India Property Bubble

[d2thdr]

At Rs 1.91 cr, average cost of flat in Mumbai now at all-time high

 

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With property prices soaring to dizzying heights in the country's financial capital, aspiring home-buyers have to be much more than a crorepati to buy a flat in Mumbai, where the average cost of a roof over one’s head is now at an all-time high of Rs 1.91 crore.

 

According to figures put together by the real estate research agency Liases Foras, the weighted average cost of a flat in Mumbai at 1.91 crore has leapt by 49 percent over the last one year. The weighted average cost is the total capital value of all flats divided by the total inventory in each city. In comparison, five other cities like Bangalore, Hyderabad, Chennai, Pune and the National Capital Region (NCR) have witnessed either a drop in rates or a negligible increase. An average flat in these places is relatively affordable at Rs 35 to Rs 50 lakh.

 

Pankaj Kapoor, CEO of Liases Foras said that most cities have maintained an equilibrium in pricing, “Of all the cities, Mumbai is the only one where the prices have escalated so much that no segment can afford it. Most developers here are not bothered about end user sale. If the sale of flats in Mumbai for April to June last year is compared to the same period this year, there is a 50 percent decline this time around,” said Kapoor.

 

The QE money from west flowing into the emerging markets has made those markets ripe for a significant correction. Speculation is rife and property crash will be just spectacular. And I am looking forward to it.

 

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LINKS (added by DrBubb)

 

Indian Property site :: http://www.indianrealtynews.com/

[drbubb]

Rs 1.91 cr ??

 

How do I translate that into US$, and what would that mean in terms of $ per sf ?

 

It would also be interesting to know what sort of multiple that is to average incomes.

 

China's multiple has been reported at 7x for major cities, and I also saw a figure of 20x for Beijing.

These seem unbelievable figures compared to what is common in the US (maybe 2x - 3x now), but they are partly driven by "rich foreigners" buying into the Chinese property market. They may be overseas Chinese.

 

I imagine you also get many wealthy overseas Indians buying in their country of origin.

 

BTW, is there any easy way to go short Indian property ?

[d2thdr]

Crore is a Hindi Language word for 10 million. Lakh is a word for 100,000.

 

Average monthly salary in Mumbai is about 600$. This is in a respectable job either in a bank or in financial service. Per square foot rate is about 100000 Rs roughly equivalent to about 2300$/sq ft. It is definitely ridiculously expensive. With infrastructure abysmal, chronic water and electric shortage with crumbling but slowly improving infrastructure, many of the valuations in UK seem sane. No one can afford it and people are buying it as an investment. Of course with loan from banks, hoping that someone will buy it off them. Quite a lot of property is bought off plan.

 

I wish I knew how to short the housing sector, I will however try to look it up and let you know.

 

Link

 

The world’s tallest residential tower is to be built in Mumbai, India, on the site of an old cotton mill, it has been announced. Mumbai based Lodha Group will build the 117 storey skyscraper on a 17 acre site in Lower Parel in the city centre. It will be 442 meters high, beating the current tallest residential building in Australia at 323 meters and will contain 276 luxury apartments.

 

I am quite sure all the properties in this building have already been sold off plan.

[Member100]

Crore is a Hindi Language word for 10 million. Lakh is a word for 100,000.

 

Average monthly salary in Mumbai is about 600$. This is in a respectable job either in a bank or in financial service. Per square foot rate is about 100000 Rs roughly equivalent to about 2300$/sq ft. It is definitely ridiculously expensive.

2300$/sq ft ? That cannot be right.

You must mean: 230$/sq ft.

 

So a 1,000 sf Flat costs: $230,000

 

If ave. monthly salary is $600 : x 12= $7,600 per annum.

 

$230,000 is 30.3x that figure, and that is a massive multiple.

[d2thdr]

yes it is 2300$/sq feet. no typo.

[drbubb]

yes it is 2300$/sq feet. no typo.

303x Average incomes?

What an absurd multiple !

How can banks finance such properties?

What are mortgage rates in India?

[d2thdr]

303x Average incomes?

What an absurd multiple !

How can banks finance such properties?

What are mortgage rates in India?

 

Mortgage rate on an average 11 % but can vary. Non Residents can afford somewhere which is far away from the heart of the city which is difficult to get to.

 

2300$ even if it drops to 800$/sq ft is high. I make good money in UK, and I feel I can not afford property in a Nicer part of the city. I wont buy until it is affordable and cheap.

[drbubb]

Mortgage rate on an average 11 % but can vary. Non Residents can afford somewhere which is far away from the heart of the city which is difficult to get to.

 

2300$ even if it drops to 800$/sq ft is high. I make good money in UK, and I feel I can not afford property in a Nicer part of the city. I wont buy until it is affordable and cheap.

That is a huge interest rate.

So if someone buys a 1,000 sf flat for $2.3 million, and finance 80% at 11% interest, then the interest alone is :

$2300K x 80% x 11% = $202,400 per annum

 

It is astonishing that people can find that much money, in a country were the average income is some much lower than the West.

 

Being a landlord in such a place must be where the easy money is

[d2thdr]

That is a huge interest rate.

So if someone buys a 1,000 sf flat for $2.3 million, and finance 80% at 11% interest, then the interest alone is :

$2300K x 80% x 11% = $202,400 per annum

 

It is astonishing that people can find that much money, in a country were the average income is some much lower than the West.

 

Being a landlord in such a place must be where the easy money is

 

Its difficult to get a Loan to Value above 50% in present climate. The result is empty properties every where and new constructions still going strong.

[drbubb]

Its difficult to get a Loan to Value above 50% in present climate. The result is empty properties every where and new constructions still going strong.

Classic bubble situation

 

 

/more photos of the Bombay Bubble: http://www.skyscrapercity.com/showthread.php?p=55808821

[d2thdr]

Mumbai property rises above slums

By Joe Leahy and James Fontanella-Khan in Mumbai

Published: October 3 2010 17:25 | Last updated: October 3 2010 17:25

 

link

 

Their high-priced exclusiveness as they tower over the city’s slums, which house two-thirds of its population, highlight the growing gap between haves and have-nots in what is already one of the world’s most unequal societies.

 

They are living in a parallel universe.

 

“With the new buildings, there is much more segregation than in the Bombay I grew up in [during the 70s],” says Suketu Mehta, the author of Maximum City, the novel about Mumbai whose title has become a synonym for India’s financial capital.

 

Mumbai’s property market, Asia’s third most expensive, has staged a dramatic recovery from the global financial crisis in line with the country’s economy – expected to grow 8.5 per cent in the current fiscal year.

 

But the difference between this and previous real estate booms is the size and increasingly elite nature of the new buildings.

 

The prices are unsustainable, but no one agrees.

 

He says average building size for luxury developments in Mumbai has doubled from 25 to 50 floors while prices in some areas have risen three- or fourfold in five years. Flats in his three residential towers are selling for between $400,000 and $4.5m.

 

They are built for India’s new breed of consumers, who have travelled abroad and want global levels of services. “I can’t have a customer who gets into a car of international quality and not offer him a building of an international standard,” Mr Oberoi says.

 

400,000$!! 4.5m$!! still inadequate water, electricity....build me international quality roads so that i can drive an international quality car. Apparently the cars sold in India by the big German and Japanese brands are the 5 year old cars which could not be sold in the west.

 

Mr Lodha dismisses concerns that supply might outstrip demand for the new residential developments, citing the city’s chronic lack of housing supply at all levels of the market, which forces even the lower-middle class to live in slums or tenements.

 

With no hope in sight of an increase in mass housing for lower income earners, the new buildings will only serve to underline social inequality in Mumbai, known as India’s “City of Dreams” for its Bollywood movie industry and powerful tycoons.

 

“Most of the people I know in Bombay ‘high’ have no interaction with Bombay ‘low’, except that they look down upon them from a great height, like barons in medieval fortresses,” says Maximum City’s Mr Mehta.

 

Anyone who dismisses concerns is in denial.

[drbubb]

D2, you are not the only one seeing these crazy prices...

 

Property Prices Skyrocketing in Delhi and Mumbai

October 8, 2010

 

This is one question that is in the minds of almost everyone looking for property in Mumbai, Delhi or any other city where prices have spun out of control. However, speculating about real estate bubbles on the Indian market without looking at the facts is the work of a doomsayer, not an analyst.

So, let’s define a bubble first. In a normal market, prices do rise, but only in tandem with the rate of inflation or a rise in middle-class incomes. Real estate enters bubble territory when prices climb unrealistically fast. But is that the case today? It is definitely a possibility, but only in the cities where prices have actually skyrocketed beyond affordability. It can be argued that they have done so almost everywhere in the country, but the fact is that local people are still buying homes on as-needed basis in most tier-II and tier-III cities. Nor is the supply in most of those cities either overly constrained or curtailed. So, when we talk of the possibility of a bubble, we’re actually only talking of property in Mumbai and Delhi right now.

 

The real estate market in Delhi led the correction, and Mumbai fell in line next. Both bounced back after the introduction of stimulus packages and the government’s actions in restructuring debt. During the revival phase, a large amount of capital sitting on the fences immediately saw an opportunity. This was first seen in the equity markets, and then later in the real estate and gold commodity markets - all three classes bounced back convincingly.

 

There is, therefore, a concern that these two markets have demonstrated higher-than- expected enthusiasm, especially in the central parts in the case of Mumbai, and Gurgaon and Noida for Delhi. A lot of investors have plugged in considerable amounts of capital in these regions, and the values, on an average, have now gone 30% higher than the last peak. Some of the residential developments in central Mumbai in 2008 had peaked at `30,000/sq ft. Today, they stand at 38,000/sq ft.

 

The kind of volumes that we have witnessed in the first half of 2010 has come down dramatically but the liquidity situation in the market has not dropped, and neither has the appetite for investment. In fact, the same enthusiasm, which had been previously contracted by the central parts of Mumbai, is now spreading towards the other parts of the city.

 

There is yet another reason for the concern over a bubble building on the market. All developers who had ventured to buy land overseas or across India are now buying only in the primary cities. In other words, Mumbai developers are concentrating on acquiring land solely in Mumbai, and the same is happening in Gurgaon. Investments are now chasing these tier-1 markets. If this continues, then there is certainly the probability of a bubble in residential property by the end of the year.

 

/see: http://www.indianrealtynews.com/real-estat...and-mumbai.html

[d2thdr]

http://www.youtube.com/watch?feature=player_embedded&v=ITuWHewyWng

 

Reserve Bank of India tightens home loan norms.

 

 

[d2thdr]

Owed Rs6,000 crore, banks cut off funds to Mumbai builders

 

 

http://timesofindia.indiatimes.com/india/O...s#ixzz1CW0KOIPk

 

MUMBAI: Money has suddenly stopped flowing into Mumbai's real estate sector with banks and financial institutions tightening the screws on builders. In the past two months, cash-strapped developers have flocked to private money lenders who provide short-term loans at exorbitant interest rates of between 24% and 30% a year. Banks charge builders between 13% and 15% interest a year.

 

Market sources said leading banks now lend to only credible builders for select projects, but have turned off the tap for most others in the construction sector. "They are busy mopping up what is due to them. By March 2011, Mumbai builders alone are scheduled to return roughly Rs 6,000 crore to banks," said the CEO of a leading property fund. Market sources said some leading developers in Mumbai have loan exposures of Rs 3,000-4,000 crore each.

 

 

The game is almost up. Recently my parents decided they want to value 2 properties that have in prime areas in suburban Mumbai. We were flabbergasted when they were told that the price of these 2 places would come to some where 50 crores. Thats hell of a lot of money. Not that we are selling it anyway, its ancestral property with its own water supply through a well and close to everything.