How Realty Stocks Destroy Investors Wealth

We have been tracking this sector for over 2 years now and here is how Real Estate Stocks in India destroyed Investors Wealth over the past 4 months. They have been halving like a Nuclear Fission but the only difference here is [Wealth is Destroyed] Expandable Image Comparing the Values of Realty Stocks Month Over Month.

In the above image [expandable] you see how Indian Realty Stocks have halved in months time :-)

Worst is Not Over for Real Estate:
Corporates have started Defaulting and withdrawing abnormal bids for Land. Citra Developers, a 100 per cent subsidiary of Indiabulls Real Estate, withdrew its Rs 6.76 bn bid for the 134-acre PALPeugeot land in the Dombivli-Kalyan region, about 100 km outside Mumbai.

Jet Airways, which had bid successfully for a prized Bandra-Kurla Complex (BKC) plot in Mumbai for a whopping Rs 8.26 bn, has walked away from the deal.

Restructured Housing Loan is NPA- RBI

RBI in an exclusive directive to strengthen the Nations banking system has asked them to treat Restructured Loans to Builders and Real Estate Developers as NPAs.

What are Restructured Loans ?
When borrowers are facing difficulties in repaying loans, typically banks give borrowers more time to repay the loan by extending the loan tenure, and sometimes, even at reduced interest rates. Such an exercise enables banks to keep their non-performing assets (NPA) ratios under check.

Thus banks are putting pressure on Realty developers to be realistic to market forces on the selling price and dispose of the housing stock so that Banks balance sheet is not weakned, otherwise they will face a lot of difficulties. Mr. Naryansami of BOI said,

Just banks reducing interest rates will not help in reviving sentiments; builders will have to bring down prices for buyers.

Hopefully, bankers will kick the ass of these greedy and troubled Real Estate Developers and make them sell the housing stock at fair prices affordable by the Indian consumer.

Update: Here is how Banks how disbursed Loans to Real Estate and Construction in H1-FY2009 despite slowing economy and Global Crisis. That is why Banks are on their toes to recover those loans before they become an NPA.

SEZ Bubble Burst - DLF Selling its Noida SEZ

The Largest Real Estate Scam in the World -Special Economic Zones bubble has been burst. Thanks to former RBI Governor Dr. Reddy for keeping the Indian banking and Financial institutions away from these Land Scamsters.

DLF is all set to SELL its IT SEZ in Noida according to reports. Three more developers are seeking to SELL their IT SEZs and several asking them to be de-notified [withdrawl of permission]. Thanks to the global economic crisis :-)

K.P.Singh of DLF seems to have gone Wooly in the head said a blogger,

Minister of Commerce Kamal Nath inspired the biggest post-Independence land grab in the country through earmarking of Special Economic Zones...But a fallacious premise that SEZs will facilitate Tax Breaks Ad Infinitum made Realtors scrounge up Land at atrocious price across the country. Now, that few can afford the same DLF's Singh has asked the Banks to fund over-priced Reality at low interest rates such that Land Banks can be parceled out to the public. How crazy can the Real Estate mafia get? How far low can Ministers stoop.

Finally the world has realized [2 years after we dedicated this blog to expose the SEZ Land Scam] what a big scam SEZs in India are. Hopefully all these land grabbers will perish soon.

Unitech Downgrade + Cash Crunch

Unitech's Debt rating has been downgraded from A+ to A- by rating agency Fitch. Unitech is all set to offload its Delhi office of over 200,000 sft located near Sheraton Hotel at Saket, Delhi. According to reports, Unitech is expected to sell the building between Rs 20,000 to Rs 25,000 / sft to HDFC as the former owes to HDFC in the form of loans.

Arrogant Indian Builders thought that the prices will only rise and are now caught on the wrong foot. They are facing severe cash crunch due to substantial drop in sales. Bankers have turned cautions and stopped lending as Realtors are unwilling to lower the value of their land bank which they deposit as co-lateral guarantee in case of defaults.

Property Prices in Saket, Delhi are expected to be down between 20-30% from the peak in Jan-2008.

Bandra-Kurla Office Price Crash 30%

Price in Mumbai's prestigious Grade - A office space, Bandra Kurla Complex has crashed by a whopping 33% according to latest reports.

StanChart has bought close to 250,000 sft of office space in BKC for Rs 750 crore. The previous and most expensive transaction was that of Rs 45,000 / sft by the British Council.

Orange Properties - Desperate Move to Raise Cash

India witnesses a different boom every few years - Finance companies, Garment Exporters, BPO & Technology etc. This time around the property boom is quite widespread and with global economic crisis, builders are desperate to raise crash.

Have a look at these Big Advertisements from Bangalore based Orange Properties who is seeking desperate bookings. Until the last week of October-08, Orange offered Rs 15,000 returns / Month on investment of Rs 3.75 Lakhs. Today they are offering Rs 7,500 on Rs 1.00 Lakh till the date of project completion.
Image Courtesy: TOI, B'Lore edition
At last, the severe shake out has begun, which implies,FALL in property prices or bankruptcy by Realty Developers.

Mumbai Property Update

Mumbai is witnessing a steep decline in property prices for the second time, the first being in Mid-90s.

According to Mr. Mufatraj Munot of Kalpataru, new projects are not viable, sales are slow and buyers are sitting on the fence. Every developer is looking at his own cash flow and many projects have slowed down. Even the once lucrative TDR (Transfer of Development Rights) market has lost its sheen. Till about 6-months ago, builders used to purchase slum TDR at Rs4,000/sq ft but now there are only a few takers although prices have come down to Rs1,200/sq ft. Moreover, builders who have bought TDR have been unable to pay sellers. It is estimated that about 100 builders owe close to Rs2bn to TDR owners and traders.

Oberoi Constructions is offering new projects in Goregaon East from Rs7,500/sq ft onwards as against Rs12,000/sq ft for ready flats. Lok Group too plans to offer discounts of 20% on new constructions in Malad and Khar. Last month Orbit Corp offered a 20% discount on bookings for a new project at Lower Parel but received a lukewarm response.

Home Loan Defaults on the Rise:
According to ARCIL [Asset Reconstruction Company India Ltd], between Apr-Sept-2008, 20% of the Loan Defaults occurred in the Home Loan Segment. Asset reconstruction companies expect a further jump in housing loan defaults in the coming quarters.

Residential Prices + Retail Rentals to Fall

According to latest research report released by Macquarie on the Indian Real Estate sector, they expect Retail Rentals and Residential Prices to fall across India. The chart below shows how various pockets of Real Estate - Residential, Commercial Office Space, Retail are expected to perform in various Indian cities. [Expandable Image]We will not agree with our Finance Minister's view about falling interest rates, especially for the troubled Realty Developers. None of the Private Banks have cut Home Loan rates because its simply not viable and they are not under the control and influence of South Block Ministry.

This is not Mr. Chidambaram's Reserve Bank. Dream Home Buyers can hit the street and remember there is only one mantra in this scenario - Reject all Gifts by developers and squeeze them to come down to your price. Show Realty Developers CASH and they will drool.