Friday, May 09, 2008

Mumbai Property Prices Slump Some More

The Tsunami has started. Prices have fallen 15-20% from Lower Parel to Santa Cruz. In suburbs like Jogeshwari, Kandivili and Borivili, rates are down 15-20%. In far-flung areas, it is 30%.

Punit Aggarwal, chairman of Orbit Corp, says quite clearly: "I can state quite firmly that not only are we seeing a slowdown in sales but also a reduction in flat prices."

Although some new TV channels, like News X, desperate for advertising money, shows juvenile reporters saying that Mumbai's real estate boom is going to last longer than expected, it looks that along with the cooling of the stock market, the real estate hype has gone in to refraction.

Brokers in areas like Goregaon and Andheri say that Oberoi Constructions and Nitesh Estates have lowered their prices. In Andheri, Oberoi has dropped rates Rs 750, to Rs 8,500 per square feet, and Nitesh has lowered it Rs 1,500. Rates here had topped out at Rs 8,500-9,500 per square feet.

"The market is not buoyant any more," says chief of Jones Lang La Salle Meghraj, Anuj Puri. Builders had hope to hold on to their properties but have realized that prices are not going up any much more, and hence have started releasing them in to the market. The cracks have been seen higher in small developers, who are happy to cut by even 25%.

Anshuman Magazine, chairman and managing director (South Asia), of CB Richard Ellis, said the next 4 months, prices are expected to drop even more.

So, the advise to speculators in the middle-class segment: Leave this game to the big guys. Interest rates have just one way to go and that is "Up". So, if you are looking to buy up for investment, try other avenues. There is a lot more blood to be spilt in this market before it can look up again.

Refer to the DNA story here

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Monday, May 05, 2008

Mumbai Builders Plan to Squeeze Salaried Class

The government is chasing the wrong cartels and creating an eyewash for the residents of Mumbai. Instead of chasing steel, cement, wheat and rice cartels, it is very safely ignoring the real-estate cartels who are historically more ruthless as a junta than any other.

Armed with slush money and cheap PE funds, Mumbai realtors have now acquired muscle power to hold on and squeeze residents a wee bit more. The cartel has been reported to have decided to hold on to exorbitant prices of Mumbai apartments until Diwali 2008. They are also enthused by the rise of the stock markets and the noises that the US recession may actually not happen at all.

Their main aim: Frustrate salaried people who have no choice but to own a home in the city, and close deals before the slump actually rears its ugly (or beautiful) face, depending on which side of the fence you are.

Over the weekend, I met with a friend -- a really middle-class chap -- who had booked at 1000-sq-ft apartment in Bandra, for Rs 80 lakh in 2004. This he had managed by selling his 1-room home in a colony, and a loan from a bank. Today, someone offered him Rs 4 crore for this apartment. He is an average hard-working business man himself, and said he was boggled by this. He said that 20 years of running a very popular food outlet had not made him this much money. Neither does he expect to make as much in the next 20.

He also gave me an example of his neighbor who now rents his apartment for Rs 65,000 a month, which pays off the EMI of his flat, and makes him enough money. The person has now taken more bank loans and purchased another property at current rates, in the hope of renting it further. Perfect, because this is how the cycle of real estate works, until a time comes when the rents do not pay for the cost of the mortgaged flat, thus creating a negative asset, and consequently distress sales, driving the spiral downward.

For now, of course, rates in Mumbai, seem to be held on to by the builders. Although there are the usual denials of cartelization, it is indeed a fact that despite sales having dropped 40%, and a dud April, where hardly any home sales have happened in Mumbai, and with the CRR hike, applicable from May 24th, and more importantly, the prospect of serious 8% inflation -- at the retail level -- the strategy to hold on to prices till Diwali could be the last gasp of an industry waiting to fall under its own weight.

Meanwhile, if the salaried class has nowhere to go, they will just fall in to the searing spikes of Mumbai's realty developers.

Read the TOI 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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