Monday, January 24, 2011

Can we call it a peak now?

As we read about Spain's woes (this is Spain we are talking about, not Ireland or Greece), one realizes it was primarily caused the foreign investment that poured into Spanish real estate boom through the Cajas (local co-operative banks). The Government is actively "announcing" cleanups and merging Cajas. Yes, a once mighty economy can be brought to its knees by such foolishness.

The story in India is eerily similar.

Indian real estate attracted $2.8b in FDI last year.

As per industry experts, overseas property sales account for 30 per cent of Indian real estate sector’s total global sales, of which, 40 per cent are accounted by the UAE-based Indians.

Ooh - is that because Indian real estate will never go down? Unlike the Dubai real estate? :) /s.

Of course FDI will fee as quickly as it comes in as well. In January, in 12 trading sessions, foreign investors have pulled a massive 1 billion dollars out of the Indian market.

There's been a significant selloff since the start of 2011, as investors flee over inflation fears.

With food inflation at more than 18%, it is just a matter of time before the Reserve Bank does the one thing it does which is to push the interest rates high - very high.

So it is safe to call peak now?

37 comments:

Anonymous said...

No yet. India is different. We will learn to adjust to live with inflation. Weren't everything expensive before all the boom or should I say everything became cheap during boom time?

As long as we have no strong jurisdiction, loose labor laws, innovation-less driven market, we will not see any correction.

Anonymous said...

We will learn to adjust to live with inflation. Weren't everything expensive before all the boom or should I say everything became cheap during boom time?

That's very stupid Anonymous.

SmartComments said...

India is no different. We are just a little behind. We will see the correction. The real estate will definitely see a correction. Specifically in Mumbai and NCR. And I agree, its very stupid to say "we will learn to live with inflation". Idiot.

shailesh said...

It all comes back to basics. We just built a brand new house in Gujarat (in our Native Village), where the cost of 1000 sq ft independent house was just Rs 7 lakh. We are talking Grade A construction with all amenities. If it takes only 7 lakh (land + building) in farther away place, why should it cost Rs 70 lakh for a place about 40 km away from city like Mumbai. Right now its all speculation. Since we lack infrastructure, whatever little we have, gets jacked up in price. Things come back to normal anyway...

Anonymous said...

Every commodity is in inflation mode in India but not currency compared to USD. What is this anomaly???

Anonymous said...

Anon above

It means India is priting money propotional to USD

Sri said...

http://www.thehindu.com/opinion/columns/Economy_Watch/article870450.ece

Sri said...

Click on the link.

Anonymous said...

And I agree, its very stupid to say "we will learn to live with inflation". Idiot.

Name calling doesn't change anything. Take a look at history. Paise 1 to 25 are no more minted because there is no value left. Rs 500 note was new just a decade ago and now we have Rs. 1000, I wouldn't be surprised to see Rs. 10,000 in next decade.


We have learnt to adjust. People cry about food prices and all - who are these people? mostly lower class, and now tell me in which year in history these lower class people never cried about 'mehengai'? they have always and will always. So what changed in these many years? Nothing.... it's just we learnt to adjust. More poor people from village are flocking to cities and that is keeping labor prices down. We have enough poor population in India that are ready to ADJUST to any circumstances.

What is your rational on inflation and Indian mentality?

Anonymous said...

you mean to say people will " adjust" by buy a 1 cr flat is that your meaning of adjustment ..even if the aam admi wanted to buy a 1 cr flat who is going to give him a loan of 70 lacs with a OC of 30 lacs

BJP said...

Dear Friends,

Don't waste your time pondering about economic growth/slump, black money, printing money etc etc and self satisfy yourself by applying complex economic formulas related to national growth and how these would affect housing market. Instead, take a minute and start thinking rationally and try to find answers as to why these things are happening.

Here is what I think. In 40 years time, our population will increase by 466 million reaching 1.66 billion mark. The way cross migration accross India is taking place, one can reasonably state that 300 million of this population will end up in major metropolitan cities. Population in cities like mumbai, bangalore, calcutta, chenna, delhi may see a net increase of 100-150%. For eg, Mumbai will house about 50 million people. Those who benifit from national growth will stay in apartments, rest in hutments. In few years time, 1 cr rs will be just like 1 lakh today.

Builders know this. Why would they reduce the price. The current situation is here to stay.

There isn't a boom or a downturn. All we are witnessing is a natural phenomenon. Western countries who highly talk about India and the growth, super power status is just 'MASKA LAGAving' (buttering). Their eye is on Indian manpower. They are already planning how to steal the cream from India and enslave them, for they know their manpower is dwindling

BJP said...

Your articles states 'foreign investors have pulled a massive 1 billion dollars out of the Indian market.'
Who are these foreign investors. Are these Seychelles off shore 420 companies who boast a capital of $50B US . It may not be easy to prove their bonafides as they cleverly conceal their tracks. The investors are certainly Indian, most probably congress ministers and their kith and kin. So all this investing and pulling back funds is the trick of their financial advisers who take their cut and make provisions for themselves and their families. This high stake gambling will continue and unlikely to have any effect on indian financial sector, as everyone knows this tricks

Anonymous said...

"you mean to say people will " adjust" by buy a 1 cr flat is that your meaning of adjustment ..even if the aam admi wanted to buy a 1 cr flat who is going to give him a loan of 70 lacs with a OC of 30 lacs"

-- People have, are and will ADJUST to high prices. Few years ago I would had asked question of affording 50 lacs worth of house. But today people are buying at 1 crore. Your question is actually "How is this possible" - because your 1 crore is not really 1 crore worth it is just 60 to 70 lacs worth (my guess).

BJP in above post has summarized correctly Indian scenario.

Anonymous said...

well RBI did not do anything much to increase rates. It turned out to be a damp squib. Which might mean some more time of markets flying high and real estate guys keeping the price high...but the writing is on the wall. If the rates go upwards of 15% for people to pay their emi's we should see people committing hara-kiri....house prices nose diving...

Anonymous said...

Selling of anything consists of 2 components: Labor and Material. Now cost of material can be controlled by automation and technology. now remain solving puzzle to solve labor cost. That is reason western countries praise high of asian countries. As long as there are people ready to work for peanuts which they are India will shine. Rich in india and abroad will benefit. Inflation or no inflation correction is no where near.

Anonymous said...

HONOLULU(AP) — A former B-2 stealth bomber engineer was sentenced to 32 years in prison Monday for selling military secrets to China… Noshir Gowadia, 66, would likely be in his late 80s by the time he is released.

Gowadia, who was born in India, was convicted in August on 14 counts, including communicating national defense information to aid a foreign nation and violating the arms export control act.

Prosecutors said Gowadia helped China design a stealth cruise missile to get money to pay the $15,000-a-month mortgage on his luxurious multimillion dollar home overlooking the ocean on Maui. They say he pocketed at least $110,000 by selling military secrets.

BJP said...

@Anonymous 6:20 PM is right to the point. He has summarized the whole situation in just one sentence.

Some 150 years back british took indians to work in their colonies in west indies, fiji etc and named them as 'COOLIES' . Same game is played again, but this time they are taking "COMPUTER COOLIES AND DOCTORS'

Anonymous said...

"It means India is priting money propotional to USD"

Absolutely spot on.

As each govt is racing to debase its own currency, those hoping for price correction in RE will find that the price corrected - but by Rupee getting devalued, instead of flat price dropping from current levels.

Re Shailesh:

Not possible to get grade A construction in 7L, except in bangalow without RC.

BAsic cost of construction is approx 900 psf = 9L for Cost of RC and brickwork with basic plumbing and sewage at 12 floor height. For 20 floor height, comes to around 1100 psf. Good quality electric wiring cost is 25,000 with ordinary switches. Cost of tiling at 50 psf comes to 50,000. Cost of bathroom fixtures comes to around 20,000 for parko.

So construction cost of good quality flat is approx 10-12 L.

Rest is land plus bribes plus amenities plus profit = 30L - 1Crore (or whatever the market will bear).

Please note - land is usually provided free by politician for making black money white. No builder actually pays for land - he actually pays the politician (or the politician IS the builder)

Anonymous said...

Anon at 4.55 am,

very good information.

Thanks.

Anonymous said...

"As each govt is racing to debase its own currency, those hoping for price correction in RE will find that the price corrected - but by Rupee getting devalued, instead of flat price dropping from current levels."

This is what Govts are hoping for which is more likely to end up in stagflation where there is high inflation and stagnant/low growth. High food and commodity inflation will lead to people cutting on discretionary spending resulting in low growth citing which RBI or other central will not increase interest rates at required pace as well to help govts fund their deficit spending at a lower rate.

Anonymous said...

let's say RBI raises the rates to 15%, what happens? White money get tightned. But we also have black money portion, that will raise to the bar and fill the gap. In place like India there is no scarcity for black money, the demand for black money will increase. Overall the transaction amount (black + white) will remain same, just the balancing will change.

Also smart or rather corrupt people take large money and convert that into white money using RE as the means. Idiots will pour in black money for survival.

My guess is India will run only by black money in next 10 years. But money is money ... yea right.

Ramesh said...

There are 15-16 Anonymous comments out of 21. This lends very poor credibility to those comments. Can the owner of the blog stop Anonymous comments please?

Anonymous said...

"This is what Govts are hoping for which is more likely to end up in stagflation where there is high inflation and stagnant/low growth. High food and commodity inflation will lead to people cutting on discretionary spending resulting in low growth citing which RBI or other central will not increase interest rates at required pace as well to help govts fund their deficit spending at a lower rate."

Probably true.

In terms of RE, price all over world has escalated while prices of everything else remained the same.

Govt all over world are is hoping that now RE price remains the same while prices of everything else escalates so that situation is normalised.

But as the post above says, it will probably not happen like a text book - stagflation risk is heavy.

There is also likelihood of horrible and unpredictable currency movements which will throw things out of kilter.


Re Ramesh:

There is lot of incidence of abuse and name calling on this site.

Better to have people abuse "Anonymous" than "Ramesh" - it hurts otherwise.

This blog is not moderated properly

Anonymous said...

Houses to cost more this year: report
Press Trust of India / New Delhi January 26, 2011, 17:20 IST

People in India will have to shell out more money to buy a house this year due to increasing input costs and huge demand and supply gap, a report said today.

"About 70 per cent of the home seekers are pretty convinced that they will have to shell more money to buy a house in 2011, as compared to last few years," Track2Realty, a real estate market tracker, said in its report.

The survey was conducted in 10 major Indian cities including Delhi, Chandigarh, Mumbai, Pune, Kolkata, Chenai and Allahabad.

Majority of the brokers and property agents said that the property prices would remain bullish in 2011 mainly on account of "huge demand and supply gap and ever increasing input cost".

The report also said that those planning to sell houses this year would get higher returns.

About 72 per cent believe that if they missed the chance to buy a house now, "they may not be able to but it ever", it added.

Real estate developers and consultants yesterday said that the RBI's decision to hike policy rates by 25 basis points will affect the sentiment of the property market.

The RBI has raised short-term lending and borrowing rates by 25 basis points each.
http://www.business-standard.com/india/news/houses-to-cost-more-this-year-report/123540/on

shailesh said...

Nice article about Hyderabad.

Is anyone on this board from H'bad. I am interested in opening an ITES office in H'bad, any suggestions in areas that are good for small to midsize company. Access to good IT talent is must.

Highway to the future

Anonymous said...

Raids on Priyanka Chopra, Katrina Kaif and others:

People like these are soft targets. Govt. attacks these kind of icons because they can get a lot of publicity with little chances of anything negative.

If they want a list of people who own enormous disproportionate assets to their known sources of income the list should be - politicians, builders, police officers, Goondas, judges and so on...For example pls. conduct a raid on Sonia Gandhi, Sharad Pawar and so on.

Also pls. conduct raids on IT officers to see how corrupt they are or how much wealth they possess which cannot be accounted for with their known sources of income.

Vik said...

shailesh :

If you are interested in HSR layout in Bangalore I can introduce you to someone who just did and at a very good rate. Location is very good and close to ORR, Koramangala. I know Hyd has its positive. Post your email in the comments and I will email you

Vik

Anonymous said...

Guys thinking of buying property in Hyderabad, please think about Telangana issue. Even people in hyd are scared of buying there. Not much development in infra and industry has happened for 18+ months now.
The telangana issue is hurting us a lot. I am not able to sell my property for 1 year now.

Anonymous said...

What? Is the moderator of this blog Vik a broker?
Guys, please beware of this blog. A lot of insider trading is happening ;-)

Rushabh said...
This comment has been removed by the author.
Anonymous said...

What makes Hyd or Bangalore or Chennai are better destination than Bombay for opening a business. Bombay has infra, large population of educated people, money / investors, and booming real estate, great transportaion (autorick, cab, buses, trains), overall I would say a booming and humming economy.

??

Anonymous said...

H-Bs Quota is over:

Washington: Applications for US H-1B visas, the most sought after by Indian professionals for working in America, have reached the Congressional-mandated cap of 65,000 for the current fiscal with USCIS receiving an unusually high number of petitions in the first four weeks of this month.

In a statement, US Customs and Immigration Services (USCIS) announced that it has received a sufficient number of H-1B petitions to reach the statutory cap for fiscal year 2011.

Given that some 11,000 H-1B visas were still available at the end of 2010, USCIS received an unusually high number of applications in the first four weeks of this month.

The H-1B is a non-immigrant visa in the US which allows American companies to temporarily employ foreign workers in specialty occupations.

Anonymous said...

India should start taking concrete steps to curb inflation or it could be another Egypt. RBI should have raised rated at least 50 basis points. They will feel their mistake soon as inflation numbers will be high for the next 6 months or so.

Anonymous said...

Many years ago the Interest rates on Fixed Deposits in Co-op Banks were 15 % and other banks was about 9-12 % aprox from 1 yr to 3 yr deposits. The RBI reduced rates to reduce inflation. This went on for many years. Now to reduce inflation The RBI is increasing rates. What is right ???

Rushabh said...

Anonymous @ 7:04, Hyderabad has grown from a sleepy city to a bustling Metro with population reaching 1 crore. All this has happned within a span of 8 years.
IT industry has provoked growth in Infrastrucuture, retail, hospitality and entertainment industries.


However the growth has bought issues too, real estate prices are too high. Though there is abundant land owning an independent house has become a luxury. Builders charge exorbitant rates, many Apartment ventures in city are 2 to 3 years behind schedule.

Anonymous said...

Whether Indiaa Houses are in a bubble or not will be clear only in retrospect - a few years. But it is undeniable that the risk of buying something at today's prices is very very high. Invest only money that you are ready to lose. Do not borrow money to buy real estate at these high prices.

Anonymous said...

There is nothing called as a bubble..I know of a south bombay flat apartment bought at 2L in 1977..Now its worth 50+ CR..Prices will stagnate. But will never ever come down.Look at statistics. Only time after liberalisation real estate (resi) came down only when there were capital market scams..