In your interest.
Online Personal Finance Magazine
No beating about the bush.
A bunch of vested interests seem to be working together to fuel India’s new property bubble, especially in expensive real-estate markets like Mumbai
Real-estate prices in India, which are already reaching for the stratosphere, are being further fuelled by a set of vested interests such as established brokerage firms and leading media houses through reports which exaggerate demand and suggest that realty prices may go up even further. Meanwhile, angry investors are struggling to get the regulators to act quickly and decisively to dampen the price escalation.
Recently, ICICI Securities released an all-India survey (across eight cities) which was headlined—‘Affordability not a concern—healthy demand for homes at current prices: ICICI Securities survey’. A closer look suggests that things are not so rosy.
In fact, apart from vaulting prices, potential property buyers are outraged at how they are being cheated with regard to the actual usable area that is being sold to them. Moneylife has already reported on how the loading, which used to be anywhere between 20% (built-up) to 40% (super built-up) has now been pushed up to as high as 80% by several builders in Mumbai. With the government showing no signs of setting up a property regulator, builders and developers clearly feel confident that nobody will check their dubious selling tactics.
Another factor that has increased prices in Mumbai is the loading of taxes (in form of value-added tax (VAT) and service tax) on the already high price being forked out by consumers.
A research report circulated by ICICI Securities says that Ahmedabad has the highest inventory of 59%, Chennai has inventory of 10% while Mumbai has an inventory of 8% and National Capital Region (NCR) has only 1%. However, property experts are sceptical about these numbers. “It is a doctored report to show optimism. In fact, Chennai represents the least inventory and Mumbai & NCR the maximum. I am surprised to see such a false picture being painted by one of the credible brands,” said Pankaj Kapoor, founder, Liases Foras.
For many media companies, headlines that point to property prices rising even further, usually translates into increased advertising revenue. In some cases, they have equity deals with realty companies which include an agreement to project reports that favour these companies. A reader has written to point out that some of these headlines sound like “quotes from the builder”.
A senior executive of a leading information technology firm has even been writing to the governor of the Reserve Bank of India, pointing to how vested interests are pushing up property prices.
Average assets under management of the 37 fund houses fell 5% in March; JPMorgan Mutual Fund plummeted 24% while Peerless and Edelweiss jumped 150% and 30% respectively
According to data available with the Association of Mutual Funds in India (AMFI), out of the 37 fund houses, the average assets under management (AAUM) of 14 fund houses witnessed an average growth of 18% while 23 fund houses saw their AAUM slipping by an average of 9% compared to February 2010.
Among the 37 fund houses, JPMorgan Mutual Fund (Rs3,541.36 crore), AIG Global Investment Group Mutual Fund (Rs1,137.81 crore) and Shinsei Mutual Fund (Rs367.41 crore) recorded the highest fall of 24%, 21% and 20% respectively. Data for Baroda Pioneer Mutual Fund, Goldman Sachs Mutual Fund and AEGON Mutual Fund was not available.
Peerless Mutual Fund gained the maximum AAUM of 150% at Rs302.60 crore compared to last month—followed by Edelweiss Mutual Fund (Rs149.28 crore) and DSP BlackRock Mutual Fund (Rs21,490.78 crore) which gained 30% and 8% respectively.
Fidelity Mutual Fund, Franklin Templeton Mutual Fund, and Escorts Mutual Fund remained flat. While the AAUM in February 2010 grew by 3% at Rs7,81,711.50 crore, March has disappointed the mutual fund industry with a 5% fall.
The total AAUM has recorded a fall of 5% at Rs7,43,950 crore in the month of March 2010 compared to Rs7,81,711.50 last month while the BSE Sensex gained 7%, closing at 17,527.77 points in March compared to 16,429.55 in February 2010.
Among the top fund houses, HDFC lost 7% (Rs88,779 crore), UTI gained 1%
(Rs80,217 crore), SBI (Rs37,417 crore) gained 4% and Reliance Mutual Fund (Rs1,10,412.70 crore) lost 5% AAUM in March compared to last month.
An analysis of the monthly dispatch figures and the newly-commissioned capacities indicates a clear annual over-capacity of a minimum of 36.27MT in the demand-supply situation
Over the past few months, the cement industry has been enjoying an upward momentum in cement prices due to the peak demand period. However, an analysis of the monthly dispatches and the new capacities commissioned paint a gloomy picture for the months to come.
According to Cement Manufacturers’ Association data, total installed cement capacity in India was around 219.17 million tonnes (MT) as on 31 March 2009. During FY2010, around 35MT of new cement capacity has been added. Thus, total commissioned cement capacity has gone up to around 254.17MT.
Total cement dispatches for January 2010 stood at around 18.15MT. Given that dispatches in January 2010 were one of the highest-ever recorded monthly figures, yearly dispatches can be calculated at a projected figure of 217. 89MT.
Thus, comparing a total commissioned capacity of around 254.17MT with a yearly dispatch of around 217.89MT, an annual over-capacity of around 36.27MT is expected in the demand-supply situation.
However, 36.27MT could be the least possible annual over-capacity figure, as January 2010 has been taken as the base. Again, recently-added capacities are likely to run on full steam in the months to come. In addition, analysts expect cement demand to decline in the future.
The onset of the monsoon season from June is likely to slow down construction activities, resulting in lower cement demand, much lower than the figures for January 2010. In addition, demand created due to construction activities for the New Delhi Commonwealth Games will start petering out by July 2010. This will impact the northern region in particular, pointed out an analyst.
Among the companies that have commissioned new cement capacities over the past one year are Madras Cements, Chettinad Cements, Grasim Industries, Jaypee Cement, UltraTech Cement, Dalmia Cement, India Cements, JK Lakshmi Cements, and Kesoram Industries.