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

    Not interested in your long mail with lots of crap. Let me just give a real example.
    Plot price in 1988 = Rs 11,000 (1800sqft). Today the price is Rs 25L.
    Now calculate if you know ln and exp and find the rate of growth. 31% to be precise. This is not some imaginary figure.
    Wiseman, you dont know maths, why are you bothering about it. You can check out if they needed maths for you to get into that so called imaginary 2nd ranked Business school in INdia a non IIM as per you. ROTFL

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

      Wiseman, this single message of yours shows how incompetent you are to talk about realestate. First as you mentioned before you are a silly software guy who will talk about currency trading incorrectly as you might never have traded all your life. About realestate you paste CAGR from some site since you do not know what is exponentiation. Instead of pasting all that crap all you need to do is take Principal and mulitply with (1+interest%)^no. of years. Well that you wont think of given your silly school which would have taught you to even mug mathematics.
      Now I have given an example above. I can give you more. If you are competent I will give you price of a land in 1966 at 5K which costs 2.5Crore today. 22% is the yield. Ofcourse for you I need to do the maths to get it into your numbskull
      5Kx1.22^42=2.12Cr (approx)
      First remember something. You certainly have very little aptitude for maths. That is getting clearer and clearer to everyone. High time you keep your fights with me more practical. Otherwise you will not be able to sleep with the abuses you get. Remember, you parents have given you limited brains. Dont expose it too much for all and sundry to laugh at you. Gotcha?

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

        For all on this board. Realestate prices for investments made in 1960s till today over a period of 15years plus do yield a return of 20 to 35% annually or CAGR for the bookish oriented. Now this return is for land, not for building. Building depreciates as I have already taught to the featherbrained Wiseman. Also land does not appreciate instantly or in regular fashion. So to get the right picture you need a minimum waiting period of 5% but the best especially in outskirt lands happens only over a period of time. For example in one piece of land I bought in 1988, the return did not even match bank interest rates for the first 10 years and now it is around the 25% rate.
        Realestate booms happen in bursts, they are not contigous as some stupid folks on this forum tend to believe. Finally most SO CALLED EDUCATED and WORSE STILL NON RESIDENT INDIANS do not even have the faintest idea about Indian realestate. Their views should be used like toilet tissue. Typical example is Wiseman. Cheers.

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

          Originally posted by nabishek View Post
          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?
          Natarajg007, can I get your response for my query please?thank you.

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

            Dear Nataraj, the details you have given (11000 inr became 25 L); but the point is what was the return upto 2004, you will also agree that the prices shoot up like this only during the last 3-4 yrs, because of the excess liquidity available through out the world. (May be the same NRIs are one of the reason). That is why, like many others in this forum I also feel the prices will correct. Nobody is against investment in land but like any other asset class there is no point in chasing them when everybody wants to have a piece of action. Also speculative investments (leveraged) should be avoided at any cost. Coming back to the CAGR game, I have invested in a stock in 1996 and even after the correction of 50% in the markets the investment still gives me a CAGR of 22%. BUT if you ask me if the same stock is going to give 22% CAGR for next 10 yrs my answer would be a definite NO. However I am pretty much sure that this investment will be give 2-3% over the inlation rate per year for the next 10 years (on an average) and I will be very happy and contended with this kind of an investment.

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

              i have been a silent reader of this forum. i liked the way wiseman has been replying. anyways coming back to the topic, i dont know by how much it will go down. but i always wondered how foolish it was/is to buy at such exorborent levels. In my opinion its caused by the IT employees. (I agree there are other things like blck money, etc etc. but the demand was driven by IT people). There are 2 things to consider. 1)are these properties worth the price quoted?. (i agree it was healthy in 2003 and before). No buyer even asked themself this and jumped in. Many bouht because eveyryone was buying and they thought it was a shame to live in a rented house. 2) Are these software engineers worth the salary they are paid?. Certaiinly not. In my opinion only about 20% of the people are of quality. I have been taking interviews in my current company. In the last 5 years, i have only recommened about 6 people sofar. I am not saying i am great or anything. But i was shocking to see their knowledge,skills etc. Btw i work for an MNC which is a very stable company and goofd revenew and all. But i believe i am one of the top performers in my team. But still i am consevative. One the otherhand i still people still buying or trying to buy flats/plots etc despite an uncertain future. This has really taken me by surprise. The other day i saw a mail from a friend in group enquiring about some project. And he was insisting on others to join in so that we can get some discount. Most of the people are still not aware of economy slowdown. They also dont know that they will not be needed by the employer when there is no business.

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

                Nice one Ajith !

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

                  Good question. Till 2004 is not the apt question. For example the rate has changed depending on time. Let us take the 1966 investment I mentioned. It has returned between 20 to 35% depending on the time. Now if you do read my messages instead of just one, then u will notice that in the first 10 years of invesment land prices sometimes give you returns less than bank rate. So if you guys maybe in your ealy 20s with not much inclination to finance (qualification does not matter as most MBAs dont know much finance!) know only of 2004 boom, there were equal and mightier booms in 1992-1996, in 1985-87 and other periods as I mentioned in another post. As for stocks. My RIL invesment in 1983 returned a CAGR of 30% approx and I sold it just when it was getting converted to multiple shares in 2006 (after the feud completed in RIL becoming multiple companies!). It might have yielded a higher return if I held onto 2007 and may be not so high if I held it till today.
                  Now RE and stocks are different stuff. Stocks are for trading much against my invesment on RIL which was hardly much. In RE it is purely an investment ticket unless u r a builder or promoter of RE. I am not in that mode much against many of the folks wishes on this board!! LOL.
                  So if u told someone who is not sure about his job not to buy RE, I would have said that to him in 2004,5,6 and any time whatever. Anyone who does not know what to do with his life cant be helped. So what is your question?

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

                    PS. The above reply was to AJITPKL. Sorry for not mentioning it!

                    Comment


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

                      Originally posted by nabishek View Post
                      Natarajg007, can I get your response for my query please?thank you.
                      Nabhishek,
                      First of all I dont know how to quote within the message in this forum. So I had to cut and paste from your message. So here we go.
                      <<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?>>
                      Yes the final buyer has to bother about the 3.5FSI.
                      <<(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.>>
                      U r assuming a builder who gets 3.5 on the entire land. One point u need to note is when u make roads etc that maynot be taken into FSI consideration especially when plots are made from agricultural land. Anyway as per ur method which is applicable to builders, 787psft is the intrinsic value factored into every square foot of building.
                      <<As you said, the builder can cover up this huge premium/bet only by selling the flats/apartments at huge profits.>>
                      Did I? Huge profit is a non mathematical term..and what is huge is left to u!!
                      <<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 u r laying plots from 1acre, setting aside roads will yield only 10to12 grounds per acre. So 13.18cr/12=1cr per ground approx will yield around 4K psft. So that should be the market price of land typically.
                      <<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?>>
                      The last bit of your argument is a little TOO unclear to me. Let me do this way.
                      I as a small buyer bought land at 4Kpsft per ground. I can build 2400x1.5 (FSI as u said)=3600sqft of flat/house whatever.
                      Suppose I spent 1200psft for construction. I will spend
                      3600x1200+1Cr(land)=1.432Cr to construct 3600sft flat.
                      So psft rate of flat is 1.432Cr/3600=4000psft.
                      In other words the flat builder gives u a flat at a 3.5FSI where ur intrinsic land value is 785psft of flat. The local builder in the same area gives u flat with intrinsic land value of (4000-1200(cost of construction))=2800psft. Note I assume both costed the flat at 4000psft. However u must notice that in the latter case u own more land than in the earlier case, since FSI is less in the latter case.
                      In net much against what u said the essential price of land was only 785psft and FSI is not relevant.
                      WAS THAT CLEAR OR WAS IT MORE CONFUSING??
                      Just think of it like this. U pay for land, and u pay for building. If u go into Multi storey complexes u r investing largely on the building which depreciates, while when u go to smaller builders/houses u r investing largely on land (lesser FSI) but land appreciates. So u need to think about which u want.

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