### Mumbai Real Estate Prices Started Falling

432 Replies109k+ ViewsLast Reply: 3 years ago

REDUMMY

New Member

Started 9 years ago

432 Replies

Sort by :Filter by :

Oldest

All

- Originally Posted by jadhav_raviwhat is your budget mamba?

With my budget, i would not be able to afford jhopdi in Mumbai..but hopefully if home prices stay low..renatls would also go down which are killingCommentQuote0Flag - Originally Posted by mambaWith my budget, i would not be able to afford jhopdi in Mumbai..but hopefully if home prices stay low..renatls would also go down which are killing

Which area jhopdi are your targetting?

I had a look at south mumbai and it is really expensive there. 15-20 peti for a 1-room jhopdi and 20-30 peti for 1 a room kitchen jhopdi.

Dharavi is very congested so I didnt like the area. Andheri East sounds good as the jhopdis are in the range of 5-8 peti (8 peti for 1 room kitchen). The carpet area is albeit less (30x50) and there are 2 taps & 5 toilets per 100 jhopdis. There and ones which are close to SEEPZ, IIT, international and icse Schools and Airport, so the lication is excellent. I applied to SBI but they had problems giving the loan as there were no papers. Now I am trying with HDFC as many people from nearby had their loans approved by HDFC. They term it as personal loan. They do not have car parking, so the seller suggested that quite a few people have bought car parks in the neighbouring appartment block (MHADAs), so I could buy a car park there.

If you know of a jhopdi which is not going for SRA and is at reasonable price (under 10 peti), please do let me know. Thanks.CommentQuote0Flag - You cannot find many jhopdis in New Panvel. There are no underconstruction jhopdis in Panvel either. So there is only the resale option in Panvel.

The investment is quite lucrative with an horizon of 10+ years. With the government rolling out cluster development in Navi Mumbai, there is good chance that you can purchase and increase your FSI to 2.5. In which case an investment of 2 lakhs for a 1 room jhopdi will provide a return of about 50 Lakhs when the SRA project has completed. CIDCO being less bureaucratic, there will be lesser paper work for jhopdis in Panvel.CommentQuote0Flag - Originally Posted by sandeepnairSeems to me that the real estate industry is making some serious corrections in the prices they offer because the percentage of potential buyers for mid level flats has gone down to as low as 6% in mumbai so its better for them to reduce before another price rise hits mumbai.:D

Which area jhopdis are you quoting Sandeep. Please give some definite answer.CommentQuote0Flag - For all the investment people , please see the chart made using annual discounting (assuming a 20 year loan) .This would tell you how much growth is priced in average price. Note that these are averages

For e.g if rent is 30k(3.6L p.a) and Price of house is 1.5 crores

Price/ Annual rent = 150/3.6 =42 , expects around average 14 percentage rise in rentals /price

This can also help you in decision of rent vs buy. if you have the money

Loan rate Expected rental growth rate Price/ Annual rentals (plz check attachment for better format)

8% 10% 10 8% 13% 29 8% 16% 54 8% 19% 90 8% 22% 142 8% 25% 217 8% 28% 326 8% 31% 484 9% 10% 11 9% 13% 33 9% 16% 62 9% 19% 103 9% 22% 163 9% 25% 250 9% 28% 376 9% 31% 559 10% 10% 13 10% 13% 37 10% 16% 70 10% 19% 118 10% 22% 187 10% 25% 287 10% 28% 433 10% 31% 645CommentQuote0Flag - Originally Posted by mambaFor all the investment people , please see the chart made using annual discounting (assuming a 20 year loan) .This would tell you how much growth is priced in average price. Note that these are averages

For e.g if rent is 30k(3.6L p.a) and Price of house is 1.5 crores

Price/ Annual rent = 150/3.6 =42 , expects around average 14 percentage rise in rentals /price

This can also help you in decision of rent vs buy. if you have the money

Loan rate Expected rental growth rate Price/ Annual rentals (plz check attachment for better format)

8% 10% 10 8% 13% 29 8% 16% 54 8% 19% 90 8% 22% 142 8% 25% 217 8% 28% 326 8% 31% 484 9% 10% 11 9% 13% 33 9% 16% 62 9% 19% 103 9% 22% 163 9% 25% 250 9% 28% 376 9% 31% 559 10% 10% 13 10% 13% 37 10% 16% 70 10% 19% 118 10% 22% 187 10% 25% 287 10% 28% 433 10% 31% 645

Greek and latin. Please elaborate. I do understand your baisis but if time permits please explain w.r.t inflation, loan rate, rental inflation, money devalu

ation, income rise, exponent nature of price rise, low base effect, ...CommentQuote0Flag - Consider Price , P

Annual Rent R

expected Annual Growth rate of rent , g

Discount rate (consider it to be Loan rate),d

Price is assumed the sum of discounted annual values of rentals

Also price and rentals roughly go up by same amount over an extended period of time when equilibrium is reach and rental growth expectations diminish

SO Price = Rent/(1+ Discount rate) +Rent*g/(1+Discount rate)^2 + Rent *g^2 //(1+Discount rate)^3 + Rent*g^3/(1+Discount rate)^4---Till 20 years

Using the arithmetic progression formula

Price = Rent */

or

Price/Rent = /

So using values of Price / Rent ratio, discount rate , one can find the embedded growth rate in the price

So using values of Price / Rent ratio, discount rate , one can find the embedded growth rate in the price

So using values of Price / Rent ratio, discount rate , one can find the embedded growth rate in the price

So using values of Price / Rent ratio, discount rate , one can find the embedded growth rate in the price

So using values of Price / Rent ratio, discount rate , one can find the embedded growth rate in the priceCommentQuote0Flag - Originally Posted by mambaConsider Price , P

Annual Rent R

expected Annual Growth rate of rent , g

Discount rate (consider it to be Loan rate),d

Price is assumed the sum of discounted annual values of rentals

Also price and rentals roughly go up by same amount over an extended period of time when equilibrium is reach and rental growth expectations diminish

SO Price = Rent/(1+ Discount rate) +Rent*g/(1+Discount rate)^2 + Rent *g^2 //(1+Discount rate)^3 + Rent*g^3/(1+Discount rate)^4---Till 20 years

Using the arithmetic progression formula

Price = Rent */

or

Price/Rent = /

So using values of Price / Rent ratio, discount rate , one can find the embedded growth rate in the price

You look like an accountant Mamba:bab (6):

Can you give an example with real figures. Lets assume Kharghar at Rs 5K. Inflation, rupee devaluation, income rise and Bank rate to be 12% for next 3 years, 8% for subsequent 5 years and 6% thereafter. Rental to be 4% of cost price, rising to 6% after 8 years. Society maintenance to be 2%. Rough estimate shows that keeping aside tax benefits, rental is a pittance. It is the emotional value that people are buying flats!

You look like an accountant Mamba:bab (6):

Can you give an example with real figures. Lets assume Kharghar at Rs 5K. Inflation, rupee devaluation, income rise and Bank rate to be 12% for next 3 years, 8% for subsequent 5 years and 6% thereafter. Rental to be 4% of cost price, rising to 6% after 8 years. Society maintenance to be 2%. Rough estimate shows that keeping aside tax benefits, rental is a pittance. It is the emotional value that people are buying flats!

You look like an accountant Mamba:bab (6):

Can you give an example with real figures. Lets assume Kharghar at Rs 5K. Inflation, rupee devaluation, income rise and Bank rate to be 12% for next 3 years, 8% for subsequent 5 years and 6% thereafter. Rental to be 4% of cost price, rising to 6% after 8 years. Society maintenance to be 2%. Rough estimate shows that keeping aside tax benefits, rental is a pittance. It is the emotional value that people are buying flats!

You look like an accountant Mamba:bab (6):

Can you give an example with real figures. Lets assume Kharghar at Rs 5K. Inflation, rupee devaluation, income rise and Bank rate to be 12% for next 3 years, 8% for subsequent 5 years and 6% thereafter. Rental to be 4% of cost price, rising to 6% after 8 years. Society maintenance to be 2%. Rough estimate shows that keeping aside tax benefits, rental is a pittance. It is the emotional value that people are buying flats!

You look like an accountant Mamba:bab (6):

Can you give an example with real figures. Lets assume Kharghar at Rs 5K. Inflation, rupee devaluation, income rise and Bank rate to be 12% for next 3 years, 8% for subsequent 5 years and 6% thereafter. Rental to be 4% of cost price, rising to 6% after 8 years. Society maintenance to be 2%. Rough estimate shows that keeping aside tax benefits, rental is a pittance. It is the emotional value that people are buying flats!

You look like an accountant Mamba:bab (6):

Can you give an example with real figures. Lets assume Kharghar at Rs 5K. Inflation, rupee devaluation, income rise and Bank rate to be 12% for next 3 years, 8% for subsequent 5 years and 6% thereafter. Rental to be 4% of cost price, rising to 6% after 8 years. Society maintenance to be 2%. Rough estimate shows that keeping aside tax benefits, rental is a pittance. It is the emotional value that people are buying flats!

You look like an accountant Mamba:bab (6):

Can you give an example with real figures. Lets assume Kharghar at Rs 5K. Inflation, rupee devaluation, income rise and Bank rate to be 12% for next 3 years, 8% for subsequent 5 years and 6% thereafter. Rental to be 4% of cost price, rising to 6% after 8 years. Society maintenance to be 2%. Rough estimate shows that keeping aside tax benefits, rental is a pittance. It is the emotional value that people are buying flats!CommentQuote0Flag - All emotions finally come down to economics

Sorry Ravi,I am keeping the example simple ( as putting your real life example would take some time to set up)

For Kharghar it is 60L cost for 2bhk and around 8000 (assume 1500 society charges rent ) so rent cash flow boils down to 6500 (i.e 78000) So Price /rental is 77 i.e growth expectation embedded in price assuming 12% interest rate is 15% annualised growth over 20 years.

You would think that these numbers seem low but effectively the key reason why purchasing houses is attractive is because of negative real interest rate

(Loan rate -inflation) and loose credit policy(Credit growth / foreign PE, FDI to real estate people) followed by Government since 2000 . As long as real interest rates are negative , it makes sense to borrow as much as possible.

Current loan rate =8% , inflation for general public is around 15%.(in last five years ..best bus charge has gone from 5 to 7, cutting chai from 2.50 to 4 and samosa from 4 to 6)

So however ridiculous it looks at whatever rates in Kharghar (if govt is going to keep a negative real interest rate policy, people shoud buy and go on buying)

If rentals come down ( sustained low rentals due to various reasons like job cuts) , then the equation turns unattractive.

This loose policy is creating inefficiency in the economy as builders are not able to utilise resources properly ( Large number of flats , offices, malls vacant)

The trouble would come when after say 8-10 years the music stops..FOr possible troubles which can happen just read this article (replacing Greece with India and The priests with any godman you dislike)

http://www.vanityfair.com/business/features/2010/10/greeks-bearing-bonds-201010?printable=trueCommentQuote0Flag - well, I'm not quite sure ur theory works. rentals in the US haven't moved in the last year, prices haven't gone up, maybe down. and interest rates are low. maybe u could do a check based on past prices vs rent rather than what ur predicting for the future.CommentQuote0Flag
- The theory is perfectly fine ,

Growth rate of rentals / Prices is closer to zero

And real interest rate(Rate minus inflation) is positive so it makes more sense to rent there. Another key factor is that in the US you assume a 30 year rate.

SO in the US , effectively property prices are shwoing a negative growth rate.

There sems to be a misunderstanding that the above discounting indicates that prices are always going to rise.

Basically, if we provie Annual rentals , price (which are observed in market) and interest rate , you can us ethe equation to get the growth rate expected by the market.. thats all the theory is saying. In the case of US, its showing a negative growth rate and makes sense to rent now and buy later... whereas in Mumbai a 15% odd growth rate is expected by the current prices... If a growth rate of15% is not achieved , ppl who buy now would make losses.CommentQuote0Flag - Okay.. what is it you are saying? Property prices will climb further or rentals will.

No one can predict the perfect tipping point. I cannot think that beyond a particular point there could be any increase. fact that it has reached commercial is an indication that it is not further away in residential..

Commercial are for purely for business and profitability is the first point.. and increase in RE beyond a particular point is not profitable.. and hence the current stagnation

Same cannot be said about residential.. where profitability is not a big consideration.. but beyond a certain median of affordability.. houses will not sell..

Originally Posted by mambaThe theory is perfectly fine ,

Growth rate of rentals / Prices is closer to zero

And real interest rate(Rate minus inflation) is positive so it makes more sense to rent there. Another key factor is that in the US you assume a 30 year rate.

SO in the US , effectively property prices are shwoing a negative growth rate.

There sems to be a misunderstanding that the above discounting indicates that prices are always going to rise.

Basically, if we provie Annual rentals , price (which are observed in market) and interest rate , you can us ethe equation to get the growth rate expected by the market.. thats all the theory is saying. In the case of US, its showing a negative growth rate and makes sense to rent now and buy later... whereas in Mumbai a 15% odd growth rate is expected by the current prices... If a growth rate of15% is not achieved , ppl who buy now would make losses.CommentQuote0Flag - Originally Posted by SharpjOkay.. what is it you are saying? Property prices will climb further or rentals will.

No one can predict the perfect tipping point. I cannot think that beyond a particular point there could be any increase. fact that it has reached commercial is an indication that it is not further away in residential..

Commercial are for purely for business and profitability is the first point.. and increase in RE beyond a particular point is not profitable.. and hence the current stagnation

Same cannot be said about residential.. where profitability is not a big consideration.. but beyond a certain median of affordability.. houses will not sell..

House prices can increase indefinitely as money will devalue indefinitely. The 1 thousand becomes 1 lakh becomes 1 crore will then become 1 billion.

Commercial: Malls were in oversupply. Everyone wanted to build a mall 5 years ago. How many malls does the city need. Hence the fall.

Residential: "kitna kaafi hai kisko bolo, uske jitna, apni kismat ko aise tolo". So the strife will continue. Everyone wants to be exclusive so expect Malabar hill and suburbs to keep rising as more and more people have money. Look at any great city and the posh part never collapses. Mass availability will soon be restricted to Kalyan, Virar and Navi Mumbai, s this is where middle-class will buy. The rich will the differntiate by buying in proper Mumbai.

There is chance that Navi Mumbai may become the Gurgaon, so this is where most people are investing. But like proper delhi, proper mumbai will remain exclusive and high-priced. Thane looks like Noida, Virar looks like faridabad, Kalyan looks like Ghaziabad.

So if you are an investor jump into Navi Mumbai. If you have more money, proper Mumbai will never disappoint you in terms of returns.CommentQuote0Flag - My point is that current prices are assuming around a constant 15% rise in Prices . If you buy and you get 15% or more its a good deal

but if prices don't go up by 15% , its better to rent

If prices go up by 15% every year

Current rates --> expected rates after 20 years

Kharghar (5000) --> 81,833

Andheri(15000)-> 2,45,498

Worli (25,000) -> 4,09,163

Town( 50,000) -> 8,18,327

This is what current rates are saying .

I think it definitely looks too high

What do you ppl think.

This is why it is better to rent .CommentQuote0Flag - Originally Posted by mambaMy point is that current prices are assuming around a constant 15% rise in Prices . If you buy and you get 15% or more its a good deal

but if prices don't go up by 15% , its better to rent

If prices go up by 15% every year

Current rates --> expected rates after 20 years

Kharghar (5000) --> 81,833

Andheri(15000)-> 2,45,498

Worli (25,000) -> 4,09,163

Town( 50,000) -> 8,18,327

This is what current rates are saying .

I think it definitely looks too high

What do you ppl think.

This is why it is better to rent .

10% for next 5 years

6% for subsequent 5 years

3-4% for subsequent 5 years.CommentQuote0Flag