JOB INSECURITY IS THE BIGGEST THREAT TO HOUSING MARKET
Six months ago, developers would easily blame high interest rates for the slowdown in property market and hoped that once rates come down, buying will resume at a pace witnessed till 2007. It is this belief that never forced them to think of price cuts to lure buyers. But now forced by a lull in the market, developers are increasingly cutting prices with little impact on buying.
Price cuts will soon spread to more developers and projects, but it's highly unlikely that buyers will come back. Earlier there were end-users, investors and speculators all engaged in a buying frenzy. Now there are none. With everyone expecting prices to fall further, it's impossible to imagine that investors or specualtors will come back in a hurry. But the biggest cause of concern for property firms is the disappearance of end-users.
Theories like India had huge housing shortage and all Indians wanted to own a home and so demand for housing is never going to fade away have completely lost strength. Some developers are still seen mouthing these arguments. But as they do so, it is increasingly clear that they are fooling themselves and investors in those firms must quickly dump their stock.
Job losses or the fear of it is the single most important factor for the property market. Media reports suggest scores of companies have already cut jobs in thousands. Job cuts could be much larger as it is neither possible nor interesting for publishers to report all job losses. In a scenario, where one is losing job or someone sitting next to you in your office has lost job, it's impossible to think of making a huge investment in homes. When workplace gossips is centred only on job cuts and salary cuts, it's impossible that employees can dream of owning a home and take on a huge debt burden.
Meanwhile, expectation that home prices are likely to fall further will surely keep out even the cash-rich and needy. Also, reports of best of developers keeping to their reputation of not delivering on their promises, and reports of some of them likely to go bankrupt, will surely keep any wise home buyer from giving away his hard-earned or not-so-hard-earned money to builders.
In all it's the uncertainty that is ruling the market: uncertainty of one's own future for a home buyer; uncertainty of builders keeping their promise; uncertainty of a home ever getting delivered; uncertainty on prices, uncertainty on home loan rate; and uncertainty of builders' survival. Amid all this, you don't require courage but foolishness to take the plunge.
Saturday, February 28, 2009
Monday, February 9, 2009
HUNT FOR THE BOTTOM
PROPERTY MARKET WILL BOTTOM OUT ALONG WITH THE ECONOMY; SO WATCH OUT FOR MACRO INDICATORS
Everyone is asking: How close we are to the bottom in the property market or may be how long it might take us to get there. Frankly, no one really has an answer. It’s difficult to know the bottom, unless it's well past us, for any asset class. But for property, it's all the more difficult as the sector takes painfully longer to correct, unlike any other asset class.
Property markets go up and down with the larger economy. It outpaces GDP in a growing economy and underperforms in a slowing economy. With estimates for India’s GDP growth increasingly getting downgraded to below 5% for calendar year 2009 by several international agencies, it’s increasingly likely that real estate will continue in a downturn this year.
But many property firms are still hopeful of a recovery. India’s largest property company DLF says market may start looking up in the second half of 2009, as prices correct, interest rates come down and general economic uncertainties subside. DLF vice chairman Rajiv Singh also feels prices would correct by another 20% in three months before stabilising. He says prices have already corrected by almost 30% in a year. Some of his peers claim prices have corrected by over 50% and reached rock bottom.
Now the key thing is whether you should trust these property firms on the extent of correction that has already happened. An independent survey will tell you that the figures they are quoting is at best partially true. Prices in some once-overheated locations and Rs 1 crore plus residential segment have surely corrected to the extent of 20% or so. But as you climb down the price ladder, correction is difficult to see. For lower priced homes (less than Rs 60 lakh), correction at best is around 10%.
Now the next question: Is it the right time to buy home. Absolutely not. Property prices must come down further to encourage buying. If all other asset class such as equities and commodities can correct by as much as 50-60%, then why not real estate. It's the investors and speculators who actually drove up the property market to astronomical level. Now that they have exited, water must find its own level.
Price discovery in real estate is fairly difficult in a downturn. It’s impossible to know the current prices, let alone know if we have hit the bottom. Property transactions have disappeared. In addition, you have property dealers, who give you entirely different rates, depending on who you pose as - a seller or a buyer.
So for investors, the best option is to stay out. For end-users it is best to continue to evaluate properties, but show no hurry to conclude a deal.
Everyone is asking: How close we are to the bottom in the property market or may be how long it might take us to get there. Frankly, no one really has an answer. It’s difficult to know the bottom, unless it's well past us, for any asset class. But for property, it's all the more difficult as the sector takes painfully longer to correct, unlike any other asset class.
Property markets go up and down with the larger economy. It outpaces GDP in a growing economy and underperforms in a slowing economy. With estimates for India’s GDP growth increasingly getting downgraded to below 5% for calendar year 2009 by several international agencies, it’s increasingly likely that real estate will continue in a downturn this year.
But many property firms are still hopeful of a recovery. India’s largest property company DLF says market may start looking up in the second half of 2009, as prices correct, interest rates come down and general economic uncertainties subside. DLF vice chairman Rajiv Singh also feels prices would correct by another 20% in three months before stabilising. He says prices have already corrected by almost 30% in a year. Some of his peers claim prices have corrected by over 50% and reached rock bottom.
Now the key thing is whether you should trust these property firms on the extent of correction that has already happened. An independent survey will tell you that the figures they are quoting is at best partially true. Prices in some once-overheated locations and Rs 1 crore plus residential segment have surely corrected to the extent of 20% or so. But as you climb down the price ladder, correction is difficult to see. For lower priced homes (less than Rs 60 lakh), correction at best is around 10%.
Now the next question: Is it the right time to buy home. Absolutely not. Property prices must come down further to encourage buying. If all other asset class such as equities and commodities can correct by as much as 50-60%, then why not real estate. It's the investors and speculators who actually drove up the property market to astronomical level. Now that they have exited, water must find its own level.
Price discovery in real estate is fairly difficult in a downturn. It’s impossible to know the current prices, let alone know if we have hit the bottom. Property transactions have disappeared. In addition, you have property dealers, who give you entirely different rates, depending on who you pose as - a seller or a buyer.
So for investors, the best option is to stay out. For end-users it is best to continue to evaluate properties, but show no hurry to conclude a deal.
Thursday, January 29, 2009
Builders Under Pressure As Buyers Press For Refund
(The article first appeared in The Economic Times)
Some of India’s largest real estate firms such as DLF, Unitech, Omaxe and Parsvnath that launched multiple projects at the peak of the real estate boom are now under pressure from buyers and investors who look to exit these projects. Already in a spot due to unavailability of bank loans and a fall in sales, the developers are less inclined to oblige the buyers who are coming together to mount pressure for refunds in projects that are yet to take off. Several buyers and investors, angered by the developers’ inability to start work on projects, have stopped payment of installments on their purchases, adding to the companies’ cash problems. Investors in DLF’s commercial projects in Delhi and Kolkata have come together with the help of brokers to put pressure on DLF to start construction or refund initial deposits. “DLF is way behind schedule in their projects. It should either start work on the project immediately and deliver in time or return our investment with 15% interest,” says Amit Jain (name changed), a senior executive with an MNC who invested Rs 1 crore each in DLF’s projects in Okhla in Delhi and Kolkata. Mr Jain says since DLF follows a time-linked payment plan, it has been demanding payments from buyers even without starting construction. The broker, who facilitated Mr Jain’s purchase, says DLF has not even paid the government to convert the industrial plots at Shivaji Marg and Okhla in Delhi into commercial plots. However, a DLF spokesman denied this saying, “We go by the agreement with the buyers signed at the time of booking. The allegations over the status of our projects are not true. We will deliver as per schedule.” Several projects of Omaxe, Unitech and Parsvnath are also facing similar problems. Akash Verma, a Noida-based garment exporter, had booked an apartment each in projects of Omaxe and Unitech in Noida. He booked an apartment at the ‘soft launch’ of Omaxe’s Noida project in May 2007. Omaxe had promised to launch the project formally a few months later at a higher rate. The formal launch never happened and investors like Mr Verma are stuck. Omaxe has turned down requests for a refund. An Omaxe spokesman, however, said the company has ‘considered and taken care’ of all such requests. Mr Verma has also been unsuccessfully seeking a refund of his investment in Unitech’s Grande project. “I am paying Rs 4.5 lakh as EMI. Unitech executives say the project will be delivered on schedule, but there is no worker at the site,” he says. A Unitech spokesman said, “We generally discourage cancellations. But if the buyers insist, we refund the money after deducting 10-15% of the total value of the apartment.” Most realty firms do not encourage refund requests. Till the end of 2007, investors could easily sell their property in open market as the prices were going up. But with buyers disappearing from the market, investors are forced to approach developers for refunds. Some property buyers are seeking refunds due to their weakened financial positions, while several others do so as they are not sure of the developers’ ability to complete the project. There are a few others who seek refunds as they feel that they can strike a better deal now with prices undergoing a major correction.
Some of India’s largest real estate firms such as DLF, Unitech, Omaxe and Parsvnath that launched multiple projects at the peak of the real estate boom are now under pressure from buyers and investors who look to exit these projects. Already in a spot due to unavailability of bank loans and a fall in sales, the developers are less inclined to oblige the buyers who are coming together to mount pressure for refunds in projects that are yet to take off. Several buyers and investors, angered by the developers’ inability to start work on projects, have stopped payment of installments on their purchases, adding to the companies’ cash problems. Investors in DLF’s commercial projects in Delhi and Kolkata have come together with the help of brokers to put pressure on DLF to start construction or refund initial deposits. “DLF is way behind schedule in their projects. It should either start work on the project immediately and deliver in time or return our investment with 15% interest,” says Amit Jain (name changed), a senior executive with an MNC who invested Rs 1 crore each in DLF’s projects in Okhla in Delhi and Kolkata. Mr Jain says since DLF follows a time-linked payment plan, it has been demanding payments from buyers even without starting construction. The broker, who facilitated Mr Jain’s purchase, says DLF has not even paid the government to convert the industrial plots at Shivaji Marg and Okhla in Delhi into commercial plots. However, a DLF spokesman denied this saying, “We go by the agreement with the buyers signed at the time of booking. The allegations over the status of our projects are not true. We will deliver as per schedule.” Several projects of Omaxe, Unitech and Parsvnath are also facing similar problems. Akash Verma, a Noida-based garment exporter, had booked an apartment each in projects of Omaxe and Unitech in Noida. He booked an apartment at the ‘soft launch’ of Omaxe’s Noida project in May 2007. Omaxe had promised to launch the project formally a few months later at a higher rate. The formal launch never happened and investors like Mr Verma are stuck. Omaxe has turned down requests for a refund. An Omaxe spokesman, however, said the company has ‘considered and taken care’ of all such requests. Mr Verma has also been unsuccessfully seeking a refund of his investment in Unitech’s Grande project. “I am paying Rs 4.5 lakh as EMI. Unitech executives say the project will be delivered on schedule, but there is no worker at the site,” he says. A Unitech spokesman said, “We generally discourage cancellations. But if the buyers insist, we refund the money after deducting 10-15% of the total value of the apartment.” Most realty firms do not encourage refund requests. Till the end of 2007, investors could easily sell their property in open market as the prices were going up. But with buyers disappearing from the market, investors are forced to approach developers for refunds. Some property buyers are seeking refunds due to their weakened financial positions, while several others do so as they are not sure of the developers’ ability to complete the project. There are a few others who seek refunds as they feel that they can strike a better deal now with prices undergoing a major correction.
Monday, January 26, 2009
Builders, financiers mislead home buyers
(The article first appeared in The Economic Times)
Several home buyers find themselves trapped misled by developers and mortgage lenders. Many buyers had booked apartments in the past months banking on assurances of realty companies and mortgage lenders that the respective housing projects will get lenders' approval shortly and thus will make buyers eligible for the requisite loan.Months after having made bookings , buyers are now realising that even as the next payment installments come due, lenders are not sanctioning loans either because the project doesn't have government approval or for lack of progress on the project.
Tridib Sen (name changed), a 35-year-old Delhi-based lawyer, is one of many home buyers struggling to get his home loan sanctioned. Mr Sen booked a three bedroom apartment in Vatika India Next, a housing project in Gurgaon in last June, through property broker JLLM. While making his booking, he had also consulted HDFC executives, who had assured him that the project was in-principle approved by the lender and formal approval was just a week or two away. As months passed and Sen paid around Rs 10 lakh in three installments for the flat priced Rs 55 lakh, HDFC kept delaying loan sanction, while giving assurance that it will come soon. The real reason was that Vatika's project was yet to be approved, as the project still lacked some government clearance.A Vatika group spokesperson said: "The process (of approval) is at a very advanced stage with HDFC, LIC etc with whom we also have long standing relations and approval for dispersal of home loans is expected to commence very shortly." An HDFC spokesperson said the project has now been approved and disbursal will start, but Sen is yet to get any relief.
Another HDFC executive, who didn't want to be named, told ET that there are many projects in the NCR region, including Vatika's, which have not been approved so far. "There are several projects, which do not have government approval, and there are many others, where there is hardly any construction. We have stopped giving new loans for many projects, which even though approved, have no construction activity," he said.Besides, many developers have been issuing large advertisements, where they use the name of mortage lenders as finance partners, giving buyers an impression that if they were to book an apartment in those projects, they will easily get loans from the named institutions. Lenders do not have any objection to such advertisements.
"We allow developers to use our name in advertisement because we want to fund those projects. If advertisement says finance available from certain institution, it doesn't necessarily mean, the project is approved. And this in no way put customers at risk," said the HDFC spokesperson.A ICICI bank spokesperson said: "We have always funded properties on approved projects only. We communicate this clearly as well since we always ask for details of the property that the customer is purchasing."
Several home buyers find themselves trapped misled by developers and mortgage lenders. Many buyers had booked apartments in the past months banking on assurances of realty companies and mortgage lenders that the respective housing projects will get lenders' approval shortly and thus will make buyers eligible for the requisite loan.Months after having made bookings , buyers are now realising that even as the next payment installments come due, lenders are not sanctioning loans either because the project doesn't have government approval or for lack of progress on the project.
Tridib Sen (name changed), a 35-year-old Delhi-based lawyer, is one of many home buyers struggling to get his home loan sanctioned. Mr Sen booked a three bedroom apartment in Vatika India Next, a housing project in Gurgaon in last June, through property broker JLLM. While making his booking, he had also consulted HDFC executives, who had assured him that the project was in-principle approved by the lender and formal approval was just a week or two away. As months passed and Sen paid around Rs 10 lakh in three installments for the flat priced Rs 55 lakh, HDFC kept delaying loan sanction, while giving assurance that it will come soon. The real reason was that Vatika's project was yet to be approved, as the project still lacked some government clearance.A Vatika group spokesperson said: "The process (of approval) is at a very advanced stage with HDFC, LIC etc with whom we also have long standing relations and approval for dispersal of home loans is expected to commence very shortly." An HDFC spokesperson said the project has now been approved and disbursal will start, but Sen is yet to get any relief.
Another HDFC executive, who didn't want to be named, told ET that there are many projects in the NCR region, including Vatika's, which have not been approved so far. "There are several projects, which do not have government approval, and there are many others, where there is hardly any construction. We have stopped giving new loans for many projects, which even though approved, have no construction activity," he said.Besides, many developers have been issuing large advertisements, where they use the name of mortage lenders as finance partners, giving buyers an impression that if they were to book an apartment in those projects, they will easily get loans from the named institutions. Lenders do not have any objection to such advertisements.
"We allow developers to use our name in advertisement because we want to fund those projects. If advertisement says finance available from certain institution, it doesn't necessarily mean, the project is approved. And this in no way put customers at risk," said the HDFC spokesperson.A ICICI bank spokesperson said: "We have always funded properties on approved projects only. We communicate this clearly as well since we always ask for details of the property that the customer is purchasing."
Sunday, January 25, 2009
WAIT FOR THE BEST HOME DEAL
Have Patience and Bargain Hard to get the best deal
(The article first appeared on personal finance website moneysahib.com)
The hunt for the dream home must continue, but wait for a few monthsbefore closing a deal, as both property prices and home loan rates arelikely to fall further.
Millions of those looking to own a home today are mooting if it is the right time to take the plunge. Potential home buyers would do well to make a fresh assessment of the economic scenario, reliability of their source of income and state of property market before taking a call on whether it was the right time to book a property.
The past one year has seen all industrially advanced economies comprising that of US, Japan, UK and Europe, sliding into recession, following the outbreak of subprime crisis and the consequent meltdown in the global financial system. The impact is visible in India with major economic think tanks lowering GDP growth estimates for India from over 9% to as low as 5.8% for the next financial year. Several Indian companies are going through a tough time and have reported lower earnings, put expansion on hold and cut jobs. The implication is that it has added uncertainty in the atmosphere and millions of employees are not very sure if they will be able to keep their jobs during the downturn, which is showing signs of worsening.
Therefore, every home buyer must assess as to how stable is his/her job before making a home buying decision. In addition, one must not seek a higher home loan in the hope that one would have improved capacity to pay back in the coming year. Increments are unlikely and certainly not impressive this time round. Now, the buyer must closely look at the area where he wishes to buy a home. To begin with one must have several meetings with developers, brokers and those who own homes in that area in order to understand the location, connectivity, civic amenities, law and order situation and of course the current prices in that area. The most important factor today is the prices. Real estate companies claim that prices have come down by 10-25% in most residential makrets. A buyer must make sure if prices have actually fallen.
Of late, there have been very little buying in the property market, which has put pressure on developers to reduce prices so as to lure new buyers. Besides, the government and banks too have turned up heat on developers to cut prices. Property analysts feel prices may further come down by 30%, which is when people will start buying.
So, a potential home buyer must not be in a hurry to book a home and not be swayed by the so-called attractive offer advertisements from builders. Patience possibly is a key asset for home buyers in these turbulent times. But this doesn't mean, home buyers should not look for properties they want to buy. The hunt must go on, before one zeroes in on the right product.
Waiting could also be rewarding because of the falling financing cost.In a bid to stimulate the economy, RBI has been cutting interest rates. As inflation comes down further, more cut in interest rate is likely. Lower interest rate means, one's outgo on EMI towards home loan comes down.
So a waiting period of a few months, while one bargains hard with developer or any other seller, is possibly the best bet.
(The article first appeared on personal finance website moneysahib.com)
The hunt for the dream home must continue, but wait for a few monthsbefore closing a deal, as both property prices and home loan rates arelikely to fall further.
Millions of those looking to own a home today are mooting if it is the right time to take the plunge. Potential home buyers would do well to make a fresh assessment of the economic scenario, reliability of their source of income and state of property market before taking a call on whether it was the right time to book a property.
The past one year has seen all industrially advanced economies comprising that of US, Japan, UK and Europe, sliding into recession, following the outbreak of subprime crisis and the consequent meltdown in the global financial system. The impact is visible in India with major economic think tanks lowering GDP growth estimates for India from over 9% to as low as 5.8% for the next financial year. Several Indian companies are going through a tough time and have reported lower earnings, put expansion on hold and cut jobs. The implication is that it has added uncertainty in the atmosphere and millions of employees are not very sure if they will be able to keep their jobs during the downturn, which is showing signs of worsening.
Therefore, every home buyer must assess as to how stable is his/her job before making a home buying decision. In addition, one must not seek a higher home loan in the hope that one would have improved capacity to pay back in the coming year. Increments are unlikely and certainly not impressive this time round. Now, the buyer must closely look at the area where he wishes to buy a home. To begin with one must have several meetings with developers, brokers and those who own homes in that area in order to understand the location, connectivity, civic amenities, law and order situation and of course the current prices in that area. The most important factor today is the prices. Real estate companies claim that prices have come down by 10-25% in most residential makrets. A buyer must make sure if prices have actually fallen.
Of late, there have been very little buying in the property market, which has put pressure on developers to reduce prices so as to lure new buyers. Besides, the government and banks too have turned up heat on developers to cut prices. Property analysts feel prices may further come down by 30%, which is when people will start buying.
So, a potential home buyer must not be in a hurry to book a home and not be swayed by the so-called attractive offer advertisements from builders. Patience possibly is a key asset for home buyers in these turbulent times. But this doesn't mean, home buyers should not look for properties they want to buy. The hunt must go on, before one zeroes in on the right product.
Waiting could also be rewarding because of the falling financing cost.In a bid to stimulate the economy, RBI has been cutting interest rates. As inflation comes down further, more cut in interest rate is likely. Lower interest rate means, one's outgo on EMI towards home loan comes down.
So a waiting period of a few months, while one bargains hard with developer or any other seller, is possibly the best bet.
Friday, January 16, 2009
Tallest Tower Cut Short!
The work on what could be world’s tallest tower has been halted in Dubai. The state-owned real estate company Nakheel has postponed for a year construction on one-km-long tower in the wake of the meltdown of once-overheated Middle-East real estate market.
Rescheduling Shield For Not Cutting Prices
Many banks have complained to the RBI that builders were capitalising on the recently-extended loan restructuring facility for not reducing sales prices, The Economic Times has reported. RBI has allowed banks to restructure loans to builders without turning them into NPA. Several builders are seeking rescheduling of loans as they are in no position to pay back in time. Builders feel that they can hold on to the current inflated prices, as their short-term liability gets reduced due to rescheduling of loans. Developers have all along been banking on easier loan availability for themselves as well as home buyers to bring the real estate sector back on its feet. But the past few weeks have shown that despite lower interest rates and availability of funding, things are still turning from bad to worse for the sector. Developers must see reason and cut their margins to bring down prices significantly. Unless they do that, buying will not pick up. There is a serious risk that developers’ obstinacy to hold on to high prices may do a significant damage to real estate as well as the larger economy.
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