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Real Real Estate Prices


Real Real Estate Prices

Last updated: August 20 2013
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  • Real Real Estate Prices

    First request to mods to merge it with any relevant thread. I did not find anything in relation to the topic which is described below :

    Often we talk about fall in real estate, correction, upswing etc. But these all cannot be calculated unless we know the fair value of the Real Estate Property in question.

    How do we compute the fair value ?

    Well after a lot of research I have devised a formula, which i will sharing for everybodys inputs, people can share their ascertained fair value in this thread for their intrest and localities.

    There was a time when land cost was negligible, construction cost was primary while buying property. Example you can get a plot for 1000s or even shared / free by someone easily (non-city areas), the real cost was the cost of raw materials like steel, cement, construction etc. Even labour was cheap and abundant.

    Gone are these times, today people buy RE for the land share as it has become the primary cost, construction has become negligible now in cities, people dont blink twice to buy a new kothi demolish it completely and do it as per their own fancy.

    So how should we go about computing a fair value ?
    Without fair value we cannot compare appreciation, distress etc.

    I do beleive most of the RE bubble is because of the underlying unfair and sky rocketed land prices, in this lands everyone has made astronomical money e.g. the authorities, goverments, investors, users, and above all the sellers too. The farmers have also earned huge and now demand the moon for their land which is the reason of all the problems, cases, disputes, dharnas, compensations. Everyone wants to earn big out of RE. No one is realistic

    My formula is pretty simple. It is based on the ration of Land / Construction cost.
    E.G. ideally it should be 1/1 for an average location in an average construction in an average city. I do not mean heart of the city at all where definitely land is scarce and commands premium.

    So, According to me (Delhi NCR) areas are over priced simply because land prices are bloated and multiplied by the time it reaches the end users because it passes through multiple agencies and hence price goes beyond reach for most middle class.

    A typical middle class case would be to own a home reasonably sized, fair travelable distance from work, proper amenities, and connected.

    Let us take Greater Noida as an example, which I beleive to be fairly priced considering its distance from the city and amenities withing the city, it is approx 3K per sq ft
    Now let us break up this 3K flat/property cost, Land share 1k - Construction - 1k, Other facilities/management/profits 1k, so the ration here is 1/1.

    If we take this as the base Noida Exp seems overly priced - Average property should not cost more than 4-5 K/ft considering its premium due to close proximity to city,
    Similarly New Gurgaon also seems expensive as it is far off the main city and should not be priced so high, so is YEXP, N.ext,

    Keeping this as a base 1/1 formula for luxury projects it can be 1/2 that is 1 part land cost and 2 parts construction

    But we see unrealistic prices around as high as 6/7K, 10K, 12K even 15K in the region which are far fetched to even think about.

    So please share your calculations and ideas of what should be the fair value of property - you can give examples of your area/locality/region.

    With multiple inputs we may get the general perception about it.
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