Saturday, March 14, 2009

Real Estate Prices Slump Toward 2003 Levels

Remember the time when an upmarket property in Malabar Hill Mumbai cost Rs 12,000-17,000 per sq ft. The same situation is likely to come back within a few months according to real estate agents in Mumbai. Prices here had touched between Rs 25,000 to Rs 45,000 per square feet.

New Delhi too is seeing a clear reversal in times. Builders who purchased properties in early 2008 are now wriggling out of deals. In early 2008, a builder had negotiated a Rs 18-crore deal for a 2,925 sq ft house in New Delhi’s upscale Defence Colony area. His objective was to demolish the house sitting on the land and develop apartments, hoping for a return of about 30 percent. However, today he has opted out of the deal losing even the Rs 50 lakh paid he had paid as token money. The same property is now being valued at Rs 9-10 crore.

Developers are dropping prices but the buyers are simply not coming. It is likely that once the panic button is hit, prices could touch rock bottom within months. There are no financiers in the market, and in Delhi, volumes are down 95 percent from peak. New projects launched are 40 percent cheaper than before. NCR regions are also hit. A 11,250 sq ft home in Golf Links, which was purchased for Rs 70 crore, is now available for Rs 50 crore, but there are few takers.

Mumbai's troubled times continue. Sometime ago a deal was made in Usha Kiran Apartments, on Altamount Road, by an executive of a financial broker. Within days of almost finalizing the deal, the executive backed out. Ten months ago, actor Vinod Khanna offered to pay Rs 1.25 lakh per sq ft for a 2,500 sq ft apartment for the ultra-luxury apartments, El Palazzo, located in the Hanging Gardens area of Malabar Hill. Subsequently Khanna backed out, but it was a wise decision.

Current prices in Il Palazzo are around Rs 70,000 to Rs 75,000 per sq ft. Near here, in Pedder Road, rates are around Rs 45,000 per sq ft. A few kilometers away, in Mumbai's CBD, Nariman Point, a London-based Indian national acquired a 3,475 sq ft property at NCPA Apartments, at Rs 97,842 per sq ft, nearly six months ago, but rates there are almost half that now.

In the central Mumbai’s Worli and Lower Parel areas, rates are down to Rs 12,000-18,000 per sq ft, while in Bandra they have fallen by more than a fifth to Rs 15,000-25,000.

Where price drops have been of the order of 50 percent, buyers appear to be showing interest. Orbit Corporation is now asking Rs 16,000 per sq ft for its new project in Lower Parel down from Rs 35,000 per sq ft.

In India’s technology capital Bangalore, prices have fallen by up to 25 percent in some area, says a Morgan Stanley report, and DLF, India’s biggest real estate company, cut rates by about 30 percent at its upcoming project.

Brigade Group's The Gateway project, one of the oldest localities in town, is quoting at Rs 5,090 per sq ft against Rs 5,790 per sq ft last year. Second sales are going at Rs 4,700-Rs 4,800 per square ft.

Kolkata too is cooling down on the real estate front. Prices are off their mid-2008 peaks. In areas such as Ballygunge Circular Road, Sunny Park and Queens Park rates, which were Rs 8,500-10,000 per sq ft in January 2008 jumped to Rs 13,000-14,000 in June-July before dropping to Rs 9,000-11,000. Residential properties sold at Rs 12,000-15,000 per sq ft last year, are averaging Rs 9,000-10,000 per sq ft now.

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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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