Announcement

Collapse
No announcement yet.

Builders & RE Bulls Theory Proved Right !!!

Collapse
X
Collapse

Builders & RE Bulls Theory Proved Right !!!

Last updated: June 15 2016
538 | Posts
  • Time
  • Show
Clear All
new posts

  • Re : Builders & RE Bulls Theory Proved Right !!!

    Originally posted by Useless View Post
    With rupee depreciation, inflation increases and so does interest rates. And because of them, there can very well be a slowdown or recession and RE crash. And just because of depreciation of the rupee, salaries will not go up in Rupee terms overnight. On the contrary the EMI and daily expenditures will increase. While you may be right over long period of 2-3 years, to benifit from the depreciation we will need to survive during the same period.
    Absolutely agree with this - YOU HAVE TO SURVIVE THE DOWNTURN!!!!!

    RE purchase on EMI consuming half your salary is a strict no-no during inflation - you may not be able to survive on half salary and in a downturn, you might lose your job as well.

    But if you have a corpus for allocation into various asset classes, not having RE as an asset class at all is also a no-no. So if you have a crore in cash, booking a flat worth 30L would be a wise decision. Not dong so and staying with FD alone would probably erode value over 5-10 years - whereas your 30L in flat or plot will race ahead of inflation and give some 7-8% over and above inflation (which might average 10% per annum for the forseeable future.

    Rent will also start marching up as inflation starts to bite.

    RE will actually react only after there is a slowdown, and RBI cuts rate in response. At that time, RE will run away on a tear.

    Timing so precisely is difficult in RE purchase. This is a good time to scout around for the best deal and a middle of 2012 purchase, might be the best timing possible.

    One should prepare for this
    Venky (Please read watch a or before posting)

    Comment


    • Re : Builders & RE Bulls Theory Proved Right !!!

      Following is right from todays Sunday TOI Bangalore Edition:

      Input costs rise; real estate to be dearer
      Bangalore: Property analysts wisdom is that with less demand property prices will drop in the next few months. But developers say rising costs of borrowing and construction input has put pressure on their margins that a 10-15% increase in property prices by year-end is possible.

      Normally the price escalation is about 3-4% per annum. But in the past six months, the input costs have risen by 7%. "The average cost of construction has increased by Rs 150 per sqft due to sharp increase in cement and steel prices. We have to pass on the cost to customers" said Sushil Mantri, president of CREDAI-Karnataka on the sidelines of a two-day Credai Realty Expo that began here on Saturday.
      .....
      ....some blah blah...by MDs of some RE firms......
      .....
      Some visitors to the expo appeared to be in no mood to make a quick purchase. "Though there are some options in the Rs 50-60 Lakh bracket, I'm not sure I want to buy right now. I'm hoping to see a price correction," said Ms Poonam, an IT professional.
      For folks like Ms Poonam, Raj Menda, MD of RMZ Corp, raises some hope: The real estate market has a six months lag effect. If the so-called pain continues, developers who are not able to hold out may indulge in price correction by early next year.
      -----------------------------------------------------

      I can wait for 6 months and more.....

      Every weekend there is some or other RE expo in Bangalore. This shows how desperate these guys are getting. Till about last year, they were so very arrogant, now if they get your number, they will keep calling you daily and literally pleading.

      Comment


      • Re : Builders & RE Bulls Theory Proved Right !!!

        RE price rises both ways. If cost of capital lowers, buyers rush in and create good demand and so price rises. If cost of capital rises, it makes cost higher for builder - and he CANNOT sell you cheap because his cost is more.

        FD is always the benchmark to decide the worth of investment.

        FD returns from 2005 to 2010 were quite low and tax inefficient. Hence RE did well.

        Now rates of FMP above 10% - likely to rise further (although 2011 govt bonds still at 8.35% only).

        Loan rates are some 11% I think?

        Property cannot be lucrative at these rates, ever. Same with stocks.

        Ball park figures for investment worthiness:

        Stock: PE ratio for stock acceptable at 5% FD rate is 20. PE ratio for stocks at 10% FD rate is 10. At 17% FD rate (like 80s) , PE for investment has to be 5 !!!!

        RE: At FD rate of 5% Price to rent ratio of 400 is acceptable. We saw that from 2005-2008. At 10% FD rates, price to rent of 300 is acceptable (prime tier 1 city prices only) and at 17% FD rates a price to rent ratio of 200 is acceptable (Indian ballpark figures, not US standard figures).

        To make current property prices conform to these ratios, rent has to rise around 100%. I expect it to happen.

        Gold is worth investment only at FD rates of around 5% and below (i.e US rates for USD). Gold ceases to be a good investment above 5% US rates.

        Works every time. Same as short to long rates - right now our short term rates are 8.25 and long term rates are 8.35. Recession is inevitable - this indicator has worked EVERY TIME IN LAST 100 YEARS - NEVER FAILED
        Last edited September 18 2011, 11:53 PM.
        Venky (Please read watch a or before posting)

        Comment


        • Re : Builders & RE Bulls Theory Proved Right !!!

          Do you think this will ever happen.. I think bulk of RE have been bought prior to 2006 gallop and rental returns are already high on them..

          I know for sure.. that higher the rent, lower is the occupancy. I have always managed to negotiate a property for lower rent after it remains unoccupied for > 6 months..

          Rentals are a factor of the current scenario and not really on the ROI working..

          Originally posted by Venkytalks View Post
          To make current property prices conform to these ratios, rent has to rise around 100%. I expect it to happen.

          Comment


          • Re : Builders & RE Bulls Theory Proved Right !!!

            Thanks for the excellent analysis Venkytalks.

            But I disagree with the rental increase of 100%. Too high rents won't be good for anybody: the renter as well as the owner.

            If rental becomes unaffordable, the rents will correct, as owners wouldn't like to keep their property vacant for long. And if renters won't be able to afford the rents, they will look for a place a little far away where the rents are cheap.

            And owners cannot sell at high rates, so it will be like something-stuck-in-their-throats, they cannot swallow and they cannot keep. . Liquidity is gone. And if the owner has taken a loan, then god only help him.

            Comment


            • Re : Builders & RE Bulls Theory Proved Right !!!

              See, I hadnt entered the time frame for this 100% rise in rents - the input for that is - when the rent rises by 100%, next bull run in property will start.

              Probable estimate assuming 7-8 year RE cycle is 2014 or 2015.

              I had previously argued elsewhere that in India, we get much prolonged industrial cycle of about 7-8 years and even more prolonged RE cycle of maybe 15 years.

              Despite that, I expect rents to be 100% higher than now by 2015.

              Last 6 months in Delhi, rents have been firming up a lot. As discussed previously, about 30% rise in rents has happened within last 1 year in the best locations of South Delhi
              Venky (Please read watch a or before posting)

              Comment


              • Re : Builders & RE Bulls Theory Proved Right !!!

                Originally posted by Venkytalks View Post
                See, I hadnt entered the time frame for this 100% rise in rents - the input for that is - when the rent rises by 100%, next bull run in property will start.

                Probable estimate assuming 7-8 year RE cycle is 2014 or 2015.

                I had previously argued elsewhere that in India, we get much prolonged industrial cycle of about 7-8 years and even more prolonged RE cycle of maybe 15 years.

                Despite that, I expect rents to be 100% higher than now by 2015.

                Last 6 months in Delhi, rents have been firming up a lot. As discussed previously, about 30% rise in rents has happened within last 1 year in the best locations of South Delhi
                yeah... thats because end users are postponing their decisions to buy because of affordability issues! this is exactly the same thing happening in US (where economy is still good)... rent rising slowly while house prices dropping or having no offers at all

                Comment


                • Re : Builders & RE Bulls Theory Proved Right !!!

                  Originally posted by Venkytalks View Post
                  Despite that, I expect rents to be 100% higher than now by 2015.
                  Translation of expectation into reality is altogether is different prospect, atleast in mumbai i can definitely state this not going to happen, maximum appreciation in rents would be 50% appreciation of current rental prices.

                  Infact i would not be surprised if rentals stagnate here-on for atleast next 2 years.
                  Last edited September 21 2011, 09:59 AM.

                  Comment


                  • Re : Builders & RE Bulls Theory Proved Right !!!

                    Originally posted by spmohan View Post
                    Translation of expectation into reality is altogether is different prospect, atleast in mumbai i can definitely state this not going to happen, maximum appreciation in rents would be 50% appreciation of current rental prices.

                    Infact i would not be surprised if rentals stagnate here-on for atleast next 2 years.
                    In Delhi, rent for flats near mine have moved from 25000 pm to 35000 per month in the last 1 year.

                    By 2015, Rent of 50,000 pm is quite likely.
                    Venky (Please read watch a or before posting)

                    Comment


                    • Re : Builders & RE Bulls Theory Proved Right !!!

                      I partly agree with Venky. Rents have increased by atleast 25-30% from 2010 level not only in Delhi but even in Noida and Ghaziabad.

                      Property locations which are in demand are sure going to see rentals up at the same pace but not 100%
                      MM

                      Comment

                      Have any questions or thoughts about this?
                      Working...
                      X