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Real Estate Market Pick Up-Reversal

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Real Estate Market Pick Up-Reversal

Last updated: August 22 2016
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  • Real Estate Market Pick Up-Reversal

    Liquidity, 7th pay commission arrears, hike, time correction and accumulated inflation will drive market up. Since 2-3 months there have been inquiries and last 2 weeks actual sales have started broker, builder are busy. Last 3 years people were sitting on sidelines will now jump in panic.
    Last edited January 17 2017, 05:16 PM.
  • #2

    #2

    Re : Real Estate Market Pick Up-Reversal

    Good, Jump now.
    Last edited August 20 2016, 12:03 AM.

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    • #3

      #3

      Re : Real Estate Market Pick Up-Reversal

      Real estate market pick up-reversal

      IMO Real estate as a sector is too big to fail.
      RE sector itself contributes a major chunk to India's GDP on which several industries are dependent, Govt cannot afford downturn in Realty.
      Maharashtra govt is also going to embark on land auction spree to garner money, for which the sector needs to be in high spirits so that builders and Big business houses can pour in their money's whole heartedly.
      Also since the present Govt's own MP has 11000 + crores debt locked in RE, Govt may go all out for revival.
      If the GDP needs to grow by 8-9%, then all sectors need to fire including RE.
      At the most there will be some more stagnation and if prices continue to rise further, Unfortunately people would have no choice than to continue to stay on rent since they simply can't afford the new homes being built.
      In context of prices, driven by investor money and speculation,Mumbai has made a big leap in league of developed economies of US, UK,Switzerland etc where people who want to stay in city limits closer to office, can't afford to buy and have to stay on rent. Those who want their own homes have to go out of city limits and commute long distance daily.
      Another trend noticed in developed economies is corporates/big business houses forming letting companies etc who own buildings, estates and rent out the same like serviced apartments etc.. With 100% FDI in Realty even that could be possible, which will also drive up rents especially in prime areas..

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      • #4

        #4

        Re : Real Estate Market Pick Up-Reversal

        No matter on how many threads the original poster posts about an imaginary "panic buying" .... Till the time abundant rental options at yields of 2% or even less are available there would not be a panic buying by the end users .... if for an end user owning a flat was not viable in 2013/14 ... it is still unviable today

        Locals buying their 4th / 5th flats .... NRI's stashing their money in Real Estate .... RE funds investing in bulk buying of flats can keep playing the ownership-ownership game ... as is said earlier ... till the time rentals are available at 2% types ... who cares

        its a bigger fool game going on in Mumbai.... will end someday .... if you are part of this game - just pray that you don't end up holding the baby when the music stops ..... Meanwhile, keep coming back once in a while and tell us about that imaginary "panic buying" .... its fun

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        • #5

          #5

          Re : Real Estate Market Pick Up-Reversal

          Living in the rented apartment is now seems to be a great idea.. we say we end up loosing money in the rents.. Lets look at the following scenario..
          1. Rented 1 BHK in Mulund / Bhandup - 15 K (Yearly expense - 1.8 lacs First year
          Second Year - 10% increase - 2 lacs
          Their year 1% increase - 2.2 lacs Total Three year money spend = 6 lacs .. No money to be spend the house repair / maintenance.. Off course rented apartment comes with the downfall..
          2. Purchase Rate in 1 BHK Mulund / Bhandup - 85 lacs + Government taxes. So 20% Down payment + Government 28.9 lacs initial investment which is money you been saving for years..........

          EMI for 20 Years at 10.5 % = 65000 a month (67 lacs Loan)
          1st year = Interest component 6.83 lacs... Nice... Then Principle component 1 lacs..
          2 nd year = Interest component 6.7 lacs ... and Priciple 1.17 Lacs
          3rd Year = Interest component 6.53 and Principle component 1.3

          So Interest paid 18 lacs in the first three years. That's the huge and Loan paid 3.4 lacs so total amount paid to the bank 21.4 lacs. So are you still thinking about buying a flat? Think and Decide.
          Last edited August 20 2016, 01:27 AM.

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          • #6

            #6

            Re : Real Estate Market Pick Up-Reversal

            Originally posted by Prashant C View Post
            Living in the rented apartment is now seems to be a great idea.. we say we end up loosing money in the rents.. Lets look at the following scenario..
            1. Rented 1 BHK in Mulund / Bhandup - 15 K (Yearly expense - 1.8 lacs First year
            Second Year - 10% increase - 2 lacs
            Their year 1% increase - 2.2 lacs Total Three year money spend = 6 lacs .. No money to be spend the house repair / maintenance.. Off course rented apartment comes with the downfall..
            2. Purchase Rate in 1 BHK Mulund / Bhandup - 85 lacs + Government taxes. So 20% Down payment + Government 28.9 lacs initial investment which is money you been saving for years..........

            EMI for 20 Years at 10.5 % = 65000 a month (67 lacs Loan)
            1st year = Interest component 6.83 lacs... Nice... Then Principle component 1 lacs..
            2 nd year = Interest component 6.7 lacs ... and Priciple 1.17 Lacs
            3rd Year = Interest component 6.53 and Principle component 1.3

            So Interest paid 18 lacs in the first three years. That's the huge and Loan paid 3.4 lacs so total amount paid to the bank 21.4 lacs. So are you still thinking about buying a flat? Think and Decide.
            Pay commission will give boost to only PSL category, below 50lakhs, which is hardly available in MMR, only Kalyan and beyond....Time correction yet to take place...
            If you observe in details, even prices have doubled in last 5yrs...let's hope stagnancy continues for atleast 2yrs...once your emi + maintenance comes to 3 times rent, it becomes affordable, currently its at 5times..so useless...
            better stay at rent and invest rest in MF, easily earn more and much more liquidity....

            Comment

            • #7

              #7

              Re : Real Estate Market Pick Up-Reversal

              Originally posted by Prashant C View Post
              Living in the rented apartment is now seems to be a great idea.. we say we end up loosing money in the rents.. Lets look at the following scenario..
              1. Rented 1 BHK in Mulund / Bhandup - 15 K (Yearly expense - 1.8 lacs First year
              Second Year - 10% increase - 2 lacs
              Their year 1% increase - 2.2 lacs Total Three year money spend = 6 lacs .. No money to be spend the house repair / maintenance.. Off course rented apartment comes with the downfall..
              2. Purchase Rate in 1 BHK Mulund / Bhandup - 85 lacs + Government taxes. So 20% Down payment + Government 28.9 lacs initial investment which is money you been saving for years..........

              EMI for 20 Years at 10.5 % = 65000 a month (67 lacs Loan)
              1st year = Interest component 6.83 lacs... Nice... Then Principle component 1 lacs..
              2 nd year = Interest component 6.7 lacs ... and Priciple 1.17 Lacs
              3rd Year = Interest component 6.53 and Principle component 1.3

              So Interest paid 18 lacs in the first three years. That's the huge and Loan paid 3.4 lacs so total amount paid to the bank 21.4 lacs. So are you still thinking about buying a flat? Think and Decide.
              Playing devil's advocate, let me give you the owner's POV -

              Year 1: Rent received: 1.8L, Maintenance, Taxes & Repairs: 0.5L, Interest Paid:6.83L
              Tax saved : 30% of (6.83+0.5-1.8) = 1.66L
              ** There is no limit of 2L interest deduction in case income from house is categorised as 'income from other sources'**

              Comment

              • #8

                #8

                Re : Real Estate Market Pick Up-Reversal

                Originally posted by Prashant C View Post
                Living in the rented apartment is now seems to be a great idea.. we say we end up loosing money in the rents.. Lets look at the following scenario..
                1. Rented 1 BHK in Mulund / Bhandup - 15 K (Yearly expense - 1.8 lacs First year
                Second Year - 10% increase - 2 lacs
                Their year 1% increase - 2.2 lacs Total Three year money spend = 6 lacs .. No money to be spend the house repair / maintenance.. Off course rented apartment comes with the downfall..
                2. Purchase Rate in 1 BHK Mulund / Bhandup - 85 lacs + Government taxes. So 20% Down payment + Government 28.9 lacs initial investment which is money you been saving for years..........

                EMI for 20 Years at 10.5 % = 65000 a month (67 lacs Loan)
                1st year = Interest component 6.83 lacs... Nice... Then Principle component 1 lacs..
                2 nd year = Interest component 6.7 lacs ... and Priciple 1.17 Lacs
                3rd Year = Interest component 6.53 and Principle component 1.3

                So Interest paid 18 lacs in the first three years. That's the huge and Loan paid 3.4 lacs so total amount paid to the bank 21.4 lacs. So are you still thinking about buying a flat? Think and Decide.
                Playing devil's advocate, let me give you the owner's POV -

                Year 1: Rent received: 1.8L, Maintenance, Taxes & Repairs: 0.5L, Interest Paid:6.83L
                Tax saved : 30% of (6.83+0.5-1.8) = 1.66L (Assuming the owner to be in 30% tax bracket)
                ** There is no limit of 2L interest deduction in case income from house is categorised as 'income from other sources'**
                Similarly, approx Tax saved in Year 2 & Year 3 will also be 1.7L each

                Total tax saved in three years: 5L
                Effective interest paid to bank: 13L

                Approx, increase in the flat price per year : 7% (as per inflation)
                Flat Price after 3 years : 85*1.07*1.07*1.07 = 104 L

                Total amount paid: 17(20% down payment) + 6(govt taxes)+ 13(Effective interest paid) + 3.4L(towards principal) = 39.4 L

                If owner sells the flat after 3 years: 104-63.5(payable to bank)-39.4(own expenses over 3 years) = approx 1 lakhs

                This is nearly break even. Assuming , RE picks up after 2-3 years then returns could be higher. Do you guys think returns of 7% per year is justified over next 3 year ?

                Comment

                • #9

                  #9

                  Re : Real Estate Market Pick Up-Reversal

                  Originally posted by inquizzitive View Post
                  Playing devil's advocate, let me give you the owner's POV -

                  Year 1: Rent received: 1.8L, Maintenance, Taxes & Repairs: 0.5L, Interest Paid:6.83L
                  Tax saved : 30% of (6.83+0.5-1.8) = 1.66L (Assuming the owner to be in 30% tax bracket)
                  ** There is no limit of 2L interest deduction in case income from house is categorised as 'income from other sources'**
                  Similarly, approx Tax saved in Year 2 & Year 3 will also be 1.7L each

                  Total tax saved in three years: 5L
                  Effective interest paid to bank: 13L

                  Approx, increase in the flat price per year : 7% (as per inflation)
                  Flat Price after 3 years : 85*1.07*1.07*1.07 = 104 L

                  Total amount paid: 17(20% down payment) + 6(govt taxes)+ 13(Effective interest paid) + 3.4L(towards principal) = 39.4 L

                  If owner sells the flat after 3 years: 104-63.5(payable to bank)-39.4(own expenses over 3 years) = approx 1 lakhs

                  This is nearly break even. Assuming , RE picks up after 2-3 years then returns could be higher. Do you guys think returns of 7% per year is justified over next 3 year ?
                  7% return is a good estimate for long term; not in a slow market. There are a number of places where prices have been flat for last two years.

                  Consider a flat market for three years. As per above calculation, investing 39.4L yields 21.5L - so over 40% loss. And we are not even talking about a crash - just a so called time correction.

                  In doomsday scenario (30% crash), we are easily looking at loss IN EXCESS of capital (i.e. outstanding loan is greater than property value). Basically leveraged property buying is way riskier than stocks and options.

                  Comment

                  • #10

                    #10

                    Re : Real Estate Market Pick Up-Reversal

                    Originally posted by nirmesh View Post
                    7% return is a good estimate for long term; not in a slow market. There are a number of places where prices have been flat for last two years.

                    Consider a flat market for three years. As per above calculation, investing 39.4L yields 21.5L - so over 40% loss. And we are not even talking about a crash - just a so called time correction.

                    In doomsday scenario (30% crash), we are easily looking at loss IN EXCESS of capital (i.e. outstanding loan is greater than property value). Basically leveraged property buying is way riskier than stocks and options.
                    Also, we are missing transaction costs (brokerage) and the time taken for such transactions (easily 2-3 mandays) vs FD/MF, which is online and takes few mins...
                    Most important is the liquidity, Real Estate is highly inliquid, personally know people who have been trying to sell property at 10% less than builder price for 6mths but no luck...

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