Thursday, November 20, 2008

The Denial of Reality - Arvind Singhal

There is no sign of let-up in the economic turbulence all around us. While there is, finally, some realization within the prime minister's office and the key economic ministries that India is not insulated from the global economy and that serious measures have to be undertaken to prevent the Indian economy from melting down too, it is surprising to observe the response of corporate India to this situation.

As if on cue from the USA, where there is an increasing clamour for more government bailouts, many in the Indian private sector have started to make similar noises. Of all those who have been the most vocal in seeking government support, subsidy and protectionism, the case being put up by the realty sector is the most disturbing. When the recent economic boom started in 2003, land prices in posh Delhi localities ranged from Rs 40,000 to Rs 60,000 per square yard. Builders’ flats in Gurgaon for middle-income customers were being offered for booking at Rs 2,200-2,500 per square foot, while premium residential developments in South Mumbai came to market at Rs 4,000 per square foot. Office rentals in Gurgaon were at Rs 30-35 per square foot per month while in Mumbai, they hovered around Rs 100 or so. In April 2008, the same prices respectively had shot up to Rs 400,000 per square yard, Rs 6,000 and Rs 28,000 per square foot, and Rs 120 and Rs 400 per square foot per month.

While this increase, ranging from 300 per cent to 1,000 per cent, put many Indian developers on the Forbes list of billionaires, it also resulted in the destruction of the primary demand for residential and commercial property from actual users since it became unaffordable and nonviable, and brought only speculators to the market. In this situation, the noise from the real estate sector exhorting the government to facilitate reduction in the home loan rates is nothing but a denial of the reality that unless the property prices are scaled back to 2003 (or even 2005) levels — making them affordable/commercially viable for actual users once again — the realty sector will not see a boom again irrespective of the lending rates.

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Bahrain's Property Bubble Has Officially Burst

A senior professor at City University's Cass Business School, London, has said that Bahrain's property bubble has officially burst.

According to Prof Stephen Lee, the sector was grossly "inflated" sector and would would now fall in line with prices and growth rates in the rest of the world. He said it would take at least 2 years to recover.

He added that the credit crunch has already hit Dubai where if you work for a property developer you will not get a loan to buy a car. Supply will far outstrip demand, according to Lee.

He said that although the Palm Island in Dubai and Bahrain Bay, for example, will be completed, the wealthy will not invest in them, unless confidence comes back.

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Dubai Ambitious Palm Project Falls 40 Percent

The ultimate reclamation from the sea project, the Dubai Palm Jumeirah project, has seen its value erode over 40 percent since September, according to real estate brokers.

A four-bedroom villa on the man-made island developed by government-owned Nakheel, is now selling for AED 10 million (Rs 13 crore), down from 15 million dirhams.

Rehab Gouda, senior sales agent at Al Jabal Real Estate, said that prices had fallen 40 percent during the same period.

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Wednesday, November 19, 2008

DLF Cuts Price 21 Percent in Bangalore Project

The real estate slump is now beginning to grind harder on developers.

India's largest real estate developer, DLF, has slashed prices for apartments in its 80-acre gated community project at BTM Layout in Bangalore. Prices are down 21 percent to Rs 2775 per, from Rs 3500 per sq ft.

This means that a 1,310 sq. ft two-bedroom-hall-kitchen (BHK) flat in the project would now cost Rs 36.35 lakh, or about Rs 9.5 lakh cheaper than its initial price. The project, however, is yet to receive mandatory approval from the Bangalore Development Authority.

The project was launched to a closed set of invitees where the price was discussed. An analyst who did not want to be named said that prices could go even lower.

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Monday, November 17, 2008

Arun Nanda: Another Wishful Thinking CEO

Have you not witnessed time and again, the CEO of Parsvnath coming on CNBC and saying that there was no slowdown and there was no cash problem? Did you not see Sanjay Puri, CEO of Unitech say that analysts do not know how to value real estate companies?

Since then, all these companies have had their stock prices relentlessly banged to almost a 1oth of their 52-week highs. Now, here is another joker in the pack.

Arun Nanda, executive director of Mahindra and Mahindra said there is no slowdown in its real estate projects, even though there is slump in demand.

“We are not slowing down on any of our projects. Jaipur is rocking, Chennai is doing well, city-based projects such as Faridabad are also doing well,” he was quoted as saying on the sidelines of the India Economic Summit.

Nanda, an executive director of the company, was quoted dishing out more gems:

"Fundamentals of real estate have not changed," he said.

"We have actually got cash in the bank," he said, adding there is a huge demand in 30 to 40 lakh apartments segment. He, however, said the housing loan segment is facing problems, adding there were no funding issues for its projects and the company’s affordable housing projects are not going to disappear, but he did admit that investors are not coming forward.

“Demand has been put on back-burner and interest rates are hurting people,” Nanda said. He also informed those present that Sebi approval for the initial public offering of Mahindra Holidays and Resorts Ltd.

Sure you have heard of the proverbial deer freezing in the headlights. Or is this simple a case of self-denial?

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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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