Many on this board including the so called Wise and also the Sethus to Jadhavs have a problem of my pricing on land. Just 2 minutes ago I called up a builder in Urapakkam. He is selling a flat. This is not on the better side of the Urapakkam and is quite some distance from the Railway station....1.5km. I know there are no shops on this side either and development is tardy. He was quoting a price of 2600psft on the advt posted in Oct 2008. On phone he quotes 2400psft. I said that was high. His logic...land price is 30L per ground! and it increases to 35L per ground if you are a bit closer. Then he says..."saar price of construction is also to be taken na... and he says 1K psft".
Let us come to the bare mathematics. Let us assume he wont build 2 times the land area even though that is possible in todays new Master plan but uses only 1.5 as FSI.
So it works out like this (all figures in rupees).
Cost of land = 30L/2400sft = 1250psft
Cost of land needed per sqft of building at 1.5 FSI = 1250/1.5= 833psft
Cost of construction = 1000 psft
So net cost incurred is 1000+833=1833psft.
Giving him a Fair margin of 200 rupees profit psft we can assume that 2033 is a fair price but in reality he charges 2400. So he yet has a Safety Bumper margin of 2400/2033= 18% over an above his fair profit margin. Now remember he would most likely have got a deal with the land owner where he will repay the landowner over period of time. So the builder's investment is zero on the land. Next he constructs using the buyer's money. Nowadays that is where he might be chewed a bit, since bookings are not fast enough. So he has to pay that interest portion for his construction activity.
Finally I assumed FSI=1.5. Most builders easily take this number to 1.8 and they also price car parking etc as separate. So if u use 1.8 in the argument and add 1.5L for car parking as this builder quotes it will mean his price is about 2600psft and his cost of land is 700psft. So his Safety Bumper margin is
2600-1000-700-200=700psft.
In other words he can yet reduce his price by 700psft and go home with a fair profit of 200psft.
Why am I saying this?
a. As many on this board with almost rudimentary Mathematics knowledge seem to say (rudimentary as in class 3 and no better even if one of those shit colleges gave them a B.E. degree sadly though!) if DLF reduces price by 400psft, it does not mean RE market is crashing. Just that it is stabilising at best and the pinch is felt for the EVER CONNING BUILDERS.
b. Let us assume that 2600psft is the end price and 1.8 FSI. Then if you back calculate (2600-1000(cost of construction)-200(fair profit))=1400 is the cost of land you are actually paying that too at 1.8FSI. So price of land is 1400*1.8=2520psft which translates to 60L per ground. So it is clear that if you have land (like I do) and I just become a builder I will gain 60L-30L=30L for my land. Being fair I try to ask for 45L for such a land and I know on the worst day the biggest Mathematical idiot on this board will buy it for 35L. So why should I sell land? Or why should anyone sell land...Unless he/she is hardup for money!!

In net, the builder in Chennai is minting money like mad, and in recent times his minting has come down. This will mean slightly cheaper flats. However in the process land price wont come down but with more of the buyers becoming SANER (move from Class 3 to Class 7 ... LOL ... Hopefully Wiseman reaches Class 7 soon!), they will prefer to buy land and build homes than flats.

Only when that class also disappears will there be a RE collapse. In Bangalore (I mean proper city...not Whitefield or Devanahalli which is almost same as Chengalpet or Tindivanam in development!), price of land to flat is extremely clean. Builders have clean profit margins and they are able to sell their property much more fairly than in Chennai. Ofcourse the Brigades who try to mint money have got chopped in the process. So Brigade which was quoting fancy prices in Rajaji Nagar has been forced to take a lot of shit, with FSI as high as 4-4.5 while the normal flat in that vicinity having hardly priced any bit lower.

In summary, if you want a flat to live tommorow (not after 2 years like India Bulls is selling in Medavakkam!) then buy it at that fancy price ... after all 2600psft and 2200 psft wont matter much in the long run as u might as well stay in your house today than pay rent. However if you are an INVESTOR and have cleared Class 7 mathematics (not by mugging but by understanding!) then you better buy Land for investment. If you book a flat with a long delivery time and then cry, especially if you are losing your job like that Fidelity guy, then u can use abuses like That HECK of a Fool or Like Jadhav the Bus driver, but in reality you need to improve your brain. So go to the nearest Mutton shop and try to fit that brain into yours! LOL!
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  • Very convenient ommission!!!

    Originally Posted by Natarajg007
    Damoo,
    Thanks for the appreciation. However unless there are folks like them, I wont have the topic to discuss! Their mistakes provide a forum for education to others.
    Cheers.



    Nats,

    That was a very convenient passing over of my post and going over to Damoo's post with all that sweet, syruppy thank you notes.

    What about the price of that Rs.625 land back in 2004. What was it? Or are you ignorant of it?

    Awaiting the number so I can recalculate and establish some facts.

    cheers
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  • Originally Posted by wiseman
    Sansei, you are correct. I would like to know from Nats the price in 2004. In my opinion it should have been around Rs.105 or lower, assuming the average of 6-8 times rise in prices in the intervening period that Nats himself has mentioned in the other post to BigBear so conveniently for us.

    I have highlighted the numbers to indicate that they are exactly the figures given by Nats.

    Here are the figures if the jump from 2004 to 2009 was 6 or 8 times:

    6 times jump. Price in 2004 Rs.104, CAGR from 1988 = 14.75%

    7 times jump. Price in 2004 Rs.89, CAGR from 1988 = 13.65%

    8 times jump. Price in 2004 Rs.78, CAGR from 1988 = 12.7%

    As you can see the long term return on RE prices (even land) over 16 years, is in the range of 12% - 15% (even in the best of cases when you were lucky enough to buy just before the start of the greatest boom your generation has seen and sold just after the boom ended in one of the prime cities of the country).

    And if you go back to ALL the posts on this topic from me, this is exactly the range I have always maintained!!!

    Here is the proof. And it can be finalised if only Nats could provide us the price of his land in 2004!!! :D Others can also chip in so that everyone can see the truth about long term ROI on Land in the best of places in the best of times in India.

    And we are now entering the worst of times. So where do you think ROI and consequently, prices will head?

    Let us use the tried and tested Reversion to the mean!!!

    If you follow this argument, to get back to the mean price growth, let is see how far away will be the time when prices go down and them recover ...

    Assuming the Long Term growth rate are as given below, here is when the prices will reach up back again by ...

    At 12.70% the 1988 price will reach Rs.595 in the year 2021!

    At 13.65% the 1988 price will reach Rs.605 in the year 2019!

    At 14.75% the 1988 price will reach Rs.605 in the year 2017!

    So the prices should correct and recover to these prices given, so as to fit the model of reversion to the mean!

    Get the picture?:D

    cheers

    Very long mail from Wiseman. Will just provide the required numbers.
    Price in 1988 .. 27k per ground
    Price in 2004 .. 3L per ground
    Current price ... 625 psft
    Between 1988 and 2004 price escalation on the average is 1.16%.
    Price escalation between 2004 and 2009 is 1.37%.
    One should remember that we need to calculate average escalation over long periods of time. Also this location Tirunindravur has developed only in the last 3 years. There was no tar road if I remember even in 2004, but only around 2007.
    I had given the example of another property in my earlier post which gave similar returns. Now RE is for long term not for trading. That is why I contradict Wiseman asking people to sell and reenter. It is honestly impossible to trade in RE in 6 months gaps! You dont get buyers easily neither do you get to sell easily. If I finalize a deal today it will take atleast 3 months to realise the money in RE and that was true even 2 years ago when RE was supposedly hot stuff as per our friendly bears.
    Also Wiseman and Bigbear have conveniently forgotten the most important part of my message earlier. I was highlighting the tax implications and based on the same the return in RE is much higher by many factors than in FDs. Simply because the IT is not paid every year and only at time of sale. So the IT is also recirculated into the investment and you get returns on the IT portion also. That alone is sufficient reason to invest in RE even if RE and FD give same interest. In FD YOU HAVE TO PAY I.Tax EVERY YEAR ON NOTIONAL VALUE OF INTEREST.
    I hope sense prevails with the bears!
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  • Wiseman
    You seem to be waiting to grab me! You are stalking me! LOL!
    Answer to your query is also posted above.
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  • Nope, Nats. I am not stalking you! Thats bad manners

    Originally Posted by Natarajg007
    Very long mail from Wiseman. Will just provide the required numbers.
    Price in 1988 .. 27k per ground
    Price in 2004 .. 3L per ground
    Current price ... 625 psft
    Between 1988 and 2004 price escalation on the average is 1.16%.
    Price escalation between 2004 and 2009 is 1.37%.
    One should remember that we need to calculate average escalation over long periods of time. Also this location Tirunindravur has developed only in the last 3 years. There was no tar road if I remember even in 2004, but only around 2007.
    I had given the example of another property in my earlier post which gave similar returns. Now RE is for long term not for trading. That is why I contradict Wiseman asking people to sell and reenter. It is honestly impossible to trade in RE in 6 months gaps! You dont get buyers easily neither do you get to sell easily. If I finalize a deal today it will take atleast 3 months to realise the money in RE and that was true even 2 years ago when RE was supposedly hot stuff as per our friendly bears.
    Also Wiseman and Bigbear have conveniently forgotten the most important part of my message earlier. I was highlighting the tax implications and based on the same the return in RE is much higher by many factors than in FDs. Simply because the IT is not paid every year and only at time of sale. So the IT is also recirculated into the investment and you get returns on the IT portion also. That alone is sufficient reason to invest in RE even if RE and FD give same interest. In FD YOU HAVE TO PAY I.Tax EVERY YEAR ON NOTIONAL VALUE OF INTEREST.
    I hope sense prevails with the bears!



    Nats,

    I take no pleasure in stalking or embarassing you.

    Getting back to the discussion, 3L per ground is Rs.125 per SFt.

    Okay, so in the period 1988 - 2004, 16 years long, the rise in value from Rs.11.50 to Rs.125 gives a CAGR of 16.25%.

    As you may recall, we must redraw the boundaries about what our respective stances is.

    I have not at any time taken the stance of RE is a bad buy!!! Please read that again!

    I am only stating that, after such a dream run of well-above-average returns from 2004-08 (wholly created due to the artificial credit-fueled boom) the next few years will see a contraction of all that excess credit and therefore people will not be able to throw money after RE and keep the high growth rates going.

    So, when you overeat and get indigesion, you will lay off excess eating for some time till the system gets back to normal - and this "get back to normal" is called "reversal to the mean".

    I am with you when you say RE is a good long term investment with a rider that, it is always important as to when you buy it (at what price) so that you do not see sub-optimal returns on the RE you buy at high prices!

    cheers
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  • Stabilisation

    Nats agree with u to treat RE as a long term investment.

    This FACT has been lost to people expecting quick bucks like stock market. Met one seller, who had four flats bought in these four years. Now this person wants to sell off these flats. This particular flat i saw, he was sitting on a neat profit even in these recessionary times. The seller was in two minds to wait or sell off. Now he is blind to the fact that the flat prices have decreased continuosly for the last one year.He has just got possession, and expects higher prices. He has decreased prices by few lkhs, but being behind the curve he is unable to sell it off, even though he requires the money. He is ill advised and losing money in the bargain. Even if he sells off, the wait period of three yrs is not over, so he will also be losing on Tax + excess stamp duty.

    Nats has mentioned stabilisation period in another thread. So aren't we in a decrease followed by Stab period right now.

    Nats, U have conveniently left out Tax implications on appreciation on sell off + property taxes & charges + municipal shares of lease & leave agreement etc. The cost benefit have been beautifully illustrated in one of the posts by Real acres.
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  • Here it is

    Here just read the post.

    ]http://www.indianrealestateforum.com/pune/t-builders-re-bulls-theory-proved-wrong-5139/page6.html

    C post 59.

    C post 59.
    CommentQuote
  • Another one

    Here is another one beside the topic


    ]http://www.indianrealestateforum.com/rental-trends/t-to-buy-a-home-on-loan-or-rent-2705.html

    Cheers

    Cheers
    CommentQuote
  • Originally Posted by Sansei
    Nats agree with u to treat RE as a long term investment.

    This FACT has been lost to people expecting quick bucks like stock market. Met one seller, who had four flats bought in these four years. Now this person wants to sell off these flats. This particular flat i saw, he was sitting on a neat profit even in these recessionary times. The seller was in two minds to wait or sell off. Now he is blind to the fact that the flat prices have decreased continuosly for the last one year.He has just got possession, and expects higher prices. He has decreased prices by few lkhs, but being behind the curve he is unable to sell it off, even though he requires the money. He is ill advised and losing money in the bargain. Even if he sells off, the wait period of three yrs is not over, so he will also be losing on Tax + excess stamp duty.

    Nats has mentioned stabilisation period in another thread. So aren't we in a decrease followed by Stab period right now.

    Nats, U have conveniently left out Tax implications on appreciation on sell off + property taxes & charges + municipal shares of lease & leave agreement etc. The cost benefit have been beautifully illustrated in one of the posts by Real acres.

    Sansei,
    Regarding flats as investments. That is for pig heads. I always have said, buy land for investment, buy flat for living. In Chennai since the ratio of land in flat is high, when someone is scared to buy land he uses flat as investment. That is not bad in Chennai though I will yet consider one considering it as stock market as pig head. Go and check Wiseman. He too believes that RE is to be treated as Stock and should be traded. So you need to be clear about your views, as you are another Wisey gang!
    As for what I have left out. Sorry you aint reading fine. I have calculated Capital gains losses in long term sale of RE (Land) in my examples. I have left local property taxes as they are peanuts in most cases for land! So please learn to read before you answer.
    Take good care of your friend and also be sure that you aint right about RE falling.
    CommentQuote
  • Originally Posted by wiseman
    Nats,

    I take no pleasure in stalking or embarassing you.

    Getting back to the discussion, 3L per ground is Rs.125 per SFt.

    Okay, so in the period 1988 - 2004, 16 years long, the rise in value from Rs.11.50 to Rs.125 gives a CAGR of 16.25%.

    As you may recall, we must redraw the boundaries about what our respective stances is.

    I have not at any time taken the stance of RE is a bad buy!!! Please read that again!

    I am only stating that, after such a dream run of well-above-average returns from 2004-08 (wholly created due to the artificial credit-fueled boom) the next few years will see a contraction of all that excess credit and therefore people will not be able to throw money after RE and keep the high growth rates going.

    So, when you overeat and get indigesion, you will lay off excess eating for some time till the system gets back to normal - and this "get back to normal" is called "reversal to the mean".

    I am with you when you say RE is a good long term investment with a rider that, it is always important as to when you buy it (at what price) so that you do not see sub-optimal returns on the RE you buy at high prices!

    cheers

    Incidentally our friends Wisey and Bear swear by Buffet! Can they take a look at what their Buffet says now. S&P to shoot to 1050. While darling Wisey is talking about falling S&P falling Nifty and what not.
    Looks like our bears are clearly proving what I always said of them. They are just losers who missed the bus and are crying like babies.
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  • Big bears are going to miss the bus as Nataraj says. India has lot of young population which you (old) people are not considering at all. There will be huge number of nucleaus families for which house demand will be tremendously high in the coming years atleast for another 15 years. AFter then you may see a big fall like happening currently in US and other developed nations.I personally feel , you can get 5% (maximum) reduction by negotiating while buying flats which was not possible sometimes back while demand was high. That doesn't mean flats prices has reduced.
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  • One of the foolish comments of bears here is, WHO WILL PAY 2CR TO BUY A PROPERTY. Now let us discuss the subject further.
    Nobody is selling 100sqft for 2cr. We are talking about affordable housing, where the concept is not lowering cost per unit area but REDUCING UNIT AREA. In the same light, if one has a large costly plot, then it can be converted into multiple housing units which might each cost a song!
    Take the example. 3000sqft in Saligramam. One can build 4500sqft at the minimum, but even the simplest rules will get you 1.8x3000=5600sqft of flats. Now with the 6 kitchen rule one can create 6 flats of 900sqft. If independant blocks are created then it can be 12 flats of 450sqft. Each flat of 450sqft at RS 6500 psft will mean 30L per flat and 12 flats mean 3.6cr.
    The point I am trying to make is not about the specific price but the fact that the idea of TWO BEDROOM is not meant for all and sundry. Many years ago a flat itself was infradig. One bought a house.
    In early 90s it was 800sqft 2 bedroom as norm in Bangalore and Chennai. In BOmbay it would be lesser area for the same. Then with affordability in 2000s the concept of 1600sqft flat was created. When price rises the size of the skirt reduces! So will the size of the flat reduce.
    So one can always get his so CALLED HIGH price even if one individual cant pay 3cr or 4cr. Everything depends on who buys it and how he buys it.
    The problem is some of the Liar Bears are creating the illusion as if only salaried loan bearing individuals can buy. This myth has been broken multiple times on this same board in recent times with folks mentioning how PSU, Govt and Business folks are floating around with huge money. Their entry will trigger such a big rise in due course that the fools who talk bear stories will look like THE BUS MISSERS as they ALWAYS HAVE BEEN.
    Finally think of a Wiseman telling us that he is unable to sell rounds in RK Salai. Does it sound like truth or is it an imaginary sale? I will leave it to the imagination of the reader!!
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  • As per Nabhishek flats in 25L- 40L is getting sold like hot cakes. This is the genuine segment of Govt, SW and other industry folks buying capacity. Also prices beyond that were forced because of 4 kitchen rule and now with 6 kitchen rule flats can be smaller and cheaper as far as Chennai is concerned.
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