‘Real estate prices are bound to come down from November’
 
ML: What is your view on the increasing prices of residential properties? Do you feel that market sentiments have improved?
PK: From November onwards you will again see a drop in price of properties by 15%-20% as the developers have lot of inventories and on top of that they are increasing the prices, encouraged by a more buoyant market.
 
ML: How much of residential inventories are piled up across six cities (Mumbai, NCR Delhi, Bengaluru, Pune, Chennai and Hyderabad) in India? Do you think they will increase in Q2 FY10?
PK: In the last quarter (Q1 FY10) unsold inventories in six cities (Mumbai, NCR Delhi, Bengaluru, Pune, Chennai and Hyderabad) were about 282,999 units or 34 crore sq ft. This includes as many as 68,000 units unsold in Mumbai; 70,000 in National Capital Region of Delhi (NCR); 48,000 in Bengaluru; 44,000 in Pune; 21,000 in Chennai and 32,000 in Hyderabad. I think the figures will increase by approximately 20% in Q2 FY10. Till the time the developers do not bring down the prices, properties are not going to sell.
 
 
 
ML: Why are the developers raising prices if so much of inventories are still left with them?
PK: Real estate developers are ramping up the property prices in order to get higher valuation as many of them have planned an initial public offering (IPO). It is all part of a gameplan. During the slowdown from October 2008 all developers had gradually reduced their property prices by 30%. This revived the sector a bit. Initially builders hiked prices by 5%-10% just to signal the bottom and get potential buyers to stop waiting for a further decline. As the builders saw demand coming in the market, they hiked up the prices once again for higher valuation and they have killed the market.
 
ML: During Dushera to Diwali most developers launch new projects. How many were being launched across six cities by the developers during the last festive season?
PK: In Pune, around 200 new projects have been further launched between June 2009–September 2009. We are foreseeing the same kind of situation across the six cities.
 
ML: What was the price at which properties got sold and what are the prices at which the left over properties are available for sale in Mumbai?
PK: In Mumbai, properties beyond Borivali, were selling at Rs 2,000 per sq ft. The left over properties were priced at Rs 2,800 per sqft. In central Mumbai properties sold at the bottom at Rs 13,475 per sq ft and but the left over properties are now priced at Rs 24,950 per sq ft.
 
ML: Do you think the developers will reduce the prices of the properties?
 PK: Yes. There is still a huge gap between affordability and availability. Before the balloon could have burst it is blown again. It has happened in China, Japan and even in India.
 
ML: Are the developers trying to short change buyers by adding too much of a load to the carpet area?
PK: Developers are offering properties on a super built-up area basis which is beyond 50% added to the carpet area. Builders have inflated figures for super built-up area. None of the builders are ready to sell on a carpet area basis. If a developer offers you 1,600 sq ft area then 800 sq ft is the actual area of the flat and the rest are the common amenities.In 2000, the super built-up area used to range between 18%-20% above the carpet area. Then in 2004 it was 35%; in 2005 it went up to 40%; in 2006 it went up again to 45% and after 2008 it is beyond 50%. It should be made mandatory to sell by the carpet area rate basis and strict laws are required to stop this. Government and banks are now coming together and are planning to make this rule (selling on carpet area basis) compulsory for all developers.
Pallabika Ganguly [email protected]
 
 

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Life Exclusive
Osian Art Fund delays payout
After the disappointment on low returns, unit holders are now facing a delay in getting their money back from the fancied Osian Art Fund. Unit holders are unlikely to get the money anywhere before December 2009 due to Osian's inability to sell its art inventories.
 
As per the Osian Art Fund prospectus, the fund distribution had to commence from 10 July 2009. The company invoked a specific clause that allows payment of the returns within a period of 120 days (four months). Backed by the clause, letters were sent to the unit holders that the money would be paid by 10 November 2009.

While the deadline for the payment of returns nears, the art fund unit holders have received indications stating a new date of payment, according to one of the investors. It now appears that payments would be made somewhere in the month of December 2009. As per market sources, the delay in distribution of investor money is due to inability to sell the inventories of art that Osian holds.
However, officials from Osian deny there is any problem with the redemption. "The Art Fund will be redeemed on 9 November 2009 as per the redemption guidelines as shared with the unit holders in June 2009. The inventory has been sold and everything is progressing as per schedule," according to Neville Tuli, chief advisor— Osian Art Fund and founder of Osian.
 
Osian's list of inventories includes artworks by famous artists like M F Hussian, Bikash Bhattarchjee, V S Gaitonde, Akbar Padamsee, Jogen Chaudhary, Somnath Hore and Tyeb Mehta. All these artists were the top contributors to the total value of the inventory as of January 2009.
 
The thirty-six month close-ended scheme announced in July 2006 made a quiet exit with returns of 5% per annum. As of 9 July 2006, the total corpus held by the fund was Rs102.40 crore and it had 656 unit holders representing 39 cities in India.

 Will such poor returns deter Osian from launching art funds in the future? Not quite. "The next Art Fund will be launched once there are clear guidelines from SEBI on various key operational matters. It is now important that the system matures to a new level of financial due diligence and transparency but at the same time recognising the unique structure and logic of the art asset," says Tulli. But the fact remains that the Osian Art Fund has badly underperformed stocks, real estate and gold over the past three years.
- Debashis Basu and Amrita Pillay 

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