dot_net

Same in year 91 when stock markets crashed, kandivali prices came down by half.

I guess the story is going to repeat now in few weeks...

Pinnacle

I think you got all your fundas mixed up
Realty markets are more driven by fundamentals than the senex
With cost of costruction, TDR and all input costs coupled with double digit inflation, there is no way rates can come down by 50%

Please do not indulge in such misleading stuff

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Ram

Yuvaraj

Sir, Its quite possible you may have not seen bear market in Real Estate. Prices in most part of Mumbai fell almost by 50% in a space of 4 years between 94 and 98. Your logic of increase in input costs applied even then. Please DO appreciate that there can be a Bear market in Real Estate too. Even if Oil remains at the current level or even decreases by 10% the Indian economy will be shattered if the entire Oil burden is passed on to consumers. Just for a 5 Rupee increase in Petrol Inflation is 11%. Imagine what will happen if the 21 Rupee shortfall in Petrol (and corresponding shortfall in Diesel) is passed on to the consumer. Interest rates have to hover around 14% and this will destroy the already flagging real Estate market.

Pinnacle

Dear Yuvraj,
I am a Realty Analyst and been tracking the industry since 1990 and have seen all the business cycle here. I have never said that the Realty market is immune to a crash. All i said was statements like property will fall by 50% cos stock market crashed by xyz doesnt hold true

Every one is aware that price is always a function of Demand & Supply. And even at stratospherical levels, there will be Buyers of such high priced properties. Are you aware that more than 45% of the realty sales in India is driven by slush money which has no bearings of any inflation or other related casualities.

There is an interestin article on the financing of Realty in today's TImes of India front page.
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Moneylenders funding cash-crunched builders

Nauzer Bharucha | TNN



Mumbai: They could be dismissed as a nondescript group of people chatting on the lawns of an exclusive club or strolling down Marine Drive. Their clothes are quiet, their gait without swagger. Indeed, it’s hard to believe that these are the very men who have a vice-like grip over some of the biggest builders in the country. They are India’s wealthiest moneylenders who, even as the banks tighten their belts, loosen their own purse-strings.
With financial institutions and banks increasingly restricting loans to developers, these moneylenders—primarily belonging to the Sindhi, Marwari and Kutchi communities—have stepped in to play their part. “Builders have been approaching them in droves for loans at phenomenal interest rates ranging anywhere from 20% to 36% annually,’’ said an insider, who is aware of this powerful financial world that operates in secret. “These money-lenders are mainly active in three cities—Mumbai, Bangalore and Chennai. When money has to be raised, phone conversations are avoided,’’ one of them said.
The source confidently said that the amount of loans these unofficial moneylenders have disbursed could well run into thousands of crores. The loans are given to builders for short periods, from three to six months. They range from a couple of crores to as much as Rs 100 crore. If the amount is substantial, about 10 to 15 of those in the group come together to fund the project, it’s learnt. The builder has to mortgage his property to the investor in case he fails to pay up. The loan is given both by cheque and cash—the latter comprising as much as 40% of the loan. Politician, matka kings among big realty players
Mumbai: The moneylenders who bankroll mega housing projects and unofficially help keep the wheels of the economy moving are the stuff of legend. “They are literally sitting on tons of cash and some of their families have been in the business of money-lending for the last 500 years,’’ a leading investor told TOI recently, requesting anonymity. He elaborated, “Over a century ago, these families had such a strong reputation that their cheques and promissory notes were honoured by the emperor of Japan, the czar of Russia and the shah of Iran.’’
Private money-lending has had a big role to play not just in real estate but in entertainment in the days when official funding was hard to come by. “In the 1940s, the Hindi film industry survived on their money,’’ said the investor. “It was from the 1950s onwards that they entered the real estate field. Today, some of the biggest developers in the country turn to them for loans.’’
Among other big investors in construction are diamond merchants who, it is believed, have a stake in some of the biggest residential and commercial projects in the city. “But many diamond merchants have burnt their fingers because of the crash in the stock market,’’ real estate sources said.
Apart from the traditional money-lender, there is another category of property investors who function in a more shadowy way. They are the big-ticket matka operators from Gujarat who have a large stake in several residential projects in the suburbs. TOI has learnt that at least a few builders from the eastern suburbs have started their projects with the help of slush money provided by these operators.
“It is well known in the industry that certain builders have suddenly shot to prominence—from being virtually nobodies to big players in a few years. Some of them proudly claim that they have never taken loans from financial institutions but manage to raise funds through private sources,’’ a developer pointed out.
Then there are the politicians. Their footprints are found in virtually every major slum rehabilitation scheme in Mumbai. It’s widely believed that many builders are being backed by politicians, including ministers, from different political parties. One construction group has seen its fortunes steadily rise over the last five years because of its political connections. The group targets slum redevelopment projects and bulldozes them after first threatening the more obstinate slumdwellers and then evicting them overnight.
Another financial services company, which has a huge stake in real estate, has shot to giddy heights in seven years and its influence over policy-makers is mainly due to the alleged support of a powerful political family based in Delhi. The family has invested its slush funds in this company. “In the construction industry, some developers are known to be associated with certain politicians. Several of the big land sales have been funded by these politicians,’’ a source said.
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Ram

Pinnacle

There are phases of appreciation and depreciation in all markets ( bears n bulls ) But in 2008, input costs are the highest.. be it cement, steel, labour, TDR, land cost, permissions etc.... Are you aware of the number of NOC's that has to be procured to construct a single building and the speed money that applies to these ? In short, if prices fall, it will not make sense for a develper to make buildings and run into losses. He simply holds on to the land bank as currently there is no TAX on vacant land

In the 90's falls, the spree began due to speculators and today there are more investors than specualtors who have a long term perspective. If they have earned 200% in last 4 years, they would not mind a hit of 20-30% loss in the profit if they have to hold on. And specially in case of apartments, that are ready, the paltry rentals at least take care of part of the EMI and the maintenance.

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Ram

dot_net

Ram

Correction in the real estate market is round the corner. I am in Mumbai since past 20 yrs and cannot digest someone quoting 9000 per sq. ft in Thane and over 7000 in Kandivali.
As real maket had a boom time the valuations of all the property have gone to a very high level very people cannot BUY anymore.
It has to come down, by how much in for which areas / properties is only a question.
last time sotck market crashed and so real estate followed, it is just a matter of time ... looks like

dot_net

Coming Property Crash
One persons loss is another persons gain.

Sellers:
If you have any property for sale, sell it now. Dont be greedy. Else you are in for a big loss.

Buyers:
Dont buy property now. Wait for 6 months. If things are going down, wait another 6 months. The property rates are going to crash.

Here are the reasons:
1.) Builder/Politician nexus has caused the hype.
2.) The prices of real estate has increased by 3-5 times.
3.) Supply is more than demand for such premium prices properties.
4.) Salaries/Cost of material/Labour has not increased in the same ratio.
5.) There has hardly any improvement in infrastructure.
6.) No value added. Same traffic jams and trash once you get outside the community.
7.) Interest rates have gone up. Monthly instalments are becoming impossible for even profesionals. Not everyone is IT-Project leader.
8.) Stockmarkets have collapsed. DLF stocks has gone down significantly.
9.) There is liquidity crunch. FIIs have taken the money out to compensate for their losses in US due to sub-prime crisis.
10.) If you buy a property now, be prepared to stay in it for 5-10 years. You will be lucky if you can find a tenant who can pay 75% of your monthly mortgage. So you will loose 25% every month on interest costs and even more if the property prices go further down!

Pinnacle

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Ram