Wednesday, April 13, 2011

Residential Boom - Spectulator Driven

PropEquity data suggests a recovery in sales volumes in CY11 ytd. But our channel checks suggest this is speculator driven and not sustainable as home buyer sentiment remains weak.

Ears on the Ground suggest that rising speculative demand (encouraged by the low down payments), especially in cities, such as Gurgaon, could be boosting sales volumes which we believe is not sustainable. We believe that the sentiment of genuine home buyers remains weak and are holding back on purchases in anticipation of a 15-20% price correction. The affordability [Price vs Mortgage Rates] remains under pressure and, hence, real buying sentiment remains weak.

Financial Institutions and Banks turning cautious towards rescheduling debt or issuing fresh loans, developers are approaching Non Banking Financial Companies (NBFC) which are issuing Non Convertible Debentures (NCD) at 16-20%. As per National Securities Depository Ltd (NSDL) and various press reports, real estate companies like Puravankara and Kalpatru have raised funds at 16% pa while Century real estate has raised funds at 20% pa.

There is a talk to bring Real Estate Developers, Builders and all bad sections of the society indulging in Black Money transactions under the ambit of "Prevention of money Laundering Act" as they have evaded massive taxes much more than 2G Telecom Spectrum Scam in India.

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