Monday, May 09, 2011

No demand for houses, but prices hit an all-time high

There cannot be a more telling article on the housing bubble in Mumbai then this one. The question is not whether houses have rises 4 times in 6 years. the isue is whether there are any buyers at current prices. There is absolute no traction in the market at current levels in Mumbai. In other cities, apart from Delhi, one can easily get an 2/3bed apartment for 50-70L. In the island city one cannot get a 1 bed in the suburbs for this price. The builders are just living in fantasyland.

The laws of demand and supply do not apply to your city's real estate scenario. With 93,000 under-construction and readyfor-possession homes still unsold, the 'weighted average' cost of a flat is at its peak, according to a finding put out by property research firm Liases Foras.

On an average, the cost of a flat in Greater Mumbai (area under BMC limits) is pegged at Rs 2.18 crore. That's a 436 per cent rise compared to 2005 prices. Since then, the graph has steadily moved northward but for a brief dip during the economic meltdown in 2008 (see info graphic).

Common man's woe

And this upward swing in cost has pushed the middle class to the fringes. A basic principle of lending institutions says that the cost of your house cannot exceed five times your annual salary. In 2005, to buy a home, your annual income should have been Rs 8 lakh. At today's prices, your annual income has to be Rs 43 lakh.

"Five years back, Rs 8 lakh per annum had a higher purchasing power than today. And it was not too difficult for one's family income to be in the range of Rs 5-10 lakh," said a market observer. "Today, even if individual incomes fall in that range, very few family incomes are in the Rs 40-lakh range," he said.

Managing Director of Liases Foras, Pankaj Kapoor, points out at a pricesale pattern, not particularly to Greater Mumbai but in the entire Mumbai Metropolitan Region that includes Greater Mumbai, Thane city and Navi Mumbai.
"When prices fell, sales picked up. Like, when the per-sq-foot weighted average price in the metro region fell from Rs 8,100 in 2008 to Rs 5,300 in 2009, sales improved from 9 million sq feet to 20 million sq feet," said Kapoor.

"The rate today is Rs 9,235 per sq ft. Even if you factor in inflationary costs, prices will have to be in the range of Rs 6,000 per sq ft to increase market efficiency."

Prices likely to drop?

With home sales already low, and if the current pace of sales continues, it will take 35 months for the current stock of unsold homes to find buyers, feel realty experts. And, they opine that this situation will only bring down the market further.

"While an overall correction of 35 per cent is required to improve sales, South and Central Mumbai will need a correction to the tune of 40 per cent," said Kapoor.

Though not all realty experts may agree on that, the general sense is that prices will correct by at least 15 per cent in the next six months.

91 comments:

Anonymous said...

Liases Foras is a manipulative agency publishing fake data under the name of research. I won't be surprised that this firm works for big time builders/investors/politicians.

I strongly believe that the high prices are related to demand/supply. Unless the government brigs in a mechanism to curb the black money, the situation is unlikely to change
comaste

Anonymous said...

I wonder what slum dwellers are doing in hi fi place like Mumbai. Also why these hi fi guys allow slums in Mumbai.

Mumbai is only for rich guys, poor must move out or be moved out.

shailesh said...

Can’t afford a home in Mumbai? Buy in Dubai

Post the steep crash in real-estate prices in 2008, new developments in Dubai’s emerging suburbs like Al Warsan and Media City are redefining benchmarks of affordable housing. “You can get a 500 sq ft studio apartment for 1,60,000 Arab Emirates Dirham (approx Rs19.20 lakh); or a 1 BHK for just Rs25 lakh in any of the clusters of the International City,” said Dubai-based consultant Vijay Choudhary.

These low-cost homes on free hold land are targeted at the new wave of expatriates. And they come with all the trappings of a world-class gated community. “The city centre is a 20-minute drive away, unlike the two-hour commute that comes as a package with affordable homes back in Mumbai,” adds Choudhary.
The rush for buying homes in Dubai has picked up in the past 12 months. “Unlike Mumbai, where the blessings of friendly political and institutional establishments allows developers to hold on to their prices, the free market economy of Dubai has no such cushion to fall back on,” says Percy Dastur, a Dubai-based management consultant.

shailesh said...

MNCs can't afford space in Mumbai

Mumbai: The pricing of land in the city has always been beyond the means of the man on the street. But a recent report by a real estate research firm shows that even big corporate entities are finding it increasingly difficult to rent or buy space in the financial capital. According to Knight Frank, the sale and lease size in the last quarter of 2009-2010 was 2.81 million sq ft, which dropped to 0.88 million sq ft in the same quarter of 2010-11.

Anonymous said...

@Shailesh,

Very interesting and a distorted picture of dubai real estate. Being a long time resident of dubai and working for real estate firm, I am not aware of Indians investing in real estate. There are a few who have invested. This category includes film actors, gangster and few businessmen.

The rason why Indians are reluctant is the uncertainity of future of the emirate. Indian govt doesn't have any clout here in case things turn unfavorable to Indians. Another factor is lack of respect by locals, arabs and the europeans .
Places are no means cheap here. The average cost of a 2 b/r flat may vary from 1 nillion to 3 million dhirams.

Anonymous said...

Wow!!! Finally someone is talking correction. If prices fall by 15-20% I will sure buy.

==> said...

Anonymous said...

Wow!!! Finally someone is talking correction. If prices fall by 15-20% I will sure buy.


==> Where is correction - which location / city / State?

WAKE UP!!

shailesh said...

Office space deals drop more than two-thirds

It’s not just the residential real estate market in Mumbai that is going through a slump, the commercial office segment, too, is reeling under a slowdown.

Total commercial office space area leased out and sold in the city during January-March 2011 has dropped more than two-thirds over the same quarter of fiscal 2010.

Interestingly, lease rentals rose more than 50% during the fourth quarter of the fiscal 2011, but value of sale transactions dropped 10%.

Mumbaikar said...

Guys believe it or not builders are living in the fantasy land. One the builder I know has constructed 1 building under SRA, not yet received OC he was asking for 7000 p.s.f 6 months back, hiked rate to 9000 within 3 months and now asking for 12000. How many flats he has sold none. But still hiking the price. If demand is so high he wouldn't having any unsold inventory.

He has one more good reason to jack up the price. He is constructing one more building near by and desperate for finance, so game plan is qoute high for ready flat so buyer will feel that he is buying @ discount on booking. He is already drumming up that he has received 1000 application for booking etc.

Let's wait and watch.

Anonymous said...

Mumbaikar Mama,

Nice one!!!! Your friend, the builder is genius.

Anonymous said...

I recently returned from my summer vacation in India. I stayed in Mulund a Mumbai suburb.
Many of the folks I talked to have plans to buy their 3 rd aparment (as an investment) in Mumbai.It only shows that the demand what we see in the Mumbai market could be a false demand.Along with hoarders and speculators, these middle class white collared people are also to be blamed for the high property prices.
The max price tag I have set myself is 4000/ sqft in Mulund. - 40 lakh cash for 1000 sqft flat in any elevator access building. I know I will get 3.60 lakhs in the interest. I can use half of it by renting the same apartment for around Rr 14000 / month. This way I will not have a headache of paying high maintenance and attending quaralling society meetings. Isn't Renting a place Peace of mind in the current Real estate Market?

My blogger said...

It's not easy for the sellers to decrease their prices if they that all of their financial investments will get into nothing.
I'm a seller from Houses In Stafford .

==> said...

The max price tag I have set myself is 4000/ sqft in Mulund. - 40 lakh cash for 1000 sqft flat in any elevator access building. I know I will get 3.60 lakhs in the interest.

==> And when do you expect this will happen?. Also, you acknowledged that people are on buying 3rd apartment and you are still not yet reached 1st.

Mumbaikar said...

One of my friend has bought house #1 10 years back and one recently. One of which is on rent and helps him to pay EMI and other is for staying. After paying mortgages on two houses and monthly expesnses he Is dry at the end of month. But good part is his assets r appreciating every day , so feel rich every day.

Just wondering what will happen when RE go south and he end up into paying mortgage for more than his asset prices .

Mumbaikar said...

Just a thought ....Indians believe in living like beggars and dying like king.

Parents save, avoid expenses on themselves as well as on family to save money for future of kids etc. This saga continues for generation after generation. May be it is Indian way of enjoying life.

No wonder u will see lot of skinny ladies all over places wearing tons jwellery, sometimes more than their weight, there is no issue in being skinny, but malnutritioned, unhealthy due to poor diet is problem for person as well as society . And u see tons of them in India. That makes me too think India is really different than other part of world.

Whereas American believes in living like king every day and dying like begger.

==> said...

Just wondering what will happen when RE go south and he end up into paying mortgage for more than his asset prices .

==> No worries, as asset is paid by renter and owner owns it without paying a penny from his pocket.

I'm sure your friend will buy 3rd apartment and put it on rent - EMI paid by renters, this time he will payoff in less than half time because now he has revenues from 2 apartments servicing EMIs for 1 apartment. At end of 40 years he will have atleast 5 flats paid off and owned.

This has been strategy by many for many years.

==> said...

Just a thought ....Indians believe in living like beggars and dying like king.

==> Well said !! To add to that - this forces others to live like beggars too.

Anonymous said...

Said:

I've now bought a house after reading some of your comments. I hope prices stay high. If they fall, I'll find you through your IP address and Google login.

skeptic's ghost said...

@Mumbaikar - Well said

I have seen people who live in 1 crore Rs property fight with Bhajiwalla for 5 Rs coriander. Also people with car will not go out in it will just park it for showing off. Exploit their house maid and servant. Starve themselves and kids, never buy toys or electronics for children, etc

It beats me why people live this way. Everyone pushes you to get married and have kids as if there is lack of people around. I think this has to do with Indian Education system. It has its good points of allowing upward mobility = at the same time people are reluctant to purchase goods and services but instead want to make profit by hoarding gold, silver, currency and real estate.

Everyone looks to be in a hurry to get married and have kids - who will are then set in another race to get married and more kids and so on. Very few are breaking this trend.

==> said...

Everyone looks to be in a hurry to get married and have kids - who will are then set in another race to get married and more kids and so on.

==> Skeptic Ghost - I agree with all your point here.

Many Indians are contributing to growth of shining India. population = consumers = great for businesses = $$ or Rs or CHAA CHINGGGG!!!

India has highest number of yougn crowd in this world and in next 15 to 20 years we will beat China (that will have old population).

Mumbaikar said...

High population doesn't always result into higher growth. You need productive population. If u look at Japan their population is very productive , though they have less resources it is second richest country in the world. It is size of California but has 1/3 GDP of US.
So controlled and productive population is in interest of country, not the population.
If you observe in India u will find poor people have more kids than rich. Reason with better access to information, education , medical facilities , social pressure keeps rich people's family at bay.

Whereas for poor person kids r assets , assuming that more hand will make more money and this asset is generated with pinch of investment ;) but many end up into fighting loosing battle.

India should have controlled , productive and healthy population, not just the population. We don't need Osama with 5 wives and 25 kids, we need Obama with 1 wife and 2 kids.

Mumbaikar said...

Well property will not pay for itself unless u wait for 10 years and rent goes up every year by 10%. Else it would have become very simple self sustaining investment.

With interest rates sky rocketing adjusting with EMI changes will be difficult. More and more people buying for renting will also put pressure on rents.

Anonymous said...

@Mumbaikar
Well property will not pay for itself unless u wait for 10 years and rent goes up every year by 10%.

I know people who have bought 3BHK for 20L and currently getting a rent of 20K pm on those units. Having lived in these units myself, I can tell you the construction quality is crap. However, the property has paid itself off and still giving a return of 12% not all of which is declared to IT authorities. Now if even one flat sells in the whole sector, not just society, for a crore then there is no way to make these people sell for less than a crore. In fact these people are not interested in selling at all.

The only way prices can come down is through new product launches but then builders are smart and they are doing cheaper launches in far-off areas and saving their lands in prime areas for developing them later.

This bubble may see corrections soon but bubble burst is at least a full decade away.

Anonymous said...

Stocks are trading at around 19 times earnings and seem to be heading downwards. Houses are trading at about 35-40 times earnings !!
For this to be justified, either earnings (rents) have to go up or prices have to come down.
Long term average for stocks and homes has been around 15-20 times earnings.

==> said...

Govt approves Rs 20,000 crore more subsidy to State oil retailers

http://www.thehindu.com/news/national/article2012814.ece

==> Where does GOI get so much money to give subsidy, same amount of money lost in many scams and on over that have GDP growth. RE is also one the area where gov't is granting free money.

Each costing nothing less than thousands of crores, where does this money come from, I had unheard this figures just decade ago.

What am I missing here?

==> said...

For this to be justified, either earnings (rents) have to go up or prices have to come down.

==> This is India, what goes up doesn't come down. law of gravity doesn't apply in India. ;-)

I think earnings (rents) will go up and yes, people will pay hike after some initial cribbing, then things will be back to as usual.

Anonymous said...

Prices are going up but demand is going down!!!!!!

Defies the fundemental business logic.

Is it that people are imagining things or someone in power manipulating things

How are the demand/supply figures arived at. For one thing I am sure, it is impossible to get accurate figures from govt/public-private sector.

Are we being led into believing somebodys assuptions/dreams.


Boy, it sure beats me. I believe that prices have been going up. But, demand going down ?????

Real estate assets are visible and i don't think businessman/investors are foolish to hoard them.

Appreciate if someone could explain the above phenomenon

Surlekar, Panjim, Goa

Anonymous said...

Real estate is hoarded by blackmarketeers (builders, investors, common people with multiple flats).

There is no supply. Demand in India........ neverending.

Supply and demand works in market, not in black market.

As for PE for RE in India, it has always oscillated between 25 and 60. If you know your stocks, then you will know that some stocks always trade at PE of 40 - some sectors always trade at PE of 30 - and some other sectors always trade at 5-10.

You need to know your sector PE and invest accordingly. Current RE PE is about 60 in Delhi.

RE is likely to stay static for at least 4 years - unless there is massive inflation and Rupee depreciation (currently it is appreciating). In normal conditions, in 4 years, rents are likely to rise a lot to make the current prices seem reasonable. Still, better to buy at PE of 30 rather than fail to perfectly time it at 25 and be left with nothing.

But expecting PE of 15 to 20 for RE is just ignorance talking

Anonymous said...

"But expecting PE of 15 to 20 for RE is just ignorance talking"

Not really, its history talking. In whichever country long term real estate data is available, you will see that long term PE tends to be around 15 to 20. Periods of exuberance invariably end. Like in stocks, todays "hot" sector is tomorrows untouchable. Look at the realty index, once the darling of the market, nowadays being hammered.

All this talk of black money, population density, basically the "India is different" nonsense is what is ignorance.

Fundamentals always assert themselves. May be not be this year or the next, or the one after that, but they will. Anyone who thinks otherwise is a fool soon to be parted from his money.

Anonymous said...

In unrealted news:

When you meet an Indian, they get intimate without being friendly.

Americans get friendley without being intimate.

An Indian will immediately ask you what u do, where are u from, what this...what that....while an American will probably makes jokes but not pry into my personal life.

Just a thought....

Anonymous said...

next time I will have to spell check.

Anonymous said...

@above:
Spell check and look at the context also. How is it related to RE bubble in India?

Anonymous said...

how is ur reply to his comment related to RE bubble, trouble whtever?

Anonymous said...

anon above:
If you see carefully anon before you at least had RE bubble in his statement.

Looks like summer is going to be bad. I heard a lot of people talking about how India is different. My opinion is that India is no different. All sand castles and growth based on Keynsinism which is fake. A lot of borrowed and printed money. it will all fall like a pack of cards. India will soon have its own financial crisis. I'm staying away from RE for a long long time now.

Anonymous said...

Generally, it is likely that for the real estate market to crash, the Rupee will have to soar (likely accompanied by an increase in real interest rates) as asset prices are negatively correlated with the relative strength of the currencies they are denominated in. For instance, there are some signs that the Australian real estate bubble has finally burst following the recent meteoric ascent of the Aussie Dollar: http://www.prosper.org.au/2011/04/12/pop-the-real-estate-bubble-has-burst/

The Rupee cannot fall at the same time that Indian house prices are also falling in nominal Rupee terms. Think about it. If the Rupee falls 20% against other currencies and house prices also fall by 50% measured in Rupees, that means that the effect of the crash is enormously magnified for NRI purchasers who will see a massive decline in house prices in terms of USD, GBP, EUR or AUD. I strongly doubt that such a scenario will pass because if it does NRI purchasers will buy those cheap Indian houses hand-over-fist thus placing a solid floor on any meaningful decline in prices. Thus, I suspect that any real estate correction will be accompanied by a sharp increase in the strength of the Rupee.

I acknowledge that in India, the RBI has an unofficial, but widely recognized, “dirty-peg” with the US dollar. So as Ben “helicopter” Bernanke is printing dollars like it’s going out of fashion, the RBI is also printing Rupees in tandem to ensure that the value of the Rupee relative to the USD does not appreciate beyond pre-set values. The RBI will continue to maintain this policy until it is politically constrained from doing so by the side effects of the ensuing inflation - I’m referring to a scenario of mass protests and violent demonstrations such as what is transpiring in the Arab world right now.

The RBI’s policies could result in an alternative scenario, where the property market crashes, but in real (and not in Rupee) terms, due to a collapse in the value of the Rupee. In this scenario, house prices will appear to remain stable in Rupees but would have collapsed when measured in other currencies. For instance, measured in a strong currency like the Swiss Franc or Gold, you could argue that the Indian property bubble has already burst. The reason people can’t see this bust is because they fail to appreciate that the Rupee has declined appreciably against most major currencies except the US Dollar (which is already a hopelessly weak currency because of the policies being pursued by the Fed).

I’m not sure which of these two scenarios will eventually pass, but I also know that nothing goes up forever (in real terms) and that a crash will eventually occur. However the timing of when that will happen is anybody’s guess. If history is any guide, bubbles tend to last much longer than what people expect and prices tend to go up much, much higher than anyone can possibly fathom.

During the Japanese real estate bubble of the late 1980’s, the 280 acre grounds of the Imperial Palace in Tokyo was worth more than all of the real estate in California...

Anonymous said...

@Anon above
Ha ha ha. Interesting info.
If I was the Japanese PM I would have tried to sell the Palace and buy California with the money and then moved all the japs there.

On a more serious note, if we fall into the same chaos as Arab world, would that really strengthen our currency? In any case the next general elections are 3 years ahead and the govt. has no reason to listen to common people's woes till then.

RE prices wrt to Gold etc and in real terms have already corrected and if prices stay where they are today for the next 3 years, the effect would be even more evident.

I really hope we see a decline in RE in rupee terms as do most of the wannabe buyers.

polt said...

"On a more serious note, if we fall into the same chaos as Arab world"

JF kennedy supposedly said "If you make peaceful revolutions impossible, you make violent ones inevitable". We have periodic peaceful revolutions where govts are routinely thrown out, we call them elections !

As for the Japanese bubble in 1989, stock markets were trading at 60 times earnings and RE at around 50+ (I think). Our equity markets are currently around 20 times earnings whereas homes are around 35-40. So this bubble might inflate some more. If you are buying a house to stay for 15-20 years by all means buy one. You could end up waiting for a long time if you try timing the market. But if you are buying one merely as an investment and you want to "flip" it in a few years, then be aware, esp if you are leveraging to buy the house.

Pawan said...

@Anon above,
(If) you want to "flip" it in a few years, then be aware, esp if you are leveraging to buy the house.

Why would anyone invest RE without leveraging? The real interest rates being negative, people find it easy to take loans and invest in RE. If you have 50L in bank and you really wanna invest then buy stocks. Even after a 50% correction in RE it will still be PE 20 where stocks currently are can crash by 50% to go to PE 20 where stocks already are. So going by risk-reward, stocks are practically risk free compared to RE :)

polt said...

"Why would anyone invest RE without leveraging? "
1. RE over the long term keeps pace with inflation. So as a hedge against inflation
2. Diversification. You already have money in equity, gold, FD/bonds. This was my reason for buying a small piece of land without a loan a few years back. Unfortunately valuation has been flat till now :(

Anonymous said...

Anon@4:14 here.

“On a more serious note, if we fall into the same chaos as Arab world, would that really strengthen our currency?”

No one knows. As I said, there are two alternative scenarios as to how a crash could pan out (one involving a rising rupee and the other a falling rupee). I do know that the current trend worldwide is that the Central Bankers of the world will fight tooth and nail to combat any nominal decline in asset prices, especially those asset prices that have reached bubblish levels (in the process, strongly favouring heavily leveraged borrowers while harshly punishing prudent savers). How successful they will be in doing this in India is yet another matter. In the US for example the Fed has failed to stabilize asset prices of the sector it most seeks to favour (housing) although it has inadvertently created massive price inflation in commodities such as Oil, Gold, Silver, Cotton and other asset classes. House prices are still falling in the US despite the fact that the US stands ready to print money until it runs out of trees.

There are many unknowns here, but look at it this way: any government in the Arab world now knows very clearly what the consequences of unmitigated price inflation (i.e. money printing) will be for the foreseeable future. Future monetary policy should be at least sensitive to such sociopolitical constraints.

Anonymous said...

With inflation, you need to be in hard assets.

Real estate is one such along with gold.

Its a no brainer = spend before your money becomes junk.

Gold and RE are the only appreciationg hard asssets.

The is no need for loan unless you cant afford to purchase the RE asset with cash

Anonymous said...

Indians will never protest or revolt, I work in the middle east and here the mentality of the people is differerent from the Indian psyce, Indians will just adjust, adjust and adjust, something that they have been doing for so many thousands of years. The caste system has taught them to live like this for ages and they will happily oblige.

Pawan said...

Polt and anon 11.57:
It is true that hard assets will go up with inflation but have prices of goods/services which make up the inflation index gone up 5 times in last 5 years? They have not. Which means the RE prices have gone up more than inflation would warrant. And therefore they must fall back in line.
For example, between 2002 to 2007 end, Sensex moved from 3000 to 20000. Between 2008 and now, Sensex has gone from 20,000 to 18,000. Real estate probably was in the 2002-2007 sensex-phase till the end of 2010. From 2011 to 2015, you may not see any returns from RE. Polt is already seeing that.

Anonymous said...

"The reasonable man adapts himself to the conditions that surround him... The unreasonable man adapts surrounding conditions to himself... All progress depends on the unreasonable man."
- George Bernard Shaw.

Indians need to learn this well.

Mumbaikar said...

Conditions in Arab world and India are different. Revolt has so far only happened in the country which are ruled by dictator for decades and decades. When u see one person is ruling for so many years it is easy to finger point same person for country,s failure.

India has mechanism of election which allows to select different Govt. every election that gives false hopes for changes. Then it is multiple-tier election state, central etc. So politicians get chance to pass monkey to someone elses shoulder for failures. If CM is caught in corruption change CM.
In short India is eye wash democracy with hazy eyed voters so revolt is impossible. Indians will take road to celebrate world cup victory, but when in it comes to fight for their own rights & corruption it is someone else responsibility.

Mumbaikar said...

As Indian I believe in "Tum ladho , hum
Kapada sambhala tha hai" ie you fight I will watch u r back . Revolution doesn't happen in this kind of society.

==> said...

So now, revolt is ruled out in India, what are remaining options for places like Mumbai.
1. Extreme high inflation - Needs extreme adjustment and pain (only for poor, rich class it doesn't make a dent).
2. Move out jobs to low cost areas.

Choose one. Indians find easy way out, I bet on #1.

Anonymous said...

In Mumbai, the Government is sitting on lots of valuble land. They could sell if off and move the offices to New Mumbai. But noooo.... they all want to work and live in Mumbai. The Socialist mindset has to be replaced by a Capitalist mindset, please end the babugiri.

Pravin K said...

Interesting situation...the stalemate... http://www.dnaindia.com/mumbai/report_builders-bleed-with-expensive-loans-but-still-wont-slash-rates_1544146

But since people cannot really afford .... builders may blink first.

polt said...

Pravin,
This is quite interesting that builders will rather borrow at astronomical 35% rather than lower prices. Maybe they are afraid of a crash (i.e. they end up underbidding each other in a firesale). Or they have such high margins that 36% interest burden will still leave enough cash on the table for them. The second option seems quite unlikely. Prices have been mostly flat (i.e still at 2007 levels) and inputs costs (steel, cement,labour) have shotup.
Someone from the builder community on this site can hopefully shed more light.
In any case, I think we have interesting times ahead. SBI stock fell 6% today due to bad loan provisions. Wonder how many of these loans are in RE (builders/homeowners). If interest rates are increased further, an increase in bad loans is almost guaranteed.

Pawan said...

I think we have interesting times ahead

You bet. First the equity markets tank and then we see mayhem in RE. I do not think there are any new buyers in RE market. Most people who are buying are those who have sold some land/house in one place and buying in a better place or buying a bigger one. At these prices, fresh buyers simply can not afford.

==> said...

Prices are not falling - so will stop buying RE and living in Mumbai? Nope - they will become creative, will adapt, become more organized, and learn to live for less.

http://unclutterer.com/2009/11/05/video-tour-of-jay-shafers-96-square-foot-house/

There are so many you tube videos on living in 200 sq ft house and they are all over globe - Japan, Sweden, Honkkong, may be next ones we will find in Mumbai... ahhh.. Mumbai already has many called SLUMS, Chawls.

Anonymous said...

==> said
Prices are not falling - so will stop buying RE and living in Mumbai?

Assuming Mumbai RE prices don't fall and all the builders keep building 1 BHK units for 1 Crore then there must be enough crorepatis in Mumbai who are happy to pay 1 Crore to live in a 1 BHK. If we have enough such crorepatis then I have no issues with that.

shailesh said...

I am in process of setting up new office in India, and am interviewing IT candidates. Since I am originally from Mumbai, that's where I am strating. But I am appalled at Office rent and Salary expectations. Basically at this point, I think tier 2 town is more reasonable choice.

==> said...

@Shailesh: Competing with global companies with local product is not easy. Can you beat IT salary these western companies offer unless you are another brick on the wall offering services for outsourced work.

Anyways, be ready to pay premium for doing business in premium location. No Exceptions. I hear that even doing business in slums is getting difficult as there shortage of workers, workers get more paid and benefits doing dirty laundry of westerners than doing productive work locally in India.

Also, you are very correct. Move out or bear the inflation.

==> said...

then there must be enough crorepatis in Mumbai who are happy to pay 1 Crore to live in a 1 BHK. If we have enough such crorepatis then I have no issues with that.

==> by looking at Mumbai - yes there are more crorepatis. Ask the existing home owners - they are already tagging themselves proudly as crorepatis. More houses, we will have more crorepatis.

What is next unit to crore? Time to use that in regualar, crore is old fashioned used for middle class only.

Anonymous said...

After Raja, it can only be the Lakh Crore - Crakh pati anyone?

Interestingly, a lakh crore is a trillion

Anonymous said...

shailesh : can you post some numbers ?

polt said...

http://economictimes.indiatimes.com/markets/real-estate/news-/private-lenders-make-most-of-realty-cash-crunch-earn-hefty-interest/articleshow/8382478.cms

More evidence of the crunch facing small builders and of the lenders making hay while the sun shines.

Anonymous said...

There are more Crorepatis in Mumbai than you can think of.

People with old properties are fetching crore and they use the same crore to buy another property. Creating an illusion that there are lots of Crorepati in the market. I know people who do not decent earning jobs are buying crore properties.

Mumbai property market is in this dangerous vicious circle. Unless this circle is broken I am afraid reality prices will only go up and up.
God bless us poor NRIs

==> said...

Mumbai property market is in this dangerous vicious circle.

==> as long as there is sucker at the end of the line, this chain cannot be broken. Unfortunately there is big line of these suckers in Mumbai and line is growing with inflow of migrants - workers from rural areas.

Anonymous said...

@=> Said:
The worst comments I have seen are from you on this blog.

Do you think migrants and workers have the kind of money to buy all these RE at insane prices. If they had that much money, why would they migrate. You should stop pimping RE. You seem to be a number one pimp of RE mafia. Shame on you idiot.

If anyone wants to buy, it is your choice. I'll wait till it corrects by 60% or so even if it takes 2-3 years.

==> said...

Do you think migrants and workers have the kind of money to buy all these RE at insane prices.

I never said that migrant workers have that kind of money. BUT they are bottom of food chain, they can and will adjust the most helping to save the most for their masters.


If they had that much money, why would they migrate.

==> Moollah and opportunity to earn money.

You should stop pimping RE. You seem to be a number one pimp of RE mafia. Shame on you idiot.

==> MF, you need to learn to read between lines and your something that is between your ears. I am not selling or advocating RE, simply stating the fact of lovely Mumbai.

If anyone wants to buy, it is your choice. I'll wait till it corrects by 60% or so even if it takes 2-3 years.
==> dream on. think why would someone who has no debt or need to sell you for loss?

GSM said...

==> dream on. think why would someone who has no debt or need to sell you for loss?

If everyone bought without debt, would you explain why SBI 99% decline in profit for the quater result that came yesterday. Are there no NPA's wrt to RE? And we are no way close to end of the interest rate tightening cycle!!!

Anonymous said...

Rs 30,000 crore black money recovered by CBDT
http://economictimes.indiatimes.com/news/politics/nation/rs-30000-crore-black-money-recovered-by-central-board-of-direct-taxes-in-two-years/articleshow/8416002.cms

According to experts, this does not even constitute 1% of the black money floating around, a large portion of which is tied to real estate

==> said...

@GSM sir,

If everyone bought without debt, would you explain why SBI 99% decline in profit for the quater result that came yesterday.

==> Most of the people bought RE with more than 50% downpayment (black or white). Whoever has/had a loan are affordable payment and many are not stressed out. Check out market, talk to people instead of reading reports.

Are there no NPA's wrt to RE?

==> Every lender has risk tolerance, there will be possible NPA and most of these NPAs fall under risk, so lenders are not stressed. How many foreclosures have you seen in your lifetime in India?

And we are no way close to end of the interest rate tightening cycle!!!

==> It just makes life hell for people living on credit, and what is the percentage of people in India living with tons of credit ?

==> said...

According to experts, this does not even constitute 1% of the black money floating around, a large portion of which is tied to real estate

==> What do experts have to say on fake money in rolling? How much is that amount?

More over with this amount of black money hitting market and made to white...what happens to value of white money?

Experts - anyone here?

GSM said...

More over with this amount of black money hitting market and made to white...what happens to value of white money?

If this black money existed in India in circulation, it shouldn't matter for value for Rupee except for Govt losing taxes. If the black money is stashed abroad by selling Indian Rupees to say Swiss Francs, then the Rupee value will depreciate.

==> said...

@GSM Sir,

If this black money existed in India in circulation, it shouldn't matter for value for Rupee except for Govt losing taxes.

==> Govt already lost taxes when white money was converted to black money and might have lost 10 times because with black money one NEVER HAS pay taxes. So When bringing black money to white money shouldn't govt be charging high taxes and penalities?
What happens to Interest rates when there is high white money in Bank?

If the black money is stashed abroad by selling Indian Rupees to say Swiss Francs, then the Rupee value will depreciate.

==> Why would any tax heaven country bank accept Indian Rs. Generally how black money stashing abroad works is get service locally in India and get paid in foreign currency abroad in tax haven country. So YES, to get black money that is in foreign currency that has to be sold for getting Indian Rupees and that will depreciate Indian Rs. Just like if China dumps $$s in market the value of dollar will be toilet paper.

Anonymous said...

think why would someone who has no debt or need to sell you for loss?

If it looks like the loss would only go up then they would sell. If it appears that the dip is temporary then they won't.
You really think debt and need are the only two factors driving RE or any other speculation?

==> said...

If it looks like the loss would only go up then they would sell. If it appears that the dip is temporary then they won't.

==> By your logic people are idiot not to sell when making profit and will sell if dip/loss is greater? RE prices are always sticky when going downward. Less the debt and need to sell more the seller would hold on to RE.

You really think debt and need are the only two factors driving RE or any other speculation?

==> Debt and need are not important factors for buying, but play VERY important role when selling.

If you are thinking as purely short term investor perspective, with less and no buyers RE prices will decline. But remember most of the investors in India is common man, who can wait and go hungry if needed instead of selling RE and gold for loss.

I know people who have parked their money in RE, Gold and above that are also earning 15L+ per annum. Simple decline in RE they are ready to cut back on the needs but not sell RE and Gold.

==> said...

I know people who have parked their money in RE, Gold and above that are also earning 15L+ per annum. Simple decline in RE they are ready to cut back on the needs but not sell RE and Gold.

==> I forgot to mention, I also know people that have 7 people staying in 1BHK apt, bought another 1BHK on loan and paid off the loan, He has no interest in selling his newly acquired house nor interest in moving into that. He gets decent rent from it and ready to wait for really lonngggg term if he has to sell.

DhImAn said...

==> Why would any tax heaven country bank accept Indian Rs. Generally how black money stashing abroad works is get service locally in India and get paid in foreign currency abroad in tax haven country. So YES, to get black money that is in foreign currency that has to be sold for getting Indian Rupees and that will depreciate Indian Rs. Just like if China dumps $$s in market the value of dollar will be toilet paper.


Wow, talk about opening your mouth and ramming your foot in it.

If foreign currency is sold to buy INR, the value of INR will go up.

Sorry ==>, you are entirely wrong.

Mumbaikar said...

Believe it or not there are many people in the market to make quick money. Investor doesnt wait for decades to make some profit. Today RE , tomorrow commodities , next may be Stocks etc. These guys believe in rolling money, not just keep it growing on tree. It is better to book 150% profit than 100% and for someone 50% than 20%, when this race will start u will enjoy firework.

Whatever goes up it comes down with same speed.

Mumbaikar said...

Just read somewhere yesterday that billionnaire has sold 95% of gold Spdr from portfolio in first quarter of this year. It was worth 700 million $. Now has only 7 million $ holding in Gold.

Bottom-line of the story when every one is gridy smart investor sells his stake , and when everyone is fearfull he buys.

==> said...

@DhImAn
Wow, talk about opening your mouth and ramming your foot in it.

If foreign currency is sold to buy INR, the value of INR will go up.

Sorry ==>, you are entirely wrong.


==> Yeeaaa, India will be superpower and will become more rich, we definitely defy gravity. Don't we?

;-)

==> said...

Builders will not loose anything, neither the investors, they are on top of their game, they will make exit before (and if) RE falls.

Seen average salary for newbie from college? 3.6L per annum.

I don't feel there will be any RE falls as long as job market is strong, good inflow of westerner paying jobs, govt printing money, flow of fake money, Indian adjustment attitude.

GSM said...

Seen average salary for newbie from college? 3.6L per annum.

This shouldn't mean anything. Are you telling that because salaries are going up, cell phone, computer or television prices are going up. Why should it only relate to RE? And more importantly check out how many freshers had their offers withdrawn and fired during probation in 2008-09.

GSM said...

==> Why would any tax heaven country bank accept Indian Rs. Generally how black money stashing abroad works is get service locally in India and get paid in foreign currency abroad in tax haven country. So YES, to get black money that is in foreign currency that has to be sold for getting Indian Rupees and that will depreciate Indian Rs. Just like if China dumps $$s in market the value of dollar will be toilet paper.

No tax heaven accepts Indian Rs. They only accept their currency so they can benefit. If you get service in India and get paid in foreign currency, isn't as good as selling Indian Rupees (that should have been other wise used for transaction) and buying say Swiss Francs. Wouldn't this decrease the demand for Indian Rupees in the market and depreciate Rupee value?

And regarding your argument that no body lives on debt in India, try understanding today's debt based monetary system. 95% of the money supply is in the form of debt. And the money supply can collapse when defaults start to trigger in a spiral. No wonder Govts don't mind about rising inflation.

I never understand any of your logic with standard economic principles. After all India is different and this time it is different :-).

Anonymous said...

==> said
Less the debt and need to sell more the seller would hold on to RE.

Which is totally idiotic. During the 2008 stock market crash, people held on tight when the market started falling and the losses kept getting bigger. I am not saying we are in league of Japan but if you bought RE in Japan in 80's then you are still sitting tight 30 years later hoping to recover your money which is never coming back. How does it matter if you were debt free and in no need to sell. Being emotionally attached to an investment is surely a recipe for disaster.

Anonymous said...

Interesting article - http://economictimes.indiatimes.com/policy/why-real-estate-investments-are-getting-riskier/articleshow/8433217.cms

DhImAn said...

==> Yeeaaa, India will be superpower and will become more rich, we definitely defy gravity. Don't we?


No, just basic supply and demand. If INR is demanded, its value must rise. Per your statement, if INR is bought (demanded), its value will fall.

Don't know which universe you inhabit, but in this one, that's not how it works.

polt said...

"Builders will not loose anything, neither the investors, they are on top of their game, they will make exit before (and if) RE falls."

Wrong. The ones who are over-leveraged will be crushed. And there are many such (builders/investors), who leveraged and bought land at inflated values. Now the chickens seem to be coming home to roost.

IF there is a sharp fall, the only sound you will hear will be that of investors running for the exits. Unless the Govt steps in and bails them out using tax payers money (like it did in 2008).

Mumbaikar said...

If RE is in such a demand and projects r sold even before they r launched then why Mr. Hiranandani is visiting gulf countries to sell his new project to NRI?

When things are so easy why is he taking extra step to sell his project? Just think abt it. He is guy who always peaching that RE only will go north.

People with loan have already started filling heat, banks are either increasing tenure to repay loan so EMI doesn't go up or asking to down pay part of loan so that tenure and EMI wont go up. It is not possible for every individual to go for higher tenure or down pay upfront. This will reduced demand for loan and RE.

Mumbaikar said...

I agree with Polt. Govt. had saved builders in 2008 by extending credit line, else we wouldn't be discussing all these issues in the forum.

Secondly congress came into power with majority, so field was quite open with no challenges. Congress == inflation + corruption.

Last no builder in the world put his money in the business, he gets it from bank, investors and end customer in the form of installments. So risk is equally shared by every one.

Anonymous said...

Congress == inflation + corruption = massive rise in real estate prices.

Inflation is inflation, everything inflates including real estate.

Apart from gold, real estate is the only hard/real asset which will protect you in times of inflation.

Contrary to popular belief, stocks dont protect you against inflation - stocks are hurt by inflation but do well with low inflation - which usually means loose monetary policy and low interest rates

Anonymous said...

Most of the NRI's re jealous....because they now think leaving India was not a good decision, given the appreciation of house values.

asll these IZT guys thought there is gold in California, b ut found out of job and see their cousins getting rich with the souses in Nida

They are bitter..NRI's are angry and bitter...do not trust them!!!

Anonymous said...

Beware of certain developers and their channel partners. They take lead of all possible bogus stunts.

Recently I had to deal with the most unprofessional face of Mumbai Real Estate in the form of Gurukrupa Developers from Borivali. Their rates are realistic in comparison to the sky high price, but their dealings with customers is more to be laughed about. People seated in the position of Partners forgot to remember the teachings from school or probably never attended one in the first place.

Hiren said...

@A basic principle of lending institutions says that the cost of your house cannot exceed five times your annual salary.

Assuming 90% of Indian family earn annual gross salary of Rs 2000 or less, they can afford house of 1.2Lacks. Here we are not talking about top of the cream but avarage family. So, For this 200+ million families, house of 8 Lacks(prices from 2005) is not affordable, but today a distant dream in 2011. I guess most of the real estate articles discussed are geared toward 8 Lacks and upwards that are affordable by remaining 10%. Rest of the others are just waiting for some lottery or government subsidy.

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