With the RBI tightening its grip, inventory piling up and decreased sales, expect a drop of 20% or more in real estate prices
The RBI's (Reserve Bank of India) Financial Stability Report, released a couple of days back, has tightened the noose around the realty sector's neck. The RBI has said that the rise in the number of non-performing assets (NPAs) and the subsequent increase in provisioning is taking its toll on the profitability of banks.
"NPAs in real estate loans remained above the system level NPA growth. Going forward, the asset quality in this segment may decline with further pressure, given the increasing interest rate environment," the RBI said yesterday. The rate of growth at 19.8% of NPAs in this segment was also higher than the overall NPA growth rate of 14.8%. Credit to the sector was up 24.6%, which was faster than the overall credit growth of 22.6%.
With RBI's 10th hike in policy rates in 15 months, home loans can become more costly. The 25 bps (basis points) repo rate hike and a similar hike in the reverse repo rates to 6.5% may not result in an immediate increase in bank interest rates, but it definitely comes as a further cause of worry for the distraught realty sector.
Skyrocketing prices have put off buyers, leading to a piling up of unsold inventory.
"The residential property prices are exorbitant at Mumbai's prime locations. 180 units sold in Mumbai from January to March 2011 were priced above an average capital value of Rs20,000/sq ft. No wonder the market is slowing down perceptibly now. Around 3,350 units priced at Rs20,000/sq ft and above remained unsold by the end of March 2011 in the city," said Himadri Mayank, manager-research & real estate intelligence service, Jones Lang LaSalle India.
Liases Foras, realty researchers, had estimated that almost 92,000 flats remain unsold in Mumbai. A Hindustan Times report says that there has been a 30% rise in the inventories of real estate giants over the last year. DLF, HDIL and Indiabulls Real Estate have inventories collectively worth Rs23,197 crore on their respective balance sheets as on 31st March.
DLF has sold 10 million sq ft in 2011, whereas in 2010, it had sold 12.5 million sq ft of property. Other developers too, have fared badly. "The pre-monsoon scene was terrible," said a Thane-based broker, "we are not putting up any hopes during the rains. So many builders are advertising via radio, newspapers and hoardings-but there are no sales. Even discounts haven't got us many customers."
India will need some 26.30 million houses by the end of 2011, as a government report on the 11th Five Year Plan (2007-2012) has said. Most of the affordable housing schemes for the poor have failed drastically. The details can be seen here: India will need 26.53 million houses by 2012, says ministry of housing report. "But when big builders' associations have holding power over the prices, you cannot do anything but wait until they decide to lower the prices," said an analyst.
Confederation of Real Estate Developers' Associations of India (CREDAI) says that following the RBI move, prices may rise further. But, a Mumbai-based builder said that the stagnation in the sector may ultimately result in a 20% drop in prices by year end.
Most realty companies blame the delay in procedures and getting clearances, etc., for the inflated prices. But these explanations are losing their credibility with buyers. However, if the sector does not reinvent itself and starts restructuring prices, it will find more difficult to raise money through sales and bail itself out.
Muted growth in corporate profit, a US slowdown, a stronger dollar and reduced FII inflows…...
No one held guilty in the faulty petroleum adulterant marker case
Moneylife recently reported about the plight of a whistleblower, who took on Indian Oil Corporation, but has not been compensated fully despite a judicial victory. He is not alone, though. Whistleblowers at Hindustan Petroleum, after almost a year, are still similarly unemployed and their plight ignored.
In August 2010, the Bombay High Court upheld the complaint made against the authenticity of an adulterant marker, which the government had purchased at extraordinarily high rates from a UK firm. HPCL officials Ravi Srivastava and Ashok Singh lost their jobs in 2008, when they blew the lid on the issue. Though the court order vindicated their stand, they have neither been compensated financially, nor reinstated in their jobs.
A message from Moneylife to HPCL on this issue has not been answered.
"We are still without jobs," said Mr Srivastava, "just doing some work with some consultants here and there. No compensation, no prestige." To add insult to injury, in November 2010 Mr Srivastava's RTI query to the oil ministry about the status of the Authentix marker revealed that 'the inquiry is still in progress'.
"It has been proved that this adulterant marker could be easily tampered. The CBI has also registered a case against MS Srinivasan, the then secretary in the ministry of petroleum and natural gas, Authentix and their Indian agent SGS, and several officials from oil companies like Bharat Petroleum, HPCL and Indian Oil. What is left to be proved," Mr Srivastava asked.
A marker is a coloured chemical, which if added to substances like kerosene or naptha, can be visually detected if these are mixed with petroleum for adulteration. The government, in order to stop massive adulteration by addition of kerosene allocated to PDS, asked all oil companies to add a supposedly infallible marker from Authentix in kerosene and other cheap fuels in 2006.
Mr Srivastava and his colleague were serving as treasurer and president of the Oil Sector Officers' Association (OSOA), when in May 2008 they received complaints from various corners that there were 'serious irregularities in procurement, specification and implementation' of the policy on this particular marker.
The officers investigated the matter, and discovered that the marker could be got rid of easily with clay and other ordinary lab chemicals. A website named Indianpetro.com conducted a survey at several petrol pumps, depots and oil-cargo ferries, and concluded that the marker had fared pretty badly. The government had also struck a benevolent deal with Authentix, via their Indian agents SGS, and the marker was purchased at Rs13,000 per litre without any chemical specifications. No wonder, Authentix listed the deal as the "largest fuel adulterant marking contract in history" on their website.
When they pointed out the flaws with the marker, Mr Singh was fired first, and Mr Srivastava was stripped of all facilities, accommodation and perquisites. Later, when the officers protested against the arbitrary appointment of a non-employee to a high position, Mr Srivastava was accused of 'instigating other officers' and fired from his job.
In 2008, the duo approached the chief vigilance commissioner, who refused to grant them protection as whistleblowers, treating them as ordinary complainants. A year later, CNN-IBN reported their story and exposed Authentix's dubious reputation abroad. In April 2010, Simpreet Singh, activist, filed a writ petition against the oil ministry's extravagant favour granted to Authentix. During the hearing, the Central Bureau of Investigation (CBI) also released a report that showed there were many lapses in the process, and that the government had awarded the contract to Authentix without inviting a global tender.
The Bombay High Court upheld the whistleblowers' complaints. However, they received no compensation. "Neither Murli Deora who was the minister then, nor other government officials, nor the companies were punished. And, the inquiry on Authentix marker is still 'in progress'. Why would anyone risk their necks to point out discrepancies then," he said.
Fuel adulteration has reached worrying proportions, and the oil mafia has got more entrenched. In January, Yashwant Sonawane, additional collector, was burnt alive when he tried to investigate an instance of fuel theft. If the government chooses to ignore the calls from within the industry and does not protect the whistleblowers, the perils will intensify.