India Real Estate - can I have the same thing that every one is smoking?
anand October 26th, 2007
It is an understatement to say that the Indian Real Estate is over heating. I think it is totally insane. If you thought that SF bay area real estate was crazy, you would have to see the numbers in India.
Let us take a 3 bed room apartment with a living area of 1600 sq ft in a decent location [Jaya Nagar in Bangalore or Besant Nagar in Chennai] - it runs about Rs 1.5 crores in India or ~$380,000. I am not even talking land value, these are usually high rises that have 8+ floors.
Interest rates are at an all time high, at about 12.5% to 13.25% for 20 year fixed. [Yes, 12.5% is the minimum]. The max loans a bank would give you is about $250,000 [1 crore] and 20 year fixed is the max limit. At that interest rate, provided I put down about 50 lakhs [~$125,000] and borrow about $250,000, my monthly payment is about Rs.1,10,000 [$2,750]. Working backwards, I need to make at least $75,000 per annum sitting in India to be able to afford it.
Not too much of a $ saving from an outsourcing perspective, is it? So, I don’t have a clue what the heck people who deal with real estate in India are smoking, whatever it is, I need that !
Yes, it is beyond belief how expensive real estate has become in Chennai. Not sure who actually is buying at these inflated price levels. The money seems to be pouring in from business men (black money), NRIs and overseas investors. What one gets for the high prices paid is really bad: a condo could cost $150k (60 to 70 lakhs) but outside the condo development, access roads and infrastructure is pathetic. In my opinion, unless the world economy slows down (accompanied by a reduction of capital inflows from overseas), the inflated levels will persist.
Raja
3BR apartment prices are well into 1 crore now. If this isn’t a bubble, nothing is.
True, the prices in Indian Real estate is sky rocketing… remember it is like the age old IT Boom in India and in US mid 90s.
The bubble is not going to last long and it is going to break, and it is going to be much worse than the mortgage crisis that has hit the western world (US and UK)