Friday, December 8, 2017

2018 will be Pune flat buyers' market

Builder Raj Ends:

Builder Raj Ends

What are the reasons for the downfall of D S Kulkarni Developers - one of the oldest & biggest builders in Pune? I wanted to know.

DSK is not an exception. There are many more old & big builders in Pune who are on the verge of going down. People told me.

Yes, everyone knows that most of the builders in Pune are facing financial difficulties.

All of them, including DSK, are blaming government & economy for their problems - RERA, Demonetization, GST, No new job creation, increasing job insecurity, home loan interest rates, etc.

Agreed! These can be the causes of the slowdown in Pune real estate market.

But these cannot be the reasons for the downfall of so many old & big builders in Pune. I am sure.

So, I asked Mr. Sanjay Deshpande of Sanjeevani Developers -

Why are so many old, established, big builders in Pune in financial difficulties? Why are they debt-ridden and on the verge of bankruptcy?

You know? Flat buyers are scared to book because of this.

You know what Sanjay said?

Yes! This is a scary situation!!

But this is not only about the old & big builders.

It's about any builder.

Big or small.

A builder who has failed to understand that the 'the rules of the game' have changed - is in financial difficulties.

In the old days - Land Appreciation - was the rule of the game.

Appreciation of land was the reason for the property price rise & huge profits for the builders.

That's why every builder was batting on land appreciation.

Borrowing money at exorbitant interest rates.

Diverting flat buyers' money from the on going projects.

Investing in other lucrative business.

Assuming that they were good businessmen.

But fact is that - they were not.

They were gamblers.

They were earning huge moneys because the land was appreciating like anything.

Why was land appreciating?

Because supply of land was short.

But in the last 10 years - every government went on changing development rules to increase the supply of land.

Because of the increased supply - land stopped appreciating - result is - property rates remained stagnant - builders profit margins shrunk substantially.

Not only that!

Number of players increased too.

So the monopoly of the few big builders ended. Now, there was competition.

There were more options for the flat buyers.

More options about the locations. More options about the projects.

Obviously, flat buyers stopped booking at the pre-launch or at the lunch of the project.

Means interest free fund supply from flat buyers to construct the project started drying.

Builders had to borrow construction finance from the banks at heavy interest rates.

Most of the builders were running their business on the borrowed money and paying nearly 40% interest to the lenders.

What was the profit margin?

The profit margin was less than the interest builders were paying.

Obviously, for these builders there was no option but to go down.

Some have gone down. Others' days are numbered.

Result is builders' Raj is over.

Those builders who have financial discipline, right property, right price, good service, and are ready to do business on less profit margin are going to survive in Pune real estate market.

Flat Buyers' Raj Begins:

Flat Buyers' Raj Begins

Because of the abundant supply, now, property rates are stable.

So, there is no need to rush to book a flat.

Book only when you are financially ready.

Now, there is no need to book at the launch.

Because property rates at the launch and at the almost ready for possession stage would be almost the same.

In fact, because there is no GST on ready possession flat - price of the ready possession flats would be less than the under construction flat.

Since no builder is in dominating or dictating position, he can't say no if the flat buyer's demand is reasonable.

For example, if you want to book a flat in Dhruva, my project at Punawale, and you ask me, "How many flats are booked?"

"3 flats out of 50 are booked. And I am casting the last slab. Means RCC would be ready soon," I will tell you.

At this point you have to ask me - "Only 3 booking? If you don't get more bookings - how are you going to complete the project?"

"I have taken construction finance from the bank so even if I didn't get a single booking I can complete the project and sell ready to move in flats," I will tell you and show my financials.

"But what if you couldn't sell at ready possession stage?," you will ask.

"Bank will acquire the project and sell those unsold flats to recover it's money!," I will tell you.

"What about my flat?," you will ask.

"You flat will be yours because bank has given NOC to you, So you don't have to worry!," I will tell you.

Point is before booking a flat find out whether the builder has enough funds to complete the project.

If the builder refuses to share information - don't book a flat. Simple!

2018 is the buyers' market.

Don't gamble. Take an informed decision.

Keep in mind - "The Rules of the Game" have changed.

Not only for the builders but for the flat buyers too!

This is a gist of my conversation with Sanjay Deshpande. Those who understand Marathi can view this hour long video.

Related Stories:

1) Why are wise #Hinjewadi IT Engineers booking flats in Pethkar Projects' Siyona at Punawale, PCMC, Pune?

2) 8 Questions every flat buyer in Pune should ask a builder

3) In 2016 - where to book a flat in Pune real estate market? (Part 1)

4) In 2016 - where to book a flat in Pune real estate market? (Part 2)

5) In 2015 - Where to book a flat in Pune real estate market?

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  1. Changali ani mahitipurvak mulakhat. Karandeekar sirancha awaj matra far kami hota, neat aaikayala ale nahi.

  2. I am listener of Mr. Karandeekar, he is working as actual RERA. Just want to point out at 39:31, your guest actually said "Tula fikar nahi tar mar tikade!". This may NOT be his fault and he is publicly accepting that he sold just three flats out of 52. For informed listeners, this is not just real estate, this is Financial Corruption. How banks lent money (I am sure the guest has got money mostly from public banks) without necessary analysis. This is happening all across the so called ram rajya! Government is bailing out banks (second level corruption) out of tax payer money. Not just that they are forcing people to do digital transactions so actual cash remains with banks (to hide some more sh*t on balance sheets). A smart listener (if has money) should better take his/her money to Singapore, Hong Kong, and Dubai. All the best.

    1. dear mr sst, i appreciate ur keen listening! Yes i have taken loan from public banks & all banks analyse risks before giving loans! Important is i will be completing the project from that money & make the ready flats of which valuation is nearly 9 crores where as finance is only 3 crores! So banks cant never go in loss, at least not with smaller people like me with whim banks are more careful!Ans I am not building for investors but for real home butyers who cant settle in singapore, dubai or hongkong!

    2. Unfortunate is big fish gets let out & its small businessman like us has to pay for their sins! as well let me tell u, banks also are not doing any favour by giving us finance as they are charging 15% interest, do check for the bank loan rates in the countries u mentioned in ur comment :)

  3. Hello Mr. Deshpande, thanks for clarification. To be honest, any numbers won't make sense if sales are just 3 out of 52. Saying "all banks analyse risks before giving loans!" is good enough for regular folks. Reality is government may have to bail out these banks for an initial estimate of $200 billion. However, I understand that you're NOT the problem.

    About Interest rates, they're low in developed countries as their credit ratings are seen as perfect as safe heaven. That's what I mentioned, if someone has money (even INR 50 lakhs to buy an apartment!), they should really work in preserving the money. Not necessary by buying real estate in developed economies. Simply diversify. Because, as you mentioned the real estate prices are not going to get doubled every 2 years anymore, but one may be carrying lot of risk of holding one.

  4. "But problem is while buying small things like vegetables, we use our wisdom but when its buying our life time home we let the fool within prevail our decisions & then blame builder or real estate for making fool of us! Days of real estate have changed & if you fail to understand, that as a customer you are now the king; then you don’t deserve to be a king in first place, is all I will say to conclude!"...

    Frds, something about real estate & buying your home, you can read it at link below & share with your frds as well family to make them aware..

    sanjay deshpande

    1. Hello Sanjay D,
      Went through the link above. Nicely written.
      One thing I completely agree upon was the mad rush of builders to construct luxury projects to get more profits/sq ft at the time when flats in regular projects itself were becoming unaffordable. Projects like Vascon Windermere at KP are classic egs how so called luxury project can go for a toss. The moment flat buyers, especially IT yedas started taking joint loan (husband+wife) to increase their eligibility, it should have rang warning bells to builders & hoarders, but rather they used this opportunity to hike the rates even further & launched even more fancy projects, eg. Marvel Cascada, Balewadi whose flat buyers are fighting with builder in court for non possession of flat with project being stalled. If Lashkar-e-CREDAI had it's way, it would have asked their PROPOSED kid also to take top-up loan !

      During my search, I found buying a plot of 3000-3500 sq ft & constructing on it was cheaper or at par with buying a flat of 1100-1150 carpet area in same locality. This was first warning bells. And then the rentals there were barely 1-1.20% of the flat cost, which meant interest earned on money required for making downpayment was sufficient to pay the rent, which essentially meant staying for free !

      Businesses are meant to make profit but there is wafer thin line between profit & greed. Builders & hoarders crossed this line & by the time they knew they are into greed area, it was too late.

  5. Good blog Ravi.
    In this video, some more points which I would like to add -

    * For builders, it was the black money which come in crores especially from 2004 onwards, & was there in huge amount till 2010-11. Post demonetization, it took a big hit & before that, the largest chaps funding the builders with black money were kicked out from power, at Central Govt as well as state Govt. As they were not able to commit scams to gobble up public money, the cheap cost black money in real estate almost vanished.
    I can list atleast 10 known builders in Pune who were nothing more than fronts to convert black money to white of the politicians, especially of previous Govt.
    So like in US, lot of drug peddlers operate out of pizza shops, here it was real estate. Name any major land scam & politician names crops up !

    * The hoarders, whose only intention was to buy flat from builders & create artificial scarcity to pump up the rates. In earlier stage, they were successful but later as Sanjay D rightly said, the flats became unaffordable to end users, they were left with flat with no buyers for it.

    * One of the biggest end users, especially post 2006-07 happened to be IT Yedas. These yedas used to book flats online without even making site visit, let alone rest of the documentation work. Buying flat was like buying a phone charger on amazon or flipkart. No wonder then most of the buyers who have been conned by builders in recent past happened to be IT yedas.

    Important point is non-IT chaps were already priced out from the real estate market several years ago & the recent slowdown, especially in cities like Pune has been due to IT layoffs & lack of opportunity to go onsite using H1B visas.
    If builders would have thought about non-IT chaps also, situation would not have been this worse as it is now.

    * The finance for buying flats became very easy. Any tom, dick & harry joining some IT co. with couple of years of experience was taking 95% loan with tenure of 20-30 years. Those who didn't had money even for downpayment, took money from parents savings & still bought a flat ! Some had lame excuse about marriage. If a girl is marrying a boy only because he has bought a flat (on rented money), she's a gold digger & it's far cheaper & liability free to go to Tashkent, Berlin or Oslo than get married !

    * Last but not the least, the greed played very crucial factor. For builders it was making profit from single flat equivalent to entire floor several years ago, for hoarders it was to double money in 1.5-2 years & for flat buyers, especially just out of the college box, it was peer pressure.

    Bombay HC upholds RERA validity; dismisses builders' plea -

  6. Thanks to RERA, at least upto some extent, I could get to see agreement before even visiting the project.

    I had booked a flat in a scheme which is behind Ambience Hotel, Kaspate Wasti, Wakad.
    I had paid 2L then builder gave me agreement.

    After I carefully read through agreement and found many clauses in the favour of builder only, like

    - Entire Terrace will be always owned by promotor.
    - Promoter can earn income using hoardings ads and mobile towers and buyer shouldn’t object to it and even society will not get the share in that income
    - promoter can sell some areas (parking space) to outsiders and buyers should make them society member even if that guys isn’t owning tenant in the project
    - sqft calculations wasn’t matching with brochure (they never match with any builder)
    - it is a package deal and not based on sqft
    - association of apartments and not cooperative society
    - 40% loading. WTF

    These were all the WTF clauses and I felt cheated and cancelled the booking, now don’t ask me how I recovered my 2L.

    I’ve lost the faith in the builders.

  7. Learned something important from the Video! Thanks!

  8. Sir,

    I don’t agree with your statement of ‘bankruptcy’ of developers… as none of the developer of India is begging on street or doing job in any company. It is a notional ‘bankruptcy’… on the other hand these ‘wise-fox’ are sitting on tons of money, maybe not liquid but in assets form.

    The real estate prices in India had never come down… history shows it gone down by 5-10% for a while and then jumped back. It is very similar to stock market of India.

    I will validate above statement with following elaborated points…

    1. The civic development in India is not uniform like developed countries for Rural & Urban area... actually it’s pathetic in Rural zones… so, naturally the flow of educated or demi-educated young people from Rural to Urban area has increased considerably in last 10 years.

    2. Rural economy of India is not at all sustainable due to various reasons, so surely the flow from Rural to Urban will continue. If you consider Maharashtra’s case, tier 1 & 2 Marathi speaking cities like Pune, Nashik, Nagpur etc will be always preferred for such population flow.

    3. Such immigrated rural educated population is earning minimum INR 20,000 to 30,000 per month as they are mainly working in retails; banking; call centers; manufacturing industries; laboratories; logistic & courier / parcel delivery through e-commerce, restaurants etc etc sectors. This rural to urban immigrated population is about 45 to 65% today in all tire 1 & 2 cities.

    4. This segments was never considered as homebuyers by ‘greedy’ developers till 2014 of tire 1 cities and were only keen to do business with IT or fortune 500 company employees. Most of the real estate advertisement in last 10 years in Pune shows mainly distance of project from 'Hinjawadi' or other IT park and very rarely from 'Pune City Centre', MIDC etc...

    5. The Socio-economic data of income of age group 20 to 40 year of age is very much available for tier 1/2/3 cities of India… but unfortunately, product development team (architect / engineer) for Houses / Flats including project feasibility team ignored such data… as product development in real-estate used to be done on ‘whims’ of overconfident Developer / Architect / Brokers…. Keeping in mind only newly ‘born’ higher-middle class or rich (?)....


    1. Dear Eastern Dark.. very very valid points! Do go thru the link below..
      Frds, something about real estate & buying your home, you can read it at link below & share with your frds as well family to make them aware..

      sanjay deshpande

  9. counted...

    The main reason for slow-down in 2015 to 2017 real estate market across India is not only due to ‘greedy, arrogant & over-confident’ developers but also the ‘greedy & tax-hungry’ government… which can be elaborated as-

    1. Since 2010-11 in well-developed area of Pune (e.g.), the developer & his associates were paying directly & indirectly INR 1300 to 2200 per square feet toward taxes to government... this is really a shocking figure but can be validated.

    2. India is rated 181 out of 190 countries for ‘getting construction permit’ and 154 out of 190 countries for ‘registering property’. (Source: World Bank website… The delay & complexity in getting construction permits and abnormal taxes for registering property is finally are levied on homebuyer pocket in the tune of INR 600+ per square feet.

    3. This all-additional INR 2000/- to 2750/- payment to government (directly or indirectly) was finally levied on customer in addition to ‘greedy’ pricing by developer made housing un-affordable since 2015 and finally the real-estate market collapsed in 2016.

    Now, government & developers realized the importance of ignored 70% population… and now, many developers are re-designing their project as ‘affordable’ housing projects and at the same time government also started giving various incentives & tax-benefits for such ‘affordable’ house…

    So, again the famous ‘gold-rush’ has started… and in next few months, lots of ‘affordable’ projects will be launched in market (with different players (builders) name) for catching said 70% population… and there will be again big demand by said ‘first house buyers’ like in 1996 / 2004… and again in 2018 there will be great advertisement, good articles in Newspapers and on blogs… and gain the wise investors will come back… the prices of ‘affordable’ houses will start increasing… and finally there will be boom in real estate market and by end 2018…and finally it will be sellers market & not buyers market.

    All manipulated drama by developers, politicians & government… all banks, developers, politicians & government wants fast money from idiots buying homes in tier 1 or 2 cities!!!.... Days of old developers in housing are over now… so be prepared as new generation developers with new emotional blackmailing ideas…

    1. I agree with your points 'Eastern Dark'. Well said about the new generation developers.

      Indian government must simplify the construction permission process....

    2. Dear Eastern Dark, only difference is new generation of buyers (barring a few)are not emotional fools! So nothing wrong in buying a home with developers just be assured that its as good as any other commodity! And about real estate clients getting fooled even with RERA & GST & power of social media,do remember, "a fool only can get fooled rather a fool is deserved to get fooled as that's what he is"! What say monk? :)

    3. Sir,

      Please read the latest blog of Mr Ravi Karndeekar of 11 Dec 2017.

      It is clearly indicates that the days of new generation developers are started... it validates all my points mentioned above.

      Just wait and watch for next 6 months... there are plenty 'impulsive' buyers in market of said 70% 'first home buyer' crowd.

      The only sigh of relief is the presence of RERA.

    4. Realty check: Buyers are sinking in negative equity -

      More than two lakh property-buyers are facing 'negative equity' (when an asset's value plunges below the outstanding balance on the loan used to purchase that asset) due to delayed home projects in the National Capital Region (NCR). To most of them, these units had been sold with the promised of 'price protection', but prices are dropping so fast that the value of the 'dream home' is now lesser than the loan.

      Nishant (38), had bought a flat in 2013 at Godavari in Mahagunpuram society in Ghaziabad, but is still awaiting possession. He is one among the hundreds of buyers who are waiting for their "dream home'' from the last four years. The builder, Mahagun Group, has already collected 100 per cent of cost from him. His flat had cost about Rs 44 lakh, but is now worth just Rs 27 lakh due to price correction.

      By November 2017, average NCR housing prices had declined by over 30%-50% from its 2012 peak
      The delay in delivery by the builders imposes numerous direct and indirect monetary costs on the buyers.

      Cities like Pune & Bangalore too will see the same thing albeit a bit later than NCR, MMR as the process of price fall here started later.

  10. In Pune builders are selling 2BHK flats for 1.0+ Cr. in a buyers market like this. Don't know who has got so much money to buy such expensive properties. Will the prices fall in coming months? or the situation will get worse? only god knows.
    What if buyers like me wait in hopes for prices to drop and they never drop?