is waiting for where he would buy when sensex is available free and he is paid cash to trade)."

I would take a call on future earning potential and interest rate to justify PE.

For 5% bank FD return, I would buy stock at PE of 20. For 10% FD return available, I would buy stock at PR of 10. For 15% FD return, I would buy stock at PE of 7.5.

If retuns and margins are high (>20%), I would buy at PE of 20. If forward PE is currently at 18, and margins seem likely to be affected by raw material inflation, I would hold at much lower PE of 12.

Current juncture, keeping next 6 month earnings and FD rates in mind, Nifty PE of no more than 10-12 is justified.

I had already sold in Nov and Jan when stocks were high.

I will get back into stock market after few (6) months at PE of 10-12

Anonymous said...

Anon 10:25

Why did you not buy a house when the prices were low :-)

ramakantyadav.com said...

Buying a house is a reasonable investment when house price increase much faster then vegetable prices.

If the rate of increase in vegetables is the same as the rate of increase in houses, then there is no meaning in buying a house today. Prices of everything will increase at the same rate and although your EMI will remain the same, your return on investment will be sad.