tag:blogger.com,1999:blog-17271875824249091812023-11-20T14:45:26.170+05:30Hyderabad Real Estate MarketThis blog analyzes the developments in the Hyderabad Real Estate Market.Marutish Varanasihttp://www.blogger.com/profile/06925235122999082182noreply@blogger.comBlogger33125tag:blogger.com,1999:blog-1727187582424909181.post-77995975490336631232009-12-06T17:53:00.005+05:302009-12-06T17:59:50.790+05:30Hyderabad Metro - Impact on property prices<p class="MsoNormal" style="text-align:justify"><span class="apple-style-span"><span style="font-family:Verdana;mso-bidi- font-family:Arial;color:#444444;"><span class="Apple-style-span" style="font-size: medium;">Real Estate values have a positive impact on micro markets through which Metro routes pass. An analysis by Centre for Environment and Technology (CEPT) on the impact of Delhi Metro on real estate in three phases i.e., pre-construction phase, under-construction phase and post-construction phase has found that property prices jumped significantly after the Metro began its operations. The study has established that property prices around stations that are at the peripheries of the city have considerably closed the gap with those at city centre. Further, the prices are highest within 500 metres of Metro routes. </span><span class="Apple-style-span" style="font-size: medium;"><o:p></o:p></span></span></span></p> <p class="MsoNormal" style="text-align:justify"><span class="apple-style-span"><span style="font-family:Verdana;mso-bidi- font-family:Arial;color:#444444;"><o:p><span class="Apple-style-span" style="font-size: medium;">Currently, the impact of Hyderabad Metro on Hyderabad Real Estate market (which is still in the bidding stage) is insignificant. With the new metro developer likely to be identified in the last quarter of FY 2010 i.e., by March 2010, real estate prices along the metro routes may inch up in the next one year or so on account of Hyderabad Metro. </span><span><span class="Apple-style-span" style="font-size: medium;"> </span></span></o:p></span></span></p> <p class="MsoNormal" style="text-align:justify"><span class="Apple-style-span" style=" color: rgb(68, 68, 68); font-family:Verdana;"><span class="Apple-style-span" style="font-size: medium;">However, the impact of Outer Ring Road (after the implementation of its first phase) has been significant on Hyderabad Real Estate Market (land rates) along the alignment and the route of </span><st1:street st="on"><st1:address st="on"><span class="Apple-style-span" style="font-size: medium;">Outer Ring Route</span></st1:address></st1:street><span class="Apple-style-span" style="font-size: medium;">. In certain areas, Land rates have more than doubled and in some cases jumped by more than six times in a time-frame of 2003-2009. </span></span></p>Marutish Varanasihttp://www.blogger.com/profile/06925235122999082182noreply@blogger.com23tag:blogger.com,1999:blog-1727187582424909181.post-44514466152321730412009-12-03T22:49:00.003+05:302009-12-03T22:50:03.056+05:30Asset bubbles - Indian Real Estate Market<span class="Apple-style-span" style=" line-height: 12px; font-family:Arial, Helvetica, 'Nimbus Sans L', sans-serif;font-size:10px;"><h3 style="margin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; padding-top: 0px; padding-right: 0px; padding-bottom: 0px; padding-left: 0px; border-top-width: 0px; border-right-width: 0px; border-bottom-width: 0px; border-left-width: 0px; border-style: initial; border-color: initial; outline-width: 0px; outline-style: initial; outline-color: initial; font-weight: normal; font-style: inherit; font-size: 13px; font-family: inherit; vertical-align: baseline; ">In a rational market, real estate rates could be linked to buying power of users and the investor interest. However in today's time, markets are exhibiting irrationality and are becoming very difficult to predict.<br /><br />Capital flows into the emerging markets have been phenomenal. In the last six months over US $ 16 billion has flown into Indian stock markets. Further, there is talk that US $ 4 billion has flown into the real estate market. I believe that these heavy capital flows could destabilize the Indian market by creating asset bubbles across asset classes including real estate .<br /><br />My concern is that this is not foreign direct investment, but money flowing because of a carry trade i.e., money being borrowed at a very low rate in the west and then being invested in the developing markets such as India. While markets growing at a moderate rate is good, but what we are witness to is irrational exuberance - beyond normal in the Indian stock markets and that will lead to a bubble. With an ear on the ground, builders locally have already started increasing prices, ahead of pick up in demand and in spite of steep reduction in input prices. I do wish that investors/builders will be more cautious and the asset bubbles will not touch the Indian property market this time around. </h3></span>Marutish Varanasihttp://www.blogger.com/profile/06925235122999082182noreply@blogger.com9tag:blogger.com,1999:blog-1727187582424909181.post-20346974400489184832009-11-30T17:37:00.004+05:302009-11-30T17:48:31.025+05:30RBI could announce a rate hike in Dec/Jan<span class="Apple-style-span" style="font-family: Arial, Helvetica, sans-serif; font-size: 10px; line-height: 10px; "><h3 class="byline" style="margin-top: 0px; margin-right: 0px; margin-bottom: 0.583em; margin-left: 0px; padding-top: 0px; padding-right: 0px; padding-bottom: 0px; padding-left: 8px; font-size: 1.2em; font-weight: normal; font-family: helvetica; line-height: 1.3em; color: rgb(102, 102, 102); ">The strong surge in the GDP figures for the July-September period at 7.9% as compared to 6.1% in the previous quarter. The growth in the GDP was mainly driven by the manufacturing and services sector. With the economy responding to the various policy measures taken by the government, we can expect that RBI would withdraw its stimulus measures slowly. It is expected that RBI would announce a hike in interest rates in the months of Dec/Jan as against the previous time frame of March 2010 so as to contain the rising inflation. </h3><h3 class="byline" style="margin-top: 0px; margin-right: 0px; margin-bottom: 0.583em; margin-left: 0px; padding-top: 0px; padding-right: 0px; padding-bottom: 0px; padding-left: 8px; font-size: 1.2em; font-weight: normal; font-family: helvetica; line-height: 1.3em; color: rgb(102, 102, 102); "><br /></h3><h3 class="byline" style="margin-top: 0px; margin-right: 0px; margin-bottom: 0.583em; margin-left: 0px; padding-top: 0px; padding-right: 0px; padding-bottom: 0px; padding-left: 8px; font-size: 1.2em; font-weight: normal; font-family: helvetica; line-height: 1.3em; color: rgb(102, 102, 102); "><br /></h3></span>Marutish Varanasihttp://www.blogger.com/profile/06925235122999082182noreply@blogger.com3tag:blogger.com,1999:blog-1727187582424909181.post-38257251326120326082009-11-30T17:06:00.004+05:302009-11-30T17:19:22.107+05:30Strong rebound in Emerging Markets<span class="Apple-style-span" style="font-family: Verdana, sans-serif; font-size: 12px; line-height: 16px; "><p style="margin-top: 8px; margin-right: 0px; margin-bottom: 8px; margin-left: 0px; padding-top: 0px; padding-right: 0px; padding-bottom: 0px; padding-left: 0px; "><span class="Apple-style-span" style="font-family: arial, helvetica, sans; font-size: 13px; line-height: 15px; "></span></p><p style="font-family: verdana, helvetica, sans; margin-top: 0px; margin-right: 0px; margin-bottom: 1em; margin-left: 0px; padding-top: 0px; padding-right: 0px; padding-bottom: 0px; padding-left: 0px; ">On the last day of November, Indian shares rebounded strongly, as GDP data for the quarter ending September 2009 was better than expected and also because of easing of concerns about debt failure in Dubai. Emerging Markets stocks across the world too rallied as Abu Dhabi announced its intention to support Dubai banks. Investor concerns of the last week, proved to be a small blip, with dollar declining against other leading currencies and commodities rising higher. While realty stocks too rebounded in India, investors will still be cautious about investing in the forthcoming IPOs at current valuations. </p><p style="font-family: verdana, helvetica, sans; margin-top: 0px; margin-right: 0px; margin-bottom: 1em; margin-left: 0px; padding-top: 0px; padding-right: 0px; padding-bottom: 0px; padding-left: 0px; "><br /></p></span><p></p>Marutish Varanasihttp://www.blogger.com/profile/06925235122999082182noreply@blogger.com0tag:blogger.com,1999:blog-1727187582424909181.post-62009730613080765062009-11-26T22:10:00.003+05:302009-11-26T22:20:42.736+05:30Indian Real estate IPOs may lie in cold storage for some time<span class="Apple-style-span" style="font-size: small;">The impact of the Dubai World debt crises will not only be felt in the Middle East markets, but also on the Indian Real Estate Market. The Indian Real Estate initial public offerings such as Emaar, Lodha, Sahara and slew of others will find the going tough in the next few months. The global liquidity boom has driven stock valuations higher as compared to earnings in the Indian Real Estate sector and we might witness a downward correction in the Indian Market in the coming weeks. </span><div><span class="Apple-style-span" style="font-family:Verdana, sans-serif;"><span class="Apple-style-span" style="font-size: small; line-height: 16px;"><br /></span></span></div><div><span class="Apple-style-span" style="font-family:Verdana, sans-serif;"><span class="Apple-style-span" style="font-size: small; line-height: 16px;"><br /></span></span></div>Marutish Varanasihttp://www.blogger.com/profile/06925235122999082182noreply@blogger.com0tag:blogger.com,1999:blog-1727187582424909181.post-81063320288453213002009-11-20T21:42:00.005+05:302009-11-20T23:20:55.016+05:30Why property prices will rise<p style="margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left: 0in;line-height:12.0pt"><st1:country-region st="on"><st1:place st="on"><span style="color:black;"><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;">Foreign funds have pumped in </span></span><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;">about $ 16 billion into Indian stock markets this year. After the negative inflows last year, the FII investments are reaching the peak 2007 levels. The stock markets are reaching for the stratosphere and valuations are defying the stock fundamentals. Meaning today's valuations are way ahead of earnings. </span></span></span></st1:place></st1:country-region></p><p style="margin-top:6.0pt;margin-right:0in;margin-bottom:6.0pt;margin-left: 0in;line-height:12.0pt"><span class="Apple-style-span" style="font-family: arial; font-size: small; ">The next asset class in the scheme of things of global fund houses after speculation in gold this year, is likely to be property. <span class="Apple-style-span" style="font-family: Georgia, serif; font-size: 16px; "><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;">With banks slush with funds and no incremental domestic demand, liquidity in the banking system is high. We expect that land prices will rise in the coming months as a result of money flow into the system. Meaning, land rates are likely to be at inflated levels, and the excess committed by the builders and the banks in the previous cycle could very well return soon. In the fast changing global economic environment, business cycles, which earlier used to last for about 5-7 years are likely to get shorter to 2-5 years. </span></span></span></span></p>Marutish Varanasihttp://www.blogger.com/profile/06925235122999082182noreply@blogger.com1tag:blogger.com,1999:blog-1727187582424909181.post-59884684915842259202009-10-01T00:48:00.001+05:302009-10-01T00:50:39.898+05:30Liquidity Inflows driving the markets<div><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: medium;">Read an interesting interview with </span></span><span class="Apple-style-span" style="font-weight: bold; "><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: medium;">Ravi Kapoor, MD, Head South Asia Capital Markets of Citi - on the current state of the markets. </span></span></span></div><div><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: medium;"><br /></span></span></div><a href="http://www.business-standard.com/india/news/liquidity-inflow-may-make-valuations-uncomfortable/371775/"><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: medium;">http://www.business-standard.com/india/news/liquidity-inflow-may-make-valuations-uncomfortable/371775/</span></span></a>Marutish Varanasihttp://www.blogger.com/profile/06925235122999082182noreply@blogger.com1tag:blogger.com,1999:blog-1727187582424909181.post-91649969797678139602009-09-30T02:32:00.002+05:302009-09-30T02:54:07.022+05:30Builders make money, bankers make money, but customers get slaughtered<span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: medium;"><div><span class="Apple-style-span" style="font-family: Georgia, serif; font-size: 16px; "><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: medium;">In the Indian Real Estate Market, be it boom or a recession, <b>builders make money</b>, <b>bankers make money,</b> <b>but customers get slaughtered.</b> </span></span></span></div><div><br /></div><div><span class="Apple-style-span" style="font-family: Georgia, serif; font-size: 16px; "><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: medium;">The government plans to make some amends and is planning to bring in an Bill </span></span><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: medium;">during the winter session of Parliament to protect the interests of home buyers. <b>This is to be welcomed. </b></span></span></span></div></span></span><div><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: medium;"><br /></span></span></div><div><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: medium;"><b>Builders issue</b></span></span></div><div><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: medium;">I believe that two issues need to included in the bill : </span></span></div><div><ul><li><span class="Apple-style-span" style="font-family: arial; font-size: medium; ">When you buy a car or a two wheeler, the manufacturer gives you a warranty free or an extended warranty at a cost. In the home building/housing industry too, customers are to be provided the comfort of a warranty on the apartment/house from the builder for a minimum period of two years. </span></li><li><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: medium;">The issue of built-up area is also a major issue, which customers don't have a control on. There is no uniformity and clarity on what is super built-up area and what is carpet area in a township/apartment. Across the county, we need to have a uniform rule, where builders calculate the cost of an apartment on the carpet area only and provide the facilities. </span></span></li></ul><div><span class="Apple-style-span" style="font-family: arial; font-size: medium; ">Read more of it in </span></div><div><div><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: medium;"><a href="http://www.business-standard.com/india/news/protecting-home-buyers/371682/">http://www.business-standard.com/india/news/protecting-home-buyers/371682/</a></span></span></div><div><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: medium;"><br /></span></span></div><div><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: medium;"><span class="Apple-style-span" style="font-family: Georgia, serif; font-size: 16px; "><div><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: medium; "><b>Bank issue :</b></span></span></div><div><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: medium;"><b><br /></b></span></span></div><div><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: medium;">Less said better about the transparency of banks in passing the benefits of lower interest rates to existing customers. Banks are taking customers for a royal ride with an objective to protect their Net Interest Margins. While RBI is trying to address this issue, commercial banks have too much of a bargaining power viz-a-viz customers to yield their ground. </span></span></div><div><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: medium;"><br /></span></span></div><div><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: medium;"><br /></span></span></div></span></span></span></div></div></div>Marutish Varanasihttp://www.blogger.com/profile/06925235122999082182noreply@blogger.com0tag:blogger.com,1999:blog-1727187582424909181.post-70286514326743117962009-09-30T02:06:00.002+05:302009-09-30T02:09:50.801+05:30Three realty firms file DRHP; may raise Rs 10,000 cr<div><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: medium;">Business Standard has an article which says that </span></span><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: medium;">Lodha Developers, Subrata Roy’s Sahara Prime City and Delhi-based Emaar MGF — each filed a draft red herring prospectus (DRHP) today with the capital markets regulator, Securities and Exchange Board of India (Sebi) and may raise about Rs 10000 over the next few months. Looks like the leading real estate companies in India are making it good from the buoyant stock markets in India and abroad. </span></span><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: medium;"> </span></span></div><div><br /></div><a href="http://www.business-standard.com/india/news/three-realty-firms-file-drhp-may-raise-rs-10000-cr/371703/">http://www.business-standard.com/india/news/three-realty-firms-file-drhp-may-raise-rs-10000-cr/371703/</a>Marutish Varanasihttp://www.blogger.com/profile/06925235122999082182noreply@blogger.com0tag:blogger.com,1999:blog-1727187582424909181.post-16493949963254065272009-09-07T16:07:00.003+05:302009-09-07T16:22:47.354+05:30Hyderabad Real Estate Market - September 2009The real estate market in Hyderabad is showing signs of a mild recovery. <div><br /></div><div>But, the political environment in Andhra Pradesh has become uncertain with the sad demise of Dr.Y.S.Rajasekhar Reddy, the Chief Minister of Andhra Pradesh in an helicopter crash in Kurnool district. While Mr. Rosiah has been sworn in as the Chief Minister as an interim measure. The Congress High Command in New Delhi is weighing in with two options i.e., continuing with Mr. Rosiah as the Chief Minister for a year or two and handing over the ropes of governing the state to Mr. Y. Jagan Mohan Reddy later. </div><div>One thing is certain that Mr. Y. Jaganmohan Reddy, son of Dr.Y.S.Rajasekhar Reddy will become the Chief Minister of Andhra Pradesh in the days ahead, as he enjoys the support of majority legislators in the congress party in AP. However, the only question that remains to be answered is when is he going to become the Chief Minister. Is it now or a year later. Let's keep our fingers crossed and hear it out by the end of this week. </div><div><br /></div><div>Please find enclosed an update on Hyderabad Real Estate Market - August 2009. </div><div><br /></div><div>http://www.vrnetconsulting.com/i/Hyderabad-market-update-August-2009.pdf<br /></div><div><br /></div><div><br /></div><div><br /></div>Marutish Varanasihttp://www.blogger.com/profile/06925235122999082182noreply@blogger.com0tag:blogger.com,1999:blog-1727187582424909181.post-7147797796943064722009-07-29T16:18:00.004+05:302009-07-29T16:35:22.823+05:30Key residential micro markets in Hyderabad - Ranking<a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="http://2.bp.blogspot.com/_d95y9UQp3oo/SnAqlsgNG8I/AAAAAAAAAA4/p6MTDxB8hJc/s1600-h/Market-data.gif"><img style="float:left; margin:0 10px 10px 0;cursor:pointer; cursor:hand;width: 320px; height: 298px;" src="http://2.bp.blogspot.com/_d95y9UQp3oo/SnAqlsgNG8I/AAAAAAAAAA4/p6MTDxB8hJc/s320/Market-data.gif" border="0" alt="" id="BLOGGER_PHOTO_ID_5363833983288024002" /></a><br /><br />VRNETConsulting.com has carried out a market study to understand the leading residential micro markets in Hyderabad based on customers perceptions. Please find enclosed ranking of key residential micro markets in Hyderabad on a five point scale with zero being low and five being high. Apart from the above, we have analyzed the key drivers of each micro market and undertaken demand/supply/pricing of apartments, villas in the market under different market scenarios.<div><br /></div><div><br /><div><br /></div><div><br /><div><br /></div><div><br /><br /></div></div></div>Marutish Varanasihttp://www.blogger.com/profile/06925235122999082182noreply@blogger.com0tag:blogger.com,1999:blog-1727187582424909181.post-71259671829892158762009-05-29T23:51:00.002+05:302009-05-30T00:07:30.308+05:30Hyderabad Real Estate Outlook - 2009<span style="font-weight:bold;">Hyderabad Real Estate: Market Update May 29, 2009 </span><br /><br /><span style="font-weight:bold;">1.0 FY 2009 Year in review</span><br />Based on our interactions with the key market players in Hyderabad, the residential segment of Hyderabad real estate market is likely to recover by the third quarter of FY 2010. <br /><span style="font-weight:bold;">Major residential property launches in FY 2009 </span><br />In FY 2009, Hyderabad has seen significant investments into the residential real estate market from local players, national and international majors across various segments of the market including premium luxury, premium, affordable and low cost housing. <br /><br /><span style="font-weight:bold;">National real estate companies</span><br />In FY 2009 national real estate companies have launched the following large projects in the residential market of Hyderabad. <br />• Lodha Group has launched its premium luxury apartments named Lodha Bellezza at Eden Square - Kukatpally. <br />• DLF has launched its project - Lake District - The Summit at Kokapet in the affordable housing segment. <br />• Mantri Group has launched its Celestia a residential and commercial project near the financial district Gachibowli in the affordable housing segment. <br /><br /><span style="font-weight:bold;">Local real estate companies</span><br />Leading market players such as Indu Projects, Janapriya, Prajay, Aditya Constructions, Bharat, Ramky, Nagarjuna, PBEL, Sree Srinivasa, Sri Aditya homes, SMR Holdings, and others have launched many new large projects in FY 2009 across various segments of the market, while other major such as Aparna, Aliens, Jain. L&T and others have been executing their large projects. <br /><br /><span style="font-weight:bold;">Market size in FY 2009 has shrunk</span><br />In the last two quarters of FY 2009, residential property transactions have come to virtual standstill and have affected players across the Hyderabad market. We estimate that the market size for residential property in FY 2009 to have shrunk by about 60% as compared to FY 2008. <br /><br /><span style="font-weight:bold;">Builders going slow</span><br />Leading developers in the city have gone slow on their projects and have prioritized on a few projects due to tight liquidity and working capital issues. While large luxury segment builders such as Lanco are now building only 13 residential towers as against the stated 26 towers in their sales prospectus due slackening demand, others large builders have either postponed their construction activities by a few quarters, restructured their projects or have scrapped the projects altogether. The status of Hyderabad’s largest integrated township at Tellapur being built by the ICICI Venture Capital, Nagarjuna, US-based Tishman Speyers consortium, comprising development of over 400 acres and saleable area in excess of 30 million square feet is uncertain, while execution at Maytas property project Maytas Hill county, bachupally is moving at a snail’s pace. <br /><br /><span style="font-weight:bold;">No significant unsold inventory</span><br />Most Local builders in Hyderabad use the JV route to build projects, while large local builders and national players buy land and build projects. In Hyderabad, builders presently do not have any significant unsold inventory of completely build projects. However, many of the projects which lie unsold are projects under execution and are likely to be delivered in the next two years or projects which have been announced and are still under the foundation stage. <br /><br /><span style="font-weight:bold;">Builders under stress to raise capital</span><br />Many Hyderabad builders have raised significant capital from VC, PE funds in the period between FY 2006 to FY2009. In most cases, valuation of projects has been very high and VC/PE funds today are stuck with the stock of unlisted companies/SPV vehicles, whose value has declined significantly. With bank credit tough to get in FY 2009, builders have raised capital by selling assets, tapping high net worth individuals, while few have raised capital from foreign friends and investors. <br /><br /><span style="font-weight:bold;">QIP route for Hyderabad builders – ruled out</span><br />With very few listed real estate firms in Hyderabad, raising capital through today’s favorite instrument qualified institutional placement (QIP) route for Hyderabad firms might be ruled out. With many builders/companies under stress, vulture funds/high net worth Individuals are on a look out for distressed asset sale. <br /><br /><span style="font-weight:bold;">Changing focus of builders</span><br />The focus of builder’s upto the first two quarters of FY 2009 has been on the premium luxury and luxury segment of the market. The market has changed by third quarter of FY 2009 and builders have realized that the market for premium segment has reached a dead end and have gone back to their drawing boards to launch new projects targeting the affordable segment of the market. DLF, which was one of the early entrants to tap the affordable housing market in Hyderabad, has managed to book more than 120 apartments as on April 2009, despite tough market conditions. <br /><br /><span style="font-weight:bold;">Residential Prices – Hyderabad – An analysis</span><br />Prices – National Housing Board – Residex Index for Hyderabad<br />NHB Residex has come out with property price movements for various cities in India. An analysis of Hyderabad data reveals that property prices have declined significantly in West Zone in the period Jan-Dec 2008 as compared to the year 2007. Similarly the South Zone and Central Zone have declined marginally, while North Zone has shown marginal appreciation, the Other zone (Shamshabad Zone) has recorded significant appreciation on account of the opening of new airport. <br /><br /><span style="font-weight:bold;"><br />2.0 Will the market recover in FY 2010? </span><br /><br />Major Launches in FY 2010<br />Even in difficult market conditions, builders in Hyderabad have launched new projects in FY 2010. A few large projects launched include <br />• Botanika by Koncept Ambience. – A premium luxury segment project near Botanical Gardens in Kondapur. <br />• Rainbow Vistas launched by Cybercity Builders & Developers Pvt Ltd and Ashoka Developers & Builders Ltd in the affordable housing segment of the market near Kukatpally. <br /><br /><span style="font-weight:bold;">FY 2010 Outlook: </span>Pricing pressure on residential real estate is expected continue, while demand likely to firm up<br /><br /><span style="font-weight:bold;">Residential transactions improving:</span> Builders are witnessing significant enquiries in Hyderabad after the new government formation at both the state and centre. After a long lull, in the month of May 2009, builders have been able to sell properties at new price points in the market for both affordable housing, villas and premium housing. Builders, who have offered value deals to customers, have been able to report best sales in the last few weeks. <br /><br /><span style="font-weight:bold;">Delinquent property auctions likely:</span> Banks have seen significant Housing mortgage loans delinquencies in FY 2009 on account of slow down in IT sector and recession in the economy. We expect banks in Hyderabad to auction delinquent property from the second/third quarter of FY 2010 and it is likely to have an impact on pricing of both existing projects and new project launches. <br /><br /><span style="font-weight:bold;">Bank Lending rates – To dip further: </span> While RBI has announced sweeping cuts in repo and reverse repo rates in the last two quarters, banks have been reluctant to cut their Prime Lending Rates (PLR) and have been lending to new customers at below PLR rates, while existing customers have been paying at PLR rates. With the likelihood of a further rate cuts by RBI in June 2009, home loan rates are like to soften by a further 50 basis points. <br /><br /><span style="font-weight:bold;">Tightening norms by Housing finance companies</span><br />Housing finance companies are tightening lending norms/standards and loan to property value is likely to about 70-80% in FY 2010, which would mean that the days of easy housing loans from banks is over. <br /><br /><span style="font-weight:bold;">IT Outlook – Uncertain:</span> The outlook for IT sector in FY 2010 and 2011 still remains uncertain on account of global recession and many IT customers who want to buy property are hesitating in view of the difficult market conditions and are watch the market developments keenly. <br /><br /><span style="font-weight:bold;">Market Outlook:</span> Industry players in Hyderabad hope for a revival of the market in FY 2010 on account of stable outlook for the Indian economy with a projected GDP of 6%. Likely recovery of the US economy, revival of global markets, stimulus packages to the real estate sector by both state and central governments and finally the likelihood of Telangana issue to be on the backburner for another five years are the other factors which might aid the revival of the market. As of May last week 2009, property prices across Hyderabad in the last one year have corrected by more than 25-35% and today are at December 2007 levels. With declining prices, demand is reviving slowly and is expected to firm up from the third quarter of FY 2010. <br /><br />By Marutish Varanasi <br />(The author is with VRNETConsulting.com and has authored a comprehensive report on Hyderabad Real Estate Market focusing on residential, commercial, retail and hospitality segments of the market). His contact mail ID is marketing@vrnetconsulting.com <br /><br /><br /><br /><br /><br /><br /><br /><br /><br /><br /><br /><br /><br /><br /><br /><br />Certification<br />VRNETConsulting is a market research and consulting firm which does and intends to do business with companies covered in this research report. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this market research report. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The recipient should independently evaluate the investment risks. VRNETConsulting and affiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report.Marutish Varanasihttp://www.blogger.com/profile/06925235122999082182noreply@blogger.com7tag:blogger.com,1999:blog-1727187582424909181.post-77750550872708750762008-03-01T11:37:00.000+05:302008-03-01T11:39:05.515+05:30Impact of BudgetAn interesting post on the impact of budget on realty sector in Businessline - 1/03/08.<br /><br /><br />Realty sector upbeat on I-T exemption <br /><br />Our Bureau <br /><br />Mumbai, Feb. 29 Realty majors found cause to cheer the budget on concessions extended to other sectors. <br /><br />Mr Ravi Ramu, Director, Puravankara Projects Ltd, said reverse mortgage proceeds not to be treated as income tantamount to a tax free pension for home owners post-retirement and should provide a fillip to home builders, since owning a home in old age has now become more attractive from a return, and an old age financial security perspective.<br /><br />The introduction of a right of set-off of dividend distribution tax paid by a direct subsidiary of a parent company with the DDT paid by the parent will be a large benefit to real estate companies who have, or intend setting-up subsidiaries.<br /><br />Construction costs are expected to come down due to duty and Cenvat reduction. The housing sector will take a boost due to the increase in income-tax exemption limit and new tax slabs will increase affordability of EMIs. <br /><br /><br /><br /><br />“The realty sector will also benefit as IT SEZs stand to gain due to non-extension of tax exemptions currently available to Software Technology Parks (STPIs) as the new investment in IT sector will now come into IT-SEZs,” said Mr Sanjay Chandra, Managing Director, Unitech Ltd.<br /><br />“The long-awaited demand for industry status for the real estate would have gone a long way in providing the desired impetus to the growth of the sector which is highly capital intensive,” said Mr Pradeep Jain, Chairman, Parsvnath Developers.<br /><br />“A tax benefit under Sec 80 I (B) for hospitals is a paradigm change and we expect a new generation health technology entering into Tier-II and III cities. The sops given to infrastructure and housing sector in rural areas is a welcome move, however, the reduction in duties and service tax benefits directly to consumers would have propelled the demand for realty. The reduction in input cost of cement, steel etc will definitely benefit the sector,” Mr Jain said.Marutish Varanasihttp://www.blogger.com/profile/06925235122999082182noreply@blogger.com1tag:blogger.com,1999:blog-1727187582424909181.post-89666259614524677442008-02-15T15:25:00.000+05:302008-02-15T15:28:14.468+05:30Housing PricesAn interesting article on tracking Housing prices from NYT. Hope when will be see an index for residential property in India...<br /><br /><br /><br /><br />Tracking Housing Prices<br />Why the Numbers Conflict<br /><br />(See Corrections & Amplifications item below.)<br /><br />By David Wessel <br />From The Wall Street Journal Online <br /><br />Predicting how much worse the U.S. housing market will get is tough. The future is never certain. But when it comes to home prices, getting a clear picture of the recent past turns out to be surprisingly hard as well.<br /><br />That's confusing to homeowners, who fret about the value of what for many is their single largest asset. There is a huge psychological difference between a slower climb in the value of one's house and an outright decline -- and, as a result, a difference in the political reaction.<br /><br />Tracking home prices is harder than tracking the price of stocks, which are traded constantly in public view on exchanges. And it's harder than tracking the price of toothpaste. That just involves sampling posted prices on grocery-store shelves and Web sites. <br /><br /> Discuss <br /><br />What is happening to housing prices in your community, and how much worse do you think things will get? Share your thoughts. <br />The two best -- though far from perfect -- measures of housing prices are the Office of Federal Housing Enterprise Oversight's index and the gloomier Standard & Poor's Case/Shiller index. Both are based on a concept, developed in the 1980s by Karl Case of Wellesley College and Robert Shiller of Yale University, that looks at repeat sales of the same houses.<br /><br />Ofheo's index says home prices rose nationally by 1.8% between the third quarters of 2006 and 2007. But the S&P/Case-Shiller national index of home prices was down 4.5% in the same period. The Ofheo index showed a 2.16% increase in house prices in Chicago; the Case-Shiller index showed a decline of 2.48%.<br /><br />Those discrepancies persist even though both barometers avoid distortions that occur in other widely cited measures -- such as the National Association of Realtors' median home price -- that reflect the mix of homes actually sold in a given month as well as the change in prices. Such measures rise in months when a lot of high-end houses are sold and fall at times when a lot of low-end houses are sold. <br /><br />The Realtors' measure fell 6% in 2007. The group says the index was pulled down by a drop in the number of high-end home sales, which have been hurt by disruptions in the market for mortgages exceeding $417,000, the maximum mortgage giants Fannie Mae and Freddie Mac are allowed to guarantee.<br /><br />The big picture here is clear: House prices rose rapidly in the early years of this decade. They have stopped rising in many places. And, in many markets, they are now falling. (Even Ofheo's index showed a quarterly decline at the end of 2007.) And prices don't appear to have touched bottom yet. But Charles Calomiris, a Columbia University economist, says, "Too much weight is being attached to the Case-Shiller index. ... Housing prices may not be falling as much as some economists say they are."<br /><br />With house prices so central to the economy right now, there is intense public (as well as scholarly) interest in why these two carefully constructed measures differ.<br /><br />Ofheo gets a steady stream of inquiries from ordinary homeowners trying to figure out what's happening to the price of their houses, and offers an online calculator to make estimates. Ofheo's quarterly numbers -- to be released monthly beginning in March -- go into the Federal Reserve's estimates of household wealth. Case/Shiller is increasingly prominent and is the basis for future contracts that allow investors to bet on the price of houses.<br /><br />There are a couple of very big differences. The Ofheo index relies on data collected by Fannie Mae and Freddie Mac, which Ofheo regulates, so it excludes loans too big for Fannie and Freddie to guarantee (those exceeding $417,000) or too shaky (the riskiest of the subprime). Case/Shiller includes those, but its data are limited to 20 major markets because it relies on the costly process of going to local property records for data. One of Mr. Calomiris's complaints is that house prices in these markets may be doing worse than those in other places.<br /><br />A recent dissection of the two indexes in 10 metropolitan areas by Ofheo economist Andrew Leventis, posted on the agency's Web site, sheds some light on other differences. Part of the discrepancy is technical, such as different approaches to adjusting data when there's a long interval between repeat sales of a house.<br /><br />But puzzles remain. It turns out, for instance, that prices of low- and moderate-priced homes with mortgages that aren't guaranteed by Fannie and Freddie are falling particularly sharply, buoying the Ofheo index -- even though that index includes plenty of other of low- and moderately priced homes in the same neighborhoods.<br /><br />Of course, by the time the experts get the measures perfected, we'll be onto a bubble in some other asset market.<br /><br /><br /><br />Email your comments to rjeditor@dowjones.com.<br /><br />-- February 15, 2008<br />Corrections & Amplifications:<br />In addition to its widely followed 20-city survey of home prices, S&P/Case-Shiller publishes a national home price index based on data from more than 100 metropolitan areas. The original version of this column incorrectly said the data is limited to 20 major markets.Marutish Varanasihttp://www.blogger.com/profile/06925235122999082182noreply@blogger.com0tag:blogger.com,1999:blog-1727187582424909181.post-39116321266121021352008-02-12T18:47:00.000+05:302008-02-12T18:51:14.111+05:30FSI changes in HyderabadFSI Changes in Hyderabad - What it will mean to supply ????. Only after a detailed analysis of the government order will the impact of the change be known. Read this interesting from Deccan Chronicle dated 12/02/08.<br /><br /> <br />Hyderabad, Feb. 11: Reliance’s 100-storey tower and a signature structure of similar elevation by Lanco Hills are among several ambitious projects likely to come to nought with the state government’s move to reintroduce height restrictions based on Floor Space Index. Besides the Lanco and Reliance projects, the Tishman Speyer-led consortium’s proposed 400-acre integrated township at Tellapur will also be hit.<br />The government had last year removed limits on building height calculated by FSI. Official sources told this correspondent that the Chief Minister, Dr Y.S. Rajasekhar Reddy, had asked the municipal administration and urban development department (Maud) to reintroduce FSI and cap it at 1:2.5. The Chief Minister said there had been several complaints about unlimited building height leading to congestion and environmental problems.<br />The sudden U-turn by the Chief Minister has come as a shock not only to developers but officials as well. Sources said even Maud was clueless on the policy change, which builders have termed a retrograde step. While introducing new building rules recently, the department scrapped FSI and said built up space would be determined as per set backs and road width. It also allowed unlimited height if the plot abuts a road at least 100 feet wide.<br />Under FSI mode, the built up space permitted is based on the area of the land where the construction is made. With FSI at 1:2.5, builders will get only 22.5 sq. ft for every square yard of land. “In real terms, the built up space will be even less because the government intends to include common areas and balconies also in the FSI,” a senior official pointed out.<br />The 100-storey Reliance tower is planned on less than 30 acres. With FSI, a building of that height would have to be built on at least 40-50 acres of land, the official said, adding that the Lanco Hills project faces a similar problem. The proposed IT parks in Gachibowli and Raidurg where Delhi-based BPTP Ltd plans 60-floor structures, a 30-storey residential project at Bachupalli, mall and entertainment centres by Prestige and Parsvanath Developers at Kukatpally and DLF’s hotel project will all be affected by the height restrictions.<br />“The government said scrapping of FSI was revolutionary,” a top city realtor protested. “Agencies like Andhra Pradesh Industrial Infrastructure Corporation, Hyderabad Urban Development Authority and AP Housing Board touted it as their USP while selling land for hundreds of crores.”Marutish Varanasihttp://www.blogger.com/profile/06925235122999082182noreply@blogger.com0tag:blogger.com,1999:blog-1727187582424909181.post-47026475259042483572008-02-12T18:42:00.000+05:302008-02-12T18:47:23.345+05:30More on New Hyderabad AirportAn interesting post from Deccan Chronicle dated 12/02/08 on Hyderabad Airport.<br /><br /><br />Hyderabad, Feb 11: The Rajiv Gandhi international airport at Shamshabad is the best in its class with the world’s best brains in airport design and passenger services joining together to execute the first-ever greenfield airport under public-private partnership in the country. “The new Hyderabad airport has several firsts to its credit. We have put together the best international companies to work with us to complete the project eight months ahead of the schedule and give passengers the best of world class services,” said GM Rao, chairman of GMR Group, which executed the mega airport project in the otherwise sleepy village of Shamshabad in the backward Ranga Reddy district 30 km from here.<br /><br />In an exclusive interview to this newspaper on Monday on the eve of the calibration tests at the new airport, Mr Rao elaborated that Rajiv Gandhi international airport at Shamshabad is the first airport in India to go for LEED Certificate for incorporating green design elements. It is a non-polluting airport and passengers will have fresh air to breathe. “It is also the first airport to have integrated terminal Authorities believe that those who want to build Greenfield airports in the PPP mode would surely study Shamshabad, which has incorporated global best practices, as the most successful model.<br /><br />“Passengers can enter the airport from the national highway No. 7 and from Srisailam highway,” said Mr Rao, who was happy that the rain god blessed his mega venture immediately after the puja ahead of the calibration tests. The airport has the best brains working in all its sectors. “The cargo operation will be handled by Menzies, the business hotel by Accor with Novotel brand and flight catering by LSG Sky Chef and Sky Gourmet,” said Mr Rao. The fuel farm operation and maintenance would be undertaken by Reliance Industries, duty free and retail by Nuance and Shoppers Stop, parking by Tenaga and airport lounges by Plaza Premium of Hong Kong.<br /><br />“Our business philosophy is to work with the best international companies,” he said. “We have chosen them through a transparent selection process.” The airport medical centre will be manned by Apollo Hospitals and pilots will be trained by the Sabena Flight Academy while the maintenance contract has been given to Faber Malaysia. Even the house-keeping has been handed over to Sinar Jernih of Malaysia and ISS Integrated Services of Singapore. The bookstores will be run by Landmark and Odyssey.<br /><br />Mr Rao said GHIAL had got the help of renowned aviation and construction experts including Prof. Rigas Doganis, fellow of the Royal Aeronautical Society, Prof. Amadeu Odoni of MIT and Prof. John Kasarda from North Carolina University. “We got the help of experts who designed Oslo and Hong Kong airport,” said Mr Rao. “The works of the passenger terminal building was taken up by China State Engineering Construction (Hong Kong) Limited.”<br /><br />Mr Rao said a team had visited Bangkok to study how the existing airport there was converted to a greenfield one. “Since we know the problems which Bangkok faced, we have made our strategies accordingly,” he said. “The shifting from Begumpet to Shamshabad on March 16 will be a smooth affair. We will be running 120 special buses to several points in the city. The fare will be just Rs 95.” By all counts, the Begumpet airport would close down after March 16, though there are demands from some quarters that it be kept open.Marutish Varanasihttp://www.blogger.com/profile/06925235122999082182noreply@blogger.com0tag:blogger.com,1999:blog-1727187582424909181.post-1645328717373626782008-02-12T18:33:00.000+05:302008-02-12T18:40:56.785+05:30Rethinking on India Back Office.Read an interesting article on the rethinking the India Back Office story from www.wsj.com. While it is true that there is a rethink on India being the Back Office of the world, the current market dynamics suggest otherwise. With about $400 billion of losses due to sub-prime crisis and more to come from the credit card delinquencies from leading financial institutions the outlook for outsourcing to India looks rosy. <br /><br /><br /><br />Rethinking the India Back Office - source : wsj.com<br /><br />Some Western Firms Weigh Selling <br />Their Units as Costs Rise, Dollar Weakens<br />By JACKIE RANGE<br />February 11, 2008; Page A6<br /><br />NEW DELHI -- Many of India's back-office businesses -- the industry that propelled this nation onto the front lines of global commerce -- may soon be changing hands.<br /><br />Some of the largest outsourcing units are still those belonging to Western companies, including Wall Street's biggest banks, which set them up here in recent years to take advantage of India's low-cost, educated labor force. Now, many of the big companies could soon be looking to get out of part or all of the business by selling either to Indian companies that specialize in outsourcing services, to private-equity firms or through initial public offerings.<br /><br />The reason: The costs for big companies of having their own Indian units are rising sharply -- India's skilled-labor wages are shooting up -- and many, particularly financial-service companies, are looking to cut their overhead as the U.S. economy slows and the credit crunch takes its toll. The dollar's weakness, which makes doing business in India comparatively more expensive, is another incentive for Western companies to leave the sector.<br /><br />Moreover, a study by consultants McKinsey & Co. and Nasscom, the Indian tech and outsourcing industry group, found that, on average, company back offices -- or "captives," as they are referred to in the tech and outsourcing industry -- were less efficient than companies run by outsourcing firms that specialize in the business. For some types of back-office work, captives' costs are 30% higher. The survey found that the higher costs didn't lead to lower staff turnover or better-quality work.<br /><br />The scale of many of these individual deals is expected to be small, mostly in the range of $50 million to $100 million. But together they could total sizable numbers at a time when deals elsewhere are expected to become scarce because of the economic slowdown in the U.S. and elsewhere.<br /><br />"As U.S. companies come under pressure, in a recessionary environment, I think this will be a good way to cut their costs -- and also get some money," said Amitabh Chaudry, CEO of Infosys Technologies Ltd.'s fully owned business-process outsourcing arm, Infosys BPO Ltd.<br /><br />India's tech and business-process outsourcing industry is growing fast and has been a big factor in boosting economic development here. Nasscom says sales for the industry totaled more than $47.8 billion in the year to March 31, 2007, up almost 10 times over the past decade. The Indian tech sector was 5.4% of the nation's gross domestic product in fiscal 2007, up from 1.2% in fiscal 1998.<br /><br />Four or five years ago, setting up a unit in India made sense: Shift the accounts, tech department or customer-care center to India and cut costs by 45%. Many American and European companies rushed to do it. Swiss bank UBS AG has a back office employing about 2,000 in tech hub Hyderabad. Goldman Sachs Group Inc., J.P. Morgan Chase & Co. and HSBC Holdings PLC have their own, too.<br /><br />For some companies, such offices have now become a headache. Once the initial benefit was felt, companies found it hard to keep on top of their costs. Salaries and the cost of office space jumped. Staff turnover has been high, and companies are having to spend on headhunting fees and training.<br /><br />India, however, remains a low-cost destination that offers a large quantity of people with the often-special skills required to make such businesses work, says Pankaj Kapoor, an analyst at ABN Amro Asia Equities in Mumbai. Although costs have risen, they remain substantially lower than in the U.S. or Europe. While some companies have begun to move their back-office operations to lower-cost countries such as Vietnam, Mr. Kapoor says he thinks many -- particularly the more complex back-office functions -- will remain in India. But at the same time, Western companies are still likely to look for ways of getting those functions off their balance sheets, he adds.<br /><br />Not all back-office operations are suitable for sale or for operation by another company. Functions that are very central to a business or are too sensitive to be outsourced are likely to stay owned by the parent company, says Viju George, an analyst at Edelweiss Securities, a financial-services firm in Mumbai. Companies that market themselves as having an India presence, often as a low-cost benefit to clients, are also unlikely to sell, Mr. George says.<br /><br />But already, sales are happening. Genpact Ltd., a business-process outsourcing concern, was spun out of General Electric Co. and listed on the New York Stock Exchange in August. GE and private-equity concerns General Atlantic LLC and Oak Hill Capital Partners remain big shareholders.<br /><br />Travelport Group, a U.K. travel-services company that is owned by private-equity concern Blackstone Group LP, in December sold Travelport ISO, its Indian back-office operation, to Mumbai-based Intelenet Global Services Pvt. Ltd., a company 80%-owned by Blackstone. At the same time, Intelenet unveiled a deal to buy Upstream, an international outsourcing company, from its major shareholders based in Fargo, N.D. Together, the deals were valued at $75 million.<br /><br />Back offices also have changed hands as part of bigger outsourcing deals. As part of a $250 million outsourcing contract last July, Infosys bought three back offices in India, Thailand and Poland from its client Philips Electronics NV of Amsterdam for $28 million.<br /><br />Citigroup Inc. has eyed a sale of its Indian back-office unit, Citigroup Global Services Ltd., people familiar with the matter say. Citigroup declined to comment. And United Kingdom insurance giant Aviva PLC said a strategic review of its Indian offshore business, Aviva Global Shared Services Pvt. Ltd., had come to the early conclusion that partnership, in a variety of forms, could be a better alternative to its current back-office set up. Aviva is now in talks with "a very small number of parties before reaching a final conclusion," the company said in a statement.<br /><br />--Vibhuti Agarwal contributed to this article.<br /><br />Write to Jackie Range at jackie.range@dowjones.comMarutish Varanasihttp://www.blogger.com/profile/06925235122999082182noreply@blogger.com1tag:blogger.com,1999:blog-1727187582424909181.post-69718336499333707942008-02-11T13:57:00.000+05:302008-02-11T13:59:11.583+05:30TCS launches 2nd campus in HyderabadAfter Deccan Park it is Synergy Park from TCS in Hyderabad.<br /> <br />BS Reporter / Mumbai February 11, 2008 <br /> <br /> <br /> <br />Tata Consultancy Services (TCS) has announced the launch of its second global delivery centre (GDC) in Hyderabad.<br /><br />According to an official release issued today, Synergy Park in Gachibowli will be the largest TCS facility in the city. Built over an area of 50 acres with a capacity of 8,000 people, the campus is being built in two phases; the first phase is already operational while the construction of phase two will commence in April 2008.<br /><br />Synergy Park is an approved special economic zone (SEZ) and will serve global TCS customers in industry segments like telecommunications, media & entertainment, government, healthcare & life sciences, hi-tech, manufacturing, retail as well as banking & financial services with a focus on technology areas like enterprise solutions, assurance services and infrastructure services as well as IT services.<br /><br />Speaking on the occasion, CEO and MD, S Ramadorai, said: "The inauguration of Synergy Park is a significant milestone for our operations in Hyderabad and underlines the importance of the city as a key center in our global network delivery model."<br /><br />"With a strong education eco-system, plentiful talent and good infrastructure, Hyderabad has emerged as a leading IT destination and the city will continue to play a significant role in our growth plans", Ramadorai addedMarutish Varanasihttp://www.blogger.com/profile/06925235122999082182noreply@blogger.com0tag:blogger.com,1999:blog-1727187582424909181.post-35992414285104369842008-02-11T12:16:00.000+05:302008-02-11T12:16:41.295+05:30FT.com / Companies / IT - IT spending forecasts cut on recession fearsRead an interesting news item from Financial Times on IT spending and the US recession. It looks likely that the US is slipping into a recession and the growth of IT Industry will slow down to a trickle. We have already seeing the effects of the same on the Indian IT industry, salary increments are a thing of the past and pink slips have become the norm. Today uncertainity reigns across the IT Industry in India and Hyderabad is no exception.<br /><br /><br />IT spending forecasts cut on recession fears<br />By Maija Palmer in London for FT.com<br /><br />Published: February 10 2008 22:05 | Last updated: February 10 2008 22:05<br /><br />Forecasts for global IT spending in 2008 have been cut, as fears of a recession in the US puts the brakes on growth.<br /><br />Global spending on IT goods and services is expected to grow to just $1,695bn in 2008, a 6 per cent increase on last year, according to Forrester Research, the market research group. This represents a significant slowdown from 12 per cent growth last year. <br /><br />EDITOR’S CHOICE<br />Taiwan’s tech sector bent on attracting talent - Feb-07Technology predators on the prowl - Dec-28India’s IT outsourcers face increasing costs - Dec-27Cisco to network whole cities - Dec-23Study urges IT valuation rethink - Nov-04Only two months ago, Forrester predicted IT spending would grow 9 per cent to $1,7580bn this year, but the group has pared this forecast back after a series of poor reports on the US economy. <br /><br />These include news last month that the US economy grew at just 0.6 per cent in the fourth quarter, its slowest pace since 2002, and figures this month showing a fall in employment.<br /><br />“Historically, there has always been a very strong correlation between the economy and technology spending,” said Andrew Bartels, author of the Forrester report.<br /><br />He added: “Our forecast is premised on a mild recession in the US economy in the first two or three quarters of 2008, caused by a shrinking housing sector and tapped-out consumers reining in their purchases due to higher interest rates, energy costs and consumer debt services. Anecdotally, we are hearing that this is beginning to filter through to chief information officers, and it is clear the level of caution is rising.”<br /><br />Last week Cisco Systems, a bellwether for the technology industry, said it had seen a rapid slowdown in orders in January.<br /><br />“The Cisco announcement was coincidental to the revision in our forecasts, but it was confirmation that the slowdown we were expecting is in fact starting to happen,” Mr Bartels said.<br /><br />IT spending growth in the US, which accounts for about a third of the global total, is expected to slow to 2.8 per cent, from 6.2 per cent growth last year. <br /><br />Spending in Asia is expected to be about 9 per cent, the strongest region for growth, but still representing a slowdown from 15 per cent growth last year. <br /><br />In Europe, IT spending growth will fall from 15 per cent last year to 5 per cent.<br /><br />The hardest-hit sectors will be computer and communications equipment, with software and services seeing stronger growth. Mr Bartels stressed that the technology slowdown would not be as severe as in 2001, when spending actually declined. “The tech sector will still grow marginally better than the overall economy. This is not a technology bust, it is a slowdown in growth,” he said. <br /><br />Forrester expects growth to accelerate again in 2009, as the economy improves and the release of new software from companies such as SAP and Oracle help kick-start corporate spending.Marutish Varanasihttp://www.blogger.com/profile/06925235122999082182noreply@blogger.com0tag:blogger.com,1999:blog-1727187582424909181.post-70416654722140709882008-02-08T17:23:00.000+05:302008-12-09T22:33:00.632+05:30No chances for significant reduction of home loan instalments<a href="http://1.bp.blogspot.com/_d95y9UQp3oo/R6xDxI5uzlI/AAAAAAAAAAM/6H2g-1ogqOY/s1600-h/Pix1%5B1%5D.jpg"><img style="float:left; margin:0 10px 10px 0;cursor:pointer; cursor:hand;" src="http://1.bp.blogspot.com/_d95y9UQp3oo/R6xDxI5uzlI/AAAAAAAAAAM/6H2g-1ogqOY/s320/Pix1%5B1%5D.jpg" border="0" alt=""id="BLOGGER_PHOTO_ID_5164577384169393746" /></a><br /><br />Chances of significant reduction of monthly instalments for existing home loan borrowers in the next quarter is remote. While, banks have been quick to increase, they have been very stingy in reducing the same. Read an interesting article from Outlook Money. <br /><br /><br />February 08, 2008<br /><br />If you've bought a house in the last three years, chances are you took a floating interest home loan and since then have received letters from your bank hiking your interest rate every few months. <br />In fact, even after paying your equated monthly instalments for over two years, it may be that your loan tenure is longer than when you first took it. Confused? And, on top of all this your new neighbour, who bought his house in late 2007, pays a much lower interest rate-from the same bank, for a similar house. How can that be? <br /><br />Rising interest rates derail monthly budgets of most families. A study by rating agency Crisil, Mortgage Finance-A Safe Haven for Lenders, says: "The proportion of monthly income being paid out as home loan instalments has increased to more than 50 per cent currently for an average home buyer from around 42 per cent (as on 31 March 2006), despite a 20 per cent increase in monthly incomes".<br />Tax saving strategies for all ages<br />The twists don't end here. From September 2007 onwards, many advertisements have been announcing lower interest home loans. But, as you will find when you read the small print, this cookie is only for new borrowers. <br /><br />The bone of contention<br /><br />The truth about floating rate loans is that there is no transparency in the calculation of interest rates. Also, while banks are quick to hike interest rates when their cost of funds go up, the same is not true when there is a reduction in loan costs. <br /><br />While the trend of offering lower rates to new customers is not a new one, it became more pronounced in the last three months of the previous calendar year. During the recent festive season (September-December 2007) almost all banks announced lower rates for home loans. <br />• Tax? 10 things to do before March 31<br />For example, Axis Bank, Bank of Baroda [Get Quote], Canara Bank [Get Quote], HDFC [Get Quote] and Allahabad Bank [Get Quote] reduced their home loan rate by 50 basis points for this period, while IDBI Bank reduced it by 100 basis points. All these offers were valid till 31 December 2007. <br /><br />The banks are free to decide the applicable rate of interest, and have their own benchmarks that vary across players. What this means is that the retail customer doesn't know which benchmark his home loan rate is based on, how this benchmark was arrived at, when it will change or even by how much. <br /><br />Other than fuzzy benchmarks, another tool that banks use to telling effect is the reset clause present in the loan documents. This clause gives the bank <br />arbitrary powers and is used without any warning, especially after the banks <br />and housing finance companies (HFCs) have acquired new customers at lower interest rates. <br /><br />Behind the curtains<br /><br />The main reason behind offering lower rates to new customers is that the banks and HFCs are trying to maintain the high speed of loan offtake as was in the past few years. (see: Of High Interest). According to the Crisil study, the compounded annual growth rate in fresh loans was 33 per cent during the past three years. Banks increase the discount on their benchmark rate in order to offer sops to new borrowers. <br />This is the real reason why old customers keep servicing the loan at the same rate while new ones are offered lower rates. However, after a specified period, new customers are also brought at the same level of the old customers.<br />• 9 great ways to reduce tax burden <br />Experts feel that the industry will not be able to maintain the same high growth rate in fresh originations as before primarily due to high cost of residential units and, to some extent, because of the high cost of credit. <br /><br />Harsh Roongta, CEO, ApnaLoan.com, says, "It's wrong to have different criteria for the same set of people having same profiles. The ideal scenario is to have different benchmarks for different types of products, and not people." <br /><br />Taking notice<br /><br />The Banking Codes and Standards Board of India (BCSBI) also feels that as contracted rates of interest for existing customers at various points of time depend on the asset liability structure of the bank's portfolio (deposits, borrowings and capital form a bank's liabilities while all loans are its assets) there can't be multiple benchmarks and interest rates charged to customers. <br /><br />Rates can either be below or above the prime lending rate, or the PLR, (the benchmark rate to which interest rates of all other loans are linked) depending upon the risk assessment of the borrower or the bank's interest rate structure. <br />Interest rates are also affected by the repo rate (the rate at which the Reserve Bank of India [Get Quote] (RBI) borrows from the banks), the reverse repo rate (the returns that banks earn on excess funds parked with the RBI), increase in the cash reserve ratio (the portion of depositors' balances that banks must have on hand as cash) and an increase in risk weightage. <br />The Monopolies and Restrictive Trade Practices Commission (MRTPC) has taken notice of banks offering lower rates to new customers while hiking them for old customers. Based on media reports and complaints it received from existing home loan customers, it is looking into how banks can arrive at two different rates even when there is only one benchmark rate for each bank. <br /><br />Also under the scanner is the manner in which banks arrive at the rate that is charged to the borrowers. The commission directed its investigating wing in late November to probe these issues and submit its report within 60 days. If banks are found guilty, we will recommend transparency in operations," said a senior official at MRTPC. The report is expected soon.<br /><br />Finance minister P. Chidambaram, too, recently said that he hoped banks would cut lending and deposit rates by 50 basis points to spur investment.<br /><br />What should I do? <br /><br />In between all these different rates, how do you take care of your loan? <br /><br />Foreclosure. If the effective rate of interest of your loan (after accounting for the tax break on the basis of tax slab) is less than the return on investment that you can generate -- eight per cent in case you go for PPF -- it is better to invest. The cut-off rate of home loan interest comes to 11.5 per cent: at interest rates higher than this, it makes sense to repay the loan, at lower rates.<br /><br />Pre-payment. Those of us who cannot prepay the whole loan immediately can consider making a lump sum part pre-payment. This will bring down the principal amount and in turn the EMI or the tenure. Depending on what your concern is-paying a higher EMI or having a longer tenure-you can ask the bank to recalculate your loan. <br /><br />"One should be cautious that the increase in the loan tenure does not extend the loan beyond the earning years. Usually, an average Indian is debt averse and will tend to come back earlier and make a part prepayment of the loan. So, the institution may not be required to extend the term," says Keki Mistry, vice chairman and managing director, HDFC. <br /><br />However, you should evaluate long-term financial commitments before taking any decision. "If you have multiple loans, such as a housing loan, vehicle loan and a personal loan, then evaluate all these loans as well and prepay the loan based on its effective cost," says Mistry. <br /><br />Home loans are typically longer in duration than other loans but have the advantage of associated tax benefits, which reduces the effective interest on the loan. <br /><br />Looking ahead, banking experts do not foresee a significant reduction of interest rates in the first half of the year, but suggest the possibility of a downward revision after that. If the MRTPC report also prohibits banks from discriminating against existing borrowers by then, there would be some reason for cheer.Marutish Varanasihttp://www.blogger.com/profile/06925235122999082182noreply@blogger.com0tag:blogger.com,1999:blog-1727187582424909181.post-23998492897427799512008-02-08T11:30:00.000+05:302008-02-08T11:30:51.798+05:30AP ShiningInteresting news item from TimesofIndia - 8/2/08.<br /><br />Hyderabad: Andhra Pradesh has achieved a double digit growth rate in 2007-08 which is far above the national average. This could be made possible by the unusual performance of all the sectors in the state. As per the data released on Thursday evening by the Central Statistical Organisation (CSO), A n d h r a Pradesh posted a constant growth rate of 10.07 per cent which is 1.57 per cent higher than the previous year. The growth rate in 2006-07 was just 8.8 per cent. National average for the year is 8.73 per cent. Revealing the data to the media, chief minister’s adviser on economic affairs D A Somayajulu said the state’s performance exceeded the national average in every sector, including agriculture which had stagnated for long. The agriculture growth rate posted a 8.38 per cent as against a national average of 2.59 per cent. While the industry sector grew at 9.8 per cent, service sector recorded 11.5 per cent, the national average for these sectors being 8.90 per cent and 10.73 per cent respectively. The per capita growth rate also exceeded the national average (7.55 per cent) with 9.35 per cent while per capita income in the state standing at Rs 33,970 with the national average lagging behind at Rs 33,131. This is a remarkable feat, Somayajulu said, for a state which was formed by combining most backward regions with different socio-economic backgrounds.</span>Marutish Varanasihttp://www.blogger.com/profile/06925235122999082182noreply@blogger.com0tag:blogger.com,1999:blog-1727187582424909181.post-52232165282005971022008-02-08T06:18:00.001+05:302008-02-08T06:30:34.645+05:30Telangana : Will happen, but when ?????Interesting news item on Telangana from Deccan Chronicle. Looks likely, in the short term i.e., in the next few months an announcement on creation of a separate Telangana is unlikely. The debate i.e., sentiment vs development continues. <br /><br /><br />Telengana Debate<br /><br />Hyderabad, Feb. 7: Unwilling to concede to the demand for a separate Telangana state, the Congress has decided instead, on the suggestion of the Chief Minister, Dr Y.S. Rajasekhar Reddy, to set up a committee to monitor development projects in the region. The panel will also address political developments relating to the demand for a new state. At Tuesday’s Congress Core Committee meeting in Delhi chaired by the Prime Minister, Dr Manmohan Singh, Dr Reddy said it is unprecedented for a region which includes the state’s capital to break away. <br /><br />He also noted that the recent increase of two Lok Sabha and 18 Assembly segments in the Telangana region after delimitation was an indication that people from other regions in the state have settled in the capital and surrounding districts. The formation of Andhra Pradesh as a single entity was settled five decades ago, he said.<br /><br />Politically, too, it would be an unwise decision to support a separate state, Dr Reddy added, quoting a recent survey conducted by the party that showed the Telangana Rashtra Samiti lagging behind the Congress. The survey also indicated lack of public support for bifurcation. The 40-minute meeting weighed a number of options before coming to the conclusion that it cannot concur with the demand for separate statehood in view of resistance from coastal Andhra and Rayalaseema.<br /><br />The Congress president, Mrs Sonia Gandhi, is likely to make a formal announcement regarding the party’s stand on the Telangana issue on her visit to the city, where she will address a mammoth public rally on March 14 and inaugurate the Shamshabad airport, two days ahead of a schedule released earlier. <br /><br />Mrs Gandhi, sources said, is keen that the Telangana issue be handled carefully so people do not get the impression that the Congress is against the sentiment for a separate state. She said at the core panel meeting that the people of Telangana region should be convinced that the party is not standing in the way of a separate state, for which a broad consensus between parties has to be arrived at.<br /><br />The Union home minister, Mr Shivraj Patil, told the meeting that the outlawed CPI (Maoist) had also called for a separate state and to accede to the demand would mean adverse ramifications for security in the country. The meeting was also attended by Union ministers Mr Pranab Mukherjee, Mr Arjun Singh and Mr A.K. Antony.Marutish Varanasihttp://www.blogger.com/profile/06925235122999082182noreply@blogger.com0tag:blogger.com,1999:blog-1727187582424909181.post-49780306427576581322008-02-08T06:12:00.000+05:302008-02-08T06:17:44.668+05:30New Hyderabad Airport on scheduleNo surprises from GMR. The airport inaugration is on schedule, now get ready to drive to Shamshabad in about a month's time. Will the time on road to the airport equal to the flight time(local travel in India). ?????? Most likely until the authorities speed up the various transport bottlenecks.<br /> <br /><br /><br />Source : Deccan Chronicle <br /> <br /> <br />Hyderabad, Feb. 7: The Shamshabad airport will be ready for trial runs on February 12, a full month before its formal inauguration by the UPA chairperson, Mrs Sonia Gandhi. The GMR Group, which executed the Rs 2,478-crore Rajiv Gandhi International Airport project, will perform a puja on Saturday to propitiate the gods ahead of the trial runs and for a smooth opening on March 16. Officials from the Directorate General of Civil Aviation are to inspect safety norms at the greenfield airport soon.<br /><br />Jet Airways and Kingfisher Airlines are set to conduct calibration tests on February 12 as part of the trial operations, with the Union minister for civil aviation, Mr Praful Patel, and the Chief Minister, Dr Y.S. Rajasekhar Reddy, in attendance. Senior civil aviation officials will verify data from the tests to determine whether the new airport is ready for commercial operations.<br /><br />GMR officials said over 96 per cent of the airport work has been completed. The rest will be completed soon. “The airport will be right on schedule. It has been designed to cater to 12 million passengers and 1 lakh tonnes of freight per annum in the first phase,” said Mr Raja Gopala Swamy, chief financial officer of GMR Hyderabad International Airport Limited.<br /><br />“The new airport will be operational at 12.01 am on March 16. We are now working with our partners to enhance passenger experience,” he added. Lufthansa will be the first airline to fly out of Shamshabad airport. A direct flight between Frankfurt and Hyderabad is scheduled to arrive at the new airport at 12.25 am on March 16. It will take off at 2.00 am. The airport will be inaugurated by Mrs Gandhi on March 14Marutish Varanasihttp://www.blogger.com/profile/06925235122999082182noreply@blogger.com0tag:blogger.com,1999:blog-1727187582424909181.post-21856001119134001232008-02-08T05:32:00.000+05:302008-02-08T05:38:21.321+05:30Real estate as an Asset ClassPlease read an interesting blog by Ajay Shah Real Estate as an Asset Class :<br /><br />Many people are increasingly comfortable treating real estate as `an asset class'. It is argued that land isn't being produced, that as the population grows, demand for real estate only goes up. Astronomical prices of real estate in India encourage holding real estate assets in the hope of obtaining high profits in the future.<br /><br />This proposition is debatable. There is actually ample land out there. A calculation shows that even if all of India's population had a dwelling of 1000 square feet per family of 4, this requires only 0.76% of India's land area, assuming a low FSI of 1.<br /><br />In the case of equities, we know that in all countries, a diversified portfolio of equities earns a few percent per year in real terms over long time periods. Some papers show that this is not the case with real estate (!).<br /><br />If land isn't scarce, then the cost of built-up housing isn't much, it's just the cost of steel and bricks. To think of it as an asset class is as odd as treating (say) a car as a financial asset. The only challenge is one of overcoming government zoning restrictions, and building enough property, so that prices can then crash.<br /><br />This is part of the story of the US housing market in recent years. Thanks to sound urban policies, there are no real entry barriers to building houses in the US. Zoning rules are sensible, and the policy framework supports easy extension of urban areas into outlying barren land. When houses could be sold for more than the price of cement and steel required to make them, this kicked off a massive supply response. This kicked up GDP growth for a few years. It took a little time, but this killed off the phase of rising prices. For some time now, house prices in the US will be low because of this overhang of supply.<br /><br />There are legitimate concerns about bank exposures to real estate, since the market is non-transparent and marking to market is difficult. I think it is easy to build a risk management system governing loans against shares or bonds, but I'd worry about loans against houses or cars.<br /><br />There are strong concerns about foreign capital coming into the real estate sector of a country like India. It is claimed that foreign speculators will drive up prices and thus make housing unaffordable. This needs to be questioned, for foreign capital that goes into development (directly or indirectly) ultimately drives up supply and thus solves the problem (see above link).<br /><br />Transforming the real estate sector requires a sustained push in terms of financial capital in development, professional management teams that will build millions of square feet instead of thousands of square feet, and a big jump in the FSI. Once these initiatives are in place, real estate prices will drop, households and businesses will find space to be much more affordable, and it will not look so good as an asset class.<br /><br />Some of these pieces are now coming together. A new breed of firms are now accessing public markets to obtain capital on a scale that was previously unimaginable, and bringing modern professional organisations to bear on the task of rapidly building properties. Foreign capital and foreign firms are increasingly coming into this area, though much slower than would be the case thanks to capital controls.<br /><br />The CMIE executive summary for this sector shows a growth in total assets from Rs.22,156 crore in 2004-05 to Rs.53,522 crore in 2006-07. The market capitalisation of listed firms on NSE in this sector is Rs.3,13,981 crore, and the P/E of 37.3 will attract entry. Of the 80 firms in this sector, CMIE finds that 54 have adequate liquidity to make it into the price index for this sector. These are all still small numbers compared with the size of India, but it looks like serious firms are finally coming together, that might ultimately be able to pull off a massive supply response.<br /><br />In this context, I was intruiged by this story by Raghavendra Kamath in Business Standard, describing incremental supply of ~ 15 million square feet in Bombay in a year. That sounds nice, it represents the kind of dent that is required on the part of supply to make a serious difference to pricesMarutish Varanasihttp://www.blogger.com/profile/06925235122999082182noreply@blogger.com0tag:blogger.com,1999:blog-1727187582424909181.post-69978245088290808082008-02-06T16:24:00.000+05:302008-02-06T16:28:24.288+05:30US Housing MeltdownFind enclosed an interesting article on US housing meltdown from Businessweek.com. The moral of the story is that banks have to follow the set lending standards and housing will never be a one-way street. The prices of houses can also fall and it is not always a fail-safe investment.<br /><br /><br /><br />Housing Meltdown<br />Why home prices could drop 25% more on average before the market finally hits bottom<br />by Peter Coy <br /><br />As Washington policymakers struggle to keep the U.S. out of recession, the swirling confusion over the housing market is making their job a lot tougher. Will American consumers keep shopping or be forced to pull back? Will banks lend freely or be hamstrung by mortgage defaults? What are the best policy options right now? Those and other important questions simply can't be answered without a good idea of whether home prices will rise, flatten out, or keep dropping. <br /><br />Some experts have begun to suggest that a bottom is in sight. Pali Research analyst Stephen East wrote in a research note to his firm's clients on Jan. 25 that "the sun is not shining very brightly, but at least the worst of the storm has likely passed." With optimism budding, Standard & Poor's beaten-down index of homebuilder stocks soared 49% from Jan. 15 through Jan. 29. <br /><br />But it's considerably more likely that the storm is still gathering force. On Jan. 30 the government said annual economic growth slowed to just 0.6% in the fourth quarter as home construction plunged at a 24% annual rate. The Standard & Poor's/Case-Shiller 20-city home price index fell 7.7% in November from the year before, the biggest decline since the index was created in 2000. <br /><br />And that could be just the start. Brace yourself: Home prices could sink an additional 25% over the next two or three years, returning values to their 2000 levels in inflation-adjusted terms. That's even with the Federal Reserve's half-percentage-point rate cut on Jan. 30 <br /><br />While a 25% decline is unprecedented in modern times, some economists are beginning to talk about it. "We now see potential for another 25% to 30% downside over the next two years," says David A. Rosenberg, North American economist for Merrill Lynch (MER), who until recently had expected a much smaller slide. <br /><br />Shocking though it might seem, a decline of 25% from here would merely reverse the market's spectacular appreciation during the boom. It would put the national price level right back on its long-term growth trend line, a surprisingly modest 0.4% a year after inflation. There's a recent model for this kind of return to normalcy after the bursting of a financial bubble. The stock market decline that began in 2000 erased most of the gains of the boom of the second half of the 1990s, leaving investors with ordinary-sized returns. <br /><br />Why might housing prices plunge violently from here? Remember the two powerful forces that pushed them up: lax lending standards and the conviction that housing is a fail-safe investment. Now both are working in reverse, depressing demand for housing faster than homebuilders can rein in supply. By reinstituting safeguards such as down payments and proof of income, lenders have disqualified thousands of potential buyers. And many people who do qualify have lost the desire to buy. "A down market is getting baked into expectations," says Chris Flanagan, head of research in JPMorgan Chase's (JPM) asset-backed securities group. "People say: I'm not buying until prices are lower.'" He predicts prices will fall about 25%, bottoming in 2010. <br /><br />Nobody can be sure how far prices will decline. Still, if prices drop that much, it could mean big trouble for the U.S. economy, which is already on the brink of recession. It would blow a hole in the balance sheets of banks and households, slicing more than $5 trillion off household wealth. That's roughly the size of the drop in stock market wealth from the peak in early 2000, a big reason for the recession of 2001. Yale economist Robert J. Shiller, a longtime housing bear, points out that a housing decline that started in 1925 and ran until 1932 weakened banks and contributed to the Great Depression, which started in the U.S. in 1929. <br /><br />MACARONI AND CHEESE<br />It has become a cliché, but an accurate one, that Americans used their homes as ATMs during the boom years. They lined up for cash-out refis or home-equity loans to turn housing wealth into spending money. So far, the amount of equity being withdrawn has remained surprisingly strong—$700 billion at an annual rate in the third quarter. But it's bound to dwindle if prices keep falling, giving the economy a further downward push. According to an analysis conducted for BusinessWeek by Zillow.com, the real estate Web site, a further 20% decline in prices nationwide would mean that two-thirds of people who bought in the past year would owe more than their homes would be worth, meaning they couldn't take out cash if they wanted to. <br /><br />Alesandra Sanchez, who works for the city of Las Vegas, and her husband, Craig Mireles, a project manager for an architect, are living that problem. Their house in Summerlin, Nev., has quickly gone from a money geyser to a drain. The couple raised about $70,000 in cash in 2005 by refinancing less than a year after they bought their home. They put the money toward student loans, medicine for Sanchez's rheumatoid arthritis, and other things. Now the cash is gone and the interest rate has ratcheted up to 11%. Alesandra says the new payment of $4,200 a month "is doablebut it's like eating macaroni and cheese: It doesn't leave room for anything else." No wonder that retail sales fell 0.4% in December, and economists are projecting a sharp slowdown in overall consumer spending this year. <br /><br />The second shock to the economy from the housing bust will come from the financial sector, which has been weakened by losses on mortgages as well as mortgage-backed securities and more exotic derivatives. Banks borrow so much money to fund their investments that if a loss on some holding reduces their capital by $10, they have to reduce their lending by $100 to avoid exceeding their self-chosen leverage targets, calculates Goldman Sachs (GS) chief U.S. economist Jan Hatzius. He estimates that banks and other financial institutions will suffer about $200 billion in real estate losses and respond by cutting their lending by $2 trillion, or about 5% of total lending. The cutback could be even more extreme if they react to the turmoil by lowering their leverage ratios, he says, rather than keeping them intact. Banks have already begun tightening lending standards. In the third quarter, mortgages were harder to get than at any time in the 17-year history of the Federal Reserve's survey of senior loan officers. <br /><br />Prices won't fall uniformly, of course. Once-booming cities such as Las Vegas and Miami and weak economies like Detroit are likely to fare worse than Seattle or Charlotte, N.C. The price decline will be smaller if it's stretched out over longer than, say, two years, because inflation will have more time to do some of the job of eroding the real value of homes. Still, if the national average decline is anywhere near 25%, the entire U.S. economy is in for trouble. Keep in mind, says Merrill's Rosenberg, that the relatively puny price decline to date has already pushed home-loan delinquencies to their highest level in 20 years. The plunge in residential construction reduced the economy's annual growth rate by a full percentage point in the third quarter of 2007. A bigger decrease would wipe out even more jobs—carpenters, real estate agents, mortgage brokers, furniture salespeople. <br /><br />For American consumers, meanwhile, huge losses would almost certainly undermine the long-held premise that homeownership is the most reliable way to build wealth and a middle-class life. "I know you're not supposed to say I told you so,' but I'm at the age where I can do it: Homeownership was oversold," says 67-year-old House Finance Committee Chairman Barney Frank (D-Mass.). <br /><br />One look at the long-term home price chart tells you all you need to know: Starting in 2000, prices crossed above their trend line and just kept going up. The spike had never happened in modern U.S. history, according to data dating back to 1890 that Shiller painstakingly compiled for the second edition of his book Irrational Exuberance in 2005. Back then he predicted a sharp drop in house prices. Now he says lawyers won't let him publicly forecast home prices because he's involved in preparing the market-sensitive Standard & Poor's/Case-Shiller home price indexes. All he'll say is: "This is a historic turning point." <br /><br />Optimists point out that the Fed, Congress, and the White House are all committed to keeping housing aloft so it doesn't kill the economy. The Fed reduced the federal funds rate by three quarters of a percentage point on Jan. 22 and followed with a half-point cut on Jan. 30—an extremely rapid move for a major central bank. Homebuilders also are doing their bit to support prices: They've cut production so drastically that even though home sales fell more than expected in December, the backlog of unsold new homes shrank slightly. Douglas Duncan, chief economist of the Mortgage Bankers Assn., predicts existing home prices will slip less than 2% this year before beginning to rebound in 2009. <br /><br />Pessimists aren't impressed. One of the first high-profile bears on housing, Ian Shepherdson of consulting firm High Frequency Economics, is looking for a 20% decline in prices from their peak but says 40% wouldn't shock him. "We've never been here before, so there's no road map," he says. <br /><br />There's even uncertainty about where prices are right now, since many would-be sellers are refusing to cut them enough to make a sale. A Harris Interactive (HPOL) survey for Zillow.com in December found that 36% of homeowners thought their homes had increased in value over the past year, vs. 23% who thought they had decreased. That willful optimism translates directly into the record overhang of unsold existing homes: more than 4 million. <br /><br />For a truer picture of the market, look at sales by banks and builders, which don't have the luxury to wait things out because they have to worry about cash flow. Deutsche Bank (DB), among other banks, has been slashing prices on repossessed homes to get rid of them. In a recent transaction mentioned on BusinessWeek's Hot Property blog, Deutsche Bank sold a house in Woodbridge, Va., in December for $150,000, less than half its last sale price of $315,000 in the spring of 2005. In November, Lennar (LEN), the big builder, sold 11,000 home sites to a joint venture it formed with Morgan Stanley Real Estate for $525 million, 60% below what they were valued on Lennar's books. That's capitulation, and it's likely to occur more often as sellers get the idea that waiting won't solve their problems. <br /><br />MORTGAGE HURDLES<br />Plenty of other evidence supports the notion that home prices have further to fall. There's a crisis of confidence in the securitization of mortgages, which pumped up housing demand by giving buyers access to nationwide and even global pools of capital. The loose links in the securitization chain allowed risky loans to be made at low rates. Trust in that system is broken and will not be mended quickly. <br /><br />Almost the only mortgages being securitized successfully are the ones bought by Fannie Mae (FNM) and Freddie Mac (FRE), the private companies with implicit government backing. They accounted for about 87% of mortgage securitizations in December, vs. fewer than half in 2005 and 2006, according to the publication Inside MBS & ABS and the investment bank UBS (UBS). Subprime lending is nearly shut down, home-equity loans and lines of credit are scarce, and jumbo mortgages (too big for Fannie and Freddie to purchase) command premium rates. A survey of real estate agents found that a third of planned home sales were canceled or delayed last fall because of loan problems. <br /><br />Even Fannie and Freddie, which style themselves as the last resort of the home buyer, have tightened standards and raised fees. And they remain reluctant to raise funds to buy mortgages if it means lowering returns to shareholders. Fannie Mae Chief Executive Daniel H. Mudd joked to Wall Street analysts in December that the process of cutting the dividend and selling preferred shares to raise money pained him so much that "I wanted to cut off both my arms and both my legs, and my head, and my kidney." <br /><br />Cheaper mortgages won't necessarily ride to the rescue, either. Thirty-year conventional fixed-rate mortgages failed to fall after the Fed's two January rate cuts, averaging 5.5% on Jan. 30. Financing remains cut off for subprime borrowers (BusinessWeek, 12/11/07) and for owners whose home equity has dipped too low to qualify for a new loan. Fed rate cuts will ease, but not eliminate, the pain from resets on adjustable-rate loans. <br /><br />For another bearish view, there's what economists refer to as the Mankiw paper. In 1989, long before working in the White House as chief economic adviser or writing his best-selling textbook, Principles of Economics, Harvard University economist N. Gregory Mankiw co-wrote a paper that was startlingly negative on housing. He and David N. Weil predicted that home prices would decline by 47% after inflation over the next 20 years, based on a shrinking pool of potential first-time buyers and an expectation that baby boomers as a group would spend less on housing as they grew older. <br /><br />It could be that Mankiw and Weil were not so much wrong as premature. Although boomers have thwarted expectations by adding on rooms and second homes as they age, they won't thwart nature. "At some point, death or illness will cause baby boomers' houses to come onto the market," observed John Krainer, a senior economist at the Federal Reserve Bank of San Francisco, in an in-house publication in 2005. When the huge boomer generation shuffles off, the nation's housing needs will wane. That will create an oversupply unless builders see it coming and reduce construction. Judging from the recent overbuilding binge, though, their forecasting abilities leave a lot to be desired. <br /><br />NECESSARY EVIL<br />Observers with a Calvinist streak see a housing crash as not only necessary but also positive. It will force Americans to live within their means, which will enable the U.S. to work off some of its towering debt, says Peter D. Schiff, president of Darien (Conn.) brokerage Euro Pacific Capital, who was early in predicting the crash. In 2005 the share of gross domestic product devoted to residential construction reached the highest since 1950, when the U.S. was racing to house the baby boom generation and make up for the lack of construction during the Depression and World War II. Now, says Schiff, "if there's any construction, it's going to be factories, oil exploration, mines." He takes almost unseemly delight in predicting tougher times ahead: "Americans are going to have their credit cards taken away from them by the lenders. We're going to turn the American economy into a cash economy." <br /><br />Foreclosure counselors such as Mildred Wilkins foresee similar changes, except in looking back they put more of the blame for the fiasco on builders and lenders and less on borrowers. "We have been fed the illusion that acquiring a home was a magic key to stability, to wealth-building," says Wilkins, who travels the country advising lawyers and others on how to handle foreclosures. Even though she is president and founder of an Indianapolis company called Home Ownership Matters, which promotes responsible ownership, Wilkins says she never believed the "poppycock" that homeownership was a sure path to wealth, calling it a myth foisted on lower-income Americans by politicians serving the builders and bankers. <br /><br />The sense of betrayal is probably most intense among the working-class families who were supposed to be the greatest beneficiaries of easy access to low-down-payment mortgages. The less-pricey outskirts of expensive cities such as Los Angeles and San Francisco are precisely the areas where the biggest share of recent buyers are underwater on their mortgages. Cindy and Larry Chaffold, who live in the desert east of Los Angeles in Apple Valley, bought a house for $216,000 in 2005 that's now appraised at $190,000. Cindy was ready to hand the keys to the bank until she got her loan modified. Says Chaffold: "I have been screwed, chewed up, and spit out." <br /><br />HARKING BACK TO FDR<br />If home prices really fall an additional 25%, Washington's rescue program is likely to seem seriously inadequate. So far the Bush Administration is pushing two main ideas: FHASecure, which offers new mortgages to certain well-qualified borrowers, and Hope Now, a private-sector program to streamline the modification of unaffordable loans. But FHASecure isn't open to people who are underwater on their mortgages—in other words, those who most need help. And the Hope Now alliance doesn't seem to be coping successfully with the mounting backlog of loan delinquencies. The other big Washington initiative, to crack down on loose lending practices, could be ineffective and even counterproductive, because it's making loan funding less available right when it's needed most. <br /><br />The next big reform ideas may hark back to President Franklin D. Roosevelt. Many of the housing market's props today—including Fannie Mae and the Federal Housing Administration—were launched during the 1930s. If things get bad enough, say some analysts, it could raise interest in renewing another innovation of the Depression years, the Home Owners' Loan Corp., which lent money directly to hard-pressed borrowers to prevent foreclosure. If enough banks get into trouble, Congress might even create something roughly parallel to the 1980s-era Resolution Trust Corp., which cleared up the savings and loan crisis by shutting down weak thrifts, thus wiping out the investments of the owners, and then selling off their assets to the highest bidders. <br /><br />And with homeownership no longer seeming like such a sure thing, national housing policy could become more evenhanded toward renters. Congress is weighing the creation of a National Affordable Housing Trust Fund that would build, rehabilitate, and preserve 1.5 million units of housing for the lowest-income families over the next 10 years. The national homeownership rate has already fallen about one percentage point from its peak, to 68.2% in last year's third quarter. <br /><br />However things unfold, the changes are likely to be wrenching. The bigger the boom, the harder the fall. <br /><br /><br />Links<br />The Good…<br />Several markets are still booming. In Australia, median prices in Melbourne rose about 25% in 2007 and could surge past higher-priced Sydney within a year, according to a Jan. 26 editorial in Melbourne's Herald Sun. China's Xinhua Financial Network reported on Jan. 24 that property prices in 70 large Chinese cities rose 10.5% in December from the previous year, despite "several directives aimed at squeezing liquidity from the market"—confirming that bubbles aren't easy to pop.<br /><br />The Bad…<br />But in other places, price growth is slowing or reversing. BusinessWeek (MHP) reported on Nov. 21 that on the outskirts of Spanish cities "you'll find a forest of half-built apartment towers and townhouses." In Ireland, traditionalists welcome the market's sudden cooling. A Jan. 24 column in the Kildare Nationalist rued the way a construction boom had spoiled the appearance of 800-year-old Athy. "The once-compact market town...has been extended and reshaped almost beyond recognition," the columnist wrote.<br /><br />…and the Silver Lining<br />Prices are falling in Britain as well, and to some analysts, that's just fine. On Jan. 28, The Times of London ran a commentary by a geography professor Chris Hamnett titled, "Great news! House prices are down." His point: By making homes more affordable, a big price drop will be good for the market's long-term health.Marutish Varanasihttp://www.blogger.com/profile/06925235122999082182noreply@blogger.com0