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Builders & Real Estate Bulls Theory Proved Wrong

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Builders & Real Estate Bulls Theory Proved Wrong

Last updated: November 1 2016
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  • Re : Builders & Real Estate Bulls Theory Proved Wrong

    Rising Foreclosures

    Originally posted by aditi sharma View Post
    This is true.
    I saw several flats sealed by banks in magarpatta recently.
    In troubled projects which are lagging in progress, there would be many more..
    I had got email from HDFC for auctions to be held at Hiranandani's project at Thane for some flats. It was held on 25/26th Jan 11. A 3 BR in Hiranandani's project at Thane went for some INR 92L.

    Some 4-5 flats have been sealed at Sun Orbit, Sinhagad Road as well.

    I came to know this from a banker friend. He even said several notices have been sent to flat owners in past 2 months & said that things will be even worse post Mar 31, 2011. Infact, he says that forget just house buyers, even the builders are on their list . And some builders have been asked to provide additional collateral against their loan as banks valuation dept feels that current collateral isn't sufficient enough in current times. The collateral is few flats + some land in these cases.

    * PS:- Those who defaulted had one thing in common:-

    EMIs were over 65-70% of their take home income .

    Btw, a plot having market price of 82L+ at Kothrud went under hammer this week for reserve price of 56L!! See the ad below. Auction was held this week.

    Man, if foreclosures increase.....we know what happened in US.
    Attached Files
    If you are happy, you are successful.

    Comment


    • Re : Builders & Real Estate Bulls Theory Proved Wrong

      IMPORTANT

      Pls check out my latest posts about the deteriorating global macro conditions on the 'stock advice' thread on this forum. Very important info.

      Comment


      • Re : Builders & Real Estate Bulls Theory Proved Wrong

        Originally posted by heretic View Post
        Pls check out my latest posts about the deteriorating global macro conditions on the 'stock advice' thread on this forum. Very important info.
        Reading the post. I would though request you to put the link directly to your post here so that even after some posts are posted on the thread, it will be easy for viewers to find the said one.
        If you are happy, you are successful.

        Comment


        • Re : Builders & Real Estate Bulls Theory Proved Wrong

          Toppling their sand castles

          In a crackdown on sand mafia, it was discovered that builders are using political clout to avoid payment of octroi. Fines worth Rs 60 lakh were collected from lawbreakers

          The Pune Municipal Corporation (PMC) octroi department chief Hemant Nikam has sent out a warning to those who may be using political clout for evasion of sand mafia crimes. He has issued a statement saying this will not be tolerated and that those involved will have to face criminal action as well as cancellation of their permit and driving licence.

          On the backdrop of the brutal assassination and burning alive of additional collector Yashwant Sonawane on the issue of oil adulteration, the police department has started raids on the sand mafia, as well as the oil mafia.

          On Friday, Nikam confirmed that sand-supplier truck drivers use politicians’ names to avoid octroi and also gave information about fines collected.

          He said, “We have collected fines worth Rs 60 lakh from people who were avoiding octroi on sand within PMC limits. While collecting these fines, we found 18 builders who did not pay any octroi. We collected almost Rs 46 lakh from these builders. The octroi department took action on 300 trucks.”

          From the Shevalwadi octroi post, which is situated in Hadapsar area, a large amount of illegal sand supply takes place by avoiding octroi. The octroi department has decided to file cases against such truck drivers and owners.

          Besides that, PMC officials seized trucks and provided information to the Regional Transport Office (RTO) and requested them to cancel the permits.

          Here is the link for the story:-

          Toppling their sand castles, News - City - Pune Mirror,Pune Mirror
          Attached Files
          If you are happy, you are successful.

          Comment


          • Re : Builders & Real Estate Bulls Theory Proved Wrong

            Found this link somewhere about our future-PM-hopeful Rahul Gandhi...

            http://en.wikipedia.org/wiki/Rahul_G...s_bank_account

            Comment


            • Re : Builders & Real Estate Bulls Theory Proved Wrong

              Everybody kindly read this post..even if a little long one--part1

              Dear all,

              recently i recieved a mail from a navi mumbai broker which he is using to lure
              customers ,kindly read into it and pls tell me a fitting reply to it so as i can stop him from luring customers on false promises.

              ************************************************
              Here is an insight into Real Estate Investing.
              At the outset, let me make some disclosures:

              • Since I deal in Real Estate, there would be a slight bias towards this investment.
              • Quite a few persons who would be reading this have either bought or have shown interest in buying real estate and this could be construed as a ‘business promotion’. However, persons who have invested through us have made annual returns of between 45 – 85 % after our brokerage. Not one client has lost money or has seen the value of their property fall below their purchase price.
              • My primary area of operation is in Navi Mumbai and in some parts of Mumbai. I am not referring to property in places other than these, simply because I do not know the prices and trends there.
              • It is my opinion that in Mumbai, no real estate is available at a cost that is lesser than that available 3 or 5 years back, inspite of the deep recession that took place in 07 – 09.
              • This mail is quite long as there are some calculations, etc, but I’m sure that understanding the funda behind it would be immensely beneficial.
              • Assumptions:
                • The first investment is made in 2005 to take advantage of CIF (Cost Inflation Factor) already known.
                • Though the investment cycle could be 3 years (to avail of long term capital gains), we assume a cycle of 5 years to give 2 years for the construction of the property.
                • We assume the property prices go up by 10% a year on an average.
                • Loan is availed at 9% per annum. The amount of interest paid is calculated on the complete loan amount for all 5 years, though the amount would reduce every year.
                • 80% of the property value is paid by loan.
                • Except for the down payment, no other money is invested. The entire profit is used for down payment in subsequent investments.
              o Stamp duty / registration / brokerage is not taken into account to keep the calculations simple. This would bring down the profit amount, however, it will also increase the loan amount.
              o Rental income and society outgoings have not been considered in the calculations to keep things simple.

              Comment


              • Re : Builders & Real Estate Bulls Theory Proved Wrong

                Everybody kindly read this post..even if a little long one--part2

                Yearly rate of rise for property
                10%

                Loan interest rate
                9%




                First investment

                Year
                Property Cost
                30,00,000
                2005
                Down payment
                6,00,000
                2005
                Loan amount
                24,00,000

                Possession year

                2007
                Sold
                45,00,000
                2010
                Less loan amount
                24,00,000

                Less interest (approx)
                10,80,000

                Amount in hand
                10,20,000

                % returns
                70%

                For tax purposes


                CIF in 2007
                480

                CIF in 2010
                632

                Indexed purchase cost
                39,50,000

                Total profit / loss
                5,50,000




                Second investment

                Year
                Property Cost
                51,00,000
                2010
                Down payment
                10,20,000
                2010
                Loan amount
                40,80,000

                Possession year

                2012
                Sold
                76,50,000
                2015
                Less loan amount
                40,80,000

                Less interest (approx)
                18,36,000

                Amount in hand
                17,34,000

                % returns
                70%

                For tax purposes


                CIF in 2012
                730

                CIF in 2015
                895

                Indexed purchase cost
                62,52,740

                Total profit / loss
                13,97,260




                Third investment

                Year
                Property Cost
                86,70,000
                2015
                Down payment
                17,34,000
                2015
                Loan amount
                69,36,000

                Possession year

                2017
                Sold
                1,30,05,000
                2020
                Less loan amount
                69,36,000

                Less interest (approx)
                31,21,200

                Amount in hand
                29,47,800

                % returns
                70%

                For tax purposes


                CIF in 2017
                730

                CIF in 2020
                895

                Indexed purchase cost
                1,06,29,658

                Total profit / loss
                23,75,342




                Fourth investment

                Year
                Property Cost
                1,47,39,000
                2015
                Down payment
                29,47,800
                2015
                Loan amount
                1,17,91,200

                Possession year

                2017
                Sold
                2,21,08,500
                2020
                Less loan amount
                1,17,91,200

                Less interest (approx)
                53,06,040

                Amount in hand
                50,11,260

                % returns
                70%

                For tax purposes


                CIF in 2017
                1,010

                CIF in 2020
                1,175

                Indexed purchase cost
                1,71,46,856

                Total profit / loss
                49,61,644


                As one can see from the above, a Rs.6,00,000 investment in 2005 would be converted into 50,11,260 by the year 2025, an annualized return of slightly more than 11.5% per year compounded – there is no tax paid at all.
                Now, why I think this investment plan is really good:
                • Wealth is built up consistently over a long term.
                • It is a bit different than investing in Mutual Funds or Shares because real estate investments are not very liquid. If one has an investment in MFs or Equity, every time money is needed to say, buy a new car or something like that, the first reaction is to sell part of the portfolio. Whereas, nobody thinks of selling a house to buy a car!
                • THIS POINT IS MOST IMPORTANT. Say, in the ‘Fourth Investment’ above, if the sale price was say, 1,60,00,000 instead of 2,21,08,500. Then the actual profit would be 1,60,00,000-1,47,39,000 = 12,61,000. However, taking into account the Cost Inflation Factor, the Indexed Purchase Cost is 1,71,46,856, so for tax purposes, there is a LOSS of Rs.11,46,856. This loss can be set off against any other Capital Gains and in fact can be carried forward for the next 8 years! This in short means that the government GUARANTEES inflation related returns for real estate investments.
                Happy Investing!!


                ************************************************** *****


                will be waiting for esteemed borders reply on this mail.

                regards

                vatsal

                Comment


                • Re : Builders & Real Estate Bulls Theory Proved Wrong

                  What happens if we add rental income to this calculation?

                  Comment


                  • Re : Builders & Real Estate Bulls Theory Proved Wrong

                    Resell property in 3 years and lose half of your gains

                    Originally posted by joshiga View Post
                    What happens if we add rental income to this calculation?
                    The profit made from the sale of a house is never a simple calculation involving the subtraction of purchase price from sale price. A number of income-tax caveats kick in. If you buy an apartment for 50 lakh and sell it two years later for 1 crore, your profit from the sale will not be 50 lakh. It will be much lesser. Here is how the maths works:

                    If you sell within three years of buying:

                    The first thing to take into account is tax liability. If you sell a flat within 36 months of buying it, the profit is added to your income for that year, and taxed accordingly. If you fall in the highest income tax bracket

                    Resell property in 3 years and lose half of your gains - ET Slide Shows - Features - The Economic Times

                    Comment


                    • Re : Builders & Real Estate Bulls Theory Proved Wrong

                      We assume the property prices go up by 10% a year on an average.

                      I am sure this is one of the assumptions that was used by a smart banker to come up with a model that never lost money. Other smart bankers derived other outcomes from this basic assumption and some 5-6 years later we had what we know as 2008-2009 financial debacle. BTW the effects of which are felt even today and will be felt for more years to come.

                      Beware of statements like average 10% appreciation till 20 years and fixed 9% loan till 20 years. That is a trap. Just change one of the parameters in the calculation and you will see how a little difference from the assumption can affect the final outcome. Also known commonly as sensitivity analysis (just thought of throwing in some jargon). :-P

                      VK
                      Last edited by veeemkay; February 1 2011, 12:55 PM.

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