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Are Real Estate Prices Going To Fall 40% by Mid 2007?

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Are Real Estate Prices Going To Fall 40% by Mid 2007?

Last updated: February 21 2009
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  • #91

    #91

    Re : Are Real Estate Prices Going To Fall 40% by Mid 2007?

    Originally posted by Natarajg007 View Post
    What a over simplistic approach? People hold land not for fun. It is not easily tradeable like stocks. There are fellas holding Reliance shares for 2 decades. In case of land, people hold it for generation/s. So your idea is not correct even one bit. Flat buyers are todays beggars, also called as IT, BT etc employees. Land owners were yday's kings, they may not have all become beggars. So many wont sell it. BTW the return on plots is not a silly 10%. I have an example of multiple lands where the return over 20+ years works out to anything from 25% to 35% cumulative per annum. This with the added fact of no tax until it is sold makes it an ideal investment. Cheapos buy flats to get next month return but long term returns are only available on land.
    I find most on this board belong to this IT group, PUDU PANAKARAN or PAZHAYA PITCHAKARANS. So they dont understand reality!
    h i natraj...congratulations on ur 100th crap sorry post

    Comment

    • #92

      #92

      Re : Are Real Estate Prices Going To Fall 40% by Mid 2007?

      Originally posted by Natarajg007 View Post
      For all those silly doomsdayers on this board. Many of those Wisemen probably dont understand mathematics. So for the rest.. News is that Carborundum Universal Ltd, the Murugappa Group company, has sold 4.4 acres at Pallikaranai for Rs 58 crore. 58cr for 4.4acres means 13.18cr per acre. An acre is approximately 20grounds. However if somebody takes an acre and creates a layout with roads he will be forced to have only 10 to 12 grounds of usable land. So if we go by 20ground logic then one ground in this place costs 13.18cr/20=66lakhs. However if we use the logic of 12 grounds effective usable area then the cost of a ground goes to 1.1cr.
      In other words on Dec 1st when this article has come up in Hindu, land price in a place as far away as Pallikaranai is 1.1cr per ground.
      Just to give a feel of the price in this area even an year ago. It was costing no more than 40L per ground. So are the doomsdayers WANTING A FALL or is there really a fall?
      Now one must realize there is a clear difference. Builders are quoting astronomical profit margins, not today, not yday but for the past many years. So if you buying a flat and if the fella sold it for 5200psft and then reduced it to 4800psft, it only means the builder is fooling u lesser nowadays. So going back to this Carborundum land. Miles away from this property India bulls is selling flats for 2700psft. If this land of Carborundum is constructed even fairly at 3.5 FSI for Multi storey building then the price will be (3.5x1200+4000)/3.5=2350psft. 1200 is the cost of construction and 4200 is the psft cost of land there (1.1cr/2400=4000approx). However a typical builder will quote a price of Rs 4000psft given Indian bulls price of 2700 at a much lousier location. So the margin is Rs 4000psft - Rs 2350psft = Rs 1650psft. In other words if the person quotes 4000 or 3600 he is yet in mighty profit. This means that builders are lowering their prices and profit margins but realestate price, the intrinsic price of land is not going down. It is yet to shoot much higher much against the wishes of the STUPID Wise cartel.
      Natrajg007, Thanks for the math.I was not aware of this method of calculating directly the flats rate from the lands price and vice versa.It really explains well how prices are being calculated in the current market.

      I couldnt help noticing a paradox, and was hoping if you could clarify and help me understand the same.

      Let me use the same numbers and do a reverse calculation.

      If 20 grounds was sold for 13.18 Cr i.e 66 lakhs/ground at 4000 Rs/sqft.wasn't it because the buyer also took into consideration the 3.5 FSI while making the deal?

      (20*2400) * 3.5 * rate/sqft for land = 13.18 Crore

      Therefore, the intrinsic rate/sqft for land is approximately only Rs 785, which is more or less the guideline value there in pallikarnai.

      As you said, the builder can cover up this huge premium/bet only by selling the flats/apartments at huge profits.Had the builder bought the 1 ground land at 4000 Rs/sqft, he would have to sell the flats above 3800 Rs/sqft to break even.Does that mean the value of the land in that locality is 4000 Rs/sqft?

      If there is a plot of 2400 sqft, the maximum FSI allowed is 1.5 to 2 depending on the road width etc.

      hence the market price should be

      (1.5 * 2400) * 785 = Rs 28,26,000 which is approximately 1200 Rs/sqft.

      If a flat is constructed, applying the same logic.It has to be sold at

      (1.5x1200+1200)/1.5=2000 Rs/sqft

      How can land of two different size and extent be compared and the same rate applied to both?if it can be done then FSI should not be considered at all and land transactions should be done only on 785 Rs/sqft.

      Am I missing anything here?
      Last edited December 19 2008, 02:47 PM.

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      • #93

        #93

        Re : Are Real Estate Prices Going To Fall 40% by Mid 2007?

        Chennai RE

        Originally posted by Natarajg007 View Post
        What a over simplistic approach? People hold land not for fun. It is not easily tradeable like stocks. There are fellas holding Reliance shares for 2 decades. In case of land, people hold it for generation/s. So your idea is not correct even one bit. Flat buyers are todays beggars, also called as IT, BT etc employees. Land owners were yday's kings, they may not have all become beggars. So many wont sell it. BTW the return on plots is not a silly 10%. I have an example of multiple lands where the return over 20+ years works out to anything from 25% to 35% cumulative per annum. This with the added fact of no tax until it is sold makes it an ideal investment. Cheapos buy flats to get next month return but long term returns are only available on land.
        I find most on this board belong to this IT group, PUDU PANAKARAN or PAZHAYA PITCHAKARANS. So they dont understand reality!
        Do not sell any land you hold unless untill it is the extreme necessity for the hard pressed funds.

        Comment

        • #94

          #94

          Re : Are Real Estate Prices Going To Fall 40% by Mid 2007?

          Chennai RE

          Originally posted by Natarajg007 View Post
          What a over simplistic approach? People hold land not for fun. It is not easily tradeable like stocks. There are fellas holding Reliance shares for 2 decades. In case of land, people hold it for generation/s. So your idea is not correct even one bit. Flat buyers are todays beggars, also called as IT, BT etc employees. Land owners were yday's kings, they may not have all become beggars. So many wont sell it. BTW the return on plots is not a silly 10%. I have an example of multiple lands where the return over 20+ years works out to anything from 25% to 35% cumulative per annum. This with the added fact of no tax until it is sold makes it an ideal investment. Cheapos buy flats to get next month return but long term returns are only available on land.
          I find most on this board belong to this IT group, PUDU PANAKARAN or PAZHAYA PITCHAKARANS. So they dont understand reality!
          Dear natarajg007- You need not be so harsh on IT chaps?
          Real Estate investment at any point of time is a good investment whether in down or uptrend time, seen from a longer period perspective if the documents and ownership are clear and genuine. No one would lose in the long run and only the return may vary, in any case much higher than 10% per annum if seen in a period of 10 years and above. Different opinions?

          ks2071746

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          • #95

            #95

            Re : Are Real Estate Prices Going To Fall 40% by Mid 2007?

            Yes. Long Term ROI is at best 12% or so ...

            Originally posted by ks2071746 View Post
            Dear natarajg007- You need not be so harsh on IT chaps?
            Real Estate investment at any point of time is a good investment whether in down or uptrend time, seen from a longer period perspective if the documents and ownership are clear and genuine. No one would lose in the long run and only the return may vary, in any case much higher than 10% per annum if seen in a period of 10 years and above. Different opinions?

            ks2071746

            I have taken an extreme case. This is a property 105 years old. It also happens to be in one of the top 3 expensive areas in Chennai - so the buyer got it almost perfectly right in terms of hitting the jackpot over the very long term .

            Property was bought for around 10 paise per SFt. Today it is around Rs12000 per SFt. This is a compounded growth rate of 11.8% pa over the term. When it was 15000 a short while ago, the ROI is still amounting to only 12% pa.

            In fact ks, properties will show significant variations from this mean (say 12%) only in the short term. Longer term, the compounding factor will actually smooth the curve making it very difficult for higher returns.

            Yes, as you had mentioned in another post, the postings ARE rather long and boring. Will keep it short - and necessarily pass on less info and gyan if that suits everyone else .

            And don't bother about Nats. He is so harsh on IT chaps because he is a failed IT chap :p having left this business in 2003 after 18 years of being in it and missing the Golden Era of Indian IT !

            cheers

            Comment

            • #96

              #96

              Re : Are Real Estate Prices Going To Fall 40% by Mid 2007?

              Originally posted by wiseman View Post

              Yes, as you had mentioned in another post, the postings ARE rather long and boring. Will keep it short - and necessarily pass on less info and gyan if that suits everyone else .

              cheers
              Hi Wiseman,

              Are you going to make your postings short just because one man has complained about it. Other 99.99% of the forum are excited by the amount of information you give in your posts. Please don't make your posts short and keep up the good work.

              Thanks,
              Sridhar

              Comment

              • #97

                #97

                Re : Are Real Estate Prices Going To Fall 40% by Mid 2007?

                Originally posted by sridharchennai View Post
                Hi Wiseman,

                Are you going to make your postings short just because one man has complained about it. Other 99.99% of the forum are excited by the amount of information you give in your posts. Please don't make your posts short and keep up the good work.

                Thanks,
                Sridhar
                stats should not be used as a drunken man uses a lamp post, for support rather than illumination.

                Comment

                • #98

                  #98

                  Re : Are Real Estate Prices Going To Fall 40% by Mid 2007?

                  What utter rubbish!!!

                  Originally posted by Natarajg007 View Post
                  What a over simplistic approach? People hold land not for fun. It is not easily tradeable like stocks. There are fellas holding Reliance shares for 2 decades. In case of land, people hold it for generation/s. So your idea is not correct even one bit. Flat buyers are todays beggars, also called as IT, BT etc employees. Land owners were yday's kings, they may not have all become beggars. So many wont sell it. BTW the return on plots is not a silly 10%. I have an example of multiple lands where the return over 20+ years works out to anything from 25% to 35% cumulative per annum. This with the added fact of no tax until it is sold makes it an ideal investment. Cheapos buy flats to get next month return but long term returns are only available on land.
                  I find most on this board belong to this IT group, PUDU PANAKARAN or PAZHAYA PITCHAKARANS. So they dont understand reality!

                  Folks,

                  Let me take a "serious" claim made by Nats here - and I want to show how shallow this guys claim is, that others are frivolous while he is a serious dude! Having been a failed IT guy, he is spewing all his poison on other IT guys who are still raking it in !

                  So, let us get down to some Math:

                  For a land which was Rs 50 per SFt originally, in 20+ years (let me assume 25 years to be on the safe side) the price today at 25% per annum compounded should be Rs 13235. And for return to be 35% ROI in the same period current price should become Rs 90640.

                  Original Period(Y) CAGR(%) Current
                  Rs 50 25 25% Rs 13235
                  Rs 50 25 35% Rs 90640

                  Well, if any of you people are looking for these returns that Nats is talking about, wish you all the best!

                  Besides, there is no asset on which Capital Gains tax is levied until it is sold! So, what is he talking about? Part-knowledge is very dangerous, especially when you flaunt it in public (might become a case of the Emperor's clothes !

                  Besides, to get a plot at Rs 50 you have to go to the boondocks and we all know that risks of outlying property NOT booming, increases radially outwards from city center. Meaning, as you go out and buy cheaper land, the probability that development and price increases NOT happening in your locality increases. So, in a sense, what you pay for is what you get.

                  So, the case is very clear about whether CAGR (Compound Annual Growth Rate) is 12-15% or 25-35%!!! Especially, as our resident geniushere says, should be held for long periods.

                  What our friend (who thinks he can lecture others on Economic 101, while he does not know the simple rules of Compounding - which many accountants, CAs and generally smart people in this forum take for granted) does not know is, that CAGR plays a tremendously damping role as the number of periods increase - because it has a geometric and not an arithmetic impact on the result! Forgot the difference between Geometric and Arithmetic (actually linear and inverse-asymptotic) progression from your basic math class in IIT days?

                  Another thing is that with the new reality, the younger IT crowd is increasingly seeing RE as a short/medium-term investment rather than the once-in-a-lifetime investment like our father's generation did (whether it is good or bad is not being discussed here).

                  So, before going around talking about IT group and their PUDU PANAKARAN or PAZHAYA PITCHAKARANS comments, what will you become?

                  PAZHAYA PITCHAKARAN who is going to become PUDU PITCHAKARAN as well?

                  Do you recognise Dr. LC Gupta? What about Dr. C Rangarajan? Or IM Pandey? If you don't, ask your friends who know and they will tell you.

                  I had the good fortune to learn Economic and Finance (and other things as well) from people like these. And even then I do not go around talking about how great my Economics is or how bad others Eco 101 is. I have never heard either of these learned gentlemen crow about their knowledge of Economics even once.

                  This quality is called humility, which I'm afraid is missing in you.

                  cheers
                  Last edited December 19 2008, 06:54 PM.

                  Comment

                  • #99

                    #99

                    Re : Are Real Estate Prices Going To Fall 40% by Mid 2007?

                    I like this quote

                    Originally posted by abk View Post
                    stats should not be used as a drunken man uses a lamp post, for support rather than illumination.

                    Whether good or bad, I really like this quote and take your permission to use it later in my life

                    cheers

                    Comment


                    • Re : Are Real Estate Prices Going To Fall 40% by Mid 2007?

                      parsvnath put on hold 12 major projects

                      Dear friends,

                      Real estate major parsvnath put on hold 12 major projects due to financial crunch (Economic times- flash news)

                      Thanks
                      Chataara

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