Tuesday, October 28, 2008

Real Estate Developers Ready to Start Price War

The daggers could be out soon, as massive loans taken from market players may start to burn holes in real estate developers balance sheets if the properties are not sold soon.

The cartel for real estate players who have been holding up rates for the last six months may soon get in to desperate mode. Real estate developers are bracing themselves for a 50% cut in their property rates. This despite the fact that real estate prices in India have fallen 20-25% over the last seven months. Industry experts at a recent TiE-Indian Angel Network summit held in New Delhi agree that further price cuts are in the offing.

Kashi Nath Group's CEO Sanjay Khanna clearly admits that those who do not reduce prices now will be forced to do this some time or the other. Ask Ashish Mathur, head of business development and marketing for Mahindra World City, who gave a resounding "yes" when asked if a 30% cut can be expected in realty prices.

Santhosh Kumar, deputy CEO of Jones Lang LaSalle Meghraj, says that a 30-50% discounts are available even now, if one is willing to pay cash down.

In the case of residential property, the rate of interest on home loans has gone up from around 7.75 percent in 2004 to around 12.75 percent now. Almost 90 percent of home buyers take the home loan route. For a person taking a home loan, the rate of interest has increased 5 percent in the last four years. If a person borrowed a lakh for 20 years at 7.75 percent in 2004, he would have to pay around Rs 96 thousand as interest eventually. At the present rates, the interest rate burden has now increased to more than Rs 2 lakh on the same amount.

The liquidity crunch has been fueled by expensive home loans, a slowing Indian economy and the global financial crises. Banks too have become reluctant to lend to the realty segment. The ing economy has had a direct impact on commercial property market. During the quarter ended September 30, commercial space demand has slowed down in all major metros, with low leasing demand in the first two quarters of the year.

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Posted by Eclectic Investor at 1:31 AM  

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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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