Real Estate Crisis Badly Hits Retail Sector

General | By mahendra | 2009 Trackbacks (0) Add comment   

The impact of recession in US economy has badly hit Indian real estate market along with sectors like retail, steel, cement, hospitality and logistics. Till October 2008 the real estate industry was a very booming industry in India. Also the high net worth of individual investors especially those involved in retail and IT had created a very fast pace of demand in Indian real estate sector which have gain a very high impact image of investing in India. But the downturn produced shocking waves in the real estate market, which further impacted sectors like retail, cement and iron. The result is unavoidable.

Relating only retail to real estate, the scene is bad. Its pace is equivalent to zilch today. In the time of recession, no retail company wants to buy exorbitantly high priced spaces, neither they want to pay highly charged rents. While just a year ago, the retail industry was the next big hope for India's economy. Stores were opening everywhere, with sprawling malls and tony boutiques holding glitzy launch parties across the country. Retailers bought up every inch of space in India's largest cities, sending real estate prices through the roof. Even India's small towns caught mall-mania. But as India's economy feels the impact of the global recession, Indian consumers are cutting back on spending, and retailers are facing a major slowdown and hence, real estate. For a deeper insight into the industry, Financial Times sought comments of people on - "Are retail real estate blocked funds nowadays?"

Recession being a worldwide phenomena, has affected every trade and industry. The change in corporate's business strategy to relocate from high cost to lower cost locations with a similar slow down in the IT-ITES industry has seen vacancy levels going up in the retail / office space, as most of the stock was created in anticipation of the demand. I don't fully subscribe to the view that retail real estate are blocked funds nowadays as the buyers still have an option of offering reduced rental costs to the retailer. If a comparison of ROI is made in today's market, the return from retail real estate market is pegged at somewhere in-between 11% to 15% depending upon the location of the property, whereas banks seldom offer return of more than 10% per annum. India 's favourable demography, low mortgage penetration, falling interest rates and ongoing infrastructure demand will keep the retail real estate property downturn from being protracted.


SBI Draws Pvt Bank Customers With Home Loan At 8% Interest

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The special housing loan schemes launched recently by State Bank of India at 8 per cent interest rate have triggered migration of customers of some private banks to SBI.While the exact number of migrated customers/loan applications could not be ascertained, the foreclosures of housing loans at leading  private banks for loan swapping have gone up noticeably, according to sources.

"We actually expected to drive good demand for new home loans from prospective buyers but are pleasantly surprised with increasing  response on the loan swapping front," a senior SBI official from Mumbai told Business Line. However, the new loan applications still remain "dull" in some major  urban locations due to expectations of further dip in the real estate prices and interest rates, he added.Sources in some private banks, including ICICI Bank, confirmed the "noticeable"  foreclosures in home loans. "There is also significant  increase in the number of enquiries on foreclosure penalty and request for list of documents necessary for applying for a loan with another bank for swapping," said a source in ICICI Bank.Existing customers are also hoping for some benefit in view of the reduction in interest rates by SBI and other banks. "When I asked whether any renegotiation of interest rate on my home loan is possible, I was told by the bank staff that I can close the loan to go to another bank," said Mr S. Reddy, a senior IT professional who had taken Rs 20 lakh housing loan from ICICI Bank here. However, the official spokesperson of ICICI Bank in Mumbai said: "There has not been any increase in number of foreclosures of home loans."

A HDFC Bank official said while new customers were weighing their options, the existing customers are enquiring about the penalty and foreclosure of loans. The penalty for pre-closure of loans after payment of EMIs for three years now ranges between 2.25 per cent and 3 per cent of the outstanding in different banks. The benefit for a customer who swaps his loans from a higher rate to a  loan at 8 per cent interest for one year is varied. "This is a calculation which needs to be worked out at the individual level depending on the loan amount outstanding, rate of interest and its nature (flat/floating) and the foreclosure penalty one has to pay," said Mr Dattatreya Sarma, Deputy General Manager, State Bank of Hyderabad (which is also offering home loans at 8 per cent).

ICICI Banks Reduces Home Rates

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ICICI Bank, the country's largest private sector bank, has cut its home loan rates by 25-50 basis points (100 basis points = 1%) for new customers with immediate effect.Unfortunately, existing home loan borrowers from the bank will continue to pay a higher interest rate. ICICI Bank is the first private sector bank to reduce rates in the wake of the Reserve Bank of India's decision to cut its benchmark policy rates-repo and reverse repo rates-by 50 bps on Wednesday. Earlier, State Bank of India and Canara Bank had reduced interest rates on home loans.

public sector Bank of Baroda also cut its benchmark lending rate by 50 bps to 12% with effect from April 1. The cut in the bank's prime lending rate will reduce the interest burden in all its advances which are linked to its benchmark prime lending rate (BPLR, a rate offered by a bank to its best borrowers), including home loans from the bank. UCO Bank too announced on Friday that it was cutting BPLR by 50 basis points to 12.50% from the current level of 13%. According to the new floating rate structure of ICICI Bank, the interest rates would be 9.75% against 10% earlier for home loans of less than Rs 20 lakh. For loans between Rs 20-30 lakh, the new rate would be at 10%, compared with 10.5% earlier, while for loans of Rs 30 lakh and above, the interest rates would be at 11.50% against 12% earlier.

"The rates are still fairly stiff compared to other major players, especially if you look in the Rs 30 lakh and above category. If you look at the other major players, the rate is in the range of 10.50-10.75%,'' said Harsh Roongta, CEO, Apnaloan, an independent loan tracking firm. "LIC Housing Finance offers very attractive rates. Even Canara Bank's new offer was attractive,'' he added. Earlier this week, Canara Bank announced that it would charge 8.25% interest for the first year for loans up to 20 years. Last month, SBI announced a home loan scheme where interest rate for the first year was fixed at 8% and the rate would change from the second year. The move invited criticism from other housing loan providers, which feared that the scheme was a deliberate attempt to wean away their existing customers. Many banks are likely to take cue from ICICI Bank and announce rate cuts soon. visit for all the home loan rates of different banks

Realty Prices Fall By 10-40 Per Cent

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It's here. After talking of a rebound, putting up with stagnation and offering freebies and discounts, developers hit by a demand crunch and economic slowdown are biting the real bullet, lowering prices in key apartment zones in or around Delhi, Mumbai, Bangalore and Hyderabad.Real-estate prices across the country have fallen by 10-40 per cent. And while prices vary depending on location, size, quality, amenities and time of possession, there are clear indications that the earlier price surge created by speculation and high growth has petered down. Developers are generally still not cutting prices of existing projects, but they face a market in which re-sales could do much the same thing.The country's second-largest builder, Unitech, is planning new projects in the suburbs of Noida and Greater Noida at Rs 2,000-2,500 per sq foot (psf), according to a spokesperson. This is the same area where market players say prices were roughly twice as much a couple of years ago."It makes perfect sense for industry leaders to rationalise project prices," said Anuj Puri, country head at real-estate consultancy firm Jones Lang LaSalle Meghraj. "That is the need of the hour."

Market players say in the Gurgaon area, well-developed zones have over the past year seen rates slump by 8-12 per cent, but remote areas are seeing a crash of 20-35 per cent.For example, a plot in Sushant Lok Phase II today sells at about Rs 23,000 per sq yard compared to Rs 30,000 only six months ago, a fall of 23 per cent.  However, genuine deals are few because buyers are waiting for a further fall, while sellers are hoping for a rise.In Noida, flats that went at Rs 5,000-6,000 psf a year ago now come for Rs 3,500-4,200, while in Greater Noida, the fall has been from Rs 3,000-3,800 psf to Rs 2,000-2,800 psf.DLF is already selling a project in the New Gurgaon area that covers locations like Manesar at Rs 2,200 psf. A company spokesman said prices had dropped by at least 10 per cent in Chennai and by 25 per cent in Bangalore. Developers are not sure if there would be a similar fall in the North.Buyers in Mumbai and Pune could expect a further 10 per cent reduction in prices, Puri said. In the Mumbai-Pune zone, realty prices for ongoing projects have already crashed by 25 to 40 per cent in the past six to nine months, say local market players. "It's difficult to predict the bottom (of prices)," said Niranjan Hiranandani, managing director, Hiranandani Constructions. "I don't think prices will reduce further."

In Pune, prices have come down to  Rs 2,200-3,000 psf from about Rs 4,000 earlier. "The market has touched more or less 2005-06 price levels and unlike other places the conversion (deal) rate is high in Pune," said Lalit Kumar Jain, chairman, Kumar Builders, a developer from Pune. Prices in Navi Mumbai were zooming till 2007 with escalations in the region of 70-100 per cent in two years. But over the past year, a 20-30 per cent fall is clearly visible. "We have reduced our rates from Rs 7,000 psf, at which we sold six months ago, to Rs 4,700 now," said Om Gehlot, whose project Gehlot Majesty is situated on Navi Mumbai's Palm Beach Road.

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