Opinion: I can understand the Einstein’s theory of relativity but not the VALUATIONs of Mumbai real estate market ;). I can give a guarantee that sooner or later Mumbai real estate market will collapse. The price one pays for a flat is comparable to prices in large Western cities like London or New York. This is despite the fact that per capita income in India is less than 10% of what it is in the USA or UK. In fact, when we examine house prices relative to incomes, Mumbai’s property is more unaffordable than anywhere else in the world for locals.
Maulik Mistry: The extremely high house prices are the sign of a dysfunctional property market. A good indication that prices are too high is that if most people had to buy their own house at market prices today, they would probably not be able to afford it. Recent reports suggest that there is still a large stock of unsold flats in Mumbai. How is this possible when so many people want to buy a home? Those unsold flats are all luxury flats and are very expensive, out of reach of most people. And this comes back to the supply problem. Due to the high cost of acquiring land, excessive red tape and corruption, and financing constraints, it is difficult to build new homes that are affordable. Due to the high cost of building homes, it is not economical to build homes that are affordable. It is only worthwhile to build homes that are very expensive. As a result, we end up with a situation whereby there are large numbers of people who want to buy a home and large numbers of flats that go unsold.
Darren Hm: Illiquid markets tend to have unevenly distributed information that makes them hard to understand. Real estate, in particular, has a product that is not fungible (capable of substituting one instance of a good for another). The combination of these two effects can make it easy for people to deceive themselves into thinking property is worth more or less than someone will actually pay for it.
Maulik Mistry: There is no question that mankind has made enormous progress over the centuries. An alien visiting our planet after hundreds of years would be shell shocked to find the kind of transformation that has happened. But if there is one thing that has remained the same, it is the sameness of human nature we believe. The human mind still pretty much runs away from or lusts after the same objects or feelings that it did since time immemorial.
Vineet Burman: On a lighter note..the alien would be shell shocked to see the pace of transformation if they had transformed their planet at a much faster pace 🙂
Carlos De Souza: Real estate prices in Bombay are kept high by the builder-bureaucrat-politician nexus. They all stand to gain hugely.
Vidyanshu Pandey: When prices don’t make sense at all and you have inventory overhang of mammoth proportions, then prices have possibly reached an inflection point. Understanding mass psychology and price correlation, either prices will go up further or decline..they will not remain at this level. If we have hit inflection point (which seems plausible given current PE ratio for realty prices) prices should decline. On the other hand we have the invaluable insight of Keynes on solvency and irrational prices…
Maulik Mistry: Agree with your feedback Vineet, Carlos and Vidyanshu. Thanks for having discussion. Here is the article I read this morning, and I completely disagree with the arguments made by author, http://economictimes.indiatimes.com/…/arti…/15266072.cms
Someone selling properties can not cause ripples in the property market – The Economic Times
economictimes.indiatimes.com
Maulik Mistry: This one is an another article with false promises, http://www.rediff.com/…/slide-show-1…/20120730.htm
Property prices in Mumbai set to increase 20%
rediff.com
Maulik Mistry: Mumbai is the world’s most expensive cityRanking: 1 = Mumbai = Number of years an average citizen would take to buy a luxury apartment: 308.1Ranking: 2 = Shanghai = Number of years an average citizen would take to buy a luxury apartment: 233.3Ranking: 3 = Moscow = Number of years an average citizen would take to buy a luxury apartment: 143.7Ranking: 4 = London = Number of years an average citizen would take to buy a luxury apartment: 136.2Ranking: 5 = Hong Kong = Number of years an average citizen would take to buy a luxury apartment: 96.4Ranking: 6 = Paris = Number of years an average citizen would take to buy a luxury apartment: 77.7Ranking: 7 = Geneva = Number of years an average citizen would take to buy a luxury apartment: 73.5Ranking: 8 = Bangkok = Number of years an average citizen would take to buy a luxury apartment: 67Ranking: 9 = Jakarta = Number of years an average citizen would take to buy a luxury apartment: 61.7Ranking: 10 = Rome = Number of years an average citizen would take to buy a luxury apartment: 60.1Ranking: 11 = Sydney = Number of years an average citizen would take to buy a luxury apartment: 54.9Ranking: 12 = Cape Town = Number of years an average citizen would take to buy a luxury apartment: 54.6Ranking: 13 = New York (Manhattan) = Number of years an average citizen would take to buy a luxury apartment: 48.4
Carlos De Souza: Once you have a place to stay in Bombay, the cost of living is definitely not exorbitant. Food, transport, clothing, entertainment, education are all very affordable, relative to cities in the developed or developing world.
Scott Thompson: Great conversation…
Vidyanshu Pandey: @Maulik, if the cost of housing is so unsustainable right now, property prices increasing at 20% would mean double in 3-4 years or 616 years, etc..so if this is not a sign of irrational exuberance then what is? @Carlos, I keep hearing about hyperinflation and how the cost of everything has skyrocketed in India. It’s surprising that this has not affected Bombay..
Carlos De Souza: I was comparing the cost of living in Bombay (housing apart) with the cost of living in most major cities in developed and developing countries. While prices have gone up over the past 2/3 years, the cost of living is still very reasonable in Bombay, relatively speaking.
Maulik Mistry: I Agree with Vdyanshu & Carlos.Apartments between Andheri and Borivali now come between Rs 12,000 and Rs 25,000 a sq ft, making it a shocking Rs 2.5 crore ($500,000) at the top of the range for a 1,000-sq-ft flat, which actually comes to 700 sq ft because of the super-built-up swindle. In one word, it’s “Mad”.Flats south of Mahim start at Rs 30,000 and go up to more than a Rs 1,00,000 a sq ft. That’s why, only the two above-mentioned classes have newly-acquired dwellings in Mumbai. The rich in swanky apartments and the poor under plastic sheets strung up on three sticks on the sidewalk.
Maulik Mistry: Spend the next 20 years, becoming Slave of the builder/Bank combine. Work hard to make sure the EMI of 1 lakh ($ 2K) per month is paid on time. if a person buys a Flat in decent area it is gonna cost him 1 crore rs ($ 200K ), out of which builder’s gonna ask for 15 lakhs black,banks will sanction loan amount upto only 60 lakhs, so in short total cash a person would have to posses is around (15 lakhs black 25 lakhs down payment) and even after this loan would go on till up-to 20 years…phewww…after all this, is it worth the crowd,traffic, dust, pollution and frustration….think on it…or is mumbai over hyped?The filth around the city poses health Hazard and one spends heavily on Medical bills,stressful living,dangerous transport system etc.Statistics is a magic slate. It can be used for anything. Example : If you put a man’s legs in an ice (0 degree celcius) and his head under fire (200 degrees celcius) the average temperature is 100 degrees. However, the man will die is not spelt in statistics. Statistics need to be clearly spelt.In this case, what is average citizen’s income? Is it Indian Citizen’s (who reside in Mumbai) average income or is it average Indian citizen’s income? We all know that Mr. Montek Singh Ahluwalia will say that if a person earns more than Rs32 in Mumbai will be considered as poor.The rate should in accordance with not location, infrastructure in the city, transport, crime, do you think we have these in our cities” All are present in Mumbai Poor Transport ( Over Crowded Train & Buses , Crimes, Poor Road maintenance & unhygienic. All are present but Mumbai is Financial Capital of India. 90% people are unable to buy a Flat in Mumbai. 47% people occupied Flat on Rent & 53 % occupied by Local Resident , Broker Builder, Political Corporator or their aids.
Maulik Mistry: http://economictimes.indiatimes.com/…/arti…/15310478.cms
35% dip in absorption in commercial real estate in H1 2012: JLL Study – The Economic Times
economictimes.indiatimes.com
Maulik Mistry: Office rentals have now fallen to almost one-third (down 36%) of what it was three years ago. What was available for Rs 275 per sq ft three years ago is now on offer for Rs 175 per sq ft. Yet, there are few takers and, despite plunging rentals, the area is still witnessing a building boom.Huge office complexes tower over shanties, slums and cacophonic traffic. Dozens of small shops, which used to cater to mill workers a few decades ago, are still around, sitting cheek by jowl with gleaming showrooms selling high-end furniture. Cars, bikes honking furiously clog the narrow roads, while on weekends, luxury sedans queue up to enter one of the many shopping complexes that dot the area.
Maulik Mistry: An interesting phenomenon that occurs is that most people who bought property some years ago, often wouldn’t be able to afford their own house if they had to buy it at current market prices. If you live in a city that has experienced a rapid increase in house prices, chances are you’ll fall into the category of those who wouldn’t be able to afford their own home at current market prices. In that case, the market is probably overvalued, and then it is only a matter of time before the bubble bursts.The real estate market is kept alive by the work of clowns and magicians in the mortgage industry and banking system, and dirty politics. Government knows they cannot keep this ponzi prices going which end of day is duping the end user. The market becomes abnormally high due to external factor, not due to demand. When the builders realize they cannot hold the false prices they will cave in, due to no demand. Let’s wait and watch, we are in for treat. Investors should stay away because now the risk and pressure is downward.Illegal money earned by politicians and bureaucrats through corruption is what is holding up the Real estate prices in India. People with black money invest in under construction projects with just a “letter of allotment” as they cannot invest thier black money in other avenues like Banks, stock market etc. Unless you break the back of the corrupt politicians and appropriate their properties without compensation, the property prices in India will remain unaffected by what happens in the “white” economy.
Maulik Mistry: A three-bedroom apartment (1,000 square feet super built-up) in the Mumbai suburb of Bandra (east) can set you back easily by over Rs 4 crore ($800,000). But for just half the amount, or Rs 2 crore ($400,000), you could own a flat in Dubai. The only hitch: The property might have to be bought by two people of a family, as the Reserve Bank of India allows a single person to invest only $200,000 a year.London: 3 bedroom villa = $300,000, (Rs 1.65 cr ) Pattaya: 3 bedroom independent house = 40 lakh Thai Baht ($ 130K) or Rs 72 lakh Bangkok: 3 bedroom villas = 50 lakh Thai Baht ($ 200K) or around Rs 90 lakh Dubai: 2 bedroom apartment = $400,000 or Rs 2.20 cr Switzerland: New or resale chalets = $800,000 or Rs 4.40 crManhattan: Studio apartment = $150,000 or around Rs 82.50 lakh
Dheeraj Dadhich: :O
Scott Moses Murray: Do you see Delhi (or all of metropolitan India) being subject to more or less the same risk? I know a number of people who have purchased in Gurgaon prior to construction while completed apartment buildings there are less than half occupied. Cost is probably less than that in Mumbai but nonetheless…