Price Trends in Chennai - Page 81 - Indian Real Estate Forum

k11 · 28-08-12

Quote:

Originally Posted by Clairvoyant

Apologies if it had confused you. They were two different post deliberately done to differentiate my observations (Germany) and opinion (UK).

I'm not lobbying for rent control as we haven't descended into big brother state. My pov was as long as rents are unaffordable and RE is speculators market w/o regulation we will foresee gullible investors (incl end users) losing money.

All I'm referring to is % yield not Chennai vs London. I understand the dynamics and naive to compare them both. There are concerns here on foreign money flowing into C.London RE. Avg Londoner income is approx 50k £/annum (3000£/sq ft is 6% of gross income) . Now compare that with Chennai's avg income/person and Rs 30000/sq ft in C.Chennai. Over-inflated London appears cheaper than Chennai. Don't we see the bubble here? I'm strong advocate of demand-supply! but I do have concerns over irrational exuberance .

No problem, you do not have to apologize. It is just a forum and it is a general topic.

I agree prices are crazy, but not totally out of reality.

You are forgetting about the people with very high amount of net worth (many with big% of black money) buy in Central Chennai.
I am sure their income is way greater.

Avg apt cost in Central Chennai is 15K per sqft.
15K/6% is 2,50,000.
Ordinary people earn 2.5L, buyers in Central Chennai generally earn 25L on avg if you put together these HNIs.

Look at my posts.
Best Luxury Apt Buildings

k11 · 28-08-12

Actually London is extremely expensive, so not a right comparison.

Even Singapore/Hong Kong is.

US is very cheap but high property tax and maintaince.
Chicago high rise buildings are at $300-$350/sqft.
Upscale ones, like Trump Towers are at $550-650/sqft.
But they will have $25-40/sqft in property tax and maintenance every year.

So a 2.5cr trump 1-bhk will look cheap, but you have to pay 35K a month in maintainance and 40K a month in property tax. Rent will be 1.5-1.75L a month (7-9% return), but will end up getting 75K-1L after taxes and fees (3.5%-4%). You get this return in Chennai too.

In India, taxes and fees are very cheap thats why people can afford to pay more for the price.

I think it is the same thing in Singapore and Hong Kong, they have lowest interest rates, so people can afford expensive houses.

nikons · 29-08-12

It is true that demand and supply decides the market price but it is not the only one. The other important factors are average income, infra, locality and so forth. No one would just go by geography and pay 1C for a flat next to slum. Flats in Chennai (not talking about suburbs that is 100 kms away) are highly inflated and not anymore affordable for any middle income group while it is a dream for middle/lower income group.
If RE in Chennai is growing at the rate of 10% to 15% on an average in a weaker economy then isn't it a bubble? I know it will be hard to accept the truth as Indian RE market have never experienced such a bubble/spike or burst.
Chennai RE market is full of speculators and big players, that is the major reason we see these price increase, this is getting similar to commodities trade. When few of these players screw up then we will see the end soon.
When everyone enters you quit and when everyone quits you enter. Does this statement will be applicable to our RE market? Just a thought.

k11 · 29-08-12

Quote:

Originally Posted by nikons

It is true that demand and supply decides the market price but it is not the only one. The other important factors are average income, infra, locality and so forth. No one would just go by geography and pay 1C for a flat next to slum. Flats in Chennai (not talking about suburbs that is 100 kms away) are highly inflated and not anymore affordable for any middle income group while it is a dream for middle/lower income group.
If RE in Chennai is growing at the rate of 10% to 15% on an average in a weaker economy then isn't it a bubble? I know it will be hard to accept the truth as Indian RE market have never experienced such a bubble/spike or burst.
Chennai RE market is full of speculators and big players, that is the major reason we see these price increase, this is getting similar to commodities trade. When few of these players screw up then we will see the end soon.
When everyone enters you quit and when everyone quits you enter. Does this statement will be applicable to our RE market? Just a thought.

Are you an NRI?
Did you miss the bus having this view?

1C is not a big number for 3-bhk anymore. Construction cost of a flat itself in a upscale township comes close to 2000rs/sqft (40L), carrying cost another 20L.

Prices are high, no question. But they are not ridiculous especially the city.

Suburbs are high becasue everyone has bet on it to develop. Will it ever develop - yes, it will. When it will develop - we dont know, it could be 5-20 yrs no one knows.

Clairvoyant · 29-08-12

Quote:

Originally Posted by k11

I agree prices are crazy, but not totally out of reality.

You are forgetting about the people with very high amount of net worth (many with big% of black money) buy in Central Chennai.
I am sure their income is way greater.

Avg apt cost in Central Chennai is 15K per sqft.
15K/6% is 2,50,000.
Ordinary people earn 2.5L, buyers in Central Chennai generally earn 25L on avg if you put together these HNIs.

I agree London is not the right comparison as they have their own anamolies based on post codes. But Chennai growth was more inclusive in past. I do have concerns when exclusive island sprouts inside the city and people are driven out to sub-urb. As you mentioned Mumbai- I don't want Chennai to go Mumbai way esp. Like in 80s/90s (builder/mafia nexus).

I say this as benefactor of Chennai RE. My investment albeit small, has grown 4x in 6 years , but I would rather prefer sustained long term growth as correction can be a excruciatingly slow process. When I mean correction, I don't expect massive fall on prices- even stagnation for 3 years is fall in price of approx 20% taking CPI Into account.

If builders are pricing 15k/ sq ft we will see flight in capital to developed RE markets. It makes sense when 20L flat/plot appreciates 100-200% in 3-4 years but when we have instances where 2cr property becomes 4 Cr in same time frame it's time to exit.

Clairvoyant · 29-08-12

Quote:

Originally Posted by k11

Actually London is extremely expensive, so not a right comparison.

Even Singapore/Hong Kong is.

US is very cheap but high property tax and maintaince.
Chicago high rise buildings are at $300-$350/sqft.
Upscale ones, like Trump Towers are at $550-650/sqft.
But they will have $25-40/sqft in property tax and maintenance every year.

So a 2.5cr trump 1-bhk will look cheap, but you have to pay 35K a month in maintainance and 40K a month in property tax. Rent will be 1.5-1.75L a month (7-9% return), but will end up getting 75K-1L after taxes and fees (3.5%-4%). You get this return in Chennai too.

In India, taxes and fees are very cheap thats why people can afford to pay more for the price.

I think it is the same thing in Singapore and Hong Kong, they have lowest interest rates, so people can afford expensive houses.

Precisely, on low interest environment in developed RE markets (mortgage interest rates 3-4% now) prices are depreciating; I don't have any problem HNIs splashing on properties as they already own many and they need few more safe-havens. It defies logic IMHO when middle class are made to buy this dream that 15k is standard rate for lifestyle (fair amount of Salaried are HNIs); take loan on today's high interest scenario? (10-15%) perfect recipe!

On maintenance- aren't they charging 3-5Rs/ sq ft already ?

k11 · 29-08-12

Quote:

Originally Posted by Clairvoyant

On maintenance- aren't they charging 3-5Rs/ sq ft already ?

3-5Rs is too low compared to western standards.

If we use western stds, maintainance needs to be in the range of 30-50Rs a sqft atleast.

I used the number as folks tend to compare India to west.

If you multiply rent with exchange rate, then you should also multiply expenses too.

Clairvoyant · 29-08-12

Quote:

Originally Posted by k11

So a 2.5cr trump 1-bhk will look cheap, but you have to pay 35K a month in maintainance and 40K a month in property tax. Rent will be 1.5-1.75L a month (7-9% return), but will end up getting 75K-1L after taxes and fees (3.5%-4%). You get this return in Chennai too.

In India, taxes and fees are very cheap thats why people can afford to pay more for the price.

I think it is the same thing in Singapore and Hong Kong, they have lowest interest rates, so people can afford expensive houses.

Well I reckon there's fundamental difference in the way we look at ROIs.

3-4% return on low inflation (2%) , savings rate (.10%) market in developed RE is exceptional vs high inflation, depreciating rupee- only double digit returns could justify it. I don't want to shout its doomsday, just want to advise caution to all investors ( end-users).

On maintenance/tax: I don't have first hand knowledge in states, but in UK- council tax works around 1500-2000£/ annum for 3bhk (paid by tenants). Maintenance varies from 1500-4000£ (Concierge services) . Yet it works out to be less than 15% of gross yield.

k11 · 29-08-12

I am not saying rental yeild is under inflation in western countries. It is the 3-4%, not 10% gross that people tend to assume. And yes, the 3-4% is above inflation of 1-2%.

In India, capital increase easily takes care of inflation and rental yeild (3-4%) just gives a bit extra.

London, Singapore, Hong Kong, even New York are on different track, people way too much for housing. They never dip down.

Love4land · 29-08-12

Sobha has just released the investor concall for Q1-2012, I found this very interesting piece of information about how real estate prices are steadily increasing despite of seemingly stagnant economic growth for past 2 yrs:

Question from Merrill Lynch:

Quote:

Couple of years back we always said Bangalore is a very affordable city and it is being extraordinarily well so average Bangalore pricing was about 4,000. So even if you take average house size at 1,500 you had 60 lakhs.

Now it seems that has increased and especially for Sobha it has increased to 5,000+ so typical appartment ticket size has become a crore plus which means that the household income should be at least Rs. 22 – Rs. 25 lakhs. With IT growth looking a little slow not doing in double digits affordability being a little bit of concern now, do you see that a concern going forward.

It is more of a now plus two years question not particularly a quarter related questions but a more macro question. Do you see Bangalore affordability losing out and going to Chennai way or something like that?

Answer:

Quote:

Currently 40% of our customers they constitute from this IT sector. At the same time 44% of our customers who have booked our apartments from April ‘11 to March ‘12 have opted for a loan. 56% of the people have not yet opted for the loans. We have also observed that more than 21% of our customers they are NRI. Similarly we have also tried to breakup the sales bandwidth less than 50 lakhs between 50 to 75 lakhs, 75 lakhs to 1 crores, 1 crore to 2 crores and above 2 crores kind of a thing and our experience is that the people are in a position to afford the homes above 1 crore because most of these guys have a double income. The people who are buying maximum above 30 years of age they constitute 90% of our customer base, both who are above 40 years they constitute 62% of our customer base and these are the people they have a household income definitely of not less than Rs.20 to Rs.25 lakhs which should be good enough for them to ensure that they can maintain the lifestyle and also can afford to own a home either on a loan basis or through their family savings.

http://www.sobhadevelopers.com/about...-2012-2013.pdf

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28-08-12	#802
k11 Veteran Member Join Date: Aug 2008 Posts: 1,390 Likes Received: 323 Likes Given: 234	Actually London is extremely expensive, so not a right comparison. Even Singapore/Hong Kong is. US is very cheap but high property tax and maintaince. Chicago high rise buildings are at $300-$350/sqft. Upscale ones, like Trump Towers are at $550-650/sqft. But they will have $25-40/sqft in property tax and maintenance every year. So a 2.5cr trump 1-bhk will look cheap, but you have to pay 35K a month in maintainance and 40K a month in property tax. Rent will be 1.5-1.75L a month (7-9% return), but will end up getting 75K-1L after taxes and fees (3.5%-4%). You get this return in Chennai too. In India, taxes and fees are very cheap thats why people can afford to pay more for the price. I think it is the same thing in Singapore and Hong Kong, they have lowest interest rates, so people can afford expensive houses.

29-08-12	#803
nikons New Member Join Date: Feb 2012 Posts: 13 Likes Received: 2 Likes Given: 0	It is true that demand and supply decides the market price but it is not the only one. The other important factors are average income, infra, locality and so forth. No one would just go by geography and pay 1C for a flat next to slum. Flats in Chennai (not talking about suburbs that is 100 kms away) are highly inflated and not anymore affordable for any middle income group while it is a dream for middle/lower income group. If RE in Chennai is growing at the rate of 10% to 15% on an average in a weaker economy then isn't it a bubble? I know it will be hard to accept the truth as Indian RE market have never experienced such a bubble/spike or burst. Chennai RE market is full of speculators and big players, that is the major reason we see these price increase, this is getting similar to commodities trade. When few of these players screw up then we will see the end soon. When everyone enters you quit and when everyone quits you enter. Does this statement will be applicable to our RE market? Just a thought.

29-08-12	#809
k11 Veteran Member Join Date: Aug 2008 Posts: 1,390 Likes Received: 323 Likes Given: 234	I am not saying rental yeild is under inflation in western countries. It is the 3-4%, not 10% gross that people tend to assume. And yes, the 3-4% is above inflation of 1-2%. In India, capital increase easily takes care of inflation and rental yeild (3-4%) just gives a bit extra. London, Singapore, Hong Kong, even New York are on different track, people way too much for housing. They never dip down.