Realtors grapple with huge unsold stock; rising prices & costlier loans hit buying plans

7,100 seems to the sweet spot for Malad. Anything above is just not affordable in any tier-1/tier-2 city.

Economic times reports

Dentist couple Sushma and Vikrant Mohanty had been looking to buy an apartment in Delhi-NCR for almost a year. But after several rounds of unsuccessful discussions with builders and umpteen visits to property sites, they decided to wait till prices came down.

The 2009 real estate slump had created lots of buying opportunities, but prices have climbed since then to what some believe are unsustainable levels.

Last week, as home loan rates shot up after RBI hiked interest rates, the couple saw their dreams come crashing down. They have now dropped all plans of owning a house.

"This is like a double whammy. Now I don't know when we will be able to buy a house. We are already paying heavy rent in Delhi," says Mohanty.

Across the city from where they live, RK Arora, managing director of Noida-based real estate company Supertech , is a worried man. He has seen a 10-15% drop in sales in the past few months. His company launched six projects in the past one year and prices have already risen 15-20%. He fears a further drop in demand. "Rising interest rates have already impacted demand," he said.

Builders like Arora and prospective home buyers like the Mohantys are caught in a bind. Rising interest rates and soaring prices are forcing more and people to put off purchasing plans, affecting builders who desperately need money to pay off costly loans and start new projects. The unsold stock in major cities has been going up, forcing banks and equity investors to call for a price cut.

"It's not interest rates that have spoilt the party, it's home prices," says Renu Sud Karnad, managing director of HDFC Ltd , one of India's biggest housing finance companies.

"There has to be some rationalisation of prices-by at least 10-15%-in the next few months," she added. Unsold residential units in projects that are completed or are nearing completion within the next 6-12 months in Mumbai and Delhi-NCR are as high as 25% and 16%, respectively, of the total number of units.

In other top cities, including Bangalore, Chennai and Kolkata , the numbers range between 12% and 19%, consultant Jones Lang La-Salle found in its real estate intelligence service for the first quarter of 2011 (see chart on Page 1).

"A price correction is imminent. How long can developers hold back... I think prices will correct by a maximum 15%," says B Niyogi, chief general manager, real estate and housing, State Bank of India , India's largest lender. Real estate research firm Liases Foras says approximately 471.9 million sq ft of residential stock, one-fifth the size of Chandigarh, is lying un-sold in the country's top six markets.

For real estate firms, with bad memories of the 2008-09 slump, these numbers are scary. But they also illustrate what could go wrong in a highly price-sensitive industry hugely susceptible to the vagaries of consumer sentiment, interest rates and commodity price changes.

"Cost pressures are building up for developers. They will have to cut prices to retain volumes, failing which it will impact profitability and cash flow in the coming quarters and affect margins as well," says Aashiesh Agarwaal, real estate analyst at Mumbai-based Edelweiss Se-curities.

Companies such as Gurgaonbased Unitech, one of the country's top builders, are feeling the pinch too. "Today, selling efforts need to be put in unlike earlier when all projects were selling on their own," says R Nagaraju, vice-president, corporate planning and strategy, Unitech.

In the past one year, the industry managed to bounce back from the 2009 slump, though the recovery has been uneven. In 2010-11, the industry took full advantage of the positive sentiment, economic growth and softer rates to sell more. Prices rose, not just because of demand but also construction costs. Rising steel and cement prices fuelled a 60% jump in construction costs. Price of land is not coming down either.

"It is becoming almost unmanageable," says Snehal Mantri, director-marketing at Bangalore-based Mantri Developers. Companies coped with the scenario by increasing prices and hoping that consumers would be able to pay. For some time they did, but the party may be coming to an end now.

At the end of trading on May 18, 2011, the BSE realty index was at 2,120.45, down 47.5% from its 52-week high of 4,034.35 on October 7, 2010, and down 84.7% from its highest-ever level of 13,848.09 on January 8, 2008. Defaults, not unheard of in the real estate industry, are likely to re-turn. Bank lending is already down after a recent RBI directive and scams involving real estate companies. Private equity, the alternative to loans and IPO, is playing coy too. They want builders to cut prices and get rid off the inventory.

"All private equity funds are working on the basis that there would be a 15% correction. No one wants to lose money," says V Hari Krishna, director-investments, Kotak Realty Fund , a sector-specific private equity firm.

According to PropEquity, a real estate consultancy firm, in the last one year, prices of new and existing housing projects in some parts of the country have risen 10-40%. In the first quarter of 2011, Mumbai has seen a 17% drop in home sales, Bangalore 14% and Hyderabad 15%.

Some builders think they can manage by focusing on small cities. Jaxay Shah, a real estate developer in Ahmedabad and vicepresident of Credai, insists that Mumbai and Delhi should not be considered as the barometer. These cities contribute hardly 4% of the national mar-ket. Sales in tier-2 and tier-3 cities are steady, though there is some panic due to hike in interest rates, which have climbed to around 11% from 8.25% a year ago.

An executive at a large home loan lender gives the example of smaller cities where local developers understand the market demand and know how much people are willing to pay. So they price their projects according to the paying capacity. Markets like Lucknow, Indore, Ghaziabad, Faridabad and others are doing well because the ticket sizes are low.

"The actual ticket size of a property is what matters. Rs 20-40 lakh is really the segment that will attract mid-income Indians," adds Karnad of HDFC. All this is happening at a time luxury projects are languishing. "Developers have not been able to interpret the activity in the mar-ket," points out Shveta Jain at Cushman & Wakefield .

Mumbai-based Omkar Realtors and Developers recently launched apartments at Rs 7,100 a sq ft in Malad, a Mumbai suburb, where other builders are still selling at Rs 8,500-13,000 a sq ft. Within 20 days, Omkar was able to sell a tenth of its total inventory of 1,000 apartments. Similar price cuts have worked in projects in Chembur and Dadar as well.

"Genuine demand still exists in the market. If one decides to stick to high prices, demand may remain elusive," said Babulal Verma, manag-ing director of Omkar Realtors & Developers. Across the country, many builders and lenders will hope that he is right. But there is another fear-the bottom could be a long way off. As Jaxay Shah of Ahmedabad says, "When buyers don't buy, they don't buy at any price, because of the sentiment." The industry will hope that he doesn't turn out to be right.

No demand for houses, but prices hit an all-time high

There cannot be a more telling article on the housing bubble in Mumbai then this one. The question is not whether houses have rises 4 times in 6 years. the isue is whether there are any buyers at current prices. There is absolute no traction in the market at current levels in Mumbai. In other cities, apart from Delhi, one can easily get an 2/3bed apartment for 50-70L. In the island city one cannot get a 1 bed in the suburbs for this price. The builders are just living in fantasyland.

The laws of demand and supply do not apply to your city's real estate scenario. With 93,000 under-construction and readyfor-possession homes still unsold, the 'weighted average' cost of a flat is at its peak, according to a finding put out by property research firm Liases Foras.

On an average, the cost of a flat in Greater Mumbai (area under BMC limits) is pegged at Rs 2.18 crore. That's a 436 per cent rise compared to 2005 prices. Since then, the graph has steadily moved northward but for a brief dip during the economic meltdown in 2008 (see info graphic).

Common man's woe

And this upward swing in cost has pushed the middle class to the fringes. A basic principle of lending institutions says that the cost of your house cannot exceed five times your annual salary. In 2005, to buy a home, your annual income should have been Rs 8 lakh. At today's prices, your annual income has to be Rs 43 lakh.

"Five years back, Rs 8 lakh per annum had a higher purchasing power than today. And it was not too difficult for one's family income to be in the range of Rs 5-10 lakh," said a market observer. "Today, even if individual incomes fall in that range, very few family incomes are in the Rs 40-lakh range," he said.

Managing Director of Liases Foras, Pankaj Kapoor, points out at a pricesale pattern, not particularly to Greater Mumbai but in the entire Mumbai Metropolitan Region that includes Greater Mumbai, Thane city and Navi Mumbai.

"When prices fell, sales picked up. Like, when the per-sq-foot weighted average price in the metro region fell from Rs 8,100 in 2008 to Rs 5,300 in 2009, sales improved from 9 million sq feet to 20 million sq feet," said Kapoor.

"The rate today is Rs 9,235 per sq ft. Even if you factor in inflationary costs, prices will have to be in the range of Rs 6,000 per sq ft to increase market efficiency."

Prices likely to drop?

With home sales already low, and if the current pace of sales continues, it will take 35 months for the current stock of unsold homes to find buyers, feel realty experts. And, they opine that this situation will only bring down the market further.

"While an overall correction of 35 per cent is required to improve sales, South and Central Mumbai will need a correction to the tune of 40 per cent," said Kapoor.

Though not all realty experts may agree on that, the general sense is that prices will correct by at least 15 per cent in the next six months.

Buyers in agony over delayed housing projects in Pune

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However, many middle class buyers feel cheated and harassed, especially due to the problem of delayed possession. Alok Goswami, who bought an apartment in Kumar Kruti, Kumar Urban Ltd’s (KUL) project in upmarket Kalyaninagar in March 2006, has not received possession even today, five years later.

According to Ravi Karandeekar, real estate expert, some builders take bookings and invest the money in another project, thereby causing delays. “For many builders this has become a business policy,” he said, not naming any specific builder.

As a real estate watcher, Karandeekar warns buyers against falling in the trap of taking over the apartment even before the entire project is completed (as in the case of Periwinkle). “This is called false possession. People get carried away due to the losses they are facing, but without completion and occupancy certificates, the dwelling has no legal standing, especially in the event of a mishap like fire,” he added.

Wanting to caution buyers, Karandeekar said, “In most real estate projects, buyers book apartments that are showcased at conceptual level only. Even plans are not passed and the bookings begin. Buyers must understand this.” He cautioned buyers against allowing themselves to get exploited because they are not aware of their rights.

Rents hit the roof in Mumbai, up by 11%

This was bound to happen sooner or later. Now Manmohan has to take notice of yet another piece of inflation hitting the common man. First you get priced out due to black money and next you get pushed to the outer suburbs as rents escalate. If prices don't fall soon, landlords will raise rents another 10% over the current 11% as demand for housing is ever increasing.  Maintenance cost borne by owners has jumped as well. I know where a 3k monthly maintenance  has jumped to 5k in just over 1 year. This phenomenon is across cities so renters will be forced to cough up more or leave their current residences. This is another way for the rental yield to catch up with sky high prices.

DNA India reports. 

Rising realty rates may have resulted in a sharp decline in property sales, but it has led to a growth in rental value in Mumbai and other metropolitan cities in the country. Mumbai and the outskirts of the city has seen an 11% growth in rental value in the past year, according to a study conducted by private real estate portal, 99acres.com.

The figure for Bangalore, Pune and Delhi has shot up by 13%, 11% and 9% respectively.

Surprisingly, rental value in South Mumbai, one of the most preferred locations to stay in the city, has seen a dip. The Worli residential market saw a 21.31% dip last year, while the figure for Prabhadevi, Parel and Bandra (West) fell by 18%, 12% and 11.57%.

“The rent in South Mumbai had gone through the roof. It is still unaffordable. So, people are shifting towards the suburbs and outskirt of the city,” a real estate expert told DNA.

However, the rental value in the suburbs too has shot up drastically. Borivli (West) witnessed a record 42.25% growth, while the rates have shot up by 35.04% in Powai, 28.32% in Malad and 20.40% in Kandivli (East). The Mumbai metropolitan region too has seen a ruse in rental value.

The figure for Mira Road and Seawoods shot up by 39.28% and 36.36% respectively in the past year.

A real estate expert attributed the rise in rental value to exorbitant property rates in Mumbai.

“People prefer to stay in rented homes instead of buying a house. Also, there is a huge influx of people in the city. As a result, there is a huge demand for rented homes,” he said. Government data compiled by the stamp duty department also shows that there is a 35% rise in the number of lease agreements being signed in the city.

Business head at 99acres.com Vineet Singh said: “People are relocating or moving in better homes, which in turn, will affect the rental values of properties. Also, the state of real estate is not in trend with the moving economy because availability of fresh inventory is less in the Mumbai region. Therefore, rental values escalate on an annual basis.”

arshal Shelkar, who has been staying at Seawoods for the past three years, is finding it difficult to cope up with the rising rentals. He used to pay Rs7,000 as rent for a 3BHK house. The owner demanded Rs12,000 last year. “Now he is asking for Rs20,000. I am staying in Navi Mumbai, not South Mumbai. Each day, I have spend one hour on travel. If I continue to stay in houses with such high rents, my monthly budget will go haywire. I have other liabilities like EMIs and daily expenses. There should be control over the rise in rent rates,” he said.

LONDON (MarketWatch) — Is this the biggest bubble in the world?

While we are looking at international markets like China and the US, the biggest pop in housing has been London and that too select areas. Middle-eastern money is flowing into London along with Indian and chinese money. If the Mumbai market is so desirable for investors as claimed by the brokers how come these investors are ploughing money in London. "They think money is “safer invested in an apartment in Sloane Street than in a bank account in Damascus.” Now I have lived on this Sloane street during my stay in London and I have lost track of the number of Ferraris and Maserati's on that road. That is pure inter-generational wealth which is driving markets. Next time a broker tells you that Dubai folks are investing in Mumbai, point him to this article.

http://www.marketwatch.com/story/the-worlds-hottest-real-estate-market-2011-04-19?pagenumber=2

LONDON (MarketWatch) — Is this the biggest bubble in the world?

I hesitate to use the overplayed word “bubble.” But in the case of London property, it’s hard to avoid.

What’s happening here is absolutely ridiculous.

Housing data

Markets are being impacted by housing-sales data along with fears over northern European economies and a stronger Japanese yen.

Look in the window of any real-estate agent here and you think people have gone crazy — and then you realize that the prices are in British pounds, and that to convert to dollars you have to add another 60%.

Half a million pounds ($800,000) for a one-bedroom condo with a small garden on the southern, unfashionable side of the river Thames? Really? And $2 million for a modest two-bedroom condo in Chelsea?

As John McEnroe used to say at Wimbledon, you cannot be serious.

China - the Paper Dragon - Ghost cities

China's ghost malls, cities and office space - nearly 30 billion sq ft constructed mostly vacant.

This is a bubble worst than India's (At least India can manage to run some demand and lets common people use up space by renting for offices, shops, etc)
A must watch - in 4 to 12 months China is going to be Dubai x 1000










http://corporaterealestategroup.com/2011/03/11/china-housing-market-bubble-bust-dubai-x1000/

Updates -
http://www.dailymail.co.uk/news/article-1339536/Ghost-towns-China-Satellite-images-cities-lying-completely-deserted.html

Moodys downgrades Chinese RE
http://blogs.forbes.com/benzingainsights/2011/04/14/trading-moodys-downgrade-of-the-chinese-property-sector/

Force UPA govt to accept the Lok Pal Bill - Support Anna Hazare

Ignoring Prime Minister Manmohan Singh's appeal, veteran social activist Anna Hazare began an indefinite fast on Tuesday pressing for a more stringent anti-corruption Lokpal bill.

The call has evoked a massive response across the country with even the high profile NAC led by Sonia Gandhi in broad agreement with civil society.

Responding to the call of Anna Hazare, hundreds turn into Satyagrahis and along with him, fast for a strong Lokpal bill to fight corruption in high places in cities across the country. For a nation that ranks at the bottom of the heap on corruption, this solidarity is not surprising.

“We do not want yet another advisory body,” said Kiran Bedi.

More from CNN-IBN

Must see movie : Inside Job free

Everyone needs to watch this movie on near collapse of the US financial system which almost bankrupted the world. Film makers in India are busy making Salman and Shah Ruk dance and have no time in investigative documentaries. The journalists on the other hand are busy negotiating deals with politicians and businessmen.

“Housing Is Dead”: Bubble Still Bursting Here and Abroad, Says Harry Dent

After initial US based review, he talks about China and India, particularly Mumbai.

Pop goes the bubble

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Median house prices in the main cities are close to Rs1 crore, far beyond the reach of most urban families.

This newspaper reported on 14 February that a survey of 2,400 housing projects in the nation’s commercial capital, conducted by Liases Foras, a property research firm, showed there were around 88,000 unsold homes in the Mumbai metropolitan region.

The chief executive of the firm had told Mint that up to 22 months may be needed to clear the inventory in cities such as Mumbai, New Delhi-National Capital Region, Chennai and Hyderabad. This inventory could increase if buyers stay away while builders continue to finish projects in the hope of generating sales.

However, the sheer frequency of overheated real estate markets is a symptom of a deeper malaise—the lack of policy focus on urban issues that makes India one of the most expensive real estate markets in the world. India has far few big cities for a country of 1.2 billion people. The existing cities have deteriorated because they do not have empowered mayors to manage them, are often used by state-level rural politicians as machines to generate cash, have been unable to broaden their revenue base through higher property taxes, have no rental markets to speak of thanks to outdated rent control and tenancy protection laws, and have failed to invest in infrastructure. Urbanization is an inevitable and welcome trend for a country moving up the development ladder. Many states—especially in the west and the south—may already have larger urban populations compared with rural ones. High real estate prices only force people to stay in slums. It is time the popping of a real estate bubble becomes an occasion for a new approach to cities.

Will Mumbai real estate prices correct, or will this bubble get bigger?

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Financers have also turned somewhat reluctant to fund realty projects after the arrest of DB Realty chief Shahid Balwa. Several foreign investors are also said to be shying away since the scandals surfaced, making it difficult for realty funds to raise money overseas. Besides, investors say, returns on investments have not been significant in India. Banks have also increased the rates for builders. "Builders will definitely try to keep prices up and avoid a crash," said the analyst of Elara Securities.

According to Liases Foras, a realty research firm, more than 88,000 flats remain unsold in the city. In fact, it has been reported that certain builders, who had earlier claimed that 90% of their flats have already been sold, are advertising these very same flats again. It has been reported that builders may offer a concession if payments are made in cash. This is prevalent especially in Kandivli, Borivli, Thane and Panvel areas.

Navi Mumbai, where the euphoria over the upcoming airport persists, has also not seen any correction yet. The per square feet rates of the Green Panvel project, one of the new, better-known projects, have shot up from Rs3,100 to Rs4,500 in three months, following the clearance of the airport project late 2010. "At the most, they will reduce some Rs200-Rs300 on that. It wouldn't make much of a difference anyway," an interested buyer wrote on the webpage of the India Real Estate Forum.

Pankaj Kapoor, managing director, Liases Foras said, "Price reductions should be more for affordability, and not just a minimal correction for the heck of it. Eighty per cent of the demand exists in the Rs20 lakh-Rs60 lakh space, and it is this demand which should be met."

Mumbai Home Prices May Decline 20 Percent, Merrill Lynch Says

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Home registrations in Mumbai, India’s most expensive real estate market, fell to their lowest in 20 months in November, according to brokerage Prabhudas Lilladher Pvt. Property prices in some markets have surpassed their 2007 peaks, Mahesh Nandurkar, a real-estate analyst at CLSA Asia-Pacific Markets in Mumbai, said in November.

India’s central bank increased the benchmark interest rate to a two-year high in January and signaled further gains in borrowing costs as it raised the inflation forecast.

“With banks reluctant to lend to developers and rising mortgage rates, we expect some of the smaller developers will be forced to sell their inventory at lower prices to generate liquidity, forcing an all-round correction in Mumbai,” Agarwal said.

Rajat Gupta indicted of insider trading and his speech to the ISB

Here are the two faces of Modern India.

Give speeches exhorting the youth on the values of Indian tradition and at the same time trade with the insiders throwing all values out of the window. Now that Nira Radia has exposed the ugly truth of corporate India, here is one more fall guy for the Goldman Sachs who is going to join Madoff and company

The insider trading charges against a Goldman Sachs board member filed today by the Securities and Exchange Commission have been a long time in coming.

The SEC’s Division of Enforcement said that Rajat K. Gupta, a Westport, Connecticut-based business consultant, provided Raj Rajaratnam with confidential information he learned while serving on the boards of Goldman and Procter & Gamble. Rajaratnam allegedly used to inside information to trade on behalf of hedge funds controlled by his company, Galleon.

and this is from the speech 5 years ago at the ISB Hyderabad


Another thing which I think Ratan said a little bit earlier. Lead through values, be true to yourself. It is easy to make short term compromises that push you ahead. That won’t give you happiness or peace of mind. Sometimes in the quest of making everybody around you happy or what you think they want, you may not do the right thing. Unfortunately or fortunately, you have to live with yourself longer than you have to live with anybody else. So be true to yourself, be value driven

Luxury Housing Boom Takes a Breather

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Around 3,700 luxury apartments are currently under construction in Mumbai and its suburbs with a price tag of $1 million or more, according to Delhi-based research firm P.E. Analytics Pvt. Ltd. Of these, around 1,440 are unsold. In Delhi and its suburbs, one quarter of the 2,300 luxury apartments under construction are unsold, according to the firm. Residential apartments in India, including those in the luxury market, are typically sold before they are fully constructed. Analysts say that developers in India sometimes delay the construction of their project to ensure that they don't have a large number of unsold units in their ready buildings.

Some of the luxury apartments in Mumbai and Delhi have become 20% to 30% costlier than they were a year ago, thanks to growing wealth in India as well as general euphoria about the real estate market.

But now, "buyers are not happy with these high rates," says Sanjeet D. Narain, managing director of Mumbai real estate consulting firm Narains Corp.

At the same time, many buyers have a lot of money stuck in the Indian stock market which has fallen more than 10% so far this year. So, they want to "wait for some more time," says Aditya Juneja, a real estate broker in Gurgaon, a suburb of Delhi.

Mumbai home prices may drop significantly from record highs

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Mumbai home prices may decrease by as much as 15 per cent over the next nine months as record high prices deter buyers, brokerage Edelweiss Securities Ltd said.

“The festival season of September-November, which typically accounts for a significant chunk of sales volumes in Mumbai, has been a dampener with tepid sales in new projects,” analysts Aashiesh Agarwaal and Adhidev Chattopadhyay wrote in a note reported on by Bloomberg.

Home registrations in Mumbai, India’s most expensive real estate market, fell to their lowest level in 20 months in November, according to brokerage Prabhudas Lilladher Pvt. Property prices jumped between 30 per cent and 70 per cent across India in 2010 with some markets surpassing 2007 record highs, Mahesh Nandurkar, a real-estate analyst at CLSA Asia-Pacific Markets in Mumbai, said in November.

Mumbai developers may be forced to cut prices to revive sales after banks cut down on credit to the sector and loans to builders became due, the memo from Edelweiss said. Development companies are facing rising borrowing costs and less access to credit after a corruption probe into loans to developers, according to Bank of America Corp.’s Merril Lynch unit and Ambit Capital Pvt.

Alibaug calling

Now the term "Alibaug is aaya kya" is Bambaiya hindi will have a new ring to it. For the non-Mumbaikars Mumbaikars would use this pharse ('Are you from Alibaug') in a condescending way implying people who were naive, stupid or just downright clueless.

I guess now it means the rich and the super-rich. Bloomberg reports

India’s ‘Hamptons’ Lures Mumbai’s Rich, Economy Booms


The seaside town of Alibaug, founded about 300 years ago when India vied with China to be the world’s largest economy, is experiencing a rebirth as Mumbai’s growing number of rich people seek holiday retreats in the region.

About 18 miles south of bustling Mumbai by ferry, the area’s conversion into a playground for India’s rich and famous -- including billionaires Mukesh Ambani and Lakshmi Mittal, and cricketer Sachin Tendulkar -- reflects surging wealth in the world’s fastest-growing major economy behind China. India’s wealthy may almost double assets to $6.4 trillion over the next five years, Credit Suisse Group AG said in October.

Prices in the Alibaug region have doubled over the past three years, luring companies such as Peninsula Land Ltd. to build holiday retreats along pristine beaches and amid paddyfields, plantations and forests. Mumbai-based developer Orbit Corp. is among them, selling 20,000 square-foot seafront villas for 250 million rupees ($5.5 million) in a nation where the per capita income last year was 46,492 rupees.

The region is “like the Hamptons,” said Pujit Aggarwal, chairman of Orbit. “People who have spare change buy a house in the Hamptons, likewise people from Mumbai are buying weekend homes in Alibaug, which will become first homes when infrastructure improves.”

Alibaug, on the coast of the Arabian Sea in the western state of Maharashtra, was developed in the 17th century by an admiral of Shivaji Bhosle, a king who founded the Maratha Empire that encompassed most of south Asia. The town had a population of 19,491, according to a 2001 government survey.

The Hamptons is a group of upscale beachfront communities on the eastern end of Long Island, about 75 miles from Manhattan, known as a retreat for financiers and celebrities. Average home prices in the Hamptons jumped 20 percent to $1.9 million in the fourth quarter from a year earlier.

Coastal Damage

Concerns about coastal damage and disagreements between government agencies on setting up infrastructure may hamper development of the Alibaug region.

“The lack of better connectivity has already begun impacting sentiment in this market,” said Anuj Puri, chairman at the Indian unit of Chicago-based property broker Jones Lang LaSalle Inc. “Property prices have reached high levels on the power of speculation.”

A cluster of sea-front bungalows was demolished last year for breaching coastal regulations and building on agricultural land. Buyers of such land in the region must covert the land title before building homes, according to government rules.

Villagers in the region are protesting the destruction of mangroves along the coast and have filed complaints with the state government authorities.

Surging Growth

India’s gross domestic product expanded by 8 percent in the year ended March 31, 2010, from a year earlier, faster than the 7.4 percent growth pace that was forecast, the statistics office said on Jan. 31. The International Monetary Fund expects the south Asian economy to grow 8.75 percent in the fiscal year ending March 31, 2011, and 8 percent the following year.

Mumbai, occupying an area of 440 square kilometers (167 square miles), is bursting at its seams with half of its 18 million residents living in slums. Moving across the shores to Alibaug might make financial sense: a 4,000 square foot villa in the coastal town costs about 40 million rupees, a fifth the price of a similar sized apartment in south Mumbai.

“Mumbai city has hardly got any space, so we need to identify new growth nodes,” says Orbit’s Aggarwal. “Alibaug is one such growth node because of its proximity to Mumbai. It’s a good investment; once it becomes a first home, the value will jump by three-and-a-half times.”

Mumbai Boom

Home prices in Mumbai, India’s most expensive property market, have surpassed their 2007 peaks, climbing as much as 25 percent since April, according to a December report by IIFL Ltd. London-based property consultant Knight Frank LLP says the Alibaug region could well become a first home option for Mumbai residents and an extended suburb of South Mumbai in seven to 10 years if the infrastructure is improved by adding all-weather ferries and multiple jetty points.

Land prices in Alibaug vary across the region. A property with a sea view can cost as much as 60 million rupees an acre, while agricultural land in the hinterland would be priced lower at 4 million rupees an acre, according to Jones Lang LaSalle.

Peninsula Land, an Indian developer backed by Franklin Templeton Investments, and Samira Habitats plan to develop a 2 million square foot township. Three-fourths of the project will consist of luxury residential villas and condominiums, the companies said in October. Orbit is constructing villas starting at 40 million rupees and plans to develop 11 million square feet in a 200-acre gated community, while Mumbai-based Disha Direct Marketing Services Pvt. is building apartments and row houses.

Government Plans

Squabbling between government agencies on implementing infrastructure projects in the region has led to delays and curtailed development. A six-lane sea bridge that will connect the island city to the mainland has been delayed for the past few years because of a feud between two government agencies over rights to build it.

The Mandwa area in Alibaug is accessible by a 15-minute speedboat ride from Mumbai. That route isn’t available during the three-month monsoon rain season, which runs from June to September, forcing visitors to the town to take a three-hour car ride along 120 kilometers (75 miles) of road from Mumbai.

Alibaug needs to build a barrier that protects the harbor from the full impact of waves, which will make it accessible by boats throughout the year, said Sameer Nerurkar, founder and managing director of Samira Habitats, the real estate company developing 560 acres of the 2,200 acres it plans to develop in the coastal region.

The government aims to upgrade the infrastructure. The Mumbai Metropolitan Region Development Authority plans to invite tenders for the eastern waterways project, which will include a roll-on, roll-off service to ferry people and vehicles between Mumbai’s dockland and the jetty near Alibaug. The government is also planning to build a marina at Mandwa, a railroad, and a sea-link, which will cut travel time by road to an hour and fifteen minutes from three hours, said Orbit’s Agarwal.

“The Alibaug property market is quite illiquid,” said Mumbai-based Anand Narayanan, India director at Knight Frank. “I would say Alibaug isn’t a great investment destination, but a lifestyle choice, and lifestyle choices are never cheap.”

Owed Rs6,000 crore, banks cut off funds to Mumbai builders

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MUMBAI: Money has suddenly stopped flowing into Mumbai's real estate sector with banks and financial institutions tightening the screws on builders. In the past two months, cash-strapped developers have flocked to private money lenders who provide short-term loans at exorbitant interest rates of between 24% and 30% a year. Banks charge builders between 13% and 15% interest a year.

Market sources said leading banks now lend to only credible builders for select projects, but have turned off the tap for most others in the construction sector. "They are busy mopping up what is due to them. By March 2011, Mumbai builders alone are scheduled to return roughly Rs 6,000 crore to banks," said the CEO of a leading property fund. Market sources said some leading developers in Mumbai have loan exposures of Rs 3,000-4,000 crore each.

Mumbai-based developer Wadhwa Group's Vijay Wadhwa said banks have stopped disbursement to second-rung builders.

"Banks are flush with funds, but they want to give it to the right people. They are now more concerned about whom they give it to,'' he said. Wadhwa added that financial institutions became cautious following the LIC Housing scam.

Can we call it a peak now?

As we read about Spain's woes (this is Spain we are talking about, not Ireland or Greece), one realizes it was primarily caused the foreign investment that poured into Spanish real estate boom through the Cajas (local co-operative banks). The Government is actively "announcing" cleanups and merging Cajas. Yes, a once mighty economy can be brought to its knees by such foolishness.

The story in India is eerily similar.

Indian real estate attracted $2.8b in FDI last year.

As per industry experts, overseas property sales account for 30 per cent of Indian real estate sector’s total global sales, of which, 40 per cent are accounted by the UAE-based Indians.

Ooh - is that because Indian real estate will never go down? Unlike the Dubai real estate? :) /s.

Of course FDI will fee as quickly as it comes in as well. In January, in 12 trading sessions, foreign investors have pulled a massive 1 billion dollars out of the Indian market.

There's been a significant selloff since the start of 2011, as investors flee over inflation fears.

With food inflation at more than 18%, it is just a matter of time before the Reserve Bank does the one thing it does which is to push the interest rates high - very high.

So it is safe to call peak now?

Black money debate on CNN-IBN.

Here is another rant on the state of black money. The Government is useless, absolutely useless. Manmohan is an absolute incompetent, ignorant and timid PM, worse then any other PM India has ever had

Indian Army hit by another land scam

Cracks In Prices Begin To Show

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Most builders concede consumer resistance is building up. “Demand has dried up in recent months,” says Subodh Runwal, director of Runwal Group. Consumers believe prices have peaked and are likely to come down. A survey among potential home buyers by real estate website Makaan.com showed that 55 per cent expected residential property prices to fall by 20 per cent or more in 2011. This perception, coupled with an increase in home loan interest rates, has led to buyers postponing buying decisions.

“Pre-sales and underwriting trends are contributing substantially to the existing sales volumes. If we exclude such projects, the market looks extremely risky now,” says Pankaj Kapoor, chief executive officer of Liases Foras.

So far, builders had been clinging on to the price line, despite the build-up of unsold stock. Speculation in the industry is that the steady cash flow from private equity investors and earlier advance sales helped cushion the pressure on builders to reduce prices. These sources seem to have dried up now and we are seeing the high price points finally cracking.

Builders often plead that they have little margin for reducing prices since the cost of land is abominably high. With land costs beginning to decline as the PAL-Peugeot sale indicates, builders hopefully will see reason and offer more affordable prices to home buyers.

Christmas is coming but realty market’s not yet fat Read more: Christmas is coming but realty market’s not yet fat - The Times of India http://times

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A source in a leading property fund said that while the suburbs have witnessed an average slowdown of 30%, south and central Mumbai have seen a drop in sales by 45%. "There is a fatigue factor. How long can prices keep increasing?" said a developer from south Mumbai.

For instance, in Borivli, property prices in new residential constructions have shot up from Rs 8,000 per sq ft to Rs 12,000 per sq ft a year ago. In Andheri (west), rates have jumped from Rs 12,000 to Rs 18,000 per sq ft in upcoming projects.


Property developer Nayan Shah said the rates had shot up by 30% to 40% in the past year, but developers were still holding on to prices. "The cost of transfer of development rights (TDR) and construction material like sand had shot up substantially," he said, adding that the government had been slow in reforming the housing sector.

Another developer said sales had slowed down in the last two months. "What is worse is that liquidity in the market has dried up. Public sector unit banks have tightened the screws after the LIC housing scam," he said.

Repayment blues to hit realty prices

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Real estate companies, which are already under severe financial strain, have to make a bullet repayment of over Rs 14,000 crore in the next two months to banks. This will force builders to cut prices of real estate stock, especially residential units, to boost cash flows to help them repay dues.

The huge repayment burden in December and January was created when many banks restructured real estate loans for one and a half years in June 2009 under the Reserve Bank of India’s (RBI) special dispensation. “This is falling due in the next two months,” said a senior executive of a bank, who did not want to be named.

But a senior banker from a public sector bank said, “Real estate companies will have to drop prices and sell properties so that there is a regular cash flow into their books.”

The problem started when developers began to jack up prices, stifling sales at lower rates. This hit cash flows of developers. Banks aggravated the situation by helping developers to roll over debt by recording repayment on the due date and granting a fresh loan to the same company the next day.

This helped the bank to continue the account as a standard asset while the developer got funds with no pressure to lower property rates and generate cash flows. Now, banks are watching their real estate exposure and implementing strong checks.

US warns India about possible WikiLeaks release

Another embarrasment is about to hit the Indian politicians and government officials.
This might help the 2G scam accused as the Wikileaks.org disclosures will dominate the news headlines on Sunday and the coming week. Any guesses what US diplomats think about Indian politicians and Babu's.

DNA India reports.

The US has warned India and other key governments across the world about a new potentially embarrassing release of classified documents by the whistle-blowing website WikiLeaks which may harm the American interests and create tension in its ties with its "friends".

"We have reached out to India to warn them about a possible release of documents," state department spokesperson PJ Crowley told Press Trust of India.

"We do not know precisely what WikiLeaks has or what it plans to do. We have made our position clear. These documents should not be released," Crowley said, ahead of the expected release by the website of millions of sensitive diplomatic cables.

Property prices could crash due to loan scam

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Finance Minister Pranab Mukherjee directed state-run lenders to avert the reappearance of the loans-for-bribes scandal and recommended banks to go for a critical appraisal of all real estate loans above Rs 50 crore. This, however, may curb projects and drive developers to private funds, according to industry experts. On Wednesday, Central Bureau of Investigation (CBI) arrested 8 finance executives on charges of taking bribes to pass loans.

Liquidity for the sector could dry up since bankers look cautious to sanction fresh loans which in turn will force builders to reduce prices to enhance cash output. But for prospective buyers, this is good news as many have been holding on due to high prices.

DB Realty dipped to 10%, Indiabulls Real Estate lost 5.2%, DLF fell 3.8%, and Unitech declined 6%. Shortage of funds is now threatening to act as a major hitch for project execution. This is an important cause for concern as the sector is only recovering now after the economic hiatus of 2008.

Mukherjee said, “Banks and financial institutions should strengthen the NPA (non-performing assets) monitoring and management in their institutions to ensure that advance action is taken to identify incipient sickness and take appropriate action on it”

A Bank of India official said, “All big-tickets loans, particularly to builders, will come under the scanner now. Recall of loans can happen if there is a fear that the quality of loans may suffer. But as of now, there is no such worry and hence it would not prompt us to recall loans.”

2G scam, corrupt nexus between policiticans, business and the media

Full transcript of calls between politicians/lobbyists and journalists including the Ambani Gas deal, Air-India ripoff by Praful Patel and more. It appears that Prabhu Chawla had advance information of the judgement and Nira Radia is fishing for information. More juicy details by Outlook

By roping in the media the politicians and businessmen have nothing to fear. The 4th estate is as corrupt as the other three and these tapes provide damming evidence to that effect. When I said that the Indian media will never report the truth on the state of real estate because of vested interests like builders placing advertisements into the same publications I didn't realize the extent of the rot which had seeped into the system.

Forget real estate one can replace 2G scam with any other scam and the same nexus will operate with high efficiency.

There are also news articles which now put the stock market boom in recent months into question as the recycled corrupt money enters India thru Marutius and other tax havens.

Open Magazine has provided links to Barkha Dutt's conversation with Nira Radia. The media in India is the wolf in the lamb's clothing. Who will trust the messenger ?

Here are Magazine's links

Mumbai realty gives affordability the go-by

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Mr Pankaj Kapoor, Managing Director of property consultant firm Liases Foras, said the prices are so high that “no one can buy”. Of course, if one limits his options, he can move that much further into the suburbs looking for properties that match his budget, he added.

Mr Kapoor said that while the average cost of an apartment in Greater Mumbai (municipal limits) was Rs 27 lakh in January 2004, it skyrocketed to Rs 1.47 crore in November 2008, slipped marginally to Rs 1.28 crore in June 2009 (when a correction set in) only to spiral to Rs 2.03 crore in September 2010.

Now, the preferred route for PE is akin to that of home buyers.

They move in at the project conceptualisation stage and book a definite number of flats or units for about 25 per cent down-payment at a pre-agreed price.

Property registration data for Mumbai indicate that after hitting a peak in property sales in December 2009, the subsequent monthly sales continued to decline till June 2010. While about 9,000 registrations were recorded in December 2009, only about 6,000 were recorded in February 2010. Preliminary field data show that there were only 4,500 registrations in May 2010, he said.

RBI tightes home loan norms

How can you beat this real-estate bubble?

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As property prices are showing only a few signs of abating, analysts predict that a potential real-estate bubble is looming large. So how can you achieve your long-awaited dream of owning a house? Moneylife went into a huddle with some industry analysts to give you the answers

Solution No. 1: Work hard, jump jobs, do anything to reach an annual Rs40-lakh salary.

Solution No. 2: Forget Mumbai or Delhi, there are a lot of other urban conglomerates in this vast country.

Solution No. 3: There is strength in numbers.

Vikhyat Srivastava, former analyst with the Kotak Mahindra Group and co-founder of GrOffr.com, a real-estate site for group-buying, told Moneylife, "As a group, you can get a discount for any service. If a developer is selling 100 houses, and a group comes to buy 20 or 30 houses together, he would lower the prices for them as he would be able to do away with one lot. As a group, one can get a discount of about 20%-30% in real estate purchases."

If statistics bore you to death, consider this. Until now, buyers trading on GrOffr.com have been able to garner bulk discounts of Rs19.85 crore on a piece of real-estate which had a market tag of Rs93.5 crore for 88 flats. Do the math. That's a lot of money saved.

Solution No. 4: The pre-launch phase is the best time to buy. But there is a caveat, though.

Solution No. 5: Rent, don't buy.

Solution No. 6: Be patient, very patient.

"I expect a price correction but the focus has to come back to consumers. If the property price does not increase in the next three years, it in itself is a correction. There are chances that property prices may undergo correction by 10%. If it doesn't appreciate in the next three years, it's overall a 30 % correction."

Must see video and article on the Kargil Adarsh society scam

Mid-day has an excellent article on this topic. Simpreet Singh deserves full credit for this RTI expose. Click here for the full article.

Parade ground, Transit camp for SRA, security issues all thrown to the wind by Congress-NCP

Prices go north as space ‘shrinks’ in Mumbai

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Developers across Mumbaihave hiked project prices by 7-43%, leaving genuine home buyers in a fix. Worse, despite the price hike, the carpet area, or the actual space the buyer receives for his use in the property, is nowhere near the usual proportion of saleable area the developers used to offer. Earlier, developers used to give as much as 70-75% as carpet area, which has now shrunk to 55-60%.

Among the bigger realty brands, Lodha Developers has hiked prices 11-30%, Ackruti City by 10-42%, Dosti group and Godrej Properties 10-18%, Kalpataru Constructions 9-24% and Runwal Group by 10-25%, to name a few. All the developers have increased prices for properties in Thane and nearby regions substantially.

“Across all the major micro-markets, prices have risen by 10-30% since April 2010. This is after the 20-40% increases between October 2009 and April 2010. For example, prices in Borivli, are quoting Rs8,000-11,000 per sq ft, up from last year’s Rs6,000-8,000p sq ft.”

An analyst from a domestic brokerage, who spent the whole day trying to gauge sale conversions, said, “We waited the whole day, but hardly saw any inquiry translating into a sale.” An analyst from an international brokerage had this reaction to offer, “if you don’t work in the financial services sector, you can’t buy these properties; they are unreasonable.”

Will this Analyst Firm give their honest opinion to Media, I guess not....

Pay 10% of the flat value now and remaining 90% on possession

Unreal estate…Manic buying before a likely panic collapse

The 10:90 schemes have got such a good response. Buyers of such real estate projects have now become investors or rather traders. They are paying 10% upfront and buying a call option. If prices collapse, they will have to simply write-off the 10% they invested. We have heard enough that derivatives are weapons of mass destruction. These weapons appear to have entered the real estate now. Is it a prelude to a crash?

From the builder’s perspective, the scheme works because he gets potential buyers into the system. The supply which is coming in central Mumbai is huge, just look around the Parel landscape and you will get an idea of the number of buildings that will come up in the coming years. Kamala Mills, where our office is located, is in the epicenter; the world’s tallest tower is coming up on one side and world’s greenest tower launched by DLF is on the other. There will be about 13,000 apartments which could cost anything upwards of Rs4 crore each coming up in the central Mumbai area. To put it in perspective, in the last five years less than 6,000 apartments of somewhat similar quality have been sold. So we are talking about 21 pricey flats being sold a week over the next four years, which I think is too ambitious. Informed people tracking the real estate market say property prices overall will have to cool from these levels.

If at all prices remain high it would be due to failure by some builders to deliver their projects on time, which would reduce the supply in these areas. If all the supply materializes, then some builders will be forced to cut down their amenities and luxuries and make the prices more affordable to sell their flats.

Real estate prices hit the fast track in New Delhi, Mumbai

Is real estate becoming an asset bubble?

DNA invited some leading real-estate players to help readers understand the trends in the industry in Mumbai.

Prakash Shah: Mid-town means areas like Lower Parel. I don't see a price correction happening in distant suburbs like Thane where the price is about Rs8,000. That is affordable middle-class housing. That’s a place where land availability is still possible. Enquires and business are going on. There is reasonable demand and supply. Not at the same levels as in 2008, buta reasonable demand-supply position is there. And Rs7,000-8,000 is an affordable rate in Mumbai. Maybe in other cities I understand Rs3,000-4,000 is an affordable rate, but Mumbai has a peculiar way of thinking. Compare the prices of Central suburbs, which are around Rs8,000 a sq ft, with those of Western suburbs like Borivli-Kandivli where prices are around Rs10,000-11,000 sq ft. These differences will remain.

Anand Narayanan: In Delhi, you can just keep expanding. Manesar or Gurgaon. The Delhi model is to give the first investor all flats, who then sells them to a second investor and then to the third. In Mumbai, because land is scarce, the builder (except for the small part he has sold to original investors) normally wants to sell to the real user. It also ensures that the market does not get too speculative, and prices don’t fall. The flats may sell very slowly, but the builder can afford to wait because he does not have a million square feet to sell, with the knowledge that he can develop another million square feet tomorrow. That is why, in Mumbai, when I go and buy a product in Hiranandani or any of the good developers. there is a lock-in period. If I put in money today I may not be able to sell for a period of time which is a reasonable period of time. It could be as high as one year to three years. Then there is a high exit cost.There is a transfer charge which is designed to stop investors from flipping it and which can go as high as 15% of your sale value. These exit costs could be in the region of Rs50-100 per sq ft.

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when we talk of the possibility of a bubble, we’re actually only talking of property in Mumbai and Delhi right now.

The real estate market in Delhi led the correction, and Mumbai fell in line next. Both bounced back after the introduction of stimulus packages and the government’s actions in restructuring debt. During the revival phase, a large amount of capital sitting on the fences immediately saw an opportunity. This was first seen in the equity markets, and then later in the real estate and gold commodity markets - all three classes bounced back convincingly.

There is, therefore, a concern that these two markets have demonstrated higher-than- expected enthusiasm, especially in the central parts in the case of Mumbai, and Gurgaon and Noida for Delhi. A lot of investors have plugged in considerable amounts of capital in these regions, and the values, on an average, have now gone 30% higher than the last peak. Some of the residential developments in central Mumbai in 2008 had peaked at `30,000/sq ft. Today, they stand at 38,000/sq ft.

The kind of volumes that we have witnessed in the first half of 2010 has come down dramatically but the liquidity situation in the market has not dropped, and neither has the appetite for investment. In fact, the same enthusiasm, which had been previously contracted by the central parts of Mumbai, is now spreading towards the other parts of the city.

Mumbai property rises above slums

Article on FT.com

A real estate boom in Mumbai is fuelling the building of elite high-rise apartment blocks, such as the 117-storey World One.

Their high-priced exclusiveness as they tower over the city’s slums, which house two-thirds of its population, highlight the growing gap between haves and have-nots in what is already one of the world’s most unequal societies.

“With the new buildings, there is much more segregation than in the Bombay I grew up in [during the 70s],” says Suketu Mehta, the author of Maximum City, the novel about Mumbai whose title has become a synonym for India’s financial capital.

Mumbai’s property market, Asia’s third most expensive, has staged a dramatic recovery from the global financial crisis in line with the country’s economy – expected to grow 8.5 per cent in the current fiscal year.

But the difference between this and previous real estate booms is the size and increasingly elite nature of the new buildings.

With no hope in sight of an increase in mass housing for lower income earners, the new buildings will only serve to underline social inequality in Mumbai, known as India’s “City of Dreams” for its Bollywood movie industry and powerful tycoons.

“Most of the people I know in Bombay ‘high’ have no interaction with Bombay ‘low’, except that they look down upon them from a great height, like barons in medieval fortresses,” says Maximum City’s Mr Mehta.

ET interview with Pranab Mukerjee

Essentially the Finance Minister says that they will not curb FII investment in the near term, RBI will intervene whenever the rupee tries to rise quickly and higher prices are here to stay forever. To quote him "Prices do not go down. In fact they never go down". I foresee the following happening over the period of the next year.

1. Sensex hits an all time high however retail investor participation remains very weak. The common man has not forgotten what has happened in 2008-2009 and is going to stay on sidelines for atleast few more years before his memory begins to fail.

2. RBI raises interest rates as stock markets hit record highs. Interest rates begin to pinch the common man who has taken loans for his own house, education, home improvement, credit cards etc. Buyers keep buying houses in all cities except Mumbai where without 1crore of black money nothing moves

3. Prices of goods keep going up as speculators hoard commodities and producers reduce supply to maximize margins.

4. Companies try to be efficient to keep up with rising costs. Wages remain stagnant. No Pink slips yet.

Net effect

Stagnant wages, Higher loan payments, higher monthly expenses , lower savings, say bye bye to financial independence.

Welcome to the Matrix. If you take the blue pill, you get to see how deep the rabbit hole goes

Here is the finance ministers interview

In an interview with ET Now, Finance Minister Pranab Mukherjee says it’s not a time to put any restriction on the inflow of FII and that the regulators are closely watching the market. Excerpts:

What do you think are the primary reasons for the market rally we are experiencing currently?

Always the fear of having some sort of bubble would remain. I do not think this is a time to put any restriction on the inflow of FII. Certain market sentiments are there. Prospective investors are looking into the market, and naturally, India as an emerging economy, along with China and some other Asian economies, is considered a safe destination for investment. One of this upswing is that robust recovery which was expected in North America and Europe has not yet taken place and the IMF forecast has also been revised. We shall have to watch the situation. We reached more than 20,000 in January 2008. So, the stock market fluctuation always takes place, but we shall have to see that it does not have that adverse impact just like a bubble effect.

Is it safe to presume here that you are in touch with the market regular and keeping a close eye on how the market has really moved today?

At Rs 1.91 cr, average cost of flat in Mumbai now at all-time high

Even if prices drop 50% they are not affordable to 95% of the Mumbaikars. Other cities like Chennai, Bangalore,Pune, Hyderabad are still affordable to most of their residents. If only I could move I would do so in a heartbeat. Unless someone has pots of money, white or black it makes no sense to buy in Mumbai. However if someone has to sell, this couldn't be a better time.

Indian Express reports

In Mumbai, the average cost of a roof over one’s head is now at an all-time high of Rs 1.91 cr.

Raghav N. Bhatnagar

With property prices soaring to dizzying heights in the country's financial capital, aspiring home-buyers have to be much more than a crorepati to buy a flat in Mumbai, where the average cost of a roof over one’s head is now at an all-time high of Rs 1.91 crore.

According to figures put together by the real estate research agency Liases Foras, the weighted average cost of a flat in Mumbai at 1.91 crore has leapt by 49 percent over the last one year. The weighted average cost is the total capital value of all flats divided by the total inventory in each city. In comparison, five other cities like Bangalore, Hyderabad, Chennai, Pune and the National Capital Region (NCR) have witnessed either a drop in rates or a negligible increase. An average flat in these places is relatively affordable at Rs 35 to Rs 50 lakh.

India Just Broke Its Record For Most Foreign Investment In A Single Year

I'm predicting a short term correction followed by a gigantic rally and then a big thud. All this short term mania has to end up in the dumpsters. The greater fool theory is in the works now. Its a matter of time before the chickens come home to roost. Be very careful for we all know Bulls make money, bears make money, Pigs gets slaughtered. Somebody has to lose in this game, just make sure you are not the last man standing. Comparing the S&P 500 with the Sensex is really poor journalism. The Sensex is only 30 stocks compared to the blue chip 500 in the S&P. The current sensex rally is driven by few chosen stocks. Even bellweather Reliance has not participated in the rally. State Bank of India is up 50%. Anytime a big gorilla like SBI rallys 50% there is a clear indication of the greater fool theory. Only here the FII's are playing the game hoping the Indian retail investor will participate thru the Mutual funds who they can then dump on. Last time this ended badly the Japanese investors were the last ones to enter and they must have been left holding the bag. Not to mention other Sovereign wealth funds which must have been beaten down to the core.

Business Insider reports

India just broke its single year record for foreign investment and it's only the end of September.

The mark, set today, is $17.89 billion, according to the Business Standard. That beats 2009's total of $17.86 billion. The specific class of investment is foreign institutional investment, which includes equity funds.

The pace appears to be picking up too, with $300 million invested in the country for the week ending September 22.

The question then is whether or not the Indian economy, and its Sensex exchange, is in a bubble.

Currently, the P/E ratio of the Sensex is 19.1, which doesn't seem ridiculous. The U.S. S&P 500 is trading just above that right now.

Forget Mumbai, the real bubble is in Ahmedabad

It looks like Gujju investors are returning to their homeland and sparking a buying frenzy in Ahmedabad. Ahmedabad is now resembling Mumbai when you compare prices. Ahmedabad has no known industry which draws thousands of job seekers like Mumbai, Pune or Bangalore.

Ahmedabad can be a good city to live in if one has good job prospects or if one is running a good business. Same goes to Nagpur, Coimbatore and Mysore. However as of now I know noone in my current set of friends who would like to relocate to these cities. Maybe times will be different in a few years

DNA reports

About a year and a half ago, recession in the city realty market had builders and buyers alike, worried. However, about a year since the first signs of recovery in June 2009, realty in Ahmedabad is back and booming. In fact, property prices in the city have inched up by nearly 35%.

The high economic growth and rate of urbanisation, along with the improvement in infrastructure in the state, have been catalysts in the growth of the real estate market. And the boom is not restricted to the western side of the city alone - properties across the city, irrespective of location, have witnessed a steep rise in prices.

However, Ahmedabad had been anything but spared by the global meltdown. The property market in the city had been considerably hit by the recent economic slowdown. But property prices started moving northwards in June 2009.

"If you compare the pre-slowdown prices with the present ones, there has been an increase of about 22-25%. However, if you consider the cumulative rise in prices since the worst phase of the downturn, the increase has been almost 35%," said Suresh Patel, GIHED president.

He said that the property prices in the city went down by around 12-15% due to the recession, and it took around four-five months for the prices to get back to the pre-slowdown level. "After that, they have increased by around 22-25%," said Patel.

Online real estate service provider company Makan.com's property index shows that realty prices in Ahmedabad have grown by 36.8%, compared to the national average of around 18.6%, between June 2009 and June 2010.

Jaxay Shah, president of the Confederation of Real Estate Developers Association of India (CREDAI) - Gujarat, also acknowledged the same and said that the higher GDP rate in the state and the infrastructure available have lent a boost to the market. There still remains a lot of scope for the real estate industry in Ahmedabad, he said.

Realtors believe that better living conditions could be making Ahmedabad a viable alternative to Mumbai.

Bad realty loans threaten to nibble at banks’ pre-tax profit

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Home prices have shot up as developers keen to cash-in on the booming economy have bid land prices to new highs in land-scarce cities like Mumbai. For instance, last month, city-based Neepa Real Estate paid Rs 830 crore for an 18-acre plot in Andheri, Mumbai. Earlier, Indiabulls Real Estate successfully bid over Rs 1,900 crore for two NTC mill plots — the 2.39-acre Poddar Mills and the 8.37-acre Bharat Textile Mills property.

Sanjay Dutt of Jones Lang LaSalle, in his blog, has raised the prospects of a real estate bubble in pockets like Mumbai, pointing out that some properties in central Mumbai peaked at Rs 30,000/sq.ft in 2008 and today stand at 38,000/sq.ft. “There is yet another reason for the concern over a bubble building on the market. All developers who had ventured to buy land overseas or across India are now buying only in their primary cities. In other words, Mumbai developers are concentrating on acquiring land solely in Mumbai, and the same is happening in Gurgaon. Investments are now chasing these Tier-I markets, and if this continues, there is certainly the probability of a bubble in residential property by the end of the year,” he said.

RBI hikes interest rates to tame inflation

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MUMBAI: The Reserve Bank today raised its key short-term lending rate by 25 basis points and borrowing rate by 50 basis points to check rising prices.

" Inflation remains the dominant concern in macroeconomic management", RBI said while raising the repo (lending) and reverse repo (borrowing) rates to 6 per cent and 5 per cent, respectively.

The new rates, which comes into effect immediately, were announced as part of the first scheduled mid-quarterly review of the monetary policy.

The hike in rates will lead to a rise in cost of funds for the banks and eventually makes loans expensive, which will reduce consumption.

Builders resorting to distress sale?

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Hiral Shah, who has been scouting new residential projects in Kandivali to buy a house, got two rude shocks. “No one is quoting less than Rs 1.2 crore for a 1,000 sq ft house in Kandivali! And surprisingly, I also discovered that almost half the flats I saw in the two new projects were vacant,” said Shah.

Even as developers maintain that sales are brisk, crevices are beginning to show up, and one indication of this is that some developers are resorting to distress sales – disposing of homes by offering as much as 40-50 per cent discount. Zen Towers in Tardeo is a case study. Set to complete in December this year, you can buy space for Rs 15,000 per sq feet as opposed to the market rate of Rs 25,000.

But here’s the catch: you must make a bulk buy of at least 10,000 square feet.

“The market is over-heated, and with a price correction being anticipated, investments are drying up. Though big builders can hold on, it is the small players who have started to feel the pinch, and are creating distressed assets even as market sentiment is positive,” said Atul Khekade, partner, Netz Realty, a property consultancy firm that has sensed opportunity here.

A builder, who is selling bulk stock at 40 per cent discount, said on condition of anonymity, “As big builders go on increasing rates for their projects, the average market rate is pushed up. They get funding through FDIs or big private equity firms. But when rates reach a brink, even investors who fund small projects like mine become wary. One Gujarati investor group that had promised to pump some money into my project backed out. Now I am desperate.”

Real estate analysts speculate the cracks could widen. Pankaj Kapoor, Managing Director, Liases Foras said, “Creation of distressed assets is an indication that the residential market will undergo a correction, which could be to the tune of 25 per cent in the short term. This is not just because property prices are unrealistic, but also because a chunk of flats are being traded by investors instead of being bought by actual users.”

If you have to buy, buy from an investor

We've seen some excellent articles posted by fellow bloggers in the comments section along with some great arguments for the rise/fall in prices. I wish to thank everyone for that.

Here is my anecdotal evidence based on my interactions with brokers in Mumbai and other parts of the country.

Market has gone up rapidly in the past 7 months. They do not expect prices to rise much more beyond this. Investors are selling their properties however they are asking for almost 50% black. Some investors cannot exit with a high white component. Such properties are 20% lower the other all white deals sold by the builders. Like they say cash is king. In this case if you have cash you can negotiate any price. One of my friends put his house on the market. An offer was made within a day for 10% lower then the quoted price. For sellers the best thing is to decide the lowest price you are willing to take and then mark it up by 20%. People always like discounts so a 10% discount on a 120% marked price is better then a 5% on the 100% price. For buyers it makes sense to cut prices by atleast 20%. Give reasons like loan is not available for that amount. Funds are available but deployed elsewhere. This gives a sense of relief to the seller that even though you may not buy the flat, atleast you are capable of making funds available at some point in time and he is not dealing with a someone with an empty wallet.

Another person I met put his house on the market and got a quote right away, again at 10% below. This made me smart and I tried to do the same. I put my parents house and priced it 25% up and told this to the broker. The broker is like 'bahut jyaada quote kar rahe ho'. I know then that the rate I've quoted is what I should not be paying to buy the apartment from the broker.

In today's market in Mumbai it makes no sense to buy directly from the builder. The builder has already sold many properties to investors who keep rolling their money with him so the price is already higher then when the first flat got sold. In fact by buying the property you are decreasing the already reduced inventory and causing the price rise for the next buyer.

Secondly there are a plethora of taxes imposed by the government, BMC and other departments. This is true for all cities where I've looked. Pune, Chennai, Bangalore, Mumbai are all the same when it comes to government fees, all these fees are up some even by 40-50%.

There is Service tax due which can be almost be 3% of the total agreement value. There is VAT, impact fee, premium housing fee all which add to the underlying house price. The government sees this as a quick way to make money since they expect most of these prices to get passed down to the housing loans of the buyers

Its best for somebody else like the investor to pick up the taxes and you get what you pay for. The investor is happy to exit at the agreeable price so even though he makes money, he saves you money since the newer fees from the builders are much higher. Investors are also happy to negotiate a discount to the builder so your final price is also lower then what a builder will charge you.

In Chennai the first sale is registered at the UDS (undivided share of land) value, a fraction close to 10-15% of the full apartment value. If you buy an apartment from an investor before registration you can easily save the 9% registration cost of the full price plus you get an almost ready apartment if you buy an apartment nearing construction

Everywhere I've seen investor flats seem to be the best bet for any underlying house purchase.

No one’s buying a house in and around Mumbai

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A staggering 96.3 million square feet of residential space — or about 80,000 homes — is lying unsold in the Mumbai Metropolitan Region (MMR), the highest-ever inventory pile-up for the area. Sales are down 38% over last year.

Data compiled by real estate research firm Liases Foras show that at the end of June 2010, the unsold residential space in Mumbai, Navi Mumbai, Mira-Bhayander and Thane was nearly twice the 58.9 million sq ft that was available in the MMR in June 2008. Liases Foras CEO Pankaj Kapoor said if flats that are currently lying with investors, which will eventually return to the market are taken into account, another 50 million sq ft will be added to the unsold space.

Analysts see in the glut a throwback to the circumstances that led to the realty slowdown of 2008-09. Builders are again looking to raise money through IPOs, and the pricing of flats is valuation- rather than sales-driven.

The average price of residential property in the MMR works out to Rs 7,747 per sq ft; in Mumbai itself it is an eye-popping Rs 13,798 per sq ft. A 1,000-sq ft carpet area flat in Kandivli, which cost Rs 70 lakh 15 months ago today costs Rs 1.6 crore, Kapoor said.

Observations On China's Bubble, Or The "Lose-Lose" Reality Of A Financial Cocaine Addiction

Not from India, but we are not very far behind in speculation....

Jim Quinn's has penned a good post on the "mother of all bubbles" in which he analyzes the impact of cheap credit and surging money supply on Chinese real estate, hot on the heels of recent Zero Hedge disclosure that nearly 65 million homes in China lie vacant. Using data from The Casey Report depicting the explosion in monetary aggregates, it is rather easy to see just where all the "excess" credit and easy money has gone. In many, if not all ways, the experience China is about to undergo with respect to its real estate bubble is comparable to that of the US, and simply the lack of an overlap of bubble peaks in 2007/8 is what helped China experience an all out economic rout, which due to how its socio-political structure is intertwined, may have well led to a domestic revolution and/or civil war. Yet the longer China avoids looking in the mirror, and continues to "feed the monkey" the worse off it will be when no amount of incremental cheap money can forestall the collapse. Which in itself is a very comparable predicament faced by our own administration and central bank. But before we present the Quinn article, we will take a brief detour into Michael Pettis' recent observations on the pitfalls association with a monetary heroin addiction.

Article Link

In Mumbai, flat sales drop 30-50% in 4 mths due to inflated rates

Times of India has this article. Looks like they have to tell the truth after all. Buyers have to be wary of the high builtup area which seems to be heading to 50% from the usual 25-30%. Also now a days there is no water supply graned to new buildings until end of 2011. I think by the time 2011 comes, they will move it another few years. Best to buy something ready construction with no water issues.


MUMBAI: Mumbai’s builders seem to have priced themselves out of the market. Sales of apartments, on an average, have dropped between 30% to 50% over the past four months as end-users, discouraged by the high rates, are staying away or postponing their decision to buy their dream house.

But developers are not perturbed. Except in 2008, at the height of the global economic meltdown, they have been riding high on the real estate boom that started seven years ago.

According to sources, most builders have a good staying capacity and can afford to hold on to their prices despite the drop in sales.

A property expert said sales in the suburbs had fallen by more than 40%. "Investors from certain financially rich communities have formed a cartel and are driving up prices. They are trading in real estate by buying flats in bulk and selling in retail. On the other hand, the genuine purchasers are not buying flats at these inflated rates."

It is learned that many developers artificially jack up their rates by, say, more than Rs 1,000 a sq ft, and then play out the charade of giving a discount of Rs 1,000 a sq ft to a potential buyer. Moreover, in many residential projects, the difference between the built-up area and the carpet area is now almost 50%.

More here

India Lands in a Mess

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A proposed property-rights bill could have far-reaching, positive implications for the economy.

Today, the labyrinth of bureaucracy makes it hard to realize property values, condemning landowners to poverty and making land artificially scarce. According to a national survey in 2006, about 40% of Indian farmers would like to sell their land and move out to more lucrative occupations, but can't find buyers because of archaic laws. A survey this year found that about 40% of people in urban areas live in slums, also because of restricted land supply.

Another law has recently been proposed by the government to help give the people clearly defined land titles. The Ministry of Rural Development has recently drafted the "Land Titling Bill 2010" to encourage states to adapt similar legislation at the provincial level. The draft is open for public comment until August 31, and it is well worth reading.

The deliberations over the coming months could determine whether this legislation will transform India or merely remain a piece of paper that scores high on intention, but fails in practice.

The draft Land Titling Bill 2010

Comments/opinions/suggestions on the draft Bill from all stakeholders are invited and may kindly be sent to e-mail ID da-dolr@nic.in

After the engineered price boom, it’s raining discounts in real-estate

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"Property prices have started showing correction as sales are not happening. After the first quarter of the current fiscal, property sales are down by around 15% in Mumbai. End-users have disappeared from the market," said Pankaj Kapoor, founder, Liases Foras, a real-estate research agency.

Mumbai is expected to report lesser volume of real-estate transactions over the next six months, according to industry experts. "We are going to see lower volumes of transactions in the next six months compared to the past six months, if prices do not come down," said Pranay Vakil, chairman, Knight Frank (India) Pvt Ltd.

If the current trend of discounts by developers is any sign of things to come, a much-belated correction in property prices in Mumbai might finally happen. Prices of various real-estate properties - both residential and commercial - had shot up by 30% in a few pockets of Mumbai over the past six months.

Skywalks/Malls threaten commercial shops values on busy streets

Mumbaikar's have seen skywalks mushroom all over the city and as with every other thing some have been a success whereas others have not.

I regularly pass thru the Bandra (e) skywalk and notice that there are very few people on it, however I recently made a trip to Santacruz(w) and lo behold the skywalk was packed with people going in both directions. I looked at the stores below and not surprisingly they were empty. More and more people are shopping in malls and skipping small niche shopping locations like Santacruz(w) and now with these skywalks any foot traffic which could venture into these shops is now eliminated.

I was real surprised to see most shopkeepers whiling their time looking at the traffic and wonder how they must feel about this contraption over their heads which is eating into their livelihood and property values.

In fact I think the only thing keeping these commercial prices high is the redevelopment syndrome which seems to be prevalent in all older neighboorhoods. I believe builders will have an upper hand when they negotiate as the shop keepers would rather cash out then endure the rapid decay in their profits.