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The REAL state of real estate!

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The REAL state of real estate!

Last updated: August 30 2010
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  • The REAL state of real estate!

    Here is the place to share some hard facts and numbers from reputed sources:

    http://www.businessworld.in/index.ph...Of-Realty.html

    The first two results of realty companies for the Jan-March 2009 quarter— one big, one small — has confirmed the worst fears of industry watchers: property buying is a frozen glacier. On the one hand, India’s biggest real estate developer, Gurgaon-based DLF, suffered the discomfiture of seeing its net profits plummet 93 per cent to Rs 159 crore, and its sales skid 69 per cent to Rs 1,321 crore compared to the previous year’s last quarter. On the other hand, there is Bangalore-based Puravankara Projects, tiny compared to a DLF but with an uncannily similar performance — net profit fell by a humungous 81 per cent to Rs 14.6 crore, and sales fell 55 per cent to Rs 68 crore from the year-ago figure. Even compared to the immediate previous quarter of September-December 2008, which was considered the worst in a decade, sales have crashed by 18 per cent for DLF, and by 15 per cent for Puravankara. So much so that DLF’s promoters are reportedly selling 6-7 per cent stake in the company to raise Rs 2,000-2,500 crore to pay off some pressing dues.

    So, it is no surprise that this is suddenly the season of new launches. Desperate builders are on an overdrive to generate some cash flow by offering huge discounts to bait buyers. Two months ago, Mumbai-based Lodha Developers launched Casa Univus, a township of 3,000 apartments, near Mumbai’s Thane suburb. Situated 14 km from the city in the middle of nowhere, the apartments came at an attractive Rs 3,000 per sq. ft, nearly 50 per cent lower than in Thane. The Lodhas claimed it was a great launch with 500 bookings in the first few weeks. That was till another builder, Everest Developers, came along and launched another project 8 km from Thane’s city centre at Rs 2,200 per sq. ft. Everest, too, claimed it had 500 bookings. But enquiries with HDFC revealed that there were hardly any applicants for home loans for these projects. Abhisheck Lodha, director of the Lodha Group, concedes: “Yes, there have been cancellations.” Similarly, Delhi-based Unitech has launched several new projects including Uniworld Gardens II in Gurgaon Sector 47 and Ananda at North Town, Chennai, at attractive prices. Its old projects, though, are yet to be completed. It even faced street protests from 350 flat owners of its World Spa project in Gurgaon, who have paid 95 per cent of the cost but are yet to get delivery, despite a three-year delay.

    A research analyst with a foreign institutional investor who recently toured several DLF and Unitech sites in Gurgaon, says she saw cows grazing at many project locations that were supposed to be underway.

    Frozen Market
    Despite all the claims and hype by builders, their stock is not moving. Builders depend heavily on bookings — using the initial payment of 20 per cent to kickstart projects, and leveraging the bookings to raise loans. In the absence of bookings, they are now starved of funds. According to Pankaj Kapoor, CEO of Liases Foras, a real estate rating and research agency, there are 5,115 residential, commercial and retail projects under construction, and 339 proposed projects that have either stalled, slowed down or failed to launch across six metros (see ‘="http://www.businessworld.in/images/stories/infrastructure/massive_pile_up.gif"]Massive Pile Up[/URL]’). “The commercial/office space segment is in greatest distress with 195 million sq. ft of ready and under-construction property in the market with few takers,” says Kapoor. Consumers began withdrawing as early as March 2008, but developers took time to come to terms with it. Flush with IPO (initial public offering) money and FDIs (foreign direct investment), they thought they could hold out till the consumer blinked. That did not happen and the shakeout began last October.
    The initial resistance by builders to price cuts had to do with the way the realty boom shaped up from 2005. By March 2008, though, the consumer had stopped buying as the effects of the overall economic slowdown had begun to pinch.

    As consumers stopped buying and the downtrend set in, builders resorted to two rounds of price cuts. The first was last Diwali when they offered price cuts of around 10 per cent that included waiving stamp duty and offering furniture and internet connections at subsidised rates. But nobody swallowed the bait.

    Second, from February 2008, there has been substantial reduction in capital values and lease rentals. For instance, in the Delhi-NCR region developers such as DLF, Supertech and JP Associates launched projects in west Delhi, Gurgaon and Noida at rates 30 per cent below what were prevailing at peak in June 2008. DLF launched a project at Rs 1,800 per sq. ft in Hyderabad, 40 per cent lower than market rates.

    These tactics have not worked.

    What Is The Bottom Of The Trough?
    According to Kapoor, realty prices rose three-fold over three and a half years. But the fall in prices over the past nine months has only been 31 per cent. “Prices are poised to fall by 30-40 per cent more by November,” he forecasts. “Prices may fall even below the fair value. It is only by November that we may see 2005-level trading.” This perception is backed by an Edelweiss Securities survey of visitors at a four-day property exhibition held in April. Eighty-four per cent respondents felt property prices were still too high and expected a 10-30 per cent fall.

    How Stressed Are Developers?
    Slumping sales have begun to take their toll on developers’ numbers. DLF’s full-year revenue for FY09 slid 28 per cent to Rs 10,541 crore. For Puravankara, it dropped 21 per cent to Rs 445 crore. A review of brokerage firms’ forecasts and the first nine-month performance of some top firms show that their fall in revenue is likely to be between 26 and 45 per cent. Unitech, India’s second-largest developer, which sold 7.15 million sq. ft of property in FY07 and 8.7 million in FY08, will do less than 5 million sq. ft in FY09. As the property market plummets further, profit margins are being increasingly squeezed. DLF’s FY08 margins of 53.5 per cent slid to 42, 39 and 34 per cent for the first three quarters, respectively, of FY09. A good example is its Moti Bagh project in Delhi that it opened a year ago at Rs 12,000 per sq. ft, with a handsome margin of 60 per cent. Today, it is quoting at Rs 6,000 per sq. ft. The margin, just 22 per cent.

    Most analysts are sceptical of the recent rally in realty companies’ share prices signalling a rebound. Putting a ‘sell’ on the DLF, Unitech and HDIL (Housing Development & Infrastructure) stocks, Amit Agarwal, analyst at Ambit, notes in a report: “Sales volumes are still down 80-90 per cent YoY and property prices continue to drop… Increase in cancellations has increased the pressure of already stretched cash flows for all three real estate companies.”

    HDIL, promoted by Rakesh Wadhawan and the third-largest listed company by market cap, is in a particularly rough patch. So is Akruti City. Both of them have grown mainly on the back of Mumbai’s slum redevelopment projects by exploiting the transferable development rights (TDR) released from re-housing slum pockets. They now face the challenge of evaporating TDR prices that have crashed from Rs 4,200 per sq. ft in January 2008 to less than Rs 1,000 per sq. ft today. Sastha Gudalore, an analyst at Alchemy Shares & Stock Brokers, foresees HDIL pulling out of Phase II and III of the 276-acre airport slums rehab project in view of the crash in TDR prices. The possibility could become real, as Sudhakar Shetty, a Mumbai-based realty investor who holds 30 per cent stake in HDIL’s Mumbai airport development, says: “We are considering a possible exit after we complete this (Phase I) rehab component.”

    Indiabulls Real Estate (IBRE), the fourth- largest builder by market cap, entered late in the game of assembling land banks and, therefore, bought land at very high prices. This restricted the company’s manoeuvrability on pricing and rentals. For instance, land for its two flagship commercial projects — in Jupiter Mills and Elphinstone Mills — in Mumbai was acquired through hard-fought auctions from the National Textile Corporation (NTC). Jupiter’s 11 acres was acquired for Rs 276 crore in March 2005, and Elphinstone Mills’ 7.75 acres for Rs 446 crore in July 2005 at Rs 7,000-8,000 a sq. ft.

    In recent weeks, Unitech has raised Rs 1,621 crore through a qualified institutional placement (QIP) aimed at easing the high debt burden. This has led to a 13 per cent post-issue dilution in the promoters’ stake to 51 per cent. This also represents a valuation of Rs 12,470 crore, 85 per cent down from its peak valuation of over Rs 85,000 crore in January. However, despite the funding, Unitech failed to complete its repayment of Rs 500 crore to mutual funds that was due on 19 April. Likewise, its target of raising Rs 1,000 crore from pre-sales seems far-fetched as it will have to book 10,000 flats costing an average Rs 50 lakh each to reach its target. Attempts to get responses from Unitech, DLF and Parsvnath by Bw drew a blank....
    Last edited by IGRM; September 25 2009, 03:55 PM.
  • #2

    #2

    Re : The REAL state of real estate!

    Nice comment

    Comment

    • #3

      #3

      Re : The REAL state of real estate!

      Builders new Ploy

      Budget Flats means


      Small Flat at Same old rate

      Means Affordable house to masses

      Profit remain same for Builder

      Wait for some time :p

      Smart people go for investor flats

      Comment

      • #4

        #4

        Re : The REAL state of real estate!

        Well, it looks more reputable when BW says it!!!

        Originally posted by amit_2009 View Post
        here is the place to share some hard facts and numbers from reputed sources:
        ]http://www.businessworld.in/index.php/Infrastructure/The-Rise-Fall-Of-Realty.html[/url]

        ...

        Frozen Market
        Despite all the claims and hype by builders, their stock is not moving. Builders depend heavily on bookings — using the initial payment of 20 per cent to kickstart projects, and leveraging the bookings to raise loans. In the absence of bookings, they are now starved of funds. According to Pankaj Kapoor, CEO of Liases Foras, a real estate rating and research agency, there are 5,115 residential, commercial and retail projects under construction, and 339 proposed projects that have either stalled, slowed down or failed to launch across six metros (see ‘="http://www.businessworld.in/images/stories/infrastructure/massive_pile_up.gif"]Massive Pile Up[/url]’). “The commercial/office space segment is in greatest distress with 195 million sq. ft of ready and under-construction property in the market with few takers,” says Kapoor. Consumers began withdrawing as early as March 2008, but developers took time to come to terms with it. Flush with IPO (initial public offering) money and FDIs (foreign direct investment), they thought they could hold out till the consumer blinked. That did not happen and the shakeout began last October.

        Second, from February 2008, there has been substantial reduction in capital values and lease rentals. For instance, in the Delhi-NCR region developers such as DLF, Supertech and JP Associates launched projects in west Delhi, Gurgaon and Noida at rates 30 per cent below what were prevailing at peak in June 2008. DLF launched a project at Rs 1,800 per sq. ft in Hyderabad, 40 per cent lower than market rates.

        These tactics have not worked.

        What Is The Bottom Of The Trough?
        According to Kapoor, realty prices rose three-fold over three and a half years. But the fall in prices over the past nine months has only been 31 per cent. Prices are poised to fall by 30-40 per cent more by November,” he forecasts. “Prices may fall even below the fair value. It is only by November that we may see 2005-level trading.” This perception is backed by an Edelweiss Securities survey of visitors at a four-day property exhibition held in April. Eighty-four per cent respondents felt property prices were still too high and expected a 10-30 per cent fall.

        Attempts to get responses from Unitech, DLF and Parsvnath by Bw drew a blank....

        Amit,

        Superb! Very good for you to have taken the time to post this article.

        I would like to bring everyone's notice to the highlighted points:

        1. The commercial/office space segment is in greatest distress with 195 million sq. ft of ready and under-construction property in the market with few takers

        comment:
        Till jobs start coming back net-net surplus, there will be a substantial oersupply and price pressure on commercial/office space for years to come

        2.
        But the fall in prices over the past nine months has only been 31 per cent. Prices are poised to fall by 30-40 per cent more by November. Prices may fall even below the fair value.

        comment: I have been saying this exactly from the beginning. 50% to 80% fall in prices before the end of this fall. Right now it appears others are prepared to go to 30% + 30-40% which cummulates to 60% to 70%. We are getting close!!!

        Thanks again for getting out the unpalatable but real picture based on data. Hope this gets the youngsters ready and eager to jump in at the first sign to think a little bit and ponder!

        cheers

        Comment

        • #5

          #5

          Re : The REAL state of real estate!

          Amit & Wiseman .. thanks for the posts .. few other members of this forum constantly barrage us as being "Bears" but they don't seem to realise that most of these so-called bears are not "investors" to be categorized as bulls or bears .. we are ordinary, middle class people looking to put a roof over our heads .. yes our salaries have increased over the last few years but that is because of the toil we put in and we all want to enjoy the fruits of our labour as opposed to paying off EMIs for the rest of our lives.. Our dreams of enjoying the fruits of our labour have been rudely hijacked by the greed of builders to make 500% margins supported by the corrupt media and politicians
          Apartments in Mumbai, Delhi are much more expensive that those even in London and New York; but incomes are nowhere close .. 200K USD will get you a more than decent 3 bedroom co-op in the US .. try getting something similar for Rs.1 Cr in Mumbai or Delhi .. you'd be surprised how far you would land up
          My advise to all the so called "Bears" .. please stop visiting these estate agents and builders till November .. only then will the rates go down .. peek into the psyche of the builders .. they had a pretty good thing going making 500-600% margins .. do you think they will give up so easily?? every single visit to the site tells the builder that there is demand in the market that he can convert in to a sale .. and then we all come back frustrated that the rates are not falling and crib on these forums .. how will the rates fall if we keep going back?? what is the incentive for the builder lobby to reduce rates when there are people knocking on his door day in and day out??
          Let's have some common sense people .. either we stop going to the builders or just pay up and shut up (and enslave yourself the rest of your lives to pay off these EMIs)

          Originally posted by wiseman View Post
          Amit,

          Superb! Very good for you to have taken the time to post this article.

          I would like to bring everyone's notice to the highlighted points:

          1. The commercial/office space segment is in greatest distress with 195 million sq. ft of ready and under-construction property in the market with few takers

          comment: Till jobs start coming back net-net surplus, there will be a substantial oersupply and price pressure on commercial/office space for years to come

          2. But the fall in prices over the past nine months has only been 31 per cent. Prices are poised to fall by 30-40 per cent more by November. Prices may fall even below the fair value.

          comment: I have been saying this exactly from the beginning. 50% to 80% fall in prices before the end of this fall. Right now it appears others are prepared to go to 30% + 30-40% which cummulates to 60% to 70%. We are getting close!!!

          Thanks again for getting out the unpalatable but real picture based on data. Hope this gets the youngsters ready and eager to jump in at the first sign to think a little bit and ponder!

          cheers

          Comment

          • #6

            #6

            Re : The REAL state of real estate!

            The unholy builder/broker nexus is at work again by creating artificial jack up rates. Most of the builders have again started selling chunks of flats to brokers in cheap pre-launch prices, who then sit on them . The builder claims 90% sold out in first few weeks !! As prices rise artificially in next 1-2 months of launch of these projects, the gullible investor jumps to grab these chunks..

            Comment

            • #7

              #7

              Re : The REAL state of real estate!

              Wow this is a revelation...I thought that the Lodha project in Bhayandarpada Casa Univis will have good response...yes it is in the middle of nowhere but remember at one point even ghodbunder was nowhere though it may be better to spend the 30 extra minutes in the train and get something in kalyan for a much lesser price a little away from the station..

              Comment

              • #8

                #8

                Re : The REAL state of real estate!

                Its best to wait and watch instead of burning the fingers and loosing the hard earned money.

                Comment

                • #9

                  #9

                  Re : The REAL state of real estate!

                  Prices going up

                  Prices in Mumbai have started going up since March 09 to the tune of 5-10%.

                  http://www.indianrealtynews.com/real...in-mumbai.html

                  Prices in Kandivli (East) are still in the range of 6000-7000 and in Borivli (West) are 7000-8000.

                  I am looking to buy a flat in western subarbs of Mumbai but the price rise is making matters worse.

                  Does anyone have an opinion on whether I should buy in December this year?

                  Comment

                  • #10

                    #10

                    Re : The REAL state of real estate!

                    You can get similar prices in Andheri (cheaper in East) which is a far better place than kandivli/borivli and the kind of connectivity and infrastructure it provides is unmatched.

                    btw, since you have waited so long, its better to wait for another year or so and see what impact does the DTC regime brings... unless you are an end-user and want to actually use the apartment for your family

                    Comment

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