Why real estate prices cannot fall AT ALL….
Why do I find so many attractive targets to write about?
Just found an article on Rediff.com saying ‘Six reasons why property prices WILL NOT FALL in your city’.
Let us look at it reason by reason?
“Property prices across the country are unlikely to see significant price corrections of more than 10 per cent in the coming few years.”
YOU NEED GUTS TO MAKE SUCH A COMMENT…RAW GUTS.(my comment!)
Reasons given in the article:
1. Because it is a cash haven for BLACK MONEY: come on Indians know that now you pay 30% Income tax and 10% short term capital gains tax. Long Term cap gains is 0% – much easier to convert and invest wherever you wish. Even in cities like Mumbai, only some locations can you do a 70:30 (Cheque: Cash) transaction. Much, much easier to do small transactions in gold.
2. Investors are willing to pay the high interest rates: Complete nonsense. Seen a deal where a builder borrowed Rs. 200 million @ 28% p.a. for 2 years. This builder would have happily given a 35% discount on his rack rate – but needed a big committment from the buyer. As it was not forthcoming, it got converted to a secured loan at 28%.
3. Inflation: I did not understand this as a reason, pardon me.
4. Wages have gone up, thanks to NREGA – so labor is not available….
I think the author means that because of inflation and non availability of labor prices cannot come down. Funny, prices of existing housing stock will fall – because the builder may be going out of business!!
5. Contrary to popular belief only a few builders are leveraged: Do not have enough audited figures to dispute this, but take a look at the balance sheets of listed companies – there is surely some leverage, and further loans are JUST NOT AVAILABLE for builders…
6. You are likely to get about 18% p.a. return: Did this working over the last 25, 30, 35 years…did not find any location where property prices doubled in 4 years…feedback welcome. And I am not even talking about interest cost, borrowing costs, term insurance, maintenance, ….etc.
the bold print is in the article – the normal print is my view. Sorry rediff, find it difficult to agree…
Now I know a bunch of people who have LOST money in real estate transactions – bad builder, bad timing, …many reasons and in many locations too! Pune, Chennai, Bengaluru, Mumbai, Navi Mumbai…..will do specific stories…not sure when!!
here is the link
Ajay
Jrish
Just one point, The price of properties in Indian Metros have already exceeded their foreign counterparts in US, Gulf Etc.
Property prices in the countries you mentioned have been swiftly falling.
In such scenario, a sensible NRI would think thousands times before investing.
Even though he might not be allowed to own houses in Gulf, he must definitively give a though about the value proposition.
BombayBoy
oh how I wish the property bubble in Bbay crashes, so I can purchase some.
Lately I’ve also seen a rise in ads of non-agriculture (N.A.) plots for sale in distant Bombay suburbs (Kashid, Panvel, Uran, Neral and some other central-line stations I haven’t even heard of). All these ads portray an exotic holiday-home image. I must say, to someone like me who’s stayed his entire life in a 1RK kholi, it’s appealing.
Irrespective of the price, just want to know how genuine is the product? I mean, the land-ownership rights, 7-12 utara etc? Are there any genuine builders with proper projects there?
There are a lot of new projects in Ambernath, Badlapur etc.
Anyone with any ideas/suggestions or comments on the above, pls share your views.
Recently Tata Housing started some Nano Homes (low-cost apartment complex) in Vasind. Other than that I don’t know of any.
geodesic
Other than the air we breathe, is there anything that is free?
Food, water, education, housing, clothes- these are the basic necessities- you pay for them. Ofcourse you can get a few of them cheap or even free but then you have to put up with low quality. (imagine eating street food and dying of food poisoning; see the quality of education in the so called ‘free education’. Be born and get fleeced for life!!
Praveen
Real estate prices will comedown with recession, and in that recession many people wont have jobs and business people will see some downturn. At that time although real estate will be cheap there is no (geniune) buyer to buy them. At that time the people who had CASH IS KING.
Vijay
Why real estate prices cannot fall AT ALL..For this title your suggestion is very correct and that 6 reasons are perfect. I guess you may be a good Builders in Chennai..
Vaibhav
Speaking from a NCR point of view, the only properties giving a 18% CAGR according to RESIDEX are in Faridabad. The land of the million dollar homes, Gurgaon, has got such bad infra that it looks like a snapshot of hell during monsoons. Pity that such inflated prices cant even buy us driveable roads.
But since I am not buying RE as an investment, I will probably pick up a 3 bedroom in NOIDA next year. Since I will be living there for the long term , I wont care if there is a bubble or bust.
Nerus
I feel you have not understood the point about black money. The issue isn’t about the capital gains tax at all. Instead, it is about corrupt/ill-gotten wealth.
Imagine someone has got Rs.50L as bribe. If he puts this “black” money into property, and after five years sells it, the realized amount can be shown as arising out of capital appreciation. After five years, if any tax is due, he will happily pay up. However, his ill-gotten wealth has now been ‘white-washed’!!
For example: The person buys property worth Rs.1 Cr (50L official, 50L unofficial). After 5 years, the property is sold for Rs. 1.25 Cr. The person can then claim that his original official investment of Rs. 50L appreciated to Rs. 1.25 Cr and legally account for all the money.
This black economy is a serious driver of property prices in India.
amol
http://www.indianexpress.com/news/investors-not-genuine-buyers-driving-up-new-property-prices/882563/0
Ravi Bhatt
“Nice article” now a day really the price of the land are increasing day by day