Tuesday, August 16, 2005

Bangalore real estate, speculators paradise

Bangalore real estate is fast turning into a gamblers den. Genuine buyers find the prices being pushed higher and higher, while speculators have a field day.

This is how it works. Every project has a pre launch and a launch. Before a project is "launched" (which can vary from a simple Bhoomi Pooja to a massive advert in the papers), it is spread by word of mouth or a website or sold to the "regulars" at a discounted price. The launch is about 50 to 500 rupees per sq ft higher. Some speculators cash in here itself. Like the circular transactions in share markets, these flats can potentially change hands within a group before it is finally sold, at a much higher price, to an outsider.

Heres where the second set of speculators move in. They book one apartment, some book multiple apartments and as the builder keeps increasing the asking price sell out one by one. Gains can be as much as 300 rupees per sq ft in a space of 3 months (calculate for an average of 1200 sq ft per apartment). Some end up keeping one apartment, but most just make money in the transaction itself without actually taking "delivery" of the house.

There is a third set which just purchases apartments and sells them on delivery. These, were, the only class of speculators until the above two categories moved in. To me, this is a classic bubble fuelled by speculators. There is a lot of real demand, but some of it is inflated by speculative purchases. Is there a better way. Sure, but who is really bothered? So, if you have the money and the risk appetite, book an apartment today (and sell it tomorrow). Keep your fingers crossed though, for this sand castle will crumble some time.


Karthik R said...

How about a 'lock-in' period (6 months, a year..) before one can sell or rent the property? Some developers in the US are resorting to that to discourage short-term speculation.

Kaps said...

Do they have to pay stamp duty before selling to the others? If such a thing exists, then speculators may not be able to have a field day.

This story resembles the days when the speculators ruled supreme at a time when Maruti 800 was the undisputed leader in the Indian car market.

Neelakantan said...

Perhaps these can be looked into, but as of now there is neither any lock in (bar the fact that it could attract short term cap gains, but that depends)nor is there any stamp duty. The trouble in things like stamp duty is that the seller could ask the buyer to pay this component and build it into the asking price. Either way, there is no simple solution.

Anonymous said...

Okay if these people (speculators) are doing such things we should leave them alone as these people also bear the risk of price fall so i guess the risk and the return get evenly matched.Its business

Anonymous said...

Sorry, I don't get it. From what I understand, there are three sorts of speculators right?

One is who buy it from the builders for a "discount" price offered during the pre-launc

Second one is, those guys who buy more than what they require and sell out the ones as the price appricate. The logic behind this is, the profit covers the cost of the apartment that they decide to keep. how can you make money in transaction? what did you mean by not taking a delivery? Who fits in to these type of speculator profiles?

Also what exactly the third type of speculators do? I dont understand the line "Just purchases apartments and sells them on delivery"

Sorry for all the basic q's. I'm new here and just want to understand how the mkt works.

Good Post. Keep up the work. Much appreciated

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