Sunday, September 13, 2009

Can you wait till after Diwali 2010 to buy your house?

Last month, a friend of mine called up asking for my help in looking for a 1 BHK flat in Pune area. He is thinking of closing the deal by Diwali. I suggested him to wait for one more year, more specifically till Diwali 2o10.

In my opinion real estate market in Pune is a game of "who blinks first". Builders who are sitting on ready possession homes are still quoting the astronomical prices from last year (30L to 50L). Builders who are quoting around 25L for a 2 BHK are promising castles in the air (i.e. new projects launched now and will complete god knows when). Real estate nerds (and investors) like us think these projects and builders are sub prime and will crash anytime soon.

For a genuine home buyer who wants to buy a flat and stay in it, this is a dilemma.

This is not a purely financial decision. Buying a flat which is going to be your home is a great emotional high. It means security and stability, freedom from increasing rents, not having to search for a new flat to rent every 2-3 years.

On the other hand, no one likes to buy a flat for 35L and see its value drop to 25L in 2 years, even though they planned to stay in it for the rest of their lives!

So here is a question for the person who actually needs to buy a flat and settle down:

Does it make sense to wait for one more year and see where the real estate market goes in Diwali 2010, or is it better to go for a deal today if you can afford it?

34 comments:

Anonymous said...

I think it's better to wait. The prices are still unrealistic. I dont believe in the hysteria whipped up by some folks "buy now or be forever priced out". If that were to be the case what is the generation just graduating or graduating on a few years gonna do?

Anonymous said...

continued from above...

IT sector in many ways has been the leading the economic boom in India. When I started my career almost 10 years ago, 100%+ growth rate was the norm, promotions and onsite opportunities were plentiful. For the past few years, things have slowed down to a more realistic 15-20%, promotions have to be earned rather than being an entitlement, onsite openings are far and few.
So, my question is what is the future of these young engineers who have just started their careers vis-a-vis "Home Ownership"? The IT industry has grown manifold in 10 years but that "pie" is also being shared by a proportionally larger number of stakeholders.

Anonymous said...

Look at the Hitler video.

Also understand that in the US the bubble was from 2002 till about 2006. So in India one can expect it to last from 2006 till about 2010.

I am prepared to wait. Be patient and reap the rewards has always been the motto of all gr8 investors :)

Vik said...

Here are my 2 cents on this topic.
What is the income of the flat purchaser ?
What is his risk profile ? Will a 20% drop in prices give him a heart attack or put him behind house payments ?
Is the purchaser the end user ?
Once you answer these questions one can decide if buying makes sense or not ?
Everyone has a different risk profile so a decision to buy for person A will be different for person B.

As for a drop in prices, I think Pune is one of the better places in terms of prices, where a drop in prices will still not bankrupt you, assume you have a good income stream and good career prospects.

GK said...
This comment has been removed by the author.
GK said...

If another collapse like Lehman happens, then you can see a lull period and even a downward trend. But other wise the price seems to be firming up.

At the moment, we seems to have bottomed out. Was that an intermediate bottom?? difficult to predict.

PS: Even though the prices are firming up, i still see "availability" in completed and "to be completed in next 6 months" projects in Bangalore.

PPS: The provident wellworth city, the low cost apts from purvankara, is way way way out side the city. Heck it is not even bangalore.

Anonymous said...

GK,
All companies saved by US Fed/Treasury were in the same shoes as Lehman. And they are still not out of woods. Massive correction is bound to happen as all this recovery is a sham.

Wait an watch. What you never believed or believe is coming. Salaries would be more than halved and RE prices would by only 40% of their current values all over India in the next 2 years.

Anonymous said...

@Vik

Whether it is an Investor or the Speculator who is willing to pay the astronomical prices, the prices will not sustain. Had it not been the US programmes like PPIP & TALF, all the major US indices would have collapsed and the India stock market would have followed the suit. In spite of the massive stimulus programmes, the community banks are collapsing due to rising defaults in Real Estate (commercial & residential) loans. As we know the major home owners are "Underwater" which is affecting the businesses and the sectors managing backup-end office jobs i.e. Indian IT Companies. Rising unemployment, reduced wages & higher savings rate are already eating into the revenues of the companies. With the Alt A and Option ARM loan rates due to reset to higher, the consequence is clear. The bigger crisis is on the horizon and the day of reckoning is not far away.

Sincere request to genuine buyers - please be patient and don’t fall pray to the false propaganda for Real Estate brokers (media, IT Techies). The unholy nexus of Bankers, IT Techies (who have bought 2-3 flats during the boom period and feasting on the rents of the colleagues), and Brokers will not prosper indefinitely.

Anonymous said...

Advisable to go ahead and buy the flats.. Any delay is likely to cause further hike in prices...Not ready to move flats will be built some day.. a delay of 2-3 months is fine... still better returns than any other asset class..

Retired Old Man

Anonymous said...

Retired Old man:
It is time for you to die now as you are already retired. Do not give foolish advise to youngsters.

Bindas Bhai said...

I agree with Vik, Pune is far better placed then lot of other Cities. If IT picks up in another 3 Qtrs then it is anyones guess what will happen to Pune prices.

Keep a close tab on commercial properties across. If this segment picks up in 3 qtrs then be rest assured that RE will also go up. Assuming this segment does not pick up then friends let me assure you that there will be at least 40% correction in Mumbai.

I could be wrong but this is my reading. All the best!!

Bindas Bhai

Anonymous said...

50% upswimg prediction by BB, and now 40% correction prediction.

what are you smoking ? :D

shailesh said...

IT is dead, Long live IT.

Anonymous said...

I'm finally about to register a resale flat in Bangalore. I'm going to stay in it. The reasons why I'm buying at this time (in the order of priority):
i) I found a flat of my liking
ii) I'm sick of staying in rented apartments and house shiftings
iii) I'm not sure if the prices have bottomed out, but I'm not sure if it will go down either (and the news reports in the print media are not helping either).
iv) Pressure from family since owning a house is still a matter of prestige in India.
v) Low loan interest rates, as compared to the previous years.

-SK

Anonymous said...

@SK

There is a saying - a sucker is born every minute!

My dear buddy you got suckered. Look at all your reasons and rethink...shifting out of a rented house is not bad. You are saving money and not taking any risk..but shifting out of a house you had planned to stay all your life is a tragedy. I hope you do not have to face it.

If you are BB in disguise, upto your tricks on swaying market opinion, then I am relieved. At least someone will not suffer a tragedy. Buddy if you bought a house what are you doing here? you already made a commitment...coming here and declaring it..why?

Bindas Bhai said...

Hey guys hold on pls. don't mislead this forum, I never said RE will fall. Pls read properly what I have written.

Bindas Bhai

AlphaSmurf said...

Interesting links on India's Property Market. While Per capital Income in China is US$3180 which is more than 3X India's Per Capital; China's property rates in Shanghai on a relative basis lower than that of India's Mumbai City. Here is the link to prove...
http://www.globalpropertyguide.com/Asia/India/square-meter-prices

and World's Most Expensive Cities - EYE OPENING....
http://www.globalpropertyguide.com/most-expensive-cities

Rental Yields are one of the lowest in the World.

Given all this if this ain't a bubble...what is? But thanks to QIP and FII's bailing out the greedy developers...this status not going to change in a hurry. Therefore we will have blokes like Bindass Bhai thumping their chest...whereas the real hardworking middle class working families will be denied a respectful living in the City. How unfortunate!

Vik said...

SK :Please give some more details about your purchase.

shailesh said...


Getting 'real' this Padva


The realty market had almost frozen in the past few months and that led some builders to slash their prices to some extent, thereby propelling buying activity. "The real estate market has definitely seen a lowering of prices in the last few months. People are buying ready possession flats now and are no longer that interested in projects that are under construction," says Bharat Malik, a realtor from the suburbs.

"Real estate prices as well as housing loan interest rates have seen a correction now and have reached logically reasonable levels, thereby, prompting buyers to invest," says G H Puri, member, Estate Agents Association Of India. He believes that the public sentiment now is to rebuild the economy and that is evident from the good amount of enquiries and site visits from prospective buyers.

"I am sure people who wish to have a good bargain, will not mis the best of the deals this season before the prices zoom up after the good sale during Padva," he adds.

"There are two factors that lead people to invest in property on Padva. The first being tradition and the other it is auspicious. Padva is traditionally associated with buying property or moving," says Prakash Sharma. He adds, "Contrary to popular belief, demand for property hasn't dried up but there has only been a change in sentiments. People have realised that the worst is behind us and are ready to invest in new property.

"This Gudi Padva is definitely not like the previous year's. There has definitely been a change as the market has undergone a turmoil that it had not witnessed before."Buying property has always been a major part of the auspicious festival of Padva. Keeping this in mind, builders introduce new schemes and launch new projects that have always paid off.

Anonymous said...

BB:

YOU THINK YOU ARE BULLISH ABOUT RE AND MANY BLOGGERS HERE THINK YOU ARE THE MOST FOOLISH

You are one greedy bastard giving improper advice to naive people.

Anonymous said...

I recently made a job-hunting
trip from the US to bangalore and my future boss remarked that as soon as
I sign up on the job, I should buy a home as RE prices are at a very low point.
This is contradictory to the advice
I have received from this forum.

My question: Is the bangalore RE market any different from mumbai, pune, ncr etc? should i wait or should i buy?

Anonymous said...

Anon above:

Masses in India are still in denial mode that RE prices will ever fall. Since you have seen US markets also, go back 3-4 years in US and people used to say the same things what you see in India. People in US could never see houses priced at 500-600K to ever sell at 200-250K. Well, that sure has happened in the US and more fall is coming.

Similarly, Indians still need time to digest the realty that RE is not really REAL.

I would advise you to wait for at least 2 years. If you have cash, put it in a FD in India and interest rates in India on FDs are a lot higher than US.

Btw, a lot of layoffs are coming to India in the next 6 months. So, be careful that you really want to move back to India. Even it is hard to find a job a in US. Either India or US, buy only distressed properties after low balling the offers by 50% at least.

Vik said...

Anon at 2:31
Location,income, price, downpayment, interest rate,Loan Tenure (LIPDINT) needs to be provided so that a good educated judgement be made for your case

Anonymous said...

Thanks Vik and Anon@3:46, really value your advice.

We are looking at NW Bangalore, ie, one of the established areas like Malleshwaram, Sanjaynagar or RMV. Will have a 2 income family with about 2.5 lac/mo (pre-tax). One job will be very secure (Govt). Planning to finance about 50% with the rest as down payment from US savings. Current prices for 3 BHK (1600 sq ft) are about 80-100 lacs, which we find a little over the top, inspite of the fact that we are going back from the US.

We are looking at a 20 year loan @9-10%. Vik, please let me know if you need more information. Will wait for your advice, and from others on the forum.

r2i2010

Anonymous said...

Hi Vik and Anon:

I don't agree with you that major layoffs are coming in India in next 6 months.

In fact hiring has started and I have been asked to hire 1100 people for a major account.

Though I agree that salaries being offered have come down drastically. All the hiring is being done at 20-30% less salaries than what were being offered earlier. Same is the case with hikes for existing employees. Around 10% of the employees only have been given hikes of 2-5%.

Definitely folks with home loans are feeling great pain but not defaulting on their loans. Though they are cutting down on their lifestyle. Eg. %age of our employees buying sedans on company lease have come down by 95% when compared to 2007. Some couples have deferred the plans to start their family. Overall scenario is bad but improving at a slow pace.

dear BB:

Stop self aggrandizement by posting anonymopus posts in the garb of retired old man. This is a cheap form of boosting confidence and massaging self-ego.

Vik said...

80 to 100L is definitely high in Bangalore. The bigger question is if you lose your job, will you be able to make the house payments inspite of paying 50L as downpayment. If you look at the calculation for interest payments you will end up paying quite a bit in the first 5 years. Why not live in the US for few more years and fund that purchase by more than 70%. In my personal opinion, having a paid up house in India is by far the most important aspect to a successful return to India.

Vik said...

I too think that layoffs are done with. In India performance linked payments get cut and that drops the company cost by 40%. Indian IT companies dont have high healthcare costs, pension plans and rely on huge supply of cheap fresh graduates. Added to that big companies have STP/SEZ tax benefits. The playing field is very uneven when compared to US companies. They dont need to layoff people en-masse as the Indian IT employee is 5-10 times cheaper then the US employee. Again this does not apply to experienced professionals in US based product companies like Cisco but more to do with IT services companies like Infosys/Wipro/TCS which carry out routine IT tasks and need huge labor pool to keep systems running

Anonymous said...

Pune property prices is a big bubble , not only pune every where in India is and ready to burst, this bail out by govt world wide just helped the vested interest. its better to wait and only buy when the rates are atleast 25 - 30 % down . pune city outskirts @ 1600 - 1800 per sq ft.

however if it hovers or moves up, then the whole economy is doomed. as on today last years it graduate are without job, and a new frsh batch has passed out this year, few will get jobs , but salary will be compomised. this is true for all sectors .

dont get carried away by media report of improvement , there is no recovery.

Anonymous said...

Well, Indian Stock Exchange is now back in bull market, Actually, it never went in bear market because for India nothing much has changed since 2007.

There is not much down sides in the property market because prices have already corrected in area's where there was large supply of properties and prices are still holding their prices in area's where there is shortage of supply.

Investors who bought flats at high prices in 2007 are now stuck, the people who was able to hold will not sell houses at lower prices.

I don't see any immediate significant upside in property prices but do not expect any down side either. Buy if you have need and have finance available, don't wait till next Diwali. Enjoy this diwali in your new home, so what even if you paid 10-15% extra? It will be your own house.

jay

Anonymous said...

A 1bhk in the suburbs(mumbai) in 2006 was around 13L. When i had inquired a few months back it was 35L. Builders are saying it has fallen from 40L. If i go around searching for new property, all i get to hear is 2bhk-3bhk. the sq. ft has increased from 600 to 900/1000. So @6k sqft it still works to more than 55-60L.
I wonder why the sudden increase in area and shortage of 1bhk with min sq ft.

Anonymous said...

I am from Edison, NJ. I am Gujarati from Ahmedabad. In 2005 I purchased 2 houses in Bopal area cash (Saving from USA) for Rs 45 lacks each. They went as high as Rs 105 lacks each in 2008, today they are selling for Rs 90 lacks each. Some brokers or relatives in India are asking me to sell them and convert the R/E into cash savings. They too think that like in USA, Indian real estate prices are going to fall sarply in 2010-2011 as they are over valued compared to Rs 30000 per capital income in India. And many NRI might sell their property in order to save their falling commercial property values in USA.

What should I do now? Sale or wait for a while?

Thanks
- Vindo Patel

toghguy said...

Hi
I have negotiated a price of 2800 with reseller in prestige kensington ...there are total 400 flats and total occupancy hardly 40.. most flats belong to investors.. many say its difficult to find tenants in this apartments.. builder is still quoting around Rs. 3500 onwards.. inventory is still quite large.. (there one more apartment project where there are another 480 odd flats are there and not many occupants also Tata aquilla for astronomically high price), I am not sure if I can buy prestige kensington at prevailing price as many bloggers here seem to suggest that prices are likely to go down in 2011.Please suggest the rt strategy.. given the fact that the price are already down.. my architect

toghguy said...

Hi
I have negotiated a price of 2800 with reseller in prestige kensington ...there are total 400 flats and total occupancy hardly 40.. most flats belong to investors.. many say its difficult to find tenants in this apartments.. builder is still quoting around Rs. 3500 onwards.. inventory is still quite large.. (there one more apartment project where there are another 480 odd flats are there and not many occupants also Tata aquilla for astronomically high price), I am not sure if I can buy prestige kensington at prevailing price as many bloggers here seem to suggest that prices are likely to go down in 2011.

rajni sharma said...
This comment has been removed by the author.