New Chennai beckons buyers

Maraimalai Nagar on GST is finally realizing its true potential is providing a higher quality of living for Chennai residents. Land is cheap for now in this area which extends upto Mahindra World City and should provide early bird buyers a good entry point for the foreseeable future. Connectivity is good via the GST road and Southern Railways. If I were to place a bet on any semi-urban suburb in India, this would be it. All the development in this area reminds of me Aundh in Pune in the late 90's, or some areas of Bannerghatta road in Bangalore in the early 2000's. A 2400 sq ft plot can be bought for under 15L. Adding another 10L for construction one can construct a very good quality independent house. Just as the development by big bulilders in Bangalore propped up the infrastructure in semi-developed areas, one can easily expect the same to happen in Chennai.

Hindu has an article on Maraimalai Nagar and when the media starts picking up stories like this, it appears that the time has come for this area to become one of the most talked up places in Chennai. Investors and end-users should closely evaluate this destination if they have a time horizon of 3-5 years and beyond. In my opinion plot prices could easily double in the next 5 years.

Here is the Hindu article

India’s Economy Grows 8.6%, Adding Pressure on Rates

As the economy grew by 8.6%, can the FM please mention the growth of black money, a primary cause of the housing bubble. It should be apparent to everybody that growth of the economy should translate to higher profits for all stakeholders including those in the government who are involved in the approval process. All this underhand money props the value of land and apartments thereby pricing out the common man. India is entering an era which the Japanese became very familiar with in the 90's. India is prosperous but Indian's are not. India has 8.6% growth but Maoists are blowing up trains and killing their own countrymen. It just appears that the Maoists don't think they belong to an country called India, and why would they. They have been neglected all thru the 60 years of independence and now the mining mafia is out uproot them of their own land. There couldn't be a better movie then Avatar to illustrate the plight of the Maoists indigenous people and most probably the Maoists wouldn't even know that someone made a few billion dollars of their cause.

Interestingly we now have Jones Meghraj and others from the real estate business who are saying that the Lodha's deal in Wadala is unsustainable. A case of the pot calling the kettle black. Nobody likes their territory infringed upon and it appears that Lodha's have entered Wadala causing grief to the existing projects., some of which could belong to their clients.

May 31 (Bloomberg) -- India’s economic growth accelerated, adding pressure on the central bank to raise interest rates even as Europe’s sovereign-debt crunch threatens the global recovery.

Gross domestic product rose 8.6 percent in the three months ended March 31 from a year earlier after a revised 6.5 percent gain in the previous quarter, the statistics office said in a statement in New Delhi today. That matched the median estimate in a Bloomberg News survey of 22 economists.

India and China, the world’s fastest-growing major economies, are weighing the risk of Europe’s debt crisis reducing demand in the market that accounts for a fifth of their exports. For India, the room to pause on monetary tightening is limited because its benchmark inflation rate is more than three times that in China.

“The biggest threat in India is from inflation and the risk that the economy overheats,” Kevin Grice, an economist at Capital Economics Ltd. in London, said before the report. “This, in the end, would force the Reserve Bank of India to aggressively hike policy rates, which would inevitably bring far lower growth later on.”

India’s central bank said May 19 that it will raise rates only cautiously even though they are “out of line” with the key wholesale-price inflation rate, running at 9.59 percent. In comparison, China’s $4.3 trillion economy expanded 11.9 percent in the first quarter and consumer prices rose 2.8 percent in April from a year earlier

More here

Investors end up holding the bag in high-end apartments

Mint has an article on how the builders get their initial funding from select investors who are given apartments at a discount to the market price. The investors then sell off the flats to the end-users at the going market rate once the project nears completion.

While this seems to be a legitimate way for businesses to raise funds, these investors who buying the highly priced apartments will stuck with these prohibitively expensive properties as the only buyers who could afford these apartments would the investors themselves. US/UK based NRI's cannot afford buying anything in Mumbai. The Dubai investor is reeling under the crisis in the Gulf leaving nobody but the investors themselves as the only folks with black money and the affordability. Bank's these days are very careful doling out loans and any loan over 50L attracts a lot of scrutiny.

Now imagine the investment decision made by a smart businessman in Mumbai with 2 crores of discretionary investment cash. Will he directly contact the builder and buy in it as a investor or will he be so stupid enough to buy from another investor by paying an extra 30% ?

Property prices heading north on pre-sales to investors

Investors have bought at least 80% of the project, fetching Unitech around Rs315 crore that it can use for construction and other needs

Bangalore: Unitech Ltd’s intense pre-sales pitch in October to investors for a part of its residential project in upscale Worli, Mumbai, is paying off in more ways than one—the company has been able to collect a tidy sum while the price benchmark has been pushed higher.

Investors have bought at least 80% of the project, fetching Unitech around Rs315 crore that it can use for construction and other needs. Around one-fifth of them have already resold their purchases at a profit, pushing up prices from Rs12,000-12,500 a sq. ft during the pre-sales to Rs19,000-20,000 a sq ft., the likely price tag for actual home buyers when Unitech opens the rest of the project for them later this year.

A similarly brisk rally is pushing up prices in several other projects in Mumbai and Delhi—a trend last seen in 2005-07, just before the bubble burst as liquidity dried up amid the financial crisis.

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Mumbai, Delhi realty rates on way down

Real estate prices for new bookings in Mumbai and NCR Delhi are expected to be 10 to 20 per cent lower than prevailing market rates feel analysts as developers are still bogged down by unsold inventory in projects in these areas.

In Virar prices for new launches are likely to come down to Rs 2,200 from the existing Rs 2,800, in Panvel from Rs 5,000 a sq ft to Rs 4,000 for new launches and Andheri West to Rs 7,500 per sq ft from Rs 11,000 in existing project — perhaps the sharpest cut — according to the Religare report.

Developers say that there is nothing unusual about price cuts for new projects.

“As a company policy we sell the first 20 per cent of the apartments at cheaper rates and as we go on constructing prices go up,” said Hemant Shah, CMD, Akruti City, a Mumbai-based realty company. “Otherwise we may have to pay out heavy interests to banks for borrowed funds.”

Article Link

Beijing resident throws shoe at a property developer

Beijing resident throws a shoe at a property developer in his protest against unrealistic housing prices in China. It won't be too long before many Indian's start doing this at property exhibitions. The Iraqi jouranlist who threw the first shoe on George Bush was followed by another journalist who threw a shoe at the finance minister P. Chidambaram. The Chinese protestor received applause from the crowd so the common pain point is felt by a lot of people in the audience

Nariman point soon to be deserted

As financial institutions head for the exits South Mumbai is fast losing its allure as the premier business district of Mumbai. Ofcourse we won't see such articles in the various editions of the toilet paper of India. We get this news thru Bloomberg. Just as we hear this news there is other news that Edielwess securities moving into the BKC area. J.P Morgan moved to the Malad(w) area. Why overpay for realestate in Nariman point when employees commute from far flung suburbs.

JPMorgan Quit India’s Manhattan as Buildings Rot (Update2)

May 6 (Bloomberg) -- UBS AG and JPMorgan Chase & Co. are leading an exodus of finance companies from Mumbai’s Nariman Point financial district as they balk at paying double midtown- Manhattan rents for crumbling four-decade-old buildings.

UBS, Switzerland’s biggest bank, moved to a new complex on the site of a drive-in cinema about nine miles north. JPMorgan, the second-biggest U.S. lender, shifted to an adjacent suburb, while private-equity firm KKR & Co. went about three miles north of Nariman Point. Local lender Axis Bank Ltd. and broker Motilal Oswal Financial Services Ltd. are moving in the next year.

They are departing a district reclaimed from the Arabian Sea in 1940 that is marred by traffic jams and poor sanitation, and constrained by a 46-year-old law that limits building height. The city’s shortcomings and fragmentation may hinder Mumbai, with the fourth-most-expensive office space in the world, from establishing a financial center to rival Shanghai and Dubai.

“Transforming Mumbai into a world class financial center is very distant,” said Sunil Saberwal, chief executive officer of Bombay First, an organization modeled on London First to work towards the regeneration of Mumbai. “We are at least 15 to 20 years away from something like that. Even then, Mumbai will not be as beautiful as Dubai, but it will be functional.”

If Mumbai doesn’t get its act together by 2030 by improving transportation, housing and water systems, and reducing costs, the city may lose out to places such as Dubai as Western companies seek a base in the time zone, Saberwal said.

More here

The foul play in super-built up constructions

Article Link

Developers have drastically raised the super built-up area of the new properties. From 50% super built-up area, it has almost reached 100%,” said Pankaj Kapoor, founder, Liases Foras.

However, with the increase in super-built up area, the cost of properties has also doubled over a period of time. Consumers are getting lesser space at a higher cost. For example, if an apartment of 1,000 sq ft carpet area had a saleable area of 1,400 sq ft in Kandivali (a Mumbai suburb) in 2005, at that time, the apartment was priced at Rs2,500 per sq ft. The total cost came to Rs25 lakh. But now, an apartment of 1,000 sq ft is quoted as 2,000 sq ft saleable area. Taking the current cost into consideration, it is priced around Rs8,000 per sq ft. The total cost of the apartment has jumped to Rs1.60 crore.

Mint asks a very pertinent question. Have Mumbai prices risen to fast ?

Far flung suburbs are quoting at 10,000 per sq ft. I'm not taking about Andheri but Kandivili and Borivili. 95% of Mumbaikars cannot afford these prices. What is the point of living in such a city ? Ofcourse we won't see such questions asked in the Toilet paper of India which is keep spreading all bogus news about real estate developments which have no consequence on the Mumbaikar. The city has gone to the dogs but nobody is willing to bell the cat. All these meaningless statistical analysis by the RBI economists ignores the biggest factor of black money in Mumbai real estate. Builders quote 50% in black money. The RBI is like the Roman emperor Nero who played the fiddle when Rome burned. All these bogus facts about the island city are meaningless when we have sprawls all the way upto Panvel and Virar. I believe the builders are keeping apartment prices high to keep their stock prices high. They can then sell the stock to gullible investors by planting stories in the news media. Also they can sell their apts to gullible NRIs just like what happened in Dubai.

The stock response to a question on housing prices in Mumbai is that they have become unaffordable. The general feeling is that they have risen too far, too fast. Fingers are pointed to the vast number of unsold apartments and everybody wonders how builders can afford to keep these flats vacant for months. But have real estate prices in Mumbai really gone up so dramatically? Mint reports

The Reserve Bank of India’s (RBI) report on macroeconomic and monetary developments has, in its chapter on financial markets, a chart on the house price index in Mumbai. The chart gives the index weighted by the value of transactions and the number of transactions. It shows that the Mumbai house price index reached a peak of around 230 or so in the second quarter of 2008 before starting to plunge. The index then fell to a low of slightly above 150 in the fourth quarter of 2008 before starting to climb again. By the second quarter of 2009, it had exceeded its pre-crisis highs and by the fourth quarter of 2009, it had gone a bit higher than 250. The chart has data from the second quarter of 2003, when the value of the index was 100. Putting it another way, if RBI’s index for Mumbai is right, then it means property prices in the city have, on average, gone up by a bit more than 2.5 times between 2003 and the end of 2009. But the gross domestic product (GDP) at factor cost at current prices has, between 2003-04 and 2009-10, gone up 2.3 times. And if India’s GDP has gone up by 2.3 times over the period, GDP of Mumbai city must have increased by a far larger factor. Add to that Mumbai’s island location, which makes expansion difficult and the rise in real estate prices does not seem too steep.

India weighs capital controls with rupee on rise

Economic times reports on the RBI's efforts to curb the inflow of hot money into India. Instead of adding a tax to the inflow, the RBI should tax outflows so short term speculators think twice before speculating the currency. The govt. is pandering to the exports led IT lobby which will see rupee based earnings shrink as the rupee appreciates. RBI is trying to generate some fear among the investment community however given its inept record in overseeing the IPL Cayman islands/Marutius mess its credibility is doubtful when it is given the task of policing inflows into capital markets.

If foreign money from Caymans ended up in IPL, it would not be surprising if thousands of crores found its way in real estate deals. Anyone from Goa can tell you how much Russian money has influenced the rise of real estate there. Showing fake teeth to the public is what govt officials can do. The general population has to deal with the ineptness of its own elected and selected officials. Just quoting fancy Yale professors to solve India's problems is like applying balm for treating coronary heat disease. Sigh..

India's government is weighing capital controls with the rupee on the rise amid fears of "hot money" flowing into the country as investors pile back into Indian assets.

Unlike fellow emerging market giant China, India allows its currency to float freely and the central bank has warned of the dangers of "sharp and volatile" exchange rate movements that could hurt India's economy.

With the rupee riding at 18-month highs against the dollar, one idea Reserve Bank of India Governor Duvvuri Subbarao is airing to curb sudden big movements in the currency's value is a tax on foreign exchange transactions, known as a Tobin tax, similar to one Brazil introduced last year.

"Depending on what flows come in, we would employ measures, including if necessary something like the Tobin tax," Subbarao said last week, referring to a proposal first aired in the 1970s by Yale economics professor James Tobin.

Sales drop 50% as realty prices get unreal again in Mumbai

DNA Report here

Mumbai: City developers, who witnessed a revival of sales at hefty prices in the past six months, are now up against buyer resistance. With demand dropping like a stone, the sale of residential flats across segments has nosedived, property experts said. The drop is as high as 50% in some segments.

Sandeep Sadh of Mumbai Property Exchange says it is a weird situation. “In South Mumbai, where there are no new constructions, people are deferring buying due to high prices even in resale flats. In contrast, despite having a large number of flats available in the suburbs, buyers are unable to buy due to unrealistically high prices.’’ Sadh says his clients are sitting on the fence and have deferred buying till after August when prices may just become a bit realistic.

Venkatesh Iyer of Siddhivinayak Real Estate Consultants says the number of inquiries he gets seldom translates into actual sales. “People’s budgets have become constrained, as prices have increased exorbitantly. In Chembur, prices have jumped from Rs8,000 per sq ft to Rs10,000 per sq ft, to almost Rs14,000 in six months. High prices have affected the resale market the most, as owners find the next new flat to be more expensive,’’ said Iyer.

A negative fallout of recent trends is that developers have increased the carpet area-to-built-up area difference to almost 50%. “This is a dangerous trend. There is no clarity on what rate developers have calculated the balcony area, terrace or storage room. Baring a few places, there is no mention of it in agreement papers. It is time the government brings clarity to the issue,’’ said Vakil.