‘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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    10 years ago

    price of realty increased on fast rate than our economic growth. The ratio of real house needed investors and invester for only investmentis might be less than 0.5 % in some area in Gujarst. Real estate investment is entered just like stock market. It is fact one this bubble will brust. The investor may could not sell even at purchase price. inflation and so interest rate is big concern and economic grouth cycle when it will operate downtrend, no body can save them who have purchase the property more than capacity.
    During the bear market, real estate companies should not go to government and urge for any help.

    Osian Art Fund investors upset about ambiguity regarding NAV and closure date

    Company officials claim that redemption payment will be done in three to four days, while investors fear that the funds will come in only after 30 days

    The Osian Art Fund, which was to see closure on the 10th of this month, has now triggered a nasty debate between the investors and Osian company officials. While Osian’s chief advisor Neville Tuli claims the NAV has been communicated to the unit-holders, investors claim that the closing NAV was communicated only a couple of days back. There is ambiguity on the closure date as well.

    “The Fund was successfully closed on 10th November with all the inventories sold. As per the redemption guidelines sent to all unit-holders, the final audit for tax certification purposes needs to be completed, which should take four to five days, and thereafter the warrants are to be immediately couriered to the unit holders. As per (our) redemption guidelines, this process has up to 10th December 2009 to complete its obligations. However, we expect to complete all these formalities much quicker. This is no new date as it was clearly conveyed to all unit holders previously,” Neville Tull said in an email to Moneylife.

    “The NAV was announced on 11 July 2009, and was uploaded on the Web with all information required, and being the indicative NAV it had nothing to do with an audit. Further, in my regular notes to all unit-holders, the last dated on 8 October 2009, I clearly mentioned the NAV at Rs112.29 (cum-div),” he further added.
    However, investors have a completely different story. “The date of closure of the fund was 9th July and till four months they had not announced the NAV value for 9th July. The standard reply given to us was that the audit has been going on for the last four months. The NAV was communicated to me only after a conversation with Mr Tuli earlier this week. The same was updated on the website later,” said Deepak Daftari, one of the investors in the art fund.
    “As per the regular note dated 8 October 2009, received on 9 October 2009, the NAV mentioned was that ‘we have achieved an NAV of Rs112.29 (3.94% CAGR, post-tax) and Rs116.39 (5.18% pre-Tax)’. This does not say whether it is the June NAV or July NAV,” Mr Daftari added.

    “It has been communicated to me that it is going to be another 30 days from 10th November, the last day of closure and now the new date is 10th December, which in itself goes against the guidelines of the Art Fund. The concerned official who said this on behalf of Osian is Raghavendra Shanbhag and he has categorically stated that the payments will not be made now as per the instructions of Neville Tuli,” said Mr Daftari.

    The investor further told us that after his conversation with Mr Tuli, he has been told the funds would be distributed shortly, but no definite timeframe was fixed. The date for closure of the fund has already expired, it now remains to be seen when the funds are finally distributed to the investors.

    On the sale of inventories, Mr Daftari says, “We only received notifications on the monthly NAV and the sixth-monthly reports, but have been given no concrete information, on which inventories (were sold), who were the buyers and the sellers. We were never given the exact inventories of the fund, as to what they were buying, selling and at what prices.”
    - Amritha Pillay [email protected]

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    Viability of SEBI’s proposed SME platform remains a concern

    SEBI has allowed exchanges to set up independent SME exchange platforms, but doubts persist over how far it will succeed at creating a thriving market in SMEs

    Market regulator Securities and Exchange Board of India (SEBI) has made a lot of sound and dance about its proposed exchange platform for small and medium enterprises (SMEs). It has announced a list of norms for the new platform, which leave several questions unanswered. For instance, will the new platform be successful at attracting SMEs? Would it create a thriving public market in SMEs allowing them to raise capital? And why have previous experiments such as IndoNext (on the BSE) failed?

    Previous attempts at creating a similar platform were fraught with issues relating to liquidity and inadequate participation due to lack of awareness. Jagannatham Thunuguntla, equity head, SMC Capitals says, “The main challenge with creating an SME platform anywhere in the world is that of ‘illiquidity of the trading scrips’ and lack of sufficient trading volumes of the stocks trading on these platforms. Hence, once the trading volumes of these stocks dry up, these stocks gradually lose interest from investor circles.”

    One of SEBI’s norms specifies that merchant bankers to the issue will bear responsibility for market making for a minimum period of three years. It remains to be seen whether merchant bankers will be willing to stay around for three years. Mr Thunuguntla adds, “This time SEBI has introduced the concept of ‘mandatory market making’ for three years by the merchant bankers of all the SME IPOs that get listed on these platforms. One may need to wait and see how this market making works out in ensuring good trading volumes. Once market participants get familiar about these new developments, gradually action may pick up on these platforms.”

    Madhabi Puri Buch, managing director and chief executive of ICICI Securities explains, “While the responsibility on the merchant bankers will be considerable, this will have the effect of ensuring that only those issues in which the merchant bankers have full confidence are brought to the public on this platform. The guideline envisages that the merchant bankers can tie up with a registered private equity entity in order to facilitate market making and this will assist them in ensuring that risks are better managed.”

    SEBI was previously looking at creating a separate SME exchange altogether, but instead settled on a separate SME platform in the existing stock exchanges. Mr Thunuguntla feels that this is a good idea, as the existing stock exchanges already have tried-and-tested technology platforms and strong clearing mechanisms. If another SME exchange is to be created, then creating technology and clearing mechanisms all over again may prove to be challenging.
    Sanket Dhanorkar [email protected]

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