HDFC says that the multiple that operates for housing in a Mumbai suburb is between 4.5 and 5.25 times annual salary. If 85-90 per cent of the cost of a flat is taken as a loan, and a 15-year loan has a monthly repayment instalment that is 1 per cent of the loan amount, then simple arithmetic tells us that 40 per cent of income is needed to pay back the loan.
Now, the average (or median) Indian family earned about Rs 1.31 lakh last year, or Rs 11,000 a month. Can it afford to pay Rs 4,400 every month on a housing loan, for a modest one-bedroom flat that costs Rs 6.5 lakh? Probably not. But if it could, or if it had a little more income, would it get a flat for Rs 6.5 lakh? Not in the big cities. The Delhi Development Authority, which is not known for quality work, sells a one-bedroom flat (450 sq ft) for Rs 8-10 lakh; the open market rates are at least twice as high. So it is easy to see why most middle-class Indians see home ownership as a distant dream.
But hold it; flats are now being offered for Rs 4 lakh by Tata Housing (covering 280 square feet, which may mean a room plus kitchen). A 450-square foot (one-bedroom) flat would cost the magical sum of Rs 6-7 lakh. Jerry Rao, the banker-turned-IT entrepreneur-turned-housing evangelist, has set up a housing company that will offer flats for Rs 7 lakh—with construction cost in the region of Rs 700 per square foot. These entrepreneurs seem to be dropping the total cost from Rs 2,000 per square foot to Rs 1,500. If they are successful, others are bound to follow their lead. And housing might then become affordable for the average Indian, if not quite the aam aadmi that the politician has in mind.
The big real estate companies, which have been focusing on housing that costs Rs 4,000-6,000 per square foot and more, have seen the light—in part because they have found no takers in today’s real estate slump. So they have slashed prices, in some cases by a half, and have been rewarded with a rush of buyers. The problem in India is that much of the cost of the roof over your head is on account of the land beneath your feet—which has been kept hopelessly expensive by the politician-builder nexus. This has prevented more land from coming into the housing market, which is why upscale flats in Delhi and Mumbai rival the costs of those in Manhattan (where the typical flat costs Rs 6 crore). If more land were thrown into the market, home ownership would not remain a dream for the majority, it would become reality.
22 comments:
PUNE: Taking a leaf from Mumbai's expansion to accommodate its burgeoning population, the state government plans to focus on development of
satellite nodes and townships around Pune, with good connectivity to the city's centre. Towards this end, the state has proposed the use of Diesel Multiple Units (DMUs) to extend the Pune-Lonavla railway line till Daund.
http://timesofindia.indiatimes.com/Cities/State-plans-to-extend-Pune-Lonavla-line-till-Duand-/articleshow/4646408.cms
State plans to extend Pune-Lonavla line till Duand
Indian realty pulling a lot more money from private equity, NRIs
FIIs oversubscribed for stocks in the qualified institutional placements (QIPs) of Unitech and Indiabulls and bought stake sold by the promoters of DLF, the country’s largest developer, indicating a renewed interest by investors in property space.
In a separate development, Maharashtra Chamber of Housing Industry (MCHI), a realty developers’ body, said on Thursday its twelfth India Realty Expo 2009 held in Dubai saw 106 flats worth Rs 65.33 crore being booked.
“Around 86 flats worth Rs 80.18 crore are in the pipeline for NRIs when they come to India in July-August on their annual vacation,” Zubin Mehta, chief executive of MCHI, said.
The expo evoked an encouraging response, with 2,700 NRIs visiting the exhibition during June 4-6, the release said. “The softening of real estate prices and home loan interest in India were the key reasons that attracted a large number of NRIs during the expo,” Mehta added
Knocking at ‘affordable’ doors
Like any major global occurrence that reshapes the world order, the current recession has changed the way people do business. In real-estate, developers are finally shifting focus from the saturated upper-middle class segment to lower- and middle-income groups.
And with government thrust to develop housing for them, developers too are finding it lucrative to address this section of the populace, says Mr Kamlesh C. Gandhi, Managing Director, Mas Rural Housing and Mortgage Finance Ltd.
According to a recent property survey, there is a requirement of seven crore houses in rural and urban India.
“Of the 2.4 crore houses required in urban areas, majority of the demand is from the middle-income group who have an annual income of Rs 75,000 to Rs 3 lakh,” he says. Houses in the range of Rs 2.5 to Rs 10 lakh would have to be developed to address the needs of this category of people. Though the demand for houses in this price range has always been there, adequate supply has been absent. This is now being addressed.
Santosh Associates, Tata Housing Development Company, Dewan Housing Finance Corporation Ltd and Purvankara are amongst developers who have announced affordable and low-cost housing schemes.
City's poshest homes now cheaper, but..
But since October 2008, the rates in these and other posh areas in Worli, Prabhadevi, Bandra, Juhu and Versova, have dropped by a significant 20 per cent.
Yet, there has been no mad rush to purchase property in these areas as buyers expect the prices to go further down.
A week ago, a flat in Malabar Hill's II Palazzo building was sold at the rate of Rs 56,000 per sq ft.
Surprising, because last year, the rate was more than double, at Rs 1,20,000 per sq ft.
No takers: Areas such as Lower Parel that were asking for nearly Rs 28,000 per sq ft till a few months ago have come down to Rs 14,000.
Buildings that were commanding rates of nearly Rs 70,000-90,000 per sq ft, even a few months back, are still unable to find buyers, even though the rates have come down by 50 per cent.
Juhu Scheme, which demanded not less than Rs 22,000 per sq ft six to eight months back, is now offering a flat at a good location for Rs 16-17,000 per sq ft.
"The rates haven't come down, rather they have been corrected. However, buyers are still waiting. They want the rates in Juhu to come down to Rs 14,000 per sq ft," said Kumar.
According to Ajay Chaturvedi, a real estate expert, "Right now, the drop is nearly 25 per cent. I expect it to fall further.
However, it would take another 20 years for the rate to come to the level where the common man can afford a home in these localities, as the builders are never going to reduce the price to what it was way back in 2000."
Added Dalal, "A year ago, I sold a flat in Prabhadevi at the rate of Rs 55,000 sq ft. Three years ago, it demanded only Rs 6,000 per sq ft."
DS Kulkarni Developers' land bank at Rs 600cr
If you see Mumbai, we have a project selling at around Rs 6,000 per square feet at Andheri which is probably the right kind of price in this market and the cost comes to around Rs 1,400 for construction and another Rs 600 for land in case of Mumbai.
So I guess the profit for Rs. 4000 per sqft (about 66%) is what builders are expecting???
I think before long the Govt. will jump into the bandwagon of affordable housing and serving the "children of lesser god" by issuing loans and subsidies...
We could have the makings of the Indian Subprime. Since we seem to be imbibing only the worst lessons from the US and developed nations.
This could skew real estate prices for some time to come.
Question -
1. Do these builders have unlimited staying power?
2. Even in the face of the worst demand will they keep these nightmarish prices up?
3. If no one is buying then the cost of carrying such properties till someone buys them would be phenomenal..wouldn't it make sense for them to come to their senses soon?
4. If they keep the prices high like this till they go bankrupt. How much time will they take to go bankrupt? That's the waiting period then.
Also, some people will add here that demand never died and that blackmoney, politicians and Bhai's will ensure that prices not only remain at these levels but grow 100% in the short term! But the questions above remain...is this realistic? and is this good business?
http://lh4.ggpht.com/_tVP3FlsIqyA/SV6qho4z_yI/AAAAAAAABEM/6v_jmoH2l8s/DSC00440.JPG
Shocked !!!!
Tormentor of this BLog
Sandip Sabharwal's outlook
Friday, June 12, 2009
WAVE 3
A number of people keep commenting on the direction of the markets in the long run as well as their views on whether the current move in the markets is the start of a new bull move or a bear market correction. As I have stressed in my earlier articles I clearly believe that it is the start of a new bull impulse.
My view is that WAVE 1 was the big bull market of 2003-2007 which lasted for a period of around 58 months and in this move the markets moved up from a level of 3000 to 21000 in terms of Sensex movement. This up move was part of a global up move backed by strong growth across the globe with both developed and developing countries growing strongly. The move was backed by strong liquidity flows and ended with the financial sector meltdown and high inflation. The good part of the up move for a country like India was that after having learnt from the example of the 1990’s there was no indiscriminate borrowing and capacity expansion by corporate India. The balance sheets of most large groups remained reasonably robust even after the strong excesses which marked this move. Some new groups that had emerged did see grandiose plans being made and there was a sort of asset bubble which was formed in the real estate sector. However this was reasonably muted in the overall context of the economy and the strong bout of monetary tightening by RBI combined with the control of overexposure into the sector from the banking sector prevented a large scale blow off and most banks and NBFC’s rode through the crisis reasonably well. The earnings of corporate India grew by over 200% in this period and as such the markets which had bottomed at a Sensex level of 3000 in the earlier bear market bottomed out at around 8000 levels this time around. In Wave 1 the growth was a bit haphazard with lots of sectors picking up in a big way along with the growth of the rest of the world. This was a phase of global expansion in which the world economy grew at a very healthy rate and this led to a huge pressure on resources which let to significant inflation and resultant monetary tightening which slowed down the economy.
As Commodity, real estate, stocks etc. all went into bubble territory we came to Wave 2 where one by one all the bubbles finally burst as the financial crisis came to light in the Western world. Commodities continued to defy gravity much after the stock markets had started falling driven by huge flow of money into commodity hedge funds and a weak dollar. By the middle of 2008 even the commodity bubble started to burst. Wave 2 was a most nerve shattering one for most investors in any kind of asset class globally where real estate, stocks, bonds, commodities etc. all crashed and there was a huge flight to safety which led to a big rally in the US dollar and a big rally in US government bonds where investors were willing to buy treasuries at a zero yield also. As risk aversion grew outflows from most equity funds as well as global hedge funds increased in intensity and this accelerated the fall in the markets. This phase which was also global in nature ended in March 2009.
WAVE 3 which will be the most dynamic and aggressive moves in the Indian stock markets have started from March 2009. I believe that given the state of the global economy, specifically the USA, Europe and Japan nearly 50% of the global economy is not likely to participate in the next big up move. USA and Europe have big structural issues with their economies and their financial institutions are totally in shatters. It will take years to repair these institutions and encourage them to take the risks required to provide capital to the economy. The saving rates in these countries are abysmally low and with increasing unemployment and pressure on wages this would not increase significantly. Also given the fact that a large part of these economies are driven by consumption, given a combination of the above factors consumption is likely to remain very muted for the foreseeable future. The governments of these countries will be able to pump prime these economies through fiscal measures in the short run, however over a period of 5-10 years these economies are unlikely to grow at an average rate of above 2%. Infact the averages will be between 0-2%. In order to pay back the huge borrowings due to fiscal spending these governments will have to reduce spending and increase taxes eventually, which will again become a drag for these economies.
However this will be a period in which India specifically should stand out and show very aggressive growth. Given a combination of political stability, high saving rate, high capital flows, a strong financial system and huge investments in infrastructure development the economy will go back to a growth of 8-10% very very fast.
–As the huge deluge of dollars searches for returns and as the dual carry trade plays out we will see most developing countries with a potential for generating reasonable returns getting huge inflows both as portfolio flows and FDI.
-This will also be a period in which growth will happen with muted inflation and low interest rates. The reason why inflation will not pick up is that more than 50% of the global economy will hardly see any growth over the next five years and as such demand pressures will be low. This will resulted in commodity prices remaining suppressed (not withstanding the current rally backed by dollar weakness and expectations of economic recovery). Moreover the investments that have happened in capacity expansion over the last few years have led to an overcapacity in lot of commodity industries which is unlikely to correct in the near term
-External borrowings will remain cheap with the dollar LIBOR rates at all time low levels. Eventually the spreads on borrowings will also compress.
-Fiscal deficit which is pointed out as a concern will not be a concern for fast growing economies like India as repayment of these borrowings will be easy due to high tax collections growth due to strong economic growth and increasing tax compliance. Over a period of the next 5-10 years the country ratings of India by global rating agencies will also move up as most Western countries get downgraded.
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Given the fact that most corporates have come out of the current crisis without too much damage to their balance sheets (despite the currency derivatives and FCCB issues)
–the financial system has not seen a huge up tick in NPAs the investment cycle should remain strong. As the economy starts to recover and confidence comes back consumption demand will also revive very strongly.
Having learnt from the mistakes of the past corporates, individuals and the government will drive towards productivity and better delivery. Over the next two years India will see a huge increase in domestic oil and gas production which will reduce import dependence and provide a fillip to lot of consumption industries.
-A large number of private and public sector driven power plants will get commissioned over the next three years which will lead to a strong growth in electricity production and reduce power deficits drastically. This will also lead to a fall in the abnormally high merchant power rates that we see today.
-An increased emphasis on the roads sector will see the highway projects again falling back in place after virtually no development on this front over the last five years. There will be large investments going into various kinds of low cost and mass housing projects which will have a huge multiplier effect on employment as well as the consumption of key inputs like cement, steel etc. Lower consumer credit rates will lead to a strong revival in demand for consumer durables.
-Unlike in Western economies where companies are being nationalized the Indian government is in an envious position where it can raise Rs 50000 crores every year with just small disinvestments of a few PSU’s. These resources can again be used for spending by the government in all its key projects.
Things to be watched out for will be the pace of economic reforms, deregulation in various sectors (particularly petroleum product pricing), tax reforms like the phasing out of CST, the improvement in the delivery efficiency of government projects like the Rural employment scheme, Urban Renewal scheme etc. Railways is one area which has been neglected a lot and investments in improving services and railway stations can also have a huge multiplier effect on the economy.
I believe that the pace of up move in the markets in WAVE 3 will be very strong and fast and this wave will be smaller in duration to WAVE 1 but much bigger in size. This wave will take the markets to a Sensex level of 35000 over the next 42-48 months. During the course of this up move there will be continuous upgrades to the expectations of India’s GDP growth and corporate sector profit growth. The current year should be a 15% earning growth year and the subsequent two years should see a 25-30% earning growth. WAVE 3 will ultimately end like WAVE 1 did in huge overvaluation (and will obviously be followed by a correction). The Sensex EPS should conservatively reach a value of 2000+ by the end of financial year 2013 and at a Sensex level of 35000 it will be a valuation of 17.5 x earnings which is fair in bull markets and is not exactly a very high valuation given the historic context.
I believe that this is just the start of the new bull impulse and investors should not be too much concerned about missing the first three months of the rally as there is a lot more to go.
Minimum 50% increase in two years for Mumbai.
Bindas Bhai
I have been seeing comments by Bindas Bhai "Minimum 50% increase in two years for Mumbai"
After reading this article, i feel so
Its very funny how after each post by Bindaas Bhai there are always one or two anonymous posts praising Bindaas Bhai with obvious statements like I agree with Bindaas Bhai or you are great Bindaas Bhai...
I know its very funny, but this is how Bindaas is...pls. forgive his stupidity.
-Samajhdar Behan
haha, very true, I agree , he always takes a few days to compose some post, and then there are comemnts praising him.
As someone rightly said, if you have the sure knowledge of increase you would never share it, you would buy for yourself first, this bhai has said he is heavily invested in pune and then says 50% increase mumbai, now with state of IT pune RE is bound to go lower, however he is still not selling there, means what, he is just an RE agent or some builders guy. simple. as. that.
http://www.forbes.com/2009/06/11/credit-card-homes-lifestyle-real-estate-sales.html
with all the money in the world and with all the staying power of the world's reserve currency...still, this is what happened in the US.
for some reason people in India feel it will not happen to Indian RE!! They feel all the bhai's, smugglers and politicians/builders have unlimited staying power...It would be really interesting if they can stay that long, because the crash would be spectacular a super nova implosion...:))
Look forward to buying houses in India with my credit card.
bindaass bhai, jo teri lagne wali hai na future mein, uska tujhe gyan nahin hai.
Many people have tried to make you understand how economies work, but you always come up with nonsense excuses. If you really believe in yourself, please go ahead and put all your money in stocks and RE. And then wait for Sensex to go to 35000.
I can bet you that even if you are 45 years old, Sensex is not going to 35000 in your lifetime. Wait for it to go back to 7000 in the coming months and get a good beating from your family and friends for mis-guiding them and cheating them.
Shubh Chintak
The NAIVE has exhibited his ignorance by predicting a 35000 BSE index.
He claims western economies will see sustained lower growths of 2% YOY. With the increase in INFLATION due to QE wold this mean 2% - inflation which would mean negative growth or Growth - inflation =2% which would mean they will show a higher growth rate and adjusted to inflation would mean 2%. In either case countries like INDIA have a case to fear.
In my prv posts i've mentioned the CHINA factor as a main cause of the credit crunch. The East european countries which have now become a part of EU are showing rapid deflation with economies shrinking at a fast pace. Latvia is the first to collapse with govt slashing budgets by 20% consequently leading to wage decreases or reduction. Most of Chinas products are marketed on razor thin yields and the products are not skill intensive i.e it is mainly plug and play, hence a machine can be installed in Shenzen, Dhaka or Riga will produce the same product with local direct and indirect costs deciding the final product price. The likes of SHOES, TVs, COMPUTERS, TOYS, GAMES etc etc are some of these items, you can see how with reduced wages and higher transportation costs Europe suddenly starts looking a lot more attractive as a manf base hurting the asian economies incl INDIA.
Like Latvia, Ireland is another basket case however Ireland is of greater importance to INDIA because its workforce is very capable when it comes to higher end services that INDIAN cos target. The rapid closure of businesses in IRELAND will see these entities competing with Indian ITEs/BPOs for the same business.
SENSEX is going to be range bound for a long time with 20000 being the absolute ceiling if it reaches that at all.
Sensex is going back to 7000.
Housing will drop by 50-60% in 3-4 years. And Bindaas is going to go underground for 10 years.
--HB
Anonymous said...
I have been seeing comments by Bindas Bhai "Minimum 50% increase in two years for Mumbai"
After reading this article, i feel so
3:56 AM
Vik,
Request you to track this IP address I am sure this will be from Samajdar Behan aka Shayna.
Minimum 50% increase in two years for Mumbai.
Bindas Bhai
After reading through the comments of BB and shanya,
one gets the idea of different out look in both individuals.
Me thinks:
The way forward mgiht be in bwtn.
If v simplify the equation
If Americans dont consume, the chinese cant sell - Loss and no income for Chinese.
If Americans downgrade business, prefer local companies - loss to Indian companies.
However both economies r huge and have capacity to generate demand at home itself. Its how they manage this problem will decide their place later in World order.
The only solution will be for the americans to become thrifty and start saving all over again. This will be affecting Chindia severly for some years, but this seems the fastest possible solution.
Americans & the countries world over r pumping money which might lead to a bigger bubble later.
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