Thursday, December 22, 2005

Bangalore Real estate investors discounting profits

Saw an add on one the mailing lists.. The rats are bailing one at a time.


Brigade Metropolis - 2BHK for Sale (Savings of 5L)

Any one interested in buying 2BHK on top floors at Brigade Metroplois (2BHK).

Rentals lukewarm - Times of India

Sign of things to come ? If somone is getting a 4% return and paying 8% interest on the loan. I think this calls for a perfect storm in the times to come.

Property hot, but rentals lukewarm

By Sujit John/TNN

Bangalore: If you are investing in a residential property in Bangalore, make sure your rental expectations are realistic. For all too frequently, they are not.
Rentals, though rising, have not done so anywhere close to the rate property prices have. Consequently, residential rental returns which were in the range of 6-7% a few years ago, are no more than about 4% now.
There are many who have invested over Rs 50 lakh in an apartment and got Rs 18,000 a month as rent, a return of about 4%. There are others with inflated expectations who have been endlessly searching for tenants willing to pay the rent they are hoping for — in the process keeping their apartments locked up for months.
Kapil Phadke is buying an apartment off the Airport Road that will cost him Rs 46 lakh. It’s a second sale. Three years ago, the same apartment was bought from the builder at about Rs 19 lakh and fetched the buyer Rs 10,000 a month as rent, a return of nearly 6.5%. Phadke today will not get a rent of more than Rs 15,000 a month, a return of 3.9% on his Rs 46 lakh investment. The rent will not even be enough to cover the interest payment on the loan he takes. Still, if Phadke is buying the flat, it is because he thinks property price appreciation will make the deal attractive.
One reason for rentals rising much more slowly than property prices is that the number of flats bought for investment purpose has risen dramatically, creating a lot of options for tenants. Besides, as Manisha Grover, associate director in property consultancy Jones Lang LaSalle India says, rent payment capacity depends on people’s disposable incomes. “And since remuneration is growing at about 11-12%, rents will also grow at roughly this pace,” she says.
Difficulties in finding family tenants willing to pay reasonable rents is now compelling many to hand over their properties to service apartment operators. The opportunity in service apartments is still growing strongly. A spokesperson of Indus Inns, a service apartment operator, says hotel rooms in Bangalore remain too few and expensive, even as business travel and short-term stay requirements is rising fast. So if your next door flat has turned into a service apartment, you know why.

Bangalore : Investors or Bag holders

Recently I have been running into bunch of people who have purchased 3-4 flats in Banglaore for real estate investment and who are interested to sell.

One guy I met had over 2 crores of property. He needs to pay the 10% VAT(approx 20L) (thanks to the FM) since the purchase was done before april 05, and is now desperate to sell the apartments. Another guy I met had over 80L in houses. and surprisingly the builders havnt sold out too and these guys are trying to sell (time for a perfect storm)

All this thanks to Craigslist or Sulekha so I havn't even probed the real estate agents ?

If these guys use the realtors, they have to part with another 1-2%. If they have a 20% appreciation over 1 year the effective return they have is 20 -10 - 2% = 8%.,.Fixed deposits and stock mutual funds can yield better.. How stupid can these guys be ?

how many of these rats are trying to bail ship is anybody's guess.

I think this is the sign that the market is going to pause and turn down.. Lots of availability on Sarjapur road, rates havn't moved up and more property coming into the market.

Saturday, December 10, 2005

3 bed-room Bangalore rental @ $ 2750/month

On craigslist I recently I came across an advt for rental property in Bangalore for 110 k Rs/month with an 11 month deposit plus 1 month brokerage. The furnished apartment was in the Koramangala area and supposed to be premium property.

On a rough calculation basis for 10 month deposit 11L for 11 month lease @ fixed income of 6% interest will yield approx 60k/year. The brokerage which is 1 months rent equals another 110k

The rent payable by the renter would be 121L + 60k + 110k = 138L/11 month = 1.25L/month which is approximately $2750/month. This surely is comparable to the bay area housing.

Now thinking about the renter, is he doped or just plain stupid ?

Friday, December 09, 2005

Asset Bubble or not ?

As the Indian economy grew by 8% as stated by the finance minster(12/9/2005), the sensex hit an all time high of 9057 and housing prices have continued to skyrocket in major metro areas.

One of the worrisome aspects of this growth is that low interest rates have helped companies in BIFR(chapter 11 for India) to come back with healthy balance sheets specifically due to debt-refinancing. (18% to 11%). The productivity growth or job growth is not wholly responsible for the growth. Also many of these restructured companies might pay themselves dividends or buy back shares thereby increasing the wealth of the directors, and owners and thus balloning the stock market beyond fundamental basis.

The white collar worker has to deal with the consequences of this semi-illusionary growth in the form of increasing property prices (10-20% year-over-year) and is borrowing heavily thanks to low interest rates.

As property prices push higher, the risk of default of these small apt buyers increases as global interest rates rise, energy prices push higher , inflation increases and the rupee devalues as the external debt mounts rapidly

Most Indians in the market for a apartment now have never experienced a downturn in the economy so they might find themselves highly shafted if they over-leverage themselves on the loans as well as the floating interest rates.

Unfortunately unlike the developed west , India has no reliable source of data available for real estate prices and transactions and most prices are rigged by a cartel of builders. I'm also skeptical of the media in reporting the truth since they too dont have any reliable data to go from and finally real estate agents, the less said about them the better.

This blog attempts to understand area development and price movements and if people contribute uncover hidden unsold inventory. I'll post information about Mumbai/Pune/Bangalore over which I can get anecdotal evidence or as I browse the news papers and talk to real-estate agents and builders. All articles and comments are welcome. I'll be the moderator of the comments so that the spammers dont take over.

This blog is inspired from a similar blog which is now a reliable source of data for various US housing markets.