Tulip Infratech to invest Rs 1,600cr on housing project

New Delhi: Realty firm Tulip Infratech today said it will invest Rs1,600 crore over the next four years to develop a housing project in Gurgaon, reports PTI.

The company would build 2,000 apartments in the housing project 'Tulip Violet' spread over 40 acres.

"We have launched a new project in Gurgaon where we will come up with 2,000 flats in mid-income categories. The project cost would be about Rs1,600 crore," Tulip Infratech managing director Parveen Jain said.

Mr Jain said the project cost would be funded through debt, internal accruals and advances from customers.

Construction would start in January next year and the entire project is expected to be completed in the next four years, he said, adding that the price of flats started from Rs55 lakh onwards.

Mr Jain said this was the company's seventh project in Gurgaon.

Besides Gurgaon, the company is also developing a housing project, comprising of 635 units in Sonepat, Haryana.


China: Why tightening will not work

Alternately conservative and liberal policies and regulations by the Chinese authorities have resulted in the real estate bubble getting bigger and increasing inflation

Back in June I wrote a column about the Chinese real estate bubble. Recently we know that the Chinese authorities have been tightening, but often we do not know how much and in what ways. Apparently, neither do the Chinese authorities. On November 15, the state media newspaper the China Daily announced that China's four biggest state banks had used up their full-year credit quotas for property developers and would stop extending new loans to them for the rest of the year.

The paper cited a source from the ministry of housing and urban-rural development and quoted several unnamed executives from the banks. For example, one anonymous credit department executive at the Industrial and Commercial Bank of China (ICBC) was quoted as saying, "It is impossible to extend fresh loans to developers."

What is interesting is that the same newspaper printed a story 10 hours later denying the report. China Daily wrote: "China's top four banks rejected reports that they would stop lending to real estate developers for the remainder of the year." So we have a state newspaper quoting a ministry that was quoting an executive from a state-owned bank, which statement was later denied by the same state newspaper quoting information from the same state-owned banks. Is this sloppy journalism or an intentional 'mistake'? My bet is the latter.

The incident says volumes about the real estate boom in China, inflation in China, the government's attempts to control the economy and problems associated with distortions of information.

What is clear is that the Chinese are worried about the rise of inflation. The People's Bank of China (PBoC) said that the reason it raised interest rates was to manage "inflation expectations and consolidating the results of real-estate adjustment policies." And it went on to blame a part of the problem on "loose monetary policies in major economies", meaning the United States.

One of the problems with the Chinese economy is that it is still very much dominated by central authorities in Beijing. These authorities have ironically put their faith in the one thing that the government often disregards: the law. The Chinese government likes to try to control its economy, and specifically the real estate market, with regulations. They should know better.

They have been through this before. Starting in late 2007, the Chinese started to put on the brakes for their property markets. Rather than just raise interest rates, they used regulatory methods, including things like credit ceilings, higher down payments, restrictions on third homes and increasing bank's reserve requirements.
The problem with these restrictions is that they don't really work. During the last bubble, banks were supposed to demand a 40% down payment from families seeking second mortgages, but many turned a blind eye if the loan applicant did not hold another property, even if other family members did. They were also supposed to give loans only if the borrower had a certain size apartment, but they never checked.

When the first regulations don't work, the government pushes the brakes a little harder. They use stronger and stronger restrictions and eventually overshoot. By May 2008 prices had fallen by 30%. And the sales volume in Shanghai was 50% lower than a year earlier.

The Chinese reacted to the crash like all other governments have. They started stimulating their economy with a vengeance. In 2009, the government ordered the state-owned banks to start lending, and lend they did. They lent a record 9.6 trillion yuan ($1.4 trillion) in 2009. If the US stimulus had been on a similar size relative to GDP, it would have been $6 trillion.

This year they reigned in the loans a bit, but not much. Their loan target is 7.5 trillion yuan, but that has almost certainly been exceeded. In September alone, China's total lending-including loans from smaller commercial banks-reached 500 billion yuan, far exceeding a previous estimate of 280 billion yuan. In contrast, in 2008 only 4 trillion yuan ($585 billion) was extended in new loans.

It is not surprising that this wall of money created a real estate bubble. The only real question is why it didn't create more inflation. The answer is that it probably has. The reported inflation is 4.4%, but it could be much more. Food prices are up an annualized 10%, 18 staple vegetables are up 62.4%, ginger is up 89.5% and garlic is up 95.8%. Price controls are being considered.

So, now the cycle is repeating itself. This year the government started tightening in February. Like price controls on food, none of these regulations will work. To try to rein this deluge will no doubt take stronger and stronger measures. The Chinese government is desperately trying to avoid what occurred in 2008, which is why the disparity of information is hardly surprising. But since it is using the same tools, undoubtedly it will have the same result. Unfortunately this time, the effects will reach far beyond China. 


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