Home Buyers Survey

CLSA Research recently conducted a survey of Home Buyers across Cosmopolitan cities of India and published the findings today. Here is the brief excerpt from the same.

• 80% of the people are looking to purchase a property in the next 1-2 years.
• 44% of those interviewed said that they have actually postponed their buying decision in the past year.
• 69% of prospective buyers intend to stay in the Home they BUY while 31% want it for an investment
• 75% of the respondents aware of price cuts by Developers. Some people even spelt out names -DLF, Unitech, Brigade etc
  
• Respondents believed that prices have dropped by just 15%.
• 90% of the respondents believed that the current price is not lucrative enough to buy a house
• People expect an average of 20% price reduction from current levels, making for a peak to trough decline expectation of 35% in property prices
  

Foreign Investors face 3 years lock-in

Foreign investors in Indian real estate cannot sell their stakes to another foreign investor before three years the FIPB (Foreign Investment Promotion Board) has said. With this, FIPB has overruled a provision in FDI policy that exempts foreign players from the rule in cases where fund transfer is from one non-resident to another. Till now, this three-year lock-in was applicable only on foreign investment in real estate and not on investors.

The FIPB view is contrary to the stand taken by DIPP (Department of Industrial Policy and Promotion), the nodal agency that formulates FDI rules in the country. DIPP's view is that a foreign investor can repatriate funds if it offloads its stake to another foreign investor as the actual investment in a project would remain intact and only its ownership would change.

It was necessary that Foreign Investment Direct or Indirect in Real Estate should have been locked for 10 years. This would have curbed the speculative investment and would have helped the genuine Indian buyer. But do you think our government cares about our own people ? If so, why would be India Bleeding ?

NRIs Exit DLF's Garden City, Chennai Project

NRIs got a taste of speculating in the Indian property market that too in the hands of shady Realtor, DLF [Why Shady - Se their DLF Assets Deal involving Rs 7,000 cr and you will know]. According to today's ET, B'lore edition, 70 NRI Buyers have already submitted their exit letter to DLF who had bought properties in garden City project in Chennai. Since they have not received any response, they are now seeking intervention of ministry of overseas Indian affairs. prics in this project are oficially down by 20%. However, a realtor said that the prices in the vicinity have crashed upto 40% and hence the massive push for refund.

100 Local Indian families who have bookd their apartment in the same project also thronged the company's office. DLF Southern Homes CEO KK Raman said,

We have begun the process of refunds. We recognize the current circumstances when people may have lost increments or jobs.

The refund is directly linked to fresh booking any maye take upto 4 months. Successive Governments have lacked the vision to establish a regulator on the lins of SEBI for the Black Money Real Estate Market in India.

RBI Examines Accounts of DLF + Unitech and Others

In order to avoid a crisis like situation in the US and a Fake Accounting Scam like of Satyam, RBI has woken up, finally and is examining the books of accounts of 10 Real Estate Firms. The examination also includes actual verification of books of accounts, deposits etc and cross checking the same with the respective banks.

Realtors in RBI's Hall of Accounting Shame include - Anantraj Industries, Akruti Citi Ltd, Ansal Properties, DLF, HDIL, Indiabulls Real Estate, Phoenix Mills, Peninsular Land and Unitech.

The goal is to correct the debt-equity ratio, solvency, state of liquidity to avert defaults, cash flows and profit margin in the current operations.

The report further says,

Sources said these real estate companies had raised long-term loans from banks and had placed commercial paper amounting to thousand of crores to raise short-term financing from the mutual funds.

The mutual funds, in turn, got a major part of the subscription to their schemes from the banks who held public deposits. This means a default on even a single commercial paper will impact the mutual funds, the banks and ultimately public deposits.

Hopefully, RBI gets tough on these shady realtors.

New Projects at Lowered Prices

Residential realty market continues to deteriorate: We continue to see sharp price cuts of 20-25% from a greater number of property developers in more cities - now Tier II in addition to Metros earlier.

Gurgaon: UT launched Uniworld Garden II (sector 47) at Rs3000 psf (25% below neighborhood), and IBREL launched Centrum (sector 103) at Rs2100 psf

Indore (main city): IBREL launched Central Park at Rs2000 psf.
Lucknow: Parsvnath Developers Ltd launched Royal Floors at Rs1600 psf.
Mumbai: HDIL launched Premier Residency at Kurla at Rs 5300 psf, 30%-plus discount to neighbourhood, we estimate.

NCR faces Office rental Pressure

Citigroup had a conf. call with Anant Raj and indicated poor office space demand is pushing down rentals in NCR. Pre-leasing has slowed considerably and several tenants are renegotiating for lower rentals or opting out of lease agreements by forgoing the deposit amount. Rentals at the company's Manesar IT Park are down 20-30% to Rs35-40/sq ft and the project is only 40% leased. Also, launch of IT Parks in Gr. Noida and Jaipur has been delayed by 1-1.5yrs because of low demand.

Mumbai mill land fails to get Reserve Price:
In an auction, Dynamix Balwas Group's highest bid of Rs4.5bn for the 10.5 acre land parcel was rejected since it was below the reserve price. You can recall there were no buyers in Finlay Mills' 2nd auction even though the reserve price was down to ~Rs7bn from Rs10.66bn in Dec'08.

IT Slowdown to Directly Affect Realty Market

Last 5 year data suggests that there a direct co-relation between the growth of Indian IT sector and the Real Estate Market. Data on strong housing loan growth of 32% CAGR during FY03-FY07, at a time when the Top 3 Indian IT majors' (a good indicator of the sector) employee base grew at 44% CAGR. The following chart by RBI and Citi shows the direct co-relation.

With most global/domestic IT companies going slow on hiring plans, we see this adversely impacting housing demand. In addition to job losses, we see increasing risks of pay cuts and low visibility on pay hikes weighing on near-term demand for homes.

35% Correction + RESIDEX

As said earlier, here is the second part of the coverage on the impending correction of Indian Real Estate prices.
Edelweiss Report further adds,

Property prices in India increased sharply over the past 6-7 years -rising 3.4x in nominal terms 320 and 2.5x in real terms over 2001 price. We expect a price correction of 48% in nominal terms and 58% in real terms from the peak.

We believe, nominal prices have corrected by ~19% since then. However real prices have corrected by ~24%. We expect prices to correct another ~30% in the nominal terms in the next 3 years.

The factors that will contribute to subdued Real Estate Market is - Slow GDP Growth and deteriorating employment market. Adding to short sighted Realtors woes is the successive downgrades of their ratings and increase in outstanding.

What Should Prospective Buyers do ?
We recommend that you go and straight away sit across the table of projects completed or nearing completion and based on this Analysis ask for further 25% discount. For instance, if you are planning to BUY in Brigade Gateway Bangalore, they are quoting somewhere around Rs 3,900 / sft. Straight away ask them for Rs 4,000 / sft or Less which should also include Car Parking + Registration. [This Project is still under mid stage of construction]

35% Correction from Current Levels - Edelweiss

Edelweiss Research in an exclusive Real Estate Report on the Indian market expects the correction to go further deeper at 35% from current levels. The Indian Realty prices went on escalating without any supporting infrastructure and it is time for the same to face the reality :-) Here is an excerpt from Edelweiss Research,

• Volumes are closely linked with real returns on property and GDP growth
• What is the significance of this report ? Analysts have global property cycles across 15 countries before writing this report. Volumes are closely related to GDP (lag of ~1-2 years) and real returns on properties but share a weak relation with interest rates
• Down cycles in real estate cycles tend to give up their entire gains (in real terms) of the
  preceding up move - Implications for Indian real estate – an additional correction of 35%
• Significant reduction of growth in IT sector, job generation across sectors, and funds flow in the real estate sector
• While volumes have reduced sharply, banks' outstanding to real estate has increased even
  as real estate debt has been successively downgraded [Our Comment - We strongly disagree with RBI's soft corner to Real Estate by extending their Loan Restructuring till June-09 which is putting a lot of stress on the balance sheets of Public Sector Indian Banks where we have deposited our hard earned money.]
• Negative real returns on property are likely to drive property investors to exit holdings,
  keeping prices under pressure, keeping large project launches by developers at bay. volumes and sales are likely to remain highly subdued over an extended period of time.

Sta tuned for the next post which will explain in detail how and why 35% correction as reported by Edelweiss.