The big bank bailout?

Why property prices did not fall enough in 2008

The real estate industry may have run into fresh trouble. Having emerged fresh from a crisis that threatened to take a few companies belly up, the worst was perceived to be over for the industry. However, data that emerged from a recent Reserve Bank of India (RBI) document shows that just when the industry was in the throes of the downturn in 2008, banks stepped in to lend generously when they needed capital to survive, saving developers the trouble of cutting prices to stay afloat.

here’s the hard data: as per the RBI document, loans to the real estate industry grew as much as 41% last year even as loans to homebuyers grew about 5% in the same period, confirming the trend that demand for property was indeed down.
In fact, in the monetary policy review that the central bank came out with earlier this week, it made loans to the realty industry stricter and ordered banks to arrange for coverage should any of their loans default and get classified as non-performing assets (NPAs).

Chetan Ahya of Morgan Stanley says that the real estate industry got easy lending from banks, due to which they were able to hold back sales and not cut property prices too much. “The RBI governor, post the monetary policy, was clear the RBI would like to see more adjustment in the property sector on the pricing front and that there should not be aggressive price increases,” he said.

Developers, though, were not pleased and on the contrary said the RBI move could result in project delays and make property costlier or impact their margins.
“Property prices are a function of the market, supply and demand. Therefore it at all the hit has to be taken and the prices cannot be increased it would obviously impact the margin,” said Pujit Aggarwal, Managing Director of Orbit Developers.
With the RBI turning on the heat on real estate companies, what will the outcome be on the industry and property prices? Time will tell.

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Realtors make a cautious comeback

Flush with funds raised through QIPs and PE deals, builders are eager to cash in on the return of demand


The affordable housing concept too has pushed developers out of familiar territories. Unitech, which bought land nationally in the last five-six years, has launched projects in Lucknow, Mumbai, Kolkata, Chennai, Bhopal, Rewari and Mohali in the past six months, several under its affordable housing brand Uni Homes.

Even for its recently launched premium project in Worli, south Mumbai, Unitech slashed rates by at least 30%. In a pre-launch aimed at investors, it sold nearly 150 out of about 300 apartments in the project within a month, analysts said. Unitech is focusing on developing its existing land parcels, said R. Nagaraju, general manager, corporate planning and strategy. But the risk in expanding into other cities is in setting up a large team in each region to undertake the projects with enough freedom to operate, he said.

Bangalore-based Puravankara Projects Ltd plans to go pan-India through its affordable housing subsidiary Provident Housing Ltd. Encouraged by recent project launches in Chennai and Bangalore, it’s now aiming for Kochi, Hyderabad and Coimbatore.

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Murthy to be venture capitalist and I wonder why now

Economic Times reports that NRN Murthy has sold 180 crore of Infosys shares to start a VC firm in India which will invest in startups focussed on basic healthcare, education and nutrition.

The cynic in me says that this is a cooked up headline to justify the selling of Infosys shares which I believe is poised to plummet to depths not seen before.

There are two fallacies to this story propagated by NRN. Firstly the goal of VC is to generate returns in the excess of those which could be possible by the stock or bond markets, at the expense of taking a higher risk then normal. Any Silicon Valley VC will tell you that 99% of all startups fail but the 1% which succeed generate 1000% returns to compensate for all the failures. In the period 1999-2009 a VC study showed that more funds went bust then which made a profit for their investors.

Now given the risk profile for a VC, is NRN trying to become a silicon valley type VC or is he trying to become a "philanthropic venture capitalist". These three words are put together sound more ironic then "Sweet Tata Namak". The goals of each of these professions is different and do not intersect even on elliptical curve on a infinite plane.

Is NRN trying to downplay the share sales since he doesn't want investors to think that an insider is bailing out without attracting attention. As an investment decision NRN has made the right decision by slowly selling all his shares and hopefully diversifying his assets into index funds. As per the article he has now jus 0.4% shares of Infosys remaining so that speaks about the confidence he has in the company he has founded.

There was an article in Reuters the other day which spoke about how Accenture, HP and IBM consulting services have expanded in India to cut their overheads and now each employ more then three quarters of the workforce of Infosys or Wipro or TCS. Infosys trades at 20 times forward earnings versus 14 for IBM and similar disparities exist for Wipro and TCS. What more opportune time to sell the stock then when the Indian market has hit its cyclical bear market high!!

Good job NRN but sorry that you cannot pull the wool over our eyes. Full article here

BANGALORE: One of India's most successful entrepreneurs is turning into a venture capitalist (VC). Infosys Technologies' co-founder and chief mentor N R Narayana Murthy, on Thursday, sold shares worth Rs 180 crore to start a venture capital firm that would fund start-ups mainly in India. The idea is to encourage young entrepreneurs with brilliant ideas. The VC will invest in start-ups operating in the areas of basic healthcare, education and nutrition.

In a reversal of roles, in deciding to become a VC, Murthy is following in the footsteps of his daughter Akshata who was until recently a VC based out of Bay Area in Silicon Valley operating in the clean tech space. Until her marriage to Rishi Sunak in August, she was a senior associate at Siderian Ventures.

Murthy on Wednesday and Thursday sold a combined eight lakh shares of Infy to raise money to fund VC firm. The number of shares owned by him in the company now stands reduced to 23.8 lakh valued at Rs 526 crore at Thursday's closing price of Rs 2,211. The Murthy family's combined holding is around 5% with his wife Sudha owning the largest chunk. Murthy's individual holding in Infy which has been less than 1% for a while now stands reduced to 0.4%.

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Happy Diwali and the bear

I hope everyone is having a Shubh Deepawali with their family and friends and may Godness Laxmi smile on everyone with wealth and prosperity in the time to come.

However if you are Rakesh Jhunjunwala the way to earning your bounty is to go short on the Indian stock market. He is on the record now saying that Indian markets will crash. So if the big bull is now a big bad bear, no points for guess whether he is long or short on the. Like they say Bulls make money, bears make money, pigs get slaughtered. If the market tanks this week, it will be fantastic time to go short on the market.

In Samvat 2066 it appears the path to Laxmi Road is via Bear Street. Here is the rediff article

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Wake up Mumbai

Taking a cue from his wife Sagarika, Rajdeep seems to have woken up to the reality of the India. Im my opinion I have observed that he has sugar coated his words when speaking or intervewing policticans on televsion but here he is direct and at his eloquent best.

As the megapolis one grew up in, there is an obvious emotional attachment to Mumbai. Which is why, at a studio discussion this week, when a panelist referred to the maximum city registering minimum voting as a sign of Mumbai's "resident non-Indian" mentality, I felt a little aggrieved.

Surely, a city with the energy and enterprise of Mumbai, a city which literally never sleeps, cannot be seen through such a cynical worldview.
And yet, as voting day for the Maharashtra assembly elections wore on, it became increasingly apparent that Mumbai was struggling to pass Pappu's electoral test.


Maybe, it's the same mindset which has chosen to watch the city being reduced to a giant slum by a political class which sees slum-dwellers as one large vote bank and little else.

Perhaps, that is also why year after depressing year, the city routinely goes under water in the monsoons.

It might also explain why no one has been able to challenge the builder-babu-neta nexus which has allowed the mangroves and green areas to be concretized.

You commute for eons in a creaking railway system, flyovers don't get built on time, a sealink takes years to come up, no additional power is generated for a decade, old, dilapidated buildings remain hostage to antiquated laws: nothing seems to change, and worse, no one seems to care enough to force change.

Take a look at the morning papers in Mumbai and you get a sense of just how much the city lives in a bubble of its own.

In no other city has page three merged as effortlessly into page one as in Mumbai. Shah Rukh's trousseau, Salman's antics, Priyanka's twittering, the city seems to have magnified all things trivial and made Bollywood its ultimate temple of worship. Read more

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Rich behaving poorly

Sagarika Ghose seems to have hit the nail right on the head. When we see the likes of Bindas Bhai and others gloating over their riches when the average Indian is trying to make ends meet, it reminds me of Marie Antonette who said "If you don't have bread, eat cake". The liberalization of India has attracted legitimate capital as well as shady money. It is this shady money which is fuelling all the demand for real estate. Last January, at the mere mention of the abolition of P-Notes, the market crashed 20% from 21k to 17k. The money moving in Indian stock market is highly speculative leverage capital and part of those profits are ploughed back into Mumbai real estate. Folks who make money should be careful in how they invest it. We have seen how the mighty have fallen. I know of folks working on Wall Street earing $500k + bonus and those folks cannot find a job paying them 1/5 of their salary. Indian housing bubble is a subset of the Indian money supply bubble and both will unwind viciously when it become unsustainable. Manmohan, Montek and company are doing little to curb its appeal. They act like ostriches when the wolves are out in full play. The real money has to spent in building infrastructure, agriculture and basic necessities. The Naxals are not reading Sagarika's blog before striking back. They are rising against the unfair trade practices. If the poor don't become a participant in India's growth, the rich wont be able to enjoy their riches for long. Her blog is below.

Two seemingly unconnected events point to our most urgent contemporary dilemma: how should the rich behave in a country of the poor? Just a week after Corporate Affairs minister Salman Khurshid asked CEOs not to take "vulgar" salaries, Naxals beheaded police officer Francis Induvar in Jharkhand and as many as 200 Naxals attacked a police station in Gadchiroli. Four Indian CEOs recently made it to the Forbes list of 10 wealthiest CEOs in the world, yet almost half of India lives on less than a dollar a day. Today, many rich Indians are indeed vulgar and arrogant, and the poor are no longer content in their 'god given' lowliness and have taken up the gun. India and Bharat are on a collision course as never before. The government's response of a crackdown on Naxals is only a treatment of the symptom rather than the disease. If Naxalism is defined as a violent response against perceived inequality, then its not just occurring in the Red Corridor. There are versions of it going on all over India. Read more at IBNlive.com

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More scams by Mumbai builders

Just when we thought that we are aware of most the scams run by the builders, here is one more to be aware of. Not that I am a buyer at these prices, however it is something to consider before making any purchase

Builders hike transfer fee to cover up for lean phase

MUMBAI: With property prices in parts of Mumbai having stabilised, some developers who had sold properties during the slowdown are now charging
an exorbitant amount as transfer fee. Transfer fee is a one-time payment made to the residential co-operative society when there is a case of transfer of ownership. In cases where the society is not registered, which often is the result of owners not in possession of occupation certificates, this fee is charged by the developer. Though a ceiling of Rs 25,000 has been fixed by the registrar of co-operative societies, local developers have been charging as much as 10% of the total price. Vipin Patel, a property broker in central Mumbai’s Parel area, said: “In a well-known residential complex in the area, the per square foot price is Rs 19,000, with an additional Rs 2,500 per square foot as transfer fee. Transfer fee is charged by all developers and in most cases, the buyer pays for it.” The range in the area starts off at Rs 1,000 per sq ft and is as much as Rs 3,000. This is for apartments priced at Rs 15,000 to Rs 22,000 per sq ft. “Several developers had to sell apartments at rates much lower than what was prevailing between the end of last year and the middle of this year. The transfer fee is an indirect way to make up for past losses,” said a high net worth individual. In one particular case in Lower Parel, apartments were sold at prices as low as Rs 11,000 per sq ft to some HNIs. Today, with prices having increased to Rs 14,000 per sq ft, some of the investors are planning to sell their apartments. Here, the developer is asking for a transfer fee of Rs 1,000 per sq ft. Builders, for their part, said transfer fee taken from the buyer and seller is clearly accounted for. “An account is maintained for the transfer fee taken and the money is returned to the society committee once formalities relating to registration are taken care of,” said a prominent developer in central Mumbai. The society can be registered only when 60% of the flats are sold. Vinod Sampat, a property lawyer, said: “There is a lack of transparency as far as developers collecting the transfer fee is concerned and this is a way of extortion.” Mr Sampat has approached the Maharashtra state government against the practice of transfer fee. “The transfer fee is also charged by the existing co-operative societies but it is not as high as what buyers pay in new buildings,” said R Singh, another broker dealing in Worli properties.

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AP and Karnataka Flood relief

While we can endlessly debate the pros and cons of buying real estate and blame the politician-builder nexus and black money on the irrationally high value of real estate in Mumbai and metro cities, I think it is time to pay attention to the calamity which has unfolded in AP and Karnataka. These areas went from having a deficit of 60% in the annual rainfull to a surplus of 100%. The images on the temple town of Mantralayam in AP, the samadhi of Sri Raghavendra Swamy are surreal. I hope there are some readers which can spare a thought for the millions of Indian's which have been rendered homeless due ot these floods. Katrina looks like puddle when compared to the bay of bengal which seem to have descended on land-locked interior AP and Karnataka. The Kanrataka CM has a relief fund and so does AP. Please contribute generously and banish the thought of mis-appropiration of these funds. We all know about how corrupt the process is when buying real estate. Here it is a drop in the ocean(pun intended). I've already done my part, now it is your turn.

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Real Estate takes a look at how far is the reality of affordable housing in India?

Watch video on Youtube

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Home buyers unite!

This is a new Yahoo Group started to serve as a platform for people who want to buy their home but not be indebted to the bank for the rest of their life!!!

Email from Mr. Nitin Degaonkar attached:
-------------------------------------------

Home Buyers Association of Pune (HBAP) shall work to serve and protect the interests of house buyers . Builders are very strongly organized and their association is a strong body which lobies well with Government Authorities. Unfortunately house buyers is such a scattered lot and so illinformed that one has to depend on information available in some news paper articles or the internet. HBAP can be helpful for the buyers to know first hand information about various aspects of buying house, builder' reputation, loan related matters. It can also work for ensuring that there is no artifically raised property prices with any possible cartelization.

Those who are interested may please join this movement. Link - http://groups.yahoo.com/group/hbap/

There are many people keen to buy houses and there are many beneifits of doing such things collectively. House buyers association can take up / address issuses / concerns of buyers and help people on a larger scale.

Regards,
Nitin Degaonkar

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NASSCOM Chief sees US Visa limits as 'business killer'

I know this topic does not pertain to Indian housing however the sheer mornic arguments made by Som Mittal makes me wonder whether he is cocooned 20000 ft below the Indian Ocean and expects US Congressmen and Senators believe asnine press releases.

What Som Mittal doesn't say is that Indian offshore providers want to ship in cheap Indian engineers while billing the end customer market rates. The onsite wage arbitrage was exploited by Infosys/TCS/Wipro who shipped thousands of engineers on H-1B and L1-B visa to the US until Mr Grassley and Mr Durbin stepped in and put a brake to these unfair trade practices.

I'm not sure how Mr Som Mittal can explain a shortage of US trained IT workers when there is unemployment leves at 10%+ with underemployment at 15% levels. How can American competitiveness improve by issuing Visa when local work-force is unemployed ?

These press releases show that Nascomm is nothing more then shill for Indian IT companies and does not care about work-force whether Indian or American. They will exploit Indian engineers by paying them below market wages and thereby drive American workers out of their choses professions. The only ones to benefit are the owners and top management of these companies and the politcians in India who they suck up to, to get free land, tax-exempt SEZ's and other benefits.

WASHINGTON: The head of an Indian trade group fears proposals in US Congress to limit visas for foreign high-tech workers would be a "business killer" for India's burgeoning information technology industry and would not reduce US unemployment.

Som Mittal, president of India's National Association of Software and Service Cos (NASSCOM), was concerned that pending legislation would sharply restrict the hiring of foreign workers by domestic and overseas companies operating in the US, harming rather than helping the US economy.

Two senators, Democrat Richard J Durbin and Republican Charles E Grassley have proposed legislation that would prevent any large company from hiring more foreign high-tech workers if more than half its work force already consists of visa-holding foreigners.

"It's a business killer for us," Mittal said, adding that such a move could harm US competitiveness and was not needed anyway because there are not enough Americans to fill the high-tech jobs.

The Grassley-Durbin visa reform bill was first introduced in 2007. Congress is preoccupied with health care and climate change legislation, but Mittal said he fears that elements of the visa bill could be incorporated in immigration legislation that Congress is expected to take up next year.

US technology giants argue that they need more, not fewer, foreign workers to tackle highly technical jobs.

"Sixty percent of all technology PhDs are foreign nationals," Mittal said. "[The visa requirement] could be detrimental to the US economy. You do want to retain the best and brightest."

The industry also needs the ability to make rapid changes to its work force in response to demand or new product development, he told a newspaper.

Launching a new product in the United States requires the temporary infusion of technicians from the country where the product was developed, he said.

It's no different, he said, when a company such as General Electric is building power systems in India - the company will need to temporarily assign a substantial number of US technicians to India.

The Indian information technology sector - with export revenues of $47 billion - includes the software, design and back-office outsourcing industries. It is critical to US technology and financial services companies, Mittal said.

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