Srinidhi

Thank You Economist for your comments .

This is my stand :

I am going to forget chennai and other metros for some time especially 50L+ properties .I don't think these 50L+ properties will get double in 5 or even in 10 years , since income - EMI ratio doesn't match .Builders are playing tricks to keep the prices of these kind of properties since their profit is very huge on this segment.It is going to get a very big hit in short to medium term , it may take even some years based on how G20 is reacting for this GFC .I am an NRI and I am looking for some decent plot / house which I need only when I return to India , Basically I am from southern part ,even In my home town RE went up multiple times , but still in the range of affordable level to the people who lives there , our home town is mainly driven by govt employees / local people who spend less and save more .You can still buy plot for 1 or 3 lakhs per ground in outer areas (inside the town they are quoting 20L - 30l per ground which doesn't make sense to me).Now a days any one can afford 1-3 laks rupess which I feel is the great investment(since we don't have any other better option) for this time and give good return during these inflationary times as Economist said because we have enough space for appreciation .And also we don't need to go for loan for these kind of amounts.I have already invested a lot in my home town during 2000- 2006 and the prices went up multiple times , even if it doesn't make sense , I personally happy about that .I am still waiting with some good amount of cash to buy 50L+ property in chennai which is only for living purpose which I am personally feel is going to take a big hit , because no one can justify this price level , it is really un affordable to any one , tell me who can buy a plot / house for 60 - 75 lakhs with cash / loan during this GFC (may be businessmen,doctors and politician and whoelse?) ,
I am planning to wait with Cash as wiseman said for atleast next two years , if nothing got changed , I will go and buy my home town 1-3 lakhs properties (may be for 4-5 lakhs after 2 years) and get into the RE bus .I am pretty sure RE won't go anywhere atleast for next 2 years .
Please feel free to correct me If I am missing anything .

sridharchennai

I see two contradicting but logical facts from economist and Srinidhi. Economist seems to be very optimistic and Srinidhi seems to be cautious.

economist - I agree with your logic that the money kept in FD will come to peanuts in long term. The general perception is everybody wants to invest their hard earned money but, the dilemma Is this the right time to invest? Yes, the 6th pay commission has indirectly increased the wage inflation but, how long the private companies keep increasing the salaries in this volatile market? If that happens India for sure will lose it's wage advantage to other asian countries. When the salaries are not going to keep increasing near term, how will the RE prices alone can increase? And look at the return you get as rent on the flats you invest, a 50 lakh flat in OMR can fetch you a rent of Rs 13000 max (I have flat here in perungudi very near to frontline hospital). But look at the EMI the buyer need to pay. Investment is always good but, the question is Is the time right now?

Srinidhi - Even though your are an NRI I like your cautious approach. If all the people who fear that they will miss the RE bus had shown some of this caution the RE prices would have been affordable by now.

sridharchennai

Hi Sri,

I was also a guy who was too much into data when completed my MBA. The first url is the reactions of economists from banks. You see in these times after 2008 I think their respective organizations have asked all these economists to always say "All izzz well" to the public and create the feel good factor.

Personally I have stopped believing all these economists who predict booommm and the world bank reports. Most of them are short sighted and try only to create the feel good factor.

Thanks,
Sridhar

abk

you cannot change the mindset of the whole population.A Home is not just about returns and investment,it is about owning your space,prestige,envy and status and so many intangibles that you cannot quantify it in terms of returns and rent,
First home buyers will not wait,maybe for awhile not for ever,
come to think of it,despite all doomsday predictions rates have not fallen in the city and suburbs rather they have increased above the peak rate of 2007/8.many have missed the bus .....

sridharchennai

Hi abk,

When a person is excess of cash then no price is too costly for him. As you said home is not always about investment but, when mistimed it can eat all your life of savings. That is where I'm concerned about.

Well, the market has not definitely crashed but, even the bus has not yet started moving. It's still there stagnated.

I have my flat in perungudi and I can tell you the prices are down from 2008 peak. I don't buy your argument of price rise based on my experience

Thanks,
Sridhar

kaatesha

well said sridhar.
the problem is that the mad rush to buy home is still there.. even someone who just started earning or with a few yrs of exp is looking to buy.they just look at their current salary and if thers some flat/home in that price range without analyzing if thers is value for money. one of the main reasons one buys is that everyone else is buying or trying to buy. they want a so called own house even though 85% of the deal is from loan. other thing the young IT people have overlooked is that, as you become more experienced it will be difficult to get jobs. (even in a good economy).

i agree with u on the wage advantages. the hike people get in India is very high. today even a US salary doesnt look great compared to india's salary. in the US people get hike in single digits.

sri_idea

I fully agree with you regarding economic predictions and analysts are a whole....

But ask anyone in living in chennai if they are spending less for the same goods/services they used to last year...it would be a big no.

So its common sense not rocket science - petrol costs more by 2rs/l, tor dal has risen by 50% in last few years,
milk costs more by 2rs than a year ago- bus ticket prices have raised in the last year.

and someone says we are seeing deflation ....more than any thing its totally insensitive to the struggling people

http://www.outlookindia.com/article.aspx?266106

Economist

Increasing wage (cost) due to Inflation does not mean loss of wage advantage If your currency value goes down.

That is what happens in a high inflationary environment.

Say Indian wage cost grows up by 20% - a fall in INR value by 15%
The gross rise is 5%.
let us say average annal inflation in developed nation is 4%, then the real wage rise is in India is than only 1%.

For an overseas investors point of view it is a 1% rise not 20% therefore the wage advantage is till maintained.

This is what always happens in India and it will continue.

Coming to the next point : Timing the market.

Timing the market is not possible and attempting that will always result in pain.

My personal opinion:

I dont expect or wish the market to shoot over the moon or crash.

I am long term investor who does not try to time the market ( as I believe the market is above all of us and the unpredictability is the core of its characteristic).

only people who want to cash there investment in short term need to worry about volatilities. If you don't want to/ need to sell in 2-3 years why worry where the market will be in 2 years.

That doesn't mean you blindly overpay for some crap apartment in an area where there is chronic over supply with unaffordable loan - No substitute for due diligence and prudence.

I am more interested in the fundamentals of the asset and location.

I look for supply and demand,location and potential of the asset.

I believe in India as a strong RE investment destination.

I believe India's population (working age) will grow - they will be employed locally or overseas , there is so much under development india so there is plenty of room for growth and development.

I believe Inflation coupled with real growth, supply constraints would ensure RE investors are on the right side of the economic divide on the long run (haves and the have-nots).

gsvenkat

Hi,

It is true the prices of RE in southern districts of TN and Kovai region appreciated faster than Chennai in the last 3 years. This is due to the un-affordable prices in Chennai and the people who earn from Chennai are started investing in other part of TN.

The "Property Plus" papers still bring the Advt of the projects started 2 years ago.

Few example are 1) DLF 2) Hirco, 3) Hallmark, 4) Unihomes, 5) Excello, 6) Metrozone (cost is very cheap etc., etc.

The "New York Times" last week's post says the guys who had borrowed $ 1 million (Rs 4.5 Crores) could not repay the loan and just leaving their homes. And this may happen in India also for high borrowed asset.

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The Chennai real estate prices were on Top price in the year 2007 August. After the US bubble and Lehman collapse the RE prices went down. Corrected to 30 %. So from the year August 2007 to May 2009 the prices of the Chennai suburbs were not increased. From the middle of 2009 and 2010 have seen some raise in RE price but not the peak of 2007 rates. This year also will not see any much raise in land price. So the interest loss for 3 years for the people who bought at the high price of July-Aug 2007. They have to wait for another bull run to exit/Sell their lands at higher price than the 2007 price.

I feel the second tier cities (like Kovai, Madurai, Nellai, Tiruchy and Salem) will do better in Real Estate than Chennai. The Chennai suburb RE price was increasing because of IT industries. As of now all the IT majors are having enough lands in the suburbs, so they don't buy any more. Pune and Bangalore were the two cities developed quickly due to IT in the year 1995 to 2005. After 2000 the cost of living in these cities were high and the IT companies started looking at Chennai. Chennai started growing from year 2000.

I think now it is the time for Tier II cities of Tamil Nadu will do better than any other State in India for IT and other sectors.

gsvenkat

Hi,

It is true the prices of RE in southern districts of TN and Kovai region appreciated faster than Chennai in the last 3 years. This is due to the un-affordable prices in Chennai and the people who earn from Chennai are started investing in other part of TN.

And I am sure other parts of TN will grow faster than Chennai if the following are met.

1. Chennai to Kanyakumari - Rail Double track.

2. More number of Kendriya Vidyalaya schools. (Central govt is planning for it)

3. Good medical facility (at-least in the district head-quarters). Central govt is trying for a short term Medical courses.

4. Water and drainage facility.

Actually all the parts of TN are well connected by Roads.

And the fact is If there is a chance (due to good economy) for Chennai to grow then definitely there will be a chance for other part of TN to grow as well.