Today a report in Times of India talks about Builders uniting and forming a cartel to keep real estate prices artificially inflated till Diwali. The reason being citied for such a move is that the builders have purchased their land at very high prices and will suffer losses if they chose to reduce prices.
What a lot of horse shit! Who told them to go and buy land at such prices? Property prices have risen by 300% all over the city making it extremely difficult for a middle class family to own a house. Coupled with very high interest rates ranging between 11.5 to 12.5% per annum, the middle class can only dream of owning a house.
A 800 square feet flat costs 24,00,000 in distant Mira Road. On top of this the stamp duty and registration charges further inflate the price. Builders are illegally selling open and covered parking spaces too! For a final price of 27,00,000 you will get a loan of 23,00,000 and at 1200/- per lac per month the installment would come to 27,600/- This should be 40% of your take home salary, meaning that you should have a salary of 45,000 per month. You have to pay this installment for 20 years and if you opt for floating rate of interest, it would mean that the 20 years can easily stretch to 23 or 25 years.
It is therefore time for the buyers to unite and boycott purchase of any property that is expensive.
How do you decide what is expensive? Typically the best of construction costs 1200/- per square feet. Given the variable of land cost and allowing decent profit of 30% a 800 square feet flat in Mira Road should cost about 2300/- per square feet. Therefore a fair price for such a flat should be around 18,40,000 and not more. Please be aware construction costs vary between 550/- per square feet to 1200/- per square feet, therefore for a unscrupulous builder there is still a very big margin to play with.
Buyers should decide to wait out the sellers and only purchase flats when prices become reasonable. For example a flat is Vadodara is being sold @ 1275/- per square feet. Obviously the seller there too is making money! Why such high costs in Mumbai? Reason being greed of the builders who have bought land left-right and center in the hope of selling the same at a hefty profit but now their plans are coming undone. It will be very interesting to watch as the situation develops.
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4 comments:
yeah..I agree with you. It is basically the greed of builders and status symbols for the people having excess money which is pushing the prices above the sky for middle class. But, how to counter it? Now, if I need a home now.. then how can I boycott my need?
Hi Amit,
Thanks for writing. I think the answer to your question is that you need to postpone the buy decision for some time.
This is an artificially created shortage in which the land owners (mostly politicians or their family members), builders and developers are involved. The banks are part of the conspiracy as they started out giving loans at 7% p.a. and have steadily increased the rates to 12.5%. Whereas they continue to pay you measly 3 to 4% as interest on your savings account.
For the moment it would make sense to stay on rent. For example if you were to rent out a premises at 8000 per month, you would pay a rent of 88000 in 11 months, whereas if the property prices drop by the expected 20 to 30%, you will save 4 to 6 lacs on a purchase price of 20 lacs.
I think that makes for sound mathematics. Then you are the best judge. Ideally in a rising market, it would make sense to buy because the increase in value would offset the benefit of staying on rent, whereas in a falling market, going on rent will actually save you money.
Vinod Chand
This is a very good article. You have knack for numbers, original thinking and public cause. You could be something like Michael Moore of India. Going forward i suggest dont depend on Google adsense(which reduce the beauty of any website). People like me can donate to people like you in whatever small way possible. More power to you
Dear Satish,
I am overwhelmed with your praise and comparisons with Michael Moore.
I agree that Google Adsense does mar the beauty of a website, but I just started Adsense for a lark and very frankly still have to make any money out of it. I may soon turn it off. Actually as I write a lot about credit card problems, I have an active filter to filter out advertisements about credit cards and other banking products.
Your offer to donate is very much appreciated, thanks but no thanks as I am not doing this money. By the grace of god I am reasonably well off and do not need money to motivate me to write my mind. I nevertheless thank you for your offer and the compliments that you have showered on my writing.
And thanks for visiting my weblog, taking time to read and commenting on the article. I look forward to your continued patronage and encouragement.
Warm regards
Vinod Chand
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