Home loan borrowers look panic-stricken now

Life comes full circle. 3 years ago people will buying flats like bread and cake. Now the same people are panicking and paying off debt by their bonuses and whichever means they can. The wide-grin of leverage is now bleeding them every month. Singh is King Manmmomhan anmd Montek should be congratulated for allowing the transfer of wealth from the consumers to the builders and banks.

Home loan borrowers look panic-stricken now
ET Bureau[ Aman Dhall & Raja Awasthi ]

NEW DELHI: The fear is palpable. Indian home loan borrowers, who till recently were fuelling a growth story across banking, real estate and other allied sectors, look panic-stricken now. In fact, just two weeks after the Reserve Bank of India hiked the cash reserve ratio (CRR) from 8.75% to 9%, there has been a quantum jump in the number of home loan borrowers approaching banks for foreclosures and partial repayments.

According to industry estimates, the number of home loan borrowers making foreclosures and partial repayments has almost shot up by 20-25% during the past few weeks.

In the last two months since the home loan rates started their northbound journey, all home loan financing companies’ repayments and foreclosures teams have been actively engaged in counselling their customers, making them understand the pros and cons of the decision to forego or go for partial repayment of loans. It may be mentioned that the Central bank’s latest CRR hike has sucked out about Rs 8,500 crore from the banking system.

Uday Sareen, country head, retail banking, ING Vysya Bank, told SundayET that the bank has seen a considerable increase in the number of queries for foreclosures and partial repayments. “In fact, the foreclosures have seen an increase of almost 10% over the previous quarter.



One, however, needs to understand that it’s not a simple black and white decision. Over the last 60 days, our teams have been continuously engaged with customers to explain them the merits and demerits of their decision. We are educating them how it can hurt their liquidity in the short to medium term, if they decide to foreclose their home loan accounts or make partial repayments,” he said.

Deepak Parekh, chairman of HDFC, the country’s largest housing finance company agrees. According to Mr Parekh, they too have witnessed a rush by home loan borrowers to make partial repayments.

“They are trying to reduce the term of their loans, which have increased due to recent interest rate hikes. These borrowers are typically the ones who have taken floating loans in the last 12-18 months and are now trying to make balloon payments through their salary bonuses,” he said. Floating rates account for 90 % of the bank’s home loan portfolio.

Developers across the board too confirmed to SundayET that there has been a spurt in home buyers returning or off-loading some of their home loan. With interest rates on home loans rising in the last one year, consumers are now looking at other options to acquire funds for their investments. Many also feel this will deter speculators from the real estate market.

Says Rohtas Goel, CMD, Omaxe Group: “The hike in repo and CRR rate hasn’t been a good news for the real estate sector and the home loan market. It is certainly a matter of concern for consumers, as even small upward changes in the monthly EMIs can play havoc with their personal finances.

The interest rate trend over the next few months is expected to be northwards, across industry. On the flip side, this may actually prove beneficial for actual users as it will deter speculators from over leveraging themselves and cornering and hoarding housing flats for speculative gains.”

Pune property loses sheen, many buyers forfeiting booking amount

Source: The Indian Express, Aug-09-2008
By Sumit Kumar, Section Real Estate
Posted on Sat Aug 09, 2008 at 04:30:53 AM EST
15-20 per cent slowdown, rampant cancellations by investors; 2009 to witness oversupply of residential, commercial space: KPMG

The real estate boom in Pune may well be all but over as the market has started witnessing a lot of cancellations, with people even opting to forfeit the money given as booking amounts, rather than going ahead with purchase of the property. This was revealed by Jai Mavani and Prafull Jain, executive directors of leading market surveyors, KPMG India Pvt Ltd at a press conference here on Friday. They further added that by 2009 Pune will witness an oversupply of residential and commercial spaces vis-a-vis demand.

Mavani said, "Pune's real estate market has seen a pretty hectic business in the last few years. However, as seen in other cities in India, Pune too, has started witnessing a slowdown of about 15 to 20 per cent in the real estate sector. Though the top-tier developers may not be feeling the pinch as yet, the small developers have certainly started to."

Attributing this drop in the real estate to factors like reduction in the investors, Jain said, "One-third of buyers in the Pune market are investors who buy properties in anticipation of the assets appreciating. But this appreciation is not happening anymore."

Mavani advised developers to release their stock rather than get into trouble later on since operating cash-flows are more important than land-bank. ``It is better to take a prudent view of the land prices, rather than holding on to them," he said.

As per the projections provided by KPMG, Pune witnessed a supply of two million sq ft of commercial space in the first half of 2008, while approximately 3.5 million sq ft of supply is expected over the next six months.

As far as residential space is concerned, Koregaon Park and Kalyani Nagar continue to remain the most expensive residential markets with Wanavdi emerging as a new mid-ranged residential location. As for the retail properties, Aundh is emerging as a preferred choice because of the presence of a large number of residential properties available for rent. "Cautious approach adopted by retailers will help rentals stabilize in the short term," said Mavani.

He added that the IT sector, that has been the major growth driver for real estate in Pune, has started slowing down. A shift to SEZs will further lead to oversupply in IT parks.

Commenting on the rise of malls across the country, Mavani said, "Malls have been built indiscriminately without any applications of how malls operate internationally. At one point, we will see these malls convert into commercial spaces. Some of these malls will fail entirely. Therefore they will have to strategize themselves."

Sabeer Bhatia's Nano dream

Looks like this one is turning out to be a nightmare for him. I particularly like the line where he says "Each acre is more expensive then the previous". Welcome to capitalism Mr Bhatia. The San Francisco chronicle has a more detailed report then all the stupid Indian tabloids which masquerade as news-papers.

S.F. tech mogul wants to build city in India How to build a city sustainably

Sabeer Bhatia plans a 17.6-square-mile city of world-clas... Nano City, as shown in this architectural rendering, is e...

(08-10) 19:14 PDT --

A few days after his 29th birthday, Sabeer Bhatia sold Hotmail, the company he co-founded, to Microsoft for $400 million. Selling the Web-based e-mail service bought him a swank Pacific Heights condo with a panoramic view, buzz as the next hot Silicon Valley player, boldfaced name recognition in the Indian press - and eventually, one incredibly unchallenging year off playing golf and jet-set partying.

He became haunted by the question common to those who find wild success at a preternaturally young age: Now what?

Granted, over the past decade, Bhatia has had his hand in several technology startups and post-startups both here and in India, some mildly successful, some not. But his latest project is one that comes from the heart: He is trying to develop an Indian version of Silicon Valley, a sustainable city spread over 11,000 acres in northern India that he envisions will be home to 1 million residents employed largely by world-class universities and A-list companies that act as the country's idea generators. He calls it Nano City.

One problem: Until recently, Bhatia knew nothing about developing cities. The 39-year-old San Francisco resident is an electrical engineer by training and profession. And with a ton of cash in the bank, the last challenge he thought he would face is the hassle of navigating India's cash-under-the-table democracy, while preaching sustainable development. India, with a population of 1.12 billion, is beset with energy and infrastructure problems; most citizens don't have access to safe drinking water.
Major developer

But now - after spending $4 million of his own money and learning some hard lessons about international development - Bhatia's project could be on the brink of starting. This summer, he partnered with a major Indian developer that pledged funds to help purchase the land needed in the northern Indian state of Haryana to break ground on Nano City.

But major hurdles remain, and the project could easily fail.

Bhatia wasn't thinking about urban development when the idea for Nano City first surfaced in March 2006. He was watching a cricket match in India with a government official from Punjab, pitching a plan to bring premier U.S. educational departments in science and technology to Indian universities.

"The education over there, until the undergrad level, is pretty good," said Bhatia, who attended Indian schools before receiving an undergraduate scholarship to the California Institute of Technology and earning a master's degree in electrical engineering from Stanford University. "But when it comes to grad school, it just falls off the cliff in terms of quality."

The official asked what he needed to get the project done. Bhatia casually told the official that he could lure A-list U.S. universities to the area if the government provided land and financial incentives.

A few days later, Bhatia returned to the United States, having agreed to write a proposal. But he considered the conversation the kind of casual banter one has at a sporting event, something not to be taken too seriously - until Naval Bhatia, Sabeer's cousin and an attorney, mentioned the conversation to a friend, an official in nearby Haryana.

The Haryana official told Naval Bhatia, "Why should Punjab get him? We want to offer him even more."

"It's a common occurrence, especially in developing countries," said Seshan Rammohan, executive director of the Silicon Valley chapter of the Indus Entrepreneurs, an international organization of Indian and other South Asian entrepreneurs. "When someone gets some notoriety, as Sabeer did after selling Hotmail, they get bombarded with offers.

"If someone like Sabeer is attached to a project, then the thinking is: Other people will want to invest," Rammohan said.

Within days, Bhatia returned to India to speak with the Haryana officials. They discussed an 11,000-acre spot about 15 miles east of Chandigarh, Bhatia's birthplace and one of the few planned cities in India.
Not another Bangalore

The idea of an Indian Silicon Valley began to resonate with Bhatia. He didn't want to create another Bangalore, the traffic-tangled, booming thicket of a city where he had grown up, best known for its outsourcing operations for American companies. He wanted a place where Indian-germinated ideas could flourish and where young Indian students could receive a first-rate education.

In pursuing the Nano City project, Bhatia found the answer to the question, "Now what?" If it succeeded, he could make millions of dollars more. "But my reason for doing this is to leave behind a legacy," Bhatia said.

"How many times in our lives do we get a chance to build a city?" he said. "How many times do we get an opportunity to fix some of the problems that affect 1.1 billion people - that's one-sixth of humanity."

Bhatia is aware that planned cities often fail. To avoid pitfalls, he intends to involve "the right partners, do proper design, provide basic things that you and I take for granted here."
Atypical entrepreneur

Before calling in the bulldozers and cranes, Bhatia boned up on development. He ordered dozens of books on Amazon.com and picked the brains of Stanford professors, real estate developers, even the guy who renovated his apartment.

"Why not?" Bhatia said. "He was a guy in the construction business."

That summer, his assistant set up a meeting with several UC Berkeley professors. The professors had met Bhatia's type before.

"A lot of these rich entrepreneurs come to us, thinking they have all the answers," said Nezar AlSayyad, a professor of architecture, city planning and urban design at UC Berkeley who has been involved in projects around the world. "I expected him to be like that."

AlSayyad grilled Bhatia during their first meeting, asking for specifics and trying to ferret out his motivations. The professor silently shuddered when Bhatia mentioned he liked Santana Row, the San Jose development that is one of the few spots in Silicon Valley that tries to create a public square with a mix of retail and housing. AlSayyad thinks it is part of suburban sprawl.

Nonetheless, AlSayyad came away impressed with Bhatia, and for one simple reason. "He listened. And he asked questions."
Social, financial impact

In early 2007, Bhatia flew nearly two dozen students and faculty to the proposed site in India, where for nine days they met with local officials and residents, and studied the topography of the site. Over the summer, the group explored green ideas, such as ensuring that a public park was within a five-minute walk of any point in the city and how best to create efficient mass transit.

"Sabeer really pushed these ideas of sustainability," said Stefan Al, lead designer of the project. "A lot of these ideas have been tried before, but not all together in one place."

In addition to contributing design ideas, the students challenged Bhatia with questions about Nano City's social and financial impact. They posed one particularly challenging question in the developing world: What will happen to the people who live in the roughly two dozen villages where Nano City would be built?

Many belong to families who have lived on small plots for more than 100 years. In May, 71-year-old Karam Singh, a farmer who owns 25 acres near the proposed project site, told the Indian Express, "Even my great grandfather was born here. How can I sell this land?"

Land prices in the area have quadrupled since the project was announced, and currently stand at about $50,000 an acre. Rafiq Dossani, senior research scholar at the Shorenstein Asia-Pacific Research Center at Stanford University, believes land acquisition from villagers will pose the biggest problem.

"The state leaves it to the businessperson to negotiate his way through the thicket of corruption and lack of information that typically surrounds land records in rural areas," Dossani said. "A piece of agricultural land will often have multiple claimants, indebtedness and prior claims over the generations."
Mt. Everest challenges

Last fall, Bhatia began purchasing the land, a few acres at a time. After acquiring about 50 acres, he found that "every subsequent acre of land we were buying was more expensive than the previous one," he said. In November, he stopped the process and hired four attorneys to research who owns every plot.

Meanwhile, he was having trouble raising money. Nobody wanted to invest. The name "Sabeer Bhatia" opened some doors, but he was repeatedly told he lacked sufficient real estate development experience.

Last month, Parsvnath Developers Ltd., an Indian development firm with experience in land acquisition, agreed to pick up a 38 percent equity stake in the project. The move, Bhatia said, will enable him to break ground on Nano City early next year and develop its first 1,000 acres.

Bhatia plans to offer free university education to the children of landowners. "We think that over 95 percent of all the farmers actually want to sell," he said. "We think this will put pressure on that remaining 5 percent of people who are maybe greedy for more money."

If they don't sell, Bhatia said, "We are ready to walk away. ... You can't build a city around a farm."

If he does succeed, then the hard part comes: developing Nano City in an environmentally sustainable way in a rapidly growing country. "This is not Sabeer climbing Mount Everest," said entrepreneur group leader Rammohan. "It's Sabeer climbing Mount Everest with the city of San Francisco on his back."
India facts

Although India occupies only 2.4 percent of the world's land area, it supports over 15 percent of the world's population. India's median age is 25, one of the youngest among large economies. About 70 percent of the population lives in more than 550,000 villages, and the remainder in more than 200 towns and cities.

Population: 1.12 billion, 27.8 percent living in cities; annual growth rate: 1.3 percent.

Workforce: 450 million; agriculture - 60 percent; service and government - 22 percent; industry and commerce - 18 percent.

Literacy: 61 percent.

Gross Domestic Product (2007): $1 trillion.

Real growth rate (2006-2007): 9.4 percent.

Per-capita GDP (2006-2007): $909.

Trade: Exports (2006-2007): $127 billion, $22 billion of which are software exports.

Major trade partners: United States, China, EU, Russia, Japan.

Source: U.S. Dept. of State, Bureau of South and Central Asian Affairs (June 2008)
Nano City's green features

Sabeer Bhatia intends to incorporate green and sustainable building practices into Nano City's design - a rarity in India, where availability of power and water is inconsistent. Stefan Al, the Berkeley-based lead designer of the first phase of the Nano City, is planning the following features:

-- Fifty percent park and open green space, with only local, self-sustainable vegetation planted in landscaped areas. A park will be less than a five-minute walk from any starting point in the city.

-- Shaded walkways, arcades and tree-lined boulevards to encourage walking.

-- A rapid bus-transport system, where buses will travel in dedicated lanes.

-- Living machines, such as surface-water treatment plants that convert wastewater into chemical and odor-free drinking water by using algae, plants, bacteria and micro-organisms.

-- Power generated by windmills and photovoltaic technologies.

-- Green roofs that capture rainwater.

Stupid reporting from Business standard

Here is another inane article on the decline of housing prices in Mumbai. Enquires are down, thats a ridiculous measure of volume of sales. What we need is hard data on the registrations. A quick visit to the registrars office and we should get this information. If they don't oblige one can get an RTI for it. Its good to see how much the black money component is of the sales in Mumbai. The decline is slow and steady and is going to bleed the high interest loan takers to a slow agonizing end.

Property developers, consultants and brokers have seen a 40 per cent decline in enquiries from home buyers over the last three months.

With home-buyers postponing their purchases owing to higher interest rates and increase in equated monthly installments, the slowdown in the real estate market is getting deeper.

The Mumbai-based Oberoi Constructions, which used to sell around 50-60 apartments in the June-July period, a traditionally lean period for property sales, has seen a sharp fall in sales during the same period this year.

Neelkanth Group, another Mumbai-based developer that builds homes in the central Mumbai suburbs, has also seen its sales dropping by over a third in the same period.

Property consultancy Knight Frank's chairman Pranay Vakil believes the situation is getting worse. "This is just the tip of an iceberg. The worse is yet to come,'' he said.

The 30 per cent year-on-year sales fall in June and July follows the 20 per cent decline in the previous six months. And no one sees any silver lining on the horizon.

The Reserve Bank of India [Get Quote] has raised the repo rate, the rate at which it lends to banks, by 125 basis points. Commercial banks have in turn raised their consumer loan rates by 50-100 basis points. Thus, on an average, the monthly installment on a Rs 10-lakh loan for 20 years has risen over 50 per cent to Rs 12,740 on a 14.25 per cent interest rate from Rs 8,060 (7.5 per cent interest rate) five years ago.

"Home buyers are adopting a wait-and-watch approach. While ready apartments are being sold, those under construction are not finding enough buyers,'' said Vikas Oberoi, managing director, Oberoi Constructions.

A cross section of property developers, consultants and brokers said enquiries from home buyers have gone down by 40 per cent over the last three months, compared to the same period last year.

While developers are not advertising any price cuts, most are willing to reduce the prices once the negotiations begin, according to investors.

For instance, in Gurgaon, where the prices are Rs 6,000 per square feet, developers are settling deals at Rs 5,500-Rs 5,400/sqft due to a sharp reduction in demand. This is apart from freebies such as free parking, waiver of stamp duty and equated monthly installments.

Property brokers point out that some pockets in Mumbai such as Andheri and Santacruz have seen the prices soften a bit in the last few months. In Andheri, for instance, prices declined to Rs 9,000 per sqft from Rs 10,000/sqft six months ago.

Nearly 80,000 forms sold on first day of Delhi housing scheme

Now this is a good way to make money by selling forms. 1L x 100 = 1crore. Not bad for a days work.

Times of India reports
NEW DELHI: Nearly 100,000 application forms were sold Wednesday for a Delhi Development Authority (DDA) housing scheme for the sale of 5,020 flats across the national capital.

The DDA Housing Scheme 2008 will provide over 5,000 flats way below the current market prices. The flats would be sold after a computerised lottery draw of the applicants.

“We sold about 80,000 forms today (Wednesday). Many of them were downloaded from our website,” DDA spokesperson Neemo Dhar told IANS. The application forms would be available till Sep 16.

“At least 10,000 forms were sold from the sales counter at Vikas Sadan (headquarters of DDA) and nearly 70,000 forms were sold from branches of various banks which are authorised to sell them,” a DDA official said.

“Nearly 15,000 forms were downloaded from our website,” the official added. The forms cost Rs.100 each.

The DDA is expecting more than 500,000 applications for the flats. “We have got nearly five lakh (500,000) forms printed but if they are sold out then we will get more printed,” Dhar said.

People thronged the sales counter to buy the application forms but many sensed that the odds were heavily against winning the draw.

“I was excited that I will be able to avail the opportunity to have a house in Delhi. But after hearing that five lakh (500,000) forms are being printed, the chances are very bleak,” said Ritu, a resident of Palam.

What goes up comes down doubly fast

This is not a time to gloat about being right which we are but its time to reflect on how to asses the pitfalls which could encounter if we ever were to step into buying a house at some point in our lives. As the story will unfold we will see small builders being wiped out, projects delayed indefinitely, legal problems between landowners and developers magnified, large mega projects by tier-2 builders getting stalled due to cancellation in bookings, outskirt prices dropping like a rock. redevelopment deals shelved and many more black swan events out of scope of the human mind. The key to a good property is location so the good ones as always the case will suffer the least damage. The sun has stopped shining and most of the bulls have gone to the cow-sheds or tabela's they are called in Hinglish. The occasional bull who is still roaming the fields is going to be dinner for some big bad bear out there.

By CNBC-TV18s research analyst, Niraj Shah

Well, the biggie said it on Friday and it may well set the tone for what could be a full-blown cyclical downturn for the real-estate space.

DLF, in a press conference, mentioned about a possibility of volumes getting impacted due to a hike in interest costs (No wonder Dr Y V Reddy's actions have seemed like a sharp wedge in the hearts of Indian realtors). At the time of its IPO, DLF has mentioned that while residential prices may start to stagnate, the commercial customers will be strong and keep the company in good stead. The company has stated today that it believes that the upside in the rentals is capped and they, at DLF, do not expect rental incomes to go up here on.

Secondly - in an interview earlier, V Hari Krishna, CIO of Kotak Realty Fund came up with an interesting observation. He said that since January 2007, most of the consumers have withdrawn from the market and this is reflected in the fact that when one looks at home loan disbursements, they have declined by 22% on a YoY basis from 2006-07 to 2007-08.

The drop, in fact, would have been more had HDFC and ICICI Bank not increased their disbursement rate in this period. Ex-HDFC and ICICI Bank, the disbursements would have fallen by 50%, which is obviously a worrying factor as it indicates that end users have withdrawn from the real estate market.

Thus, one would be inclined to believe that the meteoric rise that one saw in property prices in regions such as NCR and some Tier-II and tier-III areas was more of investor and/or speculator demand rather than end-user demand. And thus, these prices tapering off have lead to a switching-off in that trade and thus a moderation in demand and prices.

Sure - in select pockets such as Mumbai, Delhi CBD, etc, you would still see the odd expensive land deal, rental increase, etc. But make no mistake about it-the property market is looking south. And the biggest property developer, both in terms of size and repute, coming out and sort of affirming it does speak a lot.

CNBC TV 18's MF team did some digging and figured out that while the number of PE deals, both outbound and inbound, have declined by 60% for Q1 on a YoY basis, there is increased traction in the PE deals in the real-estate space. With the Primary market route closed and the debt becoming expensive, it would either lead to a PE deal at a much lower valuation - or a faster tick of sales leading to increasing cash-flows, which would sustain the highly geared realty companies.

For the faster tick in sales to happen - which essentially means wooing the buyer in a high interest-rate scenario - the prices will have to drop significantly - and that is the way the real-estate space is poised to go, never mind the odd-exception here and there. How soon we get there? Anybody's guess - but from the looks of it, sooner rather than later.

Secret and lies about housing interest loans

DNA has a good article on how interest payments can exceed capital by a factor of three, thanks to the compounding effect of interest. For those who understand the details, this is a very good reason why high loans don't make sense any more. For those who are caught in this nightmare, not even Bernake or the 'Singh is Kingg' can save them. The effects of leverage and compounding work is reverse the same way as they on the way up.

Borrow Rs25 lakh home loan, repay Rs1 crore

MUMBAI: If the current interest rates stay, you might end up shelling out more than Rs1 crore to pay off a Rs25 lakh home loan. How? Read on.

Six months is a long time, especially if you happened to take a home loan back then.
Banks were charging a floating interest rate of 11% on their home loans. The equated monthly instalment (EMI) on a 20-year loan (or 240 months) of Rs25 lakh would have worked out to Rs25,805 a month.

Around one-month back, banks raised the interest rate on floating rate home loans to 11.5% and have now raised it by another 0.75% to 12.25%.

Last time, hike in interest rates were not accompanied by an increase in EMI. Banks did the smarter thing and increased the tenure of the loan. The remaining tenure of the loan went up from 240 to 269 months.

If banks were to follow the same strategy now and increase the tenure of the loan, instead of increasing the EMI, the remaining tenure of the loan would go up to 394 months. Add to this the six months of EMI you have already paid, and you are looking at a total tenure of 400 months. If you keep paying an EMI of Rs25,805 for a period of 400 months, you would have paid Rs1.03 crore (Rs25,805 x 400 months) by the end of it.

However, the bigger question is will banks allow tenures to shoot up to 400 months?

How it will hurt you
Principal Rs 25 lakh
Initial rate 11%
Tenure 240 months
Initial EMI Rs 25,804
Principal repaid Rs 14,707
in first 5 months
Principal left Rs 24.85 lakh
Rate after 5 months 11.5%
Remaining tenure if 269 months
EMI remains same
Increase in tenure 35 months
at the same EMI
Principal repaid in Rs 4,027
the 6th month
Principal repaid in Rs 1,8734
first six months
Principal left Rs 24.81 lakh
Rate after 6 months 12.25%
Remaining tenure if 393.5 months
EMI remains same
Increase in tenure 159 months
Extra money paid to Rs41 lakh
service the loan (Rs 25,804 x 159)
Total EMI to Rs1.01

Keep HAL airport open: AAI

Can BIAL oppose the hand which feeds it. ? Just as BIAL used legal recourse to close the HAL airport AAI is now paying back BIAL in the same coin. Legally AAI or the government cannot open HAL unless BIAL is made to offer concessions . Using this newly found data they can turn on the screws on BIAL and Alfred Bruneer who is acting like the most incompetent Swiss national ever to set foot in India. Its about time the Devanhalli speculators exit. If they wait for HAL to open thats the end of all their paper profits and they would be stuck with illquid assets for years to come.

Keep HAL airport open: AAI
Recommends Move Till BIA Builds Additional Terminal
Anshul Dhamija & Sujit John | TNN

Bangalore: The new Bengaluru International Airport (BIA) has landed in a turbulent whirlwind with the Airports Authority of India (AAI).
The AAI has prepared a report that says that BIA’s capacity is less than what its promoters have stated, that the airport is already saturated, and that the promoters have violated a key clause in the concession agreement signed with the government. It has gone on to recommend that the old HAL airport be kept open till BIA builds an additional terminal.
The AAI report, a copy of which is with The Times of India, follows a directive by the civil aviation minister to study the capacity issues at BIA. The AAI had designated a 4-member team to conduct the study in June.
The report says that the Bangalore International Airport Ltd (BIAL) must take “immediate action...to create an additional capacity of 10 million passengers per annum to avoid further congestion and to handle the projected growth.” The report goes on to say, “In view of the saturation of the passenger terminal, import cargo, apron and runway, it is recommended that, in the meantime, the existing HAL Airport may be permitted to operate until the time of commissioning of proposed additional capacity at the new Bengaluru International Airport.”
As per AAI’s calculations, the terminal capacity at BIA can only handle 9.78 million passengers annually as against the city’s passenger traffic of 10.12 million passengers in 2007-08. This means that since the day BIA opened on May 24, the airport has been under capacity. BIAL, on the contrary, has claimed that the airport’s capacity is 11.4 million passengers, which could even go up to handle 14 million passengers annually.
As per recommendations of the International Air Transport Association (IATA), an airport which has to handle passenger traffic of 10 million passengers should have a terminal size of 1,50,000 sqm in area. BIA, according to the AAI report, has a terminal size of barely half that at 71,310 sqm.
The report goes on to state: “BIAL revised its forecast to 11.4 million in November, 2006, for the year 2015 which deviates from the actual traffic drastically. In fact the traffic was growing as high as 43.9% when the revised forecast was made in November 2006.
As per the concession agreement para 14.2 (page-61) BIAL was supposed to provide facilities as per IATA/ICAO standards and was to provide 27.3 sqm of space per peak hour passenger (PHP), whereas the actual area provided is 19.8 sqm per PHP, which is in deviation with the concession agreement.”
As per norms followed by IATA, the capacity of an airport terminal is calculated on the ratio between the total area of an airport terminal to the number of peak hour passengers, which for any airport should be a minimum of 25 sqm/PHP.
In fact the figure of 19.8 sqm/PHP at BIA is way below that of older airports in Chennai and Kolkata which have figures of 23.15 sqm/PHP and 24.15 sqm/PHP respectively. In the new Hyderabad airport terminal, it is estimated to be 35.21 sqm/PHP.
Further,taking the terminal building in its totality,the report states that the “basement area of 18,665 sqm is not used for passenger facilitation, it is used for storage, services and utilities. Therefore, basement area should be excluded from the total terminal area which will reduce area/PHP to 14.6 sqm.”
What AAI report also said
BIA’s peak hour runway capacity is 32 movements as against current peak hour demand of 25. With anticipated annual growth rate of 25%, runway is likely to saturate during 2010-11. Immediate action should be taken for construction of second runway
Existing number of parking bays are 42 as against peak hour demand of 41 bays (26 passenger aircraft, 5 freighter, 10 buffer for contingency). Addition of 30 more bays recommended
There is imbalance between import and export cargo area which needs adjustment, that is import cargo is saturated whereas export cargo and domestic cargo have adequate capacity. It is therefore recommended that an additional import cargo capacity may be created immediately.

Consumer court ruling : Builders must fulfil promises mentioned in brochures

‘Builders must fulfil promises’
Consumer Forum Directs Them To Deliver What Is Shown In Brochures
TIMES NEWS NETWORK

Pune: Providing relief to flat owners deprived of amenities by builders, the consumer disputes redressal forum, Pune, in a landmark ruling, has held that a builder will have to provide all the required facilities to a purchaser which he had promised in the brochure.

Even if an agreement between the two parties was silent on providing the amenities, it will be binding on a builder to give facilities which he had promised in the brochure, observed forum president Pradip Gaikwad and member Sulabha Joshi on July 16.
The order was passed on a complaint filed by senior citizen Parshuram Redij of Vijaya Rashmi Residency at Warje Malwadi.
Redij had filed a complaint against M/s Vijaya Rashmi Developers and its partners comprising Marathi actor Ravindra Mahajani of Paud road, Arun Nikam and Harishchandra Nikam, both from Kothrud, for deficiency in service. The firm had published an advertisement in a Marathi daily for undertaking a project at S.No. 43/5 at Warje Malwadi, where it had assured several facilities. Lured by the promises, Redij booked flat no. 4 in the A wing of the building for Rs 6,14,250.
After Redij took possession of the flat on October 30, 1999, he discovered that the promises made by the builder in the brochure that he would construct an internal road, garden, club house, swimming pool and security cabin after the completion of the project were not fulfilled. On various occasions, the senior citizen took up the issue with the firm and its partners. He appealed to them in vain that the needful should be done. Moreover, the flat owners suo moto registered the society by shelling out Rs 75,000.
Arguing in person during the final hearing, Redij alleged that the firm had transferred the development rights to M/s Vaishnavi Shraddha Constructions. He said he had filed a criminal case against the partners, which is pending before the magistrate court here.
Redij appealed to the forum to direct the firm and its partners to execute the sale deed in his favour, provide basic facilities and repay Rs 35,000 as expenditure incurred on registering the society with 18 per cent interest with effect from the date of taking possession of the flat.
On the contrary, the firm had argued that the complaint was barred by the law of limitation and that it had transferred all its rights and liabilities to M/s Vaishnavi Shraddha Constructions. The firm contended that the amenities mentioned in the brochure were not part of the agreement. The forum held that the firm could not be allowed to absolve its liability merely by saying that it had executed a deed of assignment in favour of a third party. The forum further observed that the firm and its partners had induced Redij to purchase the flat on pretext of providing facilities.
The forum directed the firm and the partners to jointly pay Rs 35,000 to Redij with nine per cent interest from October 30, 1999. They were further directed to provide all the facilities mentioned in the brochure and register the conveyance deed and sale deed in his favour as per the provisions of the Maharashtra Ownership Flats Act, 1963. The firm partners have being directed to comply with the order within 3 months.

Sabeer Bhatia's new flop investment

Its been 10 years since Mr Bhatia sold his company to Microsoft but ever since that he's been trying valiantly to build the next sucess story. Unfortunately this new venture like few of his others is a dud from day one. Trying to create a semiconductor fabrication enviroment is easier said then done. Skilled manpower, water, electricty and partnerships with bechtel or similar likes are needed before the groundbreaking crememony. Unfortunately in India lured by the hype of the Sensex and PE firms these morons think they can sucker local Indians into buying apartments in an SEZ mirage. As with other mega deals I expect this one to fail in times to come. Pasvanath has nothing to claim in expetise apart from oiling policiticans and babu's. If this was a sunrise industry Ratan Tata, Premji or the Ambani's would be right at the forefront with solid business plans, not with real estate development hype companies. The ecconomic times press release as usual with no analysis is below


Parsvnath Developers on Wednesday joined hands with Sabeer Bhatia, co-founder of Hotmail, to develop a 11,138 acres knowledge city near Chandigarh, where the company will initially invest Rs 400 crore.

The project, Parsvnath Nano City, valued at Rs 50,000 crore (12 billion dollars), is promoted by the former Hotmail innovator Sabeer Bhatia, whose company holds the majority stake of 52 per cent. The Haryana government holds 10 per cent stake.

"We have already made an investment of Rs 41.5 crore for acquiring 38 per cent stake and the remaining will be invested as debt in future," Parsvnath Developers Chairman Pradeep Jain told reporters here.

To be developed in Panchkula, the project would be completed in two phases over the next 10 years, where the company would develop 5,000 acres in the first phase.

"We have already acquired about 1,500 acres and we are talking to various land owners for acquiring the rest," Jain said.

The realty firm would invest Rs 400 crore initially in the form of equity and debt in the project, he said.

All the stake holders of the project has formed a new entity, Nano City Haryana Ltd, which would raise funds from the capital market within 18-24 month for completing the project.

"We plan to take the company public in 18-24 months, but we have not finalised how much stake will be diluted or how much money we are going to raise," Jain said, adding the company would also dilute some stake to private equity investors.

Pune builders touting townships.

CNN -IBN has become a builders mouthpiece for touting the Pune builders. All project costs seem to be bogus running into thousands of crores of rupees. Where is the money going to come from for all these mega projects. One success in magarpatta city and all these marketing fellows are trying to ape it.Even in Magarpatta the apt building quality is average whereas the commercial buildings are above par. The reason for the difference is simple. The commercial buildings were constructed by reputed construction firms like JMC/Vascon whereas the apt buildings were constructed by builders who had proximity to the politicians. Lalit Kumar says "how long will be buyer wait ?" Mr Kumar he will wait till the cows come home and he is not going to get carried away by projects built in the boonies. Pune is not a metro city like Mumbai/Chennai therefore it lacks funds for development. Already has a load shedding problem which is getting acute.

Unitech receives Rs 740 cr from Lehman

Lehman has stuck a sweet deal for themselves with this low valuation for development on 97 acres. Unitech has/will pay off the slum dwellers under the SRA scheme with all their black money and will get an FSI of 2.5 . Lehman will bring in the brand name and the bear half the construction cost and receive a 50% stake. With 18 million sq/ft under development with an average price of 15000 per sq/ft ($350 per sq/ft roughly) that translates to a sale price of $6B dollars with $3B for Lehman. With Lehman's cost price being $170M , the profits can be staggering. I wouldn't be suprised if they setup their HQ in this complex and so do other Wall Street and European/Asian firms. This could be the Wall St of Dalal Street.

Fantastic deal here for Lehman. Here is the wikimapia location of the SRA(Look for Dawri Nagar), Right on the intersection of Nehru road and the Western Express highway. Excellent location for business as Bandra Kurla complex (BKC) is 10 mins away southbound, and the domestic airport 10 mins driving north. If my guess is right, major slums on the opposite side of the freeway too will become prime property.


DNA link here .
MUMBAI: Unitech Ltd on Thursday said it has received Rs 740 crore from global investment bank Lehman Brothers Real Estate Partners for a 50 per cent stake in the country's second largest realty firm's project here.

"On satisfactory completion of all the conditions under the transaction documents, Unitech Ltd on Thursday received subscription amount of Rs 740 crore," the realty major said in a filing to the Bombay Stock Exchange.

Lehman Brothers Real Estate Partners have been allotted 50 per cent stake in the initial phase of a master-planned project on the Western Expressway of Mumbai.

The construction cost for the initial phase would be borne by Lehman Brothers Real Estate and the Western Expressway JV, a joint venture of Unitech Ltd and its local partners, the filing added.

The initial phase entails development of one million square feet of office space out of the total developable area of around 18 million square feet.

Lehman Brothers' Real Estate group is a capital and advisory services provider to the real estate firms.

The group has presence in all of the major international markets, with investment bankers in New York, Los Angeles, London, Milan, Tokyo and Hong Kong.

Redevelopment deals fall through in Mumbai

Several deals to rebuild old housing complexes have fallen through. DNA reports

MUMBAI: With the property market showing bearish tendencies and liquidity crisis plaguing developers, redevelopment projects in the city are being dropped like hot potatoes.

The once headline-grabbing deals, including Vivek society, the Kalina complex where 550 sq ft flat owners were offered upwards of Rs2 crore per flat, have fallen through with developers backing out of MoUs with housing complexes.

The schemes involved pulling down old housing complexes and rebuilding them, with the enhanced FSI, so that the existing flat owners get bigger houses and the builder benefits by selling the excess houses. A seemingly win-win situation till a few months back, there are no takers for it now.

Wadhwa Builders is learnt to have cancelled plans to redevelop Vishal Nagar in Borivili (east). A MoU signed by Pune-based Kumar Builders to redevelop Khira Nagar on SV road at Santa Cruz (west) has fallen apart. Revoking his earlier offer of Rs300 crore, a developer is now willing to pay barely Rs220 crore to a cooperative housing society on a 7,000-sq yard plot at Vile Parle (east).

A well-known developer is learnt to be now renegotiating the redevelopment deal with two societies: Flying Carpet and Tirupati located near Khar Gymkhana. Turn to p12

Instead of his earlier offer of providing an additional space of 35% to every flat owner, the developer now does not want to part with anything over 25%. Similar is the case with Navyug Nagar Cooperative Housing Society on SV Road at Dahisar. Five reputed builders have now offered to provide additional 25% space to the 200-odd residents occupying flats admeasuring a little over 500 sq ft.

“Developers do not have the money power,’’ said a Santa Cruz-based broker-turned-developer, adding, ``With the result, they are unable to pay the exorbitant rate they offered earlier.’’

There is another reason, says Harendra Pandya, vice-president of Real Estate Agents Association of India. ``Redevelopment of societies has not taken off as developers are finding it unfeasible to pay the current stamp duty rate to convey (transfer) ownership of land from a society constructed in the 1980s to its name,’’ Pandya said.

“The already dipping sales are affecting their cash flow and if they have to pay high stamp duty for redevelopment, it would make a big dent in the developers’ calculations. No wonder redevelopment deals are going slow,’’ he said.

On 11th Road, Khar, a society of 14 members have grudgingly accepted a developer’s bid to give only 20% additional space to its existing 1,000 sq ft flats. ``Negotiations had broken down between us as a well-known developer had offered to give them a huge corpus. Six months later, they came back to me as the developer had started making excuses,’’ said a suburban developer.

Said Kalina-based estate broker Umesh Lad, “Redevelopment deals of societies like New Vinay, Shanti Niketan are learnt to have not materialised as a developer backed out from his earlier promise of purchasing the flats at an outright rate of around Rs35,000 a sq ft. The societies had earlier got an offer from reputed developers including Kalapatru.’’

Other redevelopment deals that fell through include Vivek Society near Mumbai Unversity, Kalina, with Sterling Biotech backing out from its offer of over Rs40,000 a sq ft, Parkbay Society and Kirti Society where residents have been offered roughly Rs35,000 a sq ft.

Though Boman Irani of Keystone Developers was unavailable for comment, brokers say there are problems in the redevelopment scheme at DN Nagar police station, Andheri (west). Keystone is developing nine ground-plus-four buildings jointly with Vaidehi Akash, a small-time builder, who reportedly raised funds by pre-booking at rates that were roughly 35% less than the market rate

Vijay Mallay's skyscraper to rival Ambani's

The ego battles seem to soar with each billionaire trying to outdo the other. Having a rich dad does seems to help when building empires and castles. 25000 per sq/ft on Vittal Mallya road. Now this is some price to pay to be in the league of the rich and famous

Econonmic times reports
BANGALORE: Is Vijay Mallya doing a Mukesh Ambani in Bangalore? The word is that the ‘King of Good Times’ is set to build a massive multi-storeyed complex for himself in Bangalore on his ancestral property on Vittal Mallya Road, adjacent to UB City.
Sources say the plan is to have a designer skyscraper apartment with possibly even a helipad on the fouracre property.
Real estate sources said that the UB Group chief has roped in global consultancy firm DTZ to do the ground survey and planning. DTZ’s professional advisory services include the management of real estate portfolios, building consultancy and valuation.

Mallya’s plan sounds similar to what Mukesh Ambani is doing: building a $1 billion 60-storey place in Mumbai that sports a helipad, health club and six floors of car parking.

Named Antilla, after a mythical island , the complex will be Ambani’s new home.

For Mallya’s project, several leading Indian developers are said to have approached the UB Group chief to be part of his home-development plan. However , sources said Mallya is keen to hire an overseas developer. It is believed that a Singapore-based developer will undertake the construction.
However, it’s not clear what the height of the apartment would be. While one source said it would be 16 floors, another said it could be closer to 30, while yet another said Mallya was thinking of a 37-storey building. When TOI contacted Mallya on the matter through the UB Group’s media relations officer, the response was that Mallya wasn’t planning to build a 37-storey apartment.
But he didn’t deny or confirm the plans for a makeover of his ancestral home. Real estate developers say that with the FSI (floor space index) in the area having increased in the recent past, Mallya could go well beyond 30 floors. At present one can get anywhere between 2.5 and 3.25 FSI on Vittal Mallya Road. In terms of value, the land prices on Vittal Mallya Road range between Rs 20,000 and Rs 25,000 per sqft.

Indian Real Estate May Witness Weeding Out, Fitch Ratings Says

Bloomberg.com article on slowdown. Now the SBI chariman and the HDFC Vice-chairman are calling for lower prices. Will the dodo bulls go extinct ??

By Sumit Sharma

July 10 (Bloomberg) -- India's real estate industry may witness the exit of weaker developers as a rise in interest rates and property prices deter buyers and crimp sales, Fitch Ratings said in a report.

Mumbai recorded a 16 percent drop in registrations in the year to March 31, and sales may fall further across India's major markets if developers hold on to prices, Fitch said. Fitch has rated its short-term outlook on the industry as negative.

``The slowdown will also aid the process of weeding out some of the weaker entities within the sector, and increasing the relative strength of some of the larger, more established developers,'' Sandeep Mulik and Roopa Raman, analysts at Fitch Ratings, said in the report in Mumbai today.

Some developers face fund shortages and may tap buyout firms as investors sell real estate stocks on falling sales. Still, a prolonged slowdown may damp the appetite of private equity funds, forcing smaller developers to either borrow at higher rates or default on their obligations, Fitch said.

The central bank on June 24 raised interest rates to the highest in six years to contain inflation that accelerated to 11.63 percent in the week ended June 21, the fastest in 13 years.

Bankers including Om Prakash Bhatt, chairman of State Bank of India, the nation's biggest, and Keki Mistry, vice-chairman of Housing Development Finance Corp., predict an end to the five-year rise in property prices.

Shares Drop

Real estate shares have led a drop in Indian stocks this year. The 14-stock Realty Index has fallen 62 percent since Jan. 1, compared with a 31 percent drop in the benchmark Sensitive Index. A dozen of the 14 property index stocks including DLF Ltd., Unitech Ltd. and Indiabulls Real Estate Ltd. have more than halved this year.

A decline in demand prompted DLF and Unitech, the largest developers, to delay selling shares in investment trusts in Singapore. Indiabulls Properties Investment Trust, which raised $258 million in Singapore last month, traded 22 percent lower at S$0.82 a share.

``The sharp increase in construction costs, driven by increased steel and cement costs, could also impact margins and hence liquidity,'' the Fitch analysts said. ``The risk would be higher for real estate companies with a limited track record and limited cushion for debt financing.''

Fitch also expressed concern at the high prices paid by some developers for acquiring land.

Prices correcting in Hyderabad - Maytas

Here is something I received in the mail.The slowdown is coming. The combined offer translates to over 15% drop in the cost of the house. Not bad for a start. Last year this property was quoted at 3200 which means there is no appreciation over the past year, Actually people who have bought have lost 10% of the down payment. Also such big projects get delayed by atleast 1 year.

For the long term resident, 2800 seems a good entry price. still 15% lower then what is quoted.

Fabulous offer for top tier corporates employeesMaytas Properties has developed 400 acres of land at Bachupally, which is located just 10 km from Hi-tech city. The name of the venture is Maytas Hill County. In this spectacular venture we have a world-class township spread over 85 acres which has a decent mix of Villas, Independent Bungalows & Semi-furnished Apartments. Government has approved to develop an IT Special Economic Zone in 75 acres adjacent to the Residential Township, this helps the residents can ‘Walk to Work’ in the IT SEZ. As the bookings are going berserk we have come up with a COMBO offer for top tier corporates.

Here is COMBO offer which comes in with:
PRE-EMI offer & Corporate offer

PRE-EMIis a fantastic mode of payment where the EMI need not be paid till the property possession is taken ovev, the Interest to the banker during this period will be borne by Maytas. Infact the interest component will be paid on behalf of the customer. (This is applicable for applicants who avail Bank Loan for purchasing the property with us).

Corporate offercomes with Rs.200/- less than the regular price (per square feet). This is offered to the Employees of Corporate companies which have been listed by us.

Regular Price : Rs. 3699 per sft

Corporate offer : Rs. 3499 per sft

Springfields apt owners face eviction

the builder in collusion with Corrupt BDA officials along has violated all building norms. Now BDA officials are expressing surprise. They should be sacked for their incompetence. Seven towers don't spring up overnight. I hope the residents bring the builder to book. Add IDEB builders to the list of builders to be avoided. Deccan Chronicle article here. As per the latest news the builder has to pay 25 rs sq/ft to BDA as a penalty to get the commencement certificate and then apply for the occupancy certificate. With 697 apts in the complex and 7 wings illegal (A,B.C are legal and D-J are illegal) the builder needs to cough up roughly 697 * 7/10 * 1500 (avg flat size) * 25 which is 18,296, 250 (1.8 crores)

1,300 residents left in lurch

BENGALURU

More than 1,300 residents including software engineers, bank officials, doctors and expats who have invested crores of rupees for a flat in Springfields Apartments will soon be homeless if the builder does not sort out the issue of occupancy certificates within seven days.

Springfields Apartments on Sarjapur Road which is said to be one of the few residential projects in the city with 82 percent lung space and just 18 percent of built up areas has built seven wings which includes nearly 50 flats in each wing without the commencement and occupancy certificates.

The residents who went to BDA authorities with complaints of the discrepancies are now facing a tough time running after the builders, advocates and the BDA authorities.

“The officers at BDA who promised to deliver justice to us have now sent an order asking us to vacate immediately. The builder in turn has been given seven days time but what about our woes? Who will listen to us,” said a techie on condition of anonymity.

Meanwhile, the residents told Deccan Chronicle that everyone had relied upon the BDA’s sanction plan and had together paid several crores of rupees to the developers towards acquisition of their respective apartments.

The directors Mr H.S.

Bedi, Mrs Avneet Bedi, Mr Pradeep Kumar Tewani and Mr P K Gajra have not only violated the statutory provisions but have also conducted criminal breach of trust, the residents of the apartment allege.

“The builder also said that BDA had issued occupancy certificates to all these buildings and only then hundreds of families occupied these apartments. Now, we learn that BDA has not issued occupancy certificates to many of these blocks,” said another resident, an expat.

The residents who actually started this protest to show a violation have now been rendered homeless.

“Where do we go? And why should we go? It was not our mistake. Why are we being targeted for no mistake of ours,” cried a doctor, who is residing in one of the wings and has been asked to vacate. The residents have now planned to approach advocates to make sure there is some way out of this situation.

Who is to blame?

It is surprising to know that IDEB and Parkway Venture could manage to construct seven wings, each consisting of about 13 floors without even obtaining the commencement certificate.

The BDA officials, interestingly have not even inspected the area to find out the discrepancies of the builders.

The builders who have been constructing the building from the past three years, as per the orders, have not only violated the BDA rules but have also separated about 1,710 sq m of area on the North West Corner from the main premises by constructing a compound wall.

The order also states that the entry to the premises from the north west side is blocked and the Set Back Line of 13 m is not maintained on the western side by changing the orientation and location of the basket ball court/tennis court. This modification has resulted in reduction of surface parking.

This is not all, while BDA had claimed ignorance all this while, even some of the major nationalised and private banks have sanctioned loans to almost 80 percent of the owners who have bought the flats.

“The banks have given loans to all of us without even checking? It’s ridiculous. For all these days we were only fighting for that land which has been taken to construct a hotel but now we have to fight for our own homes,” said a resident.

Its slowdown everywhere

We need some anecdotal evidences of these happening. Readers can add to the comments to in one or two lines about their experiences.

Here is an article from Indian Express

Grappling with a slowdown across segments, the Indian property market is heading towards the next phase of consolidation. Liquidity crunch in the real estate market is beginning to drive many mid-sized and small developers to scrounge for cover.

Many want to liquidate their land and incomplete projects by selling them to bigger developers or private equity players even at lower valuations. What's forcing them to take this step is a stagnant market, with property rates undergoing major correction in some cities. Around 15 deals in real estate sector have fallen through in the past two months with investors developing a cold feet, said industry officials.

Consider a few cases. A mid-sized builder at Chembur in Mumbai has put its 14-floor commercial property in central Mumbai on the block. The developer wants to raise around Rs 150 crore which would help him complete his upcoming project.

A Hyderabad-based real estate group has started advertising to attract high networth investors to generate Rs 50 crore against bulk purchase of its housing project in the city. A small developer in Mumbai, pushed to a corner on account of mounting payables for construction material, is now offering its project at Juhu-Versova in Mumbai at about 35% discount to the current market price. In Delhi, some developers have approached property consultant to sell their income generating commercial properties to finance some of the unfinished projects.

Click on "Full Story" for more..."

Real estate funds and established developers admit that they are working on various proposals. "Even in the normal circumstances we used to get offers from mid-sized developers to buy out their projects. But now, the numbers have increased considerably," said Hiraandani Developers chairman Niranjan Hiranandani.

The Bangalore-based developer Nitesh Estates said that it has received similar proposals, mainly from markets like Pune, Nagpur and Bangalore. "Every second day we are getting a proposal either to pick up equity in the project or to buy out fully. We have not concluded any such deal so far," said Nitesh Estates chairman Nitesh Shetty. Industry observers said that the commercial property market, stagnant for the past few months, is showing signs of crack, especially in suburban Mumbai and many tier-II & III cities. The volume of commercial property sales has dropped by 30% in the past two months in the wake of rising interest rates.

"Developers, specially small developers, are under pressure now. Fund flow into this sector has begun to dry up. Selling incomplete projects to big developers or private equity firms is an option explored by many such developers," said a senior official with KnightFrank India, a property consultant. Thanks to tigher fund raising norms and a weak stock market many developers are knocking the ddors of private equity investors who are driving hard bargains on valuation and. Even on a reduced valuation, PE firms are putting various clauses to safeguard their money.

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

This had made it tough for developers to access foreign funds, since ECBs are allowed only in large real estate projects and the conditions are far more stringent than FDI. "The developers are ready for a compromise on valuations. The risk adjusted returns have gone up by 20-25% during the past few months,"said Starwood Capital India head Balaji Rao.

Property prices drop all over India

Ajit Dayal writes on EquityMaster.com.

In July 2006, at an Equitymaster conference, I made a prediction: Indian property prices will decline by 30% over the next 6 to 12 months.

Boy was I wrong! Property prices in most Indian cities increased by 50% or so between July 2006 and December 2007.
My "prediction" was a bust!
If property prices were 100 in July 2006, they had reached probably 150 in most cities. And my expectation was for a "70". Ouch!

But look around you today and the only place where Indian property is still booming is in the headlines of some newspapers and lead articles on some websites.

Developers and financiers of property projects are desperate to make us believe that property prices are still increasing. They want to hold the "price line". If potential buyers know that the supply of property is large - and sales of apartments are slow - they will wait. They will buy later - or ask for a better price now.
Any reduction in the selling price is a loss of expected profit for the developers and their financiers. Not a good thing.

News or Olds?
We get much of our information from newspapers.
Note the "new" in the word "newspapers".
And what we read shapes our opinions and, eventually, our actions.
But, sometimes, the "newspaper" may be carrying "oldspaper" information that, at one level, creates a false impression in our minds.
And could makes us act in an incorrect manner.

So, contrast these headlines.
Business Standard, in their online version, June 23rd, 2008: writes: "Booming Indian property mkt beckons UK investors".
In this article, there are a few statements of "fact".
Indian property prices, we read, are up some 70% in 2 years. "Merrill Lynch consultants", according to this article, "have predicted a 700 per cent increase in the Indian property market by 2015". Quite a clever statement - its vagueness leaves room for varied interpretation. The article does not say whether this 700 per cent increase is an increase in the amount of square feet being built, or in the prices of real estate. But something to do with real estate is increasing by 700%. The mind takes that "700%" and imagines a bull market in property.

"Realty promoters pledging shares to raise funds" warns an article in the print version of the Business Standard, dated June 19th, 2008. The article lists 10 listed real estate companies whose share prices had collapsed from their 52-week high by between and -58.2% and -78.1% as of June 18th, 2008.

SHAKY FOUNDATIONS
Company	June 18 price	52-wk high	52-wk high date	% change
Ansal Infras	102.85	469	13-Dec-07	-78.1
Parsvnath Dev	168.3	598	7-Jan-08	-71.9
Omaxe	176.95	613	13-Dec-07	-71.1
Jaiprakash Asso	182.1	510	4-Jan-08	-64.3
Unitech	200.25	546.8	2-Jan-08	-63.4
Brigade Enterp	168.5	428	1-Jan-08	-60.6
Gammon India	337.45	845	4-Jan-08	-60
DLF	492.35	1225	15-Jan-08	-59.8
HDIL	590.5	1432	10-Jan-08	-58.8
HCC	116.5	278.9	2-Jan-08	-58.2

The large shareholder-owners of some of these listed real estate developers have apparently been pledging shares they own to financiers in exchange for loans. With sales not as brisk as in the years 2006 and 2007, cash flows are not as per expectations. And, to add to the woes of the real estate industry, many developers had already committed to larger projects. They now need to pay for this new land and the initial cost of development to get the land into some sort of "build-able" shape.

And another screaming headline, "Cash Crunch" in the Economic Times, June 15th, 2008 states that property developers are borrowing money at interest rates ranging from 35% to 50% per annum. Their "normal" interest rates range from 18% to 24% per annum. The higher borrowing, says the article, is due to the slowdown in sales and larger commitments.

A boom is a bust.
So, what happened between the "old" news of June 18th (the date of the "Realty promoters pledging shares to raise funds" article) and the "new" news of June 23rd (the date of the Booming Indian property mkt beckons UK investors" article)?

The share prices of these realtors, I assume, have declined even further - for what that is worth. The fundamentals of the industry - slow sales and large commitments for new projects - could not have changed. As these share prices decline, the "promoters" of these companies that pledged some shares will need to give more of their shares as a pledge. Additionally, if any loan is not repaid, lenders will sell the pledged shares into the stock market - probably at any price. This could result in a decline in the share prices of the real estate companies - and create a potential downward spiral of wealth destruction for investors in shares of real estate companies.

From a "buying-power" perspective, the news on inflation is worse than expected, so interest rates are likely to increase. And, under that higher interest rate scenario, the cost of borrowing money for buying a home will only increase. Not good for demand. And if demand slows down still further, sales of property will get worse and prices will decline even more.
Uh, oh - does not sound like a "boom".
Sounds more like a "thud".

Demand stalls, supply surges.
For all the bravado of the "news" headline in the June 23rd article in Business Standard, it is more of a rear view mirror event: of what happened yesterday.

But, in a strange way, it gives a hint of what is likely to happen in the future.

In 2006 and 2007, real estate buyers were in a fix. Property they wished to buy was only available at high prices.
Supply was limited.
And demand for property increased due to higher incomes and the ability to borrow more from banks. The desire of many private banks and many government-owned banks to gain market share and build their retail, home loan portfolio saw this dramatic run-up in the borrowing capacity of buyers.
Sometimes these buyers were genuine buyers, and sometimes they were speculators - in for the "free" ride.
After all it was a guarantee that property prices would increase every day.
Just like the prices of shares increased every day when the stock markets opened.
There was no need to go on a "road show" to UK to sell all the property being built.

But that was in 2006 and 2007.
Today, supply of property is more. The demand for property is lower.
Demand has declined because property prices are no longer affordable. Salaries have increased - but not as much as in the recent past.
Demand has also been hit by the fact that banks are closing down their home loan lending departments. Or raising interest rates for these home loans.
The wealth effect from stock markets - which fuels the buying of second homes and dream homes - has evaporated.

But the supply juggernaut keeps on rolling. And building.
Whenever I ask my colleagues (who advise a real estate fund) their views on how much new construction is planned, they shake their head in disbelief. There are 50 to 70 million square feet of new construction coming up in Bangalore, Calcutta, Hyderabad, and Pune to name a few cities.

Developers who have built maybe a total of 5 million square feet in the past decade have plans to build 50 million square feet in the next 3 years.

India was rising. India was shining.
And a rising and shining India needed a place to live, a place to work, and a place to shop.
Real estate zindabad!
Stock price of real estate companies double zindabad!!

Yes, 700% correct!
All correct, and all true: India needs more property.
A lot of more property. Maybe more than the 700% increase referred to in the Merrill Lynch report.

But, at what price?
And at what profit margin to the developer and their financiers?
And will people buy any junk in any location at any price?

Our view on property has been wrong in timing.
We called the "sell" on property too early.
We did not take into account the stupidity of many banks in lending money so leniently and so cheaply. Or the complete mis-pricing of risk-return by so many come-and-join-the-party property funds.

But we knew the greed of the developers. We had seen them in action in 1993 to 1995. As property prices increased in 1994, they bought more land at higher prices and thought they would sell their end product at even higher profits. Discipline was out of the door. Greed was in.

That property cycle went bust in 1995 - and stayed in bust mode till 2003.
For 8 years it was a buyer’s market. Or a renter’s market.
Supply was far more than demand. No one speculated on property. The actual user’s actions determined the prices.
Not some bank’s desire to gain "market share". Nor the availability of money from international sources due to the desire of a foreign fund to invest in an exotic location for an erotic return.

But demand and supply determine the price of everything.
Though, they don’t tell you the value of anything.
And people confuse the two and use "price" and "value" as inter-changeable words.
They confuse the high price of real estate with the value of that real estate.
Prices have only one way to go, I reiterate: and that is down.
And if real estate declines, so should the share prices of many of the property companies that build, and build, and build. We may shake our heads at the housing bubble in USA. But we built one right here in our own back yard.

Religious tourism: Spirituality propels Haridwar realty boom

Add some more bubbles to the list.

Religious tourism: Spirituality propels Haridwar realty boom

HARIDWAR: Instant karma has emerged as the driving force behind the state's multimillion-dollar realty industry, with religious tourism turning the twin towns of Haridwar-Rishikesh into hot spots for developers, industry trackers say.

With the two holy cities being located some 200 kilometres from the national capital, Haridwar and Rishikesh are fast becoming a favourite with residents of Delhi and its adjoining areas looking for a bit of quick spiritualism.

Subsequently, these places have become almost an extension of Delhi-Gurgaon for spending the weekend.

"Most of our flats are purchased by the residents of Noida-Gurgaon who visit a couple of times in a year to get a taste of spirituality," says the manager of Gayatrilok Apartments on the Haridwar-Roorkee highway.

Today, it is not only the local developers who are reaping benefits but also big players such as Super Tech, DLF and Sahara, who have now forayed into construction of shopping malls. For instance, the Deep Ganga group of Delhi has already tapped 75 percent of projects.

Real estate major Vardhman group and velvet exporter Rishabh Veleveleen are investing Rs.4 billion to develop a new township Vardhmanpuram, which will have customised villas and interior decorations of the buyers' choice.

"Hardwar, being an important religious place on the world map, has good growth prospects. Statistical figures show that religious towns of India at large are witnessing more than 45 percent annual rise in property prices against the average 25 to 30 percent in tier-II cities," says Vardhman chairman U.C. Jain.

The township proposes to “blend” spiritual living with modern features like open-air theatres, swimming pools, spas, healthcare centres, and shopping plazas with large expanses of greens thrown in.

People at the top corporate management levels, who relocate themselves from big cities, are adding to the shortage, which is being tapped to the hilt by residents of developed neighbourhoods like Shivalik Nagar.

Says Shivalik resident K. Ghai, a retired BHEL executive: "My one-room set here fetches me more monthly rental than the one near Chandigarh, which has more covered area and is located in a newly-built township."

Development is concentrated in Haridwar and Rishikesh, as 90 percent of the state is part of the Ganges and the Grand Himalayas, and the only available land for housing and infrastructure developments is available here.

"There is a huge demand for good housing from foreigners and NRIs who wish to invest here as post-retirement options," says Manoj Gupta, a local real estate developer.

Adding to the demand are forthcoming events like the residential yoga camps and festivals by religious organisations and the Uttaranchal Tourism Board, as well as the Kumbh Mela in 2010.

Growing industrialisation, driven first by hydel projects at Tehri, Maneri and Joshimath, is now doing its bit.

The industrial development area in Haridwar has been declared an “excise free zone”, and companies like Hero Honda, Hindustan Lever, Mahindras, and ITC apart from a clutch of pharma and cosmetic companies are setting up facilities in Haridwar.

The upshot: there's going to be more shortage in Haridwar and Rishikesh. As builders say, these are “the next destination” spots.

Real estate sector facing severe cash crunch

The recent bloodbath in the real estate sector has started taking a toll. Almost all large developers are now facing a severe cash crunch and finding it difficult to complete their ongoing projects. In fact, the situation is so bad that most of them have reported a 50-70% cash shortfall. Industry sources told SundayET that the liquidity crunch has forced many developers to pick up cash from the unorganised market at interest rates as high as 35% to 50% annually. The lending rate of banks is between 18% and 20%.

The grade A developers which are facing crash crunch include DLF, MGF Emaar, Shobha Developers, Unitech, Omaxe, Parsvnath Developers, Hiranandani Group, Ansal API, BPTP Developers and TDI Group.

As a result of the crash crunch many developers have started going slow or even stopped construction of projects which are either in their initial stages of development or which would not affect their bottomline in the near future. While most developers that SundayET spoke to, agreed with the problem at hand, none of them were ready to be quoted on how it had affected them.

“There are visible signs that the global liquidity crunch has started to impact real estate companies in India. It is becoming extremely difficult for both small and large realty companies to organise financing, given the global liquidity crisis. The recent slowdown in demand, high interest rates, rising input costs and meltdown of realty stocks have only added to their problems. The real estate companies are in dire need for credit and other sources of capital to complete projects at hand and also to sustain their expansion plans. Some companies are able to access capital, albeit at very high costs, which in the long run may not be a sustainable solution, especially given the size of the market and consequent need for large chunks of capital,” says Cushman & Wakefield executive MD (South Asia) Sanjay Verma.

Many in the industry feel that notwithstanding the final verdict on the extent of global economic slowdown and recovery of financial institutions, real estate players in India may continue to face liquidity problems in the near future due to global credit crunch and unfavourable stock market conditions for raising capital.

What’s more, bankers say they may now get more cautious towards lending to real estate developers. “Real estate companies have many projects at hand and the sales have been constantly dwindling. Analysing these sentiments, any financial institution will be cautious. Remember, during monsoons, housing sales come down and banks may have to consider increasing interest rates further in future,” says HDFC Bank chairman Deepak Parekh. State Bank of India (SBI) is no different. It is also contemplating similar measures. “We are not sure for how long the current volatility will exist in the realty market. Also, banks need to maintain their reach among their clients. However, it is possible that all banks may sanction loans to only those developers with whom they have had a long relationship,” says a top SBI official.

Industry experts feel the only avenue available for raising capital in the current situation is at the project SPV level and by way of private equity or similar sources, which is generally the most expensive method of raising capital and has limitations on the over all extent of financing that is required. “Concerns about liquidity will continue to plague the market since debt will not be easily available. Real estate players had traditionally raised money from debt funds via corporate deposits and commercial paper. However, debt funds are currently not eager for more exposure in real estate and are continuously rolling over the debt advanced to these players. The primary source for institutional funding will, therefore, now be private equity,” says JLLM chairman & country head Anuj Puri.

Chennai's realtors skid on fuel price hike, inflation

CHENNAI: Promoters of ongoing real estate projects, worth over Rs 4000 crore, are reworking their pricing strategies as rising inflation and the fuel price hike have pushed up input costs.

Steel prices, already northbound, has shot up by over 30 per cent since fuel costs went up, Builders Association of India office-bearer MK Sundaram told reporters.

Transportation has become more expensive with petrol costing Rs 5 more per litre, and diesel Rs 3 more. Other items like sand are dearer by nearly 40 per cent, he said.

The situation has been trickier for promoters by the 8.24 per cent inflation that many had not factored into their contracts.

Subsequently, cost overruns have become common, and several projects have become unviable. With contractors beginning to lose money, Sundaram said some projects have had to be deferred and labour laid off.

"Who will buy a flat pegged at Rs 2,500 a sq ft at double the price when the cost of funds also go up while salaries don't?" Sundaram asked. "The price hikes have hit the industry hard."

Construction major HIRCO, which has a huge project under way in Chennai's southern suburbs, is likely to rework prices for sales of completed projects by at least 20 per cent, company officials said on condition of anonymity.

"We will have to assess the sentiments of buyers, especially in the light of rising cost of funds and several other fiscal parameters," a HIRCO official said.

While the HIRCO project, spread over 500 acres is expected to have a total outlay of at least Rs 800 crore, Puravankara, another construction major, has at stake a project worth Rs 3 crore at current prices, according to independent estimates.

Other construction projects - Chennai's version of London's Tube and flyovers - may also suffer due to huge cost overruns, industry sources said.

Chennai Metro Rail Limited - a public sector company owned by the state government - has worked its cost at a little under Rs 1000 crore at current prices. This could go up by at least 50 percent when work begins in 2009.

And, by the time it's completed in 2014, the cost may have escalated 300 percent, sources at Larsen and Toubro, another construction major said.

The reasons are not difficult to fathom.

The Tamil Nadu government's takeover of sand quarrying, citing profiteering by private contractors, resulted in a temporary shortage, sending prices higher by almost 45% within a span of two months.

The fuel price hike has only worsened matters.

Present indications of a further fuel price hike may render several projects financially unviable, said non-resident Indian financial expert R Rao, currently on a visit to India from the US.

"We seem to be planning for day before yesterday. Lack of infrastructure and short-sighted planning render whatever is created financially unviable," Rao told IANS. "Consumers do not get their money's worth."

Mumbai builders in dire trouble

Finally the bubble bursts. I expect atleast a 25-30% correction in the market as people begin to walk away from their highly priced apartments.

MUMBAI: After raking in phenomenal profits since 2004, builders, including some top guns in the industry, could be headed for serious trouble with the real estate market sliding rapidly.

Sources in the construction industry, financial institutions and individual investors have told TOI that several builders have started defaulting on interest payments and some of them have backed out of commitments to purchase land. Many builders are facing a liquidity crunch as sales of apartments are in a state of virtual stagnation. Moreover, politicians who had parked their slush funds with builders are now asking for their money back.

Information gleaned through these sources points to a dismal scenario set to unfold in the coming months. As one property expert who tracks the market minutely put it, “The real estate market has now moved from being under stress to a completely distressed condition.’’

A plethora of recent cases seems to back up this claim.

A leading Mumbai-based developer who belongs to one of the country’s leading construction families has backed out after offering Rs 700 crore to purchase the 18-acre Hindustan Composite land at LBS Marg in Ghatkopar. It’s learnt that the same builder has also walked away from buying 3.5 lakh sq ft of the Pramanik Landmark land in Goregaon after having made an initial payment of Rs 40 crore.

This builder, who has constructed landmark buildings at Colaba, Peddar Road, Prabhadevi and the far-off western suburbs, is believed to have overstretched himself with an exposure of Rs 1,200 crore in the form of loans taken from banks and private individuals.

TOI has also learnt that a Delhi-based construction giant which was in negotiations for a 100-acre chunk of land at Kanjurmarg for about Rs 1,000 crore has suddenly turned around and said that it’s no longer interested.
Another Delhi-based developer, currently undertaking a massive redevelopment project near the western express highway and also redeveloping a BEST bus depot, is facing difficulty in servicing its loans. “This company has started defaulting on interest payments to its bond holders,’’ a source said.

A Mumbai-based developer, who recently purchased a plot in the Bandra-Kurla Complex for a phenomenal price, may also end up burning his fingers, say market sources. A confidential report prepared by a private bank, which was accessed by this newspaper, shows that this builder has a total loan exposure of almost Rs 3,000 crore. “He is finding it difficult to find tenants for his buildings. Even if he were to sell office space outright, he would have to sell it at a minimum rate of Rs 54,000 a sq ft. This is not possible because the record price in BKC today has not surpassed Rs 35,000 a sq ft,’’ said an industry source.

Another construction company that may have overstretched itself is a south Mumbai property redeveloper, said a market insider. “His permissions are coming in very slow and he is faced with huge overheads,’’ he added.

20 km in 2 hours.

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It happens only in Mumbai: 2 hours to cover 20 km!

June 13, 2008
Much has been written about Mumbai's pathetic road conditions.

It may be the country's richest city, and toasted as its commercial capital, but the cold fact remains that it is a city that is unable to build roads that can withstand its annual date with the monsoons.

Mumbai's municipal corporation boasts of a budget that is said to outstrip that of many smaller states, but no amount of money, it seems, can ensure roads that won't fail in the first showers of the season.

It's an annual tradition, Mumbai-kars know, for their civic bosses to reel off statistics to show that this time round they are better prepared for the rains, the roads will hold, there will be no flooding etc. Every year these tall claims unfailingly get washed away in the rains.

But rather than expend words to portray the agony of Mumbai's road commuters, Rediff.com's Rajesh Karkera and Saisuresh Sivaswamy decided to videograph their journey from home to work, a distance of around 20 km which, in any other city, would take around 30 minutes. On a 'normal' day they are happy if they cover the distance in one hour; now that the rains are here, the journey has taken them even 3 hours.

On Wednesday the duo set out as usual in the morning with a video camera, and this is their record.