Announcement

Collapse
No announcement yet.

RE business in Chennai collapsing

Collapse
X
Collapse

RE business in Chennai collapsing

Last updated: August 17 2009
279 | Posts
  • Time
  • Show
Clear All
new posts

  • Re : RE business in Chennai collapsing

    Originally posted by wiseman View Post
    Correlation must not be confused with causation!

    In simple terms it means that, "because US rose 60% and is now falling 37%, therefore, India which went up 300% MUST fall 70%.

    The US market has a long-term annual increase in home prices of 1% (yes, 1%) over the last 100 years. The Indian market has one of around 12% to 15%. Therefore the dynamics (including other factors like stable population in US implying lower demand, etc, etc) means that the reasons and extent of rise as well as fall may be quite different.

    But I agree with you that the 70% fall is coming in many areas of this country. Reasons may be different from the US.

    cheers
    I also understand India's rise or fall percent cannot be directly corelated to to US.But some people are assuming that since US had fallen only by around 25% India should fall less than this.
    This cannot be true since inflation in low in US as compared to India and
    also India had 300% jump as compared to US 60%.So as per economics whatever goes up fast will also come down equally fast.

    Comment


    • Re : RE business in Chennai collapsing

      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

      Comment


      • Re : RE business in Chennai collapsing

        Originally posted by ks2071746 View Post
        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
        exactly-'real demand'.
        the indian karma mentality which lists (in order of import)
        ROTI,KAPADA AUR MAKAAN.the inherent cultural diff which lays stress on a
        life long commitment to family(same lol) and the social pressure to have a 'own house' and the apparent sense of security which the asset provides is deeply rooted in the indian psyche.

        Comment


        • Re : RE business in Chennai collapsing

          Originally posted by BigBear View Post
          I also understand India's rise or fall percent cannot be directly corelated to to US.But some people are assuming that since US had fallen only by around 25% India should fall less than this.
          This cannot be true since inflation in low in US as compared to India and
          also India had 300% jump as compared to US 60%.So as per economics whatever goes up fast will also come down equally fast.
          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.

          Comment


          • Re : RE business in Chennai collapsing

            Originally posted by nabishek View Post
            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.
            You are right Abishek,

            Any price escalation in line with the growth rate of the country (+ or - 2-3 percent) is sustainable and none will complain and people can still afford.

            Factoring the growth rate , Yes 40-50 percent correction looks reasonable on livable areas and more can be expected in far off places.

            Cheers.

            Comment


            • Re : RE business in Chennai collapsing

              Dear friend,

              I feel, a reduction to the tune of 10 to 20% in good localities and to the tune of 20 to 35% in out of city locations can be expected within a period of about 12 months. Of course, the progress of the projects may not be very fast and there can be delays. A project committed for completion in 12-18 months time frame may be delayed by atleast 6 months and such of those projects with higher reductions may even et delayed to the tune of 12 months or more. One should authorise paymentas based on actual progress only. It is always advisable to look for projects already progressing and completion in the next maximum 6 months like period so that the preEMI burden is reduced and either self occupation or renting out can be quick.

              With regard to toilet, my personal experience has been that it is better to go in for a loft tank of say 200 to 300 litres capacity during the construction stage itself in atleast one toilet and if feasible & possible, a seperate one for the kitchen or a combined one for the toilet and kitchen.
              A tank of good make costs about Rs. 1600 to Rs. 2000 with fittings. The importane of this provision will be best known only when one really experiences due to pump problem, power cut or water shortage due to variety of reasons.

              ks2071746

              Comment


              • Re : RE business in Chennai collapsing

                Originally posted by ks2071746 View Post
                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.
                Last edited March 28 2009, 01:13 PM.

                Comment


                • Re : RE business in Chennai collapsing

                  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

                  Comment


                  • Re : RE business in Chennai collapsing

                    In mumbai property prices have come down by 35 to 50% .source cnbc tv18.chennai lags 6 months with mumbai

                    Comment


                    • Re : RE business in Chennai collapsing

                      Agree in general

                      Originally posted by nabishek View Post
                      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!!! ).

                      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

                      Comment

                      Have any questions or thoughts about this?
                      Working...
                      X