Wednesday, May 21, 2008
Tuesday, May 20, 2008
Wake up Mr. RBI Governor and Mr. Finance Minister. It is you who hold the reins to prevent mishaps in the Indian economic story, before elections come about. If you sit aside and watch cheap PE funds sloshing around in to hideous real estate schemes, then I am certain you will not mind opening your ears a bit and listening to man who will not hesitate a bit from playing vulture to the carcasses of the stock markets.
In what is seen as a significant indicator of a cooling Indian realty market, a prime land deal in Delhi, was concluded at 17 percent discount to its price one year ago. The 1.18-acre land, sold for Rs 200 core, and bagged by Parsvnath Developers, was jointly owned by Mahajan Industries and the Videocon group in Connaught Place. The deal, at Rs 169 crore an acre, has come at a discount of almost 17 percent.
“We have come to the end of one property cycle. Speculators have exited the market and we are seeing a softening in the housing market. This will now spread to the commercial market and then finally impact land prices. So with borrowing cost going up, and prices softening, the euphoria towards land acquisition has certainly died down,” says Cushman & Wakefield Asia executive managing director Sanjay Verma.
Land prices in the national capital region (NCR), Mumbai suburbs, Bangalore and Hyderabad have corrected by up to 25% as property developers slow down their land purchases. Poor sales and lower availability of credit at higher cost have prompted property developers to end the mad rush to acquire land. Some of the developers have even backed out of land deals which were agreed upon as the slowdown hit the sector.
Prices have come down by up to 25% in Mumbai’s distant suburbs, including Thane and Belapur, and pockets of Hyderabad and Bangalore, according to property consultancy firm Knight Frank India. Prices in the NCR, with an exception of Faridabad and Delhi, too have witnessed a correction of up to 25%, says a senior Unitech executive, adding that transaction volume has dried up. Land prices in Faridabad have risen 10-30% in the past 3-4 months.
However, Faridabad is just catching up with its neighbouring locations. The prices in Faridabad are still lower than in Gurgaon or Noida and the current price rise is more towards building a parity with them. Land prices in Delhi are said to be stable.
Read the ET story here
Monday, May 19, 2008
When Eclectic Investor spoke in February 2008 of the paanwala top in the Indian housing market, many scoffed. However April 8, 2008, the the Economist has said that the party is over in the British housing market. There are views being propounded that the real-estate bust is slowly moving eastward from US, to UK, and now to Middle East, India and China.
By Anshu Sharma
I just returned after spending a few weeks in New Delhi. The incredible pace of growth in
The numbers when it comes to real-estate just don't add up though. Real-estate in
- Condos in
: 2-bedroom, 1000 sq ft apartment for $200,000 [$200 per sq ft] (Source: 99acres.com) New Delhi, India
- Condos in
: 2-bedroom, 1000 sq ft apartment for $400,000 [$400 per sq ft] (Source: Google Housing) Chicago, USA
Now, remember that the median income in
Next, look at agricultural land prices.
- Agricultural land in
Faridabad, Haryana (adjacent to New Delhimuch like New Jerseyis to ): $250,000 per acre (source: 99acres.com) New York
- Agricultural land in
New Jersey: $12,000 per acre (source: USDA, and for comparison its $6,000 per acre in Californiaand $8,000 per acre in ) Florida
The issue of population density pops up every time I discuss this. Let me be clear, the population density of
The next issue that comes up is one of regulation and availability. Yes, real-estate is regulated in
Will someone please explain this to me? How can farmers that make less than $1000 per annum continue to own land that is valued (notionally) at several $100K? Are the low rental yields (2-5%) indicative of the bubble?
" 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," Mr. Paulson says.
"Mortgage experts were too caught up" in the housing boom.
In several interviews, Paulson made his first comments on how he made his historic coup. Merely holding a different opinion from the blundering herd wasn't enough to produce huge profits. He also had to think up a technical way to bet against the housing and mortgage markets, given that, as he notes, "you can't short houses."
I heard the same arguments repeatedly in
Anshu Sharma lives and works in the
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Sunday, May 18, 2008
John Paulson has emerged as Wall Street's biggest beneficiary of the subprime crisis, gaining so much from foreclosures that George Soros invited him to lunch, to understand how he had laid his bets with instruments that did not exist a few years ago.
Funds Paulson runs were up $15 billion in 2007 - his investors relishing the bet he made against the seemingly unbridled US housing market. Paulson himself has taken home an estimated $3.7 billion, which is believed to be the largest one-day gain by any Wall Street professional.
By Mukul Pareek
As US housing prices come down to more sustainable levels after a prolonged boom, one can only wonder if we can expect the same story to be played out in other economies. Maybe there is some alpha waiting to be picked up. One place that stands out from a sustainability perspective is India where real estate, whether residential or commercial, seems to have completely disconnected from local economic fundamentals.
Imagine the dusty suburbs of Bangalore, Delhi and Mumbai. Imagine neighborhoods with high rises that have no reliable power or water supply, battered roads if at all, no public transport and a shadow of crime such that locked houses are not safe even for a day. Now imagine these houses commanding prices that match prices in expensive New Jersey suburbs. Go figure. Perhaps there are positive returns to be had in a bet on these. But as John Paulson was quoted in the WSJ , “you can’t short houses”. But maybe we can short some of the companies that build and sell these houses.
The Indian equity markets have enjoyed a tremendous bull run over the past few years. In 2007 the Indian markets were up 47%. Real estate was up even more on a frenzy that makes New York and London decidedly tame. Seeing the time to cash in, multiple ‘mega-issues’ or IPOs from real estate developers came out in 2007. Exorbitantly priced to begin with, they did not disappoint their investors. These IPO stocks outperformed the index (the one that was up by 47%!) by a handsome margin. We look at how some of the larger public offerings have done since they were listed. Terrific!
Which brings us to the point of this post. How sustainable are half a million dollar apartments in a country with an average wage of about $1000 (a year). Sure there are rich people in poor countries. Maybe enough to keep things going merrily forever. But maybe not.
Most people do believe that this is a bubble that is bound to burst. Perhaps it is only a question of when, and not if. But as said Keynes – the market can stay irrational for longer than you can stay solvent. There is no shortage of alpha seekers (and of academics & economists ridiculed on television) that were hurt calling a false top to the real estate market in the US. The same can happen anywhere, but given the fizz going out of the global markets, the Indian bubble may probably be short lived too.
One bet may be to short some or a diversified portfolio of these real estate companies. The Indian markets have already seen a correction in 2008, and that may or may not continue. These stocks do contain significant beta, so to guard against the risk of the general market going up, perhaps a market neutral short position in some of these companies may be desirable. As is the nature of the game, many of these companies have not been listed for too long, so betas that I calculated in the table below are probably unreliable but perhaps not a bad starting point for making an estimate for the future.
Here are some tickers (on nseindia.com, or add .ns after the ticker for Yahoo Finance) with some data. All information is approximate, US dollar conversions have been done using a single rate of USD 1 = INR 40. Notice the volatility in the stocks, they go up and down fast for sure. Also look at their fantastic profit margins. Who cares about EBITDA when net income to revenue ratios are straight out of wonderland!
There are a number of Indian stocks that are listed either on the NASDAQ or the NYSE as ADRs. Many of them are also included in the broader Indian S&P Nifty-50 market index (referred to above). These include the following:
List of Indian stocks listed in the US that are also a part of the S&P Nifty-50 market index:
Dr Reddy's Labs - RDY
HDFC Bank - HDB
ICICI Bank - IBN
Infosys - INFY
Satyam - SAY
Satyam Technologies - SIFY
Sterlite - SLT
Tata Communications - TCL
Tata Motors - TTM
Wipro Ltd - WIT
The list above covers industry, banking, communications and technology, but does not include any exposure to the real estate sector - except probably with the exception of HDB and IBN that have mortgage lending operations in India.
This opens up an interesting possibility - consider building a synthetic portfolio where one goes short on the entire market using IFN, IIF or INP; and simultaneously going long on a portfolio of individual stocks listed above in a way that the net exposure is only to real estate or related stocks. Unfortunately, real estate stocks currently comprise only about 4% of the Indian stock market capitalization, and as of the date of this post only Unitech is part of the Nifty-50. That makes this strategy a bit tricky to achieve but in the coming days as DLF and other Indian companies get included in the Nifty-50, it would be possible to create a portfolio that is strongly correlated (positively or negatively) to the Indian real estate sector.
This article first appeared on Mukul Pareek's Blog
- ▼ May 18 - May 25 (7)
The Great Indian Realty Crash of 2008
- 1. Housing Bubble in India?
- 2. India's Subprime Variety Loans
- 3. Months Away from Realty Bust
- 4. Realty's Greater Fool Theory
- 5. Home Loans Diverted to Builders
- 6. Sterling Biotech's Realty Excess
- 7. Paanwala Top in Mumbai Realty
- 8. Mumbai's Realty Crashes
- 9. Realty Stocks Crash
- 10. BKC Rentals Fall
- 11. High Court Puts Builders in Bind
- 12. Pune Real Estate to Crack Soon
- 13. Thane Buildings Could be Razed
- 14. Bangalore on Ghost Town
- 15. Realty Brokers In Luxury Panic
- 16. Builders Admit Slowdown
- 17. Man Sells Flat 30% Cheaper
“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