Sunday, May 25, 2008

Saffron Group Talks Long-Term in Real Estate Now

The biggest real estate private equity fund invested in India, the Saffron Group, is now talking long-term about Indian real estate.

How many times has this happened in your life? You bought shares of a company in the hope of gaining 30% in a couple of months, and you waxed eloquently its virtues at a South Mumbai champagne party. You woke up groggy-eyed next morning, and winced as you found out that the stock you hold has crumbled 20%.

You are not worried, you tell yourself, because you have purchased these shares for the long term. Now, you are quoting Warren Buffet and how he made his billions holding on to good stocks. In the long term - never mind Keynes says we are all dead - you convince yourself, your share is sure to return 5 times.

If you are sheepishly reading this and saying: Touche, how true; you are not to be ashamed. You are now in blue-blooded company; for some of the astute investors in Indian real estate, Saffron Group, said that it will remain put for a minimum of five years in upcoming properties and will buy out assets with assured rental income.

"Our strategy is to be a leading player in the field. We don't have any short-term view. The industry is growing and it will yield better results for another 10-15 years," Kapoor said.

This means just one thing: upcoming projects are not expected to return in less than 5 years, and Saffron is waiting in the wings to pick up distress sales of properties.

The Group, a brain-child of Ajoy Veer Kapoor and his peers from the banking fraternity, is the promoter of Euronext-listed Yatra Capital, an India-focused real estate fund. Yatra Capital has already raised $260 million in the Indian real estate market. A $350-450 million unlisted real estate fund, launched in February 2008, had an anchor investment of $75 million from Standard Life UK. It is expected to close by the end of 2008.

If you just purchased real estate in India, hold on to your property for the next 10-15 years, for gone are the super returns of 2004-07. No more 30% each year. For that matter, considering an 8 percent inflation tick-in, your interest rate on the home loan is certain to rise further.

Read the Business Standard story here

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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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