Wednesday, July 02, 2008

Its slowdown everywhere

We need some anecdotal evidences of these happening. Readers can add to the comments to in one or two lines about their experiences.

Here is an article from Indian Express

Grappling with a slowdown across segments, the Indian property market is heading towards the next phase of consolidation. Liquidity crunch in the real estate market is beginning to drive many mid-sized and small developers to scrounge for cover.

Many want to liquidate their land and incomplete projects by selling them to bigger developers or private equity players even at lower valuations. What's forcing them to take this step is a stagnant market, with property rates undergoing major correction in some cities. Around 15 deals in real estate sector have fallen through in the past two months with investors developing a cold feet, said industry officials.

Consider a few cases. A mid-sized builder at Chembur in Mumbai has put its 14-floor commercial property in central Mumbai on the block. The developer wants to raise around Rs 150 crore which would help him complete his upcoming project.

A Hyderabad-based real estate group has started advertising to attract high networth investors to generate Rs 50 crore against bulk purchase of its housing project in the city. A small developer in Mumbai, pushed to a corner on account of mounting payables for construction material, is now offering its project at Juhu-Versova in Mumbai at about 35% discount to the current market price. In Delhi, some developers have approached property consultant to sell their income generating commercial properties to finance some of the unfinished projects.

Click on "Full Story" for more..."

Real estate funds and established developers admit that they are working on various proposals. "Even in the normal circumstances we used to get offers from mid-sized developers to buy out their projects. But now, the numbers have increased considerably," said Hiraandani Developers chairman Niranjan Hiranandani.

The Bangalore-based developer Nitesh Estates said that it has received similar proposals, mainly from markets like Pune, Nagpur and Bangalore. "Every second day we are getting a proposal either to pick up equity in the project or to buy out fully. We have not concluded any such deal so far," said Nitesh Estates chairman Nitesh Shetty. Industry observers said that the commercial property market, stagnant for the past few months, is showing signs of crack, especially in suburban Mumbai and many tier-II & III cities. The volume of commercial property sales has dropped by 30% in the past two months in the wake of rising interest rates.

"Developers, specially small developers, are under pressure now. Fund flow into this sector has begun to dry up. Selling incomplete projects to big developers or private equity firms is an option explored by many such developers," said a senior official with KnightFrank India, a property consultant. Thanks to tigher fund raising norms and a weak stock market many developers are knocking the ddors of private equity investors who are driving hard bargains on valuation and. Even on a reduced valuation, PE firms are putting various clauses to safeguard their money.

In last May, the finance ministry had said that all foreign funds raised by Indian companies through partially convertible, non-convertible and optionally convertible preference shares, would be treated as debt and would be subject to guidelines applicable for external commercial borrowings (ECBs).

This had made it tough for developers to access foreign funds, since ECBs are allowed only in large real estate projects and the conditions are far more stringent than FDI. "The developers are ready for a compromise on valuations. The risk adjusted returns have gone up by 20-25% during the past few months,"said Starwood Capital India head Balaji Rao.

43 comments:

Olduvai said...

Absolutely. In Pune, builders are offering 3200 psf for properties advertised at Rs.4150 psf. These are new launches so there is around 25% correction in Pune at this point itself.

Anonymous said...

which builder/property is this ?

Anonymous said...

Where is such property in Pune ?

Anonymous said...

I have heard from some of my friends too. They were offered significantly reduced rates 2500 psf for a 400o psf flat in Aundh. Looks like there are no buyers.

ashish said...

I appear to be alone on this one but nonethless I would like to put forth my argument. Let's look at some statistics especially with regards to "smart money". What is smart money? Well, smart money is money that is not easily swayed by sentiment generated purely through anecdotal evidence. Money that is essentially managed by the big PE funds, RE funds, etc. In 2005, PE funds pumped in $2B into Indian RE, in 2006 it was $4.5B, in 2007 it was $11B and in 2008 it is expected to be >$13B ! I wonder if so many smart people could be so wrong for so long?

One argument to counter my point could be that this money is flowing in because the deal values have become more attractive. And that would not be incorrect. We need to distinguish between deals that are done by funds & institutions and the deals that are available to end consumers/investors. Deal values for PE funds have certanly corrected by 10-20% (I work with and advise several PE funds trying to find developer partners in India) but this has not necessarily translated into lower prices for end consumers. If these deal values had not fallen for the PE's, they would not have done the deals and we would have eventually seen a supply constraint and the typical supply demand cycle would have kicked in again. However, with deal prices having corrected, the markets have avoided a supply demand mismatch.

Now, to comment on some of the sound bytes in the article that is reproduced in the blog.
1. 14th floor commercial property on block to raise capital-Anyone familiar with the RE business would not be surprised at this. Developers have always (and will always) sold one asset to finance another. How does this signal a slump?
2. Bulk saless to raise capital-A practice as old as the business. How does this signal a slump?
3. Selling income prodcing assets to raise capital-Before the advent of PE funds, this was a preferred way to raise capital. For developers not big enough or able to raise capital it continues to be an option. How does this signal a slump?

Lastly, to readers who provided anecdotal evidence of discounts, I can offer just as many (like I did in my comment yesterday) examples of continued rise of prices over past 12 and 24 months. For more details, pl read my blog at www.meridharti.com. Pl read the blogs from May & June, 08.

An investors job is not to join the herd and arrive at the same conclusions as non-investors, journalists, etc. A true investors job is to see beyond the headlines and interpret the fine print for opportunity. There is no shortage of opportunity in the RE markets-right now.

Pl read www.meridharti.com for recommendations.

Later,
Ashish Abrol
www.meridharti.com

Anonymous said...

Best Time to buy property-
(Her's another one from the media-should these articles alone guide our decisions?)

Investing in property, especially a home for living, is the best bet in the prevailing environment of ballooning inflation, a top real estate industry official said.
“If you want to invest in property, this is the best time. Property prices are reasonable and the chances of an upside in the future are greater as compared to other asset classes,” Maharashtra Chamber of Housing Industry (MCHI)’s President, Pravin Doshi, said in Mumbai on Wednesday.

With the stock-market in decline and commodity prices volatile, property has emerged as the best asset-class “Home loan rates are only marginally higher than inflation. Investing in property will give a better utilisation of the Rupee,” he said.

Inflation today stands at a 13-year high of 11.42 per cent and with global oil prices flaring up, the chances of it rising further are high, he said.

“With inflation rising, every Rupee a consumer spends buys less than what it did yesterday,” Doshi said.

In these circumstances, returns on investments in other asset classes cannot be assured, but investment in property will at least ensure that the investment does not get depreciated, he said.

Here it might be noted that even bank deposits are not proving as attractive as before, as the interest rates banks offer do not help investors in beating inflation. It is only in the last week that several banks have started increasing their deposit rates.

While deposit rates in the range of 9-9.75 per cent might succeed in attracting some depositors, Doshi said that with property prices now flat, investment in this segment would yield better returns.

Home loan rates have increased in the last few weeks but they were still in the 11.5-12.25 per cent range, which was reasonable.

"I have even heard that loans are available for 11 per cent," he said.

Besides, with housing a priority sector for the Government, home loan rates would not rise exorbitantly.

The MCHI President admitted that there might be some marginal decline in property prices but said that they would eventually go up which would help the investor in beating inflation.

"There may be some marginal decline in property prices but eventually they would go up. This will help the investor in beating inflation," Doshi said.

When asked whether it would not be better to wait till end-this year when inflation was expected to decline, Doshi said that ‘while this was one factor that could be considered’, international prices of oil would continue to drive inflation.

"Nobody expected oil prices to increase to this level. They have doubled in the last 12-months and there is speculation that oil prices might even touch the USD 200-mark. In such a scenario, investments in the stock-market and commodities may not yield desired results," Doshi said.

According to him, the monsoon season normally did not witness much property-buying as people were busy with other activities such as school and college admissions for their children.

"Property-buying normally occurs around Diwali and the festival season," he said, adding that this was another factor, which made the property sector an attractive investment option now

Anonymous said...

ASHISH: ARE YOU A "REALTWHORE"?

Why are you so keen in keeping the bubble inflated?

Anonymous said...

"Money that is essentially managed by the big PE funds, RE funds, etc. In 2005, PE funds pumped in $2B into Indian RE, in 2006 it was $4.5B, in 2007 it was $11B and in 2008 it is expected to be >$13B ! I wonder if so many smart people could be so wrong for so long?"

If the above is true why stock prices of all builders are 80% down from their peak in the past few years. Just because what happened in the last 4-5 years was not real and investors have realized their mistakes and are selling all builders.

You'll realize your mistake of misguiding naive people in a few years from now and would be taking curses from a lot of burnt buyers.
You are a sick and greedy bastard Ashish. Maybe someone will soon put your black glasses in your arse.

Anonymous said...

My predictions:
--The stock market to go down by another 2-3K points in the coming 3-4 months and the US financial sector will crash. A lot of US banks close to 40% will go bankrupt. And it will definitely have an impact over world economy especially the emerging markets.

--The US investors will withdraw billions of dollars of retirement funds of US citizens from BRIC countries which will bring another downfall to stocks.

--US housing market will further crash this winter and Indian market will start to see major corrections.

--By 2009 summer, US will be in a major recession or I would say a depression compared to the magnitude of 1929 depression and India would have lost a lot of wealth in stocks, housing and jobs.

--Indians will start realizing how much shit it is to be in housing and housing will have a major collapse by 2009 winter or early 2010.

Anonymous said...

If prices of fuel, foodgrains, steel, cement, edible oils, and healthcare go up, it is a bad thing. But if prices of apartments go up, it is a good thing? Why?

I think a lot of Indians are going to regret buying those 50+ lakh apartments on 20 year loans. They are betting that there is not going to be a recession, and they are going to be able to keep making those EMIs every month without fail for 20 years. Good luck.

Observer.

Anonymous said...

This whole thing is like Titanic.
They don't want to scare people by saying the ship is sinking but instead saying it is tilting and would be fine.

The whole system is made up of greedy bastards, a lot of these IIM graduates who work on ponzi schemes and methods to screw people of their wealth.

The Boss said...

Huh, there is no scarcity of blogs tom toming the crash in real estate theory. Lots of unverifiable claims about tanking property prices in Pune. The ground reality is very different. No correction yet, only a slowdown in total number of transactions. The rates are actually rising, although very slowly, in suburbs close to hinjewadi!!! Go figure out why ..

http://rightadvice4u.blogspot.com/

Anonymous said...

Boss,
Just wait and watch. It is a very slow process especially when the Govt. is trying to prevent the collapse. This collapse is coming after the govt. policies, all ponzi schemes from banks and builders are failing.

Once it is there, it will stay for at least 5 years and there will be a buffett of houses to pick.

Anonymous said...

The bozo in Times of India is saying property in Mumbai will sell like hot cakes if prices come down by 25%. A 1cr apt at 75L coupled with superbuilt up of 40% and above. the builders in Mumbai are the biggest scammers. Other cities are bad but not as much as Mumbai

Anonymous said...

Hello all-
The shit may hit the fan soon by the end of this year probably. I was talking to a property dealer and he was telling me about high demand and less supply.

I asked him if demand was so high and supply low, why are the rents not going up? My calculation says that a property should be worth 120 times the monthly rent to make a financial sense. If something rents for Rs.20,000, the price of th eproperty should be 24 lacs. Now given the market is hot and inflated, I would not pay more than 150x, which is 30 lacs. The problem is that speculation is so high that these kinds of flats are selling for 1Crore. 70% over inflated.

When it goes down, it'll be a freefall. I would suggest to all smart people to get out of the market now before it is too late. You cannot fish the bottom or peak of the market but if youthink you'll make enough money, sell your house or flat and start renting.

ashish said...

Dear Anonymous,

I wish you had the courage to atleast identify yourself before using such despicable language. This is an open forum for a meaningful discussion and sharing of opinions. Somewhere along the line you have left basic decency behind. Read my posts and understand what I'm trying to say. If you are suficiently intelligent, you will get what i'm saying. It's another story that you may agree or disagree. Either ways, please keep this a civilized dialogue.

Later,
ashish Abrol
www.meridharti.com

Anonymous said...

Some people like you only understand this language.

You talk about decency, what about the language you are using to cheat people of their money.

What a loser.

Anonymous said...

I think one should be very careful of trusting Indian media in general. Many Indian media outlets are controlled by business groups, or political parties with substantial non-transparent sources of funding. In matters affecting business interests, or political interests, these outlets cannot be considered to be unbiased.

Visit

http://barbarindians.blogspot.com

for some examples of distorted reporting which have been uncovered by bloggers.

On this board, even though investors like Ashish and "the boss" may be trying to counter the perception of a bubble to preserve their investment value, ultimately the market will always revert to the fundamentals eventually. Sellers will always a high price for their product, while buyers will want the lowest price. Only free and transparent market dealings can allow the right pricing to emerge, which eventually would be good for both sellers and buyers. In an opaque and unregulated environment like India, it is usually investors who have money, staying power, and inside information, who win. Buyers lose. This is India, and hence it will remain a "developing" country for the foreseeable future.

Observer.

Olduvai said...

The builder in Pune is 5starbuilders and the project is Imperio in Aundh. Be my guest.

I am seeing flats in Mulund in Mumbai @5500 down from 7000 or thereabouts. Also stories about construction costs leading to price rise is ridiculous. Just like low commodity costs could still translate into high property prices, high commodity and material costs can translate to lower property prices. Buyers hold no candles for beleaguered builders any more than builders did for elbowed out buyers in the past four years.

Finally consider this - I was in Panchkula, Chandigarh last week and a three bedroom furnished apartment, reaonably well done was renting for Rs.8000 but the offer price to purchase the same flat was Rs.60 Lacs. That is a rental yield of 1.6% or a PE of 62. Pets.com anyone?

Anonymous said...

Hey Observer,
This stupid Ashish guy now allows only comments that he likes to be posted on his meridharti blog. He
approves them before they get posted.

This shows his sick mentality that he doesn't want his portfolio to go down and lure naive buyers to keep buying.

Bloody loser.

Anonymous said...

Pursuant to olduvai's comment above, I would like to add that in India, the return on a risk-free instrument like Fixed Deposits in SBI is close to 10%. This implies a P/E ratio of 10. So if someone is satisfied with a return of 1.8%, they must be expecting a capital appreciation of over 8.2% every year. This is clearly unsustainable in the long term.

Also, most home loans in India are not non-recourse, unlike the US. This means that if there is a fall in house prices, the banks can sell the house, and can come after the original owner for the rest. Also, unlike the US, there are no bankruptcy laws in India to prevent creditors from coming after other personal assets which may be jointly owned with other family members.

I really admire the courage of property investors in India. They take on these 50+lakh loans, are confident that house prices will continue to appreciate at more than 10% a year, and are willing to keep paying those EMIs without fail every month for as long as required. God forbid there should be a recession, job loss, illness, divorce, property fraud, or any other unfortunate incident.

End users also need to fully understand the risks involved in taking on even one of those 50+lakh loans. Unlike investors who leverages themselves even more by buying multiple properties, end users are somewhat safer. However, they need to be really really confident they will be able to make those EMIs without fail for 20 years regardless of employment conditions in their cities.

Anonymous said...

The comment above (10.44pm) was posted by me, Observer.

The Boss said...

Of all the builders in Pune you found out someone called 5star in Aundh? Wait a minute, it is Aundh annexe. Actually a village called Rahtani where prices are between 3000-3500 for most of the builders. I doubt they were asking for 4150 and then reduced it to 3200, because nobody will buy for 4150 in Rahtani. Apart from these so called builders, no other developer in Rahtani has reduced rates by by any significant amount. ANd by the way, if you are thinking of getting anything below 4000 in Aundh proper, I will say 'Dream On!'.

http://rightadvice4u.blogspot.com

The Boss said...

The argument that property prices should crash because rental yields are low is not sound economics. There are good reasons why rental returns are less than your typical fixed deposit returns. See the explanation at:

http://rightadvice4u.blogspot.com/2008/07/price-of-property-vs-rental-income.html

Anonymous said...

Whenever yields are lower than risk-free instruments, it is sound economics to question the basis of the price appreciation which is supposed to make up the difference. It is unrealistic to expect that prices will appreciate at more than 10% every year without fail for 20 years.

In the end, prices have to be related to the prevailing income. Whenever prices are not anchored to the income, they eventually correct. This is true of stock markets as well. Whenever earnings (income) of a stock become unanchored to its price, it eventually corrects. It may take 2 years or maybe even 5 years, but eventually it does. It is called mean reversion.

Interest rates are definitely going to go up to tackle inflation. As interest rates go up, there will be demand destruction, which will lead to a fall in asset prices. Already one can see that carmakers are offering major discounts on cars since fewer customers higher interest rates are leading to demand destruction.

So my advice to real estate investors would be to wait for 1-2 years and keep cash ready for opportunities. When property prices correct by approximately 30-40% (like in 1998-2000), then they should enter the property market.

For current investors (like boss and Ashish), there is a significant chance they could suffer major losses. Instead of spending time on blogs like these, they should be actively out there trying to unload their investments on some NRIs or some other idiots out there as quickly as possible.

I would recommend they spend their time preparing glossy pictures of their investments and writing encouraging articles on how properties in India are going to be even more expensive than Manhattan in a few years etc on NRI websites like www.return2india.com etc. Good luck.

Observer.

Anonymous said...

I personally plan to continue to rent for the duration of my employment. Since I am in the tech field, I am definitely under no illusion that my job will be secure for the next 20 years. I may have to move to a different city if I were to lose my job or find a better opportunity. Also, I am quite certain that my wages are not going to keep going up at 10-15% every year. In a few years time, that would make me almost as expensive as a US based engineer. Most tech jobs in India are based on wage arbitrage.

So instead of spending more than half my income on a home loan, I think it would make much more sense for me to spend about 20% of my income on rent, and invest the remaining 30% on a mix of asset classes like gold, commodities, select value stocks, fixed deposits, provident fund etc. After 30 years, when I have to retire, I would choose to go back to my ancestral small town, where we have some land, and just build a house there with my invested money. Anyway, most of the facilities in a metro would be available in small towns by then I am sure.

The above approach keeps me flexible, less exposed to interest rate and employment changes, and allows me to escape being chained by a debt for 20 years. Definitely more peace of mind, and better health from less stress in life. After all, the purpose of life is to be happy.

Observer.

The Boss said...

Just because an asset class has a yield below risk free rate doesn't mean it is not a good investment
option. People routinely invest in stocks with 1-2% dividend because of the growth prospects. Comparing
property rents with bank FDs is illogical.
Your advice about spending my time hawking my property to NRIs
is very patronizing. Even if let's say I am an investor, it is quite possible that I have no home loan
obligations. I can collect rent for next 10-15 years without worrying about what happens 2-3 years from
now. And if somebody tells me that my decent property won't have healthy appreciation in 10 years, I would simply ignore that advice as unfathomable. If they tell me I must have waited for 2-3 years to buy at lower prices, that's market timing and it is fool's game.

Your decision not to buy house, retiring to your ancestral village and all that is very unique to
whatever situation you are in. It cannot be a prudent advice for many people. There are several reasons
for first time home buyers to step in and buy a home at this point in time. Even long term investors can
buy selectively and collect rental income and at the same time get a good appreciation after a decade or so.
Rest of the people can bet their life on that elusive 30-40% correction.

In the meantime, inflaton is running above 11%. Major banks are offering no more than 9% on FDs which is mere 6-6.5 % after tax. On top of that, you got to deal with rising rents. Good luck!

http://rightadvice4u.blogspot.com

Anonymous said...

It is highly misleading to state that many stocks with low yields are attractive, and hence expensive properties with low rental yields are also attractive. This in fact shows a rather poor understanding of how stock markets work. Earnings (income from current operations) from a company can be reinvested in the company by the management towards its growth. A portion of the earnings can be paid out to stockholders as dividends, as the "yield". This yield may be low compared to the income from fixed deposits, but the capital appreciation of the stock is assumed to be greater since most of the earnings are reinvested in the business. This is the reason growth stocks get hammered when they report lower earnings. The P/E ratio for stocks refers to the ratio of the stock price over the earnings. Not the yield. These are two different things and should not be confused.

A more apt analogy with the real estate market would be to refer to properties which have low current rental yields, but which have significant growth potential, presumably because the location is so attractive that people will be willing to pay more and more money in the future. There is no reinvestment in the property itself to support capital appreciation. Thus, the rate of capital appreciation is limited primarily by the rate of income growth of the consuming population.

Now on to the next point. For a couple of months now, inflation is reported to be higher than interest rates. While this can happen from time to time in the short term, in the long run, Governments do not like high inflation. Why? Because this leads to a wage price spiral, and can lead to devaluation of the currency. One extreme example is Zimbabwe where people carry suitcases full of money to buy food. Hence Governments act to suppress inflation. They do this primarily by raising interest rates. So interest rates on fixed deposits will rise.

Another hedge against inflation is gold, and some people also prefer commodities. So a mix of fixed deposits of varying maturities, gold, commodities, value stocks, and international stocks has a good chance of preserving principal and also providing some appreciation.

But the biggest thing real estate investor shills carefully neglect to mention is leverage. This is the most insidious aspect, and is quickly glossed over. When investing a certain amount of money "X" into fixed deposits, even if real interest are negative, the investor loses only 2% of the principal. However, if the same amount of money is invested as downpayment on a house (assuming X is 15% of the house, and 85% is financed by a bank loan), a 2% drop in the property price translates to a 15% loss of principal!

Unless and until the investor is very sure that the property will continue to appreciate at 10% or more every year, it is a very risky proposition. This brings up the question of market timing. Sure it is hard to time the market. However, if there is a wide divergence from historic valuations, like what happened to Internet stocks in 2000 (P/E was > 50 for many stocks, compared to the historic 15-20), the smart money would rather wait till things become somewhat less heated.

The same applies to the property market in India. Based on the Indian population's income, average property prices are 30-40% too high. Hence, there is a case to be made for market timing here.

Anonymous said...

Anon:
Your above post summarizes it pretty good. The rent to sales price ratio for RE is somewhat same as P/E ratio for stocks.

Advocates like Boss and Ashish should get some sanity by at least not propagating their thoughts. Would they take the responsibility of reimbursing people in the event of market declines. No they won't.
They will just packup and run hide somewhere.

Anonymous said...

The second post above this one (8.30am) is by me, Observer.

The Boss said...

Merely pointing out academic differences beween stocks and real estate won't accomplish anything.
I can make a long list of points on how they differ from each other, but that would be futile.
Real estate and stocks have different methods of attaining growth. A stock's price rises when the company effectiely generates higher earnings, manages costs and generally executes well. The price falls if the earnings are poor or management is perceived to be inefficient. Real estate in countries like India
appreciates due to its location, demand-supply imbalances, demographics, home ownership trends, availability of land etc. A real estate investment can go bad if the location/infrastructure is not good or construction quality is poor.

The key point is that people invest in real estate and stocks because both have a growth and income
components and in that respect both of them differ from fixed income instruments like bank deposits.

The risk for investors only arises if the property is bought by making a minimum down payment and rising
EMIs cause the investor's budgets to go belly up. There is no evidence to automatically assume that large number of investors are in this situation. The leverage issue was key in subprime fiasco in US where low income people were fraudulently sold onto teaser rate mortgages. Blindly applying that same analogy to India or even other parts of the world is a futile exercise. As interest rates rise, the number of delinquent home loans will naturally go up. But there is no indication that it will assume
frightening proportions. The whole real estate bear case is based on these kind of shaky assumptions.

If one takes into account the wage growth for last decade for the growing number of urban white collar class that is
causing the RE boom and the rise in sensex from below 4000 to 13000 ( I am not mentioning 21000!) in last
5 years, increase in real estate prices seems OK. Any big pullback to the tune of 40-50% seems to be
quite a stretch of imagination.

Even if it is a bubble, there is no saying when it will pop. The shrill chorus for a correction is being
heard for last two years without any success. In financial markets, everyone proves right 'eventually',
like a broken clock being right twice a day, but very few people profit from their 'right' predictions.

For first time home buyers, there is always a good house at the right price waiting for them in the
market. Even if the 40% bust happens, but from a higher price, of what value is it for the naive
fence-sitters?

http://rightadvice4u.blogspot.com

Anonymous said...

"Even if it is a bubble, there is no saying when it will pop. The shrill chorus for a correction is being
heard for last two years without any success. In financial markets, everyone proves right 'eventually'"

Very true. This blog owner vik+anonymous+observer are saying this for long time. see the blog history from 2005. If you listened to them in 2005 you won't buy a house and still the bubble is not popped. What is the value of this crappy opinion?

Anonymous said...

Guys,
You don't have to read what Observer, or Anon or Vik says.

Just buy some more flats in Delhi and Bombay. Good for the bubble.
And good for you since you feel they will appreciate. And I'm happy that you'll make tons of money.

Enjoy your new wealth. You don't have to prove anyone wrong. Just follow your mind and keep buying.
Good for you.

ashish said...

I have a few question to all the cassandras:

1. Are all RE markets in India overheated?
2. How do these prophets of doom know markets are overpriced by 30-40%? If they now know they are overpriced, they must surely have known when they were fairly priced and before that underpriced. Did they buy when markets were underpriced/fairly priced?
3. When do the doomsayers expect the markets to correct? From the convictions of their arguments it appears they know the answer.

I also want to make a point about the current inflation in India. I understand it is the highest it has been in 13 years. Just as FD's are unattractive in the current inflation scenario, home loans are v.attractive. Surprised? Well, at 11% inflation and 11% home loan rate, the real interest rate is zero. The lowest I have seen since I started following monetary policy in India. What does that mean-surely this must be a buy signal!! The point I would like to make is that let's not make naive arguments of overheating based on inflation, interest rates, etc. As this example clearly shows, any argument can be twisted depending on which side of the fence you are. Look at the macro picture and it looks intact. Infact, more PE money is expected into RE this year than ever before-$13bn(last 3 years combined was $17.5bn). There have been no surprises (let's wait for Q2 numbers from the stock markets) atleast as of now.

In addition, I don't expect interest rates to rise more than 25-50 bps till election time. Increasing interest rates would have a negative impact since it would strengthen the rupee. That would be a negative for India's lifeline-the export industry and will therefore not be well received by the affected in an election year.

later,
Ashish Abrol
www.meridharti.com

Anonymous said...

The Boss, Kaboom, Ashish

I think there are a limited set of just a handful folks, are posting on all real estate crash forums trying to poster justifications about bad purchases. I think they reflect the investor community or employed by builder lobby to keep writing blogs and misled people. So please ignore comments by this group. Also, ultimate thing is people now don't have cheap money to borrow and buy high priced asset as loans are getting dearer, as well as inflation. So there is no doubt that real estate market is lading towards a crash. Only thing is suich crashes take time so may be in a year or so, we'll witness the same.

Anonymous said...

I would not be so presumptuous as to say I know when the bubble is going to pop. Bubble markets can stay in bubble territory for extended periods of time. From 1993-1997, prices in Bangalore, Chennai and Mumbai were in bubble territory. There was a 30-40% correction in house prices during the 1998-2001 period, not accounting for inflation. But before taking on a loan for a property for 20 years, I think it would be prudent to conduct a fair amount of research, and also judge one's risk tolerance before taking on such a binding legal commitment for a huge amount.

I can locate the references, but it will take time. One unfortunate fact is that in India data is not readily available, and has to be pieced together from newspaper clippings, and government circulars. Very little is maintained online.

Anonymous said...

12.30am comment above by me, Observer.

Anonymous said...

Every market has a food-chain. The naive buyer, the "investor", the vulture, and finally the superpredator. One example of a naive buyer in the Indian property market is the salaried white collar professional. Investors can be businessmen/doctors/actors/top earning techies... who siphon their "untaxed" money into property, and feed on the naive buyers. The "vultures" are the builders and smart market players, who use inside information, and feed on the "investors". They feed both during the bubble by selling property to investors, and they also feed during the crash, when they buy back or repossess flats from the investors, or the banks.

And finally, the superpredators, the politicians, who insist the vultures part with a share of the meal. An end-user, someone who buys property as a primary home, needs to think carefully when entering this market.

Observer.

Anonymous said...

Ashish Dear:

1. Are all RE markets in India overheated?

Most of the metros(class A and B cities and their suburbs.)

2. How do these prophets of doom know markets are overpriced by 30-40%? If they now know they are overpriced, they must surely have known when they were fairly priced and before that underpriced. Did they buy when markets were underpriced/fairly priced?

I didn't buy at that time as I was in college and didn't have money. But our family did and we sold in this overheated market. We cahed out pretty good and sitting on a few crores. I'm even telling my father that we sell our prime residence and stay as a renter. Out prime residence is worth 2CR and we can rent a similar place for around 25K rupees per month.
We can buy it again when all the fools are out. Buy low and sell high.

3. When do the doomsayers expect the markets to correct? From the convictions of their arguments it appears they know the answer.

Well, no one can predict top or bottom. But when something goes beyond what fundamentals can support, it has to correct. There is no investment I saw while growing up that would give 150% return in 2 years. I still don't believe that can happen today. If it is happening it is work of some greedy people and MBAs who claim to be financial gurus.

Ashish: Why are you worried about what others say. You shouldn't be even here on this blog. Go to meridharti and spill your fraud there. I'm sure 90% Indians are in denial mode and would listen to you. Preach it to them and all of you buy multiple properties.

Happy buying and selling. Cash is king.

Anonymous said...

Ashish, the boss and et al

your frustration and desperation are very obvious to the point of being funny.

And the more you try convince people the funnier it gets!

I wont give jazzy stats and fuzzy logic about why and how prices are going to be corrected, but simply point to the obvious that a vast majority believes that prices are headed for correction.. and so it will!!!!

the tide has turned and stampede has began, if you want to trampled... be our guest

The Boss said...

Little chickens running around screaming "Sky is falling! Real estate is crashing!!" is hardly a stampede. But I agree that it is quite a spectacle. I am enjoying it!

Anonymous said...

Yes, please keep enjoying. It is good to loose with grace. Your greed has taken you down now. Just quote me price of your flat and if it is affordable, I might buy.

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