This is my first post to this excellent blog. Thanks to Vik for the opportunity.
One of the blogs I follow regularly is The Big Picture. Barry had an extremely interesting blog yesterday about home prices (in the US), but the similarities are very striking in India as well.
Real Estate is unique from most other goods and services, in that the purchase is not independent of other transactions. Buy 100 shares of stock, or a new or used car, or a can of soup, and only two parties are involved: The buyer and the seller.
Buy a home, and you are likely involved in a long transaction chain with five, six or even more other buyers and sellers. A newlywed couple buys a starter home from a family (with another child on the way), who are moving to a bigger home, and whose seller is moving to an even nicer part of town, and so on. It is a long chain, not of mere lateral moves, but increases in size, cost (and property taxes). If any of those sales fall through, the entire chain collapses.
And therein lies the problem.
The concept of constantly upgrading your home may not be as common in India, but has the real estate industry in India completely ignored the long tail of non IT earners? Entry level two bedroom apartments in Bangalore seem to sell for about 30 lakhs in a reasonable neighborhood, which given a Rs.30,000 per month salary, is about 9-10 years gross annual income.
Assuming this recession cleans up the speculators in the Indian real estate segment, in my opinion, the resurrection of the realty segment totally depends upon the long tail entry level homes.
I think we are somewhat beginning to see this happen already in Bangalore. From a recent Craigslist ad:
You would be delighted to know that DLF's premium homes project in Bangalore – WESTEND HEIGHTS, DLF BTM Extn. is now being launched as Westend Heights, New Town - DLF BTM Extn. We have completely redesigned the project to bring you an even better lifestyle experience than before to maximize comfort and convenience.
The new mix has come with an unbelievable price!
Apartment area Unit rate
1085 sft - 1225 sft Rs. 2000 / sft
1345 sft - 1410 sft Rs. 1900 / sft
1570 sft - 1820 sft Rs. 1850 / sft
This is an Unbelievable offer .Could you afford to miss it out ......
Is this the start of a trend? Is sanity returning?
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