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.
Monday, October 18, 2010
Tuesday, October 12, 2010
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.
Article Link
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.
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.
Article Link
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.
Thursday, October 07, 2010
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.
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.
Monday, October 04, 2010
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?
Wednesday, September 29, 2010
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.
Monday, September 27, 2010
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.
Thursday, September 23, 2010
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.
Wednesday, September 22, 2010
Bad realty loans threaten to nibble at banks’ pre-tax profit
Article Link
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.
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.
Thursday, September 16, 2010
RBI hikes interest rates to tame inflation
Article Link
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.
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.
Friday, September 10, 2010
Builders resorting to distress sale?
Article Link
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.”
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.”
Tuesday, August 31, 2010
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.
Wednesday, August 11, 2010
No one’s buying a house in and around Mumbai
Article Link
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.
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.
Monday, August 09, 2010
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
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
Monday, August 02, 2010
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
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
Monday, July 26, 2010
India Lands in a Mess
Article Link
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
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
Friday, July 23, 2010
After the engineered price boom, it’s raining discounts in real-estate
Article Link
"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.
"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.
Thursday, July 22, 2010
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.
Saturday, July 17, 2010
Yelahanka is the new Gurgaon
Back in 2001 I visited a farmhouse of on the outskirts of Bangalore in a god-forsake place called Yelahanka. The ORR was new laid out and devoid of traffic and any construction on either side of the road. Rewind forward to 2010 and a completely new Bangalore has taken shape. Already land prices in Devanhalli have reached meteoric proportions and Yelahanka has zoomed along with it.
The real estate hype masters tout Infosys and Wipro everywhere they want land prices to jump. Infosys is touted in Hyderabad, Chennai, Pune, Mohali, Sarjapur road (bangalore) and now Devanhalli. I guess we will see an Infy campus before 2020 however by then Infosys would be 500k strong so the 12000 people would make no sense :)
Another point of note which the author failed to notice is that Infosys is proposing to spend 710 crores to house 12,000 people however Wipro will spend 477 crores for 15,000 people. It looks as if Infosys comes out to be dumber then Wipro specially when it comes to calculating ratios, or it appears that the writer is a complete moron, and this time from Indian Express.
>> Indian Express reports
Where the six-lane highway from Bangalore city to the international airport in Devanahalli branches off to the left into Doddaballapur Road, a hoarding proclaims: “Yelahanka is the new Gurgaon”.
Put up by a residential builder, it is a defining marker in the growth curve of Yelahanka, a suburb 15 km north of the city that was envisaged as a satellite town but is now under the Bruhat Bengaluru Mahanagara Palike (BBMP). Proximity to the new airport — 20 km away — has given wings to aspirations in the once sleepy town that has seen a property boom in the last five-six years.
With the Karnataka Assembly passing a Bill last Thursday to set up a 10,000-acre Information Technology Investment Region (ITIR) north of Devanahalli, analysts say real estate in Yelahanka is all set to rain returns in a few years.
V Madhu, Principal Secretary, Infrastructure Development Department of Karnataka, says the entire Hebbal-Yelahanka-Devanahalli stretch will see “substantial development” in the coming years, fuelled by a mega project around the airport encompassing an aerospace park, a financial district and the IT park, where, among others, Infosys has proposed to invest Rs 710 crore in a 12,000-seat software development centre and Wipro is set to develop a Rs 477-crore centre employing 15,000.
Tuesday, July 13, 2010
Property price surge across metros
Article Link
Property prices across the metros are soaring. In key markets, residential property prices are well past the 2007 peaks. Even land deal valuations have skyrocketed, report CNBC-TV18’s Vivek Law and Shubhro Sen.
Prices here have soared more than 40% since 2009. The national capital region is not far behind, with the price increase well over 30%. Bangalore too has seen a price rise of 10-15% in the first half of FY11.
That's not all, land prices have spooked analysts who have begun indicating that a property bubble is gradually building in cities like Mumbai and NCR. In what is being touted as the largest auction, Mumbai based Lodha Developers bagged a Rs 5700 crore deal recently. Several auctions by national textile corporation are being rescheduled as the company is re-considering an increase in reserve prices
Property prices across the metros are soaring. In key markets, residential property prices are well past the 2007 peaks. Even land deal valuations have skyrocketed, report CNBC-TV18’s Vivek Law and Shubhro Sen.
Prices here have soared more than 40% since 2009. The national capital region is not far behind, with the price increase well over 30%. Bangalore too has seen a price rise of 10-15% in the first half of FY11.
That's not all, land prices have spooked analysts who have begun indicating that a property bubble is gradually building in cities like Mumbai and NCR. In what is being touted as the largest auction, Mumbai based Lodha Developers bagged a Rs 5700 crore deal recently. Several auctions by national textile corporation are being rescheduled as the company is re-considering an increase in reserve prices
Pranay Vakil, Chairman, Knight Frank India said, “People are buying land for the price of finished product, which surprises all of us and no amount of calculation can justify the price that some of them are paying.”
Monday, July 12, 2010
South Mumbai bungalow to go for Rs500 cr
The party is on. Keep playing the music as everyone is in a drunken stupor.
Just by the numbers.
Mumbai's population : 2,00,000,00 people
Next year ** projections ** of sale of luxury apartments : 7,000 flats
Ratio 7000/2,00,000,00 = 0.035%
Looks like someone has a vested interest in reporting local news affecting 0.035% of the population.
DNA India reports
Orbit, which owns 50% stake in the property — 25% purchased on its own and 25% through Om Builders — is negotiating for the balance 50% stake with the other family members (about 70-80 signatories) of the well-known philanthropic Kilachand family. Spread across 9,000 sq mt, the spacious bungalow is expected to cost Orbit roughly Rs500 crore.
The Mumbai developer, known for its upscale residential projects, is in the final lap of raising Rs350 crore from a private equity fund for the project. Acknowledging the move, Pujit Aggarwal, managing director of Orbit Corporation, said the bungalow is strategically located on Napeansea Road where flat prices are over Rs40,000-Rs50,000 a sq ft.
According to Aggarwal, his company is also in talks to purchase three other plots on Napean Sea Road for its first block redevelopment project in the tony neighbourhood. The three sea-facing plots will be consolidated for a luxury housing project, generating 300,000 sq ft of saleable area.
Acquiring dilapidated properties and redeveloping them is the only way to build new projects in areas such as south and central Mumbai, due to a paucity of open land there.
According to Knight Frank, a global property advisory, while there is a potential problem of supply overhang of luxury projects in central Mumbai areas such as Lower Parel, there is huge demand for such high-end residential developments in south Mumbai because supply is restricted. Incidentally, consultants have estimated that around 7,000 luxury apartments will be sold within a year in Mumbai, with each unit priced at more than Rs4.7 crore.
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