Over past two years I have developed a significant amount of interest in real estate. I guess it came from one of the Robert Kiyosaki’s books I read. I have been following the real estate market in Pune since last 1.5 years and have been aghast to see the positive run the builders in Pune are having. Although I haven’t invested till date but I have observed all my friends and colleauges have a very positive outlook towards real estate market in Pune.In fact 80% of them believe real estate prices never go down.
Where does this positive outlook comes from and what does it causes?
Most of us believe in what we see. If you have been watching the price trends in Pune since 2004 you would curse yourself not to invest in Pune anytime sooner. My boss has had 300% increase on a house he bought in 2005 in Kalyani Nagar Pune. Other investors have also made at least 100-200% in areas like Pimple Saudagar, Aundh, Baner etc.. When people listen to these stories they believe that a real estate investment could easily get them 5-10 laks in 2 years. So they start buying.
Business men, Software engineers, BPO guys, teachers everyone is bucking himself up to close a deal and wait for 2 years and then reap the profits. When these guys start buying there is an increased demand and builders get even more confidence and increase their rates( A property in Dhanori Pune increased its rate by more than 1000 rs psf from April 2009 till December 2010). This rapid increase in rates cause worry among first time home buyers. A common reaction is “Lets buy when it is 3200 psf, if we will wait for another 2-3 months it will be 3500 psf. And it sure will become 3500 psf. But till when will the builders increase their rates like this? There should be a threshold value, isint it?
The threshold value
I am not well versed with economics or even real estate investments, But I can give you the technical chart of the property rates in the Dhanori area in Pune. My friend had shortlisted this area to buy his first home. Who wouldnt want to invest in a property that has given 80% profit in just one year and is continuing on that run. From 2009-2010, rates of this property went from close to 1800 to 2200 psf.
Then from 2010 to 2011 rates went from 2200 to 3200 psf and now from Dec 2010 till Nov 2011 rates have gone from 3200 – 3400. Did you see the drop?? I believe Dhanori is a kind of area which cannot command a rate of more than 3600 psf at present. If someone invested at 3200 psf and thought that in two years it will be 4500 psf then I highly doubt its gonna happen. To reach 4500 psf in Dhanori its gonna take at least another 2-3 years. I solely base this prediction on the basis of the quality of the area and the kind of rate increase I have seen in the last 1 year.
What use is an information on rate hikes in the past years to you?
Just like Dhanori, you can also take a look at the area where you want to invest and see the price chart. If you see a downfall in the price hike psf you should expect that the bull is not riding as fast as in previous years and that you might get a 10% -15% per annum hike on the property you would invest in. Of course you would need to look at the other very importnt parameters like schools hospitals banks infrastructure and connectivity before buying a house.
As always if you are buying a house not for investment but to stay there anytime is a good time to buy. People argue that prices fall in recession but are you going to wait till recession happens? It is an emotional decision to buy your own house. My friend had to buy a house irrespective of the rates hike or fall because her wife was expecting and wanted to have their own house before their baby comes in this world.
The real estate market in Pune over the last 5 years has made people supremely rich. But the million dollar question is would it continue to do so in the coming years? I doubt! Whats your take on this?