Real Estate Regulator - Friend or Enemy

Sugata Ghosh  from Economic Times Writes -

 Verbatim copy from ET
http://economictimes.indiatimes.com/opinion/comments-analysis/real-estate-regulator-harsh-rules-soft-banks-will-keep-realty-unclean/articleshow/20468159.cms

Real estate regulator: Harsh rules & soft banks will keep realty unclean

After politicians, builders are the most despised lot. Everyone has a story of someone who got a raw deal. The keys were handed over three years after the promised date; buyers had to cough up more midway, thanks to a clause that initially appeared insignificant; the redeveloped apartment had two-and-a-half bedrooms instead of three; and a year later, another 20-storied tower sprung up on the "open space", blocking the view of the racecourse or the sea — for which the owner, taken in by pictures on glossy brochures, had paid a premium. The list is endless.

Some angry buyers move the consumer court while others grudgingly accept what they get. A few years down the line, they stop cribbing as properties in the neighbourhood change hands for double the price they had paid. By then, they could be browsing another brochure that has found its way into the inbox, planning a second home that comes across as the only sensible, even if a little sticky, investment.

The housing market is about spiralling rates that have priced out most buyers, ambitious developers who are answerable to no one, emergence of property as an asset class and mortgage instalments becoming the dominant outgo in household budgets.

Like politicians, developers require no qualification: anyone with a claim on a slice of land can put out an advertisement to attract buyers. It's a business that employs millions and flourishes without a watchdog. Thus, any hint of a new law that assures fair deals and exemplary punishments that would be handed out by a new regulator is irresistible.

But it won't be a cakewalk. Advocates of such legislation should be prepared for the tortuous road towards a well-regulated and cleaner property market.

First, home prices could go up in the medium term. Once the new Real Estate (Regulation and Development) Bill, 2013, becomes law, builders would be barred from selling a project till all approvals — as many as 70 of them — are in place. This would delay launch of new projects and push up prices of those that are cleared.

Second, corruption may rise as multiple agencies drag their feet on clearances. Developers may strike convoluted deals giving buyers the option to purchase later. Third, disqualifying a shoddy builder could stall construction in all half-done projects and hurt genuine buyers. And, lastly, the validity of many regulatory actions could be challenged in higher courts.

There would be hurdles on the way and unless there is a quick and effective mechanism to throw out unscrupulous developers and hand over unfinished projects to others for completion, harsh measures would backfire on home buyers. This could defeat the purpose behind an otherwise strong law.

The proposed regulator must play a meaningful role so that approvals are not held back without a valid reason. Besides listing out approved projects, its website should also spell out reasons why clearances are yet to come for pre-launch projects. This would make agencies responsible for vetting projects little more accountable.

It will be a tedious job but a real estate regulator, unlike most regulators, will have to play a far more proactive role that goes beyond giving the final green signal to a project when all approvals have been obtained by a builder. This will ensure that supply doesn't dry up in the short run.

But throwing the rule book would be ahalfway measure if men who bankroll developers are unwilling to pull the plug. More than any rule, this alone can make the biggest difference to the Indian property mart. So far, it hasn't happened. Banks could have brought about the change in 2008-09 when one of India's largest builders was on the brink of collapse.

Instead, lenders threw a lifeline to keep it afloat. While realty stocks plunged 90%, generous bankers thwarted a natural correction in property prices. India was among the few countries where real estate prices did not fall — in fact, even rose in cities like Mumbai — post Lehman. It was a reminder of the clout the trade wields. Having survived the worst crunch, its influence could have only grown since then. Pushing a righteous Bill a year before the polls may be a brilliant idea by the government. But make no mistake. It's aimed to restrain a formidable lobby.  


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The question now becomes - will this regulator be actually beneficial to end users  - Will India make a law like China - where they are discouraging or banning buying properties for investment -
Will our builders which are in full nexus with the politicos comply ? Will the corrupt bureaucracy of India actually change and not let this regulator be yet another bribe to pay to get a home?

India's subprime builders stocks

Here is a brilliant article by R Jaganathan on the destruction of weath in the real estate stocks.  I had written a similar article few years ago when the parabolic real estate stocks had crashed to the earth and people were holding losses of upto 90%. 

>>> Article below. I have cut paste it, just in case some smart Alec decides that it is no longer new-worthy. 

A curious phenomenon exists in the real estate sector. In the last three-and-odd years, you know, I know, and the dog at the lamp-post knows, that land prices have only gone up, flats cost more, and our EMIs on housing loans have gone up. We are paying through our noses for the few square feet we want to call our home.

Who gains when this happens? One presumes that the real estate companies and builders must be raking in the moolah.

But here’s the paradox: between January 2008 and June 2011, stock market listed real estate companies have destroyed investor value. The Bombay Stock Exchange Real Estate Index has dropped vertically by 85%, yes, 85%, when the broader market has fallen less than a fifth. The BSE Sensex fell by 15% during this time.

In a sample list of 10 listed realty companies compiled by Firstpost, the investor value destruction adds up to a stupendous Rs 2,66,952 crore. AFP
Investors have cried all the way to their brokers. In a sample list of 10 listed realty companies compiled by Firstpost, the investor value destruction adds up to a stupendous Rs 2,66,952 crore. DLF leads the list of losers— or rather, loss-creators— with a drop in market value of over Rs 1,43,520 crore.


What gives? When house prices have either not fallen too much and, in fact, may have only risen, when the land on which these houses were built was probably bought when prices were lower, why have real estate companies left investors holding the sack?

Far from investors deserting in droves, companies like DLF have, in fact, drawn new and more powerful investors. One example is Robert Vadra, hubby of Priyanka Gandhi, daughter of Sonia Gandhi.

According to a report in The Economic Times a few months ago, Vadra has been quietly diversifying away from his jewellery and handicrafts business into real estate. The paper says:

“…the 42-year-old Vadra, known for his punishing fitness regime and love for fast bikes, has sought to scale up and diversify his business activities since 2008, acquiring tracts of land in Haryana and Rajasthan, a 50% stake in a leading business hotel in Delhi, and attempting an entry into the business of chartering aircraft. Regulatory filings available in the public domain and reviewed by ET reporters reveal the changing graph of Vadra’s business interests. These include wide-ranging transactions with the DLF Group.”

Someone married into the country’s first family presumably has lots of advice available to him on how profitable, or unprofitable, the real estate business is, as is evident from the fall in the market values of shares. But we are surely missing something here?

Sure, we are. When house prices are high, when the profits reported on balance-sheets are falling, and share values reflect the same thing, it can mean only one thing: poor corporate governance. And in the real estate business, poor corporate governance means the profits may be hidden somewhere else, and investors are left sucking their thumbs.

Anecdotal evidence tells us that land is the currency used by politicians for storing their ill-gotten wealth. In fact, almost all recent scams implicating, bureaucrats and even judges involve land.

Sharad Pawar, the Nationalist Congress Party president, is widely believed to be a pastmaster in this business (Read more on this here.) Karnataka Chief Minister BS Yeddyurappa is under fire for corruption due to alleged land-grabs by his family members. (Read and listen here.)

The Adarsh Society scam, which cost Ashok Chavan his job as Chief Minister in Maharashtra, is about real estate. It also implicates his predecessor, Vilasrao Deshmukh.

YS Jagan Mohan Reddy, son of late Andhra Chief Minister YS Rajasekhara Reddy, is accused of owning lots of real estate in Andhra and Bangalore, as a Firstpost expose last month showed.

The Satyam scandal, where Chairman B Ramalinga Raju confessed to overstating accounts and profits, is also related to property: money was siphoned off to Maytas, a real estate company. And Jagan Reddy’s father YSR was a key player in allocating land and infrastructure projects to Maytas (reverse of Satyam).

Several judges of the higher judiciary are also being accused on involvement in land deals. Among them are former Chief Justice of India KG Balakrishnan, and Paul J Dinakaran, former Chief Justice of the Karnataka High Court, who is now being probed by a Parliamentary committee for various unexplained dealings.

If we have established the close linkage between the powerful and real estate skullduggery with this indicative list, here’s a speculative pointer: a part of the steep fall in the market values of listed real estate companies represents money parked elsewhere on behalf of the powerful.

If the total drop in value is Rs 2,66,952 crore for just 10 companies, and assuming even a 40% value drop due to weak sentiment in real estate stocks (when the BSE Sensex has fallen 15%), we are still left with an unexplained loss of over Rs 1,60,000 crore.

It is more than likely that this loss represents value that lies outside the companies in the hands of speculators, politicians, bureaucrats and middlemen who are part of the realty corruption chain.

And remember, we have only talked about listed companies. The real, real estate sector, may be even bigger than this.

Builder of IT group housing project succumbs to bullet wounds

Cross posted from Ravi Karandeekars Blog.

Nikhil Rane (42), builder of Vanshaj InSignia at Baner - Sus, group housing project of IT professionals working in Hinjewadi, who was shot at by unidentified assailants in broad daylight at his office on Jungli Maharaj Road on November 23, passed away at 10.45 am on Monday at the Sancheti Hospital due to spinal shock complications.

Insignia group in Pune tried to form a group of IT pros to build their own housing complex. Unfortunately the builder who undertook their order, was shot at by unknown assailants a while back outside his Pune JM Road office.

While the primary motive seems to be a dispute in the purchase of land, it is indeed sad that crime, politics and the construction industry are so intertwined.

http://ravikarandeekarsblog.blogspot.com/2009/12/nikhil-rane-succumbs-to-bullet-injury.html

http://epaper.dnaindia.com/newsview.aspx?eddate=12/1/2009&pageno=3&edition=40&prntid=105516&bxid=30689294&pgno=3

http://bit.ly/86QwLp

Story of Bennett, Coleman & Co (TOI Group) and Real Estate Companies

This is about how one media group can manipulate the "news" and its content to make money and control the public opinion for its profitability. This is about Bennett, Coleman & Co (TOI Group) which owns media assets like ToI,ET(across all cities),regional newspapaers and TimesNow TV.They have something called "Times Private Treaty" which invests in emerging enterprises and small & midcap companies just like a VC. But its slightly different with Times Private Treaty(TPT) where in TPT will get equity for its media coverage (whatever TPT pays, gets back for media treatment).Investee companies will get special coverage,increased exposure and mouth piece service. We dont know much about the very details of the agreement between TPT and investee companies.

Details:

India’s largest new company, Bennet, Coleman & Co. Ltd., (BCCL) has signed Times Private Treaties with over 200 companies in the past 3 years.

What is TPT?

TPT identifies growth rich but Advertisement shy comapnies (???!!) and gives them media space in BCCL platforms. In return, they get a share in Equity. Expected value of these TPT’s - Rs.1,700 Cr- Rs.3,000 Cr.

http://www.timesprivatetreaties.com/portfolio/list-as-per-industry.html

Why TPT?
BCCL believes that Indian market is commodity driven, not Brand driven. Only 14,000 brands are actively advertising in India. But in US there are 8 lakh active brands. Hence there is a future for brands.

Who is following?
HT Media, NDTV, Dainik Bhaskar, Dainik Jagran, Mid Day.

Conflict: Editorial lenience to TPT companies.


We could see the list (portfolio) of compnaies earlier in their website( which has been removed. I list the companies later from my memory. I noticed about these investments in 2003 and impressed by the idea(didn't know details) of Jain family but what happened latter is big let down for the indian public. There are no goverment controls at present but we expect a little ethics, social values, moral control and culture for media group with such long tradition.

List of companies from Mint
http://www.livemint.com/2008/01/14234923/F7C03521-A4FD-40D1-B769-A38A8D7DE369ArtVPF.pdf

I remember the list of companies as Sobha Builders, Rajesh Exports,Pyramid Saimira, JetKing, Peninsula and many more realty players.I guess we should stop reading newspapers like these which actually doesn't add any knowledge but only noise.

Here are the links for more understanding;

http://ajayshahblog.blogspot.com/2008/01/murky-ethics-on-part-of-media-and-firms.html

You can find many more links in Ajay's Blog.

http://www.business-standard.com/india/news/bennett-colemans-private-treaties-business-sees-sharp-value-erosion/357692/

http://www.dnaindia.com/money/report_private-treaties-a-public-and-investor-menace_1254804

http://www.livemint.com/2008/01/14234923/Should-private-treaties-be-mad.html

http://www.suchetadalal.com/?id=cc8c67c4-6674-207a-4947b1bb96dc&base=sections&f&t=CURRENT+ACCOUNT+(MoneyLIFE+Issue%2C+1st+Jan+09)

http://www.suchetadalal.com/?id=ee33e5a1-2d4b-8231-4a24f507414e&base=sections&f&t=Pyramid+Saimira%3A+Weak+Follow+Up

http://www.suchetadalal.com/?id=2f109f06-d1bf-afca-4a0176e5b38e&base=sections&f&t=Ring+of+Thieves

http://www.vccircle.com/500/content/bccl-picks-up-652-per-cent-in-sujana-industries-hats-off-to-times-private-treaty


I would like to get the views of our readers. I am sure many of you already knew but its good for those who still believe whatever newspapers say is truth and newspapers are run by the people who care very much about this poor country and its people.

Outlook money article on the real estate meltdown

A comprehensive article on the state of the real estate industry vindicates what people on this blog have been saying all along. Prices have to fall in line with affordability for buyers to bite. Those who leverage beyond their means will get wiped out. Speculate and Die is the mantra of real estate. Right now the black money operators have been swindeled by the construction companies who have promised astronomical profits but now are facing wipeouts. Unfortunately no one will shed tears for these undeserving and corrupt hooligans.
Wait! Real Estate Meltdown Ahead

“Do deewane shehar mein, raat mein yaa dopahar mein,

Aabodana dhoondhte hain, ek aashiyana dhoondhte hain...”

These lines from the 1977 classic Hindi film Gharonda would, in brief, encapsulate the struggles that most people go through while buying a home, especially so in the last 2-3 years. Residential property prices crashed in the mid-1990s, and it took till 2002-03 for them to start rising again. When they did, however, the progress was rapid. Within a short span of time, the prices had risen so much that the budget buyer, who comprises the bulk of the market, was left out in the cold.

This would possibly have continued had real estate developers not been overtaken by international events of a scale that they could not anticipate. The US sub-prime crisis triggered recessionary forces globally. That, in turn, crashed volumes in the Indian property market to a trickle. “Going forward, the market will remain slow and transaction volumes will remain low,” says Anshuman Magazine, chairman and managing director, CB Richard Ellis South Asia, a realty consulting firm.

For homebuyers though, things are getting better. A correction in property prices is already underway. In the following pages, we try to figure out what you should do if you are in the market to buy or sell, and how to arrive at a reasonable price, give or take a bit, at which to strike a deal.

Builders ask govt to buy unsold flats

Yet another dumb, foolish, stupid, retarded, moronic, idiotic, asinine, (your favorite adjective) idea to prop the realty market. Trust nitwits like realtors to come up with these pearls of wisdom.

Indian express reports
New Delhi: In the first of its kind bailout demand, real-estate companies are planning to ask the Government to buy out their unsold flats at current market prices and sell these at a later date. The proposal floated by one of the big Delhi-headquartered and listed real-estate companies is one of the many ideas to be hard sold at the Planning Commission tomorrow.

A real estate company’s chairman and managing director who did not wish to be quoted told The

Indian Express, “We will discuss this tomorrow with Planning Commission Deputy Chairman Montek Singh Ahluwalia.” He, however, did not disclose the inventory position of the large firms in India.

According to Jaskirat Singh, owner of Delhi-based real estate broking firm Grand Real Estates, about 30-45 per cent of properties worth Rs 50 lakh and above launched over the last six months remain unsold for DLF and Unitech. In the case of Omaxe, it is 25-30 per cent, he said. These companies do not disclose their ready but unsold assets.

When contacted, a promoter of another leading Delhi-based and listed developer said this was not the only proposal on the table to bail out the sector. “We want states to enter into joint ventures with big real-estate players by offering land as equity. State-owned banks must also be directed to start disbursing home loans now that they do not have a problem of funds,” he said.

To boost consumer demand and give a fresh stimulus to the sector, the companies are also seeking a further cut in interest rates on home loans. “It should be slashed to 6 per cent for loans up to Rs 5 lakh and to 7-7.5 per cent for loans up to Rs 30 lakh. What the public sector banks have done is grossly inadequate,” a developer said. Tax incentives to home buyers must be enhanced and rental income be made tax-free to incentivise purchases, he added.

Stung by the liquidity crisis, real estate companies also want the Reserve Bank of India to refinance the cash gap in existing projects. Most companies are borrowing at rates over 20-22 per cent to complete ongoing projects. “But, now, loans from banks have virtually dried up,” a promoter said.

Mumbai constructions grinds to a halt

Construction halts in Mumbai, so ‘they wait here endlessly for some work’


IndianExpress.com reports on the human toll of the housing meltdown. While the builders can keep taking up obscene prices of 20,000 rs per sq/ft, the laborers who build these houses struggle for 250 rs a day. An ironic state of affairs. This is extreme greed on part of the construction industry who seem to believe that they are generating mass employment for unskilled workers. K.P Singh and the lobby should be ashamed of asking for bailouts from the Indian government when they treat their laborers so shoddily. Its about time the real face of the construction industry is bought to light.


MUMBAI, NOVEMBER 21 : Every morning, Lalita Rathod joins the mass of labourers outside Khar station, an “open labour market” where people are chosen for work at construction sites. But this last fortnight, the wait outside the station has been one huge disappointment for Lalita and other daily-wagers from the Bharat Nagar slums — nobody needs them.

“In the last one month, finding a job has become really difficult. Some of my neighbours have returned to their villages as they couldn’t earn enough to pay rent here. They hope to get back after a few months when things get better,” says Lalita who brings home Rs 250 a day by lifting earth and gravel at construction sites. She says she can find a job as a domestic help but that will just get her Rs 1,000 a month — not good enough because she has five school-going children.

Rafiq Khan, a construction contractor, points to a row of skilled labourers — masons, painters, plumbers. “This line has reduced by half lately. Many have gone back to their villages and will remain there till we call them for work. First, there was an exodus of construction workers from Bihar after attacks by the Maharashtra Navnirman Sena. Now, there is a lull in the real estate market. They wait here endlessly for some work.”

For a city that has some 45 million square feet under construction, Rathod and Khan’s experiences might come across as stray cases. But even the best plans have gone all wrong, so several developers are focusing on selective projects or on completing one building instead of four. At the Kalpataru Aura project in Ghatkopar, work has been stopped on all buildings except one. The DLF construction site in Lower Parel, which had earlier planned to employ about 1,000 workers, has very few workers at the site.

Builders go with a begging bowl to the PM

Rediff.com has a good article on the sorry state of builder finances
In India real estate gets unreal

By Dr arvind, Section Real Estate
Posted on Wed Nov 12, 2008 at 11:31:03 PM EST
someone please help me here. How is it that the country's top realtors who could not have, in their wildest dreams, hoped for formal audiences with the country's economic decision-makers even a few years ago are walking in and out demanding, among other things, lower interest rates, ostensibly to protect the interests of 250,000 construction workers?

Let me break this argument up piece by piece, or should I say separate the carpet area from the built up area. Let's begin with an example. Assume I bought property in Mumbai (pre-2004) paying around Rs 30 lakh (Rs 3 million). Today, the same property quotes for anything between Rs 90 lakh (Rs 9 million) and Rs 1 crore (Rs 10 million).

How did this happen? Well, it began in the glorious days of interest rates, with the figure at an all-time low of around 7 per cent. Today one can definitively say it was this very low interest rate regime - I don't care what the supply side guys say now - that triggered, massaged and abetted the mad spiral that resulted in the 300 per cent hike in property prices in the city of Mumbai.

And obviously if it applies to Mumbai, it must apply in similar or identical proportions to property and land across the country, including for industrial land and special economic zones. The same low interest rate regime triggered a housing bust in the United States and a global financial cataclysm, but that's another story.

It also meant that the well-to-do here were buying second, third homes, and trying to flip them around. At 7 to 8 per cent interest rates and rising incomes, the opportunities were almost magical. Browse any major realtor's website (including DLF) and you will see grand, upscale projects which are great for those who can afford them, but hardly deserve the finance minister's intervention if they have to be sold at half the present asking price.

There is an important reality, pun not intended, to reckon with. It is that the stock market party is taking a long breather. Obviously it would be good for all, including this writer's financial assets, if the party resumed. But it looks unlikely to for a while. And promoters would be wise to accept that the markets are not discriminating against any specific industry or company, at least at this point. A look at DLF's stock price versus the Nifty since January 2008 is illustrative. Both have moved almost in tandem.

As have the stock prices of a host of other companies in diverse sectors. So why then is the fate of the real estate industry more perilous than anyone else's, is the question I would like to pose. Surely not for building more diesel genset-powered malls or lakeside apartments and chalets. As I see it, every business house in the country is struggling to match capacity to demand, which is falling. Tata Motors [Get Quote] has shut plants to manage inventory, so have a host of other auto companies. And they, quite naturally, want auto loans to be made cheaper.

Click on "Full Story" for more...

And for all the prime minister's pleas, every industry I know of is rationalising its workforce. Thanks to Naresh Goyal and Jet Airways [Get Quote], no one will, let me assure you, put 400 youngsters out on the streets overnight. But they will cut back and they have little choice but to do so, particularly in industries where out-of-control factors like sky-high oil prices have wreaked terminal damage.

One newspaper report quotes a prominent developer (apparently trying to convince the UPA government to ease up things for homeowners) saying, "The impact of the depressed market will not only be felt on our share values, but also on jobs and overall economic growth." What he mostly means is that the depressed market has severely hampered his ability to raise funds in the last nine months or so. Too bad but he is not alone.

If I were to go by one report, DLF's K P Singh is asking for interest rates in the range of 8-9 per cent. Which is about 1 per cent higher than when the mess began piling up. Brilliant. And would that assume that real estate prices remain where they are or ideally head up another 300 per cent? The industry also wants easing of bank lending norms. Nothing could be more disastrous at this point, I would hazard. So should the real estate industry (it insists it wants to be called one) be abandoned? Not at all, treat them well by all means, but do not by any stretch create special dispensations. For the simple reason that their expansionist ambitions were linked to capital markets and the absence of the latter does not mean monetary or fiscal measures are called for.

Now what is our Joe the Plumber saying? I have an idea. Which is that it has nothing to do with how much supply there is in the system, at least in real estate. It is to do with prices. And till they come down sharply, there is no hope of demand picking up again.

Think at least a 100 to 200 per cent reduction. Sure we could do with lower interest rates but I am of the opinion that higher interest rates (not 17 per cent!) are not a bad deal for this economy.

I have a thought that I would love to open up for debate which is that the excesses of low interest rate regimes outweigh the pain caused by high interest rate ones. That's another story as well.

For now, it's best to leave the real estate sector alone and focus government time and money on real low-cost, rental housing. Like China is.

Run on FMP's causing panic

This could be India's subprime and credit crisis which will affect the realty industry the most.

Sucheta Dalal & Debashis Basu say that withdrawals from Fixed Maturity Plans can turn into a huge problem

A full blown panic in the real estate and financial services sectors has led to the withdrawal of nearly Rs 30,000 crore from Fixed Maturity Plans of Mutual Funds in the past week alone. These funds are meeting all redemption demands by borrowing money at high rates of 20% to 24%. This may end up destroying parts of their corpus and may lead to losses for retail investors. Retail investors have (as usual) foolishly remained invested in FMPs lured by their pitch which touted them ‘safer than fixed deposits and offering higher returns and lower taxes’, on the assurance of ‘indicative’ returns, although MoneyLIFE magazine (FMPs Lose Shine) had repeatedly pointed out that the risks of FDs and FMPs are so vastly different that comparing them are like comparing oranges and apples. FMPs may end up being like the unregulated Overseas Corporate Bodies of the previous market decline. Someone needs to urgently look at what is going on inside them. Unfortunately, SEBI does not even gather data about the FMPs issued by mutual funds or the quality of securities in them.

The other problem today is super-liquid schemes that invest in the call money market. There was no regulatory oversight on these schemes and they have been allowed not to mark their investment to market and could claim to hold them to maturity even when it was a one-year paper. This has created a very dangerous situation today.

Finance and realty companies are the weakest link in the chain. Many FMPs have subscribed to short term AAA rated paper of finance and realty companies. The credit rating of these papers now looks doubtful. One finance company (belonging to the bluest of the blue chip business house whose previous finance arm was deeply involved in the 2001 scam), has also renewed its paper at an exorbitant rate of 32%.

The smarter, corporate investors are taking no chances and pulling out funds and exacerbating the salutation leading to panic. No regulator has bothered to collect data on the investment pattern of FMPs and liquid schemes and keep tabs on it. As result, the systemic risk posed by the redemption runs on these schemes and the shaky underlying debt securities in their portfolio is suddenly upon us and nobody knows whether the RBI should look into it or SEBI or both. Mutual funds that are borrowing to meet redemption are refusing to utilise their bank credit for this emergency, because they feel that it will only put information in the public domain and cause a run on the fund.

Apartment registration mandatory

Its time for the speculators to exit the market since the government plans to make apartment registration mandatory at the time of booking. This bitter pill is a bit too late since prices have jumped up 100% and more over the past couple of years. This is an ill-conceived plan and will put the apartment buyer at risk when dealing with small time builders. More often the not, construction is delayed by atleast 6 months to 18 months and many times in times of tight liquidity the apartment is left unfinished. So speculators and end-owners of these properties will be left in a lurch. Nevertheless in cities like Mumbai where prices have reached dizzying levels, there is bound to be a slump since no-one likes to pay 10-20L (10% of 1-2 crore) as registration if they dont plan to stay in it. Lets keep watching as the party unwinds and the drunk's stagger their way home

Financial Express writes
NEW DELHI, JUN 26: It may not be easy to frequently sell property for a hefty premium much longer. With an eye to curb speculation and claim a slice of such transactions, the government plans to make it mandatory for all buyer-seller agreements to be registered. According to industry sources, registration will have to be carried out within a week or two. Since the subject falls under the state list, individual state governments will decide the registration fees.
SHUTTING A WINDOW

• Registration will have to be carried out within a week or two
• Individual state governments will decide the registration fees
• Will deal a blow to the speculator market and check inflation


At present, it is mandatory to register an apartment only after one gets possession. That leaves open a window of opportunity for speculators to resell property at a premium during the period between initial payment (the advance) and actually taking physical possession.

Here’s how it works: the cost of an apartment of 2,000 sq ft at Rs 5,000 a sq ft works out to Rs 1 crore. The booking amount of, say, 5% is Rs 5 lakh. As marketing hype escalates the price by 10-20%, the speculator offloads the apartment. If the sale price works out to Rs 6,000 a sq ft, the investor pockets a cool Rs 20 lakh on an investment of Rs 5 lakh.

“In fact, property usually changes hands four to five times before it actually comes to the end-user. By introducing such a provision, the government will deal a blow to the speculator market and check inflation in the bargain.

Further, it will also enable the government to know how many times a particular property has changed hands,” says Sandeep Donald Shah, director, Taylor Devices.

Smaller realtors take exit route

Its judgement day for the small time builders and it looks like the brunt of the fiasco will be felt by the consumers who have booked apartments with these crooks.

Economic times reports

MUMBAI: Liquidity crunch in the real estate market is driving many small-time developers to look around for a cover. Many want to liquidate their land or incomplete projects by selling them to larger developers or private equity players even on reduced valuations. What is forcing them to take this drastic step is the stagnant market, where property rates are showing signs of a major correction, said industry sources.

“I am sitting on, at least, five-six such proposals. Some deals are at an advanced stage. The small-time developers are mainly offering land that they had acquired earlier,” Pradeep Jain, chairman of Parsvnath Developers, told ET.

An official with Mumbai-based realty developer Runwal Group said it had received similar proposals, mainly from markets like Pune, Nagpur and Bangalore. “Though we have not concluded any such deal so far, there are, at least, a couple of proposals we are working on,” he said.

“Small developers are under pressure now. Fund flow into this sector has begun to dry up. Selling incomplete projects to big developers or private equity firms is an option explored by many such developers,” said Pranay Vakil, chairman of KnightFrank India, a frontline property consultant. He added that in the past two months, home sales have come down by over 70%.

“A sharp fall in sales would force them to cut the price in the coming months. The trend is visible in many suburban markets,” Mr Vakil said.

Industry observers said the residential property market, which remained stagnant for the past few months, has started developing cracks, especially in Mumbai’s suburban markets and the tier-II and III cities. The volume of sales has dropped by 70-80% in the past two months in the wake of rising interest rates and additional pressure on household budgets.

Besides, there is pressure on real estate developers due to the tightening of fund-raising norms. The recent moves by the Reserve Bank of India (RBI) and the finance ministry have left them with a few choices like private equity and public offering for their fund needs.

While RBI has been imposing increased restrictions on banks on their exposure to real estate sector, the finance ministry has been trying to curb unrestricted flow of foreign funds.

In May this year, the finance ministry had said that all foreign funds raised by Indian companies, through the issue of partially convertible, non-convertible and optionally convertible preference shares, would be treated as debt and would be subject to guidelines applicable for external commercial borrowings (ECBs).

This move has made it tough for developers to access foreign funds, since ECBs are allowed only in large real estate projects and the conditions are far more stringent than FDI. Several real estate funds admitted that they are working on a clutch of projects now, much more than what they used to around two-three months ago.

“The quantum of deals has seen a manifold increase over last three months. We feel it is mainly due to the tight fund raising norms introduced in the sector,” said Ritish Vohra, director, investments, Saffron Asset Advisory.
According to Mr Vohra, the developers are seeking private equity funds even for small-sized projects. “The valuations are also more realistic now,” he said.

Property consultants said in Navi Mumbai, one of the largest residential markets, prices have fallen sharply. “The enquiry level have come down to almost nil last month. Developers are now slashing around Rs 1,500 per sq ft in the property prices,” said PM Raju, a Navi Mambai-based property dealer.

Massive bubble in home builder stocks

In comparison Google seems to have taken baby steps.
Feb. 9 (Bloomberg) -- Shares of Unitech Ltd.,
India's largest real-estate developer by market value, soared 26,869 percent during the past three years. Anant Raj Industries Ltd., a competitor, leapt 39,548 percent.

Both have dropped at least 5 percent (shocking.....)from peaks in November and December and further losses may lie ahead. The highest interest rates in four years, tighter lending requirements and seven share sales this year are hurting real-estate stocks. Those companies had rallied as a property boom pushed apartment prices in southern Mumbai to near-Manhattan levels.

Property stock valuations are approaching bubble territory

Real estate-related stocks last year accounted for six of the top 10 performers in the BSE-500 index, the broadest measure of India's stock market. Three of the six are down this year ....

Most Expensive
Indian developers are among the BSE index's most expensive members on a price-to-earnings basis. Unitech trades at 31 times expected earnings, while Anant Raj, a New Delhi-based developer in which billionaire George Soros bought a stake last year, is at 67 times. That compares with 21 times for the BSE-500 and 19 times for the eight stocks in Bloomberg's Asia-Pacific Home Builders Index.

Average home prices tripled over the past three years, buoyed by the world's second-quickest growth rate among major economies after China. Prices rose 50 percent to 100 percent over the past year in cities such as Delhi, Bangalore and Hyderabad,

Millions for Apartments
A six-bedroom duplex apartment in the Malabar Hill area in South Mumbai, where Bollywood actor Vinod Khanna and Citigroup Inc.'s India head Sanjay Nayar reside, sold for about 250 million rupees ($5.7 million), ....

A comparable apartment on the Upper East Side of Manhattan would cost between $6.5 million and $8 million, said Jonathan Miller, president of Miller Samuel Inc., a real-estate appraisal firm in New York.

India's developers also look expensive when their share prices are measured against the value of the land they own for construction,

Land bank valuations by developers are unrealistically high,'' he said. The valuations may not be justified because the projects will take five or six years to complete, he said.

Expensive Offices
Mumbai's office rentals are now the third highest in the Asia-Pacific region after Hong Kong and Tokyo, ..... It costs annually $88.2 per square foot to rent office space in Mumbai, compared with Tokyo's $97 and Hong Kong's $141.

The central bank is moving to cool the market. The Reserve Bank of India on Jan. 31 raised its overnight lending rate for the fifth time in a year to 7.5 percent and asked lenders to double provisions for commercial real estate loans to 2 percent in an attempt to curb defaults.

`Matter of Concern'
Housing Development Finance Corp., the country's second- largest mortgage lender, raised its rates four times over the past year to 9.5 percent.

Commercial and residential construction in India, Asia's fourth-largest economy, will surge to $50 billion by 2010 from $12 billion in 2005, according to a Merrill Lynch & Co. report. India will need as many as 10 million new housing units a year by 2030, ..

IPOs
Initial share sales, though, will be competing with existing listed real estate companies for investor funds. Seven property companies have sought regulatory approval for IPOs so far this year, up from just two last year. The largest will be billionaire Kushal Pal Singh's DLF Ltd., which aims to raise about $2 billion, expected over the next couple of months.

As more supply of paper hits the market, valuations and returns will come down to more stable levels,'' said Krishnan, at DNB Nor Asset Management in Chennai. "Companies may not be able to get the pricing they want"