Monday, November 03, 2008

Noose Tightens Around Necks of Mumbai Developers

The massive cranes around Mumbai are fast disappearing as the real estate industry goes down in to the dumps. Where one slab per month would be raised, it is now down to one in three months. Banks have become very choosy about lending to the real estate developers as investors disappear and home buyers wait for prices to drop.

It appears to be a game of who will blink first, with builders hoping for the prices to recover, and residentual apartments still costing between Rs 15,000 per square feet and Rs 21,000 per square feet in Juhu area of Mumbai, and Malad and Goregaon still commanding between Rs 9,000-15,000 per square feet.

In Mumbai, the same apartments that were on the market for the last 6 months continue to be circulated. For example, a builder demanding Rs 80 crore for a 8,000 sq ft super-built-up apartment has not been able to sell even one unit.

A few builders who have real estate purchased prior to 2004, are making optimistic noises, however most of them, for whom the interest rate is ticking, are squirming as the noose is tightening around their necks.

Some of the news in the market is of a the brother of a prominent developer from the eastern suburbs, who has branched out on his own now, is stuck after a US-based bank allegedly stopped funding his projects in Hyderbad and Chennai. Another developer with residential projects in Goregaon, Virar and Thane finds himself pushed into a corner after taking a Rs 100 crore loan from a Kutchi industrialist at hefty interest rate of over 40 percent.

One builder, who shook the property market last year after he paid a phenomenally-high price for a plot in BKC, is also believed to be now on the edge. His investors are breathing down his neck and even the nationalized bank which funded him, now wants its money back. His desperation is now evident because he has started offering brokers a 4 percent brokerage for getting clients, said sources.

In the commercial segment, the lease rental prices in BKC has come down from an average of Rs 450 a sq ft to Rs 325-Rs 350 a sq ft over the past three months, it is learnt. Developers setting up IT parks are also getting worried as they are not getting the price they were expecting, said a broker.

According to housing experts, about $4 billion has been pumped into the Indian real estate market by FIIs and venture capital funds. Another $12 to $14 billion was to flow in within the next 18 months. This will not come anymore.

Read the story here

Nagarjuna Construction Puts Future Real Estate Projects on Hold

Nagarjuna Construction Company has clamped down on future real estate projects due to current slowdown in the sector and has tempered its capital expenditure plan for 2008/09.

According to Subba Raju, vice president-finance, NCC is not planning any investment in real estate projects. "All our real estate projects are fully capitalized," Raju said. "We have put all other projects on hold. We are not launching them because of adverse market conditions."

The company will spin off its real estate operations by March 2009 in to its subsidiary NCC Urban Infrastructure, which currently is involved in building a national games housing project in Jharkhand, a unspecified project in Hyderabad and 3-4 small projects in Bangalore.

"We are not planning any investment in real estate projects. All our real estate projects are fully capitalized," Raju said. "We have put all other projects on hold. We are not launching them because of adverse market conditions."

Earlier this month, rivals Hindustan Construction Co and IRB Infrastructure also said they slow down their real estate forays, given the weak market situation.

Read the story here

Sunday, November 02, 2008

Emaar-MGF's Gupta Shellshocked by Real Estate Downturn

Emaar-MGF's MD Shravan Gupta appears dumbed down by the sudden downturn in the real estate business in India, and hence needs to read a book about Jack Welch, where he would learn that one of the premises for success is to "Look at things as they are, and not as they were or as you wish them to be".

The executive vice chairman and managing director of Emaar-MGF Land, appears to be making surreal statements about the importance of real estate in India, despite the fact that his company's IPO bombed early in the year, even before its launch, and was instrumental in providing one of the early clues that the real estate market in India would go in to a tailspin too.

“The present turbulence will make the real estate grow strong and it will emerge stronger after this phase,” said Shravan Gupta, executive vice-chairman & MD of Emaar MGF Land Private.

In the stock markets, you are told not to live on hope or you will die in despair.

Gupta feels the importance to the real estate sector a trifle underrated and it should be given more importance. Sure, how about the regulators coming up with a housing index which can be traded on the NSE?

Gupta's words border on being delusionary when he says that in the present scenario, sentiments were overpowering people’s thoughts rather than actual ground conditions. The effect of the global financial condition is certainly felt in India but according to him it’s not as bad as it is portrayed.

“Demand for homes does exist today," he says. Well, they do in the US too, where people still need to buy homes to live. According to Gupta, it is just that the buyer is in a state of uncertainty looking into the world around him. In his view, it is not bad loans but the high lending interest rates that are driving away the buyers and the sector is in a stage of hibernation but no real slowdown is seen.

According to Gupta, prices in some cities may have gone up on the basis of lack of supply but still in India real estate is under-priced when compared to the rest of world.

What he suggests is that a collective force of the real estate developers should be presented before the government to implement certain uniform policies and regulations, which can benefit both the buyer and the developer.

A few months ago, the MD of Unitech had come on television to say that analysts do not know how to value real estate companies. Since then Unitech has plummetted from Rs 220 to Rs 30. The MD of Parsvnath had cockily said that there was no slowdown. The shares of his company have plumetted from Rs 200 to Rs 50.

Shravan Gupta should thank himself his company is not listed as yet.

Read the 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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