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Real Estate Bubble In India

Discussion in 'Visa Bulletin and Priority Dates Retrogression Iss' started by AAA_USA, Nov 6, 2006.

  1. mariner555

    mariner555 Registered Users (C)

    its too late garam chai ..unless you want to buy at peak and bet whether it is a bubble. for investment I would suggest not to buy unless you plan to move back soon. I have seen a bubble in mumbai in early 90's then a bust from 94-95 to 2002 ..now it is boom again. you need to compare salaries to the estate prices and then decide how long those salaries can last ..plus there are hundreds of other factors ..
  2. GaramChai2go

    GaramChai2go Registered Users (C)

    It seems like some sort of invasion. I see this as mainly because of foreign investment in some sort or the other (be it in IT or real estate itself) which is eating up the real estate in our homeland. They want you to become slaves of mortgages for your life. The problem is media in India is all sold-out, it will only show whats needs to be shown to trap you. At least media in this country is a bit transparent.
  3. techy2468

    techy2468 Registered Users (C)

    I dont agree that the Real estate boom (or bubble) is entirely related to increase in wages and jobs........its exactly the same as nasdaq was in 1999-2000.........everyone thinks that as soon as you invest....money starts multiplying.......every indian in the world have jumped in with their savings....

    mortgage on a Rs.30 lacs (assuming 10lacs downpayment) (Rs. 3 million) at 11% interest, 20 years period, comes to be about: Rs. 30965.

    i wonder how many people (apart from the 15-20% working in IT) can afford the above payment since the average salary must be somewhere around Rs. 3-5 lacs/year in most major cities in india....

    one more scary thing is the involvement of corrupt politicians (freeze of land conversion in bangalore for example...) hand in hand with big builders.....trying to ensure that supply of land is kept tight artificially....
  4. AAA_USA

    AAA_USA Registered Users (C)

    “The current price rise is a bubble fuelled by developers. Where else do you see prices rising like this?” says Deepak Parekh, chairman of HDFC about the rising real estate prices over the past few years.

    When the chairman of India’s largest mortgage lender says this there is cause for concern.

    Last edited by a moderator: Nov 19, 2006
  5. alterego2

    alterego2 Registered Users (C)


    I can comment on the Hyderabad situation since I recently looked into this with some family members.
    When I first looked in end of 2003 early 2004, the going price was about Rs 1000-1200 per sq ft, which mean a good sized flat of about 1200 sq ft would run about 14lkh including registration costs etc. That was in a reasonable location fairly central in Hyderabad, about 6-7 miles from the current airport. The main problem the developer faced was the acute shortage of land. He was selling flats so fast that he and developers like him were bidding up land prices like there is no tomorrow, since the land price could be adjusted over the 30 or so flats that woud be accomodated.
    Early this year, the same developer was quoting Rs 1800-2000 per Sq ft for a flat in an a development about a block away from the last one. Granted that steel, cement prices had gone up etc but that seemed a bit steep. Now I heard that the final two flats in that development went for Rs3000 per sq ft! The latest escalation in less than 1 year. At that cost a 1400-1500 sq ft flat would cost about half crore or $US125K or so with closing costs. And yes he did start building larger flats as the demand was there. Truly unbelievable for India, given the currency rates and any historical precedent, yet this is what is going on.
    This is being driven by a number of factors.
    1) Outside money speculatively or otherwise bidding up prices. eg People insecure on H1b visa will be more likely to buy a flat there to hedge their bets.
    2) Well paying jobs being created there. It is now not uncommon to have a couple pooled together making an income of 100-150K Rs monthly. To them a a mortgage of up to 50K Rs is not unbearable. I heard(although I am not certain)that there is also a tax incentive for such people to do so.
    3) A growing economy and a booming stock market which appears to set new highs daily is leaving many rich folks flush with cash.
    4) There is a bountiful supply of capital available for suitably qualified borrowers. Mortgages are now as readily available as here and with the ongoing appreciation people are buying. On the other end the modern consumer culture etc is rendering traditionally loan averse Indians free of those fears.
    5) There is still an ongoing urban shift of the population especially with all the jobs being created there.
    6) There is a new "feelgood factor" about Indian city living, things like Malls, Imax theater, Reliance Fresh shops, and other such facilities etc are making people believe that development is here to stay and that living there affords a quality of life better than available elsewhere in India.

    Whether all of this will last is open to debate. Yet it does not seem that values up to this point are a far stretch. The Income disparities between the West and Hyderabad are still significant. Salaries will never equate but there is scope for the spread to narrow, perhaps up to 30% of the salaries here for the best individuals there. Salaries up to 1lkh per month would perhaps be the norm there eventually. Also the Rupee has started strengthening, and that may continue and therefore affect the US dollar value of assets there. From its weakest level the Rupee is about 10% stronger........this is likely a long term trend. Prior to the reversal, the Rupee was in perpetual decline Vs the Dollar over the prior decades.
    All in all, I see another 20-30 % run up in prices then a creep upward in tandem with real estate prices in the West.
    Certainly is interesting times in India economically. We are definitely missing the ride based on the allure of gold out west! Lets hope we find it!
    Last edited by a moderator: Nov 20, 2006
  6. techy2468

    techy2468 Registered Users (C)

    alterego2..........i just now read somewhere that home prices in silicon valley are not falling as they are supposed to be like other places in usa....

    i am surprised.....because the avg household income over there may be around 100k-120k.....but houses are around 800k-1mil .......8 times your income......i think almost 60-75% of income must be going into housing....

    what happens to quality of life??.....and what about down payment(DP)....most people will not be able to afford if 20% DP was the norm..

    I will repeat my post again.....i do know that oursourcing work will increase to india at the similar rate......but salary will not keep going up for everyone......and what happens if USA economy slows down in 2007

    in other words.....right now indian RE is totally speculative..... its not based on demand from actual users......but everyone is buying with the hope of making a killing in 6-8 months......

    i just dont know when things actually tip.........but i do know that we are reaching the peak .....when they have started asking Rs. 50 lacs for a 3 bedroom flat within 10kms of work place.....

    will the indian worker now live farther and spend 3-5 hours on travel everyday??
  7. alterego2

    alterego2 Registered Users (C)

    People tend to be less than rational when it comes to deciding where to live. The bay area is a case in point. As you said people are prepared to pay 8 times salary for housing there. By that measure, for a couple making 1lakh monthly(12 lakh annually) a multiple of even 5 times salary puts the price of 60 Lakh as within reach.

    Older generation Indians have always been frugal savers and generally are quite supportive of real estate purchase for their children. In that sense, I feel coming up with the down payment in the US is a harder task generally.

    Outsourcing will increase, and you are right, salaries will soon reach a plateau, but to date we have not seen this, hence my guesstimate that the cap may be at about 30% of US levels. Beyond that, other factors, like capital costs, infrastructure costs, telecom, project management costs for the outsourcers would likely stifle growth in salaries there. You are definitely correct that salaries are not going up for everyone, but there are sufficient numbers of people getting into IT jobs, and there are a few other select fields doing very well also there to drive this demand. On a related topic see this article about the shortage of hotel space there.


    I do not think that a downturn in the economy here will slow outsourcing, in fact it may accelerate it, as a cost cutting measure!
    I am not saying there isn't any speculation going on, but the word bubble is a bit harsh. I see some upside left followed by levelling off and a slow rise in tandem with costs in the west. We are still in the phase where things are settling into an equilibrium. Infrastructure needs development there. And yes the Indian worker will spend this time in commute because that is where the jobs are, and they need those highly sought after jobs.
    Last edited by a moderator: Nov 20, 2006
  8. techy2468

    techy2468 Registered Users (C)

    you are again quoting the RS. 12 lakhs/year salary.....i repeat......how many jobs of those salaries get added every year??.......i am sure not more than 50k/year (rough guess)..

    i am pretty sure still the salary for avg programmer is around 6 lakhs/year......i have friends who are still below this salary even though they have around 6-7 yrs exp and working in big companies...

    so where does the demand for housing at the rate of 50 lakhs/unit comes from??.... and the interest rate is 11%.......its twice as expensive than renting.....

    its mostly speculative......lets wait and see where it goes after 2 years......and i hope that things continue on the same pace wrt to other developments......it would be fantastic to have a self sustained economy in india.....
  9. umashankarnk

    umashankarnk Registered Users (C)

    I know a friend who has 11 years of IT experience and 6 years of US experience. He was earning 11.5 lakhs/yr.He couldnt get 1 lakh/yr raise or he couldnt get calls from other companies because of his qualifications (MS in US and experince).He was earching for job in Hyderabad itself.He was eligible for upto 50 lakhs loan.If he goes for that he has to pay Rs45000 per month on loan.He was living on 2 bed aprtment which was Rs7500/month.He has a driver and car ( Rs3200 for driver and Rs5500 for car) .Rs2500 for petrol.
    Based on these figures you can estimate the expenses of US returned software engineer's lifestyle.
    He used to commute 16 kms to office.
  10. AAA_USA

    AAA_USA Registered Users (C)

  11. AAA_USA

    AAA_USA Registered Users (C)

    As I was saying before the rise in real estate may not be just due to speculation. All I am trying to do is just inform people that things are not 100% right as it seems.

    You could have talked to any realtor in US last year and they would have given 100 reasons why the real estate market is for real and not bubblish in nature.
  12. AAA_USA

    AAA_USA Registered Users (C)


    Please participate in the discussion and help others in making a better decision about investing in real estate in india.
  13. alterego2

    alterego2 Registered Users (C)

    You are overlooking two points. Firstly nowadays, most spouses are also working there in the cities. That doubles the income. The jobs market there is hot and not just in high tech fields either, that money filters through the system and heats up other sectors as economic demand escalates. In certain areas, due to the rapid rate of construction and the increase in raw material prices worldwide, construction costs have risen too.
    Speculative money is there, no doubt, but there is a longer term trend within that price escalation.

    Mortgage rates are high but growth prospects look good and nowadays they can be fixed long term, besides they are offering loans for up to 85% of the final cost of the apartment. If HDFC guy is so worried why is he risking losses by doing so? I think they all feel the party will go on for some time yet.

    Definitely renting is more affordable, but that is more because everyone is buying. Affordability up to this point does not seem to be a problem.

    I agree with you time will tell, but I see no imminent crash. 2-3 yrs ago would have been the perfect time to jump in, that much I can agree with.
    Last edited by a moderator: Nov 22, 2006
  14. techy2468

    techy2468 Registered Users (C)

    Investing right now is not a good idea.....if it is not going to be your primary residence....... nobody in the world can time any market for sure......you never know when a crash starts.....and how low it can go.....

    right now its a bad idea to think of investing in a real estate in india.....unless you are ahead of the game and invest in a place which will improve after 2-3 years and which is not in the radar....

    as of now....everything around everywhere has been bought by builders.....so it is very hard to find a bargain in a future development area.....

    but if i would have had excess funds lying around....i would have bet on a property for the next 1-2 years......ready to bail out ASAP......

    chances are that one can make upto 80% profit.....if you can find a proper location.....and a good bargain.....but on other hand....you can also lose 20-30% if things went south..
  15. niv

    niv Registered Users (C)

    I don't agree about 6 lakh per annum for 5-6 experience..
    For fresh grad, Campus selected people would be getting that amount.

    I am talking about Software Engineers not for call center/bpo jobs.
    Anyway the point is whether these people can afford it or not.
    I guess no, they still need to rent.
    About real estate, you have to be wise enough to identify the location to invest. It always fetches. esp. upcoming cities
    like Hyderabad/Puna(not bangalore)..
  16. GaramChai2go

    GaramChai2go Registered Users (C)

    In India you can get same skill set / experience with salaries ranging from 2.5 to 25 lakh. It is game of chance, the way you hunt for jobs and the way you can deal with people. Your boss in India is not that easy as your boss in here. Nobody wants you to grow. So there is no standard like over here. It is big competition out there (many applicants), you have to take what you get 1st, you can't be too choosy, otherwise you will be on road and it will be scary.
  17. dl1cd

    dl1cd Registered Users (C)

    My 2 cents

    I already own property in India. But I would not want to add more .. consider Gurgaon. A good 3 BR flat / apt. would cost around 70-130L. That is serious money even here in the US. I would be assuming a second mortgage to pay the instalments (no, I do not have that kind of money sitting somewhere). With job situation as it stands in the US, I hesitate to assume additional financial responsibilities.
    Next - if nobody lives in the apt (from my family in India), I run a risk that "Bhai's" people would come in and claim the apt. as their own. If I put somebody in as a tenant, I have no clue sitting thousands of miles away if this tenant is running a brothel, a porn shop, or what. God forbid if the police were to raid and put a lock on the premises until the case is settled. Or, if this tenant finds a lawyer to sue me over my negligenc in correcting the flaws which claimed his pet monkey / chicken / guinepig / headlice .. whoa!
    A fool and his money is soon parted - so goes the saying. I would tend to be extremely careful .. and think twice before I think twice more before signing on the line.
  18. techy2468

    techy2468 Registered Users (C)

    as i have said....those people making 5-6 lacs.....with 5-6 years experience.....are my friends.....not one but 4 of them.....they all work for satyam.....in hydbd....

    of course...they are not IIT grads..........but beleive it or not......this is the ground reality........for people who were not from big schools with a great academic....
  19. AAA_USA

    AAA_USA Registered Users (C)

    Happened to be in Chennai, India. The prices here are simply outrageous. Thought Bangalore and Hyderabad were totally out of control. I guess Chennai is no different. A distant relative happened to buy 3 grounds for 30 lakhs, 3 years ago. Estimated price is around 3 crores. Good for him.

    Still looking at the prospects of buying something.

    A word of caution:

  20. GaramChai2go

    GaramChai2go Registered Users (C)

    I told you so....
    Only worry is how long is this bubble ( or I would call it scam going to last).
    Regarding buying.....I would say no ....

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