Buying Flat in India???? You gotta be crazy !!!

Well, This post is going to be one where i am planning to capitalize my interest on mathematics, certain fundas taught in MBA, common sense and of course my Fascination with real estate.

I hear this common statement everywhere that India is growing , Real estate prices are skyrocketing, now is the time to buy, else you will be left out... I just cannot make sense of the current real estate prices. Either the supply demand is terribly imbalanced or there is too much artificial pressure to hold on to existing Levels.

My Mom says that in Mylapore land prices have touched 9000 rupees per sqaure feet. Assume that we need a 3 bed for a family of 6 which means at least 1500 sq. feet is a bare minimum.

Cost of 1500 sq. feet home = 1500*9 = 1.35 crores = .3 million
Undivided share = 400 sq. feet

Average Annual Income of a upper middle class household = 12 lakhs
Average Disposable income of upper middle class household = 8.5 lakhs (after tax)

So does that mean a 3 bed house in mylapore is out of reach of all upper middle class junta and only the rich can stay. I sure am missing a point. As far as my 15 year stay in mylapore was concerned i could say it was dominated by predominantly middle class and upper middle class people with a very miniscule proportion of rich junta. Now all of a sudden i am staring at ridiculous values which make it nearly impossible for anyone to buy a flat. if i thought mylapore was an exception you got to check the rates in the suburbs. thats even more crazy. 4000 -5000 rupees per sqaure feet in pallikaranai which does not even proper sewarage systems, schools, infrastructure etc. It just does not make any economic sense to invest in a house.


I dont know when the crash is going to come, but going by economics the current valuations seem absurd.

Let me take the example of an average IT couple household.

Average monthly Income of a household = 50,000 (after tax)
Petrol charges per month = 4000
average Household expenditure per month = 10000(electricity,internet,gas, groceries,milk,society bill,mobile,cable , gifts, impulse purchases,dresses,vacation plans, etc)

So disposable income in hand = 36000

Now he has to either pay rent or go for buying a home
Let us look at two options
a) he buys a house and stays there
b) He stays at a rented place and buys a house for investment purpose.

Lets say the couple already have cash of 15 lakhs as buffer which they can put upfront towards the house.

Now with 36000 disposable income he would have to keep a certain proportion as a safety net
Let say 10000 per month is kept aside for safety.

So that leaves just 26000 towards investment

Option a) Monthly EMI of 26000 translates to a loan of 26 lakhs over 25 years.

Option b) If he is thinking of investment , then 10k goes towards rent so he has just 16k to invest which translates to 18 lakhs loan.

So in effect an average upper middle class household with 15 lakhs security net can at max buy a house worth between 33 lakhs and 43 lakhs . and we are looking at houses in the above budget in good localities. But where are the houses? By conventional logic if the upper middle class themselves cant afford it, who can afford it?


people say that husband wife worked in US, europe made money...

I just got to say that at current valuations both need to work for 5 years save every goddamn penny and have to postpone having a child till age of 35 which is not possible. When they have lived 5-10 years in US/europe trust me they are not going to pay a fortune to invest in properties in India. Its too damn costly than the valuations we have here in the US. People also give me an absurd logic saying salaries are going to increase at 12 % a year for next 20 years. thats total bullshit.

We are going to stare at a recession. IT sector has matured and i dont think the indian market has the apetite to absorb 3 lakh graduates every year. The people who will be at maximum risk in 3-5 years time are people like me who would have reached middle management levels and would command a premium while at the same time the inclination by companies to reduce costs by replacing more experienced people with freshers is just going to increase, which in simple terms means your sal is going to get standardized in next 3-4 years. no more hikes !! period !! people gotta realize that.. Its going to become like government offices. pay scale for 10 year experienced guy aand 20 year experienced guy is going to become same. The salary graph for IT professionals will become like this




Salaries have been rising but not any more . at least in IT sector, whether we like it or not, we accept it or not, salaries are not going to rise. companies will pay premiums for freshers, but laterals nah !! and in 5 years time the pyramid will have at least 50% people with more than 5 years experience. the entire equation will change. We are defly not going to see a case where there will be 1.5 lakh freshers or people with less than 2 years work ex and only 30k middle management folks. we are going to go to a phas e where we are going to be top heavy i.e more experienced people. so either they fire us and hire freshers or retain experienced hires without hiking sal and just adjusting sal to acct for inflation. Welcome to reality world guyz !! The honeymoon is abt to get over and its time to throw caution to the winds of change. and mind you i havent taken into consideration that you will be having two kids, ageing parents , medical bills , insurance etc.

I hope this article was insightful. comments and debates are welcome.