Tuesday, November 02, 2010

How can you beat this real-estate bubble?

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As property prices are showing only a few signs of abating, analysts predict that a potential real-estate bubble is looming large. So how can you achieve your long-awaited dream of owning a house? Moneylife went into a huddle with some industry analysts to give you the answers

Solution No. 1: Work hard, jump jobs, do anything to reach an annual Rs40-lakh salary.

Solution No. 2: Forget Mumbai or Delhi, there are a lot of other urban conglomerates in this vast country.

Solution No. 3:
There is strength in numbers.

Vikhyat Srivastava, former analyst with the Kotak Mahindra Group and co-founder of GrOffr.com, a real-estate site for group-buying, told Moneylife, "As a group, you can get a discount for any service. If a developer is selling 100 houses, and a group comes to buy 20 or 30 houses together, he would lower the prices for them as he would be able to do away with one lot. As a group, one can get a discount of about 20%-30% in real estate purchases."

If statistics bore you to death, consider this. Until now, buyers trading on GrOffr.com have been able to garner bulk discounts of Rs19.85 crore on a piece of real-estate which had a market tag of Rs93.5 crore for 88 flats. Do the math. That's a lot of money saved.

Solution No. 4:
The pre-launch phase is the best time to buy. But there is a caveat, though.

Solution No. 5: Rent, don't buy.

Solution No. 6:
Be patient, very patient.

"I expect a price correction but the focus has to come back to consumers. If the property price does not increase in the next three years, it in itself is a correction. There are chances that property prices may undergo correction by 10%. If it doesn't appreciate in the next three years, it's overall a 30 % correction."

36 comments:

shailesh said...

Has anybody used this site,

GrOffr.com

Anonymous said...

keep off. scam!!

shailesh said...

'RBI's measures aimed to curb property prices, asset bubble'

Concerned over teaser home loans, the Reserve Bank today increased the standard asset provisioning by commercial banks for all such loans to 2 per cent from current 0.4 per cent.

It also directed banks that the Loan To Value (LTV) ratio in respect of housing loans should not exceed 80 per cent. Besides, RBI increased the risk weight for housing loans of Rs 75-lakh and above to 125 per cent from 100 basis points.

Global property consultant Jones Lang LaSalle Meghraj (JLLM) Country Head Anuj Puri pointed out that RBI has come down "heavily" on the realty sector "as there is too much euphoria going on in larger cities such as Delhi and Mumbai where prices have risen to the pre-recession level or even more in some locations".

"Clearly RBI believes that there is speculation going on and they want to curtail down," Puri said, adding that there would not be any impact on demand and prices owing to festival season. The real impact could only be felt after 6-8 weeks, Puri said.

shailesh said...

Anonymous 7:02AM

You should reveal your identity, if u want to be trusted....

Desi Batman said...

Shaliesh:
'RBI's measures aimed to curb property prices, asset bubble'

Why is RBI intervening? They didn't get their cut? Free market is not free market anymore?

I suppose if people can afford 1.5+ crores houses, 10+ lacs cars, 20k+ cell phones, then why can't they afford milk, groceries and other commodities.. Inflation... what inflation?

shailesh said...

India’s Bubble economy headed towards iceberg?

4. The Real Estate sector is the largest bubble India has ever seen. Prices of ordinary house, apartments and even land have skyrocketed in the past few years. Speculators play the real estate market like Americans did up until 2007.

Desi Batman said...

I was looking for available rentals 3BHK in Mumbai, location: Hiranandani Gardens - Powai. Price ranges from 29k per month to 2 lacs per month (yes 2 lacs per month!!)

Source: 99acres.com

What a range of prices in same location, for same size of rooms/sq ft. Rents variation 7 times (700%) between minimum and maximum advt rents. What am I missing?

Any logic/explanation from gurus on this forum.

Anonymous said...

Interesting article:

http://in.news.yahoo.com/columnist/ashok_malik/15/maharashtras-audacious-chief-ministers

An excerpt:
How long can Mumbai sustain this? Once India's shining city, today it may just be the goose that has laid its last golden egg. Delhi is no paradise and Chennai is not perfect; Hyderabad still has miles to go; Bangalore remains in infrastructure-upgrade mode. Yet all these cities have that one abiding quality that sustains an urban consciousness: hope. Mumbai has none. Its optimism lies crushed under the weight of Adarsh Housing Society.

Bharat

Desi Batman said...

Bharat:

India / Mumbai has survived abuses since several decades, nothing to worry, this shall pass too. Mumbaikers are very kind and forgiving people they believe in forgive and forget.

Bomb blasts, strikes, infrastructure issues, attacks, corruption, unrealistic real estate prices, etc etc Mumbaikers have taken everything in their big strides of proudness (of being Mumbaiker). This is just a case of one minister doing his job of being corrupt.

As Vilasrao Deshmikh said after 26/11 'bade-bade sheheron mein aise chote-chote batein hote rehtein hain'... so chill.

India is Shining so bright it doesn't see that it's bottom is on fire. May be they are waiting for Obama to come with his team with more money and jobs. Time for more fireworks?

samix said...

It is absolutely ok to be corrupt in India yaar, what is not allowed is to be caught.

Ashok chavhan got caught that is why all this commotion.

Imagine ashok chavhan and sonia gandhi talking

SG: Ashok, can't you get any smarter? Don't you know that it is not allowed to get caught red handed ? it's ok to do such things but getting caught, come on!

AC: Madam, I am sorry, I got a bit too greedy, lekin madam kya kare karoda ka nuksaan ho gaya na, kal woh ghar bechta to party fund mein kuch aa jata.

SG: It's ok just resign after obama goes and I'll make you some minister at the center, but be careful here about collecting the party fund and please don't get caught again.

AC: ok madam.

I was so God damn irritated with all the ashok chavhan going to meet sonia gandhi to answer her, what the fuck ? he needs to answer us not the people and the media makes it look like sonia gandhi is some justice ki murty where everyone goes to answer their sins and make repentence.

samix said...

I meant

I was so God damn irritated with all the ashok chavhan going to meet sonia gandhi to answer her, what the fuck ? he needs to answer us the people and the media makes it look like sonia gandhi is some justice ki murty where everyone goes to answer their sins and make repentence.

Anonymous said...

Why Indian real estate is screwed up?

Look at this property in the heart of silicon valley after the crash.
http://www.realtor.com/realestateandhomes-detail/5075-Severance-Drive_San-Jose_CA_95136_M17577-41744

It is an excellent single family home which is selling for $490k or about 2.16 crores.

In the outskirts of our silicon valley (Bangalore), there is a place called Whitefield, also known as Shitfield. No water, no electricity, no roads. 2.16 crores will buy you a glorified townhouse there. Does it make sense?

Anonymous said...

real state sector in india is so screwed up now days because of foreign money coming in. All those engineers NRI's FII's are pumping money in india. example, one of my friend yesterday who lives in united states is planning to buy house in kharger, i told him prices are already very high but he aruges that if he can pay emi it is still better investment then USA.

wtf?

Desi Batman said...

anon above.

Many NRIs have high disposable income. Even after paying rent and basic costs, people do have money. Household with multiple people working have very high disposable income. They feel safe to invest in India as they feel India is booming, shining, and also because they feel India as their safety net (read sab chalta hai), at the worse case scenario India mein jugaad toh ho hi jayega.

Do not blame it on NRIs, they are doing what is best suited for them. WTF Indians in India are doing... shitting and spitting on the road, and speculating markets, encouraging corruption?

You see so many flats sold for crores, so many high priced cars, mobile and tech gadgets... do you think all these are bought by NRIs?

Desi Batman said...
This comment has been removed by the author.
Desi Batman said...

Meet my son Rahul Gandhi

Don't we have better industrialist people to meet Obama? Now I wonder, will we have SRK, Ashwairya Rai on dinning table with Obama.

Anonymous said...

QE2 for 600B approved in US by Fed.
It means more money for BRIC countries. More capital inflows. Sensex will go another 8000 to 28K by mid next year. RE will see new highs due to all the new money coming to India now. Would the Govt.prevent inflows? Would Rupee get even stronger? What happens to Indian exporters and IT companies with strong rupee? RBI will intervene and devalue rupee or not?

--HB

Anonymous said...

HB,

I agree with you that this is worrisome. The US seems to be hell bent in debasing their currency. They seem to think that Keynes/Krugman are right and the more liquidity, the better the chances of sentiment improving and the better the chances for their exports...

On the other hand, countries across the globe are also hell bent in matching the US. Leading to bubbles everywhere...this is madness.

So, equity, debt, RE and gold are all going through a bubble phase. The only thing getting trashed right now is cash.

What should one do? One can try being a "smart" person and ride the waves....or one can stay out of this madness on one's cash until the world comes to its senses and all the bubbles are burst..

On another note, the title of this article is also wrong. In my experience, you do not have to think about "beating" something. You just have to do the sensible thing while people around you are losing their senses...So, RE is in a super bubble mode and is astoundingly over valued. The sensible thing to do is not buy and stay on rent. Conserve cash...wait it out. Because, believe it or not, all bubbles burst one day and the aftermath is extremely sensible pricing or better still when capitulation and revulsion happens, you will get super cheap prices.

Remember: The world belongs to him who waits and watches.

Anonymous said...

Anon above:
I don't have much time left. I'm aging. How long would be the wait.

HB:
You seem to be hitting the nail on the head. All this will cause more asset bubbles. And Govt. likes bubbles as they can get re-elected.

Desi Batman said...

Anon above,
We all are aging, but that shouldn't be rational to give up. If you can afford and are getting good bargain then you should proceed with your deal. If you are speculator and feeling you will be left behind in rat race then don't get into mess.

For sometime salaries / earnings were almost on par with inflation, but lately that chain was broken. With more QE, this chain will be in pieces and there will be lots of pain for many and lots of growth for few (read inflation).

Govt is will be in shambles when this happens. Winning election is out of question.

Prick said...

Desi Batman,
You are right. There was a time between 2004-2007 when salaries grew by 25-30% every year and property prices went up too similarly. The current rise is due to speculators only.
I was talking to a broker recently and he said that financiers raise cash from market (this is all black money btw) at an interest of 1.5%-2% per month to invest in property. Now this means that if a speculator buys a property making 100% payment, he will shell out 18-24% interest per year and property prices must move more than 18-24% for him to make any profit. This equation did hold true for a while before the bubble burst and has held true in the last 2 years as well. However, property can not go up 20-25% every year unless income goes up too at the same rate. Only thing is how long can this madness continue? My guess is as good as yours.

SabbalSeshu said...

@Prick

"I was talking to a broker recently and he said that financiers raise cash from market (this is all black money btw) at an interest of 1.5%-2% per month to invest in property" ..

FYI, the borrowing rate is much higher than you quoted - it is in the vicinity of 35~55%. Builders borrow money from the market, not the investors. The marwadi/gujarati investors never borrow money from the market as it usually involves collateral from underworld. You can call most builders including big shots like rahejas, hiranandanis etc part of the underworld. The investors who buy and sell, are businessmen with billions of unaccounted money(black) who don't want the money lying around dead. Their gain/loss may be in 3-4%, not more than that.
This is the way things work in Mumbai. The real reason for the real estate phenomenal price is the nexus between government and the underworld, The investors have been always there and will continue to be there. They just play along with the government/underworld.

SabbalSeshu said...

Indian tax evaders pulling out Swiss stash to invest at home

http://www.tehelka.com/story_main47.asp?filename=Bu061110Indian_tax.asp

Imagine the scenario 0f the effects of induction of 200-300 bllion dollars into the indian market, most of which will end up in real estate.


Hard days are ahead for a common man

Desi Batman said...

SabbalSeshu:
Hard days are ahead for a common man

True, but in theory that money will also create / sustain jobs in India.

Just by increasing the RE prices doesn't mean that people can afford or will pay for what is asked for. With less number of people buying, we will soon see decrease in demand and increase in supply.

At this point of time what we need is more increased RE prices at very fast rate. Why? because sooner the correction will be and steeper the correction will be.

I wish they make all 1.2+ crores houses 4+ crores. Comman man must be patient, short term pain will lead to long term gain.

samix said...

Desi batman
I wish they make all 1.2+ crores houses 4+ crores.


Oh yes even I hope so, once the market starts to crash the higher the price the faster and lower they will fall, gravity will do the job.

In the meantime, common man does not need to be patient, just keep acquiring gold, then when the RE market crashes you may be able to buy out some flats by tossing you coins!

golds already $1390+ a raise of $56 within two trading sessions, just buy some gold and let QE do the job...

After US QE-2 comes the Indian QE, double whammy!

shailesh said...

Hava Mahal, Where prices are in Cloud....

See average realisation of Rs 10K/sq ft at Mulund: Oberoi

A: In Mulund, good average developers are selling anywhere between Rs 7,000 and Rs 8,000. Even if we start at those numbers they probably build our premium up—I want to average about Rs 10,000 a square feet in Mulund. This takes into account floor rise and all the car park that you put in and stuff like that.

In Worli we expect—like Beaumont, they are selling at anywhere between Rs 45,000 and Rs 60,000—ours if a different project and we are doing branded residencies for the first time in India. We are talking to some very top hotel chain, which will also do a small hotel there. We also want to study what the impact of this brand will be and then probably price ourselves. It is a different project—a unique project—all this will have to be taken into account.

shailesh said...

Deepak Parekh Interview

The east is slow. Our exposure in the east is around 7 per cent and it’s been at that level for almost 33 years.There is demand in the east…but new builders are not coming up. We need modest housing. Even in areas such as Ultadanga and Rajarhat, flats cost above Rs 1 crore. The government needs to give land at a reasonable price…there is a speculative value in land prices there and the builders are packing in an extra profit margin. If you start getting land on the outskirts of Calcutta at cheaper rates, then we will see uncontrollable demand.

==
Urbanisation in India is taking place at a fast rate. And as urbanisation happens, you need more infrastructure, water, power, sewage and homes. So cities are expanding. When we started in Mumbai 30 years ago, we were funding homes in Andheri and Khar. Today, Khar and Andheri are no longer on our list. We are looking at Panvel, Thane, Dombivili…those sort of areas. That’s where our clients reside. The Andheris and Juhus have become so expensive. Our average loan size is Rs 18 lakh.

Our loan to value ratio is only 65 per cent. So, the customer has to chip in with the remaining 35 per cent. In Pune, you could get a flat in a decent area at Rs 3,000 to 4,000 a sq foot.

We have to bring down prices in Mumbai…we need to raise the FSI (floor space index), bring more land under construction. The Sewri bridge (a 22 km trans-oceanic bridge connecting Mumbai to Nhava Sheva) can completely change lifestyles. Reclaiming land at Nariman Point can bring prices down…but there has to be a will. I’m not saying you ignore environmental issues. You must care of that first.

shailesh said...

The Party’s Ideals

Adarsh Housing society

* Plot size: 6,450 sq mts
* Cost of the plot: Rs 16 cr was paid. Market rate: Rs 50-60 cr
* Number of members: Originally 30, then upped to 70. Presently 103 members.
* Size of flats: 625 sq ft and 1,000 sq ft.
* Cost of a flat: Sold for Rs 50 lakh-80 lakh to members.
* Market value: Rs 6-9 crore.

Anonymous said...

Rakesh Jhunjhunwala on real estate

You can skip the entire article and go to the end of the page. People are running away from real estate companies..the reason? They think this bubble is unsustainable. No one is shorting real estate yet, looks like...

But the end is at hand!

Of course if people are growing older, they should take more risk and invest in real estate immediately..

shailesh said...

Release land for towns: Pricking the real estate bubble

We need sweeping reforms to release rural land for planned, rational, energy-efficient urbanisation. The key issue here is converting those who stand to lose their land and, therefore, livelihood, to such urbanisation into stakeholders rather than victims.

A proactive policy is also needed to earmark large tracts of rural land for conversion to commercial use at the owners’ request. Farmers who give up their land for commercial use should be entitled to a share when the value of the land appreciates as it gets developed.

Anonymous said...

Correction is a correction, be it a time correction or a price correction.

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