NEWS REAL ESTATE MARKET REVIEW HYDERABAD,INDIA -OCTOBER 2008.GLOBAL/US BANKING CRISIS AFFECTS INDIAN REAL ESTATE

The overall sentiments remain negative, driven by a variety of factors. Interest rate reduction and supposedly positive steps like registration charge & HMDA fee reduction have had no noticeable impact.

There is continued lack of buyers, sizeable enough to have any influence on rate. The few buyers that are around naturally look for the best possible deals resulting in none movement of available inventory with builders.

Builders continue to hold price levels reached in November. No further reduction is seen.

We did a survey of rates during last week, in Madhapur, Miyapur, Kukatpalli, Chandanagar, Guchibowli, Lingampalli, Nallgadla, Tellapur areas.
Apartment Rates

(Note: Rates are asking Rates by Builders)
When asked for reduction, builders say that prices are already down by Rs.300 to 500/sft from the levels they were selling earlier. We can see lot of small ventures under construction. But builders are not yet ready to offer large discounts. Rs.50 to 100/sft is all that they are coming down from above levels.

Only resales by those who had booked early, can be seen at lower levels. The buyers are holding on, expecting further correction.

Economic Slowdown

Economic slowdown is no more on paper alone. Its being felt on the ground and by everybody. With people having nagging doubts about earning growth, jobs etc, there is a general tendency to keep cash in Bank and sit tight.

With rapid expansion of business / industries almost impossible for couple of years, there do not seem to be any short term solution, to pep up the lethargic market .

Mayats Causes Mayhem

Maytas was considered by the market as a very stable company. But the developments which unfolded during the month has made skeletons tumble out. The attempt to siphon-off money from Satyam and direct it to Mayats (Infra) and Maytas Properties (Residential & SEZ), exposed the fact that these companies are virtually sick and suffering.

The general public perception now is that Real Estate Companies are not rich or reliable anymore, even if they are as big as DLF or Unitech. In fact, Unitech seem to be in melting down stage, with promoters forced to sell substantial holding to raise cash. People no more take it for granted that even DLF or Unitech can build and deliver projects, in time, let alone others!

Its reported that most of the Real Estate companies have taken funds at 35% or more interest rate from NBFCs, brokers etc by pledging shares. With receivables dwindling, these companies are not able to make re-payments. The continued fall in share prices, results in margin calls and with no money to pay, lenders resort to bulk sale of shares in the market, bringing price down further.

The Golden Goose was fried and served for Xmas!

Mr. Raju virtually massacred the Golden Goose which he had raised with so much of love and care and then tried to steal the eggs and serve it to his Real Estate companies which were gasping for funds. Unfortunately the cooks (nee crooks!) included so called Independent Directors including Vinod Dham, M Rammohan Rao -Director-ISB , T R Prasad -former cabinet secretary, who exposed themselves as YESMEN

The Promoters with a measly holding of 8.6%, tried to clean up US$1.6B from Satyam's cupboard, which rightfully belonged to its share holders and its employees, who have made the Company what it is now.

Satyam shares have lost more than 50% in less than 10 days. The promoters have put the company and its 47,000 employees at risk, trying to steal money and pump it into their sick Real Estate companies.

Yesterday, rumors were ripe, hinting Mr. Raju's resignation. Today, its widely reported that Satyam itself is under hostile takeover threat, with stalkers looking to barge-in, with share price plummeting. With likelihood of the top most business heads in Satyam leaving or getting poached by rivals and large future contracts under peril, share holders are left preying for the company to be taken over. In fact today, reports suggest movement by large share holders to sound out Infosys and Wipro seeking their interest. The news about World Bank banning Satyam for 8 years has resurfaced denting its image further. It would not be surprising if Mr. Raju finds himself on the road, due to his audacious attempt to bailout his possibly under-performing children, who control Maytas Infra and Maytas Properties. (View All Satyam News Here!)

The valuation of Maytas Properties which is developing Hill County at Bachupalli and few SEZs, at Rs.6000 crores, has become a scandal. Its reported in the media that most of the 6800 acres said to be under Maytas Properties is spread in smaller towns of AP and large part of it is very cheap agricultural land. Analysts pouring over reports suggest that land bank may not be worth even half. While Mr. Raju claimed that the valuation was done by one of the big four audit firms, all of them ( E&Y, PWC, Deloitte &KPMG) have denied their involvement.

Maytas must have been under margin pressure, in addition to payment pressure on Maytas SEZ at Bachupalli and off-course Hyderabad Metro where the Company has to submit its financial model explaining funding arrangement by Feb 2009 and also pay second installment to Govt. With Maytas as such being unable to bring-in debt or equity, to an extent of Rs. 12,000 crore for Metro Project, Mr. Raju was trying to expose Satyam's balance sheet, to investors and banks, by the proposed merger. This would have virtually wiped out IT business of Satyam, within couple of years.

The progress of Hyderabad Metro definitely is now under threat. Incidentally, Mr. Sreedharan (Delhi Metro Chief) who few months ago created a stir by calling the Maytas deal for Metro as a potential political scam, seem to have been vindicated by current the developments.

Affordable Apartments - Are they really?

A Project has come up with what is being called as Affordable Apartments beyond ICRISAT in area called Velimala after ICRISAT at Rs.2000/sft + extras as affordable, at such location. The project is beyond ORR. The fact remains that people who can bear Rs.2000/sft for an apartment of ~1000 sft, should be earning at least Rs.25,000 to 35,000 per Month or more assuming at least 30% is paid upfront. Its very, very unlikely that such people will consign their family to such remote location

Hyderabadies are quite lethargic when it comes to exploring and moving into new areas unlike Bangaloreans. Even while Hitec City was under fast construction in 2004, there were few takers for Malaysian Township (Rain Tree Park) just a stone's throw away.

Several developers are in the process of launching so called "Affordable Projects". How do one protect self from "affordable" projects which may misguide?

Check Location Physically. Never go by Location map given by any developer. Do not take developers for granted with regard to assertions on public amenities, shopping, roads, security, safety etc outside the project.
Check Distance and access roads from place of work Physically. The Govt rarely does anything in new and upcoming areas unless there is crisis. Please note that even after 8 years and lakhs of people working, there is no flyover yet at Hitec City to go to JNTU. Never believe anyone who says Govt will build roads or flyovers within couple of years. It never happens in AP.
Check for common walls to avoid surprise later. Please do note that common wall can save crores for the developer, in a large project.
Check for common area percentage and hence actual built up area vs billable area.
Check specification and satisfy yourself before going ahead
Check whether you can get in projects before the "affordable project" , at same or slightly higher rates.

Half Hearted Govt. Proposals

Govt. has reduced Stamp Duty part of registration costs, on apartments up to 1200 sft from 7.5% to 2.5% . This is applicable from Jan 1 2009 to December 31, 2010.

Govt also reduced HMDA development charges on projects by 75%. BUT this is applicable only to new HMDA areas and is of no practical use. For example, old HUDA extended up to Patanchetu! So the reduction is available only after Patancheru. Similarly reduction is available in other directions too but in areas that are too far off.

WHAT IS REQUIRED:

Cut Development Charges in entire HMDA area by 75%
Totally ABOLISH City Level Impact Fee (100% removal)
Cut Basic Approval Fees by 75%
Reduce Stamp duty universally to 2.5%

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