Indian real estate. Residential Projects. Are we building ghost towns?
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| Indian real estate. Are we building ghost towns? Image: freakingnews.com |
Residential developments in and around the metros of India follow a set pattern. Its either a new area that is developed by the government and annexed to the metropolitan. Places like New Town in Kolkata, the various sectors of Noida (we have lost count on how many there are now, the only major recollections being of Noida Sector 18) and others. Then, we have the industrial land conversions. Erstwhile skeletons of once booming industries whose owners and workers have not seen eye to eye for decades. And in a land locked city like Mumbai, we also see some redevelopments.
When a developer has zeroed in on the land (any of the three formats mentioned above) a grand plan and design is drawn up. Even before this is formally approved by the various authorities, a soft launch is underway. Various real estate brokers are called in, given some pep talk and a lot more alcohol and unleashed on the unsuspecting investors. The first stage of a project taking off is to rope in the investors. Based on the location, product and price range, each broker passes on the buzz of exceptional returns to his set of fixed investors. Whoever has the money to spare signs out the booking cheques. A reasonable 'lock in' period is mutually agreed upon. This is the time frame set from the date of booking within which a resale cannot be done by the investor. In a matter of days, 15% of the stock is sold! Yes, but with cheques of paltry booking amounts which does not make for a serious cash flow for the builder. We have felt the pain which comes free with coordinating further collections from most of these investors. Its sold on the excel sheet nevertheless.
Three years go by and numerous resales have happened at prices much below the projected price at the time of booking. There is still a lot of unsold stock that remains with the builder, prohibiting him from exiting the project, sometimes even years after completion. The investors are undercutting the builder price and moving out of the project as quick as they can. After all, their broker has a better deal for them. Would I have invested in a home this way? Hoping that some serious bloke who was really looking at living there without any transport, power or infrastructure would pay me a premium and make my investment look wise? No sir, I would not.
We have also seen entire projects sold abroad at realty fairs to NRIs. Here is a nice take from Mahesh Murthy on the state of affairs at Yankee land when it comes to investments in India. "Have we not learnt our lessons from our earlier wounds? Are there any comparables here? MakeMyTrip (MMT) just announced gross revenues for the year of 550 crore, net revenues — if you take out the cost of hotel rooms they count as sales — of 270 crore and a profit of 23 crore. That’s about 8 percent on net.
A travel agency with 270 crore in revenues and 23 crore in profit is not likely to raise a bead of sweat on Dalal Street. But it’s raising thunderstorms on Wall Street. The stock goes up to a 4,000 crore market cap. That’s enough to buy two Kingfisher Airlines and have enough left over to buy a few Mallya-type yachts. Two hundred times profits? Fifteen times sales? What’s up with the Yanks? Do they know something I don’t?"
These folks are never really coming back to stay in these homes they bought in a hurry because there was money lying idle. The quality of finishes and space that they are used to cannot be replicated in India. We have personally overseen the resale of two apartments that a gentleman from Dubai had lovingly bought at the start of the project, only to be repulsed by the way the project was finally finished(a year and a half behind schedule too) and eventually deciding on flipping them. He is looking for another home now. We doubt anything will come close to his expectations unless he triples his budget!
These folks are never really coming back to stay in these homes they bought in a hurry because there was money lying idle. The quality of finishes and space that they are used to cannot be replicated in India. We have personally overseen the resale of two apartments that a gentleman from Dubai had lovingly bought at the start of the project, only to be repulsed by the way the project was finally finished(a year and a half behind schedule too) and eventually deciding on flipping them. He is looking for another home now. We doubt anything will come close to his expectations unless he triples his budget!
Here is an idea. Drive around one of these new satellite townships post sundown. The majestic residential sky scrapers look like ghost towns at night. There are no lights in the rooms. Every few floors, you will see a room aglow from inside. Occupancy remains under 15%. The investors are desperately seeking end users who will actually move into these ghost towns and bring them to life. Unfortunately, at the current prices, we don't really see that amount of stock flying off the shelf. And yet, brokers have lined up six more 'the best Indian real estate investment opportunity this year' deals for the investor. Are we making a fool out of these blokes? If that is true, we are certainly not going to be able to do that for long.
It is this cycle of investments that is driving land prices (and thus home prices) upwards to echelons which a common man cannot reach. However, it was the common man who was originally projected to live there. It was the common man who was slated to give that massive return to the investors. Let a few more years pass and this situation will become more evident. Ghost towns will spring up all over India. 80 storey apartment complexes with INR 5 crore price tags are not really going to give you returns on your investment till the end of time.
Why not look at Mass Affordable Housing? Basic finishes. All the infrastructure and amenities to build happy communities? Head that way and your town will be full of happy faces. On the way to work, selling groceries, skipping back from schools and impressing the fairer sex with wheelies on their BMX bikes. I would, invest in that part of Indian real estate, any day!
It is this cycle of investments that is driving land prices (and thus home prices) upwards to echelons which a common man cannot reach. However, it was the common man who was originally projected to live there. It was the common man who was slated to give that massive return to the investors. Let a few more years pass and this situation will become more evident. Ghost towns will spring up all over India. 80 storey apartment complexes with INR 5 crore price tags are not really going to give you returns on your investment till the end of time.
Why not look at Mass Affordable Housing? Basic finishes. All the infrastructure and amenities to build happy communities? Head that way and your town will be full of happy faces. On the way to work, selling groceries, skipping back from schools and impressing the fairer sex with wheelies on their BMX bikes. I would, invest in that part of Indian real estate, any day!
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