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Reality prices to crash...

Last updated: May 25 2009
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  • Reality prices to crash...

    The real state boom was empowered by too many +ve factors during the year 2004 - 2008
    1. Cash Inflow from foreign Investers
    2. Home loan interest rates were quite low
    3. Boom in IT Sector
    4. People buying more than one house on loan just for investment purpose even if it was a costly affair.
    5. Many NRI's buying houses in India for investment.
    6. Black money from politicians and other sources going in to reality
    Now all of the above conditions have reversed

    1. Foreign investers taking out money
    2. Interest rates too high
    3. IT Boom some what burst
    4. People who brought more than one home are desperate to sell their 2nd home
    5. NRI's selling their invested houses as they need the money there.
    6. Black money some what already invested and not giving that result. Some more can flow in but it can not change the fate of this industry.
    now all the +ve has become -ve and I see no reason for property rates going 25 - 50% down in another 1 year.

    So the mantra for home buyers is wait and watch policy unless you are getting a very good deal from some NRI or from a person who can not take the heavy interest rate any more.

    And for the ones who want to sell, sell your property even if it did not give u any profit.
  • #2

    #2

    Re : Reality prices to crash...

    Prices in outskirts of Pune

    Let me share here with all, my experience of Nov. 11, ‘08. I visited a mid-sized builder, for enquiring for the first time a commercial property. After finishing our discussions about the commercial office space, I asked him about the residential property they were offering.

    I was talking to one of the partners of the company, who was responsible for sales. He showed me their brochure containing 4 – 5 apartments in Baner – Balewadi area. I could see that all their properties (possession by mid ‘09) were only few hundred meters away from Katraj - Dehu Road bypass. After asking him about the rate, he said that before the slowdown started, they were offering those flats (2, 2.5 & 3 BHK) for Rs. 3,300 per sq. feet. However because Diwali was very cold for them from the point of view of customer enquiries, they were offering the same property now at 2,850. On my way out of his office, I overheard him offering these properties to someone on phone at 2,600!

    So the learning I got from above interaction was that if someone approaches a builder with ready cash today, one can squeeze a further discount of at least 10 – 15 %. They are clearly desperate for sales.

    However I would not recommend someone to buy today, even with above discounts. Keep watching the market closely, before putting your hard earned Lakhs of Rupees. Remember, it may be your ones in a lifetime investment.

    Comment

    • #3

      #3

      Re : Reality prices to crash...

      Looks like only the Chennai guys get hot about RE

      Though people are coming in from Bombay, Pune, NCR, etc, there does not seem to be continuation on those posts.

      Appears only the Chennai related posts get people all hot and bothered! Wonder why?

      For example, this last example speaks of a nearly 20% decline for a motivated buyer in Pune. What seems to be the situation in Bombay and NCR - these are two of the most important locations, given the volumes and their proximity to IT and Financial/Business.

      Just wondering. Why don't our Bombay friends post more stuff about prices and their trends in these regions.

      cheers
      Last edited November 26 2008, 09:30 AM. Reason: Additonal info

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      • #4

        #4

        Re : Reality prices to crash...

        Land prices

        As prads_in has pointed out there are several factors which pushed property prices up.Builders hiking up apartment prices for no apparent reason but greed was another feature sending land prices shooting up.
        Recently , in a meeting with the FM, RE companies made the curious statement that unless land prices come down, it would be unprofitable
        to reduce prices.
        Now my question to forum members is this. Is the reverse true ?
        If there is a fall in apartment prices,say 30-50% which seems imminent,would the land prices follow suit ?
        I would like to invite forum members' valuable comments on this.
        Thanks in advance.

        Comment

        • #5

          #5

          Re : Reality prices to crash...

          Yes, land prices also fall. I am not sure about the % amount but they do fall.

          Comment

          • #6

            #6

            Re : Reality prices to crash...

            Look at the windfall profits RE has done recently !

            Originally posted by unlikely View Post
            As prads_in has pointed out there are several factors which pushed property prices up.Builders hiking up apartment prices for no apparent reason but greed was another feature sending land prices shooting up.
            Recently , in a meeting with the FM, RE companies made the curious statement that unless land prices come down, it would be unprofitable
            to reduce prices.
            Now my question to forum members is this. Is the reverse true ?
            If there is a fall in apartment prices,say 30-50% which seems imminent,would the land prices follow suit ?
            I would like to invite forum members' valuable comments on this.
            Thanks in advance.

            Dear Unlikely,

            One of my other hobbies is equity analysis to find hidden gems in the stock market. While doing this recently, I figured that the RE sector is making profits even higher than the IT and other sectors. If you look at the reserves they have built up (many through usurious route of exorbitant premia on IPO), they have looted the public - but the public too is to blame falling for this trick due to their own greed .

            But to answer you question, this morning a Goldman analyst spent a lot of time answering questions about RE. Incidentally he was of the opinion that there is likely to be a 30% fall in areas that had had big jumps.

            He was taking the 1996-98 crash as the basis (since that was the only boom-crash cycle we have had in India in the recent past). I remember, land which had gone from 2-5 lakhs per acre before the boom rose to 60 lakhs in Whitefield. From there it fell to between 8 - 10 lakhs by end 98. Then it took till late 2004 for prices to return. I had mentioned this exact same thing some time back in a post. He too said the same thing.

            So, who says land value does not fall! Of course it does when it goes too high. In the long term it gradually rises but after booms, it falls quite a bit.

            Land prices have the same properties as Tomato prices. Demand and supply (of course there are other parametric differences, but you get the point).

            So, all this stuff by builders is either disingenuous (that they are being dumb not knowing things) or is being fed to you for their own ulterior reasons (so that you can believe this and fall for their high prices). Which one of this do you think is happening?

            cheers

            Comment

            • #7

              #7

              Re : Reality prices to crash...

              Originally posted by wiseman View Post
              Though people are coming in from Bombay, Pune, NCR, etc, there does not seem to be continuation on those posts.

              Appears only the Chennai related posts get people all hot and bothered! Wonder why?

              cheers
              Helo Wiseman,

              Its really interesting to read your postings and the analysis and stats you provide are awesome and educative.Thanks for your postings.

              As I could read from known people around me,(some 40-50 NRIs who work for an FI ) I could see the two main reasons why Chennai guys are more active in realty discussion..

              1) Majority of the Chennai/TN guys tend to save money when they are abroad whereas their counterparts tend to spend more on lifestyle and luxury leaving less savings with them.

              2) Many of the Bombay and NCR guys have parked good amount of their savings in stocks and the happenings in stock market make them not to exit now with losses and they are waiting to exit from market even if its break-even.

              Keep doing well.

              Comment

              • #8

                #8

                Re : Reality prices to crash...

                Hey Wiseman,
                Ur posts are full of wisdom for us newcomers. Thanks.
                I am looking for the Golman sachs india realty report but unable to find it on net. It u have it, please provide a link.

                Thanks

                Comment

                • #9

                  #9

                  Re : Reality prices to crash...

                  @wiseman...

                  good analysis buddy..but cut down on the 'I's in your sentences.

                  one can appear wise without associating wisdom directly with oneself .. being subtle is very posh..

                  cheers...

                  Comment

                  • #10

                    #10

                    Re : Reality prices to crash...

                    Hi,

                    Real estate price like all will face a correction but not across all geographies,as someone said "like tomatoes" they too are vulnerable to demand-supply factor,last month tomatoes in chennai touched 40-60 /kg
                    but nobody stopped buying them.same way RE and housing in particular will not fall in established(old) localities in major cities.big condominiums which offer 'all' in the same compound without any social infrastructure,located away from the city will face a fall may be as much as 30%.and the higher end housing >65 lacs will face resistance. the 25-45 L range will not be affected much (max 10-15%) in areas where there are good healthcare,shopping,temples and schools i dont see a correction beyond 15% in housing.simply put where land is available in acres there would be a steep fall. but where land is available only 'between buildings' not much of a fall

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