Wednesday, April 02, 2008

India's Realty Brokers in Luxury Panic

A classic case of "Marie Antoinetteism" is taking over brokers, builders, ministers and the TOI. A few days ago, I read an amusing article, obviously twisted by someone on the desk, to focus on the availability of cake, when people have no money to buy bread.

The three musketeers of price euphoria in real estate: Cushman & Weikfield, Chesterton-Meghraj and Knight-Frank, seem to be jamming stories to keep the silly real estate mania in momentum. They achieve this by pumping information that is divorced from the simmering reality. Hard facts are either being ignored or just cannot be seen.

What's the point of saying that posh properties have risen 500% in the last 5 years. Tell me if they can achieve 50% growth in this year. And are these people referring to financial years or calendar years?

It has become a cliche and a boring joke when all corrections described by brokers are almost always not more than 10-15%. We need to talk 50% correction over next 2 years. The Hindu, speaking with HR consultants, has confirmed a 50-60% drop in IT recruitment . Why should there not be a 50% drop in real estate?

Who will be buying up the swathes of homes built in the last 4 years of euphoria, where an orgasm was equated to buying a home, and people were having so many orgasms that you would think the market for Viagra was faltering. Nothing of the sort though.

Fact is home loans are getting expensive. The High Court has put the biggest builders in Mumbai under a shadow of suspicion, for building (encroaching, in the HC words), over forest lands. This means a lot of money is going to move out of real estate and in to -- no not equity -- but bank deposits and fixed maturity plans and insurance.

In the face of this, who will be driving the great realty juggernaut?

Read the TOI story here (the print version had a misleading headline)

Read the Hindu Business Line story here

Posted by Eclectic Investor at 9:39 AM  

1 Comment:

Rajeev mundra said...

In reality property dealers dont want to talk about the real state of Realty.!!

Many people have come on TV stressing that there are a huge numbers of Indians waiting to buy luxury flats or even a simple 2 bed room flat.. but where will the money come from in hands of say 1-2 crore indians to afford such buildings.

One thing is clear.. when they say its time to buy.. Its seldom is.!!

12:57 PM  

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IN PASSING

Consider how the crisis has unfolded over the past eighteen months. The proximate cause is to be found in the housing bubble or more exactly in the excesses of the subprime mortgage market. The longer a double-digit rise in house prices lasted, the more lax the lending practices became. In the end, people could borrow 100 percent of inflated house prices with no money down. Insiders referred to subprime loans as ninja loans—no income, no job, no questions asked. - George Soros in latest book


“When everything’s going up, there’s a feelgood factor and people tell each other how much their houses are going up at dinner parties,” says Professor Mark Stephens of York University’s Centre for Housing Policy. “Then the music stops, as it always does.”

“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?” - a senior executive at an international financial services group, who did not wish to be named.

"Most people told us house prices never go down on a national level, and that there had never been a default of an investment-grade-rated mortgage bond, "Mortgage experts were too caught up." - John Paulson, trader, who bet against subprime market and made $15 billion.

The most puzzling are the real-estate projects of Parsvnath. Just have a look at the Pride Asia project near Chandigarh. They are asking almost US $300K-$350 K dollars for 2 bed room apartments. They have Villas in this project that costs more than US $1.5 million dollars. It is true that some people in India have that kind of money in India. However most of their wealth is black money and that can not be used to buy these properties. Obviously, these projects have been launched keeping NRIs in mind. - Sanjeev, comment from another site

Prachi Desai, aka Bani, the star of Balalji Telefilms's soap, Kasam Se, has been house hunting for over a year. She had almost closed a 2-BHK deal last year for Rs 1.5 crore in a Oberoi Constructions' building located at Andheri, Mumbai, but when she went back to confirm it, she was asked to cough up Rs 2.61 crore. Since then, she is still house hunting. - Mumbai Mirror

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