Friends,

The peak time for Chennai Real estate in chennai is over.

If chennai RE is at peak anyone can sell their property in no time.
In 2007 everyone was running after land. It was like getting 'sundal' at vinayagar temple.
Banks also gave loan like giving 'sundal' at temples. Now banks are not able to get back the loan amount.
They dont know for sure the amount of non performing loans.
Banks are in denial mode in giving loans. Not only that. people also are not in loan buying mood.
They have lost their confidence about repaying the loans.
Those who have accumulated black money dont want to invest in 'non performing' properties.
Because of various reasons like these, peak time for Real estate in chennai is over.

Everywhere owners are telling rate at their will. Its like telling "Ayiram... rendayiram... naalayiram....".
Those who realised the facts are gradually reducing the price. But in most of the cases, plots are lying unsold.

If one is willing to sell a plot, and if there are many buyers we can say there is demand.
If there is demand from many sides, there will be price escalation.
But no demand... No increment in price. But rebate sale has started without buyers.
thanks
chataara

chataara
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  • Originally Posted by ks2071746
    Dear friend,

    As long as there is huge and continuous demand in India in the housing sector for living of so many millions of people still not having any house or flat of their own, the fall may not be as steep as it would be in US. After all, these are real demands which increase day by day, due to increasing population as also the uptrend in the per capita income of the people.

    ks2071746


    Dear Friend,

    Real-demand : Yes there are millions who do not own flat/house & all of them cant be taken as potential home buyers.Given the average house prices quoted now is Rs 50 Lacs ,very few people can afford to go for it. Now many projects are promoted for Rs 25-30 Lacs and inspite of the 'real-demand', no builder is able to close the book.

    Some of those who have already bought are not driven by need based demand rather they are speculators will exit soon.All these will be available for sale along with unsold making huge supply.

    Real-demand can become reality only when people see good correction in the already inflated lunatic prices .But people will try defend the shy-high prices until death...

    Be relaxed and let the dust settle if you really want to buy(???) a house.
    CommentQuote
  • Dear friend,

    If I decide to go for my second flat, I will rather not do it now as this is not the investment time for hard earned money. May be after another 1-2 years or so by which time the real stage of RE market would have been clear, I beleive, with some what reasonable prices. Till such time, better choice would be to park the money in FDs of good banks/firms for the next 1 or 2 years.

    ks2071746
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  • In mumbai property prices have come down by 35 to 50% .source cnbc tv18.chennai lags 6 months with mumbai
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  • Agree in general :)

    Originally Posted by nabishek
    Dear friends,

    When we are talking about 70-80% crash we are talking about rolling back the 300%-400% hike that happened during the boom.

    If a land sold at 1000/sqft in the year 2004 is being sold at 4000/sqft in 2009 thats a whopping 400% rise in 5 years.

    i.e. 1 ground land sold at 24Lakhs us being sold at 96 Lakhs today.
    If we see a correction of 75% over 96 Lakhs we are back to 2004 price of 24 Lakhs.

    It took 5 years to reach this price at 32% CAGR

    32% CAGR is not sustainable and seems inflated.In india its widely believed that RE gives only 10-15% sustainable CAGR for short term and nearly 20-25% for long term.

    Taking 15% CAGR, In 5 years the value of land should be only

    2400000 * (1 + 15/100) ^ 5 = 48.25 Lakhs

    The difference between current price and actual price is 47.75 Lakhs.

    i.e. we can fairly expect minimum correction of 50%.

    Depending on the location,proximity to facilities, infrastructure and demand the number can be +/- 10-15%

    75% correction is the best a buyer can hope.And according to me it can happen only to speculative locations.



    Abishek,

    Absolutely correct. So we have the logic for a 50% fall by the principle of "reversal to the mean". But we are forgetting another observation. When there are huge swings away from the mean, and there is reversal to the mean, there is an excess in that direction which tends to take the trend beyond the mean for a short while. So, while you are correct that 50% is what the thumbrule says, there may be a swing which goes beyond 50% for some time before swinging right back. That would be a golden opportunity to pick property at bargain prices!

    KS. You have a point in terms of there being sustained demand for housing in India. But you will notice that the demand is in low cost housing. In the old days good housing was low or reasonable cost. Today decent housing is a rip off.

    Therefore, the markets will keep going lower and lower because the sustainability of people to pay this rip off prices is gone for some time to come. And there are so many house already built and many sold for ridiculous prices. Till these inventory get sold off, prices will keep coming down. Once prices become reasonable across the board, demand will pick up. Considering that logic, it is not unresonable to expect 50% and in some cases 70% fall, because only this kind of fall will bring prices back to 2004 prices which seem to be reasonable and affordable!

    My contention is, it does not matter what prices property went to in the artificial boom. These prices will take a long time to come back. Meanwhile we will see prices being forced down to levels where people an afford to own homes without much stress.

    Meanwhile, people holding homes at very high prices will find it increasingly hard to keep paying the huge EMIs with real salaries stagnating or declining and expenses mounting as they progress from single status (where a lot of money is available) to married and family status (where the responsibilities of family sucks your bank account dry!!! :D).

    It is ignorance of this rising expenses which makes youngsters wildly and foolishly go in for payments which they cannot continue to make after a few years. This is the trap which will force home prices to gradually spiral down to realistic levels and then grow slowly. Remember 1995 - 2004. This is what happened until this silly boom came along and is now teaching a once-in-a-lifetime lesson to people who plunged in without thinking in the belief that prices will keep rising forever one-way and they can always sell at a profit later (in case of trouble)

    cheers
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  • Originally Posted by ks2071746
    Dear friend,

    As long as there is huge and continuous demand in India in the housing sector for living of so many millions of people still not having any house or flat of their own, the fall may not be as steep as it would be in US. After all, these are real demands which increase day by day, due to increasing population as also the uptrend in the per capita income of the people.

    ks2071746


    Boiling Frog Syndrome: "If you throw a frog into a pot of boiling water, he’ll jump out.
    But if you place a frog into a pot of lukewarm water and slowly turn up the heat, it will boil to death.
    Today RE sellers are behaving like the frog in lukewarm water.
    CommentQuote
  • Dear friend,

    Not an unreasonable example?

    ks2071746
    CommentQuote
  • Originally Posted by nabishek
    Dear friends,

    When we are talking about 70-80% crash we are talking about rolling back the 300%-400% hike that happened during the boom.

    If a land sold at 1000/sqft in the year 2004 is being sold at 4000/sqft in 2009 thats a whopping 400% rise in 5 years.

    i.e. 1 ground land sold at 24Lakhs us being sold at 96 Lakhs today.
    If we see a correction of 75% over 96 Lakhs we are back to 2004 price of 24 Lakhs.

    It took 5 years to reach this price at 32% CAGR

    32% CAGR is not sustainable and seems inflated.In india its widely believed that RE gives only 10-15% sustainable CAGR for short term and nearly 20-25% for long term.

    Taking 15% CAGR, In 5 years the value of land should be only

    2400000 * (1 + 15/100) ^ 5 = 48.25 Lakhs

    The difference between current price and actual price is 47.75 Lakhs.

    i.e. we can fairly expect minimum correction of 50%.

    Depending on the location,proximity to facilities, infrastructure and demand the number can be +/- 10-15%

    75% correction is the best a buyer can hope.And according to me it can happen only to speculative locations.


    Abhishek you contradict your assumptions

    you say CAGR is widely believed as 10-15 % short term and 20 -25 % long term so inherently a sudden spurt is accepted by your premise, otherwise the short and long term CAGR would be same.
    and then it would not be wrong to accept that this was the sudden spurt in cagr and can be safely assumed as 30-35% for (your averages of 20-25% long term) so a spurt of CAGR in the range of
    30-35 % is not abnormal. so we can assume the spurt to be the normal 25% (can be assumed higher as 25% is long term average)
    now work on 25 % cagr(minimum)
    i.e 2400000 * (1+25/100)^5 = 73.24 lakhs

    a < 25 % correction.

    again regd your assumption even if land rates fall by 50% the flat rates to fall by 50% in areas less than 3000/ sq ft would be possible only if the cost of construction. advt rates, the labour and staff salaries of the builders, the architect and engg fees all reduce by 50% ,the under the table charges.

    lets look at it.
    assume cost(good quality) of const is 1200/ sq ft(not including cost of compound wall ,sump,lift if any etc.)
    land cost(assuming peak rate of 40 L reduced by 50 % to 20 L and FSI for normal bldng 1.5) 555

    builder margin 425
    (25 % (min as you say)
    overheads and approval charges +under the table
    will come to min of 150/-
    add cost of capital 145
    (15 % on 20 L + app charges + intial cons cost 10 L =35 L,remember it takes a minimum of 6-8 mnths to get CMDA approval with bribe paid)
    =2475 rs a sq ft.

    (it is based on chitlapakkam,east tambaram,selaiyur,chromepet where land price is/was 40 L and flats were sold at 3000/sq ft.)
    CommentQuote
  • Dear friend,

    Land cost in areas you have mentioned like Chitlapakkam, Selaiyur, Tambaram etc. are not Rs. 20 Lakhs per ground now. They are not less than Rs. 40 lakhs per ground. Nearer to Station or Velachery Main road are much higher even today. Even in Guduvanchery the land cost is over Rs. 25 lakhs per ground ( 2400 sq. ft.)

    ks2071746
    CommentQuote
  • Originally Posted by ks2071746
    Dear friend,

    Land cost in areas you have mentioned like Chitlapakkam, Selaiyur, Tambaram etc. are not Rs. 20 Lakhs per ground now. They are not less than Rs. 40 lakhs per ground. Nearer to Station or Velachery Main road are much higher even today. Even in Guduvanchery the land cost is over Rs. 25 lakhs per ground ( 2400 sq. ft.)

    ks2071746

    i know KS
    even if you assume 50% fall in land prices i have calculated flat prices(assuming other costs remain same)
    CommentQuote
  • Dear friend,

    I understand, your assumption is for the purpose of calculation.

    ks2071746
    CommentQuote
  • Originally Posted by abk
    Abhishek you contradict your assumptions

    you say CAGR is widely believed as 10-15 % short term and 20 -25 % long term so inherently a sudden spurt is accepted by your premise, otherwise the short and long term CAGR would be same.
    and then it would not be wrong to accept that this was the sudden spurt in cagr and can be safely assumed as 30-35% for (your averages of 20-25% long term) so a spurt of CAGR in the range of
    30-35 % is not abnormal. so we can assume the spurt to be the normal 25% (can be assumed higher as 25% is long term average)
    now work on 25 % cagr(minimum)
    i.e 2400000 * (1+25/100)^5 = 73.24 lakhs

    a < 25 % correction.

    again regd your assumption even if land rates fall by 50% the flat rates to fall by 50% in areas less than 3000/ sq ft would be possible only if the cost of construction. advt rates, the labour and staff salaries of the builders, the architect and engg fees all reduce by 50% ,the under the table charges.

    lets look at it.
    assume cost(good quality) of const is 1200/ sq ft(not including cost of compound wall ,sump,lift if any etc.)
    land cost(assuming peak rate of 40 L reduced by 50 % to 20 L and FSI for normal bldng 1.5) 555

    builder margin 425
    (25 % (min as you say)
    overheads and approval charges +under the table
    will come to min of 150/-
    add cost of capital 145
    (15 % on 20 L + app charges + intial cons cost 10 L =35 L,remember it takes a minimum of 6-8 mnths to get CMDA approval with bribe paid)
    =2475 rs a sq ft.

    (it is based on chitlapakkam,east tambaram,selaiyur,chromepet where land price is/was 40 L and flats were sold at 3000/sq ft.)


    yep sounds convincing
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  • Originally Posted by ks2071746
    Dear friend,

    As long as there is huge and continuous demand in India in the housing sector for living of so many millions of people still not having any house or flat of their own, the fall may not be as steep as it would be in US. After all, these are real demands which increase day by day, due to increasing population as also the uptrend in the per capita income of the people.

    ks2071746

    KS,
    You are saying the fall in India will not be as steep as US,so you assume it will be less than 25%,say 15%-20%.In other post you had written that it is better to wait for 12 more months to buy property.In another post you had written to go ahead and buy property if buyer like it without worrying about 15% extra price.Seems like these statement contradict
    each other.Sorry if I had offended you.
    CommentQuote
  • Originally Posted by abk
    Abhishek you contradict your assumptions

    you say CAGR is widely believed as 10-15 % short term and 20 -25 % long term so inherently a sudden spurt is accepted by your
    premise, otherwise the short and long term CAGR would be same.
    and then it would not be wrong to accept that this was the sudden spurt in cagr and can be safely assumed as 30-35% for (your
    averages of 20-25% long term) so a spurt of CAGR in the range of
    30-35 % is not abnormal. so we can assume the spurt to be the normal 25% (can be assumed higher as 25% is long term average)
    now work on 25 % cagr(minimum)
    i.e 2400000 * (1+25/100)^5 = 73.24 lakhs

    a < 25 % correction.

    again regd your assumption even if land rates fall by 50% the flat rates to fall by 50% in areas less than 3000/ sq ft would
    be possible only if the cost of construction. advt rates, the labour and staff salaries of the builders, the architect and
    engg fees all reduce by 50% ,the under the table charges.

    lets look at it.
    assume cost(good quality) of const is 1200/ sq ft(not including cost of compound wall ,sump,lift if any etc.)
    land cost(assuming peak rate of 40 L reduced by 50 % to 20 L and FSI for normal bldng 1.5) 555

    builder margin 425
    (25 % (min as you say)
    overheads and approval charges +under the table
    will come to min of 150/-
    add cost of capital 145
    (15 % on 20 L + app charges + intial cons cost 10 L =35 L,remember it takes a minimum of 6-8 mnths to get CMDA approval with
    bribe paid)
    =2475 rs a sq ft.

    (it is based on chitlapakkam,east tambaram,selaiyur,chromepet where land price is/was 40 L and flats were sold at 3000/sq
    ft.)


    I accept RE spurts happen and thats the reason for long term 20-25% CAGR , I generally use 20% CAGR to get the feel of the price in a locality.So, I tend to agree with your calculation.

    My calculations are just approximations to understand the direction RE market is heading and based on anticipation of what could happen.The outcome we will never know until the dice has stopped rolling, till than we can all keep guessing numbers.

    According to me a rate of 20%+ CAGR is sustainable only when gentrification sets in and actual demand for the locality exists.

    These spurts are generally localized and seen only for two to three years continously.I am told thats how it happened in posh locations like poes garden and boat club etc.Please correct me if I am wrong.

    This time during the boom, what we saw was a uniform escalation in prices across Chennai at 30%+ CAGR which is abnormal.

    How can one explain vacant barren/agricultural lands 50km away from city sold at 1 Lakh/acre earlier being quoted at 10Lakh/grnd today? Land is available in abundance, just because only some are dtcp approved doesnt justify the premium rate.

    whats the development and infrastructure available there today?

    Its purely speculative and based on proposed infrastructure growth like airport, Outer/inner ring road, metro rail/BRTS, SIPCOT/ELCOT development etc..

    I see Chennai as follows

    Chennai Proper - Area within corporation limit - possible correction 10-15%

    Chennai proper would be the least affected.The reasons are it being well connected and all infrastructure is readily available.proximity to business establishments,educational instituitions.Main factor is that Supply of worthy property is very less.Frankly I dont see any issues with the land price here, my complaint is only that the flat price from the builders is not inline with the land price.

    Fit for flat purchase for middle/higher middle income class people and land purchase for the rich.

    Chennai Suburbs - Areas within the proposed new corporations and CMDA limits - possible correction 20-30%

    During this boom we saw the suburbs seeing development at a rate which was not witnessed before.For example velachery, mogappair, tambaram is completely self sustained today.These locations are serving as hubs for people from various professions.In these location the price rise was long due and it happened.Here lands are available between houses.

    It will make sense only to buy an independant house or land here than going for a flat and paying for the high construction/builders cost.Flats with good UDS is worth pursuing.

    Chennai Suburbs - Areas outside corporation within CMDA limits. - possible correction 30-50%

    There are lots of areas whose price rose as collatarel benefit along velachery, Porur, Tambaram etc.

    These locations have decent infrastructure but not complete in anyway.People who are living here are still original residents and vacant plots are available in plenty.

    Fit for only land purchase and independant house.

    Chennai Outskirts - Areas adjoining OMR/GST/Bangalore and kolkata Higways. - Crash >50%

    These areas are pure speculation.Only certain areas will flourish and live to the hype.

    Fit for only land purchase as investment for long term.

    OMR - Tightly coupled with IT industry

    For example in siruseri out of all the big projects coming up, Only 2 projects have proper approvals and are in line to completion in time.With IT seeing slump most would want only to rent these flats.

    I am expecting these unsold flats to be rented out by the builders themselves when completed or available at subsidised rent through the companies.

    Bangalore Highway - Electronic corridor and Proposed airport is the USP.

    If there is news that the proposed airport is dropped (I dont know till now, whether the project even actually took off).Then the price would plummet.I hear most of the industries there are laying off and cutting down on production.

    GST road - Has the potential, but no real developments yet.

    Very well connected by road/rail and the best bet for investment for long term in my opinion, any future township would come up only along here.I would ideally wait for TNHB to anounce some schemes and try to get a plot there.

    Kolkata Highway/Avadi Road - Outer ring road, connectivity to bangalore highway.

    Very well connected by road/rail, but Hasnt seen much development compared to other parts of Chennai.
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  • ]http://economictimes.indiatimes.com/Markets/Real-Estate/News-/DLF-customers-gang-up-pressurise-developer-to-commit-refund/articleshow/4328345.cms
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  • Originally Posted by nabishek
    I accept RE spurts happen and thats the reason for long term 20-25% CAGR , I generally use 20% CAGR to get the feel of the price in a locality.So, I tend to agree with your calculation.

    My calculations are just approximations to understand the direction RE market is heading and based on anticipation of what could happen.The outcome we will never know until the dice has stopped rolling, till than we can all keep guessing numbers.

    I see Chennai as follows

    Chennai Proper - Area within corporation limit - possible correction 10-15%

    Chennai Suburbs - Areas within the proposed new corporations and CMDA limits - possible correction 20-30%

    It will make sense only to buy an independant house or land here than going for a flat and paying for the high construction/builders cost.Flats with good UDS is worth pursuing.

    Chennai Suburbs - Areas outside corporation within CMDA limits. - possible correction 30-50%

    There are lots of areas whose price rose as collatarel benefit along velachery, Porur, Tambaram etc.

    These locations have decent infrastructure but not complete in anyway.People who are living here are still original residents and vacant plots are available in plenty.

    Fit for only land purchase and independant house.

    Chennai Outskirts - Areas adjoining OMR/GST/Bangalore and kolkata Higways. - Crash >50%

    These areas are pure speculation.Only certain areas will flourish and live to the hype.

    Fit for only land purchase as investment for long term.

    OMR - Tightly coupled with IT industry

    For example in siruseri out of all the big projects coming up, Only 2 projects have proper approvals and are in line to completion in time.With IT seeing slump most would want only to rent these flats.

    I am expecting these unsold flats to be rented out by the builders themselves when completed or available at subsidised rent through the companies.

    Bangalore Highway - Electronic corridor and Proposed airport is the USP.

    If there is news that the proposed airport is dropped (I dont know till now, whether the project even actually took off).Then the price would plummet.I hear most of the industries there are laying off and cutting down on production.

    GST road - Has the potential, but no real developments yet.

    Very well connected by road/rail and the best bet for investment for long term in my opinion, any future township would come up only along here.I would ideally wait for TNHB to anounce some schemes and try to get a plot there.


    yes the numbers game is just approximation and subject to the perspective of individuals.

    I do see chennai the way you see but with some diff

    I see a lower fall less than 20% in the chennai suburbs within CMDA limits as infra is developing in these areas like good schools,health care and the "more,spencers and reliance fresh" .and the affordability is better here
    so is the groundwater.
    i actually see a higher correction in the premium segment (flats onlly) in chennai city limits (albiet temperory) bcoz of sentiments. but overall i see chennai to have a lot of headroom for the prices to rise in comparision to the other metros.where the prime places rates are 400-600% more than prime places of chennai
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