Wednesday, June 18, 2008

Unitech's Santacruz Project Scaled Down

If there is ample money and good valuation in the private sector, as opposed to the public markets, why has Unitech's Santacruz Koliwada project scaled down half to 1 million sq ft?

Sanjay Chandra, Unitech's managing director said in a CNBC interview, that there was better valuations for real estate in the private equity segment than public markets. This comes at a time when after much dithering, Lehman has agreed to invest Rs 750 crore in to Unitech's Santacruz Koliwada project in Mumbai.

What has gone unnoticed is that Unitech has cut back the size of the project by 50 percent. The original deal between Unitech, Lehman and then Deutsche Bank, was valued at Rs 2,000 crore for 2 million sq ft, for which Unitech had already invested Rs 500 crore. This works out to be Rs 10,000 per sq ft for land and construction. Lehman and Deutsche Bank were expected to get a minority stakes each in the project for bringing in together Rs 1500 crore.

Due to the conditions in the marketplace, as well as Lehman's own problems in the US, the project appears to have been scaled down to 1 million sq ft. In this Lehman has infused Rs 750 crore, the same amount of money it had committed for the original plan, but has taken in a 50% stake in the SPV. Deutsche Bank had earlier backed out of the deal.

So, why is Unitech not getting another private equity fund to finance the balance 1 million sq ft. Several stories are being fed in to the media that Lehman may invest $700 million in other projects by Unitech. This seems a bit contradictory.

Read the CNBC interview here

Video here

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Sunday, June 15, 2008

Mumbai's Real Estate Cookie Finally Crumbles

Mumbai's real estate cookie finally crumbles. Despite the bravado displayed by builders, brokers and advisors of the real estate industry, Mumbai builders face dire straits. In fact, this trend is a pan-India phenomenon. There is almost Rs 20,000 crore that has been lent to builders by Indian banks, and chances are that with defaults on interest payments, banks could consider foreclosure of these properties.

Mumbai's builders are now displaying interest-rate defaults, and have also started borrowing loan-shark money on high interest rates. Construction which had become snail-paced is now resulting in delayed delivery. Like it or now, Mumbai's developers are facing what is just the beginning of the toughest times ahead.

With speculators having exited the market, and retail investors facing a prospect of another interest rate hike, waning enthusiasm abounds India's real estate industry. Retail investors are no longer interested in the real estate market, and with the stockmarkets having taken a serious downturn, profits are no longer available for parking in to real estate. Even Indian politicians, who park their slush funds in real estate are now demanding their money back, and builders are in a quagmire.

This is a transition from being stressed to being distressed, one industry observer said. In fact, even big names including DLF, Emaar-MGF, Sobha Developers, Unitech, Omaxe, Parsvnath Developers, Hiranandani Group, Ansal API, BPTP Developers and TDI Group, are all finding it difficult to complete their projects.

A Mumbai-based family-owned developer has backed out of purchasing the Hindustan Composites land at Vikhroli, which it had agreed to purchase for Rs 700 crore, just a month ago. It has also walked out of the 3.5 sq ft land at Pramanik Landmark land at Goregaon. [Read the story here].

A developer, who has built popular landmarks in South Mumbai, and in far-off western suburbs, has overstretched itself beyond Rs 1200 crore. Another Mumbai builder, who had recently purchased a BKC plot may also burn his fingers. [Read who purchased the land here]. To recoup the cost of land and construction, each office would have to be sold at Rs 54,000 per sq ft, when the prevailing rate is Rs 32,000 per sq ft, and falling further.

A Delhi-based developer, which was to develop the BEST depot has started defaulting on its interest to bond holders. [Read BEST depot story here]

A Delhi-based developer giant has said it no longer interested in the 100-acre plot at Kanjurmarg, which it was in discussions to purchase. Further, Emaar-MGF has taken a bridge loan at 30% interest per annum, to complete one of its projects.

Read the TOI story here and the ET 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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