Tuesday, April 08, 2008

Sterling Backs Out of Kalina Deal

The Rs 46,500 rate (almost 10 times the residential rate for the area) that Sterling Biotech was reported to have been paying for a seedy building in Kalina, a flood-prone area of Mumbai suburbs, seems to have fallen through, if the Mumbai Mirror is to be believed. (read Sterling's Realty Excess)

This development follows the 30% drop in Bandra-Kurla Complex area. Obviously, Sterling could have realized that it was paying a ridiculous sum for land, simply because it was adjoining BKC. However, sources indicate that this may also be a ruse by the members of Vivek Apartments, the building in question, to deflect attention from the deal.

According to the Mumbai Mirror, Sterling has written to the society citing due diligence and advice of the legal team, as reason to call off the deal. It has asked a return of Rs 25 lakh earnest money, paid when this Rs 403 crore was agreed to. However, sources say that earnest monies are like call options and are not expected to be returned in the event of a deal falling through due to the buyer.

The cancellation of the deal may have stunned residents - some of whom have been quoted as saying, "If its too good to be true, it is." Many had paid Rs 8000 a sq ft to book new apartments in a new construction nearby, paying almost twice the prevailing rate. Now they may have to do a distress sale.

None of this appears to be putting sense in to residents who are in a state of shock. Many have said that other builders were willing to negotiate - however, this may be more wishful thinking than reality.

In a scenario, where stock markets have burned down 50-70% of investors money, it is highly unlikely that excess profits would flow in to the real estate market. Bangalore has already exhibited at 40% decline, and is slowly turning in to a buyer's market. Mumbai could be next.



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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

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.”

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.

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.

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

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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