Builders make money, bankers make money, but customers get slaughtered

In the Indian Real Estate Market, be it boom or a recession, builders make money, bankers make money, but customers get slaughtered.

The government plans to make some amends and is planning to bring in an Bill during the winter session of Parliament to protect the interests of home buyers. This is to be welcomed.

Builders issue

I believe that two issues need to included in the bill :

• 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.
• 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.

Read more of it in

http://www.business-standard.com/india/news/protecting-home-buyers/371682/

Bank issue :

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.

Three realty firms file DRHP; may raise Rs 10,000 cr

Business Standard has an article which says that 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.

http://www.business-standard.com/india/news/three-realty-firms-file-drhp-may-raise-rs-10000-cr/371703/

Hyderabad Real Estate Market - September 2009

The real estate market in Hyderabad is showing signs of a mild recovery. 

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. 

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. 

Please find enclosed an update on Hyderabad Real Estate Market - August 2009. 

http://www.vrnetconsulting.com/i/Hyderabad-market-update-August-2009.pdf

Key residential micro markets in Hyderabad - Ranking

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.

Hyderabad Real Estate Outlook - 2009

Hyderabad Real Estate: Market Update May 29, 2009

1.0 FY 2009 Year in review
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.
Major residential property launches in FY 2009
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.

National real estate companies
In FY 2009 national real estate companies have launched the following large projects in the residential market of Hyderabad.
• Lodha Group has launched its premium luxury apartments named Lodha Bellezza at Eden Square - Kukatpally.
• DLF has launched its project - Lake District - The Summit at Kokapet in the affordable housing segment.
• Mantri Group has launched its Celestia a residential and commercial project near the financial district Gachibowli in the affordable housing segment.

Local real estate companies
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.

Market size in FY 2009 has shrunk
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.

Builders going slow
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.

No significant unsold inventory
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.

Builders under stress to raise capital
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.

QIP route for Hyderabad builders – ruled out
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.

Changing focus of builders
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.

Residential Prices – Hyderabad – An analysis
Prices – National Housing Board – Residex Index for Hyderabad
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.


2.0 Will the market recover in FY 2010?

Major Launches in FY 2010
Even in difficult market conditions, builders in Hyderabad have launched new projects in FY 2010. A few large projects launched include
• Botanika by Koncept Ambience. – A premium luxury segment project near Botanical Gardens in Kondapur.
• Rainbow Vistas launched by Cybercity Builders & Developers Pvt Ltd and Ashoka Developers & Builders Ltd in the affordable housing segment of the market near Kukatpally.

FY 2010 Outlook: Pricing pressure on residential real estate is expected continue, while demand likely to firm up

Residential transactions improving: 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.

Delinquent property auctions likely: 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.

Bank Lending rates – To dip further: 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.

Tightening norms by Housing finance companies
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.

IT Outlook – Uncertain: 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.

Market Outlook: 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.

By Marutish Varanasi
(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
















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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.

Impact of Budget

An interesting post on the impact of budget on realty sector in Businessline - 1/03/08.


Realty sector upbeat on I-T exemption

Our Bureau

Mumbai, Feb. 29 Realty majors found cause to cheer the budget on concessions extended to other sectors.

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.

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.

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.




“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.

“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.

“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.

Housing Prices

An interesting article on tracking Housing prices from NYT. Hope when will be see an index for residential property in India...




Tracking Housing Prices
Why the Numbers Conflict

(See Corrections & Amplifications item below.)

By David Wessel
From The Wall Street Journal Online

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.

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.

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.

Discuss

What is happening to housing prices in your community, and how much worse do you think things will get? Share your thoughts.
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.

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%.

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.

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.

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."

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.

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.

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.

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.

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.

Of course, by the time the experts get the measures perfected, we'll be onto a bubble in some other asset market.



Email your comments to rjeditor@dowjones.com.

-- February 15, 2008
Corrections & Amplifications:
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.