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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

    From what I'm seeing right now there is no decent apt below 3500 psf rate .
    Other thing to be noticed is 80:20 rule , 20% of people are holding 80% of land and apts . Lot of people I've seen have bought at least 2-3 apts .
    Housing demand is huge but prices are obscene even for gutter holes . Most Indians don't understand beyond investing in housing and gold . Also , Pune is the only city where ample land is available but there are no plot schemes , everybody is selling apts .

    Comment


    • Re : Builders & Real Estate Bulls Theory Proved Wrong

      A simple understanding which I have failed to understand. Maybe, my friends out here would be able to explain.

      Assuming I buy a 40L house (with the current crazy rates..) - I make a down payment of my hard earned 20% of the Flat cost = 10L.

      So now I need a loan of 30L.
      I take a loan from XYZ bank for 20yrs at an interest of 10% (which is more actually) and religiously keep paying my EMI for nest 20 yrs.

      i.e EMI = 28951
      Therefore, after 20 yrs I end up paying = (20 * 12) months * 28951 = 69.5L

      So basically I have ended up paying 69.5L to the bank (pls correct me, if my understanding is incorrect)

      SO my total house cost after 20yrs= 10L (Initial Down) + 70L + 5L (Donation to the govt. on Registration/Stamp/VAT/etc etc..) = 85L

      So yes, after 20 yrs I can proudly say that I bought the house for 40L and its not 1 crore or 90L...but I actually have ended up paying almost that much too...

      On the other hand, let me open a FD with my hard earned 10L...
      after 20 yrs, its anyways gonna be close to 25L or more...

      and the 28K that I pay to the bank every month, I keep saving them too....
      So what I end up with, is 70L + 5L ( minimum interest on 70L in 20yrs) + 25L = 1 crore...

      And, add to it, all of the above being Risk Free....

      Pls break my logic and prove me wrong. Would be more than happy to understand otherwise and try to undersyand, are these crazy prices really worth.

      Thanks,
      Vishal

      Comment


      • Re : Builders & Real Estate Bulls Theory Proved Wrong

        Originally posted by kumars_99
        Hi Vishal,
        Nice analysis.. but u r missing one thing here !!

        If u r staying in rented house, instead of buying own house...... then lets see how much u will pay at end of 20 yrs. ( assuming constant rent of 12K for 20 yrs )
        = ( 12K * 12 * 20 ) = near to 29 lacs

        So reduce 29 lacs from ur savings of 1 crore : Actual saving = 70 Lacs
        AND still u dont have ur own home to live,....

        Thanks.
        You are also missing one point...
        in this example, you are considering a rent of 12K but the EMI was around 29K. The rent to EMI ratio is 1:2.5 which is not the case in Pune.

        There are cases in Kothrud where 2 BHK flat costs 70-80L (assuming 25% downpayment, the EMI comes around 50 to 60 K but the rent is around 12-13K.

        Put these numbers in the calculations and you will see the difference.

        Also besides this, I think the whole argument was only to prove that instead of RE, FD is a better *investment*. This is not for end use.

        I would not do such analysis if I am buying a home for myself to live. For that decision, I will simply see how much is my limit (considering future responsibilities/needs) and how can I get maximum value for that money.

        Comment


        • Re : Builders & Real Estate Bulls Theory Proved Wrong

          Hi kumars99,

          Then that being the case, lets remove maintainence cost for the society, minimal say 2K. Which means, (2K * 12 * 20) = 5L

          So, my actual saving goes up to 75L.
          Also, add some repair/construction/painting/plumbing other work that might arise to your apt. keeping minimal again. -> 5L for 20 years? Decent?

          Lets not even count this, as my rent might increase a bit in next 20 yrs...

          so lets still have 75L as my savings.

          now, consider - market and real estate trends and volatality - Am assuming that my house price can only go up. But, possible that value of it might just be 65L after 20 yrs.

          Also, what if I bought this house in magarpatta thinking I work in magarpatta today.
          5 yrs down, I get a job in Hinjewadi. So, that becomes a liablity for me with over 1.5hrs of travelling from magapatta to hinjewadi? Isnt it? But rented house keeps me )

          And yes, havent calculated Tax benefits offered by the govt. but so have I considered the interest rate to be only 10% (which is lower than the market offering)

          Pls feel free to comment.

          Cheers,
          Vishal

          Comment


          • Re : Builders & Real Estate Bulls Theory Proved Wrong

            punrerebuyer,

            >>There are cases in Kothrud where 2 BHK flat costs 70-80L (assuming 25% downpayment, the EMI comes around 50 to 60 K but the rent is around 12-13K.

            You proved my point even further.
            If I end up paying EMI of 60K and get the same as a rental in 12K, makes even more sense for me to stay in rented house than owning a home.

            I understand that the whole subject is different. But, understanding the meaning on the ever increasing house prices is that, now is the time to hold onto horses and stay in rentals than buying something at 80L and paying EMI of 60K.

            Stop buying. Wait for prices to go down and then buy. (till then your saving goes up to 15L from 10L, cost of house drops from 40L to 35L) - Everyone SAVES!

            Comment


            • Re : Builders & Real Estate Bulls Theory Proved Wrong

              Originally posted by rajtjrll View Post
              Dear NewsMan....
              like superman, spiderman and latest Ironman....

              very interesting analysis and seems you have put a lot time in searching news and all....thanks for that pretty gud....

              but as news says...can you atleast mention 1 project in pune for the god shake which has reduced rate? let say from 3500/psqft to 3400/psqft!!!!

              I too hoping for prices to reduce...but it seems, the people in my office are right and prices are never going to drop!!! and only bound to increase.....
              Looks like you are working in builder’s office OR real estate broker’s office.

              Are you trying to buy onion or potato? If you are expecting Mandai type of market with big shout, sorry Pune builders are much more sophisticated at least for price negotiation.

              Comment


              • Re : Builders & Real Estate Bulls Theory Proved Wrong

                VishalPrabhakar,
                If you put your 10L in a FD at 10%, after 20 years, you get close to 67L...much more than the 25L you estimated. Never under-estimate the power of compounding!

                Comment


                • Re : Builders & Real Estate Bulls Theory Proved Wrong

                  Originally posted by stoxxx View Post
                  Khabrilal

                  All such reports have been published since 2004 with no / minimal actual impact on RE prices. That is where main street media and so called analysts go wrong.

                  You can be frustrated, get angry but market is a big force that no one can accurately predict - certainly not main street media.
                  • The references given do not correspond to any analyst work but the fact of 2009 correction.
                  • In 2008 4thQ & 2009 2nd Q, I have seen a substantial correction based on own survey in Pune.

                  How minimum is your minimal ?

                  Really, am I getting frustrated & agree? I must be a builder OR broker.

                  Comment


                  • Re : Builders & Real Estate Bulls Theory Proved Wrong

                    Originally posted by vignesh41 View Post
                    VishalPrabhakar,
                    If you put your 10L in a FD at 10%, after 20 years, you get close to 67L...much more than the 25L you estimated. Never under-estimate the power of compounding!
                    please please please give me the organisation which is paying 10% for 20 years - I would be happy to sell all my holdings everywhere and put all the cash there.

                    rohit

                    Comment


                    • Re : Builders & Real Estate Bulls Theory Proved Wrong

                      True, bank interest rates may vary, but given the current high inflationary trend, it's quite possible that it can stick to the current 8-10% range. Even if you assume an average 8% for the whole time period, the final maturity is close to 48L, much more than the 25L he mentions....which is the point I wanted to make.

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