Thursday, October 09, 2008

Builders Abandon Leasing Dreams, Push for Outright Sales

Futuristic dreams harbored by real estate developers, of building castles with cheap credit of 2007 in the market, and leasing them to desperate home and office owners, are now beginning to face reality that in the end, there is indeed no free - or cheap - lunch.

This is borne out by the fact that is that real estate developers in Mumbai and even the rest of the country are now pushing outright sales of their commercial properties - offices, retail stores, hotels - instead of leasing them out. These were the same companies who were hoarding apartments in the hope of selling them at astronomical prices.

In some areas of say Mumbai city, residential and commercial spaces skyrocketed 300% as investors became intoxicated in the highs of investing in real estate. Overnight, even menials were dishing advice to their owners, having seen their slums jump up to crores in value, as companies aquired their lands to build towers and further sell them to occupants and investors.
Those dreams however appear to have fizzled out, the impact of which will become glaring by 2009.

Developers today are ready to sell properties at a rate which is seen attractive by buyers today. Their focus is now on purchase, build and sell off for immediate gains, instead of holding back on structural space and leasing them instead.

For example, Raheja Corporation has started selling off its office spaces in PUne, Hyderabad and Navi Mumbai. Even subsidiary Raheja companies are following the same strategy in Mumbai.

Another real estate company, Indiabulls Real Estate, which saw a meteoric rise in 2007, has recently started selling their office spaces located on Tulsi Pipe Road, Jupiter Mills and Elphinstone Mills.

Its pride construction, the One Indiabulls Center, which was built to have expensive leases on office space, is now being sold off piece by piece, according to reports in the market. Even Ashok Piramal group's Peninsula Land Ltd (PLL), which is developing commercial buildings in Ashok Gardens - a premium residential project comprising 2-, 3-, 4- and 5-bhk (bedroom, hall, kitchen) apartments located at upper Parel in Mumbai - is selling off the commercial building instead of leasing the property.

Peninsula Land, which had sold off 5 lakh sq ft of Dawn Mills, is now in the process of selling complete 19 lakh sq ft. Realty major, DLF too is in the process of selling a part of its big commercial establishments instead of leasing. Competitor, Hiranandani Constructions is understood to have not entered into a single land deal since the past few months.

You can read the story here

Posted by Eclectic Investor at 4:51 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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