Indian stock market surges on decisive vote result

Indian stock market has surged post result of Lok Sabha elections in which Congress led United Progressive Alliance (UPA) has gain majority stake, dispelling fears of a fractured mandate.

15% surge in Indian Sensex was the highest ever rally of any stock market in the world. Indian rupee gained against the dollar from 49per dollar to 47 per dollar. As an resultant, importers gain benefit from that whereas exporter had lost their money.  

 The investors and market analysts are upbeat and believe that UPA will push the reforms needed to boost the economy in recession period and will provide stability. The majority stake of UPA has showed an positive effect to industrialist that government will support the infrastructure and reform process to boost the economy.

New government begins taking shape

Political activity in the national capital has picked up with various parties jostling and lobbying for their representatives’ inclusion in the new cabinet.

Congress party has conveyed a meeting of victorious MPS at Parliament house which includes RJD Chief, NCP Chief and DMK as well.

The congress which has achieved majority stake in recently elected members is debating on the inclusion of Samajwadi Party in the cabinet as his party is ready to support without any kind of demand in ministry or benefits.

Few internal elements also raising the concern as the SP was a opposition leader during election hence they wants to include smaller parties such as Rashtriya Lok Dal JD Secular etc.

 Also to get benefited from the government, BSP Supremo Mayawati has also offered her party external support to Congress. As the congress do not have majority stake in Rajyasabha they needs to include smaller parties in their cabinet. Its first time when more than 5o women and younger leader has been elected in parliament and hence, it might be possible to have the young leader in the cabinet as well.

So everybody is waiting for a right blend of cabinet portfolio to be prepared by Sonia, Rahul and Manmohan Singh.

Indian real estate hope to come back on track after FM assurance for cheaper loans

Today Indian Finance minister P Chidambaram assured real estate developers that government will impress upon banks to accelerate lending to realty, which is facing one of the worst slowdown in the recent times. The step is a result of meeting held with FM and the delegation of builders under the Confederation of Real Estate developers’ Association of India (Credai), to complain against banks’ reluctance to disburse loans to the real estate companies.

As per FM P Chidambaram, government will not only help the Indian real estate sector in terms of providing liquidity but will also work to reduce the present lending interest rates.

 

Due to rise in interest rates which has been increased from 8% to approx 12%, the Indian real estate sector has affected very much and it was facing a adverse demand crunch. As per RBI & government, the rise in interest rates were the effect of speeding realty rates which has creates a bubble thinking between lenders & investors. To keep the better control, RBI has increased the interest rates, tightened the provisioning norms and made loans costlier & tougher to real estate sector.

As a result in hike of interest rates, EMI and tenure of loans has increased which in turns reduce the demand of real estate. At present as the global economy has weakened, the Indian FM has assured the sector player that government will relook the norms and will increase the liquidity in real estate sector as well as will bring down the interest rates on lending.

 

The other relevant details can be grasped from Times of India, Financial Express, Indian Parliament news etc.

Indian real estate sector in recession mode

THE DEVELOPMENT of real estate in India is attributed to the off-shoring and outsourcing businesses, such as high-end technology consultation, call centres and programming houses. The demand from the information technology sector has changed the urban landscape. Several multinational companies (MNCs) continue to move their organisational operations to India to take advantage of lower manpower and other costs. Providing human resources and home at their workplace assumes great significance and therefore, the requirement to create space for people to live and work that in turn, causes the development of other related infrastructure. It has been a predominant trend to set up the world’s best business centres, often campus-style establishments bearing a distinguishing corporate stamp. Some of these locations are so distinctive that they are termed as the ’temples of new India’. It is just an indication of the extent to which the development of real estate has been taking place.

The real estate market in India remains unorganised, fairly fragmented, mostly characterised by small players with a local presence. Traditionally, real estate developers were viewed with an element of skepticism. They were often identified dealing with large amounts of unaccounted money, lacking transparency and would use unscrupulous mean to acquire a variety of regulatory approvals.

The tremendous growth of the real estate sector is attributed to various fundamental factors such as growing economy, growing business needs etc. However, this boom is restricted to areas such as commercial office space, retail and housing sectors. The impending concerns of this sector namely skill shortage, non-availability of statistics, lack of low cost-affordable housing, lack of sustainability and to meet a future that might have downturn due to oversupply.

The industry is presently facing a major resource crunch – an obvious lack of qualified and skilled people from construction firms etc. Coupled with this manpower shortage is the shortage of availability of relevant statistics, which has created an ambiguity as to how much construction activity is actually taking place and one can’t gauge the demand and supply trends accurately.

The opportunities and issues of affordable, low cost housing in India are mainly related with tremendous shortfall of middle class housing as majority of the developers are involved in developing high class housing. So, there is a dearth of low cost affordable units. The negative version of Indian real estate industry is ’they have complete disrespect for sustainability’ and that the concept of green buildings, proper waste disposal methods and the longevity of the product are often dismissed.

Presently, the impact of recession in US economy has caused mammoth impact on Indian real estate market as well, as it is witnessing the recession. Till now, the real estate industry was a booming industry, which were in pace with information technology (IT) industry. Accordingly, the demand for IT space and commercial spaces has been grown. Also, the high net worth of individual investors has created a very fast pace of demand in Indian real estate sector, which has a very high impact image of investing in India.

As the money was coming in terms on investment in from non-resident Indians as well as private equity funds, the well-known developers and real estate players have grown their portfolio as well many small sized players have also created in Indian market. It has provided a very high supply of real estate segments either in residential or in commercial or in office space. Special economic zone (SEZ) has also creates a very good opportunities for investors as well as corporate to invest and get benefited from Indian real estate market. So, the booming market has created a niche as modern living and created a very mass employment in Indian segment.

The recent changes, which happened in American market such as bankruptcy of Lehman Brother (one of the oldest financial firms of American market) and sell process of PE firm Merryl Lynch by the largest US bank, Bank of America, has created a very fast drops/recession in financial industry and created a crisis in all over US economy. Both of these firms were invested their more part of funds into real estate sector without having the proper analysing or effect. They also have given the funds for mortgage industry of US, which is currently facing the hurdle of sub prime lending and have affected many players to bankruptcy.

All of these changes in the US economy have affected Indian economy as well as real estate segment as most of the Indian players have their liquidity funded by both of these firms. The IT segment, which was mainly funded by the PE firms or have their export to US markets have noticed very sharp drop of net worth of their firms. This recession also affected the Sensex, which is bullish and brings down the net worth of the leader of Indian real estate player very low. The impact can be shown in share price of DLF, Unitech, GMR group, Reliance Group, Wipro, Satyam etc groups. All of these sudden changes in Indian and US market created a point of thinking to investors and individuals that where it will go and what will be the best option in real estate investment. The market rates in India are also dropped by 10 to 30 per cent in most of prominent as well as upcoming cities and the trend appears to be still continuing, till it recovers from the ill effects of financial crisis.

Recession or recess of real estate market?

REAL ESTATE industry is taking on correction period all over India. Brokers, especially, seem to be convinced that the market is set to fall. In many areas, the property rates have already started falling. Accordingly in Mumbai, Goregaon, Malad, Mira Road, Vasai and Virar on western suburbs and Mulund, Bhandup, Kurla, Chembur and Govandi on central side have started stagnating the level of property prices.

Pune, Nashik, Noida, Jaipur, Bangalore, Chennai and Hyderabad are also feeling the cold wave in the property market. Reason for the same is related with hike in housing finance interest rates and unaffordable property rates.

Investors are, now, not buying any property and have stopped going in for more investments. Practically, when no one buys, rates are stagnated at some particular point. That is what is happening today. The sale price has stopped further climbing up, since there are no takers. Malls are worst hit. The recession started with them, while the exhibiting rates were much less then the actual investments made.

It may be a recess. For the time being, investors want the market to show its true colour. And after they sell off certain non moving stock, buying spree may start again afresh. It is also linked with the liquidity crunch in the economy and falling stock exchanges in the country. A lobby of investors does not want share market money to go easily from the real estate market. People, who have invested in real estate from earning of share market, want an exit to pay off the liabilities created by them in the share market. Players in real estate market want the rates to stop climbing up for some time, so that they can capitalise on such panic sale. Big game plan is on the hands of few groups of individuals and few finance companies that have entered recently in the trade.

Builders, today, have started to reduce the price everywhere in the country. Ready stock is still not available, as the builders have already sold 30 to 50 per cent of their stock, during under construction phase, to investors. As the investors want handsome returns on the finished stock, while they do not sale in the open market, but through the builder only. That stock again is sold by the builders to the actual buyers by mounting another profit margin. Hence, when the actual user buys the property, he has to pay investor’s hidden margins, which change hands five times during the time of construction.

It is nothing but a recess for the players. The rates may go up by the second quarter of the next year 2009. Builders have holding capacity, since the project is financed by venture fund people and mutual funds are searching for the projects. The sale price will certainly include the interest rates or return on investment money (22 to 25per cent of total project). Land cost is higher than before and purchasing has finished for the second rally of property market boom.

As in current market, liquidity has reduced and the funding by the private equity firms or mutual funds has mostly stopped and hence, the construction and launching of the project has just held up or been delayed by one to two quarters, some time a year, as well.

So in the view of current market scenario, we can easily understand that the real estate market has effected very much with the recession of economy.