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Realty This is India !

Bombay Dyeing’s realty project lands in a soup

Earlier, I had blogged about how Taj Mahal Hotel in Mumbai has got an eviction notice.

Now it appears that the Bombay Dyeing group has landed into major trouble with Mumbai’s authorities.

According to Financial Express,

The Maharashtra government has alleged that Bombay Dyeing and Manufacturing Company Ltd obtained approval for its modified proposal to utilise 33,545 sq m of its 41,895 sq m mill land in Dadar-Naigaon in central Mumbai for commercial development “in cahoots” with a section officer working in the Textile Department.

A 38-storey residential-cum-commercial tower is under construction on the plot, popularly known as Spring Mills.

“The section officer working in the Textile Department, one P D Chavan, on October 4, 2004, issued a letter to the petitioners (Bombay Dyeing) allegedly according approval to the said proposal dated August 19, 2004, without any authority of law in as much as the same was not only not approved by the hon’ble minister of textiles but also not approved by the hon’ble chief minister,” an affidavit filed by Chandrashekhar Gajbe, Deputy Secretary, Department of Cooperation, Marketing and Textiles, on December 7, 2012, states.

The affidavit was filed after Nusli Walia-majority owned Bombay Dyeing moved court against the BMC’s June 2012 stop-work notice on the company’s upcoming projects on the mill land. Bombay Dyeing had also challenged a January 5, 2012, government communication telling the BMC that no official approval was granted to the company’s modified proposal on its mill land, and the BMC asking the company’s architects to submit an amended layout in accordance with the permission granted on November 10, 2003.

Urging the court to set aside the letter issued by the government to the BMC, Bombay Dyeing has called it a “patent abuse of power” by the government and said it took into account “irrelevant”, “extraneous” and “non-germane” circumstances “clearly vitiated by legal and factual mala fides”.

The government affidavit states that Bombay Dyeing submitted a modified proposal on August 19, 2004, seeking to utilise 33,545 sq m of the land for commercial purposes and retaining only 8,349 sq m of the built-up area for textile activities. Next month, the government sought a clarification from the company regarding the modified proposals. “It is pertinent to note that till date, no clarification of any nature whatsoever has been submitted by the petitioners to the government,” Gajbe’s affidavit stated.

The alleged approval dates October 4, 2004. The state government says it had not been forwarded to either the Urban Development Department or BMC — the claims notwithstanding. Nor was it found in the records of the textile department, Gajbe has claimed.

The contentious approval first surfaced in a report of the Bombay Textile Research Association (BTRA) submitted to the government on February 18, 2009, after the chief minister directed the Urban Development Department to inspect the modernisation work undertaken by the textile mills, the affidavit states. “It was on receipt of the said report that the alleged issuance of the said approval/order dated October 4, 2004, came to light, which was illegally and unlawfully obtained by the petitioners in connivance with the said officer,” Gajbe stated.

The government was apparently not aware of the approval letter issued by Chavan for over four years. The affidavit filed bythe state government through Assistant Government Pleader G W Mattos also mentions that disciplinary action was initiated against Chavan in December 2009. On September 20, 2010, Chavan, who was promoted to the post of under secretary and transferred to the Women and Child/ Welfare Department, was placed under suspension for misappropriating government funds, the affidavit states.

Asking the court to dismiss the Bombay Dyeing petition, the state government has said, “The petitioners have not approached the court with clean hands and as such having not done equity, cannot claim equitable reliefs from this court.”

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High rents in Hong Kong are changing it’s retail space

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Mumbai Realty

Mumbai realty bubble has burst !

I had blogger earlier about Mumbai’s realty (see here and here).

It appears that now the bubble has finally burst.First, check out the tweet below by noted crusader Y.P. Singh:


I think the key phrase is “more investment made”. Mumbai builders are struggling to raise money.The normal source of funds (aka customer advances) is not available as people are now not interested in buying at nose bleed valuations.To give an example of how absurd Mumbai valuations are, just look at this example:

In a premium realty project, a 4BHK purchaser has to take 4 parking lots compulsorily.Each lot costs 10 Lakh Rupees.So he is shelling out 40 Lakhs just for parking !!

 

Right now, there is a huge glut of inventory and half completed projects.A serious buyer armed with a cheque book can easily get upto 25% off from the rack price.

Investors are besieged with offers of buyback deals.One recent deal in Dahisar (E) goes like this:buy at 5000 psf and sell back to the builder at 6250 psf within a year.Before you get too excited, remember registration,stamp duty,vat,service tax, brokerage etc will eat up a chunk of your gains !And there is no guarantee the builder will actually honor the buyback !

Commercial space is another area where the inventory glut is noticeable.The most happening commercial area in Mumbai is BKC-where NSE,ICICI Bank etc are located.There are entire buildings there lying unoccupied.Tenants are bargaining hard and landlords are caving in to their demands.

Most realty observers felt that there would be a time correction but not a price correction in Mumbai i.e. prices will remain stagnant for a long period of time.But the current situation indicates that a price correction is truly underway.

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Mumbai Realty

Is the clock ticking for Mumbai real estate?

I had earlier wondered if Mumbai real estate is in a bubble.Now, new signs are emerging that the market may be cracking.

Howard Marks of OakTree Capital in a masterpiece letter to his clients says that the downcycle of risk (or end of a bubble) begins when “Once the last potential buyer has bought, there’s nobody left to take the prices higher”

It appears we have reached that stage in Mumbai realty.Many realty companies in Mumbai (including listed ones) have started offering a buyback scheme.

The scheme works like this:

The builder has a rack rate of say 20000 Rs (USD 367) per square feet.Any retail investor/ordinary broker who approaches him is quoted this price.

But he offers a sweet deal to the High Networth Investor.

The builder sells the investor  commercial/residential/retail space in his project of say 5000 sq feet @ 14000 Rs (USD 257) per square feet.This entails an investment of around 7 Crores Rs. (1.28 Million $)

After two years, the builder buys back the property from the investor at a higher price say 20000 Rs (USD 367) per square feet.The investor gets a cool 3 Crore Rs profit (550,000 USD) on his 7 Crore (1.28 Million $) investment.

Of course, I am oversimplifying things here by ignoring brokerage, legal,registration,stamp duty,society,maintenance and other charges.

But the drift is clear,the investor gets a damn good return for bailing out the developer.

But the question arises, why are builders resorting to buybacks (or IPOs) ?The answer is simple…the last potential buyer in Mumbai for 2.5 Cr+ (458,000 USD) properties has already bought.

So the rush for buybacks and IPOs.

There is one other factor-elections. 2014 will have both the Maharashtra assembly and general elections.Last time around, builders had to do a fire sale to clear inventory to raise money for their political patrons.They probably want to avoid a similar scenario this time around.I find it interesting that the buyback entails the builder buying back the property in 2015 i.e. when the elections are over.

So is the clock ticking for Mumbai realty?I think the party is over for now.

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Realty

Brokers turn realtors

In an interesting turn of events, Indian equity brokers are turning themselves into real estate brokers.

Not a day goes by, when one does not get an email from brokers hawking a real estate project.

Some of the equity brokers who have become very active realtors are ICICI Direct, Kotak, Karvy, SMC, Indiabulls etc

It would be interesting to see how much of their income comes from realty brokerage as opposed to equity brokerage