Saturday, November 29, 2008

MHCI Chief Seeks Greater Fools in Gulf NRIs

Trust desperate real estate developers to act even more foolishly. Zubin Mehta, CEO of the Maharashtra Chamber of Housing Industry (MCHI), is seeking greater fools for his real estate industry a little too late in the day, when even the fools have lost their money.

Mehta said MCHI is targeting UAE NRIs to purchase real estate projects in India, his argument being NRIs could stand to gain up to 20 percent if they purchase now, since the Indian rupee has fallen by this value against the US dollar.

Why UAE NRIs? He said that these folks work to buy a home in India, unlike those in UK and US, who are given residential status and further citizenship in those countries. Good deals are now available, said Mehta, pointing to a depreciating rupee, discounts from builders, facilities like free parking and a stamp duty write-off.

However, Mehta would have a tough task convincing Gulf NRIs, who have already burned their money investing in the Dubai real estate market. Real estate in the Burj Tower area of Dubai is reported to have fallen 50 percent in last three weeks.

Mehta also added that he expects the Indian real estate market to perk up January. Now this is really desperation.

Times Benchmark Reflects Residential Property Slump

Times Property, the property supplement of the Times of India, Mumbai, has changed its Benchmark column to reflect the slump in residential property rates in Mumbai. Benchmark features on the front page of the Times Property Supplement of the newspaper that appears every Saturday. Data for this section is supplied by Mumbai broker Narain's Corp,

Benchmark is widely read and referred to by home buyers in Mumbai.

Despite the massive price correction, Times Property has reacted slightly slower, mainly because the data supplier Narain's Corp was reluctant to do so.

While Benchmark shows corrections in the suburbs, its South Mumbai rates are shown has untouched. However, it may take a little more time before the data supplier accepts the new reality.

The reductions in Times Property's Benchmark will bring cheer to new home buyers.

Friday, November 28, 2008


It has been at least four years since I read articles talking about good values and the right reasons for business success. During the last quartet of years it appears as if the belief in doing good seemed to have been lost, having got replaced by gung-hoism. Thankfully, with this global downturn, the good things should be back and good things lead to great things.

Take the example of Bangalore. I lived in Bangalore in the late 80's and early 90's. The city was a brilliant mix of values and great weather, heritage, history and nostalgia. Then they discovered it to be the Silicon Valley of India. All of a sudden, there was a wave of thinking about how similar Bangalore was to the Bay Area.

Indians from the US suddenly descended in to the city and set up home here, promoting the idea that one could earn salaries in the US but live offshore, in inexpensive Bangalore. The number of NRIs suddenly 'finding' Bangalore was surprisingly higher than during the tech boom of 1998-2001.

In no time, real estate became the most favored investment and locals who owned ancestral property - and those who purchased it as farmland - began to sell it at a premium to greedy but gullible NRIs. The very people who moaned about Bangalore losing its old world charm were now selling land like fresh cakes at the local Iyengar Bakery. No thought was given to infrastructure and preservation of culture or heritage, or nature.

The city, which was renowned for its flora - huge gigantic trees over hundreds of years old - was fast being replaced by the visions of the financiers, and ideas of those living in deserts and arid lands. All of this laid out in neat slices, compressed and packaged as progress. So, what has all this progress done to Bangalore?

Clogged roads, 3-hour drives to the airport and vague debates on the timings for local pubs, sponsored by the local corporate brewer. The beer capital of India did not give a thought on what laws should be put in place against those drinking, driving and running someone over in one night. This is called a mad culture of "investing in real estate", which never allows for thought on how the city should develop.

Internet, and information technology, and consequently digitalization were supposed to make life cleaner and better, for rich and poor, but what has it done. Bangalore, instead, has become another Mumbai - with its hyper real estate prices, fast deteriorating infrastructure, congested roads, pollution and crime. Good folks with good money were replaced by home loan-loaded ecstatic rodeos, riding some new wave of software jobs, airline jobs or financial services jobs, and what have you, thinking that they were writing the story for the next decade. Suddenly debt was cool, and "this is how it is in the US" was a statement for every financial misstep possible.

Flipping homes became as easy as flipping burgers. Just put down 10 percent, book a property, sell it for 20 percent profit next quarter. Another variation was: Buy an inflated property on mortgage, calculate the monthly EMI, and expect the rent to pay off the EMI. Real estate trading became the new casino, in which all could participate, without understanding it. Ever heard of options in commodities and stock? What we were seeing between 2005-2007 was real-estate option trading, without any kind regulation - a perfect resume for disaster if you do not know what options can do.

Having seen first-hand the Tech boom and bust - I know enthusiasm is great for start-ups but it does not pay in the long run. Most people confuse enthusiasm with happiness. In the Tech boom of 2000, the Internet was supposed to be the great leveler, so anyone with an Internet account and a url was a company. Venture capitalists became the new kids in town, peddling the deadly shot in to the veins of start-ups - cheap capital. Meetings were held where puffed-up child-CEOs (not very different mentally from the child soldiers of Africa) were asked business plans with specific targets for burning money. There were meetings where one was given a dressing down for not spending enough. If it was burning money in 1998 then, it was taking on debt in 2004 that was the new mantra.

Frankly, the impending rout of real estate - it has not even started, mind you - will provide a great pause for all, unless of course we are overloaded with debt, having purchased property with the idea of flipping them over in 3 months and worse still, hoping to rent it for more than the EMI. Clearly, worldwide, this party is now over!

Many ask me why I am delighted with this rout of real estate stocks. I think it comes from deep within. I despise this rottenization of livable spaces, invading, decimating and converting organic material in to concrete. It's a contradiction, that we first burn down forests, fill the space up with processed rubble and then put out ads that say: "Come live in the lush greenery". Ask those who purchased apartments in Powai (Mumbai) in 1995. How lush is their environment today?

What makes real estate dangerous is that you have the most enthusiastic and emotional fools with the least ability buying in to this. The mass participation in speculation thus causes an almost uncontrolled spiraling of prices.

The repercussions of a never-ending boom in land would have been disastrous. Where would this have led us? The commercialization of water? We almost thought of this. How about air?

Fortunately, booms and busts are self-correcting bootstrapping mechanisms. Thankfully, Nature finds its own corrective path, and as this real estate mania grinds to a halt over the next 2 to 5 years, it will allow us to find our real selves and values. By the time the next bull run starts, we would have spent years "at the grinding mill" and done our time.

However, future generations would perhaps not learn from this financial turmoil, as we have not from the earlier ones, because, as is the nature of emotional beings, we will always get mired in our own ecstasies.

Wednesday, November 26, 2008

Dubai Developers Invoke 'Seize Property' Clause

A new trend is emerging in Dubai, which has many developers invoking a default clause in the sale agreements, which state that if a purchaser defaults on payment of installments, the developer can keep the earlier payments as well as the property.

This is causing speculators a lot of grief, since many had paid the first deposit as a means of booking the property and had hoped to exit before the next installment.

However, Dubai lawyer Kavita Panicker, says she receives "two or three calls each day" from US-based investors regarding property purchased in Dubai. Most cannot pay the installments and are facing problems paying installments. She said these investors are happy to exit at a loss.

However, developers are reluctant to take the properties back and are invoking the seize property clause in the sale agreements.

Dubai's Estimated Debt 100 Percent of GDP

A look at Dubai's economy:

  • Tourism, retail and real estate, which all show signs of being strongly affected by the present world downturn, together contribute around 30% percent of GDP.
  • Financial services, hit heavily by the global crisis, contribute around 10 percent of GDP.
  • The energy sector contributes only around 6 percent of GDP.
  • Wholesale, transport and storage, which are also likely to be negatively affected, also contribute heavily to the economy.

The emirate's debt is estimated at roughly 100 percent of GDP.

Tuesday, November 25, 2008

The Mullahs Have Landed - in Dubai

Dubai is soon headed for a crisis of such huge proportions that its expatriate population has never seen ever.

A double whammy of weak crude prices - down from $150 to $50 a barrel - and a weaker US currency - petrodollars - will make its ruling Executive council scour high and low for ideas on how to fund the highly leveraged property market balloon it has created and what to make of asset depreciation. In many ways, the government has got caught in a whirlpool of its own making.

For expatriates, especially those who made laughable investments believing that Las Vegas could be created around the fringes of Islamic fundamentalism, this could be the wake-up call for a long dreary nuclear winter.

With the pain starting to ride down the nerve to common people, Dubai's success and any impending failure would get straightaway tied to the non-Islamic indulgences of the place. Financial pain gives rise to conservatism and religious extremism. With Dubai sandwiched between Shia Iran and Sunni Saudi Arabia, it could get caught in any crossfire.

The role of Dubai has never been understood; why is Dubai so powerful within the Emirates - even though it has no oil, no manufacturing base, nor has it been able to achieve Singapore's status as a port of repute. Yet, it has been able to hold up to Abu Dhabi, which owns 90 percent of the UAE's oil, and whose rulers, although more powerful, are far more low profile.

One reason that comes to mind is that Dubai is a refiner for Iran's oil, and a lot of refining margins are tied to the price of oil, which means the last four years were a bonanza for Dubai. This perhaps explains its clout. With clout, comes ambition, and with ambition a penchant for breaking rules, and Dubai has had all of it. In fact its direction toward becoming a tourism hub for Middle East revelers has always been watched closely by the Islamic right.

Dubai has no choice, because tourism in desert cannot takeoff without prostitution, alcohol or gambling. There is always talk about how activities in Dubai are frowned upon by the conservative Islamic countries. Some time in 2005 there was a rumor of some threats by Islamic extremists to bomb City Center, a shopping mall in Dubai, all of which was well-handled and overcome without alarm. Clearly, it had become evident even then that Dubai's success was getting increasingly uncomfortable for some, and sooner or later there was bound to be trouble.

However, before Islamic conservatism could get it, the credit crisis from the West got its goat. As much as charging interest is haram (sin) in Islam, this did not stop the mortgage on construction from becoming the fuel for Dubai's real estate bubble, as it goaded the desire of millions of expats of owning castles in the sand.

With bright ideas and some really grandiose schemes indeed being delivered, it was western money, and speculation drove up the market in Dubai. There was a time in 2007, when financial executives from New York, speculated on villas in Jumeirah, booking a villa one week, and selling it out the next for a profit. It was this false sense of a bullish market that encouraged lesser mortals among the expatriates to participate in the orgy. Until of course, it all blew up last week in their faces.

Finally, as the sand settles, people will begin to see Dubai what it it really is - a city of imagination but very little lastability: without natural resources, like water and fertile soul, and no oil, it looks like this time the devil has come to stay.

Without the sins of the West - alcohol, prostitution, gambling - Dubai would have certainly found it a challenge to sustain its tourism story. Now, as the hype of the glamor and glitz, gets replaced by caution and conservatism, the Mullahs are now going to have all the time to take a hard look at what Dubai represents, and see how it fits in to the general laws of Shariah. With Dubai now having to increasingly depend on Abu Dhabi and Saudi money, the Mullahs have surely landed.

Dubailand Property Available for Half Price

Dubai-based Elysian Real Estate sent a text message to up to 40,000 mobile phones advertising distressed property sales. The text offered a luxury six-bedroom, six-bathroom villa in Dubailand, a multibillion-dollar luxury theme park on the outskirts of the city-state, at an advertised cost of about £3.86 million – about half its original price.

Sunday, November 23, 2008

Dubai's Burj Tower Prices Crash 50 Percent in 3 Weeks

Speculators in Dubai's Burj Tower - the tallest tower in the world - are in for a rude shock. They have woken up to find that their property values have plummeted up to 50 percent, that too in just 3 weeks. According to brokers, most properties in the Burj Tower district have slumped by at least 22 percent. These were same apartments and commercial establishments that had risen 88-200 percent in the year until September 2008.

Zero premium and even discount sales have become rampant as investors rush out of sand castles and in to cash. Prices outside the tower fell from an average of AED 3,500 ($952) per square foot to AED 2,700, and on 8 Boulevard Walk, for instance, dropped from AED 3,300 per sq ft to AED 2,500 per sq ft in three weeks – a 24 percent decrease. Old Town quarter of the development had fallen 30 per cent in the past month, along with nearly 20 per cent at the South Ridges and Residences areas.

Price fluctuations in the Burj Dubai tower had been far more volatile because of the high percentage of speculators owning these properties, according to brokers. Some had since been sold at significant losses to generate cash. However, they said, the most expensive floors, such as those branded by Armani, sold at about AED 14,000 per sq ft and were holding much of their value.

Abu Dhabi’s high-end developments have also been affected. Many of the buyers appeared to have no intention of holding on to the property long enough to make the first required payments to keep possession of it. Like Al Reem Island, which had 95 percent speculators with no intention to make any payment after the deposit. Residential properties in some cases [are now put into the market] at minus 15 per cent premium.

A floor of offices that was offered in Al Shams Abu Dhabi at AED 2,500 per sq ft three weeks ago is now being offered at Dh2,100. Reem Island's properties purchased at up to AED 2,700 per sq ft are now available at AED 1,800.

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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