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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

    Corruption, Black Money and RE

    Found an interesting article...

    The Economics of Corruption - Value Research: The Complete Guide to Mutual Funds

    A snippet that is relevant in this forum...

    [
    This kind of money has to stay invisible, and that is its biggest priority. So it must be spent as soon as possible: either as consumption, or in real assets, or sid off abroad, where it lies, profitless, in some Swiss Bank, reducing the cost of international capital. All possibilities have a salubrious effect on their respective economies, which is why some pretty rich and otherwise sensible countries don’t mind keeping ‘dirty money’ in their banks.
    The rather large amount of black money lying in Indian real estate has helped keep leverage low, and arrested bubble collapses. A lot of this money is thanks to corruption. The lower leverage improves the debt quality of mortgage lenders like HDFC, besides reducing the cost of capital indirectly. Rentals are always below the cost of mortgage finance, making it easier for those who cannot afford housing. As the old saying goes, “Fools build houses, and the wise live in them."


    ]

    Not sure how many builders are actually completely dependent on the banks (or any legal financial means) for their funding. I wonder if a politician who makes 100CR in a scam and gives to his builder friends, really cares to get that money returned as quickly as other legal financial institutes. For him, it is asking for trouble. There lies the true capacity of the builder to hold up the prices and not budge. Despite all the signs that the RE is about to correct, the black money may just lock the anticipated huge fall.

    Comment


    • Re : Builders & Real Estate Bulls Theory Proved Wrong

      India seen as least preferred among Asia Pacific markets

      Check this article.....
      India seen as least preferred among Asia Pacific market

      will this effect RE market in India.

      Comment


      • Re : Builders & Real Estate Bulls Theory Proved Wrong

        Good post wisey .

        Kaushik,

        Even if there is black money in RE, at the end of the day, it has to be purchased by white money!! Will the investor with cash give the money to builder with no returns or for infinite time just because it is black money?? NO.

        Man, in business, money is money, it has no color.
        If you are happy, you are successful.

        Comment


        • Re : Builders & Real Estate Bulls Theory Proved Wrong

          Originally posted by vivek.cap View Post
          Check this article.....
          India seen as least preferred among Asia Pacific market

          will this effect RE market in India.
          And cities like Mumbai are amongst highest price in the world & with some of the worse infra. Recently, Delhi has over-taken Mumbai for best place for business for the first time in history.

          In latest survey, Mumbai's population density is 27000 people/sq km while Singapore is the Greenest city in this part of the world.
          If you are happy, you are successful.

          Comment


          • Re : Builders & Real Estate Bulls Theory Proved Wrong

            Originally posted by realacres View Post
            Good post wisey .

            Kaushik,

            Even if there is black money in RE, at the end of the day, it has to be purchased by white money!! Will the investor with cash give the money to builder with no returns or for infinite time just because it is black money?? NO.

            Man, in business, money is money, it has no color.
            I completely agree with the theories related to this. However when we observe the things around us we don't feel the same. Your original post on this thread was around 2.5 years back and since then the RE prices have gone real high. I have heard about builders in Mumbai who can keep their flats unsold for years but will not do deal in white. At least in Pune builders are ready to sell in full white.

            My observations are that the black money is in abundance. Small shops are bought and sold for almost a crore in Pune. And the buyers are the businessmen who will not give you any receipt of the purchase. e.g. medical shops will not give u a receipt unless you ask for it. Other kirana, sweet and misc shops never give you any receipts. And even those who do like the clothes shops they have kaccha and pakka receipts. I have seen these shops doubling or trebling their business in the last few years in the area I live in where. This makes me believe that RE is full of black money. Certain section of people seems to have money and inflow of money such that they can hold for at least a century.

            Personally I don't like the idea of RE as investment because when I see around so many land kept vacant lying around which otherwise could be used for agriculture and increase the food production. Some of these land I have been seeing since my childhood which is more than 30 years. Investors in RE without any goal to use it just wasts resources which otherwise could be used for the betterment of the society.

            Comment


            • Re : Builders & Real Estate Bulls Theory Proved Wrong

              Originally posted by kaushik.v View Post
              I completely agree with the theories related to this. However when we observe the things around us we don't feel the same. Your original post on this thread was around 2.5 years back and since then the RE prices have gone real high. I have heard about builders in Mumbai who can keep their flats unsold for years but will not do deal in white. At least in Pune builders are ready to sell in full white.

              My observations are that the black money is in abundance. Small shops are bought and sold for almost a crore in Pune. And the buyers are the businessmen who will not give you any receipt of the purchase. e.g. medical shops will not give u a receipt unless you ask for it. Other kirana, sweet and misc shops never give you any receipts. And even those who do like the clothes shops they have kaccha and pakka receipts. I have seen these shops doubling or trebling their business in the last few years in the area I live in where. This makes me believe that RE is full of black money. Certain section of people seems to have money and inflow of money such that they can hold for at least a century.

              Personally I don't like the idea of RE as investment because when I see around so many land kept vacant lying around which otherwise could be used for agriculture and increase the food production. Some of these land I have been seeing since my childhood which is more than 30 years. Investors in RE without any goal to use it just wasts resources which otherwise could be used for the betterment of the society.
              Kaushik's observations are correct. Businessmen periodically park their illicit money in RE.

              Comment


              • Re : Builders & Real Estate Bulls Theory Proved Wrong

                You have every right to question ...

                Originally posted by kaushik.v View Post
                Thanks. my intention was not questioning but to get a clarification on the same. Your reply is very detailed and clarifying.

                Kaushik,

                Except for statements of fact, everything eise (especially analysis and deductions) are only opinions. So you have every right to question if you don't share the view.

                I am careful in only stating things neutrally and not getting aggressive o personal (since that only distracts people from the actual point).

                An interesting point made was that if a politician wanted to place 100 Cr somewhere and not necessarily to get quick returns then this money might support price levels. This is a good point and sounds logical.

                I also go with the theory that when there is substantial black money into an asset class (as a proportion of total money in that business) then there will be less distress and therefore less chances of price reduction.

                The only issue is whether this can happen nationally and whether it can weather the storm of a large supply of investment properties into a market due to sudden strain of job/salary losses as well as builder losses. Can the amount of black money run into 10s of thousands of crores?

                Then this country is in deeper sh** than I thought!

                cheers

                Comment


                • Re : Builders & Real Estate Bulls Theory Proved Wrong

                  Worth reading...

                  They made Mumbai Builders' own island and How - The Economic Times

                  Builders, who make and, more often, break rules in the island city, are in a bit of a spot. The chief minister keeps away from them. The civic authority is holding back multiple approvals for their projects. Most banks have stopped lending to them. And buyers are unwilling to buy, at least not at prices that builders want them to. In Lower Parel, the Central Mumbai district, where developers have sold new dreams to homebuyers, tall cranes stand idle.

                  Six months ago, property analysts talked of thousands of new apartments that would add supply in a city where the rich and even those who are not-yet-there have a strange fondness for buying second home in crammed localities. Today, they are less sure.

                  There’s an unusual combination of forces. The CM doesn’t want a quiet chat with a builder to cast a shadow on his impeccable reputation. He will, understandably, be extra careful as the 2G scam probe could lead to the PMO where he once worked. At the civic authority, which has the last word on everything in a new building — from fire exits to parking lots — a new straight-talking chief is taking on powers that rule the place; it’s a new tussle that has slowed down waivers and approvals.

                  Builders were banking on the parking FSI clearance — where 200 sq feet is available free of cost for development for every 100 sq feet that’s developed as parking area in the same land parcel. That will have to wait for now. On the other hand, bankers, shaken by scams and a prolonged money crunch, have shut the doors while buyers are betting that prices will soon dip.

                  Well, it may a little, and may be just for a while. No big builder will default in a way that will spark a fire sale of apartments. It never has. A builder in distress will always find a diamond trader who will lend against half-built towers and plots of land; or, he may cut a deal with an MNC to offload 50 apartments at a negotiated price to tide over the crunch. It may be done quietly with the least noise to avert an army of buyers spotting an SOS signal. At the end of the day, developers have assets which can be used to raise some money to pay off a tough lender.

                  Even buyers, who are lucky to catch a dip, should never forget that they have to deal with a tough lot. It’s a world where brands matter little beyond a point. Some of the biggest realtors are yet to hand over the apartment keys to buyers who have been kept waiting for a year-and-a-half. One such gentleman, who prefers to remain unnamed, asked the builder to pay the penal interest he had promised for any delay. He was calmly told to look at a particular clause in the agreement that dealt with the penal rate. It said that penal interest would be paid on any “excess money” that a buyer gives to the property firm.

                  It’s a line the buyer — who will have to move out of his official residence a year later when he turns 58 — never quite understood while flipping through the agreement four years ago. While going through it again the other day, he sensed how bizarre it was. Why on earth should a buyer give extra money to the builder? The penal interest is not on the amount he has paid to the builder, but the extra he could have paid by mistake. Our man thinks it’s pointless to move the court against the realtor or talk about it to the world. Once again, he is inclined to believe his builder, who has promised that things, will be sorted out soon

                  Comment


                  • Re : Builders & Real Estate Bulls Theory Proved Wrong

                    Kaushik,

                    I agree to several points you made & you rightly said about bills for kirana etc. But then even look elsewhere:-

                    Rickshawala, the maid (bai), milkman, newspaper vendor.......all deal in cash but you need to see that the amount involved in this with a particular person is very small.

                    Coming to RE, builders take money from HNIs in cash at the rate of 25%/annum. Now, even if this loan is not seen on the balance sheet of the builder, it doesn't make him debt free.

                    As far as this thread is concerned, you need to see that prices indeed dipped in 2009 & in areas like Mumbai, it was as high as 45%+. So, see the time-line rather than seeing starting & current rates from this thread. Also, the intention of the thread was not just prices but to expose the tricks played by the builders & co. to con the buyer.

                    At the end of the day, be it white or black money, the end user will be with white money. And the best eg. that builders nego really hard when you can give him cash can be seen as a clear eg. how the investors want to exit RE.

                    Eg. Park Titanium in Park Street offered rate of 2700/sq ft if atleast 30+% could be paid in cash. If not the rates were around 3850-4000/sq ft then. Even today, offer builder cash element & see price/sq ft being slashed.

                    Problem today is builders are ready to sell at lower price but only if considerable amount is paid in cash.

                    * PS:- Don't bring commercial areas here coz in such cases, both the buyer & seller prefer cash as both benefit due to less SD + reg & buying property at market rates may lead to possibility of buying beyond sources of income. I know a person who has lacs in his lockers but buys car on loan coz his official earning doesn't make him eligible to buy car on full down-payment.
                    If you are happy, you are successful.

                    Comment


                    • Re : Builders & Real Estate Bulls Theory Proved Wrong

                      Good link man. It really speaks well about current RE scenario. Here is one more:-

                      HDFC realty fund starts off loading select assets:-

                      HDFC realty fund starts off loading select assets - The Times of India
                      If you are happy, you are successful.

                      Comment

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