2007: Real estate growth moderate in Chennai

Hindu reporting

Many potential buyers adopted a “wait and watch” approach in 2007 preferring to stay in rental accommodation than buy, writes Ramesh Nair

Photo : N. Sridharan

Uncertain phase: The real estate prices went up and the buyers remained lukewarm about going in for purchase.

After a record 50% plus price increase per annum in 2005 and 2006, the Chennai residential real estate market witnessed moderate growth in 2007 with prices increasing 8-12% across various micro markets. However most of this price increase was seen in the first quarter of the year after which the prices and sales volume stagnated. Although the office market saw a record 7 million sft absorption in 2007 indicating new job creation and a strong economy, this did not translate to direct increase in prices and volumes in the residential market as witnessed over the last three years. Many potential buyers adopted a “wait and watch” approach in 2007 preferring to continue staying in rented accommodation than buy. The number of apartments being sold in 4Q 2007 was also lower than 4Q 2006. Also, the home loan market, which was growing at 30 % plus in 2005 and 2006, saw a growth of only 10-15%.

The key reason behind this slowdown has been higher prices and interest rates, impacting affordability, and to a lesser extent excess supply in a few micro markets, rather than slow down of economy. Developers, who were selling their entire projects in a few days, are now taking months to sell their unsold stock. Although, no major drop in prices are expected immediately as the vacancy rate of unsold completed residential real estate stock is still negligible. Developers have started offering a variety of offers such as free car parks and flexible financing options such as interest waiver during construction period so that they do not have to bring down the prices.
Negotiability

The year 2007 saw Chennai’s residential market returning to more normal levels of activity. Properties with deficiencies in location or overly optimistic asking prices were slow to move. The hardest hit was the Rs. 60 lakh plus apartment market. The past year saw return of negotiability in asking prices after a relatively long absence from the marketplace.

The city’s economy remains strong, and is creating jobs at a fast pace. Interest rates, which have been rising steadily, have begun to stabilise as inflation remains under control. These factors should continue to maintain reasonable demand, and prices from falling drastically.

. Contrary to what was seen in 2005 and 2006, the number of investors and speculators who entered the market in 2007 was lesser. Real estate private equity investors such as J P Morgan, Citigroup, Red Fort Capital and HDFC Realty invested in the Chennai real estate market. The difference in the launch price and sale price at the time of completion has reduced drastically in the last one year. The yields from residential property remained steady at 4.25 % to 5%. Home buyers have become more quality conscious and have started demanding better amenities and features.
Media savvy

Developers have become more media savvy and aggressively started spending on advertising and marketing. The home buyer’s exposure to real estate related advertising has increased drastically in the last one year. Developers also realised that they need to identify specific target markets to market their products. Many developers have started investing in setting up strong marketing teams.

After 3 years, the market started moving from a sellers’ market to a buyers’ market. Many landlords, who were quoting exorbitant land prices in corridors such as OMR, are now willing to negotiate at more realistic levels.
Outlook for 2008

With IT and BPO companies facing the brunt of the appreciating rupee and many investors and speculators preferring to invest in other avenues, residential demand is further expected to be under pressure in 2008.

Unlike the last 3 years where the Chennai real estate market saw only winners, 2008 will witness winners and losers. It is also expected that developers will construct smaller units without compromising on the amenities to make it more affordable.

With more than half the time spent in automobiles today representing time spent in severe traffic and soaring of fuel prices over the last few years, access to public transportation and road infrastructure will become key drivers for taking housing decisions in the future. Developers need to understand their consumers better and figure out a way to reach them the way they want to be reached. Developers need to realise that over the last few years the consumers have been exposed to new areas of real estate and become more knowledgeable.

As the market becomes tougher and the home buyer more choosy and price sensitive, developers will need to use many more innovative lead generation and touch point creation methods of marketing to successfully market their residential units.

The year 2008 will also see a number of large Pan India developers such as DLF, Hirco and Unitech announce their large residential townships projects in Chennai thereby increasing the supply, and keeping the prices under control.

s0The market is adjusting after a period of unprecedented expansion. It’s reasonable to expect that price appreciation will flatten or decline in some areas.

The length and depth of the adjustment remains to be seen. Even today, there have been instances where entire projects, which have been priced right, being sold within a few weeks of launch.

Although the Chennai real estate story is real, large in size and will pay in the long run, developers need to realise that volumes are inversely related to price and lower the price higher the opportunity.

Housing boom fades in Hyderabad

Real estate boom fizzles out fast
Deccan Chronicle Hyderabad,
Dec 25: The real estate boom which held sway in 2006 petered out in 2007. The poor response to auction of Kokapet lands in the third week of December was only the latest instance in the downswing. Except for a few projects catering to high end consumers in up-market areas such as Madhapur and Gachibowli, the construction scenario was dismal in the capital and surrounding areas.
The number of real estate transactions in Hyderabad and Ranga Reddy districts declined by 40 per cent when compared to the previous year. Fall in NRI investments because of the increased rupee value and the real estate industry reaching saturation levels were cited as the main reasons. The slowdown in the IT industry also contributed to the downturn. However, the prices of apartments remained high in the city after construction came to a halt in the wake of stringent building norms introduced through GO 86.
"The growth rate from April to December this year is 13 per cent while it was 38 per cent in the previous year," said a senior official of the Stamps and Registration Department. Real estate transactions almost came to halt this year in areas such as Maheshwaram, Shamshabad, Nizampet and Ibrahimpatnam, which saw tremendous growth in 2006.
Interestingly, the revenue increased from Rs 752 crore (between April-December 2006) to Rs 762 crore for the corresponding period this year in Ranga Reddy because of revision of market values of lands. "But the number of transactions declined from 1.72 lakh to 1.03 lakh in Ranga Reddy and 33,000 to 28,000 in Hyderabad," said the official.
In Hyderabad, the revenue also dipped from Rs 312 crore to Rs 299 crore. Top builders admitted that the situation had drastically changed when compared to last year. "Though the price did not fall, there is no rush to buy property," said Indu managing director, Mr Shyamprasad Reddy. However, the year also saw the launching of the first ever public private partnership township at Srinagar where owners of plots became equity holders.
Other positive developments in the real estate front were the mega venture of Lanco Hills at Manikonda and payment of Rs 444 crore by American real estate giant Tishman Speyer for the 500-acre township at Tellapur. Township projects of Indu Aranya, Palm Meadows and Aparna also started off in 2007. The year also witnessed the implementation of GO 86 which stipulated mortgage of a portion of the constructed area to the civic authorities. Builders would have to forfeit the area if they violate building norms.
"We made it compulsory for builders to register themselves with civic authorities," said Greater Hyderabad Municipal Commissioner, Mr C.V.S.K. Sarma. "We also introduced tatkal scheme for independent buildings whose permissions will be sanctioned in 48 hours."

Economic Times on the Real Estate Slowdown

Economic times acknowledges the housing bubble though it is still afraid to displease the builders. A simple reality check is all you need. Goto to the hundreds of housing complexes which have sprung up all over the city of mumbai and check the occupancy. The people living there are either the buyers who got in cheap or the apartments are rented out. Technically in Mumbai, every apartment if priced right will be picked up in seconds. If the price is not right, I think the bubble will grow bigger and the crash will be steeper. So a 30-40% drop is not too big considering pricess have jumped 3times in the past 3 years

ET article follows.

HIGH interest rates and rapid escalation that land prices witnessed this year may be one indicator of an impending real estate bubble of sorts. Softening of prices in select pockets such as Gurgaon, Noida & Ghaziabad in Delhi NCR and certain areas in Mumbai over the last 6-8 months has already been witnessed. But what does all this signify for the Indian real estate sector? Will the bubble burst or are these mere speculations? SundayET gets to the root of the matter.
There are several indicators that could suggest a bubble. Unreasonably inflated real estate prices across the board, higher vacancy rates in residential and commercial projects with unwarranted project delays by developers and a steady withdrawal of both domestic and international investors are some of the signs that imply a real estate bubble in the market. Experts suggest that a 10-15% correction in prices does not imply that the sector will slow down. The real estate sector is currently on a high due to high economic growth, shortage of residential spaces, growth in IT/ITes, retail etc. The focus though will now have to shift more towards Tier II and Tier III cities since the metros are getting saturated.
Anuj Puri, chairman and country head, Jones Lang LaSalle Meghraj (JLLM) says that there are no indications that investor activity has overtaken genuine buyer activity. “The residential sector is led by end-users and it is they who dictate the state of the market. There is no evidence of a ‘bubble.’ Neither is there a significant correlation between the state of the stock market and that of the property market. There are instances of overheating but these are localized.”
Developers are quick to brush off the idea that any signs of a bubble may even exist. Dr B P Dhaka, COO(MP), Parsvnath Developers feels that it will be completely wrong to think that the current real estate boom is a bubble waiting to burst. “The growth in realty has evolved back-to-back with all round economic development witnessed by the economy over the last decade. The boom in real estate might have looked like a bubble about to burst, but the fact remains that the burst has been converted into further opportunities because of transformation of the real estate sector into an organized sector and its penetration into the Tier II and Tier III cities.”
Agrees Avneesh Sood, director, Eros Group, who feels that the 10-20% correction in property prices augurs well for the industry because there are various unorganised developers who create unrealistic
price mechanisms, hence making it unaffordable for genuine home buyers. “The picture is really not as bleak as it is made out to be. Demand is not exactly non-existent. There will be a decent growth at an average of 5% between 2008 to 2010. Developers for their part are still very optimistic, as buyers’ continue
to pick up property for end-use. Developers’ should now target the affordable quality housing segment for the middle class and offer decent value for money dwelling units.”
When a bubble develops in any market, it is essentially because prices for that particular commodity or asset have gone through the roof and beyond affordability levels. Hence, real estate bubbles are invariably followed by severe price decreases. So what exactly can be done to avoid the house price cash from finding its way into the Indian market?
Ganesh Raj, Partner & National Leader, Real Estate Practice, Ernst & Young, feels that the government has to play an active role to keep the situation in control. “Severe price decreases happen if there is a demand-supply mismatch. We currently face a shortage of about 24 million households. In order to control any severe fall, the government has to take certain measures. Steps like repealing of ULCRA are a positive move. Similarly, checking that speculators are not entering the market, appointing of regulator in order to check that real estate developers are not involving themselves in unfair practices, increasing the FSI especially for residential sectors would help in controlling the prices.”
Raj’s cautious approach is only natural as he remembers the last time when the burst in the mid 90s wrecked havoc in the property market in India. At that time the reason for the crash was mainly due to there being more investors than end users. “The real estate markets closely tracked the stock-market fall at that point of time. Housing prices that had zoomed during the bull run of 1993-94, started showing a downward slide in 1995. The burst in real estate market lasted far longer than the burst in the stock-market. Between 1995 and 2000, the property bubble that was built on speculations burst, and prices declined by almost 30–40 per cent across India. Artificial demand was created and there was no supply to meet that demand which led to a crash in prices. The bubble burst in 1996 as speculators were desperately liquidating their holdings,” he adds.
With land always being a scarce resource, property prices would invariably follow basic economics of demand-supply and pricing. Once asset prices start escalating, the initial interpretation always suggests a bubble. However, an in-depth analysis of price appreciation in real estate and understanding the reasons could help in comprehending these fears. Moreover, the available landbank and technology together with innovations in the realty sector is likely to avoid a real estate bubble burst and sustain the current scenario.

REALTY CHECK

Unreasonably inflated prices, higher vacancy rates, steady withdrawal of domestic and foreign investors are signs implying a real estate bubble

Govt measures such as appointing of regulators to check against unfair practices and increasing the FSI for residential sectors can help in controlling prices

Landbank and technology with innovations in the realty sector are likely to avoid a bubble burst and sustain the current scenario.

Bangalore prices dropping

Of all the papers, the times of india, one which is known to hype real estate is reporting this news. The news seems to be factually incorrect. Sarjapur ring road has been quoting from 3.3k to 4k. It never went to 5k+ . I wonder where these guys get the data.

Good time to buy a house in Bangalore
11 Dec 2007, 0114 hrs IST,Sujit John & Anshul Dhamija,TNN

BANGALORE: If you are planning to buy a house, perhaps now is the time to do so. After three years of unprecedented growth between 2003 and 2006, property prices across much of Bangalore are now falling. And falling sharply in many areas.

A survey by real estate consultancy Asipac finds that residential prices in south east Bangalore (around Sarjapur Road) have dropped 10-20% in the past one year — with prices now in the range of Rs 3,600-4,600 per sqft against Rs 4,000-5,300 a year ago.

South Bangalore including Jayanagar and J P Nagar (except Koramangala) prices are seen to have dropped 8-15%. East Bangalore, which was the first to see corrections, as TOI reported earlier, is estimated by Asipac to have witnessed a further price drop of 6-12% in 2007.

The city centre and parts of North Bangalore (especially between Hebbal and Yelahanka) are the only areas seen to be still holding up, the former because of lack of fresh supply of property, and the latter because of the proximity to the upcoming airport.
"In many cases, the quoted prices may be higher, but developers are throwing in a lot of freebies that effectively bring the price down," says Asipac chairman Amit Bagaria.

The price drop is the result of the enormous gap between demand and supply. Average sale volumes are seen to be down 10-40%.

"Developers who were selling 60 flats in a quarter a year ago are today selling barely 6," says Mayank Saksena, VP in property consultancy Jones Lang LaSalle Meghraj.

Asipac estimates that against a total sale of about 33,500 homes by the entire organized sector in 2006, this year will end with a sale of no more than 26,000 homes. At the same time, the number of properties under construction has increased manifold.

Irfan Razack, CMD of the Prestige Group, admits property prices in the city’s peripheral areas are at an "all-time unrealistic high".

Geetha Naresh, a property consultant, says investors who had blocked their money on prime properties in Whitefield and Marathahalli two years ago paying between Rs 1,600 and Rs 2,000 per sqft are today willing to sell at the same price.

"There are instances where investors are even willing to sell below their purchase price, at rates like Rs 1,500 per sqft," she says.

Many speculators and investors had entered the market in 2005 and 2006, booking multiple flats, thinking they would be able to dispose them of once prices reached a certain higher level.

"They only paid the initial amounts and they did not have the capacity to pay the full amount. But now they are all stuck. Neither can they pay the instalments nor can they sell the flat because of poor demand. And since they have to pay off bank loans, there is large-scale distress sales happening," says an analyst.

Low occupancy in palm beach road in Navi Mumbai

I was driving on palm beach road few days ago in the night and I noticed very few lights in the numerous apartments which dot the road. The location is good but I guess Navi Mumbai residents seem to be priced out of it. There was another mention of a Cidco flat which was priced at 45L and still not selling

NAVI MUMBAI: While builders have claimed that 18,000 to 20,000 houses have been sold in Navi Mumbai this year, statistics show that barely 10,000 house transactions have been formalised at sub-registrar offices here to date. The boom, if any, appears one-sided—favouring only the affluent.

Secretary of the Navi Mumbai Chamber of Housing, Manohar Shroff, insisted that the market has picked up after a slump earlier this year. However, no one is denying that only a fractional affluent class is interested in the highly priced realty of Navi Mumbai, a city that, ironically, was created in the early 1970s only to decongest Mumbai.

For example, a 2-BHK flat in Kharghar can cost Rs 35 lakh to Rs 42 lakh. At Palm Beach Road, it comes for Rs 90 lakh to Rs 1.5 crore. Little wonder that barely 10% of flats on Palm Beach Road are occupied.

Rahul Thakur, a lawyer who has lived in Vashi all his life, said, “It's true that a handful of malls and many towers have come up in areas like Vashi, Kharghar and Palm Beach Road, but that is not an indication of house sales, because working professionals like me cannot afford these very high prices.''

Developer Nalin Shah said that at the ongoing property exhibition of the Builders' Association of Navi Mumbai (BANM), a Mumbai visitor who owns a bungalow in Juhu was interested in a Rs 5 crore villa at Khargha

ULCA ulcer will cause dip in prices

Except for the rich no one can afford to buy in the mumbai suburbs upto Malad which has now touched over 6000 per sq ft. Now with ULCA most the new buyers will be in the areas mentioned in the article below. With less demand, the western suburbs will drop too in sympathy. Housing as its evident is a function of demand, supply and affordability. It seems the sweet spot is here for the "peripheral areas". The big winners as are the likes of DLF, Hiranandani and Raheja which will see enormous growth over the next few years. Size does matter when it comes to projects and these guys are best positioned to deliver a quality product over a long period of time.

Mumbai, December 1 Anshumali Ruparel

THE state legislature’s decision to repeal the Urban Land Ceiling (Regulation) Act (ULCRA), 1976 has a silver lining for thousands of genuine home-seekers across Maharashtra and several short- and long-term benefits for Mumbaiites. While the impact of the decision will become evident only after a few years, but the realty sector can foresee gains.

Considering about 1,200 acres is available immediately, the “possibility of price reduction” is on everyone’s mind. According to Niranjan Hiranandani, MD of Hiranandani Group, “The repeal will not have any impact on the real estate rates in South Mumbai but we can expect some correction in peripheral areas. But price structure of tier-II and tier-III cities would change. The impact will be evident in a couple of years.”

In Mumbai, most of the land going to be freed is in the central suburbs—Kanjur Marg, Vikhroli, Chembur and Bhandup—and satellite towns like Thane and Kalyan. The availability of massive plots will translate into huge supply of flats, which is expected to suppress the property prices or at least stabilise it.

Mohan Deshmukh, president of Maharashtra Chamber of Housing Industry (MCHI), explains: “The city needs about 1 lakh housing units a year and the present supply is only 50,000 units per annum. The freed land may contribute about 20,000 more units a year. But how to meet the backlog of 15 lakh units which is fuelling the prices? One can’t say that the prices in Mumbai will reduce but 25 to 30 per cent reduction can be expected in towns like Pune, Sangli, Kolhapur, etc. For prices to fall in Mumbai, greater housing reforms are needed. This is just a beginning.”

Another area of benefit is infrastructure. Despite apprehensions of additional burden on the already-stressed infrastructure, a ray of hope has emerged in the form of Central funding likely to come the state’s way. Repealing ULCRA was one of the conditions of the Centre to release about Rs 11,000 crore to start, speed up and complete several projects under Jawaharlal Nehru National Urban Renewal Mission (JNNURM)—including projects like Mithi River Beautification, Mumbai Metro Rail, Eastern Freeway, Middle Vaitarna Water Supply, Elevated Sahar Road, Underground tunnels, Bandra-Worli Sea Link, etc.

“On completion, these projects will turn the city into a global metro. It will attract huge FDI which will again contribute to the overall development,” says Anand Gupta, Chairman, Builders Association of India (BAI).

“The fund will also create enormous opportunities of employment as widespread construction activity will be witnessed in suburban Mumbai besides other cities,” adds Gupta.

The big boys of the real estate fraternity will now compete for the freed land. Two-room-kitchen and 1 BHK flats will reappear. And being a part of the volume production process and that too in not-so-expensive suburbs, these flats are expected to be affordable to many middle class Mumbaiites. Besides, home buyers will get a space in reputed townships built by a known developer.

“For example, Thane would get around 180 acres of land now. Assuming development of only 1 crore square feet takes place in the next couple of years, the number of 1 BHK flats available at the end would be around 15,000, which will surely be consumed by three types of people—locals, people shifting from island city and those coming from outside,” says Ajay Vora, a property consultant. “The rates will surely duck due to this supply. However, the supply would be spread over couple of years,” he said.

Shifting of slums and relieving the urban areas from encroachments to make land available for further development and decongestion may seem far-fetched, but these are other possibilities Mumbai should look forward to.

Land prices set to crash ??

Is this the pin which deflates the bubble ???

A total of 22,000 hectares (approximately 54,363 acres) will be released in the city with the State Legislative Assembly on Thursday passing a resolution to repeal the Urban Land Ceiling and Regulation Act of 1976. Of the 22,000 hectares, 9,500 hectares (23,475 acres) will be used for construction activity.

However, many city builders are still nurturing hopes that the cooling of heated up land rates will take up to two years to become a reality. President of the Promoters and Builders Association of Pune (PBAP) Lalitkumar Jain, while welcoming the decision said, "Mere repeal of the Act will not bring down the prices. The government has to address the demand and supply issue and a master plan will have to readied for the same. Infrastructure should be made available to support the desire to provide affordable housing," he said.

Municipal commissioner Praveensinh Pardeshi too welcomed the decision, but said that land prices will definitely come down in the "near future." This will help low cost housing for the poor and will also put a full stop to burgeoning slums, he said.

Another builder, Rohite Gera, vicepresident of PBAP, said the repeal of the Act and the ensuing price slump that could happen over 15 months would affect the "fly-by-night operators and not the regular real estate developers." Also, the government decision to levy a tax on vacant land will have to assessed to see how much it would benefit the end user, he said.

With the Act being repealed by the state, it will also throw open the blocked funds under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM), a pre-condition put by the Centre.

Schemes for poor under the Development Control rules and the JNNURM will get more land for development, Pardeshi said.

Advantage New Developers As Mumbai Land Prices Seen Falling

"They will also benefit from the local govt picking up the tab for developing roads, water supply, electricity lines"

The repeal of the Urban Land Ceiling Act (Ulca) by the Maharashtra assembly on Thursday will benefit new township developers in a big way. But the profits of developers who had invested in townships on the basis of the old law might take a hit.

Existing developers will have to compete with new realtors who will not only benefit from buying land at softer prices following more land being available in the market but also have the benefit of the local government taking on the cost of infrastructure such as roads, water supply, sewage lines and electricity distribution lines within townships, said Kumar Gera, chairman of Confederation of Real Estate Developers Associations of India, a lobby representing real estate developers. The cost of new infrastructure could make a difference of up to 20% of the project cost, he said.

According to a recent report on integrated townships by real estate consultant firm DTZ, 12 townships are being planned in Mumbai and Pune on a total of 8,053 acres. Typically in Mumbai, land costs are between 50-80% of total project cost depending on the area, with the interest costs an additional 12-13%.

Across the state, about 17,000 acres of land is expected to be released into the market on account of the repeal of the Act. While upmarket locales in Mumbai such as south Mumbai, tony suburbs such as Bandra, Khar and Santa Cruz have little vacant land, the repeal is expected to trigger development in surburbs, such as Kandivali and Malad in the west where land lies vacant, and Thane and beyond among the central suburbs. It would also release land in tier II cities such as Pune, Nagpur and Nashik.

Medha Patkar condemns ULCA

With the repeal of ULCA 3000 + acres will be freed in Mumbai and more in Pune. There shouldn't be any doubt in anyone's mind that this was done to fill the coffers of the builders. The builder politician nexus is well known anyway and the builders will compensate the politicians. Why should be poor benefit anyway ?? What are they doing for the politicians ? Its never been any government's priority to create housing for the poor. Why should the case be different this time.

Condemning the state government's decision to repeal the Urban Land Ceiling (Regulation) Act (ULCRA), Narmada Bachao Andolan leader Medha Patkar said the move was meant only to authorise large land holdings of individuals, which, till now, were held by them illegally.

Addressing a news conference here on Friday, Patkar expressed the view that the repeal will lead to unequal distribution of land, increase in the number of homeless, and most importantly, it will increase the gap between the rich and the poor. She charged that in Mumbai alone, about 30,000 hectares of land will go in the hands of big companies and builders. According to her, Pune too will not remain unaffected.

"Moreover, we are of a strong belief that the state government's assurance of providing free housing to the homeless will also not come through," Patkar said.

The ULCRA was repealed on Thursday by the state government, which restricted individual land holding to 500 square metre.

"The government had the power to acquire and develop vacant plots for common good under ULCRA, but it failed to do so. It is utterly farcical to assure that the poor will benefit. The Act has been repealed only for the benefit of the builder lobby, who will have a free hand now," Patkar said.

Patkar added that the National Alliance of People's Movement was left with no option but to stage agitation and protests against `land grabbing'.

Costliest Indian land deal: 3,000 cr for 3 plots

A record property deal has been made at Mumbai's Bandra-Kurla complex. It's the highest in the country.

The price tag for the first plot was Rs 5,04,000 a square metre or Rs 831 crore and the 16,500 square metre plot was bought by Mumbai's Wadhwa Builders.

Wadhwa Builders have paid 229 per cent higher than the reserve price.

Reliance Industries bought the second plot — a car park-cum-commercial complex — for Rs 918 crore, valued at Rs 27,917 per square foot. The bid by Reliance was the highest and winning bid.

Reliance paid Rs 3,00,500 a square metre, for the 30,550 square metre plot. They bid 96 per cent higher than the reserve price set for the particular plot.

Meanwhile, the TCG and Hiranandani joint venture have bagged the third plot, for a commercial complex at Rs 1,041 crore.

Mumbai Metropolitan Development Authority (MMRDA) has raked in Rs 2,790 crore with the sale of these three commercial plots.
Prices were expected to touch such dizzying heights, because of the lack of supply existing at the Bandra-Kurla complex on Monday. The MMRDA has positioned it as an international financial business hub and demand kept increasing so far.

Consultants said there will be no respite for the next one year. Commercial property prices are expected to touch as high as Rs 60,000 a square foot.

But the MMRDA has reacted and said that Rs 2,790 crore is precious little compared to the Rs 260,000 crore that they require in terms of funding to develop and improve the Mumbai Metropolitan region.

It is 230 per cent higher than the reserve price. The reserve price was set at Rs 163,000 a square metre, which was the highest the last time MMRDA sold plots at the BKC. Prices have more than doubled between last year’s auction and this year’s auction.

Guidance values skyrocket in Bangalore

DH News Service, Bangalore:
Just over four months ahead of the opening of the international airport in Devanahalli, the airport is spinning a land price boom.

This time, not on speculation and hearsay but with the official State stamp.

Devanahalli Taluk has clocked an impressive rise in residential land prices, as the Department of Registration and Stamps notified revised property guidance values in Ramanagaram and Bangalore Rural Districts on Tuesday. The revision of values in the Bangalore Rural District covered Devanahalli, Doddaballapur, Hoskote and Nelamangala taluks.

In terms of percentage-wise rise in guidance values, Hire Amanikere in Devanahalli Town registered the biggest, touching Rs seven crore per acre, a whopping 180 per cent more than the prevailing guidance value. Residential land values in Doddaballapur Cross and B B Road in Devanahalli Town have touched Rs 15 crore, with both areas registering a 50 per cent increase. Parvathapura is also among the Town’s top draws, registering a solid 166.67 per cent increase in value. While the existing guidance value in the area (residential) is Rs three crore per acre, the new value is Rs eight crore.

Doddaballapur Cross has registered a 66.67 per cent rise in commercial land price as well.

OBJECTIONS INVITED
The Department has invited public objection to the revised values within 15 days from Tuesday. Suggestions and objections could be sent to the Secretary, Central Valuation Committee, Office of the Inspector General of Registration and Commissioner of Stamps, 7th Floor, BWSSB Wing, Cauvery Bhavan, K G Road, Bangalore - 560 009. The copies of the draft notification are available at the respective Deputy Commissioner, Sub-Registrar, panchayat and CMC offices.

Devanhalli airport - Nightmare waiting to happen

I wonder what the devenhalli plot investors are thinking when they see such articles. Its quicker to get to Chennai then devanhalli by road.

Think about the poor employees, pilots and in-flight stewards. I hope fatigue doesn't affect the pilots after such a long drive to reach work

BANGALORE: It’s killing. There’s no other way to describe it. It took us nearly three hours through numerous congested traffic junctions and suffocating pollution to get from Electronic City to the upcoming international airport in Devanahalli, a distance of 68 km. It was only a little better, about two hours, for those of us who started from J P Nagar and Rajarajeshwari Nagar.

With the new airport scheduled to open in just over four months, The Times of India undertook an exercise on November 5 to check out the exact nature of the travails one would have to go through to reach the airport. The distance and the poor accessibility to the airport has had everybody worried, and our exercise at evening peak hours proved it will probably be worse than what many imagined. By about the 25th kilometre from Electronic City, we were beginning to feel exhausted, and cab driver Paramesh was complaining about his legs paining from the constant clutching-braking. At times he would look and sound as if he regretted agreeing to make the trip.

From our experience, here’s what you need to be prepared for: if you are taking an international flight out of Bangalore which requires you be at the airport three hours prior to departure, then leave home at least five to six hours before the flight time. We say ‘at least’ because there’s a good chance your cab will scrape or hit somebody in the bumper-to-bumper traffic, which might lead to a hold-up.

Take along plenty of water and snacks. If you have to stretch a little, take an AC cab. It may cost you about Rs 1,000 or more (the rates are not yet clear) for a one-way trip to the airport, but it will probably be worth it.
Finally, a plea to the state government and the Bangalore International Airport Ltd: Don’t put Bangalore’s citizens through this. We deserve better. For frequent travellers, it will be sheer nightmare. Find a quick solution.

Subprime -101 tutorial

Comic relief on a serious topic

Times of India recognizes the bubble

Mumbai: If you are not a slum dweller entitled to a free flat or a mill worker promised a subsidised tenement by the state government, chances are your dream house will remain a dream.
Despite sluggish sales, the city’s builders are holding on to their astronomical prices. Going by the rates that are being quoted by most developers, a salaried person looking out for accommodation in the suburbs could find the options very limited.
Inquiries by this newspaper show that apartments which are less than 1,000 sq ft in size are being priced at about Rs 1 crore in faraway suburbs like Chandivali and Jogeshwari.
Take, for instance, K Raheja Corp’s Maple Leaf project comprising seven wings of 20 storeys each in Andheri (east) opposite Chandivali studio. A twobedroom flat with a carpet area of 873 sq ft is being quoted at close to Rs 1 crore with stamp duty. The project will be ready for occupation only in mid-2009.
In Goregaon (east), a two-and-a-half bedroom apartment with a built-up area of 997 sq ft is going for Rs 1.15 crore in Oberoi Woods, a residential project comprising three 35-storey buildings which are being set up by Oberoi Constructions. The rate works out to about Rs 10,400 a sq ft. Goregaon (east) commanded a price of barely Rs 3,500 a sq ft about three years ago.
In Mulund (west), Nirmal Lifestyle is pitching duplex apartments in its Amethyst World Home for close to Rs 2 crore each. Each duplex has a builtup area of 3,200 sq ft (carpet is 28% less) and the asking rate per square foot here is Rs 6,000. In another Nirmal project called Polaris in Mulund (west), a two-bedroom home costs Rs 70 lakh with stamp duty.
Hiranandani Gardens in Powai is now a residential area for top corporate honchos, doctors and businesspersons. Under-construction buildings like Hiranandani’s upcoming 30-storey Sierra are already quoting Rs 3 crore and above for a three-bedroom flat. This works out to a whopping Rs 15,750 per sq ft up to the 20th floor and an additional Rs 200 per sq ft for each floor above that.
Even in neighbouring Thane, twobedroom flats have an asking rate of Rs 60 lakh in Siddhachal, a Kalapataru residential enclave on Pokhran Road No 2.
HOME TRUTHS
Despite slow sales, builders are refusing to lower prices
Two-bedroom flats cost close to Rs 1 crore in the suburbs
Middle class edged out to the fringes of the city
Experts blame govt for failing to create mass public housing Experts slam Maha govt
Mumbai: Rising realty prices are threatening to ruin the dream of the middle-class Mumbaikar of owning a house.
“With the kind of property prices being quoted today, a Mumbaikar has to earn a minimum of Rs 35 lakh per annum to afford the EMI for a two-bedroom house in the suburbs,’’ said Gopal Sharma, general manager (marketing) of Gundecha, a city-based builder.
“Today there are only two classes of people in Mumbai—the super-rich and the poor. There is nothing left for those in the middle,’’ said a veteran south Mumbai developer. Housing experts and activists have time and again blamed the state government for completely abdicating its role in providing affordable public housing and “leaving the field open to developers’’.
Another source in the industry told TOI, “Real estate prices have reached a level which is beyond the reach of the common man and even the business community. At these prices, a person can buy property only if he has made a bumper profit from any other business or the stock market.’’
According to the source, if the person takes a home loan, as much as 50% of his salary could go towards repaying the instalment. “At the end of the day he is just surviving to clear his debts. If anything goes wrong with him or if he loses his job or falls sick he will plunge . straight into a debt trap,’’ he said.
Rajiv Sabharwal, senior general manager, ICICI Bank, said that home loans are sanctioned based on the “fixed obligation to income ratio’’. It means the person’s capacity to pay the fixed monthly instalment vis-a-vis his salary. “It is generally in the range of between 35% to 50% of the person’s salary. For instance, if he is earning Rs 12 lakh a year, the EMI could be Rs 6 lakh,’’ he said.

Mumbai builder arrested for land-grab

MUMBAI: The crime branch on Saturday arrested well-known builder Alpesh Ajmera (40) and Ram Narayan Singh alias Bacchi Singh, a henchman of underworld don Chhota Shakeel, in a land-grabbing case.

The anti-extortion cell is now looking for Alpesh’s brothers, Jiten and Rajesh. This is the third time Singh has been arrested in the past one month. He was earlier arrested in the Malad land-grabbing case and an extortion case.

Ajmera and Singh were produced before the Esplanade Metropolitan Magistrate and were remanded to police custody only till Sunday despite a plea for a 14-day custody. Both have been booked under charges of cheating, breach of trust, threatening and house breaking and theft.

Though the case dates back to 2005, it came to the crime branch only recently. The complainant, Shrishant Kalbag, who runs a supermarket in the western suburbs, had bought a plot measuring 2,000 sq ft near Bhavan’s College from Ajmera Builders for Rs 2.25 crore.

Deputy commissioner of police (crime) Deven Bharti said that Kalbag paid Rs 1.25 crore as down payment and applied for a loan for the rest. "Kalbag took legal possession of the plot from Ajmera and started work. But within a few months as prices shot up, Ajmera called Kalbag to his office in the presence of Singh and asked him to cancel the deal and surrender the keys of the shop," said inspector Vijay Salaskar.

When Kalbag refused, Jiten Ajmera whipped out his licensed revolver and threatened him with dire consequences stating that he was a relative of Lalit Dholakia, who is with the Dawood Ibrahim gang. When the threats did not work, on July 19 last year, Singh barged into Kalbag’s residence in Bandra along with five to six goons and forced him to open the door. Singh threatened Kalbag and his wife Heena with dire consequences if he did not sign the cancellation of deed. Kalbag approached the D N Nagar police who sat on his complaint after which he was forced to sign the cancellation deed, said Salaskar.

Later, when Kalbag went to his shop, he was shocked to see that goods worth Rs 30 lakh were missing. According to the complaint, Kalbag rushed to D N Nagar police station again but was shocked to see Ajmera chatting with the senior inspector and an encounter specialist. Singh, who was with Ajmera, told Kalbag, "Hamara koi kuch nahi bigad sakta"(Nobody can harm us). Kalbag approached the crime branch only recently after he read about Singh’s arrest.

Builder trick-o-treats

Just more pain to avoid..

Buying a house? Beware of builders' tricks

I. When do I get my house?

Most agreements do not clearly specify the date of delivery. For
instance, one says: "Completion of the building is expected to be
delivered by the date mentioned in the covering letter of this
allotment. The delivery of the possession is subject to force
majeure." What this means is that you cannot hold the developer
responsible if he does not stick to the promised delivery date.

There have been cases when the delivery has been delayed by 12 months
or more. Typically, the buyer would have paid 95 per cent of the
price by the time he reaches the expected delivery date. If he is
living in a rented house, delays will drive his calculations awry as
he would not have factored in this additional rent (see Double Bite).
Mumbai stockbroker Bhupendra M. Pitroda, 58, fought a legal battle
against Megha Property Developers for five years. Reason: delayed
possession.

Pitroda was promised delivery of the flat he booked in 1998 in Navi
Mumbai's Madhuri Cooperative Society Housing Project within 18
months. The builder later said that delivery would take another six
months. When Pitroda visited the site six months later, he felt that
the delivery would not happen soon. So, he instructed his bank to
stop payment of the balance 37.5 per cent of the apartment's cost to
Megha Developers.

The developer promptly sold off the flat. An aggrieved Pitroda then
moved the State Commission in July 2000. Three years later, the
commission asked Megha Developers to refund Pitroda the money he had
paid with 15 per cent interest. Pitroda was also awarded a
compensation of Rs 15,000 for the mental agony caused and Rs 5,000
for legal costs.

The developer appealed in the National Commission, which upheld the
State Commission order but cut the interest to 9 per cent. The
developer then moved the Supreme Court. "The Supreme Court judge
flung the papers in the face of the builder's lawyer and asked the
builder to compensate me immediately. The judgment was over in a
minute," says Pitroda. Through the legal battle, Pitroda made 25
appearances in the State Commission, three in the National Commission
and one in the Supreme Court.

Many agreements have penalty clauses for delayed delivery, but they
are without bite. For example: "If the company fails to complete the
construction of the said building/apartment within the period as
aforesaid, then the company shall pay to the allottee compensation at
the rate of Rs 5 per sq. ft of the super area per month for the
period of such delay." What this means is that for a 1,000-sq. ft
flat, you would get a compensation of Rs 5,000 per month�a pittance
(see Double Bite).

In most cases, buyers put up with the delay quietly rather
than 'antagonise' the builder. Most fear retribution, harassment and
further delays in delivery. This is not entirely baseless. For one,
agreement papers are designed to protect the builder. Two, your
intention to fight the builder may look like a joke given your
handicap in terms of financial prowess and influence. Three, there is
no industry regulator you can turn to for redressal. Suresh Virmani
of National Consumer Helpline says: "We generally encourage a
dialogue between buyers and sellers to settle disputes. If that
fails, the matter is taken to the regulatory body. But we can't even
suggest this in real estate because there is no regulatory body."

What to do. Don't just take the builder's word on the progress of
construction. Check it out from time to time, as Pitroda did. If you
feel a delay is likely, start building up pressure on the developer.
The best way to do this is to form a society, says Virmani. Usually,
builders have many projects running at the same time and they push
the ones where the pressure is higher. "The more the number of
buyers, the greater is the pressure," says Bharath Jairaj of Consumer
Action Group, Chennai.

II. Where are my papers?

A lot of builders are evasive about giving the completion certificate
at the time of handing over the flat. A completion certificate is
issued by municipal authorities and establishes that the building
complies with the approved plan. A developer would not get the
certificate if he deviates from the plan.

You cannot prove ownership over your house if you don't have the
certificate as you would not be able to get the house registered.
Also, you may not be able to get utility connections. You will have
problems selling, mortgaging or reverse mortgaging the house as it
will not be in your name. In the worst case, the unapproved parts of
your house would be demolished by the municipal authorities. Not a
happy state of affairs.

Businessman Mohammed Haroon, 45, got his flat in Tulip Garden,
Gurgaon, six years ago, but he has not got the completion certificate
yet. The same goes for the other 59-odd flat owners there. Together,
they took Sarvapriya Developers, which built Tulip Garden, to the
consumer court. "After four years, in mid-August this year, the court
directed the builder to hand over the completion certificates within
a month, or pay Rs 5,000 each as compensation to all the flat
owners," says Haroon. "But we know that none of the two will come our
way and are prepared to approach the Delhi High Court in this
matter."

What to do. Sale agreements often don't mention the completion
certificate. If yours doesn't and you notice it before signing the
papers, insist on the inclusion of a clause that you will be given
the completion certificate when the flat is handed over to you. Ask
the builder for it as soon as he announces that the house is ready
for possession. If, like Haroon, you move into the house without it,
the court will probably be your last resort.

III. What's the guarantee of quality?

Within a month of moving into his apartment in Mahagun Manor, Noida,
Rajiv Raghunath, 41, got trapped inside the house as the door lock
failed. In six months, the plaster started peeling off and the fans
stopped working. In another few months, water started seeping in as
the pipes had corroded. "I felt cheated. This wasn't worth my money,"
says Raghunath.

As of now, there is no way for a buyer to check the building
materials used or the quality of construction. Says advocate Anupam
Srivastava, who is with law firm Chambers of Law: "Quality is a
subjective matter. Buyers should enter into an agreement on the kind
of material that the builder will use."

In October 2005, Pune's Gera Developments started a trend by
providing a 5-year warranty on its buildings. The warranty, however,
is subject to the conditions that no structural changes be made to
the house and that there be no misuse.

What to do. Don't fall for the builder's glib talk. Insist on
including the sanctioned plan of the building and the specifications
of the raw materials to be used for construction in the purchase
agreement. If you are already facing quality problems, you can go to
the consumer court. Says Anand Patwardhan, a consumer activist and
lawyer: "If you want to approach the consumer court, move it within
two years from the day you take possession." Alternatively, flat
owners can form a Residents' Welfare Association (RWA) and get the
builder to fix the problems, as Raghunath, an RWA member, did.

IV. What is the price really?

Nishit Babyloni, 38, mech-anical engineer in BHEL, Bhopal, had booked
bungalow No. 105 with Ansal Housing and Constructions (AHC) in
Pradhan Enclave, Bhopal, in 2004. On a visit to the site five months
later, he found that his bungalow was not being built. He asked AHC
to give him bungalow No. 120 instead, as construction was in full
swing on that. AHC formally changed the allotment in February 2005,
but sent him a letter eight months later asking for Rs 3.15 lakh more.

Atit Arora, general manager (marketing) and project head, Ansals
Pradhan Enclave, Bhopal, says: "The bungalow's specifications were
changed. Babyloni was required to deposit the amount if he wanted the
new specifications. " Babyloni retorts that AHC did not tell him about
the additional work and the changes in specifications. "We were not
told that we would have to pay 25 per cent more for the new bungalow
till 18 October 2005." He is thinking of moving the consumer court.
But, it is not unusual for an agreement to say that a builder can ask
for additional payments if specifications are changed or there are
cost overruns.

There are legal loopholes as well. The Maharashtra Ownership of Flats
Act, 1963, protects buyers against malpractices in the sale and
transfer of flats. It gives homebuyers the right to inspect the
builder's documents such as the specifications that he has obtained
from the authorities. The Delhi Apartment Ownership Act, 1986,
however, is a different story. Although it was published in the
Gazette of India over a decade ago, brought on the statute book by
Parliament and given the President's assent, it is yet to be
notified.

What to do. The last stop is the consumer court. Says Srikumar, "Many
malpractices are offences under the Indian Penal Code, for which the
responsible party can be prosecuted." Keep checking with the builder
if any changes are being made to the specifications mentioned in the
agreement and the allotment letter. Also, try to get it mentioned in
the contract that if a sum higher than the original price has to be
paid by you, the builder would give you additional time for that. You
must also ask for a copy of the sanctions that the builder has taken
from the authorities to carry out the alterations.

V. What else do i pay for?

To make your house liveable, you will need electricity, water and
sewage connections. You will also need electrical wiring, appliances
like fans, lights and a water pump, which are unlikely to be part of
the package and generally won't be mentioned in the agreement. These
will be additional costs that you will have to bear. You might also
have to keep some speed money aside for registration so that it gets
done in a decent timeframe. In some cases, the builder may make a
verbal promise to get it done for you.

What to do. Builders generally have a take-it-or-leave- it attitude
with conscientious buyers while striking a deal. Even so, it pays to
be scrupulous and to read the agreement and its fine print. "Get a
lawyer, an architect or an evaluator to determine the correctness of
the purchase," says Srivastava. Finally, do some quick math and keep
aside some funds to get your house up and running.

VI. How big is house?

A typical home purchase agreement states: "The plans, designs, and
specifications are tentative and the developer reserves the right to
make variations and modifications. .." Simply put, in most cases, you
won't know the final area of
the house till you get it. The agreement will further state, "In case
of change in area, the difference in cost of area shall be adjusted
at the time of making final payment."

Shikhar Saxena, partner, Ace Equity Solutions, a leading housing
finance franchisee of ICICI Bank [ Get Quote], had booked a fully-
furnished, air-conditioned service apartment measuring 650 sq. ft
(super area) in Cabana Service Apartments in Indirapuram, Ghaziabad,
which was being built by Assotech Realty. He got an allotment letter
mentioning this area. However, when the builder offered possession,
the super area of the flat had increased to 671 sq. ft. "Once the
authorities approve of the floor space index, how can the builder
change it?" he asks. After holding out for over 18 months, the choice
before him now is to either accept all the terms of the builder or
seek cancellation of his allotment. Further, he was informed that the
maintenance charge, which was to be Rs 1.50 per sq. ft per month, has
been increased to Rs 7 per sq. ft per month. The agreement shields
the builder. It says "the monthly maintenance charges will be subject
to revision from time to time".

Assotech's Elegante project, also in Indi-rapuram, was to have
terrace gardens on the seventh and thirteenth floors. "There is only
a patch of green; the developer has built units on these floors too,"
says a buyer. Srikumar says there is nothing one can do unless the
size of the garden is specified in the agreement.

What to do. Builders usually follow the same practices through all
their projects. So, before buying, check out the builder's earlier
projects to see if he plays fair. Start a blog or join one to share
your experiences with others, though this doesn't guarantee
redressal. You can read about the mistakes and experiences of other
people on websites like mouthshut.com.

VII. What's the carpet area?

Most residential units in India are sold on the basis of the super
built-up area, which includes open spaces like space for lifts,
staircases and parking, among other things. But, what you really get
is the carpet area, which literally means the area that you can
carpet. This can be 15-35 per cent less than the super built-up area.
In 2005, HDFC [ Get Quote] chairman Deepak Parekh had said the
company would provide loans at cheaper rates to developers who sell
their flats on the basis of carpet area. But, there has been little
headway on this front. Some developers, especially in Bangalore, sell
on the basis of carpet area. In Pune, too, the builders' association
has decided to increase the carpet area by 25 per cent to arrive at
the saleable built-up area charged to the buyer. In both these cases,
buyers are aware of the area they will get. Though there is still a
long way to go, experts believe that soon properties all over India
would be sold on the basis of carpet area.

What to do. Buy property on the basis of carpet area, although the
builder will not like the idea. Argue with him that if the super
built-up area is mentioned on the basis of the approvals and
sanctions, the carpet area can be quantified. Says Srikumar: "There
should be a provision for termination of the contract and resumption
of the property so that builders don't have an upper hand. However,
in the absence of rules, buyers should be vigilant."

VIII. Will I get a well-managed property?

The developer may promise to maintain the building or complex in the
initial years. The service, however, may not be satisfactory.
Residents of Mahagun Manor in Noida have taken over its
maintenance. "The homebuyers cannot even use the Right to Information
Act, 2005, to their advantage because it doesn't apply to private
builders or even group cooperative housing societies," says
Srivastava.

What to do. You are unlikely to get relief through correspondence and
phone calls. You can go the e-way to attract the builder's attention.
For months, Delhi-based developer Unitech ignored the complaints of
the residents of one of their premier offerings, Uniworld City. Then,
a resident shot a nine-minute video that captured the visible flaws
of the project, and posted it on YouTube.com, a broadcast site. Their
grievances were soon attended to. You can use websites like
www.consumerhelplin e.in and www.cgsiindia. org to seek further
guidance.

Though the dice is clearly in favour of the builder, the buyers can
still fight back and many of them are doing so. Now, the government
urgently needs to put a regulator in place to ensure proper
disclosures and protect the buyers.
What we need

Mostly, a home is the biggest investment of one's life. And yet, most
people buy it in a hurry. In this hurry, they sign all the papers
without even reading it, let alone questioning its clauses. It may
all seem illogical later, but it doesn't when it actually should.

The Indian real estate market does not have a regulator. The need of
the hour is to take lessons from streamlined markets abroad and
introduce comprehensive disclosure norms. For instance, US homebuyers
are entitled to receive a number of disclosures during the course of
the house purchase. These disclosures give a homebuyer a somewhat
transparent and fair picture of what he is getting into. On the other
hand, Indian homebuyers sign agreements that are not clear. What's
more, they even get surprises in terms of extra costs. Take a look at
what a buyer in the US state of California is entitled to know from
the builder.

Real Property Disclosure Statement. This document details the
condition of the property and potential hazards, or defects that may
be associated with it. While the seller is principally responsible
for the disclosures presented in this document, the agent is also
supposed to inspect the property and disclose any observable defects
detected in the process. The document also lays down any special
taxes that may affect the property's value.

Financing Disclosures. Various financing disclosures are made during
real estate transactions. They give important details about the loan
the owner may have taken for the property.

Truth in Lending Statement Disclosure. This has details about the
terms and conditions of credit, including the amount financed, the
finance charge, and the annual percentage rate.

Real Estate Settlement Procedures . This contains detailed estimates,
by the broker and the lender, of settlement and closing costs to be
provided within three days after you apply for a loan. It also
provides detailed accounting of actual disbursements and closing
costs once the loan transaction is completed.
'Check builder's credibility'

Vincent Lottefier, Chief Executive Officer, India
Jones Lang La Salle Meghraj, a real estate consultancy firm

Cause of the malady. Generally, reputed builders deliver on time and
as per promised specifications. Small developers, however, default by
stretching their projects beyond the promised delivery date. Often,
this is caused by funding issues. They may also skimp on construction
costs, banking on the buyer's ignorance about quality parameters.
Sometimes, they submit incomplete drawings to the municipal
authorities. There are also fly-by-night operators, who pocket their
clients' initial payment and then disappear altogether. In bigger
cities, most developers are established and experienced players with
a reputation to protect. Here, the incidence of gross defaulting is
less than 10 per cent. This can, however, be as high as15-20 per cent
in emerging suburban areas, where there are a lot of small
developers. Many developers who respond to sudden property booms in
suburban are as have no experience or technical knowledge and often
do not have banksbacking them. Most emerging suburbs are also defined
by unclear land titles. Navi Mumbai is a case in point.

What buyers should do. A buyer should check the developer's
credibility, past projects, performance and delivery record. He
should also ensure that the project is funded by a known bank and has
all the approvals. A buyer is entitled to ask for a copy of the
project's drawings, duly stamped by the municipal authorities.

Legal recourse. Buyers in Maharashtra can take recourse to Section 8
of the Maharashtra Ownership Flats Act, 1963, which makes a developer
liable to refund the money obtained from a customer with 9 per cent
interest if he is unable to justify non-completion of his project.
Most states have similar regulations.
Reputed developers do undertake remedial action if aclient is not
satisfied with the final product. This is unlikely in the case of
unknown one-time operators. Buyers should keep in mind that a
developer is supposed to make improvements, repairs and alterations
until a society is formed.

Pune builder Runwa caught in Land fraud

How many Runwal's are still roaming the streets of Pune ??

The Runwal Group is one of Pune's biggest builders and developers of townships, multiplexes and malls in one of the country's fastest growing cities.

But on Friday night, the facade cracked.

Big fish, Pradeep Runwal was arrested by the Pune police on serious charges of forging the power of attorney of over 270 farmers, both dead and alive, to allegedly secure a bank loan worth a staggering 450 crore rupees.

And Pradeep Runwal wasn't alone, along with him, two of his secretaries were also arrested by the Pune police.

With 300 crore of the loan already sanctioned, Runwal thought it was business as usual, till a former employee began to blackmail him. Runwal would have to cough up Rupees 50 lakhs or be exposed.

When Runwal refused, these men upped the ante. Approached by Runwal's ex-employee, they began to blackmail the developer. When matters threatened to spin out of control Pradeep Runwal himself approached the police and was himself arrested.

It's a curious cast of characters in the custody of the Pune police. And in the midst of that, a poignant irony is visible in the form of the Runwal Group's vision that 'building structures does not take long, building integrity does'.

Apparently Pradip Runwal was just a little too impatient.

BMRDA Master Plan may hit realty prices

Bangalore: The Bangalore Metropolitan Region Development Authority (BMRDA) will invite bids for consultancy services to prepare the final Master Plan for five planning areas of Bangalore. This could temporarily stall land conversion and construction activities.
The Interim Master Plan (IMP), which was notified in June, will be effective for only a year. The planning authorities of the BMR region — covering over 2,600 km across Anekal, Hoskote, Kanakapura, Nelamangala and Magadi — will have to prepare a master plan by June 2008.
BMRDA officials said orders have been issued to the planning authorities to invite global tenders for preparation of the master plan.
“We need to have a master plan in place for all the five local planning areas within one year of the interim plan coming into being. Once the plan is prepared we will evaluate it and send it for approval,’’ the officials said.
The Master Plan has to be proposed up to 2021. Currently, the region has a population of 8 lakh and by 2021, it is expected to grow to 30 lakh. This will have to be taken into consideration. The BMRDA will act only as a monitoring authority and not involve itself in planning and development for these planning areas.
“There are many cases where certain real estate projects have come up, which is not in tune with the IMP itself. The infrastructure there is inadequate so it is inevitable to revert to its designated zonal usage. All these changes have to be now made in the Master Plan,’’ officials explained.
During the preparation of the IMP, the government had banned land conversion in the region. The realty sector was badly hit, leading to wide spread protests. The BMRDA office was often flooded with developers, associations and individuals as land conversion and layout approvals were banned for over a year. The authority had stopped land conversion and layout plan approvals from July 2006 till June 2007.
If that was the scenario for the IMP, will the realty sector be hit for the second time with the BMRDA preparing to put the final master plan in place? That is the question worrying all those concerned

No home slowdown in India

This article by WSJ lacks indepth research. The Sigrun project in Mumbai is Virar, the northernmost tip of Mumbai stretching 60 km from Churchgate. Sigrun is building second homes for the uber rich rather then building low and middle income housing. Virar is adjacent to the Arabian sea and a very beautiful place along the coast. Recent developments have trashed the area due to rampant haphazard construction. Neverthless I have fond childhood memories of the place.
Bidadi is another beast which is home to H.D. Kumaraswamy's constituency. All these developers are targetting the upper middle class segment which has easy access to loans due to their high salaries. The real housing need will not be satified by these developments. Ofcourse the rich will get richer as these prices will rise once everyone decides that a second home is a good investment.

Urban migration triggers slew of residential projects; suburbs in chunks
THe Wall Street Journal

T he housing markets in the U.S. and the United Kingdom have been slowing, but in India, largescale residential projects are only getting bigger.

India's massive urban migration-it is estimated that 220 million people there will migrate to cities in the next decade-has triggered a slew of large-scale residential developments. The rural exodus is largely being driven by workers leaving India's agricultural sector to take up more-lucrative employment in the rapidly expanding service and manufacturing industries.

Forecasters estimate that India has a shortage of about 20 million housing units-and counting-intensifying the need for more dwellings.

The government has created a number of initiatives to address the shortage, includ ing the creation of "townships," or satellite towns located close to big cities such as Bangalore, where overcrowding is most severe.

Township projects are taking shape in various parts of India, but one of the biggest undertakings-the first phase of which is expected to provide homes for around 750,000 people when completed-has been drawn up by the Banga lore Metropolitan Region Development Authority, formed by the state government of Karnataka to oversee planning and development in the Bangalore area. The ambitious development will create five integrated townships, which will be developed through a partnership with private developers over a roughly 60,000-acre site.

This month, Indian develop er DLF Group & Limitless, a development subsidiary of Dubai World, the business and investment-holding arm of the Dubai government, were tapped by the authority to develop the first of the five townships, Bidadi.

Together, the two companies will invest $12 billion in the project, a 9,884-acre development located 22 miles southwest of Bangalore.

"Satellite towns are essential as the services and manufacturing sectors grow and more people move from the countryside to cities," says Anurag Mathur, deputy managing director of real-estate advisory firm Cushman & Wakefield Inc. in India. "The infrastructure is under enormous pressure in towns such as Bangalore, so the aim of projects such as Bidadi is to decongest city centers."

Bangalore is on course to follow the example of some other major Indian cities to build entire suburbs in huge chunks to meet the hunger for quality housing and office space for one of the world's fastest-growing middle classes. Thanks to changes in the law that encourages foreign investments in Indian development, many of those townships are joint partnerships between established Indian developers and Western realestate investors, including U.S.-based Tishman Speyer Properties LP, Marathon Asset ManagEment and Walton Street Capital LLC.

In addition to dwellings, Bidadi Township will have a retail, office and recreational component, according to Imad Benharouga, head of corporate strategy at Limitless in Dubai.

Construction is expected to start in the first half of next year and take five years to complete.

Plans for Bidadi also include the largest technology hub in the country and one of the largest in the world, says Karun Varma, head of transaction services in Bangalore at real-estate advisory firm Jones Lang LaSalle Inc. The aim: for workers to both work and live in the vicinity, cutting down on commuting time.

Schools, parks and medical facilities are also going to be developed.

"It is a challenge to build a large township like this in such a short time, which is why I think the government chose a big developer to do it. However, you need aggressive and challenging timelines to make projects like this happen," says Mr. Varma, who isn't advising on the project.

This month, Indian conglomerate Sigrun Group started construction on a 200-acre township on the northern outskirts of Mumbai. Sigrun Kingdom, as it is known, will consist of around 7,000 homes, as well as shops, offices, medical facilities and schools, according to Sheetel Chantel Halai, head of South Asia at real-estate advisory firm Savills in London, who is advising on the project.

Banks reduce loan interest rates

IDBI Bank today reduced its floating rates on housing loans by 50 basis points to 10.50 per cent, following in the footsteps of the State Bank of India (SBI) and ICICI Bank, the two largest lenders in the country.

An IDBI Bank release said the new rates were for loans taken between October 12 and December 31.

The bank has launched a “buy now, pay later” scheme, under which loans for properties under construction can be paid in equated monthly instalments after a moratorium of 18 months.

While the SBI has cut interest rates on home, auto and personal loans by 50-100 basis points, ICICI Bank has reduced its rates by 0.25-0.50 per cent.

Bank of Baroda, Axis Bank and HDFC have also reduced rates.

In September, HDFC had cut its rates on floating home loans by 0.5 per cent.

The cuts are a consequence of a fall in the rate of growth of credit to 24 per cent in the first half of the fiscal from 31 per cent a year ago.

This is the result of the Reserve Bank of India (RBI) adopting a tighter monetary policy, to check liquidity and curb inflation.

Banks have been clamouring for a softer interest regime ahead of the RBI’s half-yearly monetary review on October 30.

Recently, finance minister P. Chidambaram had asked banks to cut interest rates to boost sagging demand in sectors such as auto, paper

Tendulkar turns builders - for himself

After Ambani its the turn of Tendulkar to build a few floors for himself.

Mumbai: Even as master-blaster Sachin Tendulkar prepares for his 400th ODI in Vadodara on Thursday, Mumbai’s premium suburb of Bandra (west), the real estate market is abuzz with speculation that the cricketer is buying a prime bungalow property near Carter Road, not far from the sea.
Although there is a veil of secrecy and even denials, market sources say Tendulkar is keen on buying a property located at 29, Perry Cross Road. The transaction could be in the region of Rs 38 crore-Rs 40 crore and is believed to have been brokered through a Bandra-based property broker, Bihari Khandari.
Local political contacts, who generally have their ears to the ground as far as building activity in this area is concerned, confirmed Tendulkar’s interest in the property.
The bungalow’s current owner Kishore Bajaj denied that his property had been sold. “It is up for sale, but no deal has been concluded with anyone so far,’’ he told this newspaper on Wednesday. Tendulkar’s wife Anjali too denied any deal had been struck.
Last month, a public notice was issued regarding this property on behalf of an unknown client, asking for any person having any claim, right, title or interest to come forward within ten days. “So far we have not received any objections,’’ said advocate Sanjay Udeshi who issued the notice. Udeshi said his client was a developer called Satra Properties and not Tendulkar.
The property is situated just one lane before the landmark Joggers’ Park and a couple of hundred metres from the sea. The ground-plus-one storey bungalow, constructed in the 1920s, is more popularly known as Dorab Villa in the area. Till recently it belonged to a Parsi joint family—the Wardens. One part of the Warden family had sold their share to Bajaj in 1987 for Rs 41 lakh. Another part of this family finally sold their part a few years ago, reportedly for a couple of crores.
The bungalow, which is currently in a run-down state, is situated on land measuring about 9,000 sq ft. The floor area of the bungalow (2 floors) is close to 10,000 sq ft.
Sources said the property falls under the coastal regulation zone (CRZ). Hence, it can be redeveloped with only a limited floor space index (FSI) of 1 instead of FSI 2, which is available to other properties not falling under the CRZ. “With the limited FSI, Sachin will be able to set up not more than ten floors. The first two or three floors may be used for parking,’’ a source familiar with the deal said. That will be enough to give him a view of the sea, something Tendulkar is said to be keen on.
Sachin at present lives at La Mer in Mount Mary, Bandra —- the same building where Aishwariya Rai lived till she married Abhishek Bachchan. He grew up in Sahitya Sahavas in Bandra (east).
In 2003, Tendulkar had reportedly met the then chief minister Sushilkumar Shinde to seek his help for buying a plot at Shirley Rajan village in Bandra (west).

Who will Blink first ?? Its the builders stupid !!!

TOI has a 2nd page article on the realty slump in Mumbai. The question is not whether who will blink, but rather "Is it affordable ?" With expensive loans and speculators having left town, there is no hope for any sales at these prices. Times says they are writing about the realty slump, since May. This blog was started almost 2 years ago when the irrational exhuberance was overcoming buyers aided by low interest rates. I expect US style foreclosures to become rampant in Mumbai/Delhi where people have over-leveraged themselves. Rather then wait for builder incentives, end-users/bargain hunters should look for second sales for distressed propeties. I'm certain a 40% reduction in them is possible. As always time is the best teacher.


Mumbai: It may seem like an eyeballto-eyeball confrontation between builders and buyers. And who will blink first in coming weeks is the question on everyone’s mind amid an unprecedented slump in Mumbai’s residential real estate market.
According to property experts, the next three months, starting from the Navratri festival, will be extremely crucial for builders, who have seen sales of apartments dropping by up to 50% in 2007 as compared to last year. In fact, some leading developers have confessed in private that some of their projects registered “zero sales’’ between February and June this year.
Despite the slowdown, which is mainly due to the unaffordability factor and high interest rates on home loans, builders are holding on to their prices. Potential flat buyers, on the other hand, are deferring their decision as they expect the rates to drop. Some experts are of the view that a further 10-20% dip in flat prices cannot be ruled out.
HDFC chairman Deepak Parekh agreed with the contention that it is all about who blinks first. “The fact that they are holding on to their prices despite the drop in sales of between 30% to 40% is an indication that builders are showing signs of cracking up,’’ he said.
Parekh added that the developers are in a position to hold on mainly because of the phenomenal profits they have made in the past. “If the sales do not increase in the next few months, one expects a correction of about 10-15%, but definitely not a crash as many predict,’’ he said.
Last May, TOI was the first to report about how several builders, dealing on a one-to-one basis with home buyers, had already started offering freebies like throwing in free parking, not charging a premium for a floor rise and, in some cases, even offering to pay for the stamp duty.
Rajiv Sabharwal, senior general manager, ICICI Bank, too, admitted that the next three months are crucial for builders if volumes do not pick up. “The market is down in terms of unit sales, but the number of inquiries from flat buyers is increasing. This could lead to a positive trend in the next two months,’’ he said.
Sabharwal, however, added, that the market is slightly better than what it was in the first quarter of this year, which witnessed very low transactions. “There has been a slow improvement since then, but it will be difficult to quantify,’’ he said.
A property expert, not wishing to be identified, told TOI that if the market does not revive or sales fail to pick up in next three months, there could be a correction to the extent of 20% to 30% by next year.
“Ninety per cent of investors as well as end-users have already bought their first and second homes. Now at these high levels, both the speculator as well as the end-user do not find real estate lucrative to invest with high risk. In fact, speculators have started lending money to developers at 15% to 18% interest rather than investing in real estate,’’ he said.
Knight Frank India chairman Pranay Vakil observed that despite the booming stock market, investors are no longer booking profits and investing in real estate. He said the coming months would be keenly tracked to see how the residential market shapes up.
Suburban property developer Mukesh Mehta said the residential market is saturated in areas like Chembur, Santa Cruz, Khar and Bandra. “Prices have become unaffordable. Builders who have the financial muscle power can hold on, but the smaller developers will be thrown out in the next two years,’’ he claimed.
But Mafatraj Munot of Kalpataru Group put up a brave front. According to him, sales of apartments have picked up since June after the initial dull period during the beginning of the year. “In fact, there has been an increase of 10% in our prices since last year,’’ he said. “Today there are only actual buyers. The investors have all disappeared,’’ Munot added.
Arun Nanda of Mahindra Gesco said actual sales are still happening despite the slowdown. “At our projects in Goregaon and Kanjurmarg, prices have appreciated by as much as 15-20% since last year,’’ he claimed.
In fact, TOI has learnt from market sources that some big developers in the city have taken a gamble and hiked their prices in residential projects by up to 15% since the past two months despite few sales taking place.
In Powai, a developer has jacked up prices for his high end apartments from Rs 14,000 a sq ft to Rs 16,000 a sq ft. Similarly, another has increased the price in his Malad project from Rs 6,300 to Rs 6,700 a sq ft. A developer setting up a project near the Jogeshwari-Vikhroli link road recently hiked the price from Rs 6,800 a sq ft to Rs 7,100 a sq ft.
“These developers are trying to send a warning to flat buyers: buy now or expect the prices to rise even further,’’ said a market source. Whether the purchaser bites the bullet or not will be seen only in the next few months.
GROUND REALITY
In the last three years, the property market has gone up by almost two to three times across the country. According to experts, the prices have reached a level where it looks difficult for further appreciation and there is now resistance from buyers. Reasons for the high prices are:
l FDI funding to developers l Mutual funds have entered real estate l Big developers from north moving towards south and west regions l Boom in shopping malls l Cash transactions
There is a lot of resistance for buying real estate because: l Real estate prices are at its peak. l High interest rates which make investment in property not worthwhile.
There is clear indication of slowdown as few people are taking housing loans as compared to last year. l Oversupply to hit the market in residential and commercial sector. l New townships likely to come up on the outskirts of the city, which will be well planned.

Exercise caution before redevelopment

This article from TOI applies to all major cities in Maharashtra.

Pune is on the brink of major redevelopment projects in several housing societies facing arterial roads. A recent Bombay High Court judgement has allowed the use of force as a last recourse against dissenting members of a cooperative society refusing to vacate.
The verdict makes the decision of the majority binding on the minority, in the belief that a miniscule minority should not hold the majority to ransom and stall redevelopment plans.
Even as the verdict seeks to facilitate faster redevelopment, the fact remains that many housing societies are ignorant of proper procedures to be adopted while going in for redevelopment and it is time societies get their act together and follow a systematic plan towards this.
Hemant Naiknavre, Director, Naiknavre & Associates, says the government should frame model guidelines to be followed by housing societies which will help bring in transparency.
He further explains, "The decision of the majority is binding on the minority as per the cooperative law, until and unless it is proved that the resolution on redevelopment or selection of the developer was unreasonable and unfair. The facts and circumstances of each case may differ, and there may be cases where a minority may be fighting for genuine reasons due to non-transparency in the whole procedure."
Legal experts say the first and the foremost step before going in for redevelopment would be a structural audit of the building. The structural audit report will determine whether the building should go in for redevelopment or for major repairs. In the absence of the technical report it would not be legally permissible to pass a resolution in the general body meeting. However, it is a fact that many co-operative societies suddenly call for General Body meetings, and decide to go in for redevelopment in the absence of a structural audit report. There are also instances of redevelopment being undertaken without proper negotiations with the builder.
Advocate Chandan Parwani elaborates that in any scheme of redevelopment, the primary objective is to ensure guarantee of performance. Performance is principally in the area of timely construction, quality control and adherence to rules, and regulations. A bank guarantee ensuring timely performance, besides necessary funds being available so that a project would not be left midway are essential requisities. A promoter and builder should be entrusted with the cost and expense of the temporary rehousing of members of the society during redevelopment so as to ensure that the members are not bearing the brunt of any delays on the part of the builder. A substantial contribution to the Corpus Fund by the builder will take care that the society can meet its cost of maintenance and upkeep after redevelopment. Experts also advise the formation of a reconstruction committee (consisting of knowledgeable members in the society), who can directly report to the managing committee. Such a committee can cross-check the builder's credibility before appointment as also report any discrepancies in the reconstruction work, they say. "A feasibility report of the society architect is a must before negotiating with the builder," maintains advocate P Narayan. The report will reflect the potential floor space index including the TDR of the housing society. The best way to select the builder is to invite tenders through a public notice and such tenders should have the basic eligibility criteria mentioned. This will bring in more transparency in selecting the developer. The society architect can help zero in on the best tenders in terms of price, quality and lucrative offers.
"The fact that most societies do not appoint professionals like architects, structural engineers and competent advocates is the reason that proper negotiations do not happen," feels V S Kulkarni, resident of Bhandarkar Road, Deccan. The appointment of a competent advocate is crucial as he can act as an ombudsman and prevent unnecessary litigations.
It is also a fact that ignorance of members is taken advantage of by committee members with vested interests, who take hasty decisions ignoring genuine objections of a small section. The minority is not always in the wrong, maintains advocate P Narayan.
"In Pune, for instance, there are row houses and flats in cooperative housing societies that have different carpet areas. If the majority holds a smaller area then they successfully bargain for a bigger area from the developer and sign on the dotted lines. However, in the same society, members having larger area, and not getting a proper offer in terms of area or monetary compensation, will quite naturally fight against the majority and challenge the resolution," says Narayan.
Enumerating the benefits of redevelopment, Rajesh Choudhari, Director, Prestige Developments, says your new flat is twice the resale value of the old house. This valuation could help you leverage a better loan for business purposes while also becoming a stepping stone for a much bigger asset later. Hence, any co-operative housing society should plan for redevelopment in a systematic and precise manner. If some members fight for trivial reasons then the overall objective gets defeated.
"Needless to say, if the dissenting members obstruct the redevelopment work, then not only will the builder suffer irreparable loss but the entire society, which involves a majority, would not be able to get a new premise easily," Choudhari says.

Unfinished realty - Builder delays, customer pays

Business Standard reports
What do developers do when apartments aren’t finished on time? Some pay back their clients as part of a penalty clause.

It is a tussle between builders and home buyers that never seems to end — delivering projects on time. There are umpteen cases where builders have taken extra time to finish projects while leaving home buyers to suffer fiscal setbacks.

Imagine a situation where you’ve booked a house in an apartment complex while paying hefty EMIs, and also the rent for the place that you currently occupy. Any delay in getting into your own house obviously means a financial loss.

The only change today is that builders now have a penalty clause in their agreements with buyers. But that is not mandatory yet.

There have been cases earlier where people have contested builders in courts but in most cases that is a long protracted battle which not many are willing to go through.

S K Virmani, manager, National Consumer Helpline, tells us that there are cases where people have complained about delayed possession of apartments but these are not highlighted because there is no effective redressal available.

DLF’s group executive director, Rajeev Talwar, explains that larger developers have an image to protect and to show their commitment they include a penalty clause in agreements. Omaxe too, for instance, provides a penalty clause in its agreements.

Take GurgaonOne, a residential project by Alpha G:Corp, that has been delayed because it hasn’t yet received a completion certificate. The company, however, is paying a penalty according to the agreement — Rs 5 per sq ft per month.

Going by the developers’ side of the story, there are numerous causes for delays — “government approvals, getting the completion certificate, raw material delays, cement and steel procurement, manpower delay”, reasons Anuj Puri, chairman and country head, Jones Lang LaSalle Meghraj.

Getting local approvals is a harrowing task and the new Environmental Impact Assessment clearance that is now mandatory can even take up to nine months .

“At any point in time, there is a 50-60 per cent shortfall in unskilled manpower in the market,” says a source in a large development. Civil contractors executing projects have so much on their plate that managing different projects is becoming difficult.

According to industry watchers, most developers face project delays. “About 85-90 per cent projects are delayed in some way or the other,” they say.

Talk to the spokesperson of Sahara Infrastructure and Housing, Suryavir Singh, and he will tell you that a lot of the delays are not in the developers’ control.

For a developer any delay means rising interest and construction cost. One of the company’s projects in Gurgaon, Sahara Grace, has been delayed by 4-5 months because it hasn’t got a completion certificate from the authorities in Gurgaon. The agreement does include a penalty clause.

“We have given the buyers a leverage to pay us late,” he says. But Sahara, he says, will not take the blame for the delay by the authorities and so will not pay any penalty.

Singh also says that in smaller cities the authorities themselves do not have a clear idea about what to sanction and what not to. That process takes time because in many cases they themselves have to educate the authorities.

But this is not only in the residential sector. According to Srinivas Anikipatti, regional director, Colliers International, in the office and retail space segment, delays might effect the budget of a developer, increase the construction and storage cost and hit the brand image of the company.

Of course, it has a direct impact on end-users as well. “Retailers follow a cycle of business and a lot of them start a new venture around these cycles that usually start around Diwali or Pongal when they can create a hype. The launch period is very critical,” he adds.

For international retail trying to enter the market, delays could mean plans, manpower projections and design lines going awry.

Anikipatti explains that in a project in which the client has given a minimal advance, the pressure on the developer is far less compared to a heavy advance situation. “The clients’ capital is stuck and they can’t go anywhere,” he says.

In such a situation, strict penalty clauses are imposed. In a built-to-suit project in Pune, a Bangalore-based developer had to waive off six months’ rent for the occupier for delivering late. “If there is an agreement, they have to honour it,” says Puri.

This is one reason why clients rely on bigger developers who are sure of their deliveries. “There are a lot of externalities in the process today. A developer might be forced into a delay, but you have to plan for it and that is where experience and brand name matters,” says Talwar of DLF.

“In the last few years, developers have taken up 10 times more projects compared to what they have done in their total lifetime,” says Anikipatti.

Where is the labour, brick and steel, cement? How will they manage all this? But there are construction companies who are trying to get more advanced technology for construction to match deliveries. However, the cost of adopting such technologies in India are still very high and not many developers are able to benefit from it.

The solution, it seems, lies in the urban development ministry’s plans to create a regulator for the real estate sector. The regulator would promote best practices and consumer interest.

“Where there is a delay, the regulator will ensure that penalty is paid by the developer. It will also be an ombudsman between the buyers and developers,” says Puri.

GE introducing home loans at lowest rates 9.99%

New Delhi: Loan market could be in for a serious price war. GE money has launched a home loan product with a floating rate of 9.99 per cent, much cheaper than the 11 per cent being charged by market leaders.

Wizard Home Loans a joint venture between GE money and Australia's mortgage major -Wizard, hopes to bag 30 per cent of the Indian home loan market in the next 3 years by offering the cheapest rate.

The company has launched it first floating rate product at 9.99% for a minimum of 20 years for a min loan Rs 10 lakh. GE claims its current cost of funds are much lower than the 9.5% being projected by competition and hence the competitive rate

“One of the things India has enjoyed over the last few months is a lower cost of funds. I think it is not necessarily being passed on a retail rate. This not an introductory price this is a rate we and our partners have worked out keeping in mind our margins,” says Mark Bouris Chairman, Wizard.

Besides this, Wizard Home Loan branch offices will be run by owner-operators, like franchises- bringing down the total operating costs. Nevertheless, since NBFC’s are not allowed to take deposits maintaining the current cost funds will be a challenge.

India's subprime crisis

Business Standard reports on the drop in the disbursement of housing/consumer loans

interesting snippet here. The banks have lent just 15% of last year's bookings with a loan/deposit ratio of 8%. If this continues the banks will go in the red soon and start posting losses. How else can they afford to pay out 8% deposit rates on 92% of deposits, when they are only loaning out 8% of loans at 12.5%. A simple shopkeeper will tell you this scheme doesn't work.

This shows that the Indian loan consumer is either
1. price sensitive to high interest rates
2. priced out of the housing market due to sentiment of overinflated prices
3. priced out due to lack of ability to pay EMI
4. All the above.

The only way the consumer will come back to the loan and housing market is the drop in prices, given that loans rates will not go back to previous levels. There is no other way.

With interest rates jumping frm 7.5% to 12.5%, its not a 5% rise in EMI, it is a 66% rise in EMI. so a 20k monthly payment for 20year, 20Lakh loan suddenly becomes 32k. Thanks to the magic of compounding, consumer pays 76.8L for a 20L loan instead of 48L, leading to a loss of 28L. This is the magic of adjustable rate mortages (ARM) also called floating rate loans in India. I think many buyers of expensive properties over 40L(now 1.5crore payment) will not be able to make these payments. This is India's subprime.

>>>>
Since April, banks have lent only Rs 9,132 crore (Rs 91.32 billion) compared with Rs 66,950 crore (Rs 669.50 billion) over the same period last year. On the other hand, banks had raised Rs 1,34,828 crore (Rs 1,348.28 billion) of deposits till August 17, 2007.


SBI may lower home, retail loan rates

BS Reporter in Mumbai | September 05, 2007 07:41 IST

State Bank of India [Get Quote] (SBI), the country's largest lender, is likely to reduce interest rates on home loans and other retail loans by next week, to coincide with the start of the festive season. The bank's Maharashtra and Goa circle is already offering home and auto loans at 50 basis points lower than the effective rates for new borrowers.

"We would look at reviewing lending rates when the festive season begins. A decision would be made in the next one week," said a senior SBI official.

SBI offers floating rate home loans at an interest rate of 10.75-11.25 per cent. For a fixed rate home loan for up to 10 years, the bank charges an interest rate of 12.75 per cent. The floating rate for auto loans is at 12-12.5 per cent. As part of the promotional offer in Maharashtra, the bank has waived half of the processing charge and is also offering a higher loan to value ratio for new borrowers, which means borrowers could get loans higher than the normal 80-85 per cent of the property cost.

Last week, Bank of Baroda [Get Quote], lowered home loan rates for new borrowers in the hope that it would generate some demand. BoB reduced interest rates on home loans by up to 50 basis points to 10-11.50 per cent.

A BoB official had said "The bank has to survive in a market which is highly competitive as the home loan demand is elastic. After a series of hikes in 2006-07, the home loan demand has shown moderation. The rate cut may help to get better response."

A slump in demand for loans, much sharper for retail loans, has made bankers worried as the impact of subdued interest income on year-end profits is staring at them. Banks had raised their prime lending rates (PLRs) by 250-300 basis points during the last one year. The PLRs of the five largest banks have increased to 12.75-15.75 per cent from 10.25-12.75 per cent a year earlier.

"Banks will have to look at reducing lending rates (for new borrowers) if credit does not pick up till the end of August. We are already five months into the year and advances are more or less flat, while banks have mobilised huge deposits," said another SBI official.

ICICI Bank [Get Quote] has already factored in a sharply lower growth in retail loans. Managing Director & CEO K V Kamath recently said the bank would now be talking of a low double-digit growth of 10-15 per cent in retail loans in 2007-08, down from earlier estimates of 25-30 per cent. The bank had seen over 40 per cent growth in retail loans in the past few years.

A senior official from Punjab National Bank [Get Quote] said, "Our rates are already competitive but nothing (lowering of lending rates) can be ruled out. We expect the demand to pick up towards the end of September and early October."

Since April, banks have lent only Rs 9,132 crore (Rs 91.32 billion) compared with Rs 66,950 crore (Rs 669.50 billion) over the same period last year. On the other hand, banks had raised Rs 1,34,828 crore (Rs 1,348.28 billion) of deposits till August 17, 2007.

In the first quarter of 2007-08, SBI added Rs 2,012 crore (Rs 20.12 billion) of advances. The bank's lending portfolio stood at Rs 3,44,087 crore (Rs 3,440.87 billion) at the end of the June. "While, domestic advances fell by around Rs 2,000 crore (Rs 20 billion), the international loan book of SBI grew by close to Rs 4000 crore (Rs 40 billion). The bank's housing advances stood at Rs 39,241 crore (Rs 392.41 billion), constituting 52.22 per cent of its retail advances.