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 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
    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.

    Comment


    • Re : RE business in Chennai collapsing

      Dear friend,

      Not an unreasonable example?

      ks2071746
      Last edited March 28 2009, 03:23 PM. Reason: spell

      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.
        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.)

        Comment


        • Re : RE business in Chennai collapsing

          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

          Comment


          • Re : RE business in Chennai collapsing

            Originally posted by ks2071746 View Post
            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)

            Comment


            • Re : RE business in Chennai collapsing

              Dear friend,

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

              ks2071746

              Comment


              • Re : RE business in Chennai collapsing

                Originally posted by abk View Post
                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

                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
                  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.

                  Comment


                  • Re : RE business in Chennai collapsing

                    Originally posted by abk View Post
                    Abhishek you contradict your assumptions

                    you say CAGR is widely believed as 10-15 &#37; 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.
                    Last edited March 29 2009, 01:24 AM.

                    Comment


                    • Re : RE business in Chennai collapsing

                      ]http://economictimes.indiatimes.com/Markets/Real-Estate/News-/DLF-customers-gang-up-pressurise-developer-to-commit-refund/articleshow/4328345.cms[/URL]

                      Comment

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