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.