Real estate in Coimbatore - 2
Four years back, I wrote this post on Real Estate in Coimbatore.
http://expertdabbler.com/2007/01/02/real-estate-in-coimbatore/
I revisited this post today after all this while, and immediately felt like writing a sequel 
The story in the four years went like this.
2007 - boom
2008 - slowdown
2009 - bottom
2010 - boom
2011 - skyrocketing boom
Four years is quite a good time in the market. The kumar who had earlier challenged me that prices will double in 2008, will be laughing at me and my post if he had survived the 2008 slowdown. While I wanted real estate prices to come down, I had a few investments, bought way back in the 90s, at rates not possible to buy now. In that sense I have a vested interest in the state of Coimbatore real estate.
I browsed through forums like skyscraper city, visited Coimbatore a few times and saw the city evolve in these four years. Essentially, the questions I had, I continue to have. If there is one city which will make real estate prices in Chennai look like ‘aadi sale’, it has to be Coimbatore.
In these four years, the Coimbatore Tidel park stands completed but no big company has set up shop yet. Yes, i hear the same old ‘TCS, Wipro, HCL will be coming’ music.
On the other hand, Robert Bosch and Cognizant are the big movers and shakers in Coimbatore. They should collectively employ about 5000-10000 people in the KGISL tech park and adjoining areas. Now, if I say 10-15 years back there were not even proper bus facilities in that KCT route, I will look like an old man who starts singing the ‘andha kaalathile ell am’ pallavi. Nor will it look good if i say somebody offered a house in Kovaipudur for 10000 when i was a kid. My parents could not afford that. Now after 30 years, a house in kovaipudur goes for sixty-seventy lakhs. A return that would have made even Warren Buffett proud.
In saravanampatti, the place where CTS and Bosch have set up shop, the land prices have gone up by around 30 times in the last 10 years. Anyone wants to compute the CAGR?
Regarding the developments, Some malls are getting developed. Avinashi road has become a six lane road. The city has flight connectivity to Singapore, the road connecting saravanampatti to airport is developed, the multi laning of the NH 47 highway is complete. NH 215 from Dindigul-Mysore passing through Coimbatore will be expanded. The Mettupalayam road is getting expanded. And most importantly coimbatore has ‘Pothys’, the ultimate index of infrastructure development!
Property prices quoting one crore have become common. I could not believe that Sobha developers had charged rs. 1.6 crores for a villa in godforsaken ‘vedapatti’ citing it being ‘close’ - just seven kms to RS Puram. Of course, outsiders to the Coimbatore city will not know that a 15kms ride will take a traveler from one end of the city to the other in 30 mins.
People actually quote rs. 75 lakhs for an apartment in Ganapathi, a place where I lived for a monthly rent of Rs. 2500.
Interestingly, rental yields are still as low as 1 %. For e.g. One of my friend lives in a villa where some ’speculators’ (I do not want to call them investors) are willing to pay Rs. 2.7 crores. But in the same place, I can take that villa for rent at 25k per month. Why? I presume that is because while there are lot of people to buy, there are fewer people wanting to live. This is the case in all the tier 2-3 cities where the real estate prices are skyrocketing, someone offered me a villa in Madurai in the old meenakshi mill campus for Rs, 70 lakhs four years back, when I wrote the first post I never went anywhere near that place ever since.
One of my favorite pastimes in the last few weeks is to go through forums like http://indianrealestateboard.com. People actually give reasons for why paying Rs. 1+ crore for a sobha villa in vedapatti is a sound idea. These guys have done a great service to the real estate developers. Anyone who has some degree of healthy scepticism about the prices, will find all his doubts vanish and become a hardcore bull on reading forums like this.
My 2 cents, not that anybody sought my advice. Yes, I am seeing some developments but the prices demanded are disproportionately higher than the developments in Coimbatore.
The combatore irugur railway line may have been doubled but the real estate brokers and developers are expecting 5 times the 2003-4 prices, and the HNI/NRIs desperately wanting to invest in Coimbatore are willing to pay 6 times the money they would’ve paid in 2003-2004. God alone knows where this will all end up.
If I had money, I will buy shanthi gears stock. Because they have 18 acres of land in prime areas in Coimbatore, and their mcap is 300 crores. This is a safe bet, I win if land prices goes up and shanthi gears unlocks value by selling it, I do not lose much if land prices crash, because Shanthi gears is a good company with decent management and is likely to work out fine for the investors in the long run.
But here’s the catch. Folks with ideas do not have money and vice-versa. Whatever.
April 17th, 2011 at 3:21 pm
very good analysis, prabhu - keep going!! i mean to say
your interlinking real estate and stock prices!!
May 4th, 2011 at 3:36 am
karthikeyan
Thanks for the comment. shanthi gears will publish their results on May 13th. Let us see
May 9th, 2011 at 8:44 am
I couldn’t agree more on the real estate prices being unreasonable
December 10th, 2011 at 8:35 am
I had similar thought process as you have. As the current pricing scenario is unreall. But my sister and mom wouldnt listen and went ahead and bought 7 cent plot near mathampalayam bus stand in 2009 for 1 lakh per cent. Now in just two years we had three to four calls from the broker asking us to sell the plot for 1,50,000 per cent. I dont know what to make of this! In another bizarre pricing the house opposite to our grandpa’s house near periyaniackenpalaysm is quoting 70 lakhs. It has 61/4 cent land but the building is atleast 20 years old … Then i decided not to use my logic and analytics here..Just go with the flow and milk as much money as possible… Its like short term trading. I am still young just 25 years old. So i also dont have the memories like you do which makes my decision to buy and sell that much easier… The only way to stop this arbitary price rise is to have 2 year buy and sell ban on properties..similar to hongkong…in 2009 HK had similar problems now the prices have come down.. So the thing is you can still make lots of money out of the real estate market… You gotta trade short term in the long run the bubble will burst no doubt about it… Lot of people will default on their home loans..