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Unitech: Real Estate Slowing Down

From Business Standard:

In its balance sheet for the year to March 2008, the Unitech management has sounded a cautionary note. “It is quite clear that after a fairly long bull run, the real estate sector in India has begun to show signs of slowing down to a more realistic equilibrium rate of growth. The first signs of market slackening were evident in the second half of FY08. The correction has become more pronounced thereafter.”

It’s refreshing, coming from an RE company, but the writing is now on the wall: Housing and Commercial Real Estate have peaked, and it’s going to take a little more time when the downturn becomes prominent. With no proper price discovery structure – like the Case-Schiller indices in the US – there is no way that we can easily figure out where prices have declined, and where they’re holding up. Everything is hearsay. Until we actually want to buy or sell.

A friend recently called up the “broker” who he bought a piece of land from, and asked him what the going rate was.

Broker: Fantastic, sir, it’s currently at Rs. 2000 per sq. ft. and lot of people are picking it up. Great investment sir.

Friend: Okay. I want to sell, so why don’t you tell me if someone shows interest.

Broker: [Complete change of tone] Er..Sir, real estate is getting to become a tough market, you know…and interest rates are this high…very difficult to sell nowadays, but I’ll try my best.

My friend is like, what the F? Tones change in a sentence. Unitech’s gone through this once – I remember their foray into Bangalore in 1995 types and their exit after the subsequent bust. They’ll have learnt, but the question is: will they still remember?

Disclosure: No positions. Short in the Short Only Strategy.

  • Anonymous says:

    >Builders are caught in a perfect storm today. While market forces should dictate that they should reduce prices due to slackening demand (and perhaps many builders would like to reduce price), they can’t because their input costs (steel, cement etc) have almost doubled. So, any property that is under construction is being built under this new elevated cost structure. Unitech was giving 3 years 0% interest on one of their high end communities in NCR. They’re obviously eating the cost for this gimmick (upwards of 20 lakhs over 3 years) as the banks won’t eat it. This is akin to reducing the price by 20 Lakhs but they won’t do that since a collapse would become evident in the market. Builders at least in Banaglore are operating in a “cartel” mode – its like they’ve all decided to hold firm to create a certain impression in the market. If one or two of these guys break the cartel principle, the market may come down like a deck of cards and God knows we need it to do that. Prices are just way too high.
    Hari Swaminathan

  • Atul says:

    >This reminds me of the days of 2001. I played the same trick with some RE brokers to sell my flat in Mumbai.

    I called up a RE Broker and displayed interest in buying a flat in Mulund, near Veena Nagar (a posh locality then). He sounded very optimistic about the rates going on there. Quoted me about 2000/- psqft. Immediately, I told him, ok, I want to sell my existing one and then buy the new one.

    He was little shocked, but managed to control himself and promised to come back in a day or two.

    Next day, he called up and offered a customer at the rate of 1600/- !!

    I asked him why so? He simply responded that the market is slack and it would be very difficult to find any customer if I do not sell now !!!

    Its a different case, that I kicked him out.

  • Realty Rider says:

    >Thanks to choppy economic conditions, the real estate market continues to slide and some top builders expect a substantial dip in their sales this year. Mr. Niranjan Hiranandani, Managing Director, Hiranadani Constructions said, “Due to a slump in the real estate market, our forward budget planning has come down by 15%. Hence, by this year end, we expect our overall sales to dip by about 20% to 25%.” Earlier this year, the company was expecting a rise in its budget by about 35%, but calculations have gone awry. However, he feels that the market dynamics are still strong and there are a number of opportunities available for the realty market to grow in the long term. Mr. Hemant Shah, Chairman, Akruti City believes that only after Diwali, the real estate market will start showing some signs of improvement.For more view-

  • Saikat says:

    >Hi Deepak,

    Appreciate if you can let me know about what will be your call on Powergrid and NTPC as long?