Hi,

I heard through my friends that property price is chennai is going down drastically. Does any one have an idea about this. I am a NRI. I recently bought a flat in Velacherry. Will the price go down more?

Thanks.
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  • Originally Posted by kar27us
    dear wiseman

    i recently saw a article which said during the housing bubble in US the property prices went up only by 50% where as when compared to india it went up by 300% is it true?

    karthik


    Not true. Even in US property price went up by 100, 200 and 300%. I live in Washington DC metro and the price between 2001 and 2006 went up by nearly 100 to 200% depends upon the type of house. Anyway price has already dropped nearly 30% and expected to drop another 20% by the end of next year.
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  • True and false ...

    Originally Posted by strongsville
    Not true. Even in US property price went up by 100, 200 and 300%. I live in Washington DC metro and the price between 2001 and 2006 went up by nearly 100 to 200% depends upon the type of house. Anyway price has already dropped nearly 30% and expected to drop another 20% by the end of next year.



    kar27us,

    Price increase in US, just like in India, varied widely. In some cases rise has been like Strongsville said. In some areas it is more like what you had said.

    People thought that, since price had not risen much, the fall also would not be too much. This has been true in the past and looks logical. And this is the rule generally followed out there.

    But the severity has been so large this time that in many cases, localities in the Us which had not risen too much also had a significant fall, though not as badly as Florida, Nevada, California, Michigan, etc.

    Strongsville, I was in DC late 2006 on work. At that time I had told my cousin (with whom I stayed) as well as some friends in the Virginia area to be careful as a big crash was coming. They told me that in this area - since its politically heavy and Govt funded people live :), there would not be a crash. How wrong they were!!!

    In India too, it looks like prices will fall only in IT/ITES/Export heavy locations. But remember, even in places where these people have gone and invested (and speculated the prices up even before real movement of IT boom into these areas) assuming that prices will rise later, like Mysore, prices will correct significantly to reflect the new reality in realty :D!

    cheers
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  • But what soviblog missed is that the builders themselves are heavily in debt (he misses that important point).


    I guess soviblogs has mentioned this..."With banks already starting to twist-arms of the construction companies, the panic selling will start. Builders will start selling apartments at whatever costs they can".

    Wisey, I agree with you that this is not pessimistic view but is realistic!
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  • Originally Posted by Maheshk
    Though I wish that the RE prices would come down to 2003 price range, I really doubt whether a flat would come down to 15-20 lakhs unlike current price of 40-50 lakhs. Also i really doubt whether there would be more than 20% correction.
    The rationale behind my doubt is that as the RE was pumped by the IT folks to unreachable heights in the past few years, it would crash to 2003 prices only if the IT population is reduced to the same # (or close) as 2003. And of course the salary should also be reduced to the same range.
    If the average software engineer is still going to earn around 25k/month, i think he can still afford to buy a flat within his two years of employment and it would automatically keep the demand high.
    Note: I am one of the person who missed the RE boom bus @2003 and still repent for it.

    Mahesh K


    Ofcourse flat prices may not go Rs 15-20 lakhs. Considering inflation factor it will come to Rs 25-30 L range
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  • there is no change on the ground. i am sick of all these theories and what should it be analytically.

    chennai brokers are living in a world of their own!

    when will prices actually fall. is there a real case of such thing!
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  • Thats the trouble with theories ...

    Originally Posted by yeskrish
    there is no change on the ground. i am sick of all these theories and what should it be analytically.

    chennai brokers are living in a world of their own!

    when will prices actually fall. is there a real case of such thing!



    Yeskrish,

    Thats the problem. Each of us wants to know the future so we can make the right bet now.

    But the only commonly understood way seems to be to use regression analysis - something like driving forward looking into the rear view mirror. And of course, also giving time for events to unfold.

    Sick or not, we just have to wait and see if we were right, partially right, partially wrong (whats the difference?) or totally wrong - and learn from this latest event.

    I go with the belief that I may have been completely wrong. Or that I may have started right, but the arrival of a Black Swan made me go completely wrong.

    Want to know what a Black Swan is? Read the book by Nassim Nicholas Taleb, which essentially states that sometimes in life we face events that have never semingly happened before. Eg. People always thought there were only white swans, black swans didn't exist. Till one day, a black swan actually landed in their backyard. Then the entire theory was overthrown simply by a real event rubbishing all the theory. Always possible. You never thought Citibank could go bust, did you? Well, last week, the black swan just descended :D.

    Patience.

    cheers
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  • Any Multibagger investment suggestions?

    Wiseman,
    I enjoy reading your thoughtful posts and learned a lot. Since you have mentioned that you do invest in stocks and other asset classes, can you provide some US Stock/options recommendations for the benefit of the fellow forum members?
    I believe lot of good companies with good potential future earnings are selling at very low prices. Growth stocks and commodity stocks that sold sometimes 50 times earnings are selling for less than 5 times earnings. If we invest in 10 companies and even if 3 or 4 of them click we can gain 500 to 1000% in the next 2 years.
    You have good and long experience and I would like to get your thoughts on this and potential recommendations if you have.
    Thank you in advance.
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  • Here's an example. But we are not supposed to do it here :)

    Originally Posted by tellshiva
    Wiseman,
    I enjoy reading your thoughtful posts and learned a lot. Since you have mentioned that you do invest in stocks and other asset classes, can you provide some US Stock/options recommendations for the benefit of the fellow forum members?
    I believe lot of good companies with good potential future earnings are selling at very low prices. Growth stocks and commodity stocks that sold sometimes 50 times earnings are selling for less than 5 times earnings. If we invest in 10 companies and even if 3 or 4 of them click we can gain 500 to 1000% in the next 2 years.
    You have good and long experience and I would like to get your thoughts on this and potential recommendations if you have.
    Thank you in advance.



    Tell Shiva,

    So, I'm telling you!!! :D

    While it is not exactly proper to do so, here is but one example of a prime ten-bagger. There are so many more in the market today. But time is still not ripe to buy:

    Company: Guj Fluorochem
    Face Value: Rs 1
    Book Value: Rs 86 (thats humongous!!!)
    EPS: Rs 28 (thats humongous too!!!)
    52 Week Hi/Lo: 400 / 60 (fallen 85%!!!)
    Current Price: Rs 60

    Dividend: 350% (Wow!)
    Dividend Yield: 5.83% (impressive) - up rom 1.75% at peak price
    P/BV: 0.70 (you are getting a rupee worth for 70 paise)
    P/E : 2.14 (can you believe it?!) - fallen from 14.28 times to 2.14 times!

    You simply can't go wrong in this stock at this price. Of course, you might see even lower prices. But this is easily a ten-bagger and maybe even a 100 bagger in next 15-20 years.

    My best buy was Cipla for Rs 200 (face value 100) in 1986. The stock has given me a 2200 times return (call it a 2200-bagger :D) in 22 years and I haven't even included dividends which is considerable. Imagine a 100 times for each year that I held it!

    Do not look for short-term trading if you get the right stock, since you will lose the real gain if you sell too soon. I learnt that you invest mainly to build a dividend portfolio. Capital Gain will always come automatically. Its the dividend that really matters in the long run. Will explain the involved logic later.

    We will take this offline now before the admin kicks me out :D.

    cheers

    PS: And someone says I'm bearish on India, can you believe it?:D

    Sorry, I'm clueless about US stocks. And firmly believe India is probably the best place to invest - at least for me!
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  • Should the market be timed?

    Wiseman,
    Your posts are excellent.I have learned a lot by just reading them.Many thanks to you for devoting so much time to share your insights,analysis and experiences on the current RE and financial market.Its of immense value and use to people like me who would like to be well informed before taking risks hoping to invest in a secure future.Your lucid style of stating the facts, analysing them in terms of global economy, relating them in india's context and comparing them against historical happenings with supporting statistics whilst ending them on a note leaving the reader to make their own judgement is truly praise-worthy.

    I personally have witnessed the appreciation of RE multifold times to its current level since 2004, and am one of those who are in wait and watch mode.I will like to hear from you to know when to wake up and make the move?

    suppposedly, prices have crashed more than 30%.Is it prudent to wait longer till the prices crash further down to rock bottom?what are the indicators?is it the price rising again?

    Also, Is there any possibility that the price will reduce below the guideline value assigned by the government for a location .Can it be used as the yardstick?Even the government wanted to capitalize on the boom and revised the guideline value in 2007.

    I have read and heard from various experts in various articles and forums asking to never time the market.If the investment is for personal use, the only factors to look is location/price and affordability.One should go ahead if we come across such a prospect.Also, the argument is that returns from RE is highest next only to stocks in the long term.how true is this?

    your opinion would be of great help.

    Thanks in advance.
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  • Good information

    Wiseman,
    Thank you for the quick reply. For NRI's in US, we cant invest directly through web brokers. I have to use my relatives to get any investment on stocks.
    I will keep looking for good US stocks that fit your criteria.
    Thanks again
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  • You know one thing. You are the Biggest Culprit for Indian Real Estate Market.
    You wanna eat the fruit from the tree as well as from the bottom.
    :D
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  • Yes. Timing the market usually leads to missing the bus :)

    Originally Posted by nabishek
    Wiseman,
    Your posts are excellent.I have learned a lot by just reading them.Many thanks to you for devoting so much time to share your insights,analysis and experiences on the current RE and financial market.Its of immense value and use to people like me who would like to be well informed before taking risks hoping to invest in a secure future.Your lucid style of stating the facts, analysing them in terms of global economy, relating them in india's context and comparing them against historical happenings with supporting statistics whilst ending them on a note leaving the reader to make their own judgement is truly praise-worthy.
    Thanks in advance.



    Wow. You are getting carried away. But thanks nevertheless :D.

    Timing the market is generally counterproductive - even then I usually try to time the market and end up missing the bus. Its human nature to be too greedy and take everything off the table and not leave anything for the greater fool :). As Arin said "you are the greatest culprit, wanting to squeeze everything and more out of the deal".

    "Well, I say. I did not ask these people to first jack up the prices to unrealistic highs by borrowing too much and then, when they cannot repay their debt, sell in distress". So, why not wait patiently and strike at the correct time to make the most of it?

    This is why, the TV analysts keep telling you to buy whenever you think asset looks attractively priced and wait for the returns over the long term.

    I have a few issues with this approach as it is put forth by the analysts.

    The real attractiveness of the asset itself cannot be ascertained until the turmoil in the markets are behind us. So, if you take the Guj Fluorochem stock I mentioned, last month it was Rs 95 (it looked attractive enough). Today, its Rs 60 (a 35% fall already which would have put you back by 35% in 1 month only!!!). So, the 95 buy looks silly now (though, in the long term, when price is 1000 who cares whether you bought at 60 or 90).

    But who knows where it will stop? Will it go to 40? 20? 10? This is important because, while the guy who bought at 20000 sensex lost 98%, you who bought at 8000 sensex could still lose as much as 90%. See? Even when you think it was a bargain, it could still decline 90% from there! As Freddie, Fannie and GM have shown :D!

    In the final analysis, the bottom comes only when the fire actually dies out and the turmoil has actually subsided. How will we know that?

    Last few days we are simply seeing the result of over selling / bad news fatigue. So the markets are flat and listless. But beware! My info from my sources is that, with Citi itself in technical bankruptcy and no larger bank existing to take it over, the crisis has reached a new and more dangerous level.

    If you think Lehman was bad, Citi proved to be 5 times worse. Now if you think Citi is terrible, BoA is 3 times worse. And if you think thats the ultimate, JP Morgan is 13 times worse - in size of toxic derivative deals on its books.

    There is real danger of the global Financial System shutting down for a few days or even weeks. That would be unprecedented and may bring in all kinds of new and more powerful fears into the aam janta, which might create massive runs on banks (something not seen so far in large scale). What could then happen? Who knows! That scenario is true armageddon and is becoming a distinct possibility.

    So, the bottom is certainly not done yet. While assets appear attractive, they actually become nearly risk-free only when the crisis is completely behind us.

    And that is years away! So, no hurry to buy. You will get ample signals to buy when prices have crashed and stagnated for a while and banks have started lending again and jobs are starting to pick up. In my opinion, I continue to maintain that you will certainly see attractive properties that have fallen 50% to 80% from peak values (and am not being overly pessimistic here). While I may seem pessimistic to the guy who bought it near the peak, I would look positively optimistic for the guy with cash in hand who did not buy (and missed the bus like some of you).

    We wait till then and not bother much about this short-term chatter of 15%, 20%, 30% and so on. This is aimless chatter by people who have no clue about whats really happening in the markets (that statement looks too presumtuous, but I have taken this stance based on insights in the past and have always been on the right side of greatly profitable buys).

    I am waiting. You choose what you will be doing :)

    cheers
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  • Originally Posted by wiseman
    Wow. You are getting carried away. But thanks nevertheless :D.

    Timing the market is generally counterproductive - even then I usually try to time the market and end up missing the bus. Its human nature to be too greedy and take everything off the table and not leave anything for the greater fool :). As Arin said "you are the greatest culprit, wanting to squeeze everything and more out of the deal".


    cheers


    Once again very deep analysis by Wiseman. Thank you Wiseman.

    http://www.moneyandmarkets.com/warning-global-banking-shutdown-possible-7-28271

    Read this news and it sounds very scary.
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  • Thanks Wiseman once again.

    Originally Posted by wiseman
    Wow. You are getting carried away. But thanks nevertheless :D.

    Timing the market is generally counterproductive - even then I usually try to time the market and end up missing the bus. Its human nature to be too greedy and take everything off the table and not leave anything for the greater fool :). As Arin said "you are the greatest culprit, wanting to squeeze everything and more out of the deal".


    cheers


    Once again very deep analysis by Wiseman. Thank you Wiseman.

    http://www.moneyandmarkets.com/warning-global-banking-shutdown-possible-7-28271

    Read this news and it sounds very scary.
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  • Wiseman,Thank you very much for your reply.very good analysis.I also choose to wait till things are more stable.

    This is how i calculate the cost of a house

    cost of the house = ((land area or UDS) * (guideline value/value of land)) + ((super builtup area) * (cost of construction including builders margin/overhead)) + other charges(registration/carparking/corpus etc)

    So, If we take an high rise apartment in a location like velachery bypass road where guideline value is now 2000 Rs/sqft.Assuming the builder bought the land at 4000 Rs/sqft.The cost of an apartment with 1500 sqft super builtup and 575 sqft UDS and Rs.1200 as construction cost per sqft should be maximum 45 Lakhs with car parking, registration etc. i.e. not more than 3000 Rs/sqft.presently, You can find resale flats on block here quoting well above 5500 Rs/sqft because new launches are being done at this price.

    The guideline value was not 2000 Rs/sqft and market value not 4000 Rs/sqft 5 years back.why did the value increase? Earlier, i believe the pricing used to be only based on the land value.The basic rule was that land value appreciates and flat value depriciates.

    Builders,well informed seller, brokers all started inflating and hiking the prices taking FSI(Floor Space Index) into account.

    FSI is the quotient obtained by dividing the total plinth area of all the floors by the plot area. The FSI varies in accordance with the land use and category of building and is defined by CMDA taking into account whether the building is used for residential/commercial and other parameters like width of the road,frontage etc.

    The following can be used as a rough guide

    Independent house

    Allowed FSI - 1.5
    Achievable FSI - 1.25(due to restriction on plot coverage,set back restrictions)
    UDS for 1000 sqft constructed - 800 Sft.

    Ground + one building

    Allowed FSI - 1.5
    Achievable FSI - 1.35 to 1.45(reduction due to restriction on plot coverage, set back space, No. of Kitchen and carpark restrictions)
    UDS for 1000 sqft constructed - 710 Sft.

    Ground + 3 storied building (or) stilt + 4 storied

    Allowed FSI - 1.5
    Achievable FSI - 1.6 (increase due to non F.S.I. area like headroom, lumber room areas )
    UDS for 1000 sqft constructed - 625 Sft.

    Ground + 4 floors and above

    Allowed FSI - 2.5
    Achievable FSI - 2.6 (increase due to non F.S.I. area like headroom, lumber room and associate room areas etc.)
    UDS for 1000 sqft constructed - 385 Sft.

    If a person owned 2400 sqft of land. they can build a space of 1.5 to 2.5 times the land area.that is easily 3600 sqft of built up.We saw a new age of builders who wanted to promote flats and spaces as a non depriciating immovable asset citing heavy demand and limited supply of land.

    Prices were fixed keeping in mind the end use of the land.With availability of easy money from bank, huge consumer and investor's interest and long term benefits.it was a win-win situation and no one complained.

    Considering the land value was 2000 Rs/sqft in the year 2000.the value of a 2400 sqft of land becomes (2000*3600)/2400 = 3000 Rs/sqft just on paper. so the new rate in the location becomes 3000 Rs/sqft. when a new builder starts a construction, the same math is applied to the new market value and the rate keeps on increasing.The result, highly inflated price of land and apartment in the current market.High rises started mushrooming giving less than 1/3rd of the apartment size as UDS.Buiders also started to register the cost of the built up area while registering the apartment.

    with the builders gearing up to slash prices,and their cartel breaking down,and the global economic turndown.I believe its only natural that everyone return back to basics.Any property will not attract my interest unless the deal provides true value for money and is fair, satisfying and fulfilling.

    Readers, Please correct me if there is fallacy in my undersanding.

    I would also like to know if it is the right method of valuating an asset.should FSI be factored while determining the cost of a house.Is it the norm in other markets such as U.S, Dubai where there are so many high-rise buildings?
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