SkyscraperCity banner

41 - 60 of 92 Posts

·
Registered
Joined
·
2,708 Posts
They bought it for 80L. How much is it worth now. Rent is not the way to calculate return on investment. If you get 1 crore now for an 80 L apartment bought 3 years back, that's not a bad investment
Yes.Yes. I know Bro. I know it. Rent is not the yard stick to calculate the returns. It is the appreciation in the value of the property. Do I look so stupid not to know it? But listen to me very carefully. You will know the reason for my skepticism.

For what ever appreciation you are talking about, there is also a depreciation, inflation, lack of demand, over supply, devaluation of rupees etc., that may happen during a course of time. If you take in to consideration all these things apart from the interest paid on the Bank loan, you are going to land in red at the end. Also do not forget the melt down of US housing sector a decade ago, which led to millions being rendered bankrupt, innumerable Banks collapsing and closing, and the US and Global economy nose diving in to an unmanageable recession. It took them nearly five years to recover. The housing sector has not yet recovered.

Let me take my own example. For my son I will use the word 'I'. I spent Rs.20 lacs of my own money as down payment and took Rs.60 lacs loan from SBI, to make it Rs.80 lacs. That was three years ago. Now you say that I can sell this flat at Rs.1 crore. Where did you get the figure Rs.1 crore? Some people are trying to sell their apartments there and they cannot find a potential buyer even for Rs.90 lacs.

Here is an offer for you. Sell my flat for Rs.1 crore and give me only Rs.98 lacs. Balance Rs.2 lacs you can keep as commission. Even with 98 lacs I am not earning any profit or returns. I am barely breaking even. Do you want to know the break up? For my own money of Rs.20 lacs paid as down payment , I will not calculate any interest. What ever I earned as rent at the rate of Rs.15,000/- per month shall be considered as my interest. OK. If I get 98 lacs I can take back my 20 lacs. I need to pay 60 lacs to the Bank. So far I have paid an interest of Rs.18 lacs to the bank on the loan of Rs.60 lacs for three years. At a rate of 10% per annum. I am paying a monthly EMI of Rs.60,000/- to the Bank. Out of which Rs.50,000/- to Rs.60,000/- is adjusted towards interest. You know in the EMI system for the first five years, what ever EMI paid shall be only sufficient for the interest. Only after a few more years the principal amount get reduced and so interest also. So I need to get back 20 plus 60 plus 18 the interest paid by me. This amounts to 98 lacs. So if you pay me 98 lacs today, I shall not make any profit. I shall break even. I am satisfied. You can keep the balance Rs.2 lacs. Are you ready for the challenge?

If you stretch this three years to fifteen or twenty years, the calculation gets more complex. You are sure to lose a fortune if you sell it after 15 years. Taking in to account the depreciation, inflation, interest paid and devaluation of rupee after fifteen years.

In Kerala it is more complex. In Kerala nobody likes to purchase a flat that is used by somebody else for fifteen years. Everybody wants their own brand new house. So there will be no takers for your flat after fifteen years. Suppose I purchased a flat for Rs.20 lacs ten years ago. Even if I am ready to sell it for Rs.30 lacs today nobody will take it. They will go for a new flat of Rs.40 lacs of the same size. If you own a piece of land of even 10 cents on 'terra firma', there is some chance of you making a profit after ten years. Not on a piece of sky called a flat standing on the tenth or fifteenth floor of a building.

Remember the 'Pancha Tantra' story of the day dreams of a 'Malar Podikkaran'? His day dream was shattered when he jumped in joy and broke his pot containing 'Malarpody'. He dreamt that he will purchase ten eggs with the money he gets from selling the 'Malarpodi'. Then the ten eggs will hatch in to ten chicken. Soon he will have hundreds of chickens. Then he will buy a calf. It will multiply in to thousands of cows in due time. He will become a rich man. He then shall marry a beautiful girl. He will produce ten smart sons. He will carry the youngest one on his shoulder and jump up and down to entertain him. And actually he jumped with the Malarpodi pot on his head.

And you know the rest.
 

·
Travancore
Joined
·
8,882 Posts
Discussion Starter #42
^^ Purchasing an apartment as "investment" always has to be made with an eye on the rental income ... "I" should not have put 80L for a rental of 15K pm in the first place.

And these are very city specific and location specific given the demand/supply scenario..
In Kerala, on the residential front TVM for eg: is an under supply market and hence apartment investing is relatively more attractive...
 

·
Registered
Joined
·
2,708 Posts
^^ Purchasing an apartment as "investment" always has to be made with an eye on the rental income ... "I" should not have put 80L for a rental of 15K pm in the first place.

And these are very city specific and location specific given the demand/supply scenario..
In Kerala, on the residential front TVM for eg: is an under supply market and hence apartment investing is relatively more attractive...
Who am I? Rather what am I? A ping pong ball?

One says it is not the rent what is the return in investing in an apartment. It is its resale value. He gives me a whack. I fall on the other court. The apartment worshiper on the other side gives me another whack. Saying it is the rental that I should fix my 'eye' on, when I invest in an apartment. I am confused. I come up with my own wacky calculation and find both are not correct.

It is my wish and blessing to both of them - one who has the 'eye' on the rental 'profit' and the other who has his 'eye' on the windfall that he is going to make after twenty years - that both of you invest your last penny in various flats costing 10 lakhs to three crores. So that both of you turn in to millionaires with in no time.

In the meanwhile let me shed a few tears for the bloody fool that my son was, who invested 80 lacs on an apartment. Thinking that the tennis courts, basket ball courts, mini football and cricket grounds, skating rink, man made lake, multilevel parking, club house, ball room, badminton courts, boutiques, beauty parlour, mini theatre, party hall, snooker room, restaurants and swimming pools in his colony will give him Nirvana. I warned that fool that you would end up not using even any one of the facility. And he ended up not using any. He is paying through his nose for these unused facilities. Imagine, Rs.7000/- a month as maintenance charge! Though he thought he would use it, he migrated to Canada. And was forced to give it on rent for a princely sum of Rs.22,000/- per month. In effect he gets only Rs.15,000/- on it, after paying Rs.7000/- for the maintenance. I asked him to give attention to the quality of water they are providing you. After all this is what you are going to use. And he ended up bathing in foul smelling water. And purchased 'Bisleri' water for cooking and drinking, costing him another Rs.3000/- a month. After investing 80 lacs, he is thus paying Rs.10,000/- from his pocket towards unwanted things every month.

This is what an apartment delivers to you. I repeat my son was a fool. It cannot be otherwise. His father is not a lesser fool.

I am glad Travancore, Thiruvananthpuram holds a greater demand and scope for apartments compared to Bengaluru. God bless you and your apartments.
 

·
Registered
Joined
·
951 Posts
^^ Purchasing an apartment as "investment" always has to be made with an eye on the rental income ... "I" should not have put 80L for a rental of 15K pm in the first place.

And these are very city specific and location specific given the demand/supply scenario..
In Kerala, on the residential front TVM for eg: is an under supply market and hence apartment investing is relatively more attractive...
:lol::lol::lol:

Demand of housing is bengaluru is 1000 times more than that in Kochi and Thiruvanthapuram combined . But again as Kuttapakath uncle said ; even in bengaluru it is hard to sell old apartments with high rate where demand is more ; imagine the case of our cities .

Builders are hiding the fact that they have a lot of unsaleable stuff / assets because if they open the mouth ; the existing market will also collapse . They fix the price of Apartment including this & i heard they consider 10 % of the housing area in the entire apartment is considered as a under market asset. Coming to Rent ; other than Apartment rented out for some extra activities:nuts: ; no apartment will provide a rent above 15-25 k . Plus theres' no apartment available less than 50 -60 lac inside the city limits . If you are not staying ; owning an apartment is a loss .

Villa / Buying house / plot would be a wiser decision in my opinion .
 

·
Travancore
Joined
·
8,882 Posts
Discussion Starter #45
:lol::lol::lol:

Demand of housing is bengaluru is 1000 times more than that in Kochi and Thiruvanthapuram combined . But again as Kuttapakath uncle said ; even in bengaluru it is hard to sell old apartments with high rate where demand is more ; imagine the case of our cities .

Builders are hiding the fact that they have a lot of unsaleable stuff / assets because if they open the mouth ; the existing market will also collapse . They fix the price of Apartment including this & i heard they consider 10 % of the housing area in the entire apartment is considered as a under market asset. Coming to Rent ; other than Apartment rented out for some extra activities:nuts: ; no apartment will provide a rent above 15-25 k . Plus theres' no apartment available less than 50 -60 lac inside the city limits . If you are not staying ; owning an apartment is a loss .

Villa / Buying house / plot would be a wiser decision in my opinion .

You are missing the point. I am talking about limited supply in the market which is driving up rentals..



See a screen capture from magic bricks on the rental supply in the city! (proxy)





Beyond the rates , look at number of apartment options available.. 50-60..
You run a similar querry in EKM..is 400+ and BGLR may run into many thousands..
 

·
Registered
Joined
·
386 Posts
60K rent for Artech Centrix and 40k rent for Heera High life?...Are these verified?..Nothing to degrade TVM...these figures are a big surprise for me...I have been told good apartments go for 25k in TVM prime areas by my friends in the city..With that kind of rent, you should be getting something like Pebble bay or Brigade Gateway kind of facilities..
The ones shown are just ordinary run of a mill kind of blocks with ordinary floor plans...man!...real estate in KL sucks!

What Kuppatakath said regarding RE as an investment is true..If one is buying an apartment for 80 lakh and selling for 1 crore after 3 years, your CAGR is just around 8%. That is something of 1.5% above the FD rates. You need to then think about the tax you need to pay for selling soon, and then stamp duty which you paid for when you bought the property. Then additional expenses like brokers fee and stuff...Which means your return is just above FD and much below mutual funds. Add the head ache to arrange the whole deal and haggling with multiple parties...It doesnt sound very attractive..Any compounding above 10% is attractive..which means your property value doubles in 7 years..Will an apartment which cost 80lakhs today cost 1.6 crore in 7 years or below?..That will be a good investment.

I cant predict the future, but i remember that kind of growth was present in Bangalore in the heady days of 2004 - 2010..Some properties doubled in 5 or 6 years..some even in 4 (thats a CAGR of 18%..even the best mutual funds will find it tough to crack those levels). But i dont see that kind of economic development which i saw in Bangalore in those years either in Kochi or TVM. Its still shady developers selling dreams.. mainly to NRIs and some to the local hedging crowd.
 

·
Registered
Joined
·
19,240 Posts
You haven't even included (1) Rupee depreciation for NRI's (2) Tax on the profit if you sell the property (3) You have to sell the property at 15% less than the prevailing rate in the region for new properties as your's will be a used one.

If you calculate everything including the interest on the property investing in RE in India other than living is wasting your hard earned money.
 

·
Registered
Joined
·
386 Posts
^^ thats what i meant...i didnt take depreciation into account as if the property is in a good location (like marine drive ) the supply is less and people will pay equivalent of a new apartment...again this is a best case scenario...the whole point i was trying to sell was that real estate is not a good investment..in a fast growing city like bangalore or Hyd, it might be..but not in KL. Thats the reason i still havnt bought one, even when loans are cheap in GCC. A purchase is worth only if i intend to stay. I get hardly 3 weeks of vacation every year, so i decided to just stay at my parents house while i visit and instead put all my savings somewhere else..might buy one when i leave GCC for good..

But all NRIs i know still buy apartments as buying land and building a house is not safe. You dont know what might happen while you are away. For them apartments mean safety of asset.
 

·
Travancore
Joined
·
8,882 Posts
Discussion Starter #49
You haven't even included (1) Rupee depreciation for NRI's (2) Tax on the profit if you sell the property (3) You have to sell the property at 15% less than the prevailing rate in the region for new properties as your's will be a used one.

If you calculate everything including the interest on the property investing in RE in India other than living is wasting your hard earned money.

Yes, you include everything possible..but your conclusion that RE investing is waste is perhaps misplaced. We did discuss in bit more detail on rental Yield , Inflation and LT Interest Rates...Those posts vanished somehow!

The entire anti_RE thesis is based on FD benchmarking to the prevailing interest rates and the very rate risk is least considered in any of the calculations..

Below is the interest rate cycle in the US for eg: ... Your FD's may fetch you nothing in 20 years from now!


As mentioned RE is about long term investing and NOT the 2-3 years quick money..
 

·
Registered
Joined
·
386 Posts
The graph is for US which was a developed economy with mature fiscal policy even in the 1960s. We will still be a developing economy with inflation issues even in 2040. Remember, FD rates follow RBI interest rates which are in itself set marginally above inflation rate of the day. So If the inflation is below or near 1%, expect your investments including RE and FD to grow near that..

What i have observed is that there is very little productivity/industrial growth in KL and govt doesnt care..nor does the public. We feel cushy because close to 15billion$ comes as remittances every year which means there is plenty of money floating in retail sector. So whoever works in retail, be it super market or building material shops; makes decent profits. All the construction you see in Kl cities are of big shopping centers and Apartments..But if we are looking at a sustainable economic growth we need factories and businesses to open. It is just not happening...we hardly have any factories left, and even the software boom has come to grinding halt..i know there are still companies expanding in KL, but not to the pace we wanted it to be...Smart City project was mooted when i was in second year (2003/04)..15 years and it is still nowhere. If there was solid growth all those buildings would have been lapped up by companies...at the peak years of 2006, I remember Bangalore had 4 companies opening every week!!.. It is impossible to get that kind of growth now, but we need to focus on generating more employment opportunities here.

You mentioned that we need to think of an apartment investment for 20 years time period. We will find that people then wont be ready to pay top money for apartments in buildings which are 20 years old...Just think about the apartments built in 90s..they look very old fashioned now. Will anyone pay 80 lakhs for a house in that..the electricals, plumbing, lifts, flooring will be old and wont last another 30 years. 20 years from now, apartments will be using the materials and design which are trending then making the apartments built now really jaded. .
 

·
Registered
Joined
·
19,240 Posts
I started investing in Indian RE when $ was 45 and it is 75 now in 15 yrs and heading towards 100 in the next few years. I'm a long-term investor believing India is next China but have come to a conclusion we'll never be. Every city will have 3-4 yr heated RE and then things will cool down. I'll stop here.
 

·
Travancore
Joined
·
8,882 Posts
Discussion Starter #52
 

·
Travancore
Joined
·
8,882 Posts
Discussion Starter #53
You mentioned that we need to think of an apartment investment for 20 years time period. We will find that people then wont be ready to pay top money for apartments in buildings which are 20 years old...Just think about the apartments built in 90s..they look very old fashioned now. Will anyone pay 80 lakhs for a house in that..the electricals, plumbing, lifts, flooring will be old and wont last another 30 years. 20 years from now, apartments will be using the materials and design which are trending then making the apartments built now really jaded. .

Ever heard of redevelopment flats ??...There are active investors only focussed on redevelopable properties in India ...i.e. to be demolished and redeveloped with higher FSI!!
 

·
Registered
Joined
·
386 Posts
Ever heard of redevelopment flats ??...There are active investors only focussed on redevelopable properties in India ...i.e. to be demolished and redeveloped with higher FSI!!
FSI in KL is already high compared to rest of the country barring maybe Mumbai....Will they raise the FSI to 10 or 15?...I doubt it..The road and utility networks in cities are not ready to absorb that kind of load..

Redevelopment of flats are popular in Mumbai where old 8 storeyed apartments are demolished to make way for 40 or 50 storeyed apartments. The original owners get a new one in the redeveloped apartment bldg or sometimes even an additional one to sell if they bargain well. Most of Kerala apartments are already 20 storeyed or more. Redevelopment might happen for super prime locations like Marine drive or Kowdiar, but the rest will remain the same...

Real estate investments are good when we are talking about buying land..that is an investment that will only go up..But buy apartments only if you want to live in one..not as an investment..or we need to wait to ride out another big wave like the early 2000s ...those are once in a generation events. To give context, a similar wave will have to push prices of regular apartments from 60-80 lakhs to 1.5-2 crores in 5 or 6 years...To have something like that again, we need a rapid industrialisation of the state..right now the developments you see are rapid commericalisation with all retail shops and malls...they dont generate large scale employment or value to the economy like a large company with jobs and tax..
 

·
Kollam Rising
Joined
·
13,986 Posts
Redevelopment may come into picture generally for those 50+ year old flats or those in dilapidated mode! Mumbai has apartment culture from the 1960s itself!

I do not think there will be any scenario of this in Kerala untill 2030. Moreover, by that time who knows what will be real situation in Kerala. I think the so "called development" will be rampant different in the next decade! Lets keep our fingures crossed!:)

An interesting read in the below link:

Mumbai is witnessing a trend of micro flats

FSI in KL is already high compared to rest of the country barring maybe Mumbai....Will they raise the FSI to 10 or 15?...I doubt it..The road and utility networks in cities are not ready to absorb that kind of load..

Redevelopment of flats are popular in Mumbai where old 8 storeyed apartments are demolished to make way for 40 or 50 storeyed apartments. The original owners get a new one in the redeveloped apartment bldg or sometimes even an additional one to sell if they bargain well. Most of Kerala apartments are already 20 storeyed or more. Redevelopment might happen for super prime locations like Marine drive or Kowdiar, but the rest will remain the same...

Real estate investments are good when we are talking about buying land..that is an investment that will only go up..But buy apartments only if you want to live in one..not as an investment..or we need to wait to ride out another big wave like the early 2000s ...those are once in a generation events. To give context, a similar wave will have to push prices of regular apartments from 60-80 lakhs to 1.5-2 crores in 5 or 6 years...To have something like that again, we need a rapid industrialisation of the state..right now the developments you see are rapid commericalisation with all retail shops and malls...they dont generate large scale employment or value to the economy like a large company with jobs and tax..
 

·
Travancore
Joined
·
8,882 Posts
Discussion Starter #56
Real estate investments are good when we are talking about buying land..that is an investment that will only go up..But buy apartments only if you want to live in one..not as an investment..
Alright..you buy say 10 cents of land plot for INR. 1 Cr. at urban city limits and hold it for next xx years..Whts the investment thesis you have for land purchase ??? What do you expect the returns to be like ?

or we need to wait to ride out another big wave like the early 2000s ...those are once in a generation events. To give context, a similar wave will have to push prices of regular apartments from 60-80 lakhs to 1.5-2 crores in 5 or 6 years...To have something like that again, we need a rapid industrialisation of the state..right now the developments you see are rapid commericalisation with all retail shops and malls...they dont generate large scale employment or value to the economy like a large company with jobs and tax..

Industrialization and employment is almost joke in this state ...What rapid industrialization did Kerala see in the past 3 decades for the real estate run up we witnessed ??
 

·
Registered
Joined
·
386 Posts
Alright..you buy say 10 cents of land plot for INR. 1 Cr. at urban city limits and hold it for next xx years..Whts the investment thesis you have for land purchase ??? What do you expect the returns to be like ?

Land is limited in supply..it will only go up..Apartments can keep up supply with demand...besides, there is no depreciation like cars, houses, buildings etc..

Industrialization and employment is almost joke in this state ...What rapid industrialization did Kerala see in the past 3 decades for the real estate run up we witnessed ??
There was no boom for 3 decades..in the 90s the real estate sector was quite placid..bullish but not a boom..the boom began in 2000-02 time and went on till 2010...from there on it was stagnant...3 factors caused this...
One was the huge credit offtake till 2008... This meant credit was available at cheaper rates to developers. They could tap into global sources for huge loans at better terms than Indian banks. All banks were lending like crazy and not doing any due diligence on the feasibility of projects(I remember one our client (Rohan Developers, Pune) took loan from an Australian bank to fund one of their 500 unit Ap project.) Even our chota KL developers binged on our Indian banks who were also flush with cash and happy to lend..
Second was the software boom which started a wave of RE investments in KL seeing the flush of new white collar jobs who can take higher housing loans than regular folks...
Third was the NRI investments..Here in gulf, it is very easy to get loans at 3 to 5% interest and you dont have to furnish any guarantee or mortgage. A two income family can easily mop up 60 lakhs loan just by handing over salary certificate and civil id copy and pay back the loan in 5 years with 40% of their salary as EMI. Everyone saw the real estate going up and took loans and bought flats in EKM, TSR, CLCT and TVM whichever city being closer to them...this was also the time when Rupee depreciated substantially which also helped. Unlike houses, apartments give safety of property to NRIs who are hardly home. For this reason NRIs buy flats even now...

From these 3 factors, First and Second is grounded for now. Third is unaffected but people here are also now slowly realizing that Apartments are not that great an investment as thought. People are slowly moving to mutual funds and stocks.

First factor can come back, but with RERA and more scrutiny, we need to wait and see how it will play out. Software jobs are still growing but very slowly and spread out in multiple cities in KL. Which is the reason why i said we need other business growth to support more white collar jobs.
 

·
Kollam Rising
Joined
·
13,986 Posts
I think any of these 40K and 65K rents are just hype than actual worth. Even in Bangalore...posh apartment rents are only 35 - 40K only.

If anybody is paying 65K in Kowadiar, he is just getting the ecstasy and bliss of staying near to the Raja's palace!:)

60K rent for Artech Centrix and 40k rent for Heera High life?...Are these verified?..Nothing to degrade TVM...these figures are a big surprise for me...I have been told good apartments go for 25k in TVM prime areas by my friends in the city..With that kind of rent, you should be getting something like Pebble bay or Brigade Gateway kind of facilities..
The ones shown are just ordinary run of a mill kind of blocks with ordinary floor plans...man!...real estate in KL sucks!

What Kuppatakath said regarding RE as an investment is true..If one is buying an apartment for 80 lakh and selling for 1 crore after 3 years, your CAGR is just around 8%. That is something of 1.5% above the FD rates. You need to then think about the tax you need to pay for selling soon, and then stamp duty which you paid for when you bought the property. Then additional expenses like brokers fee and stuff...Which means your return is just above FD and much below mutual funds. Add the head ache to arrange the whole deal and haggling with multiple parties...It doesnt sound very attractive..Any compounding above 10% is attractive..which means your property value doubles in 7 years..Will an apartment which cost 80lakhs today cost 1.6 crore in 7 years or below?..That will be a good investment.

I cant predict the future, but i remember that kind of growth was present in Bangalore in the heady days of 2004 - 2010..Some properties doubled in 5 or 6 years..some even in 4 (thats a CAGR of 18%..even the best mutual funds will find it tough to crack those levels). But i dont see that kind of economic development which i saw in Bangalore in those years either in Kochi or TVM. Its still shady developers selling dreams.. mainly to NRIs and some to the local hedging crowd.
 

·
Travancore
Joined
·
8,882 Posts
Discussion Starter #59
Lemon Tree Projects: Update

 
41 - 60 of 92 Posts
Top