Monday, October 18, 2010

Pay 10% of the flat value now and remaining 90% on possession

Unreal estate…Manic buying before a likely panic collapse

The 10:90 schemes have got such a good response. Buyers of such real estate projects have now become investors or rather traders. They are paying 10% upfront and buying a call option. If prices collapse, they will have to simply write-off the 10% they invested. We have heard enough that derivatives are weapons of mass destruction. These weapons appear to have entered the real estate now. Is it a prelude to a crash?

From the builder’s perspective, the scheme works because he gets potential buyers into the system. The supply which is coming in central Mumbai is huge, just look around the Parel landscape and you will get an idea of the number of buildings that will come up in the coming years. Kamala Mills, where our office is located, is in the epicenter; the world’s tallest tower is coming up on one side and world’s greenest tower launched by DLF is on the other. There will be about 13,000 apartments which could cost anything upwards of Rs4 crore each coming up in the central Mumbai area. To put it in perspective, in the last five years less than 6,000 apartments of somewhat similar quality have been sold. So we are talking about 21 pricey flats being sold a week over the next four years, which I think is too ambitious. Informed people tracking the real estate market say property prices overall will have to cool from these levels.

If at all prices remain high it would be due to failure by some builders to deliver their projects on time, which would reduce the supply in these areas. If all the supply materializes, then some builders will be forced to cut down their amenities and luxuries and make the prices more affordable to sell their flats.

67 comments:

Desi Batman said...

Just like - Heads I win tails you lose.
In any case builder gets his overpriced RE money. NICE!

Is this scheme legal?

shailesh said...

Mumbai magnates alone cannot make India

On Monday, I was half an hour late for my first appointment with a series of Mumbai billionaires. Sucked into the quicksand of the city’s traffic, it took more than an hour to lurch the few miles to the offices of Anil Agarwal, the rough-tongued entrepreneur who built Vedanta from a scrap-metal business into a London-listed mining giant.

I need not have taken this long. My driver, evidently used to a life of rupee-pinching, had plunged into the traffic to avoid paying a Rs50 toll on the new Sea Link bridge, a vision in steel rising from the bustle and grime of India’s Maximum City. For the want of roughly $1, I missed most of my allotted time with a man worth more than $6bn.

The story tells you much about India. Naturally, it underlines the cavernous disparities of wealth in a country where paupers rub shoulders with the super-rich. Less obviously, it is an illustration of what Anand Mahindra, vice-chairman of the twice-eponymous Mahindra & Mahindra conglomerate, calls India’s “islands of excellence”. These are the parts of the country – physical and institutional – that function at the highest levels, surrounded as they are, by the lapping waters of chaos.

shailesh said...

In the pipeline: Trains from Panvel to Raigad

Soon, you will be able to take a suburban local train beyond Panvel in Navi Mumbai to Karjat and Uran in the neighbouring Raigad district. The Mumbai Rail Vikas Corporation (MRVC) has proposed to include a 27.6-km line from Panvel to Karjat and a 26.9-km line from Panvel to Uran under the third
phase of the Mumbai Urban Transport Project (MUTP). This will boost real estate and industrial development in the Panvel-Uran-Karjat triangle. With the state government planning a new airport near Panvel, the extension of suburban trains will provide the area with a much-needed mass transport system.

shailesh said...

A group of its residents on Wednesday staged a dharna outside the office of the building developer, Housing Development and Infrastructure Ltd (HDIL), for not providing amenities such as car parking and garden as promised at the time of sale.

The residents’ ire was more because despite the developer’s assurances, the building is yet to get the completion and occupation certificates from civic authorities. The civic authorities have not granted approval as 11 floors of the building were constructed without permission.

===

Isnt there something wrong here. Buyers are complaining about amenities but ignoring the simple fact that half of the building was built without permissions !!!

shailesh said...

Does 10:90 offer mean property buyer is king again? Not really

South Mumbai these days is dotted with large hoardings displaying what seems to be an unbelievably good housing offer: pay 10% of the flat value now, and the rest on possession three or four years later.

Put simply, it means the buyer gets to enjoy the fruits of value appreciation, without really paying for it. Does this indicate a shift towards a buyer’s market? A closer look shows that though the customer may stand to gain, it is the developer who is laughing his way to the banks.

“This rate of interest is ostensibly much lower at say 8 to 10%, than the 15-18% the developer would have paid if he had sought funds in the capital market. Hence, it is a win-win situation for the developer, as not only
he sells the flats quickly, he also constructs at a cheaper rate,” said an analyst.

As no details are available on the 10:90 schemes floated by Indiabulls and Neptune, analysts presume the scheme would have been structured on similar lines as that of Nahar.

“The advertisements issued by leading developers have two compulsory clauses — on event of cancelling the booking, a buyer stands to forfeit the entire booking sum, a huge amount as flats cost not less than Rs4 crore or Rs22,000 a sq ft,” said the head of a global real estate agency.

“Secondly, the purchaser has to pay Rs2,500 per sq ft for the interiors, a rate fixed on the super-built area. The clauses end up pinching the buyer more than he would have bargained for,” the consultant added.

shailesh said...

Forest land imbroglio: Citizens left 'homeless'

MUMBAI: Five years after they put their life savings to book flats in Runwal Infinity, a multi-wing 27-storeyed building on Mulund's LBS Marg, the over 40-odd families are now staring at the prospect of their bookings being cancelled. The land which houses the structure was declared as private forest land by the state government. With a final decision on the land's title hanging in balance-the matter is being heard in the Supreme Court-no construction has taken place on the site after a stop-work notice was issued to the project on May 18, 2006.

===

I was about to give down payment in this project in 2005. Lucky me, I decided against it last minute. Thank god. After this, I am convinced on not buying anything in under construction. When I buy, it will be ready possession with NOC approved by town....

shailesh said...

What a million dirhams will buy you in Dubai

1 million Dubai Dirham is same as 1.2 Crore Rupees.

You are talking about prime properties in Dubai, and 1.2 crore now seems like 2 bhk in far flung Kandivali !!!! Well Its India Shining I guess...

shailesh said...

Seems like exit party...

PE Players In Realty SPVs See Busy Exit Season

Desi Batman said...

The residents’ ire was more because despite the developer’s assurances, the building is yet to get the completion and occupation certificates from civic authorities. The civic authorities have not granted approval as 11 floors of the building were constructed without permission.


MUMBAI: Five years after they put their life savings to book flats in Runwal Infinity, a multi-wing 27-storeyed building on Mulund's LBS Marg, the over 40-odd families are now staring at the prospect of their bookings being cancelled. The land which houses the structure was declared as private forest land by the state government. With a final decision on the land's title hanging in balance-the matter is being heard in the Supreme Court-no construction has taken place on the site after a stop-work notice was issued to the project on May 18, 2006.


Wow, land was bought, prepared, building constructed, loans granted, flats sold, flats resold (may be) and now we know main approval was pending/ was not granted. WTF!

What is point? will this building be bulldozed? if so, will be again rebuilt by another builder! Crap. I think at the most there will be slap on the wrist penalty fees of about 5 lakhs.

What is "private forest land by the state government". Forest land is public property. How are they going to compensate public?

I love India.

shailesh said...

Desi Batman: I had first hand experience with this builder and this project. The negotiations were one of the worst. The claims that were made by the builder were outrageous. Just behind the land, there was a Tower by Power company. They claimed due to their high level connections with politicians, they will get that moved in no time. On 24 story tower where there was no foundation even laid out, they said 75% of flats were sold out.

What was available was either on very low floors (1, 2, 3) or high floors (above 17 onward). We decided on higher floor, and were ready to give deposit. But finally we decided against it. Thank God !!!

Desi Batman said...

Shailesh:

Do you trust infrastructure in India? I feel lucky to have electric and water supply.

I like to stay on 1st or 2nd floor. Easy access to entry and exit, no need for elevator, water pressure is great on tap too!

Ground floor is CRAP especially in rains, lots of insects, and water clogging.

High floor, view of slums below or view to neighbours bedroom is great. Issue raise when there is electricity and water issue.

Hope you found your dream house in Bombay.

I am still looking.

samix said...

Thus goes the story of the house that we bought

1) The land was attached by the central government under the SAFEMA act.

2) The builder had no oc,cc,bcc and other required certs and plan approvals.

3) The builder mortgaged each flat almost 2 to 3 times to various banks under the name of dummy purchasers.

4) The building had chori ka electricity and water.

We went and bought the flat of-course oblivious to all of the above, we just trusted the fact that because we were taking a loan from a bank the bank will do all the due diligence.

And that stamp duty and registration irrevocably wrest the title with the buyer.

With time the builder started to face the heat, he got arrested for various frauds, bribed the police and absconded. All the bank mangers also got pulled up, to save their asses the banks invoked the securitization act and demanded that we pay the entire loan amount or the house will be foreclosed.

We were pulled to the courts where even after being in possession of the home and after paying almost 1 lak in stamp duty and registration we had to prove that we were the rightful owners of the flat.

It is in the courts that we learnt that stamp duty and registration mean nothing and that it's another way the government collect's taxes, without guaranteeing anything.

Desi Batman said...

So bank grant loans on unverified, unauthorized buildings. Government collects taxes on the buildings/flats that are not approved or have clear titles.
But both parties then want to raise issues of unauthorized, unapproved properties and then want to collect their dues.
WTF!!!

Heads I win tails you lose. Suckers.

Thambi said...

@Desi Batman anne,
All that you mentioned has been part of our culture. If one rebels against it, he is doomed. This is my personal experience. It is not easy to change this age old practice.

Projects worth billions are sanctioned, tenders floated and even completed, money paid and pocketed, all on paper.

Don't be surprised. Try to be part of the game.


Good luck anne

Desi Batman said...

I moved to USA and find that I can get single family house in very decent location with good schools, carpet area of 2000 to 2500 sq ft for $250K (read Rs. 1 crore for exchange rate Rs. 40 = 1 USD).

WTF !!

But I miss the stinky smell of Mumbai. ;-)

samix said...

So bank grant loans on unverified, unauthorized buildings. Government collects taxes on the buildings/flats that are not approved or have clear titles.
But both parties then want to raise issues of unauthorized, unapproved properties and then want to collect their dues.
WTF!!


Desi batman, that's not all, they pull you to courts and the courts rather than going after the builders/bankers/government officers allows the banks, who committed the fraud in the first place, to foreclose on your flat.

Then you need to fight tooth and nail to try to get it back.

Desi Batman said...

Samix:
How can they forclose on the flat when that itself in dispute with no clear title and incomplete process.

Let's say Bank wins the case and gets the flat, what do they get? A real estate that itself is not really 'complete free and clear' real estate in eyes of GOI!

samix said...

Let's say Bank wins the case and gets the flat, what do they get? A real estate that itself is not really 'complete free and clear' real estate in eyes of GOI!

I would have loved to let the banks win and give them the flat, but then where will I take my family and live ?

This building of mine is very close to Andheri, bang on SV road, I dont think I can afford even a slum in this area if I let the banks rob me off this flat.

By the way do you know I have buyers who are completely fully aware of the illegality of my Flat and are still willing to pay 1/2 the market price for it... Outright Mania!

How can they forclose on the flat when that itself in dispute with no clear title and incomplete process.

There are special courts set up called the 'debt recovery tribunal' which look into such cases, the judges of these courts(high court/civil court) etc. are retired judges from other courts as far I know

These courts are set up with the sole intention of fast tracking the banks claim, and almost every lawyer that you ask will tell you that these courts are biased towards the banks.

If you are ever pulled in a Debt Recovery Tribunal against a bank, consider the case half lost.

Also the name 'Debt Recovery tribunal' says it all! haha

The biggest lesson that we learnt in all this is that In Mumbai anyone can come and lay claim to your flat, Agreements, Documents, Stamp Duties prove absolutely NOTHING in the court of law, they are just used as collaborative papers, what I mean is that you just cant take your Agreement to the court, on which you have paid stamp duty and hope that the court will rule in your favour.

Yarrawonga real estate said...

Sorry to hear about what happened with your home samix.

21 flats sold a week is crazy, I've heard the construction industry in India is ruthless working endless hrs to meet dead lines for clients.

Sampa said...

Hi Vik, Samix, and Shailesh

I have been a regular but a silent reader of the blog.
My question to all the bloggers and readers is as you have so much of readership with you, can't we create an organization to fight for these kind of causes. I know there are hurdles and stakeholders will resist with all their might. But can't we at least try? I am all in to discuss and take it forward.
I don't know how other bloggers contributing from oversees can contribute in it but if they are willing we can think of something.

shailesh said...

Buying a home? Rs 1 crore may not be enough

If you're looking for a house in a new project and you have less than Rs 1 crore in the bank, you might as well give up. From Worli to Jogeshwari, there has been a glut of project launches but the rates and sizes on offer ensure that all new apartments come with at least an eight-figure price
tag.

In Borivli, for instance, developers are quoting Rs 10,000 a sq ft and Rs 7,500 to Rs 8,000 a sq ft in Mulund. Most flats measure 1,000 sq ft or more.

“The prices are too high; no one is buying the houses,” said Pankaj Kapoor, chairman, Liasas Foras, a real estate research firm. He said Mumbai has more than 22,000 flats lying unsold due to the high rates.

On Dussehra, three premium projects were launched — one each by the Lodha Group at Lower Parel, Indiabulls at Worli and Lokhandwala Infrastructure also at Worli. None of the houses in these projects cost less than Rs 5 crore.

With Diwali coming up, the Runwal Group is launching a project in Andheri (W), quoting Rs 14,000 per sq ft for its 1,000-2,000 sq ft apartments.

shailesh said...

Sampa: Good Idea, but I cant devote anytime due to other constraints. Also fighting establishment and connections are not that easy in India.

I have moved beyond Mumbai. I don't think city will be the future of India. Mumbai has no industries left anymore. One stock market corrects, all this non-sense or RE boom will come down. All this builders will be begging for selling their flats at half today's prices.

Anonymous said...

I have moved beyond Mumbai. I don't think city will be the future of India. Mumbai has no industries left anymore.

Good point Shailesh! Tradiationally, people have sworn by the financial industry in Mumbai as the one that brings the big money. Now, it looks like the present finance minister is going all out to create a second hub in Bengal, where he has to face elections in 2011. Read this story:

http://economictimes.indiatimes.com/news/economy/finance/Indias-second-financial-hub-in-Kolkata/articleshow/6741805.cms

Rustamji

Vik said...

All these articles about new financial hubs is hype to jack up real estate prices. there was similar talk about Hyderbad few years ago, then Chennai and now Kolkatta. Mumbai will remain the commercial capital for the foreseeable future for a number of reasons. In the US inspite of most cities being at par with infrastructure NY has seen no threat of it dominance. To cut costs companies might move within the periphery of the city.For e.g BKC in Mumbai which is now at par with Nariman point but for most companies who moved here 5-7 years ago they got the land at a very low price.
In the future companies might move to Navi Mumbai to escape high prices but not to Kolkatta. Ateast that is what I think.

To create the perfect storm for prices to crash the following needs to occur

Liquidity crisis for lenders to lend to the new public
Oversupply of apartments
Confidence crisis in the buyers due to the job insecurity, business slowdown
One doesn't need a clampdown on black money if the 3 factors above occur.

As far as fighting the real estate mafia is concerned there is no way to do it due to political clout which these builders have aplenty. Time will decide the fate of overleveraged investors, be it builders, politicians and small investors

Anonymous said...

Vik,

In the last few years, a significant number of NYC finance companies have wrapped up and left for London, as you might know. Mumbai is not invincible as well. When a place gets extremely expensive, people figure out an alternative. That is the way capitalism works.

I personally think that the days of the finance industry in Mumbai are numbered.

Rustamji

samix said...

@SAPMA

http://www.prokerala.com/news/articles/a107078.html

I don't wanna end up like this!

krishna said...

Just an insider info. The builders are accepting 10% downpayments from multiple individuals for the same unit. The builder is going to bet on cancellations. Moreover he enjoys huge upfront money collected which gives clear license to delay as much as possible to eventually frustrate the buyers to forego the money. He also puts a clause that builder has right to revise the price at later stage. This scheme is more dangerous than the normal one.

Anonymous said...

unless the fool IT guys stop buying crap RE from greedy builders prices are not going to come down at least in Pune, where crap areas like Kharadi have got sky rocketing price now a days.. short sighted IT people are responsible for it.

Desi Batman said...

Investments are all about betting on future buyers, may be it is stocks or real estate. Investors earn money only when they are able to sell for the profits (increase in the price after calc of inflation).

Earnings have to be in sync with RE prices. In past decade we have seen good appreciation of earnings and so the RE.
Big BUT - will we have same % of appreciation again for next decade... hmmm I don't think so!

If earnings have gone up from 1000s to 10,000s and RE from lacs to low-crores. Therefore thinking that RE will increase from low-crores to mid-crores figures, earnings WILL also rise from 10,000s to lacs is foolish.

So appreciation of RE prices from this point forward is difficult and will be very mild.

What does Mumbai have other than Bollywood, Stock market and stinking beaches?

Desi Batman said...

unless the fool IT guys stop buying crap RE from greedy builders prices are not going to come down at least in Pune, where crap areas like Kharadi have got sky rocketing price now a days.. short sighted IT people are responsible for it.

Partial fact, main reason is that Mumbai is now in high risk gambling for investors. Investors move to areas where they can afford to purchase and also to take risks. Kharadi may be one of the places. Today many can easily afford 30 to 40 lakhs of investment risk, but not 1 to 5 crores.

Desi Batman said...

@Vik
In the US inspite of most cities being at par with infrastructure NY has seen no threat of it dominance.

Really? NY and Mumbai cannot be compared at all. NY is one the main financial capital of the world, but still they are vulnerable. Bank had to be bailed out, do you know the panic during financial collapse! Shit had hit the ceiling. Mumbai is blown up 100 times NYC.

NYC has average 45 million visitors (tourist) every year! They are from all over the world. Try going any day to Times Square and you will see many faces looking up towards high rise building with their camcorder and cameras. nyc statistics
How many do you think visit Mumbai?


To cut costs companies might move within the periphery of the city.For e.g BKC in Mumbai which is now at par with Nariman point but for most companies who moved here 5-7 years ago they got the land at a very low price. In the future companies might move to Navi Mumbai to escape high prices but not to Kolkatta. Ateast that is what I think.

RE is important investment for new/future businesses. But importantly is infrastructure and cost of labor. IT used to be main hub in Mumbai, not anymore,been to Bangalore, Hydrebad and Chennai?


To create the perfect storm for prices to crash the following needs to occur

I say only one needs to occur: "Confidence crisis in the buyers due to the job insecurity, business slowdown"


As far as fighting the real estate mafia is concerned there is no way to do it due to political clout which these builders have aplenty. Time will decide the fate of overleveraged investors, be it builders, politicians and small investors

Agree.

Meghana said...

Questions:

1) If Mumbai will not be able to sustain its financial hub primacy, which other city looks best poised to seize the initiative?

2) If investors cannot afford to invest in crores, why is every tom, dick and harry builder going crazy constructing high-priced, luxury apts?

I met the vice-president of Shree Ram Urban Infrastructure Limited, the other day. He was boasting of their "Pelais Royale" project which he said will be more state-of-the-art than any of what the Lodha-Indiabulls gang can crank out!

shailesh said...

The Dark Face of Mumbai

Blood stained brown gold and mean streets of Mumbai housing mafia and Mumbai underworld

The result: A boom in the real estate. With substantial tainted money floating in the city needing to be cleaned, the hydra-headed organized criminal syndicates, rear its head spitting blood and fire. And since in the organized crime chessboard, names and personalities do not matter, the turf-war clashes continue. No peace, no lasting truce for the players. And Mumbai continues to grope in the darkness of an endless night.

shailesh said...

Finally, Mumbai builders are unable to hold up prices and are offering steep discounts

However, this year, flats are not selling. Though builders in Mumbai have tried to keep prices artificially high for all these months, they have now buckled under and have come up with lucrative schemes to push sales in the residential segment. Among their tactics is making a '10:90' offer.

A survey conducted by ICICI Securities recently found that property prices have become unaffordable. According to the survey in which 3,839 ICICI Direct customers participated, 72% of the respondents believed that property prices were unaffordable and 79% perceived property prices to be high. However, a significant section of the respondents indicated that while affordability was a concern, it was manageable.

shailesh said...

Nice.

A wild walk through a property exhibition

A first-time customer in a property exhibition narrates his experience. Be warned, it is a sad tale...

Anonymous said...

1) If Mumbai will not be able to sustain its financial hub primacy, which other city looks best poised to seize the initiative?

Meghana - Good question!

I am in the finance line and about 10 years ago, I thought that Bangalore was well positioned to be a financial hub. I believed in it so much that I moved to Bangalore and took up a senior position with a finance MNC here. I have recently realized that Bangalore missed the boat on this mainly because of a lack of political will to aggressively pursue the finance industry. They went with IT and IT is slowly deserting them due to cost reasons!

To be a finance hub and compete with Mumbai, any city needs -
A. Excellent infrastructure with an international airport.
B. A good local talent pool to build the base of finance workers.
C. A cosmopolitan culture which will help attract talented people from other regions. This is specially important after the Sena types have started attacking people from other regions in Maharashtra, getting strong negative publicity.
D. A strong presence of traditionally "business minded" communities, like Gujaratis,
Parsis and Marwaris.
E. A strong political Godfather, this is very important in India.

Bangalore had A, B and C, but I think they dropped the ball.

As of today, I think Kolkata has all of A through E, though they could definitely do more with their airport. Pranab Mukherjee is perhaps the strongest political person in the Congress after Sonia and he is the finance minister. He is known to be clean, which means that he can leverage himself more to bring the finance industry to Kolkata. Plus, they have elections in WB next year, and he needs to dangle the carrot.

They also have a large population of Marwaris and Gujaratis and Bengalis are known to be very accepting of outsiders (as long as you don't critize the two R's, the Revolution and Rossugulla, with apologies to my bengali friends).

Their biggest drawbacks are the communist party, which looks all set to loose after 30 years and the weather, which is extremely hot and humid in Summer.

I have not put any money in RE in Kolkata yet, but I am seriously considering. In the "Rajarhat" place, where they are building the finance hub, nice flats are going for 3000-4000/sq ft, which looks attractive compared to Bangalore. But, I need to visit the city once before I can let you know more, because what you see on the internet can be very deceptive.

Perhaps, Vik can enlighten us on Kolkata with a post!

Rustamji

Bachera India said...

This is all made story with no truth. We all lived in India for such a long time as well as away and we crib about this because we also want to stay in India that’s a beauty of India and if you want to stay then work hard to get the life of Mumbai pune whatever don’t start crying its not going to help. Just to continue from my last post, the flat in kandivali which I inquired in Dushera is also sold at the same price without discount as builder told me when I checked. So demand is there don’t know from where but if builder is selling his flat at 12000 psf then what we can do nothing, I should have bought at that time as I am sure now the new buyer is investor and he is going to ask minimum 14000 during diwali, 100% sure

Anonymous said...

Dear Rustamji,

Please stay away from Kolkata. I am from Kolkata and have lived in Mumbai for seven years. I cannot afford even a rotten apartment in Mumbai, but I fully own two flats in Kolkata. Reason? Fat investors like you have not "discovered" Kolkata yet. Please keep it that way, Kolkata is the last bastion of the middle class in India, and we are happy to keep it that way.

You will not like Kolkata, there are frequent Bandhs and things are very political. The crazy lady called Momota will desttroy all industry in Bengal after she becomes CM next year. Your investments will all go downhill. This finance hub thing will not pan out. Be happy in bangalore, trust me, it is a much better place. No need to invest in Kolkata.

Calcuttan

Anonymous said...

Are QE and QE 2 leading to massive bubbles and inflation in EM's and Commodities?

Niall propounds the concept of economic leakage and I would tend to agree with him. Ben and his ilk have been going down the road of Keynesian economics without taking into account that Globalization never existed in Keynes times.

The more dollars they print, the more problems US causes for the entire globe..

Anonymous said...

The more dollars these clowns print, the stronger the INR will be, because apparently, our clowns at RBI are not printing any more. A little birdie told me that Soniaji's Congress is worried about inflation affecting the aam aadmi. How touching.

So, where does that leave us when QE2 is over and Obama has run out of trees? USDINR at 30? If I count my dollars at 45 today, that will be a staggering 33% drop in my investment. Should I move it to India and invest it in Real Estate? If the papers turn out to be fake, that will be a 100% drop in my investment. If the property is not fake, and the bubble collapses, the drop will be 50%. Gold is at an all time high, and the stock market is also extremely overpriced.

I want to move my USD to India. Any advice on where I should park it? --- NRI

shailesh said...

Anon 5:44

If you mainly worried about Currency risk, you have many other alternatives compared to India.

Sovereign Credit Rating Report of 50 Countries in 2010

India is number 30 on list, with rating of BBB. There are many countries even ahead of US with good growth prospects like Singapore, Australia, Canada, Germany, China, where you can diversify your investment. You can easily put money in ETFs that focuses growth in these countries.

The challenge is psychological one. Most people like RE because of leverage, that is pay only portion, take remaining on loan and get gains on full amount. But remember, Leverage can be double edged sword. On downside, you will loose also fast. With India, NRI's have this so called advantage. But the thing is all this is already factored into current prices. If you must buy RE in India, at this point, Tier 3 cities are probably best bet.

I like Kolkota as well. Anyway to form a club to invest in Kolkata !!!

Desi Batman said...

I completely agree with lots of USD flowing into India by returning NRIs, IT people, FDI, FII, and lots of businesses/trades with foreign countries.

Where does a person residing in India and working for Indian company stand a chance with these foreign competitors?

I have friend who is CEO of company in India and says that it very tough to beat these foreign companies, they have matured technology, buying and bullying power.

Looking at these forums, I may be wrong, but I do feel that NRIs and ex-NRIs can easily afford RE in Mumbai or anywhere in India. They are basically cash rich and wondering where do they park their hard earned money unlike we who think how the hell do I earn these kind of money.

I have moved abraod to join these elite gang, as the saying goes 'if you can't beat them, join them'.

Desi Batman said...

@Meghana:
1) If Mumbai will not be able to sustain its financial hub primacy, which other city looks best poised to seize the initiative?


What are the finance companies in Mumbai and what tangible service do they provide? Please do NOT include MNC in your list.


2) If investors cannot afford to invest in crores, why is every tom, dick and harry builder going crazy constructing high-priced, luxury apts?

Wrong- Investor CAN AFFORD to invest in crores, but not real buyers. Basically Indians and so is India known for savings and having high disposable income. There is very high potential to find large number of buyers who are not in debt and can be buyers with debt.

I remember 20 years ago we bought a house in Mumbai and paid all cash and almost all RE transactions were 100% paid off and no debt. For that one had to save for years and it had some meaning. Today saving is for fool, one has to park earned money in some investment schemes - stocks, RE, etc etc as currency is backed by nothing.

Anonymous said...

Desi Batman: What was your currency backed by 20 years ago?

samix said...


I have moved abraod to join these elite gang, as the saying goes 'if you can't beat them, join them'.


haha, those guys haven't done a crime earning that money.

Anon above, till 1971 my and batmans currency was backed by gold.

I know that gold is the way to go, but it is near impossible to explain this to people, who look at gold as just another investment option, looking for paper profits.

Our progeny is gonna look back at us and think what were these guys thinking when they considered colored paper to be money!

Desi Batman said...

@Anonymous said...
Desi Batman: What was your currency backed by 20 years ago?


To answer your question in short: GOLD!
Detailed answer visit URLs:
Gold standard

United States dollar

Desi Batman said...

@Samix
haha, those guys haven't done a crime earning that money.


No, they have not. System is corrupt and manipulative. Print fiat currency and make believe everyone that they have more money and are rich!! But again who is this 'system' hint: these are super elites.

Anonymous said...

Desi Batman: Twenty years ago was 1990. The Gold standard had been long abolished by then. So, I repeat my question, what was your currency backed by 20 years ago?

Desi Batman said...

Desi Batman: Twenty years ago was 1990. The Gold standard had been long abolished by then. So, I repeat my question, what was your currency backed by 20 years ago?

Well if you are so persistent, I would ask you to read my post again... "...remember 20 years ago we bought a house in Mumbai and paid all cash and almost all RE transactions were 100% paid off and no debt. For that one had to save for years and it had some meaning. "

Even today Indians are known for their saving mentality. But these savings are devalued at much faster rate in 2002 - till date than between 1971 and 1990.

So here are the questions for you smart guy... I toke many years (20+) of savings to buy a flat. Today, how many years of savings (count inflation) will it take me to buy flat in Mumbai 100% cash?

what was % change in RE price from 1971 to 1990 in Mumbai? What was loan rate between 1971 and 1990?

Got it or want to keep trolling?

Desi Batman said...

Smart guy one more thing. India was more of closed economy before 1991. Hence they didn't know how to manipulate. Fun and growth starts after 1991.

http://business.gov.in/indian_economy/eco_indicators.php

Desi Batman said...

@Smart guy,

Have you ever wonder where does currency generate, what is it backed by? Are currencies tracked? If so why not track back to black money which like almost invisible in true accounting world?

What causes inflation? Why inflation? Why prices of everything has to increase every year? Where does this money generate from?

Gold and there are other metals that cannot be manipulated. With gold backing gone, market and currencies are open to manipulation and pegging.

Rules of game have changed. Money as Debt is traded everyday in market.

Read more on..

http://www.hasslberger.com/economy/money.html

Anonymous said...

But these savings are devalued at much faster rate in 2002 - till date than between 1971 and 1990.

Not true, inflation in 70s and 80s was very high. Through most of 2000-2008 inflation was lower than it has ever been in memory. Only recently it has increased

what was % change in RE price from 1971 to 1990 in Mumbai? What was loan rate between 1971 and 1990?

RE price increased markedly in late seventies and in mid eighties. Price of flats in Ghatkopar for 1BR was 18-25L in 1984.

Long term annualised returns from RE has been around 8-10% long term and will continue to be so

High loan rate of 70s and 80s (17 to over 20%)was detrimental to buyer. He paid rent for 20-25 years (forced to save, loans difficult to get) and then paid a bomb for overpriced (scarcity afflicted) poor quality flats. This effectively increased purchase price much beyond current values (Rent AND lump sum payment) and people led a deprived and pathetic existence without luxuries (which today are necessities)

shailesh said...

Lot more on the link below,

Why China Is Really In Big Trouble

TCR: On the topic of real estate, I was speaking to a very well-off Chinese friend recently who had bought a very expensive apartment in Beijing. When I asked him about buying at bubble prices, he commented that it really didn’t matter. The money was almost irrelevant, given the status that came from having an apartment in that particular part of town. He said it was very good for his business and that he didn’t really plan on using it very much. It was an interesting perspective, how he saw real estate.

VK: In the same way that everyone in the United States decided they “must” own a house, this belief was reinforced by continuously rising house prices. You can see how big a problem this became in big cities such as Beijing and Shanghai where the affordability ratio is horrible, so the property-value-to-income ratio in Beijing is pushing 15. In Shanghai it is over 12. If you look at the national average, it is over eight times.

TCR: Can you explain that ratio to our readers?

VK: You get the ratio by taking the property value and dividing it by annual disposable income.

Basically, if you spent all your money, after you paid your taxes, just to pay off the mortgage, it would take you 14 years – which means you didn’t pay for food, electricity, etc.

This ratio is important because it helps put the scale of the Chinese real estate bubble in its proper context. In Tokyo, at the peak of the massive Japanese bubble, the ratio stood at nine times. In Beijing it’s already 14 times. In Shanghai it’s over 12 times. The national average for China is pushing 8.2 times right now. So housing affordability is very, very low, and the housing prices are extremely high.

Here is another interesting piece of data: property investment in China in 2009 was 10% of GDP, up from 8% in 2007. In Japan, at the peak of its bubble, it did not exceed 9%; in the U.S. it never exceeded 6%.

A recent study found that 64.5 million apartments basically don’t use electricity because they are empty. Chinese people buy those condos, and they don’t rent them. Similar to new cars in the U.S. when taken off the lot, in China an apartment is worth less once rented out. So they just keep them unoccupied with the hope to flip them, and you know how that story ends.

shailesh said...

Nice Article. India is not far behind. IMO Services sector has gone too far now. They cant afford recession in US where new IT projects are not started.

Why China Is Really In Big Trouble

Cool Head said...

Anonymous@09:30 pm
Check Your facts man! I was staying in the Sion area during the time that you mention (1984)and a good 1 BHK was selling for maximum 3-4 lakhs.Ghatkopar prices must have been even lower as "Sion" is in the proper Bombay city whereas Ghatkopar was in the "Greater Bombay" area (a.k.a. the suburbs).From where did you come up with the astounding figure of 18L for Ghatkopar!!? Or have you got your dates mixed up? For 16L one of my friends purchased a 1 BHK in MALABAR HILL area in 1984. So don't BS us here.

Cool Head said...

Shailesh,
With the same formula (that you mention for Shanghai and Beijing) has anybody calculated what a 1 crore 2 BHK in all places, Kandivli means in the context of affordability? I would request you to do it and let the readers here know how far this bubble has blown.
Besides the Shanghai apartments look far superior to the crap that is sold in Mumbai ( I used to stay on and off in Shanghai 2 years ago) and the infrastructure is simply not comparable to Mumbai. No power cuts, clean city, excellent public transport (incl taxis), superb roads and really cheap food with a lot of variety of restaurants (Indian, Japanese, Thai, Lebanese, Mexican, Continental, etc, etc) in addition to the standard Chinese ones. Plus lots of franchises of International Chains like MacDonalds (sometimes two outlets at two ends of the street!)Simply Not comparable to Kandivili or any such crappy suburb at all. Yet why does Kandivli demand such a high price? This whole scenario looks like "Alice in Wonderland"

Anonymous said...

I am not the smart alec who says Ghatkopar was 18 L in 70's and 80's.

Rather, I was around in those times and we were scouting for properties..so, I remember Mulund a decent 2BHK was around 1.8 L 1975 and Bhandup/Vikhroli used to be very cheap. Ghatkopar can't have been more than 2.25 ( at the most).

Also, on an annualised basis, and also discounting trough to peak..Housing has never given more than 6-7% on CAGR basis. It has barely beaten inflation..

I am really astounded by some of the changes I am seeing in the last 7 years or so. First of all, people in Kandivli would be drawing incomes of 10 - 25 lacs (ignoring outliers). Which means a disposable income of around 8-10 lacs or so (median). Which would then mean a 1.3 crore 2BHK would be around 13 years!

One other measure which people have been using since 70's is the rental income.

People used to pay around 8-10 K/month in areas like Kandivili for a 2 BHK. At that time in 2003, houses used to be around 12-16 lacs. Which meant a PE (price to rental earnings, not adjusted for maintenance, property taxes, water etc) of (10 K X 12 = 1.2 L) or in other words 16/1.2 = 13.33

Now the rentals are around 25 K or so for very decent 2 BHK, which means the PE is about - (25 K X 12 = 2.88L) or in other words
1.2 crores / 2.88 L = 42!!!

This is truly wonderland pricing...The average Kandivili resident can't even in his dreams think of affording this.

One last thing I want to say (and then probably I will shut up), the low interest debt which people are excited about nowadays. I have seen in the 70's and 80's, bank interest has been as high as 18 - 24 %!! Which means on an historic basis, loans interest can reach at least 15%?

I had seen an article by OP Bhatt (the Chairman of SBI) saying that they propose to continue with their teaser rate regime..if teaser rates are around 8-9% now..and with inflation so nasty that people can hardly eat..I would not be surprised if RBI introduced higher rates to quell the inflation. Which would mean that we would see foreclosures and suicides in India.

Desi Batman said...

Not true, inflation in 70s and 80s was very high. Through most of 2000-2008 inflation was lower than it has ever been in memory. Only recently it has increased

Inflation was high? Not really! Just because loans rates were high doesn't mean inflation was high. It was just that holding currency had some meaning and also because market was not manipulated as much as today. We were not rich during 70s and 80s but never had to worry about groceries and other commodities cost, infact we could afford better quality products than today.


RE price increased markedly in late seventies and in mid eighties. Price of flats in Ghatkopar for 1BR was 18-25L in 1984.

As I said earlier we bought flat 20 years ago (1990), price 10 lacs for 2BHK, carpet area: 800 sq. ft. in nicest location ...and yes that flat was in Ghatkopar. So you saying that flat price were 18L - 25L in 1984 for 1 BHK in Ghatkopar is complete BullShit.

Desi Batman said...

@ Anon 5:05 AM
One last thing I want to say (and then probably I will shut up)


Please do not shut up. Your post has lots of sense.

shailesh said...

Thanks to astronomical prices, Mumbai property prices stagnate in second quarter

The report attributes the stagnation in Mumbai real-estate prices to flagging demand from consumers due to the abnormal rates that were being charged by builders. "Consumers have made it clear that they will not pay over the odds for apartments and consequently developers have been coerced to stop rapidly escalating property prices in Mumbai," said the report.

A real estate expert, preferring anonymity, told Moneylife that real-estate prices being quoted do not actually reflect the true picture. He said, "There is demand, but the price the builder is quoting is not matching with the purchasing capacity of buyers. Besides, builders are not selling property at the prices which they are quoting. They are selling at discounted prices behind closed doors. Also, the funds the builders have been able to generate from multiple sources have enabled them to hold prices high, which is (again not) sustainable."

Desi Batman said...

@Shailesh:

When people were buying affordable RE it was said demand is high. Sure.

When people are not buying unaffordable RE can it was said demand is low?

Economics of demand is skewed with affordability. But builders and investors will ALWAYS say there is demand ...increasing demand!

Anonymous said...

@Desi Batman,

I am still not the smart alec gentleman who said that ghatkopar was 18 L in 1984...I don't know where he got that figure from.

But I am the old person who was saying that Ghatkopar might have been around 2.25 or less and that the PE of flats is unsustainable.

Just to add something (since you encouraged me not to shut up :)) -

1975 - 1980 was a really bad year. People used to not have much money and the food quality was horrible due to adulteration.

I was wondering what proof to show you about how bad times were and then I came across this movie which someone else had talked about in this forum quite some time back :

Roti Kapda aur Makan (1974)

Also pls. have a look at this video of the song..its informative about the times we have seen and which are rearing up again probably -

Good Song!!

Yes, Congress Govt has been known to create massive inflation and price issues for India. People just keep forgetting.

Have a good day!!

Anonymous said...

This is the smart alec here.

18L was supposed to be 1.8L and 25L was supposed to be 2.5L. Sorry for the typo. This was a princely sum at that time and nobody in my family could afford, except one who bought.

Annualised earnings in RE have changed markedly after the current bubble. From 1970-2000 you get 6.x %. From 1980 to 2010 you get 9.x percent. It varies depending on where you start. (This is all for Mumbai.). It does manage to beat inflation, because inflation was low from 1998 to 2008.

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