Property agents turn auto drivers and fish sellers

The rats are the first to escape a sinking ship. Who will be the last man standing ?? Speculators, black money lenders, banks or builders ?

Ground realty put him in the rickshaw driver's seat

The Metro project and recession brought a slow death to Sediq Sharief's real estate business, reports Malvika Tegta

It's 10.30 in the night. We size up a "gang" of auto drivers from a distance, ready for tough negotiation. A young man of 24 gawkily takes visual cues from the seniors and gestures at us to hop into his autorickshaw. But the way Sediq Sharief double-checks directions is a giveaway: he is just two months into the profession and still discovering the city's insides. Almost a year ago, Sediq lived without a care, worked on an average of 10 hours a month and made a neat Rs20,000. That was till the real estate sector slumped, as the airport went the Devanahalli way, the Metro branched into the interiors of the city and the recession dealt the final blow.

Sediq's smooth moving real estate business soon got traded with the auto. Today the shutters are down on his five-year-old office on Artillery Road and its signboard gathers dust in some distant garage. He is out driving the auto from six in the morning to 12 noon and then again four in the afternoon to one in the night. At the end of the grind, he is left with a paltry Rs150-200 to live another day. But the one thing that has remained constant "since childhood" is the need to be his own boss. "I could have done other jobs too, but when you drive an auto, there's no one telling you what to do," he says. Property rates in his domain – Airport Road, Cambridge Layout, Koramangala, Ulsoor and Indiranagar — have crashed by "close to 50%." "There was a time when there were no sellers and only buyers; today there are only sellers and no buyers," he says. Call centre employees, the chunk of his clientele, went from "preferring to stay in middle class areas rather than high-end neighbourhoods like Airport Road or Koramangala" to not calling at all.

Metro only made things worse. "Four agents and I had sealed a deal for Rs65 crore. I would have got close to Rs10 lakh as commission in that one deal alone, but when the government marked a part of the property to be cut later for the Metro, the buyer opted out," he says. Sediq's business had taken him a year to set up, all on his own. "Dealing in houses requires links and a strong network," he says. After one year of getting into the chain of brokers, he said his life was free and there was never a thought spared on how much he spent in a go. Now he feels chained and responsible to earn for the other four members of his family, only one of whom works. Unlike the days when he used to wake up at 10, he now gets up at 5.30 am and goes to bed at 1.30 am, the little sleep he manages being a troubled one at that. He has parted ways with five of his friends who "began to look down on him". As an auto driver, "everyone considers you dirt and even abuses you."

Other switchovers
Sediq Sharief isn't alone in this. Five friends of his have either taken to driving autos, welding, driving oil carriers or opening up tea stalls.

Munnabhai, a broker friend from Coles Park, has left for Bombay to open a boutique there. Kumar, who used to deal in properties worth "lakhs and crores", now runs a "chai shop". Syeed Rehan, known famously on Artillery Road as Mahboob Bhai, now sells fish. "After my shop closed, my income has gone down by Rs10,000-15,000 a month," says Syeed. "Everything has changed, par ghar to chalana hai nahin to bhooke marenge."

Abdul Qader, a property dealer from Ulsoor, has also turned to auto driving. "I earn close to Rs12,000 a month, out of which I pay Rs6,600 monthly as rent for my auto," he says. He had also invested Rs5,00,000 that he got from a property deal in a property, the price of which fell, fetching him a payback of Rs2.5 lakh. The news in the market is that things won't look up anytime before five years. "Par ummeed hai," says Mahboob Bhai.

Roubini interview with Maria Bartiromo

Roubini interviewed by Maria Bartiromo for her Business Week column:

January 7, 2009, Business Week

Columbia's Amar Bhidé and NYU's Nouriel Roubini "When you have an integrated global economy…there are not many places to hide because markets [and economies] become correlated"

By Maria Bartiromo

A year from now we may look back on this column and thank heaven that not all of its grim predictions came true. But don't bet your kid's lunch money against Nouriel Roubini. A professor of economics at New York University's Stern School of Business and chairman of the consultancy RGE Monitor, Roubini in 2006 predicted the housing bust and an ensuing recession, among other on-the-money calls. And he says the worst is still ahead. Amar Bhidé, a professor of business at Columbia University, is a former McKinsey executive, a staff member for the commission that investigated the stock market crash of 1987, and author of the new book The Venturesome Economy: How Innovation Sustains Prosperity in a More Connected World. He, too, expects a trying year ahead. But beyond the black cloud hanging over America, he sees a country chastened and an economy strengthened by the ordeal.

MARIA BARTIROMO Where are we right now in this economic slowdown?

NOURIEL ROUBINI We are looking at the most severe U.S. recession in the last 50 or 60 years, both in terms of length and depth. Every piece of economic news that's come out in the last few weeks and months has been much worse than expected, from employment, holiday sales, capital spending by the corporate sector, the continued collapse of residential real estate, and a weakening even of the trade balance, so the rest of the world is also contracting.

You say we are looking at a deep and possibly multiyear recession in America; an additional 15% drop in U.S. home prices; painful recessions in Europe, Canada, Japan, and other established economies; a sharp slowdown in China, India, Russia, and Brazil; and possibly default by some emerging-market countries. Can anything stop this locomotive bearing down on us? The only positive news I see is that the policy response, both in the U.S. and in other countries, is going to be quite aggressive. But in my view, that policy stimulus is going to have most of its effects in 2010. And the cost of issuing a huge amount of public debt will be trillion-dollar budget deficits this year and next, which eventually is going to have a crowding-out effect on private demand. So either we issue a huge amount of public debt to finance it, and that's going to push up interest rates, or we print a lot of money that eventually is going to be inflationary and again damaging to the economy. We have no choice but to have an aggressive policy response, but it's not a free lunch.

In a new article in Foreign Policy, you suggest that corporate earnings will shock any equity analysts still deluding themselves. Where will the Dow be at midyear? I see it about 20% below current levels. Same for the S&P.

How many jobs do you think will be lost in 2009? I expect job losses of at least 2.5 million.

How much confidence do you have in the new economic team that President-elect Obama has named? I think folks like Tim Geithner, Larry Summers, and others are as good as you can get. But the problems they're facing are so vast that even the best economic team and the best economic policies are not going to start having an effect until the end of 2009 [or beginning of] 2010.

Do you think criticism of how Hank Paulson and his team have handled the crisis is fair? It was a very tough situation, of course, but I think that the policy response by Paulson has been relatively confused, not credible, and inconsistent. So I give them a low grade in terms of performance.

As an investor, what do I do in this scenario? Safe assets such as government bonds are the place to be until midyear when we see whether the fog of uncertainty clears in the direction of a recovery.

And keep as much of my assets as possible in cash for the near term. Absolutely.

Are there any areas escaping this upset? Are there any places to hide? Unfortunately, when you have an integrated global economy with trade and financial links, there are not really many places to hide because markets become correlated, and economies become highly correlated.

Do you see any positives coming out of this crisis? The U.S. has been living in a situation of excesses for too long. Consumers were out spending more than their income and the country was spending more than its income, running up large current-account deficits. Now we have to tighten our belts and save more. The trouble is that higher savings in the medium term are positive, but in the short run a consumer cutback on consumption makes the economic contraction more severe. That's the paradox of thrift. But we need to save more as a country, and we have to channel more resources to parts of the economy that are more productive. And when you have too many financial engineers and not as many computer engineers, you have a problem.

What do you advise students coming out of school? I think this country needs more people who are going to be entrepreneurs, more people in manufacturing, more people going into sectors that are going to lead to long-run economic growth. When the best minds of the country are all going to Wall Street, there is a distortion in the allocation of human capital to some activities that become excessive and eventually inefficient.

---

MARIA BARTIROMO Nouriel Roubini paints a pretty dire picture of the year ahead. How deep and painful will this recession be?

AMAR BHIDE For some people, extremely painful. For almost everyone, anxious. But I think most people will come out of it fine. In a book I wrote in 1999, I said: "We're in the middle of an Internet bubble, and it's all going to blow up, and it's all going to come to a bad end." After a dinner talk I gave, I was taken aside by a Merrill Lynch broker, and he said: "Look, you may well be right, but nobody became rich in America being a pessimist." And he was dead right. The Internet bubble did blow up, and some people lost their shirts, but the overall process of economic growth and increased prosperity stayed in place. People will redouble their efforts to be more innovative and efficient....

Maria Bartiromo is the anchor of CNBC's Closing Bell.

New York Real Estate Outlook: Mega-Crash

Here is Henry Blodget, the analyst who put a $600 target on Amazon summarizing Goldmans latest analysis on NY real estate. On similar lines Mumbai should crash as well. No more excuses including the followng will be able to prevent this steep drop. Lack of land availability, density, growth, 20 million population, migration, jobs, stock market, diamond market, financial center, Reliance, black money.

Henry Blodget January 8, 2009 4:31 PM
Lockhart Steele at Curbed summarizes Goldman's latest tome on the New York residential real-estate market. . Here's our summary of his summary:
Look out below.
Curbed:
Goldman: "New York apartment prices are very high relative to the observable fundamentals. Using three alternative yardsticks—price/rent, price/income, and affordability—we find that prices would need to decline by 35%-44% to return to the valuation levels seen in the 1995-1999 period, before the start of the recent boom."
Goldman: "Under the (admittedly unrealistic) assumption that prices decline by the same percentage in each market segment, this type of drop would imply that a 1-bedroom condo whose price currently averages roughly $800,000 would decline to $480,000; a 2-bedroom condo would decline from $1.7 million to $1 million; and a 3-bedroom condo would decline from $3 million to $1.8 million."

Goldman: "It is instructive to consider the potential implications of a return of relative Manhattan incomes toward the national norm prevailing before the Wall Street boom of the past two decades, either because of pay cuts in the financial industry or because of a possible out-migration of affluent individuals. From 1969 to 1986, Manhattan per-capita income averaged 2 times the national average, with no clear trend. Over the next two decades, however, it grew to 3 times the national average. If incomes fell back to the pre-1986 level of 2 times the national average—and if national per capita income remained unchanged—prices would need to fall as much as 58% to return to the 1995-1999 price/income ratio.
Goldman: "In addition, it could be that societal and demographic changes will keep New York apartment valuations above the levels that prevailed in earlier periods. For example, one might argue that the memory of high crime rates was still fresh enough in 1995-1999 to make this period an excessively pessimistic benchmark. If crime stays low during the current economic downturn, perhaps Manhattan real estate will retain its higher valuation in coming years. Alternatively, one might argue that the aging of the baby boomers will continue to support the New York market as "empty nesters" want to live closer to the city's attractions. These types of arguments are difficult to quantify and are often heard just prior to the start of a real estate downturn, but they do underscore that our analysis of the observable data on prices, rents, incomes, and interest rates only provides a very partial view of the New York apartment market."
FUN SCARY BONUS GRAPHIC:

Satyam land scam

Leverage gone bad. As I had said, black money operators have been "sub-primed". Expect more of the same as the unwinding continues.

Economic Times reports.
Thanks to Observer for the link

Politics-property combo may have trapped Raju

MUMBAI/BANGALORE: An audacious real estate play is seen as the backdrop for the 54-year-old B Ramalinga Raju’s sudden exit from Satyam Computer
Services, India’s fourth-largest IT company.

The Raju family, said real estate industry sources, might figure among India’s top 10 landlords as it had embarked on a massive land-buying strategy to cash in on the real estate boom in recent years. While the family holds over 6,500 acres through Maytas Properties, the individual members in their personal capacity have significant holdings of agricultural land across south and western India, industry officials said.

Industry and banking sources said the Rajus leveraged their ownership of Satyam, both in terms of shareholding and management control, to fuel other businesses. In fact, one banking source surmised that a key reason for cooking the books could have been to leverage the bull run in the Satyam stock before the market meltdown in the second half of 2008.

The promoters may have needed cash for land acquisitions, particularly around their infrastructure projects that were won on the back of ‘goodwill’, according to these sources.

So how did the Rajus land up with a severe liquidity crunch? One of the theories doing the rounds suggests they were trapped by a murky cocktail of political developments and a real estate crash. In the recent past, Maytas Properties and Maytas Infrastructure had won a number of prestigious projects.

These include the Hyderabad Metro Rail project, Machilipatnam port project and airport projects in Andhra Pradesh and Karnataka. In return, prime land near some of these projects had to be ‘offered’ to the supportive establishment. Several real estate sources claimed there were some instances of Maytas being awarded road projects even without proper bidding. However, ET could not confirm all this independently at the time of going to press.

With the real estate story turning sour, political circles were said to have demanded funds from the family instead of land. “Upcoming elections may have also forced members of the establishment to change their preference from land to money which put them in a fix,” said a Hyderabad-based developer.

Observers said Raju’s sudden admission of fraud had compelling reasons, and was probably done under external pressure to thwart bigger revelations.

In this context, it must be mentioned that Delhi Metro managing director E Sreedharan had called Hyderabad Metro Rail project a “future political scam”. He had objected to the way the government allowed the private consortium to develop land commercially.
Some other rumours floating in Hyderabad claim Satyam’s promoters raised huge funds from tobacco traders in Rayalseema district by pledging Satyam shares. The promoters may have assumed that they would be able to raise funds to recover the pledged shares through an IPO of Maytas Properties. But the downturn in the real estate market derailed Maytas’ IPO plans leading to the promoters being unable to meet margin calls on Satyam shares.

Slumdog Billionaire - Truth be told

"The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones," Raju said in his letter. "I am now prepared to subject myself to the laws of the land and face consequences thereof."

If there is someone who knows to tell a dramatic story, it is B. Raju. Thanks to Anon for the post where the Satyam CEO announced in painless detail the Satya(m) of the balance sheet. Satyam as most employees will attest is a sweat shop. Employees in the US work ridiculous hours and get peanuts for all their efforts. I'm not sure how employees in India are treated. It goes without saying that Satyams's customers will switch to other outsourcing companies and I wont be surprised with US based companies get the right to choose customers as opposed to the India big three. It also looks like we can easily see a layoff of 50% of the workforce in Satyam. What happens to all the mortgages which have been sunk into Hyderabad real estate ? As we saw the stock market took a beating down 750 points, Satyam investors have been wiped out. This is just beginning to get ugly. Maytas and Satyam will be remembered as Worldcom and Enron. The last straw which broke the market's back. Wonder how many more books are cooked by Indian management. The auditors are a joke. God save outsourcing.

Here is good analysis on how the books were cooked.

Here is Raju's candid letter to the SEC. Without regret or remorse, the criminal has bankrupted the company he has founded and will bring Hyderabad to its knees.

Satyam Chairman Fraud Confession

View SlideShare document or Upload your own.

Strong headwinds ahead for outsourcing vendors

Its amazing how much critical mass we have amassed on this blog that real estate folks are now watching it with some more scrutiny.

I appreciate all bouquets and brickbats on behalf of the bulls and bears since this platform is only as worthy as its readers and commentators. Observer, BindasBhai, Shailesh, Shrinwas, Anil, Jayaram, M and others who I've missed deserve credit for their comments.

The goal of this blog to cut beyond the marketing hype perpetuated upon us by the builders thru the media. I am tired of reading soft-marketing articles planted in the newspapers/web which tout moronic analysts quoting the usual bullish rhetoric for real estate.

Just three months ago we heard the FM saying we will grow by 9%. I don't know how a crystal ball gazing FM can make such ludicrous predictions. As soon that the FM makes a prediction all the touts latch on to it and make the rest of us believe that growth will spur demand for real estate/stocks etc. Now when the FM changed his forecast to 6%, who will compensate those investors/buyers who predicated their purchases on this crystal ball ? We all all herd at the mercy of the big bad wolves. If only we can understand this, maybe we will know opportunities arise when sentiments change from euphoria to depression. It is only then when money will regain its worth and gold is found.

I'm not predicting a depression in real estate, however I'm saying a serious correction is in progess and any purchase now without a major discount is just bad investment. It is not often that a buyer is in a driving seat but now is the time to bargain hard and get value for your hard earned money.

The bottom line is cashflow, yield, affordability, credit availablity and job security to sustain any boom in any sector. As of today the Sensex is up 300 points. We'll see how long this rally lasts.

Business Standard reports.

Slowdown to shift focus to hard asset-intensive biz: Tholons.

New Delhi, Jan. 5 The global downturn is expected to impact the growth and margins of the vendors in the outsourcing space for the first 2-3 quarters of 2009, before picking up and ending the year on a stronger note as clients look to cut costs and improve revenue, advisory firm Tholons said.

According to its latest report, ‘Top ten trends in service globalisation — 2009’, the slowdown would also see reduced number of start-ups in the services sector as the focus shifts to sponsoring hard asset-intensive businesses.

“There are strong headwinds for vendors in the outsourcing space … It has become increasingly clear that the downturn is impacting revenue and we expect most large firms will see a decline in the quarter-on-quarter earnings,” it said.
Impact already felt

Service providers have already started feeling the effects of decreased margins and employee downsizing, while buyers are reducing IT budget allocations for outsourcing engagements. This is evidenced by drying pipelines, cancelled bookings and increased pressure to deliver value beyond cost.

“Buyers will need to re-assess their outsourcing strategies and implement a better mix of multi-sourcing, combining nearshore and offshore models, while service providers will look to tap growing domestic markets such as China, India, Argentina, Brazil and even the US as a means to hedge against the volatility of existing offshore contracts,” Mr Avinash Vashistha, Global Managing Partner & CEO at Tholons, said.

Clients, with reduced IT budgets, are expected to turn more selective, demanding greater contractual flexibility and output- or result-based payment schemes.
Eye on opportunities

Terming 2008 as a “tumultuous year for outsourcing”, Tholons said that although it continued to advise clients to remain cautious this year, it did not discount the opportunities and potential evident in the market.

It further said that the global downturn is motivating service providers to focus on recession-proof industries such as healthcare and education. “The healthcare industry globally has been a good adopter of global outsourcing in the last couple of years and we see this trend continuing on a steep curve as we look towards 2015,” says Dr Garima Vashistha, President (Healthcare) at Tholons.

Other sectors like manufacturing, retail and telecom would start to look attractive as they come under pressure to reduce cost drastically to survive.

Consolidation in the financial sector is inevitable due to the global financial crisis. Increased merger and acquisition activity in the financial sector would also mean that merged entities would want to integrate their outsourced services — leading to an increase in spending for integration projects — software applications, data centre consolidation and tighter integration of other operational platforms.

With financial institutions such as Lloyds TSB/HBOS and Bank of America/Merrill Lynch merging, service providers would also find themselves bidding against incumbent transnational rivals like IBM, Accenture and HP-EDS for several large-scale integration contracts (valued anywhere between $500 million and $1 billion over five years). Pricing pressures would kick in as suppliers scramble to meet their quarterly target through the year.

Large India-based providers are expected to see EBITDA margins plunge below 20 per cent over the next three years, as they move more IT projects offshore (mostly to India), and struggle to balance operations with rising wages, Tholons said.

Jobs, Stocks and Real estate - A tale of two Valley's

Many comments to my previous post pointed out to the worsening job market with layoffs and hiring freezes the order of the day in the US and India. Its no suprise then that stocks markets in both places have taken a beating anticipating a downturn and restricted credit availability due to lack of credit worthiness. Why will a bank lend 300k to someone whose job in on shaky ground ? Over the holidays I met few friends and we discussed this issues and I heard horror story after horry story on how Indian Hi-Tech engineers who have purchased housing over the past 3 years are well under 200k of their purchase price. Now many of the folks are getting laid of and it is not a pretty sight.

I met another friend of mine who is a manager in a top networking company. He said all across the company they are retrenching contractors and he has lost 50% of this contract staff over the last month. No guesses for figuring out the name of this offshoring company - Infosys. When we add up the loss of revenue for all the retrenched onsite Infosys employees who are billed at $115k but paid between 60-80k, the final number is pretty omnious. Add to that the loss of offshore resources which are retrenched who will swell the bench strength to levels not seen ever. It doesn't take a genius to figure out that the guidance from management going forward will be poor. Based on the drops in marigns I expect we can easily see a drop of 50% in the Infy stock price. Buying an April 09 put at $15.00 for 0.75 cents is probably a worthwhile risk taking play. If one is more risk averse maybe the 20$ put works better.

Its a nobrainer that the stock market in India will take a beating once these numbers are announced. All the suckers who have bought the market thinking the RBI stimulus will boost the economy will again get massacared.

The loss of jobs, leading to the decline of the stock market will logically lead to a drop in real estate. All the RBI rhetoric to lower rates will yield no effect if the job situation is dismal. We have to realise that the Indian bubble was fuelled on the legs of a strong job market and low credit rates. Now the market has lost one of its legs. As the author of the world is flat argued, A housewife in Japan is saving more then average and financing the housing boom in the US which in turn financed the tech industry which financed the offshoring contract shops. With the US housing turning on its back, there is an upheaveal to be felt by all the downstream interconnected companies which in turn has to effect jobs in India and subsequently housing.

All the decoupling morons have been proven wrong and this anecdote vindicates the simplicty with which markets can operate without all the bumbo jumbo math of CDO's

Thanks to anon for posting this video

Barons article on the Indian stock market. Says wait for 15 months. They definitely have a crystal ball

http://online.barrons.com/article_print/SB123094654808750783.html?mod=9_0031_b_this_weeks_magazine_main

Saturday, January 3, 2009

Why India Won’t Rebound Soon
By VEN RAM

India’s stock market may look attractive after its massive slide, but there’s probably more pain to come. A host of economic and political challenges could keep a new bull market at bay for more than a year.
FOR THOSE TEMPTED TO WADE INTO THE INDIAN STOCK MARKET with a view to making a quick killing after its massive slide, consider the advice that Punch magazine once gave a person who was about to marry: Don’t.

Although India’s benchmark Sensex has fallen about 55% from its peak a year ago, the market is still not attractive as a short-term investment. November’s terror attacks in Mumbai aren’t even the half of it: The Indian economy, valuation issues and broad political uncertainty all argue for real caution…

“Even as absolute valuations have corrected, India’s relative valuations remain rich,” says Ridham Desai, India Strategist at Morgan Stanley. The market’s price-to-earnings multiple, based on expected earnings for the next 12 months, is 60% higher than that of emerging markets as a group. And its price-to-book ratio is a whopping 72% higher.

India fares no better on the dividend-yield front. The roughly 2% dividend yield on the Sensex pales in comparison to what is available in some of the more advanced economies. The dividend yield for the Australian market, for example, is an eye-popping 6.5%, while most other regional markets offer yields well north of 5%.

Seshadri Sen, Associate Director, Research and India strategist at Macquarie Capital Securities, says that even though the Indian markets are trading at just nine times forward earnings, investors need to exercise caution in interpreting that multiple.

“With all the earnings cuts that we have seen from companies, what appears cheap may not be so,” he says. “We are seeing a fairly sharp slowdown in the economy, but it remains to be seen whether the markets have discounted all the bad news that is in store.”

…

The Bottom Line:

A new bull market in India may be at least 15 months away, thanks to a host of economic and political challenges.

Here is an article on a AAA rated housing loan which was sold at 10 cents on the dollar

The Mortgage Crisis, Explained

Michael Phillips of the Wall Street Journal tells the story of a shack in Arizona owned by a woman who hasn't worked in 13 years that was valued at $130,000 two years ago by a crooked appraiser and mortgaged by a broker who was paid $10,000 in fees and took no loan risk.

Then Phillips tracks the loan through Wells Fargo to HSBC, where it was packed into a mortgage-backed security, rated Triple-A by Moody's and S&P, and sold to, among others, the Oklahoma Teachers pension plan and PIMCO.

Happy new year and hurrah for 2008

Tis the time of the year to reflect on the year gone by and to plan ahead. As most people will agree 2008 was the year to bury leverage for good. Borrowers with good credit saw rates go up regardless and there were no prizes to be won for being a good kid and being frugual in your livestyle. Everyone got hit pretty bad. The difference being that the prudent investor still can rebound whenever the market turns, however the speculator is bankrupt and will have to restart his life from scratch to recoup the money back lost in the de-leveraging process.

2008 also put an end to the lot of myths about real estate
1. Real estate never goes down. Oops it just did.

2. Black money will support the market. Oops Black money speculators lost heavily in the market.

3. NRI's will come in droves. Oops NRI's lost jobs and returned back with empty pockets thanks to the decline in their 401k's and stock investments

4. Outsourcing will increase inspite of US downturn. Another big OOPS. With the collapse of Wall St. institutions, the need for systems engineering has collapsed as well. Add to that except for the top 4 outsourcing vendors, none can differentiate themsevles in any way and are competing by lowering prices. We all know what happens when prices go down!!

5. Sensex was supposed to hit 25000. Oops it closed at 9600 for 2008. If one takes the closing Sensex of Dec 31st 2005 of 9300, we had a massive gain of 3% over 3 years, annualized at 1% per year. Fantastic achivement by any standards, Dalal Street Einstiens.

As we move into 2009 I'm expecting the following for Indian real estate.

1. RBI will cut PLR to get loan rates to 2004 levels.

2. It is best to buy property nearing completion from investors. There is no point in buying directly from the builder when there are thousands of flats which are held by bleeding speculators.

3. We will see investors dumping flats as their jobs situation worsens. US is going thru major layoffs and that will have an effect on the Indian market was well. Some work will get outsourced but that gain will be compensated by the loss of Wall St business, some of which have closed for good. We will see layoffs and paycuts in the Indian industry in general, IT or otherwise.

4. NRI's who plan to live abroad will dump their holdings in India. It is cheaper to buy primary or investment property in the US with a better rental yield and lower mortgage then to keep their holdings in India. 2009 will bring out all these rats out of their holes.

5. Media will keep proping prices by issuing advertorials. The more research the buyer does the better. If it sounds too good, stay away. If they promise you the moon, you will get to live on it.

6. All the Abdullah's and Bindas Bhai's of India, cannot prevent humpty dumpty from having a big fall yet again in 2009. 2008 was the year of denial. 2009 is the year of acceptance.

To all the readers, commentators, bulls, bears or otherwise Have a Happy, Safe and Prudent 2009. We all learn from the collective knowledge, information and opinions we share. Happy posting.

Outlook money article on the real estate meltdown

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

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

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

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

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

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

Builders ask govt to buy unsold flats

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

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

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

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

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

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

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

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

How India Avoided a Crisis

NYTimes article on what could have been a super inflated bubble in real estate. The article reproter fails to mention that black money and corruption was responsible for the spike in prices. Reddy left the private equity folks, hedge funds and "Black Money" to take the risk of escalating land prices. These folks are the sub-prime of India. Not the bank.

“What has taken a number of us by surprise is the lack of adequate supervision and regulation,” Rana Kapoor was saying the other day. “This was despite the fact that Enron had happened and you passed Sarbanes-Oxley. We don’t understand it. Maybe it’s because we sit in a more controlled economy but ....” He smiled sweetly as his voice trailed off, as if to take the sting off his comments. But they stung nonetheless.

Mr. Kapoor is an Indian banker, a former longtime Bank of America executive with a Rutgers M.B.A. who, along with his business partner and brother-in-law, Ashok Kapur, was granted government permission four years ago to start a private bank, which they called Yes Bank. In the United States, Yes Bank is the kind of name a go-go banker might give to, say, a high-flying mortgage lender in the middle of a bubble. (You can even imagine the slogan: “Yes is part of our name!”) But Yes Bank is not exactly the Washington Mutual of India. One news release it hands out to reporters who come calling is an excerpt from a 2007 survey by The Financial Express: “#1 on Credit Quality amongst 56 Banks in India,” reads the headline.

I arrived in Mumbai three weeks after the terrorist attacks that killed 200 people — including, tragically, Yes Bank’s co-founder Mr. Kapur, who had served as the company’s nonexecutive chairman and was gunned down while having dinner at the Oberoi Hotel. (His wife and two dinner companions miraculously escaped.)

My hope in traveling to Mumbai was to learn about the current state of Indian business in the wake of both the credit crisis and the attacks. But in my first few days in this grand, sprawling, chaotic city, what I mainly heard, especially talking to bankers, was about America, not India. How could we have brought so much trouble on ourselves, and the rest of the world, by acting in such an obviously foolhardy manner? Didn’t we understand that you can’t lend money to people who lack the means to pay it back? The questions were asked with a sense of bewilderment — and an occasional hint of scorn. Like most Americans, I didn’t have any good answers. It was a bubble, I would respond with a sheepish shrug, as if that were an adequate explanation. It isn’t, of course.

“In India, we never had anything close to the subprime loan,” said Chandra Kochhar, the chief financial officer of India’s largest private bank, Icici. (A few days after I spoke to her, Ms. Kochhar was named the bank’s new chief executive, in a move that had long been anticipated.) “All lending to individuals is based on their income. That is a big difference between your banking system and ours.” She continued: “Indian banks are not levered like American banks. Capital ratios are 12 and 13 percent, instead of 7 or 8 percent. All those exotic structures like C.D.O. and securitizations are a very tiny part of our banking system. So a lot of the temptations didn’t exist.”

And when I went to see Deepak Parekh, the chief executive of HDFC, which was founded in 1977 as the country’s first specialized mortgage bank, practically the first words out of his mouth were these: “We don’t do interest-only or subprime loans. When the bubble was going on, we did not change any of our policies. We did not change any of our systems. We did not change our thought process. We never gave more money to a borrower because the value of the house had gone up. Citibank has a few home equity loans, but most banks in India don’t make those kinds of loans. Our nonperforming loans are less than 1 percent.”

Get Real : Times of India editorial

The newspaper which prints "Property Times" and subtly promotes real estate bulders through carefully planted advertorials is now playing to the public sentiment. Alas we know TOI is the wolf in the lamb's clothing. As soon as prices drop 10% they will be back with articles promoting how people are lapping up properties by the dozens. Whether it is in god-forsaken places is another matter. What they care about is advertisements from builders. In a city of 20 Million like Mumbai, if 200 people buy an apt in Khandeshwar, Karjat or Panvel, far flung exhurbs in Mumbai it makes front page news. So much for the grand old lady of the Bori Bunder.

Real estate is one boom-gone-bust that's proving hard to tackle. At the government's prodding, public sector banks recently offered concessional
interest rates on new home loans up to Rs 5 lakh and between Rs 5 lakh and Rs 20 lakh. This was welcome, save that discretionary lending could still thwart loan aspirants. Also, the rates weren't retrospective, giving existing borrowers cause to grumble. As a palliative, the government appealed for lower floating interest rates. Its efforts paid off. State Bank of India, the country's largest bank, is to offer cheaper loans. Earlier, HDFC, India's largest private mortgage player, announced cuts in home loan rates for both new and existing borrowers. ICICI also hinted at reductions. So the soft rate trend is emerging in major private loan disbursing institutions as well. Reportedly, other realty-boosters under the government's consideration are an external commercial borrowing window, a service tax cut and rationalisation of stamp duty on property deals.

Realtors must accept that their big margin-driven boom-time is over for now. Much of their woes are their own doing. They overbuilt assets, riding on a bubble. With depressed demand, they continued to expect unrealistic profit margins. And now they're resisting top-end price corrections. Inflated asset prices are such that even the moneyed are sweating over purchases in tier-I and tier-II cities. Shifting gear from luxury and high-end to mid-level and affordable housing is required. Demand for low-cost housing is massively unmet; the potential for investment here goes beyond the context of today's economic downturn. India's young demographic profile, rapid urbanisation and high savings rate can keep propping up the property market. But housing prices in some segments need to fall by as much as 30 per cent to match affordability.

However, difficult bank financing can hobble low-cost housing projects. Banks need to ease lending, for which they may have to lower deposit rates. Further rate cuts from the RBI would help. Also, apart from builders' pricing, the issue of artificial land shortage keeping prices up needs addressing. Some of realty's demands converting short-term bank loans to long term and rate cuts on home loans of all categories have grounds. Others are mad-hatter expectations, such as wanting a government buyout of unsold assets at current market rates. Realtors have sensibly refrained from formally soliciting any such morally hazardous bailout.

The health of real estate has strong macroeconomic multiplier effects, both in terms of contribution to GDP and employment generation. The more the sector is stimulated, the faster India's economic turnaround will be. The real estate sector has to get real about the changed market environment, doing itself, consumers and the economy a favour.

Bangalore: Builders Gasp while Buyers Wait with Bated Breath

Bangalore: Builders Gasp while Buyers Wait with Bated Breath
Sharath S. Srivatsa / The Hindu

* Discounts and freebies fail to work for the real estate sector which finds itself grounded by the economic downturn
* Developers are removing extra amenities to bring down the project cost
* Cancellation of bookings has gone up drastically in the recent months

BANGALORE, Dec 17: The real estate sector in Bangalore, affected by the recession, is in a dreadful situation.

A sector that was riding high on the economic boom till recently finds itself grounded by the economic slump.

This has left a large number of developers in the lurch even as customers wait with bated breath for the completion of projects.

The sudden downturn in the last three months has not only forced developers to postpone the launch of new projects, but also delay those under construction. The gap between demand and supply has widened as sales have come down in the last six months, and especially so from September.

“Let alone new launches, it will take a long time for the developers to clear the glut in the market. It will take a minimum of one year for the industry to overcome the slowdown even after measures have been initiated by the Reserve Bank of India (RBI) and Union Government,” an industry insider said.

Removing extras


In an effort to attract buyers, the developers are re-positioning the price by removing extra amenities to bring down the project cost. Though developers are offering discounts up to 10 per cent on the projects, some big companies, burdened with huge overheads, are struggling to bring down the rate.

A few developers are also offering plots along with a housing unit, an unusual move in an industry that has become price-sensitive.

Though figures on the number of unsold flats are hard to come by as no surveys have been taken up by the industry, sources estimate they run in tens of thousands. When the IT sector was bullish, the north-east, east and south-east parts of the city witnessed large-scale development — residential, office and retail — especially in K.R. Puram, Marathahalli and Sarjapur, as well as Bannerghatta Road, Kanakapura Road, J.P. Nagar and Jayanagar.

While the tightening money flow has hit the industry badly, analysts say the downward trend started with the Reserve Bank of India’s (RBI) increasing the risk weightage for the real estate sector a few months ago.

“The high risk weightage to real estate sector essentially meant cut-down on lending to the sector — both to developers and buyers, by the lending agencies,” said T. Venkatesh Babu, Senior Manager-Market Research at Nitesh Estates.

“Funds to the sector are choked as both developer and buyer found it difficult to secure loans. Several families have also postponed purchases due to the uncertain future. This has contributed to reduced sales, affecting project funding.”

Private lenders


With an estimated Rs. 2,000 crore locked up in the Bangalore market, many developers are scrambling to service their debts even as lending institutions have started recovering the loans. “Already some developers have defaulted on their loans; many have borrowed from private money lenders at exorbitant rates ranging between 24 and 36 per cent as they were unable to get institutional loan,” said M. Ramesh, Secretary of Builders’ Association of India –Karnataka.

He said that the plight of developers is so bad many of them have not only pledged their projects but also their residences to ensure completion of projects.

“An industry that believes time as the essence of any contract, schedules are not being adhered to even by big players,” Mr. Ramesh added.

Buyers too


While the builders found it extremely difficult to secure funding for their projects, many prospective buyers have failed to secure funding from the financial institutions and banks. “Cancellation of bookings has gone up drastically in the recent months.

These are mainly due to the fact that the buyer, who had already booked the flat by paying 10 per cent advance, does not get the desired funding from the banks,” confirmed a marketing executive of another leading real estate company.

In many cases, the executive said, the delay in completion of projects has caused anxiety among the customers.

“This is the case, especially among those who have bought flats from small builders, and are not sure when the project would be completed.”

According to secretary of Confederation of Real Estate Developers Association of India (CREDAI) - Karnataka S. Suresh Hari, “Genuine buyers have been affected by lack of availability of loans. The high taxation rate in Karnataka — close to 34 per cent — has also become a deterrent.”

The industry is hoping that the measures implemented by the RBI and Union Government will improve their fortunes by March.

If the sector does not begin to look up by then, the consequences may be disastrous.

Top city builders meet to discuss slashing prices

This meeting by the builders smacks of an oligopoly where these moneybags decide to raise or drop rates by consensus. The SEBI and other organizations should look into this meeting for price fixing and prosecute the ceo's of these companies. Imagine a meeting between Airtel , Vodafone and Reliance to decide on per minute rates. This is a cartel and should be accountable for monoplistic practices. The biggest irony of this article is the shedding of crocodile tears for the poor laborer who has seen his daily wages drop to 50rs from 150 rs. If these builders who prices apts for 50,000 per sq/ft , they can sure pay a half decent wage to someone who toils in the heat and sun, while these neo-rich bozos sip drinks in the comfort of a 5 star hotel

The 2nd bigger irony is blowing the trumpet of the Times of India, that they were the first to report on the price drops. While they reported price drops, they also reported why prices are going to go up and how 40,000 per sq/ft is real steal for a crappy apt in Bandra. Such irresponsible journalism has made the times of India, the toilet paper of India.


Nauzer Bharucha | TIMES NEWS NETWORK

Mumbai: At least half a dozen of the city’s top builders met at a prominent five star hotel in central Mumbai on Friday night to brainstorm about the one thing that has been worrying them for the past several months—how to kickstart the virtually stagnant apartment sales following the downturn in the real estate market.
Among the several issues discussed was the possibility of reducing prices of flats if it helps sales to pick up. According to industry sources, the Maharashtra Chamber of Housing Industry (MCHI), which has leading developers as its members, is expected to explore this possibility at its meeting on Tuesday, although the matter is not on its agenda. Already, some builders have informally reduced their prices between 12% to 20% in their projects in the suburbs.
However, Mohan Deshmukh, one of the developers present at the dinner meet, denied that builders can ever take an unanimous decision to cut prices. “Every developer has his own priorities and it is up to him to decide on a price cut. The MCHI cannot take a decision on their behalf,’’ he said.
Although the property market began to flatten out about 18 months ago, Mumbai’s builders, by and large, have managed to hold on to their prices. Between 2004-2007, home rates shot up between 100% to 300% on an average, going up to 500% in certain high-end projects. Builders may move Centre to plead their case
Mumbai: Top city builders, who were peeling the pinch after global meltdown, participated in the brainstorming session to decide price cut on Saturday. The meeting commenced at 7.30 pm and wound up only at around 11 pm, sources said.
It is learnt that among some of the leading builders who were present at the meeting included Rajni Ajmera of Ajmera Builders, Dharmesh Jain of Nirmal Lifestyle, MCHI chairman Pravin Doshi (Acme Group) and Deshmukh, who is CEO of Deshmukh Builders and past chairman of MCHI.
There was complete unanimity among the participants that the industry is passing through an “unprecendented’’ crisis. This has affected not only the developers, but a host of ancillary industries, including a large army of unskilled labourers working at the project sites.
“A labourer who used to earn Rs 150 a day is today struggling to barely eke out Rs 50 a day because many projects have come to a standstill,’’ a leading developer told TOI recently. Virtually every Mumbai-based developer is on a cost-cutting drive including retrenching employees across departments.
The Mumbai developers are also thinking of representing their case to the Centre to increase the priority sector lending to home buyers from Rs 20 lakh to Rs 40 lakh. Early this month, the RBI had allowed banks to classify housing loans up to Rs 20 lakh as priority sector advance. The interest rate on such home loans is 1.5% lower than the normal rate of interest.
The downward trend in the property market began in January 2007 when banks began hiking their interest rates, and since then, bookings have continued to drop with every rate hike announced. The crisis worsened after the global economic meltdown affected the Indian market since the past few months.

Property consultants said even existing loan account holders are finding it tough to hang on as EMIs threaten to upset their monthly budgets. Last year, TOI was the first to report that several builders, dealing on a one-to-one basis with home buyers, had begun offering freebies like not charging for parking slots, not charging a premium for a floor rise and, in some cases, even offering to pay the stamp duty.

GOING, GOING, GONE

DNAIndia reports from Bangalore.

As techies default on EMIs, banks are reclaiming their homes

N Raghuraman. Bangalore
If you are a code jock or call centre employee, watch out. Your dream home is about to become a nightmare. Worried about your ability to repay, banks are in overdrive to repossess your property if you have not been paying your equated monthly instalments (EMIs) for more than three months.

Over the last few days, nationalised and private sector banks have issued a rash of repossession notices in newspapers to recover properties from borrowers who have been defaulting on EMIs. Industry insiders say that one out of every 10 homes bought with loans is in default in Bangalore city, most of it from the technology and BPO sectors. The houses being reposssessed are spread out across the city, from HAL Stage III to Kumara Swamy Layout and from Vignana Nagar to RT Nagar.

"The IT sector is one of the main contributing factors for the repossession drive that banks are undertaking in Bangalore. Several IT companies have laid off employees and the bonuses of several others have been cut, which has resulted in defaults in home loans," admits BR Bhat, general manager, Corporation Bank. The bank has a Rs 1,000 crore home loan portfolio in the city and the share of IT staffers is nearly half of that.
According to banking industry insiders, almost all banks in the city have registered a 20% increase in loan defaults, and thousands of properties are being recovered under a stringent law called Sarfaesi – or the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act, 2002.

The Act empowers banks and housing finance companies to recover their dues in case of defaults within a specified timeframe. Earlier, banks had to file civil suits against defaulters, which could take more than 20 years to settle cases.

In the first half of this month alone, the recovery process has been initiated on various flats and independent houses worth Rs 80.23 crore. The number will surely bloat as this is only the tip of the iceberg, and banks are worried about the impact of these defaults on their bottomlines.
"It would be foolish to live in denial that there will be no impact of the (global) slowdown on our books. This will be reflected in our books in the coming quarters. In Bangalore, there might be more home loan defaults under the current circumstances. But things are not out of control," says Syndicate Bank chairman and MD George Joseph.

At least 15 nationalised and old private sector banks have initiated recovery proceedings and they are in various stages of execution. The list includes Vijaya Bank, Andhra Bank, Syndicate Bank, SBI, State Bank of Mysore, the Bangalore City Cooperative Bank, Corporation Bank, Canara Bank, Federal Bank, Bank of India, Karnataka Bank, Karnataka State Financial Corporation, Citibank and Indian Bank.

If one goes by the printed notices, Canara Bank, Vijaya Bank and State Bank of Mysore seem to be worst affected with their non-performing assets (or bad loans) contributing 80% of the dues which are under process.

Home Loans to be locked in for 5 years at 9.5%

It looks like Indian bankers are yet to learn from the wave of option ARM defaults hitting the US home-owner. If the text of the press release is to be believed the bankers will be lending upto 20L for 9.5% for a period of 5 years until the loan resets to the market rate. In today's enviroment the publicly listed builders need the middle income earning to buy housing and the only way they can get that to happen is to pressurize banks to lower lending rates.

As expected builders will now price homes at 25L white and everything above as black. If one things this will bring relief to the common home buyer they are in for a rude shock. Another trick the builders do is build jodi flats, i.e. flats which meet the middle income criteria but are adjacent to each other so that they can be combined by the high income purchaser.

Livemint.com reports
Mumbai: Public sector banks (PSBs) are set to offer home loans of up to Rs20 lakh at a concessional rate of 9.5% for a period of five years as part of the government’s fiscal stimulus package announced on Sunday to spur spending and bolster sagging economic growth.
All new home loans advanced by state-owned banks until 30 June will come at the 9.5% rate, which will be reset five years later depending on the prevailing trend, according to two senior bankers involved in devising the package who didn’t want to be named.
A formal announcement of the scheme will be made soon by public sector banks. Two officials at two different ministries, who also didn’t want to be named, confirmed the plan.
Housing is one of the key areas on which the government is focusing to lift economic growth that’s slowing from an average annual pace of 8.9% in the past four years. Lower interest rates prop up the demand for homes, which in turn, creates demand for steel and cement and generates jobs in the construction sector.
Banks and housing finance firms are now charging between 12% and 14% for fixed-rate home loans and offering floating-rate mortgages at between 9.5% and 11.75%.
Because the cost of funds for banks currently is higher than the rate at which they will offer loans under the new scheme, the government may work out an arrangement to compensate the lenders, analysts say.
It is not clear what will be the nature of the arrangement but “certainly not subvention”, said one banker. The government offers 3% subvention—or interest subsidy—on small agricultural loans, which are given at a concessional rate of 7%.
The Reserve Bank of India’s (RBI) decision on Saturday to include home loans of up to Rs20 lakh in so-called priority sector lending—targeted at segments such as agriculture, small industry and education—will come in handy for banks to offer mortgages at a concessional rate.
Under banking industry guidelines, 40% of advances are meant to be channelled to the priority sector. Banks that are not able to meet the target are required to park the shortfall with the National Bank for Agriculture and Rural Development at a low interest rate. The money is used for rural infrastructure projects. Analysts say the five-year fixed rate of 9.5% will dent banks’ profitability if the government doesn’t offer a support plan for lenders in case interest rates remain at this level or rise further. But if interest rates drop, consumers will lose out on the benefit of falling rates.
“If interest rates fall and home loan rates come down below 9.5%, we will have to watch what exit options this package would provide. Many questions of potential borrowers might have to be answered before they go ahead and avail of such loans,” said Ravi Sankar, a banking analyst at Antique Stock Broking Ltd, a Mumbai-based brokerage.
The asset quality of banks might be compromised if they try to push the scheme aggressively, Sankar said.
“This rate is quite attractive for borrowers at the moment,” said Hatim Brochwala, an analyst at Khandwala Securities Ltd, another domestic brokerage. “However, if interest rates fall and home loan rates become cheaper, borrowers might start complaining. So, the banks will have to chalk out an exit plan. Converting fixed rate into floating rate (loans) may not be a good option as the penalty is heavy.”
Analysts are betting that interest rates will come down by 300 basis points in two years and home loan rates will be cheaper than 9.5%. One basis point is one-hundredth of a percentage point.

On Saturday, the RBI announced a special refinancing package of Rs4,000 crore to the National Housing Bank, which regulates housing finance firms, to help prop up the home loan market. Analysts say the refinancing facility is too small.
Housing Development Finance Corp. Ltd (HDFC), India’s oldest mortgage firm, has a disbursal target of about Rs45,000 crore this year. While HDFC accounts for at least 40% of the housing loan market, public sector banks make up about 20%, limiting the scope of the stimulus package, analysts say. ICICI Bank Ltd, India’s largest private sector bank, is a prominent lender in the mortgage market.

Delhi flat owners re-sell in down mood

Gaurav Jha, Hindustan Times reports

With property values falling, frenzied property owners in Delhi NCR (National Capital Region) now seem to be in a selling wave, fearing further fall in the prices of their property.

Businessman Rahul Gupta is in a hurry to sell his three-bedroom flat in the Faridabad area for Rs 32 lakh, Rs. 50,000 below the amount he paid nearly a year ago. In Delhi, it is unsual for a property to be sold at a price less than the purchase price.

“I am in urgent need of money and the prices are crashing. I may not get this amount after a month. I don’t know when the market will revive,” Gupta told Hindustan Times.

“It is just a seller’s market, not buyer’s” said U.K.Bhardwaj, founder-president of the Delhi Property Deaders Association.

Sajoy Mittra, a retired bank employee, has been trying in vain to sell his three-bedroom Gaur Green apartments at Indirapuram across the Delhi border near Ghaziabad (Uttar Pradesh) for Rs. 72 lakh for the past two months.

Unlike Gupta, he is however hopeful. “I feel the laid off employees and NRIs (non-residential Indians) in the West will buy my home after coming back to India”

However, the brokers have a different take. They are not much optimistic of the market.

“There are only sellers in the market, no buyers”, said Pradeep Mishra, a broker who has operations across NCR. “For every single buyer, the market has at least five-six sellers” he added.

“The market has only 10 percent buyers, while 50 percent have disappeared because of the economic slowdown while remaining 40 percent are waiting for the prices to decline,” Mishra said.

“This is happening all over. RBI’s announcement of cuts in repo and reverse repo rate (signal interest rates) is a welcome move. But until we don’t get a rate of 7-8 percent on home loans, buyers will not have confidence in the market,” said Sanchin Sandhir, managing director at property consultancy firm RICS, told Hindustan Times.

Palace property sold for 6,000cr

I always thought the Palace Grounds was owned by the government. Mr Wodeyar should thank his fore-fathers for his golden spoon. Wish is everyone was so lucky :)

Palace property sold for 6,000crBY R. JAYAPRAKASHBENGALURUArticle Rank I Wodeyar has sold prime land in Palace Grounds to a city-based developer I ‘ Many high profile realtors were interested in the deal ‘ but in the end leading developer Dayanand Pai struck the dealIt is disputed land but already been sold for Rs 6,000 crore. In the biggest land deal that Bengaluru has seen so far, some 250 acres of prime land in the heart of the city in Palace Grounds, has been sold to a leading city-based developer Dayanand Pai.The state government and the scion of the Mysore royal family Srikantadatta Narasimharaja Wodeyar are shadow-boxing in the Supreme Court over rights to the property.The deal has been brokered by a godman, who is close to both the politicians and the maharaja.A team of chartered accountants drafted the sale agreement that will be executed after the court case is resolved.Highly placed sources said the Maharaja had received Rs 1,000 crore as advance and the money has been deposited in the Bank of Mauritius in an escrow account. “Mr Wodeyar is earning close to a crore as interest on the advance money. He will receive the balance after the legal hur dles are cleared. Many high profile realtors were interested in the deal but in the end Dayanand Pai struck the deal as he was confident of getting the papers cleared.Of the 250 acres belonging to the Wodeyar family, 50 per cent is for outright sale and the remaining land will be developed on a joint venture basis by Mr Wode yar and the buyer. The plans include developing an IT Park, setting up malls and multiplexes,” sources said.A city-based BJP Cabinet rank minister has offered to resolve the issue.“In 1998, Mr Wodeyar had filed an application to conduct events at the Palace Ground which was turned down by the then state government. Following this, he moved the court and got a stay order on the Bangalore Acquisition and Transfer Act which was moved by the state government in 1997. The minister is working on dropping the case by the government. Another possibility being worked out is to grant the land in lieu of some other property which is also contested by the state and Mr Wodeyar. The high profile minister has resolved many such cases in the past. Looking at his track record, things look positive for the Wodeyars,” sources added.Princesses Meenakshi Devi, Kamakshi Devi, Indirakshi Devi, Vishalakshi Devi and the late Gayatri Devi, have about 28 acres of land each apart from the major chunk of land that belongs to Mr Wodeyar.

Mumbai :Terror hits where it hurts the most

Adding to the original post I think we can expect the following in the days ahead.

1. The stock market crashes to lows never seen in the past 4 years. One may question why did the market hold up on Friday. The answer is simple. It was propped up by the institutions and the government. If the market had crashed 5%, the terrorist would've won. So basically the brokers traded amongst themselves and squared the deals at the end of the day. On Monday and the weeks ahead we will see massive liquidation by the FII's which will wipe out the most die-hard bull of the Sensex.

2. We may also see a rate cut of 200 basis points and loan interest rates can dip to 10%. Builders will use this cut as an opportunity to tout their ridiculously priced assets. As believers in black-swan theory will observe, the events of 26/11 will be the last straw which breaks the camel's back, be it the Sensex or the mega bubble in Mumbai real estate.

3. It doesn't take a genius to figure out that foreign companies outsourcing work to India will be more cautious and circumspect in their dealings. The binge madness of outsourcing everything to gain arbitrage will now to looked more carefully as to whether it affects critical business functions in times of disruptions.

4. India's date with terror will continue. The folks who commit these crimes have no regret, remorse or a living conscience. They are so blinded by hatred that it will be only time before another attack of a similar magnitude is mounted on Mumbai or some other city. To deal with this situation we need the Army to run security operations in major metro areas. The police is too corrupt and incompetent and pictures of pot-bellied policemen hanging around the Taj as mute spectators are a disgrace.

5. The cocky behavior the many South Mumbai-tes will now be a thing of the past. I distinctly remember a recruting pitch made to me by a just returned US educated individual way back in Jan 1993 when I went to meet him at his apt in Malabar Hill. He said "The tile you are standing on is worth 30000 Rs", effectively telling me that he has deep pockets. That day was an eye-opener to me on the sheer arrogance which was a part and parcel of some people who live on prime real estate.

I can go on and on but I'd like readers to comment on the aftermath of the siege on South Mumbai.

>>>

As Mumbaikars assess the extent of the damage to lives and property in the attacks of 26/11, it is the healing of psyche which will be in question. While previous attacks have targeted densely populated areas like railway stations, temples and mosque's these attacks have been focused on the rich and elite in South Mumbai. This affulent area is home to less then a fraction of Mumbai's 13 million population, and now appear to be as vulnerable to the crossfire of terrorism as the average mumbaikar.

Lets hope the government wakes up to this tragedy and shakes up the law and order machinery. If an attack of this magnitude is replicated somewhere else, we will have ourselves to blame. A lone fire engine battling the fire at the Taj hotel speaks volumes of the lack of preparedness to handle emergencies.

I hope all readers and their close ones are safe. Our thoughts are prayers are with the injured and the unfortunate victims of this massive tragedy. MumbaiHelp has more coverage on this issue.

The Sound Of Crashing Real Estate (Goldman Sachs)

Ex_Realtor,

You mentioned that you were recently laid off from a big construction house. What is your experience like for working for these folks ? What are the inside secrets which you could share for the benefit of all readers.

Vik.

Goldman Sachs
India: The Sound Of Crashing Real Estate India's property market is poised for a deep correction. This will bring on sizeable knock down effects, with India GDP expect to slide down to a growth of 5.8 per cent in FY10. We estimate prices may need to fall by up to 30% from current levels, with significant knock on effects on the economy.

In particular, it will slow construction activity, which directly accounts for 7.3% of GDP, but has sector linkages which we estimate to be 14% of GDP.
After India's last housing bust in 1996, real property prices fell some 40% over three years, negatively affecting consumption and investment demand.

Mitigating factors-favorable demographics, low mortgage penetration, ongoing infrastructure demand.
India's property market is poised for a deep correction. Property prices have risen dramatically over the past three years, supply exceeds demand in most geographies, and affordability lags prices. Our India Real Estate Team believes that residential property prices in some geographies may need to fall by up to 30% from current levels for affordability to catch up. As elsewhere globally, we think this will have negative effects on the economy.

The imminent slowdown in construction activity can potentially have a big impact on the economy. By using an input-output matrix, we estimate that although the sector directly accounts for 7.3% of GDP, its backward linkages in terms of the sector's usage of iron, steel, cement etc., and forward linkages to other sectors, impacts an estimated 14% of GDP.
Therefore, a slowdown in the construction sector can potentially have large knock-on effects on the economy.
From the demand side, a property downturn, we think, will have negative effects on consumption and investment. As housing forms the largest component of household wealth, consumer demand will be impacted. The fall in collateral will also hurt firms' balance sheets, increase their funding costs, hurt confidence, and reduce investment demand. However,
the impact on demand will be lower than in developed countries.

Lessons from previous housing busts suggest that they tend to be prolonged episodes with considerable macro consequences. After India's last housing bust in 1996, real property prices fell some 40% over three years, and did not recover to their previous peaks for a decade.

Consumption and investment demand were both negatively affected, and growth slowed from an average of 6.8% in the four years prior to the bust to 5.4% in the four years after it. Typically, housing busts in OECD countries have lasted six years with a 30% decline in prices and substantial negative implications for the economy.

Mitigating factors, such as India's favorable demographics, low mortgage penetration, falling interest rates, and ongoing infrastructure demand, in our view, will keep the property downturn from being protracted. However, we believe a sharp slowdown is imminent. We therefore remain negative on the real estate sector, and its supplier industries such as cement, iron, and steel, and reiterate our below consensus estimate of
5.8% GDP growth in FY10.

Safe Harbor Statement:
Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations,
tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

Mumbai constructions grinds to a halt

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


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


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

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

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

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

Fear and Deflation in Vegas

Life comes full circle and the anti-matter version of Fear and Loathing in Vegas is rearing its ugly head. Steel is down 75% per ton, cement is down lows never seen. Stocks like ACC and Tata Steel blue chip Tata companies are getting cheaper by the minute and the center piece of action, DLF and Unitech the darlings of the real estate industry are down 90-95% from all time highs. What does all this data fortell ? To the brokers and the touts of the real estate industry they still are calling for a 8% cut (Sobha in Bangalore ) or another stupid builder who is giving an apt in Mira road free if you buy a super inflated apartment in Santa Cruz. With IICI bank and HDFC bank down 70% banks are in deep trouble. They will be very worried about Non performing assets and will be very reluctant to lend at over priced properties. They also would like their current borroweers to pay thru the teeth to compensate for the NPA's. Looking all around there is doom an gloom. I wonder what the trolls on this blog think.

Builders in fix as bhais want money back

Shailesh sent this link in the comments sections which deserves to the highlighted. In the past the builders were the target of the Bhai's for exotortion. Now the bhai's help the builders to milk the middle class with the help of the banks. The poor middle class owner who has bought a 50L 1 bed apt at 10,000 rs is paying a handsome profit to the builder, the politician,the Bhai and the bank. Ofcourse now the ponzi scheme is up and the guys with guns are asking for their money back. Money back guarantee scheme of Mantri builders from Mumbai, is now played with a different twist. Now people can appreciate the deep influence of the underworld on the pricy world of real estate. We have times reporters who know about dealings but the police are busy chasing drunk drivers on the streets. The builders are the sub-prime of India.
MUMBAI: Several builders are in deep trouble with the underworld which had invested heavily in their projects now demanding their money back.
Dawood Ibrahim, Chhota Rajan and other dons are known to have invested in real estate projects hoping to make a quick buck. "But with the downturn in the market they are not getting the returns they expected and are asking the builders concerned to return their monies immediately,'' sources in the industry told TOI on Wednesday. The builders' problem is that they have already invested these funds in buying land and old buildings for redevelopment and have no liquidity to meet the demands of the gangsters. But the mafiosi is not known to take "no'' for an answer and is turning the heat on the builders. One of the builders in the western suburbs is reported to have returned a whopping Rs 750 crore to a big-time gangster. Another big player in the real estate market is receiving calls from a Malaysia-based don to give back his money and he simply does not known how to do that. "None of these builders have approached the police since their financial partnerships with the gangs would be exposed,'' sources added. "We are already saddled with unsold stocks. Where are we going to get the money to repay the `bhais?' They are not interested in taking over the unsold flats since it is a dead investment for them,'' a builder observed. For the past several years, many of the builders are known to accept investments from the gangs since the latter are able to give big volumes of cold cash and that too at a short notice. Since there was boom in the market there was no problem in giving the `bhais' good returns on their investments, but the scenario is totally different now. Incidentally, it is not only the underworld which has been financing the real estate boom. Several top bureaucrats and senior police officers too are known to have parked their black money with builders. These persons have also become jittery and are pressing for the return of their money. At least with these type of investors
the builders are not facing much problem because they are privy to details of the ill-gotten wealth of the babus and cops. But with the gangsters it is a different ball game altogether.

Land dealings hit by global recession’

Looks like the finance minister and the minister in Pune are looking are different set of numbers. Here Mr Pawar is calling for a deep recession and the FM is saying that India will not be affected. The FM needs to dig his head out of the sand and quit. He has wrecked havoc in the construction industry by fuelling the bubble and now is denying its existence. Today he exorted Autos, airlines and reatly companies to drop rates of their products, and ofcourse the banks too, they have to drop their interest rates ? What does all of this translate too ? A slowdown of profits for some and deepening losses for others like airlines.

The article below mentions about townships being in trouble. In Pune we have Amanora, Lavasa, Blueridge whose investors will see their mirage's last longer then half a decade.

TIMES NEWS NETWORK reports

Pune: The global recession has hit township projects and land dealings in and around the city, affecting it dearly, Pune guardian minister, Ajit Pawar, said on Monday. Addressing a meeting of the NCP workers, Pawar said, “The global recession is witnessing a local impact. Township projects around the city are largely affected due to the economic meltdown. Only few days ago, Pune and Raigad districts were leading in land deal transactions. Today, there are hardly any transactions happening.”
The state has already increased the FSI (ratio of permissible built-up area to plot area) for townships from 0.5 to 1. “But these townships are in deep trouble due to the crisis,” Pawar said.
He added that as per projections by Indian economists and political leaders, the recession will continue for a long time. “It’s time to reorganise resources and plan things,” Pawar said.
Mayor Rajlaxmi Bhosale in her speech admitted that the civic body was also facing financial crisis.
“However, the crisis can be attributed to the mammoth development works carried out by the PMC in one year. The PMC has developed infrastructure worth Rs 1,000 crore in a single year. The civic body has also contributed its share to the JNNURM funds. We have provided citizens with world class facilities on the occasion of the Commonwealth Youth Games and that has put some pressure on the municipal corporation,” Bhosale said.
Bhosale said though there are others taking credits for the successful completion of the Games, it was the civic body that created the infrastructure, with the state and Central government providing the funds and Sharad Pawar playing an important role in the process.” She said in the last one and half years after the NCP came to power, various development works have been implemented.

Funny Reliance email

Found this funny email doing the rounds on the internet. It truly refects the state of the Bombay shock market.

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Builders go with a begging bowl to the PM

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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