Wednesday, May 05, 2010

Mint asks a very pertinent question. Have Mumbai prices risen to fast ?

Far flung suburbs are quoting at 10,000 per sq ft. I'm not taking about Andheri but Kandivili and Borivili. 95% of Mumbaikars cannot afford these prices. What is the point of living in such a city ? Ofcourse we won't see such questions asked in the Toilet paper of India which is keep spreading all bogus news about real estate developments which have no consequence on the Mumbaikar. The city has gone to the dogs but nobody is willing to bell the cat. All these meaningless statistical analysis by the RBI economists ignores the biggest factor of black money in Mumbai real estate. Builders quote 50% in black money. The RBI is like the Roman emperor Nero who played the fiddle when Rome burned. All these bogus facts about the island city are meaningless when we have sprawls all the way upto Panvel and Virar. I believe the builders are keeping apartment prices high to keep their stock prices high. They can then sell the stock to gullible investors by planting stories in the news media. Also they can sell their apts to gullible NRIs just like what happened in Dubai.

The stock response to a question on housing prices in Mumbai is that they have become unaffordable. The general feeling is that they have risen too far, too fast. Fingers are pointed to the vast number of unsold apartments and everybody wonders how builders can afford to keep these flats vacant for months. But have real estate prices in Mumbai really gone up so dramatically? Mint reports


The Reserve Bank of India’s (RBI) report on macroeconomic and monetary developments has, in its chapter on financial markets, a chart on the house price index in Mumbai. The chart gives the index weighted by the value of transactions and the number of transactions. It shows that the Mumbai house price index reached a peak of around 230 or so in the second quarter of 2008 before starting to plunge. The index then fell to a low of slightly above 150 in the fourth quarter of 2008 before starting to climb again. By the second quarter of 2009, it had exceeded its pre-crisis highs and by the fourth quarter of 2009, it had gone a bit higher than 250. The chart has data from the second quarter of 2003, when the value of the index was 100. Putting it another way, if RBI’s index for Mumbai is right, then it means property prices in the city have, on average, gone up by a bit more than 2.5 times between 2003 and the end of 2009. But the gross domestic product (GDP) at factor cost at current prices has, between 2003-04 and 2009-10, gone up 2.3 times. And if India’s GDP has gone up by 2.3 times over the period, GDP of Mumbai city must have increased by a far larger factor. Add to that Mumbai’s island location, which makes expansion difficult and the rise in real estate prices does not seem too steep.

24 comments:

Anonymous said...

I guess a lot of people refuse to accept that most of real estate in Mumbai (99%) is out of reach of normal people. In Borivali (W) in my society people demand 42lacs for a 1BHK (540sq ft.). The building is 27 years old and has no lift,garden,pool,gym etc. I find lot of people in this city who earn 30-40K/month and are in their early 30's. I dont think any of these people can even buy a 1BHK in the city leave alone the 2-3-4 LUXURIOUS homes being built by most developers. I think expecting 10K for Borivali, Kandivali, Goregaon is a sign that real estate is over valued as most of these places are over 20Kms from the CBD (Nariman) and almost 13Kms from BKC. Such high rates will cause drop in Sales volumes for sure.

Anonymous said...

I think BB has proven right. Congrats!!! BB

Anonymous said...

Vik and friends (real buyers),
very interesting, relevant article which explains the fake boom in RE. This is recently published in Marathi daily Loksatta. Obviously, these kind of true stories which affects the common man is not possible in any of group of Toilet papers. I know many non marathi people wouldn't understand but try to get the core message from any of the Marathi friends -

http://www.loksatta.com/index.php?option=com_content&view=article&id=66736:2010-05-01-19-11-21&catid=127:2009-08-06-07-25-02&Itemid=139

I'm wondering how come this only daily (famous Marathi daily in Mumbai) is been out of reach of RE mafia / couldn't manage.

- Anil

Vik said...

Very good article in the Loksatta. The writer brings out a point that home loans repayment period has be increased to the age of 75 years of the individual so even if someone is 55 he can get a loan for 20 years even though he might not be earning for the larger portion of his life.

This is to allow the builders to cash in on the retirement savings of the individuals.

He started by mentioning how Prabhadevi rates were in the vicinity of 5000-6000 in 2006 and now are at 20,000.

He said there are 5,00,00 flats ready in Mumbai and the same number under construction.

UPA government has issued bogus statements like 9% growth when the market was tanking in 2008.

Needless to say government is hand in glove to keep prices high. The buyers need to be careful and buy only if they can make payments.

You don't want to deal with the indian loan collectors ever.

Anonymous said...

Dow today fell 1000 points and then recovered by 650 points.

I think another dip is coming. We may see Dow touch 8000 soon.

Sensex will go back to 10K. All growth story is false. Western countries had been banking on emerging markets and emerging markets on stimulus and steroids.

Looks very gloomy. What if India defaults like Greece, there would be blood on the streets in India 3 folds than Greece. And RE in India would tank by 80%.

Anonymous said...

@Anon 2.25

The problem in India is 'Black Money' and of-late it has reached astronomical proportion. Just today, I read that a middle level government official was caught with 20 million cash in his house. This must be the tip of the iceberg. All this cash goes into real estate. The whole country is corrupt.

I left India 7 years back and have been living in US. and these 7 years , I've been having a hard but wonderful life. No greasing hands, no saluting the bosses, plenty of recreation time and clean atmosphere. I wanted to buy a apartment for my parents in Mumbai, but things are far beyond my reach. Now that I've my green card , i'll sponsor my parents and forget about Mumbai forever. Let India and Mumbay, rot in hell

Anonymous said...

Anon above:

Most of the excess black money would disappear when RE crashes. People who have say invested their black money in a house, e.g someone had 70 lacs of stolen money and he invested to pay it as black to buy a 1 crore house and took a loan of 30 lacs. As soon as the price of this house is around 50%, the first investor has lost 80% all his stolen money, which means black money has evaporated.

A lot of money in India has been created fictitiously due to high RE. Once the prices start falling, you'll see the black money component reducing with a greater speed. If the prices fall by 50%, there would be very less liquidity in India.

Btw, both CHina and India are waiting for a massive crash sometime this year. That would take away 60% of the black money component.

Anonymous said...

The RE bubble has created more black money which needs to be parked and it further inflates the bubble.

Faber joins hedge fund manager Jim Chanos and Harvard University’s Kenneth Rogoff in warning of a crash in China.

China is “on a treadmill to hell” because it’s hooked on property development for driving growth, Chanos said in an interview last month. As much as 60 percent of the country’s gross domestic product relies on construction, he said


SO, a crash would fix everything. All these high flying fools would be back to reality in India, China and even Australia and HK.

A crash has to happen. The Govt. cannot prevent it forever. It would have happened 2 years ago. But Govts. kept on printing money and raising money by bonds etc. That party is over due to Greek crisis as no more easy money from bond sales. India's debt to GDP ratio is 85%. It can be downgraded to negative or Junk status in the next 6 months if India doesn't stop borrowing. Inflation is another killer Issue, which means interest rates may rise by 300 basis points by year end.

Now, India has to borrow to pay for the salary hikes they did and to pay for all the new projects. They cannot cut salary otherwise people would come to the streets like Greece. So they would stop spending in infrastructure, which means less growth.

Anonymous said...

Sensex to be down 3%, around 500 points today.

Anonymous said...

Anon above:
Not 500, but around 300 or so.

Anonymous said...

Shouldn’t the Indian stock market have a similar decline like China. They too have foaming bubbles.

http://stockcharts.com/charts/gallery.html?s=%24bse Indian stock market
http://stockcharts.com/charts/gallery.html?s=%24ssec chinese market

Anonymous said...

I live in Powai. Between June 2009 and March 2010, the prices shot up to the tune of 50%. Not only sale price but even rental. The worst part is , the current prices are higher by 10-15% to the peak pricing in 2007/8. To the tune of almost ridiculous. I had an opportunity to buy an apartment for 28 lacs not very long ago. The same flat , two years older is quoted at 48 lacs. I am very glad I did not buy it for I know for sure the crash is just round the corner.

More than half the newly constructed apartments are unsold. And the builder is adamantly holding it tight.

So, people are fast moving out of these areas to less crammed and more realistic places.

I look at property portals and wonder - which fool would spend a crore (no joking ) for a measley 650 sqft flat ? Must be some one who has lot of underhand money in stock. Thats like frigid US$200000 for which one can buy an apartment in New York. lol.

Still worse is the collaterals. From groceries through vegetables to services, are so expensive because the vendors put the burden on the consumer. So the same kilo onions cost twice as much as you buy outside the area.

Rahul Bajaj said...

There is no doubt that the RE prices have reached ridiculous stage and everyone here or elsewhere is predicting a crash and the investors who have bought at these prices, to bite dust. However, optimistic I may be, I'd exercise caution as the predicted downfall may not happen at all for the following reasons.
1. People need parking place for their ill gotten wealth and stashing it in foreign lands has become risky as well as dangerous in this post 9/11 era
2. Massive corruption and this is likely to continue unabated
3. Those who are corrupt are not afraid getting caught as they very well know that they can easily buy their way out.

4. Those who are drawing a comparison with china are forgetting that china executes corrupt people if caught whereas in India we admire them for their wealth

I can continue and continue

This blog has been very informative. As I mentioned earlier, don't expect miracles like crash may happen and everyone can buy their dream home.

Anonymous said...

Rahul,
Housing getting back to normal is not a miracle waiting to happen but reality that Will happen. It can be delayed by intervention but cannot be avoided.

As far as black money is concerned, we see a lot of it due to the bubble. The more the bubble inflates, the more black money is being created and it further goes into more RE purchases and then more is created because of black money component in all transactions that is just increasing.

Once, the sentiment goes down, people will start selling fast which will definitely lower the RE prices by close to 50% in a year or so. All the black money would be evaporated. It will be lost the way it was earned.

One of the reason India has been doing good is because the west wanted it to. US and EU are down, only China, India, Aussie and razil are driving growth. All these countries were told to lower interest rates at lowest levels and provide stimulus to overinflate growth in their countries, so that the western countries could profit from their stock markets and economies. This cannot go on forever as inflation has kiceked in big time. Moreover, borrowing is also going to get expensive.

Anonymous said...

Very interesting but not convincing. What makes one think that people have bought homes for investment purposes. Maybe few, but vast majority use them as their residences. They are not likely to sell just because the price goes down or up. In a city like Mumbai, maybe 3% are homes are bought by investors and any crash or bubble burst if you prefer to call it that, is unlikely to cause any change in the situation. The only effect, I guess, would be the delaying the existing projects and bankruptcy of small time builders/speculators

Anonymous said...

Anon above:
The crash would be a self fulfilling prophecy. Once the prices drop by say 5-10%,people will start panicking and would put their investments on sale. Since many people you are saying are residences makes it all the more easy for defaults as they would all be carrying substantial loans.

Once the prices drop say 15% or more, it will cause more panic and people would start handing over the properties to banks. Which would further lower the prices as the banks would sell them cheaper, cheap enough to cover their losses. Once the bank holding properties increase, they will start selling them at fire sale prices thereby causing the whole thing to go down sustantially.

Now during all this, banks would become more cautious and would tigthen loans. Easy loans would e gone whoch would further lower the proces. There is already such a huge inventory and all the defaults would add up to the inventory. I think India has a supply of flats for the next 10 years as there has been massive overbuilding.

Just wait and watch the fun. With Sensex is going back to 10K. I don't think the IT companies would really offer raises as they promised. In fact there could be a round of layoffs if EU tanks and Sensex goes down. WHich means more people cannot make loan payments, which means more defaults and more inventory.

No matter how you look it, the crash is inevitable. It is just a matter of "When"and not "If". The RE crash would be slow and it could take 3-4 years easily to bottom out whereas Sensex could tank in the next 4-6 months to 10K.

Anonymous said...

Markets all over the world are volatile again. If there is a double dip (recession again), the whole world economy will get screwed for years and years.I hope market doesn't decline that much and many of us can keep our jobs and houses.

I think if Dow nears 9500 level, even housing will tank all over the world as credit would become really tight. Many commercial projects would be suspended. Residential housing has to fall in either case but commercial may take a big hit if there is a dip.
Which means less jobs, less spending and more pain.

Jai Ho! Keep the game going on.

shailesh said...

Mumbai fourth in list of world's most expensive office markets

NEW DELHI: In a clear sign of revival in commercial real estate prices, Mumbai has moved up three positions to fourth in the league of the world's most expensive office markets, just behind London, Hong Kong and Tokyo, according to a new survey.

shailesh said...

Who do you trust. Now the opposite article,

One lakh sq ft office space vacant in Nariman Point

Nariman Point in south Mumbai - once considered as the most sought-after business area of India's financial capital housing thousands of financial services firms - has very few takers now with nearly one lakh square feet of office spaces lying vacant.

Anonymous said...

One lakh sq. feet is nothing. India is rich now and people have a lot of money. We shouldn't worry about all this. India is shining and a lot od this would be taken by foreign investors. Just a mtter of time. These foreign fools will pay anything for the shit in Mumbai. Let us all get busy in counting our money.

DhImAn said...

India is rich now and people have a lot of money. We shouldn't worry about all this.

Haaahahahahahahahahahahahahah! Hooooohoohoohoohooohooohooo! Hohohohohohohohoh!

That had to be the funniest thing I've heard in recent memory. Wow. I know some commentators on this blog are retarded, but this tops the cake.

Moron, just walk out at 3 AM on any street in Mumbai. See the hordes of people sleeping on the street?

Yeah, those guys are rich! Rich I say, rich! It's just too hot in their fancy 1 crore Rupee apartments, so they sleep on the street to keep cool.

You know of the story of the idiot who borrowed and thought that he was rich? No? Well, that's probably why you think India is rich.

India is shining and a lot od this would be taken by foreign investors. Just a mtter of time.

Yes, sure - after the crash, they'll clean up because Indians, like the Greeks will be under austerity measures.

These foreign fools will pay anything for the shit in Mumbai. Let us all get busy in counting our money.

You are not only retarded, you are positively dangerous. You belong to the same breed of traitors that sold Bharat to the East India Company some time ago. That you can consider even thinking of selling of sovereign Indian land and property to foreigners chills my blood.

Say, your mother is old and ugly - she can be of no possible use to you, except be a burden to you in her old age. I have some money - would you consider selling her to me?

No, eh? I wasn't talking of your biological mother, moron. I was talking about your motherland. You seem more than willing to sell that mother at fire sale prices, don't you.

(Apologies to everyone who has read my comments in the past. I don't usually lose my cool and abuse people. This retard says things that should make every red blooded Indian amongst us hopping mad.)

Anonymous said...

Dear All,

If you conduct a audit of empty flats in Mumbai which are ready or under construction you will be shocked. I undertook a random sample survey across the city (including slums) it ranges from 20% to 70%. As the Money from Politicians is involved all PSU Banks are supporting this.

We are killing the city of Mumbai by this process. Old buildings collapse killing innocent tenants. etc.

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