Rental properties - Wood work - worth the extra money

My personal observations from Bangalore and Hyderabad markets.

Lot of people hesitate to do decent interiors that would not cost more than 2 lacs on a 30 lacs property. The reasoning is that when I am not going to stay there why should I risk rough usage of the wood work by prospective tenant.  But, they miss the financial angle to it.

1. People do not rent property with out adequate privacy provisions for their personal belongings and sufficient storage
2. With the growing affluence, wood work is a standard fitment
3. And most importantly the financial angle, if you get 11,000 for your 30 lacs empty shell property you can get 12,000 for your semi-furnished property (with woodwork). Work out the math, it is 4.03% against 4.5% return on investment. An increase of 11.6%.  This difference would decide when you break even on the rental property purchase. 

P.S. The returns looking shockingly low but a high inflation country has the bane of locking part of the returns in the capital appreciation, which is to the tune of 10% every year.  So, add up 10% to 4.03% or 4.5% to see the realistic picture.

Going rates in Hyderabad - May 2014

Shutter work - 600 per sqft
Box work - 1000 per sqft

Trivia: US (which was seeing inflation rates of 2%) saw property appreciation of 15-20% between 2004 to 2008 till the property crash and financial meltdown came calling. The appreciation was not in tune with inflation and had already pointed to abnormality in the market, where property was being seen as a lottery ticket in an economy which was not seeing any growth. Growth during the period at 3-5% was more realistically close to the inflation performance.

Hyderabad - Nizampet/ Bachupally - Satyam Hill County aka Hill County by IL&FS

Many must have heard about Hill County, and known the sky high pricing back in 2007.  Now, it is being promoted by IL&FS.  Couple of things did not work in its favor, 1. the Satyam fiasco 2. the location at Bachupally.  Bachupally is usually associated to being polluted due to the proximity to Bolaram industrail estate and the Dr. Reddy's plant. Student of schhols and VNRVJIT engineering college in vicinity complain about the foul smell that erupts from time to time. But, the emissions have lessened dramaticall in the last 4 years.  Customers were ready to overlook all these problems because it was promoted by Maytas, sister firm of Satyam.  With an 85 acre township and an IT SEZ thrown alongside, it was a complete package but things were not destined to be so.

The venture is now almost completed but unfortunately the euphoria is missing. According to me, this venture needs a serious look.  An 85 acre township, 20 mins away from HiTEC City...that is something. Anyways, the pricing for apartments is around Rs.3450 psft and are spread in 17 acres and the rest is villas.  Pretty good package as a whole, me thinks.

Hyderabad - Shopping for decors for a new home

For the ones who are die hard DIYs

Plywood, Laminates, Glass - Goshamahal
Electrical - Troop Bazar, Abids
Furnishings - Mahankali market, Secunderabad
Furniture - Nampally, Hafeezpet (made to order)
Garden Furniture (Cast Iron) -  Azamabad, RTC X Roads
Anitiques - The street markets of Charminar - 100 year old chandeliers, furniture and other artifacts (mostly imported from Persia and Turkey) - need further investment to restore - but worth every penny 
Appliances - Refer to my other blog on Sulekha 'Get a quote'

Hyderabad appliances shopping guide/ tips - Fitting your new home

If you are trying to buy appliances for your new home and have figured out the model you want to buy - try this...

Sulekha has an offering call 'Get a Quote'. Post your model number and expression of interest to buy and dealers would call you directly, pick the lowest quote and ensure the warranty, bill are in place. Most of them do a home delivery as well.

http://yellowpages.sulekha.com/free-quotes.htm

Sequence - Visit showrooms like Croma, Reliance Digital or TMC where you have decently knowledgeable sales guy who can figure out the right choice. Then visit Sulekha to get the quote and purchase the appliance.

You can alternately try the bigger e-comm vendors for electronics but electrical goods are still a bit of a local phenomenon. 

Interesting household appliance - a cleaning robot

I know how difficult managing a maid can be.  I found this product at Croma that I thought should interest some really frustrated souls. It is a robot that cleans and mops your floor.

See the link:

http://www.milagrowhumantech.com/robots/video-robots

P.S. - This company is run by ex-sales head of LG India - Rajeev Karwal. Worked as CEO of Electrolux and Kelvinator as well as Reliance Retail.

Why gated communities?

Gated communities create a social divide.  The amenities are available to the owners and people beyond the compound start envying and despising the residents.  But, unfortunately, in a poor country like ours, the government cannot create these amenities for public consumption in all parts of the city and every city and town of the country.  People are forced to fend for themselves.  Create your own playground, pool, tennis and basket ball courts, place of worship, security, school etc. if you can afford it. 

Construction costs in Hyderabad

In 2005, when I was contemplating to build a house, a contractor friend quoted a construction cost of Rs 600 psft compared to Rs 800 sqft quote I was getting in the market.  Now, the costs have crept up to Rs 1300 for normal construction and about Rs 1900 psft for super premium constructions. Where as the builders were operating at a margin of 60-70% in 2005-2007, it has come down to 22-26% now due to the increasing cost of construction and stagnant market.

Aadhaar and Inflation - Update Aug 2015

Make no mistake, Aadhaar is not for the benefit of you and me, but for the government to cut its fiscal deficit and current account deficit.

India is a inefficient and noisy economy with several leakages across the bureaucracy.  Beneficiaries of the leakages include the hotels (gas), PDS card holders (agri essentials, kerosene), households (gas), transporters (diesel), fabricated low income group certificate holders.  When the noose tightens, which would be very very gradual, all the parties start passing on the increased costs to the consumer. We are talking about 20% more cost of Diesel, 100% on gas etc (forget fertilizers, natural gas and kerosene for a moment).  These increases are good enough to keep the inflation kissing double digits for the next 6 years. Even the RBI has increased its acceptable inflation levels to 6% from the below 5% target earlier.

With such inflation scenario, growth cannot kick, low inflation is key for growth and prosperity. For the time being, inflation driven asset prices should be taken as consolation for hard asset holders.  Those who do not own hard assets will see lot of pain.

Update August 2015 - The slump in oil prices seems to have come like a blessing for economies like India.  WPI is hitting new lows though CPI remains sticky.  Lets hope CPI below 5% makes RBI comfortable to lower the rates.  But, Rajan is not going to blink in a hurry.  I guess he would like to see what FED does in early September before committing to a rate cut in late September 2015.  

Private Sector Vs Public Sector wages

Till 2007, wages of government employees in the upper echelons of the government were on par with the mid level (4 yrs experience) software developers.  The increased asset prices due to the boom were hurting the government employees and then came the 6th pay commission which almost doubled the wages of the government employees, many state governments followed.  This increase has attracted many aspirants to gun for public sector jobs. But, the novice aspirants have overlooked how the relation between public sector vs private sector salaries behave. 

Typically, private sector needs to attract better talent than the government to be competitive and succeed. To attract better talent they have to offer salaries better than public sector to attract the best talent. So, private sector salaries start increasing to beat the benchmarks set by govt salaries. Increase in government salaries also brings in inflation across the board.  Related currency depreciation and increased revenue recognition help private sector to pay more and over time, the salaries of pvt sector over take the govt salaries. Obviously, the affect is not visible because of the poor economy, but the increases are visible and hikes in private sector have been consistent around 10% in spite of the poor economy. The seven pay commission in 2016 will kick start a similar vicious cycle. An increase in minimum wage in Western Countries is the benchmark for annual raises.  Thankfully, they get adjusted every year, but by doing a 10 year exercise of pay commission (though there is a DA which is a regular increase), India suddenly spikes the market leading to many shocks.

In conclusion, this cycle will keep the inflation high for very long time and result in sudden currency depreciation and adjustments.  Indians need to be planning with inflation as the main target for the next 6 years rather than growth.  We are in for a long and painful recovery.  Also, it is an exciting time where many fortunes will be made and many broken.     

Hyderabad - Hail the uncertainity

The world has been seeing a flood of liquidity since 2009. Asset prices, especially real estate and equities have moved up by 80%.  Real estate in markets like Mumbai, Bangalore, Pune, Chennai and NCR has moved up like crazy, in some areas real estate has appreciated by almost 100%. Many point to a bubble building up, subtracting the 10% inflation for the past 5 years, still property prices have gone up by 30-50% in a subdued economy. Sounds funny but this is a fact.

Thankfully, the uncertainty fears overpowered the excitement of the bubble allowing the Hyderabad market to remain subdued and at sane levels.  This has come as a blessing in disguise to the common man.  Thanks to the uncertainty many average Indians have now come to own a home in Hyderabad.

Chennai and Bangalore have issues with infrastructure and water availability. But, Hyderabad with excellent infrastructure, water and climate has lagged behind offering a once in lifetime opportunity for prospective home owners.    

Gachibowli - Hyderabad micro market scan

Purpose - Define Gachibowli

Gachibowli is an emerging suburb of Hyderabad. This can be called HiTec City 2.  It houses most of the IT companies (large campuses compared to cramped ones in the original HiTec City) and the Financial district.  It has large tracts of land auctioned by government for mixed use purposes.  Most of it is undeveloped, partly due to legal disputes.

Areas around a 6 km radius falling under Serilingampally, Nalagandla, Gopanpally, Tellapur can be called as 'off Gachibowli' or 5 min drive from Gachibowli.  These areas are relatively low on social infrastructure and are still evolving.

Note: Beware of real estate ads quoting distances in 'x mins' better stick to projects that advertise distances in 'x kms'  

June 2014 - Good period to go shopping for finished projects in Hyderabad

A number of projects are likely to be in the market which will increase the 'ready to move in' availability. Names like Mantri Celestia, Aliens Space Station, Manjeera Diamond Towers (???), Lanco Hills (???), Emami Swanlake, SMR Fountainhead, Sri Sairam Towers, Rainbow Vistas, Nile Valley - are some of the projects which were in works for close to 4.5 to 5 years and are now nearing completion.   Some of the towers are already handed over but the projects are likely to be 'more complete' by June 2014. All of these projects were affected by the slowdown, not sure if some newbie builders (with sketch financial support) would be able to close the projects.