Bangalore Real Estate: Broker markup or Rent deflation?
I have written previously about Bangalore real estate brokers marking up the expected rent/sale prices by 20% or more. Here’s an enlightening example, courtesy of Bangalore Craigslist - note that all 3 ads are by the same broker, for the same apartment:
March 28: Rent @ 32,000 per month
April 13: Rent @ 30,000 per month
May 10: Rent @ 26,000 per month
That’s a rental discount of almost 20% and counting. Oh and by the way, this apartment is also up for sale @ Rs 4550 per square foot - that works out to ~ Rs 70 lakhs after factoring in stamp duty, registration fees and such.
Well, you know what’s next - time to pull out the EMI calculator! For a 20-year loan with a fixed interest rate of 13%, the monthly payment works out to Rs. 82000. If this place were to rent out for ~20k per month (which is indeed closer to the prevailing rents), the EMI/Rent ratio = 4. Or the Price/Rent ratio = 28!
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May 11th, 2007 at 10:18 am
I think price/rent should be 350 not 28. Yearly rentals are taken when calculating the rent yield, but when calculating the price/rent ratio it is the per month rent. The vast majority of the properties are having a nominal rent yield of 3.5% or less. Which is negative real yield considering the inflation.
Generally price/rent of 100-120 is considered investment worthy.
May 11th, 2007 at 10:38 am
Nagarajan: The reason I used annual rents is to make people think of the Price/Rent ratio as analogous to the Price/Earnings ratio for stocks; and an investment worthy ratio for residential apartments would be 15 or below in my opinion. But I see your point. Either way, the conclusion remains that current prices don’t qualify as attractive buy levels.
May 11th, 2007 at 11:38 am
Dear Kaushik ,
This to me a clear indication of correction ! and not the case of broker mark up.
I am seeing this in the real estate market over the last 1 month that the sites are not getting sold at all and sellers are more than willing to negotiate the prices.
This was not the case 5-6 months back
Avinash MB