• Business Standard: Demand slump hits RIL’s Jamnagar plan

Reliance Petroleum, a subsidiary of Reliance Industries, is likely to commission only half of its refinery’s capacity at Jamnagar by December-end as demand for fuels such as naphtha and fuel oil has dropped across the world.

Reliance Petroleum’s 29 million tonne per annum refinery, being constructed in a special economic zone, will export almost all of the fuels it produces. These exports are primarily aimed at the US and Europe.

The refinery, which will add nearly 20 per cent to the nation’s refining capacity and make Reliance the largest crude oil refining company in India, will produce fuel oil and polypropylene only when the entire plant is commissioned.

• Bloomberg: Gulf Shares Fall as Banks Tighten Credit; Kuwait Halts Trading

Persian Gulf stocks tumbled, sending Dubai’s index lower for a sixth day and spurring a trading halt in Kuwait, as banks tightened credit terms and oil plunged to a 21-month low.

Emaar Properties PJSC slid to the lowest in more than four years as the Middle East’s largest real-estate developer said it is reviewing its recruitment policies amid the property slowdown.

Dubai property buyers will lose 30 percent of what they have paid if they default, cancel, or breach their purchase contracts, Gulf News reported, citing the Land Department.

Emaar declined 5.6 percent to 3.18 dirhams, the lowest since October 2004. The shares have dropped 36 percent this week.

• Bloomberg: U.S. Stocks Surge, Led by Shares of Energy, Real-Estate Firms

Declines in midday trading today pushed the S&P 500 to 35 percent below its average for the past 200 days, only the second time that’s happened since the Great Depression. The last time was a day before the index rose 12 percent on Oct. 13, the biggest rally since 1939.

The S&P 500 swung between gains and losses at least 38 times, including a drop that sent the benchmark index to its lowest level since the Iraq War broke out 5 ½ years ago.

The gains in oil producers came after the valuation of the S&P 500 Energy Index retreated to less than 6.2 times earnings for the group, the cheapest since Bloomberg began tracking the data in 1995.

Huge turn-around in the US markets. Triple test of bottom? Just another volatile day on the way to S&P 600?

• Financial Express: Realty prices to fall 50%, says SBI chief

OP Bhatt, chairman of State Bank of India (SBI), the country’s largest bank, expects 50% correction in the housing sector prices in the country. “In India we may witness up to 50% correction in pricing in the mortgage markets. If that happens, it’s good news for the Indian banking system as NPAs would reduce and new business would fall-in,’’.

Joydeep Sengupta, director, McKinsey & Compan said the overall impact of the global volatility would enhance the capital requirement of the Indian banking system, which will need $70-80 billion in the next four years to sustain the India growth story. 

• Economic Times: Slowdown is here: Morgan Stanley

The investment bank’s sample of 105 companies reported a 29% fall in net earnings for the quarter ended September 2008, an all time low. This compares with a trailing five-year quarterly average growth of 28%.

. . . at the sector level, the best performances came from Utilities and Technology. The laggards versus the aggregate numbers were Consumer Discretionary, Energy, and Healthcare. Save for Technology and Financials, all sectors reported a slippage in operating margins YoY.

• Hindu Business Line: Slowdown effect: Container train operators start ‘parking’

Many operators now prefer to park their rolling stock assets in their own terminals or the Indian Railways’ yards — rather than running empty rakes (since cargo availability has gone down).

. . . while companies such as Concor, Gatewayrail (a subsidiary of Gateway Distriparks) and Adanis have their own terminals where they can park their rakes, others have to depend on the Railways infrastructure.

. . . two container train operators whom Business Line spoke to pointed out that compared to the cargo availability in September, in October it has decreased by about 20 per cent for their companies.

Times of India: Extra FSI: Govt plans to raise Rs 13,000cr in BKC

The state government plans to raise Rs 13,000 crore from the sale of surplus floor space index (FSI) in G-block of Bandra-Kurla Complex (BKC).

On Wednesday, the state put on sale 13 lakh sq m in the already developed G-block of the International Finance and Business Centre at BKC.

The MMRDA meeting chaired by chief minister Vilasrao Deshmukh on Wednesday resolved to sell the additional FSI at 1.5 times the existing ready reckoner rate of Rs 65,000 per sq m in the area.

Hope I get this right: Rs 13000 crore for 13 lakh sq m (i.e. Rs 1300000 lakh for ~ 140 lakh sq ft) = Rs 9285 per sq ft.

That’s a bit lower than the 15000 per sq ft paid out recently by Jet Airways, and much lower than the Rs 50000 per sq ft paid out in November 2007 by Wadhwa Builders.

Do let me know if I messed up the calcs. There’s all sorts of FSI numbers & land rates in the ToI article.

Jayanth Varma @ Financial Express: Bubble in our backyard

Indians have been buying expensive houses almost completely financed by banks. The cumulative loan to value ratio including “furniture loans” and other forms of financing has been close to (and has sometimes exceeded) 100%. Unlike in the past, many of these transactions have been largely free of black money and therefore there is no hidden cushion in the loan to value ratio. Moreover, our young upwardly mobile professionals have been taking on large mortgage payments (EMIs) assuming that these would be affordable on the basis of projected salaries one or two years down the line.

I’m not sure about the ‘largely free’ part, but the ratio’s certainly gone down.

Real estate prices are sticky and they fall only gradually. Hidden discounts are more common than public price cuts. Evidence from the stock prices of real estate companies indicates that the value of their land bank has fallen by over 50%.

Sticky? Very much so. You can’t deny a lower stock price, but you can be in denial about the market-clearing price of your home for a long time.

We have anecdotal evidence that the retail unsecured lending portfolio of some large finance companies (including some foreign owned ones) received exit valuations of as little as 30% of face value early this year, and are probably worth even less currently.

Yowza. And we all know how the market has voted on the Great Indian Real Estate Boom; here’s a summary of the BSE Realty Index:

It’s near its 52-week and all time low. It’s down over 80% from the peak.

As I said, liquid & transparent markets discount things sooner. The real estate market in India is neither liquid not transparent. It’ll take quite a while for prices to correct to saner levels.

FT: Dubai property on red alert

Dubai is the most exposed of the local economies because its local real estate market is supported by foreign investment and because, as an emirate, it has little in the way of natural resources. A home-grown credit squeeze caused by excess lending and insufficient deposit taking has added to the disquiet.

Credit default spreads on Dubai debt, especially real estate linked borrowing, have ballooned as institutions bet that the pace of growth in the property market will not be maintained.

“The stock markets are a barometer of the real estate market - it’s telling you investors are very concerned right now.”

Well, first look at the golden goose that was driving the market - crude oil prices. They are now down 40% from the peak:

Let’s say oil settles down ~ $80 over the next few months. I think that’ll prick the ME/GCC/Dubai real estate & infrastructure bubble, given the huge amount of supply coming online - who’s going to occupy all that RE? Where do the cash flows come from? US/UK financial services companies? I don’t think so.

Let’s see if the skyscraper indicator works this time: Skyscraper indicator, LIBOR signals, Deficits & rupee

That means - Yet Another ‘New Low’ In Realty:

BSE Realty Index now down 78% from the peak. DLF down 10%+ today. Of course, most developers are still refusing to accept reality and cut prices. Drastically. Now!

• BCA Research: The Bailout: Necessary, But Still Not Sufficient

• Business Standard: Domestic commodity prices down upto 16%

RBD Palmolein prices have come down by 8.14 per cent, while rubber fell by 20 per cent or Rs 28 to Rs 108 a kg.

In the metals segment, nickel lost the most with a fall of 16.11 per cent, while tin followed with 5.78 per cent and lead 4.63 per cent decline.

Natural rubber’s (NR’s) fall is attributed to the decline in crude oil prices, which makes synthetic rubber cheaper and pull down the NR prices.

Edible oils were down as the fall in crude oil prices resulted in a slowdown in demand for bio-fuels. And, palm oil being an important alternative for bio-fuel took the hit. That apart, an increase in acreage of oilseeds and expectations of better rabi crop also contributed to edible oils’ fall.

• Economic Times: Home prices may drop upto 12%

The bitter realisation that the Indian developer has limited options before him to attract buyers. The builders unanimously agreed to allow customers to have a greater say in price negotiations — in other words, they decided to cut home prices.

The developers agreed to give a 10-12% reduction for all consumers, albeit couched in schemes such as ‘bearing’ 2-3% of the interest cost, flexible rates for parking and floor rise pricing.

Indicative prices per sq ft:

Andheri (W) Rs 12,500
Bandra (W) Rs 20,000
Ghatkopar (W) Rs 8,000
Goregaon (E) Rs 9,000
Mulund (W) Rs 6,500
Worli Rs 35,000 

They have ‘agreed’ to a reduction. What a joke. They are probably crapping in their pants, hoping that Mumbai realty doesn’t go into a free-fall.

Via Paul Kedrosky, an excellent set of slides from the Milken Institute: Making Sense of the Mortgage Meltdown (PDF here.)

Tons of data; here’s a few items of note:

• 30-year fixed rate mortgages have been available for 5-7% since 2001, it’s the ARMs that juiced the sub-prime market.
• <10% mortgages are delinquent, compared to 50% (!) in 1930s.
• Ratio of median home price to median income went from 3.4 to 4.7
• Long-term nominal increase in home prices is 3.4% p.a. (not real / inflation adjusted)
• Ratio of annual rent to home price has averaged ~ 5%, dropped to 3.5% in Q4 2006

Must read!

RGE / Citigroup: UAE: Moody’s acknowledges Dubai’s challenging environment

The global financial turmoil has affected the GCC, but Moody’s has decided that the outlook for local banks remains stable, with the exception of Dubai, where the outlook is stable to negative.

Dubai has two things going for it that puts it apart from other emerging markets experiencing a significant transition. First, the real estate sector is managed by quasi-government developers, which seem to have perfected the art of managing supply; and second, local banks in the UAE are largely owned by the governments in the respective emirates.

The comparative advantages carved out of the desert by Dubai (for example the hospitality sector, travel, tourism, retail, entertainment, construction and financial services) are all anchored to real estate. In other words, real estate is too big to fail, especially since the booming financial sector is booming precisely because of real estate.

These are some of the deepest pockets in the world today. Imagine if they too go bust. And we all know how reliable Moody’s (wink, wink, nod, nod) stable / AAA ratings are.

• Bespoke: High Yield Spreads Near Record Highs

• Bloomberg: Pantaloon Says India Malls Waiving Rents as Supply Slows Demand

Pantaloon Retail India Ltd., the nation’s biggest publicly traded retailer, said malls are waiving rents and offering to pay for interior decoration as excess supply and slowing economic growth erodes demand.

Malls in India’s top eight cities have about 20 percent of their total 40 million square feet (3.7 million square meters) of space vacant, according to real estate broker Cushman & Wakefield Inc.

• Economic Times: It’s a futures shock for many cos with F&O membership

Nearly half the stocks in the derivatives segment on NSE had a daily average turnover of less than Rs 10 crore in the cash market, at the time of their inclusion in the futures and options (F&O) list.

. . . in over two dozen stocks, the liquidity has dried up to such an extent that trading volumes have been below Rs 1-crore mark on most of the days, even for companies having a market cap of over Rs 1,000 crore. And this in the week of contracts expiry, when volumes usually shoot up as traders either square up or carry forward their positions. 

What’s interesting is that total F&O turnover hasn’t declined as much as CM turnover. So it seems that index futures & options have gotten even more popular, perhaps driven by the boom in structured products.