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Indian Real Estate prices: How I made fool of myself

Indian Real Estate has been one of the high riding sectors since 2002- 2003. After very bad ninetees decade, it has resurrected itself like never before. Infact, in last three to four years, the property market in India has zoomed by more than 300% in few cities. When I bought my first house in 2000 in Pune, India, the housing market was was just starting to show the glimpse of what was in store for future, however what followed over next 5-6 years has been beyond anyone’s expectation and has been a dream run for Indian construction Industry.

But what about the future ? Will it still keep going up the monemtum ? Will it remain constant ? or will it take a U turn ?
These are the million dollar questions for you and me.

My younger cousin called me yesterday from India. His builder had called him up to tell that the township where he had bought the 3 Bedroom flat was near completion and should recieve the possession in a month.

Why did he specifically call me and tell me this ?

It is because I had given him an advice against making the house investment last December. I told him “the property market has moved too high in a short period of time. It may just collapse. It may not be a good time for you to buy. You should see consolidation in property market shortly. Wait for 6 months to a year and you will get much lower rates”

How proud was he that he had made the right decision of buying the house because the real estate market in India is still going strong. Every one knows the success of Biggest real estate IPO in India “DLF”!

What he told me later was even more surprising. Last December, when he bought the flat, he got a rate Rs. 2300/- per sq. ft. (approx $60 psf ). During his recent visit to his apartment, he asked the builder about current rates. He was overjoyed to hear that rates had climbed to Rs. 3600/- per sq.ft. (approx $90 psf).
A huge jump of around 60% over December 06 rates !

I felt like hiding my face for the advice I had given him, it made me look so foolish.

So what advice will you give me, If I decide to book a new apartment in India, specifically Pune ?

You can leave your suggestion as a comment or go ahead and take a poll, it takes only a second !

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About Arun Prabhudesai

Arun Prabhudesai is founder / chief editor at trak.in. He jumped the Entrepreneurship bandwagon in early 2008 after a long 13 year stint in I.T Industry. You can follow him on twitter @trakin and Facebook. Arun’s Google+ Profile

499 comments

  1. Hi all… I am back again…. The analysis I made above on Dec,21 seems to be proven to be actual… Those who want to go in analytical should not book upto August,2008… The reasons are here… About 40,000 crores are raised by Indian real estate through IPO in the financial year 2007-08.. say about 65-70 % of total money raised through primary market… Out of which most issues were oversubscribed and real estate sector got a huge capital base… Now there is direct relationship between real estate price & stock market i.e. secondary market… how??? just look it by that way…. If stock market shows downfall from next months ( It already showing negative trends.. take example of Reliance Energy) then the real estate companies will find lack of working capital on the contrary if market goes up then prices will hit the market… It mostly depends upon the holding power of builders.. for how much time they can hold the investment… If this holding power will be snaped then prices will go down… Again IT sector is showing dawnfall…. The condition is worst than that of Dec,07… IF oil rates will show upward trend at international market then just ready to welcome the dawnfall in real estate… Again in puna supply is 140 % in year 07-08 i.e. absorbtion is nearly 65 %.. Those who r thinking rates will not get reduced just see the incidence of 2001-02 when rates were crashed due to IT dawnfall… Again if u look house as investment then just accept the upward & downward trends due to its directly connectivity with other sectors… Those who are waiting for aquitable price must adopt wait & watch policy… Again.. dont rush if rates will down by 200-300 fm may, 2008.. just wait upto dawnfall by 500-600 ( key areas are exceptional one)….. Any question or doubt???

  2. I have been analyzing this market in Pune for quite some time. I doubt if prices will go down. Regarding what u say that u earn for yourself and not for paying interest to bank. I think you don’t understand investment. Let say Bank gives you loan at 10% then you need to invest that amount in project where you expect minimum return of 15% p.a. This way u make 15% earning on ur investment and net 5% on money u have borrowed from Bank. Here is my case. In Dec 2006 I got loan of 26 Lscs from ICICI at 9.5% and booked a flat at price 1800/- in Wakad. My investment was 3 Lacs. Today its price is 2700/- or net worth has increased from 30Lac to 45 Lacs. Let say if I had not borrwod money from bank and would have invested my 3 Lacs in alternate medium then at max it would have been 5 Lacs (increased my worth by 2 Lacs). Here even after making all interest payment, my net worth has increased by minimum 13 Lacs. Regarding rent in Baner…it can be 12-13K for 3 BHK….

  3. Lakshmi, If its fine with you, would you be able to educate others as to when (mm/yy) and for what rate did you buy your 3BHK. The reason is that I am also looking for buying a 3 BHK and just as everyone else said, I am waiting for the right time. I have been waiting since 2006, hoping that prices would fall, but unfortunately reality is different. Hope our wait is not too long!! Would really appreciate your input on your property purchase.

  4. I recently got a flat in Baner Pashan area, its a 3 bedroom 3 bath house and the construction gets over in march, I am planning to give it for rent. Whats a realistic rent for that area?? Thanks

  5. I am also working in software and willing to buy a flat. But because of such unrealistic prices I cant afford to have a loan more than 30L on my head and pay almost 50-60L to a bank. I am working to earn money for myself and not to pay it as loan for 20 yrs. :)

  6. The rise in real estate prices was due to a number of reasons. 1.Growth in manufacturing sector because of which steel prices rose. 2.Spending by government on infastructure because of which again steel and cement prices rose. 3.Artificial land scarcity created by builders. 4.Exponential growth in IT Industry 5.Low bank intrest rates Presently, hardly any of the above points remain valid. Manufacturing growth has slowed, Figures have shown that production growth in steel has lessened, ULC act has been repealed, IT industry is growing but not Exponentially.Intrest rates have almost doubled.Considering the above aspects I believe property prices are bound to come down. I have another point here.The recent rupee apreciation has squeezed the margins of software industry to an extent suppose tommorow due to some reason there is trouble in US economy and software companies are compelled to cut the salaries of their employees, how are thease people going to manage the burden of such huge loans ? I’am myself working in software industry but cannot remain blind to such possibilities hidden in the future.

  7. Well the prices have stablised more of less but there is very little chance that it will go down. Though there is probablity that supply will increase due to ULC but there is continous demand from people migrating to Pune. Since companies in Hinjewadi will be incresing their workfoce by 75-100K in next 5 years, there is no downside for real estate prices in near future especially in Hinjeadi, baner, pashan, wakad area. Also increase in material cost such as steel & cement does not allow prices to go down.

  8. Mohan – Saying that “the fallout in credit market globally is bound to effect india in 2008″ is a cop out. Even with the global credit crunch, India is supposed to grow around 8%-9% – so.. there is no direct reason for the realestate market to fall. Of course, it may fall due to other reasons (increase in real estate prices pricing the properties beyond reach is just one of them).

  9. Quite educating analyses by most of the discussion threads. I feel that the sector will see a dip in 2008 and base my prediction in the fallout in the Credit market globally which is bound to effect India in 2008. Most acqusitions are leveraged and lack of cheap credit will dampen demand. Also, exepnditure on food and basic necessities (primary needs) has been a low % of middle class income which led to higher disposal income for consumer durable purchase, higher investment rate (most debt leveraged). 2008 will see the continuing cost spiral with regards to food prices. Fuel prices will also remain high globally which will effect domestic pricing. Thus, real estate prices, especially the medium end, will take a beating. Luxury flats may not get that effected.

  10. Ranjeet, I am not sure how much reality is there in what you are saying…forget not appreciating. My flat that I bought in Salisbury Park in Dec 2006 has exactly doubled…Infact, my builder is not opening some flats for sale even now…He says if I wait for another 3 months and I am getting 25% more, why should I even sell.. I am not sure how recent policy changes will effect the pricing, may be the demand will slow down a tad, but even today the demand is more than double the supply…so I may say it is wishful thinking that prices are not rising…

  11. Hi Ranjeet, Can you tell us the place in Pune where you had seen the flat 6 months back and rates are not went down?? Please read this…..

  12. I read all the comments listed above, but none of all is free from any bias or wilful purpose… Somebody wants dawnfall in prices while some are confused & more concerned about worth of their money already invested. There are lots of reasons for increasing real estate prices in metros whether it may be puna or banglore. Few among those are.. 1. FDI & FII inflow in Indian market( Nearly 70 % is invested in real estate) 2. Link of promoters & politians 3. View of Investment rather than real need. 4. IT boom in India 5. Strong financial growth of middle class this are the major reasons for real estate boom. The same was witnessed in JAPAN & US in nintees decades finally lead to BIG BUBBLE. Now the rates showing something dawnfull from last six months, the actual reasons are 1. IT sector affected a lot by rupee appreciation 2. Real estate crush in US in August,2007 3. Real buyer keeps away from market due to unlogical & unsupportable growth in real estate rates. 4. FIIs moves toward Vietnam, Korea, thailand & malesia. 5. China emerging as strong IT competitor for india forcing low cost for human capital 6. GDP shows dawnfall. 7. More Competition in real estates. 8. Relation between market cap & rent is totally inverse.Due to incresing habit of purchasing own flat rented houses are available at very low prices lead to inverse relationship. This all factors lead to slowdown in real estate market. I saw so much flats in last August in pune suburbs, I have decided to buy one at that time, but due to some reasons I canceled my plan. I revisited same flat in december. same is vacant still & the price still same. Now how much months will he able to remain the same as vacant?? Did Intrest rate factor is not having any worth?? I am sure If I visited hin in next April he will ready to sell the same at actual cost even at loss value. My friend has shared his experience with me. He told me that he book one flat at 2100 even booking rate is 2400.And bulider requested him not to disclose this fact to other ones. AT last outcome is that nobody could keep away real needy person for long time. Just Wait & watch…

  13. Hi All, Nice to see all the comments. One thing it is true that real estate rates are not going to come down even though ULC acts comes into play. As per ULC act the land is going to free in next 3 years and not sure that all the land will be available for immediate construction. Most importantly how common people will get benifitted with this is a question mark. I have seen couple of comments saying that rate has not been raised in last 6 months but it is not correct. Yes, rate has not been raised by 30% in last 6 motnhs as it did in 2006 year, but still it has been raised by 15% and which is not a small hike. I waited 2006 whole year thinking that prices will come down that didn’t happen and finally I bought the rowhouse in eary 2007. To tell you truth in last 6 months rate has been raised by 500/- rs per sq. feet………and now it seems that companies like Microsoft is coming to Pune, people are getting good salaries, IT industry is doing good inspite of rupee appriciation…..so I don’t see a single reason why the real estate market will go down? I may wrong. Please comment on this ro do send me an email to see4dac@gmail.com. –Datta

  14. Trakin, one c35l orrection…1000 sqft at 3500 will make it 35L and not 55L…

  15. Nihal, That was an insightful comment. One of my frieds recently returned from US to India and he mentioned that in 3 weeks he stayed there, one thing was top of his mind…buying a property in Pune. Unfortuunately, he returned back last week without much success. The reason – cost. He mentioned that he was looking at places like Hinjewadi, Warje (Kothrud, Baner are out of question). None of the places had prices below Rs. 3500/- per sq ft…that means if you want to buy a 2 bedroom 1000 sq. ft flat, you end up spending more than 55 lakhs. How can one afford that kind of money (other than businessmen). He has been working in US for last couple of years…and plans to be here for another 2-3 years and still he is doubtful if all his savings of 4 years can cover these cost. Think about it…Rs. 55 lakhs means nearly $150,000…Can you save that kind of money even if you are in US??? and your comment about prices not appreciating that much…I am not too sure about it. Infact in last 6 months, the prices in places like Hadapsar and Kharadi have risen by 25%…Places like baner and kothrud are quoting at Rs. 4500 per Sq ft…which is just an astronomical rate to buy…the flat that I mentioned I bought in 2000 was for Rs. 900 per sq ft. Now even this 6 year old flat is quoting at 4500/- which is 5 times jump in 6 years…:)

  16. I think, real estate boom in Pune will be continued. Baner, Pashan and west side of Pune is getting little stable in the rates and I don’t forsee any rise there. However, I see very promising returns in Kharadi, Hadapsar, area. I say this on the basis of my observation and research in Pune. Most of the builders are constructing in this area. I have given token amount to one of the prime builders of Wakad and he is still holiding my flat. That shows that he has no demand. He is a renowned builder. I really would like to know the opinion from others. My current stand is – hold on for sometime. Prices are not shooting up the way they had been in past. The prices may move up by 100 Sq Ft in a span of 6 months in Karadi and Hadapsar. Also, ULC act will play a vital role on the prices. So hold on. BUT, always good place to buy is a residential area and I think Kalyaninagar, Vimananagar etc are still better than Wakad, Hinjewadi. Also, all the companies in Hinjwadi provide transport to major areas in Pune. So.. better to buy in Hadapsar, Kharadi. One more observation – Microsoft is coming up in Hinjwadi. But still that would not make Hinjwadi area much promising. If you visit wakad area, the area is not much densed whereas Kharadi, Hadapsar is heaviliy densed. For Kharadi, Hadapsar – near to saturation but still worth to buy and stay. For the sake of investment, buy in Dhanori, Vishrantwadi, Chakan, etc. No for Wakad, etc. Also, those areas have water problem. Litigated lands, etc. Please feel free to discuss this. I may not be able to come back to this site as I don’t know how I have come across this. It was by fluke wile surfing real estate sites. If anyone has any suggestions or feedback about my observation, feel free to mail me at nihal.kamat@gmail.com Cheers and keep exploring.. we will find a mint.. Nihal…

  17. Hey Nikhil, Thanks for your insightful comment. I agree with you on certain points here, but to be honest, you just cannot time the realestate market, however good analyst you may be. I had spoken to an analyst (he is a know peronality) last year somewhere in August- he told me, don’t buy it…the real estate market is going to fall – High interest rate, investors exiting out of the property market, astronomical prices were the reasons he gave me…and look at it after a year…the market in Pune itself has grown at 30%+…so timing is difficult. At the same time, here in US few of my acquatances bought townhouses and are repenting now, as the market value has gone down by 15% in less than a year. Realplayer, I have the same feeling that we are nearing the top..2008 should see start of the fall…but (there is always a but :), I did say the same thing last year and made a fool of myself….

  18. I have seen the down in ninetees and rise in 2001 onwards in pune. But now in year 2007 my gut feel is it has reached the top. Max it will streach one more year ie 2008. But wise thing will be to sell of the real investment now. Even real estate is open for foriegn investors the local investor itself has taken the prices too high to make it attractive to outsider. Also US economy is releasing not so good news slowly slowly. Real estate seems to be in sync with sensex as of now but it is not the true story. These are two different games with different rules. Actually the foreign investment is threat to local players as they come swiftly ,in buck and brings lots of uncertainty.

  19. HHmm well i can see everyone asking the same question everywhere…..well according to me forecasting future is called speculation. In real estate business forecasting on future prices and cashing on it is profitable and it can be risky too. Beginners have to take extra caution. Taking advice from other investors will also help minimize mistakes. Following tips can help you in going smoothly. Real estate is always good to invest in, but you have to be aware of what stage of the cycle it is in. It doesn’t always go up as people like to think, when the real estate cycle is in a downward phase, in some markets houses actually lose value. You must know what phase your local market is in before you buy any house or apartment. but you can still make money. While the market’s tanking you have to stick with buying junkers super cheap from banks and wholesaling them to investors. just wait for the right time. Timing the real state market cycle can help. You know, when it comes to things like timing the real estate market and when is the best time to invest, everyone has an opinion about real estate investing. The key to not getting creamed when you venture into a real estate investment is to have good information that is based on facts … that is, analysis coming from hard data. There’s a really good site you should check out dubya dubya dubya dot axiomestates dot com

  20. Real estate is always good to invest in, but you have to be aware of what stage of the cycle it is in. It doesn’t always go up as people like to think, when the real estate cycle is in a downward phase, in some markets houses actually lose value. You must know what phase your local market is in before you buy any house or apartment. but you can still make money. While the market’s tanking you have to stick with buying junkers super cheap from banks and wholesaling them to investors

  21. For sale by owner

    yaa that is good post by author and very informative aspects given by author

  22. Hmmm….I have stopped predicting :)

  23. Indian Real Estate is going to go up for sometime atleast. Private Equity firms have stepped into it and they are definitely going to take it at a higher price.

  24. Ravi, :) , That is an interesting take on the post… glad you liked the post..:)

  25. ravi karandeekar

    Hello! You have learned the most important lesson about giving an advice. You have also told it very well. Now, i have become wise. I will not give an advice and make a fool of myself. Kidding. Good post. Thanks!

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