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WTF – Property Rates start rising again !

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We are not even completely out of recession, and greedy builders have started playing their games once again. They have already started jacking up the prices of their properties !

Will this greediness spell doom for Indian Real Estate?

Honestly, if you think we are completely out of woods, just wait for one bad news and see how the pack of card collapses – Not that I want it to happen – but we need to (especially the builders) need to put aside their greediness a bit and tread cautiously.

Let me tell you, the greediness is not on the part of builders alone – its also the people who are wanting to make a quick buck on the volatile Real Estate Market. They buy residential / commercial properties and sell it in less than couple of years cashing in on higher property prices. The people who suffer are actually the ones who want to buy their dream home to live in.

In Pune, the general feeling is that property rates have gone up by around 15% – 20% over last couple of months. Whats more, country’s largest home developer, DLF, sold close to 1,400 units in one day alone; while in Mumbai, another company sold 90 percent of its premium apartments in less than four months, a surprising achievement in the times of recession.

More often than not, majority of these buyers are real estate traders (not even investors) – The poor home buyer – who was hopeful that property cost would come down further is left hanging again.

Readers would love to read this story – which depicts very well how the property price bubble builds up !

In 2007, I had written a post on how I had made a fool of myself, giving advice to my cousin on property prices (which incidentally has close to 500 comments), but this time around I think if the property prices show a sharp surge – it will spell disaster.

In my view, the current property prices will have to stabilize for next 12-18 months, and only then probably start moving upwards.

Who do readers think? Are we seeing another bubble in making or do you think this price trend is here to stay?

What would be your advice to the prospective buyer? should he jump in or hold on for a bit? Would love to hear your thoughts.

  1. Today Ridge Residency Residency says

    Today Homes has been one of the pioneers in developing Gurgaon as the preferred residential destination. The name is behind incredible transformation of a barren landscape of 330 acres into a buzzing habitat of Gurgaon in a short span. With various projects already delivered and currently inhabited by satisfied customers, Today Homes can boast of unmatched experience in the residential sector.

  2. zm says

    “just wait for one bad news and see how the pack of card collapses – Not that I want it to happen ”
    to be true i want that to happen…. i guess that would be a good lesson…

  3. wiki says

    The prices going up and making people rich is fairly clouded and requires more effort than most people who dream about it. It is valid question raised on whether the prices have risen again. The answer is a yes, there is an upward movement in almost all locations worth living in. But a closer look will also reveal that the rise is based on investors, who were suicidal a few months ago when the chips were not only down but absolutely out. I am in gurgaon and deal in valuing property and there is a general feeling that prices are ready to rise. You can get advice a dime a dozen on where it is headed but if you wish to hear my view on it, read on. Buy real estate you can and plan to live in, not go by anybody’s exclamation marked crammed statement like “last chance of a life time” and such. Compare property prices before you finalize as most of us complete the deal then think of ways in which it was the best deal ever. Look up the builder but this is hard as most of them change colour and name at will though the person sitting at the end of the supply chain is the same, but still do your bit. Do not go for a large loan, in these times it is not only the builder who can go bust but also the financer and for him you are the sitting duck to pile all the cost. Most of us are living on rent, thus the loan should not be high that it would require you to look for another job or take bets in the stock market. Lastly, take your time, cycles will come and go but the money invested has a greater chance of going forever.
    Buying low and selling high sounds good but we usually forget to think, when we sell high, where does the cash go? You either put into another equally risky instrument like stocks or buy another property (remember the rates are high) at this time.. where do you gain? Of course if you own multiple properties and shift between them depending on different seasons and positions of the moon, you have no need to think so much and most probably you would be the last person searching for comments on such forums. To the humble rest of us, we need to keep our eyes and ears open. Ciao

  4. S.S.PANDA says

    Not only the Property dealers ,look at the Automobile manufacturers,Who raised Car prices last year stating that Steel prices have gone up.The Steel prices have halved now but Car rates did not come down.At the same time just before the bgt. there was some relief in Sales tax/excise duties.Not a single paise was passed on to the Customers by any of the FMCG Manufaturers.

    These guys blame everything and everybody but look at their own greediness.

  5. TIP Guy says

    Arun,

    It’s the hysteria that people get carried away with and clamor for these high prices. Builders are happy to milk it. Two misunderstandings fuel this bubble viz., (1) real estate always goes up; and (2) relative ease of getting loans from banks.

    You correctly pointed out that there are two groups of people, one who are flippers and one who wants long term ownership.

    People think that they are smart and can easily flip it one or two years down the road. Unfortunately, they fail to realize that there are many more out there who think the same way. And when number of flippers exhaust or EMI starts biting, that’s when bubbles burst. And for such flippers, even few 5% to 10% cost matter a lot. There is another dangerous trend that is going on. For an unfinished building, just based on plans, buy the contract at a given rate, and then few months later, sell the same contract at high rate. Here there is no building yet.

    On the other hand, any long term buyer with intention of long term ownership, say 15+ years, will still make money out of it. It is likely that he may make 20-30% less, but overall, his payback will be well above inflation. So my view is such buyers should not worry about paying few extra percentages (note only few extra – not order of magnitude higher) for their property. Such buyers should focus on lower % interest, and higher down payment.

    It was a good read.

    Best Wishes,

  6. Kiran says

    1) Supply exceeds demand
    2) And yet, builders have a lot of cash because of previous revenues/IPOs and hence they can hold off selling any apt at a loss (or correction as we might want to call it).
    3) Given the demographic situation as well as population growth in our country, I doubt if #2 is wrong – people want to buy houses at any given time.
    4) Wait until Banks loosen their strings (liquidity is slowly getting back) – you will see a tremendous number of loans being disbursed and we will have another rise (or bubble as we might want to call it).
    5) And who is to say what is the right price for an apartment/office? We don’t have any historical basis for defining ‘fair value’.
    6) And what is one ‘bad news’? US collapsing? Yeah – that’s the only bad news that can affect anyone as majority of home buyers are IT professionals. If US collapses, IT companies layoff/freeze pay levels. Other than that, I don’t see any bad news affecting the Indian real estate market;coz everything else is a blip, only a minor correction in a major bull market – or so the real estate company will claim.

  7. Sumeet says

    @Sriram

    4. The trend us your friend

    If the majority of buyers believe the prices will go up, they will buy. An increased demand will lead to higher prices.

    That said, since the number of real buyers in India is very high, and I suspect a lot of them are waiting for prices to fall. The “investors” and builders are probably spreading the hype to draw them into a trap.

    I’m a real buyer – and I’m buying into your point #2!

  8. sim says

    yea very true,

    this hype based economics always bewileder me , but what is the solution to this, should the common man always suffer? is there anything that ‘state’ could do? maybe a law which would not allow basic necessities like home etc to be used as investments.
    ohk i agree that this sounds very naive but atleast things like resedential flats should come under such laws. wouldn’t this stop greedy sellers from creating hype? because then everyone who is buying a resedential flat would be doing so for actually living in it

  9. Sriram Vadlamani says

    The problem with Indian real estate is, everyone believes that the property prices should always go up. This recession gave probably India’s first lesson – what goes up must come down.

    People who are not willing to believe in this were sitting on large piles of inventory. The whole thing came to a standstill. No buying and no selling. That is when everybody thought the property prices have fallen. That again was based on very few sales which was shown as a trend and then generalized.

    What we are seeing now is not a resurgence but a bubble yet again. The property prices did not correct as much as the other asset classes. That to me is a problem.

    As far as the advice goes, here is mine :
    1. What goes up must come down. Newton never failed anyone.
    2. Patience is a virtue. Now it is a necessity.
    3. There is nothing called as ‘hot property’. That is a pretty name coined by greedy sellers and greedier marketers (read brokers).

  10. Yash says

    Property rates rising again? Oh but when did they fall? Here in Mumbai I haven’t seen prices of properties coming down. They may be going steady but the prices have definitely not gone down. I am in the market hunting for a new office for some time and the prices I am quoted are more than what was two years back.

    1. Arun Prabhudesai says

      Yash, probably the commercial property prices had not come down that much, but residential property rates were down by almost 25-30% in most cities.

      I hope you get your office before the stabilized rates become not-so-stabilized :)

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