Thursday, April 16, 2009

2009 Election, Telengana Impact on Real Estate, Land & Property Rates HYDERABAD, INDIA

1.0 The Big Messy Election

The elections this year is along drawn affair. After we vote on 16th April in Hyderabad, we have to wait a month, to know the result. The long election process impacts all development works. For the Govt. its is easy to hold the commission responsible and abdicate all works. So if there is intermittent powers cuts, bad roads and lack of drinking water?blame it on the Commission!

Hyderabad is sweating badly due to huge power shortage. Load shedding is the rule of the day (and night!). The new Govt. will have to bear the cross of the mess, on all fronts including power, water, funds for civic maintenance?? For the common man or a working professional, this lengthy election is nothing but a pain in the neck.

2.0 Actors

The good doctor seemed to be ahead of others with PRP splitting votes, during intial phase of the campaigning. He has wooed rural public with schemes like Arogyasri and Indiramma Housing. These schemes would help to swing votes. Its another matter that due to worsening treasury situation, hospitals are now turning away the poor, since crores seem to be pending to be paid to Hospitals, for the service given.

It would be a interesting if Naidu pulls ahead with his "Kutami Kichdi" of Parties including the CPM, TRS etc. Towards the end of the campaign, Naidu seem to have got stronger. He has created excitement in rural areas with DMK style offering of Free Color TVs and off course cash transfer scheme. The "cash transfer" offer may pull in voters and upset the Good Doctor. So will TDP return??

The biggest headache for Naidu is his old enemy and current Dost, the TRS Chief. TRS chief has forgotten or had no time, to make even a manifesto for his party! Instead of pushing the Telengana sentiment, he is now banking on Naidu's Free TV and cash scheme. Naidu is the most worried man in AP now! Worrying about TRS hijacking his "bright ideas" instead of campaigning hard for Telengana, during elections!

TRS is offering Naidus color TVs probably to let the poor watch TRS chief in future, when he actually starts fighting for Telengana. But after elections, if TDP wins, TRS will start bugging TDP. TDP is praying to get majority without TRS seats!

At the end of the day, PRP is expected to emerge only as a minor player.

3.0 Cash is King

Cash flows like the Ganga during Election time. The Election commission limits on expenses are not enough even for a day of "work" . Crores and crores are spent for electioneering, booze and parties. Candidates pay multiple crores to get a seat. In fact even a small realtor who was fielded by TRS for Secunderabad started crying about the 10 crore that he paid to get ticket, while he was being beaten up by party men who could not bag ticket, in the TRS Office premises.

Just think of the money that would have been paid by all MLA and MP Candidates of three major parties? (336 x 3 x average 10 crore = whopping Rs.10,000 Crore!). This is apart from crores to be spent by candidates as election expenses.

For party founders and top leaders, election is big time to make money. The black will get converted to white slowly and in a few years, they will become big industrialists running news papers and TV channels, for fun!

4.0 Will Telengana Happen ?

5.0 The Worry Factor for Real Estate

6.0 Impact on Constructed Area Rates

7.0 Impact on Land Rates

8.0 So what is the advice, considering possible split of the state?

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Friday, April 10, 2009

Apartments Through Banks? Foreclosures and Bank Sales? Is that a possibility in Hyderabad, India?

1.0 Where can I get information on foreclosure properties being put up by banks for sale?

We have received many enquiries asking where information can be obtained on foreclosure properties being put up by banks for sale. All of these enquiries originate from NRIs or their relatives here.

In the US, buyers have defaulted and continues to default on home loan repayments. Few consecutive defaults sets in foreclosure action and there are specific legal provisions in different states, how the matter is to be dealt with. Its not a very quick process but can spread over 9 months to year or more, after a default is confirmed.

In India the boom started in 2005 and ended in early 2007. In 2007 itself, prices had jumped and buying had fallen to miniscule levels. 2008 was an year when almost nothing got sold. In effect not many people have really bought high priced apartments or villas. The sales in 2007 (after prices jumped) and 2008 have been sporadic and mostly, purchases were by buyers who had the resources and bought to stay.

If we take Hyderabad, there has not been any investors around for buying flats for last 1.5 to 2 years. People who bought at cheap earlier prices, are never going to default. Even with correction, market rates are still much higher than their "bought rates."

People who bought in 2007-2008 are resourceful, had their numbers ready and that is why they bought. Except few cases, do not expect anyone to default. Such few cases will have NO market impact since these will never be known widely. For the market to react and participate there has to be a critical mass of defaults, which is not at all possible

2.0 Individual Loan Default

Buying of a property by an Indian is usually a "family affair". Even nuclear families fall back on parents / in laws / uncles for support, while booking a property. There is unwritten commitment from several people, behind each purchase.

If someone is stressed, family will standby. You will find pre-payments happening now, to reduce EMI. In fact banks have been reporting increased prepayments and rescheduling of loan by increasing repayment period and reducing EMI. No bank has reported foreclosures of individual accounts due to default, even though economy has been under severe stress for more than 7 months now. (There are only unsubstantiated loose talk fed by news from US)

In India, each housing loan is Guaranteed by someone known to the borrower. Once a borrower defaults and default is persistent, the bank will immediately sound out the Guarantor. The Guarantor is legally bound to pay EMI and settle any outstanding, if borrower defaults. Making Guarantor pay is considered a taboo, in India. Something that is to be absolutely avoided. And this fact also ensures that immediate family steps in to ease the burden. ( As far as we know such Guarantor provision does not exist in US Home Mortgage Agreements)

And even if someone is unfortunate not to have family support and lands up in big mess, usually banks will give interest free breaks, reschedule loan etc. If nothing works, (it may take couple of years to reach a stage of "nothing works"), the legal process starts which again is very laborious. Banks have to issue legal notices, get court orders etc before it can attach property. Even after attaching, selling-off is not easy. Again, court will be involved. With the way Indian legal system works, banks can not shake off the properties quickly at all.

So basically except sporadic incidents, never expect enough properties to come into market, at all, from individual home owners. Obviously, people in India chucking their homes and running away, is just a dream that many in US may have. Its not going to happen here at all.

3.0 Default by Builders

Now..this is a possibility which can not be ruled out. The reason is the fact that unlike individuals who get cocooned by family circle, companies have no love lost between them. If a business fails, its not practical for families to support since the default amounts are HUGE running into several crores. But does this help the eagerly awaiting so called "foreclosure buyer?"! Lets examine.

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