If SBI can lower car loans to 8%, how much lower can they go on property ? I remember in Jan 2003, StanChart was offering loans at 7.75% with the some other banks offering 7.25% variable. Now the rate schedules are announced in advance, so people will have visibility into the rates for the 2nd and 3rd year, instead of just floating/variable rate. As of the latest SBI announcements its 8% for the 1st year and 10% for the 2nd and 3rd year. Still not bad when compared to 12-14% rates a year ago. Add to this the increase in the income tax deduction for housing interest loans from 1.5L to 3L. It appears that just like the US, the Indian government bailout of the housing industry is on track to boost property prices. We are back to the races now. How much will the home buyer bite is everbody's guess ?
Sunday, 28 June 2009
Wednesday, 24 June 2009
Hi All,
It would be great to have actual rates from various projects recorded over a period of time. This will help us to understand the trend of real estate prices.
The trend should be derived from data gathered from guys like us "on the street", not from some biased reports of property consultants.
The idea is that we can have a database-on-the-web to capture real estate rates.
With a few hours effort, I created a google spreadsheet to record the rates over time from a single project in Kothrud, Pune. The pricelists have been grabbed from the builder's website from March 2009 to June 2009.
The latest pricelist can be viewed here:
http://www.pethkarprojects.com/samrajya/availability.pdf
The spreadsheet can be viewed here:
http://spreadsheets.google.com/ccc?key=rmv0n4AJNHEfU_5RRg1I_bQ
Creating a chart, we can see that the rate is the same for the past 4 months!! Compare this with the boom period when rates used to increase every month. Definitely, real estate in Kothrud, Pune has flattened out.
The google spreadsheet is not appropriate for large amounts of data which can start pouring in from various cities, so I have also created a mysql database with multiple tables.
How to gather the data?
1. Quoted by builders - this can be done by gathering pricelists of the projects at exhibitions, or from the website of the builder.
From the pricelist, we need to calculate the carpet area (excluding terraces, balconies, and other non FSI related areas) and the total cost to the buyer (including stamp duty, registration, one time maintanenance etc i.e. everything).
The carpet area, total cost and date can be entered into the database.
Entering pricelists into the database will have to be done by moderators.
2. Posted anonymously by real buyers:
Anyone who has purchased a property can anonymously post the carpet area, total cost and date. The anonymous user is not allowed to enter data directly into the database, he can post in this blog and a few moderators like us who have write permission to the database will enter his post.
What if someone posts a misleading rate? I believe 1o people can lie, but 1000 people will not lie. When we have hundreds and thousands of unique users posting rates, the misleading posts become statistically insignificant. This is the same principle on which www.carwale.com operates.
Also a restriction is that a user can post only the rate for a property he has actually bought, so we can restrict posts to 1 post each month per email id.
People can also post links to builder's websites which have published pricelists.
There can be a discussion on how to allow anonymous posts.
We can have admin / moderators for each city, like I and someone else can do for Pune.
I can help with the perl code, sql and database, domain name, hosting, but I aint no website designer. Maybe we can form a team to collaborate on the website?
It would be great to have actual rates from various projects recorded over a period of time. This will help us to understand the trend of real estate prices.
The trend should be derived from data gathered from guys like us "on the street", not from some biased reports of property consultants.
The idea is that we can have a database-on-the-web to capture real estate rates.
With a few hours effort, I created a google spreadsheet to record the rates over time from a single project in Kothrud, Pune. The pricelists have been grabbed from the builder's website from March 2009 to June 2009.
The latest pricelist can be viewed here:
http://www.pethkarprojects.com/samrajya/availability.pdf
The spreadsheet can be viewed here:
http://spreadsheets.google.com/ccc?key=rmv0n4AJNHEfU_5RRg1I_bQ
Creating a chart, we can see that the rate is the same for the past 4 months!! Compare this with the boom period when rates used to increase every month. Definitely, real estate in Kothrud, Pune has flattened out.
The google spreadsheet is not appropriate for large amounts of data which can start pouring in from various cities, so I have also created a mysql database with multiple tables.
How to gather the data?
1. Quoted by builders - this can be done by gathering pricelists of the projects at exhibitions, or from the website of the builder.
From the pricelist, we need to calculate the carpet area (excluding terraces, balconies, and other non FSI related areas) and the total cost to the buyer (including stamp duty, registration, one time maintanenance etc i.e. everything).
The carpet area, total cost and date can be entered into the database.
Entering pricelists into the database will have to be done by moderators.
2. Posted anonymously by real buyers:
Anyone who has purchased a property can anonymously post the carpet area, total cost and date. The anonymous user is not allowed to enter data directly into the database, he can post in this blog and a few moderators like us who have write permission to the database will enter his post.
What if someone posts a misleading rate? I believe 1o people can lie, but 1000 people will not lie. When we have hundreds and thousands of unique users posting rates, the misleading posts become statistically insignificant. This is the same principle on which www.carwale.com operates.
Also a restriction is that a user can post only the rate for a property he has actually bought, so we can restrict posts to 1 post each month per email id.
People can also post links to builder's websites which have published pricelists.
There can be a discussion on how to allow anonymous posts.
We can have admin / moderators for each city, like I and someone else can do for Pune.
I can help with the perl code, sql and database, domain name, hosting, but I aint no website designer. Maybe we can form a team to collaborate on the website?
Crisil reporting accurately on the state of the housing market in India.
>>> Real estate companies have been launching newer residential projects at lower prices that >>>are located in "far-flung" locations (exhurbs) from the central business districts of cities. The Reuters article is below.
This statement is 1000% true. We see launches in Kalyan, Virar, Boisar in Mumbai which are 3 hours away from business districts. It makes no sense to commute 1/4 of your life every day and still be under the duress of loans. Life is more then loans and commute. Builders have bought land at sky high prices in the Mumbai suburbs and the only way out for them is an increase in FSI. I think in the coming years the Maharashtra govt will do just that. Prices will drop to more sober levels once that happens. Anyone buying at 8k per sq/ft will be rueing the decision for the rest of the loan life.
India's residential sector likely to see oversupply - Crisil
MUMBAI (Reuters) - India's realty companies will struggle to find buyers for about a fourth of their residential space between 2009 and 2011, the research arm of rating agency Crisil said in a report on Wednesday.
During 2009-2011, Crisil Research said it expects absorption of 506 million sq. ft. over the three years based on its expectation of a GDP growth of 6-6.5 percent in 2009/10, according to its study of 10 cities across India.
Although planned supply has been estimated at 1,202 million sq. ft., this supply "is unlikely to materialise in full due to the credit crunch and relatively sluggish demand," and the actual supply will be around 700 million sq. ft., it said.
This indicates 28 percent will be in oversupply while much of the planned projects will be delayed by up to two years and others in the planning stage, shelved.
Indian real estate saw demand for housing collapse in the second half of 2008 amidst a global credit crunch and the local market became stressed with buyers fearing job losses, Sudhir Nair, head-Crisil Research said.
The market is expected to stabilise in 2010, he added, "the Indian economy will stabilise and start accelerating and there will be stability in the global economy and fund constraints will be eroded."
Builders had also reduced unit sizes and cut prices, which will help stabilise demand, he said.
Residential prices are expected to fall further by 8-10 percent in 2009 before stabilising the next year and Crisil Research expects investors to maintain a cautionary approach until values stabilise, it added in the report.
Real estate companies have been launching newer residential projects at lower prices that are located in "far-flung" locations from the central business districts of cities.
MUMBAI (Reuters) - India's realty companies will struggle to find buyers for about a fourth of their residential space between 2009 and 2011, the research arm of rating agency Crisil said in a report on Wednesday.
During 2009-2011, Crisil Research said it expects absorption of 506 million sq. ft. over the three years based on its expectation of a GDP growth of 6-6.5 percent in 2009/10, according to its study of 10 cities across India.
Although planned supply has been estimated at 1,202 million sq. ft., this supply "is unlikely to materialise in full due to the credit crunch and relatively sluggish demand," and the actual supply will be around 700 million sq. ft., it said.
This indicates 28 percent will be in oversupply while much of the planned projects will be delayed by up to two years and others in the planning stage, shelved.
Indian real estate saw demand for housing collapse in the second half of 2008 amidst a global credit crunch and the local market became stressed with buyers fearing job losses, Sudhir Nair, head-Crisil Research said.
The market is expected to stabilise in 2010, he added, "the Indian economy will stabilise and start accelerating and there will be stability in the global economy and fund constraints will be eroded."
Builders had also reduced unit sizes and cut prices, which will help stabilise demand, he said.
Residential prices are expected to fall further by 8-10 percent in 2009 before stabilising the next year and Crisil Research expects investors to maintain a cautionary approach until values stabilise, it added in the report.
Real estate companies have been launching newer residential projects at lower prices that are located in "far-flung" locations from the central business districts of cities.
Readers and folks who comment on the blog like Priti, Shyna, Vandana, Abeer , the good BB, Retired old man, Bharat, Shriniwas, Shubh Chintak have noticed some several off-topic, irrelevant and offensive comments on the blog. I can turn on the moderator mode, however the feedback loop of posting a comment and seeing it visible on the blog immediately is lost. At the end of the day I can clean up the posts and comments. BB or whoever is masquerading as BB will eventually tire out by entering the CAPTCHA characters, but if his only goal in life is to troll this blog 24x7 and keep slandering, I will be forced to turn the moderator mode on and then reject all his comments.
What do you guys think ? I think we have a good discussion going on prices, areas, builders and the collective wisdom of people is helping everyone including myself. I had no idea about the price rise in the DDA cluster of Mayur Vihar, so keep up the good work and let us all keep posting. Even the casual reader has something to contribute so don't be shy. We all are looking for insights from the real world, not bogus planted articles by TOI , Jones Meghraj and others.
Sunday, 21 June 2009
MUMBAI: The increase in the demand for housing in the past one month appears to be restricted to resale do not have too many takers, at least not in the large cities. In the case of new projects, developers have been offering attractive discounts, while prices in the resale segment have remained high.
Agreed Sunil Bajaj, another city-based property consultant, “The asking rate for old property market is not in line with the prevailing market rate. In Kandivali (a suburb in western Mumbai), the price of an apartment on the first floor on a per square foot basis was as expensive as the one on the penthouse in the same building.” He added that the flat has remained unsold.
Potential buyers have not been finding the going easy. Amit Desai, a Mumbai-based professional employed in a large business group, is one such person. “For a salaried employee, the rates for older property is out of reach since sellers ask for at least 30% of the price in black. This means you get a loan only on the white component (the price after deducting the black component).”
Industry observers said new property has witnessed a price drop of 30-50% in the past six months that is the result of developers facing a liquidity crunch and falling demand. Some buyers have chosen not to go ahead with the purchase, as they feared the property might not be completed. This has led developers to offer schemes like getting the buyer to make a partial payment initially and pay the rest at the time of possession.
Saturday, 20 June 2009
After basic fundamentals are taken into account, most markets (housing, stock,loans ) are driven by psychology. People buy things based on what others are buying. The media plays its role in shaping the opinion and perception about goods and services and common sense will tell you how people buy and sell based on news articles in the media. Many times people are stricken by fear and sell too early - For this see the Cramer video on how market makers plant stories and move stocks.
My theory is that the bad news trend is down. People yawn when yesterday's unemployment figures in the US were announced and the stock market moved higher, inspite of record unemployment.
What my little brain can infer is that the government is going to throw the kitchen sink at the problem and several articles have pointed to inflation to rise in the coming months. The US I-Bonds limit has been lowered to 5,000$ per person from 30000$. The government does not want to pay the CPI inflation for the bond since it thinks that is the what is on the horizon. Some people are forecasting US inflation at 5% in the coming years.
In India I see the government pumping money in by lowering rates and drawing out all the fence sitters to buy in the property market. However they will make loans very hard to get so the black component of the market will rise. I still don't see how we can justify 60L apts in remote areas or 1 cr apts in developed areas if only funded by loans.
There are other issues like timely delivery of apts, poor construction, cheating which are bigger issues in the apt buying process. Those have to be analyzed more closely and the only thing the buyer can do is to beware and go for ready possession clear titles properties.
I still see a big demand in people wanting housing, the only thing as we all know is the price is too high even after the 25% drops in most mid-segment housing prices.
Tuesday, 16 June 2009
Bloomberg reporting. I think this effect will be on India too as the Indian government begins a spending spree awarding contracts to Indian and foreign firms. Already there are indications of the F-16/F-18 deal with Raytheon and more will follow. The governments will try their best to spend themselves out of the recessionary spiral. More money will be printed and overall everyone will think they have more money, only that that money will buy less. The sixth pay commission is another example of spending. Instead of reiging in inflation, the government is printing more money which will make it less valuable. Elections cannot be won if people have less money which buy more things, but when people have more money which buy less things. In the latter case the government is seen as helping the citizens, and blaming the foreign governments including OPEC as the villians.
With reference to Indian housing I think this spells bad news. Prices drops will be stalled as money enters the system looking for value. Today I got an offer by ICICI bank which mentioned about a Chembur project for 5300 per sq/ft. Not sure what is the exact location previously these locations quoted 8k and above. Just shows that new projects are priced lower then existing ones. The floor is being set so it is time to look for deals. I'm officially abandoning my bearish position on projects which accept full white money. The theory being that banks in today's economy will not lend money if they think the house will lose value or the builder and borrower is not credit worthy. So projects accepting full white have to price themselves to perfection, else they will see no traction with the buyers. This is a time to hunt for value, if you have the down-payment, you can demand your price.
By Netty Ismail
June 16 (Bloomberg) -- 36 South Investment Managers Ltd., whose Black Swan Fund gained 234 percent in 2008, is raising money for a new hedge fund, betting that government efforts to pump money into economies could result in hyperinflation.
The Excelsior Fund targets returns that will be five times the average annual rate of inflation of the Group of Five economies -- France, Germany, Japan, the U.K. and the U.S. -- should the rate exceed 5 percent, Jerry Haworth, co-founder of the firm, said yesterday. Raising $100 million for the fund would be a “good” amount, he said.
“There is a sharply increased risk of greater than 5 percent inflation starting from now,” Haworth said in a telephone interview from London. “We are in the lag period between when the seeds of inflation are sown and when their off- spring, that is higher prices, are evident for all to see.”
U.S. President Barack Obama is selling record amounts of debt to try to end the steepest U.S. recession in 50 years, while Japanese Prime Minister Taro Aso has unveiled three stimulus packages worth 25 trillion yen ($261 billion) since taking office in September. Governments around the world selling record amounts of debt may devalue currencies against assets and spark inflation.
Most investors are underestimating the risk of inflation, Haworth said. Consumer prices in the U.S., the world’s largest economy, are set to rise 1.7 percent next year, following a 0.6 percent decline this year, according to the median of 70 economists surveyed by Bloomberg.
Inflation Risk
“There is certainly talk about inflation but people might think of inflation at 5 percent or 6 percent,” Zimbabwean-born Haworth said. “We’re talking 5, 10, 15, 20 percent or more.”
Investor Marc Faber said on May 27 he was “100 percent sure” that U.S. prices may increase at rates “close to” Zimbabwe’s gains, and the U.S. economy will enter “hyperinflation” because the Federal Reserve will be reluctant to raise interest rates. Zimbabwe’s inflation rate reached 231 million percent in July, the last annual rate published by the statistics office.
Universa Investments LP, the hedge-fund firm advised by “Black Swan” author Nassim Taleb, is also adding a strategy betting that stimulus efforts won’t prevent deflation or could result in hyperinflation.
Inflation will likely be “very low” through 2010, said Alvin Liew, an economist at Standard Chartered Plc in Singapore. There will only be “a risk of very high inflation” starting in 2011 if governments fail to rein in “those excesses that they did to stimulate the economy in the near future,” he said.
“For now, I will be more concerned about how sustainable the growth recovery path is,” Liew said. “When we move into the later part of 2010, investors should pay more attention to inflation.”
Options
36 South’s Excelsior Fund will buy long-dated options it considers cheap and that “stand a good chance of outperforming in an inflationary environment,” Haworth said. Options are contracts to buy or sell a security by a certain date at a specific price.
The fund will wager on an increase in commodity and equity prices, bond yields and increased currency volatility.
“It’s a very high-risk, high-return fund,” said Haworth, who has been trading derivatives for more than 20 years as the former head of equity derivatives at Johannesburg-based Investec Ltd., and co-founder of Peregrine Holdings Ltd., a South African money manager and stockbroker.
The firm will be marketing the fund in the next three months.
36 South has closed its Black Swan Fund, which bet on risk- aversion events, and returned the money to investors after profiting from last year’s global markets rout.
Returns on the inflation fund “could be even higher than the Black Swan Fund though the likelihood is smaller as options are more expensive than they were when the Black Swan positions were bought,” Haworth said.
By Netty Ismail
June 16 (Bloomberg) -- 36 South Investment Managers Ltd., whose Black Swan Fund gained 234 percent in 2008, is raising money for a new hedge fund, betting that government efforts to pump money into economies could result in hyperinflation.
The Excelsior Fund targets returns that will be five times the average annual rate of inflation of the Group of Five economies -- France, Germany, Japan, the U.K. and the U.S. -- should the rate exceed 5 percent, Jerry Haworth, co-founder of the firm, said yesterday. Raising $100 million for the fund would be a “good” amount, he said.
“There is a sharply increased risk of greater than 5 percent inflation starting from now,” Haworth said in a telephone interview from London. “We are in the lag period between when the seeds of inflation are sown and when their off- spring, that is higher prices, are evident for all to see.”
U.S. President Barack Obama is selling record amounts of debt to try to end the steepest U.S. recession in 50 years, while Japanese Prime Minister Taro Aso has unveiled three stimulus packages worth 25 trillion yen ($261 billion) since taking office in September. Governments around the world selling record amounts of debt may devalue currencies against assets and spark inflation.
Most investors are underestimating the risk of inflation, Haworth said. Consumer prices in the U.S., the world’s largest economy, are set to rise 1.7 percent next year, following a 0.6 percent decline this year, according to the median of 70 economists surveyed by Bloomberg.
Inflation Risk
“There is certainly talk about inflation but people might think of inflation at 5 percent or 6 percent,” Zimbabwean-born Haworth said. “We’re talking 5, 10, 15, 20 percent or more.”
Investor Marc Faber said on May 27 he was “100 percent sure” that U.S. prices may increase at rates “close to” Zimbabwe’s gains, and the U.S. economy will enter “hyperinflation” because the Federal Reserve will be reluctant to raise interest rates. Zimbabwe’s inflation rate reached 231 million percent in July, the last annual rate published by the statistics office.
Universa Investments LP, the hedge-fund firm advised by “Black Swan” author Nassim Taleb, is also adding a strategy betting that stimulus efforts won’t prevent deflation or could result in hyperinflation.
Inflation will likely be “very low” through 2010, said Alvin Liew, an economist at Standard Chartered Plc in Singapore. There will only be “a risk of very high inflation” starting in 2011 if governments fail to rein in “those excesses that they did to stimulate the economy in the near future,” he said.
“For now, I will be more concerned about how sustainable the growth recovery path is,” Liew said. “When we move into the later part of 2010, investors should pay more attention to inflation.”
Options
36 South’s Excelsior Fund will buy long-dated options it considers cheap and that “stand a good chance of outperforming in an inflationary environment,” Haworth said. Options are contracts to buy or sell a security by a certain date at a specific price.
The fund will wager on an increase in commodity and equity prices, bond yields and increased currency volatility.
“It’s a very high-risk, high-return fund,” said Haworth, who has been trading derivatives for more than 20 years as the former head of equity derivatives at Johannesburg-based Investec Ltd., and co-founder of Peregrine Holdings Ltd., a South African money manager and stockbroker.
The firm will be marketing the fund in the next three months.
36 South has closed its Black Swan Fund, which bet on risk- aversion events, and returned the money to investors after profiting from last year’s global markets rout.
Returns on the inflation fund “could be even higher than the Black Swan Fund though the likelihood is smaller as options are more expensive than they were when the Black Swan positions were bought,” Haworth said.
Monday, 15 June 2009
It appears that the government is on an appeasement drive to help the builders. Loan based properties will soon see spikes in sales as these changes take effect. Still the impact will be almost zero on highly priced properties which are not served by the loan market specially Mumbai. For that you need 3/4 of your income to be generated by evading taxes. It is then possible to own in Mumbai. I think this move and the lowering of rates to the vicinity of 9% will drive a bunch of people to make purchases. I'm not turning bullish here but I think for the prospective buyer, doing some research locally is probably not a bad thing. You can always choose to back out of the final purchase but some research is definitely warranted. There was another article I read which mentioned that the 6th pay commission has raised government salaries of unskilled workers to 9500. With such rapid inflation, Rs 1000 will not hold much value any longer. Government jobs didn't pay much and everyone flocked to the private industry. Now the scales have been tipped and government jobs everywhere (US or India) will again be coveted with envy. We are seeing a complete reversal of trend unfolding before our eyes.
NEW DELHI:
The government is considering a proposal to hike income-tax exemption available for interest payment on home loans to Rs 2.5 lakh a Home Loan
Tax benefits on home loan year, to boost demand and rebuild the slowdown-hit housing industry.
The ministry of housing and urban development has urged finance minister Pranab Mukherjee to make an announcement to this effect as part of his Budget presentation in early July, a government official said on condition of anonymity.
At present, taxpayers taking housing loans are eligible for income-tax exemption on interest payment of up to Rs 1.5 lakh every year. Besides this, the repayment of principal amount is part of investments eligible for benefit under Section 80(C) of the Income-Tax Act, which has a ceiling of Rs 1 lakh.
The government has already identified housing as one of its focus areas, a fact highlighted by President Pratibha Patil in her address to both the houses of Parliament.
The existing tax exemption limit is considered inadequate at a time when a two-bedroom house in big cities costs at least Rs 25 lakh.
Considering a person takes a loan of Rs 20 lakh at an interest rate of 9.5%, he would pay Rs 1,88,493 towards interest alone in the first year. His annual interest payment in the first five years would be more than Rs 1.5 lakh.
If the exemption limit is hiked to Rs 2.5 lakh, then a person paying that much home loan interest in a year will save an additional Rs 31,000 in tax every year. This saving of over Rs 2,500 a month would be significant for most borrowers, making home purchases more affordable.
However, as per existing norms, the tax benefits start flowing in only after the construction of the house is completed, which usually takes 2-3 years in case of builder flats.
The housing industry has urged the government to allow for the deduction as soon as loan repayment starts, as it would give substantial relief to home buyers and boost demand.
The Budget documents do not provide an estimate of the revenue forgone on account of this exemption, but it is unlikely to be very significant.
Of the total Rs 38,107-crore tax revenue forgone on account of tax exemptions to individuals in 2007-08, nearly Rs 30,000 crore is on account of Section 80C benefit, one component of which is principal repayment on housing loan.
The housing sector in the country has been hit hard by demand slowdown, following a rise in interest rates. Besides lowering of home loan interest rates, the industry has been continuously pitching for greater tax benefit, as it had the potential of stimulating demand.
NEW DELHI:
The government is considering a proposal to hike income-tax exemption available for interest payment on home loans to Rs 2.5 lakh a Home Loan
Tax benefits on home loan year, to boost demand and rebuild the slowdown-hit housing industry.
The ministry of housing and urban development has urged finance minister Pranab Mukherjee to make an announcement to this effect as part of his Budget presentation in early July, a government official said on condition of anonymity.
At present, taxpayers taking housing loans are eligible for income-tax exemption on interest payment of up to Rs 1.5 lakh every year. Besides this, the repayment of principal amount is part of investments eligible for benefit under Section 80(C) of the Income-Tax Act, which has a ceiling of Rs 1 lakh.
The government has already identified housing as one of its focus areas, a fact highlighted by President Pratibha Patil in her address to both the houses of Parliament.
The existing tax exemption limit is considered inadequate at a time when a two-bedroom house in big cities costs at least Rs 25 lakh.
Considering a person takes a loan of Rs 20 lakh at an interest rate of 9.5%, he would pay Rs 1,88,493 towards interest alone in the first year. His annual interest payment in the first five years would be more than Rs 1.5 lakh.
If the exemption limit is hiked to Rs 2.5 lakh, then a person paying that much home loan interest in a year will save an additional Rs 31,000 in tax every year. This saving of over Rs 2,500 a month would be significant for most borrowers, making home purchases more affordable.
However, as per existing norms, the tax benefits start flowing in only after the construction of the house is completed, which usually takes 2-3 years in case of builder flats.
The housing industry has urged the government to allow for the deduction as soon as loan repayment starts, as it would give substantial relief to home buyers and boost demand.
The Budget documents do not provide an estimate of the revenue forgone on account of this exemption, but it is unlikely to be very significant.
Of the total Rs 38,107-crore tax revenue forgone on account of tax exemptions to individuals in 2007-08, nearly Rs 30,000 crore is on account of Section 80C benefit, one component of which is principal repayment on housing loan.
The housing sector in the country has been hit hard by demand slowdown, following a rise in interest rates. Besides lowering of home loan interest rates, the industry has been continuously pitching for greater tax benefit, as it had the potential of stimulating demand.
Sunday, 14 June 2009
HDFC says that the multiple that operates for housing in a Mumbai suburb is between 4.5 and 5.25 times annual salary. If 85-90 per cent of the cost of a flat is taken as a loan, and a 15-year loan has a monthly repayment instalment that is 1 per cent of the loan amount, then simple arithmetic tells us that 40 per cent of income is needed to pay back the loan.
Now, the average (or median) Indian family earned about Rs 1.31 lakh last year, or Rs 11,000 a month. Can it afford to pay Rs 4,400 every month on a housing loan, for a modest one-bedroom flat that costs Rs 6.5 lakh? Probably not. But if it could, or if it had a little more income, would it get a flat for Rs 6.5 lakh? Not in the big cities. The Delhi Development Authority, which is not known for quality work, sells a one-bedroom flat (450 sq ft) for Rs 8-10 lakh; the open market rates are at least twice as high. So it is easy to see why most middle-class Indians see home ownership as a distant dream.
But hold it; flats are now being offered for Rs 4 lakh by Tata Housing (covering 280 square feet, which may mean a room plus kitchen). A 450-square foot (one-bedroom) flat would cost the magical sum of Rs 6-7 lakh. Jerry Rao, the banker-turned-IT entrepreneur-turned-housing evangelist, has set up a housing company that will offer flats for Rs 7 lakh—with construction cost in the region of Rs 700 per square foot. These entrepreneurs seem to be dropping the total cost from Rs 2,000 per square foot to Rs 1,500. If they are successful, others are bound to follow their lead. And housing might then become affordable for the average Indian, if not quite the aam aadmi that the politician has in mind.
The big real estate companies, which have been focusing on housing that costs Rs 4,000-6,000 per square foot and more, have seen the light—in part because they have found no takers in today’s real estate slump. So they have slashed prices, in some cases by a half, and have been rewarded with a rush of buyers. The problem in India is that much of the cost of the roof over your head is on account of the land beneath your feet—which has been kept hopelessly expensive by the politician-builder nexus. This has prevented more land from coming into the housing market, which is why upscale flats in Delhi and Mumbai rival the costs of those in Manhattan (where the typical flat costs Rs 6 crore). If more land were thrown into the market, home ownership would not remain a dream for the majority, it would become reality.
Saturday, 13 June 2009
This is about how one media group can manipulate the "news" and its content to make money and control the public opinion for its profitability. This is about Bennett, Coleman & Co (TOI Group) which owns media assets like ToI,ET(across all cities),regional newspapaers and TimesNow TV.They have something called "Times Private Treaty" which invests in emerging enterprises and small & midcap companies just like a VC. But its slightly different with Times Private Treaty(TPT) where in TPT will get equity for its media coverage (whatever TPT pays, gets back for media treatment).Investee companies will get special coverage,increased exposure and mouth piece service. We dont know much about the very details of the agreement between TPT and investee companies.
Details:
India’s largest new company, Bennet, Coleman & Co. Ltd., (BCCL) has signed Times Private Treaties with over 200 companies in the past 3 years.
What is TPT?
TPT identifies growth rich but Advertisement shy comapnies (???!!) and gives them media space in BCCL platforms. In return, they get a share in Equity. Expected value of these TPT’s - Rs.1,700 Cr- Rs.3,000 Cr.
http://www.timesprivatetreaties.com/portfolio/list-as-per-industry.html
Why TPT?
BCCL believes that Indian market is commodity driven, not Brand driven. Only 14,000 brands are actively advertising in India. But in US there are 8 lakh active brands. Hence there is a future for brands.
Who is following?
HT Media, NDTV, Dainik Bhaskar, Dainik Jagran, Mid Day.
Conflict: Editorial lenience to TPT companies.
We could see the list (portfolio) of compnaies earlier in their website( which has been removed. I list the companies later from my memory. I noticed about these investments in 2003 and impressed by the idea(didn't know details) of Jain family but what happened latter is big let down for the indian public. There are no goverment controls at present but we expect a little ethics, social values, moral control and culture for media group with such long tradition.
List of companies from Mint
http://www.livemint.com/2008/01/14234923/F7C03521-A4FD-40D1-B769-A38A8D7DE369ArtVPF.pdf
I remember the list of companies as Sobha Builders, Rajesh Exports,Pyramid Saimira, JetKing, Peninsula and many more realty players.I guess we should stop reading newspapers like these which actually doesn't add any knowledge but only noise.
Here are the links for more understanding;
http://ajayshahblog.blogspot.com/2008/01/murky-ethics-on-part-of-media-and-firms.html
You can find many more links in Ajay's Blog.
http://www.business-standard.com/india/news/bennett-colemans-private-treaties-business-sees-sharp-value-erosion/357692/
http://www.dnaindia.com/money/report_private-treaties-a-public-and-investor-menace_1254804
http://www.livemint.com/2008/01/14234923/Should-private-treaties-be-mad.html
http://www.suchetadalal.com/?id=cc8c67c4-6674-207a-4947b1bb96dc&base=sections&f&t=CURRENT+ACCOUNT+(MoneyLIFE+Issue%2C+1st+Jan+09)
http://www.suchetadalal.com/?id=ee33e5a1-2d4b-8231-4a24f507414e&base=sections&f&t=Pyramid+Saimira%3A+Weak+Follow+Up
http://www.suchetadalal.com/?id=2f109f06-d1bf-afca-4a0176e5b38e&base=sections&f&t=Ring+of+Thieves
http://www.vccircle.com/500/content/bccl-picks-up-652-per-cent-in-sujana-industries-hats-off-to-times-private-treaty
I would like to get the views of our readers. I am sure many of you already knew but its good for those who still believe whatever newspapers say is truth and newspapers are run by the people who care very much about this poor country and its people.
Details:
India’s largest new company, Bennet, Coleman & Co. Ltd., (BCCL) has signed Times Private Treaties with over 200 companies in the past 3 years.
What is TPT?
TPT identifies growth rich but Advertisement shy comapnies (???!!) and gives them media space in BCCL platforms. In return, they get a share in Equity. Expected value of these TPT’s - Rs.1,700 Cr- Rs.3,000 Cr.
http://www.timesprivatetreaties.com/portfolio/list-as-per-industry.html
Why TPT?
BCCL believes that Indian market is commodity driven, not Brand driven. Only 14,000 brands are actively advertising in India. But in US there are 8 lakh active brands. Hence there is a future for brands.
Who is following?
HT Media, NDTV, Dainik Bhaskar, Dainik Jagran, Mid Day.
Conflict: Editorial lenience to TPT companies.
We could see the list (portfolio) of compnaies earlier in their website( which has been removed. I list the companies later from my memory. I noticed about these investments in 2003 and impressed by the idea(didn't know details) of Jain family but what happened latter is big let down for the indian public. There are no goverment controls at present but we expect a little ethics, social values, moral control and culture for media group with such long tradition.
List of companies from Mint
http://www.livemint.com/2008/01/14234923/F7C03521-A4FD-40D1-B769-A38A8D7DE369ArtVPF.pdf
I remember the list of companies as Sobha Builders, Rajesh Exports,Pyramid Saimira, JetKing, Peninsula and many more realty players.I guess we should stop reading newspapers like these which actually doesn't add any knowledge but only noise.
Here are the links for more understanding;
http://ajayshahblog.blogspot.com/2008/01/murky-ethics-on-part-of-media-and-firms.html
You can find many more links in Ajay's Blog.
http://www.business-standard.com/india/news/bennett-colemans-private-treaties-business-sees-sharp-value-erosion/357692/
http://www.dnaindia.com/money/report_private-treaties-a-public-and-investor-menace_1254804
http://www.livemint.com/2008/01/14234923/Should-private-treaties-be-mad.html
http://www.suchetadalal.com/?id=cc8c67c4-6674-207a-4947b1bb96dc&base=sections&f&t=CURRENT+ACCOUNT+(MoneyLIFE+Issue%2C+1st+Jan+09)
http://www.suchetadalal.com/?id=ee33e5a1-2d4b-8231-4a24f507414e&base=sections&f&t=Pyramid+Saimira%3A+Weak+Follow+Up
http://www.suchetadalal.com/?id=2f109f06-d1bf-afca-4a0176e5b38e&base=sections&f&t=Ring+of+Thieves
http://www.vccircle.com/500/content/bccl-picks-up-652-per-cent-in-sujana-industries-hats-off-to-times-private-treaty
I would like to get the views of our readers. I am sure many of you already knew but its good for those who still believe whatever newspapers say is truth and newspapers are run by the people who care very much about this poor country and its people.
Thursday, 11 June 2009
From VCCircle.
Since the start of 2009, almost $ 2 bn has been called for by realtors via share sales.
India's real estate firms are seeking share sales to settle debt and meet working capital needs as valuations improve, but the funds won't be enough to salvage them if sales don't pick up, say industry watchers.
Since the start of 2009, almost $1.7 billion has been raised by home builders, according to Thomson Reuters data, while up to $2 billion more has been called for by realtors via share sales, especially qualified institutional placements (QIPs)."It is an over-leveraged market...the overall market is too huge. This (money) is nothing. It's small peanuts. It won't suffice," Pankaj Kapoor, founder of Liases Foras Real Estate Rating & Research, said.Realty firms piled up debt as they rushed to launch projects amidst a three-year bull run in the sector. But, sales began slumping in 2008 amid a global meltdown and reluctance among buyers at higher prices, leading to a severe cash crunch.Sentiment improved with the successful share sales by Indiabulls Real Estate, Unitech and India's largest listed real estate firm DLF, prompting more builders to seek board approval to raise money via share placements."They don't have an option," Shobhit Agarwal, Joint Managing Director, Capital Markets, Jones Lang LaSalle Meghraj, said, referring to QIPs. "If you go to private equity, which is the other extreme, this kind of size is not available.""They have no further capacity to raise debt... or to service that debt," he added.Outstanding bank loans to real estate firms rose to 623 billion rupees in FY08, up about 38 percent from a year earlier, the latest central bank data shows. Confederation of Real Estate Developer's Association of India (CREDAI) estimates that listed companies account for over half of those loans.DEMAND REVIVAL?Sales are trickling back as realtors focus on medium to low-priced houses, redesigning projects and cutting prices by as much as 40 percent in some markets, but most buyers appear to be flighty investors, suggesting that recovery may be months away.Residences account for the bulk of real estate up for sale and select projects across India are seeing a revival of demand, developers say.Equity analysts remain sceptical even about firms that were successful in raising money.Indiabulls Real Estate's share issue brought down promoter holding to about 16.7 percent said a Motilal Oswal June report, "however, till date no concrete plans on the usage of the QIP proceeds have been shared."Stock investors have pushed up the industry's market value but analysts don't think the rise can be sustained. India's realty index is up almost threefold from March.With most stocks trading at NAV (net asset value) premiums and equity dilution a likely overhang, we view risk/reward as unfavorable, Karishma Solanki, analyst at Citi said in a June report.India's property market pick-up is typically seen starting from Mumbai, then Delhi, followed by the southern markets, Jones Lang's Agarwal said.But, the future still rests on revival of demand and a further price correction to bring back fundamentals.The only thing that will bring back efficiencies into the (realty) market is sales," said Liases Foras' Kapoor. "For that prices have to come down, because until they come down, the buyer will not be motivated to come and purchase."
Monday, 8 June 2009
If you thought buy-one-get-one free offers were limited to trousers, shoes and other small-ticket items, think again. You could get houses too for free, thanks to Orange Properties, which came out with a ‘buy-one-flat-get-one-free’ offer recently for its Orange Resorts in Devanahalli, in Bangalore.
Sales didn’t quite skyrocket and the advertising campaign across print and outdoor met with mixed response, but given the current market conditions perhaps that’s understandable.
With real estate being struck badly in the slowdown, real estate developers, who were once riding a high, have now tightened advertising and marketing expenses. They have also had to think out of the box even while operating on leaner budgets. They have been forced to rework their marketing strategies to woo consumers at a time when the propensity to buy is not very high. Marketing initiatives may be fewer but they are becoming more focussed, specific and project-based, using direct and candid communication. And pricing is obviously the key premise around which the initiatives revolve.
Monday, 1 June 2009
Hi All,
This is my first post on this blog, after having spent a great time as a reader and commentor. I am feeling a sense of pride at being 'promoted'. (Thanks Vik :).
This post will discuss an issue dear to my heart and my wallet:
Being a landlord in Pune (the financial equation).
Firstly, some background info:
<start_info>
I own 3 flats in Pune in good areas which are rented out. All flats are 2 BHK, rented out to software professionals.
The rent : emi ratio for each flat is approx 1:2. This is because one flat was bought when the boom in Pune was just starting, and other two flats are part of a duplex bungalow constructed on a plot owned by the family.
The going rates in these areas are currently so high that a flat bought now (in June 2009) and given on rent will have a rent : emi ratio of approx 1 : 4.
</end_info>
The landlord is not buying a flat for her own consumption, but for investment purposes. But she does not want to sell it immediately and turn a quick profit, so she is not a speculative investor.
She is a long term investor who is also interested in the betterment of the society and the neighborhood so that rents can increase.
In this sense, she has the same concerns as a homeowner.
Increases in rent generally are linked to income and standard of living. So only when the overall economy improves, rents increase.
Rents go down quickly in recessions.
Also, people like to rent the cheapest house which will "just support their lifestyle", as compared to buying the best house which will "enhance their lifestyle".
All this leads to a question (for which I don't have any good answers).
When house price increases without a corresponding increase in house rent, this is a speculative price rise. Should the landlord be happy?
The argument for being happy is that the high price is due to a bubble, and all bubbles eventually burst.
So the landlord should sell the flat now, being happy that she has sold it for more than its financial worth. Then buy it at a reduced rate when the bubble bursts. This is not as easy as it sounds.
The argument for being unhappy is that you can no longer expand your renting business.
The basic financial principal behind renting is Positive Cash Flow. This means that the rent in hand should be greater than the emi + taxes + maintenance + downtime. If there is positive cash flow, the property becomes self sustaining and you can think of expanding your business (i.e. buying another flat and giving it on rent.)
But now in a bubble, positive cash flow is not achievable, so there is a limit on how much emi you can pay out of your other income (read: salary).
In today's real estate scenario in Pune, rent : emi ratio is usually 1:3 or 1:4. Investing in a rental property makes sense only when rent : emi ratio is 1:1.5 or lesser.
Builders are not reducing rates quoting construction costs, growth of the economy etc.
A person who wants to stay in his own home can disregard the financial equation and buy the flat for emotional reasons.
But can a rental investor disregard the financial equation?
If not, should she predict that property rates will fall at least 50% in Pune so that rent : emi ratio comes down to 1:1.5?
Or should she predict that rents will double in the next year, so that a 2BHK which on average rents for 10k will command a rent of 20k next year?
Even when my rental properties have been bought at prices 50% lesser than today's prices, still the rent : emi ratio is 1:2.
This leads to some interesting questions:
1. Does this mean that not only prices will fall to pre-boom levels, but go less than that due to recessionary fears of the consumer?
2. Does it mean that rents are less than reasonable and we can expect a 20% to 30% increase in rents? Even though as a landlord, I would love to see an increase in rent, I don't think that in this recessionary phase, increase in rents is a practical possibility.
3. The ratio will decrease if the interest rates come down to 7 - 8%, from current levels of 10 - 11%. Is this a possibility? As might be expected, the builder lobby is pushing banks and the govt hard for an interest rate decrease.
Thanks
Abeer Bagul
This is my first post on this blog, after having spent a great time as a reader and commentor. I am feeling a sense of pride at being 'promoted'. (Thanks Vik :).
This post will discuss an issue dear to my heart and my wallet:
Being a landlord in Pune (the financial equation).
Firstly, some background info:<start_info>
I own 3 flats in Pune in good areas which are rented out. All flats are 2 BHK, rented out to software professionals.
The rent : emi ratio for each flat is approx 1:2. This is because one flat was bought when the boom in Pune was just starting, and other two flats are part of a duplex bungalow constructed on a plot owned by the family.
The going rates in these areas are currently so high that a flat bought now (in June 2009) and given on rent will have a rent : emi ratio of approx 1 : 4.
</end_info>
The landlord is not buying a flat for her own consumption, but for investment purposes. But she does not want to sell it immediately and turn a quick profit, so she is not a speculative investor.
She is a long term investor who is also interested in the betterment of the society and the neighborhood so that rents can increase.
In this sense, she has the same concerns as a homeowner.
Increases in rent generally are linked to income and standard of living. So only when the overall economy improves, rents increase.
Rents go down quickly in recessions.
Also, people like to rent the cheapest house which will "just support their lifestyle", as compared to buying the best house which will "enhance their lifestyle".
All this leads to a question (for which I don't have any good answers).
When house price increases without a corresponding increase in house rent, this is a speculative price rise. Should the landlord be happy?
The argument for being happy is that the high price is due to a bubble, and all bubbles eventually burst.
So the landlord should sell the flat now, being happy that she has sold it for more than its financial worth. Then buy it at a reduced rate when the bubble bursts. This is not as easy as it sounds.
The argument for being unhappy is that you can no longer expand your renting business.
The basic financial principal behind renting is Positive Cash Flow. This means that the rent in hand should be greater than the emi + taxes + maintenance + downtime. If there is positive cash flow, the property becomes self sustaining and you can think of expanding your business (i.e. buying another flat and giving it on rent.)
But now in a bubble, positive cash flow is not achievable, so there is a limit on how much emi you can pay out of your other income (read: salary).
In today's real estate scenario in Pune, rent : emi ratio is usually 1:3 or 1:4. Investing in a rental property makes sense only when rent : emi ratio is 1:1.5 or lesser.
Builders are not reducing rates quoting construction costs, growth of the economy etc.
A person who wants to stay in his own home can disregard the financial equation and buy the flat for emotional reasons.
But can a rental investor disregard the financial equation?
If not, should she predict that property rates will fall at least 50% in Pune so that rent : emi ratio comes down to 1:1.5?
Or should she predict that rents will double in the next year, so that a 2BHK which on average rents for 10k will command a rent of 20k next year?
Even when my rental properties have been bought at prices 50% lesser than today's prices, still the rent : emi ratio is 1:2.
This leads to some interesting questions:
1. Does this mean that not only prices will fall to pre-boom levels, but go less than that due to recessionary fears of the consumer?
2. Does it mean that rents are less than reasonable and we can expect a 20% to 30% increase in rents? Even though as a landlord, I would love to see an increase in rent, I don't think that in this recessionary phase, increase in rents is a practical possibility.
3. The ratio will decrease if the interest rates come down to 7 - 8%, from current levels of 10 - 11%. Is this a possibility? As might be expected, the builder lobby is pushing banks and the govt hard for an interest rate decrease.
Thanks
Abeer Bagul
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