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Survival tactics for the housing bubble

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Survival tactics for the housing bubble

Last updated: November 28 2012
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  • Survival tactics for the housing bubble

    Are we in a housing bubble in Pune? A lot of people in this forum think so. When will this bubble burst? No one has an answer.

    Many people believe this is not a bubble, it is growth and will go on forever. No way can prices come down, they say. Buy today or be priced out of the market for ever.

    Now as a savvy investor and a concerned provider for your family, you are definitely interested in hearing both sides.

    The investor in you is amazed at the valuations, and the family person in you wants to get settled in your own home ASAP.

    So how to survive this madness called "Housing bubble in Pune"?
  • #2

    #2

    Re : Survival tactics for the housing bubble

    Let us take the case of a middle class salaried person working in IT. Suppose you want to buy a 2 BHK flat in a decent, well populated area in Pune. The price you are willing to pay is 50L, with 20% downpayment.

    But you damn sure dont want to throw your money away. This is going to be all the savings you have till now, plus a lifetime of EMI payments.

    What if the bubble bursts and the same flat is available for 35L in the next 3 years? Losing 15L, even on paper is not a joke for a middle class person.

    What if the bubble continues and the same flat is priced at 70L in the next 3 years? Does 20L grow on trees?

    Comment

    • #3

      #3

      Re : Survival tactics for the housing bubble

      I think both scenarios can be possible. So what is the right way to wait for a good opportunity while hedging against potential high prices?

      Comment

      • #4

        #4

        Re : Survival tactics for the housing bubble

        Originally posted by abeerbagul View Post
        I think both scenarios can be possible. So what is the right way to wait for a good opportunity while hedging against potential high prices?
        With rising commodity, fuel, Rupee and interest rates it's hopeless to expect RE price rise.
        A depreciating Rupee with further fuel inflation and interest-rates rise.

        It would be atleast time based RE correction. Best survival tactic is to lock your money in either PF or FD and wait for correction in the years ahead.
        Last edited May 22 2011, 09:47 PM.

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        • #5

          #5

          Re : Survival tactics for the housing bubble

          One way is to decide what is a reasonable price you are willing to pay. A good thumb rule would be 4 times your current salary, assuming pay hikes of 10% per year in an emerging economy like ours.
          Please keep in mind that pay hikes in developed economies are around 2-3% per year, so 10% is decent.

          Also, you have 10L in savings today, for a 20% downpayment, and can bear an EMI of 50k per month, at a projected home loan interest rate of 12% p.a.

          The same flat will be available for a rent of 12k per month, and a deposit of 50k. One strategy can be to take a similar flat on rent right now, as you keep monitoring the situation, your savings would be 38k per month. Keep investing the savings as a separate housing fund.
          Some good investments can be:
          Mutual funds
          Index funds like the Nifty BEES
          Medium term fixed deposits
          Avoid ULIPs

          The key is to retain liquidity so that the funds are available at short notice.

          Now suppose we keep investing 38k for the next 3 years at a ROI of 10%. At the end of 3 years, the saved amount will be Rs. 1600941, approx 16L. The initial 10L of savings will have grown to Rs. 133100. approx 13.5L.

          So at the end of 3 years, you have 30L of savings in hand.

          At that time, if the 2 BHK flat you want is priced at 35L, aapka to lottery lag gaya!! 30L downpayment, and 5L loan.

          If the 2 BHK flat is priced at 70L, you still have 30L downpayment, i.e almost 50% downpayment, and the loan remains same at 40L. So you have effectively beaten inflation.

          P.S. somebody please check the math, am not very good at it.

          Comment

          • #6

            #6

            Re : Survival tactics for the housing bubble

            from an IT engineers perspective, salaries in Pune, Chennai, Hyderbad and Mumbai are roughly in the same range with Bangalore could be 20% higher then the rest. Based on this one can safely assume that Mumbai is a definite bubble

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            • #7

              #7

              Re : Survival tactics for the housing bubble

              Originally posted by rameshyahoo View Post
              from an IT engineers perspective, salaries in Pune, Chennai, Hyderbad and Mumbai are roughly in the same range with Bangalore could be 20% higher then the rest. Based on this one can safely assume that Mumbai is a definite bubble
              Mumbai has lot of business population...who earn big and pay very little or no tax...Mumbi real estate is not driven by ITGs. Whereas in other cities RE demand is mostly driven by ITGs...

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              • #8

                #8

                Re : Survival tactics for the housing bubble

                Abeer. Long time no see man. Nice to see you back with your unique posting style. btw did you finally buy anything in Kothrud ?

                Comment

                • #9

                  #9

                  Re : Survival tactics for the housing bubble

                  Oh man, do we need one more thread for the same bear v/s bull debate or price correction or no correction issue?? Same old wine in new bottle here.

                  Comment

                  • #10

                    #10

                    Re : Survival tactics for the housing bubble

                    Am searching in Kothrud, but currently in sticker shock.

                    1 BHK 20 year old flats are selling for 40L, and 2 BHK same vintage old flats are selling for 60 plus.

                    Rents are same at 8k per month for 1BHK, and 12k per month for a 2 BHK.

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