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Property Price Trends in Chennai

Last updated: May 20 2021
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  • #41

    #41

    Re : Property Price Trends in Chennai

    Originally posted by nabishek View Post
    The End users have always been from this category who buy out of their savings, The demand generated by them is genuine and I dont believe that they could have contributed much to the escalation.

    I feel probably they would be the ones who are trapped now, looking out in far off places 50km away from the city and expecting prices would fall.

    Following are the reasons i will attribute to the boom

    The primary reason being

    Availability of Easy credit and money.Nothing else happened significantly to increase the demand so much in these 4-5 years.

    This boosted the purchasing power of the current generation to surpass their capacity and enabled them to buy more than what they really could afford.

    There are lots of other reasons that contributed to the boom. some like

    1.Political will to promote RE by relaxing the interest rates for home loans and providing tax exemptions.
    2.Tie up between Banks and Builders enabling launch of mega projects and providing pre-approved loans to customers.
    3.Entry of corporates into real estate market.
    4.Opening of the RE market to global investors by attracting FDI.
    5.Getting public money through stock market.
    6.Surge in the inflow of money from NRI's into RE.
    7.IT industry in its peak.
    8.Industries like automobiles, healthcare flourishing.
    9.Increase in construction cost.
    10.Shift in focus to develop townships, and to developing areas around OMR,GST which resulted in less supply within the city.

    Regarding the Houses priced at 1C etc.

    As I have explained in my earlier posts, I am still trying to understand how to arrive at the correct price of a property.Its still not clear to me how a property should be valuated.There seems to be no rationale behind the way builders fix the price.

    I calculate using the (UDS * (market rate/sqft of land)) + (builtup area * consruction cost) + registration charges + car parking + other charges.

    generally I find market value of the land is (FSI allowed for the extent * guideline value)

    I feel the price is inflated and is not sustainable for long.Almost most of the factors that supported the boom is now non-existent.

    The pricelist of the properties in Fairpro is that of the peak period.Seeing it one would get the feel that the market price in adyar is 12500/sqft.

    The reality is, there are new ready to occupy flats with high UDS(stilt + 4 floor) in Adyar at 8500/sqft negotiable while another flat in the same locality with open car park at 7000/sqft negotiable.

    I feel the market still needs a correction of 30-40% minimum.Rentals are bound to come down.

    In speculative locations the market could crash.
    Nabhishek,
    U have been writing fantastically. Kudos. Just that I need to add a few points to your EMI calculation argument in one of your earlier posts.
    a. With 5L salary in 1990s I would not have taken a 20L loan as you calculated. Low interest rates has made many mad and they have bought flats as if there was no tommorow.
    b. Does this mean that prices will crash? It may not, because either the entire country has to go the Zimbabwe way, or prices have to go up to counter this.
    c. In INdia inflation is allowed not deliquiency. In other words govt of whatever party will let the rupee weaken badly if economy is in trouble. So the salaries may not fall, the return on realestate will continue to go up and so the justification will happen. Also as Madrasi says, we cannot use other countries' logic for us. So we might very well have another RE boom.
    d. Finally RE based on flats is one thing. However there are other points. One is black money. Most landowners are holding ancestral land or those bought in 80s or before. Now these can be bought by the super rich.
    e. So this will lead to Bombay like situation. So in future flats might continue to be at 20L (IN CHENNAI) but size might decrease. In effect rates may not fall one bit.
    f. Finally one of the points missed out on this board is the FSI in Madras is extremely low. So with SIMILAR LAND PRICE in Chennai and Bangalore flats in Chennai are much costlier. I can yet get you a clean decent flat in Bangalore for 25L in a place within 10km radius from MG ROad. U can do that only in Urapakkam or some far away place in Madras.
    SO GET THE CHENNAI GOVT TO CHANGE FSI.
    Nabhishek I liked this particular thread. For once there was someone talking facts even though you are bearish and I am bullish I appreciate your logic. I hope the bears can learn from this and not behave like Mad wiseman!

    Comment

    • #42

      #42

      Re : Property Price Trends in Chennai

      I think the builders are reducing from the quoted cost offline more than 25% like corporate offer, first 100 booking like..
      Be patient and get the best deal.

      Comment

      • #43

        #43

        Re : Property Price Trends in Chennai

        RE Prices in Chennai will fall after the elections....
        until then it will stagnate with support from Private lenders.
        Many kept rotating land in Chennai outskrits, with the help of brokers,
        who often buy and sell within 4 - 6 months, with nearly 75% - 100% profit
        which generated artificially inflated price like stocks.
        Same with most of the apartments which are bought by speculative investors, buying 2 3 flats.
        India is yet to face the brunt of Economic slowdown and IT
        layoffs! Once things set in, Rentals and Flat prices will come by atleast 50% and the land prices by 30%.
        1 year from now would the time when prices will settle

        The real estate sector in India may have seen its best time for the next several decades. The real estate markets now heads downward, as people cannot make their mortgage payments.
        OP Bhatt, chairman of State Bank of India (SBI), the country’s largest bank, expects 50% correction in the housing sector prices in the country. “In India we may witness up to 50% correction in pricing in the mortgage markets. If that happens, it’s good news for the Indian banking system as NPAs would reduce and new business would fall-in,’’ he said at the concluding session of Ficci-IBA Conference on Global Banking: Paradigm Shift, in Mumbai on Saturday.
        According to other analysts, the market can roll downwards another additional 15 to 20% before stabilizing.
        The commercial and residential sectors in major metropolis are experience severe credit crunch, defaults and bank takeovers. The glut of unsold apartments is skyrocketing. The residential mortgage market is collapsing faster than the subprime mortgage market in America.

        Comment

        • #44

          #44

          Re : Property Price Trends in Chennai

          Originally posted by balaiitm View Post
          I think the builders are reducing from the quoted cost offline more than 25% like corporate offer, first 100 booking like..
          Be patient and get the best deal.
          Dear friend,

          The builders increase the prices upwards first then show discounts in new projects, like any other say, cloth business. In real, discounts like 5%-10% only are coming out even worth very hard negotiations if you want in good areas, not far away from city. As Natarajg has mentioned elsewhere, unless the FSI is increased like Bangalore, the prices cannot be expected to come down appreciably like 25 % etc.

          ks2071746

          Comment

          • #45

            #45

            Re : Property Price Trends in Chennai

            Originally posted by nabishek View Post

            The pricelist of the properties in Fairpro is that of the peak period.Seeing it one would get the feel that the market price in adyar is 12500/sqft.

            The reality is, there are new ready to occupy flats with high UDS(stilt + 4 floor) in Adyar at 8500/sqft negotiable while another flat in the same locality with open car park at 7000/sqft negotiable.

            I feel the market still needs a correction of 30-40% minimum.Rentals are bound to come down.

            In speculative locations the market could crash.
            Dear friend,

            In 2007 builders were able to sell their flats on the opening day itself.

            Now this scenario has totally changed. They are announcing many sops to sell of their flats.

            When it does not work they tend to reduce the price. Even then if the flat is not selling god only can save them.

            thanks

            chataara

            Comment

            • #46

              #46

              Re : Property Price Trends in Chennai

              Originally posted by Natarajg007 View Post
              Nabhishek,
              U have been writing fantastically. Kudos. Just that I need to add a few points to your EMI calculation argument in one of your earlier posts.
              a. With 5L salary in 1990s I would not have taken a 20L loan as you calculated. Low interest rates has made many mad and they have bought flats as if there was no tommorow.
              b. Does this mean that prices will crash? It may not, because either the entire country has to go the Zimbabwe way, or prices have to go up to counter this.
              c. In INdia inflation is allowed not deliquiency. In other words govt of whatever party will let the rupee weaken badly if economy is in trouble. So the salaries may not fall, the return on realestate will continue to go up and so the justification will happen. Also as Madrasi says, we cannot use other countries' logic for us. So we might very well have another RE boom.
              d. Finally RE based on flats is one thing. However there are other points. One is black money. Most landowners are holding ancestral land or those bought in 80s or before. Now these can be bought by the super rich.
              e. So this will lead to Bombay like situation. So in future flats might continue to be at 20L (IN CHENNAI) but size might decrease. In effect rates may not fall one bit.
              f. Finally one of the points missed out on this board is the FSI in Madras is extremely low. So with SIMILAR LAND PRICE in Chennai and Bangalore flats in Chennai are much costlier. I can yet get you a clean decent flat in Bangalore for 25L in a place within 10km radius from MG ROad. U can do that only in Urapakkam or some far away place in Madras.
              SO GET THE CHENNAI GOVT TO CHANGE FSI.
              Nabhishek I liked this particular thread. For once there was someone talking facts even though you are bearish and I am bullish I appreciate your logic. I hope the bears can learn from this and not behave like Mad wiseman!
              Thanks for your compliment Nataraj.All your points makes perfect sense.

              About me being a bear, I am a kind of person who believes that when in trouble one has to help themselves and cant expect anyone else to empathize with them..Its not fair to blame anyone or any circumstances for the decisions one makes.

              It is one's responsibility to make a well-informed decision and accept gracefully the outcome of it however it may turn out to be.

              I chose to tread cautiously even if it means missing out on many profits.

              I give all the predictions, the same level of importance that i would give for weather forecasting.Its only directional.

              If a news channel predicts its going to rain heavily, It wont hurt to be preapared and carry an umbrella while venturing out.Even if it doesnt rain, The umbrella can be used to provide yourself shade when it is very bright and sunny.
              Last edited February 20 2009, 02:24 PM.

              Comment

              • #47

                #47

                Re : Property Price Trends in Chennai

                Originally posted by chataara View Post
                Dear friend,

                In 2007 builders were able to sell their flats on the opening day itself.

                Now this scenario has totally changed. They are announcing many sops to sell of their flats.

                When it does not work they tend to reduce the price. Even then if the flat is not selling god only can save them.

                thanks

                chataara
                I am still skeptical about whether even 50% of flats were sold.Maybe they were all booked on the first day.

                The reason why I say this is, lots of ready to occupy flats are being put on block.These are not resales, its by the builders themselves.All of them are projects started in the boom period in between 2005-2007.

                Many builders sell the flats that are in the ground, top floor and back side first and hold some to sell at a greater profit later.

                These builders will be happy to give at the rate at which they launched in 2005 which is 40-50% less than the market rate and even more if the transaction is in Cash.The builders are still making good profits from the deal.

                For people who want to buy for their self use, this is a very good bargain.

                I am expecting to see lots of such properties to be put on sale.

                Comment

                • #48

                  #48

                  Re : Property Price Trends in Chennai

                  Originally posted by nabishek View Post
                  Thanks for your compliment Nataraj.All your points makes perfect sense.

                  About me being a bear, I am a kind of person who believes that when in trouble one has to help themselves and cant expect anyone else to empathize with them..Its not fair to blame anyone or any circumstances for the decisions one makes.

                  It is one's responsibility to make a well-informed decision and accept gracefully the outcome of it however it may turn out to be.

                  I chose to tread cautiously even if it means missing out on many profits.

                  I give all the predictions, the same level of importance that i would give for weather forecasting.Its only directional.

                  If a news channel predicts its going to rain heavily, It wont hurt to be preapared and carry an umbrella while venturing out.Even if it doesnt rain, The umbrella can be used to provide yourself shade when it is very bright and sunny.
                  If you are buying a flat and that too from one of these HYPED builders who ask RIDICULOUS prices then you need to carry a Raincoat and an Umbrella. However that does not mean RE is falling? Rather builder profit margins will be eroded as they very well deserve to be. Go and see my post today on DONT SELL YOUR LAND FOR A SONG. The truth is many folks in Chennai need to realise that they should INVOLVE themselves in realestate transactions. They seem to be buying RE (read APARTMENTS) like buying a TV or a Fridge in Retail mode. Remember a HOME IS FOR LIVING not for RESELLING.
                  Keep up your good work even as a bear.

                  Comment

                  • #49

                    #49

                    Re : Property Price Trends in Chennai

                    Hi Friends,

                    I am putting forward my understanding on how the RE boom and steep appreciation happened.

                    In the Recent past,Builders starting promoting living spaces as against land as the new form of asset class.

                    Builders started commanding huge premiums and fixed high profit margins,without giving proper break-up thus fudging the mathematics behind the transactions.

                    In a locality where the market rate is 2000/sqft and guideline value is 1000/sqft, a premium builder would quote above 3000/sqft for a flat because of brand name and facilities like club, exclusive community etc..

                    cost of flat = 2000/1.5 + 1200(constuction charge) + 1000(profit margin/othercharges) = ~ 3500/sqft

                    If a Seller owns 2400 sqft land there.

                    Seller would claim that in 2400 sqft land 3600 sqft builtup can be achieved and by citing the possible end use and that flats in the locality are being sold for more than 3000/sqft with less UDS would justify the land rate

                    asking land rate = (Allowed FSI * market price) = (1.5 * 2000) = 3000/sqft

                    A land worth 48 lakhs in the market is quoted for 72 lakhs.

                    Not many know the way to calculate rate/sqft of flat from the land price.I learned this method only through this forum, courtesy Nataraj.

                    A Buyer who wants to estimate cost of the house will do as follows

                    (UDS * guideline value/market price) + (built up area * construction cost)

                    (2400 * 2000) + (1200 * 3600) = ~ 2500/sqft

                    Some prospective buyer will fall for the price, thinking they are getting a ground of land to own for themselves and later they can build a house or flat and sell for a price not less than 4000/sqft.It seems a better decision buying the land by stretching a bit which also doubles as an investment when compared to buying a flat for the price which is just 500/sqft less.

                    when such a land transaction happens the market price increases to 3000/sqft.

                    Both land owners and builders increase and revise their price accordingly as and when market price changes.

                    The next seller B would peg higher at around 4500/sqft,Seller C at 6750/sqft and so on.

                    The actual rate/sqft for a flat should be as follows

                    Buyer of Seller A = 3000/1.5 + 1200 = 2000 + 1200 = 3200/sqft
                    Buyer of Seller B = 4500/1.5 + 1200 = 3000 + 1200 = 4200/sqft
                    Buyer of Seller C = 6750/1.5 + 1200 = 3000 + 1200 = 5700/sqft

                    If the Buyer is a builder,

                    Builder who bought from Seller A will conveniently manipulate by not applying FSI on the rate 3000/sqft at which the land was bought, but against the market price in the locality at that time.

                    Therefore,If the asking price in the market is 6750/sqft(Seller C asking price) a builder would quote

                    6750/1.5 + 1200 = 5700/sqft

                    one can see, this is a never ending cycle that keeps continuing without any control or regulation.What drives it is also the same Demand/supply dynamics.

                    I feel this is one of the major reasons how the price rose by 200-400% in the span of just 3-4 years.It was instigated by the cartel of premium builders/Bankers....

                    Now the wheel seems to have stopped since the market seems to have reached its saturation point.

                    Would like to hear from people on the forum, whether my observation is correct or if anything is fundamentally and logically wrong with the argument.

                    Would Appreciate your responses.
                    Last edited February 26 2009, 01:28 AM.

                    Comment

                    • #50

                      #50

                      Re : Property Price Trends in Chennai

                      Originally posted by nabishek View Post
                      Hi Friends,

                      I am putting forward my understanding on how the RE boom and steep appreciation happened.

                      In the Recent past,Builders starting promoting living spaces as against land as the new form of asset class.

                      Builders started commanding huge premiums and fixed high profit margins,without giving proper break-up thus fudging the mathematics behind the transactions.

                      In a locality where the market rate is 2000/sqft and guideline value is 1000/sqft, a premium builder would quote above 3000/sqft for a flat because of brand name and facilities like club, exclusive community etc..

                      cost of flat = 2000/1.5 + 1200(constuction charge) + 1000(profit margin/othercharges) = ~ 3500/sqft

                      If a Seller owns 2400 sqft land there.

                      Seller would claim that in 2400 sqft land 3600 sqft builtup can be achieved and by citing the possible end use and that flats in the locality are being sold for more than 3000/sqft with less UDS would justify the land rate

                      asking land rate = (Allowed FSI * market price) = (1.5 * 2000) = 3000/sqft

                      A land worth 48 lakhs in the market is quoted for 72 lakhs.

                      Not many know the way to calculate rate/sqft of flat from the land price.I learned this method only through this forum, courtesy Nataraj.

                      A Buyer who wants to estimate cost of the house will do as follows

                      (UDS * guideline value/market price) + (built up area * construction cost)

                      (2400 * 2000) + (1200 * 3600) = ~ 2500/sqft

                      Some prospective buyer will fall for the price, thinking they are getting a ground of land to own for themselves and later they can build a house or flat and sell for a price not less than 4000/sqft.It seems a better decision buying the land by stretching a bit which also doubles as an investment when compared to buying a flat for the price which is just 500/sqft less.

                      when such a land transaction happens the market price increases to 3000/sqft.

                      Both land owners and builders increase and revise their price accordingly as and when market price changes.

                      The next seller B would peg higher at around 4500/sqft,Seller C at 6750/sqft and so on.

                      The actual rate/sqft for a flat should be as follows

                      Buyer of Seller A = 3000/1.5 + 1200 = 2000 + 1200 = 3200/sqft
                      Buyer of Seller B = 4500/1.5 + 1200 = 3000 + 1200 = 4200/sqft
                      Buyer of Seller C = 6750/1.5 + 1200 = 3000 + 1200 = 5700/sqft

                      If the Buyer is a builder,

                      Builder who bought from Seller A will conveniently manipulate by not applying FSI on the rate 3000/sqft at which the land was bought, but against the market price in the locality at that time.

                      Therefore,If the asking price in the market is 6750/sqft(Seller C asking price) a builder would quote

                      6750/1.5 + 1200 = 5700/sqft

                      one can see, this is a never ending cycle that keeps continuing without any control or regulation.What drives it is also the same Demand/supply dynamics.

                      I feel this is one of the major reasons how the price rose by 200-400% in the span of just 3-4 years.It was instigated by the cartel of premium builders/Bankers....

                      Now the wheel seems to have stopped since the market seems to have reached its saturation point.

                      Would like to hear from people on the forum, whether my observation is correct or if anything is fundamentally and logically wrong with the argument.

                      Would Appreciate your responses.
                      Dear friend,

                      Your observations are not wrong, as also, cannot be termed & set aside as unreasonable.

                      ks2071746

                      Comment

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