Thursday, June 26, 2008
Ajit Dayal writes on EquityMaster.com.
In July 2006, at an Equitymaster conference, I made a prediction: Indian property prices will decline by 30% over the next 6 to 12 months.
Boy was I wrong! Property prices in most Indian cities increased by 50% or so between July 2006 and December 2007.
My "prediction" was a bust!
If property prices were 100 in July 2006, they had reached probably 150 in most cities. And my expectation was for a "70". Ouch!
But look around you today and the only place where Indian property is still booming is in the headlines of some newspapers and lead articles on some websites.
Developers and financiers of property projects are desperate to make us believe that property prices are still increasing. They want to hold the "price line". If potential buyers know that the supply of property is large - and sales of apartments are slow - they will wait. They will buy later - or ask for a better price now.
Any reduction in the selling price is a loss of expected profit for the developers and their financiers. Not a good thing.
News or Olds?
We get much of our information from newspapers.
Note the "new" in the word "newspapers".
And what we read shapes our opinions and, eventually, our actions.
But, sometimes, the "newspaper" may be carrying "oldspaper" information that, at one level, creates a false impression in our minds.
And could makes us act in an incorrect manner.
So, contrast these headlines.
Business Standard, in their online version, June 23rd, 2008: writes: "Booming Indian property mkt beckons UK investors".
In this article, there are a few statements of "fact".
Indian property prices, we read, are up some 70% in 2 years. "Merrill Lynch consultants", according to this article, "have predicted a 700 per cent increase in the Indian property market by 2015". Quite a clever statement - its vagueness leaves room for varied interpretation. The article does not say whether this 700 per cent increase is an increase in the amount of square feet being built, or in the prices of real estate. But something to do with real estate is increasing by 700%. The mind takes that "700%" and imagines a bull market in property.
"Realty promoters pledging shares to raise funds" warns an article in the print version of the Business Standard, dated June 19th, 2008. The article lists 10 listed real estate companies whose share prices had collapsed from their 52-week high by between and -58.2% and -78.1% as of June 18th, 2008.
The large shareholder-owners of some of these listed real estate developers have apparently been pledging shares they own to financiers in exchange for loans. With sales not as brisk as in the years 2006 and 2007, cash flows are not as per expectations. And, to add to the woes of the real estate industry, many developers had already committed to larger projects. They now need to pay for this new land and the initial cost of development to get the land into some sort of "build-able" shape.
And another screaming headline, "Cash Crunch" in the Economic Times, June 15th, 2008 states that property developers are borrowing money at interest rates ranging from 35% to 50% per annum. Their "normal" interest rates range from 18% to 24% per annum. The higher borrowing, says the article, is due to the slowdown in sales and larger commitments.
A boom is a bust.
So, what happened between the "old" news of June 18th (the date of the "Realty promoters pledging shares to raise funds" article) and the "new" news of June 23rd (the date of the Booming Indian property mkt beckons UK investors" article)?
The share prices of these realtors, I assume, have declined even further - for what that is worth. The fundamentals of the industry - slow sales and large commitments for new projects - could not have changed. As these share prices decline, the "promoters" of these companies that pledged some shares will need to give more of their shares as a pledge. Additionally, if any loan is not repaid, lenders will sell the pledged shares into the stock market - probably at any price. This could result in a decline in the share prices of the real estate companies - and create a potential downward spiral of wealth destruction for investors in shares of real estate companies.
From a "buying-power" perspective, the news on inflation is worse than expected, so interest rates are likely to increase. And, under that higher interest rate scenario, the cost of borrowing money for buying a home will only increase. Not good for demand. And if demand slows down still further, sales of property will get worse and prices will decline even more.
Uh, oh - does not sound like a "boom".
Sounds more like a "thud".
Demand stalls, supply surges.
For all the bravado of the "news" headline in the June 23rd article in Business Standard, it is more of a rear view mirror event: of what happened yesterday.
But, in a strange way, it gives a hint of what is likely to happen in the future.
In 2006 and 2007, real estate buyers were in a fix. Property they wished to buy was only available at high prices.
Supply was limited.
And demand for property increased due to higher incomes and the ability to borrow more from banks. The desire of many private banks and many government-owned banks to gain market share and build their retail, home loan portfolio saw this dramatic run-up in the borrowing capacity of buyers.
Sometimes these buyers were genuine buyers, and sometimes they were speculators - in for the "free" ride.
After all it was a guarantee that property prices would increase every day.
Just like the prices of shares increased every day when the stock markets opened.
There was no need to go on a "road show" to UK to sell all the property being built.
But that was in 2006 and 2007.
Today, supply of property is more. The demand for property is lower.
Demand has declined because property prices are no longer affordable. Salaries have increased - but not as much as in the recent past.
Demand has also been hit by the fact that banks are closing down their home loan lending departments. Or raising interest rates for these home loans.
The wealth effect from stock markets - which fuels the buying of second homes and dream homes - has evaporated.
But the supply juggernaut keeps on rolling. And building.
Whenever I ask my colleagues (who advise a real estate fund) their views on how much new construction is planned, they shake their head in disbelief. There are 50 to 70 million square feet of new construction coming up in Bangalore, Calcutta, Hyderabad, and Pune to name a few cities.
Developers who have built maybe a total of 5 million square feet in the past decade have plans to build 50 million square feet in the next 3 years.
India was rising. India was shining.
And a rising and shining India needed a place to live, a place to work, and a place to shop.
Real estate zindabad!
Stock price of real estate companies double zindabad!!
Yes, 700% correct!
All correct, and all true: India needs more property.
A lot of more property. Maybe more than the 700% increase referred to in the Merrill Lynch report.
But, at what price?
And at what profit margin to the developer and their financiers?
And will people buy any junk in any location at any price?
Our view on property has been wrong in timing.
We called the "sell" on property too early.
We did not take into account the stupidity of many banks in lending money so leniently and so cheaply. Or the complete mis-pricing of risk-return by so many come-and-join-the-party property funds.
But we knew the greed of the developers. We had seen them in action in 1993 to 1995. As property prices increased in 1994, they bought more land at higher prices and thought they would sell their end product at even higher profits. Discipline was out of the door. Greed was in.
That property cycle went bust in 1995 - and stayed in bust mode till 2003.
For 8 years it was a buyer’s market. Or a renter’s market.
Supply was far more than demand. No one speculated on property. The actual user’s actions determined the prices.
Not some bank’s desire to gain "market share". Nor the availability of money from international sources due to the desire of a foreign fund to invest in an exotic location for an erotic return.
But demand and supply determine the price of everything.
Though, they don’t tell you the value of anything.
And people confuse the two and use "price" and "value" as inter-changeable words.
They confuse the high price of real estate with the value of that real estate.
Prices have only one way to go, I reiterate: and that is down.
And if real estate declines, so should the share prices of many of the property companies that build, and build, and build. We may shake our heads at the housing bubble in USA. But we built one right here in our own back yard.
In July 2006, at an Equitymaster conference, I made a prediction: Indian property prices will decline by 30% over the next 6 to 12 months.
Boy was I wrong! Property prices in most Indian cities increased by 50% or so between July 2006 and December 2007.
My "prediction" was a bust!
If property prices were 100 in July 2006, they had reached probably 150 in most cities. And my expectation was for a "70". Ouch!
But look around you today and the only place where Indian property is still booming is in the headlines of some newspapers and lead articles on some websites.
Developers and financiers of property projects are desperate to make us believe that property prices are still increasing. They want to hold the "price line". If potential buyers know that the supply of property is large - and sales of apartments are slow - they will wait. They will buy later - or ask for a better price now.
Any reduction in the selling price is a loss of expected profit for the developers and their financiers. Not a good thing.
News or Olds?
We get much of our information from newspapers.
Note the "new" in the word "newspapers".
And what we read shapes our opinions and, eventually, our actions.
But, sometimes, the "newspaper" may be carrying "oldspaper" information that, at one level, creates a false impression in our minds.
And could makes us act in an incorrect manner.
So, contrast these headlines.
Business Standard, in their online version, June 23rd, 2008: writes: "Booming Indian property mkt beckons UK investors".
In this article, there are a few statements of "fact".
Indian property prices, we read, are up some 70% in 2 years. "Merrill Lynch consultants", according to this article, "have predicted a 700 per cent increase in the Indian property market by 2015". Quite a clever statement - its vagueness leaves room for varied interpretation. The article does not say whether this 700 per cent increase is an increase in the amount of square feet being built, or in the prices of real estate. But something to do with real estate is increasing by 700%. The mind takes that "700%" and imagines a bull market in property.
"Realty promoters pledging shares to raise funds" warns an article in the print version of the Business Standard, dated June 19th, 2008. The article lists 10 listed real estate companies whose share prices had collapsed from their 52-week high by between and -58.2% and -78.1% as of June 18th, 2008.
| SHAKY FOUNDATIONS | ||||
| Company | June 18 price | 52-wk high | 52-wk high date | % change |
| Ansal Infras | 102.85 | 469 | 13-Dec-07 | -78.1 |
| Parsvnath Dev | 168.3 | 598 | 7-Jan-08 | -71.9 |
| Omaxe | 176.95 | 613 | 13-Dec-07 | -71.1 |
| Jaiprakash Asso | 182.1 | 510 | 4-Jan-08 | -64.3 |
| Unitech | 200.25 | 546.8 | 2-Jan-08 | -63.4 |
| Brigade Enterp | 168.5 | 428 | 1-Jan-08 | -60.6 |
| Gammon India | 337.45 | 845 | 4-Jan-08 | -60 |
| DLF | 492.35 | 1225 | 15-Jan-08 | -59.8 |
| HDIL | 590.5 | 1432 | 10-Jan-08 | -58.8 |
| HCC | 116.5 | 278.9 | 2-Jan-08 | -58.2 |
The large shareholder-owners of some of these listed real estate developers have apparently been pledging shares they own to financiers in exchange for loans. With sales not as brisk as in the years 2006 and 2007, cash flows are not as per expectations. And, to add to the woes of the real estate industry, many developers had already committed to larger projects. They now need to pay for this new land and the initial cost of development to get the land into some sort of "build-able" shape.
And another screaming headline, "Cash Crunch" in the Economic Times, June 15th, 2008 states that property developers are borrowing money at interest rates ranging from 35% to 50% per annum. Their "normal" interest rates range from 18% to 24% per annum. The higher borrowing, says the article, is due to the slowdown in sales and larger commitments.
A boom is a bust.
So, what happened between the "old" news of June 18th (the date of the "Realty promoters pledging shares to raise funds" article) and the "new" news of June 23rd (the date of the Booming Indian property mkt beckons UK investors" article)?
The share prices of these realtors, I assume, have declined even further - for what that is worth. The fundamentals of the industry - slow sales and large commitments for new projects - could not have changed. As these share prices decline, the "promoters" of these companies that pledged some shares will need to give more of their shares as a pledge. Additionally, if any loan is not repaid, lenders will sell the pledged shares into the stock market - probably at any price. This could result in a decline in the share prices of the real estate companies - and create a potential downward spiral of wealth destruction for investors in shares of real estate companies.
From a "buying-power" perspective, the news on inflation is worse than expected, so interest rates are likely to increase. And, under that higher interest rate scenario, the cost of borrowing money for buying a home will only increase. Not good for demand. And if demand slows down still further, sales of property will get worse and prices will decline even more.
Uh, oh - does not sound like a "boom".
Sounds more like a "thud".
Demand stalls, supply surges.
For all the bravado of the "news" headline in the June 23rd article in Business Standard, it is more of a rear view mirror event: of what happened yesterday.
But, in a strange way, it gives a hint of what is likely to happen in the future.
In 2006 and 2007, real estate buyers were in a fix. Property they wished to buy was only available at high prices.
Supply was limited.
And demand for property increased due to higher incomes and the ability to borrow more from banks. The desire of many private banks and many government-owned banks to gain market share and build their retail, home loan portfolio saw this dramatic run-up in the borrowing capacity of buyers.
Sometimes these buyers were genuine buyers, and sometimes they were speculators - in for the "free" ride.
After all it was a guarantee that property prices would increase every day.
Just like the prices of shares increased every day when the stock markets opened.
There was no need to go on a "road show" to UK to sell all the property being built.
But that was in 2006 and 2007.
Today, supply of property is more. The demand for property is lower.
Demand has declined because property prices are no longer affordable. Salaries have increased - but not as much as in the recent past.
Demand has also been hit by the fact that banks are closing down their home loan lending departments. Or raising interest rates for these home loans.
The wealth effect from stock markets - which fuels the buying of second homes and dream homes - has evaporated.
But the supply juggernaut keeps on rolling. And building.
Whenever I ask my colleagues (who advise a real estate fund) their views on how much new construction is planned, they shake their head in disbelief. There are 50 to 70 million square feet of new construction coming up in Bangalore, Calcutta, Hyderabad, and Pune to name a few cities.
Developers who have built maybe a total of 5 million square feet in the past decade have plans to build 50 million square feet in the next 3 years.
India was rising. India was shining.
And a rising and shining India needed a place to live, a place to work, and a place to shop.
Real estate zindabad!
Stock price of real estate companies double zindabad!!
Yes, 700% correct!
All correct, and all true: India needs more property.
A lot of more property. Maybe more than the 700% increase referred to in the Merrill Lynch report.
But, at what price?
And at what profit margin to the developer and their financiers?
And will people buy any junk in any location at any price?
Our view on property has been wrong in timing.
We called the "sell" on property too early.
We did not take into account the stupidity of many banks in lending money so leniently and so cheaply. Or the complete mis-pricing of risk-return by so many come-and-join-the-party property funds.
But we knew the greed of the developers. We had seen them in action in 1993 to 1995. As property prices increased in 1994, they bought more land at higher prices and thought they would sell their end product at even higher profits. Discipline was out of the door. Greed was in.
That property cycle went bust in 1995 - and stayed in bust mode till 2003.
For 8 years it was a buyer’s market. Or a renter’s market.
Supply was far more than demand. No one speculated on property. The actual user’s actions determined the prices.
Not some bank’s desire to gain "market share". Nor the availability of money from international sources due to the desire of a foreign fund to invest in an exotic location for an erotic return.
But demand and supply determine the price of everything.
Though, they don’t tell you the value of anything.
And people confuse the two and use "price" and "value" as inter-changeable words.
They confuse the high price of real estate with the value of that real estate.
Prices have only one way to go, I reiterate: and that is down.
And if real estate declines, so should the share prices of many of the property companies that build, and build, and build. We may shake our heads at the housing bubble in USA. But we built one right here in our own back yard.
Sunday, June 15, 2008
Religious tourism: Spirituality propels Haridwar realty boom
Add some more bubbles to the list.
Religious tourism: Spirituality propels Haridwar realty boom
HARIDWAR: Instant karma has emerged as the driving force behind the state's multimillion-dollar realty industry, with religious tourism turning the twin towns of Haridwar-Rishikesh into hot spots for developers, industry trackers say.
With the two holy cities being located some 200 kilometres from the national capital, Haridwar and Rishikesh are fast becoming a favourite with residents of Delhi and its adjoining areas looking for a bit of quick spiritualism.
Subsequently, these places have become almost an extension of Delhi-Gurgaon for spending the weekend.
"Most of our flats are purchased by the residents of Noida-Gurgaon who visit a couple of times in a year to get a taste of spirituality," says the manager of Gayatrilok Apartments on the Haridwar-Roorkee highway.
Today, it is not only the local developers who are reaping benefits but also big players such as Super Tech, DLF and Sahara, who have now forayed into construction of shopping malls. For instance, the Deep Ganga group of Delhi has already tapped 75 percent of projects.
Real estate major Vardhman group and velvet exporter Rishabh Veleveleen are investing Rs.4 billion to develop a new township Vardhmanpuram, which will have customised villas and interior decorations of the buyers' choice.
"Hardwar, being an important religious place on the world map, has good growth prospects. Statistical figures show that religious towns of India at large are witnessing more than 45 percent annual rise in property prices against the average 25 to 30 percent in tier-II cities," says Vardhman chairman U.C. Jain.
The township proposes to “blend” spiritual living with modern features like open-air theatres, swimming pools, spas, healthcare centres, and shopping plazas with large expanses of greens thrown in.
People at the top corporate management levels, who relocate themselves from big cities, are adding to the shortage, which is being tapped to the hilt by residents of developed neighbourhoods like Shivalik Nagar.
Says Shivalik resident K. Ghai, a retired BHEL executive: "My one-room set here fetches me more monthly rental than the one near Chandigarh, which has more covered area and is located in a newly-built township."
Development is concentrated in Haridwar and Rishikesh, as 90 percent of the state is part of the Ganges and the Grand Himalayas, and the only available land for housing and infrastructure developments is available here.
"There is a huge demand for good housing from foreigners and NRIs who wish to invest here as post-retirement options," says Manoj Gupta, a local real estate developer.
Adding to the demand are forthcoming events like the residential yoga camps and festivals by religious organisations and the Uttaranchal Tourism Board, as well as the Kumbh Mela in 2010.
Growing industrialisation, driven first by hydel projects at Tehri, Maneri and Joshimath, is now doing its bit.
The industrial development area in Haridwar has been declared an “excise free zone”, and companies like Hero Honda, Hindustan Lever, Mahindras, and ITC apart from a clutch of pharma and cosmetic companies are setting up facilities in Haridwar.
The upshot: there's going to be more shortage in Haridwar and Rishikesh. As builders say, these are “the next destination” spots.
Religious tourism: Spirituality propels Haridwar realty boom
HARIDWAR: Instant karma has emerged as the driving force behind the state's multimillion-dollar realty industry, with religious tourism turning the twin towns of Haridwar-Rishikesh into hot spots for developers, industry trackers say.
With the two holy cities being located some 200 kilometres from the national capital, Haridwar and Rishikesh are fast becoming a favourite with residents of Delhi and its adjoining areas looking for a bit of quick spiritualism.
Subsequently, these places have become almost an extension of Delhi-Gurgaon for spending the weekend.
"Most of our flats are purchased by the residents of Noida-Gurgaon who visit a couple of times in a year to get a taste of spirituality," says the manager of Gayatrilok Apartments on the Haridwar-Roorkee highway.
Today, it is not only the local developers who are reaping benefits but also big players such as Super Tech, DLF and Sahara, who have now forayed into construction of shopping malls. For instance, the Deep Ganga group of Delhi has already tapped 75 percent of projects.
Real estate major Vardhman group and velvet exporter Rishabh Veleveleen are investing Rs.4 billion to develop a new township Vardhmanpuram, which will have customised villas and interior decorations of the buyers' choice.
"Hardwar, being an important religious place on the world map, has good growth prospects. Statistical figures show that religious towns of India at large are witnessing more than 45 percent annual rise in property prices against the average 25 to 30 percent in tier-II cities," says Vardhman chairman U.C. Jain.
The township proposes to “blend” spiritual living with modern features like open-air theatres, swimming pools, spas, healthcare centres, and shopping plazas with large expanses of greens thrown in.
People at the top corporate management levels, who relocate themselves from big cities, are adding to the shortage, which is being tapped to the hilt by residents of developed neighbourhoods like Shivalik Nagar.
Says Shivalik resident K. Ghai, a retired BHEL executive: "My one-room set here fetches me more monthly rental than the one near Chandigarh, which has more covered area and is located in a newly-built township."
Development is concentrated in Haridwar and Rishikesh, as 90 percent of the state is part of the Ganges and the Grand Himalayas, and the only available land for housing and infrastructure developments is available here.
"There is a huge demand for good housing from foreigners and NRIs who wish to invest here as post-retirement options," says Manoj Gupta, a local real estate developer.
Adding to the demand are forthcoming events like the residential yoga camps and festivals by religious organisations and the Uttaranchal Tourism Board, as well as the Kumbh Mela in 2010.
Growing industrialisation, driven first by hydel projects at Tehri, Maneri and Joshimath, is now doing its bit.
The industrial development area in Haridwar has been declared an “excise free zone”, and companies like Hero Honda, Hindustan Lever, Mahindras, and ITC apart from a clutch of pharma and cosmetic companies are setting up facilities in Haridwar.
The upshot: there's going to be more shortage in Haridwar and Rishikesh. As builders say, these are “the next destination” spots.
Real estate sector facing severe cash crunch
The recent bloodbath in the real estate sector has started taking a toll. Almost all large developers are now facing a severe cash crunch and finding it difficult to complete their ongoing projects. In fact, the situation is so bad that most of them have reported a 50-70% cash shortfall. Industry sources told SundayET that the liquidity crunch has forced many developers to pick up cash from the unorganised market at interest rates as high as 35% to 50% annually. The lending rate of banks is between 18% and 20%.
The grade A developers which are facing crash crunch include DLF, MGF Emaar, Shobha Developers, Unitech, Omaxe, Parsvnath Developers, Hiranandani Group, Ansal API, BPTP Developers and TDI Group.
As a result of the crash crunch many developers have started going slow or even stopped construction of projects which are either in their initial stages of development or which would not affect their bottomline in the near future. While most developers that SundayET spoke to, agreed with the problem at hand, none of them were ready to be quoted on how it had affected them.
“There are visible signs that the global liquidity crunch has started to impact real estate companies in India. It is becoming extremely difficult for both small and large realty companies to organise financing, given the global liquidity crisis. The recent slowdown in demand, high interest rates, rising input costs and meltdown of realty stocks have only added to their problems. The real estate companies are in dire need for credit and other sources of capital to complete projects at hand and also to sustain their expansion plans. Some companies are able to access capital, albeit at very high costs, which in the long run may not be a sustainable solution, especially given the size of the market and consequent need for large chunks of capital,” says Cushman & Wakefield executive MD (South Asia) Sanjay Verma.
Many in the industry feel that notwithstanding the final verdict on the extent of global economic slowdown and recovery of financial institutions, real estate players in India may continue to face liquidity problems in the near future due to global credit crunch and unfavourable stock market conditions for raising capital.
What’s more, bankers say they may now get more cautious towards lending to real estate developers. “Real estate companies have many projects at hand and the sales have been constantly dwindling. Analysing these sentiments, any financial institution will be cautious. Remember, during monsoons, housing sales come down and banks may have to consider increasing interest rates further in future,” says HDFC Bank chairman Deepak Parekh. State Bank of India (SBI) is no different. It is also contemplating similar measures. “We are not sure for how long the current volatility will exist in the realty market. Also, banks need to maintain their reach among their clients. However, it is possible that all banks may sanction loans to only those developers with whom they have had a long relationship,” says a top SBI official.
Industry experts feel the only avenue available for raising capital in the current situation is at the project SPV level and by way of private equity or similar sources, which is generally the most expensive method of raising capital and has limitations on the over all extent of financing that is required. “Concerns about liquidity will continue to plague the market since debt will not be easily available. Real estate players had traditionally raised money from debt funds via corporate deposits and commercial paper. However, debt funds are currently not eager for more exposure in real estate and are continuously rolling over the debt advanced to these players. The primary source for institutional funding will, therefore, now be private equity,” says JLLM chairman & country head Anuj Puri.
The grade A developers which are facing crash crunch include DLF, MGF Emaar, Shobha Developers, Unitech, Omaxe, Parsvnath Developers, Hiranandani Group, Ansal API, BPTP Developers and TDI Group.
As a result of the crash crunch many developers have started going slow or even stopped construction of projects which are either in their initial stages of development or which would not affect their bottomline in the near future. While most developers that SundayET spoke to, agreed with the problem at hand, none of them were ready to be quoted on how it had affected them.
“There are visible signs that the global liquidity crunch has started to impact real estate companies in India. It is becoming extremely difficult for both small and large realty companies to organise financing, given the global liquidity crisis. The recent slowdown in demand, high interest rates, rising input costs and meltdown of realty stocks have only added to their problems. The real estate companies are in dire need for credit and other sources of capital to complete projects at hand and also to sustain their expansion plans. Some companies are able to access capital, albeit at very high costs, which in the long run may not be a sustainable solution, especially given the size of the market and consequent need for large chunks of capital,” says Cushman & Wakefield executive MD (South Asia) Sanjay Verma.
Many in the industry feel that notwithstanding the final verdict on the extent of global economic slowdown and recovery of financial institutions, real estate players in India may continue to face liquidity problems in the near future due to global credit crunch and unfavourable stock market conditions for raising capital.
What’s more, bankers say they may now get more cautious towards lending to real estate developers. “Real estate companies have many projects at hand and the sales have been constantly dwindling. Analysing these sentiments, any financial institution will be cautious. Remember, during monsoons, housing sales come down and banks may have to consider increasing interest rates further in future,” says HDFC Bank chairman Deepak Parekh. State Bank of India (SBI) is no different. It is also contemplating similar measures. “We are not sure for how long the current volatility will exist in the realty market. Also, banks need to maintain their reach among their clients. However, it is possible that all banks may sanction loans to only those developers with whom they have had a long relationship,” says a top SBI official.
Industry experts feel the only avenue available for raising capital in the current situation is at the project SPV level and by way of private equity or similar sources, which is generally the most expensive method of raising capital and has limitations on the over all extent of financing that is required. “Concerns about liquidity will continue to plague the market since debt will not be easily available. Real estate players had traditionally raised money from debt funds via corporate deposits and commercial paper. However, debt funds are currently not eager for more exposure in real estate and are continuously rolling over the debt advanced to these players. The primary source for institutional funding will, therefore, now be private equity,” says JLLM chairman & country head Anuj Puri.
Chennai's realtors skid on fuel price hike, inflation
CHENNAI: Promoters of ongoing real estate projects, worth over Rs 4000 crore, are reworking their pricing strategies as rising inflation and the fuel price hike have pushed up input costs.
Steel prices, already northbound, has shot up by over 30 per cent since fuel costs went up, Builders Association of India office-bearer MK Sundaram told reporters.
Transportation has become more expensive with petrol costing Rs 5 more per litre, and diesel Rs 3 more. Other items like sand are dearer by nearly 40 per cent, he said.
The situation has been trickier for promoters by the 8.24 per cent inflation that many had not factored into their contracts.
Subsequently, cost overruns have become common, and several projects have become unviable. With contractors beginning to lose money, Sundaram said some projects have had to be deferred and labour laid off.
"Who will buy a flat pegged at Rs 2,500 a sq ft at double the price when the cost of funds also go up while salaries don't?" Sundaram asked. "The price hikes have hit the industry hard."
Construction major HIRCO, which has a huge project under way in Chennai's southern suburbs, is likely to rework prices for sales of completed projects by at least 20 per cent, company officials said on condition of anonymity.
"We will have to assess the sentiments of buyers, especially in the light of rising cost of funds and several other fiscal parameters," a HIRCO official said.
While the HIRCO project, spread over 500 acres is expected to have a total outlay of at least Rs 800 crore, Puravankara, another construction major, has at stake a project worth Rs 3 crore at current prices, according to independent estimates.
Other construction projects - Chennai's version of London's Tube and flyovers - may also suffer due to huge cost overruns, industry sources said.
Chennai Metro Rail Limited - a public sector company owned by the state government - has worked its cost at a little under Rs 1000 crore at current prices. This could go up by at least 50 percent when work begins in 2009.
And, by the time it's completed in 2014, the cost may have escalated 300 percent, sources at Larsen and Toubro, another construction major said.
The reasons are not difficult to fathom.
The Tamil Nadu government's takeover of sand quarrying, citing profiteering by private contractors, resulted in a temporary shortage, sending prices higher by almost 45% within a span of two months.
The fuel price hike has only worsened matters.
Present indications of a further fuel price hike may render several projects financially unviable, said non-resident Indian financial expert R Rao, currently on a visit to India from the US.
"We seem to be planning for day before yesterday. Lack of infrastructure and short-sighted planning render whatever is created financially unviable," Rao told IANS. "Consumers do not get their money's worth."
Steel prices, already northbound, has shot up by over 30 per cent since fuel costs went up, Builders Association of India office-bearer MK Sundaram told reporters.
Transportation has become more expensive with petrol costing Rs 5 more per litre, and diesel Rs 3 more. Other items like sand are dearer by nearly 40 per cent, he said.
The situation has been trickier for promoters by the 8.24 per cent inflation that many had not factored into their contracts.
Subsequently, cost overruns have become common, and several projects have become unviable. With contractors beginning to lose money, Sundaram said some projects have had to be deferred and labour laid off.
"Who will buy a flat pegged at Rs 2,500 a sq ft at double the price when the cost of funds also go up while salaries don't?" Sundaram asked. "The price hikes have hit the industry hard."
Construction major HIRCO, which has a huge project under way in Chennai's southern suburbs, is likely to rework prices for sales of completed projects by at least 20 per cent, company officials said on condition of anonymity.
"We will have to assess the sentiments of buyers, especially in the light of rising cost of funds and several other fiscal parameters," a HIRCO official said.
While the HIRCO project, spread over 500 acres is expected to have a total outlay of at least Rs 800 crore, Puravankara, another construction major, has at stake a project worth Rs 3 crore at current prices, according to independent estimates.
Other construction projects - Chennai's version of London's Tube and flyovers - may also suffer due to huge cost overruns, industry sources said.
Chennai Metro Rail Limited - a public sector company owned by the state government - has worked its cost at a little under Rs 1000 crore at current prices. This could go up by at least 50 percent when work begins in 2009.
And, by the time it's completed in 2014, the cost may have escalated 300 percent, sources at Larsen and Toubro, another construction major said.
The reasons are not difficult to fathom.
The Tamil Nadu government's takeover of sand quarrying, citing profiteering by private contractors, resulted in a temporary shortage, sending prices higher by almost 45% within a span of two months.
The fuel price hike has only worsened matters.
Present indications of a further fuel price hike may render several projects financially unviable, said non-resident Indian financial expert R Rao, currently on a visit to India from the US.
"We seem to be planning for day before yesterday. Lack of infrastructure and short-sighted planning render whatever is created financially unviable," Rao told IANS. "Consumers do not get their money's worth."
Friday, June 13, 2008
Mumbai builders in dire trouble
Finally the bubble bursts. I expect atleast a 25-30% correction in the market as people begin to walk away from their highly priced apartments.
MUMBAI: After raking in phenomenal profits since 2004, builders, including some top guns in the industry, could be headed for serious trouble with the real estate market sliding rapidly.
Sources in the construction industry, financial institutions and individual investors have told TOI that several builders have started defaulting on interest payments and some of them have backed out of commitments to purchase land. Many builders are facing a liquidity crunch as sales of apartments are in a state of virtual stagnation. Moreover, politicians who had parked their slush funds with builders are now asking for their money back.
Information gleaned through these sources points to a dismal scenario set to unfold in the coming months. As one property expert who tracks the market minutely put it, “The real estate market has now moved from being under stress to a completely distressed condition.’’
A plethora of recent cases seems to back up this claim.
A leading Mumbai-based developer who belongs to one of the country’s leading construction families has backed out after offering Rs 700 crore to purchase the 18-acre Hindustan Composite land at LBS Marg in Ghatkopar. It’s learnt that the same builder has also walked away from buying 3.5 lakh sq ft of the Pramanik Landmark land in Goregaon after having made an initial payment of Rs 40 crore.
This builder, who has constructed landmark buildings at Colaba, Peddar Road, Prabhadevi and the far-off western suburbs, is believed to have overstretched himself with an exposure of Rs 1,200 crore in the form of loans taken from banks and private individuals.
TOI has also learnt that a Delhi-based construction giant which was in negotiations for a 100-acre chunk of land at Kanjurmarg for about Rs 1,000 crore has suddenly turned around and said that it’s no longer interested.
Another Delhi-based developer, currently undertaking a massive redevelopment project near the western express highway and also redeveloping a BEST bus depot, is facing difficulty in servicing its loans. “This company has started defaulting on interest payments to its bond holders,’’ a source said.
A Mumbai-based developer, who recently purchased a plot in the Bandra-Kurla Complex for a phenomenal price, may also end up burning his fingers, say market sources. A confidential report prepared by a private bank, which was accessed by this newspaper, shows that this builder has a total loan exposure of almost Rs 3,000 crore. “He is finding it difficult to find tenants for his buildings. Even if he were to sell office space outright, he would have to sell it at a minimum rate of Rs 54,000 a sq ft. This is not possible because the record price in BKC today has not surpassed Rs 35,000 a sq ft,’’ said an industry source.
Another construction company that may have overstretched itself is a south Mumbai property redeveloper, said a market insider. “His permissions are coming in very slow and he is faced with huge overheads,’’ he added.
MUMBAI: After raking in phenomenal profits since 2004, builders, including some top guns in the industry, could be headed for serious trouble with the real estate market sliding rapidly.
Sources in the construction industry, financial institutions and individual investors have told TOI that several builders have started defaulting on interest payments and some of them have backed out of commitments to purchase land. Many builders are facing a liquidity crunch as sales of apartments are in a state of virtual stagnation. Moreover, politicians who had parked their slush funds with builders are now asking for their money back.
Information gleaned through these sources points to a dismal scenario set to unfold in the coming months. As one property expert who tracks the market minutely put it, “The real estate market has now moved from being under stress to a completely distressed condition.’’
A plethora of recent cases seems to back up this claim.
A leading Mumbai-based developer who belongs to one of the country’s leading construction families has backed out after offering Rs 700 crore to purchase the 18-acre Hindustan Composite land at LBS Marg in Ghatkopar. It’s learnt that the same builder has also walked away from buying 3.5 lakh sq ft of the Pramanik Landmark land in Goregaon after having made an initial payment of Rs 40 crore.
This builder, who has constructed landmark buildings at Colaba, Peddar Road, Prabhadevi and the far-off western suburbs, is believed to have overstretched himself with an exposure of Rs 1,200 crore in the form of loans taken from banks and private individuals.
TOI has also learnt that a Delhi-based construction giant which was in negotiations for a 100-acre chunk of land at Kanjurmarg for about Rs 1,000 crore has suddenly turned around and said that it’s no longer interested.
Another Delhi-based developer, currently undertaking a massive redevelopment project near the western express highway and also redeveloping a BEST bus depot, is facing difficulty in servicing its loans. “This company has started defaulting on interest payments to its bond holders,’’ a source said.
A Mumbai-based developer, who recently purchased a plot in the Bandra-Kurla Complex for a phenomenal price, may also end up burning his fingers, say market sources. A confidential report prepared by a private bank, which was accessed by this newspaper, shows that this builder has a total loan exposure of almost Rs 3,000 crore. “He is finding it difficult to find tenants for his buildings. Even if he were to sell office space outright, he would have to sell it at a minimum rate of Rs 54,000 a sq ft. This is not possible because the record price in BKC today has not surpassed Rs 35,000 a sq ft,’’ said an industry source.
Another construction company that may have overstretched itself is a south Mumbai property redeveloper, said a market insider. “His permissions are coming in very slow and he is faced with huge overheads,’’ he added.
20 km in 2 hours.
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Write to usIt happens only in Mumbai: 2 hours to cover 20 km!
June 13, 2008It may be the country's richest city, and toasted as its commercial capital, but the cold fact remains that it is a city that is unable to build roads that can withstand its annual date with the monsoons.
Mumbai's municipal corporation boasts of a budget that is said to outstrip that of many smaller states, but no amount of money, it seems, can ensure roads that won't fail in the first showers of the season.
It's an annual tradition, Mumbai-kars know, for their civic bosses to reel off statistics to show that this time round they are better prepared for the rains, the roads will hold, there will be no flooding etc. Every year these tall claims unfailingly get washed away in the rains.
But rather than expend words to portray the agony of Mumbai's road commuters, Rediff.com's Rajesh Karkera and Saisuresh Sivaswamy decided to videograph their journey from home to work, a distance of around 20 km which, in any other city, would take around 30 minutes. On a 'normal' day they are happy if they cover the distance in one hour; now that the rains are here, the journey has taken them even 3 hours.
On Wednesday the duo set out as usual in the morning with a video camera, and this is their record.
Monday, June 02, 2008
The real question is which segments of the market have seen a slowdown. Is it the 5k segment, the 10k segment or > 10 segment. My guess is that the big number of registrations are in the 2k-5k segment and there on the curve is trending down towards the right as the price per sq/ft drops. Indian Express reports
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MUMBAI, JUNE 1: Mumbai’s realty market, which in recent years witnessed an astronomical price increase bringing it in the league of the world’s most expensive cites, is finally taking a beating. Property sales that have been growing at a clip of about 20% every year have plummeted by 17% in 2007-08, the first time in six years.
Though the property market in the country’s financial capital has been rife with talk of a slump for some time now, this is the first time figures prove the extent of the slowdown. Information about residential and commercial property sales from the stamp duty registration office show almost 12,000 fewer transactions during the last financial year compared to the year before. From April 2007 to March 2008, 62,595 flats were purchased in Mumbai as against 74,555 in 2006-07.
Analysts said this could be just the tip of the iceberg as stamp duty registration figures indicate the trend only among genuine homebuyers. There could be more of a downswing in real estate investments as people are backing off from the sector in large numbers.
Sanjay Dutt, joint managing director of Cushman and Wakefield, said that annually there has been a 20-25% increase in transactions since 2001. “The market peaked in 2007. There were glimpses of market correction in certain cities by the end of 2007. But it was only in 2008 that realisation on the investors’ part and the stagnation that was until now only a perception became a reality,” he said.
Realty analysts say sales volumes are expected to dive further south as developers persist on holding on to their steep prices and buyers anticipate a further fall with current rates being beyond reach. According to Akshay Kumar, managing director of Parklane Property Advisors, the market is in a corrective mode and the downward drift will continue for another 12 months.
“Between 1992-96, the market ran up the same way it did during 2003-07. Post-’96, the volumes dropped by 50%. This time again it is expected to drop substantially though not so steeply. The demand is now extremely sluggish and customers do not want to stick out their necks and transact at prevailing rates,” he said.
In fact, comparative figures for the month of April since 2006-07 show that there has been a drastic 30% drop in transactions this year as compared to three years ago. There were only 5,289 transactions last month as compared to 7,471 in April 2006-07.
Signs of the sluggish market were visible when a recent auction of plots at the Bandra-Kurla Complex turned out to be a damp squib. Just a year ago, a plot of land in the same place had become the national indicator of the euphoric real estate scenario.
“Developers who are not able to sustain for another six months will set the valuation. Prices have peaked too fast over the last six years, so a correction was inevitable. Besides peaking of values, when global factors showed signs of stress even the investors’ segment started withdrawing towards the end of 2007,” said Dutt.
The government, Dutt said, has now started sending signals to an overheated market by taking measures to curtail liquidity in the market and speculation in real estate. “These include controlling the Foreign Direct Investment in the sector as well as imposing higher interest rates. When the market recovers this time, there will be a more healthy and steady growth than the quantum leaps we saw until now,” he said.
Bangalore's New Airport Is a Dream Going Sour
My gut feeling is that the new BJP government will come down harshly on BIAL and open the HAL airport for domestic flights. I don't see Y'Appa, Advani and Narayan Murthy making 3 journeys to the airport every week. With the decline of Deve Gowda's influence in Bengaluru Devanhalli will lose its lustre as the next hot investment destination inspite of all the rosy news being planted by the land lobby in various news papers, the Times of India being the most prominent of the lot.
Commentary by Andy Mukherjee
June 2 (Bloomberg) -- What should have been a moment of fulfillment for India, after 17 years of false starts, delays and disappointments, is rapidly turning into a farce.
It has been less than a week since a brand-new airport opened in Bangalore, India's computer-software capital, and already there is a big question mark over whether the Indian government will be able to keep a key promise it made to private investors to get them to build the airfield.
The $618 million project, partly owned by Siemens Project Ventures GmbH and Unique Zurich Airport, is embroiled in a law suit initiated by Bangalore City Connect.
The citizens advocacy group is contesting the government's 2004 commitment to Bangalore International Airport Ltd. -- which owns and operates the new facility -- to close down the city's rickety, old, state-managed airbase, which was built in 1964 to test military planes and was later pushed into civilian service.
In granting monopoly rights to the new company, public interest has been neglected, City Connect says in its petition.
One objection is that the new airport is too small because planners underestimated demand.
As a result, it will be operating at full capacity in its very first year with traffic growing 30 percent annually. To close down the existing airfield, situated inside the city, and direct all travelers to a new one at Devanahalli, 40 kilometers (25 miles) from the city center, is madness, the critics say.
``All over the world wherever a private monopoly is created, public interest predominates,'' says T.V. Mohandas Pai, a member of the citizens group and a director of Infosys Technologies Ltd., India's second-largest computer-software developer.
Monopoly Rights
``Government has given a monopoly and it was done in circumstances that existed five years ago,'' says Pai. ``Things were totally different, there wasn't much traffic and growth was slow. Bangalore wanted an international airport.''
Albert Brunner, chief executive officer of the new airport, disputes that assessment. The existing runway can handle 20 million passengers a year, he says, compared with the 12.5 million expected in the first year of operations.
Besides, there's a plan to build a second runway, he says. But what he can't do anything about -- and what I suspect is the real issue here -- is ground transportation.
It has been eight years since the location of the new airport has been known; in all that time the state government of Karnataka state -- of which Bangalore is the capital -- didn't bother to build an expressway.
$488 Billion
The net result is this: A software engineer working in Electronic City on Bangalore's outskirts may end up spending three hours on the road to catch a one-hour flight to another destination within India.
That, more than anything else, is why frequent fliers of Bangalore are feeling cheated with an airport they have eagerly awaited for so many years.
The new airport is spread over 4,000 acres, has eight aerobridges, nine remote bays, 53 check-in counters and parking space for 2,000 cars. The old airport didn't even have a lounge for international business-class passengers.
India can't allow the Bangalore airport to become a public- relations disaster.
At stake is $488 billion in capital that the government estimates it would need to ease shortages in infrastructure: roads, ports, airports and power stations.
Independent Regulator
In the future, the national government has to view every project in its totality by making an inventory of amenities that a state or a municipal authority is expected to provide. The fees, tolls and levies accruing to sub-national governments from any project must be linked to these milestones.
And when the rules of the game have to be tweaked midway -- as at times they must be -- it helps to have these judgments come from independent regulators who have the expertise to make nuanced, data-based decisions that may be acceptable to all stakeholders.
Finally, demand estimation is too important to be left entirely to experts.
Companies such as Google Inc. are harnessing the power of prediction markets -- which gather information from a large number of participants -- to generate useful forecasts.
There's no reason why governments can't do the same.
Commentary by Andy Mukherjee
June 2 (Bloomberg) -- What should have been a moment of fulfillment for India, after 17 years of false starts, delays and disappointments, is rapidly turning into a farce.
It has been less than a week since a brand-new airport opened in Bangalore, India's computer-software capital, and already there is a big question mark over whether the Indian government will be able to keep a key promise it made to private investors to get them to build the airfield.
The $618 million project, partly owned by Siemens Project Ventures GmbH and Unique Zurich Airport, is embroiled in a law suit initiated by Bangalore City Connect.
The citizens advocacy group is contesting the government's 2004 commitment to Bangalore International Airport Ltd. -- which owns and operates the new facility -- to close down the city's rickety, old, state-managed airbase, which was built in 1964 to test military planes and was later pushed into civilian service.
In granting monopoly rights to the new company, public interest has been neglected, City Connect says in its petition.
One objection is that the new airport is too small because planners underestimated demand.
As a result, it will be operating at full capacity in its very first year with traffic growing 30 percent annually. To close down the existing airfield, situated inside the city, and direct all travelers to a new one at Devanahalli, 40 kilometers (25 miles) from the city center, is madness, the critics say.
``All over the world wherever a private monopoly is created, public interest predominates,'' says T.V. Mohandas Pai, a member of the citizens group and a director of Infosys Technologies Ltd., India's second-largest computer-software developer.
Monopoly Rights
``Government has given a monopoly and it was done in circumstances that existed five years ago,'' says Pai. ``Things were totally different, there wasn't much traffic and growth was slow. Bangalore wanted an international airport.''
Albert Brunner, chief executive officer of the new airport, disputes that assessment. The existing runway can handle 20 million passengers a year, he says, compared with the 12.5 million expected in the first year of operations.
Besides, there's a plan to build a second runway, he says. But what he can't do anything about -- and what I suspect is the real issue here -- is ground transportation.
It has been eight years since the location of the new airport has been known; in all that time the state government of Karnataka state -- of which Bangalore is the capital -- didn't bother to build an expressway.
$488 Billion
The net result is this: A software engineer working in Electronic City on Bangalore's outskirts may end up spending three hours on the road to catch a one-hour flight to another destination within India.
That, more than anything else, is why frequent fliers of Bangalore are feeling cheated with an airport they have eagerly awaited for so many years.
The new airport is spread over 4,000 acres, has eight aerobridges, nine remote bays, 53 check-in counters and parking space for 2,000 cars. The old airport didn't even have a lounge for international business-class passengers.
India can't allow the Bangalore airport to become a public- relations disaster.
At stake is $488 billion in capital that the government estimates it would need to ease shortages in infrastructure: roads, ports, airports and power stations.
Independent Regulator
In the future, the national government has to view every project in its totality by making an inventory of amenities that a state or a municipal authority is expected to provide. The fees, tolls and levies accruing to sub-national governments from any project must be linked to these milestones.
And when the rules of the game have to be tweaked midway -- as at times they must be -- it helps to have these judgments come from independent regulators who have the expertise to make nuanced, data-based decisions that may be acceptable to all stakeholders.
Finally, demand estimation is too important to be left entirely to experts.
Companies such as Google Inc. are harnessing the power of prediction markets -- which gather information from a large number of participants -- to generate useful forecasts.
There's no reason why governments can't do the same.
Wednesday, May 28, 2008
Bandra booming
Since when did gardens, swimming pools and gyms cost so much money. Money is chasing money using real estate as the medium. There can only be so many SRT, SRK, Aamir Khans, Bacchans and the Aftab Shivdasani's and so called diamond merchants :). Hurray to black money
Saturday, May 24, 2008
Mumbai sinking
Its not just water entering your doorsteps, its salt eating away the foundations of the building structures. Most people dont think about it but nature makes no exceptions between skyscrapers or slums
Bangalore residents cheated by VIP's
Scams comes in all shapes and sizes. We are used to politicians buying land cheap before carrying out major developments like Mr Gowda and company's association with Devanhalli. Now NDTV reports on scams in BDA plots which are bought by poor VIP's. A country of a billion scams. For every scam detected there could be 99% more undetected. Such is the state of the land of the Mahatma
Bangalore VIPs fake poverty for land
Yogesh Pawar
Tuesday, May 20, 2008 10:48 PM (Bangalore)
At the centre of Bangalore's land grab controversy is the very agency that's meant to build a better city, the Bangalore Development Authority (BDA).
They are meant to ensure affordable housing to those who cannot pay the high rates in Bangalore's real estate market.
But instead, BDA finds itself charged with selling the same land to a host of VIPs and politicians.
All the scam needs is, simple paper work to falsely prove that you are eligible for subisided BDA land.
To qualify for the land an applicant needs to prove:
* He/she has been a resident of Bangalore for over 20 years.
* He/she does not own any property in Bangalore.
* Most significantly that their annual family income is not more than Rs 1.20 lakh.
Many VIP's by using false affidavits have managed to get land allotted to them, they have also been passed off as Bangalore's underprivileged to get prime land at very low rates.
List of these ministers and former ministers cut across party lines like, Baburao Chavan, Ramalinga Reddy, M Diwakar Babu, S S Mallikarjuna, M Mallikarjuna Nagappa.
Former Members of Parliament, Vinayakumar Sorkae, R S Patil and Iqbal Ahmed Sardagi.
There are other former Members of Legislative Assembly and Council Venkatrammanappa, Yogesh Bhat, Basantha Reddy, Marilinge Gowda, A Narayanswamy, Sharanappa Thipanna Sunagara, B T Parameshwara, Gopala Pojar, R Narayana, Dinesh Gundu Rao, A S Guruswany, G V Sidappa, D G Shantha Gowda, B S Basavaraju, Katta Subramaniam Naidu, Sirak Shaikh, Vadnal Rajanna, Anasyumma Nataraj, H R Alaguru, M Shankara Reddy, Raja Venkatappa Naik, N Sampangi, Syed Azeem Peer S Khadri and S P Mudda Hanume Gowda Nagappa, Dr M Akbar Ali, K Kushal
T S Mruthyujayappa, V R Sudarshan, C Ramesh, Winfred Fernandes, Jalaja Naik, Profulla Madukar, Vimala Gowda and Nirmala Venkatesh.
S Nagraj, a petitioner said, "The mandate rule is that they should not own sites when they apply for ministers quota. but on the pretext of ministers' quotas, they have taken these plots. People who are standing in queue for getting these sites, have been deceived by the government."
It's a staggering scam and is only possible with the full cooperation of corrupt BDA officials. A scam which exposes the claim that Bangalore, has no land for low cost housing.
Activists have gone to court about this blatant corruption on the part of BDA officials.
R Shivaswamy, advocate and anti-corruption activist said, "BDA have cheated the government by giving the lowest stamp duty and the lowest land cost."
Bangalore VIPs fake poverty for land
Yogesh Pawar
Tuesday, May 20, 2008 10:48 PM (Bangalore)
At the centre of Bangalore's land grab controversy is the very agency that's meant to build a better city, the Bangalore Development Authority (BDA).
They are meant to ensure affordable housing to those who cannot pay the high rates in Bangalore's real estate market.
But instead, BDA finds itself charged with selling the same land to a host of VIPs and politicians.
All the scam needs is, simple paper work to falsely prove that you are eligible for subisided BDA land.
To qualify for the land an applicant needs to prove:
* He/she has been a resident of Bangalore for over 20 years.
* He/she does not own any property in Bangalore.
* Most significantly that their annual family income is not more than Rs 1.20 lakh.
Many VIP's by using false affidavits have managed to get land allotted to them, they have also been passed off as Bangalore's underprivileged to get prime land at very low rates.
List of these ministers and former ministers cut across party lines like, Baburao Chavan, Ramalinga Reddy, M Diwakar Babu, S S Mallikarjuna, M Mallikarjuna Nagappa.
Former Members of Parliament, Vinayakumar Sorkae, R S Patil and Iqbal Ahmed Sardagi.
There are other former Members of Legislative Assembly and Council Venkatrammanappa, Yogesh Bhat, Basantha Reddy, Marilinge Gowda, A Narayanswamy, Sharanappa Thipanna Sunagara, B T Parameshwara, Gopala Pojar, R Narayana, Dinesh Gundu Rao, A S Guruswany, G V Sidappa, D G Shantha Gowda, B S Basavaraju, Katta Subramaniam Naidu, Sirak Shaikh, Vadnal Rajanna, Anasyumma Nataraj, H R Alaguru, M Shankara Reddy, Raja Venkatappa Naik, N Sampangi, Syed Azeem Peer S Khadri and S P Mudda Hanume Gowda Nagappa, Dr M Akbar Ali, K Kushal
T S Mruthyujayappa, V R Sudarshan, C Ramesh, Winfred Fernandes, Jalaja Naik, Profulla Madukar, Vimala Gowda and Nirmala Venkatesh.
S Nagraj, a petitioner said, "The mandate rule is that they should not own sites when they apply for ministers quota. but on the pretext of ministers' quotas, they have taken these plots. People who are standing in queue for getting these sites, have been deceived by the government."
It's a staggering scam and is only possible with the full cooperation of corrupt BDA officials. A scam which exposes the claim that Bangalore, has no land for low cost housing.
Activists have gone to court about this blatant corruption on the part of BDA officials.
R Shivaswamy, advocate and anti-corruption activist said, "BDA have cheated the government by giving the lowest stamp duty and the lowest land cost."
Times of India and Builders desparate to raise prices
First it is the Times of India which predicted a rise in housing prices due to higher input costs. The very next day the KOAPP has said an 8% rise in prices is inevitable due to the same reasons. The bottom line is that builders are trying to create a FUD (Fear, Uncertainity and Death) phenomenon in the bangalore market. Similar things happened in Pune last month where PBAP has gone on record saying they will hike prices. Instead of passing the increased costs to the consumer, why dont the builders lower the land bank prices which are quoted by the land owners. In a heavily politicized business the builders are beginning to feel the pinch.
Below is the Times article
Realty prices may go up in Bangalore TIMES NEWS NETWORK
Bangalore: A bullish inflationary scenario, ever-rising commodity prices, hardening of interest rates and strengthening of the rupee. These are the key factors that are making real estate developers in the city wake up to hard realities. Despite all these odds, realty players, so far, have been trying to have their feet on the ground shielding severe competition in terms of price pressures and uneven demand and supply conditions.
City realty developers have now decided to pass a portion of their burden to their patrons, realising the fact that they cannot afford to bleed anymore.
According to well-informed realty sources, the developer community is mulling a end-buyer price hike of 3% to 7%, to take a bit of respite. The price rise will impact all kinds of projects across the city in various stages of development. “Depending on stage of construction, the percentage price hike will vary. First only an incremental rise will be passed on. If the market situation continues to remain the way it is, another rise will take place,’’ said a source.
In the last 9 to 12 months developers in city have borne an input cost rise between 20% and 30%. Rising prices of steel, cement and labour have been driving input cost higher.
REALTY CHECK
Inputs costs rise between 20% and 30%
Rising prices of steel, cement, labour drive input costs higher
Real estate price may therefore go up between 3% and 7%
Below is the Times article
Realty prices may go up in Bangalore TIMES NEWS NETWORK
Bangalore: A bullish inflationary scenario, ever-rising commodity prices, hardening of interest rates and strengthening of the rupee. These are the key factors that are making real estate developers in the city wake up to hard realities. Despite all these odds, realty players, so far, have been trying to have their feet on the ground shielding severe competition in terms of price pressures and uneven demand and supply conditions.
City realty developers have now decided to pass a portion of their burden to their patrons, realising the fact that they cannot afford to bleed anymore.
According to well-informed realty sources, the developer community is mulling a end-buyer price hike of 3% to 7%, to take a bit of respite. The price rise will impact all kinds of projects across the city in various stages of development. “Depending on stage of construction, the percentage price hike will vary. First only an incremental rise will be passed on. If the market situation continues to remain the way it is, another rise will take place,’’ said a source.
In the last 9 to 12 months developers in city have borne an input cost rise between 20% and 30%. Rising prices of steel, cement and labour have been driving input cost higher.
REALTY CHECK
Inputs costs rise between 20% and 30%
Rising prices of steel, cement, labour drive input costs higher
Real estate price may therefore go up between 3% and 7%
Saturday, May 17, 2008
Land price correct all over the country
Now that the acreage cost seem to be dropping, the sq/ft price drop should follow.
Economic times reports...
Land prices in the national capital region (NCR), Mumbai suburbs, Bangalore and Hyderabad have corrected by up to 25% as property developers slow down their land purchases. Poor sales and lower availability of credit at higher cost have prompted property developers to end the mad rush to acquire land. Some of the developers have even backed out of land deals which were agreed upon as the slowdown hit the sector.
Prices have come down by up to 25% in Mumbai's distant suburbs, including Thane and Belapur, and pockets of Hyderabad and Bangalore, according to property consultancy firm Knight Frank India. Prices in the NCR, with an exception of Faridabad and Delhi, too have witnessed a correction of up to 25%, says a senior Unitech executive, adding that transaction volume has dried up. Land prices in Faridabad have risen 10-30% in the past 3-4 months.
However, Faridabad is just catching up with its neighbouring locations. The prices in Faridabad are still lower than in Gurgaon or Noida and the current price rise is more towards building a parity with them. Land prices in Delhi are said to be stable.
But a recent land deal struck in Delhi's prime commercial centre Connaught Place indicates that prices in the capital too are cooling off. Parsvnath Developers bought 1.18 acre, jointly owned by Mahajan Industries and Videocon Industries, for Rs 200 crore. The deal came at a discount of almost 17% at Rs 169 crore per acre, compared to what hotel major Leela Group paid for acquiring 3 acres in Chanakyapuri last year for Rs 611 crore.
"Real estate sector is facing a major cash crunch. That's why the companies are focusing on completing the project at hand, instead of adding to their landbanks," says Omaxe executive director Vipin Aggarwal.
Till recently, real estate players were in a land acquisition frenzy, with some players even pledging their equity shares to acquire land. A large landbank was showcased as the biggest asset for a company tapping the capital market. "Most real estate firms have formed big landbanks. So, there is hardly any need for them to go for further acquisition, especially in these times, when money is expensive," said Anshuman Magazine South Asia chairman CB Richard Ellis. Developers are also showing lower interest in agriculture land, once their prime target because of the substantial margins it offered.
At the same time, given the slowdown in the sector, some of the land deals which were earlier agreed upon have also fallen through. "The situation has completely changed since January. The developers are now exiting the deals because they do not think that the project can fetch them the profits they had originally expected," says Knight Frank India chairman Pranay Vakil. The correction is more pronounced in plots of less than 25 acre in size, since they are not FDI-compliant. "For a larger piece of land, there is FDI. But for smaller size projects, there are very few takers," he adds.
Economic times reports...
Land prices in the national capital region (NCR), Mumbai suburbs, Bangalore and Hyderabad have corrected by up to 25% as property developers slow down their land purchases. Poor sales and lower availability of credit at higher cost have prompted property developers to end the mad rush to acquire land. Some of the developers have even backed out of land deals which were agreed upon as the slowdown hit the sector.
Prices have come down by up to 25% in Mumbai's distant suburbs, including Thane and Belapur, and pockets of Hyderabad and Bangalore, according to property consultancy firm Knight Frank India. Prices in the NCR, with an exception of Faridabad and Delhi, too have witnessed a correction of up to 25%, says a senior Unitech executive, adding that transaction volume has dried up. Land prices in Faridabad have risen 10-30% in the past 3-4 months.
However, Faridabad is just catching up with its neighbouring locations. The prices in Faridabad are still lower than in Gurgaon or Noida and the current price rise is more towards building a parity with them. Land prices in Delhi are said to be stable.
But a recent land deal struck in Delhi's prime commercial centre Connaught Place indicates that prices in the capital too are cooling off. Parsvnath Developers bought 1.18 acre, jointly owned by Mahajan Industries and Videocon Industries, for Rs 200 crore. The deal came at a discount of almost 17% at Rs 169 crore per acre, compared to what hotel major Leela Group paid for acquiring 3 acres in Chanakyapuri last year for Rs 611 crore.
"Real estate sector is facing a major cash crunch. That's why the companies are focusing on completing the project at hand, instead of adding to their landbanks," says Omaxe executive director Vipin Aggarwal.
Till recently, real estate players were in a land acquisition frenzy, with some players even pledging their equity shares to acquire land. A large landbank was showcased as the biggest asset for a company tapping the capital market. "Most real estate firms have formed big landbanks. So, there is hardly any need for them to go for further acquisition, especially in these times, when money is expensive," said Anshuman Magazine South Asia chairman CB Richard Ellis. Developers are also showing lower interest in agriculture land, once their prime target because of the substantial margins it offered.
At the same time, given the slowdown in the sector, some of the land deals which were earlier agreed upon have also fallen through. "The situation has completely changed since January. The developers are now exiting the deals because they do not think that the project can fetch them the profits they had originally expected," says Knight Frank India chairman Pranay Vakil. The correction is more pronounced in plots of less than 25 acre in size, since they are not FDI-compliant. "For a larger piece of land, there is FDI. But for smaller size projects, there are very few takers," he adds.
Friday, May 16, 2008
Some sense returning to the real estate market
Mint reporting on the slowdown in PE deals.
New Delhi: India’s real estate party may be cooling down rapidly. Global private equity firms say that they would rather invest in the US realty market than in the Indian one because US property prices have fallen so sharply that yields on investments there will be more attractive—without the hassle.
Private equity firms made a beeline for India after the government allowed foreign direct investment in real estate in 2005. They were attracted by returns of 25-30%, but with home prices falling in the US, global private equity firms now believe it makes more sense to park their investments in that country.
See:Realty deals
“Last year, Japan was a more attractive market to put money in. If you look at the US, we can now get an internal rate of return of 25% there, so why would anyone want to come to India?” asked a senior executive at an international financial services group, who did not wish to be named.
Four out of six private equity funds Mint spoke to said they are no longer investing in India. They didn’t want to be identified.
The US, reeling from a subprime lending crisis, is seeing the worst housing slump since the 1930s. The median price for a single-family home has dropped 7.7% in the first quarter of the year, the biggest decline in at least 29 years, as values tumbled in two out of every three US cities, according to the National Association of Realtors.
Sales of single-family houses and condominiums also fell 22% to 4.95 million at an annualized pace, the slowest in a decade.
“It is true that there are certain transactions in the US where you can get similar returns (as in India) of 25%, such as buying a condominium project or a commercial project,” said Subhash Bedi, director at Red Fort Capital Advisors Ltd, a private equity firm. “When you can get similar returns in India and in the US, global private equity firms which have a mandate to invest anywhere in the world, will prefer the US market because there are lesser risks associated with investments there.”
The Indian market is riskier to invest in because government approvals for projects here take a long time and there is also an execution risk because Indian developers do not have a history of completing projects on time, Bedi said.
Project delays can sometimes run to two to three years and there aren’t enough laws in place to effectively protect investors. There is also no central registry of land titles in India, because land is a state subject and the system of record-keeping and rules vary from state to state, making investing compelling only if the returns are high. In the US, there is a central registry of titles and title insurance can be purchased to protect investors.
India, where property values doubled in a year and, in some cases, tripled in less than two years, is now starting to see some cooling off after values shot up so high that they bordered on the unaffordable, eroding returns and turning away investors. Realty values in Mumbai rival that in Manhattan, New York.
To be sure, while global private equity firms might choose to move their investments to the US, nothing changes for funds dedicated to India as they can only invest in Indian real estate.
There are around 125 private equity funds for real estate in the country, out of which 60% are global funds, according to Venture Intelligence, an agency that tracks private equity.
“It can become increasingly difficult for the local team of a global fund to justify investment in India when you can get the same return for lesser risks elsewhere,” Bedi said. “So, for the short term, say a year, global funds might decide to invest in the US real estate market instead of India.”
“There is a big liquidity crunch in the US,” Bedi said. “It is much less in India when compared with the US because banks here are at least not turning away all borrowers.”
While private equity investment will continue to come into Indian realty, the number of firms chasing developers will be fewer, another senior official at one of the world’s leading financial management and advisory companies said.
“We will see fewer private equity firms, say two or three, chasing a developer unlike last year, when 8-10 private equity players were chasing the same set of companies,” he said requesting anonymity.
New Delhi: India’s real estate party may be cooling down rapidly. Global private equity firms say that they would rather invest in the US realty market than in the Indian one because US property prices have fallen so sharply that yields on investments there will be more attractive—without the hassle.
Private equity firms made a beeline for India after the government allowed foreign direct investment in real estate in 2005. They were attracted by returns of 25-30%, but with home prices falling in the US, global private equity firms now believe it makes more sense to park their investments in that country.
See:Realty deals
“Last year, Japan was a more attractive market to put money in. If you look at the US, we can now get an internal rate of return of 25% there, so why would anyone want to come to India?” asked a senior executive at an international financial services group, who did not wish to be named.
Four out of six private equity funds Mint spoke to said they are no longer investing in India. They didn’t want to be identified.
The US, reeling from a subprime lending crisis, is seeing the worst housing slump since the 1930s. The median price for a single-family home has dropped 7.7% in the first quarter of the year, the biggest decline in at least 29 years, as values tumbled in two out of every three US cities, according to the National Association of Realtors.
Sales of single-family houses and condominiums also fell 22% to 4.95 million at an annualized pace, the slowest in a decade.
“It is true that there are certain transactions in the US where you can get similar returns (as in India) of 25%, such as buying a condominium project or a commercial project,” said Subhash Bedi, director at Red Fort Capital Advisors Ltd, a private equity firm. “When you can get similar returns in India and in the US, global private equity firms which have a mandate to invest anywhere in the world, will prefer the US market because there are lesser risks associated with investments there.”
The Indian market is riskier to invest in because government approvals for projects here take a long time and there is also an execution risk because Indian developers do not have a history of completing projects on time, Bedi said.
Project delays can sometimes run to two to three years and there aren’t enough laws in place to effectively protect investors. There is also no central registry of land titles in India, because land is a state subject and the system of record-keeping and rules vary from state to state, making investing compelling only if the returns are high. In the US, there is a central registry of titles and title insurance can be purchased to protect investors.
India, where property values doubled in a year and, in some cases, tripled in less than two years, is now starting to see some cooling off after values shot up so high that they bordered on the unaffordable, eroding returns and turning away investors. Realty values in Mumbai rival that in Manhattan, New York.
To be sure, while global private equity firms might choose to move their investments to the US, nothing changes for funds dedicated to India as they can only invest in Indian real estate.
There are around 125 private equity funds for real estate in the country, out of which 60% are global funds, according to Venture Intelligence, an agency that tracks private equity.
“It can become increasingly difficult for the local team of a global fund to justify investment in India when you can get the same return for lesser risks elsewhere,” Bedi said. “So, for the short term, say a year, global funds might decide to invest in the US real estate market instead of India.”
“There is a big liquidity crunch in the US,” Bedi said. “It is much less in India when compared with the US because banks here are at least not turning away all borrowers.”
While private equity investment will continue to come into Indian realty, the number of firms chasing developers will be fewer, another senior official at one of the world’s leading financial management and advisory companies said.
“We will see fewer private equity firms, say two or three, chasing a developer unlike last year, when 8-10 private equity players were chasing the same set of companies,” he said requesting anonymity.
Thursday, May 15, 2008
Nusli Wadia sues Gopal Raheja for ‘breaching deal’
Something has seriously gone wrong with this deal now that Mr Wadia is sueing the Rahejas. The Raheja's on their part have encroached on mangrove plantations and conducted massive landfills on the swamp adjoining to Mr Wadia's trust. Some of the complexes there were supposed to be sold to middle and low income groups as per the government statutes. 1 bed-room flats were constructed but these flats were never sold individually but they were sold as jodi-flats to different members of the family. The builders gained IT sops due to the nature of the scheme. Mr Wadia is now asking for his pound of flesh since prices have quintupled over the last 5 years.
MUMBAI: Industrialist Nusli Wadia has dragged builder baron Gopal Raheja to court for alleged fraud and breach of agreement regarding the development of over 400 acres of prime land belonging to the estate of late Eduljee Framroze Dinshaw at Malad (west).
Wadia terminated the agreements with Raheja and his 49 companies on May 12. The development agreements were entered into on January 2, 1995, and April 12, 1995 between Wadia, as the sole administrator of the Dinshaw estate, and Raheja.
Wadia has withdrawn all authority given to Raheja including the powers of attorney given Raheja’s children, Sandeep and Sonali, to deal with the various units, flats and other premises built on the contract land.
In a suit filed in the Bombay high court, Wadia has called upon the Rahejas to raze all construction on the 400 acres of prime land at Malad including three buildings at Palm Springs Centre and four at Unique Commercial Centre.
In the interim, Wadia has sought the appointment of a receiver and that the Rahejas be restrained from carrying out further construction and creation of third party rights on the contract land.
In February, Wadia had filed a suit against Gopal Raheja’s brothers Chandru L Raheja and Suresh L Raheja and their sons. He asked the court to stop the Rahejas from carrying on construction on 200 acres of prime land in Malad (west) belonging to the EFD estate and sought demolition of eight of their commercial towers including the Inorbit Mall, Hypercity Mall, Infinity Towers, IV Dimension, Spectrum Towers, Magnum Tower, Intelnet, Prism Paradigm and Athena, all located off Malad Link Road.
Wadia alleged that Chandru and others had “fraudulently” sold or leased properties constructed on the contract land to their “own sister concerns and shell companies created for the purpose” instead of genuine third parties. Wadia demanded damages worth Rs 350 crore from the Raheja brothers.
MUMBAI: Industrialist Nusli Wadia has dragged builder baron Gopal Raheja to court for alleged fraud and breach of agreement regarding the development of over 400 acres of prime land belonging to the estate of late Eduljee Framroze Dinshaw at Malad (west).
Wadia terminated the agreements with Raheja and his 49 companies on May 12. The development agreements were entered into on January 2, 1995, and April 12, 1995 between Wadia, as the sole administrator of the Dinshaw estate, and Raheja.
Wadia has withdrawn all authority given to Raheja including the powers of attorney given Raheja’s children, Sandeep and Sonali, to deal with the various units, flats and other premises built on the contract land.
In a suit filed in the Bombay high court, Wadia has called upon the Rahejas to raze all construction on the 400 acres of prime land at Malad including three buildings at Palm Springs Centre and four at Unique Commercial Centre.
In the interim, Wadia has sought the appointment of a receiver and that the Rahejas be restrained from carrying out further construction and creation of third party rights on the contract land.
In February, Wadia had filed a suit against Gopal Raheja’s brothers Chandru L Raheja and Suresh L Raheja and their sons. He asked the court to stop the Rahejas from carrying on construction on 200 acres of prime land in Malad (west) belonging to the EFD estate and sought demolition of eight of their commercial towers including the Inorbit Mall, Hypercity Mall, Infinity Towers, IV Dimension, Spectrum Towers, Magnum Tower, Intelnet, Prism Paradigm and Athena, all located off Malad Link Road.
Wadia alleged that Chandru and others had “fraudulently” sold or leased properties constructed on the contract land to their “own sister concerns and shell companies created for the purpose” instead of genuine third parties. Wadia demanded damages worth Rs 350 crore from the Raheja brothers.
CNN-IBN touting the builders line
Mumbai house prices soar but no shortage of takers
Looks like the property marketing folks are at it again. With prices beyond the reach of the common man who will buy. Cushman and Wakefield are pimping the builders by coming out with useless data. If no-one can afford prices have to drop. 11000 per sq/ft in the outskirts of Mumbai is more then most places in the world. The builders will put up a brave face until they will relent. The property prices have not risen due to high demand since as we can see the demand is almost non-existent. Builders with surplus cash have caused inordinate high prices by bidding against each other. Now they are attributing the price rise to the rise of steel, cement and labor costs. The common man could be fooled but right now his wallet cannot support 11000 rs/sq ft. Maybe it can support 4000-6000. 11000 seriously doubt anyone not born with a golden spoon or inheriting is capable of paying so much
IBNlive reports
Mumbai: A two BHK apartment in Nariman Point at Rs 3 crore or even a Rs 11,000 per sq ft apartment in the far-off suburb of Mulund might sound atrociously expensive, but that definitely does not mean there are no takers.
According to the Planning Commission's latest report, urban housing shortage in India in March 2007 was around 24.71 million and is all set to touch 26.5 million by 2012.
Little wonder then that the real estate developers are unwilling to give in to the latest slump and reduce prices.
“The market is not growing at the rate we had expected but we are still not feeling the pinch,” says Manager, Akruti City, Tarang Patel.
“We might even witness a further rise in the already increasing land and steel prices,” says Director, Goel Ganga Developers, Atul Goel.
While the developers are refusing to budge, it is the common man with a limited budget who's feeling the heat.
For the average Mumbai citizen, who is battling inflation and rising interest rates, buying a house is just next to impossible. All that one can do is hope for prices to stabilise to own your dream house.
Bangalore
Looks like the property marketing folks are at it again. With prices beyond the reach of the common man who will buy. Cushman and Wakefield are pimping the builders by coming out with useless data. If no-one can afford prices have to drop. 11000 per sq/ft in the outskirts of Mumbai is more then most places in the world. The builders will put up a brave face until they will relent. The property prices have not risen due to high demand since as we can see the demand is almost non-existent. Builders with surplus cash have caused inordinate high prices by bidding against each other. Now they are attributing the price rise to the rise of steel, cement and labor costs. The common man could be fooled but right now his wallet cannot support 11000 rs/sq ft. Maybe it can support 4000-6000. 11000 seriously doubt anyone not born with a golden spoon or inheriting is capable of paying so much
IBNlive reports
Mumbai: A two BHK apartment in Nariman Point at Rs 3 crore or even a Rs 11,000 per sq ft apartment in the far-off suburb of Mulund might sound atrociously expensive, but that definitely does not mean there are no takers.
According to the Planning Commission's latest report, urban housing shortage in India in March 2007 was around 24.71 million and is all set to touch 26.5 million by 2012.
Little wonder then that the real estate developers are unwilling to give in to the latest slump and reduce prices.
“The market is not growing at the rate we had expected but we are still not feeling the pinch,” says Manager, Akruti City, Tarang Patel.
“We might even witness a further rise in the already increasing land and steel prices,” says Director, Goel Ganga Developers, Atul Goel.
While the developers are refusing to budge, it is the common man with a limited budget who's feeling the heat.
For the average Mumbai citizen, who is battling inflation and rising interest rates, buying a house is just next to impossible. All that one can do is hope for prices to stabilise to own your dream house.
Bangalore
Prices won't land; buy that Bangalore house now
Faye D'Souza / CNN-IBN
Bangalore: While property markets in various Indian metros brace themselves for an oncoming correction, Bangalore's residential property rates are not about to drop.
According to a report released by property consultants Cushman & Wakefield, the city has witnessed a stabilisation in prices of homes with the residential rates across the city have recorded a growth of less than 10 per cent in the last year.
But experts say even though the rate increments have slowed down, the prices are not about to fall.
“There are indications that housing loan rates will not go up in the near future, which means that there is no fundamental reason for primary residential market rates to come down. It going to remain the same for the next six months and then it will rise again. So now is a good time to make a purchase,” explains Director, Cushman & Wakefield, Anurag Mathur.
The low market sentiment may have affected small developers but sources say big developers have not witnessed a slow down in sales yet.
While this might be the best time for you to buy a house in Bangalore, experts advise those buying property in the city purely as an investment, to wait a couple of months until after the new airport in Devanahalli is unveiled, as it will change the dynamics and the valuations of Bangalore's property market completely.
“The new airport is now reality. At the end of the month when it will open, the entire dynamics will shift. Access is going to change and that will throw up more opportunities,” Mathur adds.
The Cushman & Wakefield report also states that Bangalore has the highest demand for commercial space in the country, which gives experts reason to believe that the increase in jobs being created will result in more demand for housing.
Faye D'Souza / CNN-IBN
Bangalore: While property markets in various Indian metros brace themselves for an oncoming correction, Bangalore's residential property rates are not about to drop.
According to a report released by property consultants Cushman & Wakefield, the city has witnessed a stabilisation in prices of homes with the residential rates across the city have recorded a growth of less than 10 per cent in the last year.
But experts say even though the rate increments have slowed down, the prices are not about to fall.
“There are indications that housing loan rates will not go up in the near future, which means that there is no fundamental reason for primary residential market rates to come down. It going to remain the same for the next six months and then it will rise again. So now is a good time to make a purchase,” explains Director, Cushman & Wakefield, Anurag Mathur.
The low market sentiment may have affected small developers but sources say big developers have not witnessed a slow down in sales yet.
While this might be the best time for you to buy a house in Bangalore, experts advise those buying property in the city purely as an investment, to wait a couple of months until after the new airport in Devanahalli is unveiled, as it will change the dynamics and the valuations of Bangalore's property market completely.
“The new airport is now reality. At the end of the month when it will open, the entire dynamics will shift. Access is going to change and that will throw up more opportunities,” Mathur adds.
The Cushman & Wakefield report also states that Bangalore has the highest demand for commercial space in the country, which gives experts reason to believe that the increase in jobs being created will result in more demand for housing.
Monday, May 12, 2008
Bandra-Kurla Complex can build more now
Now Mr Ambani and Mr Wadhwa have doubled their investments in a time span of 1 year. Builders are going to rake in a billion dollars by milking this cash cow.
Mint reports
Bangalore: Bandra-Kurla Complex (BKC), a much-sought-after business district in Mumbai, is all set to see frenetic action after Maharashtra state authorities doubled the space developers could build in certain blocks, thereby releasing an additional 8.5 million sq. ft of premium commercial space.
A notification released by the state government on Friday raised the floor space index (FSI) from the existing 2 to 4 on 178ha in G Block in BKC. FSI is the amount of construction allowed on a plot. The higher the FSI, the taller a building can rise.
With the the central business district of Nariman Point nearly saturated, BKC has become popular with large firms.
By some estimates, the rise in FSI will allow the Mumbai Metropolitan Region Development Authority (MMRDA), appointed to develop BKC in 1977, to sell land at a better price and thereby earn revenues of nearly Rs 20,000 crore.
Milind Mhaiskar, joint metropolitan commissioner, MM-RDA, said: “Those who are interested to benefit this additional FSI can approach MMRDA and it (will) execute the process.”
Among the projects in G Block that will benefit from this move is the commercial complex and convention centre of Reliance Industries Ltd on an 18.5 acre plot. G block is at the heart of the finance centre, which also has Citibank, Nabard, ICICI Bank and the Bharat Diamond Bourse.
Mint reports
Bangalore: Bandra-Kurla Complex (BKC), a much-sought-after business district in Mumbai, is all set to see frenetic action after Maharashtra state authorities doubled the space developers could build in certain blocks, thereby releasing an additional 8.5 million sq. ft of premium commercial space.
A notification released by the state government on Friday raised the floor space index (FSI) from the existing 2 to 4 on 178ha in G Block in BKC. FSI is the amount of construction allowed on a plot. The higher the FSI, the taller a building can rise.
With the the central business district of Nariman Point nearly saturated, BKC has become popular with large firms.
By some estimates, the rise in FSI will allow the Mumbai Metropolitan Region Development Authority (MMRDA), appointed to develop BKC in 1977, to sell land at a better price and thereby earn revenues of nearly Rs 20,000 crore.
Milind Mhaiskar, joint metropolitan commissioner, MM-RDA, said: “Those who are interested to benefit this additional FSI can approach MMRDA and it (will) execute the process.”
Among the projects in G Block that will benefit from this move is the commercial complex and convention centre of Reliance Industries Ltd on an 18.5 acre plot. G block is at the heart of the finance centre, which also has Citibank, Nabard, ICICI Bank and the Bharat Diamond Bourse.
Sunday, May 11, 2008
Sell or hold your realty investments?
Sell or hold your realty investments? - Outlook Money
Did you put money in real estate during the past year or so with the express objective of gaining through capital appreciation? If yes, depending on a number of factors, you might have a bit of a problem on your hands. For, over the past year, the gains have tapered off.
The decision
The extent of the problem depends partly on your investing horizon. If you had taken a long view and plan to hold it for a decade or so, there is nothing to worry about. While there may be a few ups and downs, returns from real estate have been next only to stocks in the long term.
If, however, you were looking to sell off your property within a year or two and earn some capital gains, that plan may need some tweaking. As mortgages and prices continued their upward journey, since around the middle of last year, end-use buyers started staying away in larger numbers. Merrill Lynch, for instance, estimates that sales volumes in the NCR are down 50-70 per cent from last year.
Whither prices? Prices, too, have softened in areas of high speculative interest as property got priced out of the market. Smart investors like Delhi NCR lawyer Dheeraj Seth, 31, sold his Gurgaon house when real estate was still hot and parked the proceeds in another property that is under development.
In January 2008, the stockmarket tanked, pulling down sentiments, and real estate in its wake. Experts say prices will climb 20-30 per cent off their peaks. Those who have held on to their investments, have clearly missed the top this time around.
Over the hill? "Short-term investors in markets where the values have peaked could explore exiting," says Sanjay Dutt, joint managing director, Cushman & Wakefield, a real estate consultancy firm.
Has the price of your property passed the summit? The following three checks will tell you. First, if prices in the area have gained 100-200 per cent in the past year, says Dutt, they are unlikely to rise substantially soon. Second, if the area has lots of speculators, then supply will continue coming into the market and keep price rise in check. Third, if a property with better location or amenities are coming up nearby, that will keep yours off the coveted list. If any of these is true, sell.
Once you take the sell decision, you have to find the best deal.
The process
The channels. Once you decide to sell, cast the net wide to reach as many prospective buyers as possible. For that, tap both conventional as well as online channels. Contact real estate agents and tell them your asking price and by when you would like to sell. If a project is not sold out, you can also approach the developer's office.
Insertions in newspaper property classifieds also help and can cost up to Rs 1,500. "If it's a ready project where people are living, promote the property within the building complex," says Dutt. There would be people who could pass the word to other interested parties. The same holds true for friends and relatives.
The six-fold path
Evaluate the property sale decision against goals. Factor in loss of tax breaks claimed on mortgage repayments if you sell within five years of buying.
Spread the word. Use both conventional as well as online channels to inform as many prospective buyers as possible.
Get a fix on asking price by benchmarking against the latest sale prices of similar property in the project or the area.
Time your sale. Avoid lean periods and low-interest seasons such as summer or the monsoons.
Be clear about payment terms. Fuzziness here could hit the buyer's plans and jeopardise the sale.
Sign an agreement for sale if you do not have the funds to pay off your loan. Help the buyer with the necessary paperwork.
Most property portals such as 99acres.com, indiaproperties.com and maakan.com allow a basic free listing. For example, Makaan.com allows 50 basic listings free, beyond which you will have to pay Rs 200 per listing. If you opt for the fast response listing then you will have to pay Rs 900 per listing.
If you contact a buyer directly, you can save on agent commission, which is usually about 1 per cent of the sale price.
The price. Be realistic and quote a fair price, or actual buyers might pass you over. "Fair value of the property would be the last sale done by the developer in that particular building complex," says Dutt. On that benchmark, put a discount (if rates have softened in the area) or premium (if rates have risen). If there has been no sale in the project in six months, identify projects within 5 km of yours and take the last sale price there as a benchmark.
The timing. Don't sell during lean times. There is no point trying to sell during vacations or during the monsoons, when sales are traditionally low.
The payment. Try and keep the payment norms clear and be upfront about it. This will give the buyer the much-needed confidence in dealing with you.
The mortgage. If you are trying to sell a house that still has an outstanding loan, a fair bit of paperwork will be necessary. The simplest way is to pay off the loan and then sell the house. But that may not be possible always. In that case, you have to sign an agreement for sale with the buyer laying out the payment terms. This document will be registered and stamp duty paid.
Next, you have to get an NOC from the society/builder (in case of an unregistered society). If the buyer wants to take a mortgage for the house, he has to submit fresh documents to the lender. Once that loan is approved, your outstanding, along with prepayment penalty if any, is set off and you are paid the rest. The property papers, if the new buyer has taken a loan, will have to be given to his lender.
The profits
If you make a capital gain on the sale (a tax consultant can tell you how to calculate that), you are liable to pay tax on it unless you deploy it in specific ways. If you use the money to 'construct' a house within three years from the date of sale, the tax is waived.
You also get a break if you use the money to pay for a ready house bought within a year before the sale or two years after. You can also avoid capital gains tax if you invest the gains in specified bonds under Section 54 EC which typically pay 5.5 per cent per annum and have a lock-in of three years.
If you want to invest in other asset classes, such as equities, mutual funds, gold or debt paper, then you will have to first pay 20 per cent tax on the capital gains (after indexation).
And, finally, keep tax implications in mind. If the holding period of a mortgaged property is less than five years, you may lose all the tax benefits you have claimed on loan repayments.
Despite these deterrents, if you are still getting a good deal, sell. But keep in mind all the variables before you sign on the dotted line.
Did you put money in real estate during the past year or so with the express objective of gaining through capital appreciation? If yes, depending on a number of factors, you might have a bit of a problem on your hands. For, over the past year, the gains have tapered off.
The decision
The extent of the problem depends partly on your investing horizon. If you had taken a long view and plan to hold it for a decade or so, there is nothing to worry about. While there may be a few ups and downs, returns from real estate have been next only to stocks in the long term.
If, however, you were looking to sell off your property within a year or two and earn some capital gains, that plan may need some tweaking. As mortgages and prices continued their upward journey, since around the middle of last year, end-use buyers started staying away in larger numbers. Merrill Lynch, for instance, estimates that sales volumes in the NCR are down 50-70 per cent from last year.
Whither prices? Prices, too, have softened in areas of high speculative interest as property got priced out of the market. Smart investors like Delhi NCR lawyer Dheeraj Seth, 31, sold his Gurgaon house when real estate was still hot and parked the proceeds in another property that is under development.
In January 2008, the stockmarket tanked, pulling down sentiments, and real estate in its wake. Experts say prices will climb 20-30 per cent off their peaks. Those who have held on to their investments, have clearly missed the top this time around.
Over the hill? "Short-term investors in markets where the values have peaked could explore exiting," says Sanjay Dutt, joint managing director, Cushman & Wakefield, a real estate consultancy firm.
Has the price of your property passed the summit? The following three checks will tell you. First, if prices in the area have gained 100-200 per cent in the past year, says Dutt, they are unlikely to rise substantially soon. Second, if the area has lots of speculators, then supply will continue coming into the market and keep price rise in check. Third, if a property with better location or amenities are coming up nearby, that will keep yours off the coveted list. If any of these is true, sell.
Once you take the sell decision, you have to find the best deal.
The process
The channels. Once you decide to sell, cast the net wide to reach as many prospective buyers as possible. For that, tap both conventional as well as online channels. Contact real estate agents and tell them your asking price and by when you would like to sell. If a project is not sold out, you can also approach the developer's office.
Insertions in newspaper property classifieds also help and can cost up to Rs 1,500. "If it's a ready project where people are living, promote the property within the building complex," says Dutt. There would be people who could pass the word to other interested parties. The same holds true for friends and relatives.
The six-fold path
Evaluate the property sale decision against goals. Factor in loss of tax breaks claimed on mortgage repayments if you sell within five years of buying.
Spread the word. Use both conventional as well as online channels to inform as many prospective buyers as possible.
Get a fix on asking price by benchmarking against the latest sale prices of similar property in the project or the area.
Time your sale. Avoid lean periods and low-interest seasons such as summer or the monsoons.
Be clear about payment terms. Fuzziness here could hit the buyer's plans and jeopardise the sale.
Sign an agreement for sale if you do not have the funds to pay off your loan. Help the buyer with the necessary paperwork.
Most property portals such as 99acres.com, indiaproperties.com and maakan.com allow a basic free listing. For example, Makaan.com allows 50 basic listings free, beyond which you will have to pay Rs 200 per listing. If you opt for the fast response listing then you will have to pay Rs 900 per listing.
If you contact a buyer directly, you can save on agent commission, which is usually about 1 per cent of the sale price.
The price. Be realistic and quote a fair price, or actual buyers might pass you over. "Fair value of the property would be the last sale done by the developer in that particular building complex," says Dutt. On that benchmark, put a discount (if rates have softened in the area) or premium (if rates have risen). If there has been no sale in the project in six months, identify projects within 5 km of yours and take the last sale price there as a benchmark.
The timing. Don't sell during lean times. There is no point trying to sell during vacations or during the monsoons, when sales are traditionally low.
The payment. Try and keep the payment norms clear and be upfront about it. This will give the buyer the much-needed confidence in dealing with you.
The mortgage. If you are trying to sell a house that still has an outstanding loan, a fair bit of paperwork will be necessary. The simplest way is to pay off the loan and then sell the house. But that may not be possible always. In that case, you have to sign an agreement for sale with the buyer laying out the payment terms. This document will be registered and stamp duty paid.
Next, you have to get an NOC from the society/builder (in case of an unregistered society). If the buyer wants to take a mortgage for the house, he has to submit fresh documents to the lender. Once that loan is approved, your outstanding, along with prepayment penalty if any, is set off and you are paid the rest. The property papers, if the new buyer has taken a loan, will have to be given to his lender.
The profits
If you make a capital gain on the sale (a tax consultant can tell you how to calculate that), you are liable to pay tax on it unless you deploy it in specific ways. If you use the money to 'construct' a house within three years from the date of sale, the tax is waived.
You also get a break if you use the money to pay for a ready house bought within a year before the sale or two years after. You can also avoid capital gains tax if you invest the gains in specified bonds under Section 54 EC which typically pay 5.5 per cent per annum and have a lock-in of three years.
If you want to invest in other asset classes, such as equities, mutual funds, gold or debt paper, then you will have to first pay 20 per cent tax on the capital gains (after indexation).
And, finally, keep tax implications in mind. If the holding period of a mortgaged property is less than five years, you may lose all the tax benefits you have claimed on loan repayments.
Despite these deterrents, if you are still getting a good deal, sell. But keep in mind all the variables before you sign on the dotted line.
Builders turn politicians
In the past politicians used to become builders like Bhujbal, Manohar Joshi and Uddav thackery in Mumbai. Now its the reverse. It goes to confirm the fact that the construction industry and the political industry are hand in glove and feeding off each other. Either way the common man is at wits end in the struggle to make ends meet in an era of high inflation.
R ealtors in Karnataka are diversifying into politics with political parties increasingly looking for candidates who have the resources to fund their own campaigns—and thanks to real estate prices that have tripled in some parts of the state, money is one thing people in this business have enough of.
The hope that money power will attract enough votes in the elections is strongest in Bangalore, where at least 12 candidates across the city’s 28 constituencies are real estate developers. The trend cuts across party lines and for several developers, this is their first brush with politics.
“The disturbing factor is the role of money (in elections),” said Samuel Paul, a former director of the Indian Institute of Management (IIM), Ahmedabad, who now heads the Bangalore-based non-governmental organization (NGO), Public Affairs Committee. “Its not just real estate, but mining too.” Businessmen could have a much greater self-interest and they could shift policies to suit them, Paul added.
Mine owners from Bellary, the iron ore-rich district of Karnataka, are a powerful lob by with their influence extending across party lines. Three mine owners were elected to the state assembly in 2004, including Anil Lad of the Bharatiya Janata Party (BJP), who is now contesting from Bellary City constituency on a Congress ticket; Santosh Lad of the Janata Dal (Secular), or JD(S); and H.R. Gaviappa, an independent in 2004 who is now the Congress’ nominee from Vijayanagar.
One of the candidates dismissed Paul’s claim and said it wasn’t money that mattered, but love. “Money alone won’t win elections,” said Kupendra Reddy, the owner of Primal Projects Pvt. Ltd and Congress candidate from Bommanahalli constituency. Reddy is among the wealthiest candidates with declared assets of around Rs180 crore.
“Only if you have earned the love of people and have the backing of a party can you succeed,” he added.
“It (the trend of realtors turning to politics) is quite similar to what’s happening elsewhere in the country. Unlike in the past, however, when they funded parties, they want to get into (positions of) power themselves,” said S. Trilochan Sastry, a faculty member at IIM, Bangalore, who heads an NGO, Association for Democratic Reforms.
Meanwhile, the realtors have learnt to speak like politicians.
“My vision is clear. I am for development and I do not want to be known as just another politician,” said N.S. Nandish Reddy, a 37-year-old builder who is the BJP candidate in the K.R. Pura constituency.
Reddy said he won’t be a corrupt politician, because his “family has been fortunate enough to be well-provided for”. One of Reddy’s rivals’ L.
Muniswamy of JD(S), is also a land developer. “I’ve been staying in this constituency all my life and I have been doing social work,” said Muniswamy, 65, who quit the Congress recently because he claimed the party had neglected him.
Other developers in the fray include BJP candidates D.U.
Mallikarjuna from Shantinagar, G. Prasad Reddy from BTM Layout and Satish Reddy from Bommanahalli.
M. Krishnappa of the Congress is running from Vijayanagar while C. Manjunath and M.V. Prasad Babu of JD(S) are contesting from Bangalore South and Padmanabhanagar, respectively.
Bangalore will go to the polls on the first day of the threephase elections on 10 May. The other two phases of voting are on 16 and 22 May.
Some of the poll promises by the political parties may benefit real estate developers. In its election manifesto, the BJP has promised to do away with restrictions on conversion of agricultural land for commercial purposes if it is voted to power, saying the restrictions have led to corruption and caused hardship to the farmers.
“I agree that some of them (candidates) have interests in real estate, but that has no bearing on the reforms we are proposing,” said V.S. Acharya, chairman of BJP’s election manifesto committee.
The party’s reasoning is that while a landowner will not sell land that is yielding a good crop, he should also not be prevented from using a portion of it for non-agricultural activity, which will generate revenue and employment, especially in rural areas. ‘The owner is the best judge,” Acharya said.
This will lead to chaos, says R.S. Desphande, head of the Agricultural Development and Rural Transformation Centre at the Bangalore-based Institute of Social and Economic Change. “In any kind of trade, the trader has a higher information base than the farmer who will lose out,” he added.
R ealtors in Karnataka are diversifying into politics with political parties increasingly looking for candidates who have the resources to fund their own campaigns—and thanks to real estate prices that have tripled in some parts of the state, money is one thing people in this business have enough of.
The hope that money power will attract enough votes in the elections is strongest in Bangalore, where at least 12 candidates across the city’s 28 constituencies are real estate developers. The trend cuts across party lines and for several developers, this is their first brush with politics.
“The disturbing factor is the role of money (in elections),” said Samuel Paul, a former director of the Indian Institute of Management (IIM), Ahmedabad, who now heads the Bangalore-based non-governmental organization (NGO), Public Affairs Committee. “Its not just real estate, but mining too.” Businessmen could have a much greater self-interest and they could shift policies to suit them, Paul added.
Mine owners from Bellary, the iron ore-rich district of Karnataka, are a powerful lob by with their influence extending across party lines. Three mine owners were elected to the state assembly in 2004, including Anil Lad of the Bharatiya Janata Party (BJP), who is now contesting from Bellary City constituency on a Congress ticket; Santosh Lad of the Janata Dal (Secular), or JD(S); and H.R. Gaviappa, an independent in 2004 who is now the Congress’ nominee from Vijayanagar.
One of the candidates dismissed Paul’s claim and said it wasn’t money that mattered, but love. “Money alone won’t win elections,” said Kupendra Reddy, the owner of Primal Projects Pvt. Ltd and Congress candidate from Bommanahalli constituency. Reddy is among the wealthiest candidates with declared assets of around Rs180 crore.
“Only if you have earned the love of people and have the backing of a party can you succeed,” he added.
“It (the trend of realtors turning to politics) is quite similar to what’s happening elsewhere in the country. Unlike in the past, however, when they funded parties, they want to get into (positions of) power themselves,” said S. Trilochan Sastry, a faculty member at IIM, Bangalore, who heads an NGO, Association for Democratic Reforms.
Meanwhile, the realtors have learnt to speak like politicians.
“My vision is clear. I am for development and I do not want to be known as just another politician,” said N.S. Nandish Reddy, a 37-year-old builder who is the BJP candidate in the K.R. Pura constituency.
Reddy said he won’t be a corrupt politician, because his “family has been fortunate enough to be well-provided for”. One of Reddy’s rivals’ L.
Muniswamy of JD(S), is also a land developer. “I’ve been staying in this constituency all my life and I have been doing social work,” said Muniswamy, 65, who quit the Congress recently because he claimed the party had neglected him.
Other developers in the fray include BJP candidates D.U.
Mallikarjuna from Shantinagar, G. Prasad Reddy from BTM Layout and Satish Reddy from Bommanahalli.
M. Krishnappa of the Congress is running from Vijayanagar while C. Manjunath and M.V. Prasad Babu of JD(S) are contesting from Bangalore South and Padmanabhanagar, respectively.
Bangalore will go to the polls on the first day of the threephase elections on 10 May. The other two phases of voting are on 16 and 22 May.
Some of the poll promises by the political parties may benefit real estate developers. In its election manifesto, the BJP has promised to do away with restrictions on conversion of agricultural land for commercial purposes if it is voted to power, saying the restrictions have led to corruption and caused hardship to the farmers.
“I agree that some of them (candidates) have interests in real estate, but that has no bearing on the reforms we are proposing,” said V.S. Acharya, chairman of BJP’s election manifesto committee.
The party’s reasoning is that while a landowner will not sell land that is yielding a good crop, he should also not be prevented from using a portion of it for non-agricultural activity, which will generate revenue and employment, especially in rural areas. ‘The owner is the best judge,” Acharya said.
This will lead to chaos, says R.S. Desphande, head of the Agricultural Development and Rural Transformation Centre at the Bangalore-based Institute of Social and Economic Change. “In any kind of trade, the trader has a higher information base than the farmer who will lose out,” he added.
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