Have Residential Prices fallen?
This is of course a brilliant headline to catch people to come to any website, right?
Well I do not have an answer to this, but hey here are the caveats as usual:
I do not trust Indices in general. After all Indices present the average, and average means NOTHING if you do not know:
How is it calculated
Mean, Median, Mode, Standard Deviation of the data.
If I am commenting with just the mean, my comments could be as inaccurate as P Chidambaram’s estimate of the amount of black money in New Delhi.
Having said that I have only the Residex of NHB to go by and my comments are based on that.
The Residex says that Bengaluru prices of property has gone up by 11% from 2007 to 2014. Hold your breath. If you invested Rs. 100 in a RE it would be worth Rs. 111. In a bank it would have become about Rs. 190.
In Jaipur Rs. 100 would have become Rs. 105. In Hyderabad Rs. 93. In Kochi it would have become Rs. 85.
How many of you believe these numbers? When I walk into a personal finance class I am bombarded with Returns from 18% to 25% in RE. Sir my money doubled in 2 years…Sir….blah blah blah
So it means all my students are a) bluffing or b) they are mathematically challenged. Right?
Now go to the NHB site and see what has really happened. Not in your imagination, or your friend’s imagination. Or in your client’s imagination.
IN real life find out how much is the appreciation. Use excel sheets to see how much returns you got.
Use pattabhiraman’s free calculator. Jago builder ke ghulam. Jago.
http://www.nhb.org.in/Residex/Data&Graphs.php
Atul Agarwal
Hi Subra,
I have been living in bangalore for last 5.5years. I can vouch for places like HSR Layout, Bellandur, Sarjapur road where prices have appreciated by more than 100% minimum to 400%plus. Eg a pent house in DivyaShree Opp Total mall was selling at 1.25ce in 2009 now the same is being sold for more than 3.5cr by the re-sellers. Projects launched for 2200psf in 2009-10 base price are selling at 4500/5000psf (yet to be delivered to the customers). I don’t know which basis they are publishing the index.. may be govt circle rates… irony is even the circle rates for the mentioned places have more than doubled in last 5 years.. so how come they say property appreciated by 11% between 2007 to 2014???
Sanjay Singhaniya
@Subra : Really informative article. Looking forward to such informative article instead of generic advices on saving more.
@Atul : This article talks about change from prices of “2007” to prices of 2014. You are talking of change from prices of “2009” to prices of 2014. Note the change in starting point. Also, RE is location specific asset. Price trends may vary at every 5 km distance. Averaging them changes much of its behaviour. You can pinpoint to a pocket of land and say “since this pocket gave 2x returns every land in city gave 2x returns”
Atul
@Sanjay: if I take the rates from 2007, the prices shot up by more than 1000%.. hsr layout was allocated by the BDA @ 100 psf in 2004 now it is 10k psf and more. The areas I have mentioned are appox 20km radius and covers South East of Bangalore… Same is the case elsewhere in Bangalore…Having said that, I don’t know why people are ready to invest their life time savings to buy a 2BHK for 1Cr or around.. In US most of the cities other than W DC for 200k dollars one can get a private house with a small swimming pool.. and infrastructure you cannot compare with any of the Indian cities..
Krish
There is a lot of difference in quoted price of advt and actual transaction value. Our family has 3 flats in Marathahalli and Sarjapur road and I can confirm that we did not see any price appreciation in last 3 years. We have the mail group and every sale is sent to all the residents to source propsective buyers. This is the real data. However we get shocked to see leading builders are advertising at 2X or 3X prices of average price for the new launches and where as there are few takers at ‘X’ price for 10 year old luxury apts. None of the Sobha apts at Bellandur has seen any appreciation in last 3 years. If you are a serious buyer, you would get plenty of ready to occupy flats at the same price as that of 3 years ago.
Anyway my take on RE is that today there are lot of professional builders in each city who developed good brands. These have become corporate and stock market listed entities. This means they are able to charge massive premium on expense of customer returns. I have purchased land 10 years ago and this year. The difference is lot of additional charges are built in today. Development charges, Facing (East, North, West), Corner site, Park view. Documentation charges, Maintenance fund, Club membership and what not. It was not the case 10 years ago.
Another factor that I guess is toomuch supply over demand. These stock market listed builders has to show cashflows and growth on every quarter, each one is forced to launch too many projects and massive projects. The size of Lodha launches on every quarter blow my mind. If you see any channel on RE and in nutshell, there is a massive inventory hang built in every city. Supply is overstripping demand and where as job growth and income growth has not kept same pace in Indian economy.
RE may protect your capital but it has to be removed as an investment vehicle.
Selvan
Good article and Chennai being the only place with 20%+ CAGR frm 2007 as per the data. Many RE prices are quoted at high price without any sense and people fall into prey with fear & greed. RE is also promoted with many tactics and we can see that Inventory of housing is increasing like anything.
subra
go to Pattabhi’s freefincal site and use the RE calculator to arrive at the REAL return on your Real estate 🙂
Atul Agarwal
@Krish: please add my email atulastra@gmail.com to the mailing group or kindly contact me @9986443412, I am looking to buy a 3BHK @ logical pricing…thanks in advance 🙂
PrAvEeN
Surely there is some thing wrong with the way RESIDEX is calculated atleast for Bangalore 🙂
A villa which had no takers for 1cr in 2009 in whitefield is easily getting sold for 3cr now.
Only place prices didn’t appreciated much in Bengaluru is EC
Atul
Hi Atul,
You need to look at multiple factors before arriving at conclusion. Are there any buyers for 3.5 cr price? Secondly who are the buyers for new launches. Most of the time the hype is created by builders/buyers are inner circle in builders/speculators. What else the black money moves around.
Cheers
akshat
@krish: can you give some idea of the price for bellandur ? On Commonfloor etc, all Sobha flats (with tanker water and high maintenance) are listed ~1.25 cr.
Krish
@akshat. Remember that cost to the owner for buying the Sobha apt 3 yrs ago is also 1.25 Cr. I am saying owners did not get much appreciation. Here we are discussing appreciation from investment point of view but not the price range of the properties.
akshat
@krish: got it. basically you are saying that including loan interest/maintenance/loss of interest on down payment etc, the owners (investors ?) are right where they started 3 years back ? But I was curious to know whether the prices listed on the online portals reflect reality of the actual transactions.
Atul Agarwal
I was actively looking for apartment in Shobha’s in Bellandur area. Following are my observations:
1. Very little or no transaction has taken place in last 10 months at least. The flats which were on sale in Shobha Mayflower in May 13 still they are available. Rates are asked from 1.15Cr to 98Lakhs but absolutely no buyers for those prices reason being no appreciation. Shobha struggles to sell Shobha Marvella.
2. Whole area runs on tanker water, thus mafia controls the place. The problem gets horrible during summers.
3. Brokers wants to net atleast 10L from the deal.. So, please avoid them.
4. Finally, the shobhas are not appreciating coz they are already discounting next 5 years prices of the property, they are old and life of apartments is no more than 15 years most of these have already passed half of their life.
Vinod
Hi,
I live in Germany for a long time and I have never invested in RE in India. So I don’t have direct experience in Bangalore RE market. Still I like to share the information I am getting from my friends/acquaintances from Bangalore.
1. One guy bought a 3BHK for 28L in 2005 near Sarjapur Road. He is trying to sell it since 2011 for 45L. Till now he couldn’t find a buyer. Now he tells he is ready to sell even if he gets 40L.
2. Another guy bought a plot(2000 sq.ft) near Kammanahalli Outer Ring Road for Rs 4000/sq.ft in 2009. Since he got into financial crisis personally, he is trying to sell it for the same price (4000/sq.ft) since 2011. Till date he hasn’t got a buyer.
3. One of friends bought a 2BHK for Rs.30L in 2007 near Hebbal. He tells he will get max 45L if he sells now, that too if he is lucky enough to find a buyer.
I have heard many other stories of 3x-5x returns from residential properties and 5x-10x from land properties. But all these people invested before 2002-2003 and much of the appreciation happened before 2008.
The price quoted by builders may be 2X-3X than that of 2007 price. But how much an investor(?) will get from secondary market who bought at X in 2007-2008 ? 2X-3X ? I doubt.
Milind
Krish can u guide for calculation purpose what is the rent on this 1.25cr Mayflower ? I guss it will be 25k per month or approx 3lakh per anum…a Yield. Of less than 3%….only three types of people can outright buy….1.People having unaccounted money2.people who are victim of Innumeracy 3.people who free up seeing and loving Onidas Advertisement…Neighbours Envy..Owners pride…Renters will have a great time in lovely Bengaleru city…Let OWNERS WIN THE ARGUMENT.THEY ARE ALWAYS RIGHT
Praveen
Vinod, your argument makes the most sense..
Secondary market people cannot make as much returns as builder launch properties.
This means the property prices are overhyped and secondary market prices are based on intrinsic value.
People buying property mostly are:
1. People have unaccounted money
2. People who have sold very old properties at current market prices and are now buying new ones.
The real way to watch property market is look at how old timers (people who have stayed in city for more than 2-3 generations) make choices. They know what to buy and what not to buy. I dont see their children buying the new launch properties at 3x, 4x, 5x prices of 2007 levels.
Few quick traits are, none of them I met buy properties which have high cost for bells and whistles (like gym, swimming pool). These facilities are good, but costs a lot of maintenance.
Krish
Three of us in our family had bought 10 properties (2 plots within city, 4 plots in suburbs, 4 flats in city) in the last 10 years at Bangalore. We are all NRIs and here is our sell out story.
2 Plots within city : Bought in 2002 and sold in 2012 and seen tremendous appreciation X to 10X but the size of the units were small. Each plot gave us a net profit of 34 lacs.
4 plots in Suburbs : Bought from a leading builder in year 2004 all in one layout with bank loan (at one point bank charged 14%), Down payment was paid when the $ to INR was around 40. Recently we got a price quote of 2X. Not very great and hence not enthused to sell.
Out of 4 flats, we could sell only one flat imemdiately after possession (net profit after 3 years from booking to possession) was around 10 lacs. We could not able to sell the other 3 flats (10 years old) even today for 2X price.
Praveen
Hi Subra,
The real estate calculator gives incorrect picture.
1. It needs to present the opportunity cost,
(Returns on NON-RE Vehicles – Total rent paid by the investor all his life till 80yrs)
compared to
(Money saved from paying rent (till 80yrs) and returns from those investments – Cost of Property) + Captial Gain from Property Value.
If you do the calculation in the above fashion, apartment purchase becomes a very bad decision, unless you buy the property as pre-launch and sell it within 2 years with a price little-less than what the builder is selling, you can make a quick 12%-13% return in short time and quit, only if the builder is big, trustworthy and people are buying like hot cakes, this is a risk. This way you are playing the game builder is playing without being a builder. Idea is to always sell a hot property at a price when its still affordable to the next guy. Its foolish to sit on property thinking it will appreciate and when prices in the area reach unaffordable levels, you will have dead product in hands, which you cannot offload to others. Always have a target time frame to offload (must be less than 3 years) and based on dynamics in the locality you can make large or small gains.
When buying land, you must get it from the bodies like BDA Bangalore, else its not easy to offload the property. If you are not buying from govt bodies, its very rare to find undisputed and clear title on land. Even if you do find, its at unaffordable levels. If you are able to get it at affordable levels at good localities with infrastructure development you will be able to make great gains.
Praveen
Milind
In This Blog any Input on RE always Bring Wonderful Debates from Both Parties…OWNERS and RENTERS ! Diffent Logics ,Angles ,Perceptions ,Numeracy and Innumeracy….apart…We enjoy This Debate. We can debate like First Egg or chicken till cows comes homes in Evening and may be till Cows again go grazing Next day morning…Beyond a Point theres no point in criticizing each other .Both Owners and Renters are correct in their stands.If owners can afford all that is required to Own a Piece of RE in Metroes…Let Them Enjoy their ownership .Lets Remember at the end of day …RENTERS GET THEIR Equation Right ( Rental Yields Below 3 %) because Owners Get their eqaution right . If owners dont go all out to realize their dreams of Buying Brics,Steel ,Paints on Large Emis…Can the other parties Owing NFBCs ,Banking , Steel ,Colurs get their Guranteed Cash Flows Right? ….Since this is a Financial Blog run by a Competent Qualified and Experienced Person ….We get Unbiased Views Which are correct Mathematically …EOD its always Our Decision …..If we want to be owner… Good Luck …If we want to be Renter …Good LUCK TOO … At the EOD WE are RIGHT…Be WE The OWNER or Be WE the RENTER !