[alpha1]

Originally Posted by DCEite

No offence, but from the tone of your post, i can make out that you are either employed in Real estate industry/run a real estate firm or have huge RE investments.

Well he might be a real estate developer (builder) for all you know!
But I agree with lamborghini has written.

However, he has taken a recourse to the "high input cost" route; which I do not agree entirely with.

Consider this in general:
1. A seller sells certain item for Rs 100, and is able to recover his investments and expenses and is also able to make profits.
2. Tomorrow, he find that he is not able to sell for Rs 100, so he waits out because he wishes to protect his margin (say Rs 20).
3. The investment is not being recovered and expenses are surmounting with each passing day where sale is not being made.
4. Finally he decides that he will sell at Rs 80 and not make any profits. He is dismayed, but if he has to stay in business he has to source "raw material" from somewhere that allows him to again start making profits. (Which usually he does because the price pressure travels all the way upstream) And/Or he has to use technology that cuts down his manufacturing costs.

Now the situation here (in real estate) is that you cannot source "raw material" (plot of land) from elsewhere. And this is where Lamborghini is stopping his analysis.

BUT, what exactly is the "cost" of plot of land?
It is nothing but the last settled transaction PRICE between sellers and buyers - which comes to be known as the market price.

Which means that there is someone (builder) ready to buy at that "obnoxiously high" price (yet expecting to make huge profits) which is pushing the prices of the land high.

If what Lamborghini says is true, then the builders would slowly refrain from paying nauseating levels of prices and this should
a) either drop the price
b) or stop new developments in the already overly crowded areas

But Lamborghini, why is this not happening?
Why is there some or the other builder, still willing to pay high price for the land (and thus keeping the market prices high), still trying to sell the houses at certain price, inventory still remaining unsold, and the builder still financially solvent?

Originally Posted by lamborghini

So in Mumbai particularly, I find it extremely difficult to see how developer's can reduce prices. Land costs are exhorbitant! Funding for purchase of land even more so. Approvals take nearly 2 years and in some cases even more (at 18-20% interest rates, just do the math).

Lastly - given the financial crunch in this sector, I don't think most developers are holding on to their vacant flats in hopes of maintaining the market price - but rather just want to cover their liabilities below which they cannot sell.
.

###
Of course the govt is not at all interested in solving the bureaucratic hurdles, which is their wont.

[nowwhat?]

Honestly I don't know much about the Mumbai market these days and I realized only after posting that the suburbs I meant were the extra-urban areas (not traditional suburbs like Chembur, Juhu, etc.)

However I stick to my position that Mumbai is different compared to the rest of India because of the reasons you mentioned: high cost of land, which requires financing as not too many have such deep pockets + cost of approvals. This is not that much of a factor building in the outskirts of say Bangalore, yet the prices do not budge.

Originally Posted by lamborghini

working with pro-customer companies that want to make a positive change in the industry.

Could you please name some of these companies as I would like to keep them in mind in case I decide to buy.

[Wheeliej]

Originally Posted by lamborghini

.

Instead, the government should reduce interest rates, taxes, and duties on properties admeasuring a certain size; while putting processes in place to ensure that approvals are sped up. This would boost the sales of properties, and help liquidate the market and thus help them fill up their coffers quicker than by increasing taxes and duties (which will be passed on to the consumer) in hopes of generating revenue for the state.

.

I have seen that this wont happen. I was in discussions with a builder who was almost about to get oc, after which service tax wouldnt be applicable. I told him to hold on so i could save some money. He told me up front that the moment service tax went out he would hike up the per sft Price to fill the gap so i would wind up paying the same amount. Needless to say i didnt take up the property from that builder. The more i dealt with them the more disgusted i got with their attitude.

Its a dirty game played by builders and i have no / zero / zilch / nada sympathy or empathy for them after the humungous loot and underhand dealings they have done all over India in the last few decades. It is all a cartel and they all increase prices together. Associations like credai have no credibility as they only take care of builders lobby and dont care for consumers / investors.

Even when land prices were low they didnt spare customers and when the land prices have shot up due to them they dont care. They are sitting on boatloads (titanic sized) cash (black money) still and can outlast all of us put together (remember modis 15 lac reneged promise? Its all within India with these builders, not in foreign countries), so spare them no sympathy. Go for 2nd hand properties and be spared the usurious charges on parking, club house, service / sales taxes etc. Etc etc.

[lamborghini]

Originally Posted by alpha1

But Lamborghini, why is this not happening?
Why is there some or the other builder, still willing to pay high price for the land (and thus keeping the market prices high), still trying to sell the houses at certain price, inventory still remaining unsold, and the builder still financially solvent?



###
Of course the govt is not at all interested in solving the bureaucratic hurdles, which is their wont.

Thanks bro!

See - that is the beauty of a market that is opening up. Let's discuss on the basics of economics & history -

1. In Mumbai when the property prices began shooting up (beginning 2000's), land had been acquired cheap. By the time approvals came in, and construction began (2 years down the line) - owing to the demand (investors & customers), prices had begun to rise for the end product. This created a lucrative scene for the developers as they had a high profit margin at that point - one that was significantly higher than what many had envisioned. At this point, the equilibrium point of demand and supply was higher than predicted as investors were lured in with hopes of high returns, and lapped up developer offerings.


2. Seeing this profit, lots of new developers entered the market as it was timed with the barriers to entry easing up - thus increasing supply. Investors hoping for appreciation kept on lapping up the supply and the equilibrium point kept on increasing.
Land owners wanted a share of the pie as well, and slowly their expectations went up significantly too (remember - the land prices shot up after a lag period, which is why there are some land-owner/developer disputes in court today as owners wanted to exit from agreements as they realized later on that the land potential was higher than what they had agreed upon earlier). This coupled with the increased demand for land, increased the price of land as well.

3. Equilibrium point soon became unaffordable for most of the end-users, who realized that it would be more cost effective to rent instead of purchase the property. Investors too began to feel the pinch given that resales of their investments became more difficult, and also were lured in with other investments that were less riskier, easier to liquidate, and offered similar level of future appreciation (current, not past levels).

4. With demand reducing, but with developers already having invested in projects (2 year approval lag - most developers sell part of their inventory to investors at the start, but a bulk of inventory is always kept on hold because everyone's greedy right - as the building comes up, the prices will increase; and a lot of investors prefer to purchase after approvals are in place - during the pre-launch/early launch phase) - it led to a supply demand gap.

5. Because of the high vacancies, & high level of liabilities (REIT's typically have very stringent policies when loaning to a developer) - most of the over-leveraged developers are in a fix today. They may not be able to stop their developments given that they've already paid for the land and may be tied in with stringent terms from the REITs.

6. That get us to today and the current situation, where land sales have significantly slowed down unless cash-rich firms are picking up parcels (and this is a good time to do that as there are a lot of distress sales)

7. Going ahead, yes - developers will not pay as much for a parcel of land, but they still need to recover their earlier investment, which is becoming harder to liquidate. A project life cycle is typically 5-6 years which includes paying back the loan at rates in excess of 18%. Even if they are willing to just break-even or post a marginal loss on the project - which many have begun to do, they will still need to make enough to service their liabilities or face more serious financial consequences.

Keep in mind a few other points:
- Cash rich developers (conglomerates for one) - who are relying on the success of their brand & such to help them with their sales.
- Risk appetite of various developers coupled with their forecast of the future.
- Needs & the cost associated with those needs - a cash rich developer might be willing to pay a premium for a premium project, just to build a brand which might show a higher pay back in the future. So he will give a higher tender.

Another example:
- Say on a plot of land, there are three homes. Families 'A', 'B', and 'C' stay there.
- Tomorrow, Family 'A' required a bigger space as their kids are growing up and need more space; and Family 'B' is contemplating moving out of the neighborhood. Family 'A' will give Family 'B' a significantly higher offer than market value owing to the advantages to staying close by & such - say 1.2X the market rate.
- Two days later, Family 'C' hears about the 1.2X value offered - which in his mind now becomes the benchmark price for his home. When he is approached by a buyer, would he settle for 1X?

Originally Posted by Wheeliej

I have seen that this wont happen. I was in discussions with a builder who was almost about to get oc, after which service tax wouldnt be applicable. I told him to hold on so i could save some money. He told me up front that the moment service tax went out he would hike up the per sft Price to fill the gap so i would wind up paying the same amount. Needless to say i didnt take up the property from that builder. The more i dealt with them the more disgusted i got with their attitude.

Its a dirty game played by builders and i have no / zero / zilch / nada sympathy or empathy for them after the humungous loot and underhand dealings they have done all over India in the last few decades. It is all a cartel and they all increase prices together. Associations like credai have no credibility as they only take care of builders lobby and dont care for consumers / investors.

Even when land prices were low they didnt spare customers and when the land prices have shot up due to them they dont care. They are sitting on boatloads (titanic sized) cash (black money) still and can outlast all of us put together (remember modis 15 lac reneged promise? Its all within India with these builders, not in foreign countries), so spare them no sympathy. Go for 2nd hand properties and be spared the usurious charges on parking, club house, service / sales taxes etc. Etc etc.

Sorry to hear about your experience!
I am only commenting about Mumbai. There are loads with lots of black money, I am sure - but in both my previous and current organization - full cheque payments are a norm. Yes, there are developers who ask for black money, but a larger percentage are based outside Mumbai in smaller towns, etc. where they need black money to acquire land.
I remember a story about someone purchasing a plot in Gujarat. The seller wanted most of the money in cash (black), and at the end - he even asked the buyer to throw in his car as part of the deal (as even though he could afford it, because most of the money was black - he wouldn't be able to show how he bought the car legitimately).

Lastly - given how strict the government is becoming about black money, and making purchases, etc. - I would expect this to reduce quickly as well.

About the OC bit - sadly, that is how the game is played. People purchase apartments pre-OC because they know the property price will go up once the OC comes. They need to be rewarded for investing/purchasing in advance right - otherwise why would they park that money while the project is under construction where it will not appreciate?

As for resales - they are sadly based around the developer set prices (plus minus a little depending on how fast the seller wants to liquidate). Taxes unfortunately are a part and parcel of the game, and most of the other fees (parking and clubhouse) are already built in to the price.
In fact, some societies also charge transfer fees which is also factored into the price.
Difference being that a developer does not mention a lump-sum amount, rather he mentions the base amount to lure customers in (kind of like an ex-showroom price when picking up a new vehicle - on which you have to pay taxes, purchase the Genuine Accessories kit, pay logistics and handling charges, etc.).

PS: Just want to add that I am pretty new to Real Estate with about 4 years of experience. This is just what I've witnessed and my take on it based on the Mumbai market in which I've been working. Always glad to hear the other opinions as that is how we grow.
I just wanted to post it as a reaction as to why Mumbai prices are still sky-high and why they will not see a very significant downward spiral soon, but I would expect it to lower gradually.

[sunishsamuel]

I think i agree with the hoarding part. I was checking for a few places in Bangalore and Hyd. Small builders with not so great quality apartment are still quoting rs. 60 L plus for approximate 1500sft 2 BHK plus parking and registration. What I am amused is that no one ready to negotiate beyond 50k. The big ones (Shobha et al) are good but way beyond my reach.

I think the best way to make housing affordable is to expand the cities breadth wise than height wise. if there is good connectivity from center of the city to another 50-100kms periphery, i am sure we will be able to afford good independent houses for a cheaper price - something simliar to that of Australia, USA etc. That way things get competitive, we get more value for money than being crammed into these apartment complexes which will become a problem to stay eventually - bad maintenance, construction quality issues, water woes, general cleanliness etc.

[vinay kamath]

" Govt seeks speedy adjudication in Jakkur Plantation case "
Vijesh Kamath Bengaluru, Oct 09, 2015, DHNS

The State government has categorised the Jakkur Plantation reserve forest issue as “sensitive” and “serious” and at the same time has sought speedy adjudication of the case.

The 177-acre 28-gunta land, classified as Jakkur Plantation in the revenue records, has become a bone of contention with the Forest department claiming that the entire parcel of land was “reserve forest” notified way back in 1940. The department has sought that it be recovered.

The land estimated to be valued at Rs 14,000 crore as per present market rate has some high-profile ‘claimants’, including politicians and prominent builders.


http://www.deccanherald.com/content/...on-jakkur.html
================================================== ==========

" MASSIVE AGITATION TO SAVE SANKEY FROM LAND SHARKS "
By Bharat A Patel, Bangalore Mirror Bureau | Oct 10, 2015

Chidanand Kulkarni, president of Save Sankey Forum, told Bangalore Mirror, "We have commenced a public campaign called 'Save Sankey Campaign' against corporates - namely Gulf Oil Corporation and Mantri Developers - who are trying hard to grab the last piece of forest land in the 'Kadu Malleshwara' area abutting Sankey Tank, which also is the most precious lung space vital for the survival of both animal and plant life."

The residents of Malleswaram and adjoining localities are pensive about the High Courts' decision especially after the two orders passed by the High Court.
"The government had taken precaution by filing a review petition in the high court but that would not be enough. We are demanding that the government acquire the land, irrespective of whatever the high Court decides by favouring them or if it decides otherwise also. Either way, the government has the power to issue a notification of acquisition under the Land Acquisition Act, Section 5. Our demand is to protect the pristine forest land that was transferred by oversight or mistake.

Meanwhile, Mantri Developers refused to comment.

http://www.bangaloremirror.com/banga...w/49294066.cms

[vinay kamath]

Friends, I urge one and all to read this interesting & educative , DIY kind of article/blog :


"Better Bengaluru: Commercialisation of residential areas"
The Hindu 10-10-2015

excerpts below:
================================================== ========================

nitink3b @shankar. Yes, commercialization in residential areas is not allowed at all in roads which are 40 ft in width and less in Ring 1 and 2 of the CDP. For roads above 40 ft in width 20 % ancillary usage is allowed

K V Aditya Bharadwaj The BDA master plan has extensive land use and zoning regulations which divides the city into various zones and each zone has specific guidelines. The recent controversy on mixed zoning and BDA allowing commercial activities in roads of 40 feet and more led to a PIL in the High Court, which the civil society won recently.

nitink3b @Shankar: Even in the 20 % ancillary usage there is a pre defined set of usages allowed. No restaurants etc

nitink3b @Ring 1 and Ring 2 and Ring 3 can be visualized as concentric circles starting from the Centre. Ring 1 is the Central Business District (MG Road KG Road etc). Ring 2 is the conventional Bangalore. Ring 3 is new layouts

nitink3b @everyone: Ancillary usage in Ring 1 and 2 means 50 sq metres or 20 % whichever is less only !! Anything above that is illegal. Also set of usages restricted. Parking provision mandatory ! Any new buildings coming up in violation, please write to your zone Health Officer BBMP asking them to take action under Section 505 of Karnataka Municipal Corporations Act

================================================== =========================

nitink3b @Regina: Shout it out from the rooftops. But expect some small harrassment. The big man I was referring to tried to personally target a few of us by demanding that BBMP check our houses for violations !!

nitink3b @hemalatha: When did this Kalyana Mantapa come up ?

Mohit M. Rao @Regina: You could write to us about the issue at reporters.thehindu@gmail.com

chitra.arien while we fight the commercialisation of residential areas, violation of building norms by residential complexes are also leading to overcrowding of areas. For instance, a 7 floor residential building with 9 houses in a narrow bylane off Nandidurg Road. The colony is overcrowded with all associated problems. How can citizens counter such issues?

nitink3b @Indiranagar: Only way is persistence. Keep demanding action. Visit and put pressure. Lok Ayuktha is a good option too to compel action in case BBMP drags feet. I suggest that Upa Lokayuktha Justice Adi be contacted. He has helped citizens in causes like this several times. One alternative to a legal fight


===================================


Rishab where can one find details like which area is commercial and which is residential?

nitink3b @Rishab: RMP 2015 and its zoning maps are available in BDA and a copy can be obtained for your area through RTI. Any big architect firm will have RMP 2015 in its entirety in their offices.

nitink3b Colour coding maps show clearly the zoning regulations.

===============================================

for the detailed , detailed , full blog, please select the link below:
http://www.thehindu.com/news/cities/...cle7746936.ece

[nowwhat?]

Originally Posted by vinay kamath

Friends, I urge one and all to read this interesting & educative , DIY kind of article/blog :


"Better Bengaluru: Commercialisation of residential areas"
The Hindu 10-10-2015

Nitin Seshadri is a well respected figure here in Koramangala. Thanks to him and his compatriots like Vijayan Menon, Major Promod Kapur & others, Koramangala has been saved to some extent from rampant encroachment and commercialization. Some of their achievements include reclaiming of Mestrikere, reclaiming of the Agara-Bellandur culvert which is now before the NGT, action against Breakfast Club run by an Infosys honcho's son from a house and countless others that I find difficulty remembering right now.

Surprisingly Nitin is quite young and he is also very accessible. He tries to build consensus and I remember him giving us all a presentation on the disastrous plan to build an underpass instead of a flyover at the Forum Mall junction.

They are all on the savekoramangala forum on Yahoo groups and I encourage you and others to join this group.

[alpha1]

Originally Posted by lamborghini

5. Because of the high vacancies, & high level of liabilities (REIT's typically have very stringent policies when loaning to a developer) - most of the over-leveraged developers are in a fix today. They may not be able to stop their developments given that they've already paid for the land and may be tied in with stringent terms from the REITs.

6. That get us to today and the current situation, where land sales have significantly slowed down unless cash-rich firms are picking up parcels (and this is a good time to do that as there are a lot of distress sales)

7. Going ahead, yes - developers will not pay as much for a parcel of land, but they still need to recover their earlier investment, which is becoming harder to liquidate. A project life cycle is typically 5-6 years which includes paying back the loan at rates in excess of 18%. Even if they are willing to just break-even or post a marginal loss on the project - which many have begun to do, they will still need to make enough to service their liabilities or face more serious financial consequences.

So from what I make out of this, it is just like boom and bust cycle in any industry. Optimism fuels boom, pessimism brings about bust.
But will the bust happen in real estate? In spite of the picture you have drawn, you are still talking about recovering costs. Therefore the bottom has not been reached.

In a real bust, no one can afford to care about recovering the costs or the investments sunk. The inventory has to be sold, cash brought in and seller makes exit by minimizing his losses.

Since the developer, in this case, wants to recover his costs (which is built on the premise that he will be able to sell at such a price), he is still optimistic.

Bust is as necessary in an economy as a boom is. Don't you think?

[lamborghini]

Originally Posted by alpha1

So from what I make out of this, it is just like boom and bust cycle in any industry. Optimism fuels boom, pessimism brings about bust.
But will the bust happen in real estate? In spite of the picture you have drawn, you are still talking about recovering costs. Therefore the bottom has not been reached.

In a real bust, no one can afford to care about recovering the costs or the investments sunk. The inventory has to be sold, cash brought in and seller makes exit by minimizing his losses.

Since the developer, in this case, wants to recover his costs (which is built on the premise that he will be able to sell at such a price), he is still optimistic.

Bust is as necessary in an economy as a boom is. Don't you think?

Exactly - this is like any other cycle in an industry.

And recover costs v/s make profit - today there are many developers who are financially constrained, and realize that they need to liquidate.
And there are those developers who would not sell for a loss and would prefer to hold on - at the end, that boils down to the way the management of that firm thinks.

However - it isn't an easy time for most developers today - with lots of them under immense financial pressure, looking to bring on board partners, etc.
A lot of these corporates such as Godrej and L&T see the value in associating their brand names with the some of the projects being constructed by these developers and generally help with funding & marketing. However, they too have a limit of how much they can fund, and once that does dry up - the markets should reduce in my opinion.

Not sure how much of a reduction can be expected, but definitely not significant enough to drop down to early 2000's level.

Today you are at a stage where you aren't expecting an increase in future price from current levels (that is, if Building A that has just been completed is selling for INR 100/sq.ft - you would expect building B that will be complete in 5 years to sell for 105/sq.ft when it is completed owing to marginally better quality and amenities, etc.).
A few years back, you would have expected the completed value to be in the reign of 115-120 (instead of 100-105).

Would recommend checking out the USA Real Estate Boom and Bust that happened a few years back, as well as other such cycles in the Indian market. Might make for interesting reading.

Hope this makes sense!

EDIT: Here's a blog post by JLL that talks about this in the Indian context.

[sunishsamuel]

Another misuse of power:

http://www.bangaloremirror.com/banga...w/49315185.cms

[//M]

Any reviews about DS Max builders, Bangalore?

I am particularly interested in their Varthur project, my father has seen the property which is almost ready. They have agreed to provide OC from the BBMP.

I will put my money in a day or two, any feedback would be really useful.

[akhil_007]

Originally Posted by //M

Any reviews about DS Max builders, Bangalore?

DS Max is the wannabe "Premium" Builder. I have seen 2-3 projects and though the plan/open space/common areas are spacious and good, the quality of construction is a big let down. The buildings do not age well. After 2-3 years, they tend to look very old. I have seen leaking roofs and cracks on walls as well. I m not implying they are the same even now. But do check out their projects for quality before committing.

[//M]

Originally Posted by akhil_007

DS Max is the wannabe "Premium" Builder. I have seen 2-3 projects and though the plan/open space/common areas are spacious and good, the quality of construction is a big let down. The buildings do not age well. After 2-3 years, they tend to look very old. I have seen leaking roofs and cracks on walls as well. I m not implying they are the same even now. But do check out their projects for quality before committing.

Thanks akhil_007 for the quick feedback.

[sunishsamuel]

I was under the impression that the prices of properties and apartments are little cool now. However, i am proved wrong

In the look out for buying an apartment or a villa in a gated community (basically looking at parks, some open spaces, gym, swimming pool etc, with water harvesting etc.) The moment i post my requirement all i get is calls from builders (both reputed and not so known) and their starting price per sq.ft is above Rs. 5500. Is this what the current market about or is there scope for some price drops ?