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Property Price Trends in Chennai

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  • Re : Property Price Trends in Chennai

    Where is the truth

    Given the above post, why has there been a price decline in 2008 to 2009 period.
    a. The price decline if you check NT is pronounced in Developed areas like Adayar, Harington road, Boat club etc.
    b. The reason is simple. In these places land prices did not move up so much as hyped by builders. So flat prices have fallen while real land prices have not. The builders greed was exposed in these places. Even today they have not lost but on hiper super profits. In these cases the formula I have discussed above fails. Builders in 2008 were using a construction cost of even 4000 or above which was ridiculous. There profit margins were just tooooooo much.
    c. In other places like Tiruvanmiyur prices have actually shot up in 2009 from 2008. Why? That is because of hype. So someone who used to be crazy about Adayar (say like me given that I lived most of my childhood in IIT campus! until 21) decided that given Adayar being crowded and costly what is the diff between Adayar and Tiruvanmiyur and paid a similar price. So Tiruvanmiyur developed at the expense of Adayar (like Saligramam or West Mambalam did at the expense of T Nagar...some of these day not there)!Also notice that Valmiki Nagar a silly offshoot of Tiruvanmiyur has a declining price. That is because these are SPECULATIVE ZONES in the CRZ. Some fools prefer them though documentation is always funny in these places on the east of ECR.
    d. Anamolies exist like price in URapakkam. 3300 psft there is higher than Valasaravakkam or Kottivakkam which are right in the city. This is where idiots of Chennai participate. Now idiots and ites are rhyming. These idiots choose to buy outside the city without any sense! While I wont disagree that many places in Kottivakkam are CHERIish it does not mean that the place is unliveable. It is documentation that becomes an issue in these places sometimes. However no guarntee is there on documentation in Urapakkam either.
    In summary prices are not linear like what Wisey expects all to believe. Prices have risen in some areas in 2009 and fallen in some. The reasons are many and blind bear hopes and blind bull hopes are all parts of stupidity.
    Remember, invest in property for long term growth or for living, the latter being most sensible. Speculating on property is best left to strong hands with contacts. Finally if you buy a flat for renting and appreciation alone, then even god cant save you. THINK BEFORE YOU ACT IN REAL ESTATE ELSE YOU ARE STUCK IN QUICKSAND. The right investment can be better than the best and the worst more painful than you can imagine. So for the simpleton buy a Realestate ONLY IF YOU NEED IT.

    Comment


    • Re : Property Price Trends in Chennai

      I failed to add one more info. Prices will fall for flats like the DLFs and the rest. These guys have behaved so badly with construction cost in my formula kept very high and unnatural. In other words they used to take 300% margins. They need to come to 10% margins. So when buying BRANDED FLATS think a million and one times before signing in. Remember you might be having many exiting this segment in times of job losses.

      Comment


      • Re : Property Price Trends in Chennai

        This is a good start anyway ...

        Originally posted by nabishek View Post
        No luck with data on volumes yet.I shall post if I come across one.

        The following is the link to a 3 month old news



        We surely hear that the number of sales and registration at various offices have come down drastically when compared to the same time last year.



        The above posted price are only indicative market rates and are compilation from a bi-annual magazine called "A Guide to Chennai Real Estate" by priya publications.

        Abishek,

        There are some nit-pickers who will go on and on about how the front of the house which faces the sea should be double the price of the back of the house which faces Saligramam.

        That is neither here nor there. And this nit-picking helps no one since analysis is (and generally should be) a pointer to trends which are general.

        After all, if I give you the precise rate for every alternate house in Thiruvanmiyur, how is that any more helpful than the current indicative price? Both of them will, in the end only give you indicative direction - which is what everyone wants.

        People on this board want to know, above all, whether the price is near a level which provides good value for money. Then they want to know if the ttrend in prices is flat, down or up.

        As you can see, all of these are approximations and generalizations and only need consistent data, not necesarily highly accurate ones. If you provided a 5% error rate consistently, the data would be just fine for analysis as the error rate carries thru and the level of conclusions we need should be met. So, lets stick with what we can practically lay our hands on instead of constantly cribbing about what could have happened!!!

        What you have provided is more than adequate to provide fairly good hi-level analysis of whats happening. And thanks for that.

        Anyways, there are some interesting conclusions coming up in the analysis that I'm attempting. Will share it shortly!!!

        cheers

        Comment


        • Re : Property Price Trends in Chennai

          Dear friend,

          I eagerly await your further analysis for my benefit.

          ks2071746

          Comment


          • Re : Property Price Trends in Chennai

            RE Boom (or) Gentrification

            Friends,

            Chennai like many other cities around the world witnessed a urban phenomenon called "Gentrification".

            It is the process were affluent middle/higher income individuals enter a lower class area and displace the lower income people already residing there.

            Some of the aspects are as follows

            Source:Wikipedia


            Positive aspects of gentrification

            1.The original property owners profit from rising home prices.

            2.When people own the home they live in, instead of rent, it creates greater stability for the local area. Poor residential areas in large cities tend to have a high turnover rate of tenants.

            3.When an area is gentrified, the number of vacant houses is drastically reduced because of the increased demand for housing. Rising rents and property values make repairing abandoned buildings more profitable.

            4.With a greater number of people living in the area, there are greater amounts of currency being circulated locally. The increase in spending encourages further growth of both businesses and residential areas. These new local businesses may provide local jobs for the working class.

            Negative aspects of gentrification

            1.The cost of renting a residence in the area increases significantly, resulting in a displacement of local residents and in a reduction of affordable housing.

            2.Families that cannot afford the increased price of housing in the gentrifying neighborhood may move to surrounding areas, which puts pressure on affordable housing supply across the region.

            3.Some previous residents may be unable to obtain housing at a price that they can afford and thus become homeless.

            4.Certain businesses catering to a particular segment of population may shut down once that population is displaced.

            5.The increase in the property values of a neighborhood rarely increases the living standards of the low-income residents of the area.

            6.There can be tension between newer and older residents.
            Gentrification, is one of the major reasons why value of RE appreciates over period of time.

            Normally once the basic infrastructure develops in a location and it becomes liveable , the place attracts residents from other places to come and settle there.

            Over a period of time all facilites like schools,shops come up and the locality becomes self sustained and provides all benefits.

            Earlier gentrification used to happen when people with higher income and profession choose a location over the other due to various factors.

            People Today move into locations whichever is viable to their capacity(may be I should say over exerted and bank funded capacity) and near to their place of work.They dont wait for the infrastructure to come up instead see it as an investment opportunity and buy as early as they can.

            People started focussing on facilites within the apartment complex and speculated on infrastructure development plan announced like ring road, metro rail etc to compensate for what is not available from the government as yet.

            People are ready to pay the rate that they would pay for a well developed locality for such projects.

            Though nothing seems wrong in it, the problem lies in whether the spiralling growth will continue and the demand will persist.

            If the demand diminishes and the newly invested people start pulling out due to loss in jobs and loan repayment issues.

            There may not be equal number of people and end users to fill in their places to sustain the growth and demand.

            To understand better

            Lets take two people A and B who have each one ground of land in a locality.Both had purchased the land at X amount.

            Now a person P comes and buys the land from A at Y amount.So now A is richer than B by Y amount, but still A and B are of same worth because B owns a land that can be sold greater than Y amount.

            If Person P wants to exit the investment due to other liabilities.
            But if the new person P wants to sell the land for more than Y amount, will Person B be able to buy the land from P??The answer is No.

            Person P should look out for a person who can buy from their own money and not on money that is leveraged.In sense to find someone similar to himself.

            The chances are high that anyone like Person P will be in a similar position like him and wont be able to purchase the property.The end user market has shrunk.Therefore Person P will be forced to exit taking some losses and sell to whoever is willing to take the property.

            Doing so Person P will become poorer and so would Person B whose worth has relatively come down.As for Person A, chances are high that using half the money he would have bought another property further in the outskirts.

            The lack of diversification of kind of people staying in such localities will have a huge impact on the sustainabilty of RE price and the business that developed due to the sudden demand and activity.

            Due to the imbalance that would set in.There are possibilities of sharp corrections/crash in RE.We are already seeing this in many pockets(demand/supply mismatch).

            When true developement/infrastructure catches up in the locality and the community gets organized,established and balanced.There will be synergy again.The price will rise again and surpass its previous values.
            Last edited March 23 2009, 05:33 PM.

            Comment


            • Re : Property Price Trends in Chennai

              Originally posted by nabishek View Post
              Friends,

              To understand better

              Lets take two people A and B who have each one ground of land in a locality.Both had purchased the land at X amount.

              Now a person P comes and buys the land from A at Y amount.So now A is richer than B by Y amount, but still A and B are of same worth because B owns a land that can be sold greater than Y amount.

              If Person P wants to exit the investment due to other liabilities.
              But if the new person P wants to sell the land for more than Y amount, will Person B be able to buy the land from P??The answer is No.

              Person P should look out for a person who can buy from their own money and not on money that is leveraged.In sense to find someone similar to himself.

              The chances are high that anyone like Person P will be in a similar position like him and wont be able to purchase the property.The end user market has shrunk.Therefore Person P will be forced to exit taking some losses and sell to whoever is willing to take the property.

              Doing so Person P will become poorer and so would Person B whose worth has relatively come down.As for Person A, chances are high that using half the money he would have bought another property further in the outskirts.

              The lack of diversification of kind of people staying in such localities will have a huge impact on the sustainabilty of RE price and the business that developed due to the sudden demand and activity.

              Due to the imbalance that would set in.There are possibilities of sharp corrections/crash in RE.We are already seeing this in many pockets(demand/supply mismatch).

              When true developement/infrastructure catches up in the locality and the community gets organized,established and balanced.There will be synergy again.The price will rise again and surpass its previous values.
              Good Analysis Abhishek. Well done.

              Your conclusion is same as Wiseman's predictions done little earlier.

              Both you are (in) same (line) ?.

              Keep doing well.

              Comment


              • Re : Property Price Trends in Chennai

                Originally posted by nabishek View Post
                Friends,

                Chennai like many other cities around the world witnessed a urban phenomenon called "Gentrification".

                It is the process were affluent middle/higher income individuals enter a lower class area and displace the lower income people already residing there.

                Some of the aspects are as follows

                Source:Wikipedia



                Gentrification, is one of the major reasons why value of RE appreciates over period of time.

                Normally once the basic infrastructure develops in a location and it becomes liveable , the place attracts residents from other places to come and settle there.

                Over a period of time all facilites like schools,shops come up and the locality becomes self sustained and provides all benefits.

                Earlier gentrification used to happen when people with higher income and profession choose a location over the other due to various factors.

                People Today move into locations whichever is viable to their capacity(may be I should say over exerted and bank funded capacity) and near to their place of work.They dont wait for the infrastructure to come up instead see it as an investment opportunity and buy as early as they can.

                People started focussing on facilites within the apartment complex and speculated on infrastructure development plan announced like ring road, metro rail etc to compensate for what is not available from the government as yet.

                People are ready to pay the rate that they would pay for a well developed locality for such projects.

                Though nothing seems wrong in it, the problem lies in whether the spiralling growth will continue and the demand will persist.

                If the demand diminishes and the newly invested people start pulling out due to loss in jobs and loan repayment issues.

                There may not be equal number of people and end users to fill in their places to sustain the growth and demand.

                To understand better

                Lets take two people A and B who have each one ground of land in a locality.Both had purchased the land at X amount.

                Now a person P comes and buys the land from A at Y amount.So now A is richer than B by Y amount, but still A and B are of same worth because B owns a land that can be sold greater than Y amount.

                If Person P wants to exit the investment due to other liabilities.
                But if the new person P wants to sell the land for more than Y amount, will Person B be able to buy the land from P??The answer is No.

                Person P should look out for a person who can buy from their own money and not on money that is leveraged.In sense to find someone similar to himself.

                The chances are high that anyone like Person P will be in a similar position like him and wont be able to purchase the property.The end user market has shrunk.Therefore Person P will be forced to exit taking some losses and sell to whoever is willing to take the property.

                Doing so Person P will become poorer and so would Person B whose worth has relatively come down.As for Person A, chances are high that using half the money he would have bought another property further in the outskirts.

                The lack of diversification of kind of people staying in such localities will have a huge impact on the sustainabilty of RE price and the business that developed due to the sudden demand and activity.

                Due to the imbalance that would set in.There are possibilities of sharp corrections/crash in RE.We are already seeing this in many pockets(demand/supply mismatch).

                When true developement/infrastructure catches up in the locality and the community gets organized,established and balanced.There will be synergy again.The price will rise again and surpass its previous values.
                You know what Nabhishek. Gentrification is the reason that Mylapore a fishermen colony today continues to be a congested locality with some gentry claiming it is nice to live in RK Salai!

                Comment


                • Re : Property Price Trends in Chennai

                  Originally posted by nabishek View Post

                  According to me, The price correction for flats should happen in the following phases.

                  Phase 1- Correction of Fancy Prices - Reputation of builders will not be able to demand more than 5-10% premium of market price.

                  Phase 2 - Correction to Market Price - Falling back to the 2007 price, from when the land prices are stagnating.

                  Phase 3 - Correction to Right(Real) Price - Falling back to the inflation/returns adjusted project launch price(read as 2004/2005) with acceptable builders margin and correct FSI factoring.

                  We are already in phase 1 officially, and in phase 2 at the negotiation desk.

                  The cue for me that we will be entering phase 3 is sharp reduction in rentals and increase in number of new/1-3 years properties for resale.Both we are beginning to witness now.

                  If and only If after all the above corrections has happened and we still dont see any increase in demand.

                  We will see a Hibernation period i.e 1 - 2 years of very less bu ying/selling activity.More properties coming on resale.No new projects being launched.Projects under construction getting indefinately delayed.Prices for flats will see severe crash and hit rock bottom.The land prices will continue to stagnate and may see significant corrections.During this period purchasers will be spoilt by choice.

                  Morning walk period - The industry would witness a brief warming up period.There will be interest and lots of activity and hustle at the end users.New projects will be once again launched and RE will set foot for its next brisk walk, a healthy one.
                  Friends,

                  Earlier in one of my posts in this thread, I was talking about phase 1, phase 2, phase 3, hibernation and morning walk period in price correction.

                  Now that we have some data, I would like to use that to explain where we stand.

                  Lets take the peak price for each year for Adyar,I am choosing adyar because its well within the city and is at the start of the infamous IT corridor.

                  2004 - 2350/sqft
                  2005 - 2800/sqft
                  2006 - 4500/sqft
                  2007 - 10000/sqft
                  2008 - 13000/sqft
                  2009 - 10000/sqft.

                  Phase 1

                  On Prima facie one can see and identify that price has been stagnating at 10000/sqft since 2007.The 2008 rate was just the quoted rate and not the market rate.

                  The same trend can be seen for many other localities within the city.

                  So, any 20-30% fall from 2008 price is a farce, the rise never happened to fall.

                  Its clear 2007/2008 was the peak.

                  Phase 2

                  In 2009, At 10000/sqft for a flat, the land price in adyar should be as follows

                  Assuming 1.5 FSI and 1500/sqft construction and other charges including builders margin.

                  (10000 - 1500) * 1.5 = 12750/sqft. i.e. 3 Cr/Ground.

                  On checking the property portals to understand whats the correct market rate, one can find land available in adyar starting at 2 Cr/grnd.Though most advertisements are by brokers and one can get 20-30% less than the quoted price.

                  Lets assume market price of a land in adyar is 2C/grnd.i.e 8300/sqft

                  so cost of a flat should be = (8300/1.5) + 1500 = ~ 7000/sqft.

                  It is 30% less than 2007 price and 45-50% fall from the quoted 2008 peak price.

                  Is it possible for the price to fall further?I am going to assume that price will not fall below the guideline value for a place until demand completely becomes zero.

                  The average rate/sqft as per guideline value for adyar is 4500/sqft. i.e. 1C/ground.

                  The cost of flat as per guideline value = 4500/1.5 + 1500 = 4500/sqft

                  One can see that 2006 prices truly reflects the guideline value for the land.

                  Generally the market price is around 1.5 times the guideline value.Therefore the true market price should be around 1.5C+/grnd i.e. 6250/sqft

                  The cost of flat at market price = 6250/1.5 + 1500 = ~ 5600/sqft.

                  So today in chennai, If one can buy land at quoted price and build their own house.They save 30-50% already over market price.

                  Cost of flat in adyar should be minimum 5600/sqft and maximum 7000/sqft.In anycase the rate quoted by builders in 2009 is 30%-45% more than the market price and will see significant correction.

                  Only if we see Phase 2 setting in, we can assume that downward trend in RE has started.It has not yet happened in the open though there has been claims that one can get that much of discount at the negotiation table.

                  Phase 3

                  If Even bringing down the rates to saner level, the demand is not revived there is nothing else to protect the rate from falling back to the guideline values.

                  That is falling back to 2006 prices.

                  2006 prices can be also considered as inflation/RE returns adjusted 2004 prices.

                  The price in 2004 was 2350/sqft, i,e assuming construction cost + other charges as 1000/sqft.

                  (2350-1000) * 1.5 = ~ 2000/sqft = 48 Lakhs/grnd

                  It is popularly believed that RE appreciates in line with the per capita income of a person.

                  The CAGR in that case, hovers between 8-10%.

                  Lets assume 10% CAGR for calculation ease.

                  So, value of land in 2009 should be

                  4800000 * (1 + 10/100) ^ 6 = ~ 85 Lakh/grnd = ~ 3500/sqft

                  Therefore per sqft of flat = 3300/1.5 + 1500 = 3850/sqft which is in line with 2006 prices.

                  I believe 2006 price provides true value for money and if one comes across a property at 2006 price + 10-15%, It is a very good buy for self use.

                  The next two possible stages hibernation and morning walk are still in the speculative realm and is not applicable now.
                  Last edited March 24 2009, 11:16 AM.

                  Comment


                  • Re : Property Price Trends in Chennai

                    Dear friend,

                    Your detailed analysis is worth reading. However, in the case of Adyar, getting 2006 price + 10-15% i.e., Rs. 5000 to 5250/sq. ft. will not be possible. At best against Rs. 10000/sq. ft. it may come down to Rs. 7500 level.

                    ks2071746

                    Comment


                    • Re : Property Price Trends in Chennai

                      Originally posted by ks2071746 View Post
                      Dear friend,

                      Your detailed analysis is worth reading. However, in the case of Adyar, getting 2006 price + 10-15% i.e., Rs. 5000 to 5250/sq. ft. will not be possible. At best against Rs. 10000/sq. ft. it may come down to Rs. 7500 level.

                      ks2071746
                      Dear KS,

                      I am just exploring the possibilities and trying to strike a balance between the extremes and arrive at whats the realistic expectations.whether it will be realized or not only time should tell.

                      As I have showed, if one decides to build their own flat.The rate at adyar is 7000/sqft only.We dont need any more correction to reach that price.One can very well go ahead now.

                      The issue with it is, most of us dont have the means and capacity to do buy 1-2 grounds land for 1-2C/grnd and build on our own.We are waiting for the builders to slash prices to own our dream home.

                      We have not witnessed correction to the market price from the builders yet, if and only if builders start offering at market price with reduced profit and demand is still dull we will have the possibility of seeing 2006 price + 10-15%.

                      Lets see how things turn out.I am still waiting.

                      Comment

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