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Tales of Indian real estate and the common man

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I have been having some very interesting comments to my articles I have previously written on Indian real estate specifically targeting the Pune market. However, the situation seems to be common across most upcoming cities and Metros in India.

Pune Real Estate

The comments left actually reflect the reality of present Indian real estate situation. Majority of people have been waiting in the wings in anticipation that the prices will come down since last 2-3 years. In the meantime, prices have more than doubled and it is out of reach of even people earning a fat salary.

Here are few selected comments from the article I had written late last year on how I made a fool of myself about prediction of real estate prices:

Voyager opines that the the rising prices are real big fraud|

Pune bubble is bigger then US and its a massive fraud fueled by ignorant IT folks and builders with more IQ then these nerds.
Shanties selling for prices at which you can buy a huge beach-side villa abroad in a small town. The construction quality is pathetic and infrastructure is zilch.
Pune traffic sucks…if ur staying on one of those fringes deemed as the new hotspots, you might as well apply for leave when you want to come to MG Road.
I’ve been in Pune recently…same old morphed photos on the hoarding’s showing lots of trees and butterflies and cute kids with smiling couples ….on ground just a hell hole where you can’t even see the sky and where there is no proper approach roads or electric supply.
One particular thing called “River View” really fascinated me….the so called river is actually a stinking drain….mercifully it was not visible from the apartment but the stink was there.
Only fools would invest here.

Ad opined it is cheaper to buy a house in UK/USA than here in Pune and I agree with him completely. In US you can get a lovely 3 bedroom bungalow in most places for around $200,000/- (about 80 lakh rupees) but here you can’t even get a cramped 3 bedroom apartment for that price.

Here is my experience of Pune market.
I am in UK and have been looking for a row house in/near pune since early 2007. I was astonished to get a quote of 88 lakhs for a 3 bed row house near the high way. No proper road to the site – in the middle of barren land and no way near public transport/rickshaw stand. My father optly described it as nothing more than a glorified ‘chawl’ and advised against it. I am glad I did not go for it, as there are still some rowhouses available in the same scheme almost 12.

I could not justify paying the premium amount for an area so far from city especially kowing that my friend brough a flat on S B road for 30 lack rupees about 4 years ago. The insfrastructure in wakad/baner does no comapre with that in central pune and still builder are asking for this sky high prices.

Recently I was quoted 1 cr for a duplex flat in baner / wakad area. These prices are similar to prices in UK wherein I can buy a 1 /2 bed flat for similar price GBP 125K+ .

Even RK feels the same

At the prices what realty is quoting in pune/mumbai you would get a mansion in and around Dallas with lower interest rate, better construction etc etc. Based on my experience and what I have observed the builders in pune are not providing good construction quality at all and the prices they ask for amenities are all unjustified.Like for example a reputed builder in wakad offered me 2 options of 2BR one having normal bathroom and the other normal bathroom with shower curtain. The difference was 150 PSF. Do you think it is worth giving 150 PSF for a shower curtain , the best one which could get for like 100 USD. These are cheap gimmicks and people get lured.
I am an IT person worked with top IT company as well worked abroad but still prices in pune are not affordable. In the US with the sub prime crisis , the govt is trying hard with sops and options , do you think something like this could happen in swades.
A loan of 35 or 40 lac rupees for 20 years resulting in EMI of Rupees 40000 per month is like a devil sitting for 20 years on the head.

I find Rupesh has conveyed a very good message with his story that he narrates

I remember an incident one of my elderly staff was narrating and I like to share with you. In 1989, a real estate developer advertised for a residential layout in a Chennai suburb. Price was Rs. 30K for a plot measuring 2400 sq. feet. My colleague felt it was too steep a price and he backed off.

As more and more people started buying the plots from his office, he visited the builder again only to be told that the price has been increased to Rs. 45K per plot. It was a 28% hike in a short time. He did not have enough money to pay the amount. He was pestered by his wife to buy the plot and he returned to the same vendor next week. To his dismay, the developer had jacked up the price to Rs. 70K per plot!

With only some 35K budget, he had no option but to settle for half a ground and his wife was wise enough to insist him for buying the plot even at that rate. It is roughly 18 years since the incident, and the current rate of property in the area my colleague mentioned is 1.2 Crore per ground! Now consider this – suppose due to some “market correction” (imaginary) the Rs. 70K price would have dropped to Rs. 50K, does it makes any difference compared to the price of Rs. 1.2Crore today?

If you move up in the time horizon of say 15-20 years a small difference of 10% even 30% has no meaning. My advice to all is simple follow your real need and act accordingly. Don’t wait too long for price to correct, but never overstretch yourself. Remember, even with so-called sub prime crisis in the US, prices of property have not come down by 50%, may be 20% on an average.

I urge reader to check out comments left on these articles as there are too many to quote out here. It will be a worthwhile read and true reflection of what a common man feels about today’s Indian real estate prices.

  1. Apartment in Kharadi says

    The information provided in the blog is very nice but for these days i am in search of Apartment in Kharadi

  2. Gera Parkview says

    I really appreciate the information given in the blog but nowadays i am searching for affordable 2 bhk Apartment in Kharadi

  3. Pune Rea; Estate says

    Hi Khole…

    You can join the google group of “Kunal Crimson Peedit Janata” here :)

    http://groups.google.com/group/KunalCrimson

    I suppose legal action is the only resort we have now…

  4. Khole says

    Hi Sumedh,

    We have also booked a flat in Kunal Crimson. Will like to talk to you with reference to the same. Can write to me on sbkhole@gmail.com

  5. ab says

    I am also an IT guy looking for a flat in Pune the cost is really high and above that the increased rates of interests sucks out all the money from our pockets. I believe if u r a bachelor or even a person with a nuclear family then its worth to have a single BHK flat in a city like Pune. But definitely no no for a 2/3 BHK as the cost is very heavy and the facilities do not compare to that. Also there is no guarantee that the person will spend his life time working in the same city. Moreover 3 BHK flats are difficult to rent out.

  6. Urd says

    Sumedh, I have also bkd a flat in K Crimson B wing. Planning to take legal action and trying to get similarly affected people together to take the builder to court. join in a orkut group.

  7. Sampat says

    Very interesting thoughts from the originator and others who have been commenting.

    And ur right Ashwin n Pallavi. No one is really buying.
    I think we need to wait a while for the mafia to self-destruct.

  8. pallavi says

    I am the one who represents IT peoples in Pune. Unfortunately, I am still waiting for my own flat/house. Every time this property boom was shown on the basis of IT peoples, but I am not really sure about which IT personalities are really able to get the sweetHOME for them, except working ONSITE for longer time. Unfortunately they are also realizing that what they are paying is for…. But it’s too late for many of them. Couple of years back it was fine for them too but now a days… a big NO from them too. Without infrastructure paying these rates for the property that too does not assures quality and period of delivery is a big PROBLEM.

    Believe or not recently because of genuine buyers got reduced tremendously there builders are also in panic situations and calling the customers with many follow up calls with good offers. Many of readers must have experienced the same. The big builders are still able to hold on the situations but it will elongate the period of possession but small builders are now in hurry to sell OFF schemes as soon as possible, looking at down trend in properties. The pure investors will definitely not enter at these prices of home, the appreciation graph since last year has hardly managed to sustain at same level, and smaller schemes are showing downwards.

    My advice is if u really need property for your own need go for smaller option or try to wait for another few months. May be after heavy and unpredictable monsoon will expose the limitations of the infrastructure… and this industry will get another set back. I don’t expect great down fall, but every lakh you save will reduce Burdon of at least Rs.1000 EMI

  9. Ashwin says

    This is purely political and builder mafia manipulating prices. No genuine buyer.
    Pune does not have any infrastructure., working culture is bad.
    Bubble is going to bust soon.

  10. 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?

  11. Rakesh says

    I am completely agree that if any one has genuine need of apartment please buy it as prices will go up & down but necessity needs to be satisfied first. Only advice is to buy within your budget & do some compromises to meet the budget. Now if you are looking for investment then wait will be OK. I come across one article recently about supply & demand theory which is really need to understand by everybody. Earlier I was wrong to think that when supply is half the demand then only prices goes up by twice mean there is direct co relation between supply-demand gap & prices of comodities. What I found is supply gap of as small as 3% can increase cost of comodity by 100% depend on buyer willingness to pay. Current example is Crude Oil whose supply is short by 3% so prices increased twice in last 1 year. What that mean is one really need to find out whether in Pune current supply of apartments is less than demand or not. If answer is YES then whatever are current prices they will go up irrespective of infrastructure & quality of builder. But if answer is NO then prices will come down untill the point where there will be match between supply & demand. Another thing to consder is “one will always compare reduced prices with peak prices” there will be no relation between infrastructure & quality of building with reduction. Lets think if current supply gap is as small as 3% which jacked up prices twice / thrice then how much % reduction will be possible to make a match between supply & demand. My guess is not more than 10~15 %. So if you have genuine need don’t wait to prices to come down as there is no profit more than 10% which is even smaller if you calculate current rent you are paying & Income TAX saving loosing on Home Loan. Only lost will be you will see prices are flat or increasing less than FD rates for long time. Thats why for investers I am saying not to purchase flats right now. One example in 1995 my uncle purchased flat at Shivajinagar for 12 lakhs. In same apartment I got offer to buy exactly same flat on 1 floor down my uncle’s flat for 16 Lakh in 2003. Now it might be for 70~80 Lakhs. So my uncle got only 33% appreciation in first 8 years but got 500% appreciation in last 5 years. This is demand supply gap cylce. Timimg is very difficult to achieve as I myself declined the offer as I was short of 3 Lakh budget at that time.

  12. dave says

    Have been trying to read a lot about who actually is buying these houses? I think I am one of those oft quoted middle class (an annual income of about 5 Lacs) that is supposedly driving this boom. But fact is I haven’t bought a house yet. Some hard facts which steeled my decision were:-

    1. Upto mid 2007 – I had stayed for 5 years in Delhi in a centrally located place (Vikas Puri), paid a rent of Rs 5,500/- per month for a 2 BHK with abudant parking space and facing a big park. The house owner proudly claimed its market value was about 1.5 Crores (must be 3.5 Crores now!) Surely a very poor return for money he got. But then this man had bought it way back in 1980 for less then 10 Lacs.

    2. I booked a “builder floor” in Delhi around early 2006. The builder was into buying houses, demolishing them and rebuilding into floors. I booked the first floor of a 4 storey construction (90 Sq Yd) for 16.5 Lacs in Uttam Nagar. This was in mid 2006. Then the boom accelerated by end 2006…they said it was now worth 25 Lacs. The builder got greedy, slowed construction and all the related tricks. I finally took his offer to take double my deposit and quit. The house still isn’t sold. Its mid 2008. The builder is bankrupt and has fled. The story is repeating in the entire area.

    3. I came to Pune. The traffic was horrible, the pollution worser, the cost of everything was three times what it was in Delhi starting from fruits to furniture. The houses were also as expensive! Far flung outskirts, no electricity or water….but lot of nice morphed photos and glossy brochures…and the usual promise of once in a lifetime investment opportunity. Everyone said it was the IT.

    4. Then I met an IT graduate (the city is called the Oxford of the East)…this guy told me that offer letters handed out after Campus interviews had joining dates six months later and very few got actual confirmations. Half the guys didn’t even get interviewed. Some smaller institutes didn’t even get visited by the industry. Also, this was in sharp contrast to last year when almost everyone got a job. So it isn’t the IT anymore!

    5. Lastly, I went to a small town in MP. This one was untouched by builders. An empty 200 Sq Mtr plot with a tube well (at least ground water supply assured), stable electricity supply and in a well developed area on the outskirts was quoting for Rs 75,000/-. The airport at Bhopal was 20 Kms away, the railway station the same. That was what I used to travel in Delhi or Pune too! The vegetables and fruits were half the price in Delhi and one quarter the price in Pune. Full time domestic help was available in plenty at as low as Rs 1000/- pm. The schools were roughly the same standard but charged one tenth what similar schools charged in Delhi and Pune.

    What did I conclude? Stay on rent in a big city while you work (remember Delhi @ Rs 5,500/- ….and dropping). Build yourself a nice palatial bungalow in a small town and relax there once you retire. The amentities (hospitals etc) are still as closeby as in a metro or worst case you can fly down to Delhi for Rs 3,000/-.

    Compare that with buying a 1 Crore designer flat adjacent to a slum (or a suburb 60 Kms away from city centre) and paying all your salary as EMI all your life.

    Bottomline is…..either it crashes, else I am not buying!!

  13. Rachna says

    The quality of construction is absolutely not as promised in the intial glossy booklets, let alone the time line delays. I wonder what happened to the slogan ‘ek awaas, sab ke paas’ which promised one dwelling for each family. Does one thing with these rising costs, a typical middle class Indian family can actually own a property?

  14. Sumedh says

    Yes…the Quality of Service provided by current builders sucks !!!

    Our scheme “Kunal Crimson” is one of such unlucky schemes…we booked a flat there in Oct 2005…and we don’t have a possession yet !!! …

    Moreover, the customer service they provide is an abuse of the word “service”…it is customer “harassment”! :)

    I just hope these bastards will give us our homes some day!

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