Tuesday, July 29, 2008

South Mumbai Slumps; Jolly Maker Flat has no Takers

An apartment in Jolly Maker Apartment I and II, has no takers despite a 27 percent price cut.

Located in the prime residential area of Cuffe Parade, in the southern part of Mumbai, this flat - measuring 1,700 sq ft carpet area - was priced at Rs 18 crore in January 2008. Today, even at a discounted Rs 13 crore, the apartment remains unsold. [pic: World Trade Center and IDBI Tower, located near the JMA I and II]

Investors who rode the wave of the great Indian real estate juggernaut of 2004-2008 are now wringing their hands. Not just individuals, but even corporate speculators, unrelated to the realty business, who were lured in to real estate speculation, are now stuck.

Consider another case of an apartment that Siemens India put up for an auction sale in June 2008. With a base price of Rs 4 crore, the auction received 3 interests, two of whom bid Rs 3.75 crore each - in what appears to be a coordinated bid - lower than the base price. In better times, Siemens would have had a choc-o-bloc room with bidders vying to outdo each other. Forget a significant premium, Siemens had to contend with a lower price.

Cut to individual investors, who picked up properties at severely high premiums in areas like Noida, Gurgaon and Greater Noida, as well as in Mumbai and Bangalore. Almost all of them, loaded with floating rate interest loans, are now facing higher interest charges, as the value of their properties are slipping. They all face the prospect of a negative equity, where the monthly EMI is higher than the monthly return that such an investment would face in a riskfree bank deposit.

Declines of up to 30% are already being seen in many areas of the cities. Even areas which are usually considered hot and insulated from price cuts - like South Mumbai - have seen a 15% decline. The major victims of these declines are investors - those who purchased homes with an intention of selling them to genuine users for hefty prices. In Delhi and its suburbs, nearly two of three residential transactions are resales.

The main attraction for investors was the fact that property returned 200-300% for those who invested in late 2003 to early 2004. Investors would take loans, book the apartments, and sell them off before the year was through. This does not appear to be the option any more, and with less interest from new investors, demand has tapered off, leaving investors stranded with high loans and declining value.

The lack of interest is affecting residential developers too. Residential projects are usually self-financing in nature, meaning developers use the money they get from customer advances to fund the development. This money is used by builders to build projects, making their investments virtually riskfree. With investors shying away from new realty projects, developers are finding it tough to get finance for their projects.

The high cost of raw materials is also impacting developers, who are now focusing on completing projects rather than signing on new ones. Investors continue to hold on to their properties, latching on to the ubiquitous hope, that prices would rise.

Discounts abound the realty space. Apartments at Parsvnath City in Dharuhera near Delhi, have a list price of Rs 1,800 per sq ft, but even with a discount of 4% buyers are hard to come by. In Bangalore, a 2-bedroom apartment located in Indiranagar, purchased for Rs 29 lakh, three years ago is now available for Rs 34 lakh, 20 percent less than what it cost six months ago.

However, there does not appear a respite in sight. Another 15 percent correction is expected by property market consultants, and with exhibitions of distress sales of apartments planned by real-estate service providers, it may soon be a bonanza time for bargain hunters.

Read the Livemint 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


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