Property after Demonetisation

#1 Jan 29th, 2017, 07:57
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In all this, I sold an apartment a month ago.

Plus: Many many more people were now ok with my 'all cheque' condition than they used to be before demonitisation, even though one guy offered me, beginning December, an all cash deal with old notes! (I pointed out to him that taking more than 19,999 rupees in cash for at least urban property transactions had been illegal for awhile)
Minus: Took a 10% hit. Happy to do so under the circumstances; the property market has been undergoing a slow paradigm change for awhile, I think, and in any case I don't expect it to take off crazily for a couple of years at least, after demonitisation. If that- it may even remain under severe pressure until the next general elections, who knows. I only know that right now there are few buyers in Hyderabad and cities like Mumbai and Delhi have been badly hit, pricewise. Probably others too.
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#2 Jan 29th, 2017, 08:06
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If that transaction went into crores (six zeros), I wonder what the chappie did with his old notes. 10% is not a bad hit; in fact, it's quite good under the circumstances. And I agree, the property market will be still for awhile. That's not a bad thing. How do people get onto the ladder otherwise?
#3 Jan 29th, 2017, 09:01
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I have no idea what he did. He called me offering me 5% more than market, all money payable today. Crazy.
#4 Jan 29th, 2017, 09:13
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Crazy indeed! You'd have been crazy (or seriously well-connected) to have taken up his offer.

Am I right to think that the property market needs stability and not doubling every 2 years, or is any growth in it a sign of a buoyant market and a sign of good times? Something deep inside me is deeply saddened when prices spiral in the UK and India, even though I am an owner.

It rules out the young generation and attracts carpetbaggers and speculators.
#5 Jan 29th, 2017, 10:00
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Offtopic, so will be brief: Don't think the prop market is going to give you good post-tax and post expense returns for awhile- the paradigm shift I mentioned has been going on for a bit (in my opinion, though the prop 'experts' always say buy). FATCA impact on NRI speculative investment, the younger high earners are more geographically mobile and property management in India can be a headache by remote control, rental returns are a low fraction of investment and stockmarket and other financial instruments give better, more liquid and dematerialised returns so lower headaches. And now demonitisation and a government threat of strangling the black economy.

If the percentage of end users buying prop increases significantly, prices will collapse, especially in the second hand market. Keep in mind many(most?) urban properties are now bought with bank loans that have to be serviced even if prop value is depreciating. Horror stories from Bombay of the 90's.

My benchmark is that an India urban apartment (house with land may differ) becomes a decent investment proposition if you buy at or below max annual rental yield multiplied by 20 or 25. More than that, you may still see it appreciate, but it is speculation, not investment, and you should be aware of it. Also be well aware of the liquidity issue- if the prop market is sluggish, you often have no buyers at all unless you drop your price significantly- am talking 20 percent or more. I am also slowly gravitating to the view that an apartment is not a good long term idea unless you plan to live in it.
#6 Jan 29th, 2017, 10:17
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Quote:
Originally Posted by capt_mahajan View Post ... If the percentage of end users buying prop increases significantly, prices will collapse, especially in the second hand market. Keep in mind many(most?) urban properties are now bought with bank loans that have to be serviced even if prop value is depreciating. Horror stories from Bombay of the 90's .,.
So the majority of transactions will be via loans and cheque. All official. Good. But why would prices collapse if there was a surge in end users buying? Can't get my head around that. If there was such a surge in buyers, then prices will also surge. No?
#7 Jan 29th, 2017, 10:29
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Sorry not clear.

What I meant was- if, in the proportion of total buyers, there is a significant increased percentage of end users buying, then we will see properties selling at much below present rates.

for eg If in the good old days there were 85% speculators including black money guys and 15% end users
and we see this changing to 70% speculators and 30% end users in the next couple of years, then the prop price drop, already started, will accelerate to a collapse as more and more people realise what is happening.

Of course, the main metric people go by now is no of property registrations.
#8 Jan 29th, 2017, 10:47
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#8
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Originally Posted by capt_mahajan View Post
If the percentage of end users buying prop increases significantly, prices will collapse, especially in the second hand market.

Also be well aware of the liquidity issue- if the prop market is sluggish, you often have no buyers at all unless you drop your price significantly- am talking 20 percent or more. I am also slowly gravitating to the view that an apartment is not a good long term idea unless you plan to live in it.
Here in Ncr, transactions have dropped down to near zero. Everyone I've spoken to at work is holding back thinking the market will go lower hence not investing at this point. The sellers are not lowering expecting that this 'demonetisation problem' will subside. This has gone to the extreme that brokers in Gurgaon are being nice !!

Id be interested to know more about an apartment not being a good long term investment. In chennai, Mumbai there's genuine land scarcity in pockets and people can afford to move only so far away from work.

Don't see this as off topic captain though if there's sufficient interest can farm a branch out to C&c.
#9 Jan 29th, 2017, 11:14
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My gut feel is different. It's just an opinion.

With NaMo's (Narendra Modi's) DeMo (Demonetisation), the big guns have no other place to park their ill-gotten gains than in property. In six months to a year, after the scare is over, prices will start to rise as the surplus mullah is pumped back into the economy. Lessons learnt, they will buy property instead of stashing it under a mattress. (Mayawati was smarter than most, she bought Delhi and UP properties galore, before DeMo).

If you are in the market to buy, wait a year or so, but be ready to buy when the price is affordable and leap in. In 5 years time it won't be buyable. In 15, you will kick yourself if you didn't buy.

These cycles have been ongoing ever since. Remember the slump during the 1975-77 Emergency? Or Morarji's austerity of the late '70s? Or the boom of Rajiv Gandhi's 'new India' liberalisation from 1984 onwards? Or the crash at the end of that decade? Or the boom of Narasinha Rao's 1992 'new economic age' and neo-liberalisation and then the slump after, due to the coalition politics of Gowda and Co.. In Bombay, Maharasthtra, the BJP-Shiv Sena marriage of '94-'95 killed off any investment. We saw the dotcom crash of 1999. Then came the boom of the early 2000s, and all was right with the world. India shining and all that crap. Then the crash of 2008.

So, my take, buy property when you have the money and when you get a good serviceable deal.
#10 Jan 29th, 2017, 11:16
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-crossposted-

Quote:
Id be interested to know more about an apartment not being a good long term investment. In chennai, Mumbai there's genuine land scarcity in pockets and people can afford to move only so far away from work.
(not talking about apartment purchase for living in. Then the financials change. )

yes, but at some point businesses that can do so move away because property costs for them are unsustainable, and because they can't afford to pay a 'Mumbai premium' salary to their employees. Or because they can make more money elsewhere with acceptable, temp disruption.

This has already happened to Delhi and Mumbai to an extent (I am not well informed about Chennai). Of course in Delhi's case everything new (often as an alternative to Mumbai and others) moved to either Gurgaon or Noida, and the Greater Noida or extended Gurgaon phenomenon. Soon the NCR will be at Haldwani, Jaipur and Karnal. The Western Ghats have saved Pune, but only upto an extent .

Apartments also have a life. Right now it is pretty difficult for a buyer to get a loan for a more than 20 year old apartment... some banks etc just don't give them out- and when s/he does, through the indiabulls types, s/he may be granted only 70% of the market value at best, so selling an old apartment can be a chore. Renting out after buying? Factor in a month a year approx of no rent while you hunt for tenants, very low return on investment, income and property taxes, maintenance of apartment costs (painting etc, repairs) and the headache (esp if you are in another city, and sometimes even in the same one) and the prospect looks to me unappealing. In any case most people buy property for expected capital appreciation, not rental returns, which make sense, kind of, if the property has been bought years and years ago. But even then, a sale an alternate investment makes more sense usually.

Do the math. If there is no appreciation for a couple of years and if after that capital gains remain even in the 10/15% range pre tax, annualised over a period of time, few will buy with white money. I can still get 8% pre tax on RBI bonds today, more in the bond or stock markets long term, and I dont have to pay any 20% capital gains tax on it, or put (upto 50 lacs) in 5.25% bonds that I have to do if I sell property, unless I buy another one (under some conditions).

Plus, as you get older, you want to consolidate and reduce your headaches, not increase them.

Quote:
If you are in the market to buy, wait a year or so, but be ready to buy when the price is affordable and leap in. In 5 years time it won't be. In 15, you will kick yourself if you didn't buy.
Maybe. But somehow I can't see property prices going up, say, 250 times in 30 years, or some such historical number indefinitely, unless salaries keep pace. Even high salaries can barely sustain prop prices even now in Delhi or Mumbai.
That is because of what at least I believe is the slow p shift mentioned earlier, which preceeded demonitisation- which, as you say, may well be temporary.
#11 Jan 29th, 2017, 11:27
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There is also the thing, of course, that I believe a few big Indian cities, amongst others, will become unliveable in the next couple of decades because of climate change and rising sea levels. I don't buy and sell property every couple of years, and I can't afford, even after I am dead, to have a huge chunk of my money brought down to near zero!
#12 Jan 29th, 2017, 11:36
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Vish - Good points, I am too young to know what happened in 75 or for that matter in the 90s with property market. I only know of '08 crash. Now, as far as NaMo is concerned - there was speculation in December that something called property ePassbook will be launched - and any property you own anywhere in the country will have to be declared in an online system. I'm not going to debate the effectiveness of such a system (personal take - zero - as if you were smart and resourceful enough to buy something in someone else's name, why would you declare it now).

Cap'n - thanks. So my next question would be - where would you park funds if you cannot park them in RE (i.e. in an apartment since ticket prices for land around metros remain unaffordable for the middle class). p.s. In Chennai as well, the new economy (financial services and IT) started in more central areas (cathedral road, boat club, kilpauk, etc. ) and then over a decade or so shifted to OMR. The shift went halfway to mahabalipuram (siruseri) when the workers wouldn't take it any more and the companies ''discovered'' tier -2 (or is it three?) such as Coimbatore and also remote working.
#13 Jan 29th, 2017, 14:07
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#13
Quote:
Originally Posted by vaibhav_arora View Post Don't see this as off topic captain though if there's sufficient interest can farm a branch out to C&c.
Good idea. How about 'Property after DeMo'?

There is in fact a Property sub-forum.
#14 Jan 29th, 2017, 14:16
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Originally Posted by vaibhav_arora View Post Cap'n - thanks. So my next question would be - where would you park funds ..
Spend, enjoy, do not park them. I tried to do that all my life. You live only once.
#15 Jan 29th, 2017, 14:27
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Done! If you can help by identifying any other previous posts from that thread alone that need be moved to this thread then report here or via reporteds.
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