This is not a time to gloat about being right which we are but its time to reflect on how to asses the pitfalls which could encounter if we ever were to step into buying a house at some point in our lives. As the story will unfold we will see small builders being wiped out, projects delayed indefinitely, legal problems between landowners and developers magnified, large mega projects by tier-2 builders getting stalled due to cancellation in bookings, outskirt prices dropping like a rock. redevelopment deals shelved and many more black swan events out of scope of the human mind. The key to a good property is location so the good ones as always the case will suffer the least damage. The sun has stopped shining and most of the bulls have gone to the cow-sheds or tabela's they are called in Hinglish. The occasional bull who is still roaming the fields is going to be dinner for some big bad bear out there.
By CNBC-TV18s research analyst, Niraj Shah
Well, the biggie said it on Friday and it may well set the tone for what could be a full-blown cyclical downturn for the real-estate space.
DLF, in a press conference, mentioned about a possibility of volumes getting impacted due to a hike in interest costs (No wonder Dr Y V Reddy's actions have seemed like a sharp wedge in the hearts of Indian realtors). At the time of its IPO, DLF has mentioned that while residential prices may start to stagnate, the commercial customers will be strong and keep the company in good stead. The company has stated today that it believes that the upside in the rentals is capped and they, at DLF, do not expect rental incomes to go up here on.
Secondly - in an interview earlier, V Hari Krishna, CIO of Kotak Realty Fund came up with an interesting observation. He said that since January 2007, most of the consumers have withdrawn from the market and this is reflected in the fact that when one looks at home loan disbursements, they have declined by 22% on a YoY basis from 2006-07 to 2007-08.
The drop, in fact, would have been more had HDFC and ICICI Bank not increased their disbursement rate in this period. Ex-HDFC and ICICI Bank, the disbursements would have fallen by 50%, which is obviously a worrying factor as it indicates that end users have withdrawn from the real estate market.
Thus, one would be inclined to believe that the meteoric rise that one saw in property prices in regions such as NCR and some Tier-II and tier-III areas was more of investor and/or speculator demand rather than end-user demand. And thus, these prices tapering off have lead to a switching-off in that trade and thus a moderation in demand and prices.
Sure - in select pockets such as Mumbai, Delhi CBD, etc, you would still see the odd expensive land deal, rental increase, etc. But make no mistake about it-the property market is looking south. And the biggest property developer, both in terms of size and repute, coming out and sort of affirming it does speak a lot.
CNBC TV 18's MF team did some digging and figured out that while the number of PE deals, both outbound and inbound, have declined by 60% for Q1 on a YoY basis, there is increased traction in the PE deals in the real-estate space. With the Primary market route closed and the debt becoming expensive, it would either lead to a PE deal at a much lower valuation - or a faster tick of sales leading to increasing cash-flows, which would sustain the highly geared realty companies.
For the faster tick in sales to happen - which essentially means wooing the buyer in a high interest-rate scenario - the prices will have to drop significantly - and that is the way the real-estate space is poised to go, never mind the odd-exception here and there. How soon we get there? Anybody's guess - but from the looks of it, sooner rather than later.
By CNBC-TV18s research analyst, Niraj Shah
Well, the biggie said it on Friday and it may well set the tone for what could be a full-blown cyclical downturn for the real-estate space.
DLF, in a press conference, mentioned about a possibility of volumes getting impacted due to a hike in interest costs (No wonder Dr Y V Reddy's actions have seemed like a sharp wedge in the hearts of Indian realtors). At the time of its IPO, DLF has mentioned that while residential prices may start to stagnate, the commercial customers will be strong and keep the company in good stead. The company has stated today that it believes that the upside in the rentals is capped and they, at DLF, do not expect rental incomes to go up here on.
Secondly - in an interview earlier, V Hari Krishna, CIO of Kotak Realty Fund came up with an interesting observation. He said that since January 2007, most of the consumers have withdrawn from the market and this is reflected in the fact that when one looks at home loan disbursements, they have declined by 22% on a YoY basis from 2006-07 to 2007-08.
The drop, in fact, would have been more had HDFC and ICICI Bank not increased their disbursement rate in this period. Ex-HDFC and ICICI Bank, the disbursements would have fallen by 50%, which is obviously a worrying factor as it indicates that end users have withdrawn from the real estate market.
Thus, one would be inclined to believe that the meteoric rise that one saw in property prices in regions such as NCR and some Tier-II and tier-III areas was more of investor and/or speculator demand rather than end-user demand. And thus, these prices tapering off have lead to a switching-off in that trade and thus a moderation in demand and prices.
Sure - in select pockets such as Mumbai, Delhi CBD, etc, you would still see the odd expensive land deal, rental increase, etc. But make no mistake about it-the property market is looking south. And the biggest property developer, both in terms of size and repute, coming out and sort of affirming it does speak a lot.
CNBC TV 18's MF team did some digging and figured out that while the number of PE deals, both outbound and inbound, have declined by 60% for Q1 on a YoY basis, there is increased traction in the PE deals in the real-estate space. With the Primary market route closed and the debt becoming expensive, it would either lead to a PE deal at a much lower valuation - or a faster tick of sales leading to increasing cash-flows, which would sustain the highly geared realty companies.
For the faster tick in sales to happen - which essentially means wooing the buyer in a high interest-rate scenario - the prices will have to drop significantly - and that is the way the real-estate space is poised to go, never mind the odd-exception here and there. How soon we get there? Anybody's guess - but from the looks of it, sooner rather than later.
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