Ajit Dayal on real estate prices in India

I think someone with some real guts pointed out why Real Estate prices in India are artificially kept high by Politician / Builder nexus.... The unfortunate thing is there is no outrage. All PSU banks have large amount of money to Builders, and not to needy folks who want to start business, generate employment, etc... GOI has given tacit support to such an act. This situation needs to come out, unfortunately Main Stream Media has not reported this in detail.



Video Link

Mumbai Home Sales Drop to 3-Year Low as Prices Climb to Record

Article Link

Mumbai’s residential home sales dropped to a three-year low in the quarter ended December as record home prices and higher interest rates crimped demand, according to Liases Foras Real Estate Rating & Research Pvt.

Sales in Mumbai, India’s most expensive property market, fell 17 percent from the previous quarter to 7.59 million square feet, said Pankaj Kapoor, founder of Liases Foras. The city’s unsold inventory, or the number of months needed to clear stock at the existing absorption rate, climbed to 44 months. A “healthy market” normally maintains about eight months of inventory, according to Kapoor.

“The likely scenario looks like we will see a dip in prices seeing the dismal sales and as liquidity remains tight,” Kapoor said in a phone interview from Mumbai yesterday.

Mumbai property: Will prices fall in 2012?

Article Link

To be sure, record home prices and higher interest rates have hit demand badly: Mumbai’s residential home sales dropped to a three-year low in the quarter ended December, according to a Bloomberg report.

According to data provided by Liases Foras Real Estate Rating and Research, sales fell 17 percent from the previous quarter to 7.59 million square feet, the report added.

Unsold inventory, or the number of months needed to clear stock at the existing absorption rate, also climbed to 44 months.

The figures elicited a rather predictable response from the founder of Liases Foras, Pankaj Kapoor: “The likely scenario looks like we will see a dip in prices seeing the dismal sales and as liquidity remains tight,” he told Bloomberg.

Unfortunately, we believe there is no guarantee that property prices will fall, no matter what the experts say.

Sobha Signature, RIP

Sobha developers were supposed to build their super expensive highly "exclusive" penthouses for "high net worth individuals". Rs. 5 Crores to Rs.10 Crores for 6800 Sq ft to 8000 Sq ft exclusive apartments. This project called, Sobha Signature, located along the congested Harlur Road, was supposed to be their best thingamagic ever.

"Our CEO is going to live here". "Think about it". "O U R CEO. He is the person who will live here" - peddled a salesman.

Turns out, there aren't enough suckers to pay Rs.5 Crores to Rs.10 Crores in Bangalore. Sobha Signature project has been shelved and will be replaced by Sobha Classic Phase II, which is a "poor man's" luxury apartments. Sobha Classic 3 BRs run between 90 lakhs and 1.15 Crores today.

May be this is the start, the super high end is bursting in Bangalore.

India's housing market stalls amid high interest rates

Article Link on BBC website

Ignore warnings at own Peril

Article link, Emerging Markets

The collapse of the emerging markets, especially China, India, and Brazil, will have a huge ripple effect on the rest of the world’s economies, and will plunge most countries back into a global recession.

It is our view that emerging market growth has reached an unsustainable level and that a slowdown is taking place. A slowdown is generally not such a calamitous situation, but with expectations for China, and emerging markets at such extremes, the failure to meet or beat these lofty forecasts could mean big shocks to global economies and stocks.

Emerging Market Warning Signs

Surging inflation that threatens sustainable growth

Soaring money supply that fuels bubbles in stocks and real estate

Credit bubbles

Massive and understated loan exposure

Tightening monetary policy that could “put the brakes” on the economy

Inverted yield curves that usually appear before recessions

Real estate bubbles evident in ghost towns and empty malls

Overconfidence buying at auctions

The infamous “skyscraper indicator”

Fraudulent companies that have attracted investment from around the world when they are nothing but “shell” companies with unproven financials

Most importantly: The stock markets of China, Brazil, and others have been deep into bear-market territory in 2011 – down between 20 percent and 30 percent from their peaks

Laughing Waters is no Laughing Matter

http://www.bangaloremirror.com/index.aspx?page=article§id=1&contentid=2011020420110204081607853b53eeb38

An IT czar, two top-notch cricketers and a leading fashion designer have one more thing in common besides being super-achievers in their respective fields: All four, along with some 400 affluent Bangaloreans, seem to have been taken for a royal ride while attempting to purchase posh villas.

Another major issue is the ambiguity over who the developer-cum-owner of the land really is. The name that has repeatedly cropped up is that of Prestige. According to Balasubramanian, the property was jointly developed by O G Ragulu’s son, Shrivatsa Rajulu, P S Developers (Prestige) and Laughing Waters. The permission for the layout from the administrator of Ramagondanahalli was obtained by Irfan Razack, chairman and managing director, Prestige Group. Razack held the power of attorney for O G Rajulu, the original owner of the land. Razack’s address mentioned in the documents is Copper Arch, Infantry Road — the official address of Prestige before it moved to the current office on Guard Cross Road.

However, Prestige maintained that P S Developers was never a part of it. In a letter to the Laughing Waters Owners and Residents Association on November 9, 2010, Prestige Group’s senior vice president, T Arvind Pai, clarified: “We maintain that P S Developers is not part of the Prestige Group and to our knowledge is no longer in existence.” Pai stated that as per the grant khata issued by the thasildar’s office on March 13, 1967, “There is a kharab land of 4.36 acres which has to be reserved for road and drains. It is very clearly established that Laughing Waters is not a Gomala land or government land, and it is therefore incorrect to state that this is a Gomala land.”

As Rupee falls, NRIs 'home’ in on realty in Mumbai

It appears that  a 15% decline in the rupee has lead to surge in NRI interest in property. While the rest of Indian economy slows down the NRI can sustain micromarkets in IT cities like Bangalore, Pune and Chennai

DNA Article followed by one in Times of India. The builders are in overdrive mode courting the NRI.

The record decline in the value of the Indian rupee and the sluggish realty market have proved to be a double delight for overseas Indians investing in property here.

Sunil Sequira, a resident of Kuwait, has zeroed in on a property in Thane at a rate nearly 30% lower than usual. “This is the right time to buy property,” he said. “Many of my friends have also decided to buy property in India. We are expecting an annual 10% to 15% appreciation.”

Sandeep Reddy, co-founder of Groff.com, a real estate brokerage firm, said it has been getting a good response from overseas buyers. At the recent property exhibition in Dubai, many people booked flats on the spot, and several showed interest in flying to Mumbai to check out property and finalise their decisions.

“NRIs are mainly interested in Navi Mumbai and Bangalore properties. This time, there was a slightly lower demand for the Delhi market. Going by this response, we have decided to organise and participate in exhibitions in Singapore and other international places that have a large Indian population,” said Reddy.

Niranjan Hiranandani, managing director of the Hiranandani Group, said, “The decline in the rupee value against the dollar/dinar in the international market has helped to attract more and more NRI buyers. If the cost of the flat is Rs1 crore as per the Indian market, the NRI has to pay only Rs85 lakh— 15% less, thanks to the record decline in the rupee value.”

Commercial opportunities in the West are on a downturn. So, people are looking at the Indian market for investment and business purposes, he added. “Once the RBI brings down its high interest rate, the city property market will surge again. There is a huge demand for houses, but the high costs and interest rates have discouraged buyers temporarily. People are awaiting the low interest rate loan.”

Times of India article

Hot Indian property destinations for NRIs in 2012
The Non Resident Indian (NRI) might as well remember 2011 as the year of the 'lazy investor'. For NRIs have gained 18% since August 2011, simply by remitting money to India; no effort at all. But as we approach 2012, NRIs must take stock of how best to use their remittances. The traditional favorite has always been real estate. But in this volatile market, how great an investment is it? Is this a good time to buy property in India? What kind of property is a good bet? Let's try to find answers.

What are the key locations for residential property?

"Suburban locations of every metro are great investment options. So for instance, you have Gandhinagar near Ahmedabad, Nalasopara, Dahisar, Panvel, Pen and Kalamboli near Mumbai," says Dutt.

Mahtani places her bets on GST road, Porur and OMR in Chennai, North Bangalore largely Hibbal, Saha Shivnagar, Sarjapur Road and Whitefield in Bangalore, Dwarka Expressway in Gurgaon, Bandra East, Goregaon, Panvel in Mumbai and certain select developments in Lower parel, Mahalaxmi and Parel in Central Mumbai.

Discussions with a big builder's sales guy

I was very ambivalent about posting this, but I am just pretty pissed how these big builders get away with semi-legal properties.

Me:

Do you still have any big 3 bedrooms on sale? What is the current price?

Is there katha for the land?

Sales VP:


S****a C*****c is completely sold out. I can offer you big 3bhk of 2100 sft.
in S*****a C******on. There are only two flats available in 3rd & 4th floor
facing the swimming pool. Total will be 1.1 cr. (app) all inclusive.

For every project there is a Khata.

Me:


OK.

Is this a "A" Khata or a "B" Khata? My lawyers forbid the "B" Khata saying that is illegal.

Sales VP:

Sir, to keep you updated S****a is not related to any illegal documentation. Our property documentation is done by Mr. Anup Shah's law firm, one of the biggest lawyer of the country. Moreover our all projects are approved by SBI, they have their own panel of lawyers without whose confirmation SBI don't approve any property. Also S****a C****n I is ready to move in & people has started shifting now.

I really don't know after staying in a S****a Flat also how come you are not confident of the builder. 99% of the S****a tenants end up buying in S****a only. We are the largest brand of South India and we are known for our transparency in clear legality of the documentation, doubting us is like doubting the engine quality of a Mercedes Benz car, for what they are famous in the world.
If you & your lawyer has still doubts, then you are most welcome to our office, there you can meet our legal team and clarify your doubts.

Me:

I saw apartments come up for sale in L******er and J*****ne and both have "B" Katha. The general consensus amongst lawyers (I talked to a SBI lawyer as well) is the "B" Katha is not correct.

Why is that other than Q*****z and one other property, no other S****a property in Bellandur area has a "A" Katha?

There is a lot of discussion and angst amongst S*****a J******ne owners in the internal mailing list about the lack of this "A" Katha. I am curious to know why Jasmine does not have appropriate Katha for the land.

I like living in a S*****a community, but I need to know why these properties only have a "B" Katha.

Sales VP:

As I told in the last mail you are most welcome to our office to have a detail discussion with our lawyers about all your legal clarifications.

Also to keep you updated majority of the. S*****a J*****ne residents have bought 2nd/3rd time in S*****a only. I have clients in J*****e block 1 who have bought three times in S*****a and also referred so many of their friend & relatives for S*****a only.

Me:


OK. Fair enough.

If I have to infer what you say, the land is all legal, but there are other things that have caused the "B" Katha. I will reach out to your legal department when I need help.

Do you have a pointer to your legal department?

For the record, I love S*****a J*****e.

Sales VP:

You can come to our office & meet Mr. Shivraj,from the legal time. But the main concern is C*****c is sold out , in C*****on only 2 flats are left. By the time you finish all your verifications there will be nothing to buy. Immediately block a flat first and then do all your queries.

Me:

Not really interested in C*****on. Don't like the location.

There are plenty of resale properties available in the existing S*****a properties, including C*****c. I am not in a hurry to rush and buy anything without proper legal checks.

Thanks for your help. I will take the help of Mr. Shivaraj as the need arises.

Sales VP:

We don't deal with resale as per our Company norms. Please let me know only if you are interested in new S*****a Property.
Mr. Shivaraj can only help you only if you are a buyer of our property directly from S****a.


And thus it goes. Unless the original buyer insists and gets clear documents and title from the developer, there is no chance in hell that you will get all the documents from the developer during subsequent years. And yet, people buy and sell properties worth many Crores.

Mumbai developers run for cover, cut property prices

Article Link

The developer has blinked. Prospective buyers who were waiting for correction in realty prices should rejoice, as city developers have started bringing down property prices by 10% to 30%.

Manohar Shroff, general secretary of the Maharashtra Chambers of Housing Industry, Navi Mumbai, admitted that developers had started reducing property rates to survive in the sluggish market. Higher interest rates, rising inflation and increasing construction costs have not only dampened demand but also investor desire to book and own more flats.

==
Pankaj Kapoor, managing director of Liases and Foras, the real research firm said, the cash flow in the realty market has dried up in the last two years, and this has spread panic among developers.

"Earlier, the investors were helping developers by pumping enormous amounts of cash in the property market. Now, the investors themselves are in deep financial trouble, as they could not sell the properties they had bought earlier. So, the market is quite tight," he said.

The "B" Katha

In my last blog post 'Third time unlucky', there was this comment which said most big name builders are trustworthy and if a bank approves such property, there is nothing to worry.

Let me provide you with the most obvious evidence to the contrary in this post.

Many new apartment complexes in the outskirts of Bangalore are sold with what's called the "B" Katha. This includes most of the Sobha apartments in the Bellandur belt (which is where I live). Only a couple of apartments in this belt have the "A" Katha.

Now these are apartments where a 3 Bedroom apartment sells for Rs. 1.1 Cr - 1.3 Cr and a 4 BR apartment sells for Rs.1.7 Cr to Rs.2 Cr. Most major banks provide loans for these properties.

I wanted to find out the difference between the two kathas and what it means.

A "katha" literally means an "extract". All it tells is, there's an entry for this land in the BBMP office and the katha is proof of that. The BBMP keeps two sets of registers - the "A" register for legal land (land legally approved by the Government for residential purposes) and the "B" register to keep track of all the "revenue land" (land not intended for residential purposes). It was created as a means to keep track of all buildings constructed on illegal land. Somewhere down the line, BBMP decided to issue an extract of this illegal register so that property taxes can be collected against these properties.

I have read all the comments to the blog posts, I am no fan of big Government myself, not to the extent of DhiMan :), but things like this prove his argument. It's clear that there is illegal construction done on un-approved land. There is no reason the Government should bless this in any which way. If anything, they should be levying heavy fines for providing civic amenities. Instead, they start issuing a "Katha", which confuses the lay-buyer.

The developers, of course, take this as a go-ahead to go berserk on constructing illegal multi crore properties on such illegal lands. What people believe is that the "B Katha" is some proof that this is a valid property. On the contrary, the "B Katha" is a Government issued proof that your property is built on illegal land. Look no further.

The BBMP commissioner Siddaiah recently created a major ruckus by declaring B Katha is a bogus. This kick started a whole range of discussion around the "B Katha" and puts the major builders in a spot. This ruckus led to "betterment charges to give permanent Katha"

"As the Bruhat Bangalore Mahanagara Palike (BBMP) gears up to implement betterment charges, citizens may heave a sigh of relief as ‘B’ khata owners can now get a permanent title deed, ‘A’ khata, by paying the same.

However, senior BBMP officials have placed a rider by stating that ‘A’ khata alone cannot be considered as regularising the property. “Even if they pay the betterment charges and get their ‘B’ khata converted into ‘A’ khata, property owners will still have to get their land regularised under Akrama-Sakrama,” informed a Palike official."

Say what?

You can now take an illegal "B Katha" and get it converted to an "A Katha" - but it's still illegal. i.e, the Government has now taken an obviously clear indicator that this property is illegal (B Katha) and have confused the legal document (A Katha). Earlier, if you owned a "A Katha", that was an indication that it was a clear property. Now, if you own a "A Katha", it "may be" clear.

Nice.

But then, isn't there an exit through the "Akrama-Sakrama"?

According to

"AS PER THE AMENDMENT TO THE KTCP ACT FOR REGULARISATION, 31-12-2008 WAS THE LAST DAY AND ALL THE CONSTRUCTIONS, ILLEGAL BUILDINGS, UNAUTHORISED LAYOUTS, REVENUE SITES ETC FORMED OR CONSTRUCTED BEFORE 31-12-2008 IS ELIGIBLE FOR REGULARISATION."

Ah, so it's time bound.

But has even this been implemented? Not quite. It was announced in 2007, but it still hasn't been made legal by the Government yet.


In the meantime, all builders use this legal mess to forge ahead in the construction of illegal property hoping that some day all of this mess would be regularized.

Till that happens, your Rs.1.5 Cr pent-house from the big name developer that has a "B" katha - remains illegal; and you even have a Government issued document to prove it.

Third time unlucky.

Originally posted in R2IClubForums.

I am back to entertain you all with more amusing stories of Bangalore Real Estate.

After ReddyGate and CEOGate, one thing was very clear to me. It's very difficult to get the correct legal documents for a resale property. So I decided to narrow my attention to under construction brand new properties. I mean the builder must be eager to sell these, right? The project is progressing well and some blocks have been built and some others are coming up. The project is scheduled to end by Fall 2012, so give or take 6 months, by Summer 2013, the property should be ready. [Yeah, I know the risk of the project never being completed, but at this point I would buy it if the legal papers are clear and live with *that* risk.]

I went with this mid-tier builder who is building their first "villa" project. They have coined this new term called "villament", it's essentially an apartment, but with fewer floors. So instead of a 10 story behemoth, these things are 1x two story apartment built on top of another two story apartment. So there are totally 4 floors split between 2 apartments. I had seen this property way back in August and I couldn't agree on a price. We went back and forth on the price and we settled on a price, just in time as CEOGate was winding down.

The one thing you hear in Bangalore Real Estate - if a project is blessed by "State Bank of India", it's golden. SBI is the top tier bank of the lot and supposedly they have the most anal lawyers in town. If they clear a project, it's absolutely clear. There's nothing to worry.

This project was approved by SBI. Further to that, State Bank of Travancore approved it, so did Corporation Bank, HDFC Bank, Axis Bank, ICICI Bank and the lot. Hell, my bank loan got approved pronto since this was a pre-approved project.

Easy peasy I thought. Finally I can be done with the Real Estate mess in Bangalore. And then it started.

Since this is an apartment type deal, you own a small portion of the undivided share of the land. Since this property was 3 acres and 108 apartments, they divide the undivided land and you have the ownership of it. What this also means is that your lawyer is now going to check the land for all the 3 acres and make sure it's clean. If it is a "villa", typically they verify that one survey number where your property is located. [Typically, big projects are split across multiple survey numbers.]

I tried to find a lawyer who is aware of the intricacies of the project. One of the learnings I had from the past is when a lawyer starts digging up past history, often there are documents that are difficult to "trace". Giving the benefit of doubt to the developers, people quit, they misplace documents and it's a chore to find them. So I thought if I find someone who is aware of the legal issues, things would be easier.

I joined the Yahoo Group of the owners of the "villas" and asked them who used a lawyer to verify the land. Of the 30 odd people in the mailing list, not one had used an external lawyer. They all depended on the fact that the bank they borrowed money from clearing the land. Since the land was cleared by the bank, they assume the land and the project should be clean.

I had little choice but to go with the lawyer I have worked in the past.

This developer gave us a file containing of all the latest sale deeds and "katha" of the 3 different survey numbers. My lawyers went through this and came up with a list of documents that have to be investigated. Each of the survey numbers had 7-8 portions of land parcels and each land portion had multiple buyer and seller. The lawyer said this land is very "fragmented" so he needs to spend a lot of time.

Every land sale deed comes with what's called a "Mother Deed", which lists the history of the land. Typically any developer hands over the mother deeds along with the latest documents to a lawyer check. This developer refused to hand over these documents to my lawyer stating that the originals are mortgaged with SBI (since they pledged the land with SBI and borrowed money against it) and they only have one copy. They refused to make further copies of the documents.

So I beg my lawyer to send a person over to their office. Five such visits and nearly 20 hours of pouring over a few thousand pages of documents, my lawyer goes back in time for all the three survey numbers and investigates all the purchase and sales of the lands.

At the end of it, he lists about three dozen gotchas in the land. A few listed below for a sampling:

- Survey number "C", which forms nearly 50% of the apartment land was acquired by the Government in 1992 for "hitech" purposes. All the land was an agricultural land to start with and it was converted to "industrial" purposes when this happened. In 2007, apparently this document was converted to "residential". The developer had no documentation available for either the conversion to "hitech" land nor has documentation for conversion to "residential". When we asked about it, they said they have applied to the Tahsildar for this and they will get back to us. It's pretty bizarre that there isn't clear paperwork for a majority of the land, as late as 2007.

- There exists a middleman (John Doe) who has been the GPA owner for many pieces of the land in this lot since 1990. He has been the buyer and seller of this land many times over from 1990 to 2007. In 1995, on a single day, many sites were registered. All the sites were sold by John Doe. The GPA number mentioned in the sale deeds is different from the GPA provided to us. The original GPA, of course, is not traceable.

- When a piece of land is sold, the sale deed mentions the site number, and boundaries. The boundaries would say something like "bounded in the east by site x, in the west by site y, in the south by site z and north by 30 feet road". Now, when the sale happened in 1995, for ALL the sites, the boundaries are the SAME. The site numbers differ, but the boundaries remain the same. This is as if the same site was sold many times over on the same day.

The typical answer given by the developer for such cases is that this is a typographical error. While reasonable, the Government provides a solution to fix it. You can apply for a "rectification deed" and correct the errors in the sale deeds. This developer has not done it so far and refuses to do this since it's too late to do the changes.

- None of the original sale deeds for the 1995 sale is available. All that exists are certified copies of the sale deeds. The excuse given here is that the originals were lost. If that is the case, then the process is to file a police complaint, post an ad in the newspaper regarding this and save those as reasons to go with a certified copy. Of course, none of this is available.

Depending upon the lawyer you use, they either check 30 years of land documents or some go as back as 60 years. Here, I was getting stuck with improper documentation within the last 15 years.

The developer is unwilling to fix any of the errors in the sale deeds. I may get to see the RTC for the Government acquisition and release, but even that, we aren't sure.

But I wonder, how is this possible? These are obvious errors that SBI should have caught. So, what gives?

To cross verify, I find a lawyer who works often with SBI to approve these types of documents. He goes over the list of questions and confirms whatever my lawyer has raised are all valid questions and there's nothing out of the ordinary. When I ask him how SBI would approve such a project, all I get back is a smile and an answer that says "anything is possible in India".

I don't understand why the buyers in India don't go for an independent legal opinion when it comes to Real Estate. Shouldn't these things be caught up-front before 90% of the project is sold out? Isn't that the only way you can get a Real Estate developer to fix these wrongs before it's too late?

HDIL sells off prime plot at 42 crore loss

Well, so much for real estate always goes up.... Even pros at HDIL could stump, how come novice investors can make money...

Article Link


MUMBAI: In the clearest sign of where the realty market is headed, leading developer Housing Development and Infrastructure (HDIL) has sold a 15.5-acre Eveready Industries plot at Turbhe-which it had bought for Rs 115 crore from the B M Khaitan group in 2008-for Rs 86 crore to Thyrocare Group, a medical diagnostic group. The hush-hush deal which is Rs 29 crore less than the purchase price has shocked realty experts.

Sources say HDIL has sold it at a much higher loss than Rs 29 crore. When it bought the land, HDIL paid MIDC Rs 4 crore towards differential premium, Rs 5.8 crore towards stamp duty and registration in addition to the land price of Rs 115 crore. Over Rs 2 crore was paid as consultancy fees. So, the total cost came to Rs 128 crore. The sale price included stamp duty, registration and differential premium pricing to MIDC. "So, the loss effectively works out to Rs 42 crore,'' a consultant said.

Retail opening cheers big firms

Commercial space and shops in Tier-1 and Tier-2 cities will now see a jump in prices. In London Tesco Express is ubiquitous and found in every corner of the city. Tesco Express'es operate in 1000 sq ft of space. I forsee every suburb to have multiple mini big box express shops of every retailers as there is very little available retail space in most of these areas.  I would not be surprised  if prices of commercial shops rise another 25% from here. 

(Reuters) - India's move to open its supermarket sector to foreign investors brought relief to its capital-starved local chains but failed to impress small-shop owners who dominate retail in the country, despite rules intended to safeguard small operators.

The government approved its biggest reform in years by allowing global supermarket giants such as Wal-Mart Stores Inc and Tesco to enter India with a 51 percent stake in the hope it would attract capital to build much-needed supply chains and improve efficiency to alleviate food-driven inflation.

"This is an extremely important step for domestic retailers as this will get in much-needed capital, apart from domain knowledge," said Thomas Varghese, chief executive of Aditya Birla Retail.

Chain stores account for just 6 percent of a $500 billion retail market dominated by street stalls and corner shops.

Many Indian chains are cash-strapped and loss-making, struggling to build scale given high costs, poor supply chains and scarce real estate and have been eyeing equity investments and joint venture partnerships with global firms to build scale.

Vijay Karwal, head of consumer, retail and healthcare for Asia at Royal Bank of Scotland based in Hong Kong expects more than $5 billion in foreign investment into the Indian retail sector over the next five to seven years.

Given the relative lack of modern retail infrastructure in India, and particularly in the enabling back-end infrastructure ... the vast majority of investment this change is expected to trigger would be greenfield investment into new retail sites and infrastructure," he said.

Shares in Indian retailers Pantaloon Retail, Shoppers Stop, Trent jumped -- bucking a fall in the wider stock market -- on expectations that they will form tie-ups with foreign players, and not just compete with them.

Debashish Mukherjee, partner and vice-president at consultancy firm AT Kearney, expects joint ventures and investments in local players from overseas operators over the next six months.

"The set of transactions which will happen fast is foreign players who are in existing joint ventures with Indian firms, the increase or decrease in stake, will happen quickly," he said. "The second are a set of deals that are waiting to happen and have been just waiting for the announcement."

SMALL SHOPS UNHAPPY

To appease opponents, the government said foreign stores will only be permitted in cities of more than 1 million -- of which India has more than 50 -- and individual states can decide whether to allow global players on to their patch.

It also insists that foreign retailers source almost a third of their produce from small industries, invest at least $100 million in India and spend half of that on infrastructure such as cold storage and warehouses.

Many small shop owners fear for their livelihoods.

"It will affect my business as families prefer going to air-conditioned stores with fancy packaged goods these days," said Vinod Jain, a 27-year-old small grocery shop owner in the Lower Parel neighborhood of central Mumbai.

A trade group representing so-called "kirana" shop owners is planning protests.

"The move to let the foreign retailers in will most certainly lead to job losses," said Praveen Khandelwal, general secretary of the Confederation of All India Traders.

"They should have worked on some kind of protectionist mechanism for smaller traders before coming out with this policy," he said.

Foreign retailers who welcomed the Indian government's move to open the sector also view the entry conditions with caution.

"Some of the conditions look quite stringent. The investment in particular -- it's all quite big money. We'd need to know the details, and how that would be accounted for," said an official with a major global retailer who did not wish to be identified.

India's property prices bite the dust - with a few exceptions

Hindustan Times reports on NHB's index.

Residential property prices have dropped across most cities, with an exception of Delhi, Mumbai, Chennai and Pune, mirroring the trend that consumers are perhaps putting off planned house purchases due to rising interest rates and fall in disposable incomes. The movement in prices of

residential properties has shown a decreasing trend in nine cities covered by the National Housing Bank's (NHB) Residex during the July-September quarter of 2011 compared to the previous three months. ( see table)

NHB Residex tracks the housing prices in the select 15 cities. The classification has been designed so as to give the most representative index for each city based on the transactions in the market and data collected from various sources.

The data is put through a model that depicts the actual behaviour of the market and throws up the index.

Bank credit has slowed down in most sectors during the last six months prompted by deceleration in investment demand. Latest data mirror strong warnings on consumer spending slowdown.

Loans to real estate have also slowed down sharply to 2.3% during the first six of 2011-12 from 10.3% in the previous year.

The RBI has raised interest rates 13 times in the past 19 months to tame prices.

Credit growth to industry during April to September decelerated to 7.5% from 8.1% last year.

The coming NRI dilemma

I was speaking to a friend the other day and he bought up the issue of buying an apartment in Bangalore. Now IT folks these days have a lot of choice in terms of cities however this guy had lived in Bangalore in the past and therefore the decision was pretty much obvious. The next thing which came up was within Bangalore which area's are nice, inexpensive but at the same time accessible to the IT corridor. Koramangala was mentioned but easily discounted as it was too pricey, so was Indra Nagar and Jaya Nagar as they didnt't meet the inexpensive criteria. Next came up the Marathahalli - Sarjapur road belt. While it didn't meet the nice criteria, it was easily the cheaper option given that they were on the IT corridor itself. 

The topic of budget came up and a quick check of real estate websites puts the rate roughly at Rs 4,500-6000 per sq/ft all inclusive. A 3 bed flat should easily cost anything between 70L to 1 Crore. Now 70L is definitely not inexpensive however as compared to Koramangala this was definitely cheaper. Next the topic of the rupee came up. At Rs 51 a dollar the rupee has dipped 15% over that past 6 months. My friend was instantly salivating at the thought that he is suddenly 15% more richer then 6 months ago in terms of net-worth. Psychologically he felt more comfortable purchasing the home now then few months ago.

This led me to think on the impact NRI's have on Bangalore real estate. Come NRI season if 25% of NRI's interested in purchasing close deals at prevailing prices the builders have enough staying power in the game to close the the remaining 75% at higher prices. The biggest weapon which the builders have is that they can delay projects at will without fear of any litigation or judicial action. In such a scenario prices will always be held constant or increased with inflation. My NRI friend has the US dollar as his Indian inflation fighting weapon, however he must compete with other fellow NRI's to carve out his space in the Bangalore micro market.

At the end of the discussion my friend concluded that he will look at apartments in this belt, built up reputed builders with a gestation time of 3 years. He felt he had enough time then to get the apartment paid off without taking a loan from Indian banks. We talked about cheap financing available from US banks and he could easily get some 0-4% APR loans in the current market which can keep him liquid. One interesting thing coming out of the discussion was that we never discussed renting and briefly discussed buying plots as the discussion was focussed on the primary home at his destination city.

As we were wrapping up our discussion the only thing I asked him to do is to make sure he can sleep well at night, regardless of what happened to the rupee, interest rates, his job or the Bangalore real estate market. Anything which sacrifices sleep  is not worth the trouble. 

I would like for readers to point out if this sentiment is prevalent across cities among the NRI community. In my opinion builders who cater to NRI's will always have smooth sailing thru the ongoing tough times and will inflate the bubble as the supply of money is always increasing. 

India 2011 - Moving to Better Ground

Watch the builders in panel cringe on new Land Acquisition bill. I think minister Jairam Ramesh have them pinned down properly, now either they have to come down from ivory tower and compromise or live with anarchy ....

Lightning does strike twice

After Reddygate, I thought I had seen everything Bangalore real estate had to offer. Little did I know that, I was barely getting started. A friend said the Reddygate experience felt like a Bollywood movie. It was barely a trailer.

Once I walked out of Reddygate (that property hasn't sold yet, looks like they haven't found another loser yet), we kept looking around. We witnessed the enormous greed of Bangalore's flippers. People who don't consider a 250% return of their investment in an one year period a satisfactory return, for instance.

We zeroed in on another townhouse property, this time again by the same big name builders (if you remember from Reddygate, a tier 1 builder in Bangalore). This is an older property (~8 years old) and "BDA Approved", so I thought once we negotiate and settle on the price, things should settle down rather quickly.

We haggled on the price with the seller. We went back and forth for a while and settled on a fair price. We liked dealing with the sellers as well. They were pretty straight forward, "educated", would deal with "100% white money". Ideal match. We gave a token deposit and got the legal documents to start the legal vetting process. That's where the fun started.

You don't appreciate the genius of a real estate developer like this one until you see what methods they use to penny pinch the Government out of stamp duty and registration costs. Agreed, it is moronical to charge ~9% of the sale value as tax and stamp duty per sale. But the developers take it to a different level to beat it.

1) For properties under 1500 sq ft of area, the stamp duty is less. Over 1500 sq ft, it is a "luxury" property, so the stamp duty is more. Since this property was about 2500 sq ft, the developer came up with an ingenious plan.

They sold the two level "row house" as two different units. The ground floor was sold as a different unit and the first floor was sold as a different unit. Two sale agreements, two sale deeds, the full shebang.

This property was about 2500 Sq Ft built on 2200 Sq Ft of land. As equal opportunity provider, they split this as two different "villas" of 1250 Sq Ft constructions built on 1100 Sq Ft of land :).

This physical impossibility of building a structure more than the land allows in one level is missed completely. Enough people were greased along the way that this property was registered successfully.

2) This might be a good time to introduce my seller. My seller is a PhD and MS from IIT Delhi. He has a MBA from IIMB to boot. He is also the CEO of a top tier company. As smart and savvy you can get.

Remember the two sale deeds? That implies, he should have two "kathas" [a Kannada document that says this is your property] and thereby he has to pay two different property tax each year. But the seller has one katha and he has been paying one property tax. Apparently, there is a way to "merge" the two properties into one by a process called "amalgamation", which my seller says he isn't "aware" of and is what he has probably done.

3) The address in the property tax he pays is about two kilometers away from the actual property. The "villa" is in Deverbesarahalli and the property tax is paid for an address in Marathahalli, which is about two kilometeres away and is a different village ;).

This is just the beginning of the legal paperwork mess. This goes on and on and on. The seller hasn't given the most basic set of documents needed to my lawyer to inspect. The seller points to the realtor, the realtor points to the developer, the developer points to the home owner's association and the home owner's association says they don't have all the documents needed.

Basically, the critical documents that have the appropriate approval from the authorities have gone "missing". No one knows where the documents are.

My "broker" suggested gently that I should be using "his" lawyer, the same lawyer he used to buy the neighboring row house for his "gelf" customer. The "gelf" customer trusted the broker to "do the needful" and "make sure all documents are correct legally". So the broker asked "his" lawyer to "verify" and of course, all documents checked out correctly there. So I must be doing this wrong.

Now, this is where things get a tad bit more interesting. I had hired a lawyer to help me through this. Turns out the seller is also a client to the lawyer at his corporate day job. The chief legal consul of the parent megacorp where the seller works for, makes a "friendly" call to my lawyer "enquiring" what's going on with the legal difficulties with the property.

Around the same time, my seller calls me and says that based on his professional experience with my lawyer, my lawyer is too conservative and I shouldn't consider her words completely. After all, when he bought the home, he didn't hire a lawyer, nor did he verify all the documents. He took a 90% loan from HSBC bank who verified everything, so everything must be hunky dory, you see.

That, to me, sums up India's real estate woes. Really smart people, really intelligent people who run companies buy real estate on a whim, without doing the basic document checks and sanity checks needed. They assume and trust the wrong people.

The real estate developers, even the supposedly very good ones, find out ways to scam people and they get away every single time. At the end, the careless one who buys this last ends up at the end of this Ponzi scheme, with a piling dump of crap. Sad.

There are a few learnings with regards to Bangalore real estate, both as a seller and as a buyer. I will add them in a bit. For now, I am still looking for a property with clean titles.

Reddygate

This was originally posted in R2IClubForums.

I R2Ied 6 months ago. Immersed myself in the Bangalore Real Estate. Sold my land during the time period. Tried to invest it in a "villa" - twice so far. For good or for bad, both the villas were by the same builder, a tier 1 builder in Bangalore.

Here is my story, in 2 parts.

Price of Reddy 'Villa': Rs. 1.3 Crore
Advance paid to Reddy: Rs. 50,000
Legal documents in DVD: 1300 pages
Lawyer hours spent: 30+
Personal hours spent: 50+
Number of lawyers involved: 5
Sleepless nights: 12
Finding out how Reddy was going to screw you: Priceless

There were six Reddy sisters who owned the land who inherited it from their father Reddy who inherited it from his father Reddy who got it from some other Reddy who we don't know how he acquired the land. (Red flag 1).

The six Reddy sisters enter a joint development agreement with a big name builder to develop row houses. As part of the deal, the six Reddy sisters get 33% of the houses.

There are 58 villas in total. At 33%, those are 18 houses, so each Reddy sister gets 3 houses each.

Now, the eldest Reddy sister is selling one of her property. Her husband Seller Reddy is the one who is acting on her behalf. I interact with Seller Reddy.

The house I was supposed to be buy was #47 in the earlier plans. It was changed to #58 by swapping it with the other #58. There is no documentation or correction submitted to this regard to the Government. (Red flag 2).

The 33% sharing agreement lists what all houses each Reddy sister gets. My house #58 (old #47) is not in the list. The developer dodges the question as to how this happened. So I get all the people in a meeting, my lawyers, developer's lawyers and the Seller Reddy.

Turns out Seller Reddy got some more land after the fact and attached it to the community. As part of this he got 2200 Sq Ft of salable area assigned to him from the developer. When he did the contract, his wife Reddy and the developer unilaterally sign a document. That document is not counter signed by the other sister Reddys. (Red flag 3). The document just says 2200 sq ft of land and does not name the villa. (Red flag 4).

The house he is selling is 2700 Sq Ft + terrace and not 2200 Sq Ft (Red flag 5).

If you approach this as a con job, you will see that the renaming of the house was a slight of hand just to confuse the buyer. The house was in the original approval plan, so that should pass the checks. But the renumbering and making it house #58 of 58 provides them with an out. Even though this house was approved earlier, since the number changed, is it now approved or is it not approved? Why did you make the real last house you built as #47? (red flag 6).

Seller Reddy says he can do all supporting paperwork and get all sisters to sign off and so on. This just seems ripe for litigation. Not worth the fight.

tl;dr - Seller Reddy got cute. By-passed sister Reddys, got an extra house allocated for him, used slight of hand to confuse buyer.

Atleast one person can afford Mumbai real estate

Full marks to Sushil Kumar on winning 5 crores on the Kaun Banega Crorepati show. The builders have atleast one person who can afford to buy the priciest real estate in Mumbai or Delhi. If only there were more winners Mumbai realtors would use the KBC story to drive up prices to even more ridiculous levels