Real estate prices in India and California

Real estate in India looks really inflated to me. Two data points – one in Mumbai on very expensive flat in South Mumbai and another on a more modest flat in the Chennai. The annual rent on both is between 1.5 and 2% of the price of the flat. Yields on Indian government 10 year notes, is currently close to 8%.

One can draw two conclusions from this:

– It is far, far better to rent than to buy real estate in India. On a 2 cr. apartment the difference between buy vs rent is 12 lakhs per annum (and the peace of mind that GoI bonds give you)

– People who buy real estate at these prices are counting on capital appreciation and definitely not rental income. How much higher can it get?

On the other hand, in So Cal, a friend who thinks it is a good time to buy real estate in California, is making 8-10% just on rent (after costs).

Maybe those Mumbai fat cats should think about investing in California real estate. A much better long term bet, good rental yields and easy to manage long-distance.

I wonder if there is the makings of a business in channeling this investment from emerging markets with super high real estate prices to developed economies where post the financial crisis, real estate is quite depressed.

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6 Responses to Real estate prices in India and California

  1. Brij says:

    Makes sense. In Mumbai, the Builder-Realtor nexus is keeping the prices artificially high. NRI and black money is pouring into thousands of apartments across Mumbai. Buyers who actually live in the property are very few.

    Plus at least in California, when they say 2000 sq ft it will be 2000 sq ft unlike Mumbai where 2000 sq ft really means 1100-1200 sq ft. If you compare the carpet area prices in Mumbai, it has to be the most expensive real estate in the world.

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  2. Nupur says:

    What about demographics?

    India, the demand is likely to increase. There are a tonne of people coming to cities. CA on the other hand – the sea of foreclosures is a self accelerating problem. The govt is sitting at record budget deficits and most of its employees are on minimum pay. Unlike some other state, this govt is rightly not destroying homes to kill the oversupply. Why would you want to buy 10% yield on a depreciating asset?

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  3. ankur says:

    Ya i am agree with this blog. I think in india property is at reasonable price compare to the other part of world and will be at this pace to next 3-5 days. But after 5-7 year the property of india will be one of the highest property in the world and may be on top.

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  4. Sanjay says:

    In India, because of infrastructure people tend to stay close to office space. They won't prefer to go beyond 10 Km or so. If local railway is available, people tend to stay close to station as in mumbai. As we move farther from station, the price of real estate drops considerably.

    In california, because of infrastructure, people can stay at distance of 30 KM from office and commute by car.

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    • Sameer Chadha says:

      Spot on. Cities and suburbs are not an apples to apples comparison. In the US, the real estate prices in urban cities like New York and San Francisco remained relatively stable as compared to the suburbs, which plummeted. Cities promise, opportunity, infrastructure, history and culture that overnight bedroom communities cannot come close to.

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  5. Raj says:

    Yes, you can invest in real estate in US but what is the return on it? If you take the same ten year period, the price of a piece of property appreciates more in India than in the US. Well, may be inflation will kick in and create a pseudo appreciation in US soon.
    But as one of the commentor mentioned, if you are ready to give up honesty then you can buy stuff in India otherwise can't.

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