High interest pushes realty to brink

Its high time the bubble pops in Mumbai real estate. The government made few other announcements over the past few days which will impact prices downwards.

1. All flats to be sold on carpet area. The builder can charge for common area but it has to be mentioned in the agreement
2. Increase in FSI for suburbs from 1.0 to 1.3 thats a 30% increase. FSI for SRA TDR's are 2.25 and for Dharavi slum redevelopment it is 4. I think in the city areas it is 2.
3. The premium on the extra FSI has be removed. So the extra .3 which was sold at a premium is now at current rates. This will force TDR's to go below market rates as the premium which existed on the TDR is no valid.

Coupled with the liquidity crisis which the article is taking about, welcome to the bubble pop. You heard it first here :). If you notice carefully the article makes a reference to the word bubble. In the past the writers would always justify the prices repeating cliches like "There is no land in Mumbai", "Prices never fall", "People are migrating to mumbai from all over". All bull crap to justify ad-space spending in their news papers.


MUMBAI: It’s a scary reminder of the exorbitant interest rate of the 1990s’ inter-corporate deposit (ICD) market, where companies borrowed at enormous cost to tide over a cash crunch.

Often, these desperate borrowers ended up losing their businesses to bigger players and loan sharks. In what could be the making of another turmoil, real estate developers, particularly the less creditworthy ones, are today borrowing at as high as 19%-20% from big finance companies to stay afloat.

A week ago, a large property company (which recently withdrew its IPO due to adverse market conditions) was forced to roll over its short-term borrowing from mutual funds, a tell-tale sign of the cash flow strain that some of the realty firms are grappling with.

Since banks have shut their doors, small and medium builders are passing their hat around aggressive non-banking finance companies and MFs who subscribe to the bonds issued by the property firms. The fund houses have quietly rolled over the debt, fearing that the news of default could affect the returns of their schemes and hence, scare away investors.



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Builders who had managed to raise cheap money in the booming IPO market and those who had old land banks created over a period of time at lower rates are in a better shape. But those who had paid a slice of the cost for expensive plots, hoping to make the balance payment with the IPO or private placement money, are stuck.

Small builders who are turned away by MFs and finance companies are borrowing at even higher rates from diamond traders and HNIs. The cost of such money is at an usurious level of 2% a month. Besides, they are mortgaging their properties at 60%-65% of current valuation to raise the money.

“There are three categories of lenders: private NBFC, financial institutions that qualify as NBFCs and a few subsidiaries of foreign banks and securities houses. As long as prices stay high, the party can go on. But it will be impossible for the bubble to sustain for a long time. While pure FDI is coming in for specific projects, structured deals with leveraged foreign funds have come down after the subprime crisis,” said a real estate fund manager.

But the fear is that many companies have already walked into a debt trap with prices beginning to correct in most big property markets except Mumbai. “If the markets do not witness a substantial rise in demand and price in the next six months, these companies will either go bankrupt or be forced to sell out,” said a banker.

Property players also mop up funds by securitising their receivables. If such financing structures bonds (better known as pass through certificates) are sold on the back of the fund flow, they anticipate from property sale. If deals slow down or property prices drop, servicing these bonds becomes difficult.

“However, property prices have to really crash for this to happen. Securitisations are done with margins to cushion the blow,” said a fund manager.

CBI registers case against Hiranandani’s for evading EPF tax

Beats me why Hira should evad 168 crores when they can make 1600 crores of their properties. It goes to show greed knows no bounds. After acquiring the powai land for 50 paise per sq/ft, this one puts them at a new low.

Mumbai, April 08: The Central Bureau of Investigation (CBI) on Tuesday registered a case against the promoters of the Hiranandani Group, Niranjan and Surendra, for evading EPF tax to the tune of Rs 168 crores.

The case was registered hours after the premier investigation agency started simultaneous raids across eight different locations of the group spread across the western metropolis.

The raids were carried out as the CBI claimed to have credible information that the Hiranandani’s have evaded tax to the tune of Rs 168 crore by tampering documents pertaining to the Employee Provident Fund.

As per sources in the CBI, the documents have a fallacy as they show that the group has far lesser number of employees in its roll then they actually have.

By doing this fraud the Hiranandani Group was misleading the government and evading tax, the CBI alleged.

To add credence to their claim of a possible collusion between the Hiranandani’s and government officials, the CBI also carried out raids at the residences of four EPF officers.

CBI action against the Hiranandani Group, one of the biggest players in the real estate market, is sure to send shockwaves across the industry already beleaguered by increasing interest rates and slacking demand.

Unitech in 97-acre Vakola slum development project - Mumbai

Cost of land Rs 2,500/sq ft, construction cost Rs 2,400, property rates Rs 25,000

MUMBAI: Unitech Ltd, India’s second-most valued real estate company with a market capitalisation of Rs 67,600 crore, is developing 97 acres of slums near the Vakola flyover on the Western Express Highway.

The project, which is close to the Santa Cruz railway station on the east, is estimated to cost Rs 1,900 crore, and will involve the rehabilitation of 20,000 families.

Unitech has joined hands with Pune-based developer Rohan Group for the project.
Sanjay Chandra, managing director of Unitech, confirmed the development to DNA Money, but did not divulge further.

Once the families are rehabilitated, Unitech and Rohan Group will develop the land which will have a final saleable area of 80 lakh sq ft.

The cost of construction is around Rs 2,379 per sq foot, sources said.

Citigroup Global Markets analysts Ashish Jagnani, Aditya Narain and Karishma Solanki estimate the cost of land to be just Rs 2,500 per sq foot as it was acquired under the slum rehabilitation scheme.

The rate for commercial property in the area is around Rs 25,000 per sq foot for A-grade projects, a local broker said.

Jagnani, Narain and Solanki, in a report to clients on February 14, said the rehabilitation process for slum dwellers is ongoing with 30 of 97 acres of land cleared and the construction of rehabilitation already on.

A source close to the development said Unitech’s decision to construct commercial space made more sense since the valuations are better due to the location’s proximity to the Bandra-Kurla Complex, India’s most expensive commercial area.
Cushman & Wakefield, international property consultant, said Mumbai is the world’s fourth-most expensive location for office occupation.

In the report titled ‘Office Space across the World 2008,’ the firm said Mumbai is expensive than Paris, New York, Singapore and Dubai.

Meantime, the Citigroup report said Unitech is aggressively buying more land in Chennai and Hyderabad.

The company has picked up 29% stake in a 70-acre township in Perambur, Chennai, with the investment routed through its 50:50 venture with Arihant Foundation.

The company plans to develop 5,000 apartments, a retail mall, hotels and a hospital in the project.

In Hyderabad, Unitech has acquired 350 acres from the government through a tender process at a cost of Rs 60 lakh per acre. The realtor plans to develop a township here.

In Kolkata, Unitech has added two large projects. It is developing a township measuring 390-acre project near Howrah.

“It has also picked up a 75% stake in the 6-acre prime property of Royal Calcutta Turf Club to develop luxury apartments and a premium hotel/service apartment,” Citigroup’s Jagnani, Narain and Solanki said.

Citi Venture, AIG scrap Akruti investment plan

MUMBAI: Adverse market conditions have affected another major real estate transaction. Leading financial institutions — Citi Venture Capital and AIG — have called off their Rs 1,500-crore deal with real estate developer Akruti City which would have seen the foreign funds picking up 16% equity in the Mumbai-based realty player.

In January, Citi and AIG had proposed to pick up equity in Akruti through a preferential allotment, where Akruti would place up to 10.7 million shares. The firm has now cited market conditions and delay in getting government approval as reasons for aborting the deal. The BSE Realty index has crashed 46% from its peak of 13,647 recorded on January 14.

“In view of the inordinate delay in receiving necessary approvals from the Department of Industrial Promotion and Policy (DIPP), coupled with uncertain market conditions, we have decided not to proceed further with the proposed issue with the foreign funds,” Akruti City managing director Vimal Shah said.

However, sources said that after the market fall, differences of opinion had cropped up between the foreign funds and the real estate firm on valuations which ultimately led to a deal abortion.

After the deal was announced on January 23, shares of the company had touched a record high of Rs 1,399 during intra-day trading. Since then, there has been a sharp decline, which touched a low of Rs 682 on March 24, or down 50% in two months. The scrip, however, has recovered smartly in the past two weeks, ending with a 5% gain at Rs 1,021 on Friday.

The market turmoil has already taken a toll on fund-raising plans of some companies, including Emaar MGF and Wockhardt Hospitals. Both were forced to withdraw their initial public offering (IPO) plan, after the offers evoked poor investor response in the extremely bearish market.

According to investment bankers, the continuing dull phase has prompted others to defer their plans to raise funds through private equity placements and preferential allotments to institutional investors. The trend will continue for some more time in the wake of uncertain market conditions, which have been triggered by negative global cues and rising inflation in the country, investment bankers said.

Besides, a tightening of liquidity in global markets has made private equity fund raising for real estate and infrastructure sectors difficult, with many funds expected to extend closures or reduce the target corpus. According to industry sources, the churn in global equity markets has made investors wary of even private equity funds, although the two markets are in different categories with different levels of risks.

“The situation has changed and fund-raising has tightened,” admitted the senior executive of a UK-based private equity firm, with considerable exposure in India. “In many cases, the targeted amount may have to be scaled down,” he added.

Indian real estate companies have been attracting investments from foreign funds, which were apparently bullish about the sector. Among the few major deals in the past, a group of private equity and financial firms led by Deutsche Bank invested $425 million in the Lodha Group in September last year. Early 2007, Oberoi Constructions received $152-million funding from Morgan Stanley

Mysore on my mind

The article fails to recognize that Infosys has a training center in Mysore. Most IT companies operate from premises located in an STP and now SEZ. There are no tax incentives otherwise. Infosys is on neither so it will end up with being a hub with migrant trainee population. Infoys's Sarjapur road campus will be the biggest whenever it is built. As for others am sure IT companies are looking out 5 years into the future and acquiring land. Economic times and the bennett coleman company are ad-space sharks which aid the land sharks. All these articles are written with an intent to scare the common bangalorean that Mysore will soon become unaffordable. There is some truth in that but I think that will take another 5 years. The competition is not between end uses to acquire plots and land. Its between big developers to acquire large parcels of land at low prices. In this context buying a plot with a time frame of 5 years doesn't look to be a bad idea. Interestingly the hype over devanhalli seems to be died down. People now appreciate that building infrastructure takes 10x more time then the time to move prices up.

Soaring land prices in Bangalore, realtors battle it out for space in Mysore

MUMBAI/BANGALORE: Soaring land prices in Bangalore have led to a rush by developers to secure space in Mysore, the heritage city of Karnataka. The influx of IT/ITeS professionals is seen as instrumental in driving the demand for residential property since land rates in Mysore are low compared with Bangalore, industry officials said.

Currently, residential real estate prices in Bangalore vary anywhere between Rs 2,500 per sq ft and Rs 14,000 per sq ft. In Mysore, land prices have shot up significantly, said Cushman & Wakefield joint managing director (India) Anurag Mathur. The asking rate for land in the new outer ring road (ORR) area is in the range of Rs 1,200-3,000 per sq ft (Rs 5.2-13 crore per acre approximately) for converted land. In the outskirts (beyond ORR), it is in the range of Rs 70 lakh-2 crore per acre.

In comparison, a year ago, the rates were approximately half the present price range. Within the city, prices varied between Rs 600-1,500 per sq ft (approximately Rs 2.6 crore-6.5 crore per acre) and in the outskirts between Rs 25 lakh-1 crore per acre. The BMIC is likely to further fuel growth in this market. The Future Group’s real estate fund Kshitij has bought five acres near Mysore Palace to develop a mall while Shobha Developers is developing another five acres property as retail property. Delhi-based real estate major Unitech is also developing another one acre in Nazarbad as retail property.

A majority of these malls are expected to be up and running by 2010, by which time there would be enough demand for retail space in the city. DLF, another Delhi-based firm, is planning to build its biggest residential project in Bidadi which is on the Bangalore Mysore expressway and the upcoming inter-city infrastructure corridor. Central Mysore has a large unorganised retailing base and organised retailing in the city is still in the nascent stage. Shopper’s Stop and Inox are expected to mark their entry in the near future

“At present, the vacancy levels are in the range of 10-15%, with some of the complexes developed to house malls now being used as commercial space. There are no operational malls in the city. However, this is expected to change, with five planned malls having a total area of 1.7 million sq ft expected to be operational in the next two years,” said Cushman & Wakefield joint MD-India Anurag Mathur. Property experts said that as real estate prices in Bangalore have touched its upper limits, the developers have started targeting Mysore. Many IT and software companies, which have been eased out of the mainstream in Bangalore, have now chosen Mysore as the next destination.

“The IT sector helped Mysore gain prominence after Bangalore. The coming years could see the city develop as an important MICE destination since travel time to the city is shorter now,” said Brigade Enterprises CEO-hospitality Vineet Verma. Many domestic IT companies have already started their campuses in Mysore, notable among them being Infosys. According to reports, Accenture, IBM, Cognizant Technologies and Honeywell too might extend their operations in Mysore. Wherever IT companies go, they usually provide a push to other residential and retail sectors too.

Maharashtra real estate to be sold on carpet area

The builders are smarter. Now they will tell you the carpet area and also the common area and charge you accordingly. If my guess is right, the registration of the flat will amount to the flat area ? Now if the common area is not registered with the flat owners, who owns it ? does the developer hold the right to the common areas indefinitely ?

>>>>

Mumbai: Here’s some relief for flat-buyers baffled by built-up area, super built-up area, niche area and other such jargon. All sale and purchase of flats will soon be allowed only on the basis of carpet area.
The state on Friday introduced a Bill to amend the Maharashtra Ownership of Flats Act (MOFA) such that all sale, purchase and transactions of flats will be made on the basis of carpet area alone. The bill was introduced in the legislative council and will be taken up for discussion and passing on Monday.
“The common man is not able to tell the difference between builtup, super built-up and all these other terms. Many builders take undue advantage of this,’’ explained principal secretary (housing), Swadhin Kshatriya. “It’s a good move towards bringing in transparency,’’ agreed Hiranandani group MD Niranjan Hiranandani.
Shreedhar Sharma, a legal consultant for housing societies and a member of the Maharashtra Societies Welfare Association which covers 2,600 housing societies in Mumbai and Thane, said that the government move would be much appreciated by flat-owners as several of them approached him with this problem.
“Buyers do not understand technical jargon like niche area and exit area and super-superbuilt-up area. Carpet area is measurable, and gives the buyer and accurate idea of the size as well as FSI,’’ said Sharma. When the sale of a flat is being discussed, almost 40-42% is currently shown in such terms, leading to a higher possibility of the final product not matching the buyer’s expectations, or of cheating, he said.
Meanwhile on Thursday, the state cabinet approved a Bill to set up a Housing Regulatory Commission in Maharashtra. The Bill will now be placed before the legislature next week. The Commission will have the powers of a civil court, and be headed by an expert from the housing field. The three-member commission will have a 21-member advisory committee.

AMNESTY SCHEME

The government is framing rules and regulations for an amnesty scheme to aid citizens who bought flats decades ago, but have not yet got it conveyed. “If people who bought flats 20 and 30 years ago try to get it conveyed now, they find that the current stamp duty rates are more than the cost of the flat when they bought it. The government will introduce an amnesty scheme to save them from this unnecessary hardship,’’ Kshatriya added.

Retailers try new ways to counter soaring rentals

Common sense is uncommon.
Raghavendra Kamath & Tejal Deshpande / Mumbai March 31, 2008
# Fashion retailer ETAM Future, a joint venture between the Future Group and French retailer ETAM, has closed three shops in Delhi, Surat and Ahmedabad owing to high rentals.

# For the same reason, Liberty Shoes has put plans to launch its high-end brand “Pairs” on hold.

# Indiabulls, the new entrant in retail with its brand Trumart, recently closed five stores, one each in Thane, Jaipur and Pune and two in Ahmedabad. The company has opened five new stores (two each in Ahmedabad and Pune and one in Jaipur) with better deals with developers.

Sky-high rentals are forcing retailers to explore new ways to stay afloat. Many have done the obvious thing by shifting to cheaper locations or simply downing their shutters. But others are renegotiating deals with developers to ensure business sustainability.

New deals like longer “rent-free” periods, no “lock-in” clauses in agreements and revenue-sharing deals with developers are becoming common.

“Today, 90 per cent of retailers are not making money. Many of them are earning only half of what they should make to break even. Zooming realty costs is the main culprit,” said a property consultant.

A cross-section of retailers Business Standard spoke to said rentals should account for 10 to 12 per cent of sales to make business sense but now make up 20 to 30 per cent of sales in many cases.

“We have decided not to pay more than 20 per cent of our sales as rent. How can one pay rents that are equivalent to total sales in some high streets?” said Jaydeep Shetty, chief executive of ETAM Future Fashions.

Retailers have started bargaining for more with developers. “We do not sign up for a lock-in period. If you do not make money in a place, what is the point in staying there,” said Subir Ghosh, chief executive of music and lifestyle retailer Planet M.

Most retailers sign up for three-year lock-ins that require them not to vacate the premises in that time-frame.

Revenue-sharing agreements are also catching up as footfalls wane in many malls in the country. French brand Lacoste has already opted for such arrangement with three of its stores.

“As our occupation costs go up, the revenue sharing model can help sustain operations, especially in high streets,” said Vikas Gupta, managing director of Lacoste India.

Retailers that are unwilling to opt for revenue sharing are looking at new retail formats. Arvind Brands, for instance, plans to launch multi-brand stores for its international brands.

“Multi-brand outlets are cost-effective since they make a 10 to 15 per cent difference in sales per square foot. It will also help improve footfalls because many brands are available under one roof,” said J Suresh, chief executive of Arvind Brands.

'High interest rates, prices stunt real estate'

High interest rates and overheated asset prices have cooled the super-charged growth in real estate even as a demand-supply mismatch continues in the Indian property market.

DECLINE AND FALL

# Price movement over the last three to six months in the central business districts in key cities has been flat
# Prices are expected to be flat in the near future
# Speculators moving out, end-users buying cautiously
# Commercial real estate supply to increase in coming six to eight quarters
# Interest rate cut would have helped boost demand, but with inflation up, this is unlikely
# Input costs — steel, cement etc — have gone up, along with land price
A cross section of opinion in the real estate sector suggests that overall prices have stagnated or declined 10 to 15 per cent in the past six months in prime commercial areas and are expected to dip 10 per cent more in the coming months across key Indian cities. Stagnation and fall in NCR
“We have not seen any major movement in prices of office buildings over the last three months. In fact, prices in the central business district of Delhi have remained hard. Rentals in the suburbs have stagnated,” said Pradeep Jain, chairman, Parsvnath Developers.

Rentals of prime commercial buildings in the New Delhi central business district, which covers the area around Connaught Place, stand at their December prices of Rs 330 to Rs 375 per square foot (sq ft).

At Nehru Place, the capital’s secondary business district, commercial rentals have been constant at Rs 220 to 260 per sq ft during the same period, say property consultants.

In contrast, rentals grew 40 to 50 per cent in the National Capital Region in calendar 2007, according to a recent report by property consultancy Jones Lang LaSalle Meghraj (JLLM)

In the emerging boomtowns Gurgaon and Noida, which command rentals between Rs 50 and 200 per sq ft, have seen a 5 to 10 per cent dip in commercial rentals in the last three months, according to consultants.

Slowdown in Mumbai
Last week, Mumbai’s city planning agency — the Mumbai Metropolitan Region Development Authority (MMRDA) — failed to get bidders for two plots in the Bandra-Kurla Complex (BKC), the city’s new business district. Analysts say this is a clear indication of a slowdown.

“The days of super-high growth are over. Now developers are only going for those properties which are reasonable,” said Abhishek Kiran Gupta of JLLM.

A landmark office tower at Worli, which commanded rentals of Rs 550 per sq ft, has seen a decline to Rs 375 per sq ft, said a city-based property consultant. He added that rentals in BKC, which had gone up to around Rs 450 per sq ft, are likely to soften by Rs 75 to Rs 100 per sq ft.

The addition of new office space over the next six to eight quarters is expected to lead to a further decline in rentals. Nearly 15 million sq ft, the equivalent of the BKC, of office space will be added in Mumbai by end-2008, the NCR is expected to see an addition of 7 million sq ft of office space.

“Rentals will not grow by 30 to 40 per cent now as was the case till now. Rates in the prime city centre areas will not fluctuate much,” said Gupta, adding: “Rentals in the suburbs will not grow more than 8 to 15 per cent.”

Given that economic growth is expected to slow in 2008-09, experts say reduced demand could see more supplies coming into the market.

“Companies book and lease space keeping three- to five-year horizon. But given the slowdown in economy, they tend to scale down their demand projection of space. Reduction in demand means more supply hitting the market,” said Jai Mavani, executive director, KPMG.

Slump in housing
Residential demand, which is more sensitive to interest rate movement, has cooled in recent times, though developers are reluctant to admit this.

However, it is a fact that property transactions have dropped and the rate of new home loan disbursals has also fallen.

The State Bank of India (SBI), the country’s largest lender, saw a home loan portfolio growth rate of 16 per cent in 2007, slower than the 20 per cent growth witnessed in 2006.

SBI has cut home loan rates twice since January 2008, a bank executive said, adding that there was no visible growth as yet in the home loan portfolio. “Property prices are still high and people still cannot afford flats in big cities,” he added.

“Apartment sales have gone down by 20 to 30 per cent in Mumbai. Developers are doling out goodies like stamp duty relief, free parking and interiors to boost sales,” said Rajiv Sabharwal, head, retail assets, ICICI Bank.

Crucially, developers are not cutting prices.

“Developers can not cut prices because once you do that, it signals the start of a downward spiral. They are holding on to the prices to maintain the momentum,” said Rajesh Mehta, a leading property consultant in Mumbai, adding: “April and May are the key months as far as property deals go. If transactions do not pick up, prices of apartments will fall at least 10 to 15 per cent”.

Traditionally a stock market boom has a direct impact on real estate prices. However, the near 5000-points fall in Bombay Stock Exchange Sensex from its peak in January 2008 has wiped out much investor wealth.

This reversal of fortunes is expected to have an immediate impact on residential real estate prices. The last two or three years have seen prices escalate across the country.

Despite anecdotal evidence of prices falling marginally in recent times, the fact remains that supply of apartments and built up plots in the developed areas of Mumbai and Delhi is scarce.

“New residential projects have slowed down. Only big developers are launching new projects. Buyers are also waiting whether prices will come down,” adds ICICI’s Sabharwal.

Speculators have exited many areas like Greater Noida, Kundli and even some parts of Gurgaon. JLLM Chairman Anuj Puri believes that investors, who comprise nearly 20 per cent of property buyers, are staying out after the stock market crash. “The absence of speculator interest has led to a 15 to 20 per cent correction in areas like Gurgaon and Noida,” he said.

The scenario in Cyberabad
The southern city has seen a change in the nature of buyers. Where investors dominated before, more and more end-users are buying properties, says I Syam Prasad Reddy, managing director and chief executive officer, Indu Projects Ltd.

“Hitherto, demand was driven both by investors and end users. Currently there is a substantial drop in investor interest, but there isn’t any slow down and demand is only flat”, he adds.

All quiet in Silicon city
“No upward movement of prices has been evident in Bangalore’s commercial business district for the last four to five months. Residential realty prices have stagnated due to an increase in supply, much more than the demand,” said Samira Chandra Gupta, regional director, Colliers International.

Others concur with this view. “Prices have been generally flat. In many localities prices have fallen sharply. The reduction is greater in peripheral areas and to some extent in premium or super-luxury residential properties,” said Shivaram Malakala, executive director, Habitat Ventures.

On the outlook for Bangalore, Collier’s Gupta said demand from the IT sector may be impacted by the US slowdown, but sectors like pharma, R&D services and some manufacturing companies would continue to drive demand. Hardening interest rate over the past year have seen second and third home buys, which drove the markets, dry up.

Like elsewhere, prices are expected to remain bearish, with Malakala saying they could fall further by up to 10 to 15 per cent.

'High interest rates, prices stunt real estate'

High interest rates and overheated asset prices have cooled the super-charged growth in real estate even as a demand-supply mismatch continues in the Indian property market.

DECLINE AND FALL

# Price movement over the last three to six months in the central business districts in key cities has been flat
# Prices are expected to be flat in the near future
# Speculators moving out, end-users buying cautiously
# Commercial real estate supply to increase in coming six to eight quarters
# Interest rate cut would have helped boost demand, but with inflation up, this is unlikely
# Input costs — steel, cement etc — have gone up, along with land price
A cross section of opinion in the real estate sector suggests that overall prices have stagnated or declined 10 to 15 per cent in the past six months in prime commercial areas and are expected to dip 10 per cent more in the coming months across key Indian cities. Stagnation and fall in NCR
“We have not seen any major movement in prices of office buildings over the last three months. In fact, prices in the central business district of Delhi have remained hard. Rentals in the suburbs have stagnated,” said Pradeep Jain, chairman, Parsvnath Developers.

Rentals of prime commercial buildings in the New Delhi central business district, which covers the area around Connaught Place, stand at their December prices of Rs 330 to Rs 375 per square foot (sq ft).

At Nehru Place, the capital’s secondary business district, commercial rentals have been constant at Rs 220 to 260 per sq ft during the same period, say property consultants.

In contrast, rentals grew 40 to 50 per cent in the National Capital Region in calendar 2007, according to a recent report by property consultancy Jones Lang LaSalle Meghraj (JLLM)

In the emerging boomtowns Gurgaon and Noida, which command rentals between Rs 50 and 200 per sq ft, have seen a 5 to 10 per cent dip in commercial rentals in the last three months, according to consultants.

Slowdown in Mumbai
Last week, Mumbai’s city planning agency — the Mumbai Metropolitan Region Development Authority (MMRDA) — failed to get bidders for two plots in the Bandra-Kurla Complex (BKC), the city’s new business district. Analysts say this is a clear indication of a slowdown.

“The days of super-high growth are over. Now developers are only going for those properties which are reasonable,” said Abhishek Kiran Gupta of JLLM.

A landmark office tower at Worli, which commanded rentals of Rs 550 per sq ft, has seen a decline to Rs 375 per sq ft, said a city-based property consultant. He added that rentals in BKC, which had gone up to around Rs 450 per sq ft, are likely to soften by Rs 75 to Rs 100 per sq ft.

The addition of new office space over the next six to eight quarters is expected to lead to a further decline in rentals. Nearly 15 million sq ft, the equivalent of the BKC, of office space will be added in Mumbai by end-2008, the NCR is expected to see an addition of 7 million sq ft of office space.

“Rentals will not grow by 30 to 40 per cent now as was the case till now. Rates in the prime city centre areas will not fluctuate much,” said Gupta, adding: “Rentals in the suburbs will not grow more than 8 to 15 per cent.”

Given that economic growth is expected to slow in 2008-09, experts say reduced demand could see more supplies coming into the market.

“Companies book and lease space keeping three- to five-year horizon. But given the slowdown in economy, they tend to scale down their demand projection of space. Reduction in demand means more supply hitting the market,” said Jai Mavani, executive director, KPMG.

Slump in housing
Residential demand, which is more sensitive to interest rate movement, has cooled in recent times, though developers are reluctant to admit this.

However, it is a fact that property transactions have dropped and the rate of new home loan disbursals has also fallen.

The State Bank of India (SBI), the country’s largest lender, saw a home loan portfolio growth rate of 16 per cent in 2007, slower than the 20 per cent growth witnessed in 2006.

SBI has cut home loan rates twice since January 2008, a bank executive said, adding that there was no visible growth as yet in the home loan portfolio. “Property prices are still high and people still cannot afford flats in big cities,” he added.

“Apartment sales have gone down by 20 to 30 per cent in Mumbai. Developers are doling out goodies like stamp duty relief, free parking and interiors to boost sales,” said Rajiv Sabharwal, head, retail assets, ICICI Bank.

Crucially, developers are not cutting prices.

“Developers can not cut prices because once you do that, it signals the start of a downward spiral. They are holding on to the prices to maintain the momentum,” said Rajesh Mehta, a leading property consultant in Mumbai, adding: “April and May are the key months as far as property deals go. If transactions do not pick up, prices of apartments will fall at least 10 to 15 per cent”.

Traditionally a stock market boom has a direct impact on real estate prices. However, the near 5000-points fall in Bombay Stock Exchange Sensex from its peak in January 2008 has wiped out much investor wealth.

This reversal of fortunes is expected to have an immediate impact on residential real estate prices. The last two or three years have seen prices escalate across the country.

Despite anecdotal evidence of prices falling marginally in recent times, the fact remains that supply of apartments and built up plots in the developed areas of Mumbai and Delhi is scarce.

“New residential projects have slowed down. Only big developers are launching new projects. Buyers are also waiting whether prices will come down,” adds ICICI’s Sabharwal.

Speculators have exited many areas like Greater Noida, Kundli and even some parts of Gurgaon. JLLM Chairman Anuj Puri believes that investors, who comprise nearly 20 per cent of property buyers, are staying out after the stock market crash. “The absence of speculator interest has led to a 15 to 20 per cent correction in areas like Gurgaon and Noida,” he said.

The scenario in Cyberabad
The southern city has seen a change in the nature of buyers. Where investors dominated before, more and more end-users are buying properties, says I Syam Prasad Reddy, managing director and chief executive officer, Indu Projects Ltd.

“Hitherto, demand was driven both by investors and end users. Currently there is a substantial drop in investor interest, but there isn’t any slow down and demand is only flat”, he adds.

All quiet in Silicon city
“No upward movement of prices has been evident in Bangalore’s commercial business district for the last four to five months. Residential realty prices have stagnated due to an increase in supply, much more than the demand,” said Samira Chandra Gupta, regional director, Colliers International.

Others concur with this view. “Prices have been generally flat. In many localities prices have fallen sharply. The reduction is greater in peripheral areas and to some extent in premium or super-luxury residential properties,” said Shivaram Malakala, executive director, Habitat Ventures.

On the outlook for Bangalore, Collier’s Gupta said demand from the IT sector may be impacted by the US slowdown, but sectors like pharma, R&D services and some manufacturing companies would continue to drive demand. Hardening interest rate over the past year have seen second and third home buys, which drove the markets, dry up.

Like elsewhere, prices are expected to remain bearish, with Malakala saying they could fall further by up to 10 to 15 per cent.

Real(i)ty check on prices under way

Hindu reports

Mumbai, March 29 A price correction of 10-15 per cent is slowly happening in the realty sector across the country though it is area-specific in cities.

While realtors point to various factors for the downtrend, developers blame skyrocketing land prices. Others tend to point fingers at a demand-supply mismatch and investor disenchantment. “Though a definite correlation cannot be established between the stock market and the price drop, investors/speculators are exiting the realty space,” says Mr Pankaj Renjhen, Managing Director, Jones Lang LaSalle Meghraj, Mumbai.
Impact

The impact is reflected more in the secondary markets (property resale) and in projects that have come in the last two years. The central business districts of the metros appear to be holding their own, especially in Delhi and Mumbai where economic drivers have been strong.

In Jaipur, projects are more and hence the supply side is overweight. In Gurgaon, where real time demand is for apartments in the Rs 40-75 lakh range, there is ample inventory of the premium class of Rs 1 crore plus, he says.

DLF’s entry on Old Mahabalipuram Road in Chennai with a price line of Rs 2,700 a sq ft triggered a change in the locale where the price was upwards of Rs 3,300.

Chennai suburbs are also feeling the heat, as the number of projects is on the rise. Twelve malls for a city like Indore suggests that only those with the right mix and strategy would end up survivors, given the city’s size, he says.

The apex body of developers feels land prices have touched unaffordable levels and hence the inevitable.

The president of the Mumbai Chapter of Confederation of Real Estate Developers Association of India, Mr R.S. Ajmera, said a 10 per cent correction was sure to take place in overheated markets such as Kochi, Chennai, Bangalore and Pune.

He, however, did not fail to blame the decline of realty stocks on market sentiments and the price correction to some extent on the US slowdown and sub-prime impact. The correction in real estate is also happening globally, he says.
Need-driven demand

Mr Ajmera points to the auction of a Bandra Kurla Complex plot here, for which Jet Airways bid Rs 826 crore to set up its global headquarters, to emphasise that demand is driven by need. Jet Airways was the lone bidder for the property.

Said to have the third largest land bank in Mumbai, the Ajmera Group has developed over 170 lakh sq ft in the city. It has put up mega projects in Pune, Rajkot, Ahmedabad, Surat and Bangalore.

The demand-supply mismatch is also a prime factor, Mr Ajmera said.

On the positive side, he is upbeat about the opportunities in tier II and III cities where land prices were sober and realistic.

Black money saves financial sector

SWAMINATHAN S ANKLESARIA AIYAR

A housing boomand-bust has engulfed the US financial sector in crisis. India, too, has experienced a runaway real estate boom, which in a few areas is going bust. The share prices of real estate companies have crashed. Yet, India has no mortgage crisis or financial sector crisis.

Why not? Mainly because of the huge amount of black money in Indian real estate. This has saved the Indian financial sector in unexpected ways. Traditionally, US mortgage lenders checked the creditworthiness of borrowers, and then made the borrower pay at least 20% of the house value, loaning the remaining 80%. So, even if the price of the house dipped, it would still be higher than the bank's loan, and the borrower had an incentive to repay it.

However, in recent years, US banks relaxed loan conditions to increase lending volumes and profits. They began giving loans equal to the entire value of the house, so borrowers had no personal equity stake at all. Many lenders stopped checking the creditworthiness of borrowers. Ultimately, this led to loans to persons with no documented income, job or assets. Very risky!

Moreover, the US financial system created something called securitisation of home loans. Instead of retaining loans on their own books, banks chopped and bundled together thousands of loans, calling the bundle a mortgage-backed security. These securities were then sold to investors, who earned a high return provided borrowers paid regularly. In effect, banks originating home loans re-sold these, and no longer had to worry about defaults.

This led, inevitably, to malpractice. Many banks offered 'teaser' loans. These initially carried very low interest rates, which re-set after a few years at much higher rates. This attracted many low-income people since the monthly installments were initially low. But when the loans re-set higher, some poor borrowers could not repay. The bank originating the loan was unconcerned, having already sold the loan.

In this way, US home lending — and prices — shot up. As long as the economy and housing market were sunny, borrowers paid installments regularly. But eventually housing prices peaked, and then fell. Many owners with loans covering 100% of home cost now found that their homes were worth less than their outstanding loans. So, many borrowers opted to give up the property and rid themselves of the accompanying bank loan. They simply posted the home keys back to the banks.

US banks now face borrowers who can't pay for want of income, plus those who won't pay for properties worth less than the accompanying debt. Mortgage-backed securities are falling in value as underlying defaults rise. The fall in value was initially estimated at $100 billion, is now estimated at $600 billion, and will exceed a trillion dollars if home prices keep falling (as seems likely). This has inflicted huge losses on holders of the mortgagebacked securities, including the biggest banks in the world — Citibank and Bank of America. Many holders of these securities — such as investment bank Bear Stearns — will die or be forced to merge with more solvent entities.

Why does this not happen in India? Here, too, banks have increased lending aggressively for housing in the last five years. Here too, many banks finance the entire house value.

But Indian borrowers do not walk away from their homes — and loans — if prices dip. This is because a large proportion, often half, of almost all home purchases is paid in black money. If a house is sold for Rs 100 lakh, the official registered value will typically be only Rs 50 lakh, with the balance paid under the table in cash.

A bank may loan Rs 50 lakh, covering the entire formal price. However, the owner's contribution is not zero: he has paid Rs 50 lakh in black. To preserve that black investment, he will keep paying his installments even if house prices dip.

US banks give non-recourse loans — that is, the loan is secured only by the mortgaged property, and the borrower becomes debt-free if he returns the property. This is not so in Europe, where the borrower remains personally liable even after returning the mortgaged property, so the bank can seize his other assets. This discourages default. Hence, European banks are not suffering the way US ones are. Ditto for Indian banks.

When economic conditions get tough, defaults go up. In the last year, efaults have risen in Indian real estate, but mainly on account of commercial builders. The default rate remains modest for home-owners. Now, the Indian legal system is so slow that borrowers have little fear of even their mortgaged homes being seized, let alone other assets. Yet, they do not default, and India's financial system remains strong.

The reason is that banks enjoy, without asking for it, a huge safety margin provided by the black money invested by every home owner. To preserve this black investment, borrowers will do their level best not to default and lose their property. Ironically, black money enforces loan discipline in India, far more effectively than formal contracts or legal processes.
Thanks for posting this. Sounds funny but very true. Black money plays a crucial role in the RE prices. In addition to what the article mentioned there is also new black money chasing RE that will help the RE prices. When I went to India this time I heard lot of black money transactions happening in the proposed SEZ areas.
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SWAMINOMICS
Black money saves financial sector
SWAMINATHAN S ANKLESARIA AIYAR

A housing boomand-bust has engulfed the US financial sector in crisis. India, too, has experienced a runaway real estate boom, which in a few areas is going bust. The share prices of real estate companies have crashed. Yet, India has no mortgage crisis or financial sector crisis.

Why not? Mainly because of the huge amount of black money in Indian real estate. This has saved the Indian financial sector in unexpected ways. Traditionally, US mortgage lenders checked the creditworthiness of borrowers, and then made the borrower pay at least 20% of the house value, loaning the remaining 80%. So, even if the price of the house dipped, it would still be higher than the bank's loan, and the borrower had an incentive to repay it.

However, in recent years, US banks relaxed loan conditions to increase lending volumes and profits. They began giving loans equal to the entire value of the house, so borrowers had no personal equity stake at all. Many lenders stopped checking the creditworthiness of borrowers. Ultimately, this led to loans to persons with no documented income, job or assets. Very risky!

Moreover, the US financial system created something called securitisation of home loans. Instead of retaining loans on their own books, banks chopped and bundled together thousands of loans, calling the bundle a mortgage-backed security. These securities were then sold to investors, who earned a high return provided borrowers paid regularly. In effect, banks originating home loans re-sold these, and no longer had to worry about defaults.

This led, inevitably, to malpractice. Many banks offered 'teaser' loans. These initially carried very low interest rates, which re-set after a few years at much higher rates. This attracted many low-income people since the monthly installments were initially low. But when the loans re-set higher, some poor borrowers could not repay. The bank originating the loan was unconcerned, having already sold the loan.

In this way, US home lending — and prices — shot up. As long as the economy and housing market were sunny, borrowers paid installments regularly. But eventually housing prices peaked, and then fell. Many owners with loans covering 100% of home cost now found that their homes were worth less than their outstanding loans. So, many borrowers opted to give up the property and rid themselves of the accompanying bank loan. They simply posted the home keys back to the banks.

US banks now face borrowers who can't pay for want of income, plus those who won't pay for properties worth less than the accompanying debt. Mortgage-backed securities are falling in value as underlying defaults rise. The fall in value was initially estimated at $100 billion, is now estimated at $600 billion, and will exceed a trillion dollars if home prices keep falling (as seems likely). This has inflicted huge losses on holders of the mortgagebacked securities, including the biggest banks in the world — Citibank and Bank of America. Many holders of these securities — such as investment bank Bear Stearns — will die or be forced to merge with more solvent entities.

Why does this not happen in India? Here, too, banks have increased lending aggressively for housing in the last five years. Here too, many banks finance the entire house value.

But Indian borrowers do not walk away from their homes — and loans — if prices dip. This is because a large proportion, often half, of almost all home purchases is paid in black money. If a house is sold for Rs 100 lakh, the official registered value will typically be only Rs 50 lakh, with the balance paid under the table in cash.

A bank may loan Rs 50 lakh, covering the entire formal price. However, the owner's contribution is not zero: he has paid Rs 50 lakh in black. To preserve that black investment, he will keep paying his installments even if house prices dip.

US banks give non-recourse loans — that is, the loan is secured only by the mortgaged property, and the borrower becomes debt-free if he returns the property. This is not so in Europe, where the borrower remains personally liable even after returning the mortgaged property, so the bank can seize his other assets. This discourages default. Hence, European banks are not suffering the way US ones are. Ditto for Indian banks.

When economic conditions get tough, defaults go up. In the last year, efaults have risen in Indian real estate, but mainly on account of commercial builders. The default rate remains modest for home-owners. Now, the Indian legal system is so slow that borrowers have little fear of even their mortgaged homes being seized, let alone other assets. Yet, they do not default, and India's financial system remains strong.

The reason is that banks enjoy, without asking for it, a huge safety margin provided by the black money invested by every home owner. To preserve this black investment, borrowers will do their level best not to default and lose their property. Ironically, black money enforces loan discipline in India, far more effectively than formal contracts or legal processes.
.

Record real estate deals aborted

Two record real estate deals in Kalina that were supposed to bring a windfall to local residents have tanked as the buyers have abruptly pulled out as a result of the recent, sobering 'realty check' in and around the Bandra-Kurla Complex.

In December 2007, 159-odd residents of Vivek Apartments at Kalina, located not too far from BKC which was then seeing real estate prices go through the roof, were offered nearly Rs 46,800 per sq ft by a pharmaceutical company, Sterling International Enterprises Ltd, that wanted to set up an office there. The residential complex has

flats ranging from 465 sq ft to 785 sq ft, so the deal meant residents would get anywhere between Rs 2.10 crore and Rs 3.75 crore each after the deal was executed in March 2008.

Residents of Kailash Prabhat, located a few metres away from Vivek Apartments, were at the same time offered Rs 210 crore for the residential building. The deal was therefore going to fetch Rs 32,000 per sq ft, so a flat of 750 sq ft would have got Rs 2.4 crore.

Both offers were unprecedented as the prevailing rate in the area then was around Rs 4,000 per sq ft.

However, both deals were called off recently in the wake of the very first signs of a meltdown in the property market and the turbulence in the stock market.

In a letter to the secretary of Vivek Apartments dated March 11, 2008, Sterling said it had decided not to go ahead with the deal citing the due diligence report and advice of its legal team. It asked the society to return the Rs 25 lakh paid as earnest money while making the Rs 403 crore offer.

Muralilal Chaturvedi, a real estate expert, said rates of property at the BKC were exorbitant and were putting off prospective buyers.

He cited the March 18 auction of five MHADA properties — three commercial and two residential — at BKC. There were no bidders for two commercial plots, and the third had just one bidder; the saving grace was the record prices paid for the two residential plots.

The lack of interest came as a rude shock to MHADA, which had auctioned three commercial plots at record prices as recently as November 2007.

A broker said rental rates too had come down of late. Apparently, owners have reduced their demand from Rs 500 per sq ft to Rs 250.

Chaturvedi cited the uncertainty in the stock market, which began in January 2008, as another reason for lack of enthusiasm among buyers.


Residents upset but still hopeful
Yakub Rais, secretary of Vivek Apartments, said Sterling cited a financial crunch as well as a steady fall in share prices for withdrawing its offer. The housing society has returned the earnest money, he added.

The cancellation of the deal at the eleventh hour has stunned many residents.

One of them said, "Since my financial position is not so good, I was looking forward to the Rs 2.75 crore that I would have got for my 500 sq ft apartment. I thought of purchasing an apartment in a nearby locality for Rs 1 crore and investing the remaining amount in a business. The letter has shattered my dreams."

However, Rais is unfazed by the cancellation of the deal. He said other builders would come forward with similar offers due to the strategic location of their property. "We are looking for other prospective buyers and hope to strike a deal of a similar nature soon," Rais said.

Residents of Kailash Prabhat too said they were optimistic. According to Tajammul Hussain, chairman of the society, the deal with the builder could not go through, but negotiations with two other interested parties were on

Indian property sale flop could cause wider flap

One thing that has never been a hard sell in Mumbai over the past few years is property.

But last week, for the first time in 13 years, Mumbai's metropolitan authorities failed to sell government land in an auction in India's financial capital.

Up for sale were five plots in the Bandra Kurla Complex - a prime commercial real estate district where the existing tenants include the country's largest stock exchange, the securities market regulator and Citigroup's India headquarters. But the government was able to dispose of only three plots, raising Rs13.2bn ($326m) rather than the Rs19bn originally targeted, according to Bloomberg.

Only a few months ago, the government was holding land sales in the same area that the domestic press touted as the most lucrative in the city's history.

So what does a government property sale have to do with Indian equities? While there is no direct link, property prices are an important indicator of sentiment in India's financial capital, where real estate and stock market valuations often move in tandem.

Just as the long-running rise in Indian property prices seems under threat, so too there is talk that the country's great five-year stock market bull run is losing steam.

The benchmark Sensex Index of 30 leading stocks closed last week at 14,994.83 points, down about 29 per cent from its highs in January when the market was still one of the world's hottest.

India's stock market is being buffetted by the same global pressures affecting its peers worldwide - concern surrounding the subprime crisis and uncertainty about the potential impact of a US recession on the country's economy.

The jitters in India started in the information technology outsourcing sector, the Indian industry most dependent on the US economy for business and one of the country's biggest earners of export dollars. IT stocks are down almost 30 per cent from last August.

But now concern has begun to shift to whether the country's significant domestic economy, which is based largely on consumption, can sustain its momentum. Indeed, headline economic growth has already begun to slow from levels near 10 per cent to between 8 per cent and 9 per cent.

The problem is partly a structural one. High commodity prices are putting upward pressure on inflation, forcing the central bank to keep interest rates frozen near their peak at 7.5 per cent.

The central government, meanwhile, is preparing for general elections by May next year and is in an expansive mood, in February announcing tax exemptions and debt waivers for lower income earners that will pump more money into the economy.

While this could act as a welcome stimulus at a time when the economy is slowing, it could also feed inflation, further tying the the central bank's hands on rates.

The tight monetary policy has already forced banks to slow lending to consumers. Industrial groups are still flush with cash from a period of record profits but if the market downturn drags on, they will begin to find it hard to raise money to finance their expansion plans, many of which looked incredibly ambitious even when times were better.
DLF, the country's biggest developer, for instance, plans to build 750m square feet of floor space in the coming years, triple the amount it has constructed in its entire history. A lot of its funding is expected to come from the stock market.

Against the bears, though, there remain many investors in India who hope the market is just going through one of its many corrections.

This has happened 12 times during the five-year bull run, according to Ridham Desai, equities strategist with Morgan Stanley in Mumbai. Each dip has been accompanied by a "V-shaped" recovery, in which share prices have rocketed back up to their earlier peaks.

Another factor containing the panic is that while the market has been battered, it has not fallen below its lows in August last year, a better performance than many of its emerging market peers.

And in many sectors apart from technology, Indian stock market valuations remain above their six-year average, according to Morgan Stanley.

In a show of confidence, domestic investors have continued to pump money into local mutual funds in January and February in defiance of net selling by foreigners.

If the turmoil in the US continues, none of this may make much difference. India's great bull run will surely grind to a halt.

But if the US Federal Reserve is able to calm nerves and commodity prices start to ease, the Indian central bank could cut rates and the party on the Indian market could revive.

So here's to the next government property sale in Mumbai. Its success or failure will mean a lot more than a bit of revenue for the government.

Pune Property Market Is Steadily Witnessing A Slowdown: say brokers

By sachiv, Section Real Estate
Posted on Fri Mar 28, 2008 at 10:40:11 PM EST
Stock market crash, recession in the US, increase in loan rates, reversal of demand-supply, investors moving out, all this or perhaps the fact that what goes up must come down. It could be labelled any of these, but there is little denying the fact that the Pune property market is steadily witnessing a slowdown of the kind not seen in the recent past.

From galloping at an almost manic pace over the last couple of years to a state when there is a decisive lull in the market, the real estate scene-like it's happening in neighbouring Mumbai and also Gurgaon and Hyderabad- seems all geared for a reality check.

"Business has gone down for us by at least 20 per cent in the last two months. It's the same scenario in cities like Bangalore and Hyderabad according to colleagues and there seem no signs of it picking up very soon," said Kshama Ganguly, real estate agent.

"A year ago, a builder told the customer to take the rate being offered right then or pay more Rs 200-300 after 15 days. Last week I negotiated a deal for a client in Wakad where the rate was being cited as Rs 3,100 per sq ft and the developer came down to Rs 2,900 without much ado. A builder who's coming up with a premium apartment at Prabhat Road had launched at Rs 9,000 but has now sent word that he's willing to book at Rs 8,500," she added.

Col (retd) A K Ahuja, real estate agent and member of the managing committee of Estate Agents Association of Pune, agreed. Builders who had earlier eschewed brokers have of late started to send them messages on their properties and want them to get involved, he said.

"I don't know whether this amounts to a slowdown but yes, it's definitely not as easy for a builder to sell properties as it was some time back. It was the investor segment with surplus funds that fuelled the unprecedented rise in rates. Now, with builders asking for high transfer charges and the government stipulating that properties bought have to be registered within a year, the investors are wary. This may also be one of the reasons for the sluggish market," said Ahuja.

Click on "Full Story" for more...

Rohit Gera, executive director Gera Developers however said that historically February and March are slow months as far as property is concerned. "There is a slight slackening but certainly not a cause for alarm," he said. "Builders are finding it more difficult to sell today than say a year ago but the reason is competition - a huge number of projects that have come up and customers are spoilt for choice. In the last one year the number of projects in any upcoming area have been something like 16 to 18," said Gera.

On why such a scenario is not translating into lower rates Gera said builders today are in a position where they do not have to do panic selling. "The basic rule is that even if 45 per cent of your project is sold, your construction costs are covered. Also with the RBI ruling last year that there would be no institutional funding for land acquisition, banks wound up all their dealing with developers. As a result debt levels are very low as far as developers are concerned and this has strengthened their position. They only have project construction debts which are usually covered by the time half the project is booked," he said.

Even if a third of any of his project is unsold today, he'd rather take over those apartments and put them on rent than sell them at a much lower rate, he added.

According to Rajesh Choudhary, partner Prestige developers, builders are also unable to reduce rates due to the fact that the current projects are on land bought a year ago when the prices were at a peak.

"Agreed everyone made a killing for about four years when rates kept multiplying due to market forces, but that situation is over. If everyone is waiting to see a crash, that's unlikely to happen," he said. As to how rates in Mumbai and Gurgaon have decline, Choudhary said it was because both rates and margins were so much more than in Pune.

Gera, however, conceded that the symptoms shown by the real estate market over the past few years could well be compared to a bubble. But will that bubble burst and prices come crashing down? "Not sure of that," replied the developer.

ICICI’s exposure to CDs pegged at $6 billion

That’s four times the estimates; but analysts say share remains a ‘buy’

MUMBAI: ICICI Bank’s investments in credit derivatives could be four times previous estimates at $6 billion, analysts said on Wednesday.

“ICICI Bank has clarified that there is some more exposure at its 100% owned international subsidiaries. In fact, its total exposure works out to $6 billion ($2.2 billion in credit derivatives and the rest in fixed income instruments),” Morgan Stanley’s Anil Agarwal, Anil Bang and Mansi Shah, said in a note to clients.

The trio warned that though the underlying credit quality on these instruments remains strong, ICICI’s mark to market losses could rise as global credit conditions are likely to worsen.

“ICICI Bank’s subsidiaries in the UK and Canada have invested $500 million in credit derivatives and taken a loss of $35 million as of January. Moreover, they have a fixed-income book of $3.8 billion, which is a bit out of money,” Agarwal, Bang and Shah said.

Suresh Ganapathy, analyst with Deutsche Bank, told DNA Money feels ICICI could recover the losses in the next two years when yields stabilise.

“But obviously all those having international operations are vulnerable because credit spreads are likely to be volatile in the next few months and one must also remember it is pre-election time here in India,” Ganapathy said

March 2008 rates for Mumbai

Realty prices in suburban Pune on a downslide

DNA reports
Bargain hard to save up to 10 per cent, say brokers

After witnessing an exponential rise over the last two years, real estate prices in Pune have come down by 8-10 per cent — Rs 200-400 per square feet — with prospective buyers prepared to wait because of high interest rates, if property agents are to
be believed.

Most real estate agents admit that there is a shortage of demand. “Even second sales are not getting the expected price and owners and builders have been found negotiating hard,” says Anil Kamble, a property dealer in Camp.

According to brokers, the decline is particularly seen in the fringe areas and suburbs, which have seen an increase in construction activity in recent years. Property prices in the main city are, however, still high, they say.

“In areas like Kharadi, the property prices vary from Rs3,500 to Rs5 000 per square feet and can be brought down by another Rs300-400 per square feet by bargaining hard,” says a member of the Pune real estate association. “Similarly, in areas like Pimple Nilakh, where the rates are Rs3,000 and upwards, bargaining can save prospective buyers up to Rs250 per square feet,” he said.

Senior IT professional Anuj Pradhan, who has been trying to sell his 3BHK flat at Wanowrie, was shocked to see a reduced price tag put on his property by his real
estate agent.

“Four months ago, the broker could have fetched me Rs60 lakh, but now he says buyers are not willing to pay more than Rs54 lakh,” Pradhan says.

“The buyer response,” according to Rajesh Vaswani, a property agent in Camp, “is now less than enthusiastic.” Builders, however, are hesitant to admit the fall, he says.
Sachin Kadam, a member of the Real Estate Agents’ Association of Pune, says property rates went up by more than 60-70% in the last two years in the heart of the city.

“But of late, the prices have started to stabilise. Buyers can now bargain with builders and pay a lower price,” he says.

Because of high interest rates on home loans, prospective buyers, mostly from the middle class, have decided to wait and watch, he says.

Ranjit Tiwari, another real estate agent, however, believes that the dip in prices
is temporary and will not last more than a couple of months.

“With the kind of growth the city is witnessing, real estate can’t lag behind,” he adds.

FSI increase on cards in Mumbai

As per the latest news articles it looks like the state government will be increasing FSI uniformly to 2 across the board. As per current rules, Mumbai city has an FSI of 1.33 and suburbs 1. SRA schemes have an FSI of 2.25 and Dharavi redevelopment 4. Most high rises are built in the suburbs using the TDR (transfer of development rights) certificates. The price quoted for them thru legal channels is 4500 per sq/ft. If one has to factor in the cash component, the price would shoot up to 7k-8k. With FSI being normalized at 2, it is possible to construct twice as much on the same land as before. Prices can drop here if this is implemented.

I found this excellent document on FSI by Alain Bertaud. He makes no bones of the fact that the BMC uses the TDR certificates in a monopolist manner thereby corrupting the system to a level where mumbai citizens have to live on 2.9 meters of land. Its an eyeopening document and it worth a second read. Quoting from the document.

Which factors are responsible for this situation? What is so exceptional about Mumbai?
The very low consumption of floor space coupled with very high real estate prices would suggest that a number of supply bottlenecks might be responsible. By comparing Mumbai to other metropolis in Asia it appears that indeed 4 factors are exceptional and contribute to the very low supply of floor space:

1. An exceptional topography that reduces the amount of developable land
2. A draconian and ill-conceived land use policy restricting the area of floor space which can be built on the little land available;
3. Muddled property rights preventing households and firms to freely trade land and floor space as a commodity;
4. A failure to develop major primary infrastructure networks, which prevents the city to overcome its topographical constraint. In turn, the weakness of the infrastructure network is used to justify the restrictive land use policy

To give an order of magnitude to these figures consider the following: Shanghai in 1984, recovering from more than 10 years of Cultural Revolution, had a floor area per person of 3.65 m2. Shanghai’ Municipality, at the time, considered that rapidly increasing floor consumption was to be the city’s first priority. In 2003, the average floor space consumption in Shanghai was 13.1 m2/person. This was achieved in part by drastically increasing the FSI to allowredevelopment of obsolete buildings with relocation largely in situ.

http://alain-bertaud.com/AB_Files/AB_Mumbai_FSI_conundrum.pdf

Another article on Time discusses Dharavi.

http://www.time.com/time/business/article/0,8599,1711330-2,00.html

End of the dream for Devenhalli real estate

Without water, electricity and roads all dreams can turn into nightmares. It will be interesting to see what the farmers do with the crores they have raked in from the sale of their "hot property". I know a friends domestic help who owned 1 acre of barren farmland in Devanhalli and they sold out in mid 2007, only to buy a site in RT nagar. Talk about jackpot.

TROUBLE AHEAD: Without guaranteed water and electricity supply, builders and developers in Devanahalli are in a fix

Builders have bought acres and acres around the new airport, but aren’t building.

Gated communities, integrated townships, villas and high-end-apartments are all on the cards, but are unlikely to see the light of day in the near future.

Developers bought agricultural land paying fancy prices up to Rs 1,300 a square foot hoping to cash in on the demand once the airport came up. But the harsh reality is that their hands are tied by many factors.

No clearances

The government has yet to release a development plan for the Devanahalli area. Without such a plan, approvals are impossible to come by.

Government agencies such as the pollution control, water and electricity boards are not ready to clear projects as they are in no position to provide service. Farmers no longer own land in the neighbourhood, and housing layouts can’t come up because of a lack of basic amenities.

Water woes

“Water is a major problem,” said Capt Raja Rao, former chief engineer and water resources expert. “The water board can’t supply much, and ground water in the region is already overexploited.”

A developer said the situation had pushed him to pessimism. “Even if the government allows us to dig borewells, where is the water? We have dug up to 900 feet, but it’s no use. We are in a real crisis.”

Premium builders like Shobha, Mantri, and Prestige have lined up mega projects, but nothing is moving. Only GMR has made a leap of faith and built its corporate office in Devanahalli.

Re-cycling of drainage water is one remedy, according to the BWSSB. But experts such as Raja Rao and A N Yellappa Reddy say it is contaminated beyond permissible limits.

Pay up for power

The power situation isn’t much better. A Bescom source said, “It is not as critical as the water problem, but we can’t assure uninterrupted power supply as the IT and BT industries demand. We can try to provide power at high rates, but industrial and domestic consumers may not be able to afford it.”

No IT hub

The software industry is reluctant to go to Devanahalli. No IT company is building an office in the region. Some plan townships for their employees but are demanding a satellite town ring road (STRR) that connects Dodballapur, Devanahalli, Hoskote, Ramanagar, and Magadi. But that is a costly wish.

“STRR calls for massive investment,” said Sudhir Krishna, BMRDA commissioner. “It is estimated to cost a whopping Rs 3,000 crore, or Rs 10 crore a km.”

Though the project has been planned as a public-private venture, no investor has come forward with the money. “With no IT company in the vicinity, our hope for real estate growth is receding. I am afraid we are heading for big trouble,” a developer said.

Some hope

However, the larger developer community is not so despairing. “With older airports running out of space, Bangalore is going to be a major aviation hub. And that will kick-start growth,” said K Sriram, chairman, Builders Association of India, Karnataka chapter.

Roubini , Peter Schiff , Marc Faber, are calling for financial meltdowns.

Roubini is calling for a severe meltdown, Faber see's India's sensex at 12k and Peter Schiff sees the dollar tanking below 1.5 to the Euro. I remember Faber's advice in nov 2005 where he said property investment is a better option then investing in Indian stocks due to high volatility exhibited by stocks. I actually took his advice and liquidated my MF's and bought few properties. Needless to say the decision was pretty good one since I didnt have to suffer the heartburn on May 2006 and then the recent whipsaw market of late 2007 and early 2008 and generated excess returns of MF"s since I had leveraged the credit market. I was primarily interested in Mumbai initially and I feel the prices then and now are still over priced relative to other cities, bar delhi. I think we will see pronounced correction in Mumbai since a lot of the stock money has evaporated and still more to come if Dr Faber's prediction comes true. To someone going short on the Indian Stock market, I think this coudn't be a more opportune time


Anatomy of a financial meltdown

By Nouriel Roubini

NEW YORK: A vicious circle is currently underway in the United States, and its reach could broaden to the global economy. America’s financial crisis has triggered a severe credit crunch that is making the US recession worse, while the deepening recession is leading to larger losses in financial markets, thus undermining the wider economy. There is now a serious risk of a systemic meltdown in US financial markets as huge credit and asset bubbles collapse.

The problem is no longer merely sub-prime mortgages, but rather a “sub-prime” financial system. The housing recession – the worst in US history and worsening every day – will eventually see house prices fall by more than 20 percent, with millions of Americans losing their homes. Delinquencies, defaults, and foreclosures are now spreading from sub-prime to near-prime and prime mortgages. Thus, total losses on mortgage-related instruments – include exotic credit derivatives such as collateralized debt obligations (CDOs) – will add up to more than $400 billion.

Moreover, commercial real estate is beginning to follow the downward trend in residential real estate. After all, who wants to build offices, stores, and shopping centers in the empty ghost towns that litter the American West?

In addition to the downturn in real estate, a broader bubble in consumer credit is now collapsing: as the US economy slips into recession, defaults on credit cards, auto loans, and student loans will increase sharply. US consumers are shopped-out, savings-less, and debt-burdened. With private consumption representing more than 70 percent of aggregate US demand, cutbacks in household spending will deepen the recession.

We can also add to these financial risks the massive problems of bond insurers that guaranteed many of the risky securitization products such as CDOs. A very likely downgrade of these insurers’ credit ratings will force banks and financial institutions that hold these risky assets to write them down, adding another $150 billion to the financial system’s mounting losses.

Then there is the exposure of banks and other financial institutions to rising losses on loans that financed reckless leveraged buy-outs (LBOs). With a worsening recession, many LBOs that were loaded with too much debt and not enough equity will fail as firms with lower profits or higher losses become unable to service their loans.

Given all this, the recession will lead to a sharp increase in corporate defaults, which had been very low over the last two years, averaging 0.6 percent per year, compared to an historic average of 3.8 percent. During a typical recession, the default rate among corporations may rise to 10-15 percent, threatening massive losses for those holding risky corporate bonds.

As a result, the market for credit default swaps (CDS) – where protection against corporate defaults is bought and sold – may also experience massive losses. In that case, there will also be a serious risk that some firms that sold protection will go bankrupt, triggering further losses for buyers of protection when their counterparties cannot pay.

On top of all this, there is a shadow financial system of non-bank financial institutions that, like banks, borrow short and liquid and lend to or invest in longer-term and illiquid assets. This shadow system includes structured investment vehicles (SIVs), conduits, money market funds, hedge funds, and investment banks.

Like banks, all these financial institutions are subject to liquidity or rollover risk – the risk of going belly up if their creditors do not rollover their short-term credit lines. But, unlike banks, they do not have the safety net implied by central banks’ role as lender of last resort.

Now that a recession is underway, US and global stock markets are beginning to fall: in a typical US recession, the S&P 500 index falls by an average of 28 percent as corporate revenues and profits sink. Losses in stock markets have a double effect: they reduce households’ wealth and lead them to spend less; and they cause massive losses to investors who borrowed to invest in stock, thus triggering margin calls and asset fire sales.

There is thus a broader risk that many leveraged investors in both equity and credit markets will be forced to sell illiquid assets in illiquid markets, leading to a cascading fall in asset prices to below their fundamental values. The ensuing losses will aggravate the financial turmoil and economic contraction.

Indeed, adding up all these losses in financial markets, the sum will hit a staggering $1 trillion. Tighter credit rationing will then further hamper the ability of households and firms to borrow, spend, invest, and sustain economic growth. The risk that a systemic financial crisis will drive a more pronounced US and global recession has quickly gone from being a theoretical possibility to becoming an increasingly plausible scenario.

Migrant worker exdous hampering construction in Pune

It comes as no surprise that the Pune builders have started blaming the migrants for late delivery of projects. Most construction contracts have a Force Majeure clause which absolves builders from their liabilities in case of delays. Expect all builders to delay projects and sit on the customers money for more months then planned.
The whole argument of quality workers is bogus since the migrants coming from impoverished regions of UP/Bihar have no skills bar raw genetic strength. What the builders mean is that they are unable to find hard working , strong people who are willing to work long hours at low wages. Its high time the construction industry upped its wages of the workers. On an emotional level I'm not sure how it feels to be building all the houses and apartments and not having a chance to live in half decent place along with your family. For all the investors in real estate I believe its time to reward the faceless worker since if it wasn't for him you woud'nt be looking so smart

The anti migrant violence in triggered off by Raj Thackeray's hate campaign has hit the booming real estate sector in Pune.

A large chunk of the workforce comes from states like Uttar Pradesh, Bihar and Jharkhand. But after the anti-migrant violence by Raj Thackeray's Maharashtra Navnirman Sena, these workers have gone back to their home states.

Seriously hampering work on construction projects.

Satish Magar, MD Magarpatta Township said, ''I would normally need about 14,000 to 15,000 workers daily on different locations for our projects, but I have to suffice with just 8000 to 10,000 workers and it's not just quantity but the question is also of good quality workers which we don't get here.''

Satish magar is not the only builder feeling the pinch. There is a huge demand-supply gap in Pune, which is witnessing a boom in the real estate sector.

Lalitkumar Jain, President of Pune Promoters and Builders Association said, ''We are facing a huge crises and we fear that because of the workers going back, we will not be able to meet our delivery commitments almost all the projects will be delayed.''

According to rough estimates, about 80 per cent of the construction workforce in Pune comes from other states and out of this, nearly 60 per cent are labourers from north. Many of them masons, plumbers, carpenters and electricians.

The situation in Pune with regards to the exodus of migrants is not as bad as in other cities like Nashik, but with the boom in the construction industry builders are facing the heat.

Hotel plans near BIAL grounded due to lack of water

If water is not available below 800 ft, how can residential complexes come up here. The bubble is Devenhalli real estate is so ready to burst.

Hotel plans near BIAL grounded

With the Karnataka State Pollution Control Board (KSPCB) categorically stating that it will not unlock the green-belt around the new Bangalore International Airport near Devanahalli, several hotel projects proposed in the area are likely to be grounded.

Non-availability of water around the airport is being cited as the reason by the KPSCB to reject scores of applications from various firms seeking clearance certificate.

Speaking to the Business Standard, KSPCB Chairman H C Sharat Chandra said surface water sources around the airport are few while the ground water table in the area is depleting.

“Water is now available only below 600-800 feet from the surface. If star hotels are permitted, the water level will further dip. So we have taken a decision against giving permission,” said Chandra.

It is estimated that 4.5 lakh litres of water is consumed everyday by hotels if they are allowed to operate. That eventually will only dry water sources in the rural areas, Chandra added.

Even the Bangalore International Airport Area Planning Authority (BIAAPA) had announced that it will not approve projects that will destroy natural river valley network in the three towns of Devanahalli, Doddaballapur and Vijayapura and the 347 villages that are in the airport area.

With the airport all set to be inaugurated this March-end, pressure is being mounted by hospitality lobby to allow five star hotels in the vicinity of the airport.

But Chandra maintained: “We will give permission provided the Bangalore Water Supply and Sewerage Board (BWSSB)supplies to these hotels. We will not allow anyone to exploit the ground water table.”

At present, BWSSB has installed a dedicated pipeline to the airport.Hotel plans near BIAL grounded
BS Reporter / Chennai/ Bangalore February 21, 2008
With the Karnataka State Pollution Control Board (KSPCB) categorically stating that it will not unlock the green-belt around the new Bangalore International Airport near Devanahalli, several hotel projects proposed in the area are likely to be grounded.

Non-availability of water around the airport is being cited as the reason by the KPSCB to reject scores of applications from various firms seeking clearance certificate.

Speaking to the Business Standard, KSPCB Chairman H C Sharat Chandra said surface water sources around the airport are few while the ground water table in the area is depleting.

“Water is now available only below 600-800 feet from the surface. If star hotels are permitted, the water level will further dip. So we have taken a decision against giving permission,” said Chandra.

It is estimated that 4.5 lakh litres of water is consumed everyday by hotels if they are allowed to operate. That eventually will only dry water sources in the rural areas, Chandra added.

Even the Bangalore International Airport Area Planning Authority (BIAAPA) had announced that it will not approve projects that will destroy natural river valley network in the three towns of Devanahalli, Doddaballapur and Vijayapura and the 347 villages that are in the airport area.

With the airport all set to be inaugurated this March-end, pressure is being mounted by hospitality lobby to allow five star hotels in the vicinity of the airport.

But Chandra maintained: “We will give permission provided the Bangalore Water Supply and Sewerage Board (BWSSB)supplies to these hotels. We will not allow anyone to exploit the ground water table.”

At present, BWSSB has installed a dedicated pipeline to the airport.

One lakh apartments may remain vacant in Bangalore by April

BANGALORE: Is Bangalore’s real estate market heading for a slump? Such is the impact of the real estate slowdown in Bangalore that the number of unoccupied apartments in and around the city is expected to touch nearly one lakh by April.

Citing the outcome of an “informal survey,” Inspector-General of Registration and Commissioner of Stamps H. Shashidhar told a workshop organised here on Tuesday by the Building and Other Construction Workers’ Welfare Board that these indeed were the current market trends.

Later, speaking to The Hindu, he said that the figure included both old and new apartments, i.e., those that had not been sold, those that had not been rented out and those now under construction. Mr. Shashidhar said that registrations of property in the State had reduced by 45 to 50 per cent, partially due to the ban on registration of revenue sites.
Infrastructure

Lack of infrastructure such as proper roads, drinking water supply and availability of schools had also contributed to the slowdown in property transactions. Moreover, people had become cautious while buying property and choosing only those which had clear titles.

It appears that only genuine users were buying the properties now while speculative investors were keeping themselves away from property transactions, he said.

Feroze Abdullah, realtor and proprietor of Feroze Estates, confirmed the slump in the sales of apartments, particularly on the outskirts of Bangalore in areas such as Whitefield and Marathahalli, over the last three months. He said his own business had seen a 50 per cent drop during this period. “There is more supply than demand. Prices in the last three years have risen unnaturally and the market is now seeing a levelling. But in the central districts, the prices are still high.”

Unrealistic prices, poor infrastructure and traffic problems had also contributed to the slump in sales of apartments, Mr. Feroz said. However, the builders have not reduced the prices of apartments hoping that they may pick up once the new airport commences its operations.

President of Karnataka Ownership Promoters Association A. Balakrishna Hegde maintained that the industry was expected to grow at a rate of 15 per cent this year and refuted any suggestion of a slump.

The upward revision of guidance value for property in Bangalore has deterred a number of apartment buyers from registering their property as the revision has increased the stamp duty burden. Over 50,000 housing units would be added this year in Bangalore, he said.

C.J. Roy, general secretary of Karnataka Township Developers Association, said that the real estate market had not gone down overall, though there was a small slump in prized locations

Pune's high-end realty market gets red hot

PUNE: “It’s plain economics,” says Pradeep Kataria, a Pune-based chartered accountant who owns a flat in the upscale Modi Baug area of the city. “There is a shortage of flats in this area, so what I and some of my neighbours bought four years ago for about Rs 45 lakh is now being quoted at more than Rs 4 crore.” Mr Kataria is talking about the price for premium flats in Pune, a city once famous as a destination for pensioners with limited incomes.

Pune’s real estate market is growing sharply. There is a shortage of flats at the higher end of the price spectrum and, yes, price is not a barrier any more. A couple of years ago, when a developer breached the Rs 1-crore mark, it was regarded as a one-off event. Now, these premium flats get sold as soon as a project is announced. In fact, even Rs 4 crore is passe in the segment; prices being quoted now are around Rs 11 crore.

This trend is in line with that seen in the premium segment in other fast-growing cities, such as Delhi, Mumbai, Hyderabad and Bangalore. “There is an under supply of really high-end properties in Pune, which is why we sell the moment we announce a project, before any work begins,” said Vishwajeet Jhavar of Marvel Developers.

These high-end flats come with their own swimming pools, jaccuzis, etc. The target buyer is the 25-35-year-old professional, either returning from abroad or someone who has cashed in on the stock exchange boom. “Rs 1 crore is not a big amount anymore as earning capacities have gone up and lifestyles have changed,” said R Vasudevan, managing director, Vascon Engineers.

Jilted real estate sector looks forward to RBI rate cut

The real estate sector that has been rocking in recent times, is now in news for the wrong sentiment. The Reserve Bank of India’s decision, not to cut interest rates has shattered the dreams of real estate companies that are already facing the brunt of a housing industry slowdown. The high cost of mortgage financing is stifling the sector.

RBI decision to keep interest rates unchanged in its third-quarter monetary policy review has left some developers and investors alarmed. A larger chunk of real estate companies was expecting a cut, especially in the backdrop of slowing home sales in major cities in the past few months.

Developers, however, differ regarding the depth and reach of RBI’s move. “The slowdown in transactions in residential sector is seen majorly in metros where the prices had gone fairly high. The small cities i.e. Tier II & Tier III cities, are not seriously affected by the bank rates, as the demand in the cities is much higher than the metros,” says Sanjay Mathur, Head Marketing of Pearls Infrastructure Projects Ltd

Interestingly, Avnesh Sood, Director, Eros Intercontinental, has a completely different take on this. “Slowdown is far from the metro cities. This is being seen more in non-metro cities. Speculation is minimal in metros as there are genuine end-users. In smaller towns, small and medium developers have already resorted to price correction but they cannot go any further on corrections due to their scale of operations”.

There is no doubt that the residential segment is seeing a fall in sales and a price correction. But large developers with good cash reserves, will not resort to price correction. It is the suburban & non-metro locations that are facing a slowdown. Unchanged rates will trigger another round of correction and developers will have to come up with innovative schemes like “Book now & pay later on possession” etc.

But opinions differ. “A severe price correction is still far off and may not happen at all. Demand is not exactly non-existent. As developers, we are quite optimistic that rate changes in the future will trigger increased sales activity and there will be decent growth between 2008-2010, as endusers continue to pickup property,” adds Sood.

The way forwards would probably be to focus on the affordable quality housing segment for the lower middle class, in the next 2 years. Developers and government bodies should join hands to focus on devising ways to increase the supply of middle income group housing.

Realty companies dole out sops to woo buyers

Economic times reports
NEW DELHI: Call it a silver lining in the bearish market. Your dream home may become cheaper than it appeared earlier. With buying activity at a low in the residential market, realty developers are introducing scheme like EMI holidays (between booking and possession of property) to spur demand. Players such as BPTP, Era Landmarks, Parsvnath Developers, Pearls Infrastructure and Vipul have declared incentives to woo buyers.

Recently, a slowdown in property transactions and a correction in prices have been witnessed due to high interest rates and escalating land costs. “It’s time to be more realistic after having enjoyed all the optimism in the past. Incentives to attract buyers in this segment is definitely needed now,” Eros Group director, Avneesh Sood said.

Vipul’s vice president (sales & marketing), Brijesh Bhanote supports the argument. “The schemes are definitely a result of the negative market sentiment,” he said. The company will soon come up with a subvention scheme in which it will bear part of the cost of interest on customers’ loan.


Parsvnath Developers is offering a scheme at Parsvnath City in Sonepat where a buyer can just pay 15% of the amount and relax till the residential apartment is completed. No EMI will be sought till possession. A similar scheme has also been initiated by realty player BPTP — the customer needs to pay only 15% of the basic sale price and no EMI for the next two years. The company will pay interest to the bank during this period. Says managing director of BPTP, Kabul Chawla, “Such offers are in demand now. These schemes have met with an encouraging response from our buyers.”

Points out Omaxe vice president (marketing), Vineet Nanda: “It’s not exactly slowdown; most of the real estate developers are offering subvention schemes as the focus is shifting from investorbased customer to the end user.” Omaxe does not have any such scheme at present but might offer a subvention scheme in the near future.

There are other offers as well. Era Landmarks is offering a combination of schemes such as assured returns on investments, fully furnished homes, priority location for second booking and discount in other Era group projects. On the other hand, Pearls Infrastructure is offering a marginal discount to buyers and also special rates in bulk booking to its corporate clients. Pearls Infrastructure’s marketing head, Sanjay Mathur admits that the low market sentiments has been one of the reasons to introduce such schemes.

Going forward, one can expect more schemes and incentives from the realty groups due to the emergence of newer players in the market. Anshuman Magazine, chairman and managing director of global real estate consultancy CB Richard Ellis, aptly sums it up: “There will be adjustments in the times to come. Growing competition in the sector will ensure price correction as buyers will have more options.”

IPO market deflates as 2 major IPO's withdraw

New Delhi: Real estate major Emaar MGF on Friday decided to withdraw its initial public offering as the issue could not get fully subscribed.
“The decision has been taken due to prevailing adverse market condition...although the QIB and HNI portions of the IPO were fully subscribed and the overall book was closed to 90%,” the company said in a statement.
Emaar MGF, the joint venture between Dubai-based Emaar and India’s MGF Development, has said that it would consider IPO at an appropriate time.
“Given the prevailing sentiments in the capital markets, it was unclear how well the stock would trade post-listing. It has been considered wiser to revisit the market only when the demand and sentiment are stable and better providing greater value to investors”, it said.
Delhi-based Emaar MGF said that the company remains committed to executing its projects on hand and is well funded to ensure that the delay in IPO would not hamper its growth plans.
The company expects to return to the market at a later date when sentiment and liquidity conditions are better.
Emaar MGF entered the capital market on February one with an IPO of 10.25 crore equity shares of Rs10 each to be determined through a 100% book building.
The issue was scheduled to close on February six. The company had initially fixed the price band at Rs610-690, which later on was brought down to Rs540-630.
The company further slashed its lower band to Rs530 per share and extended the period of public offer till 11 February. The issue was originally scheduled to close on 6 February.
Emaar MGF is present in 26 cities in India and has 13,000 acre of land bank. The company plans to develop 566 million sq ft during the next nine years, of which 455 million sq ft is residential, 90 million sq ft commercial and 18 million sq ft for retail.