thread on Real Estate

[vijayvaliya]

Real estate.. you need to continuously manage it, pay taxes, take care of the tenants, society affairs etc... not to mention attempts to push you out / hostile takeovers. Whereas the headache is much lesser with equities if you follow your stop losses, or put money in mutual funds. If you have an appetite for the various headaches, the nothing like real estate.

The limitations you have mentioned exist for all asset classes, be it equity, debt , currency , commodity
I agree, attempt push you out/hostile takeovers are more apparent in RE.

 

[vijayvaliya]

Had it been if the prices of real estate were listed and would be constantly moving up and down in the ticker every minute(like our stocks and indices), the investors would have made same amount of money they have made ?

The answer is No.

Check out any asset class, I think the returns generated have been the same more or less in past 10 years.
One just needs to stay invested no matter what.
Just that its capital intensive. One needs to have loads to invest.
This does not mean that its not a good investment.

This is precisely I was thinking about, when I started the thread. May be over a period of time, such practices may evolve in realty space.

 

[vijayvaliya]

Recently I happen to check for a 1BHK/2BHK flat on rent in Vile Parle/Santacruz area in Mumbai (Search is still on....). I came to know that the rent is around 40 K for good flat (livable). May be a year back rents were in the tune of 25 K for 2BHK flat (fully furnished).

Also many occasions in past I was in negotiations for plots in mumbai. Indicatively the prices have doubled in some areas (which I have personal experience)

So I feel, there is definitely there is appreciation, both in terms of capital and divident in realty.

 

[manishkale24]

Zee Entertainment's 4QFY11 PAT increased 64% YoY driven by lower sports business loss and flat revenue in the core business despite seasonal weakness says Motilal Oswal report

 

[vijayvaliya]

Zee Entertainment's 4QFY11 PAT increased 64% YoY driven by lower sports business loss and flat revenue in the core business despite seasonal weakness says Motilal Oswal report

Manish,

are you saying that Zee has something to do with Real Estate business? Or this particular group has more influence on the realty market (compared to others) ?

 

[OptionQuant]

Real Estate is a very very good investment. But there are too amny things attached to it. I am a serious real estate investor, and I feel I should share my views.

RE means investing in -

i) Land
ii) Flat
iii) Office/Shop
iv) Outside India.

On Land, I have no clue as I am scared of the deal (takeover). But other three I will elaborate

Flat/Apartment - Expected PE - 1%-3% Mumbai, 2%-6% elsewhere
Office/Shop - Expected PE - 4%-8% Mumbai, 6% - 10% elsewhere
Outside India (US) - Expected PE - 6%

Note, that in PE, P=CURRENT Price (Not price you purchased at). It INCLUDES 5%-9% stamp duty/VAT

E = Current Earnings (ie Current Market Rent minus taxes, Maintenance, etc)

Also note that Office Space rental attacts 10% service tax, falt rental does not. Also, Office space, though having better yield has the following problems -

i) Lot of vacancy. When a tenant moves out, it takes time to get another. This reduces your E from theoretical
ii) Buying and Office Space is invariable Black-Money intensive. Black Component is typically 50%
iii) Leveraging office space is expensive. Cost is Home loan rate + 7% (5% if you are prime borrower like Ambanis)
iv) Office space has collectible issues. The tenant is a bog business or small time guy. You need to chase him. Apartment tenants usually pay on time.
v) Office space attracts some "insurance payment" from local goondas in many places

Having said that, both apartment and office space in India command a deposit equal to a substantial sum. That deposit invested at 6% would give one additional months' rental, pre tax (invested in FD say at normat times, not currrent times)

 

[vijayvaliya]

Real Estate is a very very good investment. But there are too amny things attached to it. I am a serious real estate investor, and I feel I should share my views.

RE means investing in -

i) Land
ii) Flat
iii) Office/Shop
iv) Outside India.

On Land, I have no clue as I am scared of the deal (takeover). But other three I will elaborate

Flat/Apartment - Expected PE - 1%-3% Mumbai, 2%-6% elsewhere
Office/Shop - Expected PE - 4%-8% Mumbai, 6% - 10% elsewhere
Outside India (US) - Expected PE - 6%

Note, that in PE, P=CURRENT Price (Not price you purchased at). It INCLUDES 5%-9% stamp duty/VAT

E = Current Earnings (ie Current Market Rent minus taxes, Maintenance, etc)

Also note that Office Space rental attacts 10% service tax, falt rental does not. Also, Office space, though having better yield has the following problems -

i) Lot of vacancy. When a tenant moves out, it takes time to get another. This reduces your E from theoretical
ii) Buying and Office Space is invariable Black-Money intensive. Black Component is typically 50%
iii) Leveraging office space is expensive. Cost is Home loan rate + 7% (5% if you are prime borrower like Ambanis)
iv) Office space has collectible issues. The tenant is a bog business or small time guy. You need to chase him. Apartment tenants usually pay on time.
v) Office space attracts some "insurance payment" from local goondas in many places

Having said that, both apartment and office space in India command a deposit equal to a substantial sum. That deposit invested at 6% would give one additional months' rental, pre tax (invested in FD say at normat times, not currrent times)

Thanks for a post in this thread. I had a few questions on your post

1. The PE ratios you have menitioned is annual?

2. What is your experiences in the three areas on which you have written?

 

[AW10]

Thanks OptionQuant for sharing your views.

Sharing my 2 cents,
1) while Real estate return outside india might look attractive as regular cash flow (i.e. annual income), capital appreciation is not that attractive. Though one of the benefit, if you are NRI, is to take loan in that country which will be almost 40 to 50% of Indian interest rate.

2) basic rule of property investment is LOCATION, LOCATION, LOCATION. Not just from today's perspective, but from tomorrows point of view too. Next comes the basic equation of economics - that is demand supply equation. To get best from the investment, property has to be in desirable location and the area should have limited supply.

@Vijay - PE is annual return on cashflow excluding capital appreciation.
as a thumb rule, one should expect 0.5% of current flat price as monthly rent. For 50L of house, 25k is that number. This will give around 6% as return, keeping into account the return on security deposit.

Any rent lower than that makes property investment questionable from cash flow perspective.

But, lets accept the fact, property market is driven more by heart then head. That gives great opportunity to someone who can apply head and benefit from the emotional decision of others.

Happy investing.

 

[rajsumi121]

I m in real estate business from last 8 years ... my formula of investing is to invest in approved ( by govt.) residential independent ( not flat system ) property which is near any big city ...example - aero city in mohali , dlf in mullanpur ( both near Chandigarh )

 

[rajsumi121]

2nd investment trick is to invest in hotel business .... in many cases u can 2 or 3 time your investments in developing time ( time between buy property and construction )