Aaj ka Mahabharat.

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How your dreams of a new home go bust

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Despite 90,000 flats lying unsold in and around Mumbai, MiD DAY finds that Rs 50 lakh will not get you a home even in places like Kandivli, Ghatkopar & Deonar.

Armed with a budget of Rs 50 lakh, MiD DAY reporters went to areas like Kandivli, Malad, Ghatkopar and other suburbs distant from the island city, where one would expect to find a flat in this range, but came back empty handed in every case but one. The only flat we could find within our budget was a 1-BHK for Rs 46 lakh in the poorly connected Kurar Village in Malad, which would be ready for us to take possession of only in 2013.

You have to wonder, why Government is sleeping at Wheel. Indian policies were admired when RE and finance bubble burst in US. Indian media and government were all praise saying how smart they were compared to US. Now, if the prices below do not yell, BUBBLE...., then what does? What happens when this bubble bursts? Do Indian Banks have no exposure to these absurd prices? I think we are in for a big surprise when this bubble crashes....

RNA Royal Park, Charkop (Kandivli)
Price: Rs 1.64 cr

Nand Dham, MG Cross Road (Kandivli)
Price: Rs 70 lakh

Orchard Residency, LBS Marg (Ghatkopar West)
Price: Rs 1.25 crore*

LBS Marg (Ghatkopar West)
Price: Rs 2 crore

Vrindavan Terrace, Sion-Trombay Road (Deonar)
Price: Rs 8 crore

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India's subprime builders stocks

Here is a brilliant article by R Jaganathan on the destruction of weath in the real estate stocks.  I had written a similar article few years ago when the parabolic real estate stocks had crashed to the earth and people were holding losses of upto 90%. 

>>> Article below. I have cut paste it, just in case some smart Alec decides that it is no longer new-worthy. 

A curious phenomenon exists in the real estate sector. In the last three-and-odd years, you know, I know, and the dog at the lamp-post knows, that land prices have only gone up, flats cost more, and our EMIs on housing loans have gone up. We are paying through our noses for the few square feet we want to call our home.

Who gains when this happens? One presumes that the real estate companies and builders must be raking in the moolah.

But here’s the paradox: between January 2008 and June 2011, stock market listed real estate companies have destroyed investor value. The Bombay Stock Exchange Real Estate Index has dropped vertically by 85%, yes, 85%, when the broader market has fallen less than a fifth. The BSE Sensex fell by 15% during this time.

In a sample list of 10 listed realty companies compiled by Firstpost, the investor value destruction adds up to a stupendous Rs 2,66,952 crore. AFP
Investors have cried all the way to their brokers. In a sample list of 10 listed realty companies compiled by Firstpost, the investor value destruction adds up to a stupendous Rs 2,66,952 crore. DLF leads the list of losers— or rather, loss-creators— with a drop in market value of over Rs 1,43,520 crore.


What gives? When house prices have either not fallen too much and, in fact, may have only risen, when the land on which these houses were built was probably bought when prices were lower, why have real estate companies left investors holding the sack?

Far from investors deserting in droves, companies like DLF have, in fact, drawn new and more powerful investors. One example is Robert Vadra, hubby of Priyanka Gandhi, daughter of Sonia Gandhi.

According to a report in The Economic Times a few months ago, Vadra has been quietly diversifying away from his jewellery and handicrafts business into real estate. The paper says:

“…the 42-year-old Vadra, known for his punishing fitness regime and love for fast bikes, has sought to scale up and diversify his business activities since 2008, acquiring tracts of land in Haryana and Rajasthan, a 50% stake in a leading business hotel in Delhi, and attempting an entry into the business of chartering aircraft. Regulatory filings available in the public domain and reviewed by ET reporters reveal the changing graph of Vadra’s business interests. These include wide-ranging transactions with the DLF Group.”

Someone married into the country’s first family presumably has lots of advice available to him on how profitable, or unprofitable, the real estate business is, as is evident from the fall in the market values of shares. But we are surely missing something here?

Sure, we are. When house prices are high, when the profits reported on balance-sheets are falling, and share values reflect the same thing, it can mean only one thing: poor corporate governance. And in the real estate business, poor corporate governance means the profits may be hidden somewhere else, and investors are left sucking their thumbs.

Anecdotal evidence tells us that land is the currency used by politicians for storing their ill-gotten wealth. In fact, almost all recent scams implicating, bureaucrats and even judges involve land.

Sharad Pawar, the Nationalist Congress Party president, is widely believed to be a pastmaster in this business (Read more on this here.) Karnataka Chief Minister BS Yeddyurappa is under fire for corruption due to alleged land-grabs by his family members. (Read and listen here.)

The Adarsh Society scam, which cost Ashok Chavan his job as Chief Minister in Maharashtra, is about real estate. It also implicates his predecessor, Vilasrao Deshmukh.

YS Jagan Mohan Reddy, son of late Andhra Chief Minister YS Rajasekhara Reddy, is accused of owning lots of real estate in Andhra and Bangalore, as a Firstpost expose last month showed.

The Satyam scandal, where Chairman B Ramalinga Raju confessed to overstating accounts and profits, is also related to property: money was siphoned off to Maytas, a real estate company. And Jagan Reddy’s father YSR was a key player in allocating land and infrastructure projects to Maytas (reverse of Satyam).

Several judges of the higher judiciary are also being accused on involvement in land deals. Among them are former Chief Justice of India KG Balakrishnan, and Paul J Dinakaran, former Chief Justice of the Karnataka High Court, who is now being probed by a Parliamentary committee for various unexplained dealings.

If we have established the close linkage between the powerful and real estate skullduggery with this indicative list, here’s a speculative pointer: a part of the steep fall in the market values of listed real estate companies represents money parked elsewhere on behalf of the powerful.

If the total drop in value is Rs 2,66,952 crore for just 10 companies, and assuming even a 40% value drop due to weak sentiment in real estate stocks (when the BSE Sensex has fallen 15%), we are still left with an unexplained loss of over Rs 1,60,000 crore.

It is more than likely that this loss represents value that lies outside the companies in the hands of speculators, politicians, bureaucrats and middlemen who are part of the realty corruption chain.

And remember, we have only talked about listed companies. The real, real estate sector, may be even bigger than this.

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Hinjewadi calling

It appears that protests of every kind are fashionable these days.  Now Hinjewadi tech workers are demanding better infrastructure for their own backyard.

Some interesting statistics : 70k tech workers contributing to total of 300k jobs. Roughly $4B in revenue. Projected growth to double in the next five years one can only imagine the plight of workers who commute from far off places to Hinjewadi.  The next logical think which people do is to move closer to work. If this happens we will see prices closer to Hinjewadi jump as demand will begin outstripping supply. Right now Baner/Pashan/Kothrud/Balewadi/Bavdhan are poised for another jump in prices. Pune prices have stabilized and now rising slowly again. With 70k people in Hinjewadi, Magarpatta and eastern pune are way behind west pune. I've heard recently Cap Gemini has opened a big office in Hinjewadi and Accenture is moving to Hinjewadi in a big way and moving people there from their Magarpatta office. IBM, TCS, Infosys and Wipro are already big in terms of headcount. If the headcount reaches 140k in the next 3 years investors in these areas will be amply rewarded. However the million dollar question is which builder to trust even after being convinced that a location is ready for prime-time ?

PUNE: Information technology (IT) professionals of the Rajiv Gandhi Information Technology Park in Hinjewadi took to the streets of this prime IT hub of Pune on Friday afternoon to express their anguish over the poor infrastructure, sub-optimal traffic management and inadequate security arrangements.

The silent protest of these knowledge workers triggers 'Hinjewadi First', a three-month-long campaign aimed at attracting the attention of all stake holders - including the administration, law-and-order machinery and local residents, to the need for a better Hinjewadi.

These professionals, who are generally busy creating cutting edge software solutions for businesses spread all across the globe, were unperturbed by the monsoon showers as they stood holding umbrellas and banners in their hands asking for better infrastructure, better traffic management, enhanced power supply and security for Hinjewadi.

Over 70,000 professionals work in Hinjewadi generating IT exports of around $4 billion, to contribute nearly 40 per cent of Maharashtra's IT exports annually. Incidents in the last couple of years have raised concerns about security in the area and the physical infrastructure being inadequate.

Mritunjay Singh, president of the Hinjewadi Industries Association (HIA), told mediapersons earlier in the day that Hinjewadi First is an initiative that intends to gain the attention of the stake holders of the state and the city through a series of activities planned over the next three months. The intention is to highlight the need for improvement in the Hinjewadi area, making it a world class IT destination.

"We get adequate support from the government for specific problems raised, but the time has come to look at the growth potential of the area. We need to take a proactive approach in developing infrastructure, power, security and traffic on an urgent basis, looking at the growth potential of the area," he said.

Singh pointed out that there is only one arterial road in Hinjewadi and this is inadequate by any standards to handle the number of vehicles that carry the 70,000 plus professionals in and out every day. "If we allow things to go as they are, the road will choke very soon," he added.

According to Singh, the growth of Hinjewadi can be well-planned and structured if a dedicated and competent authority is created by the government to develop a holistic strategy for Hinjewadi and Pune as an IT hub. HIA is looking for completion of a fire station in Phase III, development of more connecting roads from Infotech Park to Balewadi and Baner to ease the traffic flow, improvement of public transport, increasing the water storage capacity by 5,000 cubic meters along with an alternate water line from Kasarsai dam, improvement in pumping facilities and changing the old water line to new.

Singh said HIA has planned many more activities involving a variety of stakeholders to find a comprehensive solution to Hinjewadi's issues. These will include round table meets, symposiums, traffic regulation drives, tree plantation week, opinion poll through different mediums and a big conclave to conclude the drive and the creation of a vision document for Hinjewadi, he added.  

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Guess what is common between Ramdev, Anna Hazare and RSS ?

The last few days in India have been very hectic for the media as the anger against corruption has been taken to level not seen in recent times. In such stressful times it is best to find some comic relief to soothe the nerves and ready oneself for the battle next morning. Chidambaram , one of India's cabinet ministers have graciously offered to provide Indian citizens their daily dose of laughter. 

On Twitter citizens from every walk of life are now joining Chidambarm in slamming the RSS for being responsible for almost anything and everything which has happened in the Universe for over few billion years.  Link here

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India's economic growth slows as rising prices hurt

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India has reported weaker-than-expected growth numbers for the first three months of the year.

The country's economy grew by 7.8% in the first quarter compared with the same period last year, the latest government figures showed.

India's economy has posted robust growth since the global financial crisis.

However, the Reserve Bank of India's monetary tightening policies have seen a loss of momentum.

Analysts say that as the central bank continues its fight against rising prices, the pace of growth is likely to be slow for some time.

"I think this loss of growth momentum will continue for industry for a quarter or two because we are not yet done with interest rate hikes," said Shubhada Rao of YES Bank.

However, analysts warned that though a slowdown in growth had been broadly expected, continued loss of momentum would have an adverse effect on the economy.

"It is significant because it is the first quarter of sub-8% growth since the crisis," said Sonal Verma of Nomura.

"The last four quarters we have been growing above 8%, so this is really a slow starting point for the next financial year," she added.

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Realtors grapple with huge unsold stock; rising prices & costlier loans hit buying plans

7,100 seems to the sweet spot for Malad. Anything above is just not affordable in any tier-1/tier-2 city.

Economic times reports

Dentist couple Sushma and Vikrant Mohanty had been looking to buy an apartment in Delhi-NCR for almost a year. But after several rounds of unsuccessful discussions with builders and umpteen visits to property sites, they decided to wait till prices came down.

The 2009 real estate slump had created lots of buying opportunities, but prices have climbed since then to what some believe are unsustainable levels.

Last week, as home loan rates shot up after RBI hiked interest rates, the couple saw their dreams come crashing down. They have now dropped all plans of owning a house.

"This is like a double whammy. Now I don't know when we will be able to buy a house. We are already paying heavy rent in Delhi," says Mohanty.

Across the city from where they live, RK Arora, managing director of Noida-based real estate company Supertech , is a worried man. He has seen a 10-15% drop in sales in the past few months. His company launched six projects in the past one year and prices have already risen 15-20%. He fears a further drop in demand. "Rising interest rates have already impacted demand," he said.

Builders like Arora and prospective home buyers like the Mohantys are caught in a bind. Rising interest rates and soaring prices are forcing more and people to put off purchasing plans, affecting builders who desperately need money to pay off costly loans and start new projects. The unsold stock in major cities has been going up, forcing banks and equity investors to call for a price cut.

"It's not interest rates that have spoilt the party, it's home prices," says Renu Sud Karnad, managing director of HDFC Ltd , one of India's biggest housing finance companies.

"There has to be some rationalisation of prices-by at least 10-15%-in the next few months," she added. Unsold residential units in projects that are completed or are nearing completion within the next 6-12 months in Mumbai and Delhi-NCR are as high as 25% and 16%, respectively, of the total number of units.

In other top cities, including Bangalore, Chennai and Kolkata , the numbers range between 12% and 19%, consultant Jones Lang La-Salle found in its real estate intelligence service for the first quarter of 2011 (see chart on Page 1).

"A price correction is imminent. How long can developers hold back... I think prices will correct by a maximum 15%," says B Niyogi, chief general manager, real estate and housing, State Bank of India , India's largest lender. Real estate research firm Liases Foras says approximately 471.9 million sq ft of residential stock, one-fifth the size of Chandigarh, is lying un-sold in the country's top six markets.

For real estate firms, with bad memories of the 2008-09 slump, these numbers are scary. But they also illustrate what could go wrong in a highly price-sensitive industry hugely susceptible to the vagaries of consumer sentiment, interest rates and commodity price changes.

"Cost pressures are building up for developers. They will have to cut prices to retain volumes, failing which it will impact profitability and cash flow in the coming quarters and affect margins as well," says Aashiesh Agarwaal, real estate analyst at Mumbai-based Edelweiss Se-curities.

Companies such as Gurgaonbased Unitech, one of the country's top builders, are feeling the pinch too. "Today, selling efforts need to be put in unlike earlier when all projects were selling on their own," says R Nagaraju, vice-president, corporate planning and strategy, Unitech.

In the past one year, the industry managed to bounce back from the 2009 slump, though the recovery has been uneven. In 2010-11, the industry took full advantage of the positive sentiment, economic growth and softer rates to sell more. Prices rose, not just because of demand but also construction costs. Rising steel and cement prices fuelled a 60% jump in construction costs. Price of land is not coming down either.

"It is becoming almost unmanageable," says Snehal Mantri, director-marketing at Bangalore-based Mantri Developers. Companies coped with the scenario by increasing prices and hoping that consumers would be able to pay. For some time they did, but the party may be coming to an end now.

At the end of trading on May 18, 2011, the BSE realty index was at 2,120.45, down 47.5% from its 52-week high of 4,034.35 on October 7, 2010, and down 84.7% from its highest-ever level of 13,848.09 on January 8, 2008. Defaults, not unheard of in the real estate industry, are likely to re-turn. Bank lending is already down after a recent RBI directive and scams involving real estate companies. Private equity, the alternative to loans and IPO, is playing coy too. They want builders to cut prices and get rid off the inventory.

"All private equity funds are working on the basis that there would be a 15% correction. No one wants to lose money," says V Hari Krishna, director-investments, Kotak Realty Fund , a sector-specific private equity firm.

According to PropEquity, a real estate consultancy firm, in the last one year, prices of new and existing housing projects in some parts of the country have risen 10-40%. In the first quarter of 2011, Mumbai has seen a 17% drop in home sales, Bangalore 14% and Hyderabad 15%.

Some builders think they can manage by focusing on small cities. Jaxay Shah, a real estate developer in Ahmedabad and vicepresident of Credai, insists that Mumbai and Delhi should not be considered as the barometer. These cities contribute hardly 4% of the national mar-ket. Sales in tier-2 and tier-3 cities are steady, though there is some panic due to hike in interest rates, which have climbed to around 11% from 8.25% a year ago.

An executive at a large home loan lender gives the example of smaller cities where local developers understand the market demand and know how much people are willing to pay. So they price their projects according to the paying capacity. Markets like Lucknow, Indore, Ghaziabad, Faridabad and others are doing well because the ticket sizes are low.

"The actual ticket size of a property is what matters. Rs 20-40 lakh is really the segment that will attract mid-income Indians," adds Karnad of HDFC. All this is happening at a time luxury projects are languishing. "Developers have not been able to interpret the activity in the mar-ket," points out Shveta Jain at Cushman & Wakefield .

Mumbai-based Omkar Realtors and Developers recently launched apartments at Rs 7,100 a sq ft in Malad, a Mumbai suburb, where other builders are still selling at Rs 8,500-13,000 a sq ft. Within 20 days, Omkar was able to sell a tenth of its total inventory of 1,000 apartments. Similar price cuts have worked in projects in Chembur and Dadar as well.

"Genuine demand still exists in the market. If one decides to stick to high prices, demand may remain elusive," said Babulal Verma, manag-ing director of Omkar Realtors & Developers. Across the country, many builders and lenders will hope that he is right. But there is another fear-the bottom could be a long way off. As Jaxay Shah of Ahmedabad says, "When buyers don't buy, they don't buy at any price, because of the sentiment." The industry will hope that he doesn't turn out to be right.

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