Saturday, July 12, 2008

Cash Crunch Hits Mumbai's Builders, Redevelopment Plans Tossed Out

Redevelopment deals are softer than potatoes in hot water. A cash crunch has started eating in to the plans of Mumbai's builder lobby. Considered the shining story of the real estate bull run from 2004-08, redevelopment of old housing complexes has slowed down completely.

The first signs were visible when a story, of Rs 402 crore deal between Sterling properties and Vivek Society, in Vakola, Santacruz, featured as front-page headlines in local Mumbai tabloids. Each 550-sq ft owner was supposed to be offered Rs 2 crore per flat, but this this became a wet mop, when Sterling backed out, citing difficult market conditions.

The plan for redevelopment works like this: The older housing complex sells its land to the builder, who demolishes the structure, and with the enhanced FSI, builds a taller building on the same land. He adequately compensates the current owners with either larger apartments, cash or both, and then sells off the additional apartments as his profit. However, with speculators in the fray, prices had spiralled up to a point of unaffordibility, and builders are no longer willing to take the risk, since loans have become scarce, interest rates have been hiked, banks are no longer interested in funding under-construction apartments, and home loans have become expensive.

Further, with the demand for apartments slumping, builders simply are unable to take the risk. Exorbitant pricing is slowly moving out of the system.

Among the cancelled plans of redevelopment include Wadhwa Builders's Vishal Nagar in Borivili; and Pune-based Kumar Builders's Khira Nagar, Santacruz. All deals signed up last year are being renegotiated downward to the extent of 25%. Some others that have gone back to the table are societies, Flying Carpet and Tirupati, near Khar Gymkhana. Developers are even not willing to extend more than 25% additional space in the new constructions, to owners of flats in old apartment complexes. A specific case in Khar's 11th Road, society members accepted a barely 20% increase. Last year the developer was willing to shell out any amount, but the story changed six months ago.

Another stumbling block is the high stamp duty that the Maharashtra government has levied on builders wanting to transfer the plots on to their own names of societies registered in the 1980's.

Read the DNA story here

Friday, July 11, 2008

Citibank Puts Indian HQ on Sale, Stanchart to Follow

The tarpaulin has collapsed over their heads in the US, that they are now trying to sell their offices in Mumbai and send money back home.

Foreign banks have put their offices on the Mumbai real estate market as a serious downturn awaits the home mortgage business in the US. The option-ARMs (home loans that start with very low or zero EMIs and then reset to very high rates after a few years) are set to revert in December 2008, thus accelerating the number of foreclosures, as home buyers, who were virtually lured in to ludicrous home purchases, find they are sitting on negative equity. This means the value of their property falls below their purchase price.

On sale is Citigroup Center, located in the Bandra-Kurla Complex in Mumbai. This 2 lakh sq ft tower is expected to fetch Rs 500-800 crore, if market sources are to be believed. This means the price per sq ft is Rs 25,000 to Rs 40,000 at the highest end. However, it is unlikely that even this price may be achieved. Citibank is loud-mouthed when it palms off homes at exorbitant prices to NRIs, like it made sure it splashed the news in all the papers, when it sold a flat in Nariman Point, Mumbai, for Rs 97,000 per sq ft, but when it sells its own property, it is rather tight-lipped, which is to be expected.

The 8-storey structure will however be leased back by Citibank. The bank has been on a selling spree for the last few months, in an attempt to shore up capital for its beleagured US headoffice. Citi's CEO Vikram Pandit has pledged to sell off over $400 billion in assets over the next few years. Citi has also sold property in Tokyo Japan for $445 million to rival JP Morgan, and has leased it back. Over 45 branches have been closed in the US.

Another bank that has put its Fort office on sale is Standard Chartered Bank which has a 40,000 sq ft office space in the Fort area of Mumbai.

It is amazing that at a time when a lot of foreign financial companies are taking billions of writedowns, Barclays Bank chose to pay a rent of Rs 1 crore per month for 15,000 sq ft of office space located in CeeJay House, in Worli, Mumbai.

Read the TOI story here




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


Your Ad Here