Saturday, October 29, 2011

Indian Realty in Trouble....

Nice Article, Must Read.... House of Cards crumbling, Bring your own popcorn to the movie...

Article Link

The numbers are all moving in the wrong direction for developers in Asia's third-largest economy. Debt levels are rising as sales volumes and profits fall. Banks are shutting their doors to the industry just when it needs cash the most. Prices are stagnant and expected to fall.

"The marketplace is not foolish," said Lodha. "A price correction will happen naturally."

===
"Are there going to be months where companies might have to delay paying their interest? Yes," warned Lodha.

==
In early 2008, DLF, with a market capitalisation that peaked at over 2 trillion rupees ($40.6 billion), announced a fiscal year profit of over $1.5 billion - an annual increase of over 300 percent - thanks to an insatiable appetite for property.

But times have changed. With a market capitalisation that has shrivelled to $8 billion, the firm has turned to selling the family silver. Amanresorts, the luxury hotel chain it bought in 2007, is on the block as part of plans to sell $650 million of assets by March .

It is expected to announce the sale of the prime 17.5 acre plot adjacent to the World One site in December, two sources with knowledge of the matter told Reuters.

===
Real estate, which has garnered a growing slice of India's foreign direct investment (FDI) pie over the past few years, from 8.9 percent in 2007-08 to 11 percent in 2009-10, accounts for just 6 percent of the FDI this financial year, according to Ernst & Young.

India's realty index has fallen more than 36 percent since January, more than double the 17 percent slide in the benchmark Sensex , pouring cold water on the roughly $6 billion worth of planned initial public offering from developers.

Lodha's planned $570 million IPO has been stuck on the shelf for nearly two years.

More than $370 million in hoped-for IPO proceeds had been earmarked for construction costs, with another $61 million set to repay loans. That money has had to come from elsewhere.

Private-equity investors, which have poured $10.2 billion into developers since 2006, are set to withdraw around $5 billion in the next few years, forcing top developers including Lodha, Shriram Properties, DLF, Phoenix Mills and Unitech to buy back their investments, a Nomura report said in May.

===
But they may not be able to hold out much longer. "The current market sentiments and excess debt levels at high interest rates, against seriously impacted volumes, should bring about an immediate 10-20 percent price correction," said Sanjay Dutt, CEO, business , at property consultants Jones Lang LaSalle India.

"That means taking a cut in profit or accepting a loss on some projects ... We are likely to see some developers default on their debt," Dutt said.

108 comments:

Anonymous said...

All the builders were confident that people would buy on Diwali

Who got fooled? NO ONE
lol

So whts next. Watch their faces when banks and creditors run after their lives for repayment.

So its either PAY UP OR GO TO JAIL.
So most probably 90% of them will sell for a loss just to save their A R S E

10% negative prices for the next 4-5 years.

Good for me :)

polt said...

It would be interesting to get some sales figures for diwali season.
In any case, inflation is still high and I would expect interest rates to be upped further in the new year.

We live in interesting times (which by the way is a Chinese curse !)

Anonymous said...

Ho hum. If you go back to the archives on this blog, you will see a 1000 articles like this. Each talking about how low sales have become and how a real estate collapse is right around the corner. The problem is: THAT HAS SIMPLY NOT HAPPENED.

Please do not post any more articles about how low sales have fallen. If there are any definite articles about PRICES falling, please post the same. Otherwise let's not waste anyone's time.

Please.

Anonymous said...

>THAT HAS SIMPLY NOT HAPPENED.
One difference, interest rates now are high and trending up. Cheap and easy credit is harder to find.

Anonymous said...

a friend who works for one of the company mentioned in article heard from top management "couple of big builders/companies are waiting over each other to see who goes down first. post Diwali you will start hearing big-time news"

we had a thriving growth in real estate 2003 till date. it cannot go on forever. unfortunately we keep are vision restricted to just last 10 years. if you go back - read history & world economics over century, one will find many situations where no one believed that demand/bubble can go down.

one thing is for sure, people who are directly or indirectly associated to real estate investment/purchase will never accept change quickly

Anonymous said...

Please do not post any more articles about how low sales have fallen. If there are any definite articles about PRICES falling

If a chicken lives for a thousand days does it imply that it will live on the thousand and first day ? The probability of death goes up (not down) every day you live not the other way round.

The Euro bubble could explode any day now, of course you could end up waiting for quite some time but it's better to be safe than sorry.

Anonymous said...

in navi mumbai the rates have increased three times in last 5 years. this can not go on forever. if u meet any broker he will tell u that rates will double in next three yrs and if u dont buy now u will never b able to buy in future. rates are already in the range of 7000-8000psf

Anonymous said...

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d2thdr said...

I do question the basis of t.5 crore valuation of the apartment in World One. Who sets the price? In todays market, there is no real room for such a price. In short it does not reflect the ground reality.

When we are through the debt deafults in the west, most Indian realty will settle down to 2 to 3 times the annual salary. 7.5 crore flat, yes that would perhaps sell for 1/20th its price on a good day. On bad days it would be a lot lot lower.

In the west we are seeing cash purchases mostly today. No home loans(mortgages) available.

The realty is getting a lot lot cheaper in a few years. 2 years I think...

Anonymous said...

Lady Gaga tickets sell out for Rs. 40,000 each:

http://economictimes.indiatimes.com/news/news-by-industry/media/entertainment-/entertainment/Rs-40000-tickets-for-Lady-Gaga-concert-sold-out/articleshow/10517542.cms

How DARE any of the know-nothings on this board suggest that Indians don't have enough money to pay for RE?

HOW DARE YOU.

aam aadmi said...

Property prices fall in China...buyers protest

http://www.marketwatch.com/story/halloween-comes-early-for-chinese-real-estate-2011-10-30

From the article
The China Daily reported how hundreds of homeowners stormed into the sales office of Longfor Co. in Shanghai last week to demand compensation after apartment prices were cut by as much as 30% since they signed their purchase contracts. The unfortunate buyers, some of whom will not receive their apartment keys until next March, are already facing a 300,000 yuan ($47,000) loss on their purchase.

Does someone still think that India is immune to all this ?

Pawan said...

Please do not post any more articles about how low sales have fallen. If there are any definite articles about PRICES falling, please post the same. Otherwise let's not waste anyone's time.

TRUE. If you want to be able to afford RE then buy stocks. They will outperform RE in the long term. There is no other way to afford RE under regular circumstances.

There are prophets of doom but even if doom comes, stocks will become way cheaper than RE and will give more returns.

Anonymous said...

Just saw news..

Property in delhi will now become dearer 15% to 250%..

Makes me laugh. lol
Clearly show desperation.
No one is buyin so lets increase and create panic..

When people are not buying at last years prices, last to last years prices.. will they buy at this PANIC CREATING price? A BIG NO!

BUT ALAS... when death comes.. you cant escape it with your low government tricks :)

DONT BUY! THESE ARE WISE WORDS.

Anonymous said...

"TRUE. If you want to be able to afford RE then buy stocks. They will outperform RE in the long term. There is no other way to afford RE under regular circumstances."

No. Just save in CHF. That's all you need to do. INR is and has been in a secular bear market against CHF. Measured in CHF, everything has been diving in India over the past 3 years, including stocks, RE and pretty much every other asset class.

Anonymous said...

Prices have shot up in Mumbai by 5-10% during diwali time. Raheja's, have increased their price by 1500 rs/sq ft in October. the interface heights is fully booked and people are ready to pay premium to resellers.

It is highly doubtful that prices will fall. From last diwali, to this diwali prices shot up by 25%. The demand indicates that there are too many moneyed people in Mumbai living in slums slowly moving to better accommodation.

Anonymous said...

Raheja's interface heights is still 80% vacant. I think it's the marketing strategy to project that its sold put. If you go as a genuin buyer and ask for choice of flats then the sales person will open the cards.
If you say NO to one flat and ask for another one,,,then in some time the sales person will make that too AVAILABLE :).
I have been there.

Anonymous said...

PUNE real state prices are falling for sure.
I have been receiving sales calls from projects which I visited 1.5 to 2 years back. So, it reflects that they are having surplus inventary. But they are still not negotiating much on prices.
So, it's just matter of some months when they will break to let the string of prices go down.

Just DON'T BUY for now guys. The time is not suitable for nither a genuin buyer nor an investor.

Anonymous said...

"Property in delhi will now become dearer 15% to 250%"

This is not accurate. The circle rates have been increased. It just means that you have to pay tax at that rate. The rates now merely reflect what was the selling price earlier. People cannot buy at 20k/sqft and then pay tax claiming they paid only 10k/sqft.

shailesh said...

One thing I don't understand is this emotional feeling that I will be left behind, if I don't buy. Just do a google map in area you want to buy, you will see there is ample of vacant land. Nothing is running away. India has lot of land surrounding all the cities. The areas that were considered prime may be 20 years ago, are now called old city, lacking all infrastructure. Driving in these old areas is nightmare. I just drove around Juhu area in Mumbai, traffic is pathetic, with Slums in every sight. No point in paying premium for these locations. On the contrary, the newer areas have better infrastructure, good schools, hospitals, roads etc... Only thing is these areas are not well connected. Once this cookie crumbles, this new areas will drop like hot cake, and will become attractive investment opportunities. Patience is virtue....

shailesh said...

I am no expert on Noida or Delhi, but just look at this Google Map,

Google Map Link

You can clearly see amount of vacant land, and area where buildings have been built. There is ample vacant land. Most people in India have never seen India from the top view. If you see it that way, you will see that we are not running out of land. Now with Cars becoming cheaper, it is possible to live little far, and have good quality of life. Why live in Old Areas and suffer for rest of the life.

Anonymous said...

"Raheja's interface heights is still 80% vacant"

100% wrong information

Everything was sold out about a year back, including the unfinished building.

What is available is investors flats that are in market. Some investors may be owning many flats but maybe having one real estate agent.

Don't buy anything in this complex unless you have money to burn.

polt said...

Shailesh,
The population increase/land scarcity argument has been proven false across the world and will be no different here.

In Karnataka, in two tier-2 towns Belgaum and Mangalore, I have friends and relatives there who say that apartment prices have mirrored the growth in the rest of the country. But the recent census indicated that population has actually fallen in these two cities !!. Talk about irrational exuberance

Anonymous said...

Meanwhile, in USA a triple dip -
http://finance.yahoo.com/real-estate/article/113725/home-prices-heading-triple-dip-cnnmoney?mod=realestate-sell&sec=topStories&pos=5&asset=&ccode=

Las Vegas prices are now down 66% from peak !!

Anonymous said...

@ anon 9:51 AM

"100% wrong information

Everything was sold out about a year back, including the unfinished building."

Wrong wrong... Vacant is vacant. Investors flat doesn't make it "Sold". Vacant is what is available for sale - be it from builder or reseller.



"Don't buy anything in this complex unless you have money to burn."

Why is that? Most of us cannot afford a shit at current prices. But if people have money they should buy and create bigger bubble. I like BIG popping sound. That would be great fun.

Anonymous said...

>> Las Vegas prices are now down 66% from peak !!

Those things are in a country where "Law and order" is not for sale. Neither judgment takes decades.
and business in 100% white money.

Dont ever imagine that will happen in India where the former finance minister Chidamparam officially owns the coffee estate at Coorg for just 30lakhs.

Remember it is all black money here. 30% Loss in price is equal to tax paid on capitol and Indian buyer can still be happy.

Anonymous said...

"TRUE. If you want to be able to afford RE then buy stocks. They will outperform RE in the long term. There is no other way to afford RE under regular circumstances."

Stocks are very volatile and are susceptible to wild swings in prices (both down and up) while RE prices (as recent experience has shown) are very "sticky". In a sense, the Indian Stock Market (like Indian RE) also "always go up" because it is denominated in a currency that is shockingly similar to the Zimbabwean dollar. Of course everything in India goes up eventually (when measured in INR). If you hold on to two-wheelers and cars long enough, eventually you will be able to sell them at a "profit".

Anonymous said...

@Anon Above,

Give us a break man. Don't keep shouting about the two wheeler your father bought and sold for a profit. We have heard it enough. And on the Stock market always going up in rupee terms, tell that to some one who invested in real estate stocks in 2007 peak and tell him when he will recover his money.

Anonymous said...

It's a Mafia top down - Builder through broker.

One source says that Maha govt has stopped approving all NEW housing projects until the current backlog is cleared.

Meaning - the prices wont go down. Builders have an iron clutch on the society. Trillions of rupees of black money is parked in these projects (by the so called investors). The investors do not mind . cos its black money anyway. The builder do not mind cos its not his money.

Secondly , they create fear psychosys among buyers. They keep increasing the prices even if there are no buyers just to create a false sense of fear of - bhaav badh rahaa hai . Just to scare people. Nothing more.

Anonymous said...

>> if u meet any broker he will tell >> u that rates will double in next >> three yrs and if u dont buy now u >> will never b able to buy in
>> >> future. rates are already in >>the range of 7000-8000psf


I would tell the broker 'F**k you'. If the prices reach beyond my affordability, we will request our companies to move their offices out of MUMBAI. Already many companies have made plans to move their operations out of Mumbai. Only corporate offices with 20 or 30 people will remain in Mumbai. Rest 1000s of work force will move out of Mumbai. Then these real estate vultures will die of starvation.

Anonymous said...

@Anon Above,

Give us a break man. Don't keep shouting about the two wheeler your father bought and sold for a profit. We have heard it enough. And on the Stock market always going up in rupee terms, tell that to some one who invested in real estate stocks in 2007 peak and tell him when he will recover his money.


HAHAHAHAHA..
good one.
even im tired of his fathers two wheeler. :)
maybe we need a seperate post for his fathers two wheeler.
(It wud be great to hear that his fathers two wheeler was actually a cool sportsbike which he imported from italy and sold it to some rich gujju guy for a profit in india)

Anonymous said...

Its a fact of nature, that what has not happened before, always happens and surprises everyone.

In some cases a nasty surprise.

Anonymous said...

guys hold on to your seats. keep cash ready. Europe has started going down. here comes global financial turmoil. You will soon have amazing value investing opportunities.

Anonymous said...

Europe will keep printing a la Bernanke/US. The new ECB chief is a French guy steeped in the Keynesian school. All these guys know is to print more money.

There are only two certainties in life. Death and money printing.

Anonymous said...

If you are taking money printing for granted...I am sure you will be surprised at what happens next.

shailesh said...

Dark Diwali for realty, business down to half

Every year, Hitesh Patel, civil contractor in Thane, tries his best to stop his men from going to their hometowns in Rajasthan. Neither the carrot nor the stick works; and Patel struggles to complete his projects.

But this year, he was too happy to pack off half his staff. “There is nothing to do here. Business is down,” he said. “Last year I was juggling eight projects ahead of Diwali; this year, I have just four and that too low-budget ones.”

Patel said that contracts for new flats dried up in the past six months. “Even repair and renovation work in old homes has dropped considerably.” High interest rates on housing loans and rising labour and material costs have affected the real estate industry in the city.

Anonymous said...

To the guy who posted the lady gaga ticket price info, you're a dumbass. Comparing Rs. 40000/- to 1.5-2 crores. Just wow.

All you other idiots who have been waiting since late 2010 for prices to fall... hope the rent's not pinching too much as that's what has definitely gone up.

You'll have been crying yourself silly about a market crash which is gonna happen "soon" and still waiting. You know what, eventually you'll will be proved right but hey, every idiot is proved right once in a while. You'll will get the prediction right but wrong in terms of time. All I can say is mid 2012 will be the year for realty bears and you'll will be proved right albeit 20 months late. Pat yourselves on your back for such a great prediction. Also keep your money stashed under your bed as you know what happens when RE prices come falling down.

Good luck.

Anonymous said...

@Anon above Smart-bum

"All you other idiots who have been waiting since late 2010 for prices to fall... hope the rent's not pinching too much as that's what has definitely gone up."

Either rents would have to go up or prices have to come down. Supply and Demand is always about affordability, wants, needs, most importantly jobs.

Remember to count your pennies next time you want any services, and be ready to shell out your arse for services when rents and prices are sky rocketed. May I suggest that you can get away from these by getting poor, illiterate immigrants from other states.

Good Luck!

Cool Head said...

ICICI Direct is sending out emails about discounted prices for "their" builders projects. For example it is offering RNA Builders Sun City project at Kandivli @7999 psf while market rate is 9000 psf. (I've no idea if the discount is for real-only those who follow the rates in kandivli may be able to opine) A visit to the office reveals many many such properties, from several builders like Lokhandwala too, which are being offered at a so called discount. Is this the start of the fall? For those not so young, the last fall was in circa 1995-96 when several builders fled Mumbai and sought shelter in Dubai. I still remember that my friend who bought at the peak at Mira Road at that time in 1995 paid @1500, after which rates crashed to 800psf and they went up to the 1500 psf level only sometime in 2004 or so. Can it happen again?

Anonymous said...

"ICICI Direct is sending out emails about discounted prices for "their" builders projects. For example it is offering RNA Builders Sun City project at Kandivli @7999 psf while market rate is 9000 psf. "

Still it is 8000psf. What fall? Try calculating for 2bhk on 40% marked up carpet of 1000 sqft = 80 lacs + registration + taxes + bribes + broker commission.

80 lacs... looks like money falls from trees just like it grows on trees. ;-)

Puneite said...

@Cool Head - Rs 1500 to 800 fall in a 2 years happened during time of great political upheaval - repeated elections unstable govt - engineered Tiger economy slump in 1996 and a mass backdrop of other issues.

Today's prices I doubt will fall that much - I would say the lowest prices will ever go is that of 2008 end 2009 start slump prices when things were uncertain - ever since the builders-banker-politician lobby have craftily bought out the entire system.

Plus from 1995 to 2011 India has added 300 million people to its population (thats as much as entire US and western Europe)

For prices to fall Land prices have to fall while money supply should completely dry up and domestic demand should collapse to ( YoY GDP growth should collapse also )- Eventhough India has high surplus of properties - future developments will be put on hold by builders until the present inventory generates some cash flow.
(this is not the case in US where surplus wasn't absorbed in 2006-07 leading to collapse as builders kept building due to abundant land and resources - this is also not the case for China where government is forcing builders to build so that it can show 8-9% GDP growth no matter if people buy the property or not)

All the factors that would reduce prices seem almost impossible unless there is upheaval in the system/collapse in govt/ catastrophe such as war/flood (even flooded Bangkok RE prices havent fallen) .

However prices may stagnate. and might fall in gold/CHF/SGD terms.

Is there anyone here bold enough to give me numbers of any fall - At least in all Pune outskirts not a single suburb have budged on prices - however new projects in far flunged areas have plunged.

shailesh said...

Bitter realty: Unsold flats in Mumbai at record 32,000

The number of unsold flats in Mumbai is now at an all-time high of 32,000 units, an indication that buyers are showing little interest in the properties on offer. Around this time last year, the corresponding number was approximately 16,000 units. If you take the Mumbai Metropolitan Region (MMR) as a whole — which includes Thane, Navi Mumbai, Raigad and Mumbai — the number of unsold flats goes up to 95,000 units.

These are the findings of Liases Foras, a leading non-brokerage firm that researches trends in the real estate market.

“The prices are simply unaffordable and with the hike in interest rates, there is tremendous resistance from buyers. Prices have risen across the place and sales are simply not happening,” said Pankaj Kapoor, CEO, Liases Foras.

shailesh said...

Property Prices in India Continue to Rise, but Is the Market Overheated?


It’s no secret that many builders are in a bit of a fix, but in spite of this real estate prices are not dropping significantly. According to a report in Money Life, a 1000 ft.² flat in Mumbai costs Rs98 lakh, which equates to more than Rs9,716 per square foot. Areas such as Noida have been hard hit by land scams, resulting in the majority of deals which have taken place over the last year and a half coming under close scrutiny. The supply has increased from 5 million square feet to an incredible 105 million ft.², but nobody is buying, and some experts now expect a sharp correction in prices.

The latest data shows builders in Mumbai have sold just 8.17 million square feet of property from a huge inventory of 116 million square feet. Other cities such as Hyderabad and Pune have had slightly better sales, and after all, Mumbai is one of the costliest places in the country. If property continues to sell at its current rate, Mumbai has an inventory of 40 months as it is currently showing a 22% year-on-year increase, while receipts for money received from sales show a 13% year-on-year decline. Delhi is faring even worse, as even though property in the city is much cheaper than Mumbai the value of real estate being sold is low.

GSM said...

For prices to fall Land prices have to fall while money supply should completely dry up and domestic demand should collapse to ( YoY GDP growth should collapse also )

When the defaults start happening, money supply will be sucked out and the domino effect starts. The prices cannot stagnate with speculation. Either the speculators are wiped out with low demand and high interest rates and prices crash or the prices should go higher and higher because of more speculation. In 2007 with decreasing volumes, that prices went up higher and higher with only speculation and in 2008 when the interest rates shot up, every builder started crying for a bailout. The repeat of 2007 seems to be happening in 2011 lets see what happens.

Anonymous said...

Builtup/Carpet area

Can't figure out how built up area is calculated. Recently viewed a flat in Goregaon, Mumbai that was quoted as 1450 sq pt. I practically measured the living area including kitchen, toilet area and storage area. The total area including everything was 744 sq.ft. i.e 51% of quoted builtup area.

I wonder if any of you know how these calculations are arrived at. Does this vary builder to builder or this is govt approved

Appreciate a reply

Anonymous said...

Anon Above.

This is best answered by the seller of the flat you looked at as how they arrived at that figure of total sqft. I bet that they will say 'take it or live it and I don't care to answer your stupid question'.

Yeh bharat desh hai mer jaan.... Govt just announces some shit regulations & laws and nobody gives damn about it.

Anonymous said...

Correction above - I mean 'leave it' not 'live it'.

Anonymous said...

While I am against the built-up / carpet area completely given that we are now charged separately for all amenities, there are two ways used to calculate loading. These "loads" will hold water if we were not charged separately for parking, amenities, clubs etc.!

One case is where the builder quotes 1000 sft built up with 800 carpet implying that he "loaded" 25% on top of the 800. 800* 1.25 = 1000sft

The other nasty way is to state that x% of the saleable area is for common amenities and the rest is carpet. So, for the same case above, you will get a % figure of only 20% implying that only 20% of the 1000sft area is "lost" with the remaining 800sft provided.

The numbers you have provided would translate to 95% (!!) in the
first case and 49% in the second way of calculating - atrocious!

Anonymous said...

Carpet area-wala bosses above:

1. First, Fill the flat with water completely (naturally happens in Mumbai during the monsoons), and measure the volume of water in cubic meters.

2. Next, measure the height of the flat.

3. Divide 1 by 2, to get square footage.

4. If seller quotes significantly higher sq ft than 3, lock him up in the apartment and repeat step 1. Take a pao-bhaji break after locking him up.

This should get the rates down.

Munnabhai MBBS

Anonymous said...

The definition of carpet and built up areas have been changing over the years. There in no govt law how to calculate carpet area. They go by built up area quoted by builder, to calculate stamp paper, taxes etc etc.
Builders may show you an complex calculation and various builders have their own methods. In a nutshell, THIS IS JUST TO HOODWINK THE BUYER AND A SALES GIMMICK.

In 1980's and 1990's, the ratio of buildup and carpet was 1:0.7. Now this has become 1:0.5. The reason being, builders include common areas like passage, garden etc etc.

If you are told that you will get just 700 sq ft living area but have to pay for 1400 sq. ft, you may not like to buy that place. So they dont give any explanation. Also if you are told that you have to pay 20,000 rs for sq.ft carpet area instead of 10,000 rs for built up area, you may hesitate and may not buy that place

The money that builders make by manipulating areas, actually goes to bribes required by various govt departments

My sfvise to you is that if you like the place buy it. If ot, look for something else. This is the system, and no one can change it

Good luck

Anonymous said...

Cont to my above comment.

All builders are required to provide blue print of the flat. If it is resale, you will find it in agreement. You can obtain this from building society too. It is a child play to calculate the carpet area using this drawing. No can can manipulate this, as if you find a discrepancy, you can take the seller to consumer court and you will win

shailesh said...

Big, glam home in Mumbai

MUMBAIDEVELOPERSAREBASTARDS said...

Interesting... http://www.thehindubusinessline.com/features/investment-world/article2580304.ece?homepage=true&ref=wl_home

Price correction is inevitable as new launches early next year will happen at more competitive prices, despite the current fall in sales.

Mumbai property sale registrations for September recorded a 29-month low at 4,137, down 22 per cent year-on-year.

However, the gloomy sales scenario hasn't led to a price correction, as developers continue to hold on to their price-line.

The Maharashtra Chamber of Housing Industry's (MCHI) property expo this month too didn't elicit any significant response from home-seekers.

Mr Ramesh Nair, Managing Director – West, Jones Lang LaSalle, India, had some interesting suggestions on how to negotiate with developers in the current scenario. Many sales prices today are quoted prices and there is room to negotiate.

Developers are willing to relent off the radar, but averse to reducing the quoted price below a certain point.

This is partially because they don't want to advertise the fact that certain customers paid less than some others. They are likely to offer incentives instead.

Prashanth said...

I believe a slow correction is on the cards. It might not happen quickly, but slowly and steadily over the next 2-3 years when we can see a 20-30% drop in prices. if u adjust for inflation it could be close to 40% over next 3 years.

I am from chennai and the indicators point towards that. Chennai prices have remained stagnant for the last one year with no big launches happening. In case of city limits builders want to offer only joint development of flats , thus outright sale of land has come to a grinding halt...

we have never received cold calls with regards to sale of apartments. with DND in place still i get calls from desperate builders whose apartments are complete and ready to move.

Builders who just advertised in newsprint have started to do so in radio with such frequency that i would not be surprised if 60-70% of ads belong to them. I believe the desperation has slowly set in..

interest rates will not go down as long as inflation is more than 7% . cash flow has started to dry up and in one of the properties on OMR, i believe it is DLF, the builder has started to convert 2 BR to 3 BR to existing buyers to prevent them from dropping off due to inordinate delay...

The bubble will pop for sure and the car sales are a precursor to what is going to hit us...

Anonymous said...

Built up area is 20% of carpet area as that is what the BMC uses to calculate in the approved plans.

Super built up area is whatever number the builder's infant kid has learnt above 45.

Anonymous said...

Same guy as anon above.. I meant 20% above carpet area

Anonymous said...

"i would not be surprised if 60-70% of ads belong to them. I believe the desperation has slowly set in.."

If you read this blog, desperation has been "slowly setting in" for years without so much as a dent in prices.

The problem with chennai is that almost all the idiots in that city have family members working in Chicago, Houston or London. The reason houses have Chicago price-tags in chennai is because its denizens make Chicago salaries which they don't spend in Chicago (where they live in shared cramped apartments) but spend instead in this crappy city on a single asset class: housing.

Another factor keeping RE prices high is the shortage (or rather complete lack) of alternative investment classes due to the non-convertibility of the Rupee. You can't easily shift your INR savings into stronger currencies and keeping your savings in the fast-wilting Rupee is not an option. SENSEX is filled with companies whose accounting is as trustworthy as Greece. So what do you do? Oh yeah, buy housing, even if it costs more than London or New York. It is at least something you can touch and feel.

THE NON-CONVERTIBILITY OF INR AND THE RENMINMBI COMBINED WITH THE CREDIT BOOM HAVE CREATED MASSIVE HOUSING BUBBLES IN INDIA AND CHINA.

In these circumstances, I wouldn't touch Indian housing, not in a decade, not in 20 years. There are much, MUCH better asset classes worldwide than investing in crappy housing in a crappo city complete with lousy weather, water shortages, lack of sanitation, roads and frequent power cuts.

I'll rent, thank you very much. Renting is still cheap. Dirt cheap.

Pawan said...

The problem with chennai is that almost all the idiots in that city have family members working in Chicago, Houston or London.

Was that not true ten years back?

Anonymous said...

Read and weep @ http://timesofindia.indiatimes.com/city/mumbai/Developers-say-residential-realty-rates-to-stay-high/articleshow/10600608.cms

Developers say residential realty rates to stay high

Anonymous said...

China Chu Chu - Riots over falling property prices... read on: http://www.arabianmoney.net/us-dollar/2011/10/30/riots-in-shanghai-as-property-firms-slash-house-prices/

We need some shit like this happening in India soon.

Real Pain said...

More Indian Real Estate Pain. BTW developers are negotiating on the side - but still want 40% black...many of the smaller ones atleast.

http://www.ft.com/cms/s/8f5eda74-e064-11e0-ba12-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F8f5eda74-e064-11e0-ba12-00144feabdc0.html&_i_referer=http%3A%2F%2Fwww.indianrealestateforum.com%2Freal-estate-updates%2Ft-indian-real-estate-faces-cash-crisis-20837.html#axzz1YN4hKRss

Anonymous said...

shorter link:

copy and paste the following -

http://on.ft.com/un8KVS

Anonymous said...

Ha... Ha... Ha! Crash?

If you are lucky prices will flat line for the next few years so that the prospective buyers can save up enough money to pay for the ever smaller excuses for apartments.

The only way you will be able to buy decent house over the next few years is by not wasting time reading these blogs, putting your head down and working hard so that you make more money than Joe in the next cubicle. Prices are a function of what the general populace is making in income - the only way you beat that is by making more.

If you cannot take the rat race - that's cool as well. Just look to rent and find a cool place - its never been cheaper to rent 1 Cr.+ apartments. Have fun... nothing's going to happen if you don't own a home! Best case - you are NEVER going to be impacted by the rising or falling prices. :)

Anonymous said...

"Read and weep @ http://timesofindia.indiatimes.com/city/mumbai/Developers-say-residential-realty-rates-to-stay-high/articleshow/10600608.cms

Developers say residential realty rates to stay high"

Actually read and rejoice.
Putting it in papers simply means developers are tryin to create panic else why would you need to put these in papers.

Developers know that people arent buying so lets put it in papers and create panic that house rates wont come down.

RINGS A BELL?

Anyways smart people like myself never buy.

If they can hold, so can I. The difference being they cant hold for long. I can hold for however long i want until i get my price. :)

There are fools who wud buy at high prices and they are smart ones who buy at low prices.

Im the smart one. :)

Anonymous said...

"Was that not true ten years back?"

Not even close. Since 2001 (i.e. post Y2K), NRI representation in the middle class has skyrocketed. Today everyone and his monkey's uncle has family members working abroad. That is why you're paying New York prices to buy a shitty one bedroom in some crappy Indian city.

I agree with the poster just above. If you want to afford Indian RE, not only should you earn abroad, but you should also earn more than Rajesh, Kumar and Sanjay who also work abroad.

If you're a schmuck working in India trying to make ends meet and save up enough to buy an apartment, you are basically scr*wed.

Anonymous said...

@Anon - "Prices are a function of what the general populace is making in income"

Partly true. They are also a function of availability of credit and sentiment. The 2008 RE crash in India was because credit disappeared and sentiment turned negative.

Anonymous said...

It seems that even a common flat (3 br) in Bangalore costs Rs 1 cr (I think even if we take a minimum simple interest of 10% we end up with around Rs 90,000/month post tax).Mind you it is simple interest.

How on earth are people making these interest payment along with the principal?

And turn around to rent it and it will bring a princely rent of Rs 20,000 per month.

So when do you think you even break even?

It is a classic case of waiting for a greater fool.

The last man holding the bucket is the looser , well let the games begin.

Anonymous said...

"How on earth are people making these interest payment along with the principal?"

Here's the question no one is answering. WHERE ELSE IS SOMEONE SUPPOSED TO STORE THEIR SAVINGS? In Swiss Francs? Brazilian equities? German corporate bonds? Pounds Sterling? Euros? Japanese realty stocks? US REITs? Singapore Dollars? If any of the latter, how do you purchase such assets given the non-convertibility of the Rupee?

Anonymous said...

Anon @4:43
You are absolutely right. Assuming a normal 4 member family,this roughly will require a household income of upwards of 2lac. I seriously question the wisdom of purchasing at these costs considering sky rocketing inflation and job insecurity arising from a steep upcoming economic downturn.

Cool Head said...

The prices saw a steep increase only after 2006 or so, which till then were appreciating @ 12% or so. The reason cannot be just NRIs, because the software NRI boom is almost over (you can see this in the H1B visa statistics). All those who went to US/UK bought their houses already. No new ones seem to be going for onsite jobs, which increasingly will become less. The main reason why prices appreciated so fast since 2006 was that a lot of money was generated via scams and corruption (2g, commonwealth, mining, Madhu Koda and many more) and all this money that got siphoned off from the people ended up in real estate. It became an alternative to burying the loot in the backyard. The frenzied buying resulted in a lot of people building like crazy to cash in on the boom. With the courts and Anna becoming resurgent the rate of increase of scam money surely will plateau or reduce, so no new scam money will enter the RE market, so who will buy? We will see the answers to this in the coming 1 year. I theorize that either RE prices collapse OR a few banks go bust OR the INR collapses. Anywhich way will make real RE prices cheaper. If you want to store you cash in hard assets Gold and Silver are better bets.

Anonymous said...

"I theorize that either RE prices collapse OR a few banks go bust OR the INR collapses. Anywhich way will make real RE prices cheaper. "

This is a good point. A critical issue about how the Indian RE bubble will correct is whether it will correct in real or nominal terms. Personally, I think it will not correct significantly in nominal terms. The GOI/RBI/Banking/Builder lobby will make sure that does not happen. I think RE will eventually sink in real terms unless there is a dramatic spike upwards in the value of INR (which almost no one seems to be predicting).

"If you want to store you cash in hard assets Gold and Silver are better bets."

Disagree. It is folly to store value in assets that have gone up 5 times over the past decade in order to await a correction in other assets that have also gone up 5 times over the past decade.

NEVER BUY FAD ASSETS THAT ARE AT RECORD HIGHS. As a matter of principle, I never chase anything at a record high. Everybody worldwide is now utterly convinced that Gold and Silver "can only go up". This alone should set off the alarm bells everytime you think about such assets. After all, exactly similar thinking accompanied Dot-com stocks, US Real estate, Japanese stocks, Yahoo inc. shares, etc. We all know what happened after that.

punter said...

Hello all,
Indian real estate will not collapse, however it will gradually find its lower base. Real estate cycles and commodity cycles run 8-12 years(trough to peak). Study the Japanese scenario. However in India, its not a supply/demand issue. Demand will always exceed supply(regardless of price premium). That said, this is what I think w.r.t India's real estate dynamics. Although boom/bust cycles across the world follow a slightly similar path( exuberance,M2 money supply, central bank monetary policy etc..),India's an exception because of its HUGE POPULATION.

(1) Since 1999, they country's population has exploded from 1B to 1.22B in 2011. A 20% increase in just a decade. This increase is larger than the combined populations of Britain, France and Germany. These people got to live somewhere.
(2) Transformation from an agrarian to service workforce. Over the last decade, millions have abandoned agriculture and started work in the bigger cities for the service sector. Once they move and experience a few years of steady money flow, they will NOT move back to the hinterland to do backbreaking field work given the unpredictability of the monsoons in the country and predatory money lending practices prevalent in the rural areas. Just observe Bombay's population from the 1970's. More recently, this trend is seen in Bangalore also.
(3) BLACK MONEY. This has to be the #1 catalyst. It's unfathomable how much dough is circulating in real estate(especially in the tier 1 cities). I have a lot of anecdotal evidence that this alone will prop up real estate for the next 3-4 years or so. Unless there is a BLACK SWAN event.( ex: ban on Sand excavation currently underway in and around Bangalore).
(4)Indian cultural affinity towards land, gold etc. 'nuff said.
(5)Govt of India has an interest in propping up the RE market. Just think of the cascading effect from end-to-end. Job creation, govt. revenue income,money flow in the system etc..This has been once in a generation opportunity to lift the masses from poverty and darkness for the millions of Indians. So what if the govt fanned this bubble, this dynamic couldn't have been done in any other way.

To summarize, the RE bubble in India will NOT collapse for all the logical reasons the well intentioned economists proclaim.
The country's population is too vibrant and positive at this time. Only a major event will bring about a change in the mass psychology( BLACK SWAN event??). Never know.

Some guesses:
- IT/outsourcing goes down the drain.
-Indian Sovereign credit rating downgrade.
- Major blow up in the stock market(remember Harshad Mehta..anyone??)
- Internal Political situation.( some politco get's killed, godhra type situation, babri masjid scenario,)..
-External catalyst: Israel-Iran tensions, G-Pap flip flop, S. Berlusconi's bunga bunga party scandal's, MF global type event impacting the global financial cartel)..
etc..
etc..

Thanks for your patience reading thru my weekend rant. Have a good weekend.
Let me get back to nursing my drink.

Anonymous said...

To begin with, let me say CHEERS!!!!!!!!

Thanks for your comments. The best and realistic. I 100% concur with your analysis

Once again CHEERS

Anonymous said...

Wait till March....

Soaring realty ambitions belie rocky foundations

"Developers will be very, very keen to sell off as much of their stock as possible this fiscal year," said Kaustav Roy, executive director of property consultants Cushman & Wakefield.

"And if they fail, in March the banks will be looking to close their accounts, and might end up having to foreclose some of their stock," he said.

Anonymous said...

http://news.xinhuanet.com/english2010/china/2011-11/05/c_131231060.htm

Steep correction has reached our neighbor. Now it's
India's turn.

Anonymous said...

"To begin with, let me say CHEERS!!!!!!!!

Thanks for your comments. The best and realistic. I 100% concur with your analysis

Once again CHEERS

"

Cheers for what?
His first sentence "Demand exceeds supply"

Where? Where is the demand. Show me the demand. I can show you lots of supply. You just show me the matching demand for that supply.

If you cannot do that, then go back to your drink which im sure is alchoholic in nature. :)

Anonymous said...

"Steep correction has reached our neighbor. Now it's
India's turn."

Nope. India is different. Here house prices only go up, never down. China's population is imploding while India's population is exploding.

Again, the laws of economics don't apply here. India is different.

I sincerely hope this helps.

polt said...

@anon "Demand exceeds supply" ?
This statement is incomplete. Demand/Supply curves have price as one of the axes.
At current prices, I am quite sure demand does not exceed supply. Which is why sales are dropping like a stone. Prices will fall to a point where the demand/supply curves meet. Either that or prices will be stagnant in real terms till incomes rise. This is happening to a fair extent here in Bangalore. Prices have risen less than inflation in the last year or so. I would guess mean reversion has started.

Anonymous said...

Agree with polt above.

More factors in play...

1. A lot of money is waiting to be reinvested in property as a big chunk of this money has come from selling older properties the profits of which will attract taxes unless invested in real estate again - there are not too many alternatives but to deploy these funds back into property (at current prices) within a year.

2. Income has gone up by several multiples in the last decade - businesses, govt employees, property owners and the salaried class have all had it good (most cases - not all!) for the last few years. Blame monetary expansion all over the world. As others mention above, prices are a factor of income, credit and sentiment - all of which have been high.

Rest easy - prices are not going to "Crash" unless a major economic disaster hits us again nor are they going to fly up like in the last few years! Nominal corrections are bound to happen - most buyers are priced out of the market but the demand exists all over.

Those who are "looking to buy" will be able to find a few deals soon if they look hard but don't expect 2004-05-06 prices anymore!

Its possible that over-stretched builders may go under and this could lead to some good properties hitting the market at decent prices or "bad" properties come up as distress-sale deals. But these deals may not hit the open market but get grabbed by some "in-the-know" investors.

Anonymous said...

@Anonymous

"Nope. India is different. Here house prices only go up, never down. China's population is imploding while India's population is exploding. "

Hahahaha.... India is different, I am afraid you would say laws of Physics are not applicable here. India is no different, perhaps worse than others....it's a current account deficit country with unsustainable population, mostly unproductive. It would have end similar to Greece.

Anonymous said...

Anon@4:27

Our friend was being sarcastic.

I am surprised at the rate Indians miss sarcasm, and worse still, try to correct anyone who uses sarcasm with a professorial drone.

Realty prices will become realistic when we Indians finally have a sense of humor. Fifty percent correction guaranteed!

Pawan said...

See this. If you are not in the topmost bracket, you don't matter.

http://www.ritholtz.com/blog/wp-content/uploads/2011/10/p1.png

Anonymous said...

I believe this was posted in 2008. India has now moved to stage no 1 or 2.

The Ying Yang Cycle of Bubbles and Balance Sheet Recessions

Anonymous said...

There is absolutely no dearth of buyers in the market... its the prices. Implies that even a small correction will bring a slew of buyers back in.

http://economictimes.indiatimes.com/personal-finance/loan-centre/home-loans/home-loans-news/lic-housing-sanctions-more-than-rs-100-crore-in-loans-in-3-days/articleshow/10630566.cms

Anonymous said...

I have a couple of points to make:

1. Assuming builders are really strapped for cash and are willing to reduce prices by upto 30%. Dont you think in such a situation buyers would come in huge numbers and again give impetus to the revenue stream of the builders?
2. I guess if builders see that there is huge demand for their properties then they might start selling some of their inventory for low prices, and once some frenzy is generated in the market, they might again jack up prices leading to more frustration in genuine buyers who might begin to think that they "missed" out again.

Its sad to know that there are so many genuine buyers out there willing to buy a house for their family but are unable to do so.

Pawan said...

Two more data points indicating pain in the Indian economy:

1. Festive season car sales way below expectations. Maruti sales are down more than 50% for October YOY. Some of it is due to labour unrest for sure but still its a huge hit. And the picture is no different for other manufacturers.

2. Nifty earnings have taken a down dip. Yes! This is the most interesting thing for investors. Nifty earnings for this quarter are less than previous quarter. This when everyone thought that they can only go up.

RE is is bad shape but unfortunately there are no numbers like we get for autos or Nifty. But I guess we can get the drift from these numbers.

polt said...

Had posted this a few months back. Reposting.
http://en.wikipedia.org/wiki/File:Stages_of_a_bubble.png

My question is - do you guys think the 2008 RE crash here in India was the bear trap or the bull trap in the chart?
If it was the bear trap then we have more prices increases to come. My guess is a bull trap.

Anonymous said...

Polt: 2008 was definitely a "bull trap" if you look at the historical Indian RE prices, it will be clear http://3.bp.blogspot.com/_MQ98sjqUmvw/SSpF482LvZI/AAAAAAAABJc/vtj32lssakU/s1600-h/residential-property-prices.PNG

We are currently going through the final phase of "return to normal".

HUGE REAL ESTATE CRASH COMING -- we will be back to 2004 levels in 2 more years!!!

samix said...

1. Assuming builders are really strapped for cash and are willing to reduce prices by upto 30%. Dont you think in such a situation buyers would come in huge numbers and again give impetus to the revenue stream of the builders?

There is something known as sentiment, once the prices start to fall, all bids are withdrawn because no one wants to buy mid way into the correction, no one wants to catch a falling knife, now everyone waits for the price to fall to absolute bottom. Indeed there would be some sales, but not voluminous enough.

Back in 2008, after the real estate dip, the market recovered mostly because of government stimulus more than buyers returning to the market, rather the government had to inject the stimulus to get the buyers return to the market, it was not the other way around, my understanding is, that given minus the stimulus, the market would have crashed way back then itself.

Anonymous said...

Read this article very carefully:

http://www.forbes.com/sites/gordonchang/2011/11/06/property-prices-collapse-in-china-is-this-a-crash/

Basically, China is in the middle of a housing bubble collapse. Prices have fallen off a cliff - over 30% in just a month. Even the government admits that a 50% correction is likely over the next year. Riots and mass denial have already begun.

Before this happened, the following cozy cliches about RE were routinely being circulated about in China:

1. Demand greatly exceeds supply.
2. China is different. RE prices can only go up in China.
3. There is a vast population in China which will eternally lend support to high housing prices.
4. The Chinese have a cultural affinity to RE and will keep buying.

Does any of this sound familiar?

Yet none of those cliches held up to closer examination when push came to shove and market forces set in.

Remember, when the psychology turns, things will turn around very, VERY quickly.

There is a lesson in the Chinese story for another highly populated country south of its borders.

Anonymous said...

@Anonymous 10 34,

As suggested, I carefully read your article but totally disagree that a similar situation prevails in India.

India's real estate spurt is driven by 'CHOR' economy and therefore will not succumb to market pressures as CHORS will make every effort to see that their assets dont depreciate even if the nation reaches to the brink of starvation. Now 'CHORs' include the entire govt machinery, religious groups, leftist and rightist political parties. The BECHARAS or Aam Admis have been and will remain as suckers.

I'd agree if you compare India with another CHOR economy Pakistan, but not with China

Anonymous said...

I agree with most of the people who believe that Indian RE will never go down. Toady nobody care about the saver, every is trying hard to rescue over leveraged person, country , bank after Lehman episode. Look at Greece it was suppose to default this month , it is not only saved but also rewarded 50% bonus for being such a reckless economy. Similar things could happen in India. If builder is more leveraged he will get 50% bonus and banks will 50 % haircut.
GOI will support this move as every politician has stake in RE business. Everybody will pretend this needs to be done to save common man.

Anonymous said...

Anon at 4:48 PM
I completely agree with you.

Anonymous said...

"Similar things could happen in India. If builder is more leveraged he will get 50% bonus and banks will 50 % haircut. "

GOI may be able to support nominal RE prices but has no control over real RE prices.

BTW, even the US government, which has vastly more resources than GOI (because of the USD's status as the reserve currency) failed to resuscitate real and even nominal RE prices in the US so there is no clear reason to believe that the monumentally incompetent GOI can achieve what even the US govt failed to do.

Anonymous said...

GOI will support this move as every politician has stake in RE business. Everybody will pretend this needs to be done to save common man.

My friend, you are either too kind or very ignorant of GOI's ability to do anything about anything. Some people in the government even need assistants and deputies to wipe their asses. You expect them to rescue real estate when the crash comes?

Anonymous said...

"My friend, you are either too kind or very ignorant of GOI's ability to do anything about anything. "

Hahaha. Good point. That poster certainly doesn't know how the Indian government works. GOI may be corrupt, but its corruption pales into insignificance when compared with its monumental incompetence. This idea that the GOI can pull off what the US, UK, Dubai and Spanish governments tried to do and failed is frankly hysterical.

Anonymous said...

Guys GOI is incompetant when it comes to performing duties, but when it comes to serving own interest non body in world can beat them.
Look at around u will realize how GOI people are competent in serving themselves.

Anonymous said...

Please remember:
1.sell at or close to the peak
2. Do not borrow too much
3. Buy in best cities and areas
4. Do not think that it is different this time/this country
5. The laws of economics apply! Houses cannot
Sell for 100 times income for ever
6. The collapse question is not if but WHEN
IT WILL Happen; may already have started.

samix said...

@pawan , this is with respect to the discussion we were having with respect to democracy. Sharing something that I learnt just today http://www.1215.org/lawnotes/lawnotes/repvsdem.htm

samix said...

@Vik, is it feasable for you to remove the captcha for authenticated posters ?

Amit said...

Oh I found something to support what I was saying:

http://www.newstrackindia.com/newsdetails/250653

Ankan said...

It is nice and useful.

Ankan said...

Thanks for your informative post.

Ankan said...

I completely agree with you..

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