| Topic : Betting on Indian Construction & real estate sector |
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Balancing my investment portfolio
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Activity:
2 comments
81 views
last activity : 07 17 2011 06:38:54 +0000
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Is there any great logic to real estate prices or is it just the land, builders and the bank mafia that is responsible for keeping the prices high?
Well let us look at the irrationality.
Ahmedabad offers land, people and electricity (the needs for a BPO) at 50% of the prices in Malad or Goregaon. However there are more back offices in Malad and Goregaon than in Ahmedabad.
Bangalore has more high paying jobs than Chennai, but Chennai real estate prices are at least 50% higher than Bengaluru.
Navi Mumbai has power cuts for 4 hours a day (many parts) but the great Maharashtra government will not allow Tata Power to supply or distribute power in Navi Mumbai.
Infrastructure in Mumbai has not kept pace at all- but prices in Ghatkopar, Santacruz, Malabar Hill, — hardly matters which part have gone through the roof. In the UK the cost of a house is about 3.4 times the 'average income' — let us say the 'average income' in Mumbai is Rs. 5 lakhs (not sure if I am right)…so the cost of a house should be Rs. 15 — 20 lakhs! It is about Rs. 1 crore. When will we stop pretending that 'all is well'.
The real estate mafia in Mumbai (including some very respectable names) has kept the prices so high that it is not possible to buy without mortgaging at least 20 years of your life to the loan repayment!! If you see what the supply of office premises has done to Mumbai is that the rental market esp for office space has remained constant or people have got better quality of office for a slightly higher rent. However the rental market for residential houses is not so efficient.
If rents are not going up, but property values are going up, it is a good sign of a bubble. And like in any bubble, do not go short, just stay away!!
The author P V Subramanyam is a Chartered Accountant by qualification and a financial trainer by profession.
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