Builders blink, first price cuts are here

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After stubbornly holding on to high prices for four years in the face of sluggish sales, a crippling liquidity crunch and rising cost of capital, Mumbai’s real estate industry has just blinked.

At least three of Mumbai top builders have either cut prices by as much as Rs 2250 to Rs 5,000 or introduced flexible pricing within a single project, or launched innovative schemes where buyers stump up large sums to book properties even before the project enters construction stage.

All this means only one thing - the longdue correction in real estate prices is here. And while many builders may not be announcing price cuts up front yet, it is no secret that they all are now willing to negotiate with buyers.


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A survey conducted by Knight Frank, areal estate consultancy firm, in June last year had revealed that Mumbai real estate market had an unsold inventory of 80,000 units worth approximately Rs 1,050 billion.

The report had also stated that the global economic crisis of 2008 affected the market adversely as prices dipped in some micro-markets at the premium end of the market and rebounded, scaling to their 2007 highs in the subsequent two years.

But in 2012, the Mumbai market stagnated as buyers largely kept away expecting a drop in prices in the near future. The buyers’ patience has paid. The Mumbai market is now opening for good bargains.

Lalit Kumar Jain, president of Confederation of Real Estate Developers Association of India, said the liquidity crunch is forcing builders to reduce prices and clear inventory. He expects more builders to follow Naman, RNA and Lodha’s example.

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Watch Out Asia, Inflation Is on Its Way

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Inflation in Asia may be under control now, but prices across the region could soon start to creep higher, with India and Southeast Asia the most vulnerable, warns independent economist Andy Xie.

"At the end of the day, you have all this money out there. It's rational to expect inflation," Xie, a former chief Asia-Pacific economist with Morgan Stanley, said. "India is the most vulnerable. It cannot solve supply bottlenecks. Southeast Asian economies like Indonesia and Thailand too."

Inflation in India could rise to 10 percent and above 5 percent in Southeast Asia, according to Xie. He expects inflation in China to rise to 4 percent - doubling from where it is now.

High inflation in India meanwhile dogged the country's central bank last year and prevented it from cutting interest rates aggressively to boost a flagging economy. India's wholesale price index, the main measure of inflation, rose 7.24 percent in November from a year earlier.

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"In Hong Kong and Singapore, the issue is very much about interest rates. So it's going to be similar to 1998," he added, referring to the property bubble that burst at the peak of the Asian financial crisis.
House prices in the two cities could plunge by half if interest rates go up, he added.

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What will this do to Home Prices in India ????

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AL Jazeera's news segment on India's housing bubble

Investors lose thousands of rupees per day as construction workers cannot make ends meet for daily needs. A tale of two India's.

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RBI says no to restructuring of real estate loans (to builders)

Copy paste from ET website


MUMBAI: The Reserve Bank has turned down banks' demand for restructuring stressed real estate loans without providing for potential losses, a move that could mount pressure on builders to lower prices as banks push to recover loans.

The central bankBSE 1.01 % believes that if banks are permitted to restructure the loans without providing for losses, they will lose the urge to insist on prompt payments from builders, who in turn would continue to hold onto prices even if sales are slack, two bankers familiar with the discussions said.

Builders will get the benefit of paying the same loan over a longer period without feeling the pinch to repay, RBI Deputy Governor KC Chakrabarty is supposed to have told bankers in a recent meeting, said the two bankers who did not want to be identified.

Banks will be at ease once the loan is prevented from becoming a sub-standard asset, Chakrabarty said.

Real estate prices have been rising steadily since the government prodded the central bank to give a one-time benefit for restructuring of real estate loans during the credit crisis in 2008.

But in most parts of the country, prices have soared through the roof, bringing down home sales. If banks pressure developers, it could lead to a fall in prices.

Home prices at an all-India level rose 6.7 per cent in the first quarter of this fiscal, data from the Reserve Bank of India shows. Transaction volumes rose 9.3 per cent.

While property prices have been rising across the board, transaction volumes have been falling in cities such as New Delhi, Bangalore, Kolkata and Chennai.

Bankers had sought a special dispensation due to rising bad loans that are eroding their profitability.

Total real estate bad loans, net of provisions of all commercial banks, rose 55 per cent to Rs 64,900 crore on March 31, 2012, from Rs 41,700 crore on March 31, 2011. State-run banks' share in this was Rs 59,100 crore, up 64 per cent from Rs 36,000 crore.

Currently, banks have to classify restructured loan of a real estate company as bad loan the moment it is reworked.

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Attribution - 
http://economictimes.indiatimes.com/markets/real-estate/realty-trends/buying-a-home-to-get-cheaper-as-rbi-says-no-to-restructuring-of-real-estate-loans/articleshow/17406901.cms 

Reporter: Sangita Mehta,ET Bureau
Copyrights: Economic Times  (TOI - Bennett Coleman)


Disclaimer: copied for information purposes only

It will be fun to see how builders (and their politician masters)  will now force the Government owned banks to backdoor restructure the RE loans dished out to builders

Correct me if I am wrong but -
SBI, HDFC, LIC and ICICI are the top mortgage lenders in the country.

Ironically the same bankers (and their politician masters ) are making it worse to get home loans by charging ridiculous pay off fees, unnecessarily high interest rates, horrible customer service, unrealistic stamp duty and VAT.

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Loan growth stonewalled by surge in house prices, crashes to 5-month low as buyers fail to turn up

Its Diwali and all as per the norm, this is the season for making big purchases like houses and cars. Unfortunately this year is turning out to be damp squb. Very high inflation has pushed daily budgets of most middle-class citizens to the brink. Nobody in the right mind is making any big purchases. Anybody with an account with a bank is hounded by retail bankers pushing loans and investment. Most are not buying the bait. Existing loan owners have seen their EMI tenure extended by 10 years to a maximum of 30. One friend of mine complained he has been servicing the interest for the past 2 years and has added almost nothing to the principal. The flat now has cost him more then what he has paid even after regularly paying the EMI. 

The black magic of compounding of loan interest is only experienced by the borrower. 

Brokers tell me that the market has a gone silent for loan properties over 1 Cr in Mumbai. The only buyers in the market are those who trade up/down their existing properties depending on their need. No Gujarathi NRI's are interested in the market. Hurricane Sandy has hit a  huge number of Gujarathi's business owners in NY and NJ. I just heard from one who wants to dispose of his Mumbai property.. Here are pictures from Hurricane Sandy. The devastation to property is just mind numbing.  With so much damage to houses it seems that housing rental market is going to give the newly displaced a new shock. 

Economic Times  article is here

MUMBAI: Growth in home loans has slumped to a five-month low despite banks showering potential buyers with attractive schemes and lower rates due to soaringreal estate prices. 

Buyers are holding back since an over-24% increase in prices in the past one year is putting homes beyond their reach despite banks lowering interest rates by 100-150 basis points in the past four months. A basis point is 0.01 percentage point. 

Home loans have grown by 11.2% year-on-year in September, compared with 15.6% in the same month a year ago. The latest growth rate for home loans is the lowest since April. 

"Interest rates have a limited role to play in house sales," said VK Sharma, CEO at LIC Housing FinanceBSE 0.54 %, India's second-biggest mortgage lender. "Home prices affect sales more than interest rates. If the house price range is within the capacity of the middle class, then sales pick up." 

Facing slowing demand for loans from corporates, banks have been pushing retail loans, especially mortgages, since it is one of the safest forms of lending. But steep prices are stalling sales. More than 80,000 flats remain unsold in Mumbai and the financial capital has lost its crown as the fastest-growing market. 

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Vadra bubble in Bikaner too. land prices jump 40 times

No one can make up these stories. Truth is stranger then fiction. Here is another article on how land prices in Bikaner a medium sized town in Rajasthan jumped 40 times after Robert Vadra started his investments. It looks like Robert is responsible for the misery of Indian's when it comes to housing.

DNA report is below. Full article is here

In a flurry of deals between June 2009 and August 2011, Robert Vadra purchased at least 20 plots of land collectively measuring more than 770 hectares in Rajasthan’s Bikaner district, in a region that would see prices spiraling soon after.

A clutch of investors, including Vadra, apparently privy to information on upcoming industrial projects in the vicinity, reaped huge profits with land values appreciating by up to 40 times since 2009.

Click here to read the list of plots

Data from the office of the registrar in Bikaner shows 20 properties Vadra purchased through companies, including Real Earth Estates Pvt Ltd, North India IT Park Pvt Ltd, and Skylight Realty Pvt Ltd. All the deals were executed on his behalf by Mahesh Nagar, brother of Haryana Pradesh Congress Committee member Lalit Nagar. These companies together invested Rs2.85 crore in barren land here during this period.

“Vadra clearly misused his position as the son-in-law of Sonia Gandhi,” said Devi Singh Bhati, six-time MLA of the Kolayat tehsil where most of the Bikaner deals took place. “The land was purchased either in the knowledge that industrial projects would be announced, or circumstances were created to bring projects to the area.”

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Vadra and cronies to blame for India's housing bubble.

Economic times writes here on Robert Vadra's role in inflating India's housing bubble. Looking at the data we can safely conclude that India's housing bubble is been inflated beyond limits by politicians and their black money dealings with builders with tacit support of public sector banks. The property flippers and NRI's are just pawns in this real game where the biggest transfer of wealth and land to politicians has been done in broad daylight with everyone from the law enforcement and the fourth estate turning a blind eye to this mega scam of massive proportions. NREGA and all schemes for the poor of the country are just eyewash to win votes so these greedy politicians can accumulate wealth which can be measured in astronomical units.



During 2009 and 2010, Vadra bought 25 apartments in DLF Capital Greens, a premium project constructed on a 38-acre land that DLF acquired from DCM Shriram and the Lohia Group in 2007 for Rs 1,675 crore. While the builder launched the first phase of the project at around Rs 4,500-5,500 per sq ft, the prices subsequently increased to Rs 10,000 per sq ft. Vadra brought these apartments in the first phase and sold them in 2010-11.

He also booked 15 apartments in DLF Magnolias, a premium project next to a company-owned golf course on the Gurgaon Golf Course road that is nearing completion. Of these, he has already sold 13 apartments and still retains two units.

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Here is the summary of Shriram Subramanium on investing in real estate stocks. Full article here.

The ongoing DLF  - Vadra controversy has brought to light the blatant transgressions that real estate companies - listed and un-listed - adopt in India. Real estate companies have never been known to be high on transparency and corporate governance. This is just a reflection of the deeper morass in the real estate sector, which is by far the largest and most valuable asset class in India. It is not the marketplace that decides the fortunes of real estate companies, but the builder-politician nexus that picks out the winners in this sector.

Realty sector shouldn’t be listed as the companies don’t need shareholder funds, nor will they ever make any money for investors. 

This is because:

(a)   The sector depends a lot on black money.

(b)   There is little transparency in land values or construction costs.

(c)    Politicians and bureaucrats have lot of discretionary power in deciding winners and losers.

(d)   Companies need to pay speed money to get all approvals for all stages of project development.

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