Dear Forum Members, following post is only my opinion!! Feel free to comment.

Well, every knowledgeable person in this forum is trying his / her best to explain the current situation in Pune real estate market. They are trying to explain the past and predict the future. Few of them have their thought based on immense knowledge due to the experience in real estate market, whereas others who has expertise in finance and market conditions of India. Few are victims of the boom, whereas few are just shrewd guys explaining and predicting things based on analytical skills they have ……

Don’t forget there are some marketing guys among us too.

But there are large numbers of people who are planning to buy their first home soon…. May be This Diwali… This post is for these people. Please read through this and if you feel that it makes sense then WAIT till next year. Here is what I have learned in last few years -


    In last two year infrastructure is not significantly improved around suburbs of Pune, but the rates have. Water problem, Transportation, DP roads, MSEB Meters issues everything has remained as it is since last two years. The only thing improved in Existing Main Roads and May be at some locations - BRT. Both have their own reasons why they are being implemented so rapidly.
    In last 1 year (after the slowdown hit), the whole focus of the builder community was to sell what is available in their inventory. The 50% builders were able to sell their 75-80% inventory (Good Projects Only) (Don’t get surprised - there was large number of people who do not read this forum or don’t know it exists, but who needed homes urgently and took advantages of stable or reduced prices). These builders have at least recovered their cost if not found profits.
    Bigger projects, such as townships and high end projects were flops. It seems that exception is Nanded City. But not sure about it. Whatever they had launched, most of it, they were able to sell with 2500 rate. But there are buildings they have not yet launched in Phase 1 (I think 2BHK ones) and then Phase 2 is still there. Secondly, most of these projects haven’t even taken off which means minimum loss to builders (may be only cost of land if purchased, cost of plan sanctioning, foundation if planted and Marketing).
    Various surveys have been made prior to slowdown (and after the slowdown and in recent months) regarding requirement of homes in Pune or all over India. These surveys are showing the numbers that have made builders more excited during the boom time and now more hopeful in not so recent slowdown. Most of us don’t know these surveys and its data. But what I can tell you that, builders know more than most of us in this forum about it and future prospects of real estate. If Indian Market is going to improve in future they would be the first to know it. One of the surveys made public recently was the need to “Budget housing Projects”.
    Elections are going to add another dimension to Maharashtra real estate market. Change or not change in “Sarkar” will change the RE market drastically.
    IT industry which was the root cause of the real estate boom has itself suffered enormously due to American market turmoil. But real estate market of Pune had already moved away from IT. Indian businesses, industries and services improved in last couple of years in Retail, Auto, Oil, Steel, Pharma, Exports, Food, Medical etc. including government income improved which made real estate market to flourish without IT. Real estate has moved on. One example is where Ford, Toyota and GM suffered due to American slowdown; domestic auto market was relatively unharmed. Who is buying all these cars? People who can afford to buy cars can certainly afford to buy a home right?
    Basically Income has improved in Cities. not same thing for Rural. There are a large number of people traveling towards cities now. Ask, your daily Cab driver, where is he from and if he has a home yet in Pune or not…
    And finally, global market is in recovery mode.
    Unfortunately, most of the members in this forum are IT people or related. If you don’t believe me, let’s take a poll!!

    Let’s come back to Real Estate. Here are some categories of the Projects that I would like to make based on current situation of real estate market.





        Builders with good Projects – While we are talking about these projects in length in this forum for last one year, builders were able to sell around 80% of the inventory they had. Naturally, they have increased the rates as they now know that these projects are popular ones or they don’t have major inventory left.
        Builders with flop Projects – Well, they have not increased the rates of their project. Mithila, Bloomfield, Amonara, Swiss County to name a few. Most of them would be available for negotiations too. But as I said earlier, most of these projects haven’t even taken off which means minimum loss to builders.
        Builders who are yet to launch new projects – Type 1. There are few builders who do not have existing inventory or is already recovered cost and but have some new projects they want to launch.
        Builders who are yet to launch new projects – Type 2. There are few builders who are stills struggling with their existing inventory and but to add to their misery they still have some new projects they want to launch. They are in immense pressure to sell their existing inventory. You will start seeing ads in paper from these builders. Mostly these ads will be for the projects which are know since last one or two years.
        Builders who are in loss - Well, I don’t know yet how to identify these builders but as far as I can tell, only small scale builders would be in this category for now. They will have less than 3 projects at their hand at this time.

        Now, let’s talk about price hike – I think its driven by an organization or an association

        a. Builders with good Projects – Of course they have done it. They were successful to sell most of their flats. Now they can increase their prices the way they want.
        b. Builders with flop Projects – No increase in price seen here.Most of them would be available for negotiations too.
        c. Builders who are yet to launch new projects – Type 1 – Of course, they are waiting for Diwali or even New Years Eve. They don’t really bother about current price hike and discounts. But, if price increases for existing projects, launching rate of new projects will go up too.
        d. Builders who are yet to launch new projects – Type 2 – They will be OK to increase the price now, and will provide huge discount in Diwali. People who don’t closely follow this will fall for it. And flats would be sold at the same rate that of 6 months back. Builders will come close to closing their inventory. Secondly, they would be launching new projects with attractive rates in Diwali, hoping that people will rush to buy. Increasing cash at their hand.
        e. Builders who are in loss – These guys are screwed anyways. Whether to increase the price or decrease it a lot. Builders association would be forcing these builders to keep quite too.

        Now, why not to buy a House in this Diwali?

        You will be buying a house from one of these explained categories. I can not predict that your decision will be right or wrong, but I can certainly say that you would end up paying the amount that you could have paid in last one year or in worst case you would end up paying much more.

        But if you wait till next year, you could end up making a resale purchase or a making better decision just by analyzing market situation at that time. If real estate is still booming, your jobs conditions might have already improved too (salaries, promotions etc.) and you would be able to afford the flats anyways.

        For Projects that will be launched between 2009 OCT to 2010 April, the launching rate will be around 2100 to 2550. This will look attractive to most of us, because of the recent hike in prices of existing projects. And we will end up paying hell lot more than these projects and their locations deserves. But again, you can buy flats in these new projects in 2010 as well. So why hurry in this Diwali?
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  • Originally Posted by asdf2357

    Calculation is simple:
    Pune: (considering 25% more than carpet, which is general)
    Consider 700sqft carpet and 200sqft terrace, Then buildup 800. (700+200/2)
    Then, superbuildup 1000sqft.

    Bangalore: (considering atleasr 30% more than carpet)
    So, 700+200=900*1.3 = 1170sqft.

    Hence, 17% more.

    Hi asdf2357,
    If superbuild area is the one which is considered for paying the price of flat after multiplying it with /sqft rate then I think your formula need correction. Your formulae is loading Terrace also which is wrong.

    Price = ((Carpet * Loading) + (Terrace/2)) * Rate/sqft. This is how it is calculated in Pune Eg: RK Lunkad etc..

    One more thing I fail to understand and that is:
    if we are buying the flat in one scheme then we would be getting some portion of land as part of it then again why do we need to pay for car parking whose area is just 30% our carpet area?
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  • Originally Posted by wiseman
    No big assets can forever be priced at levels that are mostly unaffordable to a large proportion of the population - they will correct till it becomes affordable, or businesses holding prices at thos levels will go bust!


    Very true, So I always maintain, RE correction in India is due because "affordability" is the major factor.
    Recession is just adding to it. So RE will correct even if Recession is over and economy regains its health.

    I see you always connect recession and stock market with RE correction.
    Can you help me understand why you think so?
    Builders use this to their advantage, by saying the recession is over now, or there never was any recession in India. Totally ignoring the affordability of general people. They call 30L+ as affordable.

    In general:

    1) Price of any thing in this world is decided by demand vs supply and for costly necessities capped by affordability.

    2) Actual price is what is paid buy the buyer in the last transaction for similar property in neighbourhood.
    (Builders will soon realise that they are not the one to decide the price.)

    3) Investor(mostly HNI/black money/NRI) who bought at exorbitant prices, will try to offload this, in future, mostly to end users, who clearly cannot afford. Property is less likely to move from Investor 1 to Investor 2 (who can afford high price)
    These investors will be stuck with their property or sell it for loss in future.

    And all this will happen Irrespective of Economy wether stock market goes to 25000 or 5000.
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  • I would rather not compare Bangalore with Pune. These are two totally different cities with two totally different driving factors for their growth. For example, Pune in nothing when compared to Bangalore when IT is considered. But Pune has Mumbai beside it. Pune also has some good Manufacturing Units of International and National Industries. Whereas Bangalore has other factors that Pune doesn't.

    So lets not compare and try to figure out why things are the way they are in Pune and not in Bangalore.
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  • Now RBI is saying developers loan grows to 41.5 percent and home loan down to 5 percent
    http://www.mydigitalfc.com/banking/home-loan-growth-down-54-despite-lower-rates-019
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  • >>
    And all this will happen Irrespective of Economy wether stock market goes to 25000 or 5000.
    <<

    I think..Stock market besides being a decent indicator of whats to come, also provides a psychological factor to masses. If the stocks are doing well, there is a tendency for quite a few to do 'feel-good' big-ticket shopping (like RE, auto etc). As logical as a buyer thinks he/she is, a sale is most often an emotional trigger. The fluctuations in the past year is a good reflection of the lack of buying spree in RE.

    Agree with most items from wise,real, techno , except the timing on FII reducing the exposure to India..reasoning - there is no better investment available near/mid-term.

    -bb2
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  • what all you said may be due to price point....
    But about the size and all ?
    they are spacious and large compared to Pune which has got Mumbai mindset of small flats.

    also check out:

    Now RBI is saying developers loan grows to 41.5 percent and home loan down to 5 percent http://www.mydigitalfc.com/banking/home-loan-growth-down-54-despite-lower-rates-019
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  • Originally Posted by asdf2357
    When I saw many of the floor plans of bangalore, I don't know how the superbuildup area is calculated here.. It is at least 30% (or in fact more) than the carpet area. Also, they don't consider terrace as 'half' area.

    So, overall it costs around 15% more there..

    Calculation is simple:
    Pune: (considering 25% more than carpet, which is general)
    Consider 700sqft carpet and 200sqft terrace, Then buildup 800. (700+200/2)
    Then, superbuildup 1000sqft.

    Bangalore: (considering atleasr 30% more than carpet)
    So, 700+200=900*1.3 = 1170sqft.

    Hence, 17% more.
    Always, consider this fact while comparing between Bangalore and Pune.

    Yes, bangalore dosen't have bigger terraces, so you may add some to carpet area..


    I had spoken to Chitrakut builders for their Chitrakut Environs project. The sales said that the super built up area includes the areas covered by walls and lobbies, staircases. The common areas of lobbies and staircases are divided by the number of apartments in the building(She did not mention about if common areas like swimming pool, club etc is also included). The terrace area is not included in super built up area. This project has 2 terraces and I had seen that many other new ones also have balconies. For this project super built up area = saleable area. Carpet area is 22% of Super built up area.I assume its the same for other projects also.
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  • RBI raises SLR by 1 percentage point

    Here it goes the first step towards tightening liquidity!!!!

    Guys.. if you are buying RE by taking Loans.. please please please do consider that soon the interest rates are going to increase as well to curtail inflation and liquidity and hence please also calculate ur EMIs taking that into account and then check the affordability

    VK
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  • Originally Posted by wiseman

    The one thing I will not do under any circumstance is to buy beyond my capability to pay and live a life of just-making-ends-meet for a good part of my life, especially the years when I can really get out, see places and experience things!!!


    Thats the point....the whole planning thing :D

    Well said.. At some points (we) some guys think wise
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  • Thanks for a wonderfull Post Oh Wiseman :)

    My replies
    Originally Posted by wiseman
    Technocrat,

    Obviously there is a disconnect between me (and maybe people like Real) who have bought property in a different era (1980s maybe?) and most people buying property in the 2000s.

    In those days, the pressure to buy RE in the 20s was not so high. Our father's generation typically bought homes only in their 40s and above and therefore, our aspiring to buy in the 40s gave us a lot of leeway to accumulate savings, while keeping prices growng steadily, but slowly!

    Yes infact back in 2005 I did not buy keeping the same thing in my mind i.e. why the rush my father built his house in his 40s

    Today, I can't comprehend the panic-stricken mentality of people wanting to buy RE as though its going to run out tomorrow!!!

    Me neither, I cant understand the whole pressure & hysteria to buy a house, which I have to face

    As you might have noticed, mothing goes up only one way. And if things go far out away from the mean, they not only revert back to the mean but also swing the other way for a while. These are the most opportune moments to buy big assets like RE.

    Ultimately, there are a couple of rules which always apply in the long run.

    1. Buying within your means is the only way to ensure you are getting something at a reasonable price and will see growth in that asset - besides having peace of mind.

    2. No big assets can forever be priced at levels that are mostly unaffordable to a large proportion of the population - they will correct till it becomes affordable, or businesses holding prices at thos levels will go bust!

    I too am counting on these fundamentals but like mentioned earlier the hysteria often gets you

    There is absolutely no shame in renting and I know of many people who have rented most of their lives and have built up sizeable fortunes - to such an extent that buying more than one house fully in cash was not a stretch for them finally.

    I am really not ashamed infact in current job scenario I see it as a benefit as I know of many people who stay in rented appts even when they have their own house in same city to reduce the travel time. So renting gives you flexibility

    The one thing I will not do under any circumstance is to buy beyond my capability to pay and live a life of just-making-ends-meet for a good part of my life, especially the years when I can really get out, see places and experience things!!!

    This is what comes to my mind too when I do number crunching :)

    If I have to imagine a little longer while I build up a cash balance and pay down for a decent house when prices are much more reasonable, its rwo birds with one stone!

    cheers

    Makes a lot of sense, Thanks for your wonderful post :)
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  • Realty loans tighter

    Among one of the discernible decisions that the RBI took in its review, it increased the provisioning requirement for advances to the commercial real estate sector classified as ‘standard assets’ from the present level of 0.40% to 1%, a move that makes lending to the sector tougher. “In view of large increase in credit to the commercial real estate sector over the last one year and the extent of restructured advances in this sector, it would be prudent to build cushion against likely non-performing assets,” the RBI said.
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  • Recent developments in understanding Cause and Effect!

    Originally Posted by RAJESHP
    Very true, So I always maintain, RE correction in India is due because "affordability" is the major factor.
    Recession is just adding to it. So RE will correct even if Recession is over and economy regains its health.

    I see you always connect recession and stock market with RE correction.
    Can you help me understand why you think so?
    Builders use this to their advantage, by saying the recession is over now, or there never was any recession in India. Totally ignoring the affordability of general people. They call 30L+ as affordable.

    And all this will happen Irrespective of Economy wether stock market goes to 25000 or 5000.


    Rajesh,

    Your question set me back on step and got me thinking about how I was thinking!

    Anyway, after thinking about it awhile, here's what I think ...:D

    Its all about buyers sentiment - another word for their confidence in the future in terms of their ability to sustain their EMIs under all circumstances.

    In the 2003-07 period, most youngsters, who never had the experience of "fear of job loss" felt super-confident about themselves and bid up prices to ridiculous levels as though they were playing in the Casino. It was impossible for them to feel the real worth of each rupee they earned, when viewed from the perspective of a depressed period - they'd never seen one!

    So, it was easy for them to assume that life (after getting that IT job) was one long progression of Bi-annual increments of 20%, promotions and RE gaining at 20% per annum into infinity - Oh, what a Rosy World!!! :p

    Little did they realise that all of their infinite prosperity was nothing but the greatest credit-fueled, global Ponzi scheme since the Roman Civilization, which would one day crash like it is now.

    Now, with the future not so certain even in the short term (leave alone 20 years), many people are wondering how to get out of this situation.

    So, its sentiment which drives the world, NOT events and news about it! After the movement in the markets, news is selectively picked and analysed to justify the movement in the markets (pre-2008 it was how this time it was different and new technology and productivity has taken the world to new levels; post 2007 it was about how the crimila irresponsibility of a few American bankers and the Govt led to this global crisis). See?

    Now to see the progression of how things happen in specific order ...

    First the sentiment of the investing public changes from (extreme) optimism to neutral and then to pesimism (did you notice that, in Jan 2008, economies were still booming and there was no observable crisis?). This is usually because of a real underlying reason (the huge amount of toxic morgage-backed assets rated AAA in the vaults of banks worldwide). This causes a reversal in the direction of the Stock Market which is a 6-9 month leading indicator!

    When markets crash, people lose real money and start contracting their spending to keep it within their income. This leads to a contraction in the real economy (worsened by the real underlying reason adding further to the problem - recollect banks starting to collapse, like Lehman). But in the meanwhile, companies continue to keep on adding capacity (builders kept building till Sep 2008 when they realised the problem when it hit them "suddenly") and suddenly find one quarter that while their capacity went to 100, sales suddenly crashed to 50. By then its too late. Companies start showing lower sales and bottomlines (if not outright losses - check out Tatas buy of Corus and JLR; perfect worst-case timing which might have bankrupted lesser companies).

    By now the Virtuous Cycle of up, up, up turns to vicious cycle of down, down, down - sometimes it turns into what is called to "Death Spiral"! Likely to happen to many American Banks as its already happening!

    And if the boom had gone into deep excess (like 2007), the fall too would go into deep excess in the other direction - watch where this fall takes the US market!!!

    Coming to your question, this kind of thing turns entire populations from loving a sector to hating it and outright rejecting it for long periods of time. This is probably happening to RE which is less than 50% through running its course to the bottom. RE will take a long time to come back to being favorite investment option and between now and then, will take many people to the poorhouse and have a large part of the population to curse it, the builders as well as the day they went in wholesale at possibly around the highest price!!!

    When markets crash and business in general declines, Sentiment as well as cash) runs low. Even people with cash don't have the courage to buy (as many people with 10s of Crores come to our property in chennai, talk nice things about it and disappeared will vouch!:)), This is called a recession - literally a negative growth - or depression which is severe and prolonged recession!

    At some level builders has seen the connection of Stock Market crashing, people losing reral money and jobs, people getting by this job loss into losing their positive sentiment which forces them to backing out of RE purchases (which is long-term commitment), which hits RE hard.

    So, they try to root out the root cause of this fear - RECESSION - so that people may change sentiment and return to buying again!

    But be warned. These sentiment changes do not usually turn quickly. Once turned, they take many years to turn back. Which means the builders are probably barking up the wrong tree and needlessly burning their money in marketing and advertising!!!

    Apologies for boring all of you with such a long post!!!

    cheers
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  • Right said Wiseman!!
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  • The problem is that increments in the early years are greater. Everybody normally gets increments of 20% - 25% easily for the first half a decade, which slips down later. Plus family responsibilities increase post marriage, expenses go up, and yearly savings go down. Plus companies do not provide insurance cover for everyone, so non-insured members have their medical expenses,etc. Children education is getting expensive by the day, plus inflation, etc brings everyone down to earth with a thud. People are getting cautious now. I believe that we would soon see people getting together, buy a piece of land and carry out construction through contract or we shall see more and more group booking schemes in the days to come.
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  • Realty Check !!

    ]http://economictimes.indiatimes.com/markets/real-estate/news-/Realty-back-in-reckoning-as-FIIs-cut-blue-chip-stake/articleshow/5174754.cms
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