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Builders & Real Estate Bulls Theory Proved Wrong

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Builders & Real Estate Bulls Theory Proved Wrong

Last updated: November 1 2016
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  • Re : Builders & Real Estate Bulls Theory Proved Wrong

    If commercial or residential units are unaffordable, unsold, vacant- the underlying reits will not be attractive. If there is an oversupply- the rental yield will be less.

    Similarly, delay in project completion due to lack of funds etc will not happen, because REITs will allow more liquidity in the sector.

    REITs is good for the RE sector. more money, more investors, more transparency, more regulations, lesser complaints (hopefully)

    Comment


    • Re : Builders & Real Estate Bulls Theory Proved Wrong

      Originally posted by herohiralal View Post
      Yeah so again now know how supportive this govt is to controlling the RE bubble.

      Affordable housing is given special status. Start of Indian Sub-Prime. Enjoy the RE bubble. Even RBI is saying 50 lakhs is affordable now. Wow.
      hh,

      As far as status is concerned, it sounds only good on paper. Take the case of infra sector, which has been accorded priority sector or even the SMEs have priority lending sector. Yes, infra & SMEs, both are in mess & have issues related to liquidity. Did any 'Priority' here did anything really good on ground ? No. Same goes with housing. RBI can give priority sector but at the end of the day, it is going to be the bank which is going to decide to whom to give or not give home loan.

      And this part apart, today, the RE prices + inflation is high, incomes are not catching up, real growth is negative. So can buyers still buy highly priced flats, not to forget the poor infra around ??

      In layman words, there is nothing for flat buyer be it RBI status or budget giving additional 50k. Again as I said, even if interest rates are made 8% (hypothetical), it still won't help as the basic loan amount itself is high.

      Man, think from a buyers' perspective.... does this mean anything to him/her ?? What matters is only price correction, just the way we are seeing in auto sector which is helping to give atleast some boost, even if it means most of it is coming in sub-5-6L category.
      If you are happy, you are successful.

      Comment


      • Re : Builders & Real Estate Bulls Theory Proved Wrong

        Originally posted by rembrants View Post
        If commercial or residential units are unaffordable, unsold, vacant- the underlying reits will not be attractive. If there is an oversupply- the rental yield will be less.
        +1.

        Similarly, delay in project completion due to lack of funds etc will not happen, because REITs will allow more liquidity in the sector.
        First, as said before, REIT will chase commercial completed property more than anything else.
        Also, builders like Jaypee or Salarpuria are having good funds, yet their projects are delayed due to poor sales & they don't to to divert their money from their pockets towards completion of the project. Similarly, if sales are not good, why would REIT enter in such projects at first place ?
        If you are happy, you are successful.

        Comment


        • Re : Builders & Real Estate Bulls Theory Proved Wrong

          Originally posted by herohiralal View Post
          Here is the details of those changes. People will just invest in NHAI bond. People will just be attracted to REIT now. Falls counter to ur analysis that REIT are of no use

          Selling a House? Tax Changes You Need to Know – NDTV Profit
          Read that man, & see how in totality, it is not good for investors as 'flipping' of houses won't be possible like earlier, & still if one does, heavy taxes are there. Its good for end users than investors.

          Are you going to reply to my post on REIT? Again the whole thing about REIT being -ve for RE is just plain wrong.
          Now please see this link below & click on image view.
          You will find that REIT is interested in 'Completed, Rent Yielding commercial projects'.

          Opportunity for unlisted players

          Venky,

          Fantastic posts. +1 to that.
          Wonder why bulls claim that REIT will buy land & build on it ?

          hh,
          Your take on Venky's post please.
          Last edited by realacres; July 16 2014, 07:43 PM.
          If you are happy, you are successful.

          Comment


          • Re : Builders & Real Estate Bulls Theory Proved Wrong

            Budget 2014: Rating agencies say Arun Jaitley's fiscal targets hard to achieve

            Rating agencies today said Finance Minister Arun Jaitley's assumption of containing fiscal deficit at 4.1 per cent of GDP is difficult to achieve given the poor outlook on the revenue front and absence of reduction in subsidies.

            "The fiscal deficit target will be hard to achieve. The government is betting on a sharp increase in revenues in a slow growth year," rating agency Crisil said in a note today.

            Jaitley's fiscal arithmetic, it said, is "shaky", and the scope for fiscal slippage "remains high". The agency estimates fiscal deficit to touch 4.5 per cent this fiscal.

            It also said Jaitley is betting big on indirect taxes and proceeds from divestment to bridge the tax revenue gaps, where he is expecting to raise Rs 58,400 crore in the remainder of the fiscal, but his Budget displays "little progress on subsidy reduction".

            "The Budget lacks details on revenue and expenditure measures to lower the deficit, making it difficult to assess the likelihood that future deficit targets will be met," international rating agency Moody's said in a note.

            Budget 2014: Rating agencies say Arun Jaitley's fiscal targets hard to achieve - Economic Times
            If you are happy, you are successful.

            Comment


            • Re : Builders & Real Estate Bulls Theory Proved Wrong

              Good post by Venky especially the one about price discovery.
              However, note that unlike MFs, in REITs the NAV is determined by a professional appraiser. The market value of the REIT itself can be above or below this. (sort of like close ended MFs).

              >Once the market finds out that a REIT has made a poor investment, that REIT will be punished, value beaten down and never again will anybody trust these bad quality REITS.
              If the MF industry is any indicator, then the REIT will be quietly shut down and the fund managers will move on and create new ones with shiny names (India advantage, India 2020, .. .

              So yes, I would welcome REITs, will invest in them and never again will I ever buy physical property I dont need for self use - a lot os other real estate investors will be thinking the same thing

              Amen to that. I have no real estate holdings and have been patiently waiting for something like this. Armchair investing in RE without having to put in huge amounts, run around govt offices, worry about land grabbing, etc etc.
              Wait for a few more years, till tax issues are resolved, find out how much are expense ratios, and the incompetent ones are filtered out.

              Comment


              • Re : Builders & Real Estate Bulls Theory Proved Wrong

                Originally posted by southsea View Post
                Good post by Venky especially the one about price discovery.
                However, note that unlike MFs, in REITs the NAV is determined by a professional appraiser. The market value of the REIT itself can be above or below this. (sort of like close ended MFs).

                >Once the market finds out that a REIT has made a poor investment, that REIT will be punished, value beaten down and never again will anybody trust these bad quality REITS.
                If the MF industry is any indicator, then the REIT will be quietly shut down and the fund managers will move on and create new ones with shiny names (India advantage, India 2020, .. .

                So yes, I would welcome REITs, will invest in them and never again will I ever buy physical property I dont need for self use - a lot os other real estate investors will be thinking the same thing

                Amen to that. I have no real estate holdings and have been patiently waiting for something like this. Armchair investing in RE without having to put in huge amounts, run around govt offices, worry about land grabbing, etc etc.
                Wait for a few more years, till tax issues are resolved, find out how much are expense ratios, and the incompetent ones are filtered out.
                I am assuming that Indian REIT will be listed on stock exchanges and their shares will be freely tradable as with REITS in other countries.

                So the NAV based on portfolio will be periodically disclosed as per regulation - just like a companies balance sheet.

                Price of the REIT share will be instantaneously priced by market participants, same as any share. So if you dont like a share, sell it in the stock exchange.

                Even REITs in developed countries which act like fund of REITS - base their performance on the daily share prices of the REITs they own - just like a mutual fund owns shares of companies. These are fund of REITS and not REITs themselves.

                Fly by night REITs are of course very much possible. Remember Taurus star share mutual fund? I think it is still around at some 10% of original NAV. And Home Trade Bond fund - with Hrithic Roshan dancing on TV ads and me wondering - what the hell is Home Trade?

                Originally posted by rembrants View Post
                If commercial or residential units are unaffordable, unsold, vacant- the underlying reits will not be attractive. If there is an oversupply- the rental yield will be less.

                Similarly, delay in project completion due to lack of funds etc will not happen, because REITs will allow more liquidity in the sector.

                REITs is good for the RE sector. more money, more investors, more transparency, more regulations, lesser complaints (hopefully)
                REITS are great for the sector. But they will only buy completed projects. They are not project funding agencies. Funding UC property should be a major breach of trust under any kind of sensible regulation.

                I am sure FM doesnt want another Sharada Ponzi Scheme - and wil lregulate properly.

                Real estate companies should not be allowed to form REITS. I would never trust DLF with a REIT.

                Originally posted by realacres View Post

                Wonder why bulls claim that REIT will buy land & build on it ?
                REITS are mandated to buy only completed and registered properties, rent them out, and periodically declare all income minus costs as dividends. They are not allowed to retain rents except for some minor amounts, for growth - they can only use fresh collections for growth. So divident declaration is the main job of REIT.

                I am hoping that Indian REITS are regulated to do the same thing.

                Otherwise what is the difference between a REIT and a real estate sector mutual fund?

                I sure hope REIT is not a crony private equity fund set up with public money which will only cheat the common man.

                There is every danger of that happening
                Last edited by Venkytalks; July 17 2014, 12:29 PM.
                Venky (Please read watch a or before posting)

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                • Re : Builders & Real Estate Bulls Theory Proved Wrong

                  The flow will be like this:

                  - Private equity funds will continue to lend/ fund builders at project conceiving stage
                  - Land bought, approvals received and projects are now ready for bank finance. Part of this bank financing will be for repaying the PE investor and part for the project.
                  - By now, the project is completely funded under construction sales begin. At this stage, value of the project increases. The PE and the builder liquidate their investment by listing the investment as REIT.
                  - Investors who like to invest in less risky RE projects/assets will be willing to buy REITs at this stage and original PE investor and builders exit with handsome returns towards the next project
                  - Hereafter, since the units are listed, they can be held by both short term and long term investors.
                  - Increased transparency: Just like shares of a badly governed company get beaten up on the stock exchange, REITs with bad underlying projects -where sales are moving slow or construction is stalled or rental yield is less will be under performing.- This will in turn impact the developers reputation, who will hence be more cautious.
                  - More investors, will mean more pressure on ministries and local authorities to behave. Stalling project approvals for bribe and corruption etc will be checked.

                  This no-way means that RE prices will decline; REITs will only provide less risky RE investments.
                  Last edited by rembrants; July 17 2014, 01:15 PM.

                  Comment


                  • Re : Builders & Real Estate Bulls Theory Proved Wrong

                    Well presented views Venkyanna.
                    Here is something that bothers me.
                    Stock market players shun mutual funds.Stock is a kind of addicting investment which gives them thrill.
                    RE players avoid REIT.RE is a kind of addiction.Will they turn to REIT?
                    People park money in land to avoid tax implications entailed by FD and such things.Will they turn away from RE? Whatever may be the arguments people buy gold for the same reason.How will the scenario play out?
                    Immediately after the budget I posted that burst will be postponed because of freedom to banks to raise long term funds without any obligation.No one noticed that fine line and now that seems to be turning out real.
                    My take is that some industry tycoons invest in REIT and be responsible for propping up inflated RE.Common man is really screwed.




                    Originally posted by Venkytalks View Post
                    One more point since a lot of discussion on this.
                    Originally posted by Venkytalks View Post

                    What is good for the real estate market is not necessarily good for an already invested flat investor i.e. price appreciation.

                    REITS are good for the market as a whole. They are a good way for us normal people to allocate funds to real estate without moving from armchair. The daily price volatility is good for price discovery - since you and I will determine the price of the REIT by trading in it.

                    REITS are really bad for the existing way of doing business and for existing investors in flats or other types of real estate.

                    The better the price discovery, the more the competition, the more real estate prices will alighn themselves with current yields. Money for good companies with good execution and good professionalism will be available.

                    At the same time, the poor quality builders will see their financing dry up. Currently they entrap buyers with lower initial prices and once trapped they screw them with delayed executions, poor quality and no renters. They will find it difficult to do this with REITS. Once the market finds out that a REIT has made a poor investment, that REIT will be punished, value beaten down and never again will anybody trust these bad quality REITS.

                    Look at DLF and Unitech share price. The same will happen to the bad REITs. Whereas the good REITS will do well like the Prestige Estates of the world.

                    So yes, I would welcome REITs, will invest in them and never again will I ever buy physical property I dont need for self use - a lot os other real estate investors will be thinking the same thing and so REITS are a huge negative for the currently overpriced properties.

                    Comment


                    • Re : Builders & Real Estate Bulls Theory Proved Wrong

                      How long this game of Price Appreciation higher than Rental increases can go ? Will this attractiveness of RE to black money will make today's rental yield of 2-3% in India a new normal and rental yield will never touch 4-5% seen in western world ?



                      "House prices rise faster than wages

                      House prices rise much faster than wages, which means that houses become less and less affordable. Anyone who didn’t already own a house before the bubble started growing ends up giving up more and more of their salary simply to pay for a place to live. And it’s not just house buyers who are affected: pretty soon rents go up too, including in social housing.

                      This increase in prices led to a massive increase in the amount of money that first time buyers spent on mortgage repayments. For example, while in 1996 the amount of take home salary that a first time buyer would spend on their mortgage was 17.5%, by 2008 this had risen to 49.3%. In London the figures are even more shocking, rising from 22.2% of take home pay spent on their mortgage in 1997 to 66.6% in 2008."
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                      Last edited by Baruch; July 17 2014, 04:21 PM.

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