Why you should not listen to Donald Trump: His views of Mumbai realty need a reality check

American real estate tycoon and celebrity Donald Trump may be bullish on India, but his views need to be taken with bags of salt.

He has promised to channel billions into India's luxury residential and hospitality spaces, including the Trump Tower in Mumbai, which is his second project here, but so far not a rupee of this is visible.

One of the highest paid TV personalities who collects a cool $3 million for every episode of his reality show 'The Apprentice", Trump is a master at marketing himself. That's it.

Trump is known to have made pots of money in real estate, but many of his companies have also filed for multiple bankruptcies since the 1990s. In fact, Trump's financial problems were time and again the highlight of tabloids back then. In 1991, one of Trump's major trophy assets, the The Taj Mahal Casino, re-emerged from bankruptcy only with Trump ceding 50 percent ownership to the original bondholders in exchange for lowered interest rates on the debt and more time to pay it off!

The only way Trump has managed to survive bankruptcy himself in all these years is by not getting personally involved in financing stuff. And in India too he has a similar plan.

Get this:Trump has entered into a licensing pact with Mumbai's largest builder Lodha for the Trump Tower in Mumbai, a luxury residential property in Lower Parel that will offer its residents exclusive services such as indoor jacuzzi tubs, world-class concierge services, a 24-hour resident manager, built-in TVs, seven-level security and other such lifestyle privileges. He has another project under development in Pune, which is also a licensing pact.

Under the licensing agreement, the Lodhas will pay Trump a fee running into several crores of rupees for the license to use his brand name for the project. In 2010, Trump had entered into a similar pact with Mumbai-based Rohan Lifescape for a 65-storey building at Chowpatty, which was later terminated.

Globally too Trump's real estate success has largely been licensing the Trump name to developers around the world for a fee. In the last couple of years he has licensed the name to resorts and residential properties in the Philippines, Turkey and Brazil, among other countries.

In other words,he is yet to make an equity investment in the country.

Financial Times quotes Trump as saying "I like coming into markets where it is good for an investor to buy (property) and do something special. Prices in Mumbai, in my opinion, are unbelievably low."

Either he does not know, or he is pretending not to know, that Mumbai's property is high cost because of artificial restrictions on land supplies by politicians and businessmen. Prices in Mumbai are artificially propped up to cater to the interests of "investors" who speculate in under-construction property. And as for low prices, that's a laugh. Mumbai is actually the sixteenth most expensive place in the world to own prime residential property with price tag of around Rs 57,000 per sq ft, shows data from real estate consultancy firm Knight Frank.

In fact the prices are so inflated and overstretched in the financial capital that sales have dropped despite the change in government at the centre.

Only flats that cost less than Rs 50 lakh are selling.Mumbai has an unsold inventory of 168 million sq ft, which means ready apartments alone will take 45 months to sell, a large time lag considering it should not take more than eight months to a year to sell ready inventory.

Moreover, the average prices have gone up in Greater Mumbai and Mumbai metropolitan region. In Greater Mumbai, the average price of a 2BHK flat is around Rs 2.30 crore against Rs 2.14 crore last year, shows data provided by Liases Foras, another real estate consultancy firm.

The Trump Project, on the other hand, prices flats between Rs 9-18 crore.Although the first show apartment is not yet ready and the building is only touted to be ready by 2018, Trump claims 100 units have already been sold. Another marketing gimmick perhaps to lure the super rich?

Lodha, Trump's real estate partner for the project, is known for its aggressive marketing and sales strategy. Last year it tried to lure investors by exploiting the phrase 'first-come-first-served' , and claimed that that it had received tremendous response for its Worli (south Mumbai) property called 'The Blue Moon." The company claimed Blue Moon was in Upper Worli (actually just five minutes away from the Elphinstone Rd Railway Station) and had garnered over 1,300 applications worth Rs 6,000 crore from prospective buyers. But given that Lodha is not a listed player, there is no way of verifying these numbers. However, some experts, speaking on condition of anonymity, suggested that some of the buyers may really be real estate brokers or agents who may have booked the flats in the hope of flipping them over for a profit later.

And while, Trump promised to make 'substantial investments' in India over the next three-four years, hedid not give any details of this investment plan.

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Updated Date: Aug 13, 2014 11:39:11 IST