Owed Rs6,000 crore, banks cut off funds to Mumbai builders

Article Link

MUMBAI: Money has suddenly stopped flowing into Mumbai's real estate sector with banks and financial institutions tightening the screws on builders. In the past two months, cash-strapped developers have flocked to private money lenders who provide short-term loans at exorbitant interest rates of between 24% and 30% a year. Banks charge builders between 13% and 15% interest a year.

Market sources said leading banks now lend to only credible builders for select projects, but have turned off the tap for most others in the construction sector. "They are busy mopping up what is due to them. By March 2011, Mumbai builders alone are scheduled to return roughly Rs 6,000 crore to banks," said the CEO of a leading property fund. Market sources said some leading developers in Mumbai have loan exposures of Rs 3,000-4,000 crore each.

Mumbai-based developer Wadhwa Group's Vijay Wadhwa said banks have stopped disbursement to second-rung builders.

"Banks are flush with funds, but they want to give it to the right people. They are now more concerned about whom they give it to,'' he said. Wadhwa added that financial institutions became cautious following the LIC Housing scam.

Read More

Can we call it a peak now?

As we read about Spain's woes (this is Spain we are talking about, not Ireland or Greece), one realizes it was primarily caused the foreign investment that poured into Spanish real estate boom through the Cajas (local co-operative banks). The Government is actively "announcing" cleanups and merging Cajas. Yes, a once mighty economy can be brought to its knees by such foolishness.

The story in India is eerily similar.

Indian real estate attracted $2.8b in FDI last year.

As per industry experts, overseas property sales account for 30 per cent of Indian real estate sector’s total global sales, of which, 40 per cent are accounted by the UAE-based Indians.

Ooh - is that because Indian real estate will never go down? Unlike the Dubai real estate? :) /s.

Of course FDI will fee as quickly as it comes in as well. In January, in 12 trading sessions, foreign investors have pulled a massive 1 billion dollars out of the Indian market.

There's been a significant selloff since the start of 2011, as investors flee over inflation fears.

With food inflation at more than 18%, it is just a matter of time before the Reserve Bank does the one thing it does which is to push the interest rates high - very high.

So it is safe to call peak now?

Read More

Black money debate on CNN-IBN.

Here is another rant on the state of black money. The Government is useless, absolutely useless. Manmohan is an absolute incompetent, ignorant and timid PM, worse then any other PM India has ever had

Read More

Indian Army hit by another land scam

Read More

Cracks In Prices Begin To Show

Article Link

Most builders concede consumer resistance is building up. “Demand has dried up in recent months,” says Subodh Runwal, director of Runwal Group. Consumers believe prices have peaked and are likely to come down. A survey among potential home buyers by real estate website Makaan.com showed that 55 per cent expected residential property prices to fall by 20 per cent or more in 2011. This perception, coupled with an increase in home loan interest rates, has led to buyers postponing buying decisions.

“Pre-sales and underwriting trends are contributing substantially to the existing sales volumes. If we exclude such projects, the market looks extremely risky now,” says Pankaj Kapoor, chief executive officer of Liases Foras.

So far, builders had been clinging on to the price line, despite the build-up of unsold stock. Speculation in the industry is that the steady cash flow from private equity investors and earlier advance sales helped cushion the pressure on builders to reduce prices. These sources seem to have dried up now and we are seeing the high price points finally cracking.

Builders often plead that they have little margin for reducing prices since the cost of land is abominably high. With land costs beginning to decline as the PAL-Peugeot sale indicates, builders hopefully will see reason and offer more affordable prices to home buyers.

Read More