Home loan borrowers look panic-stricken now

Life comes full circle. 3 years ago people will buying flats like bread and cake. Now the same people are panicking and paying off debt by their bonuses and whichever means they can. The wide-grin of leverage is now bleeding them every month. Singh is King Manmmomhan anmd Montek should be congratulated for allowing the transfer of wealth from the consumers to the builders and banks.

Home loan borrowers look panic-stricken now
ET Bureau[ Aman Dhall & Raja Awasthi ]

NEW DELHI: The fear is palpable. Indian home loan borrowers, who till recently were fuelling a growth story across banking, real estate and other allied sectors, look panic-stricken now. In fact, just two weeks after the Reserve Bank of India hiked the cash reserve ratio (CRR) from 8.75% to 9%, there has been a quantum jump in the number of home loan borrowers approaching banks for foreclosures and partial repayments.

According to industry estimates, the number of home loan borrowers making foreclosures and partial repayments has almost shot up by 20-25% during the past few weeks.

In the last two months since the home loan rates started their northbound journey, all home loan financing companies’ repayments and foreclosures teams have been actively engaged in counselling their customers, making them understand the pros and cons of the decision to forego or go for partial repayment of loans. It may be mentioned that the Central bank’s latest CRR hike has sucked out about Rs 8,500 crore from the banking system.

Uday Sareen, country head, retail banking, ING Vysya Bank, told SundayET that the bank has seen a considerable increase in the number of queries for foreclosures and partial repayments. “In fact, the foreclosures have seen an increase of almost 10% over the previous quarter.



One, however, needs to understand that it’s not a simple black and white decision. Over the last 60 days, our teams have been continuously engaged with customers to explain them the merits and demerits of their decision. We are educating them how it can hurt their liquidity in the short to medium term, if they decide to foreclose their home loan accounts or make partial repayments,” he said.

Deepak Parekh, chairman of HDFC, the country’s largest housing finance company agrees. According to Mr Parekh, they too have witnessed a rush by home loan borrowers to make partial repayments.

“They are trying to reduce the term of their loans, which have increased due to recent interest rate hikes. These borrowers are typically the ones who have taken floating loans in the last 12-18 months and are now trying to make balloon payments through their salary bonuses,” he said. Floating rates account for 90 % of the bank’s home loan portfolio.

Developers across the board too confirmed to SundayET that there has been a spurt in home buyers returning or off-loading some of their home loan. With interest rates on home loans rising in the last one year, consumers are now looking at other options to acquire funds for their investments. Many also feel this will deter speculators from the real estate market.

Says Rohtas Goel, CMD, Omaxe Group: “The hike in repo and CRR rate hasn’t been a good news for the real estate sector and the home loan market. It is certainly a matter of concern for consumers, as even small upward changes in the monthly EMIs can play havoc with their personal finances.

The interest rate trend over the next few months is expected to be northwards, across industry. On the flip side, this may actually prove beneficial for actual users as it will deter speculators from over leveraging themselves and cornering and hoarding housing flats for speculative gains.”

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Pune property loses sheen, many buyers forfeiting booking amount

Source: The Indian Express, Aug-09-2008
By Sumit Kumar, Section Real Estate
Posted on Sat Aug 09, 2008 at 04:30:53 AM EST
15-20 per cent slowdown, rampant cancellations by investors; 2009 to witness oversupply of residential, commercial space: KPMG

The real estate boom in Pune may well be all but over as the market has started witnessing a lot of cancellations, with people even opting to forfeit the money given as booking amounts, rather than going ahead with purchase of the property. This was revealed by Jai Mavani and Prafull Jain, executive directors of leading market surveyors, KPMG India Pvt Ltd at a press conference here on Friday. They further added that by 2009 Pune will witness an oversupply of residential and commercial spaces vis-a-vis demand.

Mavani said, "Pune's real estate market has seen a pretty hectic business in the last few years. However, as seen in other cities in India, Pune too, has started witnessing a slowdown of about 15 to 20 per cent in the real estate sector. Though the top-tier developers may not be feeling the pinch as yet, the small developers have certainly started to."

Attributing this drop in the real estate to factors like reduction in the investors, Jain said, "One-third of buyers in the Pune market are investors who buy properties in anticipation of the assets appreciating. But this appreciation is not happening anymore."

Mavani advised developers to release their stock rather than get into trouble later on since operating cash-flows are more important than land-bank. ``It is better to take a prudent view of the land prices, rather than holding on to them," he said.

As per the projections provided by KPMG, Pune witnessed a supply of two million sq ft of commercial space in the first half of 2008, while approximately 3.5 million sq ft of supply is expected over the next six months.

As far as residential space is concerned, Koregaon Park and Kalyani Nagar continue to remain the most expensive residential markets with Wanavdi emerging as a new mid-ranged residential location. As for the retail properties, Aundh is emerging as a preferred choice because of the presence of a large number of residential properties available for rent. "Cautious approach adopted by retailers will help rentals stabilize in the short term," said Mavani.

He added that the IT sector, that has been the major growth driver for real estate in Pune, has started slowing down. A shift to SEZs will further lead to oversupply in IT parks.

Commenting on the rise of malls across the country, Mavani said, "Malls have been built indiscriminately without any applications of how malls operate internationally. At one point, we will see these malls convert into commercial spaces. Some of these malls will fail entirely. Therefore they will have to strategize themselves."

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Sabeer Bhatia's Nano dream

Looks like this one is turning out to be a nightmare for him. I particularly like the line where he says "Each acre is more expensive then the previous". Welcome to capitalism Mr Bhatia. The San Francisco chronicle has a more detailed report then all the stupid Indian tabloids which masquerade as news-papers.

S.F. tech mogul wants to build city in India How to build a city sustainably

Sabeer Bhatia plans a 17.6-square-mile city of world-clas... Nano City, as shown in this architectural rendering, is e...

(08-10) 19:14 PDT --

A few days after his 29th birthday, Sabeer Bhatia sold Hotmail, the company he co-founded, to Microsoft for $400 million. Selling the Web-based e-mail service bought him a swank Pacific Heights condo with a panoramic view, buzz as the next hot Silicon Valley player, boldfaced name recognition in the Indian press - and eventually, one incredibly unchallenging year off playing golf and jet-set partying.

He became haunted by the question common to those who find wild success at a preternaturally young age: Now what?

Granted, over the past decade, Bhatia has had his hand in several technology startups and post-startups both here and in India, some mildly successful, some not. But his latest project is one that comes from the heart: He is trying to develop an Indian version of Silicon Valley, a sustainable city spread over 11,000 acres in northern India that he envisions will be home to 1 million residents employed largely by world-class universities and A-list companies that act as the country's idea generators. He calls it Nano City.

One problem: Until recently, Bhatia knew nothing about developing cities. The 39-year-old San Francisco resident is an electrical engineer by training and profession. And with a ton of cash in the bank, the last challenge he thought he would face is the hassle of navigating India's cash-under-the-table democracy, while preaching sustainable development. India, with a population of 1.12 billion, is beset with energy and infrastructure problems; most citizens don't have access to safe drinking water.
Major developer

But now - after spending $4 million of his own money and learning some hard lessons about international development - Bhatia's project could be on the brink of starting. This summer, he partnered with a major Indian developer that pledged funds to help purchase the land needed in the northern Indian state of Haryana to break ground on Nano City.

But major hurdles remain, and the project could easily fail.

Bhatia wasn't thinking about urban development when the idea for Nano City first surfaced in March 2006. He was watching a cricket match in India with a government official from Punjab, pitching a plan to bring premier U.S. educational departments in science and technology to Indian universities.

"The education over there, until the undergrad level, is pretty good," said Bhatia, who attended Indian schools before receiving an undergraduate scholarship to the California Institute of Technology and earning a master's degree in electrical engineering from Stanford University. "But when it comes to grad school, it just falls off the cliff in terms of quality."

The official asked what he needed to get the project done. Bhatia casually told the official that he could lure A-list U.S. universities to the area if the government provided land and financial incentives.

A few days later, Bhatia returned to the United States, having agreed to write a proposal. But he considered the conversation the kind of casual banter one has at a sporting event, something not to be taken too seriously - until Naval Bhatia, Sabeer's cousin and an attorney, mentioned the conversation to a friend, an official in nearby Haryana.

The Haryana official told Naval Bhatia, "Why should Punjab get him? We want to offer him even more."

"It's a common occurrence, especially in developing countries," said Seshan Rammohan, executive director of the Silicon Valley chapter of the Indus Entrepreneurs, an international organization of Indian and other South Asian entrepreneurs. "When someone gets some notoriety, as Sabeer did after selling Hotmail, they get bombarded with offers.

"If someone like Sabeer is attached to a project, then the thinking is: Other people will want to invest," Rammohan said.

Within days, Bhatia returned to India to speak with the Haryana officials. They discussed an 11,000-acre spot about 15 miles east of Chandigarh, Bhatia's birthplace and one of the few planned cities in India.
Not another Bangalore

The idea of an Indian Silicon Valley began to resonate with Bhatia. He didn't want to create another Bangalore, the traffic-tangled, booming thicket of a city where he had grown up, best known for its outsourcing operations for American companies. He wanted a place where Indian-germinated ideas could flourish and where young Indian students could receive a first-rate education.

In pursuing the Nano City project, Bhatia found the answer to the question, "Now what?" If it succeeded, he could make millions of dollars more. "But my reason for doing this is to leave behind a legacy," Bhatia said.

"How many times in our lives do we get a chance to build a city?" he said. "How many times do we get an opportunity to fix some of the problems that affect 1.1 billion people - that's one-sixth of humanity."

Bhatia is aware that planned cities often fail. To avoid pitfalls, he intends to involve "the right partners, do proper design, provide basic things that you and I take for granted here."
Atypical entrepreneur

Before calling in the bulldozers and cranes, Bhatia boned up on development. He ordered dozens of books on Amazon.com and picked the brains of Stanford professors, real estate developers, even the guy who renovated his apartment.

"Why not?" Bhatia said. "He was a guy in the construction business."

That summer, his assistant set up a meeting with several UC Berkeley professors. The professors had met Bhatia's type before.

"A lot of these rich entrepreneurs come to us, thinking they have all the answers," said Nezar AlSayyad, a professor of architecture, city planning and urban design at UC Berkeley who has been involved in projects around the world. "I expected him to be like that."

AlSayyad grilled Bhatia during their first meeting, asking for specifics and trying to ferret out his motivations. The professor silently shuddered when Bhatia mentioned he liked Santana Row, the San Jose development that is one of the few spots in Silicon Valley that tries to create a public square with a mix of retail and housing. AlSayyad thinks it is part of suburban sprawl.

Nonetheless, AlSayyad came away impressed with Bhatia, and for one simple reason. "He listened. And he asked questions."
Social, financial impact

In early 2007, Bhatia flew nearly two dozen students and faculty to the proposed site in India, where for nine days they met with local officials and residents, and studied the topography of the site. Over the summer, the group explored green ideas, such as ensuring that a public park was within a five-minute walk of any point in the city and how best to create efficient mass transit.

"Sabeer really pushed these ideas of sustainability," said Stefan Al, lead designer of the project. "A lot of these ideas have been tried before, but not all together in one place."

In addition to contributing design ideas, the students challenged Bhatia with questions about Nano City's social and financial impact. They posed one particularly challenging question in the developing world: What will happen to the people who live in the roughly two dozen villages where Nano City would be built?

Many belong to families who have lived on small plots for more than 100 years. In May, 71-year-old Karam Singh, a farmer who owns 25 acres near the proposed project site, told the Indian Express, "Even my great grandfather was born here. How can I sell this land?"

Land prices in the area have quadrupled since the project was announced, and currently stand at about $50,000 an acre. Rafiq Dossani, senior research scholar at the Shorenstein Asia-Pacific Research Center at Stanford University, believes land acquisition from villagers will pose the biggest problem.

"The state leaves it to the businessperson to negotiate his way through the thicket of corruption and lack of information that typically surrounds land records in rural areas," Dossani said. "A piece of agricultural land will often have multiple claimants, indebtedness and prior claims over the generations."
Mt. Everest challenges

Last fall, Bhatia began purchasing the land, a few acres at a time. After acquiring about 50 acres, he found that "every subsequent acre of land we were buying was more expensive than the previous one," he said. In November, he stopped the process and hired four attorneys to research who owns every plot.

Meanwhile, he was having trouble raising money. Nobody wanted to invest. The name "Sabeer Bhatia" opened some doors, but he was repeatedly told he lacked sufficient real estate development experience.

Last month, Parsvnath Developers Ltd., an Indian development firm with experience in land acquisition, agreed to pick up a 38 percent equity stake in the project. The move, Bhatia said, will enable him to break ground on Nano City early next year and develop its first 1,000 acres.

Bhatia plans to offer free university education to the children of landowners. "We think that over 95 percent of all the farmers actually want to sell," he said. "We think this will put pressure on that remaining 5 percent of people who are maybe greedy for more money."

If they don't sell, Bhatia said, "We are ready to walk away. ... You can't build a city around a farm."

If he does succeed, then the hard part comes: developing Nano City in an environmentally sustainable way in a rapidly growing country. "This is not Sabeer climbing Mount Everest," said entrepreneur group leader Rammohan. "It's Sabeer climbing Mount Everest with the city of San Francisco on his back."
India facts

Although India occupies only 2.4 percent of the world's land area, it supports over 15 percent of the world's population. India's median age is 25, one of the youngest among large economies. About 70 percent of the population lives in more than 550,000 villages, and the remainder in more than 200 towns and cities.

Population: 1.12 billion, 27.8 percent living in cities; annual growth rate: 1.3 percent.

Workforce: 450 million; agriculture - 60 percent; service and government - 22 percent; industry and commerce - 18 percent.

Literacy: 61 percent.

Gross Domestic Product (2007): $1 trillion.

Real growth rate (2006-2007): 9.4 percent.

Per-capita GDP (2006-2007): $909.

Trade: Exports (2006-2007): $127 billion, $22 billion of which are software exports.

Major trade partners: United States, China, EU, Russia, Japan.

Source: U.S. Dept. of State, Bureau of South and Central Asian Affairs (June 2008)
Nano City's green features

Sabeer Bhatia intends to incorporate green and sustainable building practices into Nano City's design - a rarity in India, where availability of power and water is inconsistent. Stefan Al, the Berkeley-based lead designer of the first phase of the Nano City, is planning the following features:

-- Fifty percent park and open green space, with only local, self-sustainable vegetation planted in landscaped areas. A park will be less than a five-minute walk from any starting point in the city.

-- Shaded walkways, arcades and tree-lined boulevards to encourage walking.

-- A rapid bus-transport system, where buses will travel in dedicated lanes.

-- Living machines, such as surface-water treatment plants that convert wastewater into chemical and odor-free drinking water by using algae, plants, bacteria and micro-organisms.

-- Power generated by windmills and photovoltaic technologies.

-- Green roofs that capture rainwater.

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Stupid reporting from Business standard

Here is another inane article on the decline of housing prices in Mumbai. Enquires are down, thats a ridiculous measure of volume of sales. What we need is hard data on the registrations. A quick visit to the registrars office and we should get this information. If they don't oblige one can get an RTI for it. Its good to see how much the black money component is of the sales in Mumbai. The decline is slow and steady and is going to bleed the high interest loan takers to a slow agonizing end.

Property developers, consultants and brokers have seen a 40 per cent decline in enquiries from home buyers over the last three months.

With home-buyers postponing their purchases owing to higher interest rates and increase in equated monthly installments, the slowdown in the real estate market is getting deeper.

The Mumbai-based Oberoi Constructions, which used to sell around 50-60 apartments in the June-July period, a traditionally lean period for property sales, has seen a sharp fall in sales during the same period this year.

Neelkanth Group, another Mumbai-based developer that builds homes in the central Mumbai suburbs, has also seen its sales dropping by over a third in the same period.

Property consultancy Knight Frank's chairman Pranay Vakil believes the situation is getting worse. "This is just the tip of an iceberg. The worse is yet to come,'' he said.

The 30 per cent year-on-year sales fall in June and July follows the 20 per cent decline in the previous six months. And no one sees any silver lining on the horizon.

The Reserve Bank of India [Get Quote] has raised the repo rate, the rate at which it lends to banks, by 125 basis points. Commercial banks have in turn raised their consumer loan rates by 50-100 basis points. Thus, on an average, the monthly installment on a Rs 10-lakh loan for 20 years has risen over 50 per cent to Rs 12,740 on a 14.25 per cent interest rate from Rs 8,060 (7.5 per cent interest rate) five years ago.

"Home buyers are adopting a wait-and-watch approach. While ready apartments are being sold, those under construction are not finding enough buyers,'' said Vikas Oberoi, managing director, Oberoi Constructions.

A cross section of property developers, consultants and brokers said enquiries from home buyers have gone down by 40 per cent over the last three months, compared to the same period last year.

While developers are not advertising any price cuts, most are willing to reduce the prices once the negotiations begin, according to investors.

For instance, in Gurgaon, where the prices are Rs 6,000 per square feet, developers are settling deals at Rs 5,500-Rs 5,400/sqft due to a sharp reduction in demand. This is apart from freebies such as free parking, waiver of stamp duty and equated monthly installments.

Property brokers point out that some pockets in Mumbai such as Andheri and Santacruz have seen the prices soften a bit in the last few months. In Andheri, for instance, prices declined to Rs 9,000 per sqft from Rs 10,000/sqft six months ago.

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Nearly 80,000 forms sold on first day of Delhi housing scheme

Now this is a good way to make money by selling forms. 1L x 100 = 1crore. Not bad for a days work.

Times of India reports
NEW DELHI: Nearly 100,000 application forms were sold Wednesday for a Delhi Development Authority (DDA) housing scheme for the sale of 5,020 flats across the national capital.

The DDA Housing Scheme 2008 will provide over 5,000 flats way below the current market prices. The flats would be sold after a computerised lottery draw of the applicants.

“We sold about 80,000 forms today (Wednesday). Many of them were downloaded from our website,” DDA spokesperson Neemo Dhar told IANS. The application forms would be available till Sep 16.

“At least 10,000 forms were sold from the sales counter at Vikas Sadan (headquarters of DDA) and nearly 70,000 forms were sold from branches of various banks which are authorised to sell them,” a DDA official said.

“Nearly 15,000 forms were downloaded from our website,” the official added. The forms cost Rs.100 each.

The DDA is expecting more than 500,000 applications for the flats. “We have got nearly five lakh (500,000) forms printed but if they are sold out then we will get more printed,” Dhar said.

People thronged the sales counter to buy the application forms but many sensed that the odds were heavily against winning the draw.

“I was excited that I will be able to avail the opportunity to have a house in Delhi. But after hearing that five lakh (500,000) forms are being printed, the chances are very bleak,” said Ritu, a resident of Palam.

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What goes up comes down doubly fast

This is not a time to gloat about being right which we are but its time to reflect on how to asses the pitfalls which could encounter if we ever were to step into buying a house at some point in our lives. As the story will unfold we will see small builders being wiped out, projects delayed indefinitely, legal problems between landowners and developers magnified, large mega projects by tier-2 builders getting stalled due to cancellation in bookings, outskirt prices dropping like a rock. redevelopment deals shelved and many more black swan events out of scope of the human mind. The key to a good property is location so the good ones as always the case will suffer the least damage. The sun has stopped shining and most of the bulls have gone to the cow-sheds or tabela's they are called in Hinglish. The occasional bull who is still roaming the fields is going to be dinner for some big bad bear out there.

By CNBC-TV18s research analyst, Niraj Shah

Well, the biggie said it on Friday and it may well set the tone for what could be a full-blown cyclical downturn for the real-estate space.

DLF, in a press conference, mentioned about a possibility of volumes getting impacted due to a hike in interest costs (No wonder Dr Y V Reddy's actions have seemed like a sharp wedge in the hearts of Indian realtors). At the time of its IPO, DLF has mentioned that while residential prices may start to stagnate, the commercial customers will be strong and keep the company in good stead. The company has stated today that it believes that the upside in the rentals is capped and they, at DLF, do not expect rental incomes to go up here on.

Secondly - in an interview earlier, V Hari Krishna, CIO of Kotak Realty Fund came up with an interesting observation. He said that since January 2007, most of the consumers have withdrawn from the market and this is reflected in the fact that when one looks at home loan disbursements, they have declined by 22% on a YoY basis from 2006-07 to 2007-08.

The drop, in fact, would have been more had HDFC and ICICI Bank not increased their disbursement rate in this period. Ex-HDFC and ICICI Bank, the disbursements would have fallen by 50%, which is obviously a worrying factor as it indicates that end users have withdrawn from the real estate market.

Thus, one would be inclined to believe that the meteoric rise that one saw in property prices in regions such as NCR and some Tier-II and tier-III areas was more of investor and/or speculator demand rather than end-user demand. And thus, these prices tapering off have lead to a switching-off in that trade and thus a moderation in demand and prices.

Sure - in select pockets such as Mumbai, Delhi CBD, etc, you would still see the odd expensive land deal, rental increase, etc. But make no mistake about it-the property market is looking south. And the biggest property developer, both in terms of size and repute, coming out and sort of affirming it does speak a lot.

CNBC TV 18's MF team did some digging and figured out that while the number of PE deals, both outbound and inbound, have declined by 60% for Q1 on a YoY basis, there is increased traction in the PE deals in the real-estate space. With the Primary market route closed and the debt becoming expensive, it would either lead to a PE deal at a much lower valuation - or a faster tick of sales leading to increasing cash-flows, which would sustain the highly geared realty companies.

For the faster tick in sales to happen - which essentially means wooing the buyer in a high interest-rate scenario - the prices will have to drop significantly - and that is the way the real-estate space is poised to go, never mind the odd-exception here and there. How soon we get there? Anybody's guess - but from the looks of it, sooner rather than later.

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Secret and lies about housing interest loans

DNA has a good article on how interest payments can exceed capital by a factor of three, thanks to the compounding effect of interest. For those who understand the details, this is a very good reason why high loans don't make sense any more. For those who are caught in this nightmare, not even Bernake or the 'Singh is Kingg' can save them. The effects of leverage and compounding work is reverse the same way as they on the way up.

Borrow Rs25 lakh home loan, repay Rs1 crore

MUMBAI: If the current interest rates stay, you might end up shelling out more than Rs1 crore to pay off a Rs25 lakh home loan. How? Read on.

Six months is a long time, especially if you happened to take a home loan back then.
Banks were charging a floating interest rate of 11% on their home loans. The equated monthly instalment (EMI) on a 20-year loan (or 240 months) of Rs25 lakh would have worked out to Rs25,805 a month.

Around one-month back, banks raised the interest rate on floating rate home loans to 11.5% and have now raised it by another 0.75% to 12.25%.

Last time, hike in interest rates were not accompanied by an increase in EMI. Banks did the smarter thing and increased the tenure of the loan. The remaining tenure of the loan went up from 240 to 269 months.

If banks were to follow the same strategy now and increase the tenure of the loan, instead of increasing the EMI, the remaining tenure of the loan would go up to 394 months. Add to this the six months of EMI you have already paid, and you are looking at a total tenure of 400 months. If you keep paying an EMI of Rs25,805 for a period of 400 months, you would have paid Rs1.03 crore (Rs25,805 x 400 months) by the end of it.

However, the bigger question is will banks allow tenures to shoot up to 400 months?

How it will hurt you
Principal Rs 25 lakh
Initial rate 11%
Tenure 240 months
Initial EMI Rs 25,804
Principal repaid Rs 14,707
in first 5 months
Principal left Rs 24.85 lakh
Rate after 5 months 11.5%
Remaining tenure if 269 months
EMI remains same
Increase in tenure 35 months
at the same EMI
Principal repaid in Rs 4,027
the 6th month
Principal repaid in Rs 1,8734
first six months
Principal left Rs 24.81 lakh
Rate after 6 months 12.25%
Remaining tenure if 393.5 months
EMI remains same
Increase in tenure 159 months
Extra money paid to Rs41 lakh
service the loan (Rs 25,804 x 159)
Total EMI to Rs1.01

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