Pune growing on all sides

As per Times of India, all periphery areas are growing by leaps and bounds. The builder lobby is heavily advertising their wares in their weekend supplement. Hiring fesh graduates to cook up fancy stories is a good way to monetize their paper while charging exhorbiant rates.


The coming of the Information Technology culture has been high-octane fuel to the speed of property development in Pune. More and more land was required to accommodate the various national and international IT companies that finally led to the formation of such landmarks as the Hinjewadi IT and Software Park. Once this process was begun, there was no stopping it. Tempted by the sudden prosperity and opening up of the job market, job seekers from other cities made Pune their final destination of ambition's pilgrimage - the new Entrepreneurial Promised Land. The development is spreading to many different areas in Pune, giving rise to potential real estate hotspots.
Since the demand for commercial and residential space was growing hand in hand, many outlying villages along the major expressways and highways were officially added to Pune's geographical territory. Areas like Baner, Pimple Saudagar, Wakad, Kharadi, Warje and others emerged as undisguised gold mines on the realty scene. The above-mentioned areas, along with more centralised locations such as Solapur-Nagar Road Bypass, have witnessed an upsurge in property development.
Mohammed Aslam from Jones Lang Lasalle Meghraj says, "On the property market, the phenomenon of expansion and development is known to be a self-perpetuating one - prosperity is never confined to a single locality. It positively affects its immediate surroundings. A special case in point would be Koregaon Park. Th e presence of the Osho Commune has given rise to a level of exclusivity that is still hard to match in the rest of the city. The number of Category A residential developments is now spilling over into its surrounding areas, as well. This has been eminently true in Pune's overall property boom, as well. Using the central part of residential and commercial Pune as a reference point, development is distinctly visible on all four sides of the compass."
He adds, "Beginning at Aundh, we have the more suburban areas of Baner, Thergaon, Pimple Nilakh/Pimple Saudagar, Wakad and Aundh displaying accelerated rates of development to one side. From the perspective of Kalyani Nagar and Koregaon Park, the areas of Vadgaon Sheri, Mundhwa and Kharadi are receiving increasing favor from property buyers. Laterally, Wanowrie and Kondhwa have spawned minor property booms at Hadapsar and Undri. Diametrically opposite, the development of Bibwewadi and Dhankawadi has led to greater attention being focused on Katraj and properties along Lullanagar Road and Kondhwa-Katraj Road."
Yogendra Chordiya of Prithvi Estates, a local property dealer says, "Areas like Kondhwa, Pashan, Hadapsar, Talegaon, Chakan Mundhwa, Wagholi have developed a lot. Talegaon is good for second homes or weekend homes. But other areas have been for permanent buyers. Malls have come up in Kondhwa. The residential rates have increased from 2000 to 4500 sqft in Kondhwa. Pashan is developing, as it is close to Hinjewadi IT Park. In Hadapsar, Amanora Township is coming. Chakan is also getting revamped due to the upcoming airport. Areas like Mundhwa, which is near Koregaon IT Park has also developed."
Milind Sant, an estate agent from Pune says, "Pashan is a good area, which is near Hinjewadi IT park. Talegaon is viewed as a second home or weekend home destination. But I think in the next five years, it can be a hot destination for permanent buyers, as the industry is developing there. As for Chakan, it is a potential option for investing, as the new airport is coming in Chakan.
“I think the Pune market is now stable, but it will increase further. So investing in Pune today will give good returns in the years to come," he adds.

BMC plans ot hike property taxes

Finally property dealers are acknowledging that property prices are beyond reach in Mumbai along with the fact that there are too many apartments for sale with no buyers at these prices.

The BMC’s proposal on property tax would be detrimental to the market, says Sandeep Sadh

After the inflation jumping to 7.57%, Mumbai, the financial hub and the dream city for many is in for a rude shock. The BMC plans to get stringent about collecting property tax upto 83.5% on residential properties and 112.5% on commercial properties which, after rebate of 40 to 60%, becomes nearly 30% of your rental income. As per the recent news this is payable every six months by the property owner.
The BMC has taken the twodecade-old formula of accounting for taxation this time around and the simple logic given so far is that they are going by the book, even if the book is 20 years old.
While implementing these policies the BMC must look at the general interest of the public and consult professionals in this regard.
This will add to the burden of higher taxation, inflation, crumbling infrastructure, spiralling property prices and high interest rates. There will be a lesser yield on investment and property transactions done purely from an investment perspective.
Mumbai being the financial capital of India, and the fastest growing city in Asia has an inflow of both local Indians and expatriates who typically come to work in Mumbai for a short span of two to three years.
They are looking for rented accommodation and sign up a leave and license agreement for any period between one to three years generally.
With BMC now planning to impose nearly a three-month rent as tax to the owners per year, the rents will go up by nearly 30%, which is totally absurd.
This is an excerpt of a recent article, which says, "Rentals at many places in the city have gone up by 100% to 200%, and yet we don't get our share of that profit."
Why should the BMC be given a share of profit? Firstly, it is the investors or property owners' hard-earned money and they have the right to make profit and they are paying income tax.
These are policies which are already two decades old and based on the old rent system.
Why cannot an intelligent system be brought in, which should be based on keeping taxes both the licensor and the licensee are already paying?
The BMC policies are already known to be notorious for taxing year on year even if the property is not rented. There is no rationalisation on the taxation.
I was speaking to a Consulate General and they have called off a transaction for a residential property as the owners wanted to place the onus of taxation on the Consulate.
The Consulate General said that this kind of irrational taxation will be bad for Mumbai's reputation as companies who will want to relocate their expatriates will find it difficult to pay such higher taxation.
He added, "Nowhere in the world is taking an apartment on lease such a task and with such higher prices and taxation it is a problem."
They are already thinking of shrinking the size of expatriates.
The city is anyway ill-maintained. With crumbling infrastructure and visionless policies the BMC is placing itself into a one-sided high- handed body to only collect money and have proportionately less accountability and contribution to the city's welfare.
Mumbai is already one of the most expensive cities in the world to live in and to place on record the seventh most filthy city as well, it is thanks to the BMC. How do you expect people to pay such high rentals to survive after taxing them and what do they get in return?
What happens to the tax if lease agreements are terminated mid-term? With higher taxes more and more people will opt out of Mumbai and find out ways and means to circumvent taxes and therefore increase corruption.
The BMC and the government should find out ways and means and take more and more property owners and individuals and companies renting out properties in confidence before announcing such policies.
The BMC is looking for revenue but what it does not realise is that it cannot be done at the cost of individuals who spend their hard-earned money to invest in properties only to lease out for income and they are already paying all sorts of taxes to do so.
The annual return on investment on residential properties has already gone to 4% owning to higher property prices in the city.
Not each location gets a great rental value and with extra tax liability the government is only looking at closing the doors for the investors who are looking to invest in real estate.
If there are no returns in the property market why should investors look at buying it? This will impact the sale of properties and all mutual funds, REITs and other real estate related transactions will also be impacted. This in turn will also impact the property market dramatically.
In the past three years, the rental values in Mumbai have gone drastically higher ranging from 30% to 200%.
Many people started buying their own apartments as the rental values would be nearly 50% of their EMI.
Inventories in Mumbai are already building up, there are more and more apartments vacant and a lot of property owners are willing to give 10% to 25% discount on quoted prices due to a little slow down.
The scare of huge taxation will also impact this further as none of the licensors / licensee will want to be a part of any further hike or taxation.
Earlier, the tussle used to be between the licensor and the licensee to get a deal done; now both will have to unite and find ways to fight out with the BMC.
Highlighted below are the taxes which both the licensor and the licensee pay in any case for renting out properties, besides other expenses like maintaining the properties, painting, polishing, annual maintenance contracts, furnishings, paying VAT etc on all household goods, service taxes on labour and so on.
Fringe Benefit Tax payable by the employee in case of a company lease - 20%
Service Tax - Presently only on commercial property - 12.36%
Property tax on leasing/licensing (more in commercial property)
Stamp Duty and registration fees
Income Tax
Society outgoings/non - occupancy charges paid by the owners
Municipal taxes on property in general.
This typically means, that the BMC wants to penalise the investors who invest in real estate.

The richest Karntaka political candidate

Prasad Reddy, BJP, BTM Layout constituency:
Total value: Rs 313 crore

He has cash of Rs 12,38,000 in his name. He has declared Rs 27,52,165 as his bank balance which he jointly holds with his wife. Apart from this he has deposits of Rs 36,21,730 spread over 12 different accounts.

Prasad Reddy also says in his affidavit that he has 14 cars worth Rs 1.03 crore and has jewels estimated at Rs 9 17,250. He has silver articles worth Rs 12,31,000 while his wife owns 3.1 kg of gold jewellery estimated to be worth Rs 37,91,300.

He has non-agriculture land worth Rs 143.62 crore while he has a share in two commercial buildings which are estimated at Rs 142.02 crore. This includes a house which is under construction at a site in Bommanahalli which is spread over 452,094 sq ft. He also owns apartments at Koramangala worth Rs 14.77 crore while his wife has property worth Rs 54.10 crore. He also owns a farm house jointly with his wife which is estimated at Rs 60 lakh.

The candidate says he has loans in his wife's name worth Rs 18 crore in various bank

It's Raining Freebies As Builders Try To Beat Recession

* Buy a premium apartment from Kumar Builders and go on an all paid week-long trip for a family of four to Switzerland .
* Despite the hike announced by the city builders DSK has offered 55 of its apartments in the current schemes at old rates.
* Mont Vert has offer for incentive customers who bring in another buyer.
* Many builders are offering free white goods - air-conditioners, refrigerators, washing machines, modular kitchens.

Pune's developers and builders may not be willing to admit that the real estate market is in a slowdown mode. But check out some of their recent initiatives to woo customers and it becomes clear that the city builders are selling at discounted rates. Thus even as there is no dent in the price line which they continue to hold on diligently, potential clients are surely being wooed with a whole lot of freebies that have flooded the market of late.

These can be as extravagant as a trip for four to Switzerland and as unassuming as lining up the housing loans. There is an array of freebies that can be pegged somewhere in between these two instances, ranging from free white goods and stamp duty waiver to even offers to pay the first couple of EMIs on behalf of the buyer.

Naresh Malkani, CEO indiaproperties.com describes the scenario of the last few months as a "no-deals time". Cushman and Wakefield in their latest report on Pune residential scene have also noted that sale transactions are expected to see a further slowdown which "may force certain developers to offer better deals or free amenities to incentivise purchaser and ensure cash flow for their projects." The point seems to have been well taken by the builders.

"We are offering a trip to Switzerland for seven days and six nights for two adults and two children for those buying a flat in our premium projects where the cost is over Rs one crore. In projects that are lesser in price we have the same offer with Malaysia being the destination instead," says Prabha Shankar, vice president, Sales, Kumar Properties.

Click on "Full Story" for more...

Mont Vert Homes that had offered a discount of Rs 50-100 on Gudi Padwa day are now extending this scheme. " Whenever the price is needed to be hiked because of increase in prices of input materials, we offer small incentives so that the customers do not feel disheartened," says Manish Kaneria, director of Mont Vert Homes.

"We also have a scheme called `Mont Vert Customer Appreciation' in which if one of our customers gets along another potential buyer then he is offered incentives," he adds.

DSK has been advertising that it's thrown open 55 of their apartments at rates prevalent before the Promoters and Builders of Pune (PBAP) announced a price hike. Says Sudesh Kosumbkar, manager at DSK, "Rates in our projects are slated to go up significantly after the hike. We decided to keep 55 flats open at old rates for the benefit of customers."

According to S Motwani, a city real estate broker, goodies and early bird discounts are fast becoming the rule rather than the exception: "The objective is to of course pump up sales and motivate the customer to buy."

Pune shining on PBS

When Jason Maloney, freelance producer of news and documentary, started his research on the city that most aptly reflects the changing face of the country for a documentary for US-based Public Broadcast Service (PBS), he zeroed in on Pune. "We were looking for a city that was on the growth highway, but not spurred only by the IT. Also the city needed to be not as well known as Delhi, Mumbai or Bangalore since those have been done too many times for American audiences," said Maloney who arrived in Pune on Sunday night with Kira Kay, his wife and also a freelance producer and Paul Beban, Correspondent HDNet/ World Report.

According to him, Surat was in the running but it had only the diamond trade to speak of while Ahmedabad was interesting but lacked in some vital aspects. Pune, with its rich educational and cultural background and a recent survey that put the city on the 6th position in terms of per capita GDP growth fitted the bill perfectly.

The team of three will be filming Pune in its various new avatars before they fly back to New York on Saturday to put together two 30-minute documentaries on the city. With the focus being mainly on the growth of the middle and the upper class in India, the trio, that did extensive research before they arrived in the city, have already scoured Hinjewadi, traveled to a remote village near Pune tracing the roots of a budding IT professional in the city, met up with a stock broker and chatted up the members of the nascent Professionals Party of India.

On the agenda is also a visit to Magarpatta City, Bharat Forge and meeting up with more of Pune's burgeoning and aspirational middle class. "The attempt is to show a day in the life of Pune. As we talk of the city's growth we want to do it through the stories of the people who are crafting this change and then back it up with statistics and so on," said Kay.

She added that the huge billboards selling apartments that greeted them as they got off the Expressway followed by the sight of the mammoth construction going on in the city further reiterated their opinion that Pune is certainly a new city in the making. "It seems busy and bustling. Back in the US it's comparable to Atlanta both in terms of size and dynamics," added Beban.

Before the Pune visit the team had been to Tamil Nadu where they met up with Gurcharan Das in Coonoor and had a two-hour discussion with him on Indian economy.

"He prepared us on what to expect. Because of that we haven't had too many surprises, certainly no unpleasant ones," added Maloney. Coincidentally, all three of them are receiving the National Headlines award this Saturday in the US for different reports that they covered recently in Philippines and Uganda.

The first documentary is expected to be aired around mid-June on `Now on PBS' while the second one will be broadcast on HDNet World Report in July.

Mysore losing its serenity to the IT culture

SC stays construction on forest land

New Delhi/Mumbai: Over one lakh flats in Mumbai which were declared illegal by the Bombay high court on the ground that they were on “forest land’’ will not face any coercive action until Augustend, the Maharashtra government promised in the Supreme Court on Monday.
But the good news ends there. Discarding the plea of a number of builders developing plots on such “forest land’’ to continue with ongoing construction activity at their own risk, the SC ordered that not a single brick be added to the unfinished structures.
“There shall not be any more construction at these sites,’’ ordered a bench comprising Chief Justice K G Balakrishnan and Justice M K Sharma. This means that as of Monday, there will be a status quo, and builders will not be allowed to add anything to their underdeveloped real estate projects.
The order will adversely affect ongoing projects on 1,000 acres of land in Kandivli, Borivli, Mulund, Bhandup and Ghatkopar. There are about 150 large projects being constructed by builders, which market sources value at Rs 25,000 crore.
The affected developers include Godrej and Boyce Manufacturing Company Ltd, Nanabhai Jeejeebhoy Private Ltd, Atithi Builders, Nirmal Lifestyle Ltd, Nirmal Developers, Nirmal Holdings Ltd, Runwal Constructions, Bitcon India Infrastructure, Hill Residents Welfare Association and Scrader Duncan Ltd. STATE’S BAILOUT PLAN
As per existing norms, if there is a violation of the Indian Forest Act, the violator has to pay a huge sum—comprising the net present value, the cost of land and the cost of compensatory afforestation—which works out to between Rs 15 lakh and Rs 20 lakh per hectare. In a move to protect the interests of innocent flat buyers, the state forest department has proposed a new scheme whereby a flat owner on private forest land will have to pay a nominal price of 70 paise per sq ft. “We will submit our scheme to the apex court and it is up to the court to take a decision,’’ a forest official said on Monday. Cannot condone illegality on time grounds, says SC New Delhi/Mumbai: The history of the forest land case dates back to 1957, when the state forest department notified about 300 plots of land as forest land. The state government enacted the Maharashtra Private Forest (Acquisition) Act which came into force from August 30, 1975. Under this law, the state was to acquire all private forest land.
More than 25 years later, an NGO, the Bombay Environment Action Group, moved the HC accusing the state of sitting on the law and taking no action to acquire the 305 plots that the state forest department had notified.
In 2006, the BMC had issued a stop-work notice to the projects on these plots but the developers had gone ahead with the construction.
The builders contended in the SC that there were errors in the HC order. They said while the forest department had declared certain lands as private forest land, no notices were served on them before issuing the notification. Secondly, they said, permissions for non-forest activities and construction of residential buildings were granted decades ago when the lands were cleared for residential use as per the development plan approved in 1967 and 1981. They said at no point did the lands under dispute enjoy the character of forest land, therefore, it was never private forest land as was claimed by the forest department.
Senior advocate Fali S Nariman argued that the state government had done nothing for 33 years after the law was passed and suddenly, it now seemed that the owners of the land would lose everything. He said the plots were allowed to be developed under town planning laws.
Solicitor general G E Vahanvati, appearing for the state, said the Maharashtra government would not take any coercive measures until August-end and said the matter required adjudication before the Forest Bench of the apex court.
Senior advocates K K Venugopal and A M Singhvi argued that the builders who had invested hundreds of crores of rupees in these projects be allowed to carry on with the construction activity at their own risk.
The bench remained firm and said, “We will allow the status quo. We will not allow any further construction to go on. Going by the definition, it’s a case pertaining to classification of forest land. If an illegality had been done 30 years ago by diverting the forest land, the court cannot condone it because of the passage of time.’’
The court, while issuing notice to the Maharashtra government, fixed the matter for further hearing on August 22.

Old Bangalore airport stays, rules High Court

Bye Bye Devanhalli. The speculators are screwed.

CHANGE IN FLIGHT PLAN: Karnataka High Court says old Bangalore airport must be retained.

Bangalore: The old Bangalore airport must be retained and the business agreement according to which had to be shut down must be renegotiated, the Karnataka High Court ruled on Wednesday.

The court asked the state and Central governments, the Airports Authority of India to renegotiate the deal with the Bangalore International Airport Limited (BIAL).

The governments had signed a deal with BIAL that the existing HAL airport in the city would be shut once the new private airport becomes operational. The new airport, which is 40 km away from the city, is scheduled to become operational on May 11.

City civic groups have said roads to the new airport have not been built and the government should retain the HAL terminal. At least four public interest petitions were filed in the High Court against the closing the HAL airport.

The new airport is supposed to handle 10.1 million users by 2010. but HAL airport is already handling 10.5 million passengers.

Investing near ‘Dryanahalli’?

No Roads and now no water and no commercial approvals. Maybe electricity for 4 hours a day. Investors in Devenahalli are screwed.

BANGALORE: Sheer lack of groundwater is set to dampen investors’ spirits in reaping benefits by investing in property in the proximity of Bengaluru International Airport (BIA) in Devanahalli.

No approvals have been granted for any commercial establishment in the vicinity of the new airport for the last five months. This is a clear indication of the poor planning ahead of commencing the mega project.

Authorities knew since 1969 that Devanahalli was shaky on the water front, but still allowed the airport project. According to the Dynamic Ground Water Resource Study in March 2004, groundwater in the area has been over-exploited, said Deputy Director, Department of Mines and Geology, Srikantha Murthy.

"Groundwater is not a dependable source in the area and so we don’t advise usage of borewells, especially for huge commercial establishments," he said.

"Devanahalli was declared a ‘dark area’ in terms of water availability way back in 1969. KSPCB will not approve any projects until the developers indicate sustainable source of water in their plans," H C Sharatchandra, Chairman, Karnataka State Pollution Control Board (KSPCB) said.

In keeping with that, no commercial establishment in BIA’s vicinity has been approved in five months. Moreover, any residential project of more than ground+1 floors has not been sanctioned recently. Many applications for residential and commercial projects are lying with different authorities.

"In the last 18 months, not more than three residential projects have got approvals," Sharatchandra told this website's News Paper.

BWSSB has already clarified it would not supply water to the area surrounding the airport. Rainwater harvesting, recycling and reuse of water cannot fulfil the water demands for huge establishments, confirmed KSPCB environmental officer C D Kumar.

"It depends on the local bodies to decide whether the area is really capable of development in a big way. Bangalore International Airport Area Planning Authority (BIAAPA), being the local body for the area, is duty-bound to ensure the availability of water before approving developmental projects," said Kumar.

However, officials of Banagalore Metropolitan Region Development Authority (BMRDA) attribute less commercial development in the area to less commercial land use.

"Out of around 792 sq km area under the jurisdiction of BIAAPA, very little is marked for commercial development. I think all the land marked under this is already allotted. Karnataka Industrial Areas Development Board (KIADB) has acquired some land that they might give for commercial development," said an official.

"Many developers and hotels have acquired agricultural land; we will not approve of that. They can put their boards on the property but cannot use it for commercial development."

Despite this fragile situation, an BMRDA official actively involved in projects near the Airport, said there was no restriction on usage of borewells in the area. Interestingly, one of the bye-laws of BIAAPA clearly states: "Only in exceptional cases can borewell be provided in shopping complexes and residential apartments, subject to approval."

Meanwhile residential developers continue advertising for ‘BIAAPA approved residential sites for sale,’ claiming that houses will have 24 hour groundwater supply. BWSSB will start supplying water to these areas in a year’s time, they claim. And the hotel industry still remains hopeful of big opportunities in the area.

Mumbai has lowest FSI, says developer

The builder cartel has held prices to astronomical levels. The primary reason that the Mumbai lost its prime position of being a hi-tech city. 15 years go, SEEPZ used to be the center of all software exports. Thanks to the high land prices, everyone has moved to the south with some in Pune. Mumbai has lost its sheen for high value work. It is a city where the middle class has been priced out to distant suburbs once inhabited by the lower middle class. The lower middle class have become poor. Sad state to say the least.

MUMBAI: Mumbai has the lowest Floor Space Index (FSI) of 1.33 against an all-India average of 2.5 to 3. The city needs an FSI of at least five to ease the shortage of housing, a leading developer said on Friday.

FSI denotes the amount of construction that can be done on a given piece of land.

In Bangalore the FSI is 3.25, in Gurgaon near Delhi, the FSI is between 2.5 and 4, Maharashtra Chamber of Housing Industry Vice-President Sunil Mantri told reporters

Interestingly, in Hyderabad or the entire state of Andhra Pradesh there is nothing like FSI and one is free to construct whatever one wants.

Mantri recalled that even in Mumbai, till the mid 1970s the FSI used to be 4. Nariman Point was given an FSI of 4. However, the state government started reducing the FSI gradually from the mid-1970s coinciding with the introduction of Urban Land Ceiling Act.

Mantri said Mumbai needs an FSI of 5 to ease the housing shortage. The argument that the city does not have infrastructure to meet the needs of the higher FSI is not valid, he added.

Infrastructure can be created by imposing charges for new development. The reason the FSI is not being increased is due to lack of political will, he said.

According to Mantri, higher FSI is an accepted norm globally. In Dubai, he said the FSI given works out to between 8 and 34, in Hong Kong, it is between 8 and 20. In Manhattan; New York, it is 30.

TDR rates fall, will flat prices follow suit?

As one as see the bubble was due to FSI policy as well as FSI hoarding, both artificial factors If a builder like Oberoi is saying prices will fall, I think they will starting this week. A lot of buyers who have bought in the recent past will see themselves upside down. IS this a sub-prime crisis where their loans are worth then their properties. A bear market has just begun in Mumbai housing

Mumbai: Rates for transfer of development rights (TDR) have crashed in Mumbai. TDR certificates, which were being sold at an average of Rs 4,500 per sq ft until recently, have plummeted to Rs 1,500 per sq ft. This follows the Vilasrao Deshmukh government’s decision to raise floor space index (FSI) from 1 to 1.33 in the suburbs (first reported by TOI) and keep the premium for the same less than the ready reckoner rates.
The million-dollar question now is whether or not builders will pass on the benefit of the drop in TDR rates to buyers, who are finding flats even in the distant suburbs of Mulund and Dahisar way beyond their budgets. Their problems were compounded when housing finance companies suddenly become tight-fisted following the credit squeeze.
Said Vikas Oberoi, a builder, “There is absolutely no doubt that builders will carry out a correction in tune with the fall in TDR prices. The government’s aim of making flats more affordable will be achieved.’’
Another developer, Sandeep Runwal, said, “The high price of TDR was actually hurting the construction industry as we builders had no choice but to mark up prices. This, understandably, was met with consumer resistance. Now, a more realistic picture will prevail in the property market.’’
It is also being asked whether Vilasrao Deshmukh, who belongs to the Congress, was actuated only by his desire to bring down flat prices when he decided to increase FSI to 1.33 or was there a bigger gameplan.
Sources in the real estate industry said lakhs of sq ft of TDR were cornered by three big builders close to an NCP leader. This left the bulk of builders at the mercy of this group of builders, who jacked up prices to Rs 4,500 sq ft.
If this situation was allowed to continue, then the NCP’s war chest would have overflowed with cash before the general elections next year. “Given the political implications of this, the central leadership of the Congress decided to move in and asked Deshmukh, who holds the urban development portfolio, to raise the FSI and trigger a bear run in the market,’’ a senior bureaucrat told TOI on Friday. A spin-off benefit will be cheaper flats, which will assuage the feelings of the middle-class.
TDR Transfer of development rights: Generally, when a plot owner surrenders his/her property reserved for playground or other purposes, then he/she is compensated with a TDR certificate specifying the FSI. The certificate can be traded in the market. Similarly, when a builder constructs pucca houses for project-affected persons, he is incentivised by granting TDR certificates. The FSI, however, can be utilised only to the north of the property where it was generated. FSI Floor space index: It lays down the buildable area of a plot. If a plot area is 1,000 sq ft and the FSI is 1, then the buildable area will be 1,000 sq ft.

Residental property prices to go up in Pune

Pune-based real estate developers have decided to increase the per-square-foot charge for residential construction between Rs 50 and Rs 400 from April 20 due to the increasing cost of construction and heavy taxation by Pune Municipal Corporation (PMC). This was announced today by Lalitkumar Jain, president, Promoters and Builders Association of Pune (PBAP).

Pune, over the last two years, has experienced a boom in the real estate industry. However, availability of land has remained a problem as the new Development Plan (DP) for Pune has not been sanctioned and executed for quite some time.

The city saw construction of 60 lakh sq.ft commercial space for the information technology (IT) industry last year, which has generated employment for more than 60,000 people. There has also been extensive recruitment in industrial areas like Ranjangaon, Pirangut, Chakan and Talegaon - an addition of close to 25,000 new jobs. The services and retail sector has recruited more than 25,000 new employees last year.

While more than one lakh new jobs were added in the city, the builders have developed only 35,000 new flats in and around Pune. "There is a huge demand-supply gap, which has led to the sudden price rise over the last two years. In addition, steel prices have gone up from Rs 32,000 per tonne to Rs 52,000 per tonne while the cement prices have been increasing consistently. PMC, too, has increased the development and premium charges for residential projects from 200% to 400%. All this has led to heavy cost escalation for Pune-based builders," Jain added.

PBAP, which represents more than 80% of Pune's real estate developers, has prepared a report that explains the possible ways to tackle the price hike. The report has requested the central government to take cost cutting measures for cement and steel prices.

Jain said: "There is resentment among middle class households over increasing real estate prices. The industry cannot sustain such a situation where costs are not coming down. If housing becomes more costly, nobody will buy a flat in Pune and the industry may come to a halt in the near future."

High interest pushes realty to brink

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

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

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


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

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

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

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



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

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

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

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

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

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

CBI registers case against Hiranandani’s for evading EPF tax

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

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

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

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

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

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

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

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

Unitech in 97-acre Vakola slum development project - Mumbai

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Citi Venture, AIG scrap Akruti investment plan

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

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

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

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

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

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

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

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

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

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

Mysore on my mind

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

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

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

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

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

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

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

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

Maharashtra real estate to be sold on carpet area

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

>>>>

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

AMNESTY SCHEME

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

Retailers try new ways to counter soaring rentals

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

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

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

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

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

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

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

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

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

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

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

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

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

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

'High interest rates, prices stunt real estate'

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

DECLINE AND FALL

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Crucially, developers are not cutting prices.

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

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

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

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

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

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

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

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

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

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

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

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

'High interest rates, prices stunt real estate'

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

DECLINE AND FALL

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Crucially, developers are not cutting prices.

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

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

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

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

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

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

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

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

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

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

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

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

Real(i)ty check on prices under way

Hindu reports

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

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

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

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

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

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

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

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

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

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

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

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

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

Black money saves financial sector

SWAMINATHAN S ANKLESARIA AIYAR

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Record real estate deals aborted

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

Indian property sale flop could cause wider flap

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Pune Property Market Is Steadily Witnessing A Slowdown: say brokers

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

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

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

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

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

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

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

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

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

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

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

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