Is there any great logic to real estate prices or is it just the land, builders and the bank mafia that is responsible for keeping the prices high?

Well let us look at the irrationality.

Ahmedabad offers land, people and electricity (the needs for a BPO) at 50% of the prices in Malad or Goregaon. However there are more back offices in Malad and Goregaon than in Ahmedabad.

Bangalore has more high paying jobs than Chennai, but Chennai real estate prices are at least 50% higher than Bengaluru.

Navi Mumbai has power cuts for 4 hours a day (many parts) but the great Maharashtra government will not allow Tata Power to supply or distribute power in Navi Mumbai.

Infrastructure in Mumbai has not kept pace at all- but prices in Ghatkopar, Santacruz, Malabar Hill, – hardly matters which part have gone through the roof. In the UK the cost of a house is about 3.4 times the ‘average income’ – let us say the ‘average income’ in Mumbai is Rs. 5 lakhs (not sure if I am right)…so the cost of a house should be Rs. 15 – 20 lakhs! It is about Rs. 1 crore. When will we stop pretending that ‘all is well’.

The real estate mafia in Mumbai (including some very respectable names) has kept the prices so high that it is not possible to buy without mortgaging at least 20 years of your life to the loan repayment!! If you see what the supply of office premises has done to Mumbai is that the rental market esp for office space has remained constant or people have got better quality of office for a slightly higher rent. However the rental market for residential houses is not so efficient.

If rents are not going up, but property values are going up, it is a good sign of a bubble. And like in any bubble, do not go short, just stay away!!

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  1. Only people who say there is no bubble are the builders..

    If at all the bubble bursts (price corrects) only people who had bought these houses for investment purpose will be the one to impacted.. correctly these people are also responsible for the bubble

  2. Brilliant argumen of linsur. ‘If I do not mark my asset to market prices, I do not have a loss’. Amused and also the MAIN reason why people take decisions like ‘Buy or Rent’ on an emotional basis instead of logical and mathematical basis. Thus ‘users’ who will also want to be the ‘owners’ will ensure that prices are high and there is a notional gain for everybody. Though net off interest and inflation there is NO GAIN…users will do a wrong calculation at least as a delusion it is a great feel good. For the guy, his wife, his parents, his in laws, society, state and central government….why spoil the party?

  3. Main reason of high prices is infrastructure is bad.

    I remember one simple bubble : In past, there used to be shortage of coins. So people started hoarding the coins and selling them at more than coin’s face value. RBI came to know that there is shortage of coins and printed huge amount of coins. Now situation got reversed. People who hoarded the coins were putting it back into the system and there were too many coins. 🙂

    I know that apartments cannot be generated in huge quantity and builders, politicians know that. But RBI can still do the trick by increasing interest rates by 1 or 2 %. It will surely reduce demand and break holding power of builders.

  4. Hi

    My apologies, this may not be the right thread for this.
    I am reading “Retire Rich Invest 40 Rs a day” and unfortunately after page 152 I have a repeat of pages 145 to 152 and then I have page 161.

    So pages from 153-160 are missing.
    I went back to crossword but they have asked me to come back later since they didn’t have more stock.

    Is it possible for me to get pdf of the missing pages — since the pages are case studies and pretty important.

    Thanks
    Nitin
    Bangalore

  5. Hello Sir

    When do think this bubble will burst. It seems, now, only the people working in IT can buy a house. The common man with a income of even 3 to 4 lacs per annum cannot afford to buy a house at this un-reasonable rates.

  6. True. but just some points
    – pls compare Mumbai with London, not UK, for average price.
    – chennai has a bigger population than Bangalore, a deeper history of evolution, has more industries than bangalore (only IT). Maybe that is why price is higher in chennai.

  7. crazy FSI rule.crazy rent limits in old city and ULCA.CRZ and other zoning bans. lack of city planning since the british left.

    all these things cause a shortage of supply.now it would be a bubble ONLY if there are more investors than people buying to live.
    i have just 2-5% investors in my housing complex where houses are upwards of 1 cr even in the fringe suburb of borivali.
    so it is artificial scarcity,created by unreasonable govt regulations.the entrenched builders too love this,since it gives them pricing power.

    about ahmedabad: that is the problem with sarkari planning.just creating infrastructure wont do.the people arent going to migrate unless they feel it is worth it.
    alcohol is banned in gujjutown-atleast officially.why would the young pub hopping BPO and IT crowd want to go to such a place?
    modi should try and make it a freer less hypocritical society ,perhaps.

  8. Hi,

    My question is when this bubble will burst. According to me without Regulation real state will never burst. Builders are getting black money or loans easily at throw away rates even from bribing PSUs remember LIC HF and PNB. I doubt also in govt intention for planning any regulation for that. Everybody knows apart, from swiss bank where 2G,CWG money went.

    From my personal experience people is also greedy about real state. Can u imagine if people bought flats at 40 lakhs and demanding 55 lakhs after 3 months. Best part is that this happened in Greater Noida :). But If u ask those people they said that they have invested their money for such type of return. God Bless.

  9. Keep bringing on Subra. I am loving most of your recent topics as they are all the real facts we should wake up to. This place is not a fairytale world that everybody thinks and wants to live in that dreamworld.

  10. @Viswanath ‘If I do not mark my asset to market prices, I do not have a loss’

    did I say that? anyways it’s an unrealized loss, which is exactly the builders are trying to do by artificially increasing the demand to sell their inventory

    how many have sold the houses and booked profits? none I knew but most have 20-30 yr loan.. unless there is credit crunch or people becoming smarter prices will not correct

    Subra,
    Disqus for comments?

  11. recently read the news about one mumbai property of around 2000 sq. meters area got sold for 350 crore. Could not digest it

  12. Subra,

    Have yet to hear of prices in Mumbai crashing by more than 20%. As long as there is black money real estate crash is far off. AT ghatkopar some flats are sold for more than 20,000 SFT. And Ghatkopar East does not really have the IT crowd.

    So what excatly is happening?

  13. Prices in real estate do not crash, they remain where they are for a very long period. There have been times when for 6-7 years prices have not changed. This is not a crash, but ruins the ‘overall returns’ over say a 12 year period. It did happen in places like Andheri and Ghatkopar too – 1998 to 2003..prices actually came down, forget going up

    2003 to 2007 made us forget the fall / stagnation.

  14. Always wonder who can afford to buy houses in bombay anymore. A 2 BHK in even New Bombay and Ghodbunder Road seems to cost 75+ lakhs. With 80% in loan, you are talking some 80K in EMIs and 15-20 lakhs from your pocket. And furnishing and everything extra… Where is the scope for saving? And with the conspicuous consumption that people indulge in, I wonder what my kids will do. Maybe they will live in Gujarat and travel to Bombay for work.

  15. there was a news item saying property registrations have gone down by 30%. Since there is a lag between purchase and registrations sales have already peaked out in 2010. With increase in interest rate end user interest is down.
    Ghatkopar (or places like that) are peculiar because of the old money (especially East). Lots of cash floating around.But even here commercial rents have stagnated. Residential prices quoted are high but conversion is low. Know this from practical experience.
    But what I found fascinating was Ghodbunder Road showing a 10 times increase in price in last 12 years. Considering MSEB (power cuts), road infra, distance to railway station, its ridiculous. But Hiranandani is happy to sell at 8,000. Unfortunately his larger flats lie unsold. Similar story for Chembur, builders claim sell out and brokers come and try to sell the ‘already sold out’ flats.Definitely a very big bubble.

  16. Subra,

    can you give one advise, i have seen IFCI bonds which are offering 4 times appreciation to principal i.e. 100 rupees invtested will become 400 rupees in 15 years.

    Do you think, buying flat with 20 laksh in Hyd (with my own cash) or investing the same amount in this bonds for 15 years which i get 80 laksh, which is good option?

    Looking for your suggestion?
    Thanks,
    Purna

  17. Hi, sir u pointed out correctly that property costs 3-4 times average income in london, but i think it would be inappropriate to use same scale as cost of living is also a major factor(there is huge difference in cost of living).
    But yeah definitely we are heading towards the bubble(hoping prices to get back to normal)
    i have to buy a house 😛

  18. In pune there is abundance of land around pune, but there is no connectivity to these areas.

    Then there is this association of builders in Pune which keeps supply in total control. So the chance of price fall is low.

    Lot of onsite IT public buying property for investment and many not even renting it (or not able to). I have seen some luxurious buildings in Wakad, completed more than a year back, all sold out but almost having a deserted look.

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