Resale home market fails to attract buyers

Resale home market fails to attract buyers

MUMBAI: The increase in the demand for housing in the past one month appears to be restricted to resale do not have too many takers, at least not in the large cities. In the case of new projects, developers have been offering attractive discounts, while prices in the resale segment have remained high.

Agreed Sunil Bajaj, another city-based property consultant, “The asking rate for old property market is not in line with the prevailing market rate. In Kandivali (a suburb in western Mumbai), the price of an apartment on the first floor on a per square foot basis was as expensive as the one on the penthouse in the same building.” He added that the flat has remained unsold.

Potential buyers have not been finding the going easy. Amit Desai, a Mumbai-based professional employed in a large business group, is one such person. “For a salaried employee, the rates for older property is out of reach since sellers ask for at least 30% of the price in black. This means you get a loan

only on the white component (the price after deducting the black component).”

Industry observers said new property has witnessed a price drop of 30-50% in the past six months that is the result of developers facing a liquidity crunch and falling demand. Some buyers have chosen not to go ahead with the purchase, as they feared the property might not be completed. This has led developers to offer schemes like getting the buyer to make a partial payment initially and pay the rest at the time of possession.

Psychology driven markets

After basic fundamentals are taken into account, most markets (housing, stock,loans ) are driven by psychology. People buy things based on what others are buying. The media plays its role in shaping the opinion and perception about goods and services and common sense will tell you how people buy and sell based on news articles in the media. Many times people are stricken by fear and sell too early - For this see the Cramer video on how market makers plant stories and move stocks. 

My theory is that the bad news trend is down. People yawn when yesterday's unemployment figures in the US were announced and the stock market moved higher, inspite of record unemployment.

What my little brain can infer is that the government is going to throw the kitchen sink at the problem and several articles have pointed to inflation to rise in the coming months. The US I-Bonds limit has been lowered to 5,000$ per person from 30000$. The government does not want to pay the CPI inflation for the bond since it thinks that is the what is on the horizon. Some people are forecasting US inflation at 5% in the coming years. 

In India  I see the government pumping money in by lowering rates and drawing out all the fence sitters to buy in the property market. However they will make loans very hard to get so the black component of the market will rise. I still don't see how we can justify 60L apts in remote areas or 1 cr apts in developed areas if only funded by loans.  

There are other issues like timely delivery of apts, poor construction, cheating which are bigger issues in the apt buying process. Those have to  be analyzed more closely and the only thing the buyer can do is to beware and go for ready possession clear titles properties. 

I still see a big demand in people wanting housing, the only thing as we all know is the price is too high even after the 25% drops in most mid-segment housing prices.

36 South Starts Hyperinflation Bet After Black Swan

Bloomberg reporting. I think this effect will be on India too as the Indian government begins a spending spree awarding contracts to Indian and foreign firms. Already there are indications of the F-16/F-18 deal with Raytheon and more will follow. The governments will try their best to spend themselves out of the recessionary spiral. More money will be printed and overall everyone will think they have more money, only that that money will buy less. The sixth pay commission is another example of spending. Instead of reiging in inflation, the government is printing more money which will make it less valuable. Elections cannot be won if people have less money which buy more things, but when people have more money which buy less things. In the latter case the government is seen as helping the citizens, and blaming the foreign governments including OPEC as the villians.

With reference to Indian housing I think this spells bad news. Prices drops will be stalled as money enters the system looking for value. Today I got an offer by ICICI bank which mentioned about a Chembur project for 5300 per sq/ft. Not sure what is the exact location previously these locations quoted 8k and above. Just shows that new projects are priced lower then existing ones. The floor is being set so it is time to look for deals. I'm officially abandoning my bearish position on projects which accept full white money. The theory being that banks in today's economy will not lend money if they think the house will lose value or the builder and borrower is not credit worthy. So projects accepting full white have to price themselves to perfection, else they will see no traction with the buyers. This is a time to hunt for value, if you have the down-payment, you can demand your price.
By Netty Ismail

June 16 (Bloomberg) -- 36 South Investment Managers Ltd., whose Black Swan Fund gained 234 percent in 2008, is raising money for a new hedge fund, betting that government efforts to pump money into economies could result in hyperinflation.

The Excelsior Fund targets returns that will be five times the average annual rate of inflation of the Group of Five economies -- France, Germany, Japan, the U.K. and the U.S. -- should the rate exceed 5 percent, Jerry Haworth, co-founder of the firm, said yesterday. Raising $100 million for the fund would be a “good” amount, he said.

“There is a sharply increased risk of greater than 5 percent inflation starting from now,” Haworth said in a telephone interview from London. “We are in the lag period between when the seeds of inflation are sown and when their off- spring, that is higher prices, are evident for all to see.”

U.S. President Barack Obama is selling record amounts of debt to try to end the steepest U.S. recession in 50 years, while Japanese Prime Minister Taro Aso has unveiled three stimulus packages worth 25 trillion yen ($261 billion) since taking office in September. Governments around the world selling record amounts of debt may devalue currencies against assets and spark inflation.

Most investors are underestimating the risk of inflation, Haworth said. Consumer prices in the U.S., the world’s largest economy, are set to rise 1.7 percent next year, following a 0.6 percent decline this year, according to the median of 70 economists surveyed by Bloomberg.

Inflation Risk

“There is certainly talk about inflation but people might think of inflation at 5 percent or 6 percent,” Zimbabwean-born Haworth said. “We’re talking 5, 10, 15, 20 percent or more.”

Investor Marc Faber said on May 27 he was “100 percent sure” that U.S. prices may increase at rates “close to” Zimbabwe’s gains, and the U.S. economy will enter “hyperinflation” because the Federal Reserve will be reluctant to raise interest rates. Zimbabwe’s inflation rate reached 231 million percent in July, the last annual rate published by the statistics office.

Universa Investments LP, the hedge-fund firm advised by “Black Swan” author Nassim Taleb, is also adding a strategy betting that stimulus efforts won’t prevent deflation or could result in hyperinflation.

Inflation will likely be “very low” through 2010, said Alvin Liew, an economist at Standard Chartered Plc in Singapore. There will only be “a risk of very high inflation” starting in 2011 if governments fail to rein in “those excesses that they did to stimulate the economy in the near future,” he said.

“For now, I will be more concerned about how sustainable the growth recovery path is,” Liew said. “When we move into the later part of 2010, investors should pay more attention to inflation.”

Options

36 South’s Excelsior Fund will buy long-dated options it considers cheap and that “stand a good chance of outperforming in an inflationary environment,” Haworth said. Options are contracts to buy or sell a security by a certain date at a specific price.

The fund will wager on an increase in commodity and equity prices, bond yields and increased currency volatility.

“It’s a very high-risk, high-return fund,” said Haworth, who has been trading derivatives for more than 20 years as the former head of equity derivatives at Johannesburg-based Investec Ltd., and co-founder of Peregrine Holdings Ltd., a South African money manager and stockbroker.

The firm will be marketing the fund in the next three months.

36 South has closed its Black Swan Fund, which bet on risk- aversion events, and returned the money to investors after profiting from last year’s global markets rout.

Returns on the inflation fund “could be even higher than the Black Swan Fund though the likelihood is smaller as options are more expensive than they were when the Black Swan positions were bought,” Haworth said.

Home loan exemption increases

It appears that the government is on an appeasement drive to help the builders. Loan based properties will soon see spikes in sales as these changes take effect. Still the impact will be almost zero on highly priced properties which are not served by the loan market specially Mumbai. For that you need 3/4 of your income to be generated by evading taxes. It is then possible to own in Mumbai. I think this move and the lowering of rates to the vicinity of 9% will drive a bunch of people to make purchases. I'm not turning bullish here but I think for the prospective buyer, doing some research locally is probably not a bad thing. You can always choose to back out of the final purchase but some research is definitely warranted. There was another article I read which mentioned that the 6th pay commission has raised government salaries of unskilled workers to 9500. With such rapid inflation, Rs 1000 will not hold much value any longer. Government jobs didn't pay much and everyone flocked to the private industry. Now the scales have been tipped and government jobs everywhere (US or India) will again be coveted with envy. We are seeing a complete reversal of trend unfolding before our eyes.

NEW DELHI:
The government is considering a proposal to hike income-tax exemption available for interest payment on home loans to Rs 2.5 lakh a Home Loan
Tax benefits on home loan year, to boost demand and rebuild the slowdown-hit housing industry.

The ministry of housing and urban development has urged finance minister Pranab Mukherjee to make an announcement to this effect as part of his Budget presentation in early July, a government official said on condition of anonymity.

At present, taxpayers taking housing loans are eligible for income-tax exemption on interest payment of up to Rs 1.5 lakh every year. Besides this, the repayment of principal amount is part of investments eligible for benefit under Section 80(C) of the Income-Tax Act, which has a ceiling of Rs 1 lakh.

The government has already identified housing as one of its focus areas, a fact highlighted by President Pratibha Patil in her address to both the houses of Parliament.

The existing tax exemption limit is considered inadequate at a time when a two-bedroom house in big cities costs at least Rs 25 lakh.

Considering a person takes a loan of Rs 20 lakh at an interest rate of 9.5%, he would pay Rs 1,88,493 towards interest alone in the first year. His annual interest payment in the first five years would be more than Rs 1.5 lakh.

If the exemption limit is hiked to Rs 2.5 lakh, then a person paying that much home loan interest in a year will save an additional Rs 31,000 in tax every year. This saving of over Rs 2,500 a month would be significant for most borrowers, making home purchases more affordable.

However, as per existing norms, the tax benefits start flowing in only after the construction of the house is completed, which usually takes 2-3 years in case of builder flats.

The housing industry has urged the government to allow for the deduction as soon as loan repayment starts, as it would give substantial relief to home buyers and boost demand.

The Budget documents do not provide an estimate of the revenue forgone on account of this exemption, but it is unlikely to be very significant.

Of the total Rs 38,107-crore tax revenue forgone on account of tax exemptions to individuals in 2007-08, nearly Rs 30,000 crore is on account of Section 80C benefit, one component of which is principal repayment on housing loan.

The housing sector in the country has been hit hard by demand slowdown, following a rise in interest rates. Besides lowering of home loan interest rates, the industry has been continuously pitching for greater tax benefit, as it had the potential of stimulating demand.

A roof over one's head

A roof over one's head

HDFC says that the multiple that operates for housing in a Mumbai suburb is between 4.5 and 5.25 times annual salary. If 85-90 per cent of the cost of a flat is taken as a loan, and a 15-year loan has a monthly repayment instalment that is 1 per cent of the loan amount, then simple arithmetic tells us that 40 per cent of income is needed to pay back the loan.

Now, the average (or median) Indian family earned about Rs 1.31 lakh last year, or Rs 11,000 a month. Can it afford to pay Rs 4,400 every month on a housing loan, for a modest one-bedroom flat that costs Rs 6.5 lakh? Probably not. But if it could, or if it had a little more income, would it get a flat for Rs 6.5 lakh? Not in the big cities. The Delhi Development Authority, which is not known for quality work, sells a one-bedroom flat (450 sq ft) for Rs 8-10 lakh; the open market rates are at least twice as high. So it is easy to see why most middle-class Indians see home ownership as a distant dream.

But hold it; flats are now being offered for Rs 4 lakh by Tata Housing (covering 280 square feet, which may mean a room plus kitchen). A 450-square foot (one-bedroom) flat would cost the magical sum of Rs 6-7 lakh. Jerry Rao, the banker-turned-IT entrepreneur-turned-housing evangelist, has set up a housing company that will offer flats for Rs 7 lakh—with construction cost in the region of Rs 700 per square foot. These entrepreneurs seem to be dropping the total cost from Rs 2,000 per square foot to Rs 1,500. If they are successful, others are bound to follow their lead. And housing might then become affordable for the average Indian, if not quite the aam aadmi that the politician has in mind.

The big real estate companies, which have been focusing on housing that costs Rs 4,000-6,000 per square foot and more, have seen the light—in part because they have found no takers in today’s real estate slump. So they have slashed prices, in some cases by a half, and have been rewarded with a rush of buyers. The problem in India is that much of the cost of the roof over your head is on account of the land beneath your feet—which has been kept hopelessly expensive by the politician-builder nexus. This has prevented more land from coming into the housing market, which is why upscale flats in Delhi and Mumbai rival the costs of those in Manhattan (where the typical flat costs Rs 6 crore). If more land were thrown into the market, home ownership would not remain a dream for the majority, it would become reality.

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

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

Details:

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

What is TPT?

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

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

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

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

Conflict: Editorial lenience to TPT companies.


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

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

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

Here are the links for more understanding;

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

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

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

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

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

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

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

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

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


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

Realtors Seek Share Sales To Repay Debt, Await Sales

From VCCircle.

Since the start of 2009, almost $ 2 bn has been called for by realtors via share sales.

India's real estate firms are seeking share sales to settle debt and meet working capital needs as valuations improve, but the funds won't be enough to salvage them if sales don't pick up, say industry watchers.

Since the start of 2009, almost $1.7 billion has been raised by home builders, according to Thomson Reuters data, while up to $2 billion more has been called for by realtors via share sales, especially qualified institutional placements (QIPs).

"It is an over-leveraged market...the overall market is too huge. This (money) is nothing. It's small peanuts. It won't suffice," Pankaj Kapoor, founder of Liases Foras Real Estate Rating & Research, said.

Realty firms piled up debt as they rushed to launch projects amidst a three-year bull run in the sector. But, sales began slumping in 2008 amid a global meltdown and reluctance among buyers at higher prices, leading to a severe cash crunch.

Sentiment improved with the successful share sales by Indiabulls Real Estate, Unitech and India's largest listed real estate firm DLF, prompting more builders to seek board approval to raise money via share placements.

"They don't have an option," Shobhit Agarwal, Joint Managing Director, Capital Markets, Jones Lang LaSalle Meghraj, said, referring to QIPs. "If you go to private equity, which is the other extreme, this kind of size is not available."

"They have no further capacity to raise debt... or to service that debt," he added.

Outstanding bank loans to real estate firms rose to 623 billion rupees in FY08, up about 38 percent from a year earlier, the latest central bank data shows. Confederation of Real Estate Developer's Association of India (CREDAI) estimates that listed companies account for over half of those loans.

DEMAND REVIVAL?

Sales are trickling back as realtors focus on medium to low-priced houses, redesigning projects and cutting prices by as much as 40 percent in some markets, but most buyers appear to be flighty investors, suggesting that recovery may be months away.

Residences account for the bulk of real estate up for sale and select projects across India are seeing a revival of demand, developers say.

Equity analysts remain sceptical even about firms that were successful in raising money.

Indiabulls Real Estate's share issue brought down promoter holding to about 16.7 percent said a Motilal Oswal June report, "however, till date no concrete plans on the usage of the QIP proceeds have been shared."

Stock investors have pushed up the industry's market value but analysts don't think the rise can be sustained. India's realty index is up almost threefold from March.

With most stocks trading at NAV (net asset value) premiums and equity dilution a likely overhang, we view risk/reward as unfavorable, Karishma Solanki, analyst at Citi said in a June report.

India's property market pick-up is typically seen starting from Mumbai, then Delhi, followed by the southern markets, Jones Lang's Agarwal said.

But, the future still rests on revival of demand and a further price correction to bring back fundamentals.

The only thing that will bring back efficiencies into the (realty) market is sales," said Liases Foras' Kapoor. "For that prices have to come down, because until they come down, the buyer will not be motivated to come and purchase."

Time for a realty check

If you thought buy-one-get-one free offers were limited to trousers, shoes and other small-ticket items, think again. You could get houses too for free, thanks to Orange Properties, which came out with a ‘buy-one-flat-get-one-free’ offer recently for its Orange Resorts in Devanahalli, in Bangalore.

Sales didn’t quite skyrocket and the advertising campaign across print and outdoor met with mixed response, but given the current market conditions perhaps that’s understandable.

With real estate being struck badly in the slowdown, real estate developers, who were once riding a high, have now tightened advertising and marketing expenses. They have also had to think out of the box even while operating on leaner budgets. They have been forced to rework their marketing strategies to woo consumers at a time when the propensity to buy is not very high. Marketing initiatives may be fewer but they are becoming more focussed, specific and project-based, using direct and candid communication. And pricing is obviously the key premise around which the initiatives revolve.

Real Estate from a Landlord's point of view.

Hi All,

This is my first post on this blog, after having spent a great time as a reader and commentor. I am feeling a sense of pride at being 'promoted'. (Thanks Vik :).

This post will discuss an issue dear to my heart and my wallet:

Being a landlord in Pune (the financial equation).

Firstly, some background info:
<start_info>
I own 3 flats in Pune in good areas which are rented out. All flats are 2 BHK, rented out to software professionals.

The rent : emi ratio for each flat is approx 1:2. This is because one flat was bought when the boom in Pune was just starting, and other two flats are part of a duplex bungalow constructed on a plot owned by the family.

The going rates in these areas are currently so high that a flat bought now (in June 2009) and given on rent will have a rent : emi ratio of approx 1 : 4.
</end_info>

The landlord is not buying a flat for her own consumption, but for investment purposes. But she does not want to sell it immediately and turn a quick profit, so she is not a speculative investor.
She is a long term investor who is also interested in the betterment of the society and the neighborhood so that rents can increase.
In this sense, she has the same concerns as a homeowner.

Increases in rent generally are linked to income and standard of living. So only when the overall economy improves, rents increase.
Rents go down quickly in recessions.
Also, people like to rent the cheapest house which will "just support their lifestyle", as compared to buying the best house which will "enhance their lifestyle".

All this leads to a question (for which I don't have any good answers).
When house price increases without a corresponding increase in house rent, this is a speculative price rise. Should the landlord be happy?

The argument for being happy is that the high price is due to a bubble, and all bubbles eventually burst.
So the landlord should sell the flat now, being happy that she has sold it for more than its financial worth. Then buy it at a reduced rate when the bubble bursts. This is not as easy as it sounds.

The argument for being unhappy is that you can no longer expand your renting business.
The basic financial principal behind renting is Positive Cash Flow. This means that the rent in hand should be greater than the emi + taxes + maintenance + downtime. If there is positive cash flow, the property becomes self sustaining and you can think of expanding your business (i.e. buying another flat and giving it on rent.)
But now in a bubble, positive cash flow is not achievable, so there is a limit on how much emi you can pay out of your other income (read: salary).

In today's real estate scenario in Pune, rent : emi ratio is usually 1:3 or 1:4. Investing in a rental property makes sense only when rent : emi ratio is 1:1.5 or lesser.

Builders are not reducing rates quoting construction costs, growth of the economy etc.
A person who wants to stay in his own home can disregard the financial equation and buy the flat for emotional reasons.
But can a rental investor disregard the financial equation?
If not, should she predict that property rates will fall at least 50% in Pune so that rent : emi ratio comes down to 1:1.5?
Or should she predict that rents will double in the next year, so that a 2BHK which on average rents for 10k will command a rent of 20k next year?

Even when my rental properties have been bought at prices 50% lesser than today's prices, still the rent : emi ratio is 1:2.
This leads to some interesting questions:
1. Does this mean that not only prices will fall to pre-boom levels, but go less than that due to recessionary fears of the consumer?
2. Does it mean that rents are less than reasonable and we can expect a 20% to 30% increase in rents? Even though as a landlord, I would love to see an increase in rent, I don't think that in this recessionary phase, increase in rents is a practical possibility.
3. The ratio will decrease if the interest rates come down to 7 - 8%, from current levels of 10 - 11%. Is this a possibility? As might be expected, the builder lobby is pushing banks and the govt hard for an interest rate decrease.

Thanks
Abeer Bagul

Searching the blog and other things

Someone asked me on how to search the blog effectively to find out articles related to duping of buyers by the builders. I've tried to tag all such articles with various tags like fraud etc. Look at the bottom of this posting and you will see those tags. Click on those tags and you will find the relevant articles.
On another note, due to some personal commitments I am unable to follow the market and post articles on a regular basis. I would urge some other folks to take up this mantle for the benefit for all concerned parties. I had given some folks posting rights in the past and I can give some more folks who would like to take up the cudgels from me. We have a good audience and the bull bear story will continue for a long time before everyone is exhausted.

As I see the market in Mumbai, speaking to friends everyone tells me the money has dried up. Some businessmen friends have drops of upto 40-50% in their sales. Rents have dropped. I was shocked to see some rentals going for 32k, which were quoting 50-60k last year.

We are in a deep protracted downturn, specially Mumbai. As I have said repeatedly, be it Mumbai, Pune, Chennai, Bangalore, affordability for Indians or NRI's is upto 4,000 per sq/ft. Anything above is for the politicians and black money operators. Anyone who pays more then that is going to suffer for a long time.

Lastly I spoke to a loan banker who said that most builders have reduced rates but still some are holding on. He does not see any hope for anything more then 7k. He is bit more bullish them I am :)

the areas I was referring to in this and previous posts is in Santa Cruz and Vile Parle.

latest mumbai update

So I was talking to some folks in Mumbai now, realty brokers and otherwise. Everyone is of the consensus prices have dropped, rents are still holding up. Some areas which went to 9k are now at 7k. There is a building built by a Gujju builder, with a total of 15 apts and he is unable to sell even one at 7k. I was telling the broker that if a gujju is unable to find other 15 Gujju's to buy when the prices have dropped by 20%, that means the market is real bad. Everyone knows the amount of money some Gujju businessmen have. I think value is at 5k. so wait and watch.

UPA govt impact on real estate.

Enough said. The sensex rocketed by 10% and is halted. Is the bear phase over ??

BBMP issues warning letters to DLF

If this is happening to DLF, it must be happening to other projects in Bangalore as well. I heard that another project, Mantri Magnolia has been cancelled as well and Mantri is asking buyers to apply for refunds. So much for projects pending approval. The good old days for the builders are over. Deccan Chronicle reports

The country’s biggest realty company, DLF, has been thrust into two unexpected battles. The income-tax authorities have slapped a demand of Rs 400 crore on it. And the Bangalore civic body has issued a public warning that a large DLF project in the city does not have its sanction.

The tax demand, which will be appealed against by the company, arose out of a special audit of DLF’s accounts for 2005-06. A special auditor, appointed by the income-tax department for the purpose, came to the conclusion that the company had earned about Rs 1,200 crore over and above what it had declared in its returns.

The company itself notified the Bombay Stock Exchange about the new tax demand. Ramesh Sanka, group CFO, in a signed statement to the exchange, said, “On May 6, 2009, the assessing officer, pursuant to the audit and assessment proceeding, has issued an assessment order adding…. most of the amount suggested by the special audit report.”

Sanka, speaking to Financial Chronicle, said the company would contest the claim within 90 days, as provided for in the law.

In the statement to BSE, later reiterated by Sanka to FC, DLF said that the root of the extra tax demand lay in the change in accounting method that the company made in 2005-06.

The new method, prescribed by the Institute of Chartered Accountants of India, requires real estate developers and construction companies to switch over from the “conveyancing method” to the “percentage of completion method” (PoCM) for computing revenues and profits.

Sanka said that the company had used the PoCM method in the following years also.

More bad news awaited the company in Bangalore. The Bruhat Bengaluru Mahanagara Palike (BBMP) took out advertisements in newspapers on Thursday, saying the DLF had not obtained its approval or sanction for the Westend Heights project in the city.
Asserting that it was the only competent authority to sanction building plans in the city, BBMP said, “Prospective buyers are advised against purchase of such illegal apartments which are liable for all lawful action that will be initiated, including demolition.”
The BBMP action was an obvious response to advertisements that DLF took out three weeks ago, announcing the sale of apartments in the project, on Bannerghatta Road, at Rs 1,850 per sq ft.
DLF’s homes head for Karnataka, Anantha Naarayanan, told FC that his company had already pre-sold 600 of the 1,000 apartments planned in the 27-acre project for which the outlay would be Rs 400 crore. Construction is yet to begin.
In the advertisement, DLF claimed to have obtained the approval of the Bangalore Development Authority (BDA) for four floors. BBMP officials said the DLF advertisement showed an elevation of 18 floors.
S Subramanya, BBMP commissioner, told FC “it’s clear that people are being taken for a ride”.
BBMP warned that the owners of Westend Heights apartments would not be given occupancy certificates.

Subramanya said he expected DLF to cover BBMP’s advertisement costs and apply for sanction in the proper route.

In a statement DLF claimed that it obtained approvals for the developmental plan of the project through its subsidiary, Annabel Builders & Developers, for S+4 level from BDA. “Construction on the project has not yet commenced and will begin only after obtaining detailed plan approvals from BBMP and other relevant clearances…. The allegations of illegality made in BBMP… are incorrect.”

One of DLF’s customers, Pradeep Jain, said, “I had booked a flat on the sixth floor in. DLF then clearly said that it would get the approval for four floors by May and that for the sixth floor by November. Today when I called the company, it said it had obtained clearance for four floors and would mail me the clearance certificate.”

Impact of Satyam layoffs on real estate

We all know that Satyam cooked books. They had over 47,000  employees in various locations, primarily in Hyderabad. There is news that maybe 10,000 would be let go. The question is where will they find the "high" paying jobs. Everyone knows that service companies don't pay as much as MNC's and Satyam is one of the worst paymasters in this lot. I know several satyam folks who quit in US well before the scam since they were underpaid and overworked to the point of no return. Hyderabad has seen a boom which will rival no other city since AP folks are heavily  invested in lands, plots and apartments. The common acres to plots conversion technique is heavily ingrained in the local population and I was surprised to see many IT people buying acres on outskirts of Hyderabad just on speculation of the new airport in Shamsabad. Now with the airport hype dying down, and the disappearing  act of a regular paycheck, where does it leave Hyderabad. Maytas is another story and I know several people who have booked and now stuck with no exit. These folks are bleeding pre-EMI interest and will do so for years. It goes to show the due-diligence done by banks on properties in nil.

Here is a DNA article on Satyam layoffs.

Layoffs at Satyam set to begin with BPO unit

Hyderabad: Tech Mahindra, after gaining control over the troubled IT major Satyam Computer Services, seems to be getting straight to business.

The company intends to downsize operations beginning with the business process outsourcing arm Satyam BPO (formerly called Nipuna).

Sources in the company saidthe layoffs will begin with the support department. "The billable staff is not going to be disturbed now. It is the support staff that is likely to exit," the source said.

Satyam BPO has over 3,000 associates and the ratio of billable staff and the support staff is about 35:1. "The target is to make it 80:1. This means a major shake-up in the BPO arm," the source said.

About 60% of the support staff face the axe.

Tech Mahindra has decided to use Satyam's existing marketing, HR and other support functionaries for the BPO too instead of having a separate set-up.

Sources among employees said that there are about 80 people in the HR department alone and about 60 of them are likely to go.

"Particularly the support functions in both Satyam BPO and Satyam are obscenely overstaffed. Any effort to resurrect Satyam would happen only by rationalising these functions," the source said.

After small car, now a low-cost home from Tatas

After the launch of the world's cheapest car ‑ the Nano, the Tata Group is embarking on yet another low-cost dream. Tata Housing, a subsidiary of Tata Sons, has launched its low-cost housing initiative, with homes costing anywhere between Rs 3.9 lakh to Rs 6.7 lakh. CNBC-TV18's Priyanka Ghosh reports.

Tata Housing, a subsidiary of Tata Sons, today launched the project that will have 1,200 apartments under the Shubh Griha brand. To be built on a 63-acre plot in Boisar — north of Mumbai — the price range for the apartments would be between Rs 3.9 lakh and Rs 6.7 lakh. The project, whose timeline is about two years, is expected to clock a turnover of about Rs 100 crore, the company said. It is also learnt that the township will also have higher-priced homes above the Rs 3.9–Rs 6.7 lakh bracket. These may be in the price bracket of Rs 10 lakh and Rs 15 lakh.

The Tata Housing group also plans to take its value-home product, Shubh Griha, to other cities like Delhi and Bangalore this year and the company is looking for land parcels on the periphery of these cities.

When asked how the company would be able to keep costs low, it said their designs were innovative and that it had ‘some trade secrets’. Also, the Tata Housing group does not entirely own the land that it is building the township on. Here’s the deal: the group has tied up with the land owner and will work on a revenue-sharing model.

The group has struck an alliance with the State Bank of India and the bookings for the first thousand apartments started on Saturday and closes in about two weeks. After that, there will be an allotment through a lottery system.

Kiyosaki and Mahindra World City

Here is a good article I found on yahoo on buying value investments. Its a perfect article to illustrate why Chennai represents good value over Mumbai to live and make a career without take undue risk with housing investments. If Tata and Mahindra can find value, so can the middle class individual.

The other day a friend of mine approached me excitedly, saying, "I found the house of my dreams. It's in foreclosure and the bank will sell it to me for a great price."
"How good is the price?" I asked.
"Just before the real estate market crashed, the seller was asking $780,000 for the property. Today, I can buy it from the bank for $215,000. What do you think?" she asked.
"How would I know?" I replied. "All you've given me is the price."
"Yes!" she squealed. "Now my husband and I can afford it."
"Only cheap people buy on price," I replied. "Just because something is cheap doesn't mean it's worth the cost."

I then explained to her one of my most basic money principles: I buy value. I will pay more for value. If I don't like the price, I simply pass. If the seller wants to sell, he will come back with a better price. I let him tell me what he will accept. I know some people love to haggle; personally, I don't. If a person wants to sell, they will sell. If I feel what I am buying is of value, I'll pay the price. Value rather than price has made me rich.

Here is the Mahindra presentation on MWC. Land near this area is between 350-700 Rs for plots. In the next five years, one can easily expect this area to boom. the neighboring area of Singerperumail Coil is booming with houses, and so is Marmalai Nagar.

Chennai Facts

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Sensex and real estate in India

With the sharp rally in the market, people have been questioning the impact of the recent uptrend to real estate prices in India. Some projections put the Sensex at 15000, some others say that this is a bear market rally and will fizzle out as the results get announced. There is another article I read which said almost more then half billion dollars of FII money went into the market in the past few weeks. This must have wiped out bunch of shorts, most local businessmen who shorted the sensex between 9k and 10.5k thinking the sensex will go back to 7.5k, the lowest level seen in the past 4 years. However the FII swooped upon the sensex in huge numbers and have wiped the bears out of the system. Goes to show the perils of investing in futures and options. 

If you read the first post in this blog it was made in Dec 2005, when the sensex was at 9057 and India was shining brightly. Now it is 3.5 years and the Sensex is 13,000 having visited 21,000 on the upside and 7500 on the downside. 

If one has to co-relate the market, even though any co-relation can be atmost be deemed co-incidental,  prices today are down 25-50% of the peak made in Jan 2008. Loan rates were lowest in 2003, when I remember Standard Chartered offering 8 % rates when I was in Bangalore. At that time, I could get a 3 bed for 30L the same today is at 80L. However in Bangalore one can easily find a 3 bed for 35-50L in some tech areas, same is case for Pune, Chennai, Hyderabad.

In Mumbai it is impossible to find any such deals except in far flung suburbs where one can break his back in the train commute. 

The question to ask is why should real estate be dependent on the stock market ? Real estate can be more co-related to the economic well being of a society, job security and availability of cheap loans. Expecting stock market profits to end up in real estate is at best fool hardy. I had several friends who bought 2nd houses on  loans in 2008 with the hope of paying them down with their stock market investments. With the wipeout in the markets, they are remorseful and regretting the whole episode of short term loss making trades. Now they live hand to mouth paying off their montly EMI's with their current salaries. With prices being down, they are in negative equity and bleeding every month. They are cut twice, once by the drop of their real estate values, 2nd by the interest they pay the banks and the biggest cut is the slicing of their portfolios by 70%. 

Please don't trade short term with the aim of investing in real estate. If you are investing in the market, it should be for a period of 4-5 years. If you buy real estate, buy the primary residence at minimum 30% discounts to the current price with a 40% downpayment. The cost of good night's sleep is priceless. Never compromise on this ever.

Obama says financial sector to shrink

Now if the financial sector shrinks, so do the financial epicenters. New York, London, Hong Kong and Mumbai could be easily affected by the downturn. The process of creating money from thin air is now sub-primed. As the financial sector shrinks so will all other sectors which support this sector, be it Information technology, travel, real estate or offshoring.  Now who will buy or rent all the commercial real estate in BKC or Nariman point at 2007 prices. Mr Bhai argue with Obama on why these prices should not collapse. If I had properties with loans in these areas of Mumbai, I would exit immediately. If Mr Ratan Tata, a Mumbai icon, wanted he could've built the next TCS campus in horrendously expensive Bandra Kurla, but he didn't. He built it in OMR, on the outskirts of Chennai where he got land for cheap. The photo you see on this blog is of the TCS campus. 

The Tsunami is coming and sub Rs 10000 prices in prime areas is on the horizon. Lets continue the 24x7 debate.

The Yahoo article is here.

By Jeff Mason – Sat May 2, 6:28 pm ET

WASHINGTON (Reuters) – The financial sector will make up a smaller part of the U.S. economy in the future as new regulations clamp down on "massive risk-taking," President Barack Obama said in an interview published on Saturday.

Obama, whose young administration has spearheaded a raft of reforms in the banking sector as part of efforts to tackle the financial crisis, said the industry's role in the United States would look different at the end of the current recession.

"What I think will change, what I think was an aberration, was a situation where corporate profits in the financial sector were such a heavy part of our overall profitability over the last decade," he said told the New York Times Magazine.

"Part of that has to do with the effects of regulation that will inhibit some of the massive leveraging and the massive risk-taking that had become so common."

Obama said some of the job-seekers who may normally have gone to the financial sector would shift to other areas of the economy, such as engineering.

"Wall Street will remain a big, important part of our economy, just as it was in the '70s and the '80s. It just won't be half of our economy," he said.

"We don't want every single college grad with mathematical aptitude to become a derivatives trader."

Fair price for an apartment in Mumbai/Pune/Bangalore

Now that we have got all the bulls charged up to challenge the bears, it is time to discuss what the right price to pay for an apt in the suburbs of Mumbai, Pune, Bangalore. We can discuss Delhi, Chennai, Hyderbad later.

Lets say I'd like to buy a 3 bed 1500 sq-ft ready possession apt with amenities, not in a noisy place, close to schools and work places and away from the slums and garbage dumps. Lets say my salary is 8L per year, I can get a 11% loan and of at-most 25L sanctioned. How much should I be looking at ? Note I'm not looking at under construction apts as there is no guarantee how long my money will be locked in and I don't want to pay pre-emi interest. My current rent is 20k a month and my other expenses are another 20k. As you can see I'm an average middle class invidual and not born with a golden spoon, and I don't have the capital to gamble on the Indian stock market exchanges. Its another story that my parents were govt employees and didn't take fancy to earning money under the table.

Now Mr Bulls will I be able to buy anything at this price or I just have to rent my whole life ? Give me my choices if you think I should become a bull and buy an apt. I invite any bulls in either of these three cities to come by and plead their case. I'm willing to relocate to any of the cities which affords me the apt I desire.

Will garbage dumping grounds affect real estate prices ?

I'm surprised Mundwa is chosen as a garbage dumping site as it is close to the city and adjacent to Kalyani Nagar and Wanawori. i guess now you can be close to the IT parks, airports and the garbage dump as well.

Source: The Indian Express Finally, two new garbage dump options
Mundhwa And Digraswadi, Finally, Two New Garbage Dump Options
Municipal Corporation proposes to cap Urali Devachi site and move on.

Mundhwa and Digraswadi could be come the new garbage dumping sites for Pune city. The Pune Municipal Corporation (PMC) has shortlisted them as alternative sites to replace Urali Devachi, which it hopes to cap in a one year's time.

The upcoming area of Mundhwa, chosen for many future urban infrastructure projects, is around 6 km from the city while Digraswadi is in Shirur taluka, about 30 km away.

Following an agitation by villagers of Urali Devachi, Principal Secretary of Environment Valsa Nair had asked the PMC to cap the site and suggest, within 15 days, an alternative.

The PMC submitted the plan to the Maharashtra Pollution Control Board (MPCB) on Monday. "The MPCB will have to ensure that the plan is implemented in the timeframe," Nair said.

MPCB regional officer P K Mirashe said the old site of 43 hectares will be capped. However, the site at Phursungi adjacent to the old site will be in use.

"Besides the Mundhwa and Digraswadi sites, 13 more locations in the district are being assessed as garbage treatment sites," said Mirashe.

According to the plan submitted, the PMC will take precautionary measures while caping he site. The area will get a proper effluent treatment system and be sprayed with chemicals to ensure an insect-free environment. The plan also mentions tackling of frequent fires by parking two fire engines at the site. An RCC water tank and water tankers will be deployed daily, said Mirashe.