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Are Property Price Going Down Drastically in Chennai?

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Are Property Price Going Down Drastically in Chennai?

Last updated: December 1 2010
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  • #71

    #71

    Re : Are Property Price Going Down Drastically in Chennai?

    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

    Comment

    • #72

      #72

      Re : Are Property Price Going Down Drastically in Chennai?

      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.
      Either land or AIR and FOOD. Choice is yours.

      Comment

      • #73

        #73

        Re : Are Property Price Going Down Drastically in Chennai?

        Yes. Timing the market usually leads to missing the bus

        Originally posted by nabishek View Post
        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 .

        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 !

        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

        Comment

        • #74

          #74

          Re : Are Property Price Going Down Drastically in Chennai?

          Originally posted by wiseman View Post
          Wow. You are getting carried away. But thanks nevertheless .

          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/warni...ssible-7-28271

          Read this news and it sounds very scary.

          Comment

          • #75

            #75

            Re : Are Property Price Going Down Drastically in Chennai?

            Thanks Wiseman once again.

            Originally posted by wiseman View Post
            Wow. You are getting carried away. But thanks nevertheless .

            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/warni...ssible-7-28271

            Read this news and it sounds very scary.

            Comment

            • #76

              #76

              Re : Are Property Price Going Down Drastically in Chennai?

              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?
              Last edited December 2 2008, 07:29 PM. Reason: additional info and correction

              Comment

              • #77

                #77

                Re : Are Property Price Going Down Drastically in Chennai?

                You are bang on target again !!!.

                Wise man,

                You are bang on target again !!!.

                The link here has 1996 realty correction, it sayss.
                http://www.moneycontrol.com/india/ne...rection/367709

                "Property prices increased 70% in three years to peak in 1996 and corrected 40% in three years to trough after 1996. In effect, prices fell back to the same levels from where the boom started. At present, prices have risen 80% in three years before the marginal correction."

                But that happened for a not so steep rise in prices.

                Given this time that price rise is steep, it may take less than 3 years to fall back to where it started.

                Comment

                • #78

                  #78

                  Re : Are Property Price Going Down Drastically in Chennai?

                  Though, therez no denying the fact that property prizes are crashing down, I believe the infrastructure growth is being discounted too much!

                  For example, villages along OMR were an inaccessible lot before the boom time. But infra improvements along OMR have brought in many developments (New residential complexes, restaurants, Office buildings, wide and good roads, Hospitals).

                  So the new developments should be factored in before assuming/concluding that the prices should return to where they have begun (i.e 2002, 2003 period). So places where infra growth has happened, prices would NEVER return to 2002-2003 levels!

                  Comment

                  • #79

                    #79

                    Re : Are Property Price Going Down Drastically in Chennai?

                    Hi Sovi,

                    I just read your blog. Your post here contradicts your blog ! During the boom days, no body cares whether the infrastructure is in place. Because they factored in and said, it will be in place in a couple of years. So just BUY ! When things go bust, the reverse happens, people *assume* that infrastructure is a must before they decide to buy property. They are essentially looking for a such a place and at an *affordable* price. I am not sure what the price was during 2002-03 but it will go down. But it will take anywhere between 18-24 months or may be more for that to happen.

                    Note : I was chucked out of the forum as a_salim_99 and I have registered as connect2sam.

                    Thanks,
                    Salim.

                    Comment

                    • #80

                      #80

                      Re : Are Property Price Going Down Drastically in Chennai?

                      Salim,
                      Thanks for asking.
                      I am convinced that property prices are all set for a crash, no doubt about that. It’s the same I’ve mentioned in my blogs, as well as here. But, while we all accept that property prices can rise and sustain only as long as it’s supported by value, why don’t we accept that its converse could also be true?

                      That is, price of a property cannot fall and sustain below the level where it was making sense! Because when it starts making sense, people will start buying it! Let me share an example. In 2002, one of my acquaintances wanted to sell his 40x60 plot in Thuraipakkam. At that time, Thuraipakkam was considered ‘way outside’ and it had no basic facilities and even the access was shabby. He was ready to sell it for 2 lacs, but found no taker. In April, 2002, he finally sold it for 1.75 lacs.

                      Enter 2008. You got offices, banks, restaurants all within walking distance and the teething access issues were sorted out by the widened road! Now, if you think this downturn will make the plot available for 2.34lacs (adjusted for an average 5% inflation), then its pure FANTACY! Because, when the price drops and reaches even 3 lacs, constructing a 1000sqft building and renting it out becomes much more attractive! It’ll be better than any other investment with good cash flow!

                      So, the property prices will fall, but will fall (and sustain) only till it starts making economic sense! Hope this helps!
                      Last edited December 3 2008, 06:54 PM.

                      Comment

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