Saturday, March 15, 2008

Paanwala Top Reached in Mumbai's Realty

You know the stock market has reached its peak when the paanwala tells you what stock to pick.

But how would you know that the real estate market has peaked?

You know the real estate market has peaked out when honorary secretaries of cooperative housing societies write to builders asking them to redevelop their properties in the hope that each member would get an additional 25% as living space, and a couple of million rupees in their coffers. And those letters remain unreplied.

You know the real estate market has peaked, when the Times of India admits that there is indeed a slowdown, after a slew of articles in prior weeks waxing eloquently about big-ticket real estate sales and at least one categorically saying "there is no slowdown in the Indian real estate market".

You know the real estate market has peaked when a company barely 10-years old, whose previous claim to fame is a commercial complex in Faridabad in 2003, and a purchase of a plot in Hyderabad, says it has paid Rs 5006 crore for a 95-acre property in Noida (UP).

No, I am not gloating that I have caught the top of the real estate market, because I have been saying real estate is overpriced for the last 2 years, and it has always proven me wrong. I have also heard my maid telling me how she has as much money - may be even more -- than I have because her 100-sq ft home in Bandra-Kurla Complex has been sold for Rs 80 lakh, in this mad grab for commercial real estate space.

But I am proud this time, like a first-time archer who has got the bull's eye on a dartboard, after missing three times, that this time I am right -- no matter what they print on the front pages of the newspapers, we are just one month away from a collapse.

The signs are visible: A 4-bedroom home in 20-year old building located in central Mumbai, which until January 2008 was priced at Rs 12,500 per sq feet, is now available at Rs 10,500, and still has no takers. This despite the obviously exaggerated ranges that Narain's Real Estate Consultants will publish in Times Property. What would you expect from a broker, whose livelihood depends on the size of the sale?

Enough of my rants of anguish. Here is the evidence. The Old Lady of Bori Bunder has relented and is now aquiesing to my point of view.

Agreements of old cooperative housing societies signed with builders in January 2007, to move out lock, stock and barrel, in exchanged of megabucks running in to couple of crores for each family.

Deals that have now fallen to the ground:

  • Bharatiya Bhavan Co-operative Housing Society - 17th Road, Khar (West) - Rs 180 crore for 37 flats in 6 buildings - deal has fallen through.
  • Nutan Nagar, Bandra (West) Station - Rs 451 crore for low-rise buildings - deal has fallen through.
  • Khira Nagar - Santacruz (West) - Rs 900 crore - deal has fallen through

Read this story here

Read about the BPTP story here (In the print version of this story, there was a line that read: This proves there is no slowdown in the real estate market. This line does not appear in the online version)

Monday, March 10, 2008

Is This for Real?

Mumbai Mirror, the tabloid of the Times of India newspaper, featured a front page story on how gelatin manufacturer, Sterling Biotech, is picking up a property in a suburb of Mumbai, called Kalina, paying Rs 403 crore for a large but low-quality apartment complex (see picture). The deal works out to Rs 46,800 per square feet for 159 flats ranging from 465 sq ft to 785 sq ft, totalling to about 86,000 sq ft.

This story in itself looks dodgy which is not very unexpected from the Times. There are no quotes from Sterling Biotech, which is a listed company, and would need shareholder approval to make invest in property since it is not aligned to its main business of gelatin manufacture,. Further, it would need to intimate the stock exchanges first about a deal of such magnitude.

This story, like many others that have been cropping up in the Times, appear to be fueling the real estate market in Mumbai, artifically jacking up prices.

However, an advertisement in the same newspaper, belies a slowdown that is in place. A builder has advertised a property of about 21,500 sq ft, opposite the Mithibai College and Bhaidas Hall. It invites leasing and buying interest for this property. You can write and ask for details from a company representative Mr Naik.

What makes this advertisement seem out of place is the supposed short supply of office space and residential apartments that this above story in the Mumbai Mirror talks about. My question then is, why is there a color advertisement asking for rentals and purchase interests, that too for a property in a swanky suburb like Juhu, where you would expect to rub noses with Amitabh Bachchan, Dharmendra and Hema Malini, when all over Mumbai, builders of homes are saying that their properties are all booked and sold?

Read the Mumbai Mirror story here.

Learn about Sterling Biotech here.

P.S: In case you are wondering, (see picture left) this is Kalina in the floods of July 2006. Wonder if Sterling Biotech was acquiring the property in this area, at such a steep price because it could disperse out drugs for leptosporisis.

Sunday, March 09, 2008

The Bible and Buffet

Prov. 19:17. He who is gracious to a poor man lends to the LORD, and He will repay him for his good deed.

Deut. 15:10. You shall give generously to [your poor brother], and your heart shall not be grieved when you give to him, because for this thing the LORD your God will bless you in all your work and in all your undertakings.

Warren Buffet. I think the best way to stimulate the economy is to give money to the poor. They will spend it.




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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