I have decided to avoid getting into UNWANTED discussions with folks who any way wont reform. So let me discuss the mathematics of Chennai realestate in a new Thread.
An hour ago, I called a Builder in Saligramam asking for the price of his flat. He quoted 5600 psft. I asked him about UDS and FSI and road width. He was building a clean property on 2 grounds, 8 flats with stilt and road width was 30ft. He was using an FSI of 1.67 which is perfectly understandeable.
Then I asked him " what is the price of land here ?"
Builder: 1.5crores to 1.25crores.
I: So I can offer you land there in a much better place than you are building.
Builder: I cant buy outright now sir, but 50:50 is ok.
I: How is 50:50 fine? For 3200sqft that I have you can build minimum 5000sqft even though I know you will build 5400sqft at 1.67. So what is your cost of construction?
B: 1500psft.
(Now this price is terribly high but I was ready to let him go with the price?)
I: So how can it be 50:50? You need only 75L to build 5000sqft?
B: See if I give you 2 flats worth 2500sqft you can yet get at 5600psft.
I: That is just 1.4cr for 3200sqft.
B: I can maybe give you another 10L or so.
I told him that even if I turned a builder and sold one flat I would have built the entire 4 flats but he was telling WITHOUT ANY MATHEMATICAL BACKING that he will need 1.5 flats. Then he said well I cant sell 1250sqft flat to which I said you can make 6 flats with new rules.
This went on till I said "get lost" or rather a "bye" and left him.
Now let us see the mathematics.
If I can get 5600 psft for 1 flat then cost of 1250sqft of flat is 70L. Let us assume I throw one 5L more and I will have the property ready even if I use this builder's rate of 1500psft. That rate is ridiculous and includes profits. In today's "builder in trouble" market, you can find a good contractor to build you at 1200psft.
Now if one flat sold at 70L then 4 flats cost 240L, so the builder should give you 240-75(his construction cost even at 1500psft)=175L.
He is throwing in 2 flats at 140L and maybe another 10L. So you might think it prudent to lose the 25L and take it.
However what guarantee do you have that you will get your money? Secondly in joint venture, your money is not in your hand. So if I got 150L outright now, in 2 years that will be worth 180L at 10% interest rate.
In other words, builders in Chennai are super cons! And remember, his investment is ZILCH (Zero).
So if I turned a builder with my own land, I can get the best of construction at 1200psft. Also I used 5000sft, which in reality can move to 5400sft even at 1.67 FSI. Today you can get even more since the third floor can be built after 3 years and if you keep those rights for yourself, then you got that too.
Let me ignore even the 3rd floor. With 5400sqft and price of 5600psft, I will need 5400x1200=64.8L to complete the project. I will find JUST ONE BUYER and charge him 5600psft, which means 5600x1350sft(since total built up area is 5400sft for 4 flats). I will get this 75.6L. I can use this 75.6-64.8=10.8L as pocket money for any price changes or troubles or legal charges or whatever. Net I get 3 flats all for me. I can sell them at the prevalent price after 2 years or get them booked at current rates and et 75.6x3=227L or 2.27Cr.
Now does it make sense to get 2.27Cr or just 1.5Cr is the question. How many of you earn 75L for 2 years? I bet most of you dont! Again you don’t need to be a fulltime builder. Just employ a good contractor and MANAGE him!
BETTER BECOME A BUILDER IS YOU HAVE YOUR OWN LAND!
(PS. Hope this helps some folks who wanted to sell their land in Mylapore!)

Incidentally if I reduced the price of flat by even 600 rupees my net gain is 2.27cr-600x5400=1.95cr. So all I need to do is SEARCH for one serious WORTHWHILE (meaning has a safe job) buyer.
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  • Land Appreciates Building Depreciates

    I have too often written the moral. This time only the story.
    A relative of mine had a house in 3 grounds of land in Habibullah road. They had 3 children. Sometime in 1990s the old man decided to make the house into 3 flats and take some 10L in cash. Now the children hold 3 flats out of 8, i.e., 3/8th UDS of land.
    After almost a decade and half, price of flat is almost equal to price of land. So the three hold 3/8th of original land. At current value the 3 grounds must be 12crores. So the 3 children hold 3/8*12=4.5cr worth of property. So they actually blew up the remaining 7.5cr into thin air.
    Think of their worth if they held the house in the original form. Just for the 10L cash on that day, which again was not because of money shortage but just the deal the builder offered then.
    Should you yet sell your land? The answer is left to you.
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  • Originally Posted by Natarajg007
    I have too often written the moral. This time only the story.
    A relative of mine had a house in 3 grounds of land in Habibullah road. They had 3 children. Sometime in 1990s the old man decided to make the house into 3 flats and take some 10L in cash. Now the children hold 3 flats out of 8, i.e., 3/8th UDS of land.
    After almost a decade and half, price of flat is almost equal to price of land. So the three hold 3/8th of original land. At current value the 3 grounds must be 12crores. So the 3 children hold 3/8*12=4.5cr worth of property. So they actually blew up the remaining 7.5cr into thin air.
    Think of their worth if they held the house in the original form. Just for the 10L cash on that day, which again was not because of money shortage but just the deal the builder offered then.
    Should you yet sell your land? The answer is left to you.


    You do not have any realtive having 3 grounds of land in Habibullah road. That may be bull shit road. For the sake of giving some wrong calculation you are creating stories.

    Anyway saligrammam land will not go for sale
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  • Originally Posted by Nataraajg007
    You do not have any realtive having 3 grounds of land in Habibullah road. That may be bull shit road. For the sake of giving some wrong calculation you are creating stories.

    Anyway saligrammam land will not go for sale

    My relative had (past tense) 3 grounds of land in Habibullah road which has since been converted to a flat complex and the said relative has (present tense) 3 flats out of 8.

    PS. It is interesting somebody SPECIFICALLY wants me not to have a relative with 3 grounds of land in Habibullah road!! Ofcourse the quality of that person's English has always been poor! So I will give him the benefit of doubt!
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  • For those who dont know Habibullah road. It was the road which had the maximum guideline value in the 2007 guideline published by TN for residential land. Those who dont know this place are not really qualified to talk about CHennai RE!
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  • Reasons ?

    Originally Posted by Natarajg007
    I have too often written the moral. This time only the story.
    A relative of mine had a house in 3 grounds of land in Habibullah road. They had 3 children. Sometime in 1990s the old man decided to make the house into 3 flats and take some 10L in cash. Now the children hold 3 flats out of 8, i.e., 3/8th UDS of land.
    After almost a decade and half, price of flat is almost equal to price of land. So the three hold 3/8th of original land. At current value the 3 grounds must be 12crores. So the 3 children hold 3/8*12=4.5cr worth of property. So they actually blew up the remaining 7.5cr into thin air.
    Think of their worth if they held the house in the original form. Just for the 10L cash on that day, which again was not because of money shortage but just the deal the builder offered then.
    Should you yet sell your land? The answer is left to you.


    Mr. Natraj, Your relative could have sold that house just because the house is not not big enough for three of his sons and families. It could be because of difference of opinions between the sons and the daughter-in-laws. It could be because they didnt have enough land to build three seperate homes for the three sons. It could be because the family didnt have enough money in hand to build the homes. It could be because the father was feeling insecured and would like to have 10laks cash with him to gain some respect from the daughter-in-laws. Without us knowing the entire story, we can never come to a conclusion. Also it is like electronics prices and the technology. If you dont buy a TV or a laptop or any other electronic item, the prices tend to come down or you get better technology for the same price. But that would not stop a person from buying a TV/ washing machine today. Your relative might have wanted the money in hand to spend on something.. How do you know that your relative didnt invest it in some other place other than Habibullah rd and still he got three apartments there.. and he had 10laks before 15 years which if he had invested properly could have got 10 crores also today.. You never know.
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  • I have tried to tell folks why they should not sell RE, and to me that means mostly land. As Panther honestly put it in one post (I think he is an unusual variety... an honest bear!). He had missed the bus in 2004 and has been waiting to get in but if prices dont correct and even if he feels builders and land owners are SOBs he will be forced to get in sooner than later.
    Now if you watch all the bears on this forum, they are like Panther (though no where as honest as him!). They all missed the bus in 2004. Some of them sold out in 2006 in greed of money and now they want to enter the bus but the bus is miles ahead of their bus stop. WHAT A PITY?
    Do you know this Sardarji joke? Just to remove Sardarji and make it generic!
    One man was used to seeing a particular film regularly. Every time he saw the film a woman will be bathing and just as the good shot will come, a train will pass by and wont give the man a good view. He was regularly visiting the theatre assuming the train will atleast arrive late on one of those days.
    Our bears are doing the same thing and waiting in a fixed bus stop even though the bus has gone to the next city, maybe next state and who knows very soon the next continent!
    Plain advice, dont ever sell prime land in the city of Madras or Bangalore. You or your generations will never ever get those land again!
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  • If you do not sell the land (as RE investment) for ever, for all generations, then it is as good as having no value.
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  • Dear friend,

    Selling at the peak to reap the benefit and buying at the low to take advanctage of the price down trend is an art which many of us do not know. Some one has said in this forum about the Fear and Hope mind we have. I.e., we get into Fear mode when Hope mode is required and vice versa.

    ks2071746
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  • Originally Posted by lovebird
    If you do not sell the land (as RE investment) for ever, for all generations, then it is as good as having no value.

    For once I appreciate your view Lovebird. Well if you save a lot of money and dont use it IT IS USELESS! Correct? Yet people save money. In other words philosophically you are right. I AGREE. However in business people make money as a AIM and not because of ENJOYING IT. Infact I realised it early and so am doing what I am doing in life and not continuing to go for a full time job and make a few more lakhs everymonth.
    Well you are yet wrong since in RE forum we are talking about PROFITING.
    PS. Very often RE is not an investment for returns, it is a HEDGE AGAINST TERRIBLE TIMES. Infact many savings are like that.
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  • Originally Posted by Natarajg007
    Well if you save a lot of money and dont use it IT IS USELESS! Correct? Yet people save money. In other words philosophically you are right. I AGREE. However in business people make money as a AIM and not because of ENJOYING IT. Infact I realised it early and so am doing what I am doing in life and not continuing to go for a full time job and make a few more lakhs everymonth.
    .


    Appericiated.
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  • Dear friend,

    I liked your words- RE is many times a hedge against terrible times- It is quite true.

    ks2071746
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  • Originally Posted by ks2071746
    Dear friend,

    I liked your words- RE is many times a hedge against terrible times- It is quite true.

    ks2071746

    Infact to expound what I said. Lovebird's comment was thought provoking. To answer that look at RE like this.
    It is a hedge against inflation. So if I have RE 1 for living, RE 2 for benefacting (meaning to give away as present to future generations) and RE 3 could be there for pure hedge.
    RE 1 while providing housing will not give me any returns. RE 2 will be a protection for my children. RE 3 might help me at a time of no income or when suddenly more money is needed.
    In effect those like me having RE in plenty but not selling out are keeping that as a HEDGE against INFLATION. When I said RE meaning land had a CAGR of 25% some of the funny bears tried to cow me down. However the truth is what I had explained. An RE of 1967 today is worth a cumulative rate of about 25% which beats inflation left and right. So by selling it I could very well live another 30 years without much trouble. Now if RE1....goes to a bigger number say RE20 it gives better protection in times of need.
    SO THE FUNNY BEARS have to realize that RE is not a STOCK IN TRADE but an INVESTMENT FOR BAD TIMES.
    PS. Well the bears on this board have a knack of not understanding anything right!!
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  • You may be right, but ...

    Originally Posted by Natarajg007
    Infact to expound what I said. Lovebird's comment was thought provoking. To answer that look at RE like this.
    It is a hedge against inflation. So if I have RE 1 for living, RE 2 for benefacting (meaning to give away as present to future generations) and RE 3 could be there for pure hedge.
    RE 1 while providing housing will not give me any returns. RE 2 will be a protection for my children. RE 3 might help me at a time of no income or when suddenly more money is needed.
    In effect those like me having RE in plenty but not selling out are keeping that as a HEDGE against INFLATION. When I said RE meaning land had a CAGR of 25% some of the funny bears tried to cow me down. However the truth is what I had explained. An RE of 1967 today is worth a cumulative rate of about 25% which beats inflation left and right. So by selling it I could very well live another 30 years without much trouble. Now if RE1....goes to a bigger number say RE20 it gives better protection in times of need.
    SO THE FUNNY BEARS have to realize that RE is not a STOCK IN TRADE but an INVESTMENT FOR BAD TIMES.
    PS. Well the bears on this board have a knack of not understanding anything right!!



    Nats,

    The statements you have made in this post has been the basis for investing in property since time immemorial. And therefore you are on a good wicket here.

    But I have a problem. Please remember one more "rule" you failed to write here. You must buy RE only at reasonable prices!

    Do you or anyone else think that the current prices are rerasonable? After going up as much as 600% in only 6 years? I have already posted elsewhere that, given the same ROI, over the next 20 years the 1 crore property will be in excess of 200 Crores!!! Therefore, does your 25% ROI over the long term hold good given current prices? And therefore, as a corrolary, would ordinary people be earning salaries of 10 crores and 20 crores per annum so as to be able to buy properties at 200 and 300 crores?

    As you can see, RE will revert to the mean over the next few years and that would either mean a sharp fall to reach those levels OR a gradual decline to do the same. And the mean ROI on RE over the 100 year period is around 13% - 15% and in case you happen to be lucky a little ovr that.

    Therefore there is a conflict between your basis for RE investment (which is correct and is an age-old formula) and your current view and advice about buying RE at today's exorbitant prices (which goes against the tenet of buying at long-term reasonable prices).

    This is the primary argument by the bears; that prices have to correct since they have run up so much so fast. The argument is well-founded by historical precedent world-over.
    cheers
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  • Time has come for people to see full re cycle

    So far people have only one side movement of RE.now it is time to see the FALL. People will realise only late without any use.
    what to do?
    People have herd mentality?
    People will start selling spree after 50% fall, fearing further fall which wii lead to further fall.
    Todays Sellers will be tomorrows warren buffet or graham benjamin.
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  • Dear friend,

    Not all of today's sellers can be Warren Buffet etc. unless they are also blessed with luck and fortune. I have known of a friend of mine, whatever he invested and retains till now have not even would give him the simple interest of 10 % per annun, where as whatever he sold in between at some increases are worth many time the price at which he disposed off his land/plot. There are some guys who always taste bad luck only in their RE transactions.

    ks2071746
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