only_a_man
New member
Despite all the talk around 7 lakh unsold units, why aren’t prices falling?
Noob question: Why aren’t property prices coming down?
- Thread starter only_a_man
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bojangles1
New member
@only_a_man A house or flat still seems to be the first instinct for the financially illiterate, which most people seem to be. A couple of recent examples:
- Just last month a friend, an NRI went to Bangalore and bought a villa for cash (US dollars). He has absolutely no plans to return to India, ever. He is blissfully oblivious to investing choices and blindly believes in buying a house or flat whenever possible. He’s not even from Bangalore, he just bought one there because another friend did the same thing.
- An elderly relative who just took central govt retirement is getting a lump sum, and she is about to put the better part of a crore on an as-yet-unbuilt flat in the suburbs of Chennai! I’m having a tough time convincing her that it’s a bad idea, but it’s like she zones out when I start talking investment terminology, and wants to change the subject. Well what can I say, it’s her money.
pinksunshine
New member
@bojangles1 The second point is literally my mom right now. She is retiring and wants to invest all the money she gets in a flat. We already have a house.
I am not that financially literate, so its even tougher for me to convince her. Any ideas on where she could put that money?
I am not that financially literate, so its even tougher for me to convince her. Any ideas on where she could put that money?
gisherjohn
New member
@pinksunshine For people who are not financially literate, FDs are the best option.
On the side, start educating yourself. But don't take risks with your mother's money.
On the side, start educating yourself. But don't take risks with your mother's money.
@pinksunshine You can consult a SEBI registered fee only financial planner for this.
sammie2019
New member
neverender
New member
@pinksunshine This is really a subject for another topic. I would also like to know of this
@pinksunshine Since the amount involved is large, you should consult a good financial advisor:
https://freefincal.com/list-of-fee-only-financial-planners-in-india/
https://freefincal.com/list-of-fee-only-financial-planners-in-india/
@bojangles1 I don't think it's bubble. People look for opportunities to park their lumpsum money. RE is one of them. They are already heavily invested in stock market, gold, retirement funds, etc. Yet they have surplus capital to park somewhere. They don't want to risk that capital in stocks.
I know someone who has two paid up properties under his name and one ancestral property. Already enough invested enough in stock, retirement funds and FDs. Yet, he bought another property. When I asked about his reasoning, he said he'd liquidate any of the property once his kids enter college. His kids won't require any student loan for higher studies.
I know someone who has two paid up properties under his name and one ancestral property. Already enough invested enough in stock, retirement funds and FDs. Yet, he bought another property. When I asked about his reasoning, he said he'd liquidate any of the property once his kids enter college. His kids won't require any student loan for higher studies.
@only_a_man In an economic market, determination of price takes place only when an actual transaction takes place. If you can hold that off, the “price” does not come down. This problem (and this opportunity for manipulation) is par for the course in all illiquid transactions - for example startup stocks.
Coming to real estate, the only transaction that one is forced to perform on the clock is EMI payments or debt servicing to the financing institution. So builders can be forced to sell instead of hold; i.e. property prices will come down only via these two mechanisms - flat owners can’t pay EMI, or builders default on bank loans.
The US crisis happened when there were “subprime” loans made to people who could not repay the EMI on time. In India getting bank loan for property without income stream is still difficult so that avenue is tight.
The other aspect, builders defaulting on debt, is what people are expecting. This is predicated on two facts: builders actually fund their projects using loans in white from regular financing institutions, and that there is a strict way of the bank initiating the NPA and recovery process from the builder on time.
Both of these are murky in the Indian RE market. Large builders might be financing from audited institutions, but taking smaller players into account, on aggregate the financing itself is in black. And when debt is not serviced, banks are reluctant to mark it as NPA, or can be convinced to not mark it as such, because of their own internal pressures.
The NPA regime is being tightened, but still has a long way to go. And the black economy needs to dry up before builders are forced to turn to law abiding financing sources, It’s likely that unless there is some trigger, the current rate of decrease in property prices might not lower further.
Coming to real estate, the only transaction that one is forced to perform on the clock is EMI payments or debt servicing to the financing institution. So builders can be forced to sell instead of hold; i.e. property prices will come down only via these two mechanisms - flat owners can’t pay EMI, or builders default on bank loans.
The US crisis happened when there were “subprime” loans made to people who could not repay the EMI on time. In India getting bank loan for property without income stream is still difficult so that avenue is tight.
The other aspect, builders defaulting on debt, is what people are expecting. This is predicated on two facts: builders actually fund their projects using loans in white from regular financing institutions, and that there is a strict way of the bank initiating the NPA and recovery process from the builder on time.
Both of these are murky in the Indian RE market. Large builders might be financing from audited institutions, but taking smaller players into account, on aggregate the financing itself is in black. And when debt is not serviced, banks are reluctant to mark it as NPA, or can be convinced to not mark it as such, because of their own internal pressures.
The NPA regime is being tightened, but still has a long way to go. And the black economy needs to dry up before builders are forced to turn to law abiding financing sources, It’s likely that unless there is some trigger, the current rate of decrease in property prices might not lower further.
mikethebike
New member
@only_a_man Big market players already know the b. cycles in real estate is of about 10 to 15 years, conventionally. Unsold units do not affect their balance sheets in any way. Cash flows are never a point of concern for them since their investments are diversified.
So they sit upon their unsold units until there is a boom in the sector. They do cut prices but by a very small margin because of less price elasticity.
So they sit upon their unsold units until there is a boom in the sector. They do cut prices but by a very small margin because of less price elasticity.
only_a_man
New member
@mikethebike Read here that one of the possible reasons is erosion of margins for the developer - stands around 8% today vs 30% during 2005-06.
Source: https://timesofindia.indiatimes.com...-high-taxes-premiums/articleshow/69191878.cms
Source: https://timesofindia.indiatimes.com...-high-taxes-premiums/articleshow/69191878.cms
@only_a_man Since most builders have crossed their breakeven points by selling the minimum required flats, they can afford to sit on their inventory and keep 'MRP' of unsold flats the same as advertised in their brochures. Some builders keep their under-development projects as collateral with their lending banks. If the project did not sell well, the builders can declare 'XYZ construction pvt ltd' as bankrupt, let the bank take over the plot, the partially developed project and the builders make a loss-free exit. Personally the builder doesn't lose his own family home, car or personal wealth. All the builder loses is investment money in that project that did not sell well. Many builders undertake a project only after they know the minimum number of flats to be sold to breakeven. Those they ensure are pre-booked through friends, friendly corporations, etc. All others are extra toppings. If the toppings (aka 7 lakh flats) remain unsold, then they can afford to keep them empty until the cycles of economic expenditure turn for the better and buyers return in 2-3 years.
resjudicata
New member
@only_a_man Because all people from rich to poor invest in at least one property in his life time. My father purchased a plot near Ramoji Film City at 1200 per yard(200 sq yards) in 2012. We invest 2-3 lakhs.Now if we want to sell it tomorrow,it would easily fetch 30 lakhs. Even if he had invested all his PF,Gold money in real estate in 2012 and sell it now,He could easily make more than what he had made in his entire lifetime and another relative of relative invested 9-10 lakhs five years ago and now he sold it for 1.05 crores. These transactions are not recorded online,Max black money. Which IT employees in this time,Can save 60-90 lakhs in 5 years. There may be slowdown in real estate but no loss. Except if he purchased litigation property.
@resjudicata The trend is changing now as people are moving away from the buying model to renting a place. Real estate market offers less liquidity. If you are to convert your property to cash tomorrow you wont be able to do it. It will take time to liquidify those assets. If you are trying to engage in an urgent transaction than you might have to take a hit on the size of the transaction you are expecting.
resjudicata
New member
@shosho I do agree with you partially. When you have millions of students graduating,Companies can hire employees at low salary. Today’s job market can’t be predicted. May be people don’t want to buy,Because they can’t save enough or lack of job stability or they may be Okay with renting. Because it’s easy to migrate.The time for liquidation may depends upon how hot is real estate in that market.But nothing beats liquid cash 
@resjudicata Well inflation kicks liquid cash in it's teeth