We have been witnessing some unprecedented boom in the real estate sector, not only in metros, but also all over the country. Such has been the rise in the prices of land and buildings that it makes one wonder whether this whole thing is rational and justified.
An apartment that was bought, say, 10-12 years back would generate about 17-18% returns compounded annually by now. The one that was bought about 5-6 years back would give about 25%.
Good stuff! But how about if one is to purchase it now? For one, is that kind of money available for investment? Second, is it possible to service that money (debt)? Then, how long one will have to be in the rat-race in order to be able to continue to service that money? And still more, is it really worth it?
Sure income levels have shot up considerably over the years in India. A couple, say, qualified professionals, should be able to afford the mortgage. That does not stop one from asking, is it really worth it?
Is there something through which we can gauge the differences in price and value? There are no earnings projections here for the residential; prices are only perceptions-driven.
Why should prices of residential plots even in small towns should rise to the level that makes us uncomfortable?
Is the real estate bubble in the process of being formed, if not already formed?
It is difficult to understand why one is willing to put so much money in, say, an apartment where one is stuck for life. This is home, which the family considers precious. Fair enough. It is not an investment for that person; he is not going to sell it unless under dire situation. Hence, the rational thing to do would be to buy a house (apartment) which keeps the family cool during summer and warm during winter, and have some fun. Before the purchase just ask 'how much?'
If this is followed the prices might not move so much higher than say, inflation. However, the public frenzy has been so much that, due to various reasons, peer pressure being one, it is ready to pay any price for the property as long as the developer / builder is able to supply it.
No consideration is given to whether the family is going to use the amenities, such as gym, pool, car park, etc. All these come at a cost.
Businessmen know how to make money on their business; they buy low and sell high. These very people, however, are ready to pay any price for a real-estate property.
The problem with real-estate in India is that it is very difficult to assess its value. Prices are all over but value is not to be seen on many occasions. Property market here is unregulated (unlike the developed markets); it is not possible to consider rental yields as the basis for assessing value, unfortunately. Due to this, it is left to the developers to fix the price and the buyers to be in the frenzy and envy (wants it better than friends) to accept it. The market then goes in that direction, up.
Justifications are given: growing economy; increasing income; aspiring youth - India shining. However, history suggests that all booms end in busts! It is just that no one knows when.
Absence of quoted prices provides some kind of relief to the buyers as they do not have to keep thinking about it.
What if the prices fall? Well, since the property is not meant for sale (but to live) one could probably live with it. But in hindsight one would surely repent. Money lost could have been invested elsewhere to provide additional income. This could be a huge opportunity cost. What about that additional interest paid?
Buyers should be careful enough to check value in advance lest they suffer heavy losses.
If only someone could discover the tool to assess value here or still better if only the government implemented some grand reforms in land and building sector.
Wishful thinking, is that?
An apartment that was bought, say, 10-12 years back would generate about 17-18% returns compounded annually by now. The one that was bought about 5-6 years back would give about 25%.
Good stuff! But how about if one is to purchase it now? For one, is that kind of money available for investment? Second, is it possible to service that money (debt)? Then, how long one will have to be in the rat-race in order to be able to continue to service that money? And still more, is it really worth it?
Sure income levels have shot up considerably over the years in India. A couple, say, qualified professionals, should be able to afford the mortgage. That does not stop one from asking, is it really worth it?
Is there something through which we can gauge the differences in price and value? There are no earnings projections here for the residential; prices are only perceptions-driven.
Why should prices of residential plots even in small towns should rise to the level that makes us uncomfortable?
Is the real estate bubble in the process of being formed, if not already formed?
It is difficult to understand why one is willing to put so much money in, say, an apartment where one is stuck for life. This is home, which the family considers precious. Fair enough. It is not an investment for that person; he is not going to sell it unless under dire situation. Hence, the rational thing to do would be to buy a house (apartment) which keeps the family cool during summer and warm during winter, and have some fun. Before the purchase just ask 'how much?'
If this is followed the prices might not move so much higher than say, inflation. However, the public frenzy has been so much that, due to various reasons, peer pressure being one, it is ready to pay any price for the property as long as the developer / builder is able to supply it.
No consideration is given to whether the family is going to use the amenities, such as gym, pool, car park, etc. All these come at a cost.
Businessmen know how to make money on their business; they buy low and sell high. These very people, however, are ready to pay any price for a real-estate property.
The problem with real-estate in India is that it is very difficult to assess its value. Prices are all over but value is not to be seen on many occasions. Property market here is unregulated (unlike the developed markets); it is not possible to consider rental yields as the basis for assessing value, unfortunately. Due to this, it is left to the developers to fix the price and the buyers to be in the frenzy and envy (wants it better than friends) to accept it. The market then goes in that direction, up.
Justifications are given: growing economy; increasing income; aspiring youth - India shining. However, history suggests that all booms end in busts! It is just that no one knows when.
Absence of quoted prices provides some kind of relief to the buyers as they do not have to keep thinking about it.
What if the prices fall? Well, since the property is not meant for sale (but to live) one could probably live with it. But in hindsight one would surely repent. Money lost could have been invested elsewhere to provide additional income. This could be a huge opportunity cost. What about that additional interest paid?
Buyers should be careful enough to check value in advance lest they suffer heavy losses.
If only someone could discover the tool to assess value here or still better if only the government implemented some grand reforms in land and building sector.
Wishful thinking, is that?
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