Friday, March 25, 2005

Real estate boom in India (Bangalore)

There is an unprecedented real estate boom in parts of India. These are the National Capital
region, certain parts of Bombay-New Bombay-Pune and outsourcing Mecca - Bangalore. It is to a great extent, driven by the huge growth of the IT (Information technology) and BPO (Business Process Outsourcing) industry. As the IT industry grew, employees got onsite (literally - at the client site, as opposed to offshore) opportunities. Onsite typically meant being paid in US dollars and thus many employees earned a lot of money.

The demand for plots of land went up with the boom in industries. But with the cost of a 30X40 ft plot plus home going for the equivalent of 5 million rupees in a good residential area, apartments soon came into favour.

The buyers yearned a lifestyle equivalent to the lifestyles abroad, and they had the capacity to pay. This reduced the "matchbox" apartments on offering and has spawned a host of self sufficient complexes. Soft interest rates on home loans, a tax incentive on home loans and the
general growth mode of the economy are other factors driving the real estate boom.

New apartments complexes have recreation facilities, basement parking, security, power back up, good lawns and even swimming pools, all of which are very difficult to get when one goes in for an individual plot.
When every builder began to offer these, the bigger ones began to offer multiplexes, shopping complexes and schools. Not content with differentiation, it is now snob value (at a premium) - Complexes modelled on resorts, European looks, vast open areas, pools lined with Italian marble are the latest fad these days. While this is a good thing, in the recent past, real estate in Bangalore has reached crazy levels of prices.
Even now, a significant percentage of the buyers are genuine ( not speculators) buyers who intend to stay in the apartment they book. But when there is a genuine demand, speculators cant keep off.

Some buyers take advantage of the sprialling prices (driven by the builders to a great extent)
to book say, 3 apartments when they want just 1. As the price increases, they sell off the first one, and then the second effectively getting their third ( and the one which they intend to own) apartment nearly free of cost.

At the recent launch of a highly advertised complex in Bangalore, about 2000 apartments were sold in 2 days flat and there was a congregation of about 6000 people waiting to book apartments. Among those who booked apartments, many just got to choose the floor and pay the booking amount. No real apartment has yet been allotted to them. But they dont care. They will get to own a house in "Superduper complex" which will be finished in 2007-08.

Considering the pathetic infrastructure in Bangalore, it is surprising why the rates are so high. Just outside these posh apartment complexes and layouts (local name for plots sold for buyers to build their own houses), roads are broken, small and there is no sign of any public transport at all.

Is it a bubble or the beginning of one ? Is the bubble on its way to burst or if it will continue to grow for a while is something that will be decided by the growth of the economy.

72 comments:

Anonymous said...

Hi Neelakantan,

It was an interesting read to go through your blog. A bubble is something where the prices are being fuelled by speculators & not by real end consumers, if it is fuelled by real end consumers then its a pure play of demand and supply. Being a localite in Bangalore, I have observed this trend for a while, and here is my take on it..

Demand side dynamics:

-> Growing IT Jobs -- Most of the IT folks in Bangalore are from outside state. And most of these people have migrated from other metros like Bombay, Chennai and Calcutta where property costs are really high. When this high earning migrated skilled labour population started looking for apartments or lands this caused two outcomes ... Banks saw a great opportunity and then came the private professional builders..

-> Banks saw this as great opportunity to get better returns on their assets and they opened a flood gate of low interest housing loans..

-> Pvt Professional builders started acquiring lands and started developing the property in a big way..

Supply Side dynamics

-> Serious Shortage of Govt initiatives in developing city -- Though the govt boosted the IT initiative in a big way but it never thought about addressing the Housing needs near the areas where there were big IT iniatives (Electronic City or White field).. Govt seriously lacked a organized planning on the Whole IT front. If we see today the major traffic problem inside the City is also due to this poor planning of IT corridars!.. Everyday morning there is a huge movement of People from all the corners of the city to these IT corridars.. No wonder there is clogging of all the roads leading to these areas. These corridars are being developed in remote Suburban areas of the City with an intention to bring growth in these areas. But how can these areas grow if there are no Housing development projects being taken up near these areas!!..

-> Serious shortage any big Govt Housing development projects to match the Inflow of Migrating population resulated in huge supply side fall of the availability lands.

-> All those who owned the Land inside the City and in the Suburban areas.. who were otherwise almost had no right source of income becames stinkingly rich !!.. Today it is not uncommon to see Farmers who have become out right rich by encashing on their lands. Not many Farmers benefitted from this either since some of them were forced by Organized Land sharks (so called) to sell their Lands.

If we see above, we could clearly see that there is a major shortage of Supply of land stocks to match the demand created by the IT growth at the right place. Lack of Govt playing a crucial role in developing right Housing projects has made all the Speculatory players jump in and grab the Land properties and then price it at sky high values for the migratory IT population.

What people dont realize that this might as well have a much bigger impact of the real cost advantage of Indian IT. Since this kind of growing real estate price means an inflationary pressure on doing IT business in Bangalore...!!!.. Which means in the long term Bangalore will lose its very advantage and lose the IT Outsourcing advantage. So te future belongs to those State Govts who plan their IT iniativaes in a much better way than how Karnataka handled it so far. Karnataka Govt wanted all the good things of IT but it never bothered to provide the right infrastructure to facilitate a sustainable low cost environment or infrastructure for IT industry.

So if in the end whether its a bubble? then I would say YES since we need to realize the big picture that with prices gowing up we are really losing the actual engine of growth for the City which is Low Cost Base for IT out sourcing !!..


Thats my take on this topic..

Arun
Bangalore
asathyan@gmail.com

crsathish said...

real estate is kind of crazy in blore. with home loan rates increasing and infrastructure kribbling, i really dont understand how people are non stop booking their apt ?

Anonymous said...

It is absolutely crazy in Bangalore; places that are little better than villages are priced at Rs 2000-2500 per sq ft. I am not sure who is buying or if it is inflated because of the hype around Bangalore. I, myself moved in here from Mumbai - but think I made a mistake and will probably move out within the next 1 year. Many people I know, are thinking likewise; some have actually moved out to places like Pune, Noida, Chennai - and even - Kolkata !! I don't know if it is NRI money that's flooding the market or if speculators/builders are artificially hiking the rates - but if you ask me -- stay away from buying property in Bangalore.

AKumar said...

It's not only in B;lore, but in Delhi,Gurgaon,Pune,Mumbai, All most all IT ciities has same fever..It's really a bubble created by Builders,Broker's, Some Investors...but it is sure this price hike is not by common man..It's suggestion don't go to real estate and put yr money in some good fixed deposit accounts...keep patience...Remember the IT period of 1999-2001...when situation was worse...
It will surly go down when Builders and Investors will realise that thier invested money is going in futile..Price will crash..then go for purchasing flat..

Anonymous said...

Statistics about a Real Estate project in remote locality shows the bubble.
Rate(per sq ft)
feb 06: Rs 1450
1st April 06: Rs 1850
24 April: Rs 1950
Water supply poor
Road connectivity poor
Rain water logging
Plus point one major school already exist and two shcools coming up.

Availability of accomodation is good.

This shows an inflated bubble. Only time will tell when it bursts.

Anonymous said...

Every body has a dream to buy home on their own and i am writing this piece only for those who carry this dream to fulfill in bangalore.

Before you buy flat/house think on the following angle and make your decision

i) Increase in Property Cost , an APartment which was costing 25L last jul (2005) same is now 40L

ii) Banks which used to fund ealrier almost 100% , Now are not willing to fund more than 85% which means if you are buying a flat for 40L , you atleast need to have 6L cash in Hand

iii) Spiralling interest Rates....from 7% to 10.5% Fixed.

iv) and Top of all these the so Called "IT people" who everybody belives buys these apartments Still Cannot afford as Real Estate Prices have almost doubled in last 18 month where as salary increase has been just 15-20% max

v) and finally , Earlier people used to buy flats for investment now , now even investors aare scary in investing in real estate as Prices are astronomical

Be cautious and invest safe your hard earned money . Prices will defintely come down and boom is likely to go BUST .


Mark my words and you will not repent.
Think logically and tell me which factor of the above is favouring the real estate scenario and if you still think YES then go ahead with your plans.


People may try to get you into their nets. But please be cautious while spending your hard earned money.
Sure there is demand for real estate. There may be more jobs created. But they won't be enough for keeping the high cost RE balloon inflated. Imagine a person taking a loan of 40L over 20 years. EMI he would have to pay is 35000. So, one should expect atleast 70 thousand as the salary which means the CTC would be 1 L per month. There will be very few people that get 1 L everymonth in MNCs and their number is not enough to cover thousands of apts costing 50L and more.
This property agent may be a gentleman. But you know how other real estate agents work in Bangalore. They are the biggest reason behind taking the prices out of a real dweller's reach.
That message itself is an indication of downfall of RE in Bangalore.
Don't fill the pockets of few individuals with your hard-earned money. Just be cautious in spending it wisely. RE prices are coming down and eventually will have to reach to your level. Be patient until that time.


The realty in Bangalore is clearly heading down . Please check the following resources to get a feel of the sink






http://economictimes.indiatimes.com/articleshow/1698764.cms
http://in.rediff.com/money/2006/may/24mkt4.htm
http://economictimes.indiatimes.com/articleshow/1629319.cms
http://economictimes.indiatimes.com/articleshow/1637010.cms
http://ia.rediff.com/money/2006/jun/05mum.htm?q=bp&file=.htm
http://www.thehindubusinessline.com/2006/06/16/stories/2006061602280600.htm
http://realestate.indiatimes.com/articleshow/1482449.cms
http://economictimes.indiatimes.com/articleshow/msid-1540297,curpg-2.cms
http://economictimes.indiatimes.com/articleshow/1677262.cms
http://news.moneycontrol.com/india/newsarticle/stocksnews.php?autono=214434
http://www.indianexpress.com/story/6823.html
http://www.thehindubusinessline.com/2006/06/16/stories/2006061602280600.htm
http://www.tribuneindia.com/2006/20060520/real.htm#4

Anonymous said...

If you’re one of the millions of Indians who took a loan to purchase a home, you’ll know interest rates have been rising steadily.

But there was at least one saving grace — even if rates rose, the amount one paid out as equated monthly instalment didn’t change.

Instead, borrowers had the option of increasing the repayment period. From July, even that salve will become increasingly unavailable. Banks will be left with no choice but to hike EMIs. For the simple reason that increasing repayment tenures is no longer a viable option.

NOE HERS TEH CATCH READ IT CAREFULLY

Here’s why. Let’s say someone had taken a 20-year loan before June 2005, when the rate was 7.5%. At today’s prevailing rate of 9.5%, if the EMI were to be kept unchanged, the tenure would have to be extended from the original 20 years to 35 years even after the repayment of the last 12 months is taken into account!

That would be longer than most borrowers’ working lives. The more realistic option is obviously to hike EMIs, from Rs 806 per lakh borrowed at 7.5% to Rs 900 per lakh at 9% and Rs 932 per lakh at 9.5%. Most banks acknowledged that they might be forced to hike EMIs on existing floating rate loans.

NOw a little more hike in interest rate bancks will force to increase the EMI then will follow deluge of sales as most people are paying clsoe to 70-80% of net sal as emi and a little increase in EMI , will see the rsults .

SO wait and watch dont invest now.. prices are at the peak .
Rest is your choice

Aby Varghese said...

interesting article.
Bangalore is having a very bad time.


Regarding the home loans.
Everyone is taking loans for 20 years ... 15 years.
Have you ever imagined what will be your life expectancy.
With the kind of polution and adultrated food you take I dont see myself going beyond the age of 45. THINK !!!!!!!.

I imagine by the age ot 40 I will be bed ridden.

Our grandfathers lived up to 80 - 90 when it came to our parents they live up to 50 - 60.
What about you .. ??

Whether IT boom stays here or not how long will you be in a "workable" state.
A typical Software Engg working in an MNC have ZERO SOCIAL SECURITY. NO PENSION. NO GRATIVITY.

Say you are 25 by the time you finish your loan you will be dead :)
when are you going to live in your own home !!!!!

Anonymous said...

you are right, i moved out of bangalore 3 y ago and iam back, i see a lot of difference around, every thing has changed and the prices have sky rocketed...however the one thing which did not change is the roads.

ABY - you have given your self 40...however with the culture in and around the city..i think it is too much ...35 will be ideal;-)

Anonymous said...

This may sound contrarian but I do not think property prices are going to come down significantly. At worst it will remain stable net of interest on housing loan.

Prices are going up across board. Construction cost is going up too.

Anonymous said...

Property prices have already come down in some areas in Bangalore. Builders are investing their ad spend to get rid of their existing inventory; some are even offering sops like cars. The inventory of rental properties is going up (is perhaps at an all time high), so rents are pretty stable. So there is no need for any buyer to hurry. In fact, it is foolish to buy now.

The real effects will be seen in 2007 when the US downturn takes full effect. The US real estate market has crashed and the US is in danger of a recession. Add the liquidity cruch and rising interest rates and the time will be ripe for the bubble to burst.

mark said...

How are things going now 18 months on ?? are prices still rising or have they leveled out??

Anonymous said...

real estate prices are already on stagnation in some part of bangalore.I think it is going to correct soon by about 25 %.Any way most of the purchases in last 1 year was by investers and speculaters.so the transaction out numbered the actual need based purchase(i mean genuine buyers) by about 50 %.so it is only a matter of common sense.The bubble is going to burst

check this
http://www.thehindubusinessline.com/iw/2006/07/23/stories/2006072302111100.htm

Anonymous said...

As per moneycontrol.com , the price correction has already begun in India . Also FYI , the US real estate market has crashed . Economists have predicted a recession in the US in 2007.This is going to impact tech spending and consequently indian companies. This would definately rationalize indian salaries.

We have to wait and watch

Anonymous said...

folks,
when you compare Bangalore with any other metros in India, you can understand that Bangalore gives the major share of software export from the country. And the developments which you can see in bangalore is brought by the IT sector here. The other main supplies from Karnataka are Coffee, Silk and Sandalwood. But when you look the contribution from Bangalore,it is just IT.
This points to a fact that once IT is spreaded out or a recession happened,nobody can stop the pricedown which is going to affect the goof-ups in real-estate which is directly related to the hypes in IT field.
These days every state is trying to build up IT parks, giving whole hearted support to investors. You can find the IT parks are getting shaping up in Cochin, Coimbatore, Trivandrum, Chennai, Pune, Noida, delhi, Kolkata, gurgaon, Hyderabad etc ( mentioning few).
Bangalore is losing its domination in IT because of following reasons:-
1)Poor roads
2)Exhausting water supply
- This is getting worst in many parts of Bangalore
3)Increasing traffic
4)Climate changes
- This is one major setback to Bangalore. Earlier Bangalore was an air conditioned city where people liked to work and live, but now it is almost like any of the south indian city.
5)Poor Government attitude
- Remember the conflict between Infosys chief mentor and state chief minister.
6)Pollution
7)IT spread to various other cities
8)Hyped real-estate prices

Remember, once the city lose the IT strength either due to a global recession or because of the rising up of IT development parks in other cities, there is no any other supporting industries in the city to fuel its going.
Global economy gets re-cycled in every 9 years and now we are approaching another slow down which may start very soon, after the one happened in 1999

Anonymous said...

All,

It was interesting reading all the posts/comments before.
I am not sure how long the prices will continue to go up and when the correction happens how big it would be.But taking a cue from one of the posts above that it would make Bnagalore IT loose its egde if the real estate cost goes up and up.

I was wondering if its the IT guys who are the real buyers( around 40%) why is it that we dont have some kind of a association or something which can select a few builders and buy only from them.In return we can ask them to provide a detailed project cost report and fix the profit margin for everyone involved to reasonable levels.

I think although this sounds difficult but i am sure if we think of it, we can surely save some of our hard earned money going to make more profits for some builders.

techy2468 said...

wait for another 2 years...just a small hint of negative news and it will tank.....its definitely a bubble right now (mortgage payment being almost 3 times rent in most areas)....try to read about California real estate marktet....which is very similar to bangalore's market. i expect prices to correct as much as 40% in some areas (rs.6000/sf) when the downturn starts....but nobody knows when it will start going down...till then its just going to go up....

Anonymous said...

I work in USA as an IT pro and I have seen ups and downs in his industry couple of times.The property prices in indian cities like bglr,Delhi or even trivandrum has gone up so much based on pure hype.In last 4 months it has gone up three times in some parts of kerala.I believe its the hype,hawala money and other gambling making this all happen.The slowdown has already began in USA,2007 expect a 1% GDP growth in USA.This would translate into fewer projects for IT services companies.I beleive in 07/08 there should be a correction

Anonymous said...

Hi All,

Here are some of the facts I think which causes the real estate hype in Bangalore.

1. Lot of NRIs own houses in Bangalore. Some rent it out, some lock it up. In Delhi if you lock up a house for more than few months, some needy fellow will occupy it. In Bangalore this is not so (I am seriously thinking about this as a new career option :-). Believe me, there are some who own 4,5 or more houses or plots. Investment for future ? Any new project of the reputed builders of Bangalore is booked in a week before the construction starts.

2. The BDA took a satellite map of Bangalore sometime back and found that lot of area in the present greater Bangalore is free, lot of it is BDA plots which are well planned. People have invested their money in plots, for a better tomorrow. In most parts of India, if you won't construct in a govt. allotted land in 2 years, they take it back. Here its not so. No wonder Karnataka high court called BDA 'the buggest real estate agent' during the hearing of the Arkavati layout case. These pieces of land are generally not affordable to the common man on second sales. If they have forced people to construct, the population would have spread out. The BDA still allots plots. I think they should think big, cut 1 acre plots and sell it to the builders, forcing them to follow the norms like they do in Noida. When the supply of quality real estate goes up, the prices will come down.

In short, most of the money comes into Bangalore real estate are from those people who does it for Investment. The poor IT pros/government employees can't match the investers, so they create demand for substandard property in areas where there is no water connection, no roads.

I really hope that the bubble will burst some day. The property rates have been moving much faster than the salary hikes. But considering our population explosion, I am a bit sceptical about it.

neelakantan said...

Anon, i think you are spot on! perfectly said...

Anonymous said...

I read through this interesting thread referring to California as the model. Lets not compare the ecnomies of both countries. Sure, Bangalore and certain parts of CA have seen appreciation and I still see that in Bangalore. Early last year when I looked at a Jayanagar plot that was quoted 6k is now quoted 10k. I agree thats atrocious but the million dollar question of 'who is buying these' is answerable in some instances. In CA, organically none has money to pay hiuge for small homes nearing million. But moving up from a smaller home they bought few years ago and leveragoing thier loan potential brings them up to next level. Same with Blore. People sell the ones that they bought for nearly <10lk and buy a biggger home. So, the bubble is evidently dependent on the supply-demand rule. If the demand is so much, there would be to certain level appreciation.
I have seen both CA and Blore and not that CA real estate has crashed. In fact, CA had a 1% depreciation per recent cnn report. I have seen that many of my frineds who did not buy in CA before told me that it will crash and then they will enter. Now oits so high that they are tryoing to buy/commute from the next city. So, sorry guys but fact of the matter is, this is a moving train and if you are already hopped in, I guess you are smirking. Else, wait for the train to slow down and I can bet that the train speed has still room to rise.

Anonymous said...

Really interessant !


---------------
Real estate in Morocco

Srinath said...

Hi Guys,

Everybody who thinks that the only direction the realestate prices can go is up, then think again.

All the NRI's who are looking to buy land and apts. in India, please hold on. There is something seriously wrong with Indian economy. We are posting a growth of 8% with close to 6% inflation. Atleast last quarter inflation is 6%.

One of these quarters we are going to announce that our inflation has exceeded 8% and looking at the rise in prices of everything I bet it is not too far. The government will increase the interest rates. In the next couple of years I am forcasting an interest rate of 17 - 20%.

Capital will become too expensive for people who borrowed money to buy real-estate and everything will fall like a pack of cards.

With this kind of inflation in India I am surprised to see the Rupee is still holding strong against dollar.

In the early nineties the Indian government tried to hold rupee for some time but because of the same inflationary reasons RBI had no choice other than to de-value the rupee. I am predicting Rs.60/$ in the next couple of years.

For all those who are betting on IT, remember that IT is hardly 2% of the India GDP.

All the NRI beware of investing in Indian real estate. I am not excluding any cities. Real esate prices in Hyderabd, Bangalore, Chennai, Delhi, Bombay have a huge potential to fall and fall hard.

**BTW, I own lot of properties

Anonymous said...

I agree wigth the most recent post that the IT is hardly 2% of Indian GDP. I had a conversation with a Sr executive from Infosys and I kind of agreed with per perspective that the amrket which was primarily US and Europe and one sector, is now extended to you-name-it sector and one other observation was, As Indian market is opening and growing, Indian market is opening to its own services and products. So, there is still lots of room for growth and Blore being branded as the city for any kind of resources, I believe that , at the least, reasl estate will sustain itself, if not grow exponentially as dreamt by several people. But again, nobody knows whats tomorrow :-)

Anonymous said...

Chocoblock traffic on weekdays
between 8am and 9pm. Saturday is also a regular weekday..
Sundays are good.

Metro Rail is coming is good but it would be better if it was skyrail as it may displace some of the roads. Except for the very prime Bangalore, Water is through tankers only, there is not enough ground water...


With the influx of professionals, services are become more and more expensive and autos and taxis are not affordable any more. The meters always need to be topped up. Superstores, malls, hotels have become expensive,small vendors hardly find place to sell their goods. Distance to the present airport may be only 10 kilometers but takes over an hour plus... same is the story for anywhere in Bangalore. With so much of one way roads, you miss one you are definite to make a big round trip. Properties and layouts are coming up in big way...

Like me who keeps thinking price will drop, it seems to be a distant dream and the 2 years of delay has meant that prices have more than doubled and the gap has further widened. As people have said, prices are only going one way, way up...only hope that it is a gradual growth, so that all win and not an accelerated growth;
For those seeing property pictures on the internet, go to the place physically, inspect and make a decision whether to buy or not, as the support infrastructure, access to roads are a big challenge and a five minute drive to a shopping complex, multiplex is attractive, but remember to spend forty minutes finding a parking slot...


These are based on my recent experiences of my visit to Bangalore couple of months back, though new to Bangalore my 3 week visit meant I had been travelling from M.G.Road to Hosur few times on the Hosur Road, M.G.Road to Sarjapur few times and Bannerghatta side as well. Plus visits to J.P.Nagar, Jayanagar, Marathahalli, Airport and as far as Tirupati,Coimbatore...via Hoskote etc., So got a birds eye view of Bangalore.

Anonymous said...

With Government of Karnataka proposing "Greater Bangalore Project" we may expect more funding in infrastructure..if properly planned & "EXECUTED".
As like everybody, Bangalore has the hype for investments from NRI crowd.
Please share some views on this proposed development. thanks in advance.

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Anonymous said...

Folks,

There are 3 things to the charm of Bangalore today:
1. IT and BPO thanks to the homegrown IT companies.
2. Lack of infrastructure
3. The number of engineers that Karnataka produces every year.

1. IT and BPO companies survive on hype and demand in the West for software. They also depend on the exchange rates. One, the demand for software is only going to go up. and two, if the exchange rate is not promising the companies will hedge this by sending employees onsite on competitive salaries.Both ways, the IT folks won't lose unless China beats the crap out (well,that's scary)
2. The infrastructure has never played a part in the growth of IT. The IT bandwagon has grown with little or no support from the Government. Most companies operating today are "self reliant" to a large extent. Well, Bangalore has grown despite the overwhelming reputation of bigger cities Chennai,Mumbai and Delhi.
3. Bangalore alone has 25 engineering colleges and Karnataka has about a 150. So we have about 105000 engineers passing out every year. Where would they hunt for jobs? Bangalore of course! What jobs can they do without much effort. Yes about 80000 get into IT and BPO and the others into other industries. The BPO boom in fact is in its infancy.

These are not signs of bubble but a change in the social structure. Bangalore will evolve into an intellectual capital and is going through a churn. It has the potential to beat the best and the real estate prices are just a reflection of this.

Anonymous said...

I am i NOIDA and right now a lot of people is coming to me and praying to buy their falts because they are are not able to pay their house loab EMI. the reason is they have alrady paid a lot of amount as an EMI but still they have to pay a lot og money. When they had bought these properties they were alone and had no responsibilities but after doing marriage and childs their responsibilities has been grown and they are not able to afford the huge EMIs. So they want their money retrun back becasue they have understoood that they have been trapped by builders.
If you are an IT professional then you must not buy property at this time. Definately it will go down.

ganesh said...

Hi guys,
i have read all the comments since MArch 2005 by Neel kanthan.

I have been watching this market very closely. please read my lines carefully....

What i see is there is an increase in the property prices as per the hype-news. In the begining it was electronic city BOOOOOOM....-Places near like Koramangala/JP Nagar/Bannergatta, were hot. But now the pricess are alsomst settled in south bangalore side. One can wondor 2BHK apartment cost 50Lakhs plus in Koramamngala, but the existing idiot would not like to sell the flat below the cost price unless he has emergency. Hence prices will remain stable in this area.

one ITPL has spoiled the prices in east bangalore. There was an oversupply of apartments, with poor basic infrastructure Water. There are high end apartments each having 150-200 flats, but no water supply. Depending on Borewell for so many flats., how do one can live in such an apartment. Now here prices are infact sliding down. Some builders who had already recovered their cost, are keeping wait and watch policy for another hype OR just trying to maintain the prices, if can not increase any more.

Now its the North Bangalore. Internatinal airport is comming up. Metro rail work begain, Metro will connect the city to DEvenahalli to facilitate the reach to international airport. This has suddenly taken forgotten rural areas, into lime light, prices increased. From 20 lakhs to 35 lakhs for a 2BHK now since 2 yrs. With all hyderabad reddy's comming here to contruct so called apartments, this has become a creamy and easy business. EAt the cream till the prices and hype lasts.

evry week i can find a new builder comming up.

The builders say that they are commmng up with Good facilities like: Swimming pool, Gym, club house, etc. but they charge heavily some time very absurd charges for that! I often see some builders give funny charges like 1lakh-club membership(this is like joining a lifetime membership in club outside), Generator charges - 1 lakh.(A generator may cost max. 8-10 lakhs.), Present KPTCL and water charges as per rules is not more than 75K, they charge, on per sft. basis which is often 1.5 to 2 lakhs. A new funda- called Sinking fund: Rs. 1-2 laks(guess: this is the unforseen charges born due to repair of generator, common area repair, etc.- i hope this would not come in next 5 yrs.- so the builder will eat it up)

Think, a builder giving Gym charging 1 lakh per flat in a 40 flat apartment. he says he is giving 25 lakh worth equipements to flat owner for life time. You should be fool enough if you agree on this, as the buillder will be collecting 40 lakhs for the gym in total from all flats owners.

Just think, how much it costs to raise four walls for apartments, once foundation is done. The builder will cover the entire cost of apartment in selling just one floor, rest of it is profit, and this Huge margin on money often 300 - 400% is what makes these guys greedy and prompts for more and more exploitation.

The Question is simple. Why a citizen have to pay more for the flat if something comes on the way his steet goes? Why should a common man pay the price if some international airport comming up?

Guys wake up. The prices at the existing airport road is 30Laks for 2BHK. Now will the pricess fall drastically as this airport will be closing its operations for passenger planes once airport at devanahalli comes into operation?

This will not happen. because of the same greedy builders. They will give some other reason. We have also seen in recent news, on the hype of maintaining two airports. this is just a hype to keep the prices upwards.

-----
One more word of cautuion.
I this new generation both wife and husband is working, hence banks give a joint loan which makes the eligibility higher for such couples. this is also one main reason for price hikes. say husband earns 30K, wife 20K, so they can afford for a loan of 40Laks easily as the premium may be at 35K-38K per month. rest they can live with. This is a gross mis-calculation most of the guys do. What if you have children, wife may not work in future, where u will pay from? PRicess may really come down and even mortage may not work.

If something go wrong, it will be worst - in india atleast.

Any unhealty growth will have equal or more downfall.

I feel still the overall real estate market is Hyped and represents HIGH DRAMA. A common man, whose dream of house is lifetime investment, it should not suck you up for your life. Choose wisely. If you think you are a real buyer, be out of the market for some more time. Atleast do not buy a house in Bangalore if you are not going to settle here. Buy in your home town. This is a bubble which has taken a shape. And Mahatmas are sitting out to maintain this for some more time and will escape with money sinking out common man.

IT is just a reason to make RE boom. Tomorrow something else. If that is the case, MNC-investing crores in India can invest in Real estate. they don't. they never. They buy/rent/build offices though costly. They will not settle. They can move away if their business do not run. What you will do if you have house near to IBM-tech park? IBM can close its operations, You can not close your lifetime investment. There you are stuck.

Please do not buy house in Banglore. Buy when there is a real Fall in property prices/

Ganesh

kaku said...

I notice a very interesting fact here....

The timestamps of the comments on this blog tells a story in itself.. since early 2006 the market was predicted to crash... 'in next 2 months'... and that never happened.

I would not be surprised if most of the people leaving comments in this blog are not 'apartment/plot' hopefuls who have been left high and dry by the property gravy train. So they are now trying to reassure themselves that it will crash and they will have the chance to say "I told you so"..

best of luck!

neelakantan said...

hey, kaku brilliant observation!!! the crash is yet to happen, indeed it may never happen. but prices have sort of cooled off in most areas...

Anonymous said...

I live in US and am considering buying a house in Bangalore. Needless to say, the prices are very high for what I can get, e.g., the one I am looking at in Vaswani Astoria costs ~$250K for a row house in Outer Ring Road area (near Intel). The water supply is from a borewell (for 20 rowhouses and 20apartments), access road to development is not yet finished and hardly any owner has moved in as most houses are still vacant though finished. Also, 13 out of 20 apartments are not yet sold they they are fully constructed. The number of houses for sale/rent have definitely sky rocketed based on what I see in various websites and newspapers. Though I am close to making a decision on this, I am very concerned with all the posts in this site and even outside. At one end I feel that I will be left out from making this big investment for life and on the other I feel that I might regret catching a falling knife. The over supply is evident, but when, if at all, it will result in falling prices is not very clear. Infrastructure in Bangalore is pathetic, something I found out during my recent 4 day stay in the city. Does anyone know about the area that I am looking at and make some suggestions?

Regards,
Ramesh

Anonymous said...

I emphathise with everyone on this blog. I purchased an apartment 10 years ago in Bangalore which has 2.5xed. But I am also regretting not buying any land/development in the last 2-3 years as it would have been an easy killing.

My two-cents to investors on the fence is, if you are in doubt do not invest. The regret of not making the profit is much less than the pain of actually seeing your investment depreciate. Banks are offering a risk free 9%-10% interest these days. So in a 3 year time horizon your property needs to appreciate atleast 50% (i.e 30% + risk premium for investing in real estate). I doubt if that is possible in Bangalore, especially for apartments. Read the other blogs on the internet...you will be surprised at how much negative ratings some of the large builders have generated. Last of all remember you can never buy peace of mind...if the real estate investment goes bad, it will be a significant financial set back for most of us.

srinivasan said...

this city ,bangalore is an amazingly growin city in terms of money but a poor farer in terms of infrastructure ...well like any other city in india ,this city cant boast of its climate any more ...i still sweat in the bangalore winter ..it has grown all the more awkwardly ...with the it industry saturated in here there is all the chances of it stallin there by leadin to a stop of economic growth ...

Anonymous said...

I have made some enquiries recently. The builders are ready to nogotaite nowadays.I am of the opinion that the prices may come down furthur by december.

Anonymous said...

I have been living in this city for the past 26yrs and I can only say that it all depends on the location you would choose while deciding on your property.

6 kms travel to anywhere from your home was a painful thought about 3 yrs back! Now, even 10kms travel every morning to your office is well within the prime location! Think carefully, you invest in properties that cost between 30-45 lacs on Bannerghatta Rd (Upto Arekere) or Hosur Rd upto Electronic City (Narayana Hrudalaya Hospital), it is still worth, because people are looking for houses to stay and commute to their offices everyday.

The problem for common people like us is on 1. the growing interest rates and EMI amount 2. THe salaries are no more going to increase along with the real-estate or anyother rates! It's already on inflation since 10 months.

Based on my market-watch and monitoring, I can only say - Do not risk yourselves on real-estate if it is not within 10kms radius from MG Rd. Say Maximum 15 kms. Anything above that is a fool's decision to buy your own property.

The prices within the 10 - 15kms from MG road cannot drop due to following factors:

1. There is great demand, which cannot end due to lack of land. Apartments also are almost sold or are very posh!

2. Even if market rates fall down, it would be temporary in these places since it has to rise and the focus areas will start from the above mentioned radius.

3. There will be policies and statutory rules on acquiring lands/ buildings by builders within areas since most of them need to be by housing boards/BDA.

May be this will help of us trying to genuinely find a house instead of just investing to double the money. It is not worth taking the risk. This blog is only posted for people who are thinking about the loss of buying their own property in B'lore due to the hype and real-estate crash news.

Regards,
Reema

Kumar said...

one thing that is differenbt with B'lore is that money is comming from outside and population is growing. So no question of prices comming down. But I dont see the prices rising...take my case , I purchased a property for Rs 50 lakhs in 2005. It is now close to 80 lakhs. But I dont think that property has appreciated...it has just maintained its value. Lets see the case closely....I took loan from bank at 8% interest. And inflation of Rupee is 8%. So the property should grow more than or at least 16% to hold its value. Its the value of the house has to be Rs 78.0448 lakhs if it has grown at 16% interest.

So the asking market price is Rs 80 lakhs...so it has just held its value...

But if I rent out to a corporation...definitely I will be in profit....which is what I intent to do until I return to India from US.


regards,
Kumar

Anonymous said...

Guys,

Good news at last!!! Few days back I visited Shriram Samruddhi and Gopalan Granduer. Both the builders quote Rs.2600/sft but are ready to negotiate. They are ready to come down to Rs.2000/sft which is almost flat 35% less.

I have gone through this blog and here are few observations:

1. Genuine buyers are waiting for a RE price correction since they do not want to pay for the hype created by the developers, Brokers, and so called investors.

2. People like Kaku are not ready to accept the above fact.

Always remember, whatever goes up comes down one day. When??? May be no one knows :)

Thanks.
DM

Anonymous said...

I am very bullish on Indian real estate long term. However, I must agree with DM's post that short-term real estate prices are getting suppressed. I live in Mumbai and there seems no buyers in Mumbai, but the prices are still sky high and sellers are not accepting the fact and holding on to it. Good news is that I am starting to get calls from Mumbai developers that they are ready to negotiate on prices, similar to B'lore. This is the first time in last 4 years. Will Indian real estate market follow US market?

sachinuppal said...
This comment has been removed by a blog administrator.
Anonymous said...

Guess I was lucky to stumble into this blog while searching something in google regarding real estate in b'lore....Read thro from begining and realised that its 1.5 yrs since the blog that was posted in Apr'06 predicting that "It will surly go down when Builders and Investors will realise that thier invested money is going in futile..Price will crash..then go for purchasing flat.." ! But so far, still the hype / property rates is increasing.. Any guesses or prediction on how the rates are going to go -> Up or Down ?

Getting land is just not an option anymore. So people have to go for flats. The moment we see a flat by a "proper" builder (whose has a website and who shows fancy "flash" media), the rates are absurdly high. We can think - oh that guy has a reputation to keep..so will properly build a flat with quality materials that will stand for couple of years. But not sure anyways. If we go for some unknown builder, we are neither sure of his reputation nor the materials he uses to build the flat !

While we live in some rented house ( not flat ;) ) which has been built with some junk materials and hollow blocks, we can hear whatever yawning sounds that even a street dog makes...and we are afraid to speak normally for fear that it will heard by a whole street !!! So the fear remains if we purchase a flat, by whatever builder, at whatever cost - are we having atleast privacy enough that our day to day "speeches" ?

Well..another thing i wanted to ask was - can all of us just share whatever information we have / heard on a particular builder - who is reasonable or who is bad/worse/worst ? This will give anyone purchasing a flat some idea of which builder to approach or whom to steer clear off...This information will be very useful to a person like me - who has been living in a rented house for long and wants to purchase a flat in b'lore in another few months..

Couple of doubts which may be silly, but well.. some ppl are ignorant too..(like me !)
Is fixed rate better than a floating rate or vice versa ?
Is it okay to go to nationalised bank like SBI / Corp or other banks like Citibank etc.. ?

Shankar AVSB said...

This is a timeless post with new people chipping in regularly. Why are you allowing such spam and junk on this page (eg. the above comment)...how did it get approved?

Neelakantan said...

Fixed it. Thanks Shankar.

kaku said...

Well i commented on this blog about 8 months back and going by the comment trail -I have a peer who debunks me and another who supports my 2 cents - so lemme post an update - I have learned my own lessons in the last 8 months. I have had a ring-side view of the housing bloodbath in the California state . Prices in certain suburbs in the bay area have tumbled by 35% ( from 2005 peaks) on the average. www.patrick.net is a popular blog for US housing crash. While a direct analogy of the Bay area housing bust would be incorrect for the bangalore - nevertheless the last 1 year has definitely seen a stagnation or decline in prices in many bangalore suburbs. My own investment (on hosur road) rapidly climbed to 3X in three years boom since 2004 and then stagnated for last 1 year and is still expected to stagnate until some new hype (elevated expressway/ BMIC/ IRR) comes along. So the lesson I learnt is that your 'smirk' or 'sour grapes' for real estate will largely depend on where you got on, in the price cycle - if you bought a premium house in 2006-2007 you will probably see a loss or a very low increase in value. And even Stagnation in value is actually a loss when you factor in inflation, mortgage interest rate and the opportunity cost.


In 2003 My colleague was able to cover his EMI with rentals -thats no longer a possibility with todays house prices and interest rates. Personally - as the difference between rentals and EMI widens -my resolve to rent strengthens.


IMHO 'Expert' theories about economy and IT are just wordy theories to explain the real estate Cycle. Happened in the past - has happened all over the world - will happen again. Sounds fatalist - doesn't it :)) on a lighter note - the previous comment << While we live in some rented house which has been built with some junk materials and hollow blocks, we can hear whatever yawning sounds that even a street dog makes >> is too funny :))

Anonymous said...

100% true ganesh. I totally agree with u.Even if u die also u need to go for work just to pay off these untruoble loans.

shruti said...

Property prices in India are rising fast, and not just in the biggest cities. As the tech boom spreads across the country, as more Indians buy homes, and as the economy grows at faster than 8% a year, real estate is attracting more investors, many of them from abroad.India is one of the last few countries where there is primary demand for real estate rather than individuals trading up.India is the most exciting real estate market in Asia.It’s one of the last major countries in Asia with an improving market.To achieve the target returns, several funds are focusing on second-tier towns and second-tier developers. Many investors are going to lose their shirt here, as it’s an opaque market, and a wrong partner can easily do you in.There’s also bureaucracy and corruption to deal with.There are a couple of hundred malls currently being developed across India, and predictions are that only 10% will be successful. Yet every developer feels his mall will be among the survivors.For more view- realtydigest.blogspot.com

Anonymous said...

Recently I started searching for an appartment or land to build a house in and around bangalore. Just given my contacts with some real estage agents. I was offered site visits , 99 % of the places I have been told a site is Rs.1000 TO 2500 SQ feet. I have seen barren land with no infrastuctre. The agents just showed me pointing to a far of road that some new projects are coming up there. They show some bush and say this will be converted to Childern play area and say around that a club house will be opened. I am a common man who wants a place to dwell peacefully . I expect parks and amusements should not be forced , but should be available if one needs for eg. a mall or park nearby. The current boom I feel is not real one. Yes some people buy it just because some banks offers high loan . What happens if people cannot pay back the loan and become defalters. The exact thing that happend in US can repeat in India too. If US with a strong economy could not face such realty break down what will happen to a poor country like india? The wealth display by our politicians shows larger and larger wealth is concentrated in the hands of few by illegal methods , which results in poor distribution of resources. If IT is down , real estate will be down, if both are down banks will be down, stock markets crash, people will spent less, retial and auto sectors will be down and that will be the start of recession like US. So if real estate and bank loans made US suffer it is no different story for India . So be careful when getting a 20 year loan to buy flat-( if you are a salaried or honestly hard working guy). These loans are useful for crooked politicians and other crooks who amass crores to service people.
(thanks to lokayuka who at least reveals it to the public , even if no action is being taken).

Remember the old saying "All that glitters are not Gold" keep away by investing in Real estate and apartments by taking huge loans. Buy land or apparment only when you have enough money to buy it without depending on huge loans( even if you are in IT guy!)

Observer said...

It is interesting to see people make such uneducated comments on blogs so easily. Someone wrote our grandparents lived 90 years and I'll live 40 years. Sure, if you smoke two dozen cigar a day and drink only beer instead of water. However, statistical data shows life expectancy is on the rise in India.

On the demand side, Indian has only 25% population in urban areas. This will be touching 40% in next 15 years. So demand for housing is bound to grow. However, short term speculations can always see a correction. But serious buyers should not try to speculate on speculation.

Good luck.

Phantom Iyer said...

Dear Neelu

I agree with you 100%. I have been a very avid analyst in this sector for sometime now, and there are three factors which indicate that Bangalore real estate is artificially inflated.

1. Rental Returns used to be 8-10% of the apartment value / year. Now it is less than 4%
2. Over Supply / less Demand equation.... obvious....
3. Bleak resale outlook of Apartments/Flats = Someone told me that my flat is worth 50 Lakhs and I was happy. But my neighbour has been trying to sell an identical one for 40 Lakhs but there are NO buyers.

It is the greed of the developers and the speculators (realtors) that is causing this. CREDAI is a cartel and it will be interesting to see how long they can handle a combination of insipid demand, huge supply and high interest rates (round the corner) .....

Great to know that I am NOT alone ....
Phantom Iyer

http://phantomiyer.blogspot.com/

Online Apartment Community said...

Boom in Bangalore is gone. Now Pune is the only city showing good returns.

Harish said...

Bangalore realy is highly inflated and unreasoble as well. I recently shifted to Bangalore (3 months back ) from Pune and already sick of Bangalore. Pune is 200% better than Bangalore in every aspect. There is no scope for further growth in Bangalore and current financial crisis in USA is more a indication of what in impending on Banaglore. I opine that Bangalore was city of 20th century and is dead. Never expect your investement in property in Bangalore is will yield a better return. If you invest, it will be similar to people who invested in stock market when sensex was at 21000 pts.

sachinuppal said...

I think its an exaggeration to say that it's dead, however, it's definitely inflated in terms of prices. However, looking at Mumbai and Delhi realty prices its much better. Also, the prices will remain stable for coming 6-12 months. I would say it's a good time to but property in coming 6 months.

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So, at least some good news from the other part of the world. Laguna Beach Realty is just waiting for the boom time like that and surely it will happen sooner rather than later.

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kevinhil123 said...
This comment has been removed by a blog administrator.
Samantha said...

Really interesting post! Bangalore real estate market is on hype. IT parks has contributed to increase the demand for residential flats in Bangalore. The real market is unstable at the moment but experts are predicting its going to be steady in next couple of months.

Sushant Bagaria said...

Hi

I have read through the entire blog and would agree with the Bubble scenario in Indian real estate market. I live in gurgaon and have seen the drastic changes in the last 15 years. I think India is in an economic bubble similar to USA where the prices will come crashing down. The reason is abundance of credit avaailability. This is also the reason why we have seen a steady rise in the interest rates. Whenever there is an abundance in credit availability it results in a bubble and when it bursts it turns into a recession since no financial institution is in a position to lend. India has abundance credit availability at the moment and that is soaring the real estate prices unneccesarily. Visit my blog at http://investmentinusa.blogspot.com

I consult indian nationals to buy and hold real estate in USA.

arnold said...

This will happen. Because of the builders of greed itself. And this is another reason. We have also noted, in recent news, to keep noise at two airports. This is just hype to maintain the highest prices.

Gruhkhoj kolhapur said...

Bangalore in global investment field in IT sector and biotechnology, much increasing in real estate having great environment and tourism

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