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How can people afford it?

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I have been in India for nearly a week now and am simply amazed to see the growth and development that is taking place at every nook and corner. I have been tracking India’s growth sitting thousands of miles away from other side of the globe for few months now, but being here on ground is a completely different experience!

Quite a few readers (especially who are settled abroad) have mailed requesting me to write about my India experiences. I plan to do a series of posts in coming weeks that will present my unique experiences about being in India and how different India has got over last few years.

The real estate boom

Indian Real estate boom has to be seen to be believed. I do not have words to describe the real estate phenomenon that India is experiencing right now. Since the time I landed at Mumbai airport I have seen every road, every newspaper and every TV channel literally overflowing with real estate commercials / ads.

The structures coming up are ultra-modern and super expensive – and there is no dearth of buyers! I recently read that a 2100 sq. ft apartment in Nariman point, Mumbai was sold for a whooping 34 crores (nearly 9 million US dollars).

You may say that places like Nariman point have always been one of the most expensive places in the world…granted, but real estate prices in places like Pune (Tier II city) are no different.

If you want to buy a 1000 sq. ft apartment in a decent locality, you have to shell out close to $200,000 (about 75 to 80 Lac rupees), and chances are you are still living on the outskirts of the city.

I had an interesting discussion with a real estate developer friend of mine yesterday. I asked him a simple question –

How can people afford it? From where is the money coming to pay builders such astronomical prices?

His answer was quite simple –
Only two segments are buying houses right now. Software professionals (those have lived abroad and come back) and Businessmen. Only they can afford it!

So what about the rest?
They have to wait till this boom is over

Do you think the real estate boom will be over anytime soon?
I doubt…

Do you think the housing prices will come down?
Not for next 5 years at least!!!

Essentially, less than 3% of overall urban population are able to afford such astronomical real estate prices. Others have to just dream about it!

I stumbled upon an interesting video yesterday showing the divide between rich and poor in India. I highly recommend you watch the video.

  1. Dave says

    I have been following the real estate forums intently.

    Few collated truths in point form below……………

    1. Prices are artificial (never thought Gurgaon/Pune will be as expensive as US/UK)

    2. Only a miniscule 1 or 2% of the population can afford these houses.

    3. Those who get caught in this trap and buy a 50 Lac pigeonhole on the city fringes are consigned to a life of endless EMIs. Maybe we’ll soon have the Japanese model wherein you can pass it on to the kids coz the extended repayment periods (courtesy rising interests) will outlive you.

    4. Appreciation is over if you buy now. If you think your 50 Lac thing on the outskirts with no proper road and water/sevage/security is going to become more expensive then a mediterranean villa in 5 years….it will be a miracle. Yes….anything can happen in India. When you have a large population, you also have a proportionatly large number of fools.

    5. You can’t get a loan / tax rebate for paying rent. You got to pay it out of your salary. So rents will continue to be a paltry few thousand, even if your 2BHK is of half a crore or two crore or ten crore.

    And a few truthful fantasies in continuation……………

    6. How many houses will an NRI / Businessman / IT Professional Buy want to buy? Two, Three, Five….maybe Seven?? When all those many houses are constructed and sold (and these many are being built all around us)….but what then? Will we have ghost towns? Empty townships with no residents but empty 1.5 BHKs worth 1 crore each?

    7. Has anyone thought about socio-economic fallouts? Middle class salaried families turning naxalites? When you can’t even buy a decent house when the economy is booming, would you not want social justice?

    8. A long term cycle like Nepal? A revolution?

  2. Nikhil says

    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. That the only place where there is demand, among investors, and it’s where you can keep your risk to a minimum so that’s where you focus. Forget rehabbing or holding anything until the market recovers.
    There’s a fantastic website so you can know where your market is and make the right moves. Check it out. http://axiomestates.com/

  3. Googledegook says

    The reason for the rise in real estate prices is the shortfall of high quality construction, coupled with the boom in the stock markets. A large number of investors who have struck gold in the stock markets are cashing out and investing in real estate.
    The current situation seems to be a win-win situation for all the parties concerned – the developers, the buyers who seek a suitable avenue to park their surplus funds and the house owners who live in prime areas.
    The steep rise in the real estate is an artificially created situation and neither do the developers nor the brokers want to do anything to change it as they continue to earn huge margins.
    The main loser in this situation is the middle-class and lower middle class salaried people, who are unable to find a decent house in the city or suburbs. These people are forced to look for houses in the faraway suburbs and make do with the long commute to work.

  4. true says

    Excellent post, very true, the divide is becoming increasingly bigger.

  5. trakin says

    Manoj…very well said…I agree with you completely…the pay packets of today generation are literally in multiples compared to eighties and ninetees…but standard of living has not increased that much…

  6. Manoj says

    The economic growth and a good paying software job was meant to make the living more easier, but to the contrary it has made life tougher!!
    Lemme give you an example, my father being a public sector employee worked all his life to build a 2 bedroom house in my hometown in coastal Karnataka. When I got the job which was quite high paying comparatively, there was nothing wrong in expecting a better life, may be my own house which I can afford easily, but today I just cant afford a house in Bangalore (I don’t see myself paying Rs 50 Lac for a house, even if I can afford it at some point of time). So although the salary is high, the total lifestyle still sucks and the struggle still continues.
    Do you know why its software engineers and Businessmen who can afford it? The so called software engineers goes abroad and makes some quick bucks and take a huge loan back home to afford it. Businessmen? oh they’re the one who milk these s/w cows by upgrading their shops into a swanky mall ;)

  7. trakin says

    Indian Blogger, Nice to see you comment after long time…The real estate scenario is more or less similar in all Tier 1, Tier 2 and even tier 3 cities.
    Even villages near to these cities have appreciated quite a bit…
    Like I said…only businesspeople and software professionals…no one else can afford it…
    BTW…Thanks for the welcome

  8. Indian Blogger says

    I come from Bhubneshwar. Even the price of real estate is booming there. I wonder who buys flats that are so expensive there, but I got to know that everything was sold out. Pune is a bigger city! Welcome to India

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