Price Trends in Chennai - February 2009 - Page 3 - Indian Real Estate Forum

17-02-09

Value for Money, Infrastructure and ease of accessibilty should be main criteria for buying RE.

Chennai RE needs alteast 50% correct from the Peak (currently) to sustain a resonable growth.
I hope the RE builder/developer politician Cartel will soon be broken after the General Elections,
as Black Money will be diverted for the Elections too,
which is also a form of Investment.

Also, the should be curb on speculative investment in RE and
mode of fund transfer should be through Bank Transfer or using Bank Instruments.

If IT was the sole reason for the RE boom from 2003 -2008,
then with the recent economic downturn and home returning of the IT people from foreign,
will put enormous pressure on RE and drag it to bottom soon, as most of the IT Money flowed into RE.

nabishek · 17-02-09

People who rent a house, opt to buy a house for various reasons.

Some the advantages are owning a house in your name, availability of loan from bank and its long term investment benefits.

For salaried people, Buying a House through Home loan is the Best
Investment instrument in term of savings and wealth creation in the long
term.

For a person earning 5,00,000 CTC.Lets assume take home per month is Rs
30,000 after all tax deductions.

Assuming the person can spend 40% of the income on EMI
(40/100 * 30000) = 12000 + 6000(rental saved on buying the home)
= 18000

If this person goes for a home loan at 9% for 20 years tenure
monthly installment for 1 lakh would be Rs 900

For a person with repayment capability of 18000 per month the loan
eligibility is

18000/900 * 1,00,000 = 20,00,000

with a downpayment of 5 lakhs, the person can now buy a house for 25 Lakhs.

It is believed that returns are around 20% p.a for Real estate and the cost
of borrowing is 10% p.a. over the long run.

Applying that at the end of 20 years

25 lakh worth of property would be worth 1 Crore 25 lakhs
and Total repayment (principal + interest ) = 50 lakh

Therefore savings = 75 lakhs + savings/income on rental + tax ememptions
over the years.

Note - The above figure is just indicative and not inflation adjusted and I
havent used CAGR for calculations, hence the actual returns can be very
much higher.

Now, in the Family if both husband and wife are working, the affordability
increases double fold and with money from parents,in laws,savings one could
easily buy a decent 2/3 bhk for 40-50 lakhs and hope to have a property
worth 2.5 Crore at the end of 20 years.

If the person is an NRI, the yearly savings would be 10-15 lakhs per annum
and for them a 5 years stint would be enough to repay the loan completely
and R2I with huge savings and crores worth place to live.

All of this within their own lifetime.

nabishek · 17-02-09

In my above post, I explained the benefits of availing loan to buy a home.

Like for any investement even for RE proper planning,proper risk assesment should be done and contingency plan should be ready.

Experts claim that the returns are 20% p.a. for RE long term, taking into account all the boom and burst cycles the industry will face.

So, one should understand when prices have skyrocketed 400-600 % in just a span of 4-5 years, a possibility of RE crash/correction cannot be ruled out.It has happened in the past and can happen now.

Just in stocks, in RE also there are long term and short term
investors.when there is a crash, people who were speculators and who have played and gambled beyond their strength will be wiped off their wealth.

We need to ask ourselves some questions before commiting our future to an RE investment through loans.

Question 1

In the case of devaluation of the asset, do you have the capability and capacity to pledge additional collateral and hold on to the investment long term to realize the profit?

Question 2

Land appreciates, building depreciates.

Is the property worth 2.5 crore after 20 years?

When you buy a flat, for 1000 sqft built up the UDS would be only 700
sqft.Its wrong to assume that one will have 2.5 crores worth property by paying 50 lakhs for a 1000 sqft 2 bhk flat.the 20% returns should be calculated only on the land value, not on the flat sale value.Is your expectations realistic?

Question 3

Are you buying, hoping to get rental income from the property which can be paid towards the EMI?

The rental yield on an average is 4-5% of the property value.If the rents falldown from the current 10% in some places to average level or below that, are you prepared to manage your EMI without the income?

Question 4

with the Recession hitting hard and people losing their jobs and taking salary cuts everywhere,God Forbid, if such an event happens to you do you have other sources of income, wealth to take care and continue holding on to your investment and secure the future of all those dependant on you?

Many are in the impression that if they cant pay the EMI, the bank will only confiscate back the property.unlike in US, when you default on EMI payment the banks here are entitled to possess the asset and also the other assets that belongs to you.Its treated as a personal long term liability where the house is the mortgage.

Question 5

The interst rates keeps varying very often, and the fixed rate is also not really fixed.Are you prepared to take on this fluctuations by arranging more funds or prepaying the loan whenever necessary?

Question 6

Have you secured the future of yourself and dependants?

Are you investing only in property and not diversifying in other portfolios like stocks,FD's,Mutual funds,Life/Medical/Accident Insurance,childrens savings,pension schemes,Gold etc?

The more you diversify, less is the risk you will lose more.

One has to always remember that there's a family to be look after and there are people who are dependent on us and should act responsibly.

If one is aware of all the risks and is capable and confident of handling them, anytime is a good time.One shouldnt get carried away by herd mentality and get into something withouth knowing all danger involved.

RE is bonded with sentiments in India,Everyone wants to plunge in and own a home sometime, The time should be right and comfortable for you and decided based on what you have and personally can afford.whether the market is in boom or burst, bull or bear is immaterial in the long run.

In this tough times of uncertainity and recession, Being aware and staying prepared is the key to survival.

shyame2 · 17-02-09

Quote:

Originally Posted by nabishek

In my above post, I explained the benefits of availing loan to buy a home.

Like for any investement even for RE proper planning,proper risk assesment should be done and contingency plan should be ready.

Experts claim that the returns are 20% p.a. for RE long term, taking into account all the boom and burst cycles the industry will face.

So, one should understand when prices have skyrocketed 400-600 % in just a span of 4-5 years, a possibility of RE crash/correction cannot be ruled out.It has happened in the past and can happen now.

Just in stocks, in RE also there are long term and short term
investors.when there is a crash, people who were speculators and who have played and gambled beyond their strength will be wiped off their wealth.

We need to ask ourselves some questions before commiting our future to an RE investment through loans.

Question 1

In the case of devaluation of the asset, do you have the capability and capacity to pledge additional collateral and hold on to the investment long term to realize the profit?

Question 2

Land appreciates, building depreciates.

Is the property worth 2.5 crore after 20 years?

When you buy a flat, for 1000 sqft built up the UDS would be only 700
sqft.Its wrong to assume that one will have 2.5 crores worth property by paying 50 lakhs for a 1000 sqft 2 bhk flat.the 20% returns should be calculated only on the land value, not on the flat sale value.Is your expectations realistic?

Question 3

Are you buying, hoping to get rental income from the property which can be paid towards the EMI?

The rental yield on an average is 4-5% of the property value.If the rents falldown from the current 10% in some places to average level or below that, are you prepared to manage your EMI without the income?

Question 4

with the Recession hitting hard and people losing their jobs and taking salary cuts everywhere,God Forbid, if such an event happens to you do you have other sources of income, wealth to take care and continue holding on to your investment and secure the future of all those dependant on you?

Many are in the impression that if they cant pay the EMI, the bank will only confiscate back the property.unlike in US, when you default on EMI payment the banks here, the banks are entitled to posses the asset and also the other assets that belongs to you.Its treated as a personal commitment where the house is the mortgage.

Question 5

The interst rates keeps varying very often, and the fixed rate is also not really fixed.Are you prepared to take on this fluctuations by arranging more funds or prepaying the loan whenever necessary?

Question 6

Have you secured the future of yourself and dependants?

Are you investing only in property and not diversifying in other portfolios like stocks,FD's,Mutual funds,Life/Medical/Accident Insurance,childrens savings,pension schemes,Gold etc?

The more you diversify, less is the risk you will lose more.

One has to always remember that there's a family to be look after and there are people who are dependent on us and should act responsibly.

If one is aware of all the risks and is capable and confident of handling them, anytime is a good time.One shouldnt get carried away by herd mentality and get into something withouth knowing all danger involved.

RE is bonded with sentiments in India,Everyone wants to plunge in and own a home sometime, The time should be right for you and decided based on what you have and personally can afford.whether the market is in boom or burst, bull or bear is immaterial in the long run.

In this tough times of uncertainity and recession, Being aware and staying prepared is the key to survival.

Hi Nabishek

Well written and well done, looking at things from all perspective.

Keep the good work

ks2071746 · 18-02-09

Quote:

Originally Posted by nabishek

Its my pleasure to be part of this forum and be amongst many knowledgable people who bring in loads of experience and very valuable thoughts from different perspectives.

In the RE industry, various cartel's are working together.Each coterie is heavily backed by Banks.

In fact, The builders are selling prospective buyers a loan rather than the property.Real Estate has become a joint venture between the builder and bank i would say.

The property fair's organised by SBI,HDFC,LIC,IDBI etc all feature only builders who bank with them or to whom they have financed.

The FairPro was heavily sponsored by HDFC,SBI and LIC.I could see representatives before each stall offering attractive loan rates.They were calculating and convincing me how affordable these homes are through home loans given my current salary and years till retirement.

The builders who participated would amount to just 5-10% of the overall builders in chennai.But,the point is they are the popular ones and strong hands who over the years have created a image for themselves as reputed.

It is their consortium of builders,politicians,government officers,bank officers,corporates,speculators,brokers etc etc who get finances from Foreign Investment/Public money through stocks/Black Money and decide where there should be demand and where there should be supply.They would gain knowledge beforehand where infrastruture development is planned and buy large land banks near airport,SEZ,township,outer/inner ring road,metro rail etc and fix the price stating the proposed development.

They promoted IT and Electronic corridor, It was not End users who saw development,infrastructure and personal need that created demand.

They fuelled the speculation and capitalized on the buyer's sentiment of owning a home (even if its on mortgage).They created a sense of panic among buyers by hiking rates meaninglessly.

The remaining small builders who use their own money and in joint ventures are stuck having invested huge amount in land at a time when construction cost was high.I came across many such properties in prime localities which are at ready to occupy/nearing completion stage for 1500-3000 rs/sqft less than the prevailing market rate.They are more willing to accomadate buyers interest and negotiate further and provide a better deal.

This Trend would change only if the buyers insist on value for money and are aware what they are getting into and more importantly know exactly what is that they really want.

"One should'nt bite more than what they can chew"

Dear friend,
I liked your last 2 paras. The best is the last but one- which reads- This trend would change....... they really want-. But do you feel that the buyers are such an united community to join with full vigour and fight the Promoters/Builders TO force them to reduce the prices to reasonable levels? The buyers will always be a divided lot in this country.

You have rightly said that it is not selling the flats but selling the loans. The Banks always support the RE guys for reasons well known to every one. The poor buyers is the sufferer in any case.

ks2071746

gone_mad · 18-02-09

@nabishek,

Thanks much for your post(s). Really informative and they answered so many questions of mine, for which I'm here in this board.
Appreciate your work, well done!

nabishek · 18-02-09

Quote:

Originally Posted by ks2071746

Dear friend,
I liked your last 2 paras. The best is the last but one- which reads- This trend would change....... they really want-. But do you feel that the buyers are such an united community to join with full vigour and fight the Promoters/Builders TO force them to reduce the prices to reasonable levels? The buyers will always be a divided lot in this country.

You have rightly said that it is not selling the flats but selling the loans. The Banks always support the RE guys for reasons well known to every one. The poor buyers is the sufferer in any case.

ks2071746

You are right ks2071746, Buyers are not united, and they wont be united unless they have a common purpose.For instance all getting cheated by a builder.

All the potential buyers would still try to out buy each other if there is a good deal on the block, This is because supply of good properties are still less.

In chennai oversupply is only at far away places like OMR, GST road etc.

People who truly know what RE investing is, invest only in liveable areas where basic infrastructure is already available.They do not speculate.

Once you start to speculate, its no different than in a .People will experience beginners luck but the "House" never loses..

The builders have earned a lot already and will hold up as long as they can.

Builders,Banks,Speculators,Buyers and other players have hugely betted on each other and have over leveraged themselves.

If one of the player goes down, all will.

Buyers are largely influenced by mass psyche, They easily get carried away by the mania that envelopes them during the time.Not many take decisions based on what they know, they take decisions rather by what they are told.

Just like everyone were buying 3-4 years back because the other was buying, now everyone have started to hold back because the others near them are waiting and watching.While the former created a boom, the latter can initiate a crash.

lovebird · 18-02-09

All these calculation will work out good as long as your job is stable.

When jobs can be lost at any time, such EMI calculations are risky

ks2071746 · 18-02-09

Quote:

Originally Posted by nabishek

You are right ks2071746, Buyers are not united, and they wont be united unless they have a common purpose.For instance all getting cheated by a builder.

All the potential buyers would still try to out buy each other if there is a good deal on the block, This is because supply of good properties are still less.

In chennai oversupply is only at far away places like OMR, GST road etc.

People who truly know what RE investing is, invest only in liveable areas where basic infrastructure is already available.They do not speculate.

Once you start to speculate, its no different than in a .People will experience beginners luck but the "House" never loses..

The builders have earned a lot already and will hold up as long as they can.

Builders,Banks,Speculators,Buyers and other players have hugely betted on each other and have over leveraged themselves.

If one of the player goes down, all will.

Buyers are largely influenced by mass psyche, They easily get carried away by the mania that envelopes them during the time.Not many take decisions based on what they know, they take decisions rather by what they are told.

Just like everyone were buying 3-4 years back because the other was buying, now everyone have started to hold back because the others near them are waiting and watching.While the former created a boom, the latter can initiate a crash.

Dear friend,

Your messages are very useful and thought provoking from practical point of views and not theoritical just to enjoy at the time reading only. They all look very practical and so many members and guests will be benefitted surely. Hi Members/Guests! Why not we appreciate the quite useful messages from nabishek?

ks2071746

abk · 18-02-09

Quote:

Originally Posted by nabishek

You are right ks2071746, Buyers are not united, and they wont be united unless they have a common purpose.For instance all getting cheated by a builder.

In chennai oversupply is only at far away places like OMR, GST road etc.

People who truly know what RE investing is, invest only in liveable areas where basic infrastructure is already available.They do not speculate.

The builders have earned a lot already and will hold up as long as they can.

Builders,Banks,Speculators,Buyers and other players have hugely betted on each other and have over leveraged themselves.

If one of the player goes down, all will.

Buyers are largely influenced by mass psyche, They easily get carried away by the mania that envelopes them during the time.Not many take decisions based on what they know, they take decisions rather by what they are told.

.

some of the reasons u have given r what i also have been arguing about 'oversupply in chennai in only far off places'.

the mass psyche is also termed as the 'present bias' the thinking that what is happening will continue till eternity.

the same exprts who said the sensex will touch 30000 in a yaer or two are
saying 12000-15000 levels now.
the same experts who predicted that IT hiring on OMR will be huge and require huge no of houses and predicted a requirement of 50000 houses on OMR.
now they are ranting and comparing this with 1929.
common sense does not allow me to believe them.

ALL THESE YEARS THEY HAVE ONLY PREDICTED HOW THE ECONOMY SHOULD BEHAVE RATHER THAN HOW IT BEHAVES.
drawing parallels between slumps and economies(nations) is senseless.
every economy has its own inherent strengths and weakness.every situation was different.
the world moves at a diff pace now than in 1929.distances have disappeared,
borders are imaginary,in short the world has shrunk and things have changed to unimaginable levels since 1929,how could you compare them.

what happened then need not necesarily happen now.

everybody here agrees chennai prices have not crashed yet compared to
other places.there is a difference among geographies,chronologies and effect of the same.

17-02-09	#22
nabishek Member Join Date: Mar 2008 Posts: 336 Thanks: 0 Thanked 4 Times in 2 Posts	People who rent a house, opt to buy a house for various reasons. Some the advantages are owning a house in your name, availability of loan from bank and its long term investment benefits. For salaried people, Buying a House through Home loan is the Best Investment instrument in term of savings and wealth creation in the long term. For a person earning 5,00,000 CTC.Lets assume take home per month is Rs 30,000 after all tax deductions. Assuming the person can spend 40% of the income on EMI (40/100 * 30000) = 12000 + 6000(rental saved on buying the home) = 18000 If this person goes for a home loan at 9% for 20 years tenure monthly installment for 1 lakh would be Rs 900 For a person with repayment capability of 18000 per month the loan eligibility is 18000/900 * 1,00,000 = 20,00,000 with a downpayment of 5 lakhs, the person can now buy a house for 25 Lakhs. It is believed that returns are around 20% p.a for Real estate and the cost of borrowing is 10% p.a. over the long run. Applying that at the end of 20 years 25 lakh worth of property would be worth 1 Crore 25 lakhs and Total repayment (principal + interest ) = 50 lakh Therefore savings = 75 lakhs + savings/income on rental + tax ememptions over the years. Note - The above figure is just indicative and not inflation adjusted and I havent used CAGR for calculations, hence the actual returns can be very much higher. Now, in the Family if both husband and wife are working, the affordability increases double fold and with money from parents,in laws,savings one could easily buy a decent 2/3 bhk for 40-50 lakhs and hope to have a property worth 2.5 Crore at the end of 20 years. If the person is an NRI, the yearly savings would be 10-15 lakhs per annum and for them a 5 years stint would be enough to repay the loan completely and R2I with huge savings and crores worth place to live. All of this within their own lifetime. Last edited by nabishek; 17-02-09 at 05:51 PM.

17-02-09	#23
nabishek Member Join Date: Mar 2008 Posts: 336 Thanks: 0 Thanked 4 Times in 2 Posts	In my above post, I explained the benefits of availing loan to buy a home. Like for any investement even for RE proper planning,proper risk assesment should be done and contingency plan should be ready. Experts claim that the returns are 20% p.a. for RE long term, taking into account all the boom and burst cycles the industry will face. So, one should understand when prices have skyrocketed 400-600 % in just a span of 4-5 years, a possibility of RE crash/correction cannot be ruled out.It has happened in the past and can happen now. Just in stocks, in RE also there are long term and short term investors.when there is a crash, people who were speculators and who have played and gambled beyond their strength will be wiped off their wealth. We need to ask ourselves some questions before commiting our future to an RE investment through loans. Question 1 In the case of devaluation of the asset, do you have the capability and capacity to pledge additional collateral and hold on to the investment long term to realize the profit? Question 2 Land appreciates, building depreciates. Is the property worth 2.5 crore after 20 years? When you buy a flat, for 1000 sqft built up the UDS would be only 700 sqft.Its wrong to assume that one will have 2.5 crores worth property by paying 50 lakhs for a 1000 sqft 2 bhk flat.the 20% returns should be calculated only on the land value, not on the flat sale value.Is your expectations realistic? Question 3 Are you buying, hoping to get rental income from the property which can be paid towards the EMI? The rental yield on an average is 4-5% of the property value.If the rents falldown from the current 10% in some places to average level or below that, are you prepared to manage your EMI without the income? Question 4 with the Recession hitting hard and people losing their jobs and taking salary cuts everywhere,God Forbid, if such an event happens to you do you have other sources of income, wealth to take care and continue holding on to your investment and secure the future of all those dependant on you? Many are in the impression that if they cant pay the EMI, the bank will only confiscate back the property.unlike in US, when you default on EMI payment the banks here are entitled to possess the asset and also the other assets that belongs to you.Its treated as a personal long term liability where the house is the mortgage. Question 5 The interst rates keeps varying very often, and the fixed rate is also not really fixed.Are you prepared to take on this fluctuations by arranging more funds or prepaying the loan whenever necessary? Question 6 Have you secured the future of yourself and dependants? Are you investing only in property and not diversifying in other portfolios like stocks,FD's,Mutual funds,Life/Medical/Accident Insurance,childrens savings,pension schemes,Gold etc? The more you diversify, less is the risk you will lose more. One has to always remember that there's a family to be look after and there are people who are dependent on us and should act responsibly. If one is aware of all the risks and is capable and confident of handling them, anytime is a good time.One shouldnt get carried away by herd mentality and get into something withouth knowing all danger involved. RE is bonded with sentiments in India,Everyone wants to plunge in and own a home sometime, The time should be right and comfortable for you and decided based on what you have and personally can afford.whether the market is in boom or burst, bull or bear is immaterial in the long run. In this tough times of uncertainity and recession, Being aware and staying prepared is the key to survival. Last edited by nabishek; 17-02-09 at 06:47 PM.

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17-02-09	#21
REGuru Unregistered User Posts: n/a	Value for Money, Infrastructure and ease of accessibilty should be main criteria for buying RE. Chennai RE needs alteast 50% correct from the Peak (currently) to sustain a resonable growth. I hope the RE builder/developer politician Cartel will soon be broken after the General Elections, as Black Money will be diverted for the Elections too, which is also a form of Investment. Also, the should be curb on speculative investment in RE and mode of fund transfer should be through Bank Transfer or using Bank Instruments. If IT was the sole reason for the RE boom from 2003 -2008, then with the recent economic downturn and home returning of the IT people from foreign, will put enormous pressure on RE and drag it to bottom soon, as most of the IT Money flowed into RE.

18-02-09	#26
gone_mad Member Join Date: Sep 2008 Posts: 101 My Mood: Thanks: 0 Thanked 0 Times in 0 Posts	@nabishek, Thanks much for your post(s). Really informative and they answered so many questions of mine, for which I'm here in this board. Appreciate your work, well done!

18-02-09	#28
lovebird Member Join Date: Dec 2008 Posts: 387 Thanks: 0 Thanked 0 Times in 0 Posts	All these calculation will work out good as long as your job is stable. When jobs can be lost at any time, such EMI calculations are risky