Is there any way to delve into the mind of those who are selling a property? Or for that matter, someone who buys? What do they actually expect? Is there any standardization to their line of thinking?
For a seller, what he wants is investment plus profit.
For a buyer, what he wants is depriciation factored.
For a seller, the expense heads will be –
- Cost of flat
- Maintenance Charges
- Stamp Duty
Trying to generate a formula for this, we see that
Selling price = Buying Price + Bank Interest + Maintenance Charges + Stamp Duty + Profit
- Loan is around 70% of the deal value.
- Bank Interest is around 9% today, we can jack it up to 20% to cover both profit and interest component
- Stamp Duty is 9% of property value. Lets take it as 10
Selling Price, then becomes
Area(a)*(Cost per sq ft at buying price(c)*(70%*1.2^number of years(y) + 30%)+number of years(y)*maintenance cost per sq ft(m))*1.1
For a buyer, it’s more stratight forward. An average flat has got a shelf life of 60 years. 90% of it’s value depriciates during the time, making it an average of 1.5% per annum. Let’s have this as 3%.
Buying price, then becomes,
Buying Price = Selling price*97^number of years
The window between s & b will be the window of opportunity for the deal to occur. If it is in the range of 10-15% of the deal value, the deal may happen.
Take a flat, say, of 1350 sq ft bought 3 years ago for 3000/sq ft. Now, it is 5000/sq ft.
b will be 61.6 lakhs
s will be 68.7 lakhs
Will the deal happen? It should if both the parties are ready to budge from their positions.