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Cascade theory of housing

Last updated: May 22 2013
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  • Cascade theory of housing

    Housing cascade theory -

    One of my builder friend explained me something on the lines below which is why prices will be difficult to fall. Note my discussion was very generic so I have tried to put a theory to what he was saying. I call it Cascade theory. I am looking for your views on this.

    While there are first time buyers, there are also buyers who already have some assets like inherited house, farm land and other assets. Now when there is a 3bhk house on sell for 90 L, it is not always that customer buying that house is an asset less customer. Rather there are lots of cases like following
    a. Person upgrading from 2 BHK to 3 BHK. Remember he will likely find a buyer who wants to upgrade from 1 BHK to 2 BHK.
    b. Person selling 3BHK from non developped area and buying 3 BHK in developed area.
    c. Person selling his flat in 2nd line cities like (solapur, nashik,kolhapur) and buying similar flat in Pune. (And may be Pune one moving to Mumbai.Otherwise who will buy in Mumbai right?) BTW for those who dont know - some areas in Solapur are quoting prices of 4500 psft for apartment.

    So for any of the above points a, b, c and many more can be put down - person does not have to generate 90L. He just needs to arrange for the delta that he needs to pay which is normally 20 to 30 L which can be justified looking at the benefits he is getting. This is cascade effect, remember there are always some people entering the bottom of the cascade pipe. To strive for betterment is normal human tendency. If you see around in last 20 years, everyone is now staying in better house than they used to be staying 20 years back. This is exactly what I call cascade.
    There is a huge number of people without proper housing in india. And year over year - I only see people's financial status improving (I listed down all people right from house maid, milk man, vegetable man, friends, relatives any other people I interact and then came to a conclusion that 90% of them are in better economical condition today). So there is enough steam to continue this cascade run.
    The only effect that will happen with steep housing price rise and increasing stamp duty/service tax(transfer expense) is that a person will have to wait and save for more time to contribute to this cascade but that will be compensated by over-all growth of this cascade as new people wil keep entering it at different levels.

    Let me know your views.
  • #2

    #2

    Re : Cascade theory of housing

    Here We Go!!!

    I agree with this theory, as income increase, the cost of living as well! If I have liuidity even I would park it in RE along with assets. SO no doubt, there will be a new buyer and seller! Every body wants to upgrade their lives and Home is one of the means.

    Best of luck with the discussions to follow :-)

    Comment

    • #3

      #3

      Re : Cascade theory of housing

      Bears,
      looking for reply, any thoughts.

      Comment

      • #4

        #4

        Re : Cascade theory of housing

        Originally posted by tushart View Post
        Bears,
        looking for reply, any thoughts.

        Bhai ,

        Do u really seriously think That "Cascade theory" is worth replies....

        Well i could reply on "Chaos theory"....wanna understand it, If u may????
        Last edited May 18 2012, 01:03 PM.

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        • #5

          #5

          Re : Cascade theory of housing

          Hmm the theory makes sense, But it no way justifies the over hyped property prices in Pune..

          Comment

          • #6

            #6

            Re : Cascade theory of housing

            One serious flaw in this Cascade Theory is: What happens if the smallest apartment remains unsold. Then everyone on top, gets stuck with their plans. Did your builder friend, tell how that will work out. I hope not.

            Comment

            • #7

              #7

              Re : Cascade theory of housing

              Originally posted by mymarji View Post
              One serious flaw in this Cascade Theory is: What happens if the smallest apartment remains unsold. Then everyone on top, gets stuck with their plans. Did your builder friend, tell how that will work out. I hope not.
              Another thing is you cannot just pick up and go to another place. Your kids are going to school. Your mother has friends in the old building and whatever small place you have you come to appreciate it for whatever it is.
              So the cascade works in a small diameter place. That is people would super-size only within the comfort zone. For example Someone who is comfortable living say on Sinhgad road is not going to pick up pieces and go to Baner just to supersize the apartment or to Nanded city for that matter. Cascade can give you modest gradual increase . Not the kind of 4/5 time insanity prevailing in last 6/7 years.

              Comment

              • #8

                #8

                Re : Cascade theory of housing

                Chaos theory please ... I m not much convinced by the cascade theory so far.

                Would like to hear your side of theory

                Originally posted by gandabaccha View Post
                Bhai ,

                Do u really seriously think That "Cascade theory" is worth replies....

                Well i could reply on "Chaos theory"....wanna understand it, If u may????

                Comment

                • #9

                  #9

                  Re : Cascade theory of housing

                  I believe smallest you mean cheaper one. It is highliy unlikely that it will remain unsold. As I already mentioned. If someone who does not own any apartment and is getting one worth 20 Lakhs will likely go for it.

                  Originally posted by mymarji View Post
                  One serious flaw in this Cascade Theory is: What happens if the smallest apartment remains unsold. Then everyone on top, gets stuck with their plans. Did your builder friend, tell how that will work out. I hope not.

                  Comment

                  • #10

                    #10

                    Re : Cascade theory of housing

                    The frequency of house change is definately not that high. It is probably 1 or 2 times per generation. I personally know lot of people who have upgraded. I am not saying people will ignore other things just because they want to upgrade. But yes - there will be valid reasons.

                    Originally posted by msp1976 View Post
                    Another thing is you cannot just pick up and go to another place. Your kids are going to school. Your mother has friends in the old building and whatever small place you have you come to appreciate it for whatever it is.
                    So the cascade works in a small diameter place. That is people would super-size only within the comfort zone. For example Someone who is comfortable living say on Sinhgad road is not going to pick up pieces and go to Baner just to supersize the apartment or to Nanded city for that matter. Cascade can give you modest gradual increase . Not the kind of 4/5 time insanity prevailing in last 6/7 years.

                    Comment

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