Do you see yourself as middle-class or world-class?

Do you see yourself as middle-class or world-class?

No, I'm not talking about what's in your bank account. I'm talking about what sets world-class performers apart from those who are just "average," no matter what their profession.

Today, I'd like to share some of  thoughts about what distinguishes world-class performers from those who are merely "good enough."

The Middle Class competes...the World Class creates.

The Middle Class avoids risk...the World Class manages risk.

The Middle Class loves to be comfortable. The World Class is comfortable being uncomfortable.

The Middle Class hungers for security...The World Class doesn't believe security exists.

The Middle Class sacrifices growth for safety. The World Class sacrifices safety for growth.

The Middle Class focuses on having...The World Class focuses on being.

The Middle Class is frustrated...The World Class is grateful.

The Middle Class has pipe dreams...The World Class has vision.

The Middle Class trades time for money...The World Class trades ideas for money.

The Middle Class is problem oriented...The World Class is solution oriented.

The Middle Class sees itself as a victim. The World Class sees itself as responsible.

The Middle Class thinks it knows enough...The World Class is eager to learn.

The Middle Class chooses fear...The World Class chooses growth.

From an email forwarded by Amit Saxena. (Emphasis mine)

How real estate prices are going to destroy business in Bombay.

Real estate prices have had exponential growth over the last couple of years. Prices has risen three fold in just the last 3 years.Property prices for residential housing hover around 1,00,000 per square feet in suburb of Bandra while further north prices range between 80,000 to 15,000 from Bandra to Borivili. Prices in North most part of Bombay are around 200,000 to 25,000 per square feet.

Add to this a loading factor of 50% from carpet to built up area, the actual usable area gets reduced to half or alternatively for calculation purposes the carpet area prices double. Thus for an apartment in Bandra, you end up paying double the actual asking rate!

Thus a 500 square feet, one bed room flat costs5,00,00,000 (5 Crores) in Bandra while it costs 50,00,000 (50 Lacs ) in Dahisar.

With median income hovering around 1,00,000 per month for a family, even the apartment in far flung Dahisar is not affordable even after taking a loan from a bank to the extent of 80% of the value.

Same is true for commercial real estate. A shop in Kandivili’s Mahavir Nagar is quoted at 20,000 per square foot of built up area. A shop with an area of 400 square foot costs 80,00,000/-. A Bank term deposit of a similar amount will fetch a return of 8,00,000 per year translating to 66,000 per month. To generate a profit of 66,000 per month, a business will have to do a turnover of at least  4,40,000 per month, that is 14,500 per day. For a restaurant that averages at 300 per customer this would translate into 50 customers per day each spending at least 300. If each customer ends up spending just half of that, the number of customers required to justify the investment becomes 100.

Thus all business will be reduced to real estate play.

Add to that the march of technology. It is making the location of an organization irrelevant to its operation. Companies can now and are indeed moving to smaller cities which provide the same if not better level of infrastructure and quality of life. As companies move out, people will move out.

Thus the bubble will burst and the phenomenal rise of real estate prices will eventually sound the death knell for the city.

Sales of city homes take a breakneck plunge

In a recent article appearing in Times of India Mumbai Edition dated 3rd August 2011 indications are available that real estate prices are in for a fall.

Read excerpt here

Past seven month's data gleaned from the stamp duty and registration department showed that the trend in the eastern suburbs (Kurla to Mulund) has been the worst, with a record 33% slide in the number of documents registered in 2011, compared to that in 2010. From January 2011 to July 2011, 7,529 papers were registered, while 11,371 were sealed between January 2010 and July 2010. The western suburbs seem to have fared slightly better with deals between Goregaon and Dahisar sliding by 19%. Borivli taluka recorded the registration of 13,554 documents from January 2011 to July 2011, compared to 16,846 for the same period last year.

Read the entire article here

Builders exploit FSI rules, buyers face music

A report appearing in Times of India Mumbai Edition dated 23rd July 2011 explains how a scam is happening in the real estate sector.

Read excerpt below and check out link for the whole article.

Clara Lewis, TNN Jul 23, 2011, 05.01am IST

MUMBAI: In several upmarket areas, builders get proposals sanctioned for smaller flats than they actually sell. In such instances, the buyer, or flat owner, can end up becoming the lawbreaker, making him vulnerable to extortion by corrupt civic officials in the long run.
The builders pay the civic body a pittance in development charges and scrutiny fees for the BMC-approved carpet area, and then 25% of the Ready Reckoner rate as premium for the extra Floor Space Index (FSI). They, however, charge flat buyers market rates for both the carpet and additional FSI areas. The BMC building proposals department has reportedly approved plans for such buildings in areas stretching from Malabar Hill to Gamdevi, Girgaum, the Parel mill areas, Elphinstone Road, Dadar, Bandra, Khar,Santa Cruz and the Juhu Vile Parle Development Scheme.
Drawings with TOI show that the intention is clearly to amalgamate extra spaces with the original carpet area to create one large flat. A 1,500-sq-ft flat can grow to 2,500 to 4,000 sq ft and cost Rs 10 crore to Rs 16 crore.

Read the Article Here

Builders resorting to distress sale?

In another report appearing in Times of India, Alka Shukla paints a not so rosy picture for the real estate industry.
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But here’s the catch – you can avail of the sale offer only if you make a bulk buy of not less than 10,000 sq ft area
Alka.Shukla timesgroup.com

Hiral Shah, who has been scouting new residential projects in Kandivali to buy a house, got two rude shocks. “No one is quoting less than Rs 1.2 crore for a 1,000 sq ft house in Kandivali! And surprisingly, I also discovered that almost half the flats I saw in the two new projects were vacant,” said Shah.
 
As if echoing his find, a recent survey by property research firm Liases Foras has revealed that there are 80,000 houses lying unsold in new projects across the city.
 
Even as developers maintain that sales are brisk, crevices are beginning to show up, and one indication of this is that some developers are resorting to distress sales – disposing of homes by offering as much as 40-50 per cent discount. Zen Towers in Tardeo is a case study. Set to complete in December this year, you can buy space for Rs 15,000 per sq feet as opposed to the market rate of Rs 25,000.
 
But here’s the catch: you must make a bulk buy of at least 10,000 square feet.
 
“The market is over-heated, and with a price correction being anticipated, investments are drying up. Though big builders can hold on, it is the small players who have started to feel the pinch, and are creating distressed assets even as market sentiment is positive,” said Atul Khekade, partner, Netz Realty, a property consultancy firm that has sensed opportunity here.
 
It has created a pool of 30 such distressed assets in South and Central Mumbai and is marketing them to NRIs and High Networth Individuals.
 
Experts say only about 10,000-12,000 units have been selling in each quarter this year, as against 21,000 between April-June last year. No wonder pressure is building up.
 
If a 22-storey tower in South Mumbai’s Nagpada area is available at Rs 8,000 per sq feet – as against the market rate of Rs 15,000 per sq feet – provided 10,000 sq ft is bought, another project in Andheri (W) is selling for Rs 10,500 per sq feet, almost 30 per cent lower than the market rate even if you buy just 5,000 sq ft.
 
A builder, who is selling bulk stock at 40 per cent discount, said on condition of anonymity, “As big builders go on increasing rates for their projects, the average market rate is pushed up. They get funding through FDIs or big private equity firms. But when rates reach a brink, even investors who fund small projects like mine become wary. One Gujarati investor group that had promised to pump some money into my project backed out. Now I am desperate.”
 
Real estate analysts speculate the cracks could widen. Pankaj Kapoor, Managing Director, Liases Foras said, “Creation of distressed assets is an indication that the residential market will undergo a correction, which could be to the tune of 25 per cent in the short term. This is not just because property prices are unrealistic, but also because a chunk of flats are being traded by investors instead of being bought by actual users.”

No demand for houses, but prices hit an all-time high

In a report appearing in Times of India of today (9th May 2011), it has been estimated that real estate prices may drop between 15 to 40% in the coming months. This is due to high unsold inventory and prices being out of reach of most buyers.

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The laws of demand and supply do not apply to your city’s real estate scenario. With 93,000 under-construction and ready for-possession homes still unsold, the ‘weighted average’ cost of a flat is at its peak, according to a finding put out by property research firm Liases Foras. 

On an average, the cost of a flat in Greater Mumbai (area under BMC limits) is pegged at Rs 2.18 crore. That’s a 436 per cent rise compared to 2005 prices. Since then, the graph has steadily moved northward but for a brief dip during the economic meltdown in 2008 (see info graphic).
COMMON MAN’S WOE
And this upward swing in cost has pushed the middle class to the fringes. A basic principle of lending institutions says that the cost of your house cannot exceed five times your annual salary. In 2005, to buy a home, your annual income should have been Rs 8 lakh. At today’s prices, your annual income has to be Rs 43 lakh.
    “Five years back, Rs 8 lakh per annum had a higher purchasing power than today. And it was not too difficult for one’s family income to be in the range of Rs 5-10 lakh,” said a market observer.
    “Today, even if individual incomes fall in that range, very few family incomes are in the Rs 40-lakh range,” he said.
    Managing Director of Liases Foras, Pankaj Kapoor, points out at a pricesale pattern, not particularly to Greater Mumbai but in the entire Mumbai Metropolitan Region that includes Greater Mumbai, Thane city and Navi Mumbai.
    “When prices fell, sales picked up. Like, when the per-sq-foot weighted average price in the metro region fell from Rs 8,100 in 2008 to Rs 5,300 in 2009, sales improved from 9 million sq feet to 20 million sq feet,” said Kapoor.
    “The rate today is Rs 9,235 per sq ft. Even if you factor in inflationary costs, prices will have to be in the range of Rs 6,000 per sq ft to increase market efficiency.”
PRICES LIKELY TO DROP?
With home sales already low, and if the current pace of sales continues, it will take 35 months for the current stock of unsold homes to find buyers, feel realty experts.
    And, they opine that this situation will only bring down the market further.
    “While an overall correction of 35 per cent is required to improve sales, South and Central Mumbai will need a correction to the tune of 40 per cent,” said Kapoor.
    Though not all realty experts may agree on that, the general sense is that prices will correct by at least 15 per cent in the next six months.

Actual Property Rates in Thane

In a recent exhibition held under the aegis of MCHI (Maharashtra Chamber of Housing Industry) at Thane, I happened to visit quite a few stalls.

One of the projects exhibited there was from Puranik Builders. The brochure listed a building named 'Houston' which has 2 BHK and 3BHK flats. The area for a 3BHK flat as mentioned in their brochure is 748 square feet carpet. The rate they are quoting is 4695/- per square feet with an escalation of 25 per floor.

When I called to check what was the saleable area (euphemism for super built up area, including all open spaces) they told me that the area was 1160 square feet.

So in effect you are paying 54,50,000 for a flat of carpet area of 748 square feet. That works out to a real rate of 7281/- per square feet. Given that the land cost (FSI in Thane) is around 2000/- and construction cost for tower around 1200/- the builder is making a clean profit of 30,00,000 per flat.

No wonder builders are holding on to their stock and not selling at reduced prices.

Current stock of unsold property in Bombay (Mumbai) stands at more than 1,00,000 units. Taking an average price of just 50,00,000 per flat, the total unsold stock now is worth 50,000 Crore. Th interest burden on builders calculated at just 1% per month (commercial loans are between 12 to 15% per annum) translates to an interest outgo of 500 Crores per month.

Update:

Like I wrote about the exhibition, Times of India carried a report on the failure of the exhibition to generate interest.

Read the article here